<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 April 30, 1999
------------------------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________________to_________________
Commission file number 0-23903
-----------------
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 L4W567
(Address of principal executive officers)
(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 / /
As of June 14, 1999, the issuer had 18,535,145 shares of Common Stock,
par value $.001 per share, issued and outstanding.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
TRANSFORMATION PROCESSING INC.
(a development stage company)
<TABLE>
<CAPTION>
BALANCE SHEET
Unaudited
- ------------------------------------------------------------------------------------------------------------------
April 30, 1999
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Current Assets:
Cash $ 38,885
Accounts receivable 126,122
Due from related parties 15,092
Prepaid expenses and other current assets 4,116
- ------------------------------------------------------------------------------------------------------------------
Total current assets 184,215
Property and Equipment, net 220,935
Deferred debt cost, net 58,961
Other Assets 15,247
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Total Assets $ 479,358
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable $ 200,623
Accrued expenses and other current liabilities 74,617
Current maturities of long term debt 16,415
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 291,655
Long term debt, net of current maturities 1,592,040
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Total liabilities 1,883,695
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Commitments and Contingencies
Stockholders' Deficiency:
Preferred stock - $.001 par value; authorized 6,000,000 shares, none issued
Common stock - $.001 par value; authorized 50,000,000 shares
issued and oustanding 19,422,256 shares 19,422
Additional paid-in capital 7,343,781
Deficit accumulated during the development stage (8,730,631)
Cumulative foreign currency translation adjustments (36,909)
- ------------------------------------------------------------------------------------------------------------------
Stockholders' deficiency (1,404,337)
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Total Liabilities and Stockholders' Deficiency $ 479,358
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</TABLE>
2
See notes to financial statements
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
- ------------------------------------------------------------------------------------------------------------------------------------
Three-month Three-month Nine-month Nine-month Cumulative amounts
Period ended Period ended Period ended Period ended from inception
April 30, 1998 April 30, 1999 April 30, 1998 April 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 260,324 $ 201,344 $ 415,345 $ 718,812 $ 1,643,327
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COSTS AND EXPENSES
Cost of sales 478,647 262,605 776,241 762,938 3,641,911
General and administrative 295,517 338,395 1,565,388 1,224,593 3,970,123
Noncash consulting costs 0 0 0 0 1,536,341
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TOTAL EXPENSES 774,164 601,000 2,341,629 1,987,531 9,148,375
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LOSS FROM OPERATIONS (513,840) (399,656) (1,926,284) (1,268,719) (7,505,048)
INTEREST EXPENSE, NET OF
INTEREST INCOME OF $287,
$(3,792), $2,600, $(1,214),
AND $10,900 RESPECTIVELY (171,122) (33,287) (207,314) (376,823) (1,225,583)
- ------------------------------------------------------------------------------------------------------------------------------------
NET LOSS $(684,962) $(432,943) $ (2,133,598) $ (1,645,542) $ (8,730,631)
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BASIC NET LOSS PER COMMON SHARE $ (0.04) (0.02) (0.15) (0.09)
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WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 15,418,505 18,261,735 14,187,071 17,593,571
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</TABLE>
See notes to financial statements
3
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Unaudited
- ------------------------------------------------------------------------------------------------------------------------------------
Nine month period ended April 30, 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 1,663,077 1,663 221,337 223,000
Issuance of common stock
upon conversion of
convertible debentures 1,572,551 1,572 437,845 439,417
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 (1,645,542) (1,645,542)
Cumulative foreign currency
translation adjustment (3,058) (3,058)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at April 30, 1999 19,422,256 $ 19,422 $ 7,343,781 $ (8,730,631) $ (36,909) $ (1,404,337)
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</TABLE>
See notes to financial statements
4
<PAGE>
TRANSFORMATION PROCESSING INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Unaudited
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Three-month Three-month Nine-month
Period ended Period ended Period ended
April 30, 1998 April 30, 1999 April 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss from development stage operations $ (684,962) $ (432,943) $ (2,133,599)
Adjustments to reconcile net loss from development stage operations
to net cash used in operating activities
Depreciation and amortization 60,698 14,035 173,522
Issuance of options and warrants to purchase common stock for services
Issuance of common stock for services in reverse acquisition
Recognition of beneficial conversion feature 161,905 161,905
Provision for doubtful accounts
Write-off of amounts due from related parties (499)
Amortization of discounts
Amortization of debt costs 91,481
Interest expense converted to stock
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (158,519) 154,525 (216,585)
Decrease in time deposits 23,736
Increase in prepaid expenses and other current assets (44,217) 12,144 (1,577)
Increase in deferred debt costs (1,948)
(Increase) decrease in other assets 17,980
