U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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THINKPATH INC.
(Name of small business issuer as specified in its charter)
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Ontario 7371 52-209027
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer I.D. No.)
incorporation or organization) Classification Code Number)
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55 University Avenue, Suite 505, Toronto, Ontario, Canada M5J 2H7
(416) 364-8800
(Address and telephone number of principal executive offices
and principal place of business)
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Jay M. Kaplowitz, Esq. Declan A. French, Chief Executive Officer
Arthur S. Marcus, Esq. Thinkpath Inc.
Gersten, Savage & Kaplowitz, LLP 55 University Avenue, Suite 505
101 East 52nd Street, 9th Floor Toronto, Ontario, Canada M5J 2H7
New York, New York 10022 (416) 364-8800
(212) 752-9700 (416) 364-2424 (fax)
(212) 980-5192 (fax)
(Name, address and telephone number of agents for service)
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this registration statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [x]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A) MAY DETERMINE.
CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount Being Proposed Maximum Offering Proposed Maximum Amount of
Securities Being Registered Registered Price Per Security (1) Offering Price (1) Registration Fee
Common Stock(2) 3,142,488 $.28 $879,896.64 $219.97
Common Stock
Underlying Warrants (3) 863,484 $.5445 $470,167.03 $117.55
Common Stock Underlying
Warrants (4) 275,492 $.66 $181,824.72 $45.46
Common Stock Underlying
Warrants (5) 59,952 $.6225 $37,320.12 $9.34
Common Stock Underlying
Warrants (6) 377,771 $.2978 $112,500.20 $28.13
Common Stock
Underlying Convertible
Preferred Stock (7) 5,683,122 $.28 $1,591,274.10 $397.82
Common Stock Underlying
Options (8) 2,500 $3.25 $8,120.00 $2.03
Common Stock Underlying
Options (9) 2,500 $3.19 $7,975.00 $2.00
Common Stock Underlying 35,000 $.70 $24,500.00 $6.13
Options (10)
Sub total 10,442,309 $3,312,737.70 $828.39
Amount Previously Paid $1,653.94
Amount Due $0.00
(1) Pursuant to Rule 457, estimated solely for the purpose of calculating the
registration fee.
(2) Based upon the last reported sales price of the registrant's common stock of
the same class as quoted on the Nasdaq SmallCap Market on October 10, 2001,
$0.28.
(3) Pursuant to Rule 416 under the Securities Act of 1933, as amended, there
are also being registered additional shares of common stock as may be issuable
upon the exercise of warrants described herein at an exercise price of $.5445
per share.
(4) Pursuant to Rule 416 under the Securities Act of 1933, as amended, there are
also being registered additional shares of common stock as may be issuable upon
the exercise of warrants described herein at an exercise price of $.66 per
share.
(5) Pursuant to Rule 416 under the Securities Act of 1933, as amended, there are
also being registered additional shares of common stock as may be issuable upon
the exercise of warrants described herein at an exercise price of $.6225 per
share.
(6) There are also being registered such number of additional shares of common
stock as may be issuable upon the exercise of warrants described herein pursuant
to the last reported sales price of the registrant's common stock as
quoted on the Nasdaq SmallCap Market on October 10, 2001, $0.28. The actual
number of shares of the registrant's common stock issuable upon the exercise of
the warrants and the exercise price thereof is pursuant to the provisions of the
warrants.
(7) There are also being registered such number of additional shares of common
stock as may be issuable upon the conversion of the convertible preferred stock
described herein pursuant to the last reported sales price of the registrant's
common stock as quoted on the Nasdaq SmallCap Market on October 10, 2001, $0.28.
The actual number of shares of the registrant's common stock issuable upon the
conversion of the convertible preferred stock is pursuant to the provisions of
the convertible preferred stock regarding the determination of the applicable
conversion price and dividend rate.
(8) Includes 2,500 shares of the registrant's common stock issuable upon the
exercise of options at an exercise price of $3.25 per share.
(9) Includes 2,500 shares of the registrant's common stock issuable upon the
exercise of options at an exercise price of $3.19 per share.
(10) Includes 35,000 shares of the registrant's common stock issuable upon the
exercise of options at an exercise price of $.70 per share.
Information contained herein is subject to completion or amendment.
These securities may not be sold nor may offers to buy be accepted prior to the
time the registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
Unless otherwise indicated, all reference to "Thinkpath", "us", "our"
and "we" refer to Thinkpath Inc. and: (a) its wholly-owned subsidiaries:
Systemsearch Consulting Services Inc., an Ontario corporation, International
Career Specialists Ltd., an Ontario corporation, Cad Cam, Inc., an Ohio
corporation, Object Arts Inc., an Ontario corporation, Micro Tech Professionals,
Inc., a Massachusetts corporation; Njoyn Software Inc., an Ontario corporation;
and TidalBeach Inc., an Ontario corporation.
On June 6, 2001, we changed our name from Thinkpath.com Inc. to
Thinkpath Inc.
PRELIMINARY PROSPECTUS
Subject to Completion, Dated October 16, 2001
THINKPATH INC.
10,442,309 Shares of Common Stock
This is an offering of an aggregate of 10,439,309 shares of common
stock of Thinkpath Inc., 3,142,488 of which may immediately be sold, 5,683,122
of which may be sold upon the conversion of our Series C 7% Convertible
Preferred Stock, 1,576,699 of which may be sold upon the exercise of warrants
and 40,000 of which may be sold upon the exercise of options. All of the shares
are being offered by the selling security holders named in this prospectus. We
will not receive any of the proceeds from the sale of the common stock by the
selling security holders or upon the conversion of the preferred stock, although
we would receive approximately $801,813 if all of the warrants and options, the
underlying shares of which are being registered in this offering, were
exercised. Our common stock is traded on the Nasdaq SmallCap Market under the
symbol "THTH". On October 10, 2001, the last reported sales price of our common
stock, as quoted on the Nasdaq SmallCap Market, was $0.28.
Please see "Risk Factors" beginning on page 8 to read about factors you
should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is ______.
i
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR SALE
UNDER THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA. THE
SECURITIES ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF
THE SECURITIES LAWS OF ANY PROVINCE OR TERRITORY OF CANADA.
ENFORCEABILITY OF CIVIL LIABILITIES
Thinkpath Inc.'s headquarters are located in, and a majority
of its officers, directors and auditors are residents of, Canada and a
substantial portion of Thinkpath Inc.'s assets are, or may be, located outside
the United States. Accordingly, it may be difficult for investors to effect
service of process within the United States upon non-resident officers and
directors, or to enforce against them judgments obtained in the United States
courts predicated upon the civil liability provision of the Securities Act of
1933, as amended, or state securities laws. Thinkpath Inc. has been advised by
its Canadian legal counsel that there is doubt as to the enforceability in
Canada against Thinkpath Inc. or against any of its directors, controlling
persons, officers or the experts named herein, who are not residents of the
United States, in original actions or in actions for enforcement of judgments of
United States courts, of liabilities predicated solely upon United States
federal securities laws. Service of process may be effected, however, upon
Thinkpath Inc.'s duly appointed agent for service of process, Gersten, Savage &
Kaplowitz, LLP, New York, New York. If investors have questions with regard to
these issues, they should seek the advice of their individual counsel. Thinkpath
Inc. has also been informed by its Canadian legal counsel that, pursuant to the
Currency Act (Canada), a judgment by a court in any Province of Canada may only
be awarded in Canadian currency. Pursuant to the provision of the Courts of
Justice Act (Ontario), however, a court in the Province of Ontario shall give
effect to the manner of conversion to Canadian currency of an amount in a
foreign currency, where such manner of conversion is provided for in an
obligation enforceable in Ontario.
EXCHANGE RATE DATA
Thinkpath Inc. maintains its books of account in Canadian
dollars, but has provided the financial data in this prospectus in United States
dollars and on the basis of generally accepted accounting principles as applied
in the United States, and its audit has been conducted in accordance with
generally accepted auditing standards in the United States. All references to
dollar amounts in this prospectus, unless otherwise indicated, are to United
States dollars.
The following table sets forth, for the periods indicated,
certain exchange rates based on the noon buying rate in New York City for cable
transfers in Canadian dollars. Such rates are the number of United States
dollars per one Canadian dollar and are the inverse of rates quoted by the
Federal Reserve Bank of New York for Canadian dollars per US$1.00. The average
exchange rate is based on the average of the exchange rates on the last day of
each month during such periods. On October 10, 2001, the exchange rate was
CDN$1.00 per US$0.6401.
Year ended December 31, Six months ended June 30,
1998 1999 2000 2001
Rate at end of period $0.6533 $0.6928 $0.6729 $0.6607
Average rate during period 0.6747 0.6731 0.6794 0.6520
High 0.7121 0.6917 0.6619 0.6710
Low 0.6307 0.6463 0.6967 0.6310
ii
TABLE OF CONTENTS
Page
Prospectus Summary ............................................................................................4
The Offering ..................................................................................................6
Summary Combined Financial Information ........................................................................7
Risk Factors ..................................................................................................8
Special Note Regarding Forward-Looking Statements ............................................................16
Use of Proceeds ..............................................................................................17
Certain Market Information ...................................................................................17
Dividend Policy ..............................................................................................17
Selected Financial Data ......................................................................................18
Management's Discussion and Analysis of Financial Condition and Results of Operations ........................19
Business .....................................................................................................28
Board of Directors and Executive Officers ....................................................................36
Certain Relationships and Related Party Transactions .........................................................48
Principal Shareholders .......................................................................................50
Description of Securities ....................................................................................52
Certain United States and Canadian Federal Income Tax Considerations .........................................54
Investment Canada Act ........................................................................................57
Shares Eligible For Future Sale ..............................................................................58
Selling Security Holders .....................................................................................59
Plan of Distribution .........................................................................................61
Legal Matters ................................................................................................62
Experts ......................................................................................................62
Where You Can Find Additional Information ....................................................................62
Financial Statements ........................................................................................F-1
You should rely only on the information contained in this prospectus.
To understand this offering fully, you should read this entire prospectus
carefully, including the financial statements and notes thereto. We have
included a brief overview of the most significant aspects of the offering itself
in the Prospectus Summary. We have not authorized anyone to provide you with
information different from that contained in this prospectus. The information
contained in this prospectus may only be accurate on the date of this
prospectus.
iii
PROSPECTUS SUMMARY
The following summary highlights some of the information in
this prospectus. It may not contain all of the information that is important to
you. To understand this offering fully, you should read the entire prospectus
carefully, including the risk factors and our consolidated financial statements
and the notes accompanying the consolidated financial statements appearing
elsewhere in this prospectus.
Our Business
We are a global provider of information technology and
engineering project outsourcing, recruitment and staffing, technical training
and consulting and ASP-based skills management technology. Our customers include
financial services companies, software and other technology companies, Canadian
and American governmental entities and large multinational companies, including
Bank of Montreal, Bell Canada, Goldman Sachs, Chapters, Lucent Technologies,
Cummins Engine, General Electric, General Motors, CIBC, Xerox Corporation,
American Express and Universal Industrial Corp. (ESI).
Outsourcing
Many companies do not have the staff necessary to complete a
large project in-house and, due to time, cost and/or infrastructure restraints,
are not interested in hiring new employees or training existing employees for
such projects. In response to this trend, we offer specialized project
outsourcing and management services in the areas of technical documentation, Web
development, design engineering, and Computer Aided Design (CAD) services.
Recruitment
We offer full-service recruitment services, including
permanent placement, contract placement, and executive search in the IT and
engineering fields. We have particular expertise in recruiting for Web-based and
e-commerce applications, Customer Relationship Management (CRM) technologies,
technical documentation and technical training. We can and do find candidates
from the entire spectrum of responsibility levels -- from newly graduated junior
technicians to senior technical executives.
Our careful evaluation process tests candidates on their
technical proficiency, soft skills, fit with company culture, and attitude
towards finding a new position. We guarantee that all potential hires are
interviewed and reference checked and that no resume is ever forwarded to a
client without the candidate's prior permission and knowledge.
Training
Our training division offers an array of technical training
and certification options, including classroom training with an instructor,
one-on-one mentoring in the workplace, and Internet-based learning modules. We
are a Microsoft Certified Technical Education Center and also offer a variety of
Web certification programs including Java, Linux, and Microsoft end-user
training.
Instructor-Led Classroom Training
In state-of-the-art facilities, we schedule over 80 public
enrollment courses. We use vendor-certified curricula and vendor-certified
trainers to ensure the highest quality learning experience.
Private Group Classes
For groups of IT professionals that require training on a
particular topic, we can customize a course to fit a specific IT environment and
hold the course at a site of the client's choosing. We have successfully
completed private training in the United States, Canada, Hong Kong, the
Philippines, the United Kingdom and other international locations for
high-profile clients such as Goldman Sachs.
4
Mentoring
Our highly skilled instructors provide on-site, on-the-job
technical advice and tutoring. Management believes that this "mentoring" program
is an effective way to add expert skills on a short-term basis to enhance the
performance of IT personnel and to implement computer technologies.
Technology
Njoyn
Based on our corporate experience in the recruitment industry,
we have developed an Internet-based recruiting solution called Njoyn. Njoyn is a
complete application that manages and streamlines every aspect of the hiring
process yet is delivered over the Web on a subscription basis.
Through a simple and easily accessible interface, companies
utilizing Njoyn can broadcast job openings, sort and rank incoming candidates,
manage agency relationships, communicate in real-time with all stakeholders in
the hiring process, schedule and track interviews and generate statistical
reports to monitor Return on Investment (ROI). Njoyn is delivered through an ASP
(Application Service Provider) model. Development of the application is already
completed, and Njoyn is currently being used by several of our clients.
SecondWave
SecondWave is Web marketing and site maintenance software that
we acquired through our acquisition of TidalBeach. SecondWave allows companies
to create, manage and automate their own dynamic, adaptive Web sites. The
application is designed to build on-line communities and foster relationships by
continuously learning from each visitor's behavior and targeting his or her
interests with customized content and communications.
The software allows people with very little programming
knowledge to maintain multiple Web sites, in any language. It assists in
automating e-mail mailings, the building and maintenance of news groups, the
implementation of real-time messaging, the creation of polls and surveys, and
the building of on-line communities.
Recent Events
On June 6, 2001, we changed our corporate name from
Thinkpath.com Inc. to Thinkpath Inc. in order to more accurately reflect our
expanded suite of services.
On July 20, 2001, we received a Nasdaq Staff Determination
letter indicating that we are not in compliance with the bid price requirements
for continued listing, as set forth in Nasdaq's Marketplace Rule 4310 (c)(8)(B).
On September 27, 2001, Nasdaq announced a moratorium on the minimum bid and
public float requirements for continued listing on the exchange until January 2,
2002. Our common stock will continue to be listed on the Nasdaq SmallCap Market
during this period.
As a result of the September 11, 2001 terrorist attack our
branch office located in the World Trade Center in New York City was destroyed
and our branch office located at 195 Broadway was damaged and closed for a
period of four weeks. We are currently unable to provide a reliable estimate of
the effect of the destruction and closure of our offices on our operating
results and financial condition.
Our headquarters are located at 55 University Avenue, Suite
505, Toronto, Ontario, Canada M5J 2H7. We were incorporated under the laws of
the Province of Ontario, Canada in February 1994. Our telephone number is (416)
364-8800.
5
THE OFFERING
Common Stock Offered 10,442,309 shares of common stock. See
"Description of Securities."
Shares of Common Stock Outstanding 15,181,601 (as of October 10, 2001)
Use of Proceeds We will not receive any proceeds from
the sale of the shares of common stock
by the selling security holders or upon
the conversion of preferred stock,
although we will receive approximately
$801,813 if all of the warrants and
options, the underlying shares of which
are being registered in this offering,
are exercised. See "Use of Proceeds."
Common Stock Trading Symbol Nasdaq SmallCap Market: "THTH"
Risk Factors An investment in our common stock
involves a high degree of risk and
should be made only after careful
consideration of the significant risk
factors that may affect us. Such risks
include special risks concerning our
business and us. See "Risk Factors."
6
SUMMARY COMBINED FINANCIAL INFORMATION
The following selected statement of operations data is for the
years ended December 31, 1999 and 2000 and the six months ended June 30, 2001.
The selected balance sheet data is for the year ended December 31, 2000 and the
six months ended June 30, 2001. The statement of operations and balance sheet
data for the years ended December 31, 1999, and 2000 and the six months ended
June 30, 2001 is derived from our financial statements and the related notes
included elsewhere in this prospectus audited by Schwartz Levitsky Feldman, llp.
All information should be read in conjunction with our consolidated financial
statements and the notes contained elsewhere in this prospectus.
Year Ended Six Months Ended
December 31, June 30,
1999* 2000* 2001
(in thousands except per share data)
Statement of Operations Data
Revenue 27,032,435 44,325,780 20,717,885
Loss before Gain on Investments and
Income Taxes (170,942) (9,587,989) (1,705,338)
Net Loss (5,323) (8,398,317) (2,109,330)
Loss per share (0.04) (2.27) (0.15)
*Restated
Year Ended Six Months
December 31, 2000* Ended June 30, 2001
(in thousands except per share data)
Balance Sheet Data
Working capital deficiency (3,087,131) (2,451,974)
Total Assets 25,685,940 23,092,642
Long-term debt 2,401,980 2,522,930
Total Liabilities 14,886,934 13,465,638
Total Stockholders' equity 10,799,006 9,627,004
*Restated
7
RISK FACTORS
An investment in our common stock involves a high degree of risk. In
addition to other information contained in this prospectus, you should carefully
consider the following risk factors and other information in this prospectus
before investing in our common stock.
Company Risks
Our growth will require substantial capital, the lack of which could severely
hamper our future development.
In order to develop our business, we will require significant
additional funds for the expansion of our sales force and recruiting staff, the
introduction of new products and financing our continuing operations. We cannot
assure you that we will be able to raise or generate the funds required, failure
in which could prevent us from achieving our plans for expansion and may harm
our financial condition.
At December 31, 2000 and June 30, 2001, we had working capital
deficiency of approximately $3,100,000 and $2,450,000, respectively, and we
estimate that capital requirements for the remainder of 2001 will be
approximately $500,000, although it is possible that we may require
significantly more than that amount. Other than our working capital, our only
other source of available funds for our operations is our bank credit line. We
cannot assure you that we will have the funds we require for our operations. We
cannot predict whether any additional financing will be in the form of equity or
debt, or be in another form. We may not be able to obtain the necessary
additional capital on a timely basis or on acceptable terms, if at all.
In the event that any future financing should take the form of equity
securities, the holders of our common stock will experience additional dilution.
Our cash requirements are significant and necessary to our continued
operation. The raising of additional financing would in all likelihood result in
dilution or reduction in the value of the common stock. Our ability to operate
is dependent upon sufficient capital. Accordingly, we anticipate that we will,
at the appropriate time, increase our capital base, which increase may include
the sale of securities with a priority to our common stock. Any such sale,
whether of our common stock or a security with a priority to our common stock,
would result in a dilution of your ownership of us.
Because our professionals and consultants may terminate their employment with us
at any time, we may not be able to meet our customers' requirements.
If we are not able to provide our customers with the technical
personnel they require, our customers will fill their requirements from other
companies. Because our revenue is dependent upon the number of information
technology, engineering and technical training professionals and consultants we
place on assignment, our results of operations depend on our ability to attract
and retain qualified technical personnel with the skills and experience
necessary to meet our customers' requirements. Aside from competition with other
firms in our industry, we face the following challenges:
- We often employ our technical personnel for a specific project on an
at will basis, which permits the professional to terminate his or her employment
with us on little or no notice, and;
- The technical personnel have in the past and may in the future
accept assignments from other companies upon completion of their assignments
with us.
The average employee of ours remains with us for a period of 6 months
and our annual turnover rate is 40%. Any decrease in the average time served or
increase in the percentage of turnover would have material, adverse effects on
our results of operations and financial condition, in particular, our ability to
generate revenue.
8
Our expansion strategy may not be successful. Any failure to expand could harm
our financial condition and prevent us from achieving our future revenue goals.
We believe that we need to successfully expand our business in order to
expand our revenue and achieve profitability. We cannot assure you that our
expansion strategy will be successful. The success of our expansion plans depend
on our ability to:
- Enter new regional markets;
- Expand our existing operations;
- Add additional areas of expertise;
- Attract, hire, integrate and retain qualified employees;
- Develop, recruit and maintain a base of qualified professionals
within each regional market;
- Accurately assess the demand for our services in such markets, and
- Initiate, develop and sustain corporate customer relationships.
In addition to the adverse effect on our results of operations posed by
the failure to implement our expansion strategy, any such failure would hinder
our ability to attract multinational and other large corporations. We believe
that our future prospects are heavily influence by our ability to acquire larger
clients. Any inability on our part to acquire larger clients could have a
material, adverse effect on our ability to increase our revenue.
We may be liable for payroll taxes and penalties in Canada because we classify
our personnel providing contract services as independent contractors. A
determination of the Canadian fiscal authorities that this classification is
incorrect would result in considerable harm to our financial condition.
We treat our contract service providers in Canada as independent
contractors rather than employees. Accordingly, we have not withheld the
relevant payroll deductions, nor have we paid the employer's portion of the
related taxes or recorded a reserve on our financial statements for such taxes
and penalties. If the Canadian fiscal authorities determine that our contract
service providers are in fact employees, we would be subject to significant
taxes and penalties. We estimate that the taxes payable would be approximately
$500,000 on an annual basis, and that the aggregate penalties levied for past
infringements of the law would amount to approximately $250,000. The payment of
these taxes and penalties would have a material, adverse effect on our financial
condition. In addition, to the extent that we are required to pay these taxes in
the future, our gross margin would be reduced to reflect the additional costs,
which costs would be considerable.
In the United States, all of our contract service professionals are
classified as employees and all relevant employee and employer payroll taxes are
withheld.
Maintenance of our Web site is critical. Any failure in its operation could
seriously harm our business.
We have developed a Web site for internal communications as well as
marketing and recruiting. The satisfactory performance, reliability and
availability of our Web site and network infrastructure are and will remain
crucial to our ability to attract and retain customers and technical personnel,
and sustain adequate levels of customer service.
Further, while many companies' Web sites are vulnerable to computer
viruses, break-ins and similarly disruptive problems, we rely very heavily on
the secure and continual operation of our Web site. While we have implemented
certain network security measures, we cannot assure you that they will
adequately protect our Web site. Any breach or circumvention of the implemented
security measures could lead to:
- Our liability for damages;
9
- Misappropriation of proprietary information, and;
- Cessation of service to our customers.
All or any of the above could harm our business. In addition, any
systemic interruptions or reduced performance of our Web site would materially
and adversely affect our ability to attract new customers and technical
personnel. In addition to representing a threat to our reputation, the inability
to retain our technical personnel and customers would harm our results of
operations and any inability to attract new customers would have a material,
adverse effect on our ability to generate revenue as well as our future
prospects.
Our business depends on the successful operation of our software products, Njoyn
and Njoyn2. The inability of Njoyn to work as intended could harm our business.
Our business is heavily dependent on sales and usage by our customers
of Njoyn, and we rely on it for our day-to-day operations. Any failure, whether
real or perceived, of Njoyn as it affects our customers could harm our
reputation and our results of operations and could exert a negative impact on
our business and financial condition. We have to date not encountered
significant problems related to the performance of Njoyn.
We have developed an upgraded of our software, which we call Njoyn2.
This product has not been thoroughly tested and we cannot predict how it will be
received by our customers. Very few newly marketed software products are free of
a degree of difficulties. In addition, we may not be able to successfully market
Njoyn2. In addition, our current customers will receive Njoyn2 free of charge/at
reduced cost, which will have the effect of reducing our potential return on
investment, revenues and earnings.
We may be held liable for the actions of our contract service providers when on
assignment despite having obtained insurance coverage to protect us from such
liability.
Although our customer agreements disclaim responsibility for the
conduct of our contract service providers, we may be liable for damage suffered
by our customers as a result of actions taken or failures to take appropriate
actions by our professionals while on assignment. This damage may be caused by
our contract service providers' misuse of customer proprietary information,
theft of customer property or other errors and improper conduct. Any damage for
which we are held liable would adversely affect our results of operations to the
extent of such damage and could lead to a material, adverse effect on our
financial condition.
We cannot assure you, due to the nature of the assignments, that the
insurance coverage will continue to be available on reasonable terms, if at all,
or that it will be adequate to cover any liability as a result of our
professionals actions or inactions. Any inability to maintain or adequately
replace suitable insurance coverage for the actions of our contract service
providers would result in adverse effects on our business to the corresponding
extent of such inability, which effects could be material.
Because we have limited management, we depend upon our senior management, and
their loss or unavailability could put us at a competitive disadvantage.
Our future success will depend to a significant extent on the efforts
of Declan A. French, our Chairman of the Board and Chief Executive Officer. The
loss or unavailability of Mr. French could have a material, adverse effect on
our business. In addition, we believe that our future success will depend in
large part upon our continued ability to attract and retain highly qualified
recruiters, who often serve as the contact person for our customers. We cannot
assure you that we will be able to attract and retain the qualified personnel
necessary for our business.
Our management will retain substantial influence over our operations upon the
consummation of this offering.
Upon the consummation of this offering, our directors and executive
officers will beneficially own approximately 2,910,717, or 18.8% of our common
stock. As a result, they will have substantial influence with respect to the
election of our directors and the outcome of all matters on which shareholders
are entitled to vote.
10
While we do not believe that the interests of our management presently conflict
with the interests of our shareholders, we cannot assure you that this belief is
shared by our shareholders or that our management's interests will not in the
future be different from that of our shareholders.
The conversion of the Series C 7% Convertible Preferred Stock and the exercise
of the warrants issued to investors may lead to a change in control.
As of the date of this prospectus, we have a total number of
15,181,601shares of common stock outstanding. Our directors and executive
officers currently beneficially own 18% of the shares of common stock
outstanding. Pursuant to the April 2001 private placement offering of Series C
Preferred Stock, we issued an aggregate of 1,230 shares of Series C Preferred
Stock and 723,436 common stock purchase warrants. As of the date of this
prospectus, 1,110 shares of Series C Preferred Stock remain outstanding, 120 of
which have been converted into 266,773 shares of common stock and no warrants
have been exercised. Pursuant to the terms of the offering, we are obligated to
issue an additional 375 shares of Series C Preferred Stock and approximately
377,771 common stock purchase warrants upon the effective date of this
registration statement (see "Description of Securities -- Series C 7%
Convertible Stock").
If the remaining 1,485 shares of Series C Preferred were to be
converted and the remaining 713,215 common stock warrants were to be exercised
both as of the date of this prospectus, based on the conversion formula and
exercise price, we would be obligated to issue approximately 6,396,338 shares of
our common stock. Such conversion and exercise would result in the holders of
the Series C Preferred Stock and common stock purchase warrants owning
approximately 42.1% of our issued and outstanding common stock resulting in a
significant change in control of the ownership of our common stock. As a result,
the investors in the April 2001 private placement offering will have substantial
influence with respect to the election of our directors and the outcome of all
matters on which shareholders are entitled to vote.
Currency fluctuations may adversely affect our operating results.
Revenue denominated in Canadian dollars accounted for 42% of our
revenue for the six months ended June 30, 2001, 35% for the year ended December
31, 2000, and 61% for the year ended December 31, 1999. Accordingly, the
relationship of the Canadian dollar to the value of the United States dollar may
materially affect our operating results. In the event that the Canadian dollar
was materially devalued against the United States dollar, our operating results
could be materially, adversely affected.
Industry Risks
The success of our business is closely linked to our ability to attract and
retain qualified information technology professionals and engineers. The
competition for such individuals is intense, and we may not be able to retain an
adequate employee pool to meet our customers' requirements.
Our business depends to a significant extent on our ability to
identify, attract, hire and retain qualified information technology, engineering
and technical training professionals and consultants. If we fail to attract and
retain a sufficient number of qualified professionals, our business will be
materially and adversely affected. We may have difficulty in meeting our
staffing requirements for a number of reasons, including, but not limited to,
the following:
- Information technology, engineering and technical training
professionals are in high demand worldwide;
- The industry in which we operate is characterized by low barriers to
entry;
- The demand for such professionals is increasing, and;
- Turnover in the industry is very high compared with other industries.
If we fail to overcome these challenges and are unable to sustain an
adequate number of contract service providers to meet our needs, our business
will be materially, adversely affected.
11
Because of our relatively small size and short operating history, we may not be
able to compete with other service providers, many of which enjoy a number of
advantages such as possessing financial and other resources that exceed our own.
We compete for potential customers with many other providers of
information technology, engineering and technical training services, consulting
services, systems integrators, providers of outsourcing services, computer
consultants, employment listing services, and temporary personnel agencies. Many
of our current and potential competitors enjoy considerable advantages over us,
including, without limitation:
- Longer operating histories;
- Significantly greater financial, marketing and human resources;
- Greater ability to adapt and quickly respond to rapid technological
change, evolving industry standards, changing client preferences and new product
and service introductions;
- Greater name recognition;
- A larger base of information technology, engineering, and technical
training and consulting professionals, and
- A larger customer base.
These competitive advantages, if successfully capitalized on, would
likely have a material, adverse effect on our business. In addition, we expect
that competition will increase. Any such increase is likely to result in general
price reductions and reduced margins which could materially, adversely affect
our results of operations.
Investment Risks
We may fail to meet the expectations of our investors and analysts, which may
cause the market price of our common stock to fluctuate or decline. The
likelihood of such failure is increased by the fact that our operating results
tend to vary from quarter to quarter.
Analysts frequently issue reports based on the results of a single
quarter. Our revenues and earnings have fluctuated significantly in the past,
and we expect that they will continue to do so in the future. Relatively poor
results in one quarter could significantly and adversely influence such reports,
which may in turn lead to depreciation of the market price of our common stock,
which in turn may result in the loss of some or all of our shareholders'
investment. Factors that influence the fluctuating nature of our quarterly
results include, without limitation:
- the demand for our services;
- any change in our ability to attract and retain information
technology, engineering and technical training professionals and consultants and
customers;
- the timing and significance of new services and products introduced
by us and our competitors;
- the level of services provided and prices charged by us and by our
competition;
- unexpected changes in operating expenses, such as a determination by
the Canadian fiscal authorities that we must pay payroll taxes for our Canadian
contract service providers and penalties for not having done so in the past; and
- general economic factors.
These factors, many of which are beyond our control, substantially
curtail your ability to predict our future
12
performance based on our past performance, as do many of the other risks
discussed in this prospectus. In addition, many companies that generate
increasing revenues and earnings nevertheless experience devaluation of the
market price of their publicly traded equities. We cannot assure you that even
positive results of operations will not negatively affect the market price of
our common stock.
Your ownership interest in us will be substantially diluted upon the conversion
of the Series C 7% Convertible Preferred Stock and the exercise of the warrants
issued in the April 2001 private placement offering.
We have a total number of 15,181,601shares of common stock outstanding.
Pursuant to the April 2001 private placement offering of Series C Preferred
Stock, we issued an aggregate of 1,230 shares of Series C Preferred Stock and
723,436 common stock purchase warrants. As of the date of this prospectus, 1,110
shares of Series C Preferred Stock are outstanding, 120 of which have been
converted into 266,773 shares of common stock. As of the date of this prospectus
none warrants issued have been exercised. Pursuant to the terms of the offering,
we are obligated to issue an additional 375 shares of Series C Preferred Stock
and approximately 377,771 common stock purchase warrants upon the effective date
of this registration statement (see "Description of Securities -- Series C 7%
Convertible Stock"). If the remaining 1,485 shares of Series C Preferred were to
be converted and the remaining 713,215 common stock warrants were to be
exercised both as of the date of this prospectus, based on the conversion
formula and exercise price, we would be obligated to issue approximately
6,396,338 shares of our common stock. The conversion thereof and the exercise of
the warrants issued would increase the total number of shares of common stock
outstanding to 21,577,939 shares. This figure represents an increase in the
number of shares of our common stock outstanding equal to approximately 42%.
Your ownership in us would be diluted proportionately to any such increase.
The conversion formula is based on the market price of our common
stock. Consequently, we cannot currently determine the number of shares of
common stock into which the shares of Series C Preferred Stock shall be
convertible. The number used above is accurate only as of the date of this
prospectus. Pursuant to the terms of the offering, we are required to register
(i) 100% of the shares of common stock into which any shares of Series C
Preferred Stock have been converted or 226,773 shares, (ii) 200% of the shares
of common stock issuable upon the conversion of the 1,110 shares of Series C
Preferred stock issued and outstanding, (iii) 200% of the shares of common stock
issuable upon the 375 shares of Series C Preferred Stock we are obligated to
issue upon the effective date of this prospectus, (iv) 723,436 shares of common
stock issuable upon the exercise of the issued and outstanding warrants, and (v)
100% of the shares issuable upon the exercise of the approximate 377,771
warrants we are obligated to issue upon the effective date of this prospectus.
The chart provided below shows the number of shares of our common stock
into which one share of Series C Preferred Stock would be convertible, assuming
a decline in the current market price of our publicly traded shares to 75%, 50%
and 25% of the market price using the market price as of October 10, 2001 or
$.28 as the baseline.
The chart provided below is based on the following assumptions:
1. The conversion formula is as follows:
The number of shares of our common stock into which the Series C
Preferred Stock shall be convertible into is 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 our
common stock during the period of 60 consecutive trading days immediately prior
to 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. The Conversion Price is subject to the following
limitations: (a) for the 120 calendar days following April 18, 2001, the
Conversion Price shall not be less than $.375 per share; (b) during the period
commencing on the 121st calendar following April 18, 2001 and ending on the
180th calendar following April 18, 2001, the Conversion Price of 50% of each of
the holders shares of Series C Preferred Stock shall not be less than $.375; and
(c) on any day after the 180th calendar following April 18, 2001, there shall be
no floor on the Conversion Price.
