-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FrSnt7aJXPKCp+jRmfEi27IVAQu1nAzlfzz3Pk6wHpffvCJJPKa6JGZAgt+hr9iZ cCB6i0zIOAj1g8kCKm3QJQ== 0000909012-02-000321.txt : 20020416 0000909012-02-000321.hdr.sgml : 20020416 ACCESSION NUMBER: 0000909012-02-000321 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THINKPATH 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: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-14813 FILM NUMBER: 02612798 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 FORMER COMPANY: FORMER CONFORMED NAME: THINKPATH COM INC DATE OF NAME CHANGE: 20000414 10KSB 1 t24018.txt ANNUAL REPORT 12/31/01 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, 2001 COMMISSION FILE NUMBER 001-14813 THINKPATH INC. ------------------------------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ONTARIO, CANADA 52-209027 --------------- --------- (JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 55 UNIVERSITY AVENUE, TORONTO, ONTARIO CANADA M5J 2H7 --------------------------------------------- ------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (416) 364-8800 ---------------------------------------------------- (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 X NO ___ THE ISSUER'S REVENUES FOR THE MOST RECENT FISCAL YEAR WERE $36,926,211. THE AGGREGATE MARKET VALUE OF THE VOTING AND NON-VOTING STOCK HELD BY NON-AFFILIATES BASED UPON THE LAST SALE PRICE ON APRIL 12, 2002 WAS APPROXIMATELY $2,322,363. AS OF APRIL 12, 2002 THERE WERE 21,018,921 SHARES OF COMMON STOCK, NO PAR VALUE PER SHARE, ISSUED AND OUTSTANDING. DOCUMENTS INCORPORATED BY REFERENCE: NONE. THINKPATH INC. 2001 ANNUAL REPORT ON FORM 10-KSB TABLE OF CONTENTS PART I Item 1. Description of Business.............................................. 1 Item 2. Description of Properties.................. ......................... 6 Item 3. Legal Proceedings.................. ................................. 7 Item 4. Submission of Matters to Vote of Security Holders.................... 7 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters............................................................ 8 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................. 9 Item 7. Financial Statements........................................ F-1 - F-34 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures..............................................25 PART III Item 9. Directors and Executive Officers of the Registrant; Compliance with Section 16(a) .....................................26 Item 10. Executive Compensation...............................................28 Item 11. Security Ownership of Certain Beneficial Owners and Management.......37 Item 12. Certain Relationships and Related Transactions.......................39 Item 13. Exhibits, List and Reports on Form 8-K...............................41 Signatures....................................................................43 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained herein including, without limitation, those concerning (i) Thinkpath Inc.'s ("Thinkpath") strategy, (ii) Thinkpath's expansion plans, and (iii) Thinkpath'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 Thinkpath'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. Thinkpath 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 Thinkpath 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 Thinkpath'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 12, 2002, the exchange rate was Cdn$0.62920 per US$1.00.
Year ended December 31, 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- Rate at end of period $0.7299 $0.6991 $0.6532 $0.6929 $0.6676 $0.62870 Average rate during period 0.7353 0.7223 0.6745 0.6730 0.6739 0.64612 High 0.7212 0.6945 0.7061 0.6929 0.6983 0.67140 Low 0.7526 0.7749 0.6376 0.6582 0.6397 0.62270
PART I ITEM 1. DESCRIPTION OF BUSINESS Unless otherwise indicated, all reference to "Thinkpath", "us", "our" and "we" refer to Thinkpath Inc. and its wholly-owned subsidiaries: Systemsearch Consulting Services Inc., an Ontario corporation, International Career Specialists Ltd., an Ontario corporation, Thinkpath Inc. (formerly Cad Cam, Inc.), an Ohio corporation, Thinkpath Technical Services Inc. (formerly Cad Cam Technical Services Inc.), an Ohio corporation, Thinkpath Michigan Inc. (formerly Cad Cam Michigan Inc.), a Michigan corporation, Thinkpath Training Inc. (formerly ObjectArts Inc.), an Ontario corporation, Thinkpath Training US Inc. (formerly ObjectArts US Inc.), a New York corporation, MicroTech Professionals Inc., a Massachusetts corporation, Njoyn Software Incorporated, a Canadian corporation and TidalBeach Inc., an Ontario corporation. Overview Thinkpath provides technological solutions and services in engineering knowledge management including design, drafting, technical publishing, e-learning and staffing. Our customers include DOD contractors, aerospace, automotive and financial services companies, Canadian and American governmental entities and large multinational companies, including Lockheed Martin, General Dynamics, General Electric, General Motors, Ford Motors, Goldman Sachs, CIBC and EDS Canada Inc. We were incorporated under the laws of the Province of Ontario, Canada in 1994. Technical Publishing We provide technical publishing programs for complete integration into engineering and design departments of government, military contractors, aerospace and automotive customers. Our software performs technical documentation through desktop publishing, technical illustration and web animation and produces printed materials, e-publications for CD rom and web, and SGML/XML tagged electronic manuals. Our technology can also capture existing publications and convert the data to assemble electronic publications specific to a customer's requirements. We maintain a complete staff of technical publication personnel consisting of highly skilled engineers and drafters. As a result, we can draw heavily upon our engineering resources to handle every step of the documentation process, including researching, writing, editing, illustration, printing and distribution. We have also made a substantial investment into high-end engineering software tools in order to fully use existing engineering data in developing new material. We believe this gives us an advantage over competitors because it reduces the time needed to generate illustrations, as well as the amount of customer support time required in developing new documentation. We provide technical translation services in over 30 different languages ranging from Spanish to Mandarin Chinese. Our translators come from diverse technical and cultural backgrounds, which results in an accurate translation within the customer's industrial discipline. In addition, our typesetters work with cutting-edge software specific to each language conversion. We can guide a company's entire ISO documentation process, from developing requirements to delivering detailed publications that meet all ISO9001 regulations. Our technical publication library includes hundreds of documents written to meet a variety of military, industry, and individual corporate specifications. We practice the MIL-SPEC (Military Specifications guidelines)rules for graphics, the ATA(American Transportation Association) rules for content, as well as the AICC*(Aviation Industry Computer Based Training Commitee) rules for format and interchangeability. We also produce CE (Communaute Europeenne) compliant documentation for CE and compliant machinery. Design Engineering Our engineering and design services cover every facet of a project from concept to SLA prototyping to a complete turnkey package that delivers a finished, operating system. Our engineers handle the drafting, the detailing and the parametric modeling. We have experienced engineers on staff as well as a pool of skilled consultants that we can call on to provide internal design services. Recruitment We offer full-service recruitment services, including permanent placement, contract placement, and executive search in the IT and engineering fields. We have particular expertise in recruiting for Web-based and e-commerce applications, Customer Relationship Management (CRM) technologies, technical documentation and technical training. We can and do find candidates from the entire spectrum of responsibility levels -- from newly graduated junior technicians to senior technical executives. -1- Our careful evaluation process tests candidates on their technical proficiency, soft skills, fit with company culture, and attitude towards finding a new position. We guarantee that all potential hires are interviewed and reference checked and that no resume is ever forwarded to a customer without the candidate's prior permission and knowledge. Training We provide technical, instructor led and e-learning training in all Microsoft, and Cisco software products as well as Catia, ProEngineer and Unigraphics products. We maintain state-of-the-art facilities offering a full range of advanced technical training services. We offer an array of technical training and certification options, including instructor led, private group training, one-on-one mentoring in the workplace, seminar instruction, and Internet-based learning modules. The training services we provide are segregated between the traditional Microsoft-based classroom training offered in our offices in New York and Toronto under our Training division, Thinkpath Training Inc., and the engineering and e-learning training offered by our engineering services division. Due to the dramatic decline in revenue and recurring losses from Thinkpath Training Inc., and our decision to focus on growing our engineering services division, on April 10, 2002, we entered into a series of agreements with triOS Training Centres Limited, an Ontario company, for the purchase of certain assets of our Toronto training office. As part of the transaction, triOS will assume the Toronto training staff and sublet the classroom facilities. It is anticipated that the transaction will close on or about May 1, 2002. In a further effort to focus on our engineering services division, we also intend to divest our New York training office once we have settled our outstanding insurance claim related to losses incurred after September 11, 2001. Our focus going forward will be on the engineering services group and the training derived from those services. Some of engineering products we train on include: - - Archibus - - AutoCAD - - AutoCAD LT - - AutoDesk Mechanical Desktop - - CADPLUS - - Computer Aided Facilities Management (CAFM) - - MicroStation - - SDRC - - Solid Edge - - Solid Works - - ProENGINEER - - Unigraphics We have developed and delivered custom engineering courses on engines, presses, weaponry and various equipment and machinery to GE, J&L, Caterpillar, Kellogg, DOW Brands, Heidleberg, and many others. In addition, we have developed e-learning programs that teach engineering design software usage, machine operation, aircraft jet engine repairs, CIM programs that register students and monitor their progress and accomplishments, pretests, in-process testing and final exams. Technology We had developed proprietary software applications in two areas: human capital management and Web development. Njoyn is a web-based human capital management system that automates and manages the hiring process. SecondWave is a Web development software that 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. As part of our strategic decision to focus on building our engineering services division and cut expenses, we sold our subsidiary, Njoyn Software Incorporated on March 1, 2002 to Cognicase Inc, a Canadian company. As part of the transaction, Cognicase assumed all of our technology staff and will contract the services of our Chief Information Officer for a period of six months. We will continue to have usage of the software for an extended period, however, we will no longer be recognizing revenue from the sale of the technology. -2- Customers Our customers are large and high-growth corporations from a wide variety of industries across North America. These customers include Fortune 500 companies as well as other high-profile companies. We believe that our customer base provides credibility when pursuing other customers. The following is a partial listing of our customers: EDS Canada Inc. Lockheed Martin General Dynamics General Electric General Motors Bank of Montreal Boeing Chase Manhattan Bank CIBC Cummins Engine FUJITSU Group ESI Fiscal Ford Motor Co. Goldman Sachs Merrill Lynch Microsoft Toronto Stock Exchange Competition The information technology staffing industry is highly competitive and fragmented and is characterized by low barriers to entry. We compete for potential customers with other providers of information technology staffing services, systems integrators, internet-based recruitment management systems, 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 customers than we do, all of which may provide these competitors with a competitive advantage. 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 we can. Because there are relatively low barriers to entry, we expect that competition will increase in the future. The engineering services, technical publishing and e-learning industry is also very competitive but has much higher barriers to entry due to high capital costs for tools and equipment and the specialized skills and knowledge required. 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, we cannot assure you that we will be able to compete successfully against current and future competitors or that the competitive pressures we face 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 customer requirements and, to a lesser extent, price. We believe that we compete favorably with respect to these factors. Business Strategy For 2002 and beyond we plan to exploit our track record in engineering services by offering a unique blend of design engineering, technical publishing and customized e-learning courseware. In early 2001, we began to focus our marketing efforts on the defense, aerospace and automotive industries and it is here that we expect significant growth in 2002 and 2003. By combining design engineering and technical publishing we believe we have become experts in content management and thus are positioned to deliver high margin customized e-learning products. Engineering services offers higher margins and growth as well as more predictability and stability than the IT services arena. Although our focus will be on growing the engineering services division, we plan to maintain our current level of activity in IT services without investing further capital. -3- Our business objective is to increase our gross revenue and improve our gross margins by replacing fixed priced projects with time and materials based contracts. We intend to increase our market share through the addition of engineering sales staff and through the marketing and promotion support services of Johnston and Associates and Ogilvie Rothchild. The primary components of our strategy to achieve this objective are as follows: - - Expand our Department of Defense (DOD) contractor customer base; - - Grow our aerospace and automotive customer base; and - - Further penetrate existing customer base, inclduing Fortune 500 companies. We have established an extensive technology strategy and infrastructure that we believe provides us with a competitive advantage over less technologically advanced competitors. The primary components of this strategy and infrastructure are described below. Back office infrastructure We have invested heavily in the creation and support of an integrated technological infrastructure that links all offices and employees and promotes uniformity in certain functions. Our accounting program provides for real-time financial reporting across dispersed branch offices. Our intranet and recruitment management software application, Njoyn provides each of our employees with access to the tools and information that help them to be successful and productive. This infrastructure helps us integrate our acquisitions more easily and cost-effectively than would otherwise be possible. Marketing and Promotion Our marketing and brand strategy is to position ourselves as `experts of content' in engineering knowledge management. As a provider of engineering services, we will emphasize our flexible service options, the depth of our expertise, and the global delivery capabilities of our North American offices. We believe this positioning will be achieved through a variety of means, including: - - Strong and easy-to-access sales and marketing support at the branch level; - - Investment in awareness and branding campaigns; and - - Exploration and establishment of various business partnerships and alliances. Target Markets Our target customers are Department of Defense contractors, US military, aerospace and automotive corporations throughout North America. Some of our current customers include General Motors, Lockheed Martin, General Dynamics CIBC, General Electric, FedEx, EDS Canada, and Microsoft. This existing customer base can be penetrated much further. We will therefore focus on maximizing the value from our current customer relationships, while also looking at capturing new opportunities. Collateral and Sales Support A major marketing and promotion program is underway to update our collateral material and Web sites to more accurately reflect our renewed focus on engineering services. This update will be supervised by Ogilvie Rothchild and is scheduled to be completed by April 30, 2002. Employees and Consultants Employees Our staff as of April 12, 2002, consists of 74 full-time employees which includes 34 sales personnel and 40 administrative and technical employees. Our staff at December 31, 2001 consisted of 98 full-time employees, including 46 sales personnel and 52 administrative and technical employees. We are not 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 information technology and engineering professionals at hourly rates based on each individual's technical skills and experience. As of April 12, 2002, approximately 313 professionals were performing services for our customers. At December 31, 2001 there were 309 professionals placed by us, performing services for our customers. Recent Events 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. -4- On July 20, 2001, we received a Nasdaq Staff Determination letter indicating that we were not in compliance with the bid price requirements for continued listing, as set forth in Nasdaq's Marketplace Rule 4310(c)(4). 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. On February 14, 2002, we again received from Nasdaq that we were not in compliance with the minimum bid price requirements for continued listing. As a result, we were provided with a period of 180 calendar days, or until August 13, 2002, during which time the bid price of our common stock must close at $1.00 per share or more for a minimum of 10 consecutive trading days to regain compliance. If compliance cannot be demonstrated by August 13, 2002, Nasdaq will determine whether we meet the initial listing criteria including minimum stockholders' equity of $5 million, market capitalization of $50 million or net income of $750,000 (excluding extraordinary or non-recurring items) in the most recently completed fiscal year or in two of the last three most recently completed fiscal years. If we meet the initial listing criteria, we will be granted an additional 180 calendar-day grace period to demonstrate compliance. Otherwise, our stock will be delisted, at which time, we may file an appeal to the Listing Qualifications Panel. As a result of the terrorist attacks of September 11, 2001, we lost our New York City office in the World Trade Center. All three staff members of this office survived and we are continuing to conduct business in temporary office space in New York City. This office represents approximately $2,000,000 in annual information technology recruitment revenue. We do not anticipate a material decline in revenue from this office. We lost approximately $75,000 of fixed assets, including furniture, computer hardware and office equipment. We have filed an interim statement of loss with our insurance company and to date have received approximately $100,000 related to the loss of assets and business interruption. Our training office located at 195 Broadway was also impacted by the events of September 11, 2001. As a result of damage to the building and supporting utility companies, the office was closed for a period of four weeks. This office represents approximately $3,000,000 in annual technical training revenue. Many of this office's top customers have relocated to other cities and have indicated their postponement of employee training until Spring 2002. The estimated loss of revenue from this office is between $200,000 and $250,000 per month. In addition, many of the office's computer assets are malfunctioning as a result of debris and smoke. We have filed an interim statement of loss with our insurance company and to date have received approximately $125,000 related to the destruction of assets and business interruption. As a result of the decline in revenue, we laid off four of twelve employees from this office in October,2001 and two more employees in March 2002. In accordance with EITF 01-10 "Accounting for the Impact of the Terrorist Attacks of September 11, 2001," we have determined our losses directly resulting from the September 11th events amount to approximately $25,000 net of insurance recoveries. On November 1, 2001, we agreed to amend our agreement with the Series C preferred shareholders, and remove the provision prohibiting the investors from executing short sales of our common stock for as long as they continue to hold shares of Series C preferred stock. The amendment was made in consideration of the investors' waiver of certain penalties and fees for delinquent registration of the common stock underlying the Series C preferred shares. On November 5, 2001, we entered into an agreement with entrenet2 Capital Advisors, LLC, a California company, to assist us, on a best efforts basis, in achieving capital financing, debt financing, and merger or acquisition transactions. Upon successful completion of a transaction, entrenet2 would be entitled to a fee ranging between 1.5% to 4% of the gross proceeds depending on the nature of the transaction. The agreement expires November 4, 2002. On December 26, 2001, Joel Schoenfeld resigned from the Board of Directors. On January 9, 2002, we entered into an agreement with Ogilvie Rothchild Inc., an Ontario company, to perform public relations and marketing services. In consideration of these services, we paid Ogilvie Rotchild a retainer of $16,000 and will issue 500,000 shares of our common stock upon successful completion of certain milestones. The agreement can be cancelled by either party at any time. On January 15, 2002, we entered into an agreement with David J. Wodar, a consultant operating in Ontario, to assist with investor communications and the development of marketing plans and strategies. In consideration of these services, Mr. Wodar will be paid a monthly fee of $6,500 and will be issued 480,000 shares of our common stock. The agreement is for a term of twelve months and expires on January 15, 2003. On January 31, 2002, we received a term sheet from Investors Corporation for a Revolving Loan Facility of up to $7,500,000 based on eligible receivables, cash flow and EBITDA (earnings before interest, taxes, depreciation and amortization), a Term Loan Facility of up to $1,000,000 based on eligible equipment and an additional secured Credit Facility of $2,000,000 for future acquisitions financing. The financing is subject to due diligence and credit approval which is ongoing. The term sheet is non-binding. -5- As part of our strategic decision to exit the software development sector, we sold our subsidiary, Njoyn Software Incorporated on March 1, 2002 to Cognicase Inc, a Canadian company. Our net proceeds after broker fees were $1,350,000 of which we received $800,000 in cash and $550,000 worth of unrestricted common shares on closing. The shares were sold on March 11, 2002 for value of $ 524,673.19. As part of the transaction, Cognicase assumed all of the staff in our technology division and is contracting the services of our Chief Information Officer for a period of six months. On April 4, 2002, we retained Johnston & Associates, LLC, a Washington company, to provide strategic governmental relations counseling and marketing representation before the Department of Defense of the United States, Congress and targeted companies in connection with marketing the services of our engineering operations related to specific government contracts. Johnston & Associates will be compensated at a rate of $10,000 per month for twelve months beginning April 2002 and ending March 31, 2003. In addition, Johnston & Associates will receive 200,000 warrants of our common stock at the fair market value on the date of grant and will vest at 50% per year and will expire on April 4, 2005. On April 10, 2002, we entered into a series of agreements with triOS Training Centres Limited, an Ontario company, for the purchase of certain assets of our Toronto training division, Thinkpath Training for a nominal amount of cash and the assumption of all prepaid training liabilities. As part of the transaction, triOS will assume the Toronto training staff and sublet the classroom facilities. The transaction is anticipated to close May 1, 2002. On April 12, 2002, we received a letter of intent from 1/0 Capital LLC, a New York company, for financing of $1,500,000 in the form of a convertible note for a term of one year at 10% interest with various conversion prices ranging from average of prior 30 day price before closing and $0.30, with fifty per cent warrant coverage exercisable at $0.30 per share. The financing is conditional on due diligence and the appointment of 1/0 as the primary outsourcer for Thinkpath's offshore technology, engineering and call center business requirements. The letter of intent is non-binding. There can be no assurance that the transactions contemplated by the various letters of intent will be consummated, and if consummated, will be on such terms as outlined by the original letter of intent. ITEM 2. DESCRIPTION OF PROPERTIES We maintain our headquarters in 13,924 square foot office space located at 55 University Avenue in Toronto, Ontario, Canada. We have leased the Toronto office for a term of ten years terminating in 2007. We pay annual base rent of $372,000. We lease additional offices at the following locations:
Location Square Feet Lease Expiration Current Rent Per Annum - -------- ------------- ------------------- ----------------------- Dayton, Ohio 6,421 12/31/02 $92,460 Indianapolis, Indiana 2,025 12/31/02 $23,268 Columbus, Ohio 1,600 01/31/05 $27,000 Cincinnati, Ohio 2,256 09/30/02 $34,164 Tampa, Florida 930 03/31/02 $11,160 Detroit, Michigan 15,328 08/13/02 $99,544 Charleston, SC 1,900 12/31/02 $36,252 Boston, Massachusetts 4,500 01/31/03 $105,096 New York, New York 12,265 08/31/06 $282,096 Ottawa, Ontario 500 12/31/02 $8,700 Toronto, Ontario 13,924 12/31/10 $378,090 Mississauga, Ontario 2,300 3/31/05 $31,358
-6- ITEM 3. LEGAL PROCEEDINGS We are party to the following pending legal proceedings: In November 1998, we completed the acquisition of certain assets of Southport Consulting Co. from Michael Carrazza, one of our former directors, for an aggregate of $250,000 in cash and shares of our common stock. Michael Carrazza 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 and seeking at least $250,000 in damages. Specifically, Mr. Carrazza claimed that we failed to deliver cash or stock to Mr. Carrazza under an asset purchase agreement pursuant to which we acquired certain assets of Southport Consulting Co., and that he was entitled to recovery of his attorneys' fees. We filed a counterclaim against Mr. Carrazza, seeking $162,000 in damages, plus punitive damages and attorneys' fees, on the ground that Mr. Carrazza, as then president and sole stockholder of Southport Consulting Co., fraudulently induced us into executing the asset purchase agreement by misrepresenting the value of the assets being purchased. After the commencement of discovery, Mr. Carrazza filed a motion for summary judgment, which was granted in his favor. A hearing to determine damages has been conducted, but a decision has not yet been rendered. We have filed a notice of appeal of the court's award of summary judgment. 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. 113642/01, 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. Mr. Silver filed a motion seeking to amend his complaint to add claims for fraud, unjust enrichment and an accounting, and seeking damages in the sum of $330,367. This motion was subsequently denied by the court. This action, which we will defend vigorously, is in the early stages of discovery. We are not party to any other material litigation, pending or otherwise. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of our security holders during the fourth quarter of 2001. -7- 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". As of April 12, 2002, we had 21,018,921 shares of common stock outstanding. The following table sets forth the high and low sale prices for our common stock as reported on the Nasdaq SmallCap Market. Fiscal Year High Low - ----------- ---- --- Fiscal 2000 First Quarter $4.44 $2.28 Second Quarter $4.75 $3.19 Third Quarter $3.56 $2.13 Fourth Quarter $2.27 $0.38 Fiscal 2001 First Quarter $1.69 $0.56 Second Quarter $0.57 $0.30 Third Quarter $0.63 $0.52 Fourth Quarter $0.37 $0.13 Fiscal 2002 First Quarter $0.32 $0.14 Second Quarter (through to April 12, 2002) $0.19 $0.13 As of April 12, 2002, we had 133 holders of record and approximately 1,783 beneficial shareholders. On April 12, 2002, the last sale price of our common stock as reported on the Nasdaq SmallCap Market was $0.13. DIVIDEND POLICY We have never paid or declared dividends on our common stock. The payment of cash dividends, if any, in the future is within the discretion of the Board of Directors and will depend upon our earnings, capital requirements, financial condition and other relevant factors. We intend to retain future earnings for use in our business. -8- 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 our other historical financial information 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 and Section 21E of the Exchange Act, including statements regarding our expectations, intentions, beliefs or strategies regarding the future. Forward-looking statements include our statements regarding liquidity, anticipated cash needs and availability and anticipated expense levels. All forward-looking statements included herein are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statement. It is important to note that our actual results could differ materially from those in such forward-looking statements. Overview We are a global provider of technological solutions and services in engineering knowledge management including design, drafting, technical publishing, e-learning and staffing. Our customers include DOD contractors, aerospace, automotive and financial services companies, Canadian and American governmental entities and large multinational companies, including Lockheed Martin, General Dynamics, General Electric, General Motors, Ford Motors, Goldman Sachs, CIBC and EDS Canada Inc. Critical Accounting Policies On December 12, 2001, the Securities and Exchange Commission issued FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, which encourages additional disclosure with respect to a Company's critical accounting policies, the judgments and uncertainties that affect the Company's application of those policies, and the likelihood that materially different amounts would be reported under different conditions and using different assumptions. Management is required to make certain estimates and assumptions during the preparation of our consolidated financial statements in accordance with GAAP. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates. Certain of our accounting policies and estimates have a more significant impact on our financial statements than others, due to the magnitude of the underlying financial statement elements. Consolidation Our determination of the appropriate accounting method with respect to our investments in subsidiaries is based on the amount of control we have, combined with our ownership level, in the underlying entity. Our consolidated financial statements include the accounts of our parent company and our wholly- owned subsidiaries. All of our investments are accounted for on the cost method. If we had the ability to exercise significant influence over operating and financial policies, but did not control, we would account for these investements on the equity method. Accounting for an investment as either consolidated or by the equity method would have no impact on our net income (loss) or stockholders' equity in any accounting period, but would impact individual income statement and balance sheet items, as consolidation would effectively "gross up" our income statement and balance sheet. However, if control aspects of an investment accounted for by the cost method were different, it could result in us being required to account for an investment by consolidation or the equity method. Under the cost method, the investor only records its share of the underlying entity's earnings to the extent that it receives dividends from the investee; when the dividends received exceed the investee's earnings subsequent to the date of the investor's investment, the investor records a reduction in the basis of its investment. Under the cost method, the investor does not record its share of losses of the investee. Conversely, under either consolidation or equity method accounting, the investor effectively records its share of the underlying entity's net income or loss, to the extent of its investment or its guarantees of the underlying entity's debt. At December 31, 2001, all of our investments in non-related companies totaling $1,013,926 were accounted for using the cost method. Accounting for an investment under either the equity or cost method has no impact on evaluation of impairment of the underlying investment; under either method, impairment losses are recognized upon evidence of permanent losses of value. -9- Revenue Recognition We recognize revenue in accordance with Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, which has four basic criteria that must be met before revenue is recognized: - - Existence of persuasive evidence that an arrangement exists; - - Delivery has occurred or services have been rendered; - - The seller's price to the buyer is fixed and determinable; and - - Collectibility is reasonably assured. Our various revenue recognition policies are consistent with these criteria. Our technology revenues are subject to the most judgement. We have developed proprietary technology in two areas: human capital management and Web development. Njoyn is a Web-based human capital management system that automates and manages the hiring process. The revenue associated with providing this software is allocated to an initial set up fee, customization and training as agreed with the customer 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 charged to customers for hosting. The second technology, SecondWave is a Web development product that 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 customers. 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. Carrying Value Goodwill and Intangible Assets Prior to January 1, 2002, our goodwill and intangible assets were accounted for in accordance with Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. This statement required us to evaluate the carrying value of our goodwill and intangible assets when indicators of impairment were present. Impairment losses were recorded when estimates of undiscounted future cash flows were less than the value of the underlying asset. The determination of future cash flows or fair value was based upon assumptions and estimates of forecasted financial information that may differ from actual results. If different assumptions and estimates were used, carrying values could be adversely impacted, resulting in writedowns that would adversely affect our earnings. In addition, we amortized our goodwill balances on a straight-line basis over 30 years. The evaluation of the useful life of goodwill required our judgment, and had we chosen a shorter time period over which to amortize goodwill, amortization expense would have increased, adversely impacting our operations. As of December 31, 2001, we had goodwill of $5,128,991. At December 31, 2001, we recorded an impairment of goodwill of $3,001,391 based on our evaluation of carrying value and projected cashflows. Effective January 1, 2002, we will adopt Statements of Financial Accounting Standards No. 141, Business Combinations, No. 142, Goodwill and Other Intangible Assets and No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. These statements will continue to require us to evaluate the carrying value of our goodwill and intangible assets based on assumptions and estimates of fair value and future cash flow information. These assumptions and estimates may differ from actual results. If different assumptions and estimates are used, carrying values could be adversely impacted, resulting in writedowns that could adversely affect our earnings. We will perform the first of the required impairment tests of goodwill in 2002, and we have not yet determined the effect of these tests on our earnings and financial position. In addition, under these statements, goodwill will no longer be amortized, which will benefit our 2002 net income by approximately $454,908. During the year ended December 31, 2001 we recorded $492,221 for costs associated with our decision to restructure operations. Our decision to restructure was based on a number of factors including profitability, declining economic conditions and expected future cash flows. Based on the results of our review, we closed our training office located in London, Ontario, our research and development (R&D) operation located in Toronto, Ontario, and an engineering sales office located in Atlanta. As of December 31, 2001, we had laid off approximately 57 people representing sales and administrative personnel. During the year ended December 31, 2001, the lease cancellation costs for the London office were reduced by $31,000 and the severance costs for the London office were reduced by $183,000. These amounts represent settlements reached with the landlord and two employees with a long-term employment agreement. The employees agreed to a reduction in the term of the agreement, resulting in a reduction of the liability of $183,000. -10- Subsequent to December 31, 2001 we initiated additional restructuring in response to a reduced first quarter sales in the technology, training and recruitment divisions. As a result, an additional sixteen employees were terminated. In addition, we closed one of our recruitment offices, Systemsearch Consulting Services Inc., and transferred the existing contracts to another recruitment office. Eight employees were terminated. The prior owner of Systemsearch, John Wilson, was also terminated. Mr. Wilson will be subletting the space from us in consideration of certain assets including furniture and equipment. We do not anticipate a material effect on our recruitment revenue as a result of the closure of this office, as the contracts are long-term and will be managed from another office. Effective March 1, 2002, we sold our technology division, Njoyn Software Incorporated to Cognicase Inc, a Canadian company. As part of the transaction, Cognicase assumed all of the eight staff in our technology division and is contracting the services of our Chief Information Officer for a period of six months. We do not anticipate a material effect on our total revenue as technology sales represented less than 2% of the total revenue for the years ended December 31, 2001 and 2000. On April 10, 2002, we signed a series of agreements with triOS Training Centres Limited, an Ontario company, for the purchase of certain assets of our Toronto training division, Thinkpath Training. As part of the transaction, triOS will assume the Toronto training staff of six and sublet the classroom facilities. As a result of the sale of this office, our revenue will decline by approximately $1,000,000. Revenue from this office represented approximately 3% and 5% respectively of the total revenue for the years ended December 31, 2001 and 2000. 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 Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000 Revenue For the year ended December 31, 2001, we derived 55% of our revenue in the United States compared to 65% for the year ended December 31, 2000. The decrease in the total revenue derived from the United States is a result of the increase in IT Recruitment sales in Canada and the decrease in Technical Training and IT Documentation sales in the United States. For the year ended December 31, 2001, our primary source of revenue was recruitment, representing 44% of total revenue compared to 31% for the year ended December 31, 2000. Recruitment revenue for the year ended December 31, 2001 increased $2,470,000 or 18% to $16,330,000 compared to $13,860,000 for the year ended December 31, 2000. The increase in revenue from recruitment is a result of the added revenues associated with certain preferred vendor agreements we secured in 2001. We are now a preferred vendor to AT&T, CIBC, EDS Canada Inc., Fidelity, and the Management Board Secretariat of the Ontario Government. 