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As filed with the Securities and Exchange Commission on April 14, 2000
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1999
Commission File Number 001-14813
THINKPATH.COM INC.
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(Exact name of registrant as specified in its charter)
Ontario, Canada 52-209027
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(State of Incorporation) (I.R.S. Employer Identification No.)
55 University Avenue, Toronto, Ontario Canada M5J 2H7
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(Address of principal executive offices) (Zip Code)
(416) 364-8800
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the
Exchange Act:
Common Stock, No Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 | |
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. Yes___ No X
The issuer's revenues for the most recent fiscal year were $19,800,000
The aggregate market value of the voting stock held by non-affiliates
based upon the last sale price on April 10, 2000 was approximately $7,506,027.
As of April 10, 2000 there were 3,512,899 shares of Common Stock, no
par value per share, outstanding.
Documents incorporated by reference: None.
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THNINPATH.COM INC.
1999 ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
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PART I
<S> <C> <C>
Item 1. Business........................................................................................4
Item 2. Properties.....................................................................................20
Item 3. Legal Proceedings..............................................................................21
Item 4. Submission of Matters to Vote of Security Holders..............................................21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matter ..........................22
Item 6. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................................22
Item 7. Financial Statements...........................................................................32
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures...................................................................................33
PART III
Item 9. Directors and Executive Officers of the Registrant.............................................34
Item 10. Executive Compensation.........................................................................37
Item 11. Security Ownership of Certain Beneficial Owners and Management.................................41
Item 12. Certain Relationships and Related Transactions.................................................43
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................44
Signatures..............................................................................................45
</TABLE>
2
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein including, without limitation,
those concerning (i) ThinkPath.com Inc.'s, formerly known as IT Staffing Ltd.
(the Company") strategy, (ii) the Company's expansion plans and (iii) the
Company's capital expenditures, contained forward-looking statements (within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) concerning the Company's operations, economic
performance and financial condition. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause such
differences include, but are not limited to, those discussed under "Business."
The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
EXCHANGE RATE DATA
The Company maintains its books of account in Canadian dollars, but
has provided the financial data in this Form 10-KSB in United States dollars and
on the basis of generally accepted accounting principles as applied in the
United States, and the Company's audit has been conducted in accordance with
generally accepted auditing standards in the United States. All references to
dollar amounts in this Form 10-KSB, unless otherwise indicated, are to United
States dollars.
The following table sets forth, for the periods indicated, certain
exchange rates based on the noon buying rate in New York City for cable
transfers in Canadian dollars. Such rates are the number of United States
dollars per one Canadian dollar and are the inverse of rates quoted by the
Federal Reserve Bank of New York for Canadian dollars per US$1.00. The average
exchange rate is based on the average of the exchange rates on the last day of
each month during such periods. On April 10, 2000, the exchange rate was
Cdn$.6844 per US$1.00.
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Year Ended December 31, 1994 1995 1996 1997 1998 1999
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<S> <C> <C> <C> <C> <C> <C>
Rate at end of period $0.7143 $0.7353 $0.7299 $0.6991 $0.6532 $0.6929
Average rate during period 0.7299 0.7299 0.7353 0.7223 0.6745 0.6730
High 0.7092 0.7009 0.7212 0.6945 0.7061 0.6929
Low 0.7642 0.7533 0.7526 0.77493 0.6376 0.6582
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Unless otherwise indicated, all reference to "ThinkPath", "us", "our"
and "we" refer to ThinkPath.com Inc. and its wholly-owned subsidiaries:
Systemsearch Consulting Services Inc., an Ontario corporation; International
Career Specialists Ltd., an Ontario corporation; Cad Cam, Inc., an Ohio
corporation; ITS Acquisition Corp., a Delaware corporation, and ObjectArts Inc.
an Ontario corporation
Overview
We are a global provider of information technology and engineering
recruiting, project outsourcing, technical training and consulting and ASP-based
skills management technology. Our customers include financial service companies,
software and other technology companies, Canadian and American governmental
entities and large multinational companies, including Bank of Montreal, Bell
Canada, Goldman Sachs, Chapters, Lucent Technologies, Cummins Engine, General
Motors, Xerox Corporation, American Express and Universal Industrial Corp.
(ESI). We have recently expanded our operations into the United States, through
among other things, our acquisitions of Cad Cam, Inc. and Object Arts Inc., and
intend to develop an expanded network of offices to provide our services
throughout North America.
We have focused on the recruiting of quality information technology and
engineering professionals. We utilize established testing methods to ensure that
our professionals are properly qualified. We also review candidates' technical
backgrounds and conduct preliminary interviews prior to referring candidates to
our customers. By attracting the most qualified professionals, we believe that
we will be able to attract high quality customers who require the services of
such professionals.
Since inception, we have pursued a strategy of developing and utilizing
technology that we believe will provide us with a competitive advantage. As a
result, we believe that one of our primary competitive strengths is our
utilization of technology. We maintain a database of more than 50,000
information technology and engineering professionals and advertise on the
Internet to attract both candidates and customers. We have developed a
recruitment management product called GTS. GTS is a Web-based recruitment
technology, which automates and electronically manages every step of the
recruitment and hiring process.
GTS is designed to address the skills shortage and helps clients
satisfy their recruiting needs. GTS electronically manages and automates the
entire enterprise-wide recruiting and hiring program. GTS coordinates,
streamlines and manages all individual candidate sources and recruitment methods
in real time, including job board postings, company Web sites, newspaper
advertising, employee referrals, direct recruits and career fair. In addition,
GTS is able to satisfy the human resource professionals' increasing demand for a
wide range of critical metrics, including cost per hire and time per hire.
As a result of our recent acquisitions of Cad Cam, Inc. and Object Arts
Inc., we now offer our clients project outsourcing including Technical
Publications and Design Engineering, as well as technical training and
consulting.
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We were incorporated under the laws of the Province of Ontario, Canada
in 1994.
Industry Background
The staffing industry has experienced significant growth in recent
years in response to the increased popularity of outsourcing of many staffing
requirements. This growth has been driven by employers who have sought to
convert personnel costs from fixed to variable in nature by reducing their
permanent staff and supplementing their workforce with contract employees for
specific projects, peak work loads and other needs. The use of flexible staffing
services has allowed employers to improve productivity, outsource specialized
skills and avoid the negative effects of layoffs. This trend has accelerated
with the pace of technological change and greater global competitive pressures.
Regulations governing employee benefits, insurance and retirement plans, as well
as the high cost of hiring, laying off and terminating permanent employees, have
prompted many employers to take advantage of the flexibility offered through
contract staffing arrangements. According to the Staffing Industry Report, a
leading industry publication, revenue for the year ended December 31, 1997 for
information technology staffing services in the United States is estimated to
have been $14.8 billion, a 27% increase over such revenues for the year ended
December 31, 1996. According to an 1998 IDC Canada survey, an independent
Canadian industry publication, the Canadian Information Technology services
industry grew by more than 11% in 1997, reaching Cdn$11.5 billion in revenues,
an increase of 11.5% over such revenues for the year ended December 31, 1996,
and is expected to grow at a compounded annual rate of 12.1% through 2001.
The high technology industry as a whole continues to experience
substantial growth as constant innovations, such as open and distributed
computing, client/server technology, the Internet, relational databases and
object-oriented programming, shortens product lifecycles and accelerates the
demand for computer-related products. These trends, combined with the intense
competition faced by high technology companies, have put considerable pressure
on such companies to shorten the time-to-market of their products. The
development of these next generation products often requires highly specialized
technical talent which may not be available internally. This need for
information technology professionals is particularly critical during the period
prior to the release of new software or hardware products. As a result, these
high technology companies are frequently utilizing supplemental sources of
information technology professionals with expertise in current technologies.
As new technologies are developed and introduced, businesses are
attempting to integrate and implement these technologies into their already
complex information technology systems. As these systems are being deployed on
an enterprise-wide basis and on multiple hardware and software platforms, the
process of systems design and implementation has become more complex. As a
result, businesses are forced to find qualified information technology
professionals to design, develop, deploy and maintain their systems. Frequently,
however, qualified information technology professionals do not exist internally
or it may be impractical to re-deploy and retrain internal personnel.
Consequently, these businesses are increasingly seeking to augment their staffs
with information technology professionals skilled in the management and
operation of such systems.
We believe that the growth of the Internet is likely to contribute to
the demand for information technology professionals. North American companies
are increasingly establishing or maintaining a presence on the Internet.
Although many companies outsource to Web site maintenance companies, others
retain direct control of their Web sites and may utilize contract workers to
establish and maintain such sites.
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Despite increased demand for information technology professionals,
there is a shortage of information technology professionals proficient in the
most current computer languages and applications. According to the Information
Technology Association of America, recent studies indicate that the United
States has a shortage of approximately 346,000 information technology
professionals. According to a study performed by the KPMG/CATA Alliance, Canada
has a shortage of between 20,000 and 30,000 information technology
professionals. The studies also suggest that the shortfall is growing. Due to
the high demand for their services, many information technology professionals
have a variety of opportunities in the job market and an increasing number are
attracted to the benefits of working on a contract basis. Such benefits include
more flexible work schedules and the opportunity to work with emerging and
challenging technologies in a variety of industries.
We believe that to address their increasing demand for contract and
permanent information technology and engineering professionals, both research
and development departments of technology companies and information technology
departments of large corporations are turning to information technology and
engineering staffing companies to augment their existing operations.
Technology-dependent companies are increasingly utilizing outside consultants
to: (i) meet critical production deadlines; (ii) focus on their core business
and avoid devoting valuable time to the recruiting and hiring processes; (iii)
access specialized technical skills; (iv) better match staffing levels to
current needs; and (v) reduce the costs of recruiting, training and terminating
employees.
Business Strategy
Our business objectives are to increase our share of the information
technology and engineering staffing services market in Canada and the United
States, as well as to establish a network of offices throughout such countries
which, when linked by means of the Internet, will allow us to provide our
customers with an array of information staffing services. The primary components
of our strategy to achieve such objectives are as follows:
Leverage Client Base to Attract and Retain Highly Qualified Information
Technology and Engineering Professionals
A key element of our success has been our ability to attract and retain
highly qualified information technology and engineering professionals. We
believe that the primary reason that we can attract such professionals is due to
our high quality customer base, which allows us the opportunity to identify and
deliver high quality assignments involving leading-edge technologies.
Additionally, we believe that we have developed a reputation among information
technology professionals for efficient and high quality placements by focusing
on an information technology professional's particular field of technical
specialization and providing access for information technology professionals to
cash compensation levels comparable to, or higher than, that of similarly
skilled, full-time employees.
As our high quality clients have allowed us to attract a large number
of qualified information technology and engineering professionals, our database
of information technology and engineering professionals, in turn, has allowed us
to increase our number of clients. We believe that this cyclical phenomenon in
the recruiting business creates the opportunity for significant growth it
expands and implements the other facets of our business plan.
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Focus on Niche Markets
We believe that our expertise in the information technology and
engineering industry provides us with a competitive advantage over recruiting
firms that do not utilize information technology specialists in their
recruiting. The Staffing Report On-Line, an on-line magazine for the employment
and temporary service industry, views the information technology staffing
business as distinctly different from traditional staffing businesses. Our
recruiters follow information technology industry trends, are usually
knowledgeable in the information technology and engineering areas and have
access to our databases of information technology and engineering professionals,
all of which enables them to provide their customers with candidates who will
satisfy a particular client's requirements.
We believe that developing niche specialties will enhance our
reputation as a whole and create opportunities for us to establish relationships
with new customers who then may utilize us to locate information technology
professionals with other skills.
Expand into New Regional Markets
As opportunities arise, we intend to expand into certain markets by
means of acquisition, but believe that most expansion will come from the
establishment of new offices. We intend to establish such offices by hiring
experienced recruiters familiar with the local markets and providing them access
to our existing group of information technology professionals and customers by
means of the Internet. By hiring local recruiters, we believe that we will be
able to attract local clients and information technology professionals who may
not have been previously familiar with us. We believe that such recruiters will
find us to be an attractive place to work because of our existing relationships
with multinational and other large corporate clients, our good reputation among
information technology professionals, our quality information technology system
and our incentive based compensation package which will generally combine base
salary, bonuses, commissions and incentive stock options.
Where we deem it more cost effective, or when a particular acquisition
candidate will provide us with a competitive advantage, we may enter a new
regional market by acquiring an existing information technology staffing
company. We intend to focus on small acquisition targets who will be able to
benefit from our strong information technology and operating systems.
Continue to Utilize the Internet and Information Technology
We believe that our use of technology provides us with a competitive
advantage over many of our competitors. We utilize our GTS software to operate
our database and allow recruiters to use a query-based system that matches the
skill set and employment preferences of the information technology professionals
with the needs of the customer. This system also tracks other information, such
as average salaries of a particular position, which enables us to provide
valuable advice to its clients in selecting the proper information technology
professional. Our information technology professional database and recruiting
software is available to our employees in other cities through our fully secure
Intranet system. For example, a recruiter in a new office in Austin, Texas could
have complete access to our information technology in Toronto, Ontario. We
believe that this will enable us to open new offices that are quickly ready to
provide services to customers without incurring significant information
technology start-up costs. In smaller markets, we intend to utilize our
information technology system to create lightly staffed "virtual offices" that
rely on our Toronto, Ontario office for all administrative and many operating
functions.
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We utilize the Internet to promote our services and to provide
information technology and engineering professionals with a complete listing of
available employment opportunities. Information technology and engineering
professionals can e-mail their resumes to our recruiters and, by completing an
on-line form, enter themselves into our database
We have developed a recruitment management product called GTS. GTS is a
Web-based recruitment technology which automates and electronically manages
every step of the recruitment and hiring process. GTS reduces resume overload by
prescreening candidates with automated filtering mechanisms; automates job
postings to external job boards and news groups; manages a company's recruitment
Web site and internal posting and referral programs; handles all administrative
details such as interview scheduling and correspondence; and provides an
elaborate reporting facility to calculate hiring costs. The technology is hosted
by us. and runs entirely over the Internet.
Develop and Promote a Managed Services Practice
We intend to form a team of consultants who will aid our customers in
determining their information technology staffing needs. We believe that this
will provide us with a competitive advantage when compared with traditional
recruiting firms. Furthermore, we believe that Managed Services could provide us
with an additional source of revenue, which could be particularly important if
companies utilize GTS and Internet sources to reduce their reliance on
recruiting firms.
Capitalize on Year 2000 and Other Opportunities
Due to a once-common programming standard that represents years using
two-digits, many computer systems and software products, unless upgraded, may
not function properly in the year 2000. The problem may result in the inability
of computer systems to properly recognize date-sensitive data and may result in
the production of erroneous information or system failure.
Many companies rely on contract workers to review their computer
systems and make necessary changes to avoid the potential Year 2000 problems.
Contract workers are ideal for this task because it is likely to be a time
consuming and complicated, yet temporary, project. We will continue to exploit
the Year 2000 issue as an opportunity to develop additional customer
relationships and to expand the scope of our contract work on a
project-by-project basis.
We believe that computer systems will require modifications to be able
to properly record data changes and companies may rely on contract workers and
consulting teams to implement these changes. We have been and intend to continue
to capitalize on the need for a quick response to such provisions by assembling
teams of specialists to address such problems which we intend to use as an
opportunity to establish additional customer relationships.
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As the state of the economy fluctuates, so too do expenditures on new
information technology systems. This is particularly true of the financial
services industry, where there is a higher amount of discretionary spending for
information technology systems. We have guarded against being adversely affected
by a curb in spending from the financial services sector by diversifying our
client base to include manufacturing, distributing and telecommunications firms,
and software companies.
We have been focusing our infrastructure development and marketing
initiatives on niche market areas, such as enterprise resource planning and
network management. We believe that by doing so, we have positioned ourselves in
the lowest possible risk sector for market fluctuations.
Contract Services
Our contract services revenue is derived from time and materials
contracts in which we supply a contract worker to perform under the supervision
of the client. Our contract services generally consist of providing contract
workers to customers for short and long term assignments. These assignments
generally last from three to twelve months, but can sometimes last much longer.
The assignments may be for specified projects or general information technology
consulting work. Although we currently bill the clients only on a time and
materials basis at an agreed upon hourly rate, in the future it may assemble
teams that will perform projects for an agreed upon fixed price for the project.
We pay the contract worker an agreed upon rate, pursuant to our standard
consulting services agreement. The contract worker generally receives between
75% and 80% of the amount paid to us by the customer, however such payment is
usually not based on any formula and may vary for different engagements. This
agreement, which is terminable by us at any time, obligates the contract worker
to provide notice prior to leaving the position, contains a confidentiality
clause, and prohibits the worker from going to work directly for the customer
for a period of six months from the date that the worker no longer works for
such customer without our consent of. At December 31, 1999, approximately 450
contract workers placed by us were performing services for our customers.
We intend to increase the amount of project services work we are doing
by assembling teams specializing in particular projects, such as Year 2000
problem resolution. In the future, we may hire project leaders as salaried
employees to lead teams of consultants on certain projects. We believe that this
will enable us to earn higher margins on our project work. Furthermore, such
teams would enable us to market ourselves as a full-service provider of
information technology and engineering staffing services with a wide array of
services that can be tailored to meet a customer's particular needs.
