<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 March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from ____________ to ________________
Commission file number 001-14813
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 May 12, 2000 was 3,623,376 shares.
Transitional Small Business Disclosure Format (check one):
Yes /X/ No / /
---- ----
<PAGE>
THINKPATH.COM INC.
MARCH 31, 2000 QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page Number
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999........................... 3
Consolidated Statements of Income
for the quarters ended March 31, 2000 and 1999............................................. 5
Consolidated Statements of Stockholders' Equity
for the quarters ended March 31, 2000 and 1999.............................................. 6
Consolidated Statements of Cash Flows
for the quarters ended March 31, 2000 and 1999.............................................. 7
Notes to Consolidated Financial Statements....................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................... 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................................................ 17
Item 2. Changes in Securities and Use of Proceeds........................................................ 17
Item 3. Defaults Upon Senior Securities.................................................................. 17
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 17
Item 5. Other Information................................................................................ 21
Item 6. Exhibits and Reports on Form 8-K................................................................. 21
</TABLE>
1
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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.
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THINKPATH.COM INC.
Interim Consolidated Balance Sheet
As of March 31, 2000 and December 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
March 31 December 31
2000 1999
$ $
ASSETS
CURRENT ASSETS
Cash 117,763 1,790,621
Short-term investments 383,689 383,146
Accounts receivable 5,679,001 4,895,523
Work-in-progress 661,545 350,679
Prepaid expenses 641,704 325,616
Income taxes receivable 146,454 -
---------- ----------
7,630,156 7,745,585
CAPITAL ASSETS 3,381,050 2,955,321
GOODWILL 9,153,349 6,985,436
DUE FROM RELATED PARTY 211,313 211,313
OTHER ASSETS 2,429,268 1,216,111
DEFERRED INCOME TAXES 468,352 -
---------- ----------
23,273,488 19,113,766
========== ==========
3
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THINKPATH.COM INC.
Interim Consolidated Balance Sheet
As of March 31, 2000 and December 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
March 31 December 31
2000 1999
$ $
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 4,558,336 4,083,836
Accounts payable 2,267,578 2,424,725
Income taxes payable 54,224 135,089
Deferred revenue 467,788 -
Current portion of long-term debt 278,862 278,790
Current portion of note payable 1,300,000 1,300,000
---------- ----------
8,926,788 8,222,440
DEFERRED INCOME TAXES 107,472
LONG-TERM DEBT 837,562 562,126
NOTE PAYABLE 869,215 1,150,000
---------- ----------
10,633,565 10,042,038
---------- ----------
STOCKHOLDERS' EQUITY
CAPITAL STOCK 11,698,058 8,388,298
OTHER COMPREHENSIVE INCOME, NET OF TAX
Cumulative translation adjustment 133,266 (22,141)
RETAINED EARNINGS 808,599 705,571
---------- ----------
12,639,923 9,071,728
---------- ----------
23,273,488 19,113,766
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
4
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THINKPATH.COM INC.
Interim Consolidated Statements of Income
For the three months ended March 31
(Amounts expressed in US dollars)
(Unaudited)
March 31 March 31
2000 1999
$ $
REVENUE 10,041,422 3,872,765
COST OF CONTRACT SERVICES 6,834,190 2,693,113
---------- ---------
GROSS PROFIT 3,207,232 1,179,652
---------- ---------
EXPENSES
Administrative 1,318,218 416,761
Selling 1,177,291 720,301
Financial 176,713 58,185
---------- ---------
2,672,222 1,195,247
---------- ---------
INCOME (LOSS) BEFORE AMORTIZATION &
INCOME TAXES 535,010 (15,595)
Amortization 431,982 50,813
INCOME (LOSS) BEFORE INCOME TAXES 103,028 (66,408)
Income taxes (note 13) - 5,839
---------- ---------
NET INCOME (LOSS) 103,028 (72,247)
========== =========
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK OUTSTANDING
Basic 3,899,912 1,717,875
========== =========
Fully diluted 4,001,630 1,717,875
========== =========
EARNINGS PER WEIGHTED AVERAGE
COMMON STOCK
Basic .03 (.04)
========== =========
Fully diluted .03 (.04)
========== =========
The accompanying notes are an integral part of these
consolidated financial statements.
