<PAGE>
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
-----------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-23903
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TRANSFORMATION PROCESSING INC.
(Exact name of small business issuer as specified in its charter)
Nevada 95-4583945
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5500 Explorer Drive, Suite 2000, Mississauga, Ontario L4W 5C7
(Address of principal executive offices)
(905) 206-1366
(Issuer's telephone number)
Not Applicable
--------------
(Former Name, Former Address and Former Fiscal Year, if changed Since
Last Report)
Indicate by check mark whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act 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
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As of March 10, 1999, the issuer had 17,960,915 shares of Common Stock,
par value $.001 per share, issued and outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
THREE MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
Page
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Balance Sheet 3
Statements of Operations 4
Statements of Stockholders' Deficiency 5
Statements of Cash Flows 6
Notes to Financial Statements 7
Financial Data Schedule S-1
2
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<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
Unaudited
================================================================================
January 31, 1999
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Current Assets:
Cash $ 80,207
Accounts receivable, net of doubtful accounts $33,000 280,647
Due from related parties 14,593
Prepaid expenses and other current assets 16,260
- --------------------------------------------------------------------------------
Total current assets 391,707
Property and Equipment, net 189,390
Deferred debt cost, net 57,013
Other Assets 33,233
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Total Assets $ 671,343
================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable $ 201,121
Accrued expenses and other current liabilities 141,111
Current maturities of long term debt 24,589
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Total current liabilities 366,821
Long term debt, net of current maturities 1,500,559
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Total liabilities 1,867,380
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Commitments and Contingencies
Stockholders' Deficiency:
Preferred stock - $.001 par value; authorized 5,000,000
shares, none issued
Common stock - $.001 par value; authorized 50,000,000
shares issued and oustanding 17,960,915 shares 17,961
Additional paid-in capital 7,122,443
Deficit accumulated during the development stage (8,297,688)
Cumulative foreign currency translation adjustments (38,753)
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Stockholders' deficiency (1,196,037)
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Total Liabilities and Stockholders' Deficiency $ 671,343
================================================================================
See notes to financial statements
</TABLE>
3
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<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
Unaudited
====================================================================================================================================
Three-month Three-month Six-month Six-month Cumulative amounts
Period ended Period ended Period ended Period ended from inception
January 31, 1998 January 31, 1999 January 31, 1998 January 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 69,033 $ 326,399 $ 157,853 $ 517,468 $ 1,441,983
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COSTS AND EXPENSES
Cost of sales 240,180 222,216 406,536 500,333 3,379,306
General and administrative 585,363 410,816 860,171 886,198 3,631,728
Noncash consulting costs 0 0 0 0 1,536,341
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TOTAL EXPENSES 825,543 633,032 1,266,707 1,386,531 8,547,375
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LOSS FROM OPERATIONS (756,510) (306,633) (1,108,854) (869,063) (7,105,392)
INTEREST EXPENSE, NET OF INTEREST INCOME
OF $1,740, $1,175, $2,272, $2,524, AND
$14,692 RESPECTIVELY (1,221) (178,801) (1,708) (343,536) (1,192,296)
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NET LOSS $ (757,731) $ (485,434) $ (1,110,562) $ (1,212,599) $ (8,297,688)
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BASIC NET LOSS PER COMMON SHARE $ (0.06) (0.03) (0.08) (0.07)
- ---------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 13,648,449 17,960,915 13,760,991 17,459,762
- ---------------------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
4
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<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
Unaudited
========================================================================================================
Six month period ended January 31, 1999
- --------------------------------------------------------------------------------------------------------
Deficit
Accumulated Foreign
Additional During the Currency Stock-
Common Stock Paid-in Development Translation holders'
Shares Amount Capital Stage Adjustments Deficiency
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1998 16,186,628 $ 16,187 $6,266,719 $ (7,085,089) $(33,851) $ (836,034)
- --------------------------------------------------------------------------------------------------------
Issuance of common stock
