0000909012-01-500479.txt : 20011112 0000909012-01-500479.hdr.sgml : 20011112 ACCESSION NUMBER: 0000909012-01-500479 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20011105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THINKPATH COM INC CENTRAL INDEX KEY: 0001070630 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 52209027 STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-14813 FILM NUMBER: 1775036 BUSINESS ADDRESS: STREET 1: 55 UNIVERSITY AVE STE 505 STREET 2: TORONTO, ONTARIO, CANADA CITY: M5J 2H7 BUSINESS PHONE: 4163648800 MAIL ADDRESS: STREET 1: 55 UNIVERSITY AVE STE 505 STREET 2: TORONTO, ONTARIO, CANADA CITY: MCJ 2H7 FORMER COMPANY: FORMER CONFORMED NAME: IT STAFFING LTD DATE OF NAME CHANGE: 19980917 10QSB/A 1 t23338.txt AMENDED QUARTERLY REPORT 3/31/01 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT FOR THE TRANSITION PERIOD FROM ____________ TO ________________ COMMISSION FILE NUMBER __________ THINKPATH INC. (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) ONTARIO 52-209027 --------------------------------- -------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 55 UNIVERSITY AVENUE SUITE 505 TORONTO, ONTARIO, CANADA M5J 2H7 ------------------------------------------- --------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (416) 364-8800 (ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE) -------------- CHECK WHETHER THE ISSUER: (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. Yes |X| No |_| The aggregate market value of the voting stock held by non-affiliates based upon the last sale price on October 31, 2001 was approximately $3,070,249. As of October 31, 2001 there were 15,686,601 shares of Common Stock, no par value per share, outstanding. Transitional Small Business Disclosure Format (check one): Yes |X| No |_| THINKPATH INC. MARCH 31, 2001 QUARTERLY REPORT ON FORM 10-QSB/A TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Page Number Item 1. Financial Statements Revised Interim Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 ............................................. 2-3 Revised Interim Consolidated Statements of Income for the three months ended March 31, 2001 and 2000 ........................................... 4 RevisedInterim Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2001 and the year ended December 31, 2000 .... 5 Revised Interim Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000 ....................................... 6 Notes to Revised Interim Consolidated Financial Statements .................7-15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................. 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings ................................................. 22 Item 2. Changes in Securities and Use of Proceeds ......................... 22 Item 3. Defaults Upon Senior Securities ................................... 22 Item 4. Submission of Matters to a Vote of Security Holders ............... 23 Item 5. Other Information ................................................. 23 Item 6. Exhibits and Reports on Form 8-K .................................. 23 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-QSB/A contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are other than statements of historical facts. These statements are subject to uncertainties and risks including, but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks defined in this document and in statements filed from time to time with the Securities and Exchange Commission. All such forward-looking statements are expressly qualified by these cautionary statements and any other cautionary statements that may accompany the forward-looking statements. In addition, Thinkpath Inc. disclaims any obligations to update any forward-looking statements to reflect events or circumstances after the date hereof. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THINKPATH INC. (FORMERLY THINKPATH.COM INC.) REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2001 (UNAUDITED) (AMOUNTS EXPRESSED IN US DOLLARS)
THINKPATH INC. REVISED INTERIM CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2001 AND DECEMBER 31, 2000 (AMOUNTS EXPRESSED IN US DOLLARS) (UNAUDITED) 2001 2000 ---- ---- $ $ ASSETS CURRENT ASSETS Accounts receivable 7,913,055 7,857,999 Inventory 68,437 93,670 Income taxes receivable 333,597 358,436 Prepaid expenses 504,022 335,930 ---------- --------- 8,819,111 8,646,035 CAPITAL ASSETS 3,342,683 3,596,759 GOODWILL 8,412,359 8,585,290 INVESTMENT IN NON-RELATED COMPANIES 1,279,344 1,318,091 LONG-TERM RECEIVABLE 217,364 83,450 OTHER ASSETS 1,711,409 1,812,889 DEFERRED INCOME TAXES 1,417,825 1,643,426 ---------- --------- 25,200,095 25,685,940 ========== ==========
-2-
THINKPATH INC. REVISED INTERIM CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2001 AND DECEMBER 31, 2000 (AMOUNTS EXPRESSED IN US DOLLARS) (UNAUDITED) 2001 2000 ---- ---- $ $ LIABILITIES CURRENT LIABILITIES Bank indebtedness 5,439,868 5,061,410 Accounts payable 3,495,579 3,822,984 Deferred revenue 195,598 219,308 Current portion of long-term debt 607,557 946,131 Current portion of notes payable 1,614,604 1,683,333 ---------- ---------- 11,353,206 11,733,166 LONG-TERM DEBT 1,093,621 760,313 NOTES PAYABLE 1,636,822 1,641,667 LIABILITIES PAYABLE IN COMMON STOCK 751,788 751,788 ---------- ---------- 14,835,437 14,886,934 ---------- ---------- STOCKHOLDERS' EQUITY CAPITAL STOCK (Note 5) 24,632,895 23,759,415 DEFICIT (13,023,658) (12,306,682) ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX (1,244,579) (653,547) ---------- ---------- 10,364,658 10,799,006 ---------- ---------- 25,200,095 25,685,940 ========== ==========
The accompanying notes are an integral part of these revised interim consolidated financial statements. -3-
THINKPATH INC. REVISED INTERIM CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31 (AMOUNTS EXPRESSED IN US DOLLARS) (UNAUDITED) (Restated) 2001 2000 $ $ REVENUE 10,645,554 10,155,337 COST OF CONTRACT SERVICES 6,855,092 6,869,477 ----------- ----------- GROSS PROFIT 3,790,462 3,285,860 Other Income 12,429 -- ----------- ----------- 3,802,891 3,285,860 ----------- ----------- EXPENSES Administrative 1,366,878 1,388,832 Selling 1,636,259 1,185,594 Interest charges 246,049 182,256 Depreciation and amortization 560,586 431,982 Restructuring costs 279,453 -- ----------- ----------- 4,089,225 3,188,664 ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (286,334) 97,196 Income taxes 203,962 -- ----------- ----------- NET INCOME (LOSS) (490,296) 97,196 =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON STOCK OUTSTANDING Basic 13,025,123 3,899,912 Fully Diluted 13,025,123 4,001,630 =========== ========== INCOME (LOSS) PER WEIGHTED AVERAGE COMMON STOCK AFTER PREFERRED DIVIDENDS Basic (0.04) 0.02 Fully Diluted (0.04) 0.02 =========== ===========
The accompanying notes are an integral part of these revised interim consolidated financial statements. -4-
THINKPATH INC. REVISED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE THREE MONTHS ENDED MARCH 31, 2001 (AMOUNTS EXPRESSED IN US DOLLARS) (UNAUDITED) COMMON PREFERRED ACCUMULATED STOCK STOCK CAPITAL OTHER NUMBER OF NUMBER OF STOCK RETAINED COMPREHENSIVE COMPREHENSIVE SHARES SHARES AMOUNTS EARNINGS INCOME(LOSS) INCOME(LOSS) ---------- --------- ----------- ----------- ------------- ------------ A B $ $ $ $ Balance as of December 31, 2000 11,915,138 1,050 750 23,759,415 (12,306,862) (653,547) Net loss for the period -- -- -- -- (490,296) (490,296) -- ----------- Other comprehensive loss, net of tax: Foreign currency translation -- -- -- -- -- (589,297) -- Adjustment to market value -- -- -- -- -- (1,735) -- ----------- (591,032) (591,032) Other comprehensive loss ----------- Comprehensive loss -- -- -- -- -- (1,081,328) =========== Issuance of common stock for cash 525,000 -- -- 400,000 -- -- Common stock and warrants issued in consideration of services 30,632 -- -- 246,980 -- -- Dividends on preferred stock -- -- -- 226,500 (226,500) -- Conversion of preferred stock to common stock 1,875,839 (1,050) (750) -- -- -- ----------- ------- ------ --------- -------- ---------- Balance as of March 31, 2001 14,346,609 -- -- 24,632,895 (13,023,658) (1,244,579) =========== ============== =========== =========== ===========
