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Form 10QSB for REGISTRY MAGIC INC filed on June 12, 2000
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended April 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ______________
Commission File Number: 0-24283
REGISTRY MAGIC INCORPORATED
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(Exact name of Small Business Issuer as specified in its Charter)
FLORIDA 65-0623427
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6251 Park of Commerce Boulevard, Boca Raton, Florida 33487
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(Address of principal executive offices)
(561) 994-3223
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(Issuer's telephone number)
3998 FAU Boulevard, Suite 200-105, Boca Raton, Florida 33431
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(Former Name, former address and former fiscal year,
if changed since last Report.)
Check mark whether the Issuer (1) has filed all reports required to Be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during The
past 12 months (or for such shorter period that the registrant was required To
file such reports), and (2) has been subject to such filing requirements For the
past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 5,380,068 shares of Common
Stock as of May 24, 2000.
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REGISTRY MAGIC INCORPORATED
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - April 30, 2000 (unaudited) and
July 31, 1999
Condensed Statements of Operations (unaudited) for the Three and Nine
Months Ended April 30, 2000 and 1999
Condensed Statements of Cash Flows (unaudited) for the Nine Months
Ended April 30, 2000 and 1999
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis and Plan of
Operation
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
REGISTRY MAGIC INCORPORATED
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 31, JULY 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 2,583,454 $ 4,968,294
Accounts receivable ........................................................ 456,487 602,610
Inventories ................................................................ 163,744 256,234
Due from related parties ................................................... 100,000 --
Other current assets ....................................................... 18,453 22,604
------------ ------------
Total current assets ............................................ 3,322,138 5,849,742
Property and equipment, net ................................................... 325,278 483,267
Capitalized merger expenses ................................................... 112,932 --
Other assets .................................................................. 3,892 39,148
------------ ------------
$ 3,764,240 $ 6,372,157
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ................................... $ 248,119 $ 563,650
------------ ------------
Total current liabilities ..................................................... 248,119 563,650
------------ ------------
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares
outstanding ............................................................... -- --
Common stock, $.001 par value; 30,000,000 shares authorized; 5,380,068 and
5,878,000 shares issued and outstanding respectively ...................... 5,380 5,878
Additional paid-in capital .................................................. 13,973,102 14,029,754
Accumulated deficit ......................................................... (10,462,361) (8,227,125)
------------ ------------
Total shareholders' equity ..................................... 3,516,121 5,808,507
------------ ------------
$ 3,764,240 $ 6,372,157
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
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REGISTRY MAGIC INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
APRIL 30, APRIL 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues .................................. 166,561 624,982 950,561 1,694,409
----------- ----------- ----------- -----------
Costs and expenses:
Cost of goods sold ...................... 61,225 302,746 611,402 628,838
General and administrative .............. 477,188 894,477 1,987,540 2,668,366
Research and development ................ 94,487 398,614 543,614 1,162,043
Royalty expense ......................... -- -- -- 500,000
Depreciation and amortization ........... 51,052 52,369 161,030 141,757
Management Fees ......................... 30,000 -- 30,000 --
Interest (income) expense, net ............ (39,597) (74,485) (147,789) (291,903)
----------- ----------- ----------- -----------
Total costs and expenses .................. 674,355 1,573,721 3,185,797 4,809,101
----------- ----------- ----------- -----------
Net loss .................................. $ (507,794) $ (948,739) $(2,235,236) $(3,114,692)
=========== =========== =========== ===========
Weighted average shares
outstanding ............................. 5,358,890 5,818,393 5,542,991 5,814,758
Net loss per common share (basic
and diluted) ............................ $ (.09) $ (.16) $ (.40) $ (.54)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
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REGISTRY MAGIC INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
APRIL 30,
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2000 1999
------------ ------------
<S> <C> <C>
Operating Activities:
Net loss .................................. $ (2,235,236) $ (3,114,692)
Adjustments to reconcile net loss to
net cash in operating activities:
Depreciation .............................. 161,030 141,757