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 customers include Fujitsu, Bank of Montreal, EDS Canada Inc., 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 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' 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 customers. -11- For the year ended December 31, 2001, 36% of our revenue came from engineering services including technical publications, engineering design and e-learning compared to 37% for the year ended December 31, 2000. Revenue from engineering services for the year ended December 31, 2001 decreased $2,770,000 or 17% to $13,400,000 compared to $16,170,000 for the year ended December 31, 2000. Although the majority of our revenue came from IT Recruitment in 2001, our focus was on growing the engineering services division. In particular, we focused on expanding into the defense, aerospace and automotive industries and leveraging off existing engineering customers to secure new technical publication and e-learning business. The decline in revenue from engineering services was a result of the postponement of start dates of several major contracts with established customers until September and October of 2001. Many of these contracts were awarded in the first quarter of 2001, but were postponed as a result of the general economic slowdown. After the events of September 11, 2001, these contracts, which consist primarily of defense work for military suppliers to the United States government, commenced immediately. The combined revenue from these contracts over the next twelve months is anticipated to be between $6,000,000 and $10,000,000 and we believe they will re-establish engineering services as our primary source of revenue in 2002. During the year 2001, we terminated seven employees of this division, representing $390,000 in annual expenses. In addition, we closed our Atlanta office, representing $60,000 in annual rent expense. Revenues from the Atlanta office were $13450,000 for 2001 and $1,800,000 for 2000. We believe we have successfully transitioned the sales contracts to more effective engineering offices, and therefore do not anticipate a material decline in revenue as a result of closure. Our engineering services include the complete planning, staffing, development, design, implementation and testing of a project. It can also involve enterprise-level planning and project anticipation. Our specialized engineering services include: technical publications, design, e-learning and Web development. We outsource our technical publications and engineering services on both a time and materials and project basis. For project work, 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. Customers we provide engineering services to include General Dynamics, General Electric, General Motors, Lockheed Martin, Boeing, Caterpillar, and Cummins Engines. For the year ended December 31, 2001, information technology documentation services represented approximately 9% of our revenue compared to 14% for the year ended December 31, 2000. Revenue from information technology documentation services for the year ended December 31, 2001 decreased $2,840,000 or 45% to $3,420,000 compared to $6,260,000 for the year ended December 31, 2000. The substantial decrease in revenue from information technology documentation services was primarily due to the general economic slowdown. This division offers a very specialized service, and relied on several key customers in a very localized market. Many of these customers have either cancelled projects or have put a number of their projects on hold. In response to these conditions, we have recently expanded the marketing of our documentation services to other regions and to existing recruitment and engineering services customers. In addition, we have reduced our operating overheads for this division to support the current levels of revenue. During 2001, we restructured salaries and eliminated eight employees representing annual expenses of $425,000. We provide outsourced information technology documentation services in two ways: complete project management or the provision of skilled project resources to supplement a customer's internal capabilities. Revenue is recognized on the same basis as technical publications and engineering outsourcing services. Selected information technology documentation services customers include Fidelity Investments, SMD Tech Aid Corporation, CDI Corporation, and the Gillette Company. For the year ended December 31, 2001, technical training represented approximately 9% of our revenue compared to 16% for the year ended December 31, 2000. Revenue from technical training for the year ended December 31, 2001 decreased $4,040,000 or 56% to $3,160,000 compared to $7,200,000 for the year ended December 31, 2000. The decline in revenue from technical training is the result of several factors: the significant restructuring of this division, including the termination of 8 sales employees; a general decline in the industry resulting in the cancellation or postponement of technical training contracts, and; the events of September 11, 2001 which resulted in the temporary closure of our New York technical training office and the loss of approximately $300,000 in revenue for the period. In response to these conditions, we have reduced our operating overheads for this division to support the current levels of revenue. We do not intend to invest additional capital into this division to increase revenue to historical levels. Subsequent to December 31, 2001, we terminated an additional four personnel, representing $210,000 in annual expenses. -12- 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 customers include Microsoft, Chase Manhattan Bank, Goldman Sachs, City of New York and Consumers Gas. Revenue is recognized on delivery of services. For the year ended December 31, 2001, technology sales represented 2% of total revenue compared to 2% for the year ended December 31, 2000. Technology revenue for the year ended December 31, 2001 decreased $230,000 or 28% to $600,000 compared to $830,000 for the year ended December 31, 2000. The decrease in technology sales represents the integration of the Secondwave technology group into Njoyn and the resulting decrease in Secondwave sales. We have developed proprietary software applications in two areas: human capital management and Web development. Njoyn is a Web-based human capital management system that automates and manages the hiring process. The revenue associated with providing this software is allocated to an initial set up fee, customization and training as agreed with the customer 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 charged to customers for hosting. SecondWave is a Web development software that 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 customers. 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 customers include Microsoft, CIBC, Investors Group, and Digital Cement. Pursuant to the sale of Njoyn Software Incorporated to Cognicase Inc. on March 1, 2002, and their assumption of all of our technology staff, we do not anticipat ongoing revenue from technology. Gross Profit Gross profit is calculated by subtracting all direct costs from net revenue. The direct costs of contract recruitment include contractor fees and benefits. Gross profit for information technology recruitment services for the year ended December 31, 2001 declined to 24% from 55% for the year ended December 31, 2000. The decline in gross profit is a result of becoming a preferred vendor for information technology contract recruitment services. In order to beat the competition, it is often necessary to lower billing rates and markups to be successful in the bid process. We do not attribute any direct costs to permanent placement services, therefore the gross profit on such services is 100% of revenue. Revenue from permanent placements has declined from last year, and has therefore contributed to the decline in gross profit. The direct costs of technical publications and engineering services include wages, benefits, software training and project expenses. The average gross profit for this division was 31% for the year ended December 31, 2001 compared to 22% for the year ended December 31, 2000. The increase in gross profit for technical publications and engineering services, is a result of the increase in higher margin contracts in technical publications and e-learning compared to the traditional engineering services. In addition, we are engaging in more time and materials based contracts versus fixed cost which prevents against project and costs overruns. The direct costs of information technology documentation services include contractor wages, benefits, and project expenses. The average gross profit for the year ended December 31, 2001 was 38% compared to 44% for the year ended December 31, 2000. The decline in gross profit for 2001 is a result of the decrease in higher margin permanent placements and increase in lower margin contract placements of documentation specialists. The direct costs of training include courseware and trainer salaries, benefits and travel. The average gross profit was 48% for the year ended December 31, 2001 compared to 49% for the year ended December 31, 2000. The gross profit for 2001 is consistent with historical levels. -13- The direct costs of our technology services are minimal and include hosting fees and software expenses. The average gross profit for the year ended December 31, 2001 was 85% compared to 83% for the year ended December 31, 2000. The increase in gross profit is the result of a less expensive hosting arrangement that was secured this year. The Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999 For the year ended December 31, 2000, we derived 65% of our revenue in the United States as compared to 39% in the year ended December 31, 1999. Our primary source of revenue was outsourcing and managed services, representing 51% of total revenue. Recruitment services represented 31%, technical training 16% and technology sales 2% of our total revenue. Acquisitions 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 cash consideration of $98,000 and the issuance of 130,914 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 A. 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. On April 8, 2002, we closed the Systemsearch office and terminated all of the staff, including Mr. Wilson. The balance of the contracts were transferred to head office. On May 19, 1998, we completed the acquisition of all the issued and outstanding shares of capital stock of International Career Specialists Ltd. from John A. Irwin in consideration for $326,000 in cash and 130,914 shares of our common stock which were issued to Mr. Irwin. Mr. Irwin 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 A. 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. On August 1, 2000, we closed the International Career Specialist office and terminated all of the staff, including Mr. Irwin. The balance of the contracts were transferred to head office. In November 1998, we completed the acquisition of certain assets of Southport Consulting, Inc. from Michael Carrazza, one of our former directors, for an aggregate of $250,000 in cash and 40,000 shares of our common stock. Michael Carrazza 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 and seeking at least $250,000 in damages. Specifically, Mr. Carrazza claimed that we failed to deliver cash or stock to Mr. Carrazza under an asset purchase agreement pursuant to which we acquired certain assets of Southport Consulting Co. We filed a counterclaim against Mr. Carrazza, seeking $162,000 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. After the commencement of discovery, Mr. Carrazza filed a motion for summary judgment, which was granted in his favor. A hearing to determine damages has not yet been conducted. We have filed a notice of appeal of the court's order. In September 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 of our common stock to Roger W. Walters, Cad Cam, Inc.'s former president. As part of the transaction, Mr. Walters was elected to serve as one of our directors. Mr. Walters was not affiliated with us prior to the acquisition. On March 14, 2001, Mr. Walter resigned from the Board of Directors effective March 30, 2001. 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 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 ObjectArts Inc.; and (iii) the issuance of $1,100,000 of our common stock to the existing stockholders of ObjectArts Inc. As part of the transaction, we entered into employment agreements with Marilyn Sinclair and Lars Laakes, former officers of ObjectArts, Inc. Such employment agreements were for a term of three years commencing on January 1, 2000, the effective date of the acquisition, with annual salaries of $82,000 and $75,000 per year, respectively. Neither Ms. Sinclair nor Mr. Laakes were affiliated with us prior to the acquisition. On March 9, 2001, Ms. Sinclair resigned as an officer of Thinkpath. On April 9, 2001 Ms. Sinclair resigned from our Board of Directors. Lars Laakes was terminated on August 1, 2001. -14- On March 6, 2000, we completed the acquisition of 80% of E-Wink, Inc., a Delaware corporation, in consideration of: (i) 300,000 shares of our common stock valued at $975,000; 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 valued at $1,458,700. E-Wink was formed to match providers of venture capital, bridge loans and private placement capital with members of the brokerage community. On April 1, 2000, we completed the acquisition of all of the issued and outstanding capital stock of MicroTech Professionals, Inc., a Massachusetts corporation, in consideration for up to an aggregate of $4,500,000 in a combination of cash, notes payable and shares of our common stock, subject to the achievement of specific performance criteria. On April 25, 2000, we paid to Denise Dunne-Fushi, the sole shareholder of MicroTech Professionals, Inc., $2,500,000, which was paid in accordance with the following schedule: (i) $1,250,000 in cash; (ii) the issuance of a $750,000 principal amount unsecured promissory note; and (iii) the issuance of 133,333 shares of our common stock. As part of the transaction, we entered into an employment agreement with Mrs. Dunne-Fushi, the former President of MicroTech Professionals, Inc. Such employment agreement was for a term of one year commencing on April 25, 2000, with an annual salary of $125,000 and a bonus of $25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the acquisition. Thinkpath and Mrs. Dunne-Fushi are currently in the process of negotiating the terms of the renewal of her employment agreement. Mrs. Dunne-Fushi continues to serve as our Vice President and as the President of MicroTech Professionals, Inc. on a month-to-month basis under the same terms described above. In September 2001, we restructured our note payable to Denise Dunne Fushi, the vendor of MicroTech Professionals Inc. The principal was reduced from $1,965,000 to $1,740,000 in consideration of capital stock payable of $225,000. In addition, all principal payments were postponed until January 1, 2003, at which time, we will pay $20,000 per month plus interest at 5% until December 31, 2006. The balance of $781,287 will be due on January 1, 2007. We are currently making interest payments of $14,397 per month until December 30, 2002. MicroTech Professionals Inc. has had ongoing operating losses since February 2001 and as of December 31, 2001, the majority of its staff have been terminated. The losses are a result of a significant downturn in technical documentation sales and continued fixed costs such as rent and management salary. On November 15, 2000, we consummated a business combination with TidalBeach Inc., a Web development company incorporated in the Province of Ontario. In consideration for the business combination, we issued 250,000 shares of our common stock to its two shareholders. As part of the transaction, we entered into an employment agreement with Michael Reid, the former President of TidalBeach Inc. Such employment agreement is for a term of 2 years commencing on November 15, 2000 with an annual salary of $123,000. The acquisitions of Systemsearch Consulting Services Inc., International Career Specialists, Cad Cam, Inc., and MicroTech Professionals, Inc. were 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., MicroTech Professionals, Inc., and E-Wink, Inc. we recorded $449,000, $851,000, $5,520,000, $3,010,000, and $2,430,000 respectively, in goodwill, which is being amortized over 30 years in accordance with generally accepted accounting principles as applied in the United States. At December 31, 2000, we wrote-off goodwill of $2,433,700 and $338,818 respectively related to E-Wink, Inc. and International Career Specialists Ltd as these entities ceased to operate and therefore the goodwill was determined to have no value. At December 31, 2001 we wrote-off goodwill of $238,672 and $2,762,718 respectively related to Systemsearch Consulting Services Inc. and MicroTech Professionals Inc. after determining fair value based on projected cash flows. The combinations of ObjectArts Inc. and TidalBeach Inc. were accounted for using the pooling of interests method of accounting. In connection with the combination of ObjectArts Inc., we issued 527,260 shares of our common stock for all of the outstanding common stock of the combined company. In connection with the combination of TidalBeach Inc., we issued 250,000 shares of our common stock for all of the outstanding common stock of the combined company. Accordingly, the consolidated financial statements for the period ending December 31, 1999 have been retroactively restated to reflect the combinations. -15- Revenue For the year ended December 31, 2000, our primary source of revenue was technical publications and engineering outsourcing services which accounted for 37% of our revenue compared to 19% for the year ended December 31, 1999. Revenue from technical publications and engineering outsourcing services for the year ended December 31, 2000 increased $11,100,000 or 219% to $16,200,000 compared to $5,100,000 for the year ended December 31, 1999. The dramatic increase in revenue from technical publications and engineering outsourcing services was a result of the acquisition of CadCam Inc. in September 1999. For the year ended December 31, 2000, revenue from recruitment services, represented 31% of total revenue compared to 53% for the year ended December 31, 1999. Recruitment revenue for the year ended December 31, 2000 decreased $400,000 or 3% to $13,900,000 compared to $14,300,000 for the year ended December 31, 1999. The decrease in revenue from recruitment is largely attributable to the decline in revenues from International Career Specialists, which was acquired in May 1998. As a result of staff turnover and expiration of several customer contracts, revenues decreased significantly and this operation was closed in November 2000. For year ended December 31, 2000, technical training represented approximately 16% of our revenue compared to 26% for the year ended December 31, 1999. Revenue from technical training for the year ended December 31, 2000 increased $150,000 or 2% to $7,200,000 from $7,050,000 for the year ended December 31, 1999. Revenue from technical training is derived from the operations of ObjectArts Inc. which was acquired on a pooling of interest method in January 2000. The increase in revenue over 1999 is attributable to the increased demand for training of Microsoft 2000 products. For the year ended December 31, 2000, information technology documentation services represented approximately 14% of our revenue compared to 0% for the year ended December 31, 1999. Revenue from information technology documentation services for the year ended December 31, 2000 increased $6,300,000 compared to $0 for the year ended December 31, 1999. The significant increase in revenue from information technology documentation services was a result of the acquisition of MicroTech Professionals Inc. in April 2000. For the year ended December 31, 2000, technology sales represented 2% of total revenue and 2% for the year ended December 31, 1999. Technology revenue for the year ended December 31, 2000 increased $200,000 or 33% to $800,000 from $600,000 for the year ended December 31, 1999. The slight increase in technology sales represents the gradual addition of users of our software application, Njoyn and the increase in sales of SecondWave. SecondWave is a product belonging to TidalBeach which was acquired on a pooling of interest method in November 2000. Gross Profit Gross profit is calculated by subtracting all direct costs from net revenue. The direct costs of technical publications and engineering services include wages, benefits, software training and project expenses. The average gross profit for this division was 22% for the year ended December 31, 2000 compared to 26% for the year ended December 31, 1999. The slight decline in gross profit for technical publications and engineering services was a result of the increase in lower margin billings to customers with preferred vendor agreements. The direct costs of contract recruitment include contractor fees and benefits, resulting in an average gross profit of 55% for the year ended December 31, 2000 compared to 41% for the year ended December 31, 1999. The increase in gross profit is a result of the increase in permanent placement sales from 1999 which has 100% gross profit and offsets the costs of contract sales. The direct costs of training include trainer salaries, benefits and travel as well as courseware. The average gross profit on training was 49% for the year ended December 31, 2000 compared to 43% for the year ended December 31, 1999. The increase in gross profit is a result of greater controls over courseware inventory and the reduction in trainer travel expenses. The direct costs of information technology documentation services include wages, benefits, and project expenses. The average gross profit for information technology documentation was 44% for the year ended December 31, 2000 compared to 0% for the year ended December 31, 1999 as MicroTech Professionals Inc. was not acquired until April 2000. The direct costs of our technology services are minimal and include hosting fees and software expenses. The average gross profit on technology was 83% for the year ended December 31, 2000 compared to 68% for the year ended December 31, 1999. The increase in gross profit was the result of the increase in higher margin Njoyn sales to offset the lower gross profit on SecondWave sales. -16- Results of Operations The Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000 Revenue. Revenue for the year ended December 31, 2001 decreased by $7,400,000 or 17%, to $36,930,000, as compared to $44,330,000 for the year ended December 31, 2000. The decrease is primarily attributable to the decline in revenues from our technical publications and engineering, information technology documentation and training divisions of 21%, 45% and 56% respectively. Cost of Sales. The cost of sales for the year ended December 31, 2001 decreased by $660,000, or 3%, to $25,520,000, as compared to $26,180,000 for the year ended December 31, 2000. The cost of sales decreased over prior period, however as a percentage of revenue, the cost of sales was 69% compared to 59% for the year ended December 31, 2000. The increase in cost as a percentage of sales corresponds with the increase in lower margin IT recruitment sales. Gross Profit. Gross profit for the year ended December 31, 2001 decreased by $6,740,000, or 37%, to $11,400,000 compared to $18,140,000 for the year ended December 31, 2000. This decrease was attributable to the overall decrease in revenue and the increase in cost of sales during the year ended December 31, 2001. As a percentage of revenue, gross profit decreased from 41% for the year ended December 31, 2000 to 31% for the year ended December 31, 2001. This decrease in gross profit is a direct result of the increase in direct costs associated with IT recruitment sales. Expenses. Expenses for the year ended December 31, 2001 decreased by $8,280,000 or 30% to $18,920,000 compared to $27,200,000 for the year ended December 31, 2000. Administrative expenses decreased $2,460,000 or 27% to $6,580,000 compared to $9,040,000 for the year ended December 31, 2000. This decrease is related to the reduction of administrative salaries and overhead as a result of restructuring and general cost reduction. Selling expenses for the year ended December 31, 2001 decreased by $1,950,000 or 25% to $5,720,000 from $7,670,000 for the year ended December 31, 2000. This decrease is attributable to the decrease in sales salaries and commissions. Financing expenses for the year ended December 31, 2001 decreased by $3,930,000 or 85% to $670,000 compared to $4,600,000 for the year ended December 31, 2000. The charges in 2000 related to the costs of acquisitions and the repricing of options and warrants in connection with financing and acquisitions. For the year ended December 31, 2001, depreciation and amortization expenses increased by $340,000 or 16% to $2,460,000 from $2,120,000 for the year ended December 31, 2000. This increase is primarily attributable to the increase in capital assets and the acquisition of other assets. For the year ended December 31, 2001, restructuring charges related to the termination of personnel and the closure of non-productive branch offices decreased $200,000 or 29% to $490,000 compared to $690,000 for the year ended December 31, 2000. Operating Loss. For the year ended December 31, 2001, operating losses decreased by $1,310,000 or 15% to an operating loss of $7,500,000 as compared to an operating loss of $8,810,000 for the year ended December 31, 2000. This decrease is primarily attributable to the significant reduction in financing expenses related to acquisitions and financing activities during the year ended December 31, 2001. Loss on investments. For the year ended December 31, 2001, we lost $330,000 on investments, compared to zero for the year ended December 31, 2000. During the year 2001, we wrote down our investments in Tillyard Management, SCM Dialtone, and Lifelogix of $130,242, $75,000 and $121,947 respectively. Loss Before Interest Charges. Loss before interest charges for the year ended December 31, 2001 decreased by $960,000 to a loss of $7,850,000 compared to a loss of $8,810,000 for the year ended December 31, 2000. Interest Charges. For the year ended December 31, 2001, interest charges increased by $210,000 or 27% to $990,000 from $780,000 for the year ended December 31, 2000. The increase in interest charges is primarily attributable to higher interest and penalties being charged by Bank One on the overdraft facility which ranged between $400,000 and $750,000 during the period August until December. The interest charges also represent interest paid and accrued for on the notes payable. Loss Before Income Tax. Loss before income tax for the year ended December 31, 2001 decreased by $760,000, to a loss of $8,830,000 as compared to a loss of $9,590,000 for the year ended December 31, 2000. Income Taxes. Income tax expense for the year ended December 31, 2001 increased $2,040,000 to $850,000 compared to a tax recovery of $1,190,000 related to research and development tax credits for the company's software products. The increase in income taxes is a result of the write down of the deferred income tax asset. Net Loss. Net loss for the year ended December 31, 2001 increased by $1,280,000 to a net loss of $9,680,000 compared to a net loss of $8,400,000 for the year ended December 31, 2001. -17- The Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999 Revenue. Revenue for the year ended December 31, 2000 increased by $17,300,000 or 64%, to $44,330,000, as compared to $27,030,000 for the year ended December 31, 1999. The increase is primarily attributable to the acquisition of Cad Cam Inc., effective September 16, 1999, which had sales of $18,800,000, ObjectArts Inc., effective January 1, 2000, which had sales of $6,500,000 and MicroTech Professionals Inc., which had sales of $6,200,000. Cost of Sales. The costs of sales for the year ended December 31, 2000 increased by $9,820,000, or 60%, to $26,180,000, as compared to $16,360,000 for the year ended December 31, 1999. This increase was due to the increased volume of outsourcing. Gross Profit. Gross profit for the year ended December 31, 2000 increased by $7,470,000, or 70%, to $18,140,000, as compared to $10,670,000 for the year ended December 31, 1999. This increase was attributable to the aforementioned increase in revenue during the year ended December 31, 2000. Expenses. Expenses for the year ended December 31, 2000 increased by $17,160,000 or 158% to $28,000,000 compared to $10,840,000 for the year ended December 31, 1999. Administrative expenses increased $3,610,000 or 66% to $9,040,000 compared to $5,430,000 for the year ended December 31, 1999. This increase was primarily attributable to the increase in corporate expenses to support the increasing number of locations and volume of transactions. Selling expenses increased $3,340,000 or 77% to $7,670,000 from $4,330,000 for the year ended December 31, 1999. This increase is directly attributable to the increase in revenue and related decrease in commissions. Financing expenses for the year ended December 31, 2000 were $4,600,000 compared to zero for the year ended December 31, 1999 and relate to the costs of acquisitions and the repricing of options and warrants in connection with financing and acquisitions. For the year ended December 31, 2000, depreciation and amortization expense increased $1,370,000 or 183% to $2,120,000 from $750,000 for the year ended December 31, 1999. This increase is primarily attributable to the increase in capital assets and the acquisition of other assets. For the year ended December 31, 2000, goodwill was written down by $3,100,000 compared to zero for the year ended December 31, 1999. The impairments are for the investments in E-Wink Inc. and International Career Specialists. These two entities have ceased to operate and therefore the goodwill has been determined to have no value. For the year ended December 31, 2000, restructuring charges related to the termination of personnel and the closure of non-productive branch offices were $690,000 compared to zero for the year ended December 31, 1999. Operating Income (Loss). For the year ended December 31, 2000, operating income decreased by $8,970,000 to an operating loss of $8,810,000 as compared to an operating income of $160,000 for the year ended December 31, 1999. This decrease is primarily attributable to the reduction in gross profit, and the increase in financing, depreciation and amortization, the writedown of goodwill and restructuring expenses. Gain (loss) on investments. For the year ended December 31, 2000, we had no gain or loss from investments compared to a gain of $250,000 for the year ended December 31, 1999 related to investment in Conexys Limited. Income (Loss) Before Interest Charges. Income before interest charges for the year ended December 31, 2000 decreased by $9,220,000 to a loss of $8,810,000 compared to income before interest charges of $410,000 for the year ended December 31, 1999. Interest Charges. For year ended December 31, 2000, interest charges increased by $450,000 or 136% to $780,000 from $330,000 for the year ended December 31, 1999, primarily due to the increase in long-term debt and the increase in capital assets and our bank operating line of credit. Income (Loss) Before Income Tax. Income before income tax for the year ended December 31, 2000 decreased by $9,670,000, to a loss of $9,590,000 compared to income before income tax of $80,000 for the year ended December 31, 1999. The sharp decrease in income before income tax is a result of the increase in financing, depreciation and amortization expense and restructuring expenses, combined with the decrease in revenue and gross profit. Income Taxes. Income tax expense for the year ended December 31, 2000 decreased $1,280,000 to a recovery of $1,190,000 related to research and development tax credits for the company's software products compared to an expense of $90,000 for the year ended December 31, 1999. Net Income (Loss). Net income for the year ended December 31, 2000 decreased by $8,395,000 to a net loss of $8,400,000 compared to a net loss of $5,000 for the year ended December 31, 1999. -18- Liquidity and Capital Resources Our primary sources of cash are our revolving line of credit with Bank One and proceeds from the sale of equity securities. Our primary capital requirements include debt service, capital expenditures and working capital needs. At December 31, 2001, we had negative cash or cash equivalents and a working capital deficiency of $3,350,000. At December 31, 2001, we had a cash flow deficiency from operations of $200,000. At December 31, 2000, we had negative cash or cash equivalents and a working capital deficiency of $3,090,000. At December 31, 2000, we had a cash flow deficiency from operations of $3,500,000, due primarily to expenditures on research and development of Njoyn, and restructuring costs associated with the closure of non-performing branch offices. At December 31, 2001, we had cash flow from financing activities of $790,000 attributable primarily to proceeds from the issuance of common stock of $400,000, the issuance of preferred stock of $1,200,000 and the repayment of notes of $198,000 and long-term debt of $500,000. At December 31, 2000, we had cash flow from financing activities of $6,020,000, attributable primarily to share capital issue of $5,530,000 an increase in long-term debt of $1,110,000 and a increase in bank indebtedness of $630,000. On April 18, 2001, we issued 1,105 shares of Series C 7% Cumulative Convertible Preferred Stock (Series C Preferred Stock) and 663,484 common stock purchase warrants in consideration of $1,105,000 pursuant to a private placement offering. 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 $.5445. Pursuant to the registration requirements under the Series C Preferred Stock Purchase Agreement, we filed a registration statement on June 7, 2001, as amended on June 14, 2001 and October 16, 2001, 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 would 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 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 $.6225 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 prospectus, there are 945 shares of Series C 7% Convertible Preferred Stock and 723,076 warrants outstanding. On November 1, 2001, we agreed to amend our agreement with the Series C preferred stockholders, and removed the provision prohibiting the investors from executing short sales of the our common stock for as long as they continue to hold shares of Series C preferred stock. The amendment was made in consideration of the investors' waiver of certain penalties and fees for delinquent registration of the common stock underlying Series C preferred shares. -19- At December 31, 2001, we had a cash flow deficit from investing activities of $380,000 attributable primarily to the purchase of capital assets of $370,000. At December 31, 2000, we had a cash flow deficit from investing activities of $3,720,000 attributable to the acquisition of MicroTech Professionals Inc. At December 31, 2001, we had $4,900,000 outstanding with Bank One. The revolving line of credit provided for a maximum borrowing amount of $4,800,000 at variable interest rates based on eligible accounts receivable. At December 31, 2001, we had an overdraft of $100,000. We do not have an authorized overdraft facility with Bank One, however the bank had allowed an overdraft of up to $500,000 on a regular basis from August 2001 until March 2002. The revolving line of credit agreement requires us to meet various restrictive covenants, including a senior debt to EBITDA ratio, debt service coverage ratio, debt to tangible net worth ratio and certain other covenants. At December 31, 2001 and thereafter, we were not in compliance with the covenants contained in the revolving line of credit agreement. Bank One has indicated its intention to enter into a forbearance agreement with us in which the bank would refrain from exercising any rights or remedies based on existing or continuing defaults, including accelerating the maturity of the loans under the credit facility. Any agreement reached with Bank One could result in new terms which are less favorable than current terms under the existing agreement, and could involve a reduction in availability of funds, an increase in interest rates and shorter maturities, among other things. If we are not successful in securing a forbearance agreement or waivers of Bank One's rights and remedies as a result of the defaults, we will need to seek new financing arrangements from other lenders. Such alternative financing arrangements may be unavailable to us or available on terms substantially less favorable to us than our existing line of credit facility. If we are unable to either procure a waiver from Bank One or acceptable alternative financing, such failures could have a material adverse effect on our financial condition and results of operations. No assurance can be given that we will be able to obtain a waiver from Bank One on the default of loan covenants or refinance our existing obligations. As a result of the default on the loan covenants governing our credit line facility, Bank One is restricting our repayment of certain subordinated loans and notes payable. The parties affected by this restriction, include the Business Development Bank of Canada, Roger Walters and Denise Dunne-Fushi. At December 31, 2001, we had $420,000 in subordinated debt outstanding to the Business Development Bank of Canada. The loan agreements require us to meet a certain working capital ratio. At December 31, 2001 and thereafter, we were not in compliance with the covenant contained in the loan agreements. The Business Development Bank postponed the payment of principal on its subordinated loans from June 2001 until March 23, 2002. During this period we were current with our interest obligations on the loans. Effective March 23, 2002, the Business Development Bank consolidated its loans and established a new repayment schedule and extended the maturity dates. In September 2001, we restructured our note payable to Roger Walters, the vendor of Cad Cam Inc. The principal was reduced from $1,200,000 to $750,000 in consideration of capital stock payable of $450,000. In addition, all principal payments were postponed until January 1, 2002, at which time, we will pay $12,500 per month plus interest at 4.5% until December 31, 2006. The balance of $150,000 will be due on December 31, 2006. In September 2001, we restructured our note payable to Denise Dunne-Fushi, the vendor of MicroTech Professionals Inc. The principal was reduced from $1,965,000 to $1,740,000 in consideration of capital stock payable of $225,000. In addition, all principal payments were postponed until January 1, 2003, at which time, we will pay $20,000 per month plus interest at 5% until December 31, 2006. The balance of $781,287 will be due on January 1, 2007. We are currently making interest payments of $14,397 per month until December 30, 2002. As a result of the terrorist attacks of September 11, 2001, we lost our IT recruitment office in the World Trade Center. All three staff members of this office survived and are continuing business in temporary office space. This office represents approximately $2,000,000 in annual information technology recruitment revenue. We do not anticipate a material decline in revenue from this office, as our primary source of revenue was contract placement which can continue unobstructed. We lost approximately $75,000 of fixed assets, including furniture, computer hardware and office equipment. We are in the process of filing a statement of loss with our insurance company. We are in the process of renovating our training office in New York to accommodate the three staff members. We have filed an interim statement of loss with our insurance company and to date have received approximately $75,000 for this office. -20- Our training office located at 195 Broadway was also impacted by the events of September 11, 2001. As a result of damage to the building and supporting utility companies, the office was closed for four weeks. This office represents approximately $3,000,000 in annual technical training revenue. Many of our top customers have since relocated to other cities and have indicated their postponement of employee training until Spring 2002. The estimated loss of revenue from this office is between $200,000 and $250,000 per month. In addition, many of the office's computer assets are malfunctioning as a result of debris and smoke. As a result of the decline in revenue, we terminated four of twelve employees from this office in October, 2001 and an additional two employees in March 2002. At this time we do not know what the total loss of revenue will be for our training operations in New York, or the final amount of our insurance claim. We have filed an interim statement of loss with our insurance company and to date have received approximately $150,000 for business interruption which have been treated as an extraordinary item on the income statement. Once we have settled the insurance claim, it is our plan to divest this office. We have filed additional business interruption claims which have not yet been settled. In accordance with EITF 01-10 "Accounting for the Impact of the Terrorist Attacks of September 11, 2001," we have determined our losses directly resulting from the September 11th events amount to approximately $25,000 net of insurance recoveries. If we are not successful in securing a forbearance agreement or waivers of Bank One's rights and remedies as a result of the defaults, we will need to seek new financing arrangements from other lenders. As a result, on January 31, 2002, we signed a term sheet with Investors Corporation for a Revolving Loan Facility of up to $7,500,000 based on eligible receivables, cash flow and EBITDA, a Term Loan Facility of up to $1,000,000 based on eligible equipment and an additional secured Credit Facility of $2,000,000 for future acquisitions financing. The financing is subject to due diligence and credit approval which is ongoing. We anticipate closing this facility by the end of April 2002, although it may be subject to certain restrictions and/or terms as a result of the completion of due diligence and credit investigations. Under this facility, we would have approximately $300,000 in extra borrowing availability as a result of more favorable terms than our current facility with Bank One. Proceeds from this facility would be used to retire our credit facility with Bank One with the balance being used for working capital. The term sheet is non-binding. In addition to Investec, we are currently pursuing several financing initiatives to assist with the company's current cash flow requirements. On November 5, 2001, we also entered into an agreement with entrenet2 Capital Advisors, LLC, a California company, on a best efforts basis, to assist in achieving capital financing, debt financing, and merger or acquisition transactions. Upon successful completion of a transaction, entrenet2 would be entitled to a fee ranging between 1.5% to 4% of the gross proceeds depending on the nature of the transaction. The agreement expires November 4, 2002. On April 12, 2002, we received a letter of intent from 1/0 Capital LLC, a New York company, for financing of $1,500,000 in the form of a convertible note for a term of one year at 10% interest with various conversion prices ranging from average of prior 30 day price before closing and $0.30, with fifty per cent warrant coverage exercisable at $0.30 per share. The financing is conditional on due diligence and the appointment of 1/0 as the primary outsourcer for Thinkpath's offshore technology, engineering and call center business requirements. The letter of intent is non-binding. There can be no assurance that the transactions contemplated by the various letters of intent will be consummated, and if consummated, will be on such terms as outlined by the original letters of intent. We are also exploring other options such as joint ventures, strategic partnerships, and the sale of certain divisions. Effective March 1, 2002, we sold our technology division, Njoyn Software Incorporated to Cognicase Inc., a Canadian company. Our net proceeds after broker fees were $1,350,000 of which we received $800,000 in cash and $550,000 worth of unrestricted common shares on closing. The shares were sold on March 11, 2002 for value of $ 524,673.19. As part of the transaction, Cognicase assumed all of the 8 staff in our technology division and is contracting the services of our CIO for a period of six months. The proceeds were used to pay down an unauthorized overdraft with Bank One of $500,000 and a term loan with Bank One for $230,000. We also used the proceeds to pay past due rent, professional fees and contractor fees. We believe the sale of Njoyn will have an impact on our cashflow, as the operations had recurring losses since inception and the fixed overheads such as rent, development salaries and equipment leases were quite high. Revenue from technology represents less than 2% of the company's total revenue. -21- We are also exploring the sale of our training division which has also experienced recurring losses for the past year. On April 10, 2002, we signed a series of agreements with triOS Training Centres Limited, an Ontario company, for the purchase of certain assets of our Toronto