The accompanying notes are an integral part of these revised interim consolidated financial statements. -5-
THINKPATH INC. REVISED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS ENDED MARCH 31 (AMOUNTS EXPRESSED IN US DOLLARS) (UNAUDITED) (Restated) 2001 2000 ---------- -------- $ $ Cash flows from operating activities: Net income (loss) (490,296) 97,196 ---------- -------- Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Amortization 560,586 431,982 Decrease (increase) in accounts receivable (159,078) (137,621) Decrease (increase) in prepaid expenses (168,092) (249,221) Increase (decrease) in accounts payable (327,405) (145,627) Increase in income taxes payable (receivable) -- (227,319) Decrease (increase) in deferred income taxes 200,000 (572,541) Decrease (increase) in inventory 25,233 -- Increase (decrease) in deferred revenue (23,710) -- Common stock issued for services 246,980 -- ---------- -------- Total adjustments 354,514 (900,347) ---------- -------- Net cash used in operating activities (135,782) (803,151) ---------- -------- Cash flows from investing activities: Purchase of capital assets (62,089) (442,350) Purchase of other assets -- (651,546) Increase in long-term receivable (139,956) -- ---------- -------- Net cash used in investing activities (202,045) (1,093,896) ---------- -------- Cash flows from financing activities: Repayment of notes payable (73,574) (324,368) Repayment of long-term debt (219,734) (50,242) Cash received from long-term debt 225,000 -- Proceeds from issuance of common stock 400,000 -- Increase in bank indebtedness 354,019 499,988 ---------- -------- Net cash provided by financing activities 685,711 125,378 ---------- -------- Effect of foreign currency exchange rate changes (347,884) 92,962 ---------- -------- Net increase (decrease) in cash and cash equivalents -- (1,678,707) Cash and cash equivalents -Beginning of period -- 1,790,621 ---------- -------- -End of period -- 111,914 ========== ========= SUPPLEMENTAL CASH ITEMS: Interest paid 116,553 113,196 ========== ========= Income taxes paid 3,962 -- ========== ========= SUPPLEMENTAL NON-CASH ITEM: Preferred stock dividend 226,500 29,600 ========== =========
The accompanying notes are an integral part of these revised interim consolidated financial statements. -6- THINKPATH INC. NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (AMOUNTS EXPRESSED IN US DOLLARS) (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) PRINCIPAL BUSINESS ACTIVITIES Thinkpath Inc. is an information technology and engineering services company which, along with its subsidiaries Systemsearch Consulting Services Inc., Cad Cam Inc., Cad Cam of Michigan Inc., Cad Cam Integrated Manufacturing Services Inc. and Cad Cam Technical Services Inc., Thinkpath Training Inc. (formerly ObjectArts Inc.), MicroTech Professionals Inc., Njoyn Software Inc., and TidalBeach Development Inc., provides outsourcing, recruiting, training and technology services to enhance the resource performance of clients. B) BASIS OF CONSOLIDATED FINANCIAL STATEMENT PRESENTATION The accompanying consolidated interim financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated interim financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of the Company, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation have been included in the consolidated interim financial statements. The consolidated interim financial statements are based in part on estimates and have not been audited by independent accountants. Independent accountants will audit the annual consolidated financial statements. The consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries. The earnings of the subsidiaries are included from the date of acquisition for acquisitions accounted for using the purchase method. For subsidiaries accounted for by the pooling of interest method their earnings have been included for all periods reported. All significant inter-company accounts and transactions have been eliminated. C) NET INCOME (LOSS) AND FULLY DILUTED NET INCOME (LOSS) PER WEIGHTED AVERAGE COMMON STOCK Net income (loss) per common stock is computed by dividing net income (loss) for the year by the weighted average number of common stock outstanding during the year. Fully diluted net income (loss) per common stock is computed by dividing net income for \ the year by the weighted average number of common stock outstanding during the year, assuming that all convertible preferred stock, stock options and warrants were converted or exercised. Stock conversions, stock options and warrants, which are anti- dilutive, are not included in the calculation of fully diluted net income (loss) per weighted average common stock. D) REVENUE RECOGNITION 1) The company provides the services of engineering and information technology staff on a project basis. The services provided are defined by guidelines to be accomplished by milestone and revenue is recognized upon the accomplishment of the relevant milestone. As services are rendered, the costs incurred are reflected as Work in Progress. Revenue is recognized upon the persuasive evidence of an agreement, delivery has occurred, the fee is fixed or determinable and collection is probable. -7- THINKPATH INC. NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (AMOUNTS EXPRESSED IN US DOLLARS) (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) D) REVENUE RECOGNITION (CONT'D) 2) The company provides the services of information technology consultants on a contract basis and revenue is recognized as services are performed. 3) The company places engineering and information technology professionals on a permanent basis and revenue is recognized upon candidates' acceptance of employment. If the company receives non-refundable upfront fees for "retained searches", the revenue is recognized upon candidates' acceptance of employment. 4) The company provides advanced training and certification in a variety of technologies and revenue is recognized on delivery. 5) The company licenses software in the form of a Human Capital Management System called Njoyn. The revenue associated with providing this software is allocated to an initial set up fee, customization and training as agreed and an ongoing monthly per user fee. The allocation of revenue to the various elements is based on the company's determination of the fair value of the elements if they had been sold separately. The set-up fee and customization revenue is recognized upon delivery of access to the software with customization completed in accordance with milestones determined by the contract. Revenue for the training is recorded as the services are rendered and the ongoing monthly fee is recorded each calendar month. There is no additional fee for hosting. The company signs contracts for the customization or development of SecondWave in accordance with specifications of its clients. The project plan defines milestones to be accomplished and the costs associated. These amounts are billed as they are accomplished and revenue is recognized as the milestones are reached. The work in progress for costs incurred beyond the last accomplished milestone is reflected at the period end. To date these amounts have not been material and have not been set up at the period ends. The contracts do not include any post-contract customer support. Additional customer support services are provided at standard daily rates, as services are required. 