U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUER
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
TRANSFORM PACK INTERNATIONAL, INC.
(Name of Small Business Issuer in its charter)
Minnesota 41-1886254
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
PO Box 1354
310 Baig Blvd.
Moncton, NB, Canada E1C 8T6
(Address of Principal Executive Offices and Zip Code)
Issuer's Telephone Number: (506) 854-9211
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $0.004
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ITEM NUMBER AND CAPTION Page
Part I
1.Description of Business 3
2.Management's Discussion and Analysis or Plan of 9
Operations
3.Description of Properties 10
4.Security Ownership of Certain Beneficial Owners and 11
Management
5.Directors, Executive Officers, Promoters and Control 12
Persons
6.Executive Compensation 13
7.Certain Relationships and Related Transactions 14
8.Description of Securities 15
Part II
1.Market Price of and Dividends on the Registrant's 16
Common Equity and Related Stockholder Matters
2.Legal Proceedings 16
3.Changes in and Disagreements with Accountants 16
4.Recent Sales of Unregistered Securities 16
5.Indemnification of Directors and Officers 17
Part F/S Financial Statements 21
Part III
1.Index to Exhibits 22
2.Description of Exhibits 22
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ITEM 1. DESCRIPTION OF BUSINESS
Our Company
Transform Pack International, Inc., has developed a cold
dissolvable calibrating matrix that makes it possible to apply
seasoning and curing formulas onto roll-stock plastic food
packaging materials that are cut into sheets for the final
application to the food product. Seasoning sheets are used
primarily for meat, fish and poultry products. The matrix
applied to the seasoning sheets uses the natural juices of the
food product to dissolve the matrix and transfer the seasoning or
curing agent to the product. Transform Pack produces seasoning
sheets for boil in the bag and roast in the bag applications, and
to flavor food products, glaze meat, cure fish, marinade food
products, and age beef. We also have a smoke-curing sheet that
creates a smoked-like food product simply, easily, and
inexpensively. Another formulation cures fish and dissolves
small fish bones to the point where the consumer cannot feel the
bones during consumption.
The pH (which is a measure of acidity) and water activity of
our matrix is at such a low level that most of the spice mixtures
we use in our seasoning sheets will reduce the bacteria count of
the food product, and in all other cases the bacteria count of
the food product remains unchanged. Our smoke-curing sheet uses
liquid smoke to flavor the food product, so it eliminates harmful
carcinogens that result when natural smoke is used to flavor the
product. The matrix does not contain any known carcinogens or
allergens. As a result of these characteristics, our seasoning
sheets improve product safety, quality, and shelf life.
Our production machinery is able to apply from 50 to 450
milligrams of seasoning or curing agent per square inch of
seasoning sheet. When the sheets are applied to a food product,
the matrix dissolves in a cold or refrigerated climate
transferring the seasoning or curing agent to the product up to
one millimeter deep assuring that the agent will stay with the
product during freezing, thawing, and cooking processes. These
elements of our product manufacturing and application result in a
high level of consistency and efficiency in the production and
use of our seasoning sheets.
We spent several years developing our product and began
marketing efforts in 1995. In the past year we have moved from
relying on others to market our product to developing our own
marketing capability. We believe this change is beginning to
show results, as revenue increased from CDN $226,599 for the year
ended May 31, 1999, to CDN $327,643 for the year ended May 31,
2000. Although our revenue has increased, we continue to
recognize losses from operations and we expect that will continue
until we achieve market acceptance of our product and a much
higher sales volume.
For the fiscal years ended May 31, 2000 and 1999, our net
losses were CDN $462,207 and CDN $478,109, respectively. As of
May 31, 2000, we had a working capital deficit of CDN $213,749
and a stockholders' deficit of CDN $787,422. Our business is
still in the development stage, in that we are refining and
implementing product manufacturing and marketing programs, and we
have not achieved profitable operations. Whether Transform Pack
will ultimately be successful in implementing its business plan
is a significant risk.
The Meat Seasoning Industry
In the past several years, consumer demand for spicy or more
flavorful foods had grown substantially. The American Spice
Trade Association, 1998 Report, shows that US spice consumption
increased from 750 million pounds in 1990 to 970 million pounds
in 1998, an increase of 29%. We
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believe this increase in spice consumption is a direct result of
consumer demand for greater variety in their food. The American
palate has expanded so that now barbeque, Cajun, fajita, lemon
pepper, and smoke are commonplace flavorings for food products.
The US Department of Agriculture Report, 1995, states that
the industrial food processing sector is a major user of spices
in meat preparation, soups, bakery products and other food items,
and the trend is toward greater use of spices prepared to meet
the specifications of food processing companies. The report
further states that 60% of total spice consumption is
attributable to the foodservice sector as compared to 40% a
decade ago, and the largest users of spices in food processing
are packers of meat products. Meat processors certainly include
meatpacking companies, but also include grocery stores,
restaurant chains, and specialty retail outlets that produce
prepared meat entrees for their customers.
Our Product
Transform Pack manufactures seasoning sheets - a food
contact approved film coated with a food grade adhesive. Spices
and other additives are applied to the adhesive. This film is
placed in contact with meat, poultry or fish products. The
adhesive dissolves in the presence of moisture at low temperature
and the flavor from or properties of the spices or additives are
transferred to the meat products. The raw materials required for
our product are available from a number of sources at similar
prices.
Our unique cold-dissolvable adhesive matrix lets us
calibrate seasoning and additive formulas anywhere from 50 mg to
450 mg per square inch, depending on the density of the spice
mixture. This allows the meat processor to season meat, apply a
decorative and flavorful spice crust to the meat product, or
produce a sauce-in-the-bag product.
The spice mixture is specified by the meat processor.
Proprietary mixes with exotic and exciting flavors seem to be the
trend in today's market. Our system lets the meat processor
develop its own flavor, or select from one of the many flavors
currently available on the market.
The consistent and precise application quality of our
seasoning sheets enables us to equip our sheets with additional
functions. Adding tenderizing agents such as papain enables the
meat processor to tenderize some of the tougher cuts, such as
inside round and eye of round. Adding tenderizing agents also
makes it possible for the meat processor to avoid dry aging to
tenderize meat - a process that removes moisture from the meat
product and reduces the sale price of products sold by weight.
Shelf life-extending additives and other preservative products
that must be added in minimum quantities can now be applied with
precision and consistency. Smoke flavors and other hard-to-apply
liquid concentrates can also be added as special flavor effects.
After the meat processor decides on the spice mixture or
additives, Transform Pack applies the additives uniformly to
seasoning sheets with our adhesive technology. Seasoning sheets
are produced in a variety of sizes depending on the meat
application. The meat processor simply applies the sheet to the
top and bottom or on one side of the mat product, depending on
the thickness of the meat and the concentration of the spice or
additive mixture. If the meat product is vacuum packed, the
transfer of spice or seasoning to the meat will occur within an
hour. For the marinating process to take place, a period of
approximately eight hours is needed for beef and less than one
hour for fish, poultry and pork.
We believe our seasoning sheets offer significant benefits
to the meat processor.
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Lower costs
* Cost of spices and seasonings is substantially less than
conventional methods, because you use only what you need for each
piece of meat.
* Reduced labor, because there is no mixing or clean up.
* The addition of natural tenderizers (Papain) allows increased
use of cheaper cuts.
Quick, easy and uniform preparation
* Flavor distribution is even, so there is no seasoning
variation by location or user.
* Our seasoning sheets are easy to use
* Transfer of flavors and additives can occur quickly, in one
hour, if the meat product is vacuum packed.
* The adhesive dissolves completely leaving only a food grade
film that is removed before shipping or cooking.
* The food products can be shipped, frozen or stored with the
seasoning sheet in place.
Improved product safety
* No cross contamination since sheets are discarded and not
reused.
* Seasoning sheets are gas flushed to eliminate the growth of
airborne mould spores and coliforms.
* Our seasoning sheets can eliminates extensive marinating,
aging and curing processes where bacteria and other agents can
grow in the product.
Increased shelf life
* Flavor sheets inhibit bacterial growth. In some cases,
bacteria counts are actually reduced.
* Reduced odors in vacuum pack and modified atmosphere
packaging.
Better tasting product
* Reduced moisture loss.
* Leaves the internal structure of the meat intact.
* Flavor profiles do not change over time.
Our Technology
Transform Pack's method of transferring additives through
seasoning sheets is the subject of patents issued in Canada,
Canadian patent number 2,135,416 issued February 10, 1998, and
New Zealand, New Zealand patent number 294802 issued April 20,
2000. We filed applications is six other countries, including
the United States, all of which are pending. We are not aware of
any infringing use of our patented technology and we do not
believe our patent infringes on the proprietary rights of any
other person.
The equipment we use for applying spice mixtures to
seasoning sheets was developed internally by Transform Pack and
we are unaware of any similar equipment being constructed or sold
by any other person. During the two fiscal years ended May 31,
2000 and 1999, we spent CDN $93,959 and CDN $125,486,
respectively, on developing and perfecting our proprietary
equipment. We believe our
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proprietary equipment is unique and the time and expense required
of someone else to develop equipment that performs the same
function gives us a competitive advantage over anyone who would
seek to develop a product that competes with us directly.
Our success depends significantly on our ability to protect
our proprietary rights to the seasoning sheet. In the event we
discover an infringing use of our patents, we may be required to
incur substantial cost to protect our intellectual property
rights. Even if we prosecute our intellectual property claims,
there is no assurance that a court will ultimately determine that
our intellectual property is patentable and protected under
applicable statutes.
