<PAGE>
As filed with the Securities and Exchange Commission on May 28, 1999
Registration No.333-68769
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
Under the Securities Act of 1933
TRANSFORMATION PROCESSING INC.
(Name of Small Business Issuer in its Charter)
Nevada 7372 (95-4583945)
- --------------------------------------------------------------------------------
(State or Other (Primary Standard Industrial I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or
Organization)
5500 Explorer Drive, Suite 2000
Mississauga, Ontario L4W 5C7
(905) 206-1366
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Paul G. Mighton, Chairman of the Board
5500 Explorer Drive, Suite 2000
Mississauga, Ontario L4W 5C7
(905) 206-1366
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
agent for service)
------------------------
Copies to:
Elliot H. Lutzker, Esq.
Snow Becker Krauss P.C.
605 Third Avenue
New York, N.Y. 10158-0125
Telephone (212) 687-3860
Telecopier (212) 949-7052
<PAGE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Proposed Proposed
Title of Class of Maximum Maximum Amount of
Securities to be Amount to Be Offering Price Aggregate Registration
Registered (4) Registered Per Unit (1) Offering Fee
Price (1)
<S> <C> <C> <C> <C>
common stock 500,000 shs. (2)(3) $0.50 $250,000 $69.50
$.001 par value
common stock 100,000 shs. (2)(4) $1.50 $15,000 $4.17
$.001 par value
common stock 23,844,679 shs.(2) (5) $0.13 (6) $3,099,808 $861.75
$.001 par value
common stock 60,000 shs. (2) (7) $1.50 $90,000 $25.02
$.001 par value
common stock 241,228 shs. (2) (8) $0.46 $110,965 $30.85
$.001 par value
common stock 50,200 shs. (2) (9) $1.99 $99,898 $27.77
$.001 par value
common stock 68,306 shs. (2) (10) $1.46 $99,727 $27.72
$.001 par value
</TABLE>
-ii-
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Proposed Proposed
Title of Class of Maximum Maximum Amount of
Securities to be Amount to Be Offering Price Aggregate Registration
Registered (4) Registered Per Unit (1) Offering Fee
Price (1)
<S> <C> <C> <C> <C>
common stock 87,720 shs. (2) (11) $0.46 $40,351 $11.22
$.001 par value
common stock 55,556 shs. (2) (12) $0.36 $20,000 $5.56
$.001 par value
common stock 101,010 shs. (2) (13) $0.40 $40,404 $11.23
$.001 par value
common stock 84,746 shs. (2)(14) $0.59 $50,000 $13.90
$.001 par value
common stock 78,125 shs. (2)(15) $0.32 $25,000 $6.95
$.001 par value
common stock 78,125 shs. (2)(16) $0.32 $25,000 $6.95
$.001 par value
common stock 100,000 shs.(2)(17) $0.50(18) $50,000 $13.90
$.001 par value
common stock 50,000 shs. (2)(19) $0.27(18) $13,500 $3.75
$.001 par value
common stock 150,000 shs. (20) $0.16(6) $24,000 $6.67
$.001 par value
Total: 25,649,695 shs. $4,053,653 $1,126.91
---------
---------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457, promulgated under the Securities Act of 1933, as
amended (the "Act").
(2) Pursuant to Rule 416, this Registration Statement also covers such
indeterminable additional shares as may become issuable as a result of
anti-dilution adjustments in accordance with the terms of the warrants,
debentures and options.
-iii-
<PAGE>
3) Issuable upon exercise of warrants issued on August 23, 1996 ("1996
Warrants") to purchasers of Units, currently exercisable at $.50 per share.
(4) Issuable upon exercise of warrants issued on June 27, 1997 ("1997
Warrants") to purchasers of Units, currently exercisable at $1.50 per
share.
(5) Includes 2,480,679 shares issued upon conversion of $1,092,500 aggregate
principal amount of the Registrant's 6% convertible debentures (the
"debentures") due April 2000 - January 2001, plus shares issued for
conversion of interest and 19,075,000 shares issuable at a conversion price
of $0.10 upon conversion of $1,907,500 of debentures, plus 2,289,000 shares
issuable upon conversion of $228,900 of interest.
(6) Pursuant to Rule 457(c) under the Act, the registration fee has been
calculated based upon the $.13 per share closing price of the common stock
on May 7, 1999 as reported by the National Quotation Bureau.
(7) Issuable upon exercise of warrants issued on April 14, 1998 to purchasers
of debentures, exercisable at $1.50 per share.
(8) Issuable upon exercise of warrants issued on April 14, 1998 to purchasers
of debentures, exercisable at $.456 per share.
(9) Issuable upon exercise of warrants issued on May 21, 1998 to purchasers of
debentures, exercisable at $1.99 per share.
(10) Issuable upon exercise of warrants issued on July 10, 1998 to purchasers of
debentures, exercisable at $1.238 per share.
(11) Issuable upon exercise of warrants issued on September 22, 1998 to
purchasers of debentures, exercisable at $.456 per share.
(12) Issuable upon exercise of warrants issued on October 6, 1998 to purchasers
of debentures, exercisable at $.36 per share.
(13) Issuable upon exercise of warrants issued on November 18, 1998 to
purchasers of debentures, exercisable at $.396 per share.
(14) Issuable upon exercise of warrants issued on December 4, 1998 to purchasers
of debentures, exercisable at $.59 per share.
(15) Issuable upon exercise of warrants issued on January 13, 1999 to purchasers
of debentures, exercisable at $.32 per share.
-iv-
<PAGE>
(16) Issuable upon exercise of warrants issued on January 13, 1999 to purchasers
of debentures, exercisable at $.32 per share.
(17) Issuable upon exercise of options granted on March 26, 1998, at an exercise
price of $.50.
(18) Calculated in accordance with Rule 457 (h)(1) under the Act.
(19) Issuable upon exercise of options granted on November 30, 1998, at an
exercise price of $.27 per share.
(20) Issuable as additional consideration pursuant to an agreement dated March
24, 1998 to provide investor relation services.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
-v-
<PAGE>
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY..........................................................-2-
SUMMARY OF FINANCIAL INFORMATION............................................-4-
Risk Factors................................................................-5-
Possible violation of securities laws..............................-5-
Absence of Profitability...........................................-5-
Need for additional financing......................................-5-
Ability to continue as a "going concern"...........................-5-
Lack of written contracts with resellers and end users.............-6-
Maintenance of profit margins......................................-6-
Dependence on proprietary technology...............................-6-
Impediments to competing...........................................-7-
No cash dividends on common stock..................................-7-
Risk of errors or failures in software products....................-7-
Rapid technological change.........................................-7-
Dependence upon key personnel......................................-8-
Possible volatility of common stock prices.........................-8-
Shares eligible for future sales and the resulting dilution........-8-
Disclosure relating to low-priced stocks...........................-8-
Year 2000 problem..................................................-9-
Forward-looking statements.........................................-9-
Use of Proceeds............................................................-10-
Market for Common Stock And
Related Stockholders Matters......................................-10-
Capitalization.............................................................-11-
Dividend Policy............................................................-12-
Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................-12-
Results of Operations.............................................-12-
Liquidity and Capital Resources...................................-18-
Year 2000 Issues..................................................-20-
Inflation.........................................................-22-
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<PAGE>
TABLE OF CONTENTS
PAGE
Seasonality.......................................................-22-
BUSINESS ..................................................................-22-
Client/Server Migration Services..................................-23-
Year 2000 Remediation Services....................................-29-
Groupware Services................................................-32-
Where you can find more Information........................................-35-
Management.................................................................-35-
Indemnification
of Directors And Officers.........................................-39-
Certain Transactions.......................................................-39-
Security Ownership of Certain
Beneficial Owners And Management..................................-40-
Selling Securityholders ...................................................-41-
Plan of Distribution.......................................................-44-
Description of Securities..................................................-45-
Legal Matters..............................................................-46-
Experts ..................................................................-46-
Index to Financial Statements..............................................F-1
-vii-
<PAGE>
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED MAY 28, 1999
TRANSFORMATION PROCESSING INC.
25,649,695 SHARES OF COMMON STOCK, $.001 PAR VALUE,
-----------------------
This prospectus registers up to 25,649,695 shares of common stock of
Transformation Processing Inc. ("TPI") that may be sold by certain selling
securityholders named herein.
The securities offered hereby involve a high degree of risk and should
only be purchased by those who can afford to lose their entire investment. See
"risk factors" beginning on page 5 for a discussion of certain risks of an
investment in the common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The common stock is quoted on the Over-The-Counter Electronic Bulletin
Board ("OTCBB") under the symbol "TPII". On May 26, 1999, the last reported bid
and asked prices per share of common stock on the OTCBB were $0.15 and $0.185
per share, respectively.
This Prospectus relates to securities to be sold by selling
securityholders. See Page 41.
THE DATE OF THIS PROSPECTUS IS ___________, 1999.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus. It
is not complete and may not contain all of the information that you should
consider before investing in the common stock. To understand this offering fully
you should read the entire prospectus carefully, including the risk factors and
financial statements.
THE COMPANY
Transformation Processing Inc. ("TPI") is an information technology
company that develops and markets software and services that enable companies
worldwide to electronically migrate their application programs and data from
older computer codes designed up to thirty or more years ago to modern languages
that are compatible with today's more powerful and faster computers.
Our executive offices are located at 5500 Explorer Drive, Suite 2000,
Mississauga, Ontario, Canada L4W 5C7; and our telephone number is (905)
206-1366.
THE OFFERING
COMMON STOCK OFFERED 25,649,695 shares consisting of:
- up to 500,000 shares issuable upon
exercise of warrants issued pursuant to
a securities subscription agreement
dated August 23, 1996 (the "1996
Warrants");
- 2,480,679 shares issued upon the
conversion of $1,092,500 aggregate
principal amount of 6% convertible
debentures (the "1998 debentures") sold
in 1998 plus accrued interest, and an
additional 19,075,000 shares issuable
upon conversion of $1,907,500 of
additional 1998 debentures currently
outstanding plus 2,289,000 shares
issuable upon conversion of $228,900 of
interest due thereon;
- up to 100,000 shares issuable upon
exercise of warrants issued pursuant to
a securities subscription agreement
dated June 27, 1997 (the "1997
Warrants");
-2-
<PAGE>
- up to 905,016 shares issuable upon
exercise of warrants issued to the
holders of the 1998 debentures (the
"1998 Warrants");
- 150,000 shares issuable upon exercise of
options; and
- 150,000 shares issuable pursuant to an
agreement dated March 24, 1998 to
provide investor relations services.
OTCBB COMMON STOCK SYMBOL TPII
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING BEFORE THE OFFERING 17,759,179 Shares
As of April 30, 1999, TPI's records and the records of its transfer
agent, Equity Transfer Services, differ with respect to the number of
outstanding shares of TPI's common stock. According to the transfer agent, the
number of shares of common stock outstanding is approximately 775,966 shares
greater then the 17,759,179 indicated by TPI's records. TPI believes that its
records are correct and is in the process of resolving this difference. The
number of shares outstanding reflected in this prospectus does not include these
shares or any adjustment which might be necessary to resolve this difference.
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING AFTER GIVING EFFECT TO
THE EXERCISE OF WARRANTS AND THE
CONVERSION OF DEBENTURES AS PART
OF THIS OFFERING 40,928,195 Shares
USEOF PROCEEDS TPI will not receive any proceeds from the
sale of common stock in the offering, but
will receive $929,845 from the exercise of
all warrants and options.
-3-
<PAGE>
SUMMARY OF FINANCIAL INFORMATION
The summary consolidated financial information set forth below is
derived from and should be read in conjunction with TPI's, a development stage
company, consolidated financial statements, including the notes thereto,
appearing elsewhere in this prospectus.
<TABLE>
Statement of Operations Data:
<CAPTION>
Period from
April 1, 1996
(Date of Period from
Incorporation) Fiscal Year April 1, 1996
Six Months Ended January 31, to Ended to
1998 1999 July 31, 1997 July 31, 1998 January 31, 1999
---- ---- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues $ 157,853 $517,468 $ 47,317 $ 877,198 $1,441,983
Operating Loss ($1,108,854) ($869,063) ($2,785,661) ($3,450,668) ($7,105,392)
Net Loss ($1,110,562) ($1,212,599) ($2,784,536) ($4,300,553) ($8,297,688)
Net Loss per Share
Common Stock (0.08) (0.07) (0.27) (0.30) -
Shares of Common
Stock Used in
Computing Net Loss
per Share 13,760,991 17,459,762 10,161,665 14,542,313 -
</TABLE>
<TABLE>
Balance Sheet Data:
<CAPTION>
As of January 31, As of July 31,
1998 1999 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Working Capital (356,055) $ 24,888 $ (62,261) $ (60,129)
(Deficiency)
Total Liabilities 730,938 1,867,380 285,870 1,699,649
Accumulated Deficit (4,141,725) (8,297,688) (2,784,536) (7,085,089)
Total Stockholders' Equity (241,145) (1,196,037) 608,508 (836,034)
(Deficiency)
</TABLE>
-4-
<PAGE>
RISK FACTORS
The securities being offered are speculative and involve a high degree
of risk. Accordingly, you should carefully consider the following factors, among
others, relating to an investment in TPI.
POSSIBLE VIOLATION OF SECURITIES LAWS. We completed a number of private
placements during 1997 and 1998 in which we raised a total of approximately $4.6
million. The securities sold in these placements did not have a registration
statement on file with the SEC. The federal securities laws require registration
of securities unless an appropriate exemption from the registration requirements
of those laws is available. If an exemption did not exist for the sale of
securities in these private placements, we may have violated the registration
requirements. If so, purchasers could seek rescission of their purchase and
recover money paid for the securities. We make no admission of any violation of
federal securities laws and no investor has sought rescission of any purchase.
ABSENCE OF PROFITABILITY. a) Absence of Historical Profitability. We
selected July 31st as our fiscal year end date. As of July 31, 1998, we have not
had a year end profit.
b) Future Operating Results. Since we will continue to have a high
level of operating expenses, and significantly higher costs of being a publicly
owned company, and will be required to make significant up-front expenditures in
connection with the proposed expansion of our operations, our future
profitability will depend upon corresponding increases in revenues from
operations which are not expected to occur before late 1999, if at all.
NEED FOR ADDITIONAL FINANCING. We will be required to seek additional
financing in order to continue our operations. We expect to seek additional
financing, including either debt or equity offerings, in the future.
ABILITY TO CONTINUE AS "GOING CONCERN." Our financial statements for
the year ended July 31, 1998 state there is substantial doubt about our ability
to continue as a going concern due to our need to generate cash from operations
and obtain additional financing.
Unless we generate a substantial amount of revenues of which there is
no assurance, we will need additional financing and/or be required to make
certain permanent reductions in expenses and/or implement further cost
reductions. There can be no assurance that we will be able to obtain additional
funding when we need it, or that such financing, if available, will be
obtainable on terms favorable to us, if at all. Accordingly, our ability to
continue as a going concern on a short-term, or long-term basis, is in
substantial doubt without such permanent funding. In the event we are not able
to continue as a going concern, we may have to curtail operations, sell assets
or seek protection under bankruptcy laws. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Financial
Statements.
-5-
<PAGE>
In the event we are unable to obtain sufficient financing and are
unable to continue as a going concern, we may be required to liquidate or sell
certain assets. Intangible assets constituted 13.4% of our net assets as of
January 31, 1999. These intangible assets may be difficult to value and we may
be unable to obtain their full value.
LACK OF WRITTEN CONTRACTS WITH RESELLERS AND END USERS. We often
provide services to large organizations. In such circumstances, contracts with
resellers and end users sometimes change as the projects are underway. Certain
other strategic relationships which we have, are not pursuant to written
contracts and are subject to termination virtually at will. These factors can
adversely affect not only the business relationship, but also the success of a
project and our ultimate success.
MAINTENANCE OF PROFIT MARGINS. We may be forced to significantly adjust
pricing in order to compete. These factors may combine to have a material
adverse effect on TPI's profit margins.
DEPENDENCE ON PROPRIETARY TECHNOLOGY. Our success is dependent upon our
confidential and proprietary software technology and other proprietary rights.
We do not currently have any patents or pending patent applications and rely
mainly on a combination of:
- trade secret, copyright and trademark laws;
- nondisclosure, use restriction and other contractual
restrictions and agreements; and
- certain technical measures to protect our technology.
Because patent applications are not publicly disclosed until the
relevant patent is issued, applications may have been filed by third parties,
which, if issued as patents, could relate to our current services and products
or as we may modify them in the future to meet the market's requirements.
Our policy is to enter into confidentiality, technology ownership
and/or license agreements, as applicable, with our technical software
programming employees as well as with distributors and customers, and to limit
access to and distribution of our software, documentation and other proprietary
information. In addition, we do not license or release our source code, except
in connection with source code escrow arrangements and applicable source code
use restrictions. Trade secret, copyright and trademark laws provide limited
protection. Also, such protections do not preclude competitors from
independently developing products with functionality or features similar,
substantially equivalent or superior to our products and technologies. In
addition, effective protection of copyrights, trade secrets, trademarks, and
other proprietary rights may be unavailable or limited in certain foreign
countries. We do not know whether licenses for any intellectual property that
might be required in connection with our development of services or products,
either to avoid infringement of a third party's product, patent or other rights
or to enhance our product offering, would be available on commercially
reasonable terms, if at all. Any failure by or inability by us to protect our
proprietary technology or to obtain appropriate licenses could have a material
adverse effect on our business, operating results and financial condition. See
"Business - Licensing and Intellectual Property."
-6-
<PAGE>
IMPEDIMENTS TO COMPETING. The market in which we operate is
competitive, rapidly evolving and subject to continuous technological change. We
do not know whether we can maintain or enhance our competitive position against
current and future competitors. Significant factors, such as the emergence of
new products, fundamental changes in computing technology and data storage and
manipulation platforms and applications and aggressive pricing and marketing
strategies by our competitors, may affect our competitive position. Many of our
current and potential competitors have longer operating histories, greater name
recognition, larger installed customer bases and substantially greater
financial, technical and marketing resources than us. We do not know whether our
current and potential competitors will develop software products that may be or
may be perceived to be more effective or responsive to technological change than
our current or future products or that our technologies and products will not be
rendered obsolete by such developments. Increased competition could result in
price reductions, reduced margins or loss of market share, any of which could
have a material adverse effect on our business, operating results and financial
condition. We do not know whether we will be able to compete successfully
against current and future competitors, or that competitive pressures we face
will not have a material adverse effect on our business, operating results and
financial condition. See "Business - Competition."
NO CASH DIVIDENDS ON COMMON STOCK. We have never declared or paid any
cash dividends on our shares of common stock. We intend to utilize our earnings,
if any, to expand our business. Accordingly, we have no intention of declaring
or paying cash dividends on our common stock for the foreseeable future. See
"Dividend Policy."
RISK OF ERRORS OR FAILURES IN SOFTWARE PRODUCTS. The nature of software
is inherently complex. Therefore there is a real possibility of errors, failures
or bugs in software. Our products may contain errors, failures or bugs. There
are a wide variety of computers and third party software that makes pre-testing
for errors, failures and bugs very difficult, time-consuming and expensive.
Errors, failures or bugs in our products could result in adverse publicity,
product returns, loss of or delay in market acceptance of our products or claims
by the customer or others against us.
POSSIBLE INABILITY TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE. The
software markets in which we compete are characterized by rapid technological
change, frequent introductions of new products and product enhancements, changes
in customer demands and evolving industry standards. The introduction of
products embodying new technologies and the emergence of new industry standards
and practices can render existing products obsolete and unmarketable. For
example, our customers use a wide variety of hardware, software, database and
networking platforms and applications. As a result, to gain broad market
acceptance, we must continue to support and maintain our products on a variety
of such platforms and applications, and extend our product offerings to new
platforms, networks and applications. The development of new versions of
existing products that are compatible with different operating systems and
environments, the Internet, different database systems, and other applications
entails significant technical risk. Our future success will depend on our
ability to address the changing needs of our customers by developing and
introducing enhancements to our products and new products on a timely basis that
keep pace with technological developments, evolving industry standards and
practices. The success
-7-
<PAGE>
of our products may also depend, in part, on our ability to introduce products
which are compatible with the Internet and the World Wide Web. If release dates
of future product enhancements or new products are delayed or if these products
or enhancements fail to achieve market acceptance when released, our business,
operating results and financial condition could be adversely affected.
DEPENDENCE UPON KEY PERSONNEL. Although we have an experienced and
professional executive team and technical staff in place, the loss of certain
members of management could have a material adverse effect on our business and
prospects. Our success is also dependent upon our ability to hire and retain
additional qualified technical, marketing and financial personnel.
POSSIBLE VOLATILITY OF COMMON STOCK PRICES. There is currently a
limited public market for our common stock. Although our securities trade on the
OTCBB, an investor would, in all likelihood, find it difficult to dispose of, or
obtain quotations for the price of the common shares. In addition, the market
price of our common stock may be significantly affected by various factors,
including, but not limited to, general economic conditions and conditions
specific to the computer software and computer related service industry, any
future acquisitions that we may make, and our financial condition. Moreover, the
price of our common stock may be affected by the significant number of shares of
common stock outstanding, and the shares underlying outstanding debentures,
warrants and options to purchase shares of our common stock.
SHARES ELIGIBLE FOR FUTURE SALES AND THE RESULTING DILUTION.
Approximately 7,578,190 of the 17,759,179 (see page 3) shares of common stock
outstanding as of April 30, 1999 are "restricted securities" which can only be
sold by meeting certain requirements. Therefore, some of these shares may be
available for public sale. Moreover, there are 1,505,016 shares of common stock
currently issuable upon exercise of warrants, 150,000 shares of common stock
currently issuable upon exercise of options, 21,364,000 shares of common stock
issuable upon conversion of debentures at a conversion rate of $0.10 per share
based upon a hypothetical 5 day average closing asked price of $.13 and 150,000
shares of common stock issuable as additional consideration for public relations
services. During the respective terms of such securities the holders thereof may
be able to purchase shares of common stock at prices substantially below the
then current market price of our common stock, with a resultant dilution in the
interests in the existing common stockholders.
We cannot predict the effect that sales made pursuant to this
prospectus or otherwise may have on the then prevailing market price of our
securities, although sales of substantial amounts of shares by existing
stockholders, or even potential of such sales, may have an adverse effect on the
trading price and market for our securities. In addition, the existence of this
stock may effect our ability to raise additional financings.
