<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 20, 2000
Registration Statement No. 333-
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
THINKPATH.COM INC.
(Name of small business issuer as specified in its charter)
-----------
Ontario 7371 52-209027
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) I.D. No.)
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55 University Avenue
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, President
Arthur S. Marcus, Esq. THINKPATH.COM INC.
Gersten, Savage & Kaplowitz, LLP 55 University Avenue
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)
----------
Copies to:
----------
Jay M. Kaplowitz, Esq.
Arthur S. Marcus, Esq.
GERSTEN, SAVAGE & KAPLOWITZ, LLP
101 East 52nd Street, 9th floor
New York, New York 10022
(212) 752-9700
(212) 752-9713 (fax)
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]
<PAGE>
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
--------------------------------------------------------------------------------
Proposed
Maximum
Title of Each Class Amount Offering Proposed
of Securities Being Price Per Maximum Amount of
Being Registered Registered Security(1) Offering Price(1) Registration Fee
--------------------------------------------------------------------------------
Common Stock(2) 1,063,851 $2.438 $2,593,668.70 $684.73
Common Stock
Underlying
Warrants(3) 812,027 $2.438 $1,979,721.80 $522.65
Sub total 1,875,878 $4,573,390.50 $1,207.38
Amount Previously Paid $0
Amount Due $1,207.38
(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 13, 2000, $2.438.
(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 and
pursuant to the last reported sales price if the registrant's common
stock as quoted on the Nasdaq SmallCap Market on October 13, 2000,
$2.438
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.com Inc. and: (a) its wholly-owned subsidiaries: (i)
Systemsearch Consulting Services Inc., an Ontario corporation, (b) International
Career Specialists Ltd., an Ontario corporation, (c) Cad Cam, Inc., an Ohio
corporation, (d) Object Arts Inc., an Ontario corporation, and (e) Micro Tech
Professionals, Inc., a Massachusetts corporation; and its majority-owned
subsidiary E-Wink, Inc., a Delaware corporation. On February 24, 2000, we
changed our name from IT Staffing Ltd. to ThinkPath.com Inc.
<PAGE>
PRELIMINARY PROSPECTUS
Subject to Completion, Dated October 20, 2000
THINKPATH.COM INC.
1,875,878 Shares of Common Stock
This is an offering of an aggregate of 1,063,851 shares of common stock
of ThinkPath.com Inc., 1,063,851 of which may be sold and 812,027 of which may
be sold upon the exercise of warrants. 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, although we would receive
approximately $2,365,782.16 if all of the warrants are exercised. Our common
stock is traded on the Nasdaq SmallCap Market under the symbol "THTH" and on the
Boston Stock Exchange under the symbol "THP". On October 13, 2000, the last
reported sales price of the common stock on the Nasdaq SmallCap Market was
$2.438.
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 October__, 2000
<PAGE>
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.com Inc.'s headquarters are located in, and its officers,
directors and auditors are residents of, Canada and a substantial portion of
ThinkPath.com 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.com Inc. has been advised by its Canadian legal
counsel that there is doubt as to the enforceability in Canada against
ThinkPath.com 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.com
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.com
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.
ii
<PAGE>
EXCHANGE RATE DATA
ThinkPath.com 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 September 30, 2000, the exchange rate was
CDN$1.00 per US$0.672873.
Nine Months Ended
Year Ended December 31, September, 30
-------------------------- -----------------
1997 1998 1999 2000
---- ---- ---- ----
Rate at end of period $0.6999 $0.6533 $0.6928 $0.6729
Average rate during period 0.7227 0.6747 0.6731 $0.6794
High 0.7493 0.7121 0.6917 $0.6619
Low 0.6908 0.6307 0.6463 $0.6967
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary ............................................................. 1
The Offering ................................................................... 6
Summary Combined Financial Information ......................................... 7
Risk Factors.................................................................... 8
Our ability to manage rapid expansion and to integrate our business and
the business of Micro Tech Professionals, Inc. has not been tested and may not
be successful .................................................................. 8
Our growth will require substantial capital ........................... 8
Our failure to identify and engage qualified information technology,
engineering and technical training professionals will adversely affect our
business ....................................................................... 8
Because our information technology, engineering and technical training
professionals may terminate their employment with us at any time, we may not be
able to meet our customers' requirements ....................................... 9
Because of our relatively small size, we may not be able to compete
effectively in our industry .................................................... 9
Our expansion strategy may not result in success ...................... 9
We may be liable for payroll taxes and penalties in Canada because we
classify our information technology, engineering and technical training
professionals providing contract services as independent contractors ........... 10
Our operating results may vary from quarter to quarter, and, as a
result, we may fail to meet the expectations of our investors and analysts,
which may cause our stock price to fluctuate or decline ........................ 10
Our Web site may not be adequate to meet the growing needs of our
business ....................................................................... 11
Our Web site may be vulnerable to security breaches and similar threats
which could result in out liability for damages and harm to our reputation ..... 11
Our software product, Njoyn, may not work as intended, which could harm
our business ................................................................... 11
We may be held liable for the actions of our information technology,
engineering and technical training professionals when on assignment ............ 11
Because we have limited management, we depend upon our senior
management, and their loss or unavailability could put us at a competitive
disadvantage.................................................................... 11
Existing management will retain substantial influence over our
operations upon the consummation of this offering .............................. 11
Currency fluctuations may adversely affect our operating results ...... 12
Your proportionate ownership interest in us may be diluted upon the
conversion of the outstanding shares of Series A 8% Cumulative Convertible
Preferred Stock, the conversion of the Series B 8% Cumulative Convertible
Preferred Stock and the exercise of the warrants ............................... 12
1,889.354 or, 34.03% of our total outstanding shares, are restricted
but may be publicly sold pursuant to Rule 144k of the Securities Act of 1933, as
amended. This could cause the market price of our common stock to fluctuate
significantly, even if our business is doing well .............................. 12
We have not, and do not intend, to pay cash dividends in the
foreseeable future ............................................................. 13
Special Note Regarding Forward-Looking Statements .............................. 13
Use of Proceeds ................................................................ 14
Certain Market Information ..................................................... 14
Dividend Policy ................................................................ 14
Selected Financial Data ........................................................ 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations ..................................................................... 16
Business ....................................................................... 24
Board of Directors and Executive Officers ...................................... 41
Certain Relationships and Related Party Transactions ........................... 48
Principal Shareholders ......................................................... 50
Description of Securities ...................................................... 52
Certain United States and Canadian Federal Income Tax Considerations ........... 55
Investment Canada Act .......................................................... 58
Shares Eligible For Future Sale ................................................ 59
Selling Security Holders ....................................................... 60
Plan of Distribution ........................................................... 64
Legal Matters .................................................................. 65
Experts ........................................................................ 65
Where You Can Find Additional Information ...................................... 65
Financial Statements ........................................................... F-1
</TABLE>
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.
iv
<PAGE>
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
recruiting, project outsourcing, 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, Bell
Canada, Goldman Sachs, Chapters, Lucent Technologies, Cummins Engine, General
Motors, Xerox Corporation, American Express and Universal Industrial Corp.
(ESI). We have recently expanded our operations into the United States, through
among other things, our acquisitions of Cad Cam, Inc., Object Arts Inc. and
Micro Tech Professionals, Inc., and intend to develop an expanded network of
offices to provide our services throughout North America.
We have focused on the recruiting of quality information technology and
engineering professionals. We utilize established testing methods to ensure that
our professionals are properly qualified. We also review candidates' technical
backgrounds and conduct preliminary interviews prior to referring candidates to
our customers. By attracting the most qualified professionals, we believe that
we will be able to attract high quality customers who require the services of
such professionals.
Since inception, we have pursued a strategy of developing and utilizing
technology that we believe will provide us with a competitive advantage. As a
result, we believe that one of our primary competitive strengths is our
utilization of technology. We maintain a database of more than 50,000
information technology and engineering professionals and advertise on the
Internet to attract both candidates and customers. We have developed a
recruitment management product called Njoyn. Njoyn is a Web-based recruitment
technology, which automates and electronically manages every step of the
recruitment and hiring process.
Njoyn is designed to address the skills shortage and helps clients
satisfy their recruiting needs. Njoyn electronically manages and automates the
entire enterprise-wide recruiting and hiring program. Njoyn coordinates,
streamlines and manages all individual candidate sources and recruitment methods
in real time, including job board postings, company Web sites, newspaper
advertising, employee referrals, direct recruits and career fair. In addition,
Njoyn is able to satisfy the human resource professionals' increasing demand for
a wide range of critical metrics, including cost per hire and time per hire.
As a result of our recent acquisitions of Cad Cam, Inc., Object Arts
Inc. and Micro Tech Professionals, Inc., we now offer our clients project
outsourcing including technical publications and design engineering, as well as
technical training and consulting.
Our business objectives are to increase our share of the information
technology and engineering staffing services market in Canada and the United
States, as well as to establish a network of offices throughout such countries
which, when linked by means of the Internet, will allow us to provide our
customers with an array of information technology and engineering staffing
services. The primary components of the our strategy to achieve such objectives
are as follows:
- Leverage our customer base to attract and retain highly qualified
information technology and engineering professionals;
- Focus on niche markets;
<PAGE>
- Expand into new regional markets by opening new offices or acquiring
competitive or complementary companies;
- Continue to utilize the Internet and information technology to provide
a competitive advantage; and
- Develop and promote a managed services practice.
Recent Events
On December 30, 1999, we issued: (i) 15,000 shares of Series A 8%
Percent Cumulative Convertible Preferred Stock, no par value per share; and (ii)
warrants to purchase up to an aggregate of 475,000 shares of our common stock,
in consideration $1,500,000 pursuant to a private placement offering. Each share
of Series A 8% Cumulative Convertible Preferred Stock has a stated value of $100
per share.
The shares of Series A 8% Percent Cumulative Convertible Preferred
Stock are convertible into shares of our common stock at the option of the
holders the Series A 8% Percent Cumulative Convertible Preferred Stock, at any
time after issuance until either: (i) such shares of Series A 8% Percent
Cumulative Convertible Preferred Stock are converted at our option; or (ii) such
shares of Series A 8% Percent Cumulative Convertible Preferred Stock are
redeemed by us, under certain conditions, at any time after the effective date
of this registration statement.
The holders of the shares of Series A 8% Percent Cumulative Convertible
Preferred Stock are entitled to receive preferential dividends in cash, 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 8% simple interest per annum on the stated value per
share. Such are payable on a quarterly basis commencing on the quarter ending
March 31, 2000 when as and if declared, provided however, that the dividends
will be made in additional shares of Series A 8% Percent Cumulative Convertible
Preferred Stock at a rate of one share of Series A 8% Percent Cumulative
Convertible Preferred Stock for each $100 of such dividend not paid in cash.
Dividends may be paid at our option with shares of Series A 8% Percent
Cumulative Convertible Preferred Stock only if our common stock deliverable upon
the conversion of the Series A 8% Percent Cumulative Convertible Preferred Stock
will have been included for public resale in an effective registration statement
filed with the Securities and Exchange Commission on the dates such dividends
are payable and paid to the holders. The dividends shall be cumulative whether
or not earned and shall be cumulative from and after December 30, 1999.
The number of shares of our common stock into which the Series A 8%
Percent Cumulative Convertible Preferred Stock shall be convertible shall be
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) 90% of the
average "Closing Bid Prices" for the three trading days immediately preceding
December 30, 1999, or (y) 80% of the average of the three lowest "Closing Bid
Prices" for the ten trading days immediately preceding the conversion of the
respective shares of Series A 8% Percent Cumulative Convertible Preferred Stock.
The "Closing Bid Price" is defined as the closing bid price as reported on the
Nasdaq SmallCap Market or the principal market or exchange where our common
stock is then traded. The holders of the shares of Series A 8% Percent
Cumulative Convertible Preferred Stock may exercise their right to conversion
only if the aggregate stated value of the shares of Series A 8% Percent
Cumulative Convertible Preferred Stock to be converted is equal to at least
$5,000, unless if at the time of such conversion, the aggregate stated value of
all of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock
is less than $5,000, then the whole amount of the remaining shares of Series A
8% Percent Cumulative Convertible Preferred Stock may be converted.
2
<PAGE>
At any time after April 27, 2000, we have the option to redeem any or
all of the shares of Series A 8% Percent 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 of Series A 8% Percent Cumulative Convertible Preferred
Stock being redeemed plus the dollar amount of the accrued dividends, if the
Conversion Price of the shares of Series A 8% Percent Cumulative Convertible
Preferred Stock on the trading day prior to the date of redemption is less than
$2.
The 475,000 warrants issued in the December 1999 offering are
exercisable at any time and in any amount until December 30, 2004 at a purchase
price of $3.24 per share.
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 worth 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 worth of
our common stock to the existing shareholders of Object Arts Inc. Management
believes that Object Arts Inc.'s technical training expertise will enable
ThinkPath to offer a complete end-to-end skills gap solution to its customers.
On February 24, 2000, we changed our corporate name from IT Staffing
Ltd. to ThinkPath.com Inc. in order to more accurately reflect our expanded
suite of services.
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; 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. E-Wink,
Inc. is currently developing platform technology that will match company's
seeking venture capital with venture capital firms offering such venture
capital.
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 the Series B 8% Percent Cumulative Convertible Preferred Stock, at any
time after issuance until such shares of Series B 8% Percent Cumulative
Convertible Preferred Stock are redeemed by us, under certain conditions.
The holders of the shares of Series B 8% Percent Cumulative Convertible
Preferred Stock are entitled to receive preferential dividends in cash, 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 8% 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 B 8%
Percent Cumulative Convertible Preferred Stock shall be convertible shall be
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) $3.375, or
(y) 80% of the average of the three lowest "Closing Bid Prices" for the ten
trading days immediately preceding the conversion of the respective shares of
Series B 8% Percent Cumulative Convertible Preferred Stock. The "Closing Bid
Price" is defined as the closing bid price as reported on the Nasdaq SmallCap
Market or the principal market or exchange where our common stock is then traded
as reported by Bloomberg.
3
<PAGE>
At any time that the number of our shares of common stock issued (A)
upon conversion of the shares for Series B 8% Cumulative Convertible Preferred
Stock and (B) in lieu of dividend payments, shall equal 20% or more our
outstanding common stock, we are required to (x) redeem, at a price per share
equal to (A) the quotient of (i) $1,000 per share plus all accrued but unpaid
dividends and (ii) the Conversion Price as if the Series B8% Cumulative
Convertible Preferred Stock has been converted on the date of redemption,
multiplied by (B) the average Closing Bid Price of our common stock for the five
trading days immediately preceding the date of redemption.
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.
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, 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 up to an aggregate of $4,500,000 in a
combination of cash, notes payable and shares of our common stock, subject to
specific performance criteria be met. On the April 25, 2000, we paid to Denise
Dunne-Fushi, the sole shareholder of Micro Tech Professionals, Inc., $2,500,000,
of 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 is for a term of 1 year commencing on April 25, 2000, the
effective date of the acquisition, with an annual salary of $125,000 per year
and a bonus of $25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the
acquisition.
On July 7, 2000, we issued an aggregate of: (a) 5,000 shares of our
Series A 8% Cumulative 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 upon the same terms as described above. 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.
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.
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 280,093 shares of our
common stock in connection with the private placement offering. Such warrants
are exercisable until August 22, 2000 at an exercise price of $2.4614 per share.
4
<PAGE>
On September 13, 2000, we entered into an engagement agreement with
Burlington Capital Markets Inc. conditional on the successful integration of our
first acquisition through Burlington. We have agreed to sell to Burlington
Capital Markets an aggregate of 250,000 shares of our common stock at a cash
purchase price of $.01 per share. We have further agreed to issue warrants to
purchase an aggregate of 400,000 shares of our common stock in accordance with
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 are exercisable in whole or in part until 5 years from the date they
can first be exercised, and will contain a cashless exercise provision and
registration rights. Compensation will be paid to Burlington at a monthly fee of
$10,000 for a minimum of six months.
On September 21, 2000, we entered into a non-binding letter of intent
with TidalBeach Inc., a skills-management software developer. Pursuant to the
letter of intent, we will acquire all of the issued and outstanding capital
stock of TidalBeach Inc. from Mike Reid, its sole shareholder, in consideration
for up to 250,000 shares our common stock. We have agreed to use our best
efforts to register the shares of common stock within three months from the date
of issuance. The consummation of the transaction contemplated by the letter of
intent is subject to our due diligence investigation as well as several other
conditions.
On October 4, 2000, we entered into a non-binding letter of intent with
Aquila Holdings Limited, a European recruitment company. Pursuant to the letter
of intent, we will acquire all of the issued and outstanding capital stock of
Aquila Holdings Limited, and its wholly-owned subsidiary DPP International
Limited in consideration for up to an aggregate of (pound)2,500,000 in cash and
(pound)961,000 worth of our common stock. The consummation of the transaction
contemplated by the letter of intent is subject to our due diligence
investigation as well as several other conditions.
Our headquarters are located at 55 University Avenue, 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
<PAGE>
THE OFFERING
Common Stock Offered 1,875,878 shares of common stock. See
"Description of Securities."
Shares of Common Stock Outstanding 5,550,802
Use of Proceeds We will not receive any proceeds from
the sale of the shares of common stock
by the selling security holders,
although we will receive approximately
$2,365,782.16 if all of the warrants,
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"
Boston Stock Exchange: "THP"
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 us and
our business. See "Risk Factors."
6
<PAGE>
SUMMARY COMBINED FINANCIAL INFORMATION
The following selected statement of operations data is for the period
from January 1, 1997 through December 31, 1999. The selected balance sheet data
is for the period from January 1, 1998 through December 31, 1999. The statement
of operations and balance sheet data for the years ended December 31, 1997,
1998, and 1999 is derived from our financial statements and the related notes
included elsewhere in this prospectus audited by Scwhartz 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 December 31,
-----------------------
1997 1998 1999
---- ---- ----
(in thousands except per share data)
------------------------------------
Statement of Operations Data
Revenue $ 4,704,341 $12,502,560 $19,822,861
Income (loss) from Operations 193,529 466,511 341,534
Net income 138,408 351,190 228,720
Net income per share 0.11 0.18 0.08
Year Ended December 31,
-----------------------
(in thousands except per share data)
------------------------------------
1998 1999
---- ----
Balance Sheet Data
Working capital (161,432) (480,000)
Total Assets 4,848,777 19,113,766
Long-term debt 628,428 562,126
Total liabilities 3,062,584 10,042,038
Total stockholders' equity 1,786,193 9,071,728
7
<PAGE>
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.
Our ability to manage rapid expansion and to integrate our business and the
business of Micro Tech Professionals, Inc. has not been tested and may not be
successful.
Our recent expansion, which involves the acquisition of Micro Tech
Professionals, Inc. in April 2000 requires us to integrate Micro Tech
Professionals, Inc. with our own operations. This acquisition, together with any
other acquisitions we may make in the future, will place a substantial strain on
our administrative, operational and financial resources. In addition, we may
have difficulty in integrating their personnel and operations with ours. To
mange our growth, including the integration of our acquisitions, we must
implement systems and train and manage our employees. Because we have limited
management depth, we may have to employ experienced senior and middle management
personnel, and we may not be able to hire or retain qualified personnel.
Our growth will require substantial capital.
In order to develop our business, both internally and through
acquisitions, 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. At December 31, 1999 and June 30, 2000, we
had working capital deficiency of approximately $480,000 and $190,000,
respectively, and we estimate that capital requirements for the remainder of
2000 will be approximately $1,500,000, although it is possible that we may
require significantly more than that amount. Our failure to generate or raise
sufficient funds, may require us to delay or abandon some or all of our future
expansion plans or expenditures or reduce the scope of some or all of our
present operations, which could materially adversely effect our financial
condition, results of operations and cash flow. 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 any of these events, we may be unable to implement our current plans. In
the event that any future financing should take the form of equity securities,
the holders of our common stock may experience additional dilution
Our failure to identify and engage qualified information technology, engineering
and technical training professionals and consultants will adversely affect our
business.
Our business is dependent upon our identifying, hiring and retaining
qualified information technology, engineering and technical training
professionals and consultants. If we fail to identify 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 the following:
- information technology, engineering and technical training
professionals and consultants are in high demand worldwide, the demand
for such professionals is increasing and turnover in the industry is
very high compared with other industries;
- as we seek to expand we will require greater numbers of these
professionals; and
- the information technology services and training market is
characterized by rapid technological change, evolving industry
standards, changing client preferences and new product and service
introductions, which may increase the difficulty in identifying, hiring
and retaining qualified professionals.
8
<PAGE>
Because of the specialized nature of the placement market for
information technology, engineering and technical training professionals and
consultants, we are highly dependent upon our ability to identify and place
professionals possessing the technical skills and experience required by
employers. If we fail to do so, our business will be adversely affected.
Because our information technology, engineering and technical training
professionals and consultants may terminate their employment with us at any
time, we may not be able to meet our customers' requirements.
Because our revenue is dependent upon the number of information
technology, engineering and technical training professionals and consultants we
place on assignment, our success depends on our ability to attract and retain
qualified professionals with the technical skills and experience necessary to
meet our customers' requirements. If we are not able to provide our customers
with the technical personnel they require, our customers will seek to fill their
requirements from other companies. There is intense competition for information
technology and engineering professional, both from numerous staffing and
consulting companies such as us and from companies seeking to meet their own
requirements. As a result:
- We must compete with other companies in seeking to employ information
technology, engineering and technical training professionals and
consultants, including other staffing and consulting companies who are
engaged by the same customer as we are;
- We often employ the professionals 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 professionals have in the past and may in the future accept
assignments from other companies upon completion of their assignments
with us.
Because of our relatively small size, we may not be able to compete effectively
in our industry.
The information technology, engineering and technical training staffing
and consulting industry is highly competitive and fragmented and is
characterized by low barriers to entry. We compete for potential customers with
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 have longer
operating histories, significantly greater financial, marketing and human
resources, greater name recognition, a larger base of information technology,
engineering, and technical training and consulting professionals and customers
and a greater ability to respond quickly to changing customer requirements,
which may give such competitors a competitive advantage. We expect that
competition will increase, which could result in price reductions and reduced
margins, which could materially adversely affect our business, prospects,
financial condition and results of operations.
Our expansion strategy may not result in success.
Our expansion plans depend on our ability to enter new regional
markets, expand our existing operations and add additional areas of expertise.
This expansion is dependent on a number of factors, including our ability to
attract, hire, integrate and retain qualified employees, develop, recruit and
maintain a base of qualified professionals within each regional market and
accurately assess the demand for our services in such markets; and initiate,
develop and sustain corporate customer relationships. We cannot assure you that
we will be able to add qualified employees or enter new regional markets or that
our expansion strategy will be profitable to us. Furthermore, our failure to
expand into new markets could hinder our ability to attract multinational and
other large corporations which could have a material adverse effect on our
business, prospects, financial condition and results of operations.
9
<PAGE>
We may be liable for payroll taxes and penalties in Canada because we classify
our information technology, engineering and technical training professionals and
consultants providing contract services as independent contractors.
We treat our information technology, engineering, and technical
training professionals and consultants providing contract services in Canada as
independent contractors rather than employees. Accordingly, we have not withheld
payroll source deductions including, Canada Pension Plan, Employment Insurance
and Employer's Health Tax and we have not paid the employer's portion of these
taxes, and we have not recorded a reserve on our financial statements for such
taxes and penalties. If the taxing authorities in Canada determine that they are
employees we could be subject to significant taxes and penalties, which could
have a material adverse effect upon our financial condition and the results of
our operations. 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
cost of revenue. In the United States, all of our contract service professionals
are classified as employees and all relevant employee and employer payroll taxes
are withheld.
Our operating results may vary from quarter to quarter, and, as a result, we may
fail to meet the expectations of our investors and analysts, which may cause our
stock price to fluctuate or decline.
