<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from ____________ to ________________
Commission file number __________
THINKPATH.COM INC.
(Exact name of Small Business Issuer as Specified in Its Charter)
Ontario 52-209027
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 University Avenue
Suite 505
Toronto, Ontario, Canada M5J 2H7
---------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(416) 364-8800 (Issuer's telephone number, including area code)
--------------
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
The number of shares outstanding of the registrant's Common Stock, No
Par Value, on August 11, 2000 was 4,831,749 shares.
Transitional Small Business Disclosure Format (check one):
Yes X No
----- -----
<PAGE>
THINKPATH.COM INC.
JUNE 30, 2000 QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page Number
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999.... 4-5
Consolidated Statements of Income
for the three months and six months ended June 30, 2000 and 1999....... 6
Consolidated Statements of Stockholders' Equity
for the six months ended June 30, 2000 and 1999........................ 7
Consolidated Statements of Cash Flows
for the six months ended June 30, 2000 and 1999........................ 8
Notes to Consolidated Financial Statements............................... 9-16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................................ 20
Item 2. Changes in Securities and Use of Proceeds................................ 20
Item 3. Defaults Upon Senior Securities.......................................... 20
Item 4. Submission of Matters to a Vote of Security Holders...................... 20
Item 5. Other Information........................................................ 26
Item 6. Exhibits and Reports on Form 8-K......................................... 27
</TABLE>
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains forward-looking statements
as defined by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements, which are other than statements of historical facts. These
statements are subject to uncertainties and risks including, but not limited to,
product and service demand and acceptance, changes in technology, economic
conditions, the impact of competition and pricing, government regulation, and
other risks defined in this document and in statements filed from time to time
with the Securities and Exchange Commission. All such forward-looking statements
are expressly qualified by these cautionary statements and any other cautionary
statements that may accompany the forward-looking statements. In addition,
ThinkPath.com Inc disclaims any obligations to update any forward-looking
statements to reflect events or circumstances after the date hereof.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
<PAGE>
THINKPATH.COM INC.
Interim Consolidated Balance Sheet
As of June 30, 2000 and December 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
(Restated)
June 30 December 31
2000 1999
$ $
<S> <C> <C>
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
========== ==========
</TABLE>
4
<PAGE>
THINKPATH.COM INC.
Consolidated Interim Balance Sheet
As of June 30, 2000 and December 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
(Restated)
June 30 December 31
2000 1999
$ $
<S> <C> <C>
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
========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated interim financial statements.
5
<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 0.05 0.06 0.07 0.04
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated interim financial statements.
6
<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 3,938,642 15,010 8,717,441 (138,613) (47,306)
(restated)
Issuance of common stock 196,880 -- 925,991 -- --
Issuance of preferred stock -- 9,643,432 -- -- --
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.
7
<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.
8
<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.
9
<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
June 30 December 31
2000 1999
$ $
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
(15,010 as of December 31, 1999) 2,569,452 1,481,245
Common Stock Payable 1,625,000 1,000,000
---------- ----------
13,658,467 8,717,441
========== ==========
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 18, 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 three months ended June 30, 2000, 85,598 common
stock were issued on the conversion of 2,053 Preferred Stock
Over the course of the three 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.
10
<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, 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 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.
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.
11
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Interim Financial Statements
June 30, 2000
(Amounts expressed in US dollars)
(Unaudited)
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.
