<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
April 4, 1996
-------------
ROM TECH, INC.
------------------------------------
(Exact name of registrant as
specified in its charter)
Pennsylvania 33-95122
- ------------------------------------- ------------------------------------
(State or other jurisdiction of (Commission File Number)
incorporation
23-2694937
---------------------------------
(IRS Employer Identification No.)
2000 Cabot Boulevard, Suite 110, Langhorne, Pennsylvania 19047
- --------------------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 750-6606
----------------
N/A
---------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Rom Tech, Inc.
INDEX
Item 7. Financial Statements and Pro Forma Financial Information
Page
(a) Financial Statements of business acquired. ----
The following Virtual Reality Laboratories, Inc. financial statements
are attached as a part of this report:
Independent Auditor's Report..................................... 4
Balance Sheets as of March 31, 1996 and June 30, 1995............ 5
Statements of Operations for the nine-month period ended March
31, 1996 and the year ended June 30, 1995....................... 6
Statements of Stockholders' Deficit for the nine-month period
ended March 31, 1996 and the year ended June 30, 1995........... 7
Statements of Cash Flows for the nine-month period ended March
31, 1996 and the year ended June 30, 1995....................... 8
Notes to Financial Statements.................................... 9-17
(b) Pro Forma Financial Information..................................... 18
The following pro forma financial information of the Registrant is
attached as a part of this report:
Unaudited Pro Forma Combined Condensed Balance Sheet as of
March 31, 1996.................................................. 19
Unaudited Pro Forma Combined Condensed Statement of Operations
for the nine months ended March 31, 1996........................ 20
Unaudited Pro Forma Combined Condensed Statement of Operations
for the year ended June 30, 1995................................ 21
Notes to Unaudited Pro Forma Combined Condensed Financial
Statements...................................................... 22
2
<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..
ROM TECH, INC.
Date: June 18, 1996 /s/ Gerald W. Klein
-------------- --------------------
Gerald W. Klein
Vice President and
Chief Financial Officer
3
<PAGE>
Independent Auditor's Report
The Board of Directors
Virtual Reality Laboratories, Inc.
We have audited the accompanying balance sheets of Virtual Reality Laboratories,
Inc. (the Company) as of March 31, 1996 and June 30, 1995, and the related
statements of operations and stockholders' deficit, and cash flows for the
nine-month period ended March 31, 1996 and for the year ended June 30, 1995.
These 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.
As discussed in Note 14 to the financial statements, the Company merged with Rom
Tech, Inc. in April 1996. The Company is dependent upon the financial support of
Rom Tech, Inc.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Virtual Reality Laboratories,
Inc. as of March 31, 1996 and June 30, 1995, and the results of its operations
and cash flows for the nine-month period ended March 31, 1996 and for the year
ended June 30, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
San Jose, California
June 13, 1996
4
<PAGE>
Virtual Reality Laboratories, Inc.
Balance Sheets
<TABLE>
<CAPTION>
Notes March 31, 1996 June 30, 1995
------- ------------------ ------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 1 $ 234,462 $ -0-
Restricted cash 1 32,944 34,627
Accounts receivable, net of allowances of
$46,132 and $83,276 at March 31, 1996
and June 30, 1995, respectively 72,059 186,712
Inventories 2 73,656 66,579
Prepaid expenses and other current assets 16,888 46,202
------------------ ------------------
Total Current Assets 430,009 334,120
EQUIPMENT AND FIXTURES, Net 1,3 51,373 63,605
------------------ ------------------
$ 481,382 $ 397,725
================== ==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 151,397 $ 109,403
Accrued expenses 4 153,625 183,754
Accounts payable to officers 6 101,410 127,776
Factored accounts receivable 5 115,530 279,411
Note payable to officer 7 100,000 100,000
Note payable to affiliate 7 250,000 -0-
Current portion of capital lease obligations 8 10,860 23,003
Current portion of notes payable 9 31,258 10,250
------------------ ------------------
Total current liabilities 914,080 833,597
CAPITAL LEASE OBLIGATIONS
- Net of current portion 8 18,878 39,266
NOTES PAYABLE - Net of current portion 9 338,742 21,422
CONVERTIBLE SUBORDINATED DEBT 10 300,000 -0-
STOCKHOLDERS' DEFICIT