Our revenue and operating results have fluctuated significantly in the
past, and we expect that they will continue to fluctuate significantly in the
future due to a variety of factors, many of which are outside of our control.
These factors include, among others:
- the demand for our services;
- 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;
- changes in the mix of services offered, including the relative
contribution of e-business solutions services and information
technology consulting to our revenue and gross profit; and
- general economic factors.
Since our revenue is derived principally from the services of our
professionals, the utilization of our professionals has a direct effect upon our
operating results. A substantial portion of our operating expenses is related to
personnel costs, marketing programs and overhead, which cannot be adjusted
quickly and are therefore relatively fixed in the short term. Our operating
expense levels are based, in significant part, on our expectations of future
revenues on a quarterly basis, and such expectations may not be met.
Due to all of these factors and the other risks discussed in this
prospectus, you should not rely on period-to-period comparisons of our results
of operations as an indication of future performance. Furthermore, if our
results of operations fall below the expectations of public market analysts or
investors, the market price of our common stock is likely to decline.
10
<PAGE>
Our Web site may not be adequate to meet the growing needs of 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 be critical
to our reputation and our ability to attract and retain customers and technical
personnel and to maintain adequate customer service levels. Any system
interruptions or reduced performance of our Web site could materially adversely
affect our ability to attract new customers and technical personnel.
Our Web site may be vulnerable to security breaches and similar threats which
could result in our liability for damages and harm to our reputation.
Despite the implementation of network security measures, our Web site
is vulnerable to computer viruses, break-ins and similar disruptive problems
caused by Internet users. These occurrences could result in our liability for
damages, and our reputation could suffer. The circumvention of our security
measures may result in the misappropriation of such proprietary information. Any
such security breach could lead to interruptions and delays and the cessation of
service to our customers and could result in a decline in revenue and income.
Our software product, Njoyn, may not work as intended, which could harm our
business.
We are substantially dependent on Njoyn software, for the day to day
operation of our business. We cannot assure you that this software will function
as intended or that it will provide us with any competitive advantage. We may
not be able to successfully market Njoyn. Furthermore, if a market develops, the
Njoyn software may be used by our competitors and potential customers, which may
have the effect of reducing our revenue.
We may be held liable for the actions of our information technology, engineering
and technical training professionals and consultants when on assignment.
Although our customer agreements disclaim responsibility for the
conduct of information technology, engineering and technical training
professionals and consultants provided by us, we may be exposed to liability
with respect to actions taken by our professionals while on assignment, such as
damages caused by errors of our professionals, misuse of customer proprietary
information or theft of customer property. Although we maintain insurance
coverage, due to the nature of our assignments, we cannot assure you 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 being on assignment.
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 our key management personnel, particularly Declan A. French, our chairman of
the board and chief executive officer and Thomas E. Shoup, our president and
chief operating officer. The loss or unavailability of any of these key
employees could have a material adverse effect on our business, prospects,
financial condition and results of operations. 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. There can be no assurance that we will be able to attract and
retain the qualified personnel necessary for our business.
Existing 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 would will beneficially own approximately 1,879,707 shares, or 31.9% of
our common stock (excluding the exercise of warrants). As a result, they will
have the ability to elect our directors and determine the outcome of all matters
on which stockholders are entitled to vote.
11
<PAGE>
Currency fluctuations may adversely affect our operating results.
Revenue denominated in Canadian dollars accounted for 36% of our
revenue for the six months ended June 30, 2000, 70% for the year ended December
31, 1999, 95% for the year ended December 31, 1998, and 96% for the year ended
December 31, 1997. 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 were materially devalued against the
United States dollar, our operating results could be materially adversely
affected.
Your proportionate ownership interest in us may be diluted upon the conversion
of the outstanding shares of Series A 8%Cumulative Convertible Stock, the
conversion of the Series B 8% Cumulative Convertible Preferred Stock and the
exercise of the warrants.
In December 1999, we issued 15,000 shares of Series A 8% Cumulative
Convertible Preferred Stock and warrants to purchase 475,000 shares of common
stock at an exercise price of $3.24 per share in consideration of $1,500,000 and
in July 2000, we issued an additional 5,000 shares of Series A 8% Cumulative
Convertible Preferred Stock and warrants to purchase 225,000 shares of common
stock at an exercise price of $3.575 per share in consideration of $500,000,
which if converted and/or exercised will dilute your proportionate ownership
interest in us. As of October 13, 2000, there are 9,667 shares of Series A 8%
Cumulative Convertible Preferred Stock outstanding. The shares of Series A 8%
Cumulative Convertible Preferred Stock are convertible into shares of our common
stock at a conversion price equal to the lesser of (x) 90% of the average
closing bid prices of our common stock as reported on the Nasdaq SmallCap Market
for the three days immediately preceding December 31, 1999, or (y) 80% of the
average of the three lowest closing bid prices for the ten trading days
immediately preceding the conversion of the shares of the Series A 8% Cumulative
Convertible Preferred Stock.
In April 2000, we issued 1,500 shares of Series B 8% Cumulative
Convertible Preferred Stock, 2,500 shares of Series A 8% Cumulative Convertible
Preferred Stock, and warrants to purchase 350,000 shares of common stock at an
exercise price of $3.71 per share in consideration of $1,750,000, which if
converted and/or exercised will dilute your proportionate ownership interest in
us. As of October 13, 2000, there are 1,250 shares of Series B 8% Cumulative
Convertible Preferred Stock outstanding. The shares of Series B 8% Cumulative
Convertible Preferred Stock are convertible into shares of our common stock at a
conversion price equal to the lesser of (x) $3.375, or (y) 80% of the average of
the three lowest closing bid prices for the ten trading days immediately
preceding the conversion of the shares of the Series B 8% Cumulative Convertible
Preferred Stock. The shares of Series A 8% Cumulative Convertible Preferred
Stock are convertible into shares of our common stock at a conversion price
equal to the lesser of (x) 90% of the average closing bid prices of our common
stock as reported on the Nasdaq SmallCap Market for the three days immediately
preceding December 31, 1999, or (y) 80% of the average of the three lowest
closing bid prices for the ten trading days immediately preceding the conversion
of the shares of the Series A 8% Cumulative Convertible Preferred Stock.
Each conversion and/or exercise will reduce the per share value of your
shares of common stock and reduce your proportionate ownership interest in us.
1,889,354 or, 34.03% of our total outstanding shares are restricted but may be
publicly sold pursuant to Rule 144k of the Securities Act of 1933, as amended.
This could cause the market price of our common stock to fluctuate
significantly, even if our business is doing well.
As of October 13, 2000, we have 5,550,802 outstanding shares of common
stock, all of which may be resold in the public market immediately, subject to
applicable contractual restrictions. 34.03%, or 1,889,354 of our outstanding
shares are available for resale in the public market pursuant to Rule 144k of
the Securities Act of 1933, as amended. As shares of our common stock are sold
pursuant to Rule 144k, the market price of our common stock could fluctuate
significantly.
12
<PAGE>
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 One,
we will not pay dividends so long as our loan from Bank One remains 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 which 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.
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," "estimates," "believe,"
"intend" or "project" or the negative of these words or other variations on
these words or comparable terminology.
13
<PAGE>
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, although we will receive
approximately $2,365,782.16 if all of the warrants are exercised. If the
warrants 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" and on the Boston Stock
Exchange under the symbol "THP". As of October 13, 2000, we had 5,550,802 shares
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.
Common Stock
-------------
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 $2.547 $2.125
(Through October 13, 2000)
As of October 13, 2000, we had 118 holders of record and approximately
530 beneficial shareholders.
On October 13, 2000, the last sale price of our common stock as
reported on the Nasdaq SmallCap Market was $2.438.
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.
14
<PAGE>
SELECTED FINANCIAL DATA
The following selected statement of operations data is for the period
from January 1, 1997 through December 31, 1999. The selected balance sheet data
is for the period from January 1, 1998 through December 31, 1999. The statement
of operations and balance sheet data for the years ended December 31, 1997, 1998
and 1999 is derived from our financial statements and the related notes included
elsewhere in this prospectus audited by Scwhartz 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 December 31,
-----------------------
1997 1998 1999
---- ---- ----
(in thousands except per share data)
------------------------------------
Statement of Operations Data:
Revenue $ 4,704,341 $12,502,560 $19,822,861
Income (loss) from Operations 193,529 466,511 341,534
Net income 138,408 351,190 228,720
Net income per share 0.11 0.18 0.08
Year ended December 31,
-----------------------
1998 1999
---- ----
(in thousands except per share data)
------------------------------------
Balance Sheet Data:
Working capital (161,432) (480,000)
Total Assets 4,848,777 19,113,766
Long-term debt 628,428 562,126
Total liabilities 3,062,584 10,043,038
Total stockholders' equity 1,786,193 9,071,728
15
<PAGE>
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 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, including statements regarding ThinkPath's expectations,
intentions, beliefs or strategies regarding the future. Forward-looking
statements include ThinkPath's 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
ThinkPath on the date hereof, and ThinkPath assumes no obligation to update any
such forward-looking statement. It is important to note that ThinkPath's actual
results could differ materially from those in such forward-looking statements.
Overview
We are a global provider of information technology and engineering
recruiting, project outsourcing, 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, Bell
Canada, Goldman Sachs, Chapters, Lucent Technologies, Cummins Engine, General
Motors, Xerox Corporation, American Express and Universal Industrial Corp.
(ESI). We have recently expanded our operations into the United States, through
among other things, our acquisitions of Cad Cam, Inc. and Object Arts Inc., and
intend to develop an expanded network of offices to provide our services
throughout North America.
For fiscal 1999, our primary source of revenue was information
technology and placement services, representing 75% of total revenue. As a
result of our acquisition of Cad Cam, Inc., engineering recruitment and
placement services, and project outsourcing represented 18% and 6% of total
revenue, respectively. For the year ended December 31, 1997, the year ended
December 31, 1998, and the year ended December 31, 1999, we derived 96%, 95%,
and 70%, respectively, of our revenue in Canada and the remainder in the United
States. Our books and records are recorded in Canadian dollars. For purposes of
financial statement presentation, we convert balance sheet data to United States
dollars using the exchange rate in effect at the balance sheet date. Income and
expense accounts are translated using an average exchange rate prevailing during
the relevant reporting period. There can be no assurance that we would have been
able to exchange currency on the rates used in these calculations. We do not
engage in exchange rate hedging transactions. A material change in exchange
rates between United States and Canadian dollars could have a material effect on
our reported results.
For the year ended December 31, 1999, our services classified as
information technology and engineering recruiting and project outsourcing. Our
recruiting services consist of contract, permanent and executive search
placements on either a contingency or retainer basis. In the case of contract
services, we provide our customers with independent contractors or "contract
workers" who usually work under the supervision of the customer's management.
Generally, we enter into a time-and-materials contract with our customer whereby
the customer pays us an agreed upon hourly rate for the contract worker. We pay
the contract worker pursuant to a separate consulting agreement. The contract
worker generally receives between 75% and 80% of the amount paid to us by the
customer; however, such payment is usually not based on any formula and may vary
for different engagements. We seek to gain "preferred supplier status" with our
larger customers to secure a larger percentage of those customers' business.
While such status is likely to result in increased revenue and gross profit, it
is likely to reduce gross margin percentage because we are likely to accept a
lower hourly rate from our customers and there can be no assurance that we will
be able to reduce the hourly rate paid to our consultants. In the case of
permanent placement services, we identify and provide candidates t fill
permanent positions for our customers.
16
<PAGE>
Revenue from contract services is recognized as services are provided.
Permanent placement revenue is recognized when the successful candidate
commences employment. Searches on a contingency basis are paid only if we are
successful in placing a candidate in a position. Searches on a retained basis
are paid by a non-refundable portion of the fee prior to performing any
services, with the remainder as the position is filled.
As a result of our acquisition of Cad Cam, Inc., we now perform project
outsourcing for customers on a project by project basis whereby we will be
engaged to complete a particular, specified project. We hire full-time employees
to supervise these projects. These projects are billed on a time-and-materials
basis or charged a fixed price for the project. If we charge a fixed price for a
project, we will be required to estimate the total costs involved in the project
and formulate a bid that contains an adequate profit margin. If we are unable to
accurately predict the costs of such a project, or the costs of the project
change due to unanticipated circumstances, which may be circumstances that are
beyond our control, we may earn lower profit margins or suffer a loss on a given
project.
Gross profit is calculated by subtracting fees ad benefits paid to
contractors from net revenue. We do not attribute any direct costs to permanent
placement services; therefore the gross profit margin on such services is 100%
of revenue. As a result, the addition of permanent placement revenue to contract
services revenue has a significant effect on our gross profit margin as a whole.
We anticipate expanding into new regional markets by establishing new
offices or by acquiring or investing in complementary or competitive companies.
We have identified three additional acquisition candidates and have executed
non-binding letters of intent with respect to such acquisition candidates. We
expect the cost of opening and funding a new office to range from $200,000 to
$500,000, depending on the size of the office and the costs of doing business in
the city in which the office is to be located. Such costs will primarily consist
of leasing office space, purchasing or leasing office equipment and computer
hardware and other related expenses incurred prior to the commencement of
operations in new locations. Such costs also include operating expenses, such as
payroll and advertising, which are often incurred prior to such time that the
new office is able to generate significant cash flow from operations. The
opening of new offices in new regional markets results in increased operating
expenses including, but not limited to, salaries, equipment, insurance,
marketing and public relations. Senior management also devotes resources to
training and management support. Based on the experience of our principals, we
expect newly opened offices to become productive within 6 to 12 months of
opening. Although there can be no assurance that such expectations will be
satisfied, our expectations in terms of productivity for new offices by the 12th
month of operations are: 30 contractors and between $30,000 to $50,000 in
permanent placement sales per month with annual revenues of approximately
$450,000. We have in the past and are likely to utilize acquisitions as an
attempt to avoid or limit these costs, but we incur other costs as a result of
any acquisitions, including funding the purchase price and expenses related to
the integration of operations and training of new employees. With regard to
previous acquisitions, integration costs were expensed in the period that they
were incurred and we expect to continue to do so with future acquisitions. Our
current acquisition targets are small companies which can benefit from our
advanced information technology and other operating systems. There can be no
assurance that integrating our operations with those of acquired companies will
result in improvements in such companies' operations or increased revenue from
such operations.
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 174,551 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 French, our Chief Executive Officer 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.
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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 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 Mr. Michael Carrazza for $50,000 in cash and
40,000 shares of our common stock.
On September 16, 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 worth of our common stock to be issued to Roger Walters, Cad Cam,
Inc.'s president. As part of the transaction, Mr. Walters was elected to serve
as one of our directors. The share purchase agreement was executed on January 1,
1999 and the transaction was effective as of September 16, 1999. Mr. Walters was
not affiliated with us prior to the acquisition.
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 worth 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 worth of
our common stock to the existing shareholders of Object Arts Inc. Management
believes that Object Arts Inc.'s technical training expertise will enable
ThinkPath to offer a complete end-to-end skills gap solution to its customers.
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; 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 5 years. E-Wink, Inc.
is currently developing platform technology that will match company's seeking
venture capital with venture capital firms offering such venture capital.
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 up to an aggregate of $4,500,000 in a
combination of cash, notes payable and shares of our common stock, subject to
specific performance criteria be met. On the 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 Denise
Dunne-Fushi, the former President of Micro Tech Professionals, Inc. Such
employment agreement is for a term of 1 year commencing on April 25, 2000, the
effective date of the acquisition, with an annual salary of $125,000 per year
and a bonus of $25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the
acquisition.
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 280,093 shares of our
common stock in connection with the private placement offering. Such warrants
are exercisable until August 22, 2000 at an exercise price of $2.4614 per share.
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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,
engineering and technical training 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 us which may provide such
competitors with a competitive advantage when compared to us. 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 us. 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,
there can be no assurance that we will be able to compete successfully against
current and future competitors or that competitive pressures faced by us 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 is 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.
Each acquisition was 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.,
Object Arts Inc. and Micro Tech Professionals, Inc., we recorded $449,000,
$851,000, $5,520,000, $1,500,000 and $3,700,000 respectively, in goodwill, which
is being amortized over 30 years in accordance with generally accepted
accounting principles as applied in the United States.
In the Consolidated Financial Statements and the Notes included in this
prospectus, the results of Cad Cam, Inc, are reflected from October 1, 1999.
Revenue and net income figures reported for June 30, 1999 and September 30, 199
were prepared on a pro forma basis as though Cad Cam, Inc. had been included
from January 1, 1999. The pro forma financial information reported in the Notes
to the Consolidated Financial Statements also includes the operations of Object
Arts Inc. from January 1, 1999. During the first six months of the year, Object
Arts Inc. experienced significant losses directly attributable to a failed
software venture. The pro forma consolidated net loss reported at December 31,
1999 is a result of the losses of Object Arts Inc at June 30, 1999 coupled with
significant restructuring and balance sheet adjustments related to our
acquisition of Object Arts Inc.
Results of Operations
The following table presents certain of our financial data as a
percentage of our revenue based on information derived from our financial
statements.
Six Months
December 31, Ended June 30,
----------------------- --------------
1997 1998 1999 2000
---- ---- ---- ----
Sales 100% 100% 100% 100%
Costs of Services 61% 61% 63% 61%
Gross profit 39% 39% 37% 39%
Operating Expenses 34% 36% 36% 34%
Income from operations 4% 4% 2% 5%
Net income 3% 3% 1% 2%
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The Six Months Ended June 30, 2000 Compared to the Six Months Ended June 30,
1999
Revenue. Revenue for the six months ended June 30, 2000 increased by
$10,210,000 or 88%, to $21,810,000, as compared to $11,600,000 for the six
months ended June 30, 1999. The increase is primarily attributable to the added
revenues of Cad Cam, Inc. and Micro Tech Professionals, Inc. Cad Cam, Inc. was
acquired in September 1999 and had sales of $10,160,000 for the six months ended
June 30, 2000. Micro Tech Professionals, Inc. was acquired effective April 1,
2000 and had sales of $1,740,000 for the three months ended June 30, 2000. Also
a result of these acquisitions, the Company's revenues from the United States
for the six months ended June 30, 2000 increased by $10,440,000, or 288%, to
$14,070,000, as compared to $3,630,000 for the six months ended June 30, 1999.
Costs of Contracts Sold. Cost of Contracts Sold represents all fees,
benefits and expenses paid to contractors and technical instructors. The costs
of contracts sold for the six months ended June 30, 2000 increased by
$6,130,000, or 86%, to $13,260,000, as compared to $7,130,000 for the six months
ended June 30, 1999. This increase was due to the increased volume of contract
services, largely a result of the acquisitions of Cad Cam, Inc. and Micro Tech
Professionals, Inc. As a percentage of revenue, the cost of contracts sold
decreased from 62% in 1999 to 61% in 2000, as a result of the acquisition of
Object Arts Inc. and the higher margins afforded to technical training.
Gross Profit. Gross profit is calculated by subtracting all fees,
benefits and expenses paid to contractors and technical instructors from net
revenue. The Company does not attribute any direct costs to permanent placement
services or mentoring services. Gross profit for the six months ended June 30,
2000 increased by $4,100,000, or 92%, to $8,560,000, as compared to $4,460,000
for the six months ended June 30, 1999. This increase was attributable to the
aforementioned increase in revenue during the six months ended June 30, 2000. As
a percentage of revenue, gross profit increased to 39% for the six months ended
June 30, 2000 from 38% for the six months ended June 30, 1999, as a result of
the decrease in the cost of contracts sold.
Operating Expenses. Operating expenses include expenses for
administrative and management benefits and salaries, advertising and promotion,
office and general, interest, professional fees and occupancy costs. Operating
expenses for the six months ended June 30, 2000 increased by $3,330,000, or 80%,
to $7,450,000, as compared to $4,150,000 for the six months ended June 30, 1999.
This increase was primarily attributable to the increase in administrative
expenses at the corporate level required to support the increasing number of
locations and volume of transactions. As a percentage of revenue however,
operating expenses decreased from 36% for the six months ended June 30, 1999 to
34% for the six months ended June 30, 2000.
Net Income. Net income for the six months ended June 30, 2000 increased
by $190,000 or 119%, to $350,000, as compared to $160,000 for the six months
ended June 30, 1999. As a percentage of revenue, net income increased to 1.6%
for the six months ended June 30, 2000 from 1.4% for the six months ended June
30, 1999. Amortization expense increased $570,000 or 407% from $140,000 for the
six months ended June 30, 1999 to $710,000 for the six months ended June 30,
2000. This increase is primarily attributable to the increase in capital assets,
the increase in the acquisition of other assets, and the increase of goodwill.
Interest expense increased by $230,000 or 121% to $420,000 for the six months
ended June 30, 2000 from $190,000 for the six months ended June 30, 1999. This
increase is a result of the Company's increase in short-term and long-term debt.
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The Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Revenue. Revenue for the year ended December 31, 1999 increased by
$7,300,000 or 59%, to $19,800,000, as compared to $12,500,000 for the year ended
December 31, 1998. The increase is primarily attributable to the acquisition
effective September 16, 1999 of Cad Cam, Inc., which had sales of $5,100,000 for
the three-month period ending December 31, 1999 and $21,200,000 for twelve-month
period ending December 31, 1999.
Cost of Contract Services Sold. The Cost of Contract Services Sold for
the year ended December 31, 1999 increased by $4,900,000, or 65%, to
$12,500,000, as compared to $7,500,000 for the year ended December 31, 1998.
This increase was due to the increased volume of contract services. As a
percentage of revenue, the Cost of Contract Services Sold increased marginally
from 61% in 1998 to 63% in 1999. The increase in the Cost of Contract Services
Sold as a percentage of revenue is a result of the associated costs of Cad Cam,
Inc.'s contractors who are treated as employees, and thus are entitled to
benefits, overtime and holiday pay.
Gross Profit. Gross profit for the year ended December 31, 1999
increased by $2,300,000, or 48%, to $7,200,000, as compared to $4,900,00 for the
year ended December 31, 1998. This increase was attributable to the
aforementioned increase in revenue during the year ended December 31, 1999. As a
percentage of revenue, gross profit decreased from 39% for the year ended
December 31, 1998 to 38% for the year ended December 31, 1999. This decrease was
a result of the decline in permanent placement sales and the dramatic increase
in contract sales, primarily due to the acquisition of Cad Cam, Inc.
Operating Expenses. Operating expenses for the year ended December 31,
1999 increased by $2,700,000, or 61%, to $7,100,000, as compared to $4,400,000
for the year ended December 31, 1998. This increase was primarily attributable
to the increase in administrative expenses at the corporate level to support the
increasing number of locations and volume of transactions. As a percentage of
revenue however, operating expenses remained consistent at 36% for the year
ended December 31, 1998 and for the year ended December 31, 1999.
Accounts Receivable. We had accounts receivable of $4,900,000 for the
year ended December 31, 1999 as compared to $2,200,000 for the year ended
December 31, 1998. Accounts receivable represented 25% of revenues for the year
ended December 31, 1999 as compared to 17% for the year ended December 31, 1998.
Net Income. Net income for the year ended December 31, 1999 decreased
by $120,000, or 34% to $230,000 as compared to $350,000 for the year ended
December 31, 1998 due to costs associated with the integration and
infrastructure buildup of the new acquisitions and offices. As a percentage of
revenue, net income decreased from 3% in 1998 to 1% in 1999. In fiscal 1999,
amortization expense increased 188% to $750,000 from $190,000 in fiscal 1998.
