================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-27102
RomTech, Inc.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2694937
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2000 Cabot Boulevard West, Suite 110
Langhorne, PA 19047-1833
(address of Principal executive offices)
Issuer's Telephone Number, Including Area Code: 215-750-6606
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report.)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes (X) No ( )
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ( ) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 9,359,300 shares of common
stock, no par value per share, as of February 8, 1999. Transitional Small
Business Disclosure Format (check one):
Yes ( ) No (X)
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<PAGE>
RomTech, Inc.
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheet as of December 31, 1998........ 3
Consolidated Statements of Operations for the three
and six months ended December 31, 1998 and 1997........ 4
Consolidated Statements of Cash Flows for the six months
ended December 31, 1998 and 1997 ...................... 5
Notes to Consolidated Financial Statements................ 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 9-13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.......................... 14
Signatures .......................................................... 15
Exhibit Index .......................................................... 16
Exhibits .......................................................... 17
Page 2
<PAGE>
RomTech, Inc.
Item 1. Financial Statements
Consolidated Balance Sheet
(Unaudited)
December 31,
1998
-----------
ASSETS
Current assets:
Cash and cash equivalents $ 282,142
Restricted cash 17,039
Accounts receivable, net of allowances - $333,031 4,104,277
Inventory 1,241,035
Prepaid expenses 181,692
-----------
Total current assets 5,826,185
Furniture and equipment, net 391,356
Goodwill and other assets 571,885
-----------
Total assets $ 6,789,426
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 234,680
Accounts payable 1,514,472
Accrued expenses 792,788
Capital lease obligations 23,209
-----------
Total current liabilities 2,565,149
Capital lease obligations net of current portion 40,130
Notes payable-long term portion 222,725
Convertible subordinated debt 150,000
-----------
Total liabilities 2,978,004
Stockholders' equity:
Common stock, no par value (40,000,000 shares authorized;
9,506,200 issued) 8,389,826
Additional paid in capital 1,148,550
Accumulated deficit (5,480,389)
Treasury stock, at cost - 144,900 shares (247,534)
Accumulated other comprehensive income 969
-----------
Total stockholders' equity 3,811,422
-----------
Total liabilities and stockholders' equity $ 6,789,426
===========
See accompanying notes to the consolidated financial statements.
Page 3
<PAGE>
RomTech, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 3,611,126 $ 2,855,626 $ 6,117,326 $ 4,391,184
Cost of sales 1,136,731 1,022,828 2,017,308 1,636,624
----------- ----------- ----------- -----------
Gross profit 2,474,395 1,832,798 4,100,018 2,754,560
Operating expenses:
Product development 236,965 52,967 442,632 139,538
Selling, general and administrative 1,318,861 1,153,823 2,298,503 1,810,108
----------- ----------- ----------- -----------
Total operating expenses 1,555,826 1,206,790 2,741,135 1,949,646
Operating income 918,569 626,008 1,358,883 804,914
Interest expense, net 13,632 12,584 24,281 24,010
----------- ----------- ----------- -----------
Income before taxes 904,937 613,424 1,334,602 780,904
Provision for income taxes 57,967 -0- 84,267 1,165
----------- ----------- ----------- -----------
Net income 846,970 613,424 1,250,335 779,739
Accretion of beneficial conversion
feature on preferred stock -0- (12,550) -0- (117,991)
----------- ----------- ----------- -----------
Net income attributable
to common stock $ 846,970 $ 600,874 $ 1,250,335 $ 661,748
=========== =========== =========== ===========
Net income per common share:
- Basic $ 0.09 $ 0.07 $ 0.13 $ 0.08
- Diluted $ 0.09 $ 0.06 $ 0.13 $ 0.07
Weighted average common shares
outstanding - Basic 9,469,031 8,965,224 9,455,680 8,106,082
Dilutive effect of common
stock equivalents 189,156 658,183 171,234 1,401,752
Weighted average common shares
outstanding - Diluted 9,658,187 9,623,407 9,626,914 9,507,834
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 4
<PAGE>
RomTech, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
December 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,250,335 $ 779,739
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 187,138 93,500
Changes in items affecting operations net of effect
from acquired business:
Restricted cash 508 10,000
Accounts receivable (1,946,243) (1,475,956)
Prepaid expenses 35,232 73,633
Inventory (286,555) (392,550)
Accounts payable 363,767 794,757
Accrued expenses 283,327 95,816
----------- -----------
Net cash used in operating activities (112,490) (21,061)