Permanent Staffing Placement Services
Our permanent placement services generally consist of the placement of
an information technology or and engineering professional in a position for our
customers. We identify and provide candidates to our customers who our
recruiters believe, based on our data, have the technical skills and job
interest to best satisfy the requirements of the position. We recognize revenue
when the information technology or engineering professional commences
employment. However, we are required to find a replacement free of charge if the
employee does not remain in the position for at least ninety days. This
placement fee is usually structured as a percentage of the information
technology or engineering professional's first-year annual compensation. This
percentage ranges from 20% to 30%, although we expect to reduce the fee to
10-15% for customers utilizing our Internet technology because those placements
will require less time and input from our recruiters. Salaries for the
information technology and engineering professionals that we place generally
range from $45,000 to $150,000.
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We perform permanent placement services pursuant to three invoicing
policies. Contingency services are engagements in which we are only paid if we
are successful in placing a candidate in a position. Contingency exclusive
services are similar to contingency engagements, however, we are the only firm
engaged to fill the position. Retained search services are similar to
contingency exclusive services, except that we receive a non-refundable portion
of the fee prior to performing any services, with the remainder paid if the
position is filled.
Sales and Marketing
Our primary target markets are software, telecommunications,
manufacturing and engineering and other technology companies, financial service
companies and multinational and other large corporations. We maintain a database
of human resource administrators and information technology department heads at
these firms and utilize our sales forces to build relationships with these
individuals by stressing the quality of information technology professionals
that we recruit. As we expand into new regional markets we intend to hire local
sales people who are familiar with local customers. Because many of our
customers maintain offices in more than one city, we believe that we will have
an advantage in establishing relationships with these additional offices as we
expand into new regional markets.
We market our services via the Internet. We are in the process of
upgrading our Web site, which previously has been used primarily as a tool to
advertise job opportunities to information technology professionals and to
promote our services to our customers. We also utilize traditional advertising
outlets and trade shows to promote our services to potential customers.
Customers
We provide staffing services to customers in a wide array of
industries. Software development, telecommunications, manufacturing and
engineering, and other technology companies utilize our services to locate
programmers in the development of new products. We also provide services to
financial services companies, such as Bank of Montreal and Goldman Sachs, which
are extremely reliant on their information technology systems. Large consulting
firms, such as Deloitte & Touche Tohmatsu, are also beginning to utilize us to
meet their need for information technology professionals.
Our customers include the Fortune 1000 companies, such as American
Express Company. We believe that we will be able to provide services to other
multinational and large companies and expand services provided to these existing
customers by expanding into new regional markets. These multinational and other
large companies have indicated to us that they desire to use fewer suppliers to
meet their needs and we believe that we will be able to utilize relationships in
one market to establish relationships with such companies in other markets.
Additionally, we believe that our high profile customer base provides us
credibility when pursuing other customers. The following is a list of certain of
the larger companies who utilize our services.
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Financial Services Software, Technology and Telecommunications
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American Express Bell Canada
Bank of Montreal Lucent Technologies
CIBC Wood Gundy SHL Systemhouse Co.
Goldman Sachs Star Data Systems, Inc
Toronto Stock Exchange
Government and Educational Other
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Government of Canada General Motors
Government of Ontario Cummins Engine
Deloitte & Touche
National Grocers Co. Ltd.
Chapters
Xerox Corporation
As is common in the staffing industry, we do not have long-term written
contracts with most of our customers. We, however, generally enters into a
standard form agreement with our customers that indicates which parties are
responsible for taxes and other expenses, and provides that all intellectual
property and other proprietary information will remain confidential and the
property of the customer. Some customers, such as the Canadian government, Dow
Jones and CIBC Wood Gundy Securities Inc., require us to use another form of
agreement which is similar in all material respects to our standard form. With
certain clients, most significantly, Bank of Montreal, we enter into an
agreement allocating other responsibilities, such as the supervision of the
information technology professionals we recruit. Other customers, enter into
annual contracts with us pursuant to which we will supply contract workers
during the year as required by the customer at fees to be negotiated.
Strategic Alliances
We intend to utilize strategic alliances to promote our staffing
services. We may enter into arrangements with consulting firms to staff major
information technology projects. Alternatively, we may enter into arrangements
with software companies whereby our contract workers will be trained to perform
customer support services. Lastly, we may enter into agreements with other
staffing companies in geographic regions in which we do not intend to expand.
Such arrangements will allow us to provide our existing large corporate clients
with services in areas where we not familiar with the local market. Currently,
we are not a party to any agreements to enter into arrangements such as these,
and there can be no assurance that we will find entities with which to enter
into strategic alliances on terms acceptable to us, or at all.
Recruiting
We believe that our technology and experienced recruiting staff of 56
individuals enables us to recruit qualified information technology professionals
whose skills match the needs of our customers. Many of our recruiters have
strong information technology backgrounds and are required by us to take a
two-week training course when hired by us. We maintain a database of over 50,000
information technology and engineering professionals. Our recruiters maintain
ongoing relationships with certain information technology professionals and are
aware of their particular skills and employment status. Using our database and
our recruiters' knowledge of available information technology professionals, we
are often able to quickly locate a number of suitable candidates for a position,
which is particularly important for positions in which we do not have an
exclusive engagement. The database also contains reference and employment
history information which accelerates the screening process.
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We test the computer skills of all of our information technology
professionals utilizing TeckChek software. This software provides recruiters
with a consistent rating system and a reliable method of evaluating candidates,
which aids recruiters in matching candidates with positions requiring their
skill set. This software also allows us to provide evidence to our customers
that potential employees have sufficient technical skills. Additionally, we
screen candidates by telephone and in-person interviews and by reference checks.
If we are unable to locate suitable candidates for a position by means
of our databases, we may utilize advertisements in newspapers and trade
magazines. We often prepare and place advertisements on behalf of our clients.
We have been approved by the Canadian Newspaper Association as an advertising
agency, which allows us to earn a commission on any advertisements we place.
Additionally, we post job openings on our Web site and invite information
technology professionals to submit their resumes to us by e-mail.
We intend to recruit information technology and engineering
professionals from other countries, such as Singapore and India, where there are
a number of information technology and engineering professionals and the job
opportunities are inferior to those in North America. United States and Canadian
immigration laws contain preferences for immigrants who can fill skilled labor
positions for which there is a shortage of native applicants.
We believe that turbulent economic and political situations in other
parts of the world, as well as the general lack of opportunities for top
information technology professionals in countries such as Russia and India, make
Canada and the United States an appealing choice for immigration. According to a
recent KPMG/CATA Alliance High Tech Labor Survey, there is a shortage of
information technology workers in Canada. Bringing in foreign workers helps to
alleviate this shortage. The Canadian government, in recognition of this fact,
has relaxed entrance requirements for information technology and engineering
professionals, allowing such workers to enter the country more quickly than ever
before.
We are dedicated to maximizing the value of overseas recruitment
through a variety of methods. The first is through the extensive use of the
Internet and our Internet-based product, GTS. By using a combination of our Web
site and e-mail, we are able to communicate with information technology
professionals around the globe, making them aware of the opportunities we have
available, and discuss immigration options.
Internally, we have built a knowledge base around the particular issues
of bringing information technology workers to Canada. We have also been building
a library of information about the legal technicalities surrounding work visas
and immigration for Canadian workers migrating to the United States. To
complement this knowledge that we are building internally, we have also
developed strategic relationships with legal counsel specializing in immigration
and visa issues.
Another strategy we are employing in the area of foreign recruitment is
the establishment of lightly staffed virtual offices in different parts of the
world. Recruiters with country-specific contacts and knowledge are given access
to our database and job postings. They then carry this information into the
field where they screen and select foreign candidates who they feel would be
appropriate for the opportunities that we have available. We then take these
pre-screened candidates and continue with the evaluation process.
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Information Technology and the Internet
We have established an extensive information technology system which we
believe provides us with a competitive advantage over less technologically
advanced competitors. The primary components of our information technology
system and our use of technology are described below.
The GTS Software
GTS is an Internet-based software application that is used by us in the
administration and tracking of internal processes relating to the recruitment
and placement of information technology professionals. GTS is a query based
software program that allows our recruiters to locate the information technology
professional in our database with the technical skills and job interests that
best satisfy the requirements of the position that we are attempting to staff.
This system also tracks other information, such as average salaries of a
particular position, which enables us to provide valuable advice to our clients
in selecting the proper information technology professional. The software also
incorporates our database of over 50,000 information technology professionals.
We continually update our database and occasionally accesses other databases of
information technology professionals that are available for sale or over the
Internet. GTS allows information entered into the database by our employees, or
directly by an information technology professional by means of the Internet, to
be shared by all of our recruiters and salespeople.
The GTS software is designed to aid a human resources department in
performing numerous recruitment tasks, such as scheduling interviews and
evaluating candidates. The software has a feature that allows a human resources
department to have a description of any job openings sent automatically to
selected e-mail addresses, such as those of recruiting firms or previous
applicants. Statistics about the recruitment process, including the costs and
expenses, are tabulated in various databases. Additionally, the software allows
the human resource department to compile their own database of prospective
employees and contract workers.
Traditionally, recruiters acquire new candidates using as many sources
as possible. Normally the number of sources would be limited to the recruiting
office's ability to handle the logistics of communicating job specifications to
those sources and handling the incoming responses. Therefore, their ability to
hire quality information technology candidates is directly related to the size
of the group of candidates they can attract and the speed with which they can
assimilate, contact, interview, evaluate, file for future use and/or hire those
candidates.
The process, through which recruiters post or communicate job
specifications to applicant sources, is fully automated. Once the hiring manager
and the recruiter have constructed the job specification using GTS, they use GTS
Broadcast facility to communicate this job specification to all designated
sources. With a click of the mouse the recruiter defines and chooses the
broadcast strategy. The information can be communicated/posted simultaneously
and automatically to appropriate employment agencies, web news groups, Web job
posting sites, archived candidates, internal candidates (as per policy) and
personal referral sources.
GTS consolidates and automates the communication process for all
sources. Each unique information source is provided with a web interface. All
out-going and in-coming communications/applications are managed using this web
interface. No specialized client software is required. All transactions are
initiated through a web browser. Recruiters, hiring managers and applicants now
use a common medium for communication. This type of common-interface messaging
reduces significantly the reliance on hard-copy mail, phone communication and
fax transmission. Additionally, a Web site address is provided for all
candidates that are informed of the job requirements by means of trade journals
or newspapers. This further centralizes the incoming applicant response.
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GTS development program was launched as a result of the positive
response observed during its first test-marketing session. A working prototype
was demonstrated at the annual Human Resources Professional Association
Conference in Toronto, Ontario in February 1998. We performed more than forty
one-on-one demo sessions with companies, currently, the product is being test
marketed by the human resources departments of two of our customers. The first
customer is the Toronto Stock Exchange, which is viewed as a Canadian leader in
the development and deployment of application software. We believe that we will
be able to provide assistance in the marketing of the software as a result of
its existing relationships with management in the human resources and
information technology departments of our customers, although there can be no
assurance thereof. Our joint venture allocates costs and responsibilities in
marketing GTS. We have spent approximately $650,000 on research and development
related to GTS
Although there can be no assurance thereof, we believes that we will
have an advantage in marketing its recruitment services to companies using GTS
because of our familiarity with the software and the ease of electronic data
interface with us. There is a possibility, however, that utilization of the
software will reduce reliance of certain customers on recruiting firms,
including us. Notwithstanding the foregoing, we do not anticipate any material
reduction in such reliance as a result of the utilization of this software due
to the difficulty of hiring information technology professionals. Furthermore,
we intend to offer lower commission rates to customers using GTS software to
make it less likely that they will reduce the level of utilization of the
services of recruiting firms. We believe that the use of GTS and our familiarity
with the software will enable us to aid customers in finding suitable,
professionals in a more timely and cost efficient manner, allowing for the
decrease in prices we charge.
Utilization of the Internet
We utilize the Internet to promote our services and to enable our
customers and information technology and engineering professionals to utilize
our services. The descriptions of the employment opportunities are segregated
among permanent and contract positions, describe the necessary skills required
by information technology and engineering professional candidates, and provides
a phone number and e-mail address for our recruiter who works with the relevant
client. Alternatively, information technology and engineering professionals can
e-mail their resumes to us or can enter themselves into our database by means of
the Internet. We also utilize the Internet to connect our offices to our
Toronto, Ontario office. This results in substantial savings in software and
hardware costs in the maintenance of our information technology system and
allows for the creation of lightly staffed regional virtual offices.
Expansion and Acquisitions
We believe that we can leverage our database of information technology
and engineering professionals, reputation, and information technology system to
achieve revenue growth by establishing new offices in other regional markets.
Such offices may be established by opening new offices and staffing them with
local recruiters and sales people or by acquiring complimentary or competitive
companies.
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We primarily intend to focus our expansion in large United States
cities, such as Atlanta, Chicago, San Francisco and Austin. We are selecting
locations that have other offices of our existing customers, such as Chicago,
the headquarters of Harris Bank & Trust, or areas with numerous technology
companies, such as Austin. In addition to attracting local information
technology and engineering professionals, we intend to attempt to recruit
Canadian and other foreign information technology and engineering professionals
for these positions in the United States. Due to the strength of the United
States dollar against the Canadian dollar and other currencies, we believe that
foreign information technology and engineering professionals will find the
economic opportunities in the United States attractive. We are currently
endeavoring to expand our operations in the mid-western United States. We
believe that recruiters in other markets will find us to be an attractive place
to work because of our existing relationships with multinational and other large
corporate clients, our good reputation among information technology and
engineering professionals, our quality information technology system and our
incentive based compensation package, which will generally combine base salary,
bonuses, commissions and incentive stock options.
We may seek to establish offices in smaller markets that contain
desirable customers. We believe that we can do so in a cost effective manner
because of the strength of our information technology system. A single
recruiter/sales person can operate a "virtual office" by utilizing our Toronto,
Ontario office's database and other operational systems by means of our
Intranet.
Based on the experience of our principals who, prior to forming
ThinkPath, have been involved in the opening of several offices throughout
Ontario and the opening of our New York and Boston offices, we expect newly
opened offices to become productive within six to twelve months of opening. The
delay in productivity can be attributed to the following factors:
o Recruiting, hiring, training and orientation of new staff with
recruitment/sales methodologies and practices, as well as technology
(databases, software, Internet, e-mail, etc.);
o Recruiting and developing a base of qualified information technology
professionals (advertising, open houses, career fairs);
o Attracting and building client relations; and
o Getting on preferred supplier lists.
Although there can be no assurance that such expectations will be
satisfied, our expectations in terms of productivity for new offices by the 12th
month of operations are: 30 contractors and between $30,000 to $50,000 in
permanent placement sales per month with annual revenues of approximately
$450,000.
The opening of new offices with the addition of qualified employees and
entrance into new regional markets results in increased operating expenses
including:
15
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o Salaries and payroll costs;
o Infrastructure (office equipment, office space, office supplies, telephone,
insurance) including an elaborate technological infrastructure;
o Advertising (print and career fairs);
o Marketing and public relations; and
o Travel and business development costs.
There are also the related head office expenses associated with opening
new offices, including:
o Time spent by management and technical personnel on training (recruitment
sales; GTS, databases, e-mail, Internet, job postings to user groups); and
o Time spent by management and support personnel on implementing and
maintaining reporting procedures (financial and administration).
We may also expand by acquiring complementary or competitive companies,
including existing information technology staffing companies, which will provide
an immediate increase to our customer base and in some circumstances, provide a
more cost effective method of expansion than opening a new office. We intend to
target companies who have a strong customer base or group of information
technology professionals, but do not utilize an advanced internal information
technology system. We believe that providing an acquired company access to our
information technology system will allow the acquired company to provide better
service without substantially increasing costs, which may also lead to increased
revenue. Although, due to consolidation in the industry, there is competition
for the acquisition of companies in the information technology staffing
industry, we intend to avoid competing for acquisition candidates by focusing on
smaller companies.
We may also utilize acquisitions or hiring of new employees to achieve
growth in its existing markets. We utilized the acquisitions of Systemsearch
Consulting Services Inc. and International Career Specialists Ltd. in
metropolitan Toronto, Ontario and Cad Cam Inc. throughout the United States to
acquire access to experienced recruiters with an existing customer base.
With regard to customer services, we plan to implement a decentralized
management plan. We believe that allowing existing management of an acquired
company to remain an important part of its operations will be beneficial in
retaining customers, recruiters and information technology professionals.
Similarly, local recruiters and sales people hired to staff new offices will
have the flexibility to continue relationships with customers and information
technology professionals. Our Intranet will provide all offices full access to
our databases and operating software, promoting uniformity in certain functions.
We currently hold monthly meetings of our Operations Committee, which consist of
the heads of each regional office and subsidiary, whereby they exchange
information on industry trends and promote "best practices" among the offices.
With regard to financial controls, we have a fully integrated system which
allows control of cash flows and accounting and payroll functions from our
Toronto, Ontario office.
On September 16, 1999, we completed the acquisition of all the issued
and outstanding capital stock of Cad Cam, Inc., an Ohio corporation, for an
aggregate of $2,000,000 in cash, $2,500,000 pursuant to a promissory note and
$1,500,000 worth of our common stock to be issued to Roger Walters, Cad Cam,
Inc.'s president. Mr. Walters was elected to serve as one of our directors. The
share purchase agreement was executed on January 1, 1999 and the transaction was
effective as of September 16, 1999. Mr. Walters was not affiliated with us prior
to the acquisition. Management believes the addition of Cad Cam, Inc. will
provide us with an established position in the engineering staffing market.