Decrease(increase) in accounts receivable . 146,123 (481,699)
Decrease (increase) in inventories ........ 92,490 (66,582)
Decrease in other current assets .......... 4,151 5,511
Decrease (increase) in other assets ....... 35,256 8,462
(Decrease) in accounts payable and
accrued liabilities ..................... (315,531) (196,096)
------------ ------------
Net cash used in operating activities (2,111,717) (3,703,339)
------------ ------------
Investing Activities:
Purchase of equipment ..................... (3,041) (282,563)
Deferred patent costs ..................... -- (11,279)
Capitalized merger costs .................. (112,932) --
------------ ------------
Net cash used in investing
activities ......................... (115,973) (293,842)
------------ ------------
Financing Activities:
Exercise of stock options ................. 2,850 --
Due from related parties .................. (100,000) --
Repurchase of Common Stock ................ (60,000) --
------------ ------------
Net cash from financing activities ... (157,150) --
------------ ------------
Net decrease in cash ................. (2,384,840) (3,997,181)
Cash beginning of period .................... 4,968,294 10,252,511
------------ ------------
Cash end of period .......................... $ 2,583,454 $ 6,255,330
============ ============
Supplemental Disclosures:
Cash paid for interest ...................... -- $ 76
============ ============
Cash paid for income taxes .................. $ -- $ --
============ ============
Common stock issued for stock option exercise $ 25 $ --
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
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REGISTRY MAGIC INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared in
accordance with generally accepted accounting principals for interim financial
information and with instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principals for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The results of operations
for the three-month and nine-month periods ended April 30, 2000 are not
necessarily indicative of the results to be expected for the year ended July 31,
2000. The condensed interim financial statements should be read in conjunction
with the audited financial statements and notes, contained in the Company's
Annual Report on Form 10-KSB for the year end July 31, 1999.
2. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
APRIL 30, 2000
--------------
Trade accounts receivable $801,920
Allowance for doubtful accounts (345,433)
--------
Total $456,487
========
3. INVENTORIES
Inventories are stated as the lower of cost or market. Cost is
determined using the first-in first-out method.
APRIL 30, 2000
--------------
Computer components $198,464
Allowance for obsolescence (34,720)
--------
Total $163,744
========
4. Due From Related Parties
Registry Magic, Incorporated the ("Company") has agreed to advance to
Synergex International Corporation ("Synergex") up to fifty thousand dollars
($50,000) per month (or a total of $150,000) between April 1, 2000 and June 30,
2000. In the event that the planned merger between the Company and Synergex does
not close, Synergex will pay to the order of the Company the principal sum of
One Hundred Fifty Thousand Dollars ($150,000) or so much thereof as may have
been advanced and outstanding there under, with interest thereon at the rate per
annum equal to the Prime plus two percent, in accordance with the provisions of
a promissory note between the parties. The principal amount outstanding plus
interest will be payable in full in thirty-six (36) equal monthly payments
beginning on July 1, 2000 (unless extended by the Company). At April 30, 2000,
the total of these advances was $100,000.
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5. Capitalized Merger Expenses
Capitalized merger expenses represent legal and accounting fees
associated with the Company's proposed merger with Synergex. These costs will be
treated as part of the purchase price of the Synergex acquisition upon the
completion of the merger.
6. Stockholders Equity
In April 2000 a former director and an 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.
7. Management Fees
On February 28, 2000, the Company and Synergex entered into a
management services agreement whereby Synergex agreed to provide the Company
executive accounting, sales, marketing and other management services as agreed
upon by the parties. The services currently provided include sales and marketing
assistance, support in preparation of periodic income and cash flow statements,
assistance in the preparation and filing of securities filings, supervision of
staff, and certain other financial and customer account matters. The term of the
agreement began February 24, 2000 and will continue in effect until May 23, 2000
and thereafter for successive one-month terms, unless terminated pursuant to the
agreement. Registry will pay Synergex a monthly fee of $10,000 plus all
out-of-pocket travel expenses reasonably incurred in connection with services
provided. For any successive terms, the fee will be as agreed by the parties;
provided, however, that the monthly fee during any successive term shall not be
lower than $10,000, unless Synergex's duties are decreased proportionately. In
addition, in the event that the proposed merger between the Company and Synergex
does not close, the Company shall pay Synergex an additional fee equal to the
product of $10,000 times the number of months from the effective date of the
management services agreement until termination or expiration. At April 30,
2000, the total management fees paid to Synergex was $30,000.
