<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1998
--------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission File Number: 0-24283
REGISTRY MAGIC INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of Small Business Issuer as specified in its Charter)
FLORIDA 65-0623427
- -------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One South Ocean Boulevard, Suite 206, Boca Raton, Florida 33432
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(Address of principal executive offices)
(561) 367-0408
-------------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former Name, former address and former fiscal year, if changed since
last Report.)
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
past 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 No X
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after 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: 5,813,000 shares of Common
Stock as of June 30, 1998.
<PAGE> 2
REGISTRY MAGIC INCORPORATED
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - April 30, 1998 (unaudited) and
July 31, 1997
Condensed Statements of Operations (unaudited) for the Three
Months Ended and the Nine Months Ended April 30, 1998 and 1997
Condensed Statements of Cash Flows (unaudited) for the Nine
Months Ended April 30, 1998 and 1997
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis and Plan of
Operation
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
1
<PAGE> 3
REGISTRY MAGIC INCORPORATED
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, July 31,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 107,192 $ 928,680
Accounts receivable ........................................................... 295,060 5,140
Inventories ................................................................... 170,968 --
Other current assets .......................................................... 15,978 4,084
----------- -----------
Total current assets ............................................... 589,198 937,904
Property and equipment, net ...................................................... 196,543 114,929
Deferred patent costs ............................................................ 25,795 17,847
Deferred loan costs, net ......................................................... 11,116 30,490
Deferred offering costs .......................................................... 304,829 --
Other assets ..................................................................... 7,095 6,925
----------- -----------
$ 1,134,576 $ 1,108,095
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ...................................... $ 394,600 $ 44,375
Notes payable - shareholders .................................................. 410,000 410,000
Notes payable - related party ................................................. 50,000 50,000
Deferred revenue .............................................................. -- 237,500
----------- -----------
Total current liabilities ......................................... 854,600 741,875
----------- -----------
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares
outstanding...................................................................
Common stock, $.001 par value; 30,000,000 shares authorized; 3,993,000 and
3,793,000 shares issued and outstanding respectively ......................... 3,993 3,793
Additional paid-in capital ..................................................... 2,803,797 1,780,471
Accumulated deficit ............................................................ (2,527,814) (1,418,044)
----------- -----------
Total shareholders' equity ........................................ 279,976 366,220
----------- -----------
$ 1,134,576 $ 1,108,095
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 4
Registry Magic Incorporated
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
April 30, April 30,
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Consulting fees .......................................... $ 30,000 $ 142,503 $ 368,384 $ 180,003
Product sales ............................................ 487,605 -- 487,605 --
----------- ----------- ----------- -----------
Total income ............................................. 517,605 142,503 855,989 180,003
Costs and expenses:
Cost of goods sold ....................................... 28,266 -- 28,266 --
General and administrative ............................... 378,120 199,716 909,868 598,355
Research and development ................................. 315,744 108,953 757,274 283,447
Royalty expense .......................................... 200,000 250,000 200,000 375,000
Depreciation and amortization ............................ 26,984 11,882 70,773 20,555
Interest expense (income), net ........................... 3,022 (4,361) (422) (2,902)
----------- ----------- ----------- -----------
Total costs and expenses ................................. 952,136 566,190 1,965,759 1,274,455
----------- ----------- ----------- -----------
Net loss ................................................. $ (434,531) $ (423,687) $(1,109,770) $(1,094,452)
=========== =========== =========== ===========
Weighted average shares
outstanding ........................................ 3,993,000 3,789,045 3,918,735 3,568,055
Net loss per common share (basic and
diluted) ........................................... $ (.11) $ (.11) $ (.28) $ (.31)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 5
