UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from ____________ to ________________
Commission file number __________
THINKPATH.COM INC.
(Exact name of Small Business Issuer as Specified in Its Charter)
Ontario 52-209027
- ------------------------------------ --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 University Avenue
Suite 505
Toronto, Ontario, Canada M5J 2H7
- ------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(416) 364-8800 (Issuer's telephone number, including area code)
--------------
Check 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 aggregate market value of the voting stock held by non-affiliates
based upon the last sale price on May 14, 2001 was approximately $7,776,872.
As of May 14, 2001 there were 13,804,895 shares of Common Stock, no par
value per share, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes |X| No |_|
THINKPATH.COM INC.
MARCH 31, 2001 QUARTERLY REPORT ON FORM 10-QSB/A
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page Number
Item 1. Financial Statements
Interim Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000 ............................................. 4,5
Interim Consolidated Statements of Income for the three months ended
March 31, 2001 and 2000 ........................................... 6
Interim Consolidated Statements of Stockholders' Equity for the three
months ended March 31, 2001 and the year ended December 31, 2000 .... 7
Interim Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and 2000 ........................................... 8
Notes to Interim Consolidated Financial Statements ......................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................. 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 23
Item 2. Changes in Securities and Use of Proceeds ......................... 23
Item 3. Defaults Upon Senior Securities ................................... 23
Item 4. Submission of Matters to a Vote of Security Holders ............... 24
Item 5. Other Information ................................................. 24
Item 6. Exhibits and Reports on Form 8-K .................................. 24
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB/A contains forward-looking
statements as defined by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements, which are other than statements of historical facts. These
statements are subject to uncertainties and risks including, but not limited to,
product and service demand and acceptance, changes in technology, economic
conditions, the impact of competition and pricing, government regulation, and
other risks defined in this document and in statements filed from time to time
with the Securities and Exchange Commission. All such forward-looking statements
are expressly qualified by these cautionary statements and any other cautionary
statements that may accompany the forward-looking statements. In addition,
Thinkpath.com Inc disclaims any obligations to update any forward-looking
statements to reflect events or circumstances after the date hereof.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THINKPATH.COM INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
2001 2000
---- ----
$ $
ASSETS
CURRENT ASSETS
Accounts receivable 7,913,055 7,857,999
Inventory 68,437 93,670
Income taxes receivable 333,597 358,436
Prepaid expenses 359,790 335,930
---------- ---------
8,674,879 8,646,035
CAPITAL ASSETS 3,342,683 3,596,759
GOODWILL 8,412,359 8,585,290
INVESTMENT IN NON-RELATED COMPANIES 1,279,344 1,318,019
LONG-TERM RECEIVABLE 217,364 83,450
OTHER ASSETS 1,711,409 1,812,889
DEFERRED INCOME TAXES 1,605,449 1,643,426
---------- ---------
25,243,487 25,685,940
========== ==========
-4-
THINKPATH.COM INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
2001 2000
---- ----
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 5,439,868 5,061,410
Accounts payable 3,495,579 3,822,984
Deferred revenue 195,598 219,308
Current portion of long-term debt 607,557 946,131
Current portion of notes payable 1,614,604 1,683,333
---------- ----------
11,353,206 11,733,166
LONG-TERM DEBT 1,093,621 760,313
NOTES PAYABLE 1,636,822 1,641,667
---------- ----------
14,083,649 14,135,146
---------- ----------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (Note 5) 24,670,137 23,605,505
DEFICIT (12,253,344) (11,401,164)
OTHER COMPREHENSIVE INCOME, NET OF TAX
Adjustments to market value 74,813 76,548
Cumulative translation adjustment (1,331,768) (730,095)
---------- ----------
11,159,838 11,550,794
---------- ----------
25,243,487 25,685,940
========== ==========
The accompanying notes are an integral part of these interim
consolidated financial statements.
-5-
THINKPATH.COM INC.
INTERIM CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited) (Restated)
2001 2000
$ $
REVENUE 10,645,554 10,155,337
COST OF CONTRACT SERVICES 6,855,092 6,869,477
----------- -----------
GROSS PROFIT 3,790,462 3,285,860
Other Income 12,429 --
----------- -----------
3,802,891 3,285,860
----------- -----------
EXPENSES
Administrative 1,405,758 1,388,832
Selling 1,636,259 1,185,594
Financial (209,160) --
----------- -----------
2,832,857 2,574,426
----------- -----------
INCOME BEFORE INTEREST, AMORTIZATION, UNDERNOTED
ITEMS AND INCOMES TAXES 970,034 711,434
----------- -----------
Interest 180,289 182,256
Depreciation and amortization 560,586 431,982
----------- -----------
740,875 614,238
INCOME BEFORE UNDERNOTED ITEM AND INCOMES TAXES 229,159 97,196
Other expenses (Note 7) 850,877 --
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (621,718) 97,186
Income taxes 3,962 --
----------- -----------
NET INCOME (LOSS) (625,680) 97,186
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
STOCK OUTSTANDING
Basic 13,025,123 3,899,912
Fully Diluted 13,025,123 4,001,630
=========== ===========
INCOME (LOSS) PER WEIGHTED AVERAGE COMMON STOCK
AFTER PREFERRED DIVIDENDS
Basic (0.05) 0.02
Fully Diluted (0.05) 0.02
=========== ===========
The accompanying notes are an integral part of these interim
consolidated financial statements.