13
2. We make the assumption that the Conversion Price is calculated as
follows:
The "Conversion Price" shall equal 87.5% of the average of the 5 lowest
daily volume weighted average prices of our common stock during the period of 60
consecutive trading days immediately prior the date of the conversion notice.
3. We make the assumption that the applicable date of the conversion
notice is October 10, 2001.
4. We make the assumption that the average of the 5 lowest daily volume
weighted average prices of our common stock during the 60 consecutive days
immediately prior to the date of the conversion equals the applicable market
price of our common stock.
Shares of common stock issuable per share of
Percentage Market Price Conversion Price Series C Preferred Stock ($1,000 stated value)
75% $.21 $.1837 5,444
50% $.14 $.1225 8,163
25% $.07 $.0612 16,340
Approximately 7,290,335 or approximately 48% of our total outstanding shares are
restricted of which 1,377,867 may be publicly sold pursuant to Rule 144k of the
Securities Act of 1933, as amended. If a significant number were to be sold, or
if it were anticipated that a significant number was to be sold, the market
price of our common stock would likely decrease.
A large number of our shares of common stock issued and outstanding but
not currently part of the public float could presently be sold on the open
market. As of October 10, 2001 we have 15,181,601 outstanding shares of common
stock, 7,290,335 of which may be resold in the public market immediately,
subject to applicable contractual restrictions and the volume limitation imposed
by Rule 144. Approximately 1,377,867 or approximately 9% of our outstanding
shares are available for resale in the public market pursuant to Rule 144k of
the Securities Act of 1933, as amended.
Our shares of common stock may soon be delisted from the Nasdaq SmallCap Market,
the effect of which would be that trading in our common stock would be sharply
reduced, leading to a further depreciation in the market price of our common
stock.
According to Rule 4310(c)(8)(B) of the NASD, shares that trade on the
Nasdaq SmallCap Market must meet a minimum bid price of one dollar. Any
deficiency in this regard for a period of 30consecutive business days will cause
Nasdaq notify the issuer of its non-compliance with Rule 4310(c)(8)(B). If the
traded shares fall below one dollar for a period of 90 calendar days, Nasdaq
will delist the shares. To avoid delisting, the issuer must raise the price of
its shares to a minimum of one dollar, and maintain that price for no less than
10 consecutive trading days within the 90-day period.
The closing bid price of our common stock first fell below one dollar
on December 8, 2000. The closing bid price of our common stock was below one
dollar between December 18, 2000 until January 24, 2001. The closing bid price
of our common stock has been below one dollar since March 7, 2001. Accordingly,
our shares have traded below one dollar for a period of 118 calendar days. We
received the notification from Nasdaq of our non-compliance with Rule
4310(c)(8)(B) on July 20, 2001.
On September 6, 2001, we attended a hearing before Nasdaq Listing
Qualifications Panel where we requested continued listing of our common stock on
the Nasdaq SmallCap Market and set forth several proposals to raise our bid
price above one dollar for a sustained period of time, which proposals included
the possibility of selling certain of our assets or business divisions. While
awaiting the decision of the Nasdaq Listing Qualifications Panel, the September
11, 2001 terrorist attack occurred.
14
As of result of the tragedy, Nasdaq, on September 27, 2001, announced a
moratorium on the minimum bid and public float requirements for continued
listing on the exchange until January 2, 2002. Therefore, our common stock will
continue to be listed on the Nasdaq SmallCap Market during this period. In the
event we are unable to maintain a minimum bid price of one dollar for the
requisite period of time, we may be required to reappear before the Nasdaq
Listing Qualification Panel. There can be no assurance that the Panel will grant
our request for continued listing and that our common stock will continue to be
listed on the Nasdaq SmallCap Market. In the event our common stock is de-listed
from the Nasdaq SmallCap Market, the trading in our common stock would likely be
sharply reduced leading to the depreciation in its market price.
If our common stock becomes subject to the penny stock regulation, trading in
the shares of our common stock will likely be further reduced, which would in
all probability further depress the market price of the common stock.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. Commission regulations generally
define a penny stock to be an equity security that has a market or exercise
price of less than $5.00 per share, subject to certain exceptions. Such
exceptions include any equity security listed on Nasdaq and any equity security
issued by an issuer that has net tangible assets of at least $2,000,000, if such
issuer has been in continuous operation for three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. The penny stock rules require a
broker/dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker/dealer must also provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker/dealer
and its salesperson in the transaction, and monthly account statements showing
the market value of each penny stock held in the customer's account. The bid and
offer quotations, and broker/dealer and salesperson compensation information
must be given to the customer orally or in writing prior to effecting the
transaction and must be given in writing before or with the customer's
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from such rules, the
broker/dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for securities
that become subject to the penny stock rules. If our securities became subject
to the penny stock rules, the market for our common shares would become
increasingly illiquid.
We have not, and do not intend, to pay cash dividends in the foreseeable future.
We have not paid any cash dividends on our common stock and do not
intend to pay cash dividends in the foreseeable future. We intend to retain
future earnings, if any, for reinvestment in the development and expansion of
our business. Pursuant to our agreement with the Business Development Bank and
Bank One, we will not pay dividends so long as our loans remain outstanding.
Dividend payments in the future may also be limited by other loan agreements or
covenants contained in other securities which we may issue. Any dividend
payments that we may make would be subject to Canadian withholding tax
requirements. Any future determination to pay cash dividends will be at the
discretion of our Board of Directors and be dependent upon our financial
condition, results of operations, capital and legal requirements and such other
factors as our Board of Directors deems relevant.
15
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information in this prospectus may contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934. This
information may involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements to be materially
different from future results, performance or achievements expressed or implied
by any forward-looking statements. These factors include the risks described in
"Risk Factors." Forward-looking statements, which involve assumptions and
describe our future plans strategies and expectations, are generally
identifiable by use of the words "may," "should," "expect," "anticipate,"
"estimate," "believe," "intend" or "project" or the negative of these words or
other variations on these words or comparable terminology.
16
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of
shares of common stock owned by the selling security holders or upon the
conversion of the shares of Series C 7% Convertible Preferred Stock or the
registration of shares of common stock, although we would receive approximately
$801,813 if all of the warrants and options, the underlying shares of which are
being registered in this offering, are exercised. If the warrants and/or options
are exercised, we will use the net proceeds for the funding of potential
acquisitions, working capital and general corporate purposes. All proceeds from
the sales of the shares of common stock owned by the selling security holders
will be for their own accounts. See "Selling Security Holders."
CERTAIN MARKET INFORMATION
Our common stock began trading on the Nasdaq SmallCap Market on June 8,
1999, when we completed our initial public offering. Our common stock is listed
on the Nasdaq SmallCap Market under the symbol "THTH". As of October 10, 2001,
we had 15,181,601shares of common stock outstanding. The following table sets
forth the high and low sale prices for our common stock as reported on the
Nasdaq SmallCap Market.
Fiscal 1999 High Low
----------- ---- ---
Third Quarter $5.25 $2.813
Fourth Quarter $4.969 $2.938
Fiscal 2000
First Quarter $4.438 $2.275
Second Quarter $4.750 $3.188
Third Quarter $3.563 $2.125
Fourth Quarter $2.265 $0.375
Fiscal 2001
First Quarter $1.688 $0.563
Second Quarter $0.57 $0.30
Third Quarter (through October 10, 2001 ) $0.37 $0.28
As of October 10, 2001, we had 100 holders of record and
approximately 1,063 beneficial shareholders.
On October 10, 2001, the last sale price of our common stock
as reported on the Nasdaq SmallCap Market was $0.28.
DIVIDEND POLICY
We have never paid or declared dividends on our common stock.
The payment of cash dividends, if any, in the future is within the discretion of
the Board of Directors and will depend upon our earnings, capital requirements,
financial condition and other relevant factors. We intend to retain future
earnings for use in our business.
17
SELECTED FINANCIAL DATA
The following selected statement of operations data is for the years
ended December 31, 1999 and 2000 and for the six months ended June 30, 2001. The
selected balance sheet data is for the year ended December 31, 2000. The
statement of operations and balance sheet data for the years ended December 31,
1999 and 2000 and the six months ended June 30, 2001 is derived from our
financial statements and the related notes included elsewhere in this prospectus
audited by Schwartz Levitsky Feldman, llp. All information should be read in
conjunction with our consolidated financial statements and the notes contained
elsewhere in this prospectus.
Year Ended Six Months Ended
December 31 June 30,
1999* 2000* 2001
(in thousands except per share data)
Statement of Operations Data
Revenue 27,032,435 44,325,780 20,717,885
Loss before Gain on Investments and
Income Taxes (170,942) (9,587,989) (1,705,338)
Net Loss (5,323) (8,398,317) (2,109,330)
Loss per share (0.04) (2.27) (0.15)
*Restated
Year Ended Six Months Ended
December 31, 2000* June 30, 2001
(in thousands except per share data)
Balance Sheet Data
Working capital deficiency (3,087,131) (2,451,974)
Total Assets 25,685,940 23,092,642
Long-term debt 2,401,980 2,522,930
Total Liabilities 14,886,934 13,465,638
Total Stockholders' equity 10,799,006 9,627,004
*Restated
18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the selected historical financial data, financial statements
and notes thereto and the other historical financial information of Thinkpath
Inc. contained elsewhere in this prospectus. The statements contained in this
prospectus 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, as amended, including statements regarding our
expectations, intentions, beliefs or strategies regarding the future.
Forward-looking statements include our statements regarding liquidity,
anticipated cash needs and availability and anticipated expense levels. All
forward-looking statements included in this prospectus are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statement. It is important to note that our actual results
could differ materially from those in such forward-looking statements.
Overview
We are a global provider of information technology and
engineering, project outsourcing, recruitment, technical training and consulting
and ASP-based skills management technology. Our customers include financial
service companies, software and other technology companies, Canadian and
American governmental entities and large multinational companies, including Bank
of Montreal, General Electric, Bell Canada, Goldman Sachs, Chapters, Lucent
Technologies, Cummins Engine, General Motors, CIBC, Xerox Corporation, American
Express and Universal Industrial Corp.
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 and Six Months Ended June 30, 2001 Compared to the Three and Six
Months ended June 30, 2000
For the three months ended June 30, 2001, we derived 66% of
our revenue in the United States, which is consistent with the three months
ended June 30, 2000. For the six months ended June 30, 2001, we derived 58% of
our revenue in the United States compared to 64% for the six months ended June
30, 2000.
For the three months ended June 30, 2001, our primary source
of revenue was recruitment, representing 45% of total revenue compared to 24%
for the three months ended June 30, 2000. For the six months ended June 30,
2001, our primary source of revenue was recruitment, representing 43% of total
revenue compared to 28% for the six months ended June 30, 2000. The increase in
revenue from recruitment is a result of the postponement of contracts and
resulting decline in revenue from our technical publications and engineering
outsourcing service division. 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 clients include DMR, Bank of Montreal,
Goldman Sachs, and Sprint Canada. In the case of contract services, we provide
our customers with independent contractors or "contract workers" who usually
work under the supervision of the client's management. Generally, we enter into
a time-and-materials contract with our customer whereby the client pays us an
agreed upon hourly rate for the contract worker. We pay the contract worker
pursuant to a separate consulting agreement. The contract worker generally
receives between 75% and 80% of the amount paid to us by the customer; however,
such payment is usually not based on any formula and may vary for different
engagements. We seek to gain "preferred supplier status" with our larger clients
to secure a larger percentage of those clients' businesses. While such status is
likely to result in increased revenue and gross profit, it is
19
likely to reduce gross margin percentage because we are likely to accept a lower
hourly rate from our customers and there can be no assurance that we will be
able to reduce the hourly rate paid to our consultants. In the case of permanent
placement services, we identify and provide candidates to fill permanent
positions for our clients.
For the three months ended June 30, 2001, 32% of our revenue
came from technical publications and engineering outsourcing services compared
to 41% for the three months ended June 30, 2000. For the six months ended June
30, 2001, 34% of our revenue came from technical publications and engineering
outsourcing services compared to 46% for the six months ended June 30, 2000. The
decline in revenue from technical publications and engineering outsourcing
services is a result of the postponement of start dates of several major
contracts with established clients until the fourth quarter of 2001. Our
technical publications and engineering outsourcing services include the complete
planning, staffing, development, implementation and testing of a project.
Outsourcing can also involve enterprise-level planning and project anticipation.
Our specialized outsourcing services include: technical publications and
engineering documentation, Web development and engineering services. We
outsource our technical publications and engineering services 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 is
probable. Clients we provide outsourcing to include General Electric, FedEx,
Boeing, Caterpillar, Cummins Engines and Intel.
For the three months ended June 30, 2001, information
technology documentation services represented approximately 9% of our revenue
compared to 14% for the three months ended June 30, 2000. For the six months
ended June 30, 2001, information technology documentation services represented
approximately 11% of our revenue compared to 8% for the six months ended June
30, 2000. We provide outsourced information technology documentation services in
two ways: complete project management or the provision of skilled project
resources to supplement a client's internal capabilities. Revenue is recognized
on the same basis as technical publications and engineering outsourcing
services. Selected information technology documentation services clients include
Fidelity Investments, SMD Tech Aid Corporation, CDI Corporation, and the
Gillette Company.
For the three months ended June 30, 2001, technical training
represented approximately 12% of our revenue compared to 20% for the three
months ended June 30, 2000. For the six months ended June 30, 2001, technical
training represented approximately 10% of our revenue compared to 17% for the
six months ended June 30, 2000. The decline in revenue from technical training
is a result of both the restructuring of this division and a general decline in
the industry resulting in the cancellation of technical training contracts. 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 clients include Microsoft,
Chase Manhattan Bank, Goldman Sachs, City of New York and Consumers Gas. Revenue
is recognized on delivery of services.
For the three months ended June 30, 2001, technology sales
represented 2% of total revenue compared to 1% for the three months ended June
30, 2000. For the six months ended June 30, 2001, technology sales represented
2% of total revenue compared to 1% for the six months ended June 30, 2000. We
have developed proprietary software applications in two areas: human capital
management and Web development. Njoyn is our human capital management system.
Njoyn is a Web-based application that automates and manages the entire hiring
process. The revenue associated with providing this software is allocated to 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 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 for hosting.
SecondWave is our Web development software. SecondWave allows
companies to create, manage and automate their own dynamic, adaptive Web sites.
The software learns from each visitor's behavior and targets his or her needs
and interests with customized content and communications. We sign contracts for
the customization or
20
development of SecondWave in accordance with specifications of our 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.
Selected technology clients include Microsoft, CIBC, Investors Group, and
Digital Cement.
Gross profit is calculated by subtracting all direct costs
from net revenue. The direct costs of contract recruitment include contractor
fees and benefits, resulting in an average gross profit of 29%. We do not
attribute any direct costs to permanent placement services, therefore the gross
profit on such services is 100% of revenue. The direct costs of technical
publications and engineering outsourcing include wages, benefits, software
training and project expenses. The average gross profit for outsourcing is 29%.
The direct costs of information technology documentation services include wages,
benefits, and project expenses. The average gross profit for information
technology documentation is 31%. The direct costs of training include trainer
salaries, benefits and travel as well as courseware. The average gross profit on
training is 58%. The direct costs of our technology services are minimal and
include hosting fees and software expenses. The average gross profit on
technology is 95%.
The Year Ended December 31, 2000
For the year ended December 31, 2000, we derived 65% of our
revenue in the United States as compared to 39% in the year ended December 31,
1999. Our primary source of revenue was outsourcing and managed services,
representing 51% of total revenue. Recruitment services represented 31%,
technical training 16% and technology sales 2% of our total revenue.
Acquisitions
In April 1998, we acquired all the issued and outstanding
capital stock of Systemsearch Services Inc. and Systems PS Inc. from John R.
Wilson for aggregate consideration $98,000 and 130,914 shares of our common
stock. Systems PS Inc. is inactive but holds certain assets utilized by
Systemsearch Consulting Services Inc. in its operations. The acquisition was
effective as of January 2, 1997. Declan A. French, our President and Chairman of
the Board, participated in the management of Systemsearch Consulting Services
Inc. We shared data and operating information systems with Systemsearch
Consulting Services Inc. during the year ended December 31, 1997. Accordingly,
our Consolidated Financial Statements incorporate the operations of Systemsearch
Consulting Services Inc. since January 1, 1997.
On May 19, 1998, we completed the acquisition of all the
issued and outstanding shares of capital stock of International Career
Specialists Ltd. for $326,000 in cash and 130,914 shares of our common stock to
John A. Irwin, who was not affiliated with us prior to this acquisition. In
connection with the acquisition, International Career Specialists Ltd. made a
distribution to Mr. Irwin of certain of its assets that were not necessary for
the operation of the business. The transaction was effective as of January 1,
1998. Declan A. French and some of our other officers participated in the
management of International Career Specialists Ltd. during the year ended
December 31, 1998. Accordingly, our Consolidated Financial Statements
incorporate the operation of International Career Specialists Ltd. since January
1, 1998.
In November 1998, we completed the acquisition of certain
assets of Southport Consulting, Inc. from Michael Carrazza, one of our former
directors, for an aggregate of $250,000 in cash and shares of our common stock.
In February 2001, Mr. Carrazza instituted an action against us in the Supreme
Court of the State of New York alleging breach of contract and unjust
enrichment. Mr. Carrazza is seeking $250,000 in damages specifically claiming
that we failed to deliver cash and/or stock under the asset purchase agreement.
The action is currently in the discovery phase.
In September 1999, we completed the acquisition of all the
issued and outstanding capital stock of Cad Cam, Inc., an Ohio corporation, for
an aggregate of $2,000,000 in cash, $2,500,000 pursuant to a promissory note and
$1,500,000 of our common stock to Roger W. Walters, Cad Cam, Inc.'s former
president. As part of the
21
transaction, Mr. Walters was elected to serve as one of our directors. Mr.
Walters was not affiliated with us prior to the acquisition. On March 14, 2001,
Mr. Walter resigned from the Board of Directors effective March 30, 2001.
On January 1, 2000, we completed the acquisition of all of the
issued and outstanding capital stock of Object Arts Inc., an Ontario
corporation, in consideration of: (i) the issuance of $900,000 of our common
stock to Working Ventures Custodian Fund in exchange for the retirement of
outstanding subordinated debt; (ii) the issuance to Working Ventures Custodian
Fund of an amount of our common stock equal to the legal fees and professional
fees incurred and paid by Working Ventures Custodian Fund in connection with our
acquisition of Object Arts Inc.; and (iii) the issuance of $1,100,000 of our
common stock to the existing shareholders of Object Arts Inc. As part of the
transaction, we entered into employment agreements with Marilyn Sinclair and
Lars Laakes, former officers of Object Arts, Inc. Such employment agreements
were for a term of three years commencing on January 1, 2000, the effective date
of the acquisition, with annual salaries of $82,000 and $75,000 per year,
respectively. Neither Ms. Sinclair nor Mr. Laakes were affiliated with us prior
to the acquisition. On March 9, 2001, Ms. Sinclair resigned as an officer of
Thinkpath. On April 9, 2001 Ms. Sinclair resigned from our Board of Directors.
On March 6, 2000, we 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.
On April 1, 2000, we completed the acquisition of all of the
issued and outstanding capital stock of Micro Tech Professionals, Inc., a
Massachusetts corporation, in consideration for up to an aggregate of $4,500,000
in a combination of cash, notes payable and shares of our common stock, subject
to the achievement of specific performance criteria. On April 25, 2000, we paid
to Denise Dunne-Fushi, the sole shareholder of Micro Tech Professionals, Inc.,
$2,500,000, which was paid in accordance with the following schedule: (i)
$1,250,000 in cash; (ii) the issuance of a $750,000 principal amount unsecured
promissory note; and (iii) the issuance of 133,333 shares of our common stock.
As part of the transaction, we entered into an employment agreement with Mrs.
Dunne-Fushi, the former President of Micro Tech Professionals, Inc. Such
employment agreement was for a term of one year commencing on April 25, 2000,
with an annual salary of $125,000 and a bonus of $25,000. Mrs. Dunne-Fushi was
not affiliated with us prior to the acquisition. Thinkpath and Mrs. Dunne-Fushi
are currently in the process of negotiating the terms of the renewal of her
employment agreement. Mrs. Dunne-Fushi continues to serve as our Vice President
and as the President of Micro Tech Professionals, Inc. on a month-to-month basis
under the same terms described above.
On November 15, 2000, we consummated a business combination
with TidalBeach Inc., a Web development company incorporated in the Province of
Ontario. In consideration for the business combination, we issued 250,000 shares
of our common stock to its two shareholders. As part of the transaction, we
entered into an employment agreement with Michael Reid, the former President of
TidalBeach Inc. Such employment agreement is for a term of 2 years commencing on
November 15, 2000 with an annual salary of $123,000.
The acquisitions of Systemsearch Consulting Services Inc.,
International Career Specialists, Cad Cam, Inc., and Micro Tech Professionals,
Inc. were accounted for using the purchase method of accounting, which requires
that the purchase price be allocated to the assets of the acquired entity based
on fair market value. In connection with the acquisitions of Systemsearch
Consulting Services Inc., International Career Specialists Ltd. and all of the
issued and outstanding stock of Cad Cam, Inc., Micro Tech Professionals, Inc.,
and E-Wink, Inc. we recorded $449,000, $851,000, $5,520,000, $3,010,000, and
$2,430,000 respectively, in goodwill, which is being amortized over 30 years in
accordance with generally accepted accounting principles as applied in the
United States. At December 31, 2000, we wrote-off goodwill related to E-Wink,
Inc. and International Career Services Ltd as these entities have ceased to
operate and therefore the goodwill has been determined to have no value.
The combinations of Object Arts Inc. and TidalBeach Inc. were
accounted for using the pooling of interests method of accounting. In connection
with the combination of Object Arts Inc., we issued 527,260 shares of our common
stock for all of the outstanding common stock of the combined company. In
connection with the combination of TidalBeach Inc., we issued 250,000 shares of
our common stock for all of the outstanding common
22
stock of the combined company. Accordingly, the consolidated financial
statements for the period ending December 31, 1999 have been retroactively
restated to reflect the combinations.
Results of Operations
The Three and Six Months Ended June 30, 2001 Compared to the Three and Six
Months ended June 30, 2000
The following table presents certain of our financial data as a percentage of
our revenue based on information derived from our revised financial statements:
Three months ended June 30, Six months ended June 30,
2001 2000 2001 2000
---- ---- ---- ----
Sales 100% 100% 100% 100%
Cost of Sales 66% 61% 65% 60%
Gross Profit 34% 39% 35% 40%
Expenses 48% 38% 43% 38%
Income (loss) before Income Taxes -14% 2% -8% 2%
Net income (loss) -16% 2% -10% 2%
Revenue. Revenue for the three months ended June 30, 2001
decreased by $2,185,000 or 18%, to $10,015,000, as compared to $12,200,000 for
the three months ended June 30, 2000. The decrease is primarily attributable to
the decline in revenue of our technical publications and engineering services,
information technology documentation and training divisions, of 9%, 5% and 8%
respectively. This decline is attributable to the postponement or cancellation
of contract start dates, as well as the general downturn in the economy.
Revenue for the six months ended June 30, 2001 decreased by
$1,320,000 or 6%, to $20,720,000, as compared to $22,040,000 for the six months
ended June 30, 2000. The decrease is primarily attributable to the decline in
revenue of our technical publications and engineering services, and training
divisions, of 12% and 7% respectively. This decline is attributable to the
postponement or cancellation of contract start dates, as well as the general
downturn in the economy.
Cost of Sales. The cost of sales for the three months ended
June 30, 2001 decreased by $780,000, or 11%, to $6,600,000, as compared to
$7,380,000 for the three months ended June 30, 2000. This decrease was a direct
result of the decline in revenue. As a percentage of revenue, the cost of sales
was 66% compared to 61% for the three months ended June 30, 2000. The cost of
sales increased as a result of the increase in information technology contract
sales, from which we derive a lower margin.
The cost of sales for the six months ended June 30, 2001
increased by $160,000, or 1%, to $13,480,000, as compared to $13,320,000 for the
six months ended June 30, 2000. This increase, despite the decline in sales, was
a direct result of the increase in contract sales, from which we derive a lower
margin. As a percentage of revenue, the cost of sales was 65% compared to 60%
for the six months ended June 30, 2000.
Gross Profit. Gross profit for the three months ended June 30,
2001 decreased by $1,400,000, or 29%, to $3,420,000, as compared to $4,820,000
for the three months ended June 30, 2000. This decrease was attributable to the
decrease in revenue discussed above during the three months ended June 30, 2001.
As a percentage of revenue, gross profit decreased from 39% to 34% for the three
months ended June 30, 2001.
Gross profit for the six months ended June 30, 2001 decreased
by $1,480,000, or 17%, to $7,240,000, as compared to $8,720,000 for the six
months ended June 30, 2000. This decrease was attributable to the decrease in
revenue and the increase in cost of sales during the six months ended June 30,
2001. As a percentage of revenue, gross profit decreased from 40% to 35% for the
six months ended June 30, 2001.
Expenses. Expenses for the three months ended June 30, 2001
increased by $200,000 or 5% to $4,840,000 compared to $4,620,000 for the three
months ended June 30, 2000. Administrative expenses increased $690,000 or
23
43% to $2,290,000 compared to $1,600,000 for the three months ended June 30,
2000. This increase is a result of increased corporate and technology overheads.
Selling expenses for the three months ended June 30, 2001 decreased by $660,000
or 30% to $1,620,000 from $2,280,000 for the three months ended June 30, 2000.
This decrease is attributable to the decrease in revenue. For the three months
ended June 30, 2001, interest charges decreased by $50,000 or 17% to $250,000
from $300,000 for the three months ended June 30, 2000, primarily due to a
reduction of long-term debt. For the three months ended June 30, 2001,
depreciation and amortization expenses increased $130,000 or 30% to $560,000
from $430,000 for the three months ended June 30, 2000. This increase is
primarily attributable to the increase in capital assets and the acquisition of
other assets. For the three months ended June 30, 2001, restructuring charges
related to the termination of personnel and the closure of non-productive branch
offices were $170,000 compared to zero for the three months ended June 30, 2000.
Expenses for the six months ended June 30, 2001 increased by
$610,000 or 7% to $8,950,000 compared to $8,340,000 for the six months ended
June 30, 2000. Administrative expenses decreased $240,000 or 7% to $3,040,000
compared to $3,280,000 for the six months ended June 30, 2000. Selling expenses
for the six months ended June 30, 2001 decreased by $530,000 or 14% to
$3,260,000 from $3,790,000 for the six months ended June 30, 2000. This decrease
is attributable to the decrease in revenue. Financing costs increased $570,000
for the six months ended June 30, 2001 to $570,000 compared to $0 for the six
months ended June 30, 2000 and relate primarily to the series C preferred share
placement that occurred in April 2001. For the six months ended June 30, 2001,
interest charges decreased by $60,000 or 11% to $490,000 from $550,000 for the
six months ended June 30, 2000, primarily due to a reduction of long-term debt.
For the six months ended June 30, 2001, depreciation and amortization expenses
increased $410,000 or 58% to $1,120,000 from $710,000 for the six months ended
June 30, 2000. This increase is primarily attributable to the increase in
capital assets and the acquisition of other assets. For the six months ended
June 30, 2001, restructuring charges related to the termination of personnel and
the closure of non-productive branch offices were $450,000 compared to $0 for
the six months ended June 30, 2000.
Net Income (Loss) Before Income Tax. Net income before income
tax for the three months ended June 30, 2001 decreased by $1,620,000, to a net
loss of $1,420,000 as compared to net income before income tax of $200,000 for
the three months ended June 30, 2000.
Net income before income tax for the six months ended June 30,
2001 decreased by $2,090,000, to a net loss of $1,710,000 as compared to net
income before income tax of $380,000 for the six months ended June 30, 2000.
The Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999
The following table presents certain of our financial data as a
percentage of our revenue based on information derived from our revised
financial statements for the years ended December 31, 1999 and 2000.
Year ended December 31,
2000* 1999*
----- -----
Sales 100% 100%
Cost of Sales 59% 61%
Gross Profit 41% 39%
Expenses 63% 40%
Income (loss) before Income Taxes -22% 0.3%
Net loss -19% -0.02%
*Restated
Revenue. Revenue for the year ended December 31, 2000
increased by $17,300,000 or 64%, to $44,330,000, as compared to $27,030,000 for
the year ended December 31, 1999. The increase is primarily attributable to the
acquisition of Cad Cam Inc., effective September 16, 1999, which had sales of
$18,800,000, Object Arts Inc., effective January 1, 2000, which had sales of
$6,500,000 and Micro Tech Professionals Inc., which had sales of $6,200,000.
24
Cost of Sales. The costs of sales for the year ended December
31, 2000 increased by $9,820,000, or 60%, to $26,180,000, as compared to
$16,360,000 for the year ended December 31, 1999. This increase was due to the
increased volume of outsourcing.
Gross Profit. Gross profit for the year ended December 31,
2000 increased by $7,470,000, or 70%, to $18,140,000, as compared to $10,670,000
for the year ended December 31, 1999. This increase was attributable to the
aforementioned increase in revenue during the year ended December 31, 2000.
Expenses. Expenses for the year ended December 31, 2000
increased by $17,160,000 or 158% to $28,000,000 compared to $10,840,000 for the
year ended December 31, 1999. Administrative expenses increased $3,610,000 or
66% to $9,040,000 compared to $5,430,000 for the year ended December 31, 1999.
This increase was primarily attributable to the increase in corporate expenses
to support the increasing number of locations and volume of transactions.
Selling expenses increased $3,340,000 or 77% to $7,670,000 from $4,330,000 for
the year ended December 31, 1999. This increase is directly attributable to the
increase in revenue.
For the year ended December 31, 2000, interest charges
increased by $450,000 or 136% to $780,000 from $330,000 for the year ended
December 31, 1999, primarily due to the increase in bank indebtedness, capital
leases and long-term debt.
For the year ended December 31, 2000, costs related to
acquisitions and financing activities were $4,590,000 compared to $0 for the
year ended December 31, 1999.
For the year ended December 31, 2000, depreciation and
amortization expense increased $1,370,000 or 183% to $2,120,000 from $750,000
for the year ended December 31, 1999. This increase is primarily attributable to
the increase in capital assets and the acquisition of other assets.
For the year ended December 31, 2000, goodwill was written
down by $3,100,000 compared to zero for the year ended December 31, 1999. The
impairments are for the investments in E-Wink Inc. and International Career
Specialists. These two entities have ceased to operate and therefore the
goodwill has been determined to have no value.
For the year ended December 31, 2000, restructuring charges
related to the termination of personnel and the closure of non-productive branch
offices were $690,000 compared to zero for the year ended December 31, 1999.
Net Income (Loss) Before Income Tax. Net income before income
tax for the year ended December 31, 2000 decreased by $9,670,000, to a net loss
of $9,590,000 as compared to net income before income tax of $80,000 for the
year ended December 31, 1999.
Liquidity and Capital Resources
The Six Months Ended June, 2001 Compared to the Six Months Ended June, 2000
Our primary sources of cash are a credit facility of
$7,000,000 with Bank One and proceeds from the sale of equity securities. At
June 30, 2001, we had $4,084,000 outstanding on our Bank One credit facility.
For the six months ended June 30, 2001, we raised $1,500,000 from the issuance
of common and preferred stock.
At June 30, 2001, we had negative cash or cash equivalents and
a working capital deficiency of $2,450,000. At June 31, 2001, we had cash flow
from operations of $500,000. At June 30, 2000, we had cash and cash equivalents
of 1,160,000 and a working capital deficiency of $190,000. At June 30, 2000, we
had a cash flow deficiency from operations of $1,310,000, due primarily to
expenditures in short-term investments.
At June 30, 2001, we had cash flow from financing activities
of $240,000 attributable primarily to proceeds from long-term debt of $225,000,
the issuance of common stock of $400,000, the issuance of preferred stock of
$1,100,000 and the repayment of debt of $1,500,000. At June 30, 2000, we had
cash flow from financing activities
25
of $3,280,000, attributable primarily to an increase in bank indebtedness of
$1,150,000 and proceeds from the issuance of common stock of $120,000 and
preferred stock of $1,580,000.
At June 30, 2001, we had a cash flow deficit from investing
activities of $700,000 attributable primarily to the purchase of capital assets
of $210,000 increase in long-term investments of $290,000 and long-term
receivables of $190,000. At June 30, 2000, we had a cash flow deficit from
investing activities of $2,810,000 attributable primarily to the purchase of
capital assets of $810,000, other assets of $210,000 and cash payment for
subsidiaries of $1,790,000.
At June 30, 2001, we were in breach of the loan covenants
governing our credit line facility with Bank One. As a result, the bank has
enforced a restriction on principal repayment of all subordinated loans and
notes payable. The parties affected by this restriction include the Business
Development Bank of Canada, Roger Walters and Denise Dunne to whom we owe
approximately $450,000, $1,200,000, and $1,900,000 respectively.
At June 30, 2001, we were also in breach of the working
capital covenants governing our operating loans with the Business Development
Bank of Canada. The bank has agreed to a temporary deferment of principal
payments until January 2002. We are current in our interest obligations to the
Business Development Bank of Canada.
As a result of Bank One's restriction on subordinated debt
payments, we are currently in breach of our payment schedule to Roger Walters.
We have restructured our note payable to Roger Walters, so that 1,200,000 shares
will be issued in lieu of $450,000 cash reducing the balance of the note to
$750,000. The balance will be paid over 3 years beginning January 1, 2003. We
are current in our interest obligations to Roger Walters.
As a result of Bank One's restriction on subordinated debt
payments, we are in breach of our payment schedule to Denise Dunne. We are
currently in the process of restructuring our note payable to Denise Dunne. We
hope to reduce the cash amount owing and extend the payment terms. We are
current in our interest obligations to Denise Dunne.
