-----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, J6bcs7a1HCqi/cgMotQf0+nbWgEGsJ4JIuhcwAvBf7enu6sYDlumD+9P8Ng2hfRY Z+1EMqy8P2+eG4whsJq0fw== 0000909012-06-001249.txt : 20061120 0000909012-06-001249.hdr.sgml : 20061120 20061120171317 ACCESSION NUMBER: 0000909012-06-001249 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20061120 DATE AS OF CHANGE: 20061120 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-14813 FILM NUMBER: 061230694 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: THINKPATH COM INC DATE OF NAME CHANGE: 20000414 FORMER COMPANY: FORMER CONFORMED NAME: IT STAFFING LTD DATE OF NAME CHANGE: 19980917 10QSB 1 t302936.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT FOR THE TRANSITION PERIOD FROM ____________ TO ________________ COMMISSION FILE NUMBER __________ THINKPATH INC. (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) ONTARIO 52-209027 -------------------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 201 WESTCREEK BOULEVARD BRAMPTON, ONTARIO L6T 5S6 --------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (905) 460-3040 ------------------- (ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE) CHECK WHETHER THE ISSUER: (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES |X| NO |_| INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT) YES | | NO |X| AS OF NOVEMBER 20, 2006 THERE WERE 9,988,082 SHARES OF COMMON STOCK, NO PAR VALUE PER SHARE, OUTSTANDING. TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES | | NO |X| THINKPATH INC. SEPTEMBER 30, 2006 QUARTERLY REPORT ON FORM 10-QSB TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Page Number Item 1. Financial Statements Interim Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005.................................................. 4-5 Interim Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005...................... 6 Interim Consolidated Statements of Changes in Stockholders' Equity for the nine months ended September 30, 2006 and the year ended December 31, 2005.................................................. 7 Interim Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005.................................. 8 Notes to Interim Consolidated Financial Statements................. 9-32 Item 2. Management's Discussion and Analysis or Plan of Operation..........33-48 Item 3. Controls and Procedures............................................ 49 PART II - OTHER INFORMATION Item 1. Legal Proceedings ................................................. 49 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds........ 50 Item 3. Defaults Upon Senior Securities ................................... 50 Item 4. Submission of Matters to a Vote of Security Holders ............... 50 Item 5. Other Information ................................................. 50 Item 6. Exhibits and Reports on Form 8-K .................................. 51 ITEM 1. FINANCIAL STATEMENTS THINKPATH INC. INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) THINKPATH INC. INTERIM CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2006 (UNAUDITED) AND DECEMBER 31, 2005 (AMOUNTS EXPRESSED IN US DOLLARS) 9/30/2006 12/31/2005 --------- ---------- $ $ ASSETS CURRENT ASSETS Cash 113,895 123,056 Accounts receivable (note 5) 2,426,276 1,841,338 Prepaid expenses 170,227 143,273 ---------- ---------- 2,710,398 2,107,667 PROPERTY AND EQUIPMENT (note 6) 770,210 577,689 GOODWILL (note 7) 4,402,814 2,507,552 OTHER ASSETS (note 8) 728,064 259,344 ---------- ---------- 8,611,486 5,452,252 ========== ========== The accompanying notes are an integral part of these interim consolidated financial statements. THINKPATH INC. INTERIM CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2006 (UNAUDITED) AND DECEMBER 31, 2005 (AMOUNTS EXPRESSED IN US DOLLARS) 9/30/2006 12/31/2005 --------- ---------- $ $ LIABILITIES CURRENT LIABILITIES Laurus revolving note (note 12) 2,700,782 -- Convertible financing - Laurus (note 12) -- 1,169,156 Convertible financing - derivatives (note 12) -- 424,241 Accounts payable (note 13) 1,424,104 1,166,152 Current portion of long-term debt (note 14) 788,928 124,326 ----------- ----------- 4,913,814 2,883,875 LONG-TERM DEBT (note 14) 907,591 69,826 CONVERTIBLE FINANCING - DERIVATIVES (note 12) 664,423 480,948 ----------- ----------- 6,485,828 3,434,649 =========== =========== COMMITMENTS AND CONTINGENCIES (note 22) STOCKHOLDERS' EQUITY CAPITAL STOCK (note 15) 42,298,930 40,486,219 DEFICIT (39,238,377) (37,518,943) ACCUMULATED OTHER COMPREHENSIVE LOSS (note 17) (934,895) (949,673) ----------- ----------- 2,125,658 2,017,603 ----------- ----------- 8,611,486 5,452,252 =========== =========== The accompanying notes are an integral part of these interim consolidated financial statements. THINKPATH INC. INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (RESTATED) (AMOUNTS EXPRESSED IN US DOLLARS)
3 months ended Sept 30, 9 months ended Sept 30, Restated Restated 2006 2005 (note 25) 2006 2005 (note 25) ---- -------------- ---- -------------- $ $ $ $ REVENUE 3,498,968 3,169,632 10,203,105 10,376,441 COST OF SERVICES 2,333,733 2,253,380 6,993,813 7,131,372 ---------- ---------- ---------- ---------- GROSS PROFIT 1,165,235 916,252 3,209,292 3,245,069 ---------- ---------- ---------- ---------- EXPENSES Administrative 750,360 605,736 2,229,443 1,837,688 Selling 589,469 490,259 1,527,946 1,183,378 Depreciation and amortization 186,376 94,242 450,083 261,512 Write down of property and equipment -- -- -- 3,851 Debt forgiveness -- -- (78,062) (66,150) Loss on sale of subsidiary 16,160 -- 16,160 -- Financing costs and mark-to-market adjustments (38,277) (394,122) 415,271 (389,599) ---------- ---------- ---------- ---------- 1,504,088 796,115 4,560,841 2,830,680 ---------- ---------- ---------- ---------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INTEREST CHARGES AND INCOME TAXES (338,853) 120,137 (1,351,549) 414,389 Interest Charges 150,214 93,024 454,409 1,274,395 ---------- ---------- ---------- ---------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (489,067) 27,113 (1,805,958) (860,006) Income Taxes (note 16) (105,562) 24,406 (86,524) 95,348 ---------- ---------- ---------- ---------- INCOME (LOSS) FROM CONTINUING OPERATIONS (383,505) 2,707 (1,719,434) (955,354) INCOME FROM DISCONTINUED OPERATIONS (note 18) -- -- -- 19,096 ---------- ---------- ---------- ---------- NET INCOME (LOSS) (383,505) 2,707 (1,719,434) (936,258) ========== ========== ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON STOCK OUTSTANDING BASIC AND DILUTED* 9,940,669 4,677,798 6,491,494 4,243,318 ========== ========== ========== ========== INCOME (LOSS) FROM CONTINUING OPERATIONS PER WEIGHTED AVERAGE COMMON STOCK BASIC AND DILUTED (0.04) -- (0.26) (0.23) ========== ========== ========== ========== INCOME FROM DISCONTINUED OPERATIONS PER WEIGHTED AVERAGE COMMON STOCK BASIC AND DILUTED -- -- -- -- ========== ========== ========== ========== NET INCOME (LOSS) PER WEIGHTED AVERAGE COMMON STOCK BASIC AND DILUTED (0.04) -- (0.26) (0.22) ========== ========== ========== ==========
* Adjusted for reverse split of Company's stock (1:5,000) on June 29, 2005 The accompanying notes are an integral part of these interim consolidated financial statements. THINKPATH INC. INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND THE YEAR ENDED DECEMBER 31, 2005 (AMOUNTS EXPRESSED IN US DOLLARS)
COMMON PREFERRED ACCUMULATED STOCK STOCK CAPITAL OTHER NUMBER OF NUMBER OF STOCK COMPREHENSIVE COMPREHENSIVE SHARES* SHARES AMOUNTS DEFICIT LOSS LOSS - --------------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 2004 2,720,493 39,686,047 (34,683,637) (940,764) ====================================================== =========== Net loss for the period -- -- (2,835,306) (2,835,306) Other comprehensive loss, net of tax: Foreign currency translation adjustments (8,909) (8,909) ----------- Comprehensive loss (2,844,215) =========== Common stock repurchased for cancellation (note 11) (626,384) (123,110) -- Conversion of 12% senior secured convertible debentures 1,235,100 317,168 -- Interest on 12% senior secured convertible debentures 131,395 21,448 -- Common stock issued for investment 246,450 246,609 -- Common stock and warrants issued for services 100,787 98,057 -- Accrued liabilities settled through the issuance of common stock 930,481 240,000 -- ------------------------------------------------------ ----------- Balance as of December 31, 2005 4,738,322 40,486,219 (37,518,943) (949,673) ====================================================== =========== Net loss for the period -- -- (1,719,434) (1,719,434) Other comprehensive loss, net of tax: Foreign currency translation adjustments 14,778 14,778 ----------- Comprehensive loss (1,704,656) =========== Common stock issued for investment 3,685,751 763,000 -- Preferred stock issued for 700 699,687 -- investment Common stock and warrants issued for services 362,000 100,400 -- Accrued liabilities settled through the issuance of common stock 1,202,009 249,624 -- ====================================================== =========== Balance as of September 30, 2006 9,988,082 700 42,298,930 (39,238,377) (934,895) ====================================================== ===========
* Adjusted for reverse split of Company's stock (1:5,000) on June 29, 2005 The accompanying notes are an integral part of these interim consolidated financial statements. THINKPATH INC. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (RESTATED) (AMOUNTS EXPRESSED IN US DOLLARS)
Nine Months Ended September 30, Restated 2006 2005 (note 25) ---- -------------- $ $ Cash flows from operating activities Net loss (1,719,434) (936,258) Adjustments to reconcile net loss to net cash used in operating activities: Income from discontinued operations -- (19,096) Depreciation and amortization 450,083 261,512 Future income taxes (107,711) -- Beneficial conversion on issuance of convertible debt -- 474,302 Interest on 12% senior secured convertible debentures -- 21,448 Write off unamortized debt discount -- 505,340 Amortization of deferred financing costs 372,281 139,829 Mark-to-market of derivatives (258,604) (529,428) Loss on extinguishment of debt 689,858 -- Gain on reversal of embedded derivative (388,263) -- Write down of property and equipment -- 3,851 Increase in accounts receivable (15,820) (514,564) Increase in prepaid expenses (3,130) (90,641) Increase in accounts payable 30,586 100,250 Common stock and warrants issued for services 100,400 98,057 Debt forgiveness (78,062) (66,150) ---------- ---------- Net cash provided by (used in) operating activities (927,816) (551,548) ---------- ---------- Cash flows from investing activities Purchase of property and equipment (15,226) (210,862) Proceeds on sale of property and equipment -- 1,794 Purchase of other assets -- (4,017) Proceeds on disposal of other assets 66,920 -- Cash payment for acquisition net of cash acquired and related costs (1,252,091) -- ---------- ---------- Net cash used in investing activities (1,200,397) (213,085) ---------- ---------- Cash flows from financing activities Repayment of bank indebteness -- (81,656) Repayment of receivable discount facility -- (722,331) Proceeds from revolving (convertible) financing facility 593,471 3,129,006 Deferred financing costs incurred (125,271) (230,792) Repayment of convertible debt -- (1,162,700) Repurchase of shares for cancellation -- (123,110) Proceeds from long-term debt 1,959,750 -- Repayment of long-term debt (314,472) (85,342) ---------- ---------- Net cash provided by financing activities 2,113,478 723,075 ---------- ---------- Cash flow from used by discontinued operations -- 19,096 Effect of foreign currency exchange rate changes 5,574 8,583 ---------- ---------- Net increase (decrease) in cash (9,161) (13,879) Cash Beginning of period 123,056 180,121 ---------- ---------- End of period 113,895 166,242 ========== ========== SUPPLEMENTAL CASH ITEMS: Interest paid 454,409 278,037 ========== ========== Income taxes paid 21,187 95,348 ========== ========== SUPPLEMENTAL NON-CASH ITEMS: Common stock and warrants issued for liabilities and services 350,024 338,057 ========== ========== Common stock issued for investment 763,000 -- ========== ========== Preferred stock issued for investment 699,687 -- ========== ==========
The accompanying notes are an integral part of these interim consolidated financial statements. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) 1. MANAGEMENT'S INTENTIONS AND GOING CONCERN 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 recurring operating losses and working capital deficiencies. At September 30, 2006, the Company had a deficit of $39,238,377 and has suffered recurring losses from operations. With insufficient working capital from operations, the Company's primary source of cash is a $3,500,000 financing facility with Laurus Master Fund, Ltd. ("Laurus"). At September 30, 2006, the balance on the facility was $3,115,690 (note 12) . The facility consists of a revolving line of credit based on 90% of eligible accounts receivable which matures on June 27, 2008 and bears interest at an annual rate equal to The Wall Street Journal prime rate plus 3%. As at November 20, 2006, management's plans to mitigate and alleviate its operating losses and working capital deficiencies include: a) Implement cost cutting measures as required to restore each office to profitability b) Continued focus on securing customers with high growth potential, such as those in the aerospace and defense industries; c) Complement organic growth with the acquisition of profitable engineering companies; and d) Continued expansion of the engineering service offerings in Ontario, Canada. 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 payments to certain vendors and interest payments on debt. 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 financing facility with Laurus Master Fund, Ltd., 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, and the closing of new financing, all of which are subject to substantial uncertainties. Cash flows from operations for the next twelve months will be dependent, among other factors, 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 close alternate financing, could have a material adverse effect on the Company's liquidity position and capital resources. 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. b) Principal Business Activities Thinkpath Inc. is an engineering services company which, along with its wholly-owned subsidiaries, 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.) and The Multitech Group Inc. provides engineering, design, technical publications and staffing, services to enhance the resource performance of clients. In addition, the Company owns 100% (unless otherwise noted) of the following companies which are currently inactive: Systemsearch Consulting Services Inc., International Career Specialists Ltd., Microtech Professionals Inc., E-Wink Inc. (80%), Thinkpath Training Inc. (formerly ObjectArts Inc.), Thinkpath Training US Inc. (formerly ObjectArts US Inc.), TidalBeach Inc. and TBM Technologies Inc. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) c) 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 acquired prior to June 30, 2001 and accounted for by the pooling of interest method, earnings have been included for all periods reported. All significant inter-company accounts and transactions have been eliminated. d) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, amounts from and to banks, and any other highly liquid investments purchased with a maturity of three months or less. The carrying amounts approximate fair values because of the short maturity of those instruments. e) Other Financial Instruments The carrying amounts of the Company's other financial instruments approximate fair values because of the short maturity of these instruments or the current nature of interest rates borne by these instruments. f) Long-Term Financial Instruments The fair value of each of the Company's long-term financial assets and debt instruments is based on the amount of future cash flows associated with each instrument discounted using an estimate of what the Company's current borrowing rate for similar instruments of comparable maturity would be. g) Property and Equipment 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 property and equipment 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. h) Net Income (Loss) and 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. Diluted 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, assuming that all convertible preferred stock, stock options and warrants as described in note 15 were converted or exercised. Stock conversions, stock options and warrants which are anti-dilutive are not included in the calculation of diluted net income (loss) per weighted average common stock. i) Revenue The Company recognizes revenue under engineering service contracts when a contract has been executed, the contract price is fixed and determinable, delivery of services or products has occurred, and collection of the contract price is considered probable and can be reasonably estimated. Revenue is earned under time-and-materials, fixed-price and cost-plus contracts. The Company recognizes revenue on time-and-materials contracts to the extent of billable rates times hours delivered, plus expenses incurred. For fixed price contracts within the scope of Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts (SOP 81-1), revenue is recognized on the percentage of completion method using costs incurred in relation to total estimated costs or upon delivery of specific products or services, as appropriate. For fixed price-completion contracts that are not within the scope of SOP 81-1, revenue is generally recognized as earned according to contract terms as the service is provided. The Company provides its customers with a number of different services that are generally documented through separate negotiated task orders that detail the services to be provided and the compensation for these services. Services rendered under each task order represent an independent earnings process and are not dependent on any other service or product sold. The Company recognizes revenue on cost-plus contracts to the extent of allowable costs incurred plus a proportionate amount of the fee earned, which may be fixed or performance-based. The Company considers fixed fees under cost-plus contracts to be earned in proportion to the allowable costs incurred in performance of the contract, which generally corresponds to the timing of contractual billings. The Company records provisions for estimated losses on uncompleted contracts in the period in which those losses are identified. The Company considers performance-based fees under any contract type to be earned only when it can demonstrate satisfaction of a specific performance goal or it receive contractual notification from a customer that the fee has been earned. In all cases, the Company recognizes revenue only when pervasive evidence of an arrangement exists services have been rendered, the contract price is fixed or determinable, and collection is reasonably assured. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) Contract revenue recognition inherently involves estimation. From time to time, facts develop that requires the Company to revise the total estimated costs or revenues expected. In most cases, these changes relate to changes in the contractual scope of the work, and do not significantly impact the expected profit rate on a contract. The Company records the cumulative effects of any revisions to the estimated total costs and revenues in the period in which the facts become known. j) Goodwill 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, the Company began applying the new accounting rules effective January 1, 2002. At December 31, 2005, the Company recorded a charge of $1,459,691 for the impaired goodwill of the Technical Publications and Engineering unit based on reduced cash flow estimates. As at December 31, 2004, the Company completed SFAS No.142 impairment test and concluded that there was no impairment of recorded goodwill, as the fair value of its reporting units exceeded their carrying amount. On an ongoing basis, absent any impairment indicators, the Company will perform a goodwill impairment test as of the end of the fourth quarter of every year. k) Income Taxes The Company accounts for income tax under the provision of SFAS 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. l) Foreign Currency The Company is a foreign private issuer and maintains its books and records of its Canadian companies in Canadian dollars (their functional currency). The financial statements of the Canadian companies are converted to US dollars as the Company has elected to report in US dollars consistent with Regulation S-X, Rule 3-20. The translation method used is the current rate method which is the method mandated by SFAS No. 52 where the functional currency is the foreign currency. Under the current method all assets and liabilities are translated at the current rate, stockholders' equity accounts are translated at historical rates and revenues and expenses are translated at average rates for the year. Due to the fact that items in the financial statements are being translated at different rates according to their nature, a translation adjustment is created. This translation adjustment has been included in accumulated other comprehensive income. Gains and losses on foreign currency transactions are included in financial expenses. m) 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 and these differences could be material. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become known. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) n) 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 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. In August 2001, FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company adopted SFAS No. 144, effective January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on the Company's results of operations or financial condition. o) 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 unrealized appreciation (depreciation) of securities and foreign currency translation adjustments. p) Accounting for Stock-Based Compensation Effective January 1, 2006, the Company's stock based employee compensation plans are accounted for in accordance with the recognition and measurement provisions of Statement of Financial Accounting Standards ("FAS") No. 123 (revised 2004), Share-Based Payment ("FAS 123(R)"). See Note 3 (c) for further details. q) Leases Leases are classified as either capital or operating. Those leases that transfer substantially all the benefits and risks of ownership of property to the Company are accounted for as capital leases. All other leases are accounted for as operating leases. Capital leases are accounted for as assets and are fully amortized on a straight-line basis over the lesser of the period of expected use of the assets or the lease term. Commitments to repay the principal amounts arising under capital lease obligations are included in current liabilities to the extent that the amount is repayable within one year, otherwise the principal is included in long term debt obligations. The capitalized lease obligation reflects the present value of future lease payments. The financing element of the lease payments is charged to interest expense in the consolidated statement of operations over the term of the lease. Operating lease costs are charged to administrative expense in the consolidated statement of operations on a straight-line basis. r) Investments in Non-Related Companies The Company records its investments in companies in which it holds a 20% or more interest and in which the Company can exercise significant influence over the investee's operating and financial policies on the equity basis. The Company records its investment in companies in which it holds less than 20% interest or in which the Company has a 20% or greater interest but the Company is unable to exercise significant influence at fair market value. Changes in fair market value are adjusted in comprehensive income, unless the impairments are of a permanent nature, in which case the adjustments are recorded in earnings. s) Recent Pronouncements In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment of ARB No. 43". This statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not believe that the adoption of SFAS No. 151 will have a material impact, if any, on its results of operations or financial position as it does not have inventory. In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67", which references the financial accounting and reporting guidance for real estate time-sharing transactions in AICPA Statement of Position (SOP) 04-2, "Accounting for Real Estate Time-Sharing Transactions". SFAS No. 152 is effective for years beginning after June 15, 2005, with restatements of previously issued financial statements prohibited. The Company does not believe that the adoption of SFAS No. 152 will have a material impact, if any, on its results of operations or financial position. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29", effective for non-monetary asset exchanges occurring in the fiscal year beginning January 1, 2006. This statement requires that exchanges of productive assets be accounted for at fair value unless fair value cannot be reasonably determined or the transaction lacks commercial substance. The Company does not believe that the adoption of SFAS No. 153 will have an impact, if any, on its results of operations or financial position. In December 2004, the FASB issued SFAS No. 123 (Revised), "Share-based Payment". This statement requires employers to expense costs related to share-based payment transactions with employees. With limited exceptions, SFAS No. 123 (Revised) requires that the fair value of share-based payments to employees be expensed over the period service is received. SFAS No. 123 (Revised) becomes effective for annual reporting periods that begin after December 15, 2005. Effective January 1, 2006, the Company adopted this standard using the modified prospective method of transition. This method requires that issued financial statements be restated based on the amounts previously calculated and reported in the pro forma footnote disclosures required by SFAS No. 123. SFAS No. 123 (Revised) allows the use of both closed form models (e.g., Black-Scholes Model) and open form models (e.g., lattice models) to measure the fair value of the share-based payment as long as that model is capable of incorporating all of the substantive characteristics unique to share-based awards. In accordance with the transition provisions of SFAS No. 123 (Revised), the expense attributable to an award will be measured in accordance with the company's measurement model at that award's date of grant. The total expense of stock based employee compensation recorded in future periods will depend on several variables, including the number of shared-based awards that vest and the fair value of those vested awards. In May 2005, the FASB issued Statement No. 154, "Accounting Changes and Error Corrections", applying to all voluntary accounting principle changes as well as the accounting for and reporting of such changes. SFAS No. 154 requires voluntary changes in accounting principle be retrospectively applied to financial statements from previous periods unless such application is impracticable. SFAS No. 154 requires that changes in depreciation, amortization, or depletion methods for long-lived, non-financial assets must be accounted for as a change in accounting estimate due to a change in accounting principle. By enhancing the consistency of financial information between periods, the requirements of FASB 154 improves financial reporting. FASB 154 replaces APB Opinion No. 20 and FASB 3. FASB 154 carries forward many provisions of Opinion 20 and FASB 3 without change including those provisions related to reporting a change in accounting estimate, a change in reporting entity, correction of an error and reporting accounting changes in interim financial statements. FASB 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments" ("SFAS 155"). SFAS 155 allows any hybrid financial instrument that contains an embedded derivatives that otherwise would require bifurcation under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" to be carried at fair value in its entirety, with changes in fair value recognized in earnings. In addition, SFAS 155 requires that beneficial interests in securitized financial assets be analyzed to determine whether they are freestanding derivatives or contain an embedded derivative. SFAS 155 also eliminates a prior restriction on the types of passive derivatives that a qualifying special purpose entity is permitted to hold. SFAS 155 is applicable to new or modified financial instruments in fiscal years beginning after September 15, 2006, though the provisions related to fair value accounting for hybrid financial instruments can also be applied to existing instruments. Early adoption, as of the beginning of an entity's fiscal year, is also permitted, provided interim financial statements have not yet been issued. The company is currently evaluating the potential impact, if any, that the adoption of SFAS 155 will have on its consolidated financial statements. In March 2006, the FASB issued SFAS 156, "Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140". This statement amends FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", with respect to the accounting for separately recognized servicing assets and servicing liabilities. This statement: (1) requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in any of the following situations: (a) a transfer of the servicer's financial assets that meets the requirements for sale accounting, (b) a transfer of the servicer's financial assets to a qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities in accordance with FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities", (c) an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates; (2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; (3) permits an entity to choose either of the following subsequent measurement methods for each class of separately recognized servicing assets and servicing liabilities: (a) Amortization method-Amortize servicing assets or servicing liabilities in proportion to and over the period of estimated net servicing income or net servicing loss and assess servicing assets or servicing liabilities for impairment or increased obligation based on fair value at each reporting date, or (b) Fair value measurement method-Measure servicing assets or servicing liabilities at fair value at each reporting date and report changes in fair value in earnings in the period in which the changes occur; (3) at its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity's exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value; and (5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. An entity should adopt this statement as of the beginning of its first fiscal year that begins after September 15, 2006. Earlier adoption is permitted as of the beginning of an entity's fiscal year, provided the entity has not yet issued financial statements, including interim financial statements, for any period of that fiscal year. The effective date of this Statement is the date an entity adopts the requirements of this statement. t) Advertising Costs Advertising costs are expensed as incurred. 3. STOCK OPTION PLANS WEIGHTED AVERAGE OPTIONS* EXERCISE PRICE -------- -------------- a) Options outstanding at December 31, 2004 112 ========= Options forfeited during the period -- Options expired during the period (25) $15,688 Options granted during the period 1,864,572 $.19 --------- Options outstanding at December 31, 2005 1,864,659 ========= Options forfeited during the period -- Options expired during the period (87) $3,475 Options granted during the period -- -- Options outstanding at September 30, 2006 1,864,572 ========= Options exercisable December 31, 2005 1,864,659 $.19 Options exercisable September 30, 2006 1,864,572 $.19 Options available for future grant December 31, 2005 137,015 Options available for future grant September 30, 2006 137,102 * Adjusted for reverse split of Company's stock (1:5,000) on June 29, 2005 b) Range of Exercise Prices at September 30, 2006 Weighted Weighted Outstanding Average Options Average Options* Remaining Life Exercisable* Exercise Price -------- -------------- ------------ -------------- $0.0001 1,864,572 9.07 1,864,572 $0.19 * Adjusted for reverse split of Company's stock (1:5,000) on June 29, 2005 c) Change in Accounting Policy and Pro-forma net income At September 30, 2006, the Company has five stock-based employee compensation plans, which are described more fully in Note 15(d). Effective January 1, 2006, the Company's plans are accounted for in accordance with the recognition and measurement provisions of Statement of Financial Accounting Standards ("FAS") No. 123 (revised 2004), Share-Based Payment ("FAS 123(R)"), which replaces FAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and related interpretations. FAS 123 (R) requires compensation costs related to share-based payment transactions, including employee stock options, to be recognized in the financial statements. In addition, the Company adheres to the guidance set forth within Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 107, which provides the Staff's views regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides interpretations with respect to the valuation of share-based payments for public companies. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) Prior to January 1, 2006, the Company accounted for similar transactions in accordance with APB No. 25 which employed the intrinsic value method of measuring compensation cost. Accordingly, compensation expense was not recognized for fixed stock options if the exercise price of the option equaled or exceeded the fair value of the underlying stock at the grant date. While FAS No. 123 encouraged recognition of the fair value of all stock-based awards on the date of grant as expense over the vesting period, companies were permitted to continue to apply the intrinsic value-based method of accounting prescribed by APB No. 25 and disclose certain pro-forma amounts as if the fair value approach of SFAS No. 123 had been applied. In December 2002, FAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of SFAS No. 123, was issued, which, in addition to providing alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation, required more prominent pro-forma disclosures in both the annual and interim financial statements. The Company complied with these disclosure requirements for all applicable periods prior to January 1, 2006. In adopting FAS 123(R), the Company applied the modified prospective approach to transition. Under the modified prospective approach, the provisions of FAS 123 (R) are to be applied to new awards and to awards modified, repurchased, or cancelled after the required effective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated for either recognition or pro-forma disclosures under FAS 123. There was no stock compensation expense for employee options recorded under FAS 123 (R) in the Consolidated Statement of Operations for the three and nine months ended September 30, 2006. There was no stock compensation expense for employee options recorded under APB No. 25 in the Consolidated Statements of Operations for the three and nine months ended September 30, 2006. The Company previously accounted for options granted to its non-employee consultants using the fair value cost in accordance with FAS 123 and EITF No. 96-18. The adoption of FAS 123(R ) and SAB 107 as of January 1, 2006, had no material impact on the accounting for non-employee awards. The Company continues to consider the additional guidance set forth in EITF Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees" ("EITF 96-18"). There was no stock compensation expense related to non-employee options for the three and nine month periods ended September 30, 2006 or 2005. PRO FORMA INFORMATION UNDER SFAS NO. 123 FOR PERIODS PRIOR TO ADOPTION OF FAS 123 ( R): The following table illustrates the effect on net income and earnings per share as if the fair value recognition provisions of FAS No. 123 had been applied to all outstanding and unvested awards in the prior year comparable period.
Three months ended Nine months ended September 30, September, Restated Restated 2005 (NOTE 25) 2005 (NOTE 25) -------------- -------------- $ Net income (loss) as reported 2,707 (936,258) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards net of -- -- related tax effects Pro forma net income (loss) 2,707 (936,258) Income (loss) per share: Basic and diluted loss per share, as 0.00 (0.22) reported Pro forma income (loss) per share 0.00 (0.22)
THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) 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: 2005 Grants 2001 Grants ----------- ----------- Risk free interest rates 4.43 - 4.56% 4.76% Volatility factors 116 - 137% 100% Weighted average expected life 10 years 4.90 years Weighted average fair value per share $0.25 $3,700.00 Expected dividends -- -- On June 27, 2005, the Company granted Laurus Master Fund, Ltd. an option to purchase up to 379,572* shares of its common stock, no par value per share, at an exercise price of $.0001 per share. The options are exercisable at any time and in any amount for a period of ten years from the date of issuance. On November 22, 2005, the Company issued a total of 1,460,000 options at an exercise price of $.24 per share to its Management and Directors under the 2005 Stock Option Plan which was approved by the Company's shareholders at its Annual General Meeting on April 22, 2005, and subsequently approved by its Board of Directors. The options vest immediately and expire in 2015. On December 12, 2005, the Company issued 25,000 options at an exercise price of $.27 per share to Mr. Tom Luther, Vice President Sales, under the 2005 Stock Option Plan. The options vest immediately and expire in 2015. There have been no other options granted since 2001. * Adjusted for reverse split of Company's stock (1:5,000) on June 29, 2005 4. ACQUISITIONS On January 17, 2005, the Company acquired TBM Technologies Inc., an Ontario Corporation which provides design engineering services. Pursuant to the Share Purchase Agreement, the Company purchased TBM for $246,609 payable in shares of the Company's common stock, no par value. The Share Purchase Agreement also provided for price protection for the vendors for a period of two years from closing. In the event that the vendors seek to sell their shares in an open market transaction within the two years following closing and the bid price is less than the price of the shares on issuance, the Company will be obligated to issue additional shares of unregistered common stock with a value equal to the difference up to a maximum of $246,609. The acquisition was accounted for by the purchase method and the operations have been included in the consolidated operations from January 17, 2005. The net acquired assets were valued as follows: Current assets $ 23,616 Property and equipment 11,240 Other assets 100,909 Liabilities assumed (107,667) -------- Less: consideration 246,609 -------- Goodwill $218,511 ======== At December 31, 2005, the Company wrote off the goodwill from the acquisition of TBM Technologies Inc., for impairment based on reduced cash flow estimates. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) On June 30, 2006, the Company completed the acquisition of The Multitech Group Inc. (TMG), an engineering services firm located in New Jersey, effective April 1, 2006. The purchase price of $2,798,750 was based on five times the audited 2005 EBIT of TMG and was payable as follows: thirty percent in cash for a total of $839,625; twenty per cent in a two year subordinated note of $559,750 bearing annual interest at US prime, payable quarterly and guaranteed by the Company; twenty-five per cent in the Company's common shares for a total consideration of $699,688 or 3,369,188 common shares; and, twenty-five per cent in the Company's preferred shares for a total consideration of $669,688 or 700 preferred share which will be convertible into common shares after June 30, 2007. The acquisition was accounted for by the purchase method and the operations have been included in the consolidated operations from April 1, 2006. The net acquired assets were valued as follows: Current assets $ 965,977 Property and equipment 378,715 Other assets 626,519 Liabilities assumed (762,933) ---------- Less: consideration including acquisition costs 3,103,540 ---------- Goodwill $1,895,262 ========== 5. ACCOUNTS RECEIVABLE 9/30/06 12/31/05 ------- -------- $ $ Accounts receivable 2,675,274 2,043,214 Less: Allowance for doubtful accounts (248,998) (201,876) ---------- ---------- 2,426,276 1,841,338 ========== ========== Allowance for doubtful accounts Balance, beginning of period 201,876 179,648 Provision 85,841 42,051 Recoveries (38,719) (19,823) ---------- ---------- Balance, end of period 248,998 201,876 ========== ========== 6. PROPERTY AND EQUIPMENT 9/30/06 12/31/05 -------------------------------- -------- ACCUMULATED COST AMORTIZATION NET NET $ $ $ $ Furniture and equipment 221,052 186,318 34,734 31,734 Computer equipment and software 3,840,855 3,444,985 395,870 524,474 Leasehold improvements 57,422 40,746 16,676 21,481 Automobile 43,425 43,425 -- -- Fair Market Increment on Acquired Assets 358,810 35,880 322,930 -- --------- --------- ------- ------- 4,521,564 3,751,354 770,210 577,689 ========= ========= ======= ======= Property and equipment under capital lease 248,871 178,669 70,202 99,408 ========= ========= ======= ======= Amortization of property and equipment for the three and nine months ended September 30, 2006 amounted to $80,277 and $234,028 respectively. These amounts include amortization of property and equipment under capital lease of $3,999 and $9,908 respectively for the three and nine months ended September 30, 2006. Amortization of property and equipment for the year ended December 31, 2005 amounted to $280,837 including amortization of property and equipment under capital lease of $44,275. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) 7. GOODWILL Goodwill is the excess of cost over the value of assets acquired over liabilities assumed in the purchase of the subsidiaries. Goodwill has been allocated to reporting units as follows:
9/30/06 12/31/05 ------- -------- ACCUMULATED ACCUMULATED IMPAIRMENT COST AMORTIZATION LOSSES NET NET -------------------------------------------------------------- $ $ $ $ $ Technical Publications & Engineering (CadCam Inc., TBM Technologies Inc. and The Multitech Group Inc.) 7,851,142 535,164 2,913,164 4,402,814 2,507,552 --------- ------- --------- --------- ---------
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets". This statement requires the Company to evaluate the carrying value of goodwill and intangible assets based on assumptions and estimates of fair value and future cash flow information. These assumptions reflect management's best estimates and may differ from actual results. If different assumptions and estimates are used, carrying values could be adversely impacted, resulting in write downs that could adversely affect the Company's earnings. At December 31, 2005, the Company performed its annual impairment test for goodwill by first comparing the carrying value of the net assets to the fair value of the Technical Publications and Engineering unit. The fair value was determined to be less than the carrying value, and therefore a second step was performed to compute the amount of the impairment. In this process, a fair value for goodwill was estimated, based in part on the fair value of the operations, and was compared to its carrying value. The shortfall of the fair value below carrying value was $1,241,180 which represents the amount of goodwill impairment. During the fourth quarter 2005, conditions were present that clearly indicated an impairment of the goodwill of TBM Technology Inc., including adverse changes in legal factors (see note 22) and business climate as well as the projection of continued cash flow losses. As a result of these conditions, the full amount of goodwill of $218,511 was written off. On an ongoing basis, absent any impairment indicators, the Company expects to perform a goodwill impairment test as of the end of the fourth quarter of every year. Effective April 1, 2006, the Company acquired goodwill in the amount of $1,895,262 in connection to its acquisition of TMG (note 4) which has been allocated to the Technical Publications and Engineering reporting unit. 8. OTHER ASSETS 9/30/06 12/31/05 ------- -------- $ $ Cash surrender value of life insurance 13,291 66,920 Deferred Financing Costs 244,523 192,424 Contracts 366,972 -- Customer Lists 103,278 -- ------- ------- Total 728,064 259,344 ======= ======= Included in Other Assets are deferred financing costs related to the Laurus Convertible Financing Facility to be amortized over the three-year term of the debt, beginning July 1, 2005. Also included in Other Assets are contracts and customer lists related to the acquisition of The Multitech Group Inc. (note 4) to be amortized over two and three years respectively, beginning April 1, 2006. Amortization of other assets for the three and nine months ended September 30, 2006 amounted to $106,099 and $216,055 respectively. Amortization of other assets for the year ended December 31, 2005 amounted to $89,919 including amortization of $51,551 on customer lists acquired on January 17, 2005 (Note 4) the balance of which $53,799 was written off for impairment at year-end. 9. RECEIVABLE DISCOUNT FACILITY On June 27, 2005, the Company paid down its receivable discount facility with Morrison Financial Services Limited in the amount of $1,073,468. The facility allowed the Company to borrow up to 75% of the value of qualified accounts receivables to a maximum of $1,500,000, and was subject to interest at 24% per annum. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) 10. BANK INDEBTEDNESS On April 19, 2005, the Company paid down its revolving line of credit with the Royal Bank of Canada in the amount of $52,480. This liability was assumed by the Company on January 17, 2005 as a result of the acquisition of TBM Technologies Inc. The line was subject to interest at 6.75% per annum. 11. 12% CONVERTIBLE DEBENTURE At December 31, 2005, the amortization of the beneficial conversion feature on all issued convertible debentures was determined to be $474,302 which was charged to earnings as interest expense. On June 27, 2005, the Company paid off the principal balance of the 12% Senior Secured Convertible Debentures in the amount of $1,162,700. The accrued interest of $66,150 was forgiven and a total of 626,384* common shares held by the debenture holders were repurchased for cancellation for $123,110. In addition a total of 1,671,189 warrants held by the debenture holders were cancelled. The unamortized debt discount remaining on the convertible debentures of $505,340 was expensed as interest. 12. LAURUS REVOLVING NOTE (CONVERTIBILE FINANCING) FACILITY On June 27, 2005, the Company closed a $3,500,000 convertible financing facility with Laurus Master Fund, Ltd. ("Laurus"). The facility consists of a secured convertible note ("Minimum Borrowing Note") based on 90% of eligible accounts receivable which matures on June 27, 2008 and bears interest at an annual rate equal to The Wall Street Journal prime rate plus 3% ("contract rate") but never less than 8%. At closing, the Company received $2,100,000 in proceeds from the facility based on its eligible accounts receivable ("formula amount") and an additional $1,000,000 ("overadvance") granted in excess of the formula amount. The overadvance bears interest at the prime rate as published by the Wall Street Journal plus 2% and held an expiration date of December 27, 2005. In the event that the overadvance was not repaid in full by this date, the interest rate was to increase by an additional 1% per month. Laurus has the option to convert into common stock at anytime all or any portion of the principal and interest and fees payable at a fixed conversion price as follows: - first $1,000,000 in principal convertible at a fixed price of $0.40 (80% of the average price for 10 days prior to closing of debt); - next $1,000,000 in principal convertible at a fixed price of $0.50 (100% of the average price for 10 days prior to closing of debt); - and, any remaining principal convertible at a fixed price of $0.53 (105% of the average price for 10 days prior to closing of debt). Should the Company complete a subsequent financing at a lower price than the original issue, the conversion prices of the three tranches above will be adjusted to 80%, 100% and 105% of the new lower price. This feature would modify the number of shares that the Company will issue on conversion of the notes. The Company has the option of prepaying the note at any time by paying to the holder a sum of money equal to 130% of the principal amount of the note. In connection with the financing, the Company issued warrants to purchase up to 2,100,000* shares of its common stock with 1,050,000* at an exercise price of $0.55 per share and 1,050,000 at an exercise price of $0.60 per share. The warrants vest immediately and expire on June 27, 2011. The Company also issued options to purchase up to 379,572* shares of its common stock, no par value per share, at an exercise price of $.0001 per share. The options vest immediately and expire on June 27, 2015. The financing included a Registration Rights Agreement which prescribes that the Company shall have caused a registration statement to be filed with the SEC, in respect of the securities covered by the Minimum Borrowing Note, Warrants and Options within 30 days of closing and to cause the registrations to become effective within 90 days of closing. In the event that the Company fails to file such registration statement, the agreement also provides that the Company shall pay to Laurus, as partial damages, for each day that an Event has occurred and is continuing, an amount in cash equal to one-thirtieth (1/30th) of the product of: (A) the original principal amount of each Minimum Borrowing Note outstanding at such time multiplied by (B) 0.02. In the event the Company fails to make any such payments in a timely manner, Section 1 of the Registration Rights Agreement also provides that such payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Assuming a successful registration of the shares and warrants, if the market price of the Company's common stock exceeds the then applicable fixed conversion price by at least 25%, the contract rate for the succeeding calendar month shall automatically be reduced by 100 basis points (1%) for each incremental 25% increase in the market price of the common stock above the then applicable fixed conversion price. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) The Company determined that the conversion option embedded in the note and the warrants and options attached to the note qualify as embedded derivatives under the guidance of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and EITF Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" and as such should be accounted for separately at inception at their fair value and subsequently marked to market. The total of the embedded derivatives was separated from the debt based on the initial amount of $3,100,000. The initial value of the derivatives and "embedded derivatives" is offset against the Laurus financing and will be amortized over a 3-year period subject to the expected availability. The conversion right and interest adjustment clause found in the note were considered one embedded derivative and the warrants and options were each considered separate derivatives. As the embedded derivatives are not standard and are not publicly quoted, a combination of Black-Scholes methodologies and Monte Carlo simulations were used. Valuations were performed at each quarter end and the conversion option, warrants and options were each valued separately. As the Company has no public rating or no public debt, it is very difficult to estimate the potential change of the credit spread between the issue date and valuation dates. Moreover, there is no evidence of any material event that could change significantly the credit spread of the issue. A constant credit spread equal to 300 basis points as per the issue date was therefore assumed in the valuation. For the valuation as of December 31, 2005 an assumption of 158% volatility was used and for the valuation at September 30, 2006, an assumption of 143% volatility was used. CONVERSION OPTION As the issue is a floating rate note, it is inferred that it will substantially be always equal to par ($3,100,000 USD). The implied number of conversion options will be derived by dividing the notional by the average conversion price. As showed in the table below, the conversion price was calculated using the weighted average conversion price for each tranche. This option was valued using a standard Black-Scholes model. Weighted Tranche Notional Conversion Price Average ------- -------- ---------------- -------- Tranche 1 1,000,000 0.4 0.1290 Tranche 2 1,000,000 0.5 0.1613 Tranche 3 1,100,000 0.53 0.1881 --------- -------- Total 3,100,000 0.4784 ========= ======== The interest rate adjustment clause contained in the conversion option sets that if the stock price exceeds the prevailing conversion price by a certain level, interest payments on the floating rate note will be reduced. This clause diminishes the conversion options fair value as the holder will be penalized when the conversion option will be in the money. The fair value for this clause is dependant on the expected behaviour of the prime rate and the Company's stock price. This clause was valued using a Monte Carlo simulation model using a mean reversion process to simulate the prime rate and a standard Geometric Brownian motion process for the Company's stock price. The 8% floor on interest rate clause contained in the conversion option was valued using a Monte Carlo simulation model with a mean reversion process to simulate the prime rate. As the value of the floor option was determined to be relatively insignificant ($29,000 liability as of December 31, 2005 and $500 liability as of June 30, 2006 representing an impact on the fair value of 0.2% and .015% respectively for the valuations), it was ignored in the valuation of the conversion option. The impact of this analysis will be performed at each valuation date. If the model shows that the floor option would have a significant impact on the market value, the conversion option will have to be valued using a different model that will implicitly account for the floor option such as the binomial model. The 5% limitation upon issuance of shares was ignored in this valuation based on the assumption that it is a liquidity feature that would not significantly impact the valuation. WARRANTS AND OPTIONS Valuation of the warrants and options were performed separately using standard Black-Scholes methodology. As the Company would be required to issue new shares for these instruments it used a valuation with a dilution effect. VALUATION RESULTS Derivative 9/30/06 12/31/05 ---------- ------- -------- Conversion Options -- $452,928 -- Interest Adjustment Clause ($28,687) Warrants $602,270 $393,100 Options $ 62,153 $ 87,848 -------- -------- $664,423 $905,189 ======== ======== THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) During the nine months ended September 30, 2006, the Company amortized $372,281 of the initial value of the derivatives and embedded derivatives which are included in financing costs. The mark to market of the derivatives including the embedded derivatives at the end of each period was credited to financing costs in the amount of $258,604. During the year ended December 31, 2005 the Company amortized $275,135 of the initial value of the derivatives and embedded derivatives which is included in financing costs. The mark to market of the derivatives including the embedded derivatives at the end of each period was credited to financing costs in the amount of $723,008. On December 8, 2005, the Company and Laurus entered into an amendment of the Security Agreement pursuant to which Laurus agreed to waive (i) any event of default by the Company relating to the Company's non-payment of any liquidated damages associated with its non-filing of its Registration Statement and (ii) any liquidated damages associated with its non-filing of its Registration Statement that had accrued and were due and payable as of the date of December 8, 2005. In addition, the filing and effective dates for the Registration Statement were extended to January 31, 2006 and March 30, 2006, respectively. Due to its ongoing discussion with the SEC, the Company failed to file and cause to be effective a registration statement by March 30, 2006. Laurus agreed to waive the event of default and associated liquidated damages and to extend the filing deadline until July 1, 2006. On January 26, 2006, the Company and Laurus executed an Overadvance Side Letter whereby Laurus increased the overadvance amount on the revolving note to $1,200,000 ("Second Overadvance"). The second overadvance bears interest at the prime rate as published by the Wall Street Journal plus 2%. The second overadvance expires on July 27, 2006. In the event that the overadvance is not repaid in full by this date, the interest rate will be increased by an additional 1% per month. In consideration of the Second Overadvance, the Company issued 500,000 additional common stock purchase warrants with an exercise price of $0.01 per share which expire on January 26, 2012. Using the standard Black-Scholes methodology, these warrants were valued to be $98,588 which is being offset against the Laurus financing and will be amortized over the remaining term of the debt. On June 30, 2006, Laurus modified the terms of the convertible financing facility and removed the convertibility option, the interest adjustment clause and the conversion adjustment clause. In addition, the Registration Rights Agreement was modified so that the liquidated damages that may be charged for failure to file a registration statement at 2% per day shall no longer exceed 20% of the total debt owed to Laurus. Further, the Registration Rights Agreement was modified such that there must be an effective registration statement for the common stock issued upon the exercise of options and warrants since the convertibility option has been removed. The Company evaluated the modifications to the convertible financing facility under EITF Issue No. 96-19, "Debtor's Accounting for a Modification or Exchange of Debt Instruments" and EITF Issue No. 05-07, "Accounting for Modifications to Conversion Options Embedded in Debt Instruments and Related Issues". ETIF Issue No. 96-19 requires the debtor to determine whether the present value of the cash flows, including changes in the fair value of an embedded conversion option upon modification of a convertible debt instrument, under the terms of the new debt instrument is at least 10% different from the present value of the remaining cash flows under the terms of the original instrument. Moreover, this EITF specifies that changes in the fair value of embedded conversion options should be incorporated in this analysis. This is reiterated in EITF Issue No. 05-7. Using the methodology proposed in EITF Issue No. 96-19, the fair value as of June 30, 2006 of the embedded conversion option was $388,264 (value of the embedded conversion option less value of the interest adjustment clause) and the present value of the "old" and "new" financing was $1,726,425 and $1,451,862 respectively. The Company concluded that the difference in cash flows was 16% and therefore that the "old" financing was extinguished. EITF Issue No. 96-19 requires that the new debt be recorded at fair value and that amount should be used to determine the debt extinguishment gain or loss to be recognized and effective rate of the new debt. Using an effective rate of 20%, the fair value of the new facility was determined to be $2,351,271 which results in a loss of $689,858 on extinguishment of debt based on the book value of the old facility of $1,661,413. This loss is included in financing costs at September 30, 2006 in the consolidated statement of operations. As the conversion right of the convertible financing facility was eliminated, the entire embedded derivative pertaining to the conversion option was reversed, resulting in a gain of $388,264. This gain is included in financing costs at September 30, 2006 in the consolidated statement of operations. The Company also evaluated the modifications to the Registration Rights Agreement, specifically the 2% liquidated damages clause under EITF Issue No. 00-19 to determine whether the warrants and options issued with the debt should be reclassed into equity from liabilities. According to EITF Issue No. 00-19, paragraph 16 "If a settlement alternative includes a penalty that would be avoided by a company under other settlement alternatives, the uneconomic settlement alternative should be disregarded in classifying the contract. In the case of delivery of unregistered shares, a discount from the value of the corresponding registered shares that is a reasonable estimate of the difference in fair values between registered and unregistered shares (that is, the discount reflects the fair value of the restricted shares determined using commercially reasonable means) is not considered a penalty." THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) The Company concluded that the 20% cap added to the liquidated damages clause, does not represent an economically reasonable difference between registered and unregistered shares as the cap is based on the notional amount of financing outstanding which no longer has a convertibility feature and therefore has no relation to the shares that could be issued upon the exercise of options and warrants. Moreover, the maximum potential penalty that could arise under this clause based on the total debt outstanding to Laurus at September 30, 2006 was approximately $900,000 which is significant as compared to the total value of the shares that could be issued under the outstanding warrants and options at September 30, 2006 of approximately $750,000. Under the Security Agreement, the Company is also subject to a 2% penalty (with no cap) if its stock would stop trading for failure of failure to make timely filings with the SEC. In consideration of this penalty, which could be interpreted as a form of net cash settlement, and the assessment of the liquidated damages clause, the Company concluded that the criteria for reclassification to equity in EITF 00-19 was not met and therefore the warrants and options would remain embedded derivatives. On November 15, 2006, the Company executed an Omnibus Amendment No. 1 with Laurus Master Fund, Inc., whereby Laurus agreed to postpone the December and January principal payments on the Term Note (note 14) to be paid instead on the Maturity Date of June 30, 2009. In addition, they agreed to extend the overadvance until December 31, 2007 with a repayment schedule beginning July 1, 2007. In consideration of these modifications, the Company issued 940,750 common stock purchase warrants to Laurus with an exercise price of $0.23 per share which expire on November 15, 2013. Laurus also agreed to waive any penalties for failure to file and effect a registration statement registering the shares underlying their common stock purchase warrants until March 1, 2007. At the end of each period, the balance on the Laurus facility was as follows: 9/30/06 12/31/05 ------- -------- $ $ Principal balance revolving note 3,115,690 -- Principal balance convertible facility -- 2,522,219 Deferred Financing Costs (414,908) (1,353,063) --------- ---------- Total 2,700,782 1,169,156 ========= ========== * Adjusted for reverse split of Company's stock (1:5,000) on June 29, 2005 13. ACCOUNTS PAYABLE Included in accounts payable at the end of each period are the following: 9/30/06 12/31/05 ------- -------- $ $ Trade payables 290,032 276,486 Accrued payroll and payroll liabilities 562,365 266,343 Accrued bonuses 125,000 130,866 Accrued professional fees 282,497 245,368 Other 164,210 247,089 ------- ------- 1,424,104 1,166,152 ========= ========= 14. LONG-TERM DEBT i) September 30, 2006 On June 30, 2006, the Company reached a settlement with W. Terry Lyons with respect to the secured loan outstanding to him in the amount of $178,062 including accrued interest. In consideration of a monetary payment by the Company of $100,000 and execution of a Full and Final Release, Lyons released the Company of all rights and debt held by him and forgave the balance of the loan of $78,062 which is included in debt forgiveness in the consolidated statement of operations. On June 30, 2006, the Company repaid the balance owing on an SBA loan held by TMG in the amount of $84,083. This loan was personally guaranteed by the principal shareholders of TMG and collateralized by their personal residence and TMG's accounts receivables. On June 30, 2006, the Company repaid an Officer's Loan to the vendors of TMG in the amount of $349,624 with a cash payment of $100,000 and 1,202,009* shares of the Company's common stock, no par value per share, for consideration of $249,624. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) On June 30, 2006, Laurus Master Fund Ltd. issued the Company a secured term loan in the amount of $1,400,000 of which the proceeds were used to fund the acquisition of TMG. The loan is payable monthly starting October 1, 2006 in the amount of $42,424 per month. The loan bears interest at an annual rate equal to the Wall Street Journal prime rate plus 2%. The loan matures June 30, 2009. In connection with the financing, the Company issued Laurus a warrant to purchase up to 1,810,674 shares of the Company's common stock at $.0001 per share. Laurus is prohibited from selling any of the warrants until June 30, 2007 and thereafter is prohibited from selling an amount of shares in excess of 15% of the daily volume of trading of the Company's common stock on any day. The warrants issued with the term loan are subject to the modified Registration Rights Agreement (Note 12) including the 2% liquidated damages clause and therefore are classified as embedded derivatives under EITF 00-19. The warrants were valued as of June 30, 2006 using standard Black-Scholes methodology with a dilution effect. (Risk free interest rate of 5.38%; volatility of 142%; weighted average expected life of 10 years; weighted average fair value per share of $0.17). In accordance with APB 14, the value of these warrants should be extracted from the total cash received and the difference ascribed to the secured debt as follows: Cash received 1,400,000 Warrants (304,763) --------- Secured Loan 1,095,237 ========= Beginning July 1, 2006, the Company began amortizing the initial value of the embedded derivative over the three year term of the loan. During the three months ended September 30, 2006, the Company amortized $25,397 of the initial value of the embedded derivatives. On November 15, 2006, the Company executed an Omnibus Amendment No. 1 with Laurus Master Fund, Inc. (note 12), whereby Laurus agreed to postpone the December and January principal payments on the term note to be paid instead on the Maturity Date of June 30, 2009. On June 30, 2006, the Company issued five unsecured promissory notes to the shareholders of TMG totaling $559,750 with quarterly payments of $69,969 starting September 30, 2006. The notes bear interest at an annual rate equal to the Wall Street Journal prime rate and mature on June 30, 2008. At September 30, 2006, the Company and the note holders agreed to defer the quarterly payments due September 30, 2006 and December 31, 2006 until such a time that the Company's cash flow improves. On June 30, 2006, the Company assumed a motor vehicle loan as a result of the acquisition of TMG in the amount of $11,160 with monthly payments of $372 for 36 months starting January 14, 2006. The loan is secured by the motor vehicle and bears interest at 7.5% per annum. The loan matures on January 14, 2009. In July 2006, this liability was assumed by a TMG employee. At September 30, 2006, the Company held various capital leases in the amount of $16,135 secured by property and equipment with various payment terms and interest rates ranging from 10-22%. These leases mature between October 2006 and July 2007. ii) December 31, 2005 At December 31, 2005, the Company had a loan balance of $163,987 with Terry Lyons with monthly payments of $10,000. The loan bears interest at US prime plus 14%. The loan was secured by the Company's assets and subordinated to Laurus Master Fund, Ltd. The loan matured July 2007. At December 31, 2005, the Company held various capital leases in the amount of $30,165 secured by property and equipment with various payment terms and interest rates ranging from 10-22%. These leases mature between March 2006 and July 2007. 9/30/06 12/31/05 ------- -------- $ $ a) Included therein: Laurus Term Loan $1,400,000 -- Promissory Notes - TMG 559,750 -- Terry Lyons -- 163,987 Capital Leases 16,135 30,165 ---------- ------- 1,975,885 194,152 Less: deferred financing costs on Laurus Term Loan 279,366 -- Less: current portion 788,928 124,326 ---------- ------- 907,591 69,826 ========== ======= THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) b) Future principal payments obligations as at September 30, 2006, were as follows: 2006 232,778 2007 754,682 2008 649,026 2009 339,400 2010 -- ---------- $1,975,886 ========== c) Interest expense related to long-term debt for the three and nine months ended September 30, 2006 was $51,336 and $85,985 respectively. Interest expense related to long-term debt was $53,132 for the year ended December 31, 2005. 15. CAPITAL STOCK a) Authorized Unlimited Common stock, no par value 1,000,000 Preferred stock, issuable in series, rights to be determined by the Board of Directors Effective June 29, 2005, the Company implemented a one-for-five thousand reverse split of its common stock. At the time of the reverse stock split, each five thousand shares of the Company's issued and outstanding common stock were combined into one share of its common stock. The reverse stock split did not change the number of authorized shares of the Company's common stock. The one-for-five thousand reverse split was approved by the Company's shareholders at its Annual General Meeting on April 22, 2005, and subsequently approved by its Board of Directors. All common share and per share amounts throughout these financial statements have been adjusted to give effect to this reverse stock split. b) Issued On January 17, 2005, the Company issued 246,450* shares of its common stock, no par value per share, to the Vendors of TBM Technologies Inc. for a total consideration of $246,609. During the year ended December 31, 2005, the Company issued 1,366,495* shares of its common stock to the 12% Senior Secured Convertible Debenture holders upon the conversion of $338,616 principal balance and accrued interest. On June 27, 2005, the Company repurchased for cancellation 626,384* common shares held by the debenture holders for $123,110, representing approximately a sixty per cent discount to market value. On July 1, 2005 the Company issued 294,118* shares of its common stock, no par value per share, to Declan French in consideration of $100,000 extra compensation as approved by the shareholders at the Annual General Meeting on April 22, 2005. The shares were issued based on the closing price of $0.34 on July 1, 2005. The extra compensation was awarded in consideration of Mr. French's personal guarantees and indemnification of certain of the Company's debts as well as his acceptance of shares in lieu of cash for prior bonuses and debt payments. Also, on July 1, 2005, the Company issued 636,363* shares of its common stock, no par value per share, to Declan French in consideration of $140,000 in accrued bonuses from the years 2003 and 2004 as per his employment agreement. The shares were issued based on the lowest intraday price of $0.22 on July 1, 2005. On July 7, 2005, the Company entered into an agreement with Financial Media Relations, LLC, a California company, for the purpose of developing and implementing a marketing and investor relations program and the provision of business development and strategic advisory services. The term of the agreement is twelve months at a cost of $20,500 on execution and $12,500 per month thereafter. In addition, the Company issued 100,000* shares of common stock, no par value per share, and warrants to purchase 500,000* shares of common stock exercisable at $0.41 per share and 100,000* shares of common stock exercisable at $1.20 per share. The warrants shall be exercisable for a period of two years, shall vest immediately and be deemed earned upon issuance, and all warrants shall have "piggyback" registration rights. Using the Black-Scholes pricing model, the fair value of the warrants was determined to be $57,057 and is included in selling expenses at December 31, 2005. On June 30, 2006, the Company issued 3,369,188* shares of its common stock, no par value per share, to the Vendors of TMG for a total consideration of $669,689. The Company also issued 1,202,009* shares of its common stock, no par value per share, to the Vendors of TMG as repayment of an Officer's Loan in the amount $249,624. On June 30, 2006, the Company issued 316,563* shares of its common stock, no par value per share, to Leventis Investments for a total consideration of $63,313 as partial payment of a buyer's fee for the TMG acquisition. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) On July 1, 2006, the Company issued 162,000* shares of its common stock, no par value, with "piggyback" registration rights to Financial Media Relations, LLC, a California company, for the purpose of developing and implementing a marketing and investor relations program and the provision of business development and strategic advisory services. The term of the agreement is six months beginning July 1, 2006 and also includes a monthly cash fee of $5,000. On July 21, 2006, the Company issued 200,000* shares of its common stock, no par value, as director compensation. * Adjusted for reverse split of Company's stock (1:5,000) on June 29, 2005 c) Warrants For each of the periods presented, the following warrants for the purchase of one common share per warrant (as adjusted for 1:5,000 reverse stock split on June 29, 2005) at the following prices per common share and expiry dates were outstanding: Number of warrants* Exercise price 9/30/06 12/31/05 per share Expiry date ------------------------------------------------------------------------- -- -- $16,200.00 2004 -- -- $16,250.00 to 2005 $18,550.00 -- -- $12,300.00 2005 -- -- $3,150.00 to $5,000.00 2005 -- 20 $7,500.00 2006 -- 213 $2,750.00 2006 -- -- $400.00 2007 500,000 500,000 $0.41 2007 100,000 100,000 $1.20 2007 124 124 $200.00 2009 2,400 2,400 $87.50 2009 -- -- $3.75 2009 -- -- $2.00 2009 229 229 $1.25 2009 1,714 1,714 $87.50 2010 2,857 2,857 $43.75 2010 13,333 13,333 $3.75 2010 -- -- $2.00 2010 9,083 9,083 $1.25 2010 -- -- $1.00 2010 -- -- $2.00 2011 -- -- $1.40 2011 47,388 47,388 $1.25 2011 62,500 62,500 $1.00 2011 1,050,000 1,050,000 $0.55 2011 1,050,000 1,050,000 $0.60 2011 500,000 -- $0.01 2012 1,810,674 -- $.0001 2016 ------------------------------------------------------------------------- 5,150,302 2,839,861 ------------------------------------------------------------------------- A summary of changes to number of issued warrants is as follows: Outstanding at December 31, 2004 1,811,389* ---------- Issued 2,700,000 Cancelled (1,671,189) Exercised -- Expired (339) ---------- Outstanding at December 31, 2005 2,839,861* ---------- Issued 2,310,674 Cancelled -- Exercised -- Expired (233) ---------- Outstanding at September 30, 2006 5,150,302* ========== On June 27, 2005, a total of 1,671,189* warrants held by the debenture holders were cancelled in consideration of payment in full of the principal balance owing of $1,162,700. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) On June 27, 2005 the Company issued Laurus Master Fund, Ltd. warrants to purchase up to 2,100,000* shares of its common stock with 1,050,000* at an exercise price of $0.55 per share and 1,050,000* at an exercise price of $0.60 per share. The warrants are exercisable at any time and in any amount for six years from the date of closing. As disclosed in Note 15(b), on July 7, 2005, the Company issued warrants to purchase 500,000* shares of common stock exercisable at $0.41 per share and 100,000* shares of common stock exercisable at $1.20 per share to Financial Media Relations LLC. The warrants shall be exercisable for a period of two years, shall vest immediately and be deemed earned upon issuance, and all warrants shall have "piggyback" registration rights. Using the Black-Scholes pricing model, the fair value of the warrants was determined to be $57,057 and is included in selling expenses. As disclosed in Note 12, on January 26, 2006, the Company issued 500,000* additional common stock purchase warrants to Laurus Master Fund, Ltd. with an exercise price of $0.01 per share and expire on January 26, 2012. As disclosed in Note 14, on June 30, 2006, the Company issued 1,810,674* common stock purchase warrants to Laurus Master Fund, Ltd. with an exercise price of $.0001 per share and which expire on June 30, 2016. Laurus is prohibited from selling any of the warrants until June 30, 2007 and thereafter is prohibited from selling an amount of shares in excess of 15% of the daily volume of trading of the Company's common stock on any day. * Adjusted for reverse split of Company's stock (1:5,000) on June 29, 2005 d) Stock Options The Company's Board of Directors and shareholders have approved the adoption of the 1998 Stock Option Plan, 2000 Stock Option Plan, 2001 Stock Option Plan, 2002 Stock Option Plan and 2005 Stock Option Plan. Under the plans, a total of 2,001,674 options were authorized to be granted to officers, directors, consultants, key employees, advisors and similar parties who provide their skills and expertise to the Company. At September 30, 2006, 1,864,572 options remain outstanding and 137,102 options are available for future grant. At December 31, 2005, 1,864,659 options remain outstanding and 137,015 options are available for future grant. The plans are administrated by the Compensation Committee of 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. The plans are effective for a period of ten years. Options granted to employees 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. On June 27, 2005, the Company issued Laurus Master Fund, Ltd. an option to purchase up to 379,572* shares of its common stock, no par value per share, at an exercise price of $.0001 per share. The options are exercisable at any time and in any amount for a period of ten years from the date of issuance. On November 22, 2005, the Company issued a total of 1,460,000 options at an exercise price of $.24 per share to its Management and Directors under the 2005 Stock Option Plan which was approved by the Company's shareholders at its Annual General Meeting on April 22, 2005, and subsequently approved by its Board of Directors. The options vest immediately and expire in 2015. On December 12, 2005, the Company issued 25,000 options at an exercise price of $.27 per share to Mr. Tom Luther, Vice President Sales, under the 2005 Stock Option Plan. The options vest immediately and expire in 2015. * Adjusted for reverse split of Company's stock (1:5,000) on June 29, 2005 THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) e) Preferred Stock On June 30, 2006, the Company issued 700 shares of Series D preferred stock to the Vendors of TMG for a total consideration of $669,689. The Series D preferred stock is convertible into common stock at the option of the holder, one year from issuance by dividing $669,689 by the market price of the Company's common stock prior to conversion. DEFERRED INCOME TAXES AND INCOME TAXES a) Deferred Income Taxes The components of the deferred tax liability benefit by source of temporary differences that gave rise to the benefit are as follows: 9/30/06 12/31/05 ------- -------- $ $ Losses available to offset future income taxes 5,988,000 5,221,000 Deferred costs and customer lists 33,000 33,000 Share and debt issue costs 49,300 126,000 Property and equipment 762,000 949,000 --------- --------- 6,832,300 6,329,000 Less: valuation allowance 6,832,300 6,329,000 --------- --------- -- -- ========= ========= b) Current Income Taxes Current income taxes consist of: 9/30/06 12/31/05 --------- --------- Amounts calculated at statutory rates $(730,858) $(581,881) --------- --------- Permanent differences 141,334 304,304 Valuation allowance 503,000 417,000 --------- --------- 644,334 721,304 --------- --------- Current income taxes 21,187 139,423 Deferred income taxes (107,711) -- --------- --------- Income taxes (86,524) 139,423 ========= ========= Issue expenses totaling approximately $368,000 may be claimed at the rate of 20% per year with $123,000 until 2006, and $245,000 until 2010. To the extent that these expenses create a loss, which are available to be carried forward for seven years for losses up to and including 2003 and for ten years commencing in 2004 from the year the loss is incurred. The Company has not reflected the benefit of utilizing non-capital losses totaling approximately $14,900,000, nor a capital loss totaling $750,000 in the future as a deferred tax asset as at September 30, 2006. As at the completion of the September 30, 2006 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. COMPREHENSIVE LOSS 9/30/06 12/31/05 ------- -------- $ $ Net loss (1,719,434) (2,835,306) Other comprehensive loss Cumulative adjustment to market value -- -- Foreign currency translation adjustments 14,778 (8,909) ---------- ---------- Comprehensive loss (1,704,656) (2,844,215) ========== ========== The foreign currency translation adjustments are not currently adjusted for income taxes since the Company is located 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. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) 18. DISCONTINUED OPERATIONS Effective March 8, 2002, the Company sold its technology division, Njoyn Software Incorporated to Cognicase Inc., a Canadian company. As part of the transaction, Cognicase assumed all of the staff in the Company's technology division, including the employees of TidalBeach Inc. The Company will not have future revenues from either its Njoyn or Secondwave products and therefore the technology operations have been reported as discontinued. There was no technology revenue for the three months and nine months ended September 30, 2006 and 2005. There was no income or losses from the technology division for the three and nine months ended September 30, 2006. The net loss for the technology operations for the three and nine months ended September 30, 2005 was nil and $5,000 respectively. Effective May 1, 2002, the Company signed an agreement 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 assumed the Toronto training staff. On November 1, 2002, the Company entered into a series of agreements with Thinkpath Training LLC, a New York company, for the purchase of certain assets of the New York training division, Thinkpath Training for a nominal amount of cash and the assumption of all prepaid training liabilities. As part of the transaction, Thinkpath Training LLC assumed the New York training staff, some assets and is subletting the classroom facilities. As a result of these two transactions, the Company will not have future revenues from its training division and therefore the operations have been reported as discontinued. There was no revenue or income from the training division for the three and nine months ended September 30, 2006 and 2005. Effective June 27, 2003, the Company signed an agreement with Brainhunter.com Ltd., an Ontario company, for the purchase of certain assets of the Toronto IT recruitment division for a nominal amount of cash and the assumption of all employee liabilities. The gain on disposal of $190,627 has been reflected in the Income (loss) from discontinued operations in 2003. Of the $190,627, $146,627 was received in cash on closing with the balance of $44,000 due in a promissory note payable by June 27, 2004. On June 8, 2005, the Company collected approximately $40,000 on the promissory note and forgave the balance. As a result of this transaction, the Company will not have future revenues from its IT recruitment division and therefore the operations have been reported as discontinued. There was no revenue attributable to the IT recruitment division for the three and nine months ended September 30, 2006 and 2005. There was no income or losses for the IT recruitment division for the three and nine months ended September 30, 2006. The net income for the IT division for the three and nine months ended September 30, 2005, was nil and $24,000 respectively. The following table presents the revenues, income (loss) from operations and other components attributable to the discontinued operations of Njoyn Software Incorporated, TidalBeach Inc., Thinkpath Training Inc. and Thinkpath Training US Inc. and the IT recruitment division:
Three months ended Sept 30, Nine months ended Sept 30, Restated Restated 2006 2005 (Note 25) 2006 2005 (Note 25) ---- ------------- ---- ------------- $ $ Revenues -- -- -- -- ---- ---- ---- -------- Loss from operations before income -- -- -- (86) taxes Provision for Income Taxes -- -- -- (19,182) ---- ---- ---- -------- Income from discontinued operations -- -- -- 19,096 ==== ==== ==== ========
THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) 19. SCHEDULE OF NON-CASH ITEMS PER STATEMENT OF CASH FLOW The Company issued common shares and warrants for the following: Nine Months ended September 30, 2006 Restated 2006 2005 (Note 25) ---- -------------- $ $ Common stock and warrants issued for 350,024 338,057 liabilities and services Common stock issued for investment 763,000 -- Preferred stock issued for investment 699,687 -- --------- ------- 1,812,711 338,057 ========= ======= 20. SEGMENTED INFORMATION a) Revenue and Gross Profit by Geographic Area
Three months ended Sept 30, Nine months ended Sept 30, Restated Restated 2006 2005 (Note 25) 2006 2005 (Note 25) ---- -------------- ---- ------------- $ $ $ $ Revenue Canada 419,949 500,706 1,259,179 1,474,710 United States of America 3,079,019 2,668,926 8,943,926 8,901,731 --------- --------- ---------- ---------- 3,498,968 3,169,632 10,203,105 10,376,441 ========= ========= ========== ========== Gross Profit Canada 156,892 107,673 440,214 282,944 United States of America 1,008,343 808,579 2,769,078 2,962,125 --------- --------- ---------- ---------- 1,165,235 916,252 3,209,292 3,245,069 ========= ========= ========== ==========
b) Net Income (Loss) by Geographic Area
Three months ended Sept 30, Nine months ended Sept 30, Restated Restated 2006 2005 (Note 25) 2006 2005 (Note 25) ---- ------------- ---- ------------- $ $ $ $ Canada (298,501) (26,045) (1,391,231) (1,717,513) United States of America (85,004) 28,752 (328,203) 781,255 --------- --------- ---------- ---------- (383,505) 2,707 (1,719,434) (936,258) ========= ========= ========== ==========
c) Identifiable Assets by Geographic Area
9/30/06 12/31/05 ------- -------- $ $ Canada 741,431 811,119 United States of America 7,870,055 4,641,133 ---------- ---------- 8,611,486 5,452,252 ========== ==========
d) Revenues from Major Customers and Concentration of Credit Risk The consolidated entity had the following revenues from major customers: For the three and nine months ended September 30, 2006, one customer had sales of $321,106 and $1,039,710, respectively, representing approximately 9% and 10%, respectively, of total revenue. For the three and nine months ended September 30, 2005, one customer had sales of $806,950 and $3,097,238, respectively, representing approximately 25% and 30%, respectively, of total revenue. e) Purchases from Major Suppliers There were no significant purchases from major suppliers. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) 21. EARNINGS PER SHARE The Company has adopted Statement No. 128, Earnings Per Share, which requires presentation, in the consolidated statement of operations, of both basic and diluted earnings per share.
Three months ended Sept 30, Nine months ended Sept 30, Restated Restated 2006 2005 (Note 25) 2006 2005 (Note 25) ---- ------------- ---- ------------- $ $ $ $ NUMERATOR Income (loss) from continuing (383,505) 2,707 (1,719,434) (955,354) operations Income from discontinued operations -- -- -- 19,096 ---------- ---------- ---------- ---------- Net income (loss) (383,505) 2,707 (1,719,434) (936,258) ========== ========== ========== ========== DENOMINATOR Weighted Average common stock outstanding* 9,940,669 4,677,798 6,491,494 4,243,318 ========== ========== ========== ========== Basic and diluted loss per common share from continuing operations (0.04) 0.00 (0.26) (0.23) ========== ========== ========== ========== Basic and diluted loss per common share after discontinued operations (0.04) 0.00 (0.26) (0.23) ========== ========== ========== ========== Average common stock outstanding* 9,940,669 4,677,798 6,491,494 4,243,318 Average common stock issuable -- -- -- -- ---------- ---------- ---------- ---------- Average common stock outstanding assuming dilution* 9,940,669 4,677,798 6,491,494 4,243,318 ========== ========== ========== ==========
The outstanding options and warrants as detailed in note 15 were not included in the computation of the diluted earnings per common share as the effect would be anti-dilutive. The earnings per share calculation (basic and diluted) does not include any common stock for common stock payable, as the effect would be anti-dilutive. * Adjusted for reverse split of Company's stock (1:5,000) on June 29, 2005 22. COMMITMENTS AND 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 September 30, 2006, for the next five years are as follows: 2006 $ 115,456 2007 462,835 2008 260,861 2009 140,477 2010 140,477 Thereafter -- ---------- $1,120,106 ========== THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) The lease commitments do not include an operating lease for premises in New York that the Company sub leased to the purchaser of the United States training division. In April 2006, the Company was notified by the purchaser that they had failed to meet their rent obligations and had accumulated rent arrears of approximately $80,000. The lessor filed a claim against Thinkpath Training LLC and the Company demanding that the rent arrears be paid and the premises vacated immediately. On June 1, 2006, a default judgement was awarded to the lessor and entered against the Company. On July 7, 2006, the Company's motion to vacate the default judgement was denied. On July 27, 2006, the court agreed to the Company's motion to renew and reargue its prior motion seeking to vacate the default judgement on August 23, 2006. Upon reargument on September 7, 2006, the court vacated the judgement and dismissed the petition. On September 21, 2006, the Company received notice from the landlord demanding payment of the current arrears of approximately $360,000 in unpaid rent and additional charges and its intent to commence legal proceedings against the Company in the event that such payment is not made. The Company continues to defend this claim vigorously. The lease commitments do not include an operating lease for premises located in the United States that was closed in the fourth quarter of 2002. The Company has not made any payments on this lease since the premises were abandoned. The Company does not intend to make any further payments and the lessor has not tried to enforce payment. The Company may be liable for a lease balance of $44,597 which expired November 30, 2004. b) On November 3, 2005, the Company terminated the service agreement of the vendors of TBM Technologies Inc., acquired on January 17, 2005, for what it believes is a material breach of the agreement by the vendors. The vendors are seeking termination pay from the Company in the amount of approximately $40,000. The Company has filed a counterclaim for losses suffered as well as jeopardy to its reputation by the actions of the vendors. c) The Company is party to various lawsuits arising from the normal course of business and its restructuring activities. No material provision has been recorded in the accounts for possible losses or gains. Should any expenditure be incurred by the Company for the resolution of these lawsuits, they will be charged to the operations of the year in which such expenditures are incurred. 23. SUBSEQUENT EVENTS Subsequent to September 30, 2006, the Company entered into an extension and amendment of the employment agreement with Declan A. French whereby he will continue to serve as the Chairman of the Board and Chief Executive Officer for a period of two years commencing November 28, 2006. The agreement shall continue upon a year-to-year basis unless terminated by either the Company or Mr. French upon ninety days written notice and may be amended by the Compensation Committee of the Board of Directors as it deems necessary. Under the terms of the agreement, Mr. French will be paid a base salary of $200,000 and is eligible for a minimum bonus of $100,000 determined by the Company's EBITDA (earnings before interest, taxes, depreciation and amortization) as a percentage of annual gross revenue. In the event of a change in control of the Company, all stock options and warrants held by Mr. French shall become vested, accelerate and become immediately exercisable. In addition, the Company will be required to issue a number of shares of its common stock as equal to the lesser of 19% of the issued and outstanding or such number of shares as divided by $500,000. All shares issued to Mr. French under the terms of his employment agreement will have demand registration rights subject to the agreement of any senior lender with similar rights. Upon termination of the agreement for any reason other than for cause, Mr. French will be entitled to receive an amount equal to three years salary. 24. 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's revenue is derived from customers of various industries and geographic locations reducing its credit risk. Where exposed to credit risk, the Company mitigates this risk by routinely assessing the financial strength of its customers, establishing billing arrangements and monitoring the collectibility of the account on an ongoing basis. 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. THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) d) Fair Value of Financial Instruments The carrying values of the accounts receivable and of the accounts payable on acquisition of subsidiary company approximates their fair values because of the short-term maturities of 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 based on the estimated quoted market prices for the same or similar debt instruments. The fair value of the long-term debt approximates the carrying value. The fair value of the Company's debt instruments with embedded derivatives are measured separately at the end of each period using a combination of Black-Scholes methodologies and Monte Carlo simulations. As the Company has no public rating or no public debt, it is very difficult to estimate the potential change of the credit spread between the issue date and valuation dates. Moreover, there is no evidence of any material event that could change significantly the credit spread of the issue. A constant credit spread equal to 300 basis points as per the issue date was therefore assumed in the valuation and current volatility rates were used. Changes in the fair value of derivates are charged to current earnings. 25. RESTATEMENTS The accompanying financial statements for the three months and nine months ended September 30, 2005 have been restated to correct accounting errors for the beneficial conversion feature on convertible debentures. During the period December 2002 until November 2004, the Company issued 12% Senior Secured Convertible Debentures in the aggregate principal amount of $5,025,000, which debentures were subsequently converted or repaid by June 27, 2005. The value assigned to the beneficial conversion feature on the debentures was credited to paid in capital and charged to earnings as interest expense on the date of issuance. The Company has determined, in accordance with Issue 6 of Emerging Task Force No. 00-27 "Application of Issue No. 98-5 to Certain Convertible Instruments" ("EITF 00-27"), that the value of the beneficial conversion feature should be accreted to interest expense from the date of issuance to the stated redemption date. The Company recorded the value of the beneficial conversion feature in excess of the amount of proceeds allocated to the convertible instruments. The Company has determined, in accordance with Paragraph 6 of Emerging Task Force No. 98-5 "Accounting for Convertible Securities with Beneficial conversion Features or Contingently Adjustable Conversion Ratios" ("EITF98-5"), that the calculated amount of the beneficial conversion feature should be limited to the amount of proceeds allocated to the convertible instrument. The Company has amended its financial statements for the three and nine months ended September 30, 2005 to limit the value of the beneficial conversion feature to the amount of proceeds allocated to the convertible debenture and to amortize the beneficial conversion feature from the date of issuance to the stated redemption date. The effect of this restatement was to decrease the Company's net loss by $537,042 and $563,694 respectively for the three and nine month periods ended September 30, 2005. This restatement concerns a non-cash item. The following table quantifies the EPS impact of this restatement: Operating Earnings (Loss) Amount Per Share ------------------------------------------------------------------------- Net loss for the three months ended September 30, 2005 as reported in September 30, 2005 Form 10Q-SB $(534,335) (0.11) to correct accounting error for recording beneficial conversion feature on convertible debentures 537,042 0.11 ------------------- Revised net income $ 2,707 0.00 =================== The following table quantifies the EPS impact of this restatement: Operating Earnings (Loss) Amount Per Share ------------------------------------------------------------------------- Net loss for the nine months ended September 30, 2005 as reported in September 30, 2005 Form 10Q-SB $(1,499,952) (0.35) to correct accounting error for recording beneficial conversion feature on convertible debentures 563,694 0.13 --------------------- Revised net loss $ (936,258) (0.22) ===================== THINKPATH INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2006 (AMOUNTS EXPRESSED IN US DOLLARS) 26. COMPARATIVE FIGURES Certain figures in the September 30, 2005 financial statements have been reclassified to conform with the basis of presentation used at September 30, 2006. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. The following discussion and analysis should be read in conjunction with the financial statements and notes thereto and the other historical financial information of Thinkpath Inc. contained elsewhere in this Form 10-QSB. The statements contained in this Form 10-QSB that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended including statements regarding Thinkpath Inc.'s expectations, intentions, beliefs or strategies regarding the future. Forward-looking statements include Thinkpath Inc.'s statements regarding liquidity, anticipated cash needs and availability and anticipated expense levels. All forward-looking statements included in this Form 10-QSB are based on information available to Thinkpath Inc. on the date hereof, and Thinkpath Inc. assumes no obligation to update any such forward-looking statement. It is important to note that Thinkpath Inc.'s actual results could differ materially from those in such forward-looking statements. All dollar amounts stated throughout this Form 10-QSB are in United States dollars unless otherwise indicated. Unless otherwise indicated, all reference to "Thinkpath," "us," "our," and "we," refer to Thinkpath Inc. and its subsidiaries. OVERVIEW Thinkpath provides engineering services including design, build, drafting, technical publishing and documentation, and on-site engineering support to customers in the defense, aerospace, automotive, material handling, health care and manufacturing industries. We were incorporated under the laws of the Province of Ontario, Canada in 1994. In September 1999, we acquired an engineering services company CadCam Inc. and its two subsidiaries, CadCam Michigan Inc. and CadCam Technical Services Inc. CadCam Inc. was founded in 1977. Our principal executive offices are located at 201 Westcreek Boulevard, Brampton, Ontario, Canada and our website is www.thinkpath.com. PLAN OF OPERATION We are focused on building relationships with customers in high growth industries such as defense and aerospace. We believe we are poised to benefit from the increased demand generated by aerospace and defense-related customers who we expect will increasingly rely on our project engineering design, expertise and technical staffing services. This year we will continue to solidify our relationships to actively increase new business opportunities with existing customers including General Dynamics, Lockheed Martin, Boeing, General Electric, United Defense and TACOM. We intend to continue to grow organically as well as through acquisitions over the next year. Acquisitions will be limited to profitable engineering companies, which must have an immediate accretive impact. On June 30, 2006, we completed the acquisition of The Multitech Group Inc. (TMG), an engineering services firm located in New Jersey. The purchase price of $2,798,750 was based on five times the audited 2005 EBIT of TMG and was payable as follows: thirty percent in cash for a total of $839,625; twenty per cent in a two year subordinated note of $559,750 bearing annual interest at US prime, payable quarterly; twenty-five per cent in common stock for a total consideration of $699,688 or 3,369,188 common shares; and, twenty-five per cent in preferred stock for a total consideration of $669,688 or 700 preferred share which will be convertible into common shares after June 30, 2007. The acquisition was accounted for by the purchase method and the operations have been included in the consolidated operations from April 1, 2006. TMG has been providing reliable engineering design services in Material Handling, Pollution Control, Port Security, Government/Military, and Manufacturing since 1976. It also develops and implements Technical Documentation and Training programs. TMG's annual revenues are approximately $3.3 million with an EBIT of approximately $500,000 The acquisition added some long-term, high profile clients including Fedex, U.S Postal Service, Siemens, Boeing, Smiths Detection, Sandvik, Port Authority of New York and New Jersey. The five TMG officers accepted employment agreements with Thinkpath in various capacities, including John W. Kennedy as Vice President of Business Development, James J. McLafferty as General Manager (New Jersey Office), Scott A. Nilssen as National Director of Marketing and Cecelia Kennedy as Contracts Staffing Manager (New Jersey Office). STATEMENTS OF OPERATIONS--PERCENTAGES FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
Three Months Ended Nine Months Ended Sept 30, Sept 30, 2006 2005 2006 2005 ---- ---- ---- ---- % % % % REVENUE 100 100 100 100 COST OF SERVICES 67 71 69 69 ---- ---- ---- ---- GROSS PROFIT 33 29 31 31 EXPENSES ADMINISTRATIVE 21 19 22 18 SELLING 17 15 15 11 DEPRECIATION AND AMORTIZATION 5 3 4 3 WRITE DOWN OF PROPERTY AND EQUIPMENT -- -- -- -- LOSS ON SALE OF SUBSIDIARY -- -- -- -- DEBT FORGIVENESS -- -- (1) (1) FINANCING COSTS (1) (12) 4 (4) ---- ---- ---- ---- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INTEREST CHARGES AND INCOME TAXES (9) 4 (13) 4 INTEREST CHARGES 4 3 4 12 ---- ---- ---- ---- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (13) 1 (17) (8) INCOME TAXES (3) 1 (1) 1 ---- ---- ---- ---- LOSS FROM CONTINUING OPERATIONS (10) -- (18) (9) INCOME (LOSS) FROM DISCONTINUED OPERATIONS -- -- -- -- ==== ==== ==== ==== NET LOSS (10) -- (18) (9) ==== ==== ==== ====
RESULTS OF OPERATIONS THE THREE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2005 REVENUE Our revenue is comprised of engineering services including 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: design, build and drafting, technical publications and documentation. We outsource our technical publications and engineering services on both a time and materials and project basis. Customers we provide engineering services to include General Dynamics, General Electric, General Motors, Lockheed Martin, Cummins Engines, ABB, Eaton Aerospace, Remy, America Inc., Toyota, Atlas Copco and Comdev Space Group. For the three months ended September 30, 2006, we derived 88% of our revenue in the United States compared to 84% for the three months ended September 30, 2005. This increase is largely attributable to the acquisition of TMG which contributed $600,000 in revenue during the third quarter. Consolidated revenues for the three months ended September 30, 2006 increased by $330,000 or 10% to $3,500,000 as compared to $3,170,000 for the three months ended September 30, 2005. Not including the $600,000 contribution from TMG, the revenue from organic operations is down $270,000. This decrease is largely attributable to the decline in sales of approximately $490,000 from one major customer located in the United States who represented only 9% of our consolidated revenue for the three months ended September 30, 2006 compared to 25% for the three months ended September 30, 2005. COSTS OF SERVICES The direct costs of engineering services include wages, benefits, software training and project expenses. Costs of services for the three months ended September 30, 2006 increased by $80,000 or 3% to $2,330,000 as compared to $2,250,000 for the three months ended September 30, 2005. This increase is related to the increase in revenue. As a percentage of revenue, however, the cost of services for the three months ended September 30, 2006 decreased from 71% in 2005 to 67% in 2006. GROSS PROFIT Gross profit is calculated by subtracting all direct costs from net revenue. Gross profit for the three months ended September 30, 2006 increased by $250,000 or 27% to $1,170,000 compared to $920,000 for the three months ended September 30, 2005. As a percentage of revenue, gross profit for the three months ended September 30, 2006 was 33% compared to 29% in 2005. The increase is a result of the addition of several higher margin engineering service projects as well as contract placements in both Canada and the United States. EXPENSES Total expenses for the three months ended September 30, 2006 increased by 88% or $700,000 to $1,500,000 compared to $800,000 for the three months ended September 30, 2005 ADMINISTRATIVE EXPENSES Administrative expenses increased by $145,000 or 24% to $750,000 for the three months ended September 30, 2006 compared to $605,000 for the three months ended September 30, 2005. This increase is largely attributable to the acquisition of TMG including the salaries of the five officers and two support staff. As a percentage of revenue, administrative expenses for the three months ended September 30, 2006 was 21% compared to 19% in 2005. SELLING EXPENSES Selling expenses increased by $100,000, or 20%, to $590,000 for the three months ended September 30, 2006 compared to $490,000 for the three months ended September 30, 2005. This increase is attributable to the additional salaries of new sales staff hired during the later part of 2005 and early 2006 plus additional sales expenses from the acquisition of TMG. As a percentage of revenue, selling expenses for the three months ended September 30, 2006 was 17% compared to 15% in 2005. DEPRECIATION AND AMORTIZATION For the three months ended September 30, 2006, depreciation and amortization expenses increased by $100,000, or 111%, to $190,000 compared to $90,000 for the three months ended September 30, 2005. The 2006 increase is attributable to amortization of approximately $90,000 of additional capital assets and other assets including contracts and customer lists acquired with the TMG acquisition. As a percentage of revenue, depreciation and amortization expenses increased to 5% for the three months ended September 30, 2006 compared to 3% in 2005. LOSS ON SALE OF SUBSIDIARY In July 2006, we were assessed by Canada Customs and Revenue Agency and required to pay Goods and Services Tax of approximately $16,000 on the sale of our Toronto IT recruitment division to Brainhuner.com Ltd. which occurred on June 27, 2003. FINANCING COSTS AND MARK-TO-MARKET ADJUSTMENTS During the three months ended September 30, 2006, we amortized $85,000 of the initial value of the derivatives and embedded derivatives attached to the Laurus Master Fund, Ltd. convertible debt financing closed on June 27, 2005. At the end of the quarter, the fair value of the derivates and embedded derivatives were marked-to-market with a total of $120,000 credited to financing costs. During the three months ended September 30, 2005, we amortized $135,000 of the initial value of the derivatives and embedded derivatives attached to the Laurus Master Fund, Ltd. debt instruments. At the end of the quarter, the fair value of the derivates and embedded derivatives were marked-to-market with a total of $530,000 credited to financing costs. INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INTEREST CHARGES AND INCOME TAXES For the three months ended September 30, 2006, loss from continuing operations before interest charges and income taxes increased by 383% to a loss of $340,000 compared to income of $120,000 for the three months ended September 30, 2005. INTEREST CHARGES For the three months ended September 30, 2006, interest charges increased by $60,000 or 67% to $150,000 from $90,000 for the three months ended September 30, 2005. This increase is largely attributable to interest being charged on the new term loan from Laurus Master Fund, Ltd of approximately $40,000 for the quarter and on the promissory notes held by the TMG shareholders of approximately $10,000 for the quarter. INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES For the three months ended September 30, 2006, loss from continuing operations before income taxes increased by $520,000 or 1733% to a loss of $490,000 compared to income of $30,000 in 2005. INCOME TAXES Income taxes for the three months ended September 30, 2006 includes a revaluation of the deferred tax liability of $107,711 which was offset by taxes paid of $2,149. Income tax expenses in 2005 was $24,000. INCOME (LOSS) FROM CONTINUING OPERATIONS Loss from continuing operations for the three months ended September 30, 2006 increased by $380,000 or 1268% to a loss of $383,000 compared to income of $3,000 in 2005. LOSS FROM DISCONTINUED OPERATIONS Operations of the technology, training and IT recruitment divisions have been reported as discontinued for the three months ended September 30, 2006 and 2005. Effective March 8, 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 staff in our technology division, including the employees of TidalBeach Inc. As we will not have future revenues from either its Njoyn or Secondwave products, the technology operations have been reported as discontinued. There was no revenue or income from the technology division for the three months ended September 30, 2006 and 2005. Effective May 1, 2002, we signed an agreement 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 assumed the Toronto training staff. On November 1, 2002, we entered into a series of agreements with Thinkpath Training LLC, a New York company, for the purchase of certain assets of the New York training division, Thinkpath Training for a nominal amount of cash and the assumption of all prepaid training liabilities. As part of the transaction, Thinkpath Training LLC assumed the New York training staff, some assets and is subletting the classroom facilities. As a result of these two transactions, we will not have future revenues from our training division and therefore the operations have been reported as discontinued. There was no revenue or income attributable to the training division for the three months ended September 30, 2006 and 2005. Effective June 27, 2003, we signed an agreement with Brainhunter.com Ltd., an Ontario company, for the purchase of certain assets of the Toronto IT recruitment division for a nominal amount of cash and the assumption of all employee liabilities. The gain on disposal was $190,627 of which we received $146,627 on closing with the balance of $44,000 due in a promissory note payable by June 27, 2004. On June 8, 2005, we collected approximately $40,000 on the promissory note and forgave the balance. In July 2006, we recognized a tax expense of approximately $16,000 on the sale of the IT recruitment division which is included in the Loss on Sale of Subsidiary in the consolidated statement of operations at September 30, 2006. As a result of this sale, we will not have future revenues from its IT recruitment division and therefore the operations have been reported as discontinued. There was no revenue attributable to the IT recruitment division for the three months ended September 30, 2006 and 2005. There was no income attributable to the IT recruitment division for the three months ended September 30, 2006 and 2005. NET INCOME (LOSS) For the three months ended September 30, 2006, net loss increased by $380,000 or 1268% to a net loss of $383,000 compared to income of $3,000 for the three months ended September 30, 2005. THE NINE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2005 REVENUE For the nine months ended September 30, 2006, we derived 88% of our revenue in the United States compared to 86% for the nine months ended September 30, 2005. Consolidated revenues for the nine months ended September 30, 2006 decreased by $180,000 or 2% to $10,200,000 as compared to $10,380,000 for the nine months ended September 30, 2005. This decrease is largely attributable to the aforementioned decline in sales of approximately $2,060,000 from one major customer who only represented 10% of our total revenue for the nine months ended September 30, 2006 compared to 30% for the nine months ended September 30, 2005. COSTS OF SERVICES Costs of services for the nine months ended September 30, 2006 decreased by $140,000 or 2% to $6,990,000 as compared to $7,130,000 for the nine months ended September 30, 2005. As a percentage of revenue, the cost of services for the nine months ended September 30, 2006 was 69% which is consistent with the same period in 2005. GROSS PROFIT Gross profit for the nine months ended September 30, 2006 decreased by $40,000 or 1% to $3,210,000 compared to $3,250,000 for the nine months ended September 30, 2005. As a percentage of revenue, gross profit for the nine months ended September 30, 2006 was 31% which is consistent with the same period in 2005. EXPENSES Total expenses for the nine months ended September 30, 2006 increased by 61% or $1,730,000 to $4,560,000 compared to $2,830,000 for the nine months ended September 30, 2005 ADMINISTRATIVE EXPENSES Administrative expenses increased by $390,000 or 21% to $2,230,000 for the nine months ended September 30, 2006 compared to $1,840,000 for the nine months ended September 30, 2005. This increase is largely attributable to the acquisition of TMG including the salaries of the five officers and two support staff effective April 1, 2006. As a percentage of revenue, administrative expenses for the nine months ended September 30, 2006 was 22% compared to 18% in 2005. SELLING EXPENSES Selling expenses increased by $350,000, or 30%, to $1,530,000 for the nine months ended September 30, 2006 compared to $1,180,000 for the nine months ended September 30, 2005. This increase is attributable to the additional salaries of new sales staff hired during the later part of 2005 and early 2006 plus additional sales expense from the acquisition of TMG. As a percentage of revenue, selling expenses for the nine months ended September 30, 2006 was 15% compared to 11% in 2005. DEPRECIATION AND AMORTIZATION For the nine months ended September 30, 2006, depreciation and amortization expenses increased by $190,000, or 73%, to $450,000 compared to $260,000 for the nine months ended September 30, 2005. The 2006 increase is attributable to amortization of approximately $180,000 of additional capital assets and other assets including contracts and customer lists acquired with the TMG acquisition. As a percentage of revenue, depreciation and amortization expenses increased to 4% for the nine months ended September 30, 2006 compared to 3% in 2005. WRITE DOWN OF PROPERTY AND EQUIPMENT During the nine months ended September 30, 2005, we wrote down property and equipment in the amount of approximately $4,000. The fair value of the impaired asset was generally estimated by discounting the expected future cash flows of the individual assets. Impairment was indicated by adverse change in market prices, current period cash flow losses combined with a history of losses, or a significant change in the manner in which the asset is to be used. DEBT FORGIVENESS On June 30, 2006 we reached a settlement with W. Terry Lyons with respect to the secured loan outstanding to him in the amount of $178,000 including accrued interest. In consideration of a monetary payment of $100,000 and execution of a Full and Final Release, Lyons released all rights and debt held by him and forgave the balance of the loan of $78,000 which is included in debt forgiveness. Debt forgiveness for the nine months ended September 30, 2005 includes $66,000 of accrued interest on the 12% Senior Secured Convertible Debentures which was forgiven when the principal balance was repaid on June 27, 2005. FINANCING COSTS AND MARK-TO-MARKET ADJUSTMENTS During the nine months ended September 30, 2006, we amortized $370,000 of the initial value of the derivatives and embedded derivatives attached to the Laurus Master Fund, Ltd. convertible debt financing closed on June 27, 2005. During the nine months ended September 30, 2006, the fair value of the derivatives and embedded derivatives were marked-to-market at each period end with a total of $260,000 credited to financing costs. On June 30, 2006, Laurus modified the terms of the convertible financing facility and removed the convertibility option, the interest adjustment clause and the conversion adjustment clause. In addition, the Registration Rights Agreement was modified so that the liquidated damages that may be charged for failure to file a registration statement at 2% per day shall no longer exceed 20% of the total debt owed to Laurus. Further, the Registration Rights Agreement was modified such that there must be an effective registration statement for the common stock issued upon the exercise of options and warrants since the convertibility option has been removed. We accounted for the modifications under EITF Issue No. 96-19, "Debtor's Accounting for a Modification or Exchange of Debt Instruments" and EITF Issue No. 05-07, "Accounting for Modifications to Conversion Options Embedded in Debt Instruments and Related Issues". We concluded that the modifications had a material impact on future cash flows and therefore resulted in extinguishment of the old debt facility and creation of a new debt facility. Using an effective rate of 20% the new debt facility was recorded at fair value of $2,350,000 resulting in a loss of $690,000 on extinguishment of debt based on the book value of the old facility of $1,660,000. Also, as the conversion right of the convertible financing facility was eliminated, the entire embedded derivative pertaining to the conversion option was reversed, resulting in a gain of $390,000. During the nine months ended September 30, 2005, we amortized $140,000 of the initial value of the derivatives and embedded derivatives attached to the Laurus Master Fund, Ltd. debt instruments. At September 30, 2005 the fair value of the derivatives and embedded derivatives were marked-to-market with a total of $530,000 credited to financing costs. INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INTEREST CHARGES AND INCOME TAXES For the nine months ended September 30, 2006, loss from continuing operations before interest charges and income taxes increased by $1,760,000 or 429% to a loss of $1,350,000 compared to income of $410,000 for the nine months ended September 30, 2005. INTEREST CHARGES For the nine months ended September 30, 2006, interest charges decreased by $820,000, or 65%, to $450,000 from $1,270,000 for the nine months ended September 30, 2005. This decrease is largely attributable to the reduced interest expense on the beneficial conversion feature recognized on convertible debt which was repaid in June 2005. Included in the interest charges for the nine months ended September 30, 2006 is $330,000 paid on the revolving facility and overadvance with Laurus Master Fund, Ltd., and $120,000 on long-term debt and bank charges. Included in the interest charges for the nine months ended September 30, 2005 is $1,000,000 related to the 12% senior secured convertible debentures, $110,000 paid on the receivable discount facility with Morrison Financial Services Limited, $70,000 paid on long-term debt and bank charges. Included in the interest charges for the nine months ended September 30, 2005 is the write off of the unamortized debt discount remaining on the 12% Senior Secured Convertible Debentures which were repaid in June 2005 in the amount of $500,000. Also included is $470,000 in beneficial conversion expense related to the 12% Senior Secured Convertible Debentures and $20,000 in interest paid on the debentures. The balance of $280,000 consists of interest paid to Morrison Financial Servcies, Ltd. on the receivable discount facility which was repaid in June 2005 and interest paid on long-term debt including Terry Lyons and capital leases. LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES For the nine months ended September 30, 2006, loss from continuing operations before income taxes increased by $940,000 or 110% to a loss of $1,800,000 compared to a loss of $860,000 in 2005. INCOME TAXES Income taxes for the nine months ended September 30, 2006 includes revaluation of the deferred tax liability of $107,711 which was offset by tax expenses of $20,000 income tax expense for 2005 was $95,000. LOSS FROM CONTINUING OPERATIONS Loss from continuing operations for the nine months ended September 30, 2006 increased by $760,000 or 79% to a loss of $1,720,000 compared to a loss of $960,000 for the nine months ended September 30, 2005. LOSS FROM DISCONTINUED OPERATIONS Operations of the technology, training and IT recruitment divisions have been reported as discontinued for the nine months ended September 30, 2006 and 2005. There was no technology revenue for the nine months ended September 30, 2006 and 2005. The net loss for the technology operations for the nine months ended September 30, was nil in 2006 and $5,000 in 2005. There was no revenue or income attributable to the training division for the nine months ended September 30, 2006 and 2005. There was no revenue to the IT recruitment division for the nine months ended September 30, 2006 and 2005. There was no loss or income attributable to the IT recruitment division for the nine months ended September 30, 2006 and there was a gain of $24,000 related to a tax credit for the nine months ended September 30, 2005. NET LOSS For the nine months ended September 30, 2006, net loss increased by $780,000 or 83% to a net loss of $1,720,000 compared to a net loss of $940,000 for the nine months ended September 30, 2005. LIQUIDITY AND CAPITAL RESOURCES With insufficient working capital from operations, our primary source of cash is a financing facility with Laurus Master Fund, Ltd. At September 30, 2006, the principal balance on