12
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Interim Financial Statements
As at 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
Three Three Six Six
Months Months Months Months
ended ended ended ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
$ $ $ $
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
========== ========== ========== ==========
13
<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
Three Three Six Six
Months Months Months Months
ended ended ended ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
$ $ $ $
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
========== ========== ========== ==========
c) Identifiable Assets by Geographic Area
June 30 December 31
2000 1999
$ $
Canada 7,663,772 7,972,275
United States of America 19,679,134 12,434,777
---------- ----------
27,342,906 20,407,052
========== ==========
d) Revenue and Gross Profit by Operating Segment
Three Three Six Six
Months Months Months Months
ended ended ended ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
$ $ $ $
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
========== ========= ========== ==========
14
<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:
Three Six
Months Months
Ended Ended
June 30 June 30
2000 2000
$ $
Net Income 235,137 347,948
Other comprehensive income
(loss):
Foreign Currency Translation
Adjustments (25,008) (26,634)
Comprehensive Income 210,129 321,314
======= =======
The components of accumulated other comprehensive income (loss) are as
follows:
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)
15
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Interim Financial Statements
June 30, 2000
(Amounts expressed in US dollars)
(Unaudited)
Foreign currency translation adjustments for the three month (25,008)
Period ended June 30, 2000 ------
Accumulated other comprehensive loss, June 30, 2000 (73,940)
======
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
Accounts Receivable. This operating line replaces all other
operating lines that were in effect at June 30, 2000.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto and the other historical financial
information of Thinkpath.com Inc. contained elsewhere in this Form 10-QSB. The
statements contained in this Form 10-QSB that are not historical are forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Exchange Act of 1934, including
statements regarding ThinkPath.com Inc.'s expectations, intentions, beliefs or
strategies regarding the future. Forward-looking statements include
ThinkPath.com Inc.'s statements regarding liquidity, anticipated cash needs and
availability and anticipated expense levels. All forward-looking statements
included in this Form 10-QSB are based on information available to ThinkPath.com
Inc. on the date hereof, and ThinkPath.com Inc. assumes no obligation to update
any such forward-looking statement. It is important to note that ThinkPath.com
Inc.'s actual results could differ materially from those in such forward-looking
statements. All dollar amounts stated throughout this Form-10QSB are in US
dollars unless otherwise indicated.
Overview
ThinkPath.com Inc. (the "Company"), a corporation formed under the laws of
the Province of Ontario, Canada, is a global provider of information technology
and engineering recruiting, project outsourcing, technical training and
consulting and ASP-based skills management technology. The Company's customers
include high profile software development, financial services, banking,
telecommunications, government and information technology companies, including
but not limited to, Bank of Montreal, Bell Canada, Goldman Sachs, Chapters,
Lucent Technologies, Cummins Engine, General Motors, Merrill Lynch, Xerox
Corporation, General Electric, American Express and Universal Industrial Corp.
(ESI).
A substantial part of the Company's growth has been achieved through
acquisitions. For the period commencing on January 1, 2000 and ending on June
30, 2000, the Company completed the acquisitions of Object Arts Inc., which was
accounted for using the pooling-of-interests method of accounting, and MicroTech
Professionals, Inc. which was accounted for using the purchase method of
accounting method. In connection with these acquisitions, the Company issued an
aggregate of 660,593 shares of its common stock in exchange for: (i) all of the
issued and outstanding common stock of Object Arts, Inc.; and (ii) all of the
issued and outstanding shares of common stock of Micro Tech Professionals, Inc.
In March 2000, the Company issued 300,000 shares of its common stock in
exchange for 80% of the issued and outstanding common stock of E-Wink, Inc. The
acquisition of E-Wink, Inc. has been reflected as an Investment Held for Resale.
E-Wink, Inc. is currently developing platform technology that will match
corporations seeking venture capital with venture capital firms. E-Wink, Inc.
is in the process of raising equity and, as a result, the Company's equity
interest in E-Wink, Inc. may be reduced.
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Results of Operations For Each of the Three and Six Months Ended June 30,
2000 and 1999
Revenue
Revenue for the three months ended June 30, 2000 increased by $6,800,000
or 128% to $12,100,000, as compared to $5,300,000 ended for the three months
ended June 30, 1999. The increase is primarily due to added revenues of Cad Cam,
Inc. and MicroTech Professionals, Inc. Cad Cam Inc. was acquired in September
1999 and had sales of $5,000,000 for the three months ended June 30, 2000.
MicroTech Professionals, Inc. was acquired effective April 1, 2000 and had sales
of $1,740,000 for the three months ended June 30, 2000. As a result of these
acquisitions, the Company's revenues from the United States for the three months
ended June 30, 2000 increased by $6,500,000, or 391%, to $8,130,000, as compared
to $1,660,000 for the three months ended June 30, 1999.
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 MicroTech 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. MicroTech Professionals, Inc. was acquired effective April 1, 2000 and had
sales of $1,740,000 for the three months ended June 30, 2000. As 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.