This increase is primarily attributable to the increase in capital assets,
deferred costs associated with the Njoyn, and the acquisition of goodwill. In
fiscal 1999, interest expense increased 271% to $330,000 from $110,000 in fiscal
1998. This increase is a result of our increased short-term and long-term debt.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Revenue. Revenue for year ended December 31, 1998 increased by
$7,800,000, or 166%, to $12,500,000, as compared to $4,700,000 for the year
ended December 31, 1997. The increase is primarily attributable to the
acquisition effective January 1, 1998 of International Career Specialists Ltd.,
which had sales of $4,380,000 million for the year ended December 31, 1998. Also
contributing to the increase was an increase of $530,000 in the sales of
Systemsearch Consulting Services Inc. as a result of improvements in operations
since it was acquired by us effective January 2, 1997, and growth in the
contract sales in our Toronto office. Revenue from contract services and
permanent placement services accounted for 82% and 18%, respectively, of revenue
for the year ended December 31, 1998 as compared to 79% and 21%, respectively,
for the year ended December 31, 1997.
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Cost of Contracts Sold. Cost of Contracts Sold for the year ended
December 31, 1998 increased by $4,700,000, or 163%, to $7,600,000, as compared
to $2,900,000 for the year ended December 31, 1997. This increase was due to the
increased volume of contract services. As a percentage of revenue from contract
services, Cost of Contracts Sold decreased from 77% as a result of a higher
margin mix of contractors placed.
Gross Profit. Gross profit for the year ended December 31, 1998
increased by $3,100,000, or 170%, to $4,900,000, as compared to $1,800,000 for
the year ended December 31, 1997. This increase was attributable to the
aforementioned increase in revenue during the year ended December 31, 1998. As a
percentage of revenue, gross profit increased to 39.2% for the year ended
December 31, 1998 as compared to 38.6% for the year ended December 31, 1997.
This increase was due to the slight decrease in the percentage of revenue which
was derived from contract services.
Operating Expenses. Operating expenses for the year ended December 31,
1998 increased by $2,800,000, or 173%, to $4,400,000, as compared to $1,600,000
for the year ended December 31, 1997. This increase was primarily attributable
to increases of $1,861,553 in selling expenses and $980,934 in administrative
expenses at International Career Specialists Ltd. during the year ended December
31, 1998. Administrative expenses at the ThinkPath Division also increased as we
expanded its infrastructure to support operations from multiple locations and
operated additional offices. As a percentage of revenue, operating costs
increased to 36% for the year ended December 31, 1998 from 34% for the year
ended December 31, 1997 due to an increase in the number of locations and volume
of transactions.
Accounts Receivable. We had accounts receivable of $2,184,783 for the
year ended December 31, 1998, as compared to $791,427 for the year ended
December 31, 19997. Accounts receivable represented 17.5% of revenues for the
year ended December 31, 1998 as compared to 16.8% in the year ended December 31,
1997.
Net Income. Net income for the year ended December 31, 1998 increased
by $212,782, or 154% to $351,190, as compared to $138,408 for the year ended
December 31, 1997 due to, among other things, the reasons enumerated above.
Liquidity and Capital Resources
Our primary sources of cash and cash flow from operations were our
credit lines with Toronto Dominion Bank and Provident Bank and proceeds from a
private placement. At June 30, 2000, we had cash and cash equivalents of
$3,130,000 and a working capital deficiency of $190,000. During the six months
ended June 30, 2000, we had a cash flow deficiency from operations of
$1,300,000, due primarily to an increase in accounts receivable. At June 30,
1999, we had cash and cash equivalents of $4,000,000 and a working capital of
$3,380,000. During the six months ended June 30, 1999, we had a cash flow
deficiency from operations of $3,670,000, due primarily to an increase in
short-term investments.
Our arrangement with the Toronto-Dominion Bank allowed for an operating
line, payable on demand, of up to $1,400,000. At June 30, 2000, there was
$1,300,000 outstanding on this line. In addition, we had an operating line with
Provident Bank, payable on demand, up to a maximum of $5,000,000. At June 30,
2000, there was $3,940,000 outstanding on the line with Provident Bank. At June
30, 2000, we had a total of $600,000 due to the Business Development Bank of
Canada pursuant to seven separate loans.
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.
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<PAGE>
Our financing activities include borrowings and repayments under its
bank financing agreements, issuance of and payments against installment notes
used to finance acquisitions. For the six months ended June 30, 2000, we had
cash flow from financing activities of $3,280,000, attributable to an increase
in bank indebtedness of $1,150,000 and proceeds of $1,580,000 from the issuance
of preferred stock. For the six months ended June 30, 1999, we had cash flow
from financing activities of $4,600,000, attributable to an increase in bank
indebtedness of $1,120,000 and proceeds of $3,600,000 from the issuance of
common stock.
On July 7, 2000, we issued an aggregate of: (a) 5,000 shares of our
Series A 8% Cumulative Convertible Preferred Stock; and (b) warrants to purchase
up to an aggregate of 225,000 shares of our common stock, in consideration
$500,000 pursuant to the exercise of our option granted to us in the December
1999 a private placement offering upon the same terms 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.
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 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 280,093 shares of our common stock in connection with the private
placement offering. Such warrants are exercisable until August 22, 2000 at an
exercise price of $2.4614 per share.
During the six months ended June 30, 2000 the we had a cash flow
deficit from investing activities of $2,810,000, attributable to the acquisition
of capital assets and other assets related to Njoyn formerly known as the GTS
(our proprietary Internet-based recruiting and information management tool),
infrastructure buildup and cash payments for subsidiaries. During the six months
ended June 30, 1999, we had a cash flow deficit from investing activities of
$820,000, attributable to the acquisition of capital assets.
Our working capital requirements consist primarily of the financing of
accounts receivable. While there can be no assurances in this regard, we expect
that internally generated cash plus the bank revolving line of credit with Bank
One will be sufficient to support our working capital needs, our fixed payments
and other short-term obligations. We will continue to identify and participate
in financing activities on a debt or equity basis to fund its internal growth,
marketing and development of Njoyn and strategic acquisitions.
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 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.
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BUSINESS
Overview
We are a global provider of information technology and engineering
recruiting, project outsourcing, 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, Bell
Canada, Goldman Sachs, Chapters, Lucent Technologies, Cummins Engine, General
Motors, Xerox Corporation, American Express and Universal Industrial Corp.
(ESI). We have recently expanded our operations into the United States, through
among other things, our acquisitions of Cad Cam, Inc. and Object Arts Inc., and
intend to develop an expanded network of offices to provide our services
throughout North America.
We have focused on the recruiting of quality information technology and
engineering professionals. We utilize established testing methods to ensure that
our professionals are properly qualified. We also review candidates' technical
backgrounds and conduct preliminary interviews prior to referring candidates to
our customers. By attracting the most qualified professionals, we believe that
we will be able to attract high quality customers who require the services of
such professionals.
Since inception, we have pursued a strategy of developing and utilizing
technology that we believe will provide us with a competitive advantage. As a
result, we believe that one of our primary competitive strengths is our
utilization of technology. We maintain a database of more than 50,000
information technology and engineering professionals and advertise on the
Internet to attract both candidates and customers. We have developed a
recruitment management product called Njoyn. Njoyn is a Web-based recruitment
technology, which automates and electronically manages every step of the
recruitment and hiring process.
Njoyn is designed to address the skills shortage and helps clients
satisfy their recruiting needs. Njoyn electronically manages and automates the
entire enterprise-wide recruiting and hiring program. Njoyn coordinates,
streamlines and manages all individual candidate sources and recruitment methods
in real time, including job board postings, company Web sites, newspaper
advertising, employee referrals, direct recruits and career fair. In addition,
Njoyn is able to satisfy the human resource professionals' increasing demand for
a wide range of critical metrics, including cost per hire and time per hire.
As a result of our recent acquisitions of Cad Cam, Inc., Object Arts
Inc. and Micro Tech Professionals, Inc., we now offer our clients project
outsourcing including Technical Publications and Design Engineering, as well as
technical training and consulting.
We were incorporated under the laws of the Province of Ontario, Canada
in 1994.
Industry Background
The staffing industry has experienced significant growth in recent
years in response to the increased popularity of outsourcing of many staffing
requirements. This growth has been driven by employers who have sought to
convert personnel costs from fixed to variable in nature by reducing their
permanent staff and supplementing their workforce with contract employees for
specific projects, peak work loads and other needs. The use of flexible staffing
services has allowed employers to improve productivity, outsource specialized
skills and avoid the negative effects of layoffs. This trend has accelerated
with the pace of technological change and greater global competitive pressures.
Regulations governing employee benefits, insurance and retirement plans, as well
as the high cost of hiring, laying off and terminating permanent employees, have
prompted many employers to take advantage of the flexibility offered through
contract staffing arrangements. According to the Staffing Industry Report, a
leading industry publication, revenue for the year ended December 31, 1997 for
information technology staffing services in the United States is estimated to
have been $14.8 billion, a 27% increase over such revenues for the year ended
December 31, 1996. According to an 1998 IDC Canada survey, an independent
Canadian industry publication, the Canadian Information Technology services
industry grew by more than 11% in 1997, reaching Cdn$11.5 billion in revenues,
an increase of 11.5% over such revenues for the year ended December 31, 1996,
and is expected to grow at a compounded annual rate of 12.1% through 2001.
24
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The high technology industry as a whole continues to experience
substantial growth as constant innovations, such as open and distributed
computing, client/server technology, the Internet, relational databases and
object-oriented programming, shortens product lifecycles and accelerates the
demand for computer-related products. These trends, combined with the intense
competition faced by high technology companies, have put considerable pressure
on such companies to shorten the time-to-market of their products. The
development of these next generation products often requires highly specialized
technical talent which may not be available internally. This need for
information technology professionals is particularly critical during the period
prior to the release of new software or hardware products. As a result, these
high technology companies are frequently utilizing supplemental sources of
information technology professionals with expertise in current technologies.
As new technologies are developed and introduced, businesses are
attempting to integrate and implement these technologies into their already
complex information technology systems. As these systems are being deployed on
an enterprise-wide basis and on multiple hardware and software platforms, the
process of systems design and implementation has become more complex. As a
result, businesses are forced to find qualified information technology
professionals to design, develop, deploy and maintain their systems. Frequently,
however, qualified information technology professionals do not exist internally
or it may be impractical to re-deploy and retrain internal personnel.
Consequently, these businesses are increasingly seeking to augment their staffs
with information technology professionals skilled in the management and
operation of such systems.
We believe that the growth of the Internet is likely to contribute to
the demand for information technology professionals. North American companies
are increasingly establishing or maintaining a presence on the Internet.
Although many companies outsource to Web site maintenance companies, others
retain direct control of their Web sites and may utilize contract workers to
establish and maintain such sites.
Despite increased demand for information technology professionals,
there is a shortage of information technology professionals proficient in the
most current computer languages and applications. According to the Information
Technology Association of America, recent studies indicate that the United
States has a shortage of approximately 346,000 information technology
professionals. According to a study performed by the KPMG/CATA Alliance, Canada
has a shortage of between 20,000 and 30,000 information technology
professionals. The studies also suggest that the shortfall is growing. Due to
the high demand for their services, many information technology professionals
have a variety of opportunities in the job market and an increasing number are
attracted to the benefits of working on a contract basis. Such benefits include
more flexible work schedules and the opportunity to work with emerging and
challenging technologies in a variety of industries.
We believe that to address their increasing demand for contract and
permanent information technology and engineering professionals, both research
and development departments of technology companies and information technology
departments of large corporations are turning to information technology and
engineering staffing companies to augment their existing operations.
Technology-dependent companies are increasingly utilizing outside consultants
to: (i) meet critical production deadlines; (ii) focus on their core business
and avoid devoting valuable time to the recruiting and hiring processes; (iii)
access specialized technical skills; (iv) better match staffing levels to
current needs; and (v) reduce the costs of recruiting, training and terminating
employees.
Business Strategy
Our business objectives are to increase our share of the information
technology and engineering staffing services market in Canada and the United
States, as well as to establish a network of offices throughout such countries
which, when linked by means of the Internet, will allow us to provide our
customers with an array of information staffing services. The primary components
of our strategy to achieve such objectives are as follows:
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Leverage Client Base to Attract and Retain Highly Qualified Information
Technology and Engineering Professionals
A key element of our success has been our ability to attract and retain
highly qualified information technology and engineering professionals. We
believe that the primary reason that we can attract such professionals is due to
our high quality customer base, which allows us the opportunity to identify and
deliver high quality assignments involving leading-edge technologies.
Additionally, we believe that we have developed a reputation among information
technology professionals for efficient and high quality placements by focusing
on an information technology professional's particular field of technical
specialization and providing access for information technology professionals to
cash compensation levels comparable to, or higher than, that of similarly
skilled, full-time employees.
As our high quality clients have allowed us to attract a large number
of qualified information technology and engineering professionals, our database
of information technology and engineering professionals, in turn, has allowed us
to increase our number of clients. We believe that this cyclical phenomenon in
the recruiting business creates the opportunity for significant growth it
expands and implements the other facets of our business plan.
Focus on Niche Markets
We believe that our expertise in the information technology and
engineering industry provides us with a competitive advantage over recruiting
firms that do not utilize information technology specialists in their
recruiting. The Staffing Report On-Line, an on-line magazine for the employment
and temporary service industry, views the information technology staffing
business as distinctly different from traditional staffing businesses. Our
recruiters follow information technology industry trends, are usually
knowledgeable in the information technology and engineering areas and have
access to our databases of information technology and engineering professionals,
all of which enables them to provide their customers with candidates who will
satisfy a particular client's requirements.
We believe that developing niche specialties will enhance our
reputation as a whole and create opportunities for us to establish relationships
with new customers who then may utilize us to locate information technology
professionals with other skills.
Expand into New Regional Markets
As opportunities arise, we intend to expand into certain markets by
means of acquisition, but believe that most expansion will come from the
establishment of new offices. We intend to establish such offices by hiring
experienced recruiters familiar with the local markets and providing them access
to our existing group of information technology professionals and customers by
means of the Internet. By hiring local recruiters, we believe that we will be
able to attract local clients and information technology professionals who may
not have been previously familiar with us. We believe that such recruiters will
find us to be an attractive place to work because of our existing relationships
with multinational and other large corporate clients, our good reputation among
information technology professionals, our quality information technology system
and our incentive based compensation package which will generally combine base
salary, bonuses, commissions and incentive stock options.
Where we deem it more cost effective, or when a particular acquisition
candidate will provide us with a competitive advantage, we may enter a new
regional market by acquiring an existing information technology staffing
company. We intend to focus on small acquisition targets who will be able to
benefit from our strong information technology and operating systems.
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Continue to Utilize the Internet and Information Technology
We believe that our use of technology provides us with a competitive
advantage over many of our competitors. We utilize our Njoyn software to operate
our database and allow recruiters to use a query-based system that matches the
skill set and employment preferences of the information technology professionals
with the needs of the customer. This system also tracks other information, such
as average salaries of a particular position, which enables us to provide
valuable advice to its clients in selecting the proper information technology
professional. Our information technology professional database and recruiting
software is available to our employees in other cities through our fully secure
Intranet system. For example, a recruiter in a new office in Austin, Texas could
have complete access to our information technology in Toronto, Ontario. We
believe that this will enable us to open new offices that are quickly ready to
provide services to customers without incurring significant information
technology start-up costs. In smaller markets, we intend to utilize our
information technology system to create lightly staffed "virtual offices" that
rely on our Toronto, Ontario office for all administrative and many operating
functions.
We utilize the Internet to promote our services and to provide
information technology and engineering professionals with a complete listing of
available employment opportunities. Information technology and engineering
professionals can e-mail their resumes to our recruiters and, by completing an
on-line form, enter themselves into our database
We have developed a recruitment management product called Njoyn. Njoyn
is a Web-based recruitment technology which automates and electronically manages
every step of the recruitment and hiring process. Njoyn reduces resume overload
by pre-screening candidates with automated filtering mechanisms; automates job
postings to external job boards and news groups; manages a company's recruitment
Web site and internal posting and referral programs; handles all administrative
details such as interview scheduling and correspondence; and provides an
elaborate reporting facility to calculate hiring costs. The technology is hosted
by us and runs entirely over the Internet.
Develop and Promote a Managed Services Practice
We intend to form a team of consultants who will aid our customers in
determining their information technology staffing needs. We believe that this
will provide us with a competitive advantage when compared with traditional
recruiting firms. Furthermore, we believe that Managed Services could provide us
with an additional source of revenue, which could be particularly important if
companies utilize Njoyn and Internet sources to reduce their reliance on
recruiting firms.
Capitalize on Year 2000 and Other Opportunities
Due to a once-common programming standard that represents years using
two-digits, many computer systems and software products, unless upgraded, may
not function properly in the year 2000. The problem may result in the inability
of computer systems to properly recognize date-sensitive data and may result in
the production of erroneous information or system failure.
Many companies rely on contract workers to review their computer
systems and make necessary changes to avoid the potential Year 2000 problems.
Contract workers are ideal for this task because it is likely to be a time
consuming and complicated, yet temporary, project. We will continue to exploit
the Year 2000 issue as an opportunity to develop additional customer
relationships and to expand the scope of our contract work on a
project-by-project basis.
We believe that computer systems will require modifications to be able
to properly record data changes and companies may rely on contract workers and
consulting teams to implement these changes. We have been and intend to continue
to capitalize on the need for a quick response to such provisions by assembling
teams of specialists to address such problems which we intend to use as an
opportunity to establish additional customer relationships.
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As the state of the economy fluctuates, so too do expenditures on new
information technology systems. This is particularly true of the financial
services industry, where there is a higher amount of discretionary spending for
information technology systems. We have guarded against being adversely affected
by a curb in spending from the financial services sector by diversifying our
client base to include manufacturing, distributing and telecommunications firms,
and software companies.
We have been focusing our infrastructure development and marketing
initiatives on niche market areas, such as enterprise resource planning and
network management. We believe that by doing so, we have positioned ourselves in
the lowest possible risk sector for market fluctuations.
Contract Services
Our contract services revenue is derived from time and materials
contracts in which we supply a contract worker to perform under the supervision
of the client. Our contract services generally consist of providing contract
workers to customers for short and long term assignments. These assignments
generally last from three to twelve months, but can sometimes last much longer.
The assignments may be for specified projects or general information technology
consulting work. Although we currently bill the clients only on a time and
materials basis at an agreed upon hourly rate, in the future it may assemble
teams that will perform projects for an agreed upon fixed price for the project.
We pay the contract worker an agreed upon rate, pursuant to our standard
consulting services 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. This
agreement, which is terminable by us at any time, obligates the contract worker
to provide notice prior to leaving the position, contains a confidentiality
clause, and prohibits the worker from going to work directly for the customer
for a period of six months from the date that the worker no longer works for
such customer without our consent.
We intend to increase the amount of project services work we are doing
by assembling teams specializing in particular projects, such as Year 2000
problem resolution. In the future, we may hire project leaders as salaried
employees to lead teams of consultants on certain projects. We believe that this
will enable us to earn higher margins on our project work. Furthermore, such
teams would enable us to market ourselves as a full-service provider of
information technology and engineering staffing services with a wide array of
services that can be tailored to meet a customer's particular needs.
Permanent Staffing Placement Services
Our permanent placement services generally consist of the placement of
an information technology or and engineering professional in a position for our
customers. We identify and provide candidates to our customers who our
recruiters believe, based on our data, have the technical skills and job
interest to best satisfy the requirements of the position. We recognize revenue
when the information technology or engineering professional commences
employment. However, we are required to find a replacement free of charge if the
employee does not remain in the position for at least ninety days. This
placement fee is usually structured as a percentage of the information
technology or engineering professional's first-year annual compensation. This
percentage ranges from 20% to 30%, although we expect to reduce the fee to
10-15% for customers utilizing our Internet technology because those placements
will require less time and input from our recruiters. Salaries for the
information technology and engineering professionals that we place generally
range from $45,000 to $150,000.
We perform permanent placement services pursuant to three invoicing
policies. Contingency services are engagements in which we are only paid if we
are successful in placing a candidate in a position. Contingency exclusive
services are similar to contingency engagements, however, we are the only firm
engaged to fill the position. Retained search services are similar to
contingency exclusive services, except that we receive a non-refundable portion
of the fee prior to performing any services, with the remainder paid if the
position is filled.
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Sales and Marketing
Our primary target markets are software, telecommunications,
manufacturing and engineering and other technology companies, financial service
companies and multinational and other large corporations. We maintain a database
of human resource administrators and information technology department heads at
these firms and utilize our sales forces to build relationships with these
individuals by stressing the quality of information technology professionals
that we recruit. As we expand into new regional markets we intend to hire local
sales people who are familiar with local customers. Because many of our
customers maintain offices in more than one city, we believe that we will have
an advantage in establishing relationships with these additional offices as we
expand into new regional markets.
We market our services via the Internet. We are in the process of
upgrading our Web site, which previously has been used primarily as a tool to
advertise job opportunities to information technology professionals and to
promote our services to our customers. We also utilize traditional advertising
outlets and trade shows to promote our services to potential customers.
Customers
We provide staffing services to customers in a wide array of
industries. Software development, telecommunications, manufacturing and
engineering, and other technology companies utilize our services to locate
programmers in the development of new products. We also provide services to
financial services companies, such as Bank of Montreal and Goldman Sachs, which
are extremely reliant on their information technology systems. Large consulting
firms, such as Deloitte & Touche Tohmatsu, are also beginning to utilize us to
meet their need for information technology professionals.
Our customers include the Fortune 1000 companies, such as American
Express Company. We believe that we will be able to provide services to other
multinational and large companies and expand services provided to these existing
customers by expanding into new regional markets. These multinational and other
large companies have indicated to us that they desire to use fewer suppliers to
meet their needs and we believe that we will be able to utilize relationships in
one market to establish relationships with such companies in other markets.
Additionally, we believe that our high profile customer base provides us
credibility when pursuing other customers. The following is a list of certain of
the larger companies who utilize our services.
Financial Services Software, Technology and Telecommunications
------------------ -------------------------------------------
American Express Bell Canada
Bank of Montreal Lucent Technologies
CIBC Wood Gundy SHL Systemhouse Co.
Goldman Sachs Star Data Systems, Inc
Toronto Stock Exchange
Government and Educational Other
-------------------------- ------
Government of Canada General Motors
Government of Ontario Cummins Engine
Deloitte & Touche
National Grocers Co. Ltd.
Chapters
Xerox Corporation
As is common in the staffing industry, we do not have long-term written
contracts with most of our customers. We, however, generally enters into a
standard form agreement with our customers that indicates which parties are
responsible for taxes and other expenses, and provides that all intellectual
property and other proprietary information will remain confidential and the
property of the customer. Some customers, such as the Canadian government, Dow
Jones and CIBC Wood Gundy Securities Inc., require us to use another form of
agreement which is similar in all material respects to our standard form. With
certain clients, most significantly, Bank of Montreal, we enter into an
agreement allocating other responsibilities, such as the supervision of the
information technology professionals we recruit. Other customers, enter into
annual contracts with us pursuant to which we will supply contract workers
during the year as required by the customer at fees to be negotiated.
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Strategic Alliances
We intend to utilize strategic alliances to promote our staffing
services. We may enter into arrangements with consulting firms to staff major
information technology projects. Alternatively, we may enter into arrangements
with software companies whereby our contract workers will be trained to perform
customer support services. Lastly, we may enter into agreements with other
staffing companies in geographic regions in which we do not intend to expand.
Such arrangements will allow us to provide our existing large corporate clients
with services in areas where we not familiar with the local market. Currently,
we are not a party to any agreements to enter into arrangements such as these,
and there can be no assurance that we will find entities with which to enter
into strategic alliances on terms acceptable to us, or at all.