----------- -----------
Cash flows from investing activities:
Acquisition, net of cash acquired (12,428) -0-
Purchase of furniture and equipment (122,790) (86,864)
Purchase of software rights and other assets (54,490) (130,560)
Loan to related party -0- 1,500
----------- -----------
Net cash used in investing activities (189,708) (215,924)
----------- -----------
Cash flows from financing activities:
Purchase of treasury stock (247,534) -0-
Proceeds from exercise of warrants -0- 234,200
Repayment of notes payable (85,581) (18,949)
Repayment of lease obligations (36,694) (15,859)
----------- -----------
Net cash (used in) provided by financing activities (369,809) 199,392
----------- -----------
Effect of exchange rate changes on cash and cash equivalents 501 -0-
----------- -----------
Net decrease in cash and cash equivalents (671,506) (37,593)
Cash and cash equivalents:
Beginning of period 953,648 445,474
----------- -----------
End of period $ 282,142 $ 407,881
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 36,835 $ 27,898
=========== ===========
Cash paid for income taxes $ 72,500 $ 1,165
=========== ===========
Non cash investing and financing activities:
Capital lease additions $ 24,915 $ -0-
=========== ===========
150,000 shares of Common Stock issued in
connection with an acquisition $ 213,000 $ -0-
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 5
<PAGE>
RomTech, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim consolidated financial statements were
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The Notes to Consolidated Financial Statements included in
the Form 10-KSB for the fiscal year ended June 30, 1998 should be read in
conjunction with the accompanying statements. These statements include all
adjustments the Company believes are necessary for a fair presentation of the
statements. The interim operating results are not necessarily indicative of the
results for a full year.
Description of Business
RomTech, Inc. (the "Company"), a Pennsylvania corporation incorporated in
July 1992, develops, publishes, markets and sells a diversified line of personal
computer software primarily for consumer entertainment and small office/home
office 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
software developer of landscape generation, space exploration, scheduling and
business forms manipulation programs. In August 1998, the Company acquired all
of the outstanding stock of Software Partners Publishing and Distribution
Limited ("Software Partners"), a U.K. distributor of personal computer software
for consumer entertainment and small office/home office applications. As a
result of these acquisitions, together with the Company's own internal
development efforts, the Company offers software titles in the game,
personal/business productivity, education, reference and lifestyle 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, value priced software.
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Virtual Reality Laboratories, Inc. and
Software Partners. All inter-company balances and transactions have been
eliminated.
2. Preferred Stock
During the quarter and six months ended December 31, 1997, the Company
amortized to accumulated deficit $12,550 and $117,991, respectively in the
accretion of the beneficial conversion feature of the Company's Class Two and
Class Three Convertible Preferred Stock, which negatively impacted the net
income for that period. During the quarter and six months ended December 31,
1998, there was no Convertible Preferred Stock outstanding.
Page 6
<PAGE>
RomTech, Inc.
Notes to Consolidated Financial Statements (continued)
3. Acquisition
On August 14, 1998, the Company acquired all of the outstanding shares of
Software Partners Publishing and Distribution Limited ("Software Partners"), in
exchange for 150,000 shares of the Company's Common Stock, valued at
approximately $213,000, which was the fair value of the Company's Common Stock
on the closing date of the acquisition. This acquisition was accounted for as a
purchase and the corresponding goodwill in the approximate amount of $308,000
will be amortized over five years. For the quarter ended December 31, 1998
Software Partners contributed $719,000 in net sales and $158,000 in net income,
and for the six months ended December 31, 1998 Software Partners contributed
$1,020,000 in net sales and $264,000 in net income.
The following summarized unaudited pro-forma financial information gives
effect to the Software Partners' acquisition as though it had occurred on July
1, 1997, after giving effect to certain adjustments, primarily the elimination
of inter-company sales and amortization of goodwill. The pro-forma financial
information, which is for informational purposes only, is based upon certain
assumptions and estimates and does not necessarily reflect the results that
would have occurred had the acquisition taken place at the beginning of the
period presented, nor are they necessarily indicative of future consolidated
results.