for cash
Issuance of common stock
upon conversion of
convertible debentures 1,774,287 1,774 437,844 439,618
Recognition of beneficial
conversion feature of
convertible debt 250,000 250,000
Warrants to purchase common
stock issued with convertible
debenture 167,880 167,880
Net loss (1,212,599) (1,212,599)
Cumulative foreign currency
translation adjustment (4,902) (4,902)
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Balance at January 31, 1999 17,960,915 $ 17,961 $7,122,443 $ (8,297,688) $(38,753) $(1,196,037)
- --------------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
5
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<TABLE>
<CAPTION>
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TRANSFORMATION PROCESSING INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Unaudited
================================================================================================================================
Three-month Three-month Six-month
Period ended Period ended Period ended
January 31, 1998 January 31, 1999 January 31, 1998
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<S> <C> <C> <C>
Cash flows from operating activities:
Net loss from development stage operations $(757,731) $(485,434) $(1,357,189)
Adjustments to reconcile net loss from development stage operations
to net cash used in operating activities
Depreciation and amortization 83,498 14,180 110,939
Issuance of options and warrants to purchase common stock for services 114,480
Issuance of common stock for services in reverse acquisition
Recognition of beneficial conversion feature 175,000
Provision for doubtful accounts
Write-off of amounts due from related parties 4,586 (332)
Amortization of discounts 14,310
Amortization of debt costs 2,082
Interest expense converted to stock
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 207,407 (143,181) (65,962)
Decrease in time deposits 22,404
Increase in prepaid expenses and other current assets (26,655) 226 (46,702)
Increase in deferred debt costs (1,298)
(Increase) decrease in other assets (3,550) 4,491
Increase in accounts payable 219,143 (212,518) 304,631
Increase (decrease) in accrued expenses and other current liabilities 253,411 (47,567) 183,358
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (16,341) (573,602) (844,030)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (41,177) (13,303) (88,766)
Purchase of intangible assets
Advances to related parties
- ------------------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (41,177) (13,303) (88,766)
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Cash flows from financing activities:
Proceeds from loan payable - bank 50,372 50,425
Repayments of loan payable - bank (13,604) (14,245) (19,708)
Repayments of note payable - stockholder (18,804) (9,201) (50,975)
Net proceeds from issuance of common stock 1,038,998
Net proceeds from issuance of convertible debentures 544,902
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NET CASH PROVIDED BY FINANCING ACTIVITIES 17,964 521,456 1,018,740
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Effect of exchange rate changes on cash 26,078 29,768 (19,965)
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NET INCREASE (DECREASE) IN CASH (13,476) (35,681) 65,979
Cash at beginning of period 95,886 115,888 16,431
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CASH AT END OF PERIOD $ 82,410 $ 80,207 $ 82,410
==============================================================================================================================
Supplemental Disclosure of Cash Flow information
cash paid during the period for interest $ 2,087
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Supplemental Schedule of Non Cash Financing Activity
conversion of long term debt of common stock $ 0
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Supplemental Schedule of Non Cash Financing Activity
discount on long-term debt $ 118,706
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See notes to financial statements
<PAGE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
TRANSFORMATION PROCESSING INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Unaudited
=============================================================================================================
Six-month Cumulative
Period ended amounts
January 31, 1999 from inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss from development stage operations $(1,212,599) $(8,297,688)
Adjustments to reconcile net loss from development stage operations
to net cash used in operating activities
Depreciation and amortization 25,644 840,578
Issuance of options and warrants to purchase common stock for services 167,880 376,785
Issuance of common stock for services in reverse acquisition 0 1,549,056
Recognition of beneficial conversion feature 250,000 881,281
Provision for doubtful accounts 0 34,325
Write-off of amounts due from related parties (332) 95,688
Amortization of discounts 54,015 241,808
Amortization of debt costs 2,082 2,082
Interest expense converted to stock 14,618 21,703
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 129,666 (336,826)
Decrease in time deposits 0 (961)
Increase in prepaid expenses and other current assets (11,653) (19,718)
Increase in deferred debt costs (1,298) (61,561)
(Increase) decrease in other assets (238) (31,372)
Increase in accounts payable (141,691) 231,478
Increase (decrease) in accrued expenses and other current liabilities (83,818) 164,727
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (807,724) (4,308,615)