Common stock, no par value,
authorized 1,000,000 shares,
issued and outstanding 316,034,
shares at March 31, 1996,
304,298 shares at June 30, 1995 11 98,198 29,643
Accumulated deficit (1,188,516) (526,203)
------------------ ------------------
Total stockholders' deficit (1,090,318) (496,560)
------------------ ------------------
$ 481,382 $ 397,725
================== ==================
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
Virtual Reality Laboratories, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended
Notes March 31,1996 June 30, 1995
-------- ------------------- ------------------
<S> <C> <C> <C>
NET REVENUES 1,12 $ 1,070,955 $ 1,799,668
COST OF GOODS SOLD 363,523 572,405
------------------- -------------------
GROSS PROFIT 707,432 1,227,263
------------------- -------------------
OPERATING EXPENSES
Selling expense 585,836 710,542
General and administrative expense 508,175 433,930
Product development expense 203,887 268,463
------------------- -------------------
Total operating expenses 1,297,898 1,412,935
------------------- -------------------
LOSS FROM OPERATIONS (590,466) (185,672)
INTEREST EXPENSE 59,355 102,975
OTHER EXPENSE 11,692 11,830
------------------- -------------------
LOSS BEFORE INCOME TAXES (661,513) (300,477)
INCOME TAXES 13 800 800
------------------- -------------------
NET LOSS $ (662,313) $ (301,277)
=================== ===================
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
Virtual Reality Laboratories, Inc.
Statements of Stockholders' Deficit
Nine-month period ended March 31, 1996 and year ended June 30, 1995
<TABLE>
<CAPTION>
Common Stock
------------------------------
Accumulated Stockholders'
Shares Amount Deficit Deficit
------------ -------------- ---------------- -----------------
<S> <C> <C> <C> <C>
BALANCES, July 1, 1994 304,298 $29,643 $ (224,926) $ (195,283)
Net loss 0 0 (301,277) (301,277)
------------ -------------- ---------------- -----------------
BALANCES, June 30, 1995 304,298 29,643 (526,203) (496,560)
Stock issued in settlement of
accrued royalties 11,736 68,555 0 68,555
Net loss 0 0 (662,313) (662,313)
------------ -------------- ---------------- -----------------
BALANCES, March 31, 1996 316,034 $98,198 $(1,188,516) $(1,090,318)
============ ============== ================ =================
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
Virtual Reality Laboratories, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended
March 31, 1996 June 30, 1995
-------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (662,313) $ (301,277)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 31,963 38,176
Changes in operating assets and liabilities:
Restricted cash 1,683 (34,627)
Accounts receivable 114,653 160,943
Inventories (7,077) 46,532
Prepaid expenses and other current assets 29,314 (21,348)
Accounts payable 41,994 (145,511)
Accrued expenses 38,426 (32,767)
----------------- -----------------
Net cash used in operating activities (411,357) (289,879)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (19,731) (8,903)
----------------- -----------------
Net cash used in investing activities (19,731) (8,903)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) advances of accounts payable to officers (26,366) 25,083
Net (repayments) advances of factored
accounts receivable (163,881) 279,411
Proceeds from officer's note 0 15,000
Proceeds from note payable to affiliate 250,000 0
Proceeds from notes payable 350,000 0
Proceeds from convertible subordinated debt 300,000 0
Repayments of notes payable (11,672) (10,252)
Principal payments of capital leases (32,531) (15,242)
----------------- -----------------
Net cash provided by financing activities 665,550 294,000
----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND
AND CASH EQUIVALENTS 234,462 (4,782)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD -0- 4,782
----------------- -----------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 234,462 $ -0-
================= =================
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
Virtual Reality Laboratories, Inc.
Statements of Cash Flows
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Nine-Month
Period Ended Year Ended
March 31, 1996 June 30,1995
-------------------- ---------------------
Cash paid for taxes $ 0 $ 18,816
Cash paid for interest $ 43,945 $ 93,206
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended June 30, 1995, the Company acquired equipment under
capital leases in the amount of $34,109.
In October 1995, the Company issued 11,736 shares of common stock as payment for
$68,555 of accrued royalties.
See accompanying notes to financial statements
9
<PAGE>
Virtual Reality Laboratories, Inc.
