United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _______________________
Commission file number 0-23903
TRANSFORMATION PROCESSING INC.
-----------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 95-4583945
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
365 Bay Street, Toronto, Ontario M5H 2V2
----------------------------------------
(Address of principal executive offices)
(416) 414-9450
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(Issuer's telephone number)
NOT APPLICABLE
--------------
(Former Name, Former Address and Former Fiscal Year, if changed Since
Last Report)
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes No X
--- ---
As of April 30, 2000, the issuer had 710,367 shares of Common Stock,
par value $.025 per share, issued and outstanding.
Transitional Small Business Disclosure Format:
Yes No X
--- ---
<PAGE>
TRANSFORMATION PROCESSING INC.
(debtor-in-possession)
INDEX TO FINANCIAL STATEMENTS
April 30, 2000
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Index
Page
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Part I - Financial Information
Item 1. Financial Statements
Balance Sheet -
April 30, 2000.............................................. 1
Statements of Operations -
Three and nine months ended April 30, 2000 and 1999......... 2
Statements of Changes in Stockholders' Deficit -
Nine months ended April 30, 2000............................ 3
Statements of Cash Flows -
Nine months ended April 30, 2000 and 1999................... 4
Notes to Financial Statements................................. 5 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 8 - 10
Part II - Other Information
Item 1. Legal Proceedings.............................................. 10
Signatures.................................................... 11
<PAGE>
<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(debtor-in-possession)
BALANCE SHEET
----------------------------------------------------------------------------------------------------------------------
April 30, July 31,
2000 1999
(unaudited)
ASSETS
<S> <C> <C>
Current Asset - accounts receivable $ - $ 33,949
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Total current asset - 33,949
Deferred Debt Cost, net 31,181 30,470
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Total Assets $ 31,181 $ 64,419
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Liabilities subject to compromise-
accounts payable and accrued expenses $ 895,166 $ 1,023,029
Current maturities of long-term debt 10,160 9,927
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Total current liabilities 905,326 1,032,956
Long-term Debt, net of current maturities 1,951,954 1,716,310
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Total liabilities 2,857,280 2,749,266
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Commitments and Contingencies
Stockholders' Deficiency:
Preferred stock - $.001 par value; authorized 5,000,000 shares, none issued
Common stock - $.025 par value; authorized 50,000,000 shares, issued
and outstanding 710,367 shares 17,759 17,759
Additional paid-in capital 7,040,383 7,040,383
Accumulated deficit (9,884,241) (9,742,989)
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Stockholders' deficiency (2,826,099) (2,684,847)
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Total Liabilities and Stockholders' Deficiency $ 31,181 $ 64,419
======================================================================================================================
</TABLE>
The accompanying notes should be read in conjunction with the financial
statements
1
<PAGE>
<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(debtor-in-possession)
STATEMENT OF OPERATIONS
(unaudited)
---------------------------------------------------------------------------------------------------------------------
Three-month Three-month Nine-month Nine-month
Period ended Period ended Period ended Period ended
April 30, 2000 April 30, 1999 April 30, 2000 April 30, 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue - consulting services $0 $ 260,324 $0 $ 718,812
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Costs and expenses:
Cost of sales 478,647 762,938
General and administrative 295,517 141,252 1,224,593
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774,164 141,252 1,987,531
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Loss from operations (513,840) (141,252) (1,268,719)
Interest income(expense) - net (171,122) (376,823)
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Net loss $0 $(684,962) $(141,252) $(1,645,542)
======================================================================================================================
Basic net loss per common share $ (.00) $ (.04) $ (.20) $ (.09)
======================================================================================================================
Weighted-average number of common shares
outstanding 710,367 15,418,505 710,367 17,593,571
======================================================================================================================
</TABLE>
The accompanying notes should be read in conjunction with the financial
statements
2
<PAGE>
<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(debtor-in-possession)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
unaudited
----------------------------------------------------------------------------------------------------------------------
Nine months ended April 30, 2000
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Stock-
Additional holders'