training division, Thinkpath Training for a nominal amount of cash and the assumption of all prepaid training liabilities. As part of the transaction, triOS will assume the Toronto training staff and sublet the classroom facilities. The transaction is anticipated to close May 1, 2002. We have also positioned the New York training division for sale upon settlement of our outstanding insurance claim. Until such a time, we have scaled the operations down significantly to mitigate losses. The sale of the training division will also have an immediate impact on our cash flow as the fixed overheads are quite significant, particularly rent and equipment leases. Revenue from training represents 9%% of the company's total revenue. We believe, despite our recurring losses and negative working capital that we have developed a business plan, that if successfully implemented, could substantially improve our operational results and financial condition. However, we can give no assurances that our current cash flows from operations, if any, borrowings available under our line of credit, and proceeds from the sale of securities, will be adequate to fund our expected operating and capital needs for the next twelve months. The adequacy of our cash resources over the next twelve months is primarily dependent on our operating results and our ability to procure a waiver from the bank, alternate financing, and settlement of our insurance claim, all of which are subject to substantial uncertainties. Cash flow from operations for the next twelve months will be dependent, among other things, upon the effect of the current economic slowdown on our sales, the impact of the restructuring plan and management's ability to implement our business plan. The failure to return to profitability and optimize operating cash flow in the short term, and to successfully procure a waiver from the bank or alternate financing, could have a material adverse effect on our liquidity position and capital resources which may force us to curtail our operations. The Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999 Our primary sources of cash at December 31, 2000 were our revolving line of credit with Bank One and proceeds from the sale of equity securities. Our primary capital requirements included debt service, capital expenditures and working capital needs. At December 31, 2000, we had negative cash or cash equivalents and a working capital deficiency of $3,090,000. During the year ended December 31, 2000, we had a cash flow deficiency from operations of $3,500,000, due primarily to expenditures on research and development of Njoyn, and restructuring costs associated with the closure of non performing branch offices. At December 31, 1999, we had cash and cash equivalents of $1,900,000 and a working capital deficiency of $1,380,000. During the year ended December 31, 1999, we had a cash flow deficiency from operations of $1,530,000, due primarily to an increase in accounts receivable of $2,840,000, which was partially offset by an increase in accounts payable of $930,000. For the year ended December 31, 2000, we had cash flow from financing activities of $6,020,000, attributable primarily to share capital issue of $5,530,000, an increase in long-term debt of $1,110,000 and an increase in bank indebtedness of $630,000. For the year ended December 31, 1999, we had cash flow from financing activities of $7,460,000, attributable primarily to proceeds of $5,400,000 from the sale of share capital and an increase in bank indebtedness of $2,360,000. On April 16, 2000, we issued: (i) 1,500 shares of Series B 8% Percent Cumulative Convertible Preferred Stock, no par value per share; and (ii) warrants to purchase up to an aggregate of 300,000 shares of our common stock, in consideration $1,500,000 pursuant to a private placement offering. Each share of Series B 8% Cumulative Convertible Preferred Stock has a stated value of $1,000 per share. The shares of Series B 8% Percent Cumulative Convertible Preferred Stock are convertible into shares of our common stock at the option of the holders at any time after issuance unless redeemed prior to such conversion. The 300,000 warrants issued in the offering are exercisable at any time and in any amount until April 16, 2005 at the exercise price of $3.71 per share. As of the date hereof, all of the shares of Series B 8% Cumulative Convertible Preferred Stock have been converted into shares of our common stock. In addition, on April 16, 2000 we issued (i) 2,500 shares of Series A 8% Cumulative Convertible Preferred Stock and (ii) 50,000 warrants to purchase common stock in a private placement offering. The 50,000 warrants issued in the offering are exercisable at any time and in any amount until April 16, 2005 at a purchase price of $3.71 per share. On July 7, 2000, upon the exercise of a put option granted to us in the December 1999 private placement offering of our Series A 8% Cumulative Convertible Preferred Stock, we issued an aggregate of; (a) 5,000 additional shares of our Series A 8% Cumulative Convertible Preferred Stock, and (b) warrants to purchase an aggregate of up to 225,000 shares of our common stock in consideration for $500,000. The 225,000 warrants issued upon our exercise of the option are exercisable at any time and in any amount until December 30, 2004 at a purchase price of $3.575 per share. As of the date hereof, all of such shares of Series A 8% Cumulative Convertible Preferred Stock have been converted into shares of our common stock. -22- On July 27, 2000, we entered into an agreement with Bank One for an operating line of $7,000,000 payable on demand and secured by our assets. Effective July 27, 2000, we canceled our operating lines with Toronto Dominion Bank and Provident Bank. At December 31, 2000, there was $5,000,000 outstanding on this line. At December 31, 2000, we had a total of $540,000 due to the Business Development Bank of Canada pursuant to six separate loans. On August 22, 2000, we completed a private placement offering of units, each unit consisting of 1 share of our common stock and a callable warrant to purchase 1/2 of 1 share of our common stock. A total of 1,063,851 shares of our common stock was issued together with 560,627 warrants to purchase shares of our common stock exercisable until August 22, 2005, in consideration for $2,681,600. The purchase price per unit ranged from $1.9692 to $2.8125. In addition, we issued warrants to purchase up to 280,693 shares of our common stock to the placement agent, certain financial advisors and the placement agent's counsel in connection with the private placement offering. These warrants are exercisable until August 22, 2005 at an exercise price of $2.4614 per share. During the year ended December 31, 2000, we had a cash flow deficit from investing activities of $3,720,000, attributable to the acquisition of MicroTech Professionals, Inc. During the year ended December 31, 1999, we had a cash flow deficit from investing activities of $4,070,000, attributable to the acquisition of Cad Cam Inc. At December 31, 2000, we had $5,060,000 outstanding with Bank One. The revolving line of credit provided for a maximum borrowing amount of $5,500,000 at variable interest rates based on eligible accounts receivable. The revolving line of credit agreement requires us to meet various restrictive covenants, including a senior debt to EBITDA ratio, debt service coverage ratio, debt to tangible net worth ratio and certain other covenants. At December 31, 2000 and thereafter, we were not in compliance with the covenants contained in the revolving line of credit agreement. As a result of our defaults, the bank increased the interest rates on the revolving lines subsequent to December 31, 2000. As a result of the default on the loan covenants governing our credit line facility, Bank One restricted our repayment of certain subordinated loans and notes payable. The parties affected by this restriction, included the Business Development Bank of Canada, Roger Walters and Denise Dunne Fushi. At December 31, 2000, we had $545,000 in subordinated debt outstanding to the Business Development Bank of Canada. The loan agreements require us to meet a certain working capital ratio. At December 31, 2000 and thereafter, we were not in compliance with the covenant contained in the loan agreements. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." Under the new rules, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, we will apply the new accounting rules beginning January 1, 2002. Effective July 1, 2001, we changed our amortization policy from thirty to fifteen years. We are currently assessing the financial impact SFAS No. 141 and No. 142 will have on our Consolidated Financial Statements. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in our statement of earnings. As at December 31, 2001, we have $5,128,991 unamortized goodwill. Amortization expense related to goodwill was $865,000 for 2001 and an impairment of $3,001,391 was recorded. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" which requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. We will adopt SFAS No. 143 in 2002. We do not expect the provisions of SFAS No. 143 to have any significant impact on our financial condition or results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". We will adopt SFAS No. 144 in fiscal year 2002. We do not expect the provisions of SFAS No. 144 to have any significant impact on our financial condition or results of operations. -23- Year 2000 Compliance We have developed and implemented a Year 2000 compliance program to address internal systems, suppliers, processes and procedures, as well as the internally developed Njoyn solution. All phases and actions of this program were successfully completed as planned. Remediation measures, where required, were successfully implemented and tested. The total cost of the compliance program was not material. Although we believe that we have taken the appropriate steps to assess, implement and test Year 2000 compliance, it is not possible to ascertain whether the efforts of customers, suppliers or other third parties, will have a material adverse effect on our business, results of operations and financial condition. 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. 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 expansion by acquisition 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 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 and the continued 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. -24- ITEM 7. FINANCIAL STATEMENTS THINKPATH INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001 AND DECEMBER 31, 2000 TOGETHER WITH AUDITOR'S REPORT (AMOUNTS EXPRESSED IN US DOLLARS) REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THINKPATH INC. We have audited the accompanying consolidated balance sheets of Thinkpath Inc. (formerly Thinkpath.com Inc.), (incorporated in Canada) as of December 31, 2001 and 2000 and the related consolidated statements of operation, cash flows and changes in stockholders' equity for each of the years ended December 31, 2001 and 2000. 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 in the United States of America. 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 Inc. (formerly Thinkpath.com Inc.) as of December 31, 2001 and 2000 and the consolidated results of its operations and its cash flows for each of the years ended December 31, 2001 and 2000 in conformity with generally accepted accounting principles in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2(a) to the consolidated financial statements, the Company has suffered recurring losses from operations and has recurring negative working capital that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Since the accompanying consolidated financial statements have not been prepared and audited in accordance with generally accepted accounting principles and standards in Canada, they may not satisfy the reporting requirements of Canadian statutes and regulations. Schwartz Levitsky Feldman LLP Chartered Accountants Toronto, Ontario April 12, 2002 F-1
THINKPATH INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, (AMOUNTS EXPRESSED IN US DOLLARS) 2001 2000 ---- ---- $ $ ASSETS CURRENT ASSETS Cash 482,233 -- Accounts receivable 5,502,113 7,857,999 Inventory 40,057 93,670 Income taxes receivable 431,817 358,436 Prepaid expenses 345,341 335,930 ---------- --------- 6,801,561 8,646,035 CAPITAL ASSETS 2,859,340 3,596,759 GOODWILL 5,128,991 8,585,290 INVESTMENT IN NON-RELATED COMPANIES 1,013,926 1,318,091 LONG-TERM RECEIVABLE 83,450 83,450 OTHER ASSETS 1,287,710 1,812,889 DEFERRED INCOME TAXES -- 1,643,426 ---------- --------- 17,174,978 25,685,940 ========== ==========
F-2
THINKPATH INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, (AMOUNTS EXPRESSED IN US DOLLARS) 2001 2000 ---- ---- $ $ LIABILITIES CURRENT LIABILITIES Bank indebtedness 5,039,171 5,061,410 Accounts payable 4,073,444 3,822,984 Deferred revenue 365,023 219,308 Current portion of long-term debt 528,285 946,131 Current portion of notes payable 150,000 1,683,333 ---------- ---------- 10,155,923 11,733,166 DEFERRED INCOME TAXES 150,380 -- LONG-TERM DEBT 582,432 760,313 NOTES PAYABLE 2,340,000 1,641,667 LIABILITIES PAYABLE IN CAPITAL STOCK 699,297 751,788 ---------- ---------- 13,928,032 14,886,934 ---------- ---------- STOCKHOLDERS' EQUITY CAPITAL STOCK 26,571,481 23,759,415 DEFICIT (22,719,044) (12,306,862) ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX (605,491) (653,547) ---------- ---------- 3,246,946 10,799,006 ---------- ---------- 17,174,978 25,685,940 =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-3
THINKPATH INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, (AMOUNTS EXPRESSED IN US DOLLARS) 2001 2000 ----------- ----------- $ $ REVENUE 36,926,211 44,325,780 COST OF SERVICES 25,521,734 26,182,828 ----------- ----------- GROSS PROFIT 11,404,477 18,142,952 OTHER INCOME -- 259,532 ----------- ----------- 11,404,477 18,402,484 ----------- ----------- EXPENSES Administrative 6,579,782 9,037,960 Selling 5,718,877 7,672,616 Financing expenses 669,358 4,585,493 Depreciation and amortization 2,459,693 2,119,396 Writedown of goodwill 3,001,391 3,113,268 Restructuring costs 492,221 685,103 ----------- ----------- 18,921,322 27,213,836 ----------- ----------- OPERATING LOSS (7,516,845) (8,811,352) Loss on investments (329,162) -- ----------- ----------- LOSS BEFORE INTEREST CHARGES (7,846,007) (8,811,352) Interest Charges 987,646 776,637 ----------- ----------- LOSS BEFORE INCOME TAXES (8,833,653) (9,587,989) Income taxes (recovery) 849,789 (1,189,672) ----------- ----------- NET LOSS (9,683,442) (8,398,317) PREFERRED STOCK DIVIDEND REQUIREMENTS 728,740 3,646,595 ----------- ----------- EARNINGS (LOSS) APPLICABLE TO COMMON STOCK (10,412,182) (12,044,912) =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON STOCK OUTSTANDING BASIC AND FULLY DILUTED 14,943,306 5,296,442 =========== =========== LOSS PER WEIGHTED AVERAGE COMMON STOCK BEFORE PREFERRED DIVIDENDS BASIC AND FULLY DILUTED (0.65) (1.59) =========== =========== LOSS PER WEIGHTED AVERAGE COMMON STOCK AFTER PREFERRED DIVIDENDS BASIC AND FULLY DILUTED (0.70) (2.27) =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4
THINKPATH INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECMEBER 31, (AMOUNTS EXPRESSED IN US DOLLARS) ACCUMULATED COMMON STOCK CAPITAL OTHER NUMBER OF PREFERRED STOCK NUMBER OF STOCK RETAINED COMPREHENSIVE COMPREHENSIVE SHARES SHARES AMOUNTS EARNINGS INCOME (LOSS) INCOME (LOSS) A B C -------------- --------- -------- -------- ------------ ------------- ------------ Balance as of December 31, 1999 3,865,902 15,000 - - 7,870,874 (261,950) (22,141) (Restated) Cumulative effect adjustment - - - - 1,091,606 (1,091,606) Net loss for the year - - - - - (8,398,317) (8,398,317) ------------- Other comprehensive loss, net of tax: Foreign currency translation - - - - - - (707,954) Adjustment to market value - - - - - - 76,548 ------------- Other comprehensive loss (631,406) (631,406) ------------- Comprehensive loss (9,029,723) ============= Issuance of common stock 2,821,782 - - - 5,394,766 - Issuance of preferred stock - 7,500 1,500 - 2,287,980 - Common stock and warrants issued in consideration of services and investment 3,533,111 - - - 4,618,988 - Dividend on preferred stock from beneficial conversion benefit - - - - 2,495,201 (2,554,989) Conversion of preferred stock to common stock 1,694,343 (21,450) (750) - - - -------------- --------- -------- -------- ------------ ------------- ------------ Balance as of December 31, 2000 11,915,138 1,050 750 - 23,759,415 (12,306,862) (653,547) Net loss for the year - - - - - (9,683,442) (9,683,442) ------------- Other comprehensive income (loss), net of tax: Foreign currency translation - - - - - - 209,506 Adjustment to market value - - - - - - (161,450) ------------- Other comprehensive income 48,056 48,056 ------------- Comprehensive loss (9,635,386) ============= Issuance of common stock for cash 525,000 - - - 400,000 - Issuance of preferred stock - - - 1,230 1,230,000 - Options exercised 22,122 - - - 1 - Common stock and warrants issued in consideration of services 714,267 - - - 519,994 - Reduction in common stock payable 596,667 - - - 709,005 - Dividend on preferred stock - - - - 414,848 (444,647) Conversion of preferred stock to common stock 3,864,634 (1,050) (750) (285) - - Beneficial conversion on Issuance of preferred stock - - - - 284,093 (284,093) Debt settled through the issuance of common stock 93,883 - - - 44,125 - Allowance for deferred taxes recoverable on issue expenses - - - - (790,000) - -------------- --------- -------- -------- ------------ ------------- ------------ Balance as of December 31, 2001 17,731,711 - - 945 26,571,481 (22,719,044) (605,491) ============== ========= ======== ======== ============ ============== ============
The accompanying notes are an integral part of these consolidated financial statements. F-5
THINKPATH INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 (AMOUNTS EXPRESSED IN US DOLLARS) 2001 200O ---- ---- $ $ Cash flows from operating activities Net income (loss) (9,683,442) (8,398,317) ---------- ---------- Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Amortization 2,119,396 2,459,693 Amortization of deferred financing costs 9,945 -- Write down of goodwill 3,001,391 3,113,268 Write down of long-term investment 344,279 -- Liabilities payable in common stock payable (88,152) 67,000 Decrease (increase) in accounts receivable 1,245,046 (142,862) Decrease (increase) in prepaid expenses (21,660) 99,092 Increase (decrease) in accounts payable 416,109 (451,729) Increase in income taxes payable (receivable) 2,459 (470,459) Decrease (increase) in deferred income taxes 1,793,806 (1,742,898) Decrease (increase) in inventory 53,144 (43,666) Increase (decrease) in deferred revenue 147,077 219,308 Forgiveness of long-term debt (190,629) -- Common stock and warrants issued for services 519,994 3,050,288 Long-term investment received for services (206,072) (932,927) ---------- ---------- Total adjustments 9,486,430 4,883,811 ---------- ---------- Net cash used in operating activities (197,012) (3,514,506) ---------- ---------- Cash flows from investing activities Purchase of capital assets (368,260) (1,108,814) Disposal (purchase) of other assets (15,353) (1,229,266) Increase in long-term receivable -- (83,450) Cash payment for subsidiaries -- (1,300,000) ---------- ---------- Net cash used in investing activities (383,613) (3,721,530) ---------- ---------- Cash flows from financing activities Repayment of notes payable (197,437) (1,053,174) Repayment of long-term debt (505,651) (187,281) Dividend payable (12,560) -- Cash received (paid) on long-term debt -- 1,106,536 Proceeds from issuance of common stock 400,000 3,237,866 Proceeds from issuance of preferred stock 1,125,000 2,287,980 Increase (decrease) in bank indebtedness (22,239) 626,211 ----------- ---------- Net cash provided by financing activities 787,113 6,018,138 ----------- ---------- Effect of foreign currency exchange rate changes 275,745 (686,690) ----------- ---------- Net increase (decrease) in cash and cash equivalents 482,233 (1,904,588) Cash and cash equivalents -Beginning of year -- 1,904,588 ----------- ---------- -End of year 482,233 -- =========== ========== SUPPLEMENTAL CASH ITEMS: Interest paid 340,700 776,637 =========== ========== Income taxes paid 38,000 435,089 =========== ========== SUPPLEMENTAL NON-CASH ITEM: Preferred stock dividend 728,740 2,554,989 Common shares issued for liabilities 44,125 742,200 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-6 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) 1. MANAGEMENT'S INTENTIONS Certain principal conditions and events are prevalent which indicate that there could be substantial doubt about the company's ability to continue as a going concern for a reasonable period of time. These conditions and events include significant operating losses, working capital deficiencies, and violation of certain loan covenants. At December 31, 2001, the Company had a working capital deficiency of $3,354,362, a deficit of $22,719,044 and has suffered recurring losses from operations. With insufficient working capital from operations, the Company's primary sources of cash have been a revolving line of credit with Bank One and proceeds from the sale of equity securities. At December 31, 2001, the balance of the revolving line of credit was $4,870,000 although the maximum borrowing amount was only $4,760,000 based on eligible receivables. The company does not have an authorized overdraft facility with Bank One and no assurance can be made that the bank will continue the overdraft facility. The revolving line of credit agreement requires the Company to meet various restrictive convenants, including a senior debt to EBITDA ratio, debt service coverage ratio, debt to tangible net worth ratio and certain other covenants. At December 31, 2001 and thereafter, the company did not comply with the covenants contained in the revolving line of credit agreement. The bank has indicated its intent to enter into a forbearance agreement in which it would refrain from exercising any right or remedies based on continuing or existing defaults. If the company is not successful in procuring a forbearance agreement or alternative financing arrangements, it may be required to issue additional securities which may result in the substantial dilution to existing shareholders. As at April 16, 2002, management's plans to mitigate and alleviate these adverse conditions and events include: A. Ongoing restructuring of operations relating to the closure of non-profitable offices, termination of redundant staff and the institution of other cost cutting measures. See Note 16. Although there can be no assurances, it is anticipated that continued cash flow improvements will be sufficient to cover current operating costs and will permit partial payments to vendors and interest payments on all debt. B. Ongoing discussions to secure a new credit facility in place of Bank One. C. Ongoing efforts to procure cash through a private placement of debt, equity or warrant securities. D. Settlement of an outstanding insurance claim related to the loss of assets and business for two offices impacted by the terrorist events of September 11, 2001. E. Focus on growing the technical publications, e-learning and engineering services division. Increase sales by providing defense related services to United States military suppliers. During the last six months, this division has secured several large defense related contracts that will have a significant impact on the company's operations in 2002. F. Sale of non-profitable and non-complimentary business units. Despite its negative working capital and deficit, the company believes that its management has developed a business plan that if successfully implemented could substantially improve the company's operational results and financial condition. However, the company can give no assurances that its current cash flows from operations, if any, borrowings available under its revolving line of credit, and proceeds from the sale of securities, will be adequate to fund its expected operating and capital needs for the next twelve months. The adequacy of cash resources over the next twelve months is primarily dependent on its operating results, ability to procure a waiver from the bank, alternate financing, and settlement of its insurance claim, all of which are subject to substantial uncertainties. Cash flows from operations for the next twelve months will be dependent, among other things, upon the effect of the current economic slowdown on sales, the impact of the restructuring plan and management's ability to implement its business plan. The failure to return to profitability and optimize operating cash flows in the short term, and to successfully procure a waiver from the bank or alternate financing, could have a material adverse effect on the company's liquidity position and capital resources. F-7 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Going Concern These consolidated financial statements have been prepared on the going concern basis, which assumes the realization of assets and liquidation of liabilities and commitments in the normal course of business. The application of the going concern concept is dependent on the Company's ability to generate sufficient working capital from operations and external investors. These consolidated financial statements do not give effect to any adjustments should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts differing from those reflected in the consolidated financial statements. Management plans to obtain sufficient working capital from operations and external financing to meet the Company's liabilities and commitments as they become payable over the next twelve months. There can be no assurance that management's plans will be successful. Failure to obtain sufficient working capital from operations and external financing will cause the Company to curtail operations. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. b) Change of Name The company changed its name from IT Staffing Ltd. to Thinkpath.com Inc. on February 24, 2000. On June 6, 2001, the company changed its name from Thinkpath.com Inc. to Thinkpath Inc. c) Principal Business Activities Thinkpath Inc. is an information technology and engineering services company which, along with its subsidiaries Systemsearch Consulting Services Inc., International Career Specialists Ltd., Thinkpath US Inc. (formerly Cad Cam Inc.), Thinkpath Michigan Inc. (formerly Cad Cam of Michigan Inc.), Thinkpath Technical Services Inc. (formerly Cad Cam Technical Services Inc.), Thinkpath Training Inc. (formerly ObjectArts Inc.) Thinkpath Training US Inc. (formerly ObjectArts US Inc.), MicroTech Professionals Inc., Njoyn Software Incorporated, and TidalBeach Development Inc., provides outsourcing, recruiting, training and technology services to enhance the resource performance of clients. d) Basis of consolidated financial statement presentation The consolidated financial statements include the accounts of the company and its controlled 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. e) 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. f) 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. g) 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-8 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) h) Capital Assets Property and equipment are recorded at cost and are amortized over the estimated useful lives of the assets principally using the declining balance method. The company's policy is to record leases, which transfer substantially all benefits and risks incidental to ownership of property, as acquisition of assets and to record the occurrences of corresponding obligations as long-term liabilities. Obligations under capital leases are reduced by rental payments net of imputed interest. i) 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 as described in note 14 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. j) Inventory Inventory is valued at the lower of cost and the net realizable value. k) Revenue 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 reasonably assured. 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 consists of 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 is recognized on a percentage of completion basis for contracts with significant amounts of customization and clearly defined milestones agreed with the customer and an enforceable right to invoice and collect on a partial completion basis. For contracts which require significant customization and without clearly defined milestones, an inability to estimate costs, revenue is reflected on a completed contract basis. To date the customization and set up fees totalled approximately $200,000. 6) 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. F-9 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes the SEC's view in applying generally accepted accounting principles to selected revenue recognition issues. The effects, if any, of applying this guidance must be adopted by SEC registrants no later than December 31, 2000 and must be reported as a cumulative effect adjustment as of January 1, 2000, resulting from a change in accounting principle. Restatement of previously reported results of the earlier quarters of fiscal 2000, if necessary, is also required. The adoption of SAB 101 did not have a material effect on the Company's consolidated financial statements. l) 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. Effective July 1, 2001, the Company changed its amortization period from 30 to 15 years on a prospective basis. m) Income Taxes The company accounts for income tax under the provision of Statement of Financial Accounting Standards No. 109, which requires recognition of 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. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to tax expense in the period of enactment. Deferred tax assets may be reduced, if deemed necessary based on a judgmental assessment of available evidence, by a valuation allowance for the amount of any tax benefits which are more likely, based on current circumstances, not expected to be realized. n) Foreign Currency Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Translation adjustments resulting from this process are charged or credited to other comprehensive income. Revenue and expenses are translated at average rates of exchange prevailing during the year. Gains and losses on foreign currency transactions are included in financial expenses. o) Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles 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. p) Long-Lived Assets On January 1, 1996, the company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121 requires that long-lived assets be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management used its best estimate of the undiscounted cash flows to evaluate the carrying amount and have reflected the impairment. q) 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 addition 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. F-10 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) r) Accounting for Stock-Based Compensation In December 1995, SFAS No. 123, Accounting for Stock-Based Compensation, was issued. It introduces the use of a fair value-based method of accounting for stock-based compensation. It encourages, but does not require, companies to recognize stock-based compensation expenses to employees based on the new fair value accounting rules. Companies that choose not to adopt the new rules will continue to apply the existing accounting rules continued in Accounting Principles Board Option No. 25, Accounting for stock issued to employees. However, SFAS No. 123 requires companies that choose not to adopt the new fair value accounting rules to disclose pro forma net income and earnings per share under the new method. SFAS No. 123 is effective for financial statements for fiscal years beginning after December 31, 1995. The company has adopted the disclosure provisions of SFAS No. 123. s) Computer software costs The company accounts for the cost of developing computer software for internal use, which may be sold as a separate product, as a research and development expense until the technological feasibility of the product has been established. At the end of each year the company compares the unamortized capital costs represented by Deferred development costs in Other Assets to the net realizable value of the product to determine if a reduction in carrying value is warranted. Included in the software developed for own use which may be sold as a separate product is the Njoyn and Secondwave software and therefore for these products, the costs incurred after technological feasibility was reached has been treated as Deferred Development costs and the amount evaluated on an annual basis to determine if a reduction in carrying value is warranted. The company has developed computer software for internal use which is reflected in deferred development costs for which the company has commenced marketing in 2001. t) Investments in Non-Related Companies The company records its investment in companies in which it holds less than 20% interest at fair market value. Changes in fair market value are adjusted in comprehensive income. u) Recent Pronouncements In June 1998 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" which was amended by SFAS No. 138 and became effective on January 1, 2001. This statement requires that an entity recognizes all derivatives as either assets or liabilities and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The adoption of this standard will not have a material impact on the consolidated financial statements of the company. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Asset and Extinguishments of Liabilities. SFAS No. 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. It is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001 and is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The Company does not believe that this statement will materially impact its results of operations. In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." Under the new rules, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company will apply the new accounting rules beginning January 1, 2002. F-11 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) The Company is currently assessing the financial impact SFAS No. 141 and No. 142 will have on its Consolidated Financial Statements. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's statement of earnings. On December 12, 2001, the Securities and Exchange Commission issued FR-60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies", which encourages additional disclosure with respect to a Company's critical accounting policies, the judgments and uncertainties that affect the Company's application of those policies, and the likelihood that materially different amounts would be reported under different conditions and using different assumptions. v) Advertising Costs Advertising costs are expensed as incurred. Advertising expense was $451,120 in 2001 and $444,816 in 2000. 3. ACQUISITIONS Systemsearch Consulting Services Inc. was acquired on January 2, 1997 for $391,313. This amount was paid by the issuance of common stock and a cash payment of $97,828. The purchase has been reflected as follows: Consideration $ 391,313 Assumption of net liabilities 57,321 --------- Goodwill $ 448,634 ========= International Career Specialists Ltd. was acquired on January 1, 1998 for $652,188. This amount was paid by the issuance of common stock and a cash payment of $326,094. The purchase was reflected as follows: Consideration $ 652,188 Assumption of net liabilities 198,409 --------- Goodwill $ 850,597 ========= The assets of Southport Consulting Company, a New Jersey corporation, were acquired by Thinkpath Inc. in a transaction effective October 31, 1998. The consideration for the acquisition was as follows: Cash $ 50,000 Shares 200,000 --------- $ 250,000 ========= The assets acquired are valued as follows: Software $ 130,000 Office furniture and equipment 20,000 Other assets 100,000 --------- $ 250,000 ========= F-12 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) Cad Cam Inc. and its subsidiaries Cad Cam of Michigan Inc., Cad Cam Technical Services Inc., and Cad Cam Integrated Systems Inc. was acquired during 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 totaling $2,500,000 and $1,000,000 in the form of common stock to be issued with the final note payable. The documents were executed at the end of September 1999 and the operations consolidated with the company from October 1, 1999. (Note 12) 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 =========== MicroTech Professionals Inc., a company which provides technical documentation for the information technology sector, was acquired effective April 1, 2000 for $4,500,000.The amount will be paid in two installments, based on certain revenue requirements to be met by MicroTech Professionals Inc. The requirements have been met. First Instalment: 133,333 common stock issued on closing, $1,250,000 cash paid on closing, $750,000 by a three year promissory note bearing interest at 1/2% above prime paid semi-annually issued on closing. Second Instalment: $625,000 in common stock, $875,000 cash, $500,000 by a three-year promissory note bearing interest at 1/2% above prime paid semi-annually. The acquisition was accounted for by the purchase method and the operations have been included in the consolidated operations from April 1, 2000. Goodwill is being amortized over a period of thirty years commencing April 1, 2000.Refer to note 24(a) for supplemental information. (Note 12) The net acquired assets are valued as follows: Current assets $ 1,769,478 Other assets 850,000 Fixed assets 104,851 Liabilities assumed (1,073,527) Consideration including acquisition costs (4,660,000) ----------- Goodwill $ 3,009,198 =========== On December 31, 2001, the Company had written off the goodwill related to its investment in MicroTech Professionals Inc. On March 6, 2000, Thinkpath Inc. completed the acquisition of 80% of E-Wink, Inc., a Delaware corporation, in consideration of: i) 300,000 shares of our common stock valued at $975,000; 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 valued at $1,458,700. E-Wink was formed to match providers of venture capital, bridge loans and private placement capital with members of the brokerage community. The full purchase price of $2,433,700 has been allocated to goodwill. On December 31, 2000,the company has written off the goodwill related to its investment in E-Wink, Inc. F-13 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) 4. POOLING OF INTEREST Effective January 1, 2000. Thinkpath Inc. entered into a merger and acquisition agreement with a technical training provider, ObjectArts Inc. and its subsidiary ObjectArts (US) Inc. ObjectArts (US) Inc., was merged with IT Staffing New York Ltd., an inactive subsidiary of Thinkpath Inc. In exchange for all of the outstanding shares of ObjectsArts Inc., the company issued 527,260 common stock. The merger was accounted for as a pooling of interests and the results of ObjectArts Inc. and ObjectArts (US) Inc. have been included for all periods presented. On November 15, 2000, Thinkpath Inc. combined with TidalBeach Inc., a software developer, and in exchange for all of the outstanding shares of TidalBeach Inc., issued 250,000 common stock. The combination has been accounted for as a pooling of interests and the results of TidalBeach Inc. have been included for all periods presented. Refer to note 23(b) for supplemental information concerning TidalBeach Inc. 5. ACCOUNTS RECEIVABLE 2001 2000 $ $ Accounts receivable 6,079,676 8,316,832 Less: Allowance for doubtful accounts (577,563) (458,833) --------- --------- 5,502,113 7,857,999 ========= ========= 6. CAPITAL ASSETS
December 31, December 31, 2001 2000 ----------------------------------- --------- Accumulated COST AMORTIZATION NET NET $ $ $ $ Furniture and equipment 754,885 410,192 344,693 440,732 Computer equipment and software 6,553,687 4,230,800 2,322,887 2,938,431 Leasehold improvements 480,766 289,006 191,760 217,596 --------- --------- --------- --------- 7,789,338 4,929,998 2,859,340 3,596,759 ========= ========= ========= ========= Assets under capital lease 884,935 410,450 474,485 536,694 ========= ========= ========= =========
Amortization for the year ended December 31, 2001 amounted to $1,594,709 and $1,067,029 for the year ended December 31, 2000. Amortization includes amortization of assets under capital lease of $146,217 for the year ended December 31, 2001 and $136,487 for the year ended December 31, 2000. 7. INVESTMENT IN NON-RELATED COMPANIES Investment in non-related companies are represented by the following: 2001 2000 Conexys $667,511 $667,511 Digital Cement 346,415 507,865 Lifelogix -- 142,715 ---------- ---------- Total $1,013,926 $1,318,091 ========== ========== F-14 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) i) Tillyard Management During the year ended December 31, 2001, the company acquired an interest worth $130,242 in Tillyard Management Inc., a property management company, in consideration of a real estate management software system developed by Thinkpath Inc. This investment has been accounted for using the cost method. The Company wrote down the investment of $130,242 in Tillyard Management of $130,242 at December 31, 2001. ii) Conexys During the year ended December 31, 1999, $383,146 of the Conexys investment was included as a short-term investment as the company had intended to sell these shares on the open market. During fiscal 2000, the company acquired additional shares of Conexys at a cost of approximately $284,365 in consideration of services rendered and reclassified the total investment as available for sale. Since the shares of Conexys trade on the Bermuda Stock Exchange, the fair value was determined based on the stock price. iii) Digital Cement During fiscal 2000, the company acquired 1,125,000 shares of Digital Cement, representing approximately 4% of that company's shares in consideration of the co-licensing of SecondWave, software developed by TidalBeach Inc., a wholly-owned subsidiary of Thinkpath Inc. The value of these shares was determined to be approximately $507,865 based on a offer to a third party to purchase shares in the company at a price of $0.50 per share. During 2001, the fair value adjusted to $346,415 with a charge of $161,450 to comprehensive income. iv) Lifelogix During 2000, the company acquired a twenty percent interest in LifeLogix in consideration of the source code for Secondwave, the software which supports LifeLogix's human stress and emotions management systems. The value of these shares is approximately $142,715. This investment has been accounted for on the cost basis as the company does not have significant influence over LifeLogix. This investment was written off in 2001. The acquisition of additional shares in 2000 of Conexys and the acquisition of shares of Digital Cement and the investment in LifeLogix were reflected at the estimated fair market value of the shares received which represents the more determinable value in the exchange. Revenue includes $932,927 arising from these transactions was reported in 2000. 8. GOODWILL Goodwill is the excess of cost over the value of assets acquired over liabilities assumed in the purchase of the following companies: Amortization for the year ended December 31, 2001 was $454,908 and $319,879 for 2000. Effective July 1, 2001, the Company changed its amortization period from 30 to 15 years on a prospective basis.