Increase in accounts payable 30,103 (498) 341,865
Increase in litigation liability settlement 88,526 88,526
Increase (decrease) in accrued expenses and other current liabilities (139,267) (66,494) 42,101
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NET CASH USED IN OPERATING ACTIVITIES (685,733) (212,211) (1,520,106)
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Cash flows from investing activities:
Purchase of property and equipment (45,580) (89,308)
Purchase of intangible assets
Advances to related parties
- -----------------------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES 0 (45,580) (89,308)
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Cash flows from financing activities:
Debt issue costs (85,000) (85,000)
Proceeds from loan payable - bank 50,978
Repayments of loan payable - bank (18,055) (8,174) (30,059)
Repayments of note payable - stockholder (16,359) 0 (67,810)
Net proceeds from issuance of common stock 223,000 1,003,045
Net proceeds from issuance of convertible debentures 1,000,000 0 1,000,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES 880,586 214,826 1,871,104
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Effect of exchange rate changes on cash (3,057) 1,643 (3,965)
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NET INCREASE (DECREASE) IN CASH 191,796 (41,322) 257,775
Cash at beginning of period 82,410 80,207 16,431
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CASH AT END OF PERIOD $ 274,206 $ 38,885 $ 274,206
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Supplemental Disclosure of Cash Flow information
cash paid during the period for interest $ 4,582 $ 29,485 $ 4,582
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Supplemental Schedule of Non Cash Financing Activity
conversion of long term debt of common stock $ --
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Supplemental Schedule of Non Cash Financing Activity
discount on long-term debt $ --
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</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Nine-month Cumulative
Period ended amounts
April 30, 1999 from inception
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss from development stage operations $ (1,645,542) $ (8,730,631)
Adjustments to reconcile net loss from development stage operations 0 (432,943)
to net cash used in operating activities 0 0
Depreciation and amortization 39,679 840,578
Issuance of options and warrants to purchase common stock for servi 167,880 390,820
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 (831) 95,688
Amortization of discounts 54,015 241,309
Amortization of debt costs 93,563 2,082
Interest expense converted to stock 14,618 113,184
Changes in operating assets and liabilities: 0 0
(Increase) decrease in accounts receivable 284,191 (336,826)
Decrease in time deposits 0 153,564
Increase in prepaid expenses and other current assets 491 (19,718)
Increase in deferred debt costs (3,246) (49,417)
(Increase) decrease in other assets 17,748 (33,320)
Increase in accounts payable (142,189) 249,464
Increase in litigation liability settlement 0 (498)
Increase (decrease) in accrued expenses and other current liabil (150,312) 164,727
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,019,935) (4,887,275)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (78,416) (280,170)
Purchase of intangible assets 0 (69,736)
Advances to related parties 0 (129,621)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (78,416) (479,527)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Debt issue costs 0
Proceeds from loan payable - bank 0 50,425
Repayments of loan payable - bank (36,339) (47,873)
Repayments of note payable - stockholder (45,877) (105,026)
Net proceeds from issuance of common stock 223,000 1,038,998
Net proceeds from issuance of convertible debentures 843,128 1,066,128
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 983,912 2,002,652
- -----------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 2,637 (18,971)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (111,802) (3,383,121)
Cash at beginning of period 346,782 0
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 234,980 $ (3,383,121)
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow information
cash paid during the period for interest $ 33,310 $ 92,255
- -----------------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
5
<PAGE>
TRANSFORMATION PROCESSING INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS ENDED APRIL 30, 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 April
30, 1999, April 30, 1998, and the nine-month periods ended April 30,
1999 and April 30, 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
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 April 30, 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 April 30, 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 April 30, 1999, amortization of $5,010 has been included
in interest expense in the accompanying statement of
6
<PAGE>
operations. The unamortized portion is shown as a reduction in the
carrying value of the debentures as of April 30, 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 April 30, 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 April 30, 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 $250,000, is included in
interest expense in the accompanying statement of operations as the
debentures became convertible into common stock on issuance.
On March 23, 1999, the Company issued 340,000 restricted Common
Shares for cash proceeds of $51,000 .The shares were issued at $.15,
which represented the closing bid price obtained from Bloomberg LP
on March 23, 1999.
On April 7, 1999, the Company issued 323,077 restricted Common
Shares for cash proceeds of $42,000. The shares were issued at $.13,
which represented the closing bid price obtained from Bloomberg LP
on April 7, 1999.
On April 20, 1999, the Company issued 1,000,000 restricted Common
Shares for cash proceeds of $130,000. The shares were issued at
$.13, which represented the closing bid price obtained from
Bloomberg LP on April 20, 1999.
