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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended July 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 0-24283
REGISTRY MAGIC INCORPORATED
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(Name of Small Business Issuer in Its Charter)
FLORIDA 65-0623427
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6251-B PARK OF COMMERCE BOULEVARD NORTHWEST
BOCA RATON, FLORIDA 33487
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(Address of Principal Executive Offices)(Zip Code)
(561) 994-3223
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Securities Exchange Act of
1934:
Title of Each Class Name of Each Exchange on Which Registered
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None None
Securities registered under Section 12(g) of the Securities Exchange Act of
1934:
COMMON STOCK, PAR VALUE $.001 PER SHARE
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(Title of Class)
Check whether the registrant: (1) 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 [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State registrant's revenues for the year ended July 31, 2000 were $952,994
State the aggregate market value of the voting stock held by non-affiliates of
the registrant on October 10, 2000 computed by reference to the closing bid
price of the Registry Magic Incorporated Common Stock as reported by NASDAQ on
that date $6,367,428.
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the registrant's Common Stock, par value
$.001 per share (the "Common Stock"), as of October 31, 2000, was 5,380,068.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Registry was organized to design, develop, commercialize and market proprietary
products and services that exploit recent advances in speech recognition
technologies. The Company also is developing secured voice enabled applications
that can be incorporated with emerging technologies in wireless area networks
with particular emphasis on point-of-sale equipment. The products currently
offered or under development by Registry have the objective to enable a user to
speak into a telephone or to a computer in a natural conversational manner and,
in turn, have the product listen, understand and respond by performing tasks or
retrieving information in a secured environment.
Registry's initial product was the Virtual Operator(TM) a speech driven
auto-attendant and call routing turnkey product. Although the Virtual Operator's
technology has garnered many industry awards, the product is generating only
limited sales and the Company has been unable to successfully create a
substantial market for it. This has resulted in significant losses for Registry
Magic over the past three years.
At the end of August, the Company introduced a CEO and vice president of
technology and business development. Since then, the Company has repositioned
itself in the Mobile Commerce (mCommerce) industry by leveraging its existing
speech application technologies, incorporating emerging wireless technologies
(i.e. Bluetooth), and shifting its business model to one focused on developing
recurring revenue. Under this new direction, the Company has broadened its
technology base to capitalize on the expanding mobile Internet and eCommerce
marketplaces. Registry is also seeking to establish distribution capacity for
its technologies through a combination with a major distributor of point-of-sale
equipment.
INDUSTRY BACKGROUND
Historically, emphasis in the speech recognition industry has been placed on the
development of core speech recognition engine technology, rather than on the
development of speech recognition applications technology. The speech
recognition engine is the core technology upon which various applications are
based. Major companies, including IBM, Lernout & Hauspie Speech Products, N.V.,
Philips, Fonix, and Lucent, have spent vast sums of money over the last quarter
century in developing core engine technology, but have, for the most part,
relegated developing applications to others. Speech recognition engine
technologies require distinct skills including speech algorithms, statistics,
digital signal processing algorithms, digital signal processing programming,
phonetics, linguistics, information theory and coding theory.
As the number of electronic devices used by businesses and consumers proliferate
and the features and functionality of these products and services increase and
become more complex, manufacturers continually seek to increase the ease of use
and the interface between their products and the end user. The manner and
simplicity of operation of a product can have a direct effect on its popularity,
frequency of use and market acceptance. The introduction of the "mouse" and the
graphical user interface ("GUI"), each of which simplified the use of the
personal computer, are examples of how improving a product's user-friendliness
can enhance its marketability.
In early 1998 a group of computer and telecommunications industry leaders
including Intel, IBM, Toshiba, Ericsson, and Nokia, together began developing a
way for users to connect a wide range of mobile devices quickly and easily,
without cables. To ensure that this technology is seamlessly implemented in a
diverse range of devices, these leaders formed a special interest group to
design a royalty-free, open specification technology, code named "Bluetooth."
This group has quickly gained membership from companies such as 3COM, Palm, Axis
Communication, Compaq, Dell, Lucent Technologies UK Limited, Motorola, Qualcomm
and Xircom and is encouraging the involvement of all
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other companies interested in offering products taking advantage of a
standardized wireless means for connection.
Bluetooth technology allows for the replacement of the many proprietary cables
that connect one device to another with one universal short-range radio link.
For instance, Bluetooth radio technology built into both the cellular telephone
and the laptop would replace the cumbersome cable used today to connect a laptop
to a cellular telephone. Printers, PDA's, desktops, fax machines, keyboards,
joysticks and virtually any other digital device can be part of the Bluetooth
system.
But beyond untethering devices by replacing the cables, Bluetooth radio
technology provides a universal bridge to existing data networks, a peripheral
interface, and a mechanism to form small private groupings of connected devices
away from fixed network infrastructures.
Together with other industry initiatives, such as WAP (Wireless Application
Protocol), Bluetooth conceivably will have a significant effect on everyday
life. Bluetooth is one of the key technologies that can make the mobile
information society possible, blurring the boundaries between home, the office
and the outside world.
STRATEGY
Registry's overall goal is to exploit our proprietary speech recognition
application expertise and combine it in a secured environment with the wireless
Internet, mobile commerce, and wireless LANs to move closer to the customer. By
broadening the spectrum of the Company's technologies to include Speech
Recognition and Verification, WAP, and wireless LANS (primarily Bluetooth), the
Company believes it can take advantage of recent technological developments that
are bringing the Internet, databases and LANS to the retail market. The Company
has developed products that integrate Bluetooth technology with point-of-sale
terminals. The Company plans on developing additional products around this
platform. Critical to the Company's ability to develop this market is its need
to combine its technology with distribution capacity. Registry believes that
this focus will create the opportunity for the Company to participate in the
emerging mCommerce market using the most usable natural interface, the human
voice. The Company believes that recent developments in wireless delivery of
information will transform a consumer's everyday experience, specifically in
environments where point-of-sale transactional exchanges are becoming
increasingly slow and cumbersome.
Registry is revamping its business model to adapt to this environment. The
Company believes that in order to bring its applications to the marketplace in a
timely and efficient manner, it must employ its speech technology applications
with e-commerce products and services developed by others and exploit marketing
and distribution channels developed by others. Registry believes that by
entering into strategic alliances with partners that have made such investments,
its resources can be focused on the delivery of solutions.
SYNERGEX MERGER AND TERMINATION
On February 11, 2000, Registry Magic entered into a merger agreement with
Synergex International Corporation. Synergex is engaged in the design of
software tools and services. Had the merger been completed, the Company would
have likely discontinued its Virtual Operator speech driven auto-attendant and
focused on speech enabling Synergex products. The Company still continues to
sell its Virtual Operator and is currently assessing the continuation of the
product.
The merger agreement was subject to various conditions which Synergex was not
able to satisfy. However, during that period Registry Magic de-emphasized its
Virtual Operator operations.
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On August 7, 2000 Registry Magic terminated its Merger Agreement with Synergex.
Under the terms of the Merger Agreement in connection with the potential
combination of Registry and Synergex the parties entered into certain agreements
and understandings.
On February 28, 2000 Synergex and Registry entered into a management services
agreement. Synergex agreed to provide Registry with executive accounting, sales,
marketing and other management services. Under the agreement, Registry agreed to
pay Synergex a monthly fee of $10,000 plus all out of pocket travel expenses
incurred in connection with the services provided. The agreement provided that
in the event the proposed merger did not close, Registry would pay Synergex an
additional fee equal to the product of $10,000 times the number of months from
the effective date of the agreement until termination or expiration. Total
management fees paid to Synergex for the year ended July 31, 2000 were $135,872.
In April 2000, Registry and Synergex entered into a line of credit whereby
Registry advanced to Synergex a total of $150,000. The note provided that in the
event the merger did not close, Synergex would pay to Registry the principal
then outstanding plus the interest at the prime rate plus 2% in 36 equal monthly
installments, beginning September 1, 2000. Currently the note is past due.
Registry and Synergex are negotiating a Settlement Agreement satisfying all
obligations in connection with the Merger Agreement and the related
transactions. Under the terms of the proposed Settlement Agreement, Synergex
will repay Registry the $150,000 in 36 equal monthly installments of $4,946.40.
The proposed Settlement Agreement also provides for mutual releases between
Registry and Synergex and covenant not to sue.
BRISTOL RETAIL SOLUTIONS
On November 6, 2000 Registry Magic and Bristol Retail Solutions entered into an
Agreement and Plan of Merger. The Merger Agreement provides, among other things,
that upon the terms and subject to the conditions contained in the Merger
Agreement, Bristol will merge with and into a subsidiary of Registry Magic
formed solely for the purpose of completing the Merger. In the Merger all
outstanding shares of common stock of Bristol will be converted into the right
to receive .65 of a share of Registry Magic's common stock. At November 6, 2000,
approximately 6,977,000 shares of Bristol common stock were outstanding. Certain
members of management and a principal shareholder of the Company are also
members of management and are shareholders of Bristol.
The shares of Bristol's outstanding preferred stock at the date of the merger
shall be converted into similar shares of preferred stock of Registry Magic. The
Merger Agreement is subject to approval of the shareholders of Bristol and
obtaining third party consents by Bristol, including the consent of the holders
of Bristol's Series C Convertible Preferred Stock. At the effective date of the
Merger, the Board of Directors of Registry Magic shall consist of five members,
four of whom shall be designated by Registry, and at least two whom shall be
independent within the meaning of the securities exchange on which the Registry
shares are then listed and one will be designated by Bristol.
Effective October 20, 2000, Bristol entered into a promissory note whereby
Registry advanced $250,000 to Bristol. The funds shall be used by Bristol for
working capital purposes. In the event the proposed merger between Registry and
Bristol does not close, Bristol will repay Registry the amount plus outstanding
interest at the rate of 8% per annum on October 19, 2001. The Note is secured by
all of Bristol's inventory and receivables not subject to and second to the
first lien of Coast Business Credit.
Bristol is a dealer of retail point-of-sale ("POS") systems in the United States
with sales, service and support offices in 10 cities located in six states.
Bristol sells, installs and supports POS systems, which retail establishments
used to collect and process data at the "point-of-sale" during sales
transactions with
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customers. Bristol has installed systems in more than 16,000 retail locations,
primarily in two major markets: grocery stores and table-service and fast-food
restaurants. Bristol installs POS systems manufactured by NCR Corporation,
Matsushita Electronic Corporations of America, ICL Retail Systems, Micros
Systems, Incorporated and several other software and hardware manufacturers.