2001 2000 -------------------------------------- ---------- Accumulated COST AMORTIZATION NET NET $ $ $ $ Systemsearch Consulting Services 448,634 303,337 145,297 388,818 International Career Specialists 850,597 850,597 -- -- Cad Cam Inc. 5,518,858 535,164 4,983,694 5,285,328 MicroTech Professionals Inc. 3,009,198 3,009,198 -- 2,911,144 E-Wink Inc. 2,433,700 2,433,700 -- -- ---------- ---------- ---------- ---------- 12,260,987 7,131,996 5,128,991 8,585,290 ========== ========== ========== ==========
F-15 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) In accordance with the requirements of SFAS 121, the impairment of goodwill has resulted in the writedown of the following amounts; 2001 2000 --------- --------- Systemsearch Consulting Services 238,673 -- MicroTech Professionals Inc. 2,762,718 -- International Career Specialists -- 679,568 E-Wink Inc. -- 2,433,700 ---------- ---------- 3,001,391 3,113,268 ========== ========== The Systemsearch Consulting Services office was closed on April 8, 2002 and its staff terminated. The balance of its contracts have been transferred to head office. MicroTech Professionals Inc. has had ongoing operating losses since February 2001 and has had the majority of its staff terminated subsequent to December 31, 2001. In 2000, the International Career Specialists office was closed and the balance of its contracts transferred to head office. Also in 2000, the start-up operations of E-wink were abandoned. 9. OTHER ASSETS December 31, December 31, 2001 2000 $ $ Deferred development cost 993,765 1,153,445 Deferred financing costs -- 9,945 Deferred contract(net of accumulated amortization of $590,000) 250,000 540,000 Cash surrender value of life insurance 43,945 109,499 --------- --------- 1,287,710 1,812,889 ========== ========= Amortization for the year ended December 31, 2001 amounted to $510,038 and $732,488 for the year ended December 31, 2000. 10. BANK INDEBTEDNESS i) December 31, 2001 At December 31, 2001, the Company had $4,870,000 outstanding with Bank One. The revolving line of credit provided for a maximum borrowing amount of $4,760,000 at variable interest rates based on eligible accounts receivable. At December 31, 2001, the Company had an overdraft of $110,000. The Company does not have an authorized overdraft facility with Bank One, however the bank has allowed an overdraft of up to $500,000 on a regular basis for approximately ten weeks. The revolving line of credit agreement requires the Company to meet various restrictive covenants, including a senior debt to EBITDA ratio, debt service coverage ratio, debt to tangible net worth ratio and certain other covenants. At December 31, 2001 and thereafter, the Company was not in compliance with the covenants contained in the revolving line of credit agreement. Bank One has indicated its intention to enter into a forbearance agreement with the Company in which the bank would refrain from exercising any rights or remedies based on existing or continuing defaults, including accelerating the maturity of the loans under the credit facility. As a result of the default on the loan covenants governing our credit line facility, Bank One restricted our repayment of certain subordinated loans and notes payable. The parties affected by this restriction, included the Business Development Bank of Canada, Roger Walters and Denise Dunne. F-16 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) ii) December 31, 2000 The company has a line of credit with Bank One to a maximum of $7,000,000, which bears interest at Canadian prime plus 1.5% per annum and is secured by a general assignment of book debts, a general security agreement and guarantees and postponements of claims by various affiliated companies. The company's average interest rate on short-term borrowings was 9%. 11. LONG-TERM DEBT i) December 31, 2001 At December 31, 2001, the Company had $419,079 in subordinated debt outstanding to the Business Development Bank of Canada. The loan agreements require the Company to meet a certain working capital ratio. At December 31, 2001 and thereafter, the Company was not in compliance with the covenant contained in the loan agreements. The Business Development Bank of Canada has agreed to postpone principal repayment of its subordinated loans until March 2002. The company has not made any principal payments to the Business Development Bank of Canada since June 2001, but is current in its interest obligations. Effective March 23, 2002, the Business Development Bank consolidated the Company's loans and established a new repayment schedule with extended maturity dates. ii) December 31, 2000 At December 31, 2000, the Company had $545,000 in subordinated debt outstanding to the Business Development Bank of Canada. At December 31, 2000 and thereafter, the Company was not in compliance with the covenant contained in the loan agreements. At December 31, 2000, the loan amounts were reclassified as current.
December 31 December 31 2001 2000 $ $ a) Included therein: Several loans with Business Development Bank of Canada ("BDC") secured by a general security agreement at various interest rates and royalties. 419,079 544,656 A loan with Bank One payable in 19 remaining monthly payments of $13,889 plus interest based on prime. Currently the interest is 6%. Subsequent to year end this loan was paid in full. 263,889 430,000 Various capital leases with various payment terms and interest rates 427,749 731,788 ---------- --------- 1,110,717 1,706,444 Less: current portion 528,285 946,131 ---------- --------- $ 582,432 $ 760,313 ========== ==========
F-17 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) b) Future principal payments obligations as at December 31, 2001, were as follows: 2002 $ 528,285 2003 423,061 2004 139,841 2005 15,712 2006 3,818 ---------- 1,110,717 ========== c) Interest expense with respect to the long-term debt amounted to $99,651 ($278,574 in 2000). d) Pursuant to the BDC loan agreement, BDC has the option to acquire 22,122 common stock for an aggregate consideration of $1. The fair market value of these options at the time of issuance was $62,393 ($2.82 per option). The imputed discount on these options has been amortized over the term of the loan as interest and was fully amortized prior to January 1, 1999. The options were exercised in July 2001. 12. NOTES PAYABLE In September 2001, the Company restructured its note payable to Roger Walters, the vendor of Cad Cam Inc. The principal was reduced from $1,200,000 to $750,000 in consideration of capital stock payable of $450,000. In addition, all principal payments were postponed until January 1, 2002 at which time, the Company will pay $12,500 per month plus interest at 4.5% until December 31, 2006. In September 2001, the Company restructured its note payable to Denise Dunne, the vendor of MicroTech Professionals Inc. The principal was reduced from $1,965,000 to $1,740,000 in consideration of capital stock payable of $225,000. In addition, all principal payments were postponed until January 1, 2003, at which time, the Company will pay $20,000 per month plus interest at 5% until December 31, 2006. The balance of $781,287 will be due on January 1, 2007. The Company is currently making interest payments of $14,397 per month until December 30, 2002. December 31 December 31 2001 2000 $ $ Note Payable to Roger Walters 750,000 1,325,000 Note Payable to Denise Dunne 1,740,000 2,000,000 ---------- ---------- 2,490,000 3,325,000 Less: current portion 150,000 1,683,333 ---------- ---------- $2,340,000 $1,641,667 ========== ========== c) Capital repayments as at December 31, 2001 2002 150,000 2003 390,000 2004 390,000 2005 390,000 2006 390,000 2007 780,000 ---------- $2,490,000 ========== F-18 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) 13. CAPITAL STOCK a) Authorized 30,000,000 Common stock, no par value (15,000,000 at December 31, 2000) 1,000,000 Preferred stock, issuable in series, rights to be determined by the Board of Directors b) Issued 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". 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. During 2000, the company effected two acquisitions accounted for as pooling of interest and therefore the capital stock of the company outstanding at January 1, 1999 and December 31, 1999 have been restated to reflect the aggregate capital stock and shareholder equity amounts as follows: # $ Original Balance as of December 31, 1998 1,717,875 1,448,368 Issuance of Shares for pooling of interest 777,260 344,576 --------- --------- Revised Balance as of December 31, 1998 2,495,135 1,792,944 ========= ========= As part of the acquisition of ObjectArts Inc., the company issued 196,800 common shares for a total consideration of $837,151 on the conversion of debt to common shares. On April 25, 2000, 133,333 common stock were issued for the purchase of MicroTech Professionals Inc., for a total consideration of $500,000. During 2000, 300,000 common stock were issued as partial consideration for the purchase of shares of E-Wink Inc. for a value of $975,000. On August 22, 2000, 1,063,851 shares of common stock and 560,627 warrants were issued in a private placement for net proceeds of $2,333,715 (gross proceeds of $2,681,600). During 2000, 3,533,111 common stock were issued for services rendered totaling $3,160,288. An amount of $110,000 has been included in the acquisition of MicroTech and the balance of $3,050,288 has been included in financing expenses as of December 31, 2000. During 2000, 1,694,343 common stock were issued on the conversion of Preferred Stock. The company has issued 1,800,000 common shares of the company in consideration of services rendered related to the acquisition of various subsidiaries. These shares are included in common stock issued in consideration of services in the amount of $1,125,000 and have been included in Acquisition costs and financing expenses for December 31, 2000. On September 13, 2000, Thinkpath Inc. entered into an agreement with Burlington Capital Markets Inc. to aid the company in further acquisitions. A total of 425,000 common shares has been reflected as issued for an aggregate cost of $717,250. This amount has been expensed in the year ended December 31, 2000 and is included in Acquisition costs and financing expenses. F-19 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) 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 options 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 14(e). 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. During the year December 31, 2001, the Company issued 400,000 shares of its common stock in consideration of $203,000 in cash. During the year ended December 31, 2001, the Company issued 30,632 shares of its common stock in consideration of legal services, 300,000 shares of its common stock in consideration of investment banking services, 596,667 shares to reduce common stock payable of $709,005, and 93,883 shares in settlement of accounts payable. c) Liabilities payable in common stock During the year ended December 31, 2001, the company issued 316,667 shares to reduce a note payable of $625,000 to Denise Dunne related to the purchase of MicroTech Professionals Inc. The company also issued 280,000 shares in relation to a settlement with an Njoyn employee. The balance at December 31, 2001, 2001 represents $474,297 to Roger Walters in settlement of a note payable, and $225,000 to Denise Dunne also in settlement of a note payable. d) 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. The conversion price will be based on the trading price at December 30, 1999 or 80% of the average of the ten trading days immediately preceding the conversion of the respective shares of Series A, preferred stock. The stockholders of the Series A, 8% cumulative, convertible stock are entitled to receive preferential cumulative quarterly dividends in cash or shares at a rate of 8% simple interest per annum on the stated value per share. The intrinsic value of the conversion price at date of issue was reflected as a dividend of $138,000. At any time after the effective date of the registration statement, Thinkpath Inc. has the option to redeem any or all of the shares of Series A, 8% cumulative, convertible, preferred stock by paying to the holders a sum of money equal to 135% of the stated value of the aggregate of the shares being redeemed if the conversion price is less than $2.00. Thinkpath 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. This right was exercised in July, 2000. F-20 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) On April 16, 2000, 2,500 shares of Series A, 8% cumulative, convertible, preferred stock, no par value were issued in a private placement for gross proceeds of $250,000. The proceeds have been reduced by any issue expenses. On April 16, 2000, 1,500 shares of Series B, 8% cumulative, convertible, preferred stock, no par value were issued in a private placement for gross proceeds of $1,500,000. The proceeds have been reduced by any issue expenses. On July 7, 2000, 5000 shares of series A, 8% cumulative, convertible, preferred stock, no par value were issued in a private placement for gross proceeds of $500,000. The proceeds have been reduced by any issue expenses. The preferred stock are convertible into common stock at the option of the holders under certain conditions, at any time after the effective date of the registration statement. As of December 31, 2000, 1,050 Series A preferred stock and 750 Series B preferred stock were not yet converted into common stock. 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. During the year ended December 31, 2001, the Company issued 3,864,634 common stock on the conversion of 1,050 Series A preferred stock, 750 Series B preferred stock and 285 Series C preferred stock. The Company paid dividends of $723,607 on the conversions. F-21 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) 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. e) 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. These warrants have been valued at $1,091,606 based on the Black Scholes model utilizing a volatility rate of 100% and a risk-less interest rate of 6.33%. This amount has been treated as a cumulative effect adjustment to retained earnings. For purposes of earnings per share, this amount has been included with preferred share dividend in the 2000 financial statements. In connection with the Initial Public Offering, the underwriters received 110,000 warrants. They are exercisable at a purchase price of $8.25 per share until June 1, 2004. On April 16, 2000, we issued 50,000 warrants in connection with a private placement of Series A stock and 300,000 warrants on the issue of Class B preferred shares. The warrants were issued with a strike price of $3.71 and expire April 16, 2005. These warrants have been valued at $939,981 based on the Black Scholes model utilizing a volatility rate of 100% and a risk-less interest rate of 6.18%. This amount has been treated as a preferred share dividend in the 2000 financial statements. In connection with the private placement of Series B preferred stock 225,000 warrants were issued. They are exercisable at a purchase price of $3.58. These warrants have been valued at $533,537 based on the Black Scholes model utilizing a volatility rate of 100% and a risk-less interest rate of 6.13%. This amount has been treated as a preferred share dividend in the 2000 financial statements. In 2000, in connection with the purchase of the investment in E-Wink 500,000 warrants were issued. They are exercisable at a purchase price of $3.25 and expire March 6, 2005. These warrants have been valued at $1,458,700 based on the Black Scholes model utilizing a volatility rate of 100% and a risk-less interest rate of 6.50%. This amount has been treated as part of the cost of the E-Wink investment. In 2000, in connection with the private placement of August 22, 2000, 560,627 warrants were issued. They are exercisable at a purchase price of $2.46 and expire August 22, 2005. These warrants have been valued at $1,295,049 based on the Black Scholes model utilizing a volatility rate of 100% and a risk-less interest rate of 6.13%. This amount has been treated as an allocation of the proceeds on the common stock issuance. On January 26, 2001, the Company: (i) repriced warrants to purchase up to 100,000 shares of its common stock, which warrant was issued to a certain investor in our April 2000 private placement offering of Series B 8% Cumulative Preferred Stock, so that such warrant is 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 280,693 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 warrants were exercised by KSH Investment Group, the placement agent in the Company's August 2000 private placement offering. The 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. F-22 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) 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 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. During the year ended December 31, 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. During the year ended December 31, 2001, the company issued 22,122 shares to the Business Development Bank of Canada on the exercise of warrants at $1.00. f) Stock Options The company had outstanding stock options issued in conjunction with its long-term financing agreements for 22,122 common stock which were exercised in July 2001, the cost of which has been expensed prior to January 1, 1999, and additional options issued to a previous employee of the company for 200,000 shares exercisable at $2.10. of which 18,508 were exercised during 2000. The balance of 181,492 are outstanding. During 1999, 250,500 options to purchase shares of the company were issued to related parties. The options are exercisable at $3.19. In connection with the acquisition of Cad Cam Inc. 100,000 options to purchase shares of the company were delivered in quarterly installments of 25,000 options each, starting January 1, 2000. The exercise amounts ranged from $2.12 to $3.25. The exercise price was amended to $1.00 and these options will be exercisable between April 4, 2001 to 2004. The cost of re-pricing of these options totaling $100,000 has been recorded in Acquisition costs and financing expenses for the year ended December 31, 2000. In July 1999, the directors of the company adopted and the stockholders approved the adoption of the company's 1998 Stock Option Plan. In May 2000, the directors approved the adoption of the 2000 Stock Option Plan. In June 2001, the directors approved the adoption of the 2001 Stock Option Plan. Each of the plans provides for the issuance of 435,000 options with the following terms and conditions. The plans are administrated by the Compensation Committee or the Board of Directors, which determine among other things, those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of common stock to be issued upon the exercise of the options and the option exercise price. F-23 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) The plans are effective for a period of ten years and options 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 plans generally require a three year vesting period, and shall be at an exercise price that may not be less than the fair market value of the common stock on the date of the grant. Options are non-transferable and if a participant ceases affiliation with the company by reason of death, permanent disability or retirement at or after age 65, the option remains exercisable for one year from such occurrence but not beyond the option's expiration date. Other types of termination allow the participant 90 days to exercise the option, except for termination for cause which results in immediate termination of the option. Any unexercised options that expire or that terminate upon an employee's ceasing to be employed by the company become available again for issuance under the plans, subject to applicable securities regulation. The plans 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 plans may not be increased without the consent of the stockholders of the company. Included in the options granted in 2000 were 260,000 options issued to related parties in December 2000. The options are exercisable at $0.70 and expire December 2005. 14. FINANCING EXPENSES Financing expenses represent the following; a) Acquisition costs incurred which are not related to a successfully completed acquisition and the costs incurred on the merger with entities treated as a pooling of interest. b) Financing expenses include investor relation fees, consulting services for financing and the cost of repricing options with an estimated cost of $100,000 netted against the debt reduction of $75,000. 15. RESTRUCTURING COSTS i) December 31, 2001 At the end of December 31, 2000 the Company had a restructuring reserve balance of $571,339 as a result of certain of the Company's actions to better align its cost structure with expected revenue growth rates. The restructuring activities related 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. Other employees at the London location, without contracts, have been terminated during March 2001 and April 2001. During the three months ended September 2001, the lease cancellation costs for London have been reduced by $30,700 and the severance costs for London have been reduced by $56,000. These amounts represent settlements reached with the landlord and one of the three employees with long term contracts. The employee agreed to a reduction in the term of the contract which resulted in a reduction of the liability of $56,000. F-24 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) 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 company moved its operations into this space at the end of October 2001. 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 December 31, 2001 Severance packages London-Training Cash 435,173 50,696 -- 384,477 - ------------------------------------------------------------------------------------------- Toronto-R&D Cash 17,640 (25,348) -- 42,988 - ------------------------------------------------------------------------------------------- Lease cancellations London-Training Cash 118,526 27,159 -- 91,367 Toronto-R&D Cash 439,714 -- (439,714) ------- ------- ------- ------- Commitments 571,339 492,221 -- 79,118 ======= ======= ======= =======
ii) December 31, 2000 During the fourth quarter of fiscal 2000, the Company recorded a restructuring charge 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 (shown below in tabular format) 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 will be incurred upon the termination of the balance of the employees at the London location after December 31, 2000. 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. 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. Detail of the restructuring charge and reserve balance is as follows;
Description Cash/non-cash Restructuring Activity Reserve balance Charge December 31, 2000 Elimination of Job Responsibilities Severance packages Cash 546,587 93,774 452,813 Lease cancellations Cash 138,516 19,990 118,526 ------- ------ ------- Commitments 685,103 113,764 571,339 ======= ======= =======
F-25 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) 16. 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: December 31, December 31, 2001 2000 $ $ Accounting amortization in excess of tax amortization 9,875 (190,000) Losses available to offset future income taxes 2,909,873 1,465,157 Share issue costs 532,405 790,957 Adjustment cash to accrual method (496,879) (413,688) Investment tax credit -- 201,000 --------- -------- 2,955,274 1,853,426 Less: Valuation allowance 3,105,654 210,000 --------- -------- (150,380) 1,643,426 ========= ======== As part of the acquisitions of Cad Cam Inc. and MicroTech Professionals Inc., there was a change of control which resulted in the subsidiaries being required to change from the cash method to the accrual method of accounting for income tax purposes. b) Current Income Taxes Current income taxes consist of: December 31, December 31, 2001 2000 $ $ Amount calculated at Federal and Provincial statutory rates (3,533,461) (2,750,577) ---------- --------- Increase (decrease) resulting from: Permanent differences 1,629,464 1,454,784 Timing differences (141,868) (103,879) Valuation allowance 2,895,654 210,000 ---------- --------- 4,383,250 1,560,905 ---------- --------- Current income taxes 849,789 (1,189,672) ========== ========= F-26 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) Issue expenses totalling approximately $1,300,000 may be claimed at the rate of 20% per year until 2005. To the extent that these expenses create a loss, the loss is available to be carried forward for seven years from the year the loss is incurred. As the US subsidiaries have been acquired by a non-US entity, the taxable income will be increased by approximately $1,900,000 over the next three years as the company is required to change its taxation method from the cash basis to the accrual basis. The company has not reflected the benefit of utilizing non-capital losses totalling approximately $7,700,000 in the future as a deferred tax asset as at December 31, 2001. As at the completion of the December 31, 2001 financial statements, Management believed it was more likely than not that the results of future operations would not generate sufficient taxable income to realize the deferred tax assets. 17. OTHER COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) for the year ended December 31, 2001:
Before Tax Tax (Expense) Net-of-Tax Amount or Benefit Amount ------ ---------- ------ Foreign currency translation adjustments 209,506 - 209,506 Adjustment to market value (230,643) 69,193 (161,450) --------- ------- --------- Other comprehensive income (loss) (21,137) 69,193 48,056 ========= ======== ========= Comprehensive income (loss) for the year ended December 31, 2000: Before Tax Tax (Expense) Net-of-Tax Amount or Benefit Amount ------ ---------- ------ Foreign currency translation adjustments (707,954) -- (707,954) Adjustment to market value 109,348 (32,800) 76,548 -------- -------- -------- Other comprehensive loss (598,606) (32,800) (631,406) ======== ======== =========
The foreign currency translation adjustments are not currently adjusted for income taxes since the company is situated in Canada and the adjustments relate to the translation of the financial statements from Canadian dollars into United States dollars done only for the convenience of the reader. F-27 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) 18. SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Thinkpath Inc. acquired all the capital stock of MicroTech Professionals Inc. on April 25, 2000, for $4,660,000. The acquisition was funded as follows: Fair Value of Assets acquired $ 1,769,478 Liabilities assumed (1,073,527) Goodwill 3,009,198 Other assets acquired 850,000 Fixed assets acquired 104,851 Liabilities payable in common stock (625,000) Cash paid for Capital Stock (1,300,000) Note Payable (2,125,000) Common Stock Issued (610,000) ------------ -- ------------ During the year ended December 31, 2000, the company reflected preferred dividends through the issuance of common shares and the beneficial conversion feature on its preferred shares in the amount of $3,586,807. The balance of the preferred dividends of $59,788 have been included in liabilities payable in common stock at December 31, 2000. A subordinated loan payable to Working Ventures in the amount of $837,151 was converted into 196,800 common shares. During the year ended December 31, 2000 the company acquired the shares of E-Wink in exchange for 300,000 common shares with a value of $975,000 and warrants valued at $1,458,700. During the year ended December 31, 2000, the company settled liabilities payable in common stock through the issuance of common shares with a value of $742,200. F-28 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) 19. SEGMENTED INFORMATION a) Sales by Geographic Area
Year Year Ended December 31, Ended December 31, 2001 2000 ------------------- ------------------- $ $ Canada 16,462,203 15,633,140 United States of America 20,464,008 28,692,640 ---------- ---------- 36,926,211 44,325,780 ========== ========== b) Net Income (Loss) by Geographic Area Year Year Ended December 31, Ended December 31, 2001 2000 ------------------- ------------------- $ $ Canada (4,390,557) (6,599,859) United States of America (5,292,885) (1,798,458) ----------- ----------- (9,683,442) (8,398,317) =========== =========== c) Identifiable Assets by Geographic Area December 31, December 31, 2001 2000 ---- ---- $ $ Canada 4,995,715 8,979,711 United States of America 12,179,263 16,706,229 ---------- ---------- 17,174,978 25,685,940 ========== ========== d) Revenue and Gross Profit by Operating Segment Year Year Ended December 31, Ended December 31, 2001 2000 ------------------- ------------------- $ $ Revenue IT Recruitment 16,333,311 13,864,829 Tech Pubs and Engineering 13,405,527 16,171,216 IT Documentation 3,422,470 6,265,665 Training 3,163,422 7,196,636 Technology 601,481 827,434 ---------- ---------- 36,926,211 44,325,780 ========== ========== Gross Profit IT Recruitment 3,916,397 7,654,180 Tech Pubs and Engineering 4,140,419 3,501,789 IT Documentation 1,305,634 2,764,794 Training 1,529,001 3,538,734 Technology 513,026 683,455 ---------- ---------- 11,404,477 18,142,952 ========== ==========
e) Revenues from Major Customers The consolidated entity had the following revenues from major Customers: One customer had sales of $6,800,000 USD which represents approximately 18% of total revenues. f) Purchases from Major Suppliers There were no significant purchases from major suppliers. F-29 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (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. December 31, December 31, 2001 2000 $ $ Average common stock outstanding 14,943,306 5,296,442 Average common stock issuable -- -- ----------- --------- Average common stock outstanding assuming dilution 14,943,306 5,296,442 ========== ========= The outstanding options and warrants were not included in the computation of the fully diluted earnings per common share as the effect would be anti-dilutive. The earnings per share calculation (basic and fully diluted) does not include any common stock for common stock payable as the effect would be anti-dilutive. 21. STOCK OPTION PLANS a) Options outstanding
OPTIONS WEIGHTED AVERAGE EXERCISE PRICE Options outstanding at January 1, 2000 472,625 2.21 Options granted to key employees and directors 969,500 2.22 Options exercised during the year (18,508) 2.10 Options forfeited during the year (4,000) 3.19 Options expired during the year - --------- Options outstanding at December 31, 2000 1,419,617 2.21 Options granted to key employees and directors 35,000 .68 Options granted to consultant 50,000 .70 Options exercised during the year (22,125) .01 Options forfeited during the year (257,500) 3.21 Options expired during the year - --------- Options outstanding at December 31, 2001 1,224,992 ========= Options exercisable December 31, 1999 472,625 2.58 Options exercisable December 31, 2000 714,117 1.95 Options exercisable December 31, 2001 1,059,659 1.75 Options available for future grant December 31, 1999 184,500 Options available for future grant December 31, 2000 -- Options available for future grant December 31, 2001 261,500
After December 31, 2001, 27,500 options exercisable at between $3.19 and $3.25 have been forfeited by employees following their termination and the expiry of their option periods to April 16, 2002. F-30 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) b) Range of Exercise Prices
Outstanding Weighted Options Options Weighted Options Average Outstanding exercisable Average Remaining Average Exercise Life Exercise Price Price $2.10 - $3.25 679,992 2.73 years $2.88 514,659 $2.80 $1 and under 545,000 3.06 years $0.75 545,000 $0.75
c) Pro-forma net income The company applies Accounting Principles Board Opinion No. 25, "Accounting of Stock Issued to Employees" and related interpretation in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for such plans. Had compensation cost been determined, based on the fair value at the grant dates for options granted during 2001, 2000 and 1999, consistent with the method of SFAS No.123, "Accounting for Stock-Based Compensation," the Company's pro forma net earnings and pro forma earnings per share for the years ended December 31, 2001 and 2000 would have been as follows:
2001 AS 2001 2000 AS 2000 REPORTED PRO FORMA REPORTED PRO FORMA -------- --------- -------- --------- Net loss (9,683,442) (10,128,562) (8,398,317) (8,939,590) Net loss after preferred share dividends (10,412,182) (10,857,302) (12,044,912) (12,586,185) Basic and fully diluted Loss per share (0.65) (0.68) (1.59) (1.70) loss per share after preferred dividends (0.70) (0.73) (2.27) (2.38)
d) Black Scholes Assumptions The fair value of each option grant used for purposes of estimating the pro forma amounts summarized above is estimated on the date of grant using the Black-Scholes option price model with the weighted average assumptions shown in the following table: 2001 GRANTS 2000 GRANTS ----------- ----------- Risk free interest rates 4.76% 6.05% Volatility factors 100% 100% Weighted average expected life 4.90 years 3.81 years Weighted average fair value per share .74 2.40 Expected dividends -- -- F-31 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) 22. SUPPLEMENTAL INFORMATION a) MicroTech Professionals Inc. acquisition The following represents that results of operations as though MicroTech had been acquired as of January 1, 2000 and as of January 1, 1999. December 31, 2000 December 31, 1999 Revenue 45,788,302 32,173,548 Net income (8,483,765) 402,430 Earnings per share (2.17) .08 Earnings per share - fully diluted (2.17) .07 b) TidalBeach Inc. pooling of interests The results of operations include the following amounts for the period prior to the combination of TidalBeach Inc. on November 15, 2000 Revenue $ 657,715 Net income $ 158,039 There are no inter-company transactions and no adjustments have been required to adopt the same accounting practices or combine the net income of the combining companies Reconciliation of revenue and net income(loss) previously reported
December 31, 1999 Previously ObjectArts TidalBeach Restated Reported Revenue 19,822,861 6,599,496 610,078 27,032,435 Net income(loss) 228,720 (251,128) 17,085 (5,323)
23. CONTINGENCIES a) 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, as at December 31, 2001 for the next five years are as follows: 2002 $1,160,000 2003 730,000 2004 695,000 2005 695,000 2006 570,000 Thereafter 515,000 -------- $4,365,000 ========== F-32 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) 24. SUBSEQUENT EVENTS On January 9, 2002, the Company entered into an agreement with Ogilvie Rothchild Inc., an Ontario company, to perform public relations and marketing services. In consideration of these services, Ogilvie Rotchild was paid a retainer of $16,000 and will be issued 500,000 shares of common stock upon successful completion of certain milestones. The agreement can be cancelled by either party at any time. On January 15, 2002, the Company entered into an agreement with David J. Wodar, a consultant operating in Ontario, to assist with investor communications and the development of marketing plans and strategies. In consideration of these services, Mr. Wodar will be paid a monthly fee of $6,500 and will be issued 480,000 shares of common stock. The agreement is for a term of twelve months and expires on January 15, 2003. On January 31, 2002, the Company received a term sheet from Investors Corporation for a Revolving Loan Facility of up to $7,500,000 based on eligible receivables, cash flow and EBITDA, a Term Loan Facility of up to $1,000,000 based on eligible equipment and an additional secured Credit Facility of $2,000,000 for future acquisitions financing. The financing is subject to due diligence and credit approval which is ongoing. On March 1, 2002 the Company sold its subsidiary, Njoyn Software Incorporated to Cognicase Inc, a Canadian company. The net proceeds after broker fees were $1,350,000 of which $800,000 was received in cash and $550,000 was received in unrestricted common shares. The shares were sold on March 11, 2002 for value of $524,673.19. As part of the transaction, Cognicase assumed the entire staff in the technology division. On March 1, 2002, the Company entered into an agreement with American Capital Partners Limited, an Ontario company, to assist in achieving interim loan funding and a private placement of subordinated convertible debentures of $2 million. The convertible debentures would be for a term of two years at 18% interest with a conversion price of $0.65. In addition to an engagement fee of $15,000, American Capital Partners is entitled to a faciliation fee of 6% of gross funding upon successful completion of a transaction. This agreement expires May 1, 2002. On April 4, 2002, the Company retained Johnston & Associates, LLC, a Washington company, to provide strategic governmental relations counseling and marketing representation before the Department of Defense, Congress and targeted companies in connection with marketing the services of the Company's engineering operations related to specific government contracts. Johnston & Associates will be compensated at a rate of $10,000 per month for twelve months beginning April 2002 and ending March 31, 2003. In addition, Johnston & Associates will receive 200,000 warrants of the Company's common stock at the fair market value on the date of grant and will vest at 50% per year. On April 10, 2002, the Company signed a letter of intent with triOS Training Centres Limited, an Ontario company, for the purchase of certain assets of the Toronto training division, Thinkpath Training for a nominal amount of cash and the assumption of all prepaid training liabilities. As part of the transaction, triOS will assume the Toronto training staff and sublet the classroom facilities. The transaction is anticipated to close May 1, 2002. On April 12, 2002, the Company received a letter of intent from 1/0 Capital LLC, a New York company, for financing of $1,500,000 in the form of a convertible note for a term of one year at 10% interest with various conversion prices ranging from average of prior 30 day price before closing and $0.30, with fifty per cent warrant coverage exercisable at $0.30 per share. The financing is conditional on due diligence and the appointment of 1/0 as the primary outsourcer for the Company's offshore technology, engineering and call center business requirements. F-33 THINKPATH INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (AMOUNTS EXPRESSED IN US DOLLARS) 25. 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. d) Fair Value of Financial Instruments The carrying value of the accounts receivable, 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. 26. COMPARATIVE FIGURES Certain figures in the December 31, 2000 financial statements have been reclassified to conform with the basis of presentation used in December 31, 2001. F-34 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE We have had no changes in or disagreements with our accountants. -25- PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT Our officers and directors, and further information concerning each of them, are as follows as at the date of this Annual Report on Form 10-KSB: Name Age Position - ---- --- -------- Declan A. French 55 Chairman of the Board of Directors and Chief Executive Officer Laurie Bradley 46 President Tony French 29 Executive Vice President Kelly Hankinson 32 Chief Financial Officer, Secretary, Treasurer and Director John Dunne 56 Director Arthur S. Marcus 35 Director Ronan McGrath 52 Director Robert Escobio 46 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 Bylaws provide that the authorized number of directors shall be as set by our Board of Directors, but shall not be less than one. Strasbourger Pearson Tulcin Wolff Incorporated, the managing underwriter for our June 8, 1999 initial public offering, shall have the right, at its option, to designate one director or observer to our Board of Directors until June 1, 2002. In addition, with respect to our August 2000 private placement offering, our Board of Directors is required to nominate a director designee of KSH Investment Group, Inc., the placement agent, who is reasonably acceptable to our Board of Directors. We have paid our directors fees for service on the Board of Directors by the issuance of options under our 1998 Stock Option Plan, 2000 Stock Option Plan and 2001 Stock Option Plan. Set forth below is a biographical description of each of our directors based on information supplied by each of them: Declan A. French has served as our Chairman of the Board of Directors and Chief Executive Officer since our inception in February 1994. Prior to founding Thinkpath, Mr. French was President and Chief Executive Officer of TEC Partners Ltd., an information technology recruiting firm in Toronto, Canada. Mr. French has a diploma in Psychology and Philosophy from the University of St. Thomas in Rome, Italy. Mr. French is the father of Tony French, our Executive Vice President. Laurie Bradley has served as our President since February 2001. Ms. Bradley is responsible for all of our sales initiatives and the integration of our acquisitions. From 1998 to January 2001, Ms. Bradley served as the President of the e-business division of Century Business Services Inc., a North American accounting and outsourcing firm. From 1988 to 1998, Ms. Bradley served as the Vice President of Adecco, an international staffing company. Tony French has served as our Executive Vice President since September 1999. In his capacity of Executive Vice President, Mr. French is responsible for overseeing our recruitment services division. Prior to becoming Executive Vice President, Mr. French served as our Vice President of Sales, since our inception in 1994. Mr. French is the son of Declan A. French, our Chairman of the Board of Directors and Chief Executive Officer. Kelly Hankinson has served as our Chief Financial Officer since May 2000, and as a member of our Board of Directors since June 2000 and as our Secretary and Treasurer since March 2001. Ms. Hankinson served as our Vice President, Finance and Administration and Group Controller from February 1994 to May 2000. Ms. Hankinson has a Masters Degree and a Bachelors Degree from York University. John Dunne has served on our Board of Directors since June 1998. Mr. Dunne has served as our 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. Arthur S. Marcus has served on our Board of Directors since April 2000. Mr. Marcus is a partner at the New York law firm of Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP, our United States securities counsel. Mr. Marcus joined Gersten, Savage, Kaplowitz, Wolf & Marcus LLP, in 1991 and became a partner in 1996. Mr. Marcus specializes in the practice of United States Securities Law and has been involved in approximately 50 initial public offerings and numerous mergers and acquisitions. Mr. Marcus received a Juris Doctorate from Benjamin N. Cardozo School of Law in 1989. -26- Ronan McGrath has served on our Board of Directors since June 2000. Mr. McGrath has served as the Chief Information Technology Officer of Rogers Communications Inc. and the President of Rogers Shares Services Inc., since their inception in 1996. Mr. McGrath was the Chief Information Technology Officer of Canadian National Railways from 1992 to 1996 and was a Senior Manager of Arthur Andersen from 1977 to 1979. Mr. McGrath was awarded the Canadian Chief Information Technology Officer of the Year Award in 1995. Mr. McGrath currently serves on Compaq Computer's Board of Advisers and is a member of the Board of Directors of The Information Technology Association of Canada. Robert Escobio has served on our Board of Directors since May 2001. Mr. Escobio is the President and Chief Executive Officer of Capital Investment Services, Inc., an investment brokerage firm based in Florida. In these roles, Mr. Escobio is responsible for all aspects of a "broker/dealer" including financial, compliance, sales and operational procedures. Mr. Escobio is also a Portfolio Manager for many prominent individuals and works with various international institutions, brokers, and dealers. Prior to being employed by Capital Investment Services, Inc., Mr. Escobio served as the Executive Vice President and International Director for Brill Securities Inc. where he managed portfolios for numerous high net-worth customers and performed institutional trading. Mr. Escobio also had numerous managerial roles in companies such as Cardinal Capital Management, Smith Barney, Prudential Securities and Dean Witter. Mr. Escobio holds an MBA and a BSBA in Finance and Management. Committees of the Board of Directors In July 1998, our Board of Directors formalized the creation of a Compensation Committee, which is currently comprised of John Dunne, Arthur S. Marcus and Ronan McGrath. The Compensation Committee has: (i) full power and authority to interpret the provisions of, and supervise the administration of, our 1998 Stock Option Plan, 2000 Stock Option Plan and 2001 Stock Option Plan, as well as any stock option plans adopted in the future; and (ii) the authority to review all compensation matters relating to us. The Compensation Committee has not yet formulated compensation policies for senior management and executive officers. However, it is anticipated that the Compensation Committee will develop a company-wide program covering all employees and that the goals of such program will be to attract, maintain, and motivate our employees. It is further anticipated that one of the aspects of the program will be to link an employee's compensation to his or her performance, and that the grant of stock options or other awards related to the price of the shares of our common stock will be used in order to make an employee's compensation consistent with shareholders' gains. It is expected that salaries will be set competitively relative to the information technology and engineering services and consulting industry and that individual experience and performance will be considered in setting such salaries. In July 1998, our Board of Directors also formalized the creation of an Audit Committee, which currently consists of Kelly Hankinson and John Dunne. The Audit Committee is charged with reviewing the following matters and advising and consulting with our entire Board of Directors with respect to: (i) the preparation of our annual financial statements in collaboration with our chartered accountants; (ii) annual review of our financial statements and annual reports; and (iii) all contracts between us and our officers, directors and other of our affiliates. The Audit Committee, like most independent committees of public companies, does not have explicit authority to veto any actions of our entire Board of Directors relating to the foregoing or other matters; however, our senior management, recognizing their own fiduciary duty to us and our shareholders, is committed not to take any action contrary to the recommendation of the Audit Committee in any matter within the scope of its review. We have established an Executive committee, comprised of certain of our executive officers and key employees, which allows for the exchange of information on industry trends and promotes "best practices" among our business units. Currently, the Executive Committee consists of Declan A. French, Laurie Bradley, Tony French, Michael Reid, and Kelly Hankinson. 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. -27- Insofar as indemnification for liabilities arising under the Securities Act may be permitted, our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses, incurred or paid by one of our directors, officers or controlling persons in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person, we will, unless our counsel opines that the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by us is against public policy as expressed in the Securities Act and we 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 our Chief Executive Officer and to each of our executive officers who earned in excess of $100,000 during the year ended December 31, 2001:
Name and Restricted Principal Annual Stock Other Position Year Salary Bonus Awards Options/SARs Compensation - -------- ---- ------ ----- ------ ------------ ------------- Declan A. French, 2001 150,000 100,000(1) -0- -0- -0- Chief Executive Officer 2000 100,000 750,000(1) -0- 29,000 -0- and Chairman of the Board 1999 106,342 -0- -0- 100,000 -0- Laurie Bradley 2001 150,000 -0- -0- -0- -0- President 2000 -0- -0- -0- -0- -0- 1999 -0- -0- -0- -0- -0- Tony French, 2001 94,500 -0- -0- -0- 25,000(2) Executive Vice President 2000 94,500 -0- -0- 75,000 47,000(2) 1999 75,000 -0- -0- -0- -0- Kelly Hankinson 2001 100,000 -0- -0- -0- -0- Chief Financial Officer, 2000 75,000 -0- -0- 100,000 -0- Director 1999 75,000 -0- -0- -0- -0- Mike Reid 2001 120,000 -0- -0- -0- -0- Chief Information Officer 2000 120,000 -0- -0- 100,000 -0- 1999 -0- -0- -0- -0- -0- John R. Wilson, 2001 60,000 -0- -0- -0- $47,000(3) President-Systemsearch 2000 80,000 -0- -0- 4,000 80,000(3) Consulting Services 1999 81,600 -0- -0- 24,000 76,915(3) (1) This reflects the dollar value of 588,235 shares of common stock issued to Mr. French in lieu of cash bonuses for the fiscal year 2001 and 1,200,000 shares for the fiscal years of 1999 and 2000 pursuant to his employment agreement. (2) This reflects commissions paid pursuant to Mr. French's employment agreement. (3) This reflects commissions paid pursuant to Mr. Wilson's employment agreement. Mr. Wilson was terminated April 8, 2002.