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (32,836) (280,170)
Purchase of intangible assets 0 (24,156)
Advances to related parties 0 (129,621)
- -----------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (32,836) (433,947)
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from loan payable - bank 0 50,425
Repayments of loan payable - bank (28,165) (47,873)
Repayments of note payable - stockholder (45,877) (96,852)
Net proceeds from issuance of common stock 0 1,038,998
Net proceeds from issuance of convertible debentures 843,128 843,128
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 769,086 1,787,826
- -----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 994 (18,971)
- -----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (70,480) (2,973,707)
Cash at beginning of period 266,575 0
- -----------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 196,095 $(2,973,707)
===========================================================================================================
Supplemental Disclosure of Cash Flow information
cash paid during the period for interest $ 3,825 $ 62,770
- -----------------------------------------------------------------------------------------------------------
Supplemental Schedule of Non Cash Financing Activity
conversion of long term debt of common stock $ 439,618 $ 1,146,913
- -----------------------------------------------------------------------------------------------------------
Supplemental Schedule of Non Cash Financing Activity
discount on long-term debt $ 118,706 $ 118,706
- -----------------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
6
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TRANSFORMATION PROCESSING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JANUARY 31, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION, EVENTS, AND REVERSE ACQUISITION
The financial statements of Transformation Processing Inc., ("the
Company") included herein have been prepared pursuant to generally
accepted accounting principles and have not been examined by independent
public accountants. In the opinion of management all adjustments which are
of a normal recurring nature necessary to present fairly the results of
operation have been made. Pursuant to Securities and Exchange Commission
("SEC") rules and regulations, certain information and footnote disclosure
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
from these statements unless significant changes have taken place since
the end of the most recent fiscal year. The disclosure contained herein
should be read in conjunction with the financial statements and notes
included in the Company's audited financial statements for the year ended
July 31, 1998. The results of operations for the three-month periods ended
January 31, 1999, January 31, 1998, and the six-month periods ended
January 31, 1999 and January 31, 1998 are not necessarily indicative of
the results to be expected for the full year.
On August 20, 1996, Samuel Hamann Graphix, Inc. acquired all of the
outstanding common stock of Transformation Processing Inc. ("Ontario"), a
Canadian corporation. For accounting purposes the acquisition has been
treated as a recapitalization of Ontario with Ontario as the acquirer
(reverse acquisition). Samuel Hamann Graphix, Inc. changed its name to
Transformation Processing Inc. (the "Company"). In February 1998, Ontario
merged into the Company. The accompanying financial statements reflect
this merger as if it had occurred on July 31, 1997.
Loss per share is based on the weighted-average number of shares of common
stock outstanding during the periods.
The Company's functional currency is the Canadian Dollar. Balance sheet
accounts are translated into U.S. dollars using current exchange rates in
effect at the balance sheet date and revenue and expense accounts are
translated using an average exchange rate for the period. The gains and
losses resulting from translation are included in stockholders equity.
2. EQUITY TRANSACTIONS and SUBSEQUENT EVENTS
7
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On November 18, 1998, the Company issued a $200,000 6% convertible
debenture for cash, due November 17, 2000. This debenture is convertible
into common stock at 80% of the five-day average closing asked price
immediately preceding the date of conversion. In connection with the
issuance of debentures, the Company issued warrants to purchase 101,010
shares of common stock. The fair value of $34,320 allocated to the
warrants is being amortized over the term of the debenture. For the period
ended January 31, 1999, amortization of $4,290 has been included in
interest expense in the accompanying statement of operations. The
unamortized portion is shown as a reduction in the carrying value of the
debentures as of January 31, 1999.
On December 4, 1998, the Company issued a $250,000 6% convertible
debenture for cash, due December 3, 2000. This debenture is convertible
into common stock at 80% of the five-day average closing asked price
immediately preceding the date of conversion. In connection with the
issuance of debentures, the Company issued warrants to purchase 84,746
shares of common stock. The fair value of $40,080 allocated to the
warrants is being amortized over the term of the debenture. For the period
ended January 31, 1999, amortization of $5,010 has been included in
interest expense in the accompanying statement of operations. The
unamortized portion is shown as a reduction in the carrying value of the
debentures as of January 31, 1999.
