UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM ____________ TO ________________
COMMISSION FILE NUMBER __________
THINKPATH 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 400
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 16, 2002 WAS APPROXIMATELY $1,921,985.
AS OF MAY 16, 2002 THERE WERE 25,718,983 SHARES OF COMMON STOCK,
NO PAR VALUE PER SHARE, OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES X NO _____
THINKPATH INC.
MARCH 31, 2002 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page Number
Item 1. Financial Statements
Interim Consolidated Balance Sheets as of March 31, 2002,
December 31, 2001...................... ............................5,6
Interim Consolidated Statements of Income for the three months ended
March 31, 2002 and 2001...............................................7
Interim Consolidated Statements of Stockholders' Equity for the three months
ended March 31, 2002..................................................8
Interim Consolidated Statements of Cash Flows for the three months ended
March 31, 2002 and 2001............. .................................9
Notes to Interim Consolidated Financial Statements............................10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................18
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ...................................................27
Item 2. Changes in Securities and Use of Proceeds ...........................28
Item 3. Defaults Upon Senior Securities .....................................28
Item 4. Submission of Matters to a Vote of Security Holders .................28
Item 5. Other Information ...................................................29
Item 6. Exhibits and Reports on Form 8-K ....................................29
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THINKPATH INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002 (UNAUDITED)
(AMOUNTS EXPRESSED IN US DOLLARS)
THINKPATH INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2002 AND DECEMBER 31, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
March 31, December 31,
2002 2001
---- ----
$ $
ASSETS
CURRENT ASSETS
Cash 90,230 482,233
Accounts receivable 5,068,863 5,502,113
Inventory 43,252 40,057
Income taxes receivable 428,888 431,817
Prepaid expenses 356,720 345,341
---------- ----------
5,987,954 6,801,561
CAPITAL ASSETS 2,759,745 2,859,340
GOODWILL 5,128,991 5,128,991
INVESTMENT IN NON-RELATED COMPANIES 1,013,926 1,013,926
LONG-TERM RECEIVABLE 83,450 83,450
OTHER ASSETS 411,955 1,287,710
---------- ----------
15,386,020 17,174,978
========== ==========
-5-
THINKPATH INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2002 AND DECEMBER 31, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
March 31, December 31,
2002 2001
---- ----
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 5,067,527 5,039,171
Accounts payable 3,154,846 4,073,444
Deferred revenue 316,710 365,023
Current portion of long-term debt 368,044 528,285
Current portion of notes payable 150,000 150,000
---------- ----------
9,057,128 10,155,923
DEFERRED INCOME TAXES 150,380 150,380
LONG-TERM DEBT 479,340 582,432
NOTES PAYABLE 2,302,500 2,340,000
LIABILITIES PAYABLE IN CAPITAL STOCK 225,000 699,297
---------- ----------
12,214,348 13,928,032
---------- ----------
STOCKHOLDERS' EQUITY
CAPITAL STOCK 27,296,414 26,571,481
DEFICIT (23,242,194) (22,719,044)
ACCUMULATED OTHER COMPREHENSIVE LOSS (882,549) (605,491)
---------- ----------
3,171,672 3,246,946
---------- ----------
15,386,020 17,174,978
========== ==========
The accompanying notes are an integral part of these interim
consolidated financial statements.
-6-
THINKPATH INC.
INTERIM CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31
(AMOUNTS EXPRESSED IN US DOLLARS)
2002 2001
------------- -----------
$ $
REVENUE 7,405,677 10,441,155
COST OF SERVICES 5,498,402 6,845,192
----------- -----------
GROSS PROFIT 1,907,275 3,595,963
OTHER INCOME -- 12,429
----------- -----------
1,907,275 3,608,392
----------- -----------
EXPENSES
Administrative 1,151,074 1,283,932
Selling 1,041,162 1,582,039
Depreciation and amortization 298,155 477,182
Restructuring costs -- 241,451
----------- -----------
2,490,391 3,584,605
----------- -----------
INCOME (LOSS)FROM CONTINUING OPERATIONS
BEFORE INTEREST CHARGES (583,116) 23,787
Interest Charges 235,579 232,706
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (818,695) (208,919)
Income taxes (recovery) (25,410) 203,962
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (793,285) (412,881)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
(INCLUDING GAIN ON DISPOSAL OF $401,027) 293,815 (77,415)
----------- -----------
NET INCOME (LOSS) (499,470) (490,296)
PREFERRED STOCK DIVIDEND REQUIREMENTS 23,680 226,500
----------- -----------
EARNINGS APPLICABLE TO COMMON STOCK (523,150) (716,796)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON STOCK
OUTSTANDING BASIC AND FULLY DILUTED 17,640,438 13,025,123
=========== ===========
INCOME (LOSS) PER WEIGHTED AVERAGE
COMMON STOCK BEFORE PREFERRED DIVIDENDS
BASIC AND FULLY DILUTED (0.03) (0.04)
=========== ===========
INCOME (LOSS) PER WEIGHTED AVERAGE
COMMON STOCK AFTER PREFERRED DIVIDENDS
BASIC AND FULLY DILUTED (0.03) (0.06)
=========== ===========
The accompanying notes are an integral part of
these interim consolidated financial statements.
-7-
THINKPATH INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND THE YEAR ENDED DECMEBER 31, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
ACCUMULATED
COMMON STOCK PREFERRED STOCK CAPITAL OTHER
NUMBER OF NUMBER OF SHARES STOCK RETAINED COMPREHENSIVE COMPREHENSIVE
SHARES A B C AMOUNTS EARNINGS INCOME (LOSS) INCOME (LOSS)
-------------- --------- -------- -------- ------------ ------------- ------------
Balance as of December 31, 2000 11,915,138 1,050 750 - 23,759,415 (12,306,862) (653,547)
Net loss for the year - - - - - (9,683,442) (9,683,442)
-------------
Other comprehensive income (loss), net of tax:
Foreign currency translation - - - - - - 209,506
Adjustment to market value - - - - - - (161,450)
-------------
Other comprehensive income 48,056 48,056
-------------
Comprehensive loss (9,635,386)
=============
Issuance of common stock for cash 525,000 - - - 400,000 -
Issuance of preferred stock - - - 1,230 1,230,000 -
Options exercised 22,122 - - - 1 -
Common stock and warrants issued
in consideration of services 714,267 - - - 519,994 -
Reduction in common stock payable 596,667 - - - 709,005 -
Dividend on preferred stock - - - - 414,848 (444,647)
Conversion of preferred stock to
common stock 3,864,634 (1,050) (750) (285) - -
Beneficial conversion on
Issuance of preferred stock - - - - 284,093 (284,093)
Debt settled through the issuance
of common stock 93,883 - - - 44,125 -
Allowance for deferred taxes
recoverable on issue expenses - - - - (790,000) -
-------------- --------- -------- -------- ------------ ------------- ------------
Balance as of December 31, 2001 17,731,711 - - 945 26,571,481 (22,719,044) (605,491)
============== ========= ======== ======== ============ ============== ============
Net loss for the period - - - - - (499,470) (499,470)
-------------
Other comprehensive income (loss), net of tax:
Foreign currency translation - - - - - - (277,058)
Adjustment to market value - - - - - - -
-------------
Other comprehensive income (277,058) (277,058)
-------------
Comprehensive loss (776,528)
=============
Reduction in common stock payable 1,756,655 - - - 474,297 -
Dividend on preferred stock - - - - 21,617 (21,617)
Conversion of preferred stock to
common stock 541,593 - - (65) - -
Beneficial conversion on
Issuance of preferred stock - - - - 2,063 (2,063)
Debt settled through the issuance
of common stock 1,253,752 - - - 226,956 -
-------------- --------- -------- -------- ------------ ------------- ------------
Balance as of March 31, 2002 21,283,711 - - 880 27,296,414 (23,242,194) (882,549)
============== ========= ======== ======== ============ ============== ============
The accompanying notes are an integral part of these
interim consolidated financial statements.
-8-
THINKPATH INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(AMOUNTS EXPRESSED IN US DOLLARS)
2002 2001
---- ----
$ $
Cash flows from operating activities
Net income (loss) (499,470) (490,296)
---------- --------
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization 374,625 560,586
Decrease (increase) in accounts receivable 581,480 (159,078)
Decrease (increase) in prepaid expenses (11,272) (168,092)
Increase (decrease) in accounts payable (1,087,036) (327,405)
Decrease (increase) in deferred income taxes -- 200,000
Decrease (increase) in inventory (3,169) 25,233
Increase (decrease) in deferred revenue (48,542) (23,710)
Common stock and warrants issued for services -- 246,980
Gain on disposal of subsidiary (401,027) --
---------- --------
Total adjustments (593,019) 354,514
---------- --------
Net cash used in operating activities (1,092,489) (135,782)
---------- --------
Cash flows from investing activities
Purchase of capital assets (222,577) (62,089)
Increase in long-term receivable -- (139,956)
Proceeds on disposal of subsidiary 1,320,786 --
---------- --------
Net cash used in investing activities 1,098,209 (202,045)
---------- --------
Cash flows from financing activities
Repayment of notes payable (37,500) (73,574)
Repayment of long-term debt (335,861) (219,734)
Cash received (paid) on long-term debt -- 225,000
Proceeds from issuance of common stock -- 400,000
Increase (decrease) in bank indebtedness (28,356) 354,019
---------- --------
Net cash provided by financing activities (401,717) 685,711
---------- --------
Effect of foreign currency exchange rate changes 5,916 (347,884)
---------- --------
Net increase (decrease) in cash and cash equivalents (392,003) --
Cash and cash equivalents
-Beginning of period 482,233 --
---------- --------
-End of period 90,230 --
========== ========
SUPPLEMENTAL CASH ITEMS:
Interest paid 239,865 116,553
========== ========
Income taxes paid (recovered) (25,410) 3,962
========== ========
SUPPLEMENTAL NON-CASH ITEM:
Preferred stock dividend 23,680 226,500
Common shares issued for liabilities 701,253 --
========== ========
The accompanying notes are an integral part of these interim
consolidated financial statements.
-9-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
1. MANAGEMENT'S INTENTIONS
Certain principal conditions and events are prevalent which indicate that
there could be substantial doubt about the company's ability to continue
as a going concern for a reasonable period of time. These conditions and
events include significant operating losses, working capital deficiencies,
and violation of certain loan covenants. At March 31, 2002, the Company
had a working capital deficiency of $3,070,000, a deficit of $23,242,194
and has suffered recurring losses from operations.
With insufficient working capital from operations, the Company's primary
sources of cash have been a revolving line of credit with Bank One and
proceeds from the sale of equity securities. At March 31, 2002, the
balance of the revolving line of credit was $4,200,000 based on eligible
receivables of $4,700,000. The revolving line of credit agreement requires
the Company to meet various restrictive convenants, including a senior
debt to EBITDA ratio, debt service coverage ratio, debt to tangible net
worth ratio and certain other covenants. At March 31, 2002 and thereafter,
the company did not comply with the covenants contained in the revolving
line of credit agreement. The bank has indicated its intent to enter into
a forbearance agreement in which it would refrain from exercising any
right or remedies based on continuing or existing defaults. If the company
is not successful in procuring a forbearance agreement or alternative
financing arrangements, it may be required to issue additional securities
that may result in the substantial dilution to existing shareholders.
As at May 17, 2002, management's plans to mitigate and alleviate these
adverse conditions and events include:
A. Ongoing restructuring of operations relating to the closure of
non-profitable offices, termination of redundant staff and the
institution of other cost cutting measures. See Note 14. Although
there can be no assurances, it is anticipated that continued cash
flow improvements will be sufficient to cover current operating costs
and will permit partial payments to vendors and interest payments on
all debt.
B. Ongoing discussions to secure a new credit facility in place of Bank
One.
C. Ongoing efforts to procure cash through a private placement of debt,
equity or warrant securities.
D. Settlement of an outstanding insurance claim related to the loss of
assets and business for two offices impacted by the terrorist events
of September 11, 2001.
E. Focus on growing the technical publications, e-learning and
engineering services division. Increase sales by providing defense
related services to United States military suppliers. During the last
nine months, this division has secured several large defense related
contracts that will have a significant impact on the company's
operations in 2002.
F. Sale of non-profitable and non-complimentary business units.
Despite its negative working capital and deficit, the company believes
that its management has developed a business plan that if successfully
implemented could substantially improve the company's operational results
and financial condition. However, the company can give no assurances that
its current cash flows from operations, if any, borrowings available under
its revolving line of credit, and proceeds from the sale of securities,
will be adequate to fund its expected operating and capital needs for the
next twelve months. The adequacy of cash resources over the next twelve
months is primarily dependent on its operating results, ability to procure
a waiver from the bank, alternate financing, and settlement of its
insurance claim, all of which are subject to substantial uncertainties.
Cash flows from operations for the next twelve months will be dependent,
among other things, upon the effect of the current economic slowdown on
sales, the impact of the restructuring plan and management's ability to
implement its business plan. The failure to return to profitability and
optimize operating cash flows in the short term, and to successfully
procure a waiver from the bank or alternate financing, could have a
material adverse effect on the company's liquidity position and capital
resources.