During the last few months, we have initiated substantial
changes in operational procedures in an effort to return to profitability and to
improve our cash flow and financial condition. We have continued to coordinate
our sales efforts to maximize organic and cross-selling initiatives. In
addition, we have continued our cost cutting initiatives including the
termination of personnel and closure of non-productive offices and business
lines. We have also successfully restructured some of our long-term debt
obligations in addition to postponing significant obligations.
In June 2001, we retained Banc One Capital Markets to
represent us in certain investment banking opportunities. We are exploring
several opportunities, including joint ventures, strategic partnerships,
spin-offs of subsidiaries, and the potential sale or downsizing of other smaller
business units.
We believe, despite our recent 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.
The Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999
At December 31, 2000, we had negative cash or cash equivalents
and a working capital deficiency of $3,090,000. During the year ended December
31, 2000, we had a cash flow deficiency from operations of $3,500,000, due
primarily to expenditures on research and development of Njoyn, and
restructuring costs associated with the closure of branch offices.
At December 31, 1999, we had cash and cash equivalents of
$1,900,000 and a working capital deficiency of $1,380,000. During the year ended
December 31, 1999, we had a cash flow deficiency from operations of $1,530,000,
due primarily to an increase in accounts receivable of $2,840,000, which was
partially offset by an increase in accounts payable of $930,000.
For the year ended December 31, 2000, we had cash flow from
financing activities of $6,020,000, attributable primarily to share capital
issue of $5,530,000, an increase in long-term debt of $1,110,000 and an
26
increase in bank indebtedness of $630,000. For the year ended December 31, 1999,
we had cash flow from financing activities of $7,460,000, attributable primarily
to proceeds of $5,400,000 from the sale of share capital and an increase in bank
indebtedness of $2,360,000.
On September 13, 2000, we entered into an engagement agreement
with Burlington Capital Markets Inc.. In the aggregate, Burlington received
425,000 shares of our common stock and $10,000 pursuant to the agreement.
On April 16, 2000, we issued: (i) 1,500 shares of Series B 8%
Percent Cumulative Convertible Preferred Stock, no par value per share; and (ii)
warrants to purchase up to an aggregate of 300,000 shares of our common stock,
in consideration $1,500,000 pursuant to a private placement offering. Each share
of Series B 8% Cumulative Convertible Preferred Stock has a stated value of
$1,000 per share.
The shares of Series B 8% Percent Cumulative Convertible
Preferred Stock are convertible into shares of our common stock at the option of
the holders at any time after issuance unless redeemed prior to such conversion.
The 300,000 warrants issued in the offering are exercisable at any time and in
any amount until April 16, 2005 at the exercise price of $3.71 per share. As of
the date hereof, all of the shares of Series B 8% Cumulative Convertible
Preferred Stock have been converted into shares of our common stock.
In addition, on April 16, 2000 we issued (i) 2,500 shares of
Series A 8% Cumulative Convertible Preferred Stock and (ii) 50,000 warrants to
purchase common stock in a private placement offering. The 50,000 warrants
issued in the offering are exercisable at any time and in any amount until April
16, 2005 at a purchase price of $3.71 per share.
On July 7, 2000, upon the exercise of a put option granted to
us in the December 1999 private placement offering of our Series A 8% Cumulative
Convertible Preferred Stock, we issued an aggregate of; (a) 5,000 additional
shares of our Series A 8% Cumulative Convertible Preferred Stock, and (b)
warrants to purchase an aggregate of up to 225,000 shares of our common stock in
consideration for $500,000. The 225,000 warrants issued upon our exercise of the
option are exercisable at any time and in any amount until December 30, 2004 at
a purchase price of $3.575 per share. As of the date hereof, all of such shares
of Series A 8% Cumulative Convertible Preferred Stock have been converted into
shares of our common stock.
On July 27, 2000, we entered into an agreement with Bank One
for an operating line of $7,000,000 payable on demand and secured by our assets.
Effective July 27, 2000, we canceled our operating lines with Toronto Dominion
Bank and Provident Bank. At December 31, 2000, there was $5,000,000 outstanding
on this line. At December 31, 2000, we had a total of $540,000 due to the
Business Development Bank of Canada pursuant to six separate loans
On August 22, 2000, we completed a private placement offering
of units, each unit consisting of 1 share of our common stock and a callable
warrant to purchase 1/2 of 1 share of our common stock. A total of 1,063,851
shares of our common stock was issued together with 560,627 warrants to purchase
shares of our common stock exercisable until August 22, 2005, in consideration
for $2,681,600. The purchase price per unit ranged from $1.9692 to $2.8125. In
addition, we issued warrants to purchase up to 280,693 shares of our common
stock to the placement agent, certain financial advisors and the placement
agent's counsel in connection with the private placement offering. These
warrants are exercisable until August 22, 2005 at an exercise price of $2.4614
per share.
During the year ended December 31, 2000, we had a cash flow
deficit from investing activities of $3,720,000, attributable primarily to the
acquisition of Micro Tech Professionals, Inc. During the year ended December 31,
1999, we had a cash flow deficit from investing activities of $4,070,000,
attributable primarily to the aforementioned acquisition of Cad Cam Inc.
Year 2000 Compliance
We have developed and implemented a Year 2000 compliance
program to address internal systems, suppliers, processes and procedures, as
well as the internally developed Njoyn solution. All phases and actions of this
program were successfully completed as planned. Remediation measures, where
required, were successfully implemented and tested. The total cost of the
compliance program was not material. Although we believe that we
27
have taken the appropriate steps to assess, implement and test Year 2000
compliance, it is not possible to ascertain whether the efforts of customers,
suppliers or other third parties, will have a material adverse effect on our
business, results of operations and financial condition.
Fluctuations in Quarterly Results
Our quarterly operating results have in the past and, may in
the future, fluctuate significantly, depending on factors such as the demand for
our services; our ability to attract and retain employees, information
technology and engineering professionals, and customers; the timing and
significance of new services and products introduced by us and our competitors;
the level of services provided and prices charged by us and our competitors;
unexpected changes in operating expenses; and general economic factors. Our
operating expenses are based on anticipated revenue levels in the short term,
are relatively fixed, and are incurred throughout the quarter. Accordingly,
there may be significant variations in our quarterly operating results.
Management of Growth
Our business has grown rapidly in the last five years. The
growth of our business and expansion of our customer base and service offerings
has placed a significant strain on management and operations. Our recent
expansion by acquisitions has resulted in substantial growth in the number of
our employees, the scope of our operating and financial systems and the
geographic area of our operations, resulting in increased responsibility for
both existing and new management personnel. Our future operating results will
depend on the ability of management to continue to implement and improve our
operational and financial control systems, and to expand, train and manage our
employee base. In addition, our failure to generate or raise sufficient capital
to fund continued growth may result in the delay or abandonment of some or all
future expansion plans or expenditures or a reduction in the scope of some or
all of our present operations, which could materially adversely effect our
business, results of operations and financial condition.
BUSINESS
Overview
We are a global provider of information technology and
engineering project outsourcing, recruitment and staffing, technical training
and consulting and ASP-based skills management technology. Our customers include
financial services companies, software and other technology companies, Canadian
and American governmental entities and large multinational companies, including
Bank of Montreal, Bell Canada, Goldman Sachs, Chapters, Lucent Technologies,
Cummins Engine, General Electric, General Motors, CIBC, Xerox Corporation, EDS,
America Express and Universal Industrial Corp. (ESI).
We were incorporated under the laws of the Province of
Ontario, Canada in 1994.
Outsourcing
Many companies do not have the staff necessary to complete a
large project in-house and, due to time, cost and/or infrastructure restraints,
are not interested in hiring new employees or training existing employees for
such projects. In response to this trend, we offer specialized project
outsourcing and management services in the areas of technical documentation, Web
development, design engineering, and Computer Aided Design (CAD) services.
Management anticipates that outsourcing will account for more than 60% of our
total revenues by 2002.
Recruitment
We offer full-service recruitment services, including
permanent placement, contract placement, and executive search in the IT and
engineering fields. We have particular expertise in recruiting for Web-based and
e-commerce applications, Customer Relationship Management (CRM) technologies,
technical documentation and technical training. We can and do find candidates
from the entire spectrum of responsibility levels -- from newly graduated junior
technicians to senior technical executives.
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Our careful evaluation process tests candidates on their
technical proficiency, soft skills, fit with company culture, and attitude
towards finding a new position. We guarantee that all potential hires are
interviewed and reference checked and that no resume is ever forwarded to a
client without the candidate's prior permission and knowledge.
Training
Out training division offers an array of technical training
and certification options, including classroom training with an instructor,
one-on-one mentoring in the workplace, and Internet-based learning modules. We
are a Microsoft Certified Technical Education Center and also offer a variety of
Web certification programs including Java, Linux, and Microsoft end-user
training.
Instructor-Led Classroom Training In state-of-the-art
facilities, we schedule over 80 public enrollment courses. We use
vendor-certified curricula and vendor-certified trainers to ensure the highest
quality learning experience.
Private Group Classes
For groups of IT professionals that require training on a
particular topic, we can customize a course to fit a specific IT environment and
hold the course at a site of the client's choosing. We have successfully
completed private training in the United States, Canada, Hong Kong, the
Philippines, the United Kingdom and other international locations for
high-profile clients such as Goldman Sachs.
Mentoring
Our highly skilled instructors provide on-site, on-the-job
technical advice and tutoring. Management believes that this "mentoring" program
is an effective way to add expert skills on a short-term basis to enhance the
performance of IT personnel and to implement computer technologies.
Technology
Njoyn
Based on our corporate experience in the recruitment industry,
we have developed an Internet-based recruiting solution called Njoyn. Njoyn is a
complete application that manages and streamlines every aspect of the hiring
process yet is delivered over the Web on a subscription basis.
Through a simple and easily accessible interface, companies
utilizing Njoyn can broadcast job openings, sort and rank incoming candidates,
manage agency relationships, communicate in real-time with all stakeholders in
the hiring process, schedule and track interviews and generate statistical
reports to monitor Return on Investment (ROI). Njoyn is delivered through an ASP
(Application Service Provider) model. Development of the application is already
completed, and Njoyn is currently being used by several of our clients.
SecondWave
SecondWave is Web marketing and site maintenance software that
we acquired through our acquisition of TidalBeach. SecondWave allows companies
to create, manage and automate their own dynamic, adaptive Web sites. The
application is designed to build on-line communities and foster relationships by
continuously learning from each visitor's behavior and targeting his or her
interests with customized content and communications.
The software allows people with very little programming
knowledge to maintain multiple Web sites, in any language. It assists in
automating e-mail mailings, the building and maintenance of news groups, the
implementation of real-time messaging, the creation of polls and surveys, and
the building of on-line communities.
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Industry Background
In the last few years, access to talent has become a mission
critical issue for nearly every company.
The size of the United States' economy has doubled in the past
30 years. Technology has played a key role in this growth as economies around
the world are making the transition to becoming knowledge and service-based
economies. Through this transition, McKinsey & Company predicts that the need
for talent will increase faster than GDP growth.
Technology's continued rise in importance and an increasingly
competitive and global marketplace have put considerable pressure on companies
to quickly acquire skilled talent, improve the productivity of existing staff,
and ensure staff retention. CIBC World Markets estimates that United States
companies alone spend $160 billion every year to hire, train, manage and retain
employees.
In the area of engineering, at least 20 million technical jobs
will be added to the United States work force by 2008 yet 40% of United States
high school students lack the fundamental mathematics skills required to
complete college engineering degrees, according to a report by MathSoft
Education and the American Society for Engineering Education. This points to a
serious shortage of engineering professionals in coming years.
Accordingly, United States staffing industry revenues are
expected to reach nearly $160 billion in 2001, says Staffing Industry Analysts.
Compounding the skills shortage problem is the high level of
turnover in the IT industries. On average, IT professionals change jobs once
every two years. Such turnover will cost United States employers about $7.6
billion in 2002, according to IDC. As a result, retention of staff has come to
rival recruitment in importance.
Training and its subsequent promise of professional growth and
development is one of the tools that employers use to keep their employees.
Research by retention experts Beverly Kaye and Sharon Jordan-Evans shows that
career growth, learning and development top the list of reasons why employees
stay with a company.
IDC estimates the value of the corporate training market at
$62.5 billion and predicts a compound annual growth rate (CAGR) of 7% between
1999 and 2003. The e-learning market is expected to grow from $1.0 million in
1999 to $11.4 billion in 2003, a CAGR of 83%.
Furthermore, as competition increases and companies are
compelled to focus on core competencies, outsourcing is a popular option for
reducing research, infrastructure, and support costs. The Gartner Group
estimates that 60% of all companies will outsource some or all of their IT
infrastructure by 2001. Worldwide spending on outsourcing is expected to top
$151 billion in 2003, with information technology comprising the fastest-growing
segment of this market.
Business Strategy
We work to improve the technical resource performance of large
and high-growth corporations by offering a complete array of IT and engineering
solutions including outsourcing, recruiting, training and technology services.
Our business objective is to increase gross revenue by 22% by 2002. We
aim to increase market share in each of our service markets by effectively
cross-selling our services and emphasizing to clients the advantages of a
flexible, one-stop service provider.
The primary components of our strategy to achieve this
objective are as follows:
Further penetrate existing client base, especially Fortune 500
We work with many large corporations, many of them Fortune 500
companies. With each new acquisition we have made over the last two years, we
have acquired further access to blue chip clients. Many of these clients
currently use only one of our service lines. We have therefore identified
tremendous opportunities to further
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penetrate our existing client base by cross-selling other services to these
clients, and by increasing or improving our delivery of the services they
currently use.
Pursue more national and international accounts
In 2000, we created a national sales team, focused on large national
and international clients. Building on previous successes, we are aggressively
targeting multi-year, multi-million dollar contracts, most of which focus on our
outsourcing division.
Emphasize cross-selling amongst service lines
Management believes that we occupy a unique position in the marketplace
in that we are able to offer a complete range of services to address IT and
engineering resource requirements. For example, a client could come to us with a
requirement for an intranet. Working collaboratively, our various divisions
could tailor a solution that develops a custom software application (technology
division), builds the intranet for the client (outsourcing division), hires a
new project manager to manage the intranet in the client environment after the
implementation (recruitment division), and trains the client's staff on
maintenance and support issues (training division).
Management believes that there are significant benefits to be had from
emphasizing cross-selling amongst our various divisions, and that such a
strategy will help us increase revenue. In 2000, we created a management
committee comprised of executive officers and key employees from each of the
service areas, with a mandate to encourage collaboration throughout Thinkpath
and to help each service area build on one another's strengths.
Outmaneuver the competition with technology
We have established an extensive technology strategy and infrastructure
that we believe provide us with a competitive advantage over less
technologically advanced competitors. The primary components of this strategy
and infrastructure are described below.
Back office infrastructure
We have invested heavily in the creation and support of an integrated
technological infrastructure that links all offices and employees and promotes
uniformity in certain functions. From an accounting program that provides for
real-time financial reporting across dispersed branch offices to our intranet to
Njoyn, each of our employees has access to the tools and information that help
them to be productive. This infrastructure helps us integrate our acquisitions
more easily and cost-effectively than would otherwise be possible.
Njoyn Software
To date, we have spent approximately $2 million on research and
development related to Njoyn. Njoyn is currently being used by several companies
including Amicus (a retail division of CIBC), GT Group Telecom, and Microsoft
Canada. Njoyn is also used internally at all of our offices to manage the
recruitment portion of our business.
In March 2001, we entered into a partnership with Ryerson Polytechnic
University. Under the terms of the partnership, Njoyn will be used to manage
student placements for the internship program at Ryerson's School of Business
Management, the largest undergraduate business school in the Province of
Ontario. Ryerson offers internship opportunities with such companies as CIBC,
Bank of Montreal, Deloitte & Touche, KPMG, PricewaterhouseCoopers, Ernst &
Young, Imperial Oil, and Compaq.
Our strategy with the Ryerson implementation is to gain exposure to the
school's corporate internship partners, who must use Njoyn to submit their
internship opportunities and evaluate students. It is our belief that such
exposure will create more market awareness of Njoyn and that the positive
experience these companies will have with the software will result in sales
opportunities.
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Furthermore, Njoyn will also be used by the students who represent future
candidates for our recruiting division. We are thus developing early corporate
awareness amongst this key group.
We plan to pursue similar partnerships with other educational
institutions, although there is no assurance that such partnerships can or will
be secured.
The Njoyn hiring cycle
The following is a description of a typical hiring cycle with respect
to the use of Njoyn:
- - A recruiter accesses Njoyn on his Web browser and enters a job description,
specifying the skills and qualities he is looking for in a candidate. He then
selects from a number of broadcast options including job boards such as Monster,
our Web site, intranet or internal referral programs, and any recruitment
agencies he works with. One click posts the job to all selected sources.
- - The skills profiles of prospective candidates are mapped against the job
requirements the recruiter specified and assigned a percentage match, allowing
the recruiter to quickly identify top applicants. Declined candidates are
automatically e-mailed and their files are stored for future reference.
- - Once the top candidates have been identified, the interviewing process
begins. All interview scheduling, interview notes, and candidate and internal
communications are managed by Njoyn's workflow system. - - Throughout the
process, Njoyn frees recruiters from the least productive aspects of their role,
letting them focus on people, not paperwork. The result is increased recruiting
speed and a lower cost to hire.
Njoyn2
In July 2001 we released Njoyn2, a revised and updated version of the
Njoyn software containing significant technological advancements. We have begun
the process of filing for several technology patents with respect to such
technological advancements. We are continuing to add new features to Njoyn2 and
believe that the advanced product will move us to the forefront of the industry
and provide us with an increased competitive advantage in the marketplace.
Marketing and Promotion
Our marketing and brand strategy is to position ourselves as a
leading provider of IT and engineering services, emphasizing our flexible
service options, the depth of our expertise, and the global delivery
capabilities of our North American offices.
This positioning will be achieved through a variety of means, including:
- Strong and easy-to-access sales and marketing support at the branch level;
- Investment in awareness and branding campaigns;
- Exploration and establishment of various business partnerships and alliances;
and
- Ongoing development of sales support tools and collateral.
Target Markets
Our target clients are large and high-growth corporations
throughout North America and Europe. Some of our current clients include Lucent,
General Motors, Bank of Montreal, CIBC, General Electric, FedEx, EDS Canada,
Microsoft and more. This existing client base can be penetrated much further. We
will therefore focus on maximizing the value from our current client
relationships, while also looking at capturing new opportunities.
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Collateral and Sales Support
As we acquire new companies, new collateral such as company
forms, stationery, promotional materials, and marketing kits, must necessarily
be produced to more accurately reflect our expanded service offerings. In 2001,
we intend to commence a complete evaluation and refinement of our collateral
program.
We also contemplate exploring initiatives to promote and
support sales at the branch level through, among other things, direct client
contact, local advertising campaigns, and participation in live events (career
fairs, trade shows).
Internet Marketing
A key component of our promotion strategy is to focus on our
Internet presence. In January 2001, we launched a Web portal that offers
participants a full range of information and interactive services. Our goal is
to further develop this presence into an on-line community of clients, career
candidates, and investors who will interact amongst themselves and be supported
by our employees.
Other components of our Internet strategy include:
- A comprehensive assault on listings in Internet search engines;
- The use of selected Internet search engines as an advertising tool
- The selective use of banner advertising and newsletter sponsorships;
- Customer and competitive intelligence;
- Web-based customer services, support and communication;
- The use of opt-in broadcast email as part of various direct mail campaigns;
- The creation of moderated email forums and chat rooms;
- The continuation of existing email newsletters and development of further
newsletters; and
- Live and archived Web casts.
Loyalty Programs
Based on our detailed market and client research, we intend to
segment our client-base and develop carefully targeted loyalty programs to
encourage strong relationships. We contemplate developing programs for both
corporate clients and career candidates. These programs will largely be
administered and offered through our Web portal.
Customers
Our clients are large and high-growth corporations from a wide variety
of industries across North America and Europe. These customers include Fortune
500 companies and other high-profile companies. We believe that our high profile
customer base provides us credibility when pursuing other customers.
The following is a partial listing of our clients:
Bank of Montreal
Bell Canada
Boeing
Chase Manhattan Bank
CIBC
City of New York
Cummins
DMR Group
ESI Fiscal
Federal Express
Ford Motor Co.
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General Electric
General Motors
Goldman Sachs
Hewlett-Packard
Polaroid
Merrill Lynch
Microsoft
Toronto Stock Exchange
Competition
The information technology and engineering staffing industry
is highly competitive and fragmented and is characterized by low barriers to
entry. We compete for potential clients with other providers of information
technology staffing services, systems integrators, providers of outsourcing
services, computer consultants, employment listing services and temporary
personnel agencies. Many of our current and potential competitors have longer
operating histories, significantly greater financial, marketing and human
resources, greater name recognition and a larger base of information technology
professionals and clients than we do, all of which factors may provide these
competitors with a competitive advantage. In addition, many of these
competitors, including numerous smaller privately held companies, may be able to
respond more quickly to customer requirements and to devote greater resources to
the marketing of services than we can. Because there are relatively low barriers
to entry, we expect that competition will increase in the future. Increased
competition could result in price reductions, reduced margins or loss of market
share, any of which could materially and adversely affect our business,
prospects, financial condition and results of operations. Further, we cannot
assure you that we will be able to compete successfully against current and
future competitors or that the competitive pressures we face will not have a
material, adverse effect on our business, prospects, financial condition and
results of operations. We believe that the principal factors relevant to
competition in the information technology, staffing and engineering services
industry are the recruitment and retention of highly qualified information
technology and engineering professionals, rapid and accurate response to client
requirements and, to a lesser extent, price. We believe that we compete
favorably with respect to these factors.
We believe that our competitive advantage lies not only in our
use of technology, but also in the accessibility of this technology to all of
our employees. The building and maintenance of our database of over 50,000 has
been a combined effort of all our employees. We also have Internet access and
membership to 12 local, national and international databases for information
technology professionals.
Employees and Consultants
Employees
Our staff as of the date of this prospectus, consists of 116 full-time
employees, including 64 recruiters, 23 account managers/salespeople and 29
administrative employees. Our staff at December 31, 2000 consisted of 180
full-time employees, including 80 recruiters, 50 account managers/salespeople
and 50 administrative employees. Our staff at June 30, 2001 consisted of 136
full-time employees, including 69 recruiters, 30 account managers/salespeople
and 37 administrative employees. We are not party to any collective bargaining
agreements covering any of our employees, have never experienced any material
labor disruption and are unaware of any current efforts or plans to organize our
employees.
Consultants
We enter into consulting agreements with the information technology and
engineering professionals at hourly rates negotiated with each information
technology professional based on each such individual's technical and other
skills. The agreements provide that the information technology and engineering
professional is responsible for taxes and all other expenses and that the
information technology professional is not our employee for tax or other legal
purposes. As of the date of this prospectus, approximately 400 contract workers
were placed by us who are performing services for our customers. At December 31,
2000 and June 30, 2001, there were approximately 390 and 413 contract workers,
respectively, placed by us who were performing services for our customers.
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Property
We maintain our headquarters in 24,924 square foot offices located at
55 University Avenue in Toronto, Ontario, Canada. We have leased such facility
for a term of ten years terminating in December, 2007. We pay annual base rent
of $750,908. We lease additional offices at the following locations:
Location Square Feet Lease Expiration Current Rent Per Annum
-------- ------------- ------------------- ----------------------
Etobicoke, Ontario 1,610 4/13/03 $22,300
New York, New York 1,214 10/31/01 $47,353
Dayton, Ohio 8,426 10/31/01 $83,000
Indianapolis, Indiana 2,025 12/31/01 $30,881
Columbus, Ohio 1,000 01/31/02 $19,200
Cincinnati, Ohio 2,256 09/30/01 $22,560
Tampa, Florida 930 03/31/02 $12,741
Detroit, Michigan 15,328 08/13/02 $149,316
Charleston, South
Carolina 900 12/31/01 $15,120
Atlanta, Georgia 5,824 06/30/02 $78,360
Boston, Massachusetts 4,500 10/31/02 $119,280
New York, New York 12,265 08/31/06 $220,000
Toronto, Ontario 24,924 12/31/07 $750,908
Mississauga, Ontario 2,000 12/31/02 $35,264
Legal Proceedings
Michael Carrazza, as assignee of Southport Consulting Co., instituted
an action against us in the Supreme Court of the State of New York, County of
New York, Index No. 600553/01, alleging breach of contract and unjust
enrichment. Mr. Carrazza is seeking $250,000 in damages. Specifically, Mr.
Carrazza claims that we failed to deliver cash or stock to Mr. Carrazza under
the asset purchase agreement pursuant to which we acquired the assets of
Southport Consulting Co. We have filed a counterclaim against Mr. Carrazza,
seeking $162,000.00 in damages, plus punitive damages and attorneys' fees, on
the ground that Mr. Carrazza, as then president and sole shareholder of
Southport Consulting Co., fraudulently induced us into executing the asset
purchase agreement by misrepresenting the value of the assets being purchased.
As of the date hereof, Mr. Carrazza has filed a motion seeking summary judgment
and other relief, which we are opposing vigorously.
Norbert Mika, a former employee of Thinkpath Training Inc. (formerly
Object Arts Inc.), instituted an action against us in the Ontario Superior Court
of Justice, City of Kitchener, Regional Municipality of Waterloo, Ontario, Court
File No.C-745/01, alleging wrongful dismissal. Specifically, Mr. Mika claims
that we terminated him without cause and he is seeking $195,000 in damages, plus
punitive damages and attorneys' fees. We have filed a statement of defense, and
as of the date hereof, discovery has commenced, and we intend to defend
ourselves and prosecute our claim vigorously.
Glenn Cressman, a former employee of Thinkpath Training Inc. (formerly
Object Arts Inc.), instituted an action against us in the Ontario Superior Court
of Justice, City of London, Ontario, Court File No. 37208, alleging wrongful
dismissal. Specifically, Mr. Cressman claims that we terminated him without
cause and he is seeking $100,000 in damages, plus punitive damages and
attorneys' fees. We have filed a statement of defense, and as of the date
hereof, discovery has commenced, and we intend to defend ourselves and prosecute
our claim vigorously.
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.
1113642/01, 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. We are in
the process of answering Mr. Silver's complaint, which was recently filed, and
will defend this action vigorously.
35
We are not party to any other litigation, pending or otherwise.
Recent Events
On June 6, 2001, we changed our corporate name from Thinkpath.com Inc.
to Thinkpath Inc. in order to more accurately reflect our expanded suite of
services.
On July 20, 2001, we received a Nasdaq Staff Determination letter
indicating that we are not in compliance with the bid price requirements for
continued listing, as set forth in Nasdaq's Marketplace Rule 4310 (c)(8)(B). On
September 27, 2001, Nasdaq announced a moratorium on the minimum bid and public
float requirements for continued listing on the exchange until January 2, 2002.
Our common stock will continue to be listed on the Nasdaq SmallCap Market during
this period.
As a result of the September 11, 2001 terrorist attack our branch
office located in the World Trade Center in New York City was destroyed and our
branch office located at 195 Broadway was damaged and closed for a period of
four weeks. We are currently unable to provide a reliable estimate of the effect
of the destruction and closure of our offices on our operating results and
financial condition.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Our officers and directors, and further information concerning them, are
as follows as at the date of this prospectus:
Name Age Position
---- --- --------
Declan A. French 55 Chairman of the Board of Directors and Chief Executive Officer
Laurie Bradley 46 President
Tony French 28 Executive Vice President
Kelly Hankinson 31 Chief Financial Officer, Secretary, Treasurer and Director
John Dunne 56 Director
Arthur S. Marcus 35 Director
Ronan McGrath 52 Director
Joel Schoenfeld 50 Director
Robert Escobio 46 Director
Each director is elected for a period of one year at out annual
meeting of shareholders and serves until the next such meeting and until his or
her successor is duly elected and qualified. Directors may be re-elected annual
without limitation. Officers are appointed by, and serve at the discretion of,
our Board of Directors.
Our Bylaws provide that the authorized number of directors
shall be as set by our Board of Directors, but shall not be less than one.
Strasbourger Pearson Tulcin Wolff Incorporated, the managing underwriter for our
June 8, 1999 initial public offering, shall have the right, at its option, to
designate one director or observer to our Board of Directors until June 1, 2002.
In addition, with respect to our August 2000 private placement offering, our
Board of Directors is required to nominate a director designee of KSH Investment
Group, Inc., the placement agent, who is reasonably acceptable to our Board of
Directors. We have paid our directors fees for service on the Board of Directors
by the issuance of options under our 1998 Stock Option Plan and 2000 Stock
Option Plan.
Set forth below is a biographical description of each of our
directors based on information supplied by each of them:
Declan A. French has served as our Chairman of the Board of Directors
and Chief Executive Officer since our inception in February 1994. Prior to
founding Thinkpath, Mr. French was President and Chief Executive Officer of TEC
Partners Ltd., an information technology recruiting firm in Toronto, Canada. Mr.
French has a diploma in Psychology and Philosophy from the University of St.
Thomas in Rome, Italy.
36
Laurie Bradley has served as our President since February 2001. Ms.
Bradley is responsible for all of our sales initiatives and the integration of
our acquisitions. From 1998 to January 2001, Ms. Bradley served as the President
of the e-business division of Century Business Services Inc., a North American
accounting and outsourcing firm. From 1988 to 1998, Ms. Bradley served as the
Vice President of Adecco, the world's largest staffing company.
Tony French has served as our Executive Vice President since September
1999. In his capacity of Executive Vice President, Mr. French is responsible for
overseeing our recruitment services division. Prior to becoming Executive Vice
President, Mr. French served as our Vice President of Sales, since our inception
in 1994. Mr. French is the son of Declan A. French, our Chairman of the Board of
Directors and Chief Executive Officer.
Kelly Hankinson has served as our Chief Financial Officer since May
2000, on our Board of Directors since June 2000 and as our Secretary and
Treasurer since March 2001. Ms. Hankinson served as our Vice President, Finance
and Administration and Group Controller from February 1994 to May 2000. Ms.
Hankinson has a Masters Degree and a Bachelors Degree from York University.
John Dunne has served on our Board of Directors since June 1998. Mr.
Dunne has been Chairman and Chief Executive Officer of the Great Atlantic &
Pacific Company of Canada, Ltd. since August 1997, where he also served as
President and Chief Operating Officer from September 1996 until August 1997.
From November 1995 until September 1996, Mr. Dunne was Chairman and Chief
Executive Officer of Food Basics Ltd.
Arthur S. Marcus has served on our Board of Directors since April 2000.
Mr. Marcus is a partner at the New York law firm of Gersten, Savage & Kaplowitz,
LLP, our United States securities counsel. Mr. Marcus joined Gersten, Savage &
Kaplowitz, LLP in 1991 and became a partner in 1996. Mr. Marcus specializes in
the practice of United States Securities Law and has been involved in
approximately 50 initial public offerings and numerous mergers and acquisitions.
Mr. Marcus received a Juris Doctorate from Benjamin N. Cardozo School of Law in
1989.
Ronan McGrath has served on our Board of Directors since June 2000. Mr.
McGrath has served as the Chief Information Technology Officer of Rogers
Communications Inc. and the President of Rogers Shares Services Inc., since
their inceptions in 1996. Mr. McGrath was the Chief Information Technology
Officer of Canadian National Railways from 1992 to 1996 and was a Senior Manager
of Arthur Andersen from 1977 to 1979. Mr. McGrath was awarded the Canadian Chief
Information Technology Officer of the Year Award in 1995. Mr. McGrath currently
serves on Compaq Computer's Board of Advisers and is a member of the Board of
Directors of The Information Technology Association of Canada.
Joel Schoenfeld has served on our Board of Directors since
April 2001. Mr. Schoenfeld has served as an Executive Vice President and General
Counsel of BMG Entertainment (BMG), the entertainment division of Bertelsmann
AG, since 1989, with responsibility for all legal and business affairs of BMG
worldwide. In his capacity as Executive Vice President and General Counsel, Mr.
Schoenfeld is responsible for negotiating and analyzing new and existing
business ventures and territorial expansion on a global level; international
intellectual policy issues; international antitrust and competition legal
matters; and privacy and database protection compliance. Mr. Schoenfeld has
focused on policy matters impacting the entertainment business, and particularly
e-commerce. In recognition of this, he was appointed 1 of 12 Commissioners on
the Industry Advisory Commission to the World Intellectual Property
Organization. Mr. Schoenfeld is a member of the Executive Board and Central
Board of Directors of the IFPI, the international trade federation for the
worldwide music business. He was elected Chairman of the IFPI Council in 1999, a
position he still holds. Mr. Schoenfeld served as General Counsel and Executive
Vice President at the RIAA (the trade association of U.S. record producing
companies), where he worked for 12 years prior to joining BMG, and then served
on RIAA's Board of Directors for the next 10 years.
Robert Escobio has served on our Board of Directors since May 2001. Mr.
Escobio is the President and Chief Executive Officer of Capital Investment
Services, Inc., an investment brokerage firm based in Florida. In these roles,
Mr. Escobio is responsible for all aspects of a "broker/dealer" including
financial, compliance, sales and operational procedures. Mr. Escobio is also a
Portfolio Manager for many prominent individuals and works with various
international institutions, brokers, and dealers. Prior to being employed by
Capital Investment Services, Inc, Mr. Escobio served as the Executive Vice
President and International Director for Brill Securities Inc. where he managed
portfolios for numerous high net-worth customers and performed institutional
trading. Mr. Escobio also
37
had numerous managerial roles in companies such as Cardinal Capital Management,
Smith Barney, Prudential Securities and Dean Witter. Mr. Escobio holds an MBA
and a BSBA in Finance and Management.
