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FORM 10-KSB
U.S. SECURITES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR15(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
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
2000 Cabot Boulevard, Suite 110, Langhorne, PA 19047-1833
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(address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 215-750-6606
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange which registered
-------------------------- --------------------------------------
Common stock, no par value NASDAQ
Indicate by check mark 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 REGISTRANTS 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 REGISTRANTS
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 September 15, 1996. Transitional Small Business
Disclosure Format (check one): Yes ( ) No ( X )
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement for its 1996 Annual Meeting
are incorporated by reference into Part III as set forth herein. Portions of
Registrant's Annual Report to Stockholders for the fiscal year ended June 30,
1996 are incorporated by reference into Part II as set forth herein. With the
exception of those portions which are expressly incorporated by reference, said
Annual Report and proxy statement are not deemed filed as a part hereof.
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RomTech, Inc.
Form 10-KSB
For the Fiscal Year Ended June 30, 1996
INDEX
Page
PART I
Item 1. Business..................................................... 3
Item 2. Properties................................................... 10
Item 3. Legal Proceedings............................................ 10
Item 4. Submission of Matters to a Vote of Security Holders.......... 10
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.......................................... 11
Item 6. Management's Discussion and Analysis of
Results of Operations and Financial Condition................ 12
Item 7. Financial Statements ........................................ 15
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....................... 30
PART III
Item 9. Directors and Executive Officers of the Registrant........... 31
Item 10. Executive Compensation....................................... 31
Item 11. Security Ownership of Certain Beneficial
Owners and Management........................................ 31
Item 12. Certain Relationships and Related Transactions............... 31
PART IV
Item 13. Exhibits and Reports on Form 8-K............................. 32
Index of Exhibits........................................................ 32
Signatures............................................................... 35
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PART I
Item 1. Business
GENERAL
RomTech, Inc. (the "Company") develops, publishes, markets and resells a
diversified line of personal computer software for consumer, educational and
business applications. In October 1995, the Company completed its initial public
offering coincident with its acquisition of Applied Optical Media Corporation
("AOMC"), a developer of educational and reference software titles. In April
1996, the Company acquired Virtual Reality Laboratories, Inc. ("VRLI"), a
leading software developer of landscape generation, space exploration,
scheduling and business forms manipulation programs. As a result of these
acquisitions, the Company offers software titles and personal productivity
application products in the education, astronomy and business application
markets for use at home and in the office. The Company's product line enables it
to serve customers who are seeking a broad range of high-quality software titles
and personal productivity application software products.
The Company was incorporated in Pennsylvania in July 1992.
MARKETS AND PRODUCTS
The world wide market of personal computer users in the office and the home
represents the market for the Company's products. A March 1996 study published
by Dataquest estimated the total United States installed base for home personal
computers at forty-seven million units during 1996 and projected the installed
base to grow to sixty-nine million units by 1999. The Company's business
strategy is to offer a range of products that will serve customers in the small
office/home office ("SOHO"), or lifestyle segments of the market. When the
Company's products in SOHO and lifestyle segments unit sales growth begins
declining, they then will enter the value line segment of the market where the
products are differentiated on the basis of low price. The Company's experience
has demonstrated that the value line pricing will provide the potential for
these products to achieve high unit sales growth once again.
Personal productivity software for the small office/home office is the key
element of the Company's business strategy and is focused on image based
products. FormWizard(TM) and FormWizard SOHO(TM) are the Company's top selling
products in this market. Easy Scheduler(TM) is the only other product currently
offered for sale by the Company in the SOHO segment of the market. The Company
plans to add other image based products to its product line to create an
integrated software suite that will provide personal computer users with the
document workflow, imaging, management, and archiving capabilities typically
available today only to computer users in large to mid-size enterprises. The
Company will add image based products to its product line either by developing
these products or acquiring them.
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The Company serves the lifestyle segment of the market with learning and
reference software titles for family education and entertainment. The Company
offers fifteen mid-priced, high quality lifestyle titles today including Not
Just Another Clip Art(TM) Vols. 1-6; Vistapro(TM), Distant Suns(TM), First
Light(TM), Venus Explorer(TM), Mars Explorer(TM), Visions of Mars(TM), Mars
Rover(TM), Zookeeper Pack(TM) and The Great World Passport(TM).
The value line category of products is targeted at the mass markets and is
differentiated on the basis of low price typically at approximately $12.99 per
unit. Products in this category have typically reached the apex of their product
life cycle and their unit sales growth have begun to decline primarily because
of competitive forces and price/value considerations. The large size of this
market segment and the high unit sales volume potential it represents provides
an opportunity to create brand awareness. Additionally, the various levels of
demographics within this market provide the opportunity to capture essential
direct marketing information for use in the Company's direct mail sales efforts.
The Company also develops products specifically for this market in cooperation
with its distributor/reseller. Among the twenty titles included in this category
are: Galaxy of Games(TM) I, II and III; Art Appeal Vols. I, II, III; Bible and
Theology(TM); Kids Activities(TM); 8000 Icons(TM); Total Body(TM); World
Traveler(TM); Tour America(TM); Fur, Feathers, and Claws(TM); Dinosaur Park(TM);
Everday Spanish(TM); Everyday French(TM); Everyday German(TM); USA
President(TM); Presentation Pictures(TM) and Formbuster(TM).
SALES AND MARKETING
The Company relies primarily on three basic sales channels: retail stores,
direct mail and licensing. Retailers purchasing the Company's products directly
from the Company or through distributors include Best Buy, CompUSA, Computer
City, Electronics Boutique, Micro Center, Babbages, Software Etc., Wal-Mart,
OfficeMax, Incredible Universe, and Fry's. Distributors of the Company's
products include Slash (a division of GT Interactive), Baker & Taylor, Ingram
Book, Ingram Micro and Navarre. The Company maintains a database of its
registered customers and sends periodic mailings to sell upgrade versions and
new products. Sales of software titles in jewel case packaging are also made by
the Company at computer trade shows and exhibits through the Company's
Multimedia Warehouse Product Group.
The Company's product line is based on branded content focused in the SOHO and
lifestyle markets. By maintaining a product line focus, the Company believes
that its advertising, promotion, merchandising and packaging expenditures will
accrue long-term benefits for all the products in each line.
The Company uses a small internal staff, an outside contracted sales and
marketing organization and an outside contracted sales and marketing
representative to sell to retail accounts. The Company's outside sales
representatives and in-house sales staff work with retail buyers to effectively
oversee that appropriate Company products are inventoried for their retail
outlet, that stocking levels are adequate, that promotions and advertising are
coordinated with product releases and that in-store merchandising plans are
properly implemented.
The Company's marketing department is responsible for creating and marketing
programs to generate product sell-in (sales to retailers) and sell-through
(sales to end user customers). These programs generally are based on established
consumer product marketing techniques that the Company believes are becoming
more important as software becomes more of a consumer product. The Company uses
consumer product graphic designers and copywriters to attempt to create
effective package designs, catalogs, brochures, advertisements and related
materials. The Company's marketing and sales personnel and outside contractors
work together to coordinate retail and publicity programs to be in place when
products are initially shipped to retailers and consumers. Public relation
campaigns, in-store advertising, catalog mailings and advertisements are
designed in advance of product availability.
The Company is exposed to returns by distributors, retailers and consumers.
Reserves for these returns are established by the Company at levels which the
Company believes are adequate based on product sell-through, inventory levels
and historic return rates. The Company typically accepts returns from customers,
even when not legally required to do so, in order to maintain good continuing
relationships with these customers so that its latest product releases will be
accepted by these customers. The Company sells to major accounts on credit, with
varying discounts, return privileges and credit terms.