5
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THINKPATH.COM INC.
Interim Consolidated Statements of Changes in Stockholders' Equity
For the three months ended March 31
(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, 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)
Issuance of common stock 898,397 - 3,309,760 - -
Foreign currency
translation - - - - 155,407
Net income for the period - - - 103,028 -
--------- ------ ---------- ------- -------
Balance as of
March 31, 2000 3,987,039 15,000 11,698,058 808,599 133,266
========= ====== ========== ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
THINKPATH.COM INC.
Interim Consolidated Statement of Cash Flows
For the three months ended March 31
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31 March 31
2000 1999
$ $
<S> <C> <C>
Cash flows from operating activities:
Net income 103,028 (72,247)
----------- ---------
Adjustments to reconcile net income
to net cash (used in)
provided by operating activities:
Amortization 431,982 50,813
Decrease in accounts receivable 173,245 (752,515)
Increase in prepaid expenses (249,221) 4,190
Decrease in accounts payable (145,627) 538,438
Increase in income taxes receivable (227,319) (5,674)
Increase in deferred income taxes (572,541) -
Increase in work in progress (310,866) -
----------- ---------
Total adjustments (900,347) (164,748)
----------- ---------
Net cash provided by (used in) operating activities (797,312) (236,994)
----------- ---------
Cash flows from investing activities:
Purchase of capital assets (442,350) (185,693)
Purchase of other assets (651,546) -
----------- ---------
Net cash used in investing activities (1,093,896) (185,693)
----------- ---------
Cash flows from financing activities:
Cash (paid) received on notes payable (324,368) -
Cash (paid) received on long-term debt (50,242) (8,880)
Increase in bank indebtedness 499,988 468,498
----------- ---------
Net cash provided by financing activities 125,378 459,618
----------- ---------
Effect of foreign currency exchange rate changes 92,972 (36,931)
----------- ---------
Net increase (decrease) in cash and cash equivalents (1,672,858) -
Cash and cash equivalents
- Beginning of year 1,790,621 -
----------- ---------
- End of year 117,763 -
----------- ---------
Interest paid 113,196 58,671
=========== =========
Income taxes paid 68,436 37,520
=========== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
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THINKPATH.COM INC.
Notes to Interim Consolidated Financial Statements
As at March 31, 2000
(Amounts expressed in US dollars)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The accompanying financial statements have been prepared by the Company in
accordance with the accounting policies stated in the 1999 Annual Report
and should be read in conjunction with the Notes to Financial Statements
appearing therein. In the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation have been included in the financial statements. The financial
statements are based in part on estimates and have not been audited by
independent accountants. Independent accountants will audit the annual
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 financial statements of the company.
2. ACQUISITIONS
ObjectArts Inc. was acquired effective January 1, 2000 for $2,500,000.
This amount was paid through the issuance of common stock on the date of
closing and $346,310 in cash.
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
8
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THINKPATH.COM INC.
Notes to Interim Consolidated Financial Statements
As at March 31, 2000
(Amounts expressed in US dollars)
(Unaudited)
b) Issued
March 31 December 31
2000 1999
$ $
3,987,039 Common stock (3,088,642 in 1999) 9,545,916 6,236,156
15,000 Preferred stock 1,152,142 1,152,142
Common stock payable 1,000,000 1,000,000
---------- ---------
11,698,058 8,388,298
========== =========
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.
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 March 31, 2000 the number of common stock
to be issued would be 275,862.
The earnings per share calculation does not include any shares for common
stock payable.
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 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.
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.
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.
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.
9
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THINKPATH.COM INC.
Notes to Interim Consolidated Financial Statements
As at March 31, 2000
(Amounts expressed in US dollars)
(Unaudited)
An additional 250,000 options to purchase shares of the company were
issued to related parties. The options are exercisable at the issue price
of common stock in the Initial Public Offering.
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 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.
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 377,500
-------
Options outstanding at March 31, 2000 849,625
=======
4. SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
ThinkPath.com Inc. acquired all the capital stock of ObjectArts Inc. for
$2,500,000. The acquisition was funded as follows:
$
Fair Value of Assets acquired 2,343,837
Liabilities assumed (1,483,083)
Goodwill 1,485,556
Cash paid for Capital Stock (346,310)
Common Stock Issued (2,000,000)
----------
-
==========
10
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THINKPATH.COM INC.
