<PAGE>
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 31, 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
(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)
INDEX TO FINANCIAL STATEMENTS
JANUARY 31, 2000
- --------------------------------------------------------------------------------
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-8
04/27/00 F-1
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<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
BALANCE SHEET
- ---------------------------------------------------------------------------------------------------------------------
JANUARY 31, JULY 31,
2000 1999
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Asset - accounts receivable $ - $ 33,949
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSET - 33,949
Deferred Debt Cost, net 31,181 30,470
- ---------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 905,326 1,032,956
Long-term Debt, net of current maturities 1,951,954 1,716,310
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,857,280 2,749,266
- ---------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' DEFICIENCY (2,826,099) (2,684,847)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 31,181 $ 64,419
=====================================================================================================================
The accompanying notes should be read in conjunction with the financial statements
</TABLE>
04/27/00 F-2
<PAGE>
<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
STATEMENT OF OPERATIONS
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------
Three-month Three-month Six-month Six-month
Period ended Period ended Period ended Period ended
January 31, 2000 January 31, 1999 January 31, 2000 January 31, 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue - consulting services $ 0 $ 326,399 $ 0 $ 517,468
- ----------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 222,216 500,333
General and administrative 410,816 141,252 886,198
- ----------------------------------------------------------------------------------------------------------------------
633,032 141,252 1,386,531
- ----------------------------------------------------------------------------------------------------------------------
Loss from operations (306,633) (141,252) (869,063)
Interest income(expense) - net (178,801) (343,536)
- ----------------------------------------------------------------------------------------------------------------------
Net loss $ 0 $ (485,434) $ (141,252) $(1,212,599)
======================================================================================================================
Basic net loss per common share $ (.00) $ (1.48) $ (.20) $(1.74)
======================================================================================================================
Weighted-average number of common shares
outstanding 710,367 718,437 710,367 698,390
======================================================================================================================
The accompanying notes should be read in conjunction with the financial statements
</TABLE>
04/27/00 F-3
<PAGE>
<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
UNAUDITED
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JANUARY 31, 2000
- -------------------------------------------------------------------------------------------------------------------
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)
===================================================================================================================
Balance at January 31, 2000 710,367 $17,759 $7,040,383 $(9,884,241) $(2,826,099)
===================================================================================================================
The accompanying notes should be read in conjunction with the financial statements
</TABLE>
04/27/00 F-4
<PAGE>
<TABLE>
<CAPTION>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
STATEMENT OF CASH FLOWS
UNAUDITED
- -------------------------------------------------------------------------------------------------------------------
Six months ended January 31, 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (141,252) $ (1,212,599)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 25,644
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 (332)
Amortization of discounts 54,015
Amortization of debt costs 2,082
Interest expense converted to stock 14,618
Changes in operating assets and liabilities:
Decrease in accounts receivable 33,949 129,666
Increase in prepaid expenses and other current assets (11,653)
Increase in deferred debt costs (711) (1,298)
Increase in other assets (238)
Decrease in accounts payable (127,862) (141,691)
Increase (decrease) in accrued expenses and other current liabilities 232 (83,818)
- ------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (187,105) (807,724)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activity - purchase of property and equipment (32,836)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of loan payable - bank (28,165)
Proceeds from (repayment of)-net, note payable - stockholder 235,644 (45,877)
Net proceeds from issuance of convertible debentures 843,128
- ------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 235,644 769,086
- ------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (48,539) 994
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash - 0 - (70,480)
Cash at beginning of period - 0 - 150,687
- ------------------------------------------------------------------------------------------------------------------
Cash at end of period $ - 0 - 80,207
==================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ - 0 - $ 3,825
==================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITY:
Conversion of long-term debt to common stock $ - 0 - $ 439,618
==================================================================================================================
The accompanying notes should be read in conjunction with the financial statements
</TABLE>
04/27/00 F-5
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF The financial statements of Transformation
PRESENTATION, Processing Inc., ("the Company") included herein
EVENTS, REVERSE have been prepared pursuant to generally accepted
ACQUISITION, AND accounting principles and have not been examined
BANKRUPTCY: 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
January 31, 2000, Janury 31, 1999, and the
six-month periods ended January 31, 2000 and
January 31, 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 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
04/27/00 F-6
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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' The Company's records and the records of its
DEFICIENCY: 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 On November 18, 1998, the Company issued a
TRANSACTIONS $200,000 6% convertible debenture for cash, due
AND SUBSEQUENT November 18, 2000. This debenture is convertible
EVENTS: 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 January 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 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 January 31, 1999.