2. INVESTMENT IN NON-RELATED COMPANIES Investment in non-related companies are represented by the following: Conexys $667,511 Digital Cement 507,865 Lifelogix 103,968 ---------- Total $1,279,344 ========== -8- THINKPATH INC. NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (AMOUNTS EXPRESSED IN US DOLLARS) (UNAUDITED) 3. LONG-TERM DEBT At December 31, 2000, Bank One loan covenants were in breach and accordingly the interest rates on these loans were increased. Subsequent to March 31, 2001, Bank One imposed a temporary restriction on the Company's repayment of certain subordinated loans and notes payable. In compliance with this restriction, the Business Development Bank of Canada has agreed to a principal repayment deferral of its subordinated loans. 4. NOTES PAYABLE In compliance with Bank One's restriction, the Company is making interest only payments on its notes payable to the vendors of Cad Cam Inc. and MicroTech Professionals Inc. 5. CAPITAL STOCK a) Authorized 30,000,000 Common stock, no par value 1,000,000 Preferred stock, issuable in series, rights to be determined by the Board of Directors b) Issued During the three months ended March 31, 2001, the Company issued 30,632 shares of its common stock in consideration of legal services received. During the three months ended March 31, 2001, the Company issued 250,000 shares of its common stock in consideration of $125,000 in cash. During January 2001, the Company agreed to issue 250,000 warrants to acquire shares of the company at $1.50 and to re-price a total of 330,693 warrants to an exercise price of $1.00. In consideration of the foregoing, a total of 275,000 shares were issued for an amount of $275,000 in cash. The terms of the warrants are indicated in note 5(d). The value of the repricing of the warrants and the new warrants issued have been treated as the part of the allocation of the proceeds on the issuance of the common stock. On June 6, 2001, the Company amended its Articles of Organization to increase its authorized common stock from 15,000,000 to 30,000,000. c) Preferred Stock During the three months ended March 31, 2001, the Company issued 1,875,839 common stock on the conversion of 1,050 Series A preferred stock and 750 Series B preferred stock. The Company paid dividends of $226,500 on the conversions. d) Warrants On January 26, 2001, the Company: (i) repriced warrants to purchase up to 100,000 shares of its common stock, which warrants were issued to a certain investor in our April 2000 private placement offering of Series B 8% Cumulative Preferred Stock, so that such warrants are exercisable at any time until April 16, 2005 at a new purchase price of $1.00 per share; (b) repriced warrants to purchase an aggregate of up to 230,693 shares of its common stock, which warrants were issued to the placement agent, certain financial advisors, and the placement agent's counsel in our August 2000 private placement offering of units, so that such warrants are exercisable at any time until August 22, 2005 at a new purchase price of $1.00 per share; and (c) issued warrants to purchase up to 250,000 shares of its common stock exercisable at any time and in any amount until January 26, 2006 at a purchase price of $1.50 per share In February 2001, 150,000 of such repriced warrants were exercised by KSH Investment Group, the placement agent in the Company's August 2000 private placement offering. The -9- THINKPATH INC. NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (AMOUNTS EXPRESSED IN US DOLLARS) (UNAUDITED) 5. CAPITAL STOCK (CONT'D) d) Warrants (cont'd) exercise prices of the revised and newly issued warrants are equal to, or in excess of, the market price of our common stock on the date of such revision or issuance. Following verbal agreements in December 2000, on January 24, 2001, the company signed an agreement with The Del Mar Consulting Group, a California corporation, to represent us in investors' communications and public relations with existing shareholders, brokers, dealers and other investment professionals. The company issued a non-refundable retainer of 400,000 shares to Del Mar and are required to pay $4,000 per month for on-going consulting services. In addition, Del Mar has a warrant to purchase 400,000 shares of common stock at $1.00 per share and 100,000 shares at $2.00 which expires January 24, 2005 and which are exercisable commencing August 1, 2001. As the agreement to issue the non- refundable retainer was reached in December 2000, the 400,000 shares with a value of $268,000 has been included in the shares issued for services rendered and has been included in Acquisition costs and financing expenses for December 31, 2000. The commitment to issue the non-refundable deposit was effected in December 2000. The value of the warrants of $216,348 has been included in paid in capital in January 2001 and the expense is being reflected over the six month period ending August 1, 2001. In April 2001, the warrants were cancelled and new warrants were issued which are exercisable at $0.55. 200,000 of the warrants are exercisable commencing April 2001 and the balance are exercisable commencing August 1, 2001. The value of the change in the warrants of $29,702 has been included in the paid in capital in April 2001 and the additional expense is being amortized in the period to August 1, 2001. 6. OTHER COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) for the three months ended March 31, 2001:
Before Tax Tax (Expense) Net-of-Tax Amount or Benefit Amount ------ ---------- ------ Foreign currency translation adjustments (589,297) - (589,297) Adjustment to market value (2,479) 744 (1,735) -------- -------- ---------- Other comprehensive loss (591,776) 744 (591,032) ========= ======== ==========
The foreign currency translation adjustments are not currently adjusted for income taxes since the company is situated in Canada and the adjustments relate to the translation of the financial statements from Canadian dollars into United States dollars done only for the convenience of the reader. -10- THINKPATH INC. NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (AMOUNTS EXPRESSED IN US DOLLARS) (UNAUDITED) 7. RESTRUCTURING COSTS During the fourth quarter of fiscal 2000, the Company recorded a restructuring reserve of $685,103 as a result of certain of the Company's actions to better align its cost structure with expected revenue growth rates. The restructuring activities in 2000 relate to the closure of one training location, in London, Ontario resulting in costs to sever 3 employees with long-term contracts until December 2002 and the lease commitment for the premises in London Ontario. These long-term contracts do not require the employees to provide services until the date of involuntary termination. Additional restructuring costs were incurred in the three months ended March 31, 2001 upon the termination of additional employees at the London location in March, 2001 and the Mentoring division located at the Toronto office. The balance of the employees in London were terminated in April 2001. The premises were vacated in April 2001. Operations continued until April 2001 with a very low volume of work as the bulk of training was shifted to the Toronto site. In February 2001, the company started to close down one of its research and development (R&D) Operations located in Toronto. The company continued to terminate employees until April 2001. The premises are subject to a long-term lease and will be utilized for corporate needs in the future. Restructuring costs include rent for the current period for the Toronto R&D space. The remaining accrual will be relieved throughout fiscal 2001, as leases expire and severance payments, some of which are paid on a monthly basis, are completed. Details of the restructuring costs and reserve balance is as follows;