-10-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Going Concern
These interim consolidated financial statements have been prepared on the
going concern basis, which assumes the realization of assets and
liquidation of liabilities and commitments in the normal course of
business. The application of the going concern concept is dependent on
the Company's ability to generate sufficient working capital from
operations and external investors. These interim consolidated financial
statements do not give effect to any adjustments should the Company be
unable to continue as a going concern and, therefore, be required to
realize its assets and discharge its liabilities in other than the normal
course of business and at amounts differing from those reflected in the
interim consolidated financial statements. Management plans to obtain
sufficient working capital from operations and external financing to meet
the Company's liabilities and commitments as they become payable over the
next twelve months. There can be no assurance that management's plans
will be successful. Failure to obtain sufficient working capital from
operations and external financing will cause the Company to curtail
operations. These interim consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
b) Change of Name
The company changed its name from IT Staffing Ltd. to Thinkpath.com Inc.
on February 24, 2000. On June 6, 2001, the company changed its name from
Thinkpath.com Inc. to Thinkpath Inc.
c) Principal Business Activities
Thinkpath Inc. is an information technology and engineering services
company which, along with its subsidiaries Systemsearch Consulting
Services Inc., Thinkpath US Inc. (formerly Cad Cam Inc.), Thinkpath
Michigan Inc. (formerly Cad Cam of Michigan Inc.), Thinkpath Technical
Services Inc. (formerly Cad Cam Technical Services Inc.), Thinkpath
Training Inc. (formerly ObjectArts Inc.) Thinkpath Training US
Inc.(formerly ObjectArts US Inc.), MicroTech Professionals Inc., Njoyn
Software Incorporated, and TidalBeach Development Inc., provides
engineering, staffing, training and technology services to enhance the
resource performance of clients.
d) Basis of interim consolidated financial statement presentation
The interim consolidated financial statements include the accounts of the
company and its controlled 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.
e) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts to banks, and any
other highly liquid investments purchased with a maturity of three months
or less. The carrying amount approximates fair value because of the short
maturity of those instruments.
f) Other Financial Instruments
The carrying amount of the company's other financial instruments
approximate fair value because of the short maturity of these instruments
or the current nature of interest rates borne by these instruments.
g) Long-Term Financial Instruments
The fair value of each of the company's long-term financial assets and
debt instruments is based on the amount of future cash flows associated
with each instrument discounted using an estimate of what the company's
current borrowing rate for similar instruments of comparable maturity
would be.
-11-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
h) Capital Assets
Property and equipment are recorded at cost and are amortized over the
estimated useful lives of the assets principally using the declining
balance method.
The company's policy is to record leases, which transfer substantially
all benefits and risks incidental to ownership of property, as
acquisition of assets and to record the occurrences of corresponding
obligations as long-term liabilities. Obligations under capital leases
are reduced by rental payments net of imputed interest.
i) 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 as described in note 13 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.
j) Inventory
Inventory is valued at the lower of cost and the net realizable value.
k) Revenue
1) The company provides the services of engineering and information
technology staff on a project basis. The services provided are defined
by guidelines to be accomplished by milestone and revenue is
recognized upon the accomplishment of the relevant milestone. As
services are rendered, the costs incurred are reflected as Work in
Progress. Revenue is recognized upon the persuasive evidence of an
agreement, delivery has occurred, the fee is fixed or determinable and
collection reasonably assured.
2) The company provides the services of information technology
consultants on a contract basis and revenue is recognized as services
are performed.
3) The company places engineering and information technology
professionals on a permanent basis and revenue is recognized upon
candidates' acceptance of employment. If the company receives
non-refundable upfront fees for "retained searches", the revenue is
recognized upon candidates' acceptance of employment.
4) The company provides advanced training and certification in a variety
of technologies and revenue is recognized on delivery.
5) The company licenses software in the form of a Human Capital
Management System called Njoyn. The revenue associated with providing
this software consists of an initial set up fee, customization and
training as agreed and an ongoing monthly per user fee. The allocation
of revenue to the various elements is based on the company's
determination of the fair value of the elements if they had been sold
separately. The set-up fee and customization revenue is recognized
upon delivery of access to the software with customization completed
in accordance with milestones determined by the contract.
Revenue is recognized on a percentage of completion basis for
contracts with significant amounts of customization and clearly
defined milestones agreed with the customer and an enforceable right
to invoice and collect on a partial completion basis. For contracts
which require significant customization and without clearly defined
milestones, an inability to estimate costs, revenue is reflected on a
completed contract basis. To date the customization and set up fees
totaled approximately $200,000. On March 1, 2002 the Company sold its
subsidiary, Njoyn Software Incorporated to Cognicase Inc, a Canadian
company. The net proceeds after broker fees were $1,350,000 of which
$800,000 was received in cash and $550,000 was received in
unrestricted common shares. The shares were sold on March 11, 2002 for
value of $524,673.19. As part of the transaction, Cognicase assumed
the entire staff in the technology division.
6) Revenue for the training is recorded as the services are rendered
and the ongoing monthly fee is recorded each calendar month. There is
no additional fee for hosting. The company signs contracts for the
customization or development of SecondWave in accordance with
specifications of its clients. The project plan defines milestones to
be accomplished and the costs associated. These amounts are billed as
they are accomplished and revenue is recognized as the milestones are
reached. The work in progress for costs incurred beyond the last
accomplished milestone is reflected at the period end. To date these
amounts have not been material and have not been set up at the period
ends. The contracts do not include any post-contract customer support.
Additional customer support services are provided at standard daily
rates, as services are required.
-12-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
In December 1999, the Securities and Exchange Commission ("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 consolidated financial
statements.
l) Goodwill
Goodwill representing the cost in excess of the fair value of net assets
acquired is being amortized on a straight-line basis over a thirty-year
period. The company calculates the recoverability of goodwill on a
quarterly basis by reference to estimated undiscounted future cash flows.
Effective July 1, 2001, the Company changed its amortization period from
30 to 15 years on a prospective basis.
In July 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations"
and No. 142, "Goodwill and Other Intangible Assets." Under the new rules,
goodwill and indefinite lived intangible assets are no longer amortized
but are reviewed annually for impairment. Separable intangible assets
that are not deemed to have an indefinite life will continue to be
amortized over their useful lives. The amortization provisions of SFAS
No. 142 apply to goodwill and intangible assets acquired after June 30,
2001. With respect to goodwill and intangible assets acquired prior to
July 1, 2001, the Company began applying the new accounting rules
effective January 1, 2002.
The Company is currently assessing the financial impact SFAS No. 141 and
No. 142 will have on its Consolidated Financial Statements. Any
transitional impairment loss will be recognized as the cumulative effect
of a change in accounting principle in the Company's statement of
earnings.
m) Income Taxes
The company accounts for income tax under the provision of Statement of
Financial Accounting Standards No. 109, which requires recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statement
or tax returns. Deferred income taxes are provided using the liability
method. Under the liability method, deferred income taxes are recognized
for all significant temporary differences between the tax and financial
statement bases of assets and liabilities.
Effects of changes in enacted tax laws on deferred tax assets and
liabilities are reflected as adjustments to tax expense in the period of
enactment. Deferred tax assets may be reduced, if deemed necessary based
on a judgmental assessment of available evidence, by a valuation
allowance for the amount of any tax benefits which are more likely, based
on current circumstances, not expected to be realized.
n) Foreign Currency
Assets and liabilities recorded in foreign currencies are translated at
the exchange rate on the balance sheet date. Translation adjustments
resulting from this process are charged or credited to other
comprehensive income. Revenue and expenses are translated at average
rates of exchange prevailing during the year. Gains and losses on foreign
currency transactions are included in financial expenses.
o) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect certain
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. These
estimates are reviewed periodically and as adjustments become necessary,
they are reported in earnings in the period in which they become known.
-13-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
p) Long-Lived Assets
On January 1, 1996, the company adopted the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. SFAS No. 121 requires that long-lived assets be
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Management used its best estimate of the
undiscounted cash flows to evaluate the carrying amount and have
reflected the impairment.
q) Comprehensive Income
In 1999, the company adopted the provisions of SFAS No. 130 "Reporting
Comprehensive Income". This standard requires companies to disclose
comprehensive income in their financial statements. In addition to items
included in net income, comprehensive income includes items currently
charged or credited directly to stockholders' equity, such as the changes
in unrealised appreciation (depreciation) of securities and foreign
currency translation adjustments.
r) Accounting for Stock-Based Compensation
In December 1995, SFAS No. 123, Accounting for Stock-Based Compensation,
was issued. It introduces the use of a fair value-based method of
accounting for stock-based compensation. It encourages, but does not
require, companies to recognize stock-based compensation expenses to
employees based on the new fair value accounting rules. Companies that
choose not to adopt the new rules will continue to apply the existing
accounting rules continued in Accounting Principles Board Option No. 25,
Accounting for stock issued to employees. However, SFAS No. 123 requires
companies that choose not to adopt the new fair value accounting rules to
disclose pro forma net income and earnings per share under the new
method. SFAS No. 123 is effective for financial statements for fiscal
years beginning after December 31, 1995. The company has adopted the
disclosure provisions of SFAS No. 123.
s) Computer software costs
The company accounts for the cost of developing computer software for
internal use, which may be sold as a separate product, as a research and
development expense until the technological feasibility of the product
has been established. At the end of each year the company compares the
unamortized capital costs represented by Deferred development costs in
Other Assets to the net realizable value of the product to determine if a
reduction in carrying value is warranted. Included in the software
developed for own use which may be sold as a separate product is the
Njoyn and Secondwave software and therefore for these products, the costs
incurred after technological feasibility was reached has been treated as
Deferred Development costs and the amount evaluated on an annual basis to
determine if a reduction in carrying value is warranted.
The company has developed computer software for internal use which is
reflected in deferred development costs for which the company has
commenced marketing in 2001.
t) Investments in Non-Related Companies
The company records its investment in companies in which it holds less
than 20% interest at fair market value. Changes in fair market value are
adjusted in comprehensive income.
u) Recent Pronouncements
In June 1998 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities" which was amended by
SFAS No. 138 and became effective on January 1, 2001. This statement
requires that an entity recognizes all derivatives as either assets or
liabilities and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as a
hedge. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting
designation. The adoption of this standard will not have a material
impact on the consolidated financial statements of the company.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Asset and Extinguishments of
Liabilities. SFAS No. 140 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. It is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after March 31, 2001
and is effective for recognition and reclassification of collateral and
for disclosures relating to securitization transactions and collateral
for fiscal years ending after December 15, 2000. The Company does not
believe that this statement will materially impact its results
of operations.
-14-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
On December 12, 2001, the Securities and Exchange Commission issued
FR-60, "Cautionary Advice Regarding Disclosure About Critical Accounting
Policies", which encourages additional disclosure with respect to a
Company's critical accounting policies, the judgments and uncertainties
that affect the Company's application of those policies, and the
likelihood that materially different amounts would be reported under
different conditions and using different assumptions.
v) Advertising Costs
Advertising costs are expensed as incurred. For the three months ended
March 31, 2002, advertising expense was $68,772. For the three months
ended March 31, 2001 advertising expense was $123,240.
3. 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
=========
On December 31, 2001, the Company had written off a portion of the
goodwill related to its investment in Systemsearch Consulting Services
Inc.
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
=========
On December 31, 2000, the Company had written off the goodwill related to
its investment in International Career Specialists Ltd.
The assets of Southport Consulting Company, a New Jersey corporation,
were acquired by Thinkpath Inc. 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
=========
-15-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
Cad Cam Inc. and its subsidiaries Cad Cam of Michigan Inc., Cad Cam
Technical Services Inc., and Cad Cam Integrated Systems Inc. was acquired
during 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 and
$1,000,000 in the form of common stock to be issued with the final note
payable. The documents were executed at the end of September 1999 and the
operations consolidated with the company from October 1, 1999. The terms
of the note payable were subsequently restructured.(Note 12)
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
===========
MicroTech Professionals Inc., was acquired effective April 1, 2000 for
$4,500,000.The amount was to be paid in two installments, based on certain
revenue requirements to be met by MicroTech Professionals Inc. The
requirements have been met. First Instalment: 133,333 common stock issued
on closing, $1,250,000 cash paid on closing, $750,000 by a three year
promissory note bearing interest at 1/2% above prime paid semi-annually
issued on closing. Second Instalment: $625,000 in common stock, $875,000
cash, $500,000 by a three-year promissory note bearing interest at 1/2%
above prime paid semi-annually. The acquisition was accounted for by the
purchase method and the operations have been included in the consolidated
operations from April 1, 2000. Refer to note 21(a) for supplemental
information.
The terms of payment were subsequently restructured. (Note 12)
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
acquisition costs (4,660,000)
-----------
Goodwill $ 3,009,198
===========
On December 31, 2001, the Company had written off the goodwill related to
its investment in MicroTech Professionals Inc.
On March 6, 2000, Thinkpath Inc. completed the acquisition of 80% of
E-Wink, Inc., a Delaware corporation, in consideration of: i) 300,000
shares of our common stock valued at $975,000; and ii) warrants to purchase
an aggregate of 500,000 shares of our common stock at a price of $3.25 per
share for a period of five years valued at $1,458,700. E-Wink was formed to
match providers of venture capital, bridge loans and private placement
capital with members of the brokerage community. The full purchase price of
$2,433,700 has been allocated to goodwill. On December 31, 2000,the company
has written off the goodwill related to its investment in E-Wink, Inc.