COMPETITION
The market for personal productivity software and interactive CD-ROM titles is
intensely competitive. The Company believes that the principal competitive
factors in the SOHO and lifestyle categories generally include content quality,
brand name recognition, ease of use, merchandising, product features, quality,
reliability, on-line technology, distribution channels and price. Based on its
current and anticipated future product offerings, the Company believes that it
competes or will compete effectively in these areas, particularly in the way of
brand name recognition, quality, ease of use, and product features.
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The Company competes primarily with other software publishers, although certain
book publishers, magazine publishers, entertainment companies, media companies
and training companies may expand their product lines to compete with the
Company's products. The Company's competitors vary in size from very small
companies with limited resources to very large corporations with greater
financial, marketing, distribution, technical and other resources. Although
there are a variety of consumer and business software publishers, based on
product lines and price points. SoftKey International, IMSI, Expert Software,
Nova Development Corporation, Caere Corporation and Graphix Zone, Inc. are the
Company's primary competitors. In addition, it is possible that certain large
software companies, hardware companies and media companies may increasingly
target the SOHO and lifestyle niches, resulting in additional competition.
The Company believes that as competition increases, significant price
competition resulting in reduced profit margins may result. In addition,
commercial acceptance of new technologies such as the Internet for which the
Company has not yet developed software products may reduce demand for the
Company's existing products. Extensive price competition, reduced demand or
distribution channel changes may have a material adverse effect on the Company's
business, financial condition and operating results. There can be no assurance
that the Company will be able to compete successfully against current or future
competitors or that competitive pressures faced by the Company will not
materially and adversely affect its business, operating results and financial
condition.
PRODUCT DEVELOPMENT
The Company currently is seeking to expand its product line with additional
brand name content in the SOHO and lifestyle market niches in which the Company
believes that a significant market share can be attained. The Company will
either develop these products or acquire the rights to the products if possible.
The Company has developed a product development model that transforms new
product ideas and available content into products as quickly and affordably as
practical, thereby seeking to minimize investment risks for each product.
Once a product is approved for development, a project leader, who is an employee
of the Company, is assigned who develops a detailed set of specifications,
development schedule and a budget. These materials are reviewed in detail by the
Company's executive management, and are modified on an as needed basis to
reflect market demand, product release schedules and budgetary considerations.
The project leader produces the new product with a team that may include
electronic editors, programmers, graphic artists, animators, video editors,
sound editors, writers, designers and quality assurance testers. Generally,
product design, software programming and editing functions are performed by
Company employees or independent contractors, while graphics, video and audio
editing activities are performed by outside independent contractors but may be
performed by Company employees. The Company has an active program of designing
quality into its products in addition to performing quality assurance reviews of
its products when the product is finished such as testing for bugs,
functionality, ease-of-use and compatibility with a variety of popular PC
configurations that are available to consumers. The Company anticipates that as
it increases its development of lifestyle products, its product development
costs with respect to these products may be higher than its historical product
development costs relating to SOHO products.
The Company's marketing and sales executives incorporate the new products into
their marketing and sales plans in order to produce marketing materials and
achieve preliminary sales concurrent with product releases. The Company's
development, marketing and sales staff evaluate the Company's products and
compare them to customer needs and potentially competitive products. These
comparisons form part of the basis for product upgrades, product revisions and
new product ideas.
BACKLOG
The Company typically ships its products within a short period of time after
acceptance of orders, which is common in the computer software industry.
Consequently, the Company does not consider backlog to be a significant or
important indicator of future revenues or earnings.
CUSTOMER AND TECHNICAL SUPPORT
Customer and technical support standards are very high in the computer software
market. The Company provides telephone and Internet technical support to its
customers at no additional charge. In order to remain competitive, the Company
currently provides customer support by a dedicated technical support staff. The
Company believes that high quality, user-friendly support will aid in the
development of the Company's growth by providing valuable feedback to its
software development team.
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OPERATIONS
The Company coordinates accounting, purchasing, inventory control, scheduling,
order processing, warehousing and shipping activities related to its operations
between its headquarters location in Langhorne, PA and its development and
operations center in San Luis Obispo, CA. Production and large initial shipments
to major vendors are performed by independent contractors working under the
Company's direction. The Company's management information system handles order
entry, order processing, picking, billing, accounts receivable, accounts
payable, general ledger, inventory control, and mailing list management. Subject
to credit terms and product availability, orders are typically shipped from the
Company's facilities within 24 hours of receiving an order. Third party
contractors replicate the software and assemble manuals, catalog inserts and
boxes in which the Company's products are shipped. The Company has multiple
sources for all components of its products, and has not experienced any material
delays in production or assembly.
EMPLOYEES
As of June 30, 1996, the Company had 28 full-time employees of which 6 were
employed in software development; 10 in sales, marketing and customer support;
and 12 in operations, finance and administration. In addition, the Company
utilizes approximately 5 independent contractors in connection with its product
development activities. No employees are represented by labor unions, and the
Company has never experienced a work stoppage.
INTELLECTUAL PROPERTY RIGHTS
The Company regards the software it owns as proprietary and relies upon a
combination of copyrights, trade secret laws, employee and third-party
non-disclosure agreements and other methods to protect its products. The Company
believes that these methods of protecting proprietary information are less
significant to the Company's success than factors such as the knowledge, ability
and experience of the Company's personnel, and the quality of its new product
development and acquisition programs and distribution capabilities.
CERTAIN CONSIDERATIONS
This report and the Company's Annual Report to Stockholders for the year ended
June 30, 1996 contain certain forward-looking statements that involve risks and
uncertainties including, but not limited to, those discussed below and elsewhere
in this report. Those factors should be considered by investors in the Company.
Early Stage Company; Multimedia Software Business; Losses. The Company commenced
operations in July 1992, and AOMC commenced operations in February 1988. The
Company has experienced losses since inception. The accumulated deficit for the
Company through June 30, 1996 is $5,655,004. The Company's operations to date
have been funded primarily through proceeds from the Company's initial public
offering of common stock in October 1995. The Company's operations are subject
to all of the risks inherent in the development of an early stage business,
particularly in a highly competitive industry, including, but not limited to,
development, production and marketing difficulties, competition and
unanticipated costs and expenses. The Company's future success will depend upon
its ability to increase revenues from the development and marketing of its
current and future software products. The development of multimedia software
products, which combine text, sound, high quality graphics, images and video, is
difficult and time consuming, requiring the coordinated participation of various
technical and marketing personnel. Other factors affecting the Company's future
success include, but are not limited to, the ability of the Company to overcome
problems and delays in product development, market acceptance of products and
successful implementation of sales and marketing programs. There can be no
assurance that the Company will successfully develop a sustainable multimedia or
personal productivity software business and achieve profitability.
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Management of Growth. The Company's ability to manage growth effectively will
depend on its ability to improve and expand its operations, including its
financial and management information systems, and to recruit, train and manage
additional sales, software development and administrative personnel. There can
be no assurance that management will be able to manage growth effectively, or
that it will be able to recruit and retain such personnel, and the failure to do
either will have a material adverse effect on the Company.
Need for Additional Funds. The Company's future capital requirements will depend
on many factors, including cash flow from operations, continued progress in its
software development program, competing technological and market developments
and the Company's ability to market its products successfully. If the Company is
not able to increase cash flow from operations to a level sufficient to support
continued growth of its business, the Company may require additional funds to
sustain and expand its product development activities. Adequate funds for these
purposes may not be available or may be available only on terms that would
result in significant dilution or otherwise be unfavorable to existing
stockholders. If the Company is unable to secure additional funding, or if the
Company is unable to obtain adequate funds from operations or external sources
when required, the Company's inability to do so would have a material adverse
effect on the long-term viability of the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" in Part II, Item 6 of this document.