On January 14, 1999, the Company issued a $250,000 6% convertible
debenture for cash, due January 13, 2001. This debenture is convertible
into common stock at 80% of the five-day average closing asked price
immediately preceding the date of conversion. In connection with the
issuance of debentures, the Company issued warrants to purchase 156,250
shares of common stock. The fair value of $40,080 allocated to the
warrants is being amortized over the term of the debenture. For the period
ended January 31, 1999, amortization of $5,010 has been included in
interest expense in the accompanying statement of operations. The
unamortized portion is shown as a reduction in the carrying value of the
debentures as of January 31, 1999.
On the date of issuance of each convertible debenture, the Company
allocated a portion of the proceeds to the beneficial conversion feature
of the debenture that represented the intrinsic value of that feature.
That amount is calculated as the difference between the conversion price
and the fair value of the common stock into which the debentures are
convertible, multiplied by the number of shares into which the debentures
are convertible. The amount attributable to the beneficial conversion
feature, aggregating $175,000, is included in interest expense in the
accompanying statement of operations as the debentures became convertible
into common stock on issuance.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Form 10-QSB contains certain forward-looking statements that are
subject to significant risks and uncertainties. There are a number of
important factors that could cause actual results to differ materially
from historical results and results anticipated by the forward looking
statements contained in the following discussion. Such factors and risks
include, but are not limited to, intense competition, price cutting and
profit margins, dependence on key personnel, the economic environment, the
ability to develop, market, support and acquire new computer-related
services and products and the ability of the Company to manage its
growth.
The following discussion and analysis should be read in conjunction with
the Company's second quarter ended unaudited financial statements and
notes thereto dated January 31, 1999 and 1998 and cumulative results from
April 1, 1996 (date of incorporation) to January 31, 1999.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
The following is a discussion of material changes in results of operations
for the three-month periods ending January 31, 1999 and 1998.
NET LOSSES
For the quarters ended January 31, 1999 and 1998, the Company incurred net
losses of $485,434 and $757,730, respectively. For the six-month periods
ended January 31, 1999 and 1998, the Company incurred net losses of
$1,212,599 and $1,110,562, respectively. Cumulative losses from April 1,
1996 to January 31, 1999, the Development period, totaled $8,297,688.
Explanations of these results are set forth below. The Company expects to
continue to incur operating losses until such time, if ever, it may
generate adequate revenues from its service offerings.
REVENUE
For the quarter ended January 31, 1999 the Company recorded revenue of
$326,399 as compared to $69,033 for the quarter ended January 31, 1998.
For the six-month period ended January 31, 1999, the Company recorded
revenue of $517,468 as compared to $157,853 for the same period ended
January 31, 1998. Conversion Services, the Company's core business
accounted for $158,045 of gross revenue for
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the three-month period ended January 31, 1999, as compared to $31,604 for
the same period in 1998. Groupware accounted for $81,099 of gross revenue
for the three-month period ended January 31, 1999, as compared to $37,429
for the same period in 1998. Year 2000 accounted for $61,602 of gross
revenue for the three month period ended January 31, 1999 as compared to
$0 for the same period in 1998. Professional services accounted for
$25,653 of gross revenue for the three month period ended January 31, 1999
as compared to $0 for the same period in 1998.
The Company expects to generate revenue from (a) the sale of (i)
transformation services for end-users of IBM midrange computing systems
and software development services related to client/server migration; (ii)
Year 2000 consulting, analysis, remediation and training services; and
(iii) Groupware services, consisting primarily of the performance of
application software development services relating to Lotus Notes and ICC
products and related instructional services; and (b) the licensing of the
Company's proprietary software and third party proprietary software
products. The Company is not able to project the amount or proportion of
revenue expected to be received from each of the foregoing activities as
the Company has not offered each of its services for a sufficient period
of time to have such knowledge.
In the autumn of 1996, the Company positioned itself to market
transformation services utilizing the Company's client/server migration
software, targeting the IBM mid-range computer market. In this regard, the
Company planned to enhance its client/server migration software in the
1997 and 1998 Fiscal Periods. Such plan received less attention during
such period as the Company shifted its attention to the opportunity
presented by the demand for the Year 2000 remediation services.