Cost of Services Sold
The costs of services sold for the three months ended June 30, 2000
increased by $4,300,000 or 141%, to $7,350,000, as compared to $3,050,000 for
the three 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
services sold increased to 61% in 2000 from 58% in 1999, as a result of the
increase in Cad Cam Inc.'s engineering contracts which have lower margins than
information technology contracts.
The costs of services 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 MicroTech Professionals, Inc. As a percentage of revenue, the cost of
services sold decreased from 62% in 1999 to 61% in 2000, as a result of the
acquisition of ObjectArts Inc. and the higher margins afforded to technical
training.
Gross Profit
Gross profit for the three months ended June 30, 2000 increased by
$2,500,000 or 112%, to $4,740,000, as compared to $2,240,000 for the three
months ended June 30, 1999. This increase was attributable to the aforementioned
increase in revenue during the three months ended June 30, 2000. As a percentage
of revenue, gross profit decreased from 42% for the three months ended June 30,
1999 to 39% for the three months ended June 30, 2000. This decrease is a result
of the lower margins on engineering contracts.
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.
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 three months
ended June 30, 2000 increased by $2,140,000, or 108%, to $4,110,000, as compared
to $1,970,000 for the three 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 37% for the three months ended June 30, 1999 to 34% for the three
months ended June 30, 2000.
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.
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Net Income
Net income for the three months ended June 30, 2000 increased by $15,000
or 7%, to $235,000, as compared to $220,000 for the three months ended June 30,
1999. As a percentage of revenue, net income decreased from 4% for the three
months ended June 30, 1999 to 2% for the three months ended June 30, 2000.
Amortization expense increased $390,000 or 884% from $44,000 for the three
months ended June 30, 1999 to $430,000 for the three 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 $250,000 or 500% to $300,000 for the three months
ended June 30, 2000 from $50,000 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.
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 $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.
Liquidity and Capital Resources
The Company's primary sources of cash and cash flow from operations are its
credit lines with Toronto Dominion Bank and Provident Bank and proceeds from a
private placement. At June 30, 2000, the Company 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, the Company had a cash flow deficiency from
operations of $1,300,000, due primarily to an increase in accounts receivable.
At June 30, 1999, the Company had cash and cash equivalents of $4,000,000 and
working capital of $3,380,000. During the six months ended June 30, 1999
the Company had a cash flow deficiency from operations of $3,670,000, due
primarily to an increase in short-term investments.
The Company's 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, the
Company 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, the
Company 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.
The Company's arrangement with the Toronto-Dominion Bank allows 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, the Company has 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, the Company had a total of $600,000 due to the
Business Development Bank of Canada pursuant to seven separate loans.
On July 27, 2000, the Company signed an agreement with Bank One for an
operating line of $7,000,000, payable on demand, and secured by the Company's
assets. Effective July 27, 2000, the Company cancelled its operating lines with
Toronto Dominion Bank and Provident Bank.
During the six months ended June 30, 2000 the Company 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
(the Company's proprietary Internet-based recruiting and information management
tool), infrastructure buildup and cash payments for subsidiaries. During the six
months ended June 30, 1999, the Company had a cash flow deficit from investing
activities of $820,000, attributable to the acquisition of capital assets.
The Company's working capital requirements consist primarily of the
financing of accounts receivable. While there can be no assurances in this
regard, the Company expects that internally generated cash plus the bank
revolving lines of credit will be sufficient to support its working capital
needs, its fixed payments and other short-term obligations. The Company 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.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 1, 2000, the Company acquired MicroTech Professionals, Inc., a
Boston-based recruitment firm specializing in technical documentation
specialists and technical trainers. The Company purchased 100% of the issued
outstanding common stock of MicroTech Professionals Inc. for a maximum amount of
$4,500,000, subject to specific performance criteria being met, in a combination
of cash, note payable and $1,125,000 worth of the Company's common stock.
On April 16, 2000, the Company issued: (i) 1,500 shares of B Preferred
Stock (as defined below); and (ii) 300,000 B Warrants (as defined below), in
consideration of $1,500,000 pursuant to a private placement offering. The shares
of B Preferred Stock and B Warrants are subject to terms and conditions as
described below in Item 4.