On May 6, 1999, the Company was presented with a statement of claim
from the Ontario Court (General Division) in relation to recruiting
services provided. The Company has elected to defend the claim and, on
May 26, 1999, provided a Notice of Intent to Defend and Notice of
Defense to the plaintiff, Emex Systems Inc. (Emex). Emex has filed a
claim stating that, in its opinion, The Company has not submitted
payment for recruiting services received totaling approximately
$55,126. The Company feels that the claim does not have merit and is
vigorously defending its position.
On May 18, 1999, the Company issued 90,469 restricted Common Shares
for cash proceeds of $10,856. The shares were issued at $.12, which
represented the closing bid price obtained from Bloomberg LP on May
18, 1999.
On May 18, 1999, the Company issued a Promissory Note for cash proceeds
of $145,676. The Promissory Note bears interest at 10%. The principal
and interest are due May 18, 2001. This note is convertible into common
stock at 80% of the lesser of the five-day average closing asked price
immediately preceding the date of conversion and the initial close
date.
7
<PAGE>
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, the timely funding of customer
projects and the ability of the Company to manage its growth.
The following discussion and analysis should be read in conjunction with the
0Company's third quarter ended unaudited financial statements and notes thereto
dated April 30, 1999 and 1998 and cumulative results from April 1, 1996 (date of
incorporation), to April 30, 1999.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
The following is a discussion of material change in results of operations for
the three and nine-month periods ending April 30, 1999 and 1998.
NET LOSSES
For the quarters ended April 30, 1999 and 1998, the Company incurred net losses
of $432,943 and $684,962, respectively. For the nine-month periods ended April
30, 1999 and 1998, the Company incurred net losses of $1,645,542 and $2,133,598
respectively. Cumulative losses from April 1, 1996 to April 30, 1999, the
Development Period, totaled $8,730,631. 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 April 30, 1999 the Company recorded revenue of $201,344 as
compared to $260,324 for the quarter ended April 30, 1998. For the nine-month
period ended April 30, 1999, the Company recorded revenue of $718,812 as
compared to $415,345 for the same period ended April 30, 1998. Migration, the
Company's core business accounted for $28,942 of gross revenue for the
three-month period ended April 30, 1999, as compared to $67,409 for the same
period in 1998. Groupware accounted for $131,779 of gross revenue for the
three-month period ended April 30, 1999, as compared to $135,295 for the same
period in 1998. Year 2000 accounted for $34,989 of gross revenue for the
three-month period ended April 30, 1999 as compared to $57,620 for the same
period in 1998. Professional services accounted for $5,634 of gross revenue for
the three-month period ended April 30, 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
8
<PAGE>
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. 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 solutions 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 $100,000 to $2,000,000. There can be no
assurance that the Company will enter into any firm contracts with respect to
any of such projects.
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 achieve 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 April 30, 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 April 30, 1999, and April 30, 1998, cost of consulting
services accounted for $79,716 and $80,794, respectively. For the nine-month
periods ended April 30, 1999 and 1998, cost of consulting services expenses were
$133,876 and $141,899 respectively. Cumulatively, the cost of consulting
services accounted for $1,459,503. The Company anticipates managed growth in
this area as people are added to satisfy consulting services provided by the
Company.
Cost of software transformation services accounted for $73,429 of total expenses
for the quarter ended April 30, 1999. Comparatively, the Company spent $277,967
for the same quarter ended April 30, 1998 and has spent $1,664,113 cumulatively
in the development stage. For the nine-month periods ended April 30, 1999 and
1998, software transformation services were $364,176 and $304,536 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 of conversion services and year 2000 scan and repair services
provided to our customers.
Software development accounted for $85,553 of total expenses for the quarter
ended April 30, 1999. Comparatively, the Company spent $119,886 for the same
quarter in 1998 and has spent $494,388 cumulatively in the development stage.
For the nine-month periods ended April 30,1999 and 1998, software development
costs were $240,979 and $329,806, respectively. The increases in costs of
product development are expected to continue as the Company expands its product
offerings.
Costs of professional services accounted for $23,907 of total expenses for the
quarter ended April 30, 1999. Comparatively, the Company spent $0 for the same
quarter in 1998 and has spent $23,907 cumulatively in the
9
<PAGE>
development stage. For the nine-month periods ended April 30, 1999 and 1998,
costs of professional services were $23,907 and $0 respectively. The Company
anticipates managed growth in this area as professional service contracts are
signed.