8. PROPOSED MERGER
On February 11, 2000, the Company entered into an Agreement and Plan of
Merger, (the "Merger Agreement"), which provides, among other things, that, upon
the terms and subject to conditions thereof, Synergex will merge with and into a
wholly-owned subsidiary of Registry Magic (the "Merger Subsidiary") to be formed
solely for purposes of effecting the merger (the "Merger"). The Merger
Subsidiary will be the surviving corporation in the Merger. In the Merger, all
outstanding shares of common stock of Synergex shall be converted into the right
to receive an aggregate of 1,000,000 shares of Registry Magic common stock,
$.001 par value per share and shares of Registry Magic's Series A 6% Cumulative
Non-Voting Convertible Preferred Stock, having an aggregate face value of
$8,000,000 and a conversion price of the lesser of (i) four dollars ($4.00) per
share, or (ii) the average of the closing bid and asked price of Registry
Magic's common stock for the ninety trading day period immediately preceding the
date of conversion; provided, however, the conversion price shall not be less
than two dollars ($2.00) per share.
ITEM 2. Management's Discussion and Analysis and Plan of Operation
This Quarterly Report on Form 10-QSB 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-QSB, are forward-looking statements.
In addition, when used in this document, the words "anticipate," "estimate,"
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"project" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are subject to certain risks,
uncertainties and assumptions including risks relating to our limited operating
history and operations losses; significant capital requirements; development of
markets required for successful performance by the Company as well as other
risks described in the Company's Annual Report on Form 10-KSB as well as in this
report on Form 10-QSB. 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.
The following discussion and analysis should be read in conjunction
with the financial statements of the Company and the notes thereto appearing
elsewhere.
OVERVIEW
The Company was organized to design, develop, commercialize and market
proprietary products and professional services that exploit recent advances in
speech recognition technologies. The products currently marketed or under
development by the Company 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.
The Company'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 the Company is beginning to generate some limited revenues, the
Company's expenses continue to significantly exceed revenues currently and for
the foreseeable future. There can be no assurance that product installations,
royalties or licensing will generate sufficient revenues to enable the Company
to operate profitably during its 2000 fiscal year or thereafter.
The Company is subject to all of the risks inherent in the
establishment of a new 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 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 three months ended April 30, 2000, product sales were $166,561
as compared to $624,982 for the three months ended April 30, 1999. For the nine
months ended April 30, 2000 product sales were $950,561 as compared to
$1,694,409 for the nine months ended April 30, 1999. The decrease in sales
resulted from an end to joint development projects and licensing fees and a
corporate restructuring to prepare for the planned merger with Synergex
International Corporation. As part of the restructuring, certain sales staff and
other staff not directly focussed on strategic projects were terminated.
For the three months ended April 30, 2000, cost of goods sold amounted
to $61,225 on sales of $166,561, compared to cost of goods sold of $302,746 on
sales of $624,982 for the three months ended April 30, 1999 representing
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hardware costs associated with the Company's Virtual Operator. Cost of goods
sold decreased as a percent of sales for the three months ended April 30, 2000
due to large sales, which carried high margins. For the nine months ended
April 30, 2000, cost of goods sold amounted to $611,402 on sales of $950,561,
compared to cost of goods sold of $628,838 on sales of $1,694,409 for the nine
months ended April 30, 1999 representing hardware costs associated with the
Company's Virtual Operator. For the nine months ended April 30, 2000 the Company
increased its inventory reserve by $34,720.
General and administrative expense decreased by $417,289 from $894,477
for the three months ended April 30, 1999 to $477,188 for the three months ended
April 30, 2000. General and administrative expense decreased by $680,826 from
$2,668,366 for the nine months ended April 30, 1999 to $1,987,540 for the nine
months ended April 30, 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.
Research and development expenses for the three months ended April 30,
2000 were $94,487 compared to $398,614 for the three months ended April 30,
1999, a decrease of $304,127. Research and development expenses for the nine
months ended April 30, 2000 were $543,614 compared to $1,162,043 for the nine
months ended April 30, 1999, a decrease of $618,429. The Company has reduced
development staff in order to focus on strategic product development. 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."
