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Microcap & Penny Stocks : TPII - Year 2000 (Y2K); Groupware; Client Server Migration -- Ignore unavailable to you. Want to Upgrade?

To: MartyMan who wrote (8698)	9/10/1998 1:14:00 PM
From: Jeffrey S. Mitchell	Respond to of 10903

<Picture: 24/7 ad>ÿTRANSFORMATION PROCESSING INC 10QSB/A Filing Date: 9/10/98 ÿ ÿ ÿ Filing Index ÿTYPE:ÿÿ10QSB/A ÿSEQUENCE:ÿÿ1 ÿDESCRIPTION:ÿÿFORM 10QSB/A United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB/A Amendment No. 1 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 1998 ----------------------------------------- / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------ ----------------------- Commission file number 0-23903 ----------- TRANSFORMATION PROCESSING INC. (Exact name of small business issuer as specified in its charter) Nevada 95-4583945 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5500 Explorer Drive, Suite 2000, Mississauga, Ontario L4W 5C7 (Address of principal executive offices) (905) 206-1366 (Issuer's telephone number) 2121 Argentia Road, Suite 200, Mississauga, Ontario L5N 2X4 -------------- (Former Name, Former Address and Former Fiscal Year, if changed Since Last Report) Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---- ----- * The issuer became subject to the filing requirements on May 12, 1998. As of June 30, 1998, the issuer had 15,298,505 shares of Common Stock, par value $.001 per share, issued and outstanding. Part I - Financial Information Item 1. Financial Statements Index to Financial Statements ----------------------------- THREE MONTHS ENDED APRIL 30, 1998 AND FOR THE NINE MONTHS ENDED APRIL 30, 1998 (UNAUDITED) Page ---- Balance Sheet 1 Statement of Operations 2 Statement of Stockholders' Deficiency 3 Statement of Cash Flows 4 Notes to Financial Statements 5 Financial Data Schedule S-1 TRANSFORMATION PROCESSING INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET -------------------------------------------------------------------------------------------------------- April 30, 1998 July 31, 1997 -------------------------------------------------------------------------------------------------------- (unaudited) ASSETS Current Assets: Cash $ 274,206 $ 16,431 Time deposits -- 23,368 Accounts receivable 216,904 3,674 Due from related parties 122,343 127,405 Prepaid expenses and other current assets 4,952 3,399 ----------------------------------------------------------------------------------------------------- Total current assets 618,405 174,277 Property and Equipment, net of accumulated depreciation of $44,485 164,224 109,077 Software Marketing Rights, net 442,826 606,340 Deferred debt cost, net (Note 3) 171,549 4,684 ----------------------------------------------------------------------------------------------------- Total Assets $ 1,397,004 $ 894,378 ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current Liabilities Accounts payable $ 362,474 $ 25,904 Accrued expenses and other current liabilities 130,031 88,582 Convertible debt, net (Note 3) 782,098 -- Settlement liability 87,155 -- Current maturities of loan payable - bank 54,228 36,259 Notes payable - stockholders 43,506 85,793 ----------------------------------------------------------------------------------------------------- Total current liabilities 1,459,492 236,538 Loan Payable - bank, net of current maturities 16,729 21,137 Notes Payable - Stockholders, net of current maturities -- 28,195 ----------------------------------------------------------------------------------------------------- Total liabilities 1,476,221 285,870 ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- Stockholders' Deficiency (Notes 1 and 2) Common stock - $.001 par value; authorized 50,000,000 shares issued and oustanding 15,298,505 shares 15,299 12,169 ----------------------------------------------------------------------------------------------------- Preferred stock - $.001 par value; authorized 5,000,000 shares none issued Additional paid-in capital 4,776,342 3,358,020 Deficit accumulated during the development stage (4,918,135) (2,784,536) Cumulative foreign currency translation adjustments 47,277 22,855 ----------------------------------------------------------------------------------------------------- Stockholders' Deficiency (79,217) 608,508 ----------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Deficiency $ 1,397,004 $ 894,378 ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- See notes to financial statements 1 TRANSFORMATION PROCESSING INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF OPERATIONS Unaudited ------------------------------------------------------------------------------------------------------------------------------------ Period from Nine-month Three-month Three-month Cumulative amounts April 1, 1996 Period ended Period ended Period ended from inception (date of incorporation) April 30,1998 April 30,1997 April 30,1998 to April 30,1997 ------------------------------------------------------------------------------------------------------------------------------------ Revenue $ 24,072 $ 415,345 $ - $ 260,324 $ 462,662 ------------------------------------------------------------------------------------------------------------------------------------ Expenses