-6-
THINKPATH.COM INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE THREE MONTHS ENDED MARCH 31, 2001
(AMOUNTS EXPRESSED IN US DOLLARS) (Unaudited)
COMMON PREFERRED
STOCK STOCK CAPITAL CUMULATIVE OTHER
NUMBER OF NUMBER OF STOCK RETAINED TRANSLATION COMPREHENSIVE
SHARES SHARES AMOUNTS EARNINGS ADJUSTMENT INCOME
---------- --------- ----------- ----------- ------------- ------------
A B $ $ $ $
Balance as of
December 31, 2000 11,915,138 1,050 750 23,605,505 (11,401,164) (730,095) 76,548
Issuance of preferred stock -- -- -- -- -- -- --
Issuance of common stock
for cash 525,000 -- -- 400,000 -- -- --
Common stock issued in
consideration
of services
and investment 30,632 -- -- 30,632 -- -- --
Dividends on preferred
stock -- -- -- 226,500 (226,500) -- --
Common stock payable -- -- -- -- -- -- --
Conversion of preferred stock
to common stock 1,875,839 (1,050)(750) -- -- -- --
Reduction in common stock
payable -- -- -- -- -- -- --
Options issued for services -- -- -- 100,000 -- -- --
Warrants issued for services -- -- -- 307,500 -- -- --
Foreign currency translation -- -- -- -- -- (601,673) --
Adjustment to market value -- -- -- -- -- -- (1,735)
Net loss for the period -- -- -- -- (625,680) -- --
----------- ------- ------ ---------- ----------- ---------- - ----------
Balance as of
March 31, 2001 14,346,609 -- -- 24,670,137 (12,253,344) (1,331,768) 74,813
=========== ============== ========== =========== ========== ===========
The accompanying notes are an integral part of these interim
consolidated financial statements.
-7-
THINKPATH.COM INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
(Restated)
2001 2000
$ $
Cash flows from operating activities:
Net income (loss) (625,680) 97,186
---------- ----------
Adjustments to reconcile net loss
to net cash (used in)
provided by operating activities:
Amortization 560,586 431,982
Decrease (increase) in accounts receivable (159,078) (137,621)
Decrease (increase) in prepaid expenses (23,860) (249,221)
Increase (decrease) in accounts payable (327,405) (145,627)
Increase in income taxes payable (receivable) -- (227,319)
Decrease (increase) in deferred income taxes -- (572,541)
Decrease (increase) in inventory 25,233 --
Increase (decrease) in deferred revenue (23,710) --
Common stock issued for services 438,132 --
---------- ----------
Total adjustments 489,898 (900,347)
---------- ----------
Net cash used in operating activities (135,782) (803,161)
---------- ----------
Cash flows from investing activities:
Purchase of capital assets (62,089) (442,350)
Purchase of other assets -- (651,546)
Increase in long-term receivable (139,956) --
---------- ----------
Net cash used in investing activities (202,045) (1,093,896)
---------- ----------
Cash flows from financing activities:
Repayment of notes payable (73,574) (324,368)
Repayment of long-term debt (219,734) (50,242)
Cash received from long-term debt 225,000 --
Proceeds from issuance of common stock 400,000 --
Increase in bank indebtedness 354,019 499,988
---------- ----------
Net cash provided by financing activities 685,711 125,378
---------- ----------
Effect of foreign currency exchange rate changes (347,884) 92,972
---------- ----------
Net increase (decrease) in cash and cash equivalents -- (1,678,707)
Cash and cash equivalents
-Beginning of period -- 1,790,621
---------- ----------
-End of period -- 111,914
========== ==========
SUPPLEMENTAL CASH ITEMS:
Interest paid 116,553 113,196
========== ==========
Income taxes paid 3,962 --
========== ==========
SUPPLEMENTAL NON-CASH ITEM:
Preferred stock dividend 226,500 29,600
========== ==========
The accompanying notes are an integral part of these interim
consolidated financial statements.
-8-
THINKPATH.COM INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) PRINCIPAL BUSINESS ACTIVITIES Thinkpath.com Inc. (the "Company") is an
information technology and engineering services company which, along
with its subsidiaries Systemsearch Consulting Services Inc.,
International Career Specialists Ltd., Cad Cam Inc., Cad Cam of
Michigan Inc., Cad Cam Integrated Manufacturing Services Inc. and Cad
Cam Technical Services Inc., ObjectArts Inc., Micro Tech Professionals
Inc., Njoyn Software Inc., and TidalBeach Development Inc., provides
outsourcing, recruiting, training and technology services to enhance
the resource performance of clients.
B) BASIS OF CONSOLIDATED FINANCIAL STATEMENT PRESENTATION The
accompanying consolidated interim financial statements have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC").
Certain information and footnote disclosures normally included in
consolidated interim financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading.
In the opinion of the Company, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation have
been included in the consolidated interim financial statements. The
consolidated interim financial statements are based in part on
estimates and have not been audited by independent accountants.
Independent accountants will audit the annual consolidated financial
statements.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. The earnings of the
subsidiaries are included from the date of acquisition for
acquisitions accounted for using the purchase method. For subsidiaries
accounted for by the pooling of interest method their earnings have
been included for all periods reported. All significant inter-company
accounts and transactions have been eliminated.
C) NET INCOME (LOSS) AND FULLY DILUTED NET INCOME (LOSS) PER WEIGHTED
AVERAGE COMMON STOCK
Net income (loss) per common stock is computed by dividing net income
(loss) for the year by the weighted average number of common stock
outstanding during the year.
