<PAGE>
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 30, 1999
----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _______________________
Commission file number 0-23903
-------
TRANSFORMATION PROCESSING INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Nevada 95-4583945
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
365 Bay Street, Toronto, Ontario M5H 2V2
(Address of principal executive offices)
(416) 414-9450
(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
--- ---
* The issuer became subject to the filing requirements on May 12, 1998.
As of April 14, 2000, the issuer had 4,810,367 shares of Common Stock,
par value $.025 per share, issued and outstanding.
<PAGE>
ITEM 1. FINANCIAL INFORMATION
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
FINANCIAL STATEMENTS
OCTOBER 31, 1999
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Balance Sheet F - 2
Statement of Operations F - 3
Statement of Stockholders' Deficiency F - 4
Statement of Cash Flows F - 5
Notes to Financial Statements F - 6 - F-14
F-2
<PAGE>
<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
BALANCE SHEET
- -------------------------------------------------------------------------------------------------------------------
OCTOBER 31, 1999
- -------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Deferred Debt Cost, net $ 31,181
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 31,181
==================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Liabilities subject to compromise - accounts payable and accrued expenses $ 895,166
Current maturities of long-term debt 10,160
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 905,326
Long-term Debt, net of current maturities 1,951,954
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,857,280
- ------------------------------------------------------------------------------------------------------------------
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
Additional paid-in capital 7,040,383
Accumulated deficit (9,884,241)
- -------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' DEFICIENCY (2,826,099)
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 31,181
==================================================================================================================
</TABLE>
The accompanying notes should be read in
conjunction with the financial statements
04/24/00
F-3
<PAGE>
<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED OCTOBER 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue - consulting services $ $ 191,069
- ------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of consulting services 16,392
Cost of transformation services 151,433
Software development 110,292
General and administrative 141,252 475,382
- ------------------------------------------------------------------------------------------------------------------
141,252 753,499
- ------------------------------------------------------------------------------------------------------------------
Loss from operations (562,430)
Interest income(expense) - net - (164,735)
- ------------------------------------------------------------------------------------------------------------------
Net loss $(141,252) $(727,165)
==================================================================================================================
Basic net loss per common share $ (.20) $ (1.09)
==================================================================================================================
Weighted-average number of common shares
outstanding 710,367 665,109
==================================================================================================================
</TABLE>
The accompanying notes should be read in
conjunction with the financial statements
04/24/00
F-4
<PAGE>
<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
- -------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED OCTOBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------------------------------------------
ACCUMULATED STOCK- COMPRE-
ADDITIONAL OTHER COM- HOLDERS' HENSIVE
COMMON STOCK PAID-IN ACCUMULATED PREHENSIVE EQUITY INCOME
SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS) (DEFICIENCY) (LOSS)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1999 710,367 17,759 7,040,383 (9,742,989) 0 (2,684,847) 0
Net loss - (141,252) 0 (141,252) 0
- ------------------------------------------------------------------------------------------------------------------
Balance at October 31, 1999 710,367 $17,759 $7,040,383 $(9,884,241) $ 0 $(2,874,638) $0
==================================================================================================================
</TABLE>
The accompanying notes should be read in
conjunction with the financial statements
04/25/00
F-5
<PAGE>
<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
STATEMENT OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------
Three months ended October 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(141,252) $(727,165)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 11,464
Issuance of options and warrants to purchase common
stock for services 53,400
Recognition of beneficial conversion feature 75,000
Amortization of discounts 39,705
Interest expense converted to stock 14,618
Changes in operating assets and liabilities:
Decrease in accounts receivable 33,949 272,847
Increase in prepaid expenses and other current assets (11,879)
Increase in deferred debt costs (711)
Decrease in other assets 3,312
Increase (decrease) in accounts payable (127,862) 70,827
Increase (decrease) accrued expenses and other current liabilities 232 (36,251)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (187,105) (234,122)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activity - purchase of property and equipment (19,533)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of loan payable - bank (13,920)
Proceeds from (repayment of), net of note payable - stockholder 235,644 (36,676)
Net proceeds from issuance of convertible debentures 298,226
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 235,644 247,630
- ----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (48,539) 28,774
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash - 0 - (34,799)
Cash at beginning of period - 0 - 150,687
- ----------------------------------------------------------------------------------------------------------------------
Cash at end of period $ - 0 - $ 115,888
======================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ - 0 - $ 1,738
======================================================================================================================
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
04/25/00
F-5
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF
PRESENTATION: 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 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 along with the achievement of
profitable operations.