Cost of consulting services 10,078 141,899 2,312 80,794 153,170 Cost of software transformation services 172,895 304,536 18,230 277,967 497,265 Software development 131,683 329,806 119,605 119,886 548,018 General and administrative 533,969 1,565,388 177,868 295,517 2,439,813 Noncash consulting costs 1,536,341 1,536,341 ------------------------------------------------------------------------------------------------------------------------------------ Total Expenses 2,384,966 2,341,630 318,015 774,164 5,174,607 ------------------------------------------------------------------------------------------------------------------------------------ Loss from operations (2,360,894) (1,926,285) (318,015) (513,840) (4,711,945) ------------------------------------------------------------------------------------------------------------------------------------ Interest income (expense), net 1,974 (207,314) (20) (171,122) (206,190) ------------------------------------------------------------------------------------------------------------------------------------ Net loss $ (2,358,920) $ (2,133,599) $ (318,035) $ (684,962) $ (4,918,135) ------------------------------------------------------------------------------------------------------------------------------------ Net loss per common share $ (0.24) $ (0.15) $ (0.03) $ (0.05) ------------------------------------------------------------------------------------------------------------------- Weighted average number of common shares outstanding 9,697,753 14,187,071 9,697,753 14,187,071 ------------------------------------------------------------------------------------------------------------------- See notes to financial statements 2 TRANSFORMATION PROCESSING INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF STOCKHOLDERS' DEFICIENCY --------------------------------------------------------------------------------------------------------------------------------- Nine month period ended April 30, 1998 ---------------------------------------------------------------------------------------------------------------------------------- Deficit Accumulated Foreign Additional During the Currency Stock- Common Stock Paid-in Development Translation holders' Shares Amount Capital Stage Adjustments Deficiency ---------------------------------------------------------------------------------------------------------------------------------- Balance at July 31, 1997 12,169,282 $ 12,169 $ 3,358,020 $ (2,784,536) $ 22,855 $ 608,508 ---------------------------------------------------------------------------------------------------------------------------------- Issuance of common stock for cash (Note 2) 3,129,223 $ 3,130 $ 970,108 $ 973,238 Recognition of beneficial conversion feature of convertible debt $ 348,214 $ 348,214 ---------------------------------------------------------------------------------------------------------------------------------- Issuance of warrants to purchase common stock $ 100,000 $ 100,000 Net loss $ (2,133,599) (2,133,599) Cumulative foreign currency $ 24,422 24,422 translation adjustment ---------------------------------------------------------------------------------------------------------------------------------- Balance at April 30, 1998 15,298,505 $ 15,299 $ 4,776,342 $ (4,918,135) $ 47,277 $ (79,217) ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- See notes to financial statements 3 TRANSFORMATION PROCESSING INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CASH FLOWS Unaudited ----------------------------------------------------------------------------------------------------------------------------------- Period from Nine-month Three-month Three-month Cumulative April 1, 1996 Period ended Period ended Period ended amounts (date of incorporation April 30, 1998 April 30, 1997 April 30, 1998 from to April 30, 1997 inception ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net loss from development stage operations ($2,358,920) ($2,133,599) ($ 318,620) ($ 684,962) ($4,918,135) Adjustments to reconcile net loss from development stage operations to net cash used in operating activities Depreciation and amortization 147,093 173,522 50,987 60,698 371,005 Amortization of beneficial conversion feature of convertible debt 0 161,905 0 161,905 161,905 Issuance of options to purchase common stock for services 27,588 0 0 0 27,588 Issuance of common stock for services in reverse acquisition 1,549,056 0 0 0 1,549,056 Changes in operating assets and liabilities: Increase in accounts receivable (39,492) (216,585) (15,897) (158,519) (216,904) (Increase) decrease in time deposits (23,368) 23,736 0 0 0 (Increase) decrease in prepaid expenses and other current assets (5,395) (1,577) 475 (44,217) (5,003) (Increase) decrease in other assets (5,797) 0 0 0 (5,797) Increase in accounts payable 12,438 341,865 (37,336) 30,103 362,474 Increase in litigation liability settlement 0 88,526 0 88,526 88,526 Increase in accrued expenses and other current liabilities 0 42,101 0 (139,267) 42,101 ----------------------------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (696,797) (1,520,106) (320,391) (685,733) (2,543,184) ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of property and