-----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, B+qMRKt8Uq9lVMm3kRU0WD12B3++jGDIsr+eeKxSDbikKZ/015rQwhr6bNwAd0lG dsBZGSWZYzlHW8+yCI4P7Q== /in/edgar/work/0001125282-00-000049/0001125282-00-000049.txt : 20001023 0001125282-00-000049.hdr.sgml : 20001023 ACCESSION NUMBER: 0001125282-00-000049 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20001020 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THINKPATH COM INC CENTRAL INDEX KEY: 0001070630 STANDARD INDUSTRIAL CLASSIFICATION: [7370 ] IRS NUMBER: 52209027 STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-48390 FILM NUMBER: 743773 BUSINESS ADDRESS: STREET 1: 55 UNIVERSITY AVE STE 505 STREET 2: TORONTO, ONTARIO, CANADA CITY: M5J 2H7 BUSINESS PHONE: 4163648800 MAIL ADDRESS: STREET 1: 55 UNIVERSITY AVE STE 505 STREET 2: TORONTO, ONTARIO, CANADA CITY: MCJ 2H7 FORMER COMPANY: FORMER CONFORMED NAME: IT STAFFING LTD DATE OF NAME CHANGE: 19980917 SB-2 1 0001.txt REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 20, 2000 Registration Statement No. 333- U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------- THINKPATH.COM INC. (Name of small business issuer as specified in its charter) ----------- Ontario 7371 52-209027 (State or other jurisdiction of (Primary Standard Industrial (IRS Employer incorporation or organization) Classification Code Number) I.D. No.) ----------- 55 University Avenue Toronto, Ontario, Canada M5J 2H7 (416) 364-8800 (Address and telephone number of principal executive offices and principal place of business) ----------- Jay M. Kaplowitz, Esq. Declan A. French, President Arthur S. Marcus, Esq. THINKPATH.COM INC. Gersten, Savage & Kaplowitz, LLP 55 University Avenue 101 East 52nd Street, 9th Floor Toronto, Ontario, Canada M5J 2H7 New York, New York 10022 (416) 364-8800 (212) 752-9700 (416) 364-2424 (fax) (212) 980-5192 (fax) (Name, address and telephone number of agents for service) ---------- Copies to: ---------- Jay M. Kaplowitz, Esq. Arthur S. Marcus, Esq. GERSTEN, SAVAGE & KAPLOWITZ, LLP 101 East 52nd Street, 9th floor New York, New York 10022 (212) 752-9700 (212) 752-9713 (fax) Approximate date of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [x] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A) MAY DETERMINE. CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- Proposed Maximum Title of Each Class Amount Offering Proposed of Securities Being Price Per Maximum Amount of Being Registered Registered Security(1) Offering Price(1) Registration Fee - -------------------------------------------------------------------------------- Common Stock(2) 1,063,851 $2.438 $2,593,668.70 $684.73 Common Stock Underlying Warrants(3) 812,027 $2.438 $1,979,721.80 $522.65 Sub total 1,875,878 $4,573,390.50 $1,207.38 Amount Previously Paid $0 Amount Due $1,207.38 (1) Pursuant to Rule 457, estimated solely for the purpose of calculating the registration fee. (2) Based upon the last reported sales price of the registrant's common stock of the same class as quoted on the Nasdaq SmallCap Market on October 13, 2000, $2.438. (3) Pursuant to Rule 416 under the Securities Act of 1933, as amended, there are also being registered additional shares of common stock as may be issuable upon the exercise of warrants described herein and pursuant to the last reported sales price if the registrant's common stock as quoted on the Nasdaq SmallCap Market on October 13, 2000, $2.438 Information contained herein is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. Unless otherwise indicated, all reference to "ThinkPath", "us", "our" and "we" refer to Thinkpath.com Inc. and: (a) its wholly-owned subsidiaries: (i) Systemsearch Consulting Services Inc., an Ontario corporation, (b) International Career Specialists Ltd., an Ontario corporation, (c) Cad Cam, Inc., an Ohio corporation, (d) Object Arts Inc., an Ontario corporation, and (e) Micro Tech Professionals, Inc., a Massachusetts corporation; and its majority-owned subsidiary E-Wink, Inc., a Delaware corporation. On February 24, 2000, we changed our name from IT Staffing Ltd. to ThinkPath.com Inc. PRELIMINARY PROSPECTUS Subject to Completion, Dated October 20, 2000 THINKPATH.COM INC. 1,875,878 Shares of Common Stock This is an offering of an aggregate of 1,063,851 shares of common stock of ThinkPath.com Inc., 1,063,851 of which may be sold and 812,027 of which may be sold upon the exercise of warrants. All of the shares are being offered by the selling security holders named in this prospectus. We will not receive any of the proceeds from the sale of the common stock, although we would receive approximately $2,365,782.16 if all of the warrants are exercised. Our common stock is traded on the Nasdaq SmallCap Market under the symbol "THTH" and on the Boston Stock Exchange under the symbol "THP". On October 13, 2000, the last reported sales price of the common stock on the Nasdaq SmallCap Market was $2.438. Please see "Risk Factors" beginning on page 8 to read about factors you should consider before buying shares of our common stock. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. The date of this Prospectus is October__, 2000 THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR SALE UNDER THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA. THE SECURITIES ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF THE SECURITIES LAWS OF ANY PROVINCE OR TERRITORY OF CANADA. ENFORCEABILITY OF CIVIL LIABILITIES ThinkPath.com Inc.'s headquarters are located in, and its officers, directors and auditors are residents of, Canada and a substantial portion of ThinkPath.com Inc.'s assets are, or may be, located outside the United States. Accordingly, it may be difficult for investors to effect service of process within the United States upon non-resident officers and directors, or to enforce against them judgments obtained in the United States courts predicated upon the civil liability provision of the Securities Act of 1933, as amended, or state securities laws. ThinkPath.com Inc. has been advised by its Canadian legal counsel that there is doubt as to the enforceability in Canada against ThinkPath.com Inc. or against any of its directors, controlling persons, officers or the experts named herein, who are not residents of the United States, in original actions or in actions for enforcement of judgments of United States courts, of liabilities predicated solely upon United States federal securities laws. Service of process may be effected, however, upon ThinkPath.com Inc.'s duly appointed agent for service of process, Gersten, Savage & Kaplowitz, LLP, New York, New York. If investors have questions with regard to these issues, they should seek the advice of their individual counsel. Thinkpath.com Inc. has also been informed by its Canadian legal counsel that, pursuant to the Currency Act (Canada), a judgment by a court in any Province of Canada may only be awarded in Canadian currency. Pursuant to the provision of the Courts of Justice Act (Ontario), however, a court in the Province of Ontario shall give effect to the manner of conversion to Canadian currency of an amount in a foreign currency, where such manner of conversion is provided for in an obligation enforceable in Ontario. ii EXCHANGE RATE DATA ThinkPath.com Inc. maintains its books of account in Canadian dollars, but has provided the financial data in this prospectus in United States dollars and on the basis of generally accepted accounting principles as applied in the United States, and its audit has been conducted in accordance with generally accepted auditing standards in the United States. All references to dollar amounts in this prospectus, unless otherwise indicated, are to United States dollars. The following table sets forth, for the periods indicated, certain exchange rates based on the noon buying rate in New York City for cable transfers in Canadian dollars. Such rates are the number of United States dollars per one Canadian dollar and are the inverse of rates quoted by the Federal Reserve Bank of New York for Canadian dollars per US$1.00. The average exchange rate is based on the average of the exchange rates on the last day of each month during such periods. On September 30, 2000, the exchange rate was CDN$1.00 per US$0.672873. Nine Months Ended Year Ended December 31, September, 30 -------------------------- ----------------- 1997 1998 1999 2000 ---- ---- ---- ---- Rate at end of period $0.6999 $0.6533 $0.6928 $0.6729 Average rate during period 0.7227 0.6747 0.6731 $0.6794 High 0.7493 0.7121 0.6917 $0.6619 Low 0.6908 0.6307 0.6463 $0.6967 iii TABLE OF CONTENTS
Page Prospectus Summary ............................................................. 1 The Offering ................................................................... 6 Summary Combined Financial Information ......................................... 7 Risk Factors.................................................................... 8 Our ability to manage rapid expansion and to integrate our business and the business of Micro Tech Professionals, Inc. has not been tested and may not be successful .................................................................. 8 Our growth will require substantial capital ........................... 8 Our failure to identify and engage qualified information technology, engineering and technical training professionals will adversely affect our business ....................................................................... 8 Because our information technology, engineering and technical training professionals may terminate their employment with us at any time, we may not be able to meet our customers' requirements ....................................... 9 Because of our relatively small size, we may not be able to compete effectively in our industry .................................................... 9 Our expansion strategy may not result in success ...................... 9 We may be liable for payroll taxes and penalties in Canada because we classify our information technology, engineering and technical training professionals providing contract services as independent contractors ........... 10 Our operating results may vary from quarter to quarter, and, as a result, we may fail to meet the expectations of our investors and analysts, which may cause our stock price to fluctuate or decline ........................ 10 Our Web site may not be adequate to meet the growing needs of our business ....................................................................... 11 Our Web site may be vulnerable to security breaches and similar threats which could result in out liability for damages and harm to our reputation ..... 11 Our software product, Njoyn, may not work as intended, which could harm our business ................................................................... 11 We may be held liable for the actions of our information technology, engineering and technical training professionals when on assignment ............ 11 Because we have limited management, we depend upon our senior management, and their loss or unavailability could put us at a competitive disadvantage.................................................................... 11 Existing management will retain substantial influence over our operations upon the consummation of this offering .............................. 11 Currency fluctuations may adversely affect our operating results ...... 12 Your proportionate ownership interest in us may be diluted upon the conversion of the outstanding shares of Series A 8% Cumulative Convertible Preferred Stock, the conversion of the Series B 8% Cumulative Convertible Preferred Stock and the exercise of the warrants ............................... 12 1,889.354 or, 34.03% of our total outstanding shares, are restricted but may be publicly sold pursuant to Rule 144k of the Securities Act of 1933, as amended. This could cause the market price of our common stock to fluctuate significantly, even if our business is doing well .............................. 12 We have not, and do not intend, to pay cash dividends in the foreseeable future ............................................................. 13 Special Note Regarding Forward-Looking Statements .............................. 13 Use of Proceeds ................................................................ 14 Certain Market Information ..................................................... 14 Dividend Policy ................................................................ 14 Selected Financial Data ........................................................ 15 Management's Discussion and Analysis of Financial Condition and Results of Operations ..................................................................... 16 Business ....................................................................... 24 Board of Directors and Executive Officers ...................................... 41 Certain Relationships and Related Party Transactions ........................... 48 Principal Shareholders ......................................................... 50 Description of Securities ...................................................... 52 Certain United States and Canadian Federal Income Tax Considerations ........... 55 Investment Canada Act .......................................................... 58 Shares Eligible For Future Sale ................................................ 59 Selling Security Holders ....................................................... 60 Plan of Distribution ........................................................... 64 Legal Matters .................................................................. 65 Experts ........................................................................ 65 Where You Can Find Additional Information ...................................... 65 Financial Statements ........................................................... F-1
You should rely only on the information contained in this prospectus. To understand this offering fully, you should read this entire prospectus carefully, including the financial statements and notes thereto. We have included a brief overview of the most significant aspects of the offering itself in the Prospectus Summary. We have not authorized anyone to provide you with information different from that contained in this prospectus. The information contained in this prospectus may only be accurate on the date of this prospectus. iv PROSPECTUS SUMMARY The following summary highlights some of the information in this prospectus. It may not contain all of the information that is important to you. To understand this offering fully, you should read the entire prospectus carefully, including the risk factors and our consolidated financial statements and the notes accompanying the consolidated financial statements appearing elsewhere in this prospectus. Our Business We are a global provider of information technology and engineering recruiting, project outsourcing, technical training and consulting and ASP-based skills management technology. Our customers include financial service companies, software and other technology companies, Canadian and American governmental entities and large multinational companies, including Bank of Montreal, Bell Canada, Goldman Sachs, Chapters, Lucent Technologies, Cummins Engine, General Motors, Xerox Corporation, American Express and Universal Industrial Corp. (ESI). We have recently expanded our operations into the United States, through among other things, our acquisitions of Cad Cam, Inc., Object Arts Inc. and Micro Tech Professionals, Inc., and intend to develop an expanded network of offices to provide our services throughout North America. We have focused on the recruiting of quality information technology and engineering professionals. We utilize established testing methods to ensure that our professionals are properly qualified. We also review candidates' technical backgrounds and conduct preliminary interviews prior to referring candidates to our customers. By attracting the most qualified professionals, we believe that we will be able to attract high quality customers who require the services of such professionals. Since inception, we have pursued a strategy of developing and utilizing technology that we believe will provide us with a competitive advantage. As a result, we believe that one of our primary competitive strengths is our utilization of technology. We maintain a database of more than 50,000 information technology and engineering professionals and advertise on the Internet to attract both candidates and customers. We have developed a recruitment management product called Njoyn. Njoyn is a Web-based recruitment technology, which automates and electronically manages every step of the recruitment and hiring process. Njoyn is designed to address the skills shortage and helps clients satisfy their recruiting needs. Njoyn electronically manages and automates the entire enterprise-wide recruiting and hiring program. Njoyn coordinates, streamlines and manages all individual candidate sources and recruitment methods in real time, including job board postings, company Web sites, newspaper advertising, employee referrals, direct recruits and career fair. In addition, Njoyn is able to satisfy the human resource professionals' increasing demand for a wide range of critical metrics, including cost per hire and time per hire. As a result of our recent acquisitions of Cad Cam, Inc., Object Arts Inc. and Micro Tech Professionals, Inc., we now offer our clients project outsourcing including technical publications and design engineering, as well as technical training and consulting. Our business objectives are to increase our share of the information technology and engineering staffing services market in Canada and the United States, as well as to establish a network of offices throughout such countries which, when linked by means of the Internet, will allow us to provide our customers with an array of information technology and engineering staffing services. The primary components of the our strategy to achieve such objectives are as follows: - Leverage our customer base to attract and retain highly qualified information technology and engineering professionals; - Focus on niche markets; - Expand into new regional markets by opening new offices or acquiring competitive or complementary companies; - Continue to utilize the Internet and information technology to provide a competitive advantage; and - Develop and promote a managed services practice. Recent Events On December 30, 1999, we issued: (i) 15,000 shares of Series A 8% Percent Cumulative Convertible Preferred Stock, no par value per share; and (ii) warrants to purchase up to an aggregate of 475,000 shares of our common stock, in consideration $1,500,000 pursuant to a private placement offering. Each share of Series A 8% Cumulative Convertible Preferred Stock has a stated value of $100 per share. The shares of Series A 8% Percent Cumulative Convertible Preferred Stock are convertible into shares of our common stock at the option of the holders the Series A 8% Percent Cumulative Convertible Preferred Stock, at any time after issuance until either: (i) such shares of Series A 8% Percent Cumulative Convertible Preferred Stock are converted at our option; or (ii) such shares of Series A 8% Percent Cumulative Convertible Preferred Stock are redeemed by us, under certain conditions, at any time after the effective date of this registration statement. The holders of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock are entitled to receive preferential dividends in cash, out of any of our funds legally available at the time of declaration of dividends before any other dividend distribution will be paid or declared and set apart for payment on any shares of our common stock, or other class of stock presently authorized, at the rate of 8% simple interest per annum on the stated value per share. Such are payable on a quarterly basis commencing on the quarter ending March 31, 2000 when as and if declared, provided however, that the dividends will be made in additional shares of Series A 8% Percent Cumulative Convertible Preferred Stock at a rate of one share of Series A 8% Percent Cumulative Convertible Preferred Stock for each $100 of such dividend not paid in cash. Dividends may be paid at our option with shares of Series A 8% Percent Cumulative Convertible Preferred Stock only if our common stock deliverable upon the conversion of the Series A 8% Percent Cumulative Convertible Preferred Stock will have been included for public resale in an effective registration statement filed with the Securities and Exchange Commission on the dates such dividends are payable and paid to the holders. The dividends shall be cumulative whether or not earned and shall be cumulative from and after December 30, 1999. The number of shares of our common stock into which the Series A 8% Percent Cumulative Convertible Preferred Stock shall be convertible shall be equal to (i) the sum of (A) the stated value per share and (B) at the holder's election, accrued and unpaid dividends on such share, divided by (ii) the "Conversion Price". The Conversion Price shall be the lesser of (x) 90% of the average "Closing Bid Prices" for the three trading days immediately preceding December 30, 1999, or (y) 80% of the average of the three lowest "Closing Bid Prices" for the ten trading days immediately preceding the conversion of the respective shares of Series A 8% Percent Cumulative Convertible Preferred Stock. The "Closing Bid Price" is defined as the closing bid price as reported on the Nasdaq SmallCap Market or the principal market or exchange where our common stock is then traded. The holders of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock may exercise their right to conversion only if the aggregate stated value of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock to be converted is equal to at least $5,000, unless if at the time of such conversion, the aggregate stated value of all of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock is less than $5,000, then the whole amount of the remaining shares of Series A 8% Percent Cumulative Convertible Preferred Stock may be converted. 2 At any time after April 27, 2000, we have the option to redeem any or all of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock by paying to the holders a sum of money equal to 135% of the stated value of the aggregate of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock being redeemed plus the dollar amount of the accrued dividends, if the Conversion Price of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock on the trading day prior to the date of redemption is less than $2. The 475,000 warrants issued in the December 1999 offering are exercisable at any time and in any amount until December 30, 2004 at a purchase price of $3.24 per share. On January 1, 2000, we completed the acquisition of all of the issued and outstanding capital stock of Object Arts Inc., an Ontario corporation, in consideration of: (i) the issuance of $900,000 worth of our common stock to Working Ventures Custodian Fund in exchange for the retirement of outstanding subordinated debt; (ii) the issuance to Working Ventures Custodian Fund an amount of our common stock equal to the legal fees and professional fees incurred and paid by Working Ventures Custodian Fund in connection with our acquisition of Object Arts Inc.; and (iii) the issuance of $1,100,000 worth of our common stock to the existing shareholders of Object Arts Inc. Management believes that Object Arts Inc.'s technical training expertise will enable ThinkPath to offer a complete end-to-end skills gap solution to its customers. On February 24, 2000, we changed our corporate name from IT Staffing Ltd. to ThinkPath.com Inc. in order to more accurately reflect our expanded suite of services. On March 6, 2000, we completed the acquisition of 80% of E-Wink, Inc., a Delaware corporation, in consideration of: (i) 300,000 shares of our common stock; and (ii) warrants to purchase an aggregate of 500,000 shares of our common stock at a price of $3.25 per share for a period of five years. E-Wink, Inc. is currently developing platform technology that will match company's seeking venture capital with venture capital firms offering such venture capital. On April 16, 2000, we issued: (i) 1,500 shares of Series B 8% Percent Cumulative Convertible Preferred Stock, no par value per share; and (ii) warrants to purchase up to an aggregate of 300,000 shares of our common stock, in consideration $1,500,000 pursuant to a private placement offering. Each share of Series B 8% Cumulative Convertible Preferred Stock has a stated value of $1,000 per share. The shares of Series B 8% Percent Cumulative Convertible Preferred Stock are convertible into shares of our common stock at the option of the holders the Series B 8% Percent Cumulative Convertible Preferred Stock, at any time after issuance until such shares of Series B 8% Percent Cumulative Convertible Preferred Stock are redeemed by us, under certain conditions. The holders of the shares of Series B 8% Percent Cumulative Convertible Preferred Stock are entitled to receive preferential dividends in cash, out of any of our funds legally available at the time of declaration of dividends before any other dividend distribution will be paid or declared and set apart for payment on any shares of our common stock, or other class of stock presently authorized, at the rate of 8% simple interest per annum on the stated value per share plus any accrued but unpaid dividends, when as and if declared. We have the option to pay such dividends in shares of our common stock to be paid (based on an assumed value of $1,000 per share) in full shares only, with a cash payment equal to any fractional shares. The number of shares of our common stock into which the Series B 8% Percent Cumulative Convertible Preferred Stock shall be convertible shall be equal to (i) the sum of (A) the stated value per share and (B) at the holder's election, accrued and unpaid dividends on such share, divided by (ii) the "Conversion Price". The Conversion Price shall be the lesser of (x) $3.375, or (y) 80% of the average of the three lowest "Closing Bid Prices" for the ten trading days immediately preceding the conversion of the respective shares of Series B 8% Percent Cumulative Convertible Preferred Stock. The "Closing Bid Price" is defined as the closing bid price as reported on the Nasdaq SmallCap Market or the principal market or exchange where our common stock is then traded as reported by Bloomberg. 3 At any time that the number of our shares of common stock issued (A) upon conversion of the shares for Series B 8% Cumulative Convertible Preferred Stock and (B) in lieu of dividend payments, shall equal 20% or more our outstanding common stock, we are required to (x) redeem, at a price per share equal to (A) the quotient of (i) $1,000 per share plus all accrued but unpaid dividends and (ii) the Conversion Price as if the Series B8% Cumulative Convertible Preferred Stock has been converted on the date of redemption, multiplied by (B) the average Closing Bid Price of our common stock for the five trading days immediately preceding the date of redemption. The 300,000 warrants issued in the offering are exercisable at any time and in any amount until April 16, 2005 at a purchase price of $3.71 per share. In addition, On April 16, 2000, we issued: (i) 2,500 shares of Series A 8% Cumulative Convertible Preferred Stock, and (ii) 50,000 warrants to purchase common stock, pursuant to a private placement offering. The 50,000 warrants issued in the offering are exercisable at any time and in any amount until April 16, 2005 at a purchase price of $3.71 per share. On April 25, 2000, we completed the acquisition of all of the issued and outstanding capital stock of Micro Tech Professionals, Inc., a Massachusetts corporation, in consideration for up to an aggregate of $4,500,000 in a combination of cash, notes payable and shares of our common stock, subject to specific performance criteria be met. On the April 25, 2000, we paid to Denise Dunne-Fushi, the sole shareholder of Micro Tech Professionals, Inc., $2,500,000, of which was paid in accordance with the following schedule: (i) $1,250,000 in cash; (ii) the issuance of a $750,000 principal amount unsecured promissory note; and (iii) the issuance of 133,333 shares of our common stock. As part of the transaction, we entered into an employment agreement with Denise Dunne-Fushi, the former President of Micro Tech Professionals, Inc. Such employment agreement is for a term of 1 year commencing on April 25, 2000, the effective date of the acquisition, with an annual salary of $125,000 per year and a bonus of $25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the acquisition. On July 7, 2000, we issued an aggregate of: (a) 5,000 shares of our Series A 8% Cumulative Convertible Preferred Stock; and (b) warrants to purchase up to an aggregate of 225,000 shares of our common stock, in consideration for $500,000 pursuant to the exercise of our option granted to us in the December 1999 private placement offering upon the same terms as described above. The 225,000 warrants issued upon our exercise of the option are exercisable at any time and in any amount until December 30, 2004 at a purchase price of $3.575 per share. On July 27, 2000, we entered into an agreement with Bank One for an operating line of $7,000,000 payable on demand and secured by our assets. Effective July 27, 2000, we canceled our operating lines with Toronto Dominion Bank and Provident Bank. On August 22, 2000, we completed a private placement offering of units, each unit consisting of 1 share of our common stock and a callable warrant to purchase 1/2 of 1 share of our common stock. A total of 1,063,851 shares of our common stock were issued together with 532,534 warrants to purchase shares of our common stock exercisable until August 22, 2000, in consideration for $2,681,600. The purchase price per unit ranged from $1.9692 to $2.8125. In addition, we issued to the placement agent, certain financial advisors and the placement agent's counsel, warrants to purchase up to 280,093 shares of our common stock in connection with the private placement offering. Such warrants are exercisable until August 22, 2000 at an exercise price of $2.4614 per share. 4 On September 13, 2000, we entered into an engagement agreement with Burlington Capital Markets Inc. conditional on the successful integration of our first acquisition through Burlington. We have agreed to sell to Burlington Capital Markets an aggregate of 250,000 shares of our common stock at a cash purchase price of $.01 per share. We have further agreed to issue warrants to purchase an aggregate of 400,000 shares of our common stock in accordance with the following schedule: (i) 100,000 shares at an exercise price of $5.00 per share, exercisable at any time after October 13, 2000, (ii) 100,000 shares at an exercise price of $7.00 per share, exercisable at any time after November 13, 2000, (iii) 100,000 shares at an exercise price of $9.00 per share, exercisable at any time after December 13, 2000, and (iv) 100,000 shares at an exercise price of $11.00 per share, exercisable at any time after February 13, 2001. Such warrants are exercisable in whole or in part until 5 years from the date they can first be exercised, and will contain a cashless exercise provision and registration rights. Compensation will be paid to Burlington at a monthly fee of $10,000 for a minimum of six months. On September 21, 2000, we entered into a non-binding letter of intent with TidalBeach Inc., a skills-management software developer. Pursuant to the letter of intent, we will acquire all of the issued and outstanding capital stock of TidalBeach Inc. from Mike Reid, its sole shareholder, in consideration for up to 250,000 shares our common stock. We have agreed to use our best efforts to register the shares of common stock within three months from the date of issuance. The consummation of the transaction contemplated by the letter of intent is subject to our due diligence investigation as well as several other conditions. On October 4, 2000, we entered into a non-binding letter of intent with Aquila Holdings Limited, a European recruitment company. Pursuant to the letter of intent, we will acquire all of the issued and outstanding capital stock of Aquila Holdings Limited, and its wholly-owned subsidiary DPP International Limited in consideration for up to an aggregate of (pound)2,500,000 in cash and (pound)961,000 worth of our common stock. The consummation of the transaction contemplated by the letter of intent is subject to our due diligence investigation as well as several other conditions. Our headquarters are located at 55 University Avenue, Toronto, Ontario, Canada M5J 2H7. We were incorporated under the laws of the Province of Ontario, Canada in February 1994. Our telephone number is (416) 364-8800. 5 THE OFFERING Common Stock Offered 1,875,878 shares of common stock. See "Description of Securities." Shares of Common Stock Outstanding 5,550,802 Use of Proceeds We will not receive any proceeds from the sale of the shares of common stock by the selling security holders, although we will receive approximately $2,365,782.16 if all of the warrants, the underlying shares of which are being registered in this offering, are exercised. See "Use of Proceeds." Common Stock Trading Symbol Nasdaq SmallCap Market: "THTH" Boston Stock Exchange: "THP" Risk Factors An investment in our common stock involves a high degree of risk and should be made only after careful consideration of the significant risk factors that may affect us. Such risks include special risks concerning us and our business. See "Risk Factors." 6 SUMMARY COMBINED FINANCIAL INFORMATION The following selected statement of operations data is for the period from January 1, 1997 through December 31, 1999. The selected balance sheet data is for the period from January 1, 1998 through December 31, 1999. The statement of operations and balance sheet data for the years ended December 31, 1997, 1998, and 1999 is derived from our financial statements and the related notes included elsewhere in this prospectus audited by Scwhartz Levitsky Feldman, llp. All information should be read in conjunction with our consolidated financial statements and the notes contained elsewhere in this prospectus. Year Ended December 31, ----------------------- 1997 1998 1999 ---- ---- ---- (in thousands except per share data) ------------------------------------ Statement of Operations Data Revenue $ 4,704,341 $12,502,560 $19,822,861 Income (loss) from Operations 193,529 466,511 341,534 Net income 138,408 351,190 228,720 Net income per share 0.11 0.18 0.08 Year Ended December 31, ----------------------- (in thousands except per share data) ------------------------------------ 1998 1999 ---- ---- Balance Sheet Data Working capital (161,432) (480,000) Total Assets 4,848,777 19,113,766 Long-term debt 628,428 562,126 Total liabilities 3,062,584 10,042,038 Total stockholders' equity 1,786,193 9,071,728 7 RISK FACTORS An investment in our common stock involves a high degree of risk. In addition to other information contained in this prospectus, you should carefully consider the following risk factors and other information in this prospectus before investing in our common stock. Our ability to manage rapid expansion and to integrate our business and the business of Micro Tech Professionals, Inc. has not been tested and may not be successful. Our recent expansion, which involves the acquisition of Micro Tech Professionals, Inc. in April 2000 requires us to integrate Micro Tech Professionals, Inc. with our own operations. This acquisition, together with any other acquisitions we may make in the future, will place a substantial strain on our administrative, operational and financial resources. In addition, we may have difficulty in integrating their personnel and operations with ours. To mange our growth, including the integration of our acquisitions, we must implement systems and train and manage our employees. Because we have limited management depth, we may have to employ experienced senior and middle management personnel, and we may not be able to hire or retain qualified personnel. Our growth will require substantial capital. In order to develop our business, both internally and through acquisitions, we will require significant additional funds for the expansion of our sales force and recruiting staff, the introduction of new products and financing our continuing operations. At December 31, 1999 and June 30, 2000, we had working capital deficiency of approximately $480,000 and $190,000, respectively, and we estimate that capital requirements for the remainder of 2000 will be approximately $1,500,000, although it is possible that we may require significantly more than that amount. Our failure to generate or raise sufficient funds, may require us to delay or abandon some or all of our future expansion plans or expenditures or reduce the scope of some or all of our present operations, which could materially adversely effect our financial condition, results of operations and cash flow. Other than our working capital, our only other source of available funds for our operations is our bank credit line. We cannot assure you that we will have the funds we require for our operations. We cannot predict whether any additional financing will be in the form of equity or debt, or be in another form. We may not be able to obtain the necessary additional capital on a timely basis or on acceptable terms, if at all. In any of these events, we may be unable to implement our current plans. In the event that any future financing should take the form of equity securities, the holders of our common stock may experience additional dilution Our failure to identify and engage qualified information technology, engineering and technical training professionals and consultants will adversely affect our business. Our business is dependent upon our identifying, hiring and retaining qualified information technology, engineering and technical training professionals and consultants. If we fail to identify a sufficient number of qualified professionals, our business will be materially and adversely affected. We may have difficulty in meeting our staffing requirements for a number of reasons, including the following: - information technology, engineering and technical training professionals and consultants are in high demand worldwide, the demand for such professionals is increasing and turnover in the industry is very high compared with other industries; - as we seek to expand we will require greater numbers of these professionals; and - the information technology services and training market is characterized by rapid technological change, evolving industry standards, changing client preferences and new product and service introductions, which may increase the difficulty in identifying, hiring and retaining qualified professionals. 8 Because of the specialized nature of the placement market for information technology, engineering and technical training professionals and consultants, we are highly dependent upon our ability to identify and place professionals possessing the technical skills and experience required by employers. If we fail to do so, our business will be adversely affected. Because our information technology, engineering and technical training professionals and consultants may terminate their employment with us at any time, we may not be able to meet our customers' requirements. Because our revenue is dependent upon the number of information technology, engineering and technical training professionals and consultants we place on assignment, our success depends on our ability to attract and retain qualified professionals with the technical skills and experience necessary to meet our customers' requirements. If we are not able to provide our customers with the technical personnel they require, our customers will seek to fill their requirements from other companies. There is intense competition for information technology and engineering professional, both from numerous staffing and consulting companies such as us and from companies seeking to meet their own requirements. As a result: - We must compete with other companies in seeking to employ information technology, engineering and technical training professionals and consultants, including other staffing and consulting companies who are engaged by the same customer as we are; - We often employ the professionals for a specific project on an at will basis, which permits the professional to terminate his or her employment with us on little or no notice; and - The professionals have in the past and may in the future accept assignments from other companies upon completion of their assignments with us. Because of our relatively small size, we may not be able to compete effectively in our industry. The information technology, engineering and technical training staffing and consulting industry is highly competitive and fragmented and is characterized by low barriers to entry. We compete for potential customers with other providers of information technology, engineering and technical training services, consulting services, systems integrators, providers of outsourcing services, computer consultants, employment listing services, and temporary personnel agencies. Many of our current and potential competitors have longer operating histories, significantly greater financial, marketing and human resources, greater name recognition, a larger base of information technology, engineering, and technical training and consulting professionals and customers and a greater ability to respond quickly to changing customer requirements, which may give such competitors a competitive advantage. We expect that competition will increase, which could result in price reductions and reduced margins, which could materially adversely affect our business, prospects, financial condition and results of operations. Our expansion strategy may not result in success. Our expansion plans depend on our ability to enter new regional markets, expand our existing operations and add additional areas of expertise. This expansion is dependent on a number of factors, including our ability to attract, hire, integrate and retain qualified employees, develop, recruit and maintain a base of qualified professionals within each regional market and accurately assess the demand for our services in such markets; and initiate, develop and sustain corporate customer relationships. We cannot assure you that we will be able to add qualified employees or enter new regional markets or that our expansion strategy will be profitable to us. Furthermore, our failure to expand into new markets could hinder our ability to attract multinational and other large corporations which could have a material adverse effect on our business, prospects, financial condition and results of operations. 9 We may be liable for payroll taxes and penalties in Canada because we classify our information technology, engineering and technical training professionals and consultants providing contract services as independent contractors. We treat our information technology, engineering, and technical training professionals and consultants providing contract services in Canada as independent contractors rather than employees. Accordingly, we have not withheld payroll source deductions including, Canada Pension Plan, Employment Insurance and Employer's Health Tax and we have not paid the employer's portion of these taxes, and we have not recorded a reserve on our financial statements for such taxes and penalties. If the taxing authorities in Canada determine that they are employees we could be subject to significant taxes and penalties, which could have a material adverse effect upon our financial condition and the results of our operations. In addition, to the extent that we are required to pay these taxes in the future, our gross margin would be reduced to reflect the additional cost of revenue. In the United States, all of our contract service professionals are classified as employees and all relevant employee and employer payroll taxes are withheld. Our operating results may vary from quarter to quarter, and, as a result, we may fail to meet the expectations of our investors and analysts, which may cause our stock price to fluctuate or decline. Our revenue and operating results have fluctuated significantly in the past, and we expect that they will continue to fluctuate significantly in the future due to a variety of factors, many of which are outside of our control. These factors include, among others: - the demand for our services; - our ability to attract and retain information technology, engineering and technical training professionals and consultants and customers; - the timing and significance of new services and products introduced by us and our competitors; - the level of services provided and prices charged by us and by our competition; - unexpected changes in operating expenses; - changes in the mix of services offered, including the relative contribution of e-business solutions services and information technology consulting to our revenue and gross profit; and - general economic factors. Since our revenue is derived principally from the services of our professionals, the utilization of our professionals has a direct effect upon our operating results. A substantial portion of our operating expenses is related to personnel costs, marketing programs and overhead, which cannot be adjusted quickly and are therefore relatively fixed in the short term. Our operating expense levels are based, in significant part, on our expectations of future revenues on a quarterly basis, and such expectations may not be met. Due to all of these factors and the other risks discussed in this prospectus, you should not rely on period-to-period comparisons of our results of operations as an indication of future performance. Furthermore, if our results of operations fall below the expectations of public market analysts or investors, the market price of our common stock is likely to decline. 10 Our Web site may not be adequate to meet the growing needs of our business. We have developed a Web site for internal communications as well as marketing and recruiting. The satisfactory performance, reliability and availability of our Web site and network infrastructure are and will be critical to our reputation and our ability to attract and retain customers and technical personnel and to maintain adequate customer service levels. Any system interruptions or reduced performance of our Web site could materially adversely affect our ability to attract new customers and technical personnel. Our Web site may be vulnerable to security breaches and similar threats which could result in our liability for damages and harm to our reputation. Despite the implementation of network security measures, our Web site is vulnerable to computer viruses, break-ins and similar disruptive problems caused by Internet users. These occurrences could result in our liability for damages, and our reputation could suffer. The circumvention of our security measures may result in the misappropriation of such proprietary information. Any such security breach could lead to interruptions and delays and the cessation of service to our customers and could result in a decline in revenue and income. Our software product, Njoyn, may not work as intended, which could harm our business. We are substantially dependent on Njoyn software, for the day to day operation of our business. We cannot assure you that this software will function as intended or that it will provide us with any competitive advantage. We may not be able to successfully market Njoyn. Furthermore, if a market develops, the Njoyn software may be used by our competitors and potential customers, which may have the effect of reducing our revenue. We may be held liable for the actions of our information technology, engineering and technical training professionals and consultants when on assignment. Although our customer agreements disclaim responsibility for the conduct of information technology, engineering and technical training professionals and consultants provided by us, we may be exposed to liability with respect to actions taken by our professionals while on assignment, such as damages caused by errors of our professionals, misuse of customer proprietary information or theft of customer property. Although we maintain insurance coverage, due to the nature of our assignments, we cannot assure you that the insurance coverage will continue to be available on reasonable terms, if at all, or that it will be adequate to cover any liability as a result of our professionals being on assignment. Because we have limited management, we depend upon our senior management, and their loss or unavailability could put us at a competitive disadvantage. Our future success will depend to a significant extent on the efforts of our key management personnel, particularly Declan A. French, our chairman of the board and chief executive officer and Thomas E. Shoup, our president and chief operating officer. The loss or unavailability of any of these key employees could have a material adverse effect on our business, prospects, financial condition and results of operations. In addition, we believe that our future success will depend in large part upon our continued ability to attract and retain highly qualified recruiters, who often serve as the contact person for our customers. There can be no assurance that we will be able to attract and retain the qualified personnel necessary for our business. Existing management will retain substantial influence over our operations upon the consummation of this offering. Upon the consummation of this offering, our directors and executive officers would will beneficially own approximately 1,879,707 shares, or 31.9% of our common stock (excluding the exercise of warrants). As a result, they will have the ability to elect our directors and determine the outcome of all matters on which stockholders are entitled to vote. 11 Currency fluctuations may adversely affect our operating results. Revenue denominated in Canadian dollars accounted for 36% of our revenue for the six months ended June 30, 2000, 70% for the year ended December 31, 1999, 95% for the year ended December 31, 1998, and 96% for the year ended December 31, 1997. Accordingly, the relationship of the Canadian dollar to the value of the United States dollar may materially affect our operating results. In the event that the Canadian dollar were materially devalued against the United States dollar, our operating results could be materially adversely affected. Your proportionate ownership interest in us may be diluted upon the conversion of the outstanding shares of Series A 8%Cumulative Convertible Stock, the conversion of the Series B 8% Cumulative Convertible Preferred Stock and the exercise of the warrants. In December 1999, we issued 15,000 shares of Series A 8% Cumulative Convertible Preferred Stock and warrants to purchase 475,000 shares of common stock at an exercise price of $3.24 per share in consideration of $1,500,000 and in July 2000, we issued an additional 5,000 shares of Series A 8% Cumulative Convertible Preferred Stock and warrants to purchase 225,000 shares of common stock at an exercise price of $3.575 per share in consideration of $500,000, which if converted and/or exercised will dilute your proportionate ownership interest in us. As of October 13, 2000, there are 9,667 shares of Series A 8% Cumulative Convertible Preferred Stock outstanding. The shares of Series A 8% Cumulative Convertible Preferred Stock are convertible into shares of our common stock at a conversion price equal to the lesser of (x) 90% of the average closing bid prices of our common stock as reported on the Nasdaq SmallCap Market for the three days immediately preceding December 31, 1999, or (y) 80% of the average of the three lowest closing bid prices for the ten trading days immediately preceding the conversion of the shares of the Series A 8% Cumulative Convertible Preferred Stock. In April 2000, we issued 1,500 shares of Series B 8% Cumulative Convertible Preferred Stock, 2,500 shares of Series A 8% Cumulative Convertible Preferred Stock, and warrants to purchase 350,000 shares of common stock at an exercise price of $3.71 per share in consideration of $1,750,000, which if converted and/or exercised will dilute your proportionate ownership interest in us. As of October 13, 2000, there are 1,250 shares of Series B 8% Cumulative Convertible Preferred Stock outstanding. The shares of Series B 8% Cumulative Convertible Preferred Stock are convertible into shares of our common stock at a conversion price equal to the lesser of (x) $3.375, or (y) 80% of the average of the three lowest closing bid prices for the ten trading days immediately preceding the conversion of the shares of the Series B 8% Cumulative Convertible Preferred Stock. The shares of Series A 8% Cumulative Convertible Preferred Stock are convertible into shares of our common stock at a conversion price equal to the lesser of (x) 90% of the average closing bid prices of our common stock as reported on the Nasdaq SmallCap Market for the three days immediately preceding December 31, 1999, or (y) 80% of the average of the three lowest closing bid prices for the ten trading days immediately preceding the conversion of the shares of the Series A 8% Cumulative Convertible Preferred Stock. Each conversion and/or exercise will reduce the per share value of your shares of common stock and reduce your proportionate ownership interest in us. 1,889,354 or, 34.03% of our total outstanding shares are restricted but may be publicly sold pursuant to Rule 144k of the Securities Act of 1933, as amended. This could cause the market price of our common stock to fluctuate significantly, even if our business is doing well. As of October 13, 2000, we have 5,550,802 outstanding shares of common stock, all of which may be resold in the public market immediately, subject to applicable contractual restrictions. 