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 2 years commencing on November 28, 2001. Mr. French shall be paid a base salary of $150,000 and a bonus to be determined by our EBITDA (earnings before interest, taxes, depreciation and amortization) as a percentage of annual gross revenue with a minimum guaranteed bonus of $100,000. The bonus will be paid in cash or shares at our discretion. In April 2002, we issued 588,235 shares of our common stock to Mr. French as payment in full for the bonus due for the fiscal year 2001. In February 2001, we issued 1,200,000 shares of our common stock as payment in full for the bonuses due to Mr. French for the fiscal years of 1999 and 2000 pursuant to the terms of his previous employment agreement. Mr. French continues to serve as our Chairman and Chief Executive Officer. In February 1998, in connection with the acquisition of Systemsearch Consulting Services Inc., we entered into a 3-year employment agreement with John R. Wilson whereby he served as President of Systemsearch Consulting Services Inc. at annual salary of $120,000 plus commissions. The agreement was effective as of January 2, 1997. Pursuant to the agreement, Mr. Wilson had control of the day-to-day management of Systemsearch Consulting Services Inc. Mr. Wilson's contract was not renewed, though he continued to be employed by us on a month-to-month basis at an annual salary of $67,000 plus commissions. On April 8, 2002, we closed the office and sold certain assets of Systemsearch Consulting Services Inc. to Mr. Wilson in consideration of the assumption of the lease and certain liabilities. Existing contracts were transferred to head office and all sales and administrative staff were terminated. Mr. Wilson is no longer employed by Thinkpath. -28- In September 1999, in connection with the acquisition of Cad Cam, Inc., Roger W. Walters was elected to our Board of Directors. On March 14, 2001, Mr. Walters resigned from the Board of Directors effective March 30, 2001. On January 1, 2000, in connection with the acquisition of ObjectArts Inc., we entered into an employment agreement with Marilyn Sinclair whereby she was to serve as our Vice President and as President of ObjectArts Inc. The employment agreement was for a term of 3 years commencing on January 1, 2000 with an annual salary of $82,000. The agreement was terminated on March 9, 2001, the effective date of Ms. Sinclair's resignation from Thinkpath. Ms. Sinclair resigned from the Board of Directors effective April 4, 2001. On April 1, 2000, in connection with the acquisition of MicroTech Professionals, Inc., we entered into an employment agreement with Denise Dunne-Fushi pursuant to which she served as our Vice-President and as President of MicroTech Professionals, Inc. The employment agreement was for a term of 1 year commencing on April 25, 2000, with an annual salary of $125,000 and a bonus of $25,000. Thinkpath and Mrs. Dunne-Fushi are currently in the process of negotiating the terms of the renewal of her employment agreement. Mrs. Dunne-Fushi continues to serve as our Vice President and as President of MicroTech Professionals, Inc. on a month-to-month basis under the terms described above. On November 15, 2000, in connection with the business combination with TidalBeach Inc., we entered into an employment agreement with Michael Reid pursuant to which Mr. Reid will serve as our Chief Information Officer and as the President of TidalBeach Inc. The employment agreement is for a term of 2 years commencing on November 15, 2000, with an annual salary of $120,000. Pursuant to the Share Purchase Agreement governing the sale of our subsidiary, Njoyn Software Incorporated to Cognicase Inc., Mr. Reid is being contracted as a consultant to Cognicase for a period of six months until September 1, 2002. On January 29, 2001, we entered into an employment agreement with Laurie Bradley whereby she will serve as our President. Ms. Bradley shall be paid an annual salary of $130,000 and a performance bonus. The employment agreement is for an indeterminate period of time. On March 1, 2001, we entered into an employment agreement with Tony French whereby he will serve as our Executive Vice President. Mr. French shall be paid an annual salary of $100,000 and a performance bonus. The employment agreement is for an indeterminate period of time. In the event Mr. French is terminated for any reason, including but not limited to, the acquisition of Thinkpath, Mr. French shall be entitled to a severance payment equal to 1 year's salary. Mr. French is the son of Declan A. French. On March 1, 2001, we entered into an employment agreement with Kelly Hankinson whereby she will serve as our Chief Financial Officer, Secretary and Treasurer. Ms. Hankinson shall be paid an annual salary of $100,000. The employment agreement is for an indeterminate period of time. In the event Ms. Hankinson is terminated for any reason, including but not limited to, the acquisition of Thinkpath, Ms. Hankinson shall be entitled to a severance payment equal to 1 year's salary. No other officer has an employment agreement with us. Compensation of Directors There are no standard arrangements for the payment of any fees to our directors for acting in such capacity. Our directors have been issued warrants and/or options for services rendered in this capacity. Directors are reimbursed for expenses for attending meetings. The Board of Directors and our shareholders have adopted a 1998 Stock Option Plan, 2000 Stock Option Plan and 2001 Stock Option Plan, pursuant to which options have been granted or will be granted to officers, directors, consultants, key employees, advisors and similar parties who provide their skills and expertise to us. Options, Warrants or Rights Issued to Directors and/or Officers On August 19, 1999, Declan A. French was issued an option to purchase 100,000 shares of our common stock at an exercise price of $3.19 per share. The option was issued in consideration for services rendered to us in his capacity as Chairman of the Board and Chief Executive Officer. The option is immediately exercisable and expires on August 19, 2004. -29- On August 19, 1999, Tony French was issued an option to purchase 50,000 shares of our common stock at an exercise price of $3.19 per share. The option was issued in consideration for services rendered to us in his capacity as an employee. The option is immediately exercisable and expires on August 19, 2004. On August 19, 1999, John R. Wilson was issued an option to purchase 20,000 shares of our common stock at an exercise price of $3.19 per share. The option was issued in consideration for services rendered to us in his capacity as President of Systemsearch Consulting Services Inc. The option is immediately exercisable and expires on August 19, 2004. On August 19, 1999, Kelly Hankinson was issued an option to purchase 25,000 shares of our common stock at an exercise price of $3.19 per share. The option was issued in consideration for services rendered to us in her capacity as Vice President, Finance and Administration and Group Controller. The option is immediately exercisable and expires on August 19, 2004. On August 19, 1999, Arthur S. Marcus was issued an option to purchase 2,500 shares of our common stock at an exercise price of $3.19 per share. The option was issued in consideration for legal services rendered. The option is immediately exercisable and expires on August 19, 2004. On January 1, 2000, Roger W. Walters, a former director of Thinkpath, was issued an option to purchase 25,000 shares of our common stock at an exercise price of $3.25 per share. The option was issued in connection with our acquisition of Cad Cam, Inc. The option was immediately exercisable and expired on December 31, 2000. Such option was not exercised. On March 22, 2000, Declan A. French was issued an option to purchase 4,000 shares of our common stock at an exercise price of $3.19 per share. The option was issued in consideration for services rendered to us in his capacity as Chairman of the Board and Chief Executive Officer. The option shall vest at a rate of 1,333 shares of common stock per year and shall be fully vested on March 22, 2003. The option expires on March 22, 2005. On March 22, 2000, Thomas E. Shoup, our former President and Chief Operating Officer, was issued an option to purchase 4,000 shares of our common stock at an exercise price of $3.19 per share. The option was issued in connection with our acquisition of Cad Cam, Inc. and in consideration for services rendered to us in his capacity as President and Chief Operating Officer. The option was to vest at a rate of 1,333 shares of common stock per year and was to be fully vested on March 22, 2003. The option was to expire on March 22, 2005. The option terminated on December 22, 2000, the effective date of Mr. Shoup's resignation as an officer of Thinkpath. On March 22, 2000, Tony French was issued an option to purchase 4,000 shares of our common stock at an exercise price of $3.19 per share. The option was issued in consideration for services rendered to us in his capacity as Executive Vice President. The option shall vest at a rate of 1,333 shares of common stock per year and shall be fully vested on March 22, 2003. The option expires on March 22, 2005. On March 22, 2000, Kelly Hankinson was issued an option to purchase 3,500 shares of our common stock at an exercise price of $3.19 per share. The option was issued in consideration for services rendered to us in her capacity as Vice President, Finance and Administration and Group Controller. The option shall vest at a rate of 1,167 shares of common stock per year and shall be fully vested on March 22, 2003. The option expires on March 22, 2005. On March 22, 2000, Roger W. Walters, a former director of Thinkpath, was issued an option to purchase 4,000 shares of our common stock at an exercise price of $3.19 per share. The option was issued in consideration for services rendered to us in his capacity as Executive Vice President of US Operations and as a director. The option shall vest at a rate of 1,333 shares of common stock per year and shall be fully vested on March 22, 2003. The option expires on March 22, 2005. On March 22, 2000, John R. Wilson was issued an option to purchase 4,000 shares of our common stock at an exercise price of $3.19 per share. The option was issued in consideration for services rendered to us in his capacity as President of Systemsearch Consulting Services Inc. The option shall vest at a rate of 1,333 shares of common stock per year and shall be fully vested on March 22, 2003. The option expires on March 22, 2005. -30- On March 22, 2000, John A. Irwin, a former officer of Thinkpath, was issued an option to purchase 4,000 shares of our common stock at an exercise price of $3.19 per share. The option was issued in consideration for services rendered to us in his capacity as President of International Career Specialists Ltd. The option shall vest at a rate of 1,333 shares of common stock per year and shall be fully vested on March 22, 2003. The option expires on March 22, 2005. On March 22, 2000, William J. Neil, a former director of Thinkpath, was issued an option to purchase 10,000 shares of our common stock at an exercise price of $3.19 per share. The option was issued in consideration for services rendered to us in his capacity as a director. The option shall vest at a rate of 3,333 shares of common stock per year and shall be fully vested on March 22, 2003. The option expires on March 22, 2005. On March 22, 2000, John Dunne was issued an option to purchase 10,000 shares of our common stock at an exercise price of $3.19 per share. The option was issued in consideration for services rendered to us in his capacity as director. The option shall vest at a rate of 3,333 shares of common stock per year and shall be fully vested on March 22, 2003. The option expires on March 22, 2005. On March 22, 2000, James Reddy, a former director of Thinkpath, was issued an option to purchase 10,000 shares of our common stock at an exercise price of $3.19 per share. The option was issued in consideration for services rendered to us in his capacity as director. The option shall vest at a rate of 3,333 shares of common stock per year and shall be fully vested on March 22, 2003. The option expires on March 22, 2005. On March 31, 2000, Roger W. Walters, a former director of Thinkpath, was issued an option to purchase 25,000 shares of our common stock at an exercise price of $2.75 per share. The option was issued in connection with our acquisition of Cad Cam, Inc. The option was immediately exercisable and expired on December 31, 2000. Such option was never exercised. On May 9, 2000, Marilyn Sinclair, a former officer and director of ours, was issued an option to purchase 4,000 shares of our common stock at an exercise price of $3.25 per share. The option was issued in consideration for services rendered to us in her capacity as Vice President and President of ObjectArts Inc. The option shall vest at a rate of 1,333 shares of common stock per year and shall be fully vested on May 9, 2003. The option expires on May 9, 2005 On June 30, 2000, Roger W. Walters, a former officer and director of ours, was issued an option to purchase 25,000 shares of our common stock at an exercise price of $3.00 per share. The option was issued in connection with our acquisition of Cad Cam, Inc. The option was immediately exercisable and expired on December 31, 2000. Such option was never exercised. On September 30, 2000, Roger W. Walters, a former officer and director of ours, was issued an option to purchase 25,000 shares of our common stock at an exercise price of $2.12 per share. The option was issued in connection with our acquisition of Cad Cam, Inc. The option was immediately exercisable and expired on December 31, 2000. Such option was never exercised. On December 26, 2000, Declan A. French was issued an option to purchase 25,000 shares of our common stock at an exercise price of $0.70 per share. The option was issued in consideration for services rendered to us in his capacity as Chairman of the Board. The option shall vest at a rate of 8,333 shares of common stock per year and shall be fully vested on December 26, 2003. The option expires on December 26, 2005 On December 26, 2000, Kelly Hankinson was issued an option to purchase 100,000 shares of our common stock at an exercise price of $0.70 per share. The option was issued in consideration for services rendered to us in her capacity as director. The option expires on December 26, 2005. On December 26, 2000, John Dunne was issued an option to purchase 25,000 shares of our common stock at an exercise price of $0.70 per share. The option was issued in consideration for services rendered to us in his capacity as director. The option shall vest at a rate of 8,333 shares of common stock per year and shall be fully vested on December 26, 2003. The option expires on December 26, 2005. On December 26, 2000, Arthur S. Marcus was issued an option to purchase 25,000 shares of our common stock at an exercise price of $0.70 per share. The option was issued in consideration for services rendered to us in his capacity as director. The option shall vest at a rate of 8,333 shares of common stock per year and shall be fully vested on December 26, 2003. The option expires on December 26, 2005. On December 26, 2000, Ronan McGrath was issued an option to purchase 25,000 shares of our common stock at an exercise price of $0.70 per share. The option was issued in consideration for services rendered to us in his capacity as director. The option shall vest at a rate of 8,333 shares of common stock per year and shall be fully vested on December 26, 2003. The option expires on December 26, 2005. On December 26, 2000, Michael Reid was issued an option to purchase 100,000 shares of our common stock at an exercise price of $0.70 per share. The option shall vest at a rate of 33,333 shares of common stock per year and shall be fully vested on December 26, 2003. The option expires on December 26, 2005. -31- On March 28, 2001, Joel Schoenfeld was issued an option to purchase 25,000 shares of our common stock at an exercise price of $0.67 per share. The option was issued in consideration for services rendered to us in his capacity as an advisor to the Board of Directors. The option shall vest at a rate of 8,333 shares of common stock per year and shall be fully vested on December 26, 2004. The option expires on May 29, 2006. On December 26, 2001, Mr. Schoenfeld resigned from the Board of Directors. 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. The options shall be exercisable during the period April 1, 2001 to April 4, 2004. No options were issued to any of our officers during the year 2001. -32- Consulting Agreements In May 1998, we entered into a consulting agreement with Robert M. Rubin, one of our former directors, pursuant to which Mr. Rubin is required To 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. As of the date hereof, we have issued 64,778 shares of our common stock upon Mr. Rubin's exercise of the option. On September 13, 2000, we entered into an engagement agreement with Burlington Capital Markets Inc. We agreed to sell to Burlington Capital Markets an aggregate of 250,000 shares of our common stock at a cash purchase price of $.01 per share. We further agreed to issue warrants to purchase an aggregate of 400,000 shares of our common stock according to the following schedule: (i) 100,000 shares at an exercise price of $5.00 per share, exercisable at any time after October 13, 2000; (ii) 100,000 shares at an exercise price of $7.00 per share, exercisable at any time after November 13, 2000; (iii) 100,000 shares at an exercise price of $9.00 per share, exercisable at any time after December 13, 2000, and (iv) 100,000 shares at an exercise price of $11.00 per share, exercisable at any time after February 13, 2001. Such warrants were exercisable in whole or in part 5 years from the respective vesting date and contained a cashless exercise provision and registration rights. Compensation was to be paid to Burlington at a monthly fee of $10,000 for a minimum of six months. The agreement with Burlington was subsequently terminated and no warrants were issued. In the aggregate, Burlington received 425,000 shares of our common stock and $10,000 pursuant to the agreement. The additional 175,000 shares constituted compensation to Burlington Capital Markets Inc. as a settlement on the termination of the agreement. On December 14, 2000, we entered into a consulting agreement with Tsunami Trading Corp. d/b/a Tsunami Financial Communications and International Consulting Group, pursuant to which Tsunami and International Consulting Group are to provide financial consulting services to us with respect to financing, and mergers and acquisitions and related matters. In consideration for the services to be rendered, we: (a) issued 160,000 shares of our common stock to the consultants as an advance fee, (b) agreed to pay a fee of 10% of the consideration received by us upon the successful completion of any transaction contemplated by the consulting agreement; and (c) agreed to issue warrants to purchase our common stock in an amount equal to 2% of the equity sold and/or issued by us in any transactions contemplated by the consulting agreement. As a result of an oral agreement between us and Del Mar Consulting Group entered into in December 2000, on January 24, 2001, we executed a written agreement pursuant to which Del Mar Consulting Group shall provide investors' communications and public relations services. Pursuant to the agreement, we issued a non-refundable retainer of 400,000 shares common stock to Del Mar and are required to pay $4,000 per month for on-going consulting services. In addition, we issued Del Mar warrants to purchase 400,000 shares of our common stock at $1.00 per share and 100,000 shares at $2.00 per share which collectively expire January 24, 2005 and 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 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 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. On August 22, 2001, we issued 93,883 shares of our common stock in lieu of fees, for investor communications and public relations services rendered. On January 30, 2001, we issued an additional 20,000 shares of our common stock to International Consulting Group for financial consulting services rendered pursuant to the December 14, 2000 consulting agreement between Tsunami Trading Corp. d/b/a Tsunami Financial Communications, International Consulting Group and us. On April 1, 2001, we entered into an agreement with Dailyfinancial.com, Inc., a New York corporation, pursuant to which Dailyfinancial will provide services with respect to investor communications and public relations. Dailyfinancial acts a liaison between us and our shareholders, brokers, broker-dealers and other investment professionals. In lieu of fees, we issued Dailyfinancial 90,000 shares of our common stock for services to be rendered for the period between April 1, 2001 to September 30, 2001. On October 3, 2001 we issued an additional 75,000 shares of our common stock in lieu of fees for services to be rendered for the period between October 1, 2001 to December 31, 2001. -33- On November 1, 2001, we agreed to amend our agreement with the Series C preferred stockholders, and removed the provision prohibiting the investors from executing short sales of the Company's common stock for as long as they continue to hold shares of Series C preferred stock. The amendment was made in consideration of the investors' waiver of certain penalties and fees for delinquent registration of the common stock underlying the Series C preferred shares. On January 9, 2002, we entered into an agreement with Ogilvie Rothchild Inc., an Ontario company, to perform public relations and marketing services. In consideration of these services, we paid Ogilvie Rotchild a retainer of $16,000 and will issue 500,000 shares of our common stock upon successful completion of certain milestones. The agreement can be cancelled by either party at any time. On January 15, 2002, we entered into an agreement with David J. Wodar, a consultant operating in Ontario, to assist with investor communications and the development of marketing plans and strategies. In consideration of these services, Mr. Wodar will be paid a monthly fee of $6,500 and will be issued 480,000 shares of our common stock. The agreement is for a term of twelve months and expires on January 15, 2003. On April 4, 2002, we retained Johnston & Associates, LLC, a Washington company, to provide strategic governmental relations counseling and marketing representation before the Department of Defense, Congress and targeted companies in connection with marketing the services of our engineering operations related to specific government contracts. Johnston & Associates will be compensated at a rate of $10,000 per month for twelve months beginning April 2002 and ending March 31, 2003. In addition, Johnston & Associates will receive 200,000 warrants of our common stock at the fair market value on the date of grant and will vest at 50% per year. Stock Option Plans The 1998 Stock Option Plan The 1998 Stock Option Plan is administered by our Compensation Committee or our Board of Directors, which determines among other things, those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of shares of our common stock issuable upon the exercise of the options and the option exercise price. As of the date hereof, we have issued options to purchase 435,000 shares of our common stock underlying the 1998 Stock Option Plan to certain of our directors, employees and consultants. The 1998 Stock Option Plan is effective for a period for ten years, expiring in 2008. Options to acquire 435,000 shares of our common stock may be granted to officers, directors, consultants, key employees, advisors and similar parties who provide us with their skills and expertise. The 1998 Stock Option Plan is designed to enable management to attract and retain qualified and competent directors, employees, consultants and independent contractors. Options granted under the 1998 Stock Option Plan may be exercisable for up to ten years, generally require a minimum two year vesting period, and shall be at an exercise price all as determined by our Board of Directors provided that, pursuant to the terms of the underwriting agreement between us and our underwriters, the exercise price of any options may not be less than the fair market value of the shares of our common stock on the date of the grant. Options are non-transferable, and are exercisable only by the participant (or by his or her guardian or legal representative) during his or her lifetime or by his or her legal representatives following death. Upon a change in control of 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 ninety days to exercise the option, except for termination for cause which results in immediate termination of the option. Any unexercised options that expire or that terminate upon an employee's ceasing to be employed by 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. -34- The 2000 Stock Option Plan The 2000 Stock Option Plan is administered by our Compensation Committee or our Board of Directors, which determines among other things, those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of shares of our common stock issuable upon the exercise of the options and the option exercise price. As of the date hereof, we have issued options to purchase 435,000 shares of our common stock underlying the 2000 Stock Option Plan to certain of our directors, employees and consultants. The 2000 Stock Option Plan is effective for a period for ten years, expiring in 2010. Options to acquire 435,000 shares of our common stock may be granted to officers, directors, consultants, key employees, advisors and similar parties who provide us with their skills and expertise. The 2000 Stock Option Plan is designed to enable management to attract and retain qualified and competent directors, employees, consultants and independent contractors. Options granted under the 2000 Stock Option Plan may be exercisable for up to ten years, generally require a minimum two year vesting period, and shall be at an exercise price all as determined by our Board of Directors provided that, pursuant to the terms of the underwriting agreement between us and our underwriters, the exercise price of any options may not be less than the fair market value of the shares of our common stock on the date of the grant. Options are non-transferable, and are exercisable only by the participant (or by his or her guardian or legal representative) during his or her lifetime or by his or her legal representatives following death. Upon a change in control of 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 ninety (90) days to exercise the option, except for termination for cause which results in immediate termination of the option. Any unexercised options that expire or that terminate upon an employee's ceasing to be employed by us become available again for issuance under the 2000 Stock Option Plan, subject to applicable securities regulation. The 2000 Stock Option Plan may be terminated or amended at any time by our Board of Directors, except that the number of shares of our common stock reserved for issuance upon the exercise of options granted under the 2000 Stock Option Plan may not be increased without the consent of our shareholders. The 2001 Stock Option Plan The 2001 Stock Option Plan is administered by our Compensation Committee or our Board of Directors, which determines among other things, those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of shares of our common stock issuable upon the exercise of the options and the option exercise price. As of the date hereof, we have issued options to purchase 335,000 shares of our common stock underlying the 2001 Stock Option Plan to certain of our directors, employees and consultants. The 2001 Stock Option Plan is effective for a period for ten years, expiring in 2011. Options to acquire 1,000,000 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 2001 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 2001 Stock Option Plan may be exercisable for up to ten years, generally require a minimum two year vesting period, and shall be at an exercise price all as determined by our Board of Directors provided that, pursuant to the terms of the underwriting agreement between us and our underwriters, the exercise price of any options may not be less than the fair market value of the shares of our common stock on the date of the grant. Options are non-transferable, and are exercisable only by the participant (or by his or her guardian or legal representative) during his or her lifetime or by his or her legal representatives following death. Upon a change in control of 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. -35- If a participant ceases affiliation with us by reason of death, permanent disability or retirement at or after age 65, the option remains exercisable for one year from such occurrence but not beyond the option's expiration date. Other types of termination allow the participant ninety 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 2001 Stock Option Plan, subject to applicable securities regulation. The 2001 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 2001 Stock Option Plan may not be increased without the consent of our shareholders. -36- ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of April 12, 2002, the names and ownership of our common stock beneficially owned, directly or indirectly, by: (i) each person who is a director or executive officer of Thinkpath; (ii) all directors and executive officers of Thinkpath as a group; and (iii) all holders of 5% or more of the outstanding shares of the common stock of Thinkpath:
Name and Address of Amount and Nature of Percentage of Shares Beneficial Owner (1) Beneficial Ownership (2) Outstanding Declan A. French 2,889,333 (3) 13.6% Laurie Bradley - - - - - - Tony French 70,133 (4) * Kelly Hankinson 180,167 (5) * John Dunne 41,424 (6) * Arthur S. Marcus 30,500 (7) * Ronan McGrath 25,500 (8) * Robert Escobio 200,000 (9) * Roger W. Walters 2,882,053 (10) 13.6% KSH Strategic Investment Fund I, L.P. 1,994,673 (11) 9.2% Stonestreet Capital 2,286,879 (12) 9.9% Alpha Capital 2,286,879 (13) 9.9% All Directors and Officers as a Group (8 persons) (3 - 9) 3,437,057 15.9% * Less than 1%. (1) Except as set forth above, the address of each individual is 55 University Avenue, Suite 400, 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 have been 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 April 12, 2002, or 21,018,921 shares, any security which such person or group of persons has the right to acquire within 60 days after such date is deemed to be outstanding for the purpose of computing beneficial ownership and the percentage ownership of such person or persons, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. (3) Includes 523,263 shares of common stock owned by Christine French, the wife of Declan A. French and 101,333 shares of common stock issuable upon the exercise of options granted to Declan A. French that are currently exercisable or exercisable within the next 60 days. Also includes 1,788,235 shares of common stock issued to Declan A. French as a bonus pursuant to his employment agreement. (4) Includes 126,167 shares of common stock issuable upon the exercise of options that are currently exercisable or exercisable within the next 60 days. (5) Includes 1,333 shares of common stock issuable upon the exercise of options that are currently exercisable or exercisable within the next 60 days. (6) Includes 1,333 shares of common stock issuable upon the exercise of options that are currently exercisable or exercisable within the next 60 days. (7) Includes 27,500 shares of common stock issuable upon the exercise of options that are currently exercisable or exercisable within the next 60 days. Excludes 189,267 shares of common stock issued in the name of Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP, our United States legal counsel, of which Mr. Marcus is a partner. (8) Consists of 25,000 shares of common stock issuable upon the exercise of options that are currently exercisable or exercisable within the next 60 days. (9) Includes 200,000 shares of common stock issued in the name of Aquila Airways Inc., a corporation in which Mr. Escobio's wife is a stockholder. (10) Includes 100,000 shares of common stock issuable upon the exercise of options that are currently exercisable or exercisable within the next 60 days. -37- (11) Includes 315,000 shares of common stock issuable upon options that are currently exercisable or exercisable within the next 60 days and 250,000 shares of common stock issuable upon the exercise of warrants that are currently exercisable or exercisable within the next 60 days. (12) Includes 1,221,111 shares of common stock issued upon conversion of 175 Series C 7% Preferred stock and up to 1,065,768 shares of common stock issuable upon the conversion and exercise of Series C 7% preferred shares and warrants that are currently exercisable or exercisable within the next 60 days. Pursuant to the Series C 7% Preferred Share Agreement, as amended, such shareholder may not beneficially own more than 9.9% of our common stock at any time. (13) Includes 1,309,277 shares of common stock issued upon conversion of 175 Series C 7% Preferred stock and up to 977,602 of common stock issuable upon the conversion and exercise of Series C 7% preferred shares and warrants that are currently exercisable or exercisable within the next 60 days. Pursuant to the Series C 7% Preferred Share Agreement, as amended, such shareholder may not beneficially own more than 9.9% of our common stock at any time.