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Virtual Reality Laboratories, Inc. (the "Company") is
engaged in the business of developing, publishing and marketing
applications software for use on personal computers. The Company's
products include landscape generation, space exploration, scheduling
and business forms manipulation programs.
Cash and Cash Equivalents - The Company considers highly liquid short
term investments with original maturity of 90 days or less to be cash
equivalents.
Restricted Cash - Restricted cash represents a reserve balance
collateralizing the Company's accounts receivable factoring agreement.
Accordingly, the Company does not consider restricted cash as a cash
equivalent.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market.
Equipment and Fixtures - Equipment and fixtures are stated at cost.
Depreciation is computed on the straight-line method over the estimated
useful lives of the assets, which range from 3 to 5 years.
Advance Royalties - The Company makes advance payments to software
developers during the development of a product. These payments are
included in product development expense. Subsequent to the release of
the product, royalties earned by the developer may be offset against
amounts advanced. Royalties incurred in excess of the amounts advanced
are expensed as incurred and included in cost of sales.
Revenue Recognition - Revenue from the licensing and sale of software
products is generally recognized upon shipment, net of allowances for
estimated product returns. Software revenues are recognized upon
shipment only if no significant vendor obligations remain and
collection of the resulting receivables is considered probable. Revenue
from the sales of consigned inventories is recognized, net of
allowances for estimated product returns, upon shipment from the
consignee to third parties. Royalty revenues are recognized when the
Company's customers ship their products incorporating the Company's
software to their end customers.
Cooperative Advertising - Certain of the Company's customers receive
credit for expenditures for advertisements that include products of the
Company. Such expenditures must be approved by the Company. The Company
records an expense in the period in which the advertisement is first
published.
10
<PAGE>
Virtual Reality Laboratories, Inc.
Notes to Financial Statements - continued
Research and Development - Research and development costs are expensed
as incurred. Software development costs are capitalized once
technological feasibility of the product has been established. Through
March 31, 1996, the Company believes its process for developing
software was essentially completed concurrently with the establishment
of technological feasibility, and accordingly, no software development
costs have been capitalized to date.
Fair Value of Financial Instruments - The carrying amounts of cash,
accounts receivable, accounts payable and accrued liabilities
approximates market due to the short maturity of those instruments. The
carrying amounts of short and long-term debt approximates fair value
because the interest rates change with market interest rates.
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.
Major Customers and Concentrations of Credit Risk - The Company had
sales to two customers totaling $135,702 and $344,548, respectively,
during the nine months ended March 31, 1996. A total of $59,050 and
$51,534, respectively, were included in accounts receivable related to
these customers at March 31, 1996. The Company had sales to a single
customer totaling $35,154 during the year ended June 30, 1995. Accounts
receivable included $20,000 related to this customer at June 30, 1995.
The Company markets its products to end users through a variety of
distributors and retailers as well as through direct channels. The
Company generally does not require collateral and performs ongoing
credit evaluations.
Use of 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 the disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
11
<PAGE>
Virtual Reality Laboratories, Inc.
Notes to Financial Statements - continued
2. INVENTORIES
Inventories consist of purchased software components and finished
packaged software. Software components include printed manuals, encoded
compact discs, blank diskettes and packaging materials. Inventories
consisted of the following:
March 31, June 30,
1996 1995
------------- -------------
Purchased components $ 27,754 $ 43,370
Finished goods 45,902 23,209
------------- -------------
$ 73,656 $ 66,579
============= =============
3. EQUIPMENT AND FIXTURES
Equipment and fixtures consisted of the following:
March 31, June 30,
1996 1995
------------- -------------
Computers and other equipment $ 154,752 $ 136,941
Software 18,048 16,128
Vehicles 50,621 50,621
------------- -------------
223,421 203,690
Accumulated depreciation and
amortization 172,048 140,085
------------- -------------
$ 51,373 $ 63,605
============= =============
4. ACCRUED EXPENSES
Accrued expenses consisted of the following:
March 31, June 30,
1996 1995
------------- -------------
Accrued royalties $ 11,412 $ 90,788
Accrued payroll and related items 112,775 88,805
Other liabilities 29,438 4,161
------------- -------------
$ 153,625 $ 183,754
============= =============
5. FACTORED ACCOUNTS RECEIVABLE
As of March 31, 1996, the Company had an accounts receivable factoring
agreement with Mid State Bank, which provided working capital of up to
$250,000. The bank discounted the pledged receivables by 3.19% and
required the Company to collateralize those receivables with a reserve
for losses equal to at least 30% of outstanding pledged receivables. In
April 1996, the Company repaid all amounts owing under the agreement,
and the agreement was terminated.