Recruiting
We believe that our technology and experienced recruiting staff of 56
individuals enables us to recruit qualified information technology professionals
whose skills match the needs of our customers. Many of our recruiters have
strong information technology backgrounds and are required by us to take a
two-week training course when hired by us. We maintain a database of over 50,000
information technology and engineering professionals. Our recruiters maintain
ongoing relationships with certain information technology professionals and are
aware of their particular skills and employment status. Using our database and
our recruiters' knowledge of available information technology professionals, we
are often able to quickly locate a number of suitable candidates for a position,
which is particularly important for positions in which we do not have an
exclusive engagement. The database also contains reference and employment
history information which accelerates the screening process.
We test the computer skills of all of our information technology
professionals utilizing TeckChek software. This software provides recruiters
with a consistent rating system and a reliable method of evaluating candidates,
which aids recruiters in matching candidates with positions requiring their
skill set. This software also allows us to provide evidence to our customers
that potential employees have sufficient technical skills. Additionally, we
screen candidates by telephone and in-person interviews and by reference checks.
If we are unable to locate suitable candidates for a position by means
of our databases, we may utilize advertisements in newspapers and trade
magazines. We often prepare and place advertisements on behalf of our clients.
We have been approved by the Canadian Newspaper Association as an advertising
agency, which allows us to earn a commission on any advertisements we place.
Additionally, we post job openings on our Web site and invite information
technology professionals to submit their resumes to us by e-mail.
We intend to recruit information technology and engineering
professionals from other countries, such as Singapore and India, where there are
a number of information technology and engineering professionals and the job
opportunities are inferior to those in North America. United States and Canadian
immigration laws contain preferences for immigrants who can fill skilled labor
positions for which there is a shortage of native applicants.
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We believe that turbulent economic and political situations in other
parts of the world, as well as the general lack of opportunities for top
information technology professionals in countries such as Russia and India, make
Canada and the United States an appealing choice for immigration. According to a
recent KPMG/CATA Alliance High Tech Labor Survey, there is a shortage of
information technology workers in Canada. Bringing in foreign workers helps to
alleviate this shortage. The Canadian government, in recognition of this fact,
has relaxed entrance requirements for information technology and engineering
professionals, allowing such workers to enter the country more quickly than ever
before.
We are dedicated to maximizing the value of overseas recruitment
through a variety of methods. The first is through the extensive use of the
Internet and our Internet-based product, Njoyn. By using a combination of our
Web site and e-mail, we are able to communicate with information technology
professionals around the globe, making them aware of the opportunities we have
available, and discuss immigration options.
Internally, we have built a knowledge base around the particular issues
of bringing information technology workers to Canada. We have also been building
a library of information about the legal technicalities surrounding work visas
and immigration for Canadian workers migrating to the United States. To
complement this knowledge that we are building internally, we have also
developed strategic relationships with legal counsel specializing in immigration
and visa issues.
Another strategy we are employing in the area of foreign recruitment is
the establishment of lightly staffed virtual offices in different parts of the
world. Recruiters with country-specific contacts and knowledge are given access
to our database and job postings. They then carry this information into the
field where they screen and select foreign candidates who they feel would be
appropriate for the opportunities that we have available. We then take these
pre-screened candidates and continue with the evaluation process.
Information Technology and the Internet
We have established an extensive information technology system which we
believe provides us with a competitive advantage over less technologically
advanced competitors. The primary components of our information technology
system and our use of technology are described below.
The Njoyn Software
Njoyn is an Internet-based software application that is used by us in
the administration and tracking of internal processes relating to the
recruitment and placement of information technology professionals. Njoyn is a
query based software program that allows our recruiters to locate the
information technology professional in our database with the technical skills
and job interests that best satisfy the requirements of the position that we are
attempting to staff. This system also tracks other information, such as average
salaries of a particular position, which enables us to provide valuable advice
to our clients in selecting the proper information technology professional. The
software also incorporates our database of over 50,000 information technology
professionals. We continually update our database and occasionally access other
databases of information technology professionals that are available for sale or
over the Internet. Njoyn allows information entered into the database by our
employees, or directly by an information technology professional by means of the
Internet, to be shared by all of our recruiters and salespeople.
The Njoyn software is designed to aid a human resources department in
performing numerous recruitment tasks, such as scheduling interviews and
evaluating candidates. The software has a feature that allows a human resources
department to have a description of any job openings sent automatically to
selected e-mail addresses, such as those of recruiting firms or previous
applicants. Statistics about the recruitment process, including the costs and
expenses, are tabulated in various databases. Additionally, the software allows
the human resource department to compile their own database of prospective
employees and contract workers.
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Traditionally, recruiters acquire new candidates using as many sources
as possible. Normally the number of sources would be limited to the recruiting
office's ability to handle the logistics of communicating job specifications to
those sources and handling the incoming responses. Therefore, their ability to
hire quality information technology candidates is directly related to the size
of the group of candidates they can attract and the speed with which they can
assimilate, contact, interview, evaluate, file for future use and/or hire those
candidates.
The process, through which recruiters post or communicate job
specifications to applicant sources, is fully automated. Once the hiring manager
and the recruiter have constructed the job specification using Njoyn, they use
Njoyn Broadcast facility to communicate this job specification to all designated
sources. With a click of the mouse the recruiter defines and chooses the
broadcast strategy. The information can be communicated/posted simultaneously
and automatically to appropriate employment agencies, web news groups, Web job
posting sites, archived candidates, internal candidates (as per policy) and
personal referral sources.
Njoyn consolidates and automates the communication process for all
sources. Each unique information source is provided with a web interface. All
out-going and in-coming communications/applications are managed using this web
interface. No specialized client software is required. All transactions are
initiated through a web browser. Recruiters, hiring managers and applicants now
use a common medium for communication. This type of common-interface messaging
reduces significantly the reliance on hard-copy mail, phone communication and
fax transmission. Additionally, a Web site address is provided for all
candidates that are informed of the job requirements by means of trade journals
or newspapers. This further centralizes the incoming applicant response.
Njoyn development program was launched as a result of the positive
response observed during its first test-marketing session. A working prototype
was demonstrated at the annual Human Resources Professional Association
Conference in Toronto, Ontario in February 1998. We performed more than forty
one-on-one demo sessions with companies, currently, the product is being test
marketed by the human resources departments of two of our customers. The first
customer is the Toronto Stock Exchange, which is viewed as a Canadian leader in
the development and deployment of application software. We believe that we will
be able to provide assistance in the marketing of the software as a result of
its existing relationships with management in the human resources and
information technology departments of our customers, although there can be no
assurance thereof. Our joint venture allocates costs and responsibilities in
marketing Njoyn. As of the date of this prospectus, we have spent approximately
($1,000,000) on research and development related to Njoyn.
Although there can be no assurance thereof, we believe that we will
have an advantage in marketing its recruitment services to companies using Njoyn
because of our familiarity with the software and the ease of electronic data
interface with us. There is a possibility, however, that utilization of the
software will reduce reliance of certain customers on recruiting firms,
including us. Notwithstanding the foregoing, we do not anticipate any material
reduction in such reliance as a result of the utilization of this software due
to the difficulty of hiring information technology professionals. Furthermore,
we intend to offer lower commission rates to customers using Njoyn software to
make it less likely that they will reduce the level of utilization of the
services of recruiting firms. We believe that the use of Njoyn and our
familiarity with the software will enable us to aid customers in finding
suitable, professionals in a more timely and cost efficient manner, allowing for
the decrease in prices we charge.
Utilization of the Internet
We utilize the Internet to promote our services and to enable our
customers and information technology and engineering professionals to utilize
our services. The descriptions of the employment opportunities are segregated
among permanent and contract positions, describe the necessary skills required
by information technology and engineering professional candidates, and provides
a phone number and e-mail address for our recruiter who works with the relevant
client. Alternatively, information technology and engineering professionals can
e-mail their resumes to us or can enter themselves into our database by means of
the Internet. We also utilize the Internet to connect our offices to our
Toronto, Ontario office. This results in substantial savings in software and
hardware costs in the maintenance of our information technology system and
allows for the creation of lightly staffed regional virtual offices.
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Expansion and Acquisitions
We believe that we can leverage our database of information technology
and engineering professionals, reputation, and information technology system to
achieve revenue growth by establishing new offices in other regional markets.
Such offices may be established by opening new offices and staffing them with
local recruiters and sales people or by acquiring complimentary or competitive
companies.
We primarily intend to focus our expansion in large United States
cities, such as Atlanta, Chicago, San Francisco and Austin. We are selecting
locations that have other offices of our existing customers, such as Chicago,
the headquarters of Harris Bank & Trust, or areas with numerous technology
companies, such as Austin. In addition to attracting local information
technology and engineering professionals, we intend to attempt to recruit
Canadian and other foreign information technology and engineering professionals
for these positions in the United States. Due to the strength of the United
States dollar against the Canadian dollar and other currencies, we believe that
foreign information technology and engineering professionals will find the
economic opportunities in the United States attractive. We are currently
endeavoring to expand our operations in the mid-western United States. We
believe that recruiters in other markets will find us to be an attractive place
to work because of our existing relationships with multinational and other large
corporate clients, our good reputation among information technology and
engineering professionals, our quality information technology system and our
incentive based compensation package, which will generally combine base salary,
bonuses, commissions and incentive stock options.
We may seek to establish offices in smaller markets that contain
desirable customers. We believe that we can do so in a cost effective manner
because of the strength of our information technology system. A single
recruiter/sales person can operate a "virtual office" by utilizing our Toronto,
Ontario office's database and other operational systems by means of our
Intranet.
Based on the experience of our principals who, prior to forming
ThinkPath, have been involved in the opening of several offices throughout
Ontario and the opening of our New York and Boston offices, we expect newly
opened offices to become productive within six to twelve months of opening. The
delay in productivity can be attributed to the following factors:
- Recruiting, hiring, training and orientation of new staff with
recruitment/sales methodologies and practices, as well as technology
(databases, software, Internet, e-mail, etc.);
- Recruiting and developing a base of qualified information technology
professionals (advertising, open houses, career fairs);
- Attracting and building client relations; and
- Getting on preferred supplier lists.
Although there can be no assurance that such expectations will be
satisfied, our expectations in terms of productivity for new offices by the 12th
month of operations are: 30 contractors and between $30,000 to $50,000 in
permanent placement sales per month with annual revenues of approximately
$450,000.
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The opening of new offices with the addition of qualified employees and
entrance into new regional markets results in increased operating expenses
including:
- Salaries and payroll costs;
- Infrastructure (office equipment, office space, office supplies,
telephone, insurance) including an elaborate technological
infrastructure;
- Advertising (print and career fairs);
- Marketing and public relations; and
- Travel and business development costs.
There are also the related head office expenses associated with opening
new offices, including:
- Time spent by management and technical personnel on training
(recruitment sales; Njoyn, databases, e-mail, Internet, job postings to
user groups); and
- Time spent by management and support personnel on implementing and
maintaining reporting procedures (financial and administration).
We may also expand by acquiring complementary or competitive companies,
including existing information technology staffing companies, which will provide
an immediate increase to our customer base and in some circumstances, provide a
more cost effective method of expansion than opening a new office. We intend to
target companies who have a strong customer base or group of information
technology professionals, but do not utilize an advanced internal information
technology system. We believe that providing an acquired company access to our
information technology system will allow the acquired company to provide better
service without substantially increasing costs, which may also lead to increased
revenue. Although, due to consolidation in the industry, there is competition
for the acquisition of companies in the information technology staffing
industry, we intend to avoid competing for acquisition candidates by focusing on
smaller companies.
We may also utilize acquisitions or hiring of new employees to achieve
growth in its existing markets. We utilized the acquisitions of Systemsearch
Consulting Services Inc. and International Career Specialists Ltd. in
metropolitan Toronto, Ontario and Cad Cam Inc. and Micro tech Professionals,
Inc. throughout the United States to acquire access to experienced recruiters
with an existing customer base.
With regard to customer services, we plan to implement a decentralized
management plan. We believe that allowing existing management of an acquired
company to remain an important part of its operations will be beneficial in
retaining customers, recruiters and information technology professionals.
Similarly, local recruiters and sales people hired to staff new offices will
have the flexibility to continue relationships with customers and information
technology professionals. Our Intranet will provide all offices full access to
our databases and operating software, promoting uniformity in certain functions.
We currently hold monthly meetings of our Operations Committee, which consist of
the heads of each regional office and subsidiary, whereby they exchange
information on industry trends and promote "best practices" among the offices.
With regard to financial controls, we have a fully integrated system which
allows control of cash flows and accounting and payroll functions from our
Toronto, Ontario office.
On September 16, 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 worth of our common stock to be issued to Roger Walters, Cad Cam,
Inc.'s president. As part of the transaction, Mr. Walters was elected to serve
as one of our directors. The share purchase agreement was executed on January 1,
1999 and the transaction was effective as of September 16, 1999. Mr. Walters was
not affiliated with us prior to the acquisition.
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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 worth 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 worth of
our common stock to the existing shareholders of Object Arts Inc. Management
believes that Object Arts Inc.'s technical training expertise will enable
ThinkPath to offer a complete end-to-end skills gap solution to its customers.
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 up to an aggregate of $4,500,000 in a
combination of cash, notes payable and shares of our common stock, subject to
specific performance criteria be met. On the 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 Denise
Dunne-Fushi, the former President of Micro Tech Professionals, Inc. Such
employment agreement is for a term of 1 year commencing on April 25, 2000, the
effective date of the acquisition, with an annual salary of $125,000 per year
and a bonus of $25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the
acquisition.
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; 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 5 years. E-Wink, Inc.
is currently developing platform technology that will match company's seeking
venture capital with venture capital firms offering such venture capital.
On September 21, 2000, we entered into a non-binding letter of intent
with TidalBeach Inc., a skills-management software developer. Pursuant to the
letter of intent, we will acquire all of the issued and outstanding capital
stock of TidalBeach Inc. from Mike Reid, its sole shareholder, in consideration
for up to 250,000 shares our common stock. We have agreed to use our best
efforts to register the shares of common stock within three months from the date
of issuance. The consummation of the transaction contemplated by the letter of
intent is subject to our due diligence investigation as well as several other
conditions.
On October 4, 2000, we entered into a non-binding letter of intent with
Aquila Holdings Limited, a European recruitment company. Pursuant to the letter
of intent, we will acquire all of the issued and outstanding capital stock of
Aquila Holdings Limited, and its wholly-owned subsidiary DPP International
Limited in consideration for up to an aggregate of (pound)2,500,000 in cash and
(pound)961,000 worth of our common stock. The consummation of the transaction
contemplated by the letter of intent is subject to our due diligence
investigation as well as several other conditions.
35
<PAGE>
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,
engineering and technical training 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 us which may provide such
competitors with a competitive advantage when compared to us. 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 us. 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,
there can be no assurance that we will be able to compete successfully against
current and future competitors or that competitive pressures faced by us 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 is 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 corporate and consulting staff at October 13, 2000 consisted of 414
full-time employees. We are not a 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 such individuals 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.
36
<PAGE>
Property
We maintain our headquarters in a 8,076 square foot office located at
55 University Avenue in Toronto, Ontario, Canada. We have leased such facility
for a term of ten years terminating in November 2007. We pay annual rent of
$30,307, which will increase to $36,080 commencing in December 2002. We lease
additional offices at the following locations:
Lease Current Rent
Location Square Fee Expiration Per Annum
-------- ---------- ---------- ------------
Etobicoke, Ontario 1,610 4/13/03 $ 22,300
New York, New York 1,214 10/31/01 $ 47,353
Markham, Ontario 6,000 5/31/01 $ 39,000
Ottawa, Ontario 1,291 9/30/03 $ 14,739
Dayton, Ohio 8,426 08/31/00 $ 83,000
Indianapolis, Indiana 2,025 12/31/01 $ 30,881
Columbus, Ohio 1,000 01/31/00 $ 19,200
Cincinnati, Ohio 2,256 09/30/00 $ 22,560
Tampa, Florida 930 03/31/01 $ 12,741
Rochester, New York 1,621 05/31/00 $ 20,635
Detroit, Michigan 15,328 08/13/02 $149,316
Louisville, Kentucky 2,091 07/01/02 $ 24,047
Chicago, Illinois 874 05/01/00 $ 14,856
Charleston, South Carolina 900 12/31/00 $ 15,120
Atlanta, Georgia 5,824 06/30/02 $ 78,360
Boston, Massachusetts 1,240 10/31/00 $ 22,940
New York, New York 12,265 08/31/06 $220,000
London, Ontario 5,877 12/31/01 $ 49,315
Toronto, Ontario 5,520 12/31/00 $ 77,455
Legal Proceedings
We are not party to any material legal proceedings.
Recent Events
On December 30, 1999, we issued: (i) 15,000 shares of Series A 8%
Percent Cumulative Convertible Preferred Stock, no par value per share; and (ii)
warrants to purchase up to an aggregate of 475,000 shares of our common stock,
in consideration $1,500,000 pursuant to a private placement offering. Each share
of Series A 8% Cumulative Convertible Preferred Stock has a stated value of $100
per share.
The shares of Series A 8% Percent Cumulative Convertible Preferred
Stock are convertible into shares of our common stock at the option of the
holders the Series A 8% Percent Cumulative Convertible Preferred Stock, at any
time after issuance until either: (i) such shares of Series A 8% Percent
Cumulative Convertible Preferred Stock are converted at our option; or (ii) such
shares of Series A 8% Percent Cumulative Convertible Preferred Stock are
redeemed by us, under certain conditions, at any time after the effective date
of this registration statement.
The holders of the shares of Series A 8% Percent Cumulative Convertible
Preferred Stock are entitled to receive preferential dividends in cash, 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 8% simple interest per annum on the stated value per
share. Such are payable on a quarterly basis commencing on the quarter ending
March 31, 2000 when as and if declared, provided however, that the dividends
will be made in additional shares of Series A 8% Percent Cumulative Convertible
Preferred Stock at a rate of one share of Series A 8% Percent Cumulative
Convertible Preferred Stock for each $100 of such dividend not paid in cash.
Dividends may be paid at our option with shares of Series A 8% Percent
Cumulative Convertible Preferred Stock only if our common stock deliverable upon
the conversion of the Series A 8% Percent Cumulative Convertible Preferred Stock
will have been included for public resale in an effective registration statement
filed with the Securities and Exchange Commission on the dates such dividends
are payable and paid to the holders. The dividends shall be cumulative whether
or not earned and shall be cumulative from and after December 30, 1999.
37
<PAGE>
The number of shares of our common stock into which the Series A 8%
Percent Cumulative Convertible Preferred Stock shall be convertible shall be
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) 90% of the
average "Closing Bid Prices" for the three trading days immediately preceding
December 30, 1999, or (y) 80% of the average of the three lowest "Closing Bid
Prices" for the ten trading days immediately preceding the conversion of the
respective shares of Series A 8% Percent Cumulative Convertible Preferred Stock.
The "Closing Bid Price" is defined as the closing bid price as reported on the
Nasdaq SmallCap Market or the principal market or exchange where our common
stock is then traded. The holders of the shares of Series A 8% Percent
Cumulative Convertible Preferred Stock may exercise their right to conversion
only if the aggregate stated value of the shares of Series A 8% Percent
Cumulative Convertible Preferred Stock to be converted is equal to at least
$5,000, unless if at the time of such conversion, the aggregate stated value of
all of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock
is less than $5,000, then the whole amount of the remaining shares of Series A
8% Percent Cumulative Convertible Preferred Stock may be converted.
At any time after April 27, 2000, we have the option to redeem any or
all of the shares of Series A 8% Percent 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 of Series A 8% Percent Cumulative Convertible Preferred
Stock being redeemed plus the dollar amount of the accrued dividends, if the
Conversion Price of the shares of Series A 8% Percent Cumulative Convertible
Preferred Stock on the trading day prior to the date of redemption is less than
$2.
The 475,000 warrants issued in the December 1999 offering are
exercisable at any time and in any amount until December 30, 2004 at a purchase
price of $3.24 per share.
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 worth 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 worth of
our common stock to the existing shareholders of Object Arts Inc. Management
believes that Object Arts Inc.'s technical training expertise will enable
ThinkPath to offer a complete end-to-end skills gap solution to its customers.
On February 24, 2000, we changed our corporate name from IT Staffing
Ltd. to ThinkPath.com Inc. in order to more accurately reflect our expanded
suite of services.
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; 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. E-Wink,
Inc. is currently developing platform technology that will match company's
seeking venture capital with venture capital firms offering such venture
capital.
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 the Series B 8% Percent Cumulative Convertible Preferred Stock, at any
time after issuance until such shares of Series B 8% Percent Cumulative
Convertible Preferred Stock are redeemed by us, under certain conditions.
The holders of the shares of Series B 8% Percent Cumulative Convertible
Preferred Stock are entitled to receive preferential dividends in cash, 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 8% 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.
38
<PAGE>
The number of shares of our common stock into which the Series B 8%
Percent Cumulative Convertible Preferred Stock shall be convertible shall be
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) $3.375, or
(y) 80% of the average of the three lowest "Closing Bid Prices" for the ten
trading days immediately preceding the conversion of the respective shares of
Series B 8% Percent Cumulative Convertible Preferred Stock. The "Closing Bid
Price" is defined as the closing bid price as reported on the Nasdaq SmallCap
Market or the principal market or exchange where our common stock is then traded
as reported by Bloomberg.
At any time that the number of our shares of common stock issued (A)
upon conversion of the shares for Series B 8% Cumulative Convertible Preferred
Stock and (B) in lieu of dividend payments, shall equal 20% or more our
outstanding common stock, we are required to (x) redeem, at a price per share
equal to (A) the quotient of (i) $1,000 per share plus all accrued but unpaid
dividends and (ii) the Conversion Price as if the Series B8% Cumulative
Convertible Preferred Stock has been converted on the date of redemption,
multiplied by (B) the average Closing Bid Price of our common stock for the five
trading days immediately preceding the date of redemption.
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.
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, 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 up to an aggregate of $4,500,000 in a
combination of cash, notes payable and shares of our common stock, subject to
specific performance criteria be met. On the 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 Denise
Dunne-Fushi, the former President of Micro Tech Professionals, Inc. Such
employment agreement is for a term of 1 year commencing on April 25, 2000, the
effective date of the acquisition, with an annual salary of $125,000 per year
and a bonus of $25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the
acquisition.
On July 7, 2000, we issued an aggregate of: (a) 5,000 shares of our
Series A 8% Cumulative Convertible Preferred Stock; and (b) warrants to purchase
up to an aggregate of 225,000 shares of our common stock, in consideration
$500,000 pursuant to the exercise of our option granted to us in the December
1999 a private placement offering upon the same terms as described above. 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.
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.
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 280,093 shares of our common
stock in connection with the private placement offering. Such warrants are
exercisable until August 22, 2000 at an exercise price of $2.4614 per share.
39
<PAGE>
On September 13, 2000, we entered into an engagement agreement with
Burlington Capital Markets Inc. conditional on the successful integration of our
first acquisition through Burlington. We have agreed to sell to Burlington
Capital Markets an aggregate of 250,000 shares of our common stock at a cash
purchase price of $.01 per share. We have further agreed to issue warrants to
purchase an aggregate of 400,000 shares of our common stock in accordance with
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 are exercisable in whole or in part until 5 years from the date they
can first be exercised, and will contain a cashless exercise provision and
registration rights. Compensation will be paid to Burlington at a monthly fee of
$10,000 for a minimum of six months.
On September 21, 2000, we entered into a non-binding letter of intent
with TidalBeach Inc., a skills-management software developer. Pursuant to the
letter of intent, we will acquire all of the issued and outstanding capital
stock of TidalBeach Inc. from Mike Reid, its sole shareholder, in consideration
for up to 250,000 shares our common stock. We have agreed to use our best
efforts to register the shares of common stock within three months from the date
of issuance. The consummation of the transaction contemplated by the letter of
intent is subject to our due diligence investigation as well as several other
conditions.