<TABLE>
<CAPTION>
Pro-Forma Financial Information
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $3,611,000 $3,262,000 $6,175,000 $5,118,000
Net income attributable to common stock $ 847,000 $ 508,000 $1,142,000 $ 518,000
Net income per diluted share $ 0.09 $ 0.05 $ 0.12 $ 0.05
</TABLE>
4. Comprehensive Income
On July 1, 1998 the Company adopted SFAS 130, "Reporting Comprehensive
Income". This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income is computed as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------ -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income attributable to common stock $ 846,970 $ 600,874 $1,250,335 $ 661,748
Other comprehensive income:
Foreign currency translation adjustment (5,443) -0- 969 -0-
---------- ---------- ---------- ----------
Comprehensive income $ 841,527 $ 600,874 $1,251,304 $ 661,748
========== ========== ========== ==========
</TABLE>
Page 7
<PAGE>
RomTech, Inc.
Notes to Consolidated Financial Statements (continued)
5. Common Stock
On October 26, 1998, the Company's Board of Directors authorized the
Company to purchase up to $1,000,000 of its shares of Common Stock in the Nasdaq
SmallCap Market. As of February 2, 1999, 161,900 shares at an approximate cost
of $278,000 had been acquired by the Company pursuant to the repurchase program.
6. Subsequent Event
On February 2, 1999, the Company announced that its Board of Directors had
approved a change in the name of the Company to eGames, Inc., effective March 1,
1999. The Company currently trades on the Nasdaq SmallCap Market System under
the ticker symbol ROMT, and will be traded under the ticker symbol EGAM
effective March 1, 1999.
Page 8
<PAGE>
RomTech, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The accompanying consolidated financial statements as of December 31, 1998
include the accounts of RomTech, Inc., ("RomTech"), and its wholly owned
subsidiaries, Virtual Reality Laboratories, Inc. ("VRLI") and Software Partners
Publishing and Distribution Limited ("Software Partners").
Results of Operations
Three Months Ended December 31, 1998 and 1997
Net sales for the three months ended December 31, 1998 were $3,611,000
compared to $2,856,000 for the three months ended December 31, 1997,
representing an increase of $755,000 or 26.4%. This increase resulted from an
increase of $1,031,000 in the sales of the Company's Galaxy of Games, Game
Master Series, Galaxy of Arcade, Galaxy of Home Office Help, VistaPro, and Fun
and Learning (the "Galaxy Software") brands, which were partially offset by a
decrease of $276,000 in sales of certain discontinued products. The largest
sales increase came from the Company's "full release" software titles in the
Game Master Series and Galaxy of Arcade products, which combined had sales of
$1,795,000 or 50% of net sales for the three months ended December 31, 1998,
compared to no sales of these products for the same period last year. Sales of
the Company's Galaxy of Games series amounted to $1,257,000 or 35% of net sales,
a decrease of $619,000 from the same period last year, and reflect the Company's
continuing transition from providing predominantly shareware software products
to the full release level of software titles. Software Partners, acquired on
August 14, 1998, accounted for $719,000 in net sales for the three months ended
December 31, 1998.
The Company primarily distributes its Galaxy Software products in North
America through a large national distributor, Slash Corporation ("Slash"), a
division of GT Interactive Software Corporation. The Company's product sales to
Slash accounted for 80% and 83% of the Company's net sales for the three months
ended December 31, 1998 and 1997, respectively. The Company believes that for
the year ending June 30, 1999, sales to Slash could account for 85% or more of
the Company's net sales. The Company's agreement with Slash does not specify
minimum purchase requirements and can be terminated at any time by Slash. In an
effort to diversify the Company's distribution channels, including distribution
via the Internet, the Company has added features to its existing web-site to
facilitate on-line orders and launched a new web-site offering demonstration
versions of the Company's products, that can be downloaded from the Internet.
