<PAGE>   1

                       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, 1999

[ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER 0-24283

                           REGISTRY MAGIC INCORPORATED
                 (Name of Small Business Issuer in Its Charter)

FLORIDA                                                   65-0623427
(State or Other Jurisdiction of                           (I.R.S. Employer
Incorporation or Organization)                            Identification No.)

                            ONE SOUTH OCEAN BOULEVARD
                                    SUITE 206
                            BOCA RATON, FLORIDA 33432
                            -------------------------
               (Address of Principal Executive Offices)(Zip Code)

                                 (561) 367-0408
                                 --------------
                (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
         -------------------           -----------------------------------------

                  NONE                                   NONE

Securities registered under Section 12(g) of the Securities Exchange Act of
1934:

                     COMMON STOCK, PAR VALUE $.001 PER SHARE
                     ---------------------------------------
                                (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, 1999 $2,453,285.

State the aggregate market value of the voting stock held by non-affiliates of
the registrant on November 1, 1999 computed by reference to the closing bid
price of the Registry Magic Incorporated Common Stock as reported by NASDAQ on
that date ($2.0625): $6,786,460

                      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 November 1, 1999, was 5,355,405.

Transitional Small Business Disclosure Format (check one): Yes [ ]  No [X]

                       DOCUMENTS INCORPORATED BY REFERENCE


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                                     PART I


ITEM 1.  DESCRIPTION OF BUSINESS

INTRODUCTION

         Registry Magic(R), (the "Company") was organized to design, develop,
commercialize and market proprietary products and services that exploit recent
advances in speech recognition technologies. The products currently offered or
under development by the Company 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.

         The Company's initial product is the Virtual Operator(TM), a speech
driven auto-attendant and call routing turnkey product, that has received a
number of industry awards including "Product of the Year 1997" by both CTI
MAGAZINE and TELECONNECT MAGAZINE, "Best of Show" at the 1998 CT Expo and
included in the Smithsonian's permanent collection of Information, Technology
and Society. This product is generating limited sales for the Company and is
being marketed and installed through both independent resellers and a direct
sales force. In addition to product sales, the Company is also seeking to
license its proprietary speech driven products to telephone switch and
voice-mail manufacturers, among others, on an original equipment manufacturer
("OEM") basis.

         The Company has entered into a Virtual Employee(R) service agreement
with Office Depot Corporation to handle a specific category of incoming calls to
their call center which is generating revenue, on a per transaction basis, to
the Company.

         The Company has started to generate limited revenues and anticipates
increased revenues during its 2000 fiscal year. The Company's expenses continue
to significantly exceed its current revenues. There can be no assurance that the
Company will generate sufficient revenues to enable the Company to operate
profitably during its 2000 fiscal year or thereafter.

         The Company's goal is to continue to develop and refine its speech
recognition products and services by adding additional functionality and foreign
language understanding to enable users to easily access computer automated
transactions via a telephone or PC without the need for extensive touch-tone
menus or computer proficiency while providing customers with cost-saving
benefits.

         The Company is currently marketing its initial products on a
stand-alone basis through independent reseller channels and a direct sales
force. The Company has also established alliances with manufacturers to license
the Company's proprietary software products in their own products on an OEM
basis.

INDUSTRY BACKGROUND

         While various types of speech recognition technology have existed for
several years and the number of commercially available speech-enabled products
continue to grow, until recently, speech recognition technology and products
have been deficient and costly, thereby limiting widespread acceptance.
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, Dragon Systems, Inc., 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,


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information theory and coding theory. On the other hand, creating speech
recognition products requires an entirely different set of skills including
speech and word recognition, linguistics, usability engineering, speech engine
tuning, noise cancellation, phonetics, multimedia application development and
telephone application development.

         Early speech recognition applications typically required programming of
equipment to recognize a limited number of discrete words spoken by a specific
user, referred to as "speaker enrollment." These speaker-dependent systems also
tended to be sensitive to background noise and to changes in speech patterns
that resulted from an enrolled speaker being tired or excited. Additionally,
these initial speech recognition applications had limited vocabularies and
required the user to speak discretely, pausing between each word, rather than
allowing natural continuous speech. Moreover, in addition to these performance
challenges, the development of foreign language versions of automatic speech
recognition and text-to-speech synthesis (technologies for converting textual
information into synthetic speech output) has been costly and time consuming. As
a result, most developers have limited development to one (typically English) or
a few language versions of their technology.

         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.

         Speech is typically the most natural, efficient and easiest means of
human communication. With the increase in the power and capability of core
speech recognition engine technology, as well as the increase in speed and
reduction of costs in computer processors, integration of human speech as an
interface to telephone and computer applications is now feasible. Recent
advances in the accuracy of speech recognition technologies have led to
improvements in the performance and reliability of speech recognition products,
allowing for multiple languages to be developed for a specific application.
Management believes that these improvements and continuing advances in speech
recognition technologies, including the development of intuitive and easy-to-use
natural language user interfaces, are accelerating the growth of speech-enabled
products in daily business and personal use. Furthermore, management believes
that electronic devices and products incorporating speech recognition technology
will be available in an increasing variety of applications, provided that these
applications are easy to use, natural, accurate and cost effective.

STRATEGY

         The Company's overall goal is to exploit existing speech engine
technology to create advanced speech recognition products and services for
commercial applications. This technology, among other attributes, will (i)
substantially eliminate the need for touch-tone menus, (ii) allow for the
automation of telephone systems in international locations where touch-tone
systems may not be prevalent, (iii) reduce operational costs by performing
repetitive tasks of live employees, and (iv) allow for the access of information
from any location and at any time through speech prompting.



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VIRTUAL OPERATOR PRODUCT STRATEGY:

         Until now, the Company has marketed the virtual Operator in two
variations, the Virtual Operator, and Virtual Operator Enterprise Edition. The
Enterprise Edition differs from the standard Virtual Operator by virtue of its
ability to recognize up to 10,000 names while the standard edition is limited to
500-1,000 names (depending on how many nicknames are included). The two products
also differ slightly in how they prompt the caller for the desired party's name.

         The Company has recently undertaken a review of its product strategy
and is developing product variations that differ along price and functionality.
The variations will include a revised Virtual Operator, an enhanced Enterprise
Edition, and a customizable version with a modular set of features suitable for
a variety of vertical markets.

         The Company will retain the current Virtual Operator but will build and
maintain a standard library of names to reduce the expense of installing and
tuning each individual installation. This will reduce the Company's costs and
further help the Company's dealer base.

         The Virtual Operator Custom product is aimed at vertical markets, which
the Company believes represent particularly appropriate customers, where both
telephone usage and the change in extension numbers are high. The Company has
developed proprietary technology which allows automatic updates of the Virtual
Operator database from computer databases from the customer's admission software
or property management software. This eliminates the need for any manual name
insertion.

         The Company is also rewriting the code of the Virtual Operator in such
a way as to be independent of the underlying engine technology. In this way, the
product can always use "best of breed" technology.

CONTENT ACCESS PRODUCT STRATEGY:

         The Company believes that the rapid rise of the Web together with the
large and growing number of cellular and PCS mobile phone users represents a
significant opportunity. The Company intends to develop applications, both in
cooperation with partners and on its own, that allow mobile and fixed phone
users to access information, conduct transactions, and retrieve data from
databases through speech commands.

         Access to the Web has traditionally been the domain of PCs , and the
PC's multi-media capability still makes it the ideal tool for access to Web
content that is graphical or media-rich. However, ours is an increasingly mobile
society, and users will want access to information while they are away from
their PCs. There are two ways to do this: small-screen devices and voice.

         There is an increasing amount of activity in the area of wireless,
mobile Internet access. Sprint PCS, for example, has released a commercial
product with a new phone. There is widespread acceptance of a single standard
for this purpose, called the WAP, or Wireless Access Protocol. This enables
content providers to re-design their content for small screen devices.