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit (Deficiency)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1999 710,367 17,759 7,040,383 (9,742,989) (2,684,847)
Net loss - - - (141,252) (141,252)
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Balance at April 30, 2000 710,367 $17,759 $7,040,383 $(9,884,241) $(2,826,099)
======================================================================================================================
</TABLE>
The accompanying notes should be read in conjunction with the financial
statements
3
<PAGE>
<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(debtor-in-possession)
STATEMENT OF CASH FLOWS
unaudited
----------------------------------------------------------------------------------------------------------------------
Nine months ended April 30, 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(141,252) $(1,645,542)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 39,679
Issuance of options and warrants to purchase common
stock for services 167,880
Recognition of beneficial conversion feature 250,000
Write-off of amounts due to related parties (831)
Amortization of discounts 54,015
Amortization of debt costs 93,563
Interest expense converted to stock 14,618
Changes in operating assets and liabilities:
Decrease in accounts receivable 33,949 284,191
Increase in prepaid expenses and other current assets 491
Increase in deferred debt costs (711) (3,246)
Increase in other assets 17,748
Decrease in accounts payable (127,862) (142,189)
Increase (decrease) in accrued expenses and other current liabilities 232 (150,312)
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Net cash used in operating activities (187,105) (1,019,935)
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Cash flows from investing activity - purchase of property and equipment (78,416)
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Cash flows from financing activities:
Repayments of loan payable - bank (36,339)
Proceeds from (repayment of)-net, note payable - stockholder 235,644 (45,877)
Net proceeds from issuance of common stock 223,000
Net proceeds from issuance of convertible debentures 843,128
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Net cash provided by financing activities 235,644 983,912
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Effect of exchange rate changes on cash (48,539) 2,637
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Net increase (decrease) in cash - 0 - (111,802)
Cash at beginning of period - 0 - 346,782
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Cash at end of period $ - 0 - 234,980
======================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ - 0 - $ 33,310
======================================================================================================================
Supplemental schedule of noncash financing activity:
Conversion of long-term debt to common stock $ - 0 - $ 439,618
======================================================================================================================
</TABLE>
The accompanying notes should be read in conjunction with the financial
statements
4
<PAGE>
1. BASIS OF PRESENTATION, events, reverse acquisition, and bankruptcy:
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 operations 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, 1999. The results of operations for the three-month periods ended April 30,
2000, April 30, 1999, and the nine-month periods ended April 30, 2000 and April
30, 1999 are not necessarily indicative of the results to be expected for the
full year.
On August 20, 1996, the Company issued 88,235 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
75,520 shares of common stock to certain consultants for services. These shares
have been valued at the fair value at the date of issuance ($20.25 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 reflecting
shares issued, transferred or sold, apparently without fair consideration to the
Company.
On August 23, 1999, Transformation Processing Inc. (debtor-in-possession) (the
"Company") filed a Notice of Intent to seek reorganization under the Bankruptcy
and Insolvency Act of Canada with the Superior Court of Justice for the Province
of Ontario (the "Bankruptcy Act"). Under the Bankruptcy Act, certain claims
against the Company in existence prior to the filing of the notice are stayed
while the Company continues business operations as debtor-in-possession. These
claims are reflected in the July 31, 1999 balance sheet as "liabilities subject
to compromise." Additional claims (liabilities subject to compromise) may arise
subsequent to the filing date resulting from the rejection of executory
contracts, including leases, and from the determination by the court (or agreed
to by parties in interest) of allowed claims for contingencies and other
disputed amounts. Upon filing under the Bankruptcy Act, the Company's principal
business activities ceased.
On November 25, 1999, the Company's proposal in bankruptcy was approved by the
court. The proposal was made only to the preferred and unsecured creditors. The
proposal basically stipulates that a pool of funds, up to $300,000, will be
available for distribution to the unsecured creditors, after deducting payments
5
<PAGE>
to preferred creditors, consisting of crown claims, employee claims and
landlord's claim. Out of the remaining funds, the unsecured creditors will be
paid in full on the first $2,000 of their claims, $0.50 per $1.00 of their claim
between $2,001 and $5,000, and up to $0.10 per $1.00 of their claim thereafter.
These amounts are in Canadian dollars.