Notes to Interim Consolidated Financial Statements
As at March 31, 2000
(Amounts expressed in US dollars)
(Unaudited)
5. TRANSACTIONS WITH RELATED COMPANIES
The company received fees from MicroTech Professionals Inc. (see note 7) in
the amount of $500,000 and the company paid certain expenses on behalf of
MicroTech Professionals Inc. totaling $260,000
6. SEGMENTED INFORMATION
a) Sales by Geographic Area
March 31 March 31
2000 1999
$ $
Canada 4,876,022 3,872,765
United States of America 5,165,400 -
---------- ---------
10,041,422 3,872,765
========== =========
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. March
31 March 31 2000 1999
March 31 March 31
2000 1999
$ $
Canada 50,029 (72,246)
United States of America 52,999 -
---------- ---------
103,028 (72,246)
========== =========
c) Identifiable Assets by Geographic Area
2000 1999
$ $
Canada 13,078,906 19,113,766
United States 9,983,269 -
---------- ----------
23,062,175 19,113,766
========== ==========
11
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THINKPATH.COM INC.
Notes to Interim Consolidated Financial Statements
As at March 31, 2000
(Amounts expressed in US dollars)
(Unaudited)
d) Identifiable Assets by Geographic Area
2000 1999
$ $
Canada 13,078,906 19,113,766
United States 9,983,269 -
---------- ----------
23,062,175 19,113,766
========== ==========
e) Revenue and Gross Profit by Operating Segment
March 31 March 31
2000 1999
$ $
Revenue
Information Technology Placement 3,538,859 3,872,765
Engineering Placement 5,165,400 -
Technical Training 1,337,164 -
---------- ----------
10,041,422 3,872,765
========== ==========
March 31 March 31
2000 1999
$ $
Gross Profit
Information Technology Placement 1,184,313 1,179,652
Engineering Placement 1,419,919 -
Technical Training 603,001 -
---------- ----------
3,207,232 1,179,652
========== ==========
f) Revenues from Major Customers
The consolidated entity had the following revenues from major customers:
2000
----
No single customer consisted of more than 10% of the revenues.
1999
----
No single customer consisted of more than 10% of the revenues.
g) Purchases from Major Suppliers
There were no significant purchases from major suppliers.
12
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THINKPATH.COM INC.
Notes to Interim Consolidated Financial Statements
As at March 31, 2000
(Amounts expressed in US dollars)
(Unaudited)
7. 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) The company has signed a letter of intent with MicroTech Professionals
Inc., to purchase 100% of the common stock of MicroTech Professionals for
a maximum amount of $4,500,000, subject to specific performance criteria
being met, in a combination of cash, note payable and shares. Additional
costs of this acquisition are 33,333 shares and $50,000 payable upon
closing.
c) After March 31, 2000, the company established the 2000 Stock Option Plan.
The plan provides for 435,000 options which may be granted in May 2000,
142,000 options have been granted to acquire shares of the company at
$3.25 per share. The options vest over a three-year period and expire May
9, 2005.
8. 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.
13
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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 selected historical financial data, 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.
Overview
ThinkPath.com Inc. (the "Company") 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 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). The Company has recently expanded
its operations into the United States, through among other things, the Company's
acquisition of Cad Cam, Inc. and Object Arts Inc., and the Company intends to
develop an expanded network of offices to provide its services throughout North
America.
Results of Operations For Each of the Three Months Ended March 31, 2000 and 1999
Revenue
Revenue for the three months ended March 31, 2000 increased by
$6,170,000 or 160%, to $10,040,000, as compared to $3,870,000 for the three
months ended March 31, 1999. The increase is primarily attributable to the added
revenues of Cad Cam Inc. and ObjectArts Inc. Cad Cam Inc. was acquired in
September 1999 and had sales of $5,170,000 for the three months ended March 31,
2000. ObjectArts Inc. was acquired effective January 1, 2000 and had sales of
$1,340,000 for the three months ended March 31, 2000. Also a result of these
acquisitions, revenues from the U.S. increased $5,170,000 for the three months
ended March 31, 2000 from $0 for the three months ended March 31, 1999.