2. PRINCIPAL The Company was an information technology company
BUSINESS that developed and marketed software and services
ACTIVITY AND that enabled companies worldwide to automatically
SIGNIFICANT migrate their application programs and data from
ACCOUNTING legacy systems to open systems and client/server
POLICIES: environments. The Company expanded its operations
from providing legacy code migration services to
three lines of business; client/server migration,
year 2000 and groupware services. For the periods
ended October 31, 1999 and 1998, all operations of
the Company were conducted in Canada. At October
31, 1999, all of the Company's assets are located
in Canada. On August 23, 1999, with the Company's
bankruptcy filing, the Company's principal
business activities ceased.
The Company was considered to be in the
development stage through July 31, 1998 because it
had been devoting substantially all of its efforts
toward establishing its business.
04/25/00
F-14
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Revenue from fixed-price contracts was 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 was recognized as the service
was performed. The Company provided technical
support at no charge for the first 90 days and,
under certain circumstances, at no charge if
certain other fees were current. Revenue from the
sale of deployment product licenses was recognized
after installation of the product.
Property and equipment was recorded at cost.
Depreciation was provided for by the straight-line
method over the estimated useful lives of the
related assets.
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.
04/25/00
F-14
<PAGE>
<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3. ACCOUNTS Accounts payable and accrued expenses consist of the following:
PAYABLE AND
ACCRUED Accrued professional fees $ 10,000
EXPENSES: Accrued damages on convertible debentures 350,000
Other (all amounts are less than 5% of current liabilities) 535,166
- ----------------------------------------------------------------------------------------------------------------------
$895,166
======================================================================================================================
4. LONG-TERM Long-term debt consists of the following:
DEBT: Installment loans $ 10,160
Loan from Shareholder 235,644
6% convertible debentures 1,716,310
- ----------------------------------------------------------------------------------------------------------------------
1,962,114
Less current portion 10,160
- ----------------------------------------------------------------------------------------------------------------------
LONG-TERM PORTION $1,951,954
======================================================================================================================
</TABLE>
The effect of foreign translation adjustments on
the Company's long-term debt is included in
cumulative foreign currency translation
adjustments in stockholders' deficiency in the
accompanying financial statements.
The Company is obligated under an installment loan
with a bank payable in monthly installments
aggregating $4,505 plus interest through December
31, 1999. The loan bears interest at the bank's
prime rate (8.75 at October 31, 1999) plus 2.5%.
The loan is collateralized by substantially all of
the Company's assets.
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 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
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 August 1998, $37,500 of 6%
convertible debentures were converted into 81,674
shares of common stock; in September 1998, $57,500
of 6% convertible debentures were converted into
156,760 shares of common stock, and in October
1998, $84,000 of 6% convertible debentures were
converted into 439,072 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. The unamortized
portion is shown as a reduction in the carrying
value of the debentures as of October 31, 1999.
04/25/00
F-14
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
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 ask price immediately preceding
the date of conversion. In September of 1998,
$67,500 of 6% convertible debentures were
converted into 167,388 shares of common stock. 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 periods ended
October 31, 1999 and 1998, amortization of $0 and
$0, respectively, 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 October 31,
1999.
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 ask price immediately preceding
the date of conversion. In October of 1998,
$146,000 of 6% convertible debentures were
converted into 727,657 shares of common stock. 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 periods ended
October 31, 1999 and 1998, amortization of $0 and
$0, respectively, 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 October 31,
1999.
On September 22, 1998, the Company issued a
200,000 6% convertible debenture for cash, due
September 22, 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
87,720 shares of common stock. The fair value of
$28,249 allocated to warrants is being amortized
over the term of the debenture. For the period
ended October 31, 1999, amortization of $0 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 October 31, 1999.
