<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended January 31, 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
- --------------------------------------------------------------------------------
(Exact name of Small Business Issuer as specified in its Charter)
FLORIDA 65-0623427
- -------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3998 FAU Boulevard, Suite 200-105, Boca Raton, Florida 33431
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(561) 367-0408
-------------------------------
(Issuer's telephone number)
One South Ocean Boulevard, Suite 206, Boca Raton, Florida 33432
- --------------------------------------------------------------------------------
(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: 5,355,405 shares of Common
Stock as of March 16, 2000.
<PAGE> 2
REGISTRY MAGIC INCORPORATED
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - January 31, 2000 (unaudited) and
July 31, 1999
Condensed Statements of Operations (unaudited) for the Three
Months and Six Months Ended January 31, 2000 and 1999
Condensed Statements of Cash Flows (unaudited) for the six
Months Ended January 31, 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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
1
<PAGE> 3
REGISTRY MAGIC INCORPORATED
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, July 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 2,958,109 $ 4,968,294
Accounts receivable ........................................................ 630,416 602,610
Inventories ................................................................ 186,667 256,234
Other current assets ....................................................... 60,803 22,604
------------ ------------
Total current assets ............................................ 3,835,995 5,849,742
Property and equipment, net ................................................... 373,676 483,267
Other assets .................................................................. 64,210 39,148
------------ ------------
$ 4,273,881 $ 6,372,157
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ................................... $ 248,668 $ 563,650
------------ ------------
Total current liabilities ..................................................... 248,668 563,650
------------ ------------
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; 5,355,405 and
5,878,000 shares issued and outstanding respectively ........................ 5,355 5,878
Additional paid-in capital .................................................. 13,973,126 14,029,754
Accumulated deficit ......................................................... (9,953,268) (8,227,125)
------------ ------------
Total shareholders' equity ..................................... 4,025,213 5,808,507
------------ ------------
$ 4,273,881 $ 6,372,157
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE> 4
Registry Magic Incorporated
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended January 31, Ended January 31,
----------------------------- -----------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales ................................. $ 260,541 $ 788,523 $ 784,000 $ 1,070,562
----------- ----------- ----------- -----------
Total revenues .............................. 260,541 788,523 784,000 1,070,562
Costs and expenses:
Cost of goods sold ............................ 231,601 228,954 550,239 332,649
General and administrative .................... 545,987 1,020,231 1,510,355 1,769,686
Research and development ...................... 165,439 391,307 447,764 763,427
Royalty expense ............................... -- 300,000 -- 500,000
Depreciation and amortization ................. 54,140 49,039 109,977 89,388
Interest expense (income), net .................. (50,303) (96,754) (108,192) (217,417)
----------- ----------- ----------- -----------
Total costs and expenses .................... 946,864 1,892,777 2,510,143 3,237,733
----------- ----------- ----------- -----------
Net loss .................................... $ (686,323) $(1,104,254) $(1,726,143) $(2,167,171)
=========== =========== =========== ===========
Weighted average shares outstanding ............. 5,355,405 5,813,000 5,754,494 5,813,000
Net loss per common share (basic and diluted) ... $ (0.13) $ (0.19) $ (.30) $ (0.37)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 5
REGISTRY MAGIC INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the
Six Months Ended
January 31,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Operating Activities:
Net loss ..................................... $ (1,726,143) $ (2,167,171)
Adjustments to reconcile net loss to
net cash in operating activities:
Depreciation and amortization ................ 109,977 89,388
(Increase) in accounts receivable ............ (27,806) (577,457)
(Increase) decrease in inventories ........... 69,569 (72,424)
(Increase) in other current assets ........... (38,199) (3,823)
(Increase) decrease in other assets .......... (25,062) 10,186
(Decrease) in accounts
payable and accrued expenses .............. (314,985) (196,170)
------------ ------------
Net cash used in operating activities .. (1,952,649) (2,917,471)
------------ ------------
Investing Activities:
Purchase of equipment ........................ (386) (244,975)
Deferred patent costs ........................ -- (2,716)
------------ ------------
Net cash used in investing activities .. (386) (247,691)
------------ ------------
Financing Activities:
Exercise of stock options .................... 2,850
Repurchase of Common Stock ................... (60,000) --
------------ ------------
Net cash from financing activities ..... (57,150) --
------------ ------------
Net decrease in cash ................. (2,010,185) (3,165,162)
Cash beginning of period ....................... 4,968,294 10,252,511
------------ ------------
Cash end of period ........................... $ 2,958,109 $ 7,087,349
============ ============
Supplemental disclosures:
Cash paid for interest: ...................... $ 0 $ 76
============ ============
Cash paid for income taxes.................... $ 0 $ 0
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 6
Registry Magic Incorporated
Notes to Condensed Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared
in accordance with generally accepted accounting principles 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 principles 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 six-month period ended January 31,
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-ended July 31, 1999.
2. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
January 31, 2000
---------------
Trade accounts receivable $ 972,782
Allowance for doubtful accounts (342,366)
---------
Total $ 630,416
=========
3. INVENTORIES
Inventories are stated as the lower of cost or market. Cost is
determined using the first-in first-out method.
January 31, 2000
----------------
Computer components $ 221,387
Allowance for obsolescence (34,720)
---------
Total $ 186,667
=========
4. STOCKHOLDERS' EQUITY
In connection with the Company's initial public offering, five-year
warrants to purchase 24,000 shares of common stock exercisable at $9.0625 were
granted to an investment banker's representative. The exercise price of these
warrants was reduced by the Board of Directors to $4.53 during the quarter ended
January 31, 2000.