-38- 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 currently 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. Mr. Wilson was terminated on April 8, 2002. 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, a former officer of Thinkpath. 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. Mr. Irwin was terminated August 1, 2000. In October 1997, in consideration for certain 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 of our common stock to Globe Capital Corporation, which is controlled by Lloyd MacLean, our former Chief Financial Officer and a former director. In May 1998, we entered into a consulting agreement with Robert M. Rubin, one of our former directors, pursuant to which Mr. Rubin 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 option for a period of 2 years after exercise without our consent. As of the date hereof we have issued 64,778 shares of common stock upon Mr. Rubin's exercise of the option. In November 1998, we purchased certain assets of Southport Consulting, Inc. from Michael Carrazza, one of our former directors, for an aggregate of $300,000 in cash and 40,000 shares of our common stock. In February 2001, Mr. Carrazza instituted an action against us in the Supreme Court of the State of New York Michael Carrazza 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 and seeking at least $250,000.00 in damages. Specifically, Mr. Carrazza claimed that we failed to deliver cash or stock to Mr. Carrazza under an asset purchase agreement pursuant to which we acquired certain assets of Southport Consulting Co. We 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 stockholder of Southport Consulting Co., fraudulently induced us into executing the asset purchase agreement by misrepresenting the value of the assets being purchased. After the commencement of discovery, Mr. Carrazza filed a motion for summary judgment, which was granted in his favor. A hearing to determine damages has not yet been conducted. We have filed a notice of appeal of the court's order. In September, 1999, we completed the acquisition of all the issued and outstanding capital stock of Cad Cam, Inc. for $2,000,000 in cash, $2,500,000 pursuant to a promissory note and the issuance of $1,500,000 worth of shares of our common stock to Roger W. Walters, Cad Cam, Inc.'s former president. As part of the transaction, Mr. Walters was elected to serve on our Board of Directors. Mr. Rogers was not affiliated with us prior to the acquisition. On March 14, 2001, Mr. Walters resigned from the Board of Directors effective March 30, 2001. On January 1, 2000, the share purchase agreement by and among Thinkpath, Cad Cam, Inc., and Roger W. Walters was amended. Pursuant to the amendment, the parties agreed that $1,000,000 of the $2,000,000 cash payment to be made to Mr. Walters was to be paid in 4 equal quarterly payments of $250,000 commencing on January 1, 2000. In consideration for accepting the cash payment in installments, we issued Mr. Walters options to purchase an aggregate of 100,000 shares of our common stock at exercise prices ranging from $2.12 to $3.25 per share, which options expired on December 31, 2000. On March 14, 2001, we repriced such options belonging to Roger W. Walters to an exercise price of $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. In addition, the term of such options was extended to April 4, 2004. In September 2001, we restructured our note payable to Roger Walters, the vendor of Cad Cam Inc. The principal was reduced from $1,200,000 to $750,000 in consideration of capital stock payable of $450,000. In addition, all principal payments were postponed until January 1, 2003, at which time, we will pay $12,500 per month plus interest at 4.5% until December 31, 2006. The balance of $150,000 will be due on December 31, 2006. We are currently making interest payments of $7,500 per month until December 31, 2002. -39- 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 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 of our common stock to the existing shareholders of ObjectArts Inc. As part of the transaction, we entered into employment agreement with Marilyn Sinclair, a former officer of ObjectArts Inc. Such employment agreement was for a term of 3 years commencing on January 1, 2000, the effective date of the acquisition, with an annual salary of $82,000. Ms. Sinclair was not affiliated with us prior to the acquisition. On March 9, 2001 Ms. Sinclair resigned as an officer of Thinkpath. On April 9, 2001, Ms. Sinclair resigned from our Board of Directors. On April 1, 2000, we completed the acquisition of all of the issued and outstanding capital stock of MicroTech Professionals, Inc., a Massachusetts corporation, in consideration of an aggregate of up to $4,500,000 in a combination of cash, notes payable and shares of our common stock, subject to specific performance criteria to be met. On April 25, 2000, we paid to Denise Dunne-Fushi, the sole shareholder of MicroTech Professionals, Inc., $2,500,000 of the aggregate of $4,500,000, which was paid in accordance with the following schedule: (i) $1,250,000 in cash; (ii) the issuance of a $750,000 principal amount unsecured promissory note; and (iii) the issuance of 133,333 shares of our common stock. As part of the transaction, we entered into an employment agreement with Denise Dunne-Fushi, the former President of MicroTech Professionals, Inc. Such employment agreement was for a term of 1 year commencing on April 25, 2000, with an annual salary of $125,000 and a bonus of $25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the acquisition. Thinkpath and Mrs. Dunne-Fushi are currently in the process of negotiating the terms of the renewal of her employment agreement. Mrs. Dunne-Fushi continues to serve as our Vice President and as President of MicroTech Professionals, Inc. on a month-to-month basis under the terms described above. In September 2001, we restructured our note payable to Denise Dunne, the vendor of MicroTech Professionals Inc. The principal was reduced from $1,965,000 to $1,740,000 in consideration of capital stock payable of $225,000. In addition, all principal payments were postponed until January 1, 2003, at which time, we will pay $20,000 per month plus interest at 5% until December 31, 2006. The balance of $781,287 will be due on January 1, 2007. We are currently making interest payments of $14,397 per month until December 30, 2002. On November 15, 2000, we consummated a business combination with TidalBeach Inc., an Ontario-based Web development company. In consideration for the business combination, we issued 250,000 shares of our common stock to the two shareholders of TidalBeach Inc. As part of the transaction, we entered into an employment agreement with Michael Reid, the former President of TidalBeach Inc. Such employment agreement is for a term of 2 years commencing on November 15, 2000 with an annual salary of $123,000. Pursuant to the Share Purchase Agreement governing the sale of our subsidiary, Njoyn Software Incorporated to Cognicase Inc., Mr. Reid is being contracted as a consultant to Cognicase for a period of six months until September 1, 2002. Effective December 26, 2000, shares and options were issued to the following: Declan A. French, Tony French, Michael Reid, Kelly Hankinson, and Globe Capital Corporation. These issuances were made pursuant to contracts and/or as bonuses with regards to the various acquisitions throughout the course of the fiscal year 2000. The amounts issued were as follows: 1,200,000 shares to Declan A. French; 50,000 shares to Tony French; 100,000 options priced at $0.70 to Michael Reid; and 50,000 shares and 100,000 options priced at $0.70 to Kelly Hankinson; and 500,000 shares to Globe Capital Corporation. During the fiscal year ended December 31, 2000 we paid to Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP, our United States legal counsel, approximately $100,000 and issued 30,632 shares of common stock in consideration for legal services rendered. Arthur S. Marcus, one of our directors, is a partner of Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP. During the fiscal year ended December 31, 2001 we paid to Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP, our United States legal counsel, Approximately $180,000 and issued 158,635 shares of common stock in consideration for legal services rendered. Arthur S. Marcus, one of our directors, is a partner of Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP. While we were private, we lacked sufficient independent directors to ratify many of the foregoing transactions. However, we believe that the foregoing transactions were on terms no less favorable to us than could have been obtained from unaffiliated third parties. Management believes that all transactions consummated since we became public and all future transactions between us and our officers, directors or 5% shareholders, and their respective affiliates have been and 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, 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, will approve such transactions. -40- ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K (a) Financial Statements. See pages F-1 through to F-34. (b) Reports on Form 8-K. On October 1, 1999, Thinkpath filed a report on Form 8-K to disclose the acquisition of Cad Cam, Inc. On November 15, 1999, Thinkpath filed a report on Form 8-K to disclose the execution of an agreement and plan of merger by and among Thinkpath, IT Acquisition Corp. and Trans Global Services, Inc. Such merger was never completed. On March 21, 2002, Thinkpath filed a report on Form 8-K to disclose the disposition of its subsidiary, Njoyn Software Incorporated. -41- (c) Exhibits. 1.1 Form of Underwriting Agreement(1) 3.1 Bylaws of Thinkpath Inc.(1) 3.2 Articles of Incorporation dated February 11, 1994(1) 3.3 Articles of Amendment dated February 15, 1996(1) 3.4 Articles of Amendment dated April 15, 1998(1) 3.5 Articles of Amendment dated August 6, 1998(1) 3.6 Articles of Amendment dated January 19, 1999(1) 4.2 Form of Underwriters' Warrant(1) 4.3 Specimen Common Share Certificate(1) 10.1 Form of Financial Consulting Agreement(1) 10.2 1998 Stock Option Plan(1) 10.3(a) Lease of Thinkpath Inc.'s headquarters in Toronto, Ontario(1) 10.3(b) Lease of Thinkpath Inc.'s office in New York, New York(1) 10.3(c) Lease of Thinkpath Inc.'s office in Etobicoke, Ontario(1) 10.3(d) Lease of Thinkpath Inc.'s office in Scarborough, Ontario(1) 10.3(e) Lease of Thinkpath Inc.'s office in Ottawa, Ontario(1) 10.4 Employment Agreement between Thinkpath Inc. and Declan French dated August 1998(1) 10.5 Employment Agreement between Thinkpath Inc. and John A. Irwin dated May 18, 1998(1) 10.6 Employment Agreement between Thinkpath Inc. and John R. Wilson dated February 8, 1998(1) 10.7 Employment Agreement between Thinkpath Inc. and Roger Walters dated September 16, 1999(2) 10.8 Form of consulting agreement for Thinkpath Inc.'s independent contractors(1) 10.9 Form of services agreement for Thinkpath Inc.'s customers(1) 10.10 Agreement for the acquisition of the capital stock of International Career Specialists Ltd.(1) 10.11 Agreement for the acquisition of the capital stock of Systemsearch Consulting Services Inc. and Systems PS Inc.(1) 10.12 Agreement for the acquisition of the capital stock of Cad Cam, Inc.(2) 10.13 License Agreement between Thinkpath Inc. and International Officer Centers Corp. dated August 1, 1998(2) 10.13 License Agreement between Thinkpath Inc. and International Officer Centers Corp. dated August 1, 1998(1) 10.14 Consulting Agreement between Thinkpath Inc. and Robert M. Rubin(1) 10.15 Form of Employment Agreement with Confidentiality Provision(1) 10.16 Asset Purchase Agreement between Thinkpath Inc. and Southport Consulting Company(1) 10.17 2000 Stock Option Plan(3) 10.18 Share Purchase Agreement between Thinkpath Inc. and MicroTech Professionals, Inc. dated April 25, 2000(4) 10.19 Non-Binding Letter of Intent between Thinkpath Inc. and Aquila Holdings Limited dated October 4, 2000(4) 10.20 Share Purchase Agreement between Thinkpath Inc. and TidalBeach Inc. dated October 31, 2000(5) 10.21 Consulting Agreement between Thinkpath Inc., and Tsunami Trading Corp. d/b/a Tsunami Financial Communications and International Consulting Group, Inc. dated December 14, 2000(5) 10.23 Share Purchase Agreement by and among Cognicase Inc. and Thinkpath Inc. dated March 1, 2002 (7) 10.24 Employment Agreement between Thinkpath Inc. and Declan French dated November 28, 2001 (8) 10.25 Employment Agreement between Thinkpath Inc. and Laurie Bradley dated January 29, 2001 (8) 10.26 Employment Agreement between Thinkpath Inc. and Tony French dated March 1, 2001 (8) 10.27 Employment Agreement dated between Thinkpath Inc. and Kelly Hankinson dated March 1, 2001 (8) 10.28 Agreement between Thinkpath Inc. and entrenet(2) Capital Advisors, LLC dated November 5, 2001. 10.29 Agreement between Thinkpath Inc. and Olgivie Rothchild Inc. dated January 9, 2002 (8) 10.30 Agreement between Thinkpath Inc. and Dave Wodar dated January 15, 2002 (8) 23 Consent of Schwartz, Levitsky, Feldman LLP, Independent Auditors (8) - ------ (1) Incorporated by reference to Thinkpath Inc.'s Registration Statement on Form SB-2 filed on May 26, 1999. (2) Incorporated by reference to Thinkpath Inc.'s report on Form 8-K filed on October 1, 1999. (3) Incorporated by reference to Thinkpath Inc.'s Proxy Statement on Form Def-14A filed on May 22, 2000. (4) Incorporated by reference to Thinkpath Inc.'s Registration Statement on Form SB-2 filed on April 25, 2000. (5) Incorporated by reference to Thinkpath Inc.'s Registration Statement on Form SB-2 filed on January 12, 2001. (6) Incorporated by reference to Thinkpath Inc.'s Proxy Statement on Form Def-14A filed on May 21, 2001. (7) Incorporated by reference to Thinkpath Inc,'s report on Form 8-K filed on March 21, 2002. (8) Included herewith. -42- 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. By: /s/ DECLAN A. FRENCH ------------------------------------- Declan A. French Chairman and Chief Executive Officer Dated: April 16, 2002 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. /S/ DECLAN A. FRENCH Chairman and Chief Executive April 16, 2002 - --------------------------- Officer Declan A. French (Principal Executive Officer) /S/ LAURIE BRADLEY President April 16, 2002 - --------------------------- (Principal Executive Officer) Laurie Bradley /S/ KELLY HANKINSON Chief Financial Officer April 16, 2002 - -------------------------- and Director Kelly Hankinson (Principal Accounting Officer) Director April 16, 2002 - --------------------------- John Dunne /S/ ARTHUR S. MARCUS Director April 16, 2002 - --------------------------- Arthur S. Marcus Director April 16, 2002 - --------------------------- Ronan McGrath /S/ ROBERT ESCOBIO Director April 16, 2002 - --------------------------- Robert Escobio -43- EX-10.24 3 exh10-24.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS AGREEMENT ("Agreement") is made and entered into, as of this 28thday of November, 2001 ("Effective Date"), by and between Declan A. French an individual resident of the City of Toronto in the Province of Ontario ("Executive"), and Thinkpath Inc., a corporation formed under the laws of the Province of Ontario ("Employer") with its principal place of business at 55 University Avenue, Toronto, Ontario, Canada M5J 2H7. W I T N E S S E T H WHEREAS, Employer desires to employ Executive, and Executive desires to be employed by Employer, on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: SECTION 1.EMPLOYMENT. --------- ---------- 1.1 Subject to the terms hereof, Employer hereby employs Executive, and Executive hereby accepts such employment. Executive will serve in the capacity of Chief Executive Officer of Employer and will have duties and responsibilities customarily assigned to a person with such title. Executive hereby agrees that, throughout his period of employment, he shall devote his business time, attention, knowledge and skills, diligently in the furtherance of the business of the Employer and of its subsidiaries and affiliates, shall perform his duties consistent with his position with Employer and shall observe and carry out such rules and regulations, policies and directions as Employer may from time to time establish to the extent consistent herewith. During the term of this Agreement, Executive shall do such traveling as may be reasonably required of him in the performance of his duties on behalf of Employer. SECTION 2.TERM OF EMPLOYMENT. --------- ------------------ 2.1 The term of Executive's employment hereunder (the "Initial Term") shall be from the Effective Date and expire at the earlier of (a) the second anniversary of the date of this Agreement or (b) the occurrence of any of the following events: (i) The death or total disability of Executive (total disability meaning the failure to substantially perform his normal required services hereunder for a period of six (6) consecutive months during any consecutive twelve (12) month period during the term hereof, as determined by an independent medical doctor jointly chosen by the Executive and the Employer, by reason of mental or physical disability); or (ii) The termination by Employer of Executive's employment hereunder, upon thirty (30) days prior written notice to Executive, which termination shall be for "Cause", as determined by the Board of Directors of Employer in accordance with the terms hereof. For purposes of this Agreement, "Cause" for termination of Executive's employment shall exist (V) if Executive is convicted of, pleads guilty to, or confesses to any felony or any act of fraud, or misappropriation or embezzlement with regard to Employer, (W) if Executive has engaged in a dishonest act to the material damage or prejudice of Employer or an affiliate of Employer, or in conduct or activities materially damaging to the property, business, or reputation of Employer or an affiliate of Employer, (X) if Executive violates any of the provisions contained in Section 4 of this Agreement, after receiving thirty (30) days written notice from Employer specifically outlining the alleged violations by the Executive of Section 4 hereof and Executive has not cured the alleged violations within thirty (30) days of receipt of written notice by the Employer; (Y) Executive willfully breaches or habitually and recklessly neglects the duties he is required to perform hereunder, or performs such duties in a grossly negligent manner, after receiving thirty (30) days written notice from Employer specifically outlining the violations of this Section and Executive has not cured the alleged violations of this Section within thirty (30) days of receipt of written notice by Employer. 2.2 SUCCESSIVE TERMS. After the Initial Term, this Agreement shall continue upon a year-to-year basis (the "Successive Terms"; together with the Initial Term, the "Term") unless terminated by either the Employer or the Executive upon ninety (90) days written notice to the other prior to the end of the Initial Term or the then Successive Term. SECTION 3.COMPENSATION. --------- ------------ 3.1 TERM OF EMPLOYMENT. Employer will provide Executive with the following salary, expense reimbursement and additional Executive benefits during the term of employment hereunder: (a) SALARY. During the Initial Term, Executive will be paid a salary (the "Salary"), that shall be no less than one-hundred-fifty-thousand United States dollars (US$150,000.00) per annum, less deductions and withholdings required by applicable law. Thereafter, and during the Successive Terms, Executive will be paid a salary to be determined by good faith negotiations between Employer and Executive, but in no event shall such salary be less than one-hundred-fifty-thousand United States dollars (US$150,000.00) (the "Successive Terms Salary"). The Salary and Successive Terms Salary shall be paid to Executive in equal monthly installments (or on such more frequent basis as other executives of Employer are compensated). -2- (b) PERFORMANCE BONUS. ------------------ (i) Employer shall pay to Executive a performance bonus based on Employer's EBITDA (which is defined as Employer's earnings before the deduction of interest, taxes, depreciation and amortization as calculated in accordance with United States generally accepted accounting principles) at the end of each calendar year during the Term or then Successive Term, in accordance with the following schedule: EBITDA AS A PERCENTAGE GROSS REVENUE (US DOLLARS) BONUS (US DOLLARS) 7% US$200,000.00 8% US$300,000.00 9% US$400,000.00 10% US$500,000.00 (ii) The determination of whether Employer has achieved a certain level of EBITDA in any year for the purposes of this section shall be made by the certified chartered accountant regularly retained or employed by Employer with ninety (90) days after the end of each calendar year, and shall be conclusive on Employer and Executive. (iii) The performance bonus shall, in the sole discretion of Employer, be payable in cash or shares of Employer's common stock. (iv) The performance bonus shall be due and payable within one-hundred-twenty (120) days after the end of each calendar year. (v) Notwithstanding anything to the contrary herein, Executive shall be entitled to a minimum performance bonus per calendar year equal to one hundred thousand United States dollars ($100,000.00) (c) VACATION. Executive shall be entitled to receive six (6) weeks paid vacation during each year of employment upon dates to be taken at such times and in such periods as shall not interfere with the duties required to be rendered by Executive hereunder. (d) EXPENSES. Employer shall reimburse Executive within thirty (30) days of its receipt of a reimbursement report with supporting receipts from the Executive, for all reasonable and necessary expenses incurred by Executive in performing services hereunder, including without limitation, all expenses of travel and living expenses when away from home on business at the request of or in the service of Employer. -3- (e) BENEFIT PLANS. Executive shall have the option of participating in such medical, dental, disability, hospitalization, life insurance, stock option and other benefit plans (such as pension and profit sharing plans) as Employer maintains from time to time for the benefit of other full-time Executives of Employer, on the terms and subject to the conditions set forth in such plans. (f) CHANGE IN CONTROL. (i) In the event of a "Change in Control" whereby: (1) A person (other than a person who is an officer or Director of Employer on the Effective Date), including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes, or obtains the right to become, the beneficial owner of Employer's securities having fifty percent (50%) or more of the combined voting power of then outstanding securities of Employer; (2) Employer consummates a merger in which it is not the surviving entity; (3) All or substantially all of Employer's assets are sold; or (4) Employer's shareholders approve the dissolution or liquidation of Employers; then (ii) All stock options and warrants granted by Employer to Executive under any plan or otherwise prior to the effective date of the Change in Control, shall become vested, accelerate and become immediately exercisable, at the stated exercise price, with the number of shares and exercise price adjusted for any stock splits and capital reorganizations that occur subsequent to the Effective Date; and (iii) Employer shall, upon the effective date of the Change in Control, issue to Executive such number of shares of Employer's common stock as equal to the lesser of: (1) Nineteen percent (19%) of the issued and outstanding shares of Employer's common stock as of the effective date of the Change in Control; or -4- (2) Such number of shares as is calculated by dividing Five-hundred-thousand United States dollars (US$500,000.00) by the average of the closing bid prices (as reported on the NASDAQ SmallCap Market or principal market on which Employer's common stock is then traded, and if not listed on a principal market, the OTC Bulletin Board or the pink sheets) for the fifteen (15) trading days immediately preceding the effective date of the Change in Control. (g) AUTOMOBILE ALLOWANCE. During the Term, Employer shall pay Executive one-thousand-four-hundred United Stated dollars (US$1,400.00) per month as an allowance for the use of Executive's automobile. 3.2 EFFECT OF TERMINATION. Upon the termination of the employment of Executive hereunder for Cause, Executive shall be entitled to all compensation and benefits earned or accrued under Section 3.1 as of the effective date of termination. Upon the termination of this Agreement for any reason other than for Cause, Executive shall be entitled to receive all compensation and benefits earned or accrued under Section 3.1 as of the effective date of termination plus an amount equal to one (1) year's Salary and continuation of benefits for a period of one (1) year. SECTION 4.NONSOLICITATION. --------- --------------- 4.1 DEFINITIONS. For the purposes of this Section 4, the following definitions shall apply. (a) "Confidential Information" means any confidential, proprietary business information or data belonging to or pertaining to Employer that does not constitute a "Trade Secret" (as hereinafter defined) and that is not generally known by or available through legal means to the public, including, but not limited to, information regarding the Employer's customers or actively sought prospective customers, acquisition targets, suppliers, manufacturers and distributors gained by Executive as a result of his employment with Employer. (b) "Customer" means actual customers or actively sought prospective customers of Employer. (c) "Trade Secrets" means information or data of or about Employer, including but not limited to technical or non-technical data, formulas, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, products plans, or lists of actual or potential customers, clients, distributees or licensees, information concerning or Employer's finances, services, staff, contemplated acquisitions, marketing investigations and surveys, that are not generally known to, and/or are not readily ascertainable by proper means by, other persons. -5- (d) "Work Product" means any and all work product property, data documentation or information of any kind prepared, conceived, discovered, developed or created by Executive for Employer or its affiliates' clients or customers for utilization in Employer's business, not generally known by or not readily ascertainable by proper means by other persons who can obtain economic value from their disclosure or use. 4.2 TRADE NAME AND CONFIDENTIAL INFORMATION. --------------------------------------- (a) Executive hereby agrees that at all times during the Term and thereafter: (i) Executive shall not, directly or by assisting others own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be connected in any manner with, any business conducted under any corporate or trade name of Employer or name confusingly similar thereto, without the prior written consent of Employer; (ii) Executive shall hold in confidence all Trade Secrets and all Confidential Information and will not, either directly or indirectly, use, sell, lend, lease, distribute, license, give, transfer, assign, show, disclose, disseminate, reproduce, copy, appropriate or otherwise communicate any Trade Secrets or Confidential Information, without the prior written consent of Employer; and (iii) During the Term Executive shall immediately notify Employer of any unauthorized disclosure or use of any Trade Secrets or Confidential Information of which Executive becomes aware, Executive shall assist Employer, to the extent necessary, in the procurement or any protection of Employer's rights to or in any of the Trade Secrets or Confidential Information. (b) Upon the request of Employer, Executive shall deliver to Employer all memoranda, notes, records, manuals and other documents, including all copies of such materials and all documentation prepared or produced in connection therewith, pertaining to the performance of Executive's services hereunder or Employer's business or containing Trade Secrets or Confidential Information, whether made or complied by Executive or furnished to Executive from another source by virtue of Executive's employment with Employer. -6- (c) To the greatest extent possible, all Work Product shall be deemed to be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. Section 101 ET SEQ., as amended) and owned exclusively by Employer. Executive hereby unconditionally and irrevocably transfers and assigns to Employer all rights, title and interest Executive may have in or to any and all Work Product, including, without limitation, all patents, copyrights, trademarks, service marks and other intellectual property rights arising out of the Work Product. Executive agrees to execute and deliver to Employer any transfers, assignments, documents or other instruments which Employer may deem necessary or appropriate to vest complete title and ownership of any and all such Work Product, and all rights therein, exclusively in Employer. 4.3 NONSOLICITATION AND NONCOMPETE. Executive hereby agrees that Executive will not, during the Term and for a period of one (1) year following the Term, either directly or indirectly, alone or in conjunction with any other party, on the North American continent: (a) solicit, divert or appropriate or attempt to solicit, divert or appropriate, any Customer for the purpose of providing the Customer with services or products competitive with those offered by Employer during the Term; or (b) solicit or attempt to solicit any officer, director, Executive, consultant, contractor, agent, lessor, lessee, licensor, licensee, supplier or any shareholder of Employer or other personnel of Employer or any of its affiliates or subsidiaries to terminate, alter or lessen that party's affiliation with Employer or such affiliate or subsidiary or to violate the terms of any agreement or understanding between such Executive, consultant, contractor or other person and Employer; or (c) engage in, as owner, stockholder, Executive, partner, agent, representative or otherwise, or have an interest in (except for ownership of publicly trade securities representing not more than five percent (5%) of the outstanding voting shares), any business, firm, corporation or other entity in direct competition with the business of Employer. Nothing contained in this Section 4 shall prohibit Executive from acquiring not more than five percent (5%) of any competitor of Employer whose common stock is publicly traded on a national securities exchange or in the over-the-counter market or from acquiring any percentage of any company which is non-competitive with Employer. -7- SECTION 5.MISCELLANEOUS. --------- ------------- 5.1 SEVERABILITY. The covenants in this Agreement shall be construed as covenants independent of one another and as obligations distinct from any other contract between Executive and Employer. Any claim that Executive may have against Employer shall not constitute a defense to enforcement by Employer of this Agreement. 5.2 SURVIVAL OF OBLIGATIONS. The covenants in Section 4 of this Agreement shall survive termination of Executive's employment for the period set forth therein. 5.3 NOTICES. Any notice or other document to be given hereunder by any party hereto to any other party hereto shall be in writing and delivered in person or by courier, by telecopy transmission or sent by any express mail service, postage or fees prepaid at the following addresses: EMPLOYER: Thinkpath Inc. -------- 55 University Avenue Toronto, Ontario, Canada M5J 2H7 Telephone: (416) 364-8800 Facsimile: (416) 364-3178 Attention: Secretary WITH A COPY TO: Gersten, Savage & Kaplowitz, LLP ------- 101 East 52nd Street New York, New York 10022 Telephone: (212) 752-9700 Facsimile: (212) 813-9768 Attention: Christopher J. Kelly, Esq. EXECUTIVE: Declan A. French --------- 2045 Lakeshore Boulevard West Toronto, Ontario, Canada M8V 2Z6 Telephone: (416) 255-1277 or at such other address or number for a party as shall be specified by like notice. Any notice which is delivered in the manner provided herein shall be deemed to have been duly given to the party to whom it is directed upon actual receipt by such party or its agent. 5.4 BINDING EFFECT. This Agreement inures to the benefit of, and is binding upon, Employer and their respective successors and assigns, and Executive, together with Executive's executor, administrator, personal representative, heirs, and legatees. -8- 5.5 ENTIRE AGREEMENT. This Agreement is intended by the parties hereto to be the final expression of their agreement with respect to the subject matter hereof and is the complete and exclusive statement of the terms thereof, notwithstanding any representations, statements or agreements to the contrary heretofore made. This Agreement supersedes and terminates all prior employment and compensation agreements, arrangements and understandings between or among Employer and Executive. This Agreement may be modified only by a written instrument signed by all of the parties hereto. 5.6 GOVERNING LAW. This Agreement shall be deemed to be made in, and in all respects shall be interpreted, construed, and governed by and in accordance with, the laws of the Province of Ontario. No provision of this Agreement shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority or by any board of arbitrators by reason of such party or its counsel having or being deemed to have structured or drafted such provision. 5.7 ATTACHMENT. Except as required by law, the right to receive payments under this Agreement shall not be subject to attachment, sale, pledge, encumbrance, charge, levy or similar process or assignment, and any attempt to do so shall be null and void. 5.8 HEADINGS. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 5.9 SPECIFIC PERFORMANCE. Each party hereto hereby agrees that any remedy at law for any breach of the provisions contained in this Agreement shall be inadequate and that the other parties hereto shall be entitled to specific performance and any other appropriate injunctive relief in addition to any other remedy such party might have under this Agreement or at law or in equity. 5.10 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. (SIGNATURES ON THE FOLLOWING PAGE) -9- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the 28th day of November, 2001 THINKPATH INC. /S/ Kelly Hankinson By:________________________________ Kelly Hankinson Chief Financial Officer and Secretary /S/ Declan French By:________________________________ Declan A. French -10- EX-10.25 4 exh10-25.txt THNKPATH EMPLOYMENT AGREEMENT [GRAPHIC OMITTED][GRAPHIC OMITTED] 55 University Avenue Suite 505 Toronto, Ontario M5J 2H7 Tel: (416) 364-8800 Fax: (416) 364-2424 EMPLOYMENT AGREEMENT between THINKPATH INC. (The Employer) and LAURIE BRADLEY (The Employee) WHEREAS the Employer is engaged in the business of placement of full time and part time technical staff; AND WHEREAS the Employer and the Employee have agreed to enter into an Employment Contract for their mutual benefit. NOW THEREFORE in consideration of the mutual covenants herein contained, the parties agree as follows: 1. DUTIES The Employer hereby appoints the Employee to undertake the duties and exercise the powers of president of the Employer and the Employee, accepts such appointment on the terms and conditions set forth in this Agreement. 2. TERM The term of the Employee's employment shall be deemed to have commenced on Monday, January 29, 2001, and shall continue indefinitely, unless terminated in accordance with the provisions of this Agreement. 3. COMPENSATION The fixed salary of the Employee for her services shall be $200,000.00 annually, paid on a bi-weekly basis, two (2) weeks in arrears, less appropriate deductions, by direct deposit into the Employee's bank. The Employee shall be entitled to an annual performance bonus. This bonus shall apply retroactively to the date of the Employee's commencement of employment. The bonus shall be based on corporate and personal performance and shall be determined in accordance with an objective and on a reasonable formula to be agreed between the parties, acting reasonably. In the event that no agreement is reached by June 30, 2001, then the bonus entitlements shall be determined in good faith. Bonuses shall be paid within ninety (90) days of the Employee's twelve-month anniversary with the Employer. The Employee is entitled to share options in the shares of the Employer as follows: (a) The Employer grants and the Employee accepts an option to purchase 100,000 common shares of the Employer at a fixed price based on the share price at the close of the market on December 31, 2000. Subject to sub-paragraphs 3(3)(e) and 10(1) and (3) below, the said option is exercisable according to the following timetable: One-quarter exercisable on January 29, 2002; One-quarter exercisable on January 29, 2003; One-quarter exercisable on January 29, 2004; and One-quarter exercisable on January 29, 2005. The said option shall expire on December 31, 2010. (b) To the extent the Employer's common shares are converted, re-classified or in any way changed, the provisions of this Agreement shall apply to any shares or securities of the Employer or of any successor or continuing corporation and an appropriate adjustment shall be made to the number, type and price for the optioned shares. (c) The Employer shall, to the extent necessary, take all reasonable steps to obtain such approvals, registrations and qualifications that may be necessary for the issuance of any optioned shares. The Employer represents and warrants that it has all necessary approvals to enter into this Agreement, and this share option has been approved by its Board of Directors. To the extent anything in this Agreement conflicts with the Employer's Share Option Plan, this Agreement shall prevail. (d) The Employer granting the Employee accepts and option to purchase 100,000 additional common shares of the Employer at a fixed price based on the share price at the close of the market on December 31, 2000. Subject to the applicable subsections, the said option is exercisable and shall vest upon any sale of the Employer or of a Change of Control as defined in subsections (12) below. -2- (e) In the event of any sale of the Employer or of a Change of Control as defined in subsection (3) below, if the acquirer does not choose to continue employment of the Employee then all entitlements or rights pursuant to the foregoing share options shall immediately and automatically become fully vested and exercisable. The Employee shall be entitled to a success fee of 1% of the invoice price for all sales achieved by her or to her clients (as identified in Schedule 1 attached) where the invoiced amount for the sale (or series of related transactions completed for the same client within a period of less than one year) totals $1,000,000.00 or more. The success fee shall be paid quarterly. With the agreement of the Employee, the success fee may be paid in stock options. The Employee shall receive $700.00 per month for automobile allowance. Private insurance not to exceed $300.00 per month. The Employee shall receive a parking space at the Employer's premises, namely 55 University Avenue, Toronto, Ontario. 4. VACATION The Employee shall be entitled to four weeks paid vacation for each of the first two twelve-month periods that she is employed with the Employer, which vacation shall be taken at a time mutually agreed to between the Board of Directors of the Employer and the Employee. Thereafter, the Employee shall be entitled to five weeks paid vacation for every twelve month period during which she is employed with the Employer, which vacation shall be taken at a time mutually agreed to between the Board of Directors of the Employer and the Employee. 5. BENEFITS The Employee shall be entitled to participate immediately in the benefit and stock option plans provided by the Employer, subject to the terms and conditions of the said benefit and stock option plans and any reasonable change(s) made to them, which change(s) shall be at the sole discretion of the Employer (but provided that, in aggregate, the benefits are no less favourable to the Employee). To the extent the Employer adopts any new benefit plans, pensions or perquisites, the Employee shall have the right to participate on a basis equivalent to other senior employees. All eligibility provisions are waived to the extent legally permitted by the terms of the applicable plans and policies and, to the extent not permitted, the Employer undertakes to use its best efforts to amend the plans and policies in this regard. The Employer agrees to pay 50% of all premiums associated with all benefits. 