Rapid Technological Change; Product Development. The market for the Company's
products is characterized by rapid technological developments, evolving industry
standards, swift changes in customer requirements and frequent new product
introductions and enhancements. The Company's continued success will be
dependent upon its ability to continue to enhance its existing products, develop
and introduce in a timely manner new products incorporating technological
advances and respond to customer requirements. To the extent one or more of the
Company's competitors introduce products that more fully address customer
requirements, the Company's business could be adversely affected. There can be
no assurance that the Company will be successful in developing and marketing
enhancements to its existing products or new products on a timely basis or that
any new or enhanced products will adequately address the changing needs of the
marketplace. If the Company is unable to develop and introduce new products or
enhancements to existing products in a timely manner in response to changing
market conditions or customer requirements, the Company's business and operating
results could be adversely affected. From time to time, the Company or its
competitors may announce new products, capabilities or technologies that have
the potential to replace or shorten the life cycles of the Company's existing
products. There can be no assurance that announcements of currently planned or
other new products will not cause customers to delay their purchasing decisions
in anticipation of such products, which could have a material adverse effect on
the Company's business and operating results.
Uncertainty of Future Operating Results; Fluctuations in Quarterly Operating
Results. Historical results of the Company's revenue and operating results
should not necessarily be considered indicative of future growth, or of future
operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" in Part
II, Item 6 of this document for a discussion of the Company's historical
operating results. Future operating results will depend upon many factors,
including the demand for the Company's products, the level of product and price
competition, the length of the Company's sales cycle, seasonality of individual
customer buying patterns, the size and timing of new product introductions and
product enhancements by the Company and its competitors, the mix of sales by
products, services and distribution channels, levels of international sales,
acquisitions by competitors, changes in foreign currency exchange rates, the
ability of the Company to develop and market new products and control costs, and
general domestic and international economic and political conditions. As a
result of these factors, revenues and operating results for any quarter are
subject to variation and the Company believes that period-to-period comparisons
of its results of operations are not necessarily meaningful until a
representative historical time period is established and should not be relied
upon as indications of future performance.
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Competition. The markets for personal computer software for consumer,
educational and business applications are highly competitive particularly at the
retail shelf level where a rapidly increasing number of software titles are
competing for the same amount of shelf space. There are certain competitors of
the Company with substantially greater sales, marketing, development and
financial resources. The Company believes that the competitive factors affecting
the market for its products and services include the traditional attributes used
in determining a products value such as: vendor and product reputation; product
quality, performance and price; the availability of products on multiple
platforms; product scalability; product integration with other enterprise
applications; product functionality and features; product ease-of-use; and the
quality of customer support services and training. The relative importance of
each of these factors depends upon the specific customer involved and while the
Company believes it competes favorably in each of these areas, there can be no
assurance that it will continue to do so. Moreover, the Company's present or
future competitors may be able to develop products comparable or superior to
those offered by the Company, offer lower price products or adapt more quickly
than the Company to new technologies or evolving customer requirements.
Competition is expected to intensify. In order to be successful in the future,
the Company must respond to technological change, customer requirements and
competitors current products and innovations. There can be no assurance that it
will be able to continue to compete effectively in its market or that future
competition will not have a material adverse effect on its business operating
results and financial condition.
Software Technology and Other Proprietary Rights. The Company's success depends
in part on its ability to protect its proprietary rights to the technologies and
concepts used in its principal products. The Company relies on a combination of
copyrights, trademarks, trade secrets, confidentiality procedures and
contractual provisions to protect its proprietary rights. There can be no
assurance that the Company's existing or future copyrights, trademarks, trade
secrets or other intellectual property rights will be of sufficient scope or
strength to provide meaningful protection or commercial advantage to the
Company. The Company has no software patents. Also, in selling certain of its
products, the Company relies on "shrink wrap" licenses that are not signed by
licensees and, therefore, may be unenforceable under the laws of certain
jurisdictions. In addition, the laws of some foreign countries do not protect
the Company's proprietary rights to the same extent as do the laws of the United
States. There can be no assurance that such factors would not have a material
adverse effect on the Company's business or operating results. The Company may
from time to time be notified that it is infringing certain patent or
intellectual property rights of others. Combinations of technology acquired
through past or future acquisitions and the Company's technology will create new
products and technology which may give rise to claims of infringement. While no
actions are currently pending against the Company for infringement of patent or
other proprietary rights of third parties, there can be no assurance that third
parties will not initiate infringement actions against the Company in the
future. Any such action could result in substantial cost to and diversion of
resources of the Company. If the Company were found to infringe upon the rights
of others, no assurance can be given that licenses would be obtainable on
acceptable terms or at all, that significant damages for past infringement would
not be assessed or that further litigation relative to any such licenses or
usage would not occur. The failure to obtain necessary licenses or other rights,
or the advent of litigation arising out of any such claims, could have a
material adverse effect on the Company's operating results.
Dependence on Key Management and Technical Personnel. The Company's success
depends to a significant degree upon the continued contributions of its key
management, marketing, technical and operational personnel, including members of
senior management and technical personnel of acquired companies. The Company has
agreements providing for the continued employment of its key employees for a
period of one or two years. Notwithstanding the agreements, the employees may
voluntarily terminate their employment with the Company at any time. The loss of
the services of one or more key employees, including key employees of acquired
companies, could have a material adverse effect on the Company's operating
results. The Company also believes its future success will depend in large part
upon its ability to attract and retain additional highly skilled management,
technical, marketing, product development and operational personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will be successful in attracting and retaining such personnel.
International Sales. In fiscal 1996, the Company derived approximately 14% of
its total revenues from international sales. International business is subject
to certain risks including varying technical standards, tariffs and trade
barriers, political and economic instability, reduced protection for
intellectual property rights in certain countries, difficulties in supporting
foreign customers, difficulties in managing foreign distributors, potentially
adverse tax consequences, the burden of complying with a wide variety of complex
operations, customs, foreign laws, regulations and treaties and the possibility
of difficulties in collecting accounts receivable.
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Acquisition-Related Risks. The acquisitions completed by the Company will
present it with numerous challenges, including difficulties in the assimilation
of the operations, technologies and products of the acquired companies and
managing separate geographic operations. Since its initial public offering the
Company has acquired AOMC and VRLI and other acquisitions may be contemplated
from time-to-time. The process of integrating the business operations of the
acquired companies into the Company's operations may result in unforeseen
operating difficulties and expenditures and may absorb significant management
attention that would otherwise be available for the ongoing development of the
Company's business. If the Company's management does not respond to these
challenges effectively, the Company's results of operations could be adversely
affected. Moreover, there can be no assurance that the anticipated benefits of
the acquisitions will be realized. The Company and the acquired companies could
experience difficulties or delays in integrating their respective technologies
or developing and introducing new products. Delays in, or the non-completion of,
the development of these new products, or lack of market acceptance of such
products, could have an adverse impact on the Company's future results of
operations and result in a failure to the realize anticipated benefits of the
acquisitions.
Product Liability. The Company's license agreements with customers typically
contain provisions designed to limit their exposure to potential product
liability claims. However, it is possible that such limitation of liability
provisions may not be effective under the laws of certain jurisdictions.
Although the Company has not experienced any product liability claims to date,
the sale and support of products may entail the risk of such claims, and there
can be no assurance that the Company will not be subject to such claims in the
future. A successful product liability claim brought against the Company could
have a material adverse effect upon the Company's business, operating results
and financial condition.