5. PROPOSED MERGER
On February 11, 2000, Registry Magic Incorporated ("Registry Magic")
and Synergex International Corporation ("Synergex") 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.
On February 28, 2000, Registry Magic Incorporated and Synergex
International Corporation entered into a management services agreement whereby
Synergex agreed to provide Registry Magic executive accounting, sales, marketing
and other management services as agreed upon by the parties. The services
currently contemplated include sales and marketing assistance, support in
preparation of periodic income and cash flow statements, assistance in the
preparation and filing of SEC Securities Exchange Act 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 Merger between Registry Magic and Synergex does
not close, Registry Magic 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.
5
<PAGE> 7
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,"
"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
Registry Magic 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 January 31, 2000, product sales were
$260,541 as compared to $788,523 for the three months ended January 31, 1999.
The Company recorded $150,000 in revenues for a joint development project and
$200,000 for licensing fees for the three months ended January 31, 1999, no such
services were performed for the three months ended January 31, 2000. For the six
months ended January 31, 2000 product sales were $784,000 as compared to
$1,070,562 for the six months ended January 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
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 January 31, 2000, cost of goods sold
amounted to $231,601 compared to $228,954 for the three months ended January 31,
1999 an increase of $2,647, representing hardware costs associated with the
Company's Virtual Operator. For the six months ended January 31, 2000, cost of
goods sold amounted to $550,239 compared to $332,649 for the six months ended
January 31, 1999 an increase of $217,590, representing hardware costs associated
with the Company's Virtual Operator. Cost of goods sold increased as a percent
of sales due to a proportionate increase in lower margin hardware sales. For the
three months ended January 31, 2000 the Company increased its inventory reserve
by $28,589.
General and administrative expense decreased by $474,244 to $545,987
for the three months ended January 31, 2000 from $1,020,231 for the three months
ended January 31, 1999. General and administrative expense decreased by $259,331
from $1,769,686 for the six months ended January 31, 2000 to $1,510,355 for the
six months ended January 31, 1999. The reduction in general and administrative
expense was due to decreased administrative and sales staff.
Royalty expense was $0 for the three and six months ended January 31,
2000 compared to $300,000 and $500,000 for the three and six months ended
January 31, 1999, respectively.
6
<PAGE> 8
Research and development expenses for the three months ended January
31, 2000 were $165,439 compared to $391,307 for the three months ended January
31, 1999, a decrease of $225,868. Research and development expenses for the six
months ended January 31, 2000 were $447,764 compared to $763,427 for the six
months ended January 31, 1999, a decrease of $315,663. 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".
Depreciation expense increased $5,101 for the three months ended
January 31, 2000 to $54,140 from $49,039 for the three months ended January 31,
1999. Depreciation expense increased $20,589 for the six months ended January
31, 2000 to $109,977 from $89,388 for the six months ended January 31, 1999
primarily due to the Company purchasing additional computer hardware.
Interest income net for the three months ended January 31, 2000
amounted to $50,303 compared to $96,754 for the three months ended January 31,
1999. Interest income for the six months ended January 31, 2000 amounted to
$108,192 compared to interest income of $217,417 for the six months ended
January 31, 1999. The decrease in interest income was due to the reduction in
the Company's cash balances.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 2000, the Company had $2,958,109 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 $964,822 to
$1,952,649 from $2,917,471 for the six months ended January 31, 1999. Net cash
used in operating activities primarily related to the Company's research and
development and sales and marketing efforts.
Net cash used in investing activities during the six months ended
January 31, 2000 and 1999 was $386 and $247,691 respectively. The decrease in
expenditures primarily related to a decrease in purchases of computer equipment
and patent costs.
Net cash used in financing activities during the six months ended
January 31, 2000 amounted to $57,150. 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.
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 5. Other Information
On February 28, 2000, Registry Magic Incorporated and Synergex
International Corporation entered into a management services agreement whereby
Synergex agreed to provide Registry Magic executive accounting, sales, marketing
and other management services as agreed upon by the parties. The services
currently contemplated include sales and marketing assistance, support in
preparation of periodic income and cash flow statements, assistance in the
preparation and filing of SEC Securities Exchange Act 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 Registry Magic and
Synergex does not close, Registry Magic 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.
Registry Magic, Synergex and RMAG Acquisition Corp, a wholly owned subsidiary of
Registry Magic, had previously entered into an Agreement and Plan of Merger on
February 11, 2000, subject to, among other conditions, applicable approval of
shareholders of the respective companies.
On February 24, 2000, Bruce Carlsmith was terminated as Chief Executive
Officer and resigned as a director of the Company. In addition, also on February
24, 2000, Lawrence Cohen the Company's Chairman of the Board was named Acting
President and Chief Executive Officer.
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.
7
<PAGE> 9
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: March 16, 2000
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 2,958,109
<SECURITIES> 0
<RECEIVABLES> 972,782
<ALLOWANCES> (342,366)
<INVENTORY> 186,667
<CURRENT-ASSETS> 3,835,995
<PP&E> 755,944
<DEPRECIATION> (382,268)
<TOTAL-ASSETS> 4,273,881
<CURRENT-LIABILITIES> 248,668
<BONDS> 0
0
0
<COMMON> 5,335
<OTHER-SE> 4,019,858
<TOTAL-LIABILITY-AND-EQUITY> 4,273,881
<SALES> 784,000
<TOTAL-REVENUES> 784,000
<CGS> 550,239
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,068,096
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (108,192)
<INCOME-PRETAX> (1,726,143)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,726,143)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,726,143)
<EPS-BASIC> (.30)
<EPS-DILUTED> (.30)
</TABLE>