Fully diluted net income (loss) per common stock is computed by
dividing net income for the year by the weighted average number of
common stock outstanding during the year, assuming that all
convertible preferred stock, stock options and warrants were converted
or exercised. Stock conversions stock options and warrants which are
anti-dilutive are not included in the calculation of fully diluted net
income (loss) per weighted average common stock.
D) REVENUE
1) Revenue from outsourcing is recognized on a milestone basis.
2) Revenue from contract placements is recognized as services are
performed.
3) Revenue from permanent placements is recognized upon candidates'
acceptance of employment.
4) Revenue from training is recognized on delivery.
-9-
THINKPATH.COM INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
5) Revenue from technology is recognized on delivery and on a milestone
basis.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101
("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101
summarizes the SEC's view in applying generally accepted accounting
principles to selected revenue recognition issues. The effects, if
any, of applying this guidance must be adopted by SEC registrants no
later than December 31, 2000 and must be reported as a cumulative
effect adjustment as of January 1, 2000, resulting from a change in
accounting principle. Restatement of previously reported results of
the earlier quarters of fiscal 2000, if necessary, is also required.
The adoption of SAB 101 did not have a material effect on the
Company's financial statements.
2. ACQUISITIONS
Systemsearch Consulting Services Inc. was acquired on January 2, 1997
for $391,313. This amount was paid by the issuance of common stock and
a cash payment of $97,828. The purchase has been reflected as follows:
Consideration $ 391,313
Assumption of net liabilities 57,321
---------
Goodwill $ 448,634
=========
International Career Specialists Ltd. was acquired on January 1, 1998
for $652,188. This amount was paid by the issuance of common stock and
a cash payment of $326,094. The purchase was reflected as follows:
Consideration $ 652,188
Assumption of net liabilities 198,409
---------
Goodwill $ 850,597
=========
The assets of Southport Consulting Company, a New Jersey corporation,
were acquired by the Company in a transaction effective October
31, 1998. The consideration for the acquisition was as follows:
Cash $ 50,000
Shares 200,000
---------
$ 250,000
=========
The assets acquired are valued as follows:
Software $ 130,000
Office furniture and equipment 20,000
Other assets 100,000
---------
$ 250,000
=========
-10-
THINKPATH.COM INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
Cad Cam Inc. and its subsidiaries Cad Cam of Michigan Inc., Cad Cam
Technical Services Inc., and Cad Cam Integrated Systems Inc. were
acquired on September 16, 1999 for $6,000,000. This amount was paid as
follows: $2,000,000 paid in cash and $500,000 in common stock on the
date of closing. The balance consists of three notes payable totaling
$2,500,000 (note 11a) and $1,000,000 in the form of common stock to be
issued with the final note payable (note 12b).
The assets acquired are valued as follows:
Current assets $ 2,468,029
Fixed assets 2,267,539
Other assets 817,004
Liabilities assumed (5,071,430)
Consideration (6,000,000)
-----------
Goodwill $ 5,518,858
============
Micro Tech Professionals Inc. was acquired effective April 1, 2000 for
$4,500,000.The amount will be paid in two installments, based on
certain requirements to be met by Micro Tech Professionals Inc. First
Installment: 133,333 common stock issued on closing, $1,250,000 cash
paid on closing, $750,000 3 year promissory note bearing interest
at1/2% above prime paid semi-annually issued on closing. Second
Installment: $625,000 in common stock, $875,000 cash, $500,000 3-year
promissory note bearing interest at 1/2% above prime paid
semi-annually.
The net acquired assets are valued as follows:
Current assets $ 1,769,478
Other assets 850,000
Fixed assets 104,851
Liabilities assumed (1,073,527)
Consideration including (4,660,000)
acquisition costs -----------
Goodwill $ 3,009,198
============
-11-
THINKPATH.COM INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
3. POOLING OF INTEREST
a) Effective January 1, 2000, the Company entered into a merger and
acquisition agreement with ObjectArts Inc. and its subsidiary
ObjectArts (US) Inc. ObjectArts (US) Inc., was merged with IT Staffing
New York Ltd., an inactive subsidiary of the Company. In exchange for
all of the outstanding shares of ObjectsArts Inc., the Company issued
527,260 common stock.
b) On November 15, 2000, the Company combined with TidalBeach Inc., and
in exchange for all of the outstanding shares of TidalBeach Inc.,
issued 250,000 shares of common stock. For the nine months ended
September 30, 2000 TidalBeach Inc. had revenues of $543,967 and net
income of $156,436.
4. LONG-TERM INVESTMENTS
Long-term investments are represented by the following:
Conexys $667,511
Digital Cement 507,865
Lifelogix 103,968
--------
Total $1,279,344
The Company acquired shares of Conexys Corporation Limited, an
Application Service Provider (ASP) of Unified Communications, worth
$667,511 in consideration of services rendered. Conexys is traded on
the Bermuda Stock Exchange (BSX) under the symbol CXYS.BH.
The Company acquired 1,125,000 shares of Digital Cement, representing
approximately 4% of that Company's shares in consideration of the
co-licensing of SecondWave, software developed by TidalBeach Inc., a
wholly-owned subsidiary of the Company The value of these
shares is approximately $507,865.
The Company acquired shares of Lifelogix Inc., a provider of human
stress and emotion management systems and solutions, worth $103,968.