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 being a reporting public
company. This status has increased audit and legal costs significantly. 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 $338,395 of expenses for the
quarter ended April 30, 1999. Comparatively, the Company spent $295,517 for the
same quarter in 1998 and has spent $3,970,123 cumulatively in the development
stage. General and administrative expenses accounted for $1,224,593 of expenses
for the nine-month period ended April 30, 1999 compared to $1,565,388 for the
nine-month period ended April 30, 1998. The decrease in general and
administrative expenses related to decreased salaries, consulting fees, and the
elimination of amortization and other costs associated with software marketing
rights. The Company's general and administrative expenses consisted primarily of
salaries, rent, consulting fees, advertising and costs associated with being a
reporting public company such as legal, audit, and investor relations.
MATERIAL CHANGES IN FINANCIAL CONDITION
The following is a discussion of the material changes in financial condition
from July 31, 1998 to April 30, 1999.
Current assets at April 30, 1999 were $184,215 as compared to $589,930 at
July 31, 1998. The basis for this decrease in current assets is as follows.
Accounts receivable totaled $126,122 at April 30, 1999 as compared to $419,933
at July 31, 1998. The decrease was the result of the Company's collection
efforts and decreased sales during the nine months.
The Company recorded material changes to accrued expenses. Accrued expenses were
$74,617 at April 30, 1999 as compared to $230,201 at July 31, 1998. This
decrease is due to the payment of certain accrued expenses using available cash.
The Company issued Common Stock for cash in the quarter ended April 30, 1999.
The Company recorded Additional paid-in capital of $221,338 and Common Stock of
$1,663 for the period.
Deficit accumulated during the development stage totaled $(8,730,631) as
compared to $(7,085,089) at July 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 April 30, 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.
One of the bank loans has been paid. The outstanding principal balance of the
other bank loan as of April 30, 1999 is approximately $16,415 and the loan
bears 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 loan, 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 April 30, 1999, the Company had a deficit accumulated during the development
stage of ($8,730,631), current assets of $184,215 and current liabilities of
$291,655. During the three-month period ended April 30, 1999, the Company sold
1,663,077 shares of Common Stock for proceeds of $223,000 to Thomson Kernaghan,
a registered broker dealer. Otherwise, the Company did not incur any additional
long-term debt. The Company will continue to raise capital through these
or similar vehicles to fund operating activities and other capital
requirements. Failure to obtain such equity capital could have a material
adverse impact on the Company's
10
<PAGE>
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, hardware, and embedded systems to
ensure that they were Year 2000 compliant. Work that has been performed to
become Year 2000 compliant as of April 30, 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 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.
Pat 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
11
<PAGE>
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 May 12, 1999
to report an Item 5. Other Event which occurred on April 29, 1999.
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 June 15, 1999 /s/ Warren P.A. Strutt
----------------------------- -------------------------------------------
Warren P.A. Strutt, Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet and Statement of Operations filed as a part of the report on Form 10QSB
for the quarter ended April 30, 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> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 38,885
<SECURITIES> 0
<RECEIVABLES> 141,214
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 184,215
<PP&E> 310,032
<DEPRECIATION> 89,097
<TOTAL-ASSETS> 479,358
<CURRENT-LIABILITIES> 291,655
<BONDS> 1,592,040
0
0
<COMMON> 19,422
<OTHER-SE> (1,423,759)
<TOTAL-LIABILITY-AND-EQUITY> 479,358
<SALES> 0
<TOTAL-REVENUES> 201,344
<CGS> 0
<TOTAL-COSTS> 262,605
<OTHER-EXPENSES> 338,395
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (33,287)
<INCOME-PRETAX> (432,943)
<INCOME-TAX> 0
<INCOME-CONTINUING> (432,943)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (432,943)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
<PAGE>
Exhibit 99.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 29, 1999
-----------------
TRANSFORMATION PROCESSING INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Nevada 0-23903 95-4583945
------ ------- ----------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification Number)
5500 Employer Drive, Suite 2000, Mississauga, Ontario L4W 5C7
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(905)206-1366
----------------------------------------------------
(Registrant's telephone number, including area code)
S-2
<PAGE>
Item 5. Other Events
On April 29, 1999, Transformation Processing Inc., a Nevada corporation
(the "Registrant") and a securityholder of the registrant, effected the
rescission of the conversion of $57.00 plus interest of debentures and the
securityholder returned 201,736 shares of common stock. The debentures were
converted in error and were in excess of 4.9% of the Registrant's outstanding
shares of common stock which violated the terms of the debenture.
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Transformation Processing Inc.
Registrant
Dated: May 12, 1999 By: /s/ Warren P.A. Strutt
--------------------------------
WARREN P.A. STRUTT
CHIEF FINANCIAL OFFICER
S-4