Committees of the Board of Directors
In July 1998, our Board of Directors formalized the creation
of a Compensation Committee, which is currently comprised of John Dunne, Arthur
S. Marcus and Ronan McGrath. The Compensation Committee has: (i) full power and
authority to interpret the provisions of, and supervise the administration of,
our 1998 Stock Option Plan, 2000 Stock Option Plan and 2001 Stock Option Plan,
as well as any stock option plans adopted in the future; and (ii) the authority
to review all compensation matters relating to us. The Compensation Committee
has not yet formulated compensation policies for senior management and executive
officers. However, it is anticipated that the Compensation Committee will
develop a company-wide program covering all employees and that the goals of such
program will be to attract, maintain, and motivate our employees. It is further
anticipated that one of the aspects of the program will be to link an employee's
compensation to his or her performance, and that the grant of stock options or
other awards related to the price of the shares of our common stock will be used
in order to make an employee's compensation consistent with shareholders' gains.
It is expected that salaries will be set competitively relative to the
information technology and engineering services and consulting industry and that
individual experience and performance will be considered in setting such
salaries.
In July 1998, our Board of Directors also formalized the
creation of an Audit Committee, which currently consists of Kelly Hankinson,
Joel Schoenfeld and John Dunne. The Audit Committee is charged with reviewing
the following matters and advising and consulting with our entire Board of
Directors with respect to: (i) the preparation of our annual financial
statements in collaboration with our chartered accountants; (ii) annual review
of our financial statements and annual reports; and (iii) all contracts between
us and our officers, directors and other of our affiliates. The Audit Committee,
like most independent committees of public companies, does not have explicit
authority to veto any actions of our entire Board of Directors relating to the
foregoing or other matters; however, our senior management, recognizing their
own fiduciary duty to us and our shareholders, is committed not to take any
action contrary to the recommendation of the Audit Committee in any matter
within the scope of its review.
We have established an Executive committee, comprised of
certain of our executive officers and key employees, which allows for the
exchange of information on industry trends and promotes "best practices" among
our business units. Currently, the Executive Committee consists of Declan A.
French, Laurie Bradley, Tony French, Michael Reid, Kelly Hankinson, Denise
Dunne-Fushi and Robert Trick.
Indemnification of Officers and Directors
Our Bylaws provide that we shall indemnify, to the fullest extent
permitted by Canadian law, our directors and officers (and former officers and
directors). Such indemnification includes all costs and expenses and charges
reasonably incurred in connection with the defense of any civil, criminal or
administrative action or proceeding to which such person is made a party by
reason of being or having been our officer or director if such person was
substantially successful on the merits in his or her defense of the action and
he or she acted honestly and in good faith with a view to our best interests,
and if a criminal or administrative action that is enforced by a monetary
penalty, such person had reasonable grounds to believe his or her conduct was
lawful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted, our directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we have
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
of 1933, as amended, and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by us of
expenses, incurred or paid by one of our directors, officers or controlling
persons in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person, we will, unless our counsel
opines that the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by us is against public policy as expressed in the Securities Act of 1933, as
amended, and we will be governed by the final adjudication of such issue.
38
Executive Compensation
The following table sets forth certain information regarding
compensation paid by Thinkpath during each of the last three fiscal years to our
Chief Executive Officer and to each of our executive officers who earned in
excess of $100,000 during the year ended December 31, 2000:
Summary Compensation Table
Name and Restricted
Principal Annual Stock Other
Position Year Salary Bonus Awards Options/SARs Compensation
-------- ---- ------ ----- ------- -------------- -------------
Declan A. French, 2000 $100,000 -0- -0- 29,000 1,200,000(1)
Chief Executive Officer 1999 106,342 -0- -0- 100,000 -0-
and Chairman of the Board 1998 106,342 -0- -0- -0- -0-
John A. Irwin, 2000 100,000 -0- -0- 4,000 $80,000(2)
Former 1999 102,000 -0- -0- 4,000 94,149(2)
President-International 1998 130,580 -0- -0- -0- 35,888(2)
Career Specialists Inc.
John R. Wilson, 2000 80,000 -0- -0- 4,000 $80,000(3)
President-Systemsearch 1999 81,600 -0- -0- 24,000 76,915(3)
Consulting Services 1998 90,000 -0- -0- -0- 77,282(3)
Roger W. Walters, 2000 200,000 -0- -0- 104,000 -0-
Former Executive Vice 1999 200,000(4) -0- -0- 4,000 -0-
President - US 1998 -0- -0- -0- -0- -0-
Operations,
President-Cad Cam, Inc.
Thomas E. Shoup, 2000 175,000(5) -0- -0- 4,000 -0-
Former President and 1999 43,759(6) -0- -0- 4,000 -0-
Chief Operating Officer 1998 -0- -0- -0- -0- -0-
(1) This reflects 1,200,000 shares of common stock issued to Mr. French in lieu
of cash bonuses payable for the fiscal years of 1999 and 2000 pursuant to
his employment agreement with us.
(2) This reflects commissions paid pursuant to Mr. Irwin's employment agreement
with us.
(3) This reflects commissions paid pursuant to Mr. Wilson's employment
agreement with us.
(4) This reflects the salary paid to Mr. Walters as of the date of our
acquisition of Cad Cam, Inc
(5) This reflects the salary paid to Mr. Shoup through December 22, 2000, the
effective date of Mr. Shoup's resignation as an officer of Thinkpath.
(6) This reflects the salary paid to Mr. Shoup as of the date of our
acquisition of Cad Cam, Inc.
Employment Agreements
We have entered into an employment agreement with Declan A. French
whereby he will serve as our Chairman of the Board and Chief Executive Officer
for a period of 2 years commencing on June 1, 1999. Mr. French shall be paid a
base salary of $98,000 and a bonus equal to (i) 2% of our gross profit, plus
(ii) for each fiscal year, 1% of the increase in revenue from the prior fiscal
year. Mr. French's right to receive the latter portion of the bonus continues
for 1 year beyond the termination of the employment agreement. In February 2001,
we issued 1,200,000 shares of our common stock as payment in full for the
bonuses due to Mr. French for the fiscal years of 1999 and 2000 pursuant to the
terms of his employment agreement with us. The Board of Thinkpath and Mr. French
are currently in the process of negotiating the terms of the renewal of his
employment agreement. Mr. French continues to serve as our Chairman and Chief
Executive Officer.
On May 19, 1998, in connection with the acquisition of International
Career Specialists Ltd., we entered into an employment agreement with John A.
Irwin whereby he served as President of International Career Specialists
39
Ltd. The employment agreement was for a term of 3 years commencing on January 1,
1998, the effective date of the acquisition of International Career Specialists
Ltd. Mr. Irwin received a salary of $130,000 plus a quarterly bonus of 2% of all
permanent placement service revenue and 2% of the gross profit all contract
services revenue. Mr. Irwin's contract was not renewed and he is no longer in
our employ.
In February 1998, in connection with the acquisition of Systemsearch
Consulting Services Inc., we entered into a 3-year employment agreement with
John R. Wilson whereby he served as President of Systemsearch Consulting
Services Inc. at annual salary of $120,000. The agreement was effective as of
January 2, 1997. Mr. Wilson received a commission of 10% of the permanent
placement revenue of Systemsearch Consulting Services Inc. In addition, he
received $0.65 for every hour of contract services provided by information
technology professionals placed by Systemsearch Consulting Services Inc.,
provided that the gross margin on such hour exceeded $6.50. Pursuant to the
agreement, Mr. Wilson had control of the day-to-day management of Systemsearch
Consulting Services Inc. Mr. Wilson's contract was not renewed, though he
continues to be employed by us on a month-to-month basis. Mr. Wilson currently
receives an annual salary of $67,000 plus 10% of personal gross profit and 10%
of monthly office gross profit in excess of $47,000.
In September 1999, in connection with the acquisition of Cad Cam, Inc.,
Roger W. Walters was elected to our Board of Directors. On March 14, 2001, Mr.
Walters resigned from the Board of Directors effective March 30, 2001.
On January 1, 2000, in connection with the acquisition of Object Arts
Inc., we entered into an employment agreement with Marilyn Sinclair whereby she
was to serve as our Vice President and as President of Object Arts Inc. The
employment agreement was for a term of 3 years commencing on January 1, 2000
with an annual salary of $82,000. The agreement was terminated on March 9, 2001,
the effective date of Ms. Sinclair's resignation from Thinkpath. Ms. Sinclair
resigned from the Board of Directors effective April 4, 2001.
On April 1, 2000, in connection with the acquisition of Micro Tech
Professionals, Inc., we entered into an employment agreement with Denise
Dunne-Fushi pursuant to which she served as our Vice-President and as President
of Micro Tech Professionals, Inc. The employment agreement was for a term of 1
year commencing on April 25, 2000, with an annual salary of $125,000 and a bonus
of $25,000. Thinkpath and Mrs. Dunne-Fushi are currently in the process of
negotiating the terms of the renewal of her employment agreement. Mrs.
Dunne-Fushi continues to serve as our Vice President and as President of Micro
Tech Professionals, Inc. on a month-to-month basis under the terms described
above.
On November 15, 2000, in connection with the business combination with
TidalBeach Inc., we entered into an employment agreement with Michael Reid
pursuant to which Mr. Reid will serve as our Chief Information Officer and as
the President of TidalBeach Inc. The employment agreement is for a term of 2
years commencing on November 15, 2000, with an annual salary of $123,000.
On January 29, 2001, we entered into an employment agreement with
Laurie Bradley whereby she will serve as our President. Ms. Bradley shall be
paid an annual salary of $130,000 and a performance bonus. The employment
agreement is for an indeterminate period of time.
On March 1, 2001, we entered into an employment agreement with Tony
French whereby he will serve as our Executive Vice President. Mr. French shall
be paid an annual salary of $100,000 and a performance bonus. The employment
agreement is for an indeterminate period of time. In the event Mr. French is
terminated for any reason, including but not limited to, the acquisition of
Thinkpath, Mr. French shall be entitled to a severance payment equal to 1 year's
salary. Mr. French is the son of Declan A. French.
On March 1, 2001, we entered into an employment agreement with
Kelly Hankinson whereby she will serve as our Chief Financial Officer, Secretary
and Treasurer. Ms. Hankinson shall be paid an annual salary of $100,000. The
employment agreement is for an indeterminate period of time. In the event Ms.
Hankinson is terminated for any reason, including but not limited to, the
acquisition of Thinkpath, Ms. Hankinson shall be entitled to a severance payment
equal to 1 year's salary.
No other officer has an employment agreement with us.
40
Compensation of Directors
There are no standard arrangements for the payment of any fees to our
directors for acting in such capacity. Our directors have been issued warrants
and/or options for services rendered in this capacity. Directors are reimbursed
for expenses for attending meetings.
The Board of Directors and our shareholders have adopted a 1998 Stock
Option Plan, 2000 Stock Option Plan and 2001 Stock Option Plan, pursuant to
which options have been granted or will be granted to officers, directors,
consultants, key employees, advisors and similar parties who provide their
skills and expertise to us.
Options, Warrants or Rights Issued to Directors and/or Officers On
August 19, 1999, Declan A. French was issued an option to purchase 100,000
shares of our common stock at an exercise price of $3.19 per share. The option
was issued in consideration for services rendered to us in his capacity as
Chairman of the Board and Chief Executive Officer. The option is immediately
exercisable and expires on August 19, 2004.
On August 19, 1999, Tony French was issued an option to purchase 50,000
shares of our common stock at an exercise price of $3.19 per share. The option
was issued in consideration for services rendered to us in his capacity as an
employee. The option is immediately exercisable and expires on August 19, 2004.
On August 19, 1999, John R. Wilson was issued an option to purchase
20,000 shares of our common stock at an exercise price of $3.19 per share. The
option was issued in consideration for services rendered to us in his capacity
as President of Systemsearch Consulting Services Inc. The option is immediately
exercisable and expires on August 19, 2004.
On August 19, 1999, Kelly Hankinson was issued an option to purchase
25,000 shares of our common stock at an exercise price of $3.19 per share. The
option was issued in consideration for services rendered to us in her capacity
as Vice President, Finance and Administration and Group Controller. The option
is immediately exercisable and expires on August 19, 2004.
On August 19, 1999, Arthur S. Marcus was issued an option to purchase
2,500 shares of our common stock at an exercise price of $3.19 per share. The
option was issued in consideration for legal services rendered. The option is
immediately exercisable and expires on August 19, 2004.
On January 1, 2000, Roger W. Walters, a former officer and director of
Thinkpath, was issued an option to purchase 25,000 shares of our common stock at
an exercise price of $3.25 per share. The option was issued in connection with
our acquisition of Cad Cam, Inc. The option was immediately exercisable and
expired on December 31, 2000. Such option was not exercised.
On March 22, 2000, Declan A. French was issued an option to purchase
4,000 shares of our common stock at an exercise price of $3.19 per share. The
option was issued in consideration for services rendered to us in his capacity
as Chairman of the Board and Chief Executive Officer. The option shall vest at a
rate of 1,333 shares of common stock per year and shall be fully vested on March
22, 2003. The option expires on March 22, 2005.
On March 22, 2000, Thomas E. Shoup, our former President and Chief
Operating Officer, was issued an option to purchase 4,000 shares of our common
stock at an exercise price of $3.19 per share. The option was issued in
connection with our acquisition of Cad Cam, Inc. and in consideration for
services rendered to us in his capacity as President and Chief Operating
Officer. The option was to vest at a rate of 1,333 shares of common stock per
year and was to be fully vested on March 22, 2003. The option was to expire on
March 22, 2005. The option terminated on December 22, 2000, the effective date
of Mr. Shoup's resignation as an officer of Thinkpath.
On March 22, 2000, Tony French was issued an option to purchase 4,000
shares of our common stock at an exercise price of $3.19 per share. The option
was issued in consideration for services rendered to us in his capacity as
Executive Vice President. The option shall vest at a rate of 1,333 shares of
common stock per year and shall be fully vested on March 22, 2003. The option
expires on March 22, 2005.
41
On March 22, 2000, Kelly Hankinson was issued an option to purchase
3,500 shares of our common stock at an exercise price of $3.19 per share. The
option was issued in consideration for services rendered to us in her capacity
as Vice President, Finance and Administration and Group Controller. The option
shall vest at a rate of 1,167 shares of common stock per year and shall be fully
vested on March 22, 2003. The option expires on March 22, 2005.
On March 22, 2000, Roger W. Walters, a former officer and director of
Thinkpath, was issued an option to purchase 4,000 shares of our common stock at
an exercise price of $3.19 per share. The option was issued in consideration for
services rendered to us in his capacity as Executive Vice President of US
Operations and as a director. The option shall vest at a rate of 1,333 shares of
common stock per year and shall be fully vested on March 22, 2003. The option
expires on March 22, 2005.
On March 22, 2000, John R. Wilson was issued an option to purchase
4,000 shares of our common stock at an exercise price of $3.19 per share. The
option was issued in consideration for services rendered to us in his capacity
as President of Systemsearch Consulting Services Inc. The option shall vest at a
rate of 1,333 shares of common stock per year and shall be fully vested on March
22, 2003. The option expires on March 22, 2005.
On March 22, 2000, John A. Irwin, a former officer of Thinkpath, was
issued an option to purchase 4,000 shares of our common stock at an exercise
price of $3.19 per share. The option was issued in consideration for services
rendered to us in his capacity as President of International Career Specialists
Ltd. The option shall vest at a rate of 1,333 shares of common stock per year
and shall be fully vested on March 22, 2003. The option expires on March 22,
2005.
On March 22, 2000, William J. Neil, a former director of Thinkpath, was
issued an option to purchase 10,000 shares of our common stock at an exercise
price of $3.19 per share. The option was issued in consideration for services
rendered to us in his capacity as a director. The option shall vest at a rate of
3,333 shares of common stock per year and shall be fully vested on March 22,
2003. The option expires on March 22, 2005.
On March 22, 2000, John Dunne was issued an option to purchase 10,000
shares of our common stock at an exercise price of $3.19 per share. The option
was issued in consideration for services rendered to us in his capacity as
director. The option shall vest at a rate of 3,333 shares of common stock per
year and shall be fully vested on March 22, 2003. The option expires on March
22, 2005.
On March 22, 2000, James Reddy, a former director of Thinkpath, was
issued an option to purchase 10,000 shares of our common stock at an exercise
price of $3.19 per share. The option was issued in consideration for services
rendered to us in his capacity as director. The option shall vest at a rate of
3,333 shares of common stock per year and shall be fully vested on March 22,
2003. The option expires on March 22, 2005.
On March 31, 2000, Roger W. Walters, a former officer and director of
Thinkpath, was issued an option to purchase 25,000 shares of our common stock at
an exercise price of $2.75 per share. The option was issued in connection with
our acquisition of Cad Cam, Inc. The option was immediately exercisable and
expired on December 31, 2000. Such option was never exercised.
On May 9, 2000, Marilyn Sinclair, a former officer and director of
ours, was issued an option to purchase 4,000 shares of our common stock at an
exercise price of $3.25 per share. The option was issued in consideration for
services rendered to us in her capacity as Vice President and President of
Object Arts Inc. The option shall vest at a rate of 1,333 shares of common stock
per year and shall be fully vested on May 9, 2003.
The option expires on May 9, 2005
On June 30, 2000, Roger W. Walters, a former officer and director of
ours, was issued an option to purchase 25,000 shares of our common stock at an
exercise price of $3.00 per share. The option was issued in connection with our
acquisition of Cad Cam, Inc. The option was immediately exercisable and expired
on December 31, 2000. Such option was never exercised.
On September 30, 2000, Roger W. Walters, a former officer and director
of ours, was issued an option to purchase 25,000 shares of our common stock at
an exercise price of $2.12 per share. The option was issued in
42
connection with our acquisition of Cad Cam, Inc. The option was immediately
exercisable and expired on December 31, 2000. Such option was never exercised.
On December 26, 2000, Declan A. French was issued an option to purchase
25,000 shares of our common stock at an exercise price of $0.70 per share. The
option was issued in consideration for services rendered to us in his capacity
as Chairman of the Board. The option shall vest at a rate of 8,333 shares of
common stock per year and shall be fully vested on December 26, 2003. The option
expires on December 26, 2005
On December 26, 2000, Kelly Hankinson was issued an option to purchase
100,000 shares of our common stock at an exercise price of $0.70 per share. The
option was issued in consideration for services rendered to us in her capacity
as director. The option expires on December 26, 2005.
On December 26, 2000, John Dunne was issued an option to purchase
25,000 shares of our common stock at an exercise price of $0.70 per share. The
option was issued in consideration for services rendered to us in his capacity
as director. The option shall vest at a rate of 8,333 shares of common stock per
year and shall be fully vested on December 26, 2003. The option expires on
December 26, 2005.
On December 26, 2000, Arthur S. Marcus was issued an option to purchase
25,000 shares of our common stock at an exercise price of $0.70 per share. The
option was issued in consideration for services rendered to us in his capacity
as director. The option shall vest at a rate of 8,333 shares of common stock per
year and shall be fully vested on December 26, 2003. The option expires on
December 26, 2005.
On December 26, 2000, Ronan McGrath was issued an option to purchase
25,000 shares of our common stock at an exercise price of $0.70 per share. The
option was issued in consideration for services rendered to us in his capacity
as director. The option shall vest at a rate of 8,333 shares of common stock per
year and shall be fully vested on December 26, 2003. The option expires on
December 26, 2005.
On December 26, 2000, Michael Reid was issued an option to purchase
100,000 shares of our common stock at an exercise price of $0.70 per share. The
option shall vest at a rate of 33,333 shares of common stock per year and shall
be fully vested on December 26, 2003. The option expires on December 26, 2005.
On May 29, 2001, Joel Schoenfeld was issued an option to purchase
50,000 shares of our common stock at an exercise price of $0.50 per share. The
option was issued in consideration for services rendered to us in his capacity
as an advisor to the Board of Directors. The option shall vest at a rate of
16,666 shares of common stock per year and shall be fully vested on December 26,
2004. The option expires on May 29, 2006.
On March 14, 2001, we repriced 100,000 options belonging to Roger W.
Walters to $1.00 per share in consideration of debt forgiveness of $75,000 and
the restructuring of debt totaling $250,000 on the notes payable to Mr. Walters
in connection with our purchase of Cad Cam, Inc. The options shall be
exercisable during the period April 1, 2001 to April 4, 2004.
The table below shows the options granted to our past and present named
officers and the percentage of the total options issued to such persons during
the fiscal year 2000:
Officer and/or Director Expiration Date Options Percent Exercise Price
----------------------- --------------- ------- ------- --------------
Declan A. French March 22, 2005 4,000 $3.19
December 26, 2005 25,000 6.7% $0.70
John A. Irwin March 22, 2005 4,000 0.09% $3.19
John R. Wilson March 22, 2005 4,000 0.09% $3.19
Roger W. Walters December 31, 2000 25,000(1) $3.25
March 22, 2003 4,000 $3.19
December 31, 2000 25,000(1) $2.75
December 31, 2000 25,000(1) $3.00
December 31, 2000 25,000(1) 23.9% $2.12
Thomas E. Shoup March 22, 2005 4,000 0.09% $3.19
43
(1) The exercise price of such options was repriced by Thinkpath to $1.00 per
share in consideration for the forgiveness of $75,000 in debt and the
restructuring of debt totaling $250,000 pursuant to notes payable to Mr. Walters
in connection with our acquisition of Cad Cam, Inc. In addition, the term of the
options was extended to April 4, 2004.
Consulting Agreements
In May 1998, we entered into a consulting agreement with Robert M.
Rubin, one of our former directors, pursuant to which Mr. Rubin assists us in
structuring and negotiating acquisitions, strategic partnerships and other
expansion opportunities. In exchange for such services, Mr. Rubin has been
granted an option to purchase 200,000 shares of our common stock at a purchase
price of $2.10 per share. Mr. Rubin has agreed not to sell, transfer, assign,
hypothecate or otherwise dispose of the shares of our common stock issuable upon
exercise of the options for a period of two years after exercise without our
consent. As of the date of this prospectus, we have issued 18,508 shares of our
common stock upon Mr. Rubin's exercise of the option.
On September 13, 2000, we entered into an engagement agreement with
Burlington Capital Markets Inc. We agreed to sell Burlington Capital Markets an
aggregate of 250,000 shares of our common stock at a cash purchase price of $.01
per share. We further agreed to issue warrants to purchase an aggregate of
400,000 shares of our common stock according to the following schedule: (i)
100,000 shares at an exercise price of $5.00 per share, exercisable at any time
after October 13, 2000; (ii) 100,000 shares at an exercise price of $7.00 per
share, exercisable at any time after November 13, 2000; (iii) 100,000 shares at
an exercise price of $9.00 per share, exercisable at any time after December 13,
2000, and (iv) 100,000 shares at an exercise price of $11.00 per share,
exercisable at any time after February 13, 2001. Such warrants were exercisable
in whole or in part 5 years from the respective vesting date and contained a
cashless exercise provision and registration rights. Compensation was to be paid
to Burlington at a monthly fee of $10,000 for a minimum of six months. The
agreement with Burlington was subsequently terminated and no warrants were
issued. In the aggregate, Burlington received 425,000 shares of our common stock
and $10,000 pursuant to the agreement. The additional 175,000 shares constituted
compensation to Burlington Capital Markets Inc. as a settlement on the
termination of the agreement.
On December 14, 2000, we entered into a consulting agreement with
Tsunami Trading Corp. d/b/a Tsunami Financial Communications and International
Consulting Group, pursuant to which Tsunami and International Consulting Group
are to provide financial consulting services to us with respect to financing,
and mergers and acquisitions and related matters. In consideration for the
services to be rendered, we: (a) issued 160,000 shares of our common stock to
the consultants as an advance fee, (b) agreed to pay a fee of 10% of the
consideration received by us upon the successful completion of any transaction
contemplated by the consulting agreement; and (c) agreed to issue warrants to
purchase our common stock in an amount equal to 2% of the equity sold and/or
issued by us in any transactions contemplated by the consulting agreement.
As a result of an oral agreement between us and Del Mar Consulting
Group entered into in December 2000, on January 24, 2001, we executed a written
agreement pursuant to which Del Mar Consulting Group shall provide investors'
communications and public relations services. Pursuant to the agreement, we
issued a non-refundable retainer of 400,000 shares common stock to Del Mar and
are required to pay $4,000 per month for on-going consulting services. In
addition, we issued Del Mar warrants to purchase 400,000 shares of our common
stock at $1.00 per share and 100,000 shares at $2.00 per share which
collectively expire January 24, 2005 and 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 acquisition
costs and financing expenses for December 31, 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
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.
On January 30, 2001, we issued an additional 20,000 shares of
our common stock to International Consulting Group for financial consulting
services rendered pursuant to the December 14, 2000 consulting
44
agreement between Tsunami Trading Corp. d/b/a Tsunami Financial Communications,
International Consulting Group and us.
On April 1, 2001, we entered into an agreement with Dailyfinancial.com,
Inc., a New York corporation, pursuant to which Dailyfinancial will provide
services with respect to investor communications and public relations.
Dailyfinancial acts a liaison between us and our shareholders, brokers,
broker-dealers and other investment professionals. In lieu of fees, we issued
Dailyfinancial 90,000 shares of our common stock for services to be rendered for
the period between April 1, 2001 to September 30, 2001.
Stock Option Plans
The 1998 Stock Option Plan
The 1998 Stock Option Plan is administered by our Compensation
Committee or our Board of Directors, which determines 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 shares of our common stock
issuable upon the exercise of the options and the option exercise price. As of
the date of this prospectus, we have issued options to purchase 435,000 shares
of our common stock underlying the 1998 Stock Option Plan to certain of our
directors, employees and consultants.
The 1998 Stock Option Plan is effective for a period for ten
years, expiring in 2008. Options to acquire 435,000 shares of our common stock
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide us with their skills and expertise. The 1998 Stock
Option Plan is designed to enable management to attract and retain qualified and
competent directors, employees, consultants and independent contractors. Options
granted under the 1998 Stock Option Plan may be exercisable for up to ten years,
generally require a minimum two year vesting period, and shall be at an exercise
price all as determined by our Board of Directors provided that, pursuant to the
terms of the underwriting agreement between us and our underwriters, the
exercise price of any options may not be less than the fair market value of the
shares of our common stock on the date of the grant. Options are
non-transferable, and are exercisable only by the participant (or by his or her
guardian or legal representative) during his or her lifetime or by his or her
legal representatives following death. Upon a change in control of Thinkpath,
the acceleration date of any options that were granted but not otherwise
exercisable accelerates to the date of the change in control. Change in control
includes (i) the sale of substantially all of our assets and merger or
consolidation with another company, or (ii) a majority of the members of our
Board of Directors changes other than by election by the shareholders pursuant
to Board of Directors solicitation or by vacancies filled by the Board of
Directors caused by death or resignation of such person.
If a participant ceases affiliation with us 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 ninety 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 us become available again for
issuance under the 1998 Stock Option Plan, subject to applicable securities
regulation. The 1998 Stock Option Plan may be terminated or amended at any time
by our Board of Directors, except that the number of shares of our common stock
reserved for issuance upon the exercise of options granted under the 1998 Stock
Option Plan may not be increased without the consent of our shareholders.
The 2000 Stock Option Plan The 2000 Stock Option Plan is administered
by our Compensation Committee or our Board of Directors, which determines 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
shares of our common stock issuable upon the exercise of the options and the
option exercise price. As of the date of this prospectus, we have issued options
to purchase 435,000 shares of our common stock underlying the 2000 Stock Option
Plan to certain of our directors, employees and consultants.
The 2000 Stock Option Plan is effective for a period for ten
years, expiring in 2010. Options to acquire 435,000 shares of our common stock
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide us with their skills and expertise. The 2000 Stock
Option Plan is designed to enable
45
management to attract and retain qualified and competent directors, employees,
consultants and independent contractors. Options granted under the 2000 Stock
Option Plan may be exercisable for up to ten years, generally require a minimum
two year vesting period, and shall be at an exercise price all as determined by
our Board of Directors provided that, pursuant to the terms of the underwriting
agreement between us and our underwriters, the exercise price of any options may
not be less than the fair market value of the shares of our common stock on the
date of the grant. Options are non-transferable, and are exercisable only by the
participant (or by his or her guardian or legal representative) during his or
her lifetime or by his or her legal representatives following death. Upon a
change in control of Thinkpath, the acceleration date of any options that were
granted but not otherwise exercisable accelerates to the date of the change in
control. Change in control includes (i) the sale of substantially all of our
assets and merger or consolidation with another company, or (ii) a majority of
the members of our Board of Directors changes other than by election by the
shareholders pursuant to Board of Directors solicitation or by vacancies filled
by the Board of Directors caused by death or resignation of such person.
If a participant ceases affiliation with us 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 ninety (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 us become available again
for issuance under the 2000 Stock Option Plan, subject to applicable securities
regulation. The 2000 Stock Option Plan may be terminated or amended at any time
by our Board of Directors, except that the number of shares of our common stock
reserved for issuance upon the exercise of options granted under the 2000 Stock
Option Plan may not be increased without the consent of our shareholders.
The 2001 Stock Option Plan
The 2001 Stock Option Plan is administered by our Compensation
Committee or our Board of Directors, which determines 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 shares of our common stock
issuable upon the exercise of the options and the option exercise price. As of
the date of this prospectus, we have issued options to purchase 335,000 shares
of our common stock underlying the 2001 Stock Option Plan to certain of our
directors, employees and consultants.
The 2001 Stock Option Plan is effective for a period for ten
years, expiring in 2011. Options to acquire 1,000,000 shares of our common stock
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide us with their skills and expertise. The 2001 Stock
Option Plan is designed to enable management to attract and retain qualified and
competent directors, employees, consultants and independent contractors. Options
granted under the 2001 Stock Option Plan may be exercisable for up to ten years,
generally require a minimum two year vesting period, and shall be at an exercise
price all as determined by our Board of Directors provided that, pursuant to the
terms of the underwriting agreement between us and our underwriters, the
exercise price of any options may not be less than the fair market value of the
shares of our common stock on the date of the grant. Options are
non-transferable, and are exercisable only by the participant (or by his or her
guardian or legal representative) during his or her lifetime or by his or her
legal representatives following death. Upon a change in control of Thinkpath,
the acceleration date of any options that were granted but not otherwise
exercisable accelerates to the date of the change in control. Change in control
includes (i) the sale of substantially all of our assets and merger or
consolidation with another company, or (ii) a majority of the members of our
Board of Directors changes other than by election by the shareholders pursuant
to Board of Directors solicitation or by vacancies filled by the Board of
Directors caused by death or resignation of such person.
If a participant ceases affiliation with us 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 ninety 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 us become available again for
issuance under the 2001 Stock Option Plan, subject to applicable securities
regulation. The 2001 Stock Option Plan may be terminated or amended at any time
by our Board of Directors, except that the number of shares of our common stock
reserved for issuance upon
46
the exercise of options granted under the 2001 Stock Option Plan may not be
increased without the consent of our shareholders.
47
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In April 1998, we acquired all the issued and outstanding
capital stock of Systemsearch Consulting Services Inc. and Systems PS Inc. from
John R. Wilson for aggregate consideration of $98,000 and 174,551 shares of our
common stock. The acquisition was effective as of January 2, 1997. Systems PS
Inc. is currently inactive but holds certain assets utilized by Systemsearch
Consulting Services Inc. in its operations. Mr. Wilson was not affiliated with
us prior to the acquisition.
On May 19, 1998, we completed the acquisition of all the
issued and outstanding capital stock of International Career Specialists Ltd.
for $326,000 in cash and 130,914 shares of our common stock to John A. Irwin, a
former officer of Thinkpath. In connection with the acquisition, International
Career Specialists Ltd. made a distribution to Mr. Irwin of certain of its
assets that were not necessary for the operation of the business. The
transaction was effective as of January 1, 1998. Mr. Irwin was not affiliated
with us prior to the acquisition.
In October 1997, in consideration for certain business
consulting services, including identifying, structuring and effecting the
acquisitions of Systemsearch Consulting Services Inc. and International Career
Specialists Ltd., we issued 113,459 shares of our common stock to Globe Capital
Corporation, which is controlled by Lloyd MacLean, our former Chief Financial
Officer and a former director.
In May 1998, we entered into a consulting agreement with
Robert M. Rubin, one of our former directors, pursuant to which Mr. Rubin will
assist us in structuring and negotiating acquisitions, strategic partnerships
and other expansion opportunities. In exchange for such services, Mr. Rubin
received an option to purchase 200,000 shares of our common stock at a purchase
price of $2.10 per share. Mr. Rubin has agreed not to sell, transfer, assign,
hypothecate or otherwise dispose of the shares of our common stock issuable upon
exercise of the option for a period of 2 years after exercise without our
consent. As of the date of this prospectus we have issued 18,508 shares of
common stock upon Mr. Rubin's exercise of the option.
In November 1998, we purchased certain assets of Southport
Consulting, Inc. from Michael Carrazza, one of our former directors, for an
aggregate of $300,000 in cash and 40,000 shares of our common stock. In February
2001, Mr. Carrazza instituted an action against us in the Supreme Court of the
State of New York alleging breach of contract and unjust enrichment. Mr.
Carrazza is seeking $250,000 in damages specifically claiming that we failed to
deliver cash and/or stock under the asset purchase agreement.