Under the terms of the agreement, the Company will share with
LifeLogix the source code for SecondWave, the Company's proprietary
adaptive web software product. In exchange for the code, the Company
will receive an approximate 20% equity stake in LifeLogix.
-12-
THINKPATH.COM INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
5. CAPITAL STOCK
a) Authorized
15,000,000 Common stock, no par value
1,000,000 Preferred stock, issuable in series,
rights to be determined by the Board of Directors
b) Issued
2001 2000
$ $
14,346,609 Common stock (11,915,138 in 2000) 24,670,137 16,859,238
-- Preferred stock (1,800 in 2000) -- 5,994,479
Common stock payable -- 751,788
---------- ---------
24,670,137 23,605,505
========== ==========
During the three months ended March 31, 2001, the Company issued
555,632 shares of its common stock in consideration of $400,000 cash
received and $30,632 in legal fees.
c) Preferred Stock
During the three months ended March 31, 2001, the Company issued
1,875,839 common stock on the conversion of 1,050 shares of Series A
Preferred Stock and 750 shares of Series B Preferred Stock. The
Company paid dividends of $226,500 on the conversions.
d) Warrants
On January 26, 2001, the Company: (i) repriced a warrant to purchase
up to 100,000 shares of its common stock, which warrant was issued to
a certain investor in our April 2000 private placement offering of
Series B 8% Cumulative Preferred Stock, so that such warrant is
exercisable at any time until April 16, 2005 at a new purchase price
of $1.00 per share; (b) repriced warrants to purchase an aggregate of
up to 230,693 shares of its common stock, which warrants were issued
to the placement agent, certain financial advisors, and the placement
agent's counsel in our August 2000 private placement offering of
units, so that such warrants are exercisable at any time until August
22, 2005 at a new purchase price of $1.00 per share; and (c) issued a
warrant to purchase up to 250,000 shares of its common stock
exercisable at any time and in any amount until January 26, 2006 at a
purchase price of $1.50 per share to KSH Investment Group, Inc. for
investment banking services rendered. In February 2001, 150,000 of
such warrants were exercised by KSH Investment Group, Inc., the
placement agent in the Company's August 2000 private placement
offering. As partial consideration for the exercise of such warrants,
the Company issued to certain affiliates of the placement agent,
warrants to purchase an aggregate of 315,000 shares of our common
stock at an exercise price of $1.50 per share. The exercise prices of
the revised and newly issued warrants are equal to, or in excess of,
the market price of our common stock on the date of such revision or
issuance.
-13-
THINKPATH.COM INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
d) Options
On March 14, 2001, the Company repriced 100,000 options belonging to
Roger W. Walters to $1.00 per share in consideration of debt
forgiveness of $75,000 and restructuring of debt totaling $250,000 on
the notes payable to Mr. Walters in connection with the Company's
purchase of Cad Cam, Inc. The options shall be exercisable during the
period April 1, 2001 to April 4, 2004.
6. RESTRUCTURING CHARGE
During the three months ended March 31, 2001, the Company recorded a
restructuring charge of $ 294,094 as a result of certain of the
Company's actions to better align its cost structure with expected
revenue growth rates. The restructuring charge includes severance paid
to employees of branch offices which were closed last year.
7. OTHER EXPENSES
Other expense is represented by the following:
Restructuring (note 6) 294,095
Financing Costs 556,782
---------
850,877
=========
8. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards
No. 130 Reporting Comprehensive Income and its components in the
financial statements. However, it does not affect net income or
stockholders' equity. The components of comprehensive income are as
follows:
2001 2000
$ $
Net income (loss) (603,408) 97,186
Other comprehensive income (loss) (625,680) 155,407
---------- -------
Comprehensive income (loss) (1,229,088) 252,593
========== =======
-14-
THINKPATH.COM INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
The components of accumulated other comprehensive income (loss) are as
follows:
Accumulated other comprehensive losses, December 31, 2000 (653,547)
Change in value of marketable securities (1,735)
Foreign currency translation adjustments for the period ended
March 31, 2001 (601,673)
--------
Accumulated other comprehensive losses March 31, 2001 $(1,256,955)
===========
The foreign currency translation adjustments are not currently adjusted
for income taxes since the company is situated in Canada and the
adjustments relate to the translation of the financial statements from
Canadian dollars into United States dollars done only for the
convenience of the reader.
9. SUBSEQUENT EVENTS
Pursuant to a share purchase agreement dated April 18, 2001, the
Company issued 1,105 shares of Series C 7% Convertible Preferred Stock
(the "Series C Preferred Stock"). Each share of Series C Preferred
Stock has a stated value of $1,000 per share. The shares of Series C
Preferred Stock are convertible into shares of the Company's common
stock at the option of the holders, at any time after issuance until
such shares of Series C Preferred Stock are manditorily converted or
redeemed by the Company, under certain conditions. The Company is
required to register 200% of the shares of common stock issuable upon
the conversion of the 1,105 shares of Series C Preferred Stock. In
addition, upon the effective date of such registration statement, the
Company is obligated to issue to the holders of Series C Preferred
Stock an aggregate of 500 shares of Series C Preferred Stock in
consideration for $500,000, under certain conditions.