The POS computer systems installed by Bristol serve a range of mission-critical
functions required by retailers to be competitive today. These systems may
integrate several hardware devices such as a cash register, display terminals,
scanners, debit and credit card verification devices and may include software
from more than one manufacturer. A POS computer system is designed to assist a
retailer with speedier customer checkout service, tracking customer purchases
and preferences, monitoring inventory on a real-time basis, promotional and
electronic funds transfer systems and security monitoring.
The driving forces in retailing in the United States are the need to attract and
retain new customers with a variety of goods and services that meet the
ever-changing tastes of consumers, to increase the average sale per visit, and
to maximize internal productivity and efficiency in order to generate higher
operating profits. Retailers need the ability to quickly identify the buying
history and preferences of the consumer. Access to such information allows
retailers to match or to adjust their current products and services to the
ever-changing demands of consumers. These trends have accelerated the
requirement for enterprise-wide access to information and have heightened the
demand for automated information systems. Furthermore, consumers are demanding
speedier checkout times, the ability to accept credit and debit cards at the
point-of-sale, and the convenience of performing a POS transaction without human
intervention.
Retail automation has become an important tool for creating strategic advantage.
There is a growing trend among retailers to implement local area networks
("LANs") and wide area networks ("WANs") in retail establishments. The LANs
serve a range of valuable functions, including speeding customer checkout
service, tracking customer purchases and preferences, monitoring inventory on a
real-time basis, integrating scanning, promotional and electronic funds transfer
systems, monitoring security and in-store accounting. WANs integrate several
LANs into a corporate headquarters' information system to create the ability for
management to remotely monitor individual store operations by analyzing the data
that a sophisticated POS system produces.
PRODUCTS
Product Characteristics
Registry has developed and is developing proprietary applications software
products that simulate the manner in which human beings communicate by
incorporating the following key attributes:
SPEAKER INDEPENDENCE -- enables any person to speak and be understood. As a
result, within a geographic region or country Registry's technology "listens" to
and can understand different dialects, ages and genders.
DIALOGUE DETECTION (KEY WORD SPOTTING) -- identifies the key words for action
within any naturally spoken command. For example, a caller may say, "I'd like to
speak with John Doe, please" Dialogue Detection locates the name "John Doe" and
ignores all other words that have been spoken.
TALK-THRU (BARGE-IN) -- allows callers to override prompts with their voice. The
computer stops speaking, "hears" the new input and responds by going into its
database to retrieve the requested information.
MAGIC BULLSEYE(TM) - performs automatically the desired task based on the
confidence of the
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understanding of the caller's spoken command, without the need for an additional
confirmation prompt, thereby making the caller interaction with the computer
more efficient and natural.
SPEAKER VERIFICATION - provides secure verification of the user through voice
imprints.
Products Available or Under Development
VIRTUAL OPERATOR(R). Registry's first stand-alone product is a speech driven
auto-attendant that enables a caller to request connection to a person or
department by speaking into a telephone in a natural manner. A caller does not
need to remember the extension of the person or department to whom the caller
wishes to speak, and the caller is not required to enter touch-tones to transfer
to a desired department. Additionally, a caller can interrupt a prompt at any
time and state the caller's request without waiting for the prompt to finish.
CONTENT AND COMMERCE ACCESS. Registry has developed applications that enable
individuals to access information and conduct transactions using voice as an
interface. These applications are aimed at Internet content providers, ecommerce
companies, and brick-and-mortar retailers who wish to extend their distribution
channel to include a voice interface.
STRATEGIC RELATIONSHIPS
Registry continues to expand its relationships with technology providers and
distribution partners. Currently, some of these relationships include:
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V. Registry has entered into a distribution
and licensing agreement with L&H, an international provider of speech
recognition core engine technologies. As part of this agreement, Registry has
acquired rights to incorporate certain L&H technologies within Registry's
products. While this agreement ends on December 31, 2000 the Company believes
they can substitute other vendors with comparable terms.
DIALOGIC CORPORATION. Registry has an agreement with Dialogic Corporation, the
largest manufacturer of computer telephone equipment. As such, Registry is
authorized to participate in a number of marketing programs in support of the
promotion of Registry's products.
SALES AND MARKETING
To date, marketing efforts have been conducted by Company personnel and have
focused on national and regional distribution companies and OEM telephone switch
and voicemail manufacturers.
The Company also intends to revamp its sales and marketing approach through its
combination with Bristol Retail Solutions, Inc. Bristol is a dealer in Retail
POS Systems in the United States with sales, services and support offices in 10
cities across the U.S. Bristol employs 80 people in sales, support and service
functions. The Company intends to avail itself of Bristol's sales organization
to market the Company's technology and products to customers of Bristol.
SUPPLIERS AND LICENSORS
Registry's proprietary software incorporates core speech engine technology
developed by others for which Registry has obtained licenses.
Registry has entered into a four-year, non-exclusive, worldwide license
agreement, effective as of December 31, 1996 and as subsequently amended, to use
and exploit L&H's proprietary core speech recognition engine technologies and
text-to-speech technologies. L&H is an international developer, licensor and
provider of multilingual advanced speech and language technologies and services
for
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telephone and desktop applications. Included in the license to Registry are all
advances or improvements made by L&H to such technologies and all foreign
language uses requested by Registry which initially include American English,
Castillian Spanish, French, German, Italian, Dutch, and in certain instances,
British English and Korean. L&H has agreed to provide technical support,
marketing support and training to Registry. Registry paid L&H an aggregate of
$1,000,000 in non-refundable prepayments under this agreement against future
royalties due to L&H on sales of certain of Registry's products incorporating
L&H technology which represents the total amount due under this agreement. While
this agreement ends on December 31, 2000 the Company believes they can
substitute other vendors with comparable terms.
Registry's software products are designed to be used with personal computers,
specifically Intel(R) Pentium processors. Standard telephone interface cards are
also required for certain of the turnkey hardware products if these products
communicate via the telephone. Registry's telephony products currently require
telephone interface cards manufactured by Dialogic of Parsippany, New Jersey,
however there are a number of other manufacturers, including Natural
Microsystems, Rhetoric, and NewVoice from which Registry may purchase cards on
similar terms and conditions. Certain of Registry's products also rely on
special processing boards that are manufactured by Dialogic as well. The loss of
Dialogic as a source for these cards could have a material adverse impact on
Registry, since Registry might not be able to offer all the features of a
particular application if it were required to rely on other suppliers.
Registry's personal computer desktop software products require high quality
sound cards shipped with most PCs today, as well as high quality noise-canceling
microphones available from a number of suppliers including Andrea Electronics.
Registry's telephone based products are designed to be used with Microsoft(R)
Windows. Additionally, toolkits (i.e. collections of programs that facilitate
the creation of applications software) from engine providers enable Registry to
exploit speech recognition engine technologies developed by different vendors.
Typically, Registry selects engine toolkits and speech recognition engine
technology manufactured by the same entity. Alternatively, Registry selects a
programming toolkit to complement a specific application based on the toolkit
that produces the fastest results in a high quality manner and yields
efficiencies in hardware requirements.
PROPRIETARY RIGHTS
Registry considers its software and applications as proprietary and currently
relies on a combination of copyright, trade secret and trademark laws and
license agreements to protect its intellectual property rights. Registry also
has entered and will enter into license agreements with end-users of the
products and applications, and has required all employees to enter into
confidentiality and non-disclosure agreements. Despite these precautions, it may
be possible for unauthorized third parties to copy aspects of Registry's
products or to obtain and use information that Registry regards as proprietary.
COMPETITION
The speech recognition applications market is growing and is characterized by
intense competition. Registry's products will compete with, or affect the sales
of, many well-established companies including IBM, AT&T, Digital Equipment,
Lucent, Nortel and Unisys. These companies have substantially greater financial,
technical, personnel and other resources than Registry and have established
reputations for success in the development, licensing and sale of their products
and technology, especially the larger organizations. Several of these
competitors have the financial resources necessary to enable them to withstand
substantial price competition or downturns in their markets. In addition,
certain companies may be expected to develop technologies or products that may
be functionally similar to some or all of those being developed by Registry.
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EMPLOYEES
Registry, as of July 31, 2000, has 10 full-time employees. Of such employees, 2
persons are in management and finance; 2 persons are engaged in sales and
marketing; 2 persons are engaged in development; 3 are in product support, and 1
person is in administration. No employee of Registry is covered by a collective
bargaining agreement or is represented by a labor union. Registry considers its
employee relations to be good.
ITEM 2. DESCRIPTION OF PROPERTIES
On May 15, 2000, Registry commenced a one year lease of 1,762 square feet of
office space in Boca Raton, Florida for a monthly base rental of $2,202, plus
Registry's proportionate share of taxes and operating expenses.
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
Registry is not a party to any material litigation nor is it aware of any
material threatened litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ SmallCap Market under the
symbol "RMAG." The following sets forth the range of high and low closing bid
prices for the Common Stock as reported on NASDAQ during each of the periods
presented. The quotations set forth below are inter-dealer quotations, without
retail mark-ups, markdowns or commissions, and may not necessarily represent
actual transactions.
PERIOD HIGH LOW
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1998
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June 28, 1998 to July 31, 1998 $ 13.125 $ 7.625
1999
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First Quarter $ 11.750 $ 4.000
Second Quarter $ 6.625 $ 2.500
Third Quarter $ 11.500 $ 3.875
Fourth Quarter $ 8.250 $ 3.000
2000
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First Quarter $ 3.625 $ 1.063
Second Quarter $ 4.563 $ 1.563
Third Quarter $ 7.500 $ 1.500
Fourth Quarter $ 2.750 $ 1.219
2001
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First Quarter $ 2.000 $ .50
As of July 31, 2000 there were 71 record holders of the Company's Common Stock.
The Company believes
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that there are substantially in excess of 300 beneficial and round lot holders
of the Company's Common Stock.
The Company has not paid any cash dividends on its Common Stock and currently
does not expect to declare or pay cash dividends in the foreseeable future. The
Company presently intends to retain any earnings that may be generated to
provide funds for the operation of business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements of the Company and the notes thereto appearing elsewhere
herein.
OVERVIEW
Registry was organized to design, develop, commercialize and market proprietary
products and professional services that exploit recent advances in speech
recognition technologies. Registry's products currently marketed or under
development have the objective of enabling a user to speak into a telephone or
to a computer in a natural conversational manner and, in turn, have the product
listen, understand and respond by performing tasks or retrieving information.
Registry's products and services, among other things, will (i) substantially
eliminate the need for touch-tone menus, (ii) reduce operational costs by
performing repetitive tasks of live employees and (iii) allow for the access of
information from anywhere and at anytime through speech. The Company's business
strategy is to focus on products and pricing models that produce revenue on a
transaction or recurring basis. While, we have generated limited revenues, the
Company's expenses continue to significantly exceed revenues. There can be no
assurance that product installations, royalties or licensing will generate
sufficient revenues to enable the Company to operate profitably during its 2001
fiscal year or thereafter.