         However, these devices will have some limits. The screen itself will be
small, because customers like small physical size for their phones. They tend to
be two-handed devices that require the user to use one hand to hold it and one
to operate a stylus or button to make selections. Being visual devices, they
demand that the user actually look at them in order to use them.





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         A voice interface gets around many of these restrictions, although it
clearly adds others. In many ways, a voice interface is the most natural and
intuitive way to access information. It mimics something we do every day. And a
voice interface allows a caller to keep more attention to driving, or performing
other tasks.

         The Company believes that a voice interface has a significant place as
a third means of accessing databases or conducting commerce. Neither a PC, nor a
PDA (Personal Digital Assistant), nor a phone is perfect for every application.
Ordering food over a PC, for example, has not taken off partly because the
process is simple enough that a PC inserts more over-head in the process than it
takes away in convenience.

         In light of all this, it is the Company's intention to develop and
market software systems that will allow businesses to offer access to
information and transactions via a voice interface. Vertical markets may include
the travel industry (e.g. hotels and car rentals), the financial products
industry (stock prices, portfolio valuations), or the fast food industry (pizza
and other food ordering).

         As the number and kind of applications available via a voice interface
grow, the Company will be in a position to offer a collection of services via a
speech portal. Such a portal would allow a caller to select from a range of
services, all by asking for them via a voice interface.

         The Company will build its Content Access business in several ways:

         o    Speech recognition software: The Company is building modules of
              software to do the commonly required tasks associated with voice
              recognition: e.g. separating the meaningful words from extraneous
              words.

         o    Systems integration services: Most customers will require a
              certain amount of assistance in implementing speech recognition
              solutions into their larger information technology departments.

         o    Value-added software: To the extent that the Company can develop
              core modules of value-added software, such as a library of names
              in the case of the Virtual Operator, it will be able to capture
              better margins and deeper customer relationships.

PRODUCTS

         GENERAL

         The Company is developing proprietary applications software products
that simulate the manner in which human beings communicate by incorporating the
following key attributes:

                  o SPEAKER INDEPENDENCE -- enables any person to speak and be
understood. As a result, within a geographic region or country, the Company's
technology "listens" to and can understand different dialects, ages and genders.

                  o NATURAL, CONTINUOUS SPEECH -- allows users to speak at a
continuous and natural pace rather than one word at a time.




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                  o 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.

                  o 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.

                  o MAGIC BULLSEYE(TM) -- performs automatically the desired
task based on the confidence of the understanding of the callers spoken command,
without the need for an additional confirmation prompt, thereby making the
caller interaction with the computer more efficient and natural.

                  o ADVANCED STATISTICAL METHODS -- analyzes what users say
based on quantitative statistical analyses that evaluates the combination of
responses in order to understand the spoken language. For example, although it
is currently not possible for a computer system to understand each individual
city, town or village in the United States (e.g., Boise, Dallas or Buffalo), it
can understand a specific city or town when coupled with a specific state (e.g.,
Idaho, Texas or New York).

         PRODUCTS AVAILABLE OR UNDER DEVELOPMENT

         The Company believes that because of its universality, the telephone
offers a particularly effective means for information retrieval, transactions
and messaging. While in the United States interactive voice response telephone
systems using touch-tone input have enjoyed considerable success in automating a
variety of transactions, users often find that using touch-tone telephone menus,
which require a user to push different buttons based upon a series of commands,
tend to be inefficient and frustrating. The limitations for touch-tone input for
more complex and varied transactions are significant and provide a strong
opportunity for speech driven products. Furthermore, outside North America, many
telephone systems are still rotary-driven, which precludes touch-tone telephone
application capability. The recent deregulation of the telecommunication market
in the European Union ("EU"), however, is expected to result in
telecommunication products and services becoming more competitive. The Company
believes it is well positioned to compete in the overseas market based on its
prior experience in developing multi-lingual voice recognition products. In
light of the foregoing and as a result of better applications and advances in
speech recognition technologies, management believes that the exploitation of
speech driven applications in the telephony market will increase. Accordingly,
the Company has determined to focus its initial development efforts primarily on
telephone products and services.

         VIRTUAL OPERATOR(R). The Company'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. The Company believes that this product can be successful in the
international market, where it can automate telephone systems that do not
support touch-tone. Depending on individual configuration, the Virtual Operator
has the ability to answer up to twelve calls at once without placing a caller
on-hold, and function seven days a week, twenty-four hours a day.

         A product prototype of the Virtual Operator won a Best-of-Show Award at
the Computer Technology Expo 1997, a major trade show for products and services
using computer telephone solutions




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that was held in Los Angeles in March 1997. The Virtual Operator was also named
"Product of the Year" for 1997 by both TELECONNECT MAGAZINE and CTI MAGAZINE,
leading trade publications for telephone equipment dealers, and "Best of Show"
at the 1998 CT Expo. In March 1998, the Virtual Operator was included in the
Smithsonian's permanent collection of Information, Technology and Society.

         The Company has begun customer installations of its Virtual Operator
and is generating limited sales revenue from customers within a wide variety of
industries. The Virtual Operator is sold to dealers or directly to end-users.

          VIRTUAL EMPLOYEE(R). Available as an outsourced service bureau through
a strategic alliance with Phone Interactive Corporation, this service is
designed to handle selected incoming calls to call centers and produce
transaction revenue to the Company. The Company has entered into a Service
Agreement with Office Depot.

         CONTENT AND COMMERCE ACCESS. The Company has begun to develop
applications that enable individuals to access information and conduct
transactions using voice as an interface. The information accessed is often, but
by no means always, the same as on the Web site. These applications are aimed at
Internet content providers, e-commerce companies, and brick-and-mortar retailers
who wish to extend their distribution channel to include a voice interface.

DISCONTINUED PRODUCTS

The Company has previously developed prototypes of the following products, but
does not plan further development of these products at this time.

         VIRTUAL DIALER. The Company has ceased its beta testing of a speech
driven personal phonebook that is a turnkey hardware product that enables a user
to place calls to a contact list by stating the requested name rather than
requiring a user to remember individual telephone numbers.

         VIRTUAL PERSONAL ASSISTANT(TM). The Company has ceased its development
of a conversational personal assistant that can be sold as either a turnkey
hardware product or as a service on a subscription basis.

STRATEGIC RELATIONSHIPS

         The Company continues to expand its relationships with technology
providers and distribution partners. Currently, some of these relationships
include:

         LERNOUT & HAUSPIE SPEECH PRODUCTS N.V. The Company has entered into a
distribution and licensing agreement (the "Distribution Agreement") with L&H, an
international provider of speech recognition core engine technologies. As part
of this agreement, the Company has acquired rights to incorporate certain L&H
technologies within the Company's products.

         DIALOGIC CORPORATION. The Company is a Platinum Partner of Dialogic
Corporation, the largest manufacturer of computer telephone equipment. As such,
the Company is authorized to participate in a number of marketing programs in
support of the promotion of the Company's products.





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         INTER-TEL TECHNOLOGIES INCORPORATED. The Company has entered into a
Factored Products Distribution Agreement with Inter-Tel Technologies
Incorporated ("Inter-Tel"), a significant manufacturer and distribution company
of telephone related equipment. Under the terms of this agreement, Inter-Tel
will have the right to market and sell the Company's Virtual Operator product
through its 34 North American based sales offices.

         PHONE INTERACTIVE CORPORATION. The Company has entered into a strategic
alliance agreement with Phone Interactive Corporation ("PIC"), a telephone
service bureau business. As part of this agreement, the Company has agreed to
provide rights to use its speech recognition call center software under
development, while PIC will provide its telecommunications platforms, marketing,
customer base and other contributions, and each will receive a percentage of the
overall revenue from the proposed services based upon each party's contribution
in developing and marketing a specific application.