Patents in certain jurisdictions provide limited
protections. Similar processes could be developed that do not
infringe on our patents rights, but that are similar enough to
compete against our product. Moreover, it is possible that an
unpatented but prior existing process may exist that has never
been made public and therefore is not known to the industry or us
in general. Such a process could be introduced into the market
without infringing on our current patents. If any such competing
non-infringing processes were developed, our profit potential
would be adversely impacted, which would seriously impair our
viability.
Also, our present and future products may be found to
infringe upon the patents of others. If our products are found
to infringe on the patents, or otherwise impermissibly utilize
the intellectual property of others, our development, manufacture
and sale of such products could be severely restricted or
prohibited. We may be required to obtain licenses to utilize
such patents or proprietary rights of others and acceptable terms
may be unavailable. If we do not obtain such licenses, the
development, manufacture or sale of products requiring such
licenses could be materially adversely affected.
Marketing Our Product
We believe there is a well-established and growing market
among consumers for flavored meats that can be purchased ready to
cook. Meat processors are pursuing this market, and are seeking
effective solutions for producing those meat products.
Building recognition and acceptance of our product is
critical to the future success of Transform Pack. Our failure to
promote and our product successfully may result in stunted growth
and loss of customers. Accordingly, we intend to pursue an
aggressive product marketing strategy, which includes direct
selling to meat processors and public relations activities. We
intend to make significant expenditures in the next year on these
marketing and advertising programs, while other food product
companies with much greater resources are doing the same. We
cannot assure you that promoting our product will enable us to be
competitive or increase our sales revenue.
Transform Pack is focusing its direct marketing effort on
meat processors, including meat packers, grocery stores,
restaurant chains and specialty retail outlets. We position our
product as the only alternative to manual seasoning systems and
as an improvement over manual systems due to the added benefits
of ease of use, cost-effectiveness, and product quality and
safety control.
Transform Pack is also working directly with the spice
manufacturers to inform them on the use and benefits of our
seasoning sheets. We believe that as the seasoning sheet system
grows in acceptance and use, spice manufacturers will want to
offer our seasoning sheets directly to meat processors.
Ultimately our goal is to effect most of our product sales to
spice companies that provide to us seasoning formulations we
apply to spice sheets that are resold by the spice companies
under private label to meat
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processors and consumers. We employ a sales person to pursue
these marketing initiatives. We also plan to advertise in trade
journals and other industry periodicals.
We have agreed to pay to Plus Marketing Corporation for the
consulting services and other marketing support of Greg Phillips,
a director of Transform Pack, USD $25,000 per month over a term
of four months commencing after we are able to obtain additional
financing for our operations. Mr. Phillips will provide through
Plus Marketing his consulting services in developing and
implementing marketing programs for our product and office and
clerical support for our marketing efforts originating from his
office in New Jersey.
In October 1999, Transform Pack granted to Compass Rose
Ltd., an exclusive license to distribute seasoning sheets to food
processors in Western Canada. Under the license Compass Rose
purchases seasoning sheets from Transform Pack at the contract
price for resale. The contract price represents a discount from
the suggested selling price to food processors. The license is
for a term of five years, with an option to renew for two
additional five-year terms. In the year ended May 31, 2000,
Compass Rose Ltd., accounted for 56 percent of our sales revenue.
We expect that our dependence on this single customer will
dissipate through the end of our fiscal year on May 31, 2001, as
our marketing effort results in new customers.
In December 1997, Transform Pack granted to Elias Brothers
Restaurant Inc., an exclusive license to manufacture and sell
seasoning sheets with equipment supplied by Transform Pack in the
continental United States. In exchange for this license, Elias
Brothers:
* agreed to purchase all adhesive matrix from Transform Pack,
and
* agreed to pay a royalty to Transform Pack equal to CD$0.000875
per square inch of product sold.
Elias Brothers accounted for approximately 59 percent of our
sales during the year ended May 31, 1999, but has subsequently
curtailed its operations. Due to this substantial reduction in
business and, as a result, sales of our products, Transform Pack
notified Elias Brothers in September 2000 that we are terminating
the license agreement for failure to promote and market our
products.
When Transform Pack first developed its product, it entered
into a Master License Agreement with Transform Pack GmbH Europe
in July 1995. Under the agreement, Transform Pack granted to
Transform Pack Europe the right to manufacture its proprietary
equipment to produce seasoning sheets and to market seasoning
sheets, either directly or through sublicensees, in Europe,
Southeast Asia, South America, and Japan. Transform Pack further
agreed to purchase at cost from Transform Pack Europe all
production equipment sold by Transform Pack to other persons
outside of Transform Pack Europe's territory, and pay to
Transform Pack Europe 45% of the net profit from sale of such
equipment. In exchange for this license, Transform Pack Europe:
* granted to Transform Pack a 2% ownership interest in Transform
Pack Europe,
* agreed to purchase for itself and sublicensees all adhesive
matrix from Transform Pack, and
* agreed to pay a royalty to Transform Pack equal to 10% of
gross revenue from seasoning sheet sales.
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The Master License Agreement with Transform Pack Europe was
for an initial term of five years, which expired in July 2000.
Transform Pack is now negotiating an agreement with Transform
Pack Europe that will effect termination of the Master License
Agreement and permit Transform Pack to purchase equipment and
inventory and resell the licensed territories.
We have registered the trademark "Transform Pack" in Canada
(registration number 513,791) and the United States (registration
number 2,264,190). We have also registered the trademark "Insta
Chef" in Canada under registration number 513,099, but we are not
currently promoting this mark in our marketing program. We are
not aware of any infringing use of our trademarks and we do not
believe our patent infringes on the proprietary rights of any
other person.
Competition
The largest competitor is that of substitution since no
other spice application systems are available in the market place
other then manual internal processes that meat processors may
have in place. These processes are problematic since they depend
on the operator for accuracy and repeatability of the spice
application. Accordingly, we believe we can compete with
traditional methods of manual application on the basis of the
ease of use and uniformity offered by our seasoning sheets.
Transform Pack also believes we can compete effectively with
manual application systems for meat products on the basis of
price and economic benefits of using our system. By using our
seasoning sheets, the cost of spices and other additives actually
used to process a meat product are reduced, since there are no
wasted spices or additives in the process. The ease with which
spices and additives are applied to meat products with our
seasoning sheets reduces labor costs for the meat processor.
Furthermore, the use of our product, particularly to tenderize
meat products without aging or curing, reduces substantially the
loss of moisture in the meat product, which improves flavor and
increases weight of the meat products and the price a which meats
products are ultimately sold to consumers.
Transform Pack's principal competitors are the spice
manufacturers who sell spices to meat processors for application
through traditional manual processes. We believe our seasoning
sheets offer a new method of spice and additive application to
meat products that is competitive with traditional methods of
application. Furthermore, we are working to establish strategic
alliances with spice manufacturers in which our seasoning sheets
become an accepted method of applying, and therefore selling,
their spice and additive products to meat processors.
Government Regulation
Transform Pack is subject to a host of national, state, and
local regulations affecting health, sanitation and safety
standards for production of food products. If we fail to comply
with these standards, we could be required to recall our
products, suspend operations until we are in compliance, or be
penalized through fines or criminal charges. We believe our
manufacturing processes comply with applicable regulations.
However, differing interpretations of existing regulations or new
regulations could result in Transform Pack being non-compliant
and place additional operational burdens and costs on us.
Employees
At August 31, 2000, we employed seven persons, of which two
occupy executive or managerial positions, four hold manufacturing
positions, and the balance hold clerical and office positions.
None of
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our employees are represented by a labor union. We consider our
relations with our employees to be good and have not experienced
any interruption of operations due to labor disputes.
About Transform Pack
We acquired Transform Pack, Inc., our operating subsidiary,
in January 2000, through a reverse acquisition. Transform Pack,
Inc., was formed in October 1994 under the laws of New Brunswick,
Canada to develop, manufacture and distribute our current
seasoning sheet product. Transform Pack, Inc., began developing
the product for sale to local meat packinghouses in October 1994.
It took one year to develop the calibration matrix and obtain all
necessary regulatory approvals for commercial use of the product
in Canada and the United States. In late 1995, two restaurant
chains in the United States began to use and order substantial
amounts of the seasoning sheets. The production machinery used
by Transform Pack, Inc., at that time was inadequate for meeting
the new demand for product. As a result, Transform Pack, Inc.,
suspended its marketing activities in 1996 and redesigned its
production machinery. The new production machinery was
operational and in place by the end of 1999, and Transform Pack,
Inc., developed new marketing plans that it implemented from the
first quarter of 2000 through the present.
Transform Pack International, Inc., the parent of Transform
Pack, Inc., was formed as a Minnesota corporation in February
1975, under the name of Automated Multiple Systems, Inc. It
subsequently changed its name to Stylus, Inc., and was engaged in
the business of developing a minicomputer word processor. This
business was unsuccessful and the corporation was inactive until
December 1997, when it changed its name to Cybernetics, Inc., and
acquired Cybernetics Medical Systems Corporation, a privately
held Minnesota corporation, in exchange for 2,000,000 shares of
common stock and warrants to purchase 300,000 additional shares.