The Company anticipates successfully complying with the proposal and intends to
file for a court order affirming the compliance in May or June 2000.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Continuation of the Company as a going
concern and realization of its assets and liquidation of its liabilities are
dependent upon, among other things, the formulation of a confirmed plan of
reorganization, which may result in significant adjustments and
reclassifications in the amounts reflected as assets, liabilities and
stockholders' deficiency in the accompanying financial statements, and the
ability to maintain adequate financing.
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 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.
2. STOCKHOLDERS' DEFICIENCY:
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 31,000 shares greater than the 710,367 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.
3. EQUITY TRANSACTIONS AND SUBSEQUENT EVENTS:
On November 18, 1998, the Company issued a $200,000 6% convertible debenture for
cash, due November 18, 2000. This debenture is convertible into common stock at
80% of the five-day average ask price immediately preceding the date of
conversion. In connection with the issuance of the debenture, the Company issued
warrants to purchase 4,040 shares of common stock. The fair value of $27,827
allocated to warrants is being amortized over the term of the debenture. The
unamortized portion is shown as a reduction in the carrying value of the
debentures as of April 30, 1999.
On December 4, 1998, the Company issued a $250,000 6% convertible debenture for
cash, due December 4, 2000. This debenture is convertible into common stock at
6
<PAGE>
80% of the five-day average ask price immediately preceding the date of
conversion. In connection with the issuance of the debenture, the Company issued
warrants to purchase 3,390 shares of common stock. The fair value of $35,621
allocated to warrants is being amortized over the term of the debenture. The
unamortized portion is shown as a reduction in the carrying value of the
debentures as of April 30, 1999.
On January 14, 1999, the Company issued a $250,000 6% convertible debenture for
cash, due January 14, 2001. This debenture is convertible into common stock at
80% of the five-day average ask price immediately preceding the date of
conversion. In connection with the issuance of the debenture, the Company issued
warrants to purchase 6,250 shares of common stock. The fair value of $34,946
allocated to warrants is being amortized over the term of the debentures. The
unamortized portion is shown as a reduction in the carrying value of the
debentures as of April 30, 1999.
On the date of issuance of each convertible debenture, the Company allocated a
portion of the proceeds to the beneficial conversion feature of the debenture
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.
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 April 30, 1999,
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, 1999 was estimated to
be $350,000 and is included in accounts payable and accrued expenses in the
accompanying balance sheet.
In September 1999, the Company received $235,644 from a stockholder for working
capital purposes. This loan is non-interest bearing and has no specific maturity
date.
On February 18, 2000, the Company signed a letter of intent to acquire the
assets of eAutoclaims.com, Inc. The letter of intent, which is conditioned upon
the negotiation and entering of a definitive agreement, envisions that the
Company will spin off its existing business prior to the acquisition.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's third quarter ended unaudited financial statements and notes thereto
dated April 30, 2000 and 1999.
RESULTS OF OPERATIONS
The following is a discussion of the material change in results of operations
for the three-month and nine-month periods ending April 30, 2000 and 1999.
Net Losses
For the quarters ended April 30, 2000 and 1999, the Company incurred net losses
of $0 and $684,962, respectively. For the nine-month periods ended April 30,
2000 and 1999, the Company incurred net losses of $141,252 and $1,645,542,
respectively. Explanations of these results are set forth below. The Company
expects to continue to incur operating losses until such time that the Company
is acquired.
Revenue
For the quarter ended April 30, 2000 the Company recorded revenue of $0 as
compared to $260,324 for the quarter ended April 30, 1999. During the period
ended April 30, 2000, the Company had no revenue as it had ceased operations in
August 1999. For the nine-month period ended April 30, 2000, the Company
recorded revenue of $0 as compared to $718,812 for the same period ended April
30, 1999. Conversion Services, the Company's core business accounted for $0 of
gross revenue for the three-month period ended April 30, 2000, as compared to
$28,942 for the same period in 1999. GroupWare accounted for $0 of gross revenue
for the three-month period ended April 30, 2000, as compared to $131,779 for the
same period in 1999. Year 2000 accounted for $0 of gross revenue for the
three-month period ended April 30, 2000 as compared to $34,989 for the same
period in 1999. Professional services accounted for $0 of gross revenue for the
three-month period ended April 30, 2000, as compared to $5,634 for the same
period in 1999.