RESEARCH AND DEVELOPMENT EXPENSES

         For the fiscal years ended July 31, 1999 and 1998, the Company incurred
research and development expenses of $1,242,210 and $1,076,567 respectively.

SALES AND MARKETING

         To date, marketing efforts have been conducted by Company personnel and
have focused on international businesses, national and regional distribution
companies and OEM telephone switch and voicemail manufacturers.

         The Company has established a distribution network for North America.
Sales of the Virtual Operator are being achieved primarily through independent
resellers that supply telephone and voicemail systems to businesses, as well as
through the Company's direct sales force. To date, the Company has entered into
distribution agreements with both regional and national dealers including
Inter-Tel, Tadiran and Teleco.

         The Company has established an OEM relationship with VMS a manufacturer
of telecommunication equipment. In this relationship the Company has supplied
the customer with the Virtual Operator as software, with Application Programming
Interface's (API) that enable the OEM to include the Virtual Operator in their
product under their own brand. The Company is negotiating similar relationships
with additional companies. However, there can be no assurance that these
negotiations will be successful.

         The Company has recently decided to focus its efforts on developing its
current dealer base of approximately 140 dealers, rather than expanding that
channel with more dealers. To this end the Company recently downsized its dealer
sales force from 15 to 7, which should result in significant cost savings to the
Company. To build its sales the Company has identified several vertical markets
for which the company intends to develop specific features in the Virtual
Operator. Many of these potential customers control a large part of their IT
(Information Technology) spending from a central location. Making sales and
support through a dealer network would not be beneficial to the customer. For
that reason, the Company continues to maintain a national accounts program
designed to meet the need of customers not well served through its dealer
network.










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SUPPLIERS AND LICENSORS

         The Company's proprietary software incorporates core speech engine
technology developed by others for which the Company has obtained licenses.

         The Company has entered into a four-year, non-exclusive, worldwide
license agreement, effective as of December 31, 1996 and as subsequently amended
(the "L&H Agreement"), 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 telephone and desktop applications.
Included in the license to the Company are all advances or improvements made by
L&H to such technologies and all foreign language uses requested by the Company
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 the
Company. The Company 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 the Company's products incorporating L&H technology which represents
the total amount due under this agreement.

         The Company's software products are designed to be used with personal
computers, specifically Intel(R) Pentium processors that the Company currently
purchases from Netex USA Corporation, although these personal computers are
available from numerous sources on similar terms and conditions. Standard
telephone interface cards are also required for certain of the turnkey hardware
products if these products communicate via the telephone. The Company'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
the Company may purchase cards on similar terms and conditions. Certain of the
Company'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 the Company, since the Company might not be able to
offer all the features of a particular application if it were required to rely
on other suppliers.

         The Company'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. The Company'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 the Company to exploit speech recognition engine technologies
developed by different vendors. Typically, the Company selects engine toolkits
and speech recognition engine technology manufactured by the same entity.
Alternatively, the Company 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

         The Company considers its software and applications as propriety and
currently relies on a combination of copyright, trade secret and trademark laws
and license agreements to protect its intellectual property rights. The Company
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



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the Company's products or to obtain and use information that the Company regards
as proprietary. The Company currently has filed for federal trademark protection
with the United States Patent and Trademark Office (the "PTO") and has received
registration for the marks REGISTRY MAGIC(R), VIRTUAL OPERATOR(R), and VIRTUAL
EMPLOYEE(R).

COMPETITION

         The speech recognition applications market is growing and is expected
to be characterized by intense competition. The Company's products will compete
with, or affect the sales of, many well-established companies including IBM,
AT&T, Digital Equipment, Lucent, Nortel and Unisys. Most of these companies have
substantially greater financial, technical, personnel and other resources than
the Company 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 the Company. With respect to the Virtual Operator
product, the Company's competitors will likely include Phillips, Locus,
Phonetics Systems, The Sound Advantage and Vocalis. Additionally, manufacturers
of voice-mail and telephone switches may also attempt to develop their own
conversational speech recognition applications. There can be no assurance that
the Company will be able to compete successfully, that its competitors or future
competitors will not develop technologies or products that render the Company's
products and technology obsolete or less marketable, or that the Company will be
able to successfully enhance its proposed products or technology or adapt them
satisfactorily.

EMPLOYEES

         The Company currently has 22 full-time employees. Of such employees, 2
are persons in management and finance; 5 are employed in research and
development; 7 are engaged in sales and marketing; 6 are in product support, and
2 are in administration. No employee of the Company is covered by a collective
bargaining agreement or is represented by a labor union. The Company considers
its employee relations to be good.

ITEM 2.  DESCRIPTION OF PROPERTIES

         The Company currently leases adjacent facilities consisting of
approximately 1,600, 1,000, and 1,600 square feet of office space in Boca Raton,
Florida, for initial monthly base rental amount of $1,727, $1,093, and 2,500
respectively, plus the Company's proportionate share of taxes and operating
expenses for the common area of the building. The Company's leases for the 1,594
and 1,009 square feet of office space terminate on December 31, 1999; and the
1,600 square feet of office space on June 30, 2001. However, the Company has
negotiated to terminate this third lease on December 31, 1999. The Company has
entered into a new Lease commencing December 31, 1999 for a term of five years,
consisting of approximately 7,990 square feet office space in Boca Raton,
Florida, for initial monthly base rental amount of $8,656 plus the Company's
proportionate share of taxes and operating expenses for the common area of the
building.

ITEM 3.  LEGAL PROCEEDINGS

         None.





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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
         ------                                      ----          ---

         1998
         ----
         June 28, 1998 to July 31, 1998            $13.125       $7.625

         1999
         ----
         First Quarter                             $11.750       $4.000
         Second Quarter                            $ 6.375       $3.875
         Third Quarter                             $11.500       $3.000
         Fourth Quarter                            $ 8.250       $1.625

         2000
         ----
         First Quarter                             $ 3.625       $1.063


 The Company believes that as of November 5, 1999 there were approximately 87
record holders of the Company's Common Stock. The Company believes 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

         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 Magic Incorporated, 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.






                                       11


<PAGE>   12

         The Company's products and services, among other things, will (i)
substantially eliminate the need for touch-tone menus, (ii) allow for the
automation of telephone systems internationally where touch-tone may not be
prevalent, (iii) reduce operational costs by performing repetitive tasks of live
employees and (iv) 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 and
anticipates increased revenues during its 2000 fiscal year, 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, expand into the international
market, 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. Beginning in fiscal 1998 the Company began
selling its initial product, the Virtual Operator.

         For the year ended July 31, 1999, product sales were $2,453,285
compared to $517,135 for the year ended July 31, 1998. The Company intends to
continue to focus its efforts on enhancing its Virtual Operator products. Sales
of the Company's Virtual Operator increased in volume through the Company's
dealer network and direct sales force. For the year ended July 31, 1998 the
Company recorded $450,000 of product revenue from a non-refundable royalty from
Lernout & Hauspie Speech Products. No future revenue has been or is expected to
be generated from this product. The costs associated with this product were
expensed as research and development expense.

         During the year ended July 31,1998 the company performed consulting
services for L&H resulting in $367,975 in revenues. For the year ended July 31,
1999 no such consulting services were performed.

          For the year ended July 31, 1999, cost of sales amounted to $1,523,108
representing hardware costs associated with the Company's Virtual Operator. For
the year ended July 31, 1998, cost of sales amounted to $59,527 on sales of
hardware representing costs associated with the Company's Virtual Operator. The
Company incurred no cost of sales for the above mentioned royalty from Lernout &
Hauspie Speech Products and such costs were expensed as research and development
expenses as discussed below.