Cost of sales for the three months ended December 31, 1998 were $1,137,000
compared to $1,023,000 for the three months ended December 31, 1997,
representing an increase of $114,000 or 11.1%. This increase resulted primarily
from the $112,000 increase in royalty expense related to the sales of full
release products. The Company's gross profit margin increased to 68.5% in the
three months ended December 31, 1998 from 64.2% for the three months ended
December 31, 1997. The primary causes of this increase were the increased sales
derived from the higher margin Game Master Series and cost reductions due to
higher production volumes and improved third party manufacturing processes.
Product development expenses for the three months ended December 31, 1998
were $237,000 compared to $53,000 for the three months ended December 31, 1997,
an increase of $184,000 or 347.2%. This increase was primarily due to an
increase in outside developer costs resulting from increased product development
efforts incurred to improve the Company's full release product offerings. The
largest component of the Company's increased development efforts reflects the
Company's transition from distributing primarily shareware-based software titles
to distributing a growing percentage of full release software titles, such as
the Company's Game Master Series and Galaxy of Arcade products. Also,
significant employment costs have been incurred relating to the Company's
concerted effort to improve the quality assurance process of the Company's
development effort.
Page 9
<PAGE>
RomTech, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Selling, general and administrative expenses for the three months ended
December 31, 1998 were $1,319,000 compared to $1,154,000 for the three months
ended December 31, 1997, representing an increase of $165,000 or 14.3%. This
increase was primarily due to the operating expenses associated with the
Software Partners operations based in the United Kingdom, which was acquired on
August 14, 1998.
Net interest expense for the three months ended December 31, 1998 was
$14,000 compared to $13,000 for the three months ended December 31, 1997,
representing an increase of $1,000.
Results of Operations
Six Months Ended December 31, 1998 and 1997
Net sales for the six months ended December 31, 1998 were $6,117,000
compared to $4,391,000 for the three months ended December 31, 1997,
representing an increase of $1,726,000 or 39.3%. This increase resulted from an
increase of $2,170,000 in the sales of the Company's Galaxy of Games, Game
Master Series, Galaxy of Arcade, Galaxy of Home Office Help, VistaPro, and Fun
and Learning (the "Galaxy Software") brands, which were partially offset by a
decrease of $444,000 in sales of certain discontinued products. The largest
sales increase came from the Company's full release software titles in the Game
Master Series and Galaxy of Arcade products, which combined had sales of
$2,759,000 or 45% of net sales for the six months ended December 31, 1998,
compared to no sales of these products for the same period last year. Software
Partners, acquired on August 14, 1998, accounted for $1,020,000 in net sales for
the six months ended December 31, 1998.
The Company primarily distributes its Galaxy Software products in North
America through a large national distributor, Slash Corporation ("Slash"), a
division of GT Interactive Software Corporation. The Company's product sales to
Slash accounted for 76% and 80% of the Company's net sales for the six months
ended December 31, 1998 and 1997, respectively. The Company believes that for
the year ending June 30, 1999, sales to Slash could account for 85% or more of
the Company's net sales. The Company's agreement with Slash does not specify
minimum purchase requirements and can be terminated at any time by Slash. In an
effort to diversify the Company's distribution channels, including distribution
via the Internet, the Company has added features to its existing web-site to
facilitate on-line orders and launched a new web-site offering demonstration
versions of the Company's products, that can be downloaded from the Internet.
Cost of sales for the six months ended December 31, 1998 were $2,017,000
compared to $1,637,000 for the six months ended December 31, 1997, representing
an increase of $380,000 or 23.2%. This increase resulted primarily from the
$195,000 increase in royalty expense related to the sales of full release
products and the $65,000 increase in the provision for inventory obsolescence.
The Company's gross profit margin increased to 67.0% in the six months ended
December 31, 1998 from 62.7% for the six months ended December 31, 1997. The
primary causes of this increase were the increased sales derived from the higher
margin Game Master Series and cost reductions due to higher production volumes
and improved third party manufacturing processes.
Product development expenses for the six months ended December 31, 1998
were $443,000 compared to $140,000 for the six months ended December 31, 1997,
an increase of $303,000 or 216.4%. This increase was primarily due to an
increase in outside developer costs resulting from increased product development
efforts incurred to improve the Company's full release product offerings. The
largest component of the Company's increased development efforts reflects the
Company's transition from distributing primarily shareware-based software titles
to distributing a growing percentage of full release software titles, such as
the Company's Game Master Series and Galaxy of Arcade products.