REGISTRY MAGIC INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Operating Activities:
Net Loss $(1,109,770) $(1,094,452)
Adjustments to reconcile net loss to
net cash in operating activities:
Depreciation and amortization 70,773 20,555
Stock option compensation expense 26,366 304,500
Increase in accounts receivable (289,920) --
Increase in inventories (170,968) --
Decrease in other current assets 1,957 --
Increase in other assets (14,021) (6,925)
Increase (decrease) in accounts
payable and accrued expenses 350,226 (1,306)
Increase (decrease) in deferred revenue (237,500) 150,000
----------- -----------
Net cash used in operating
activities (1,372,857) (627,628)
----------- -----------
Investing Activities:
Purchase of equipment (139,448) (67,612)
Proceeds from sale of equipment 6,435
Deferred patent costs (7,948) (11,234)
----------- -----------
Net cash used in investing
activities (140,961) (78,846)
----------- -----------
Financing Activities:
Borrowings from related party -- 50,000
Repayment to related party -- (50,000)
Stock subscription receivable -- 1,479
Payment of deferred offering costs (304,829) --
Payment of deferred loan costs -- (47,764)
Net proceeds from sale of common stock 997,159 1,450,480
Notes payable -- 410,000
----------- -----------
Net cash from financing activities 692,330 1,814,195
----------- -----------
Net increase (decrease) in cash (821,488) 1,107,721
Cash beginning of period 928,680 34,692
----------- -----------
Cash end of period $ 107,192 $ 1,142,413
=========== ===========
Supplemental disclosures:
Cash paid for Interest: $ 17,945 $ 10,895
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 6
Registry Magic Incorporated
Notes to Condensed Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared in
accordance with generally accepted accounting principals for interim financial
information and with instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principals for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The results of operations
for the nine-month period ended April 30, 1998 are not necessarily indicative of
the results to be expected for the year ended July 31, 1998. The condensed
interim financial statements should be read in conjunction with the audited
financial statements and notes thereto, contained in the Company's Registration
Statement on Form SB-2 which was declared effective on May 28, 1998. The Company
had been in the development stage through January 31, 1998. During the three
months ended April 30, 1998, the Company began to generate revenues and is no
longer in the development stage.
2. ACCOUNTS RECEIVABLE
Trade Receivable - (a) $280,000
Trade Receivable 15,060
--------
$295,060
--------
(a) Represents amounts due from Lernout & Hauspie Speech Products N.V.
("L&H"), $250,000 of which represents royalty payments for software
products developed for them and $30,000 for a consulting contract.
3. INVENTORIES
Inventories consist of computer equipment purchased for resale.
<PAGE> 7
4. SALE OF COMMON STOCK
On June 2, 1998, the Company closed an initial public offering of
Common Stock. The Company offered and sold 1,600,000 shares of Common Stock at
an initial public offering price of $7.25 per share, raising proceeds, net of
offering costs, of approximately $9,900,000. On June 26, 1998 the Company closed
on the underwriting over-allotment. The Company sold an additional 220,000
shares of Common Stock at an initial public offering price of $7.25 per share,
raising proceeds, net of offering costs of approximately $1,400,000.
5. NET LOSS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share," which simplifies the standards for computing
earnings per share ("EPS") previously found in APB No. 15, "Earnings Per Share,"
It replaces the presentation of primary EPS with a presentation of basis EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the diluted EPS computation.
The Company adopted SFAS No. 128 in January 1998 and its implementation did not
have a material effect on the financial statements. EPS has been restated for
all prior periods presented.
Net loss per common share (basic and diluted) is based on the net loss
divided by the weighted average number of common shares outstanding during each
year.
The Company's potentially issuable shares of common stock pursuant to
outstanding stock purchase options and warrants (totaling 668,026 with prices,
ranging from $0.50 to $7.00) are excluded from the Company's diluted computation
as their effect would be antidilutive to the Company's net loss.
6. COMMITMENTS AND CONTINGENCIES
The Company has entered into a licensing agreement with L&H which
grants the Company the right to use a certain software object code in the
development of its products in exchange for payment of certain amounts for
royalties. The Company has agreed to pay L&H a $300,000 non-refundable royalty
payment on future royalties in July 1998.
7. SUBSEQUENT EVENTS
Subsequent to April 30, 1998 the Company issued options to purchase
102,500 shares of common stock to employees with prices at fair market value on
the date of grant.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
The following discussion and analysis should be read in conjunction
with the financial statements of the Company and the notes thereto appearing
elsewhere.