In addition, On April 16, 2000, the Company issued: (i) 2,500 shares of A
Preferred Stock (as defined below), and (ii) 50,000 B Warrants (as defined
below), pursuant to a private placement offering. The 50,000 B 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. The shares of A Preferred Stock and
B Warrants are subject to the terms and conditions as described below in Item 4.
Pursuant to the Company's December 30, 1999 private placement offering of
shares of A Preferred Stock and A Warrants, the investors in the offering are
obligated to purchase from the Company, at the Company's option, an additional
$500,000 worth shares of A Preferred Stock and A Warrants, on the same terms and
conditions. On June 27, 2000, the Company exercised its option and issued 5,000
shares of Series A Preferred Stock and 225,000 A Warrants in consideration of
$500,000.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 12, 2000, the Company held the Annual Meeting of Shareholders at
which the shareholders: (i) elected the Board of Directors of the Company for
the ensuing year; (ii) ratified the appointment of Schwartz, Levitsky, Feldman,
llp, as the Company's independent chartered accountants for the ensuing year;
(iii) ratified the adoption of the Company's 2000 Stock Option Plan; and (iv)
ratified the issuance of more than 717,246 shares of the Company's common stock,
if necessary, upon (a) the conversion of the Company's Series B Eight Percent
(8%) Cumulative Convertible Preferred Stock, (b) the conversion of the Company's
Series A Eight Percent (8%) Cumulative Preferred Stock, and (c) the exercise of
common stock purchase warrants.
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(i) The following directors were elected to the Board of Directors of the
Company and received the votes indicated:
For Withheld
Declan A. French 2,905,016 5,355
Kelly Hankinson 2,904,766 5,605
Roger W. Walters 2,904,016 6,355
Marilyn Sinclair 2,904,766 5,605
John Dunne 2,905,016 5,355
Arthur S. Marcus 2,905,016 5,355
Ronan McGrath 2,904,016 5,355
Set forth below is a biographical description of each of the Company's
directors elected at the Company's Annual Meeting of Shareholders held on
June 12, 2000:
Declan A. French, has served as the Company's Chairman of the Board of
Directors and Chief Executive Officer since the Company's inception in February
1994. Prior to founding the Company, 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.
Kelly Hankinson, has served as the Company's Chief Financial Officer,
Secretary and Treasurer since May 2000. Ms. Hankinson served as the Company's
Group Controller from February 1994 to May 2000. Ms. Hankinson has a Masters
Degree and a Bachelors Degree from York University.
Roger W. Walters, has served on the Company's Board of Directors and as
Executive Vice President of U.S. Operations since September 16, 1999, the date
the Company 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 the
Company in September 16, 1999. Mr. Walter has a Masters degree in Mechanical
Engineering.
Marilyn Sinclair, has served as the Company's Vice President and President
- Object Arts since January 1, 2000, the date the Company acquired Object Arts,
Inc. Ms. Sinclair served as the president of Object Arts Inc. since 1993. Ms.
Sinclair has over eight (8) 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 the Company's 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 the Company's Board of Directors since
April 2000. Mr. Marcus is a partner at the New York law firm of Gersten, Savage
& Kaplowitz, LLP, the Company's 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 (50) initial public offering and numerous
mergers and acquisitions. Mr. Marcus played and instrumental role in the
Company's initial public offering in June 1999. Mr. Marcus received a Juris
Doctorate from Benjamin N. Cardozo School of Law in 1989.
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Ronan 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.
(ii) The appointment of Schwartz, Levitsky Feldman, llp, to serve as the
Company's independent chartered accountants for the ensuing year was approved by
the votes indicated:
For: 2,905,971
Against: 4,100
Abstain: 300
Non-votes: 0
(iii) The adoption of the Company's 2000 Stock Option Plan was approved by
the votes indicated:
For: 1,925,970
Against: 17,525
Abstain: 1,200
Non-votes: 956,676
The Company's 2000 Stock Option Plan, authorizing the issuance of options
to purchase up To 435,000 shares of the Company's common stock, was adopted by
the Board of Directors on April 27, 2000. As of the date of this Form 10-QSB,
435,000 options to purchase shares of the Company's common stock have been
granted to the Company's employees, directors and outside consultants under the
2000 Stock Option Plan.
The 2000 Stock Option Plan will be administered by the Company's
Compensation Committee, 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 shares of the Company's
common stock issuable upon the exercise of the options and the option exercise
price.