DISCLOSURE RELATING TO LOW-PRICED STOCKS. Our common stock is currently
traded on the Over-the-Counter Bulletin Board ("OTCBB"). This imposes certain
restrictions on any sale of our securities. Generally, a broker-dealer may not
arrange the sale of our common stock, unless it is an "established customer" and
an "accredited investor" (meaning, in general, institutions with more
-8-
<PAGE>
than $5 million in assets or individuals who either have a net worth of $1
million or an annual income of at least $200,000 or $300,000 jointly with their
spouse), unless he has received a written consent to the purchase and has
completed a suitability evaluation. This could restrict stockholders' ability to
sell these shares.
In addition, our common stock is deemed "penny stock" under the federal
securities laws. This requires additional disclosures by any broker-dealer
making a sale in the stock. This could also restrict a stockholder's ability to
sell these shares.
YEAR 2000 PROBLEM. TPI reviewed its internal computer programs and
systems to ensure that they were 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 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 party suppliers. 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.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
FORWARD-LOOKING STATEMENTS. All statements other than statements of
historical fact included in this prospectus, including without limitation
statements under "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," regarding our
financial position, business strategy and the plans and objectives of our
management for future operations, are forward-looking statements that are
subject to significant risks and uncertainties. When used in this prospectus,
words such as "anticipate," "believe," "estimate," "expect," "intend" and
similar expressions, as they relate to our management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of our management, as well as assumptions made by and information
currently available to our management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of
certain factors, such as those disclosed under "Risk Factors." Such
statements reflect our current views with respect to future events and are
subject to these and other risks, uncertainties and assumptions relating to
our operations, results of operations, growth strategy and liquidity. All
subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by
this paragraph.
For all of these reasons, and others set forth below, any purchase of
these securities involves a high degree of risk. You should carefully read and
consider all of the information in this
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<PAGE>
document before making a decision to purchase. Any purchaser of these securities
should be in a position to lose his investment without significant financial
harm.
USE OF PROCEEDS
TPI will not receive the proceeds from sales of common stock offered
hereby. However, TPI expects to use the proceeds of up to $929,845 from the
exercise of the warrants and options for working capital, and other general
corporate purposes.
MARKET FOR COMMON STOCK AND
RELATED STOCKHOLDERS MATTERS
TPI's common stock is traded on the OTCBB under the symbol "TPII". The
following table sets forth, the high and low bid prices of the common stock for
the periods shown as reported by the National Quotation Bureau. The bid prices
quoted on the OTCBB reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH BID LOW BID
<S> <C> <C>
FISCAL YEAR ENDED JULY 31, 1997
First Quarter (August 21, 1996 to October 31, 1996) 4.78 2.63
Second Quarter (November 1, 1996 to January 31, 1997) 3.19 0.56
Third Quarter (February 1, 1997 to April 30, 1997) 1.06 0.63
Fourth Quarter (May 1, 1997 to July 31, 1997) 1.22 0.69
FISCAL YEAR ENDED JULY 31, 1998
First Quarter (August 1, 1997 to October 31, 1997) 0.75 0.30
Second Quarter (November 1, 1997 to January 31, 1998) 0.75 0.38
Third Quarter (February 1, 1998 to April 30, 1998) 2.19 0.28
Fourth Quarter (May 1, 1998 to July 31, 1998) 1.75 0.75
FISCAL YEAR ENDING JULY 31, 1999
First Quarter (August 1, 1998 to October 31, 1998) 0.78 0.22
Second Quarter (November 1, 1998 to January 31, 1999) 0.45 0.28
Third Quarter (February 1, 1999 to April 30, 1999) 0.31 0.09
</TABLE>
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On April 30, 1999, there were approximately 144 holders of record of
common stock.
Since TPI's inception it has not paid any dividends on its common stock
and does not anticipate paying such dividends in the foreseeable future. TPI
intends to retain earnings, if any, to finance its operations.
CAPITALIZATION
The following table sets forth the capitalization of TPI at January 31,
1999 and as adjusted to give effect to the exercise of warrants and options.
<TABLE>
<CAPTION>
Long Term Debt: January 31, 1999(1) As Adjusted (2)
------------------- ---------------
<S> <C> <C>
Loan payable-bank, net of current maturities 1,500,559 1,500,559
Temporary capital(3) - - 57,500
Stockholder's Equity (Deficiency):
Common stock - $.001 par value; authorized
50,000,000 shares; shares issued and outstanding
17,960,915 at January 31, 1999 and 19,564,195 as
adjusted. 17,961 19,564
Preferred Stock - $.001 par value; authorized 5,000,000 - - - -
none issued.
Additional paid-in capital 7,122,443 7,993,185
Deficit accumulated during the development stage (8,297,688) (8,297,688)
Cumulative foreign currency translation adjustments (38,753) (38,753)
------- ---------
Total Stockholder's Equity (Deficiency) (1,196,037) (323,692)
------- ---------
Total Capitalization 304,522 1,234,367
------- ---------
------- ---------
</TABLE>
(1) Does not include 1,505,016 shares issuable upon exercise of outstanding
warrants, 19,075,000 shares currently issuable upon conversion of
outstanding debentures, or 2,289,000 shares issuable upon conversion of
interest on the debentures.
(2) Gives effect to the issuance of 1,505,016 shares of common stock upon
exercise of the warrants and 150,000 shares of common stock issuable
upon exercise of options for aggregate proceeds of $929,845 and 150,000
shares issuable for additional consideration pursuant to an agreement
to provide investor relation services. The exercise prices of the
options are $.27 and $.50. The exercise prices of the warrants range
from $.32 to $1.99.
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<PAGE>
Does not include 19,075,000 shares currently issuable upon conversion
of debentures, or 2,289,000 shares issuable upon conversion of
interest.
(3) Reflects $57,500 of debentures which were converted for 201,736 shares
of common stock which conversion was rescinded and the shares of common
stock returned to TPI. Such transaction was effected in April 1999. See
"Selling Securityholders", note 13.
DIVIDEND POLICY
The payment of dividends by TPI is within the discretion of its Board
of Directors and depends in part upon TPI's earnings, capital requirements and
financial condition. Since its inception, TPI has not paid any dividends on its
common stock and does not anticipate paying such dividends in the foreseeable
future. TPI intends to retain earnings, if any, to finance its operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with TPI's
audited financial statements as of July 31, 1998 and for the period from April
1, 1996 (date of incorporation) to July 31, 1997 and for the year ended July 31,
1998 and the notes thereto, and TPI's unaudited financial statements as of
January 31, 1999 and January 31, 1998, all of which financial statements are
included elsewhere in this prospectus.
RESULTS OF OPERATIONS
Results of Operations for the period April 1, 1996 (date of
incorporation) to July 31, 1996 were not material. Accordingly, TPI has reported
results of operations for the 16-month 1997 fiscal period. Operations actually
commenced in October of 1996 when TPI moved into a permanent facility. TPI's
fiscal year ends on July 31st.
SIX MONTHS ENDED JANUARY 31, 1999 AND 1998
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.
NET LOSSES
For the quarters ended January 31, 1999 and 1998, TPI incurred net
losses of $485,434 and $757,731, respectively. For the six-month periods ended
January 31, 1999 and 1998, TPI 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. TPI expects to continue to incur operating losses until such time,
if ever, it may generate adequate revenues from its service offerings.
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<PAGE>
REVENUE
For the quarter ended January 31, 1999, TPI 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, TPI recorded revenue of $517,468 as
compared to $157,853 for the same period ended January 31, 1998. Conversion
Services, TPI's core business accounted for $158,045 of gross revenue for 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 remediation services 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.
TPI expects to generate revenue from
(a) the performance of
- transformation services for end-users of IBM
midrange computing systems and application
software development services related to
client/server migration;
- Year 2000 consulting, analysis, remediation and
training services;
and
- 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 TPI's proprietary software and ICC
software products.
TPI is not able to project the amount or proportion of revenue expected
to be received from each of the foregoing activities as TPI has not offered each
of its services for a sufficient period of time to have such knowledge.
During the autumn of 1996, TPI positioned itself to market
transformation services utilizing TPI's client/server migration software,
targeting the IBM mid-range computer market. In this connection, TPI planned to
enhance its client/server migration software in the 1997 fiscal period. Such
plan received less attention during such period as TPI directed its attention to
the opportunity presented by the demand for the Year 2000 remediation services.
Because of the scope of the Year 2000 problem and the significant dollar volumes
which were expected to be expended by users of information technology to
remediate the problem, TPI shifted its marketing and sales efforts to promoting
Year 2000 remediation services. TPI has negotiated relationships with a vendor
of Year 2000 software conversion tools and a company providing computer hardware
assessment services to support these efforts. By April 1997, TPI was offering
Year 2000 remediation services and as of
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<PAGE>
March 1, 1999, TPI has entered into contracts to provide Year 2000 remediation
services totaling approximately $370,000. TPI has entered into agreements with
Canadian and United States sales representation companies to implement TPI's
marketing and sales strategies. During fiscal 1998, approximately $385,967, or
44%, of TPI's revenues were derived from Year 2000 services. Currently, TPI is
bidding on Year 2000 remediation projects ranging in size from approximately
$100,000 to $1,000,000. There can be no assurance that TPI will enter into any
additional contracts with respect to any of such projects.
EXPENSES
TPI 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
TPI's variable costs of software consulting, translation services and
development are in a direct relation to the volume of sales and 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
products should yield a higher margin, while specific project type environments
may call for a higher degree of manpower and travel costs.
TPI will continue product development of the core software product to
enable TPI 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 TPI 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. TPI anticipates managed growth
in this area as people are added to satisfy consulting services provided by TPI.
As the employment market becomes more competitive as the result of channeling
human resources toward the Year 2000 problem, TPI expects to pay a premium for
skilled consultants and engineers. These consulting services will be allocated
to projects in which TPI has signed contracts.
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<PAGE>
Cost of software transformation services accounted for $139,314 of
total expenses for the quarter ended January 31, 1999. Comparatively, TPI 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. TPI anticipates adding people to this area during 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 $45,134 of total expenses for the
quarter ended January 31, 1999. Comparatively, TPI 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 TPI 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 TPI becoming a reporting public company.
This status will increase audit and legal costs significantly. In relation to
TPI becoming a public company, the cost of corporate relations will also
increase as quarterly reports and other investor information is required. TPI
anticipates that its General and Administrative costs (as a percentage of costs)
will decline as TPI's operations expand.
General and administrative expense accounted for $410,816 of
expenses for the quarter ended January 31, 1999. Comparatively, TPI 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 is related to the increase in interest
and amortization charges stemming from the issuance of debentures. TPI's
general and administrative expenses consisted primarily of salaries, rent,
consulting fees, advertising and legal costs associated with being a
reporting public company.
FISCAL YEARS ENDED JULY 31, 1998 AND 1997
NET LOSSES
For the year ended July 31, 1998, TPI incurred a net loss of
$4,300,553. For the 1997 fiscal period TPI incurred a net loss of $2,784,536.
Cumulative losses from April 1, 1996 through July 31, 1998 (the "Development
Period") were $7,085,089. Explanations of these results are set forth below. TPI
expects to continue to incur operating losses until such time, if ever, as it
generates substantial revenues from the performance of its service offerings.
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<PAGE>
REVENUE
For fiscal 1998 and the 1997 fiscal period TPI's revenue were $877,198
and $47,317, respectively. Cumulative revenue during the Development Period was
$924,515. During fiscal 1998, TPI saw continuing gains in the Groupware business
and recording of its first Year 2000 revenue. Conversion Services, TPI's core
business, accounted for $96,492, or 11%, of gross revenue during fiscal 1998, as
compared to $19,533, or 41%, for the 1997 fiscal period.
EXPENSES
For fiscal 1998 and the 1997 fiscal period, cost of consulting services
accounted for $1,314,356 and $11,271, respectively. The cumulative cost of
consulting services for the Development Period accounted for $1,325,627, or 19%
of total operating expenses. TPI anticipates managed growth in this area as
people are added to satisfy consulting services provided to our customers. As
the employment market has become more competitive as the result of channeling
human resources toward the Year 2000 problem, TPI has had to pay a premium for
skilled consultants and engineers. These consulting services have been allocated
to projects in which TPI has signed contracts.
Cost of software transformation services accounted for $1,107,208 and
$192,729 of total expenses for fiscal 1998 and the 1997 fiscal period,
respectively. The cumulative cost of software transformation services for the
Development Period was $1,299,937 or 18% of total operating expenses. TPI added
approximately two people to this area during fiscal 1998. Future growth will
depend on the volume of transformation services and year 2000 remediation
services being provided by TPI.
Software development costs accounted for $35,197 and $218,212 during
fiscal 1998 and the 1997 fiscal period, respectively. The cumulative amount of
software development costs incurred during the Development Period amounted to
$253,409, or 4% of total operating expenses. Software development costs
decreased during fiscal 1998 due to TPI's shift in focus to the selling and
reselling of completed products. TPI intends to continue to incur software
development costs to enable it to offer client/server migration services, which
targets a broad range of client/server systems. The cost of software development
is expected to increase as TPI seeks to further develop and enhance its
client/server software. TPI believes that development of translators to
transform application source code from any type of machine language to a format
useable on any client/server system will serve as the benchmark of TPI's ability
to respond effectively to end-user requirements. TPI relates the variable cost
of consulting services, transformation services and software developments to
revenues. TPI believes that, as a percentage of revenues, these costs will vary
due to the nature of the project and the specific services required to satisfy
customer requirements. TPI anticipates that revenues based on a mature service
offering (e.g. client/server migration services) will yield a higher profit
margin, while Year 2000 remediation and groupware development projects may
require a higher degree of manpower and travel costs. Transformation services
and Year 2000 remediation services are based on the number of LOC to be
processed or repaired, while consulting
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<PAGE>
and application software development services are provided on time and materials
basis to assure profitability.
GENERAL AND ADMINISTRATIVE
General and administrative expense accounted for $1,871,105 of expenses
for fiscal 1998 compared to $874,425 for the 1997 fiscal period. The cumulative
amount of general and administrative expenses incurred during the Development
Period amounted to $2,745,530, or 38% of total operating expenses. General and
administrative expenses consisted primarily of salaries and benefits, consulting
fees, travel, investor and public relations, office and equipment rents,
professional services, office and telephone expenses. During fiscal 1998, TPI
incurred significant costs related to the registration of its common stock under
Section 12 of the Securities Exchange Act of 1934, as amended. Such status may
increase professional fees significantly and the cost of investor relations may
increase as reports and other investor information are required to be filed with
the SEC or otherwise made publicly available. TPI anticipates that general and
administrative expense (as percentage of total costs and expenses) will decline
as TPI's operations expand.
During fiscal 1998 TPI incurred two unusual expenses. The first was the
settlement of an outstanding issue regarding the distribution of additional
shares of TPI to Jaford Holdings Limited in relation to software marketing
rights. TPI elected to pay $259,500 in cash to settle the dispute. In turn, TPI
received full release from Jaford with no further exposure to TPI. In the second
instance, TPI negotiated an out of court settlement with IBS Conversions, Inc.
("IBS") concerning an outstanding lawsuit filed by IBS on December 23, 1997 in
the United States District Court for the Northern District of Illinois. The
complaint alleged, among other things, that: (a) IBS entered into a "North
American Strategic Affiliation Agreement" with TPI in or about February 1997,
pursuant to which IBS granted a license to TPI to use certain software
development tools and a related project management methodology in connection
with TPI's plan to offer Year 2000 remediation services; (b) in consideration
for such license, TPI agreed to pay IBS the sum of $100,000 per year for a
period of three years; and (c) TPI breached such agreement and misappropriated
the software development tools and methodology, which IBS deemed to be trade
secrets, by failing to make such payments to IBS; failing to use its best
efforts to market IBS products; and marketing the products of competitors of
IBS. The Settlement Agreement called for the payment of approximately $90,000 to
IBS. A payment of $30,000 was paid upon execution of the settlement agreement on
May 27, 1998 and $12,000 was paid in five monthly installments with a final
payment paid on October 26, 1998. In return, TPI received full release from IBS
of any future claims.
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.
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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 TPI's increased
sales during the quarter.
TPI recorded material changes to accounts payable and accrued expenses.
Accounts payable at January 31, 1999 were $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 TPI's management of
available cash resources and allocation of accrued expenses to the statement of
operations.
TPI issued convertible debentures for cash in the quarter ended January
31, 1999. TPI recorded convertible debt totaling $700,000 for the period. The
debt is convertible to shares of Common Stock in TPI 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.
The 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
SIX MONTHS ENDED JANUARY 31, 1999 AND 1998
TPI 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 (the current Canadian Prime rate is 6.25%, therefore
TPI is paying interest at the rate of 8.75%) 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 TPI and the personal guarantees
of TPI's executive officers and directors.
At January 31, 1999, TPI 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,
TPI 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 TPI. Otherwise, TPI did not incur any
additional long-term debt. TPI expects to continue to raise capital through
these vehicles to fund operating activities and
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other capital requirements. Failure to obtain such equity capital could have a
material adverse impact on TPI's ability to expand its operations. There can be
no assurance that equity capital will be available to TPI on acceptable terms or
at all.
In addition, implementation of TPI's business plan requires capital
resources substantially greater than those currently available to TPI. TPI may
determine, depending on the opportunities available to it, to seek additional
debt or equity financing to fund the cost of continuing expansion. TPI believes
that obtaining additional debt is unlikely in its present financial condition.
There can be no assurance that additional equity financing will be available.
If neither additional debt or equity financing is available, TPI might seek
loans with personal guarantees of management or loans from Paul Mighton,
Vladimir Stepanoff, and Diversified Technologies Ltd. In addition, TPI might
seek some sort of strategic alliance with another company that would provide
equity to TPI.
To the extent that TPI finances expansion through the issuance of
additional equity securities, any such issuance would result in dilution of the
interests of TPI's stockholders. Additionally, to the extent that TPI 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.
TPI 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 TPI's future financing requirements. There can be no
assurance that any additional financing will be available to TPI on acceptable
terms, or at all. The inability of TPI to obtain financing when needed will have
a material adverse effect on TPI, including possibly requiring TPI to
significantly curtail or cease its operations.
FISCAL YEARS ENDED JULY 31, 1998 AND 1997
At July 31, 1998, TPI had a deficit accumulated during the Development
Period of $7,085,089, current assets of $589,930, total liabilities of
$1,699,649 and available cash of $150,687. During fiscal 1998, TPI issued
convertible debentures with two private placement investors sponsored by Thomson
Kernaghan a registered broker dealer. The convertible debt will
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require the issuance of common stock at date of conversion, not cash resources
of TPI. TPI will 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 TPI's ability to expand
its operations. There can be no assurance that equity capital will be available
to TPI on acceptable terms or at all. In addition, TPI's auditors, in their
report on TPI's financial statements as of July 31, 1998 and for the period then
ended, have expressed substantial doubt as to TPI's ability to continue as a
going concern.
YEAR 2000 ISSUES
BACKGROUND. Some computers, software, and other equipment include programming
code in which calendar year data is abbreviated to only two digits. As a result
of this design decision, some of these systems could fail to operate or fail to
produce correct results if "00" is interpreted to mean 1900, rather than 2000.
These problems are widely expected to increase in frequency and severity as the
year 2000 approaches, and are commonly referred to as the "Year 2000 Problem."
ASSESSMENT. The Year 2000 Problem could affect computers, software, and other
equipment used, operated, or maintained by the Company. Accordingly, the Company
is reviewing its internal computer programs and systems to ensure that the
programs and systems will be Year 2000 compliant. The Company presently believes
that its computer systems will be Year 2000 compliant in a timely manner.
However, while the estimated cost of these efforts are not expected to be
material to the Company's financial position or any year's results of
operations, there can be no assurance to this effect.
The Company has obtained certification of its processes to assess Year
2000 Problems from the Information Technology Association of Canada (ITAC).
Because the Company's business involves software development, the Company has
not sought further verification or validation by independent third parties of
its corrections of Year 2000 Problems. However, the Company's Year 2000 project
team is reviewing the Company's project plans and monitoring progress against
those plans.
SOFTWARE SOLD TO CONSUMERS. The Company believes that it has substantially
identified and resolved all potential Year 2000 Problems with any of the
software products, which it develops and markets. However, management also
believes that it is not possible to determine with complete certainty that all
Year 2000 Problems affecting the Company's software products have been
identified or corrected due to complexity of these products and the fact that
these products interact with other third party vendor products and operate on
computer systems which are not under the Company's control.
INTERNAL INFRASTRUCTURE. The Company believes that it has identified
substantially all of the major computers, software applications, and related
equipment used in connection with its internal operations that must be modified,
upgraded, or replaced to minimize the possibility of a material disruption to
its business. The Company has commenced the process of modifying, upgrading, and
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replacing major systems that have been identified as adversely affected, and
expects to complete this process before the end of 1998.
SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS. In addition to computers and
related systems, the operation of office and facilities equipment, such as fax
machines, photocopiers, telephone switches, security systems, elevators, and
other common devices may be affected by the Year 2000 Problem. The Company is
currently assessing the potential effect of, and costs of remediating, the Year
2000 Problem on its office and facilities equipment.
The Company estimates the total cost to the Company of completing any
required modifications, upgrades, or replacements of these internal systems will
not have a material adverse effect on the Company's business or results of
operations. This estimate is being monitored and will be revised as additional
information becomes available.
SUPPLIERS. The Company has initiated communications with third party suppliers
of the major computers, software, and other equipment used, operated, or
maintained by the Company to identify and, to the extent possible, to resolve
issues involving the Year 2000 Problem. However, the Company has limited or no
control over the actions of these third party suppliers. Thus, while the Company
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 the Company 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 the Company's business,
financial condition, and results of operation.
MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS. The Company expects to identify
and resolve all Year 2000 Problems that could materially adversely affect its
business operations. However, management believes that it is not possible to
determine with complete certainty that all Year 2000 Problems affecting the
Company have been identified or corrected. The number of devices that could be
affected and the interactions among these devices are simply too numerous. In
addition, one cannot accurately predict how many Year 2000 Problem-related
failures will occur or the severity, duration, or financial consequences of
these perhaps inevitable failures. As a result, management expects that the
Company could likely suffer the following consequences:
1. a significant number of operational inconveniences and inefficiencies
for the Company and its clients that may divert management's time and
attention and financial and human resources from its ordinary business
activities; and
2. a lesser number of serious system failures that may require significant
efforts by the Company or its clients to prevent or alleviate material
business disruptions.
CONTINGENCY PLANS. The Company is currently developing contingency plans to be
implemented as part of its efforts to identify and correct Year 2000 Problems
affecting its internal systems. The
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Company expects to complete its contingency plans by September 1999. Depending
on the systems affected, these plans could include accelerated replacement of
affected equipment or software, short to medium-term use of backup equipment and
software, increased work hours for Company personnel or use of contract
personnel to correct on an accelerated schedule any Year 2000 Problems that
arise or to provide manual workarounds for information systems, and similar
approaches. If the Company is required to implement any of these contingency
plans, it could have a material adverse effect on the Company's financial
condition and results of operations.