In September, 1999, we completed the acquisition of all the
issued and outstanding capital stock of Cad Cam, Inc. for $2,000,000 in cash,
$2,500,000 pursuant to a promissory note and the issuance of $1,500,000 worth of
shares of our common stock to Roger W. Walters, Cad Cam, Inc.'s former
president. As part of the transaction, Mr. Walters was elected to serve on our
Board of Directors. Mr. Rogers was not affiliated with us prior to the
acquisition. On March 14, 2001, Mr. Walters resigned from the Board of Directors
effective March 30, 2001. On January 1, 2000, the share purchase agreement by
and among Thinkpath, Cad Cam, Inc., and Roger W. Walters was amended. Pursuant
to the amendment, the parties agreed that $1,000,000 of the $2,000,000 cash
payment to be made to Mr. Walters was to be paid in 4 equal quarterly payments
of $250,000 commencing on January 1, 2000. In consideration for accepting the
cash payment in installments, we issued Mr. Walters options to purchase an
aggregate of 100,000 shares of our common stock at exercise prices ranging from
$2.12 to $3.25 per share, which options expired on December 31, 2000. On March
14, 2001, we repriced such options belonging to Roger W. Walters to an exercise
price of $1.00 per share in consideration of debt forgiveness of $75,000 and the
restructuring of debt totaling $250,000 on the notes payable to Mr. Walters in
connection with our purchase of Cad Cam, Inc. In addition, the term of such
options was extended to April 4, 2004.
On January 1, 2000, we completed the acquisition of all of the
issued and outstanding capital stock of Object Arts Inc., an Ontario
corporation, in consideration of: (i) the issuance of $900,000 of our common
stock to Working Ventures Custodian Fund in exchange for the retirement of
outstanding subordinated debt; (ii) the issuance to Working Ventures Custodian
Fund an amount of our common stock equal to the legal fees and professional fees
incurred and paid by Working Ventures Custodian Fund in connection with our
acquisition of Object Arts Inc.; and (iii) the issuance of $1,100,000 of our
common stock to the existing shareholders of Object Arts Inc. As part of the
transaction, we entered into employment agreements with Marilyn Sinclair and
Lars Laakes, former officers of Object Arts Inc. Such employment agreements were
for a term of 3 years commencing on January 1, 2000, the
48
effective date of the acquisition, with annual salaries of $82,000 and $75,000,
respectively. Neither Ms. Sinclair nor Mr. Laakes was affiliated with us prior
to the acquisition. On March 9, 2001 Ms. Sinclair resigned as an officer of
Thinkpath. On April 9, 2001, Ms. Sinclair resigned from our Board of Directors.
On April 1, 2000, we completed the acquisition of all of the
issued and outstanding capital stock of Micro Tech Professionals, Inc., a
Massachusetts corporation, in consideration of an aggregate of up to $4,500,000
in a combination of cash, notes payable and shares of our common stock, subject
to specific performance criteria to be met. On April 25, 2000, we paid to Denise
Dunne-Fushi, the sole shareholder of Micro Tech Professionals, Inc., $2,500,000
of the aggregate of $4,500,000, which was paid in accordance with the following
schedule: (i) $1,250,000 in cash; (ii) the issuance of a $750,000 principal
amount unsecured promissory note; and (iii) the issuance of 133,333 shares of
our common stock. As part of the transaction, we entered into an employment
agreement with Denise Dunne-Fushi, the former President of Micro Tech
Professionals, Inc. Such employment agreement was for a term of 1 year
commencing on April 25, 2000, with an annual salary of $125,000 and a bonus of
$25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the acquisition.
Thinkpath and Mrs. Dunne-Fushi are currently in the process of negotiating the
terms of the renewal of her employment agreement. Mrs. Dunne-Fushi continues to
serve as our Vice President and as President of Micro Tech Professionals, Inc.
on a month-to-month basis under the terms described above.
On November 15, 2000, we consummated a business combination
with TidalBeach Inc., an Ontario-based Web development company. In consideration
for the business combination, we issued 250,000 shares of our common stock to
the two shareholders of TidalBeach Inc. As part of the transaction, we entered
into an employment agreement with Michael Reid, the former President of
TidalBeach Inc. Such employment agreement is for a term of 2 years commencing on
November 15, 2000 with an annual salary of $123,000.
Effective December 26, 2000, shares and options were issued to
the following: Declan A. French, Tony French, Michael Reid, Kelly Hankinson, and
Globe Capital Corporation. These issuances were made pursuant to contracts
and/or as bonuses with regards to the various acquisitions throughout the course
of the fiscal year 2000. The amounts issued were as follows: 1,200,000 shares to
Declan A. French; 50,000 shares to Tony French; 100,000 options priced at $0.70
to Michael Reid; and 50,000 shares and 100,000 options priced at $0.70 to Kelly
Hankinson; and 500,000 shares to Globe Capital Corporation.
During the fiscal year ended December 31, 2000 we paid to
Gersten, Savage & Kaplowitz, LLP, our United States legal counsel, approximately
$100,000 and issued 30,632 shares of common stock in consideration for legal
services rendered. Arthur S. Marcus, one of our directors, is a partner of
Gersten, Savage & Kaplowitz, LLP.
While we were private, we lacked sufficient independent
directors to ratify many of the foregoing transactions. However, we believe that
the foregoing transactions were on terms no less favorable to us than could have
been obtained from unaffiliated third parties. Management believes that all
transactions consummated since we became public and all future transactions
between us and our officers, directors or 5% shareholders, and their respective
affiliates have been and will be on terms no less favorable than could be
obtained from unaffiliated third parties. In the event that we enter into future
affiliated transactions, independent directors who do not have an interest in
the transactions and who have access, at our expense, to our counsel or
independent legal counsel, will approve such transactions.
49
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of October 10, 2001, the names and
ownership of our common stock beneficially owned, directly or indirectly, by:
(i) each person who is a director or executive officer of Thinkpath; (ii) all
directors and executive officers of Thinkpath as a group; and (iii) all holders
of 5% or more of the outstanding shares of the common stock of Thinkpath:
Name and Address of Amount and Nature of Percentage of Shares
Beneficial Owner (1) Beneficial Ownership (2) Outstanding
Declan A. French 2,338,459 (3) 15.3%
Laurie Bradley - - - - - -
Tony French 70,133 (4) *
Kelly Hankinson 180,167 (5) 1.2%
John Dunne 41,424 (6) *
Arthur S. Marcus 30,500 (7) *
Ronan McGrath 25,500 (8) *
Joel Schoenfeld 25,000 (9) *
Robert Escobio 200,000 (10) 1.3%
Roger W. Walters 1,395,398 (11) 9.1%
KSH Strategic Investment Fund I,
L.P. 1,844,673 (12) 11.7%
All Directors and Officers as a
Group (9 persons) (3 - 10) 2,910,717 18.8%
* Less than 1%.
(1) Except as set forth above, the address of each individual is 55 University
Avenue, Suite 505, Toronto, Ontario M5J 2H7.
(2) Based upon information furnished to us by the directors and executive
officers or obtained from our stock transfer books. We have been informed that
these persons hold the sole voting and dispositive power with respect to the
common stock except as noted herein. For purposes of computing "beneficial
ownership" and the percentage of outstanding common stock held by each person or
group of persons named above as of October 10, 2001, any security which such
person or group of persons has the right to acquire within 60 days after such
date is deemed to be outstanding for the purpose of computing beneficial
ownership and the percentage ownership of such person or persons, but is not
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person
(3) Includes 523,263 shares of common stock owned by Christine French, the wife
of Declan A. French and 101,333 shares of common stock issuable upon the
exercise of options granted to Declan A. French that are currently exercisable
or exercisable within the next 60 days. Also includes 1,200,000 shares of common
stock issued to Declan A. French as a bonus pursuant to his employment
agreement.
(4) Includes 126,167 shares of common stock issuable upon the exercise of
options that are currently exercisable or exercisable within the next 60 days.
(5) Includes 1,133 shares of common stock issuable upon the exercise of options
that are currently exercisable or exercisable within the next 60 days.
50
(6) Includes 1,333 shares of common stock issuable upon the exercise of options
that are currently exercisable or exercisable within the next 60 days.
(7) Includes 27,500 shares of common stock issuable upon the exercise of options
that are currently exercisable or exercisable within the next 60 days. Excludes
30,362 shares of common stock issued in the name of Gersten, Savage & Kaplowitz,
LLP, our United States legal counsel, of which Mr. Marcus is a partner.
(8) Consists of 25,000 shares of common stock issuable upon the exercise of
options that are currently exercisable or exercisable within the next 60 days.
(9) Consists of 25,000 shares of common stock issuable upon the exercise of
options that are currently exercisable or exercisable within the next 60 days.
(10) Includes 200,000 shares of common stock issued in the name of Aquila
Airways Inc., a corporation in which Mr. Escobio's wife is a stockholder.
(11) Includes 100,000 shares of common stock issuable upon the exercise of
options that are currently exercisable or exercisable within the next 60 days.
(12) Includes 315,000 shares of common stock issuable upon options that are
currently exercisable or exercisable within the next 60 days and 250,000 shares
of common stock issuable upon the exercise of warrants that are currently
exercisable or exercisable within the next 60 days.
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DESCRIPTION OF SECURITIES
Our total authorized capital stock consists of 30,000,000 shares of
common stock, no par value per share, and 1,000,000 shares of preferred stock,
no par value per share. The following descriptions contain all material terms
and features of our securities and are qualified in all respects by reference to
our Articles of Organization and Bylaws.
Common Stock
We are authorized to issue up to 30,000,000 shares of common stock, no
par value per share, 15,181,601 shares of which were outstanding as of October
10, 2001, not including the shares of common stock to be issued upon the
conversion of the outstanding shares of Series C 7% Convertible Preferred Stock
and the exercise of all outstanding warrants and options. All outstanding shares
of common stock are, and all shares of common stock to be outstanding upon the
conversion of the outstanding shares of Series C 7% Convertible Preferred Stock
and the exercise of outstanding warrants and options will be, validly authorized
and issued, fully paid, and non-assessable.
The holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders. Holders of
common stock are entitled to receive ratably dividends as may be declared by our
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of Thinkpath, holders of the common stock
are entitled to share ratably in all assets remaining, if any, after payment of
liabilities. Holders of common stock have no preemptive rights and have no
rights to convert their shares of common stock into any other securities.
Pursuant to the Business Corporations Act, Ontario, a
shareholder of an Ontario corporation has the right to have the corporation pay
the shareholder the fair market value for such shareholder's shares of the
corporation in the event such shareholder dissents from certain actions taken by
the corporation, such as amalgamation or the sale of all or substantially all of
the assets of the corporation and such shareholder follows the procedures set
forth in the Business Corporations Act, Ontario.
Preferred Stock
Our Articles of Organization authorize the issuance of up to
1,000,000 shares of preferred stock with designations, rights and preferences
determined from time to time by our Board of Directors. Accordingly, our Board
of Directors is empowered, without shareholder approval, to issue preferred
shares with dividend, liquidation, conversion, or other rights that could
adversely affect the rights of the holders of the common stock.
Series A 8% Convertible Preferred Stock
There were 17,500 shares of Series A 8% Convertible Preferred
Stock authorized and issued, none of which remains outstanding.
Series B 8% Convertible Preferred Stock
There were 1,500 shares of Series B 8% Convertible Preferred Stock
authorized and issued, none of which remains outstanding.
Series C 7% Convertible Preferred Stock
Pursuant to a share purchase agreement dated April 18, 2001 (Series C
Preferred Stock Purchase Agreement) as amended on June 6, 2001, we issued an
aggregate of 1,230 shares of Series C 7% Cumulative Convertible Preferred Stock
(Series C Preferred Stock). As of the date of this prospectus, there are 1,110
shares of Series C Preferred Stock outstanding. The issuance of the Series C
Preferred Stock was made pursuant to Section 4(2) of the Securities Act and each
of the investors was a sophisticated, accredited investor who took the shares
for investment purposes. There was no underwriter involved in the transaction.
Each share of our Series C Preferred Stock has a stated value of $1,000
per share. The shares of Series C
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Preferred Stock are convertible into shares of our common stock at the option of
the holder of the Series C Preferred Stock at any time after issuance until we
force the conversion of shares of Series C Preferred Stock. We are required to
convert all shares of Series C Preferred Stock that remain outstanding after
April 18, 2003.
Pursuant to the registration requirements under the Series C Preferred
Stock Purchase Agreement, we filed a registration statement on June 7, 2001
(Registration Statement) registering 200% of the shares of common stock issuable
upon the conversion of all the shares of Series C Preferred Stock issued and to
be issued and 100% of the shares of common stock issuable upon exercise of the
common stock purchase warrants issued and to be issued.
Pursuant to the terms of the original Series C Stock Purchase
Agreement, we were obligated to issue to the investors an aggregate of 500
shares of Series C Preferred Stock and common stock purchase warrants in
consideration for an additional $500,000. Such issuance was to take place upon
the effective date of the Registration Statement and the satisfaction or waiver
of the following conditions: (a) that each investor had delivered immediately
available funds; (b) that all representations and warranties by the parties
shall have remained true and correct and (c) that all permits and qualifications
required by any state shall have been obtained.
On June 6, 2001 the Series C Preferred Stock Purchase Agreement was
amended (Amended Series C Preferred Stock Purchase Agreement) to restructure the
terms of the issuance of the additional 500 shares of Series C Preferred Stock.
Pursuant to the Amended Series C Preferred Stock Purchase Agreement, we issued
125 shares of the 500 shares of Series C Preferred Stock to one investor in
consideration for $125,000. Pursuant to the Amended Series C Preferred Stock
Purchase Agreement we are obligated to issue the remaining 375 shares of Series
C Preferred Stock to the investors.
The holders of the shares of Series C Preferred Stock are entitled to
receive preferential dividends in cash, on a quarterly basis commencing on June
30, 2001, out of any of our funds legally available at the time of declaration
of dividends before any other dividend distribution will be paid or declared and
set apart for payment on any shares of our common stock, or other class of stock
presently authorized, at the rate of 7% simple interest per annum on the stated
value per share plus any accrued but unpaid dividends, when, as and if declared.
We have the option to pay such dividends in shares of our common stock to be
paid (based on an assumed value of $1,000 per share) in full shares only, with a
cash payment equal to any fractional shares.
The number of shares of our common stock into which the Series C
Preferred Stock shall be convertible into is 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 our
common stock during the period of 60 consecutive trading days immediately prior
to 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. The Conversion Price is subject to the following
limitations: (a) for the 120 calendar days following April 18, 2001, the
Conversion Price shall not be less than $.375 per share; (b) during the period
commencing on the 121st calendar following April 18, 2001 and ending on the
180th calendar following April 18, 2001, the Conversion Price of 50% of each of
the holders' shares of Series C Preferred Stock shall not be less than $.375;
and (c) on any day after the 180th calendar following April 18, 2001, there
shall be no floor on the Conversion Price.
At any time prior to October 24, 2001 we may, in our sole discretion,
redeem in whole or in part, the then issued and outstanding shares of Series C
Preferred Stock at a price equal to $1,150 per share, plus all accrued and
unpaid dividends, and after October 24, 2001 at a price equal to $1,200 per
share, plus all accrued and unpaid dividends.
Common Stock Purchase Warrants
There are outstanding warrants to purchase an aggregate of
3,076,711 shares of our common stock. 475,000 of the warrants are exercisable at
any time and in any amount until December 30, 2004 at a purchase price of $3.24
per share, 250,000 of the warrants are exercisable at any time and in any amount
until April 16, 2005 at a purchase price of $3.71 per share, 500,000 of the
warrants are exercisable at any time and in any amount until March 15, 2005
53
at a purchase price of $3.25 per share, 100,000 of the warrants are exercisable
at any time and in any amount until June 1, 2004 at a purchase price of $3.25
per share, 225,000 of the warrants are exercisable at any time and in any amount
until July 6, 2005, 532,534 of the warrants are exercisable at any time and in
any amount until August 22, 2005 at a purchase price of $2.4614 per share,
230,693 of the warrants are exercisable at any time and in any amount until
August 22, 2005 at a purchase price of $1.00 per share, 100,000 of the warrants
are exercisable at any time and in any amount until January 20, 2006 at $1.50
per share, and 663,484 of the warrants are exercisable at any time and in any
amount until April 18, 2006 at a purchase price of $.5445 per share. We may call
any unexercised portion of 963,239 of the 2,293,777 warrants and require their
exercise as follows if our common stock, as reported on the Nasdaq SmallCap
Market, closes above the bid price indicated for any 10 consecutive business
days: (i) 1/3 of such unexercised warrants at $6.00 per share, (ii) 1/3 of such
unexercised warrants at $7.50 per share; and (iii) 1/3 of such unexercised
warrants at $9.00 per share.
Warrant-holders are not entitled, by virtue of being
warrant-holders, to receive dividends or to vote at or receive notice of any
meeting of shareholders or to exercise any other rights whatsoever as
shareholders. In order to receive one share of our common stock a warrant-holder
must surrender one warrant, accompanied by payment of the aggregate exercise
price of the warrants to be exercised, which payment may be made, at the
warrant-holder's election, in cash or by delivery of a cashiers or certified
check or any combination of the foregoing. Upon receipt of duly executed
warrants and payment of the exercise price, we will issue and cause to be
delivered to warrant-holders certificates representing the number of shares of
common stock so purchased.
CERTAIN UNITED STATES AND CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
United States
The following describes the principal United States federal
income tax consequences of the purchase, ownership and disposition of our shares
of common stock by a shareholder who is a citizen or resident of the United
States or a United States domestic corporation or that otherwise will be subject
to United States federal income tax. This summary is based on the United States
Internal Revenue Code of 1986, as amended, administrative pronouncements,
judicial decisions and existing and proposed Treasury Regulations, changes to
any of which subsequent to the date of this prospectus may affect the tax
consequences described herein. This summary discusses only the principal United
States federal income tax consequences to those beneficial owners holding the
securities as capital assets within the meaning of Section 1221 of the United
States Internal Revenue Code of 1986 and does not address the tax treatment of a
beneficial owner that owns 10% or more of shares of our common stock. It is for
general guidance only and does not address the consequences applicable to
certain specialized classes of taxpayers such as certain financial institutions,
insurance companies, dealers in securities or foreign currencies, or United
States persons whose functional currency (as defined in Section 985 of the
United States Internal Revenue Code of 1986) is not the United States dollar.
Persons considering the purchase of these securities should consult their tax
advisors with regard to the application of the United States and other income
tax laws to their particular situations. In particular, a United States
shareholder should consult his or her or its tax advisor with regard to the
application of the United States federal income tax laws to his, her or its
situation.
A United States shareholder generally will realize, to the
extent of our current and accumulated earnings and profits, foreign source
ordinary income on the receipt of cash dividends, if any, on the shares of our
common stock equal to the United States dollar value of such dividends
determined by reference to the exchange rate in effect on the day they are
received by the United States shareholder (with the value of such dividends
computed before any reduction for any Canadian withholding tax). United States
shareholders should consult their own tax advisors regarding the treatment of
foreign currency gain or loss, if any, on any dividends received which are
converted into United States dollars on a date subsequent to receipt. Subject to
the requirements and limitations imposed by the United States Internal Revenue
Code of 1986, a United States shareholder may elect to claim Canadian tax
withheld or paid with respect to dividends on the shares of our common stock as
a foreign credit against the United States federal income tax liability of such
holder. Dividends on the shares of our common stock generally will constitute
"passive income" or, in the case of certain United States shareholders,
"financial services income," for United States foreign tax credit purposes.
United States shareholders who do not elect to claim any foreign tax credits may
claim a deduction for Canadian income tax withheld. Dividends paid on the shares
of our common stock will not be eligible for the dividends received deduction
available in certain cases to United States corporations.
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Upon a sale or exchange of a share of our common stock, a
United States shareholder will recognize gain or loss equal to the difference
between the amount realized on such sale or exchange and the tax basis of such
share of common stock.
Generally, any gain or loss recognized as a result of the
foregoing will be a capital gain or loss and will either be long-term or
short-term depending upon the period of time the shares of our common stock are
sold or exchanged, as the case may be, were held.
This summary is of general nature only and is not intended to
be, and should not be construed to be, legal or tax advice to any prospective
investor and no representation with respect to the tax consequences to any
particular investor is made.
Canada
The following is a summary of the principal Canadian federal income tax
considerations generally applicable to the acquisition, holding and disposition
of shares of our common stock purchased pursuant to this prospectus by a United
States shareholder who, for the purposes of the Income Tax Act (Canada) and the
Canada-United States Income Tax Convention, as applicable and at all relevant
times, (i) is resident in the United States and not resident in Canada, (ii)
holds shares of our common stock as capital property, (iii) does not have a
"permanent establishment" or "fixed base" in Canada, and (iv) deals at arm's
length with us. Special rules, which are not discussed in this summary, may
apply to "financial institutions" and to non-resident insurers carrying on an
insurance business in Canada and elsewhere.
This summary is based on the current provisions of the Income
Tax Act (Canada) and the regulations thereunder and the Canada-United States
Income Tax Convention, all specific proposals to amend the Income Tax Act
(Canada) or the regulations thereunder announced by the Canadian Minister of
Finance prior to the date of this prospectus and the current published
administrative practices of Revenue Canada. This summary does not otherwise take
into account or anticipate any changes in law or administrative practice nor
does it take into account income tax laws or considerations of any province or
territory of Canada or any jurisdiction other than Canada, which may differ from
the federal income tax consequences described herein. This summary is of a
general nature only and is not intended to be, and should not be interpreted as,
legal or tax advice to any particular purchaser of the shares of common stock.
Dividends
Under the Income Tax Act (Canada) and the Canada-United States
Income Tax Convention, dividends paid or credited, or deemed to be paid or
credited, on the shares of our common stock to a United States shareholder who
owns less than 10% of our voting shares will be subject to Canadian withholding
tax at the rate of 15% of the gross amount of such dividends or deemed
dividends.
Under the Canada-United States Income Tax Convention, dividends paid or
credited to certain religious, scientific, charitable and similar tax exempt
organizations and certain pension organizations that are resident, and exempt
from tax, in the United States and that have complied with certain
administrative procedures are exempt from this Canadian withholding tax.
Disposition of Shares of Common Stock
A capital gain realized by a United States shareholder on a disposition
or deemed disposition of shares of our common stock will not be subject to tax
under the Income Tax Act (Canada) unless such shares of our common stock
constitute taxable Canadian property within the meaning of the Income Tax Act
(Canada) at the time of the disposition or deemed disposition. In general, the
shares of our common stock will not be "taxable Canadian property" to a United
States shareholder unless they are not listed on a prescribed stock exchange
(which includes the Nasdaq SmallCap Market) or at any time within the five year
period immediately preceding the disposition the United States shareholder,
persons with whom the United States shareholder did not deal at arm's length, or
the United States shareholder together with such persons owned or had an
interest in or a right to acquire more than
55
25% of any class or series of our shares. A deemed disposition of shares of our
common stock will arise on the death of a United States shareholder.
If the shares of our common stock are taxable Canadian property to a
United States shareholder, any capital gain realized on a disposition or deemed
disposition of such shares of our common stock will generally be exempt from tax
under the Income Tax Act (Canada) by virtue of the Canada-United States Income
Tax Convention if the value of the shares of our common stock at the time of the
disposition or deemed disposition is not derived principally from real property
situated in Canada. We are of the view that the shares of our common stock do
not now derive their value principally from real property situated in Canada;
however, the determination as to whether Canadian tax would be applicable on a
disposition or deemed disposition of shares of our common stock must be made at
the time of the disposition or deemed disposition. This summary is of general
nature only and is not intended to be, and should not be construed to be, legal
or tax advice to any prospective investor and no representation with respect to
the tax consequences to any particular investor is made.
56
INVESTMENT CANADA ACT
The Investment Canada Act, a Federal Canadian statute, regulates the
acquisition of control of existing Canadian businesses by any non-Canadian (as
that term is defined in the Investment Canada Act).
We are currently a Canadian (as that term is defined in the Investment
Canada Act). If a non-Canadian seeks to acquire control of us, such acquisition
will be subject to the Investment Canada Act. In general, any transaction that
is subject to the Investment Canada Act is a reviewable transaction if the book
value of our assets, as set out in its most recent financial statements, exceeds
the applicable threshold. If the potential acquiror is a WTO Investor, acquiring
control of us would only be reviewable if the book value of our assets exceeded
CDN$209 million. (This number is the threshold amount for 2001 and this amount
is increased each year by a factor equal to the increase in the rate of Canadian
inflation for the previous year). A WTO Investor is defined in the Investment
Canada Act as an investor ultimately controlled by nationals of World Trade
Organization member states, such as the United States of America.
If the book value of our assets exceeds the applicable threshold for
review, the potential acquiror must file an application for review and obtain
the approval of the Minister of Industry before acquiring control of us. In
deciding whether to approve the reviewable transaction, the Minister considers
whether the investment "is likely to be of net benefit to Canada". This
determination is made on the basis of economic and policy criteria set out in
the Investment Canada Act.
The approval process begins with an initial review period of 45 days
from the date the completed application is received. However, the Minister of
Industry has authority to extend the review period unilaterally for 30 more
days. Any further extensions require the potential acquiror's consent.
57
SHARES ELIGIBLE FOR FUTURE SALE
We cannot assure you as to the effect, if any, that future sales of
common stock will have on the market price of our common stock. Of our shares of
common stock currently outstanding, assuming no exercise of warrants and/or
options or the conversion of the outstanding shares of Series C 7% Convertible
Preferred Stock, 7,290,335 are "restricted securities" as the term is defined in
Rule 144 under the Securities Act and under certain circumstances may be sold
without registration pursuant to that rule. Subject to the compliance with the
notice and manner of sale requirements of Rule 144 and provided that we are
current in our reporting obligations under the Securities Exchange Act of 1934,
a person who beneficially owns restricted shares of stock for a period of at
least one year is entitled to sell, within any three-month period, shares equal
to the greater of 1% of the number of the then outstanding shares of common
stock, or if the common stock is quoted on the Nasdaq System, the average weekly
trading volume of the common stock during the four calendar weeks preceding the
filing of the required notice of sale on the Form 144 with the United States
Securities and Exchange Commission. As of October 10, 2001, 1,337,867 shares of
the common stock held by beneficial owners are eligible for sale pursuant to
Rule 144. We are unable to predict the effect of any sales made under Rule 144
and Rule 144k may have on the market price of our common stock prevailing at the
time of any such sales. Nevertheless, sales of substantial amounts of the
restricted shares of common stock in the public market could adversely affect
the then prevailing market for our common stock and could impair our ability to
raise capital through the sale of our equity securities.
58
SELLING SECURITY HOLDERS
The table below sets forth certain information regarding the beneficial
ownership of the common stock by the selling security holders and as adjusted to
give effect to the sale of the shares offered in this prospectus.
Position, Office or Percentage of
Affiliation with Beneficial Common Stock
Name of Selling Security Thinkpath During the Ownership of Common Shares of Common Beneficially Owned
Holder Past Three Years Stock Prior to Sale(1) Stock to be Sold(1) After the Offering(2)
------ ---------------- ---------------------- ------------------- ---------------------
Alpha Capital AG None 1,814,408(3) 3,397,603(4)(5) 0.0%
Stonestreet L.P. None 1,774,878(6) 3,139,163(7)(8) 0.0%
Andrew Reckless None 257,168 257,168 0.0%
Paul T. Mannion None 257,168 257,168 0.0%
Gersten, Savage &
Kaplowitz, LLP Legal Counsel 30,362 30,362 0.0%
Arthur S. Marcus Director and Partner
of Legal Counsel 30,500 30,500(9) *
Christopher J. Kelly Employee of Legal
Counsel 12,500 12,500(10) 0.0%
Denise Dunne-Fushi Employee 450,000 133,333 2.1%
KSH Investment Group, Inc. Former Placement
Agent and Current
Financial Consultant 150,000 150,000 0.0%
Dailyfinancial.com, Inc. Consultant 90,000 90,000 0.0%
Burlington Capital
Markets, Inc. Consultant 425,000 425,000 0.0%
Del Mar Consulting Group Consultant 693,883(11) 600,000 *
Robert B. Prag Consultant 23,622 23,622 0.0%
Roger W. Walters Former Director and
Former Officer 1,395,398 1,125,398 1.8%
Chris Killarney Former Employee 105,000 105,000 0.0%
Michael Reid Employee 125,000 125,000 0.0%
Bernadette Reid None 125,000 125,000 0.0%
International Consulting
Group Consultant 140,000 140,000 0.0%
* Less than 1%
(1) The number of shares of common stock shown as beneficially owned and offered
by the selling security holders represents the number of shares that we have
initially agreed to register the number of shares of common stock offered by
the selling security holders hereby and included in the registration statement
of which this prospectus is a part also includes; (a) such number of
additional shares of our common stock as may be issued upon (i) the conversion
of the 1,110 issued and outstanding shares of Series C 7% Convertible Preferred
Stock, (ii) the exercise of warrants to purchase an aggregate of 723,436 shares
of our common stock that were issued in the April 2001 private placement
offering, (iii) the conversion of the 375 shares of Series C 7% Convertible
Preferred Stock that we are obligated to issue upon the effective date of this
registration statement, (iv) the exercise of 377,771 warrants to purchase shares
of our common stock which warrants we are obligated to issue upon the effective
date of this registration statement, and (b) an aggregate of (i) 25,500 shares
of our common stock issuable upon the exercise of option exercisable at $3.25
per share, (ii) 2,500 shares of our common stock issuable upon the exercise of
options exercisable at $3.19 per share, and (iii) 35,000 shares of common stock
issuable upon the exercise of options exercisable at $.70 per share.
Accordingly, the actual number of shares of our common stock issued or issuable
upon the conversion of the shares of Series C 7% Convertible Preferred Stock and
the exercise of warrants is subject to adjustment depending upon factors which
cannot be predicted at this time, including, among others, the future market
prices of our common stock. Accordingly, the number of shares set forth for each
selling security holder may exceed the actual number of shares of common stock
the such selling security holder could beneficially own at any given time
through such selling security holder's ownership of the shares of Series C 7%
Convertible Preferred Stock and the warrants. The above numbers assume that the
selling security holders will convert all of the shares of Series C 7%
Convertible Preferred Stock and exercise all of the outstanding warrants and
options held by them.
(2) Assumes all of the shares of common stock offered are sold.
(3) Assumes the conversion of all of such shareholders' portion of the shares of
Series C 7% Convertible Preferred Stock issued and to be issued and assumes the
exercise of all of the warrants issued and to be issued,
59
however, pursuant to the share purchase agreement, such shareholder may not
own more than 9.9% of our common stock at any one time.
(4) Includes 956,755 shares of our common stock issuable upon the conversion of
shares of the Series C 7% Convertible Preferred Stock we are obligated to issue
upon the effective date of this registration statement.
(5) Includes 251,847 shares of our common stock issuable upon the exercise of
the common stock purchase warrants we are obligated to issue upon the effective
date of this registration statement.
(6) Assumes the conversion of all of such shareholders' portion of the shares of
Series C 7% Convertible Preferred Stock issued and to be issued and assumes the
exercise of all of the warrants issued and to be issued, however, pursuant to
the share purchase agreement, such shareholder may not own more than 9.9% of our
common stock at any one time.
(7) Includes 478,378 shares of our common stock issuable upon the conversion of
shares of the Series C 7% Convertible Preferred Stock we are obligated to issue
upon the effective date of this registration statement.
(8) Includes 125,924 shares of our common stock issuable upon the exercise of
the common stock purchase warrants we are obligated to issue upon the effective
date of this registration statement.
(9) Includes (i) 2,500 shares of our common stock issuable upon the exercise of
options exercisable at $3.19 per share, and (ii) 25,000 shares of our common
stock issuable upon the exercise of options exercisable at $.70 per share.
(10) Includes (i) 2,500 shares of our common stock issuable upon the exercise of
options exercisable at $3.25 per share, and (ii) 10,000 shares of our common
stock issuable upon the exercise of options exercisable at $.70 per share.
(11) Includes 200,000 shares of Common Stock issuable upon the exercise of
options exercisable at $.55 per share.
In recognition of the fact that the selling security holders may wish
to be legally permitted to sell their shares of common stock when they deem
appropriate, we agreed with the selling security holders to file with the United
States Securities and Exchange Commission, under the Securities Act of 1933, as
amended, a registration statement on Form SB-2, of which this prospectus is a
part, with respect to the resale of the shares of common stock, and have agreed
to prepare and file such amendments and supplements to the registration
statement as may be necessary to keep the registration statement in effect until
the shares of common stock are no longer required to be registered for the sale
thereof by the selling security holders. As per the United States Securities
rules and regulations, certain of the selling security holders may not use the
shares of our common stock sold under this registration statement to cover short
positions taken since this registration statement was filed.
60
PLAN OF DISTRIBUTION
Our shares of common stock offered hereby by the selling security
holders may be sold from time to time by such selling security holders, or by
pledgees, donees, transferees and other successors in interest thereto. These
pledgees, donees, transferees and other successors in interest will be deemed
"selling security holders" for the purposes of this prospectus. Our shares of
common stock may be sold:
- on one or more exchanges or in the over-the-counter market (including
the OTC Bulletin Board); or
- in privately negotiated transactions.
Our shares of common stock may be sold to or through brokers or
dealers, who may act as agent or principal, or in direct transactions between
the selling security holders and purchasers. In addition, the selling security
holder may, from time to time, sell the common stock short, and in these
instances, this prospectus may be delivered in connection with the short sale
and the shares of common stock offered hereby may be used to cover the short
sale.
Transactions involving brokers or dealers may include, without
limitation, the following:
- ordinary brokerage transactions,
- transactions in which the broker or dealer solicits purchasers,
- block trades in which the broker or dealer will attempt to sell the
shares of common stock as agent but may position and resell a portion
of the block as principal to facilitate the transaction; and
- purchases by a broker or dealer as a principal and resale by such
broker or dealer for its own account.
In effecting sales, brokers and dealers engaged by the selling security
holders or the purchasers of the shares of common stock may arrange for other
brokers or dealers to participate. These brokers or dealers may receive
discounts, concessions or commissions from the selling security holders and/or
the purchasers of the shares of common stock for whom the broker or dealer may
act as agent or to whom they may sell as principal, or both (which compensation
as to a particular broker or dealer may be in excess of customary commissions).