-16-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
4. POOLING OF INTEREST
Effective January 1, 2000. Thinkpath Inc. entered into a merger and
acquisition agreement with a technical training provider, ObjectArts Inc.
and its subsidiary ObjectArts (US) Inc. ObjectArts (US) Inc., was merged
with IT Staffing New York Ltd., an inactive subsidiary of Thinkpath Inc.
In exchange for all of the outstanding shares of ObjectsArts Inc., the
company issued 527,260 common stock. The merger was accounted for as a
pooling of interests and the results of ObjectArts Inc. and ObjectArts
(US) Inc. have been included for all periods presented.
On November 15, 2000, Thinkpath Inc. combined with TidalBeach Inc., a
software developer, and in exchange for all of the outstanding shares of
TidalBeach Inc., issued 250,000 common stock. The combination has been
accounted for as a pooling of interests and the results of TidalBeach
Inc. have been included for all periods presented. Refer to note 20(b)
for supplemental information concerning TidalBeach Inc.
5. ACCOUNTS RECEIVABLE
March 31, December 31,
2002 2001
$ $
Accounts receivable 5,598,120 6,079,676
Less: Allowance for doubtful accounts (529,257) (577,563)
--------- ---------
5,068,863 5,502,113
========= =========
6. CAPITAL ASSETS
March 31, December 31,
2002 2001
----------------------------------- -----------
ACCUMULATED
COST AMORTIZATION NET NET
$ $ $ $
Furniture and equipment 787,934 451,904 336,030 344,693
Computer equipment
and software 6,345,817 4,095,627 2,250,190 2,322,887
Leasehold improvements 486,508 312,983 173,525 191,760
--------- --------- --------- ---------
7,620,259 4,860,514 2,759,745 2,859,340
========= ========= ========= =========
Assets under capital lease 884,935 444,377 440,558 474,485
========= ========= ========= =========
Amortization for the three months ended March 31, 2002 amounted to $257,205.
Amortization includes amortization of assets under capital lease of $33,927.
Amortization for the year ended December 31, 2001 amounted to $1,594,709.
Amortization includes amortization of assets under capital lease of $146,217
for the year ended December 31, 2001.
6. INVESTMENT IN NON-RELATED COMPANIES
Investment in non-related companies are represented by the following:
March 31, December 31,
2002 2001
Conexys $667,511 $667,511
Digital Cement 346,415 346,415
Lifelogix -- --
---------- ----------
Total $1,013,926 $1,013,926
========== ==========
-17-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
i) Conexys
During the year ended December 31, 1999, $383,146 of the Conexys
investment was included as a short-term investment as the company had
intended to sell these shares on the open market. During fiscal 2000, the
company acquired additional shares of Conexys at a cost of approximately
$284,365 in consideration of services rendered and reclassified the total
investment as available for sale. Since the shares of Conexys trade on the
Bermuda Stock Exchange, the fair value was determined based on the stock
price.
ii) Digital Cement
During fiscal 2000, 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 Thinkpath Inc. The value of
these shares was determined to be approximately $507,865 based on a offer
to a third party to purchase shares in the company at a price of $0.50 per
share. During 2001, the fair value adjusted to $346,415 with a charge of
$161,450 to comprehensive income.
iii) Lifelogix
During 2000, the company acquired a twenty percent interest in LifeLogix
in consideration of the source code for Secondwave, the software which
supports LifeLogix's human stress and emotions management systems. The
value of these shares is approximately $142,715. This investment has been
accounted for on the cost basis as the company does not have significant
influence over LifeLogix. This investment was written off in 2001.
The acquisition of additional shares in 2000 of Conexys and the
acquisition of shares of Digital Cement and the investment in LifeLogix
were reflected at the estimated fair market value of the shares received
which represents the more determinable value in the exchange. Revenue
includes $932,927 arising from these transactions was reported in 2000.
8. GOODWILL
Goodwill is the excess of cost over the value of assets acquired over
liabilities assumed in the purchase of the following companies:
March 31, December 31,
2002 2001
-------------------------------------- ------------
ACCUMULATED
COST AMORTIZATION NET NET
$ $ $ $
Systemsearch Consulting Services 448,634 303,337 145,297 145,297
International Career Specialists 850,597 850,597 -- --
Cad Cam Inc. 5,518,858 535,164 4,983,694 4,983,694
MicroTech Professionals Inc. 3,009,198 3,009,198 -- --
E-Wink Inc. 2,433,700 2,433,700 -- --
---------- ---------- ---------- ----------
12,260,987 7,131,996 5,128,991 5,128,991
========== ========== ========== ==========
Effective January 1, 2002, the Company adopted Statements of Financial
Accounting Standards No. 141, Business Combinations, No. 142, Goodwill
and Other Intangible Assets and No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. These statements require the Company
to evaluate the carrying value of our goodwill and intangible assets
based on assumptions and estimates of fair value and future cash flow
information. These assumptions and estimates may differ from actual
results. If different assumptions and estimates are used, carrying
values could be adversely impacted, resulting in writedowns that could
adversely affect the Company's earnings. The company has not yet
determined the effect of impairment tests on its earnings and
financial position. Under these statements, goodwill will no longer be
amortized.
Amortization for the year ended December 31, 2001 was $454,908.
Effective July 1, 2001, the Company changed its amortization period
from 30 to 15 years on a prospective basis.
-18-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
In accordance with the requirements of SFAS 121, the impairment of
goodwill resulted in the writedown of the following amounts;
2001 2000
---------- ---------
Systemsearch Consulting Services 238,673 --
MicroTech Professionals Inc. 2,762,718 --
International Career Specialists -- 679,568
E-Wink Inc. -- 2,433,700
---------- ----------
3,001,391 3,113,268
========== ==========
The Systemsearch Consulting Services office was closed on April 8,
2002 and its staff terminated. The balance of its contracts have been
transferred to head office. MicroTech Professionals Inc. has had
ongoing operating losses since February 2001 and has had the majority
of its staff terminated subsequent to December 31, 2001.
In 2000, the International Career Specialists office was closed and
the balance of its contracts transferred to head office. Also in
2000, the start-up operations of E-wink were abandoned.
9. OTHER ASSETS
March 31, December 31,
2002 2001
$ $
Deferred development cost 66,671 993,765
Deferred financing costs 100,000 --
Deferred contract(net of accumulated
amortization of $640,000) 200,000 250,000
Cash surrender value of life insurance 45,284 43,945
--------- ---------
411,955 1,287,710
========== ==========
Amortization for the three months ended March 31, 2002 amounted to $117,600.
Amortization for the year ended December 31, 2001 amounted to $510,038.
10. BANK INDEBTEDNESS
i) March 31, 2002
At March 31, 2002, the Company had $4,200,000 outstanding with Bank One. The
revolving line of credit provided for a maximum borrowing amount of
$4,700,000 at variable interest rates based on eligible accounts receivable.
The revolving line of credit agreement requires the Company to meet various
restrictive covenants, including a senior debt to EBITDA ratio, debt service
coverage ratio, debt to tangible net worth ratio and certain other
covenants. At March 31, 2002 and thereafter, the Company was not in
compliance with the covenants contained in the revolving line of credit
agreement. Bank One has indicated its intention to enter into a forbearance
agreement with the Company in which the bank would refrain from exercising
any rights or remedies based on existing or continuing defaults, including
accelerating the maturity of the loans under the credit facility.
ii) December 31, 2001
At December 31, 2001, the Company had $4,870,000 outstanding with Bank One.
The revolving line of credit provided for a maximum borrowing amount of
$4,760,000 at variable interest rates based on eligible accounts receivable.
At December 31, 2001, the Company had an overdraft of $110,000. The Company
does not have an authorized overdraft facility with Bank One, however the
bank has allowed an overdraft of up to $500,000 on a regular basis for
approximately ten weeks. At December 31, 2001 and thereafter, the Company
was not in compliance with the covenants contained in the revolving line of
credit agreement.
As a result of the default on the loan covenants governing our credit line
facility, Bank One restricted our repayment of certain subordinated loans
and notes payable. The parties affected by this restriction, included the
Business Development Bank of Canada, Roger Walters and Denise Dunne.
-19-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
11. LONG-TERM DEBT
i) March 31, 2002
At March 31, 2002, the Company had $402,670 in subordinated debt outstanding
to the Business Development Bank of Canada. The loan agreements require the
Company to meet a certain working capital ratio. At March 31, 2002 and
thereafter, the Company was not in compliance with the covenant contained in
the loan agreements. In March 2002, the company began principal repayment of
its subordinated loans with the Business Development Bank of Canada after a
nine month deferment. Also in March 2002, the Business Development Bank
consolidated the Company's loans and established a new repayment schedule
with extended maturity dates. The company is current in its interest
obligations.
ii) December 31, 2001
At December 31, 2001, the Company had $419,079 in subordinated debt
outstanding to the Business Development Bank of Canada. At December 31, 2001
and thereafter, the Company was not in compliance with the covenant
contained in the loan agreements. The Business Development Bank of Canada
agreed to postpone principal repayment of its subordinated loans until March
2002.
March 31, December 31,
2002 2001
$ $
a) Included therein:
Several loans with Business Development Bank of
Canada ("BDC") secured by a general security
agreement at various interest rates and royalties. 402,670 419,079
A loan with Bank One that was payable in 19
remaining monthly payments of $13,889 with interest
at 6% at December 31, 2001. In March 2002, this
loan was paid in full. -- 263,889
Various capital leases with various payment terms
and interest rates 444,714 427,749
---------- ----------
847,384 1,110,717
Less: current portion 368,044 528,285
---------- ----------
$ 479,340 $ 582,432
========== ==========
b) Future principal payments obligations as at March 31, 2002, were as
follows:
2002 $ 362,175
2003 325,838
2004 139,841
2005 15,712
2006 3,818
----------
847,384
==========
-20-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
c) Interest expense with respect to the long-term debt amounted to $21,638
for the three months ended March 31, 2002. ($99,651 for the year ended
December 31, 2001).
d) Pursuant to the BDC loan agreement, BDC has the option to acquire 22,122
common stock for an aggregate consideration of $1. The fair market value
of these options at the time of issuance was $62,393 ($2.82 per option).
The imputed discount on these options has been amortized over the term
of the loan as interest and was fully amortized prior to January 1,
1999. The options were exercised in July 2001.
12. NOTES PAYABLE
In September 2001, the Company restructured its note payable to Roger
Walters, the vendor of Cad Cam Inc. The principal was reduced from
$1,200,000 to $750,000 in consideration of capital stock payable of
$450,000. In addition, all principal payments were postponed until
January 1, 2002 at which time, the Company began making principal
payments of $12,500 per month plus interest at 4.5% until December 31,
2006.
In September 2001, the Company restructured its note payable to Denise
Dunne, the vendor of MicroTech Professionals Inc. The principal was
reduced from $1,965,000 to $1,740,000 in consideration of capital stock
payable of $225,000. In addition, all principal payments were postponed
until January 1, 2003, at which time, the Company will pay $20,000 per
month plus interest at 5% until December 31, 2006. The balance of
$781,287 will be due on January 1, 2007. The Company is currently making
interest payments of $14,397 per month until December 30, 2002.
Subsequent to March 31, 2002, the Company restructured its note payable
to Denise Dunne, reducing the principal from $1,740,536 to $990,536 in
consideration of the issuance of 2,000,000 shares of its common stock.
The Company will continue to make monthly interest payments of $14,397
until December 31, 2002. Beginning January 1, 2003, the Company will
begin monthly principal payments of $15,000 with interest at 4.2%. The
loan will mature January 1, 2007 at which time the remaining principal of
$270,536 will be due.
March 31, December 31
2002 2001
$ $
Note Payable to Roger Walters 712,500 750,000
Note Payable to Denise Dunne 1,740,000 1,740,000
---------- ----------
2,452,500 2,490,000
Less: current portion 150,000 150,000
---------- ----------
2,302,500 $2,340,000
========== ==========
c) Capital repayments as at March 31, 2002
2002 112,500
2003 390,000
2004 390,000
2005 390,000
2006 390,000
2007 780,000
----------
$2,452,500
==========
-21-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
13. CAPITAL STOCK
a) Authorized
30,000,000 Common stock, no par value (15,000,000 at December 31, 2000)
1,000,000 Preferred stock, issuable in series,
rights to be determined by the Board of Directors
b) Issued
On June 8, 1999, the company was successful in its Initial Public
Offering. 1,100,000 common stock were issued at an issuance price of
$5.00 per share. Net proceeds received, after all costs, was $3,442,683.
The company trades on Nasdaq under the trading symbol "THTH". As part of
the Initial Public Offering, the underwriters exercised the over-
allotment, resulting in 107,000 common stock being issued for net
proceeds of $465,000. Deferred costs of $1,351,365, which were incurred
as part of the completion of the Initial Public Offering, have been
applied against the proceeds raised by the offering, and are included in
the net proceeds.