On October 6, 1998, the Company issued a $100,000
6% convertible debenture for cash, due October 6,
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 55,556 shares
of common stock. The fair value of $15,094
allocated to warrants is being amortized over the
term of the debentures. For the period ended
October 31, 1999 amortization of $0 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 October 31, 1999.
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
04/25/00
F-14
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Company issued warrants to purchase 101,012 shares
of common stock. The fair value of $27,827
allocated to warrants is being amortized over the
term of the debenture. For the three month period
ended October 31, 1999 amortization of $0 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 October 31, 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 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 84,746 shares
of common stock. The fair value of $35,621
allocated to warrants is being amortized over the
term of the debenture. For the three month period
ended October 31, 1999, amortization of $0 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 October 31, 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 156,250 shares
of common stock. The fair value of $34,946
allocated to warrants is being amortized over the
term of the debentures. For the three month period
ended October 31, 1999, amortization of $0, 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 October 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 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, for the three month
periods ended October 31, 1999 and 1998,
aggregating $0 and $75,000, respectively, 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 October 31,
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.
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
04/25/00
F-14
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
assumptions used for the three-month period ended
October 31, 1999: expected volatility of 1.93%;
risk-free interest rate of 5.6%; and expected
lives of two years.
5. COMMITMENTS The Company was obligated under a noncancelable
AND operating lease for office space expiring in
CONTINGENCIES: October 2000. Approximate minimum future payments
under these leases were payable as follows:
Year ending July 31,
2000 $145,600
2001 36,400
- --------------------------------------------------------------------------------
$182,000
================================================================================
In conjunction with the Company's filing for
bankruptcy, it has abandoned this lease.
Accordingly, the Company has charged operations
for the future minimum payments and the liability
is included in accounts payable and accrued
expenses in the accompanying balance sheet.
The leases are subject to escalation for the
Company's proportionate share of increases in real
estate taxes and other operating expenses.
The Company entered into an agreement with an
entity whereby the entity will provide the Company
with public and investor relations services. Under
the terms of the agreement, the Company will issue
150,000 shares of common stock of the Company as
compensation for services. At October 31, 1999,
those services had not yet been provided.
6. STOCKHOLDERS' The Company is authorized to issue 5,000,000
DEFICIENCY: shares of preferred stock with rights and
preferences to be determined by the Company's
board of directors. As of October 31, 1999, no
shares of preferred stock have been issued.
On August 20, 1996, the Company issued 2,205,869
shares of common stock to the stockholders of
Samuel Hamann Graphix, Inc. in a transaction
accounted for as a reverse acquisition. As part of
the reverse acquisition the Company issued
1,888,000 shares of common stock to certain
consultants for services. These shares have been
valued at the fair value at the date of issuance
($.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
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
04/25/00
F-14
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
7. STOCK OPTIONS The Company has outstanding warrants permitting
AND STOCK the holders to purchase shares of its common stock
WARRANTS: at prices ranging from $.46 to $1.99 per share.
The warrants have varying expiration dates to
January 14, 2001. Warrants to purchase 1,405,048
common shares were outstanding at July 31, 1999.
During the year ended July 31, 1998, warrants to
purchase 100,000 shares of common stock, which
were to expire, were extended. The extended
warrants provide for exercise prices ranging from
$.50 to $.80 per share. During the year ended July
31, 1999, warrants to purchase 485,314 common
shares were issued at prices ranging from $.32 to
$.59 per share.
During the year ended July 31, 1999, 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.
In January 1999, the Company issued options to an
employee to purchase 50,000 shares of common stock
at an exercise price of $.27 per share, and are
exercisable for a ten-year period beginning
November 30, 1999.
