March 16, 2000
REGISTRY MAGIC INC (RMAG)
Quarterly Report (SEC form 10QSB)
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.
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. |