Description Cash/ Reserve balance Restructuring Activity Reserve balance non/cash December 31, 2000 Costs March 31, 2001 Severance packages London-Training Cash 452,813 162,535 225,330 390,018 Toronto-Mentoring Cash -- 30,518 30,518 -- Toronto-R&D Cash -- 57,400 57,400 -- Lease cancellations London-Training Cash 118,526 -- 26,122 92,404 Toronto-R&D Cash -- 29,000 29,000 -- ------- ------- ------- ------- Commitments 571,339 279,453 368,370 482,422 ======= ======= ======= =======
8. CONTINGENCIES a) The vendor of Southport Consulting Co. is seeking damages for the consideration of $250,000 on the acquisition which was funded by shares of the company. The vendor contends that the shares received do not satisfy the purchase price. No provision has been recorded in the accounts for possible losses. Should any expenditure be incurred by the company for the resolution of this lawsuits, they will be charged to the operations of the year in which such expenditures are incurred. -11- THINKPATH INC. NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (AMOUNTS EXPRESSED IN US DOLLARS) (UNAUDITED) 9. SUBSEQUENT EVENTS a) Pursuant to a share purchase agreement dated April 18, 2001, the Company issued 1,105 shares of Series C 7% Cumulative Convertible Preferred Stock (Series C Preferred Stock). Each share of Series C Preferred Stock has a stated value of $1,000 per share. The shares of Series C Preferred Stock are convertible into shares of the Company's common stock at the option of the holders, at any time after issuance until such shares of Series C Preferred Stock are manditorily converted or redeemed by the Company, under certain conditions. The Company is required to register 200% of the shares of common stock issuable upon the conversion of the 1,105 shares of Series C Preferred Stock. In addition, upon the effective date of such registration statement, the Company is obligated to issue to the holders of Series C Preferred Stock an aggregate of 500 shares of Series C Preferred Stock in consideration for $500,000, under certain conditions. The holders of the shares of Series C Preferred Stock are entitled to receive preferential dividends in cash, on a quarterly basis commencing on June 30, 2001, out of any of the Company's funds legally available at the time of declaration of dividends before any other dividend distribution will be paid or declared and set apart for payment on any shares of the Company's common stock, or other class of stock presently authorized, at the rate of 7% simple interest per annum on the stated value per share plus any accrued but unpaid dividends, when as and if declared. The Company has the option to pay such dividends in shares of the Company's common stock to be paid (based on an assumed value of $1,000 per share) in full shares only, with a cash payment equal to any fractional shares. The number of shares of the Company's common stock into which the Series C Preferred Stock shall be convertible into that number of shares of common stock equal to (i) the sum of (A) the stated value per share and (B) at the holder's election, accrued and unpaid dividends on such share, divided by (ii) the Conversion Price". The "Conversion Price" shall be the lesser of (x) 87.5% of the average of the 5 lowest daily volume weighted average prices of the Company's common stock during the period of 60 consecutive trading days immediately prior the date of the conversion notice; or (y) 90% of the average of the daily volume weighted average prices during the period of the 5 trading days prior to the applicable closing date ($.4798 with respect to the 1,105 shares of Series C 7% Preferred Stock issued and outstanding). The Conversion Price is subject to certain floor and time limitations. At any time prior to October 24, 2001, the Company may, in its sole discretion, redeem in whole or in part, the then issued and outstanding shares of Series C Preferred Stock at a price equal to $1,150 per share, plus all accrued and unpaid dividends, and after October 24, 2001 at a price equal to $1,200 per share, plus all accrued and unpaid dividends. b) During the three months ended June 30, 2001, the Company issued 266,774 common stock on the conversion of 120 Series C preferred stock. The Company paid dividends of $154,138 on the conversions. The proceeds received on the issue of Class C preferred shares have been allocated between the value of detachable warrants issued and the preferred shares outstanding on the basis of their relative fair values. Paid in capital has been credited by the value of the warrants and retained earnings charged for the amount of preferred dividends effectively paid. The conversion benefit existing at the time of issue of the preferred Class C shares has been computed and this amount has been credited to paid in capital for the Class C preferred shares and charged to retained earnings as dividends on the Class C preferred shares. c) During the three months ended June 30, 2001, the Company issued 723,436 warrants to the Series C Preferred Stock investors of which 663,484 have a strike price of $0.54 and expire on April 18, 2005. The balance of 59,952 have a strike price of $0.63 and expire on June 8, 2005. -12- THINKPATH INC. NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (AMOUNTS EXPRESSED IN US DOLLARS) (UNAUDITED) 9 SUBSEQUENT EVENTS (CONT'D) d) At March 31, 2001, the Business Development Bank of Canada (BDC) loan covenants were in breach and accordingly the loan amounts were reclassified as current. Subsequent to March 31, 2001, the bank has agreed to a temporary deferment of principal payments until January 2002. The Company is current in its interest obligations to the Business Development Bank of Canada. e) The Company has restructured its note payable to Roger Walters in September 2001, so that 1,200,000 shares will be issued in lieu of $450,000 cash reducing the balance of the note to $750,000. The balance will be paid over 3 years beginning January 1, 2003. The Company is current in its interest obligations to Roger Walters. f) As a result of Bank One's restriction on subordinated debt payments, the Company is in breach of its payment schedule to Denise Dunne. The Company is in negotiations to restructure its note payable to Denise Dunne. The Company hopes to reduce the cash amount owing and extend the payment terms. The Company is current in its interest obligations to Denise Dunne. g) On July 20, 2001, the Company received a Nasdaq Staff Determination indicating that the company is not in compliance with the bid price requirements for continued listing, as set forth in Nasdaq's Marketplace Rule 4310 (c)(8)(B). . On September 27, 2001, Nasdaq announced a moratorium on the minimum bid and public float requirements for continued listing on the exchange until January 2, 2002. The Company's stock will continue to be listed on Nasdaq during this period. h) During July 2001, 22,125 shares were issued for the options exercised by the Business Development Bank of Canada. i) On September 11, 2001, the Company's branch office located in the World Trade Centre was destroyed and its branch office at 195 Broadway was damaged and closed for a period of four weeks. The company cannot yet provide a reliable estimate of the effect of this destruction and closure on its operating results and financial condition. j) After March 31, 2001, three former employees are alleging wrongful dismissal for the termination of their employment. No provision has been recorded in the accounts for possible losses. Should any expenditure be incurred by the company for the resolution of these lawsuits, they will be charged to the operations of the year in which such expenditures are incurred. 