At the end of August, the Company introduced a CEO and vice president of
technology and business development. Since then, the Company has repositioned
itself in the Mobile Commerce (mCommerce) industry by leveraging its existing
speech application technologies, incorporating emerging wireless technologies,
and shifting its business model to one focused on developing recurring revenue.
Under this new direction, the Company has broadened its technology base to
capitalize on the expanding mobile Internet and commerce marketplaces. Registry
is also seeking to establish distribution capacity for its technologies through
a combination with a major distributor of point-of-sale equipment.
Registry's overall goal is to exploit our proprietary speech recognition
application expertise and combine it in a secured environment with the wireless
Internet, mobile commerce, and wireless LANs to move closer to the customer. By
broadening the spectrum of the Company's technologies to include Speech
Recognition and Verification, WAP, and wireless LANS (primarily Bluetooth and
802.11b), the Company believes it can take advantage of recent technological
developments that are bringing the Internet, databases and LANS to the retail
market. Critical to the Company's ability to develop this market is its need to
combine its technology with distribution capacity. Registry believes that this
focus will create the opportunity for the company to participate in the emerging
mCommerce market using the most usable natural interface, the human voice. The
Company believes that recent developments in wireless delivery of information
will transform a consumer's everyday experience, specifically in environments
where point-of-sale transactional exchanges are becoming increasingly slow and
cumbersome.
The Company is subject to all of the risks inherent in the establishment of a
young business enterprise. To address these risks, the Company must, among other
things, increase the number of key customer installations, enter into successful
distribution arrangements, respond to competitive developments, and attract,
retain and motivate qualified personnel. Failure to achieve one or more of these
goals could have
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a material adverse effect upon the Company's business, operating results and
financial condition.
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 year ended July 31, 2000 product sales were
$952,994 as compared to $2,453,285 for the year ended July 31, 1999. The
decrease in sales resulted from no joint development projects and licensing fees
and a corporate restructuring to prepare for the planned merger with Synergex
International, which was terminated August 7, 2000. As part of the
restructuring, certain sales staff and other staff not directly focused on
strategic projects were terminated. The Company has currently developed products
that focus utilizing Bluetooth technology with point-of-sale terminals. It
believes there is a large market for these products. The Company is currently
evaluating the future of its Virtual Operator product.
For the year ended July 31, 2000 four customers Cyber Solutions, Lucent
Technologies, Siemens ICN and ECI Telecom Tadiran accounted for 68% of total
revenues. For the year ended July 31, 1999 one customer Veritel Corporation
accounted for 10% of software development revenue.
For the year ended July 31, 2000, cost of goods sold amounted to $593,371 or 61%
of sales compared to $1,523,108 or 62% of sales for the year ended July 31,
1999, a decrease of $929,737 representing hardware costs associated with the
Company's Virtual Operator. For the year ended July 31, 2000 the Company
increased its inventory reserve to $34,720.
General and administrative expenses decreased by $1,212,293 from $3,857,760 for
the year ended July 31, 1999 to $2,645,467 for the year ended July 31, 2000. The
reduction in general and administrative expense was due to decreased
administrative and sales staff. The decrease in staff was due to the termination
of all staff not directly focused on strategic projects. The Company does not
foresee a significant increase in general and administrative costs from its
present level.
No royalty expense was incurred for the year ended July 31, 2000 compared to
$500,000 for the year ended July 31, 1999. This is due to no royalty agreements
being entered into in the current fiscal year.
Research and development expenses for the year ended July 31, 2000 were $704,904
compared to $1,242,210 for the year ended July 31, 1999, a decrease of $537,306.
The Company has reduced development staff in order to focus on strategic product
development. While the Company continues to develop additional products it may
be required to hire additional development staff. 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".
Depreciation expense increased $7,877 for the year ended July 31, 2000 to
$203,698 from $195,821 for the year ended July 31, 1999 primarily due to the
Company purchasing additional computer hardware during the 2000 fiscal year.
Acquisition costs, which were $384,306 for the year ended July 31, 2000, related
to the proposed merger with Synergex. These costs represent legal, accounting,
printing and other costs associated with the termination of the abandoned
merger.
On August 7, 2000, the Company and Synergex International Corporation
("Synergex") terminated a Plan of Merger and accordingly, the Company wrote off
acquisition cots of approximately $384,000. In connection with the termination
of the Merger Agreement, the Company terminated a Management Services Agreement
whereby Synergex agreed to provide the Company with executive accounting, sales,
marketing and other management services as agreed upon by the parties. The
Company's personnel resumed these functions.
Interest income, for the year ended July 31, 2000 amounted to $185,029 compared
to interest income of $364,019 for the year ended July 31, 1999. The decrease in
interest income was due primarily to the reduction in the Company's cash
balances.
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LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 2000, the Company had $1,876,667 in cash and cash equivalents.
The Company does not have any available lines of credit. Since inception, and
until completion of the Company's public offering in June 1998, the Company
financed its operations through loans from the Company's Chairman and his wife
and from private placements of both debt and equity. 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 also closed on the underwriting
over-allotment. The Company sold an additional 220,000 shares of common stock at
the initial public offering price of $7.25 per share, raising additional
proceeds, act of offering costs of approximately $1,400,000.
Net cash used in operating activities decreased by $2,010,384 to $2,881,954 for
the year ended July 31, 2000 from $4,892,338 for the year ended July 31, 1999.
The decrease in net cash used in operating activities is primarily due to the
Company's reduction in research and development and sales and marketing efforts.
Net cash used in investing activities during the year ended July 31, 2000 and
1999 was $152,523 and $341,879 respectively. The expenditures are primarily
related to amounts due from Synergex and amounts due from a related party.
During the year, the Company disposed of $288,017 of fixed assets.
Net cash used in financing activities during the year ended July 31, 2000
amounted to $57,150, and $50,000 for the year ended July 31, 1999. During the
year ended July 31, 2000 the Company repurchased 600,000 shares of common stock
from two former employees. The Company also received $2,850 from the exercise of
stock options.
On June 29, 2000 a former executive of Synergex International Corporation
purporting to act on behalf of the Company entered into an agreement with a
vendor to license certain software for a term of three years. Under the terms of
the document the Company would be obligated to pay $250,000 plus related
charges of $37,500 annually beginning August 1, 2000 payable over the following
eight months. The Company maintains that the former executive of Synergex was
not authorized to execute the licensing document. The vendor should have been
aware of this fact based on a prior relationship with the Company and the
capacity in which the Synergex executive executed the document. Management does
not believe that any obligation exists under the document and accordingly, has
not accrued any costs.
The report of the independent auditors on the Company's financial statements as
of July 31, 2000 contains an explanatory paragraph regarding an uncertainty with
respect to the ability of the Company to continue as a going concern. The
Company is not generating significant revenues and has an accumulated deficit of
($11,620,848). However, the Company believes that its shift in focus to
developing application that focus on mCommerce and its revised business model
that centers around recurring revenue will provide sufficient revenues and
liquidity for the Company to operate for the next 12 months. However, there can
be no assurances that the Company will be successful in developing its business
model and achieving a profitable level of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133
requires companies to recognize ALL derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedge risk, or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative NOT
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. As amended the effective date has been changed to all
fiscal quarters of fiscal years beginning after June 15, 2000.
Historically Registry has not entered into any derivative contracts in order to
hedge existing risks or for speculative purposes. Accordingly, Registry does not
expect adoption of the now standards to affect its financial statements.
In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (Interpretation 44), ACCOUNTING FOR CERTAIN TRANSACTIONS
INVOLVING STOCK COMPENSATION. Interpretation 44 provides criteria for the
recognition of compensation expense in certain stock-based compensation
arrangements that are accounted for under Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Interpretation 44 is effective
July 1, 2000, with certain provisions effective retroactively to December 15,
1998 and January 12, 2000. There was no effect of the retroactive
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provisions of Interpretation 44 on the Company's financial statements.
Interpretation 44 is not expected to have a material effect on the Company's
financial statements.
RISK FACTORS
This Annual Report Form 10-KSB contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements,
other than statements of historical facts, included in or incorporated by
reference into this Form 10-KSB, are forward-looking statements. In addition,
when used in this document, the words "anticipate," "estimate," "intends,"
"project" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. Although the Company believes that the expectations we include in
such forward-looking statements are reasonable, we cannot assure you that these
expectations will prove to be correct.
Among the key risks that could cause actual results to differ
materially from expectations, estimates of costs, projected results or
anticipated results are as follows:
LIMITED OPERATING HISTORY; OPERATING LOSSES
We have received only limited revenues from our inception in October
1995 through July 31, 2000. Total revenues for the year ended July 31, 2000 were
$952,994. We have only recently begun generating sales from our Virtual Operator
product. Accordingly, we have only a limited history upon which you can evaluate
our prospects and future performance. Our prospects must be considered in light
of the risks, expenses and difficulties frequently involved in the operations
and expansion of a new business in an evolving industry, which has not obtained
widespread commercial acceptance and which experiences rapid technological
obsolescence and intense competition.
From inception through July 31, 2000, we have incurred cumulative
losses of ($11,620,848) and anticipate that our losses will continue during the
fiscal year ending July 31, 2001. We expect to incur significant expenditures in
connection with the development and marketing of our speech recognition
applications which will likely result in losses until such time, if ever, as we
are able to obtain sufficient contracts for our speech recognition products and
services which will generate adequate sources of revenue to support our
operations. We cannot assure you that our current business strategy will enable
us to ever achieve profitable operations.
SIGNIFICANT CAPITAL REQUIREMENTS; POSSIBLE NEED FOR ADDITIONAL FINANCING
We will continue to have significant capital requirements due to the
substantial costs associated with product development and refinement,
recruitment of skilled personnel and the marketing of innovative speech
recognition products and related services primarily to large established
corporations and other organizations. Our cash requirements for the purpose of
developing our products have been substantial and, as a result, we have been
dependent upon capital resources provided by investors in order to finance our
operations.
At the current time our expenditures are exceeding our limited revenues
on a monthly basis. While we expect our revenues to increase during the 2001
fiscal year, if we are wrong, or our revenues do not increase substantially, we
will continue to deplete our cash resources from our previous public offering.
In the event we do not develop and refine our products on a timely basis, we do
not complete contracts for the provision of products and technology in
sufficient number or in the event the proceeds of our initial public offering
are insufficient to fund the implementation of our business plan and working
capital requirements, we may require additional financing. We have no current
arrangements with respect to, or potential sources
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of, additional financing and we do not anticipate that existing shareholders
will satisfy any portion of our future financing requirements. We cannot assure
you that any additional financing will be available to us when needed, on
commercially reasonable terms, or at all. If we are unable to obtain additional
financing when needed, this may have a material adverse effect on us, including
the curtailment of our product development, marketing and expansion activities.