The holders of the shares of Series C Preferred Stock are entitled to
receive preferential dividends in cash, on a quarterly basis commencing
on June 30, 2001, out of any of the Company's funds legally available
at the time of declaration of dividends before any other dividend
distribution will be paid or declared and set apart for payment on any
shares of the Company's common stock, or other class of stock presently
authorized, at the rate of 7% simple interest per annum on the stated
value per share plus any accrued but unpaid dividends, when as and if
declared. The Company has the option to pay such dividends in shares of
the Company's common stock to be paid (based on an assumed value of
$1,000 per share) in full shares only, with a cash payment equal to any
fractional shares.
-15-
THINKPATH.COM INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
The number of shares of the Company's common stock into which the
Series C Preferred Stock shall be convertible into equals that number
of shares of common stock as calculated by (i) the sum of (A) the
stated value per share and (B) at the holder's election, accrued and
unpaid dividends on such share, divided by (ii) the Conversion Price".
The "Conversion Price" shall be the lesser of (x) 87.5% of the average
of the 5 lowest daily volume weighted average prices of the Company's
common stock during the period of 60 consecutive trading days
immediately prior the date of the conversion notice; or (y) 90% of the
average of the daily volume weighted average prices during the period
of the 5 trading days prior to the applicable closing date ($.4798
with respect to the 1,105 shares of Series C 7% Preferred Stock issued
and outstanding). The Conversion Price is subject to certain floor and
time limitations.
At any time prior to October 24, 2001, the Company may, in its sole
discretion, redeem in whole or in part, the then issued and
outstanding shares of Series C Preferred Stock at a price equal to
$1,150 per share, plus all accrued and unpaid dividends, and after
October 24, 2001 at a price equal to $1,200 per share, plus all
accrued and unpaid dividends.
At December 31, 2000, the Business Development Bank of Canada
("BDC")loan covenants were in breach and accordingly the loan amounts
were reclassified as current. Subsequent to March 31, 2001, the
Company received a letter from BDC indicating their continued support
of the Company and confirmation that the loans presently outstanding
will not be called. In addition, BDC indicated their intention to
grant a principal repayment deferral and accordingly, certain loan
amounts were reclassified from current to long-term.
At December 31, 2000, Bank One loan covenants were in breach and
accordingly the interest rates on these loans were increased.
Subsequent to March 31, 2001, Bank One imposed a temporary restriction
on the Company's repayment of certain subordinated loans and notes
payable.
10. SEGMENTED INFORMATION
a) Sales by Geographic Area
Three Months Three Months
Ended March 31, Ended March 31,
2001 2000
$ $
Canada 4,073,859 3,907,033
United States of America 6,571,695 6,248,304
---------- ----------
10,645,554 10,155,337
========== ==========
b) Net Income (Loss)by Geographic Area
Three Months Three Months
Ended March 31, Ended March 31,
2001 2000
$ $
Canada (860,125) (336,455)
United States of America 234,445 433,641
---------- --------
(625,680) 97,186
========== ========
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THINKPATH.COM INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
c) Identifiable Assets by Geographic Area
Three Months Twelve Months
Ended Ended
March 31, December 31,
2001 2000
$ $
Canada 9,084,394 8,979,711
United States 16,159,093 16,706,229
---------- ----------
25,243,487 25,685,940
========== ==========
d) Revenues from Major Customers
The consolidated entity had the following revenues from major
customers:
No single customer consisted of more than 10% of the revenues.
e) Purchases from Major Suppliers
There were no significant purchases from major suppliers.
-17-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto and the other historical financial
information of Thinkpath.com Inc. contained elsewhere in this Form 10-QSB/A. The
statements contained in this Form 10-QSB/A that are not historical are forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Exchange Act of 1934, including
statements regarding Thinkpath.com Inc.'s expectations, intentions, beliefs or
strategies regarding the future. Forward-looking statements include
ThinkPath.com Inc.'s statements regarding liquidity, anticipated cash needs and
availability and anticipated expense levels. All forward-looking statements
included in this Form 10-QSB/A are based on information available to
Thinkpath.com Inc. on the date hereof, and Thinkpath.com Inc. assumes no
obligation to update any such forward-looking statement. It is important to note
that Thinkpath.com Inc.'s actual results could differ materially from those in
such forward-looking statements. All dollar amounts stated throughout this Form
10-QSB/A are in United States dollars unless otherwise indicated.
Overview
We are a global provider of information technology and engineering,
project outsourcing, recruitment, technical training and consulting and
ASP-based skills management technology. Our customers include financial service
companies, software and other technology companies, Canadian and American
governmental entities and large multinational companies, including Bank of
Montreal, General Electric, Bell Canada, Goldman Sachs, Chapters, Lucent
Technologies, Cummins Engine, General Motors, CIBC, Xerox Corporation, EDS,
American Express and Universal Industrial Corp.
We have expanded our operations into the United States, through among
other things, our acquisitions of Cad Cam, Inc. and Object Arts Inc., and we
intend to continue to develop an expanded network of offices to provide our
services throughout North America.
For the three months ended March 31, 2001, we derived 64% of our
revenue in the United States compared to 61% in the three months ended March 31,
2000. The books and records of our Canadian operations are recorded in Canadian
dollars. For purposes of financial statement presentation, we convert balance
sheet data to United States dollars using the exchange rate in effect at the
balance sheet date. Income and expense accounts are translated using an average
exchange rate prevailing during the relevant reporting period. There can be no
assurance that we would have been able to exchange currency on the rates used in
these calculations. We do not engage in exchange rate hedging transactions. A
material change in exchange rates between United States and Canadian dollars
could have a material effect on our reported results.