The 2000 Stock Option Plan is effective for a period of ten years, expiring
in 2010. Options to acquire 435,000 shares of the Company's common stock may be
granted to officers, directors, consultants, key employees, advisors and similar
parties who provide the Company 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 three year vesting period, and shall be at an
exercise price all as determined by the Company's Compensation Committee
provided that, the exercise price of any options may not be less than the fair
market value of the shares of the Company's 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: (i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity); (ii) the Company sells, leases or exchanges all or substantially all of
its assets to any other person or entity; (iii) the Company is to be dissolved
and liquidated; (iv) any person or entity, including a "group" as contemplated
by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires
or gains ownership or control (including, without limitation, power to vote) of
more than fifty (50%) of the outstanding shares of the Company's voting stock
(based upon voting power); or (v) as a result of or in connection with a
contested election of directors, the persons who were
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directors of the Company before such election shall cease to constitute a
majority of the Board of Directors (each such event is referred to herein as a
"Corporate Change"); no later than (a) ten (10) days after the approval by the
Shareholders of the Company of such merger, consolidation, reorganization, sale,
lease or exchange of assets or dissolution or such election of directors or (b)
thirty days after a change of control of the type described in clause (iv), the
Company's Compensation Committee, acting in its sole discretion without the
consent or approval of any optionee, shall act to effect one or more of the
following alternatives, which may vary among individual optionees and which may
vary among options held by any individual optionee: (1) accelerate the time at
which options then outstanding may be exercised so that such options may be
exercised in full for a limited period of time on or before a specified date
(before or after such Corporate Change) fixed by the Company's Compensation
Committee, after which specified date all unexercised options and all rights of
optionees thereunder shall terminate; (2) require the mandatory surrender to the
Company by selected optionees of some or all of the outstanding Options held by
such optionees (irrespective of whether such options are then exercisable under
the provisions of the 2000 Stock Option Plan) as of a date before or after such
Corporate Change, specified by the Company's Compensation Committee, in which
event the Company's Compensation Committee shall thereupon cancel such options
and the Company shall pay to each optionee an certain amount of cash per share;
(3) make such adjustments to options then outstanding as the Company's
Compensation Committee deems appropriate to reflect such Corporate Change
(provided, however, that the Company's Compensation Committee may determine in
its sole discretion that no adjustment is necessary to options then
outstanding); or (4) provide that the number and class of shares covered by an
option theretofore granted shall be adjusted so that such option shall
thereafter cover the number and class of shares or other securities or property
(including, without limitation, cash) to which the optionee would have been
entitled pursuant to the terms of the agreement of merger, consolidation or sale
of assets and dissolution if, immediately prior to such merger, consolidation or
sale of assets, and dissolution, the optionee had been the holder of record of
the number of shares of common stock then covered by such option.
If a participant ceases affiliation with the Company by reason of death,
permanent disability or retirement at or after age sixty five, the option
remains exercisable for one year from such occurrence but not beyond the
option's expiration date. Other types of termination allow the participant
ninety days to exercise the option, except for termination for cause, which
results in immediate termination of the option.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company 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 the
Company's Board of Directors, except that the number of shares of the Company's
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 the
Company's Shareholders.
(iv) The ratification of the issuance of more than 717,246 shares of the
Company's common stock, if necessary, upon: (i) the conversion of the Company's
Series B Eight Percent (8%) Cumulative Convertible Preferred Stock; (ii) the
conversion of the Company's Series A Eight Percent (8%) Cumulative Convertible
Preferred Stock; and (iii) the exercise of common stock purchase warrants, was
approved by the votes indicated:
For: 1,927,320
Against: 14,275
Abstain: 3,100
Non-votes: 956,676
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The National Association of Securities Dealers, Inc. ("NASD") rules require
the Company to obtain shareholder approval for the issuance of securities
involving the sale of twenty percent (20%) or more of its common stock at less
than fair market value. The National Association of Securities Dealers Automated
Quotation System ("Nasdaq") may de-list the securities of any issuer that fails
to obtain such shareholder approval before the issuance of such securities.