Based on the activities described above, the Company does not believe
that the Year 2000 Problem will have a material adverse effect on the Company's
business or results of operations.
DISCLAIMER. The discussion of the Company's efforts, and management's
expectations, relating to Year 2000 compliance are forward-looking statements.
The Company's ability to achieve Year 2000 compliance and the level of
incremental costs associated therewith, could be adversely impacted by, among
other things, the availability and cost of programming and testing resources,
vendors' ability to modify proprietary software, and unanticipated problems
identified in the ongoing compliance review.
INFLATION
TPI believes that the impact of inflation and changing prices on its
operations since commencement of operations has been negligible.
SEASONALITY
TPI does not deem its revenues to be seasonal. Nevertheless revenues
may be affected by the budgeting practices of corporate end-users of IT. Such
companies tend to make IT expenditures early in their fiscal year, when new
budgets have been approved, or late in their fiscal year, to protect previously
budgeted expenditures. In addition, the performance of Year 2000 remediation
services may reduce the amount of revenues TPI would otherwise generate from the
performance of client/server migration services and affect TPI's ability to
service such business. TPI believes that the potential reduction of
client/server migration revenues will be more than offset by revenues generated
by the performance of Year 2000 remediation services and the opportunity to
cross-sell other services to consumers.
BUSINESS
In April 1996, Messrs. Paul G. Mighton, Gary G. McCann and Vladimir
Stepanoff (the "Founders") caused Transformation Processing Inc. ("TPI-Ontario")
to be incorporated under the laws of the Province of Ontario, Canada. The
purpose of TPI-Ontario was to provide computer related services using computer
software that incorporated software technology previously developed by Mr.
Stepanoff. In July 1996, Mr. Stepanoff assigned his rights to a copyright
covering that software technology to TPI-Ontario in exchange for a one-third
interest in TPI-Ontario. TPI
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recorded software marketing rights at the fair value of the shares of common
stock and notes issued to unrelated third parties, in order to obtain certain
rights from these parties.
On August 20, 1996 (the "Closing Date"), the Founders, as holders of
all of the outstanding common stock of TPI-Ontario, entered into an agreement
with Samuel Hamann Graphix, Inc., a Nevada corporation ("SHG-Nevada"), whereby
the Founders exchanged their shares of TPI-Ontario for an aggregate of 5,901,050
shares of the common stock of SHG-Nevada. As a result of this transaction, which
was accounted for as a reverse acquisition, TPI-Ontario became a wholly owned
subsidiary of SHG-Nevada and the Founders acquired control of SHG-Nevada. On the
date of the reverse acquisition, SHG-Nevada had not conducted any business
operations.
SHG-Nevada was incorporated on August 7,1996, and had been formed for
the purpose of merging with and into Samuel Hamann Graphix, Inc.
("SHG-California"), a California corporation with publicly traded shares, with
SHG-Nevada as the surviving entity, in order to change the domicile of
SHG-California from California to Nevada (the "Merger"). On the Closing Date the
Founders were informed, and subsequent inquiry revealed, that although
SHG-California and SHG-Nevada had entered into an agreement and plan of merger,
dated August 14, 1996 (the "Merger Agreement"), the Merger Agreement stipulated
that the Merger would not be effective until approval of the Merger Agreement by
the parties and the filing of articles of merger with the Secretary of State of
the State of Nevada. While the Merger Agreement had apparently been approved by
both parties, the articles of merger had not been filed with the State of Nevada
nor had articles of merger been filed with the State of California, as
stipulated by California law. In order to effect the merger of TPI-Ontario into
SHG-Nevada, the Merger had to be completed by making the required filings. Those
filings were made in July 1997. In March 1997, SHG-Nevada amended its articles
of incorporation to change its name to Transformation Processing Inc. ("TPI").
In February 1998, TPI merged its wholly-owned subsidiary, TPI-Ontario, into TPI
with TPI as the surviving entity. In June 1998, TPI finalized the merger with
SHG-California, merging it into TPI with TPI as the surviving entity.
TPI is a development stage company. TPI's business consists of
providing computer-related services to corporate customers in Canada and the
United States. TPI currently groups the services it offers as follows:
client/server migration services, year 2000 ("Year 2000") remediation services
and groupware services.
CLIENT/SERVER MIGRATION SERVICES. TPI has developed software for the
automatic migration of "legacy" computer application source code and data used
on past and current IBM "mid-range" computers (often referred to as
"minicomputers," as compared to desktop or microcomputers) to a format
compatible with a wide range of open "client/server" computing systems from
various manufacturers. A client/server system is a network consisting of a
"server" computer and one or more "client" computers in which processing, data
storage and accessibility to data bases are shared among the individual
computers comprising the network. TPI provides transformation services,
utilizing TPI's migration software, and support services to end-users seeking to
transform their closed proprietary systems to open client/server systems.
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BACKGROUND. Historically, the information technology ("IT") industry
has lacked consistent industry standards. Major vendors of computer hardware and
software products designed and sold proprietary products, which often were not
compatible with those offered by other vendors. This had the effect of locking
customers into a line of products offered by a single vendor controlled by a
small number of specialized employees, which made changing to a competitive
vendor, or the mixing and matching of products from a variety of vendors,
extremely difficult or impossible. Over time, the inability of most computer
manufacturers to provide all the software necessary to keep pace with the
evolution of technology led to the adoption of cross-industry standard software
and the advent of enterprise-wide "open" networks. These industry changes,
combined with the demand for more competitive and cost effective systems, have
caused a shift from the older proprietary systems (known as "legacy systems" in
IT terminology) to open, client/server systems. TPI believes that the management
of most large business organizations will migrate a substantial portion of their
existing application software to client/server systems, because such systems are
recognized as the best IT infrastructure for current business realities and
objectives. International Data Corporation, an IT industry analyst, predicts
that, in one form or another, 85% of application software will be client/server
enabled by the Year 2010.
TPI believes that most corporate information still resides on closed
legacy systems, consisting of a centralized "mainframe" or mid-range computer
and a group of remote "dumb" terminals (i.e., a keyboard and monitor having no
local processing power, used to enter data into the central computer). Closed
mainframe systems usually utilize MVS operating systems developed by IBM and
"external binary coded decimal interchange code" computer languages to store and
retrieve data. These types of older computer languages do not comply with the
American Standard Code for Information Interchange ("ASCII," pronounced
"Ask-Key"), a computer code which is the international standard for
client/server systems. As compared to the newer open systems, legacy systems
require a great deal of expertise to access, do not facilitate information
sharing, are slow to access and are increasingly expensive to maintain. Users
that decide to migrate to open client/server systems are faced with the problem
that a significant percentage (TPI believes as much as 80%) of the proprietary
code in existing application and data files is incompatible with the new open
systems. Large organizations usually have many different types of computers
utilizing many different operating systems and languages and different sets of
data bases and files. The rapid deployment of client/server systems and desktop
computers, which utilize Windows NT-Registered Trademark-, Windows 95-Registered
Trademark-, Windows 3.x-Registered Trademark-, Novell NetWare -Registered
Trademark- and OS/2-Registered Trademark- operating systems and languages, has
created a communications barrier between mainframe computers operating on MVS
and mid-range computers utilizing UNIX-Registered Trademark-, AS/400-Registered
Trademark- and DEC operating systems, on the one hand, and client/server
networks utilizing desktop computers, on the other. TPI believes that the
ability of users to access mainframe and mid-range computer data and files has
become a critical factor in an organization's daily operations. Different
computing systems (and operating systems) must be able to communicate with each
other.
A complete re-write of legacy code for a mainframe computing system
usually requires the transformation of millions of lines of code ("LOC"). A
single computer programmer is generally
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capable of rewriting about 10 LOC per day, making this approach time-consuming,
financially impracticable and lacking any degree of certainty of achieving a
high-quality product.
TPI believes that a large market has developed for software services
which will enable mainframe and midrange computers to seamlessly connect to
client/server systems. Existing applications and data that are important to an
organization's operations must be transformed to a format that is compatible
with the new open systems. Accordingly, there is a demand for transformation
services that will automatically migrate a user's critical applications and data
currently residing in legacy code, into code that is compatible with the new
open client/servers systems.
Traditional approaches to migration software have included
"emulation"(sometimes called "re-hosting") and "conversion." Emulation moves
application code and data to a new hardware system by simulating the original
legacy environment by hardware or software means. Under the emulation approach,
data is only accessible through legacy logic and, in essence, the new hardware
simply mimics the old hardware. The conversion method essentially converts one
legacy computer language to another (e.g. "RPG" to "COBOL") and runs in the same
fashion as the original system with few architectural improvements or new
benefits to the end-user. TPI believes that the emulation and conversion methods
have been generally found to be unsatisfactory in meeting corporate objectives.
SERVICES OFFERED. TPI offers transformation services which enable
companies to automatically migrate legacy application programs and data to any
open system environment, using technology which TPI believes to be superior to
that which is used in the emulation and conversion methods. TPI's software
disassembles existing application source code at the operating system level,
then automatically translates and reassembles the code so as to be useable in an
open system environment.
TPI's current migration software, the "TRANSFORM SERIES-TM-"addresses
the largest segment of the mid-range computer system market, the IBM mid-range
computer market (having an "installed-base" of over 500,000 (installations) and
includes TRANSFORM/3X-TM-, which addresses the IBM System 34 and System 36
market, and the TRANSFORM/400-TM-, which addresses the IBM System 38 and IBM
AS/400 market. Each of TPI's migration programs encompasses a battery of
automatic code translators which transform legacy application source code into
machine-independent code-components, except that certain application software
functions originally coded for particular functions, such as telecommunications,
graphics and office automation functions, may require manual adjustment and/or
redesign of the program. Software that has been automatically transformed using
the applicable Transform Series program and any software required to be manually
transformed must be integrated to assure that the automatically converted
software and the manually transformed software will function as a whole (the
"Transformed Software"). The Transformed Software will only execute on a
customer's client/server system in conjunction with TPI's software function
support products, offered under the trademark ORB/400-TM (also known as
"Deployment Products"). The Deployment Products
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consist of software that permits Transformed Software to execute on the "server"
computer ("Server Software") and software that permits users of the "client"
computers to access Transformed Software available on the server computer
("Client Software").
TPI typically provides transformation and support services pursuant to
a software conversion agreement. Such agreement provides that TPI will use its
migration software to automatically transform the customer's legacy source code
to a format that can be used by the customer's client/server system and, if
necessary, will manually transform ("rewrite") any of the customer's legacy code
that cannot be automatically transformed using the migration software. The
customer has the option to separately perform manual transformation. If the
customer elects this option, TPI disclaims responsibility for the integration of
the automatically transformed software and the rewritten software.
The pricing of software conversion agreements is dependent on the
number of lines of code ("LOC") to be converted. In the conversion process,
there are three fundamental components. First is project scoping or assessment,
secondly the translation phase and the final component is the testing and
implementation phase. TPI provides assessments to customers on a fixed price
basis. The assessment phase is priced according to the scope of the environment.
A typical system size would be in the area of 1,500,000 LOC priced at $10,000 to
$20,000. TPI has completed several assessments priced in this range.
Price proposals have been issued to numerous companies on the
translation phase. This pricing is done on a price per LOC. TPI's pricing in
this phase of a project will range between $0.50 to $0.70 per line of code.
Although TPI has not provided pricing to the market as it relates to the testing
phase, this area is typically priced on a time and materials basis. The median
gross amount payable under a typical software conversion agreement for an IBM
System 36 or AS/400 System would be approximately $500,000. Sales to smaller
sites will range from $100,000 to $200,000 and larger agreements are expected to
range from $700,000 to $1 million range. There can be no assurance that TPI will
be able to price such agreements as anticipated.
The Deployment Products are made available to a customer pursuant to
the software conversion agreement with such customer, provided the customer has
executed TPI's form of Deployment Product license agreement, which licenses the
customer to install one copy of the Server Software on its server computer and
to install a specified number of copies of the Client Software on its client
computers. A customer may install the Deployment Products on more than one
computer system provided it executes a separate license agreement for each such
computer system. Each license agreement provides for the payment of a one-time
license fee and annual maintenance fees.
Software support services, consisting of advice and assistance in the
use of the Transformed Software and the Deployment Products and the correction
of defects in the execution of such software, are available under each software
conversion agreement by telephone without additional charge during the 90 days
following delivery of the Transformed Software to the customer.
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Thereafter, support services are provided without additional charge so long as
the annual maintenance fees under the applicable license agreement are current.
Otherwise, customers requesting support services are charged TPI's applicable
hourly rate for professional services. TPI also offers other professional
services in connection with a customer's migration from a legacy system to a
client/server system, including consulting services to assist in the selection
of the optimum client/server environment and/or the implementation of a physical
assets (computer hardware)management system; education as to client/server
systems; and network and software skills training. These additional services are
provided under TPI's form of professional services agreement either at TPI's
applicable hourly rates for such services or a negotiated fee. Also, see
"Groupware Services" below.
BUSINESS STRATEGY. While TPI is offering its transformation and support
services directly to end-users, TPI believes that the largest percentage of its
revenues will be generated by providing transformation services to IT vendors in
the hardware, database and application software sectors of the IT industry ("IT
Vendors"). Such IT Vendors have many strategic partners who can enhance their
revenue potential by utilizing TPI's services to facilitate end-user migration
to, and the installation of, their products.
To implement this strategy,
- TPI plans to negotiate formal strategic alliances with
important IT Vendors having a vested interest in the migration
from IBM mid-range computer systems;
- to perform technology reviews with such IT Vendors;
participate in the first migration project with each such IT
Vendor;
- and gain access to, and acceptance from, strategic partners of
such IT Vendors by seeking to successfully complete each such
project.
There can be no assurance that TPI will be able to successfully
implement this strategy or that the implementation of such strategy will
generate significant revenues or income.
As discussed above, TPI's current transformation services address the
IBM mid-range computing device marketplace. TPI expects this marketplace to be
large enough to sustain TPI's business objectives for many years to come.
However, to assure long-term growth, TPI will have to enter the transformation
processing market for mainframe computing systems. The offering of services to
facilitate migration from mainframe systems would increase TPI's market.
Currently, TPI plans to enter this market by identifying the best software
migration toolsets developed by third parties and seeking to obtain licenses to
either use such software to perform transformation services for mainframe
customers and/or to customize and remarket such toolsets to mainframe customers.
TPI has identified several such software tools and is assessing their viability.
MARKETING AND SALES. The following factors will assist TPI to implement
its business strategy:
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(a) customer demand to move toward client/server systems appears to TPI
to be strong and customer awareness of the Year 2000 problem has focused
attention on the need to address problems inherent in legacy systems (see "Year
2000 Remediation Services," below);
(b) TPI believes, based on its knowledge of the industry, that no
competitor's migration software transforms legacy code to a client/server format
in as rapid, comprehensive and effective a method as TPI's software;
(c) TPI believes that if it positions itself as a provider of
transformation services in the migration process and as a facilitator for
strategic partners to sell their own products, TPI will not be perceived as a
competitive threat to the major IT Vendors with whom TPI may desire to negotiate
strategic alliances; and
(d) the marketplace is easily identified and targeted in terms of
end-users.
Given these factors, TPI expects to generate revenues from services and
software licenses as the result of service agreements with end-users and
strategic alliances it expects to enter into with major IT Vendors.
TPI hopes to generate awareness of its services through:
- the efforts of its in-house sales force and outside sales
representatives;
- implementation of its referral program (described below);
direct mail, especially to independent software vendors; and
- advertising in publications that are focused on TPI's market
(e.g., NEWS/400); targeted advertising, broadcasting and
corporate/services message delivery on the Internet.
The amount of time required to close a software conversion agreement
for a client/server migration project (from the time of submission of a proposal
to the prospective customer to execution of the contracts) varies depending on
the configuration of the customer's legacy system, the number of LOC to be
transformed and the target client/server system. Typically, a large project
takes longer to close than a smaller project. TPI anticipates that the sales
cycle for most of its client/server migration projects will be from three to
four months.
TPI anticipates that the sizes and volumes of its software conversion
agreements will increase over time as initial projects are secured and completed
and can serve as reference sites to validate the performance and functionality
of TPI's services and software for prospective customers (the "Referral
Program"). TPI anticipates that its Referral Program will result in shorter
closing times for agreements and increased market penetration. There can be no
assurance that TPI will obtain any agreements through implementation of its
Referral Program. See "Year 2000 Remediation Services - Marketing And Sales" as
to TPI's plan to use Year 2000 projects to cross-sell post-Year 2000
client/server migration projects.
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TPI's sales force currently consists of three sales persons who are
employees and report to TPI's Director of Sales. Such employees are compensated
on a salary plus commission basis. To augment its sales force, TPI has entered
into Referral Program agreements with MCW Business Systems Ltd. ("MCW"), a
company that provides sales representation services in Canada, and Y2K Plus Inc.
("Y2K"), a company that provides sales representation services in the United
States. Under such agreements, MCW and Y2K personnel will receive extensive
training relating to TPI services. MCW and Y2K use an "account management team"
approach to the provision of hardware, software and professional services and
have committed to offering TPI services through account executives located
throughout Canada and the United States. The Referral Program agreements provide
that each of MCW and Y2K will be compensated based on a percentage of the fees
charged for referrals of new customers that result in the execution of service
agreements with such customers which are fully performed by TPI.
YEAR 2000 REMEDIATION SERVICES
TPI offers Year 2000 remediation consulting and training services to
commercial and industrial end-users of mainframe and mid-range computing
systems. Currently, TPI is targeting manufacturing companies and companies in
the financial, insurance and healthcare industries.
BACKGROUND. Adding impetus to the demand for transformation services
has been the inability of many computer systems to properly interpret dates for
the Year 2000 and beyond. This is a pervasive, time-critical problem confronting
the computer user community as a whole. The essence of the problem is simple.
System components that store the year within a date as a two-digit number (a
standard even in client/server systems) are unable to properly process
transactions with dates beyond 1999. Many application programs that use
projected dates are failing at present, and without timely and apt management of
this problem, entire computer systems could be adversely affected.
Year 2000 remediation is, in essence, a mammoth project that has been
avoided or ignored for the past 20 years. A mid-range computer utilizes one to
two million LOC, while many mainframe computers utilize tens of millions of LOC.
If such code is to be utilized in the Year 2000 and thereafter, it all must be
scanned and date impacted LOC must be "repaired". The Securities and Exchange
Commission ("SEC") has estimated that the cost to U.S. corporations to resolve
the problem to be in excess of $600 billion. The entry of TPI into the Year 2000
remediation services business was a natural adjunct to its client/server
migration software business.
SERVICES OFFERED. In March 1997, TPI decided to offer Year 2000
remediation services. TPI initially decided to offer "scan and repair" services
to companies requiring Year 2000 remediation services, as a subcontractor to IT
Vendors providing Year 2000 project management remediation services. Such
services were to be rendered commencing in September 1997 at a scan and repair
"factory" to be located at TPI's facility in Mississauga, Ontario. The decision
was also made not to develop a Year 2000 conversion toolset based on TPI's
existing proprietary technology, but to
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continuously search for, and seek to license, the best available Year 2000
software remediation tools. More recently, TPI has observed that while there is
no shortage of Year 2000 software conversion tools, there is a significant
demand for the application of state-of-the-art project management methodologies
that permit Year 2000 conversion projects to be performed in the shortest
possible time, in some cases at a fixed cost, and with the least disruption to a
customer's continuing operations. Accordingly, TPI decided to offer a full range
of services, based largely on the project management methodology it employs in
providing client/server transformation services.
TPI now offers the following Year 2000 remediation services:
Rapid Assessment and Delivery for Year 2000-SM- ("RAD/2000"), which
involves the application of an accelerated project management methodology and
the best available software tools (as determined by TPI) to assess, remediate,
deliver and test Year 2000 compliant systems in 60 to 90 days cycles, using
small groups or "cells" of software professionals working in parallel on desktop
computers (rather than on the customer's mainframe or mid-range computing
system) to achieve assessment and remediation of the application source code.
This solution is "iterative" in that knowledge gained from each phase of
remediation, delivery and testing will be continuously used to refine the
assessment phase of a project plan.
Mobile Lab/2000-SM entails the establishment at a customer's premises,
within a period of six weeks, for a fixed price, of a Year 2000 remediation
facility specifically designed to meet the customer's Year 2000 requirements.
The center can be connected to a customer's network or established as an
independent group, using the customer's newly acquired or existing technology,
and have the customer's staff support the project or have TPI manage the
project. TPI believes that the fixed cost of this solution will be attractive to
most customers because over the next two years the demand for Year 2000
remediation services will far exceed the supply and the price for such services
will rise significantly as January 1, 2000 gets closer. In addition, the
Mobile/Lab 2000 solution does not require the removal of application source code
and data from the customer's premises.
Boot Camp/2000-SM- is a five week training course offered by TPI, that
can be conducted at TPI's facility in Mississauga, Ontario or at a customer's
premises, for the purpose of training the customer's existing IT personnel to
support the customer's Year 2000 project. The course involves four weeks of
classroom training and one week of apprenticeship training in the application of
TPI's RAD/2000-SM- methodology and licensed software tools to the customer's
Year 2000 project. TPI believes that this is the appropriate solution for
customers that cannot recruit a sufficient number of already qualified personnel
to staff its Year 2000 project.
Mobile Lab/2000-SM and Boot Camp/2000-SM- are based on the concept
that, wherever possible, existing technology and personnel should be deployed
while maintaining a reasonable cost structure.
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TPI has entered into a strategic affiliation arrangement with Allegiant
Legacy Solutions, Inc. ("ALS") pursuant to which TPI licenses, on a
non-exclusive basis, the right to use and sublicense the use of Adapt 2000-TM-
software remediation tools developed by ALS. The term of the license is one year
and automatically renews upon payment and acceptance of the annual renewal fee.
TPI is authorized under its agreements with ALS to use the Adapt 2000 software
to perform Year 2000 remediation services and to relicense the software to
end-users at such license fees as TPI may determine. If TPI utilizes Adapt 2000
to perform Year 2000 remediation services it is obligated to process a minimum
of two million LOC per year for a three year period at each site at which it
performs remediation services and to make quarterly royalty payments to ALS
based on the number of LOC processed. If TPI sublicenses the Adapt 2000 software
it is required to pay ALS 50% of the scheduled LOC fee and 50% of ALS's listed
one-time license fee of $12,900.