         General and administrative expense increased by $2,326,443 to
$3,857,760 from $1,531,317 for the year ended July 31, 1998. The Company has
incurred additional salary and commission expense of $801,764 in the current
year for additional employees hired to market and sell the Virtual Operator,
sales commissions and additional office support staff. For the year ended July
31, 1999 the Company



                                       12
<PAGE>   13

recorded a bad debt expense of $342,366. No such expense was recorded for the
year ended July 31, 1998. The Company incurred an additional $258,419 of
expenses for travel and tradeshows to market the Company's products. Effective
October 1, 1999 the Company has significantly decreased its administrative and
sales staff in order to reduce expenses.

        Research and development expenses for the year ended July 31,1999 were
$1,242,210 compared to $1,076,567 for the year ended July 31,1998, an increase
of $165,643. These increases were due to continued enhancement of the Company's
Virtual Operator product, the development of other product and service
prototypes, and expenses related to the Company's performance of development
contracts. The Company does not expect these costs to increase significantly in
the upcoming fiscal year ended July 31, 2000. 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 years ended July 31, 1999 and 1998 were
$500,000 and $500,000 respectively, which represent non-refundable payments on
royalties to use certain speech recognition engine technologies and text to
speech technologies, such amounts also include non-recurring engineering fees
for certain software object code and software source code for the development
and distribution of software products that utilize speaker verification and file
encryption technologies. The Company expensed such non-recurring engineering
fees in the absence of any contracts for the sale of its products at the time of
payment.

         Depreciation expense increased $94,537 for the year ended July 31, 1999
to $195,821 from $101,284 for the year ended July 31, 1998, primarily due to the
Company purchasing additional computer hardware.

         Interest income net for the year ended July 31, 1999 amounted to
$364,019 compared to $76,099 of interest income net for the year ended July 31,
1998. The increase in interest income was due to the completion of the Company's
IPO in June 1998 and receipt of approximately $11,300,000 in net proceeds. Such
funds are invested in money market accounts and high-grade short-term corporate
paper.

LIQUIDITY AND CAPITAL RESOURCES

         As of July 31, 1999, the Company had approximately $4,968,000 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 offering price
of $7.25 per share, raising proceeds, net of offering costs, of approximately
$9,900,000. On June 26, 1998, through the underwriters exercise of an
over-allotment, the Company sold an additional 220,000 shares of Common Stock
raising net proceeds of approximately $1,400,000.

         Net cash used in operating activities increased by $2,786,179 to
$4,892,338 for the year ended July 31, 1999 as compared with $2,106,159 during
the year ended July 31, 1998. Net cash used in operating activities was
primarily related to the Company's continued expansion of its research and
development and sales and marketing efforts.



                                       13
<PAGE>   14

         Net cash used in investing activities during the year ended July 31,
1999 and 1998 were $341,879 and $320,074 respectively. The expenditures
primarily related to purchases of computer equipment and patent application
costs.

        Net cash provided by financing activities during the year ended July 31,
1998 amounted to $11,750,064 and net cash used for financing activities was
$50,000 for the year ended July 31, 1999, as discussed above the Company
completed its IPO in June 1998. The company repaid a $50,000 note due to its
Chairman of the Board during its year ending July 31, 1999.

IMPACT OF THE "YEAR 2000" ON COMPANY PRODUCTS

         Computers, software and other equipment utilizing microprocessors that
use only two digits to identify a year in a date field may be unable to process
accurately certain date-based information at or after the year 2000. The Company
recognizes the need to insure that its operations will not be adversely affected
by "Year 2000" software failures. Software failures due to processing errors
potentially arising from calculations using the year 2000 date are a recognized
risk, and the Company is addressing this issue on several different fronts.

         The Company is in contact with its suppliers to assess their
compliance. The Company believes based on representations from its suppliers
that there products are year 2000 compliant, but there can be no assurance that
there will not be a material adverse effect on the Company if third parties do
not convert their systems in a timely manner and in a way that is compatible
with the Company's systems. The Company believes that its actions with suppliers
will minimize these risks.

         Through July 31, 1999, the Company has not incurred material expenses
relating to "Year 2000" compliance efforts and believes that the expenses
associated with completing its "Year 2000" compliance plans will not have a
material adverse impact on the Company's operations. Internal and external
expenses specifically associated with modifying internal-use software for the
"Year 2000" will be expensed as incurred. The Company's current estimates of the
amount of time and expenses necessary to implement and test its computer systems
are based on the facts and circumstances existing at this time. Nevertheless,
achieving "Year 2000" compliance is dependent on many factors, some of which are
not completely within the Company's control. Should either the Company's
internal system or the internal systems of one or more significant vendors or
suppliers fail to achieve "Year 2000" compliance, the Company's business and its
results of operations could be adversely affected.

YEAR 2000 IMPACT ON INTERNAL BUSINESS OPERATIONS

         The Company uses a significant number of computer software programs and
operating systems in its internal operations, including applications used in
financial business systems and various administration functions. To the extent
that these software applications contain source code that is unable to
appropriately interpret the upcoming calendar year 2000, some level of
modification or even replacement of such source code or applications will be
necessary. The Company is in the process of identifying the software
applications that are not "Year 2000" compliant. Given the information known at
this time about the Company's systems, coupled with the Company's ongoing
efforts to upgrade or replace business critical systems as necessary, it is
currently not anticipated that these "Year 2000" costs will have a material
adverse impact on the Company's business, financial condition and results of
operations. However, the Company is still analyzing its software applications
and, to the extent they are not fully "Year 2000" compliant, there



                                       14
<PAGE>   15

can be no assurance that the costs necessary to update software or potential
systems interruptions would not have a material adverse effect on the Company's
business, financial condition and results of operations.

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, 1999. Total revenues for the year ended July 31, 1999 were
$2,453,285. 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, 1999, we have incurred cumulative
losses of $8,227,125 and anticipate that our losses will continue during the
fiscal year ending July 31, 2000. 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.



                                       15
<PAGE>   16

         At the current time our expenditures are exceeding our limited revenues
on a monthly basis. While we expect our revenues to increase during the 2000
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 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.

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. To date, however, we have not developed foreign language
versions for our Virtual Operator product (other than Spanish and Japanese) or
our two prototypes. In order to finalize development of these products, we will
be required to spend considerable time, effort and resources. Our success will
depend, in part, upon the ability of our proposed products to meet targeted
performance, 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.











                                       16
<PAGE>   17

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 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 Phillips , Vocalis Group P.L.C., 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.











                                       17
<PAGE>   18

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
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 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 profitability.

IMPACT OF THE "YEAR 2000" ON COMPUTER SYSTEMS

         Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the year 2000. Some older
computer systems store dates with only a two-digit year with an assumed prefix
of "19". Consequently, this limits those systems to dates between 1900 and 1999.
If not corrected, many computer systems and applications could fail or create
erroneous results by or at the year 2000 (the "Year 2000").

         Because we will rely heavily on computers to conduct our business we
are subject to all the risks associated with the Year 2000. We have assessed the
scope of our risks related to problems these computer systems may have related
to the "Year 2000" and we believe such risks are not significant. In addition,
we are in the process of questioning our vendors and business partners about
their progress in identifying and addressing problems related to the "Year
2000". However, no assurance can be given that all of these third party systems
or our computer systems will be "Year 2000" compliant.



                                       18
<PAGE>   19

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.

RISK OF INTERNATIONAL SALES

         Our business is expected to be conducted in the European Union, as well
as in the United States, and may be affected by changes in demand resulting from
fluctuations in currency exchange rates, as well as by governmental controls and
other risks associated with international sales. Our international business may
be subject to longer payment cycles, difficulties in accounts receivable
collection, delays in shipments, increases in duties and taxes, price controls,
adverse changes in foreign regulations and the burdens of complying with a wide
variety of foreign laws. We will generally deal in local currencies in foreign
markets. If the U.S. dollar strengthens in relation to these international
currencies, our revenues from international sales and the gains and losses on
the settlement of receivables from international operations may be negatively
affected. We cannot assure you that exchange rate fluctuations and other risks
associated with international operations will not have a material negative
effect on our business and prospects.