On October 4, 2000, we entered into a non-binding letter of intent with
Aquila Holdings Limited, a European recruitment company. Pursuant to the letter
of intent, we will acquire all of the issued and outstanding capital stock of
Aquila Holdings Limited, and its wholly-owned subsidiary DPP International
Limited in consideration for up to an aggregate of (pound)2,500,000 in cash and
(pound)961,000 worth of our common stock. The consummation of the transaction
contemplated by the letter of intent is subject to our due diligence
investigation as well as several other conditions.
40
<PAGE>
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The officers and directors of ThinkPath, and further information concerning
them, are as follows:
Name Age Position
---- --- --------
Declan A. French 55 Chairman of the Board of Directors and Chief
Executive Officer
Thomas E. Shoup 48 President and Chief Operating Officer
Tony French 27 Executive Vice President
Kelly Hankinson 30 Chief Financial Officer and Director
Roger W. Walters Executive Vice President, U.S. Operations and
Director
Marilyn Sinclair 46 Vice President, President and Director of Object
Arts Inc. and Director
John Dunne 56 Director
Arthur S. Marcus 35 Director
Ronan McGrath 52 Director
Each director is elected for a period of one year at our 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 annually
without limitation. Officers are appointed by, and serve at the discretion of,
our Board of Directors. Our directors do not presently receive any compensation
for their services as directors' other than options granted the directors
pursuant to our 1998 and 2000 Stock Option Plans. 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, which director shall be
reasonably acceptable to our Board of Directors. In addition, pursuant to the
terms of the placement agent agreement with respect to our August private
placement offering, we are required to appoint a designee of KSH Investment
Group, Inc., the placement agent, who is reasonably acceptable to us, as a
member of our Board of Directors.
Set forth below is a biographical description of each of our directors
and executive officers 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.
Thomas E. Shoup has served as our President and Chief Operating Officer
since September 16, 1999, the date we acquired Cad Cam, Inc. Mr. Shoup served as
Vice President of Cad Cam, Inc. from April 19996 to September 1999. Prior to
joining Cad Cam, Inc., Mr. Shoup served in the United States Air Force for 22
years earning several service awards.
41
<PAGE>
Tony French has served as our Executive Vice President since September
1999. Prior to becoming Executive Vice President, Mr. French served as our Vice
President of Sales since our inception in February 1994.
Kelly Hankinson has served as our Chief Financial Officer since May
1999 and as a Director since June 2000. Ms. Hankinson served as our Controller
from February 1994 to May 1999. Ms. Hankinson has a Masters Degree and a
Bachelors Degree from York University.
Roger W. Walters has served on our Board of Directors and as Executive
Vice President of U.S. Operations since September 16, 1999, the date we acquired
Cad Cam, Inc. Mr. Walters served as President of Cad Cam, Inc. since 1988 and
was its majority shareholder prior to its sale to us in September 16, 1999. Mr.
Walters has a Masters degree in Mechanical Engineering from the University of
Missouri.
Marilyn Sinclair has served as our Vice President and President -
Object Arts since January 1, 2000, the date we acquired Object Arts, Inc and as
a Director since June 2000. Ms. Sinclair served as the president of Object Arts
Inc. since 1993. Ms. Sinclair has over eight years experience in the technical
training industry, with a strong background in management and human resources.
In 1997, Ms. Sinclair was chosen as runner-up for the Canadian Woman
Entrepreneur of the Year award.
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. Prior to that, he had served as Vice
Chairman and Chief Merchandising Officer of Great Atlantic & Pacific Company of
Canada, 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 fifty initial public offering and numerous mergers and
acquisitions. Mr. Marcus received a Juris Doctorate from Benjamin N. Cardozo
School of Law in 1989.
Ronan McGrath has served as a Director since June 2000. Mr. McGrath has
been the Chief Information Technology Officer of Rogers Communications Inc. and
the President of Rogers Shares Services Inc., since their inceptions in 1996.
Mr. Ronan 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. Ronan was awarded the Canadian Chief Information Technology Officer
of the Year Award in 1995. Mr. Ronan 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.
42
<PAGE>
Committees of the Board
In July 1998, our Board of Directors formalized the creation of a
Compensation Committee, which is currently comprised of Marilyn Sinclair, 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 and 2000 Stock Option Plan; 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 staffing and consulting industry and that
individual experience and performance will be considered in setting salaries.
In July 1998, our Board of Directors also formalized the creation of an
Audit Committee, which currently consists of Kelly Hankinson, Roger W. Walters
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 thereto: (i) the preparation of our annual financial statements in
collaboration with our chartered accountants; (ii) annual review of our
financial statements and annual report; 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 Operations Committee in order for our officers
to exchange information on industry trends and promote Abest practices: among
the offices. The head of each regional office and subsidiary will serve on the
Operations Committee. Currently, the Operations Committee consists of Declan A.
French, Thomas E. Shoup, Tony French, Marilyn Sinclair, Roger W. Walters, John
A. Irwin and John R. Wilson.
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 may be permitted our directors, officers and controlling persons and our
underwriters 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, 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 or by our underwriters in connection with the securities
being registered, we 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 of whether such indemnification by it is against
public policy as expressed in the Securities Act, and will be governed by the
final adjudication of such issue.
43
<PAGE>
Executive Compensation
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Restricted
Principal Annual Stock Other
Position Year Salary Bonus Awards Options/SARs Compensation
------------------------- ---- ------ ----- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Declan French,
Chief Executive Officer 1999 $ 98,000 -0- -0- -0- 8,342
and Chairman of the Board 1998 98,000 -0- -0- -0- 8,342
1997 104,275 -0- -0- -0- 8,342
John A. Irwin,
President- 1999 102,000 -0- -0- -0- 94,149
International Career 1998 130,580 -0- -0- -0- 35,888
Specialists Ltd 1997 139,034 -0- -0- -0- 8,342
John R. Wilson,
President- 1999 81,600 -0- -0- -0- 76,915
Systemsearch 1998 90,000 -0- 77,282
Consulting Services 1997 83,420 20,855
Inc.
Roger Walters,
Executive Vice 1999 200,000 -0- -0- -0- -0-
President B US 1998 200,000 -0- -0- -0- -0-
Operations and 1997 200,000 -0- -0- -0- -0-
President-Cad Cam,
Inc.(1)
Thomas E. Shoup,
President and 1999 175,000 -0- -0- -0- -0-
Chief Operating 1998 129,231 -0- -0- -0- -0-
Officer(2) 1997 117,713 -0- -0- -0- -0-
</TABLE>
(1) This reflects the salary paid to Mr. Walters as of our acquisition of
Cad Cam, Inc. on September 16, 1999.
(2) This reflects the salary paid to Mr. Shoup as of our acquisition of Cad
Cam, Inc. on September 16, 1999.
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<PAGE>
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 two years commencing on June 1, 1999. Mr. French is 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 one year
beyond the termination of the employment agreement.
On May 19, 1998, in connection with the acquisition of International
Career Specialists Ltd., we entered into an employment agreement with John A.
Irwin under which he serves as President of International Career Specialists
Ltd. The employment agreement is for a term of three years commencing on January
1, 1998, the effective date of the acquisition of International Career
Specialists Ltd. Mr. Irwin receives 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.
In February 1998, in connection with the acquisition of Systemsearch
Consulting Services Inc., we entered into a three year employment agreement with
John R. Wilson under which he serves as President of Systemsearch Consulting
Services Inc. at a salary of $120,000 per year. The agreement was effective as
of January 2, 1997. Mr. Wilson receives a commission of 10% of the permanent
placement revenue of Systemsearch Consulting Services Inc. Additionally, he
receives $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 exceeds $6.50. Pursuant to the
agreement, Mr. Wilson has control of the day-to-day management of Systemsearch
Consulting Services Inc.
On September 16, 1999, in connection with the acquisition of Cad Cam,
Inc., Roger W. Walters was elected to our Board of Directors.
On September 16, 1999, in connection with out acquisition of Cad Cam,
Inc., we entered into an employment agreement with Thomas E. Shoup under which
he serves as our President and Chief Operating Officer. The employment agreement
is on a year-to-year basis with a salary of $175,000 per year.
On January 1, 2000, in connection with the acquisition of Object Arts
Inc., we entered into an employment agreement with Marilyn Sinclair under which
she serves as our Vice President and as President of Object Arts Inc. The
employment agreement is for a term of three years commencing on January 1, 2000
with an annual salary of $82,000 per year.
Consulting Agreements
In May 1998, we entered into a consulting agreement with Robert M.
Rubin, one 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 October 13, 2000, we 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. conditional of the successful integration of our
first acquisition through Burlington. We have agreed to sell to Burlington
Capital Markets an aggregate consideration of 250,000 shares of our common stock
at a cash purchase price of $.01 per share to Burlington Capital Markets. We
have further agreed to issue warrants to purchase an aggregate of 400,000 shares
of our common stock in accordance with 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 are exercisable
in whole or in part until 5 years from the date they can first be exercised,
will contain a cashless exercise provision and registration rights. Compensation
will be paid to Burlington at a monthly fee of $10,000 for a minimum of six
months.
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<PAGE>
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
October 13, 2000, we issued options to purchase all 435,000 shares of our common
stock underlying the 1998 Stock Option Plan to certain of our 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 the Company,
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 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
October 13, 2000, we issued options to purchase 435,000 shares of our common
stock to certain of our employees and consultants.
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<PAGE>
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 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 the Company,
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.
47
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED 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 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. 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 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 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 assists 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 options for a period of two years after exercise without our consent. As of
October 13, 2000, we issued 18,508 shares of our common stock upon Mr. Rubin's
exercise of such option.
In November 1998, we purchased certain assets of Southport Consulting,
Inc. from Michael Carrazza, one of our former directors, for $300,000 in cash
and 40,000 shares of our common stock.
On September 16, 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 our Board of
Directors. The share purchase agreement was executed on January 1, 1999 and the
transaction was effective as of September 16, 1999. Mr. Walters was not
affiliated with us prior to the acquisition.
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 worth 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 worth 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, Object
Arts Inc.'s and Lars Laakes, former officers of Object Arts Inc. Such employment
agreements are 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
use prior to the acquisition.
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<PAGE>
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 up to an aggregate of $4,500,000 in a
combination of cash, notes payable and shares of our common stock, subject to
specific performance criteria be met. On the 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 Denise
Dunne-Fushi, the former President of Micro Tech Professionals, Inc. Such
employment agreement is for a term of 1 year commencing on April 25, 2000, the
effective date of the acquisition, with an annual salary of $125,000 per year
and a bonus of $25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the
acquisition.
While we were a private company, we lacked sufficient independent
directors to ratify many of the foregoing transactions. However, our management
believes that the foregoing transactions were on terms no less favorable to us
than could have been obtained from unaffiliated third parties. All future
transactions between us and our officers, directors or 5% shareholders, and
their respective affiliates, 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, they will be approved by our 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.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of October 13, 2000 for (i) each of
our executive officers, (ii) each of our directors, (iii) each person known to
us to be the beneficial owner of more that 5% of our outstanding shares, and
(iv) all of our directors and officers as a group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Percentage of Shares
Names and Address of Beneficial Owner (1) Ownership (2) Outstanding
---------------------------------------- ------------------------------- ---------------------
<S> <C> <C>
Declan French 1,122,459(3) 19.9%
Thomas E. Shoup 1,333(4) *
Tony French 4,333(5) *
Kelly Hankinson 23,167(6) *
Roger W. Walters 292,767(7) 5.1%
John R. Wilson 132,247(8) 2.4%
John A. Irwin 132,247(9) 2.4%
Marilyn Sinclair 139,230(10) 2.5%
John Dunne 16,424(11) *
Arthur S. Marcus 15,500(12) *
Ronan McGrath 0 *
Working Ventures Canadian 425,730(13) 7.7%
Fund Inc.
KSH Investment
Partners I, LLC. 362,605(14) 6.1%
All directors and officers
as a group (11 persons) 1,879,707 31.9%
(3) B (12)
</TABLE>
* Less than 1%.
(1) Except as set forth above, the address of each individual is 55
University Avenue, Suite 505, Toronto, Ontario M5J 2H7.
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<PAGE>
(2) Based upon information furnished to us by the directors and executive
officers or obtained from our stock transfer books. We are 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 13, 2000, 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 510,563 shares of common stock owned by Christine French, the
wife of Declan A. French and 101,333 shares of common stock issuable
upon options issued to Declan A. French that are currently exercisable
or exercisable within the next 60 days.
(4) Includes 1,333 shares of common stock issuable upon options that are
currently exercisable or exercisable within the next 60 days.
(5) Includes 1,333 shares of common stock issuable upon options that are
currently exercisable or exercisable within the next 60 days.
(6) Includes 20,167 shares of common stock issuable upon options that are
currently exercisable or exercisable within the next 60 days.
(7) Includes 154,000 shares of common stock issuable upon options that are
currently exercisable or exercisable within the next 60 days.
(8) Includes 1,333 shares of common stock issuable upon options that are
currently exercisable or exercisable within the next 60 days.
(9) Includes 1,333 shares of common stock issuable upon options that are
currently exercisable or exercisable within the next 60 days.
(10) Includes 40,000 shares of common stock issuable upon options that are
currently exercisable or exercisable within the next 60 days.
(11) Consists of 13,091 shares of common stock owned by John Dunne's spouse
and includes 3,333 shares of common stock issuable upon options issued
to John Dunne that are currently exercisable or exercisable within the
next 60 days.
(12) Includes 12,500 shares of common stock issuable upon options that are
currently exercisable or exercisable within the next 60 days.
(13) Includes 228,242 shares of common stock issued in exchange for shares
of Object Arts Inc. and 197,488 shares of common stock in consideration
for the retirement of outstanding debt of Object Arts Inc., both of
which were part of the acquisition of Object Arts Inc.
(14) Includes 100,000 shares of common stock issuable upon the exercise of
warrants and 262,605 shares of common stock issuable upon the
conversion of $500,000 of Series B 8% Cumulative Convertible Preferred
Stock, both of which are currently exercisable/convertible or
exercisable/convertible within the next 60 days. The number of shares
of common stock upon the conversion of the Series B 8% Cumulative
Convertible Preferred Stock is based upon a 20% discount to the closing
market price of our common stock on October 13, 2000 ($2.438).
51
<PAGE>
DESCRIPTION OF SECURITIES
Our total authorized capital stock consists of 15,000,000 shares of
common stock, with no par value, and 1,000,000 shares of preferred stock, with
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 Incorporation and Bylaws.
Common Stock
We are authorized to issue up to 15,000,000 shares of common stock, no
par value per share, of which as of October 13, 2000, 5,550,802 shares of common
stock are outstanding, not including the shares of common stock to be issued
pursuant to the conversion of the shares of Series A 8% Cumulative Convertible
Preferred Stock and the Series B 8% Cumulative Convertible Preferred Stock and
the exercise of warrants. All outstanding shares of common stock are, and all
shares of common stock to be outstanding upon the conversion of the shares of
Series A 8% Cumulative Convertible Preferred Stock and the Series B 8%
Cumulative Convertible Preferred Stock and the exercise of warrants 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 the Company, 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 Corporation Act, Ontario, a shareholder of an
Ontario Corporation has the right to have the corporation pay the shareholder
the fair market value for his shares of the corporation in the event such
shareholder dissents to 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 Corporation Act, Ontario.
Preferred Stock
Our Articles of Incorporation 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. Although we have no present
intention to issue any additional shares of preferred stock, there can be no
assurance that it will not do so in the future.
Series A 8% Cumulative Convertible Preferred Stock
There are 9,667 shares of Series A 8% Cumulative Convertible Preferred
Stock outstanding. Each share of Series A 8% Cumulative Convertible Preferred
Stock has a stated value of $100 per share. The shares of Series A 8% Percent
Cumulative Convertible Preferred Stock are convertible into shares of our common
stock at the option of the holders the Series A 8% Percent Cumulative
Convertible Preferred Stock, at any time after issuance until either: (i) such
shares of Series A 8% Percent Cumulative Convertible Preferred Stock are
converted at our option; or (ii) such shares of Series A 8% Percent Cumulative
Convertible Preferred Stock are redeemed by us, under certain conditions, at any
time after the effective date of this registration statement.
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<PAGE>
The holders of the shares of Series A 8% Percent Cumulative Convertible
Preferred Stock are entitled to receive preferential dividends in cash, 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 8% simple interest per annum on the stated value per
share. Such are payable on a quarterly basis commencing on the quarter ending
March 31, 2000 when as and if declared, provided however, that the dividends
will be made in additional shares of Series A 8% Percent Cumulative Convertible
Preferred Stock at a rate of one share of Series A 8% Percent Cumulative
Convertible Preferred Stock for each $100 of such dividend not paid in cash.
Dividends may be paid at our option with shares of Series A 8% Percent
Cumulative Convertible Preferred Stock only if our common stock deliverable upon
the conversion of the Series A 8% Percent Cumulative Convertible Preferred Stock
will have been included for public resale in an effective registration statement
filed with the SEC on the dates such dividends are payable and paid to the
holders. The dividends shall be cumulative whether or not earned and shall be
cumulative from and after December 30, 1999.
The number of shares of our common stock into which the Series A 8%
Percent Cumulative Convertible Preferred Stock shall be convertible shall be
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 "A
Conversion Price". The A Conversion Price shall be the lesser of (x) 90% of the
average "A Closing Bid Price" for the three trading days immediately preceding
December 30, 1999, or (y) 80% of the average of the three lowest "A Closing Bid
Prices" for the ten trading days immediately preceding the conversion of the
respective shares of Series A 8% Percent Cumulative Convertible Preferred Stock.
The "A Closing Bid Price" is defined as the closing bid price as reported on the
Nasdaq SmallCap Market or the principal market or exchange where our common
stock is then traded. The holders of the shares of Series A 8% Percent
Cumulative Convertible Preferred Stock may exercise their right to conversion
only if the aggregate stated value of the shares of Series A 8% Percent
Cumulative Convertible Preferred Stock to be converted is equal to at least
$5,000, unless if at the time of such conversion, the aggregate stated value of
all of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock
is less than $5,000, then the whole amount of the remaining shares of Series A
8% Percent Cumulative Convertible Preferred Stock may be converted.
At any time after April 27, 2000, we have the option to redeem any or
all of the shares of Series A 8% Percent 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 of Series A 8% Percent Cumulative Convertible Preferred
Stock being redeemed plus the dollar amount of the accrued dividends, if the A
Conversion Price of the shares of Series A 8% Percent Cumulative Convertible
Preferred Stock on the trading day prior to the date of redemption is less than
$2.
Series B 8% Cumulative Convertible Preferred Stock
There are 1,250 shares of Series B 8% Cumulative Convertible Preferred
Stock outstanding. 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 the Series B 8% Percent Cumulative
Convertible Preferred Stock, at any time after issuance until such shares of
Series B 8% Percent Cumulative Convertible Preferred Stock are redeemed by us,
under certain conditions.
The holders of the shares of Series B 8% Percent Cumulative Convertible
Preferred Stock are entitled to receive preferential dividends in cash, 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 8% 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.
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<PAGE>
The number of shares of our common stock into which the Series B 8%
Percent Cumulative Convertible Preferred Stock shall be convertible shall be
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 "B
Conversion Price". The B Conversion Price shall be the lesser of (x) $3.375, or
(y) 80% of the average of the three lowest "B Closing Bid Prices" for the ten
(10) trading days immediately preceding the conversion of the respective shares
of Series B 8% Percent Cumulative Convertible Preferred Stock. The "B Closing
Bid Price" is defined as the closing bid price, as reported on the Nasdaq
SmallCap Market, or the principal market or exchange where our common stock is
then traded as reported by Bloomberg.
At any time that the number of our shares of common stock issued (A)
upon conversion of the shares for Series B 8% Cumulative Convertible Preferred
Stock and (B) in lieu of dividend payments, shall equal 20% or more our
outstanding common stock, we are required to (x) redeem, at a price per share
equal to (A) the quotient of (i) $1,000 per share plus all accrued but unpaid
dividends and (ii) the B Conversion Price as if the Series B 8% Cumulative
Convertible Preferred Stock has been converted on the date of redemption,
multiplied by (B) the average B Closing Bid Price of our common stock for the
five trading days immediately preceding the date of redemption.
Common Stock Purchase Warrants
There are outstanding warrants to purchase an aggregate of 2,293,777
shares of our common stock. 631,750 of the warrants issued are exercisable at
any time and in any amount until December 30, 2004 at a purchase price of $3.24
per share, 350,000 of the warrants issued are exercisable at any time and in any
amount until April 16, 2005 at a purchase price of $3.71per share, 500,000 of
the warrants issued are exercisable at any time and in any amount until March 6,
2001 at a purchase price of $3.25 per share, 272,001 of the warrants issued are
exercisable at any time and in any amount until August 22, 2005 at a purchase
price of $3.516 per share, 81,766 of the warrants issued are exercisable at any
time and in any amount until August 22, 2005 at a purchase price of $3.165 per
share, 80,004 of the warrants issued are exercisable at any time and in any
amount until August 22, 2005 at a purchase price of $2.742, and 378,256 of the
warrants issued are exercisable at any time and in any amount until August 22,
2005 at a purchase price of $2.463 per share per share. We may call any
unexercised portion of 812,027 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 ten 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.
Warrantholders are not entitled, by virtue of being warrantholders, to
receive dividends or to vote at or receive notice of any meeting of shareholders
or to exercise any other rights whatsoever as our shareholders. In order to
receive one share of our common stock a warrantholder 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 warrantholder'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 shall issue and cause to be delivered to warrantholders, certificates
representing the number of shares of common stock so purchased.
Transfer Agent and Registrar
The transfer agent and registrar for the shares of common stock is
Continental Stock Transfer & Trust Company.
54
<PAGE>
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, that 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 or 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.
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.
55
<PAGE>
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 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.
56
<PAGE>
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.
57
<PAGE>
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 which
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$179 million. (This number is the threshold amount for 1998 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.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
No assurance can be given 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 or
conversion of the Series A 8% Cumulative Convertible Preferred Stock or
conversion of Series B 8% Cumulative Convertible Preferred Stock into shares of
our common stock, 1,889,354 are "restricted securities" as the term is defined
in Rule 144 under the Securities Act of 1933, as amended, 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 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 the date of this
prospectus, 1,889,354 shares of the common stock, held by beneficial owners, are
eligible for sale pursuant to Rule 144. We are unable to predict the effect that
the sales made under Rule 144 otherwise 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 effect the then prevailing market for our common stock
and could impair our ability to raise capital through the sale of our equity
securities.
59
<PAGE>
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.