12
<PAGE>
Virtual Reality Laboratories, Inc.
Notes to Financial Statements - continued
During fiscal 1995, the Company had an accounts receivable factoring
agreement with a financing company, which provided working capital of
up to $100,000. The agreement provided for a discount of 2% of the
pledged invoices for each 15-day period that the invoices were
outstanding and an administrative fee of 2% of the pledged invoices. In
March 1995, the Company repaid all amounts owing under the agreement,
and the agreement was terminated.
6. ACCOUNTS PAYABLE TO OFFICERS
Accounts payable to officers represent amounts due ultimately to
various financial institutions incurred through the use of credit cards
for certain operating expenses and equipment acquisitions. The credit
cards have been issued in the names of the officers of the Company and
balances bear interest at variable rates. At March 31, 1996, the
interest rates on the credit card balances ranged from 14% to 24%. In
April 1996, all credit card balances were repaid.
7. RELATED PARTY TRANSACTIONS
Note Payable to Officer
The Company has a note payable to its founder and president. The note
bears interest of 12%, payable monthly and matures on June 2, 1996. In
April 1996, in conjunction with the Company's merger with Rom Tech,
Inc. ("Rom Tech"), the officer note was converted into common stock of
Rom Tech.
Note Payable to Affiliate
At March 31, 1996, the Company had a note payable to Rom Tech in the
amount of $250,000. Interest is payable monthly at the prime rate
(8.25% at March 31, 1996) plus 1%. Principal is due in February 1997.
Royalty Advances to Officers and Directors
The Company advanced royalties to officers and directors of
approximately $34,000 and $43,000 during the nine months ended March
31, 1996 and for the year ended June 30, 1995, respectively.
8. LEASE OBLIGATIONS
The Company leases its operating facility under an operating lease
expiring in December 1996. Rent expense under such lease agreement was
$13,740 and $15,750 for the nine months ended March 31, 1996 and for
the year ended June 30, 1995, respectively.
The Company has financed the purchase of office equipment through
capital lease agreements. The obligations are collateralized by the
leased equipment, which had a net book value of $31,517, and $48,852 at
March 31, 1996, and June 30, 1995, respectively.
13
<PAGE>
Virtual Reality Laboratories, Inc.
Notes to Financial Statements - continued
Future commitments under leases as of March 31, 1996 are as follows:
Operating Capital
Lease Leases
----------- ----------
Three months ending June 30, 1996 $ 5,940 $ 3,642
Year ending June 30, 1997 19,980 14,566
Year ending June 30, 1998 16,759
------------- --------------
$ 25,920 34,967
=============
Less interest 5,229
--------------
Present value of future lease payments 29,738
Less current portion 10,860
--------------
$ 18,878
==============
9. DEBT
Notes payable consisted of the following:
March 31, June 30,
1996 1995
---------- ----------
Note payable to bank, bearing
interest at the prime rate (8.25%
at March 31, 1996) plus 2.75%.
Matures on March 25, 2003,
principal and interest of $5,993
payable monthly. The note is
guaranteed by officers of the
Company and the Small Business
Administration. $ 350,000 -0-
10% auto loan payable to bank;
principal and interest of $199 due
monthly; matures in June 1997. Loan
was repaid in March 1996. -0- 3,202
10% auto loan payable to bank;
principal and interest of $322 due
monthly; matures in October 1996.
Loan was repaid in March 1996. -0- 3,545
Demand note payable to vendor -0- 4,925
12% unsecured convertible note
payable to an employee, principal
and interest due on March 6, 1999.
Principal and accrued interest may
be converted at any time prior to
maturity, at the option of the
noteholder, to common stock at a
conversion price of $6.90 per
share. 20,000 20,000
------------- --------------
Total 370,000 31,672
Less current portion 31,258 10,250
------------- --------------
$ 338,742 $ 21,422
============= ==============
14
<PAGE>
Virtual Reality Laboratories, Inc.