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 Bruce Carlsmith, our President and Chief Executive Officer, and
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





                                       19
<PAGE>   20

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.

CONTROL OF THE COMPANY BY MANAGEMENT

         Our executive officers and directors will own or have the right to
acquire within the next 60 days up to approximately 365,000of the outstanding
shares of Common Stock. Accordingly, our management will have the ability to
elect our entire Board of Directors and control the outcome of all matters
submitted to a vote of our shareholders.

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.



                                       20
<PAGE>   21

OTHER EVENTS

         The Company has entered into a Settlement Agreement and General
Releases with its former President, Chief Executive Officer and member of its
Board of Directors, Mr. Walter Nawrocki. Under the terms of the Agreement with
Mr. Nawrocki and Elizabeth Nawrocki (Mr. Nawrocki's Wife) ("the Nawrockis"), the
Company dismissed with prejudice a pending action (Registry Magic Incorporated,
a Florida corporation, Plaintiffs vs. Walt Nawrocki and Elizabeth Nawrocki,
Defendants, Case No. CL `99-8014A1 in the Circuit Court of the 15th Judicial
Circuit, in and for Palm Beach County, Florida). Also, as part of the Settlement
Agreement, the Nawrockis sold to the Company 300,000 shares of Common Stock
owned by the Nawrockis for $30,000. The parties exchanged general releases as
part of the Settlement Agreement.

         In addition, the Company entered into an Agreement with its former
Vice-President of Business Development and Marketing, Mr. Neil Bernstein. Under
the terms of the Agreement with Mr. Bernstein and Leslie Bernstein (Mr.
Bernsteins Wife) ("the Bernsteins"), the Bernsteins have sold to the Company
300,000 shares of Common Stock owned by the Bernsteins for an undisclosed
amount. The parties exchanged general releases as part of the Agreement.

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.






















                                       21
<PAGE>   22


                                    PART III



ITEM 9.  MANAGEMENT

                                   MANAGEMENT

         The following table sets forth certain information concerning the
current directors and nominee directors of the Company and the executive
officers of the Company:



      NAME                        AGE                 TITLE
      ----                        ---                 -----

Lawrence Cohen                     55          Chairman of the Board

Bruce S. Carlsmith                 44          Director and Chief
                                               Executive Officer

Cornelia Eldridge(1)(2)            58          Director

Renney Senn(1)(2)                  51          Director

Martin Scott                       31          Treasurer and Secretary

---------------------
 (1)  Member of the Compensation Committee.
 (2)  Member of the Audit Committee.

         LAWRENCE COHEN has served as Chairman of the Board since he founded the
Company in October 1995. 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. (Nasdaq:BRTL), a point-of-sale
equipment distributor ("Bristol"), 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 ("Apollo"), 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 a co-founder of Cryomedical Sciences (Nasdaq:CMSI), a low
temperature surgery company, and served as its President from November 1990 to
November 1991.

         BRUCE S. CARLSMITH has served as Acting Chief Executive Officer since
July 6, 1999 and director of the Company since February 1, 1999. On October 20,
1999 Mr. Carlsmith was appointed President and Chief Executive Officer of the
Company. Mr. Carlsmith is currently President of Sayre Consulting, a
telecommunications consulting firm. From April 1995 until October 1998 he served
as an equities analyst with NationsBanc Montgomery Securities. From April 1993
to April 1995 he served as Director, Strategy and Planning, with Pacific Telesis
Video Services. Prior to his services with Pacific Telesis Video Services, he
was employed by the Boston Consulting Group.











                                       22
<PAGE>   23

         CORNELIA ELDRIDGE has served as a director of the Company 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 the Company 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. SpectraNet grew out of another start-up
co-founded by Mr. Senn in 1990 that was a fiber optic cabling company.

         MARTIN SCOTT, a certified public accountant, has served as Secretary
and Treasurer of the Company 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.
(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.

         The Company's officers are elected annually by the Company's Board of
Directors and serve at the discretion of the Company's Board of Directors. The
Company compensates each non-employee director $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 his or her status as a director of the Company,
including claims arising under federal and state securities laws. In addition,
directors are eligible to receive options under the Company's 1997 and 1999
Stock Option Plan.

         During the year ended July 31, 1999, the Company's Board of Directors
held meetings and took action by unanimous written consent a total of 9 times.

BOARD COMMITTEES AND RELATED INFORMATION

         The Board of Directors of the Company has established a Compensation
Committee and an Audit Committee. The Compensation Committee, comprised of
Cornelia Eldridge and Renney Senn, administers the Company's stock option plan
and makes recommendations to the full Board of Directors concerning
compensation, including bonuses and incentive arrangements, of the Company's
officers and key employees. The Audit Committee, comprised of Cornelia Eldridge
and Renney Senn, reviews the engagement of the independent accountants and
independence of the accounting firm, as well as the audit and non-audit fees of
the independent accountants and the adequacy of the Company's internal
accounting controls. The Compensation and Audit Committees are comprised of a
majority of the independent directors.







                                       23
<PAGE>   24

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's outstanding Common Stock to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock. Such persons are required by SEC
regulation to furnish the Company with copies of all such reports they file.

         To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners have been
complied with for the period for which this report relates.

ITEM 10. 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, 1999 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,                 1999              $115,500              -0-               -0-                  -0-
Chairman                        1998              $115,500              -0-               -0-                  -0-
                                1997              $ 67,375              -0-           100,000                 -0-

Bruce Carlsmith,                1999              $ 12,788              -0-             35,000                 -0-
President & CEO

Walt Nawrocki,                  1999              $176,458              -0-               -0-                  -0-
Former President & CEO          1998              $175,000              -0-               -0-                  -0-
                                1997              $175,000              -0-            200,000                 -0-

Neal Bernstein,                 1999              $114,584              -0-               -0-                  -0-
Former Vice-President           1998              $125,000              -0-               -0-                  -0-
                                1997              $ 62,500              -0-             50,000                 -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.
Effective October






                                       24
<PAGE>   25

20, 1999 , the Company entered into a one year employment agreement,
automatically renewing for one additional year with its President and CEO, Bruce
Carlsmith, providing for a base salary of $175,000. The employee may receive
annual bonuses at the discretion of the Company, with bonuses to be determined
by the Compensation 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 a 12-month post
termination non-competition restriction that may be imposed by the Company
provided that the employee receives a lump sum payment equal to one year's
salary within 30 days of termination of employment.

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





                                       25
<PAGE>   26

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.

         Options to purchase 289,350 shares of Common Stock are outstanding
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 intends to submit 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 $3.63 per share over a
four-year term to employees of the Company.

         OTHER OPTION GRANTS

         In addition to options granted pursuant to the Company's 1997 and 1999
Stock Option Plan described above Registry Magic also issued options to purchase
an aggregate of 645,000 shares of Common Stock to five Director's of the
Company, exercisable at prices ranging from $2.00 to $3.75 per share. In
addition, Company granted options to purchase 100,000 shares of Common Stock to
Martin Scott the Company's Secretary and Treasurer at a price of $3.75 per share
and options to purchase 200,000 shares of common stock to an employee at a price
of $3.75 per share.