Significant revenues have not materialized to date however, the Company
expects that expenditures by users of information technology to fix their
Year 2000 problem will escalate. The Company has expanded its marketing
and sales efforts to promoting Year 2000 services in both the information
technology field and embedded systems. The Company has negotiated
relationships with vendors of Year 2000 software tools. In mid 1997, the
Company was offering Year 2000 services. The Company continues to market
migration solution and Groupware relationship management software. The
Company has entered into agreements with Canadian and United States sales
representation companies to implement the Company's marketing and sales
strategies. Currently, the Company is bidding on Year 2000 remediation
projects, software conversion projects and Groupware implementations
ranging in size from approximately $100,000 to $1,000,000. There can be no
assurance that the Company will enter into any firm contracts with respect
to any of such projects.
10
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EXPENSES
The Company is in the development stage and since April 1, 1996 has
incurred costs relating to the start up of operations. These costs consist
of, but are not limited to, raising capital, establishing a facility,
recruiting personnel, acquiring and installing furniture and equipment,
acquiring development and accounting software, developing its
client/server migration software and marketing and sales efforts.
Cost of Sales
The Company's variable costs of software consulting, translation services
and development are in a direct relation to the volume of sales and
anticipated revenues. As a percentage of revenue, these costs will vary
depending on the nature of the sale and the product mix required to
satisfy customer needs. Sales based on mature product will yield a higher
margin while specific project type environments may call for a higher
degree of manpower and travel costs.
The Company will continue product development of the core software product
to enable the Company to broaden its impact on many vendor environments.
The development of translators to translate application code from any type
of machine language to virtually any target platform will serve as the
benchmark of the Company to respond effectively to end user requirements.
The key to this objective is a responsive, knowledgeable development team.
For the period ended January 31, 1999 and all comparative periods
reported, costs of software consulting, translation services, and
development have been combined and included in cost of sales in the
accompanying statement of operations. For the quarters ended January 31,
1999, and January 31, 1998, cost of consulting services accounted for
$37,768 and $39,458, respectively. For the six-month periods ended January
31, 1999 and 1998, cost of consulting services expenses were $54,160 and
$61,105 respectively. Cumulatively, the cost of consulting services
accounted for $1,379,787. The Company anticipates managed growth in this
area as people are added to satisfy consulting services provided by the
Company. As the employment market becomes more competitive as the result
of channeling human resources toward the Year 2000 problem, the Company
expects to pay a premium for skilled consultants and engineers. These
consulting services will be allocated to projects in which the Company has
signed contracts.
Cost of software transformation services accounted for $139,314 of total
expenses for the quarter ended January 31, 1999. Comparatively, the
Company spent $39,441 for the same quarter ended January 31, 1998 and has
spent $1,590,684 cumulatively in the development stage. For the six-month
periods ended January 31, 1999 and 1998, software transformation services
were $290,747 and $177,239 respectively. The Company anticipates adding
people to this area by the fiscal year ending July 31, 1999, but, only if
contracts are in hand. This growth will depend on the volume
11
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of conversion services and year 2000 scan and repair services provided to
our customers.
Software development accounted for $45,134 of total expenses for the
quarter ended January 31, 1999. Comparatively, the Company spent $161,281
for the same quarter in 1998 and, has spent $408,835 cumulatively in the
development stage. For the six-month periods ended January 31,1999 and
1998, software development costs were $155,426 and $168,192, respectively.
The increases in costs of product development are expected to continue as
the Company expands its product offerings.
General and administrative
General and administrative costs consist primarily of management and
administrative staff, professional services, office and occupancy costs.
Significant costs are attributed to the Company becoming a reporting
public company. This status will increase audit and legal costs
significantly. In relation to the Company becoming a public company, the
cost of corporate relations will also increase as quarterly reports and
other investor information is required. The Company anticipates that its
General and Administrative costs (as a percentage of costs) will decline
as the Company's operations expand.