RESULTS OF OPERATIONS
Since its inception in October 1995, the Company's efforts have been
principally devoted to research, development and design of products, marketing
activities and raising capital.
For the three months ended April 30, 1998 the Company sold $487,605 of
computer software and hardware, $450,000 of which was for a software package.
The Company also performed a consulting project for $30,000.
General and administrative expense increased by $178,404 from $199,716
for the three months ended April 30, 1997 to $378,120 for the three months ended
April 30, 1998. General and administrative expenses increased by $311,513 from
$598,355 for the nine months ended April 30, 1997 to $909,868 for the nine
months ended April 30, 1998. These increases were due to additional employees
hired to begin marketing and selling the Virtual Operator, additional office
support staff and increased legal and accountants fees incurred in connection
with the Company's expanding activities and patent applications.
Research and development expenses for the three months ended April 30,
1998 were $315,744 compared to $108,953 for the three months ended April 30,
1997, an increase of $206,791. Research and development expenses for the nine
months ended April 30, 1998 were $757,274 compared to $283,447, for the nine
months ended April 30, 1998, an increase of $473,827. These increases were due
to the development of the Company's Virtual Operator product, the development of
other product and service prototypes, and expenses related to the Company's
performance of consulting contracts. Research and development expenses incurred
in the course of establishing technological feasibility of the Company's
software applications have been charged to operations pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 86 - "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed."
<PAGE> 9
Royalty expenses for the three months ended April 30, 1998 were
$200,000 compared to $250,000 for the three months ended April 30, 1997, a
decrease of $50,000. Royalty expenses for the nine months ended April 30, 1998
were $200,000 compared to $375,000 for the nine months ended April 30, 1997, a
decrease of $175,000. These amounts represent a non-refundable prepayment to L&H
on royalties to use certain speech recognition engine technologies and text to
speech technologies. The Company expensed such prepaid royalties in the absence
of any contracts for the sale of its products at the time of the prepayment.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1998 the Company had $107,192 in cash and cash
equivalents. The Company does not have any available lines of credit. Since
inception, the Company has financed its operations through loans from the
Company's Chairman and his wife and from private placements of both debt and
equity.
Net cash used in operating activities increased by $745,229 from
$627,628 for the nine months ended April 30, 1997 to $1,372,857 for the nine
months ended April 30, 1998. Net cash used in operating activities primarily
related to the Company's continued expansion of its research and development and
sales and marketing efforts. Included in accounts receivable at April 30, 1998,
was $250,000 of guaranteed royalties from L&H.
Net cash used in investing activities during the nine months ended
April 30, 1998 and 1997 was $140,961 and $78,846 respectively. The expenditures
primarily related to purchases of computer equipment and patent costs.
Net cash provided from investing activities during the nine months
ended April 30, 1998 and 1997 was $692,330 and $1,814,195 respectively. Since
inception, the Company has financed its operations through loans from the
Company's Chairman and his wife and from private placements of both debt and
equity.
One June 2, 1998 the Company completed an initial public offering of
common stock, see plan of operation as described hereafter.
<PAGE> 10
PLAN OF OPERATION
The report of the independent auditors on the Company's financial
statements as of July 31, 1997 contains an explanatory paragraph regarding an
uncertainty with respect to the ability of the Company to continue as a going
concern. However, the Company believes that as a result of its public offering
and the receipt of the proceeds therefrom, it will have the necessary liquidity
and capital resources to sustain planned operations for the 12-month period
following the offering.
On June 2, 1998, the Company closed an initial public offering of
Common Stock. The Company offered and sold 1,600,000 shares of Common Stock at
an initial public offering price of $7.25 per share, raising proceeds, net of
offering costs, of approximately $9,900,000. On June 26, 1998, the Company
closed on the underwriting over-allotment. The Company sold an additional
220,000 shares of Common Stock at an initial public offering price of $7.25 per
share, raising proceeds, net of offering costs, of approximately $1,400,000.