Cybernetics Medical was engaged in the business of developing
medical products. Delays in product development and increased
competition impaired its ability to raise capital to fund product
development. In March 1999, Cybernetics Medical was sold to
certain stockholders for assumption of all liabilities and
cancellation of the 300,000 warrants issued in the original
acquisition. We were inactive until January 2000, when we
acquired Transform Pack, Inc., for seven million shares of common
stock and changed our name to Transform Pack International, Inc.
Any references you see to "Transform Pack" in this report are
references to both the parent and subsidiary companies.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
Results of Operations - Years Ended May 31, 2000 and 1999
For the year ended May 31, 2000, Transform Pack's revenue
increased 44.6% over revenue in fiscal year 1999 from CDN
$226,599 for the year ended May 31, 1999 to CDN $327,643 for the
year ended May 31, 2000. Cost of sales as a percentage of
revenue decreased from 48.8% in fiscal year 1999 to 40.2% in
fiscal year 2000. Net loss decreased by CDN $15,902 from CDN
$478,109 for the year ended May 31, 1999, to CDN $462,207 for the
year ended May 31, 2000.
Transform Pack's reduction in net loss is attributable to
increase in our revenue and the improvement we realized in the
gross margin between revenue and cost of sales. However, we
continue to operate at a substantial loss and expect to realize a
substantial loss from operations for the year ending May 31,
2001.
Our net loss in prior years is a result of the following
factors:
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* We could not roll out marketing programs for our seasoning
sheets in fiscal years 2000 and 1999 until we completed
development of our production equipment. We completed this
development effort in the Fall of 1999. In the meantime, our
marketing program was limited by our production capacity and we
incurred research and development costs of CDN $93,959 and CDN
$125,486 in fiscal years 2000 and 1999, respectively.
* As Transform Pack completed its production equipment in 1999,
we began to incur additional costs for marketing and production
during the last six months of fiscal year 2000 in order to ramp
up our operations. Selling, general and administrative expenses
increased 29.4% from CDN $399,839 in fiscal year 1999 to CDN
$541,713 for the year ended May 31,2000. We incurred these costs
in fiscal year 2000 and will continue to incur higher selling,
general and administrative costs in the current fiscal year in
order to increase revenue from sale of our seasoning sheets.
We are unable to predict whether or when our expenditures to
implement our business will result in revenue that will cover our
operating costs. Our accountants have expressed their doubt
about our ability to continue as a going concern based, in part,
on our prior operations. Whether we will succeed in our
marketing efforts and realize increased revenue to fund
operations is a significant risk to stockholders of Transform
Pack.
Liquidity and Capital Commitments
At May 31, 2000, Transform Pack had current assets of CDN
$481,441 and a working capital deficit of CDN $213,749. Our
current liabilities at May 31, 2000, include CDN $313,500 of bank
financing under lines of credit used to fund our operations,
which are current obligations. In fiscal year 2000 the Province
of New Brunswick converted CDN $300,000 of debt to 30,000 Class A
preferred shares of our subsidiary, which we are obligated to
redeem at the rate of 20% or CDN $60,000 per year beginning
August 31, 2000. Transform Pack did not make its first
redemption payment and is now in default under its agreement with
New Brunswick. New Brunswick has not taken any action against
Transform Pack to enforce its redemption right, but there is no
assurance it will not to so in the future.
As Transform Pack is aggressively pursuing marketing of its
seasoning sheets, a substantial number of orders placed in
response to that marketing effort could require us to establish
another production line within the next year. A production line
consists of two of our proprietary coating machines, a cutting
machine, and a packing machine. The estimated cost to us of
installing a new production line is CDN $200,000.
We are in need of additional financing now in order to pay
outstanding obligations, finance current operations and expand
operations over the next year. It is not likely that we will be
able to take advantage of the opportunity to increase our product
sales unless we obtain additional capital to fund operations. If
we cannot find more funding before the end of 2000, we will be
forced to substantially reduce our operations and it will take a
much longer period for our business to develop. We have not
identified any sources for future funding. Consequently, we may
be subject to enforcement actions by our creditors and may not be
able to take advantage of the opportunity to expand our business.
If we are unable to generate working capital from our internal
operations or outside sources, our ability to continue in
business will be seriously impaired.
ITEM 3. DESCRIPTION OF PROPERTIES
Transform Pack leases approximately 6,000 square feet of
space in Moncton, New Brunswick, Canada, which serves as our
business office and manufacturing facility. The monthly lease
rate is CDN
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$3,672 under a lease that expires in March 2004. Our facility is
adequate to accommodate one production line for seasoning sheets,
which is capable of producing 10,000,000 seasoning sheets per
month. We are currently selling on average 100,000 seasoning
sheets per month, so our current facility is adequate for a 900%
increase in our current sales volume. We believe this facility
will be adequate for our needs for the next year. Our principal
executive office and manufacturing facility are located at 310
Baig Blvd., Moncton, NB, Canada E1C 8T6. Our telephone number is
(506) 854-9211.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth as of August 31, 2000, the
number and percentage of the outstanding shares of common stock
which, according to the information supplied to Transform Pack,
were beneficially owned by (i) each person who is currently a
director of the Company, (ii) each executive officer, (iii) all
current directors and executive officers of the Company as a
group and (iv) each person who, to the knowledge of the Company,
is the beneficial owner of more than 5% of the outstanding common
stock. Except as otherwise indicated, the persons named in the
table have sole voting and dispositive power with respect to all
shares beneficially owned, subject to community property laws
where applicable.
Amount and Nature of Beneficial
Ownership
Name and Address Common Percent
Shares Options (1) of Class
(2)
Principal stockholder
Franz Schedlbauer 1,128,120 0 10.3
Muhlenstrasse 15
Graz-Raaba, Austria
Christian Schedlbauer 1,128,120 0 10.3
Muhlenstrasse 15
Graz-Raaba, Austria
#503485 NB Ltd. (3) 2,254,857 0 20.7
Muhlenstrasse 15
Graz-Raaba, Austria
Officers and directors
Hans Meier 2,346,103 0 21.5
310 Baig Blvd.
Moncton, NB, Canada E1C 8T6
Daniel Sham 87,500 0 0.8
39 Glen Watford Dr.
Scarborough, ON, Canada M1S 2C2
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Greg Phillips 0 0 0
160 Chestnut Street
Englewood Cliffs, NJ 07632
Nathalie Cormeir 0 40,000 0.4
310 Baig Blvd.
Moncton, NB, Canada E1C 8T6
Mark Miller 0 200,000 1.8
2730 S.W. Fern
Portland, OR 97201
Bruce Weitz 0 200,000 1.8
37 McGrath Drive
Cressill, NJ 07626
Richard Middleton 0 20,000 0.2
7912 44th Avenue
Edmonton, AB, Canada T6K 0S4
All Executive officers 2,433,603 460,000 25.4
and Directors as a Group
(7 persons)
(1) These figures represent options that are vested or will vest
within 60 days from the date as of which information is
presented in the table.
(2) These figures represent the percentage of ownership of the
named individuals assuming each of them alone has exercised
his or her options, and percentage ownership of all officers
and directors as a group assuming all purchase rights held
by such individuals are exercised.
(3) #503485 NB Ltd., is a private New Brunswick, Canada
corporation owned and controlled by Franz and Christian
Schedlbauer. Accordingly, these persons may be deemed to
have voting and investment control over the shares of common
stock held of record by #503485 NB Ltd.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
Directors and Officers
Name Age Position Since
Hans Meier 55 President and Director February 2000
Daniel Sham 47 Vice Chairman and Director February 2000
Greg Phillips 50 Vice President Sales & February 2000
Marketing and Director
Nathalie Cormier 28 Secretary, Treasurer and February 2000
Director
Mark Miller 29 Director February 2000
Bruce Weitz 52 Director February 2000
Richard Middleton 36 Director February 2000
Each director serves until the next annual meeting of
stockholders and until his or her successor is elected and
qualified. Executive officers serve at the discretion of the
board of directors. The following is biographical information on
each of our officers and directors.
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Hans Meier served from November 1994 to February 2000 as
Transform Pack, Inc.'s Vice President of Research and Development
where he was responsible for developing our seasoning sheet. He
became President in February 2000. For the past 15 years Mr.
Meier has owned and operated Meier Food Service Consulting
Limited, a private company engaged in the business of consulting
on food processing and delivery systems.
Daniel Sham has been the owner and operator of Scarboro Meat
Packers, Inc., based in Toronto from 1991 to the present. From,
April 1998 to the present he has served as Vice President of
Operations for Med Mira Laboratories, Inc., of Toronto, a public
company engaged in the business of manufacturing medical devices.
For the past 15 years he has served as the President of dTree &
Associates, Inc., based in Toronto, which is a private computer
consulting business.
Greg Phillips has owned and operated Plus Marketing
Corporation, a marketing and consulting firm based in New Jersey,
New Jersey, for 19 years.
Nathalie Cormier served as an executive assistant and
manager of Transform Pack, Inc., from December 1997 to February
2000, when she was appointed Secretary and Treasurer. For six
years prior to December 1997 she was employed as an
administrative assistant with Gemini Investments Ltd., of
Moncton, New Brunswick.
Mark Miller has been an owner and food broker with Team
Northwest, a food brokerage firm based in Portland, Oregon, from
December 1999 to the present. For six years prior to December
1999 we was employed as a sales manager with Nally's Foods.
Bruce Weitz is the president and chief executive officer of
Today's Man, Inc., a menswear retailer in the Northeast United
States, since January 1996. For three years prior to December
1995, Mr. Weitz was the Chairman, President and Chief Executive
Officer of Duane Reade Drug Stores, a drug store chain based in
New York City.