the loan facility was $3,115,690. At September 30, 2006, we had cash of $110,000 and a working capital deficiency of $2,200,000. At September 30, 2006, we had a cash flow deficiency from operations of $930,000. At September 30, 2005 we had cash of $170,000 and a working capital deficiency of $200,000. At September 30, 2005, we had a cash flow deficiency from operations of $550,000. At September 30, 2006, we had a cash flow deficiency from investing activities of $1,200,000 related to cash paid for the acquisition of TMG in June 2006 net of cash acquired and related costs. At September 30, 2005, we had a cash flow deficiency from investing activities of $210,000 related to the purchase of property and equipment. At September 30, 2006 we had cash flow from financing activities of $2,110,000 largely attributable to proceeds from the revolving facility with Laurus of $590,000, a term note with Laurus of $1,400,000 and the issuance of promissory notes to the TMG vendors of $560,000 less deferred costs of $125,000 and long-term debt repayment of $315,000. At September 30, 2005, we had cash flow from financing activities of $720,000 attributable primarily to proceeds from the convertible financing facility with Laurus of $3,130,000 less deferred financing costs of $230,000 and debt repayment of $2,180,000. At September 30, 2006, we held a secured term loan in the amount of $1,400,000 with Laurus Master Fund, Ltd. The loan is payable monthly starting October 1, 2006 in the amount of $42,424 per month. The loan bears interest at an annual rate equal to the Wall Street Journal prime rate plus 2%. The loan matures June 30, 2009. On November 15, 2006, we executed an Omnibus Amendment No. 1 with Laurus Master Fund, Inc., whereby Laurus agreed to postpone the December and January principal payments on the term note to be paid instead on the Maturity Date of June 30, 2009. On September 30, 2006, we held five unsecured promissory notes to the shareholders of TMG totaling $559,750 with quarterly payments of $69,969 to start September 30, 2006. The notes bear interest at an annual rate equal to the Wall Street Journal prime rate and mature on June 30, 2008. At September 30, 2006, both parties agreed to defer the quarterly payments due September 30, 2006 and December 31, 2006 until such a time that the company's cash flow improves. In July 2006, we transferred a motor vehicle loan assumed as a result of the acquisition of TMG in the amount of $11,160 to a TMG employee. At September 30, 2006, we held various capital leases in the amount of $16,135 secured by property and equipment with various payment terms and interest rates ranging from 10-22%. These leases mature between February 2007 and July 2007. Although we believe that our current working capital and cash flows from continuing operations will be adequate to meet our anticipated cash requirements going forward, we have accrued liabilities and potential settlements of outstanding claims that may require additional funds. We will have to raise these funds through equity or debt financing. There can be no assurance that additional financing will be available at all or that if available, such financing will be obtainable on terms favorable to us and would not be dilutive. Despite our recurring losses and negative working capital, we believe that we have developed a business plan that, if successfully implemented, could 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 receivable discount facility, 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 the effectiveness of a registration statement registering the shares underlying the Laurus warrants which are subject to substantial uncertainties. Cash flow from operations for the next twelve months will depend, among other things, upon the effect of the current economic slowdown on our sales 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 raise additional financing, could have a material adverse effect on our liquidity position and capital resources, which may force us to curtail our operations. RECENT ACCOUNTING PRONOUNCEMENTS In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment of ARB No. 43". This statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not believe that the adoption of SFAS No. 151 will have a material impact, if any, on our results of operations or financial position as we do not hold inventory. In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67", which references the financial accounting and reporting guidance for real estate time-sharing transactions in AICPA Statement of Position (SOP) 04-2, "Accounting for Real Estate Time-Sharing Transactions". SFAS No. 152 is effective for years beginning after June 15, 2005, with restatements of previously issued financial statements prohibited. We do not believe that the adoption of SFAS No. 152 will have a material impact, if any, on our results of operations or financial position. In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29", effective for nonmonetary asset exchanges occurring in the fiscal year beginning January 1, 2006. This statement requires that exchanges of productive assets be accounted for at fair value unless fair value cannot be reasonably determined or the transaction lacks commercial substance. We do not believe that the adoption of SFAS No. 153 will have an impact, if any, on our results of operations or financial position. In December 2004, the FASB issued SFAS No. 123 (Revised), "Share-based Payment". This statement requires employers to expense costs related to share-based payment transactions with employees. With limited exceptions, SFAS No. 123 (Revised) requires that the fair value of share-based payments to employees be expensed over the period service is received. SFAS No. 123 (Revised) becomes effective for annual reporting periods that begin after December 15, 2005. Effective January 1, 2006, we adopted this standard using the modified prospective method of transition. This method requires that issued financial statements be restated based on the amounts previously calculated and reported in the pro forma footnote disclosures required by SFAS No. 123. SFAS No. 123 (Revised) allows the use of both closed form models (e.g., Black-Scholes Model) and open form models (e.g., lattice models) to measure the fair value of the share-based payment as long as that model is capable of incorporating all of the substantive characteristics unique to share-based awards. In accordance with the transition provisions of SFAS No. 123 (Revised), the expense attributable to an award will be measured in accordance with the company's measurement model at that award's date of grant. The total expense recorded in future periods will depend on several variables, including the number of shared-based awards that vest and the fair value of those vested awards. In May 2005, the FASB issued Statement No. 154, "Accounting Changes and Error Corrections", applying to all voluntary accounting principle changes as well as the accounting for and reporting of such changes. SFAS No. 154 requires voluntary changes in accounting principle be retrospectively applied to financial statements from previous periods unless such application is impracticable. SFAS No. 154 requires that changes in depreciation, amortization, or depletion methods for long-lived, non-financial assets must be accounted for as a change in accounting estimate due to a change in accounting principle. By enhancing the consistency of financial information between periods, the requirements of FASB 154 improves financial reporting. FASB 154 replaces APB Opinion No. 20 and FASB 3. FASB 154 carries forward many provisions of Opinion 20 and FASB 3 without change including those provisions related to reporting a change in accounting estimate, a change in reporting entity, correction of an error and reporting accounting changes in interim financial statements. FASB 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments" ("SFAS 155"). SFAS 155 allows any hybrid financial instrument that contains an embedded derivatives that otherwise would require bifurcation under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" to be carried at fair value in its entirety, with changes in fair value recognized in earnings. In addition, SFAS 155 requires that beneficial interests in securitized financial assets be analyzed to determine whether they are freestanding derivatives or contain an embedded derivative. SFAS 155 also eliminates a prior restriction on the types of passive derivatives that a qualifying special purpose entity is permitted to hold. SFAS 155 is applicable to new or modified financial instruments in fiscal years beginning after September 15, 2006, though the provisions related to fair value accounting for hybrid financial instruments can also be applied to existing instruments. Early adoption, as of the beginning of an entity's fiscal year, is also permitted, provided interim financial statements have not yet been issued. We are currently evaluating the potential impact, if any, that the adoption of SFAS 155 will have on our results of operations or financial position. In March 2006, the FASB issued SFAS 156, "Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140". This statement amends FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", with respect to the accounting for separately recognized servicing assets and servicing liabilities. This statement: (1) requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in any of the following situations: (a) a transfer of the servicer's financial assets that meets the requirements for sale accounting, (b) a transfer of the servicer's financial assets to a qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities in accordance with FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities", (c) an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates; (2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; (3) permits an entity to choose either of the following subsequent measurement methods for each class of separately recognized servicing assets and servicing liabilities: (a) Amortization method-Amortize servicing assets or servicing liabilities in proportion to and over the period of estimated net servicing income or net servicing loss and assess servicing assets or servicing liabilities for impairment or increased obligation based on fair value at each reporting date, or (b) Fair value measurement method-Measure servicing assets or servicing liabilities at fair value at each reporting date and report changes in fair value in earnings in the period in which the changes occur; (3) at its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity's exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value; and (5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. An entity should adopt this statement as of the beginning of its first fiscal year that begins after September 15, 2006. Earlier adoption is permitted as of the beginning of an entity's fiscal year, provided the entity has not yet issued financial statements, including interim financial statements, for any period of that fiscal year. The effective date of this Statement is the date an entity adopts the requirements of this statement. CRITICAL ACCOUNTING ESTIMATES AND 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 a 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 the 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 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 of a company, but did not control such company, we would account for these investments 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 investee'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 investee's net income or loss, to the extent of its investment or its guarantees of the investee's debt. At December 31, 2004, we wrote down our investments in non-related companies to nil. REVENUE RECOGNITION We recognize revenue under engineering service contracts when a contract has been executed, the contract price is fixed and determinable, delivery of services or products has occurred, and collection of the contract price is considered probable and can be reasonably estimated. Revenue is earned under time-and-materials, fixed-price and cost-plus contracts. We recognize revenue on time-and-materials contracts to the extent of billable rates times hours delivered, plus expenses incurred. For fixed price contracts within the scope of Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts (SOP 81-1), revenue is recognized on the percentage of completion method using costs incurred in relation to total estimated costs or upon delivery of specific products or services, as appropriate. For fixed price-completion contracts that are not within the scope of SOP 81-1, revenue is generally recognized as earned according to contract terms as the service is provided. We provide our customers with a number of different services that are generally documented through separate negotiated task orders that detail the services to be provided and the compensation for these services. Services rendered under each task order represent an independent earnings process and are not dependent on any other service or product sold. We recognize revenue on cost-plus contracts to the extent of allowable costs incurred plus a proportionate amount of the fee earned, which may be fixed or performance-based. We consider fixed fees under cost-plus contracts to be earned in proportion to the allowable costs incurred in performance of the contract, which generally corresponds to the timing of contractual billings. We record provisions for estimated losses on uncompleted contracts in the period in which those losses are identified. We consider performance-based fees under any contract type to be earned only when it can demonstrate satisfaction of a specific performance goal or it receive contractual notification from a customer that the fee has been earned. In all cases, we recognize revenue only when pervasive evidence of an arrangement exists services have been rendered, the contract price is fixed or determinable, and collection is reasonably assured. Contract revenue recognition inherently involves estimation. From time to time, facts develop that requires us to revise the total estimated costs or revenues expected. In most cases, these changes relate to changes in the contractual scope of the work, and do not significantly impact the expected profit rate on a contract. We record the cumulative effects of any revisions to the estimated total costs and revenues in the period in which the facts become known. CARRYING VALUE OF 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 upon the presence of indicators of impairment. 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 write-downs 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. Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. This statement requires us to evaluate the carrying value of 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 write-downs that could adversely affect our earnings. At December 31, 2005, we performed our annual impairment test for goodwill by first comparing the carrying value of the net assets to the fair value of the Technical Publications and Engineering unit. The fair value was determined to be less than the carrying value, and therefore a second step was performed to compute the amount of the impairment. In this process, a fair value for goodwill was estimated, based in part on the fair value of the operations, and was compared to its carrying value. The shortfall of the fair value below carrying value was $1,241,180 which represents the amount of goodwill impairment. During the fourth quarter 2005, conditions were present that clearly indicated an impairment of goodwill of TBM Technologies Inc., including adverse changes in legal factors and business climate as well as the projection of continued cash flow losses. As a result of these conditions, the full amount of the goodwill of $218,511 was written off. On an ongoing basis, absent any impairment indicators, we expect to perform a goodwill impairment test as of the end of the fourth quarter of each year. Effective Apri1, 2006, the Company acquired goodwill in the amount of $1,895,262 in connection to its acquisition of The Multitech Group Inc. which has been allocated to the Technical Publications and Engineering reporting unit. FOREIGN CURRENCY TRANSLATION The books and records of our Canadian operations are recorded in Canadian dollars. The financial statements are converted to US dollars as we have elected to report in US dollars consistent with Regulation S-X, Rule 3-20. The translation method used is the current rate method which is the method mandated by SFAS No. 52 where the functional currency is the foreign currency. Under the current method all assets and liabilities are translated at the current rate, stockholders' equity accounts are translated at historical rates and revenues and expenses are translated at average rates for the year. Due to the fact that items in the financial statements are being translated at different rates according to their nature, a translation adjustment is created. This translation adjustment has been included in accumulated other comprehensive income. 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. RISK FACTORS Investors should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones facing the Company. Additional risks not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following risks actually occurs, our business, financial condition or operating results could be seriously impaired. This section should be read in conjunction with the Financial Statements and Notes thereto, and Management's Discussion and Analysis or Plan of Operation contained in this report. If we are unable to compete effectively with existing or new competitors, the loss of our competitive position could result in price reductions, fewer customer orders, reduced revenues, reduced margins, reduced levels of profitability, and loss of market share. If we are unable to manage our inventory, we will not be able to satisfy customer demand. Our reliance on one or a few suppliers for inventory components could delay shipments and increase our costs. Our future operating results depend on our ability to purchase a sufficient amount of components to meet the demands of our customers. Since we may order components from suppliers in advance of receipt of customer orders for our products that include these components, we could face a material inventory risk. Our products may have quality issues that could adversely affect our sales and reputation. We are dependent on significant customers, as noted in Management's Discussion and Analysis. We depend on key employees and face competition in hiring and retaining qualified employees. Recent and proposed regulations related to equity compensation could adversely affect our ability to attract and retain key personnel. We expect our quarterly revenues, cash flows and operating results to fluctuate due to the large size and timing of some orders that can materially affect our financial statements from quarter to quarter, either obscuring or presenting trends that do or do not exist. This makes prediction of revenues, earnings and working capital for each financial period especially difficult and uncertain and increases the risk of unanticipated variations in quarterly results and financial condition. Our stock price can be volatile. Our stock price can be affected by many factors such as quarterly increases or decreases in our earnings, speculation in the investment community about our financial condition or results of operations, technological developments, or the loss of key management or technical personnel. RECENT EVENTS On November 15, 2006 we entered into an extension and amendment of the employment agreement with Declan A. French whereby he will continue to serve as our Chairman of the Board and Chief Executive Officer for a period of two years commencing November 28, 2006. The agreement shall continue upon a year-to-year basis unless terminated by either the company or Mr. French upon ninety days written notice and may be amended by the Compensation Committee of the Board of Directors as it deems necessary. Under the terms of the agreement, Mr. French will be paid a base salary of $200,000 and is eligible for a minimum bonus of $100,000 determined by the company's EBITDA (earnings before interest, taxes, depreciation and amortization) as a percentage of annual gross revenue. In the event of a change in control of the company, all stock options and warrants held by Mr. French shall become vested, accelerate and become immediately exercisable. In addition, we will be required to issue a number of shares of our common stock as equal to the lesser of 19% of the issued and outstanding or such number of shares as divided by $500,000. All shares issued to Mr. French under the terms of his employment agreement will have demand registration rights subject to the agreement of any senior lender with similar rights. Upon termination of the agreement for any reason other than for cause, Mr. French will be entitled to receive an amount equal to three years salary. On November 15, 2006, we executed an Omnibus Amendment No. 1 with Laurus Master Fund, Inc., whereby Laurus agreed to postpone the December and January principal payments on the Term Note to be paid instead on the Maturity Date of June 30, 2009. In addition, they agreed to extend the overadvance until December 31, 2007 with a repayment schedule beginning July 1, 2007. In consideration of these modifications, we issued 940,750 common stock purchase warrants to Laurus with an exercise price of $0.23 per share which expire on November 15, 2003. Laurus also agreed to waive any penalties for failure to file and effect a registration statement registering the shares underlying their common stock purchase warrants until March 1, 2007. ITEM 3. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This evaluation was done under the supervision and with the participation of the Company's Principal Executive Officer and Principal Financial Officer. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures are effective in gathering, analyzing and disclosing information needed to satisfy the Company's disclosure obligations under the Exchange Act. There were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls since the most recent evaluation of such controls. (b) Changes in Internal Controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls since the most recent evaluation of such controls. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company's business. Except for the following, the Company is currently not aware of nor has any knowledge of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results: On November 3, 2005, the Company terminated the service agreement of the vendors of TBM Technologies Inc., acquired on January 17, 2005, for what it believes is a material breach of the agreement by the vendors. The vendors are seeking termination pay from the Company in the amount of approximately $40,000. The Company filed a counterclaim for losses suffered as well as jeopardy to its reputation by the actions of the vendors. In November 2002, we sold certain assets of our training division to Thinkpath Training LLC. Pursuant to this agreement, Thinkpath Training LLC assumed certain liabilities including the property lease in New York for this division which expires August 31, 2006. In April 2006, we were notified by Thinkpath Training LLC that they had failed to meet their rent obligations and currently had rent arrears of approximately $80,000. The lessor filed a claim against Thinkpath Training LLC and us demanding that the rent arrears be paid and the premises vacated immediately. On June 1, 2006, a default judgement was awarded to the lessor and entered against the Company. On July 7, 2006, our motion to vacate the default judgement was denied. On July 27, 2006, the court agreed to our motion to renew and reargue our prior motion seeking to vacate the default judgement on August 23, 2006. Upon reargument on September 7, 2006, the court vacated the judgement and dismissed the petition. On September 21, 2006, we received notice from the lessor demanding payment of the current arrears of approximately $360,000 in unpaid rent and additional charges and its intent to commence legal proceedings against us in the event that such payment is not made. We continue to defend this claim vigorously. ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS During the three months ended September 30, 2006, we sold unregistered securities as described below. There were no underwriters involved in the transactions and there were no underwriting discounts or commissions paid in connection therewith, except as disclosed below. The purchasers of the securities in such transactions represented their intention to acquire the securities for investment purposes only and not with a view to or for sales in connection with any distribution thereof and appropriate legends were affixed to the certificates for the securities issued in such transactions. The purchasers of the securities in the transactions below were each sophisticated investors who were provided information about us and were able to bear the risk of loss of their entire investment. On July 1, 2006, we issued 162,000* shares of our common stock, no par value, with "piggyback" registration rights to Financial Media Relations, LLC, a California company, for the purpose of developing and implementing a marketing and investor relations program and the provision of business development and strategic advisory services. The term of the agreement is six months beginning July 1, 2006 and also includes a monthly cash fee of $5,000. On July 21, 2006, we issued 200,000* shares of our common stock to David Barnes, no par value, as director compensation. *Adjusted for reverse split of Company's stock (1:5000) on June 29, 2005. We believe all of the above issuances were exempt from registration pursuant to the exemption provided by Section 4(2) of the Securities Act. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS 10.52 Letter of Engagement between Thinkpath Inc. and Financial Media Relations, LLC dated July 7, 2005 10.53 Common Stock Purchase Warrant issued to Laurus Master Fund, Ltd. dated November 15, 2006 10.54 Omnibus Amendment No. 1 between Thinkpath Inc. and Laurus Master Fund, Ltd. dated November 15, 2006 10.55 Employment Agreement between Thinkpath Inc. and Laurus Master Fund, Ltd. dated November 15, 2006 Exhibit 31.1 Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2 Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 Certification by the Chief Executive Officer pursuant to 1350, as adopted pursuant to Sect. 906 of the Sarbanes-Oxley Act of 2002. Exhibit 32.2 Certification by the Chief Financial Officer pursuant to 1350, as adopted pursuant to Sect. 906 of the Sarbanes-Oxley Act of 2002. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THINKPATH INC. Dated: November 20, 2006 By: /s/ Declan French By: /s/ Kelly Hankinson --------------------- ----------------------- Declan French Kelly L. Hankinson Chief Executive Officer Chief Financial Officer EX-10.52 2 exh10-52.txt LETTER OF ENGAGEMENT EXHIBIT 10.52 Letter of Engagement Thinkpath, Inc. June 21, 2006 The following sets forth the agreement for the engagement of Financial Media Relations, LLC. ("FMR") by Company Name ("Thinkpath, Inc" or the "COMPANY"): TERM Six months, commencing as of July 1st 2006 and terminable thereafter by either party upon 30 days' prior written notice. OBJECTIVE The development and implementation of a proactive marketing program to increase the awareness of the Company and generate a significant increase in the liquidity and market capitalization. In addition, upon request, FMR will advise the Company in business development and strategic advisory services. THE PROGRAM FMR will structure and implement a marketing program designed to create extensive financial market and investor awareness for the Company to drive long-term shareholder support. The core drivers of the program will be to create institutional and retail buying in the Company's stock through a proactive sales and marketing program emphasizing technology-driven communications, coupled with 1-to-1 selling and leveraging the Company's image to attract additional long term investors and to create additional opportunities in M&A and Business Development. As share price is affected by various factors, FMR can give no assurance that the marketing program will result in an increase in the Company's stock price. FMR understands that during any period in which the Company is in "registration" for a public offering of securities under the Securities Act of 1933, and during the distribution of such securities, the Company's investor relations and marketing efforts will be severely limited. However, it will be the responsibility of the Company (with the advice of its securities counsel) to determining what investor relations and financial marketing efforts are permissible and non permissible during such periods, and FMR will follow the direction of the Company and its securities counsel. RESPONSIBILITIES In addition to marketing and financial public relations, FMR will assume the responsibilities of an in-house Investor Relations Officer for the Company on a full turnkey basis, including the generation of corporate and shareholder communications, retail and institutional investor contact and media. FMR will work in conjunction with the Company's management, securities counsel, investment bankers and auditors and under supervision of management. The content is as follows: o Campaign Development and Execution o Press Annnouncements: drafting, approval and distribution o Database Development and Management o Image Analysis: recommendations and implementation o Messaging: institutional and retail o Online presentations, drafting and production responsibilities o Website Overhaul - installation and maintenance of auto IR program o Email messaging: targets; Retail and Institutional / Other databases o Media including interactives and PowerPoints o Direct Mail: shareholder, media, XYZ relationship universe o Public Relations FEES $ 5,000.00 per month in cash and 162,000 shares of common stock The shares will be included in the first registration statement the Company files in 2006, which is expected within the next 60 days. Wiring information is set forth below. WIRE Bank One INSTRUCTIONS Silver King Branch 1650 Park Avenue Park City, UT 84060 Account Name: Financial Media Relations LLC Account Number: 669135188 ABA # 124001545 MARKETING To support the financial marketing program, the BUDGET Company acknowledges that it will incur certain third party marketing costs. Prior to the execution of this agreement, FMR will prepare a detailed three-month budget setting forth the approximate costs associated with the campaign. FMR will not incur these costs without the approval of the Company. At FMR's request, the Company will pay these costs directly to the third party. -2- If Consultant introduces a merger or a combination of sorts with another entity to the Company, the Consultant shall be entitled to a finder's fee, and the Company shall enter into an agreement with the Consultant respecting the payment of a finder's fee. Company Obligations 1. Corporation agrees to assist consultant, as requested, in the preparation of the corporate profile report. 2. Corporation will, if requested, provide or arrange to be provided to Consultant or its designee, suitable accounting information as may be necessary to complete the corporate "due diligence" necessary to compile an accurate and detailed profile report on the company. 3. Corporation agrees to provide Consultant with cetin business and other material information about the Company, its products, services, contacts, pending litigation, patents, trademarks and other such business matter which Consultant may request an which Consultant considers to be important for the completion of this contract. 4. Corporation agrees, during the term of this agreement, to notify Consultant of any changes in the status or nature of its business, any pending litigation, or any other developments that may require further disclosure. 5. Corporation will provide weekly DTC sheets showing the daily trading o stock to Consultant. 6. Corporation will provide the NOBO list to Consultant monthly. INDEMNIFICATION The Company agrees to provide the indemnification set forth in "Exhibit A" attached hereto. CORPORATE The obligations of FMR are solely corporate obligations, OBLIGATIONS and no officer, director, employee, agent, shareholder or controlling person of FMR shall be subject to any personal liability whatsoever to any person, nor will any such claim be asserted by or on behalf of any other party to this Agreement. -3- ADDITIONAL If FMR is called upon to render services directly or SERVICES indirectly relating to the subject matter of this Agreement, beyond the services contemplated above (including, but not limited to, production of documents, answering interrogatories, giving depositions, giving expert or other testimony, whether by agreement, subpoena or otherwise), the Company shall pay to FMR a reasonable hourly rates for the persons involved for the time expended in rendering such services, including, but not limited to, time for meetings, conferences, preparation and travel, and all related costs and expenses and the reasonable legal fees and expenses of FMR's counsel. SURVIVAL OF The Sections entitled "Indemnification" (including "Exhibit CERTAIN A"), "Corporate Obligation" and " Additional Services" PROVISIONS shall survive any termination of this Agreement and FMR's engagement pursuant to this Agreement. In addition, such termination shall not terminate FMR's right to compensation accrued through the date of termination and for reimbursement of expenses. Any purported termination of this Agreement by the Company prior to the end of the Initial Term, or any termination by FMR as a result of non-payment or other material breech by the Company, shall not terminate FMR's right to the monthly fee through the entire Initial Term (as FMR's time and commitment are expected to be greater in the first part of its engagement). ATTORNEYS' FEES If any action or proceeding is brought to enforce or interpret any provision of this Agreement, the prevailing party shall be entitled to recover as an element of its costs, and not its damages, reasonable attorneys' fees to be fixed by the court. GOVERNING LAW Utah, without giving effect to the principles of conflicts of law thereof. -4- Agreed and Accepted: Thinkpath, Inc. Financial Media Relations LLC 201 Westcreek Boulevard 1912 Sidewinder Drive Brampton ON L6T5S6 Canada Suite 200 A Park City, Utah 84060 By /S/ DECLAN FRENCH By /S/ SCOTT MAC CAUGHERN ----------------- ---------------------- Name: Declan French Name: Scott Mac Caughern Position:CEO Position: Managing Member -5- EXHIBIT A INDEMNIFICATION PROVISIONS Thinkpath, Inc. (the "COMPANY"), unconditionally, absolutely and irrevocably agrees to and shall defend, indemnify and hold harmless Financial Media Relations LLC (" FMR") and its past, present and future directors, officers, affiliates, counsel, shareholders, employees, agents, representatives, contractors, successors and assigns (FMR and such persons are collectively referred to as the "INDEMNIFIED PERSONS") from and against any and all losses, claims, costs, expenses, liabilities and damages (or actions in respect thereof) arising out of or related to this Agreement, and any actions taken or omitted to be taken by an Indemnified Party in connection with this Agreement ("INDEMNIFIED CLAIM"). Without limiting the generality of the foregoing, such indemnification shall cover losses, claims, costs, expenses, liabilities and damages imposed on or incurred by the Indemnified Persons, directly or indirectly, relating to, resulting from, or arising out of any misstatement of fact or omission of fact, or any inaccuracy in any information provided or approved by the Company in connection with the engagement, including information in an SEC filing, press release, website, marketing material or other document, whether or not the Indemnified persons relied thereon or had knowledge thereof. In addition, the Company agrees to reimburse the Indemnified Persons for legal or other expenses reasonable incurred by them in respect of each Indemnified Claim at the time such expenses are incurred. Notwithstanding the foregoing, the Company shall not be obligated under the foregoing for any loss, claim, liability or damage which is finally determined to have resulted primarily from the willful misconduct, bad faith or gross negligence of the Indemnified Person. If any proceeding shall be brought or asserted under these provisions against an Indemnified Person in respect of which indemnity may be sought under these provisions from the Company, the Indemnified Person shall give prompt written notice of such proceeding to the Company who shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Person (or if more than one, FMR), and the payment of all reasonable expenses; provided that any delay or failure to notify the Company shall relieve the Company of its obligations hereunder only to the extent, if at all, that it is materially prejudiced by reason of such delay or failure. In no event shall any Indemnified Person be required to make any expenditure or bring any cause of action to enforce the Company's obligations and liability under the pursuant to the indemnifications set forth in these provisions. The Indemnified Person shall have the right to employ separate counsel in any of the foregoing proceedings and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Person unless; (i) the Company has agreed to pay such fees and expensed; or (ii) the indemnified Person shall in good faith determine that there exists actual or potential conflicts of interest which make representation by the same counsel inappropriate and the Company refuses to provide separate counsel. In the event that the Company, within five days after notice of any such proceeding, fails to assume the -6- defense thereof, the Indemnified Persons shall have the right to undertake the defense, compromise or settlement of such proceeding, for the account of the Company, subject to the right of the Company to assume the defense of such proceeding with counsel reasonably satisfactory to the Indemnified Person at any time prior to the settlement, compromise or final determination thereof by reimbursing the Indemnified Person for all fees and costs incurred to date. Anything in these provisions to the contrary notwithstanding, the Company shall not, without the prior written consent of FMR (if FMR is an Indemnified Person) or the Indemnified Person if FMR is not an Indemnified Person settle or compromise any proceeding or consent to the entry of any judgment with respect to any proceeding; provided, however, that the Company may, consent to the entry of any judgment with respect to any proceeding; provided, however, that the Company may, without the Indemnified Person's prior written consent, settle or compromise any such proceeding that requires solely the payment of money damages by the Indemnified Person and that includes as an unconditional term thereof, the release by the claimant or the plaintiff of the Indemnified Person from all liability in respect of such proceeding. -7- EX-10.53 3 exh10-53.txt COMMON STOCK PURCHASE WARRANT EXHIBIT 10.53 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THINKPATH INC. THAT SUCH REGISTRATION IS NOT REQUIRED. Right to Purchase up to 940,750 Shares of Common Stock of Thinkpath Inc. (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT No. _________________ Issue Date: November 15, 2006 THINKPATH INC., an Ontario corporation (the "Company"), hereby certifies that, for value received, LAURUS MASTER FUND, LTD., or assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company (as defined herein) from and after the Issue Date of this Warrant and at any time or from time to time before 5:00 p.m., New York time, through the close of business November 15, 2013 (the "Expiration Date"), up to 940,750 fully paid and nonassessable shares of Common Stock (as hereinafter defined), no par value per share, at the applicable Exercise Price per share (as defined below). The number and character of such shares of Common Stock and the applicable Exercise Price per share are subject to adjustment as provided herein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Thinkpath Inc. and any person or entity which shall succeed, or assume the obligations of, Thinkpath Inc. hereunder. (b) The term "Common Stock" includes (i) the Company's Common Stock, no par value per share; and (ii) any other securities into which or for which any of the securities described in the preceding clause (i) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. (d) The "Exercise Price" applicable under this Warrant shall be a price of $0.23 per share. 1. EXERCISE OF WARRANT. 1.1 NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the date hereof through and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, by delivery of an original or fax copy of an exercise notice in the form attached hereto as Exhibit A (the "Exercise Notice"), shares of Common Stock of the Company, subject to adjustment pursuant to Section 4. 1.2 FAIR MARKET VALUE. For purposes hereof, the "Fair Market Value" of a share of Common Stock as of a particular date (the "Determination Date") shall mean: (a) If the Company's Common Stock is traded on the American Stock Exchange or another national exchange or is quoted on the National or Capital Market of The Nasdaq Stock Market, Inc. ("Nasdaq"), then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date. (b) If the Company's Common Stock is not traded on the American Stock Exchange or another national exchange or on the Nasdaq but is traded on the NASD Over The Counter Bulletin Board, then the mean of the average of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date. (c) Except as provided in clause (d) below, if the Company's Common Stock is not publicly traded, then as the Holder and the Company agree or in the absence of agreement by arbitration in accordance with the rules then in effect of the American Arbitration Association, before a single arbitrator to be chosen from a panel of persons qualified by education and training to pass on the matter to be decided. (d) If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of the Warrant are outstanding at the Determination Date. 1.3 COMPANY ACKNOWLEDGMENT. The Company will, at the time of the exercise of this Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. -2- 1.4 TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust company shall have been appointed as trustee for the holders of this Warrant pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 2. PROCEDURE FOR EXERCISE. 2.1 DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares in accordance herewith. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise. 2.2 EXERCISE. (a) Payment may be made either (i) in cash by wire transfer of immediately available funds or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of this Warrant, or shares of Common Stock and/or Common Stock receivable upon exercise of this Warrant in accordance with the formula set forth in subsection (b) below, or (iii) by a combination of any of the foregoing methods, for the number of Common Shares specified in such Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the Holder per the terms of this Warrant) and the Holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein. (b) Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Exercise Notice in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: -3- X= Y(A-B) ------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under this Warrant or, if only a portion of this Warrant is being exercised, the portion of this Warrant being exercised (at the date of such calculation) A = the Fair Market Value of one share of the Company's Common Stock (at the date of such calculation) B = the Exercise Price per share (as adjusted to the date of such calculation) [Notwithstanding anything to the contrary set forth in Section 2.2(a) above, to the extent that a registration statement registering all the shares of Common Stock of the Company issuable upon exercise of this Warrant has been declared effective by the Securities and Exchange Commission and remains effective as of the date of the proposed exercise set forth in an Exercise Notice, the Holder shall upon such proposed exercise, make payment to the Company of each respective Exercise Price set forth in such Exercise Notice in cash by wire transfer of immediately available funds or by certified or official bank check only.] 3. EFFECT OF REORGANIZATION, ETC.; ADJUSTMENT OF EXERCISE PRICE. 3.1 REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the Holder, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4. 3.2 DISSOLUTION. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, concurrently with any distributions made to holders of its Common Stock, shall at its expense deliver or cause to be delivered to the Holder the stock and other securities and property (including cash, where applicable) receivable by the Holder pursuant to Section 3.1, or, if the Holder shall so instruct the Company, to a bank or trust company specified by the Holder and having its principal office in New York, NY as trustee for the Holder. -4- 3.3 CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4. In the event this Warrant does not continue in full force and effect after the consummation of the transactions described in this Section 3, then the Company's securities and property (including cash, where applicable) receivable by the Holder will be delivered to the Holder or the Trustee as contemplated by Section 3.2. 4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock or any preferred stock issued by the Company, (b) subdivide its outstanding shares of Common Stock, (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Exercise Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4. The number of shares of Common Stock that the holder shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be adjusted to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Exercise Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Exercise Price in effect on the date of such exercise (taking into account the provisions of this Section 4). Notwithstanding the foregoing, in no event shall the Exercise Price be less than the par value of the Common Stock. -5- 5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of this Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the holder and any Warrant agent of the Company (appointed pursuant to Section 11 hereof). 6. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANT. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of this Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of this Warrant. 7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor") in whole or in part. On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the "Transferor Endorsement Form") and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, which shall include, without limitation, a legal opinion from the Transferor's counsel (at the Company's expense) that such transfer is exempt from the registration requirements of applicable securities laws, the Company at its expense (but with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. 8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 9. REGISTRATION RIGHTS. The Holder has been granted certain registration rights by the Company. These registration rights are set forth in a Registration Rights Agreement entered into by the Company and Holder dated as of the date hereof, as the same may be amended, modified and/or supplemented from time to time. -6- 10. MAXIMUM EXERCISE. Notwithstanding anything herein to the contrary, in no event shall the Holder be entitled to exercise any portion of this Warrant in excess of that portion of this Warrant upon exercise of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its Affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unexercised portion of the Warrant or the unexercised or unconverted portion of any other security of the Holder subject to a limitation on conversion analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the exercise of the portion of this Warrant with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its Affiliates of any amount greater than 4.99% of the then outstanding shares of Common Stock (whether or not, at the time of such exercise, the Holder and its Affiliates beneficially own more than 4.99% of the then outstanding shares of Common Stock). As used herein, the term "Affiliate" means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act. For purposes of the proviso to the second preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The limitations set forth herein (x) may be waived by the Holder upon provision of no less than sixty-one (61) days prior notice to the Company and (y) shall automatically become null and void following notice to the Company upon the occurrence and during the continuance of an Event of Default (as defined in the Security Agreement dated as of the date hereof among the Holder, the Company and various subsidiaries of the Company (as amended, modified, restated and/or supplemented from time to time, the "Security Agreement")). 11. WARRANT AGENT. The Company may, by written notice to the each Holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 12. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 13. NOTICES, ETC. All notices and other communications from the Company to the Holder shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company an address, then to, and at the address of, the last Holder who has so furnished an address to the Company. 14. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS WARRANT SHALL BE BROUGHT ONLY IN STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT THE HOLDER MAY CHOOSE TO WAIVE THIS PROVISION AND BRING AN ACTION OUTSIDE THE STATE OF NEW YORK. The individuals executing this Warrant on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorneys' fees and costs. In the event that any provision of this -7- Warrant is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Warrant. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision hereof. The Company acknowledges that legal counsel participated in the preparation of this Warrant and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Warrant to favor any party against the other party. 15. JUDGMENT CURRENCY. 15.1 If for the purpose of obtaining or enforcing judgment against the Company in any court in any jurisdiction it becomes necessary to convert into any other currency (such other currency being hereinafter in this Section 15 referred to as the "Judgment Currency") an amount due in US dollars under this Warrant, the conversion shall be made at the Exchange Rate prevailing on the business day immediately preceding: (a) the date actual payment of the amount due, in the case of any proceeding in the courts of New York or in the courts of any other jurisdiction that will give effect to such conversion being made on such date: or (b) the date on which the foreign court determines, in the case of any proceeding in the courts of any other jurisdiction (the date as of which such conversion is made pursuant to this Section 15.1(b) being hereinafter referred to as the "Judgment Conversion Date") 15.2 If in the case of any proceeding in the court of any jurisdiction referred to in Section 15.1 above, there is a change in the Exchange Rate prevailing between the Judgment Conversion Date and the date of actual payment of the amount due, the applicable party shall pay such adjusted amount as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the Exchange Rate prevailing on the date of payment, will produce the amount of US dollars which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial order at the Exchange Rate prevailing on the Judgment Conversion Date. 15.3 Any amount due from the Company under this provision shall be due as a separate debt and shall not be affected by judgment being obtained for any other amounts due under or in respect of this Warrant. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS] -8- IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. THINKPATH INC. WITNESS: By: /s/ Declan French ------------------ Name: Declan French /s/ Tracy McKay Title: Chief Executive Officer - --------------- -9- EXHIBIT A FORM OF SUBSCRIPTION (To Be Signed Only On Exercise Of Warrant) TO: Thinkpath Inc. 201 Westcreek Boulevard Brampton, Ontario, Canada L6T 5S6 Attention: Chief Financial Officer The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): ________ ________ shares of the common stock covered by such warrant; or ________ the maximum number of shares of common stock covered by such warrant pursuant to the cashless exercise procedure set forth in Section 2. The undersigned herewith makes payment of the full Exercise Price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): ________ $__________ in lawful money of the United States; and/or ________ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or ________ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2.2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2. The undersigned requests that the certificates for such shares be issued in the name of, and delivered to ________________________________________ whose address is ---------------------------------------------------------------. The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act") or pursuant to an exemption from registration under the Securities Act. Dated: --------------------- ---------------------------------- (Signature must conform to name of holder as specified on the face of the Warrant) Address: -------------------------- -------------------------- -10- EXHIBIT B FORM OF TRANSFEROR ENDORSEMENT (To Be Signed Only On Transfer Of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of Thinkpath Inc. into which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of Thinkpath Inc. with full power of substitution in the premises. PERCENTAGE NUMBER TRANSFEREES ADDRESS TRANSFERRED TRANSFERRED - ----------- ------- ----------- ----------- Dated: --------------------- ---------------------------------- (Signature must conform to name of holder as specified on the face of the Warrant) Address: -------------------------- -------------------------- SIGNED IN THE PRESENCE OF: ---------------------------------- (Name) ACCEPTED AND AGREED: [TRANSFEREE] - ---------------------------------- (Name) -11- EX-10.54 4 exh10-54.txt OMNIBUS ADMENDMENT NO.1 EXHIBIT 10.54 OMNIBUS AMENDMENT NO. 1 This Omnibus Amendment No. 1 (this "AMENDMENT"), dated as of November 15, 2006, is entered into by and between THINKPATH, INC., an Ontario corporation (the "PARENT"), THINKPATH, INC., an Ohio corporation ("THINKPATH-OH"), THINKPATH OF MICHIGAN, INC., a Michigan corporation (the "THINKPATH-MI"), THINKPATH TECHNICAL SERVICES, INC., an Ohio corporation ("THINKPATH TECHNICAL" and together with the Parent, Thinkpath-OH and Thinkpath-MI, the "COMPANIES" and each, a "COMPANY") and LAURUS MASTER FUND, LTD., a Cayman Islands company ("LAURUS"), for the purpose of amending the terms of (i) the Overadvance Side Letter, dated June 30, 2006 by and among each Company and Laurus (as amended, modified or supplemented from time to time, the "OVERADVANCE SIDE LETTER"), (ii) the Secured Term Note issued by the Companies as of June 30, 2006 to Laurus in the initial face amount of $1,400,000 (as amended, modified or supplemented from time to time, the "TERM NOTE") pursuant to the terms of the Security Agreement, dated as of June 30, 2006, by and among each Company and Laurus (as amended, modified or supplemented from time to time, the "SECURITY AGREEMENT"), and, together with the Overadvance Side Letter, the Term Note and each other Ancillary Agreement as defined in the Security Agreement, the "LOAN Documents"). Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Term Note and Security Agreement, as applicable. WHEREAS, each Company and Laurus have agreed to make certain changes and/or modifications to the Overadvance Side Letter, the Term Note and the Security Agreement as set forth herein. NOW, THEREFORE, in consideration of the above, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: FOREBEARANCE 1. Laurus and each Company hereby agree that the Companies shall not be required to pay the principal portion of any Monthly Amount (as defined in the Term Note) due on the first business day of December 2006 and January 2007 on such dates (collectively, the "POSTPONED PRINCIPAL"); PROVIDED THAT, the Postponed Principal (i.e. $84,848.48) shall be paid in full on the Maturity Date (as defined in the Term Note), together with all other amounts due and payable on such date under the Security Agreement and the Ancillary Agreements. AMENDMENTS 2. The first paragraph of the Overadvance Side Letter is hereby amended by (i) deleting the penultimate sentence of such first paragraph in its entirety and inserting the following new sentence in lieu thereof: "Subject to satisfaction of the Overadvance Conditions, during the Period (as defined below) the maximum aggregate outstanding principal amount of the Overadvance (the "MAXIMUM PERIODIC OVERADVANCE AMOUNT") shall not exceed such amount as set forth on Schedule A hereto opposite the "Period" during which time such determination is made (the "APPLICABLE PERIOD")", (ii) inserting the following text at the end of the first paragraph thereof: "At no time shall the principal amount outstanding under the Revolving Note (including, without limitation, the outstanding Overadvance which shall not at any time exceed the applicable Maximum Periodic Overadvance Amount) exceed $3,500,000". 3. The second paragraph of the Overadvance Side Letter is hereby amended by (i) deleting the text "for a period of 180 days from the date hereof (the "PERIOD")" appearing in such second paragraph and inserting the text "during the period commencing on June 30, 2006 through and including December 31, 2007 (the "PERIOD")". 4. The third paragraph of the Overadvance Side Letter is hereby deleted in its entirety and the following new paragraph inserted in lieu thereof: "The Companies hereby each acknowledge and agree that Laurus' obligation to fund the Initial Overadvance Amount and each permitted reborrowing thereof up to the Maximum Overadvance Amount shall, at the time of such making of such Overadvance or reborrowing, and immediately after giving effect thereto, be subject to the satisfaction of the following conditions (the "OVERADVANCE CONDITIONS"): (i) no Event of Default shall exist and be continuing as of such date; (ii) all representations, warranties and covenants made by the Companies in connection with the Security Agreement and the Ancillary Agreements shall be true, correct and complete as of such date; and (iii) the Companies and their respective Subsidiaries shall have taken all action necessary to grant Laurus "control" over all of the Companies' and their respective Subsidiaries' Deposit Accounts (the "CONTROL ACCOUNTS"), with any agreements establishing "control" to be in form and substance satisfactory to Laurus. "Control" over such Control Accounts shall be released upon the indefeasible repayment in full and termination of the Overadvance (together with all accrued interest and fees which remain unpaid in respect thereof)." 5. The Overadvance Side Letter is hereby further amended by inserting "Schedule A" in the form attached hereto as Annex A to the end of the Overadvance Side Letter. ADDITIONAL WARRANT 6. The Parent will, on the date hereof, issue a seven year warrant (the "ADDITIONAL WARRANT") to Laurus to purchase 940,750 shares of the common stock of the Parent with an exercise price of $0.23 per share, such Additional Warrant to be in the form attached hereto as Exhibit A. The Parent further agrees to file a Registration Statement (as defined in the Registration Rights Agreement), to register the shares of Common Stock that may be issued upon exercise of the Additional Warrant upon the earlier to occur of (x) the 30th day following the date upon which the SEC has declared effective each Registration Statement filed by the Company as of the date hereof for the benefit of Laurus as reseller and (y) the 90th day following the date hereof (the "Filing Date"). For the avoidance of date, the "Filing Date" shall be deemed a Filing Date as defined in the Registration Rights Agreement. -2- MISCELLANEOUS 7. This Amendment shall be effective as of the date first above written (the "AMENDMENT EFFECTIVE DATE") on the date when (i) each of the Companies and Laurus shall have duly executed and each of the Companies shall have delivered to Laurus their respective counterparts to this Amendment and (ii) the Parent shall have duly executed and delivered to Laurus the Additional Warrant. 8. Except as specifically set forth in this Amendment, there are no other amendments, modifications or waivers to the Loan Documents, and all of the other forms, terms and provisions of the Loan Documents remain in full force and effect. 9. The Parent and, to the extent applicable, each of the other Companies hereby represent and warrant to Laurus that (i) no Event of Default exists on the date hereof, (ii) on the date hereof, all representations, warranties and covenants made by the Parent and/or such other Companies, as applicable, in connection with the Loan Documents are true, correct and complete and (iii) on the date hereof, all of the Parent's, the other Companies' and their respective Subsidiaries' covenant requirements have been met. 10. From and after the Amendment Effective Date, all references in the Loan Documents, the other Ancillary Agreements to any Loan Document shall be deemed to be a reference to such Loan Document as modified hereby. 11. This Amendment shall be binding upon the parties hereto and their respective successors and permitted assigns and shall inure to the benefit of and be enforceable by each of the parties hereto and its successors and permitted assigns. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. * * * * -3- IN WITNESS WHEREOF, each of the Companies and Laurus have caused this Amendment to be effective and signed in its name effective as of the date set forth above. THINKPATH INC., AN ONTARIO CORPORATION By:/S/ DECLAN FRENCH ---------------------------------------- Name: Declan French Title: Chief Executive Officer THINKPATH INC., AN OHIO CORPORATION By:/S/ DECLAN FRENCH ---------------------------------------- Name: Declan French Title: Chief Executive Officer THINKPATH OF MICHIGAN INC., A MICHIGAN CORPORATION By:/S/ DECLAN FRENCH ---------------------------------------- Name: Declan French Title: Chief Executive Officer THINKPATH TECHNICAL SERVICES INC., AN OHIO CORPORATION By:/S/ DECLAN FRENCH ---------------------------------------- Name: Declan French Title: Chief Executive Officer LAURUS MASTER FUND, LTD. By: /S/ EUGENE GRIN --------------------------------------- Name: Eugene Grin Title: Director -4- ANNEX A "Schedule A - --------------------------------- ----------------------- MAXIMUM PERIODIC OVERADVANCE AMOUNT PERIOD - --------------------------------- ----------------------- - --------------------------------- ----------------------- June 30, 2006 through and $1,500,000 including November 14, 2006 - --------------------------------- ----------------------- - --------------------------------- ----------------------- November 15, 2006 through and $1,542,424.24 including June 30, 2007 - --------------------------------- ----------------------- - --------------------------------- ----------------------- July 1, 2007 through and $1,442,424.24 including August July 30, 2007 - --------------------------------- ----------------------- - --------------------------------- ----------------------- August 1, 2007 through and $1,342,424.24 including August 31, 2007 - --------------------------------- ----------------------- - --------------------------------- ----------------------- September 1, 2007 through and $1,242,424.24 including September 30, 2007 - --------------------------------- ----------------------- - --------------------------------- ----------------------- October 1, 2007 through and $1,142,424.24 including October 31, 2007 - --------------------------------- ----------------------- - --------------------------------- ----------------------- November 1, 2007 through and $1,042,424.24 including November 30, 2007 - --------------------------------- ----------------------- - --------------------------------- ----------------------- December 1, 2007 through and $942,424.24 including December 30, 2007 - --------------------------------- ----------------------- - --------------------------------- ----------------------- December 31, 2007 $0 - --------------------------------- ----------------------- -5- EXHIBIT A FORM OF ADDITIONAL WARRANT -6- EX-10.55 5 exh10-55.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS AGREEMENT ("Agreement") is made and entered into, as of this 15thday of November, 2006 ("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 201 Westcreek Blvd., Brampton, Ontario, Canada, L6T 5S6. W I T N E S S E T H WHEREAS, Employer desires to continue the employ of Executive, and Executive desires to continue to be so 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. Throughout the duration 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 three (3) 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 for "Cause" as determined by the Board of Directors of Employer. For purposes of this Agreement, "Cause" for termination of Executive's employment shall include (i) if Executive is convicted of, pleads guilty to, or confesses to any felony or indictable offence or any act of fraud, or misappropriation or embezzlement with regard to Employer, (ii) 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, (iii) if Executive violates any of the provisions contained in Section 4 of this Agreement and does not, within thirty (30) days after receiving written notice from Employer specifically outlining the alleged violation(s) by the Executive, cure the violation(s); (iv) 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, and does not, within thirty (30) days after receiving written notice from Employer specifically outlining the alleged violation(s) by the Executive, cure the violation(s). 2.2 SUCCESSIVE TERMS. After the Initial Term, this Agreement shall continue on 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 a 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 two hundred thousand United States dollars (US$200,000.00) 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 two hundred thousand United States dollars (US$200,000.00) (the "Successive Terms Salary"). The Salary and Successive Terms Salary shall be paid to Executive in bi-weekly 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 within ninety (90) days after the end of each calendar year, and shall be binding 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). (vi) Upon written notice from Executive (the "Demand Notice") Employer agrees to register on one occasion all or any portion of the common stock issued at Employer's discretion for the performance bonus, provided that Larus Master Fund Ltd. or any subsequent party with similar rights to Larus Master Fund Ltd., has no objection to such registration. Employer will file a new registration statement within 60 days after receipt of the Demand Notice and use its best efforts to have such registration statement declared effective as soon as possible thereafter. (c) VACATION. Executive shall be entitled to receive six (6) weeks paid vacation during each year of employment to be taken at such times and in such periods as shall not interfere with the duties required to be rendered by Executive hereunder. -3- (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. (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; or (2) Employer consummates a merger in which it is not the surviving entity; or (3) All or substantially all of Employer's assets are sold; or (4) Employer's shareholders approve the dissolution or liquidation of Employer; 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: -4- (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 (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 OTC Bulletin Board or the pink sheets) for the fifteen (15) trading days immediately preceding the effective date of the Change in Control. (iv) Upon written notice from Executive (the "Demand Notice") Employer agrees to register on one occasion all or any portion of the shares of the Employer's common stock issued to Executive by Employer upon the effective date of the Change in Control, provided that Larus Master Fund Ltd. or any subsequent party with similar rights to Larus Master Fund Ltd., has no objection to such registration. Employer will file a new registration statement within 60 days after receipt of the Demand Notice and use its best efforts to have such registration statement declared effective as soon as possible thereafter. (g) AUTOMOBILE ALLOWANCE. During the Term, Employer shall pay Executive the equivalent of 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 any reason other than 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. In addition, upon the termination of this Agreement for any reason other than for Cause, Executive shall be entitled to receive an amount equal to three (3) years Salary. The said three (3) years of Salary shall be payable to Executive by Employer as a lump sum amount or by continuing bi-weekly payments (as per paragraph 3.1(a) herein) or by a combination of lump sum payment and continuing bi-weekly payments at the sole discretion of Employer. 3.3 INDEMNITY BY EXECUTIVE. Employer and Executive acknowledge that all amounts owing to Executive pursuant to this Agreement whilst it is still in force are paid to Executive's Family Trust. In the event that any government determines that this method of payment is not acceptable and levies a fine, penalty, interest or other payment requirement, including but not limited to Income Tax, Canada Pension Plan, Employment Insurance, Employer Health Tax, Goods and Services Tax or any United States equivalent, Executive agrees to be personally responsible for any and all such amounts that he and/or Employer are obliged to pay and agrees to indemnify and save harmless Employer from any claims made against it with respect to the foregoing. -5- SECTION 4. COVENANTS OF EXECUTIVE 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. (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, Successive Terms and thereafter: -6- (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 and Successive Terms 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. (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 work "made in the course of employment" (as defined in the COPYRIGHT ACT, R.S., 1985, c. C-42) 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. -7- 4.3 NON-SOLICITATION AND NON-COMPETITION. Executive hereby agrees that Executive will not, during the Term and Successive Terms and for a period of eighteen (18) months following the termination of this agreement for any reason, 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. 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: -8- EMPLOYER: Thinkpath Inc. -------- 201 Westcreek Blvd. Brampton, Ontario, Canada, L6T 5S6 Telephone: (905) 460-3042 Facsimile: (905) 460-3050 Attention: Secretary WITH A COPY TO: Heifetz, Crozier, Law ------- Barristers & Solicitors 10 King Street East, Sixth Floor Toronto, Ontario, M5C 1C3 Telephone: (416) 863-1717 ext. 312 Facsimile: (416) 368-3133 Attention: Timothy J. Law 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 its respective successors and assigns, and Executive, and Executive's executors, administrators, personal representatives, heirs, and legatees. 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 arbitrator(s) 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. -9- 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. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the 15th day of November, 2006 THINKPATH INC. /s/ Kelly Hankinson -------------------------------- I have the authority to bind the corporation Name: Kelly Hankinson Title: Chief Financial Officer and Secretary /s/ Tracy McKay /s/ Declan French - -------------------------------- -------------------------------- Witness Declan A. French Name: Tracy McKay -10- EX-31.1 6 exh31-1.txt EXHIBIT 31.1 THINKPATH INC. CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Declan French, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Thinkpath Inc. for the period ending September 30, 2006; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this quarterly report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: November 20, 2006 /S/ DECLAN FRENCH - ----------------- Declan French Chief Executive Officer EX-31.2 7 exh31-2.txt EXHIBIT 31.2 THINKPATH INC. CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Kelly Hankinson, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Thinkpath Inc. for the period ending September 30, 2006; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this quarterly report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: November 20, 2006 /S/ KELLY HANKINSON - ------------------- Kelly Hankinson Chief Financial Officer EX-32.1 8 exh32-1.txt EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Declan French, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Thinkpath Inc. on Form 10-QSB for the fiscal quarter ended September 30, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-QSB fairly presents in all material respects the financial condition and results of operations of Thinkpath Inc. Date: November 20, 2006 By: /S/ DECLAN FRENCH ----------------- Name: Declan French Title: Chief Executive Officer EX-32.2 9 exh32-2.txt I, Kelly Hankinson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Thinkpath Inc. on Form 10-QSB for the fiscal quarter ended September 30, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-QSB fairly presents in all material respects the financial condition and results of operations of Thinkpath Inc. Date: November 20, 2006 By: /S/ KELLY HANKINSON ------------------- Name: Kelly Hankinson Title: Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Thinkpath Inc. and will be retained by Thinkpath Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----