We are bearing all of the costs relating to the registration of the
shares of common stock other than certain fees and expenses, if any, of counsel
or other advisors to the selling security holders. Any commissions, discounts or
other fees payable to brokers or dealers in connection with any sale of the
shares of common stock will be borne by the selling security holders, the
purchasers participating in the transaction, or both.
Any shares covered by this prospectus that qualify for sale pursuant to
Rule 144 under the Securities Act of 1933, as amended, may be sold under Rule
144 rather than pursuant to this prospectus. One of the selling security holders
(Burlington Capital Markets, Inc.) whose shares are being registered herein has
agreed not to sell more than 50,000 shares in any single month unless the stock
price exceeds $3.00 per share for ten consecutive trading days. Del Mar
Consulting Group has agreed not to sell any shares until December 31, 2001.
61
LEGAL MATTERS
Certain legal matters in connection with the offering, including the
validity of the issuance of the shares of common stock offered hereby, will be
passed upon for us by Gersten, Savage & Kaplowitz, LLP, New York, New York.
EXPERTS
Our financial statements for the years ended December 31, 1999 and
2000, appearing in this prospectus and registration statement have been audited
by Schwartz Levitsky Feldman, llp, as set forth in their report thereon
appearing elsewhere herein and in the registration statement, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing. Our financial statements for the three and six months
ended June 30, 2001 and June 30, 2000, appearing in this prospectus and
registration statement have been prepared by us and have been reviewed by
Schwartz, Levitsky, Feldman, llp.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the information requirements of the Exchange Act of
1934, and, in accordance therewith will have been filing reports, proxy
statements and other information with the United States Securities and Exchange
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the United
States Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the regional offices of the
United States Securities and Exchange Commission located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained from the Public Reference Section of the Securities
and Exchange Commission, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and its public reference facilities in New York, New
York and Chicago, Illinois upon payment of the prescribed fees. Electronic
registration statements filed through the Electronic Data Gathering, Analysis,
and Retrieval System are publicly available through the United States Securities
and Exchange Commission's Web site (http://www.sec.gov). Further information on
public reference rooms available at the United States Securities and Exchange
Commission is available by contacting the United States Securities and Exchange
Commission at 1-(800) SEC-0330. The Nasdaq Stock Market maintains a Web site at
(http://www.nasdaq.com) whereby information regarding Thinkpath may be obtained.
62
THINKPATH INC.
REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2001
(UNAUDITED)
(AMOUNTS EXPRESSED IN US DOLLARS)
F-1
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Copyright 2001 10-K Wizard Technology, LLC
THINKPATH INC.
REVISED INTERIM CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
2001 2000
---- ----
$ $
ASSETS
CURRENT ASSETS
Accounts receivable 6,954,557 7,857,999
Inventory 62,967 93,670
Income taxes receivable 331,948 358,436
Prepaid expenses 389,474 335,930
---------- ---------
7,738,946 8,646,035
CAPITAL ASSETS 3,341,973 3,596,759
GOODWILL 8,424,854 8,585,290
INVESTMENT IN NON-RELATED COMPANIES 1,502,565 1,318,091
LONG-TERM RECEIVABLE 273,530 83,450
OTHER ASSETS 1,374,671 1,812,889
DEFERRED INCOME TAXES 436,103 1,643,426
---------- ---------
23,092,642 25,685,940
========== ==========
F-2
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Copyright 2001 10-K Wizard Technology, LLC
THINKPATH INC.
REVISED INTERIM CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
2001 2000
---- ----
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 4,083,542 5,061,410
Accounts payable 3,998,054 3,822,984
Deferred revenue 177,425 219,308
Current portion of long-term debt 412,384 946,131
Current portion of notes payable 1,519,515 1,683,333
---------- ----------
10,190,920 11,733,166
LONG-TERM DEBT 883,474 760,313
NOTES PAYABLE 1,639,456 1,641,667
CAPITAL STOCK PAYABLE 751,788 751,788
---------- ----------
13,465,638 14,886,934
---------- ----------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (Note 5) 25,605,830 23,759,415
DEFICIT (15,080,923) (12,306,862)
ACCUMULATED OTHER COMPREHENSIVE LOSS (897,903) (653,547)
---------- ----------
9,627,004 10,799,006
---------- ----------
23,092,642 25,685,940
========== ==========
The accompanying notes are an integral part of these revised
interim consolidated financial statements.
F-3
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Copyright 2001 10-K Wizard Technology, LLC
THINKPATH INC.
REVISED INTERIM CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
(RESTATED) (RESTATED)
3 MONTHS ENDED 3 MONTHS ENDED 6 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000
-------------- -------------- -------------- --------------
$ $ $ $
REVENUE 10,015,284 12,196,894 20,717,885 22,037,865
COST OF SERVICES 6,598,474 7,378,442 13,476,901 13,320,779
---------- ---------- ---------- ----------
GROSS PROFIT 3,416,810 4,818,452 7,240,984 8,717,086
---------- ---------- ---------- ----------
EXPENSES
Administrative 2,285,805 1,606,423 3,039,695 3,277,860
Selling 1,619,886 2,279,282 3,263,646 3,791,066
Financing expenses (51,111) -- 573,525 --
Interest Charges 246,937 303,573 492,986 552,001
Depreciation and amortization 560,986 432,498 1,123,706 714,162
Restructuring costs 173,311 -- 452,764 --
---------- ---------- ---------- ----------
4,835,814 4,621,776 8,946,322 8,335,089
---------- ---------- ---------- ----------
NET INCOME (LOSS) BEFORE
INCOME TAXES (1,419,004) 196,676 (1,705,338) 381,997
Income taxes 200,030 (36,291) 403,992 42,031
---------- ---------- ---------- ----------
NET INCOME (LOSS) (1,619,034) 232,967 (2,109,330) 339,966
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK OUTSTANDING
BASIC AND FULLY DILUTED 14,713,383 4,449,048 13,869,253 4,278,762
========== ========== ========== ==========
INCOME (LOSS) PER WEIGHTED
AVERAGE COMMON STOCK
AFTER PREFERRED DIVIDENDS
BASIC AND FULLY DILUTED (0.11) (0.05) (0.15) 0.08
========== ========== ========== ==========
The accompanying notes are an integral part of these revised
interim consolidated financial statements.
F-4
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Copyright 2001 10-K Wizard Technology, LLC
THINKPATH INC.
REVISED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND JUNE 30, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
ACCUMULATED
COMMON STOCK CAPITAL OTHER
NUMBER OF PREFERRED STOCK NUMBER OF STOCK RETAINED COMPREHENSIVE COMPREHENSIVE
SHARES SHARES AMOUNTS EARNINGS INCOME (LOSS) INCOME (LOSS)
A B C
Balance as at December 31, 2000 11,915,138 1,050 750 - 23,759,415 (12,306,862) (653,547)
Net loss for the period - - - - - (490,296) (490,296)
----------
Other comprehensive loss, net of tax:
Foreign currency translation - - - - - - (589,297)
Adjustment to market value - - - - - - (1,735)
----------
Other comprehensive loss (591,032) (591,032)
----------
Comprehensive loss (1,081,328)
==========
Issuance of common stock for cash
525,000 - - - 400,000 -
Common stock and warrants
issued in consideration of
services 30,632 - - - 246,980 -
Dividend on preferred stock - - - - 226,500 (226,500)
Conversion of preferred stock to
common stock 1,875,839 (1,050) (750) - - -
---------- ------ ------- ----- ---------- ----------- ----------
Balance as of March 31, 2001 14,346,609 - - - 24,632,895 (13,023,658) (1,244,579)
Net loss for the period - - - - - (1,619,034) (1,619,034)
----------
Other comprehensive income (loss),
net of tax:
Foreign currency translation - - - - - - 345,732
Adjustment to market value - - - - - - 944
----------
Other comprehensive income 346,676 346,676
----------
Comprehensive loss (1,272,358)
==========
Issuance of preferred stock - - - 1,230 1,230,000 -
Common stock and warrants issued, and
repriced in consideration of
services 150,000 - - - 107,702 -
Dividend on preferred stock - - - - 141,140 (154,138)
Conversion of preferred stock to
common stock 266,774 - - (120) - -
Beneficial conversion on
Issuance of preferred stock - - - - 284,093 (284,093)
Allowance for deferred taxes recoverable
On issue expenses (790,000)
---------- ------ ------- ----- ---------- ----------- ----------
Balance as of June 30, 2001 14,763,383 - - 1,110 25,605,830 (15,080,923) (897,903)
---------- ------ ------- ----- ---------- ----------- ----------
The accompanying notes are an integral part of these revised
interim consolidated financial statements.
F-5
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Copyright 2001 10-K Wizard Technology, LLC
THINKPATH INC.
REVISED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
RESTATED
2001 2000
---- ----
$ $
Cashflows from operating activities
Net income (loss) (2,109,330) 339,966
--------- ---------
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Amortization 1,123,705 774,162
Decrease (increase) in accounts receivable 840,226 (1,471,182)
Decrease (increase) in prepaid expenses (50,568) (96,550)
Increase (decrease) in accounts payable 167,969 1,032,538
Increase in income taxes payable (receivable) -- (167,204)
Decrease (increase) in short term investments -- (1,608,429)
Decrease (increase) in deferred income taxes 397,362 (41,485)
Decrease (increase) in inventory 30,472 (70,567)
Increase (decrease) in deferred revenue (44,685) --
Common stock and warrants issued for services 354,682 --
Long-term investment received for services (205,242) --
--------- ---------
Total adjustments 2,613,921 (1,648,717)
--------- ---------
Net cash used in operating activities 504,591 (1,308,751)
--------- ---------
Cash flows from investing activities
Purchase of capital assets (214,691) (805,254)
Purchase of other assets (294,202) (212,650)
Increase in long-term receivable (188,626) --
Cash payment for subsidiaries -- (1,788,950)
--------- ---------
Net cash used in investing activities (697,519) (2,806,854)
--------- ---------
Cash flows from financing activities
Repayment of notes payable (192,164) 496,068
Repayment of long-term debt (475,845) (70,373)
Cash received from long-term debt 225,000 --
Proceeds from issuance of common stock 400,000 124,420
Proceeds from issuance of preferred stock 1,100,000 1,580,833
Increase (decrease) in bank indebtedness (812,515) 1,152,381
--------- ---------
Net cash provided by financing activities 244,476 3,283,329
--------- ---------
Effect of foreign currency exchange rate changes (51,548) 83,775
--------- ---------
Net increase (decrease) in cash and cash equivalents -- (748,501)
Cash and cash equivalents
-Beginning of period -- 1,904,588
--------- ---------
-End of period -- 1,156,087
--------- =========
SUPPLEMENTAL CASH ITEMS:
Interest paid 300,434 410,881
========= =========
Income taxes paid 3,992 42,031
========= =========
SUPPLEMENTAL NON-CASH ITEM:
Preferred stock dividend 664,731 29,600
========= =========
The accompanying notes are an integral part of these revised
interim consolidated financial statements.
F-6
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Copyright 2001 10-K Wizard Technology, LLC
THINKPATH INC.
NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) PRINCIPAL BUSINESS ACTIVITIES
Thinkpath Inc. is an information technology and engineering services
company which, along with its subsidiaries Systemsearch Consulting
Services Inc., Cad Cam Inc., Cad Cam of Michigan Inc., Cad Cam
Integrated Manufacturing Services Inc. and Cad Cam Technical Services
Inc., Thinkpath Training Inc., Microtech Professionals Inc., Njoyn
Software Inc., and TidalBeach Development Inc., provides outsourcing,
recruiting, training and technology services to enhance the resource
performance of clients.
B) BASIS OF CONSOLIDATED FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated interim financial statements have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in consolidated
interim financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading.
In the opinion of the Company, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation have
been included in the consolidated interim financial statements. The
consolidated interim financial statements are based in part on estimates
and have not been audited by independent accountants. Independent
accountants will audit the annual consolidated financial statements.
The consolidated financial statements include the accounts of the
company and its wholly-owned subsidiaries. The earnings of the
subsidiaries are included from the date of acquisition for acquisitions
accounted for using the purchase method. For subsidiaries accounted for
by the pooling of interest method their earnings have been included for
all periods reported. All significant inter-company accounts and
transactions have been eliminated.
C) NET INCOME (LOSS) AND FULLY DILUTED NET INCOME (LOSS) PER
WEIGHTED AVERAGE COMMON STOCK
Net income (Loss) per common stock is computed by dividing net income
(loss) for the year by the weighted average number of common stock
outstanding during the year.
Fully diluted net income (loss) per common stock is computed by dividing
net income for the year by the weighted average number of common stock
outstanding during the year, assuming that all convertible preferred
stock, stock options and warrants were converted or exercised. Stock
conversions stock options and warrants, which are anti-dilutive, are not
included in the calculation of fully diluted net income (loss) per
weighted average common stock.
D) REVENUE RECOGNITION
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 is probable.
F-7
--------------------------------------------------------------------------------
Copyright 2001 10-K Wizard Technology, LLC
THINKPATH INC.
NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
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 is allocated to 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 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.
2. INVESTMENT IN NON-RELATED COMPANIES
Investment in non-related companies are represented by the following:
Conexys $667,511
Digital Cement 507,865
Lifelogix 121,947
Tillyard Management 130,242
SCM Dialtone 75,000
----------
Total $1,502,565
==========
During the three months ended June 30, 2001, the company acquired an
interest worth $130,242 in Tillyard Management Inc., a property
management company, in consideration of a real estate management
software system developed by Thinkpath Inc. This investment has been
accounted for using the cost method.
F-8
--------------------------------------------------------------------------------
Copyright 2001 10-K Wizard Technology, LLC
THINKPATH INC.
NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
The company also acquired an interest worth $75,000 in SCM Dialtone, a
real time supply chain management (SCM) service provider, in
consideration of placement and consulting services rendered. This
investment has been accounted for using the cost method.
3. LONG-TERM DEBT
At June 30, 2001, the Company continued to be in breach of the Bank
One loan covenants and accordingly the Bank continues to charge higher
interest rates and enforce its restriction on the Company's repayment
of certain subordinated loans and notes payable. In compliance with
this restriction, the Business Development Bank of Canada has agreed
to a principal repayment deferral of its subordinated loans.
4. NOTES PAYABLE
In compliance with Bank One's restriction, the Company is making
interest only payments on its notes payable to the vendors of Cad Cam
Inc. and Micro Tech Professiionals Inc.
5. CAPITAL STOCK
a) Authorized
30,000,000 Common stock, no par value
1,000,000 Preferred stock, issuable in series,
rights to be determined by the Board of Directors
b) Issued
During the three months ended June 30, 2001, the Company issued 150,000
shares of its common stock in consideration of $78,000 cash received.
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.
c) Preferred 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
$1,000 per share) in full shares only, with a cash payment equal to any
fractional shares.
F-9
--------------------------------------------------------------------------------
Copyright 2001 10-K Wizard Technology, LLC
THINKPATH.COM INC.
NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
The number of shares of the Company's common stock into which the Series
C Preferred stock shall be convertible into that number of shares of
common stock equal to (i) the sum of (A) the stated value per share and
(B) at the holder's election, accrued and unpaid dividends on such share,
divided by (ii) the Conversion Price". The "Conversion Price" shall be
the lesser of (x) 87.5% of the average of the 5 lowest daily volume
weighted average prices of the Company's common stock during the period
of 60 consecutive trading days immediately prior the date of the
conversion notice; or (y) 90% of the average of the daily volume weighted
average prices during the period of the 5 trading days prior to the
applicable closing date ($.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 three months ended June 30, 2001, the Company issued 266,774
common stock on the conversion of 120 Series C preferred stock. The
Company paid dividends of $154,138 on the conversions. 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.
d) Warrants
During the three months ended June 30, 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.
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 Acquisition costs and 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.
6. RESTRUCTURING COSTS
During the three months ended June 30, 2001, the Company recorded a
restructuring charge of $173,311 for a year to date total of $452,764 as
a result of certain of the Company's actions to better align its cost
structure with expected revenue growth rates. The restructuring charge
includes severance paid to employees of the London training office and
the staff involved with software development for Njoyn. The support and
marketing team for Njoyn continue to operate.
F-10
--------------------------------------------------------------------------------
Copyright 2001 10-K Wizard Technology, LLC
THINKPATH INC.
NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
7. OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the three months ended June 30, 2001:
Before Tax Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
Foreign currency translation adjustments 345,732 - 345,732
Adjustment to market value 1,349 (405) 944
----------- ----------- -----------
Other comprehensive income (loss) 347,081 (405) 346,676
=========== =========== ===========
Comprehensive income (loss) for the three months ended March 31, 2001:
Before Tax Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
Foreign currency translation adjustments (589,297) - (589,297)
Adjustment to market value (2,479) 744 (1,735)
----------- ----------- -----------
Other comprehensive loss (291,776) 744 (591,032)
=========== =========== ===========
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.
8. SEGMENTED INFORMATION
a) Sales by Geographic Area
Three Months Three Months Six Months Six Months
Ended June 30, 2001 Ended June 30, 2000 Ended June 30, 2001 Ended June 30, 2000
------------------- ------------------- ------------------- -------------------
$ $ $ $
Canada 3,443,590 4,062,336 8,627,421 7,970,538
United States of America 6,571,694 8,134,558 12,090,464 14,067,327
---------- ---------- ---------- ----------
10,015,284 12,196,894 20,717,885 22,037,865
========== ========== ========== ==========
b) Net Income (Loss) by Geographic Area
Three Months Three Months Six Months Six Months
Ended June 30, 2001 Ended June 30, 2000 Ended June 30, 2001 Ended June 30, 2000
------------------- ------------------- ------------------- -------------------
$ $ $ $
Canada (1,194,448) (489,364) (1,906,989) (568,328)
United States of America (424,586) 722,331 (202,341) 908,294
------- ------- ----------- ----------
(1,619,034) 232,967 (2,109,330) 339,966
========== ======= =========== ==========
F-11
--------------------------------------------------------------------------------
Copyright 2001 10-K Wizard Technology, LLC
THINKPATH INC.
NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
8. SEGMENTED INFORMATION (cont'd)
c) Identifiable Assets by Geographic Area
June 30, December 31,
2001 2000
---- ----
$ $
Canada 6,933,549 8,979,711
United States of America 16,159,093 16,706,229
---------- ----------
23,092,642 25,685,940
========== ==========
d) Revenue and Gross Profit by Operating Segment
Three Months Three Months Six Months Six Months
Ended June 30, 2001 Ended June 30, 2000 Ended June 30, 2001 Ended June 30, 2000
------------------- ------------------- ------------------- -------------------
$ $ $ $
Revenue
IT Recruitment 4,537,653 2,967,343 8,979,438 6,221,836
Tech Pubs and Engineering 3,239,012 4,988,221 7,020,485 10,133,863
IT Documentation 932,395 1,738,046 2,219,169 1,738,046
Training 1,101,826 2,393,275 2,020,046 3,720,195
Technology 204,398 110,010 478,747 223,925
---------- ---------- ---------- ----------
10,015,284 12,196,894 20,717,885 22,037,865
========== ========== ========== ==========
Gross Profit
IT Recruitment 1,345,573 1,169,916 2,591,961 3,404,882
Tech Pubs and Engineering 957,049 1,772,011 2,017,011 3,291,931
IT Documentation 285,398 928,954 1,001,944 928,954
Training 634,292 866,572 1,174,663 931,692
Technology 194,498 80,999 455,405 159,627
---------- ---------- ---------- ----------
3,416,810 4,818,452 7,240,984 8,717,086
========== ========== ========== ==========
e) Revenues from Major Customers
The consolidated entity had the following revenues from major Customers:
No single customer consisted of more than 10% of the revenues.
f) Purchases from Major Suppliers
There were no significant purchases from major suppliers.
9. CONTINGENCIES
a) The vendor of Southport Consulting Co. is seeking damages for the
consideration of $250,000 on the acquisition which was funded by shares of
the company. The vendor contends that the shares received do not satisfy
the purchase price. No provision has been recorded in the accounts for
possible losses. Should any expenditure be incurred by the company for the
resolution of this lawsuits, they will be charged to the operations of the
year in which such expenditures are incurred.
b) Three former employees are alleging wrongful dismissal for the termination
of their employment. No provision has been recorded in the accounts for
possible losses. Should any expenditure be incurred by the company for the
resolution of these lawsuits, they will be charged to the operations of
the year in which such expenditures are incurred.
c) The Company is party to various lawsuits arising from the normal course of
business and its restructuring activities. In management's opinion, the
litigation will not materially affect the company's financial position,
results of operations or cash flows. No material provision has been
recorded in the accounts for possible losses or gains. Should any
expenditure be incurred by the Company for the resolution of these
lawsuits, they will be charged to the operations of the year in which such
expenditures are incurred.
F-12
--------------------------------------------------------------------------------
Copyright 2001 10-K Wizard Technology, LLC
THINKPATH INC.
NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(AMOUNTS EXPRESSED IN US DOLLARS)
(Unaudited)
10. SUBSEQUENT EVENTS
a) The Company has restructured its note payable to Roger Walters in
September 2001, so that 1,200,000 shares will be issued in lieu of
$450,000 cash reducing the balance of the note to $750,000. The balance
will be paid over 3 years beginning January 1, 2003. The Company is
current in its interest obligations to Roger Walters.
b) As a result of Bank One's restriction on subordinated debt payments, the
Company is in breach of its payment schedule to Denise Dunne. The
Company is in negotiations to restructure its note payable to Denise
Dunne. The Company hopes to reduce the cash amount owing and extend the
payment terms. The Company is current in its interest obligations to
Denise Dunne.
c) On July 20, 2001, the Company received a Nasdaq Staff Determination
indicating that the company is not in compliance with the bid price
requirements for continued listing, as set forth in Nasdaq's Marketplace
Rule 4310 (c)(8)(B). . On September 27, 2001, Nasdaq announced a
moratorium on the minimum bid and public float requirements for
continued listing on the exchange until January 2, 2002. The Company's
stock will continue to be listed on Nasdaq during this period.
d) During July 2001, 22,125 shares were issued for the options exercised by
the Business Development Bank of Canada.
e) On September 11, 2001, the Company's branch office located in the World
Trade Centre was destroyed and its branch office at 195 Broadway was
damaged and closed for a period of four weeks. The company cannot yet
provide a reliable estimate of the effect of this destruction and
closure on its operating results and financial condition.
11. MANAGEMENT'S INTENTIONS
Management has initiated substantial changes in operational procedures in
an effort to return the company to profitability and to improve its
cashflow and financial condition. Management has continued to coordinate
its sales efforts to maximize organic and cross-selling initiatives. In
addition, Management has continued its cost cutting initiatives including
the termination of personnel and closure of non-productive offices and
business lines. Management has successfully restructured some of its
long-term debt obligations in addition to postponing significant
obligations. The Company is currently making interest payments only on all
long-term debt and notes payable. The Company has the continued support of
its primary lenders, Bank One and the Business Development Bank of Canada.
Effective June 2001, the Company retained Banc One Capital Markets to
assist in maximizing shareholder value. Management believes that despite
the recent losses and negative working capital, it has developed a business
plan that if successfully implemented, can substantially improve
operational results and its financial condition.
12. RESTATEMENT
The financial statements as at December 31, 2000 have been restated to
reflect the beneficial conversion on the issuance of preferred shares in
the amount of $805,698 The financial statements as at March 31, 2001 have
been restated to include warrants issued to Del Mar valued at $216,348 and
the amortization of that expense reflected in financing costs in the amount
of $72,116 The financial statements as of June 30, 2001 reflects an
additional $29,702 for the re-pricing of the warrants for Del Mar in April
2001 and the amortization of the financing costs in the amount of $132,926.
The un-amortized balance of $41,008 which will be amortized in the 3rd
quarter of 2001 has been included in Prepaid expenses. The financial
statements for March 31, 2001 and June 30, 2001 reflect additional
allowances against the deferred income tax asset in the amounts of $200,000
and $990,000 respectively. Of these amounts $790,000 has been reflected as
a reduction of paid in capital as the issue expenses were reduced by the
estimated future tax benefit available on claiming the issue expenses as a
Canadian income tax expense.
F-13
--------------------------------------------------------------------------------
Copyright 2001 10-K Wizard Technology, LLC
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
REVISED CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND DECEMBER 31, 1999
TOGETHER WITH AUDITORS' REPORT
(AMOUNTS EXPRESSED IN US DOLLARS)
F-14
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THINKPATH INC.
We have audited the accompanying revised consolidated balance sheets of
Thinkpath Inc. (formerly Thinkpath.com Inc.), (incorporated in Canada) as of
December 31, 2000 and 1999 and the related revised consolidated statements of
income, cash flows and changes in stockholders' equity for the years ended
December 31, 2000 and 1999. These revised consolidated financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these revised consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the revised
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the revised consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall revised consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, these revised consolidated financial statements referred to
above present fairly, in all material respects, the revised consolidated
financial position of Thinkpath Inc. (formerly Thinkpath.com Inc.) as of
December 31, 2000 and 1999 and the revised consolidated results of its
operations and its cash flows for the years ended December 31, 2000 and 1999 in
conformity with generally accepted accounting principles in the United States of
America.
Since the accompanying financial statements have not been prepared and audited
in accordance with generally accepted accounting principles and standards in
Canada, they may not satisfy the reporting requirements of Canadian statutes and
regulations.
Schwartz Levitsky Feldman LLP
Chartered Accountants
Toronto, Ontario
March 30, 2001, except for Notes 1, 2, 14 and 22 which is as of October 5, 2001
F-15
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
REVISED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(AMOUNTS EXPRESSED IN US DOLLARS)
(Restated)
2000 1999
---------- ---------
$ $
ASSETS
CURRENT ASSETS
Cash -- 1,904,588
Short-term investments -- 383,146
Accounts receivable 7,857,999 5,945,659
Inventory 93,670 50,004
Income taxes receivable 358,436 47,807
Prepaid expenses 335,930 435,022
---------- ---------
8,646,035 8,766,226
CAPITAL ASSETS 3,596,759 3,516,785
GOODWILL 8,585,290 6,735,436
INVESTMENT IN NON-RELATED COMPANIES 1,318,091 --
DUE FROM RELATED PARTY -- 211,313
LONG-TERM RECEIVABLE 83,450 --
OTHER ASSETS 1,812,889 1,316,111
DEFERRED INCOME TAXES 1,643,426 --
---------- ---------
25,685,940 20,545,871
========== ==========
APPROVED ON BEHALF OF THE BOARD
Declan A. French Kelly L. Hankinson
Chairman and CEO Secretary/Treasurer and CFO
F-16
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
REVISED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(AMOUNTS EXPRESSED IN US DOLLARS)
(Restated)
2000 1999
---------- ----------
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 5,061,410 4,435,199
Accounts payable 3,822,984 3,201,186
Income taxes payable -- 159,830
Deferred revenue 219,308 --
Current portion of long-term debt 946,131 1,051,275
Current portion of notes payable 1,683,333 1,300,000
---------- ----------
11,733,166 10,147,490
DEFERRED INCOME TAXES -- 99,472
LONG-TERM DEBT 760,313 562,126
NOTES PAYABLE 1,641,667 1,150,000
LIABILITIES PAYABLE IN COMMON STOCK 751,788 1,000,000
---------- ----------
14,886,934 12,959,088
---------- ----------
CONTINGENCIES AND COMMITMENTS (Note 21)
STOCKHOLDERS' EQUITY
CAPITAL STOCK (Note 14) 23,759,415 7,870,874
DEFICIT (12,306,862) (261,950)
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX (653,547) (22,141)
---------- ----------
10,799,006 7,586,783
---------- ----------
25,685,940 20,545,871
========== ==========
The accompanying notes are an integral part of these revised
consolidated financial statements.
F-17
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
REVISED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31
(AMOUNTS EXPRESSED IN US DOLLARS)
(Restated)
2000 1999
----------- -----------
$ $
REVENUE 44,325,780 27,032,435
COST OF CONTRACT SERVICES 26,182,828 16,362,475
----------- -----------
GROSS PROFIT 18,142,952 10,669,960
Other Income 259,532 --
----------- -----------
18,402,484 10,669,960
----------- -----------
EXPENSES
Administrative 9,037,960 5,433,709
Selling 7,672,616 4,330,410
Interest 776,637 330,040
Acquisition costs and financing expenses 4,585,493 --
Depreciation and amortization 2,119,396 746,743
Writedown of goodwill 3,113,268 --
Restructuring costs (note 16) 685,103 --
----------- -----------
27,990,473 10,840,902
----------- -----------
LOSS BEFORE UNDERNOTED ITEM AND INCOMES TAXES (9,587,989) (170,942)
Gain on investments -- 252,708
----------- -----------
LOSS BEFORE INCOME TAXES (9,587,989) 81,766
Income taxes (recovery) (1,189,672) 87,089
----------- -----------
NET LOSS (8,398,317) (5,323)
PREFERRED SHARE DIVIDENDS AND CUMULATUVE
EFFECT ADJUSTMENT FOR PREFERRED SHARE
DIVIDENDS (3,646,595) (138,000)
----------- -----------
NET LOSS AFTER PREFERRED SHARE DIVIDENDS (12,044,912) (143,323)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
STOCK OUTSTANDING - BASIC & FULLY DILUTED 5,296,442 3,194,018
=========== ===========
LOSS PER WEIGHTED AVERAGE COMMON STOCK
DIVIDENDS - BASIC & FULLY DILUTED (NOTE 24) (1.59) (0.00)
LOSS PER WEIGHTED AVERAGE COMMON STOCK AFTER PREFERRED
DIVIDENDS - BASIC & FULLY DILUTED (NOTE 24) (2.27) (0.04)
=========== ===========
The accompanying notes are an integral part of these revised
consolidated financial statements.
F-18
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
REVISED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31
(AMOUNTS EXPRESSED IN US DOLLARS)
COMMON PREFERRED ACCUMULATED
STOCK STOCK CAPITAL OTHER
NUMBER OF NUMBER OF STOCK RETAINED COMPREHENSIVE COMPREHENSIVE
SHARES SHARES AMOUNTS EARNINGS INCOME(LOSS) INCOME(LOSS)
----------- ------------------- ---------- ----------- -------------- --------------
A B $ $ $ $
Balance as of
December 31, 1998
(Restated) 2,495,135 -- -- 1,792,944 (118,627) (139,026)
Net income for the year -- -- -- -- (5,323) (5,323) --
Foreign currency translation -- -- -- -- -- 116,885 116,885
Issuance of common stock 1,370,767 -- -- 4,787,788 -- -- --
Issuance of preferred stock -- 15,000 -- 1,152,142 -- -- --
Dividends on preferred stock -- -- -- 138,000 (138,000) -- --
----------- -------- ------- ---------- ----------- ----------- ---------
Balance as of
December 31, 1999
(Restated) 3,865,902 15,000 -- 7,870,874 (261,950) 111,562 (22,141)
===========
Cumulative effect adjustment -- -- -- 1,091,606 (1,091,606) -- --
Net loss for the year -- -- -- -- (8,398,317) (8,398,317) --
Foreign currency translation -- -- -- -- -- (707,954) (707,954)
Adjustment to market value -- -- -- -- -- 76,548 76,548
Issuance of preferred
stock -- 7,500 1,500 2,287,980 -- -- --
Issuance of common stock 2,821,782 -- -- 5,394,766 -- -- --
Common stock and warrants
issued in consideration
of services
and investment 3,533,111 -- -- 4,618,988 -- -- --
Dividends on preferred
stock from beneficial
conversion benefit -- -- -- 2,495,201 (2,554,989) -- --
Conversion of preferred
stock to common stock 1,694,343 (21,450) (750) -- -- -- --
----------- -------- ------- ---------- ----------- ----------- ---------
Balance as of
December 31, 2000 11,915,138 1,050 750 23,759,415 (12,306,862) (9,029,723) (653,547)
=========== ======== ======= ========== =========== =========== =========
The accompanying notes are an integral part of these revised
consolidated financial statements.
F-19
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
REVISED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(AMOUNTS EXPRESSED IN US DOLLARS)
(Restated)
2000 1999
---------- --------
$ $
Cash flows from operating activities:
Net loss (8,398,317) (5,323)
---------- --------
Adjustments to reconcile net loss
to net cash (used in)
provided by operating activities:
Amortization 2,119,396 746,743
Gain on investment -- (237,578)
Write down of goodwill 3,113,268 --
Liabilities payable in Common stock payable 67,000 --
Decrease (increase) in accounts receivable (142,862) (2,841,510)
Decrease (increase) in prepaid expenses 99,092 (225,549)
Increase in accounts payable (451,729) 925,060
Increase in income taxes payable (receivable) (470,459) 32,969
Increase in deferred income taxes (1,742,898) 72,333
Increase in inventory (43,666) --
Increase in deferred revenue 219,308 --
Common stock and warrants issued for services 3,050,288 --
Long term investment received for services (932,927) --
---------- --------
Total adjustments 4,883,811 (1,527,532)
---------- --------
Net cash used in operating activities (3,514,506) (1,532,855)
---------- --------
Cash flows from investing activities:
Purchase of capital assets (1,108,814) (907,074)
Purchase of other assets (1,229,266) (942,087)
Cash payment for subsidiaries (1,300,000) (1,985,732)
Acquisition of shares in non-related company -- (236,819)
Increase in long-term receivable (83,450) --
---------- --------
Net cash used in investing activities (3,721,530) (4,071,712)
---------- --------
Cash flows from financing activities:
Cash (paid) on notes payable (1,053,174) (65,569)
Cash (paid) on long-term debt (187,281) (241,495)
Cash received on long-term debt 1,106,536 --
Proceeds from issuance of common stock 3,237,866 4,281,804
Proceeds from issuance of preferred stock 2,287,980 1,119,186
Increase in bank indebtedness 626,211 2,364,010
---------- --------
Net cash provided by financing activities 6,018,138 7,457,936
---------- --------
Effect of foreign currency exchange rate changes (686,690) 51,219
---------- --------
Net increase (decrease) in cash and cash equivalents (1,904,588) 1,904,588
Cash and cash equivalents
Beginning of year 1,904,588 --
---------- --------
End of year -- 1,904,588
========== =========
Interest paid 776,637 325,952
========== =========
Income taxes paid 435,089 --
========== =========
See Note 19 for Supplemental Cash Flow Information
The accompanying notes are an integral part of these revised
consolidated financial statements.