On June 30, 1999, 163,767 common stock were issued in conjunction with
the acquisition of Cad Cam Inc., with a carrying value of $500,000.
During 2000, the company effected two acquisitions accounted for as
pooling of interest and therefore the capital stock of the company
outstanding at January 1, 1999 and December 31, 1999 have been restated
to reflect the aggregate capital stock and shareholder equity amounts as
follows:
# $
Original Balance as of December 31, 1998 1,717,875 1,448,368
Issuance of Shares for pooling of interest 777,260 344,576
--------- ---------
Revised Balance as of December 31, 1998 2,495,135 1,792,944
========= =========
As part of the acquisition of ObjectArts Inc., the company issued 196,800
common shares for a total consideration of $837,151 on the conversion of
debt to common shares.
On April 25, 2000, 133,333 common stock were issued for the purchase of
MicroTech Professionals Inc., for a total consideration of $500,000.
During 2000, 300,000 common stock were issued as partial consideration
for the purchase of shares of E-Wink Inc. for a value of $975,000.
On August 22, 2000, 1,063,851 shares of common stock and 560,627 warrants
were issued in a private placement for net proceeds of $2,333,715 (gross
proceeds of $2,681,600).
During 2000, 3,533,111 common stock were issued for services rendered
totaling $3,160,288. An amount of $110,000 has been included in the
acquisition of MicroTech and the balance of $3,050,288 has been included
in financing expenses as of December 31, 2000.
During 2000, 1,694,343 common stock were issued on the conversion of
Preferred Stock.
The company has issued 1,800,000 common shares of the company in
consideration of services rendered related to the acquisition of various
subsidiaries. These shares are included in common stock issued in
consideration of services in the amount of $1,125,000 and have been
included in Acquisition costs and financing expenses for December 31,
2000.
On September 13, 2000, the Company. entered into an agreement with
Burlington Capital Markets Inc. to aid the company in further
acquisitions. A total of 425,000 common shares has been reflected as
issued for an aggregate cost of $717,250. This amount has been expensed
in the year ended December 31, 2000 and is included in Acquisition costs
and financing expenses.
-22-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
During January 2001, the Company agreed to issue 250,000 warrants to
acquire shares of the company at $1.50 and to re-price a total of 330,693
options to an exercise price of $1.00. In consideration of the foregoing,
a total of 275,000 shares were issued for an amount of $275,000 in cash.
The terms of the warrants are indicated in note 13(e). The value of the
repricing of the warrants and the new warrants issued have been treated
as the part of the allocation of the proceeds on the issuance of the
common stock.
On June 6, 2001, the Company amended its Articles of Organization to
increase its authorized common stock from 15,000,000 to 30,000,000.
During the year December 31, 2001, the Company issued 400,000 shares of
its common stock in consideration of $203,000 in cash.
During the year ended December 31, 2001, the Company issued 30,632 shares
of its common stock in consideration of legal services, 300,000 shares of
its common stock in consideration of investment banking services, 596,667
shares to reduce common stock payable of $709,005, and 93,883 shares in
settlement of accounts payable.
During the three months ended March 31, 2002, the Company issued 588,235
shares of its common stock as payment of an executive bonus, 1,756,655
shares to reduce common stock payable of $474,297, and 665,517 shares in
settlement of accounts payable.
c) Liabilities payable in common stock
During the year ended December 31, 2001, the company issued 316,667
shares to reduce a note payable of $625,000 to Denise Dunne related to
the purchase of MicroTech Professionals Inc. The company also issued
280,000 shares in relation to a settlement with an Njoyn employee. The
balance at December 31, 2001, represents $474,297 to Roger Walters in
settlement of a note payable, and $225,000 to Denise Dunne also in
settlement of a note payable.
During the three months ended March 31, 2002, the company issued
1,756,655 shares to reduce a note payable of $474,297 to Roger Walters
related to the purchase of CadCam Inc. The balance at March 31, 2002
represents $225,000 to Denise Dunne in settlement of a note payable.
d) Preferred Stock
On December 30, 1999, 15,000 shares of series A, 8% cumulative,
convertible, preferred stock, no par value were issued in a private
placement for gross proceeds of $1,500,000. The preferred stock are
convertible into common stock at the option of the holders under certain
conditions, at any time after the effective date of the registration
statement. The conversion price will be based on the trading price at
December 30, 1999 or 80% of the average of the ten trading days
immediately preceding the conversion of the respective shares of Series
A, preferred stock. The stockholders of the Series A, 8% cumulative,
convertible stock are entitled to receive preferential cumulative
quarterly dividends in cash or shares at a rate of 8% simple interest per
annum on the stated value per share. The intrinsic value of the
conversion price at date of issue was reflected as a dividend of
$138,000.
At any time after the effective date of the registration statement,
Thinkpath Inc. has the option to redeem any or all of the shares of
Series A, 8% cumulative, convertible, preferred stock by paying to the
holders a sum of money equal to 135% of the stated value of the aggregate
of the shares being redeemed if the conversion price is less than $2.00.
Thinkpath Inc. holds the option to cause the investors in the December
30, 1999 placement offering to purchase an additional $500,000 worth of
Series A, 8% cumulative, convertible, preferred stock upon the same terms
as described above. This right was exercised in July, 2000.
-23-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
On April 16, 2000, 2,500 shares of Series A, 8% cumulative, convertible,
preferred stock, no par value were issued in a private placement for
gross proceeds of $250,000. The proceeds have been reduced by any issue
expenses.
On April 16, 2000, 1,500 shares of Series B, 8% cumulative, convertible,
preferred stock, no par value were issued in a private placement for
gross proceeds of $1,500,000. The proceeds have been reduced by any issue
expenses.
On July 7, 2000, 5000 shares of series A, 8% cumulative, convertible,
preferred stock, no par value were issued in a private placement for
gross proceeds of $500,000. The proceeds have been reduced by any issue
expenses.
The preferred stock are convertible into common stock at the option of
the holders under certain conditions, at any time after the effective
date of the registration statement. As of December 31, 2000, 1,050 Series
A preferred stock and 750 Series B preferred stock were not yet converted
into common stock.
Pursuant to a share purchase agreement dated April 18, 2001, the Company
issued 1,105 shares of Series C 7% Cumulative Convertible Preferred Stock
(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
$1,000 per share) in full shares only, with a cash payment equal to any
fractional shares.
The number of shares of the Company's common stock into which the Series
C Preferred stock shall be convertible into that number of shares of
common stock equal to (i) the sum of (A) the stated value per share and
(B) at the holder's election, accrued and unpaid dividends on such share,
divided by (ii) the Conversion Price". The "Conversion Price" shall be
the lesser of (x) 87.5% of the average of the 5 lowest daily volume
weighted average prices of the Company's common stock during the period
of 60 consecutive trading days immediately prior the date of the
conversion notice; or (y) 90% of the average of the daily volume weighted
average prices during the period of the 5 trading days prior to the
applicable closing date ($.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.
During the year ended December 31, 2001, the Company issued 3,864,634
common stock on the conversion of 1,050 Series A preferred stock, 750
Series B preferred stock and 285 Series C preferred stock. The Company
paid dividends of $723,607 on the conversions.
During the three months ended March 31, 2002, the Company issued 541,593
common stock on the conversion of 65 Series C preferred stock. The
Company paid dividends of $21,617 on the conversions.
-24-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
The proceeds received on the issue of Class C preferred shares have been
allocated between the value of detachable warrants issued and the
preferred shares outstanding on the basis of their relative fair values.
Paid in capital has been credited by the value of the warrants and
retained earnings charged for the amount of preferred dividends
effectively paid. The conversion benefit existing at the time of issue of
the preferred Class C shares has been computed and this amount has been
credited to paid in capital for the Class C preferred shares and charged
to retained earnings as dividends on the Class C preferred shares.
e) Warrants
On December 30, 1999, 475,000 warrants were issued in conjunction with
the private placement of the Series A, preferred stock. They are
exercisable at any time and in any amount until December 30, 2004 at a
purchase price of $3.24 per share. These warrants have been valued at
$1,091,606 based on the Black Scholes model utilizing a volatility rate
of 100% and a risk-less interest rate of 6.33%. This amount has been
treated as a cumulative effect adjustment to retained earnings. For
purposes of earnings per share, this amount has been included with
preferred share dividend in the 2000 financial statements.
In connection with the Initial Public Offering, the underwriters received
110,000 warrants. They are exercisable at a purchase price of $8.25 per
share until June 1, 2004.
On April 16, 2000, we issued 50,000 warrants in connection with a private
placement of Series A stock and 300,000 warrants on the issue of Class B
preferred shares. The warrants were issued with a strike price of $3.71
and expire April 16, 2005. These warrants have been valued at $939,981
based on the Black Scholes model utilizing a volatility rate of 100% and
a risk-less interest rate of 6.18%. This amount has been treated as a
preferred share dividend in the 2000 financial statements.
In connection with the private placement of Series B preferred stock
225,000 warrants were issued. They are exercisable at a purchase price of
$3.58. These warrants have been valued at $533,537 based on the Black
Scholes model utilizing a volatility rate of 100% and a risk-less
interest rate of 6.13%. This amount has been treated as a preferred share
dividend in the 2000 financial statements.
In 2000, in connection with the purchase of the investment in E-Wink
500,000 warrants were issued. They are exercisable at a purchase price of
$3.25 and expire March 6, 2005. These warrants have been valued at
$1,458,700 based on the Black Scholes model utilizing a volatility rate
of 100% and a risk-less interest rate of 6.50%. This amount has been
treated as part of the cost of the E-Wink investment.
In 2000, in connection with the private placement of August 22, 2000,
560,627 warrants were issued. They are exercisable at a purchase price of
$2.46 and expire August 22, 2005. These warrants have been valued at
$1,295,049 based on the Black Scholes model utilizing a volatility rate
of 100% and a risk-less interest rate of 6.13%. This amount has been
treated as an allocation of the proceeds on the common stock issuance.
On January 26, 2001, the Company: (i) repriced warrants 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 280,693 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 warrants 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. In February
2001, 150,000 of such warrants were exercised by KSH Investment Group,
the placement agent in the Company's August 2000 private placement
offering. 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.
-25-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
Following verbal agreements in December 2000, on January 24, 2001, the
company signed an agreement with The Del Mar Consulting Group, a
California corporation, to represent us in investors' communications and
public relations with existing shareholders, brokers, dealers and other
investment professionals. The company issued a non-refundable retainer of
400,000 shares to Del Mar and are required to pay $4,000 per month for
on-going consulting services. In addition, Del Mar has a warrant to
purchase 400,000 shares of common stock at $1.00 per share and 100,000
shares at $2.00 which expires January 24, 2005 and which are exercisable
commencing August 1, 2001. As the agreement to issue the non- refundable
retainer was reached in December 2000, the 400,000 shares with a value of
$268,000 has been included in the shares issued for services rendered and
has been included in financing expenses for December 31, 2000. The
commitment to issue the non-refundable deposit was effected in December
2000. The value of the warrants of $216,348 has been included in paid in
capital in January 2001 and the expense is being reflected over the six
month period ending August 1, 2001. In April 2001, the warrants were
cancelled and new warrants were issued which are exercisable at $0.55.
200,000 of the warrants are exercisable commencing April 2001 and the
balance are exercisable commencing August 1, 2001. The value of the
change in the warrants of $29,702 has been included in the paid in
capital in April 2001 and the additional expense is being amortized in
the period to August 1, 2001.
During the year ended December 31, 2001, the Company issued 723,436
warrants to the Series C Preferred Stock investors of which 663,484 have
a strike price of $0.54 and expire on April 18, 2005. The balance of
59,952 have a strike price of $0.63 and expire on June 8, 2005.
During the year ended December 31, 2001, the company issued 22,122 shares
to the Business Development Bank of Canada on the exercise of warrants at
$1.00.
f) Stock Options
The company had outstanding stock options issued in conjunction with its
long-term financing agreements for 22,122 common stock which were
exercised in July 2001, the cost of which has been expensed prior to
January 1, 1999, and additional options issued to a previous employee of
the company for 200,000 shares exercisable at $2.10. of which 18,508 were
exercised during 2000. The balance of 181,492 are outstanding.
During 1999, 250,500 options to purchase shares of the company were
issued to related parties. The options are exercisable at $3.19.
In connection with the acquisition of Cad Cam Inc. 100,000 options to
purchase shares of the company were delivered in quarterly installments
of 25,000 options each, starting January 1, 2000. The exercise amounts
ranged from $2.12 to $3.25. The exercise price was amended to $1.00 and
these options will be exercisable between April 4, 2001 to 2004. The cost
of re-pricing of these options totaling $100,000 has been recorded in
Acquisition costs and financing expenses for the year ended December 31,
2000.
In July 1999, the directors of the company adopted and the stockholders
approved the adoption of the company's 1998 Stock Option Plan. In May
2000, the directors approved the adoption of the 2000 Stock Option Plan.
In June 2001, the directors approved the adoption of the 2001 Stock
Option Plan. Each of the plans provides for the issuance of 435,000
options with the following terms and conditions.
The plans are administrated by the Compensation Committee or the Board of
Directors, which determine among other things, those individuals who
shall receive options, the time period during which the options may be
partially or fully exercised, the number of common stock to be issued
upon the exercise of the options and the option exercise price.