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On January 1, 2000, we completed the acquisition of all of the issued
and outstanding capital stock of Object Arts Inc., an Ontario corporation, in
consideration of: (i) the issuance of $900,000 worth of our common stock to
Working Ventures Custodian Fund in exchange for the retirement of outstanding
subordinated debt; (ii) the issuance to Working Ventures Custodian Fund of an
amount of our common stock equal to the legal fees and professional fees
incurred and paid by Working Ventures Custodian Fund in connection with our
acquisition of Object Arts Inc.; and (iii) the issuance of $1,100,000 worth of
our common stock to the existing shareholders of Object Arts Inc. Management
believes that with Object Arts Inc.'s technical training expertise, ThinkPath
will now be able to offer a complete end-to-end skills gap solution. As part of
the acquisition of Object Arts Inc., we entered into employment agreements with
Marilyn Sinclair and Lars Laakes, the former officers of Object Arts Inc., for a
period of three years with annual salaries of $82,000 and $75,000, respectively.
Competition
The information technology and engineering staffing industry is highly
competitive and fragmented and is characterized by low barriers to entry. We
compete for potential clients with other providers of information technology
staffing services, systems integrators, providers of outsourcing services,
computer consultants, employment listing services and temporary personnel
agencies. Many of our current and potential competitors have longer operating
histories, significantly greater financial, marketing and human resources,
greater name recognition and a larger base of information technology
professionals and clients than us which may provide such competitors with a
competitive advantage when compared to us. In addition, many of these
competitors, including numerous smaller privately held companies, may be able to
respond more quickly to customer requirements and to devote greater resources to
the marketing of services than us. Because there are relatively low barriers to
entry, we expect that competition will increase in the future. Increased
competition could result in price reductions, reduced margins or loss of market
share, any of which could materially and adversely affect our business,
prospects, financial condition and results of operations. Further, there can be
no assurance that we will be able to compete successfully against current and
future competitors or that competitive pressures faced by us will not have a
material adverse effect on our business, prospects, financial condition and
results of operations. We believe that the principal factors relevant to
competition in the information technology staffing and engineering services
industry are the recruitment and retention of highly qualified information
technology and engineering professionals, rapid and accurate response to client
requirements and, to a lesser extent, price. We believe that we compete
favorably with respect to these factors.
We believe that our competitive advantage is not only in our use of
technology, but also in the accessibility of this technology to all of our
employees. The building and maintenance of our database of over 50,000 has been
a combined effort of all our employees. We also have Internet access and
membership to 12 local, national and international databases for information
technology professionals.
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Employees and Consultants
Employees
Our corporate staff at December 31, 1999 consisted of 148 full-time
employees, including 78 recruiters, 41account managers/salespeople and 29
administrative employees. We are not a party to any collective bargaining
agreements covering any of our employees, have never experienced any material
labor disruption and are unaware of any current efforts or plans to organize our
employees.
Consultants
We enter into consulting agreements with the information technology and
engineering professionals at hourly rates negotiated with each information
technology professional based on such individuals technical and other skills.
The agreements provide that the information technology and engineering
professional is responsible for taxes and all other expenses and that the
information technology professional is not our employee for tax or other legal
purposes. At December 31, 1999, approximately 465 contract workers placed by us
were performing services for our customers.
Recent Events
On December 1, 1999, we executed a non-binding letter of intent with
Elite Information Services, Inc., a Florida corporation that specializes in the
placement of contract information technology specialists. Pursuant to the letter
of intent, we or one of our subsidiaries, will purchase 100% of the issued and
outstanding common stock of Elite Information Services, Inc. in consideration of
an aggregate purchase price of $2,000,000, subject to adjustment. The
consideration shall be paid as follows: (i) $300,000 in cash upon the closing;
(ii) the issuance to the sole shareholder of Elite Information Services, Inc. of
an unsecured promissory note in the principal amount of $300,000, upon the
closing; (iii) the issuance of $1,400,000 worth of our common stock to the sole
shareholder of Elite Information Services, Inc., upon the closing; (iv) $200,000
in cash within ninety days of the closing, if Elite Information Services, Inc.'s
gross earnings before the deduction of interest and tax expenses for the year
ended December 31, 1999 equals $300,000 or greater; (v) the issuance of $200,000
worth of our common stock within ninety days of the closing, if Elite
Information Services, Inc.'s gross earnings before the deduction of interest and
tax expenses for the year ended December 31, 1999 equals $300,000 or greater;
(vi) $200,000 in cash on December 31, 2000: and (vii) the issuance of $400,000
worth of our common stock to the sole shareholder of Elite Information Services,
Inc., on December 31, 2000.
On December 30, 1999, we issued: (i) 15,000 shares of Series A 8%
Percent Cumulative Convertible Preferred Stock, no par value per share; and (ii)
warrants to purchase up to an aggregate of 475,000 shares of our common stock,
in consideration $1,500,000 pursuant to a private placement offering. Each share
of Series A 8% Cumulative Convertible Preferred Stock has a stated value of $100
per share.
The shares of Series A 8% Percent Cumulative Convertible Preferred
Stock are convertible into shares of our common stock at the option of the
holders the Series A 8% Percent Cumulative Convertible Preferred Stock, at any
time after issuance until either: (i) such shares of Series A 8% Percent
Cumulative Convertible Preferred Stock are converted at our option; or (ii) such
shares of Series A 8% Percent Cumulative Convertible Preferred Stock are
redeemed by us, under certain conditions, at any time after the effective date
of this registration statement.
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<PAGE>
The holders of the shares of Series A 8% Percent Cumulative Convertible
Preferred Stock are entitled to receive preferential dividends in cash, out of
any of our funds legally available at the time of declaration of dividends
before any other dividend distribution will be paid or declared and set apart
for payment on any shares of our common stock, or other class of stock presently
authorized, at the rate of 8% simple interest per annum on the stated value per
share. Such are payable on a quarterly basis commencing on the quarter ending
March 31, 2000 when as and if declared, provided however, that the dividends
will be made in additional shares of Series A 8% Percent Cumulative Convertible
Preferred Stock at a rate of one share of Series A 8% Percent Cumulative
Convertible Preferred Stock for each $100 of such dividend not paid in cash.
Dividends may be paid at our option with shares of Series A 8% Percent
Cumulative Convertible Preferred Stock only if our common stock deliverable upon
the conversion of the Series A 8% Percent Cumulative Convertible Preferred Stock
will have been included for public resale in an effective registration statement
filed with the Securities and Exchange Commission on the dates such dividends
are payable and paid to the holders. The dividends shall be cumulative whether
or not earned and shall be cumulative from and after December 30, 1999.
The number of shares of our common stock into which the Series A 8%
Percent Cumulative Convertible Preferred Stock shall be convertible shall be
equal to (i) the sum of (A) the stated value per share and (B) at the holder's
election, accrued and unpaid dividends on such share, divided by (ii) the
"Conversion Price". The Conversion Price shall be the lesser of (x) 90% of the
average "Closing Bid Prices" for the three trading days immediately preceding
December 30, 1999, or (y) 80% of the average of the three lowest "Closing Bid
Prices" for the ten trading days immediately preceding the conversion of the
respective shares of Series A 8% Percent Cumulative Convertible Preferred Stock.
The "Closing Bid Price" is defined as the closing bid price as reported on the
Nasdaq SmallCap Market or the principal market or exchange where our common
stock is then traded. The holders of the shares of Series A 8% Percent
Cumulative Convertible Preferred Stock may exercise their right to conversion
only if the aggregate stated value of the shares of Series A 8% Percent
Cumulative Convertible Preferred Stock to be converted is equal to at least
$5,000, unless if at the time of such conversion, the aggregate stated value of
all of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock
is less than $5,000, then the whole amount of the remaining shares of Series A
8% Percent Cumulative Convertible Preferred Stock may be converted.
At any time after the effective date of this registration statement, we
have the option to redeem any or all of the shares of Series A 8% Percent
Cumulative Convertible Preferred Stock by paying to the holders a sum of money
equal to 135% of the stated value of the aggregate of the shares of Series A 8%
Percent Cumulative Convertible Preferred Stock being redeemed plus the dollar
amount of the accrued dividends, if the Conversion Price of the shares of Series
A 8% Percent Cumulative Convertible Preferred Stock on the trading day prior to
the date of redemption is less than $2.
In addition, we have the option to cause the investors in the December
1999 private placement offering to purchase an additional $500,000 worth of
Series A Convertible Cumulative Preferred Stock upon the same terms as described
above.
The 475,000 warrants issued in the offering 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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On January 1, 2000, we completed the acquisition of all of the issued
and outstanding capital stock of Object Arts Inc., an Ontario corporation, in
consideration of: (i) the issuance of $900,000 worth of our common stock to
Working Ventures Custodian Fund in exchange for the retirement of outstanding
subordinated debt; (ii) the issuance to Working Ventures Custodian Fund an
amount of our common stock equal to the legal fees and professional fees
incurred and paid by Working Ventures Custodian Fund in connection with our
acquisition of Object Arts Inc.; and (iii) the issuance of $1,100,000 worth of
our common stock to the existing shareholders of Object Arts Inc. As part of the
acquisition of Object Arts Inc., we entered into employment agreements with
Marilyn Sinclair and Lars Laakes, the former officers of Object Arts Inc., for a
period of three years with annual salaries of $82,000 and $75,000, respectively.
On February 24, 2000, we changed our corporate name from IT Staffing
Ltd. to ThinkPath.com Inc. in order to more accurately reflect our expanded
suite of services.
On March 6, 2000, we completed the acquisition of E-Wink, Inc., a
Delaware corporation, in consideration of: (i) 300,000 shares of our common
stock; and (ii) warrants to purchase an aggregate of 500,000 shares of our
common stock at a price of $3.25 per share for a period of five years. E-Wink,
Inc. is currently developing platform technology that will match company's
seeking venture capital with venture capital firms offering such venture
capital. There can be no assurance that such technology will be developed, or if
developed, that such technology will work as intended.
On March 8, 2000, we executed a letter of intent with Micro Tech
Professionals, Inc., a Boston-based recruitment firm, to purchase 100% of its
common stock in consideration of up to $2,500,000 in a combination of cash, a
not payable and shares of our common stock, subject to specific performance
criteria be met. Micro Tech Professionals, Inc. specializes in the recruitment
and placement of technical documentation specialists and technical trainers.
ITEM 2. PROPERTIES
We maintain our headquarters in a 8,076 square foot office located at
55 University Avenue in Toronto, Ontario, Canada. We have leased such facility
for a term of ten years terminating in November 2007. We pay annual rent of
$30,307, which will increase to $36,080 commencing in December 2002. We lease
additional offices at the following locations:
<TABLE>
<CAPTION>
Location Square Feet Lease Expiration Current Rent Per Annum
-------- ----------- ---------------- ----------------------
<S> <C> <C> <C> <C>
Etobicoke, Ontario 1,610 4/13/03 $22,300
New York, New York 1,214 10/31/01 $47,353
Markham, Ontario 6,000 5/31/01 $39,000
Ottawa, Ontario 1,291 9/30/03 $14,739
Dayton, Ohio 8,426 08/31/00 $83,000
Indianapolis, Indiana 2,025 12/31/01 $30,881
Columbus, Ohio 1,000 01/31/00 $19,200
Cincinnati, Ohio 2,256 09/30/00 $22,560
Tampa, Florida 930 03/31/01 $12,741
Rochester, New York 1,621 05/31/00 $20,635
Detroit, Michigan 15,328 08/13/02 $149,316
Louisville, Kentucky 2091 07/01/02 $24,047
Chicago, Illinois 874 05/01/00 $14,856
Charleston, South Carolina 900 12/31/00 $15,120
Atlanta, Georgia 5,824 06/30/02 $78,360
Boston, Massachusetts 1,240 10/31/00 $22,940
New York, New York 12,265 08/31/06 $220,000
London, Ontario 5,877 12/31/01 $49,315
Toronto, Ontario 5,520 12/31/00 $77,455
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings now pending or threatened
against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the year ended December 31, 1999, there were no matters
submitted to the vote of the security holders.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our common stock began trading on the Nasdaq SmallCap Market on June 8,
1999, when we completed our initial public offering. Our common stock is listed
on the Nasdaq SmallCap Market under the symbol "THTH" and on the Boston Stock
Exchange under the Symbol "THP." As of April 10, 2000, we had 3,512,899 shares
of common stock outstanding. The following table sets forth the high and low
sales prices for our common stock as reported on the Nasdaq SmallCap Market.
Common Stock
------------
High Low
---- ---
Fiscal 1999
- -----------
Third Quarter $5.25 $2.813
Fourth Quarter $4.969 $2.938
Fiscal 2000
- -----------
First Quarter $4.438 $2.75
Second Quarter $4.75 $3.375
(Through April 10, 2000)
As of April 10, 2000, there were 30 shareholders of record and
approximately 614 beneficial shareholders
On April 10, 2000, the last sale price of our common stock as reported
on the Nasdaq SmallCap Market was $4.25.
Dividend Policy
We have never paid or declared dividends on our common stock. The
payment of cash dividends, if any, in the future, is within the discretion of
our Board of Directors and will depend on our earnings, capital requirements,
financial condition and other relevant factors. We intend to retain future
earning for use in our business.
ITEM 6. 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 contained
elsewhere in this Annual Report on Form 10-KSB. The statements contained in this
Annual Report on Form 10-KSB that are not historical are forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Exchange Act of 1934, including statements
regarding ThinkPath's expectations, intentions, beliefs or strategies regarding
the future. Forward-looking statements include ThinkPath's statements regarding
liquidity, anticipated cash needs and availability and anticipated expense
levels. All forward-looking statements included in this prospectus are based on
information available to ThinkPath on the date hereof, and ThinkPath assumes no
obligation to update any such forward-looking statement. It is important to note
that ThinkPath's actual results could differ materially from those in such
forward-looking statements.
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Overview
We are a global provider of information technology and engineering
recruiting, project outsourcing, technical training and consulting and ASP-based
skills management technology. Our customers include financial service companies,
software and other technology companies, Canadian and American governmental
entities and large multinational companies, including Bank of Montreal, Bell
Canada, Goldman Sachs, Chapters, Lucent Technologies, Cummins Engine, General
Motors, Xerox Corporation, American Express and Universal Industrial Corp.
(ESI). We have recently expanded our operations into the United States, through
among other things, our acquisitions of Cad Cam, Inc. and Object Arts Inc., and
intend to develop an expanded network of offices to provide our services
throughout North America.
For fiscal 1999, our primary source of revenue was information
technology and placement services, representing 75% of total revenue. As a
result of our acquisition of Cad Cam, Inc., engineering recruitment and
placement services, and project outsourcing represented 18% and 6% of total
revenue, respectively. For the year ended December 31, 1997, the year ended
December 31, 1998, and the year ended December 31, 1999, we derived 96%, 95%,
and 70%, respectively, of our revenue in Canada and the remainder in the United
States. Our books and records are recorded in Canadian dollars. For purposes of
financial statement presentation, we convert balance sheet data to United States
dollars using the exchange rate in effect at the balance sheet date. Income and
expense accounts are translated using an average exchange rate prevailing during
the relevant reporting period. There can be no assurance that we would have been
able to exchange currency on the rates used in these calculations. We do not
engage in exchange rate hedging transactions. A material change in exchange
rates between United States and Canadian dollars could have a material effect on
our reported results.
For the year ended December 31, 1999, our services classified as
information technology and engineering recruiting and project outsourcing. Our
recruiting services consist of contract, permanent and executive search
placements on either a contingency or retainer basis. In the case of contract
services, we provide our customers with independent contractors or "contract
workers" who usually work under the supervision of the customer's management.
Generally, we enter into a time-and-materials contract with our customer whereby
the customer pays us an agreed upon hourly rate for the contract worker. We pay
the contract worker pursuant to a separate consulting agreement. The contract
worker generally receives between 75% and 80% of the amount paid to us by the
customer; however, such payment is usually not based on any formula and may vary
for different engagements. We seek to gain "preferred supplier status" with our
larger customers to secure a larger percentage of those customers' business.
While such status is likely to result in increased revenue and gross profit, it
is likely to reduce gross margin percentage because we are likely to accept a
lower hourly rate from our customers and there can be no assurance that we will
be able to reduce the hourly rate paid to our consultants. In the case of
permanent placement services, we identify and provide candidates t fill
permanent positions for our customers.
Revenue from contract services is recognized as services are provided.
Permanent placement revenue is recognized when the successful candidate
commences employment. Searches on a contingency basis are paid only if we are
successful in placing a candidate in a position. Searches on a retained basis
are paid by a non-refundable portion of the fee prior to performing any
services, with the remainder as the position is filled.
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As a result of our acquisition of Cad Cam, Inc., we now perform project
outsourcing for customers on a project by project basis whereby we will be
engaged to complete a particular, specified project. We hire full-time employees
to supervise these projects. These projects are billed on a time-and-materials
basis or charged a fixed price for the project. If we charge a fixed price for a
project, we will be required to estimate the total costs involved in the project
and formulate a bid that contains an adequate profit margin. If we are unable to
accurately predict the costs of such a project, or the costs of the project
change due to unanticipated circumstances, which may be circumstances that are
beyond our control, we may earn lower profit margins or suffer a loss on a given
project.