equipment (117,807) (89,308) 0 0 (214,041) Purchase of intangible assets (24,156) 0 0 0 (24,156) Advances to related parties (105,036) 0 0 0 (129,621) ----------------------------------------------------------------------------------------------------------------------------------- Cash used in investing activities (246,999) (89,308) 0 0 (367,818) ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Debt issue costs 0 (85,000) 0 (85,000) (85,000) Proceeds from loan - bank 73,158 50,978 73,158 0 124,136 Repayments of loan payable - bank (7,803) (30,059) (7,803) (18,055) (45,113) Repayments of notes payable - stockholders 0 (67,810) 0 (16,359) (130,426) Proceeds from issuance of common stock 1,118,636 1,003,045 374,460 0 2,328,154 Proceeds from issuance of convertible debenture 0 1,000,000 0 1,000,000 1,000,000 ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 1,183,991 1,871,154 439,815 880,586 3,191,751 ----------------------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash (19,361) (3,965) (6,543) (3,057) (6,543) ----------------------------------------------------------------------------------------------------------------------------------- Net increase in cash 220,834 257,775 112,881 191,796 274,206 ----------------------------------------------------------------------------------------------------------------------------------- Cash at beginning of period 0 16,431 107,953 82,410 0 ----------------------------------------------------------------------------------------------------------------------------------- Cash at end of period $ 220,834 $ 274,206 $ 220,834 $ 274,206 $ 274,206 ----------------------------------------------------------------------------------------------------------------------------------- Supplemental Disclosure of Cash Flow information cash paid during the period for interest $ 0 $ 4,582 $ 0 $ 4,582 $ 4,582 ----------------------------------------------------------------------------------------------------------------------------------- See notes to financial statements 4 TRANSFORMATION PROCESSING INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) (The information pertaining to the nine-month period ended April 30, 1998 and for the period from April 1,1996 (date of incorporation) to April 30, 1997 are unaudited) 1. BASIS OF PRESENTATION, EVENTS, AND REVERSE ACQUISITION The financial statements of Transformation Processing Inc., ("the Company") included herein have been prepared pursuant to generally accepted accounting principles and have not been examined by independent public accountants. In the opinion of management all adjustments which are of a normal recurring nature necessary to present fairly the results of operation have been made. Pursuant to Securities and Exchange Commission ("SEC") rules and regulations, certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements unless significant changes have taken place since the end of the most recent fiscal year. The disclosure contained herein should be read in conjunction with the financial statements and notes included in the Company's audited financial statements for the period ended July 31, 1997. The results of operations for the nine-month period ended April 30, 1998 and the period ended April 30, 1997 are not necessarily indicative of the results to be expected for the full year. On August 20, 1996, Samuel Hamann Graphix, Inc. acquired all of the outstanding common stock of Transformation Processing Inc. ("Ontario"), a Canadian corporation. For accounting purposes the acquisition has been treated as a recapitalization of Ontario with Ontario as the acquirer (reverse acquisition). Samuel Hamann Graphix, Inc. changed its name to Transformation Processing Inc. (the "Company"). In February 1998, Ontario merged into the Company. The accompanying financial statements reflect this merger as if it had occurred on July 31, 1997. Loss per share is based on the weighted-average number of shares of common stock outstanding during the periods. The Company's functional currency is the Canadian Dollar. Balance sheet accounts are translated into U.S. dollars using current exchange rates in effect at the balance sheet date and revenue and expense accounts are translated using an average exchange rate for the period. The gains and losses resulting from translation are included in stockholders equity. 2. STOCKHOLDERS' EQUITY The company issued shares of common stock for cash net of expenses, as follows: Common Stock Additional Stockholders' Paid-in Capital Equity Shares Amount August 28, 1997 (1) 198,000 $ 198 $ 88,496 $ 88,694 September 4, 1997 589,000 589 121,450 122,039 September 26, 1997 400,000 400 195,779 196,179 October 23, 1997 400,000 400 199,600 200,000 October 31, 1997 100,000 100 49,900 50,000 December 10, 1997 997,778 998 215,327 216,326 January 26, 1998 444,445 445 99,556 100,000 ---------- ---------- ---------- ---------- 3,129,223 $ 3,130 $ 970,108 $ 973,238 (1) Represents shares issued in connection with conversion of convertible subordinated debenture. 5

To: MartyMan who wrote (8698)	9/10/1998 1:15:00 PM
From: Jeffrey S. Mitchell	Respond to of 10903