34.03%, or 1,889,354 of our outstanding shares are available for resale in the public market pursuant to Rule 144k of the Securities Act of 1933, as amended. As shares of our common stock are sold pursuant to Rule 144k, the market price of our common stock could fluctuate significantly. 12 We have not, and do not intend, to pay cash dividends in the foreseeable future. We have not paid any cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable future. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business. Pursuant to our agreement with the Business Development Bank One, we will not pay dividends so long as our loan from Bank One remains outstanding. Dividend payments in the future may also be limited by other loan agreements or covenants contained in other securities which we may issue. Any dividend payments which we may make would be subject to Canadian withholding tax requirements. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and be dependent upon our financial condition, results of operations, capital and legal requirements and such other factors as our Board of Directors deems relevant. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Information in this prospectus may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. These factors include the risks described in "Risk Factors." Forward-looking statements, which involve assumptions and describe our future plans strategies and expectations, are generally identifiable by use of the words "may," "should," "expect," "anticipate," "estimates," "believe," "intend" or "project" or the negative of these words or other variations on these words or comparable terminology. 13 USE OF PROCEEDS We will not receive any of the proceeds from the sale of shares of common stock owned by the selling security holders, although we will receive approximately $2,365,782.16 if all of the warrants are exercised. If the warrants are exercised, we will use the net proceeds for the funding of potential acquisitions, working capital and general corporate purposes. All proceeds from the sales of the shares of common stock owned by the selling security holders will be for their own accounts. See "Selling Security Holders." CERTAIN MARKET INFORMATION Our common stock began trading on the Nasdaq SmallCap Market on June 8, 1999, when we completed our initial public offering. Our common stock is listed on the Nasdaq SmallCap Market under the symbol "THTH" and on the Boston Stock Exchange under the symbol "THP". As of October 13, 2000, we had 5,550,802 shares of common stock outstanding. The following table sets forth the high and low sale prices for our common stock as reported on the Nasdaq SmallCap Market. Common Stock ------------- Fiscal 1999 High Low - ----------- ---- --- Third Quarter $5.25 $2.813 Fourth Quarter $4.969 $2.938 Fiscal 2000 - ----------- First Quarter $4.438 $2.275 Second Quarter $4.750 $3.188 Third Quarter $3.563 $2.125 Fourth Quarter $2.547 $2.125 (Through October 13, 2000) As of October 13, 2000, we had 118 holders of record and approximately 530 beneficial shareholders. On October 13, 2000, the last sale price of our common stock as reported on the Nasdaq SmallCap Market was $2.438. DIVIDEND POLICY We have never paid or declared dividends on our common stock. The payment of cash dividends, if any, in the future is within the discretion of the Board of Directors and will depend upon our earnings, capital requirements, financial condition and other relevant factors. We intend to retain future earnings for use in our business. 14 SELECTED FINANCIAL DATA The following selected statement of operations data is for the period from January 1, 1997 through December 31, 1999. The selected balance sheet data is for the period from January 1, 1998 through December 31, 1999. The statement of operations and balance sheet data for the years ended December 31, 1997, 1998 and 1999 is derived from our financial statements and the related notes included elsewhere in this prospectus audited by Scwhartz Levitsky Feldman, llp. All information should be read in conjunction with our consolidated financial statements and the notes contained elsewhere in this prospectus. Year ended December 31, ----------------------- 1997 1998 1999 ---- ---- ---- (in thousands except per share data) ------------------------------------ Statement of Operations Data: Revenue $ 4,704,341 $12,502,560 $19,822,861 Income (loss) from Operations 193,529 466,511 341,534 Net income 138,408 351,190 228,720 Net income per share 0.11 0.18 0.08 Year ended December 31, ----------------------- 1998 1999 ---- ---- (in thousands except per share data) ------------------------------------ Balance Sheet Data: Working capital (161,432) (480,000) Total Assets 4,848,777 19,113,766 Long-term debt 628,428 562,126 Total liabilities 3,062,584 10,043,038 Total stockholders' equity 1,786,193 9,071,728 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the selected historical financial data, financial statements and notes thereto and the other historical financial information of ThinkPath contained elsewhere in this prospectus. The statements contained in this prospectus that are not historical are forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, including statements regarding ThinkPath's expectations, intentions, beliefs or strategies regarding the future. Forward-looking statements include ThinkPath's statements regarding liquidity, anticipated cash needs and availability and anticipated expense levels. All forward-looking statements included in this prospectus are based on information available to ThinkPath on the date hereof, and ThinkPath assumes no obligation to update any such forward-looking statement. It is important to note that ThinkPath's actual results could differ materially from those in such forward-looking statements. Overview We are a global provider of information technology and engineering recruiting, project outsourcing, technical training and consulting and ASP-based skills management technology. Our customers include financial service companies, software and other technology companies, Canadian and American governmental entities and large multinational companies, including Bank of Montreal, Bell Canada, Goldman Sachs, Chapters, Lucent Technologies, Cummins Engine, General Motors, Xerox Corporation, American Express and Universal Industrial Corp. (ESI). We have recently expanded our operations into the United States, through among other things, our acquisitions of Cad Cam, Inc. and Object Arts Inc., and intend to develop an expanded network of offices to provide our services throughout North America. For fiscal 1999, our primary source of revenue was information technology and placement services, representing 75% of total revenue. As a result of our acquisition of Cad Cam, Inc., engineering recruitment and placement services, and project outsourcing represented 18% and 6% of total revenue, respectively. For the year ended December 31, 1997, the year ended December 31, 1998, and the year ended December 31, 1999, we derived 96%, 95%, and 70%, respectively, of our revenue in Canada and the remainder in the United States. Our books and records are recorded in Canadian dollars. For purposes of financial statement presentation, we convert balance sheet data to United States dollars using the exchange rate in effect at the balance sheet date. Income and expense accounts are translated using an average exchange rate prevailing during the relevant reporting period. There can be no assurance that we would have been able to exchange currency on the rates used in these calculations. We do not engage in exchange rate hedging transactions. A material change in exchange rates between United States and Canadian dollars could have a material effect on our reported results. For the year ended December 31, 1999, our services classified as information technology and engineering recruiting and project outsourcing. Our recruiting services consist of contract, permanent and executive search placements on either a contingency or retainer basis. In the case of contract services, we provide our customers with independent contractors or "contract workers" who usually work under the supervision of the customer's management. Generally, we enter into a time-and-materials contract with our customer whereby the customer pays us an agreed upon hourly rate for the contract worker. We pay the contract worker pursuant to a separate consulting agreement. The contract worker generally receives between 75% and 80% of the amount paid to us by the customer; however, such payment is usually not based on any formula and may vary for different engagements. We seek to gain "preferred supplier status" with our larger customers to secure a larger percentage of those customers' business. While such status is likely to result in increased revenue and gross profit, it is likely to reduce gross margin percentage because we are likely to accept a lower hourly rate from our customers and there can be no assurance that we will be able to reduce the hourly rate paid to our consultants. In the case of permanent placement services, we identify and provide candidates t fill permanent positions for our customers. 16 Revenue from contract services is recognized as services are provided. Permanent placement revenue is recognized when the successful candidate commences employment. Searches on a contingency basis are paid only if we are successful in placing a candidate in a position. Searches on a retained basis are paid by a non-refundable portion of the fee prior to performing any services, with the remainder as the position is filled. As a result of our acquisition of Cad Cam, Inc., we now perform project outsourcing for customers on a project by project basis whereby we will be engaged to complete a particular, specified project. We hire full-time employees to supervise these projects. These projects are billed on a time-and-materials basis or charged a fixed price for the project. If we charge a fixed price for a project, we will be required to estimate the total costs involved in the project and formulate a bid that contains an adequate profit margin. If we are unable to accurately predict the costs of such a project, or the costs of the project change due to unanticipated circumstances, which may be circumstances that are beyond our control, we may earn lower profit margins or suffer a loss on a given project. Gross profit is calculated by subtracting fees ad benefits paid to contractors from net revenue. We do not attribute any direct costs to permanent placement services; therefore the gross profit margin on such services is 100% of revenue. As a result, the addition of permanent placement revenue to contract services revenue has a significant effect on our gross profit margin as a whole. We anticipate expanding into new regional markets by establishing new offices or by acquiring or investing in complementary or competitive companies. We have identified three additional acquisition candidates and have executed non-binding letters of intent with respect to such acquisition candidates. We expect the cost of opening and funding a new office to range from $200,000 to $500,000, depending on the size of the office and the costs of doing business in the city in which the office is to be located. Such costs will primarily consist of leasing office space, purchasing or leasing office equipment and computer hardware and other related expenses incurred prior to the commencement of operations in new locations. Such costs also include operating expenses, such as payroll and advertising, which are often incurred prior to such time that the new office is able to generate significant cash flow from operations. The opening of new offices in new regional markets results in increased operating expenses including, but not limited to, salaries, equipment, insurance, marketing and public relations. Senior management also devotes resources to training and management support. Based on the experience of our principals, we expect newly opened offices to become productive within 6 to 12 months of opening. Although there can be no assurance that such expectations will be satisfied, our expectations in terms of productivity for new offices by the 12th month of operations are: 30 contractors and between $30,000 to $50,000 in permanent placement sales per month with annual revenues of approximately $450,000. We have in the past and are likely to utilize acquisitions as an attempt to avoid or limit these costs, but we incur other costs as a result of any acquisitions, including funding the purchase price and expenses related to the integration of operations and training of new employees. With regard to previous acquisitions, integration costs were expensed in the period that they were incurred and we expect to continue to do so with future acquisitions. Our current acquisition targets are small companies which can benefit from our advanced information technology and other operating systems. There can be no assurance that integrating our operations with those of acquired companies will result in improvements in such companies' operations or increased revenue from such operations. In April 1998, we acquired all the issued and outstanding capital stock of Systemsearch Services Inc. and Systems PS Inc. from John R. Wilson for aggregate consideration $98,000 and 174,551 shares of our common stock. Systems PS Inc. is inactive but holds certain assets utilized by Systemsearch Consulting Services Inc. in its operations. The acquisition was effective as of January 2, 1997. Declan French, our Chief Executive Officer and Chairman of the Board, participated in the management of Systemsearch Consulting Services Inc. We shared data and operating information systems with Systemsearch Consulting Services Inc. during the year ended December 31, 1997. Accordingly, our Consolidated Financial Statements incorporate the operations of Systemsearch Consulting Services Inc. since January 1, 1997. 17 On May 19, 1998, we completed the acquisition of all the issued and outstanding shares of capital stock of International Career Specialists Ltd. for $326,000 in cash and 130,914 shares of our common stock to John A. Irwin, who was not affiliated with us prior to this acquisition. In connection with the acquisition, International Career Specialists Ltd. made a distribution to Mr. Irwin of certain of its assets that were not necessary for the operation of the business. The transaction was effective as of January 1, 1998. Declan French and some of our other officers participated in the management of International Career Specialists Ltd. during the year ended December 31, 1998. Accordingly, our Consolidated Financial Statements incorporate the operation of International Career Specialists Ltd. since January 1, 1998. In November 1998, we completed the acquisition of certain assets of Southport Consulting, Inc. from Mr. Michael Carrazza for $50,000 in cash and 40,000 shares of our common stock. On September 16, 1999, we completed the acquisition of all the issued and outstanding capital stock of Cad Cam, Inc., an Ohio corporation, for an aggregate of $2,000,000 in cash, $2,500,000 pursuant to a promissory note and $1,500,000 worth of our common stock to be issued to Roger Walters, Cad Cam, Inc.'s president. As part of the transaction, Mr. Walters was elected to serve as one of our directors. The share purchase agreement was executed on January 1, 1999 and the transaction was effective as of September 16, 1999. Mr. Walters was not affiliated with us prior to the acquisition. On January 1, 2000, we completed the acquisition of all of the issued and outstanding capital stock of Object Arts Inc., an Ontario corporation, in consideration of: (i) the issuance of $900,000 worth of our common stock to Working Ventures Custodian Fund in exchange for the retirement of outstanding subordinated debt; (ii) the issuance to Working Ventures Custodian Fund an amount of our common stock equal to the legal fees and professional fees incurred and paid by Working Ventures Custodian Fund in connection with our acquisition of Object Arts Inc.; and (iii) the issuance of $1,100,000 worth of our common stock to the existing shareholders of Object Arts Inc. Management believes that Object Arts Inc.'s technical training expertise will enable ThinkPath to offer a complete end-to-end skills gap solution to its customers. On March 6, 2000, we completed the acquisition of 80% of E-Wink, Inc., a Delaware corporation, in consideration of: (i) 300,000 shares of our common stock; and (ii) warrants to purchase an aggregate of 500,000 shares of our common stock at a price of $3.25 per share for a period of 5 years. E-Wink, Inc. is currently developing platform technology that will match company's seeking venture capital with venture capital firms offering such venture capital. On April 25, 2000, we completed the acquisition of all of the issued and outstanding capital stock of Micro Tech Professionals, Inc., a Massachusetts corporation, in consideration for up to an aggregate of $4,500,000 in a combination of cash, notes payable and shares of our common stock, subject to specific performance criteria be met. On the April 25, 2000, we paid to Denise Dunne-Fushi, the sole shareholder of Micro Tech Professionals, Inc., $2,500,000, which was paid in accordance with the following schedule: (i) $1,250,000 in cash; (ii) the issuance of a $750,000 principal amount unsecured promissory note; and (iii) the issuance of 133,333 shares of our common stock. As part of the transaction, we entered into an employment agreement with Denise Dunne-Fushi, the former President of Micro Tech Professionals, Inc. Such employment agreement is for a term of 1 year commencing on April 25, 2000, the effective date of the acquisition, with an annual salary of $125,000 per year and a bonus of $25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the acquisition. On August 22, 2000, we completed a private placement offering of units, each unit consisting of 1 share of our common stock and a callable warrant to purchase 1/2 of 1 share of our common stock. A total of 1,063,851 shares of our common stock were issued together with 532,534 warrants to purchase shares of our common stock exercisable until August 22, 2000 in consideration for $2,681,600. The purchase price per unit ranged from $1.9692 to $2.8125. In addition, we issued to the placement agent, certain financial advisors and the placement agent's counsel, warrants to purchase up to 280,093 shares of our common stock in connection with the private placement offering. Such warrants are exercisable until August 22, 2000 at an exercise price of $2.4614 per share. 18 The information technology and engineering staffing industry is highly competitive and fragmented and is characterized by low barriers to entry. We compete for potential clients with other providers of information technology, engineering and technical training staffing services, systems integrators, providers of outsourcing services, computer consultants, employment listing services and temporary personnel agencies. Many of our current and potential competitors have longer operating histories, significantly greater financial, marketing and human resources, greater name recognition and a larger base of information technology professionals and clients than us which may provide such competitors with a competitive advantage when compared to us. In addition, many of these competitors, including numerous smaller privately held companies, may be able to respond more quickly to customer requirements and to devote greater resources to the marketing of services than us. Because there are relatively low barriers to entry, we expect that competition will increase in the future. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially and adversely affect our business, prospects, financial condition and results of operations. Further, there can be no assurance that we will be able to compete successfully against current and future competitors or that competitive pressures faced by us will not have a material adverse effect on our business, prospects, financial condition and results of operations. We believe that the principal factors relevant to competition in the information technology staffing and engineering services industry are the recruitment and retention of highly qualified information technology and engineering professionals, rapid and accurate response to client requirements and, to a lesser extent, price. We believe that we compete favorably with respect to these factors. We believe that our competitive advantage is not only in our use of technology, but also in the accessibility of this technology to all of our employees. The building and maintenance of our database of over 50,000 has been a combined effort of all our employees. We also have Internet access and membership to 12 local, national and international databases for information technology professionals. Each acquisition was accounted for using the purchase method of accounting, which requires that the purchase price be allocated to the assets of the acquired entity based on fair market value. In connection with the acquisitions of Systemsearch Consulting Services Inc., International Career Specialists Ltd. and all of the issued and outstanding stock of Cad Cam, Inc., Object Arts Inc. and Micro Tech Professionals, Inc., we recorded $449,000, $851,000, $5,520,000, $1,500,000 and $3,700,000 respectively, in goodwill, which is being amortized over 30 years in accordance with generally accepted accounting principles as applied in the United States. In the Consolidated Financial Statements and the Notes included in this prospectus, the results of Cad Cam, Inc, are reflected from October 1, 1999. Revenue and net income figures reported for June 30, 1999 and September 30, 199 were prepared on a pro forma basis as though Cad Cam, Inc. had been included from January 1, 1999. The pro forma financial information reported in the Notes to the Consolidated Financial Statements also includes the operations of Object Arts Inc. from January 1, 1999. During the first six months of the year, Object Arts Inc. experienced significant losses directly attributable to a failed software venture. The pro forma consolidated net loss reported at December 31, 1999 is a result of the losses of Object Arts Inc at June 30, 1999 coupled with significant restructuring and balance sheet adjustments related to our acquisition of Object Arts Inc. Results of Operations The following table presents certain of our financial data as a percentage of our revenue based on information derived from our financial statements. Six Months December 31, Ended June 30, ----------------------- -------------- 1997 1998 1999 2000 ---- ---- ---- ---- Sales 100% 100% 100% 100% Costs of Services 61% 61% 63% 61% Gross profit 39% 39% 37% 39% Operating Expenses 34% 36% 36% 34% Income from operations 4% 4% 2% 5% Net income 3% 3% 1% 2% 19 The Six Months Ended June 30, 2000 Compared to the Six Months Ended June 30, 1999 Revenue. Revenue for the six months ended June 30, 2000 increased by $10,210,000 or 88%, to $21,810,000, as compared to $11,600,000 for the six months ended June 30, 1999. The increase is primarily attributable to the added revenues of Cad Cam, Inc. and Micro Tech Professionals, Inc. Cad Cam, Inc. was acquired in September 1999 and had sales of $10,160,000 for the six months ended June 30, 2000. Micro Tech Professionals, Inc. was acquired effective April 1, 2000 and had sales of $1,740,000 for the three months ended June 30, 2000. Also a result of these acquisitions, the Company's revenues from the United States for the six months ended June 30, 2000 increased by $10,440,000, or 288%, to $14,070,000, as compared to $3,630,000 for the six months ended June 30, 1999. Costs of Contracts Sold. Cost of Contracts Sold represents all fees, benefits and expenses paid to contractors and technical instructors. The costs of contracts sold for the six months ended June 30, 2000 increased by $6,130,000, or 86%, to $13,260,000, as compared to $7,130,000 for the six months ended June 30, 1999. This increase was due to the increased volume of contract services, largely a result of the acquisitions of Cad Cam, Inc. and Micro Tech Professionals, Inc. As a percentage of revenue, the cost of contracts sold decreased from 62% in 1999 to 61% in 2000, as a result of the acquisition of Object Arts Inc. and the higher margins afforded to technical training. Gross Profit. Gross profit is calculated by subtracting all fees, benefits and expenses paid to contractors and technical instructors from net revenue. The Company does not attribute any direct costs to permanent placement services or mentoring services. Gross profit for the six months ended June 30, 2000 increased by $4,100,000, or 92%, to $8,560,000, as compared to $4,460,000 for the six months ended June 30, 1999. This increase was attributable to the aforementioned increase in revenue during the six months ended June 30, 2000. As a percentage of revenue, gross profit increased to 39% for the six months ended June 30, 2000 from 38% for the six months ended June 30, 1999, as a result of the decrease in the cost of contracts sold. Operating Expenses. Operating expenses include expenses for administrative and management benefits and salaries, advertising and promotion, office and general, interest, professional fees and occupancy costs. Operating expenses for the six months ended June 30, 2000 increased by $3,330,000, or 80%, to $7,450,000, as compared to $4,150,000 for the six months ended June 30, 1999. This increase was primarily attributable to the increase in administrative expenses at the corporate level required to support the increasing number of locations and volume of transactions. As a percentage of revenue however, operating expenses decreased from 36% for the six months ended June 30, 1999 to 34% for the six months ended June 30, 2000. Net Income. Net income for the six months ended June 30, 2000 increased by $190,000 or 119%, to $350,000, as compared to $160,000 for the six months ended June 30, 1999. As a percentage of revenue, net income increased to 1.6% for the six months ended June 30, 2000 from 1.4% for the six months ended June 30, 1999. Amortization expense increased $570,000 or 407% from $140,000 for the six months ended June 30, 1999 to $710,000 for the six months ended June 30, 2000. This increase is primarily attributable to the increase in capital assets, the increase in the acquisition of other assets, and the increase of goodwill. Interest expense increased by $230,000 or 121% to $420,000 for the six months ended June 30, 2000 from $190,000 for the six months ended June 30, 1999. This increase is a result of the Company's increase in short-term and long-term debt. 20 The Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998 Revenue. Revenue for the year ended December 31, 1999 increased by $7,300,000 or 59%, to $19,800,000, as compared to $12,500,000 for the year ended December 31, 1998. The increase is primarily attributable to the acquisition effective September 16, 1999 of Cad Cam, Inc., which had sales of $5,100,000 for the three-month period ending December 31, 1999 and $21,200,000 for twelve-month period ending December 31, 1999. Cost of Contract Services Sold. The Cost of Contract Services Sold for the year ended December 31, 1999 increased by $4,900,000, or 65%, to $12,500,000, as compared to $7,500,000 for the year ended December 31, 1998. This increase was due to the increased volume of contract services. As a percentage of revenue, the Cost of Contract Services Sold increased marginally from 61% in 1998 to 63% in 1999. The increase in the Cost of Contract Services Sold as a percentage of revenue is a result of the associated costs of Cad Cam, Inc.'s contractors who are treated as employees, and thus are entitled to benefits, overtime and holiday pay. Gross Profit. Gross profit for the year ended December 31, 1999 increased by $2,300,000, or 48%, to $7,200,000, as compared to $4,900,00 for the year ended December 31, 1998. This increase was attributable to the aforementioned increase in revenue during the year ended December 31, 1999. As a percentage of revenue, gross profit decreased from 39% for the year ended December 31, 1998 to 38% for the year ended December 31, 1999. This decrease was a result of the decline in permanent placement sales and the dramatic increase in contract sales, primarily due to the acquisition of Cad Cam, Inc. Operating Expenses. Operating expenses for the year ended December 31, 1999 increased by $2,700,000, or 61%, to $7,100,000, as compared to $4,400,000 for the year ended December 31, 1998. This increase was primarily attributable to the increase in administrative expenses at the corporate level to support the increasing number of locations and volume of transactions. As a percentage of revenue however, operating expenses remained consistent at 36% for the year ended December 31, 1998 and for the year ended December 31, 1999. Accounts Receivable. We had accounts receivable of $4,900,000 for the year ended December 31, 1999 as compared to $2,200,000 for the year ended December 31, 1998. Accounts receivable represented 25% of revenues for the year ended December 31, 1999 as compared to 17% for the year ended December 31, 1998. Net Income. Net income for the year ended December 31, 1999 decreased by $120,000, or 34% to $230,000 as compared to $350,000 for the year ended December 31, 1998 due to costs associated with the integration and infrastructure buildup of the new acquisitions and offices. As a percentage of revenue, net income decreased from 3% in 1998 to 1% in 1999. In fiscal 1999, amortization expense increased 188% to $750,000 from $190,000 in fiscal 1998. This increase is primarily attributable to the increase in capital assets, deferred costs associated with the Njoyn, and the acquisition of goodwill. In fiscal 1999, interest expense increased 271% to $330,000 from $110,000 in fiscal 1998. This increase is a result of our increased short-term and long-term debt. Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997 Revenue. Revenue for year ended December 31, 1998 increased by $7,800,000, or 166%, to $12,500,000, as compared to $4,700,000 for the year ended December 31, 1997. The increase is primarily attributable to the acquisition effective January 1, 1998 of International Career Specialists Ltd., which had sales of $4,380,000 million for the year ended December 31, 1998. Also contributing to the increase was an increase of $530,000 in the sales of Systemsearch Consulting Services Inc. as a result of improvements in operations since it was acquired by us effective January 2, 1997, and growth in the contract sales in our Toronto office. Revenue from contract services and permanent placement services accounted for 82% and 18%, respectively, of revenue for the year ended December 31, 1998 as compared to 79% and 21%, respectively, for the year ended December 31, 1997. 21 Cost of Contracts Sold. Cost of Contracts Sold for the year ended December 31, 1998 increased by $4,700,000, or 163%, to $7,600,000, as compared to $2,900,000 for the year ended December 31, 1997. This increase was due to the increased volume of contract services. As a percentage of revenue from contract services, Cost of Contracts Sold decreased from 77% as a result of a higher margin mix of contractors placed. Gross Profit. Gross profit for the year ended December 31, 1998 increased by $3,100,000, or 170%, to $4,900,000, as compared to $1,800,000 for the year ended December 31, 1997. This increase was attributable to the aforementioned increase in revenue during the year ended December 31, 1998. As a percentage of revenue, gross profit increased to 39.2% for the year ended December 31, 1998 as compared to 38.6% for the year ended December 31, 1997. This increase was due to the slight decrease in the percentage of revenue which was derived from contract services. Operating Expenses. Operating expenses for the year ended December 31, 1998 increased by $2,800,000, or 173%, to $4,400,000, as compared to $1,600,000 for the year ended December 31, 1997. This increase was primarily attributable to increases of $1,861,553 in selling expenses and $980,934 in administrative expenses at International Career Specialists Ltd. during the year ended December 31, 1998. Administrative expenses at the ThinkPath Division also increased as we expanded its infrastructure to support operations from multiple locations and operated additional offices. As a percentage of revenue, operating costs increased to 36% for the year ended December 31, 1998 from 34% for the year ended December 31, 1997 due to an increase in the number of locations and volume of transactions. Accounts Receivable. We had accounts receivable of $2,184,783 for the year ended December 31, 1998, as compared to $791,427 for the year ended December 31, 19997. Accounts receivable represented 17.5% of revenues for the year ended December 31, 1998 as compared to 16.8% in the year ended December 31, 1997. Net Income. Net income for the year ended December 31, 1998 increased by $212,782, or 154% to $351,190, as compared to $138,408 for the year ended December 31, 1997 due to, among other things, the reasons enumerated above. Liquidity and Capital Resources Our primary sources of cash and cash flow from operations were our credit lines with Toronto Dominion Bank and Provident Bank and proceeds from a private placement. At June 30, 2000, we had cash and cash equivalents of $3,130,000 and a working capital deficiency of $190,000. During the six months ended June 30, 2000, we had a cash flow deficiency from operations of $1,300,000, due primarily to an increase in accounts receivable. At June 30, 1999, we had cash and cash equivalents of $4,000,000 and a working capital of $3,380,000. During the six months ended June 30, 1999, we had a cash flow deficiency from operations of $3,670,000, due primarily to an increase in short-term investments. Our arrangement with the Toronto-Dominion Bank allowed for an operating line, payable on demand, of up to $1,400,000. At June 30, 2000, there was $1,300,000 outstanding on this line. In addition, we had an operating line with Provident Bank, payable on demand, up to a maximum of $5,000,000. At June 30, 2000, there was $3,940,000 outstanding on the line with Provident Bank. At June 30, 2000, we had a total of $600,000 due to the Business Development Bank of Canada pursuant to seven separate loans. On July 27, 2000, we entered into an agreement with Bank One for an operating line of $7,000,000 payable on demand and secured by our assets. Effective July 27, 2000, we canceled our operating lines with Toronto Dominion Bank and Provident Bank. 22 Our financing activities include borrowings and repayments under its bank financing agreements, issuance of and payments against installment notes used to finance acquisitions. For the six months ended June 30, 2000, we had cash flow from financing activities of $3,280,000, attributable to an increase in bank indebtedness of $1,150,000 and proceeds of $1,580,000 from the issuance of preferred stock. For the six months ended June 30, 1999, we had cash flow from financing activities of $4,600,000, attributable to an increase in bank indebtedness of $1,120,000 and proceeds of $3,600,000 from the issuance of common stock. On July 7, 2000, we issued an aggregate of: (a) 5,000 shares of our Series A 8% Cumulative Convertible Preferred Stock; and (b) warrants to purchase up to an aggregate of 225,000 shares of our common stock, in consideration $500,000 pursuant to the exercise of our option granted to us in the December 1999 a private placement offering upon the same terms in the December 1999 private placement offering. The 225,000 warrants issued upon our exercise of the option are exercisable at any time and in any amount until December 30, 2004 at a purchase price of $3.575 per share. On August 22, 2000, we completed a private placement offering of units, each unit consisting of 1 share of our common stock and a callable warrant to purchase 1/2 of 1 share of our common stock. A total of 1,063,851 shares of our common stock were issued together with 532,534 warrants to purchase shares of our common stock in consideration for $2,681,600. The purchase price per unit ranged from $1.9692 to $2.8125. In addition, we issued to the placement agent, certain financial advisors and the placement agent's counsel, warrants to purchase 280,093 shares of our common stock in connection with the private placement offering. Such warrants are exercisable until August 22, 2000 at an exercise price of $2.4614 per share. During the six months ended June 30, 2000 the we had a cash flow deficit from investing activities of $2,810,000, attributable to the acquisition of capital assets and other assets related to Njoyn formerly known as the GTS (our proprietary Internet-based recruiting and information management tool), infrastructure buildup and cash payments for subsidiaries. During the six months ended June 30, 1999, we had a cash flow deficit from investing activities of $820,000, attributable to the acquisition of capital assets. Our working capital requirements consist primarily of the financing of accounts receivable. While there can be no assurances in this regard, we expect that internally generated cash plus the bank revolving line of credit with Bank One will be sufficient to support our working capital needs, our fixed payments and other short-term obligations. We will continue to identify and participate in financing activities on a debt or equity basis to fund its internal growth, marketing and development of Njoyn and strategic acquisitions. Year 2000 Compliance We have developed and implemented a Year 2000 compliance program to address internal systems, suppliers, processes and procedures, as well as the internally developed Njoyn solution. All phases and actions of this program were successfully completed as planned. Remediation measures, where required, were successfully implemented and tested. The total cost of the compliance program was not material. Although we believe that we have taken the appropriate steps to assess, implement and test Year 2000 compliance, it is not possible to ascertain whether the efforts of customers, suppliers or other third parties, will have a material adverse effect on our business, results of operations and financial condition. 23 BUSINESS Overview We are a global provider of information technology and engineering recruiting, project outsourcing, technical training and consulting and ASP-based skills management technology. Our customers include financial service companies, software and other technology companies, Canadian and American governmental entities and large multinational companies, including Bank of Montreal, Bell Canada, Goldman Sachs, Chapters, Lucent Technologies, Cummins Engine, General Motors, Xerox Corporation, American Express and Universal Industrial Corp. (ESI). We have recently expanded our operations into the United States, through among other things, our acquisitions of Cad Cam, Inc. and Object Arts Inc., and intend to develop an expanded network of offices to provide our services throughout North America. We have focused on the recruiting of quality information technology and engineering professionals. We utilize established testing methods to ensure that our professionals are properly qualified. We also review candidates' technical backgrounds and conduct preliminary interviews prior to referring candidates to our customers. By attracting the most qualified professionals, we believe that we will be able to attract high quality customers who require the services of such professionals. Since inception, we have pursued a strategy of developing and utilizing technology that we believe will provide us with a competitive advantage. As a result, we believe that one of our primary competitive strengths is our utilization of technology. We maintain a database of more than 50,000 information technology and engineering professionals and advertise on the Internet to attract both candidates and customers. We have developed a recruitment management product called Njoyn. Njoyn is a Web-based recruitment technology, which automates and electronically manages every step of the recruitment and hiring process. Njoyn is designed to address the skills shortage and helps clients satisfy their recruiting needs. Njoyn electronically manages and automates the entire enterprise-wide recruiting and hiring program. Njoyn coordinates, streamlines and manages all individual candidate sources and recruitment methods in real time, including job board postings, company Web sites, newspaper advertising, employee referrals, direct recruits and career fair. In addition, Njoyn is able to satisfy the human resource professionals' increasing demand for a wide range of critical metrics, including cost per hire and time per hire. As a result of our recent acquisitions of Cad Cam, Inc., Object Arts Inc. and Micro Tech Professionals, Inc., we now offer our clients project outsourcing including Technical Publications and Design Engineering, as well as technical training and consulting. We were incorporated under the laws of the Province of Ontario, Canada in 1994. Industry Background The staffing industry has experienced significant growth in recent years in response to the increased popularity of outsourcing of many staffing requirements. This growth has been driven by employers who have sought to convert personnel costs from fixed to variable in nature by reducing their permanent staff and supplementing their workforce with contract employees for specific projects, peak work loads and other needs. The use of flexible staffing services has allowed employers to improve productivity, outsource specialized skills and avoid the negative effects of layoffs. This trend has accelerated with the pace of technological change and greater global competitive pressures. Regulations governing employee benefits, insurance and retirement plans, as well as the high cost of hiring, laying off and terminating permanent employees, have prompted many employers to take advantage of the flexibility offered through contract staffing arrangements. According to the Staffing Industry Report, a leading industry publication, revenue for the year ended December 31, 1997 for information technology staffing services in the United States is estimated to have been $14.8 billion, a 27% increase over such revenues for the year ended December 31, 1996. According to an 1998 IDC Canada survey, an independent Canadian industry publication, the Canadian Information Technology services industry grew by more than 11% in 1997, reaching Cdn$11.5 billion in revenues, an increase of 11.5% over such revenues for the year ended December 31, 1996, and is expected to grow at a compounded annual rate of 12.1% through 2001. 24 The high technology industry as a whole continues to experience substantial growth as constant innovations, such as open and distributed computing, client/server technology, the Internet, relational databases and object-oriented programming, shortens product lifecycles and accelerates the demand for computer-related products. These trends, combined with the intense competition faced by high technology companies, have put considerable pressure on such companies to shorten the time-to-market of their products. The development of these next generation products often requires highly specialized technical talent which may not be available internally. This need for information technology professionals is particularly critical during the period prior to the release of new software or hardware products. As a result, these high technology companies are frequently utilizing supplemental sources of information technology professionals with expertise in current technologies. As new technologies are developed and introduced, businesses are attempting to integrate and implement these technologies into their already complex information technology systems. As these systems are being deployed on an enterprise-wide basis and on multiple hardware and software platforms, the process of systems design and implementation has become more complex. As a result, businesses are forced to find qualified information technology professionals to design, develop, deploy and maintain their systems. Frequently, however, qualified information technology professionals do not exist internally or it may be impractical to re-deploy and retrain internal personnel. Consequently, these businesses are increasingly seeking to augment their staffs with information technology professionals skilled in the management and operation of such systems. We believe that the growth of the Internet is likely to contribute to the demand for information technology professionals. North American companies are increasingly establishing or maintaining a presence on the Internet. Although many companies outsource to Web site maintenance companies, others retain direct control of their Web sites and may utilize contract workers to establish and maintain such sites. Despite increased demand for information technology professionals, there is a shortage of information technology professionals proficient in the most current computer languages and applications. According to the Information Technology Association of America, recent studies indicate that the United States has a shortage of approximately 346,000 information technology professionals. According to a study performed by the KPMG/CATA Alliance, Canada has a shortage of between 20,000 and 30,000 information technology professionals. The studies also suggest that the shortfall is growing. Due to the high demand for their services, many information technology professionals have a variety of opportunities in the job market and an increasing number are attracted to the benefits of working on a contract basis. Such benefits include more flexible work schedules and the opportunity to work with emerging and challenging technologies in a variety of industries. We believe that to address their increasing demand for contract and permanent information technology and engineering professionals, both research and development departments of technology companies and information technology departments of large corporations are turning to information technology and engineering staffing companies to augment their existing operations. Technology-dependent companies are increasingly utilizing outside consultants to: (i) meet critical production deadlines; (ii) focus on their core business and avoid devoting valuable time to the recruiting and hiring processes; (iii) access specialized technical skills; (iv) better match staffing levels to current needs; and (v) reduce the costs of recruiting, training and terminating employees. Business Strategy Our business objectives are to increase our share of the information technology and engineering staffing services market in Canada and the United States, as well as to establish a network of offices throughout such countries which, when linked by means of the Internet, will allow us to provide our customers with an array of information staffing services. The primary components of our strategy to achieve such objectives are as follows: 25 Leverage Client Base to Attract and Retain Highly Qualified Information Technology and Engineering Professionals A key element of our success has been our ability to attract and retain highly qualified information technology and engineering professionals. We believe that the primary reason that we can attract such professionals is due to our high quality customer base, which allows us the opportunity to identify and deliver high quality assignments involving leading-edge technologies. Additionally, we believe that we have developed a reputation among information technology professionals for efficient and high quality placements by focusing on an information technology professional's particular field of technical specialization and providing access for information technology professionals to cash compensation levels comparable to, or higher than, that of similarly skilled, full-time employees. As our high quality clients have allowed us to attract a large number of qualified information technology and engineering professionals, our database of information technology and engineering professionals, in turn, has allowed us to increase our number of clients. We believe that this cyclical phenomenon in the recruiting business creates the opportunity for significant growth it expands and implements the other facets of our business plan. Focus on Niche Markets We believe that our expertise in the information technology and engineering industry provides us with a competitive advantage over recruiting firms that do not utilize information technology specialists in their recruiting. The Staffing Report On-Line, an on-line magazine for the employment and temporary service industry, views the information technology staffing business as distinctly different from traditional staffing businesses. Our recruiters follow information technology industry trends, are usually knowledgeable in the information technology and engineering areas and have access to our databases of information technology and engineering professionals, all of which enables them to provide their customers with candidates who will satisfy a particular client's requirements. We believe that developing niche specialties will enhance our reputation as a whole and create opportunities for us to establish relationships with new customers who then may utilize us to locate information technology professionals with other skills. Expand into New Regional Markets As opportunities arise, we intend to expand into certain markets by means of acquisition, but believe that most expansion will come from the establishment of new offices. We intend to establish such offices by hiring experienced recruiters familiar with the local markets and providing them access to our existing group of information technology professionals and customers by means of the Internet. By hiring local recruiters, we believe that we will be able to attract local clients and information technology professionals who may not have been previously familiar with us. We believe that such recruiters will find us to be an attractive place to work because of our existing relationships with multinational and other large corporate clients, our good reputation among information technology professionals, our quality information technology system and our incentive based compensation package which will generally combine base salary, bonuses, commissions and incentive stock options. Where we deem it more cost effective, or when a particular acquisition candidate will provide us with a competitive advantage, we may enter a new regional market by acquiring an existing information technology staffing company. We intend to focus on small acquisition targets who will be able to benefit from our strong information technology and operating systems. 26 Continue to Utilize the Internet and Information Technology We believe that our use of technology provides us with a competitive advantage over many of our competitors. We utilize our Njoyn software to operate our database and allow recruiters to use a query-based system that matches the skill set and employment preferences of the information technology professionals with the needs of the customer. This system also tracks other information, such as average salaries of a particular position, which enables us to provide valuable advice to its clients in selecting the proper information technology professional. Our information technology professional database and recruiting software is available to our employees in other cities through our fully secure Intranet system. For example, a recruiter in a new office in Austin, Texas could have complete access to our information technology in Toronto, Ontario. We believe that this will enable us to open new offices that are quickly ready to provide services to customers without incurring significant information technology start-up costs. In smaller markets, we intend to utilize our information technology system to create lightly staffed "virtual offices" that rely on our Toronto, Ontario office for all administrative and many operating functions. We utilize the Internet to promote our services and to provide information technology and engineering professionals with a complete listing of available employment opportunities. Information technology and engineering professionals can e-mail their resumes to our recruiters and, by completing an on-line form, enter themselves into our database We have developed a recruitment management product called Njoyn. Njoyn is a Web-based recruitment technology which automates and electronically manages every step of the recruitment and hiring process. Njoyn reduces resume overload by pre-screening candidates with automated filtering mechanisms; automates job postings to external job boards and news groups; manages a company's recruitment Web site and internal posting and referral programs; handles all administrative details such as interview scheduling and correspondence; and provides an elaborate reporting facility to calculate hiring costs. The technology is hosted by us and runs entirely over the Internet. Develop and Promote a Managed Services Practice We intend to form a team of consultants who will aid our customers in determining their information technology staffing needs. We believe that this will provide us with a competitive advantage when compared with traditional recruiting firms. Furthermore, we believe that Managed Services could provide us with an additional source of revenue, which could be particularly important if companies utilize Njoyn and Internet sources to reduce their reliance on recruiting firms. Capitalize on Year 2000 and Other Opportunities Due to a once-common programming standard that represents years using two-digits, many computer systems and software products, unless upgraded, may not function properly in the year 2000. The problem may result in the inability of computer systems to properly recognize date-sensitive data and may result in the production of erroneous information or system failure. Many companies rely on contract workers to review their computer systems and make necessary changes to avoid the potential Year 2000 problems. Contract workers are ideal for this task because it is likely to be a time consuming and complicated, yet temporary, project. We will continue to exploit the Year 2000 issue as an opportunity to develop additional customer relationships and to expand the scope of our contract work on a project-by-project basis. We believe that computer systems will require modifications to be able to properly record data changes and companies may rely on contract workers and consulting teams to implement these changes. We have been and intend to continue to capitalize on the need for a quick response to such provisions by assembling teams of specialists to address such problems which we intend to use as an opportunity to establish additional customer relationships. 