(See Liquidity and Capital Resources)
DEVELOPMENT OF MARKETS REQUIRED FOR SUCCESSFUL PERFORMANCE BY THE COMPANY
We have only recently commenced major marketing activities, and we
cannot assure you that our marketing program will be successful or that our
applications software will be accepted by the market. Market acceptance for our
products will require substantial marketing efforts and the expenditure of
significant funds. Our financial performance will depend, in part, on acceptance
of speech recognition technology and the future development, growth and size of
this market. Our applications software products will compete with more
conventional means of information processing (e.g. data entry or access by
keyboard or touch-tone phone). The development of these markets also will depend
upon the following:
o demand for new applications
o ability of our products and services to meet and adapt to
these needs
o continuing price and performance improvements in speech
recognition engine technology and hardware technology that
will reduce the cost and increase the performance of products
incorporating our applications
UNCERTAINTY OF PRODUCT AND TECHNOLOGY DEVELOPMENT BY THE COMPANY
Our initial product, the Virtual Operator, is a speech driven
auto-attendant. Our success will depend, in part, upon the ability of our cost
objectives, and their timely introduction into the marketplace.
In addition, early versions of software products often contain errors
or defects. We cannot assure you that, despite extensive testing by us and
potential customers, errors or defects will not be found in our applications
software products prior to or after commencement of their commercial deployment.
This may result in redevelopment costs and loss of, or delay in, market
acceptance of our products. Additionally, we cannot assure you that our products
will satisfactorily perform the functions for which they are designed or that
they will meet applicable price or performance objectives.
RAPID TECHNOLOGICAL CHANGE
The speech recognition products market is expected to involve rapid
technological change resulting in dynamic customer demands, frequent new product
and service introductions and short product lifecycles. The markets for our
products may change rapidly as a result of the following:
o innovations in core speech recognition engine technology
o computer hardware
o software and communications technologies
Our success will depend, in part, upon our ability to make timely and
cost-effective enhancements and additions to our existing applications software
products and to develop new products that meet changing customer demands. We
cannot assure you that we will have the resources necessary to achieve these
objectives and that our products will not be rendered obsolete.
COMPETITION
The speech recognition applications market is growing and expected to
become intensely competitive. Our products will compete with those developed or
being developed by many well-established
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companies. For example, we will compete with International Business Machines
Corporation, American Telephone and Telegraph Company, Microsoft Corporation,
Digital Equipment Corporation, Lucent Technologies, Inc., and Unisys
Corporation. Most of these companies have substantially greater financial,
technical, personnel and other resources than we do, and have reputations for
success in the development, licensing and sale of their products and technology.
A number of these competitors have the financial resources that enable them to
withstand substantial price competition or downturns in their markets. In
addition, certain companies may be expected to develop technologies or products
which may be similar to some or all of those being developed by us. With respect
to our Virtual Operator product, our competitors may include Philips, Vocalis
Group P.L.C., Phonetics and Pure Speech, Inc.
Industry standards with respect to the markets for the technology and
products being developed by us are continually evolving. This often results in
product obsolescence or short product life cycles. Accordingly, our ability to
compete successfully will depend on a number of factors including:
o our ability to complete development and introduce into the
marketplace our proposed products and technology
o to continually enhance and improve our products and technology
in a timely manner
o to adapt our proposed products in order to be compatible with
specific products manufactured by others
o to successfully develop and market new products and technology
We cannot assure you that we will be able to compete successfully, that our
competitors or future competitors will not develop technologies or products that
make our products and technology obsolete or less marketable, or that we will be
able to successfully improve our proposed products or technology or adapt them
satisfactorily.
DIFFICULTIES IN MAINTAINING PROPRIETARY RIGHTS
Our success depends upon our proprietary applications software
technology which may be difficult to protect. We currently rely on a combination
of contractual rights, trade secrets, know-how, trademarks, non-disclosure
agreements and technical knowledge to establish and protect our proprietary
rights. We cannot assure you, however, that the measures we have taken to
protect our proprietary rights will be adequate to prevent misappropriation of
the technology or independent development by others of products with features
based upon, or otherwise similar to, those of our products. Additionally,
although we believe that we have independently developed our technology and our
technology does not infringe on the proprietary rights or trade secrets of
others, we cannot assure you that our technology does not and will not so
infringe or that third parties will not assert infringement claims, trade secret
violations, competitive torts or other proprietary rights violations against us
in the future. In the case of infringement, we could, under certain
circumstances, be required to modify our products or obtain licenses, which
could require cash or other consideration. We cannot assure you that we will be
able to do either in a timely manner or upon acceptable terms and conditions,
and this failure could have a material negative effect on us. In addition, we
cannot assure you that we will have the resources to defend or prosecute a
patent infringement or other proprietary rights infringement action.
DEPENDENCE ON OTHER COMPANIES FOR ASSEMBLY AND COMPONENT PARTS
We do not manufacture component parts for our products and,
accordingly, will be dependent on others for the supply and assembly of various
of our products. Our products are designed to be used with personal computers
(PCs), specifically Intel Pentium MMX (multi-media extension) processors. While
we currently purchase our telephone interface cards, which are also required for
our software applications, from Dialogic Corporation, located in Parsippany, New
Jersey, there are a number of other manufacturers who can supply similar
products to us, and we are not dependent upon a single supplier for any
equipment or component parts. However, the loss of Dialogic as a source for
telephone interface cards could have a
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negative impact on us, since we may not be able to offer all of the features of
a particular application if a card manufactured by another entity is used.
Additionally, we generally do not have long-term contracts with suppliers for
the purchase and delivery of component parts or contractors for the assembly of
our products. However, any interruption of supply in the assembly services we
use or in the supply of key components, for any reason, could result in
significant delivery delays, which would have a material negative effect on our
marketing efforts, customer relations, revenues and future profitability.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH
Under our business plan the anticipated growth in our customer base and
continued development of our speech recognition products and related services
also involve potential risks. This growth and continued development could place
a major strain on our management, employees and operations. In the event of this
expansion, we would have to continue to implement and improve our operating
systems, and to expand, train and manage our employee base. If we are unable to
implement and improve these operating systems and manage our employee base
effectively, our operations could be negatively affected.
VARIABILITY OF QUARTERLY RESULTS
Our quarterly operating results may fluctuate as a result of a variety
of factors, including:
o the length of the sales cycle
o the timing of orders from and shipments to customers
o delays in product development and customer acceptance of
custom applications
o product development expenses
o the success of new product introductions or announcements by
us or our competitors
o levels of market acceptance for new and existing products
o the hiring and training of additional staff as well as general
economic conditions.
Because a significant portion of our overhead is fixed in the
short-term, our results of operations may be negatively affected if revenues
fall below our expectations. If our management's estimate of product sales and
product mix turn out to be substantially inaccurate, we may not have the
necessary inventory available to deliver systems in a timely manner. This could
have a material negative effect on our results of operations during quarterly
periods.
DEPENDENCE ON KEY PERSONNEL
Our success depends on the efforts of the members of our management,
especially Lawrence Cohen, our Chairman of the Board. Although we have entered
into employment agreements with various members of our management, we cannot
assure you that these persons will continue their employment with us. The loss
of the services of these key people could have a material negative effect on our
ability to maximize our use of our products and technologies, to develop related
products and technologies or conduct the normal operations of the Company. Our
success also depends upon our ability to hire and retain additional qualified
executive, programming, engineering and marketing personnel especially if any of
our current key members of management became unavailable for any reason.
Qualified executives and employees are in great demand and are likely to remain
a limited resource for the future. Competition for skilled, creative and
technical talent is also intense. We cannot assure you that we will be
successful in attracting and retaining such personnel. Any failure by us to
retain existing employees or to hire new employees when necessary could have a
material negative effect on us.
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POSSIBLE DELISTING OF SECURITIES FROM NASDAQ
The Company's Common Stock is listed on The Nasdaq Small Cap Market. In
order to continue to be listed on Nasdaq, however, we must maintain at least
$2,000,000 in net tangible assets (total assets less total liabilities and
goodwill) or $500,000 in net income in the latest fiscal year or in two of the
last three years or $35,000,000 in market capitalization, a public float of at
least 500,000 shares, a $1,000,000 market value of public float, a minimum bid
price of $1.00 per share, at least two market makers, at least 300 shareholders
and at least two outside directors. The failure to meet these maintenance
criteria in the future may result in the delisting of the Company's securities
from Nasdaq, and the Company's Common Stock would thereafter be traded in the
non-Nasdaq over-the-counter market. As a result of such delisting, an investor
could find it more difficult to dispose of or to obtain accurate quotations as
to the market value of the Company's Common Stock.
AUTHORIZATION OF PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS
The Board of Directors is authorized to issue shares of preferred stock
and to determine the dividend, liquidation, conversion, redemption, and other
rights, preferences, and limitations of such shares without any further vote or
action of the shareholders. Accordingly, our Board of Directors has the power,
without shareholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting, or other rights which could negatively affect
the voting power or other rights of the holders of the Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging and delaying or preventing a change
in control of the Company. We have no present plan to issue any shares of our
preferred stock, although we cannot assure you that the Company will not do so
in the future.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
Our Articles of Incorporation include provisions to eliminate, to the
full extent permitted by the Florida Business Corporation Act (the "Florida
Act") the personal liability of our directors for monetary damages arising from
a breach of their fiduciary duties as directors. The Articles of Incorporation
also include provisions that we shall, to the maximum extent permitted under the
laws of the State of Florida, indemnify, and upon request shall advance expenses
to any director or officer, to the extent that such indemnification and
advancement of expense is permitted under law.
DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRY
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of our current directors and
executive officers, the principal officers and positions held by each person.
The executive officers are elected annually by the board of directors. The
executive officers serve terms of one year or until their death, resignation or
removal by the board of directors. There are no family relationships between any
of the directors and executive officers. In addition, there was no arrangement
or understanding between any executive officer and any other person pursuant to
which any person was selected as an executive officer.
The directors and executive officers of Registry are as follows:
NOW AGE POSITION WITH REGISTRY
--- --- -----------------------
Lawrence Cohen 55 Chairman of the Board, Acting
Chief Executive Officer
Cornelia Eldridge (1)(2) 58 Director
Renney Senn (1)(2) 52 Director
David Kaye 63 Director
Martin Scott 32 Treasurer and Secretary
(1) Member of the Audit Committee of the board of directors.
(2) Member of the Compensation Committee.
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Registry's board of directors held meetings and took action by unanimous written
consent eight times during 2000.