Gross profit is calculated by subtracting fees ad benefits paid to
contractors from net revenue. We do not attribute any direct costs to permanent
placement services; therefore the gross profit margin on such services is 100%
of revenue. As a result, the addition of permanent placement revenue to contract
services revenue has a significant effect on our gross profit margin as a whole.
We anticipate expanding into new regional markets by establishing new
offices or by acquiring or investing in complementary or competitive companies.
We have identified three additional acquisition candidates and have executed
non-binding letters of intent with respect to such acquisition candidates. We
expect the cost of opening and funding a new office to range from $200,000 to
$500,000, depending on the size of the office and the costs of doing business in
the city in which the office is to be located. Such costs will primarily consist
of leasing office space, purchasing or leasing office equipment and computer
hardware and other related expenses incurred prior to the commencement of
operations in new locations. Such costs also include operating expenses, such as
payroll and advertising, which are often incurred prior to such time that the
new office is able to generate significant cash flow from operations. The
opening of new offices in new regional markets results in increased operating
expenses including, but not limited to, salaries, equipment, insurance,
marketing and public relations. Senior management also devotes resources to
training and management support. Based on the experience of our principals, we
expect newly opened offices to become productive within 6 to 12 months of
opening. Although there can be no assurance that such expectations will be
satisfied, our expectations in terms of productivity for new offices by the 12th
month of operations are: 30 contractors and between $30,000 to $50,000 in
permanent placement sales per month with annual revenues of approximately
$450,000. We have in the past and are likely to utilize acquisitions as an
attempt to avoid or limit these costs, but we incur other costs as a result of
any acquisitions, including funding the purchase price and expenses related to
the integration of operations and training of new employees. With regard to
previous acquisitions, integration costs were expensed in the period that they
were incurred and we expect to continue to do so with future acquisitions. Our
current acquisition targets are small companies which can benefit from our
advanced information technology and other operating systems. There can be no
assurance that integrating our operations with those of acquired companies will
result in improvements in such companies' operations or increased revenue from
such operations.
In April 1998, we acquired all the issued and outstanding capital stock
of Systemsearch Services Inc. and Systems PS Inc. from John R. Wilson for
aggregate consideration $98,000 and 174,551 shares of our common stock. Systems
PS Inc. is inactive but holds certain assets utilized by Systemsearch Consulting
Services Inc. in its operations. The acquisition was effective as of January 2,
1997. Declan French, our President and Chairman of the Board, participated in
the management of Systemsearch Consulting Services Inc. We shared data and
operating information systems with Systemsearch Consulting Services Inc. during
the year ended December 31, 1997. Accordingly, our Consolidated Financial
Statements incorporate the operations of Systemsearch Consulting Services Inc.
since January 1, 1997.
24
<PAGE>
On May 19, 1998, we completed the acquisition of all the issued and
outstanding shares of capital stock of International Career Specialists Ltd. for
$326,000 in cash and 130,914 shares of our common stock to John A. Irwin, who
was not affiliated with us prior to this acquisition. In connection with the
acquisition, International Career Specialists Ltd. made a distribution to Mr.
Irwin of certain of its assets that were not necessary for the operation of the
business. The transaction was effective as of January 1, 1998. Declan French and
some of our other officers participated in the management of International
Career Specialists Ltd. during the year ended December 31, 1998. Accordingly,
our Consolidated Financial Statements incorporate the operation of International
Career Specialists Ltd. since January 1, 1998.
In November 1998, we completed the acquisition of certain assets of
Southport Consulting, Inc. from Mr. Michael Carrazza for $50,000 in cash and
40,000 shares of our common stock.
On September 16, 1999, we completed the acquisition of all the issued
and outstanding capital stock of Cad Cam, Inc., an Ohio corporation, for an
aggregate of $2,000,000 in cash, $2,500,000 pursuant to a promissory note and
$1,500,000 worth of our common stock to be issued to Roger Walters, Cad Cam,
Inc.'s president. Mr. Walters was elected to serve as one of our directors. The
share purchase agreement was executed on January 1, 1999 and the transaction
was effective as of September 16, 1999. Mr. Walters was not affiliated with us
prior to the acquisition.
On January 1, 2000, we completed the acquisition of all of the issued
and outstanding capital stock of Object Arts Inc., an Ontario corporation, in
consideration of: (i) the issuance of $900,000 worth of our common stock to
Working Ventures Custodian Fund in exchange for the retirement of outstanding
subordinated debt; (ii) the issuance to Working Ventures Custodian Fund an
amount of our common stock equal to the legal fees and professional fees
incurred and paid by Working Ventures Custodian Fund in connection with our
acquisition of Object Arts Inc.; and (iii) the issuance of $1,100,000 worth of
our common stock to the existing shareholders of Object Arts Inc. Management
believes that Object Arts Inc.'s technical training expertise will enable
ThinkPath to offer a complete end-to-end skills gap solution to its clients.
Each acquisition was accounted for using the purchase method of
accounting, which requires that the purchase price be allocated to the assets of
the acquired entity based on fair market value. In connection with the
acquisitions of Systemsearch Consulting Services Inc., International Career
Specialists Ltd. and all of the issued and outstanding stock of Cad Cam, Inc.
and Object Arts Inc. we recorded $449,000, $851,000, $5,520,000 and $1,500,000
respectively, in goodwill, which is being amortized over thirty years in
accordance with generally accepted accounting principles as applied in the
United States.
In the Consolidated Financial Statements and the Notes included in this
Annual Report on Form 10-KSB, the results of Cad Cam, Inc, are reflected from
October 1, 1999. Revenue and net income figures reported for June 30, 1999 and
September 30, 199 were prepared on a pro forma basis as though Cad Cam, Inc. had
been included from January 1, 1999. The pro forma financial information reported
in the Notes to the Consolidated Financial Statements also includes the
operations of Object Arts Inc. from January 1, 1999. During the first six months
of the year, Object Arts Inc. experienced significant losses directly
attributable to a failed software venture. The pro forma consolidated net loss
reported at December 31, 1999 is a result of the losses of Object Arts Inc at
June 30, 1999 coupled with significant restructuring and balance sheet
adjustments related to our acquisition of Object Arts Inc.
25
<PAGE>
Results of Operations
The following table presents certain of our financial data as a
percentage of our revenue based on information derived from our financial
statements.
Year ended December 31,
1997 1998 1999
---- ---- ----
Sales.............................. 100% 100% 100%
Contractor Costs................... 61% 61% 63%
Gross profit....................... 39% 39% 37%
Operating Expenses................. 34% 36% 36%
Income from operations............. 4% 4% 2%
Net income......................... 3% 3% 1%
The Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Revenue. Revenue for the year ended December 31, 1999 increased by
$7,300,000 or 59%, to $19,800,000, as compared to $12,500,000 for the year ended
December 31, 1998. The increase is primarily attributable to the acquisition
effective September 16, 1999 of Cad Cam, Inc., which had sales of $5,100,000 for
the three-month period ending December 31, 1999 and $21,200,000 for the
twelve-month period ending December 31, 1999.
Cost of Contract Services. The costs of contract services for the year
ended December 31, 1999 increased by $4,900,000, or 65%, to $12,500,000, as
compared to $7,500,000 for the year ended December 31, 1998. This increase was
due to the increased volume of contract services. As a percentage of revenue,
the cost of contract services increased marginally from 61% in 1998 to 63% in
1999. The increase in the cost of contract services as a percentage of revenue
is a result of the associated costs of Cad Cam, Inc.'s contractors who are
treated as employees, and thus are entitled to benefits, overtime and holiday
pay.
Gross Profit. Gross profit for the year ended December 31, 1999
increased by $2,300,000, or 48%, to $7,200,000, as compared to $4,900,00 for the
year ended December 31, 1998. This increase was attributable to the
aforementioned increase in revenue during the year ended December 31, 1999. As a
percentage of revenue, gross profit decreased from 37% for the year ended
December 31, 1998 to 38% for the year ended December 31, 1999. This decrease was
a result of the decline in permanent placement sales and the dramatic increase
in contract sales, primarily due to the acquisition of Cad Cam, Inc.
Operating Expenses. Operating expenses for the year ended December 31,
1999 increased by $2,700,000, or 61%, to $7,100,000, as compared to $4,400,000
for the year ended December 31, 1998. This increase was primarily attributable
to the increase in administrative expenses at the corporate level to support the
increasing number of locations and volume of transactions. As a percentage of
revenue however, operating expenses remained consistent at 36% for the year
ended December 31, 1998 and for the year ended December 31, 1999.
26
<PAGE>
Accounts Receivable. We had accounts receivable of $4,900,000 for the
year ended December 31, 1999 as compared to $2,200,000 for the year ended
December 31, 1998. Accounts receivable represented 25% of revenues for the year
ended December 31, 1999 as compared to 17% for the year ended December 31, 1998.
Net Income. Net income for the year ended December 31, 1999 decreased
by $120,000, or 34% to $230,000 as compared to $350,000 for the year ended
December 31, 1998 due to costs associated with the integration and
infrastructure buildup of the new acquisitions and offices. As a percentage of
revenue, net income decreased from 3% in 1998 to 1% in 1999. In fiscal 1999,
amortization expense increased 295% to $750,000 from $190,000 in fiscal 1998.
This increase is primarily attributable to the increase in capital assets, the
increase in the acquisition of other assets, and the increase of goodwill. In
fiscal 1999, interest expense increased 271% to $330,000 from $110,000 in fiscal
1998. This increase is a result of our increased short-term and long-term debt.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Revenue. Revenue for year ended December 31, 1998 increased by
$7,800,000, or 166%, to $12,500,000, as compared to $4,700,000 for the year
ended December 31, 1997. The increase is primarily attributable to the
acquisition effective January 1, 1998 of International Career Specialists Ltd.,
which had sales of $4,380,000 million for the year ended December 31, 1998. Also
contributing to the increase was an increase of $530,000 in the sales of
Systemsearch Consulting Services Inc. as a result of improvements in operations
since it was acquired by us effective January 2, 1997, and growth in the
contract sales in our Toronto office. Revenue from contract services and
permanent placement services accounted for 82% and 18%, respectively, of revenue
for the year ended December 31, 1998 as compared to 79% and 21%, respectively,
for the year ended December 31, 1997.
Contractor Costs. Contractor costs for the year ended December 31, 1998
increased by $4,700,000, or 163%, to $7,600,000, as compared to $2,900,000 for
the year ended December 31, 1997. This increase was due to the increased volume
of contract services. As a percentage of revenue from contract services,
contractor costs decreased from 77% as a result of a higher margin mix of
contractors placed.
Gross Profit. Gross profit for the year ended December 31, 1998
increased by $3,100,000, or 170%, to $4,900,000, as compared to $1,800,000 for
the year ended December 31, 1997. This increase was attributable to the
aforementioned increase in revenue during the year ended December 31, 1998. As a
percentage of revenue, gross profit increased to 39.2% for the year ended
December 31, 1998 as compared to 38.6% for the year ended December 31, 1997.
This increase was due to the slight decrease in the percentage of revenue which
was derived from contract services.
Operating Expenses. Operating expenses for the year ended December 31,
1998 increased by $2,800,000, or 173%, to $4,400,000, as compared to $1,600,000
for the year ended December 31, 1997. This increase was primarily attributable
to increases of $1,900,000 in selling expenses and $980,000 in administrative
expenses at International Career Specialists Ltd. during the year ended December
31, 1998. Administrative expenses at the ThinkPath Division also increased as we
expanded its infrastructure to support operations from multiple locations and
operated additional offices. As a percentage of revenue, operating costs
increased to 36% for the year ended December 31, 1998 from 34% for the year
ended December 31, 1997 due to an increase in the number of locations and volume
of transactions.
27
<PAGE>
Accounts Receivable. We had accounts receivable of $2,200,000 for the
year ended December 31, 1998, as compared to $790,000 for the year ended
December 31, 19997. Accounts receivable represented 17.5% of revenues for the
year ended December 31, 1998 as compared to 16.8% in the year ended December 31,
1997.
Net Income. Net income for the year ended December 31, 1998 increased
by $212,000, or 154% to $351,000, as compared to $138,000 for the year ended
December 31, 1997 due to, among other things, the reasons enumerated above.
28
<PAGE>
Liquidity and Capital Resources
Our primary sources of cash and cash flow from operations, a credit
lines from Toronto Dominion Bank and Provident Bank, our initial public offering
and proceeds from the December 1999 private placement.
At December 31, 1999, we had cash and cash equivalents of $2,200,000
and a working capital deficiency of $480,000. During the year ended December 31,
1999, we had a cash flow deficiency from operations of $130,000, due primarily
to a large increase in accounts receivable.
At December 31, 1998, we had cash of $0 and a working capital
deficiency of $160,000. During the year ended December 31, 1998, we had a cash
flow from operations of $46,000, due primarily to an increase in
accounts receivable of $1,500,000, which was partially offset by net income of
$350,000 and an increase in accounts payable of $1,000,000. The increase in
accounts receivable is primarily due to the increase in revenue for the year
ended December 31, 1998 as compared to the year ended December 31, 1997. At
December 31, 1997, we had cash and cash equivalents of $10,000, and a working
capital deficiency of $47,000. For the year ended December 31, 1997, we had a
cash flow deficiency from operations of $70,000, due primarily to an increase in
accounts receivable of $577,000, which was partially offset by increase in
accounts payable of $317,000 and net income of $138,000.
For the year ended December 31, 1999, we had cash flow from financing
activities of $7,100,000, attributable to share capital issue of $5,400,000 and
an increase in bank indebtedness of $2,000,000. For the year ended December 31,
1998, we had cash flow from financing activities of $1,200,000, attributable
primarily to proceeds of $570,000 from the issuances of shares of our common
stock and proceeds from an increase in long-term debt. For the year ended
December 31, 1997, we had cash flow from financing activities of $250,000
attributable primarily to the increase in notes payable and bank indebtedness.
Our arrangement with the Toronto-Dominion Bank, which was revised in
April 1999, allows for an operating line, payable on demand, of up to
$1,400,000. At December 31, 1999, there was $1,400,000 outstanding on this line.
In addition, we have an operating line with Provident Bank, payable on demand,
up to a maximum of $5,000,000. At December 31, 1999, there was $2,700,000
outstanding on the line with Provident Bank. At December 31, 1999, we had a
total of $550,000 due to the Business Development Bank of Canada pursuant to six
separate loans.
During the year ended December 31, 1999, we had a cash flow deficit
from investing activities of $4,100,000, attributable to the acquisition of Cad
Cam, Inc. During the year ended December 31, 1998, we had a cash flow deficit
from investing activities of $1,300,000, primarily attributable to the
aforementioned acquisition of International Career Specialists Ltd. During the
year ended December 31, 1997, we had a cash flow deficit from investing
activities of $184,000, primarily attributable to the aforementioned acquisition
of Systemsearch Consulting Services Inc.
29
<PAGE>
We have entered into employment and consulting agreements with certain
of our key employees. These agreements provide for significant salaries and/or
bonuses based on our and/or certain of our divisions' financial performance.
These agreements could affect our liquidity.
We have retained Deloitte & Touche Corporate Finance of Canada Inc. to
structure and arrange for $5,000,000 in capital through a private placement,
$4,000,000 of which will be used for the marketing and development of the GTS
and $1,000,000 of which will be used for working capital purposes. We have also
entered into an agreement with J.P Turner & Company, LLC, pursuant to which J.P
Turner & Company, LLC will underwrite and co-manage a public offering of an
approximate amount between $10,000,000 to $15,000,000 of our capital stock. We
believe the net proceeds from these activities in combination with the cash flow
from activities and our lines of credit will be sufficient to satisfy our
working capital needs and current growth expectations.
We are currently negotiating to sell up to $1,750,000 worth of our
Series B Preferred Stock to a group of investors. We believe that the net
proceeds from such sale will assist us with our working capital and expansion
needs in the near future.
Year 2000 Compliance
We have developed and implemented a Year 2000 compliance program to
address internal systems, suppliers, processes and procedures, as well as the
internally developed GTS solution. All phases and actions of this program were
successfully completed as planned. Remediation measures, where required, were
successfully implemented and tested. The total cost of the compliance program
was not material. Although we believe that we have taken the appropriate steps
to assess, implement and test Year 2000 compliance, it is not possible to
ascertain whether the efforts of customers, suppliers or other third parties,
will have a material adverse effect on our business, results of operations and
financial condition.
Fluctuations in Quarterly Results
Our quarterly operating results have in the past and, may in the
future, fluctuate significantly, depending on factors such as the demand for our
services; our ability to attract and retain employees, information technology
and engineering professionals, and customers; the timing and significance of new
services and products introduced by us and our competitors; the level of
services provided and prices charged by us and our competitors; unexpected
changes in operating expenses; and general economic factors. Our operating
expenses are based on anticipated revenue levels in the short term, are
relatively fixed, and are incurred throughout the quarter. Accordingly, there
may be significant variations in our quarterly operating results.