For the three months ended March 31, 2001, our primary source of
revenue was outsourcing and managed services, representing 55% of total revenue
compared to 47% for the three months ended March 31, 2000. Outsourcing and
managed services include the complete planning, staffing, development,
implementation and testing of a project. Outsourcing can also involve
enterprise-level planning and project anticipation. Our specialized outsourcing
services include: IT documentation, engineering documentation, Web development
and engineering services. Fees are charged on a time-and-materials or
fixed-price basis. If we charge a fixed-price for a project, we will be required
to estimate the total costs involved in the project and formulate a bid that
contains an adequate profit margin. If we are unable to accurately predict the
costs of such a project, or the costs of the project change due to unanticipated
circumstances, many of which may be beyond our control, we may earn lower profit
margins or suffer a loss on a given project. Clients we provide outsourcing to
include General Electric, FedEx, Boeing, Caterpillar, Cummins Engines and Intel.
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For the three months ended March 31, 2001, 33% of our revenue came from
recruitment services compared to 40% for the three months ended March 31, 2000.
We perform permanent, contract and executive searches for IT and engineering
professionals. Most searches are performed on a contingency basis with fees due
upon candidate acceptance of permanent employment or on a time-and-materials
basis for contracts. Retained searches are also offered, and are paid by a
non-refundable portion of one fee prior to performing any services, with the
balance due upon candidates' acceptance. Selected recruitment clients include
DMR, Bank of Montreal, Goldman Sachs, and Sprint Canada. In the case of contract
services, we provide our customers with independent contractors or "contract
workers" who usually work under the supervision of the client's management.
Generally, we enter into a time-and-materials contract with our customer whereby
the client pays us an agreed upon hourly rate for the contract worker. We pay
the contract worker pursuant to a separate consulting agreement. The contract
worker generally receives between 75% and 80% of the amount paid to us by the
customer; however, such payment is usually not based on any formula and may vary
for different engagements. We seek to gain "preferred supplier status" with our
larger clients to secure a larger percentage of those clients' businesses. While
such status is likely to result in increased revenue and gross profit, it is
likely to reduce gross margin percentage because we are likely to accept a lower
hourly rate from our customers and there can be no assurance that we will be
able to reduce the hourly rate paid to our consultants. In the case of permanent
placement services, we identify and provide candidates to fill permanent
positions for our clients.
For the three months ended March 31, 2001, technical training
represented approximately 10% of our revenue compared to 13% for the three
months ended March 31, 2000. We offer advanced training and certification in
Microsoft, Java and Linux technologies, as well as Microsoft applications such
as Outlook and Access. Training services include training requirements analysis,
skills assessment, instructor-led classroom training for small groups (10 - 16
students), mentoring, e-learning, and self-paced learning materials. We offer
both public and private classes. Selected training clients include Microsoft,
Chase Manhattan Bank, Goldman Sachs, City of New York and Consumers Gas. Revenue
is recognized on delivery of services.
For the three months ended March 31, 2001, technology sales
represented 2% of total revenue compared to 0% for the three months ended March
31, 2000. We have developed proprietary software applications in two areas:
recruitment management and Web development. Njoyn is our hiring management
application. Njoyn Software Inc. is a wholly-owned, independently-operated
Thinkpath subsidiary. Njoyn is a Web-based application that automates and
manages the entire hiring process. SecondWave is our Web development software.
SecondWave allows companies to create, manage and automate their own dynamic,
adaptive Web sites. The software learns from each visitor's behavior and targets
his or her needs and interests with customized content and communications.
Selected technology clients include Microsoft, CIBC, Investors Group, and
Digital Cement. Revenue from technology is recognized in two methods: on
deliverable milestones and on an ASP per month per user basis.
Gross profit is calculated by subtracting all direct costs from net
revenue. The direct costs of outsourcing include wages, benefits, software
training and project expenses. The average gross profit for outsourcing is 34%.
The direct costs of contract recruitment include contractor fees and benefits,
resulting in an average gross profit of 30%. We do not attribute any direct
costs to permanent placement services, therefore the gross profit on such
services is 100% of revenue. The direct costs of training include trainer
salaries, benefits and travel as well as courseware. The average gross profit on
training is 40%. The direct costs of our technology services are minimal and
include hosting fees and software expenses. The average gross profit on
technology is 90%.
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Results of Operations
The following table presents certain of our financial data as a
percentage of our revenue based on information derived from our revised
financial statements.
Three Months Ended March 31,
2001 2000
---- ----
Sales.............................. 100% 100%
Cost of Sales ................... 64% 68%
Gross profit....................... 36% 32%
Operating expenses....... 27% 25%
Operating income before interest,
amortization & other expenses...... 9% 7%
Net income (loss) ................. -0.5% 1%
Results of Operations for the Three Months Ended March 31, 2001 and 2000
Revenue
Revenue. Revenue for the three months ended March 31, 2001 increased by
$490,000 or 5%, to $10,645,000, as compared to $10,155,000 for the three months
ended March 31, 2000. The increase is primarily attributable to the acquisition
of Micro Tech Professionals, Inc. effective April 1, 2000, which had sales of
$1,300,000 for the three months ended March 31, 2001.
Cost of Sales. The cost of sales for the three months ended March 31,
2001 decreased by $14,000, or 1%, to $6,855,000, as compared to $6,870,000 for
the three months ended March 31, 2000. This decrease was due to the increased
volume of outsourcing with higher margins. As a percentage of revenue, the cost
of sales was 64% compared to 68% for the three months ended March 31, 2000.