The Registry audit committee, consisting of Cornelia Eldridge and Renney Senn
met one time in 2000. The functions of the audit committee are to review annual
and quarterly financial statements, meet with Registry's independent auditors
and address accounting matters or questions raised by the auditors.
The compensation committee of the Registry board of directors, consisting of
Cornelia Eldridge and Renney Senn, met one time in 2000. The functions of the
compensation committee are to review compensation of officers and employees and
administer and award options under all stock option plans of Registry.
LAWRENCE COHEN has served as Chairman of the Board since he founded Registry in
October 1995. Since February 2000, Mr. Cohen has served as acting Chief
Executive Officer of Registry. Mr. Cohen has been engaged in providing financial
consulting and merchant banking services to early-stage companies for more than
the past 25 years. He has served as Chairman of the Board and Chief Executive
Officer of Bristol Retail Solutions, Inc. (OTCBR: BRTL), a point-of-sale
equipment distributor, since he co-founded such company in April 1996. He is
also the co-founder of Apollo BioPharmaceuticals, Inc., a privately-held company
in Massachusetts engaged in the development of neuroprotective pharmaceuticals,
and currently Chairman of the Board of McLaren Automotive Group, Inc., formerly
ASHA Corp. (Nasdaq:MCLN), an automotive design and motorsports group. Between
November 1990 and September 1996, Mr. Cohen served as Chairman of the Board of
BioTime, Inc. (Nasdaq:BTIM), a biotechnology firm he founded to develop an
artificial blood plasma substitute. He was co-founder of Cryomedical Sciences
(Nasdaq:CMSI), a low temperature surgery company, and served as its President
from November 1990 to November 1991.
CORNELIA ELDRIDGE has served as a director of Registry since October 1998. Ms.
Eldridge is President of Eldridge Associates, Inc., a management-consulting firm
she founded in 1981. Ms. Eldridge currently serves on the Board of Directors of
DE Frey Inc., a financial services firm, and SysComm, the largest assembler and
reseller of IBM mid-range computers.
RENNEY SENN has served as a director of Registry since September 1999. Mr. Senn
joined Holocomm Systems, Inc. as its president, CEO and board chairman in June
1998. Previously, he was the President, CEO and principal founder of FirstWorld
Communications, formerly SpectraNet International formed in 1993. FirstWorld is
a significant competitive local exchange carrier ("CLEC") that has recently
acquired eight Internet Service Providers in California, Texas, Utah, Colorado
and Oregon and has a private market value of approximately $1 billion. In
January 1998 Mr. Senn left the company as part of a purchase of controlling
interest in FirstWorld Communications by Enron Corporation of Houston, Texas and
Donald Sturn.
DAVID KAYE has served as a director of Registry since June 2000. Since January
2000, Mr. Kaye has served as President and Chief Executive Officer of Bristol
Retail Solutions, Inc. (OTCBB:BRTL), a point-of-sale equipment distributor. From
January 1999 until December 1999, he was the Vice President of Corporate Finance
for Kann Capital Ltd., an investment banking firm. From March 1998 until
December 1998, he served as Chief Financial Officer of Tech Electro Industries,
Inc., a publicly traded holding company operating principally in the information
technology sector. From July 1997 to February 1998, Mr. Kaye served as President
of 433, Inc., a corporation offering mediation services to delinquent federal
and state taxpayers. Until July 1997 he served as President and Chief Executive
Officer of Kaye Kotts Associates, Inc., a corporation offering mediation
services to delinquent federal and state taxpayers. In February 1998, Kaye Kotts
Associates, Inc. filed bankruptcy under Chapter 7 of the bankruptcy code.
MARTIN SCOTT, a certified public accountant, has served as Secretary and
Treasurer of Registry since October 1997. From June 1996 until October 1997, he
was employed as an Audit Supervisor by Millward & Co., CPAs. From October 1995
until June 1996, Mr. Scott served as Controller of ERD Waste Corp.
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(Nasdaq:ERDI), a waste disposal company. Prior thereto, from January 1995, he
was employed as a Senior Accountant with the firm of Richard A. Eisner & Co.,
LLP. From January 1991 to January 1995, he was employed as a Senior Accountant
with the firm of Feldman Radin & Co., P.C. Mr. Scott has assumed a position as
Chief Financial Officer of Geotec Thermal Generators, Inc.
ITEM 7. FINANCIAL STATEMENTS
See "Index to Financial Statements" for the financial statements
included in this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation paid to
Lawrence Cohen, Walt Nawrocki and Neal Bernstein (the "Named Executive Officer")
by the Company. No other executive officer of the Company was paid a total
annual salary and bonus for the fiscal year ended July 31, 2000 which was
$100,000 or more.
<TABLE>
<CAPTION>
Securities Other
Name and Principal Fiscal Underlying Annual
Position Year Salary Bonus Options Compensation
-------- ------ -------- ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Lawrence Cohen, 2000 $115,500 -0- -0- -0-
Chairman 1999 $115,500 -0- -0- -0-
1998 $115,000 -0- -0- -0-
1997 $ 67,375 -0- 100,000 -0-
Bruce Carlsmith, 2000 $ 93,333 -0- -0- -0-
President & CEO 1999 $ 12,788 -0- 35,000 -0-
</TABLE>
EMPLOYMENT AGREEMENTS
Effective December 21, 1997, the Company entered into a three-year
employment agreement with Lawrence Cohen providing for base annual salary of
$115,500. The employee may receive annual bonuses at the discretion of the
Company, with bonuses to be determined by the Compensation and Audit Committee.
No formula or criteria have been specifically determined. The agreements provide
for severance equal to one year's salary in the event of (i) non-renewal of the
agreement upon expiration other than for cause or (ii) a change of control of
the Company as a result of which the employee is not retained by new management
on a comparable basis. In addition, the agreements contain confidentiality
provisions and 12-month post termination non-competition restriction which may
be imposed by the Company provided the employee receives a lump sum payment
equal to one year's salary within 30 days of termination of employment. Under
Florida law, a court of competent jurisdiction may determine not to enforce such
non-competition restrictions or partially enforce or modify such provisions.
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OPTION GRANTS IN LAST FISCAL YEAR
1997 STOCK OPTION PLAN
The 1997 Stock Option Plan (the "Plan") provides for the grant of
options to purchase up to 300,000 shares of Common Stock to employees, officers,
directors, and consultants of the Company. Options may either be "incentive
stock options" within the meaning of Section 422 of the United States Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified options.
Incentive stock options may be granted only to employees of the Company, while
non-qualified options may be issued to non-employee directors, consultants, and
others, as well as to employees of the Company.
The Plan will be administered by the Board of Directors or a committee
thereof, who determine, among other things, those individuals who shall receive
options, the time period during which the options may be partially or fully
exercised, the number of shares of Common Stock issuable upon the exercise of
each option, and the option exercise price.
The exercise price of an incentive stock option may not be less than
the fair market value per share of Common Stock on the date the option is
granted. The exercise price of a non-qualified option may be established by the
Board of Directors. The aggregate fair market value (determined as of the date
the option is granted) of Common Stock for which any person may be granted
incentive stock options which first become exercisable in any calendar year may
not exceed $100,000. No person who owns, directly or indirectly, at the time of
the granting of an incentive stock option to such person, 10% or more of the
total combined voting power of all classes of stock of the Company (a "10%
Shareholder") shall be eligible to receive any incentive stock options under the
Plan unless the exercise price is at least 110% of the fair market value of the
shares of Common Stock subject to the option, determined on the date of grant.
Non-qualified options are not subject to such limitation.
Incentive stock options may not be transferred by an optionee other
than by will or the laws of descent and distribution, and, during the lifetime
of an optionee, the option will be exercisable only by the optionee. In the
event of termination of employment other than by death or disability, the
optionee will have no more than three months after such termination during which
the optionee will be entitled to exercise the option, unless otherwise
determined by the Board of Directors. Upon termination of employment of an
optionee by reason of death or permanent and total disability, an optionee's
options remain exercisable for one year thereafter to the extent such options
were exercisable on the date of such termination. No similar limitation applies
to non-qualified options.
Options under the Plan must be issued within ten years from the
effective date of the Plan, which is March 12, 1997. Incentive stock options
granted under the Plan cannot be exercised more than ten years from the date of
grant. Incentive stock options issued to a 10% Shareholder are limited to five
year terms. Options granted under the Plan generally provide for the payment of
the exercise price in cash and may provide for the payment of the exercise price
by delivery to the Company of shares of Common Stock already owned by the
optionee having a fair market value equal to the exercise price of the options
being exercised, or by a combination of such methods. Therefore, if so provided
in an optionee's options, an optionee may be able to tender shares of Common
Stock to purchase additional shares of Common Stock and may theoretically
exercise all of his stock options with no additional investment other than the
purchase of his original shares.
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by the Company become available again for
issuance under the Plan.
The Plan may be terminated or amended at any time by the Board of
Directors, except that the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the Plan may not be
increased without the consent of the shareholders of the Company.
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Options to purchase 289,350 shares of Common Stock have been granted
pursuant to the Plan leaving a balance of 10,650 shares of Common Stock
available for issuance. The Company issued options to purchase an aggregate of
47,500 shares of Common Stock during the year ended July 31, 1999 exercisable at
$7.88 to $8.00 per share over a four-year term to employees of the Company.
Subsequent to year-end the Company retired 92,500 options held by employees no
longer employed by the Company. The Company submitted for shareholder approval
at its 2000 Annual Meeting of Shareholders the 1999 Stock Option Plan ("1999
Plan"). Under the 1999 Plan, the Company will reserve an aggregate of 500,000
shares of Common Stock for issuance pursuant to options granted under the 1999
Plan. The 1999 Plan contains essentially the same terms and conditions as the
existing 1997 Plan.
Options to purchase 363,600 shares of Common Stock have been granted
pursuant to the Plan, leaving a balance of 136,400 shares of Common Stock
available for issuance. The Company issued options to purchase an aggregate of
363,300 shares of Common Stock exercisable at $3.00 to $3.75 per share over a
four-year term to employees of the Company.
AGGREGATED FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth certain information concerning
unexercised stock options held by the Named Executive Officers as of July 31,
2000. No stock options were exercised by the Named Executive Officers during the
period ended July 31, 2000. No stock appreciation rights were granted or are
outstanding.
<TABLE>
<CAPTION>
Number of Unexercised Options Value of Unexercised In The Money
Held at July 31, 2000 Options at July 31, 2000 (1)
-------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Bruce Carlsmith 35,000 -- -- --
Lawrence Cohen (1) 100,000 -- -- --
</TABLE>
(1) Dollar values are calculated based on the difference between the option
exercise price and $1.375, the closing price of the Company's Common
Stock on July 30, 2000, as reported by NASDAQ.