F-20
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
1. MANAGEMENT'S INTENTIONS
Management has initiated substantial changes in operational procedures in an
effort to return the company to profitability and to improve its cashflow and
financial condition. The company has continued to coordinate its sales
efforts to maximize organic and cross-selling initiatives. In addition,
Management has continued its cost cutting initiatives including the
termination of personnel and closure of non- productive offices and business
lines. Management has successfully restructured some of its long-term debt
obligations in addition to postponing significant obligations. The Company is
currently making interest payments only on all long-term debt and notes
payable. The Company has the continued support of its primary lenders, Bank
One and the Business Development Bank of Canada. Effective June 2001, the
Company retained Banc One Capital Markets to assist in maximizing shareholder
value. Management believes that despite the recent losses and negative
working capital, it has developed a business plan that if successfully
implemented, can substantially improve operational results and its financial
condition.
2. RESTATEMENT
The financial statements as at December 31, 2000 have been restated as
follows;
a) to reflect the repricing of options in consideration of a reduction in
the balance of the note payable which was fully recorded in December 31,
2000. Previously $100,000 representing the value of the repricing of the
options and extension of the option term was reflected in the first
quarter of 2001.
b) The value of 300,000 warrants issued as part of the Class B preferred
share issue have been segregated from the proceeds received on the sale
of the Class B shares in the amount of $ 805,698. This amount increases
the benefit of the conversion of the Class B shares to common shares and
has therefore increased the preferred share dividends from $2,840,897 to
$3,646,595., including the cumulative effect adjustment required to
reflect the beneficial conversion to common shares of the preferred
shares issued prior to January 1, 2000.
c) The investment in E-Wink, Inc. has been reflected as a purchase
transaction and the results of the subsidiary included in these financial
statements. The subsidiary has ceased operating and therefore all of the
goodwill arising on this transaction has been written off as at December
31, 2000. Previously, the write down of the goodwill and other operating
costs for E-Wink were recorded in Other Expenses as the Write down of
investment in E-Wink.
d) Liabilities which are to be settled through the issuance of common stock
have been reclassified as liabilities. Paid in capital previously
reported has been reduced by the amounts of $ 751,788 and $1,000,000 as
of December 31, 2000 and 1999 respectively.
The restatement of the above items has resulted in the increase in the basic
loss per share of $0.02 from $1.57 to $1.59. The basic loss per common share
after preferred share dividends has increased by $0.17, from $2.10 to $2.27.
As a result of the above noted restatements, notes 4, 9, 14, and 15 of the
financial statements have been revised.
Certain of the other notes to the financial statements have been expanded to
provide additional information and clarification for the reader of the
financial statements. These changes to the notes to the financial statements
have no balance sheet or income statement effect.
F-21
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) 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.
b) Principal Business Activities
Thinkpath Inc. is an information technology and engineering services
company which, along with its subsidiaries Systemsearch Consulting
Services Inc International Career Specialists Ltd., Cad Cam Inc., Cad Cam
of Michigan Inc., Cad Cam Integrated Manufacturing Services Inc. and Cad
Cam Technical Services Inc., ObjectArts Inc., Microtech Professionals
Inc., Njoyn Software Inc., and TidalBeach Development Inc., provides
outsourcing, recruiting, training and technology services to enhance the
resource performance of clients.
c) Basis of consolidated financial statement presentation
The 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.
d) 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.
e) 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.
f) 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.
g) 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.
F-22
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
h) 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 14 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.
i) Inventory
Inventory is valued at the lower of cost and the net realizable value.
j) 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 is probable.
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 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 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.
F-23
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
j) Revenue (cont'd)
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 financial statements.
k) 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.
l) 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
m) 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.
n) 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.
F-24
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
o) 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.
p) 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.
q) 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.
r) 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.
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.
s) Long-term investments
The company accounts for investments in which the company holds an
interest of at least 20% and the company has significant influence under
the equity method. For investments in which the company does not have
significant influence or holds less than 20% of the stock, the company
reflects the investment at cost. For securities with a market value, the
company reflects the fluctuation in market value in comprehensive income.
F-25
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
t) 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.
u) Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was
$444,816 in 2000, and $357,348 in 1999.
4. ACQUISITIONS
Systemsearch Consulting Services Inc. was acquired on January 2, 1997 for
$391,313. This amount was paid by the issuance of common stock and a cash
payment of $97,828. The purchase has been reflected as follows:
Consideration $ 391,313
Assumption of net liabilities 57,321
---------
Goodwill $ 448,634
=========
International Career Specialists Ltd. was acquired on January 1, 1998 for
$652,188. This amount was paid by the issuance of common stock and a cash
payment of $326,094. The purchase was reflected as follows:
Consideration $ 652,188
Assumption of net liabilities 198,409
---------
Goodwill $ 850,597
=========
F-26
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
4. ACQUISITIONS (cont'd)
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
=========
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 (note 13a) and
$1,000,000 in the form of common stock to be issued with the final note
payable (note 14c). The documents were executed at the end of September 1999
and the operations consolidated with the company from October 1, 1999.
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
===========
F-27
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
4. ACQUISITIONS (cont'd)
MicroTech Professionals Inc., a company which provides technical
documentation for the information technology sector, was acquired effective
April 1, 2000 for $4,500,000.The amount will 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. Goodwill is being amortized over a period of thirty years
commencing April 1, 2000.Refer to note 26(a) for supplemental information.
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 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..
5. 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 26(b) for
supplemental information concerning TidalBeach Inc.
F-28
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
6. INVESTMENT IN NON-RELATED COMPANIES
The investment in non-related companies is represented by the following:
Conexys $667,511
Digital Cement 507,865
LifeLogix 142,715
--------
Total $1,318,091
In the prior year, $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. This investment is now currently being reflected in
long-term investments as the company has opted to hold on to these shares.
During the course of the year, the company acquired additional shares of
Conexys worth approximately $282,347 in consideration of services rendered.
The investment in Conexys has been reflected at fair market value as the
shares trade on the Bermuda Stock Exchange. The increase to fair market
value has been reflected in comprehensive income.
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 is
approximately $507,865.
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.
The acquisition of additional shares 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.
7. ACCOUNTS RECEIVABLE
2000 1999
$ $
Accounts receivable 8,316,832 6,578,621
Less: Allowance for doubtful accounts (458,833) (632,962)
--------- ---------
7,857,999 5,945,659
========= =========
F-29
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
8. CAPITAL ASSETS
2000 1999
----------------------------------- ---------
Accumulated
COST AMORTIZATION NET NET
$ $ $ $
Furniture and equipment 843,654 402,922 440,732 273,367
Computer equipment
and software 6,355,154 3,416,723 2,938,431 2,908,028
Leasehold improvements 432,698 215,102 217,596 335,390
--------- --------- --------- ---------
7,631,506 4,034,747 3,596,759 3,516,785
========= ========= ========= =========
Assets under capital lease 800,927 264,233 536,694 384,726
========= ========= ========= =========
Amortization for the year amounted to $1,067,029 ($439,620 in 1999).
Amortization includes amortization of assets under capital lease of $136,487
($120,434 in 1999).
9. GOODWILL
Goodwill is the excess of cost over the value of assets acquired over
liabilities assumed in the purchase of the following companies:
2000 1999
-------------------------------------- ----------
Accumulated
COST AMORTIZATION NET NET
$ $ $ $
System Search Consulting Services 448,634 59,816 388,818 426,860
International Career Specialists 850,597 850,597 -- 839,286
Cad Cam Inc. 5,518,858 233,530 5,285,328 5,469,290
MicroTech Professionals Inc. 3,009,198 98,054 2,911,144 --
E-Wink Inc. 2,433,700 2,433,700 -- --
---------- ---------- ---------- ----------
12,260,987 3,675,697 8,585,290 6,735,436
========== ========== ========== ==========
Amortization for the year amount to $319,879($92,875 in 1999). During the
year goodwill was written down by $3,113,268 ($nil in 1999). The impairments
are recorded in accordance with SFAS 121 and are for the investments in
E-Wink Inc and International Career Specialists. These two entities have
ceased to operate and therefore the goodwill has been determined to have no
value.
F-30
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
10. OTHER ASSETS
2000 1999
$ $
Deferred development cost 1,153,445 652,291
Deferred financing costs 9,945 39,514
Deferred contract (net of accumulated amortization
of $300,000) 540,000 310,000
Deferred consulting fees (net of accumulated
amortization of $190,570) -- 190,556
Cash surrender value of life insurance 109,499 123,750
--------- ---------
1,812,889 1,316,111
========= =========
Amortization for the year amounted to $ 732,488 ($220,570 in 1999).
11. BANK INDEBTEDNESS
The companies have a line of credit with Bank One to a maximum of
$7,000,000, which bears interest at Canadian prime plus 1.5% per annum and
is secured by a general assignment of book debts, a general security
agreement and guarantees and postponements of claims by various affiliated
companies. The company's average interest rate on short-term borrowings was
9%.
12. LONG-TERM DEBT
2000 1999
$ $
a) Included therein:
A Business Development Bank of Canada ("BDC") loan secured by a general
security agreement, payable in 40 equal monthly payments of $3,464 plus
interest of 11%. In addition Thinkpath Inc. shall pay interest monthly by
way of royalty of 0.018% per annum of Thinkpath Inc.'s actual annual
gross sales 130,182 176,678
A BDC loan, secured by a general security agreement, payable in 32 equal
monthly payments of $4,619 plus interest at the BDC base rate plus 4% per
annum. Currently the interest rate is 13.50%. In addition, Thinkpath Inc.
Inc. shall pay interest monthly by way of a royalty of 0.0426% per annum of
Thinkpath Inc.'s actual annual gross sales 142,428 203,248
A BDC loan, secured by a general security agreement, payable in 32 monthly
payments of $3,464 plus interest at the BDC base rate plus 4% per annum.
Currently, the interest rate is 13.50%. In addition Thinkpath Inc.
shall pay interest monthly by way of royalty of 0.0198% per annum of its
actual gross annual sales 106,816 152,428
A BDC loan, secured by a general security agreement, payable in 7 remaining
monthly payments of $693 plus interest at the BDC operational interest rate
of prime plus 5% per annum. Currently, the interest rate is 13.50% 4,673 13,164
F-31
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
12. LONG-TERM DEBT (cont'd)
2000 1999
$ $
a) Included therein: (cont'd)
A BDC loan, secured by a general security agreement, paid in full
November 25, 2000. - 7,621
A subordinated loan from Working Ventures. This loan was converted to
common shares in March 2000, as part of the purchase of ObjectArts Inc. - 772,485
A BDC loan, secured by a general security agreement payable in 31
remaining monthly payments of $3,464 plus interest at the BDC operational
interest rate prime plus 1.25% per annum. Currently the interest rate is
10.75%. In addition, Thinkpath Inc. shall pay interest monthly by way of
royalty of 0.09% per annum of Thinkpath Inc.'s projected annual gross
sales 103,478 -
A BDC loan, secured by a general security agreement payable in 57
remaining monthly payments of $1,005 plus interest at the BDC operational
interest rate prime plus 4% per annum. Currently the interest rate is
15.5% 57,079 -
A loan with Bank One payable in 31 remaining monthly Payments of $13,889
plus interest based on prime. Currently the interest is 8%. 430,000 -
Various capital leases with various payment terms and interest rates 731,788 287,777
--------- ------
1,706,444 1,613,401
Less: Current portion 946,131 1,051,275
--------- ---------
$ 760,313 $ 562,126
========== =========
The BDC loan covenants have been breached and accordingly, the loan amounts
have been reclassified as current as of December 31, 2000 (see note 22)
b) Future principal payments obligations are as follows:
2001 $ 908,656
2002 460,116
2003 266,662
2004 33,535
----------
$1,668,969
==========
c) Interest expense with respect to the long-term debt amounted to
$278,574 ($132,125 in 1999).
d) Pursuant to the BDC loan agreement, BDC has the option to acquire 22,125
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.
F-32
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
13. NOTES PAYABLE
2000 1999
$ $
a) Cad Cam Inc.
As part of the purchase of Cad Cam Inc. Thinkpath Inc.
owes the following amounts:
First note payable was issued on the closing date of the
Cad Cam Inc. acquisition, in the amount of $1,000,000.
This note is to be repaid in 20 quarterly instalments, with
interest at Canadian prime plus 0.5%, net of the amount of
$50,000 forgiven at year end. 700,000 950,000
The second note payable was issued on the closing date of the Cad Cam Inc.
acquisition, in the amount of $500,000. This is to be repaid in 20 quarterly
instalments, with interest at Canadian prime plus 0.5%, net of the amount of
$25,000
forgiven at year end. 375,000 500,000
The third note payable was issued on the closing date of Cad Cam Inc.
acquisition in the amount of $1,000,000. This will be paid in quarterly
instalments of $250,000, plus accrued interest, during 2000. The repayment
terms have been renegotiated and the payment of $250,000 due on September
30, 2000 installment has been extended. The majority of this amount is
payable in 12 equal monthly payments of $20,833 in 2001, plus accrued
interest of 12%. 250,000 1,000,000
b) Microtech Professional Inc.
As part of the purchase of Microtech Professional Inc.
Thinkpath Inc. owes the following amounts:
First note payable bearing interest at 1/2% above prime1
payable semi-annually over a three year term from closing 625,000 --
Second note payable bearing interest at 1/2% above prime payable
semi-annually over three years from one year after closing 500,000 --
Third note payable is due within 60 days of the completion of the
December 31, 2000 audit based on the Financial Statements of
Microtech with EBITDA equal to or greater than $850,000. This
requirement has been met 875,000 --
--------- ---------
3,325,000 2,450,000
Current portion of notes payable 1,683,333 1,300,000
--------- ---------
1,641,667 1,150,000
========= =========
F-33
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
13. NOTES PAYABLE (cont'd)
c) Capital repayments
2001 1,683,333
2002 716,667
2003 591,667
2004 333,333
---------
3,325,000
=========
14. CAPITAL STOCK
a) Authorized
15,000,000 Common stock, no par value
1,000,000 Preferred stock, issuable in series,
rights to be determined by the Board of Directors
b) Issued
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.
F-34
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
14. CAPITAL STOCK (cont'd)
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
Acquisition costs and 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, Thinkpath Inc. 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.
F-35
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
14. CAPITAL STOCK (cont'd)
c) Liabilities payable in common stock
The common stock payable of $1,000,000 due to the vendor of Cad Cam Inc.
was settled by the issuance of 1,125,398 shares for an amount of $742,200
and the settlement of amounts due to the company by the vendor with a
value of $257,800.
The common stock payable represents the final payments for MicroTech
Professionals Inc. ($625,000), settlement with an employee of Njoyn
($67,000), and dividends payable on preferred stock ($59,788). Common
Stock of Thinkpath Inc. will be issued for Cad Cam Inc. at the
prevailing market rate at the time of issuance. Common Stock of
Thinkpath Inc. will be issued for MicroTech Professionals at the
lower of $3.75 and the average of the last sale price as quoted on
NASDAQ for the 10 days prior to issuance. If the common stock payable
were to be converted at December 31, 2000 the number of common stock
to be issued would be 932,836.
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.
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.
F-36
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
14. CAPITAL STOCK (cont'd)
d) Preferred Stock (cont'd)
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 have not yet been
converted into common stock.
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 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.
F-37
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
14. CAPITAL STOCK (cont'd)
f) Stock Options
The company has outstanding stock options issued in conjunction with its
long-term financing agreements for 22,125 common stock which were
exercised in July 2001 (see note 12(d)), 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 instalments 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 1, 2001 to 2004. The cost
of repricing of these options totalling $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 1999 Stock Option Plan. In May
2000, the directors approved the adoption of the 2000 Stock Option Plan.
Subsequent to the year-end, in June 2001, the directors approved the
adoption of the 2001 Stock Option Plan. Each of the plans provide for the
issuance of 435,000 options with the following terms and conditions.
The plans will be administrated by the Compensation Committee or the
Board of Directors, which will 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
issuable upon the exercise of the options and the option exercise price.
The plans are effective for a period of ten years.
Options to acquire 435,000 common stock per plan 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 may be exercisable for up to ten years, generally
require a minimum three year vesting period, and shall be at an exercise
price all as determined by the Board of Directors, provided that the
exercise price of any options may not be less than the fair market value
of the common stock on the date of the grant. Options are
non-transferable, and are exercisable only by the participant (or by his
or her guardian or legal representative) during his or her lifetime or by
his or her legal representatives following death.
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.
F-38
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
14. CAPITAL STOCK (cont'd)
f) Stock Options (cont'd)
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.
15. ACQUISITION COSTS AND FINANCING EXPENSES
Acquisition costs and financing expenses represent the following;
a) Acquisition costs incurred which are not related to a successfully
completed acquisition and the costs incurred on the merger with entities
treated as a pooling of interest.
b) Financing expenses include investor relation fees, consulting services
for financing and the cost of repricing options with an estimated cost of
$100,000 netted against the debt reduction of $75,000.
16. RESTRUCTURING COST
During the fourth quarter of fiscal 2000, the Company recorded a
restructuring charge of $685,103 as a result of certain of the Company's
actions to better align its cost structure with expected revenue growth
rates. The restructuring activities (shown below in tabular format) relate
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. Additional restructuring costs will be incurred
upon the termination of the balance of the employees at the London location
after December 31, 2000. The premises were vacated in April 2001. Operations
continued until April 2001 with a very low volume of work as the bulk of
training was shifted to the Toronto site.
F-39
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
16. RESTRUCTURING COST (cont'd)
The remaining accrual will be relieved throughout fiscal 2001, as leases
expire and severance payments, some of which are paid on a monthly basis,
are completed
Detail of the restructuring charge and reserve balance is as follows;
Description Cash/non-cash Restructuring Activity Reserve balance
Charge December 31, 2000
Elimination of Job
Responsibilities
Severance packages Cash 546,587 93,774 452,813
Lease cancellations Cash 138,516 19,990 118,526
------- ------ -------
Commitments 685,103 113,764 571,339
======= ======= =======
17. 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:
2000 1999
$ $
Accounting amortization in excess of tax
amortization (190,000) (199,317)
Losses available to offset future income
taxes 1,465,157 413,783
Share issue costs 790,957 372,948
Adjustment cash to accrual method (413,688) (620,532)
Investment tax credit 201,000
--------- --------
1,853,426 (33,118)
Less: Valuation allowance 210,000 66,354
--------- --------
1,643,426 (99,472)
========= ========
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.
F-40
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
17. DEFERRED INCOME TAXES AND INCOME TAXES (cont'd)
b) Current Income Taxes
Current income taxes consist of:
2000 1999
$ $
Amount calculated at Federal and
Provincial statutory rates (2,750,577) 27,458
---------- ---------
Increase (decrease) resulting from:
Permanent differences 1,454,784 11,579
Timing differences (103,879) 51,295
Valuation allowance 210,000 66,354
Loss carried back applied - (69,597)
---------- ---------
1,560,905 59,631
---------- ---------
Current income taxes (1,189,672) 87,089
========== =========
The 2000 fiscal year is the first year that the company has not reported
taxable income and included in 2000 expenses incurred are significant
non-recurring items which have been eliminated through restructuring and
re-alignment of the operations. For 1999, including Cad Cam Inc. for a
full year, the taxable income reported was in aggregate approximately
$400,000. Including MicroTech Professionals at an estimated $250,000 of
taxable income, the non-operating losses would be utilized within the
carry forward period. Issue expenses totalling approximately $2,300,000
may be claimed at the rate of 20% per year until 2004. 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 subsidiaries
have been acquired by a non-US entity, the taxable income will be
increased by approximately $1,300,000 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 reflected the benefit of utilizing
non-capital losses totalling approximately $4,165,000 in the future as a
deferred tax asset. Management believes it is more likely than not that
the results of future operations will generate sufficient taxable income
to realize the deferred tax assets. The non-capital losses are available
during the carry-forward period which expires in 2007.
F-41
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
18. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards
No. 130 Reporting Comprehensive Income and its components in the
financial statements.
Comprehensive income (loss) for the year ended December 31,
2000:
Before Tax Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
Foreign currency translation
adjustments (707,954) - (707,954)
Adjustment to market value 109,348 (32,800) 76,548
--------- -------- ---------
Other comprehensive loss (598,606) (32,800) (631,406)
========= ======== ==========
Comprehensive income (loss) for the year ended December 31,
1999:
Before Tax Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
Foreign currency translation
adjustments 116,885 - 116,885
--------- -------- ----------
Other comprehensive income 116,885 - 116,885
========= ======== ==========
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.
19 SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Thinkpath Inc. acquired all the capital stock of MicroTech Professionals
Inc. for $4,660,000. The acquisition was funded as follows:
Fair Value of Assets acquired $ 1,769,478
Liabilities assumed (1,073,527)
Goodwill 3,009,198
Other assets acquired 850,000
Fixed assets acquired 104,851
Liabilities payable in common stock (625,000)
Cash paid for Capital Stock (1,300,000)
Note Payable (2,125,000)
Common Stock Issued (610,000)
------------
--
------------
F-42
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
19 SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (cont'd)
During the year the company reflected preferred dividends through the
issuance of common shares and the beneficial conversion feature on its
preferred shares in the amount of $3,586,807. The balance of the preferred
dividends of $59,788 have been included in liabilities payable in common
stock.
A subordinated loan payable to Working Ventures in the amount of $837,151
was converted into 196,800 common shares.
During the year the company acquired the shares of E-Wink in exchange for
300,000 common shares with a value of $975,000 and warrants valued at
$1,458,700.
During 2000, the company settled liabilities payable in common stock through
the issuance of common shares with a value of $742,200.
20. TRANSACTIONS WITH RELATED COMPANIES
During 1999, Thinkpath Inc. charged its subsidiaries a one-time
set-up fee, and has continued to charge maintenance fees for the use
of Njoyn. These transactions have been eliminated upon
consolidation. Any set-up charges prior to the acquisition of Cad Cam
Inc. are reflected as part of the purchase price adjustment
calculation.
Thinkpath Inc. has entered into a consulting agreement with a company,
whereby this company performs tasks related to mergers, acquisitions and the
securing of financing. The company receives 3% of gross proceeds. In
connection with the placement of the Series A, 8% cumulative, convertible,
preferred stock, and for other services rendered the said company received
$69,000 in 1999. The managing director of this company was the CFO of
Thinkpath Inc. during 1999.
21. CONTINGENCIES AND COMMITMENTS
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, for the fiscal year end of December 31 for the next five years are
as follows:
2001 $866,745
2002 654,563
2003 428,993
2004 399,822
2005 455,648
--------
$2,805,771
==========
F-43
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
21. CONTINGENCIES AND COMMITMENTS (cont'd)
b) On December 14, 2000, Thinkpath Inc. entered into a consulting agreement
with Tsunami Trading Corp.d/b/a Tsunami Financial Communications and
International Consulting Group, pursuant to which Tsunami and
International Consulting Group are to provide financial consulting
services to us with respect to financing, and mergers and acquisitions,
etc. In consideration for the services to be rendered, we: (a) issued an
aggregate of 480,000 shares of our common stock to the consultants as an
advance fee, (b) agreed to pay a fee of 10% of the consideration received
by us upon the successful completion of any transaction contemplated by
the consulting agreement; and (c) agreed to issue warrants to purchase
our common stock in an amount equal to 2% of the equity sold and/or
issued by us in any transactions contemplated by the consulting
agreement. A total of $321,600 which represents the value of the shares
issued has been included in shares issued for services rendered and has
been expensed in Acquisition costs and financing expenses for December
31, 2000.
c) The company is party to various lawsuits arising from the normal course
of business. In management's opinion, the litigation will not materially
affect the company's financial position, results of operations or cash
flows. No material provision has been recorded in the accounts for
possible losses or gains. Should any expenditures be incurred by the
company for the resolution of these lawsuits, they will be charged to the
operations of the year in which such expenditures are incurred.
22. SUBSEQUENT EVENTS
a) The vendor of Southport Consulting Co. is seeking damages for the
consideration of $250,000 on the acquisition which was funded by shares
of the company. The vendor contends that the shares received do not
satisfy the purchase price. No provision has been recorded in the
accounts for possible losses. Should any expenditure be incurred by the
company for the resolution of this lawsuits, they will be charged to the
operations of the year in which such expenditures are incurred.
b) Three former employees are alleging wrongful dismissal for the
termination of their employment. No provision has been recorded in the
accounts for possible losses. Should any expenditure be incurred by the
company for the resolution of these lawsuits, they will be charged to the
operations of the year in which such expenditures are incurred.
c) 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 Acquisition costs and 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 will be
amortized in the period to August 1, 2001.
F-44
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
22. SUBSEQUENT EVENTS (cont'd)
d) On January 26, 2001, the company: (i) repriced warrants to purchase up to
100,000 shares of the company's common stock, which warrant was in
connection to the 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;
(ii) repriced warrants to purchase an aggregate of up to 230,693 shares
of the company's common stock, which warrants were issued to the
placement agent, certain financial advisors, and the placement agent's
counsel in connection to the 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 (iii) issued to KSH
Investment Group Inc. for investment banking services rendered, a warrant
to purchase up to 250,000 shares of the company's common stock
exercisable at any time and in any amount until January 26, 2006 at a
purchase price of $1.50 per share. Such revised exercise prices were
equal to, or in excess of, the market price of our common stock on the
date of repricing. These costs were incurred as the consideration for the
receipt of $225,000 for common stock issued in February 2001.
e) 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 mandatorily 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 or 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 $1,000
per share) in full shares only, with a cash payment equal to any
fractional shares.
F-45
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
22. SUBSEQUENT EVENTS (cont'd)
e) cont'd
The number of shares of the Company's common stock into which the Series
C Preferred Stock shall be convertible into that number of shares of
common stock equal to (i) the sum of (A) the stated value per share and
(B) at the holder's election, accrued and unpaid dividends on such share,
divided by (ii) the Conversion Price. The "Conversion Price" shall be the
lesser of (x) 87.5% of the average of the 5 lowest daily volume weighted
average prices of the Company's common stock during the period of 60
consecutive trading days immediately prior the date of the conversion
notice; or (y) 90% of the average of the daily volume weighted average
prices during the period of the 5 trading days prior to the applicable
closing date ($.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 three months ended June 30, 2001, the Company issued 266,774
common stock on the conversion of 120 Series C preferred stock. The
proceeds received on the issue of Class C preferred shares will be
allocated between the value of detachable warrants issued and the
preferred shares outstanding on the basis of their relative fair values.
Paid in capital will be credited by the value of the warrants and
retained earnings charged for the amount of preferred dividends
effectively paid
During the three months ended June 30, 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.
f) At December 31, 2000, the Business Development Bank of Canada (BDC) loan
covenants were in breach and accordingly the loan amounts were
reclassified as current. Subsequent to March 31, 2001, the bank has
agreed to a temporary deferment of principal payments until January 2002.
The Company is current in its interest obligations to the Business
Development Bank of Canada.
g) As a result of the Bank One loan covenants being in breach at December
31, 2000, subsequent to the year end, the interest rates on these loans
were increased and the bank has enforced a restriction on principal
repayment of all subordinated loans and notes payable. The parties
affected by this restriction include the Business Development Bank of
Canada, the vendor of Cad Cam, Roger Walters and the vendor of MicroTech
Professionals, Denise Dunne to whom the company owes approximately
$450,000, $1,200,000, and $1,900,000 respectively.
h) As a result of Bank One's restriction on subordinated debt payments, the
Company is in breach of its payment schedule to Roger Walters. The
Company has restructured its note payable to Roger Walters in September
2001, so that 1,200,000 shares will be issued in lieu of $450,000 cash
reducing the balance of the note to $750,000. The balance will be paid
over 3 years beginning January 1, 2003. The Company is current in its
interest obligations to Roger Walters.
F-46
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
22. SUBSEQUENT EVENTS (cont'd)
i) As a result of Bank One's restriction on subordinated debt payments, the
Company is in breach of its payment schedule to Denise Dunne. The Company
is in negotiations to restructure its note payable to Denise Dunne. The
Company hopes to reduce the cash amount owing and extend the payment
terms. The Company is current in its interest obligations to Denise
Dunne.
j) In June 2001, Management retained Banc One Capital Markets to represent
the Company in certain investment banking opportunities. Management is
exploring several opportunities, including joint ventures, strategic
partnerships, spin-offs of subsidiaries, and the potential sale or
downsizing of other smaller business units.
k) During the six months ended June 30, 2001, the Company recorded a
restructuring charge of $452,764 as a result of certain of the Company's
actions to better align its cost structure with expected revenue growth
rates. The restructuring charge includes severance paid to employees of
the London training office and the staff involved with software
development for Njoyn. The support and marketing team for Njoyn continue
to operate.
l) During the three months ended June 30, 2001, the Company issued 150,000
shares of its common stock in consideration of $78,000 cash received.
m) 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.
n) During July 2001, 22,125 shares were issued for the options exercised by
the Business Development Bank of Canada.
o) On July 20, 2001, the Company received a Nasdaq Staff Determination
indicating that the company is not in compliance with the bid price
requirements for continued listing, as set forth in Nasdaq's Marketplace
Rule 4310 (c)(8)(B). On September 27, 2001, Nasdaq announced a moratorium
on the minimum bid and public float requirements for continued listing on
the exchange until January 2, 2002. The Company's stock will continue to
be listed on Nasdaq during this period.
p) On September 11, 2001, the Company's branch office located in the World
Trade Centre was destroyed and its branch office at 195 Broadway was
damaged and closed for a period of four weeks. The company cannot yet
provide a reliable estimate of the effect of this destruction and closure
on its operating results and financial condition.
23. SEGMENTED INFORMATION
a) Sales by Geographic Area
2000 1999
$ $
Canada 15,663,140 16,601,717
United States of America 28,692,640 10,430,718
---------- ----------
44,325,780 27,032,435
========== ==========
b) Net Income by Geographic Area
2000 1999
$ $
Canada (6,599,859) (432,464)
United States of America (1,798,458) 427,141
---------- --------
(8,398,317) (5,323)
========== ========
F-47
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
23. SEGMENTED INFORMATION (cont'd)
c) Identifiable Assets by Geographic Area
2000 1999
$ $
Canada 8,979,711 7,880,965
United States 16,706,229 12,664,906
---------- ----------
25,685,940 20,545,871
========== ==========
d) Revenue and Gross Profit by Operating Segment
The company is organized around differences in products and
services and the following represents the operating segments of
the company managed at the gross revenue and gross profit levels
only. The assets and liabilities are managed on an aggregate
level.
2000 1999
$ $
Revenue
IT Recruitment 13,864,829 14,291,100
Tech Pubs and Engineering 16,171,216 5,076,761
IT Documentation 6,265,665 -
Training 7,196,636 7,054,552
Technology 827,434 610,022
---------- ----------
44,325,780 27,032,435
========== ==========
Gross Profit
IT Recruitment 7,654,180 5,914,436
Tech Pubs and Engineering 3,501,789 1,339,068
IT Documentation 2,764,794 -
Training 3,538,734 3,002,930
Technology 683,455 413,526
---------- ----------
18,142,952 10,669,960
========== ==========
e) Revenues from Major Customers
The consolidated entity had the following revenues from major Customers:
2000 - No single customer consisted of more than 10% of the revenues.
1999 - No single customer consisted of more than 10% of the revenues.
f) Purchases from Major Suppliers
There were no significant purchases from major suppliers.
F-48
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
24. 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.
2000 1999
$ $
Average common stock outstanding 5,296,442 3,194,018
Average common stock issuable -- --
--------- ---------
Average common stock outstanding
assuming dilution 5,296,442 3,194,018
========= =========
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 conversion ratio is
unknown.
25. STOCK OPTION PLANS
a) Options outstanding
OPTIONS WEIGHTED
AVERAGE
EXERCISE
PRICE
Options outstanding at January 1, 1999 222,125 1.89
Options granted to key employees and directors 250,500 3.19
Options exercised during the year --
Options forfeited during the year -
Options expired during the year -
---------
Options outstanding at December 31, 1999 472,625 2.21
Options granted to key employees and directors 969,500 2.22
Options exercised during the year (18,508) 2.10
Options forfeited during the year (4,000) 3.19
Options expired during the year -
---------
Options outstanding at December 31, 2000 1,419,617 2.21
=========
Options exercisable December 31, 1999 472,625 2.58
Options exercisable December 31, 2000 714,117 1.95
Options available for future grant December 31, 1999 184,500
Options available for future grant December 31, 2000 --
After December 31, 2000, 217,500 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 October 5, 2001.
F-49
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
25. STOCK OPTION PLANS (cont'd)
b) Range of Exercise Prices
Outstanding Weighted Options Options Weighted
Options Average Outstanding exercisable Average
Remaining Average Exercise
Life Exercise Price Price
$2.10 - $3.25 937,492 4.2 years $2.97 431,992 $2.73
$1 and under 482,125 3.9 years $0.73 282,125 $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 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, 2000 and 1999 would have been as follows:
2000 AS 2000 1999 AS 1999
REPORTED PRO FORMA REPORTED PRO FORMA
-------- --------- -------- ---------
Net loss (8,398,317) (8,939,590) (5,323) (69,195)
Net loss after preferred
share dividends (12,044,912) (12,586,185) (143,323) (207,195)
Basic and fully diluted
Loss per share (1.59) (1.70) (0.00) (0.02)
loss per share after
preferred dividends (2.27) (2.38) (0.04) (0.06)
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:
2000 GRANTS 1999 GRANTS
----------- -----------
Risk free interest rates 6.05% 5.81%
Volatility factors 100% 100%
Weighted average expected life 3.81 years 5 years
Weighted average fair value per share 2.40 3.19
Expected dividends -- --
F-50
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
26. SUPPLEMENTAL INFORMATION
a) MicroTech acquisition
The following represents that results of operations as though Micro Tech
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 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
Other changes in stockholders' equity
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)
27. 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.