30
<PAGE>
Management of Growth
Our business has grown rapidly in the last five years. The growth of
our business and expansion of our customer base and service offerings has placed
a significant strain on management and operations. Our recent expansion by
acquisitions has resulted in substantial growth in the number of our employees,
the scope of our operating and financial systems and the geographic area of our
operations, resulting in increased responsibility for both existing and new
management personnel. Our future operating results will depend on the ability of
management to continue to implement and improve our operational and financial
control systems, and to expand, train and manage our employee base. In addition,
our failure to generate or raise sufficient capital to fund continued growth may
result in the delay or abandonment of some or all future expansion plans or
expenditures or a reduction in the scope of some or all of our present
operations, which could materially adversely effect our business, results of
operations and financial condition.
Risks Related to Acquisitions
We may continue to expand our operations or services through the
acquisition of additional businesses, products or technologies. There can be no
assurance that we will be able to identify, acquire, integrate or profitably
manage additional businesses. There may be a number of risks involved including
the diversion of management's attention, the loss of key acquired personnel,
legal liabilities, as well as the substantive strain placed on administrative,
operational and financial resources. In addition, there can be no assurance that
acquired businesses, products or technologies will achieve anticipated or
historic revenues and income. The acquisitions could also result in potentially
dilutive issuances of our common stock. Our failure to effectively manage our
acquisitions could result in a material adverse effect on our business, results
of operations and financial condition.
Dependence on Key Personnel
Our success is largely dependent on the performance of our key
employees. Failure to retain key employees and to attract and retain additional
key employees with necessary skills could have a material adverse impact upon
our growth and profitability. Competition for highly skilled management, sales
and technical employees is intense in the information technology and engineering
services industry.
Competition
We compete with other providers of information technology and
engineering staffing services, systems integrators, providers of outsourcing
services, computer consultants, employment listing services, Internet-based
recruiting services and technical training companies. Many of our current and
potential competitors have longer operating histories, larger sales and
marketing resources, larger technical staff, and significantly greater financial
resources. As the market for our services and product continues to develop,
additional competitors may enter the market and competition may intensify. As a
result, prices and margins may be reduced which could adversely affect the our
business, prospects, results of operations and financial condition.
Dependence on the GTS
Our future success depends in part upon the GTS for the day-to-day
operations of its business as well as a service to be offered to our clients.
There can be no assurance that the GTS will function as intended or that it will
provide us with a competitive advantage. We can also not confirm that we will be
able to successfully market the GTS or that the GTS will adequately address the
requirements of customers or keep pace with changes in that market.
31
<PAGE>
Risk of Third-Party Claims for Damages
Although our client agreements disclaim responsibility for the conduct
of contractors placed by us, we may be exposed to liability with respect to
actions taken by contractors while on assignment, such as damages caused by
errors, misuse of customer proprietary information or theft of customer
property. Although we maintain professional liability insurance, due to the
nature of our contract assignments, we cannot provide assurance that the
insurance coverage will continue to be available on reasonable terms, if at all,
or that it will be adequate to cover any liability as a result of contractors
being on assignment.
Currency and Interest Rate Risk
Revenue denominated in Canadian dollars accounted for 70% of our
revenue for the fiscal year ended December 31, 1999, 95% for the year ended
December 31, 1998, and 96% for the year ended December 31, 1997. Accordingly,
fluctuations in the exchange rate between the Canadian dollar and the U.S.
dollar may have a material adverse effect on our results of operations.
Substantially all of our long-term debt bears interest at variable rates.
Accordingly, fluctuations in interest rates may have a significant impact on
future earnings and cash flows.
Possible Volatility of Stock Price
The market price for our shares of common stock could be subject to
wide fluctuations in response to quarterly variations in operating results, the
gain or loss of significant contracts, announcements of mergers, acquisitions,
financing or technological developments, changes in income estimates by analysts
and market conditions in the industry, as well as general economic conditions or
other risk factors set out herein.
ITEM 7. FINANCIAL STATEMENTS
The financial statements are included at the end of this Annual Report
on Form 10-KSB at the pages included below.
<TABLE>
<CAPTION>
Page
Financial Statements: Number
------
<S> <C>
Report of Independent Auditors.................................................................................F-3
Consolidated Balance Sheets for the years ended December 31, 1999 and 1998 ....................................F-4
Consolidated Statements of Income for the
years ended December 31, 1999, 1998 and 1997..........................................................F-6
Consolidated Statements of Cash Flows
for the years ended December 31, 1999, 1998 and 1997......................................................F-7
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999 , 1998 and 1997.....................................................F-8
Notes to Consolidated Financial Statements.............................................................F-9 to F-30
</TABLE>
32
<PAGE>
THINKPATH.COM INC.
(Formerly IT Staffing Ltd.)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998
TOGETHER WITH AUDITORS' REPORT
(Amounts Expressed in US Dollars)
F-1
<PAGE>
TABLE OF CONTENTS
Report of Independent Auditors F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Income F-6
Consolidated Statements of Changes in Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9 to F-30
F-2
<PAGE>
Schwartz Levitsky Feldman llp
CHARTERED ACCOUNTANTS
TORONTO MONTREAL, OTTAWA
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
ThinkPath.com Inc.
We have audited the accompanying consolidated balance sheets of Thinkpath.com
Inc. (incorporated in Canada) as of December 31, 1999 and 1998 and the related
consolidated statements of income, cash flows and changes in stockholders'
equity for the years ended December 31, 1999, 1998 and 1997. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ThinkPath.com Inc. as of December 31, 1999 and 1998 and the consolidated results
of its operations and its cash flows for the years ended December 31, 1999,
1998, and 1997 in conformity with generally accepted accounting principles in
the United States of America.
On March 22, 2000, we reported separately to a shareholder of ThinkPath.com Inc.
on financial statements for the same period, prepared in accordance with
Canadian generally accepted accounting principles.
Toronto, Ontario
March 22, 2000 Chartered Accountants
F-3
<PAGE>
THINKPATH.COM INC.
Consolidated Balance Sheet
As of December 31
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
1999 1998
$ $
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash 1,790,621 -
Short-term investments (note 3) 383,146 -
Accounts receivable (note 4) 4,895,523 2,184,783
Work-in-progress 350,679 -
Prepaid expenses 325,616 87,941
---------- ---------
7,745,585 2,272,724
CAPITAL ASSETS (note 5) 2,955,321 464,789
GOODWILL (note 6) 6,985,436 1,332,603
INVESTMENT IN NON-RELATED COMPANY - 130,438
DUE FROM RELATED PARTY (note 7) 211,313 -
OTHER ASSETS (note 8) 1,216,111 648,223
---------- ---------
19,113,766 4,848,777
========== =========
</TABLE>
F-4
<PAGE>
THINKPATH.COM INC.
Consolidated Balance Sheet
As of December 31
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 9) 4,083,836 734,034
Accounts payable 2,424,725 1,386,659
Income taxes payable 135,089 95,212
Current portion of long-term debt (note 10) 278,790 218,251
Current portion of note payable (note 11) 1,300,000 -
---------- ---------
8,222,440 2,434,156
DEFERRED INCOME TAXES (note 13) 107,472 -
LONG-TERM DEBT (note 10) 562,126 628,428
NOTE PAYABLE (note 11) 1,150,000 -
---------- ---------
10,042,038 3,062,584
---------- ---------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 12) 8,388,298 1,448,368
RETAINED EARNINGS 705,571 476,851
OTHER COMPREHENSIVE INCOME, NET OF TAX (note 14)
Cumulative translation adjustment (22,141) (139,026)
---------- ---------
9,071,728 1,786,193
---------- ---------
19,113,766 4,848,777
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
THINKPATH.COM INC.
Consolidated Statements of Income
For the years ended December 31
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
REVENUE 19,822,861 12,502,560 4,704,341
COST OF CONTRACT SERVICES 12,569,357 7,594,533 2,888,540
---------- --------- ---------
GROSS PROFIT 7,253,504 4,908,027 1,815,801
Gain on investments 252,708 - -
---------- --------- ---------
7,506,212 4,908,027 1,815,801
---------- --------- ---------
EXPENSES
Administrative 2,916,398 1,354,561 373,627
Selling 4,134,497 2,984,604 1,123,051
Financial 113,783 102,351 125,594
---------- --------- ---------
7,164,678 4,441,516 1,622,272
---------- --------- ---------
INCOME BEFORE INCOME TAXES 341,534 466,511 193,529
Income taxes (note 13) 112,814 115,321 55,121
---------- --------- ---------
NET INCOME 228,720 351,190 138,408
========== ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK OUTSTANDING
Basic 2,471,758 1,684,542 1,309,135
========== ========= =========
Fully diluted 2,683,820 1,906,667 1,309,135
========== ========= =========
EARNINGS PER WEIGHTED AVERAGE
COMMON STOCK
Basic 0.09 0.21 0.11
========== ========= =========
Fully diluted 0.08 0.18 0.11
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
THINKPATH.COM INC.
Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
Common Preferred
Stock Stock Capital Cumulative
Number of Number of Stock Retained Translation
Shares Shares Amounts Earnings Adjustment
------------- ------------- -------------- ------------- -------------
$ $ $
<S> <C> <C> <C> <C> <C>
Balance as of
December 31, 1996 1,021,125 - 4 (12,747) 59
Issuance of common stock 288,010 - 328,323 - -
Foreign currency
translation - - - - (18,192)
Net income for the year - - - 138,408 -
--------- ------ --------- ------- -------
Balance as of
December 31, 1997 1,309,135 - 328,327 125,661 (18,133)
Issuance of common stock
408,740 - 1,120,041 - -
Foreign currency
translation - - - - (120,893)
Net income for the year - - - 351,190 -
--------- ------ --------- ------- -------
Balance as of
December 31, 1998 1,717,875 - 1,448,368 476,851 (139,026)
Issuance of common stock 1,370,767 - 4,787,788 - -
Common stock payable - - 1,000,000 - -
Issuance of preferred stock - 15,000 1,152,142 - -
Foreign currency
translation - - - - 116,885
Net income for the year - - - 228,720 -
--------- ------ --------- ------- -------
Balance as of
December 31, 1999 3,088,642 15,000 8,388,298 705,571 (22,141)
========= ====== ========= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE>
THINKPATH.COM INC.
Consolidated Statement of Cash Flows
For the years ended December 31
(Amounts expressed in US dollars)
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Cash flows from operating activities:
Net income 228,720 351,190 138,408
---------- ---------- --------
Adjustments to reconcile net income
to net cash (used in)
provided by operating activities:
Amortization 439,620 140,735 16,968
Amortization of goodwill 92,875 44,191 15,258
Amortization of deferred contract 29,142 - -
Amortization of deferred consulting fees 185,106 - -
Gain on investment (237,578) - -
Increase in accounts receivable (2,841,510) (1,524,174) (577,114)
Increase in prepaid expenses (225,549) (83,531) (15,645)
Increase in accounts payable 925,060 1,058,432 317,281
Increase in income taxes payable 32,969 59,095 34,365
Increase in deferred income taxes 72,333 - -
---------- ---------- --------
Total adjustments (1,527,532) (305,252) (208,887)
---------- ---------- --------
Net cash provided by (used in) operating activities (1,298,812) 45,938 (70,479)
---------- ---------- --------
Cash flows from investing activities:
Purchase of capital assets (907,074) (638,867) (44,739)
Purchase of other assets (942,087) - 733
Cash payment for subsidiaries (1,985,732) (485,085) (140,028)
Acquisition of shares in non-related company (236,819) (134,853) -
---------- ---------- --------
Net cash used in investing activities (4,071,712) (1,258,805) (184,034)
---------- ---------- --------
Cash flows from financing activities:
Cash (paid) received on notes payable (65,569) (101,140) 108,350
Cash (paid) received on long-term debt (241,495) 818,942 23,837
Proceeds from issuance of common stock 4,281,804 570,513 -
Proceeds from issuance of preferred stock 1,119,186 - -
Cash (paid) received from stockholders - (47,985) 21,716
Cash paid for deferred charges - (606,300) -
Increase in bank indebtedness 2,016,000 569,592 96,601
---------- ---------- --------
Net cash provided by financing activities 7,109,926 1,203,622 250,504
---------- ---------- --------
Effect of foreign currency exchange rate changes 51,219 (615) 8,126
---------- ---------- --------
Net increase (decrease) in cash and cash equivalents 1,790,621 (9,860) 4,117
Cash and cash equivalents
- Beginning of year - 9,860 5,743
---------- ---------- --------
- End of year 1,790,621 - 9,860
---------- ---------- --------
Interest paid 325,952 113,102 6,491
========== ========== ========
Income taxes paid - - -
========== ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Change of Name
The company changed its name to Thinkpath.com Inc. on February 24, 2000.
b) Principal Business Activities
Thinkpath.com Inc. is an information technology staffing company, which
along with its subsidiaries Systemsearch Consulting Services Inc.,
International Career Specialists Ltd., Cad Cam Inc., Cad Cam of Michigan
Inc., Cad Cam Integrated Manufacturing Services Inc. and Cad Cam Technical
Services Inc., specializes in placing information technology personnel on
both a contract and permanent basis.
c) Basis of consolidated financial statement presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. The earnings of the subsidiaries are
included from the date of acquisition. All significant inter-company
accounts have been eliminated. All of the acquisitions have been accounted
for using the purchase method.
d) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts to banks, and any
other highly liquid investments purchased with a maturity of three months
or less. The carrying amount approximates fair value because of the short
maturity of those instruments.
e) Other Financial Instruments
The carrying amount of the company's other financial instruments
approximate fair value because of the short maturity of these instruments
or the current nature of interest rates borne by these instruments.
f) Long-Term Financial Instruments
The fair value of each of the company's long-term financial assets and
debt instruments is based on the amount of future cash flows associated
with each instrument discounted using an estimate of what the company's
current borrowing rate for similar instruments of comparable maturity
would be.
F-9
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
g) Capital Assets
Property and equipment are recorded at cost and are amortized over the
estimated useful lives of the assets principally using the declining
balance method.
The company's policy is to record leases, which transfer substantially all
benefits and risks incidental to ownership of property, as acquisition of
assets and to record the 0curences of corresponding obligations as
long-term liabilities. Obligation under capital leases are reduced by
rental payments net of imputed interest.
h) Net Income and Fully Diluted Net Income Per Weighted Average Common Stock
Net income per common stock is computed by dividing net income for the
year by the weighted average number of common stock outstanding during the
year.
Fully diluted net income per common stock is computed by dividing net
income for the year by the weighted average number of common stock
outstanding during the year, assuming that all convertible preferred
stock, stock options and warrants as described in note 12 were converted
or exercised. Stock options which are anti-dilutive are not included in
the calculation of fully diluted net income per weighted average common
stock.
i) Work in Progress
Work in progress is valued at the lower of cost and the net realizable
value of the services rendered.
j) Revenue
Revenue from contract placements is recognized as services are performed.
Revenue from permanent placements are recognized upon commencement of
employment.
k) Goodwill
Goodwill representing the cost in excess of the fair value of net assets
acquired is being amortized on a straight-line basis over a thirty year
period. The Company calculates the recoverability of goodwill on a
quarterly basis by reference to estimated undiscounted future cash flows.
F-10
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
l) Income Taxes
The company accounts for income tax under the provision of Statement of
Financial Accounting Standards No. 109, which requires recognition at
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statement
or tax returns. Deferred income taxes are provided using the liability
method. Under the liability method, deferred income taxes are recognized
for all significant temporary differences between the tax and financial
statement bases of assets and liabilities.
m) Foreign Currency Translation
The translation of the consolidated financial statements from Canadian
dollars into United States dollars is performed for the convenience of the
reader. Balance sheet accounts are translated using closing exchange rates
in effect at the balance sheet date and income and expense accounts are
translated using an average exchange rate prevailing during each reporting
period. No representation is made that the Canadian dollar amounts could
have been, or could be, converted into United States dollars at the rates
on the respective dates or at any other rates. Adjustments resulting from
the translation are included in the cumulative translation adjustments in
stockholders' equity.
n) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principals in the United States of America
requires management to make estimates and assumptions that affect certain
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. These
estimates are reviewed periodically and as adjustments become necessary,
they are reported in earnings in the period in which they become known.
o) Long-Lived Assets
On January 1, 1996, the company adopted the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for long-Lived
Assets to be Disposed of SFAS No. 21 requires that long-lived assets to be
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an assets
may not be recoverable. Management used its best estimate of the
undiscounted cash flows to evaluate the carrying amount and have
determined that no impairment has occurred.
F-11
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
p) Comprehensive Income
In 1999, the company adopted the provisions of SFAS No. 130 "Reporting
Comprehensive Income". This standard requires companies to disclose
comprehensive income in their financial statements. In additional to items
included in net income, comprehensive income includes items currently
charged or credited directly to stockholders' equity, such as the changes
in unrealised appreciation (depreciation) of securities and foreign
currency translation adjustments.
q) Accounting for Stock-Based Compensation
In December 1995, SFAS No. 123, Accounting for Stock-Based Compensation,
was issued. It introduces the use of a fair value-based method of
accounting for stock-based compensation. It encourages, but does not
require, companies to recognize compensation expense stock-based
compensation to employees based on the new fair value accounting rules.
Companies that choose not to adopt the new rules will continue to apply
the existing accounting rules continued in Accounting Principles Board
Option No. 25, Accounting for stock issued to employees. However, SFAS No.