3. EQUITY TRANSACTIONS and SUBSEQUENT EVENTS On April 14, 1998 the Company issued for total consideration of $1,000,000 6% Convertible Debentures. Of the $1,000,000 Convertible Debentures, $550,000 are convertible into common stock at 70% (seventy percent) of the five day average bid price immediately preceding the date of conversion. $450,000 of the debentures are convertible into common stock at 80% (eighty percent) of the five day average closing ask price immediately preceding the date of conversion. In addition, the Company granted warrants to purchase 241,228 shares of common stock at a purchase price of $0.46 per share and warrants to purchase 60,000 shares of common stock at a purchase price of $1.50 per share. The amount attributable to the beneficial conversion feature relating to the issuance of the convertible debenture is being amortized over the minimum period the debentures are convertible, thirty days. The Company incurred a charge to operations related to the recognition of the beneficial conversion feature of the convertible debt (interest expense) of $161,920 for the period ended April 30, 1998 and, will incur an additional charge of $186,294 for the period ending July 31, 1998. The deferred charges of $186,294 are reflected on the balance sheet as a reduction to the carrying value of the convertible debt. In addition, the Company incurred debt issue costs of approximately $185,000 in relation to the April 14, 1998 convertible debentures, which will be amortized using the straight-line method over the term of the conversion period, two years. These charges include legal fees of approximately $12,000, placement fees of $73,000 and $100,000 attributable to the warrants issued to the debenture holders. 6 On May 21, 1998, the Company issued for cash, two $250,000 6% Convertible Debentures totaling $500,000. These debentures are convertible to common stock at 80% (eighty percent) of the five day average closing ask price immediately proceeding the date of conversion. In addition, the Company granted warrants to purchase 50,200 shares of common stock at a purchase price of $1.99 per share. In addition, the Company incurred debt issue costs of approximately $22,000 in relation to the May 21,1998 convertible debentures, which will be amortized using the straight-line method over the term of the conversion period, two years. These charges include legal fees of approximately $2,000 and, placement fees of $20,000. The Company will recognize a charge to operations for the beneficial conversion feature. On July 10, 1998, the Company issued for cash, two $250,000 6% Convertible Debentures totaling $500,000. These debentures are convertible into common stock at 80% (eighty percent) of the five day average closing ask price immediately proceeding the date of conversion. In addition, the Company granted warrants to purchase 68,306 shares of common stock at a purchase price of $1.46 per share. In addition, the Company incurred debt issue costs of approximately $21,000 in relation to the July 10, 1998 convertible debentures, which will be amortized using the straight-line method over the term of the conversion period, two years. These charges include legal fees of approximately $1,000 and, placement fees of $20,000. The Company will recognize a charge to operations for the beneficial conversion feature. On October 23, 1997 the Company made an offering of 400,000 shares of common stock for $200,000; on October 31, 1997, an offering of 100,000 shares of common stock for $50,000; on December 10, 1997, an offering of 997,778 shares of common stock for $220,000; on January 26, 1998, an offering of 444,445 shares of common stock for $100,000. These offerings were made pursuant to the claim of exemption under Rule 504 under the Securities Act of 1934. These offerings appear to exceed the limitation of Rule 504 of a maximum of $1 million in any one period. The Company intends to file a registration statement offering rescission to the purchasers of these offerings. 4. COMMITMENTS The Company entered into an agreement with Martin E. Janis & Company ("Janis") to provide the Company with public and investor relations services. Under the terms of the agreement, the Company will grant Janis 150,000 common shares of the Company as compensation for services that had not been provided as of April 30, 1998. The common stock will be restricted under Rule 144 of the Securities Act. 7 5. SETTLEMENT LIABILITY The Company reached an out of court settlement with IBS Conversions, Inc. ("IBS") concerning an outstanding lawsuit filed by IBS with the district court of Illinois. The Settlement Agreement called for the payment of approximately $90,000 to IBS over a period of six months. In return, the Company received the full release of IBS. The Company agreed to pay $30,000 on June 26, 1998 and, $12,000 on the 26th day of each consecutive month until fully paid. Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operations. The following discussion and analysis should be read in conjunction with the Company's third quarter ended unaudited financial statements and notes thereto dated April 30, 1998 and 1997 and cumulative results from April 1, 1996 (date of incorporation), to April 30, 1998. The period ended April 30, 1997 includes the results of operation of the Company for the period from April 1, 1996 (date of incorporation) to April 30, 1997. FINANCIAL CONDITION Results of operations for the period from April 1, 1996 (date of incorporation) to July 31, 1996 were not material. Accordingly, the Company has recorded audited results of operations for the sixteen-month period from April 1, 1996 to July 31, 1997 (the "1997 fiscal period"), and unaudited results the period August 1, 1997 to April 30, 1998 (the "nine-month interim period"). The following is a discussion of the material changes in financial condition from the year ended July 31, 1997 and the nine-month period ended April 30, 1998. Current assets for the period ended April 30, 1998 were $618,405 as compared to $174,277 for the year ended July 31, 1997. The Company reported a cash position at April 30, 1998 of $274,206 as compared to $16,431 for the year ended July 31, 1997. The basis for this increase is the timing of the issuance of convertible debentures for cash. Accounts receivable totaled $216,904 for the period ended April 30, 1998 as compared to $3,674 for the period ended July 31, 1997. The increase in accounts receivable is the result of the Company's increase in sales revenues and reflection of a normal billing cycle. The other material change to the asset side of the Company's Balance Sheet is the recording of $171,549 of Deferred debt costs, net, there were no Deferred debt costs recorded for the period ended July 31, 1997. These Deferred debt costs relate to the issuance of convertible debentures by the Company. The costs are amortized over the minimum term of 90 (ninety) days relating to the exercise of warrants, up to a maximum of 2 (two) years for the amortization of deferred debt costs. 8 The Company has recorded material changes to Accounts payable and Accrued expenses. Accounts payable for the period ended April 30, 1998 were $362,474 as compared to $25,904 for the period ended July 31, 1997, Accrued expenses were $130,031 for the period ended April 30, 1998 as compared to $88,582 for the period ended July 31, 1997. These increases are due to the expansion of the business and the requirement to acquire human resources, equipment and other resources to position the Company to deliver its service offerings. The Company issued convertible debentures for cash in the quarter ended April 30, 1998. The Company recorded Convertible debt totaling $782,098 for the period. The debt is convertible into shares of the Company and, will not require the outlay of cash in coming periods. Details on the convertible debentures are outlined in the Notes to the Financial Statements. The Company recorded Settlement liability of $87,155 for the quarter ended April 30, 1998 with no recorded liability for the period ended July 31, 1997. These charges emanated from the settlement of an outstanding legal dispute with IBS Conversions, Inc. Additional paid-in capital for the period ended April 30, 1998 was $4,776,342 as compared to $3,358,020 for the year ended July 31, 1997. The increase in paid-in capital for the period was the result of the issuance of common stock for cash in the amount of $970,108 and, the beneficial conversion feature related to the issuance of convertible debentures totaling $348,214. Deficit accumulated during the development stage totaled $(4,918,135) as compared to $(2,784,536) for the year ended July 31, 1997. The discussion of losses incurred for the periods are outlined under Results of Operations below. RESULTS OF OPERATIONS Results of Operations for the period April 1, 1996 (date of incorporation) to July 31, 1996 were not material. Accordingly, the Company has reported results of operations for the 16 month period from April 1, 1996 (date of incorporation) to April 30, 1997 (the "1997 Interim Period"). Operations actually commenced in October 1996 when the Company moved into a permanent facility. NET LOSSES For the quarters ended April 30, 1998 and 1997, the Company incurred net losses of $684,962 and $318,035, respectively. For the nine-month period ended April 30, 1998 and 1997, the Company incurred net losses of $2,133,599 and $2,358,920, respectively. Cumulative losses from April 1, 1996 to April 30, 1998, the Development period, totaled $4,918,135. Explanations of these results are set forth below. The Company expects to continue to incur operating losses until such time, if ever, it may generate adequate revenues 9 from its service offerings. REVENUE For the quarter ended April 30, 1998 the Company recorded revenue of $260,324. The Company had no revenue for the quarter ended April 30, 1997. For the nine-month period ended April 30, 1998 the Company recorded revenue of $415,345 as compared to $24,072 for the same period ended April 30, 1997. The Company recognized continuing gains in the Groupware business area and recording of its first Year 2000 revenue. Conversion Services, the Company's core business, accounted for $43,084 of gross revenue for the nine-month period ended April 30, 1998, as compared to $14,786 for the same period in 1997. The Company expects activity in the Year 2000 area to increase for the fiscal year ending July 31, 1998. There can be no assurance, however, that the Company's expectations will be realized. The Company expects to generate