10. SEGMENTED INFORMATION a) Sales by Geographic Area Three Months Three Months Ended March 31, Ended March 31, 2001 2000 $ $ Canada 4,073,859 3,907,033 United States of America 6,571,695 6,248,304 ---------- ---------- 10,645,554 10,155,337 ========== ========== b) Net Income (Loss)by Geographic Area Three Months Three Months Ended March 31, Ended March 31, 2001 2000 $ $ Canada (724,741) (336,445) United States of America 234,445 433,641 ---------- -------- (490,296) 97,196 ========== ======== -13- THINKPATH INC. NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (AMOUNTS EXPRESSED IN US DOLLARS) (UNAUDITED) 10. SEGMENTED INFORMATION (CONT'D) c) Identifiable Assets by Geographic Area March 31, December 31, 2001 2000 $ $ Canada 9,041,002 8,979,711 United States 16,159,093 16,706,229 ---------- ---------- 25,200,095 25,685,940 ========== ========== d) Revenue and Gross Profit by Operating Segment Three Months Three Months Ended March 31, 2001 Ended March 31, 2000 ------------------- ------------------- $ $ Revenue IT Recruitment 4,384,738 3,568,660 Tech Pubs and Engineering 3,781,473 5,145,642 IT Documentation 1,286,774 -- Training 918,220 1,326,920 Technology 274,349 113,915 ---------- ---------- 10,645,554 10,155,137 ========== ========== Gross Profit IT Recruitment 1,225,105 1,622,192 Tech Pubs and Engineering 1,059,962 1,519,920 IT Documentation 716,546 -- Training 540,371 65,120 Technology 260,907 78,628 ---------- ---------- 3,802,891 3,285,860 ========== ========== e) Revenues from Major Customers The consolidated entity had the following revenues from major Customers: No single customer consisted of more than 10% of the revenues. f) Purchases from Major Suppliers There were no significant purchases from major suppliers. -14- THINKPATH INC. NOTES TO REVISED INTERIM CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (AMOUNTS EXPRESSED IN US DOLLARS) (UNAUDITED) 11. MANAGEMENT'S INTENTIONS Management has initiated substantial changes in operational procedures in an effort to return the company to profitability and to improve its cash flow and financial condition. Management has continued to coordinate its sales efforts to maximize organic and cross- selling initiatives. In addition, Management has continued its cost cutting initiatives including the termination of personnel and closure of non-productive offices and business lines. Management has successfully restructured some of its long-term debt obligations in addition to postponing significant obligations. The Company is currently making interest payments only on all long-term debt and notes payable. In June 2001, Management retained Banc One Capital Markets to represent the Company in certain investment banking opportunities. Management is exploring several opportunities, including joint ventures, strategic partnerships, spin-offs of subsidiaries, and the potential sale or downsizing of other smaller business units. Management believes that despite the recent losses and negative working capital, it has developed a business plan that if successfully implemented, can substantially improve operational results and its financial condition. 12. RESTATEMENT The financial statements as at December 31, 2000 have been restated to reflect the beneficial conversion on the issuance of Class B preferred shares in the amount of $805,698 and the repricing of 100,000 of options held by Roger Walters. The repricing of options was previously included in the expenses of the three month period ended March 31, 2001. In addition, the amount of $751,788 of Liabilities Payable in Common Stock has been segregated from Paid in Capital and included with Liabilities. These items have been reflected on these revised interim financial statements for March 31, 2001. The financial statements as at March 31, 2001 have further been restated to include warrants issued to Del Mar valued at $216,348 and the amortization of that expense reflected in financing costs in the amount of $72,116. The un-amortized balance of $144,232 which will be amortized in the 2nd and 3rd quarters of 2001 has been included in Prepaid expenses. The financial statements for March 31, 2001 reflects an additional allowance against the deferred income tax asset in the amounts of $200,000. The March 31, 2001 financial statements as originally filed, reported the cost of 250,000 warrants as a financing expense. As detailed in Note 5, these financial statements reflect the issuance of warrants, repriced warrants and shares of common stock for an aggregate consideration of $275,000. The March 31, 2000 financial statements have been restated to include the results of operations and cash flows of TidalBeach Inc. The merger with TidalBeach Inc., which occurred on November 15, 2000, has been accounted for as a pooling of interest. 13. NAME CHANGE In June 2001, the company changed its name from Thinkpath.com Inc. to Thinkpath Inc. -15- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the financial statements and notes thereto and the other historical financial information of Thinkpath Inc. contained elsewhere in this Form 10-QSB/A. The statements contained in this Form 10-QSB/A 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 Inc.'s expectations, intentions, beliefs or strategies regarding the future. Forward-looking statements include Thinkpath Inc.'s statements regarding liquidity, anticipated cash needs and availability and anticipated expense levels. All forward-looking statements included in this Form 10-QSB/A are based on information available to Thinkpath Inc. on the date hereof, and Thinkpath Inc. assumes no obligation to update any such forward-looking statement. It is important to note that Thinkpath Inc.'s actual results could differ materially from those in such forward-looking statements. All dollar amounts stated throughout this Form 10-QSB/A are in United States dollars unless otherwise indicated. Overview We are a global provider of information technology and engineering, project outsourcing, recruitment, technical training and consulting and ASP-based skills management technology. Our customers include financial service companies, software and other technology companies, Canadian and American governmental entities and large multinational companies, including Bank of Montreal, General Electric, Bell Canada, Goldman Sachs, Chapters, Lucent Technologies, Cummins Engine, General Motors, CIBC, Xerox Corporation, American Express and Universal Industrial Corp. The books and records of our Canadian operations are recorded in Canadian dollars. For purposes of financial statement presentation, we convert balance sheet data to United States dollars using the exchange rate in effect at the balance sheet date. Income and expense accounts are translated using an average exchange rate prevailing during the relevant reporting period. There can be no assurance that we would have been able to exchange currency on the rates used in these calculations. We do not engage in exchange rate-hedging transactions. A material change in exchange rates between United States and Canadian dollars could have a material effect on our reported results. The Three Months Ended March 31, 2001 Compared to the Three Months ended March 31, 2000 For the three months ended March 31, 2001, we derived 62% of our revenue in the United States compared to 61% in the three months ended March 31, 2000. For the three months ended March 31, 2001, our primary source of revenue was recruitment services, representing 41% of total revenue compared to 35% for the three months ended March 31, 2000. We perform permanent, contract and executive searches for IT and engineering professionals. Most searches are performed on a contingency basis with fees due upon candidate acceptance of permanent employment or on a time-and-materials basis for contracts. Retained searches are also offered, and are paid by a non-refundable portion of one fee prior to performing any services, with the balance due upon candidates' acceptance. The revenue for retained searches is recognized upon candidates' acceptance of employment. Selected recruitment clients include DMR, Bank of Montreal, Goldman Sachs, and Sprint Canada. In the case of contract services, we provide our customers with independent contractors or "contract workers" who usually work under the