-26-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
The plans are effective for a period of ten years and options may be
granted to officers, directors, consultants, key employees, advisors
and similar parties who provide their skills and expertise to the
company.
Options granted under the plans generally require a three year vesting
period, and shall be at an exercise price that may not be less than the
fair market value of the common stock on the date of the grant. Options
are non-transferable and if a participant ceases affiliation with the
company by reason of death, permanent disability or retirement at or
after age 65, the option remains exercisable for one year from such
occurrence but not beyond the option's expiration date. Other types of
termination allow the participant 90 days to exercise the option,
except for termination for cause which results in immediate termination
of the option.
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by the company become available again
for issuance under the plans, subject to applicable securities
regulation.
The plans may be terminated or amended at any time by the Board of
Directors, except that the number of common stock reserved for issuance
upon the exercise of options granted under the plans may not be
increased without the consent of the stockholders of the company.
Included in the options granted in 2000 were 260,000 options issued to
related parties in December 2000. The options are exercisable at $0.70
and expire December 2005.
14. RESTRUCTURING COSTS
At the end of December 31, 2001 the Company had a restructuring reserve
balance of $79,118 as a result of certain of the Company's actions to better
align its cost structure with expected revenue growth rates. The
restructuring activities related to the closure of one training location in
London, Ontario resulting in costs to sever 3 employees with long-term
contracts until December 2002 and the lease commitment for the premises in
London Ontario. These long-term contracts do not require the employees to
provide services until the date of involuntary termination. Other employees
at the London location, without contracts, were terminated during March 2001
and April 2001. In addition, in February 2001, the company began to close
down one of its research and development (R&D) offices in Toronto. The
company continued to terminate employees until April 2001.
The remaining accrual will be relieved throughout fiscal 2002 as severance
payments are completed. Details of the restructuring costs and reserve
balance is as follows;
Description Cash/ Reserve balance Restructuring Activity Reserve balance
non/cash December 31, 2001 Costs March 31, 2002
-------- ----------------- ----- -------- --------------
Severance packages
London-Training Cash 66,518 -- 28,872 37,646
- ------------------------------------------------------------------------------------------
Toronto-R&D Cash -- -- -- --
- ------------------------------------------------------------------------------------------
Lease cancellations
London-Training Cash 12,600 -- 12,600 --
Toronto-R&D Cash -- -- -- --
------- ------- ------- -------
Commitments 79,118 -- 41,472 37,646
======= ======= ======= =======
-27-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
15. DEFERRED INCOME TAXES AND INCOME TAXES
a) Deferred Income Taxes
The components of the future tax liability classified by source of
temporary differences that gave rise to the benefit are as follows:
March 31,
2002
$
Accounting amortization in excess of tax
amortization 9,875
Losses available to offset future income
taxes 2,959,414
Share issue costs 532,405
Adjustment cash to accrual method (496,879)
Investment tax credit --
---------
2,955,274
Less: Valuation allowance 3,155,595
---------
(150,380)
=========
As part of the acquisitions of Cad Cam Inc. and MicroTech Professionals
Inc., there was a change of control which resulted in the subsidiaries
being required to change from the cash method to the accrual method of
accounting for income tax purposes.
b) Current Income Taxes
Current income taxes consist of:
March 31,
2002
$
Amount calculated at Federal and
Provincial statutory rates (209,952)
----------
Increase (decrease) resulting from:
Permanent differences 160,411
Timing differences 24,131
----------
184,542
----------
Current income taxes (25,410)
==========
Issue expenses totaling approximately $1,300,000 may be claimed at the
rate of 20% per year until 2005. To the extent that these expenses create
a loss, the loss is available to be carried forward for seven years from
the year the loss is incurred. As the US subsidiaries have been acquired
by a non-US entity, the taxable income will be increased by approximately
$1,900,000 over the next three years as the company is required to change
its taxation method from the cash basis to the accrual basis. The company
has not reflected the benefit of utilizing non-capital losses totaling
approximately $7,800,000 in the future as a deferred tax asset as at
March 31, 2002. As at the completion of the March 31, 2002 financial
statements, Management believed it was more likely than not that the
results of future operations would not generate sufficient taxable income
to realize the deferred tax assets.
-28-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
16. OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the three months ended March 31, 2002:
Before Tax Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
Foreign currency translation adjustments (277,058) -- (277,058)
Adjustment to market value -- -- --
--------- ------- ---------
Other comprehensive income (loss) (277,058) -- (277,058)
========= ======== =========
Comprehensive income (loss) for the year ended December 31, 2001:
Before Tax Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
Foreign currency translation adjustments 209,506 - 209,506
Adjustment to market value (230,643) 69,193 (161,450)
--------- ------- ---------
Other comprehensive income (loss) (21,137) 69,193 48,056
========= ======== =========
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.
17. DISCONTINUED OPERATIONS
Effective March 1, 2002, the Company sold its technology division, Njoyn
Software Incorporated to Cognicase Inc., a Canadian company. Net proceeds
after broker fees were $1,320,000 of which the company received $800,000 in
cash and $550,000 worth of unrestricted common shares on closing. The shares
were sold on March 11, 2002 for value of $524,673. As part of the
transaction, Cognicase assumed all of the staff in the Company's technology
division. The company will not have future revenues from either its Njoyn or
Secondwave products and therefore the technology operations have been
reported as discontinued. Technology revenue for the three months ended March
31 was $42,000 for 2002 and $200,000 for 2001. The operating loss from the
technology division for the three months ended March 31 was $110,000 for 2002
and $80,000 for 2001. On disposal, Njoyn had approximately $950,000 in assets
consisting primarily of deferred development charges and approximately
$30,000 in liabilities consisting primarily of capital lease obligations. The
gain on disposal of $401,027 has been reflected in the Income (loss) from
discontinued operations. No income taxes have been reflected on this
disposition as the sale of the shares gives rise to a capital loss, the
benefit of which, is more likely than not to be realized.
18. SEGMENTED INFORMATION
a) Sales by Geographic Area
Three Months Three Months
Ended March 31, 2002 Ended March 31, 2001
-------------------- --------------------
$ $
Canada 3,469,731 3,869,460
United States of America 3,935,946 6,571,695
---------- ----------
7,405,677 10,441,155
========== ==========
b) Net Income (Loss) by Geographic Area
Three Months Three Months
Ended March 31, 2002 Ended March 31, 2001
-------------------- --------------------
$ $
Canada (106,835) (724,741)
United States of America (392,635) 234,445
---------- ----------
(499,470) (490,296)
========== ==========
-29-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
c) Identifiable Assets by Geographic Area
Three Months Year Ended
Ended March 31, 2002 December 31, 2001
-------------------- --------------------
$ $
Canada 5,665,206 4,995,715
United States of America 9,720,815 12,179,263
---------- ----------
15,386,021 17,174,978
========== ==========
d) Revenue and Gross Profit by Operating Segment
Three Months Three Months
Ended March 31, 2002 Ended March 31, 2001
-------------------- --------------------
$ $
Revenue
IT Recruitment 3,535,551 4,454,688
Tech Pubs and Engineering 3,073,331 3,781,473
IT Documentation 405,496 1,286,774
Training 391,299 918,220
---------- ----------
7,405,677 10,441,155
========== ==========
Gross Profit
IT Recruitment 703,427 1,291,513
Tech Pubs and Engineering 932,355 1,059,962
IT Documentation 107,126 716,546
Training 164,367 540,371
---------- ----------
1,907,275 3,608,392
========== ==========
e) Revenues from Major Customers
The consolidated entity had the following revenues from major Customers:
For the three months ended March 31, 2002, one customer had sales of
$2,052,787 which represents approximately 28% of total revenues.
For the year ended December 31, 2001, one customer had sales of
$6,800,000 which represents approximately 18% of total revenues.
f) Purchases from Major Suppliers
There were no significant purchases from major suppliers.
-30-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
19. EARNINGS PER SHARE
The company has adopted Statement No. 128, Earnings Per Share, which
requires presentation, in the consolidated statement of income, of both
basic and diluted earnings per share.
March 31, March 31,
2002 2001
$ $
Average common stock outstanding 17,640,438 13,025,123
Average common stock issuable -- --
---------- -----------
Average common stock outstanding
assuming dilution 17,641,438 13,025,123
========== ==========
The outstanding options and warrants were not included in the computation of
the fully diluted earnings per common share as the effect would be
anti-dilutive.
The earnings per share calculation (basic and fully diluted) does not
include any common stock for common stock payable as the effect would be
anti-dilutive.
20. STOCK OPTION PLANS
a) Options outstanding
OPTIONS WEIGHTED
AVERAGE
EXERCISE
PRICE
------- --------
Options outstanding at December 31, 2000 1,419,617 2.21
Options granted to key employees and directors 35,000 .68
Options granted to consultant 50,000 .70
Options exercised during the year (22,125) .01
Options forfeited during the year (257,500) 3.21
Options expired during the year -
---------
Options outstanding at December 31, 2001 1,224,992
=========
Options granted to key employees and directors -
Options granted to consultant -
Options exercised during the period -
Options forfeited during the period (27,500) 3.22
Options expired during the year -
---------
Options outstanding at March 31, 2002 1,197,492
=========
Options exercisable December 31, 2000 714,117 1.95
Options exercisable December 31, 2001 1,059,659 1.75
Options available for future grant December 31, 1999 184,500
Options available for future grant December 31, 2000 --
Options available for future grant December 31, 2001 261,500
During the three months ended March 31, 2002, 27,500 options exercisable
at between $3.19 and $3.25 have been forfeited by employees following
their termination and the expiry of their option periods to April 16,
2002.
-31-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
b) Range of Exercise Prices at December 31, 2001
Outstanding Weighted Options Options Weighted
Options Average Outstanding exercisable Average
Remaining Average Exercise
Life Exercise Price Price
------- ------- ----------- ----------- -------
$2.10 - $3.25 679,992 2.73 years $2.88 514,659 $2.80
$1 and under 545,000 3.06 years $0.75 545,000 $0.75
c) Pro-forma net income
The company applies Accounting Principles Board Opinion No. 25,
"Accounting of Stock Issued to Employees" and related interpretation in
accounting for its stock option plans. Accordingly, no compensation cost
has been recognized for such plans. Had compensation cost been
determined, based on the fair value at the grant dates for options
granted during 2001, 2000 and 1999, consistent with the method of SFAS
No.123, "Accounting for Stock-Based Compensation," the Company's pro
forma net earnings and pro forma earnings per share for the years ended
December 31, 2001 and 2000 would have been as follows:
2001 AS 2001
REPORTED PRO FORMA
-------- ---------
Net loss (9,683,442) (10,128,562)
Net loss after preferred
share dividends (10,412,182) (10,857,302)
Basic and fully diluted
Loss per share (0.65) (0.68)
loss per share after
preferred dividends (0.70) (0.73)
d) Black Scholes Assumptions
The fair value of each option grant used for purposes of estimating the
pro forma amounts summarized above is estimated on the date of grant
using the Black-Scholes option price model with the weighted average
assumptions shown in the following table:
2001 GRANTS
-----------
Risk free interest rates 4.76%
Volatility factors 100%
Weighted average expected life 4.90 years
Weighted average fair value per share .74
Expected dividends ------
-32-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
21. SUPPLEMENTAL INFORMATION
a) MicroTech Professionals Inc. acquisition
The following represents that results of operations as though MicroTech
had been acquired as of January 1, 2000 and as of January 1, 1999.
December 31, 2000 December 31, 1999
Revenue 45,788,302 32,173,548
Net income (8,483,765) 402,430
Earnings per share (2.17) .08
Earnings per share - fully diluted (2.17) .07
b) TidalBeach Inc. pooling of interests
The results of operations include the following amounts for the period
prior to the combination of TidalBeach Inc. on November 15, 2000
Revenue $ 657,715
Net income $ 158,039
There are no inter-company transactions and no adjustments have been
required to adopt the same accounting practices or combine the net income
of the combining companies
Reconciliation of revenue and net income(loss) previously reported
December 31, 1999 Previously ObjectArts TidalBeach Restated
Reported
----------------- ---------- ---------- ---------- --------
Revenue 19,822,861 6,599,496 610,078 27,032,435
Net income(loss) 228,720 (251,128) 17,085 (5,323)
22. CONTINGENCIES
a) Lease Commitments
Minimum payments under operating leases for premises occupied by the
company and its subsidiaries offices, located throughout Ontario, Canada
and the United States, exclusive of most operating costs and realty
taxes, as at March 31, 2002 for the next five years are as follows:
2002 $1,160,000
2003 730,000
2004 695,000
2005 695,000
2006 570,000
Thereafter 515,000
--------
$4,365,000
==========
-33-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
23. SUBSEQUENT EVENTS
On April 4, 2002, the Company retained Johnston & Associates, LLC, a
Washington company, to provide strategic governmental relations
counseling and marketing representation before the Department of Defense,
Congress and targeted companies in connection with marketing the services
of the Company's engineering operations related to specific government
contracts. Johnston & Associates will be compensated at a rate of $10,000
per month for twelve months beginning April 2002 and ending March 31,
2003. In addition, Johnston & Associates will receive 200,000 warrants of
the Company's common stock at the fair market value on the date of grant
and will vest at 50% per year.