<TABLE>
<CAPTION>
Percentage of
Position, office or Beneficial Shares of Common Stock
affiliation with Ownership Common Beneficially Owned
Name of Selling ThinkPath during the of Common Stock Stock After The
Security Holder past Three years Prior to Sale to be Sold(1) Offering(2)
--------------- --------------------- ----------------- ------------- ----------------------
<S> <C> <C> <C> <C>
Joseph Abood None 4,800 4,800 0
Oscar Alea None 4,800 4,800 0
Bakara Corporation None 3,200 3,200 0
Ronald A Balkin and None 26,667 26,667 0
Karen A. Balkin
Linda Bassin None 26,667 26,667 0
Bear Stearns Sec Corp FBO None 18,666 18,666 0
Paul Berkman IRA
Bewitched Enterprises None 48,000 48,000 0
Bru Holding Co., LLC None 259,012 259,012 0
CarCap Co., LLC None 64,754 64,754 0
CYP Representaciones, SA None 8,000 8,000 0
Bader M. Dager None 11,199 11,199 0
George R. Dick and None 32,000 32,000 0
Joann L. Dick JTWROS
James A. Erb None 13,333 13,333 0
Robert L. Frome None 26,667 26,667 0
Stanley L. Goldberg None 91,421 91,421 0
Robert D. Linn None 13,333 13,333 0
Manuela Lugo None 4,800 4,800 0
Ana Maria Stefanelli and None 8,000 8,000 0
Antonio Marco
Fred Marcus None 53,334 53,334 0
Alicia Martorell and None 4,800 4,800 0
Marianela Hernandez
John C. McNabney and None 13,333 13,333 0
Joyce L. McNabney JTWROS
James Milgard None 80,000 80,000 0
Thomas F. Motter None 26,667 26,667 0
Sherri and Adam Ocner None 53,334 53,334 0
</TABLE>
60
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Edwin and Cheryl Richardson None 26,667 26,667 0
Evanann Romero and None 4,800 4,800 0
Margaret Romero
Joel Schoenfield and None 32,000 32,000 0
Deborah Schoenfeld
Judy Shapiro None 26,667 26,667 0
Simarik Holdings None 9,600 9,600 0
Martin and Rebecca None 26,667 26,667 0
Staehlin JTWROS
Antonia de Stefanelli and None 8,000 8,000 0
Maria Pia Stefanelli
Edmund Tennenhaus None 13,333 13,333 0
Abdul Akil None 10,665 10,665 0
Lauren A. Daman, MD None 8,888 8,888 0
Glenn E. Emig None 59,249 59,249 0
Finamek Asset Management None 3,555 3,555 0
Elaine Khalaf None 17,775 17,775 0
James P. Magee None 29,625 29,625 0
L.W. Marjac LLC None 29,625 29,625 0
Miguel Pepe, Luis Pepe and None 17,775 17,775 0
Giuseppina Pepe
Edward S. Raskin Trust None 59,249 59,249 0
Jesus Yanez and Justa Yanez None 8,888 8,888 0
James Corman None 51,282 51,282 0
Ronald S. Dungan Deed of None 17,094 17,094 0
Trust DTD
Abe Dushey None 17,094 17,094 0
James K. Friedman, MD None 13,676 13,676 0
Jose R. Garrigo and None 6,155 6,155 0
Maylen E. Garrigo JTWROS
Glamox Investments, Inc. None 20,513 20,513 0
Douglas and Alexis Hogue None 20,513 20,513 0
JTWROS
J. Lawrence II, LLC None 13,676 13,676 0
Carlos Negron None 14,360 14,360 0
Edward T. Price None 17,094 17,094 0
Sandalio Rementeria and None 14,360 14,360 0
Maria Rosanna Morelli
Russell B. Wight, Jr. None 34,188 34,188 0
</TABLE>
61
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
William K. Cuda, Jr. None 19,044 19,044 0
Horatio Loray None 5,942 5,942 0
Maria Luisa Mila de la Roca None 6,855 6,855 0
Daniel Dougherty None 12,797 12,797 0
Alejandro Nunez None 6,855 6,855 0
Jonathan Mark None 7,617 7,617 0
CHAPTO y CIA None 6,855 6,855 0
KSH Investment Group, Inc. Placement Agent 175,000(3) 175,000(3) 0(3)
Kathy Rocklen None 2,500 2,500 0
Helen Kohn None 15,013 15,013 0
Stuart Kohn None 1,876 1,876 0
Michael Kohn None 1,876 1,876 0
Ronit Sucoff None 18,765 18,765 0
Aaron Katz None 2,400 2,400 0
Paul Dorfman None 213 213 0
Peter O'Neill None 1,383 1,383 0
Morris Betesh None 1,580 1,580 0
Daniel Katz None 317 317 0
Win Capital, Corp. Underwriter, 51,459(4) 51,459(4) 0(4)
Financial Advisor
Aquila Airways, Inc. None 4,046 4,046 0
Francis Anderson None 845 845 0
Nancy Murdocco None 1,000 1,000 0
Karen Ann Orlando None 1,000 1,000 0
Frances Kehoe None 1,000 1,000 0
Mary Ellen Spedale None 420 420 0
</TABLE>
---------------
(1) The number of shares of common stock shown as beneficially owned and
offered by the selling security holders represents the number of shares
which we have initially agreed to register. Pursuant to Rule 416 under
the Securities Act of 1933, as amended, 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 812,027 shares of our common stock which may be issued upon
the exercise of warrants. The above numbers assume that the selling
security holders will exercise all of the outstanding warrants held by
them.
(2) Assumes all of the shares of common stock offered are sold.
(3) Does not include 100,000 shares of common stock issuable to KSH
Investment Partners I, LLC upon the exercise of warrants and
262,605 shares of common stock issuable to KSH Investment Partners I,
LLC upon the conversion of $500,000 of Series B 8% Cumulative
Convertible Preferred Stock, all of which are currently
exercisable/convertible or exercisable/convertible within the next 60
days. The number of shares of common stock issuable upon the conversion
of the Series B 8% Cumulative Convertible Preferred Stock is based upon
a 20% discount to the closing market price of our common stock on
October 13, 2000 ($2.438). KSH Investment Group, Inc. disclaims
beneficial ownership to the shares of common stock issuable to KSH
Investment Partners I, LLC.
62
<PAGE>
(4) Does not include 20,700 shares of common stock issuable to Win Capital
Corp. upon the exercise of warrants issued to Win Capital Corp. as an
underwriter in our June 8, 1999 initial public offering.
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 effect until
the shares of common stock are no longer required to be registered for the sale
thereof by the selling security holders.
63
<PAGE>
PLAN OF DISTRIBUTION
The shares of common stock offered hereby by the selling security
holders may be sold from time to time by the selling security holders, or by
pledgees, donees, transferees and other successors in interest. These pledgees,
donees, transferees and other successors in interest will be deemed "selling
security holders" for the purposes of this prospectus. The 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.
The 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 short the common stock, 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 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 which 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.
64
<PAGE>
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, 1997, 1998
and 1999, 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 six months ended 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
65
<PAGE>
THINKPATH.COM INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(IN US DOLLARS)
(UNAUDITED)
JUNE 30, 2000
<PAGE>
THINKPATH.COM INC.
Interim Consolidated Balance Sheet
As of June 30, 2000 and December 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
(Restated)
June 30 December 31
2000 1999
$ $
------------ -------------
ASSETS
CURRENT ASSETS
Cash 1,156,087 1,904,588
Short-term investments 1,970,407 383,146
Accounts receivable 7,196,097 5,636,654
Prepaid expenses 629,638 720,754
Income taxes receivable 129,777 -
------------ -------------
11,082,006 8,645,142
CAPITAL ASSETS 3,433,464 3,362,855
GOODWILL 11,047,449 6,960,272
DUE FROM RELATED PARTY 211,313 211,313
OTHER ASSETS 1,246,309 1,227,470
DEFERRED INCOME TAXES 322,365 -
------------ -------------
27,342,906 20,407,052
============ =============
F-1
<PAGE>
THINKPATH.COM INC.
Consolidated Interim Balance Sheet
As of June 30, 2000 and December 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
(Restated)
June 30 December 31
2000 1999
$ $
---------- ------------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 5,582,645 4,430,264
Accounts payable 3,863,412 3,041,997
Deferred revenue 150,632 -
Income taxes payable - 159,830
Current portion of long-term debt 373,497 373,129
Current portion of note payable 1,300,000 1,300,000
---------- ----------
11,270,186 9,305,220
DEFERRED INCOME TAXES - 99,472
LONG-TERM DEBT 624,204 1,320,838
NOTE PAYABLE 1,654,654 1,150,000
---------- ----------
13,549,044 11,875,530
---------- ----------
STOCKHOLDERS' EQUITY
CAPITAL STOCK 13,658,467 8,717,441
OTHER COMPREHENSIVE INCOME, NET OF
INCOME TAXES
Cumulative translation adjustment (73,940) (47,306)
RETAINED EARNINGS 209,335 (138,613)
---------- ----------
13,793,862 8,531,522
---------- ----------
27,342,906 20,407,052
========== ==========
The accompanying notes are an integral part of these consolidated
interim financial statements.
F-2
<PAGE>
THINKPATH.COM INC.
Consolidated Interim Statements of Income
For the three and six months ended June 30, 2000 and 1999
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
ended ended ended ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
$ $ $ $
--------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
REVENUE 12,086,885 5,292,439 21,813,940 11,595,423
COST OF SERVICES 7,349,432 3,052,968 13,256,481 7,132,869
--------------- ---------------- ---------------- ---------------
GROSS PROFIT 4,737,453 2,239,471 8,557,459 4,462,554
--------------- ---------------- ---------------- ---------------
EXPENSES
Administrative 1,529,639 973,316 3,130,462 1,747,650
Selling 2,278,251 941,780 3,781,732 2,188,723
Financial 298,219 54,382 541,104 208,712
--------------- ---------------- ---------------- ---------------
4,106,109 1,969,478 7,453,298 4,145,085
--------------- ---------------- ---------------- ---------------
INCOME BEFORE AMORTIZATION AND INCOME TAXES 631,344 269,993 1,104,161 317,469
Amortization 432,498 43,931 714,162 143,869
--------------- ---------------- ---------------- ---------------
INCOME BEFORE INCOME TAXES 198,846 226,062 389,999 173,600
Income taxes (recovery) (36,291) 4,496 42,031 10,335
--------------- ---------------- ---------------- ---------------
NET INCOME 235,137 221,566 347,948 163,265
=============== ================ ================ ===============
BASIC EARNINGS PER STOCK 0.05 0.06 0.08 0.04
=============== ================ ================ ===============
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK OUTSTANDING 4,449,048 3,853,767 4,278,762 3,853,767
=============== ================ ================ ===============
FULLY DILUTED EARNINGS
PER STOCK 0.03 0.06 0.05 0.04
=============== ================ ================ ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated interim financial statements.
F-3
<PAGE>
THINKPATH.COM INC.
Consolidated Interim Statement of Stockholders' Equity
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
Common Preferred
Stock Stock Capital Cumulative
Number of Number of Stock Retained Translation
Shares Shares Amounts Earnings Adjustment
---------- --------- -------- -------- -----------
$ $ $
<S> <C> <C> <C> <C> <C>
Balance as of
December 31, 1999 (restated) 3,938,642 15,010 8,717,441 (138,613) (47,306)
Issuance of common stock 196,880 -- 925,991 -- --
Common stock payable -- -- -- -- --
Issuance of preferred stock -- -- -- -- --
Foreign currency
translation -- -- -- -- (1,626)
Net income for the period -- -- -- 112,811 --
---------- -------- ---------- --------- ----------
Balance as of
March 31, 2000 4,135,522 15,010 9,643,432 (25,802) (48,932)
Issuance of common stock 610,629 -- 1,815,035 -- --
Common stock payable -- -- 625,000 -- --
Issuance of preferred stock -- 4,000 1,575,000 -- --
Preferred stock converted 85,598 (2,053) -- -- --
Foreign currency
translation -- -- -- -- (25,008)
Net income for the period -- -- -- 235,137 --
---------- -------- ---------- --------- ----------
Balance as of
June 30, 2000 4,831,749 16,957 13,658,467 209,335 (73,940)
========== ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated interim financial statements.
F-4
<PAGE>
THINKPATH.COM INC.
Consolidated Interim Statement of Cash Flows
For the six months ended June 30, 2000 and 1999
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
$ $
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income 347,948 163,265
------------ -----------
Adjustments to reconcile net income
to net cash (used in)
provided by operating activities:
Amortization 618,302 121,860
Amortization of goodwill 95,860 22,009
Amortization of deferred contract 60,000 -
Decrease (increase) in accounts receivable (1,471,182) (124,697)
Decrease (increase) in prepaid expenses (96,550) (211,382)
Decrease (increase) in income taxes receivable (208,322) 104,296
Decrease (increase) in short-term investments (1,608,429) (3,762,203)
Decrease (increase) in inventory (70,567) (206,730)
Increase (decrease) in accounts payable and deferred revenue 1,032,538 227,465
Decrease (increase) in income taxes payable 41,118 --
Decrease (increase) deferred income taxes (41,485) --
------------ ------------
Total adjustments (1,648,717) (3,829,382)
------------ ------------
Net cash (used in) operating activities (1,300,769) (3,666,117)
------------ ------------
Cash flows from investing activities:
Purchase of capital assets (805,254) (399,927)
Purchase of other assets (212,650) (424,060)
Cash payment for subsidiaries (1,788,950) --
------------ ------------
Net cash (used in) investing activities (2,806,854) (823,987)
------------ ------------
Cash flows from financing activities:
Cash (paid) received on notes payable 496,068 --
Cash (paid) received on long-term debt (70,373) (152,015)
Proceeds from issuance of common stock 124,420 3,623,883
Proceeds from issuance of preferred stock 1,580,833 --
Increase in bank indebtedness 1,152,381 1,120,858
------------ ------------
Net cash provided by financing activities 3,283,329 4,592,726
------------ ------------
Effect of foreign currency exchange rate changes 75,793 (1,041)
------------ ------------
Net increase (decrease) in cash and cash equivalents (748,501) 101,581
Cash and cash equivalents
- Beginning of period 1,904,588 --
------------ ------------
- End of period 1,156,087 101,581
============ ============
Interest paid 410,881 187,182
============ ============
Income taxes paid 42,031 10,335
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
interim financial statements.
F-5
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Interim Financial Statements
June 30, 2000
(Amounts expressed in US dollars)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of 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.
b) Change of Name
The Company changed its name to Thinkpath.Com Inc. on
February 24, 2000.
c) Accounting Changes
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". 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 interim financial
statements of the company.
d) Principles of Consolidation
For the period January 1, 1997 through June 30, 2000, the
company completed 5 acquisitions, which were accounted for
under the purchase method, and 1 acquisition, which was
accounted for as a pooling of interests. The acquisition of
Object Arts Inc. was completed prior to March 31, 2000. In
connection with this transaction the company issued 527,260
shares of its common stock for all of the outstanding common
stock of the acquired company.
Accordingly, the consolidated interim financial statements
included herein for the 1999 periods have been retroactively
restated to reflect the acquisition.
2. ACQUISITONS
a) ObjectArts Inc. was acquired effective January 1, 2000 for
$1,977,000. This amount was paid through the issuance of
common stock on the date of closing. The acquisition is being
accounted for using the pooling of interest method.
b) MicroTech Professionals Inc. was acquired effective April 1,
2000 for $4,500,000.
F-6
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Interim Financial Statements
June 30, 2000
(Amounts expressed in US dollars)
(Unaudited)
This amount will be paid in two installments, based on certain
requirements to be met by MicroTech Professionals Inc.First
Installment: 133,333 common stock issued on closing,
$1,250,000 cash paid on closing, $750,000 3 year promissory
note bearing interest at 1/2% above prime paid semi-annually
issued on closing.Second Installment: $625,000 in common
stock, $875,000 cash, $500,000 3-year promissory note bearing
interest at 1/2% above prime paid semi-annually. The second
installment is contingent on the December 31, 2000 audited
financial statements of MicroTech Professionals Inc.
3. 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
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
$ $
--------- -----------
<S> <C> <C>
b) Issued 4,831,749 Common Stock 9,464,015 6,236,196
(3,938,642 as of December 31, 1999)
Issued 16,957 Preferred Stock 2,569,452 1,481,245
(15,010 as of December 31, 1999)
Common Stock Payable 1,625,000 1,000,000
----------- ---------
13,658,467 8,717,441
=========== =========
</TABLE>
On April 25, 2000, 133,333 common stock were issued for the
purchase of MicroTech Professionals Inc., for a total
consideration of $500,000.
On April 28, 2000, 300,000 common stock were issued for the
purchase of an investment held for re-sale called E-Wink Inc.
for a total consideration of $975,000
Over the course of the 3 months ended June 30, 2000, 85,598
common stock were issued on the conversion of 2,053 Preferred
Stock
Over the course of the 3 months ended June 30, 2000, 3,042
common stock were issued to other individuals for services
rendered.
The common stock payable represents the final payments for Cad
Cam Inc. ($1,000,000) and MicroTech Professionals Inc.
($625,000). Common Stock of Thinkpath.Com Inc. will be issued
for Cad Cam inc. at the prevailing market rate at the time of
issuance. Common Stock of Thinkpath.Com 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 commons stock payable were to
be converted at June 30, 2000 the number of common stock to be
issued would be 483,631.
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.
F-7
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Interim Financial Statements
June 30, 2000
(Amounts expressed in US dollars)
(Unaudited)
c) 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 proceeds have been reduced by any issue
expenses.
On April 16, 2000, 2500 shares of Series A, 8% cumulative,
convertible, preferred stock, no par value were issued in a
private placement for gross proceeds of $250,000. The proceeds
have been reduced by any issue expenses.
On April 16, 2000, 1,500 shares of Series B, 8% cumulative,
convertible, preferred stock, no par value were issued in a
private placement for gross proceeds of $1,500,000. The
proceeds have been reduced by any issue expenses.
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
June 30, 2000, 2,053 preferred stock had been converted into
common stock.
d) 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.
In connection with the Initial Public Offering, the
underwriters received 100,000 warrants. They are exercisable
at a purchase price of $5.00 per share.
In connection with the private placement of Series B preferred
stock 100,000 warrants were issued. They are exercisable at a
purchase price of $3.58. Also in connection with the private
placement of the Series B preferred stock 150,000 warrants
were issued. They are exercisable at a purchase price of
$3.30.
In connection with the purchase of the investment in E-Wink
500,000 warrants were issued. They are exercisable at a
purchase price of $3.24.
e) Stock Options
The company has outstanding stock options issued in
conjunction with its long-term financing agreements for 22,125
common stock and additional options issued to a previous
employee of the company for 200,000 shares exercisable at
$2.10.
An additional 250,000 options to purchase common stock of the
company were issued to related parties. The options are
exercisable at $5.00.
F-8
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Interim Financial Statements
June 30, 2000
(Amounts expressed in US dollars)
(Unaudited)
In connection with the acquisition of Cad Cam Inc. 100,000
options to purchase shares of the Company will be delivered in
quarterly installments, starting January 1, 2000. Each option
entitles the holder thereof to purchase one common stock of
the Company. The first 25,000 options have an exercise price
of $3.25 per common stock, and can be exercised at any time
during the period up until December 31, 2000. The second
25,000 options have an exercise price of $2.62. The third
25,000 options have an exercise price of $2.87. The final
25,000 options shall have an exercise price equal to the
lowest trading price of the Company's shares during the period
between July 1, 2000 and September 30, 2000.
In July 1998, the directors of the Company adopted and the
stockholders approved the adoption of the Company's 1998 Stock
option plan.
In May 2000, the directors of the Company adopted and the
stockholders approved the adoption of the Company's 2000 Stock
option plan. The plan provides for 435,000 options at an
exercise price of $3.25 per share. The options vest over a
three-year period and expire May 9, 2005.
Options
-------
Options outstanding at January 1, 1999 222,125
Options granted to key employees and directors 250,000
-------
Options outstanding at December 31, 1999 472,125
Options granted to employees and Officers 920,000
----------
Options Outstanding at June 30, 2000 1,392,125
==========
4. SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Thinkpath.Com Inc. acquired all the capital stock of ObjectArts Inc.
U.S for $346,310. The acquisition was funded as follows:
$
--------
Fair Value of Assets acquired 365,848
Liabilities Assumed (349,928)
Goodwill 330,390
Cash paid for Capital Stock (346,310)
---------
-0-
---------
Thinkpath.Com Inc. acquired all the capital stock of ObjectArts Inc.
Canada for $1,977,225. The acquisition was funded by the issuance of
527,260 common stock.
F-9
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Interim Financial Statements
June 30, 2000
(Amounts expressed in US dollars)
(Unaudited)
ThinkPath.Com Inc. acquired all the capital stock of MicroTech
Professionals Inc. for $4,500,000. The acquisition was funded as
follows:
$
------------
Fair Value of Assets acquired 1,255,515
Liabilities Assumed (214,714)
Goodwill 3,459,199
Cash Paid For Capital Stock (1,250,000)
Common Stock Issued (500,000)
Notes Payable (1,250,000)
Accounts Payable (875,000)
Common Stock Payable (625,000)
-------------
--
============
5. TRANSACTIONS WITH RELATED COMPANIES
a) In the first quarter of fiscal 2000, the Company received fees
from MicroTech professionals (prior to their acquisition) in
the amount of $500,000 and the company paid certain expenses
on behalf of MicroTech Professionals Inc. totalling $260,000.
b) During the second quarter of 2000, Thinkpath.Com transferred
$762,000 in GTS capitalized costs to the associated company
E-Wink Inc. The costs represent the value given to the key
source code of GTS which will be used by E-Wink. Thinkpath
currently owns 80% of E-Wink Inc. which it is holding as a
short-term investment.
6. BASIC EARNINGS PER COMMON STOCK
Basic earnings per common stock is computed by dividing net income by
the weighted average number of common stock outstanding.
The fully diluted number of common stock outstanding for the
three-month period ending June 30, 2000 was 5,733,567 and for the
six-month period ending June 30, 2000 was 5,583,221.
7. SEGMENTED INFORMATION
a) Sales by Geographic Area
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
$ $ $ $
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Canada 3,952,327 3,634,674 7,746,613 7,963,357
United States of America 8,134,558 1,657,765 14,067,327 3,632,066
---------- --------- ---------- ----------
12,086,885 5,292,439 21,813,940 11,595,423
========== ========= ========== ==========
</TABLE>
F-10
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Interim Financial Statements
June 30, 2000
(Amounts expressed in US dollars)
(Unaudited)
b) Net Income by Geographic Area
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
$ $ $ $
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Canada (487,194) 152,164 (560,346) 112,125
United States of America 722,331 69,402 908,294 51,140
-------- ------- -------- -------
235,137 221,566 347,948 163,265
======== ======= ======== ========
</TABLE>
c) Identifiable Assets by Geographic Area
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
$ $
--------- ------------
<S> <C> <C>
Canada 7,663,772 7,972,275
United States of America 19,679,134 12,434,777
---------- ----------
27,342,906 20,407,052
=========== ==========
</TABLE>
d) Revenue and Gross Profit by Operating Segment
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
$ $ $ $
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue
Information Technology Placement 4,705,389 3,634,674 7,959,882 7,963,357
Engineering Placement 4,988,221 -0- 10,133,863 -0-
Technical Training 2,393,275 1,658,065 3,720,195 3,632,066
---------- ------------ ---------- -----------
12,086,885 5,292,439 21,813,940 11,595,423
=========== ========== ========== ==========
Gross Profit
Information Technology Placement 2,098,870 1,492,834 4,333,836 2,974,744
Engineering Placement 1,772,011 -0- 3,291,931 -0-
Technical Training 866,572 746,637 931,692 1,487,810
----------- --------- ---------- ----------
4,737,453 2,239,471 8,557,459 4,462,554
========== ========== ========== ==========
</TABLE>
F-11
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Interim Financial Statements
June 30, 2000
(Amounts expressed in US dollars)
(Unaudited)
e) Revenue 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 in
either 2000 or 1999.
8. COMPREHENSIVE INCOME
The Company has adopted the Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" as of June 1, 1998 which
requires new standards for reporting and display of comprehensive
income and its components in the financial statements. However, it does
not affect net income or total stockholder's equity. The components of
comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Six
Months Months
Ended Ended
June 30 June 30
2000 2000
$ $
--------- --------
<S> <C> <C>
Net Income 235,137 347,948
Other comprehensive income (loss):
Foreign Currency Translation Adjustments (25,008) (26,634)
-------- ---------
Comprehensive Income 210,129 321,314
======= =========
</TABLE>
The components of accumulated other comprehensive income (loss) are as
follows:
<TABLE>
<S> <C>
Accumulated other comprehensive loss, December 31, 1999 $ (47,306)
Foreign currency translation adjustments for the three-month period ended
March 31, 2000 (1,626)
-----------
Accumulated other comprehensive loss, March 31, 2000 (48,932)
</TABLE>
F-12
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Interim Financial Statements
June 30, 2000
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<S> <C>
Foreign currency translation adjustments for the three month (25,008)
Period ended June 30, 2000 --------
Accumulated other comprehensive loss, June 30, 2000 (73,940)
========
</TABLE>
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 which is done only for the
convenience of the reader.