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,
1999. No stock options were exercised by the Named Executive Officers during the
period ended July 31, 1999. 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, 1999                                 Options At July 31, 1999 (1)
                          --------------------------------                       ----------------------------------

Name                      Exercisable        Unexercisable                         Exercisable     Unexercisable
----                      -----------        -------------                       -----------------  --------------
<S>                         <C>                   <C>                                    <C>
Walt Nawrocki(2)            200,000               --                                     --               --
Bruce Carlsmith              35,000               --                                     --               --
Lawrence Cohen              100,000               --                                     --               --
Neil Bernstein (2)           50,000               --                                     --               --
</TABLE>



                                       26
<PAGE>   27

(1)  Dollar values are calculated based on the difference between the option
     exercise price and $3.00, the closing price of the Company's Common Stock
     on July 30, 1999, as reported by NASDAQ.

(2)  Mr. Nawrocki's and Mr. Bernstein's stock options have been cancelled as of
     October 28, 1999 pursuant to settlement agreements between Mr. Nawrocki
     and Mr. Bernstein and the Company.

 ITEM 10.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
           OWNERS AND MANAGEMENT

         The following table sets forth, as of November 1, 1999, 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                         32.8%

Martin Scott(4)...........................                         70,000                          1.3%

Cornelia Eldridge(5)......................                        165,000                          3.0%

Bruce S. Carlsmith(6).....................                         60,000                          1.1%

Renney Senn(7)...........................                          25,000                          *

Ted Gordon................................                        320,000                          6.0%

All officers and directors
  as a group (5 persons)(8)...............                      2,110,000                         36.9%
</TABLE>

*        Less than 1%.

(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 October 31, 1999 there were
         5,355,405 shares of Common Stock outstanding.

(2)      Unless otherwise indicated below, the address of each person is c/o the
         Company at One South Ocean Boulevard, Boca Raton, Suite 206, Florida
         33432.

(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









                                       27
<PAGE>   28
         to which Mr. Cohen is the general partner and members of Mr. Cohen's
         family are limited partners. Mr. Cohen disclaims beneficial ownership
         with respect to the limited partnership interests owned by members of
         his family.

(4)      Includes 50,500 shares of Common Stock underlying vested options at
         exercise prices ranging from $3.00 to $3.75.

(5)      Includes 125,000 shares of Common Stock underlying vested options at
         exercise prices ranging from $2.00 to $3.75.

(6)      Includes 60,000 shares of Common Stock underlying vested options at
         exercise prices ranging from $2.00 to $3.75.

(7)      Includes 25,000 shares of Common Stock underlying options immediately
         vested on October 2, 1999, at an exercise price of $2.00.

(8)      See notes 3 - 7 above.

      ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         During 1996 and 1997, Lawrence Cohen contributed $25,959 and $3,500,
      respectively, to the capital of the Company. At that time he also advanced
      the Company $50,000 which bore interest at the rate of 6.5% per annum. In
      October and November 1996, Donna Cohen, Mr. Cohen's wife, advanced the
      Company a total of $50,000, which was repaid in December 1996 together
      with interest at the rate of 7% per annum.

         In November 1997, the Company issued 200,000 shares of its Common Stock
      to 1-800-REACH ME, LLC ("REACH ME") in consideration for a cash payment of
      $1,000,000 (net proceeds of $997,159). REACH ME, subsequently entered into
      a dealer agreement with the Company. REACH ME has certain demand and
      piggyback registration rights with regard to these shares of Common Stock
      that it acquired, and the Company will register the resale of such shares
      12 months from the date hereof.

         All transactions between the Company and its officers, shareholders and
      each of their affiliated companies have been made on terms no less
      favorable to the Company than those available from unaffiliated parties.
      In the future, the Company intends to handle transactions of a similar
      nature on terms no less favorable to the Company than those available from
      unaffiliated parties. In addition, any forgiveness of loans must be
      approved by a majority of the Company's independent directors who do not
      have an interest in the transaction and who have access, at the Company's
      expense, to the Company's counsel or independent counsel.




                                       28
<PAGE>   29



      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       1997 Stock Option Plan(1)
       10.2       Employment Agreement with Walt Nawrocki(1)
       10.3       Employment Agreement with Lawrence Cohen(1)
       10.4       Employment Agreement with Neal Bernstein(1)
       10.5       Lease Agreements with Intervest - One Ocean Plaza L.P.(1)
       10.5(a)    Lease Agreements with Intervest - One Ocean Plaza, L.P.(2)
       10.6       Prepaid Royalty Agreement with Lernout & Hauspie Speech
                  Products, Inc.(1)
       10.7       Agreement with 1-800 REACH ME, LLC(1)
       10.8       Phone Interactive Agreement(1)
       10.9       Agreement with M.S. Management Associates, Inc.(1)
      10.10       Licensing Agreement with International Business Machines
                  Corporation(1)
      10.11       Financial Advisory and Consulting Agreement(1)
      10.12       Form of Lock-Up Agreement(1)
      10.13       Indemnification Agreement(1)
      10.14       Distribution and License Agreement with Veritel Corporation of
                  America(2)
      10.15       Master Software Joint Development Agreement with Veritel
                  Corporation of America(2)
      10.16       Employment Agreement with Bruce Carlsmith*
      23.1        Consent of BDO Seidman, LLP*
      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.

     (2)    Filed as an exhibit to the Company's Annual Report on Form 10-KSB
            (File No. 0-242831) as filed with the Commission on November 8,
            1999.




      B. REPORTS ON FORM 8-K:

         On July 9, 1999, The Company filed a report on Form 8-K which announced
      that The Company and Walt Nawrocki have mutually agreed that Mr. Nawrocki
      will no longer serve as Chief Executive Officer, President and a Director
      of The Company.





                                       29
<PAGE>   30


                                   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 15, 1999       By: /s/ BRUCE CARLSMITH
                                        ------------------------------------
                                        Bruce Carlsmith, 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 15, 1999           /s/ BRUCE CARLSMITH
                                        ---------------------------------------
                                        Bruce Carlsmith, Chief Executive Officer


      DATE: November 15, 1999           /s/ LAWRENCE COHEN
                                        ---------------------------------------
                                        Lawrence Cohen, Director


      DATE: November 15, 1999           /s/ RENNEY SENN
                                        ---------------------------------------
                                        Renney Senn, Director


      DATE: November 15, 1999           /s/ CORNELIA ELDRIDGE
                                        ---------------------------------------
                                        Cornelia Eldridge, Director


      DATE: November 15, 1999           /s/ MARTIN SCOTT
                                        ---------------------------------------
                                        Martin Scott, Treasurer and Secretary
                                        Principal Financial and Accounting
                                        Officer

















                                       30





<PAGE>   31
                                                    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>   32
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, 1999 and the related statements of operations, shareholders'
equity and cash flows for each of the two years in the period then ended. 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, 1999 and the results of its operations and its cash flows for
each of the two years in the period then ended in conformity with generally
accepted accounting principles.




Miami, Florida                                                 BDO Seidman, LLP
October 18, 1999





                                      F-2
<PAGE>   33

                          REGISTRY MAGIC INCORPORATED


                                 BALANCE SHEET



                                                                    JULY 31,
                                                                     1999
                                                                  ----------
ASSETS

Current assets:
     Cash and cash equivalents (Note 1)                           $4,968,294
     Accounts receivable, less allowance for doubtful
       accounts of $342,366 (Note 1)                                 602,609
     Inventories                                                     256,235
     Other current assets                                             22,604
                                                                  ----------

Total current assets                                               5,849,742

Property and equipment, net (Note 3)                                 483,267


Other assets                                                          39,148
                                                                  ----------
                                                                  $6,372,157
                                                                  ==========




                               See accompanying notes to financial statements.