27 As the state of the economy fluctuates, so too do expenditures on new information technology systems. This is particularly true of the financial services industry, where there is a higher amount of discretionary spending for information technology systems. We have guarded against being adversely affected by a curb in spending from the financial services sector by diversifying our client base to include manufacturing, distributing and telecommunications firms, and software companies. We have been focusing our infrastructure development and marketing initiatives on niche market areas, such as enterprise resource planning and network management. We believe that by doing so, we have positioned ourselves in the lowest possible risk sector for market fluctuations. Contract Services Our contract services revenue is derived from time and materials contracts in which we supply a contract worker to perform under the supervision of the client. Our contract services generally consist of providing contract workers to customers for short and long term assignments. These assignments generally last from three to twelve months, but can sometimes last much longer. The assignments may be for specified projects or general information technology consulting work. Although we currently bill the clients only on a time and materials basis at an agreed upon hourly rate, in the future it may assemble teams that will perform projects for an agreed upon fixed price for the project. We pay the contract worker an agreed upon rate, pursuant to our standard consulting services agreement. The contract worker generally receives between 75% and 80% of the amount paid to us by the customer, however such payment is usually not based on any formula and may vary for different engagements. This agreement, which is terminable by us at any time, obligates the contract worker to provide notice prior to leaving the position, contains a confidentiality clause, and prohibits the worker from going to work directly for the customer for a period of six months from the date that the worker no longer works for such customer without our consent. We intend to increase the amount of project services work we are doing by assembling teams specializing in particular projects, such as Year 2000 problem resolution. In the future, we may hire project leaders as salaried employees to lead teams of consultants on certain projects. We believe that this will enable us to earn higher margins on our project work. Furthermore, such teams would enable us to market ourselves as a full-service provider of information technology and engineering staffing services with a wide array of services that can be tailored to meet a customer's particular needs. Permanent Staffing Placement Services Our permanent placement services generally consist of the placement of an information technology or and engineering professional in a position for our customers. We identify and provide candidates to our customers who our recruiters believe, based on our data, have the technical skills and job interest to best satisfy the requirements of the position. We recognize revenue when the information technology or engineering professional commences employment. However, we are required to find a replacement free of charge if the employee does not remain in the position for at least ninety days. This placement fee is usually structured as a percentage of the information technology or engineering professional's first-year annual compensation. This percentage ranges from 20% to 30%, although we expect to reduce the fee to 10-15% for customers utilizing our Internet technology because those placements will require less time and input from our recruiters. Salaries for the information technology and engineering professionals that we place generally range from $45,000 to $150,000. We perform permanent placement services pursuant to three invoicing policies. Contingency services are engagements in which we are only paid if we are successful in placing a candidate in a position. Contingency exclusive services are similar to contingency engagements, however, we are the only firm engaged to fill the position. Retained search services are similar to contingency exclusive services, except that we receive a non-refundable portion of the fee prior to performing any services, with the remainder paid if the position is filled. 28 Sales and Marketing Our primary target markets are software, telecommunications, manufacturing and engineering and other technology companies, financial service companies and multinational and other large corporations. We maintain a database of human resource administrators and information technology department heads at these firms and utilize our sales forces to build relationships with these individuals by stressing the quality of information technology professionals that we recruit. As we expand into new regional markets we intend to hire local sales people who are familiar with local customers. Because many of our customers maintain offices in more than one city, we believe that we will have an advantage in establishing relationships with these additional offices as we expand into new regional markets. We market our services via the Internet. We are in the process of upgrading our Web site, which previously has been used primarily as a tool to advertise job opportunities to information technology professionals and to promote our services to our customers. We also utilize traditional advertising outlets and trade shows to promote our services to potential customers. Customers We provide staffing services to customers in a wide array of industries. Software development, telecommunications, manufacturing and engineering, and other technology companies utilize our services to locate programmers in the development of new products. We also provide services to financial services companies, such as Bank of Montreal and Goldman Sachs, which are extremely reliant on their information technology systems. Large consulting firms, such as Deloitte & Touche Tohmatsu, are also beginning to utilize us to meet their need for information technology professionals. Our customers include the Fortune 1000 companies, such as American Express Company. We believe that we will be able to provide services to other multinational and large companies and expand services provided to these existing customers by expanding into new regional markets. These multinational and other large companies have indicated to us that they desire to use fewer suppliers to meet their needs and we believe that we will be able to utilize relationships in one market to establish relationships with such companies in other markets. Additionally, we believe that our high profile customer base provides us credibility when pursuing other customers. The following is a list of certain of the larger companies who utilize our services. Financial Services Software, Technology and Telecommunications - ------------------ ------------------------------------------- American Express Bell Canada Bank of Montreal Lucent Technologies CIBC Wood Gundy SHL Systemhouse Co. Goldman Sachs Star Data Systems, Inc Toronto Stock Exchange Government and Educational Other - -------------------------- ------ Government of Canada General Motors Government of Ontario Cummins Engine Deloitte & Touche National Grocers Co. Ltd. Chapters Xerox Corporation As is common in the staffing industry, we do not have long-term written contracts with most of our customers. We, however, generally enters into a standard form agreement with our customers that indicates which parties are responsible for taxes and other expenses, and provides that all intellectual property and other proprietary information will remain confidential and the property of the customer. Some customers, such as the Canadian government, Dow Jones and CIBC Wood Gundy Securities Inc., require us to use another form of agreement which is similar in all material respects to our standard form. With certain clients, most significantly, Bank of Montreal, we enter into an agreement allocating other responsibilities, such as the supervision of the information technology professionals we recruit. Other customers, enter into annual contracts with us pursuant to which we will supply contract workers during the year as required by the customer at fees to be negotiated. 29 Strategic Alliances We intend to utilize strategic alliances to promote our staffing services. We may enter into arrangements with consulting firms to staff major information technology projects. Alternatively, we may enter into arrangements with software companies whereby our contract workers will be trained to perform customer support services. Lastly, we may enter into agreements with other staffing companies in geographic regions in which we do not intend to expand. Such arrangements will allow us to provide our existing large corporate clients with services in areas where we not familiar with the local market. Currently, we are not a party to any agreements to enter into arrangements such as these, and there can be no assurance that we will find entities with which to enter into strategic alliances on terms acceptable to us, or at all. Recruiting We believe that our technology and experienced recruiting staff of 56 individuals enables us to recruit qualified information technology professionals whose skills match the needs of our customers. Many of our recruiters have strong information technology backgrounds and are required by us to take a two-week training course when hired by us. We maintain a database of over 50,000 information technology and engineering professionals. Our recruiters maintain ongoing relationships with certain information technology professionals and are aware of their particular skills and employment status. Using our database and our recruiters' knowledge of available information technology professionals, we are often able to quickly locate a number of suitable candidates for a position, which is particularly important for positions in which we do not have an exclusive engagement. The database also contains reference and employment history information which accelerates the screening process. We test the computer skills of all of our information technology professionals utilizing TeckChek software. This software provides recruiters with a consistent rating system and a reliable method of evaluating candidates, which aids recruiters in matching candidates with positions requiring their skill set. This software also allows us to provide evidence to our customers that potential employees have sufficient technical skills. Additionally, we screen candidates by telephone and in-person interviews and by reference checks. If we are unable to locate suitable candidates for a position by means of our databases, we may utilize advertisements in newspapers and trade magazines. We often prepare and place advertisements on behalf of our clients. We have been approved by the Canadian Newspaper Association as an advertising agency, which allows us to earn a commission on any advertisements we place. Additionally, we post job openings on our Web site and invite information technology professionals to submit their resumes to us by e-mail. We intend to recruit information technology and engineering professionals from other countries, such as Singapore and India, where there are a number of information technology and engineering professionals and the job opportunities are inferior to those in North America. United States and Canadian immigration laws contain preferences for immigrants who can fill skilled labor positions for which there is a shortage of native applicants. 30 We believe that turbulent economic and political situations in other parts of the world, as well as the general lack of opportunities for top information technology professionals in countries such as Russia and India, make Canada and the United States an appealing choice for immigration. According to a recent KPMG/CATA Alliance High Tech Labor Survey, there is a shortage of information technology workers in Canada. Bringing in foreign workers helps to alleviate this shortage. The Canadian government, in recognition of this fact, has relaxed entrance requirements for information technology and engineering professionals, allowing such workers to enter the country more quickly than ever before. We are dedicated to maximizing the value of overseas recruitment through a variety of methods. The first is through the extensive use of the Internet and our Internet-based product, Njoyn. By using a combination of our Web site and e-mail, we are able to communicate with information technology professionals around the globe, making them aware of the opportunities we have available, and discuss immigration options. Internally, we have built a knowledge base around the particular issues of bringing information technology workers to Canada. We have also been building a library of information about the legal technicalities surrounding work visas and immigration for Canadian workers migrating to the United States. To complement this knowledge that we are building internally, we have also developed strategic relationships with legal counsel specializing in immigration and visa issues. Another strategy we are employing in the area of foreign recruitment is the establishment of lightly staffed virtual offices in different parts of the world. Recruiters with country-specific contacts and knowledge are given access to our database and job postings. They then carry this information into the field where they screen and select foreign candidates who they feel would be appropriate for the opportunities that we have available. We then take these pre-screened candidates and continue with the evaluation process. Information Technology and the Internet We have established an extensive information technology system which we believe provides us with a competitive advantage over less technologically advanced competitors. The primary components of our information technology system and our use of technology are described below. The Njoyn Software Njoyn is an Internet-based software application that is used by us in the administration and tracking of internal processes relating to the recruitment and placement of information technology professionals. Njoyn is a query based software program that allows our recruiters to locate the information technology professional in our database with the technical skills and job interests that best satisfy the requirements of the position that we are attempting to staff. This system also tracks other information, such as average salaries of a particular position, which enables us to provide valuable advice to our clients in selecting the proper information technology professional. The software also incorporates our database of over 50,000 information technology professionals. We continually update our database and occasionally access other databases of information technology professionals that are available for sale or over the Internet. Njoyn allows information entered into the database by our employees, or directly by an information technology professional by means of the Internet, to be shared by all of our recruiters and salespeople. The Njoyn software is designed to aid a human resources department in performing numerous recruitment tasks, such as scheduling interviews and evaluating candidates. The software has a feature that allows a human resources department to have a description of any job openings sent automatically to selected e-mail addresses, such as those of recruiting firms or previous applicants. Statistics about the recruitment process, including the costs and expenses, are tabulated in various databases. Additionally, the software allows the human resource department to compile their own database of prospective employees and contract workers. 31 Traditionally, recruiters acquire new candidates using as many sources as possible. Normally the number of sources would be limited to the recruiting office's ability to handle the logistics of communicating job specifications to those sources and handling the incoming responses. Therefore, their ability to hire quality information technology candidates is directly related to the size of the group of candidates they can attract and the speed with which they can assimilate, contact, interview, evaluate, file for future use and/or hire those candidates. The process, through which recruiters post or communicate job specifications to applicant sources, is fully automated. Once the hiring manager and the recruiter have constructed the job specification using Njoyn, they use Njoyn Broadcast facility to communicate this job specification to all designated sources. With a click of the mouse the recruiter defines and chooses the broadcast strategy. The information can be communicated/posted simultaneously and automatically to appropriate employment agencies, web news groups, Web job posting sites, archived candidates, internal candidates (as per policy) and personal referral sources. Njoyn consolidates and automates the communication process for all sources. Each unique information source is provided with a web interface. All out-going and in-coming communications/applications are managed using this web interface. No specialized client software is required. All transactions are initiated through a web browser. Recruiters, hiring managers and applicants now use a common medium for communication. This type of common-interface messaging reduces significantly the reliance on hard-copy mail, phone communication and fax transmission. Additionally, a Web site address is provided for all candidates that are informed of the job requirements by means of trade journals or newspapers. This further centralizes the incoming applicant response. Njoyn development program was launched as a result of the positive response observed during its first test-marketing session. A working prototype was demonstrated at the annual Human Resources Professional Association Conference in Toronto, Ontario in February 1998. We performed more than forty one-on-one demo sessions with companies, currently, the product is being test marketed by the human resources departments of two of our customers. The first customer is the Toronto Stock Exchange, which is viewed as a Canadian leader in the development and deployment of application software. We believe that we will be able to provide assistance in the marketing of the software as a result of its existing relationships with management in the human resources and information technology departments of our customers, although there can be no assurance thereof. Our joint venture allocates costs and responsibilities in marketing Njoyn. As of the date of this prospectus, we have spent approximately ($1,000,000) on research and development related to Njoyn. Although there can be no assurance thereof, we believe that we will have an advantage in marketing its recruitment services to companies using Njoyn because of our familiarity with the software and the ease of electronic data interface with us. There is a possibility, however, that utilization of the software will reduce reliance of certain customers on recruiting firms, including us. Notwithstanding the foregoing, we do not anticipate any material reduction in such reliance as a result of the utilization of this software due to the difficulty of hiring information technology professionals. Furthermore, we intend to offer lower commission rates to customers using Njoyn software to make it less likely that they will reduce the level of utilization of the services of recruiting firms. We believe that the use of Njoyn and our familiarity with the software will enable us to aid customers in finding suitable, professionals in a more timely and cost efficient manner, allowing for the decrease in prices we charge. Utilization of the Internet We utilize the Internet to promote our services and to enable our customers and information technology and engineering professionals to utilize our services. The descriptions of the employment opportunities are segregated among permanent and contract positions, describe the necessary skills required by information technology and engineering professional candidates, and provides a phone number and e-mail address for our recruiter who works with the relevant client. Alternatively, information technology and engineering professionals can e-mail their resumes to us or can enter themselves into our database by means of the Internet. We also utilize the Internet to connect our offices to our Toronto, Ontario office. This results in substantial savings in software and hardware costs in the maintenance of our information technology system and allows for the creation of lightly staffed regional virtual offices. 32 Expansion and Acquisitions We believe that we can leverage our database of information technology and engineering professionals, reputation, and information technology system to achieve revenue growth by establishing new offices in other regional markets. Such offices may be established by opening new offices and staffing them with local recruiters and sales people or by acquiring complimentary or competitive companies. We primarily intend to focus our expansion in large United States cities, such as Atlanta, Chicago, San Francisco and Austin. We are selecting locations that have other offices of our existing customers, such as Chicago, the headquarters of Harris Bank & Trust, or areas with numerous technology companies, such as Austin. In addition to attracting local information technology and engineering professionals, we intend to attempt to recruit Canadian and other foreign information technology and engineering professionals for these positions in the United States. Due to the strength of the United States dollar against the Canadian dollar and other currencies, we believe that foreign information technology and engineering professionals will find the economic opportunities in the United States attractive. We are currently endeavoring to expand our operations in the mid-western United States. We believe that recruiters in other markets will find us to be an attractive place to work because of our existing relationships with multinational and other large corporate clients, our good reputation among information technology and engineering professionals, our quality information technology system and our incentive based compensation package, which will generally combine base salary, bonuses, commissions and incentive stock options. We may seek to establish offices in smaller markets that contain desirable customers. We believe that we can do so in a cost effective manner because of the strength of our information technology system. A single recruiter/sales person can operate a "virtual office" by utilizing our Toronto, Ontario office's database and other operational systems by means of our Intranet. Based on the experience of our principals who, prior to forming ThinkPath, have been involved in the opening of several offices throughout Ontario and the opening of our New York and Boston offices, we expect newly opened offices to become productive within six to twelve months of opening. The delay in productivity can be attributed to the following factors: - Recruiting, hiring, training and orientation of new staff with recruitment/sales methodologies and practices, as well as technology (databases, software, Internet, e-mail, etc.); - Recruiting and developing a base of qualified information technology professionals (advertising, open houses, career fairs); - Attracting and building client relations; and - Getting on preferred supplier lists. Although there can be no assurance that such expectations will be satisfied, our expectations in terms of productivity for new offices by the 12th month of operations are: 30 contractors and between $30,000 to $50,000 in permanent placement sales per month with annual revenues of approximately $450,000. 33 The opening of new offices with the addition of qualified employees and entrance into new regional markets results in increased operating expenses including: - Salaries and payroll costs; - Infrastructure (office equipment, office space, office supplies, telephone, insurance) including an elaborate technological infrastructure; - Advertising (print and career fairs); - Marketing and public relations; and - Travel and business development costs. There are also the related head office expenses associated with opening new offices, including: - Time spent by management and technical personnel on training (recruitment sales; Njoyn, databases, e-mail, Internet, job postings to user groups); and - Time spent by management and support personnel on implementing and maintaining reporting procedures (financial and administration). We may also expand by acquiring complementary or competitive companies, including existing information technology staffing companies, which will provide an immediate increase to our customer base and in some circumstances, provide a more cost effective method of expansion than opening a new office. We intend to target companies who have a strong customer base or group of information technology professionals, but do not utilize an advanced internal information technology system. We believe that providing an acquired company access to our information technology system will allow the acquired company to provide better service without substantially increasing costs, which may also lead to increased revenue. Although, due to consolidation in the industry, there is competition for the acquisition of companies in the information technology staffing industry, we intend to avoid competing for acquisition candidates by focusing on smaller companies. We may also utilize acquisitions or hiring of new employees to achieve growth in its existing markets. We utilized the acquisitions of Systemsearch Consulting Services Inc. and International Career Specialists Ltd. in metropolitan Toronto, Ontario and Cad Cam Inc. and Micro tech Professionals, Inc. throughout the United States to acquire access to experienced recruiters with an existing customer base. With regard to customer services, we plan to implement a decentralized management plan. We believe that allowing existing management of an acquired company to remain an important part of its operations will be beneficial in retaining customers, recruiters and information technology professionals. Similarly, local recruiters and sales people hired to staff new offices will have the flexibility to continue relationships with customers and information technology professionals. Our Intranet will provide all offices full access to our databases and operating software, promoting uniformity in certain functions. We currently hold monthly meetings of our Operations Committee, which consist of the heads of each regional office and subsidiary, whereby they exchange information on industry trends and promote "best practices" among the offices. With regard to financial controls, we have a fully integrated system which allows control of cash flows and accounting and payroll functions from our Toronto, Ontario office. On September 16, 1999, we completed the acquisition of all the issued and outstanding capital stock of Cad Cam, Inc., an Ohio corporation, for an aggregate of $2,000,000 in cash, $2,500,000 pursuant to a promissory note and $1,500,000 worth of our common stock to be issued to Roger Walters, Cad Cam, Inc.'s president. As part of the transaction, Mr. Walters was elected to serve as one of our directors. The share purchase agreement was executed on January 1, 1999 and the transaction was effective as of September 16, 1999. Mr. Walters was not affiliated with us prior to the acquisition. 34 On January 1, 2000, we completed the acquisition of all of the issued and outstanding capital stock of Object Arts Inc., an Ontario corporation, in consideration of: (i) the issuance of $900,000 worth of our common stock to Working Ventures Custodian Fund in exchange for the retirement of outstanding subordinated debt; (ii) the issuance to Working Ventures Custodian Fund an amount of our common stock equal to the legal fees and professional fees incurred and paid by Working Ventures Custodian Fund in connection with our acquisition of Object Arts Inc.; and (iii) the issuance of $1,100,000 worth of our common stock to the existing shareholders of Object Arts Inc. Management believes that Object Arts Inc.'s technical training expertise will enable ThinkPath to offer a complete end-to-end skills gap solution to its customers. On April 25, 2000, we completed the acquisition of all of the issued and outstanding capital stock of Micro Tech Professionals, Inc., a Massachusetts corporation, in consideration for up to an aggregate of $4,500,000 in a combination of cash, notes payable and shares of our common stock, subject to specific performance criteria be met. On the April 25, 2000, we paid to Denise Dunne-Fushi, the sole shareholder of Micro Tech Professionals, Inc., $2,500,000, which was paid in accordance with the following schedule: (i) $1,250,000 in cash; (ii) the issuance of a $750,000 principal amount unsecured promissory note; and (iii) the issuance of 133,333 shares of our common stock. As part of the transaction, we entered into an employment agreement with Denise Dunne-Fushi, the former President of Micro Tech Professionals, Inc. Such employment agreement is for a term of 1 year commencing on April 25, 2000, the effective date of the acquisition, with an annual salary of $125,000 per year and a bonus of $25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the acquisition. On March 6, 2000, we completed the acquisition of 80% of E-Wink, Inc., a Delaware corporation, in consideration of: (i) 300,000 shares of our common stock; and (ii) warrants to purchase an aggregate of 500,000 shares of our common stock at a price of $3.25 per share for a period of 5 years. E-Wink, Inc. is currently developing platform technology that will match company's seeking venture capital with venture capital firms offering such venture capital. On September 21, 2000, we entered into a non-binding letter of intent with TidalBeach Inc., a skills-management software developer. Pursuant to the letter of intent, we will acquire all of the issued and outstanding capital stock of TidalBeach Inc. from Mike Reid, its sole shareholder, in consideration for up to 250,000 shares our common stock. We have agreed to use our best efforts to register the shares of common stock within three months from the date of issuance. The consummation of the transaction contemplated by the letter of intent is subject to our due diligence investigation as well as several other conditions. On October 4, 2000, we entered into a non-binding letter of intent with Aquila Holdings Limited, a European recruitment company. Pursuant to the letter of intent, we will acquire all of the issued and outstanding capital stock of Aquila Holdings Limited, and its wholly-owned subsidiary DPP International Limited in consideration for up to an aggregate of (pound)2,500,000 in cash and (pound)961,000 worth of our common stock. The consummation of the transaction contemplated by the letter of intent is subject to our due diligence investigation as well as several other conditions. 35 Competition The information technology and engineering staffing industry is highly competitive and fragmented and is characterized by low barriers to entry. We compete for potential clients with other providers of information technology, engineering and technical training staffing services, systems integrators, providers of outsourcing services, computer consultants, employment listing services and temporary personnel agencies. Many of our current and potential competitors have longer operating histories, significantly greater financial, marketing and human resources, greater name recognition and a larger base of information technology professionals and clients than us which may provide such competitors with a competitive advantage when compared to us. In addition, many of these competitors, including numerous smaller privately held companies, may be able to respond more quickly to customer requirements and to devote greater resources to the marketing of services than us. Because there are relatively low barriers to entry, we expect that competition will increase in the future. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially and adversely affect our business, prospects, financial condition and results of operations. Further, there can be no assurance that we will be able to compete successfully against current and future competitors or that competitive pressures faced by us will not have a material adverse effect on our business, prospects, financial condition and results of operations. We believe that the principal factors relevant to competition in the information technology staffing and engineering services industry are the recruitment and retention of highly qualified information technology and engineering professionals, rapid and accurate response to client requirements and, to a lesser extent, price. We believe that we compete favorably with respect to these factors. We believe that our competitive advantage is not only in our use of technology, but also in the accessibility of this technology to all of our employees. The building and maintenance of our database of over 50,000 has been a combined effort of all our employees. We also have Internet access and membership to 12 local, national and international databases for information technology professionals. Employees and Consultants Employees Our corporate and consulting staff at October 13, 2000 consisted of 414 full-time employees. We are not a party to any collective bargaining agreements covering any of our employees, have never experienced any material labor disruption and are unaware of any current efforts or plans to organize our employees. Consultants We enter into consulting agreements with the information technology and engineering professionals at hourly rates negotiated with each information technology professional based on such individuals technical and other skills. The agreements provide that the information technology and engineering professional is responsible for taxes and all other expenses and that the information technology professional is not our employee for tax or other legal purposes. 36 Property We maintain our headquarters in a 8,076 square foot office located at 55 University Avenue in Toronto, Ontario, Canada. We have leased such facility for a term of ten years terminating in November 2007. We pay annual rent of $30,307, which will increase to $36,080 commencing in December 2002. We lease additional offices at the following locations: Lease Current Rent Location Square Fee Expiration Per Annum - -------- ---------- ---------- ------------ Etobicoke, Ontario 1,610 4/13/03 $ 22,300 New York, New York 1,214 10/31/01 $ 47,353 Markham, Ontario 6,000 5/31/01 $ 39,000 Ottawa, Ontario 1,291 9/30/03 $ 14,739 Dayton, Ohio 8,426 08/31/00 $ 83,000 Indianapolis, Indiana 2,025 12/31/01 $ 30,881 Columbus, Ohio 1,000 01/31/00 $ 19,200 Cincinnati, Ohio 2,256 09/30/00 $ 22,560 Tampa, Florida 930 03/31/01 $ 12,741 Rochester, New York 1,621 05/31/00 $ 20,635 Detroit, Michigan 15,328 08/13/02 $149,316 Louisville, Kentucky 2,091 07/01/02 $ 24,047 Chicago, Illinois 874 05/01/00 $ 14,856 Charleston, South Carolina 900 12/31/00 $ 15,120 Atlanta, Georgia 5,824 06/30/02 $ 78,360 Boston, Massachusetts 1,240 10/31/00 $ 22,940 New York, New York 12,265 08/31/06 $220,000 London, Ontario 5,877 12/31/01 $ 49,315 Toronto, Ontario 5,520 12/31/00 $ 77,455 Legal Proceedings We are not party to any material legal proceedings. Recent Events On December 30, 1999, we issued: (i) 15,000 shares of Series A 8% Percent Cumulative Convertible Preferred Stock, no par value per share; and (ii) warrants to purchase up to an aggregate of 475,000 shares of our common stock, in consideration $1,500,000 pursuant to a private placement offering. Each share of Series A 8% Cumulative Convertible Preferred Stock has a stated value of $100 per share. The shares of Series A 8% Percent Cumulative Convertible Preferred Stock are convertible into shares of our common stock at the option of the holders the Series A 8% Percent Cumulative Convertible Preferred Stock, at any time after issuance until either: (i) such shares of Series A 8% Percent Cumulative Convertible Preferred Stock are converted at our option; or (ii) such shares of Series A 8% Percent Cumulative Convertible Preferred Stock are redeemed by us, under certain conditions, at any time after the effective date of this registration statement. The holders of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock are entitled to receive preferential dividends in cash, out of any of our funds legally available at the time of declaration of dividends before any other dividend distribution will be paid or declared and set apart for payment on any shares of our common stock, or other class of stock presently authorized, at the rate of 8% simple interest per annum on the stated value per share. Such are payable on a quarterly basis commencing on the quarter ending March 31, 2000 when as and if declared, provided however, that the dividends will be made in additional shares of Series A 8% Percent Cumulative Convertible Preferred Stock at a rate of one share of Series A 8% Percent Cumulative Convertible Preferred Stock for each $100 of such dividend not paid in cash. Dividends may be paid at our option with shares of Series A 8% Percent Cumulative Convertible Preferred Stock only if our common stock deliverable upon the conversion of the Series A 8% Percent Cumulative Convertible Preferred Stock will have been included for public resale in an effective registration statement filed with the Securities and Exchange Commission on the dates such dividends are payable and paid to the holders. The dividends shall be cumulative whether or not earned and shall be cumulative from and after December 30, 1999. 37 The number of shares of our common stock into which the Series A 8% Percent Cumulative Convertible Preferred Stock shall be convertible shall be equal to (i) the sum of (A) the stated value per share and (B) at the holder's election, accrued and unpaid dividends on such share, divided by (ii) the "Conversion Price". The Conversion Price shall be the lesser of (x) 90% of the average "Closing Bid Prices" for the three trading days immediately preceding December 30, 1999, or (y) 80% of the average of the three lowest "Closing Bid Prices" for the ten trading days immediately preceding the conversion of the respective shares of Series A 8% Percent Cumulative Convertible Preferred Stock. The "Closing Bid Price" is defined as the closing bid price as reported on the Nasdaq SmallCap Market or the principal market or exchange where our common stock is then traded. The holders of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock may exercise their right to conversion only if the aggregate stated value of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock to be converted is equal to at least $5,000, unless if at the time of such conversion, the aggregate stated value of all of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock is less than $5,000, then the whole amount of the remaining shares of Series A 8% Percent Cumulative Convertible Preferred Stock may be converted. At any time after April 27, 2000, we have the option to redeem any or all of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock by paying to the holders a sum of money equal to 135% of the stated value of the aggregate of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock being redeemed plus the dollar amount of the accrued dividends, if the Conversion Price of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock on the trading day prior to the date of redemption is less than $2. The 475,000 warrants issued in the December 1999 offering are exercisable at any time and in any amount until December 30, 2004 at a purchase price of $3.24 per share. On January 1, 2000, we completed the acquisition of all of the issued and outstanding capital stock of Object Arts Inc., an Ontario corporation, in consideration of: (i) the issuance of $900,000 worth of our common stock to Working Ventures Custodian Fund in exchange for the retirement of outstanding subordinated debt; (ii) the issuance to Working Ventures Custodian Fund an amount of our common stock equal to the legal fees and professional fees incurred and paid by Working Ventures Custodian Fund in connection with our acquisition of Object Arts Inc.; and (iii) the issuance of $1,100,000 worth of our common stock to the existing shareholders of Object Arts Inc. Management believes that Object Arts Inc.'s technical training expertise will enable ThinkPath to offer a complete end-to-end skills gap solution to its customers. On February 24, 2000, we changed our corporate name from IT Staffing Ltd. to ThinkPath.com Inc. in order to more accurately reflect our expanded suite of services. On March 6, 2000, we completed the acquisition of 80% of E-Wink, Inc., a Delaware corporation, in consideration of: (i) 300,000 shares of our common stock; and (ii) warrants to purchase an aggregate of 500,000 shares of our common stock at a price of $3.25 per share for a period of five years. E-Wink, Inc. is currently developing platform technology that will match company's seeking venture capital with venture capital firms offering such venture capital. On April 16, 2000, we issued: (i) 1,500 shares of Series B 8% Percent Cumulative Convertible Preferred Stock, no par value per share; and (ii) warrants to purchase up to an aggregate of 300,000 shares of our common stock, in consideration $1,500,000 pursuant to a private placement offering. Each share of Series B 8% Cumulative Convertible Preferred Stock has a stated value of $1,000 per share. The shares of Series B 8% Percent Cumulative Convertible Preferred Stock are convertible into shares of our common stock at the option of the holders the Series B 8% Percent Cumulative Convertible Preferred Stock, at any time after issuance until such shares of Series B 8% Percent Cumulative Convertible Preferred Stock are redeemed by us, under certain conditions. The holders of the shares of Series B 8% Percent Cumulative Convertible Preferred Stock are entitled to receive preferential dividends in cash, out of any of our funds legally available at the time of declaration of dividends before any other dividend distribution will be paid or declared and set apart for payment on any shares of our common stock, or other class of stock presently authorized, at the rate of 8% simple interest per annum on the stated value per share plus any accrued but unpaid dividends, when as and if declared. We have the option to pay such dividends in shares of our common stock to be paid (based on an assumed value of $1,000 per share) in full shares only, with a cash payment equal to any fractional shares. 38 The number of shares of our common stock into which the Series B 8% Percent Cumulative Convertible Preferred Stock shall be convertible shall be equal to (i) the sum of (A) the stated value per share and (B) at the holder's election, accrued and unpaid dividends on such share, divided by (ii) the "Conversion Price". The Conversion Price shall be the lesser of (x) $3.375, or (y) 80% of the average of the three lowest "Closing Bid Prices" for the ten trading days immediately preceding the conversion of the respective shares of Series B 8% Percent Cumulative Convertible Preferred Stock. The "Closing Bid Price" is defined as the closing bid price as reported on the Nasdaq SmallCap Market or the principal market or exchange where our common stock is then traded as reported by Bloomberg. At any time that the number of our shares of common stock issued (A) upon conversion of the shares for Series B 8% Cumulative Convertible Preferred Stock and (B) in lieu of dividend payments, shall equal 20% or more our outstanding common stock, we are required to (x) redeem, at a price per share equal to (A) the quotient of (i) $1,000 per share plus all accrued but unpaid dividends and (ii) the Conversion Price as if the Series B8% Cumulative Convertible Preferred Stock has been converted on the date of redemption, multiplied by (B) the average Closing Bid Price of our common stock for the five trading days immediately preceding the date of redemption. The 300,000 warrants issued in the offering are exercisable at any time and in any amount until April 16, 2005 at a purchase price of $3.71 per share. In addition, On April 16, 2000, we issued: (i) 2,500 shares of Series A 8% Cumulative Convertible Preferred Stock, and (ii) 50,000 warrants to purchase common stock, pursuant to a private placement offering. The 50,000 warrants issued in the offering are exercisable at any time and in any amount until April 16, 2005 at a purchase price of $3.71 per share. On April 25, 2000, we completed the acquisition of all of the issued and outstanding capital stock of Micro Tech Professionals, Inc., a Massachusetts corporation, in consideration for up to an aggregate of $4,500,000 in a combination of cash, notes payable and shares of our common stock, subject to specific performance criteria be met. On the April 25, 2000, we paid to Denise Dunne-Fushi, the sole shareholder of Micro Tech Professionals, Inc., $2,500,000, which was paid in accordance with the following schedule: (i) $1,250,000 in cash; (ii) the issuance of a $750,000 principal amount unsecured promissory note; and (iii) the issuance of 133,333 shares of our common stock. As part of the transaction, we entered into an employment agreement with Denise Dunne-Fushi, the former President of Micro Tech Professionals, Inc. Such employment agreement is for a term of 1 year commencing on April 25, 2000, the effective date of the acquisition, with an annual salary of $125,000 per year and a bonus of $25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the acquisition. On July 7, 2000, we issued an aggregate of: (a) 5,000 shares of our Series A 8% Cumulative Convertible Preferred Stock; and (b) warrants to purchase up to an aggregate of 225,000 shares of our common stock, in consideration $500,000 pursuant to the exercise of our option granted to us in the December 1999 a private placement offering upon the same terms as described above. The 225,000 warrants issued upon our exercise of the option are exercisable at any time and in any amount until December 30, 2004 at a purchase price of $3.575 per share. On July 27, 2000, we entered into an agreement with Bank One for an operating line of $7,000,000 payable on demand and secured by our assets. Effective July 27, 2000, we canceled our operating lines with Toronto Dominion Bank and Provident Bank. On August 22, 2000, we completed a private placement offering of units, each unit consisting of 1 share of our common stock and a callable warrant to purchase 1/2 of 1 share of our common stock. A total of 1,063,851 shares of our common stock were issued together with 532,534 warrants to purchase shares of our common stock exercisable until August 22, 2000 in consideration for $2,681,600. The purchase price per unit ranged from $1.9692 to $2.8125. In addition, we issued to the placement agent, certain financial advisors and the placement agent's counsel, warrants to purchase 280,093 shares of our common stock in connection with the private placement offering. Such warrants are exercisable until August 22, 2000 at an exercise price of $2.4614 per share. 39 On September 13, 2000, we entered into an engagement agreement with Burlington Capital Markets Inc. conditional on the successful integration of our first acquisition through Burlington. We have agreed to sell to Burlington Capital Markets an aggregate of 250,000 shares of our common stock at a cash purchase price of $.01 per share. We have further agreed to issue warrants to purchase an aggregate of 400,000 shares of our common stock in accordance with the following schedule: (i) 100,000 shares at an exercise price of $5.00 per share, exercisable at any time after October 13, 2000, (ii) 100,000 shares at an exercise price of $7.00 per share, exercisable at any time after November 13, 2000, (iii) 100,000 shares at an exercise price of $9.00 per share, exercisable at any time after December 13, 2000, and (iv) 100,000 shares at an exercise price of $11.00 per share, exercisable at any time after February 13, 2001. Such warrants are exercisable in whole or in part until 5 years from the date they can first be exercised, and will contain a cashless exercise provision and registration rights. Compensation will be paid to Burlington at a monthly fee of $10,000 for a minimum of six months. On September 21, 2000, we entered into a non-binding letter of intent with TidalBeach Inc., a skills-management software developer. Pursuant to the letter of intent, we will acquire all of the issued and outstanding capital stock of TidalBeach Inc. from Mike Reid, its sole shareholder, in consideration for up to 250,000 shares our common stock. We have agreed to use our best efforts to register the shares of common stock within three months from the date of issuance. The consummation of the transaction contemplated by the letter of intent is subject to our due diligence investigation as well as several other conditions. On October 4, 2000, we entered into a non-binding letter of intent with Aquila Holdings Limited, a European recruitment company. Pursuant to the letter of intent, we will acquire all of the issued and outstanding capital stock of Aquila Holdings Limited, and its wholly-owned subsidiary DPP International Limited in consideration for up to an aggregate of (pound)2,500,000 in cash and (pound)961,000 worth of our common stock. The consummation of the transaction contemplated by the letter of intent is subject to our due diligence investigation as well as several other conditions. 40 BOARD OF DIRECTORS AND EXECUTIVE OFFICERS The officers and directors of ThinkPath, and further information concerning them, are as follows: Name Age Position - ---- --- -------- Declan A. French 55 Chairman of the Board of Directors and Chief Executive Officer Thomas E. Shoup 48 President and Chief Operating Officer Tony French 27 Executive Vice President Kelly Hankinson 30 Chief Financial Officer and Director Roger W. Walters Executive Vice President, U.S. Operations and Director Marilyn Sinclair 46 Vice President, President and Director of Object Arts Inc. and Director John Dunne 56 Director Arthur S. Marcus 35 Director Ronan McGrath 52 Director Each director is elected for a period of one year at our annual meeting of shareholders and serves until the next such meeting and until his or her successor is duly elected and qualified. Directors may be re-elected annually without limitation. Officers are appointed by, and serve at the discretion of, our Board of Directors. Our directors do not presently receive any compensation for their services as directors' other than options granted the directors pursuant to our 1998 and 2000 Stock Option Plans. Strasbourger Pearson Tulcin Wolff Incorporated, the managing underwriter for our June 8, 1999 initial public offering, shall have the right, at its option, to designate one director or observer to our Board of Directors until June 1, 2002, which director shall be reasonably acceptable to our Board of Directors. In addition, pursuant to the terms of the placement agent agreement with respect to our August private placement offering, we are required to appoint a designee of KSH Investment Group, Inc., the placement agent, who is reasonably acceptable to us, as a member of our Board of Directors. Set forth below is a biographical description of each of our directors and executive officers based on information supplied by each of them: Declan A. French has served as our Chairman of the Board of Directors and Chief Executive Officer since our inception in February 1994. Prior to founding ThinkPath, Mr. French was President and Chief Executive Officer of TEC Partners Ltd., an information technology recruiting firm in Toronto, Canada. Mr. French has a diploma in Psychology and Philosophy from the University of St. Thomas in Rome, Italy. Thomas E. Shoup has served as our President and Chief Operating Officer since September 16, 1999, the date we acquired Cad Cam, Inc. Mr. Shoup served as Vice President of Cad Cam, Inc. from April 19996 to September 1999. Prior to joining Cad Cam, Inc., Mr. Shoup served in the United States Air Force for 22 years earning several service awards. 41 Tony French has served as our Executive Vice President since September 1999. Prior to becoming Executive Vice President, Mr. French served as our Vice President of Sales since our inception in February 1994. Kelly Hankinson has served as our Chief Financial Officer since May 1999 and as a Director since June 2000. Ms. Hankinson served as our Controller from February 1994 to May 1999. Ms. Hankinson has a Masters Degree and a Bachelors Degree from York University. Roger W. Walters has served on our Board of Directors and as Executive Vice President of U.S. Operations since September 16, 1999, the date we acquired Cad Cam, Inc. Mr. Walters served as President of Cad Cam, Inc. since 1988 and was its majority shareholder prior to its sale to us in September 16, 1999. Mr. Walters has a Masters degree in Mechanical Engineering from the University of Missouri. Marilyn Sinclair has served as our Vice President and President - Object Arts since January 1, 2000, the date we acquired Object Arts, Inc and as a Director since June 2000. Ms. Sinclair served as the president of Object Arts Inc. since 1993. Ms. Sinclair has over eight years experience in the technical training industry, with a strong background in management and human resources. In 1997, Ms. Sinclair was chosen as runner-up for the Canadian Woman Entrepreneur of the Year award. John Dunne has served on our Board of Directors since June 1998. Mr. Dunne has been Chairman and Chief Executive Officer of the Great Atlantic & Pacific Company of Canada, Ltd. since August 1997, where he also served as President and Chief Operating Officer from September 1996 until August 1997. From November 1995 until September 1996, Mr. Dunne was Chairman and Chief Executive Officer of Food Basics Ltd. Prior to that, he had served as Vice Chairman and Chief Merchandising Officer of Great Atlantic & Pacific Company of Canada, Ltd. Arthur S. Marcus has served on our Board of Directors since April 2000. Mr. Marcus is a partner at the New York law firm of Gersten, Savage & Kaplowitz, LLP, our United States securities counsel. Mr. Marcus joined Gersten, Savage & Kaplowitz, LLP in 1991 and became a partner in 1996. Mr. Marcus specializes in the practice of United States securities law and has been involved in approximately fifty initial public offering and numerous mergers and acquisitions. Mr. Marcus received a Juris Doctorate from Benjamin N. Cardozo School of Law in 1989. Ronan McGrath has served as a Director since June 2000. Mr. McGrath has been the Chief Information Technology Officer of Rogers Communications Inc. and the President of Rogers Shares Services Inc., since their inceptions in 1996. Mr. Ronan was the Chief Information Technology Officer of Canadian National Railways from 1992 to 1996 and was a Senior Manager of Arthur Andersen from 1977 to 1979. Mr. Ronan was awarded the Canadian Chief Information Technology Officer of the Year Award in 1995. Mr. Ronan currently serves on Compaq Computer's Board of Advisers and is a member of the Board of Directors of The Information Technology Association of Canada. 42 Committees of the Board In July 1998, our Board of Directors formalized the creation of a Compensation Committee, which is currently comprised of Marilyn Sinclair, Arthur S. Marcus and Ronan McGrath. The Compensation Committee has: (i) full power and authority to interpret the provisions of, and supervise the administration of, our 1998 Stock Option Plan and 2000 Stock Option Plan; and (ii) the authority to review all compensation matters relating to us. The Compensation Committee has not yet formulated compensation policies for senior management and executive officers. However, it is anticipated that the Compensation Committee will develop a company-wide program covering all employees and that the goals of such program will be to attract, maintain, and motivate our employees. It is further anticipated that one of the aspects of the program will be to link an employee's compensation to his or her performance, and that the grant of stock options or other awards related to the price of the shares of our common stock will be used in order to make an employee's compensation consistent with shareholders' gains. It is expected that salaries will be set competitively relative to the information technology and engineering staffing and consulting industry and that individual experience and performance will be considered in setting salaries. In July 1998, our Board of Directors also formalized the creation of an Audit Committee, which currently consists of Kelly Hankinson, Roger W. Walters and John Dunne. The Audit Committee is charged with reviewing the following matters and advising and consulting with our entire Board of Directors with respect thereto: (i) the preparation of our annual financial statements in collaboration with our chartered accountants; (ii) annual review of our financial statements and annual report; and (iii) all contracts between us and our officers, directors and other of our affiliates. The Audit Committee, like most independent committees of public companies, does not have explicit authority to veto any actions of our entire Board of Directors relating to the foregoing or other matters; however, our senior management, recognizing their own fiduciary duty to us and our shareholders, is committed not to take any action contrary to the recommendation of the Audit Committee in any matter within the scope of its review. We have established an Operations Committee in order for our officers to exchange information on industry trends and promote Abest practices: among the offices. The head of each regional office and subsidiary will serve on the Operations Committee. Currently, the Operations Committee consists of Declan A. French, Thomas E. Shoup, Tony French, Marilyn Sinclair, Roger W. Walters, John A. Irwin and John R. Wilson. Indemnification of Officers and Directors Our Bylaws provide that we shall indemnify to the fullest extent permitted by Canadian law our directors and officers (and former officers and directors). Such indemnification includes all costs and expenses and charges reasonably incurred in connection with the defense of any civil, criminal or administrative action or proceeding to which such person is made a party by reason of being or having been our officer or director if such person was substantially successful on the merits in his or her defense of the action and he or she acted honestly and in good faith with a view to our best interests, and if a criminal or administrative action that is enforced by a monetary penalty, such person had reasonable grounds to believe his or her conduct was lawful. Insofar as indemnification for liabilities arising under the Securities Act may be permitted our directors, officers and controlling persons and our underwriters pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses, incurred or paid by one of our directors, officers or controlling persons in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person or by our underwriters in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act, and will be governed by the final adjudication of such issue. 43 Executive Compensation Summary Compensation Table