9. SUBSEQUENT EVENTS
a) The Company has signed a number of letters of intent and
expressions of interest with corporations operating in various
cities in North America. At this time, due to confidentiality
agreements, the Company is not at liberty to disclose the
identity or terms and conditions of these acquisitions.
b) Subsequent to June 30, 2000, the company raised $2,000,000
gross proceeds (approximately $1,640,000 net proceeds) in a
private placement of common stock plus a warrant entitling the
holder to one half common stock exercisable under the terms
and conditions set forth in Item 5 of the 10-QSB.
c) Subsequent to June 30, 2000, the company issued an additional
$500,000 (approximately $425,000 net proceeds) of Series A
preferred stock.
d) After June 30, 2000 the company entered into an agreement with
Bank One for an operating line of $7,000,000 payable on
demand, secured by the Company's assets. This operating line
replaces all other operating lines that were in effect at June
30,2000.
F-13
<PAGE>
THINKPATH.COM INC.
(Formerly IT Staffing Ltd.)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998
TOGETHER WITH AUDITORS' REPORT
(Amounts Expressed in US Dollars)
F-14
<PAGE>
THINKPATH.COM INC.
(Formerly IT Staffing Ltd.)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998
TOGETHER WITH AUDITORS' REPORT
(Amounts Expressed in US Dollars)
TABLE OF CONTENTS
Report of Independent Auditors F-16
Consolidated Balance Sheets F-17 -- F-18
Consolidated Statements of Income F-19
Consolidated Statements of Changes in Stockholders' Equity F-20
Consolidated Statements of Cash Flows F-21
Notes to Consolidated Financial Statements F-22 -- F-45
F-15
<PAGE>
[Letterhead of Schwartz Levitsky Feldman LLP]
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
ThinkPath.com Inc.
We have audited the accompanying consolidated balance sheets of ThinkPath.com
Inc. (incorporated in Canada) as of December 31, 1999 and 1998 and the related
consolidated statements of income, cash flows and changes in stockholders'
equity for the years ended December 31, 1999, 1998 and 1997. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ThinkPath.com Inc. as of December 31, 1999 and 1998 and the consolidated results
of its operations and its cash flows for the years ended December 31, 1999,
1998, and 1997 in conformity with generally accepted accounting principles in
the United States of America.
On March 22, 2000, we reported separately to the shareholders of ThinkPath.com
Inc. on financial statements for the same period, prepared in accordance with
Canadian generally accepted accounting principles.
Toronto, Ontario
March 22, 2000 Chartered Accountants
except for notes 1, 12 and 19
for which the date is October 18, 2000
F-16
<PAGE>
THINKPATH.COM INC.
Consolidated Balance Sheet
As of December 31
(Amounts expressed in US dollars)
1999 1998
$ $
---------- ----------
ASSETS
CURRENT ASSETS
Cash 1,790,621 --
Short-term investments (note 3) 383,146 --
Accounts receivable (note 4) 4,895,523 2,184,783
Work-in-progress 350,679 --
Prepaid expenses 325,616 87,941
---------- ----------
7,745,585 2,272,724
CAPITAL ASSETS (note 5) 2,955,321 464,789
GOODWILL (note 6) 6,985,436 1,332,603
INVESTMENT IN NON-RELATED COMPANY -- 130,438
DUE FROM RELATED PARTY (note 7) 211,313 --
OTHER ASSETS (note 8) 1,216,111 648,223
---------- ----------
19,113,766 4,848,777
========== ==========
APPROVED ON BEHALF OF THE BOARD
Director
----------------------------------
Director
----------------------------------
F-17
<PAGE>
THINKPATH.COM INC.
Consolidated Balance Sheet
As of December 31
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
1999 1998
$ $
----------- -----------
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 9) 4,083,836 734,034
Accounts payable 2,424,725 1,386,659
Income taxes payable 135,089 95,212
Current portion of long-term debt (note 10) 278,790 218,251
Current portion of note payable (note 11) 1,300,000 --
----------- -----------
8,222,440 2,434,156
DEFERRED INCOME TAXES (note 13) 107,472 --
LONG-TERM DEBT (note 10) 562,126 628,428
NOTE PAYABLE (note 11) 1,150,000 --
----------- -----------
10,042,038 3,062,584
----------- -----------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 12) 8,388,298 1,448,368
RETAINED EARNINGS 705,571 476,851
OTHER COMPREHENSIVE INCOME, NET OF TAX (note 14)
Cumulative translation adjustment (22,141) (139,026)
----------- -----------
9,071,728 1,786,193
----------- -----------
19,113,766 4,848,777
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-18
<PAGE>
THINKPATH.COM INC.
Consolidated Statements of Income
For the years ended December 31
(Amounts expressed in US dollars)
1999 1998 1997
$ $ $
---------- ---------- ----------
REVENUE 19,822,861 12,502,560 4,704,341
COST OF CONTRACT SERVICES 12,569,357 7,594,533 2,888,540
---------- ---------- ----------
GROSS PROFIT 7,253,504 4,908,027 1,815,801
Gain on investments 252,708 -- --
---------- ---------- ----------
7,506,212 4,908,027 1,815,801
---------- ---------- ----------
EXPENSES
Administrative 2,916,398 1,354,561 373,627
Selling 4,134,497 2,984,604 1,123,051
Financial 113,783 102,351 125,594
---------- ---------- ----------
7,164,678 4,441,516 1,622,272
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 341,534 466,511 193,529
Income taxes (note 13) 112,814 115,321 55,121
---------- ---------- ----------
NET INCOME 228,720 351,190 138,408
---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK OUTSTANDING
Basic 2,471,758 1,684,542 1,309,135
========== ========== ==========
Fully diluted 2,683,820 1,906,667 1,309,135
========== ========== ==========
EARNINGS PER WEIGHTED AVERAGE
COMMON STOCK
Basic 0.09 0.21 0.11
========== ========== ==========
Fully diluted 0.08 0.18 0.11
========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
F-19
<PAGE>
THINKPATH.COM INC.
Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
Common Preferred
Stock Stock Capital Cumulative
Number of Number of Stock Retained Translation
Shares Shares Amounts Earnings Adjustment
--------- --------- --------- --------- -----------
$ $ $
<S> <C> <C> <C> <C> <C>
Balance as of
December 31, 1996 1,021,125 -- 4 (12,747) 59
Issuance of common stock 288,010 -- 328,323 -- --
Foreign currency
translation -- -- -- -- (18,192)
Net income for the year -- -- -- 138,408 --
--------- --------- --------- --------- -----------
Balance as of
December 31, 1997 1,309,135 -- 328,327 125,661 (18,133)
Issuance of common stock
408,740 -- 1,120,041 -- --
Foreign currency
translation -- -- -- -- (120,893)
Net income for the year -- -- -- 351,190 --
--------- --------- --------- --------- -----------
Balance as of
December 31, 1998 1,717,875 -- 1,448,368 476,851 (139,026)
Issuance of common stock 1,370,767 -- 4,787,788 -- --
Common stock payable -- -- 1,000,000 -- --
Issuance of preferred stock -- 15,000 1,152,142 -- --
Foreign currency
translation -- -- -- -- 116,885
Net income for the year -- -- -- 228,720 --
--------- --------- --------- --------- -----------
Balance as of
December 31, 1999 3,088,642 15,000 8,388,298 705,571 (22,141)
========= ========= ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-20
<PAGE>
THINKPATH.COM INC.
Consolidated Statement of Cash Flows
For the years ended December 31
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 228,720 351,190 138,408
---------- ---------- ----------
Adjustments to reconcile net income
to net cash (used in)
provided by operating activities:
Amortization 439,620 140,735 16,968
Amortization of goodwill 92,875 44,191 15,258
Amortization of deferred contract 29,142 -- --
Amortization of deferred consulting fees 185,106 -- --
Gain on investment (237,578) -- --
Increase in accounts receivable (2,841,510) (1,524,174) (577,114)
Increase in prepaid expenses (225,549) (83,531) (15,645)
Increase in accounts payable 925,060 1,058,432 317,281
Increase in income taxes payable 32,969 59,095 34,365
Increase in deferred income taxes 72,333 -- --
---------- ---------- ----------
Total adjustments (1,527,532) (305,252) (208,887)
---------- ---------- ----------
Net cash provided by (used in) operating activities (1,298,812) 45,938 (70,479)
---------- ---------- ----------
Cash flows from investing activities:
Purchase of capital assets (907,074) (638,867) (44,739)
Purchase of other assets (942,087) -- 733
Cash payment for subsidiaries (1,985,732) (485,085) (140,028)
Acquisition of shares in non-related company (236,819) (134,853) --
---------- ---------- ----------
Net cash used in investing activities (4,071,712) (1,258,805) (184,034)
---------- ---------- ----------
Cash flows from financing activities:
Cash (paid) received on notes payable (65,569) (101,140) 108,350
Cash (paid) received on long-term debt (241,495) 818,942 23,837
Proceeds from issuance of common stock 4,281,804 570,513 --
Proceeds from issuance of preferred stock 1,119,186 -- --
Cash (paid) received from stockholders -- (47,985) 21,716
Cash paid for deferred charges -- (606,300) --
Increase in bank indebtedness 2,016,000 569,592 96,601
---------- ---------- ----------
Net cash provided by financing activities 7,109,926 1,203,622 250,504
---------- ---------- ----------
Effect of foreign currency exchange rate changes 51,219 (615) 8,126
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 1,790,621 (9,860) 4,117
Cash and cash equivalents
- Beginning of year -- 9,860 5,743
---------- ---------- ----------
- End of year 1,790,621 -- 9,860
========== ========== ==========
Interest paid 325,952 113,102 6,491
========== ========== ==========
Income taxes paid -- -- --
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-21
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Change of Name
The company changed its name to ThinkPath.com Inc. on
February 24, 2000.
b) Principal Business Activities
ThinkPath.com Inc. is an information technology
staffing 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.,
specializes in placing information technology
personnel on both a contract and permanent basis.
c) Basis of consolidated financial statement
presentation
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. All
significant inter-company accounts have been
eliminated. All of the acquisitions have been
accounted for using the purchase method.
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.
F-22
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
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.
Obligation under capital leases are reduced by rental
payments net of imputed interest.
h) Net Income and Fully Diluted Net Income Per Weighted
Average Common Stock
Net income per common stock is computed by dividing
net income for the year by the weighted average
number of common stock outstanding during the year.
Fully diluted net income 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 12
were converted or exercised. Stock options which are
anti-dilutive are not included in the calculation of
fully diluted net income per weighted average common
stock.
i) Work in Progress
Work in progress is valued at the lower of cost and
the net realizable value of the services rendered.
j) Revenue
Revenue from contract placements is recognized as
services are performed. Revenue from permanent
placements are recognized upon commencement of
employment.
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.
F-23
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
l) Income Taxes
The company accounts for income tax under the
provision of Statement of Financial Accounting
Standards No. 109, which requires recognition at
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.
m) Foreign Currency Translation
The translation of the consolidated financial
statements from Canadian dollars into United States
dollars is performed for the convenience of the
reader. Balance sheet accounts are translated using
closing exchange rates in effect at the balance sheet
date and income and expense accounts are translated
using an average exchange rate prevailing during each
reporting period. No representation is made that the
Canadian dollar amounts could have been, or could be,
converted into United States dollars at the rates on
the respective dates or at any other rates.
Adjustments resulting from the translation are
included in the cumulative translation adjustments in
stockholders' equity.
n) Use of Estimates
The preparation of consolidated financial statements
in conformity with generally accepted accounting
principals 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.
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 determined that
no impairment has occurred.
F-24
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
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 additional
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) Accounting Changes
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". 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 interim financial
statements of the company.
F-25
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
2. ACQUISITIONS
Systemsearch Consulting Services Inc. was acquired on January
2, 1997 for $391,313. This amount was paid by the issuance of
common stock and a cash payment of $97,828. The purchase has
been reflected as follows:
Consideration $391,313
Assumption of net liabilities 57,321
--------
Goodwill $448,634
========
International Career Specialists Ltd. was acquired on January
1, 1998 for $652,188. This amount was paid by the issuance of
common stock and a cash payment of $326,094. The purchase was
reflected as follows:
Consideration $652,188
Assumption of net liabilities 198,409
--------
Goodwill $850,597
========
The assets of Southport Consulting Company, a New Jersey corporation,
were acquired by ThinkPath.com 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
========
F-26
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
2. ACQUISITIONS (cont'd)
Cad Cam Inc. and its subsidiaries Cad Cam of Michigan Inc.,
Cad Cam Technical Services Inc., and Cad Cam Integrated
Systems Inc. was acquired on September 16, 1999 for
$6,000,000. This amount was paid as follows: $2,000,000 paid
in cash and $500,000 in common stock on the date of closing.
The balance consists of three notes payable totalling
$2,500,000 (note 10) and $1,000,000 in the form of common
stock to be issued with the final note payable (note 11).
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
==========
3. SHORT-TERM INVESTMENTS
In September 1998, ThinkPath.com Inc. was issued 95,000 common
stock of Fax Forward Inc., a public company trading on the
Bermuda Stock Exchange, in lieu of $130,438 receivable owing
to them. ThinkPath.com Inc. has the option of selling these
shares on the open market after June 2000. This is considered
to be a short-term investment and is currently being reflected
at $4.00 per share, the market value at December 31, 1999.
4. ACCOUNTS RECEIVABLE
1999 1998
$ $
Accounts receivable 5,528,485 2,217,392
Less: Allowance for doubtful accounts (632,962) (32,609)
-------- --------
4,895,523 2,184,783
========= =========
F-27
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
5. CAPITAL ASSETS
<TABLE>
<CAPTION>
1999 1998
--------------------------------- -------
Accumulated
Cost Amortization Net Net
--------- ------------ --------- -------
$ $ $ $
<S> <C> <C> <C> <C>
Furniture and equipment 484,691 211,324 273,367 175,133
Computer equipment
and software 4,503,138 2,231,383 2,271,755 273,276
Software database 15,235 5,144 10,091 8,968
Website development 76,983 12,265 64,718 2,675
Leasehold improvements 384,697 49,307 335,390 4,737
--------- --------- --------- -------
5,464,744 2,509,423 2,955,321 464,789
========= ========= ========= =======
Assets under capital lease 511,197 126,471 384,726 260,753
========= ========= ========= =======
</TABLE>
Amortization for the year amounted to $439,620 ($140,735 in
1998). Amortization includes amortization of assets under
capital lease of $120,434 ($40,539 in 1998).
6. GOODWILL
Goodwill is the excess of cost over the value of assets
acquired over liabilities assumed in the purchase of the
following companies: Systemsearch Consulting Services Inc.,
International Career Specialists Inc. and Cad Cam Inc.
1999 1998
$ $
Cost 7,141,404 1,389,123
Accumulated amortization 155,968 56,520
--------- ---------
Net 6,985,436 1,332,603
========= =========
Amortization for the year 92,875 44,191
========= =========
7. DUE FROM RELATED PARTY
Amounts due from related party are unsecured, bear interest at 7%,
have no specific terms of repayment and are not expected to be repaid
prior to January 1, 2001.
F-28
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
8. OTHER ASSETS 1999 1998
<TABLE>
<CAPTION>
$ $
1999 1998
<S> <C> <C>
Deferred development cost - Global Tool Set 652,291 61,773
Deferred financing costs 39,514 586,450
Deferred contract (net of accumulated amortization
of $30,000) 210,000 --
Deferred consulting fees (net of accumulated
amortization of $190,570) 190,556 --
Cash surrender value of life insurance 123,750 --
--------- -------
1,216,111 648,223
========= =======
</TABLE>
Amortization for the year amounted to $220,570 ($nil in 1998).
9. BANK INDEBTEDNESS
The companies have available lines of credit to a maximum of
$1,400,000, which bear interest at Canadian prime plus 1.5%
per annum and are secured by a general assignment of book
debts, a general security agreement and guarantees and
postponements of claims by various affiliated companies. The
company has available another line of credit through a
subsidiary, with a limit of $5,000,000 with interest at the
banks prime rate. It is secured by a general security
agreement. The company's average interest rate on short-term
borrowings was 8%.
F-29
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
a) Included therein:
A Business Development Bank of Canada ("BDC") loan secured by a
general security agreement, payable in 52 equal monthly payments
of $3,464 plus interest of 11%. In addition ThinkPath.com Inc.
shall pay interest monthly by way of royalty of 0.018% per annum
of ThinkPath.com Inc.'s projected annual gross sales 176,678 195,656
A BDC loan, secured by a general security agreement, payable in
43 equal monthly payments of $4,619 plus interest at the BDC
base rate plus 4% per annum. Currently the interest rate is
12.50%. In addition ThinkPath.com Inc. shall pay interest
monthly by way of a royalty of 0.0426% per annum of
Thinkpath.com Inc.'s projected annual gross sales 203,248 243,496
A BDC loan, secured by a general security agreement, payable in
44 monthly payments of $3,464 plus interest at the BDC base rate
plus 4% per annum. Currently, the interest rate is 12.50%. In
addition ThinkPath.com Inc. shall pay interest monthly by way of
royalty of 0.0198% per annum of its projected gross annual sales 152,428 182,613
A BDC loan, secured by a general security agreement, payable in
19 remaining monthly payments of $693 plus interest at the BDC
operational interest rate prime plus 3% per annum. Currently,
the interest rate is 13.50% 13,164 20,218
A BDC loan, secured by a general security agreement,
payable in 11 remaining monthly payments of $693 plus
interest at the BDC base rate plus 3% per annum. Currently,
the interest rate is 11.50% 7,621 15,000
Various capital leases with various payment terms and
interest rates 287,777 189,696
------- -------
840,916 846,679
Less: Current portion 278,790 218,251
------- -------
562,126 628,428
======= =======
</TABLE>
F-30
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
10. LONG-TERM DEBT (cont'd)
b) Future principal payments obligations are as follows:
2000 $ 278,790
2001 231,800
2002 200,400
2003 116,835
2004 13,091
----------
$ 840,916
==========
c) Interest expense with respect to the long-term debt amounted to
$132,125 ($60,317 in 1998).
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 shares at the time of
issuance was $62,393 ($2.82 share). The imputed discount on
these options is being amortized over the term of the loan as
interest.
11. NOTE PAYABLE
As part of the purchase of Cad Cam Inc., ThinkPath.com Inc. owes the
following amounts:
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
Notes payable, unsecured, bearing interest at prime plus 0.5% 2,450,000 -
Less: Current portion (1,300,000) -
----------- ----------
1,150,000 -
========== ==========
</TABLE>
First note payable was issued on the closing date of the Cad Cam Inc.
acquisition, in the amount of $1,000,000. $50,000 of this note was
paid during the year, with interest of $17,500. This note is to be
repaid in 20 quarterly instalments, with interest at prime plus 0.5%.
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 prime plus 0.5%.
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.
F-31
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
12. 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
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
3,088,642 Common stock (1,717,875 in 1998) 6,236,156 1,448,368
15,000 Preferred stock 1,152,142 -
Common stock payable 1,000,000 -
--------- ---------
8,388,298 1,448,368
========= =========
</TABLE>
On January 2, 1997, 288,010 common stock was issued in
conjunction with the acquisition of Systemsearch Consulting
Services Inc. with a carrying value of $328,323.
On January 1, 1998, 130,914 common stock was issued in
conjunction with the acquisition of International Career
Specialists Ltd. with a carrying value of $349,528.
A private placement of 196,370 common stock was completed in
March 1998 yielding proceeds of $423,639. Included in the
purchasers were some employees and directors.
A second placement of 85,094 common stock was completed in April
1998 yielding proceeds of $216,814. Included in the purchasers
were some employees and directors.
In April of 1998, the company redeemed 43,637 common stock for
$69,940.
On August 6, 1998, the company split its stock. The result of
the split converted the outstanding common stock from 1,281,667
to 1,667,875 shares a 1:1.3 split. The number of common stock
indicated above have been retroactively restated in all periods
to reflect the stock split on August 6, 1998.
On October 31, 1998, the company issued 40,000 common stock in
the acquisition of the assets of Southport Inc. The cost of
these shares was $200,000.
F-32
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
12. CAPITAL STOCK (cont'd)
b) Issued (cont'd)
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", and on the Boston Stock Exchange
under the trading symbol "THP'. 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.
The common stock payable represents the final payment for Cad
Cam Inc. Common stock of ThinkPath.com Inc. will be issued at
the prevailing market rate at time of issuance for a total value
of $1,000,000. If common stock payable were to be converted at
December 31, 1999 the number of common stock to be issued would
be 333,333.
In the first quarter of 2000, 174,254 shares of common stock was
issued for services rendered on the acquisitions of Cad Cam Inc.
and ObjectArts Inc. On the acquisition of ObjectArts Inc.
527,260 common stock was issued. As part of the acquisition of
ObjectArts Inc., the company issued 196,880 common shares for a
total consideration of $743,435.
On April 25, 2000, 133,333 common stock were issued for the
purchase of MicroTech Professionals Inc., for a total
consideration of $500,000.
On April 28, 2000, 300,000 common stock were issued for the
purchase of an investment held for re-sale called E-Wink Inc.
for a total consideration of $975,000.
Over the course of the 3 months ended June 30, 2000, 3,042
common stock were issued to other individuals for services
rendered.
The common stock payable represents the final payments for Cad
Cam Inc. ($1,000,000) and MicroTech Professionals Inc.
($625,000). Common Stock of Thinkpath Com Inc. will be issued
for Cad Cam Inc. at the prevailing market rate at the time of
issuance. Common Stock of ThinkPath.com Inc. will be issued for
MrcroTech 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 commons stock payable were to be converted at
June 30, 2000 the number of common stock to be issued would be
483,631.
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.
F-33
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
12. CAPITAL STOCK (cont'd)
c) 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 (see note 19). 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 preferred stockholder may exercise their right to conversion
only if the aggregate stated value of all shares of Series A, 8%
cumulative, convertible, preferred stock is less than $5,000.
At any time after the effective date of the registration
statement, ThinkPath.com 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.com 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.
As part of the Cad Cam Inc. and the ObjectArts Inc. acquisitions
60,000 common stock will be issued to a related party in lieu of
payment for services rendered. This common stock will be issued
at the prevailing market rate on date of issuance.
Subsequent to year-end 50,000 common stock were issued to a
non-related individual as part of the Cad Cam Inc. acquisition
cost.
Subsequent to year-end 14,254 common stock were issued in a
private placement.
On April 16, 2000, 2,500 shares of Series A, 8% cumulative,
convertible, preferred stock, no par value were issued in a
private placement for gross proceeds of $250,000. The proceeds
have been reduced by any issue expenses.
On April 16, 2000, 1,500 shares of Series B, 8% cumulative,
convertible, preferred stock, no par value were issued in a
private placement for gross proceeds of $1,500,000. The proceeds
have been reduced by any issue expenses.
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
October 18, 2000, 7,833 Class A preferred stock and 250 Class B
stock had been converted into common stock.
F-34
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
12. CAPITAL STOCK (cont'd)
d) 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.
In connection with the Initial Public Offering, the underwriters
received 100,000 warrants. They are exercisable at a purchase
price of $5.00 per share.
In connection with the private placement of subsequent to the
year end of Series B preferred stock 100,000 warrants were
issued. They are exercisable at a purchase price of $3.58. Also
in connection with the private placement of the Series B
preferred stock 150,000 warrants were issued. They are
exercisable at a purchase price of $3.30.