14
<PAGE>
Cost of Contract Services
Costs of contract services represent all fees and benefits paid to
contractors. The costs of contract services for the three months ended March 31,
2000 increased by $4,140,000, or 154%, to $6,830,000, as compared to $2,690,000
for the three months ended March 31, 1999. This increase was due to the
increased volume of contract services, largely a result of the acquisition of
Cad Cam Inc. As a percentage of revenue, the cost of contract services decreased
from 70% in 1999 to 68% in 2000, a direct result of the acquisition of
ObjectArts Inc. and the higher margins afforded to technical training.
Gross Profit
Gross profit is calculated by subtracting fees and benefits paid to
contractors from net revenue. The Company does not attribute any direct costs to
permanent placement services. Gross profit for the three months ended March 31,
2000 increased by $2,030,000, or 172%, to $3,210,000, as compared to $1,180,000
for the three months ended March 31, 1999. This increase was attributable to the
aforementioned increase in revenue during the three months ended March 31, 2000.
As a percentage of revenue, gross profit increased to 32% for the three months
ended March 31, 2000 from 30% for the three months ended March 31, 1999, as a
result of the decrease in the cost of contract services.
Operating Expenses
Operating expenses include 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 March
31, 2000 increased by $1,480,000, or 124%, to $2,670,000, as compared to
$1,200,000 for the three months ended March 31, 1999. 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 decreased
from 31% for the three months ended March 31, 1999 to 27% for the three months
ended March 31, 2000.
Net Income
Net income for the three months ended March 31, 2000 increased by
$175,000 or 243% from a net loss of $72,000 for the three months ended March 31,
1999 to a net income of $103,000 for the three months ended March 31, 2000. As a
percentage of revenue, net income increased 3% for the three months ended March
31, 2000 from -2% for the three months ended March 31, 1999 to 1% for the three
months ended March 31, 2000. Amortization expense increased $380,000 or 750%
from $51,000 for the three months ended March 31, 1999 to $430,000 for the three
months ended March 31, 2000. This increase is primarily attributable to the
increase in capital assets, the increase in the acquisition of other assets, and
the increase of goodwill. Interest expense increased $187,000 or 319% to
$246,000 for the three months ended March 31, 2000 from $59,000 for the three
months ended March 31, 1999. This increase is a result of our increased
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 March 31, 2000, the Company had cash and cash
equivalents of $500,000 and a working capital deficiency of $1,300,000. During
the three months ended March 31, 2000, the Company had a cash flow deficiency
from operations of $800,000, due primarily to an increase in work in progress.
At March 31, 1999, the Company had cash and cash equivalents of $140,000 and a
working capital deficiency of $430,000. During the three months ended March 31,
1999 the Company had a cash flow deficiency from operations of $240,000, due
primarily to an increase in accounts receivable of $750,000, and a net loss of
$70,000.
15
<PAGE>
For the three months ended March 31, 2000, the Company had cash flow
from financing activities of $130,000, attributable to an increase in bank
indebtedness of $500,000 which was offset by cash paid on notes payable of
$320,000 and long-term debt of $50,000. For the three months ended March 31,
1999, the Company had cash flow from financing activities of $460,000,
attributable to an increase in bank indebtedness.
The Company's arrangement with the Toronto-Dominion Bank allows for an
operating line, payable on demand, of up to $1,400,000. At March 31, 2000, there
was $800,000 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
March 31, 2000, there was $3,500,000 outstanding on the line with Provident
Bank. At March 31, 2000, the Company had a total of $560,000 due to the Business
Development Bank of Canada pursuant to seven separate loans.
During the three months ended March 31, 2000 the Company had a cash
flow deficit from investing activities of $1,100,000, attributable to the
acquisition of capital assets and other assets related to the GTS (the Company's
proprietary Internet-based recruiting and information management tool) and
infrastructure buildup. During the three months ended March 31, 1999, the
Company had a cash flow deficit from investing activities of $190,000,
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 the GTS and
strategic acquisitions.