supervision of the client's management. Generally, we enter into a time-and-materials contract with our customer whereby the client pays us an agreed upon hourly rate for the contract worker. We pay the contract worker pursuant to a separate consulting agreement. The contract worker generally receives between 75% and 80% of the amount paid to us by the customer; however, such payment is usually not based on any formula and may vary for different engagements. We seek to gain "preferred supplier status" with our larger clients to secure a larger percentage of those clients' businesses. While such status is likely to result in increased revenue and gross profit, it is likely to reduce gross margin percentage because we are likely to accept a lower hourly rate from our customers and there can be no assurance that we will be able to reduce the hourly rate paid to our consultants. In the case of permanent placement services, we identify and provide candidates to fill permanent positions for our clients. -16- For the three months ended March 31, 2001, 35% of our revenue came from technical publications and engineering outsourcing services compared to 51% for the three months ended March 31, 2000. The decline in revenue from technical publications and engineering outsourcing services is a result of the postponement of start dates of several major contracts with established clients until the fourth quarter of 2001. Our technical publications and engineering outsourcing services include the complete planning, staffing, development, implementation and testing of a project. Outsourcing can also involve enterprise-level planning and project anticipation. Our specialized outsourcing services include: technical publications and engineering documentation, Web development and engineering services. We outsource our technical publications and engineering services on a project basis. The services provided are defined by guidelines to be accomplished by milestone and revenue is recognized upon the accomplishment of the relevant milestone. As services are rendered, the costs incurred are reflected as Work in Progress. Revenue is recognized upon the persuasive evidence of an agreement, delivery has occurred, the fee is fixed or determinable and collection is probable. Clients we provide outsourcing to include General Electric, FedEx, Boeing, Caterpillar, Cummins Engines and Intel. For the three months ended March 31, 2001, information technology documentation services represented approximately 12% of our revenue compared to 0% for the three months ended March 31, 2000. This increase is the result of the acquisition of MicroTech Professionals Inc., on April 1, 2000. We provide outsourced information technology documentation services in two ways: complete project management or the provision of skilled project resources to supplement a client's internal capabilities. Revenue is recognized on the same basis as technical publications and engineering outsourcing services. Selected information technology documentation services clients include Fidelity Investments, SMD Tech Aid Corporation, CDI Corporation, and the Gillette Company. For the three months ended March 31, 2001, technical training represented approximately 9% of our revenue compared to 13% for the three months ended March 31, 2000. The decline in revenue from technical training is a result of both the restructuring of this division and a general decline in the industry resulting in the cancellation of technical training contracts. Our training services include advanced training and certification in Microsoft, Java and Linux technologies, as well as Microsoft applications such as Outlook and Access. Training services include training requirements analysis, skills assessment, instructor-led classroom training for small groups (10 - 16 students), mentoring, e-learning, and self-paced learning materials. We offer both public and private classes. Selected training clients include Microsoft, Chase Manhattan Bank, Goldman Sachs, City of New York and Consumers Gas. Revenue is recognized on delivery of services. For the three months ended March 31, 2001, technology sales represented 3% of total revenue compared to 1% for the three months ended March 30, 2000. We have developed proprietary software applications in two areas: human Capital management and Web development. Njoyn is our human capital management system. Njoyn is a Web-based application that automates and manages the entire hiring process. The revenue associated with providing this software is allocated to an initial set up fee, customization and training as agreed and an ongoing monthly per user fee. The allocation of revenue to the various elements is based on our determination of the fair value of the elements as if they had been sold separately. The set-up fee and customization revenue is recognized upon delivery of access to the software with customization completed in accordance with milestones determined by the contract. Revenue for the training is recorded as the services are rendered and the ongoing monthly fee is recorded each calendar month. There is no additional fee for hosting. SecondWave is our Web development software. SecondWave allows companies to create, manage and automate their own dynamic, adaptive Web sites. The software learns from each visitor's behavior and targets his or her needs and interests with customized content and communications. We sign contracts for the customization or development of SecondWave in accordance with specifications of our clients. The project plan defines milestones to be accomplished and the costs associated. These amounts are billed as they are accomplished and revenue is recognized as the milestones are reached. The work in progress for costs incurred beyond the last accomplished milestone is reflected at the period end. To date these amounts have not been material and have not been set up at the period ends. The contracts do not include any post-contract customer support. Additional customer support services are provided at standard daily rates, as services are required. Selected technology clients include Microsoft, CIBC, Investors Group, and Digital Cement. -17- Gross profit is calculated by subtracting all direct costs from net revenue. The direct costs of contract recruitment include contractor fees and benefits, resulting in an average gross profit of 28%. We do not attribute any direct costs to permanent placement services, therefore the gross profit on such services is 100% of revenue. The direct costs of technical publications and engineering outsourcing include wages, benefits, software training and project expenses. The average gross profit for outsourcing is 28%. The direct costs of information technology documentation services include wages, benefits, and project expenses. The average gross profit for information technology documentation is 56%. The direct costs of training include trainer salaries, benefits and travel as well as courseware. The average gross profit on training is 59%. The direct costs of our technology services are minimal and include hosting fees and software expenses. The average gross profit on technology is 95%. Results of Operations The following table presents certain of our financial data as a percentage of our revenue based on information derived from our revised financial statements. Three Months Ended March 31, 2001 2000 ---- ---- Sales.............................. 100% 100% Cost of Sales ................... 64% 68% Gross profit....................... 36% 32% Expenses........................... 