revenue from (a) the performance of (i) transformation services for end-users of IBM midrange computing systems and application software development services related to client/server migration; (ii) Year 2000 consulting, analysis, remediation and training services; and (iii) groupware services, consisting primarily of the performance of application software development services relating to Lotus Notes and ICC products and related instructional services; and (b) the licensing of the Company's proprietary software and third party proprietary software products. The Company is not able to project the amount or proportion of revenue expected to be received from each of the foregoing activities as the Company has not offered each of its services for a sufficient period of time to have such knowledge. During the autumn of 1996, the Company positioned itself to market transformation services utilizing the Company's client/server migration software, targeting the IBM mid-range computer market. In this connection, the Company planned to enhance its client/server migration software in the 1997 Fiscal Period. Such plan received less attention during such period as the Company directed its attention to the opportunity presented by the demand for the Year 2000 remediation services. Because of the scope of the Year 2000 problem and the significant dollar volumes expected to be expended by users of information technology to remediate the problem, the Company has shifted its marketing and sales efforts to promoting Year 2000 remediation services. The Company has negotiated relationships with a vendor of Year 2000 software conversion tools and a company providing computer hardware assessment services to support these efforts. By April 1997, the Company was offering Year 2000 remediation services. The Company has entered into agreements with Canadian and United States sales representation companies to implement the Company's marketing and sales strategies. Currently, the Company is bidding on Year 2000 remediation projects ranging in size from $100,000 to $1,000,000. There can be no assurance that the Company will enter into any firm contracts with respect to any of such projects. EXPENSES The Company is in the development stage and since April 1, 1996 has incurred costs relating 10 to the start up of operations, such as the costs of raising capital, establishing a facility, recruiting personnel, acquiring and installing furniture and equipment, acquiring development and accounting software, developing its client/server migration software and marketing and sales efforts. For the quarters ended April 30, 1998, April 30, 1997, cost of consulting services accounted for $80,794 and $2,312, respectively. For the nine-month periods ended April 30, 1998 and 1997, cost of consulting services expenses were $141,899 and $10,078, respectively. Cumulatively, the cost of consulting services accounted for $153,170. The Company anticipates managed growth in this area as people are added to satisfy consulting services provided by the Company. As the employment market becomes more competitive as the result of channeling human resources toward the Year 2000 problem, the Company expects to pay a premium for skilled consultants and engineers. These consulting services will be allocated to projects in which the Company has signed contracts. Cost of software translation services accounted for $277,967 of total expenses for the quarter ended April 30, 1998. Comparatively, the Company spent $18,230 for the same quarter ended April 30, 1997 and, has spent $497,265 cumulatively in the development stage. For the nine-month periods ended April 30, 1998 and 1997, software translation services expenses were $304,536 and $172,895 respectively. The Company anticipates adding people to this area by the fiscal year ending July 31, 1998, but, only if contracts are in hand. This growth will depend on the volume of conversion services and year 2000 scan and repair services provided to our customers. Software development accounted for $119,886 of total expenses for the quarter ended April 30, 1998. Comparatively, the Company spent $119,605 for the same quarter in 1997 and, has spent $548,018 cumulatively in the development stage. The increases in costs of product development are expected to continue as the Company expands its product offerings. General and administrative expense accounted for $295,517 of expenses for the quarter ended April 30, 1998. Comparatively, the Company spent $177,868 for the same quarter in 1997 and, has spent $2,439,813 cumulatively in the development stage. General and administrative expense accounted for $1,565,388 of expenses for the nine-month period ended April 30, 1998 compared to $533,969 for the nine-month period in 1997. The Company's general and administrative expenses consisted primarily of salaries, rent, consulting fees, advertising and legal costs associated with running a publicly traded company. For the quarter ending April 30, 1997 the Company incurred two unusual expenses. The first was the settlement of an outstanding issue regarding the distribution of additional shares of the Company to Jaford Holdings Limited ("Jaford") in relation to software marketing rights. The