                                      F-3
<PAGE>   34

                          REGISTRY MAGIC INCORPORATED


                                 BALANCE SHEET



                                                                     JULY 31,
                                                                       1999
                                                                   -----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable and accrued liabilities                      $   563,650
                                                                   -----------

Total current liabilities                                              563,650
                                                                   -----------

COMMITMENTS AND CONTINGENCIES (NOTES 6 AND 8)

SHAREHOLDERS' EQUITY: (NOTES 2 AND 5)
     Preferred stock $.01 par value; 5,000,000
         shares authorized; no shares outstanding                           --
     Common stock, $.001 par value; 30,000,000
         shares authorized; 5,878,000
         issued and outstanding                                          5,878
     Additional paid-in capital                                     14,029,754
     Deficit                                                        (8,227,125)
                                                                   -----------

Total shareholders' equity                                           5,808,507
                                                                   -----------

                                                                   $ 6,372,157
                                                                   ===========




                               See accompanying notes to financial statements.






                                      F-4
<PAGE>   35
                          REGISTRY MAGIC INCORPORATED


                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>


Years ended July 31,                                                             1999                     1998
--------------------                                                          -----------             -----------

<S>                                                                           <C>                     <C>
REVENUES:

Product sales                                                                 $ 2,453,285             $   517,135

Consulting fees                                                                        --                 367,975
                                                                              -----------             -----------
Total revenues (Note 1)                                                         2,453,285                 885,110
                                                                              -----------             -----------

COSTS AND EXPENSES:

Cost of sales                                                                   1,523,108                  59,527

General and administrative                                                      3,857,760               1,531,317

Research and development                                                        1,242,210               1,076,567

Royalty expense (Note 6)                                                          500,000                 500,000

Depreciation                                                                      195,821                 101,284

Interest income, net of interest expense of $2,258 and
$28,325 in 1999 and 1998, respectively                                           (364,019)                (76,099)
                                                                              -----------             -----------
Total costs and expenses                                                        6,954,880               3,192,596
                                                                              -----------             -----------
Net Loss (Note 4)                                                             $(4,501,595)            $(2,307,486)
                                                                              ===========             ===========
Weighted average shares outstanding (Note 1)                                    5,813,041               4,216,836
                                                                              ===========             ===========
Net loss per common share (basic and diluted) (Note 1)                        $      (.77)            $      (.55)
                                                                              ===========             ===========
</TABLE>



                               See accompanying notes to financial statements.





                                      F-5
<PAGE>   36

                          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, 1997                          3,793,000        3,793       1,780,471        (1,418,044)         366,220

Issuance of common stock for cash at $5.00
     per share, net of offering costs of
     $2,841 (Note 5)                                200,000          200         996,959                --          997,159

Issuance of stock options for services
     (Note 7)                                            --           --          75,366                --           75,366

Issuance of stock in public offering,
  net of offering costs of $2,032,095
  (Note 2)                                        1,820,000        1,820      11,161,085                 -       11,162,905

Net loss                                                 --           --              --        (2,307,486)      (2,307,486)
                                                  ---------   ----------     -----------       -----------      -----------

Balance at July 31, 1998                          5,813,000   $    5,813     $14,013,881       $(3,725,530)     $10,294,164

Warrant conversion (Note 5)                          60,000           60             (60)               --               --

Issuance of stock for services (Note 5)               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
                                                  =========   ==========     ===========       ===========      ===========

</TABLE>



                               See accompanying notes to financial statements.





                                      F-6
<PAGE>   37
                          REGISTRY MAGIC INCORPORATED


                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

Year ended July 31,                                                                   1999                    1998
-------------------                                                               -------------            -----------
<S>                                                                                <C>                      <C>
OPERATING ACTIVITIES:
   Net loss                                                                        $(4,501,595)            $(2,307,486)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation                                                                      195,821                 101,284
     Deferred patent costs write-off                                                    36,073                      --
     Provision for doubtful accounts                                                   342,366                      --
     Stock option compensation expense                                                      --                  75,366
     Common stock compensation expense                                                  15,938                      --
     Increase in accounts receivable                                                  (820,915)               (118,920)
     Increase in inventories                                                           (17,741)               (238,494)
     Decrease (increase) in other current assets                                        21,017                 (39,537)
     Increase in other assets                                                          (18,056)                (14,167)
     Increase (decrease) in accounts payable and accrued expenses                     (145,246)                673,295
     Decrease in deferred revenue                                                           --                (237,500)
                                                                                  -------------            -----------

Net cash used in operating activities                                               (4,892,338)             (2,106,159)
                                                                                  -------------            -----------

INVESTING ACTIVITIES:
   Purchase of equipment, net                                                         (341,879)               (301,848)
   Deferred patent costs                                                                    --                 (18,226)
                                                                                  -------------            -----------

   Net cash used in investing activities                                              (341,879)               (320,074)
                                                                                  -------------            -----------

FINANCING ACTIVITIES:
   Net proceeds from sale of common stock                                                   --              12,160,064
   Notes payable - repayment                                                           (50,000)               (410,000)
                                                                                  -------------            -----------

Net cash provided by financing activities                                              (50,000)             11,750,064
                                                                                  -------------            -----------

Net increase (decrease) in cash                                                     (5,284,217)              9,323,831
Cash and cash equivalents - beginning of period                                     10,252,511                 928,680
                                                                                  -------------            -----------

Cash and cash equivalents - end of period                                         $   4,968,294            $10,252,511
                                                                                  =============            ===========

Supplemental disclosures:
   Cash paid for interest                                                         $       2,258            $    38,152
   Cash paid for income taxes                                                                --                     --
                                                                                  =============            ===========

Common stock and options issued for services rendered                             $      15,938            $    75,366
                                                                                  =============            ===========
</TABLE>


                See accompanying notes to financial statements.




                                      F-7
<PAGE>   38

                          REGISTRY MAGIC INCORPORATED


                         NOTES TO FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Organization and Business 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'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 $4,868,000 at July 31, 1999.




                                     F-8
<PAGE>   39
                          REGISTRY MAGIC INCORPORATED


                         NOTES TO FINANCIAL STATEMENTS


         In 1999 and 1998, one customer in the software development industry
accounted for approximately 10% and 94% of total revenues, respectively and 25%
and 100% of 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.

Deferred Patent Costs

         Costs incurred in relation to patent applications are capitalized as
deferred patent costs. If and when a patent is issued, the related patent
application costs will be transferred to a patent account and amortized over
the legal life of the patent. If it is determined that a patent will not be
issued, the related patent application costs will be charged to expense at the
time such determination is made.





                                     F-9
<PAGE>   40
                          REGISTRY MAGIC INCORPORATED


                         NOTES TO FINANCIAL STATEMENTS



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, 1999.
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.

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. Revenue from consulting services
provided in fiscal 1998 was recognized as services were provided.

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.





                                     F-10
<PAGE>   41
                          REGISTRY MAGIC INCORPORATED


                         NOTES TO FINANCIAL STATEMENTS


Net Loss Per Common Share

         The Company accounts for earnings per share ("EPS") pursuant to SFAS
No. 128, "Earnings Per Share," which simplifies the standards for computing EPS
previously found in APB No. 15, "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, 1999 and 1998 (totaling 1,702,376 shares and 828,276 shares with prices
ranging from $.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.

Long-Lived Assets

         In accordance with Financial Accounting Standards Board 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

         In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock Based Compensation." SFAS No. 123 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 will disclose the pro forma
effects of the calculation required by the statement.






                                     F-11
<PAGE>   42
                          REGISTRY MAGIC INCORPORATED


                         NOTES TO FINANCIAL STATEMENTS


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 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. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Pursuant to SFAS No. 137, the effective
date has been changed to 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.

2. INITIAL PUBLIC OFFERING

         In June 1998, the Company completed a public offering of 1,820,000
shares of common stock.






                                     F-12
<PAGE>   43
                          REGISTRY MAGIC INCORPORATED


                         NOTES TO FINANCIAL STATEMENTS

The Company received gross proceeds of $13,195,000 from this public offering.
Costs associated with this transaction were $2,032,095.