General and administrative expense accounted for $410,816 of expenses for
the quarter ended January 31, 1999. Comparatively, the Company spent
$585,363 for the same quarter in 1998 and has spent $3,631,728
cumulatively in the development stage. General and administrative expenses
accounted for $886,198 of expenses for the six-month period ended January
31, 1999 compared to $860,171 for the six-month period ended January 31,
1998. The increase in general and administrative expenses related to the
increase in interest and amortization charges relating to the issuance of
debentures. The Company's general and administrative expenses consisted
primarily of salaries, rent, consulting fees, advertising and legal costs
associated with being a reporting public company.
MATERIAL CHANGES IN FINANCIAL CONDITION
The following is a discussion of the material changes in financial
condition from October 31, 1998 to January 31, 1999.
Current assets at January 31, 1999 were $391,707 as compared to $284,101
at October 31, 1998. The basis for this increase in current assets is as
follows. Accounts receivable totaled $280,647 at January 31, 1999 as
compared to $137,466 at October 31, 1998. The increase was the result of
the Company's increased sales during the quarter.
12
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The Company recorded material changes to accounts payable and accrued
expenses. Accounts payable at January 31, 1999 was $201,121 as compared to
$413,639 at October 31, 1998. Accrued expenses were $141,111 at January
31, 1999 as compared to $188,678 at October 31, 1998. These decreases are
due to the Company's management of available cash resources and allocation
of accrued expenses to the statement of operations.
The Company issued convertible debentures for cash in the quarter ended
January 31, 1999. The Company recorded Convertible debt totaling $700,000
for the period. The debt is convertible to shares of Common Stock in the
Company and, will not require the outlay of cash in coming periods.
Details on the convertible debentures are outlined in the Notes to the
Financial Statements.
Additional paid-in capital at January 31, 1999 was $7,122,443 as compared
to $6,832,963 at October 31, 1998. The increase in paid-in capital for the
period was the result of the discount related to the issuance of
convertible debentures totaling $175,000, and the fair value of stock
options related to the issuance of convertible debentures totaling
$114,480.
Deficit accumulated during the development stage totaled $(8,297,688) as
compared to $(7,812,254) at October 31, 1998. The discussion of losses
incurred for the periods are outlined in the Results of Operations above.
Liquidity and Capital Resources
The Company has funded its activities through January 31, 1999 primarily
from the net proceeds of private placement of its securities and, to a
lesser extent, from cash flow from operations and the proceeds of two bank
loans. The outstanding principal balance of the bank loans are
approximately $24,589 and the loans bear interest at an annual rate equal
to 2.5% over the bank prime rate of interest in effect from time to time.
Repayment of the loans, together with interest thereon, is secured by a
lien on substantially all of the fixed assets of the Company and the
personal guarantees of the Company's executive officers and directors.
At January 31, 1999, the Company had a deficit accumulated during the
development stage of ($8,297,688), current assets of $391,707 and current
liabilities of $366,821. During the three-month period ended January 31,
1999, the Company entered into a convertible debenture with Thomson
Kernaghan a registered broker dealer. The convertible debt will require
the issuance of common stock at date of conversion, not cash resources of
the Company. Otherwise, the Company did not incur any additional long-term
debt. The Company expects continue to raise capital through these vehicles
to fund operating activities and other capital requirements. Failure to
obtain such equity capital could have a material adverse impact on the
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Company's ability to expand its operations. There can be no assurance that
equity capital will be available to the Company on acceptable terms or at
all.
In addition, implementation of the Company's business plan will require
capital resources substantially greater than those currently available to
the Company. The Company may determine, depending on the opportunities
available to it, to seek additional debt or equity financing to fund the
cost of continuing expansion. To the extent that the Company finances
expansion through the issuance of additional equity securities, any such
issuance would result in dilution of the interests of the Company's
stockholders. Additionally, to the extent that the Company incurs
indebtedness or issues debt securities to finance expansion activities, it
will be subject to all of the risks associated with incurring substantial
indebtedness, including the risks that interest rates may fluctuate and
cash flow may be insufficient to pay the principal of, and interest on,
any such indebtedness.
The Company has no current arrangements with respect to, or sources of,
additional financing, and it is not contemplated that its existing
stockholders will provide any portion of the Company's future financing
requirements. There can be no assurance that any additional financing will
be available to the Company on acceptable terms, or at all. The inability
of the Company to obtain financing when needed will have a material
adverse effect on the Company, including possibly requiring the Company to
significantly curtail or cease its operations.