TPI has also entered into an informal strategic alliance with Deevan
Computer Services Inc. ("Deevan"), an IT consulting company that provides asset
management services to end-users, to offer hardware evaluation and procurement
services under the name Asset/2000-SM-. Deevan has informed TPI that 60% of the
computer hardware currently in use is not Year 2000 compliant and must be either
replaced or repaired and that 10% of existing hardware cannot be repaired.
Deevan will offer Year 2000 computer hardware evaluation, procurement and
installation services in conjunction with the software remediation services
offered by TPI.
BUSINESS STRATEGY. TPI's strategy is to position itself as a provider
of Year 2000 remediation services over the next 14 months so as to take
advantage of what TPI deems to be a significant opportunity to attain
accelerated growth, ordinarily difficult to attain under normal IT industry
conditions. Over such period, TPI estimates that revenues generated by Year 2000
remediation services will represent in excess of 50% of gross revenues. Year
2000 services will continue to be provided well past the year 2000. There can be
no assurance, however, that TPI will be able to successfully implement this
business strategy or, if it is able to gain a share of the Year 2000 services
market, that it will realize the anticipated growth in revenues.
MARKETING AND SALES. TPI intends to implement substantially the same
marketing and sales plan described under the caption "Client/server Migration
Services - Marketing And Sales" to access the market for Year 2000 remediation
services, e.g., TPI will seek to utilize strategic business relationships with
IT Vendors and the implementation of its Referral Program to access the market.
TPI believes also, that to the extent it is selected to perform major Year 2000
remediation projects and successfully completes such projects, it will be in a
preferred position to be selected to perform post-Year 2000 client/server
migration projects by the same customers, by reason of knowledge of the computer
systems and businesses of such customers gained by TPI in performing such
projects, and by prospective customers, based on TPI's demonstrated ability to
successfully implement major conversion projects. However, there can be no
assurance that TPI will be selected to perform any major Year 2000 remediation
projects or, if selected, that it will be able to successfully implement such
projects. Moreover, there can be no assurance that the Company will be selected
to perform any major post-Year 2000 projects.
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GROUPWARE SERVICES
Groupware is a type of software designed to allow users on a
client/server network to use the same software and work on the same project at
the same time. Notes-Registered Trademark- ("Notes") is a groupware product of
Lotus Development Corporation, an IBM subsidiary ("Lotus"), that, among other
applications, allows users to work on the same document and exchange electronic
mail. Notes permits the integration of information from desktop computer
applications, relational databases, legacy systems and the World Wide Web. Notes
contains an application development environment, a document database and
sophisticated messaging system which permit the development of custom
applications for improving business processes in areas such as product
development, customer service, sales and account management.
TPI has entered a "business partner" agreement with Lotus, pursuant to
which TPI has been designated a "Consultant." As a Consultant, TPI undertakes to
promote the sale of Lotus products and is authorized to provide business process
or technology consulting and custom application development services using Lotus
technologies. As a business partner, TPI is required, among other things, to use
Lotus products internally, be connected to Lotus electronically via the Lotus
Notes Network/Partner Information Network and have a "certified Lotus
professional" on staff. Lotus provides TPI with software development tools,
information, marketing services and support .
TPI has also entered into a value-added reseller agreement with
IntellAgent Control Corporation ("ICC"), a provider of sales force automation
software, which has appointed TPI as a non-exclusive distributor in the United
States for such software, which runs on Lotus Notes. Such software includes
artificial intelligence-like features which enables the marketing and sales
personnel of an organization to obtain the latest data concerning a customer or
sales prospect stored in any database on the organization's enterprise-wide
computer system. TPI has acquired a license for such software product from ICC
and the right to grant sublicenses of the product, and provide custom
application development and support services with respect to such product to
end-users.
Groupware services consist of consulting, analysis, custom application
software development and implementation of Notes software solutions and specific
application programs which operate in the Notes environment and the training of
customer personnel in the use of such software.
Groupware services are rendered under TPI's form of professional
services agreement at fees based on time and materials estimated to be expended
by TPI in the performance of such services plus a reasonable profit.
BUSINESS STRATEGY. Since TPI's core business is to assist customers to
migrate to open client/server systems, TPI believes it can enhance its ability
to attract customers for its core business and increase its revenues by
assisting such customers with the development of application software that can
greatly enhance the use and productivity of their client/server systems. TPI
believes that
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<PAGE>
the rights it has obtained under its agreements with Lotus and ICC will enable
it to implement such strategy.
MARKETING AND SALES. TPI intends to implement substantially the same
marketing and sales plan for Groupware Services as is described under the
caption "Client/Server Migration Services - Marketing And Sales". TPI is
currently developing a sales strategy and partnering plan with ICC which TPI
believes will increase its Notes sales force automation software business. TPI
anticipates that sales referrals will come from both ICC, the Toronto offices of
Lotus and the implementation of its Referral Program. In addition, the Company
intends to sponsor information seminars to create interest and generate sales
leads.
BACKLOG. Since TPI is primarily a provider of services, it does not
deem purchase order backlog to be material to its operations.
COMPETITION. The market in which TPI competes is characterized by
intense competition. TPI faces competition from other providers of
computer-related services, most of which have significantly greater financial,
technological, marketing and personnel resources than TPI. In addition, TPI
believes that the significant size of the market for legacy code transformation
services and Year 2000 remediation services will lead to the emergence of a
number of additional competitors. TPI's competitors include Keane Computer, IBM,
Cap Gemini, Viasoft Solutions, LGS Group and many others.
There are currently over one hundred companies providing Year 2000
remediation services in the United States and Canada. Most do not offer the
range of services provided by TPI, but rather only one or two discrete services.
Moreover, there is a consensus in the IT industry that the demand for Year 2000
remediation services is so great, and the available remediation resources are so
limited, that all of the necessary remediation cannot be completed by January 1,
2000.
The markets for computer-related services are characterized by rapidly
changing technology and evolving industry standards, often resulting in the
obsolescence of software and related services or short life cycles for software
and related services. While TPI is not currently aware of any competitor
offering client/server migration services that transforms legacy codes to a
format usable in client/server systems as rapidly and comprehensively as TPI's
software, the development of technologies that might adversely affect the market
for client/server systems or that permit the development of software that
outperforms TPI's software could have a material effect on TPI's potential
market share and revenues.
TPI believes that it competes on the basis of the value to its markets
of its proprietary software and project management methodology and its
comprehensive offering of computer-related services. Furthermore, TPI is
constantly seeking to acquire and develop new services and products and to
further develop and enhance its existing software. TPI's success will depend on
its continued ability to provide needed information technology and to
successfully market its services.
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<PAGE>
INTELLECTUAL PROPERTY
In July 1996, TPI-Ontario acquired the intellectual property rights for
"IBM midrange migration tools" software from Vladimir Stepanoff, Vice
President-Technology and a director of TPI. All enhancements of such software
are wholly-owned by TPI.
Prior to April 1, 1996, TPI's date of incorporation, Mr. Stepanoff
entered into an agreement with Raconix Corporation ("Raconix") pursuant to which
he granted certain rights in such technology. To obtain clear title to such
technology, as of the Closing Date, TPI issued 455,000 shares of common stock to
Jaford Holdings Ltd. and 100,000 shares of common stock and a promissory note in
the principal amount of $72,500 to Innovations Ontario Corp. (which companies
had liens on such marketing rights) and 150,000 shares of common stock and a
promissory note in the principal amount of $116,000 to Ronald Content as
successor in interest to Raconix.
TPI does not have any patents or registered copyrights to protect its
proprietary technology. In addition, none of the trade or service marks utilized
by TPI are registered with any United States or foreign trademark registry. TPI
employs various methods to protect its technology and the associated
documentation including confidentiality agreements with its employees and
license agreements with its customers and strategic partners. Such methods may
not afford adequate protection and there can be no assurance that others will
not independently develop such technology or software incorporating technology
that significantly out performs TPI's software.
EMPLOYEES
As of April 30, 1999, TPI employed 24 persons, all of whom are
full-time, of which three are executive officers, four are engaged in marketing
and sales, three are engaged in administration and the balance are technical
personnel engaged in providing TPI's computer-related services. TPI considers
its relations with its employees to be satisfactory.
FACILITIES
TPI currently sub-leases approximately 14,652 square feet of office and
production space (the "Sub-leased Premises") in Mississauga, Ontario from Origin
Technology in Business Inc., under a sublease expiring on October 30, 2000 at an
annual rental of approximately $144,000 which includes real estate taxes,
utility and operating costs allocable to the Sub-leased Premises. Origin
Technology is not affiliated in any way with TPI, its officers, directors or
principal shareholders.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a Registration Statement on Form SB-2 that
we filed with the SEC. This prospectus does not contain all information set
forth in the Registration Statement, part of which has been omitted in
accordance with the rules and regulations of the SEC. For further information
about TPI and the securities offered hereby, reference is made to the
Registration Statement, copies of which are available for inspection from the
SEC, including the exhibits filed as a part thereof and otherwise incorporated
therein. Statements made in this prospectus as to the contents of any document
referred to are not necessarily complete, and in each instance reference is made
to such exhibit for a more complete description and each such statement is
qualified in its entirety by such reference.
TPI is subject to the informational reporting requirements of the
Securities Exchange Act of 1934. In accordance with the Securities Exchange Act,
we file reports and other information with the SEC. Such reports, proxies and
other information can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington D.C.
20549 and the Regional Offices of the SEC at 7 World Trade Center, Suite 1300,
New York, New York 10048, and 500 West Madison, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained at prescribed rates by writing to
the Securities and Exchange Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549. Information concerning the operation of
the public reference room may be obtained by calling the SEC at 1-800-SEC-0330.
The SEC maintains a web site (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS. The names, ages and respective
positions of the Executive Officers and Directors of TPI are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Paul G. Mighton 47 Chairman of the Board of
Directors and Chief
Executive Officer
Warren P.A. Strutt 30 Chief Financial Officer
Vladimir Stepanoff 57 Vice President -
Technology and Director
</TABLE>
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<PAGE>
PAUL G. MIGHTON served as Chairman of the Board of Directors and Chief
Executive Officer of TPI-Ontario from its date of incorporation in April 1996
until TPI-Ontario was merged into TPI in February 1998 and has served in the
same positions with TPI since August 1996. From February 1995 to June 1996, Mr.
Mighton served as Executive Vice President and Chief Operating Officer of
Agensys Canada Limited ("ACL"), an information technology ("IT") company. From
April 1993 to February 1995, he served as a Vice President of Co-Operators Data
Services Canada Ltd., a provider of IT services, in its Systems Services
Division. From 1991 to April 1993, Mr. Mighton was National Director of the
Healthcare Systems Division of Information Systems Management Corporation, a
Canadian company and a provider of data processing services to health care
organizations.
VLADIMIR STEPANOFF has served as Vice President-Technology and a
director of TPI since August 1996 and held the same positions with
TPI-Ontario from April 1996 until it was merged into TPI in February 1998.
From April 1994 to August 1996, he served as President and director of
CyberPlan Inc., a Canadian-based company engaged in the development and
licensing of automatic transformation software. Mr. Stepanoff was the founder
of CyberPlan, Inc., which was the successor to CyberPlan Enrg., a firm of
which Mr. Stepanoff was the sole proprietor from 1984 to April 1994.
CyberPlan Enrg. developed the transformation software which CyberPlan Inc.
continued to develop and license. Mr. Stepanoff has a Bachelor of Science
Degree (with Honors) in mathematics and physics from the University of
British Columbia.
WARREN P. A. STRUTT has served as Chief Financial Officer of TPI since
April 27, 1999. From November 1998 until April 26, 1999, he served as Director
of Finance for TPI. From January 1997 until November 1998 Mr. Strutt served in
the position of Controller for Alliance Cables Inc., a Canadian distributor in
the wireless communication industry. From May 1995 until January 1997 Mr. Strutt
served as Accounting manager for BGS Bearings & Equipment Limited, a Canadian
distributor in the motion control industry. From May 1992 until May 1995, he
served as Senior Financial Accountant for Maritz Canada Inc., a Canadian
subsidiary of Maritz Inc., a company in the service industry providing
performance improvement solutions for Fortune 500 companies. Mr. Strutt holds a
Certified Management Accountant (CMA) degree issued in September 1995. He
graduated from Sheridan College of Applied Arts and Technology in June of 1989
with a diploma in Business Administration - Accounting Major.
All directors hold office until the next annual meeting of stockholders
of TPI and the election and qualification of their respective successors.
Directors currently receive no cash compensation for serving on the Board of
Directors. Officers are elected annually by the Board of Directors and serve at
the discretion of the Board.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation
for TPI's Chief Executive Officer from August 7, 1996 (the date in which
TPI-Ontario merged into Samuel Hamann
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<PAGE>
Graphix, Inc.) through the completion of the fiscal year ended July 31, 1998. No
other officer received reportable remuneration.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Name of Fiscal Salary($) Bonus($) Other Annual Restricted Securities Long-Term All Other
Individual and Year Compensation Stock Underlying Incentive Compensation
Principal Position ($) Award($) options/SARs Plan ($)
(#) Payouts(#)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul G. Mighton 1998 $110,000 -0- -0- -0- -0- -0- $ -
Chairman of the
Board and Chief
Executive Officer
1997 $79,264 -0- -0- -0- -0- -0- $ -
</TABLE>
The cost to TPI of personal benefits, including premiums for life
insurance and any other perquisites, to such executive does not exceed 10% of
such executive's annual salary and bonus.
COMPENSATION OF DIRECTORS
No compensation is paid by TPI to any of its directors for services in
such capacity. Currently, all of TPI's directors are executive officers of TPI.
EMPLOYMENT CONTRACTS
On January 1, 1997, TPI entered into employment agreements with
Messrs. Paul G. Mighton and Vladimir Stepanoff, TPI's executive officers. Such
agreements do not provide for a fixed period of employment and provide that an
employee's employment may be terminated at any time, without notice, for "cause"
(as defined in each agreement), or at any time, upon at least 30 days prior
notice, TPI or the employee may terminate such employment, and, without notice
upon payment of six months base salary and certain other amounts to the
employee, TPI may terminate such employee's employment. The agreements provide
for participation in employee benefit programs, vacation and reimbursement of
expenses, including for use of the employee's vehicle. Each of the agreements
contains provisions prohibiting the employee from competing with TPI for a
period of six months following termination of employment and from disclosing
confidential information of TPI while employed by TPI and thereafter.
Mr. Mighton's employment agreement provides that he will be paid an
annual salary of approximately $110,000; and Mr. Stepanoff's employment
agreement provides that he will be paid an annual salary of approximately
$66,000.
On April 27, 1999, TPI entered into an employment agreement with
Warren Strutt, TPI's Chief Financial Officer. The agreement does not provide for
a fixed period of employment and provides that the employee's employment may be
terminated at any time, without notice, for
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<PAGE>
"cause" (as defined in the agreement), or at any time, upon at least 30 days
prior notice, TPI or the employee may terminate such employment, and, without
notice upon payment of six months base salary and certain other amounts to the
employee, TPI may terminate such employee's employment. The agreements provide
for participation in employee benefit programs, vacation and reimbursement of
expenses, including for use of the employee's vehicle. The agreement contains
provisions prohibiting the employee from competing with TPI during the term of
his employment and from disclosing confidential information of TPI while
employed by TPI and thereafter. Mr. Strutt's employment agreement provides that
he will be paid an annual salary of approximately $62,000.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Name of Number of Percent of Total Exercise of Base Market Price on Expiration
Individual Securities options/SARs Price ($/Share) Day of Grant Date
Underlying Granted to
options/SARs Employees in
Granted Fiscal Year
<S> <C> <C> <C> <C> <C>
None
</TABLE>
Aggregated Option/SAR Exercise in Last Fiscal Year and Fiscal Year End
Option/SAR Values.
<TABLE>
<CAPTION>
Name of Shares Acquired on Value Realized Number of Securities Value of
Individual Exercise (#) Underlying Unexercised Unexercised In-
options/SARs at Fiscal The-Money
Year End (#) Exercisable/ options/SARs at
Unexercisable Fiscal Year End ($)
Exercisable/
Unexercisable
<S> <C> <C> <C> <C>
None
</TABLE>
1998 STOCK OPTION PLAN
TPI has established the 1998 Stock Option Plan (the "1998 Plan"). The
1998 Plan is intended to provide the employees and directors of TPI with an
added incentive to continue their services to TPI and to induce them to exert
their maximum efforts toward TPI's success. The 1998 Plan provides for the grant
of options to directors and employees (including officers) of TPI to purchase up
to an aggregate of twenty percent (20%) of the number of shares of common stock
in the capital of TPI issued and outstanding from time to time less any shares
of common stock reserved, set aside and made available pursuant to the terms of
TPI's employee share purchase plan (the "Share Purchase Plan") and pursuant to
any options for services rendered to TPI. The number of shares of common stock
subject to options granted to any one person under the Plan, the Share Purchase
Plan and options for services rendered to TPI may not at any time exceed five
percent (5%) of the outstanding shares of common stock. The 1998 Plan is
currently administered by the Board of Directors. The Board determines, among
other things, the persons to be granted options
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<PAGE>
under the 1998 Plan, the number of shares subject to each option and the option
price.
The 1998 Plan allows TPI to grant non-qualified stock options
("NQSO's") not intended to qualify under Section 422(b) of the Internal Revenue
Code of 1986, as amended. The exercise price of NQSO's may not be less than the
fair market value of the common stock on the date of grant. Options may not have
a term exceeding ten years and are not transferable, except upon the death of
the optionee.
On November 30, 1998, Warren Strutt was granted options to purchase
50,000 shares of common stock exercisable at $.27 per share terminating on
November 29, 2008. The options vest on November 29, 1999.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
TPI's Certificate of Incorporation provides for indemnification of
directors in conformity with Section 78.7502 of the Nevada Corporation Law, as
amended (the "NCL"), which authorizes TPI to indemnify any director under
certain prescribed circumstances and subject to certain limitations against
certain costs and expenses, including attorneys' fees actually and reasonably
incurred in connection with any action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which such person is a party by
reason of being a director of TPI if it is determined that such person acted in
accordance with the applicable standard of conduct set forth in such statutory
provisions.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of TPI
pursuant to the foregoing provisions or otherwise, TPI has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
CERTAIN TRANSACTIONS
In consideration for the transfer to TPI of the ownership interest in
certain technology and certain services provided to TPI, TPI issued 4,936,050
and 965,000 shares of common stock to Joter Holdings ("Joter") and Diversified
Technologies Ltd.("DTL") (such shares were issued in exchange for shares of
TPI-Ontario on August 20, 1996), respectively, which held such shares as
nominees for the benefit of the following executive officers and directors of
TPI: Paul Mighton, and Vladimir Stepanoff and John McGee and Gary G. McCann,
former executive officers and directors. See "Security Ownership of Certain
Beneficial Owners and Management."
From August 1, 1996 through July 11, 1997, TPI made advances to Messrs.
Paul G. Mighton and Vladimir Stepanoff, executive officers, directors and
principal stockholders of TPI and to Gary G. McCann a former executive officer
and director, aggregating $115,227. On July 31, 1997, Messrs. Mighton, McCann
and Stepanoff executed demand promissory notes payable to TPI in the
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<PAGE>
respective principal amounts of $61,452, $37,829 and $15,946, representing the
aggregate amounts borrowed by such persons from TPI. The notes bear interest at
the annual rate of 4%. The advances made to Messrs. Mighton and McCann were
subsequently written off by TPI and were accounted for as officers'
compensation.
TPI has paid for the account of Mantis Information Technology Ltd
("Mantis"), a corporation of which Gary G. McCann is the sole stockholder,
certain obligations for consulting services incurred by Mantis and has rendered
invoices to Mantis in the aggregate amount of approximately $12,000 for funds
advanced. As of the date hereof, such invoices remain outstanding.
Messrs. Mighton, McCann, Stepanoff and McGee have personally guaranteed
the payment to a bank of certain purchase money equipment loans made to TPI by
such bank. The outstanding principal balance of the loans was approximately
$13,000 as of May 15, 1999. The loans bear interest at 2.5% over the bank's
prime rate in effect from time to time (currently 6.25% per annum). See
"Management's Discussion and Analysis or Plan of Operations -- Liquidity and
Capital Resources."
The officers of TPI have executed employment agreement with TPI. See
"Executive Compensation--Employment Contracts."
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 30, 1999, certain
information concerning those persons known to TPI, based on information obtained
from such persons, with respect to the beneficial ownership (as such term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of shares of
common stock, $.001 par value, of TPI by:
(i) each person known by TPI to be the owner of more than 5% of
the outstanding shares of common stock,
(ii) each director and executive officer of TPI and its
subsidiaries,
(iii) each executive officer named in the Summary Compensation
Table and
(iv) all directors and officers as a group:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percentage of Class (2)
- ---------------- -------------------- -----------------------
<S> <C> <C>
Diversified Technologies 1,533,367(3) 8.6%
Ltd.(1)
Vladimir Stepanoff (1) 1,633,683 9.2%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percentage of Class (2)
- ---------------- -------------------- -----------------------
<S> <C> <C>
Paul G. Mighton (1) 1,466,683 (3) 8.3%
Gary McCann (1) 1,416,684 (3) 8.0%
Warren Strutt (1) -0- (4) 0.0%
John G. McGee (1) 957,500 5.4%
All Directors and Officers as 3,100,366 (3) 17.5%
a Group (3 persons)
</TABLE>
(1) Unless otherwise noted, TPI believes that all persons named in the table
have sole voting and investment power with respect to all shares of common stock
beneficially owned by them. Each such person is deemed to be the beneficial
owner of shares of common stock held by such person (but not held by any other
person) on April 30, 1999, and any shares of common stock which such person has
the right to acquire pursuant to securities exercisable or exchangeable for, or
convertible into, common stock, within 60 days from such date. The address of
each beneficial owner is in care of TPI, Suite 2000, 5500 Explorer Drive,
Mississauga, Ontario, Canada.
(2) Based on 17,759,179 shares of common stock outstanding at the close of
business on April 30, 1999. TPI's records and the records of its transfer
agent differ with respect to the number of outstanding shares of TPI's common
stock. According to the transfer agent, the number of shares of common stock
outstanding is approximately 775,966 shares greater that the 17,759,179
indicated by TPI's records. TPI believes that its records are correct and is
in the process of resolving this difference. The number of shares outstanding
used to calculate the above percentages does not include these shares or any
adjustment which might be necessary to resolve this difference.