Page 10
<PAGE>
RomTech, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Also, significant employment costs have been incurred relating to the Company's
concerted effort to improve the quality assurance process of the Company's
development effort.
Selling, general and administrative expenses for the six months ended
December 31, 1998 were $2,299,000 compared to $1,810,000 for the six months
ended December 31, 1997, representing an increase of $489,000 or 27.0%. This
increase was primarily due to the operating expenses associated with the
Software Partners operations based in the United Kingdom, which was acquired on
August 14,1998.
Net interest expense for each of the six months ended December 31, 1998 and
1997 was $24,000.
Liquidity and Capital Resources
The financial information presented reflects the Company's financial position at
December 31, 1998.
As of December 31, 1998, the Company's cash and working capital balances
were $282,142 and $3,261,036, respectively. Net cash used in operating
activities for the six months ended December 31, 1998 and 1997 were $112,490 and
$21,061, respectively. The $112,490 net cash used in operating activities for
the six months ended December 31, 1998 was caused primarily by increases in
accounts receivable and inventory, which were partially offset by profitable
results of operations and increases in accounts payable and accrued expenses.
Net cash used in investing activities for the six months ended December 31,
1998 and 1997 were $189,708 and $215,924, respectively. Purchases of furniture
and equipment totaled $122,790 for the six months ended December 31, 1998. On
August 14, 1998, the Company acquired all of the outstanding shares of Software
Partners, in exchange for 150,000 shares of the Company's Common Stock valued at
approximately $213,000. Acquisition costs, net of cash received, were $12,428.
Net cash used in financing activities was $369,809 for the six months ended
December 31, 1998, and net cash provided by financing activities was $199,392
for the six months ended December 31, 1997. On October 26, 1998, the Company's
Board of Directors authorized the Company to purchase up to $1,000,000 of its
shares of Common Stock in the Nasdaq SmallCap Market. As of February 8, 1999,
161,900 shares at an approximate cost of $278,000 had been acquired by the
Company pursuant to the repurchase program.
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. The Company believes cash and working capital balances will be
sufficient to fund the Company's operations for the foreseeable future. However,
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.
Page 11
<PAGE>
RomTech, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Year 2000
The Company's State of Readiness
The Company has reviewed its critical information systems for Year 2000
compliance. The compliance review revealed that all but one of the Company's
critical information systems were Year 2000 compliant due to the fact that most
of the Company's network hardware and operating systems are "off-the-shelf"
products from third parties with Year 2000 compliant versions. The one critical
information system that required an upgrade to become Year 2000 compliant was
upgraded during December 1998.
The Company has determined that there should be no Year 2000 issues for the
products it has already sold since the Company's products contain no date
sensitive software.
As part of the Company's Year 2000 compliance review, the Company is in the
process of contacting its primary vendors, distributors and customers to
determine the extent to which the Company is vulnerable to such third parties'
failures to address their Year 2000 compliance issues. The Company will continue
to work to obtain sufficient information and assurances from its significant
vendors, distributors and customers as part of its Year 2000 compliance review.
However, there can be no guarantee that third parties on which the Company's
business relies will adequately address their Year 2000 compliance issues nor is
there any guarantee that the failure by such third parties to adequately deal
with such issues would not have a material adverse effect on the Company and its
operations.
The Cost to Address the Company's Year 2000 Issues
The Company estimates that the cost of its Year 2000 compliance review,
including the upgrading of its critical information systems, will be less than
$15,000 and is not expected to be material to the Company's financial position,
cash flow or results of operations.
The Risks Associated with the Company's Year 2000 Compliance
The Company believes that the risks associated with its own Year 2000
compliance primarily relates to the failure of third parties upon whom the
Company's business relies to timely address their Year 2000 issues. Failure by
third parties to adequately address their Year 2000 issues in a timely manner
could result in disruptions in the Company's supply of parts and materials,
late, missed or unapplied payments, temporary disruptions in order processing
and other general problems related to the Company's daily operations. While the
Company believes its Year 2000 compliance review procedures will adequately
address the Company's internal Year 2000 issues, until the Company receives
responses from all of its significant vendors, distributors and customers, the
overall risks associated with the Year 2000 issue remain difficult to accurately
describe and quantify, and there can be no guarantee that such uncertainty will
not have a material adverse effect on the Company's business, operating results
and financial position.