Stock Price Volatility. The Company believes that a variety of factors could
cause the price of its Common Stock to fluctuate, perhaps substantially,
including quarter to quarter variations in operating results; announcements of
developments related to its business; fluctuations in its order levels; general
conditions in the technology sector or the worldwide economy; announcements of
technological innovations , new products or product enhancements by the Company
or its competitors; key management changes; changes in joint marketing and
development programs; developments relating to patents or other intellectual
property rights or disputes; and developments in the Company's relationships
with its customers, distributors and suppliers. In addition, in recent years the
stock market in general, and the market for shares of software and high
technology stocks in particular, has experienced extreme price fluctuations
which have often been unrelated to the operating performance of affected
companies. Such fluctuations could adversely affect the market price of the
Company's Common Stock.
<PAGE>
Possible Delisting of Securities; Risk of Low Priced Stocks. The Common Stock is
listed for trading on the Nasdaq SmallCap Market under the symbol ROMT. A listed
company may be delisted if it fails to maintain minimum levels of stockholders'
equity, shares publicly held, number of stockholders or aggregate market value,
or if it violates other aspects of its listing agreement. At June 30, 1996 the
Company does not satisfy the minimum level of stockholders' equity required to
be listed ($1,000,000). The Company is seeking additional capital to, among
other things, increase its stockholders' equity to at least the 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 it will be on
terms satisfactory to the Company (see Item 6. Management's Discussion and
Analysis of Results of Operations and Financial Condition, Liquidity and Capital
Resources contained in this report incorporated herein by reference for
additional information concerning the Company's financial position). If the
Company fails to satisfy the criteria for continued listing, its Common Stock
may be delisted. Public trading, if any, would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets," or on the NASD's
"Electronic Bulletin Board." If the Common Stock were delisted, it may be more
difficult to dispose of, or even to obtain quotations as to the price of, the
Common Stock and the price, if any, offered for the Common Stock may be
substantially reduced. In addition, if the Common Stock is delisted from trading
on the Nasdaq SmallCap Market, and the trading price of the Common Stock is less
than $5.00 per share, or the Company has less than $2 million in net tangible
assets, trading in the Common Stock would be subject to the requirements of Rule
15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Under this rule, broker/dealers who recommend such securities
to persons other than established customers and accredited investors (generally
institutions with assets in excess of $5 million or individuals with a net worth
in excess of $1 million or an annual income exceeding $200,000 or $300,000
jointly with their spouses) must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. The requirements of Rule 15g-9, if applicable, may
affect the ability of broker/dealers to sell the Company's securities and may
also affect the ability of purchasers in this offering to sell their shares in
the secondary market. The Securities Enforcement Remedies and Penny Stock Reform
Act of 1990 (the "Penny Stock Rule") also requires additional disclosure in
connection with any trades involving a stock defined as penny stock (any
non-Nasdaq equity security that has a market price or exercise price of less
than $5.00 per share and less than $2 million in net tangible assets, subject to
certain exceptions). Unless exempt, the rules require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule prepared by the
SEC explaining important concepts involving the penny stock market, the nature
of such market, terms used in such market, the broker/dealer's duties to the
customer, a toll-free telephone number for inquiries about the broker/dealer's
disciplinary history and the customer's rights and remedies in case of fraud or
abuse in the sale. Disclosure must also be made about commissions payable to
both the broker/dealer and the registered representative, and current quotations
for the securities. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
<PAGE>
Item 2. Properties
The Company currently leases 5,000 square feet of office and warehouse space in
Langhorne, PA, and 8,000 square feet of office, development and warehouse space
in San Luis Obispo, CA. The Company believes that its current facilities will be
adequate for the Company's anticipated needs through fiscal 1997 (see Note 7 to
Notes to Consolidated Financial Statements in Item 7 contained in this report
incorporated herein by reference for additional information concerning
properties leased by the Company). The Company anticipates that it may require
additional space as its business grows but anticipates no difficulty in
obtaining such space in the vicinity of its current facilities on terms
substantially similar to those of the Company's current leases.
Item 3. Legal Proceedings
On May 12, 1996 the Company terminated the employment of John J. Brown, the
former president of AOMC. Mr. Brown has filed a complaint in the Chester County
Court of Common Pleas in West Chester, PA alleging breach of his employment
contract with the Company. The Company is currently in settlement discussions
with Mr. Brown although there is no assurance that the Company will be able to
settle this matter on terms acceptable to the Company. If the Company is unable
to settle this matter the Company intends to vigorously defend this matter. The
Company believes that resolution of this matter will not have a material adverse
effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
The Company's Common Stock is traded on the Nasdaq SmallCap Market System
("Nasdaq") under the symbol ROMT. The following are the high and low closing
prices from October 18, 1995 (the date of the Company's initial public offering)
through June 30, 1996, as reported by Nasdaq:
High Low
---- ---
Fiscal 1996
-----------
October 18, 1995 (commenced trading) $4.25 $3.75
Second quarter $5.25 $3.50
Third quarter $9.625 $3.00
Fourth quarter $5.375 $3.50
The closing price of the Company's Common Stock on June 28, 1996 was $4.00. The
approximate number of stockholders of record on September 25, 1996 was 580; the
closing price of the Company's Common Stock on this date was $5.75.
The Company has not paid any dividends on its Common Stock. The Company
currently intends to retain earnings for use in its business and does not
anticipate paying cash dividends in the foreseeable future.
<PAGE>
Item 6. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Basis of Presentation
The accompanying consolidated financial statements as of June 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 to the consolidated financial statements, 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 1995
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, 1994 to June 30, 1995 - AOMC and VRLI
o July 1, 1995 to October 17, 1995 - AOMC and VRLI
o October 18, 1995 to June 30, 1996 - RomTech, AOMC and VRLI
Results of Operations
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto for the Company contained elsewhere
herein.
Year Ended June 30, 1996 Compared to the Year Ended June 30, 1995
Revenues and Cost of Revenues
Revenues for the year ended June 30, 1996 were $3,121,000 compared to $2,740,000
for the year ended June 30, 1995, representing an increase of $381,000 or 13.9%.
This increase resulted from the inclusion of revenues of RomTech and VRLI of
$1,231,000 which were partially offset by a decrease in revenues of $850,000,
primarily in the retail channel. The competition for shelf space in retail
stores has intensified dramatically during fiscal 1996 because of the increase
in the number of software titles available for sale. This shelf space
competition, along with the delay in the delivery of new software titles, has
resulted in a decline of product purchases by retail stores.
The cost of revenues for the year ended June 30, 1996 were $1,136,000 compared
to $790,000 for the year ended June 30, 1995, representing an increase of
$346,000 or 44%. The primary reason for this increase in costs relates to the
cost of revenues of RomTech and VRLI of $504,000. The reduction in gross profit
margin from 71.2% to 63.6%, was caused primarily by RomTech deriving revenues
from the reselling of budget category jewel case products which have a lower
gross profit margin than boxed products sold during the prior year.
Operating Expenses
Product development expenses for the year ended June 30, 1996 were $728,000
compared to $625,000 for the year ended June 30, 1995, an increase of $103,000
or 16.5%. This increase was caused primarily by increased salary and related
costs incurred to develop new products and upgrades for existing products.
Selling, general and administrative expenses for the year ended June 30, 1996
were $3,208,000 compared to $1,610,000 for the year ended June 30, 1995, an
increase of $1,598,000 or 99.3%. These costs increased between the current and
prior year due to the effects of operating three separate facilities for the
current year and two facilities the prior year and increases in the selling,
general and administrative expenses of AOMC. Effective June 30, 1996, the AOMC
facility was closed in order to consolidate development activities and reduce
future operating expenses. Also, prior to the closing, the current year includes
costs associated with increased personnel, increased advertising and marketing
efforts, commissions on the reselling of budget jewel case products, and
corporate costs related to the transition from a privately-held company to a
public company.
<PAGE>
Non-recurring charges of $971,000 for the year ended June 30, 1996 were
comprised of $213,000 in costs relating to the closing of the AOMC facility and
$758,000 in merger related expenses associated with the acquisition of VRLI.