Inflation
The Company believes that the impact of inflation and changing prices on
its operations since commencement of operations has been negligible.
Year 2000 Problem
TPI reviewed its internal computer programs and systems to ensure that
they were Year 2000 compliant. Work that has been performed to become
Year 2000 compliant as of January 31, 1999, has been done internally,
at no external cost to TPI. TPI plans to be Year 2000 compliant by
September 1999 and anticipates the cost to be incurred will not be
material.
TPI has initiated communications with third party suppliers and
customers of the major computers, software, and other equipment used,
operated, or maintained by TPI to identify and, to the extent possible,
to resolve issues involving the Year 2000 Problem. However, TPI has
limited or no control over the actions of these third parties. Thus,
while TPI expects that it will be able to resolve any significant
Year 2000 Problems with these systems, there can be no assurance that
these suppliers will resolve any or all Year 2000 Problems with these
systems before the occurrence of a material
<PAGE>
disruption to the business of TPI or any of its customers. Any failure of
these third parties to resolve Year 2000 problems with their systems in a
timely manner could have a material adverse effect on TPI's business,
financial condition, and results of operation.
PART II- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(C) On December 3, 1998, the Registrant sold 6% Convertible Debentures,
due December 2, 2000, in the aggregate principal amount of $250,000 and
issued warrants to purchase 84,746 shares of Common Stock for gross
proceeds of $250,000 to: Advantage (Bermuda) Fund ($75,000); Canadian
Advantage LP ($75,000); and Dominion Capital Fund ($100,000). The above
were also issued warrants in the amounts of 25,424, 25,424 and 33,898,
respectively, to purchase shares of Common Stock at $.59 per share through
December 3, 2000. The debentures and warrants were issued in reliance upon
the exemption from registration provided by Section 4(2) of the Act and
Rule 506 of Regulation D.
On January 13, 1999, the Registrant sold to Advantage (Bermuda) Fund
6% Convertible Debentures due January 14, 2001 in the aggregate principal
amount of $125,000. Warrants to purchase 78,125 shares of Common Stock
exercisable at the price of $.32 through January 14, 2001, were also
issued. The debentures and warrants were issued in reliance upon the
exemption from registration provided by Section 4(2) of the Act and Rule
506 of Regulation D.
On January 14, 1999, the Registrant sold to Dominion Capital Fund 6%
Convertible Debentures due January 13, 2001 in the aggregate principal
amount of $125,000. Warrants to purchase 78,125 shares of Common Stock
exercisable at the price of $.32 through January 14, 2001, were also
issued. The debentures and warrants were issued in reliance upon the
exemption from registration provided by Section 4(2) of the Act and Rule
506 of Regulation D.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
[a] Financial Data Schedule
[b] Reports on Form 8-K.
A current report on Form 8-K was filed by the Company on February 8,
1999 to report an Item 5. Other Event which occurred on January 21, 1999.
15
<PAGE>
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRANSFORMATION PROCESSING INC.
Date March 12, 1999 /s/ Gary G. McCann
-------------------------- -----------------------------------
Gary G. McCann, Chief Financial and
Accounting Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Balance Sheet and
Statement of Operations filed as a part of the report on Form 10-QSB for the
quarter ended January 31, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 80,207
<SECURITIES> 0
<RECEIVABLES> 295,240
<ALLOWANCES> 32,474
<INVENTORY> 0
<CURRENT-ASSETS> 391,707
<PP&E> 261,570
<DEPRECIATION> 72,180
<TOTAL-ASSETS> 671,343
<CURRENT-LIABILITIES> 366,821
<BONDS> 1,500,559
0
0
<COMMON> 17,961
<OTHER-SE> (1,178,076)
<TOTAL-LIABILITY-AND-EQUITY> 671,343
<SALES> 0
<TOTAL-REVENUES> 326,399
<CGS> 0
<TOTAL-COSTS> 222,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (178,801)
<INCOME-PRETAX> (197,465)
<INCOME-TAX> 0
<INCOME-CONTINUING> (485,434)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (485,434)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