Name and Restricted Principal Annual Stock Other Position Year Salary Bonus Awards Options/SARs Compensation - ------------------------- ---- ------ ----- ---------- ------------ ------------ Declan French, Chief Executive Officer 1999 $ 98,000 -0- -0- -0- 8,342 and Chairman of the Board 1998 98,000 -0- -0- -0- 8,342 1997 104,275 -0- -0- -0- 8,342 John A. Irwin, President- 1999 102,000 -0- -0- -0- 94,149 International Career 1998 130,580 -0- -0- -0- 35,888 Specialists Ltd 1997 139,034 -0- -0- -0- 8,342 John R. Wilson, President- 1999 81,600 -0- -0- -0- 76,915 Systemsearch 1998 90,000 -0- 77,282 Consulting Services 1997 83,420 20,855 Inc. Roger Walters, Executive Vice 1999 200,000 -0- -0- -0- -0- President B US 1998 200,000 -0- -0- -0- -0- Operations and 1997 200,000 -0- -0- -0- -0- President-Cad Cam, Inc.(1) Thomas E. Shoup, President and 1999 175,000 -0- -0- -0- -0- Chief Operating 1998 129,231 -0- -0- -0- -0- Officer(2) 1997 117,713 -0- -0- -0- -0-
(1) This reflects the salary paid to Mr. Walters as of our acquisition of Cad Cam, Inc. on September 16, 1999. (2) This reflects the salary paid to Mr. Shoup as of our acquisition of Cad Cam, Inc. on September 16, 1999. 44 Employment Agreements We have entered into an employment agreement with Declan A. French whereby he will serve as our Chairman of the Board and Chief Executive Officer for a period of two years commencing on June 1, 1999. Mr. French is paid a base salary of $98,000 and a bonus equal to (i) 2% of our gross profit, plus (ii) for each fiscal year, 1% of the increase in revenue from the prior fiscal year. Mr. French's right to receive the latter portion of the bonus continues for one year beyond the termination of the employment agreement. On May 19, 1998, in connection with the acquisition of International Career Specialists Ltd., we entered into an employment agreement with John A. Irwin under which he serves as President of International Career Specialists Ltd. The employment agreement is for a term of three years commencing on January 1, 1998, the effective date of the acquisition of International Career Specialists Ltd. Mr. Irwin receives a salary of $130,000 plus a quarterly bonus of 2% of all permanent placement service revenue and 2% of the gross profit all contract services revenue. In February 1998, in connection with the acquisition of Systemsearch Consulting Services Inc., we entered into a three year employment agreement with John R. Wilson under which he serves as President of Systemsearch Consulting Services Inc. at a salary of $120,000 per year. The agreement was effective as of January 2, 1997. Mr. Wilson receives a commission of 10% of the permanent placement revenue of Systemsearch Consulting Services Inc. Additionally, he receives $0.65 for every hour of contract services provided by information technology professionals placed by Systemsearch Consulting Services Inc., provided that the gross margin on such hour exceeds $6.50. Pursuant to the agreement, Mr. Wilson has control of the day-to-day management of Systemsearch Consulting Services Inc. On September 16, 1999, in connection with the acquisition of Cad Cam, Inc., Roger W. Walters was elected to our Board of Directors. On September 16, 1999, in connection with out acquisition of Cad Cam, Inc., we entered into an employment agreement with Thomas E. Shoup under which he serves as our President and Chief Operating Officer. The employment agreement is on a year-to-year basis with a salary of $175,000 per year. On January 1, 2000, in connection with the acquisition of Object Arts Inc., we entered into an employment agreement with Marilyn Sinclair under which she serves as our Vice President and as President of Object Arts Inc. The employment agreement is for a term of three years commencing on January 1, 2000 with an annual salary of $82,000 per year. Consulting Agreements In May 1998, we entered into a consulting agreement with Robert M. Rubin, one our former directors, pursuant to which Mr. Rubin assists us in structuring and negotiating acquisitions, strategic partnerships and other expansion opportunities. In exchange for such services, Mr. Rubin has been granted an option to purchase 200,000 shares of our common stock at a purchase price of $2.10 per share. Mr. Rubin has agreed not to sell, transfer, assign, hypothecate or otherwise dispose of the shares of our common stock issuable upon exercise of the options for a period of two years after exercise without our consent. As of October 13, 2000, we issued 18,508 shares of our common stock upon Mr. Rubin's exercise of the option. On September 13, 2000, we entered into an engagement agreement with Burlington Capital Markets Inc. conditional of the successful integration of our first acquisition through Burlington. We have agreed to sell to Burlington Capital Markets an aggregate consideration of 250,000 shares of our common stock at a cash purchase price of $.01 per share to Burlington Capital Markets. We have further agreed to issue warrants to purchase an aggregate of 400,000 shares of our common stock in accordance with the following schedule: (i) 100,000 shares at an exercise price of $5.00 per share, exercisable at any time after October 13, 2000, (ii) 100,000 shares at an exercise price of $7.00 per share, exercisable at any time after November 13, 2000, (iii) 100,000 shares at an exercise price of $9.00 per share, exercisable at any time after December 13, 2000, and (iv) 100,000 shares at an exercise price of $11.00 per share, exercisable at any time after February 13, 2001. Such warrants are exercisable in whole or in part until 5 years from the date they can first be exercised, will contain a cashless exercise provision and registration rights. Compensation will be paid to Burlington at a monthly fee of $10,000 for a minimum of six months. 45 Stock Option Plans The 1998 Stock Option Plan The 1998 Stock Option Plan is administered by our Compensation Committee or our Board of Directors, which determines among other things, those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of shares of our common stock issuable upon the exercise of the options and the option exercise price. As of October 13, 2000, we issued options to purchase all 435,000 shares of our common stock underlying the 1998 Stock Option Plan to certain of our employees and consultants. The 1998 Stock Option Plan is effective for a period for ten years, expiring in 2008. Options to acquire 435,000 shares of our common stock may be granted to officers, directors, consultants, key employees, advisors and similar parties who provide us with their skills and expertise. The 1998 Stock Option Plan is designed to enable management to attract and retain qualified and competent directors, employees, consultants and independent contractors. Options granted under the 1998 Stock Option Plan may be exercisable for up to ten years, generally require a minimum two year vesting period, and shall be at an exercise price all as determined by our Board of directors provided that, pursuant to the terms of the underwriting agreement between us and our Underwriters, the exercise price of any options may not be less than the fair market value of the shares of our common stock on the date of the grant. Options are non-transferable, and are exercisable only by the participant (or by his or her guardian or legal representative) during his or her lifetime or by his or her legal representatives following death. Upon a change in control of the Company, the acceleration date of any options that were granted but not otherwise exercisable accelerates to the date of the change in control. Change in control includes (i) the sale of substantially all of our assets and merger or consolidation with another company, or (ii) a majority of the members of our Board of Directors changes other than by election by the shareholders pursuant to Board of Directors solicitation or by vacancies filled by the Board of Directors caused by death or resignation of such person. If a participant ceases affiliation with us by reason of death, permanent disability or retirement at or after age 65, the option remains exercisable for one year from such occurrence but not beyond the option's expiration date. Other types of termination allow the participant ninety (90) days to exercise the option, except for termination for cause which results in immediate termination of the option. Any unexercised options that expire or that terminate upon an employee's ceasing to be employed by us become available again for issuance under the 1998 Stock Option Plan, subject to applicable securities regulation. The 1998 Stock Option Plan may be terminated or amended at any time by our Board of Directors, except that the number of shares of our common stock reserved for issuance upon the exercise of options granted under the 1998 Stock Option Plan may not be increased without the consent of our shareholders. The 2000 Stock Option Plan The 2000 Stock Option Plan is administered by our Compensation Committee or our Board of Directors, which determines among other things, those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of shares of our common stock issuable upon the exercise of the options and the option exercise price. As of October 13, 2000, we issued options to purchase 435,000 shares of our common stock to certain of our employees and consultants. 46 The 2000 Stock Option Plan is effective for a period for ten years, expiring in 2010. Options to acquire 435,000 shares of our common stock may be granted to officers, directors, consultants, key employees, advisors and similar parties who provide us with their skills and expertise. The 2000 Stock Option Plan is designed to enable management to attract and retain qualified and competent directors, employees, consultants and independent contractors. Options granted under the 2000 Stock Option Plan may be exercisable for up to ten years, generally require a minimum two year vesting period, and shall be at an exercise price all as determined by our Board of directors provided that, pursuant to the terms of the underwriting agreement between us and our Underwriters, the exercise price of any options may not be less than the fair market value of the shares of our common stock on the date of the grant. Options are non-transferable, and are exercisable only by the participant (or by his or her guardian or legal representative) during his or her lifetime or by his or her legal representatives following death. Upon a change in control of the Company, the acceleration date of any options that were granted but not otherwise exercisable accelerates to the date of the change in control. Change in control includes (i) the sale of substantially all of our assets and merger or consolidation with another company, or (ii) a majority of the members of our Board of Directors changes other than by election by the shareholders pursuant to Board of Directors solicitation or by vacancies filled by the Board of Directors caused by death or resignation of such person. If a participant ceases affiliation with us by reason of death, permanent disability or retirement at or after age 65, the option remains exercisable for one year from such occurrence but not beyond the option's expiration date. Other types of termination allow the participant ninety (90) days to exercise the option, except for termination for cause which results in immediate termination of the option. Any unexercised options that expire or that terminate upon an employee's ceasing to be employed by us become available again for issuance under the 2000 Stock Option Plan, subject to applicable securities regulation. The 2000 Stock Option Plan may be terminated or amended at any time by our Board of Directors, except that the number of shares of our common stock reserved for issuance upon the exercise of options granted under the 2000 Stock Option Plan may not be increased without the consent of our shareholders. 47 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In April 1998, we acquired all the issued and outstanding capital stock of Systemsearch Consulting Services Inc. and Systems PS Inc. from John R. Wilson for aggregate consideration of $98,000 and 174,551 shares of our common stock. The acquisition was effective as of January 2, 1997. Systems PS Inc. is inactive but holds certain assets utilized by Systemsearch Consulting Services Inc. in its operations. Mr. Wilson was not affiliated with us prior to the acquisition. On May 19, 1998, we completed the acquisition of all the issued and outstanding capital stock of International Career Specialists Ltd. for $326,000 in cash and 130,914 shares of our common stock to John A. Irwin. In connection with the acquisition, International Career Specialists Ltd. made a distribution to Mr. Irwin of certain of its assets that were not necessary for the operation of the business. The transaction was effective as of January 1, 1998. Mr. Irwin was not affiliated with us prior to the acquisition. In October 1997, in consideration for business consulting services, including identifying, structuring and effecting the acquisitions of Systemsearch Consulting Services Inc. and International Career Specialists Ltd., we issued 113,459 shares our common stock to Globe Capital Corporation, which is controlled by Lloyd MacLean, our former Chief Financial Officer and a former Director. In May 1998, we entered into a consulting agreement with Robert M. Rubin, one of our former directors, pursuant to which Mr. Rubin assists us in structuring and negotiating acquisitions, strategic partnerships and other expansion opportunities. In exchange for such services, Mr. Rubin received an option to purchase 200,000 shares of our common stock at a purchase price of $2.10 per share. Mr. Rubin has agreed not to sell, transfer, assign, hypothecate or otherwise dispose of the shares of our common stock issuable upon exercise of the options for a period of two years after exercise without our consent. As of October 13, 2000, we issued 18,508 shares of our common stock upon Mr. Rubin's exercise of such option. In November 1998, we purchased certain assets of Southport Consulting, Inc. from Michael Carrazza, one of our former directors, for $300,000 in cash and 40,000 shares of our common stock. On September 16, 1999, we completed the acquisition of all the issued and outstanding capital stock of Cad Cam, Inc. for $2,000,000 in cash, $2,500,000 pursuant to a promissory note and the issuance of $1,500,000 worth of shares of our common stock to Roger W. Walters, Cad Cam, Inc.'s former president. As part of the transaction, Mr. Walters was elected to our Board of Directors. The share purchase agreement was executed on January 1, 1999 and the transaction was effective as of September 16, 1999. Mr. Walters was not affiliated with us prior to the acquisition. On January 1, 2000, we completed the acquisition of all of the issued and outstanding capital stock of Object Arts Inc., an Ontario corporation, in consideration of: (i) the issuance of $900,000 worth of our common stock to Working Ventures Custodian Fund in exchange for the retirement of outstanding subordinated debt; (ii) the issuance to Working Ventures Custodian Fund an amount of our common stock equal to the legal fees and professional fees incurred and paid by Working Ventures Custodian Fund in connection with our acquisition of Object Arts Inc.; and (iii) the issuance of $1,100,000 worth of our common stock to the existing shareholders of Object Arts Inc. As part of the transaction, we entered into employment agreements with Marilyn Sinclair, Object Arts Inc.'s and Lars Laakes, former officers of Object Arts Inc. Such employment agreements are for a term of three years commencing on January 1, 2000, the effective date of the acquisition, with annual salaries of $82,000 and $75,000 per year, respectively. Neither Ms. Sinclair nor Mr. Laakes were affiliated with use prior to the acquisition. 48 On April 25, 2000, we completed the acquisition of all of the issued and outstanding capital stock of Micro Tech Professionals, Inc., a Massachusetts corporation, in consideration for up to an aggregate of $4,500,000 in a combination of cash, notes payable and shares of our common stock, subject to specific performance criteria be met. On the April 25, 2000, we paid to Denise Dunne-Fushi, the sole shareholder of Micro Tech Professionals, Inc., $2,500,000, which was paid in accordance with the following schedule: (i) $1,250,000 in cash; (ii) the issuance of a $750,000 principal amount unsecured promissory note; and (iii) the issuance of 133,333 shares of our common stock. As part of the transaction, we entered into an employment agreement with Denise Dunne-Fushi, the former President of Micro Tech Professionals, Inc. Such employment agreement is for a term of 1 year commencing on April 25, 2000, the effective date of the acquisition, with an annual salary of $125,000 per year and a bonus of $25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the acquisition. While we were a private company, we lacked sufficient independent directors to ratify many of the foregoing transactions. However, our management believes that the foregoing transactions were on terms no less favorable to us than could have been obtained from unaffiliated third parties. All future transactions between us and our officers, directors or 5% shareholders, and their respective affiliates, will be on terms no less favorable than could be obtained from unaffiliated third parties. In the event that we enter into future affiliated transactions, they will be approved by our independent directors who do not have an interest in the transactions and who have access, at our expense, to our counsel or independent legal counsel. 49 PRINCIPAL SHAREHOLDERS The following table sets forth certain information with respect to beneficial ownership of our common stock as of October 13, 2000 for (i) each of our executive officers, (ii) each of our directors, (iii) each person known to us to be the beneficial owner of more that 5% of our outstanding shares, and (iv) all of our directors and officers as a group.
Amount and Nature of Beneficial Percentage of Shares Names and Address of Beneficial Owner (1) Ownership (2) Outstanding - ---------------------------------------- ------------------------------- --------------------- Declan French 1,122,459(3) 19.9% Thomas E. Shoup 1,333(4) * Tony French 4,333(5) * Kelly Hankinson 23,167(6) * Roger W. Walters 292,767(7) 5.1% John R. Wilson 132,247(8) 2.4% John A. Irwin 132,247(9) 2.4% Marilyn Sinclair 139,230(10) 2.5% John Dunne 16,424(11) * Arthur S. Marcus 15,500(12) * Ronan McGrath 0 * Working Ventures Canadian 425,730(13) 7.7% Fund Inc. KSH Investment Partners I, LLC. 362,605(14) 6.1% All directors and officers as a group (11 persons) 1,879,707 31.9% (3) B (12)
* Less than 1%. (1) Except as set forth above, the address of each individual is 55 University Avenue, Suite 505, Toronto, Ontario M5J 2H7. 50 (2) Based upon information furnished to us by the directors and executive officers or obtained from our stock transfer books. We are informed that these persons hold the sole voting and dispositive power with respect to the common stock except as noted herein. For purposes of computing "beneficial ownership" and the percentage of outstanding common stock held by each person or group of persons named above as of October 13, 2000, any security which such person or group of persons has the right to acquire within 60 days after such date is deemed to be outstanding for the purpose of computing beneficial ownership and the percentage ownership of such person or persons, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. (3) Includes 510,563 shares of common stock owned by Christine French, the wife of Declan A. French and 101,333 shares of common stock issuable upon options issued to Declan A. French that are currently exercisable or exercisable within the next 60 days. (4) Includes 1,333 shares of common stock issuable upon options that are currently exercisable or exercisable within the next 60 days. (5) Includes 1,333 shares of common stock issuable upon options that are currently exercisable or exercisable within the next 60 days. (6) Includes 20,167 shares of common stock issuable upon options that are currently exercisable or exercisable within the next 60 days. (7) Includes 154,000 shares of common stock issuable upon options that are currently exercisable or exercisable within the next 60 days. (8) Includes 1,333 shares of common stock issuable upon options that are currently exercisable or exercisable within the next 60 days. (9) Includes 1,333 shares of common stock issuable upon options that are currently exercisable or exercisable within the next 60 days. (10) Includes 40,000 shares of common stock issuable upon options that are currently exercisable or exercisable within the next 60 days. (11) Consists of 13,091 shares of common stock owned by John Dunne's spouse and includes 3,333 shares of common stock issuable upon options issued to John Dunne that are currently exercisable or exercisable within the next 60 days. (12) Includes 12,500 shares of common stock issuable upon options that are currently exercisable or exercisable within the next 60 days. (13) Includes 228,242 shares of common stock issued in exchange for shares of Object Arts Inc. and 197,488 shares of common stock in consideration for the retirement of outstanding debt of Object Arts Inc., both of which were part of the acquisition of Object Arts Inc. (14) Includes 100,000 shares of common stock issuable upon the exercise of warrants and 262,605 shares of common stock issuable upon the conversion of $500,000 of Series B 8% Cumulative Convertible Preferred Stock, both of which are currently exercisable/convertible or exercisable/convertible within the next 60 days. The number of shares of common stock upon the conversion of the Series B 8% Cumulative Convertible Preferred Stock is based upon a 20% discount to the closing market price of our common stock on October 13, 2000 ($2.438). 51 DESCRIPTION OF SECURITIES Our total authorized capital stock consists of 15,000,000 shares of common stock, with no par value, and 1,000,000 shares of preferred stock, with no par value per share. The following descriptions contain all material terms and features of our securities and are qualified in all respects by reference to our Articles of Incorporation and Bylaws. Common Stock We are authorized to issue up to 15,000,000 shares of common stock, no par value per share, of which as of October 13, 2000, 5,550,802 shares of common stock are outstanding, not including the shares of common stock to be issued pursuant to the conversion of the shares of Series A 8% Cumulative Convertible Preferred Stock and the Series B 8% Cumulative Convertible Preferred Stock and the exercise of warrants. All outstanding shares of common stock are, and all shares of common stock to be outstanding upon the conversion of the shares of Series A 8% Cumulative Convertible Preferred Stock and the Series B 8% Cumulative Convertible Preferred Stock and the exercise of warrants will be, validly authorized and issued, fully paid, and non-assessable. The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders. Holders of common stock are entitled to receive ratably dividends as may be declared by our Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of the Company, holders of the common stock are entitled to share ratably in all assets remaining, if any, after payment of liabilities. Holders of common stock have no preemptive rights and have no rights to convert their shares of common stock into any other securities. Pursuant to the Business Corporation Act, Ontario, a shareholder of an Ontario Corporation has the right to have the corporation pay the shareholder the fair market value for his shares of the corporation in the event such shareholder dissents to certain actions taken by the corporation, such as amalgamation or the sale of all or substantially all of the assets of the corporation and such shareholder follows the procedures set forth in the Business Corporation Act, Ontario. Preferred Stock Our Articles of Incorporation authorize the issuance of up to 1,000,000 shares of preferred stock with designations, rights and preferences determined from time to time by our Board of Directors. Accordingly, our Board of Directors is empowered, without shareholder approval, to issue preferred shares with dividend, liquidation, conversion, or other rights that could adversely affect the rights of the holders of the common stock. Although we have no present intention to issue any additional shares of preferred stock, there can be no assurance that it will not do so in the future. Series A 8% Cumulative Convertible Preferred Stock There are 9,667 shares of Series A 8% Cumulative Convertible Preferred Stock outstanding. Each share of Series A 8% Cumulative Convertible Preferred Stock has a stated value of $100 per share. The shares of Series A 8% Percent Cumulative Convertible Preferred Stock are convertible into shares of our common stock at the option of the holders the Series A 8% Percent Cumulative Convertible Preferred Stock, at any time after issuance until either: (i) such shares of Series A 8% Percent Cumulative Convertible Preferred Stock are converted at our option; or (ii) such shares of Series A 8% Percent Cumulative Convertible Preferred Stock are redeemed by us, under certain conditions, at any time after the effective date of this registration statement. 52 The holders of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock are entitled to receive preferential dividends in cash, out of any of our funds legally available at the time of declaration of dividends before any other dividend distribution will be paid or declared and set apart for payment on any shares of our common stock, or other class of stock presently authorized, at the rate of 8% simple interest per annum on the stated value per share. Such are payable on a quarterly basis commencing on the quarter ending March 31, 2000 when as and if declared, provided however, that the dividends will be made in additional shares of Series A 8% Percent Cumulative Convertible Preferred Stock at a rate of one share of Series A 8% Percent Cumulative Convertible Preferred Stock for each $100 of such dividend not paid in cash. Dividends may be paid at our option with shares of Series A 8% Percent Cumulative Convertible Preferred Stock only if our common stock deliverable upon the conversion of the Series A 8% Percent Cumulative Convertible Preferred Stock will have been included for public resale in an effective registration statement filed with the SEC on the dates such dividends are payable and paid to the holders. The dividends shall be cumulative whether or not earned and shall be cumulative from and after December 30, 1999. The number of shares of our common stock into which the Series A 8% Percent Cumulative Convertible Preferred Stock shall be convertible shall be equal to (i) the sum of (A) the stated value per share and (B) at the holder's election, accrued and unpaid dividends on such share, divided by (ii) the "A Conversion Price". The A Conversion Price shall be the lesser of (x) 90% of the average "A Closing Bid Price" for the three trading days immediately preceding December 30, 1999, or (y) 80% of the average of the three lowest "A Closing Bid Prices" for the ten trading days immediately preceding the conversion of the respective shares of Series A 8% Percent Cumulative Convertible Preferred Stock. The "A Closing Bid Price" is defined as the closing bid price as reported on the Nasdaq SmallCap Market or the principal market or exchange where our common stock is then traded. The holders of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock may exercise their right to conversion only if the aggregate stated value of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock to be converted is equal to at least $5,000, unless if at the time of such conversion, the aggregate stated value of all of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock is less than $5,000, then the whole amount of the remaining shares of Series A 8% Percent Cumulative Convertible Preferred Stock may be converted. At any time after April 27, 2000, we have the option to redeem any or all of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock by paying to the holders a sum of money equal to 135% of the stated value of the aggregate of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock being redeemed plus the dollar amount of the accrued dividends, if the A Conversion Price of the shares of Series A 8% Percent Cumulative Convertible Preferred Stock on the trading day prior to the date of redemption is less than $2. Series B 8% Cumulative Convertible Preferred Stock There are 1,250 shares of Series B 8% Cumulative Convertible Preferred Stock outstanding. Each share of Series B 8% Cumulative Convertible Preferred Stock has a stated value of $1,000 per share. The shares of Series B 8% Percent Cumulative Convertible Preferred Stock are convertible into shares of our common stock at the option of the holders the Series B 8% Percent Cumulative Convertible Preferred Stock, at any time after issuance until such shares of Series B 8% Percent Cumulative Convertible Preferred Stock are redeemed by us, under certain conditions. The holders of the shares of Series B 8% Percent Cumulative Convertible Preferred Stock are entitled to receive preferential dividends in cash, out of any of our funds legally available at the time of declaration of dividends before any other dividend distribution will be paid or declared and set apart for payment on any shares of our common stock, or other class of stock presently authorized, at the rate of 8% simple interest per annum on the stated value per share plus any accrued but unpaid dividends, when as and if declared. We have the option to pay such dividends in shares of our common stock to be paid (based on an assumed value of $1,000 per share) in full shares only, with a cash payment equal to any fractional shares. 53 The number of shares of our common stock into which the Series B 8% Percent Cumulative Convertible Preferred Stock shall be convertible shall be equal to (i) the sum of (A) the stated value per share and (B) at the holder's election, accrued and unpaid dividends on such share, divided by (ii) the "B Conversion Price". The B Conversion Price shall be the lesser of (x) $3.375, or (y) 80% of the average of the three lowest "B Closing Bid Prices" for the ten (10) trading days immediately preceding the conversion of the respective shares of Series B 8% Percent Cumulative Convertible Preferred Stock. The "B Closing Bid Price" is defined as the closing bid price, as reported on the Nasdaq SmallCap Market, or the principal market or exchange where our common stock is then traded as reported by Bloomberg. At any time that the number of our shares of common stock issued (A) upon conversion of the shares for Series B 8% Cumulative Convertible Preferred Stock and (B) in lieu of dividend payments, shall equal 20% or more our outstanding common stock, we are required to (x) redeem, at a price per share equal to (A) the quotient of (i) $1,000 per share plus all accrued but unpaid dividends and (ii) the B Conversion Price as if the Series B 8% Cumulative Convertible Preferred Stock has been converted on the date of redemption, multiplied by (B) the average B Closing Bid Price of our common stock for the five trading days immediately preceding the date of redemption. Common Stock Purchase Warrants There are outstanding warrants to purchase an aggregate of 2,293,777 shares of our common stock. 631,750 of the warrants issued are exercisable at any time and in any amount until December 30, 2004 at a purchase price of $3.24 per share, 350,000 of the warrants issued are exercisable at any time and in any amount until April 16, 2005 at a purchase price of $3.71per share, 500,000 of the warrants issued are exercisable at any time and in any amount until March 6, 2001 at a purchase price of $3.25 per share, 272,001 of the warrants issued are exercisable at any time and in any amount until August 22, 2005 at a purchase price of $3.516 per share, 81,766 of the warrants issued are exercisable at any time and in any amount until August 22, 2005 at a purchase price of $3.165 per share, 80,004 of the warrants issued are exercisable at any time and in any amount until August 22, 2005 at a purchase price of $2.742, and 378,256 of the warrants issued are exercisable at any time and in any amount until August 22, 2005 at a purchase price of $2.463 per share per share. We may call any unexercised portion of 812,027 of the 2,293,777 warrants and require their exercise as follows if our common stock, as reported on the Nasdaq SmallCap Market, closes above the bid price indicated for any ten consecutive business days: (i) 1/3 of such unexercised warrants at $6.00 per share, (ii) 1.3 of such unexercised warrants at $7.50 per share; and (iii) 1/3 of such unexercised warrants at $9.00 per share. Warrantholders are not entitled, by virtue of being warrantholders, to receive dividends or to vote at or receive notice of any meeting of shareholders or to exercise any other rights whatsoever as our shareholders. In order to receive one share of our common stock a warrantholder must surrender one warrant, accompanied by payment of the aggregate exercise price of the warrants to be exercised, which payment may be made, at the warrantholder's election, in cash or by delivery of a cashiers or certified check or any combination of the foregoing. Upon receipt of duly executed warrants and payment of the exercise price, we shall issue and cause to be delivered to warrantholders, certificates representing the number of shares of common stock so purchased. Transfer Agent and Registrar The transfer agent and registrar for the shares of common stock is Continental Stock Transfer & Trust Company. 54 CERTAIN UNITED STATES AND CANADIAN FEDERAL INCOME TAX CONSIDERATIONS United States The following describes the principal United States federal income tax consequences of the purchase, ownership and disposition of our shares of common stock by a shareholder, that is a citizen or resident of the United States or a United States domestic corporation or that otherwise will be subject to United States federal income tax. This summary is based on the United States Internal Revenue Code of 1986, as amended, administrative pronouncements, judicial decisions and existing and proposed Treasury Regulations, changes to any of which subsequent to the date of this prospectus may affect the tax consequences described herein. This summary discusses only the principal United States federal income tax consequences to those beneficial owners holding the securities as capital assets within the meaning of Section 1221 of the United States Internal Revenue Code of 1986 and does not address the tax treatment of a beneficial owner that owns 10% or more of shares of our common stock. It is for general guidance only and does not address the consequences applicable to certain specialized classes of taxpayers such as certain financial institutions, insurance companies, dealers in securities or foreign currencies, or United States persons whose functional currency (as defined in Section 985 of the United States Internal Revenue Code of 1986) is not the United States dollar. Persons considering the purchase of these securities should consult their tax advisors with regard to the application of the United States and other income tax laws to their particular situations. In particular, a United States. shareholder should consult his or her or its tax advisor with regard to the application of the United States federal income tax laws to his or her or its situation. A United States shareholder generally will realize, to the extent of our current and accumulated earnings and profits, foreign source ordinary income on the receipt of cash dividends, if any, on the shares of our common stock equal to the United States dollar value of such dividends determined by reference to the exchange rate in effect on the day they are received by the United States shareholder (with the value of such dividends computed before any reduction for any Canadian withholding tax). United States shareholders should consult their own tax advisors regarding the treatment of foreign currency gain or loss, if any, on any dividends received which are converted into United States dollars on a date subsequent to receipt. Subject to the requirements and limitations imposed by the United States Internal Revenue Code of 1986, a United States shareholder may elect to claim Canadian tax withheld or paid with respect to dividends on the shares of our common stock as a foreign credit against the United States federal income tax liability of such holder. Dividends on the shares of our common stock generally will constitute "passive income" or, in the case of certain United States shareholders, "financial services income," for United States foreign tax credit purposes. United States shareholders who do not elect to claim any foreign tax credits may claim a deduction for Canadian income tax withheld. Dividends paid on the shares of our common stock will not be eligible for the dividends received deduction available in certain cases to United States corporations. Upon a sale or exchange of a share of our common stock, a United States shareholder will recognize gain or loss equal to the difference between the amount realized on such sale or exchange and the tax basis of such share of common stock. Generally, any gain or loss recognized as a result of the foregoing will be a capital gain or loss and will either be long-term or short-term depending upon the period of time the shares of our common stock are sold or exchanged, as the case may be, were held. This summary is of general nature only and is not intended to be, and should not be construed to be, legal or tax advice to any prospective investor and no representation with respect to the tax consequences to any particular investor is made. 55 Canada The following is a summary of the principal Canadian federal income tax considerations generally applicable to the acquisition, holding and disposition of shares of our common stock purchased pursuant to this prospectus by a United States shareholder who, for the purposes of the Income Tax Act (Canada) and the Canada-United States Income Tax Convention, as applicable and at all relevant times, (i) is resident in the United States and not resident in Canada, (ii) holds shares of our common stock as capital property, (iii) does not have a "permanent establishment" or "fixed base" in Canada, and (iv) deals at arm's length with us. Special rules, which are not discussed in this summary, may apply to "financial institutions" and to non-resident insurers carrying on an insurance business in Canada and elsewhere. This summary is based on the current provisions of the Income Tax Act (Canada) and the regulations thereunder and the Canada-United States Income Tax Convention, all specific proposals to amend the Income Tax Act (Canada) or the regulations thereunder announced by the Canadian Minister of Finance prior to the date of this prospectus and the current published administrative practices of Revenue Canada. This summary does not otherwise take into account or anticipate any changes in law or administrative practice nor does it take into account income tax laws or considerations of any province or territory of Canada or any jurisdiction other than Canada, which may differ from the federal income tax consequences described herein. This summary is of a general nature only and is not intended to be, and should not be interpreted as, legal or tax advice to any particular purchaser of the shares of common stock. Dividends Under the Income Tax Act (Canada) and the Canada-United States Income Tax Convention, dividends paid or credited, or deemed to be paid or credited, on the shares of our common stock to a United States shareholder who owns less than 10% of our voting shares will be subject to Canadian withholding tax at the rate of 15% of the gross amount of such dividends or deemed dividends. Under the Canada-United States Income Tax Convention, dividends paid or credited to certain religious, scientific, charitable and similar tax exempt organizations and certain pension organizations that are resident, and exempt from tax, in the United States and that have complied with certain administrative procedures are exempt from this Canadian withholding tax. Disposition of Shares of Common Stock A capital gain realized by a United States shareholder on a disposition or deemed disposition of shares of our common stock will not be subject to tax under the Income Tax Act (Canada) unless such shares of our common stock constitute taxable Canadian property within the meaning of the Income Tax Act (Canada)at the time of the disposition or deemed disposition. In general, the shares of our common stock will not be "taxable Canadian property" to a United States shareholder unless they are not listed on a prescribed stock exchange (which includes the Nasdaq SmallCap Market) or at any time within the five year period immediately preceding the disposition the United States shareholder, persons with whom the United States shareholder did not deal at arm's length, or the United States shareholder together with such persons owned or had an interest in or a right to acquire more than 25% of any class or series of our shares. A deemed disposition of shares of our common stock will arise on the death of a United States shareholder. If the shares of our common stock are taxable Canadian property to a United States shareholder, any capital gain realized on a disposition or deemed disposition of such shares of our common stock will generally be exempt from tax under the Income Tax Act (Canada) by virtue of the Canada-United States Income Tax Convention if the value of the shares of our common stock at the time of the disposition or deemed disposition is not derived principally from real property situated in Canada. We are of the view that the shares of our common stock do not now derive their value principally from real property situated in Canada; however, the determination as to whether Canadian tax would be applicable on a disposition or deemed disposition of shares of our common stock must be made at the time of the disposition or deemed disposition. 56 This summary is of general nature only and is not intended to be, and should not be construed to be, legal or tax advice to any prospective investor and no representation with respect to the tax consequences to any particular investor is made. 57 INVESTMENT CANADA ACT The Investment Canada Act, a Federal Canadian statute, regulates the acquisition of control of existing Canadian businesses by any non-Canadian (as that term is defined in the Investment Canada Act). We are currently a Canadian (as that term is defined in the Investment Canada Act). If a non-Canadian seeks to acquire control of us, such acquisition will be subject to the Investment Canada Act. In general, any transaction which is subject to the Investment Canada Act is a reviewable transaction if the book value of our assets, as set out in its most recent financial statements, exceeds the applicable threshold. If the potential acquiror is a WTO Investor, acquiring control of us would only be reviewable if the book value of our assets exceeded CDN$179 million. (This number is the threshold amount for 1998 and this amount is increased each year by a factor equal to the increase in the rate of Canadian inflation for the previous year). A WTO Investor is defined in the Investment Canada Act as an investor ultimately controlled by nationals of World Trade Organization member states, such as the United States of America. If the book value of our assets exceeds the applicable threshold for review, the potential acquiror must file an application for review and obtain the approval of the Minister of Industry before acquiring control of us. In deciding whether to approve the reviewable transaction, the Minister considers whether the investment "is likely to be of net benefit to Canada". This determination is made on the basis of economic and policy criteria set out in the Investment Canada Act. The approval process begins with an initial review period of 45 days from the date the completed application is received. However, the Minister of Industry has authority to extend the review period unilaterally for 30 more days. Any further extensions require the potential acquiror's consent. 58 SHARES ELIGIBLE FOR FUTURE SALE No assurance can be given as to the effect, if any, that future sales of common stock will have on the market price of our common stock. Of our shares of common stock currently outstanding, assuming no exercise of warrants or conversion of the Series A 8% Cumulative Convertible Preferred Stock or conversion of Series B 8% Cumulative Convertible Preferred Stock into shares of our common stock, 1,889,354 are "restricted securities" as the term is defined in Rule 144 under the Securities Act of 1933, as amended, and under certain circumstances may be sold without registration pursuant to that rule. Subject to the compliance with the notice and manner of sale requirements of Rule 144 and provided that we are current in our reporting obligations under the Securities Exchange Act of 1934, a person who beneficially owns restricted shares of stock for a period of at least one year is entitled to sell, within any three-month period, shares equal to the greater of 1% of the then outstanding shares of common stock, or if the common stock is quoted on the Nasdaq System, the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of the required notice of sale on the Form 144, with the United States Securities and Exchange Commission. As of the date of this prospectus, 1,889,354 shares of the common stock, held by beneficial owners, are eligible for sale pursuant to Rule 144. We are unable to predict the effect that the sales made under Rule 144 otherwise may have on the market price of our common stock prevailing at the time of any such sales. Nevertheless, sales of substantial amounts of the restricted shares of common stock in the public market could adversely effect the then prevailing market for our common stock and could impair our ability to raise capital through the sale of our equity securities. 59 SELLING SECURITY HOLDERS The table below sets forth certain information regarding the beneficial ownership of the common stock by the selling security holders and as adjusted to give effect to the sale of the shares offered in this prospectus.