Royalty expenses for the nine months ended April 30, 2000 were $0 as
compared to $500,000 for the nine months ended April 30, 1999. This is due to no
new royalty agreements being entered into.
Depreciation expense decreased $1,317 for the three months ended April
30, 2000 to $51,052 from $52,369 for the three months ended April 30, 1999.
Depreciation expense increased $19,273 for the nine months ended April 30, 2000
to $161,030 from $141,757 for the nine months ended April 30, 1999 primarily due
to the Company purchasing additional computer hardware.
Interest income net for the three months ended April 30, 2000 amounted
to $39,597 compared to $74,485 of interest income net for the three months ended
April 30, 1999. Interest income for the Nine months ended April 30, 2000
amounted to $147,789 compared to interest income of $291,903 for the Nine months
ended April 30, 1999. The decrease in interest income was due to the reduction
in the Company's cash balances. Such funds are invested in money market accounts
and high grade short-term corporate paper.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2000, the Company had $2,583,454 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 closed on the
underwriting over-allotment. The Company sold an additional 220,000 shares of
Common Stock at an initial public offering price of $7.25 per share, raising
proceeds, net of offering costs of approximately $1,400,000.
Net cash used in operating activities decreased by $1,378,690 to
$2,111,717 for the nine months ended April 30, 2000 from $3,703,339 for the nine
months ended April 30, 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.
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Net cash used in investing activities during the nine months ended
April 30, 2000 and 1999 was $115,913 and $293,842 respectively. The expenditures
primarily related to purchases of computer equipment and expenses associated
with the upcoming merger.
Net cash from financing activities during the nine months ended April
30, 1999 amounted to $0 and $57,150 for the nine months ended April 30, 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.
The Company also advanced Synergex $100,000.
DUE FROM RELATED PARTIES
The Company has agreed to advance to Synergex up to fifty thousand
dollars ($50,000) per month (or a total of $150,000) between April 1, 2000 and
June 30, 2000. In the event that the planned merger between the Company and
Synergex does not close, Synergex will pay to the order of the Company the
principal sum of one hundred fifty thousand Dollars ($150,000) or so much
thereof as may have been advanced and outstanding hereunder, with interest
thereon at the rate per annum equal to the Prime Rate plus two percent. The
principal amount outstanding plus interest will be payable in full in thirty-six
(36) equal monthly payments beginning on July 1, 2000 (unless extended by the
Company).
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On April 21, 2000, the Company filed an action in the Circuit Court in
Palm Beach County entitled REGISTRY MAGIC INCORPORATED VS. FORESIGHT TECHNOLOGY,
WILLIAM F. BURBANK, JOSE FERRER, NEIL PORTNEY, FRED PALACIOS, JOHN IACOVELLI,
JOHN PALLARIA, WALTER A. NAWROCKI, IV, AND DOES 1-100, INCLUSIVE. Case No. CL
00-3946 AF. The Complaint seeks damages for fraud, breach of fiduciary duty,
unlawful interference with contractual relationship, usurpation of corporate
opportunities, misappropriation of trade secrets, conversion, constructive
trust, injunctive relief and defamation. Based upon conversations with
management of the Company, a Notice of Dropping Walter A. Nawrocki, IV, was
filed on May 16, 2000. A Motion to Dismiss the Complaint was served on behalf of
the remaining Defendants on or about May 23, 2000. The Defendants also served a
Request for Production, Interrogatories, and Request for Admissions on May 19,
2000. Responses to said Discovery have not yet been served. At this early stage
of the litigation, we are unable to determine on the likelihood of an outcome.
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by item 601 of Regulation S-B
The following exhibits are filed as part of this report:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed during the period ended January 31,
2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGISTRY MAGIC INCORPORATED
By: /s/ Lawrence Cohen
------------------------------------------
Lawrence Cohen
Acting President and Chief Executive Officer
By: /s/ Martin Scott
------------------------------------------
Martin Scott, Secretary,
Treasurer and Principal Financial
and Accounting Officer
Dated: June 14, 2000
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