16
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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 March 6, 2000, the Company completed the acquisition of 80% of
E-Wink, Inc., a Delaware corporation, in consideration of: (i) 300,000 shares of
the Company's common stock; and (ii) warrants to purchase an aggregate of
500,000 shares of the Company's 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
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 11, 2000, the Company held a Special Meeting of
Shareholders at which the shareholders voted upon, and approved, the following
proposals: (A) the ratification of the issuance of more than 617,729 shares of
the Company's common stock, if necessary, upon: (i) the conversion of the
Company's Series A 8% Cumulative Convertible Preferred Stock; and (ii) the
exercise of warrants, which represents an issuance of more than 20% of the
issued and outstanding shares of the Company's common stock as of the record
date of January 14, 2000, and therefore requires shareholder approval under the
rules of the National Association of Securities Dealers, Inc.; (B) the
ratification of the issuance of more than 617,729 shares of the Company's common
stock, if necessary, in connection with the proposed acquisitions, which
represents an issuance of more than 20% of the issued and outstanding shares of
the Company's common stock as of the record date of January 14, 2000, and
therefore requires shareholder approval under the rules of the National
Association of Securities Dealers, Inc.; and (C) the proposal to change the
corporate name of IT Staffing Ltd. to ThinkPath.com Inc.
The following is a description of the of the proposals voted upon at
the February 11, 2000 Special Meeting of Shareholders:
(A) On December 30, 1999, the Company issued: (i) 15,000 shares of
Series A 8% Cumulative Convertible Preferred Stock, no par value per share (the
"Preferred Stock"); and (ii) warrants to purchase up to an aggregate of 400,000
shares of the Company's common stock, no par value per share (the "Warrants"),
in consideration $1,500,000 pursuant to a private placement offering (the
"Offering"). Each share of Preferred Stock has a stated value of $100 per share
(the "Stated Value").
The shares of Preferred Stock are convertible into shares of the
Company's common stock at the option of the holders the Preferred Stock, at any
time after issuance until either: (i) such shares of Preferred Stock are
converted at the option of the Company; or (ii) such shares of Preferred Stock
are redeemed by the Company, under certain conditions, at any time after the
effective date of the registration statement which the Company is required to
file with the Securities and Exchange Commission, pursuant to the terms of the
Offering.
17
<PAGE>
The Company is obligated to file a registration statement on Form SB-2
with the Securities and Exchange Commission by February 28, 2000, pursuant to
which the Company will register the shares of its common stock underlying the
Preferred Stock and the Warrants issued in the Offering (the "Registration
Statement"). The Registration Statement was declared effective by the Securities
and Exchange Commission on April 27, 2000.
The holders of the shares of 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 8% simple interest per annum on the Stated Value per share (the
"Dividends"). The Dividends 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 Preferred Stock at a rate of
1 share of Preferred Stock for each $100 of such Dividend not paid in cash.
Dividends may be paid at the Company's option with shares of Preferred Stock
only if the Company's common stock deliverable upon the conversion of the
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 the Company's common stock into which the
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
3 trading days immediately preceding December 30, 1999, or (y) 80% of the
average of the 3 lowest "Closing Bid Prices" for the 10 trading days immediately
preceding the conversion of the respective shares of Preferred Stock. The
"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 Preferred Stock may exercise
their right to conversion only if the aggregate Stated Value of the shares of
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
Preferred Stock is less than $5,000, then the whole amount of the remaining
shares of Preferred Stock may be converted.
At any time after the effective date of the Registration Statement, the
Company has the option to redeem any or all of the shares of 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 Preferred Stock being redeemed plus the dollar amount
of the accrued Dividends, if the Conversion Price of the shares of Preferred
Stock on the trading day prior to the date of redemption is less than $2.00.
The Warrants are exercisable at any time and in any amount until
December 30, 2004 at a purchase price of $3.24 per share.
The ratification of the issuance of more than 617,729 shares of the
Company's common stock, if necessary, upon: (i) the conversion of the shares of
Preferred Stock; and (ii) the exercise of the Warrants, which represents an
issuance of more than 20% of the issued and outstanding shares of common stock
18
<PAGE>
as of the record date of January 14, 2000, required the affirmative vote of a
majority of the shares of common stock in person or represented by proxy at the
Special Meeting of Shareholders and entitled to vote thereon. The ratification
of the issuance of more than 617,729 shares of the Company's common stock, if
necessary, in connection with the foregoing issuance of Preferred Stock and
Warrants was approved by 1,581,800 shares out of a total of 3,088,645 issued and
outstanding shares of the Company's common stock.