6. EXCLUSIVITY During the term of employment, the Employee agrees to serve the Employer diligently and faithfully and agrees not to be employed or engaged in any capacity, in promoting, undertaking or carrying on any other business in competition with the Employer. The Employer acknowledges that the Employee is a Director on the Board of Digital Motive. During the term employment the Employee shall be employed on a full time basis and it is understood that the hours of work involved may vary and be irregular depending on the nature of the tasks of any particular project in which the Employee is involved from time to time. The Employee agrees that her duties, responsibilities, reporting relationships and the location of her employment may be changed from time to time by the Employer as it may deem appropriate, and that these changes will not effect or change any other part of this Agreement. -3- 7. CONFIDENTIALITY The Employee acknowledges that as an officer employed by the Employer and in other positions and responsibilities as she may hold from time to time, she will acquire information about certain matters which are confidential to the Employer which information is the sole and exclusive property of the Employer. The Employee also acknowledges that such information could be used to the detriment of the Employer. Accordingly, the Employee undertakes to keep all such information in the strictest confidence and agrees not to disclose it to any other person or entity either during or following her term of employment, except as may be strictly necessary to perform her duties or with the written permission of the Chief Executive Officer of the Employer or his designate. 8. NON-COMPETITION The Employee agrees that: she recognises and acknowledges the competitive advantage that would be provided by and the confidential nature of all material, including but without limitation, non-public financial and business information and documents, which have been made available to her during the course of her employment by the Employer; she confirms and agrees that, except as required by law, she will not disclose, release, remove or retain any of the information or documents made available to, or obtained by her, during the course of her employment by the Employer without the prior written consent of the Employer or unless they are publicly available without breach by the Employee; she will not, while she is an employee of the Employer and for a period of six months thereafter, directly or indirectly, in any manner whatsoever, including individually or in partnership or any other venture with another person, moral or corporate, carry on or be engaged in or concerned with or interested in a business that is in competition with the Employer. 9. NON-SOLICITATION The Employee agrees that she will not, for a period of one year following the date on which this contract is terminated, whether by her or the Employer: solicit any client who has been issued an invoice for services rendered by the Employer within twelve months prior to the date of termination; solicit any applicant or contract consultant who has been interviewed and/or registered with the Employer as of the date of termination; endeavour to entice away any client, applicant or contract consultant or employee of the Employer. -4- 10. TERMINATION This Agreement can be terminated by the Employee on giving one month's advance notice in writing to the Employer. The Employer may choose not to have the Employee work during the said one month notice period and may permit her to leave immediately. During the one month notice period, regardless of whether the Employee is working or not, she shall receive only the salary, benefits package, car allowance and the parking spot up to and including the end of the one month period, save and except if the Employee's anniversary of her employment with the Employer occurs during the one month notice period she shall also be entitled to receive her performance bonus and success fee referred to subsections 12(ii) and 12(iv) respectively, as well as the 25,000 stock options referred to in subsection 12(iii). The Employer may terminate the employment of the Employee at any time for Just Cause without notice or compensation in lieu of notice or any other payments under this Agreement except for salary, benefits package, car allowance, vacation pay and pro-rata performance bonus and success fee referred to in subsections 12(ii) and 12(iv) respectively, up to the date of such termination. In the event the Employee's employment is terminated by the Employer without Just Cause (including any express, implied or constructive dismissal), or in the event the Employee terminates her employment for any Good Reason, then the following provisions shall apply: The Employer shall forthwith pay to the Employee or as she may direct, a lump sum amount as a retiring allowance equal to one times the Employee's Compensation as at the date of termination. A) The Employer shall continue, to the extent it may legally and in compliance with its benefits plans, all Benefits for a period of six (6) months after one (1) year, nine (9) months after two (2) years, and twelve (12) months after three (3) years at a level equivalent to that previously provided to the Employee immediately prior to the date the Employee ceased employment, PROVIDED THAT, if the Employer cannot continue any particular Benefit, then the Employer shall reimburse the Employee for all reasonable expenses incurred by her to replace such Benefit for an equivalent duration. B) The Employer shall pay to the Employee her performance bonus and success fee calculated pro-rata for the period up to the date of termination of employment. C) Notwithstanding the terms of any plan or agreement to the contrary, all entitlements or rights pursuant to any share option (including those provided pursuant to subsection 12(iii) above), share purchase, profit-sharing, bonus or incentive plan, shall immediately and automatically become fully vested and exercisable. D) All amounts referred to in this Agreement, including, the amounts referred to in this Section 10, constitutes a debt by the Employer to the Employee. The Employee shall not be required to mitigate damages by seeking other employment or otherwise, nor shall any amount provided for under this Agreement be reduced in any respect in the event the Employee shall secure or not reasonably pursue alternative employment following the termination of her employment with the Employer. -5- E) The Employer's obligations to make payments provided for in this Agreement or otherwise to perform its obligations shall not be affected by any set-off, counterclaim, defence or any other right, claim or action which the Employer may have or allege to have against the Employee. F) For the purposes of this Agreement, the following definitions will apply: A. "BENEFITS" shall include all benefit plans, policies, programs, perquisites, entitlements, club or other memberships, professional dues, allowances, funds or arrangements in which the Employee participates during his employment with the Employer or which are or become generally available from time-to-time to senior employees of the Employer (including, but not limited to, insurance, pension, executive supplements or allowances in lieu of benefits or pension, but excluding any share option, share purchase, profit-sharing, bonus or other incentive plans). B. "COMPENSATION" means the Employee's annual base salary (as it may from time-to-time be adjusted) PLUS all allowances (including automobile or mileage allowances) PLUS the average of any bonuses paid or payable to the Employee during the immediately proceeding two fiscal years as at the relevant date, or, if two fiscal years have not then been completed, then an amount fixed at fifty percent (50%) of the Employee's annual base salary PLUS the average of any success fees paid or payable to the Employee over the previous twelve months, or, if twelve months have not then been completed, then the average monthly success fee over the course of the Employee's employment. C. "GOOD REASON" means the occurrence of any of the following: i. detrimental alteration in the Employee's title or position, or any detrimental change in the nature, status or scope of the Employee's assignments or responsibilities to or the Employer (including reporting relationship); ii. any reduction in the Employee's then annual salary, target bonus incentive opportunity under any bonus or incentive plan, success fee or any termination or reduction in the Benefits (considered in the aggregate) available to the Employee; iii. the failure to continue the Employee's participation in any share option, share purchase, profit-sharing bonus or other incentive compensation plan unless a plan providing a substantially similar opportunity is substituted; iv. any event which constitutes a Change of Control; v. the failure of the Employer to pay amounts owed to the Employer when due; -6- which, in any of the foregoing events, has not been remedied or cured within a period of thirty (30) days after notice to the Corporation from the Executive. D. "JUST CAUSE" means: i. a wilful act by the Employee of dishonesty, theft, breach of trust, or misappropriation of the property of the Employer; or ii. a material breach or default by the Employee of her employment duties or of this Agreement and, where such breach or default can be remedied, the failure of the Employee to remedy such breach or default within a reasonable period of time after delivery of written notice from the Employer to her. 11. INDEMNITY Subject to any limitations set out in applicable legislation, the Employer agrees to indemnify and save the Employee harmless from and against all claims, demands, costs, charges and expenses, including any amount paid to settle an action or to satisfy judgment, reasonably incurred in respect of any civil, criminal or administrative action or proceeding to which the Employee are made a party as a result of work carried out in accordance with her job title. The Employer agrees to maintain adequate and sufficient director and officer liability insurance. 12. GENERAL "CHANGE OF CONTROL" means the occurrence of any of the following events: (i) the acquisition in a single transaction or a series of related transactions by any person or persons acting jointly or in concert (including any current shareholder or shareholder group of the Employer) of fifty per cent (50%) or more of the outstanding and voting shares of the Employer, whether by way of take-over bid, merger, amalgamation or otherwise; (ii) the sale by the Employer of all or substantially all of the Employer's undertaking and assets; (iii) the voluntary liquidation, dissolution or winding-up of the Employer in connection with which a distribution is made to the holders of the Employer's common shares; (iv) if a majority of the Employer's then Board of Directors are removed or cease to be members of the Board of Directors other than by way of voluntary resignation within a period of less than two (2) months; or (v) a resolution of the Board of Directors of the Employer that a Change of Control has occurred or is imminent. This Agreement shall be governed by the laws of the Province of Ontario. "ANY NOTICE" to be given by either party shall be validly given if sent by registered mail: To the Employer at: 55 University Avenue, Suite 505, Toronto, M5J 2H7 To the Employee at: 2524 Dinning Court, Mississauga, L5M 5E7 The Employee agrees that in the event of a breach of this agreement by her, damages will be an inadequate remedy and that the Employer shall be entitled to make an application to a court of competent jurisdiction for temporary and/or permanent injunctive relief against the Employee. If any provision contained in this agreement is determined to be void, invalid or unenforceable in whole or in part for any reason whatsoever it shall not be deemed to affect or impair the validity or enforceability of any other provisions of his agreement and such unenforceable provisions shall be treated as severable from the remainder of the agreement. -7- The Employee represents and warrants that all the information provided to the Employer in any application form or during any interview was accurate and contained no untruths or misrepresentations. This Agreement constitutes the entire Agreement between the parties with respect to the employment of the Employee and all previous agreements, whether written or oral, expressed or implied, between the parties relating to the employment of the Employee by the Employer are hereby terminated and cancelled. Any modification or amendment to the terms of this Agreement must be in writing and signed by the parties, failing which they shall be of no force or effect. /S/ Declan French January 29, 2001 - ---------------------- -------------------------- Declan French Date Chairman & CEO Thinkpath Inc. I have read and fully understood the provisions of this Agreement as set out in the above pages. I acknowledge having had an opportunity to seek such advice with respect to its contents as I consider appropriate. By my signature below, I hereby accept the terms of employment outlined above and acknowledge receiving a duplicate copy of this Agreement on the date indicated below. /S/ Laurie Bradley January 29, 2001 - ---------------------- -------------------------- Laurie Bradley Date -8- EX-10.26 5 exh10-26.txt EMPLOYMENT AGREEMENT--TONY FRENCH - -8- EMPLOYMENT AGREEMENT THIS AGREEMENT made as at the 1st day of March, 2001; B E T W E E N: TONY FRENCH, an individual residing at 122 Hillsdale Avenue East, Toronto, Ontario, M4S 1T5 (hereinafter referred to as the "Employee") OF THE FIRST PART; - and - THINKPATH INC., a corporation incorporated under the laws of the Province of Ontario and having its head office at 505-55 University Avenue, Toronto, Ontario, M5J 2H7 (hereinafter referred to as the "Employer") OF THE SECOND PART; WHEREAS the Employee is presently employed by the Employer in a position of confidence and trust under conditions where he has or may have access to technical, confidential and secret information regarding the existing or contemplated business of the Employer; AND WHEREAS the Employee recognizes that as part of the duties of his employment, all ideas and suggestions of interest to the Employer conceived or made by him while he is employed by the Employer shall be made available to the Employer; AND WHEREAS the Employer is associated as subsidiary, affiliate, associate or parent with corporations and unincorporated business enterprises, the number of which varies from time to time, but all of which during the pertinent times have common business interests either through ownership or agreement (hereinafter all of such corporations and incorporated business enterprises are referred to collective as the "Employer"); AND WHEREAS the Employer is desirous of employing the Employee to provide services as an executive with a job title and description as set forth below, in connection with the business carried on by the Employer, consisting principally of the provision, online or otherwise, of training, staffing and related consulting services, specializing in the Information Technology field, and including certain other business activities relating thereto (the "Business"); AND WHEREAS during the course of the Employee's employment with the Employer, the Employee will be introduced to, have contact with, and his services may be solicited by, one or more of the clients of or suppliers of the Employer; AND WHEREAS the Employee may be trained by the Employer to perform services in connection with the Business and through such training the Employee will acquire knowledge, experience and expertise, as well as detailed knowledge of the Employer's confidential customer and supplier lists and information, marketing techniques, price lists, trade secrets and other property which is and shall be the property of the Employer, and the disclosure, loss or, unauthorized use of which would be substantially harm the Business; NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the respective covenants and agreements of the parties contained herein, the sum of one dollar paid by each party hereto each of the other parties hereto and other good and valuable consideration (the receipt and sufficiency of which hereby acknowledged by each of the parties hereto), it is agreed as follows: ARTICLE ONE - AGREEMENT 1.1 TERMINATION OF PRIOR AGREEMENTS. Notwithstanding the fact that the Employee has been employed by the Employer since its inception, June 1, 1995, this Employment Agreement, from and after the date hereof, supersedes and takes the place of any other contracts of the same nature heretofore existing between the parties hereto. ARTICLE TWO - EMPLOYMENT 2.1 EMPLOYMENT. Subject to the terms and conditions herein, the Employer agrees to employ the Employee and the Employee agrees to be employed by the Employer in its Business and will have the title of Executive Vice-President. 2.2 CONFORM WITH DIRECTIONS AND POLICIES. During his employment with the Employer, the Employee shall in all respects conform to and comply with the directions and policies of the Employer, perform each of the duties assigned from time to time by the Employer to the best skill and ability, faithfully and diligently serve the Employer, use his best efforts to promote the interests and reputation of the Employer and devote his full working time, attention and energies to the Business of the Employer. For the purposes of this Agreement, the Employer shall speak and act through its C.E.O. to whom he shall report and be responsible. -2- 2.3 TERMINATION OF EMPLOYMENT. The Employee's employment may be terminated: (a) by the Employer, (i) for just cause at any time by the Employer without notice and without any payment in lieu of notice. The effective date of termination may be the date that such cause occurred. "Just Cause" includes, without limitation, any misconduct by the Employee, any wilful breach or non-observance by him of any of the conditions or obligations of this agreement, any neglect or refusal by him to carry out any of his duties hereunder, any negligent performance of such duties, any insubordinate or insulting behaviour towards the Employer, its officers and clients; or equivalent to 12 months salary and a bonus of not less than 30% of the said 12 months salary. and the Employee hereby waives any claim to further notice or compensation and the Employee agrees that the foregoing notice period(s) are deemed conclusively to be reasonable notice of termination. (b) by the Employee, upon the Employee giving the Employer at least thirty (30) days' written notice. 2.4 EMPLOYEE NOT TO ENGAGE IN OTHER EMPLOYMENT. The Employee agrees not to engage or be interested, directly or indirectly, in any other business or employment during the term of this employment, except with the specific permission of the Employer, given in writing. ARTICLE THREE - REMUNERATION AND BENEFITS 3.1 REMUNERATION. During the Employee's employment with the Employer the Employee shall be entitled to receive an annual gross salary of one hundred and seventy five thousand Canadian dollars ($175,000.00) payable with such regularity as the Employer deems appropriate 3.2 NO RIGHT TO SUE. The Employee shall have no further right to sue the Employer for damages or additional wages or benefits other than as set out herein. 3.3 ADJUSTMENT OF REMUNERATION. The Employer and the Employee may from time to time, by mutual written agreement, adjust the amount of salary referred to in Section 3.1 hereof without changing the interpretation of any of the other provisions of this Agreement. 3.4 REDEFINITION OF EMPLOYMENT. The Employer may from time to time redefine the job title, description, place of employment, functions and/or responsibilities of the Employee without changing any of the rights or obligations of the parties hereto. 3.5 REIMBURSEMENT OF EXPENSES. The Employee shall be reimbursed by the Employer for all business and promotional expenses actually and properly incurred by the Employee in connection with his duties under this Agreement in accordance with the normal policy of the Employer. The reimbursement of expenses shall be subject to the provision by the Employee to the Employer of receipts, statements and vouchers to the satisfaction of the Employer. The Employer shall be entitled to provide to the Employee a company credit card to facilitate the payment of such expenses, and to be fully and promptly reimbursed by the Employee in the event that he uses this credit card for non-Employer purposes. -3- 3.6 BENEFITS. The Employer shall make available to the Employee the benefits that it, in its sole discretion, makes available to other Employees from time to time. This shall include group insurance when available. 3.7 BONUS. In addition to the salary described in Paragraph 3.1 above, the Employee shall be entitled to consideration for bonuses from time to time. The Employee understands and agrees that the amount of such bonus, entitlement to and payment of any bonuses is entirely within the sole and arbitrary discretion of the Employer, save and except in the case of subparagraph 2.4(a)(ii). 3.8 CAR ALLOWANCE. The Employer shall provide the Employee with a company car, the cost of operating which shall be borne by the Employer, subject to the Employee's obligation to reimburse the Employer for any personal use thereof, as provided by the INCOME TAX ACT or the Employer. 3.9 SHARES AND OPTIONS. The Employee currently holds approximately 56,000 common shares of the Employer, plus options for a further 158,000 common shares, and is entitled to participate in the Employer's stock option plan as it is detailed from time to time. 3.10 NO PROVISION FOR TAXABLE BENEFIT. The Employer shall not be obliged to reimburse or otherwise make allowance to the Employee in respect of any deemed benefit or income for income tax purposes as a result of the provision to and use by the Employee of any company car or other allowance or reimbursement provided by the Employer. ARTICLE FOUR - VACATION 4.1 VACATION ENTITLEMENT. The Employee shall be entitled to five (5) weeks of vacation with pay at the end of each twelve-month period of employment of the Employee, to be taken as per company policy and at a mutually convenient time. ARTICLE FIVE - EMPLOYEE COVENANTS - NON-SOLICITATION 5.1 NON-SOLICITATION. During the Employee's employment with the Employer and for a period of: (a) One (1) year; or in the event that such time period is found by any Court of competent jurisdiction to be unreasonable or otherwise unenforceable, (b) nine (9) months; or in the event that such time period is found by any Court of competent jurisdiction to be unreasonable or otherwise unenforceable, (c) six (6) months; or in the event that such time period is found by any Court of competent jurisdiction to be unreasonable or otherwise unenforceable, -4- (d) three (3) months; following the termination of the Employee's employment with the Employer, the Employee covenants and agrees not to solicit any employee, independent contractor or other person working with the business of the employer or any client of the employer as of the date of the employee's termination of employment, away from working with or doing business with the employer. ARTICLE SIX - EMPLOYEE COVENANTS 6.1 COVENANTS OF THE EMPLOYEE. The employee covenants both during and after employment with the Employer as follows: (a) that, except in fulfillment of his duties hereunder or any other document or instrument approved by the Employer, he shall not enter into any contract on behalf of, or in the name of, the Employer, and shall not pledge the credit of the Employer; (b) that he shall not at any time be guilty of any act or conduct causing or calculated to cause damage or discredit to the reputation or business of the Employer; (c) that he shall not at any time during his employment with the Employer or after the termination thereof take any steps or make any approach either directly or indirectly to any employee of the Employer calculated to lead to such employee leaving his or her employment; (d) that as soon as notice of termination of employment has been given by either party and or his employment with the Employer shall terminate, whichever is the earlier, he shall deliver up to the Employer all books, records, printouts, lists, notes and other documents or copies thereof relating to the business of the Employer which may be in his possession or directly under his control; (e) that he shall not at any time during and/or after employment use for his own interest and shall not release directly or indirectly to anyone any information concerning the Employer's business practices, operations, procedures, policies, budget, products, financial information, client names, suppliers, etc., which the Employer shall deem confidential or against its business interests; and (f) the Employee further acknowledges that the information found in the Employer's books, records, printouts, lists, notes, or any other documents or copies thereof relating to the business of the Employer is the exclusive property of the Employer and can only be used for the benefit of the Employer. -5- ARTICLE SEVEN - INCAPACITY 7.1 INCAPACITY OF EMPLOYEES. Notwithstanding any other provision in this Agreement, where during the terms of this Agreement, the Employee by reason of his mental or physical condition (an "Incapacity") is unable, in the sole opinion of the Employer (acting reasonably), to perform his duties hereunder and such Incapacity shall continue for a period of more than thirty (30) consecutive days or forty (40) non-consecutive days within a twelve (12) month period, the Employer shall hereafter have the right, on not less than fourteen (14) days' written notice to the Employee, to terminate this Agreement and the Employee's employment. In such case, the Employee shall have no claim for wages or damages against the Employer, except for the payment of his full salary to the date of termination. ARTICLE EIGHT - GENERAL CONTRACT PROVISIONS 8.1 GOVERNING LAW. The terms of this Agreement are governed under the laws of the Province of Ontario and as such it is considered a contract of employment. 8.2 NO RELATED PARTY DEALINGS. The Employee shall not be allowed to deal on behalf of the Employer with any company in which he or his immediate family has an undisclosed financial interest. 8.3 NOTICE. Any notice to be given by either party hereunder may be validly given if sent by delivery or by registered mail, postage prepaid, addressed to the other at the respective addresses set forth above, or as subsequently notified in writing to the other party. 8.4 LANGUAGE. The parties acknowledge that they have required this agreement to be drawn in the English language. (Les parties reconnaissent qu'ils exige que la presente entente soit redigee en langue anglais.) 8.5 SURVIVAL. The representations, warranties and covenants of the Employee contained in this Agreement shall survive any termination of the Employee's employment with the Employer. 8.6 DAMAGES. The Employee agrees that in the event of any breach of this Agreement by the Employee damages will be an inadequate remedy and that the Employer shall be entitled to make an application to a court of competent jurisdiction for temporary and/or permanent injunctive relief against the Employee, without the necessity of proving actual damage to the Employer. 8.7 SEVERABILITY. If any covenant or provision contained herein is determined to be void, invalid or unenforceable in whole or in part for any reason whatsoever, it shall not be deemed to affect or impair the validity or enforceability of any other covenant or provisions hereof, and such unenforceable covenant or provisions or part thereof shall be treated as severable from the remainder of this Agreement. -6- 8.8 ENTIRE AGREEMENT. This Agreement and any schedules attached hereto constitutes the whole of the agreement between the parties. There are no collateral representations, agreements or conditions not specifically set forth herein. The Employee acknowledges that any express representations not contained in this Agreement, made negligently, innocently or otherwise to the Employee, by the officers, directors, employees or agents of the Employer, whether acting with actual or ostensible authority or otherwise, and whether such representations are made prior to, on or subsequent to the date thereof, have been, are or shall be so made without responsibility on the part of the Employer, its officers, directors, employees or agents, for any tortious liability, economic losses, non-pecuniary losses or other damages. The Employee also further acknowledges and agrees that any representations that may by implication arise as a result of the past, present or future interactions of the Employer and the Employee, shall not attribute or import any tortious liability to the Employer, its officers, directors, employees or agents, including without limitation any such representation found in the Employer's Employee Handbook from time to time. 8.9 AMENDMENTS. No modification, amendment or variation hereof shall be of effect or binding upon the parties thereto unless agreed to in writing by each of them and thereafter such modification, amendment or variation shall have the same effect as if it had originally formed part of this Agreement. 8.10 ENUREMENT. This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective legal personal representatives, heirs, executors, administrators or successors. 8.11 ASSIGNMENT. This Agreement is personal to the Employee and may not be assigned by the Employee. 8.12 WAIVER. No waiver by the parties hereto of any breach of any condition, covenant or agreement hereof shall constitute a waiver of such condition, covenant or agreement except in respect of the particular breach giving rise to such waiver. 8.13 NO UNTRUTHS. The Employee represents and warrants that all information provided to the Employer in any application form or during any interview for employment or other negotiations was accurate and contained no untruths or misinterpretations. The Employee agrees that the provision of any false or misleading information on an application form or during any employment interview are grounds for immediate dismissal of the Employee by the Employer without any further compensation payable to the Employee. -7- 8.14 EMPLOYEE'S ACKNOWLEDGEMENT. The Employee acknowledges that he has read and understands the foregoing and that the Employer has advised him that this Agreement substantially alters and supersedes the Employee's rights at common law. The Employee specifically acknowledges that the Employer has advised him to seek independent legal advice prior to executing this Agreement. IN WITNESS WHEREOF the parties have duly executed this Employment Agreement as at the date first set forth above. SIGNED, SEALED AND DELIVERED ) in the presence of ) ) /S/ Tony French ) ---------------- Witness ) TONY FRENCH ) ) THINKPATH INC. ) per: ) ) /S/ Declan FRENCH ------------------- ) Declan French ) I have the authority to bind the Corporation. -8- EX-10.27 6 exh10-27.txt EMPLOYMENT AGREEMENT-- KELLY HANKINSON EMPLOYMENT AGREEMENT THIS AGREEMENT made as at the 1st day of March, 2001. B E T W E E N: KELLY L. HANKINSON, an individual residing at 1359 Delco Court, Mississauga, Ontario, L5E 3K1 (hereinafter referred to as the "Employee") OF THE FIRST PART; - and - THINKPATH INC., a corporation incorporated under the laws of the Province of Ontario and having its head office at 505-55 University Avenue, Toronto, Ontario, M5J 2H7 (hereinafter referred to as the "Employer") OF THE SECOND PART; WHEREAS the Employee is presently employed by the Employer in a position of confidence and trust under conditions where she has or may have access to technical, confidential and secret information regarding the existing or contemplated business of the Employer; AND WHEREAS the Employee recognizes that as part of the duties of her employment, all ideas and suggestions of interest to the Employer conceived or made by her while she is employed by the Employer shall be made available to the Employer; AND WHEREAS the Employer is associated as subsidiary, affiliate, associate or parent with corporations and unincorporated business enterprises, the number of which varies from time to time, but all of which during the pertinent times have common business interests either through ownership or agreement (hereinafter all of such corporations and incorporated business enterprises are referred to collective as the "Employer"); AND WHEREAS the Employer is desirous of employing the Employee to provide services as an executive with a job title and description as set forth below, in connection with the business carried on by the Employer, consisting principally of the provision, online or otherwise, of training, staffing and related consulting services, specializing in the Information Technology field, including certain other business activities relating thereto (the "Business"); AND WHEREAS during the course of the Employee's employment with the Employer, the Employee will be introduced to, have contact with, and her services may be solicited by, one or more of the clients of or suppliers of the Employer; AND WHEREAS the Employee may be trained by the Employer to perform services in connection with the Business and through such training the Employee will acquire knowledge, experience and expertise, as well as detailed knowledge of the Employer's confidential customer and supplier lists and information, marketing techniques, price lists, trade secrets and other property which is and shall be the property of the Employer, and the disclosure, loss or, unauthorized use of which would be substantially harm the Business; NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the respective covenants and agreements of the parties contained herein, the sum of one dollar paid by each party hereto each of the other parties hereto and other good and valuable consideration (the receipt and sufficiency of which hereby acknowledged by each of the parties hereto), it is agreed as follows: ARTICLE ONE - AGREEMENT 1.1 TERMINATION OF PRIOR AGREEMENTS. Notwithstanding the fact that the Employee has been employed by the Employer since its inception, June 1, 1995, this Employment Agreement, from and after the date hereof, supersedes and takes the place of any other contracts of the same nature heretofore existing between the parties hereto. ARTICLE TWO - EMPLOYMENT 2.1 EMPLOYMENT. Subject to the terms and conditions herein, the Employer agrees to employ the Employee and the Employee agrees to be employed by the Employer in its Business and will have the title of Chief Financial Officer. 2.2 CONFORM WITH DIRECTIONS AND POLICIES. During her employment with the Employer, the Employee shall in all respects conform to and comply with the directions and policies of the Employer, perform each of the duties assigned from time to time by the Employer to the best skill and ability, faithfully and diligently serve the Employer, use her best efforts to promote the interests and reputation of the Employer and devote her full working time, attention and energies to the Business of the Employer. For the purposes of this Agreement, the Employer shall speak and act through its C.E.O. to whom she shall report and be responsible. -2- 2.3 TERMINATION OF EMPLOYMENT. The Employee's employment may be terminated: (a) by the Employer, (i) for just cause at any time by the Employer without notice and without any payment in lieu of notice. The effective date of termination may be the date that such cause occurred. "Just Cause" includes, without limitation, any misconduct by the Employee, any wilful breach or non-observance by her of any of the conditions or obligations of this agreement, any neglect or refusal by her to carry out any of her duties hereunder, any negligent performance of such duties, any insubordinate or insulting behaviour towards the Employer, its officers and clients; or (ii) without cause, upon the payment equivalent to 12 months salary and a bonus of not less than 30% of the said 12 months salary. and the Employee hereby waives any claim to further notice or compensation and the Employee agrees that the foregoing notice period(s) are deemed conclusively to be reasonable notice of termination. (b) by the Employee, upon the Employee giving the Employer at least thirty (30) days' written notice. 2.4 EMPLOYEE NOT TO ENGAGE IN OTHER EMPLOYMENT. The Employee agrees not to engage or be interested, directly or indirectly, in any other business or employment during the term of this employment, except with the specific permission of the Employer, given in writing. ARTICLE THREE - REMUNERATION AND BENEFITS 3.1 REMUNERATION. During the Employee's employment with the Employer the Employee shall be entitled to receive an annual gross salary of one hundred and fifty thousand Canadian dollars ($150,000), payable with such regularity as the Employer deems appropriate. 3.2 NO RIGHT TO SUE. The Employee shall have no further right to sue the Employer for damages or additional wages or benefits other than as set out herein. 3.3 ADJUSTMENT OF REMUNERATION. The Employer and the Employee may from time to time, by mutual written agreement, adjust the amount of salary referred to in Section 3.1 hereof without changing the interpretation of any of the other provisions of this Agreement. 3.4 REDEFINITION OF EMPLOYMENT. The Employer may from time to time redefine the job title, description, place of employment, functions and/or responsibilities of the Employee without changing any of the rights or obligations of the parties hereto. 3.5 REIMBURSEMENT OF EXPENSES. The Employee shall be reimbursed by the Employer for all business and promotional expenses actually and properly incurred by the Employee in connection with her duties under this Agreement in accordance with the normal policy of the Employer. The reimbursement of expenses shall be subject to the provision by the Employee to the Employer of receipts, statements and vouchers to the satisfaction of the Employer. The Employer shall be entitled to provide to the Employee a company credit card to facilitate the payment of such expenses, and to be fully and promptly reimbursed by the Employee in the event that she uses this credit card for non-Employer purposes. -3- 3.6 BENEFITS. The Employer shall make available to the Employee the benefits that it, in its sole discretion, makes available to other Employees from time to time. This shall include group insurance when available. 3.7 BONUS. In addition to the salary described in Paragraph 3.1 above, the Employee shall be entitled to consideration for bonuses from time to time. The Employee understands and agrees that the amount of such bonus, entitlement to and payment of any bonuses is entirely within the sole and arbitrary discretion of the Employer, save and except n the case of subparagraph 2.4(a)(ii). 3.8 CAR ALLOWANCE. The Employer shall provide the Employee with a company car, the cost of operating which shall be borne by the Employer, subject to the Employee's obligation to reimburse the Employer for any personal use thereof, as provided by the INCOME TAX ACT or the Employer. 