F-14
<PAGE>
<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------------------------------
A summary of the status of the Company's options
as of October 31, 1999 and 1998 is presented
below:
October 31, 1999 1998
-------------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 100,000 $.50
Granted 50,000 .27 100,000 $.50
------------------------------------------------------------------------------------
OUTSTANDING AT END OF YEAR 150,000 $.42 100,000 $.50
====================================================================================
Options exercisable at year-end 100,000 $.50 100,000 $.50
====================================================================================
Weighted-average fair value of
options granted during the year $.27 $.44
====================================================================================
</TABLE>
The following table summarizes information about
fixed stock options outstanding at October 31,
1999:
<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> <C>
$.50 100,000 8.8 $.50 100,000 $.50
$.27 50,000 10.0 .27 - -
=====================================================================================
</TABLE>
04/25/00
F-14
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. 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
$3,500,000. In recognition of the uncertainty
regarding the ultimate amount of income tax
benefits to be derived, the Company has recorded a
valuation allowance of $3,500,000 at July 31,
1999.
The Company has a net operating loss carryforward
of approximately $6,700,000 available to offset
taxable income through the year 2014.
9. ADDITIONAL The Company's records and the records of its
INFORMATION: 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.
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.
F-14
<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 first quarter ended unaudited financial statements and notes thereto
dated October 31, 1999 and 1998.
FINANCIAL CONDITION
The following is a discussion of the material changes in financial condition
from July 31, 1999 to October 31, 1999.
Current assets at October 31, 1999 were $0 as compared to $33,949 at July 31,
1999. The basis for this decrease in current assets is as follows. Accounts
receivable totaled $0 at October 31, 1999 as compared to $33,949 at July 31. The
decrease was the result of the Company's aggressive collection of outstanding
receivables as of the year end and a discontinuation of revenue generation in
the quarter.
The Company recorded material changes to Accounts payable and accrued expenses.
Accounts payable at October 31, 1999 was $895,166 as compared to $1,023,028 at
July 31, 1999. The decrease is due to the Company's repayment of certain
Accounts payable and accrued expenses.
Deficit accumulated through October 31, 1999 totaled $(9,884,241) 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 below.
RESULTS OF OPERATIONS
The following is a discussion of the material change in results of operations
for the three-month periods ending October 31, 1999 and 1998.
NET LOSSES
For the quarters ended October 31, 1999 and 1998, the Company incurred net
losses of $141,252 and $727,165, 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 or operations are ceased.
REVENUE
For the quarter ended October 31, 1999 the Company recorded revenue of $0 as
compared to $191,069 for the quarter ended October 31, 1998. During the period
ended October 31, 1999, the Company had no revenue as it had ceased operations
in August 1999. Conversion Services, the Company's core business accounted for
$0 of gross revenue for the three-month period ended October 31, 1999, as
compared to $39,558 for the same period in 1998. GroupWare accounted for $0 of
gross revenue for the three-month period ended October 31, 1999, as compared to
$83,390 for the same period in 1998. Year 2000 accounted for $0 of gross revenue
for the three-month period ended October 31, 1999 as compared to $90,276 for the
same period in 1998.
EXPENSES
For the quarters ended October 31, 1999 and 1998, cost of consulting services
accounted for $0 and $16,392, respectively. During the period ended October 31,
1999, 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 October 31, 1999. Comparatively, the
Company spent $151,433 for the quarter ended October 31, 1998.
Software development accounted for $0 of total expenses for the quarter ended
October 31, 1999. Comparatively, the Company spent $110,292 for the quarter in
1998.
<PAGE>
General and administrative expense accounted for $141,252 of expenses for the
quarter ended October 31, 1999. Comparatively, the Company spent $475,382 for
the quarter in 1998. 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.
General and administrative
General and administrative costs consist of management and administrative staff,
professional services, office and occupancy costs. Significant costs are
attributed to the Company becoming a public company. This status will increase
audit and legal costs significantly. In relation to the Company becoming a
public company, the cost of corporate relations will also increase as quarterly
reports and other investor information is required.
Liquidity and Capital Resources
The Company has funded its activities through October 31, 1999 primarily from
the net proceeds of private placement of its securities and, to a lesser extent,
from cash flow from operations.
At October 31, 1999, the Company had an accumulated deficit of ($9,884,241),
current assets of $0 and current liabilities of $905,326. The Company did not
incur any additional long-term debt. The company has funded its activities to
October 31, 1999 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.
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.
<PAGE>
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.
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TRANSFORMATION PROCESSING INC.
Date APRIL 25, 2000 /S/ Paul Mighton
----------------------- ------------------------------
Paul Mighton, President
2