Company elected to pay $259,500 in cash to settle the dispute. In turn, the Company received a general release from Jaford with no further exposure to the Company. In the second instance, the Company negotiated an out of court settlement with IBS Conversions, Inc. ("IBS") concerning an outstanding lawsuit filed by IBS with the District Court of 11 Illinois. The Settlement Agreement called for the payment of $90,000 to IBS over a period of six months. In return, the Company received the full release of IBS. The Company incurred a charge of $1,536,341 for the fiscal period ending April 30, 1997 to record an expense related to shares issued to consultants involved in the reverse acquisition of Samuel Hamann Graphix. The charge recognized the fair value of the shares however, did not represent a cash outlay. Cost of Consulting Services, Conversion Services and Product Development The Company's variable costs of software consulting, translation services and development are in a direct relation to the volume of sales. As a percentage of revenue, these costs will vary depending on the nature of the sale and the product mix required to satisfy customer needs. Sales based on mature product will yield a higher margin while specific project type environments may call for a higher degree of manpower and travel costs. The Company will continue product development of the core software product to enable the Company to broaden its impact on many vendor environments. The development of translators to translate application code from any type of machine language to virtually any target platform will serve as the benchmark of the Company to respond effectively to end user requirements. The key to this objective is a responsive, knowledgeable development team. General and administrative General and administrative costs consist of management and administrative staff, professional services, office and occupancy costs. Significant costs are attributed to the Company becoming a public company. This status will increase audit and legal costs significantly. In relation to the Company becoming a public company, the cost of corporate relations will also increase as quarterly reports and other investor information is required. The Company anticipates that its General and Administrative costs (as a percentage of costs) will decline as the Company's operations expand. Liquidity and Capital Resources The Company has funded its activities through April 30, 1998, primarily from the net proceeds of private placements of its securities and, to a lesser extent, from cash flow from operations and the proceeds of two bank loans. The outstanding principal balance of the loans are approximately $70,957 and the loans bear interest at an annual rate equal to 2.5% over the bank prime rate of interest in effect from time to time. Repayment of the loans, together with interest thereon, is secured by a lien on substantially all of the fixed assets of the Company and the personal guarantees of the Company's executive officers and directors. At April 30, 1998, the Company had a deficit accumulated during the development stage of ($4,918,135), current assets of $618,405 and current liabilities of $1,459,492. During the 12 three-month period ended April 30, 1998, the Company entered into a convertible debenture with two private placement investors sponsored by Thomson Kernaghan a registered broker dealer. The convertible debt will require the issuance of common stock at date of conversion, not cash resources of the Company. Otherwise, the Company did not incur any additional long-term debt. The Company has funded its activities to April 30, 1998 primarily through private placements of securities and the issuance of convertible debentures. The Company will continue to raise capital through these vehicles to fund operating activities and other capital requirements. Failure to obtain such equity capital could have a material adverse impact on the Company's ability to expand its operations. There can be no assurance that equity capital will be available to the Company on acceptable terms or at all. In addition, implementation of the Company's business plan subsequent to the Company's year end will require capital resources substantially greater than those currently available to the Company. The Company may determine, depending on the opportunities available to it, to seek additional debt or equity financing to fund the cost of continuing expansion. To the extent that the Company finances expansion through the issuance of additional equity securities, any such issuance would result in dilution of the interests of the Company's stockholders. Additionally, to the extent that the Company incurs indebtedness or issues debt securities to finance expansion activities, it will be subject to all of the risks associated with incurring substantial indebtedness, including the risks that interest rates may fluctuate and cash flow may be insufficient to pay the principal of, and interest on, any such indebtedness. The Company has no current arrangements with respect to, or sources of, additional financing, and it is not contemplated that its existing stockholders will provide any portion of the Company's future financing requirements. There can be no assurance that any additional financing will be available to the Company on acceptable terms, or at all. The inability of the Company to obtain financing when needed will have a material adverse effect on the Company, including possibly requiring the Company to significantly curtail or cease its operations. Inflation The Company believes that the impact of inflation and changing prices on its operations since commencement of operations has been negligible.