Gross Profit. Gross profit for the three months ended March 31, 2001
increased by $505,000, or 15%, to $3,790,000, as compared to $3,285,000 for
the three months ended March 31, 2000. This increase was attributable to the
aforementioned increase in revenue during the three months ended March 31, 2001.
As a percentage of revenue, gross profit increased to 36% from 32% for the three
months ended March 31, 2000.
Operating Income Before Interest, Amortization and Other Expenses.
Operating income before interest, amortization and other expenses for the three
months ended March 31, 2001 increased by $260,000, or 36%, to $970,000, as
compared to $710,000 for the three months ended March 31, 2000. This increase
was attributable to the aforementioned increase in gross profit. As a percentage
of revenue, operating income before interest, amortization and other expenses
increased from 7% for the three months ended March 31, 2000 to 9% for the three
months ended March 31, 2001.
Income after Interest, Amortization and Before Other Expenses. Income
after interest, amortization, but before other expenses increased $130,000 or
130% to $230,000 for the three months ended March 31, 2001 from $100,000 for the
three months ended March 31, 2000. After other expenses mentioned below, we
sustained a loss of $625,000 compared to a profit of $100,000 for the three
months ended March 31, 2000. As a percentage of revenue, income after interest
and amortization, but before other expenses, increased from 1% for the three
months ended March 31, 2000 to 2% for the three months ended March 31, 2001.
Net Income (Loss) Before Income Tax. Net income before income
tax for the three months ended March 31, 2001 decreased by $720,000, to a net
loss of $620,000 as compared to net income before income tax of $100,000 for the
three months ended March 31, 2000. The net loss was due to costs of
approximately $850,000 which include restructuring costs resulting from the
closure of branch offices, and non-cash expenses associated with financing
activities such as the repricing of warrants and options. As a percentage of
revenue, net income before income tax recovery decreased from 1% for the three
months ended March 31, 2000 to -6% for the three months ended March 31, 2001.
For the three months ended March 31, 2001, amortization expense increased 30% to
$560,000 from $430,000 for the three months ended March 31, 2000. This increase
is primarily attributable to the increase in capital assets, the increase in the
acquisition of other assets, and the increase of goodwill. For the three months
ended March 31, 2001, interest expense decreased by 0.1% from $182,000 to
$180,000.
Accounts Receivable. We had accounts receivable of $7,900,000 as at
March 31, 2001 as compared to $7,860,000 as at December 31, 2000.
-20-
Liquidity and Capital Resources
Our primary sources of cash are a credit facility of $7,000,000 with
Bank One and proceeds from the sale of equity securities.
At March 31, 2001, we had negative cash or cash equivalents and a
working capital deficiency of $2,680,000. At March 31, 2001, we had a cash flow
deficiency from operations of $136,000. At March 31, 2000, we had cash and
cash equivalents of $112,000 and a working capital deficiency of $1,300,000. At
March 31, 2000, we had a cash flow deficiency from operations of $800,000, due
primarily to expenditures on research and development of our technology.
At March 31, 2001, we had cash flow from financing activities of
$686,000, attributable primarily to an increase of bank indebtedness of
$350,000 and proceeds from the issuance of common stock of $400,000. At March
31, 2000, we had cash flow from financing activities of $130,000, attributable
primarily to an increase in bank indebtedness.
On January 26, 2001, we: (a) repriced a warrant to purchase up to
100,000 shares of our common stock, which warrant was issued to a certain
investor in our April 2000 private placement offering of Series B 8% Cumulative
Preferred Stock, so that such warrant is exercisable at any time until April 16,
2005 at a new purchase price of $1.00 per share; (b) repriced warrants to
purchase an aggregate of up to 230,693 shares of our common stock, which
warrants were issued to the placement agent, certain financial advisors, and the
placement agent's counsel in our August 2000 private placement offering of
units, so that such warrants are exercisable at any time until August 22, 2005
at a new purchase price of $1.00 per share; and (c) issued a warrant to purchase
up to 250,000 shares of our common stock exercisable at any time and in any
amount until January 26, 2006 at a purchase price of $1.50 per share to KSH
Investment Group, Inc. for investment banking services rendered. In February
2001, 150,000 of such warrants were exercised by KSH Investment Group, Inc., the
placement agent in our August 2000 private placement offering. As partial
consideration for the exercise of such warrants, we issued to certain affiliates
of the placement agent, warrants to purchase an aggregate of 315,000 shares of
our common stock at an exercise price of $1.50 per share. The exercise prices of
the revised and newly issued warrants are equal to, or in excess of, the market
price of our common stock on the date of such revision or issuance.
On March 14, 2001, we repriced 100,000 options belonging to Roger W.
Walters' to $1.00 per share in consideration of debt forgiveness of $75,000 and
the restructuring of debt totaling $250,000 on the notes payable to Mr. Walters
in connection with our purchase of Cad Cam, Inc. On March 14, 2001 Mr. Walters
resigned as our Executive Vice President of U.S. Operations and as a director
effective March 30, 2001.