38% 31% Income (loss) before Income Taxes.. -.03% 0.01% Results of Operations for the Three Months Ended March 31, 2001 and 2000 Revenue Revenue. Revenue for the three months ended March 31, 2001 increased by $490,000 or 5%, to $10,645,000, as compared to $10,155,000 for the three months ended March 31, 2000. The increase is primarily attributable to the acquisition of MicroTech Professionals, Inc. effective April 1, 2000, which had sales of $1,300,000 for the three months ended March 31, 2001. Cost of Sales. The cost of sales for the three months ended March 31, 2001 decreased by $15,000, or 0.2%, to $6,855,000, as compared to $6,870,000 for the three months ended March 31, 2000. As a percentage of revenue, the cost of sales was 64% compared to 68% for the three months ended March 31, 2000. Gross Profit. Gross profit for the three months ended March 31, 2001 increased by $505,000, or 15%, to $3,790,000, as compared to $3,285,000 for the three months ended March 31, 2000. This increase was attributable to the aforementioned increase in revenue during the three months ended March 31, 2001. As a percentage of revenue, gross profit increased to 36% from 32% for the three months ended March 31, 2000. Expenses. Expenses for the three months ended March 31, 2001 increased by $900,000 or 28% to $4,090,000 compared to $3,190,000 for the three months ended March 31, 2000. Administrative expenses decreased $20,000 or 1% to $1,370,000 compared to $1,390,000 for the three months ended March 31, 2000. Selling expenses for the three months ended March 31, 2001 increased by $450,000 or 38% to $1,640,000 from $1,190,000 for the three months ended March 31, 2000. This increase is attributable to the increase in revenue. For the three months ended March 31, 2001, interest charges increased by $70,000 or 39% to $250,000 from $180,000 for the three months ended March 31, 2000. For the three months ended March 31, 2001, depreciation and amortization expenses increased $130,000 or 30% to $560,000 from $430,000 for the three months ended March 31, 2000. This increase is primarily attributable to the increase in capital assets and the acquisition of other assets. For the three months ended March 31, 2001, restructuring charges related to the termination of personnel and the closure of non-productive branch offices were $280,000 compared to zero for the three months ended March 31, 2000. Net Income (Loss) Before Income Tax. Net income before income tax for the three months ended March 31, 2001 decreased by $390,000, to a net loss of $290,000 as compared to net income before income tax of $100,000 for the three months ended March 31, 2000. Liquidity and Capital Resources Our primary sources of cash are a credit facility of $7,000,000 with Bank One and proceeds from the sale of equity securities. -18- At March 31, 2001, we had negative cash or cash equivalents and a working capital deficiency of $2,530,000. At March 31, 2001, we had a cash flow deficiency from operations of $136,000. At March 31, 2000, we had negative cash or cash equivalents and a working capital deficiency of $3,080,000. At March 31, 2000, we had a cash flow deficiency from operations of $800,000, due primarily to expenditures on research and development of our technology. At March 31, 2001, we had cash flow from financing activities of $686,000, attributable primarily to an increase of bank indebtedness of $350,000 and proceeds from the issuance of common stock of $400,000. At March 31, 2000, we had cash flow from financing activities of $130,000, attributable primarily to an increase in bank indebtedness of $500,000. At March 31, 2001, we had a cash flow deficit from investing activities of $200,000 attributable primarily to the increase in long-term receivable. At March 31, 2000, we had a cash flow deficit from investing activities of $1,100,000 attributable primarily to the purchase of capital and other assets. On January 26, 2001, we: (a) repriced warrants to purchase up to 100,000 shares of our common stock, which warrants were issued to a certain investor in our April 2000 private placement offering of Series B 8% Cumulative Preferred Stock, so that such warrants are exercisable at any time until April 16, 2005 at a new purchase price of $1.00 per share; (b) repriced warrants to purchase an aggregate of up to 230,693 shares of our common stock, which warrants were issued to the placement agent, certain financial advisors, and the placement agent's counsel in our August 2000 private placement offering of units, so that such warrants are exercisable at any time until August 22, 2005 at a new purchase price of $1.00 per share; and (c) issued warrants to purchase up to 250,000 shares of our common stock exercisable at any time and in any amount until January 26, 2006 at a purchase price of $1.50 per share to KSH Investment Group, Inc. The issuance of warrants, repricing of warrants and the issuance of 275,000 shares of common stock were for an aggregate consideration of $275,000. In February 2001, 150,000 of such repriced warrants were exercised by KSH Investment Group, Inc., the placement agent in our August 2000 private placement offering. On March 14, 2001, we repriced 100,000 options belonging to Roger W. Walters' to $1.00 per share in consideration of debt forgiveness of $75,000 and the restructuring of debt totaling $250,000 on the notes payable to Mr. Walters in connection with our purchase of Cad Cam, Inc. On March 14, 2001 Mr. Walters resigned as our Executive Vice President of U.S. Operations and as a director effective March 30, 2001. On March 23, 2001, we signed a consulting agreement with Union Atlantic Capital L.C., an investment banker and placement agent to arrange a private placement of debt, equity and/or warrants. The fee was contingent on the successful closing of a transaction. The agreement expired on June 23, 2001 and no fees were paid. At March 31, 2001, we were in breach of the loan covenants governing our credit line facility with Bank One. As a result, the bank has enforced a restriction on principal repayment of all subordinated loans and notes payable. The parties affected by this restriction include the Business Development Bank of Canada, Roger Walters and Denise Dunne to whom we owe approximately $450,000, $1,200,000, and $1,900,000 respectively. At March 31, 2001, we were also in breach of the working capital covenants governing our operating loans with the Business Development Bank of Canada. The bank has agreed to a temporary deferment of principal payments until January 2002. We are current in our interest obligations to the Business Development Bank of Canada. Recent Events Pursuant to a share purchase agreement dated April 18, 2001 (Series C Preferred Stock Purchase Agreement), we issued 1,105 shares of Series C 7% Cumulative Convertible Preferred Stock (Series C Preferred Stock) and 663,484 common stock purchase warrants. The Series C Preferred Stock and the common stock purchase warrants were issued pursuant to Section 4(2) of the Securities Act and each of the investors was a sophisticated, accredited investor who took the shares for investment purposes. There was no underwriter involved in the transaction. Each share of our Series C Preferred Stock has a stated value of $1,000 per share. The shares of Series C Preferred Stock are convertible into shares of our common stock at the option of the holders of the Series C Preferred Stock at any time after issuance until we force the conversion of the shares of Series C Preferred Stock. We are required to convert all such shares of Series C Preferred Stock that remain outstanding after April 18, 2003. Each of the 663,484 warrants is exercisable at any time and in any amount until April 18, 2005 at a purchase price of $0.54. -19- Pursuant to the registration requirements under the Series C Preferred Stock Purchase Agreement, we filed a registration statement on June 7, 2001 (Registration Statement) registering 200% of the shares of common stock issuable upon the conversion of all the shares of Series C Preferred Stock issued and to be issued and 100% of the shares of common stock issuable upon exercise of the common stock purchase warrants. Upon the effective date of this registration statement, we