3.9 SHARES AND OPTIONS. The Employee currently holds approximately 52,000 common shares of the Employer, plus options for a further 132,500 common shares, and is entitled to participate in the Employer's stock option plan as it is detailed from time to time. 3.10 NO PROVISION FOR TAXABLE BENEFIT. The Employer shall not be obliged to reimburse or otherwise make allowance to the Employee in respect of any deemed benefit or income for income tax purposes as a result of the provision to and use by the Employee of any company car or other allowance or reimbursement provided by the Employer. ARTICLE FOUR - VACATION 4.1 VACATION ENTITLEMENT. The Employee shall be entitled to five (5) weeks of vacation with pay at the end of each twelve-month period of employment of the Employee, to be taken as per company policy and at a mutually convenient time. ARTICLE FIVE - EMPLOYEE COVENANTS - NON-SOLICITATION 5.1 NON-SOLICITATION. During the Employee's employment with the Employer and for a period of: (a) One (1) year; or in the event that such time period is found by any Court of competent jurisdiction to be unreasonable or otherwise unenforceable, (b) nine (9) months; or in the event that such time period is found by any Court of competent jurisdiction to be unreasonable or otherwise unenforceable, -4- (c) six (6) months; or in the event that such time period is found by any Court of competent jurisdiction to be unreasonable or otherwise unenforceable, (d) three (3) months; following the termination of the Employee's employment with the Employer, the Employee covenants and agrees not to solicit any employee, independent contractor or other person working with the business of the employer or any client of the employer as of the date of the employee's termination of employment, away from working with or doing business with the employer. ARTICLE SIX - EMPLOYEE COVENANTS 6.1 COVENANTS OF THE EMPLOYEE. The employee covenants both during and after employment with the Employer as follows: (a) that, except in fulfillment of her duties hereunder or any other document or instrument approved by the Employer, she shall not enter into any contract on behalf of, or in the name of, the Employer, and shall not pledge the credit of the Employer; (b) that she shall not at any time be guilty of any act or conduct causing or calculated to cause damage or discredit to the reputation or business of the Employer; (c) that she shall not at any time during her employment with the Employer or after the termination thereof take any steps or make any approach either directly or indirectly to any employee of the Employer calculated to lead to such employee leaving her or her employment; (d) that as soon as notice of termination of employment has been given by either party and or her employment with the Employer shall terminate, whichever is the earlier, she shall deliver up to the Employer all books, records, printouts, lists, notes and other documents or copies thereof relating to the business of the Employer which may be in her possession or directly under her control; (e) that she shall not at any time during and/or after employment use for her own interest and shall not release directly or indirectly to anyone any information concerning the Employer's business practices, operations, procedures, policies, budget, products, financial information, client names, suppliers, etc., which the Employer shall deem confidential or against its business interests; and (f) the Employee further acknowledges that the information found in the Employer's books, records, printouts, lists, notes, or any other documents or copies thereof relating to the business of the Employer is the exclusive property of the Employer and can only be used for the benefit of the Employer. -5- ARTICLE SEVEN - INCAPACITY 7.1 INCAPACITY OF EMPLOYEES. Notwithstanding any other provision in this Agreement, where during the terms of this Agreement, the Employee by reason of her mental or physical condition (an "Incapacity") is unable, in the sole opinion of the Employer (acting reasonably), to perform her duties hereunder and such Incapacity shall continue for a period of more than thirty (30) consecutive days or forty (40) non-consecutive days within a twelve (12) month period, the Employer shall hereafter have the right, on not less than fourteen (14) days' written notice to the Employee, to terminate this Agreement and the Employee's employment. In such case, the Employee shall have no claim for wages or damages against the Employer, except for the payment of her full salary to the date of termination. ARTICLE EIGHT - GENERAL CONTRACT PROVISIONS 8.1 GOVERNING LAW. The terms of this Agreement are governed under the laws of the Province of Ontario and as such it is considered a contract of employment. 8.2 NO RELATED PARTY DEALINGS. The Employee shall not be allowed to deal on behalf of the Employer with any company in which she or her immediate family has an undisclosed financial interest. 8.3 NOTICE. Any notice to be given by either party hereunder may be validly given if sent by delivery or by registered mail, postage prepaid, addressed to the other at the respective addresses set forth above, or as subsequently notified in writing to the other party. 8.4 LANGUAGE. The parties acknowledge that they have required this agreement to be drawn in the English language. (Les parties reconnaissent qu'ils exige que la presente entente soit redigee en langue anglais.) 8.5 SURVIVAL. The representations, warranties and covenants of the Employee contained in this Agreement shall survive any termination of the Employee's employment with the Employer. 8.6 DAMAGES. The Employee agrees that in the event of any breach of this Agreement by the Employee damages will be an inadequate remedy and that the Employer shall be entitled to make an application to a court of competent jurisdiction for temporary and/or permanent injunctive relief against the Employee, without the necessity of proving actual damage to the Employer. 8.7 SEVERABILITY. If any covenant or provision contained herein is determined to be void, invalid or unenforceable in whole or in part for any reason whatsoever, it shall not be deemed to affect or impair the validity or enforceability of any other covenant or provisions hereof, and such unenforceable covenant or provisions or part thereof shall be treated as severable from the remainder of this Agreement. -6- 8.8 ENTIRE AGREEMENT. This Agreement and any schedules attached hereto constitutes the whole of the agreement between the parties. There are no collateral representations, agreements or conditions not specifically set forth herein. The Employee acknowledges that any express representations not contained in this Agreement, made negligently, innocently or otherwise to the Employee, by the officers, directors, employees or agents of the Employer, whether acting with actual or ostensible authority or otherwise, and whether such representations are made prior to, on or subsequent to the date thereof, have been, are or shall be so made without responsibility on the part of the Employer, its officers, directors, employees or agents, for any tortious liability, economic losses, non-pecuniary losses or other damages. The Employee also further acknowledges and agrees that any representations that may by implication arise as a result of the past, present or future interactions of the Employer and the Employee, shall not attribute or import any tortious liability to the Employer, its officers, directors, employees or agents, including without limitation any such representation found in the Employer's Employee Handbook from time to time. 8.9 AMENDMENTS. No modification, amendment or variation hereof shall be of effect or binding upon the parties thereto unless agreed to in writing by each of them and thereafter such modification, amendment or variation shall have the same effect as if it had originally formed part of this Agreement. 8.10 ENUREMENT. This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective legal personal representatives, heirs, executors, administrators or successors. 8.11 ASSIGNMENT. This Agreement is personal to the Employee and may not be assigned by the Employee. 8.12 WAIVER. No waiver by the parties hereto of any breach of any condition, covenant or agreement hereof shall constitute a waiver of such condition, covenant or agreement except in respect of the particular breach giving rise to such waiver. 8.13 NO UNTRUTHS. The Employee represents and warrants that all information provided to the Employer in any application form or during any interview for employment or other negotiations was accurate and contained no untruths or misinterpretations. The Employee agrees that the provision of any false or misleading information on an application form or during any employment interview are grounds for immediate dismissal of the Employee by the Employer without any further compensation payable to the Employee. 8.14 EMPLOYEE'S ACKNOWLEDGMENT. The Employee acknowledges that she has read and understands the foregoing and that the Employer has advised her that this Agreement substantially alters and supersedes the Employee's rights at common law. The Employee specifically acknowledges that the Employer has advised her to seek independent legal advice prior to executing this Agreement. -7- IN WITNESS WHEREOF the parties have duly executed this Employment Agreement as at the date first set forth above. SIGNED, SEALED AND DELIVERED ) in the presence of ) ) /S/ KELLY HANKINSON ) -------------------------- Witness ) Kelly L. Hankinson ) ) THINKPATH INC. ) per: ) ) /S/ DECLAN FRENCH ----------------------------------- ) Declan French ) I have the authority to bind the Corporation. -8- EX-10.28 7 exh10-28.txt ENTRENET(2) ENGAGEMENT AGREEMENT [OBJECT OMITTED] ENGAGEMENT AGREEMENT This Agreement is effective as of the date of execution, by and between Thinkpath.com Inc, 55 University Avenue, Suite 505, Toronto, Ontario M5J 2H7 (referred to as "Company"), and entrenet2 Capital Advisors, LLC, 3510 Unocal Place, Suite 103,Santa Rosa, California 95403 (referred to as "entrenet"). Company desires to have services provided by entrenet. Therefore, the parties agree as follows: 1. DESCRIPTION OF SERVICES. Beginning on the Effective Date, entrenet will provide the services, (collectively, the "Services") as described in Exhibit A attached hereto and incorporated herein by reference. 2. PERFORMANCE OF SERVICES. The manner in which the Services are to be performed and the specific hours to be worked by entrenet shall be determined by entrenet. entrenet shall, and the Company will rely on entrenet's promise to work as many hours as may be reasonably necessary to fulfill entrenet's obligations under this Agreement. 3. PAYMENT. Company will pay a fee to entrenet for the Services in an amount and under terms and conditions as described in Exhibit A. 4. TRANSACTION. For purposes of this Agreement, the term "Transaction" shall mean, whether in one or a series of transactions: Any capital financing, including without limitation, any financing for debt, equity, capital stock (common or preferred), convertible instruments, lines of credit and secured and/or unsecured debt; Any merger or acquisition activity including without limitation, (i) the acquisition, directly or indirectly, through purchases, sales, or otherwise, of any or all portions of the securities of the Company by an investor or (ii) any merger, consolidation, reorganization, recapitalization, restructuring or other business combination involving the Company and an investor. 5. CONSIDERATION. For purposes of this Agreement, the term "Consideration" means the total proceeds and other consideration paid and to be paid or contributed directly or indirectly, in connection with a Transaction (which consideration shall be deemed to include amounts paid or to be paid into escrow) to the Company and its shareholders, including, without limitation: (i) cash; (ii) notes, securities, and other property (including all options, warrants or other instruments or arrangements convertible into or exercisable for any of the foregoing) at the fair market value thereof; (iii) liabilities assumed; (iv) payments to be made in installments; (v) amounts paid or payable under management, consulting, supply, service, distribution, technology transfer or licensing agreements, and real property or equipment lease agreements, and agreements not to compete, and other similar arrangements (including such payments to management), entered into other than in the ordinary course of business; and (vi) contingent payments, if actually paid (whether or not related to future earnings or operations). The fair market value of non-cash consideration consisting of securities shall be determined based upon (A) the closing sale price for such securities on the registered national securities exchange providing the primary market therein on the last trading day prior to the date of receipt thereof by the Company or its shareholders, (B) if such securities are not so traded, the average of the closing bid and asked prices, as reported by the National Association of Securities Dealers Automated Quotation System on the last trading day prior to the date of receipt thereof by the Company or its shareholders, or (C) if such securities are not so traded or reported, agreement between the Company and entrenet. The fair market value of any non-cash Consideration other than securities shall be determined by agreement of the Company and entrenet. If all or any portion of the Consideration is to be paid over time, then that portion of the Transaction Fee attributable thereto shall be payable, in the sole discretion of entrenet, either (i) as and when such payments are made or (ii) upon consummation of a Transaction, calculated based on the present value of such Consideration utilizing a discount rate of 7% per annum. 6. ACCOUNTING AND INSPECTION RIGHTS. For all compensation referred to in Exhibit A, it is further agreed that Company shall maintain written records in sufficient detail for purposes of determining the amount of Fees due entrenet. Company shall provide to entrenet a written accounting that sets forth the manner in which Fee payments were calculated. Upon 15 days notice, entrenet or entrenet's agent shall have the right to inspect Company's records for the limited purpose of verifying the calculation of Fee payments, subject to such restrictions as Company may reasonably impose to protect the confidentiality of the records. Such inspections shall be made at the company's principal place of business during regular business hours as may be set by the Company. 7. EXPENSE REIMBURSEMENT. entrenet shall be entitled to reimbursement from Company as described in Exhibit A. 8. TERM/TERMINATION. This Agreement shall be effective upon signing and shall have an initial term and such renewal terms as shall be described in Exhibit A. The termination of this engagement is also defined in Exhibit A. 9. RELATIONSHIP OF PARTIES. It is understood by the parties that entrenet is an independent contractor with respect to Company, and not an employee of Company. Company will not provide fringe benefits, such as health insurance benefits, paid vacation, or any other employee benefit, for the benefit of entrenet. 10. INDEMNIFICATION. Recognizing that entrenet's role under this Agreement is advisory, by its acceptance of this Agreement the Company (i) agrees to indemnify and hold harmless entrenet its directors, officers, agents and employees ("Indemnified Persons") against all losses, claims, damages, penalties, judgments, liabilities and expenses of every kind whatsoever (including, without limitation, all fees and expenses of litigation or preparation therefore, whether or not entrenet is a party thereto) (collectively "Liabilities") which any of them may pay or incur arising out of or related to the Transaction or services which are the subject of this letter; and (ii) herby expressly and irrevocably waives any and all rights and objections which it may have against any Indemnified Persons in respect of any Liability arising out of or relating to the Transaction or services which are the subject of this letter, except to the extent in either (i) or (ii) such Liability arises primarily from entrenet's gross negligence or willful misconduct. The Company further agrees not to settle any claim, litigation or proceeding relating to a Transaction (whether or not entrenet is a party thereto) unless such settlement releases entrenet, its officers, directors and employees from any and all liability in respect of such Transaction. For the purposes of enforcing this indemnity and with respect to all claims and disputes under or relating to this Agreement, the Company and entrenet irrevocably submit to the exclusive jurisdiction of the State and Federal Courts in the State of California as the sole and exclusive forum for the resolution of such claims and disputes and irrevocably waives any objection as to venue or inconvenient forum. IF THIS LETTER OR ANY ACT, OMISSION OR EVENT DESCRIBED IN THIS PARAGRAPH BECOMES THE SUBJECT OF A DISPUTE, THE COMPANY AND ENTRENET EACH HERBY WAIVE TRIAL BY JURY. Without limiting the generality of this Section, any liability of entrenet to the Company hereunder together with any liability of entrenet under the Agreement shall not exceed the amount of the aggregate fees paid to entrenet under this Agreement. -2- 11. COOPERATION, CONFIDENTIALITY, ETC. (a) The Company shall furnish entrenet with all information and data which entrenet shall reasonably deem appropriate in connection with its activities on the Company's behalf, and shall provide entrenet full access to the Company's officers, directors, employees and professional advisors. The Company recognizes and confirms that entrenet in acting pursuant to this engagement will be using information in public reports and other information provided by others, including information provided by the Company, and that entrenet does not assume responsibility for, and may rely without independent verification upon, the accuracy or completeness of any such information. (b) the Company agrees that entrenet's advice is for the use and information of the Company's management and Board of Directors only and the Company will not disclose such advice to others (except the Company's professional advisors and except as required by law) or summarize or refer to such advice without, in each case, entrenet's prior written consent. Notwithstanding anything to the contrary contained in the foregoing, in the event the Company is required by law to make any filings with any governmental authority (including without limitation the Securities and Exchange Commission) which mention entrenet or any disclosure to the holder of its securities concerning entrenet, the Company shall afford entrenet the opportunity to review such disclosure in advance and to approve the form thereof, such approval not to be unreasonably withheld or delayed. entrenet agrees that it will not, without the prior written consent of the Company, disclose, to any third party any confidential information provided by the Company to entrenet in connection with this engagement, except to the extent (i) such disclosure is required by applicable law, regulation or legal process, (ii) such information becomes publicly known other than as a result of the breach by entrenet of its obligations set forth in this sentence, and (iii) such disclosure is requested or required by any bank regulatory authority having jurisdiction over entrenet. 12. OTHER TRANSACTIONS. The Company acknowledges that entrenet and its affiliates may have and may in the future have investment and commercial banking, trust and other relationships with parties other than the Company, which parties may have interests with respect to a Transaction. Although entrenet in the course of such other relationships may acquire information about the Transaction, potential investors or such other parties, entrenet shall have no obligation to disclose such information to the Company or to use such information on the Company's behalf. Furthermore, the Company acknowledges that entrenet may have fiduciary or other relationships whereby entrenet may exercise voting power over securities of various persons, which securities may from time to time include securities of the Company, potential investors or to others with interests with respect to a Transaction. The Company acknowledges that entrenet may exercise such powers and otherwise perform its functions in connection with such fiduciary or other relationships without regard to its relationship to the Company hereunder. 13. ACKNOWLEDGMENT OF SERVICES PROVIDED. entrenet may include descriptions of services provided by entrenet to the Company in entrenet's promotional materials. entrenet shall also have the right to place notices ("Tombstones") in financial and other newspapers and journals at entrenet's own expense describing its services to Company under this Agreement. entrenet may not otherwise publicly refer to the Company without the Company's prior consent. -3- 14. NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed delivered when delivered in person or deposited in the United States mail, first class postage prepaid, addressed as follows: IF FOR COMPANY: Thinkpath.com Inc Declan French Chairman and Chief Executive Officer 55 University Avenue, Suite 505 Toronto, Ontario M5J 2H7 FAX - (416) 364-2424 EMAIL - dfrench@thinkpath.com IF FOR ENTRENET: --------------- entrenet2 Capital Advisors, LLC John Billington Managing Director 3510 Unocal Place, Suite 103 Santa Rosa, CA 95403 FAX - 707-284-3510 EMAIL - john@entre.net Such addresses may be changed from time to time by either party, by providing written notice to the other in the manner set forth above. 15. ARBITRATION AND CONSENT TO JURISDICTION. Any dispute and/or controversy relating to or arising from the interpretation and/or application of this Agreement shall be submitted at the request of the Company or entrenet to a neutral arbitrator selected by the parties from a mutually acceptable panel of arbitrators for a determination which shall be final and binding as to the parties thereto. Arbitration shall take place in the providence of Ontario, Canada. The decision and award of the arbitrator may include the cost of the arbitration proceedings and may include reasonable attorney fees for the successful party. Nothing herein contained shall be deemed to affect the rights of any Party to serve process in any manner other than as permitted by law. 16. ENTIRE AGREEMENT. This Agreement, along with any Exhibits attached hereto, contains the entire agreement of the parties with respect to the subject matter and supersedes any other agreement whether oral or written which are not fully expressed herein, except for carryover provisions of any previous executed agreements between entrenet and Company. 17. AMENDMENT. This Agreement may be modified or amended if the amendment is made in writing and is signed by both parties. 18. SEVERABILITY. If any provision of this Agreement shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable. If a court finds that any provision of this Agreement is invalid or unenforceable, but that by limiting such provision it would become valid and enforceable, then such provision shall be deemed to be written, construed, and enforced as so limited. 19. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce any provision of this Agreement shall not be construed as a waiver or limitation of that party's right to subsequently enforce and compel strict compliance with every provision of this Agreement. -4- 20. APPLICABLE LAW. This Agreement shall be governed by the laws of the State of California, excluding that body of law known as conflict of laws. THINKPATH.COM INC. ENTRENET(2) CAPITAL ADVISORS, LLC /S/ Declan French /S/ John Billington By ________________________________________ By: _______________________________ Declan French John Billington Chairman and Chief Executive Officer Managing Director November 5, 2001 November 5, 2001 Date Executed: _____________________________ Date Executed: ____________________ -5- EXHIBIT A ADVISORY SERVICES PROVIDED BY ENTRENET As a corporate advisor, entrenet will use its best efforts to assist Company in achieving a successful Transaction. Such Transaction, as defined in paragraph four (4) of this Agreement, includes without limitation: any capital financing, debt financing, and/or merger/acquisition transactions. entrenet will not act as a broker, but will assist in locating brokerage services if required. entrenet will not participate in general advertising or solicitation of the Company. Investors brought to the Company will be accredited investors to the best of entrenet's knowledge. In addition, entrenet SHALL NOT have authority to do the following: o Hold any funds or securities in connection with a proposed sale of the Company's securities; o Bind or obligate the Company in any respect; o Make any representations respecting the business or affairs of the Company to any prospective investor or customer whether in connection with investment or otherwise and entrenet agrees not to make any such representations unless previously authorized by the Company in writing; or o Make any offers to sell equity, debt, or assets of the Company. At the Company's request, entrenet may provide services beyond those listed above; however, the Company shall pay to entrenet a separate consulting rate for these additional services. The Company and entrenet shall agree on such rates, in writing, prior to entrenet providing such services. ENTRENET COMPENSATION. TRANSACTIONS. DEBT. Upon the successful completion of a debt Transaction, as defined in paragraph 4 of this Agreement, initiated at any time prior to the termination of this Agreement, the fees paid to entrenet shall be one and one half percent (1.5%)(payable in cash) of gross Consideration as defined in paragraph 5 of this Agreement. EQUITY. Upon the successful completion of an equity or convertible debt Transaction, as defined in paragraph 4 of this Agreement, initiated at any time prior to the termination of this Agreement, the fees paid to entrenet shall be four percent (4%) payable in cash of gross Consideration as defined in paragraph 5 of this Agreement MERGERS & ACQUISITIONS. Upon the successful completion of a merger, acquisition or other business combination Transaction, as defined in paragraph 4 of this Agreement, initiated at any time prior to the termination of this Agreement, the fees paid to entrenet shall be four percent (4%), payable in cash, of gross Consideration as defined in paragraph 5 of this Agreement -6- ESCROW. All Fees, Common Stock Warrants, or other consideration earned in conjunction a transaction are to be paid through the escrow account at time of closing of the transaction. EXPENSE REIMBURSEMENT PRE-APPROVED EXPENSES. The Company's prior approval, entrenet shall be entitled to reimbursement from the Company for reasonable amounts of the following "out-of-pocket" expenses: travel expenses, airfare, hotel, meals, printing & binding or other expenses as shall be mutually agreed upon. TERM The term of the Agreement shall be twelve (12) months from date of signing. The Agreement shall automatically renew for successive twelve (12) month terms, unless either party provides 60 days written notice to the other party prior to either the termination of the applicable initial term or any renewal terms. For any sources introduced to the company prior to termination, the above entrenet compensation schedule will remain in effect for two (2) years following the termination date of this Agreement. -7- EX-10.29 8 exh10-29.txt AGREEMENT DATED 1/9/02 5 This Agreement dated for reference the 9th day of January, 2002 BETWEEN: Thinkpath Inc, a company duly incorporated under the laws of the Province of Ontario, with it's head office at 55 University Ave. Suite 500, Toronto Ontario M5J 2H7 ("Thinkpath") AND: OGILVIE ROTHCHILD INC., a company duly incorporated under the laws of the Province of Ontario, with its head office at 105 Robinson Street, Oakville, Ontario L6J 1G1 ("OR") WHEREAS: A. OR has experience and expertise in providing public relations and marketing services to high tech companies; B. Thinkpath wishes to engage the services of OR to provide public relations and marketing services for the purposes of future funding (to be determined) NOW THEREFORE, the parties agree as follows: 1. OR will perform the public relations and marketing services set out in the Specifications attached hereto as Schedule "A" (the "Services") for Thinkpath. 2. Thinkpath will pay for the Services through the issuance of 500,000 shares in the capital stock of Thinkpath and a engagement fee of $25,000. plus GST. Thinkpath shall cause share certificates representing the shares to be issued forthwith following the execution of this Agreement, and to be delivered to OR in accordance with the following schedule: (a) 200,000 shares on completion of the work set out in section 1.0 - "Business Plan Analysis & Revision" - of the Specifications; (b) 200,000 shares on completion of the work set out in section 2.0 - "Multi-Media Presentation Development" - of the Specifications; (c) 50,000 shares on completion of the work set out in section 3.0 - "Web Site Revision" - of the Specifications; and (d) 50,000 shares on completion of the work set out in section 4.0 - "Marketing / Communication Planning" - of the Specifications. Any shares relating to work not completed by March 30th will be cancelled. Concurrently with execution of this Agreement, OR will execute a Power of Attorney in favor of Thinkpath or a corporate officer appointed by Thinkpath, which Power of Attorney may be utilized by Thinkpath to cancel any shares stipulated to be cancelled in accordance with this section. 3. Thinkpath will use reasonable commercial efforts to: (a) File necessary form(s) with the SEC on or before January 21st 2002. To issue 500,000 shares pursuant to this agreement. 4. For accounting purposes, the shares issued pursuant to this Agreement shall be issued represent a value of $100,000. for services rendered. 5. Either party can cancel this agreement at anytime. Further, work completed up to cancellation will be issued to Ogilvie Rothchild pursuant to the terms. Agreed effective the 9th day of January, 2002 Thinkpath Inc. Per: /S/ Declan French - ----------------- Declan French, Chairman & CEO Ogilvie Rothchild Inc. Per: /S/ Paul Ogilvie - ---------------- Paul Ogilvie, President -2- SPECIFICATIONS 1.0 BUSINESS PLAN ANALYSIS & REVISION Ogilvie Rothchild will analyzes the existing business plan, cross-referencing the information contained with our unique `business plan infrastructure listing' to ensure that all of the information that an investor would require is included. Ogilvie Rothchild will research, write, assist with strategies, edit and complete a comprehensive business plan and implementation `road map'. Thinkpath will be responsible for supplying the financial projections in an electronic format. Estimated time of completion is within one month, an exact timeframe will be determined once the existing plan has been reviewed. 2.0 MULTI-MEDIA PRESENTATION DEVELOPMENT Ogilvie Rothchild will create a CD-ROM presentation tool based on the business plan for distribution to the investment community, potential partners, etc. The client will supply all necessary bullet points. Alternatively, the CD-ROM can be created to be more generic and entertaining for the purposes of (2) investors and as a sales tool for the sales force. Estimated time of completion is within two weeks. The details of the presentation are as follows: - Corporate overview including information from the executive summary and financial plan - Visual presentation of the product/technology using still images and video where possible. - Accessible through the corporate web site - Multi-screen presentation (interactive or auto-run option) 3.0 WEB SITE REVISION The corporate web site is essential to projecting a positive corporate image. This initial site will house basic company information, and will direct interested parties to the right person for more information. Ogilvie Rothchild will work with Thinkpath to revise the existing corporate web site to ensure that all of the messages and images are consistent with the other projects, i.e. communications plan, business plan, etc. -3- 4.0 MARKETING / COMMUNICATION PLANNING 4.1 COMMUNICATION PLAN DEVELOPMENT Ogilvie Rothchild will work directly with the Thinkpath team to create a communication plan that represents the company's business, marketing and communication goals. The tactics within the plan will be cost effective, and will be presented in a work plan format to be evaluated on a frequent basis in order to ensure that the objectives are being met. To provide you with an idea of how the plan will be developed, we have outlined a seven- step communication plan development process: STEP ONE - Establishing Communication Philosophy and Role Before we begin developing the specifics of your plan, it is critical that you understand and agree on the role communications will play in your company. What is the role of communications? - Discuss and list management's assumptions and expectations STEP TWO - Data and Information Gathering To be effective, communications must address the needs and problems of the company. We need to establish and understand the following through interviews, surveys and existing information sources: - The goals of the business - The direction of the business and corporate decisions that will effect the people involved - The environment and the culture of the organization - who is the audience - The situations and problems which can be addressed by communicators Where do we stand? Where are we going? - Gain understanding of business plans - Interview executive team - Gather and develop relevant data and information -4- STEP THREE - Situation Analysis The next step is to study the information collected and outline the situation including all the external elements that will affect the company's communication goals. What effect will the PR initiative have on the external environment? What are the successes, potential problems and future goals? - Analyze and study business plans and other strategies developed - Sift out, describe and develop key issues - Consider corporate and company strategies and themes STEP FOUR - Developing and Drafting a Plan Some of the key elements will include developing the objectives (the end results you want to achieve), strategies (approaches you will use in achieving the objectives) and tactics (the specific actions you will take to reach your objectives). How can we achieve our goals? - State objectives - Develop strategies - Brainstorm ideas - Develop specific tactics and actions - Develop themes and calendar - Draw up a budget and include other resources necessary to achieve goals STEP FIVE - Gaining Approval Once the plan is drafted, approval is the next step. Does the executive team agree and support the plan? - Overview session with executive team STEP SIX - Work Plan Development How do you make your short and long range plan happen? - Prepare a work plan/critical path to follow - OR to provide regular Current Status Reports -5- STEP SEVEN - Follow-up Evaluations and Course Corrections Check on the progress and results. See if issues and goals have changed in the past two or three months. What are you accomplishing? Is it what is needed? - Is the message clear? - Are you achieving your goals? - Look for new issues 4.2 IMPLEMENTATION MANAGEMENT Not only can Ogilvie Rothchild help with the development of the plan, but we can also help to implement the tactics and programs that are derived from the communication plan. Some of the areas we specialize in include: MEDIA TRAINING - Spokesperson training - Message development - Half-day media training session offered to master messages, formulate answers to tough questions and interview techniques specific to targeted reporters MEDIA KIT DEVELOPMENT - Research, create, write, and edit the following materials for each campaign: | | News releases | | Spokesperson bio | | Company/product fact sheets (i.e. explain how products work) | | Backgrounder | | Case studies | | Testimonials | | Questions and answers | | Visuals | | Media pitch letter/phone script | | Electronic media kit DISTRIBUTE AND PITCH STORIES TO THE MEDIA - Media kit distribution - Contacting media on your behalf - Follow-up with reporters and established relationships COORDINATE AND MONITOR INTERVIEWS WITH SPOKESPERSON - Schedule interview based on spokesperson's availability - Brief spokesperson on each media opportunity including: - Profile of the reporter - Previous stories filed by reporter - Media hot buttons of the day MONITOR MEDIA COVERAGE - Arrange print and electronic media monitoring during interview period and for one month following. -6- EX-10.30 9 exh10-30.txt FINANCIAL CONSULTING AGREEMENT CONSULTING AGREEMENT THIS AGREEMENT is made as of the 15th day of January 2002. BETWEEN: THINKPATH INC. (the "Corporation") - and - DAVID J. WODAR (the "Consultant") WHEREAS the Corporation wishes to engage the Consultant to provide the consulting services on the terms set out herein; AND WHEREAS the Consultant wishes to accept this engagement by the Corporation; NOW THEREFORE in consideration of the mutual covenants and agreements contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. THE CONSULTANT COVENANTS AND AGREES AS FOLLOWS: a. to utilize the Consultant's database of marketing companies; managing the implementation of such sources of marketing consultants and continue to provide an assessment of such sources to the Corporation; b. to help in the development of marketing plan(s) and strategies for the Corporation and a road of implementation; c. to help in the planning and implementation of the Corporations internal and external structure. d. to utilize the services of other consulting organizations if deemed advisable by the Consultant. 2. THE CORPORATION COVENANTS AND AGREES AS FOLLOWS: a. to keep the Consultant fully informed of confidential information as it develops regarding the Corporation, its assets and financial position. Authorize key personnel to discuss said confidential information with the Consultant; b. to provide a current business plan to the Consultant for analysis and input; c. to present the Consultant with all pertinent information of the Company that is necessary to aid the Consultant in marketing strategies and goals; d. to make available key management personnel on reasonable notice for personal and conference call meetings with the Consultant; e. to pay the Consultant's fees and expenses when due; f. the Corporation acknowledges that the Consultant's services provided under this Agreement are for the purpose of marketing and no warrants are implied as to the effect it will have on the market price of the Corporation's stock. 3. FEE SHEDULE As compensation for the Consultant services set out herein, the Corporation agrees to pay the Consultant as follows: a. Ten Thousand Dollars ($10,000.00) CAD plus applicable taxes on the 15th of each month during the term of this Agreement, commencing on January 15th, 2002; b. For all out of pocket expenses and expenses paid to third parties and without limiting the generality of the foregoing shall include; postage, couriers, office supplies, printing, photocopies, parking, meetings etc.; to a maximum of $1,500.00 dollars per month, unless having prior approval of the Corporation; c. For travel expenses subject to prior approval of the Corporation; d. Shares in the Corporation with an aggregate total of Four Hundred and Eighty Thousand (480,000) registered upon signing, payable monthly, having an approximate value of $86,400 US Dollars; e. Fees and expenses are billed monthly and are due on receipt of invoice. Amounts unpaid after 15 days bear interest at the rate of 1.5% per month. 4. TERMS OF THE AGREEMENT This Agreement is for a term of 12 months from the date first written above. 5. NO USE OF CONFIDENTIAL INFORMATION During and at all times after the termination of this Agreement, the Consultant will keep confidential all Confidential Information and will not use, for the benefit of the Consultant or others and will not disclose any Confidential Information to any person except in the course of providing services under this Agreement to a person who is employed by the Corporation or with the Corporation's prior consent and in accordance with applicable law. The foregoing prohibition will not apply to any Confidential Information if: a. the Confidential Information is available to the public or in the public domain at the time of disclosure or use; b. the disclosure is required to be made by operation of law, in which case the Consultant will notify the Corporation immediately upon learning of that requirement; or c. the disclosure is made with the Corporation's prior written approval; d. It is understood and agreed that on termination of this Agreement the Consultant will return to the Corporation any Confidential Information in its possession. 6. REGULATORY APPROVAL If any of the provisions set out in this Agreement require regulatory approval the Corporation undertakes to forthwith upon execution of this Agreement make application for such approval. -2- 7. NOTICE Any notice or communication to be given or made under this Agreement must be in writing to the address' as follows: David J. Wodar and: Thinkpath Inc. 805-415 Locust St. 55 University Avenue, Suite 400 Burlington, Ontario Toronto, ON L7S 2J2 M5J 2H7 Phone: (905) 844-3748 (416) 642-8810 IN WITNESS WHEREOF THE CORPORATION AND THE CONSULTANT HAVE EXECUTED THIS AGREEMENT. DAVID J. WODAR PER: /S/ David Wodar ---------------- TITLE: CONSULTANT ---------------- THINKPATH INC. PER: /S/ Declan French ----------------- TITLE: CHAIRMAN & CEO --------------------- -3- EX-23 10 exh23.txt CONSENT OF AUDITORS SCHWARTZ LEVITSKY FELDMAN LLP CHARTERED ACCOUNTANTS TORONTO, MONTREAL, OTTAWA CONSENT OF SCHWARTZ LEVITSKY FELDMAN LLP The undersigned, Schwartz Levitsky Feldman llp, hereby consents to the use of our name and the use of our opinion dated April 12, 2002 on the consolidated financial statements of Thinkpath Inc. (the Company) formally known as ThinkPath.com Inc. included in its Annual Report on Form 10-KSB being filed by the Company, for the fiscal year ended December 31, 2001. Toronto, Ontario April 16, 2002 Chartered Accountants 1167 Caledonia Road Toronto, Ontario M6A 2X1 Tel: 416 785 5353 Fax: 416 785 5663 -----END PRIVACY-ENHANCED MESSAGE-----