Notes to Financial Statements - continued
Future principal payments on notes payable as of March 31, 1996 are as
follows:
Three months ending June 30, 1996 $ 4,843
Year ending June 30, 1997 35,714
Year ending June 30, 1998 39,846
Year ending June 30, 1999 64,457
Year ending June 30, 2000 49,602
Thereafter 175,538
----------------
$ 370,000
================
10. CONVERTIBLE SUBORDINATED DEBT
In November 1995, the Company issued 10% convertible subordinated debt
totaling $300,000, maturing in November 2000. A portion of the
subordinated debt was converted to Rom Tech common stock in April 1996
in conjuction with the Company's merger with a wholly-owned subsidiary
of Rom Tech ("Sub") and the remaining note was assumed by Sub in the
merger. The remaining note is convertible beginning on November 28,
1997 into a number of shares of common stock equal to the principal
amount of the note multiplied by the number of common shares of the
Company outstanding at the time of conversion divided by the Company's
revenues for the twelve months preceding conversion. In the event that
the Company successfully completes a public offering of common stock
within two years of the date that the note was issued, the note may be
converted to shares of common stock at any time between the six month
anniversary of the offering and the maturity date of the notes at a per
share conversion price equal to 75% of the offering price per share.
Upon conversion, the noteholder shall receive two warrants to purchase
common stock for every three shares of common stock received as a
result of the conversion, exercisable for a period of three years at a
price equal to 150% of the conversion price. See Note 14.
11. STOCK OPTIONS
On January 1, 1993, the Company granted options to purchase 3,000
shares of common stock at an exercise price of $5.50 per share to an
employee. The options expire on December 31, 1996.
On January 1, 1995 and 1996, the Company granted options to purchase
3,000 shares of common stock at an exercise price of $6.90 per share to
an employee. The options expire on January 1, 1998.
At March 31, 1996, all options outstanding were exercisable. No options
were exercised or canceled during the nine month period ended March 31,
1996 or for the year ended June 30, 1995.
15
<PAGE>
Virtual Reality Laboratories, Inc.
Notes to Financial Statements - continued
12. REVENUES
Net revenues consisted of the following:
Nine-Month
Period Ended Year Ended
March 31, 1996 June 30, 1995
------------------ -----------------
Net product sales $ 726,407 $1,774,668
Royalty revenues 344,548 25,000
------------------ -----------------
$1,070,955 $1,799,668
================== =================
13. INCOME TAXES
Tax expense represents the minimum California state franchise tax.
The tax effects of temporary differences that result in significant
portions of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 342,188 $ 57,216
Accrued expenses, not currently deductible 43,300 32,459
Accounts receivable and inventory reserves 26,470 38,224
Property and equipment 4,388 2,194
Other 272 272
---------------- ----------------
416,618 130,365
Valuation allowance (416,618) (130,365)
---------------- ----------------
$ -0- $ -0-
================ ================
</TABLE>
The difference between the amount of income tax recorded and the amount
of income tax calculated using the U.S. federal statutory tax rate of
34% is as follows:
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended
March 31,1996 June 30, 1995
-------------------- -------------------
<S> <C> <C>
Tax benefit at federal statutory rate $(224,914) $ (102,162)
State franchise tax, net of federal benefit 528 528
Change in deferred tax asset
valuation allowance 224,830 102,544
Other 356 (110)
-------------------- --------------------
$ 800 $ 800
==================== ===================
</TABLE>
16
<PAGE>
Virtual Reality Laboratories, Inc.
Notes to Financial Statements - continued
Federal and California tax laws impose significant restrictions on the
utilization of net operating loss carryforwards in the event of a
change in ownership. As discussed in Note 14, the Company ownership was
changed subsequent to March 31, 1996, which may affect the timing and
amount of benefit due to the utilization of net operating loss
carryforwards to offset future income and reduce future tax
liabilities.
14. SUBSEQUENT EVENT
In April 1996, the Company merged with a wholly-owned subsidiary of Rom
Tech in a transaction accounted for as a pooling of interests. The
Company is dependent upon the financial support of Rom Tech to meet its
obligations.