Percentage of Position, office or Beneficial Shares of Common Stock affiliation with Ownership Common Beneficially Owned Name of Selling ThinkPath during the of Common Stock Stock After The Security Holder past Three years Prior to Sale to be Sold(1) Offering(2) - --------------- --------------------- ----------------- ------------- ---------------------- Joseph Abood None 4,800 4,800 0 Oscar Alea None 4,800 4,800 0 Bakara Corporation None 3,200 3,200 0 Ronald A Balkin and None 26,667 26,667 0 Karen A. Balkin Linda Bassin None 26,667 26,667 0 Bear Stearns Sec Corp FBO None 18,666 18,666 0 Paul Berkman IRA Bewitched Enterprises None 48,000 48,000 0 Bru Holding Co., LLC None 259,012 259,012 0 CarCap Co., LLC None 64,754 64,754 0 CYP Representaciones, SA None 8,000 8,000 0 Bader M. Dager None 11,199 11,199 0 George R. Dick and None 32,000 32,000 0 Joann L. Dick JTWROS James A. Erb None 13,333 13,333 0 Robert L. Frome None 26,667 26,667 0 Stanley L. Goldberg None 91,421 91,421 0 Robert D. Linn None 13,333 13,333 0 Manuela Lugo None 4,800 4,800 0 Ana Maria Stefanelli and None 8,000 8,000 0 Antonio Marco Fred Marcus None 53,334 53,334 0 Alicia Martorell and None 4,800 4,800 0 Marianela Hernandez John C. McNabney and None 13,333 13,333 0 Joyce L. McNabney JTWROS James Milgard None 80,000 80,000 0 Thomas F. Motter None 26,667 26,667 0 Sherri and Adam Ocner None 53,334 53,334 0
60 Edwin and Cheryl Richardson None 26,667 26,667 0 Evanann Romero and None 4,800 4,800 0 Margaret Romero Joel Schoenfield and None 32,000 32,000 0 Deborah Schoenfeld Judy Shapiro None 26,667 26,667 0 Simarik Holdings None 9,600 9,600 0 Martin and Rebecca None 26,667 26,667 0 Staehlin JTWROS Antonia de Stefanelli and None 8,000 8,000 0 Maria Pia Stefanelli Edmund Tennenhaus None 13,333 13,333 0 Abdul Akil None 10,665 10,665 0 Lauren A. Daman, MD None 8,888 8,888 0 Glenn E. Emig None 59,249 59,249 0 Finamek Asset Management None 3,555 3,555 0 Elaine Khalaf None 17,775 17,775 0 James P. Magee None 29,625 29,625 0 L.W. Marjac LLC None 29,625 29,625 0 Miguel Pepe, Luis Pepe and None 17,775 17,775 0 Giuseppina Pepe Edward S. Raskin Trust None 59,249 59,249 0 Jesus Yanez and Justa Yanez None 8,888 8,888 0 James Corman None 51,282 51,282 0 Ronald S. Dungan Deed of None 17,094 17,094 0 Trust DTD Abe Dushey None 17,094 17,094 0 James K. Friedman, MD None 13,676 13,676 0 Jose R. Garrigo and None 6,155 6,155 0 Maylen E. Garrigo JTWROS Glamox Investments, Inc. None 20,513 20,513 0 Douglas and Alexis Hogue None 20,513 20,513 0 JTWROS J. Lawrence II, LLC None 13,676 13,676 0 Carlos Negron None 14,360 14,360 0 Edward T. Price None 17,094 17,094 0 Sandalio Rementeria and None 14,360 14,360 0 Maria Rosanna Morelli Russell B. Wight, Jr. None 34,188 34,188 0
61 William K. Cuda, Jr. None 19,044 19,044 0 Horatio Loray None 5,942 5,942 0 Maria Luisa Mila de la Roca None 6,855 6,855 0 Daniel Dougherty None 12,797 12,797 0 Alejandro Nunez None 6,855 6,855 0 Jonathan Mark None 7,617 7,617 0 CHAPTO y CIA None 6,855 6,855 0 KSH Investment Group, Inc. Placement Agent 175,000(3) 175,000(3) 0(3) Kathy Rocklen None 2,500 2,500 0 Helen Kohn None 15,013 15,013 0 Stuart Kohn None 1,876 1,876 0 Michael Kohn None 1,876 1,876 0 Ronit Sucoff None 18,765 18,765 0 Aaron Katz None 2,400 2,400 0 Paul Dorfman None 213 213 0 Peter O'Neill None 1,383 1,383 0 Morris Betesh None 1,580 1,580 0 Daniel Katz None 317 317 0 Win Capital, Corp. Underwriter, 51,459(4) 51,459(4) 0(4) Financial Advisor Aquila Airways, Inc. None 4,046 4,046 0 Francis Anderson None 845 845 0 Nancy Murdocco None 1,000 1,000 0 Karen Ann Orlando None 1,000 1,000 0 Frances Kehoe None 1,000 1,000 0 Mary Ellen Spedale None 420 420 0
- --------------- (1) The number of shares of common stock shown as beneficially owned and offered by the selling security holders represents the number of shares which we have initially agreed to register. Pursuant to Rule 416 under the Securities Act of 1933, as amended, the number of shares of common stock offered by the selling security holders hereby and included in the registration statement of which this prospectus is a part also includes 812,027 shares of our common stock which may be issued upon the exercise of warrants. The above numbers assume that the selling security holders will exercise all of the outstanding warrants held by them. (2) Assumes all of the shares of common stock offered are sold. (3) Does not include 100,000 shares of common stock issuable to KSH Investment Partners I, LLC upon the exercise of warrants and 262,605 shares of common stock issuable to KSH Investment Partners I, LLC upon the conversion of $500,000 of Series B 8% Cumulative Convertible Preferred Stock, all of which are currently exercisable/convertible or exercisable/convertible within the next 60 days. The number of shares of common stock issuable upon the conversion of the Series B 8% Cumulative Convertible Preferred Stock is based upon a 20% discount to the closing market price of our common stock on October 13, 2000 ($2.438). KSH Investment Group, Inc. disclaims beneficial ownership to the shares of common stock issuable to KSH Investment Partners I, LLC. 62 (4) Does not include 20,700 shares of common stock issuable to Win Capital Corp. upon the exercise of warrants issued to Win Capital Corp. as an underwriter in our June 8, 1999 initial public offering. In recognition of the fact that the selling security holders may wish to be legally permitted to sell their shares of common stock when they deem appropriate, we agreed with the selling security holders to file with the United States Securities and Exchange Commission, under the Securities Act of 1933, as amended, a registration statement on Form SB-2, of which this prospectus is a part, with respect to the resale of the shares of common stock, and have agreed to prepare and file such amendments and supplements to the registration statement as may be necessary to keep the registration statement effect until the shares of common stock are no longer required to be registered for the sale thereof by the selling security holders. 63 PLAN OF DISTRIBUTION The shares of common stock offered hereby by the selling security holders may be sold from time to time by the selling security holders, or by pledgees, donees, transferees and other successors in interest. These pledgees, donees, transferees and other successors in interest will be deemed "selling security holders" for the purposes of this prospectus. The shares of common stock may be sold: - - on one or more exchanges or in the over-the-counter market (including the OTC Bulletin Board); or - - in privately negotiated transactions. The shares of common stock may be sold to or through brokers or dealers, who may act as agent or principal, or in direct transactions between the selling security holders and purchasers. In addition, the selling security holder may, from time to time, sell short the common stock, and in these instances, this prospectus may be delivered in connection with the short sale and the shares of common stock offered hereby may be used to cover the short sale. Transactions involving brokers or dealers may include, without limitation, the following: - - ordinary brokerage transactions, - - transactions in which the broker or dealer solicits purchasers, - - block trades in which the broker or dealer will attempt to sell the shares of common stock as agent but may position and resell a portion of the block as principal to facilitate the transaction; and - - purchases by a broker or dealer as a principal and resale by such broker or dealer for its account. In effecting sales, brokers and dealers engaged by the selling security holders or the purchasers of the shares of common stock may arrange for other brokers or dealers to participate. These brokers or dealers may receive discounts, concessions or commissions from the selling security holders and/or the purchasers of the shares of common stock for whom the broker or dealer may act as agent or to whom they may sell as principal, or both (which compensation as to a particular broker or dealer may be in excess of customary commissions). We are bearing all of the costs relating to the registration of the shares of common stock other than certain fees and expenses, if any, of counsel or other advisors to the selling security holders. Any commissions, discounts or other fees payable to brokers or dealers in connection with any sale of the shares of common stock will be borne by the selling security holders, the purchasers participating in the transaction, or both. Any shares covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act of 1933, as amended, may be sold under Rule 144 rather than pursuant to this prospectus. 64 LEGAL MATTERS Certain legal matters in connection with the offering, including the validity of the issuance of the shares of common stock offered hereby, will be passed upon for us by Gersten, Savage & Kaplowitz, LLP, New York, New York. EXPERTS Our financial statements for the years ended December 31, 1997, 1998 and 1999, appearing in this prospectus and registration statement have been audited by Schwartz Levitsky Feldman, llp, as set forth in their report thereon appearing elsewhere herein and in the registration statement, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. Our financial statements for the six months ended June 30, 2000, appearing in this prospectus and registration statement have been prepared by us and have been reviewed by Schwartz, Levitsky, Feldman, llp. WHERE YOU CAN FIND ADDITIONAL INFORMATION We are subject to the information requirements of the Exchange Act of 1934, and, in accordance therewith will have been filing reports, proxy statements and other information with the United States Securities and Exchange Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the United States Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the regional offices of the United States Securities and Exchange Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained from the Public Reference Section of the Securities and Exchange Commission, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and its public reference facilities in New York, New York and Chicago, Illinois upon payment of the prescribed fees. Electronic registration statements filed through the Electronic Data Gathering, Analysis, and Retrieval System are publicly available through the United States Securities and Exchange Commission's Web site (http://www.sec.gov). Further information on public reference rooms available at the United States Securities and Exchange Commission is available by contacting the United States Securities and Exchange Commission at 1-(800) SEC-0330. The Nasdaq Stock Market maintains a Web site at (http://www.nasdaq.com) whereby information regarding ThinkPath may be obtained 65 THINKPATH.COM INC. INTERIM CONSOLIDATED FINANCIAL STATEMENTS (IN US DOLLARS) (UNAUDITED) JUNE 30, 2000 THINKPATH.COM INC. Interim Consolidated Balance Sheet As of June 30, 2000 and December 31, 1999 (Amounts expressed in US dollars) (Unaudited) (Restated) June 30 December 31 2000 1999 $ $ ------------ ------------- ASSETS CURRENT ASSETS Cash 1,156,087 1,904,588 Short-term investments 1,970,407 383,146 Accounts receivable 7,196,097 5,636,654 Prepaid expenses 629,638 720,754 Income taxes receivable 129,777 - ------------ ------------- 11,082,006 8,645,142 CAPITAL ASSETS 3,433,464 3,362,855 GOODWILL 11,047,449 6,960,272 DUE FROM RELATED PARTY 211,313 211,313 OTHER ASSETS 1,246,309 1,227,470 DEFERRED INCOME TAXES 322,365 - ------------ ------------- 27,342,906 20,407,052 ============ ============= F-1 THINKPATH.COM INC. Consolidated Interim Balance Sheet As of June 30, 2000 and December 31, 1999 (Amounts expressed in US dollars) (Unaudited) (Restated) June 30 December 31 2000 1999 $ $ ---------- ------------ LIABILITIES CURRENT LIABILITIES Bank indebtedness 5,582,645 4,430,264 Accounts payable 3,863,412 3,041,997 Deferred revenue 150,632 - Income taxes payable - 159,830 Current portion of long-term debt 373,497 373,129 Current portion of note payable 1,300,000 1,300,000 ---------- ---------- 11,270,186 9,305,220 DEFERRED INCOME TAXES - 99,472 LONG-TERM DEBT 624,204 1,320,838 NOTE PAYABLE 1,654,654 1,150,000 ---------- ---------- 13,549,044 11,875,530 ---------- ---------- STOCKHOLDERS' EQUITY CAPITAL STOCK 13,658,467 8,717,441 OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES Cumulative translation adjustment (73,940) (47,306) RETAINED EARNINGS 209,335 (138,613) ---------- ---------- 13,793,862 8,531,522 ---------- ---------- 27,342,906 20,407,052 ========== ========== The accompanying notes are an integral part of these consolidated interim financial statements. F-2 THINKPATH.COM INC. Consolidated Interim Statements of Income For the three and six months ended June 30, 2000 and 1999 (Amounts expressed in US dollars) (Unaudited)
Three Months Three Months Six Months Six Months ended ended ended ended June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 $ $ $ $ --------------- ---------------- ---------------- --------------- REVENUE 12,086,885 5,292,439 21,813,940 11,595,423 COST OF SERVICES 7,349,432 3,052,968 13,256,481 7,132,869 --------------- ---------------- ---------------- --------------- GROSS PROFIT 4,737,453 2,239,471 8,557,459 4,462,554 --------------- ---------------- ---------------- --------------- EXPENSES Administrative 1,529,639 973,316 3,130,462 1,747,650 Selling 2,278,251 941,780 3,781,732 2,188,723 Financial 298,219 54,382 541,104 208,712 --------------- ---------------- ---------------- --------------- 4,106,109 1,969,478 7,453,298 4,145,085 --------------- ---------------- ---------------- --------------- INCOME BEFORE AMORTIZATION AND INCOME TAXES 631,344 269,993 1,104,161 317,469 Amortization 432,498 43,931 714,162 143,869 --------------- ---------------- ---------------- --------------- INCOME BEFORE INCOME TAXES 198,846 226,062 389,999 173,600 Income taxes (recovery) (36,291) 4,496 42,031 10,335 --------------- ---------------- ---------------- --------------- NET INCOME 235,137 221,566 347,948 163,265 =============== ================ ================ =============== BASIC EARNINGS PER STOCK 0.05 0.06 0.08 0.04 =============== ================ ================ =============== WEIGHTED AVERAGE NUMBER OF COMMON STOCK OUTSTANDING 4,449,048 3,853,767 4,278,762 3,853,767 =============== ================ ================ =============== FULLY DILUTED EARNINGS PER STOCK 0.03 0.06 0.05 0.04 =============== ================ ================ ===============
The accompanying notes are an integral part of these consolidated interim financial statements. F-3 THINKPATH.COM INC. Consolidated Interim Statement of Stockholders' Equity (Amounts expressed in US dollars) (Unaudited)
Common Preferred Stock Stock Capital Cumulative Number of Number of Stock Retained Translation Shares Shares Amounts Earnings Adjustment ---------- --------- -------- -------- ----------- $ $ $ Balance as of December 31, 1999 (restated) 3,938,642 15,010 8,717,441 (138,613) (47,306) Issuance of common stock 196,880 -- 925,991 -- -- Common stock payable -- -- -- -- -- Issuance of preferred stock -- -- -- -- -- Foreign currency translation -- -- -- -- (1,626) Net income for the period -- -- -- 112,811 -- ---------- -------- ---------- --------- ---------- Balance as of March 31, 2000 4,135,522 15,010 9,643,432 (25,802) (48,932) Issuance of common stock 610,629 -- 1,815,035 -- -- Common stock payable -- -- 625,000 -- -- Issuance of preferred stock -- 4,000 1,575,000 -- -- Preferred stock converted 85,598 (2,053) -- -- -- Foreign currency translation -- -- -- -- (25,008) Net income for the period -- -- -- 235,137 -- ---------- -------- ---------- --------- ---------- Balance as of June 30, 2000 4,831,749 16,957 13,658,467 209,335 (73,940) ========== ======== ========== ========= ==========
The accompanying notes are an integral part of these consolidated interim financial statements. F-4 THINKPATH.COM INC. Consolidated Interim Statement of Cash Flows For the six months ended June 30, 2000 and 1999 (Amounts expressed in US dollars) (Unaudited)
2000 1999 $ $ -------- ------- Cash flows from operating activities: Net income 347,948 163,265 ------------ ----------- Adjustments to reconcile net income to net cash (used in) provided by operating activities: Amortization 618,302 121,860 Amortization of goodwill 95,860 22,009 Amortization of deferred contract 60,000 - Decrease (increase) in accounts receivable (1,471,182) (124,697) Decrease (increase) in prepaid expenses (96,550) (211,382) Decrease (increase) in income taxes receivable (208,322) 104,296 Decrease (increase) in short-term investments (1,608,429) (3,762,203) Decrease (increase) in inventory (70,567) (206,730) Increase (decrease) in accounts payable and deferred revenue 1,032,538 227,465 Decrease (increase) in income taxes payable 41,118 -- Decrease (increase) deferred income taxes (41,485) -- ------------ ------------ Total adjustments (1,648,717) (3,829,382) ------------ ------------ Net cash (used in) operating activities (1,300,769) (3,666,117) ------------ ------------ Cash flows from investing activities: Purchase of capital assets (805,254) (399,927) Purchase of other assets (212,650) (424,060) Cash payment for subsidiaries (1,788,950) -- ------------ ------------ Net cash (used in) investing activities (2,806,854) (823,987) ------------ ------------ Cash flows from financing activities: Cash (paid) received on notes payable 496,068 -- Cash (paid) received on long-term debt (70,373) (152,015) Proceeds from issuance of common stock 124,420 3,623,883 Proceeds from issuance of preferred stock 1,580,833 -- Increase in bank indebtedness 1,152,381 1,120,858 ------------ ------------ Net cash provided by financing activities 3,283,329 4,592,726 ------------ ------------ Effect of foreign currency exchange rate changes 75,793 (1,041) ------------ ------------ Net increase (decrease) in cash and cash equivalents (748,501) 101,581 Cash and cash equivalents - Beginning of period 1,904,588 -- ------------ ------------ - End of period 1,156,087 101,581 ============ ============ Interest paid 410,881 187,182 ============ ============ Income taxes paid 42,031 10,335 ============ ============
The accompanying notes are an integral part of these consolidated interim financial statements. F-5 THINKPATH.COM INC. Notes to Consolidated Interim Financial Statements June 30, 2000 (Amounts expressed in US dollars) (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Basis of Presentation The accompanying consolidated interim financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated interim financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of the Company, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation have been included in the consolidated interim financial statements. The consolidated interim financial statements are based in part on estimates and have not been audited by independent accountants. Independent accountants will audit the annual consolidated financial statements. b) Change of Name The Company changed its name to Thinkpath.Com Inc. on February 24, 2000. c) Accounting Changes In June 1998 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement requires that an entity recognizes all derivatives as either assets or liabilities and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The adoption of this standard will not have a material impact on the consolidated interim financial statements of the company. d) Principles of Consolidation For the period January 1, 1997 through June 30, 2000, the company completed 5 acquisitions, which were accounted for under the purchase method, and 1 acquisition, which was accounted for as a pooling of interests. The acquisition of Object Arts Inc. was completed prior to March 31, 2000. In connection with this transaction the company issued 527,260 shares of its common stock for all of the outstanding common stock of the acquired company. Accordingly, the consolidated interim financial statements included herein for the 1999 periods have been retroactively restated to reflect the acquisition. 2. ACQUISITONS a) ObjectArts Inc. was acquired effective January 1, 2000 for $1,977,000. This amount was paid through the issuance of common stock on the date of closing. The acquisition is being accounted for using the pooling of interest method. b) MicroTech Professionals Inc. was acquired effective April 1, 2000 for $4,500,000. F-6 THINKPATH.COM INC. Notes to Consolidated Interim Financial Statements June 30, 2000 (Amounts expressed in US dollars) (Unaudited) This amount will be paid in two installments, based on certain requirements to be met by MicroTech Professionals Inc.First Installment: 133,333 common stock issued on closing, $1,250,000 cash paid on closing, $750,000 3 year promissory note bearing interest at 1/2% above prime paid semi-annually issued on closing.Second Installment: $625,000 in common stock, $875,000 cash, $500,000 3-year promissory note bearing interest at 1/2% above prime paid semi-annually. The second installment is contingent on the December 31, 2000 audited financial statements of MicroTech Professionals Inc. 3. CAPITAL STOCK a) Authorized 15,000,000 Common Stock, no par value 1,000,000 Preferred Stock, issuable in series, rights to be determined by the Board of Directors
June 30 December 31 2000 1999 $ $ --------- ----------- b) Issued 4,831,749 Common Stock 9,464,015 6,236,196 (3,938,642 as of December 31, 1999) Issued 16,957 Preferred Stock 2,569,452 1,481,245 (15,010 as of December 31, 1999) Common Stock Payable 1,625,000 1,000,000 ----------- --------- 13,658,467 8,717,441 =========== =========
On April 25, 2000, 133,333 common stock were issued for the purchase of MicroTech Professionals Inc., for a total consideration of $500,000. On April 28, 2000, 300,000 common stock were issued for the purchase of an investment held for re-sale called E-Wink Inc. for a total consideration of $975,000 Over the course of the 3 months ended June 30, 2000, 85,598 common stock were issued on the conversion of 2,053 Preferred Stock Over the course of the 3 months ended June 30, 2000, 3,042 common stock were issued to other individuals for services rendered. The common stock payable represents the final payments for Cad Cam Inc. ($1,000,000) and MicroTech Professionals Inc. ($625,000). Common Stock of Thinkpath.Com Inc. will be issued for Cad Cam inc. at the prevailing market rate at the time of issuance. Common Stock of Thinkpath.Com Inc. will be issued for MicroTech Professionals at the lower of $3.75 and the average of the last sale price as quoted on NASDAQ for the 10 days prior to issuance. If the commons stock payable were to be converted at June 30, 2000 the number of common stock to be issued would be 483,631. The earnings per share calculation (basic and fully diluted) does not include any common stock for common stock payable as the conversion ratio is unknown. F-7 THINKPATH.COM INC. Notes to Consolidated Interim Financial Statements June 30, 2000 (Amounts expressed in US dollars) (Unaudited) c) Preferred Stock On December 30, 1999, 15,000 shares of Series A, 8% cumulative, convertible, preferred stock, no par value were issued in a private placement for gross proceeds of $1,500,000. The proceeds have been reduced by any issue expenses. On April 16, 2000, 2500 shares of Series A, 8% cumulative, convertible, preferred stock, no par value were issued in a private placement for gross proceeds of $250,000. The proceeds have been reduced by any issue expenses. On April 16, 2000, 1,500 shares of Series B, 8% cumulative, convertible, preferred stock, no par value were issued in a private placement for gross proceeds of $1,500,000. The proceeds have been reduced by any issue expenses. The preferred stock are convertible into common stock at the option of the holders under certain conditions, at any time after the effective date of the registration statement. As of June 30, 2000, 2,053 preferred stock had been converted into common stock. d) Warrants On December 30, 1999, 475,000 warrants were issued in conjunction with the private placement of the Series A, preferred stock. They are exercisable at any time and in any amount until December 30, 2004 at a purchase price of $3.24 per share. In connection with the Initial Public Offering, the underwriters received 100,000 warrants. They are exercisable at a purchase price of $5.00 per share. In connection with the private placement of Series B preferred stock 100,000 warrants were issued. They are exercisable at a purchase price of $3.58. Also in connection with the private placement of the Series B preferred stock 150,000 warrants were issued. They are exercisable at a purchase price of $3.30. In connection with the purchase of the investment in E-Wink 500,000 warrants were issued. They are exercisable at a purchase price of $3.24. e) Stock Options The company has outstanding stock options issued in conjunction with its long-term financing agreements for 22,125 common stock and additional options issued to a previous employee of the company for 200,000 shares exercisable at $2.10. An additional 250,000 options to purchase common stock of the company were issued to related parties. The options are exercisable at $5.00. F-8 THINKPATH.COM INC. Notes to Consolidated Interim Financial Statements June 30, 2000 (Amounts expressed in US dollars) (Unaudited) In connection with the acquisition of Cad Cam Inc. 100,000 options to purchase shares of the Company will be delivered in quarterly installments, starting January 1, 2000. Each option entitles the holder thereof to purchase one common stock of the Company. The first 25,000 options have an exercise price of $3.25 per common stock, and can be exercised at any time during the period up until December 31, 2000. The second 25,000 options have an exercise price of $2.62. The third 25,000 options have an exercise price of $2.87. The final 25,000 options shall have an exercise price equal to the lowest trading price of the Company's shares during the period between July 1, 2000 and September 30, 2000. In July 1998, the directors of the Company adopted and the stockholders approved the adoption of the Company's 1998 Stock option plan. In May 2000, the directors of the Company adopted and the stockholders approved the adoption of the Company's 2000 Stock option plan. The plan provides for 435,000 options at an exercise price of $3.25 per share. The options vest over a three-year period and expire May 9, 2005. Options ------- Options outstanding at January 1, 1999 222,125 Options granted to key employees and directors 250,000 ------- Options outstanding at December 31, 1999 472,125 Options granted to employees and Officers 920,000 ---------- Options Outstanding at June 30, 2000 1,392,125 ========== 4. SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Thinkpath.Com Inc. acquired all the capital stock of ObjectArts Inc. U.S for $346,310. The acquisition was funded as follows: $ -------- Fair Value of Assets acquired 365,848 Liabilities Assumed (349,928) Goodwill 330,390 Cash paid for Capital Stock (346,310) --------- -0- --------- Thinkpath.Com Inc. acquired all the capital stock of ObjectArts Inc. Canada for $1,977,225. The acquisition was funded by the issuance of 527,260 common stock. F-9 THINKPATH.COM INC. Notes to Consolidated Interim Financial Statements June 30, 2000 (Amounts expressed in US dollars) (Unaudited) ThinkPath.Com Inc. acquired all the capital stock of MicroTech Professionals Inc. for $4,500,000. The acquisition was funded as follows: $ ------------ Fair Value of Assets acquired 1,255,515 Liabilities Assumed (214,714) Goodwill 3,459,199 Cash Paid For Capital Stock (1,250,000) Common Stock Issued (500,000) Notes Payable (1,250,000) Accounts Payable (875,000) Common Stock Payable (625,000) ------------- -- ============ 5. TRANSACTIONS WITH RELATED COMPANIES a) In the first quarter of fiscal 2000, the Company received fees from MicroTech professionals (prior to their acquisition) in the amount of $500,000 and the company paid certain expenses on behalf of MicroTech Professionals Inc. totalling $260,000. b) During the second quarter of 2000, Thinkpath.Com transferred $762,000 in GTS capitalized costs to the associated company E-Wink Inc. The costs represent the value given to the key source code of GTS which will be used by E-Wink. Thinkpath currently owns 80% of E-Wink Inc. which it is holding as a short-term investment. 6. BASIC EARNINGS PER COMMON STOCK Basic earnings per common stock is computed by dividing net income by the weighted average number of common stock outstanding. The fully diluted number of common stock outstanding for the three-month period ending June 30, 2000 was 5,733,567 and for the six-month period ending June 30, 2000 was 5,583,221. 7. SEGMENTED INFORMATION a) Sales by Geographic Area
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30 June 30 June 30 June 30 2000 1999 2000 1999 $ $ $ $ --------- -------- --------- -------- Canada 3,952,327 3,634,674 7,746,613 7,963,357 United States of America 8,134,558 1,657,765 14,067,327 3,632,066 ---------- --------- ---------- ---------- 12,086,885 5,292,439 21,813,940 11,595,423 ========== ========= ========== ==========
F-10 THINKPATH.COM INC. Notes to Consolidated Interim Financial Statements June 30, 2000 (Amounts expressed in US dollars) (Unaudited) b) Net Income by Geographic Area
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30 June 30 June 30 June 30 2000 1999 2000 1999 $ $ $ $ -------- -------- -------- -------- Canada (487,194) 152,164 (560,346) 112,125 United States of America 722,331 69,402 908,294 51,140 -------- ------- -------- ------- 235,137 221,566 347,948 163,265 ======== ======= ======== ========
c) Identifiable Assets by Geographic Area
June 30 December 31 2000 1999 $ $ --------- ------------ Canada 7,663,772 7,972,275 United States of America 19,679,134 12,434,777 ---------- ---------- 27,342,906 20,407,052 =========== ==========
d) Revenue and Gross Profit by Operating Segment
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30 June 30 June 30 June 30 2000 1999 2000 1999 $ $ $ $ -------- -------- -------- -------- Revenue Information Technology Placement 4,705,389 3,634,674 7,959,882 7,963,357 Engineering Placement 4,988,221 -0- 10,133,863 -0- Technical Training 2,393,275 1,658,065 3,720,195 3,632,066 ---------- ------------ ---------- ----------- 12,086,885 5,292,439 21,813,940 11,595,423 =========== ========== ========== ========== Gross Profit Information Technology Placement 2,098,870 1,492,834 4,333,836 2,974,744 Engineering Placement 1,772,011 -0- 3,291,931 -0- Technical Training 866,572 746,637 931,692 1,487,810 ----------- --------- ---------- ---------- 4,737,453 2,239,471 8,557,459 4,462,554 ========== ========== ========== ==========
F-11 THINKPATH.COM INC. Notes to Consolidated Interim Financial Statements June 30, 2000 (Amounts expressed in US dollars) (Unaudited) e) Revenue from Major Customers No single customer consisted of more than 10% of the revenues. f) Purchases from Major Suppliers There were no significant purchases from major suppliers in either 2000 or 1999. 8. COMPREHENSIVE INCOME The Company has adopted the Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" as of June 1, 1998 which requires new standards for reporting and display of comprehensive income and its components in the financial statements. However, it does not affect net income or total stockholder's equity. The components of comprehensive income are as follows:
Three Six Months Months Ended Ended June 30 June 30 2000 2000 $ $ --------- -------- Net Income 235,137 347,948 Other comprehensive income (loss): Foreign Currency Translation Adjustments (25,008) (26,634) -------- --------- Comprehensive Income 210,129 321,314 ======= =========
The components of accumulated other comprehensive income (loss) are as follows: Accumulated other comprehensive loss, December 31, 1999 $ (47,306) Foreign currency translation adjustments for the three-month period ended March 31, 2000 (1,626) ----------- Accumulated other comprehensive loss, March 31, 2000 (48,932)
F-12 THINKPATH.COM INC. Notes to Consolidated Interim Financial Statements June 30, 2000 (Amounts expressed in US dollars) (Unaudited) Foreign currency translation adjustments for the three month (25,008) Period ended June 30, 2000 -------- Accumulated other comprehensive loss, June 30, 2000 (73,940) ========
The foreign currency translation adjustments are not currently adjusted for income taxes since the company is situated in Canada and the adjustments relate to the translation of the financial statements from Canadian dollars into United States dollars which is done only for the convenience of the reader. 9. SUBSEQUENT EVENTS a) The Company has signed a number of letters of intent and expressions of interest with corporations operating in various cities in North America. At this time, due to confidentiality agreements, the Company is not at liberty to disclose the identity or terms and conditions of these acquisitions. b) Subsequent to June 30, 2000, the company raised $2,000,000 gross proceeds (approximately $1,640,000 net proceeds) in a private placement of common stock plus a warrant entitling the holder to one half common stock exercisable under the terms and conditions set forth in Item 5 of the 10-QSB. c) Subsequent to June 30, 2000, the company issued an additional $500,000 (approximately $425,000 net proceeds) of Series A preferred stock. d) After June 30, 2000 the company entered into an agreement with Bank One for an operating line of $7,000,000 payable on demand, secured by the Company's assets. This operating line replaces all other operating lines that were in effect at June 30,2000. F-13 THINKPATH.COM INC. (Formerly IT Staffing Ltd.) CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998 TOGETHER WITH AUDITORS' REPORT (Amounts Expressed in US Dollars) F-14 THINKPATH.COM INC. (Formerly IT Staffing Ltd.) CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998 TOGETHER WITH AUDITORS' REPORT (Amounts Expressed in US Dollars) TABLE OF CONTENTS Report of Independent Auditors F-16 Consolidated Balance Sheets F-17 -- F-18 Consolidated Statements of Income F-19 Consolidated Statements of Changes in Stockholders' Equity F-20 Consolidated Statements of Cash Flows F-21 Notes to Consolidated Financial Statements F-22 -- F-45 F-15 [Letterhead of Schwartz Levitsky Feldman LLP] REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of ThinkPath.com Inc. We have audited the accompanying consolidated balance sheets of ThinkPath.com Inc. (incorporated in Canada) as of December 31, 1999 and 1998 and the related consolidated statements of income, cash flows and changes in stockholders' equity for the years ended December 31, 1999, 1998 and 1997. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ThinkPath.com Inc. as of December 31, 1999 and 1998 and the consolidated results of its operations and its cash flows for the years ended December 31, 1999, 1998, and 1997 in conformity with generally accepted accounting principles in the United States of America. On March 22, 2000, we reported separately to the shareholders of ThinkPath.com Inc. on financial statements for the same period, prepared in accordance with Canadian generally accepted accounting principles. Toronto, Ontario March 22, 2000 Chartered Accountants except for notes 1, 12 and 19 for which the date is October 18, 2000 F-16 THINKPATH.COM INC. Consolidated Balance Sheet As of December 31 (Amounts expressed in US dollars) 1999 1998 $ $ ---------- ---------- ASSETS CURRENT ASSETS Cash 1,790,621 -- Short-term investments (note 3) 383,146 -- Accounts receivable (note 4) 4,895,523 2,184,783 Work-in-progress 350,679 -- Prepaid expenses 325,616 87,941 ---------- ---------- 7,745,585 2,272,724 CAPITAL ASSETS (note 5) 2,955,321 464,789 GOODWILL (note 6) 6,985,436 1,332,603 INVESTMENT IN NON-RELATED COMPANY -- 130,438 DUE FROM RELATED PARTY (note 7) 211,313 -- OTHER ASSETS (note 8) 1,216,111 648,223 ---------- ---------- 19,113,766 4,848,777 ========== ========== APPROVED ON BEHALF OF THE BOARD Director ---------------------------------- Director ---------------------------------- F-17 THINKPATH.COM INC. Consolidated Balance Sheet As of December 31 (Amounts expressed in US dollars)
1999 1998 $ $ ----------- ----------- LIABILITIES CURRENT LIABILITIES Bank indebtedness (note 9) 4,083,836 734,034 Accounts payable 2,424,725 1,386,659 Income taxes payable 135,089 95,212 Current portion of long-term debt (note 10) 278,790 218,251 Current portion of note payable (note 11) 1,300,000 -- ----------- ----------- 8,222,440 2,434,156 DEFERRED INCOME TAXES (note 13) 107,472 -- LONG-TERM DEBT (note 10) 562,126 628,428 NOTE PAYABLE (note 11) 1,150,000 -- ----------- ----------- 10,042,038 3,062,584 ----------- ----------- STOCKHOLDERS' EQUITY CAPITAL STOCK (note 12) 8,388,298 1,448,368 RETAINED EARNINGS 705,571 476,851 OTHER COMPREHENSIVE INCOME, NET OF TAX (note 14) Cumulative translation adjustment (22,141) (139,026) ----------- ----------- 9,071,728 1,786,193 ----------- ----------- 19,113,766 4,848,777 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-18 THINKPATH.COM INC. Consolidated Statements of Income For the years ended December 31 (Amounts expressed in US dollars) 1999 1998 1997 $ $ $ ---------- ---------- ---------- REVENUE 19,822,861 12,502,560 4,704,341 COST OF CONTRACT SERVICES 12,569,357 7,594,533 2,888,540 ---------- ---------- ---------- GROSS PROFIT 7,253,504 4,908,027 1,815,801 Gain on investments 252,708 -- -- ---------- ---------- ---------- 7,506,212 4,908,027 1,815,801 ---------- ---------- ---------- EXPENSES Administrative 2,916,398 1,354,561 373,627 Selling 4,134,497 2,984,604 1,123,051 Financial 113,783 102,351 125,594 ---------- ---------- ---------- 7,164,678 4,441,516 1,622,272 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 341,534 466,511 193,529 Income taxes (note 13) 112,814 115,321 55,121 ---------- ---------- ---------- NET INCOME 228,720 351,190 138,408 ---------- ---------- ---------- WEIGHTED AVERAGE NUMBER OF COMMON STOCK OUTSTANDING Basic 2,471,758 1,684,542 1,309,135 ========== ========== ========== Fully diluted 2,683,820 1,906,667 1,309,135 ========== ========== ========== EARNINGS PER WEIGHTED AVERAGE COMMON STOCK Basic 0.09 0.21 0.11 ========== ========== ========== Fully diluted 0.08 0.18 0.11 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. F-19 THINKPATH.COM INC. Consolidated Statements of Changes in Stockholders' Equity For the years ended December 31 (Amounts expressed in US dollars)
Common Preferred Stock Stock Capital Cumulative Number of Number of Stock Retained Translation Shares Shares Amounts Earnings Adjustment --------- --------- --------- --------- ----------- $ $ $ Balance as of December 31, 1996 1,021,125 -- 4 (12,747) 59 Issuance of common stock 288,010 -- 328,323 -- -- Foreign currency translation -- -- -- -- (18,192) Net income for the year -- -- -- 138,408 -- --------- --------- --------- --------- ----------- Balance as of December 31, 1997 1,309,135 -- 328,327 125,661 (18,133) Issuance of common stock 408,740 -- 1,120,041 -- -- Foreign currency translation -- -- -- -- (120,893) Net income for the year -- -- -- 351,190 -- --------- --------- --------- --------- ----------- Balance as of December 31, 1998 1,717,875 -- 1,448,368 476,851 (139,026) Issuance of common stock 1,370,767 -- 4,787,788 -- -- Common stock payable -- -- 1,000,000 -- -- Issuance of preferred stock -- 15,000 1,152,142 -- -- Foreign currency translation -- -- -- -- 116,885 Net income for the year -- -- -- 228,720 -- --------- --------- --------- --------- ----------- Balance as of December 31, 1999 3,088,642 15,000 8,388,298 705,571 (22,141) ========= ========= ========= ========= ===========
The accompanying notes are an integral part of these consolidated financial statements. F-20 THINKPATH.COM INC. Consolidated Statement of Cash Flows For the years ended December 31 (Amounts expressed in US dollars)