On April 8, 2002, the Company closed its Etobicoke office and sold
certain assets of Systemsearch Consulting Services Inc. to its prior
owner in consideration of the assumption of the lease and certain
liabilities. Existing contracts were transferred to another office and
all sales and administrative staff were terminated.
On April 25, 2002, the Company received a letter of intent from Aithent,
Inc. for debt financing of $1,000,000 with a maturity of three years with
interest of 8%. Under the agreement the Company will be obligated to
issue 5 million, 5 year warrants exercisable as follows: a) 1,250,000
warrants with exercise price of $0.12; b) 1,250,000 warrants with
exercise price of $0.20; c) 1,250,000 warrants with exercise price of
$0.30; and, d) 1,250,000 warrants with exercise price of $0.40. Aithent
will have an option to exercise up to 1,000,000 warrants within 12 months
from closing and the balance thereafter. Under the agreement, the Company
will be obligated to provide certain IT services contracts to Athient
with an aggregate total minimum value as follows: i) $7 Million within a
period of 12 months from date of closing; ii) $15 Million within 24
months from date of closing; and iii) $25 Million within 36 months from
date of closing. Athient is currently conducting due diligence. This
letter of intent is non-binding.
On April 26, 2002, Ronan McGrath resigned from the Board of Directors as
a result of changes in corporate policy from his employer regarding
outside directorships.
Effective April 30, 2002, the Company restructured its note payable to
Denise Dunne, reducing the principal from $1,740,536 to $990,536 in
consideration of the issuance of 2,000,000 shares of its common stock.
The Company will continue to make monthly interest payments of $14,397
until December 31, 2002. Beginning January 1, 2003, the Company will
begin monthly principal payments of $15,000 with interest at 4.2%. The
loan will mature January 1, 2007 at which time the remaining principal of
$270,536 will be due.
On May 1, 2002, the Company finalized an agreement with triOS Training
Centres Limited, an Ontario company, for the purchase of certain assets
of the Toronto training division, Thinkpath Training for a nominal amount
of cash and the assumption of all prepaid training liabilities. As part
of the transaction, triOS assumed the Toronto training staff and will
sublet the classroom facilities.
24. FINANCIAL INSTRUMENTS
a) Credit Risk Management
The company is exposed to credit risk on the accounts receivable from its
customers. In order to reduce its credit risk, the company has adopted
credit policies which include the analysis of the financial position of
its customers and the regular review of their credit limits. In some
cases, the company requires bank letters of credit or subscribes to
credit insurance.
b) Concentration of Credit Risk
The company does not believe it is subject to any significant
concentration of credit risk. Cash and short-term investments are in
place with major financial institutions, North American Government, and
major corporations.
c) Interest Risk
The long-term debt bears interest rates that approximate the interest
rates of similar loans. Consequently, the long-term debt risk exposure is
minimal.
-34-
THINKPATH INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(AMOUNTS EXPRESSED IN US DOLLARS)
d) Fair Value of Financial Instruments
The carrying value of the accounts receivable, bank indebtedness, and
accounts payable on acquisition of subsidiary company approximates the
fair value because of the short-term maturities on these items.
The carrying amount of the long-term assets approximates the fair value
of these assets.
The fair value of the company's long-term debt is estimated on the quoted
market prices for the same or similar debt instruments. The fair value of
the long-term debt approximates the carrying value.
25. COMPARATIVE FIGURES
Certain figures in the March 31, 2001 financial statements have been
reclassified to conform with the basis of presentation used in March 31,
2002.
-35-
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 Inc. contained elsewhere in this Form 10-Q.
The statements contained in this Form 10-Q 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 Inc.'s expectations, intentions, beliefs or
strategies regarding the future. Forward-looking statements include Thinkpath
Inc.'s statements regarding liquidity, anticipated cash needs and availability
and anticipated expense levels. All forward-looking statements included in this
Form 10-Q are based on information available to Thinkpath Inc. on the date
hereof, and Thinkpath Inc. assumes no obligation to update any such
forward-looking statement. It is important to note that Thinkpath Inc.'s actual
results could differ materially from those in such forward-looking statements.
All dollar amounts stated throughout this Form-10Q are in United States dollars
unless otherwise indicated. Unless otherwise indicated, all reference to
"Thinkpath," "us," "our," and "we," refer to Thinkpath Inc. and its
subsidiaries.
Overview
We are a global provider of technological solutions and services in
engineering knowledge management including design, drafting, technical
publishing, e-learning and staffing. Our customers include Department of Defense
contractors, aerospace, automotive and financial services companies, Canadian
and American governmental entities and large multinational companies, including
Lockheed Martin, General Dynamics, General Electric, General Motors, Ford
Motors, Goldman Sachs, CIBC and EDS Canada Inc.
Critical Accounting Policies
On December 12, 2001, the Securities and Exchange Commission issued
FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting
Policies, which encourages additional disclosure with respect to a company's
critical accounting policies, the judgments and uncertainties that affect a
company's application of those policies, and the likelihood that materially
different amounts would be reported under different conditions and using
different assumptions.
Management is required to make certain estimates and assumptions during
the preparation of our consolidated financial statements in accordance with
GAAP. These estimates and assumptions impact the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities as of the date
of the consolidated financial statements. They also impact the reported amount
of net earnings during any period. Actual results could differ from those
estimates. Certain of our accounting policies and estimates have a more
significant impact on our financial statements than others, due to the magnitude
of the underlying financial statement elements.
Consolidation
Our determination of the appropriate accounting method with respect to
our investments in subsidiaries is based on the amount of control we have,
combined with our ownership level, in the underlying entity. Our consolidated
financial statements include the accounts of our parent company and our
wholly-owned subsidiaries. All of our investments are accounted for on the cost
method. If we had the ability to exercise significant influence over operating
and financial policies, but did not control, we would account for these
investments on the equity method.
Accounting for an investment as either consolidated or by the equity
method would have no impact on our net income (loss) or stockholders' equity in
any accounting period, but would impact individual income statement and balance
sheet items, as consolidation would effectively "gross up" our income statement
and balance sheet. However, if control aspects of an investment accounted for by
the cost method were different, it could result in us being required to account
for an investment by consolidation or the equity method. Under the cost method,
the investor only records its share of the underlying entity's earnings to the
extent that it receives dividends from the investee; when the dividends received
exceed the investee's earnings subsequent to the date of the investor's
investment, the investor records a reduction in the basis of its investment.
Under the cost method, the investor does not record its share of losses of the
investee. Conversely, under either consolidation or equity method accounting,
the investor effectively records its share of the underlying entity's net income
or loss, to the extent of its investment or its guarantees of the underlying
entity's debt.
At March 31, 2002, all of our investments in non-related companies
totaling $1,013,926 were accounted for using the cost method. Accounting for an
investment under either the equity or cost method has no impact on evaluation of
impairment of the underlying investment; under either method, impairment losses
are recognized upon evidence of permanent losses of value.
-36-
Revenue Recognition
We recognize revenue in accordance with Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements, which has four basic criteria
that must be met before revenue is recognized:
- - Existence of persuasive evidence that an arrangement exists;
- - Delivery has occurred or services have been rendered;
- - The seller's price to the buyer is fixed and determinable; and
- - Collectibility is reasonably assured.
Our various revenue recognition policies are consistent with these
criteria. We have developed proprietary technology in two areas: human capital
management and Web development. Njoyn is a Web-based human capital management
system that automates and manages the hiring process. The revenue associated
with providing this software is allocated to an initial set-up fee,
customization and training as agreed with the customer and an ongoing monthly
per user fee. The allocation of revenue to the various elements is based on our
determination of the fair value of the elements as if they had been sold
separately. The set-up fee and customization revenue is recognized upon delivery
of access to the software with customization completed in accordance with
milestones determined by the contract. Revenue for the training is recorded as
the services are rendered and the ongoing monthly fee is recorded each calendar
month. There is no additional fee charged to customers for hosting.
Effective March 1, 2002, we sold our technology division, Njoyn
Software Incorporated to Cognicase Inc, a Canadian company. As part of the
transaction, Cognicase assumed all of the eight staff in our technology division
and is contracting the services of our Chief Information Officer for a period of
six months. Revenue from Njoyn represented less than 1% of total revenue for the
three months ended March 31, 2002, and 2001. As a result of the sale to
Cognicase, we will not have future revenues from Njoyn and the operations have
been reported as discontinued.
The second technology, SecondWave is a Web development product that
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. We enter into
contracts for the customization or development of SecondWave in accordance with
specifications of our customers. The project plan defines milestones to be
accomplished and the costs associated with this project. These amounts are
billed as they are accomplished and revenue is recognized as the milestones are
reached. The work in progress for costs incurred beyond the last accomplished
milestone is reflected at the period end. To date these amounts have not been
material and have not been set up at the period ends. The contracts do not
include any post-contract customer support. Additional customer support services
are provided at standard daily rates, as services are required.
Revenue from SecondWave represented less than 1% of total revenue for
the three months ended March 31, 2002 and 2001. As part of the sale of Njoyn,
Cognicase Inc. assumed all of our technology staff. As a result, we do not
anticipate future revenues from SecondWave Inc and the operations have been
reported as discontinued.
Carrying Value Goodwill and Intangible Assets
Prior to January 1, 2002, our goodwill and intangible assets were
accounted for in accordance with Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. This statement required us to evaluate the carrying
value of our goodwill and intangible assets when indicators of impairment were
present. Impairment losses were recorded when estimates of undiscounted future
cash flows were less than the value of the underlying asset. The determination
of future cash flows or fair value was based upon assumptions and estimates of
forecasted financial information that may differ from actual results. If
different assumptions and estimates were used, carrying values could be
adversely impacted, resulting in write downs that would adversely affect our
earnings. In addition, we amortized our goodwill balances on a straight-line
basis over 30 years. The evaluation of the useful life of goodwill required our
judgment, and had we chosen a shorter time period over which to amortize
goodwill, amortization expense would have increased, adversely impacting our
operations. As of March 31, 2002, we had goodwill of $5,128,991. At December 31,
2001, we recorded an impairment of goodwill of $3,001,391 based on our
evaluation of carrying value and projected cash flows.
Effective January 1, 2002, we adopted Statements of Financial
Accounting Standards No. 141, Business Combinations, No. 142, Goodwill and Other
Intangible Assets and No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. These statements require us to evaluate the carrying value of
our goodwill and intangible assets based on assumptions and estimates of fair
value and future cash flow information. These assumptions and estimates may
differ from actual results. If different assumptions and estimates are used,
carrying values could be adversely impacted, resulting in write downs that could
adversely affect our earnings. We will perform the first of the required
impairment tests of goodwill in 2002, and we have not yet determined the effect
of these tests on our earnings and financial position. In addition, under these
statements, goodwill will no longer be amortized, which will benefit our 2002
net income by approximately $454,908.
-37-
Subsequent to March 31, 2002, we initiated additional restructuring
of operations in response to reduced sales in the technology, training and
recruitment divisions. As a result, an additional sixteen employees were
terminated. In addition, we closed one of our recruitment offices, Systemsearch
Consulting Services Inc., and transferred the existing contracts to another
recruitment office. Eight employees were terminated. The prior owner of
Systemsearch, John Wilson, was also terminated. Mr. Wilson will be subletting
the space from us in consideration of certain assets including furniture and
equipment. We do not anticipate a material effect on our recruitment revenue as
a result of the closure of this office, as the contracts are long-term and will
be managed from another office.
On April 10, 2002, we entered into a series of agreements with triOS
Training Centres Limited, an Ontario company, for the purchase of certain assets
of our Toronto training division, Thinkpath Training. As part of the
transaction, triOS will assume the Toronto training staff of six and sublet the
classroom facilities. As a result of the sale of this office, our revenue will
decline by approximately $1,000,000. Revenue from this office represented
approximately 2% and 3% respectively of the total revenue for the three months
ended March 31, 2002 and 2001.
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.
The Three Months Ended March 31, 2002 Compared to the Three Months ended
March 31, 2001
Revenue
For the three months ended March 31, 2002, we derived 53% of our
revenue in the United States compared to 63% for the three months ended March
31, 2001. The decrease in the total revenue derived from the United States is a
result of the increase in IT Recruitment sales in Canada and the decrease in
Technical Training and IT Documentation sales in the United States.
For the three months ended March 31, 2002, our primary source of
revenue was recruitment, representing 48% of total revenue compared to 43% for
the three months ended March 31, 2001. Recruitment revenue for the three months
ended March 31, 2002 decreased $915,000 or 21% to $3,535,000 compared to
$4,450,000 for the three months ended March 31, 2001. The decrease in
recruitment revenue is a result of cutbacks and reduced hiring in the
telecommunications, network and financial services industries. Our recruitment
division has preferred supplier agreements with AT&T, Rogers Communications,
Sprint Canada and several Canadian banks.
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. The revenue for
retained searches is recognized upon candidates' acceptance of employment.
Selected recruitment customers include Fujitsu, Bank of Montreal, EDS
Canada Inc., 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 customer's management. Generally, we
enter into a time-and-materials contract with our customer whereby the customer
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 customers to secure a larger percentage of those customers' 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 customers.