17
<PAGE>
Rom Tech, Inc.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial
statements present the combined financial position of Rom Tech ("the Company")
and Virtual Reality Laboratories, Inc. ("VRLI") as of March 31, 1996 and the
combined results of operations of the Company and VRLI for the nine months ended
March 31, 1996 and year ended June 30, 1995. See notes to the unaudited pro
forma combined condensed financial statements for a description of the
assumptions used in these pro forma financial statements. This information is
presented pursuant to a merger of a wholly-owned subsidiary of the Company and
VRLI as more fully described under Item 2 to the Form 8-K filed with the
Securities and Exchange Commission by the Company on April 19, 1996.
The unaudited pro forma combined condense balance sheet reflects the
merger of a wholly-owned subsidiary of the Company with VRLI (the "Merger") as
if it occurred on March 31, 1996. The unaudited combined condensed statement of
operations for the nine months ended March 31, 1996 and the year ended June
30, 1995 assumes the Merger occurred at the beginning of the respective periods.
The unaudited pro forma financial statements may not necessarily be
indicative of the operating results or financial position that would have
occurred if the Merger had been consummated at the beginning of the periods
presented, nor is it necessarily indicative of future operating results or
financial position.
These pro forma financial statements are based on, and should be read
in conjunction with, the financial statements, and the related notes thereto, of
the Company, and VRLI.
18
<PAGE>
<TABLE>
<CAPTION>
Rom Tech, Inc.
Unaudited Pro Forma Combined Condensed Balance Sheet
March 31, 1996
Virtual Pro Forma Pro Forma
Rom Tech Reality Adjustments Combined
-------- ------- ----------- ---------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash, cash equivalents and restricted cash $1,654,726 $267,406 $1,922,132
Short term investments 792,640 0 792,640
Accounts receivable, net 152,778 72,059 224,837
Inventories 157,135 73,656 230,791
Prepaid expenses 72,174 16,888 89,062
----------- ----------- ---------- -----------
Total current assets 2,829,453 430,009 3,259,462
Furniture and equipment, net 78,010 51,373 129,383
Other assets 300,142 0 ($250,000) 1 50,142
----------- ----------- ---------- -----------
Total assets $3,207,605 $481,382 ($250,000) $3,438,987
=========== ============ ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, due within one year $200,000 $0 $200,000
Notes payable to officer 0 100,000 ($100,000) 2 0
Notes payable to affiliate 0 250,000 (250,000) 1 0
Factored accounts receivable 0 115,530 115,530
Accounts payable and accrued expenses 314,973 406,432 721,405
Other current liabilities 16,450 42,118 58,568
----------- ----------- ---------- -----------
Total current liabilities 531,423 914,080 (350,000) 1,095,503
Capital lease obligations net of current portion 0 18,878 18,878
Notes payable, due after one year 100,000 338,742 438,742
Convertible subordinated debt 0 300,000 (150,000) 2 150,000
----------- ----------- ---------- -----------
Total liabilities 631,423 1,571,700 (500,000) 1,703,123
Stockholders' equity (deficit):
Convertible preferred stock 1,000,000 0 1,000,000
Common stock, no par value 3,763,177 98,198 151,802 2 4,013,177
Additional paid in capital 649,540 0 98,198 2 747,738
Accumulated deficit (2,836,535) (1,188,516) (4,025,051)
----------- ----------- ---------- -----------
Total stockholders' equity 2,576,182 (1,090,318) 250,000 1,735,864
----------- ----------- ---------- -----------
Total liabilities and stockholders'
equity $3,207,605 $ 481,382 ($250,000) $3,438,987
=========== ============ ========= ==========
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
</TABLE>
19
<PAGE>
Rom Tech, Inc.
Unaudited Pro Forma Combined Condensed Statement of Operations
Nine months ended March 31, 1996
<TABLE>
<CAPTION>
Virtual Pro Forma
Rom Tech Reality Combined
-------- ------- ---------
<S> <C> <C> <C>
Net sales $1,289,215 $1,070,955 $2,360,170
Cost of sales 608,564 363,523 972,087
------------- ------------ -----------
Gross profit 680,651 707,432 1,388,083
Operating expenses:
Product development 290,929 203,887 494,816
Selling, general and administrative 1,479,531 1,094,011 2,573,542
-------------- ------------ ---------
Total operating expenses 1,770,460 1,297,898 3,068,358
-------------- ------------ ---------
Operating (loss) (1,089,809) (590,466) (1,680,275)
Other income or (expense):
Interest income (expense) 62,761 (59,355) 3,406
Other income (expense) 8,569 (12,492) (3,923)
------------------ ------------- -------------
Total other income (expense) 71,330 (71,847) (517)
----------------- ------------- -------------
Net loss ($1,018,479) ($662,313) ($1,680,792)
============ ========== ============
Net loss per common share ($.23) ($0.30)
Weighted average common
shares outstanding 4,345,625 5,630,064
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
</TABLE>
20
<PAGE>
Rom Tech, Inc.