1999 1998 1997 $ $ $ Cash flows from operating activities: Net income 228,720 351,190 138,408 ---------- ---------- ---------- Adjustments to reconcile net income to net cash (used in) provided by operating activities: Amortization 439,620 140,735 16,968 Amortization of goodwill 92,875 44,191 15,258 Amortization of deferred contract 29,142 -- -- Amortization of deferred consulting fees 185,106 -- -- Gain on investment (237,578) -- -- Increase in accounts receivable (2,841,510) (1,524,174) (577,114) Increase in prepaid expenses (225,549) (83,531) (15,645) Increase in accounts payable 925,060 1,058,432 317,281 Increase in income taxes payable 32,969 59,095 34,365 Increase in deferred income taxes 72,333 -- -- ---------- ---------- ---------- Total adjustments (1,527,532) (305,252) (208,887) ---------- ---------- ---------- Net cash provided by (used in) operating activities (1,298,812) 45,938 (70,479) ---------- ---------- ---------- Cash flows from investing activities: Purchase of capital assets (907,074) (638,867) (44,739) Purchase of other assets (942,087) -- 733 Cash payment for subsidiaries (1,985,732) (485,085) (140,028) Acquisition of shares in non-related company (236,819) (134,853) -- ---------- ---------- ---------- Net cash used in investing activities (4,071,712) (1,258,805) (184,034) ---------- ---------- ---------- Cash flows from financing activities: Cash (paid) received on notes payable (65,569) (101,140) 108,350 Cash (paid) received on long-term debt (241,495) 818,942 23,837 Proceeds from issuance of common stock 4,281,804 570,513 -- Proceeds from issuance of preferred stock 1,119,186 -- -- Cash (paid) received from stockholders -- (47,985) 21,716 Cash paid for deferred charges -- (606,300) -- Increase in bank indebtedness 2,016,000 569,592 96,601 ---------- ---------- ---------- Net cash provided by financing activities 7,109,926 1,203,622 250,504 ---------- ---------- ---------- Effect of foreign currency exchange rate changes 51,219 (615) 8,126 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 1,790,621 (9,860) 4,117 Cash and cash equivalents - Beginning of year -- 9,860 5,743 ---------- ---------- ---------- - End of year 1,790,621 -- 9,860 ========== ========== ========== Interest paid 325,952 113,102 6,491 ========== ========== ========== Income taxes paid -- -- -- ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-21 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Change of Name The company changed its name to ThinkPath.com Inc. on February 24, 2000. b) Principal Business Activities ThinkPath.com Inc. is an information technology staffing company, which along with its subsidiaries Systemsearch Consulting Services Inc., International Career Specialists Ltd., Cad Cam Inc., Cad Cam of Michigan Inc., Cad Cam Integrated Manufacturing Services Inc. and Cad Cam Technical Services Inc., specializes in placing information technology personnel on both a contract and permanent basis. c) Basis of consolidated financial statement presentation The consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries. The earnings of the subsidiaries are included from the date of acquisition. All significant inter-company accounts have been eliminated. All of the acquisitions have been accounted for using the purchase method. d) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, amounts to banks, and any other highly liquid investments purchased with a maturity of three months or less. The carrying amount approximates fair value because of the short maturity of those instruments. e) Other Financial Instruments The carrying amount of the company's other financial instruments approximate fair value because of the short maturity of these instruments or the current nature of interest rates borne by these instruments. f) Long-Term Financial Instruments The fair value of each of the company's long-term financial assets and debt instruments is based on the amount of future cash flows associated with each instrument discounted using an estimate of what the company's current borrowing rate for similar instruments of comparable maturity would be. F-22 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) g) Capital Assets Property and equipment are recorded at cost and are amortized over the estimated useful lives of the assets principally using the declining balance method. The company's policy is to record leases, which transfer substantially all benefits and risks incidental to ownership of property, as acquisition of assets and to record the occurrences of corresponding obligations as long-term liabilities. Obligation under capital leases are reduced by rental payments net of imputed interest. h) Net Income and Fully Diluted Net Income Per Weighted Average Common Stock Net income per common stock is computed by dividing net income for the year by the weighted average number of common stock outstanding during the year. Fully diluted net income per common stock is computed by dividing net income for the year by the weighted average number of common stock outstanding during the year, assuming that all convertible preferred stock, stock options and warrants as described in note 12 were converted or exercised. Stock options which are anti-dilutive are not included in the calculation of fully diluted net income per weighted average common stock. i) Work in Progress Work in progress is valued at the lower of cost and the net realizable value of the services rendered. j) Revenue Revenue from contract placements is recognized as services are performed. Revenue from permanent placements are recognized upon commencement of employment. k) Goodwill Goodwill representing the cost in excess of the fair value of net assets acquired is being amortized on a straight-line basis over a thirty year period. The company calculates the recoverability of goodwill on a quarterly basis by reference to estimated undiscounted future cash flows. F-23 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) l) Income Taxes The company accounts for income tax under the provision of Statement of Financial Accounting Standards No. 109, which requires recognition at deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statement or tax returns. Deferred income taxes are provided using the liability method. Under the liability method, deferred income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities. m) Foreign Currency Translation The translation of the consolidated financial statements from Canadian dollars into United States dollars is performed for the convenience of the reader. Balance sheet accounts are translated using closing exchange rates in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during each reporting period. No representation is made that the Canadian dollar amounts could have been, or could be, converted into United States dollars at the rates on the respective dates or at any other rates. Adjustments resulting from the translation are included in the cumulative translation adjustments in stockholders' equity. n) Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principals in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become known. o) Long-Lived Assets On January 1, 1996, the company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121 requires that long-lived assets be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management used its best estimate of the undiscounted cash flows to evaluate the carrying amount and have determined that no impairment has occurred. F-24 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) p) Comprehensive Income In 1999, the company adopted the provisions of SFAS No. 130 "Reporting Comprehensive Income". This standard requires companies to disclose comprehensive income in their financial statements. In additional to items included in net income, comprehensive income includes items currently charged or credited directly to stockholders' equity, such as the changes in unrealised appreciation (depreciation) of securities and foreign currency translation adjustments. q) Accounting for Stock-Based Compensation In December 1995, SFAS No. 123, Accounting for Stock-Based Compensation, was issued. It introduces the use of a fair value-based method of accounting for stock-based compensation. It encourages, but does not require, companies to recognize stock-based compensation expenses to employees based on the new fair value accounting rules. Companies that choose not to adopt the new rules will continue to apply the existing accounting rules continued in Accounting Principles Board Option No. 25, Accounting for stock issued to employees. However, SFAS No. 123 requires companies that choose not to adopt the new fair value accounting rules to disclose pro forma net income and earnings per share under the new method. SFAS No. 123 is effective for financial statements for fiscal years beginning after December 31, 1995. The company has adopted the disclosure provisions of SFAS No. 123. r) Accounting Changes In June 1998 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement requires that an entity recognizes all derivatives as either assets or liabilities and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The adoption of this standard will not have a material impact on the consolidated interim financial statements of the company. F-25 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 2. ACQUISITIONS Systemsearch Consulting Services Inc. was acquired on January 2, 1997 for $391,313. This amount was paid by the issuance of common stock and a cash payment of $97,828. The purchase has been reflected as follows: Consideration $391,313 Assumption of net liabilities 57,321 -------- Goodwill $448,634 ======== International Career Specialists Ltd. was acquired on January 1, 1998 for $652,188. This amount was paid by the issuance of common stock and a cash payment of $326,094. The purchase was reflected as follows: Consideration $652,188 Assumption of net liabilities 198,409 -------- Goodwill $850,597 ======== The assets of Southport Consulting Company, a New Jersey corporation, were acquired by ThinkPath.com Inc. in a transaction effective October 31, 1998. The consideration for the acquisition was as follows: Cash $ 50,000 Shares 200,000 -------- $250,000 ======== The assets acquired are valued as follows: Software $130,000 Office furniture and equipment 20,000 Other assets 100,000 -------- $250,000 ======== F-26 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 2. ACQUISITIONS (cont'd) Cad Cam Inc. and its subsidiaries Cad Cam of Michigan Inc., Cad Cam Technical Services Inc., and Cad Cam Integrated Systems Inc. was acquired on September 16, 1999 for $6,000,000. This amount was paid as follows: $2,000,000 paid in cash and $500,000 in common stock on the date of closing. The balance consists of three notes payable totalling $2,500,000 (note 10) and $1,000,000 in the form of common stock to be issued with the final note payable (note 11). The assets acquired are valued as follows: Current assets $2,468,029 Fixed assets 2,267,539 Other assets 817,004 Liabilities assumed (5,071,430) Consideration (6,000,000) ---------- Goodwill $5,518,858 ========== 3. SHORT-TERM INVESTMENTS In September 1998, ThinkPath.com Inc. was issued 95,000 common stock of Fax Forward Inc., a public company trading on the Bermuda Stock Exchange, in lieu of $130,438 receivable owing to them. ThinkPath.com Inc. has the option of selling these shares on the open market after June 2000. This is considered to be a short-term investment and is currently being reflected at $4.00 per share, the market value at December 31, 1999. 4. ACCOUNTS RECEIVABLE 1999 1998 $ $ Accounts receivable 5,528,485 2,217,392 Less: Allowance for doubtful accounts (632,962) (32,609) -------- -------- 4,895,523 2,184,783 ========= ========= F-27 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 5. CAPITAL ASSETS
1999 1998 --------------------------------- ------- Accumulated Cost Amortization Net Net --------- ------------ --------- ------- $ $ $ $ Furniture and equipment 484,691 211,324 273,367 175,133 Computer equipment and software 4,503,138 2,231,383 2,271,755 273,276 Software database 15,235 5,144 10,091 8,968 Website development 76,983 12,265 64,718 2,675 Leasehold improvements 384,697 49,307 335,390 4,737 --------- --------- --------- ------- 5,464,744 2,509,423 2,955,321 464,789 ========= ========= ========= ======= Assets under capital lease 511,197 126,471 384,726 260,753 ========= ========= ========= =======
Amortization for the year amounted to $439,620 ($140,735 in 1998). Amortization includes amortization of assets under capital lease of $120,434 ($40,539 in 1998). 6. GOODWILL Goodwill is the excess of cost over the value of assets acquired over liabilities assumed in the purchase of the following companies: Systemsearch Consulting Services Inc., International Career Specialists Inc. and Cad Cam Inc. 1999 1998 $ $ Cost 7,141,404 1,389,123 Accumulated amortization 155,968 56,520 --------- --------- Net 6,985,436 1,332,603 ========= ========= Amortization for the year 92,875 44,191 ========= ========= 7. DUE FROM RELATED PARTY Amounts due from related party are unsecured, bear interest at 7%, have no specific terms of repayment and are not expected to be repaid prior to January 1, 2001. F-28 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 8. OTHER ASSETS 1999 1998
$ $ 1999 1998 Deferred development cost - Global Tool Set 652,291 61,773 Deferred financing costs 39,514 586,450 Deferred contract (net of accumulated amortization of $30,000) 210,000 -- Deferred consulting fees (net of accumulated amortization of $190,570) 190,556 -- Cash surrender value of life insurance 123,750 -- --------- ------- 1,216,111 648,223 ========= =======
Amortization for the year amounted to $220,570 ($nil in 1998). 9. BANK INDEBTEDNESS The companies have available lines of credit to a maximum of $1,400,000, which bear interest at Canadian prime plus 1.5% per annum and are secured by a general assignment of book debts, a general security agreement and guarantees and postponements of claims by various affiliated companies. The company has available another line of credit through a subsidiary, with a limit of $5,000,000 with interest at the banks prime rate. It is secured by a general security agreement. The company's average interest rate on short-term borrowings was 8%. F-29 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 10. LONG-TERM DEBT
1999 1998 $ $ a) Included therein: A Business Development Bank of Canada ("BDC") loan secured by a general security agreement, payable in 52 equal monthly payments of $3,464 plus interest of 11%. In addition ThinkPath.com Inc. shall pay interest monthly by way of royalty of 0.018% per annum of ThinkPath.com Inc.'s projected annual gross sales 176,678 195,656 A BDC loan, secured by a general security agreement, payable in 43 equal monthly payments of $4,619 plus interest at the BDC base rate plus 4% per annum. Currently the interest rate is 12.50%. In addition ThinkPath.com Inc. shall pay interest monthly by way of a royalty of 0.0426% per annum of Thinkpath.com Inc.'s projected annual gross sales 203,248 243,496 A BDC loan, secured by a general security agreement, payable in 44 monthly payments of $3,464 plus interest at the BDC base rate plus 4% per annum. Currently, the interest rate is 12.50%. In addition ThinkPath.com Inc. shall pay interest monthly by way of royalty of 0.0198% per annum of its projected gross annual sales 152,428 182,613 A BDC loan, secured by a general security agreement, payable in 19 remaining monthly payments of $693 plus interest at the BDC operational interest rate prime plus 3% per annum. Currently, the interest rate is 13.50% 13,164 20,218 A BDC loan, secured by a general security agreement, payable in 11 remaining monthly payments of $693 plus interest at the BDC base rate plus 3% per annum. Currently, the interest rate is 11.50% 7,621 15,000 Various capital leases with various payment terms and interest rates 287,777 189,696 ------- ------- 840,916 846,679 Less: Current portion 278,790 218,251 ------- ------- 562,126 628,428 ======= =======
F-30 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 10. LONG-TERM DEBT (cont'd) b) Future principal payments obligations are as follows: 2000 $ 278,790 2001 231,800 2002 200,400 2003 116,835 2004 13,091 ---------- $ 840,916 ========== c) Interest expense with respect to the long-term debt amounted to $132,125 ($60,317 in 1998). d) Pursuant to the BDC loan agreement, BDC has the option to acquire 22,125 common stock for an aggregate consideration of $1. The fair market value of these shares at the time of issuance was $62,393 ($2.82 share). The imputed discount on these options is being amortized over the term of the loan as interest. 11. NOTE PAYABLE As part of the purchase of Cad Cam Inc., ThinkPath.com Inc. owes the following amounts:
1999 1998 $ $ Notes payable, unsecured, bearing interest at prime plus 0.5% 2,450,000 - Less: Current portion (1,300,000) - ----------- ---------- 1,150,000 - ========== ==========
First note payable was issued on the closing date of the Cad Cam Inc. acquisition, in the amount of $1,000,000. $50,000 of this note was paid during the year, with interest of $17,500. This note is to be repaid in 20 quarterly instalments, with interest at prime plus 0.5%. The second note payable was issued on the closing date of the Cad Cam Inc. acquisition, in the amount of $500,000. This is to be repaid in 20 quarterly instalments, with interest at prime plus 0.5%. The third note payable was issued on the closing date of Cad Cam Inc. acquisition in the amount of $1,000,000. This will be paid in quarterly instalments of $250,000, plus accrued interest, during 2000. F-31 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 12. CAPITAL STOCK a) Authorized 15,000,000 Common stock, no par value 1,000,000 Preferred stock, issuable in series, rights to be determined by the Board of Directors b) Issued
1999 1998 $ $ 3,088,642 Common stock (1,717,875 in 1998) 6,236,156 1,448,368 15,000 Preferred stock 1,152,142 - Common stock payable 1,000,000 - --------- --------- 8,388,298 1,448,368 ========= =========
On January 2, 1997, 288,010 common stock was issued in conjunction with the acquisition of Systemsearch Consulting Services Inc. with a carrying value of $328,323. On January 1, 1998, 130,914 common stock was issued in conjunction with the acquisition of International Career Specialists Ltd. with a carrying value of $349,528. A private placement of 196,370 common stock was completed in March 1998 yielding proceeds of $423,639. Included in the purchasers were some employees and directors. A second placement of 85,094 common stock was completed in April 1998 yielding proceeds of $216,814. Included in the purchasers were some employees and directors. In April of 1998, the company redeemed 43,637 common stock for $69,940. On August 6, 1998, the company split its stock. The result of the split converted the outstanding common stock from 1,281,667 to 1,667,875 shares a 1:1.3 split. The number of common stock indicated above have been retroactively restated in all periods to reflect the stock split on August 6, 1998. On October 31, 1998, the company issued 40,000 common stock in the acquisition of the assets of Southport Inc. The cost of these shares was $200,000. F-32 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 12. CAPITAL STOCK (cont'd) b) Issued (cont'd) On June 8, 1999, the company was successful in its Initial Public Offering. 1,100,000 common stock were issued at an issuance price of $5.00 per share. Net proceeds received, after all costs, was $3,442,683. The company trades on Nasdaq under the trading symbol "THTH", and on the Boston Stock Exchange under the trading symbol "THP'. As part of the Initial Public Offering, the underwriters exercised the over-allotment, resulting in 107,000 common stock being issued for net proceeds of $465,000. Deferred costs of $1,351,365, which were incurred as part of the completion of the Initial Public Offering, have been applied against the proceeds raised by the offering, and are included in the net proceeds. On June 30, 1999, 163,767 common stock were issued in conjunction with the acquisition of Cad Cam Inc., with a carrying value of $500,000. The common stock payable represents the final payment for Cad Cam Inc. Common stock of ThinkPath.com Inc. will be issued at the prevailing market rate at time of issuance for a total value of $1,000,000. If common stock payable were to be converted at December 31, 1999 the number of common stock to be issued would be 333,333. In the first quarter of 2000, 174,254 shares of common stock was issued for services rendered on the acquisitions of Cad Cam Inc. and ObjectArts Inc. On the acquisition of ObjectArts Inc. 527,260 common stock was issued. As part of the acquisition of ObjectArts Inc., the company issued 196,880 common shares for a total consideration of $743,435. On April 25, 2000, 133,333 common stock were issued for the purchase of MicroTech Professionals Inc., for a total consideration of $500,000. On April 28, 2000, 300,000 common stock were issued for the purchase of an investment held for re-sale called E-Wink Inc. for a total consideration of $975,000. Over the course of the 3 months ended June 30, 2000, 3,042 common stock were issued to other individuals for services rendered. The common stock payable represents the final payments for Cad Cam Inc. ($1,000,000) and MicroTech Professionals Inc. ($625,000). Common Stock of Thinkpath Com Inc. will be issued for Cad Cam Inc. at the prevailing market rate at the time of issuance. Common Stock of ThinkPath.com Inc. will be issued for MrcroTech Professionals at the lower of $3.75 and the average of the last sale price as quoted on NASDAQ for the 10 days prior to issuance. If the commons stock payable were to be converted at June 30, 2000 the number of common stock to be issued would be 483,631. The earnings per share calculation (basic and fully diluted) does not include any common stock for common stock payable as the conversion ratio is unknown. F-33 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 12. CAPITAL STOCK (cont'd) c) Preferred Stock On December 30, 1999, 15,000 shares of series A, 8% cumulative, convertible, preferred stock, no par value were issued in a private placement for gross proceeds of $1,500,000. The preferred stock are convertible into common stock at the option of the holders under certain conditions, at any time after the effective date of the registration statement (see note 19). The conversion price will be based on the trading price at December 30, 1999 or 80% of the average of the ten trading days immediately preceding the conversion of the respective shares of Series A, preferred stock. The stockholders of the Series A, 8% cumulative, convertible stock are entitled to receive preferential cumulative quarterly dividends in cash or shares at a rate of 8% simple interest per annum on the stated value per share. The preferred stockholder may exercise their right to conversion only if the aggregate stated value of all shares of Series A, 8% cumulative, convertible, preferred stock is less than $5,000. At any time after the effective date of the registration statement, ThinkPath.com Inc. has the option to redeem any or all of the shares of Series A, 8% cumulative, convertible, preferred stock by paying to the holders a sum of money equal to 135% of the stated value of the aggregate of the shares being redeemed if the conversion price is less than $2.00. ThinkPath.com Inc. holds the option to cause the investors in the December 30, 1999 placement offering to purchase an additional $500,000 worth of Series A, 8% cumulative, convertible, preferred stock upon the same terms as described above. As part of the Cad Cam Inc. and the ObjectArts Inc. acquisitions 60,000 common stock will be issued to a related party in lieu of payment for services rendered. This common stock will be issued at the prevailing market rate on date of issuance. Subsequent to year-end 50,000 common stock were issued to a non-related individual as part of the Cad Cam Inc. acquisition cost. Subsequent to year-end 14,254 common stock were issued in a private placement. On April 16, 2000, 2,500 shares of Series A, 8% cumulative, convertible, preferred stock, no par value were issued in a private placement for gross proceeds of $250,000. The proceeds have been reduced by any issue expenses. On April 16, 2000, 1,500 shares of Series B, 8% cumulative, convertible, preferred stock, no par value were issued in a private placement for gross proceeds of $1,500,000. The proceeds have been reduced by any issue expenses. The preferred stock are convertible into common stock at the option of the holders under certain conditions, at any time after the effective date of the registration statement. As of October 18, 2000, 7,833 Class A preferred stock and 250 Class B stock had been converted into common stock. F-34 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 12. CAPITAL STOCK (cont'd) d) Warrants On December 30, 1999, 475,000 warrants were issued in conjunction with the private placement of the Series A, preferred stock. They are exercisable at any time and in any amount until December 30, 2004 at a purchase price of $3.24 per share. In connection with the Initial Public Offering, the underwriters received 100,000 warrants. They are exercisable at a purchase price of $5.00 per share. In connection with the private placement of subsequent to the year end of Series B preferred stock 100,000 warrants were issued. They are exercisable at a purchase price of $3.58. Also in connection with the private placement of the Series B preferred stock 150,000 warrants were issued. They are exercisable at a purchase price of $3.30. In connection with the purchase of the investment in E-Wink subsequent to the year end, 500,000 warrants were issued. They are exercisable at a purchase price of $3.24. e) Stock Options The company has outstanding stock options issued in conjunction with its long-term financing agreements for 22,125 common stock (see note 10) and additional options issued to a previous employee of the company for 200,000 shares exercisable at $2.10. An additional 250,000 options to purchase shares of the company were issued to related parties. The options are exercisable at $5.00. In connection with the acquisition of Cad Cam Inc. 100,000 options to purchase shares of the company will be delivered in quarterly instalments, starting January 1, 2000. Each option will entitle the holder thereof to purchase one common stock of the company. The first 25,000 options shall have an exercise price of $3.25 per common stock, and can be exercised at any time during the period up until December 31, 2000. The second 25,000 options shall have an exercise price equal to the lowest trading price of the company's shares during the period between January 1, 2000 and March 31, 2000. The third 25,000 options shall have an exercise price equal to the lowest trading price of the company's shares during the period between March 31, 2000 and June 30, 2000. The final 25,000 options have an exercise price equal to the lowest trading price of the company's shares during the period between June 30, 2000 and September 30, 2000. In July 1999, the directors of the company adopted and the stockholders approved the adoption of the company's 1999 Stock Option Plan. The plan will be administrated by the Compensation Committee or the Board of Directors, which will determine among other things, those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of common stock issuable upon the exercise of the options and the option exercise price. F-35 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 12. CAPITAL STOCK (cont'd) e) Stock Options (cont'd) The plan is effective for a period of ten years, expiring in 2008. Options to acquire 435,000 common stock may be granted to officers, directors, consultants, key employees, advisors and similar parties who provide their skills and expertise to the company. Options granted under the plan may be exercisable for up to ten years, generally require a minimum three year vesting period, and shall be at an exercise price all as determined by the Board of Directors, provided that the exercise price of any options may not be less than the fair market value of the common stock on the date of the grant. Options are non-transferable, and are exercisable only by the participant (or by his or her guardian or legal representative) during his or her lifetime or by his or her legal representatives following death. If a participant ceases affiliation with the company by reason of death, permanent disability or retirement at or after age 65, the option remains exercisable for one year from such occurrence but not beyond the option's expiration date. Other types of termination allow the participant 90 days to exercise the option, except for termination for cause which results in immediate termination of the option. Any unexercised options that expire or that terminate upon an employee's ceasing to be employed by the company become available again for issuance under the plan, subject to applicable securities regulation. The plan may be terminated or amended at any time by the Board of Directors, except that the number of common stock reserved for issuance upon the exercise of options granted under the plan may not be increased without the consent of the stockholders of the company. Options ------- Options outstanding at January 1, 1999 222,125 Options granted to key employees and directors 685,100 ------- Options outstanding at December 31, 1999 907,225 ======= As all options granted are exercisable between $2.10 and fair market value, which either approximates the grant-date fair value of the options or is greater than the grant-date fair value of the options granted, no stock-based compensation has been recognized for these options. In May 2000, the directors of the company adopted and the stockholders approved the adoption of the company's 2000 Stock Option Plan. The plan provides for 435,000 options at an exercise price of $3.25 per share. The options vest over a three-year period and expire May 9, 2005. F-36 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 13. DEFERRED INCOME TAXES AND INCOME TAXES a) Deferred Income Taxes The components of the future tax liability classified by source of temporary differences that gave rise to the benefit are as follows:
1999 1998 1997 $ $ $ Accounting amortization in excess of tax amortization (199,317) - - Losses available to offset future income taxes 339,429 - - Share issue costs 372,948 - - Adjustment cash to accrual method (620,532) - - -------- -------- -------- (107,472) - - ======== ======== ========
As part of the acquisition of Cad Cam Inc., there was a change of control which resulted in Cad Cam Inc. being required to change from the cash method to the accrual method of accounting for income taxes. At December 31, 1999 the company has non-capital losses available for carryforward of $998,320. b) Current Income Taxes
Current income taxes consist of: 1999 1998 1997 $ $ $ Amount calculated at Federal and Provincial statutory rates 119,537 115,471 70,702 -------- -------- -------- Increase (decrease) resulting from: Permanent differences 11,579 10,407 2,714 Timing differences 51,295 (1,471) (29) Other differences - (9,086) (18,266) Loss carried back applied (69,597) - - -------- -------- -------- (6,723) (150) (15,581) -------- -------- -------- Current income taxes 112,814 115,321 55,121 ======== ======== ========
F-37 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 14. COMPREHENSIVE INCOME The Company has adopted Statement of Financial Accounting Standards No. 130 Reporting Comprehensive Income and its components in the financial statements. However, it does not affect net income or stockholders' equity. The components of comprehensive income are as follows:
1999 1998 1997 $ $ $ Net income 228,720 351,190 138,408 Other comprehensive loss 116,885 (120,893) (18,192) ------- -------- ------- Comprehensive income 345,605 230,297 120,216 ======= ======== ======= The components of accumulated other comprehensive income (loss) are as follows: Accumulated other comprehensive income, December 31, 1997 $ (18,133) Foreign currency translation adjustments for the year ended December 31, 1998 (120,893) -------------- Accumulated other comprehensive losses, December 31, 1998 (139,026) Foreign currency translation adjustments for the year ended December 31, 1999 116,885 -------------- Accumulated other comprehensive losses December 31, 1999 $ (22,141) ==============
The foreign currency translation adjustments are not currently adjusted for income taxes since the company is situated in Canada and the adjustments relate to the translation of the financial statements from Canadian dollars into United States dollars done only for the convenience of the reader. F-38 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 15. SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES ThinkPath.com Inc. acquired all the capital stock of Cad Cam Inc. for $6,000,000. The acquisition was funded as follows: Fair Value of Assets acquired $ 5,552,572 Liabilities assumed (5,071,430) Goodwill 5,518,858 Cash paid for Capital Stock (2,000,000) Note Payable and Common Stock Payable (3,500,000) Common Stock Issued (500,000) ------------ - ============ 16. TRANSACTIONS WITH RELATED COMPANIES During 1999, ThinkPath.com Inc. charged its subsidiaries a one-time set-up fee, and has continued to charge maintenance fees for the use of Global Tool Set. These transactions have been eliminated upon consolidation. Any set-up charges prior to the acquisition of Cad Cam Inc. are reflected as part of the purchase price adjustment calculation. ThinkPath.com Inc. has entered into a consulting agreement with a company, whereby this company performs all tasks related to mergers, acquisitions and the securing of financing. The company receives 3% of gross proceeds. In connection with the placement of the Series A, 8% cumulative, convertible, preferred stock, and for other services rendered the said company received $69,000. The managing director of this company is also CFO of ThinkPath.com Inc. 17. LEASE COMMITMENTS Minimum payments under operating leases for premises occupied by the company and its subsidiaries offices, located throughout Ontario, Canada and the United States, exclusive of most operating costs and realty taxes, for the fiscal year end of December 31 for the next five years are as follows: 2000 $ 832,301 2001 587,881 2002 375,699 2003 185,393 2004 156,222 Thereafter 455,648 ------------ $ 2,593,144 ============ F-39 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 18. SEGMENTED INFORMATION a) Sales by Geographic Area
1999 1998 1997 $ $ $ Canada 13,860,284 11,877,432 4,503,642 United States of America 5,962,577 625,128 200,699 ---------- ---------- --------- 19,822,861 12,502,560 4,704,341 ========== ========== =========
b) Net Income by Geographic Area The company's accounting records do not readily provide information on net income by geographic area. Management is of the opinion that the proportion of net income based principally on sales, presented below, would fairly present the results of operations by geographic area.
1999 1998 1997 $ $ $ Canada (179,220) 333,630 131,822 United States of America 407,940 17,560 6,586 ---------- --------- --------- 228,720 351,190 138,408 ========== ========= =========
c) Identifiable Assets by Geographic Area
1999 1998 1997 $ $ $ Canada 7,271,740 4,848,777 1,274,215 United States 11,842,026 - - ---------- --------- --------- 19,113,766 4,848,777 1,274,215 ========== ========= =========
d) Revenues from Major Customers The consolidated entity had the following revenues from major customers: 1999 ---- No single customer consisted of more than 10% of the revenues. One customer comprises 13% of the accounts receivable as of December 31, 1999. 1998 ---- No single customer consisted of more than 10% of the revenues. F-40 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 18. SEGMENTED INFORMATION (cont'd) e) Purchases from Major Suppliers There were no significant purchases from major suppliers. 19. SUBSEQUENT EVENTS a) Subsequent to year-end, ThinkPath.com Inc. entered into a merger and acquisition agreement with ObjectArts Inc. and its subsidiary ObjectArts (US) Inc. ObjectArts (US) Inc., was merged with IT Staffing New York Ltd., an inactive subsidiary of ThinkPath.com Inc. The purchase price consists of ThinkPath.com Inc. issuing 527,260 common stock at a purchase price equal to $3.75 per common stock. The effective date of the acquisition is January 1, 2000. As part of the ObjectArts Inc. acquisition, 228,242 common stock, with an aggregate value of $837,157 were issued on the conversion of a long-term debt obligation. The effect of retroactively restating the financial statements for December 31, 1999 to account for this acquisition as a pooling of interests is indicated in note 25. b) The company has signed a number of letters of intent and expressions of interest with corporations operating in various cities in North America. At this time, due to confidentiality agreements, the company is not at liberty to disclose the identity or terms and conditions of these acquisitions. c) Subsequent to year-end, ThinkPath.com Inc. entered into an agreement with Deloitte & Touche Corporate Finance Inc. to structure and arrange $5,000,000 through a private placement. The company decided to not proceed with it in the current year. d) Subsequent to year-end, ThinkPath.com Inc. entered into an agreement with J.P. Turner & Company, L.L.C. ("JPT") for a public offering to be underwritten or co-managed. The company decided to not proceed with it in the current year. e) Subsequent to year-end a form SB-2 was filed for the offering of the Series A 8% cumulative, convertible preferred stock and warrants. The registration statement was declared effective April 27, 2000. In October, 2000, the company will file a form SB-2 for the registration of .common stock for the conversion of Class B shares and the exchange of warrants. f) On November 29, 1999, Thinkpath.Com signed a letter of intent to purchase 100% of the common stock of Global Installers Network Inc. for an amount based on earnings multiple. 10% of the Purchase Price shall be paid in cash upon the Closing and the remaining balance of the Purchase Price through the issuance of the company's common stock. F-41 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 19. SUBSEQUENT EVENTS (cont'd) g) On December 1, 1999, Thinkpath.Com has signed a letter of intent to purchase 100% of the common stock of Elite Information Services Inc. for a maximum purchase price of $2,000,000, subject to adjustment based on earnings in a combination of cash, unsecured promissory note, and shares. On December 1, 1999, Thinkpath.Com signed a letter of intent to purchase 100% of the common stock of Aquila Holdings Limited and its wholly-owned subsidiary DPP International Limited in a combination of (pound)$2,500,000 in cash and (pound)961,000 worth of the Company's common stock. h) MicroTech professionals Inc. was acquired effective April 1, 2000 for $4,500,000. The amount will be paid in two installments, based on certain requirements to be met by MicroTech Professionals Inc. First Instalment: 133,333 common stock issued on closing, $1,250,000 cash paid on closing, $750,000 3 year promissory note bearing interest at 1/2% above prime paid semi-annually issued on closing. Second Instalment: $625,000 in common stock, $875,000 cash, $500,000 3-year promissory not e bearing interest at 1/2% above prime paid semi-annually. The second instalment is contingent on the December 31, 2000 audited financial statements of MicroTech Professionals Inc. i) On March 6, 2000, ThinkPath.Com completed the acquisition of 80% of E-Wink, Inc., a Delaware corporation, in consideration of: i) 300,000 shares of our common stock; and ii) warrants to purchase an aggregate of 500,000 shares of our common stock at a price of $3.25 per share for a period of five years. j) On July 27, 2000, ThinkPath.Com entered into an agreement with Bank One for an operating line of $7,000,000 payable on demand and secured by our assets. Effective July 27, 2000, we canceled our operating lines with Toronto Dominion Bank and Provident Bank. k) Subsequent to June 30, 2000, the company raised $2,000,000 gross proceeds (approximately $1,640,000 net proceeds) in a private placement of common stock plus a warrant entitling the holder to one half common stock exercisable under the terms and conditions set forth in item 5 of the 10-QSB. l) Subsequent to June 30, 2000, the company issued an additional $500,000 (approximately $425,000 net proceeds) of Series A preferred stock. m) On September 13, 2000, Thinkpath.Com entered into an agreement with Burlington Capital Markets Inc. to aid the company in further acquisition for a consideration of 250,000 shares and warrants to purchase an aggregate of 400,000 shares, exercisable in whole or in part until 5 years from the date they can first be exercised. F-42 THINKPATH.COM INC. Notes to Consolidated Financial Statements December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 19. SUBSEQUENT EVENTS (cont'd) m) On September 21, 2000, Thinkpath.Com signed a letter of intent to purchase 100% of the common stock of TidalBeach Inc., in consideration for up to 250,000 common shares. 20. EARNINGS PER SHARE The company has adopted Statement No. 128, Earnings Per Share, which requires presentation, in the consolidated statement of income, of both basic and diluted earnings per share.