Net interest expense for the year ended June 30, 1996 was $74,000 compared to
$302,000 for the year ended June 30, 1995, a decrease of $228,000 or 75.5%. The
primary reason for this decrease was the reduction of long term debt related to
the merger with AOMC and the investment of the proceeds from the initial public
offering.
The weighted average common shares outstanding increased 2,040,946 for the year
ended June 30, 1996 as a result of the initial public offering and the mergers
with AOMC and VRLI.
Liquidity and Capital Resources
The financial information presented reflects the Company's financial position as
of June 30, 1996.
On October 18, 1995, the Company significantly improved its financial condition
as a result of the merger with AOMC and the consummation of an initial public
offering. The merger with AOMC resulted in the exchange of $1,936,452 of AOMC
debt for 1,000,000 shares of convertible preferred stock, a $300,000 principal
amount 8.75% note payable, a $50,000 cash payment and forgiveness of $587,000 of
debt. The initial public offering resulted in net proceeds of $3,624,000 of
which $300,000 was used to repay bridge financing, $124,000 was used for capital
expenditures, $90,000 was used for software rights purchases, $2,251,000 was
used to fund operations, and the remainder is currently invested in cash
equivalents and short term investments.
On April 5, 1996 the Company acquired VRLI in a transaction that was accounted
for as a "pooling of interest" and accordingly the Company's historical
financial statements have been restated to include the operations of VRLI for
all periods presented. The Company is currently restructuring its operations to
recognize the benefits by eliminating duplicated processes that are being
performed at both locations.
As of June 30, 1996 the Company's cash and working capital balances were
$954,663 and $600,570, respectively. To date the Company continues to operate at
a loss. At June 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. 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 25, 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. An additional
100,000 shares of the Company's common stock ,(up to a maximum of 1,000,000
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 Company has provided FileABC with interim financing of
$50,000 pending completion of the acquisition. The acquisition is subject to
certain conditions and is expected to be consummated during the second quarter
of fiscal 1996. If completed, the acquisition of FileABC will be accounted for
using the purchase method of accounting.
The Company continues to consider investments or acquisitions of compatible
businesses. However, there can be no assurance that the Company will make
investments in or enter into business combinations with other entities. In the
event that the Company engages in such transactions, it may require additional
financial resources.
<PAGE>
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121") was issued in March 1995. SFAS 121 requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicated
that the carrying amount of an asset may not be recoverable. The Company
anticipates the adoption of SFAS 121 will not have a material impact on its
results of operations or financial position.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") was issued in October 1995. SFAS 123 gives companies
the option to adopt the fair value method for expense recognition of employee
stock options and stock based awards or to continue to account for such items
using the intrinsic value method as outlined under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 23") with pro
forma disclosures of net income and net income per share as if the fair value
method had been applied. The Company intends to continue to apply APB 25 for
future stock options and stock based awards, and accordingly, does not
anticipate that the adoption of SFAS 123 will have a material impact on its
results of operations or financial position.
The Company will adopt both SFAS 121 and 123 effective July 1, 1996.
<PAGE>
Item 7. Financial Statements
RomTech, Inc.
Index to Consolidated Financial Statements
Page
----
Independent Auditors' Report.................................. 16
Consolidated Balance Sheet June 30, 1996...................... 17
Consolidated Statements of Operations for the years
ended June 30,1996 and 1995................................... 18
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 1996 and 1995........................ 19
Consolidated Statements of Cash Flows for the years
ended June 30, 1996 and 1995.................................. 20
Notes to Consolidated Financial
Statements.................................................... 22
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
RomTech, Inc.:
We have audited the accompanying consolidated balance sheet of RomTech, Inc. and
subsidiary as of June 30, 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
two-year period ended June 30, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RomTech, Inc. and
subsidiary as of June 30, 1996 and the results of its operations and cash flows
for each of the years in the two-year period ended June 30, 1996, in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
- ---------------------------
Philadelphia, Pennsylvania
August 9, 1996, except as to note 18,
which is at September 27, 1996
<PAGE>
RomTech, Inc.
Consolidated Balance Sheet
June 30, 1996
1996
----
ASSETS
Current assets:
Cash and cash equivalents $ 954,663
Short term investments
398,952
Accounts receivable, net of allowance for
doubtful accounts of $60,409 425,298
Inventory 205,221
Prepaid expenses 41,410
-----------
Total current assets 2,025,544
Furniture and equipment, net 117,343
Intangibles and other assets 88,214
-----------
Total assets $ 2,231,101
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 331,800
Accounts payable 376,167
Accrued expenses 717,007
-----------
Total current liabilities 1,424,974
Capital lease obligations net of current portion 15,876
Notes payable-long term portion 330,000
Convertible subordinated debt 150,000
-----------
Total liabilities 1,920,850
Commitments and contingencies, Notes 7 and 13
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 (5,655,004)
-----------
Total stockholders' equity 310,251
-----------
Total liabilities and stockholders' equity $ 2,231,101
===========
See accompanying notes to consolidated financial statements.
<PAGE>
RomTech, Inc.
Consolidated Statements of Operations
Years ended June 30, 1996 and 1995
1996 1995
----------- -----------
Net sales $ 3,120,651 $ 2,740,140
Cost of sales 1,135,792 789,580
----------- -----------
Gross profit 1,984,859 1,950,560
Operating expenses:
Product development 728,391 624,594
Selling, general and administrative 3,208,386 1,610,025
Non-recurring facility closure expenses 212,782 - 0 -
Non-recurring merger expenses 757,804 - 0 -
----------- -----------
Total operating expenses 4,907,363 2,234,619
----------- -----------
Operating loss (2,922,504) (284,059)
Interest expense, net 73,706 301,703
Provision for income taxes 2,270 800
----------- -----------
Net loss ($2,998,480) ($ 586,562)
=========== ===========
Net loss per common share ($ 0.57) ($ 0.18)
=========== ===========
Weighted average common shares outstanding 5,254,552 3,213,606
See accompanying notes to consolidated financial statements.
<PAGE>
RomTech, Inc.
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------------- ---------------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
--------- ---------- --------- ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of June 30, 1994 2,077 $131,000 $62,329 ($2,069,962) ($1,876,633)
Adjustment to reflect pooling
of interest accounting on
acquisition of VRLI 1,284,440 250,000 98,198 348,198
Balance as of June 30, 1994
as restated 1,286,517 381,000 160,527 (2,069,962) (1,528,435)
Value assigned to warrants
issued in connection with
debt financing 604 604
Net loss (586,562) (586,562)
Balance as of June 30, 1995
as restated 1,286,517 381,000 161,131 (2,656,524) (2,114,393)
--------- ---------- --------- ---------- -------- ----------- ----------
Net loss (2,998,480) (2,998,480)
Adjustment to reflect
RomTech's outstanding
shares as a recapitalization
of AOMC and the shares
issued in connection with
the merger with AOMC
accounted for as a reverse
acquisition (Note 2) 3,175,664 (92,219) (92,219)
Shares issued in connection
with the initial public
offering 1,550,000 3,623,796 3,623,796
Shares issued in exchange for
debt and related
forgiveness in connection
with AOMC merger (Note 2) 1,000,000 $1,000,000 586,607 1,586,607
Shares issued in connection
with exercise of warrants 221,862 100,600 100,600
Shares issued in connection
with VRLI merger related
expenses 51,085 204,340 204,340
--------- ---------- --------- ---------- -------- ----------- ----------
Balance as of June 30, 1996 1,000,000 $1,000,000 6,285,128 $4,217,517 $747,738 ($5,655,004) $310,251
========= ========== ========= ========== ======== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RomTech, Inc.