F-51
THINKPATH INC.
(FORMERLY THINKPATH.COM INC.)
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
27. FINANCIAL INSTRUMENTS (cont'd)
d) Fair Value of Financial Instruments
The carrying value of the accounts receivable, short-term investment,
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.
28. COMPARATIVE FIGURES
Certain figures in the 1999 financial statements have been reclassified to
conform with the basis of presentation used in 2000.
F-52
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Bylaws provide that we shall indemnify our directors and officers.
The pertinent section of Canadian law is set forth below in full. In addition,
we currently have officers' and directors' liability insurance.
See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission with respect to
the effect of any indemnification for liabilities arising under the Securities
Act of 1933, as amended.
Section 136 of the Business Corporations Act (Ontario) provides as follows:
(1) INDEMNIFICATION OF DIRECTORS. A corporation may indemnify a director or
officer of the corporation, a former director or officer of the
corporation or a person who acts or acted at the corporation's request
as a director or officer of a body corporate of which the corporation
is or was a shareholder or creditor, and his or her heirs and legal
representatives, against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, reasonably
incurred by him or her in respect of any civil, criminal or
administrative action or proceeding to which he or she is a party by
reason of being or having been a director or officer of such
corporation or body corporate, if;
(a) he or she acted honestly and in good faith with a view to the
best interests of the corporation; and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he or she
had reasonable grounds for believing that his or her conduct
was lawful.
(2) IDEM. A corporation may, with the approval of the court, indemnify a
person referred to in subsection (1) in respect of an action by or
behalf of the corporation or body corporate to procure a judgment in
its favor, to which the person is made a party by reason of being or
having been a director or an officer of the corporation or body
corporate, against all costs, charges and expenses reasonably incurred
by the person in connection with such action if he or she fulfils the
conditions set out in clauses (1)(a) and (b).
(3) IDEM. Despite anything in this section, a person referred to in
subsection (1) is entitled to indemnity from the corporation in respect
of all costs, charges and expenses reasonably incurred by him in
connection with the defense of any civil, criminal or administrative
action or proceeding to which he or she is made a party by reason of
being or having been a director or officer of the corporation or body
corporate, if the person seeking indemnity;
(a) was substantially successful on the merits in his or her
defense of the action or proceeding; and
(b) fulfills the conditions set out in clauses (1)(a) and (b).
(4) LIABILITY INSURANCE. A corporation may purchase and maintain insurance
for the benefit of any person referred to in subsection (1) against any
liability incurred by the person,
(a) in his or her capacity as a director of the corporation,
except where the liability relates to the person's failure to
act honestly and in good faith with a view to the best
interests of the corporation; or
(b) in his or her capacity as a director or officer of another
body corporate where the person acts or acted in that capacity
at the corporation's request, except where the liability
relates to the person's failure to act honestly and in good
faith with a view to the best interests of the body corporate.
II-1
(5) APPLICATION TO COURT. A corporation or a person referred to in
subsection (1) may apply to the court for an order approving an
indemnity under this section and the court may so order and make any
further order it thinks fit.
(6) IDEM. Upon application under subsection (5), the court may order notice
to be given to any interested person and such person is entitled to
appear and be heard in person or by counsel.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses to be paid by us
in connection with the issuance and distribution of the securities being
registered:
SEC Registration Fee $ 828.39
Legal Fees and Expenses* $15,000.00
Accounting Fees and Expenses* $ 7,500.00
Miscellaneous* $ 6,671.61
Total* $30,000.00
-----------
* Estimate
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, we have sold unregistered securities as
described below. There were no underwriters involved in the transactions and
there were no underwriting discounts or commissions paid in connection
therewith, except as disclosed below. The purchasers of the securities in such
transactions represented their intention to acquire the securities for
investment purposes only and not with a view to or for sales in connection with
any distribution thereof and appropriate legends were affixed to the
certificates for the securities issued in such transactions. The purchasers of
the securities in the transactions below were each sophisticated investors who
were provided information about us and were able to bear the risk of loss of
their entire investment.
In April 1998, in connection with the acquisition of Systemsearch
Consulting Services Inc., we issued 130,914 shares of our common stock to John
R. Wilson.
In February through March of 1998, we sold 196,370 shares of our common
stock to twelve individuals at a purchase price of approximately $2.67 per share
for aggregate consideration of $523,653. The twelve individuals included some of
our employees and directors.
In May 1998, in connection with the acquisition of International Career
Specialists Ltd., we issued 130,914 shares of our common stock to John A. Irwin.
In May and June of 1998, we sold 77,239 shares of our common stock to
seven individuals at a purchase price of approximately $3.33 per share for
aggregate consideration of $257,463. The seven individuals included some of our
employees and directors.
In May 1998, we granted an option to purchase 200,000 shares of our
common stock at an exercise price of $2.10 per share to Robert M. Rubin, of
which as of the date of this prospectus, we have issued 18,508 shares of our
common stock upon Mr. Rubin's exercise of such option.
We believe all of the above issuances would have been exempt from
registration in the United
II-2
States pursuant to the exemption provided by Section 4(2) of the Securities Act
of 1933, as amended (Securities Act).
The issuances of the following securities were considered to be exempt
from registration under Section 4(2) of the Securities Act, and the regulations
promulgated thereunder, with the exception of the August 2000 private placement
described below. The purchasers of the securities in such transactions
represented their intention to acquire the securities for investment purposes
only and not with a view to or for sales in connection with any distribution
thereof and appropriate legends were affixed to the certificates for the
securities issued in such transactions. The purchasers of the securities in the
transactions below were each sophisticated investors who were provided
information about us and were able to bear the risk of loss of their entire
investment.
In September 1999, in connection with the acquisition of Cad Cam, Inc.,
we issued 163,767 shares of our common stock to Roger W. Walters.
In December 1999, we issued 15,000 shares of Series A 8% Convertible
Preferred Stock and common stock purchase warrants to purchase an aggregate of
475,000 shares of our common stock in connection with a private placement
offering to accredited investors in consideration for $1,500,000. The offer and
sale of the shares of Series A 8% Cumulative Convertible Preferred Stock and
common stock purchase warrants was exempt from registration under the Securities
Act of 1933, as amended, in reliance on Regulation D Rule 506 of the Securities
Act, as amended. Libra Finance S.A. and J. P. Turner & Co., LLC acted as
placement agents in connection with the issuance of these shares and warrants.
Libra Finance S.A. received a 10% commission and a warrant to purchase 100,000
shares of our common stock in connection with its acting as placement agent in
connection with this private placement offering. J. P. Turner & Co., LLC
received a 8% commission and 75,000 warrants in connection with its acting as
placement agent in connection with this private placement offering. As of the
date of this prospectus, there are no such shares of Series A 8% Preferred Stock
outstanding and 475,000 of such warrants outstanding.
On January 1, 2000, the combination of Object Arts Inc., an Ontario
corporation, was effected by: (i) the issuance of $900,000 of our common stock
to Working Ventures Custodian Fund in exchange for the retirement of outstanding
subordinated debt; (ii) the issuance to Working Ventures Custodian Fund of an
amount of our common stock equal to the legal fees and professional fees
incurred and paid by Working Ventures Custodian Fund in connection with our
combination of Object Arts Inc.; and (iii) the issuance of $1,100,000 of our
common stock to the existing shareholders of Object Arts Inc. The acquisition of
Object Arts Inc. has enabled us to offer advanced training and certification to
information technology professionals, adding to our complete end-to-end skills
gap solution. As part of this combination, we entered into employment agreements
with Marilyn Sinclair and Lars Laakes, former officers of Object Arts Inc. Such
employment contracts were for a term of three years and provided for annual
salaries of $82,000 and $75,000, respectively. Neither Ms. Sinclair nor Mr.
Laakes was affiliated with us prior to the acquisition. On March 9, 2001, Ms.
Sinclair resigned as an officer of Thinkpath. On April 9, 2001, Ms. Sinclair
resigned from our Board of Directors.
On January 18, 2000, 5,000 and 50,000 shares were issued respectively
to Sichenzia, Ross and Freidman and Joseph Sicinski as finders' fee related to
the purchase of Cad Cam, Inc.
On March 6, 2000, we 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, Inc. was formed to match providers of
venture capital, bridge loans and private placement capital with members of the
brokerage community.
II-3
On April 16, 2000, we issued: (i) 1,500 shares of Series B 8% Preferred
Stock, no par value per share; and (ii) warrants to purchase up to an aggregate
of 300,000 shares of our common stock, in consideration $1,500,000 pursuant to a
private placement offering. The 300,000 warrants issued in the offering are
exercisable at any time and in any amount until April 16, 2005 at a purchase
price of $3.71 per share. As of the date of this prospectus, there are no such
shares of Series B 8% Preferred Stock outstanding and 200,000 of such warrants
outstanding.
In addition, On April 16, 2000, we issued: (i) 2,500 shares of Series A
8% Convertible Preferred Stock, and (ii) 50,000 warrants to purchase common
stock, pursuant to a private placement offering. The 50,000 warrants issued in
the offering are exercisable at any time and in any amount until April 16, 2005
at a purchase price of $3.71 per share.
On April 25, 2000, we completed the acquisition of all of the issued
and outstanding capital stock of Micro Tech Professionals, Inc., a Massachusetts
corporation, in consideration for an aggregate of up to $4,500,000 in a
combination of cash, notes payable and shares of our common stock, subject to
specific performance criteria being met. On April 25, 2000, we paid to Denise
Dunne-Fushi, the sole shareholder of Micro Tech Professionals, Inc., $2,500,000,
according to the following schedule: (i) $1,250,000 in cash; (ii) the issuance
of a $750,000 principal amount unsecured promissory note; and (iii) the issuance
of 133,333 shares of our common stock. As part of the transaction, we entered
into an employment agreement with Denise Dunne-Fushi, the former President of
Micro Tech Professionals, Inc. The employment agreement was for a term of one
year which terms commenced on April 25, 2000, the effective date of the
acquisition, with an annual salary of $125,000 and a bonus of $25,000. Mrs.
Dunne-Fushi was not affiliated with us prior to the acquisition. Thinkpath and
Mrs. Dunne-Fushi are currently in the process of negotiating the terms of the
renewal of her employment agreement. Mrs. Dunne-Fushi continues to serve as our
Vice President and as President of Micro Tech Professionals, Inc. on a
month-to-month basis under the same terms as described above.
On May 9, 2000, 2,400 shares were issued to employees as sales bonuses
for an aggregate consideration of $7,651.
On May 22, 2000, 8,889, 4,444 and 80,000 shares were issued
respectively to I. Lavet , C. Hallinan and Globe Capital as finder's fees
related to the purchase of Micro Tech Professionals, Inc.
On July 7, 2000, we issued an aggregate of: (a) 5,000 shares of our
Series A 8% Convertible Preferred Stock; and (b) warrants to purchase up to an
aggregate of 225,000 shares of our common stock, in consideration for $500,000
pursuant to the exercise of our option granted to us in the December 1999
private placement offering. The 225,000 warrants issued upon our exercise of the
option are exercisable at any time and in any amount until December 30, 2004 at
a purchase price of $3.575 per share. As of the date of this prospectus, there
are no such shares of Series A 8% Preferred Stock outstanding and 225,000 of
such warrants outstanding.
On August 22, 2000, we completed a private placement offering of units,
each unit consisting of 1 share of our common stock and a callable warrant to
purchase 1/2 of 1 share of our common stock. A total of 1,063,851 shares of our
common stock were issued together with 532,534 warrants to purchase shares of
our common stock exercisable until August 22, 2000, in consideration for
$2,681,600. The purchase price per unit ranged from $1.9692 to $2.8125. In
addition, we issued to the placement agent, certain financial advisors and the
placement agent's counsel, warrants to purchase up to 280,693 shares of our
common stock in connection with the private placement offering. Such warrants
are exercisable until August 22, 2005 at an exercise price of $2.4614 per share.
The Company paid the placement agent a cash commission in the amount of 8% of
the aggregate purchase price for the units sold in the offering, or $214,528, as
well as a non-accountable expense allowance of 1.5% of the aggregate purchase
price for the units sold in the offering, or $40,224. The private placement was
made in reliance upon the exemption from registration provided by Regulation D
of the Securities Act and Rule 506 promulgated thereunder.
On September 13, 2000, we entered into an engagement agreement with
Burlington Capital Markets Inc. We agreed to sell Burlington Capital Markets an
aggregate of 250,000 shares of our common stock at a cash purchase price of $.01
per share, issue a number of warrants and to pay $10,000 per month in consulting
fees. The agreement was terminated and no warrants were issued. In the
aggregate, Burlington received 425,000 shares of our common stock and $10,000
pursuant to the agreement. The additional 175,000 shares represented
compensation to Burlington Capital Markets Inc. as a settlement on the
termination of the agreement.
On November 15, 2000, we consummated a business combination with
TidalBeach Inc., an Ontario-based Web development company, for which we issued
250,000 shares of our common stock to the two shareholders of TidalBeach, Inc.
As part of the transaction, we entered into an employment agreement with Michael
Reid, the former President of TidalBeach Inc. The employment agreement is for a
term of two years commencing on November 15, 2000 with an annual salary of
$123,000. Pursuant to our combination with TidalBeach we acquired the SecondWave
software.
II-4
On December 14, 2000, we entered into a consulting agreement with
Tsunami Trading Corp. d/b/a Tsunami Financial Communications and International
Consulting Group, pursuant to which Tsunami and International Consulting Group
are to provide financial consulting services to us with respect to financing,
and mergers and acquisitions, and related matters. In consideration for the
services to be rendered, we: (a) issued 160,000 shares of our common stock to
the consultants as an advance fee, (b) agreed to pay a fee of 10% of the
consideration received by us upon the successful completion of any transaction
contemplated by the consulting agreement; and (c) agreed to issue warrants to
purchase our common stock in an amount equal to 2% of the equity sold and/or
issued by us in any transactions contemplated by the consulting agreement.
Effective December 26, 2000, shares and/or options were issued to the
following: Declan A. French, Tony French, Michael Reid, Kelly Hankinson, and
Globe Capital Corporation. These issuances were made pursuant to contracts
and/or as bonuses with regards to the various acquisitions throughout the course
of the year. The amounts issued were as follows: 1,200,000 shares to Declan A.
French; 50,000 shares to Tony French; 100,000 options priced at $0.70 to Michael
Reid; and 50,000 shares and 100,000 options priced at $0.70 to Kelly Hankinson;
and 500,000 shares to Globe Capital Corporation.
On January 22, 2001, we issued 1,125,398 shares to Roger Walters in
settlement of the common stock payable of $1,000,000 as per the purchase and
sale agreement of Cad Cam Inc., which was purchased in September, 1999. Mr.
Walters had a note payable to us in the amount of $257,800 which sum was
deducted from the capital stock payable for a final issuance amount of $742,200.
As a result of an oral agreement between us and Del Mar Consulting
Group entered into in December 200, on January 24, 2001, we executed a written
agreement pursuant to which Del Mar Consulting Group shall provide investors'
communications and public relations services. Pursuant to the agreement, we
issued a non-refundable retainer of 400,000 shares common stock to Del Mar and
are required to pay $4,000 per month for on-going consulting services. In
addition, we issued Del Mar warrants to purchase 400,000 shares of our common
stock at $1.00 per share and 100,000 shares at $2.00 per share which
collectively expire January 24, 2005 and 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 acquisition
costs and financing expenses for December 31, 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
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.
On January 26, 2001, we: (i) repriced a warrant to purchase up to
100,000 shares of our common stock, which warrant was issued to a certain
investor in our April 2000 private placement offering of Series B 8% Preferred
Stock, so that such warrant is exercisable at any time until April 16, 2005 at a
new purchase price of $1.00 per share; (b) repriced warrants to purchase an
aggregate of up to 230,693 shares of our common stock, which warrants were
issued to the placement agent, certain financial advisors, and the placement
agent's counsel in our August 2000 private placement offering of units, so that
such warrants are exercisable at any time until August 22, 2005 at a new
purchase price of $1.00 per share; and (c) issued a warrant to purchase up to
250,000 shares of our common stock exercisable at any time and in any amount
until January 26, 2006 at a purchase price of $1.50 per share to KSH Investment
Group, Inc. for investment banking services rendered. In February 2001, 150,000
of such warrants were exercised by KSH Investment Group, the placement agent in
our August 2000 private placement offering. As partial consideration for the
exercise of such warrants, we issued to certain affiliates of the placement
agent, warrants to purchase an aggregate of 315,000 shares of our common stock
at an exercise price of $1.50 per share. The exercise prices of the revised and
newly issued warrants are equal to, or in excess of, the market price of our
common stock on the date of such revision or issuance.
On January 30, 2001, we issued an additional 20,000 shares of our
common stock to International Consulting Group for financial consulting services
rendered pursuant to the December 14, 2000 consulting agreement between Tsunami
Trading Corp. d/b/a Tsunami Financial Communications, International Consulting
Group and us.
II-5
On February 5, 2001, we issued 30,632 shares of our common stock to
Gersten, Savage & Kaplowitz, LLP, our United States securities counsel, in
consideration for legal services rendered.
On February 6, 2001, 100,000 and 25,000 shares were issued to KSH
Strategic Investment Fund I, LP and KSH Investment Group, Inc., respectively, in
consideration for financial consulting services rendered.
On February 15, 2001, 60,000 shares were issued to Typhoon Capital in
consideration of investor relations consulting services pursuant to an agreement
dated December 15, 2001.
On February 26, 2001, 100,000 and 50,000 shares were issued to Brighton
Opportunity Fund, L.P. and Stanley and Jeanne Bedell, respectively, in
consideration for consulting services rendered.
On March 14, 2001, we repriced 100,000 options belonging to Roger W.
Walters to $1.00 per share in consideration for debt forgiveness of $75,000 and
the restructuring of debt totaling $250,000 on the notes payable to Mr. Walters
in connection with the purchase of Cad Cam, Inc. In addition, on March 14, 2001
Mr. Walters resigned as our Executive Vice President of US Operations and from
the Board of Directors effective March 30, 2001.
On April 18, 2001, an additional 140,000 shares were issued to
International Consulting Group for financial consulting services rendered
pursuant to a December 14, 2000 consulting agreement.
Pursuant to a share purchase agreement dated April 18, 2001 (Series C
Preferred Stock Purchase Agreement), we issued 1,105 shares of Series C 7%
Cumulative Convertible Preferred Stock (Series C Preferred Stock) and 663,484
common stock purchase warrants. The Series C Preferred Stock and the common
stock purchase warrants were issued pursuant to Section 4(2) of the Securities
Act and each of the investors was a sophisticated, accredited investor who took
the shares for investment purposes. There was no underwriter involved in the
transaction.
Each share of our Series C Preferred Stock has a stated value of $1,000
per share. The shares of Series C Preferred Stock are convertible into shares of
our common stock at the option of the holders of the Series C Preferred Stock at
any time after issuance until we force the conversion of the shares of Series C
Preferred Stock. We are required to convert all such shares of Series C
Preferred Stock that remain outstanding after April 18, 2003.
Each of the 663,484 warrants is exercisable at any time and in any
amount until April 18, 2005 at a purchase price of $.5445.
Pursuant to the registration requirements under the Series C Preferred
Stock Purchase Agreement, we filed a registration statement on June 7, 2001
(Registration Statement) registering 200% of the shares of common stock issuable
upon the conversion of all the shares of Series C Preferred Stock issued and to
be issued and 100% of the shares of common stock issuable upon exercise of the
common stock purchase warrants. Upon the effective date of this registration
statement, we will be obligated to issue to the investors an aggregate of 500
shares of Series C Preferred Stock and additional common stock purchase warrants
in consideration for an additional $500,000. The issuance of the additional 500
shares of Series C Preferred Stock and warrants is subject to the satisfaction
or waiver of the following conditions: (a) that immediately available funds have
been delivered by each investor; (b) that all representations and warranties by
the parties shall have remained true and correct and (c) that all permits and
qualifications required by any state shall have been obtained.
On June 6, 2001 the Series C Preferred Stock Purchase Agreement was
amended (Amended Series C Preferred Stock Purchase Agreement) to restructure the
terms of the issuance of the additional 500 shares of Series C Preferred Stock.
Pursuant to the Amended Series C Preferred Stock Purchase Agreement, we issued
125 shares of the 500 shares of Series C Preferred Stock to be issued and 59,592
warrants to one investor in consideration for $125,000. Pursuant to the Amended
Series C Preferred Stock Purchase Agreement we are obligated to issue the
remaining 375 shares of Series C Preferred Stock and 112,500 warrants to the
investors.
Each of the 59,952 warrants is exercisable at any time and in any
amount until June 8, 2005 at an exercise price of $.6225 per share.
II-6
At any time prior to October 24, 2001, we may, in our sole discretion,
redeem in whole or in part, the then issued and outstanding shares of Series C
Preferred Stock at a price equal to $1,150 per share, plus all accrued and
unpaid dividends, and after October 24, 2001 at a price equal to $1,200 per
share, plus all accrued and unpaid dividends. As of the date of this prospectus,
there are 1,110 shares of Series C 7% Convertible Preferred Stock and 723,436
common stock purchase warrants outstanding.
At any time prior to October 24, 2001, we may, in our sole discretion,
redeem in whole or in part, the then issued and outstanding shares of Series C
Preferred Stock at a price equal to $1,150 per share, plus all accrued and
unpaid dividends, and after October 24, 2001 at a price equal to $1,200 per
share, plus all accrued and unpaid dividends. As of the date of this prospectus,
there are 985 shares of Series C 7% Convertible Preferred Stock and 663,484
warrants outstanding.
On April 30, 2001, we issued the following in satisfaction of finder's
fees related to the Series C Preferred Stock placement: 79,134 shares to KSH
Investment; 23,622 shares to Bakara Corp; 23,622 shares to Flimwell Investments;
and 23,622 shares to Robert B. Prag.
On April 30, 2001, we issued 90,000 shares of our common stock to
DailyFinancial.com, Inc. in consideration of investors' communications and
public relations services. The agreement was for a term commencing on April 1,
2001 and ending on September 30, 2001.
Pursuant to a loan agreement with the Business Development Bank of
Canada, we issued 22,122 shares of our common stock for an aggregate
consideration of $1.00 on August 22, 2001.
On August 22, 2001, we issued 150,000 shares of our common stock to KSH
Financial Group, Inc. in consideration of financial consulting services
rendered. KSH Investment Group, Inc. made a distribution of 75,000 of the
150,000 shares to each of Helen Kohn and Ronit Sucoff , the wives of the
principals of KSH Investment Group, Inc.
On August 22, 2001 we issued 316,667 shares to Denise Dunne Fushi in
settlement of the common stock payable of $625,000 as per the purchase and sale
agreement of Micro Tech Professionals Inc., which we purchased in April, 2000.
II-7
ITEM 27. EXHIBITS
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
1.1 Form of Underwriting Agreement(1)
3.1 Bylaws of Thinkpath(1)
3.2 Articles of Organization dated February 11, 1994(1)
3.3 Articles of Amendment dated February 15, 1996(1)
3.4 Articles of Amendment dated April 15, 1998(1)
3.5 Articles of Amendment dated August 6, 1998(1)
3.6 Articles of Amendment dated January 19, 1999(1)
3.7 Articles of Amendment dated June 6, 2001(9)
4.2 Form of Underwriters' Warrant(1)
4.3 Specimen Common Share Certificate(1)
5.1 Opinion of Gersten, Savage & Kaplowitz, LLP(10)
10.1 Form of Financial Consulting Agreement(1)
10.2 1998 Stock Option Plan(1)
10.3(a) Lease of Thinkpath's headquarters in Toronto, Ontario(1)
10.3(b) Lease of Thinkpath's office in New York, New York(1)
10.3(c) Lease of Thinkpath's office in Etobicoke, Ontario(1)
10.3(d) Lease of Thinkpath's office in Scarborough, Ontario(1)
10.3(e) Lease of Thinkpath's office in Ottawa, Ontario(1)
10.4 Employment Agreement between Thinkpath Inc. and Declan A. French dated
August 1998(1)
10.5 Employment Agreement between Thinkpath and John A. Irwin dated May 18,
1998(1)
10.6 Employment Agreement between Thinkpath and John R. Wilson dated February
8, 1998(1)
10.7 Employment Agreement between Thinkpath and Roger W. Walters dated
September 16, 1999(2)
10.8 Form of consulting agreement for Thinkpath's independent contractors(1)
10.9 Form of services agreement for Thinkpath's customers(1)
10.10 Agreement for the acquisition of the capital stock of International
Career Specialists Ltd.(1)
10.11 Agreement for the acquisition of the capital stock of Systemsearch
Consulting Services Inc. and Systems PS Inc.(1)
10.12 Agreement for the acquisition of the capital stock of Cad Cam, Inc.(2)
10.13 License Agreement between Thinkpath and International Officer Centers
Corp. dated August 1, 1998(2)
10.14 License Agreement between Thinkpath.com Inc. and International Officer
Centers Corp. dated August 1, 1998(1)
10.15 Consulting Agreement between Thinkpath and Robert M. Rubin(1)
10.16 Form of Employment Agreement with Confidentiality Provision(1)
10.17 Asset Purchase Agreement between Thinkpath and Southport Consulting
Company(1)
10.18 2000 Stock Option Plan(3)
10.19 Share Purchase Agreement between Thinkpath and Micro Tech Professionals,
Inc. dated April 25, 2000(4)
10.20 Non-Binding Letter of Intent between Thinkpath and Aquila Holdings
Limited dated October 4, 2000(4)
10.21 Share Purchase Agreement between Thinkpath and TidalBeach Inc. dated
October 31, 2000(5)
10.22 Consulting Agreement between Thinkpath and Tsunami Trading Corp. d/b/a
Tsunami Financial Communications and International Consulting Group,
Inc. dated December 14, 2000(5)
10.23 2001 Stock Option Plan(7)
10.24 Share Purchase Agreement between Thinkpath, Alpha Capital AG and
Stonestreet, L.P dated April 18, 2001(8)
23.1 Consent of Schwartz Levitsky Feldman, llp, independent auditors.(10)
23.2 Consent of Gersten, Savage & Kaplowitz, LLP (incorporated into Exhibit
5.1)(10)
------
(1) Incorporated by reference to Thinkpath's Registration Statement on Form
SB-2 filed on May 26, 1999.
(2) Incorporated by reference to Thinkpath's report on Form 8-K filed on
October 1, 1999.
(3) Incorporated by reference to Thinkpath's Proxy Statement on Form Def-14A
filed on May 22, 2000.
II-8
(4) Incorporated by reference to Thinkpath's Registration Statement on Form
SB-2 filed on April 25, 2000.
(5) Incorporated by reference to Thinkpath's Registration Statement on Form
SB-2 filed on January 12, 2001.
(6) Incorporated by reference to Thinkpath's Form 10-KSB for the year ended
December 31, 2000 filed on April 3, 2001.
(7) Incorporated by reference to Thinkpath's Proxy Statement on Form Def-14A
filed on May 21, 2001.
(8) Incorporated by reference to Thinkpath's Registration Statement on Form
SB-2 filed on June 7, 2001.
(9) Incorporated by reference to Thinkpath's Registration Statement on Form
SB-2 filed on June 14, 2001.
(10) Filed herewith.
II-9
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to any charter provision, by-law,
contract arrangements, statute, or otherwise, the registrant has been advised
that in the opinion of the United States Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act of 1933, as
amended; (ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, as amended, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) For determining any liability under the Securities Act of 1933, as amended,
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h), under the Securities Act of 1933, as amended, as part of this
registration statement as of the time the United States Securities and Exchange
Commission declared it effective.
(5) For determining any liability under the Securities Act of 1933, as amended,
treat each post-effective amendment that contains a form of prospectus as a new
registration statement at that time as the initial bona fide offering of those
securities.
II-10
SIGNATURES
Under the requirements of the Securities Act, we certify that we have
reasonable grounds to believe that we meet all of the requirements for filing on
Form SB-2 and have duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized in the City of Toronto,
Ontario, Canada, on the 16th day of October, 2001.
THINKPATH INC.
By: /s/ Declan A. French
-------------------------------
Declan A. French
Chairman of the Board and Chief
Executive Officer
Under the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated
Signature Title Date
--------- ----- ----
/s/ Declan A. French* Chairman of the Board and Chief October 16, 2001
-------------------- Executive Officer
Declan A. French
/s/ Laurie Bradley* President October 16, 2001
------------------
Laurie Bradley
/s/ Kelly Hankinson* Chief Financial Officer, Secretary, October 16, 2001
------------------- Treasurer and Director
Kelly Hankinson
---------------------------- Director October 16, 2001
John Dunne
/s/ Arthur S. Marcus* Director October 16, 2001
--------------------
Arthur S. Marcus
/s/ Ronan McGrath*
---------------------------- Director October 16, 2001
Ronan McGrath
II-11
---------------------------- Director October 16, 2001
Joel Schoenfeld
Director October 16, 2001
------------------
Robert Escobio
* Power of Attorney granted to Declan A. French on June 7, 2001.
II-12
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
1.1 Form of Underwriting Agreement(1)
3.1 Bylaws of Thinkpath(1)
3.2 Articles of Organization dated February 11, 1994(1)
3.3 Articles of Amendment dated February 15, 1996(1)
3.4 Articles of Amendment dated April 15, 1998(1)
3.5 Articles of Amendment dated August 6, 1998(1)
3.6 Articles of Amendment dated January 19, 1999(1)
3.7 Articles of Amendment dated June 6, 2001(9)
4.2 Form of Underwriters' Warrant(1)
4.3 Specimen Common Share Certificate(1)
5.1 Opinion of Gersten, Savage & Kaplowitz, LLP(10)
10.1 Form of Financial Consulting Agreement(1)
10.2 1998 Stock Option Plan(1)
10.3(a) Lease of Thinkpath's headquarters in Toronto, Ontario(1)
10.3(b) Lease of Thinkpath's office in New York, New York(1)
10.3(c) Lease of Thinkpath's office in Etobicoke, Ontario(1)
10.3(d) Lease of Thinkpath's office in Scarborough, Ontario(1)
10.3(e) Lease of Thinkpath's office in Ottawa, Ontario(1)
10.4 Employment Agreement between Thinkpath Inc. and Declan A. French dated
August 1998(1)
10.5 Employment Agreement between Thinkpath and John A. Irwin dated May 18,
1998(1)
10.6 Employment Agreement between Thinkpath and John R. Wilson dated February
8, 1998(1)
10.7 Employment Agreement between Thinkpath and Roger W. Walters dated
September 16, 1999(2)
10.8 Form of consulting agreement for Thinkpath's independent contractors(1)
10.9 Form of services agreement for Thinkpath's customers(1)
10.10 Agreement for the acquisition of the capital stock of International
Career Specialists Ltd.(1)
10.11 Agreement for the acquisition of the capital stock of Systemsearch
Consulting Services Inc. and Systems PS Inc.(1)
10.12 Agreement for the acquisition of the capital stock of Cad Cam, Inc.(2)
10.13 License Agreement between Thinkpath and International Officer Centers
Corp. dated August 1, 1998(2)
10.14 License Agreement between Thinkpath.com Inc. and International Officer
Centers Corp. dated August 1, 1998(1)
10.15 Consulting Agreement between Thinkpath and Robert M. Rubin(1)
10.16 Form of Employment Agreement with Confidentiality Provision(1)
10.17 Asset Purchase Agreement between Thinkpath and Southport Consulting
Company(1)
10.18 2000 Stock Option Plan(3)
10.19 Share Purchase Agreement between Thinkpath and Micro Tech Professionals,
Inc. dated April 25, 2000(4)
10.20 Non-Binding Letter of Intent between Thinkpath and Aquila Holdings
Limited dated October 4, 2000(4)
10.21 Share Purchase Agreement between Thinkpath and TidalBeach Inc. dated
October 31, 2000(5)
10.22 Consulting Agreement between Thinkpath and Tsunami Trading Corp. d/b/a
Tsunami Financial Communications and International Consulting Group,
Inc. dated December 14, 2000(5)
10.23 2001 Stock Option Plan(7)
10.24 Share Purchase Agreement between Thinkpath, Alpha Capital AG and
Stonestreet, L.P dated April 18, 2001(8)
23.1 Consent of Schwartz Levitsky Feldman, llp, independent auditors.(10)
23.2 Consent of Gersten, Savage & Kaplowitz, LLP (incorporated into Exhibit
5.1)(10)
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(1) Incorporated by reference to Thinkpath's Registration Statement on Form SB-2
filed on May 26, 1999.
(2) Incorporated by reference to Thinkpath's report on Form 8-K filed on October
1, 1999.
(3) Incorporated by reference to Thinkpath's Proxy Statement on Form Def-14A
filed on May 22, 2000.
(4) Incorporated by reference to Thinkpath's Registration Statement on Form SB-2
filed on April 25, 2000.
(5) Incorporated by reference to Thinkpath's Registration Statement on Form SB-2
filed on January 12, 2001.
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(6) Incorporated by reference to Thinkpath's Form 10-KSB for the year ended
December 31, 2000 filed on April 3, 2001.
(7) Incorporated by reference to Thinkpath's Proxy Statement on Form Def-14A
filed on May 21, 2001.
(8) Incorporated by reference to Thinkpath's Registration Statement on Form
SB-2 filed on June 7, 2001.
(9) Incorporated by reference to Thinkpath's Registration Statement on Form
SB-2 filed on June 14, 2001.
(10) Filed herewith.
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