However, the corporate law of the Province of Ontario, the law under which the
Company is incorporated, does not require any such Shareholder approval. Upon
the effective dates of: (i) the conversion of the shares of Company's Series B
Eight Percent (8%) Cumulative Convertible Preferred Stock; (ii) the conversion
of the shares of Company's Series A Eight Percent (8%) Cumulative Convertible
Preferred Stock; and (ii) the exercise of he common stock purchase warrants, the
Company may issue more than twenty percent (20%) of its then issued and
outstanding shares of its common stock.
On April 16, 2000, the Company issued: (i) 1,500 shares of Series B Eight
Percent ( 8% ) Cumulative Convertible Preferred Stock, no par value per share
(the "B Preferred Stock"); and (ii) warrants to purchase up to an aggregate of
300,000 shares of our common stock (the "B Warrants"), in consideration of
$1,500,000 pursuant to a private placement offering. Each share of B Preferred
Stock has a stated value of $1,000 per share ("B Stated Value").
The shares of B Preferred Stock are convertible into shares of the
Company's common stock at the option of the holders the B Preferred Stock, at
any time after issuance until such shares of the B Preferred Stock are redeemed
by the Company, under certain conditions.
The holders of the shares of B 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 the Company's common
stock, or other class of stock presently authorized, at the rate of Eight
Percent (8%) simple interest per annum on the B Stated Value plus any accrued
but unpaid dividends, when as and if declared ("B Dividends"). The Company has
the option to pay such B Dividends in shares of the Company's common stock to be
paid (based on the B Stated Value) in full shares only, with a cash payment
equal to any fractional shares.
The number of shares of the Company's common stock into which the B
Preferred Stock shall be convertible shall be equal to (i) the sum of (A) the B
Stated Value and (B) at the holder's election, accrued and unpaid B Dividends on
such shares, divided by (ii) the "B Conversion Price". The B Conversion Price
shall be the lesser of (x) $3.375, or (y) eighty percent (80%) of the average of
the three lowest "Closing B Bid Prices" for the ten trading days immediately
preceding the conversion of the respective shares of the B Preferred Stock. The
"Closing B 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 the Company's shares of common stock issued
(A) upon conversion of the shares of B Preferred Stock and (B) in lieu of B
Dividend payments, shall equal twenty percent (20%) or more the Company's
outstanding common stock, the Company required to (x) redeem, at a price per
share equal to (A) the quotient of (i) the B Stated Value plus all accrued but
unpaid B Dividends and (ii) the B Conversion Price as if the B Preferred Stock
has been converted on the date of redemption, multiplied by (B) the average
Closing B Bid Price of our common stock for the five trading days immediately
preceding the date of redemption.
The 300,000 B 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.
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In addition, On April 16, 2000, the Company issued: (i) 2,500 shares of
Series A Eight Percent (8%) Cumulative Convertible Preferred Stock, and (ii)
50,000 warrants to purchase common stock (the "A Warrants") , 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.
The shares of Series A Eight Percent (8%) Convertible Preferred Stock (the
"A Preferred Stock") are convertible into shares of the Company's common stock
at the option of the holders the A Preferred Stock, at any time after issuance
until either: (i) such shares of A Preferred Stock are converted at the option
of the Company; or (ii) such shares of A Preferred Stock are redeemed by the
Company, under certain conditions, at any time after April 27, 2000, the
effective date of the registration statement registering the shares of its
common stock underlying the A Preferred Stock and the A Warrants issued, which
the Company was required to file pursuant to the terms of the A Offering.
The holders of the shares of A Preferred Stock are entitled to receive
preferential dividends in cash, out of any funds of the Company legally
available at the time of declaration of dividends before any other dividend
distribution will be paid or declared and set apart for payment on any shares of
the Company's common stock, or other class of stock presently authorized, at the
rate of eight percent (8%) simple interest per annum on the A Stated Value per
share (the "A Dividends"). The A Dividends are payable on a quarterly basis
commencing on the quarter ending March 31, 2000 when as and if declared,
provided however, that the A Dividends will be made in additional shares of A
Preferred Stock at a rate of one share of A Preferred Stock for each $100 of
such A Dividend not paid in cash. A Dividends may be paid at the Company's
option with shares of A Preferred Stock only if the Company's common stock
deliverable upon the conversion of the A 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 A Dividends are payable and
paid to the holders. The A Dividends shall be cumulative whether or not earned
and shall be cumulative from and after December 30, 1999.