123 requires companies that choose not to adopt the new fair value
accounting rules to disclosed Performa net income and earnings per share
under the new method. SFAS No. 123 is effective for financial statements
for fiscal years beginning after December 31, 1995. The company has
adopted the disclosure provisions of SFAS No. 123.
2. ACQUISITIONS
Systemsearch Consulting Services Inc. was acquired on January 2, 1997 for
$391,313. This amount was paid by the issuance of common stock and a cash
payment of $97,828. The purchase has been reflected as follows:
Consideration $ 391,313
Assumption of net liabilities 57,321
---------
Goodwill $ 448,634
=========
International Career Specialists Ltd. Was acquired on January 1, 1998 for
$652,188. This amount was paid by the issuance of common stock and a cash
payment of $326,094. The purchase was reflected as follows:
Consideration $ 652,188
Assumption of net liabilities 198,409
---------
Goodwill $ 850,597
=========
F-12
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
2. ACQUISITIONS (cont'd)
The assets of Southport Consulting Company, a New Jersey corporation were
acquired by Thinkpath.com Inc. in a transaction effective October 31, 1998.
The consideration for the acquisition was as follows:
Cash $ 50,000
Shares 200,000
---------
$ 250,000
=========
The assets acquired are valued as follows:
Software $ 130,000
Office furniture and equipment 20,000
Other assets 100,000
---------
$ 250,000
=========
Cad Cam Inc. and its subsidiaries Cad Cam of Michigan Inc., Cad Cam Technical
Services Inc., and Cad Cam Integrated Systems Inc. was acquired on September
16, 1999 for $6,000,000. This amount was paid as follows: $2,000,000 paid in
cash and $500,000 in common stock on the date of closing. The balance
consists of three notes payable totalling $2,500,000 (note 10) and $1,000,000
in the form of common stock to be issued with the final note payable (note
11).
The assets acquired are valued as follows:
Current assets $ 2,468,029
Fixed assets 2,267,539
Other assets 817,004
Liabilities assumed (5,071,430)
Consideration (6,000,000)
-----------
Goodwill $ 5,518,858
===========
3. SHORT-TERM INVESTMENTS
In September 1998, Thinkpath.com Inc. was issued 95,000 common stock of Fax
Forward Inc., a public company trading on the Bermuda Stock Exchange, in lieu
of $130,438 receivable owing to them. Thinkpath.com Inc. has the option of
selling these shares on the open market after June 2000. This is considered
to be a short-term investment and is currently being reflected at $4.00 per
share, the market value at December 31, 1999.
F-13
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
4. ACCOUNTS RECEIVABLE
1999 1998
$ $
Accounts receivable 5,528,485 2,217,392
Less: Allowance for doubtful accounts (632,962) (32,609)
--------- ---------
4,895,523 2,184,783
========= =========
5. CAPITAL ASSETS
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------ -------------
Accumulated
Cost Amortization Net Net
---- ------------ --- ---
$ $ $ $
<S> <C> <C> <C> <C>
Furniture and equipment 484,691 211,324 273,367 175,133
Computer equipment
and software 4,503,138 2,231,383 2,271,755 273,276
Software database 15,235 5,144 10,091 8,968
Website development 76,983 12,265 64,718 2,675
Leasehold improvements 384,697 49,307 335,390 4,737
--------- --------- --------- -------
5,464,744 2,509,423 2,955,321 464,789
========= ========= ========= =======
Assets under capital lease 511,197 126,471 384,726 260,753
========= ========= ========= =======
</TABLE>
Amortization for the year amounted to $439,620 ($140,735 in 1998).
Amortization includes amortization of assets under capital lease of $120,434
($40,539 in 1998).
6. GOODWILL
Goodwill is the excess of cost over the value of assets acquired over
liabilities assumed in the purchase of the following companies: Systemsearch
Consulting Services Inc., International Career Specialists Inc. and Cad Cam
Inc.
1999 1998
$ $
Cost 7,141,404 1,389,123
Accumulated amortization 155,968 56,520
--------- ---------
Net 6,985,436 1,332,603
========= =========
Amortization for the year 92,875 44,191
========= =========
F-14
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
7. DUE FROM RELATED PARTY
Amounts due from related party are unsecured, bear interest at 7%, have no
specific terms of repayment and are not expected to be repaid prior to
January 1, 2001.
8. OTHER ASSETS
1999 1998
$ $
Deferred development cost - Global Tool Set 652,291 61,773
Deferred financing costs 39,514 586,450
Deferred contract (net of accumulated amortization
of $30,000) 210,000 -
Deferred consulting fees (net of accumulated
amortization of $190,570) 190,556 -
Cash surrender value of life insurance 123,750 -
--------- -------
1,216,111 648,223
========= =======
Amortization for the year amounted to $220,570 ($nil in 1998).
9. BANK INDEBTEDNESS
The companies have available lines of credit to a maximum of $1,400,000, which
bears interest at Canadian prime plus 1.5% per annum and are secured by a
general assignment of book debts, a general security agreement and guarantees
and postponements of claims by various affiliated companies. The company has
available another line of credit through a subsidiary, with a limit of
$5,000,000 with interest at the banks prime rate. It is secured by a general
security agreement. The company's average interest rate on short-term borrowings
was 8%.
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
a) Included therein:
A Business Development Bank of Canada ("BDC") loan secured by a
general security agreement, payable in 52 equal monthly payments
of $3,464 plus interest of 11%. In addition Thinkpath.com Inc.
shall pay interest monthly by way of royalty of 0.018% per annum
of Thinkpath.com Inc.'s projected annual gross sales 176,678 195,656
</TABLE>
F-15
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
10. LONG-TERM DEBT (cont'd)
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
a) Balance forward 176,678 195,656
A BDC loan, secured by a general security agreement, payable in
43 equal monthly payments of $4,619 plus interest at the BDC
base rate plus 4% per annum. Currently the interest rate is
12.50%. In addition Thinkpath.com Inc. shall pay interest
monthly by way of a royalty of 0.0426% per annum of
Thinkpath.com Inc.'s projected annual gross sales 203,248 243,496
A BDC loan, secured by a general security agreement,
payable in 44 monthly payments of $3,464 plus interest
at the BDC base rate plus 4% per annum. Currently, the
interest rate is 12.50%. In addition Thinkpath.com Inc. shall
pay interest monthly by way of royalty of 0.0198% per
annum of its projected gross annual sales 152,428 182,613
A BDC loan, secured by a general security agreement, payable in
19 remaining monthly payments of $693 plus interest at the BDC
operational interest rate prime plus 3%, per annum.
Currently, the interest rate is 13.50% 13,164 20,218
A BDC loan, secured by a general security agreement,
payable in 11 remaining monthly payments of $693 plus
interest at the BDC base rate plus 3% per annum. Currently,
the interest rate is 11.50% 7,621 15,000
Various capital leases with various payment terms and
interest rates 287,777 189,696
-------- --------
840,916 846,679
Less: Current portion 278,790 218,251
-------- --------
562,126 628,428
======== ========
</TABLE>
F-16
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
10. LONG-TERM DEBT (cont'd)
b) Future principal payments obligations are as follows:
2000 $ 278,790
2001 231,800
2002 200,400
2003 116,835
2004 13,091
---------
$ 840,916
=========
c) Interest expense with respect to the long-term debt amounted to $132,125
($60,317 in 1998).
d) Pursuant to the BDC loan agreement, BDC has the option to acquire 22,125
common stock for an aggregate consideration of $1. The fair market value
of these shares at the time of issuance was $62,393 ($2.82 share). The
imputed discount on these options is being amortized over the term of the
loan as interest.
11. NOTE PAYABLE
As part of the purchase of Cad Cam Inc., Thinkpath.com Inc. owes the
following amounts:
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
Notes payable, unsecured, bearing interest at prime plus 0.5% 2,450,000 -
Less: Current portion (1,300,000) -
---------- ------
1,150,000 -
========== ======
</TABLE>
First note payable was issued on the closing date of the Cad Cam Inc.
acquisition, in the amount of $1,000,000. $50,000 of this note was paid
during the year, with interest of $17,500. This note is to be repaid in 20
quarterly instalments, with interest at prime plus 0.5%.
The second note payable was issued on the closing date of the Cad Cam Inc.
acquisition, in the amount of $500,000. This is to be repaid in 20 quarterly
instalments, with interest at prime plus 0.5%.
The third note payable was issued on the closing date of Cad Cam Inc.
acquisition in the amount of $1,000,000. This will be paid in quarterly
instalments of $250,000, plus accrued interest, during 2000.
F-17
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
12. CAPITAL STOCK
a) Authorized
15,000,000 Common stock, no par value
1,000,000 Preferred stock, issuable in series, rights to be determined
by the Board of Directors
b) Issued
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
3,088,642 Common stock (1,717,875 in 1998) 6,236,156 1,448,368
15,000 Preferred stock 1,152,142 -
Common stock payable 1,000,000 -
--------- ---------
8,388,298 1,448,368
========= =========
</TABLE>
On January 2, 1997, 288,010 common stock was issued in conjunction with
the acquisition of Systemsearch Consulting Services Inc. with a carrying
value of $328,323.
On January 1, 1998, 130,914 common stock was issued in conjunction with
the acquisition of International Career Specialists Ltd. with a carrying
value of $349,528.
A private placement of 196,370 common stock was completed in March 1998
yielding proceeds of $423,639. Included in the purchasers were some
employees and directors.
A second placement of 85,094 common stock was completed in April 1998
yielding proceeds of $216,814. Included in the purchasers were some
employees and directors.
In April of 1998, the company redeemed 43,637 common stock for $69,940.
On August 6, 1998, the company split its stock. The result of the split
converted the outstanding common stock from 1,281,667 to 1,667,875 shares
a 1:1.3 split. The number of common stock indicated above have been
retroactively restated in all periods to reflect the stock split on
August 6, 1998.
F-18
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
12. CAPITAL STOCK (cont'd)
b) Issued (cont'd)
On October 31, 1998, the company issued 40,000 common stock in the
acquisition of the assets of Southport Inc. The cost of these shares was
$200,000.
On June 8, 1999, the company was successful in its Initial Public
Offering. 1,100,000 common stock were issued at an issuance price of
$5.00 per share. Net proceeds received, after all costs was $3,442,683.
The company trades on Nasdaq under the trading symbol "THTH", and on the
Boston Stock Exchange under the trading symbol "THP". As part of the
Initial Public Offering, the underwriters exercised the over-allotment,
resulting in 107,000 common stock being issued for net proceeds of
$465,000. Deferred costs of $1,351,365, which were incurred as part of
the completion of the Initial Public Offering have been applied against
the proceeds raised by the offering, and are included in the net
proceeds.
On June 30, 1999, 163,767 common stock were issued in conjunction with
the acquisition of Cad Cam Inc., with a carrying value of $500,000.
The common stock payable represents the final payment for Cad Cam Inc.
Common stock of Thinkpath.com Inc. will be issued at the prevailing
market rate at time of issuance for a total value of $1,000,000. If
common stock payable were to be converted at December 31, 1999 the number
of common stock to be issued would be 333,333.
c) Preferred Stock
On December 30, 1999, 15,000 shares of series A, 8% cumulative,
convertible, preferred stock, no par value were issued in a private
placement for gross proceeds of $1,500,000. The preferred stock are
convertible into common stock at the option of the holders under certain
conditions, at any time after the effective date of the registration
statement (see note 19). The conversion price will be based on the
trading price at December 30, 1999 or 80% of the average of the ten
trading days immediately preceding the conversion of the respective
shares of Series A, preferred stock. The stockholders of the Series A,
8% cumulative, convertible stock are entitled to receive preferential
cumulative quarterly dividends in cash or shares at a rate of 8% simple
interest per annum on the stated value per share.
F-19
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
12. CAPITAL STOCK (cont'd)
c) Preferred Stock (cont'd)
The preferred stockholder may exercise their right to conversion only if
the aggregate stated value of all shares of Series A, 8% cumulative,
convertible, preferred stock is less than $5,000.
At any time after the effective date of the registration statement,
Thinkpath.com Inc. has the option to redeem any or all of the shares of
Series A, 8% cumulative, convertible, preferred stock by paying to the
holders a sum of money equal to 135% of the stated value of the aggregate
of the shares being redeemed if the conversion price is less than $2.
Thinkpath.com Inc. holds the option to cause the investors in the
December 30, 1999 placement offering to purchase an additional $500,000
worth of Series A, 8% cumulative, convertible, preferred stock upon the
same terms as described above.
As part of the Cad Cam Inc. and the Object Arts Inc. acquisitions 60,000
common stock will be issued to a related party in lieu of payment for
services rendered. This common stock will be issued at the prevailing
market rate on date of issuance.
Subsequent to year-end 50,000 common stock were issued to a non-related
individual as part of the Cad Cam Inc. acquisition cost.
Subsequent to year-end 14,254 common stock were issued in a private
placement.
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.
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.
F-20
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
12. CAPITAL STOCK (cont'd)
e) Stock Options (cont'd)
In connection with the acquisition of Cad Cam Inc. 100,000 options to
purchase shares of the Company will be delivered in quarterly
instalments, starting January 1, 2000. Each option will entitle the
holder thereof to purchase one common stock of the company. The first
25,000 options shall have an exercise price of $3.25 per common stock,
and can be exercised at any time during the period up until December 31,
2000. The second 25,000 options shall have an exercise price equal to the
lowest trading price of the Companys' 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 1998 Stock Option Plan.
The plan will be administrated by the Compensation Committee or the Board
of Directors, which will determine among other things, those individuals
who shall receive options, the time period during which the options may
be partially of fully exercised, the number of common stock issuable upon
the exercise of the options and the option exercise price.
The plan is effective for a period for ten years, expiring in 2008.
Options to acquire 435,000 common stock may be granted to officers,
directors, consultants, key employees, advisors and similar parties who
provide their skills and expertise to the company. Options granted under
the plan may be exercisable for up to ten years, generally require a
minimum two year vesting period, and shall be at an exercise price all as
determined by the Board of Directors, provided that the exercise price of
any options may not be less than the fair market value of the common
stock on the date of the grant. Options are non-transferable, and are
exercisable only by the participant (or by his or her guardian of legal
representative) during his or her lifetime or by his or her legal
representatives following death.
If a participant ceases affiliation with the company by reason of death,
permanent disability or retirement at or after age 65, the option remains
exercisable for one year from such occurrence but not beyond the option's
expiration date. Other types of termination allow the participant 90 days
to exercise the option, except for termination for cause which results in
immediate termination of the option.
F-21
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
12. CAPITAL STOCK (cont'd)
e) Stock Options (cont'd)
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the company become available again for issuance
under the plan, subject to applicable securities regulation.
The plan may be terminated or amended at any time by the Board of
Directors, except that the number of common stock reserved for issuance
upon the exercise of options granted under the plan may not be increased
without the consent of the stockholders of the company.
Options
-------
Options outstanding at January 1, 1999 222,125
Options granted to key employees and directors 685,100
-------
Options outstanding at December 31, 1999 907,225
=======
As all options granted are exercisable between $2.10 and fair market
value, which either approximates the grant-date fair value of the options
or is greater than the grant-date fair value of the options granted. No
stock-based compensation has been recognized for these options.
13. DEFERRED INCOME TAXES AND INCOME TAXES
a) Deferred Income Taxes
The components of the future tax liability classified by source of
temporary differences that gave rise to the benefit are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Accounting amortization in excess of tax
amortization (199,317) - -
Losses available to offset future income
taxes 339,429 - -
Share issue costs 372,948 - -
Adjustment cash to accrual method (620,532) - -
-------- -------- --------
(107,472) - -
======== ======== ========
</TABLE>
F-22
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
13. DEFERRED INCOME TAXES AND INCOME TAXES (cont'd)
a) Deferred Income Taxes (cont'd)
As part of the acquisition of Cad Cam Inc., there was a change of control
which resulted in Cad Cam Inc. being required to change from the cash
method to the accrual method of accounting for income taxes. At December
31, 1999 the company has non-capital losses available for carry-forward
of $998,320.
b) Current Income Taxes
Current income taxes consist of:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Amount calculated at Federal and
Provincial statutory rates 119,537 115,471 70,702
------- ------- --------
Increase (decrease) resulting from:
Permanent differences 11,579 10,407 2,714
Timing differences 51,295 (1,471) (29)
Other differences - (9,086) (18,266)
Loss carried back applied (69,597) - -
------- ------- --------
(6,723) (150) (15,581)
------- ------- --------
Current income taxes 112,814 115,321 55,121
======= ======= ========
</TABLE>
14. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130
Reporting Comprehensive Income and its components in the financial
statements. However, it does not affect net income or stockholders' equity.
The components of comprehensive income are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Net income 228,720 351,190 138,408
Other comprehensive loss 116,885 (120,893) (18,192)
------- -------- -------
Comprehensive income 345,605 230,297 120,216
======= ======== =======
</TABLE>
F-23
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
14. COMPREHENSIVE INCOME (cont'd)
The components of accumulated other comprehensive income
(loss) are as follows:
Accumulated other comprehensive income, December 31, 1997 $ (18,133)
Foreign currency translation adjustments for the year ended
December 31, 1998 (120,893)
---------
Accumulated other comprehensive losses, December 31, 1998 (139,026)
Foreign currency translation adjustments for the year ended
December 31, 1999 116,885
---------
Accumulated other comprehensive losses December 31, 1999 $ (22,141)
=========
The foreign currency translation adjustments are not currently adjusted for
income taxes since the company is situated in Canada and the adjustments
relate to the translation of the financial statements from Canadian dollars
into United States dollars done only for the convenience of the reader.
15. SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Thinkpath.com Inc. acquired all the capital stock of Cad Cam Inc. for
$6,000,000. The acquisition was funded as follows:
Fair Value of Assets acquired $ 5,552,572
Liabilities assumed (5,071,430)
Goodwill 5,518,858
Cash paid for Capital Stock (2,000,000)
Note Payable and Common Stock Payable (3,500,000)
Common Stock Issued (500,000)
-----------
-
===========
F-24
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
16. TRANSACTIONS WITH RELATED COMPANIES
During 1999, Thinkpath.com Inc. charged its subsidiaries a one-time set-up
fee, and has continued to charge maintenance fees for the use of Global Tool
Set. These transactions have been eliminated upon consolidation. Any set-up
charges prior to the acquisition of Cad Cam Inc. are reflected as part of
the purchase price adjustment calculation.
Thinkpath.com Inc. has entered into a consulting agreement with a company,
whereby this company performs all tasks related to mergers, acquisitions and
the securing of financing. The company receives 3% of gross proceeds. In
connection with the placement of the Series A, 8% cumulative, convertible,
preferred stock, and for other services rendered the said company received
$69,000. The managing director of this company is also CFO of Thinkpath.com
Inc.
17. LEASE COMMITMENTS
Minimum payments under operating leases for premises occupied by the &
company and its subsidiaries offices, located throughout Ontario, Canada and
the United States, exclusive of most operating costs and realty taxes, for
the fiscal year end of December 31 for the next five years are as follows:
2000 $ 832,301
2001 587,881
2002 375,699
2003 185,393
2004 156,222
Thereafter 455,648
----------
$2,593,144
==========
18. SEGMENTED INFORMATION
a) Sales by Geographic Area
1999 1998 1997
$ $ $
Canada 13,860,284 11,877,432 4,503,642
United States of America 5,962,577 625,128 200,699
---------- ---------- ---------
19,822,861 12,502,560 4,704,341
========== ========== =========
F-25
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
18. SEGMENTED INFORMATION (cont'd)
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.
1999 1998 1997
$ $ $
Canada (179,220) 333,630 131,822
United States of America 407,940 17,560 6,586
---------- --------- ---------
228,720 351,190 138,408
========== ========= =========
c) Identifiable Assets by Geographic Area
1999 1998 1997
$ $ $
Canada 7,271,740 4,848,777 1,274,215
United States 11,842,026 - -
---------- --------- ---------
19,113,766 4,848,777 1,274,215
========== ========= =========
d) Revenues from Major Customers
The consolidated entity had the following revenues from major customers:
1999
----
No single customer consisted of more than 10% of the revenues.
One customer comprises 13% of the accounts receivable as of December 31,
1999.
1998
----
No single customer consisted of more than 10% of the revenues.
F-26
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
18. SEGMENTED INFORMATION (cont'd)
e) Purchases from Major Suppliers
There were no significant purchases from major suppliers.
19. SUBSEQUENT EVENTS
a) Subsequent to year-end, Thinkpath.com Inc. entered into a merger and
acquisition agreement with Object Arts Inc. and its subsidiary Object
Arts (US) Inc. Object Arts (US) Inc., was merged with IT Staffing New
York Ltd., an inactive subsidiary of Thinkpath.com Inc. The purchase
price consists of Thinkpath.com Inc. issuing 527,260 common stock at a
purchase price equal to $3.75 per common stock. The effective date of the
acquisition is January 1, 2000. As part of the Object Arts Inc.
acquisition, 228,242 common stock, with an aggregate value of $837,157
were issued on the conversion of a long-term debt obligation.
b) The company has signed a number of letters of intent and expressions of
interest with corporations operating in various cities in the North
America. At this time, due to confidentiality agreements, the company is
not at liberty to disclose the identity or terms and conditions of these
acquisitions.
c) The company has signed a letter of intent with Micro Tech Professionals
Inc., to purchase 100% of the common stock of Micro Tech Professionals
for a maximum amount of $2,500,000, subject to specific performance
criteria being met, in a combination of cash, note payable and shares.
d) Subsequent to year-end, Thinkpath.com Inc. entered into an agreement
with Deloitte & Touche Corporate Finance Inc. to structure and arrange
$5,000,000 through a private placement. If the financing is successful,
$4,000,000 will be used for marketing and support of the company's new
internet-based, interactive recruiting platform, and $1,000,000 will be
used for working capital purposes.
e) Subsequent to year-end, Thinkpath.com Inc. entered into an agreement
with J.P. Turner & Company, L.L.C. ("JPT") for a public offering to be
underwritten or co-managed. Each unit of the offering shall consist of
one (1) share of the Company's common stock par value $0.0001 and one (1)
common stock purchase warrant for the purchase of one (1) share of common
stock. The offering is expected to equal and approximate maximum
aggregate offering price of $10,000,000 and $15,000,000. In addition, the
Company will grant the underwriters an option to purchase, within
forty-five days after the effective date, up to an additional 15% of the
units offered to the public, to cover over-allotments.
f) Subsequent to year-end a form SB-2 was filed for the offering of the
Series A 8% cumulative, convertible preferred stock. The date of the
registration statement is February 25, 2000. As of the date of this
report, the registration statement had not yet been finalized.
F-27
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
20. EARNINGS PER SHARE
The company has adopted Statement No. 128, Earnings Per Share, which
requires presentation, in the consolidated statement of income, of both
basic and diluted earnings per share.
1999 1998
$ $
Average common stock outstanding 2,471,758 1,684,542
Average common stock issuable 212,063 222,125
--------- ---------
Average common stock outstanding assuming dilution 2,683,821 1,906,667
========= =========
Some of the outstanding options were not included in the computation of the
fully diluted earnings per common share as there was either no fixed
exercise price or the exercise price was greater than the average market
price of the common stock during the year.
21. FINANCIAL INSTRUMENTS
a) Credit Risk Management
The company is exposed to credit risk on the accounts receivable from
its customers. In order to reduce its credit risk, the company has
adopted credit policies which include the analysis of the financial
position of its customers and the regular review of their credit limits.
In some cases, the company requires bank letters of credit or subscribes
to credit insurance.
b) Concentration of Credit Risk
The company does not believe it is subject to any significant
concentration of credit risk. Cash and short-term investments are in
place with major financial institutions, North American Government, and
major corporations.
c) Interest Risk
The long-term debt bears interest rates that approximate the interest
rates of similar loans. Consequently, the long-term debt risk exposure
is minimal.
F-28
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Information
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
21. FINANCIAL INSTRUMENTS (cont'd)
d) Fair Value of Financial Instruments
The carrying value of the accounts receivable, short-term investment,
bank indebtedness, and accounts payable on acquisition of subsidiary
company approximates the fair value because of the short-term maturities
on these items.
The carrying amount of the long-term assets approximates the fair value
of these assets.
The fair value of the Company's long-term debt is estimated on the
quoted market prices for the same or similar debt instruments. The fair
value of the long-term debt approximates the carrying value.
22. CONTINGENCIES
The Company is party to various lawsuits arising from the normal course
of business. In management's opinion, the litigation will not
materiality affect the company's financial position, results of
operations or cash flows. No provision has been recorded in the accounts
for possible losses or gains. Should any expenditures be incurred by the
company for the resolution of these lawsuits, they will be charged to
the operations of the year in which such expenditures are incurred.
23. COMPARATIVE FIGURES
Certain figures in the 1998 financial statements have been reclassified
to conform with the basis of presentation used in 1999.
24. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. Although the change in
date has occurred, it is not possible to conclude that all aspects of
the Year 2000 Issue that may affect the entity, including those related
to customers, suppliers, or other third parties, have been fully
resolved.
F-29
<PAGE>
THINKPATH.COM INC.
Notes to Consolidated Financial Information
December 31, 1999 and December 31, 1998
(Amounts expressed in US dollars)
25. PROFORMA FINANCIAL INFORMATION
The following pro-forma summary of operations summarizes, as at December 31,
1999, the results of operations as if the acquisitions of Object Arts Inc.
(see note 19) and Cad Cam Inc. (see note 2) had occurred January 1, 1999:
REVENUE $ 42,710,997
Cost of Services 27,906,215
------------
14,804,782
------------
EXPENSES
Administrative 7,521,858
Selling 5,694,797
Financial 847,442
Amortization 875,799
Goodwill amortization 316,908
------------
15,256,804
------------
NET LOSS $ (452,022)
============
F-30
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has had no changes in or disagreements with its
Accountants.
33
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16 (a) OF THE EXCHANGE ACT
The officers and directors of ThinkPath, and further information
concerning them, are as follows:
Name Age Position
- ---- --- --------
Declan A. French 55 Chairman of the Board of Directors and
Chief Executive Officer
Thomas E. Shoup 48 President and Chief Operating Officer
Tony French 27 Executive Vice President
Lloyd MacLean 47 Chief Financial Officer and Director
Kelly Hankinson 30 Vice President, Finance and Administration and
Group Controller
Roger W. Walters 59 Executive Vice President, U.S. Operations and
Director
John R. Wilson 46 President - Systemsearch Consulting Services Inc.
John A. Irwin 47 President - International Career Specialist Ltd.
Marilyn Sinclair 42 Vice President, President - Object Arts Inc. and
Director Elect
William J. Neill 48 Director
John Dunne 56 Director
James Reddy 60 Director
Anthony P. van Marken 35 Director
Each director is elected for a period of one year at our annual meeting
of shareholders and serves until the next such meeting and until his or her
successor is duly elected and qualified. Directors may be re-elected annually
without limitation. Officers are appointed by, and serve at the discretion of,
our Board of Directors. Our directors do not presently receive any compensation
for their services as directors' but it is contemplated that directors will be
granted options pursuant to our 1998 Stock Option Plan. In addition, until June
1, 2002, Strasbourger Pearson Tulcin Wolff Incorporated, the managing
underwriter for our June 1, 1999 initial public offering, shall have the right,
at its option, to designate one director or observer to our Board of Directors,
which director shall be reasonably acceptable to our Board of Directors.
Set forth below is a biographical description of each of our directors
and executive officers based on information supplied by each of them.
34
<PAGE>
Declan A. French has served as our Chairman of the Board of Directors,
President and Chief Executive Officer since ThinkPath's inception in February
1994. Prior to founding ThinkPath, Mr. French was President and Chief Executive
Officer of TEC Partners Ltd., an information technology recruiting firm in
Toronto, Canada. Mr. French has a diploma in Psychology and Philosophy from the
University of St. Thomas in Rome, Italy.
Thomas E. Shoup has served as our President and Chief Operating Officer
since September 16, 1999, the date ThinkPath acquired Cad Cam, Inc. Mr. Shoup
served as Vice President of Cad Cam, Inc. from April 1996 to September 1999.
Prior to joining Cad Cam, Inc. Mr. Shoup served in the United States Air Force
for 22 years earning several service awards.
Tony French has served as our Executive Vice President since September
1999. Prior to becoming Executive Vice President, Mr. French served as our Vice
President of Sales since ThinkPath's inception in February 1994.
Lloyd MacLean has served as our Chief Financial Officer since September
1997. Mr. MacLean is the sole officer and director of Globe Capital Corporation.
From 1996 to 1997, Mr. MacLean was Vice-President and Chief Financial Officer of
ING Direct Bank of Canada. From 1994 until 1996, he was Vice-President and Chief
Financial Officer of North American Trust, Inc., where he also served as a Vice
President from 1990 until 1994. Mr. MacLean has an MBA from Harvard University
and is a member of the Canadian Institute of Chartered Accountants.
Kelly Hankinson has served as our Vice President, Finance and
Administration and Group Controller since May 1999. Ms. Hankinson served as our
Controller from February 1994 to May 1999. Ms. Hankinson has a Masters Degree
and a Bachelors Degree from York University.
Roger W. Walters has served on our Board of Directors and as Executive
Vice President of U.S. Operations since September 16, 1999, the date ThinkPath
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 ThinkPath in
September 16, 1999. Mr. Walter has a masters degree in Mechanical Engineering.
Mr. Walters is a member of our Operations Committee.
John R. Wilson has served as President of Systemsearch Consulting
Services Inc. since 1982 and was its sole shareholder prior to its sale to
ThinkPath in April 1998. Mr. Wilson is a member of our Operations Committee.
John A. Irwin has served as President of International Career
Specialists Ltd. since 1980 and was its sole shareholder prior to its sale to
ThinkPath in May 1998. Mr. Irwin has a degree in Computer Programming from
Cambridge College of Arts and Technology. Mr. Irwin is a member of our
Operations Committee.
Marilyn Sinclair has served as our Vice President and President -
Object Arts since January 1, 2000, the date ThinkPath acquired Object Arts, Inc.
Ms. Sinclair served as the president of Object Arts Inc. since 1993. Ms.
Sinclair has over 8 years experience in the technical training industry, with a
strong background in management and human resources. In 19997, MS. Sinclair was
chosen as runner-up for the Canadian Woman Entrepreneur of the Year award.
William J. Neill has served on our Board of Directors since June 1998.
Mr. Neill has served as Publisher and Chief Executive Officer of the Financial
Post since October 1997. From 1996 until 1997, Mr. -Neill was Publisher of the
Ottawa Sun. From 1993 until 1996, he was a Vice-President of the Financial Post.
Mr. Neill has an MBA from Queens University in Kingston, Ontario.
35
<PAGE>
John Dunne has served on our Board of Directors since June 1998. Mr.
Dunne has been Chairman and Chief Executive Officer of the Great Atlantic &
Pacific Company of Canada, Ltd. since August 1997, where he also served as
President and Chief Operating Officer from September 1996 until August 1997.
From November 1995 until September 1996, Mr. Dunne was Chairman and Chief
Executive Officer of Food Basics Ltd. Prior to that, he had served as Vice
Chairman and Chief Merchandising Officer of Great Atlantic & Pacific Company of
Canada, Ltd.
James Reddy has served on our Board of Directors of Directors since
June 1998. Mr. Reddy has served as Chief Financial Officer of Gemstar
Communications, Inc. since July 1998. From July 1997 to July 1998, Mr. Reddy was
an independent management consultant. He is a member of the Canadian Institute
of Chartered Accountants. From 1989 to 1997, he was employed by DFI Securities,
Inc., most recently as Chief Financial Officer.
Anthony P. van Marken has served on our Board of Directors since
October 1999. Mr. van Marken is Founder and President of van Marken Consulting
Inc. which he founded in June 1999. Van Marken Consulting Inc. provides
strategic advice to high-tech growth companies, venture capitalists and
investors.
Mr. van Marken worked at Architel Systems Corporation from July 1994
through June 1999. Mr. van Marken was appointed Vice President of Operations of
Architel in July of 1994 and served as President and Chief Executive Officer
from September 1995 through May 1999. Mr. van Marken served as Vice Chairman
during June 1999 prior to leaving the Company.
Prior to Achitel, Mr. van Marken worked for Andersen Consulting from
July 1998 to June 1994 in South Africa and the United Kingdom. Mr. van Marken
has experience in delivering complex systems integration projects in several
industries. As a manager in the Telecommunications Industry Group in the U.K.,
Mr. van Marken worked with a variety of service providers in Europe helping them
implement Business and Operational Support Systems. From 1985 to June 1998 Mr.
van Markers worked as a software developer.
Committees of the Board
In July 1998, our Board of Directors formalized the creation of a
Compensation Committee, which is comprised of John Dunne, William J. Neill and
Declan A. French. The Compensation Committee has (i) full power and authority to
interpret the provisions of, and supervise the administration of, our 1998 Stock
Option Plan and (ii) the authority to review all compensation matters relating
to ThinkPath. The Compensation Committee has not yet met and has not yet
formulated compensation policies for senior management and executive officers.
However, it is anticipated that the Compensation Committee will develop a
company-wide program covering all employees and that the goals of such program
will be to attract, maintain, and motivate our employees. It is further
anticipated that one of the aspects of the program will be to link an employee's
compensation to his or her performance, and that the grant of stock options or
other awards related to the price of the shares of our common stock will be used
in order to make an employee's compensation consistent with shareholders' gains.
It is expected that salaries will be set competitively relative to the
information technology staffing industry and that individual experience and
performance will be considered in setting salaries.
In July, 1998, our Board of Directors also formalized the creation of
an Audit Committee, which is comprised of two or more of our directors
designated by a majority vote of our entire Board of Directors. A majority of
the Audit Committee are directors who are not our officers and who are not and
have not been employed by us or any of our affiliates. The Audit Committee
currently consists of Lloyd MacLean, James Reddy and John Dunne and is charged
with reviewing the following matters and advising and consulting with our entire
Board of Directors with respect thereto: (i) the preparation of our annual
financial statements in collaboration with our chartered accountants; (ii)
annual review of our financial statements and annual report; and (iii) all
contracts between us and our officers, directors and other of our affiliates.