Unaudited Pro Forma Combined Condensed Statement of Operations
Year ended June 30, 1995
<TABLE>
<CAPTION>
Virtual Pro Forma
Rom Tech Reality Combined
-------- ------- ---------
<S> <C> <C> <C>
Net sales $2,033,169 $1,799,668 $3,832,837
Cost of sales 901,994 572,405 1,474,399
------------ ------------ ----------
Gross profit 1,131,175 1,227,263 2,358,438
Operating expenses:
Product development 356,130 268,463 624,593
Selling, general and administrative 941,851 1,144,472 2,086,323
------------ ---------- ---------
Total operating expenses 1,297,981 1,412,935 2,710,916
---------- ---------- ---------
Operating (loss) (166,806) (185,672) (352,478)
Interest and other expense:
Interest expense 14,827 102,975 117,802
Other expense 180,903 12,630 193,533
------------ ------------- -----------
Net loss ($362,536) ($301,277) ($663,813)
========== ========== ==========
Net loss per common share ($.10) ($0.13)
Weighted average common
shares outstanding 3,806,569 5,091,008
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
</TABLE>
21
<PAGE>
Rom Tech, Inc.
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
Nine-month period ended March 31, 1996 and year ended June 30, 1995
A. Summary of Transaction
On April 5, 1996, the Company acquired Virtual Reality Laboratories,
Inc. ("Virtual Reality"), a California corporation, in a transaction structured
as a merger of Virtual Reality with a newly formed subsidiary of the Company
("Rom Tech subsidiary"), with the Rom Tech subsidiary as the surviving
corporation. Virtual Reality, which is located in San Luis Obispo, California,
publishes software for use on desktop computers. Its products include business
forms and imaging processing software targeted for the small-office, home-office
market, three-dimensional landscape rendering software, and astronomy software
for special interest users and the education market. In connection with the
acquisition, the Company issued a total of 1,284,439 shares of its common stock,
in exchange for the equity interests of Virtual Reality, which included common
stock, stock options, a portion of the convertible subordinated debt and a
$100,000 promissory note to an officer and shareholder of Virtual Reality. In
addition, the Company will incur acquisition-related expenses of approximately
$565,000 related to investment banking, consulting, accounting and legal costs
which will be charged to operations in the fourth quarter of fiscal 1996. This
acquisition will be accounted for using the pooling-of-interests method, and
accordingly Rom Tech historical financial statements presented in future reports
will be restated to include the accounts and results of operations of Virtual
Reality.
B. Basis of Presentation
The historical financial position and results of operations of Virtual
Reality included in the unaudited pro forma combined condensed balance sheet and
the unaudited pro forma combined condensed statement of operations are as of and
for, respectively, the nine months ended March 31, 1996 and the year ended June
30, 1995. Such financial statements are included herein. The historical balance
sheet of the Company included in the unaudited pro forma combined condensed
balance sheet reflects the merger of Rom Tech and Applied Optical Media
Corporation ("AOMC") which occurred on October 18,1995. The results of
operations of the Company included in the unaudited pro forma combined condensed
statement of operations for the nine months ended March 31,1996 and year ended
June 30,1995 reflects the pro forma results of the Company as if the merger of
Rom Tech and AOMC occurred at the beginning of the respective periods.
C. Adjustments to the Unaudited Pro Forma Combined Condensed Balance Sheet
(1) Reflects the elimination of intercompany loan.
(2) Reflects the issuance of 1,284,439 shares of the Company's common
stock in exchange for all the outstanding common stock of Virtual
Reality and other equity interests related to $150,000 of the
$300,000 convertible subordinated debt and the note payable to
officer.
D. Weighted average common shares outstanding
The weighted average common shares outstanding are based upon the
weighted average number of shares outstanding of the Company for the respective
periods presented adjusted to reflect the shares issued in the merger with
Virtual Reality.
22