1999 1998 $ $ Average common stock outstanding 2,471,758 1,684,542 Average common stock issuable 212,063 222,125 --------- --------- Average common stock outstanding assuming dilution 2,683,821 1,906,667 ========= =========
Some of the outstanding options were not included in the computation of the fully diluted earnings per common share as there was either no fixed exercise price or the exercise price was greater than the average market price of the common stock during the year. 21. FINANCIAL INSTRUMENTS a) Credit Risk Management The company is exposed to credit risk on the accounts receivable from its customers. In order to reduce its credit risk, the company has adopted credit policies which include the analysis of the financial position of its customers and the regular review of their credit limits. In some cases, the company requires bank letters of credit or subscribes to credit insurance. b) Concentration of Credit Risk The company does not believe it is subject to any significant concentration of credit risk. Cash and short-term investments are in place with major financial institutions, North American Government, and major corporations. c) Interest Risk The long-term debt bears interest rates that approximate the interest rates of similar loans. Consequently, the long-term debt risk exposure is minimal. F-43 THINKPATH.COM INC. Notes to Consolidated Financial Information December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 21. FINANCIAL INSTRUMENTS (cont'd) d) Fair Value of Financial Instruments The carrying value of the accounts receivable, short-term investment, bank indebtedness, and accounts payable on acquisition of subsidiary company approximates the fair value because of the short-term maturities on these items. The carrying amount of the long-term assets approximates the fair value of these assets. The fair value of the company's long-term debt is estimated on the quoted market prices for the same or similar debt instruments. The fair value of the long-term debt approximates the carrying value. 22. CONTINGENCIES The company is party to various lawsuits arising from the normal course of business. In management's opinion, the litigation will not materially affect the company's financial position, results of operations or cash flows. No provision has been recorded in the accounts for possible losses or gains. Should any expenditures be incurred by the company for the resolution of these lawsuits, they will be charged to the operations of the year in which such expenditures are incurred. 23. COMPARATIVE FIGURES Certain figures in the 1998 financial statements have been reclassified to conform with the basis of presentation used in 1999. 24. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. Although the change in date has occurred, it is not possible to conclude that all aspects of the Year 2000 Issue that may affect the entity, including those related to customers, suppliers, or other third parties, have been fully resolved. F-44 THINKPATH.COM INC. Notes to Consolidated Financial Information December 31, 1999 and December 31, 1998 (Amounts expressed in US dollars) 25. PROFORMA FINANCIAL INFORMATION The following pro-forma summary of operations summarizes, as at December 31, 1999, the results of operations as if the acquisitions of ObjectArts Inc. (see note 19) and Cad Cam Inc. (see note 2) had occurred January 1, 1999: REVENUE $ 42,710,997 Cost of Services 27,906,215 --------------- 14,804,782 --------------- EXPENSES Administrative 7,521,858 Selling 5,694,797 Financial 847,442 Amortization 875,799 Goodwill amortization 316,908 --------------- 15,256,804 --------------- NET LOSS $ (452,022) =============== F-45 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS Our Bylaws provide that we shall indemnify our directors and officers. The pertinent section of Canadian law is set forth below in full. In addition, we currently have officers' and directors' liability insurance. See the second and third paragraphs of Item 28 below for information regarding the position of the Securities and Exchange Commission with respect to the effect of any indemnification for liabilities arising under the Securities Act of 1933, as amended. Section 136 of the Business Corporations Act (Ontario) provides as follows: (1) INDEMNIFICATION OF DIRECTORS. A corporation may indemnify a director or officer of the corporation, a former director or officer of the corporation or a person who acts or acted at the corporation's request as a director or officer of a body corporate of which the corporation is or was a shareholder or creditor, and his or her heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him or her in respect of any civil, criminal or administrative action or proceeding to which he or she is a party by reason of being or having been a director or officer of such corporation or body corporate, if, (a) he or she acted honestly and in good faith with a view to the best interests of the corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he or she had reasonable grounds for believing that his or her conduct was lawful. (2) IDEM. A corporation may, with the approval of the court, indemnify a person referred to in subsection (1) in respect of an action by or behalf of the corporation or body corporate to procure a judgment in its favor, to which the person is made a party by reason of being or having been a director or an officer of the corporation or body corporate, against all costs, charges and expenses reasonably incurred by the person in connection with such action if he or she fulfils the conditions set out in clauses (1)(a) and (b). (3) IDEM. Despite anything in this section, a person referred to in subsection (1) is entitled to indemnity from the corporation in respect of all costs, charges and expenses reasonably incurred by him in connection with the defense of any civil, criminal or administrative action or proceeding to which he or she is made a party by reason of being or having been a director or officer of the corporation or body corporate, if the person seeking indemnity; (a) was substantially successful on the merits in his or her defense of the action or proceeding; and (b) fulfills the conditions set out in clauses (1)(a) and (b). (4) LIABILITY INSURANCE. A corporation may purchase and maintain insurance for the benefit of any person referred to in subsection (1) against any liability incurred by the person, (a) in his or her capacity as a director of the corporation, except where the liability relates to the person's failure to act honestly and in good faith with a view to the best interests of the corporation; or II-1 (b) in his or her capacity as a director or officer of another body corporate where the person acts or acted in that capacity at the corporation's request, except where the liability relates to the person's failure to act honestly and in good faith with a view to the best interests of the body corporate. (5) APPLICATION TO COURT. A corporation or a person referred to in subsection (1) may apply to the court for an order approving an indemnity under this section and the court may so order and make any further order it thinks fit. (6) INDEM. Upon application under subsection (5), the court may order notice to be given to any interested person and such person is entitled to appear and be heard in person or by counsel. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is a statement of the estimated expenses to be paid by us in connection with the issuance and distribution of the securities being registered: SEC Registration Fee $1,207.38 Legal Fees and Expenses* $7,500.00 Accounting Fees and Expenses* $2,500.00 Miscellaneous* $3,792.62 Total* $15,000.00 - ----------- * estimate II-2 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES During the past three years, we have 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 issuances of these securities were considered to be exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. 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. All of the following issuances were made pursuant to Section 4(2) of the Securities Act of 1933, as amended: In October 1997, in consideration for business consulting services, including identifying, structuring and effecting the acquisition of Systemsearch Consulting Services Inc., we issued 113,459 shares of our common stock to Globe Capital Corporation, which is controlled by Lloyd Maclean, our former Chief Financial Officer and a former Director. In April 1998, in connection with the acquisition of Systemsearch Consulting Services Inc., we issued 130,914 shares of our common stock to John R. Wilson. In February through March of 1998, we sold 196,370 shares of our common stock to twelve individuals at a purchase price of approximately $2.67 per share for aggregate consideration of $523,653. The twelve individuals included some of our employees and directors. In May 1998, in connection with the acquisition of International Career Specialists Ltd., we issued 130,914 shares of our common stock to John A. Irwin. In May and June of 1998, we sold 77,239 shares of our common stock to seven individuals at a purchase price of approximately $3.33 per share for aggregate consideration of $257,463. The seven individuals included some of our employees and directors. All of the forgoing issuances were made in Canada to Canadian residents in conformity with the relevant local securities laws and we believe would have been exempt from registration in the United States pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended. In May 1998, we granted an option to purchase 200,000 shares of our common stock at an exercise price of $2.10 per share to Robert M. Rubin, of which as of October 13, 2000, we issued 18,508 shares of our common stock upon Mr. Rubin's exercise of such option. In September 1999, in connection with the acquisition of Cad Cam, Inc., we issued 130,914 shares of our common stock to Roger Walters. II-3 In December 1999, we issued 15,000 shares of Series A 8% Cumulative Convertible Preferred Stock and common stock purchase warrants to purchase an aggregate of 475,000 shares of our common stock in connection with a private placement offering to accredited investors in consideration for $1,500,000. The offer and sale of the shares of Series A 8% Cumulative Convertible Preferred Stock and common stock purchase warrants was exempt from registration under the Securities Act of 1933, as amended, in reliance on Regulation D Rule 506 of the Securities Act, as amended. Libra Finance S.A. and J. P. Turner & Co., LLC acted as placement agents in connection with the issuance of these shares and warrants. Libra Finance S.A. received a 10% commission and a warrant to purchase 100,000 shares of our common stock in connection with its acting as placement agent in connection with this private placement offering. J. P. Turner & Co., LLC received a 8% commission and 75,000 warrants in connection with its acting as placement agent in connection with this private placement offering. On March 6, 2000, we completed the acquisition of 80% of E-Wink, Inc., a Delaware corporation, in consideration of: (i) 300,000 shares of our common stock; and (ii) warrants to purchase an aggregate of 500,000 shares of our common stock at a price of $3.25 per share for a period of five years. E-Wink, Inc. is currently developing platform technology that will match company's seeking venture capital with venture capital firms offering such venture capital. There can be no assurance that such technology will be developed, or if developed, that such technology will work as intended On April 16, 2000, we issued: (i) 1,500 shares of Series B 8% Cumulative Convertible Preferred Stock; (ii) 2,500 shares of Series A 8% Cumulative Convertible Preferred Stock: (iii) and common stock purchase warrants to purchase an aggregate of 350,000 shares of our common stock in connection with a private placement offering to accredited investors in consideration for $1,750,000. The offer and sale of the shares of Series B 8% Cumulative Convertible Preferred Stock, the shares of Series A 8% Convertible Preferred Stock and common stock purchase warrants was exempt from registration under the Securities Act of 1933, as amended, in reliance on Regulation D Rule 506 of the Securities Act, as amended. On April 25, 2000, we completed the acquisition of all of the issued and outstanding capital stock of Micro Tech Professionals, Inc., a Massachusetts corporation, in consideration for up to an aggregate of $4,500,000 in a combination of cash, notes payable and shares of our common stock, subject to specific performance criteria be met. On the April 25, 2000, we paid to Denise Dunne-Fushi, the sole shareholder of Micro Tech Professionals, Inc., $2,500,000, which was paid in accordance with the following schedule: (i) $1,250,000 in cash; (ii) the issuance of a $750,000 principal amount unsecured promissory note; and (iii) the issuance of 133,333 shares of our common stock. As part of the transaction, we entered into an employment agreement with Denise Dunne-Fushi, the former President of Micro Tech Professionals, Inc. Such employment agreement is for a term of 1 year commencing on April 25, 2000, the effective date of the acquisition, with an annual salary of $125,000 per year and a bonus of $25,000. Mrs. Dunne-Fushi was not affiliated with us prior to the acquisition. On July 7, 2000, we issued an aggregate of: (a) 5,000 shares of our Series A 8% Cumulative Convertible Preferred Stock; and (b) warrants to purchase up to an aggregate of 225,000 shares of our common stock, in consideration $500,000 pursuant to the exercise of our option granted to us in the December 1999 a private placement offering upon the same terms as described above. The 225,000 warrants issued upon our exercise of the option are exercisable at any time and in any amount until December 30, 2004 at a purchase price of $3.575 per share. On August 22, 2000, we completed a private placement offering of units, each unit consisting of 1 share of our common stock and a callable warrant to purchase 1/2 of 1 share of our common stock. A total of 1,063,851 shares of our common stock were issued together with 532,534 warrants to purchase shares of our common stock exercisable until August 22, 2000, in consideration for $2,681,600. The purchase price per unit ranged from $1.9692 to $2.8125. In addition, we issued to the placement agent, certain financial advisors and the placement agent's counsel, warrants to purchase up to 280,093 shares of our common stock in connection with the private placement offering. Such warrants are exercisable until August 22, 2000 at an exercise price of $2.4614 per share. II-4 ITEM 27. EXHIBITS ** 1.1 Form of Underwriting Agreement ** 3.1 Bylaws of Thinkpath.com Inc. ** 3.2 Articles of Incorporation dated February 11, 1994 ** 3.3 Articles of Amendment dated February 15, 1996 ** 3.4 Articles of Amendment dated April 15, 1998 ** 3.5 Articles of Amendment dated August 6, 1998 ** 3.6 Articles of Amendment dated January 19, 1999 ** 4.2 Form of Underwriters' Warrant ** 4.3 Specimen Common Share Certificate * 5.1 Opinion of Gersten, Savage & Kaplowitz, LLP ** 10.1 Form of Financial Consulting Agreement ** 10.2 1998 Stock Option Plan ** 10.3(a) Lease of Thinkpath.com Inc.'s headquarters in Toronto, Ontario ** 10.3(b) Lease of Thinkpath.com Inc.'s office in New York, New York ** 10.3(c) Lease of Thinkpath.com Inc.'s office in Etobicoke, Ontario ** 10.3(d) Lease of Thinkpath.com Inc.'s office in Scarborough, Ontario ** 10.3(e) Lease of Thinkpath.com Inc.'s office in Ottawa, Ontario ** 10.4 Employment Agreement between Thinkpath.com Inc. and Declan French dated August 1998. ** 10.5 Employment Agreement between Thinkpath.com Inc. and John A. Irwin dated May 18, 1998. ** 10.6 Employment Agreement between Thinkpath.com Inc. and John R. Wilson dated February 8, 1998. *** 10.7 Employment Agreement between Thinkpath.com Inc. and Roger Walters dated September 16, 1999 ** 10.8 Form of consulting agreement for Thinkpath.com Inc.'s independent contractors. ** 10.9 Form of services agreement for Thinkpath.com Inc.'s customers. ** 10.10 Agreement for the acquisition of the capital stock of International Career Specialists Ltd. ** 10.11 Agreement for the acquisition of the capital stock of Systemsearch Consulting Services Inc. and Systems PS Inc. *** 10.12 Agreement for the acquisition of the capital stock of Cad Cam, Inc. ** 10.13 License Agreement between Thinkpath.com Inc. and International Officer Centers Corp. dated August 1, 1998. ** 10.14 Consulting Agreement between Thinkpath.com Inc. and Robert M. Rubin. ** 10.15 Form of Employment Agreement with Confidentiality Provision. ** 10.16 Asset Purchase Agreement between Thinkpath.com Inc. and Southport Consulting Company. **** 10.17 2000 Stock Option Plan * 10.18 Share Purchase Agreement between ThinkPath.com Inc. and Micro Tech Professionals, Inc. dated April 25, 2000. * 10.19 Non-Binding Letter of Intent between ThinkPath.com Inc. and TidalBeach Inc. dated September 21, 2000. * 10.20 Non-Binding Letter of Intent between ThinkPath.com Inc. and Aquila Holdings Limited dated October 4, 2000. * 23.1 Consent of Schwartz Levitsky Feldman, llp, independent auditors. * 23.2 Consent of Gersten, Savage & Kaplowitz, LLP (incorporated into Exhibit 5.1) - ----------- * Filed herewith. ** Incorporated by reference to Thinkpath.com Inc.'s Registration Statement on Form SB-2 filed on May 26, 1999. *** Incorporated by reference to Thinkpath.com Inc.'s report on Form 8-K filed on October 1, 1999. **** Incorporated by reference to Thinkpath.com Inc.'s Proxy Statement on Form Def-14A filed on May 22, 2000. II-5 ITEM 28. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the small business issuer pursuant to any charter provision, by-law, contract arrangements, statute, or otherwise, the registrant has been advised that in the opinion of the United States Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue. The undersigned small business issuer hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, as amended, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) For determining any liability under the Securities Act of 1933, as amended, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or 497(h), under the Securities Act of 1933, as amended, as part of this registration statement as of the time the United States Securities and Exchange Commission declared it effective. (5) For determining any liability under the Securities Act of 1933, as amended, treat each post-effective amendment that contains a form of prospectus as a new registration statement at that time as the initial bona fide offering of those securities. II-6 SIGNATURES Under the requirements of the Securities Act, we certify that we have reasonable grounds to believe that we meet all of the requirements for filing on Form SB-2 and have duly caused this registration statement to be signed on our behalf by the undersigned, thereunto duly authorized in the City of Toronto, Ontario, Canada, on the 20th day of October, 2000. THINKPATH.COM INC. By: /s/ Declan A. French Declan A. French Chairman of the Board and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Declan A French, Chairman of the Board and Chief Executive Officer, with full power to act without the other, his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this registration statement or any registration statement relating to the same offering as this registration statement filed in accordance with Rule 462 under the Securities Act, and to file those documents, with all of their exhibits, and other documents relating to them, with the SEC, granting to those attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he or she might or could do in person and by doing so ratifying and confirming all that those attorneys-in-fact and agents of any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue of this power of attorney. Under the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Declan A. French - ---------------------------- Chairman of the Board and Chief October 20, 2000 Declan A. French Executive Officer /s/ Kelly Hankinson Chief Financial Officer and Director October 20, 2000 - ---------------------------- Kelly Hankinson Executive Vice President--US Operations and October 20, 2000 - ---------------------------- Director. Roger W. Walters /s/ Marilyn Sinclair Vice President, President and Director of October 20, 2000 - ---------------------------- ObjectArts Inc. and Director. Marilyn Sinclair - ---------------------------- Director October 20, 2000 John Dunne /s/ Arthur S. Marcus Director October 20, 2000 - ---------------------------- Arthur S. Marcus - ---------------------------- Director October 20, 2000 Ronan McGrath
II-7 EXHIBIT INDEX Exhibit Number Description - -------------- ----------- ** 1.1 Form of Underwriting Agreement ** 3.1 Bylaws of Thinkpath.com Inc. ** 3.2 Articles of Incorporation dated February 11, 1994 ** 3.3 Articles of Amendment dated February 15, 1996 ** 3.4 Articles of Amendment dated April 15, 1998 ** 3.5 Articles of Amendment dated August 6, 1998 ** 3.6 Articles of Amendment dated January 19, 1999 ** 4.2 Form of Underwriters' Warrant ** 4.3 Specimen Common Share Certificate * 5.1 Opinion of Gersten, Savage & Kaplowitz, LLP ** 10.1 Form of Financial Consulting Agreement ** 10.2 1998 Stock Option Plan ** 10.3(a) Lease of Thinkpath.com Inc.'s headquarters in Toronto, Ontario ** 10.3(b) Lease of Thinkpath.com Inc.'s office in New York, New York ** 10.3(c) Lease of Thinkpath.com Inc.'s office in Etobicoke, Ontario ** 10.3(d) Lease of Thinkpath.com Inc.'s office in Scarborough, Ontario ** 10.3(e) Lease of Thinkpath.com Inc.'s office in Ottawa, Ontario ** 10.4 Employment Agreement between Thinkpath.com Inc. and Declan French dated August 1998. ** 10.5 Employment Agreement between Thinkpath.com Inc. and John A. Irwin dated May 18, 1998. ** 10.6 Employment Agreement between Thinkpath.com Inc. and John R. Wilson dated February 8, 1998. *** 10.7 Employment Agreement between Thinkpath.com Inc. and Roger Walters dated September 16, 1999 ** 10.8 Form of consulting agreement for Thinkpath.com Inc.'s independent contractors. ** 10.9 Form of services agreement for Thinkpath.com Inc.'s customers. ** 10.10 Agreement for the acquisition of the capital stock of International Career Specialists Ltd. ** 10.11 Agreement for the acquisition of the capital stock of Systemsearch Consulting Services Inc. and Systems PS Inc. *** 10.12 Agreement for the acquisition of the capital stock of Cad Cam, Inc. ** 10.13 License Agreement between Thinkpath.com Inc. and International Officer Centers Corp. dated August 1, 1998. ** 10.14 Consulting Agreement between Thinkpath.com Inc. and Robert M. Rubin. ** 10.15 Form of Employment Agreement with Confidentiality Provision. ** 10.16 Asset Purchase Agreement between Thinkpath.com Inc. and Southport Consulting Company. **** 10.17 2000 Stock Option Plan * 10.18 Share Purchase Agreement between ThinkPath.com Inc. and Micro Tech Professionals, Inc. dated April 25, 2000. * 10.19 Non-Binding Letter of Intent between ThinkPath.com Inc. and TidalBeach Inc. dated September 21, 2000. * 10.20 Non-Binding Letter of Intent between ThinkPath.com Inc. and Aquila Holdings Limited dated October 4, 2000. * 23.1 Consent of Schwartz Levitsky Feldman, llp, independent auditors. * 23.2 Consent of Gersten, Savage & Kaplowitz, LLP (incorporated into Exhibit 5.1) - ----------- * Filed herewith. ** Incorporated by reference to Thinkpath.com Inc.'s Registration Statement on Form SB-2 filed on May 26, 1999. *** Incorporated by reference to Thinkpath.com Inc.'s report on Form 8-K filed on October 1, 1999. **** Incorporated by reference to Thinkpath.com Inc.'s Proxy Statement on Form Def-14A filed on May 22, 2000. II-8 EX-5.1 2 0002.txt EXHIBIT 5.1 EXHIBIT 5.1 Gersten, Savage & Kaplowitz, LLP 101 East 52nd Street New York, New York 10022 October 20, 2000 ThninkPath.com Inc. 55 University Avenue Toronto, Ontario M5J 2H7 Canada Gentlemen: You have requested our opinion, as counsel for Thinkpath.com Inc., incorporated in Ontario, Canada (the "Company"), in connection with the registration statement on Form SB-2 (the "Registration Statement"), under the Securities Act of 1933, as amended (the "Act"), being filed by the Company with the Securities and Exchange Commission. The Registration Statement relates to an offering of 1,875,878 shares of common stock, no par value ("Common Stock") which Common Stock includes shares of Common Stock underlying Common Stock Purchase Warrants (the "Selling Stockholder Shares"), issued pursuant to the July 2000 Private Placement Offering. We have examined such records and documents and made such examinations of law as we have deemed relevant in connection with this opinion. It is our opinion that the Selling Stockholder Shares have been fully paid, validly issued and are non-assessable. No opinion is expressed herein as to any laws other than the laws of the State of New York and the laws of the United States. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the Registration Statement. In so doing, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Act of the rules and regulations of the Securities and Exchange Commission promulgated thereunder. Very truly yours, /s/ Gersten, Savage & Kaplowitz, LLP ---------------------------------------- Gersten, Savage & Kaplowitz, LLP EX-10.18 3 0003.txt EXHIBIT 10.18 EXHIBIT 10.18 SHARE PURCHASE AGREEMENT THIS SHARE PURCHASE AGREEMENT made the 25th day of April, 2000 BY and AMONG; THINKPATH.COM INC., a corporation incorporated under the laws of the Province of Ontario (hereinafter referred to as "Purchaser") OF THE FIRST PART MICRO TECH PROFESSIONALS, INC., a corporation incorporated under the laws of the State of Massachusetts (hereinafter referred to as "Micro Tech") OF THE SECOND PART DENISE DUNNE-FUSHI, and individual with an address at 109 Brimstone Lane, Sudbury, Massachusetts (hereinafter referred to as "Seller") OF THE THIRD PART WHEREAS, Purchaser desires to purchase from Seller all of the issued and outstanding shares of the capital stock of Micro Tech; NOW THEREFORE in consideration of the premises and the respective covenants and agreements of the Parties herein contained, the sum of one dollar now paid by each Party hereto to each of the other Parties hereto and other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by all of the Parties hereto), the Parties hereto covenant and agree as follows: ARTICLE 1 1.1 Definitions ----------- Whenever used in this Agreement, unless there is something in the subject matter or context inconsistent therewith, the following words and terms shall have the respective meanings ascribed to them as follows: "Affiliate" of any Person means any corporation, proprietorship, partnership or business entity which directly or indirectly owns or controls, is under common ownership or control with, or is owned or controlled by, such Person. "Affiliate" means this Agreement, including all Schedules and Exhibits hereto and all instruments supplemental hereto or in amendment or confirmation hereof or thereof. "Applicable Law" means any domestic or foreign law, statute, regulation, rule, policy, guideline, ordinance, by-law (including, without limitation, any Environmental Law) applicable to the Purchaser, the Business or operation of Micro Tech or the Purchased Shares. "Business" means the temporary and permanent placement of employment candidates in the fields of documentation and training in the New England states as is presently carried on by Micro Tech. "Business Day" means any day other than a Saturday, Sunday or holiday on which the banks located in New York, New York and Boston, Massachusetts are open for business. "Closing" means the completion of the sale to and purchase by the Purchaser of the Purchased Shares hereunder by the transfer and delivery of documents of title thereto and the payment of the Purchase Price therefor as contemplated herein. "Closing Date" means the 25th day of April, 2000, or such other date as the Parties may agree or as may be extended by the mutual consent of Purchaser and Seller as the date upon which the Closing shall take place. "Closing Time" means 11:00 o'clock a.m. Eastern Standard time, on the Closing Date or such other time on such date as the Parties may agree as the time at which the Closing shall take place. "Dollar" and "$" means lawful money of the United States of America. "EBITA" means the earnings of Micro Tech before the deduction of interest, taxes, depreciation and amortization as calculated in accordance with GAAP. "Effective Date" means January 1, 2000. "Encumbrance" means any encumbrance of any kind, including, without limitation, any option, pledge, security interest, lien, hypothecation, charge, encumbrance, mortgage, hypothecation, trust, deemed trust, trust deed, easement, lease, sub-lease, claim, right of way, covenant, condition or restriction (whether on sale, transfer or disposition or otherwise), whether imposed by agreement, law or otherwise, whether of record or otherwise "Environmental Law" means any law, statute, regulation, rule, policy, guideline, order, consent decree, settlement agreement or governmental requirement of the United States or any state, territory or local government or any agency thereof, which relates to or otherwise imposes liability or standards of conduct concerning discharges, releases or 2 threatened releases of noises, odors or any pollutants, contaminants or hazardous or toxic wastes, substances or materials into ambient air, water or land, or otherwise relating to the manufacture, processing, generation, distribution, use, treatment, storage, disposal, clean-up, transport or handling of pollutants, contaminants or hazardous or toxic wastes, substances or materials. "Environmental Permit" shall mean any Permit required by or pursuant to any applicable Environmental Law. "Financial Statements of Micro Tech" means the management prepared financial statements of Micro Tech, consisting of balance sheets and the statements of income, retained earnings and all notes thereto, all of which have applied the accrual basis of accounting, as reviewed and compiled by Adler & Blanchard, LLP. "GAAP" shall mean generally accepted accounting principles in the United States of America as promulgated by the American Institute of Certified Public Accountants and the Financial Accounting Standards Board or any successor Institutes concerning the treatment of any accounting matter. "Governmental Authority" means the government of Canada or the United States of America or any province, state, territory, region, municipality, locality or other political sub-division thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, as the case may be. "Leased Properties" means all of the lands, buildings, facilities, installations, fixtures, structures and improvements leased to Micro Tech. "Losses" means all liabilities (including, without limitation, all liabilities relating to Taxes), losses, costs, damages, deficiencies, penalties or expenses (including, without limitation, attorneys' and accountants' fees and expenses in costs of investigation and litigation and any judgement, settlement or compromise relating thereto and interest, penalties or other amounts paid in respect of judgements, settlements or compromises). "Material Adverse Effect" means a negative change in, or effect on the operations, affairs, financial condition, results of operations assets, liabilities, reserves or any other aspect of the corporation of the business of the corporation that results in a negative adverse effect on or a negative adverse change in any such aspect of the corporation or the business of the corporation. "Material Contract" means any contract entered into by Micro Tech having an annual dollar value greater than fifty thousand dollars ($50,000.00) or a term in excess of twenty-four months, excepting therefrom all financing agreements and Encumbrances. 3 "Micro Tech" means Micro Tech Professionals, Inc., a Massachusetts corporation, having its principal offices at 375 Totten Pond Road, Suite 200, Waltham, Massachusetts 02451, tel (781) 890-8002, fax (781) 890-3355. "Parties" means Purchaser, Micro Tech, and Seller collectively, and "Party" means any one of them. "Permits" means all of the permits, licenses, consents, approval, certificates, variances, interim permits, permit applications or other authorization required by or pursuant to Applicable Law. "Person" means any individual, corporation, partnership, limited partnership, trustee or trust or unincorporated association, and pronouns have a similarly extended meaning. "Prime" means the prime rate of interest as reported from time to time in The Wall Street Journal. "Purchaser" means ThinkPath.com Inc., a corporation formed under the laws of the Province of Ontario, having its corporate offices at 55 University Avenue, Suite 505, Toronto, Ontario Canada M5J 2H7 and any successor corporation. "Purchaser's Counsel'" means Gersten, Savage & Kaplowitz, LLP, 101 East 52nd Street, New York, New York 10022-6018, attention: Christopher J. Kelly, Esq., tel (212) 752-9700, fax (212) 813-9768. "Purchase Price" means the purchase price to be paid by the Purchaser for the Purchased Shares as provided in Article 2 hereof. "Purchased Shares" means one thousand (1,000) issued and outstanding common shares of Micro Tech owned by Seller which represents one hundred percent (100%) of the total issued and outstanding shares of common stock of Micro Tech. "Seller" means Denise Dunne-Fushi, an individual who resides at 109 Brimstone Lane, Sudbury, Massachusetts 01766. "Seller's Counsel" means the law firm of Drohan, Hughes & Hofman, P.C., of 175 Derby Street, Suite 30, Hingham, Massachusetts, 02043, Attention: James M. Hughes, Esq., counsel, tel (781) 749-7200, fax (781) 740-4335. "Taxes" means taxes, charges, fees, duties, levies or other assessments, including (without limitation) income, gross receipts, net proceeds, ad valorem, turnover, real and personal (tangible and intangible), sales, use, franchise, excise, value added, goods and services, stamp, leasing, lease, user, transfer, fuel, excess profits, payroll, occupation, 4 interest, equalization, windfall profits, severance and employees' withholding, unemployment, employer health and social security taxes which are imposed by the United States of America and any state, territory, region, municipality or local or foreign government or any agency thereof, and such term shall include any interest, penalties or additions to tax attributable to such Taxes. Terms defined in the preamble to this Agreement shall have the same meanings herein as are ascribed thereto in the preamble. 1.2 Gender and Number ----------------- Words importing the singular include the plural and vice versa; words importing gender include all genders. 1.3 Entire Agreement ---------------- This Agreement, including the Schedules and Exhibits hereto, together with the agreements and other documents to be delivered pursuant hereto, constitute the entire agreement between the Parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties and there are no warranties, representations or other agreements between the Parties in connection with the subject matter hereof except as specifically set forth herein and therein. 1.4 Waivers, etc. ------------- No supplement, modification, waiver or termination of this Agreement shall be binding unless executed in writing by the Party to be bound thereby. No waiver of any of the provisions of this Agreement, in whole or in part, shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 1.5 Other Words and Phrases ----------------------- In this Agreement, unless otherwise expressly provided, (i) the words "hereof", "herein", "hereto" and "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular Article, Section, Subsection, paragraph or other subdivision, and (ii) all references to designated "Articles", "Sections", "Subsections", "paragraphs" or "other subdivisions" are to the designated Articles, Sections, Subsections, paragraphs and other subdivisions of this Agreement. 1.6 Headings -------- The Article and Sections headings contained herein are included solely for convenience of reference, are not intended to be full or accurate descriptions of the content thereof and shall not be considered part of this Agreement. 5 1.7 Governing Law ------------- This Agreement and the rights, obligations and relations of the Parties shall be governed by and construed in accordance with the laws of the State of New York and the federal laws of the United States of America applicable therein, and the courts of the State of New York shall have exclusive jurisdiction to entertain any action in connection with this Agreement. 1.8 Currency -------- Unless otherwise specified, all reference to currency herein are deemed to mean lawful money of the United States of America, and all amounts to be paid or calculated pursuant to this Agreement are to be paid or calculated in lawful money of the United States of America. ARTICLE 2 PURCHASE AND SALE ----------------- 2.1 Purchase Price and Payment -------------------------- Subject to the terms and conditions set forth in this Agreement, at the Closing, the Seller shall sell, assign and transfer to the Purchaser and the Purchaser shall purchase, accept and acquire the Purchased Shares. The Purchase Price for the Purchased Shares shall be an aggregate of four million five hundred thousand dollars ($4,500,000), subject to adjustment, to be paid according to the following schedule: (a) First Installment - On the Closing Date - At the Closing, if, based upon the Financial Statements of Micro Tech for the year ended December 31, 1999, EBITA is equal to or greater than seven hundred forty thousand dollars ($740,000), Purchaser shall pay to Seller an aggregate of two million five hundred thousand dollars ($2,500,000) as follows: (i) one million two hundred fifty thousand dollars ($1,250,000) in immediately available funds, by wire transfer; (ii) issue to Seller a seven hundred fifty thousand dollar ($750,000) principal amount unsecured promissory note in the form attached as Exhibit A attached hereto (the "Initial Note"). The Initial Note shall be for a term of three years from the date if issuance and shall bear interest at rate equal to 1/2% above Prime. Principal and interest on the Initial Note shall be paid on a semi-annual basis. Payment of the Initial Note shall be guaranteed by both Seller and Micro Tech; and 6 (iii) issue to Seller that number of shares of Purchaser's common stock, no par value ("Common Shares") equal to five hundred thousand dollars ($500,000) divided by the lower of: (A) $3.75; or (B) the average of the last sale price as quoted on the Nasdaq SmallCap Market for the ten (10) trading days prior to the Closing Date. (b) Second Installment - Upon Completion of the December 31, 2000 year end audit of Micro Tech - Within sixty (60) days of the completion of the December 31, 2000 year end audit of Micro Tech, if, based on the Financial Statements of Micro Tech for the year ended December 31, 2000, EBITA is equal to or greater than eight hundred fifty thousand dollars ($850,000), Purchaser shall pay to Seller an aggregate of $2,000,000 as follows: (i) eight hundred seventy five thousand dollars ($875,000) in immediately available funds, by wire transfer; (ii) issue to Seller a five hundred thousand dollar ($500,000) principal amount unsecured promissory note in the form attached as Exhibit B attached hereto (the "Second Note"). The Second Note shall be for a term of three years from the date of issuance and shall bear interest at rate equal to 1/2% above Prime. Principal and interest on the Second Note shall be paid on a semi-annual basis. Payment of the Second Note shall be guaranteed by both Seller and Micro Tech; and (iii) issue to Seller that number of Common Shares of Purchaser's equal to six hundred twenty five thousand dollars ($625,000) divided by the lower of: (A) $3.75; or (B) the average of the last sale price as quoted on the Nasdaq SmallCap Market for the ten (10) trading days prior to the Closing Date. (c) Adjustment. The Purchase Price for the particular Installment shall be reduced at the rate of five dollars ($5) for every one dollar ($1) below the minimum threshold amount of EBITA as outlined in Sections 2.1 (a) and (b) above. Any such reduction in the Purchase Price for the particular Installment shall be allocated on a pro rata basis between Initial Note and/or the Second Note and the Common Shares; however, any expenses incurred by Micro Tech which are beyond the control of Seller, acting in the capacity of an officer of Micro Tech, shall not be charged to EBITA for purposes of calculating any such adjustment. By way of example, if EBITA for the year ended December 31, 1999 is equal to seven hundred thousand dollars ($700,000), the First Installment of two million five hundred thousand dollars ($2,500,000) shall be reduced to two million three hundred thousand dollars ($2,300,000) and shall be paid as follows: (i) one million two hundred fifty thousand dollars ($1,250,000) in cash; (ii) the issuance of the Initial Note in the principal amount of seven hundred thirty thousand dollars ($730,000); and (iii) the issuance of ninety five thousand (95,000) Common Shares. 7 2.2 Action by Seller and Purchaser at the Closing Time -------------------------------------------------- At the Closing, the Seller and the Purchaser shall take the following action: (a) Delivery of Certificates, etc. - The Seller shall transfer and deliver to the Purchaser at the Closing share certificates representing the Purchased Shares duly endorsed in blank for transfer or accompanied by an irrevocable security transfer power of attorney duly executed in blank, in either case by the holder of record thereof. The Seller shall take such steps as shall be necessary to cause Micro Tech to, and Micro Tech shall, enter the Purchaser or its nominee upon the books of Micro Tech as the holder of the Purchased Shares and to issue one or more share certificates to the Purchaser or its nominee representing the Purchased Shares; (b) Payment to the Seller - The Purchaser shall pay to Seller the First Installment as outlined in Section 2.1 (a). 2.3 Place of Closing ---------------- The Closing shall take place at the Closing Time at the offices of Micro Tech. 2.4 Extension of Closing -------------------- The Purchaser and the Seller may extend the Closing by up to thirty (30) days upon mutual agreement. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER AND MICRO TECH ------------------------------------------------------- Seller and Micro Tech jointly and severally represent to the Purchaser as follows: 3.1 Organization and Valid Existence: Micro Tech -------------------------------------------- Micro Tech is a corporation duly incorporated, organized and validly existing under the laws of the State of Massachusetts. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder have been or shall by the Closing Date be duly authorized by all necessary corporate action on the part of Micro Tech. Attached herewith as Schedule 3.1 is a copy of the articles of incorporation of Micro Tech. 8 3.2 Enforceability of Obligations ----------------------------- This Agreement constitutes a valid and binding obligation of each of Seller and Micro Tech enforceable against each of them in accordance with its terms, subject to limitations with respect to enforcement imposed by law in connection with bankruptcy or similar proceedings and to the extent that equitable remedies such as specific performance and injunction are in the discretion of the court from which they are sought. The execution, delivery and performance of this Agreement and all other agreements, instruments, certificates and documents contemplated hereby by each of Seller and Micro Tech do not, on the date hereof, and will not, on the Closing Date: (a) violate any Applicable Laws; (b) except as set forth on Schedule 3.2 attached hereto, violate or conflict, or result in a breach of, or constitute a default (or event, which with or without notice or lapse of time or both, would constitute a default) under, or permit cancellation of, or result in the creation of any Encumbrance upon any of the Micro Tech's assets, the assets used by Micro Tech in the Business, any requisite licenses, Permits or authorizations held by Micro Tech to conduct its Business or own its assets, or the Purchased Shares under any of the terms, conditions or provisions of any contract or agreement to which Seller is a party or by which Seller or any of the Micro Tech assets, the assets used in the Micro Tech Business or the Purchased Shares are bound, or would result in a breach of, or default under any order of any court, Governmental Authority or regulatory body; (c) cause the acceleration of the maturity of any indebtedness of Micro Tech or any indebtedness secured by the assets of Micro Tech, the assets used in the Micro Tech Business or the Purchased Shares; (d) violate or conflict with any provisions of the articles of by-laws of Micro Tech or any director's or shareholder's resolutions of Micro Tech. 3.3 Right to Sell - Seller (a) is the sole and beneficial owner of the Purchased Shares, which shares constitute all the issued and outstanding shares in the capital of Micro Tech; (b) has the exclusive right to dispose of the Purchased Shares as herein provided and such disposition will not violate, contravene, breach or offend against or result in any default under any indenture, mortgage, lease, agreement, instrument, charter or by-law provision or Applicable Law to which Seller or by which Seller is bound or affected; 9 (c) is the holder of record of all the Purchased Shares, free and clear of Encumbrances or rights of others (other than the rights of the Purchaser hereunder) and no person (other than the Purchaser hereunder) has any agreement, option or any rights capable of becoming an agreement or option for the acquisition of the Purchased Shares; and (d) upon transfer to the Purchaser at Closing of certificates representing such Purchased Shares, the Purchaser shall receive full title to the Purchased Shares free and clear of all Encumbrances. 3.4 Licenses, Registrations and Compliance -------------------------------------- Micro Tech is registered, licensed or otherwise qualified as a corporation to do business in each jurisdiction in which the nature of is business or the property owned or leased by it makes such registrations, licensing or other qualification necessary, and such registrations, licenses or qualifications (as the case may be) are in good standing. Micro Tech is not in violation of any Applicable Law, which violation could have a Material Adverse Effect, and, without limiting the generality of the foregoing, Micro Tech is not in breach of any Environmental Law. Each jurisdiction in which Micro Tech carries on business and a brief description of the nature of such operations and each jurisdiction in which tangible assets owned or used by Micro Tech are located is set forth in Schedule 3.4 attached hereto. 3.5 Subsidiaries of Micro Tech -------------------------- Micro Tech has no subsidiaries. 3.6 Capitalization -------------- The authorized and issued share capital of Micro Tech is set forth in Schedule 3.6 attached hereto. All such issued share capital has been duly and validly issued and is outstanding as fully paid and non-assessable. Except as set out in Schedule 3.6 herein, no options, warrants or other rights to purchase shares or other securities of either Micro Tech or other rights to purchase shares or other securities of Micro Tech have been authorized or agreed to be issued or are outstanding. Micro Tech is not subject to any obligations (contingent or otherwise) to re-purchase or other wise retire or acquire any of its shares. 3.7 Financial Statements -------------------- The Financial Statements of Micro Tech for the year ended December 31, 1999 and for the three months ended March 31, 2000 as reviewed and compiled by Adler & Blanchard, LLP, are true and correct and have been prepared in accordance with GAAP applied on a basis consistent with that of the preceding period. The Financial Statements of Micro Tech for the year ended December 31, 10 1999 and the three months ended March 31, 2000 present a true and complete statement of the financial condition and assets and liabilities of Micro Tech as at December 31, 1999 and March 31, 2000 and the other statements comprising the Financial Statements of Micro Tech for the year ended December 31, 1999 and the three months ended March 31, 2000 accurately set forth the results of the operations of Micro Tech and the source and application of the funds thereof throughout the period covered thereby. The statement of stockholders' equity included in the Financial Statements of Micro Tech for the year ended December 31, 1999, represents that Micro Tech has an amount of stockholders' equity equal to at least eight hundred thousand dollars ($800,000), which number shall not include non-tangible assets. Any dollar amount in excess of eight hundred thousand dollars ($800,000) of shareholders' equity will be paid to Seller. 3.8 Absence of Undisclosed Liabilities ---------------------------------- Except to the extent reflected or reserved against in the Financial Statements of Micro Tech for the three months ended March 31, 2000 (including the notes thereto) or incurred subsequent to the date thereof and disclosed either in this Agreement or in Schedule 3.8 and except as incurred in the ordinary and usual course of business or insured against, Micro Tech has no outstanding indebtedness or any liabilities or obligations (whether known or unknown, accrued, absolute, contingent or otherwise) of a nature customarily reflected or reserved against in a balance sheet (including the notes thereto) prepared in accordance with GAAP. 3.9 Tax Matters ----------- (a) Micro Tech has duly and timely filed or has received a valid extension with respect to all federal, state and local income, franchise, capital, sales or use, goods and services, excise, fuel, payroll, property or other tax returns required by any Applicable Law to be filed by it and all liabilities required to be paid by Micro Tech on account of Taxes prior to the date hereof have been duly paid. (b) Micro Tech has not received from any Governmental Authority any assessment, re-assessment or notice of underpayment of any Taxes or other charges and no such notice is reasonably expected. (c) There are no actions, suits, proceedings, investigations or claims now threatened or pending against Micro Tech with respect to Taxes, governmental charges or assessments, or any matters under discussion with any Governmental Authority relating to Taxes, governmental charges or assessments asserted by such authority. (d) No agreements, consent or other arrangements extending or waiving the time limited for the filing of any tax return by, or the payment of any Taxes, governmental charge or deficiency against Micro Tech or the re-assessment of any Taxes, or any statutes of limitations related thereto have been filed with respect to Micro Tech for any fiscal year. 11 (e) Micro Tech has withheld from each payment made to any of its officers, directors, former directors and employees, the full amount of all Taxes and other deductions (including without limitation, income taxes, unemployment, disability, and other required taxes and contributions) required to be withheld and has paid the same together with the employer's share of same, if any (to the extent required to be paid so no such amount is past due), to the proper tax or other receiving officers within the prescribed times and has filed, in complete and accurate form, all information and other returns required pursuant to any applicable legislation within the prescribed times. (f) Micro Tech has paid, collected and remitted all Taxes which are due and payable, collectible or remittable, as applicable, by it on or before the date hereof. Adequate provision has been made in the Financial Statements of Micro Tech for the year ended December 31, 1999 and for the three months ended March 31, 2000 for all Taxes for the period covered. Micro Tech has no liability for Taxes other than those provided for in the Financial Statements of Micro Tech and those arising in the ordinary course of business since December 31, 1999. 3.10 Absence of Changes ------------------ Since the Effective Date there has not been: (a) any material changes in the condition or operations of the Micro Tech, Micro Tech's assets or the financial condition of Micro Tech other than changes in the ordinary and normal course of business, none of which has or would be expected to have a Material Adverse Effect; or (b) any damage, destruction or loss, labor troubles or other event, development or condition of any character (whether or not covered by insurance) affecting the Micro Tech Business, the assets of Micro Tech or the properties or future prospects of Micro Tech which has or would be expected to have a Material Adverse Effect. 