3. PROPERTY AND EQUIPMENT

         The Company's property and equipment is summarized as follows:

            July 31, 1999
            -------------

            Office equipment                         $   137,906
            Computers                                    600,442
            Leasehold improvements                        17,747
                                                     -----------

                                                         756,095
            Accumulated depreciation                    (272,828)
                                                     -----------
                                                     $   483,267
                                                     ===========

4. INCOME TAXES

         At July 31, 1999, the Company had a net operating loss carryforward
(NOL) of approximately $6,153,000, which expires through 2013.

         The net deferred tax asset is comprised of the following at
July 31, 1999:

            Deferred tax assets:
               Prepaid royalty expense               $   150,000
               Start up costs                            221,000
               Allowance for doubtful accounts           129,000
               Compensation                              141,000
               Net operating loss carryforward         2,315,000
                                                     -----------
                                                       2,956,000
                                                     -----------
            Deferred tax liability:
               Depreciation                              (52,000)
                                                     -----------
            Net deferred tax asset                     2,904,000
            Deferred tax asset valuation allowance    (2,904,000)
                                                     -----------
            Net deferred tax asset                   $        --
                                                     ===========




                                     F-13
<PAGE>   44

                          REGISTRY MAGIC INCORPORATED


                         NOTES TO FINANCIAL STATEMENTS


         Realization of any portion of the Company's deferred tax asset at July
31, 1999 is not considered to be more likely than not and accordingly a
$2,904,000 valuation allowance has been provided.

5. SHAREHOLDERS' EQUITY

         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.

         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 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.

6. 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 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. During
each of fiscal year 1999 and 1998, the Company incurred $0 and $500,000 of
non-refundable royalties, respectively.




                                     F-14
<PAGE>   45
                          REGISTRY MAGIC INCORPORATED


                         NOTES TO FINANCIAL STATEMENTS


         On September 25, 1998, the Company entered into a three year licensing
agreement with Veritel Corporation of America, Inc. which grants the Company
the right to use a certain software object code in the development of its
products in exchange for payment of certain royalties. The Company paid a total
of $500,000 for the licensing rights. In the third quarter of fiscal 1999,
management determined that the related intangible asset was impaired and
accordingly, the unamortized amount was changed to expense in 1999.

         On February 5, 1999, the Company entered into a licensing agreement
with Phonetic Systems Limited ("PSL") which grants the Company the right to
distribute a certain software product as a "private label product". The
agreement runs for a term of 2 years and provides for the payment of percentage
royalties and unit royalties as specified in the agreement.

         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.

         In October 1999, the Company entered into a one year employment
agreement automatically renewing for one additional year with its president and
chief executive officer providing for a base salary of $175,000.




                                     F-15
<PAGE>   46
                          REGISTRY MAGIC INCORPORATED


                         NOTES TO FINANCIAL STATEMENTS


         c) Lease

         The Company occupies premises under four operating leases. Rent
expense for 1999 and 1998 aggregated approximately $98,000 and $49,000,
respectively. Minimum guaranteed lease payments under these leases are as
follows:

               Year ended July 31,
               -------------------

               2000                              $113,700
               2001                               106,300
               2002                               110,500
               2003                               114,900
               2004                               120,000
               Thereafter                          50,600
                                                 --------
                                                 $616,000
                                                 ========

7. 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 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 and 34,500 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 option and $3.50 to $7.00 or the number of already owned shares of
stock equal in value to the total exercise price of the option, have been
granted during the years ended July 31, 1999 and 1998, respectively. These
options vest over terms up to five years from the grant date with expiration
dates beginning in 2001.





                                     F-16
<PAGE>   47
                          REGISTRY MAGIC INCORPORATED


                         NOTES TO FINANCIAL STATEMENTS


         Included in the options granted in fiscal 1998 were four-year options
to purchase 14,500 shares at $7.00 which were granted to three consultants for
general business services. These options were fully vested at date of grant. In
connection with these grants, approximately $49,000 was charged to operations
representing the difference between the market price of the stock and the
exercise price of the options on the date the options were granted. In
addition, during 1998, five-year non-plan options to purchase 6,926 shares at
$3.50 were granted to two consultants for general business services. These
options were fully vested at date of grant. In connection with these grants,
approximately $26,000 was charged to operations representing the difference
between the market price of the stock and the exercise price of the options on
the date the options were granted.

         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 option, have been granted as of July 31, 1999. These options vest
over terms up to five years from the grant date with expiration dates beginning
in 2004.





                                     F-17
<PAGE>   48
                          REGISTRY MAGIC INCORPORATED


                         NOTES TO FINANCIAL STATEMENTS


         In addition, 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.

         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 and 1998: 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.

         Under the accounting provisions of SFAS No. 123, the Company's pro
forma net loss and loss per share would have been:

          Year ended July 31,                1999               1998
          -------------------             ----------         ----------

          Net loss
              As reported                 $4,501,595         $2,307,486
              Pro forma                   $5,870,748         $2,328,956

          Net loss per common share
              As reported                 $    (.77)         $    (.55)
              Pro forma                   $   (1.01)         $    (.55)





                                     F-18
<PAGE>   49
                          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, 1999 and 1998, and changes during the years
then ended is presented below:

<TABLE>
<CAPTION>

 Year ended July 31,                               1999                        1998
 -------------------                     -------------------------     -----------------------
                                                         Weighted-                   Weighted-
                                                         Average                     Average
                                                         Exercise                    Exercise
                                            Shares        Price         Shares         Price
                                         ----------    -----------     ---------     ---------
 <S>                                       <C>          <C>             <C>          <C>
 Outstanding at beginning of year          568,276      $    3.16       526,850      $   3.00
 Granted                                   981,100           3.82        41,426          5.27
 Exercised                                      --             --            --            --
 Forfeited                                  (7,000)          3.50            --            --
                                         ---------      ---------       -------      --------

 Outstanding at end of year              1,542,376           3.58       568,276          3.16
                                         ---------      ---------       -------      --------
 Options exercisable at year-end         1,212,876           3.62       485,101          3.06


 Year ended July 31,                        1999           1998
 -------------------                     ----------     ----------

 Weighted-average fair value of options
 granted during the year:
      Below market                       $      --      $    3.22
      At market                          $    1.93      $    2.34
      Above market                       $      --      $      --

</TABLE>

The following table summarizes information about fixed stock options and
non-plan options outstanding at July 31, 1999.

<TABLE>
<CAPTION>


                                          Options Outstanding                          Options Exercisable
                           --------------------------------------------------- -------------------------------------
                                                Weighted
                               Number            Average           Weighted           Number             Weighted
           Range of          Outstanding        Remaining           Average          Exercis              Average
           Exercise              at            Contractual          Exercise         -able at             Exercise
             Prices           7/31/99              Life              Price          7/31/99                Price
       ------------           -----------      -----------         ---------        ---------            ---------
       <S>                     <C>            <C>                 <C>              <C>                  <C>
       $7.00-$ 8.00               62,000         1.2 years           $ 7.64           62,000               $ 7.64
             $ 5.00               17,000         1.0 year            $ 5.00           17,000               $ 5.00
             $ 3.85              100,000         1.6 year            $ 3.85          100,000               $ 3.85
       $3.50-$ 3.75            1,126,376         3.5 years           $ 3.65          922,376               $ 3.65
             $ 3.00              137,000         5.0 years           $ 3.00           11,500               $ 3.00
             $ 0.50              100,000         0.3 year            $ 0.50          100,000               $ 0.50

</TABLE>






                                     F-19
<PAGE>   50
                          REGISTRY MAGIC INCORPORATED


                         NOTES TO FINANCIAL STATEMENTS


8. SUBSEQUENT EVENTS

         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.








                                     F-20