(B) The Company is currently pursuing a strategy of expansion through
the acquisition of other companies throughout North America which have similar
or complementary businesses. In an effort to implement this strategy, the
Company has acquired ObjectArts Inc. and executed letters of intent with 2 other
potential acquisition candidates, pursuant to which the Company has acquired or
will acquire all of the issued and outstanding shares of the capital stock of
each of these entities, in consideration for shares of the Company's common
stock and/or cash and/or other consideration. Upon the effective dates of the
proposed acquisitions, the Company may be required to issue more than 20% of its
then issued and outstanding shares of common stock.
The Acquisition of ObjectArts Inc.
On January 1, 2000, the Company completed the acquisition of all of the
issued and outstanding capital stock of ObjectArts Inc., an Ontario corporation,
in consideration of: (i) the issuance of $900,000 worth of the Company's 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 the Company's common stock equal to the legal fees and
professional fees incurred and paid by Working Ventures Custodian Fund in
connection with our acquisition of ObjectArts Inc.; and (iii) the issuance of
$1,100,000 worth of the Company's common stock to the existing shareholders of
ObjectArts Inc.
The Acquisition of Global Installers Network Inc.
On November 29, 1999, the Company executed a letter of intent with
Global Installers Network Inc., an Ontario corporation ("Global") that
specializes in the placement of contract telecommunications specialists.
Pursuant to the letter of intent, the Company or 1 of its subsidiaries, will
purchase 100% of the issued and outstanding common stock of Global (the "Global
Transaction") in consideration of an aggregate purchase price equal to 5 times
the multiple of Global's gross earnings before the deduction of interest, tax,
depreciation and amortization expenses ("Global's EBITDA") for the 9 months
ending December 31, 1999 (the "Global Purchase Price"). The Global Purchase
Price shall be paid as follows: (i) 10% of the Global Purchase Price in cash
upon the closing of the Global Transaction; and (ii) the remaining balance of
the Global Purchase Price through the issuance of the Company's common stock to
the existing shareholders of Global (the "Global Shares"). By way of example, if
Global's EBITDA equals CDN$600,000, the Company will pay Global CDN$300,000 in
cash and will issue to the existing shareholders of Global CDN$2,700,000 worth
of the Company's common stock.
Pursuant to the letter of intent, the price of the Company's common
stock will be determined by calculating the average of the "Closing Ask Prices"
of the Company's common stock for the 2 weeks prior to the closing of the Global
Transaction. The "Closing Ask Price" shall mean the closing ask price of the
Company's common stock as reported on the Nasdaq SmallCap Market or the
principal market or exchange where the Company's common stock is then traded.
Pursuant to the letter of intent, the shares of the Company's common stock
19
<PAGE>
issued pursuant to the Global Transaction will be subject to a 12 month lock-up
period commencing on the date of issuance and the letter of intent also provides
for the termination of the lock-up period in the event the Company "goes to
market."
The Acquisition of Elite Information Services, Inc.
On December 1, 1999, the Company executed a letter of intent with Elite
Information Services, Inc., a Florida corporation ("Elite") that specializes in
the placement of contract information technology specialists. Pursuant to the
letter of intent, the Company or 1 of its subsidiaries, will purchase 100% of
the issued and outstanding common stock of Elite (the "Elite Transaction") in
consideration of an aggregate purchase price of $2,000,000, subject to
adjustment (the "Elite Purchase Price"). The Elite Purchase Price shall be paid
as follows: (i) $300,000 in cash upon the closing of the Elite Transaction; (ii)
the issuance to the sole shareholder of Elite of an unsecured promissory note in
the principal amount of $300,000, upon the closing of the Elite Transaction (the
"Promissory Note"); (iii) the issuance of $1,400,000 worth of the Company's
common stock to the sole shareholder of Elite, upon the closing of the Elite
Transaction; (iv) $200,000 in cash within 90 days of the closing of the Elite
Transaction, if Elite's gross earnings before the deduction of interest and tax
expenses ("Elite's EBIT") for the year ended December 31, 1999 equals $300,000
or greater (the "Interim Cash Payment"); (v) the issuance of $200,000 worth of
the Company's common stock within 90 days of the closing of the Elite
Transaction, if Elite's EBIT for the year ended December 31, 1999 equals
$300,000 or greater (the "Interim Stock Issuance"); (vi) $200,000 in cash on
December 31, 2000: and (vii) the issuance of $400,000 worth of the Company's
common stock to the sole shareholder of Elite, on December 31, 2000.