Richard Middleton has been the owner and president of
Compass Rose Ltd., of Edmonton, Alberta, from January 1998 to the
present. This firm is engaged in the business of distributing
gourmet food products. Before forming Compass Rose, Mr.
Middleton was owned and operated a catering company in Halifax,
Nova Scotia.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
the annual and long-term compensation for services in all
capacities to Transform Pack for the prior fiscal years ended May
31, 2000, 1999 and 1998, of those persons who were either the
chief executive officer during the last completed fiscal year or
one of the other four most highly compensated executive officers
as of the end of the last completed fiscal year whose annual
salary and bonuses exceeded US$100,000.
Annual Compensation
Name and Principal Position Year Salary (CND)
Hans Meier, President (1) 2000 56,350
1999 36,754
1998 55,200
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(1) Transform Pack pays CDN $6,900 per month to Meier Food
Service Consulting Limited, a private company owned by Hans
Meier, for his services rendered to the Company. The
figures for Mr. Meier's salary are the total of payments
made to Meier Food Service Consulting Limited in the three
fiscal years.
Other Compensation Arrangements
We have agreed to pay to Plus Marketing Corporation for the
consulting services of Greg Phillips and other marketing support
USD $25,000 per month over a term of four months commencing after
Transform Pack obtains additional financing for its operations.
Mr. Phillips will provide through Plus Marketing his consulting
services in developing and implementing marketing programs for
our product and office and clerical support for our marketing
efforts originating from his office in New Jersey.
Employee Options
In February 2000, Transform Pack granted to Nathalie Cormier
an option to purchase 40,000 shares of common stock at an
exercise price of USD $0.50 per share exercisable for a term of
three years. No trading market for our common stock existed then
or now. The option price is the same price at which Transform
Pack sold common stock privately to unrelated parties in February
2000. The option issued to Ms. Cormier represents 80% of all
options issued to employees of Transform Pack in fiscal year
2000.
Director Options
In February 2000, Transform Pack granted to Mark Miller, a
director, an option to purchase 200,000 shares of common stock at
an exercise price of USD $0.50 per share exercisable for a term
of three years. No trading market for our common stock existed
then or now. The option price is the same price at which
Transform Pack sold common stock privately to unrelated parties
in February 2000.
In March and April 2000, Transform Pack granted to Bruce
Weitz and Richard Middleton, both directors, options to purchase
200,000 and 20,000 shares of common stock, respectively, at an
exercise price of USD $1.00 per share exercisable for a term of
three years and two years, respectively. No trading market for
our common stock existed then or now. The option price was based
on Transform Pack's determination that the exercise price is
equal to or greater than the fair value of its common stock.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1999, Transform Pack granted to Compass Rose
Ltd., a company owned by Richard Middleton, a director, an
exclusive license to distribute seasoning sheets to food
processors in Western Canada. Under the license we sell
seasoning sheets to Compass Rose at a discount from the suggested
selling price to food processors. The license is for a term of
five years, with an option to renew for two additional five-year
terms. This contract was entered into before Mr. Middleton
became a director. Consequently, we believe the contract was the
result of arms' length negotiations between unrelated parties.
Franz and Christian Schedlbauer are principal stockholders
of Transform Pack and are also the controlling stockholders of
Transform Pack GmbH Europe. We have a Master License Agreement
Transform Pack Europe, which we entered into in July 1995, and
hold a 2% ownership interest in Transform Pack Europe. Under the
license agreement, Transform Pack Europe has the exclusive the
right to manufacture our proprietary equipment to produce
seasoning sheets and to market seasoning sheets in Europe,
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Southeast Asia, South America, and Japan. Transform Pack further
agreed to purchase at cost from Transform Pack Europe all
production equipment sold by Transform Pack to other persons
outside of Transform Pack Europe's territory, and pay to
Transform Pack Europe 45% of the net profit from sale of such
equipment. Transform Pack Europe must purchase all adhesive
matrix used in the seasoning sheets from us, and pay us a royalty
equal to 10% of gross revenue from seasoning sheet sales. The
Master License Agreement with Transform Pack Europe was for an
initial term of five years, which expired in July 2000.
Transform Pack is now negotiating an agreement with Transform
Pack Europe that will effect termination of the Master License
Agreement and permit Transform Pack to purchase equipment and
inventory and resell the licensed territories.
We have agreed to pay to Plus Marketing Corporation for the
consulting services of Greg Phillips and other marketing support
USD $25,000 per month over a term of four months commencing after
Transform Pack obtains additional financing for its operations.
Mr. Phillips will provide through Plus Marketing his consulting
services in developing and implementing marketing programs for
our product and office and clerical support for our marketing
efforts originating from his office in New Jersey.
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
Transform Pack is authorized to issue 40,000,000 shares of
common stock, par value $0.004 per share, of which 10,910,957
shares are issued and outstanding. Holders of common stock are
entitled to one vote per share on each matter submitted to a vote
at any meeting of stockholders. Shares of common stock do not
carry cumulative voting rights. Therefore, holders of a majority
of the outstanding shares of common stock will be able to elect
the entire board of directors. If they do so, minority
stockholders would not be able to elect any members to the board
of directors. The board of directors has authority, without
action by the stockholders, to issue all or any portion of the
authorized but unissued shares of common stock, which would
reduce the percentage ownership in Transform Pack of its
stockholders and which may dilute the book value of the common
stock. Stockholders have no pre-emptive rights to acquire
additional shares of common stock. The common stock is not
subject to redemption and carries no subscription or conversion
rights. In the event of liquidation of Transform Pack, the
shares of common stock are entitled to share equally in corporate
assets after satisfaction of all liabilities. Holders of common
stock are entitled to receive dividends as the board of directors
may from time to time declare out of funds legally available for
the payment of dividends. Transform Pack has not paid dividends
on its common stock and does not anticipate that it will pay
dividends in the foreseeable future.
Preferred Stock
Transform Pack is authorized to issue 5,000,000 shares of
preferred stock, par value $0.01, none of which are issued and
outstanding. We currently have no plans to issue any preferred
stock. The board of directors has authority, without action by
the shareholders, to issue all or any portion of the unissued
preferred stock in one or more series and to determine the voting
rights, preferences as to dividends and liquidation, conversion
rights and other rights of such series. The preferred stock, if
and when issued, may carry rights superior to those of the common
stock.
Stock Options
We have outstanding options to purchase 440,000 shares of
common stock at an exercise price of US$0.50 per share that
expire in February and March 2003. We also have outstanding
options to
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purchase 230,000 shares of common stock at an exercise price of
US$1.00 per share that expire in April 2002 and March 2003.
Transfer Agent
Fidelity Transfer Company, 1981 East 4800 South, Salt Lake
City, Utah 84124, is our transfer agent.
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
There is no established trading market for the Transform
Pack's common stock. We are filing this registration statement
on Form 10-SB to voluntarily become a reporting company under the
Securities Exchange Act of 1934, because this is a specific
requirement for obtaining a listing on the OTC Bulletin Board and
because we believe this will facilitate the development of a
public market in the future. However, there is no assurance that
a trading market will develop in the future. Even if a trading
market should develop, there is no way of determining what the
market price may be at any future time.
Since its inception, no dividends have been paid on our
common stock. Transform Pack intends to retain any earnings for
use in its business activities, so it is not expected that any
dividends on the common stock will be declared and paid in the
foreseeable future.
At August 31, 2000, there were approximately 190 holders of
record of the Company's Common Stock.
We have 10,910,957 shares of common stock issued and
outstanding, of which 8,075,054 shares are restricted securities
under Rule 144 and may not be sold in the public market except in
compliance with Rule 144, which includes the requirement that the
shares be held for a period of at least one year. This means the
8,075,054 shares cannot be sold in the public market until
February 2001. Future sale of the restricted shares after the
restrictions lapse could have a depressive effect on the price
and liquidity of the common stock in any public market that may
exist in the future.
ITEM 2. LEGAL PROCEEDINGS
Transform Pack is not a party to any material pending legal
proceedings, and to the best of its knowledge, no such
proceedings by or against Transform Pack have been threatened.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In February 2000 the Company sold 1,000,957 shares of common
stock for CDN $712,715. The shares were sold to persons who, on
the basis of information provided to Transform Pack, are
accredited investors as defined in Rule 501(a) of Regulation D.
No broker participated in the transaction and no commissions were
paid to any person. The name of each purchaser and the number of
shares purchased are as follows:
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Name Number of Shares
Investissements Jafel Inc. 300,000
Alain Jodoin 241,296
Gestion J.S.V. Inc. 207,325
9045-3291 Quebec Inc. 212,406
Michael Brudny 19,930
Klaus Brudny 20,000
In February 2000, Transform Pack issued 7,000,000 shares of
common stock in exchange for all of the outstanding common stock
of Transform Pack, Inc. The common stock was issued to the
former stockholders of Transform Pack, Inc. No broker
participated in the transaction and no commissions were paid to
any person. The shares were issued in reliance on the exemption
from registration set forth in Section 4(2) of the Securities Act
of 1933. Transform Pack believes each of the stockholders of
Transform Pack, Inc., was sophisticated and had such knowledge of
the business and financial condition of the parties to the
business acquisition so as to make an informed investment
decision. The name of each stockholder and the number of shares
purchased are as follows:
Name Number of Shares
#503485 NB Ltd. (1) 2,254,857
Hans Meier 2,346,103
Franz Schedlbauer 1,128,120
Christian Schedlbauer 1,128,120
Daniel Sham 87,500
Carmelle Cassie 55,300
(1) #503485 NB Ltd., is a private New Brunswick, Canada
corporation owned and controlled by Franz and Christian
Schedlbauer. Accordingly, these persons may be deemed to
have voting and investment control over the shares of common
stock held of record by #503485 NB Ltd.