Consolidated Statements of Cash Flows
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,998,480) ($ 586,562)
Adjustments to reconcile net loss to net cash
from operating activities:
Common stock issued as a finder fee in connection
with the VRLI acquisition 204,340 - 0 -
Depreciation and amortization 143,382 48,361
Interest expense incurred but not paid 55,000 181,748
Changes in items affecting operations, net of effect
from acquired business:
Restricted cash 34,627 (34,627)
Accounts receivable (27,469) 119,867
Prepaid expenses 15,002 (25,612)
Inventory (85,214) 46,532
Accounts payable 197,091 (150,544)
Deferred revenue 0 90,000
Accrued expenses 415,424 (51,285)
----------- -----------
Net cash used in operating activities (2,046,297) (362,122)
Cash flows from investing activities:
Purchase of short term investments (1,192,404) - 0 -
Sales and maturities of short term investments 793,452 - 0 -
Purchase of furniture and equipment (123,901) (11,814)
Purchase of software rights (89,930) - 0 -
Loan to related party (4,750) - 0 -
----------- -----------
Net cash used in investing activities (617,533) (11,814)
Cash flows from financing activities:
Net proceeds of initial public offering of common stock 3,623,796 - 0 -
Net repayments of factored accounts receivable (279,411) 279,411
(Repayment of) proceeds from notes payable (44,872) 89,748
Proceeds from convertible subordinated debt 300,000 - 0 -
Proceeds from exercise of warrants 100,600 - 0 -
(Repayment of) proceeds from advances to officers (127,776) 29,083
Repayment of lease obligations (39,554) (19,583)
Other 537 - 0 -
----------- -----------
Net cash provided by financing activities 3,533,320 378,659
Net increase in cash and cash equivalents 869,490 4,723
Cash and cash equivalents:
Beginning of period 85,173 80,450
----------- -----------
End of period $ 954,663 $ 85,173
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RomTech, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
1996 1995
---------- -------
<S> <C> <C>
Supplemental cash flow information:
Cash paid during year for:
Interest $ 129,897 $93,208
========== =======
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, (see Note 2). $1,886,451 - 0 -
========== =======
Deficiency in net assets acquired through reverse
acquisition by issuance of common stock. $ 92,219 - 0 -
========== =======
</TABLE>
See Note 2 for additional noncash financing activities
See accompanying notes to consolidated financial statements.
<PAGE>
RomTech, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements as of June 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 1995 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, 1994 to June 30, 1995 - AOMC and VRLI
o July 1, 1995 to October 17, 1995 - AOMC and VRLI
o October 18, 1995 to June 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.
Fair Value of Financial Instruments
The recorded amounts of cash and short term investments, accounts
receivable, and accounts payable at June 30, 1996 approximate fair value in
accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments" due to the relatively
short period of time between origination of the instruments and their expected
realization. The Company's debt is carried at cost, which approximates fair
value, as the debt bears interest at rates approximating current market rates
for similar instruments.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with an original maturity of three months or
less to be cash equivalents.
Short Term Investments
Short term investments at June 30, 1996 consist of certificates of deposit.
The Company follows the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (Statement 115). Under Statement 115, the Company classifies all of
its short term investments as available-for-sale and records them at fair value.
Unrealized holding gains and losses, if any, net of the related tax effect, are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized.
<PAGE>
Inventory
Inventory is valued at the lower of cost or market. Cost is determined by
the first-in, first-out method (FIFO).
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of the assets ranging
from three to five years.
Leasehold improvements are amortized on the straight-line method over the
shorter of the lease term or estimated useful life of the assets. Maintenance
and repair costs are expensed as incurred.
Intangible Assets
The Company has intangible assets resulting from the purchase of the
software rights to clip art images. Accumulated amortization at June 30, 1996
was $11,145. The Company amortizes these intangible assets over three years.
Revenue Recognition
Product sales:
Revenue from the sale of products is recognized when the product has been
shipped, the Company has the right to invoice the customer, collection of the
receivable is probable and there are no significant obligations remaining.
While the Company has no other obligations to perform future services
subsequent to shipment, the Company provides telephone customer support as an
accommodation to purchasers of its products for a limited time and as a means of
fostering customer loyalty. Costs associated with this effort are insignificant
and, accordingly, are expensed as incurred.
Allowance for product returns:
The Company maintains a return policy that allows distributors and
retailers to return products according to negotiated terms relating to
overstocking or defective products. The Company records an allowance for returns
as a reduction of gross sales at the time of product shipment. The allowance,
which is included in accrued liabilities, is estimated based primarily upon
historic experience, analysis of distributor and retailer inventories of the
Company's products and analysis of market conditions. Gross product revenues
subject to returns were approximately $2,790,000 and $ 2,823,000 for the years
ended June 30, 1996 and 1995, respectively.
Software licenses and royalties:
Software license revenue and royalties are recognized as revenue at the
time the Company has completed all significant performance obligations under the
terms of the license agreement and when any amounts advanced or received are
non-refundable. Revenues from licenses and royalties were approximately $612,000
and $228,000 for the years ended June 30, 1996 and 1995, respectively.
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.
<PAGE>
Advertising
Advertising is charged to expense as incurred. Advertising expense was
approximately $624,000 and $567,000 for the years ended June 30, 1996 and 1995,
respectively.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled.
Computation of Net Loss Per Share
For the year ended June 30, 1995, net loss per common share was 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, and retroactively adjusted for the
acquisition of VRLI (see Note 2).
For the year ended June 30, 1996, net loss per common share is computed
using the weighted average number of common shares outstanding adjusted to
reflect the outstanding shares of the Company at the time of the merger with
AOMC and the shares issued in connection with the reverse acquisition reflected
as a recapitalization of the previously outstanding common stock of AOMC and the
shares issued in connection with the merger of Virtual Reality Laboratories,
Inc. (see Note 2). Common stock equivalents were excluded from the calculation
since they were anti-dilutive.
Management's Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
significant to these financial statements include allowances for product
returns, doubtful accounts receivable, inventory and the valuation allowance for
deferred tax assets.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121") was issued in March 1995. SFAS 121 requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicated
that the carrying amount of an asset may not be recoverable. The Company
anticipates the adoption of SFAS 121 will not have a material impact on its
results of operations or financial position.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") was issued in October 1995. SFAS 123
gives companies the option to adopt the fair value method for expense
recognition of employee stock options and stock based awards or to continue to
account for such items using the intrinsic value method as outlined under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 23") with pro forma disclosures of net income and net income
per share as if the fair value method had been applied. The Company intends to
continue to apply APB 25 for future stock options and stock based awards, and
accordingly, does not anticipate that the adoption of SFAS 123 will have a
material impact on its results of operations or financial position.
<PAGE>
The Company will adopt both SFAS 121 and 123 effective July 1, 1996.
2. Mergers/Completion of Public 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.
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.
Prior to completion of the Merger, the Company'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 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 merger with AOMC
occurred at the beginning of the respective periods presented.
Years ended June 30,
--------------------------
1996 1995
---- ----
Net sales $3,378,360 $3,832,837
----------- ----------
Net loss ($3,310,745) ($663,813)
----------- ----------
Net loss per share ($.57) ($.13)
----------- ----------
Weighted average common shares 5,786,378 5,091,008
----------- ----------
<PAGE>
3. Inventory
Inventory consists of the following:
Raw materials $ 43,330
Finished goods 161,891
--------
$205,221
========
4. Furniture and Equipment
Furniture and equipment consists of the following:
Furniture and equipment $273,500
Vehicles 50,621
Leasehold improvements 3,915
--------
328,036
Accumulated depreciation (210,693)
--------
Net book value $117,343
========
5. Accrued Expenses
Accrued expenses consist of the following:
Accrued royalties $118,120
Accrued payroll 352,447
Accrued professional fees 173,413
Other accrued expenses 73,027
--------
$717,007
========
6. Notes Payable
Notes payable consist of the following:
Note payable to bank, bearing interest at the prime
rate plus 2.75% (11.0%). Matures on March 25, 2003,
principal and interest of $5,993 payable monthly.