The Audit Committee, like most independent committees of public companies, does
not have explicit authority to veto any actions of our entire Board of Directors
relating to the foregoing or other matters; however, our senior management,
recognizing their own fiduciary duty to ThinkPath and its stockholders, is
committed not to take any action contrary to the recommendation of the Audit
Committee in any matter within the scope of its review.
36
<PAGE>
We have established an Operations Committee in order for our officers
to exchange information on industry trends and promote "best practices" among
the offices. The head of each regional office and subsidiary will serve on the
Executive Committee. Currently, the Executive Operations consists of Declan A.
French, Thomas E. Shoup, Tony French, Roger W. Walters, John A. Irwin and John
R. Wilson.
Indemnification of Officers and Directors
Our Bylaws provide that we shall indemnify to the fullest extent
permitted by Canadian law our directors and officers (and former officers and
directors). Such indemnification includes all costs and expenses and charges
reasonably incurred in connection with the defense of any civil, criminal or
administrative action or proceeding to which such person is made a party by
reason of being or having been our officer or director if such person was
substantially successful on the merits in his or her defense of the action and
he or she acted honestly and in good faith with a view to our best interests,
and if a criminal or administrative action that is enforced by a monetary
penalty, such person had reasonable grounds to believe his or her conduct was
lawful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted our directors, officers and
controlling persons and our underwriters pursuant to the foregoing provisions,
or otherwise, we have been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by us of expenses, incurred or paid by one of our directors,
officers or controlling persons in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person or by
our underwriters in connection with the securities being registered, we will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid by us during each of the last three fiscal years to the our
Chief Executive Officer and to each of our executive officers who earned in
excess of $100,000 during the year ended December 31, 1999.
37
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Name and Other
Principal Annual Restricted Com-
Position Year Salary Bonus Stock Awards Options/SARs Pensation
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Declan French, 1999 $97,900 -0- -0- -0- 8,342
Chief Executive Officer and 1998 97,900 -0- -0- -0- 8,342
Chairman of the Board 1997 104,275 -0- -0- -0- 8,342
1996 108,350 -0- -0- -0- 8,668
- --------------------------------------------------------------------------------------------------------------------
John A. Irwin, 1999 102,000 -0- -0- -0- 94,149
President-Systemsearch 1998 130,580 -0- -0- -0- 35,888
Consulting Services Inc. 1997 139,034 -0- -0- -0- 8,342
1996 -0- -0- -0- -0- -0-
- --------------------------------------------------------------------------------------------------------------------
John R. Wilson, 1999 81,600 -0- -0- -0- 76,915
President-International 1998 90,000 -0- -0- -0- 77,282
Career Specialists Ltd. 1997 83,420 -0- -0- -0- 20,855
1996 80,659 -0- -0- -0- 10,113
- --------------------------------------------------------------------------------------------------------------------
Roger W. Walters, 1999 200,000 -0- -0- -0- -0-
Executive Vice President, 1998 200,000 -0- -0- -0- -0-
U.S. Operations. (1) 1997 200,000 -0- -0- -0- -0-
1996 200,000 -0- -0- -0- -0-
- --------------------------------------------------------------------------------------------------------------------
Thomas E. Shoup, 1999 141,538 -0- -0- -0- -0-
President and Chief 1998 129,231 -0- -0- -0- -0-
Operating Officer (2) 1997 111,713 -0- -0- -0- -0-
1996 55,658 -0- -0- -0- -0-
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This reflects the salary paid to Mr. Walters prior to our acquisition of
Cad Cam, Inc. on September 16, 1999.
(2) This reflects the salary paid to Mr. Shoup prior to our acquisition of Cad
Cam, Inc. on September 16, 1999.
38
<PAGE>
Employment Agreements
We have entered into an employment agreement with Declan A. French
whereby he will serve as our Chairman of the Board and Chief Executive Officer
for a period of two years commencing on June 1, 1999. Mr. French shall be paid a
base salary of $98,000 and a bonus equal to (i) 2% of our gross profit, plus
(ii) for each fiscal year, 1% of the increase in revenue from the prior fiscal
year. Mr. French's right to receive the latter portion of the bonus continues
for one year beyond the termination of the employment agreement.
On May 19, 1998, in connection with the acquisition of International
Career Specialists Ltd., we entered into an employment agreement with John A.
Irwin whereby he will serve as President of International Career Specialists
Ltd. The employment agreement is for a term of three years commencing on January
1, 1998, the effective date of the acquisition of International Career
Specialists Ltd. Mr. Irwin receives a salary of $131,000 plus a quarterly bonus
of 2% of all permanent placement service revenue and 2% of the gross profit all
contract services revenue.
In February 1998, in connection with the acquisition of Systemsearch
Consulting Services Inc., we entered into a three-year employment agreement with
John R. Wilson whereby he will serve as President of Systemsearch Consulting
Services Inc. at a salary of $120,000 per year. The agreement was effective as
of January 2, 1997. Mr. Wilson receives a commission of 10% of the permanent
placement revenue of Systemsearch Consulting Services Inc. Additionally, he
receives $0.65 for every hour of contract services provided by information
technology professionals placed by Systemsearch Consulting Services Inc,,
provided that the gross margin on such hour exceeds $6.50. Pursuant to the
agreement, Mr. Wilson will have control of the day-to-day management of
Systemsearch Consulting Services Inc.
On September 16, 1999, in connection with the acquisition of Cad Cam,
Inc., Roger W. Walters was elected to our Board of Directors.
On September 16, 1999, in connection with the acquisition of Cad Cam,
Inc., we entered into an employment agreement with Thomas E. Shoup whereby he
will serve as our President and Chief Operating Officer. The employment
agreement is on a year-to-year basis. Mr. Shoup receives a salary of $175,000
per year.
On January 1, 2000, in connection with the acquisition of Object Arts
Inc., we entered into an employment agreement with Marilyn Sinclair whereby she
will serve as our Vice President and President of Object Arts Inc. The
employment agreement is for a term of three years commencing on January 1, 2000,
the effective date of the acquisition of Object Arts Inc. Ms. Sinclair receives
a salary of $82,000 per year.
Consulting Agreements
In May 1998, we entered into a consulting agreement with Robert M.
Rubin, one our former directors, pursuant to which Mr. Rubin will assist us in
structuring and negotiating acquisitions, strategic partnerships and other
expansion opportunities. In exchange for such services, Mr. Rubin has been
granted an option to purchase 200,000 shares of our common stock at a purchase
price of $2.10 per share. Mr. Rubin has agreed not to sell, transfer, assign,
hypothecate or otherwise dispose of the shares of our common stock issuable upon
exercise of the options for a period of two years after exercise without our
consent.
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<PAGE>
Stock Option Plan
The 1998 Stock Option Plan will be administered by our Compensation
Committee or our Board of Directors, which will determine among other things,
those individuals who shall receive options, the time period during which the
options may be partially or fully exercised, the number of shares of our common
stock issuable upon the exercise of the options and the option exercise price.
As of December 31, 1999, no options were issued under the 1998 Stock Option
Plan.
The 1998 Stock Option Plan is effective for a period for ten years,
expiring in 2008. Options to acquire 435,000 shares of our common stock may be
granted to officers, directors, consultants, key employees, advisors and similar
parties who provide us with their skills and expertise. The 1998 Stock Option
Plan is designed to enable management to attract and retain qualified and
competent directors, employees, consultants and independent contractors. Options
granted under the 1998Stock Option Plan may be exercisable for up to ten years,
generally require a minimum two year vesting period, and shall be at an exercise
price all as determined by our Board of directors provided that, pursuant to the
terms of the underwriting agreement between us and our Underwriters, the
exercise price of any options may not be less than the fair market value of the
shares of our common stock on the date of the grant. Options are
non-transferable, and are exercisable only by the participant (or by his or her
guardian or legal representative) during his or her lifetime or by his or her
legal representatives following death. Upon a change in control of ThinkPath,
the acceleration date of any options that were granted but not otherwise
exercisable accelerates to the date of the change in control. Change in control
includes (i) the sale of substantially all of our assets and merger or
consolidation with another company, or (ii) a majority of the members of our
Board of Directors changes other than by election by the shareholders pursuant
to Board of Directors solicitation or by vacancies filled by the Board of
Directors caused by death or resignation of such person.
If a participant ceases affiliation with us by reason of death,
permanent disability or retirement at or after age 65, the option remains
exercisable for one year from such occurrence but not beyond the option's
expiration date. Other types of termination allow the participant 90 days to
exercise the option, except for termination for cause which results in immediate
termination of the option.
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by us become available again for issuance
under the 1998 Stock Option Plan, subject to applicable securities regulation.
The 1998 Stock Option Plan may be terminated or amended at any time by
our Board of Directors, except that the number of shares of our common stock
reserved for issuance upon the exercise of options granted under the 1998 Stock
Option Plan may not be increased without the consent of our shareholders.
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<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 10, 2000
with respect to each beneficial owner of 5% or more of the outstanding shares of
our common stock, each of our officers and directors, and all of our officers
and directors as a group:
<TABLE>
<CAPTION>
Names and Address of Beneficial Amount and Nature of Beneficial Percentage of Shares
Owner (1) Ownership (2) Outstanding
------------------------------- ------------------------------- --------------------
<S> <C> <C>
Declan French........................... 1,121,126(3) 31%
Thomas E. Shoup......................... -0- -0-
Tony French............................. 3,000 *
Lloyd MacLean........................... 223,459(4) 6.3%
Kelly Hankinson......................... 2,000 *
Roger W. Walters........................ 188,767(5) 5.3%
John R. Wilson.......................... 130,914 3.7%
John A. Irwin........................... 130,914 3.7%
Marilyn Sinclair........................ 99,230 2.8%
William J. Neill........................ 19,637 *
John Dunne.............................. 13,091(6) *
James Reddy............................. 19,637 *
Anthony P. van Marken................... -0- -0-
Working Ventures Canadian Fund Inc......
425,730(7) 12.1%
All directors and officers
As a group (13 persons)
(3)(4)(5)(6)............................ 1,996,775 53.8%
</TABLE>
* Less than one %.
(1) Except as set forth above, the address of each individual is 55 University
Avenue, Suite 505, Toronto, Ontario M5J 2H7.
(2) Based upon information furnished to us by the directors and executive
officers or obtained from our stock transfer books. We are informed that
these persons hold the sole voting and dispositive power with respect to
the common stock except as noted herein. For purposes of computing
"beneficial ownership" and the percentage of outstanding common stock held
by each person or group of persons named above as of the date of this
prospectus, any security which such person or group of persons has the
right to acquire within sixty (60) days after such date is deemed to be
outstanding for the purpose of computing beneficial ownership and the
percentage ownership of such person or persons, but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person.
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<PAGE>
(3) Includes 510,563 shares of common stock owned by Christine French, the wife
of Declan French and 100,000 shares of common stock issuable upon options
issued to Declan French that are currently exercisable or exercisable
within the next 60 days.
(4) Includes 113,459 shares of common stock owned by Globe Capital Corporation,
an Ontario corporation that is wholly-owned by Lloyd MacLean and 50,000
shares of common stock issuable upon options issued to Lloyd MacLean that
are currently exercisable or exercisable within the next 60 days. Includes
an additional 60,000 shares issued to Globe Capital Corporation in
connection with the acquisitions of Cad Cam, Inc. and Object Arts Inc.
(5) Includes 50,000 shares of common stock issuable upon options that are
currently exercisable or exercisable within the next 60 days.
(6) Consists of 13,091 shares of common stock owned by John Dunne's spouse.
(7) Includes 228,242 shares issued in exchange for shares of Object Arts Inc.
and 197,488 shares in consideration for the retirement of outstanding debt
of Object Arts Inc., both of which were part of the acquisition of Object
Arts Inc.
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<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In April 1998, we acquired all the issued and outstanding capital stock
of Systemsearch Consulting Services Inc. and Systems PS Inc. from John R. Wilson
for aggregate consideration of $98,000 and 174,551 shares of our common stock.
The acquisition was effective as of January 2, 1997. Systems PS Inc. is inactive
but holds certain assets utilized by Systemsearch Consulting Services Inc. in
its operations. Mr. Wilson was not affiliated with us prior to the acquisition.
On May 19, 1998, we completed the acquisition of all the issued and
outstanding capital stock of International Career Specialists Ltd. for $326,000
in cash and 130,914 shares of our common stock to John A. Irwin. In connection
with the acquisition, International Career Specialists Ltd. made a distribution
to Mr. Irwin of certain of its assets that were not necessary for the operation
of the business. The transaction was effective as of January 1, 1998. Mr. Irwin
was not affiliated with us prior to the acquisition.
In October 1997, in consideration for business consulting services,
including identifying, structuring and effecting the acquisitions of
Systemsearch Consulting Services Inc. and International Career Specialists Ltd.,
we issued 113,459 shares our common stock to Globe Capital Corporation, which is
controlled by Lloyd MacLean, our chief Financial Officer and a Director.
In May 1998, we entered into a consulting agreement with Robert M.
Rubin, one of our former directors, pursuant to which Mr. Rubin will assist us
in structuring and negotiating acquisitions, strategic partnerships and other
expansion opportunities. In exchange for such services, Mr. Rubin received an
option to purchase 200,000 shares of our common stock at a purchase price of
$2.10 per share. Mr. Rubin has agreed not to sell, transfer, assign, hypothecate
or otherwise dispose of the shares of our common stock issuable upon exercise of
the options for a period of two years after exercise without our consent.
In November 1998, we purchased certain assets of Southport Consulting,
Inc. from Michael Carrazza, one of our former directors, for $300,000 in cash
and 40,000 shares of our common stock.
On September 16, 1999, we completed the acquisition of all the issued
and outstanding capital stock of Cad Cam, Inc. for $2,000,000 in cash,
$2,500,000 pursuant to a promissory note and the issuance of $1,500,000 worth of
shares of our common stock to Roger W. Walters, Cad Cam, Inc.'s president. The
share purchase agreement was executed on January 1, 1999 and the transaction was
effective as of September 16, 1999. Mr. Walters was not affiliated with us prior
to the acquisition.
Thinkpath.com Inc. has entered into a consulting agreement with a
company, whereby this company performs all tasks related to mergers,
acquisitions and the securing of financing. The company receives 3% of gross
proceeds. In connection with the placement of the Series A, 8% cumulative,
convertible, preferred stock, and for other services rendered the said company
received $69,000. The managing director of this company is also CFO of
Thinkpath.com Inc.
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<PAGE>
On January 1, 2000, we 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 our common stock to
Working Ventures Custodian Fund in exchange for the retirement of outstanding
subordinated debt; (ii) the issuance to Working Ventures Custodian Fund an
amount of our common stock equal to the legal fees and professional fees
incurred and paid by Working Ventures Custodian Fund in connection with our
acquisition of ObjectArts Inc.; and (iii) the issuance of $1,100,000 worth of
our common stock to the existing shareholders of ObjectArts Inc. As part of the
transaction, we entered into employment agreements with Marilyn Sinclair, Object
Arts Inc.'s and Lars Laakes, former officers of Object Arts Inc. Such employment
agreements are for a term of three years commencing on January 1, 2000, the
effective date of the acquisition, with annual salaries of $82,000 and $75,000
per year, respectively.
While we were a private company, we lacked sufficient independent
directors to ratify many of the foregoing transactions. However, our management
believes that the foregoing transactions were on terms no less favorable to us
than could have been obtained from unaffiliated third parties. All future
transactions between us and our officers, directors or 5% shareholders, and
their respective affiliates, will be on terms no less favorable than could be
obtained from unaffiliated third parties. In the event that we enter into future
affiliated transactions they will be approved by our independent directors who
do not have an interest in the transactions and who have access, at our expense,
to our counsel or independent legal counsel.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements.
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors.....................................................................F-3
Consolidated Balance Sheets for the years ended December 31, 1999 and 1998.........................F-4
Consolidated Statements of Operations
for the years ended December 31, 1999, 1998 and 1997...........................................F-6
Consolidated Statements of Cash Flows4
for the years ended December 31, 1999, 1998 and 1997...........................................F-7
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997...........................................F-8
Notes to Consolidated Financial Statements.................................................F-9 to F-30
</TABLE>
(b) Reports on Form 8-K.
On October 1, 1999, the Company filed a report on Form 8-K to
disclose the acquisition of Cad Cam, Inc.
On November 15, 1999, the Company filed a report on Form 8-K the
disclose the execution of an agreement and plan of merger by and among the
Company, IT Acquisition Corp. and Trans Global Services, Inc. Such merger was
never completed.
(c) Exhibits.
27. Financial Data Schedule
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<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.
By: /s/ Declan A. French
-------------------------------------
Declan A. French
Chairman and Chief Executive Officer
Dated: April 14, 2000
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Delan A. French Chairman and Chief Executive April 14, 2000
- ------------------------------------ Officer (Principal
Declan A. French Executive Officer)
/s/ Lloyd MacLean Chief Financial Officer and Director April 14, 2000
- ----------------------------------- (Principal Accounting Officer)
Lloyd MacLean
/s/ William J. Neill Director April 14, 2000
- --------------------------------------
William J. Neill
/s/ John Dunne Director April 14, 2000
- --------------------------------------
John Dunne
/s/ James Reddy Director April 14, 2000
- --------------------------------------
James Reddy
/s/ Roger W. Walters Director April 14, 2000
- -----------------------------------
Roger W. Walters
</TABLE>
45