Transform Pack issued options to purchase shares of its
common stock to directors, officers, employees and other
consultants in February, March and April 2000. No broker
participated in the transaction and no commissions were paid to
any person. The options were issued in reliance on the exemption
from registration set forth in Section 4(2) of the Securities Act
of 1933. Transform Pack believes each of the option holders was
sophisticated and had such knowledge of the business and
financial condition of Transform Pack through their employment or
services to Transform Pack so as to make an informed investment
decision. The recipients of the options, number of options,
exercise price, and date of issuance are as follows:
Name Number Exercise price Date
Gene Gagliardi 200,000 USD $0.50 March 27, 2000
Mark Miller 200,000 USD $0.50 February 3, 2000
Nathalie Cormier 40,000 USD $0.50 February 29, 2000
Bruce Weitz 200,000 USD $1.00 March 29, 2000
Richard Middleton 20,000 USD $1.00 April 13, 2000
Chris Trevors 10,000 USD $1.00 April 24, 2000
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's articles of incorporation provide the
following:
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A director of this corporation shall not be personally
liable to the corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director; except
for: (i) liability based on a breach of the duty of loyalty
to the corporation or the shareholders; (ii) liability for
acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii)
liability based on the payment of an improper dividend or an
improper repurchase of the corporation's stock under
Minnesota Statutes, Section 302A.559, or on violations of
federal or state securities laws; (iv) liability for any
transaction from which the director derived an improper
personal benefit; or (v) liability for any act or omission
prior to the date this Article VI becomes effective. If
Minnesota statutes, Chapter 302A, hereafter is amended to
authorize the further elimination or limitation of the
liability of the directors, then the liability of a director
of the corporation, in addition to the limitation on
personal liability provided herein, shall be limited to the
fullest extent permitted by the amended Chapter 302A. Any
repeal of this provision as a matter of law or any
modification of this Article by the shareholders of the
corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of
a director of the corporation existing at the time of such
repeal or modification.
The Company's by-laws provide that the officers and
directors shall have rights to indemnification provided by
Minnesota statute. Section 302A.521 of the Minnesota Statutes
provided as follows:
Subdivision 1. Definitions. (a) For purposes of this
section, the terms defined in this subdivision have the
meanings given them.
(b) "Corporation" includes a domestic or foreign
corporation that was the predecessor of the corporation
referred to in this section in a merger or other transaction
in which the predecessor's existence ceased upon
consummation of the transaction.
(c) "Official capacity" means (1) with respect to a
director, the position of director in a corporation, (2)
with respect to a person other than a director, the
elective or appointive office or position held by an
officer, member of a committee of the board, or the
employment relationship undertaken by an employee of the
corporation, and (3) with respect to a director, officer, or
employee of the corporation who, while a director, officer,
or employee of the corporation, is or was serving at the
request of the corporation or whose duties in that position
involve or involved service as a director, officer, partner,
trustee, employee, or agent of another organization or
employee benefit plan, the position of that person as a
director, officer, partner, trustee, employee, or agent, as
the case may be, of the other organization or employee
benefit plan.
(d) "Proceeding" means a threatened, pending, or
completed civil, criminal, administrative, arbitration, or
investigative proceeding, including a proceeding by or in
the right of the corporation.
(e) "Special legal counsel" means counsel who has not
represented the corporation or a related organization, or a
director, officer, member of a committee of the board, or
employee, whose indemnification is in issue.
Subdivision 2. Indemnification mandatory; standard. (a)
Subject to the provisions of subdivision 4, a corporation
shall indemnify a person made or threatened to be made a
party to a
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proceeding by reason of the former or present official
capacity of the person against judgments, penalties, fines,
including, without limitation, excise taxes assessed against
the person with respect to an employee benefit plan,
settlements, and reasonable expenses, including attorneys'
fees and disbursements, incurred by the person in connection
with the proceeding, if, with respect to the acts or
omissions of the person complained of in the proceeding, the
person:
(1) Has not been indemnified by another
organization or employee benefit plan for the same
judgments, penalties, fines, including, without
limitation, excise taxes assessed against the person
with respect to an employee benefit plan, settlements,
and reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in connection
with the proceeding with respect to the same acts or
omissions;
(2) Acted in good faith;
(3) Received no improper personal benefit and
section 302A.255, if applicable, has been satisfied;
(4) In the case of a criminal proceeding, had no
reasonable cause to believe the conduct was unlawful;
and
(5) In the case of acts or omissions occurring in
the official capacity described in subdivision 1,
paragraph (c), clause (1) or (2), reasonably believed
that the conduct was in the best interests of the
corporation, or in the case of acts or omissions
occurring in the official capacity described in
subdivision 1, paragraph (c), clause (3), reasonably
believed that the conduct was not opposed to the best
interests of the corporation. If the person's acts or
omissions complained of in the proceeding relate to
conduct as a director, officer, trustee, employee, or
agent of an employee benefit plan, the conduct is not
considered to be opposed to the best interests of the
corporation if the person reasonably believed that the
conduct was in the best interests of the participants
or beneficiaries of the employee benefit plan.
(b) The termination of a proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent does not, of itself, establish
that the person did not meet the criteria set forth in this
subdivision.
Subdivision 3. Advances. Subject to the provisions of
subdivision 4, if a person is made or threatened to be made
a party to a proceeding, the person is entitled, upon
written request to the corporation, to payment or
reimbursement by the corporation of reasonable expenses,
including attorneys' fees and disbursements, incurred by the
person in advance of the final disposition of the
proceeding, (a) upon receipt by the corporation of a written
affirmation by the person of a good faith belief that the
criteria for indemnification set forth in subdivision 2 have
been satisfied and a written undertaking by the person to
repay all amounts so paid or reimbursed by the corporation,
if it is ultimately determined that the criteria for
indemnification have not been satisfied, and (b) after a
determination that the facts then known to those making the
determination would not preclude indemnification under this
section. The written undertaking required by clause (a) is
an unlimited general obligation of the person making it, but
need not be secured and shall be accepted without reference
to financial ability to make the repayment.
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Subdivision. 4.Prohibition or limit on indemnification or
advances. The articles or bylaws either may prohibit
indemnification or advances of expenses otherwise required
by this section or may impose conditions on indemnification
or advances of expenses in addition to the conditions
contained in subdivisions 2 and 3 including, without
limitation, monetary limits on indemnification or advances
of expenses, if the prohibition or conditions apply equally
to all persons or to all persons within a given class. A
prohibition or limit on indemnification or advances may not
apply to or affect the right of a person to indemnification
or advances of expenses with respect to any acts or
omissions of the person occurring prior to the effective
date of a provision in the articles or the date of adoption
of a provision in the bylaws establishing the prohibition or
limit on indemnification or advances.
Subdivision 5. Reimbursement to witnesses. This section
does not require, or limit the ability of, a corporation to
reimburse expenses, including attorneys' fees and
disbursements, incurred by a person in connection with an
appearance as a witness in a proceeding at a time when the
person has not been made or threatened to be made a party to
a proceeding.
Subdivision 6. Determination of eligibility. (a) All
determinations whether indemnification of a person is
required because the criteria set forth in subdivision 2
have been satisfied and whether a person is entitled to
payment or reimbursement of expenses in advance of the final
disposition of a proceeding as provided in subdivision 3
shall be made:
(1) By the board by a majority of a quorum, if
the directors who are at the time parties to the
proceeding are not counted for determining either a
majority or the presence of a quorum;
(2) If a quorum under clause (1) cannot be
obtained, by a majority of a committee of the board,
consisting solely of two or more directors not at the
time parties to the proceeding, duly designated to act
in the matter by a majority of the full board including
directors who are parties;
(3) If a determination is not made under clause
(1) or (2), by special legal counsel, selected either
by a majority of the board or a committee by vote
pursuant to clause (1) or (2) or, if the requisite
quorum of the full board cannot be obtained and the
committee cannot be established, by a majority of the
full board including directors who are parties;
(4) If a determination is not made under clauses
(1) to (3), by the shareholders, but the shares held by
parties to the proceeding must not be counted in
determining the presence of a quorum and are not
considered to be present and entitled to vote on the
determination; or
(5) If an adverse determination is made under
clauses (1) to (4) or under paragraph (b), or if no
determination is made under clauses (1) to (4) or under
paragraph (b) within 60 days after (i) the later to
occur of the termination of a proceeding or a written
request for indemnification to the corporation or (ii)
a written request for an advance of expenses, as the
case may be, by a court in this state, which may be the
same court in which the proceeding involving the
person's liability took place, upon application of the
person and any notice the court requires. The person
seeking indemnification or payment or reimbursement of
expenses pursuant to this clause has the
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burden of establishing that the person is entitled to
indemnification or payment or reimbursement of
expenses.
(b) With respect to a person who is not, and was not
at the time of the acts or omissions complained of in the
proceedings, a director, officer, or person possessing,
directly or indirectly, the power to direct or cause the
direction of the management or policies of the corporation,
the determination whether indemnification of this person is
required because the criteria set forth in subdivision 2
have been satisfied and whether this person is entitled to
payment or reimbursement of expenses in advance of the final
disposition of a proceeding as provided in subdivision 3 may
be made by an annually appointed committee of the board,
having at least one member who is a director. The committee
shall report at least annually to the board concerning its
actions.