On March 23, 2001, we signed a consulting agreement with Union Atlantic
Capital L.C., an investment banker and placement agent to arrange a private
placement of debt, equity and/or warrants. The fee payable is 7% of the
aggregate purchase price of our stock purchased by or through any investor or
intermediary identified by Union Atlantic. In addition, upon the closing of each
transaction, we are required to issue, through escrow, a warrant entitling Union
Atlantic to purchase 75,000 shares of our common stock at a price equal to the
warrants issued to the investor for every $1,000,000 raised. The warrants
shall be exercisable immediately and shall provide for piggyback registration
rights as well as demand registration rights, be exercisable following the first
anniversary of the closing and shall expire 4 years from the date of their
issuance. The form of the warrant shall be identical to the warrant issued to
the investor. The agreement expires June 23, 2001.
-21-
At March 31, 2001, we had a cash flow deficit from investing activities
of $200,000 attributable primarily to the increase in long-term receivable. At
March 31, 2000, we had a cash flow deficit from investing activities of
$1,100,000 attributable primarily to the purchase of capital and other assets.
Recent Events
Pursuant to a share purchase agreement dated April 18, 2001, we issued
1,105 shares of Series C 7% Convertible Preferred Stock (the "Series C Preferred
Stock"). Each share of Series C Preferred Stock has a stated value of $1,000 per
share. The shares of Series C Preferred Stock are convertible into shares of our
common stock at the option of the holders the Series C Preferred Stock, at any
time after issuance until such shares of Series C Preferred Stock are
manditorily converted or redeemed by us, under certain conditions. We are
required to register 200% of the shares of common stock issuable upon the
conversion of the 1,105 shares of Series C Preferred Stock. In addition, upon
the effective date of such registration statement, we have the option to issue
to the holders an aggregate of 500 shares of Series C Preferred Stock in
consideration for an additional $500,000, under certain conditions.
The holders of the shares of Series C Preferred Stock are entitled to
receive preferential dividends in cash, on a quarterly basis commencing on June
30, 2001, out of any of our funds legally available at the time of declaration
of dividends before any other dividend distribution will be paid or declared and
set apart for payment on any shares of our common stock, or other class of stock
presently authorized, at the rate of 7% simple interest per annum on the stated
value per share plus any accrued but unpaid dividends, when as and if declared.
We have the option to pay such dividends in shares of our common stock to be
paid (based on an assumed value of $1,000 per share) in full shares only, with a
cash payment equal to any fractional shares.
The number of shares of our common stock into which the Series C
Preferred Stock shall be convertible into equals that number of shares of common
stock as calculated by (i) the sum of (A) the stated value per share and (B) at
the holder's election, accrued and unpaid dividends on such share, divided by
(ii) the Conversion Price". The "Conversion Price" shall be the lesser of (x)
87.5% of the average of the 5 lowest daily volume weighted average prices of our
common stock during the period of 60 consecutive trading days immediately prior
the date of the conversion notice; or (y) 90% of the average of the daily volume
weighted average prices during the period of the 5 trading days prior to the
applicable closing date ($.4798 with respect to the 1,105 shares of Series C
Preferred Stock issued and outstanding). The Conversion Price is subject to
certain floor and time limitations.
At any time prior to October 24, 2001, we may, in our sole discretion,
redeem in whole or in part, the then issued and outstanding shares of Series C
Preferred Stock at a price equal to $1,150 per share, plus all accrued and
unpaid dividends, and after October 24, 2001 at a price equal to $1,200 per
share, plus all accrued and unpaid dividends.
At December 31, 2000, the Business Development Bank of Canada
("BDC")loan covenants were in breach and accordingly the loan amounts were
reclassified as current. Subsequent to March 31, 2001, we received a letter from
BDC indicating their continued support of us and confirmation that the
loans presently outstanding will not be called. In addition, BDC indicated their
intention to grant a principal repayment deferral and accordingly, certain loan
amounts were reclassified from current to long-term.
At December 31, 2000, Bank One loan covenants were in breach and
accordingly the interest rates on these loans were increased. Subsequent to
March 31, 2001, Bank One imposed a temporary restriction on our repayment of
certain subordinated loans and notes payable.
-22-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are party to the following pending legal proceedings:
Michael Carrazza, as assignee of Southport Consulting Co., instituted
an action against us in the Supreme Court of the State of New York, County of
New York, Index No. 600553/01, alleging breach of contract and unjust
enrichment. Mr. Carrazza is seeking $250,000.00 in damages. Specifically, Mr.
Carrazza claims that we failed to deliver cash or stock to Mr. Carrazza under
the asset purchase agreement pursuant to which we acquired the assets of
Southport Consulting Co. We have filed a counterclaim against Mr. Carrazza,
seeking $162,000.00 in damages, plus punitive damages and attorneys' fees, on
the ground that Mr. Carrazza, as then president and sole shareholder of
Southport Consulting Co., fraudulently induced us into executing the asset
purchase agreement by misrepresenting the value of the assets being purchased.
As of the date hereof, discovery has commenced, and we intend to defend
ourselves and prosecute our claim vigorously.
We are not party to any other pending litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None.
-23-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of our security holders.
ITEM 5. OTHER INFORMATION
On March 9, 2001, Marilyn Sinclair resigned as Vice President and as a
director.
On March 14, 2001 Roger W. Walters resigned as the Company's Executive
Vice President of U.S. Operations and as a director effective March 30, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Incorporated by reference to the Company's annual report on
Form 10-KSB, as amended, filed on May 18, 2001.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three-month
period ended March 31, 2001.
-24-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THINKPATH.COM INC.
Dated: May 24, 2001 By: /s/ Declan French By: /s/ Kelly Hankinson
--------------------- -----------------------
Declan French Kelly L. Hankinson
Chief Executive Officer Chief Financial Officer
and President
-25-