(3) Diversified Technologies Ltd ("DTL"), a British Virgin Islands corporation
is a holding company with the sole purpose of holding the stock of TPI. The sole
shareholders of DTL are Paul G. Mighton and Gary G. McCann ( a former officer
and director) who each hold 50% of the stock of DTL. DTL holds 766,683 shares
for Mr. Mighton and 766,684 for Mr. McCann.
(4) Does not include options to purchase 50,000 shares of common stock which are
not currently exercisable.
SELLING SECURITYHOLDERS
The following table sets forth, with respect to each selling
securityholder, based upon information available to TPI as of April 30, 1999,
the number of shares of common stock
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<PAGE>
beneficially owned, the number of shares of common stock to be sold, and the
number and percentage of outstanding shares of common stock beneficially owned
before and after the sale of the shares offered hereby. None of the selling
securityholders has been an affiliate of TPI during the preceding three years,
and none of whom own beneficially 1% of the outstanding stock of TPI on the date
hereafter. Although there can be no assurance that the selling securityholders
will sell any or all of the shares of common stock, the following table assumes
that each of the selling securityholders will sell all of the shares of common
stock offered by this prospectus.
<TABLE>
<CAPTION>
Percentage of
Common
Stock Owned
Securities Owned Securities Before
Name of Beneficial Owners Prior to Offering (1) To Be Sold (2) Offering (3)
Shares Warrants Shares
<S> <C> <C> <C> <C>
Advantage (Bermuda) Fund 4,972,457 176,843 5,149,300 (4) 4.9% (12)
Canadian Advantage Limited Partnerships 10,059,569 269,533 10,329,102(5) 4.9%
(12)(13)
Dominion Capital 4,360,314 271,778 4,632,092(6) 4.9% (12)
Fetu Holdings 3,889,993 160,162 4,050,155 (7) 4.9% (12)
Livingstone Asset Management 562,346 26,700 589,046 (8) 3.3% (12)
SHA Security Holdings Anstalt -0- 500,000 500,000 (9) 2.7%
Pinetree Capital Corp. -0- 100,000 100,00 (10) *
Martin Foest 50,000 (11) -0- 50,000 (11) *
Marex Computers Training & Consulting 50,000 (11) -0- 50,000 (11) *
Inc.
Warren Strutt 50,000 (14) -0- 50,000 (14) *
Martin E. Janis & Company, Inc. 150,000 (15) -0- 150,000 (15) *
</TABLE>
* less than 1% of the total number of shares issued and outstanding.
(1) Unless otherwise noted, TPI believes that all persons named in the
table have sole voting and investment power with respect to all shares
of common stock beneficially owned by them. A person is deemed to be
the beneficial owner of securities that can be acquired by such person
within 60 days from the effective date of this prospectus upon the
exercise of warrants or other convertible securities. Unless otherwise
noted, each selling securityholder's beneficial ownership is determined
by assuming that debentures, warrants or options that are held by such
person (but not those held by any other person) and which are
exercisable or convertible within 60 days from the date hereof have
been exercised or converted.
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<PAGE>
(2) Includes all shares issuable upon exercise of options or warrants
and/or conversion of debentures, set forth under "Securities Owned
Prior to Offering."
(3) Based on 17,759,179 shares of common stock outstanding as of April 30,
1999. See "Note 13" of the "Notes to the Financial Statements". Assumes
that all shares of common stock issued are sold as part of this
Offering.
(4) Includes (a) 727,657 shares issued upon conversion (with interest
converted into common stock) of the 1998 debentures in the principal
amount of $146,000 and 4,244,800 shares issuable upon conversion
(including additional shares to be issued upon conversion of interest
into common stock) of an additional $379,000 of the 1998 debentures at
a conversion rate of $0.10 per share and (b) up to 176,843 shares
issuable upon exercise of warrants issued in connection with the 1998
debentures.
(5) Includes (a) 595,569 shares issued upon prior conversion (with interest
converted into common stock) of the 1998 debentures in the principal
amount of $330,000 and 9,464,000 shares issuable upon conversion
(including additional shares to be issued upon conversion of interest
into common stock) of an additional $845,000 of the 1998 debentures at
a conversion rate of $0.10 per share and (b) up to 269,533 shares
issuable upon exercise of warrants issued in connection with the 1998
debentures.
(6) Includes (a) 395,515 shares issued upon prior conversion (with interest
converted into common stock) of the 1998 debentures in the principal
amount of $221,000 and 3,964,799 shares issuable upon conversion
(including additional shares to be issued upon conversion of interest
into common stock) of an additional $354,000 of the 1998 debentures at
a conversion rate of $0.10 per share and (b) up to 271,778 shares
issuable upon exercise of warrants issued in connection with the 1998
debentures.
(7) Includes (a) 445,993 shares issued upon prior conversion (with interest
converted into common stock) of the 1998 debentures in the principal
amount of $217,500 and 3,444,000 shares issuable upon conversion
(including additional shares to be issued upon conversion of interest
into common stock) of an additional $307,500 of the 1998 debentures at
a conversion rate of $0.10 per share and (b) up to 160,162 shares
issuable upon exercise of warrants issued in connection with the 1998
debentures.
(8) Includes (a) up to 315,946 shares issued upon prior conversion (with
interest converted into common stock) of the 1998 debentures in the
principal amount of $178,000 and 246,400 shares issuable upon
conversion (including additional shares to be issued upon conversion of
interest into common stock) of an additional $22,000 of the 1998
debentures at a conversion rate of $0.10 per share and (b) up to 26,700
shares issuable upon exercise of warrants issued in connection with the
1998 debentures.
(9) Includes up to 500,000 shares issuable upon exercise of the 1996
warrants.
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<PAGE>
(10) Includes up to 100,000 shares issuable upon exercise of the 1997
warrants.
(11) Includes up to 50,000 shares issuable upon exercise of options granted
on March 26, 1998 at an exercise price of $.50.
(12) Pursuant to the terms of the 1998 debentures, the Securityholder is
restricted from converting an amount of 1998 debentures which would
result in the Securityholder owning more than 4.9% of the
outstanding common stock of TPI.
(13) Canadian Advantage Limited Partnership rescinded, and TPI accepted,
the conversion of an aggregate of $57,500 plus interest of debentures
and returned 201,736 shares of common stock. The debentures were
converted in error and were in excess of 4.9% of TPI's outstanding
common stock, which violated the terms of the debentures. Such
transaction was effected in April 1999.
(14) Includes up to 50,000 shares issuable upon exercise of options granted
on November 30, 1998 at an exercise price of $.27.
(15) Shares issuable as additional consideration pursuant to an agreement
dated March 24, 1998 to provide investor relations services.
PLAN OF DISTRIBUTION
The shares of common stock, common stock issuable upon conversion of
debentures and shares of common stock issuable upon exercise of the warrants
and options (collectively, the "Securities") offered hereby are being offered
by the selling securityholders and/or their transferees, assignees, pledgees
or other successors for their own account and not for the account of TPI. The
selling securityholders may continue to sell the Securities directly to
purchasers or, alternatively, may offer the Securities from time to time
through other agents, brokers, dealers or underwriters, who may receive
compensation in the form of concessions or commissions from the selling
securityholders. Sales of the Securities may be made in one or more
transactions on OTCBB, in privately negotiated transactions or otherwise, and
such sales may be made at the market price prevailing at the time of sale, a
price related to such prevailing market price or a negotiated price. Sales of
Securities are subject to the prospectus delivery and other requirements of
the Securities Act.
Under the Exchange Act and the regulations thereunder, any person
engaged in a distribution of the common stock of TPI offered by this prospectus
may not simultaneously engage in market-making activities with respect to the
common stock of TPI during the applicable "cooling off" period (nine business
days) prior to the commencement of such distribution. In addition, and without
limiting the foregoing, the selling securityholders will be subject to
applicable provisions of the Exchange Act and the regulations thereunder,
including, without limitation, Rule 102 of Regulation M, which provisions may
limit the timing of purchases and sales of the Securities by the selling
securityholders. To the extent required, TPI will use its best efforts to file,
during any period
-44-
<PAGE>
in which offers or sales are being made, one or more amendments or supplements
to this prospectus or a new registration statement with respect to the common
stock and common stock underlying the warrants and options to describe any
material information with respect to the plan of distribution not previously
disclosed in this prospectus, including the name or names of any additional
underwriters, dealers or agents, if any, the purchase price paid by the
underwriter for Securities purchased from a selling securityholder, and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
DESCRIPTION OF SECURITIES
The following summary descriptions of TPI's securities are qualified in
their entirety by reference to TPI's Certificate of Incorporation and By-Laws,
copies of which are available upon request of TPI.
TPI is authorized to issue 50,000,000 shares of common stock, par value
$0.001 per share and 5,000,000 shares of preferred stock, par value $0.001 per
share. As of April 30, 1999, there were 17,759,179 shares of common stock
outstanding held by approximately 144 holders of record.
No shares of preferred stock are issued or outstanding.
COMMON STOCK
Holders of shares of common stock are entitled to one vote for each
share held of record on all matters to be voted on by stockholders. There are no
preemptive, subscription, conversion or redemption rights pertaining to the
common stock. All of the outstanding shares of common stock are duly and validly
issued, fully paid and non-assessable. Holders of shares of common stock are
entitled to receive dividends when, as and if declared by the Board of Directors
from funds legally available therefor and to share ratably in the assets of TPI
available upon liquidation, dissolution or winding up, subject to any superior
rights of the holders of preferred stock, if issued.
PREFERRED STOCK
TPI's Articles of Incorporation authorize the issuance of the shares of
preferred stock in one or more series, with each series to have such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without any action by the stockholders, to issue shares of preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the common stock. In
addition, the issuance of shares of preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of TPI. Although TPI does not currently intend to issue any
shares of preferred stock, there can be no assurance that TPI will not do so in
the future.
-45-
<PAGE>
DIVIDEND POLICY
The payment of dividends by TPI is within the discretion of its Board
of Directors and depends in part upon TPI's earnings, capital requirements and
financial condition. Since its inception, TPI has not paid any dividends on its
common stock and does not anticipate paying such dividends in the foreseeable
future. TPI intends to retain earnings, if any, to finance its operations.
REPORTS TO STOCKHOLDERS
TPI became a reporting company on May 11, 1998 and will be distributing
to its stockholders annual reports containing financial statements audited and
reported upon by its independent certified public accountants after the end of
each fiscal year, and will make available such other periodic reports as TPI may
deem to be appropriate or as may be required by law or by the rules or
regulations of any stock exchange on which TPI's common stock is listed. TPI's
fiscal year end is July 31.
LEGAL MATTERS
The legality of the common stock offered hereby will be passed upon by
Snow Becker Krauss P.C., 605 Third Avenue, New York, New York 10158.
EXPERTS
The financial statements of Transformation Processing Inc. as of July
31, 1998 and for the period from April 1, 1996 (date of incorporation) to July
31, 1997, the year ended July 31, 1998 and the cumulative amounts from inception
to July 31, 1998 which are included in this prospectus have been included herein
and in the Registration Statement in reliance upon the report of Goldstein Golub
Kessler LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of such firm as experts in accounting and
auditing.
-46-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-------------------
FISCAL YEAR ENDED JULY 31, 1998
-------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT ............................................F-2
FINANCIAL STATEMENTS:
Balance Sheet ......................................................F-3
Statement of Operations ............................................F-4
Statement of Stockholders' Equity ..................................F-5
Statement of Cash Flows ............................................F-6
Notes to Financial Statements ...........................................F-7-F-16
FOR THE SIX MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
-----------------------------------
Financial Statements:
Balance Sheet ......................................................F-17
Statement of Operations ............................................F-18
Statement of Stockholders' Deficiency ..............................F-19
Statement of Cash Flows ............................................F-20
Notes to Financial Statements ...........................................F-21
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Transformation Processing Inc.
We have audited the accompanying balance sheet of Transformation Processing Inc.
(a development stage company) as of July 31, 1998, and the related statements of
operations, stockholders' equity (deficiency), and cash flows for the period
from April 1, 1996 (date of incorporation) to July 31, 1997, the year ended July
31, 1998, and cumulative amounts from inception to July 31, 1998. 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 audits 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 Transformation Processing Inc.
as of July 31, 1998, and the results of its operations and its cash flows for
the period from April 1, 1996 (date of incorporation) to July 31, 1997, the year
ended July 31, 1998, and cumulative amounts from inception to July 31, 1998, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has had limited operations and has a deficit
accumulated during the development stage that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 11. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
September 18, 1998, except for the last paragraph of Note 8,
as to which the date is October 31, 1998, and the last paragraph of note 12,
as to which the date is January 26, 1999
F-2
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
BALANCE SHEET
- --------------------------------------------------------------------------------
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash $ 150,687
Accounts receivable, net of allowance for doubtful accounts of $33,000 419,933
Due from related parties 14,595
Prepaid expenses and other current assets 4,715
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 589,930
Property and Equipment, net 182,894
Deferred Debt Cost, net 57,022
Other Assets 33,769
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $ 863,615
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable $ 350,890
Accrued expenses and other current liabilities 230,201
Current maturities of long-term debt 43,165
Note payable - stockholder 25,803
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 650,059
Long-term Debt, net of current maturities 1,049,590
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 1,699,649
- ----------------------------------------------------------------------------------------------------------------------
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 outstanding 16,186,628 shares 16,187
Additional paid-in capital 6,266,719
Deficit accumulated during the development stage (7,085,089)
Cumulative foreign currency translation adjustments (33,851)
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' deficiency (836,034)
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficiency $ 863,615
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-3
<PAGE>
- --------------------------------------------------------------------------------
TRANSFORMATION PROCESSING INC.
(a development stage company)
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
April 1, 1996 Cumulative
(date of incorporation) Year ended amounts
to July 31, 1997 July 31, 1998 from inception
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue - consulting services $ 47,317 $ 877,198 $ 924,515
- --------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of consulting services 11,271 1,314,356 1,325,627
Cost of software transformation services 192,729 1,107,208 1,299,937
Software development 218,212 35,197 253,409
General and administrative 874,425 1,871,105 2,745,530
Noncash consulting costs 1,536,341 - 1,536,341
- --------------------------------------------------------------------------------------------------------------------------------
2,832,978 4,327,866 7,160,844
- --------------------------------------------------------------------------------------------------------------------------------
Loss from operations (2,785,661) (3,450,668) (6,236,329)
Interest income (expense), net of interest income
of $9,749 in 1998 1,125 (849,885) (848,760)
- --------------------------------------------------------------------------------------------------------------------------------
Net loss $(2,784,536) $(4,300,553) $(7,085,089)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Basic net loss per common share $ (.27) $ (.30) -
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Weighted-average number of common shares
outstanding 10,161,665 14,542,313 -
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-4
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
- --------------------------------------------------------------------------------
Period from April 1, 1996 (date of incorporation) to July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Accumulated Foreign Stock-
Additional During the Currency holders'
Common Stock Paid-in Development Translation Equity
Shares Amount Capital Stage Adjustments (Deficiency)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders 5,901,050 $ 5,901 $ (5,901) - - -
Issuance of common
stock for cash 1,469,363 1,469 1,215,657 - - $ 1,217,126
Options to purchase
common stock issued
for services - - 27,362 - - 27,362
Issuance of common
stock in reverse acquisition 2,205,869 2,206 13,484 - - 15,690
Issuance of common
stock for services in
reverse acquisition 1,888,000 1,888 1,534,453 - - 1,536,341
Issuance of common
stock for intangible asset 705,000 705 572,965 - - 573,670
Net loss - - - $(2,784,536) - (2,784,536)
Cumulative foreign currency
translation adjustments - - - - $ 22,855 22,855
- ----------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1997 12,169,282 12,169 3,358,020 (2,784,536) 22,855 608,508
Issuance of common stock
for cash 3,109,223 3,110 1,003,336 - - 1,006,446
Issuance of common stock
upon conversion of convertible
debentures 908,123 908 706,387 - - 707,295
Recognition of beneficial
conversion feature of
convertible debentures - - 650,026 - - 650,026
Warrants to purchase common
stock issued with convertible
debentures - - 527,000 - - 527,000
Net loss - - - (4,300,553) - (4,300,553)
Cumulative foreign currency
translation adjustments - - - - (56,706) (56,706)
Options to purchase common
stock issued for services - - 21,950 - - 21,950
- ----------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1998 16,186,628 $16,187 $6,266,719 $(7,085,089) $(33,851) $ (836,034)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-5
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
April 1, 1996 Cumulative
(date of incorporation) Year ended amounts
to July 31, 1997 July 31, 1998 from inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss from development stage operations $(2,784,536) $(4,300,553) $(7,085,089)
Adjustments to reconcile net loss from development
stage operations to net cash used in operating activities:
Depreciation and amortization 197,483 617,451 814,934
Issuance of options and warrants to purchase common
stock for services 27,588 181,317 208,905
Issuance of common stock for services in reverse
acquisition 1,549,056 - 1,549,056
Recognition of beneficial conversion feature - 631,281 631,281
Provision for doubtful accounts - 34,325 34,325
Write-off of amounts due from related parties - 96,020 96,020
Amortization of discounts - 187,793 187,793
Interest expense converted to stock - 7,085 7,085
Changes in operating assets and liabilities:
Increase in accounts receivable (3,705) (462,787) (466,492)
Increase (decrease) in time deposits (23,561) 22,600 (961)
Increase in prepaid expenses and other current assets (3,426) (4,639) (8,065)
Increase in deferred debt costs - (60,263) (60,263)
Increase in other assets (4,723) (26,411) (31,134)
Increase in accounts payable 26,116 347,053 373,169
Increase in accrued expenses and other current
liabilities 89,317 159,228 248,545
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (930,391) (2,570,500) (3,500,891)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (124,733) (122,601) (247,334)
Purchase of intangible assets (24,156) - (24,156)
Advances to related parties (129,621) - (129,621)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (278,510) (122,601) (401,111)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from loan payable - bank 73,158 50,160 123,318
Repayments of loan payable - bank (15,054) (49,312) (64,366)
Repayment of note payable - stockholder (74,924) (83,300) (158,224)
Net proceeds from issuance of common stock 1,240,109 987,484 2,227,593
Net proceeds from issuance of convertible debentures - 1,903,688 1,903,688
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,223,289 2,808,720 4,032,009
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 2,043 18,637 20,680
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash 16,431 134,256 150,687
Cash at beginning of period - 16,431 -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 16,431 $ 150,687 $ 150,687
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,419 $ 58,264 $ 60,683
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash financing activity:
Conversion of long-term debt to common stock - $ 707,295 -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-6
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. PRINCIPAL BUSINESS On August 20, 1996, Samuel Hamann Graphix, Inc.
ACTIVITY AND acquired all of the outstanding common stock of
SIGNIFICANT Transformation Processing Inc. ("Ontario"), a
ACCOUNTING Canadian corporation. For accounting purposes the
POLICIES: 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"). On February 19, 1998, Ontario merged
into the Company. The accompanying financial
statements reflect this merger as if it had
occurred on July 31, 1997.
The Company is considered to be in the
development stage as of July 31, 1998 because it
has been devoting substantially all of its
efforts to establishing its business. While its
planned principal operations have commenced,
there has been no significant revenue therefrom.
The Company is an information technology company
that develops and markets software and services
that enable companies worldwide to automatically
migrate their application programs and data from
legacy systems to open systems and client/server
environments. The Company has expanded its
operations from providing legacy code migration
services to three lines of business; client/server
migration, year 2000 and groupware services. The
Company is targeting customers located throughout
Canada and the United States. For the periods
ended July 31, 1997 and 1998, all operations of
the Company were conducted in Canada. At July 31,
1998, all of the Company's assets are located in
Canada.
The statement of operations includes the results
of operations of the Company for the 16-month
period from April 1, 1996 to July 31, 1997. The
results of operations for the period from April 1,
1996 to July 31, 1996 were not material.
Revenue from fixed-price contracts is recognized
ratably over the period of performance in
accordance with the American Institute of
Certified Public Accountants' Statement of
Position 91-1, Software Revenue Recognition.
Revenue from customer training, technical support
and other services is recognized as the service is
performed. The Company provides technical support
at no charge for the first 90 days and, under
certain circumstances, at no charge if certain
other fees are current. Revenue from the sale of
deployment product licenses is recognized after
installation of the product.
Property and equipment is recorded at cost.
Depreciation is provided for by the straight-line
method over the estimated useful lives of the
related assets.
The cost of software marketing rights of
approximately $780,000 (which includes
approximately $207,000 of notes payable plus
approximately $573,000 in common stock issued) was
being amortized by the straight-line method over
four years. Amortization expense charged to
operations in the period ended July 31, 1997 and
included in cost of software transformation
services in the accompanying statement of
operations was approximately $180,000. At each
balance sheet date, the Company evaluates the
period of amortization of intangible assets. The
factors used in evaluating the period of
amortization include: (i) current operating
results; (ii) projected future operating results;
and (iii) any other material factors that affect
the continuity of the business. The Company does
not anticipate significant revenues from this
intangible asset in the immediate future,
therefore the Company has elected to write off
the unamortized balance of the intangible asset
(software marketing rights). The impairment loss
of approximately $372,000 is included in the cost
of transformation services in the accompanying
statement of operations for the year ended
July 31, 1998.
F-7
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Costs associated with the issuance of the 6%
convertible debentures are being amortized on the
straight-line method over the term of the
debentures. Upon conversion, debt issue costs will
be charged to operations. For the year ended July
31, 1998, debt issue costs of $61,396 have been
charged to operations and included in interest
expense in the accompanying statement of
operations.
The preparation of financial statements in
conformity with generally accepted accounting
principles requires the use of estimates by
management affecting reported amounts of assets
and liabilities and revenue and expenses and the
disclosure of contingent assets and liabilities.
Actual results could differ from these estimates.
Basic loss per share is based on the
weighted-average number of shares of common stock
outstanding during the periods. Fully diluted per
share amounts are not presented because the effect
would be antidilutive. The prior-year loss per
share was unaffected by the adoption of Statement
of Financial Accounting Standards ("SFAS") No.
128, Earnings Per Share.
Management does not believe that any recently
issued, but not yet effective, accounting
standards if currently adopted would have a
material effect on the accompanying financial
statements.
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' deficiency.
Due to the nature of the Company, the
convertibility feature, interest rates and
repayment terms, the estimated fair value of the
Company's long-term debt approximates its carrying
amount.