In connection with the purchase of the investment in E-Wink
subsequent to the year end, 500,000 warrants were issued. They
are exercisable at a purchase price of $3.24.
e) Stock Options
The company has outstanding stock options issued in conjunction
with its long-term financing agreements for 22,125 common stock
(see note 10) and additional options issued to a previous
employee of the company for 200,000 shares exercisable at $2.10.
An additional 250,000 options to purchase shares of the company
were issued to related parties. The options are exercisable at
$5.00.
In connection with the acquisition of Cad Cam Inc. 100,000
options to purchase shares of the company will be delivered in
quarterly instalments, starting January 1, 2000. Each option
will entitle the holder thereof to purchase one common stock of
the company. The first 25,000 options shall have an exercise
price of $3.25 per common stock, and can be exercised at any
time during the period up until December 31, 2000. The second
25,000 options shall have an exercise price equal to the lowest
trading price of the company's shares during the period between
January 1, 2000 and March 31, 2000. The third 25,000 options
shall have an exercise price equal to the lowest trading price
of the company's shares during the period between March 31, 2000
and June 30, 2000. The final 25,000 options have an exercise
price equal to the lowest trading price of the company's shares
during the period between June 30, 2000 and September 30, 2000.
In July 1999, the directors of the company adopted and the
stockholders approved the adoption of the company's 1999 Stock
Option Plan.
The plan 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.
F-35
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
12. CAPITAL STOCK (cont'd)
e) Stock Options (cont'd)
The plan is effective for a period of ten years, expiring in
2008. Options to acquire 435,000 common stock 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 plan 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 plan, subject to
applicable securities regulation.
The plan 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 plan
may not be increased without the consent of the stockholders of
the company.
Options
-------
Options outstanding at January 1, 1999 222,125
Options granted to key employees and directors 685,100
-------
Options outstanding at December 31, 1999 907,225
=======
As all options granted are exercisable between $2.10 and fair
market value, which either approximates the grant-date fair
value of the options or is greater than the grant-date fair
value of the options granted, no stock-based compensation has
been recognized for these options.
In May 2000, the directors of the company adopted and the
stockholders approved the adoption of the company's 2000 Stock
Option Plan. The plan provides for 435,000 options at an
exercise price of $3.25 per share. The options vest over a
three-year period and expire May 9, 2005.
F-36
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
13. 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:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Accounting amortization in excess of tax
amortization (199,317) - -
Losses available to offset future income
taxes 339,429 - -
Share issue costs 372,948 - -
Adjustment cash to accrual method (620,532) - -
-------- -------- --------
(107,472) - -
======== ======== ========
</TABLE>
As part of the acquisition of Cad Cam Inc., there was a change
of control which resulted in Cad Cam Inc. being required to
change from the cash method to the accrual method of accounting
for income taxes. At December 31, 1999 the company has
non-capital losses available for carryforward of $998,320.
b) Current Income Taxes
<TABLE>
<CAPTION>
Current income taxes consist of:
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Amount calculated at Federal and
Provincial statutory rates 119,537 115,471 70,702
-------- -------- --------
Increase (decrease) resulting from:
Permanent differences 11,579 10,407 2,714
Timing differences 51,295 (1,471) (29)
Other differences - (9,086) (18,266)
Loss carried back applied (69,597) - -
-------- -------- --------
(6,723) (150) (15,581)
-------- -------- --------
Current income taxes 112,814 115,321 55,121
======== ======== ========
</TABLE>
F-37
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
14. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards
No. 130 Reporting Comprehensive Income and its components in the
financial statements. However, it does not affect net income or
stockholders' equity. The components of comprehensive income are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Net income 228,720 351,190 138,408
Other comprehensive loss 116,885 (120,893) (18,192)
------- -------- -------
Comprehensive income 345,605 230,297 120,216
======= ======== =======
<S> <C>
The components of accumulated other comprehensive income (loss) are
as follows:
Accumulated other comprehensive income, December 31, 1997 $ (18,133)
Foreign currency translation adjustments for the year ended
December 31, 1998 (120,893)
--------------
Accumulated other comprehensive losses, December 31, 1998 (139,026)
Foreign currency translation adjustments for the year ended
December 31, 1999 116,885
--------------
Accumulated other comprehensive losses December 31, 1999 $ (22,141)
==============
</TABLE>
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.
F-38
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
15. SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
ThinkPath.com Inc. acquired all the capital stock of Cad Cam Inc. for
$6,000,000. The acquisition was funded as follows:
Fair Value of Assets acquired $ 5,552,572
Liabilities assumed (5,071,430)
Goodwill 5,518,858
Cash paid for Capital Stock (2,000,000)
Note Payable and Common Stock Payable (3,500,000)
Common Stock Issued (500,000)
------------
-
============
16. TRANSACTIONS WITH RELATED COMPANIES
During 1999, ThinkPath.com Inc. charged its subsidiaries a one-time
set-up fee, and has continued to charge maintenance fees for the use
of Global Tool Set. 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.com Inc. has entered into a consulting agreement with a
company, whereby this company performs all 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. The managing director of
this company is also CFO of ThinkPath.com Inc.
17. 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:
2000 $ 832,301
2001 587,881
2002 375,699
2003 185,393
2004 156,222
Thereafter 455,648
------------
$ 2,593,144
============
F-39
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
18. SEGMENTED INFORMATION
a) Sales by Geographic Area
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Canada 13,860,284 11,877,432 4,503,642
United States of America 5,962,577 625,128 200,699
---------- ---------- ---------
19,822,861 12,502,560 4,704,341
========== ========== =========
</TABLE>
b) Net Income by Geographic Area
The company's accounting records do not readily provide
information on net income by geographic area. Management is of
the opinion that the proportion of net income based principally
on sales, presented below, would fairly present the results of
operations by geographic area.
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Canada (179,220) 333,630 131,822
United States of America 407,940 17,560 6,586
---------- --------- ---------
228,720 351,190 138,408
========== ========= =========
</TABLE>
c) Identifiable Assets by Geographic Area
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Canada 7,271,740 4,848,777 1,274,215
United States 11,842,026 - -
---------- --------- ---------
19,113,766 4,848,777 1,274,215
========== ========= =========
</TABLE>
d) Revenues from Major Customers
The consolidated entity had the following revenues from major
customers:
1999
----
No single customer consisted of more than 10% of the revenues.
One customer comprises 13% of the accounts receivable as of
December 31, 1999.
1998
----
No single customer consisted of more than 10% of the revenues.
F-40
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
18. SEGMENTED INFORMATION (cont'd)
e) Purchases from Major Suppliers
There were no significant purchases from major suppliers.
19. SUBSEQUENT EVENTS
a) Subsequent to year-end, ThinkPath.com Inc. entered into a merger
and acquisition agreement with ObjectArts Inc. and its subsidiary
ObjectArts (US) Inc. ObjectArts (US) Inc., was merged with IT
Staffing New York Ltd., an inactive subsidiary of ThinkPath.com
Inc. The purchase price consists of ThinkPath.com Inc. issuing
527,260 common stock at a purchase price equal to $3.75 per
common stock. The effective date of the acquisition is January 1,
2000. As part of the ObjectArts Inc. acquisition, 228,242 common
stock, with an aggregate value of $837,157 were issued on the
conversion of a long-term debt obligation. The effect of
retroactively restating the financial statements for December 31,
1999 to account for this acquisition as a pooling of interests is
indicated in note 25.
b) The company has signed a number of letters of intent and
expressions of interest with corporations operating in various
cities in North America. At this time, due to confidentiality
agreements, the company is not at liberty to disclose the
identity or terms and conditions of these acquisitions.
c) Subsequent to year-end, ThinkPath.com Inc. entered into an
agreement with Deloitte & Touche Corporate Finance Inc. to
structure and arrange $5,000,000 through a private placement. The
company decided to not proceed with it in the current year.
d) Subsequent to year-end, ThinkPath.com Inc. entered into an
agreement with J.P. Turner & Company, L.L.C. ("JPT") for a public
offering to be underwritten or co-managed. The company decided to
not proceed with it in the current year.
e) Subsequent to year-end a form SB-2 was filed for the offering of
the Series A 8% cumulative, convertible preferred stock and
warrants. The registration statement was declared effective April
27, 2000. In October, 2000, the company will file a form SB-2 for
the registration of .common stock for the conversion of Class B
shares and the exchange of warrants.
f) On November 29, 1999, Thinkpath.Com signed a letter of intent to
purchase 100% of the common stock of Global Installers Network
Inc. for an amount based on earnings multiple. 10% of the
Purchase Price shall be paid in cash upon the Closing and the
remaining balance of the Purchase Price through the issuance of
the company's common stock.
F-41
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
19. SUBSEQUENT EVENTS (cont'd)
g) On December 1, 1999, Thinkpath.Com has signed a letter of intent
to purchase 100% of the common stock of Elite Information
Services Inc. for a maximum purchase price of $2,000,000,
subject to adjustment based on earnings in a combination of
cash, unsecured promissory note, and shares.
On December 1, 1999, Thinkpath.Com signed a letter of intent to
purchase 100% of the common stock of Aquila Holdings Limited and
its wholly-owned subsidiary DPP International Limited in a
combination of (pound)$2,500,000 in cash and (pound)961,000
worth of the Company's common stock.
h) MicroTech professionals Inc. was acquired effective April 1,
2000 for $4,500,000.
The amount will be paid in two installments, based on certain
requirements to be met by MicroTech Professionals Inc. First
Instalment: 133,333 common stock issued on closing, $1,250,000
cash paid on closing, $750,000 3 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 3-year promissory not e bearing interest at 1/2%
above prime paid semi-annually. The second instalment is
contingent on the December 31, 2000 audited financial statements
of MicroTech Professionals Inc.
i) On March 6, 2000, ThinkPath.Com completed the acquisition of 80%
of E-Wink, Inc., a Delaware corporation, in consideration of: i)
300,000 shares of our common stock; 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.
j) On July 27, 2000, ThinkPath.Com 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.
k) Subsequent to June 30, 2000, the company raised $2,000,000 gross
proceeds (approximately $1,640,000 net proceeds) in a private
placement of common stock plus a warrant entitling the holder to
one half common stock exercisable under the terms and conditions
set forth in item 5 of the 10-QSB.
l) Subsequent to June 30, 2000, the company issued an additional
$500,000 (approximately $425,000 net proceeds) of Series A
preferred stock.
m) On September 13, 2000, Thinkpath.Com entered into an agreement
with Burlington Capital Markets Inc. to aid the company in
further acquisition for a consideration of 250,000 shares and
warrants to purchase an aggregate of 400,000 shares, exercisable
in whole or in part until 5 years from the date they can first
be exercised.
F-42
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
19. SUBSEQUENT EVENTS (cont'd)
m) On September 21, 2000, Thinkpath.Com signed a letter of intent to
purchase 100% of the common stock of TidalBeach Inc., in
consideration for up to 250,000 common shares.
20. 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.
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
Average common stock outstanding 2,471,758 1,684,542
Average common stock issuable 212,063 222,125
--------- ---------
Average common stock outstanding assuming dilution 2,683,821 1,906,667
========= =========
</TABLE>
Some of the outstanding options were not included in the computation
of the fully diluted earnings per common share as there was either no
fixed exercise price or the exercise price was greater than the
average market price of the common stock during the year.
21. 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-43
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Information
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
21. 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.
22. CONTINGENCIES
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 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.
23. COMPARATIVE FIGURES
Certain figures in the 1998 financial statements have been
reclassified to conform with the basis of presentation used in 1999.
24. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems
may recognize the year 2000 as 1900 or some other date, resulting in
errors when information using year 2000 dates is processed. In
addition, similar problems may arise in some systems which use
certain dates in 1999 to represent something other than a date.
Although the change in date has occurred, it is not possible to
conclude that all aspects of the Year 2000 Issue that may affect the
entity, including those related to customers, suppliers, or other
third parties, have been fully resolved.
F-44
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Information
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
25. PROFORMA FINANCIAL INFORMATION
The following pro-forma summary of operations summarizes, as at
December 31, 1999, the results of operations as if the acquisitions
of ObjectArts Inc. (see note 19) and Cad Cam Inc. (see note 2) had
occurred January 1, 1999:
REVENUE $ 42,710,997
Cost of Services 27,906,215
---------------
14,804,782
---------------
EXPENSES
Administrative 7,521,858
Selling 5,694,797
Financial 847,442
Amortization 875,799
Goodwill amortization 316,908
---------------
15,256,804
---------------
NET LOSS $ (452,022)
===============
F-45
<PAGE>
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
II-1
<PAGE>
(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.
(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) INDEM. 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 $1,207.38
Legal Fees and Expenses* $7,500.00
Accounting Fees and Expenses* $2,500.00
Miscellaneous* $3,792.62
Total* $15,000.00
-----------
* estimate
II-2
<PAGE>
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 issuances of these securities were
considered to be exempt from registration under Section 4(2) of the Securities
Act of 1933, as amended, and the regulations promulgated thereunder. 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.
All of the following issuances were made pursuant to Section 4(2) of
the Securities Act of 1933, as amended:
In October 1997, in consideration for business consulting services,
including identifying, structuring and effecting the acquisition of Systemsearch
Consulting Services Inc., 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 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.
All of the forgoing issuances were made in Canada to Canadian residents
in conformity with the relevant local securities laws and we believe would have
been exempt from registration in the United States pursuant to the exemption
provided by Section 4(2) of the Securities Act of 1933, as amended.
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 October 13, 2000, we issued 18,508 shares of our common stock upon
Mr. Rubin's exercise of such option.
In September 1999, in connection with the acquisition of Cad Cam, Inc.,
we issued 130,914 shares of our common stock to Roger Walters.
II-3
<PAGE>
In December 1999, we issued 15,000 shares of Series A 8% Cumulative
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.
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; 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. E-Wink,
Inc. is currently developing platform technology that will match company's
seeking venture capital with venture capital firms offering such venture
capital. There can be no assurance that such technology will be developed, or if
developed, that such technology will work as intended
On April 16, 2000, we issued: (i) 1,500 shares of Series B 8%
Cumulative Convertible Preferred Stock; (ii) 2,500 shares of Series A 8%
Cumulative Convertible Preferred Stock: (iii) and common stock purchase warrants
to purchase an aggregate of 350,000 shares of our common stock in connection
with a private placement offering to accredited investors in consideration for
$1,750,000. The offer and sale of the shares of Series B 8% Cumulative
Convertible Preferred Stock, the shares of Series A 8% 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.
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 up to an aggregate of $4,500,000 in a
combination of cash, notes payable and shares of our common stock, subject to
specific performance criteria be met. On the 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 Denise
Dunne-Fushi, the former President of Micro Tech Professionals, Inc. Such
employment agreement is for a term of 1 year commencing on April 25, 2000, the
effective date of the acquisition, with an annual salary of $125,000 per year
and a bonus of $25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the
acquisition.
On July 7, 2000, we issued an aggregate of: (a) 5,000 shares of our
Series A 8% Cumulative Convertible Preferred Stock; and (b) warrants to purchase
up to an aggregate of 225,000 shares of our common stock, in consideration
$500,000 pursuant to the exercise of our option granted to us in the December
1999 a private placement offering upon the same terms as described above. 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.
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 280,093 shares of our
common stock in connection with the private placement offering. Such warrants
are exercisable until August 22, 2000 at an exercise price of $2.4614 per share.
II-4
<PAGE>
ITEM 27. EXHIBITS
** 1.1 Form of Underwriting Agreement
** 3.1 Bylaws of Thinkpath.com Inc.
** 3.2 Articles of Incorporation dated February 11, 1994
** 3.3 Articles of Amendment dated February 15, 1996
** 3.4 Articles of Amendment dated April 15, 1998
** 3.5 Articles of Amendment dated August 6, 1998
** 3.6 Articles of Amendment dated January 19, 1999
** 4.2 Form of Underwriters' Warrant
** 4.3 Specimen Common Share Certificate
* 5.1 Opinion of Gersten, Savage & Kaplowitz, LLP
** 10.1 Form of Financial Consulting Agreement
** 10.2 1998 Stock Option Plan
** 10.3(a) Lease of Thinkpath.com Inc.'s headquarters in Toronto, Ontario
** 10.3(b) Lease of Thinkpath.com Inc.'s office in New York, New York
** 10.3(c) Lease of Thinkpath.com Inc.'s office in Etobicoke, Ontario
** 10.3(d) Lease of Thinkpath.com Inc.'s office in Scarborough, Ontario
** 10.3(e) Lease of Thinkpath.com Inc.'s office in Ottawa, Ontario
** 10.4 Employment Agreement between Thinkpath.com Inc. and Declan
French dated August 1998.
** 10.5 Employment Agreement between Thinkpath.com Inc. and John A.
Irwin dated May 18, 1998.
** 10.6 Employment Agreement between Thinkpath.com Inc. and John R.
Wilson dated February 8, 1998.
*** 10.7 Employment Agreement between Thinkpath.com Inc. and Roger
Walters dated September 16, 1999
** 10.8 Form of consulting agreement for Thinkpath.com Inc.'s
independent contractors.
** 10.9 Form of services agreement for Thinkpath.com Inc.'s customers.
** 10.10 Agreement for the acquisition of the capital stock of
International Career Specialists Ltd.
** 10.11 Agreement for the acquisition of the capital stock of
Systemsearch Consulting Services Inc. and Systems PS Inc.
*** 10.12 Agreement for the acquisition of the capital stock of Cad Cam,
Inc.
** 10.13 License Agreement between Thinkpath.com Inc. and International
Officer Centers Corp. dated August 1, 1998.
** 10.14 Consulting Agreement between Thinkpath.com Inc. and Robert M.
Rubin.
** 10.15 Form of Employment Agreement with Confidentiality Provision.
** 10.16 Asset Purchase Agreement between Thinkpath.com Inc. and
Southport Consulting Company.
**** 10.17 2000 Stock Option Plan
* 10.18 Share Purchase Agreement between ThinkPath.com Inc. and Micro
Tech Professionals, Inc. dated April 25, 2000.
* 10.19 Non-Binding Letter of Intent between ThinkPath.com Inc. and
TidalBeach Inc. dated September 21, 2000.
* 10.20 Non-Binding Letter of Intent between ThinkPath.com Inc. and
Aquila Holdings Limited dated October 4, 2000.
* 23.1 Consent of Schwartz Levitsky Feldman, llp, independent auditors.
* 23.2 Consent of Gersten, Savage & Kaplowitz, LLP (incorporated into
Exhibit 5.1)
-----------
* Filed herewith.
** Incorporated by reference to Thinkpath.com Inc.'s Registration Statement on
Form SB-2 filed on May 26, 1999.
*** Incorporated by reference to Thinkpath.com Inc.'s report on Form 8-K filed
on October 1, 1999.
**** Incorporated by reference to Thinkpath.com Inc.'s Proxy Statement on Form
Def-14A filed on May 22, 2000.
II-5
<PAGE>
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-6
<PAGE>
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 20th day of October, 2000.
THINKPATH.COM INC.
By: /s/ Declan A. French
Declan A. French
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Declan A French, Chairman of the Board and Chief Executive Officer, with full
power to act without the other, his or her true and lawful attorney-in-fact and
agent, with full power of substitution and re-substitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments, including post-effective amendments, to this registration
statement or any registration statement relating to the same offering as this
registration statement filed in accordance with Rule 462 under the Securities
Act, and to file those documents, with all of their exhibits, and other
documents relating to them, with the SEC, granting to those attorneys-in-fact
and agents, full power and authority to do and perform each and every act and
thing requisite and necessary fully to all intents and purposes as he or she
might or could do in person and by doing so ratifying and confirming all that
those attorneys-in-fact and agents of any of them, or their or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue of this
power of attorney.
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Declan A. French
---------------------------- Chairman of the Board and Chief October 20, 2000
Declan A. French Executive Officer
/s/ Kelly Hankinson Chief Financial Officer and Director October 20, 2000
----------------------------
Kelly Hankinson
Executive Vice President--US Operations and October 20, 2000
---------------------------- Director.
Roger W. Walters
/s/ Marilyn Sinclair Vice President, President and Director of October 20, 2000
---------------------------- ObjectArts Inc. and Director.
Marilyn Sinclair
---------------------------- Director October 20, 2000
John Dunne
/s/ Arthur S. Marcus Director October 20, 2000
----------------------------
Arthur S. Marcus
---------------------------- Director October 20, 2000
Ronan McGrath
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
** 1.1 Form of Underwriting Agreement
** 3.1 Bylaws of Thinkpath.com Inc.
** 3.2 Articles of Incorporation dated February 11, 1994
** 3.3 Articles of Amendment dated February 15, 1996
** 3.4 Articles of Amendment dated April 15, 1998
** 3.5 Articles of Amendment dated August 6, 1998
** 3.6 Articles of Amendment dated January 19, 1999
** 4.2 Form of Underwriters' Warrant
** 4.3 Specimen Common Share Certificate
* 5.1 Opinion of Gersten, Savage & Kaplowitz, LLP
** 10.1 Form of Financial Consulting Agreement
** 10.2 1998 Stock Option Plan
** 10.3(a) Lease of Thinkpath.com Inc.'s headquarters in Toronto, Ontario
** 10.3(b) Lease of Thinkpath.com Inc.'s office in New York, New York
** 10.3(c) Lease of Thinkpath.com Inc.'s office in Etobicoke, Ontario
** 10.3(d) Lease of Thinkpath.com Inc.'s office in Scarborough, Ontario
** 10.3(e) Lease of Thinkpath.com Inc.'s office in Ottawa, Ontario
** 10.4 Employment Agreement between Thinkpath.com Inc. and Declan
French dated August 1998.
** 10.5 Employment Agreement between Thinkpath.com Inc. and John A.
Irwin dated May 18, 1998.
** 10.6 Employment Agreement between Thinkpath.com Inc. and John R.
Wilson dated February 8, 1998.
*** 10.7 Employment Agreement between Thinkpath.com Inc. and Roger
Walters dated September 16, 1999
** 10.8 Form of consulting agreement for Thinkpath.com Inc.'s
independent contractors.
** 10.9 Form of services agreement for Thinkpath.com Inc.'s customers.
** 10.10 Agreement for the acquisition of the capital stock of
International Career Specialists Ltd.
** 10.11 Agreement for the acquisition of the capital stock of
Systemsearch Consulting Services Inc. and Systems PS Inc.
*** 10.12 Agreement for the acquisition of the capital stock of Cad Cam,
Inc.
** 10.13 License Agreement between Thinkpath.com Inc. and International
Officer Centers Corp. dated August 1, 1998.
** 10.14 Consulting Agreement between Thinkpath.com Inc. and Robert M.
Rubin.
** 10.15 Form of Employment Agreement with Confidentiality Provision.
** 10.16 Asset Purchase Agreement between Thinkpath.com Inc. and
Southport Consulting Company.
**** 10.17 2000 Stock Option Plan
* 10.18 Share Purchase Agreement between ThinkPath.com Inc. and Micro
Tech Professionals, Inc. dated April 25, 2000.
* 10.19 Non-Binding Letter of Intent between ThinkPath.com Inc. and
TidalBeach Inc. dated September 21, 2000.
* 10.20 Non-Binding Letter of Intent between ThinkPath.com Inc. and
Aquila Holdings Limited dated October 4, 2000.
* 23.1 Consent of Schwartz Levitsky Feldman, llp, independent auditors.
* 23.2 Consent of Gersten, Savage & Kaplowitz, LLP (incorporated into
Exhibit 5.1)
-----------
* Filed herewith.
** Incorporated by reference to Thinkpath.com Inc.'s Registration Statement on
Form SB-2 filed on May 26, 1999.
*** Incorporated by reference to Thinkpath.com Inc.'s report on Form 8-K filed
on October 1, 1999.
**** Incorporated by reference to Thinkpath.com Inc.'s Proxy Statement on Form
Def-14A filed on May 22, 2000.
II-8