20
<PAGE> 21
ITEM 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 31, 2000, information with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person who is known by the Company to own beneficially more than 5% of its
Common Stock, (ii) each director and nominee for director, (iii) each Named
Executive Officer (as defined herein), and (iv) all directors and executive
officers as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
NAME AND ADDRESS OF SHARES OF COMMON STOCK SHARES BENEFI-
BENEFICIAL OWNERS(1)(2) BENEFICIALLY OWNED CIALLY OWNED(1)
----------------------- ---------------------- ---------------
<S> <C> <C>
Lawrence Cohen (3) .................... 1,790,000 32.7%
Martin Scott(4) ....................... 66,538 1.2%
Cornelia Eldridge(5) .................. 140,000 2.6%
Renney Senn ........................... 0 0
David Kaye ............................ 0 0
All officers and directors
as a group (5 persons) ................ 1,996,538 35.5%
</TABLE>
(1) Unless otherwise indicated below, the persons in the table above have
sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where
applicable. A person is deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days from the date of
this Proxy Statement upon the exercise of options. Each person's
percentage of ownership is determined by assuming that any options held
by such person have been exercised. As of July 31, 2000 there were
5,380,068 shares of Common Stock outstanding.
(2) Unless otherwise indicated below, the address of each person is c/o the
Company at 6251-B Park of Commerce Boulevard Northwest, Boca Raton,
Florida 33487.
(3) Includes (i) 100,000 shares of Common Stock underlying immediately
exercisable options and (ii) 1,690,000 shares owned by Alliant. Alliant
is wholly owned by East Ocean Limited Partnership, as to which Mr.
Cohen is the general partner and members of Mr. Cohen's family are
limited
21
<PAGE> 22
partners. Mr. Cohen disclaims beneficial ownership with respect to the
limited partnership interests owned by members of his family.
(4) Includes 55,000 shares of Common Stock underlying vested options at
exercise prices ranging from $3.00 to $3.75.
(5) Includes 100,000 shares of Common Stock underlying vested options at
an exercise price of $3.75.
ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPENSATION OF DIRECTORS
Our directors who are employees or otherwise receive compensation from us do not
receive additional compensation for service as directors. Outside directors each
receive $500 per meeting for attending meetings of the Board of Directors. In
addition, directors will be reimbursed for expenses incurred in attending such
meetings and will be indemnified against any claims arising out of their status
as a director of Registry, including claims arising under federal and state
securities laws. In addition, directors are eligible to receive options under
Registry's 1997 and 1999 Stock Option Plans.
During the year, the Company paid a director, David Kaye, $40,000 for consulting
services and advanced the Director $125,000 in connection with services rendered
in a proposed merger. The merger was unsuccessful and accordingly, the Director
and the Company reached an agreement whereby the Director repaid $100,000 to the
Company, subsequent to year-end. The Company was repaid the amount of $100,000
subsequent to July 31, 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All transactions between Registry and its officers, shareholders and each of
their affiliated companies have been made on terms no less favorable to Registry
than those available from unaffiliated parties. In the future, Registry intends
to handle transactions in a similar nature on terms no less favorable to
Registry to those available from unaffiliated parties. In addition, any
forgiveness of loans must be approved by a majority of Registry's independent
directors who do not have an interest in the transaction and who have access, at
Registry's expense, to Registry's counsel or independent counsel.
The Company has announced its intentions to merge with Bristol Retail Solutions.
Both companies have certain common shareholders and members of management. Larry
Cohen is Chairman and CEO of Registry and also Chairman of Bristol Retail
Solutions. David Kaye is a Director of the Company and also President and CEO of
Bristol Retail Solutions.
22
<PAGE> 23
ITEM 12. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS:
Exhibit
Number Description
------ -----------
1.1 Form of Underwriting Agreement(1)
3.1 Articles of Incorporation, as amended(1)
3.2 By-Laws(1)
4.1 Form of Common Stock Certificate(1)
4.2 Form of Subordinated Promissory Note issued to private
investors(1)
4.3 Promissory Note issued to Lawrence Cohen and addendum
thereto(1)
4.4 Form of Representative's Warrants(1)
4.5 Form of Voting Trust Agreement with Harbor View Fund, Inc. and
Sheldon Schwartz(1)
10.1 1999 Stock Option Plan(1)
10.6 Cancellation of Synergex Merger Agreement
27.1 Financial Data Schedule*
-----------------------
* Filed herewith
(1) Filed as an exhibit to the Company's Registration Statement on Form
SB-2 (File No. 333-47715) as filed with and declared effective by the
Commission on May 28, 1998.
23
<PAGE> 24
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REGISTRY MAGIC INCORPORATED
DATE: November 14, 2000 /s/ LAWRENCE COHN
--------------------
Lawrence Cohn,
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated:
DATE: November 14, 2000 /s/ LAWRENCE COHN
--------------------
Lawrence Cohen, Director and
Chief Executive Officer
DATE: November 14, 2000
--------------------
Renny Senn, Director
DATE: November 14, 2000 /s/ CORNELIA ELDRIDGE
--------------------
Cornelia Eldridge, Director
DATE: November 14, 2000 /s/ DAVID KAYE
--------------------
David Kaye, Director
DATE: November 14, 2000 /s/ MARTIN SCOTT
--------------------
Martin Scott, Treasurer and
Secretary
Principal Financial and
Accounting Officer
24
<PAGE> 25
REGISTRY MAGIC INCORPORATED
FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000 AND 1999
<PAGE> 26
REGISTRY MAGIC INCORPORATED
CONTENTS
PAGE
----
Report of Independent Certified Public Accountants F-2
Balance Sheet F-3
Statements of Operations F-5
Statements of Shareholders' Equity F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8
F-1
<PAGE> 27
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Registry Magic Incorporated
We have audited the accompanying balance sheet of Registry Magic Incorporated,
as of July 31, 2000 and the related statements of operations, shareholders'
equity and cash flows for the two years ended July 31, 2000 and 1999. 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 significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Registry Magic Incorporated, as
of July 31, 2000 and the results of its operations and its cash flows for the
two years ended July 31, 2000 and 1999, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a cash deficiency from operations and is experiencing ongoing operating
losses that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Miami, Florida BDO Seidman, LLP
November 3, 2000
F-2
<PAGE> 28
REGISTRY MAGIC INCORPORATED
BALANCE SHEET
JULY 31,
2000
--------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents (Note 1) $1,876,667
Accounts receivable, less allowance for doubtful
accounts of $356,808 (Note 1) 206,566
Inventories 107,950
Due from related party (Note 5) 100,000
Advances to Synergex (Note 6) 36,642
Other current assets 16,845
----------
Total current assets 2,344,670
Property and equipment, net (Note 3) 182,092
Advances to Synergex, long-term (Note 6) 113,358
Other assets 11,010
----------
$2,651,130
==========
See accompanying notes to financial statements.
F-3
<PAGE> 29
REGISTRY MAGIC INCORPORATED
BALANCE SHEET
JULY 31,
2000
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 250,496
------------
Total current liabilities 250,496
------------
COMMITMENTS AND CONTINGENCIES (NOTES 8 AND 10)
SHAREHOLDERS' EQUITY: (NOTE 7)
Preferred stock $.01 par value; 5,000,000
shares authorized; no shares outstanding --
Common stock, $.001 par value; 30,000,000
shares authorized; 5,380,068
issued and outstanding 5,380
Additional paid-in capital 14,016,102
Deficit (11,620,848)
------------
Total shareholders' equity 2,400,634
------------
$ 2,651,130
============
See accompanying notes to financial statements.
F-4
<PAGE> 30
REGISTRY MAGIC INCORPORATED
STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 2000 1999
-------------------------------------------------------------------------------
REVENUES:
Product sales $ 952,994 $ 2,453,285
----------- -----------
Total revenues (Note 1) 952,994 2,453,285
----------- -----------
COSTS AND EXPENSES:
Cost of sales 593,371 1,523,108
General and administrative 2,645,467 3,857,760
Research and development 704,904 1,242,210
Royalty expense -- 500,000
Depreciation 203,698 195,821
Acquisition costs (Note 6) 384,306 --
Interest income, net of interest expense of $0
and $2,258 in 2000 and 1999, respectively (185,029) (364,019)
----------- -----------
Total costs and expenses 4,346,717 6,954,880
----------- -----------
Net Loss $(3,393,723) $(4,501,595)
=========== ===========
Weighted average shares outstanding (Note 1) 5,503,295 5,813,041
=========== ===========
Net loss per common share (basic and diluted)
(Note 1) $ (.62) $ (.77)
=========== ===========
See accompanying notes to financial statements.
F-5
<PAGE> 31
REGISTRY MAGIC INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------ Paid-in
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1998 5,813,000 $ 5,813 $ 14,013,881 $ (3,725,530) $ 10,294,164
Warrant conversion (Note 7) 60,000 60 (60) -- --
Issuance of stock for services (Note 7) 5,000 5 15,933 -- 15,938
Net loss -- -- -- (4,501,595) (4,501,595)
------------ ------------ ------------ ------------ ------------
Balance at July 31, 1999 5,878,000 5,878 14,029,754 (8,227,125) 5,808,507
Repurchase of common stock (Note 7) (600,000) (600) (59,400) -- (60,000)
Exercise of stock options (Note 7) 102,068 102 45,748 -- 45,850
Net loss -- -- -- (3,393,723) (3,393,723)
------------ ------------ ------------ ------------ ------------
Balance at July 31, 2000 5,380,068 $ 5,380 $ 14,016,102 $(11,620,848) $ 2,400,634
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 32
REGISTRY MAGIC INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 2000 1999
---------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,393,723) $ (4,501,595)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 203,698 195,821
Deferred patent costs write-off -- 36,073
Inventory allowance 28,589 --
Provision for doubtful accounts 14,442 342,366
Common stock and option conversion
compensation expense 43,000 15,938
Decrease (increase) in accounts receivable 381,601 (820,915)
Decrease (increase) in inventories 119,696 (17,741)
Decrease in other current assets 5,759 21,017
Decrease (increase) in other assets 28,138 (18,056)
(Decrease) in accounts payable and accrued
expenses (313,154) (145,246)
------------ ------------
Net cash used in operating activities (2,881,954) (4,892,338)
------------ ------------
INVESTING ACTIVITIES:
Purchase/sales of equipment, net 97,477 (341,879)
Due from related party (100,000) --
Advances to Synergex (150,000) --
------------ ------------
Net cash used in investing activities (152,523) (341,879)
------------ ------------
FINANCING ACTIVITIES:
Net proceeds from exercise at stock options 2,850 --
Repurchase of common stock (60,000) (50,000)
------------ ------------
Net cash provided by financing activities (57,150) (50,000)
------------ ------------
Net decrease in cash (3,091,627) (5,284,217)
Cash and cash equivalents - beginning
of period 4,968,294 10,252,511
------------ ------------
Cash and cash equivalents - end of period $ 1,876,667 $ 4,968,294
============ ============
Supplemental disclosures:
Cash paid for interest $ -- $ 2,258
Cash paid for income taxes -- --
============ ============
Non-cash disclosure:
Common stock and options issued for
services rendered $ -- $ 15,938
Conversion of options to common stock 43,000 --
Conversion of stock options $ 2,850 $ --
============ ============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 33
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ORGANIZATION AND BUSINESS
SIGNIFICANT
ACCOUNTING POLICIES Registry Magic Incorporated (the "Company"),
was incorporated on October 11, 1995
(Inception). The Company is engaged in the
development and marketing of proprietary
applications software incorporating core
speech recognition technology. The Company's
products are designed to enable a user to
perform tasks or retrieve information by
speaking into a telephone or to a computer in
a natural conversational manner. The Company
has developed voice recognition products that
span the spectrum of applications from
telephony to point-of-sale human interface
solutions. The Company also is developing
secured voice enabled applications that can
be incorporated with emerging technologies in
wireless area networks with particular
emphasis on point-of-sale equipment. The
Company's offices are located in Boca Raton,
Florida. The Company currently only has one
operating segment.