Subdivision 7. Insurance. A corporation may purchase and
maintain insurance on behalf of a person in that person's
official capacity against any liability asserted against and
incurred by the person in or arising from that capacity,
whether or not the corporation would have been required to
indemnify the person against the liability under the
provisions of this section.
Subdivision 8. Disclosure. A corporation that indemnifies
or advances expenses to a person in accordance with this
section in connection with a proceeding by or on behalf of
the corporation shall report to the shareholders in writing
the amount of the indemnification or advance and to whom and
on whose behalf it was paid not later than the next meeting
of shareholders.
PART F/S
FINANCIAL STATEMENTS
The financial statements of the Company appear at the end of
this registration statement beginning with the Index to Financial
Statements on page 24.
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PART III
ITEM 1. INDEX TO EXHIBITS
ITEM 2. DESCRIPTION OF EXHIBITS
Copies of the following documents are included as exhibits to
this report.
Exhibit Form 1-A Title of Document
No. Ref. No.
1 (2) Articles of Incorporation, as amended
2 (2) By-Laws
3 (6) License Agreement dated October 5, 1999,
with Compass Rose Ltd.
4 (6) License Agreement dated December 29, 1997,
with Elias Brothers Restaurant Inc.
5 (6) Master License Agreement dated July 24,
1995, with Transform Pack Europe GmbH
6 (6) Form of Stock Option issued to officers and
directors
7 (6) Consulting agreement with Greg Phillips
dated May 23, 2000
8 (6) Loan Conversion and Preferred Stock
Redemption Agreement dated February 2, 1999 between
Transform Pack, Inc., and New Brunswick
9 (6) Lease Agreement for Property at 310 Baig
Blvd., Moncton, NB
10 (7) List of Foreign Patents
11 (8) Exchange Agreement dated January 28, 2000,
between Cybernetics, Inc., and Transform Pack, Inc.
12 (15) Financial Data Schedules
* The Financial Data Schedule is presented only in the
electronic filing with the Securities and Exchange
Commission.
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act
of 1934, the registrant caused this registration statement to be
signed on its behalf by the undersigned thereunto duly
authorized.
TRANSFORM PACK INTERNATIONAL, INC.
Date: October 5, 2000 By: /s/ Hans Meier, President
In accordance with the Exchange Act, this registration
statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Dated: October 5, 2000 /s/ Hans Meier, Director
Dated: October 5, 2000 /s/ Daniel Sham, Director
Dated: October 5, 2000 /s/ Greg Phillips, Director
Dated October 5, 2000 /s/ Nathalie Cormier, Director
Dated: October 5, 2000 /s/ Mark Miller, Director
Dated: October 5, 2000 /s/ Bruce Weitz, Director
Dated: October 5, 2000 /s/ Richard Middleton, Director
23
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TRANSFORM PACK INTERNATIONAL INC.
(Formerly Cybernetics Inc.)
(a development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
(in Canadian dollars)
MAY 31, 2000
Index to Financial Statements
Page
Independent Auditors' Report 25
Consolidated Balance Sheets - May 31, 2000 and 1999 26
Consolidated Statements Of Operations
Years Ended May 31, 2000 And 1999 And The Period From
October 31, 1994 (Date Of Incorporation) To May 31, 2000 27
Consolidated Statement Of Shareholders' Equity
Years Ended May 31, 2000 And 1999 And The Period From
October 31, 1994 (Date Of Incorporation) To May 31, 2000 28
Consolidated Statement Of Cash Flows
Years Ended May 31, 2000 And 1999 And The Period From
October 31, 1994 (Date Of Incorporation) To May 31, 2000 29
Notes to Consolidated Financial Statements 30
24
<PAGE>
Deloitte & Touche LLP
P.O. Box 2087 Telephone:(902) 422-8541
5161 George Street, Suite 800 Facsimile:(902) 423-5820
Halifax, Nova Scotia B3J 3B7
INDEPENDENT AUDITORS' REPORT
To the Directors of
Transform Pack International Inc.
(formerly Cybernetics Inc.)
(a development stage company)
We have audited the consolidated balance sheets of Transform Pack
International Inc. (formerly Cybernetics Inc.) (a development
stage company) as at May 31, 2000 and 1999 and the related
consolidated statements of operations, shareholders' equity and
cash flows for the years then ended, and for the period from
October 31, 1994 (date of incorporation) to May 31, 2000. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as at May 31, 2000 and 1999 and the results of its
operations and its cash flows for the years then ended, and for
the period from October 31, 1994 to May 31, 2000 in conformity
with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company
is a development stage enterprise engaged in the manufacturing
and marketing of spice sheets for seasoning of meat, fish and
poultry products. As discussed in Note 1 to the financial
statements, the deficiency in working capital at May 31, 2000 and
the Company's operating losses since inception, raise substantial
doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in
Note 1. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
Deloitte & Touche LLP
July 5, 2000
Chartered Accountants
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TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
AS AT MAY 31, 2000 AND 1999
(in Canadian dollars)
May 31 May 31
2000 1999
ASSETS
Current
Cash and cash equivalents $ 170,933 $ -
Accounts receivable (Note 3) 180,470 41,481
Inventory 127,309 62,477
Prepaid expenses 2,729 1,314
481,441 105,272
Capital assets (Note 4) 526,651 509,996
Investment in affiliate (Note 5) 2,000 2,000
$ 1,010,092 $ 617,268
LIABILITIES
Current
Bank indebtedness (Note 6) $ 313,500 $ 357,397
Accounts payable (Note 7) 226,763 130,341
Current portion of long-term debt (Note 8) 94,927 46,762
Current portion of redeemable preferred shares 60,000 -
695,190 534,500
Long-term debt (Note 8) 468,997 744,503
Redeemable preferred shares (Note 9) - 266,250
Non-controlling interest in preferred equity
of a subsidiary (Note 9) 506,250 -
Due to shareholders (Note 10) 127,077 127,077
1,797,514 1,672,330
Commitments and contingencies (Notes 1 and 14)
SHAREHOLDERS' DEFICIENCY
Share capital (Note 11) 1,139,847 410,000
Deficit accumulated during the development stage (1,927,269) (1,465,062)
(787,422) (1,055,062)
$ 1,010,092 $ 617,268
26
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
<TABLE>
<CAPTION>
Period from
Oct31/94 (date of
incorporation) to
May 31 May 31 May 31
2000 1999 2000
<S> <C> <C> <C>
Revenue $ 327,643 $ 226,599 $ 842,932
Cost of sales 131,739 110,650 439,845
Selling, general and administrative expenses 541,713 399,839 1,655,675
Research and development expense 93,959 125,486 770,186
Interest expense - long-term 11,574 14,253 58,953
- other 26,485 32,640 83,585
Other expenses (income) (15,620 21,840 (238,043)
789,850 704,708 2,770,201
Net loss $ (462,207) $ (478,109) $ (1,927,269)
Basic net loss per share $ (0.08) $ (0.24)
Weighted average number of common
shares outstanding
Transform Pack Inc. - 2,000,000
Transform Pack International Inc. 5,493,573 -
</TABLE>
27
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars, except for number of shares)
<TABLE>
<CAPTION>
Deficit
Accumulated
During
Common Stock Development
Shares Amount Stage Total
<S> <C> <C> <C> <C>
Transform Pack Inc.
Balance, June 1, 1994 - $ - $ - $ -
Issue of common stock 200 10,000 - 10,000
Net loss - - (199,797) (199,797)
Balance, May 31, 1995 200 10,000 (199,797) (189,797)
Net loss - - (56,303) (56,303)
Balance, May 31, 1996 200 10,000 (256,100) (246,100)
Issue of common stock 1,999,800 400,000 - 400,000
Net loss - - (285,156) (285,156)
Balance, May 31, 1997 2,000,000 410,000 (541,256) (131,256)
Net loss - - (445,697) (445,697)
Balance, May 31, 1998 2,000,000 410,000 (986,953) (576,953)
Net loss - - (478,109) (478,109)
Balance, May 31, 1999 2,000,000 410,000 (1,465,062) (1,055,062)
Transform Pack International Inc.