Expenses
For the period ended April 30, 2000 and all comparative periods reported, costs
of software consulting, translation services, and development have been combined
and included in cost of sales in the accompanying statement of operations. For
the quarters ended April 30, 2000, and April 30, 1999, cost of consulting
services accounted for $0 and $79,716, respectively. For the nine-month periods
8
<PAGE>
ended April 30, 2000 and 1999, cost of consulting services expenses were $0 and
$133,876, respectively. During the period ended April 30, 2000, the Company had
no cost of consulting services as it had ceased operations in August 1999.
Cost of software transformation services accounted for $0 of total expenses for
the quarter ended April 30, 2000. Comparatively, the Company spent $73,429 for
the same quarter ended April 30, 1999. For the nine-month periods ended April
30, 2000 and 1999, software transformation services were $0 and $364,176
respectively.
Software development accounted for $0 of total expenses for the quarter ended
April 30, 2000. Comparatively, the Company spent $85,553 for the same quarter in
1999. For the nine-month periods ended April 30, 2000 and 1999, software
development costs were $0 and $ 240,979, respectively.
General and administrative costs consist of management and administrative staff,
professional services, office and occupancy costs. Significant costs are
attributed to the Company being a public company, due to the cost of corporate
relations, quarterly reporting, and other investor information is required.
General and administrative expense accounted for $0 of expenses for the quarter
ended April 30, 2000. Comparatively, the Company spent $338,395 for the same
quarter in 1999. General and administrative expenses accounted for $141,252 of
expenses for the nine-month period ended April 30, 2000 compared to $1,224,593
for the nine-month period ended April 30, 1999. The Company's general and
administrative expenses consisted primarily of salaries, rent, consulting fees,
advertising and legal costs associated with running a publicly traded company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its activities through April 30, 2000 primarily from the
net proceeds of private placement of its securities and, to a lesser extent,
from cash flow from operations.
At April 30, 2000, the Company had a deficit accumulated through April 30, 2000
of ($9,884,241), current assets of $0 and current liabilities of $905,326. The
Company did not incur any additional long-term debt during the three-month
period ended April 30, 2000. The company has funded its activities to April 30,
2000 primarily through private placements of securities and the issuance of
convertible debentures. A significant portion of the total liabilities consists
of convertible debt previously issued by the Company to raise capital. The
Company 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 the Company'. There can be no assurance
that equity capital will be available to the Company on acceptable terms or at
all.
9
<PAGE>
The Company has no current arrangements with respect to, or sources of,
additional financing, and it is not contemplated that its existing stockholders
will provide any portion of the Company's future financing requirements. There
can be no assurance that any additional financing will be available to the
Company on acceptable terms, or at all. The inability of the Company to obtain
financing when needed will have a material adverse effect on the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On August 23, 1999 the Company filed a Notice of Intent to seek
Reorganization under the Bankruptcy and Insolvency Act of Canada with the
Superior Court of Justice for the Province of Ontario. On November 25, 1999,
Transformation Processing Inc.'s Proposal in bankruptcy was approved by the
court. The Proposal was made only to the preferred and unsecured creditors. The
Proposal basically stipulates that a pool of funds up to $300,000 will be
available for distribution to the unsecured creditors, after deducting payments
to preferred creditors, consisting of crown claims, employee claims, and
landlord's claim. Out of the remaining funds, the unsecured creditors will be
paid in full on the first $2,000 of their claims, CD$ 0.50 per CD$ 1.00 of their
claim between CD$ 2,001 and CD$ 5,000, and up to CD$ 0.10 per CD$ 1.00 of their
claim thereafter.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Financial Data Schedule
(b) Reports on Form 8-K.
Incorporated by reference Report on Form 8-K dated August 25, 1999.
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Transformation Processing, Inc.
Dated 6/21/00
/s/ Paul Mighton
-----------------------------
Paul Mighton, President