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 disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from
those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid debt
instruments with original maturities of three
months or less to be cash equivalents. Cash
equivalents include investments in money
market accounts.
CONCENTRATION OF CREDIT RISK AND RELIANCE ON
CUSTOMERS AND SUPPLIERS
The Company had cash balances at a financial
institution in excess of insured limits by
approximately $1,776,000 at July 31, 2000.
F-8
<PAGE> 34
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
In 2000 and 1999, four customers and one
customer in the software development industry
accounted for approximately 68% and 10% of
total revenues, respectively and 24% and 25%
of year end accounts receivable,
respectively.
Certain of the Company's products rely on
special processing boards that are
manufactured by one supplier. The loss of
this supplier could have a material adverse
impact on the Company.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs incurred to
establish the technological feasibility of
computer software products are charged to
operations as incurred.
INVENTORIES
Inventories are stated at the lower of cost
or market.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost.
Depreciation is calculated on a straight line
basis over the estimated useful lives of the
assets, which range from three to five years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist
principally of cash and cash equivalents,
accounts receivable, accounts payable and
accrued liabilities. The carrying amounts of
such financial instruments as reflected in
the balance sheet approximate their estimated
fair value as of July 31, 2000. The estimated
fair value is not necessarily indicative of
the amounts the Company could realize in a
current market exchange or of future earnings
or cash flows.
F-9
<PAGE> 35
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
REVENUE RECOGNITION
Revenue from the sale of software products is
recognized at the time of sale and shipment
of the product. Revenue from product
development is recognized when development is
complete.
INCOME TAXES
The Company accounts for income taxes
pursuant to the provisions of Statement of
Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," which
requires, among other things, a liability
approach to calculating deferred income
taxes. The asset and liability approach
requires the recognition of deferred tax
liabilities and assets for the expected
future tax consequences of temporary
differences between the carrying amounts and
the tax bases of assets and liabilities. The
Company has had losses since inception and
accordingly has not provided for income
taxes. Realization of the benefits related to
the net operating loss carryforwards may be
limited in any one year due to IRS Code
Section 382, change of ownership rules.
NET LOSS PER COMMON SHARE
The Company accounts for earnings per share
("EPS") pursuant to SFAS No. 128, "Earnings
Per Share."
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, for fiscal
years ended July 31, 2000 and 1999 (totaling
604,500 shares and 1,702,376 shares with
prices ranging from $3.50 to $9.06 and $0.50
to $9.06, respectively) are excluded from the
Company's diluted computation as their effect
would be antidilutive to the Company's net
loss per share.
F-10
<PAGE> 36
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
LONG-LIVED ASSETS
In accordance with SFAS No. 121 "Accounting
for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," the
Company includes as a component of income
from continuing operations before taxes on
income, the impairment loss on assets to be
held and losses on assets expected to be
disposed of.
STOCK BASED COMPENSATION
SFAS No. 123, "Accounting for Stock Based
Compensation," establishes a fair value
method for accounting for stock-based
compensation plans either through recognition
or disclosure. The Company did not adopt, for
employee options the fair value based method
but instead discloses the pro forma effects
of the calculation required by the statement.
PREFERRED STOCK
The Board of Directors is authorized to issue
shares of preferred stock and to determine
the dividend, liquidation, conversion and
redemption, and other rights, preferences and
limitations of such shares without any
further vote or action of the shareholders.
Accordingly, the Board of Directors has the
power, without shareholder approval, to issue
preferred stock with dividend, liquidation,
conversion, voting, or other rights which
could negatively affect the voting power or
other rights of the holders of the Common
Stock.
RECENT AND FUTURE ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES. SFAS No. 133 requires
companies to recognize ALL derivative
contracts as either assets or liabilities in
the balance sheet and to measure them at fair
value. If certain conditions are met, a
derivative may be specifically designated as
a hedge, the objective of which is to match
the timing of gain or loss
F-11
<PAGE> 37
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
recognition on the hedging derivative with
the recognition of (i) the changes in the
fair value of the hedged asset or liability
that are attributable to the hedged risk or
(ii) the earnings effect of the hedged
forecasted transaction. For a derivative NOT
designated as a hedging instrument, the gain
or loss is recognized in income in the period
of change. As amended, the effective date is
for all fiscal quarters of fiscal years
beginning after June 15, 2000.
Historically, the Company has not entered
into derivatives contracts either to hedge
existing risks or for speculative purposes.
Accordingly, the Company does not expect
adoption of the new standard to affect its
financial statements.
In March 2000, the Financial Accounting
Standards Board (FASB) issued FASB
Interpretation No. 44 (Interpretation 44),
ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING
STOCK COMPENSATION. Interpretation 44
provides criteria for the recognition of
compensation expense in certain stock-based
compensation arrangements that are accounted
for under Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. Interpretation 44 is effective
July 1, 2000, with certain provisions
effective retroactively to December 15, 1998
and January 12, 2000. There was no effect of
the retroactive provisions of Interpretation
44 on the Company's financial statements.
Interpretation 44 is not expected to have a
material effect on the Company's financial
statements.
2. GOING CONCERN The Company's financial statements are
presented on a going concern basis, which
contemplates the realization of assets and
the satisfaction of liabilities in the normal
course of business. The Company has
experienced recurring losses and a cash
deficiency from operations. In order to
remain a going concern, the Company must
obtain additional sources of cash and
ultimately achieve profitable operations. The
Company's plans for raising additional
sources of cash primarily rely on the
Company's intent to raise capital through
private placement offerings of shares of
common stock. Additionally, the Company is
planning to introduce new
F-12
<PAGE> 38
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
product lines. The Company's overall goal is
to exploit its proprietary speech recognition
application expertise and combine it in a
secured environment with the wireless
Internet, mobile commerce, and wireless LANs.
By broadening the spectrum of the Company's
technologies to include Speech Recognition
and Verification, WAP, and wireless LANs, the
Company believes it can take advantage of
recent technological developments that are
bringing the Internet, databases and LANs to
the retail market. The Company has developed
products that integrate technology with
point-of-sale terminals. The Company plans on
developing additional products around this
platform.
The Company's continued existence is
dependent upon its ability to resolve its
liquidity problems by raising additional
cash, developing new product lines,
controlling operating expenses and by
achieving profitable operations. No
assurances can be made that the Company can
obtain additional sources of cash or that
operations can produce a positive cash flow
or that the Company will be successful in
achieving the above stated goals.
The financial statements do not include any
adjustments to reflect the possible future
effects on the recoverability and
classification of assets or the amounts and
classification of liabilities that may result
from the possible inability of the Company to
continue as a going concern.
F-13
<PAGE> 39
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT The Company's property and equipment is
summarized as follows:
<TABLE>
<CAPTION>
JULY 31, 2000
-------------
<S> <C>
Office equipment $ 71,814
Computers 401,314
---------
473,128
Accumulated depreciation (291,036)
---------
$ 182,092
=========
</TABLE>
4. INCOME TAXES At July 31, 2000, the Company had a net
operating loss carryforward (NOL) of
approximately $10,200,000, which expires
through 2020.
The net deferred tax asset is comprised of
the following at July 31, 2000:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Prepaid royalty expense $ 20,000
Start up costs 156,000
Allowance for doubtful accounts 163,000
Net operating loss carryforward 3,825,000
-----------
4,164,000
-----------
Deferred tax liability:
Depreciation (36,000)
-----------
Net deferred tax asset 4,128,000
Deferred tax asset valuation allowance (4,128,000)
-----------
Net deferred tax asset $ --
===========
</TABLE>
F-14
<PAGE> 40
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
Realization of any portion of the Company's
deferred tax asset at July 31, 2000 is not
considered to be more likely than not and
accordingly a $4,128,000 valuation allowance
has been provided.
5. RELATED PARTY During the year, the Company paid a director,
$40,000 for consulting services and advanced
the director $125,000 in connection with
services rendered in a proposed merger. The
merger was unsuccessful. The director and the
Company reached an agreement whereby the
director repaid $100,000 to the Company,
subsequent to year end. Accordingly a
receivable of $100,000 is reflected in the
July 31, 2000 balance sheet.
6. SYNERGEX MERGER On August 7, 2000, the Company and Synergex
International Corporation ("Synergex")
terminated a Plan of Merger and accordingly,
the Company wrote off acquisition costs of
approximately $384,000.
In connection with the termination of the
Merger, the Company terminated a Management
Services Agreement whereby Synergex agreed to
provide the Company with executive
accounting, sales, marketing and other
management services as agreed upon by the
parties. The Company paid Synergex $135,872
for these services. The Company's personnel
will resume these functions.
In connection with the merger the Company had
advanced Synergex $150,000 pursuant to a
promissory note. Synergex has agreed to repay
the principal amount of $150,000 plus
interest equal to prime plus 2% in 36 equal
monthly installments beginning September 1,
2000. Currently the note is past due.
7. SHAREHOLDERS' EQUITY In conjunction with a 1996 private placement,
five-year warrants to purchase 100,000 shares
of common stock exercisable at $6.00 per
share were granted to the investment banker.
The exercise price of these warrants was
reduced by the Board of Directors to $5.00
per share during the 1999 fiscal year. These
warrants contained a cashless exercise
feature which allowed the excess of the
common stock market value over the option
price to be used as currency to purchase the
shares underlying the warrant. In April 1999,
the holder converted these warrants to 60,000
shares of the
F-15
<PAGE> 41
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
Company's common stock, based on the cashless
exercise formula. In November 1997, in
connection with a private placement, the
Company issued 200,000 shares of common stock
at $5.00 for cash consideration of
$1,000,000. Costs associated with this
transaction were $2,841.