04/27/00 F-7
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 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 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 January 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.
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.
04/27/00 F-8
<PAGE>
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 second quarter ended unaudited financial statements and notes thereto
dated January 31, 2000 and 1999.
RESULTS OF OPERATIONS
The following is a discussion of the material change in results of operations
for the three-month periods ending January 31, 2000 and 1999.
NET LOSSES
For the quarters ended January 31, 2000 and 1999, the Company incurred net
losses of $0 and $485,434, respectively. For the six-month periods ended January
31, 2000 and 1999, the Company incurred net losses of $141,252 and $1,212,599,
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 January 31, 2000 the Company recorded revenue of $0 as
compared to $326,399 for the quarter ended January 31, 1999. During the period
ended January 31, 2000, the Company had no revenue as it had ceased operations
in August 1999. For the six-month period ended January 31, 2000, the Company
recorded revenue of $0 as compared to $517,468 for the same period ended January
31, 1999. Conversion Services, the Company's core business accounted for $0 of
gross revenue for the three-month period ended January 31, 2000, as compared to
$158,045 for the same period in 1999. GroupWare accounted for $0 of gross
revenue for the three-month period ended January 31, 2000, as compared to
$81,099 for the same period in 1999. Year 2000 accounted for $0 of gross revenue
for the three-month period ended January 31, 2000 as compared to $61,602 for the
same period in 1998. Professional services accounted for $0 of gross revenue for
the three-month period ended January 31, 2000, as compared to $25,653 for the
same period in 1999.
EXPENSES
For the period ended January 31, 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 January 31, 2000, and January 31, 1999, cost
of consulting services accounted for $0 and $37,768, respectively. For the
six-month periods ended January 31, 2000 and 1999, cost of consulting services
expenses were $0 and $54,160, respectively. During the period ended January 31,
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 January 31, 2000. Comparatively, the Company spent $139,314
for the same quarter ended January 31, 1999. For the six-month periods ended
January 31, 2000 and 1999, software transformation services were $0 and $290,747
respectively.
Software development accounted for $0 of total expenses for the quarter ended
January 31, 2000. Comparatively, the Company spent $45,134 for the same quarter
in 1999. For the six-month periods ended January 31, 2000 and 1999, software
development costs were $0 and $155,426, 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.
<PAGE>
General and administrative expense accounted for $0 of expenses for the quarter
ended January 31, 2000. Comparatively, the Company spent $410,816 for the same
quarter in 1999. General and administrative expenses accounted for $141,252 of
expenses for the six-month period ended January 31, 2000 compared to $886,198
for the six-month period ended January 31, 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 January 31, 2000 primarily from
the net proceeds of private placement of its securities and, to a lesser extent,
from cash flow from operations.
At January 31, 2000, the Company had a deficit accumulated through January 31,
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 January 31, 2000. The company has funded its activities to January
31, 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.
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
3
<PAGE>
[FDS TO FOLLOW]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet and Statement of Operations filed as a part of the report on Form 10-QSB
for the quarter ended January 31, 2000 and is qualified in its entirety by
reference to such report on Form 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,181
<CURRENT-LIABILITIES> 905,326
<BONDS> 1,951,954
0
0
<COMMON> 17,759
<OTHER-SE> (2,843,858)
<TOTAL-LIABILITY-AND-EQUITY> 31,181
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