The note is guaranteed by an officer of the Company
and the Small Business Administration.
$341,800
12% unsecured convertible note payable to an employee,
principal and interest due on March 6, 1999. Convertible
to 14.034 Shares of Common Stock at $1.43 per share. 20,000
8.75% subordinated note payable due within fiscal 1997. The
debt is subordinated to the note payable ($341,800 at June 30,
1996) guaranteed by the Small Business Administration. 300,000
--------
661,800
Less current portion 331,800
--------
Long term portion $330,000
========
<PAGE>
7. Lease Obligations
The Company leases its operating facilities under operating leases expiring
in August and September 1999. Rent expense was $68,335, and $59,564 for the
years ended June 30, 1996 and 1995, respectively.
The Company has financed the purchase of office equipment through capital
lease agreements. The obligations are collaterallized by the leased equipment,
which had a net book value of $26,952 and $58,001 at June 30, 1996 and 1995,
respectively.
Future payments of leases are as follows:
Operating Capital
Leases Leases Total
--------- ------- -----
Year ending June 30, 1997 $104,832 $14,566 $119,398
Year ending June 30, 1998 128,306 16,760 145,066
Year ending June 30, 1999 163,861 - 0 - 163,861
-------- -------- --------
$396,999 31,326 $428,325
======== -------- ========
Less interest (3,417)
--------
Present value of future lease payments 27,909
Less current portion (12,033)
--------
Long term portion $15,876
========
8. Convertible Subordinated Debt
In connection with the merger of VRLI on April 5, 1996 (see Note 2,) the
Company assumed 10% convertible subordinated debt, maturing in November 2000.
The notes are convertible into 46,685 shares of common stock at a price of
$3.213 per share, (the conversion price established at the time of the merger of
the Company and VRLI, see Note 2), at anytime by the holder. Interest is payable
quarterly. The convertible debt is subordinated to the note payable ($341,800 at
June 30, 1996) guaranteed by the Small Business Administration.
9. Income Taxes
No federal 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 in accordance with SFAS No. 109.
As of June 30, 1996, the Company has approximately $5,000,000 of net
operating loss carryforward ("NOL's") for tax purposes (expiring in years 2003
through 2011), 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.
10. Preferred Stock
The Company issued 1,000,000 shares of convertible preferred stock in
connection with the merger with AOMC (see Note 2). The preferred stock is
convertible into common stock at a price of $3.30 per share and has a redemption
value of $1.00 per share. The preferred stock can be redeemed by the Company
after giving 90 days written notice to the preferred stockholder, provided that,
beginning two years from October 18, 1995, the preferred stockholder has the
right to convert the preferred stock into common stock during such 90 day
period. The preferred stock entitles the holder to a liquidation payment of
$1,000,000 upon the dissolution of the Company before any liquidation
distributions are made with respect to the common stock. The preferred stock
does not provide for the payment of any dividends thereon.
<PAGE>
11. Common Stock
During 1995, the Company completed a 10,000-for-1 common stock split and
increased its authorized common stock to 2,000,000 shares. Subsequently, on June
30, 1995, the Company amended its articles of incorporation to authorize the
issuance of 40,000,000 shares of common stock, without par value and 10,000,000
shares of preferred stock, without par value, and effected a 1.5 for 1 stock
split. All common shares in the accompanying financial statements are presented
on a post-split basis.
12. Stock Options and Warrants
Stock Option Plans:
On August 31, 1994 the Company adopted the 1994 Stock Option Plan (the
"1994 Plan") under which options to purchase an aggregate of 132,000 shares of
the Company's common stock were granted to officers, directors or employees at
an exercise price of $2.00 and with an expiration date of August 31, 1999. None
of the options granted under the 1994 Plan have been exercised. The 1994 Plan
has been terminated and no additional options will be granted thereunder.
During 1995, the Company adopted, amended and restated the 1995 Stock
Option Plan (the 1995 Plan). The Company has reserved 350,000 shares of common
stock for issuance under the 1995 Plan. The 1995 Plan is administered by the
Nominating and Compensation Committee (the Committee) of the Board of Directors
and provides for the grant of incentive stock options and non-qualified stock
options to employees and eligible independent contractors; and non-qualified
stock options to non-employee directors at prices not less than the fair market
value of a share of common stock on the date of grant. The 1995 Plan also
provides for automatic grants of options to non-employee directors of the
Company. Non-employee directors will receive options for 10,000 shares of common
stock and, in addition, each director will receive options for 5,000 shares of
common stock on January 1 of each year that they are a director.
The expiration of an option and the vesting period will be determined by
the Committee at the time of the grant , but in no event will an option be
exercisable after 10 years from the date of grant or in the case of non-employee
directors after 5 years from the date of grant. In most cases, upon termination
of employment, vested options must be exercised by the optionee within 30 days
after the termination of the optionee's employment with the Company.
On April 28, 1995, the Company issued 30,000 non qualified options under
the 1995 Plan. These options have an exercise price of $2.00 per share and
expire on April 28, 2000.
Information regarding the stock option plans is as follows:
Number of Range of Prices
shares per Share
--------- ---------------
Balances, June 30, 1994 -- $ --
Granted 162,000 2.00
Canceled -- --
Exercised -- --
---------- -----------
Balances, June 30, 1995 162,000 $2.00
Granted 276,793 1.46-5.25
Canceled -- --
Exercised -- --
---------- -----------
Balances, June 30, 1996 438,793 $1.46-$5.25
========== ===========
<PAGE>
At June 30, 1996, 216,293 options outstanding under the 1994 and 1995 Plans
were exercisable.
Common Stock Warrants:
In April of 1995, the Company received $100,000 in connection with the sale
of a warrant to acquire 220,662 shares of the Company's common stock at any time
on or before April 27, 2002 at an exercise price of $.45 per share. The warrant
holder was also granted certain registration rights for a seven-year period,
however, those rights did not extend to the Company's initial public offering of
common stock. In April 1995, the Company issued 15,000 warrants to a group of
private investors. These warrants are exercisable at any time on or before May
1, 2000 at an exercise price equal to the greater of $3.00 per share or 120% of
the offering price of the Company's common stock pursuant to the first
registration statement filed by the Company pursuant to the Securities Act of
1933. No value was assigned to these warrants. On October 18, 1995, in
connection with the Company's initial public offering of common stock, the
underwriter was granted 155,000 warrants. These warrants are exercisable at
anytime on or before October 13, 2000 at an exercise price of $3.60 per share.
Registration rights were granted in connection with the underwriter's warrants.
In addition, 425,000 warrants were issued to the former owners of AOMC. These
warrants are exercisable at any time on or before October 16, 2002 at an
exercise price of $.50 per share.
Information regarding the warrants is as follows:
Number of Exercise
Warrants Price
--------- --------
Balances, June 30, 1994 -- $ --
Warrants granted 235,662 0.45-3.00
Warrants canceled -- --
Warrants exercised -- --
----------- ------------
Balances, June 30, 1995 235,662 0.45-3.00
Warrants granted 580,000 0.50-3.60
Warrants canceled -- --
Warrants exercised (221,862) 0.45-0.50
----------- ------------
Balances, June 30, 1996 593,800 $0.45-$3.60
=========== ============
13. Commitments and Contingencies
Under various licensing agreements, the Company is required to pay
royalties on the sales of certain products that incorporate licensed content.