During July 1999, the Company issued 5,000
shares of its common stock to a consultant
for services rendered. The Company charged
operations for approximately $16,000
representing the estimated fair market value
of the shares issued.
During October 1999, the Company entered into
Settlement Agreements and General Releases
with two former employees. Under the terms of
these Agreements, the Company dismissed with
prejudice a pending action against one of the
former employees. Also, as part of these
Settlement Agreements, the employees sold to
the Company 600,000 shares of Common Stock
for $60,000. The parties exchanged general
releases as part of these Settlement
Agreements.
In August 1999, a former employee of the
company exercised 90,000 stock options to
purchase 77,405 shares of common stock at an
exercise price of $.50 per share of common
stock. The purchase price consisted of a
cashless exercise provision utilizing 12,595
shares of common stock and $2,850.
In April 2000, a former director and a
current officer of the Company converted
85,000 common stock options exercisable at
$3.75 into 24,663 shares of common stock.
These options contained a cashless exercise
feature, which allowed the excess of the
common stock market value over the option
price to be used as currency to purchase the
shares underlying the option. In connection
with this conversion, the Company recorded
$43,000 as compensation expense, which is
attributed to the difference between the
exercise price and the market value of the
common stock on the date of conversion.
8. COMMITMENTS a) LICENSES AND ROYALTIES
----------------------
On December 31, 1996, the Company
entered into a licensing agreement with
Lernout & Hauspie Speech Products N.V.
("L&H") which grants the Company the
right to use a certain software object
code in the development of its products
in
F-16
<PAGE> 42
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
exchange for payment of certain amounts
for royalties. The agreement runs for a
term of four years and provides for the
payment of percentage royalties and
unit royalties as specified in the
agreement. To date no royalties have
been paid.
b) EMPLOYMENT AGREEMENTS
In December 1997, the Company entered
into a three year employment agreement
with its Chairman of the Board which
provides for a base salary of $115,500.
In the event of a change of control of
the Company, where the Chairman is not
retained on a comparable basis by new
management, the Chairman will receive
lump sum payments equivalent to one
year's salary. In addition, in the
event of the non-renewal of the
employment agreement, the Chairman will
be entitled to the same lump sum
payments.
c) LEASE
The Company occupies premises under an
operating lease. Rent expense for 2000
and 1999 aggregated approximately
$88,000 and $98,000, respectively.
Minimum guaranteed lease payments under
these leases require the Company to
make payments of $22,025 in fiscal
2001.
d) VENDOR LICENSING DOCUMENT
On June 29, 2000 a former executive of
Synergex purporting to act on behalf of
the Company entered into an agreement
with a vendor to license certain
software for a term of three years.
Under the terms of the document the
Company would be obligated to pay
$250,000 plus related charges of
$37,500 beginning August 1, 2000
payable over the following eight
months. The Company maintains that the
former executive of Synergex was not
authorized to execute the licensing
document. The vendor should have been
aware of this fact based on a prior
relationship with the Company and the
capacity in which the Synergex
executive executed the document.
Management does not believe that any
obligation exists under the document
and accordingly, has not accrued any
costs.
9. STOCK BASED
COMPENSATION In March 1997, the Company adopted a Stock
Option Plan (the 1997 "Plan") under which
300,000 shares of common stock are reserved
for issuance upon exercise of stock based
awards, including non-qualified stock
options. The 1997 Plan is also authorized to
issue short-term cash incentive awards. The
1997 Plan is administered by either the Board
or such committees, officers and/or employees
of the Company as the Board may so designate.
The purchase price of each share of common
stock purchased upon exercise of any option
granted is as follows: (i) incentive stock
options shall be equal to or greater than the
fair market value of the common stock on the
date of grant as required under Section 422
of the Internal Revenue Code, (ii) options
granted to 10% holders and designated by the
plan administrator as incentive stock options
shall be at least 110% of the fair market
F-17
<PAGE> 43
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
value of the common stock on the date of
grant as required under Section 422 of the
Internal Revenue Code, (iii) non-employee
director options shall be equal to or greater
than the fair market value of the common
stock on the date of the grant. Pursuant to
the plan, options to purchase 47,500 shares
of common stock exercisable at $7.88 to $8.00
or the number of already owned shares of
stock equal in value to the total exercise
price of the options were granted during the
year ended July 31, 1999. No options under
this plan were granted during the year ended
July 31, 2000. These options vest over terms
up to five years from the grant date with
expiration dates beginning in 2001.
In March 1999, the Company adopted a Stock
Option Plan (the 1999 "Plan") under which
500,000 shares of common stock are reserved
for issuance upon exercise of stock based
awards including, non-qualified stock
options. The 1999 Plan is also authorized to
issue short-term cash incentive awards. The
1999 Plan is administered by either the Board
or such committees; officers and/or employees
of the Company as the Board may so designate.
The purchase price of each share of common
stock purchased upon exercise of any option
granted is as follows: (i) incentive stock
options shall be equal to or greater than the
fair market value of the common stock on the
date of grant as required under Section 422
of the Internal Revenue Code, (ii) options
granted to 10% holders and designated by the
plan administrator as incentive stock options
shall be at least 110% of the fair market
value of the common stock on the date of
grant as required under Section 422 of the
Internal Revenue Code, (iii) non-employee
director options shall be equal to or greater
than the fair market value of the common
stock on the date of the grant. Pursuant to
the 1999 Plan, options to purchase 363,600
shares of common stock exercisable at $3.00
to $3.63 or the number of already owned
shares of stock equal in value to the total
exercise price of the options, have been
granted as of July 31, 1999. No options were
granted as of July 31, 2000. These options
vest over terms up to five years from the
grant date with expiration dates beginning in
2004.
F-18
<PAGE> 44
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
During fiscal 1999 five-year non-plan options
to purchase 570,000 shares of common stock
exercisable at $3.75 were granted to three
directors and two employees. These options
have available a cashless exercise provision
whereby the holder can exercise the options
based on a formula pursuant to the stock
option agreement.
Subsequent to year end, the Company issued
five-year non-plan options to purchase
300,000 shares of common stock exercisable at
$1.375 were granted to four directors and one
employee. These options have available a
cashless exercise provision whereby the
holder can exercise the options based on a
formula pursuant to the stock option
agreement.
SFAS No. 123, Accounting for Stock-Based
Compensation, requires the Company to provide
pro forma information regarding net loss and
net loss per share as if compensation cost
for the Company's stock option plan had been
determined in accordance with the fair value
based method prescribed in SFAS No. 123. The
Company estimates the fair value of each
stock option at the grant date by using the
Black-Scholes option-pricing model with the
following weighted-average assumptions used
for grants in 1999: no dividend yield
percent; expected volatility of 0.500;
risk-free interest rate of 5.8% and expected
lives ranging between 4 and 5 years for the
1997 Plan, 1999 Plan and non-plan options. No
grants were made during the year ended July
31, 2000.
Under the accounting provisions of SFAS No.
123, the Company's pro forma net loss and
loss per share would have been:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 2000 1999
---------- ----------
<S> <C> <C>
Net loss
As reported $3,393,723 $4,501,595
Pro forma $3,414,845 $5,870,748
Net loss per common share
As reported $ (.62) $ (.77)
Pro forma $ (.62) $ (1.01)
</TABLE>
F-19
<PAGE> 45
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
A summary of the status of the Company's fixed stock option plan and non-plan
options as of July 31, 2000 and 1999, and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 2000 1999
------------------------- -------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,542,376 $3.58 568,276 $3.16
Granted -- -- 981,100 3.82
Exercised (175,000) 2.08 -- --
Forfeited (922,876) 3.72 (7,000) 3.50
---------- ----- ---------- -----
Outstanding at end of year 444,500 3.87 1,542,376 3.58
---------- ----- ---------- -----
Options exercisable at year-end 444,500 3.87 1,212,876 3.62
YEAR ENDED JULY 31, 2000 1999
------- ------
Weighted-average fair value of
options granted during the year:
Below market $ -- $ --
At market $ -- $ 1.93
Above market $ -- $ --
</TABLE>
The following table summarizes information about fixed stock options and
non-plan options outstanding at July 31, 2000.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- ---------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercis Average
Exercise at Contractual Exercise -able at Exercise
Prices 7/31/00 Life Price 7/31/99 Price
----------- ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ 7.00 14,500 2.67 years $ 7.00 14,500 $ 7.00
$ 5.00 2,000 2.42 years $ 5.00 2,000 $ 5.00
$ 3.85 100,000 .61 year $ 3.85 100,000 $ 3.85
$ 3.75 285,000 3.50 years $ 3.75 285,000 $ 3.75
$ 3.63 23,000 3.95 years $ 3.63 23,000 $ 3.63
$ 3.50 20,000 2.00 years $ 3.50 5,000 $ 3.50
</TABLE>
F-20
<PAGE> 46
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
10. SUBSEQUENT EVENTS BRISTOL RETAIL SOLUTIONS
(UNAUDITED AS TO (a.))
a. On November 6, 2000, Registry Magic and
Bristol Retail Solutions entered into an
Agreement and Plan of Merger. The Merger
Agreement provides, among other things,
that upon the terms and subject to the
conditions contained in the Merger
Agreement, Bristol will merge with and
into a subsidiary of Registry Magic
formed solely for the purpose of
completing the Merger. In the Merger all
outstanding shares of common stock of
Bristol will be converted into the right
to receive .65 of a share of Registry
Magic's common stock. Certain members of
management and a principal shareholder
of the Company are also members of
management and are shareholders of
Bristol.
The shares of Bristol's outstanding
preferred stock at the date of the
merger will be converted into similar
shares of preferred stock of Registry
Magic. The Merger Agreement is subject
to approval of the shareholders of
Bristol, and to obtaining third party
consents by Bristol, including the
consent of the holders of Bristol's
Series C Convertible Preferred Stock. At
the effective date of the Merger, the
Board of Directors of Registry Magic
shall consist of five members, four of
whom shall be designated by Registry,
and at least two whom shall be
independent within the meaning of the
securities exchange on which the
Registry shares are then listed and one
will be designated by Bristol.
b. Effective October 20, 2000, Bristol
entered into a promissory note whereby
Registry advanced $250,000 to Bristol to
be used by Bristol for working capital
purposes. In the event the proposed
merger between Registry and Bristol does
not close, Bristol will repay Registry
the amount outstanding, plus interest at
the rate of 8% per annum on October 19,
2001. The Note is secured by all of
Bristol's inventory and receivables not
subject to and second to the first lien
of Coast Business Credit.
F-21