The Promissory Note will be for a term of 3 years, will bear interest
at a rate equal to 1/2% above the United States prime rate as quoted by Citibank
N.A. at the time of issuance, and will be guaranteed by the Company and Elite.
In the event Elite's EBIT equals an amount less than $300,000, there will be an
adjustment downwards of $6.00 for every $1.00 under $300,000 in the amount of
the Interim Cash Payment and the Interim Stock Issuance. The price of the
Company's common stock shall be the lower of: (i) the "Closing Ask Price" on
December 1, 1999, or (ii) average of the "Closing Ask Prices" of the Company's
common stock for the 2 weeks prior to the closing of the Elite Transaction. The
"Closing Ask Price" shall mean the closing ask price of the Company's common
stock as reported on the Nasdaq SmallCap Market or the principal market or
exchange where the Company's common stock is then traded. Pursuant to the letter
of intent, the Company has agreed to register the shares of the common stock
issued to the sole shareholder of Elite with the Securities and Exchange
Commission, within 3 months from the closing of the Elite Transaction. In
addition, the shares of the Company's common stock issued pursuant to the Elite
Transaction will be subject to a 12 month lock-up period commencing on the date
of issuance.
The ratification of the issuance of more than 617,729 shares of the
Company's common stock, if necessary, in connection with the foregoing proposed
acquisitions, which represents an issuance of more than 20% of the issued and
outstanding shares of common stock as of the record date of January 14, 2000,
required the affirmative vote of a majority of the shares of common stock in
person or represented by proxy at the Special Meeting of Shareholders and
entitled to vote thereon. The ratification of the issuance of more than 617,729
shares of the Company's common stock, if necessary, in connection with the
foregoing proposed acquisitions was approved by 1,581,800 shares out of a total
of 3,088,645 issued and outstanding shares of the Company's common stock.
(C) Management proposed that the corporate name of the Company be
changed to ThinkPath.com Inc. Management believes the corporate name of the
Company should be changed to reflect the Company's recently expanded repertoire
of services which now include information technology, engineering, consulting
and recruitment technology.
The change of the corporate name to ThinkPath.com Inc. required the
affirmative vote of 2/3 of the shares of common stock in person or represented
by proxy at the Special Meeting of Shareholders and entitled to vote on the
change of the corporate name. The change in the corporate name was approved by a
vote of 1,581,800 shares out of a total of 3,088,645 issued and outstanding
shares of the Company's common stock.
20
<PAGE>
ITEM 5. OTHER INFORMATION
None.
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 three-month
period ended March 31, 2000.
(c) Exhibits.
27 Financial Data Schedule
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THINKPATH.COM INC.
Dated: May 16, 2000 By: /s/ Kelly Hankinson
--------------------------------
Kelly Hankinson
Principal Accounting Officer
22
<PAGE>
EXHIBIT INDEX
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS INCLUDED IN
THE REGISTRANT'S FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 1999 AND IS
QUALIIFED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 117,763
<SECURITIES> 383,689
<RECEIVABLES> 5,679,001
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,630,156
<PP&E> 641,704
<DEPRECIATION> 431,982
<TOTAL-ASSETS> 23,273,488
<CURRENT-LIABILITIES> 8,926,788
<BONDS> 0
0
15,000
<COMMON> 3,987,039
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 23,273,488
<SALES> 3,207,232
<TOTAL-REVENUES> 10,041,422
<CGS> 6,834,190
<TOTAL-COSTS> 6,834,190
<OTHER-EXPENSES> 2,672,222
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,196
<INCOME-PRETAX> 103,028
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,028
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
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