For the three months ended March 31, 2002, 41% of our revenue came
from engineering services including technical publications, engineering design
and e-learning compared to 36% for the three months ended March 31, 2001.
Revenue from engineering services for the three months ended March 31, 2002
decreased $710,000 or 19% to $3,070,000 compared to $3,780,000 for the three
months ended March 31, 2001. Although the majority of our revenue continues to
come from IT Recruitment, our focus is on growing the engineering services
division. In particular, we are focused on expanding into the defense, aerospace
and automotive industries and leveraging off existing engineering customers to
secure new technical publication and e-learning business.
The decline in revenue from engineering services is the result of the
postponement of start dates of several major contracts with established
customers. Many of these contracts were awarded in 2001, but were postponed as a
result of the general economic slowdown. After the events of September 11, 2001,
some of these contracts, which consist primarily of defense work for military
suppliers to the United States government, commenced immediately. The combined
revenue from these contracts over the next twelve months is anticipated to be
between $6,000,000 and $10,000,000 and we believe they will re-establish
engineering services as our primary source of revenue in 2002.
-38-
Our engineering services include the complete planning, staffing,
development, design, implementation and testing of a project. It can also
involve enterprise-level planning and project anticipation. Our specialized
engineering services include: technical publications, design, e-learning and Web
development. We outsource our technical publications and engineering services on
both a time and materials and project basis. For project work, the services
provided are defined by guidelines to be accomplished by milestone and revenue
is recognized upon the accomplishment of the relevant milestone. As services are
rendered, the costs incurred are reflected as Work in Progress. Revenue is
recognized upon the persuasive evidence of an agreement, delivery has occurred,
the fee is fixed or determinable and collection is probable. Customers we
provide engineering services to include General Dynamics, General Electric,
General Motors, Lockheed Martin, Boeing, Caterpillar, and Cummins Engines.
For the three months ended March 31, 2002, information technology
documentation services represented approximately 5% of our revenue compared to
12% for the three months ended March 31, 2001. Revenue from information
technology documentation services for the three months ended March 31, 2002
decreased $885,000 or 69% to $405,000 compared to $1,290,000 for the three
months ended March 31, 2001.
The substantial decrease in revenue from information technology
documentation services is primarily due to the loss of sales personnel and the
general economic slowdown in this industry. This division offers a very
specialized service, and relied on several key customers in a very localized
market. Many of these customers have either cancelled projects or have put a
number of their projects on hold. In response to these conditions, we have
recently expanded the marketing of our documentation services to other regions
and to existing recruitment and engineering services customers. In addition, we
have reduced our operating overheads for this division to support the current
levels of revenue.
We provide outsourced information technology documentation services
in two ways: complete project management and the provision of skilled project
resources to supplement a customer's internal capabilities. Revenue is
recognized on the same basis as technical publications and engineering
outsourcing services. Selected information technology documentation services
customers include Fidelity Investments, SMD Tech Aid Corporation, CDI
Corporation, and the Gillette Company.
For the three months ended March 31, 2002, technical training
represented approximately 5% of our revenue compared to 9% for the three months
ended March 31, 2001. Revenue from technical training for the three months ended
March 31, 2002 decreased $530,000 or 58% to $390,000 compared to $920,000 for
the three months ended March 31, 2001.
The decline in revenue from technical training is the result of
several factors: the significant restructuring of this division, including the
termination of 12 sales employees; a general decline in the industry resulting
in the cancellation or postponement of technical training contracts; and, the
events of September 11, 2001 which resulted in the temporary closure of our New
York technical training office and the loss of approximately $300,000 in revenue
for the period. In response to these conditions, we continue to reduce our
operating overheads for this division to support the current levels of revenue.
We do not intend to invest additional capital into this division to increase
revenue to historical levels.
Our training services include 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 customers include Microsoft,
Chase Manhattan Bank, Goldman Sachs, City of New York and Consumers Gas. Revenue
is recognized on delivery of services.
Technology revenue for the three months ended March 31, 2002
decreased $160,000 or 80% to $40,000 compared to $200,000 for the three months
ended March 31, 2001. The decrease in technology sales represents the
integration of the Secondwave technology group into Njoyn and the resulting
decrease in Secondwave sales. Pursuant to the sale of Njoyn Software
Incorporated to Cognicase Inc. on March 1, 2002, and their assumption of all of
our technology staff, we do not anticipate ongoing revenue from the technology
division and these operations have been reported as discontinued.
-39-
Gross Profit
Gross profit is calculated by subtracting all direct costs from net
revenue. The direct costs of contract recruitment include contractor fees and
benefits. Gross profit for information technology recruitment services for the
three months ended March 31, 2002 declined to 20% from 29% for the three months
ended March 31, 2001. The decline in gross profit is a result of becoming a
preferred vendor for information technology contract recruitment services. In
order to beat the competition, it is often necessary to lower billing rates and
markups to be successful in the bid process. We do not attribute any direct
costs to permanent placement services, therefore the gross profit on such
services is 100% of revenue. Revenue from permanent placements has declined from
last year, and has therefore contributed to the decline in gross profit.
The direct costs of technical publications and engineering services
include wages, benefits, software training and project expenses. The average
gross profit for this division was 30% for the three months ended March 31, 2002
compared to 28% for the three months ended March 31, 2001. The increase in gross
profit for technical publications and engineering services, is a result of the
increase in higher margin contracts in technical publications and e-learning
compared to the traditional engineering services. In addition, we are engaging
in more time and materials based contracts versus fixed cost which prevents
against project and costs overruns.
The direct costs of information technology documentation services
include contractor wages, benefits, and project expenses. The average gross
profit for the three months ended March 31, 2002 was 26% compared to 56% for the
three months ended March 31, 2001. The decline in gross profit in the current
period is a result of the decrease in higher margin permanent placements and
increase in lower margin contract placements of documentation specialists.
The direct costs of training include courseware and trainer salaries,
benefits and travel. The average gross profit was 42% for the three months ended
March 31, 2002 compared to 59% for the three months ended March 31, 2001. The
decrease in gross profit is a result of higher trainer travel costs and the
higher utilization of contract trainers as a result of the downsizing of
internal staff that occurred in the later half of last year.
The direct costs of our technology services include hosting fees and
software expenses. Pursuant to the sale of Njoyn Software Incorporated to
Cognicase Inc. on March 1, 2002, and their assumption of all of our technology
staff, these operations have been reported as discontinued.
Results of Operations
Revenue. Revenue for the three months ended March 31, 2002 decreased by
$3,030,000 or 29%, to $7,410,000, as compared to $10,440,000 for the three
months ended March 31, 2001. The decrease is primarily attributable to the
decline in revenues from our technical publications and engineering, information
technology documentation and training divisions of 19%, 69% and 58%
respectively.
Cost of Sales. The cost of sales for the three months ended March 31,
2002 decreased by $1,350,000, or 20%, to $5,500,000, as compared to $6,850,000
for the three months ended March 31, 2001. The cost of sales as a percentage of
revenue, increased to 74% compared to 66% for the three months ended March 31,
2001. The increase in cost as a percentage of sales corresponds with the
increase in lower margin IT recruitment sales.
Gross Profit. Gross profit for the three months ended March 31, 2002
decreased by $1,690,000, or 47%, to $1,910,000 compared to $3,600,000 for the
three months ended March 31, 2001. This decrease was attributable to the overall
decrease in revenue and the increase in cost of sales during the three months
ended March 31, 2002. As a percentage of revenue, gross profit decreased from
34% for the three months ended March 31, 2001 to 26% for the three months ended
March 31, 2000. This decrease in gross profit is a direct result of the increase
in direct costs associated with IT recruitment sales.
Expenses. Expenses for the three months ended March 31, 2002 decreased
by $1,100,000 or 31% to $2,490,000 compared to $3,590,000 for the three months
ended March 31, 2001. Administrative expenses decreased $130,000 or 10% to
$1,150,000 compared to $1,280,000 for the three months ended March 31, 2001.
This decrease is related to the reduction of administrative salaries and
overhead as a result of restructuring and general cost reduction. Selling
expenses for the three months ended March 31, 2002 decreased by $540,000 or 34%
to $1,040,000 from $1,580,000 for the three months ended March 31, 2001. This
decrease is attributable to the decrease in sales salaries and commissions, as a
result of the reduction in sales. For the three months ended March 31, 2002,
depreciation and amortization expenses decreased by $180,000 or 38% to $300,000
from $480,000 for the three months ended March 31, 2001. This decrease is
primarily attributable to our adoption of Statements of Financial Accounting
Standards No. 141, Business Combinations, No. 142, Goodwill and Other Intangible
Assets and No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. Under these statements, goodwill will no longer be amortized. For the
three months ended March 31, 2002, there were no restructuring charges related
to the termination of personnel and the closure of non-productive branch
offices. For the three months ended March 31, 2001, restructuring charges were
$240,000 and related to the closure of our London training office and
termination of personnel.
Income (Loss) from Continuing Operations. For the three months ended
March 31, 2002, losses from continuing operations increased by $600,000 to a
loss of $580,000 as compared to income of $20,000 for the three months ended
March 31, 2001. This increase is primarily attributable to the decrease in gross
profit from 34% to 26%.
Interest Charges. For the three months ended March 31, 2002, interest
charges increased by $10,000 or 4% to $240,000 from $230,000 for the three
months ended March 31, 2001.
-40-
Income (Loss) from Continuing Operations before Income Tax. Loss from
continuing operations before income tax for the three months ended March 31,
2002 increased by $610,000 to a loss of $820,000 as compared to a loss of
$210,000 for the three months ended March 31, 2001.
Income Taxes. Income tax expense for the three months ended March 31,
2002 decreased by $225,000 to a recovery on state taxes of $25,000 compared to
an expense of $200,000 for the three months ended March 31, 2001. The expense in
2001 was a write down of the deferred income tax asset.
Income (Loss) from Continuing Operations. Loss from continuing
operations for the three months ended March 31, 2002 increased $380,000 to a
loss of $790,000 compared to a loss of $410,000.
Income (Loss) from Discontinued Operations. Operations of the
technology division for the three months ended March 31, 2002 have been reported
as discontinued and include revenues of $40,000, cost of sales of $20,000,
administrative expenses of $40,000, selling expenses of $5,000, depreciation
expense of $80,000 and interest expense of $4,000. The net loss for the three
months ended March 31, 2002 was $110,000. The gain on disposal of $400,000 has
been reflected in the Income (loss) from discontinued operations.
Operations of the technology division for the three months ended March
31, 2001 have been reported as discontinued and include revenues of $200,000,
cost of sales of $10,000, administrative expenses of $80,000, selling expenses
of $50,000, depreciation expense of $80,000, restructuring costs of $40,000 and
interest expense of $10,000. The net loss for the three months ended March 31,
2001 was $70,000.
Net Loss. Net loss for the three months ended March 31, 2002 increased
by $10,000 to a net loss of $500,000 compared to a net loss of $490,000 for the
three months ended March 31, 2001.
Liquidity and Capital Resources
Our primary sources of cash are our revolving line of credit with
Bank One and proceeds from the sale of equity securities. Our primary capital
requirements include debt service, capital expenditures and working capital
needs.
At March 31, 2002, we had negative cash or cash equivalents and a
working capital deficiency of $3,070,000. At March 31, 2002, we had a cash flow
deficiency from operations of $1,090,000 due primarily to the decrease in
accounts payable. At March 31, 2001, we had negative cash or cash equivalents
and a working capital deficiency of $2,530,000. At March 31, 2001, we had a cash
flow deficiency from operations of $135,000.
At March 31, 2002, we had a cash flow deficit from financing
activities of $400,000 attributable primarily to long-term debt repayment of
$330,000, repayment of Roger Walters' note payable of $40,000 and a decrease in
bank indebtedness of $30,000.
At March 31, 2001, we had cash flow from financing activities of
$685,000 attributable primarily to proceeds from the issuance of common stock of
$400,000, an increase in long-term debt of $225,000 and an increase in bank
indebtedness of $350,000. Cash was used in the repayment of notes payable of
$70,000 and long-term debt of $220,000.
At March 31, 2002, we had cash flow from investing activities of
$1,100,000 attributable primarily to proceeds of $1,320,000 on the sale of our
subsidiary, Njoyn Software Incorporated to Cognicase Inc. that was partially
offset by the purchase of capital assets of $220,000.
At March 31, 2001, we had a cash flow deficit from investing
activities of $200,000 attributable primarily to the purchase of capital assets
of approximately $60,000 and an increase in long-term receivable of $140,000.
At March 31, 2002, we had $4,200,000 outstanding with Bank One. The
revolving line of credit provided for a maximum borrowing amount of $4,700,000
at variable interest rates based on eligible accounts receivable. The revolving
line of credit agreement requires us to meet various restrictive covenants,
including a senior debt to EBITDA ratio, debt service coverage ratio, debt to
tangible net worth ratio and certain other covenants. At March 31, 2002 and
thereafter, we were not in compliance with the covenants contained in the
revolving line of credit agreement. Bank One has indicated its intention to
enter into a forbearance agreement with us in which the bank would refrain from
exercising any rights or remedies based on existing or continuing defaults,
including accelerating the maturity of the loans under the credit facility.