2. PROPERTY AND Property and equipment, at cost, consists of the
EQUIPMENT: following:
<TABLE>
<CAPTION>
Estimated
Useful Life
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $ 21,267 5 years
Computer equipment 154,435 5 years
Furniture and fixtures 55,735 7 years
- ------------------------------------------------------------------------------------------------------
231,437
Less accumulated depreciation 48,543
- ------------------------------------------------------------------------------------------------------
$182,894
</TABLE>
F-8
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
3. ACCRUED Accrued expenses and other current liabilities
EXPENSES AND consist of the following:
OTHER CURRENT Accrued professional fees $ 85,793
LIABILITIES: Settlement liability 33,082
Other (all amounts are less than 5% of current liabilities) 111,326
- ----------------------------------------------------------------------------------------------------------------------
$230,201
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
4. LONG-TERM DEBT: Long-term debt consists of the following:
Installment loans $ 53,086
6% convertible debentures 1,039,669
- ----------------------------------------------------------------------------------------------------------------------
1,092,755
Less current portion 43,165
- ----------------------------------------------------------------------------------------------------------------------
Long-term portion $1,049,590
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The effect of foreign currency translation
adjustments on the Company's long-term debt is
included in cumulative foreign currency
translation adjustments in stockholders' equity
(deficiency) in the accompanying financial
statements.
The Company is obligated under two installment
loans with a bank payable in monthly installments
aggregating $4,750 plus interest through February
1, 1999 and December 31, 1999. The loans bear
interest at the bank's prime rate (7.25% at July
31, 1998) plus 2.5%. The loans are collateralized
by substantially all of the Company's assets.
On April 14, 1998, the Company issued two $500,000
6% convertible debentures totaling $1,000,000 for
cash, due April 14, 2000. Of the $1,000,000
convertible debentures, $550,000 are convertible
into common stock at 70% of the five-day average
closing bid price immediately preceding the date
of conversion and $450,000 of the debentures are
convertible into common stock at 80% of the
five-day average closing ask price immediately
preceding the date of conversion. In May 1998,
$300,000 of 6% convertible debentures were
converted into 266,092 shares of common stock and
in July 1998 $400,000 of 6% convertible debentures
were converted into 642,031 shares of common
stock. In connection with the issuance of
debentures, the Company issued warrants to
purchase 301,228 shares of common stock. The fair
value of $251,000 allocated to the warrants is
being amortized over the term of the debentures.
For the year ended July 31, 1998, amortization of
$181,297 has been charged to operations and
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 July 31, 1998.
F-9
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On May 21, 1998, the Company issued two $250,000
6% convertible debentures totaling $500,000 for
cash, due May 21, 2000. These debentures are
convertible into common stock at 80% of the
five-day average closing ask price immediately
preceding the date of conversion. In connection
with the issuance of debentures, the Company
issued warrants to purchase 50,200 shares of
common stock. The fair value of $52,500
allocated to the warrants is being amortized
over the term of the debentures. For the year
ended July 31, 1998, amortization of $5,311
has been charged to operations and 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 July 31, 1998.
On July 10, 1998, the Company issued two
$250,000 6% convertible debentures totaling
$500,000 for cash, due July 10, 2000. These
debentures are convertible into common stock at
80% of the five-day average closing ask price
immediately preceding the date of conversion.
In connection with the issuance of debentures,
the Company issued warrants to purchase 68,306
shares of common stock. The fair value of
$58,500 allocated to the warrants is being
amortized over the term of the debentures. For
the year ended July 31, 1998, amortization of
$1,183 has been charged to operations and
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 July
31, 1998.
On the date of issuance of each convertible
debenture, including the convertible debenture
issued and converted in August 1997, the
Company allocated a portion of the proceeds to
the beneficial conversion feature of the
debenture which 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
$650,026, is included in interest expense in
the accompanying statement of operations as the
debentures became convertible into common stock
on issuance.
Each debenture provides the holder with certain
registration rights that require the Company to
register the common shares underlying each
convertible debenture within 90 days following the
closing date of the issuance. As of July 31, 1998,
the Company was not in compliance with this
requirement. If the common shares are not
registered, the Company shall pay the debenture
holders damages in the amount of 2% of the amount
of outstanding debentures every 30 days. The
amount of damages accrued and charged to
operations at July 31, 1998 was estimated to be
$6,000.
The fair value of each warrant is estimated on the
date of issuance using the Black-Scholes
option-pricing model with the following
weighted-average assumptions used for the year
ended July 31, 1998: expected volatility of
1.93%; risk-free interest rate of 5.6%; and
expected lives of two years.
F-10
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Aggregate maturities of long-term debt are as
follows:
<TABLE>
<CAPTION>
Year ending July 31,
<S> <C> <C>
1999 $ 43,165
2000 1,049,590
- --------------------------------------------------------------------------------
$1,092,755
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
5. RELATED PARTY Amounts due from related parties represent
TRANSACTIONS: advances made to an officer. This loan was
noninterest-bearing through July 31, 1997 but
bears interest at 4% per annum subsequent to July
31, 1997.
The Company acquired the software marketing rights
in exchange for 705,000 shares of common stock and
notes payable. The rights were valued at the fair
value of the shares of common stock ($.81 per
common share) and notes payable at the date of
issue. See Note 1 of notes to the financial
statements for impairment loss.
6. NOTE PAYABLE - Note payable - stockholder consists of a
STOCKHOLDER: noninterest-bearing note payable in monthly
installments of $5,639 through December 1, 1998.
7. COMMITMENTS The Company is obligated under noncancelable
AND operating leases for office space expiring
CONTINGENCIES: at various times through September 30, 2001.
Approximate minimum future payments under
these leases are payable as follows:
<TABLE>
<CAPTION>
Year ending July 31,
<S> <C> <C>
1999 $166,000
2000 166,000
2001 57,000
2002 3,000
- --------------------------------------------------------------------------------
$392,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The leases are subject to escalation for the
Company's proportionate share of increases in real
estate taxes and other operating expenses. Rent
expense for the period ended July 31, 1997 and the
year ended July 31, 1998 amounted to $37,522 and
$33,378, respectively.
The Company entered into an agreement with an
entity whereby the entity will provide the Company
with public and investor relations services. Under
the terms of the agreement, the Company will issue
150,000 shares of common stock of the Company as
compensation for services. At July 31, 1998, those
services had not yet been provided.
F-11
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. STOCKHOLDERS' The Company is authorized to issue 5,000,000
EQUITY shares of preferred stock with rights and
(DEFICIENCY): preferences to be determined by the Company's
board of directors. As of July 31, 1998, no shares
of preferred stock have been issued.
The Company issued shares of common stock for
cash as follows:
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Stockholders'
Shares Amount Capital Equity
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
April 20, 1996 160,000 $ 160 $ 136,196 $ 136,356
August 23, 1996 500,000 500 493,155 493,655
January 27, 1997 208,333 208 147,998 148,206
March 6, 1997 219,780 220 123,039 123,259
March 6, 1997 281,250 281 246,237 246,518
June 27, 1997 100,000 100 69,032 69,132
- -----------------------------------------------------------------------------------------
Period ended
July 31, 1997 1,469,363 1,469 1,215,657 1,217,126
- -----------------------------------------------------------------------------------------
August 28, 1997 198,000 198 108,105 108,303
September 4, 1997 589,000 589 123,481 124,070
September 26, 1997 400,000 400 199,044 199,444
October 23, 1997 400,000 400 199,600 200,000
October 31, 1997 100,000 100 49,900 50,000
December 10, 1997 977,778 978 224,022 225,000
January 26, 1998 444,445 445 99,184 99,629
- -----------------------------------------------------------------------------------------
Year ended
July 31, 1998 3,109,223 3,110 1,003,336 1,006,446
- -----------------------------------------------------------------------------------------
4,578,586 $4,579 $2,218,993 $2,223,572
=========================================================================================
</TABLE>
On April 1, 1996, the Company issued
5,901,050 shares of common stock to its
founders for certain technology and
services, which were valued at a nominal
amount.
On August 20, 1996, the Company issued
2,205,869 shares of common stock to the
stockholders of Samuel Hamann Graphix,
Inc. in a transaction accounted for as a
reverse acquisition.
As part of the reverse acquisition the
Company issued 1,888,000 shares of
common stock to certain consultants for
services. These shares have been valued
at the fair value at the date of
issuance ($.81 per common share).
Accordingly, the Company recorded a
charge to operations at the time of
issuance of $1,536,341. Certain share
issuances prior to the reverse
acquisition were made by Samuel Hamann
Graphix, Inc. and the details of
consideration for the issuances were not
known by the Company. The Company has
addressed the situation by conducting an
audit of issued and outstanding shares
of common stock. The Company is auditing
records received from prior management
F-12
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
reflecting shares issued, transferred or sold,
apparently without fair consideration to the
Company.
The Company issued stop transfer instructions as
of November 18, 1997 concerning approximately
1,844,000 shares of common stock and had
outstanding stop transfer instructions as of
October 31, 1998 concerning approximately
1,055,000 shares of common stock. These shares are
part of the 1,888,000 shares of common stock
issued to the consultants discussed in the
preceding paragraph. The stop order transfers
remain in effect until the holders of the shares
of common stock are able to satisfy the Company's
concerns and/or demonstrate that the current
holders are holders in due course at which time
the stop orders are lifted on an individual basis.
9. STOCK OPTIONS AND The Company has outstanding warrants
STOCK WARRANTS: permitting the holders to purchase
shares of its common stock at prices
ranging from $.46 to $1.99 per share.
The warrants have varying expiration
dates to July 10, 2000. Warrants to
purchase 1,019,734 common shares were
outstanding at July 31, 1998. During the
year ended July 31, 1998, warrants to
purchase 419,734 common shares were
issued at prices ranging from $.46 to
$1.99 per share. In addition, during the
year ended July 31, 1998, warrants to
purchase 500,000 shares of common stock,
which were to expire, were extended. The
extended warrants provide for exercise
prices ranging from $.50 to $.80 per
share. The warrants were determined to
have a fair market value of
approximately $165,000, which was
charged to operations during the year
ended July 31, 1998.
During the year ended July 31, 1998, the Company
adopted an incentive stock option plan under which
options to purchase shares of common stock may be
granted to certain key employees. The exercise
price is based on the fair market value of such
shares as determined by the board of directors at
the date of the grant of such options. At July 31,
1998, options to purchase 100,000 shares of common
stock at an exercise price of $.50 per share are
outstanding and are exercisable through March 25,
2008.
F-13
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A summary of the status of the Company's options as of July 31, 1998 is
presented below:
<TABLE>
<CAPTION>
Weighted-
Average
Number of Exercise
Shares Price
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Granted 100,000 $.50
Canceled - -
Exercised - -
- --------------------------------------------------------------------------------------------
Outstanding at end of year 100,000 $.50
============================================================================================
Options exercisable at year-end 100,000 $.50
============================================================================================
Weighted-average fair value of options
granted during the year $.44 -
============================================================================================
</TABLE>
The following table summarizes information about fixed stock
options outstanding at July 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------- -------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.50 100,000 9.8 $.50 100,000 $.50
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has elected to apply
Accounting Principles Board Opinion No.
25 and related interpretations in
accounting for its stock options and has
adopted the disclosure-only provisions
of SFAS No. 123. Had the Company elected
to recognize compensation cost based on
the fair value of the options granted at
the grant date as prescribed by SFAS No.
123, the Company's net loss and loss per
common share would have been as follows:
<TABLE>
<CAPTION>
<S> <C>
Net loss - as reported $(4,300,553)
======================================================================================================================
Net loss - pro forma $(4,321,869)
======================================================================================================================
Loss per share - as reported $ (.30)
======================================================================================================================
Loss per share - pro forma $ (.30)
======================================================================================================================
</TABLE>
F-14
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In March 1998, the Company issued options to three
employees to purchase 2,700,000 shares of common
stock at an exercise price of $.30 per share.
Those options were canceled as of July 31, 1998
and their fair value is not included in the pro
forma net loss and net loss per share information
presented above.
The fair value of each option grant is estimated
on the date of grant using the Black-Scholes
option-pricing model with the following
weighted-average assumptions used for the year
ended July 31, 1998: expected volatility of 1.93%;
risk-free interest rate of 5.7%; expected lives of
10 years; and no payment of dividends expected.
10. INCOME TAXES: The Company recorded a deferred income
tax asset for the tax effect of net
operating loss carryforwards and the
temporary difference between the
carrying amount and tax bases of certain
intangible assets, aggregating
approximately $2,000,000. In recognition
of the uncertainty regarding the
ultimate amount of income tax benefits
to be derived, the Company has recorded
a valuation allowance of $2,000,000 at
July 31, 1998.
The Company has a net operating loss carryforward
of approximately $4,000,000 available to offset
taxable income through the year 2013.
11. GOING CONCERN: The Company is in the development
stage, has a limited operating history, has not
generated significant revenue from its planned
principal operations through July 31, 1998, has a
working capital deficiency and has a deficit
accumulated during the development stage at July
31, 1998.
The Company's financial statements have been
prepared on the assumption that the Company will
continue as a going concern. Management believes
that the development, marketing and initial sales
of certain of its technologies will occur before
July 31, 1999, thus generating working capital.
The Company is also considering other financing
alternatives which will allow the Company to
continue as a going concern. If there is no or
insufficient revenue from the commercial
applications of the Company's technologies during
the year ending July 31, 1999 or additional
financing cannot be obtained, there is substantial
doubt about the Company's ability to continue as a
going concern. The financial statements do not
include any adjustments that might result from the
outcome of this uncertainty.
12. SUBSEQUENT EVENTS: In August 1998, $50,000 of 6%
convertible debentures, due April 14, 2000, were
converted into 108,898 shares of common stock.
In September 1998, $125,000 of 6% convertible
debentures, due April 14, 2000, were converted
into 324,148 shares of common stock.
On October 23, 1997, the Company made an offering
of 400,000 shares of common stock for $200,000; on
October 31, 1997, an offering of 100,000 shares of
common stock for $50,000; on December 10, 1997, an
offering of 977,778 shares of common stock for
$225,000; and on January 26, 1998, an offering of
444,445 shares of common stock for $99,629. These
offerings were made
F-15
<PAGE>
TRANSFORMATION PROCESSING INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
pursuant to the claim of exemption under
rule 504 under the Securities Act of
1934. These offerings appear to exceed
the limitation of rule 504 of a maximum
of $1,000,000 in any one-year period.
The Company intends to file a
registration statement offering
rescission to the purchasers of these
offerings.
At January 26, 1999, the shareholder that
purchased these shares no longer had the right
to rescind that purchase.
13. ADDITIONAL INFORMATION: The Company's records and the records of its
transfer agent differ with respect to the
number of outstanding shares of the Company's
common stock. According to the transfer agent,
the number of shares of common stock
outstanding is approximately 603,000 shares
greater than the 16,186,628 indicated by the
Company's records. The Company believes that
its records are correct and is in the process
of resolving this difference. The number of
shares outstanding reflected in the Company's
financial statements does not include these
shares or any adjustment which might be
necessary to resolve this difference.
F-16
<PAGE>
<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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Total current liabilities 366,821
Long term debt, net of current maturities 1,500,559
- --------------------------------------------------------------------------------
Total liabilities 1,867,380
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
Stockholders' deficiency (1,196,037)
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficiency $ 671,343
================================================================================
See notes to financial statements
</TABLE>
F-17
<PAGE>
<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
- ---------------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 825,543 633,032 1,266,707 1,386,531 8,547,375
- ---------------------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (757,731) $ (485,434) $ (1,110,562) $ (1,212,599) $ (8,297,688)
- ---------------------------------------------------------------------------------------------------------------------------------
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>
F-18
<PAGE>
<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)
- --------------------------------------------------------------------------------------------------------
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>
F-19
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------------
<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)
- ------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,964 521,456 1,018,740
- ------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 26,078 29,768 (19,965)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (13,476) (35,681) 65,979
Cash at beginning of period 95,886 115,888 16,431
- ------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Schedule of Non Cash Financing Activity
conversion of long term debt of common stock $ 0
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Schedule of Non Cash Financing Activity
discount on long-term debt $ 118,706
- ------------------------------------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
<TABLE>
<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>
F-20
<PAGE>
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
F-21
<PAGE>
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.
F-22
<PAGE>
No dealer, salesman or any other person has been
authorized to give any information or to make
any representations other than those contained in -----------
this prospectus, and, if given or made, such
information or representations must not be relied 25,649,695
upon as having been authorized by the company.
This prospectus does not constitute an offer to SHARES OF COMMON STOCK
sell or a solicitation of an offer to buy any
security other than the securities offered by this TRANSFORMATION
prospectus, or an offer to sell or a solicitation of PROCESSING INC.
an offer to buy any security, by any person in any
jurisdiction in which such offer or solicitation
would be unlawful. Neither the delivery of this
prospectus nor any sale made hereunder shall
under any circumstances, imply that the
information in this prospectus is correct as of by
any time subsequent to the date of this
prospectus.
PROSPECTUS
___________, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 25. OTHER EXPENSES OF ISSUANCE OF DISTRIBUTION
The expenses payable by the Registrant in connection with this offering
are estimated as follows:
<TABLE>
<S> <C>
SEC Filing Fee $1,126.91
Printing and Engraving $5,000.00
Mailing & Solicitation $0.00
Legal Fees and Expenses $25,000.00
State Securities Qualification Fees
and Expenses $0.00
Accounting Fees and Expenses $15,000.00
Miscellaneous $3,873.00
TOTAL $50,000.00
----------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following discussion includes certain information as to
transactions which occurred prior to the current Management's assumption of
control of the Registrant on the Closing Date and is based on information which
Management believes to be reasonably accurate, but not all of which does it have
direct knowledge. Notwithstanding the above, TPI is responsible for the
information contained in this registration statement.
On August 20, 1996, the Closing Date, in satisfaction of gross proceeds
of $155,000 received by, and certain services rendered, to TPI-Ontario, in the
period April 11 to July 25, 1996, the Registrant issued 160,000 shares of common
Stock to 15 investors (155,000 shares were issued for $1.00 per share and 5,000
shares were issued in exchange for consulting services and a technical review of
TPI-Ontario's conversion software). TPI-Ontario received such gross proceeds
pursuant to a private offering prior to the Closing Date. The 160,000 shares of
common stock were issued in reliance on the exemption from registration provided
by Rule 504 of Regulation D promulgated under the Act.
On the Closing Date, Samuel Hamann Graphix Inc. ("SHGI") issued
4,936,050 shares of common stock to Joter and 965,000 shares of common stock to
DTL, in exchange for common shares of TPI-Ontario, which common shares were
issued as of April 1, 1996. Joter and DTL, which are controlled by Messrs.
Mighton, McCann and Stepanoff, executive officers and directors of the
Registrant, acquired the common shares of TPI-Ontario in consideration for
certain rights in technology transferred to, and certain services rendered to,
TPI-Ontario prior to the Closing Date,
II-1
<PAGE>
which shares, for accounting purposes are deemed to have been issued in exchange
for nominal consideration as "founder's shares". Such shares were issued to
management in reliance on the exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended (the "Act").
Prior to the Closing Date, SHGI issued 740,869 shares of common stock,
which remain outstanding. The Registrant has no records concerning the
transactions in which such shares were issued or the consideration received by
TPI in respect of such issuances, nor does TPI know how many holders of such
securities presently exist.
Prior to the Closing Date (from August 9 through August 19, 1996), SHGI
issued, pursuant to a private offering, an aggregate of 1,465,000 shares of
common stock in consideration for gross proceeds of $14,654 received by SHGI
from investors. These transactions were not disclosed to current management of
the Registrant prior to or on the Closing Date. Present management is not aware
of the exemption relied on for the issuance of such shares; however, Samuel
Hamann Graphix Inc. filed a Form D dated August 16, 1996 claiming exemption
under Rule 504. Management believes that SHGI relied on Rule 504 of Regulation D
under the Act in issuing such securities.
On the Closing Date, SHGI issued 1,888,000 shares of common stock to 15
individuals in consideration for certain services rendered in connection with
the reverse acquisition including banking services, marketing, investor
relations and transfer agent services. Current management of the Registrant is
uncertain of the exemption relied on for the issuance of such shares, but
believes prior management relied on the exemption from registration provided by
Section 4(2) of the Act.
On the Closing Date, SHGI issued 455,000 shares of common stock to
Jaford Holdings Ltd., 100,000 shares of common stock to Innovations Ontario
Corp. and 150,000 shares of common stock to Ronald Content, in consideration for
the release by such companies and individual of certain claims with respect to
marketing rights as to the technology previously transferred to the Registrant
by Vladimir Stepanoff, an executive officer and director of the Registrant.
Prior to the incorporation of TPI-Ontario, Mr. Stepanoff had granted marketing
rights with respect to such technology to Raconix, of which Mr. Content was the
sole shareholder. Ronald Content is a sophisticated investor, who was involved
in the operations of the Registrant and received the shares for investment. The
shares were issued in reliance on the exemption from registration provided by
Section 4(2) of the Act. See "Description of Business -- Intellectual Property."
On November 25, 1996, the Registrant issued options to purchase 15,000
shares of common stock at an exercise price of $1.99 expiring on November 27,
1997, to a public relations firm, in consideration for certain services. The
options were issued in reliance on the exemption from registration provided by
Section 4(2) of the Act. The holder of the option, as the Registrant's public
relations firm, was fully familiar with the Registrant's operations and is a
sophisticated investor.
II-2
<PAGE>
On August 23, 1996, Registrant issued 500,000 units to Mayfair Advisory
Group Limited in consideration for gross proceeds of $500,000. Each unit
consisted of one share of common stock and a common stock purchase warrant (the
" warrants"). When issued, the warrants had a per share exercise price of $1.00,
were exercisable for a period of two years, commencing 30 days after the closing
of the offering, and were redeemable on 20 days prior written notice at a
redemption price of $.005 per Warrant. Pursuant to an amendment to the terms of
the warrants dated August 26, 1998, the warrants will not be exercisable until a
registration statement has become effective covering the common stock issuable
upon the exercise thereof; the term of such warrants has been extended through
six months following the effective date of such registration statement, and the
exercise price has been reduced to $.80 per share of common stock, subject to
certain adjustments in the event the market for TPI's common stock is less than
$.80 at the time of the exercise, but in no event shall the exercise price be
reduced below $.50 per share. The common stock and the warrants were issued in
reliance on the exemption from registration provided by Rule 504 of Regulation D
under the Act.
On January 27, 1997, Registrant issued 208,333 shares of common stock
to Olive Investments, in consideration for gross proceeds of $150,000. These
shares were issued in reliance on the exemption from registration provided by
Rule 504 of Regulation D under the Act.
On March 6, 1997, Registrant issued 501,030 shares of common stock to
Thomson Kernaghan & Co., Ltd. ("Thomson Kernaghan") in consideration for gross
proceeds of $375,000 (approximately $.75 per share). These shares were issued in
reliance on the exemption from registration provided by Rule 504 of Regulation D
under the Act.