During such 12-month period, the Company intends to focus its efforts
on enhancing its Virtual Operator product and refining two of its
telephone-based speech recognition prototypes which it intends to introduce
during calendar 1998. It will also use a portion of the proceeds for the
implementation of its sales and marketing program which includes developing a
marketing and sales network initially in North America and, thereafter, in
Europe.
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
REGISTRY MAGIC, INC. V. GREGG MARCUS
On or about June 4, 1998, the Company instituted an action against Mr.
Gregg Marcus seeking a judicial declaration requiring Mr. Marcus to return to
the Company a stock certificate evidencing 240,000 shares of Common Stock that
was issued to Mr. Marcus after Mr. Marcus represented that his original stock
certificate was lost, destroyed, or stolen. The action was pending in the 15th
Judicial Circuit in and for Palm Beach County, Florida. The Company has
previously described in its Final Prospectus dated May 28, 1998, that it
believes that the shares in question were assigned by Mr. Marcus to a third
party in connection with a loan transaction, and that Mr. Marcus is not the
beneficial owner of the shares. On June 29, 1998, Mr. Marcus removed the action
to the United States District Court Southern District of Florida. The current
Case No. is 98-8439-CIV-HURLEY. The Company has not yet obtained service of
process upon Mr. Marcus and is still attempting to do so.
ITEM 2. Changes in Securities and Use of Proceeds
On May 28, 1998, the Company completed the public offering of 1,600,000
shares of Common Stock at an offering price of $7.25 per share through
Commonwealth Associates. The offering was undertaken pursuant to a Registration
Statement on Form SB-2 (File No. 333-47715) which became effective on May 28,
1998. The total offering price for the offering was $11,600,000 less
underwriting discounts of $.54 per share or an aggregate of $870,000. In
addition, the Company paid a non-accountable expense allowance equal to 1.5% of
the gross proceeds of the offering ($174,000) and a financial advisory fee of
$266,800. On June 26, 1998, Commonwealth Associates exercised an over-allotment
option and acquired 220,000 shares of Common Stock under the same terms and
subject to the same discounts and expense allowance. Expenses of the offering
paid through June 30, 1998 were $425,811. The proceeds of the offering have been
used to date solely to pay certain of the aforementioned offering expenses and
to repay indebtedness to participants in the Company's previous private
placement in the principal amount of $410,000 and related interest of
approximately $20,207. The balance of the proceeds are being maintained by the
Company in cash and cash equivalents. The net offering proceeds to the Company
after deducting such total expenses to date were $11,715,650.
ITEM 5. Other Information
In June 1998, Mr. Paul Spindler resigned as a director of the Company.
The Company is undertaking negotiations to obtain the services of a director
with specific industry experience.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by item 601 of Regulation S-B
The following exhibits are filed as part of this report:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
2
<PAGE> 12
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 as a duly authorized officer as the chief financial officer of the
Registrant.
REGISTRY MAGIC INCORPORATED
By:/s/ Walt Nawrocki
---------------------------------
Walt Nawrocki, President
and Chief Executive Officer
By:/s/ Martin Scott
---------------------------------
Martin Scott, Secretary,
Treasurer and Chief Financial
and Accounting Officer
DATED: July 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> APR-30-1998
<CASH> 107,192
<SECURITIES> 0
<RECEIVABLES> 295,060
<ALLOWANCES> 0
<INVENTORY> 170,968
<CURRENT-ASSETS> 589,198
<PP&E> 267,203
<DEPRECIATION> (70,660)
<TOTAL-ASSETS> 1,134,576
<CURRENT-LIABILITIES> 854,600
<BONDS> 0
0
0
<COMMON> 3,993
<OTHER-SE> 275,983
<TOTAL-LIABILITY-AND-EQUITY> 1,134,576
<SALES> 487,605
<TOTAL-REVENUES> 855,989
<CGS> 28,266
<TOTAL-COSTS> 28,266
<OTHER-EXPENSES> 1,937,915
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (422)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,109,770)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