Balance, May 31, 1999 2,910,000 221,155 (221,155) -
Net loss from June 1, 1999 to
January 28, 2000 - - (7,217) (7,217)
Impact of reverse acquisition of
Transform Pack Inc. (Note 1)
- recapitalization of common shares - (228,372) 228,372 -
- common share issued to acquire
Transform Pack Inc. 7,000,000 - - -
Fair value of stock options granted
to non-employees - 24,349 - 24,349
Net loss - - (462,207) (462,207)
Issue of common stock by Transform
Pack International Inc. 1,000,957 712,715 - 712,715
Balance, May 31, 2000 10,910,957 $ 1,139,847 $ (1,927,269) $ (787,422)
</TABLE>
28
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
<TABLE>
<CAPTION>
Period from
Oct31/94 (date of
incorporation) to
May 31 May 31 May 31
2000 1999 2000
<S>
Net inflow (outflow) of cash and cash
equivalents related to the following activities:
Operating <C> <C> <C>
Net loss $ (462,207) $(478,109) $(1,927,269)
Items not affecting cash
Amortization 81,968 76,805 311,809
Fair value of stock options granted
to non-employees 24,349 - 24,349
Changes in non-cash working capital
items
Accounts receivable (138,989) 169,484 (180,470)
Inventory (64,832) (21,026) (127,309)
Prepaid expenses (1,415) 757 (2,729)
Accounts payable 89,205 (70,683) 219,547
(471,921) (322,772) (1,682,072)
Financing
Proceeds on long-term debt 112,531 399,606 1,076,955
Repayment of long-term debt (Note 14) (39,872) (141,726) (213,029)
Due to related parties - 65,000 127,077
Proceeds from (repayment of) bank indebtedness (43,897) (8,371) 142,567
28,762 314,509 1,133,570
Investing
Proceeds from issuance of capital
stock (Note 14) 712,715 - 1,388,965
Acquisition of capital assets, net of
government assistance relieved (98,623) 3,263 (845,463)
Proceeds on disposal of capital assets - 5,000 5,000
614,092 8,263 548,502
Net inflow of cash and cash equivalents 170,933 - -
Cash and cash equivalents, beginning of year - - -
Cash and cash equivalents, end of year $ 170,933 $ - $ -
</TABLE>
29
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
1.BASIS OF PRESENTATION
Transform Pack International Inc. (a development stage
company) (formerly Cybernetics Inc.) (the "Company") is
incorporated under the laws of the State of Minnesota, and
was until January 2000, a non-operating shell company. On
January 28, 2000, the Company and its shareholders entered
into an exchange agreement with the shareholders of Transform
Pack Inc., whereby the shareholders of Transform Pack Inc.
acquired control of the Company by way of a reverse
acquisition. The acquisition was effected by the issue of
7,000,000 shares of the Company in exchange for 100% of the
outstanding common shares of Transform Pack Inc. Transform
Pack Inc. is a development stage company incorporated under
the laws of the Canadian province of New Brunswick, whose
operations include the manufacturing and marketing of spice
sheets for seasoning of meat, fish and poultry products.
For accounting purposes, Transform Pack Inc. will be treated
as the acquiring entity, and therefore, the exchange
agreement will be accounted for as if Transform Pack Inc.
acquired the Company and then recapitalized its share
capital. As a result, these consolidated financial
statements include the operations of the Company since
January 28, 2000, with the operations of Transform Pack Inc.
for the year ended May 31, 1999 presented as comparative
figures. The Company was non-operating prior to January 28,
2000, and incurred operating expenses of $7,217 and $502 in
the eight-months from June 1, 1999 to January 28, 2000 and
the year ended May 31, 1999, respectively. These expenses
are not included in these consolidated net losses, as they
were incurred prior to the reverse acquisition. At December
31, 1999, the Company had no assets, $7,217 of liabilities
and a $7,217 shareholders' deficiency.
The accompanying financial statements have been prepared on a
going-concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal
course of business. As shown in the financial statements,
during the years ended May 31, 1999 and 2000, the Company
incurred significant net losses and negative cash flows from
operations; also, as of May 31, 1999 and 2000, the Company
had a net shareholders' deficiency in assets. These factors,
among others, indicated that the Company may be unable to
continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and
classification of recorded asset amounts, or the amount of
and classification of liabilities, that might be necessary
should the Company be unable to continue as a going concern.
The Company's continuation as a going concern is dependent
upon its ability to ultimately obtain profitable operations,
generate sufficient cash flow to meet its obligations, and
obtain additional financing as may be required.
30
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
1. BASIS OF PRESENTATION (continued)
Management's Plans
As shown in the consolidated financial statements, the
Company has incurred losses from operations of $478,109 and
$462,207 for the years ended May 31, 1999 and 2000, and a net
shareholders' deficiency in assets at year end. Since its
inception, the Company has devoted substantially all of its
efforts to developing the products, obtaining financing,
assessing market demand, and obtaining customers. The
success of the Company's operations and, ultimately, the
attainment of profitable operations are dependent on
achieving a level of sales adequate to support the Company's
cost structure.
The Company intends to increase sales through market
penetration strategies designed to introduce the products to
numerous North American and European customers. The Company
is currently working on obtaining additional funding which
will satisfy its working capital needs and allow the Company
to increase its production.
2.ACCOUNTING POLICIES
The financial statements have been prepared in accordance
with accounting principles generally accepted in the United
States of America and include the following significant
accounting policies:
a) Government Assistance
Government assistance received as a reimbursement of a
capital cost acquisition is recorded as a reduction of
the capital cost and is amortized on the same basis as
the asset. Contributions received for the development of
the technology of spice sheets is recorded as a
reduction of the related research and development
expense.
b) Inventory
Inventory consists only of raw materials and is recorded
at the lower of cost (on a first-in, first-out basis)
and net realizable value.
31
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
2. ACCOUNTING POLICIES (continued)
c) Capital Assets
Capital assets are recorded at cost less government
assistance. Amortization is computed using the
following rates and methods:
Machinery and equipment 10 years straight-line
Leasehold improvement 5 years straight-line
Office furniture and equipment 20% declining-balance
Lab equipment 20% declining-balance
Patents 10 years straight-line
d) Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the
United States of America require management to make
estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses,
and disclosure of contingent liabilities in these
financial statements. Actual results could differ from
those estimates.
e) Research and Development
Research and development costs are charged to expenses
when incurred.
f) Costs of Start-Up Activities
The Company has adopted Statement of Position ("SOP") 98-
5, "Reporting on the Costs of Start-Up Activities",
issued by the American Institute of Certified Public
Accountants' Accounting Standards Executive Committee.
In accordance with this standard, the costs of start-up
activities and organization costs are expensed as
incurred.
32
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
2. ACCOUNTING POLICIES (continued)
g) Income Taxes
Income taxes are provided for current taxes payable or
refundable, and temporary differences arising from the
future tax consequences of events that have been
recognized in the Company's financial statements or
income tax returns. The effect of income taxes is
measured based on currently enacted tax laws and rates in
accordance with SFAS No. 109, Accounting for Income
Taxes. A valuation allowance is provided for deferred
tax assets when it is more likely than not that some or
all of such assets will not be realized.
h) Comprehensive Income
The Company has adopted SFAS 130, "Reporting
Comprehensive Income". There are no differences between
the Company's net earnings as reported and its
comprehensive income as defined by SFAS 130.
Accordingly, a separate statement of comprehensive
income has not been presented.
i) Cash and Cash Equivalents
The Company considers investments in highly-liquid
investment instruments with maturities of 90 days or
less at the date of purchase to be cash equivalents.
The carrying amount reported in the balance sheets for
cash and cash equivalents approximates their fair value.
Cash equivalents consist principally of investments in
certificates of deposit with financial institutions.
j) Derivative Instruments and Hedging Activities
In June 2000, the Financial Accounting Standards Board
issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities", which will be effective for the
Company's 2002 fiscal year. Under the new standard,
companies will be required to record derivatives on the
balance sheet as assets or liabilities measured at fair
value. Management is currently evaluating the expected
impact of implementing this policy.
33
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
2.ACCOUNTING POLICIES (continued)
k) Basic and Diluted Net Loss per Share
The Company follows the provisions of SFAS 128,
"Earnings Per Share". Basic net loss per common share
is based on the weighted average number of common shares
outstanding during each period. Diluted net loss per
share has not been presented as it would be anti-
dilutive.
l) Revenue Recognition
In December 1999, the Securities and Exchange Committee
issued Staff Accounting Bulletin ("SAB") 101, "Revenue
Recognition in Financial Statements". SAB 101
establishes accounting and reporting standards for the
recognition of revenue. It states that revenue
generally is realized or realizable and earned when all
of the following criteria are met: (1) persuasive
evidence of an arrangement exists; (2) delivery has
occurred or services have been rendered; (3) the
seller's price to the buyer is fixed or determinable;
(4) collectibility is reasonably assured. SAB 101 is
effective no later than the fourth quarter of fiscal
years beginning after December 15, 1999. At this time,
management has not determined the effect, if any, that
the implementation of SAB 101 will have on the Company's
financial position and results of operations.
3.ACCOUNTS RECEIVABLE
2000 1999
Accounts receivable - trade $ 186,836 $ 26,304
Allowance for doubtful accounts (23,600) (2,000)
Sales tax receivable 17,234 17,177
$ 180,470 $ 41,481
34
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
4.CAPITAL ASSETS
<TABLE>
<CAPTION>
Accumulated Net Book Value
Cost Amortization 2000 1999
<S> <C> <C> <C> <C>
Machinery and equipment $ 700,427 $ 231,351 $ 469,076 $ 432,843
Leasehold improvements 51,802 32,022 19,780 30,260
Office furniture and equipment 61,937 38,383 23,554 29,443
Lab equipment 23,718 12,591 11,127 13,146
Patents 60,414 24,554 35,860 43,204
898,298 338,901 559,397 548,896
Government assistance (64,972) (32,226) (32,746) (38,900)
$ 833,326 $ 306,675 $ 526,651 $ 509,996
</TABLE>
5.INVESTMENT IN AFFILIATE
Transform Pack Inc. owns 10,000 shares of Transform Pack GmbH
Europe which represents a 2% ownership of the total common
shares issued. This investment has been accounted for at
cost.