The number of shares of the Company's common stock into which the A
Preferred Stock shall be convertible shall be equal to (i) the sum of (A) the A
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) $2.70, or (y) eighty percent (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 A
Preferred Stock. The "A Closing Bid Price" shall mean the closing bid price as
reported on the Nasdaq SmallCap Market or the principal market or exchange where
the Company's common stock is then traded. The holders of the shares of A
Preferred Stock may exercise their right to conversion only if the aggregate A
Stated Value of the shares of A Preferred Stock to be converted is equal to at
least $5,000, unless if at the time of such conversion, the aggregate A Stated
Value of all of the shares of A Preferred Stock is less than $5,000, then the
whole amount of the remaining shares of A Preferred Stock may be converted.
At any time after April 27, 2000, the Company has the option to redeem any
or all of the shares of A Preferred Stock by paying to the holders a sum of
money equal to one hundred thirty five percent (135%) of the A Stated Value of
the aggregate of the shares of A Preferred Stock being redeemed dollar amount of
the accrued A Dividends, if the A Conversion Price of the shares of A Preferred
Stock on the trading day prior to the date of redemption is less than $2.00.
The A Warrants are exercisable at any time and in any amount until December
30, 2004 at a purchase price of $3.24 per share.
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ITEM 5. OTHER INFORMATION
On July 27, 2000, the Company consolidated its Canadian and United States
banking and signed an agreement with Bank One for banking facilities and an
operating line, payable on demand, of $7,000,000. The Company has cancelled its
banking facilities and operating lines with Provident Bank and Toronto Dominion
Bank.
On June 20, 2000, the Company commenced a private placement offering of a
minimum of $1,000,000 worth of units (the "Minimum Offering"), and a maximum of
$3,000,000 worth of units (the "Maximum Offering"), each unit consisting of (i)
one share of the Company's common stock (the "Shares"); and (ii) a redeemable
warrant to purchase one-half of one share of the Company's Common Stock (the
shares of common stock and the warrants are collectively referred to as
"Units"). Each two warrants entitles the holder thereof to purchase one share of
the Company's common stock at an exercise price ("Exercise Price") equal to 125%
of the Purchase Price (as defined herein) for a period of five years from the
date of the final Closing (as defined herein). The Company may call any
unexercised warrants and require their exercise as follows if the shares of the
Company's common stock, as reported on the Nasdaq SmallCap Market, close above
the bid price indicated for any consecutive ten business days: (i) one-third of
the warrants at $6.00 per share; (b) one-third of the warrants at $7.50 per
share; and (c) one-third of the warrants at $9.00 per share. Each call must
follow the next by a minimum of thirty days. Warrants that are not exercised
when called will be forfeited.
The price per Unit shall be the lesser of: (a) $3.00; or (b) a 10% discount
to the closing bid price per share of the Company's Common Stock, as reported on
the Nasdaq SmallCap Market, on the day immediately preceding the date of any
closing (each closing referred to herein as a "Closing") of the offering
(referred to herein as the "Purchase Price"). After the sale of the shares
underlying the Units in an amount equal to 20% or more of the Company's issued
and outstanding common stock as of the date of the private offering memorandum
(739,342 shares), the remaining Units sold shall be held in escrow until such
time as the Company has received shareholder approval in accordance with NASD
Rule 4460.