Royalty expense under such agreements, which is recorded in cost of sales, was
approximately $320,000 and $246,000 for the twelve months ended June 30, 1996
and 1995, respectively.
On May 12, 1996 the Company terminated the employment of John J. Brown, the
former president of AOMC. Mr. Brown has filed a complaint in the Chester County
Court of Common Pleas in West Chester, PA alleging breach of his employment
contract with the Company. The Company is currently in settlement discussions
with Mr. Brown although there is no assurance that the Company will be able to
settle this mater on terms acceptable to the Company. If the Company is unable
to settle this matter the Company intends to vigorously defend this matter. The
Company believes that resolution of this matter will not have a material adverse
effect on the Company.
14. Non-recurring Facility Closure Expenses
In June 1996, the Company closed the former AOMC facility. In connection
with the closure $212,782 was charged to operations for the year ended June 30,
1996. The total charged to operations related to severance. At June 30, 1996,
$15,775 of the total charged to operations had been paid and $197,007 of the
amount remained to be paid.
<PAGE>
15. Related Party Transactions
During the year ended June 30, 1996 the Company had certain related party
transactions with a company owned and operated by an individual who also
performs the buyer function for the Company as a part time employee. The Company
recorded $769,000 in revenues and $272,000 in commission expense with this
related party during the year ended June 30, 1996. No revenues or commission
expense was incurred during the year ended June 30, 1995. At June 30, 1996 the
Company had a trade accounts receivable of $40,000 and a note receivable of
$4,750 with this related party. At June 30, 1995 the Company had no trade
accounts receivable or note receivable outstanding with this related party.
16. Major Customers and Export Sales
During the year ended June 30, 1996 the Company had four customers which
accounted for approximately 25%, 9%, 7% and 5% of net revenues. No customer
accounted for more than 5% of net revenues during the year ended June 30, 1995.
The amount of export sales included in net revenues were approximately $429,000
and $122,000 for the years ended June 30, 1996 and 1995, respectively.
17. Liquidity
As of June 30, 1996 the Company's cash and working capital balances
were $954,663 and $600,570, respectively. At June 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. The Company is seeking
additional capital to, among other things, increase its stockholders' equity to
at least the minimum level required. The accumulated deficit at June 30, 1996
was $5,655,004. 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.
18. 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. An
additional 100,000 shares of the Company's common stock ,(up to a maximum of
1,000,000 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 Company will provide FileABC
with interim financing of $175,000 pending completion of the acquisition. The
acquisition is subject to certain conditions and is expected to be consummated
during the second quarter of fiscal 1996. If completed, the acquisition of
FileABC will be accounted for using the purchase method of accounting.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant
There is hereby incorporated herein by reference the information appearing under
the caption "Election of Directors", under the caption "Executive Officers of
the Company", and under the caption "Compliance with Securities Laws" of the
Registrant's definitive Proxy Statement for its 1996 Annual Meeting to be filed
with the Securities and Exchange Commission.
Item 10. Executive Compensation
There is hereby incorporated herein by reference the information appearing under
the caption "Executive Compensation" and under the caption "Election of
Directors" of the Registrant's definitive Proxy Statement for its 1996 Annual
Meeting to be filed with the Securities and Exchange Commission.
Item 11. Security Ownership of Certain Beneficial Owners and Management
There is hereby incorporated herein by reference the information appearing under
the caption "Voting Securities and Principal Holders Thereof" of the
Registrant's definitive Proxy Statement for its 1996 Annual Meeting to be filed
with the Securities and Exchange Commission.
Item 12. Certain Relationships and Related Transactions
See Note 15 to Notes to Consolidated Financial Statements in Item 7 contained in
this report incorporated herein by reference for information concerning certain
relationships and related party transactions.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized..
ROMTECH, INC.
Date: September 27, 1996 /s/ Joseph A. Falsetti
------------------- -----------------------
Joseph A. Falsetti
Chairman, Chief Executive Officer
and Director
Date: September 27, 1996 /s/ Gerald W. Klein
------------------- --------------------
Gerald W. Klein
Vice President, Chief Financial Officer
and Director
Date: September 27, 1996 /s/ Lance H. Woeltjen
------------------- ----------------------
Lance H. Woeltjen
President of Virtual Reality Laboratories,
Inc. and Director
Date: September 27, 1996 /s/ Thomas D. Parente
------------------- ----------------------
Thomas D. Parente
Director
Date: September 27, 1996 /s/ John P. Kirwin, III
------------------- ------------------------
John P. Kirwin, III
Director
Date: September 27, 1996 /s/ John J. Brown
------------------- ------------------
John J. Brown
Director
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page Number
----------- ---------------------- -----------
<S> <C> <C>
*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.
*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 stockholders of Virtual Reality
Laboratories, Inc. and the former holders of convertible
subordinated debt of Virtual Reality Laboratories, Inc.
*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. 30
27.1 Financial Data Schedule 31
* 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 stockholders, the former
Virtual Reality stockholders and Main Line Federal Savings Bank,
as escrow agent.
</TABLE>
- -----------------------
* Incorporated by reference herein from the Registrant's Quarterly Reports
on Form 10-QSB or Form 8-K as filed with the Securities and Exchange
Commission on April 19, 1996.
<PAGE>
Exhibit 11.1
RomTech, Inc.
Computation of Loss Per Share
Years ended June 30,
1996 1995
---- ----
Net loss ($2,998,480) ($ 586,562)
=========== ===========
Common and common equivalent shares outstanding:
Weighted average common shares outstanding
represented by the shares received by the
stockholders of AOMC in connection with
the reverse acquisition, and recorded as a
recapitalization of the previously
outstanding common stock of AOMC. Such
shares have been retroactively restated to
reflect the effect of the recapitalization
for all periods presented 1,575,000 1,575,000
Weighted average common shares outstanding
represented by the shares received by the
stockholders and holders of convertible
subordinated debt of VRLI in connection
with the merger. Such shares have been
retroactively restated to reflect the
effect of the recapitalization for all
periods presented 1,284,440 1,284,440
Weighted average common shares outstanding
of the Company at the time of the merger
with AOMC and shares issued in connection
with the IPO and the exercise of warrants 2,395,112
Additional shares assumed to be outstanding
resulting from the exercise of the
warrants received by the stockholders of
AOMC in connection with the reverse
acquisition (computed using the treasury
stock method) (1) 354,166
----------- -----------
5,254,552 3,213,606
=========== ===========
Net loss per common and common equivalent share ($ 0.57) ($ 0.18)
=========== ===========
(1) Pursuant to the requirements of the Securities and Exchange Commssion,
common equivalent shares relating to stock options and warrants issued during
the twelve months prior to a planned initial public offering are included
whether or not they are anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 954,663
<SECURITIES> 398,952
<RECEIVABLES> 425,298
<ALLOWANCES> 60,409
<INVENTORY> 205,221
<CURRENT-ASSETS> 2,025,544
<PP&E> 117,343
<DEPRECIATION> 210,693
<TOTAL-ASSETS> 2,231,101
<CURRENT-LIABILITIES> 1,424,974
<BONDS> 0
0
1,000,000
<COMMON> 4,217,517
<OTHER-SE> 747,738
<TOTAL-LIABILITY-AND-EQUITY> 310,251
<SALES> 3,120,651
<TOTAL-REVENUES> 3,120,651
<CGS> 1,135,792
<TOTAL-COSTS> 1,135,792
<OTHER-EXPENSES> 4,907,363
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,706
<INCOME-PRETAX> (2,922,504)
<INCOME-TAX> 2,270
<INCOME-CONTINUING> (2,998,480)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,998,480)
<EPS-PRIMARY> (.57)
<EPS-DILUTED> (.57)
</TABLE>