To: MartyMan who wrote (8698)	9/10/1998 1:16:00 PM
From: Jeffrey S. Mitchell	Read Replies (1) \| Respond to of 10903

PART II- OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds. (c) On April 14, 1998, the Company sold 6% Convertible Debentures, due April, 2000, in the aggregate principal amount of $1,000,000 and issued warrants to purchase 301,228 shares of Common Stock for gross proceeds of 13 $1,000,000 as follows: Canadian Advantage LP ($275,000); Dominion Capital Fund ($275,000); Fetu Holdings ($250,000); and Livingston Asset Management ($200,000). Each of the above claim the status as accredited investors as organizations described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities purchased, with total assets in excess of $5,000,000. Each purchased its debentures and warrants for investment. Canadian Advantage LP ("Canadian") was issued warrants to purchase 16,500 shares of Common Stock at $1.50 per share through April 14, 2000 and warrants to purchase 66,338 shares of Common Stock at $.456 per share through April 14, 2000; Dominion Capital Fund ("Dominion") was issued a like number of identical warrants; Fetu Holdings ("Fetu") was issued like warrants to purchase 15,000 shares at $1.50 and 60,307 shares at $.456, and Livingston Asset Management ("Livingston") was issued like warrants to purchase 12,000 shares at $1.50 and 48,245 shares at $.456. On May 14, 1998, an aggregate of $125,000 of Debentures, plus interest, were converted into 111,270 shares of Common Stock as follows: Dominion and Canadian each converted $34,375 in principal plus interest into 30,599 shares of Common Stock, Fetu converted $31,250 in principal plus interest into 27,818 shares of Common Stock and Livingston converted $25,000 in principal plus interest into 22,254 shares of Common Stock. On May 15, 1998, an aggregate of $175,000 of Debentures plus interest were converted into 154,822 shares of Common Stock as follows: Dominion and Canadian each converted $48,125 in principal plus interest into 42,576 shares of Common Stock, Fetu converted $43,750 in principal plus interest into 38,706 shares of Common Stock and Livingston converted $35,000 in principal plus interest into 30,964 shares of Common Stock. On July 8, 1998, an aggregate of $300,000 of such Debentures were converted into 468,567 shares of common stock as follows: Dominion and Canadian each converted $82,500 of principal plus interest into 128,856 shares of Common Stock, Fetu converted $75,000 of principal plus interest into 117,142 shares of Common Stock and Livingston converted $60,000 plus interest into 93,713 shares of Common Stock. The Debentures, the warrants and the Common Stock issued on conversion of the Debentures were issued in reliance upon the exemption set forth in Section 4 (2) of the Act and Rule 506 thereunder. Such securities were purchased for investment and not with a view to the public distribution thereof. The common stock issued upon conversion of the Debentures were further issued in reliance on Section 3 (a) (9) of the Act. In both the issuance of the Debentures and the Common Stock the certificates representing such securities bear a legend preventing resale in the absence of registration with the Commission or an exemption therefrom. Item 6. Exhibits and Reports on Form 8-K /a/ Financial Data Schedule /b/ Reports on Form 8-K. No Reports on Form 8-K were filed by the Company during the three-month period ended April 30, 1998. 14 In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRANSFORMATION PROCESSING INC. Date September 8, 1998 /s/ John McGee -------------------- ----------------------------------- John McGee, Chief Financial Officer 15 ÿTYPE:ÿÿEX-27 ÿSEQUENCE:ÿÿ2 ÿDESCRIPTION:ÿÿEXHIBIT 27 ÿARTICLE:ÿÿ 5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND STATEMENT OF OPERATIONS FILED AS A PART OF THE REPORT ON FORM 10-QSB FOR THE QUARTER ENDED APRIL 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT ON FORM 10-QSB. ÿPERIODÿTYPE:ÿÿ 9-MOS ÿFISCALÿYEARÿEND:ÿÿ JUL-31-1998 ÿPERIODÿEND:ÿÿ APR-30-1998 ÿCASH:ÿÿ 274,206 ÿSECURITIES:ÿÿ 0 ÿRECEIVABLES:ÿÿ 339,247 ÿALLOWANCES:ÿÿ 0 ÿINVENTORY:ÿÿ 0 ÿCURRENTÿASSETS:ÿÿ 618,405 ÿPP&E:ÿÿ 966,777 ÿDEPRECIATION:ÿÿ 359,727 ÿTOTALÿASSETS:ÿÿ 1,397,004 ÿCURRENTÿLIABILITIES:ÿÿ 1,459,492 ÿBONDS:ÿÿ 16,729 ÿPREFERREDÿMANDATORY:ÿÿ 0 ÿPREFERRED:ÿÿ 0 ÿCOMMON:ÿÿ 15,299 ÿOTHERÿSE:ÿÿ (94,516) ÿTOTALÿLIABILITYÿANDÿEQUITY:ÿÿ 1,397,004 ÿSALES:ÿÿ 0 ÿTOTALÿREVENUES:ÿÿ 415,345 ÿCGS:ÿÿ 0 ÿTOTALÿCOSTS:ÿÿ 2,341,630 ÿOTHERÿEXPENSES:ÿÿ 0 ÿLOSSÿPROVISION:ÿÿ 0 ÿINTERESTÿEXPENSE:ÿÿ (207,314) ÿINCOMEÿPRETAX:ÿÿ (2,133,599) ÿINCOMEÿTAX:ÿÿ 0 ÿINCOMEÿCONTINUING:ÿÿ (2,133,599) ÿDISCONTINUED:ÿÿ 0 ÿEXTRAORDINARY:ÿÿ 0 ÿCHANGES:ÿÿ 0 ÿNETÿINCOME:ÿÿ (2,133,599) ÿEPSÿPRIMARY:ÿÿ (0.15) ÿEPSÿDILUTED:ÿÿ (0.15)