6.BANK INDEBTEDNESS
Transform Pack Inc. has an approved line of credit of
$298,500 bearing interest at prime (7.5% at May 31, 2000)
plus 1 1/8%, which is guaranteed by certain shareholders of
the Company. At May 31, 2000, the full amount of this line
of credit had been drawn ($298,500 in 1999). The company
also has $207,000 in approved line of credit facilities,
bearing interest at rates between prime (7.5% at May 31,
2000) plus 1 1/2% and prime (7.5% at May 31, 2000) plus 2%,
secured by general assignment of book debts, inventory and a
guarantee from the Province of New Brunswick in the amount of
$132,000. At May 31, 2000, $15,000 had been drawn under this
facility ($58,897 in 1999).
35
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
7. ACCOUNTS PAYABLE
2000 1999
Accounts payable - trade $ 174,254 $ 43,484
Payroll deductions payable 2,207 5,155
Advances from customer - 20,723
Accrued liabilities 50,302 60,980
$ 226,763 $ 130,342
8. LONG-TERM DEBT
2000 1999
Bank loan, repayable in monthly principal payments
of $1,167 plus interest at prime (7.5% at May 31, 2000)
plus 1.75%, through the Small Business Loan Act,
secured by a chattel mortgage on a specific piece of
equipment. $ 10,591 $ 24,650
Bank loan, repayable in monthly principal payments
payments of $1,667 plus interest at prime (7.5% at May
31, 2000) plus 1.75%, through the Small Business Loan
Act, secured by a chattel mortgage on specific machinery
and equipment. 108,333 128,333
ACOA loan, repayable in monthly principal payments
of $500 commencing in August 1997, non-interest
bearing. - 5,813
ACOA loan, repayable in 82 consecutive monthly
installments of $5,361, followed by one final
installment of $5,398 commencing June 1, 2000
non-interest bearing. As at May 31, 2000, all
of the $445,000 approved contribution has been
disbursed by ACOA. 445,000 332,469
36
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
8. LONG-TERM DEBT (continued)
Province of New Brunswick loan converted to
preferred shares in 2000 (Note 9). - 300,000
563,924 791,265
Less: Current portion 94,927 46,762
$ 468,997 $ 744,503
Principal amounts due in the next five years are as follows:
2000 2001 2002 2003 2004
$94,927 $84,336 $84,336 $84,336 $84,336
37
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
9. REDEEMABLE PREFERRED SHARES OF TRANSFORM PACK INC.
Authorized:
Class A preferred shares, $10 par value, non-voting, non-
cumulative 10% dividend rate, redeemable at par,
unlimited number
2000 1999
Issued:
56,625 (1999 - 26,525) Class A preferred shares $ 566,250 $ 266,250
Current portion (60,000) -
$ 506,250 $ 266,250
The Province of New Brunswick received 30,000 Class A
preferred shares during the year ended May 31, 2000 for
$300,000. The proceeds were the conversion of the Province
of New Brunswick loans. Transform Pack Inc. has agreed to
redeem no less than 20% of the $300,000 of preferred shares
issued to the Province of New Brunswick on August 31 of each
year, commencing on August 31, 2000 and ending on August 31,
2002, at which time all remaining preferred shares shall be
redeemed.
On January 28, 2000, after the transaction described in Note
1, Transform Pack Inc. became a subsidiary of the Company
and, as a result, its preferred equity is presented as non-
controlling interest in a subsidiary.
10. DUE TO SHAREHOLDERS
The amount due to shareholders is interest-free with no fixed
terms of repayment.
38
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
11. SHARE CAPITAL
Authorized:
Unlimited common shares of Transform Pack Inc. no par value
5,000,000 preferred stock of the Company, $.01 par value, none
issued or outstanding
40,000,000 common stock of the Company, $.004 par value
2000 1999
Issued and fully paid:
2,000,000 common shares of Transform Pack Inc. $ - $ 410,000
10,910,957 common stock of the Company 11,680 -
Additional paid-in capital of the Company 1,128,167 -
$ 1,139,847 $ 410,000
Stock Option Plan
The Company follows Accounting Principles Board Option No.
25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for its employee stock
options. The exercise price of the Company's employee stock
options equals or is greater than the fair value of the
underlying stock on the date the options were granted, and
accordingly no compensation expense has been recognized in
the accompanying financial statements in any of the periods
presented.
The Company has fixed stock options granted to specified
employees by resolution of the board of directors. An
aggregate of 670,000 common shares have been reserved for the
granting of such options.
On February 29, 2000, the Company established a stock option
plan for its officers, directors and employees. In
accordance with the plan, an aggregate of 670,000 common
shares have been reserved for the granting of such options.
The exercise price of each option is to be determined by the
board of directors. All options issued under the plan will
expire two or three years after the date of granting.
39
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
11. SHARE CAPITAL (continued)
The following table presents information concerning all stock
options granted to the Company's employees:
Year ended
May 31, 2000
Weighted Average
Number of Exercise Price
Options per Share
Outstanding, beginning of period - $ -
Granted during the period 670,000 $ 0.67 US
Outstanding, end of period 670,000 $ 0.67 US
Exercisable, end of period 670,000 $ 0.67 US
The range of exercise prices for stock options granted during
the period was from $0.50 US to $1.00 US. The life remaining
on stock options outstanding as at May 31, 2000 was two to
three years.
Had compensation cost for the Corporation's stock-based
compensation been determined based on the fair value at the
grant dates consistent with SFAS 123, "Accounting for Stock-
Based Compensation", the Company's proforma net loss would
have been as follows:
May 31
2000
Net loss
As reported $462,207
Pro-forma $491,500
Loss per share
As reported $0.08
Pro-forma $0.09
40
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
11. SHARE CAPITAL (continued)
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Number of Fair Value Exercise Price
Options per Share per Share
<S> <C> <C> <C>
Exercise price above fair value 230,000 $ - $1.44 ($1.00 US)
Exercise price at fair value 440,000 $ 0.12 $0.72 ($0.50 US)
670,000 $ 0.08 $0.96 ($0.67 US)
</TABLE>
The fair value of each option calculated under SFAS 123 is
estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions
used for grants as follows:
May 31
2000
Dividend yield -
Expected volatility -
Risk-free interest rates 6.07%
Expected life 3 years
12. INCOME TAXES
Deferred tax assets and liabilities reflect the future income
tax effects of temporary differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases and are measured using enacted
tax rates that apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. As at May 31, 2000, the deferred income tax balance
was comprised of the following:
2000 1999
Deferred tax assets
Loss carryforwards $ 465,241 $ 470,387
Research and development expenditures
carried forward 88,078 79,730
Valuation allowance (401,044) (415,191)
Total deferred tax assets 152,275 134,926
41
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
12. INCOME TAXES (continued)
2000 1999
Deferred tax liabilities
Amortization of capital assets $ 141,071 $ 127,351
Research and development tax credits 11,204 7,575
Total deferred tax liabilities 152,275 134,926
Net deferred tax assets $ - $ -
Since the Company has been in a developmental stage, it has
not yet generated any income subject to income taxes. Losses
carried forward of $1,011,394, which will expire if not
utilized against future taxable income, are as follows:
2001 2003 2004 2005 2006 2007
$ - $212,110 $131,716 $275,566 $352,900 $39,102
The Company also has a scientific research and expenditure
pool balance of $191,474 which can also be used to reduce
future taxable income. There is no expiry date on this
future tax benefit. The company has provided for
amortization of its capital assets in excess of capital cost
allowances claimed for income tax purposes of $306,675 (1999
- $276,851). This excess is available to reduce taxable
income of future years.
The Company has available investment tax credits which will
reduce future federal income taxes by $11,204 (1999 -
$7,575).
None of the above future benefits have been recorded in the
financial statements since they are dependent upon future
income.
42
<PAGE>
TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
13. ADDITIONAL INFORMATION TO THE STATEMENT OF CASH FLOWS
During the year, Transform Pack Inc. issued 30,000 preferred
shares to the Province of New Brunswick as repayment for
$300,000 of outstanding loans.
2000 1999
Interest paid $ 38,059 $ 46,893
14. COMMITMENTS
As at May 31, 2000, the Company had commitments under
operating leases for premises, maturing at various dates.
Rent expense in 2000 totalled $44,064 ($nil in 1999). Future
minimum lease payments are as follows:
2001 $44,064
2002 $44,064
2003 $44,064
2004 $36,720
During the year, the Company entered into a contract wherein
the Company has agreed to pay $25,000 US for four consecutive
months for marketing services, if and/or when, the company is
successful in completing its second issuance of shares worth
$1,000,000 US.
15. FINANCIAL INSTRUMENTS
a) Fair value of financial instruments
The book values of the financial assets and liabilities
of the Company approximate their estimated fair values
as at May 31, 2000 and 1999 because of either the short
maturity of these instruments or their relationship with
floating interest rates.
The fair value of shareholder advances cannot be
determined as they do not include any terms of
repayment.
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TRANSFORM PACK INTERNATIONAL INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000 AND 1999 AND THE PERIOD FROM
OCTOBER 31, 1994 (DATE OF INCORPORATION) TO MAY 31, 2000
(in Canadian dollars)
15. FINANCIAL INSTRUMENTS (continued)
b) Credit risk concentration
Credit risk concentration exists due to the small number
of customers that make up the majority of trade
accounts. The balance for one customer accounts for
approximately 70% of the Company's accounts receivable
(another customer for approximately 79% in 1999).
c) Interest rate risk
The Company is exposed to market risk related to
fluctuations in interest rates on long-term debt. It
currently does not hold any financial instruments that
might mitigate this risk.
16. REVENUE FROM MAIN CUSTOMERS
In 2000, approximately 56% (59% in 1999) of the Company's
total revenue is derived from one customer (another customer
in 1999).
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