The Company's Contingency Plan
The Company has not, to date, implemented a Year 2000 contingency plan. The
Company intends to develop and implement a contingency plan by the end of June
1999. It is the Company's intention to devote whatever resources are necessary
to assure that all of its Year 2000 compliance issues are resolved.
Page 12
<PAGE>
RomTech, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Forward-Looking Statements
This report contains statements that are forward-looking, as that term is
defined by the Private Securities Litigation Reform Act of 1995 and by the
Securities and Exchange Commission in rules, regulations and releases. These
statements include, but are not limited to, statements regarding: the projected
percentage of sales of the Company's products to Slash Corporation during the
1999 fiscal year; the Company's efforts in developing "full-release" software
titles; the Company's Internet marketing strategy; the sufficiency of the
Company's cash and working capital balances to fund the Company's operations in
the future; and the Company's expectations and cost estimates regarding its Year
2000 compliance efforts. All forward-looking statements are based on current
expectations regarding significant risk factors, and the making of such
statements should not be regarded as a representation by the Company or any
other person that the results expressed in this report will be achieved.
The following important factors, among others, could cause the Company's
actual results to differ materially from those indicated by the forward-looking
statements contained in this report: the success of the Galaxy branding strategy
and market acceptance of the Company's Galaxy Series titles in the United States
and international markets; the allocation of adequate shelf space for the
Company's products in major retail chain stores; successful sell-through results
for the Company's products at retail stores; the continued success of the
distribution relationship between the Company with Slash Corporation; the
continued expansion of the computer in homes in North America and the world; the
ability to deliver products in response to orders within a commercially
acceptable time frame; downward pricing pressure; fluctuating costs of
developing, producing and marketing the Company's products; access to
alternative distribution channels and the success of the Company's efforts to
develop and implement its Internet marketing strategy; consumers' continued
demand for value-priced software; increased competition in the value-priced
software category; the ability of the Company and its key distributors, vendors
and suppliers to effectively address Year 2000 compliance issues; and various
other factors, many of which are beyond the Company's control. The Company does
not undertake to update any forward-looking statement made in this report or
that may be made from time to time by or on behalf of the Company.
Page 13
<PAGE>
RomTech, Inc.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On January 21, 1999, the Company filed a report on Form 8-K announcing the
Company's unaudited results for the second quarter and six months ended December
31, 1998.
Page 14
<PAGE>
RomTech, Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RomTech, Inc.
(Registrant)
Date: February 10, 1999 /s/ Gerald W. Klein
----------------------------------
Gerald W. Klein, President, Chief
Executive Officer, Chief
Financial Officer and Director
Date: February 10, 1999 /s/ Thomas W. Murphy
----------------------------------
Thomas W. Murphy, Controller and
Chief Accounting Officer
Page 15
<PAGE>
Exhibit Index
Exhibit No. Description of Exhibit Page Number
- ----------- ---------------------- -----------
27.1 Financial Data Schedule
Page 16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 282,142
<SECURITIES> 0
<RECEIVABLES> 4,437,308
<ALLOWANCES> (333,031)
<INVENTORY> 1,241,035
<CURRENT-ASSETS> 5,826,185
<PP&E> 865,595
<DEPRECIATION> (474,239)
<TOTAL-ASSETS> 6,789,426
<CURRENT-LIABILITIES> 2,565,149
<BONDS> 0
0
0
<COMMON> 8,389,826
<OTHER-SE> (4,578,404)
<TOTAL-LIABILITY-AND-EQUITY> 6,789,426
<SALES> 6,117,326
<TOTAL-REVENUES> 6,117,326
<CGS> 2,017,308
<TOTAL-COSTS> 2,017,308
<OTHER-EXPENSES> 2,741,135
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,281
<INCOME-PRETAX> 1,334,602
<INCOME-TAX> 84,267
<INCOME-CONTINUING> 1,250,335
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,250,335
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