Any agreement reached with Bank One could result in new terms that
are less favorable than current terms under the existing agreement, and could
involve a reduction in availability of funds, an increase in interest rates and
shorter maturities, among other things. If we are not successful in securing a
forbearance agreement or waivers of Bank One's rights and remedies as a result
of the defaults, we will need to seek new financing arrangements from other
lenders. Such alternative financing arrangements may be unavailable to us or
available on terms substantially less favorable to us than our existing line of
credit facility. If we are unable to either procure a waiver from Bank One or
acceptable alternative financing, such failures could have a material adverse
effect on our financial condition and results of operations. No assurance can be
given that we will be able to obtain a waiver from Bank One on the default of
loan covenants or refinance our existing obligations.
-41-
At March 31, 2002, we had $402,670 in subordinated debt outstanding
to the Business Development Bank of Canada. The loan agreements require us to
meet a certain working capital ratio. At March 31, 2002 and thereafter, we were
not in compliance with the covenant contained in the loan agreements. The
Business Development Bank postponed the payment of principal on its subordinated
loans from June 2001 until March 23, 2002. During this period we were current
with our interest obligations on the loans. Effective March 23, 2002, the
Business Development Bank consolidated its loans and established a new repayment
schedule and extended the maturity dates.
At March 31, 2002, we had a note payable of $712,500 owed to Roger
Walters, the sole shareholder of CadCam Inc. In September 2001, we restructured
this note, reducing the principal from $1,225,000 to $750,000 in consideration
of capital stock payable of $475,000. In addition, all principal payments were
postponed until January 1, 2002, at which time we began paying $12,500 per month
plus interest at 4.5%. These payments will continue until December 31, 2006 at
which time a balloon payment of $150,000 will be due.
At March 31, 2002, we had a note payable of $1,740,000 owed to Denise
Dunne-Fushi, the vendor of MicroTech Professionals Inc. In September 2001, we
restructured this note, reducing the principal from $1,965,000 to $1,740,000 in
consideration of capital stock payable of $225,000. In addition, all principal
payments were postponed until January 1, 2003, at which time we were to pay
$20,000 per month plus interest at 5% until December 31, 2006. A balloon payment
of $781,287 was due on January 1, 2007.
Subsequent to March 31, 2002, we further restructured our note
payable to Denise Dunne-Fushi, reducing the principal from $1,740,000 to
$990,000 in consideration of the issuance of 2,000,000 shares of our common
stock. We are currently making interest payments of $14,397 per month until
December 30, 2002. Beginning January 1, 2003, we will begin monthly principal
payments of $15,000 with interest at 4.2%. The loan will mature January 1, 2007
at which time the remaining principal of $270,536 will be due.
As a result of the terrorist attacks of September 11, 2001, we lost
our IT recruitment office in the World Trade Center and our training office
located at 195 Broadway was inaccessible for approximately four weeks. The
recruitment office represents approximately $2,000,000 in annual information
technology recruitment revenue. We do not anticipate a material decline in
revenue from this office, as our primary source of revenue was contract
placement which can continue unobstructed. We lost approximately $75,000 of
fixed assets, including furniture, computer hardware and office equipment. We
have filed an interim statement of loss with our insurance company and to date
have received approximately $75,000 for this office.
The training office represents approximately $2,000,000 in annual
technical training revenue. Many of our top customers have since relocated to
other cities and have indicated their postponement of employee training until
Spring 2002. The estimated loss of revenue from this office is now between
$100,000 and $200,000 per month. In addition, many of the office's computer
assets were malfunctioning as a result of debris and smoke. As a result of the
decline in revenue, we terminated four of twelve employees from this office in
October 2001 and an additional two employees in March 2002. At this time we do
not know what the total loss of revenue will be for our training operations in
New York, or the final amount of our insurance claim. We have filed an interim
statement of loss with our insurance company and to date have received
approximately $150,000 for business interruption which have been treated as an
extraordinary item on the income statement. Once we have settled the insurance
claim, it is our plan to divest this office. We have filed additional business
interruption claims which have not yet been settled. In accordance with EITF
01-10 "Accounting for the Impact of the Terrorist Attacks of September 11,
2001," we have determined our losses directly resulting from the September 11th
events amount to approximately $25,000 net of insurance recoveries.
If we are not successful in securing a forbearance agreement or
waivers of Bank One's rights and remedies as a result of the defaults, we will
need to seek new financing arrangements from other lenders. As a result, on
January 31, 2002, we signed a term sheet with Investors Corporation for a
Revolving Loan Facility of up to $7,500,000 based on eligible receivables, cash
flow and EBITDA, a Term Loan Facility of up to $1,000,000 based on eligible
equipment and an additional secured Credit Facility of $2,000,000 for future
acquisitions financing. Under this facility, we would have approximately
$300,000 in extra borrowing availability as a result of more favorable terms
than our current facility with Bank One. Proceeds from this facility would be
used to retire our credit facility with Bank One with the balance being used for
working capital. The financing is expected to close by the end of May 2002,
subject to financial covenants. The term sheet is non-binding.
In addition to Investors, we are currently pursuing several financing
initiatives, including equity and debt placements, to assist with the company's
current cash flow requirements and the required financial covenants. On April
25, 2002, we received a letter of intent from Aithent, Inc. for debt financing
of $1,000,000 with a maturity of three years with interest of 8%. We will also
be obligated to issue 5 million, 5 year warrants exercisable as follows: a)
1,250,000 warrants with exercise price of $0.12; b) 1,250,000 warrants with
exercise price of $0.20; c) 1,250,000 warrants with exercise price of $0.30;
and, d) 1,250,000 warrants with exercise price of $0.40. Aithent shall have an
option to exercise up to 1,000,000 warrants within 12 months from closing and
the balance thereafter. In addition, subject to qualification, we will be
obligated to provide certain IT services contracts to have an aggregate total
minimum value as follows: i) $7 Million within a period of 12 months from date
of closing; ii) $15 Million within 24 months from date of closing; and iii) $25
Million within 36 months from date of closing. Athient is currently conducting
due diligence. This letter of intent is non-binding.
-42-
There can be no assurance that the transactions contemplated by the
various letters of intent will be consummated, and if consummated, will be on
such terms as outlined by the original letters of intent.
Effective March 1, 2002, we sold our technology division, Njoyn
Software Incorporated to Cognicase Inc., a Canadian company. Our net proceeds
after broker fees were $1,320,000 of which we received $800,000 in cash and
$550,000 worth of unrestricted common shares on closing. The shares were sold on
March 11, 2002 for value of $ 524,673.19. As part of the transaction, Cognicase
assumed all of the 8 staff in our technology division and is contracting the
services of our CIO for a period of six months. The proceeds were used to pay
down an unauthorized overdraft with Bank One of $500,000 and a term loan with
Bank One for $230,000. We also used the proceeds to pay past due rent,
professional fees and contractor fees. We believe the sale of Njoyn will have an
impact on our cash flow, as the operations had recurring losses since inception.
Effective May 1, 2002, we completed an agreement with triOS Training
Centres Limited, an Ontario company, for the purchase of certain assets of our
Toronto training division, Thinkpath Training for a nominal amount of cash and
the assumption of all prepaid training liabilities. As part of the transaction,
triOS assumed all of the Toronto training staff and will sublet the classroom
facilities. We have also positioned our New York training division for sale upon
settlement of our outstanding insurance claim. Until such a time, we have scaled
the operations down significantly to mitigate losses. The sale of the training
division will also have an immediate impact on our cash flow as the fixed
overheads are quite significant, particularly rent and equipment leases.
We believe, despite our recurring losses and negative working
capital that we have developed a business plan, that if successfully
implemented, could substantially improve our operational results and financial
condition. However, we can give no assurances that our current cash flows from
operations, if any, borrowings available under our line of credit, and proceeds
from the sale of securities, will be adequate to fund our expected operating and
capital needs for the next twelve months. The adequacy of our cash resources
over the next twelve months is primarily dependent on our operating results and
our ability to procure a waiver from the bank, alternate financing, and
settlement of our insurance claim, all of which are subject to substantial
uncertainties. Cash flow from operations for the next twelve months will be
dependent, among other things, upon the effect of the current economic slowdown
on our sales, the impact of the restructuring plan and management's ability to
implement our business plan. The failure to return to profitability and optimize
operating cash flow in the short term, and to successfully procure a waiver from
the bank or alternate financing, could have a material adverse effect on our
liquidity position and capital resources which may force us to curtail our
operations.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets." Under the new
rules, goodwill and indefinite lived intangible assets are no longer amortized
but are reviewed annually for impairment. Separable intangible assets that are
not deemed to have an indefinite life will continue to be amortized over their
useful lives. The amortization provisions of SFAS No. 142 apply to goodwill and
intangible assets acquired after June 30, 2001. With respect to goodwill and
intangible assets acquired prior to July 1, 2001, we will apply the new
accounting rules in the current year. We are currently assessing the financial
impact SFAS No. 141 and No. 142 will have on our Consolidated Financial
Statements. Any transitional impairment loss will be recognized as the
cumulative effect of a change in accounting principle in our statement of
earnings.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" which requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. We will adopt SFAS No. 143 in 2002. We do not expect the provisions of
SFAS No. 143 to have any significant impact on our financial condition or
results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". We will adopt SFAS No. 144 in fiscal year 2002. We do not
expect the provisions of SFAS No. 144 to have any significant impact on our
financial condition or results of operations.
-43-
Recent Events
On April 4, 2002, we retained Johnston & Associates, LLC, a Washington
company, to provide strategic governmental relations counseling and marketing
representation before the Department of Defense of the United States, Congress
and targeted companies in connection with marketing the services of our
engineering operations related to specific government contracts. Johnston &
Associates will be compensated at a rate of $10,000 per month for twelve months
beginning April 2002 and ending March 31, 2003. In addition, Johnston &
Associates will receive 200,000 warrants of our common stock at the fair market
value on the date of grant and will vest at 50% per year and will expire on
April 4, 2005.
On April 8, 2002, we closed our Etobicoke office and sold certain assets
of Systemsearch Consulting Services Inc. to its prior owner in consideration of
the assumption of the lease and certain liabilities. Existing contracts were
transferred to our Toronto office and all sales and administrative staff was
terminated.
On April 26, 2002, Ronan McGrath resigned from the Board of Directors as
a result of changes in corporate policy of his employer regarding outside
directorships.
ITEM III. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
-44-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are party to the following pending legal proceedings:
In November 1998, we completed the acquisition of certain assets of
Southport Consulting Co. from Michael Carrazza, one of our former directors, for
an aggregate of $250,000 in cash and shares of our common stock. Michael
Carrazza 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 and seeking at least $250,000 in damages. Specifically,
Mr. Carrazza claimed that we failed to deliver cash or stock to Mr. Carrazza
under an asset purchase agreement pursuant to which we acquired certain assets
of Southport Consulting Co., and that he was entitled to recovery of his
attorneys' fees. We filed a counterclaim against Mr. Carrazza, seeking $162,000
in damages, plus punitive damages and attorneys' fees, on the ground that Mr.
Carrazza, as then president and sole stockholder of Southport Consulting Co.,
fraudulently induced us into executing the asset purchase agreement by
misrepresenting the value of the assets being purchased. After the commencement
of discovery, Mr. Carrazza filed a motion for summary judgment, which was
granted in his favor. A hearing to determine damages has been conducted, but a
decision has not yet been rendered. We have filed a notice of appeal of the
court's award of summary judgment.
John James Silver, a former employee, commenced an action against us
in the Supreme Court of the State of New York, County of New York, Index No.
113642/01, alleging breach of contract, quantum meruit, and account stated. Mr.
Silver is seeking $81,147 in damages. Specifically, Mr. Silver alleges that we
have breached an employment agreement with him, claiming that we owe him damages
representing unpaid salary, vacation time, a car allowance, severance pay and
stock options. Mr. Silver also claims that we owe him damages for allegedly
having defaulted on payment for certain services that he performed. Mr. Silver
filed a motion seeking to amend his complaint to add claims for fraud, unjust
enrichment and an accounting, and seeking damages in the sum of $330,367. This
motion was subsequently denied by the court. This action, which we will defend
vigorously, is in the early stages of discovery.
We have been advised that an action is being launched by a former
employee, Christopher Killarney regarding employment matters. At this time, we
do not know the details or amount of damages or costs he will be seeking.
We are not party to any other material litigation, pending or
otherwise.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
We are in breach of the loan covenants governing our credit line
facility with Bank One; including a senior debt to EBITDA ratio, debt service
coverage ratio, debt to tangible net worth ratio and certain other covenants. At
March 31, 2002, we had $4,200,000 outstanding with BankOne.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Incorporated by reference to our Registration Statement on Form
SB-2, as amended and filed on February 6, 2002.
(b) Reports on Form 8-K.
On March 21, 2002, Thinkpath filed a report on Form 8-K to disclose the
disposition of its subsidiary, Njoyn Software Incorporated.
-45-
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 INC.
Dated: May 20, 2002 By: /s/ Declan French By: /s/ Kelly Hankinson
--------------------- -----------------------
Declan French Kelly L. Hankinson
Chief Executive Officer Chief Financial Officer
and President
-46-