On June 27, 1997, Registrant issued 100,000 units to Pinetree Capital
Corp. ("Pinetree") in consideration for gross proceeds of $70,000. The units
were issued to Pinetree pursuant to a Subscription Agreement by and between TPI
and Pinetree (the "Subscription Agreement") by which Pinetree subscribed for a
minimum of 700,000 units and a maximum of 1,000,000 units. The Subscription
Agreement was later amended to lower the minimum to 100,000 units. Pinetree
purchased the foregoing securities for its own account. Each unit consisted of
one share of common stock and a common stock purchase warrant expiring two years
from the date of issuance, and exercisable at $1.00 per share during the first
year and $1.50 per share during the second year. These securities were issued in
reliance on the exemption from registration provided by Rule 506 of Regulation D
under the Act.
On August 1, 1997, Registrant sold to Thomson Kernaghan an 8%
convertible subordinated debenture due July 31, 1998 in the principal amount of
$108,750 (the "Debenture") for a gross purchase price of $108,750. The debenture
was converted, on August 28, 1997, into 198,000 shares of common Stock at the
conversion rate of $0.55 per share. The debenture was issued in reliance on the
exemption from registration provided by Rule 504 of Regulation D, under the Act
and the shares of common stock issued on conversion of the debenture were issued
in reliance on the exemption from registration provided by Section 3(a)(9) of
the Act.
II-3
<PAGE>
On September 4, 1997, Registrant issued 589,000 shares of common stock
to Thomson Kernaghan in consideration for gross proceeds of $125,000 ($.21 a
share). These shares were issued in reliance on the exemption from registration
provided by Rule 504 of Regulation D under the Act.
On September 26, 1997, Registrant issued 400,000 shares of common stock
to Thomson Kernaghan in consideration for gross proceeds of $200,000 ($.50 a
share). These shares were issued in reliance on the exemption from registration
provided by Rule 504 of Regulation D under the Act.
On October 23, 1997, Registrant issued 400,000 shares of common stock
to Thomson Kernaghan in consideration for gross proceeds of $200,000 ($.50 a
share). These shares were issued in reliance on the exemption from registration
provided by Rule 504 of Regulation D under the Act.
On October 31, 1997, Registrant issued 100,000 shares of common stock
to Thomson Kernaghan in consideration for gross proceeds of $50,000 ($.50 a
share). These shares were issued in reliance on the exemption from registration
provided by Rule 504 of Regulation D under the Act.
On December 10, 1997, Registrant issued 977,778 shares of common stock
to Thomson Kernaghan in consideration for gross proceeds of $225,000 ($.23 a
share). These shares were issued in reliance on the exemption from registration
provided by Rule 504 of Regulation D under the Act.
On January 26, 1998, Registrant issued 444,445 shares of common stock
to Thomson Kernaghan in consideration for gross proceeds of $99,629 ($.22 a
share). These shares were issued in reliance on the exemption from registration
provided by Rule 504 of Regulation D under the Act.
On April 14, 1998, the Registrant agreed to sell up to an aggregate of
$3,000,000 of 6% convertible debentures and sold 6% convertible debentures, due
April, 2000, in the aggregate principal amount of $1,000,000 and issued warrants
to purchase 301,228 shares of common stock for gross proceeds of $1,000,000 (of
which $550,000 had a conversion rate of 70% of the 5-day average closing bid
price and $450,000 had a conversion rate of 80% of the 5-day average closing
asked price) as follows: Canadian Advantage LP ($275,000); Dominion Capital Fund
($275,000); Fetu Holdings ($250,000); and Livingstone Asset Management
($200,000). Each of the above claim the status as accredited investors as
organizations described in section 501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or partnership, not formed
for the specific purpose of acquiring the securities purchased, with total
assets in excess of $5,000,000. Each purchased its debentures and warrants for
investment. Canadian Advantage LP ("Canadian") was issued warrants to purchase
16,500 shares of common stock at $1.50 per share through April 14, 2000 and
warrants to purchase 66,338 shares of common stock at $.456 per share through
April 14, 2000; Dominion Capital Fund ("Dominion") was issued a like number of
identical warrants; Fetu Holdings ("Fetu") was issued like warrants to purchase
15,000 shares at $1.50 and 60,307 shares at $.456, and Livingstone Asset
Management ("Livingstone") was issued like warrants to purchase 12,000 shares at
$1.50 and 48,245 shares at $.456. From May 14, 1998 through October 27, 1998,
the aggregate principal amount of $879,000 plus interest was converted into
1,583,630 shares of common stock as follows: Dominion converted $221,000 plus
interest of debentures into 395,515
II-4
<PAGE>
shares of common stock, Canadian converted $262,500 plus interest into 428,176
shares of common stock, Fetu converted $217,500 plus interest into 443,993
shares of common stock and Livingstone converted $178,000 plus interest into
315,946 shares of common stock.
On May 21, 1998, the Registrant sold to Canadian 6% convertible
debentures due May 21, 2000 in the aggregate principal amount of $500,000.
Warrants to purchase 50,200 shares of common stock exercisable at the price of
$1.99 through May 21, 2000, were also issued to Canadian. On September 4, 1998,
the aggregate principal amount of $67,500 plus interest was converted into
167,388 shares of common stock. The debentures and warrants were issued in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act and Rule 506 of Regulation D.
On July 10, 1998 the Registrant sold to each of Canadian and Advantage
(Bermuda) Fund 6% convertible debentures due July 9, 2000 in the amount of
$250,000 for an aggregate of $500,000. Warrants to purchase an aggregate of
68,306 shares of common stock exercisable at the price of $1.464 through July 9,
2000, were also issued to Canadian (34,153) and Advantage (Bermuda) Fund
(34,153). On October 27-29, 1998, Advantage (Bermuda) Fund converted the
aggregate principal amount of $146,000 plus interest into 727,657 shares of
common stock. 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 September 22, 1998 the Registrant sold to Fetu Holdings 6%
convertible debentures due September 22, 2000 in the aggregate principal amount
of $200,000. Warrants to purchase 87,720 shares of common stock exercisable at
the price of $.456 through September 22, 2000, 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 October 6, 1998, the Registrant sold 6% convertible debentures, due
October 6, 2000, in the aggregate principal amount of $100,000 and issued
warrants to purchase 55,556 shares of common stock for gross proceeds of
$100,000 to: Canadian Advantage LP ($25,000); Dominion Capital Fund ($25,000);
Fetu Holdings ($25,000); and Advantage (Bermuda) Fund ($25,000). Each of the
above were also issued warrants to purchase 13,889 shares of common stock at
$.36 per share through October 6, 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 November 18, 1998, the Registrant sold 6% convertible debentures,
due November 18, 2000, in the aggregate principal amount of $200,000 and issued
warrants to purchase 101,010 shares of common stock for gross proceeds of
$200,000 to: Canadian Advantage LP ($50,000); Dominion Capital Fund ($50,000);
Fetu Holdings ($50,000); and Advantage (Bermuda) Fund ($50,000). Each of the
above were also issued warrants to purchase 25,253 shares of common stock at
$.396 per share through November 18, 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.
II-5
<PAGE>
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 13, 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.
Canadian Advantage Limited Partnership rescinded, and TPI accepted,
the conversion of an aggregate of $57,000 plus interest of debentures and
returned 201,736 shares of common stock. The debentures were converted in
error and were in excess of 4.9% of TPI's outstanding common stock, which
violated the terms of the debentures. Such transaction was effected in
April 1999.
The debentures, the warrants and the common stock issued on conversion
of the debentures were issued in reliance upon the exemption set forth in
Sections 4(2) of the Act and Rule 506 thereunder. Such securities were purchased
for investment and not with a view to the public distribution thereof. The
common stock issued upon conversion of the debentures were further issued in
reliance on Section 3(a)(9) of the Act. In both the issuance of the debentures
and the common stock the certificates representing such securities bear a legend
preventing resale in the absence of registration with the Commission or an
exemption therefrom.
II-6
<PAGE>
ITEM 27. EXHIBITS
(a) EXHIBITS
3.1 Articles of Incorporation of Samuel Hamann Graphix, Inc. (Nevada)
as amended.(1)
3.2 Articles of Merger between Samuel Hamann Graphix, Inc. (Nevada)
and Samuel Hamann Graphix, Inc. (California).(1)
3.3 By-laws of Transformation Processing Inc. (Nevada).(1)
3.4 Articles of Merger between of TPI (Ontario) and TPI (Nevada).(1)
*5.1 Opinion of Snow Becker Krauss P.C.
10.1 Employment Agreement between TPI and Paul G. Mighton dated January
1,1997.(1)
10.2 Employment Agreement between TPI and Vladimir Stepanoff dated
January 1, 1997.(1)
10.3 Letter Agreement dated September 29, 1997 as amended January 6,
1998 between Douglas Woolridge and TPI.(1)
10.4 Form of Software Conversion Agreement.(1)
10.5 Form of Professional Services Agreement.(1)
10.6 Form of Deployment Products License Agreement.(1)
10.7 Form of Software License Agreement.(1)
10.8 Business Development Agreement between Lotus Development
Corporation and TPI.(1)
10.9 Bill of Sale and Assignment of Copyright, dated July 17, 1996
between CyberPlan Enrg. and TPI as amended as of March 10,
1998.(1)
10.10 Referral Program Agreement dated November 18, 1997 between Y2K
Plus and TPI.(1)
II-7
<PAGE>
10.11 Referral Program Agreement dated November 12, 1997 between MCW
Business Systems Ltd. and TPI.(1)
10.12 Teaming Agreement dated April 21, 1997 between SHL Systemhouse
Inc. and TPI.(1)
10.13 Software License Agreement, Value Added Reseller Agreement and
addendum dated April 23, 1997 between IntellAgent Control
Corporation and TPI.(1)
10.14 Professional Services Subcontract Agreement dated May 15, 1997
between GE IT Solutions/Universal Data Consultants and TPI.(1)
10.15 Settlement Agreement and Release, among Ronald A. Content, Raconix
Corporation, Raconix Europe Limited and TPI each dated June 16,
1997.(1)
10.16 Demand Promissory Notes dated July 31, 1997, payable to TPI made
by Gary G. McCann, Paul Mighton and Vladimir Stepanoff.(1)
10.17 Customer Agreements and Small Business Loan Registrations, between
the Bank of Nova Scotia and TPI pertaining to purchase money bank
loans.(1)
10.18 Guarantees of Bank loans, dated January 30, 1997 and November 27,
1997 by Gary G. McCann, Paul Mighton, Vladimir Stepanoff and John
McGee in favor of the Bank of Nova Scotia.(1)
10.19 Program Product License Agreement, dated October 21, 1997, between
Allegient Legacy Solutions, Inc. and TPI.(1)
10.20 TPI's 1998 Stock Option Plan.(2)
10.21 Real Estate Sublease Agreement dated June 29, 1998, between TPI
and Origin Technology In Business Inc.(2)
10.22 Settlement Agreement dated May 27, 1998, between TPI and IBS
Conversion, Inc. This Exhibit has been omitted and filed
separately with the SEC pursuant to a request for confidential
treatment.
*10.23 Mutual Full and Final Release between TPI and Jaford Holdings
Limited.
*10.24 Independent Sales Representative Agreement dated June 18, 1998,
between TPI and Amigos Sales Representatives.
*10.25 Employment Agreement between TPI and Warren Strutt dated
April 27, 1999.
II-8
<PAGE>
*21.1 Subsidiaries of the Registrant.
*23.1 Consent of Goldstein Golub Kessler LLP.
*23.2 Consent of Snow Becker Krauss P.C. (Included in Exhibit 5.1)
(1) Incorporated by reference from the Form 10-SB filed by the company on
March 12, 1998 and amended on August 31, 1998 and October 22, 1998.
(2) Incorporated by reference from the Form 10-KSB filed by the company on
November 13, 1998.
* Filed herewith.
----------------------------
ITEM 28. UNDERTAKINGS
(a) RULE 415 OFFERING
The Registrant hereby undertakes:
(1) To file, during any period in which if offers or sells securities,
a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information set
forth in the registrant statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement relating to the
securities offered, and the offering of such securities at that time to be the
initial bona fide offering thereof.
II-9
<PAGE>
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(e) REQUEST FOR ACCELERATION OF EFFECTIVE DATE
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of the expenses
incurred or paid by a director, officer, or controlling person of the small
business issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(f) RULE 430A OFFERING
For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Mississauga, Dominion of Ontario, on May 27, 1999
TRANSFORMATION PROCESSING INC.
BY: /S/ PAUL G. MIGHTON BY: /S/ WARREN P.A. STRUTT
- ----------------------- --------------------------
Paul G. Mighton Warren P.A. Strutt
Chairman of the Board Chief Financial Officer &
Accounting Officer
POWER OF ATTORNEY
Each of the undersigned hereby authorizes Paul G. Mighton or Warren
P.A. Strutt as his attorney-in-fact to execute in the name of each such person
and to file such amendments (including post-effective amendments) to this
registration statement as the Registrant deems appropriate and appoints such
person as attorney-in-fact to sign on his behalf individually and in each
capacity stated below and to file all amendments, exhibits, supplements and
post-effective amendments to this registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on May 27, 1999
in the capacities indicated.
/S/ PAUL G. MIGHTON Chief Executive Officer
- ------------------- and Director
Paul G. Mighton
/S/ WARREN P.A. STRUTT Chief Financial Officer,
- ----------------------
Warren P.A. Strutt
/S/ VLADIMIR STEPANOFF Vice President of
- ---------------------- Technology and Director
Vladimir Stepanoff
II-11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Name
<S> <C>
5.1 Opinion of Snow Becker Krauss P.C.
10.23 Mutual Full and Final Release between TPI and Jaford Holdings
Limited.
10.24 Independent Sales Representatives Agreement dated June 18, 1998,
between TPI and Amigos Sales Representatives.
10.25 Employment Agreement between TPI and Warren Strutt dated
April 27, 1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Goldstein Golub Kessler LLP.
23.2 Consent of Snow Becker Krauss P.C. (Included in Exhibit 5.1)
</TABLE>
<PAGE>
Exhibit 5.1
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-0125
May 27, 1999
Transformation Processing Inc.
5500 Explorer Drive,
Suite 2000
Mississauga, Ontario L4W 5C7
Ladies and Gentlemen:
You have requested our opinion with respect to the offer and sale by
the selling securityholders of Transformation Processing Inc., a Nevada
corporation (the "Company"), pursuant to a Registration Statement (the
"Registration Statement") on Form SB-2 under the Securities Act of 1933, as
amended (the "Act"), of up to 25,649,695 shares (the "Shares") of common stock,
par value $.001 per share, of TPI.
We have examined original, or copies certified or otherwise identified
to our satisfaction, of such documents and corporate and public records as we
deem necessary as a basis for the opinion hereinafter expressed. With respect to
such examination, we have assumed the genuineness of all signatures appearing on
all documents presented to us as originals, and the conformity to the originals
of all documents presented to us as conformed or reproduced copies. Where
factual matters relevant to such opinion were not independently established, we
have relied upon certificates of executive officers and responsible employees
and agents of TPI. Based on the foregoing, it is our opinion that 2,480,679 of
the Shares included in the Registration Statement have been legally issued and
duly authorized and are fully paid and nonassessable; that the 23,169,016 shares
underlying warrants, options and convertible securities referred to in the
Registration Statement have been duly authorized and when paid for and issued as
contemplated by such warrants, options and convertible securities, will be duly
and validly issued and fully paid and nonassessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement, and to the use of our name as your counsel in connection
with the Registration Statement and in the prospectus forming a part thereof. In
giving this consent, we do not thereby concede that we come within the
categories of persons whose consent is required by the Act or the General Rules
and Regulations promulgated thereunder.
Very truly yours,
/s/ SNOW BECKER KRAUSS P.C.
-----------------------------
SNOW BECKER KRAUSS P.C.
<PAGE>
EXHIBIT 10.23
MUTUAL FULL AND FINAL RELEASE
THIS Mutual Full and Final Release entered into between Jaford Holdings
Limited ("Jaford"), John Frederick ("Frederick") and Transformation Processing
Inc. ("TPI"), Joter Holdings Corporation ("Joter").
IN CONSIDERATION for mutual promise contained herein, the sum of THREE
HUNDRED AND SEVENTY- ONE THOUSAND DOLLARS ($371,000) paid by TPI to Jaford and
such further and other consideration, the receipt and sufficiency of which is
hereby acknowledged, Jaford, Frederick and TPI, Joter do hereby agree to
release, remise and forever discharge the other, their respective present and
former officers, directors, employees and affiliated or related corporations, of
and from all manner of actions, causes of actions, suits, debts, dues,
covenants, obligations, duties, claims and demands for monies, damages,
indemnity, costs and interest which, as against each other, they ever had, now
have or which they hereafter can, shall or may have for or by reason of any
cause, matter or thing whatsoever existing up to the present time, arising out
of or in any way related to the matters contained in, or that could have been
contained in, the action commenced by TPI and Joter against Jaford and Frederick
being Court File No. 98-CV-145558 in the Ontario Court (General Division) and
the Application commenced by Jaford against Joter and TPI being Court File No.
98-CV- 145464 in the Ontario Court (General Divisions).
IT IS EXPRESSLY UNDERSTOOD that the payment of the amount mentioned
within are deemed to be no admission of liability on the par of TPI or Joter,
and the
<PAGE>
undersigned do covenant and agree that either by payment herein or otherwise is
any liability for the said matters in this Release admitted and such liability
is expressly denied.
JAFORD, FREDERICK AND TPI, JOTER further agree not to make any claim or
take any proceedings in relation to the subject matters of this Release against
any other person or corporation or the Crown in which any claim could arise
against a party to this Release, for contribution or indemnity or any other
relief over.
JAFORD, FREDERICK AND TPI, JOTER agree that this Mutual Full and Final
Release shall be binding upon and enure to the benefit of their respective
successors and assigns.
IT IS HEREBY DECLARED that the undersigned have had adequate
opportunity to read and consider this Mutual Full and Final Release and to
obtain such legal advice in regard to it as they have considered advisable, that
they have received the benefit of independent legal advice, and that the terms
of this Mutual Full and Final Release are fully understood and that the said
Mutual Full and Final Release is given voluntarily for the purpose of making a
full and final compromise, adjustment, settlement and release of all claims
aforesaid.
IN WITNESS WHEREOF the undersigned have executed this Release by their
corporate signing officer duly authorized in that regard this _____ day of _____
1998.
JAFORD HOLDINGS LIMITED
Per
/s/ JOHN FREDERICK
-------------------------
I have the authority to bind the Corporation
<PAGE>
/s/ JOHN FREDERICK
-------------------------
JOHN FREDERICK
TRANSPORTATION PROCESSING INC.
PER
/s/ PAUL MIGHTON
-------------------------
I have the authority to bind the Corporation
JOTER HOLDINGS CORPORATION
PER
/s/ GARY MCCANN
------------------------
I have the authority to bind the Corporation
<PAGE>
EXHIBIT 10.24
INDEPENDENT SALES REPRESENTATIVE AGREEMENT
TRANSFORMATION PROCESSING INC. (TPI)
(A NEVADA CORPORATION)
2121 ARGENTIA ROAD, SUITE 200
MISSISSAUGA, ONTARIO
L5N 2X4
- AND -
AMIGOS SALES REPRESENTATIVES
(INDEPENDENT SALES REPRESENTATIVES)
4751 NELSON ROAD N.W.
CALGARY, ALBERTA
T2K 2L8
FACSIMILE: (403) 540-0986
JUNE 18,1998
<PAGE>
INDEPENDENT SALES REPRESENTATIVE AGREEMENT
TABLE OF CONTENTS
SCOPE 1
TERRITORY, LEADS, INSIDE SALES, ACCOUNT ASSIGNMENT AND EXPENSES 1
COMPENSATION 2
TERM 2
REPRESENTATIVES' MARKETING OBLIGATIONS 2
NON-COMPETITION 3
CONFIDENTIALITY 3
JURISDICTION 3
GENERAL 3
APPENDIX I - JOINT SALES FORM 5
<PAGE>
SALES AGREEMENT
This document details an agreement between AMIGO ("Independent Sales
Representatives") and Transformation Processing Inc. ("TPI"), a Nevada
Corporation.
WHEREAS TPI is in the business of providing software and related
services requiring sales representation.
AND WHEREAS the Independent Sales Representatives are persons desiring
to sell these technologies and services. The two parties hereby agree as
follows:
1. SCOPE
The scope of this Agreement covers commissioned sales of TPI licensed products
and services in an assigned territory, or in specific accounts, or both. No
offer of employment is implicitly or explicitly made. The Independent Sales
Representative is responsible for payment of all personal and/or corporate
income, withholding and unemployment taxes and CPP, excluding Goods and Services
Taxes (GST), that may accrue as commissions are earned.
2. TERRITORY, LEADS, INSIDE SALES, ACCOUNT ASSIGNMENT AND EXPENSES
(a) TERRITORY - Independent Sales Representative is assigned the geographic
territory on a nonexclusive and global basis.
(b) LEADS - TPI will provide the Independent Sales Representative with
sales leads in the Independent Sales Representative's territories that
make sense.
(c) INSIDE SALES - TPI intends to handle some transactions via the
Internet, direct mail, 800 sales and catalogue sales. When these sales
are made to accounts that have been assigned to an Independent Sales
Representative, and have been actively worked by him, the Independent
Sales Representative will receive commission on these sales.
(d) ACCOUNT ASSIGNMENT - The involvement of the Independent Sales
Representative in an account shall be confirmed by the completion by
the Independent Sales Representative and TPI, of a TPI Independent
Sales Representative joint sales form. This includes the follow-on
business generated within an assigned account. Acceptance of the
account shall not be unreasonably withheld by TPI.
(e) EXPENSES - Each organization is responsible for their respective
expenses. TPI will reimburse AMIGOS expenses on the successful contract
signing on a pre-approved basis.
During the currency of this Agreement, TPI shall:
(a) Provide the Independent Sales Representative with all
technical and advertising literature reasonably necessary to
enable the Independent Sales Representative to perform its
obligations under this Agreement.
-1-
<PAGE>
(b) Provide TPI expenses as related to supporting the Independent
Sales Representative on such pre-approved activities as
seminars, presentations, education, etc. as well as pay all
expenses as related to providing the actual service to the
customer.
During the currency of this Agreement, the Independent Sales
Representative shall:
(a) Be solely responsible for all long distance telephone and
facsimile charges, travel and automobile expenses incurred by
him in carrying out his duties under this Agreement.