will be obligated to issue to the investors an aggregate of 500 shares of Series C Preferred Stock and additional common stock purchase warrants in consideration for an additional $500,000. The issuance of the additional 500 shares of Series C Preferred Stock and warrants is subject to the satisfaction or waiver of the following conditions: (a) that immediately available funds have been delivered by each investor; (b) that all representations and warranties by the parties shall have remained true and correct and (c) that all permits and qualifications required by any state shall have been obtained. On June 6, 2001 the Series C Preferred Stock Purchase Agreement was amended (Amended Series C Preferred Stock Purchase Agreement) to restructure the terms of the issuance of the additional 500 shares of Series C Preferred Stock. Pursuant to the Amended Series C Preferred Stock Purchase Agreement, we issued 125 shares of the 500 shares of Series C Preferred Stock to be issued and 59,592 warrants to one investor in consideration for $125,000. Pursuant to the Amended Series C Preferred Stock Purchase Agreement we are obligated to issue the remaining 375 shares of Series C Preferred Stock and 112,500 warrants to the investors. Each of the 59,952 warrants is exercisable at any time and in any amount until June 8, 2005 at an exercise price of $0.63 per share. At any time prior to October 24, 2001, we may, in our sole discretion, redeem in whole or in part, the then issued and outstanding shares of Series C Preferred Stock at a price equal to $1,150 per share, plus all accrued and unpaid dividends, and after October 24, 2001 at a price equal to $1,200 per share, plus all accrued and unpaid dividends. As of the date of this filing, there are 985 shares of Series C 7% Convertible Preferred Stock and 663,484 warrants outstanding. Subsequent to March 31, 2001, Norbert Mika, a former employee of Thinkpath Training Inc. (formerly ObjectArts Inc.), instituted an action against us in the Ontario Superior Court of Justice, City of Kitchener, Regional Municipality of Waterloo, Ontario, Court File No.C-745/01, alleging wrongful dismissal. Specifically, Mr. Mika claims that we terminated him without cause and he is seeking $195,000 in damages, plus punitive damages and attorneys' fees. We have filed a statement of defense, and as of the date hereof, discovery has commenced, and we intend to defend ourselves and prosecute our claim vigorously. Subsequent to March 31, 2001, Glenn Cressman, a former employee of Thinkpath Training Inc. (formerly ObjectArts Inc.), instituted an action against us in the Ontario Superior Court of Justice, City of London, Ontario, Court File No. 37208, alleging wrongful dismissal. Specifically, Mr. Cressman claims that we terminated him without cause and he is seeking $100,000 in damages, plus punitive damages and attorneys' fees. We have filed a statement of defense, and as of the date hereof, discovery has commenced, and we intend to defend ourselves and prosecute our claim vigorously. Subsequent to March 31, 2001, John James Silver, a former employee, commenced an action against us in the Supreme Court of the State of New York, County of New York, Index No. 1113642/01, alleging breach of contract, quantum meruit, and account stated. Mr. Silver is seeking $81,147 in damages. Specifically, Mr. Silver alleges that we have breached an employment agreement with him, claiming that we owe him damages representing unpaid salary, vacation time, a car allowance, severance pay and stock options. Mr. Silver also claims that we owe him damages for allegedly having defaulted on payment for certain services that he performed. We are in the process of answering Mr. Silver's complaint, which was recently filed, and will defend this action vigorously. On June 6, 2001, we changed our corporate name from Thinkpath.com Inc. to Thinkpath Inc. in order to more accurately reflect our expanded suite of services. On July 20, 2001, we received a Nasdaq Staff Determination letter indicating that we are not in compliance with the bid price requirements for continued listing, as set forth in Nasdaq's Marketplace Rule 4310 (c)(8)(B). On September 27, 2001, Nasdaq announced a moratorium on the minimum bid and public float requirements for continued listing on the exchange until January 2, 2002. Our common stock will continue to be listed on the Nasdaq SmallCap Market during this period. -20- In September 2001, we restructured our note payable to Roger Walters so that 1,200,000 shares will be issued in lieu of $450,000 cash reducing the balance of the note to $750,000. The balance will be paid over 3 years beginning January 1, 2003. We are current in our interest obligations to Roger Walters. As a result of Bank One's restriction on subordinated debt payments, we are in breach of our payment schedule to Denise Dunne. We are in negotiations to restructure our note payable to Denise Dunne. We hope to reduce the principal amount owing and extend the payment terms. We are current in our interest obligations to Denise Dunne. As a result of the September 11, 2001 terrorist attack our branch office located in the World Trade Center in New York City was destroyed and our branch office located at 195 Broadway was damaged and closed for a period of four weeks. We are currently unable to provide a reliable estimate of the effect of the destruction and closure of our offices on our operating results and financial condition. -21- PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are party to the following pending legal proceedings: Michael Carrazza, as assignee of Southport Consulting Co., instituted an action against us in the Supreme Court of the State of New York, County of New York, Index No. 600553/01, alleging breach of contract and unjust enrichment. Mr. Carrazza is seeking $250,000.00 in damages. Specifically, Mr. Carrazza claims that we failed to deliver cash or stock to Mr. Carrazza under the asset purchase agreement pursuant to which we acquired the assets of Southport Consulting Co. We have filed a counterclaim against Mr. Carrazza, seeking $162,000.00 in damages, plus punitive damages and attorneys' fees, on the ground that Mr. Carrazza, as then president and sole shareholder of Southport Consulting Co., fraudulently induced us into executing the asset purchase agreement by misrepresenting the value of the assets being purchased. As of the date hereof, discovery has commenced, and we intend to defend ourselves and prosecute our claim vigorously. We are not party to any other pending litigation. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS IN SENIOR SECURITIES We are in breach of the loan covenants governing our credit line facility with Bank One. As a result, the bank has enforced a restriction on principal repayment of all subordinated loans and notes payable. The parties affected by this restriction include the Business Development Bank of Canada, Roger Walters and Denise Dunne to whom we owe approximately $450,000, $1,200,000, and $1,900,000 respectively. -22- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of our security holders. ITEM 5. OTHER INFORMATION On March 9, 2001, Marilyn Sinclair resigned as Vice President and as a director. On March 14, 2001 Roger W. Walters resigned as the Company's Executive Vice President of U.S. Operations and as a director effective March 30, 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Incorporated by reference to the Company's annual report on Form 10-KSB, as amended, filed on October 26, 2001. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the three-month period ended March 31, 2001. -23- 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 INC. Dated: October 31, 2001 By: /s/ Declan French By: /s/ Kelly Hankinson --------------------- ----------------------- Declan French Kelly L. Hankinson Chief Executive Officer Chief Financial Officer and President -24-