The Units will are being offered by KSH Investment Group, Inc. (the
"Placement Agent") on a "best efforts, all or none" basis with respect to the
Minimum Offering, and on a "best efforts" basis thereafter up to the Maximum
Offering. The Company has agreed to pay the Placement Agent a cash commission
equal to 8% of the aggregate purchase price of the Units sold in the offering
(the "Placement Agent Fee"). The Company shall also pay the Placement Agent a
non-accountable expense allowance equal to 1.5% of the aggregate purchase price
of the Units sold in the offering (the "Expense Allowance"), plus the reasonable
professional fees, which shall be no more than $50,000, and the actual
disbursements of counsel to the Placement Agent (the "Counsel Fees"). The
Company shall also issue to the Placement Agent's counsel, 2,500 warrants, each
entitling the Placement Agent's counsel to purchase one share of the Company's
common stock at an exercise price equal to 125% of the Purchase Price (the
"Counsel Warrants"). The Counsel Warrants shall be exercisable for a period of
five years from the date of the final Closing. In addition, the Company shall
issue to the Placement Agent such number of warrants to purchase the Company's
common stock equal to 5% of the aggregate principal amount of the shares
underlying the Units sold in the Offering (the `Placement Agent Warrants") and
up to 300,000 investment banking warrants, upon meeting certain conditions (the
"Investment Banking Warrants"), each entitling the Placement Agent to purchase
one share of the Company's common stock at an exercise price equal to 125% of
the Purchase Price. The Placement Agent Warrants and the Investment Banking
Warrants shall be exercisable for a period of five years from the date of the
final Closing. The Placement Agent shall also be entitled to a fee of $100,000
should the Company terminate the offering prior to the final Closing.
Additionally, the Company has agreed to pay the Placement Agent a cash
commission equal to 5% of the aggregate proceeds received by the Company as the
result of the exercise of any of the warrants underlying the Units or any of the
Placement Agent Warrants (the "Warrant Call Fee"). Upon the final Closing, the
Company is required to appoint a designee of the Placement Agent, who is
reasonably acceptable to the Company, as a member of its Board of Directors.
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The Company has also agreed to pay Win Capital Corp. ("Win") a cash
commission for the introduction of the Company to the Placement Agent equal to
2% of the aggregate purchase price of the Units sold in the Offering (the
"Finder's Fee"). In addition, the Company has agreed to issue to Win 50,000
warrants to purchase the Company's common stock, each warrant entitling Win to
purchase one share of the Company's Common Stock at an exercise price per share
of common stock equal to 125% of the Purchase Price (the "Finder's Warrants").
The Finder's Warrants shall be exercisable for a period of five years from the
date of the final Closing.
The Company is obligated to use its "best efforts" to file with the
Securities and Exchange Commission (the "SEC"), within sixty days following the
final Closing, a registration statement on Form S-3 (or such other form as
applicable) registering the resale of the shares, the shares of Common Stock
issuable upon the exercise of the warrants, and the shares of common stock
issuable upon the exercise of the Placement Agent Warrants, the Investment
Banking Warrants, the Finder's Warrants and the Counsel Warrants (collectively
referred to herein as the "Registrable Securities"). In addition, the Company
has agreed, at the Company's expense, to keep such registration statement
current until such time as all of the Registrable Securities are freely tradable
under the Securities Act of 1933, as amended (the "Securities Act"). In the
event the Company is unable to file or maintain such a registration statement,
the holders of the Units will be entitled to receive such additional number of
shares as shall be equal to 10% of the aggregate number of Units purchased by
each such holder.
Offers and sales of the Units are being made only to "accredited investors"
as such term is defined in Rule 501 of Regulation D promulgated under the
Securities Act. The minimum purchase by any one investor is $50,000 worth of
Units, except, fewer than $50,000 worth of Units may be sold at the discretion
of the Company and the Placement Agent. The Company and the Placement Agent have
reserved the right to increase the amount of the offering to a maximum of
$5,000,000 without further notice to investors.
The offering will continue until all of the Units have been sold or until
the Company and the Placement Agent, in their mutual discretion, determine to
close the offering, but in any event the offering will close no later no later
than (i) September 20, 2000, unless extended for an additional ninety days upon
the mutual consent of the Company and the Placement Agent and without notice to
investors; or (ii) the date of the final Closing, whichever occurs first.
On July 21, 2000 and August 1, 2000, the Company closed on $1,530,000 worth
of Units and $414,000 worth of Units, respectively.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the six-month
period ended March 31, 2000.
(c) Exhibits.
27 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THINKPATH.COM INC.
Dated: August 14, 2000 By: /s/ Kelly L. Hankinson
______________________________________
Kelly L. Hankinson
Chief Financial Officer
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EXHIBIT INDEX
27 Financial Data Schedule