3. COMPENSATION
(a) Independent Sales Representatives are remunerated on the basis of
commissions paid for all sales accepted by TPI to identified and
approved accounts within the Independent Sales Representative's defined
territory. The rate at which commissions are calculated is ten percent
(10%) of the gross sale amount.
(b) (i) Payment of commissions to Independent Sales
Representatives shall occur within thirty (30) days of names
account payments to TPI.
(ii) Good and Services (GST) is payable on all commissions.
(iii) Overdue accounts shall accrue interest at the rate of two
percent (2%) per month (24% per annum). TPI shall not
unreasonably withhold commission payments.
(c) Copies of all defined account TPI invoices shall be provided to the
Independent Sales Representative to assist in determining commissions.
(d) Reversal - Commissions will be reversed for a specific customer if that
customer falls to make payment to TPI.
4. TERM
(a) This Agreement commences on April 1, 1998 and expires on March 30, 2000.
(b) If the Independent Sales Representative falls to abide by the covenants
of this Agreement, TPI may terminate the Agreement upon thirty (30)
days written notice.
(c) The parties have the option to cancel this Agreement without cause with
thirty (30) days written notice.
(d) Upon termination of this Agreement, all sales to defined and accepted
accounts for a period of six (6) months will have the full ten percent
(10%) commission paid to the Independent Sales Representative. This
payment will occur when the customer pays TPI, regardless of the time
frame this occurs. The ten percent (10%) commission is paid on accounts
accepted by TPI (booked) and include project revenue placed into
backlog.
"Booked" are defined as contracts accepted by TPI.
"Backlog" is defined as project revenue.
-2-
<PAGE>
The booking and backlog reports will be made available to the
Independent Sales Representatives upon request.
5. REPRESENTATIVES' MARKETING OBLIGATIONS
(a) The Independent Sales Representative agrees to conduct business in a
highly ethical manner and in accordance with all local, provincial and
federal statutes.
(b) The Independent Sales Representative agrees to identify himself/herself
as a representative of TPI in all communications, whether oral or
written, with TPI prospects, customers or business partners.
(c) With regard to territory and account management, the Independent Sales
Representative agrees to:
(i) periodic reporting on account plans and status as requested by
TPI; and
(ii) pursue all leads provided by TPI.
6. NON-COMPETITION
The Independent Sales Representative agrees not to directly compete with TPI
products and services by offering or selling products and/or services which are
substantially the same during the term of this Agreement. TPI and the
Independent Sales Representative shall mutually determine whether another
product is or is not "substantially the same".
7. CONFIDENTIALITY
(a) In the performance of this Agreement, the Independent Sales
Representative may have access to private or confidential information
owned or controlled by TPI relating to equipment, apparatus, programs,
software, specifications and other information that may contain
proprietary details and disclosures. The Independent Sales
Representative agrees that such information remains TPI's exclusive
property and shall use its best efforts both during and after the
termination of this Agreement to assure the confidentiality of this
information.
(b) The Independent Sales Representative may not disclose such information
to anyone, except with TPI's written permission and only to those who
have signed TPI's Non-Disclosure Agreement.
(c) The conditions in 7(a) and 7(b) do not apply to information which is or
which becomes generally known to the public by publication or by any
means other than a breach of duty on the part of the Independent Sales
Representative.
8. JURISDICTION
This Agreement shall be made and construed in accordance with the laws of the
Province of Ontario.
9. GENERAL
(a) ENTIRE AGREEMENT
-3-
<PAGE>
(i) This Agreement states the entire agreement between the
parties.
(ii) No amendment or modification of this Agreement shall be made
except as specifically provided herein, or by an instrument in
writing signed by both parties and clearly marked as amendment
or modification.
(b) SEVERABILITY - In the event that any part or provision of this Agreement
shall be declared by a court of competent jurisdiction to be illegal,
invalid or unenforceable, it shall not affect the validity of the
remaining provisions and such invalid or illegal portion shall be
rescinded and deleted as if they had never been part hereof, and all
other provisions shall continue in full force and effect.
(c) LIMITATION OF DAMAGES IN THE EVENT OF TERMINATION - In the event of
termination of this sales agreement for any reason, the Independent
Sales Representative shall have no claim against TPI for damages or
otherwise, except for compensation owed and still outstanding at the
termination of this Agreement, as provided by Section 4(d).
(d) FORCE MAJEURE - Neither party shall be responsible for delays nor
failures in performance resulting from acts beyond the control of such
party. Such acts include, but are not limited to, acts of God, strikes,
riots, war, epidemics, fire, communication line failure, earthquakes,
and other disasters.
(e) NOTICES - All notices or other communications hereunder shall be in
writing, sent by express mail or email, and shall be deemed given if,
(i) Delivered by hand;
(ii) Mailed by registered mail (or its equivalent under the postal
regulations of the nation in which the Independent Sales
Representative has its official residence), return receipt is
requested;
(iii) Sent by overnight courier to the address set forth herein or such
other address as may be specified in a written notice delivered
to the other party; or
(iv) Sent by e-mail with an acknowledgment notice of receipt.
(f) ASSIGNMENT - This Agreement is not assignable by the Independent Sales
Representative.
(g) LIMITATION OF LIABILITY, - The Independent Sales Representative shall
use only those legal documents and contracts as provided by TPI. Any
modifications must be approved by TPI in writing. The Independent Sales
Representative shall represent TPI products and services, and will not
be responsible for any liability regarding these products and services.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands by an officer duly
authorized as of the date first above written.
AMIGOS SALES REPRESENTATIVES TRANSFORMATION PROCESSING INC.
/s/ Paul G. Mighton
- --------------------------------- -------------------------------------
(PRINT) Paul G. Mighton
- ---------------------------------
Independent Sales Representative's Name Chairman and Chief Executive Officer
4651 NELSON ROAD S.W. 2121 ARGENTIA ROAD, SUITE 200
CALGARY,AB MISSISSAUGA, ON
T2K 2L8 L5N 2X4
-5-
<PAGE>
APPENDIX I
TPI INDEPENDENT SALES REPRESENTATIVE
JOINT SALES FORM
================================================================================
SALES
REPRESENTATIVE INFORMATION
================================================================================
TPI INDEPENDENT SALES
REPRESENTATIVE
NAME: NAME:
------------------------------ ------------------------------
PHONE: PHONE:
------------------------------ ------------------------------
E-MAIL: E-MAIL:
------------------------------ ------------------------------
FAX: FAX:
------------------------------ ------------------------------
================================================================================
ACCOUNT INFORMATION:
-----------------------------------------------------------
ACCOUNT NAME:
------------------------------------------------------------------
CONTACT NAME:
------------------------------------------------------------------
OPPORTUNITY DESCRIPTION:
-------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURES
TPI INDEPENDENT SALES REP
DATE: DATE:
----------------------------- ------------------------------
NAME: NAME:
----------------------------- ------------------------------
SIGNATURE: SIGNATURE:
------------------------ -------------------------
E-MAIL SUBMIT: E-MAIL SUBMIT:
-------------------- ---------------------
-6-
<PAGE>
[GRAPHIC OMITTED]
EXHIBIT 10.25
TRANSFORMATION PROCESSING INC. (TPI)
5500 EXPLORER DRIVE, SUITE 2000
MISSISSAUGA, ONTARIO
L4W 5C7
TRANSFORMATION PROCESSING INC. (TPI)
MANAGEMENT EMPLOYMENT CONTRACT
AGREEMENT made and entered into at the City of Mississauga, in the Province of
Ontario, Canada, this 27th day of April , 1999.
BY AND BETWEEN: Transformation Processing Inc. ("TPI"), body corporate under the
laws of Ontario, having an office at 5500 Explorer Drive, Suite 2000,
Mississauga, Ontario L4W 5C7.
PARTY OF THE FIRST PART
AND: Warren Strutt (the "Employee"),
and domiciled at: 6780 Formentera Avenue #82
Mississauga, Ontario
L5N 2L1
PARTY OF THE SECOND PART
RECITALS
A. Employer is in the business of Software Development and Professional Services
and TPI is otherwise engaged in the business of Information Technology.
B. Employee has agreed to provide services as Chief Financial Officer (CFO) to
Employer and to enter into this agreement with Employer.
NOW THEREFORE, Employer and Employee do hereby stipulate, covenant and agree as
follows:
<PAGE>
1. EMPLOYMENT
Employer hereby employs Employee and Employee hereby accepts employment
upon the terms and conditions set forth in this Agreement. Employee
hereby warrants and covenants that he is not bound by any legal
obligation inconsistent with him entering into this Agreement.
2. DUTIES AND RESPONSIBILITIES
TPI retains the professional services of the Employee as Chief
Financial Officer, responsible for:
All financial preparations on behalf of TPI;
All financial reporting requirements for securities and operations;
Preparation of all Client and Vendor Contracts; Implementation of
internal accounting processes and controls; Preparation of internal
budgeting and reporting structure; Other duties as assigned.
Employee hereby warrants and covenants that he is not bound by any
legal obligation inconsistent with him entering into this Agreement.
Employee is employed to provide services as Chief Financial Officer
responsible for performing the tasks accepted within the framework and
time schedule of all projects to the satisfaction of TPI.
3. SERVICE
Employee agrees that he will service Employer faithfully and to the
best of his ability and devote his full working time to the business
affairs of Employer and the promotion of Employer's business, in
accordance with Employer's directions, instructions and specifications.
Employee shall be bound by and shall faithfully observe and abide by
all the rules and regulations of Employer from time to time in force
which are brought to his notice or of which he should reasonably be
aware.
The Employee agrees to represent himself as an employee of TPI for the
purposes of this agreement and for any other agreements TPI makes with
the Client regarding the Employee, whether verbal or written, in which
this agreement may result. The Employee hereby understands and agrees
not to promote or market himself to the Client as anything other than a
Chief Financial Officer of TPI. Employee agrees not to participate or
hold office with any other organization at the time of his employ with
TPI and prior to the effective date of this contract declare that this
is the status as he joins the company.
4. SAFE PERFORMANCE OF DUTIES
In the position of Chief Financial Officer, the Employee may operate a
motor vehicle on a regular and ongoing basis in the course of carrying
out his duties under the terms of this Agreement. Any insobriety while
performing under this Agreement or any use of illegal drugs shall be
cause for immediate termination.
2
<PAGE>
5. TERM
The employment of the Employee hereunder shall begin on the 27th day of
April, 1999 and shall continue until otherwise terminated as provided
for in this agreement.
6. COMPENSATION AND BENEFITS
In consideration for services rendered by Employee hereunder, he shall
receive:
SALARY. Employer shall provide, bi-weekly in 26 installments a salary
of three thousand and seventy-six dollars and ninety-two cents
($3846.15) gross pay for the period effective May 24, 1999, during
which Employee is employed, through and including the date of
termination of employment in accordance with the termination
provisions herein set forth.
BONUS. Employee will have the opportunity to earn up to 250,000 TPI
share options through performance incentives during the first year
of employment. The criterion for this incentive program will be
provided to the Employee within the first 90 days of full time
employment and on the anniversary of this Agreement for each
subsequent year.
Further to this individualized program, the Employee will be
invited to participate in Employer operated company wide sales
incentive programs run from time to time. These programs entitle
participants to a share of a bonus pool calculated on a percentage
of the gross sales developed over the program period.
AUTO EXPENSES. Employer shall also pay on a monthly basis, expenses for
the use of the Employees personal conveyance in the amount of
$0.35 per kilometre. This amount adjusts to $0.33 per kilometre
after 5000 kilometres per year. This expense is payable on
condition of providing the necessary administrative forms as per
Employer policy.
VACATION. Employee shall be entitled to three (3) weeks of paid
vacation in the first year and each subsequent year to a vacation
with pay in accordance with Employer policy.
EXPENSES. Employee shall be reimbursed for all authorized traveling and
other out of pocket expenses actually and properly incurred by him
in connection with his duties hereunder. For all such expenses
employee will provide original receipts, otherwise the employee
will be responsible for paying his own expenses.
BENEFITS. Employee shall participate in all employee benefit plans as
are provided by Employer from time to time: provided he is
otherwise eligible to participate and desires to be covered and so
participates; provided further that nothing herein shall be
construed to obligate Employer in any manner to put into effect
any plans not presently in existence or to provide special
benefits to Employee.
7. TERMINATION
3
<PAGE>
a. FOR CAUSE. Employer shall have the right at any time, for cause, to
terminate the employment of Employee without notice. For purposes of
this Agreement, "for cause" shall include, but not be limited to, the
following:
Breach of any provision of this Agreement by Employee;
Insobriety of Employee while performing duties under this
Agreement;
Any act of dishonesty or falsification of reports, records or
information submitted to Employer by Employee;
Misrepresentation of TPI to clients;
Use of illegal drugs.
b. PURSUANT TO NOTICE. Employer may terminate this Agreement upon
giving the minimum statutory notice. Notwithstanding the foregoing,
Employer may terminate this Agreement immediately upon paying Employee
the minimum statutory requirements in lieu of such notice and upon
making the benefit plan contributions necessary to maintain Employee's
participation for the minimum period prescribed by law in all benefit
plans provided to Employee by Employer immediately prior to the
termination of this Agreement. Employee agrees that Employer may deduct
from any payment of salary in lieu of notice hereunder Employee's
benefit plan contributions which were regularly made during the term of
this Agreement in accordance with the terms of all benefit plans to be
maintained hereunder for the minimum period prescribed by law.
c. Employer may from time to time , advance monies to Employee in
anticipation of possible bonus entitlement in accordance with
Exhibit A of this Agreement. AS PERMITTED BY REGULATION 325, SECTION
14 OF THE EMPLOYMENT STANDARDS ACT, EMPLOYEE HEREBY GIVES HIS
WRITTEN AUTHORIZATION TO DEDUCT SUCH ADVANCES FROM ANY AMOUNTS
PAYABLE BY EMPLOYER TO EMPLOYEE UNDER SECTION 7(B) ABOVE.
d. The parties confirm that the notice and pay in lieu of notice
provision contained in Section 7(b) is fair and reasonable and the
parties agree that upon any termination of this Agreement by Employer
in accordance with Section 7(b) or upon any termination of this
Agreement by Employee, Employee shall have no action, cause of action,
claim or demand against Employer or any other person as a consequence
of such termination.
e. DUTIES UPON TERMINATION. In the event the employment of Employee is
terminated for any reason whatsoever including the expiration of the
term of this Agreement, Employee shall deliver immediately to Employer
all customer lists, correspondence, letters, contracts, call reports,
price lists, manuals, mailing lists, investor lists,(hard copy or
electronically stored) advertising materials, ledgers, supplies,
equipment, cheques, petty cash, and all other materials and records of
any kind that may be in Employees possession or under his control which
belong to the Employer by the Employee, including any and all copies of
such items previously described in this paragraph.
f. TERMINATION BY EMPLOYEE. Employee may terminate this Agreement upon
giving the minimum statutory written notice to Employer. In such event,
Employer's only obligations to Employee shall be to continue to employ
Employee during the period of
4
<PAGE>
notice under this Section 7(f) or pay employee in lieu of such notice
an amount equal to Employee's base salary for the period of notice
under this Section 7(f). In the event this Agreement is terminated by
Employee under this Section 7(f) the provisions of Sections 7(e) and 8
shall continue to apply.
RESTRICTIVE COVENANT
Employee acknowledges and recognizes that the list of customers (
whether now existing or developed during the period of his/her
employment by him/her or at his/her discretion) and business
methodology of Employer are a valuable, special and unique asset of
Employer and were acquired or will be hereafter acquired at
considerable expense to Employer and that said lists and business
methodologies are confidential and are a valuable trade and business
secrets and assets belonging to Employer and TPI. Furthermore, it is
stipulated and agreed by Employee that during the term of this
Agreement Employee will be placed in a position by Employer to become
acquainted with its confidential and privileged information relating to
customer files and special customer information, production methods and
techniques, promotional materials and information and confidential
processes, designs, ideas, machinery, plans, devices or materials, and
other similar matters treated by Employer and TPI as confidential (the
"Confidential Information") and that the use of the Confidential
Information by persons or entities other than Employer and TPI against
Employer and TPI might seriously damage Employer and TPI in its
business. As a consequence of the above, in return for the
consideration of his employment and the payment of his salary and
receipt of other benefits, that in the event of termination of his
employment for any reason whatsoever, Employee agrees as follows:
a. NOT TO DIVULGE CONFIDENTIAL INFORMATION. During the term of his
employment under this Agreement and thereafter, Employee shall not,
without the prior written consent of Employer, divulge, furnish or make
accessible to any third person, company or other organization (other
than in the regular course of business of Employer), any of the
Confidential Information concerning Employer or TPI.
b. NOT TO COMPETE. Employee will not, directly or indirectly, will not
in any way divert or attempt to divert from Employer any business
whatsoever and Employee does further agree that during said restrictive
period he will not influence or attempt to influence any of the
customers of Employer not to do business with Employer, and Employee
does further agree that he will not make or permit the making of any
public announcement or statement of any kind that Employee was formerly
employed or connected with Employer, which announcement has as its
purpose directly or indirectly the intent to violate the provision of
this Agreement. The term "customer" as used herein, shall mean any
person or entity to which the Employer provides or has provided within
a period of one year prior to Employee's termination, materials, or
services for the furtherance of such entity or person's business or any
person or entity that within said period of one year Employee pursued
or communicated with for the purposes of obtaining business for
Employer.
c. ENFORCEMENT. It is stipulated that a breach by Employee of the
restrictive covenants set forth herein will cause irreparable damage to
Employer, and that in the event of any breach of the provisions under
subparagraphs (a) and (b) above, Employer, in addition to any other
remedies it has, shall be entitled to any and all of the following
remedies:
5
<PAGE>
An injunction restraining the Employee from violating or continuing to
violate the restrictive covenants contained herein. It is further
stipulated that the existence of any claim or cause of action on the
part of Employee against Employer, whether arising from this Agreement
or otherwise, shall in no way constitute a defense to the enforcement
of the restrictive covenants contained herein, and the restrictive
period for which Employer is entitled to an injunction shall be
extended in an amount which equals the time period during which
Employee is or has been in violation of the restrictive covenants
contained herein.
9. PROVISIONS WHICH OPERATE FOLLOWING TERMINATION
Notwithstanding any termination of this Agreement for any reason
whatsoever and with or without cause, the provisions of all sections
and any other provisions of this
Agreement necessary to give efficacy thereto shall continue in full force and
effect following such termination.
OTHER EMPLOYMENT
Employee shall devote his entire time, attention and energy to
Employer's business during the course of fulfilling the duties outlined
herein. While employed hereunder, Employee shall not, directly or
indirectly, either individually or through any corporation, partnership
or other business entity, engage or be interested in any other
business, and he may not engage in any activity whatsoever, regardless
of where located, detrimental to the business interests of Employer.
Provided, however, that Employer may participate as a stockholder,
director, officer or employee of Employer or TPI.
ENTIRE AGREEMENT
This Agreement sets forth the entire understanding between the parties
with respect to the terms of Employee's employment, and supersedes any
prior Agreements, whether written or oral, concerning the subject
matter. There are no representations, warranties, conditions,
undertakings, or collateral agreements expressed or implied statutory
between the parties other than an expressly set forth in this
Agreement. This Agreement cannot be amended except by a writing signed
by both parties provided, however, that Exhibit A may be amended by
Employer without Employee's consent as provided in said exhibit and,
further, Employer may, from time to time amend Employer's Rules and
Regulations which are incorporated by reference.
NO WAIVER
No waiver of any term or provision of this Agreement shall be deemed to
be a waiver of any subsequent breach of such term or provision of this
Agreement.
GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the province of Ontario and the laws of Canada applicable
therein.
ATTORNMENT
For the purpose of all legal proceedings this Agreement shall be deemed
to have been
6
<PAGE>
performed in the Province of Ontario and the Courts of the Province of
Ontario shall have jurisdiction to entertain any action arising under
this Agreement. Employer and Employee each hereby attorns to the
jurisdiction of the courts of the Province of Ontario provided that
nothing herein contained shall prevent Employer from proceeding at its
election against Employee in the Courts of any other province or
country.
NOTICES
Any notice that may be given hereunder shall be sufficient if in
writing and mailed by certified mail, return receipt, requested, to
Employee at 6780 Formentera Avenue #82, Mississauga, Ontario, L5N 2L1
and to Employer at 5500 Explorer Drive, Suite 2000, Mississauga,
Ontario, L4W 5C7 or at such place as either party by written notice
designates.
HEIRS AND ASSIGNS
This Agreement may be assigned by Employer only, and shall be binding
upon the parties hereto, their successors and heirs, wherever the
context admits or requires.
SEVERANCE CLAUSE
The parties agree that each of the parts and provision of this
Agreement are severable and the invalidity or unenforceability of any
one or more of the provisions or parts of this Agreement shall not
affect the validity and/or enforceability of any other part or
provision of this Agreement.
LEGAL FEES
In the event the Employer must enforce any of the rights herein granted
to it through a lawyer, then Employee shall be liable for any and all
reasonable legal fees, expenses and court costs, in connection with the
enforcement of Employer's rights hereunder.
GENDER
Any reference in this Agreement to the masculine or neuter shall
include the masculine, the feminine and the neuter where appropriate.
ACKNOWLEDGMENT
Employee acknowledges that this Agreement has been executed by him
without coercion by Employer and pursuant to the advice of Employee's
own independent counsel, and that no representations of any kind have
been made by Employer as in inducement to obtain Employee's execution
of this Agreement other than those representations specifically
contained in this written document.
IN WITNESS WHEREOF, the parties hereto have executed this agreement at the place
and as of the date first herein above written.
7
<PAGE>
TRANSFORMATION PROCESSING INC. (TPI)
By: /s/ PAUL MIGHTON Date: APRIL 27, 1999
----------------- ---------------
WARREN STRUTT
Employee: /s/ WARREN STRUTT Date: APRIL 27, 1999
------------------ ---------------
8
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF TRANSFORMATION PROCESSING INC.
NAME STATE OF INCORPORATION
- ---- ----------------------
None
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
To the Board Of Directors
Transformation Processing Inc.
We hereby consent to the use in the Prospectus constituting part of
the Registration Statement on Form SB-2 of our report dated September 18,
1998, except for the last paragraph of Note 8, as to which the date is
October 31, 1998, and the last paragraph of note 12, as to which the date is
January 26, 1999, on the financial statements of Transformation Processing
Inc. as of July 31, 1998 and for the period from April 1, 1996 (date of
incorporation) to July 31, 1997, the year ended July 31, 1998, and cumulative
amounts from inception to July 31, 1998, which appear in such prospectus. We
also consent to the reference to our firm under the caption "Experts" in such
prospectus.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
May 27, 1999