3.11 Absence of Unusual Transactions ------------------------------- (a) Since the Effective Date has not: (i) transferred, assigned, sold, leased or otherwise disposed of any of the assets of Micro Tech or canceled any debts or claims except in the ordinary and usual course of business; 12 (ii) incurred or assumed any obligation or liability (fixed or contingent), except those listed in Schedule 3.11(a) attached hereto and except unsecured current obligations and liabilities incurred in the ordinary and normal course of business and consistent with past practice; (iii) except as disclosed in Schedule 3.11(a), issued or sold any shares in its capital or any warrants, bonds, debentures or other securities of Micro Tech or issued, granted or delivered and right, option or other commitment for the issuance of any such or other securities; (iv) discharged or paid any Encumbrance, or paid any obligation or liability (fixed or contingent) other than liabilities incurred since the Effective Date in the ordinary and normal course of business; (v) except as disclosed in Schedule 3.11(a), declared or made any payment of any dividend or other distribution in respect of any shares in its capital or purchased or redeemed any such shares thereof or effected any subdivision, consolidation or reclassification of any such shares; (vi) suffered any damage, destruction, operating loss or any extraordinary loss, or waived, cancelled or written off any rights of substantial value, or entered into any commitment or transaction not in the ordinary and usual course of business where such loss, rights, commitment or transaction is or would have a Material Adverse Effect on Micro Tech; (vii) except those listed in Schedule 3.11(a), amended or changed or taken any action to amend or change its articles of incorporation or by-laws; (viii) made any general wage or salary increases in respect of personnel which it employs, other than increases in the ordinary and normal course of business or entered into any severance agreements; (ix) mortgaged, pledged, subjected to Encumbrance or otherwise encumbered any of the assets or property of Micro Tech, whether tangible or intangible except in the ordinary and normal course of business; or (x) authorized or agreed or otherwise become committed to do any of the foregoing. 3.12 Leased Equipment ---------------- Schedule 3.12 attached hereto sets forth a true and substantially complete list of all equipment, other personal property and fixtures in the possession or custody of Micro Tech, which, as of the Effective Date, is leased or held under license or similar arrangement and of the leases, licenses, agreements and other documentation relating thereto. Additional equipment has been or may be leased in the ordinary course of business after the Effective Date. 13 3.13 Collectability of Accounts Receivable ------------------------------------- The accounts receivable as shown on the Financial Statements of Micro Tech for the year ended December 31, 1999 are collectible to within the full amount less the reserve shown on such Financial Statements. 3.14 Leases of Real Property ----------------------- All leases of real property and all interests held by Micro Tech as lessee under real property leases are reduced to writing and are recorded on the books of Micro Tech. All rental and other payments required to be paid by Micro Tech as lessee are paid on a timely basis. Such leases are in full force and effect without amendment thereto and neither Micro Tech, nor the other party thereto, is otherwise in default in meeting its obligations contained in any such lease. 3.15 Real Property ------------- Except as disclosed on Schedule 3.15 attached hereto, Micro Tech does not own any real property in fee simple. 3.16 Condition of Assets ------------------- All assets of Micro Tech used in or in connection with the Micro Tech Business are in good condition, repair and (where applicable) proper working order, reasonable wear and tear excepted. 3.17 Employment Contracts -------------------- Except as set out in Schedule 3.17 attached hereto, Micro Tech does not have any union or collective labor, pension, deferred profit sharing, stock option or other similar agreement nor do they have any written contracts of employment with any employees or any oral contracts of employment which are not terminable on the giving of reasonable notice in accordance with applicable law. There is not now any circumstances or conduct which could result in the filing of an unfair labor practice complaint, and there exists no event or condition which with the giving of notice or the passage of time would constitute a breach or default thereunder by any party thereto. 14 3.18 Material Contracts ------------------ All Material Contracts of Micro Tech have been reduced to writing. The Material Contracts are all in full force and effect without amendment thereto and no material default exists in respect thereof on the part of any of the parties thereto. Such contracts and agreements include all the presently outstanding material contracts entered into by Micro Tech in the course of carrying on its Business and all quotations, orders or tenders for such contracts which remain open for acceptance. To the best of the knowledge, information and belief of Seller, Micro Tech has the capacity, including the necessary personnel, equipment and supplies, to perform all of its obligations thereunder. 3.19 Pension Plans ------------- Except for a 401(k) plan, there are no pension plans established by or for Micro Tech for its employees. 3.20 Absence of Guarantees --------------------- Except as disclosed in Schedule 3.20 attached hereto, Micro Tech has not given or agreed to give, or is a party or bound by, any guarantee of indebtedness or other obligations of third parties or any other commitment by which Micro Tech is, or is contingently, responsible for such indebtedness or other obligation. 3.21 Litigation ---------- Except as disclosed in Schedule 3.21 attached hereto, there is no suit, action, litigation, arbitration proceeding or governmental proceeding, hearing before an administrative tribunal, including appeals and applications for review, in progress, pending or, to the best of the knowledge, information and belief (after due enquiry) of the senior officers of Micro Tech, threatened against or relating to Micro Tech or affecting its properties or Business which, if determined adversely to Micro Tech, might have a Material Adverse Effect on the properties, Business, future prospects or financial condition of Micro Tech. Except as disclosed in Schedule 3.21, there is not presently outstanding against Micro Tech, any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator. 3.22 Employees --------- Micro Tech shall after the execution of this Agreement deliver to the Purchaser a list of all personnel employed or engaged thereby whose annual rate of remuneration exceeds fifty thousand dollars ($50,000). 15 3.23 Insurance --------- Micro Tech has, since its date of incorporation, maintained and currently maintains such policies of insurance, issued by responsible insurers, as is appropriate to the Micro Tech Business, the property and the assets of Micro Tech, in such amounts and against such risks as are customarily carried and insured against by owners of comparable businesses, properties and assets; to the knowledge of Seller, all such policies of insurance are in full force and effect and Micro Tech is not in default, whether as to the payment of premium or otherwise, under the terms of any such policy. 3.24 Vehicular Equipment ------------------- Schedule 3.24 attached hereto contains a list of all vehicular equipment owned or leased by Micro Tech as of the Effective Date. Such vehicular equipment is in roadworthy condition. 3.25 Copies of Agreements, etc. -------------------------- True, correct and complete copies of all mortgages, leases, agreements, instruments and other documents listed in Schedules hereto, and of the policies of insurance referred to herein are located at the principal offices of Micro Tech and full and complete copies of which shall be made available to the Purchaser after the execution of this Agreement. 3.26 Corporate Records ----------------- Other than as set out in Schedule 3.26 attached hereto, the corporate records and minute books of Micro Tech contain complete and accurate copies of all by-laws, minutes of all meetings and resolutions of the directors and shareholders of Micro Tech; all such meetings were duly called and held, all such by-laws and resolutions were duly passed and the share certificate books, registers of shareholders, registers of transfers and registers of directors of Micro Tech are complete and accurate in all material respects. 3.27 Books of Account ---------------- The books and records of account of Micro Tech, fairly and correctly set out and disclose in all material respects and in accordance with the cash basis method of accounting, consistently applied, the financial position of Micro Tech as of the date hereof and all material financial transactions of Micro Tech have been accurately recorded in such books and records. 3.28 Compliance with Environmental Laws ---------------------------------- With respect to the properties leased by Micro Tech, since the commencement date of these leases, Micro Tech is in compliance with and has always been in compliance with all Environmental Laws. 16 3.29 Brokers' and Finders' Fees -------------------------- Neither Seller nor Micro Tech has incurred, nor will any of them incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or the transactions contemplated hereby, except for the fee to be paid by Seller for services rendered in connection with the this Agreement and the transactions contemplated hereby pursuant to a fee agreement between Seller and Adler & Blanchard Financial Group, LLC, which fee shall be paid by Seller. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ----------------------------------------------- The Purchaser hereby represents and warrants to Seller as follows: 4.1 Organization and Valid Existence -------------------------------- The Purchaser is a corporation duly incorporated and organized and is validly existing under the laws of the Province of Ontario and has all necessary corporate power, authority and capacity to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder have been or by the Closing Date will be duly authorized by all necessary corporate action on the part of the Purchaser. 4.2 Enforceability of Obligations ----------------------------- This Agreement constitutes a valid and binding obligation of the Purchaser enforceable against it in accordance with its terms, subject, however, to limitations with respect to enforcement imposed by law in connection with bankruptcy or similar proceedings and to the extent that equitable remedies such as specific performance and injunction are in the discretion of the court from which they are sought. 4.3 Absence of Conflicting Agreements --------------------------------- The Purchaser is not a party to, bound or affected by or subject to any indenture, mortgage, lease, agreement, instrument, charter or by-law provision, statute, regulation, order, judgment, decree or law which would be violated, contravened or breached by, or under which any default would occur, as a result of the execution and delivery of this Agreement or the consummation of any of the transactions provided for herein. 17 4.4 Litigation ---------- There is no suit, action, litigation, arbitration proceeding or governmental proceeding, including appeals and applications for review, in progress, pending or, to the best of the knowledge, information and belief (after due enquiry) of the senior officers of the Purchaser, threatened against or involving the Purchaser or any judgment, decree, injunction, rule or order of any Court, governmental department, commission, agency, instrumentality or arbitrator which, in any such case, might adversely affect the ability of the Purchaser to enter into this Agreement or to consummate the transactions contemplated hereby. The Purchaser is not aware of any existing ground on which any such action, suit or proceeding may be commenced with any reasonable likelihood of success. 4.5 Employment Agreement with Seller -------------------------------- The Purchaser shall, prior to the Closing Date, enter into an employment agreement with Seller in the form attached hereto as Exhibit C. 4.6 Due Diligence ------------- Purchaser shall conduct its due diligence subject to the following limitations. The Purchaser shall not copy any of Seller's or Micro Tech's private documents without prior written consent of the appropriate party. All examinations of documents shall take place at the offices of Micro Tech, or such other place as the parties may agree to, all under supervision of Micro Tech's personnel. In the event that this Agreement is not completed for any reason whatsoever, the Purchaser shall not use the information about Seller to compete with Micro Tech, nor shall the Purchaser solicit the employment of any employee or subcontractor of Micro Tech or otherwise interfere in the Business of Micro Tech 4.7 Issuance of Common Shares ------------------------- The Common Shares issuable to Seller pursuant to this Agreement have been duly authorized and reserved for issuance, and, when issued pursuant to this Agreement, will be duly and validly authorized and issued, fully paid an non-assessable and not subject to any preemptive rights or other rights of stockholders of Purchaser. 4.8 Board Approval -------------- The Board of Directors of Purchaser has approved this Agreement and the transactions contemplated hereby. 18 ARTICLE 5 CONDITIONS PRECEDENT TO THE PERFORMANCE BY THE PURCHASER OF ITS OBLIGATIONS UNDER THIS AGREEMENT -------------------------------------------------------- The obligations of the Purchaser to complete the purchase of the Purchased Shares hereunder shall be subject to the satisfaction of, or compliance with, in all material respects, at or before the Closing Time, each of the following conditions precedent (each of which is hereby acknowledged to be inserted for the exclusive benefit of the Purchaser any may be waived by it in whole or in part); 5.1 Truth and Accuracy of Representations of Seller and Micro Tech at the Closing Time --------------------------------------------------------------------- All of the representations and warranties of each of Seller and Micro Tech made in or pursuant to this Agreement, including, without limitation, the representations and warranties made and set forth in Article 3 hereof, shall be materially true and correct as at the Closing Time and with the same effect as if made at and as of the Closing Time (except as such representations and warranties may be affected by the occurrence of events or transactions expressly contemplated and permitted hereby or by transactions in the ordinary and normal course of business), and the Purchaser shall have received a certificate from the President or other person exercising the functions of chief executive officer of Micro Tech a certificate from Seller confirming, to the best of her knowledge, information and belief (after due inquiry) the truth and correctness of the representations and warranties of each of Micro Tech and Seller. 5.2 Performance of Obligations -------------------------- Each of Micro Tech and Seller shall have performed or complied with, in all material respects, Micro Tech's and Seller's obligations, covenants and agreements hereunder. 5.3 Receipt of Closing Documentation -------------------------------- All documentation relating to the due authorization and completion of the sale and purchase hereunder of the Purchased Shares and all actions and proceedings taken on or prior to the Closing in connection with the performance by each of Micro Tech's and Seller's obligations under this Agreement shall be satisfactory to the Purchaser and the Purchaser's Counsel, acting reasonably, and the Purchaser shall have received copies of all such documentation or other evidence as it may reasonably request in order to establish the consummation of the transactions contemplated hereby and the taking of all corporate proceedings in connection therewith in compliance with these conditions, in form (as to certification and otherwise) and substance satisfactory to the Purchaser and the Purchaser's Counsel. 5.4 No Fire Damage -------------- No substantial damage by fire or other hazard to the assets of Micro Tech shall have occurred from the Effective Date to the Closing Date which is not adequately insured against or which has caused a cessation of business for more than seven (7) days if insured against. 19 5.5 Litigation ---------- On the Closing Date, there shall be no litigation, governmental investigation or proceeding pending or threatened for the purpose of enjoining or preventing the consummation of any of the transactions contemplated by this Agreement or otherwise claiming that such consummation is improper. 5.6 Material Change --------------- Since the Effective Date there shall have been no: (a) Nothing shall have occurred that has or could cause a Material Adverse Effect; and (b) Material loss or damage not covered by insurance to any of the assets of Micro Tech. 5.7 Due Diligence Review -------------------- The Purchaser shall no later than seventy-five days after the Effective Date have completed their due diligence review having been satisfied with the results of its investigation and review of the business, operations, assets, liabilities, result of operations, cash flows, conditions (financial and otherwise) and prospects of, and other matters relating to Micro Tech. 5.8 Certificates ------------ Seller shall have delivered to the Purchaser share certificates representing all of the Purchased Shares, which share certificates shall have been duly endorsed in blank for transfer or accompanied by duly executed stock powers. 5.9 Board Approval -------------- Purchaser shall have obtained approval of its Boards of Directors with respect to this Agreement and the transactions contemplated hereby. 5.10 Opinion of Seller's Counsel --------------------------- Purchaser shall have received from Seller's Counsel, an opinion, dated the Closing Date, as to the matters set forth in Article 3. 5.11 Employment Agreement with Seller -------------------------------- On the Closing Date, Seller shall have executed and employment agreement with the Purchaser in the form of Exhibit C attached hereto. 20 ARTICLE 6 CONDITIONS PRECEDENT TO THE PERFORMANCE BY SELLER OF THE OBLIGATIONS UNDER THIS AGREEMENT ---------------------------------------------- The obligations of Seller to complete the sale of the Purchased Shares hereunder shall be subject to the satisfaction of or compliance with, at or before the Closing Time, each of the following conditions precedent (each of which is hereby acknowledged to be inserted for the exclusive benefit of Seller and may be waived by Seller in whole or in part); 6.1 Truth and Accuracy of Representations of Purchaser at Closing Time ------------------------------------------------------------------ All of the representations and warranties of the Purchaser made in or pursuant to this Agreement, including without limitation the representations and warranties made by the Purchaser and set forth in Article 4 hereof, shall be true and correct as at the Closing Time and with the same effect as if made at and as of the Closing Time and Seller shall have received a certificate from a duly authorized senior officer of the Purchaser confirming, to the best of his knowledge, information and belief (after due inquiry), the truth and correctness of the representations and warranties of the Purchaser contained herein. 6.2 Performance of Obligations -------------------------- The Purchaser shall have performed or complied with, in all respects, all of its obligations, covenants and agreements hereunder. 6.3 Receipt of Closing Documentation -------------------------------- All documentation relating to the due authorization and completion of the sale and purchase hereunder of the Purchased Shares and all actions and proceedings taken on or prior to the Closing in connection with the performance by the Purchaser of its obligations under this Agreement shall be satisfactory to Seller and Seller's Counsel and Seller shall have received copies of all such documentation or other evidence as they may reasonably request in order to establish the consummation of the transactions contemplated hereby and the taking of all corporate proceedings in connection therewith in compliance with these conditions, in form (as to certification and otherwise) and substance satisfactory to Seller and Seller's Counsel. 6.4 Litigation ---------- On the Closing Date, there shall be no litigation, governmental investigation or proceeding pending or threatened for the purposes of enjoining or presenting the consummation of any of the transactions contemplated by this Agreement or otherwise claiming that such consummation is improper. 21 6.5 Employment Agreement with Seller -------------------------------- On the Closing Date, Seller shall have executed and employment agreement with the Purchaser in the form of Exhibit C attached hereto. 6.6 Payment of First Installment ---------------------------- On the Closing Date, Purchaser shall paid the First Installment in accordance with Section 2.1 (a). 6.7 Opinion of Purchaser's Counsel ------------------------------ Seller shall have received from Purchaser's Counsel, an opinion, dated the Closing Date, as to the matters set forth in Article 4. ARTICLE 7 OTHER COVENANTS OF THE PARTIES ------------------------------ 7.1 From Effective Date to Closing Date ----------------------------------- During the period from the date of the Effective Date to the Closing Time, Micro Tech shall: (a) except as otherwise contemplated or permitted by this Agreement, conducted their respective businesses in the ordinary and normal course thereof and have not, without the prior written consent of the Purchaser, entered into any transaction which if effected before the date of this Agreement, would constitute a material breach of the representations, warranties or agreements contained herein; (b) continued in force all existing policies of insurance presently maintained by Micro Tech; (c) complied with all Applicable Laws affecting the operation of the Business and the Micro Tech and paid all required Taxes and tax installments; 22 (d) not, without the prior written consent of the Purchaser taken any of the actions, done any of the things or performed any of the acts described in paragraphs (a)(i) to (x) inclusive of Section 3.11. 7.2 Actions to Satisfy Closing Conditions ------------------------------------- Each of the Parties hereby agrees to take all such actions as are within its power to control, and to use its best efforts to cause other actions to be taken which are not within its power to control, so as to ensure compliance with any conditions set forth herein which are for the benefit of any other Party. 7.3 Registration of Common Shares ----------------------------- Within three (3) months after the payment of each of the First and Second Installments, Purchaser shall prepare and file with the United States Securities and Exchange Commission a registration statement on Form S-3 or such other applicable Form, covering the Common Shares issued to Seller in each of the First and Second Installments. 7.4 Lock-Up ------- Seller hereby agrees that Seller will not, directly or indirectly, for a period of twelve (12) months from the date of issuance, without the prior written consent of Purchaser, offer to sell, sell, contract to sell, grant any option to purchase or otherwise dispose (or announce any offer, sale, grant of any option to purchase or other disposition) of any Common Shares issued to Seller pursuant to this Agreement. 7.5 Waiver of Right of First Refusal -------------------------------- Micro Tech hereby agrees to waive any rights of first refusal that it has with respect to the purchase of the Purchased Shares. ARTICLE 8 SURVIVAL AND REMEDY: INDEMNIFICATION ------------------------------------ 8.1 Survival -------- All representations and warranties of the parties hereto shall survive the Closing and shall expire as of 11:59 p.m. Eastern Standard time on the date which is twelve months after the Closing Date. 23 8.2 Indemnification by Seller ------------------------- Seller agrees to indemnify the Purchaser and agree to hold it harmless from any Losses incurred or suffered by the Purchaser or any of its Affiliates (or any combination thereof) arising from any material breach of or any inaccuracy in any representation or warranty made by Seller and/or Micro Tech pursuant to this Agreement and any breach of or failure by Seller and/or Micro Tech to perform any covenant or obligation of Seller and/or Micro Tech set out in this Agreement. 8.3 Indemnification by Purchaser ---------------------------- The Purchaser agrees to indemnify Seller and/or Micro Tech against and agrees to hold them harmless from any Losses incurred and suffered by Seller and/or Micro Tech or any of their respective Affiliates (or any combination thereof) arising from any material breach of or any inaccuracy in any representation or warranty made by the Purchaser pursuant to this Agreement and any breach of or failure by the Purchaser to perform any covenant or obligation of the Purchaser set out in this Agreement. 8.4 Notice of Claims: Assumption of Defense --------------------------------------- The indemnified party shall give prompt notice to the indemnifying party in accordance with the terms of Section 10.3 of the assertion of any claim or the commencement of any suit proceeding by any party in respect of which indemnity may be sought hereunder, specifying with reasonable particularity the basis therefore and giving the indemnifying party such information with respect thereto as the indemnifying party may reasonably request (but the giving of such notice shall not be conditioned precedent to indemnification hereunder). The indemnifying party may, at its own expense: (a) participate in; and (b) upon notice to the indemnified party and the indemnifying party's written agreement that the indemnified party is entitled to indemnification pursuant to Section 8.2 or Section 8.3 for Losses arising out of such claim, suit, action or proceeding, at any time during the course of any such claim, suit, action or proceeding, assume the defense thereof; provided that: (i) the indemnifying party's counsel is reasonably satisfactory to the indemnified party; and (ii) the indemnifying party shall thereafter consult with the indemnified party upon the indemnified party's reasonable request for consultation from time to time with respect to such claim, suit, action or proceeding 24 8.5 Settlement or Compromise ------------------------ Any settlement or compromise made or caused to be made by the indemnified party or the indemnifying party, as the case may be, of any such claim, suit, action or proceeding of the kind referred to in Section 8.4 shall also be binding upon the indemnifying party or the indemnified party, as the case may be, in the same manner as if a final judgment or decree was entered by a court of competent jurisdiction in the amount of such settlement or compromise. No party shall settle or compromise any claim, suit, action or proceeding without the prior written consent of the other parties hereto, which consent shall not be unreasonably withheld. 8.6 Failure of Indemnifying Party to Act ------------------------------------ In the event the indemnifying party does not elect to assume the defense of any claim, suit, action or proceeding, then any failure of the indemnified party to defend or to participate in the defense of any such claim, suit, action or proceeding or to cause same to be done, shall not relieve the indemnifying party of its obligations hereunder, provided that the indemnified party gives the indemnifying party at least thirty days' written notice of its proposed intention not to defend or participate and affords the indemnifying party the opportunity to assume the defense thereof. 8.7 Payment of Indemnifying Party ----------------------------- Contemporaneously with any compromise or settlement the indemnifying party shall pay or cause to be paid to the indemnified party or as they may direct, the amount owing under this indemnity with respect to such matter being provided further that: (a) the indemnifying party shall provide further security to the indemnified party in respect of any cost of damages arising in connection with any litigation; and (b) the indemnifying party shall agree to reimburse the indemnified party promptly in respect of all out of pocket expenses incurred by indemnified party in connection with such litigation or pending litigation. ARTICLE 9 TERMINATION ----------- 9.1 Termination by Mutual Consent. At any time prior to the Closing, this Agreement may be terminated by the written consent of all Parties. 9.2 Termination by Purchaser or Seller and Micro Tech ------------------------------------------------- (a) Purchaser may terminate this Agreement at any time prior to the Closing Date by delivery of written notice to Seller and Micro Tech in the event of a material breach by Seller and/or Micro Tech or a failure by Seller and/or Micro Tech to perform any material obligation on their part to be performed or a material breach by Seller and/or Micro Tech of their representations and warranties contained in Article 3 of this Agreement, and such breach or failure continues for a period of fifteen (15) Business Days following the giving of notice 25 (b) Seller and Micro Tech may terminate this Agreement at any time prior to the Closing Date by delivery of written notice to Purchaser in the event of a material breach by Purchaser or a failure by Purchaser to perform any material obligation on its part to be performed or a material breach by Purchaser of its representations and warranties contained in Article 4 of this Agreement, and such breach or failure continues for a period of fifteen (15) Business Days following the giving of notice. ARTICLE 10 OTHER MATTERS ------------- 10.1 Expenses -------- The Parties shall bear their own costs, including attorney's fees, incurred in the negotiation of this Agreement and consummating of the transactions contemplated herein. 10.2 Time ---- Time shall be of the essence hereof. 10.3 Notices ------- Any notice, direction or other document required to be given hereunder or for the purposes hereof (hereinafter in this Section 9.3 called a "Notice") to any Party shall be in writing and shall be sufficiently given if delivered personally, or if sent by prepaid registered mail or if transmitted by facsimile or other form of recorded communication tested prior to transmission to such Party: (a) in the case of a notice to Seller at: 109 Brimstone Lane Sudbury, Massachusetts 01776 26 with a facsimile number of (781) 890-3355 Attention: Denise Dunne-Fushi with a copy to Seller's Counsel at: Drohan, Hughes & Hoffman, P.C. 175 Derby Street, Suite 30 Hingham, Massachusetts 02043 with a facsimile number of (781) 740-4335 Attention: James M. Hughes, Esq. (b) in the case of a notice to the Purchaser at: ThinkPath.com Inc. 55 University Avenue, Suite 505 Toronto, Ontario, Canada M5J 2H7 with a facsimile number of (416) 364-2424 Attention: Delcan A. French, Chief Executive Officer with a copy to the Purchaser's Counsel at: Gersten, Savage & Kaplowitz, LLP 101 East 52nd Street, New York, New York 10022 with a facsimile number of (212) 813-9768 Attention: Christopher J. Kelly, Esq. or at such other address as the Party to whom such writing is to be given shall have last notified the Party giving the same in the manner provided in this section. Any notice delivered to the Party to whom it is addressed as hereinbefore provided shall be deemed to have been given and received on the day it is so delivered at such address, provided that if such day is not a Business Day then the notice shall be deemed to have been given and received on the first Business Day next following such day. Any notice mailed as aforesaid shall be deemed to have been given and received on the fifth Business Day following the date of its mailing. Any notice transmitted by facsimile or other form of recorded communication shall be deemed given and received on the first Business Day after its transmission. Failure to transmit timely or adequate notice to Seller's Counsel or to Purchaser's Counsel, as the case may be, shall not invalidate, nullify or otherwise detrimentally affect the provision of same to a Party. 27 10.4 Amendment --------- This Agreement may be amended, modified or supplemented but only in writing signed by all of the Parties hereto. 10.5 Assignment ---------- All terms of this Agreement shall be binding and inure to the benefit of and be enforceable by the respective successor and assigns of Purchaser. Purchaser may assign this Agreement in whole or in part to one or more Affiliates. Micro Tech and Seller may not assign this Agreement in whole or in part without the written consent of Purchaser. 10.6 Further Assurances ------------------ The Parties hereto shall with reasonable diligence do all such things and provide all such reasonable assurances as may be required to consummate the transactions contemplated hereby, and each Party shall provide such further documents or instruments required by any other Party as may be reasonably necessary or desirable to effect the purpose of this Agreement and carry out its provisions, whether before or after the Closing. 10.7 Severability ------------ If any covenant or provision of this Agreement is prohibited in whole or in part in any jurisdiction, such covenant or provision shall, as to such jurisdiction, be ineffective to the extent of such jurisdiction without invalidating the remaining covenants and provisions hereof and shall, as to such jurisdiction, be deemed to be severed from this Agreement to the extent of such prohibition. 10.8 Counterparts ------------ This Agreement may be executed by the Parties in separate counterparts each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. 10.9 Public Notices -------------- Except for disclosures required by Applicable Law, all public notices to third parties and all other publicity concerning the transactions contemplated herein shall be jointly planned and coordinated by Seller and Purchaser and no Party shall act unilaterally in this regard without the prior approval of every other Party, such approval not to be unreasonably withheld. (Signatures on the following page) 28 IN WITNESS WHEREOF the Parties have hereunto duly executed this Agreement as of the day and year first written above. THINKPATH.COM INC. By: /s/ Declan A. French ------------------------------------- Declan A. French Chief Executive Officer MICRO TECH PROFESSIONALS, INC. By: /s/ Denise Dunne-Fushi ------------------------------------- Denise Dunne-Fushi President By: /s/ Denise Dunne-Fushi ------------------------------------ Denise Dunne-Fushi Sole Shareholder 29 SCHEDULE 3.1 Articles of Incorporation of Micro Tech 30 SCHDULE 3.2 Defaults None. 31 SCHEDULE 3.4 Location and Description of Operations All of Micro Tech's assets are located in Massachusetts. Micro Tech conducts placements of personnel in all of the states of New England, but primarily in the State of Massachusetts, 32 SCHEDULE 3.6 Options, Warrants or Other Rights to Purchase Securities None. 33 SCHEDULE 3.8 Outstanding Indebtedness None beyond what is disclosed in the Financial Statements. 34 SCHEDULE 3.11(a) Unsecured Obligations; Issuance of Additional Securities; Amendments to Articles of Incorporation or By-Laws Sub-Chapter S distributions to Seller in the ordinary course of business. 35 SCHEDULE 3.12 Lease Equipment
Quantity Item Description Location - -------- ---------------- -------- 5 Five Shelve Plastic Shelves Storage 1 4' x 2' Wall mounted communications rack Storage 3 48 Port Level 5 Hubbell Patch Panels Storage 2 24 Port NETGEAR 10/100 Port Switchable Hubs Storage 1 LUCENT Legend R3.1 Phone System Equipped to Serve 24 Lines, Storage 64 Phone Ports 18 MERLIN 34 Button Voice Terminals Storage 4 MERLIN 22 Button Voice Terminals Storage 7 MERLIN 10 Button Voice Terminals Storage 2 II System Display Consoles Storage 1 PII 333 CTX File Server Storage 1 LUCENT Battery Backup Storage 1 Voice Manager 8 Port AA/VMS Storage 1 486 LEGEND SPM/SMDR Telephone System Manager Storage 1 Single Port CISCO Internet Router Storage 1 Music On Hold Radio Storage 2 5' x 30" Walnut Desks Storage 1 Triplite Battery Backup Storage 1 4 Draw Black File Cabinet Office 5 2 2' x 4' Task Tables Office 5 1 5' x 30" Walnut Desk with LHR Office 5 1 5' x 30" Walnut Desks w/ RHR Office 5 1 P233 Client Workstation Office 5 1 Task Chair Office 4 1 4 Draw Black File Cabinet Office 4 1 5' x 30" Walnut Desk Office 4 1 5' x 30" Walnut Desk w/ LHR Office 4 1 Task Chair Office 3 1 P233 Client Workstation Office 3 1 5' x 30" Walnut Desk w/ RHR Office 3 1 2' x 3' Task Table Office 3 2 4 Draw Lateral File Cabinets Office 2 1 2 Draw Oak Lateral File Cabinet Office 2 2 Task Chairs Office 2 1 PII 233 Client Workstation Office 2 1 4 Draw Black File Cabinet Office 2 2 Task Chairs Office 2 1 2 Draw Oak Lateral File Cabinet Office 2
36
Quantity Item Description Location - -------- ---------------- -------- 1 2' x 4' Task Tables Office 2 1 Brother Intellifax Plain Paper Fax Machine Office 1 1 4 Drawer Black File Cabinets Office 1 1 Cannon NP6025 Copier with sorter and ADF Office 1 1 P120 Printer Server Office 1 1 Cannon CFX L4000 Plain Paper Fax Office 1 1 HP laserjet 4000 Printer Office 1 1 Task Chair Aisle 1 Electric Pencil Sharpener Aisle 5 4 Draw Beige Lateral File Cabinets Aisle 3 Executive Maroon Leather side Chairs Aisle 1 2' x 2' Walnut Side Table Aisle 2 Brown Cloth Sled Chairs Aisle 1 Teak 3' x 4' Table Aisle 1 3' x 6' Oak Boat Table Aisle 6 Red Cloth Sled Chairs Aisle 1 Teak 6' Credenza Aisle 14 Orange Conference Room Chairs Vista Room 1 14' x 4' Cherry Conference Room Table Vista Room 2 1' x 3' x 5' Walnut Bookcases Red Room 1 4 Draw Beige Lateral File Cabinets Red Room 2 2' x 4' Task Tables Red Room 1 Markerboard Orange Room 1 3' x 6' Folding Table Orange Room 1 GE Hotpoint 18 Cubic Foot Refrigerator Kitchen 1 Dishwasher Kitchen 1 Sharp Microwave Kitchen 1 Corkboard Office 0 1 5' x 30" Walnut Desk w/ LHR Office 0 2 Task Chairs Office 0 1 Walnut Credenza Office 0 3 4 Draw Black File Cabinet Office 0 1 P100 Client Workstation Cubes 13 Herman Miller Cubicals Cubes 10 P, PII 233 Client Workstations Cubes 9 Task Chairs Cubes 1 Xerox Copier (Needs Work) Cubes 1 Brother Thermal Paper Fax (old) Cubes 1 8' x 9' Cube with Tansaction Table Reception 1 PII 233 Client Workstation Reception 1 Cannon CFX L4000 Plain Paper Fax Reception 1 OKIDATA 16n Printer Reception 1 Fujistu Scanner Reception 1 Chair Reception
37 SCHEDULE 3.15 Real Property None. 38 SCHEDULE 3.17 Employment Contracts; Pension Plans; Collective Bargaining Agreements None. 39 SCHEDULE 3.20 Guarantees None. 40 SCHEDULE 3.21 Litigation None. 41 SCHEDULE 3.24 Vehicular Equipment A lease of a 1997 Chevrolet Blazer. 42 SCHEDULE 3.26 Corporate Records None. 43 EXHIBIT A Form of Promissory Note - First Installment PROMISSORY NOTE --------------- $750,000 April 25, 2000 FOR VALUE RECEIVED, ThinkPath.com Inc. (the "Maker") does hereby promise to pay to Denise Dunne-Fushi (the "Holder") at 109 Brimstone Lane, Sudbury, Massachusetts 01766, or at such other place as may be designated in writing from time to time by the Holder, the sum of Seven Hundred Fifty Thousand dollars ($750,000), in lawful money of the United States of America, together with interest accrued from the date hereof at a rate of one-half of a percent (1/2%) in excess of the prime rate of interest from time to time as reported in The Wall Street Journal, in lawful money of the United States ("Payment"). Principal and interest may be prepaid at any time and in any amount with no penalty. Principal and interest shall be computed on the basis of a 360-day year and shall be payable in six (6) installments of one hundred twenty five thousand dollars ($125,000) of principal plus calculated interest, payable on a semi-annual basis, with the first payment due on July 25, 2000 and the final payment due at maturity on April 25, 2003. The Maker's obligations under this Note shall be guaranteed by the Maker and Micro Tech Professionals, Inc., a Massachusetts corporation and a wholly-owned subsidiary of the Maker. The occurrence of any of the following events with respect to Maker shall constitute an event of default (each an "Event of Default") which shall cause the entire principal amount of the Note and accrued interest, to become immediately due and payable without the necessity for any demand on Maker: (i) If Maker shall make an assignment for the benefit of creditors, or file a voluntary petition under the Bankruptcy Code, as amended, or any other federal or state insolvency law, or apply for or consent to the appointment of a receiver, trustee or custodian of all or part of his property; or (ii) If Maker shall file an answer admitting the jurisdiction of the court and the material allegations of an involuntary petition filed against him under the Bankruptcy Code, as amended, or any other federal or state insolvency law, or fail to make a motion to have such petition dismissed within twenty (20) days after its filing, which filing is not dismissed within sixty (60) days from the date of the filing of the motion to dismiss; or (iii) If a proceeding shall be commenced against Maker seeking the appointment of a trustee, receiver or custodian of all or part of Maker's property and maker does not file a motion to dismiss such petition within twenty (20) days after its filing and such proceeding is not dismissed within sixty (60) days after the motion to dismiss such filing; or (iv) A judgment or order for the payment of money in excess of Fifty Thousand dollars ($50,000) shall be rendered against Maker and enforcement proceedings shall have been commenced by any creditor upon such judgment or order. Failure to exercise the Holder's rights hereunder shall not constitute a waiver of the right of the right to exercise same in the event of any subsequent default. Maker will reimburse Holder, upon demand, for all costs and expenses incurred in connection with the collection and/or enforcement of this Note (including reasonable attorneys' fees and expenses), whether or not suit is actually instituted. Maker and Holder hereby irrevocably submit to the personal jurisdiction of any state or Federal court sitting in the States of New York or Massachusetts over any suit, action or proceeding arising out of or relating to this Note. Maker and Holder hereby irrevocably waive to the fullest extent permitted by applicable law any objection which they have or hereafter have to laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. Maker and Holder hereby agree to submit to the exclusive jurisdiction of the courts of the States of New York or Massachusetts for the purpose of resolving any action or claim arising out of the performance of the provisions of this Note. This Note shall be construed in accordance with and governed by the laws of the State of New York. The Maker expressly waives presentment for payment, demand and protest, notice of protest and dishonor, and all other notices in connection with the delivery, acceptance, performance default or enforcement of the payment of this Note. This Note may not be modified, terminated or discharged, nor shall any waiver hereunder be effective unless in writing signed by the party against whom the same is asserted. IN WITNESS WHEREOF, the Maker has executed this Note as of the 25th day of April, 2000. THINKPATH.COM INC. By: ------------------------------------- Declan French Chief Executive Officer 2 EXHIBIT B Form of Promissory Note - Second Installment PROMISSORY NOTE --------------- $500,000 ___________, 2001 FOR VALUE RECEIVED, ThinkPath.com Inc. (the "Maker") does hereby promise to pay to Denise Dunne-Fushi (the "Holder") at 109 Brimstone Lane, Sudbury, Massachusetts 01766, or at such other place as may be designated in writing from time to time by the Holder, the sum of Five Hundred Thousand dollars ($500,000), in lawful money of the United States of America, together with interest accrued from the date hereof at a rate of one-half of a percent (1/2%) in excess of the prime rate of interest from time to time as reported in The Wall Street Journal, in lawful money of the United States ("Payment"). Principal and interest may be prepaid at any time and in any amount with no penalty. Principal and interest shall be computed on the basis of a 360-day year and shall be payable in six (6) installments of eighty three thousand three hundred thirty three dollars and thirty three cents ($83,333.33) of principal plus calculated interest, payable on a semi-annual basis, with the first payment due on ___, 2001 and the final payment due at maturity on ____, 2004. The Maker's obligations under this Note shall be guaranteed by the Maker and Micro Tech Professionals, Inc., a Massachusetts corporation and a wholly-owned subsidiary of the Maker. The occurrence of any of the following events with respect to Maker shall constitute an event of default (each an "Event of Default") which shall cause the entire principal amount of the Note and accrued interest, to become immediately due and payable without the necessity for any demand on Maker: (i) If Maker shall make an assignment for the benefit of creditors, or file a voluntary petition under the Bankruptcy Code, as amended, or any other federal or state insolvency law, or apply for or consent to the appointment of a receiver, trustee or custodian of all or part of his property; or (ii) If Maker shall file an answer admitting the jurisdiction of the court and the material allegations of an involuntary petition filed against him under the Bankruptcy Code, as amended, or any other federal or state insolvency law, or fail to make a motion to have such petition dismissed within twenty (20) days after its filing, which filing is not dismissed within sixty (60) days from the date of the filing of the motion to dismiss; or (iii) If a proceeding shall be commenced against Maker seeking the appointment of a trustee, receiver or custodian of all or part of Maker's property and maker does not file a motion to dismiss such petition within twenty (20) days after its filing and such proceeding is not dismissed within sixty (60) days after the motion to dismiss such filing; or (iv) A judgment or order for the payment of money in excess of Fifty Thousand dollars ($50,000) shall be rendered against Maker and enforcement proceedings shall have been commenced by any creditor upon such judgment or order. Failure to exercise the Holder's rights hereunder shall not constitute a waiver of the right of the right to exercise same in the event of any subsequent default. Maker will reimburse Holder, upon demand, for all costs and expenses incurred in connection with the collection and/or enforcement of this Note (including reasonable attorneys' fees and expenses), whether or not suit is actually instituted. Maker and Holder hereby irrevocably submit to the personal jurisdiction of any state or Federal court sitting in the States of New York or Massachusetts over any suit, action or proceeding arising out of or relating to this Note. Maker and Holder hereby irrevocably waive to the fullest extent permitted by applicable law any objection which they have or hereafter have to laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. Maker and Holder hereby agree to submit to the exclusive jurisdiction of the courts of the States of New York or Massachusetts for the purpose of resolving any action or claim arising out of the performance of the provisions of this Note. This Note shall be construed in accordance with and governed by the laws of the State of New York. The Maker expressly waives presentment for payment, demand and protest, notice of protest and dishonor, and all other notices in connection with the delivery, acceptance, performance default or enforcement of the payment of this Note. This Note may not be modified, terminated or discharged, nor shall any waiver hereunder be effective unless in writing signed by the party against whom the same is asserted. IN WITNESS WHEREOF, the Maker has executed this Note as of the ______day of _______, 2001. THINKPATH.COM INC. By: ------------------------------------- Declan French Chief Executive Officer 2 EXHIBIT C Employment Agreement of Seller THINKPATH.COM INC. EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT (the "Agreement") made as of this 25th day of April, 2000 by and between THINKPATH.COM INC., an Ontario corporation (hereinafter referred to as "Company") and DENISE DUNNE-FUSHI, (hereinafter referred to as "Executive"); W I T N E S S E T H: WHEREAS, Company desires to employ Executive as its Vice President and as the President of Micro Tech Professionals, Inc., a Massachusetts corporation and wholly-owned subsidiary of the Company ("Micro Tech"); and WHEREAS, Executive is willing to be employed in the manner provided for herein, and to perform the duties provided for herein upon the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the promises and mutual covenants herein set forth it is agreed as follows: 1. Employment of Executive. Company hereby employs Executive as its Vice President and as the President of Micro Tech. 2. Term. The term of this Agreement shall commence on the execution hereof (the "Commencement Date") and expire one (1) years from such date (the "Term"). During the Term, Executive shall devote substantially all of her business time and efforts to Company and Micro Tech and their subsidiaries and affiliates. 3. Duties. Executive hereby agrees that, throughout the period of her employment hereunder, he shall devote her business time, attention, knowledge and skills, diligently in furtherance of the business of Company and Micro Tech, shall perform the duties assigned to her by the Chief Executive Officer of Company consistent with her executive positions with Company and Micro Tech and shall observe and carry out such rules and regulations, policies and directions as the Chief Executive Officer of Company may from time to time establish to the extent consistent herewith. During the term of this Agreement, Executive shall do such traveling as may be reasonably required of her in the performance of her duties on behalf of Company and Micro Tech. Executive shall be available to confer and consult with and advise the officers and directors of Company at such times during business hours that may be reasonably required by Company. 4. Compensation. ------------- (a) Salary. Executive shall be paid US$125,000 for the Term, less deductions and withholdings required by applicable law. Executive shall be paid periodically in accordance with the policies of Company during the term of this Agreement, but not less frequently than monthly. (b) Benefits. Executive shall be entitled to participate in and receive the benefits of all pension, profit-sharing, deferred compensation, retirement, hospitalization, insurance, medical or dental or other benefit plan or arrangement generally available to executive employees of Company as may now or hereafter exist. Executive shall also be entitled to participate in or receive all other benefits generally available to executives of Company that may be in effect from time to time during the Executive's employment hereunder. The Company shall be under no obligation to institute or continue the existence of any such employee plan, benefit or prerequisite. (c) Bonus. As an executive officer of Company, Executive is entitled to an annual bonus of US$25,000. Such Bonus shall be paid to Executive within sixty (60) business days after the completion of the Term. (d) Stock Compensation. The Company's Board of Directors, may from time to time, issue Executive options to purchase the Company's common stock, which issuance shall be in the sole discretion of the Company's Board of Directors. 5. Expenses. Company shall reimburse Executive, within thirty (30) days of his presentation of receipts or vouchers thereof, for all expenses reasonably incurred by her in connection with the performance of her duties hereunder and the business of Company and Micro Tech, in accordance with policies of Company from time to time in effect. 6. Vacation. Executive shall be entitled to receive three (3) weeks paid vacation time after each year of employment upon dates agreed upon by Company. Upon separation of employment, for any reason, vacation time accrued and not used shall be paid at the Salary rate. 7. Executive's Representations. Executive is free to enter into this Employment Agreement and to perform each of the provisions contained herein. Executive represents and warrants that Executive is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that Executive's execution and performance of this Agreement is not a violation or breach of any agreement between Executive and any other person or entity. 2 8. Non-disclosure of Confidential Information; Ownership of Intellectual Property Rights; Non Competition; Covenant Not to Compete. (a) Non-disclosure of Confidential Information. During the Term and at all times thereafter, Executive will keep confidential and will not directly or indirectly divulge to anyone nor use or otherwise appropriate for Executive's own benefit, or on behalf of any other person, firm, partnership or corporation by whom Executive might subsequently be employed or otherwise associated or affiliated with, any Confidential Information (as defined herein). For this purpose, "Confidential Information" means any and all trade secrets or other confidential information of any kind, nature or description relating to the business of Company provided that such information is not and does not in the future become known or available to third parties or general economic trade information known to the industry, both of which does not arise as a result of a disclosure by Executive or her agents. (b) Company Materials. All reports and analysis, designs, drawings, contracts, contractual arrangements, specifications, computer software, computer hardware and other equipment, computer printouts, computer disks, documents, memoranda, notebooks, correspondence, files, customer lists and other records, and the like, and all photocopies or other reproductions thereof, relating to the business of Company which Executive shall prepare, use, construct, observe, possess or control, except Executive's copies of all such documents which pertain to Executive ("Company Materials"), shall be and remain the sole property of Company. Upon termination of this Agreement, Executive shall deliver promptly to Company all such Company Materials. (c) Certain Restrictions on Business Activities. During the term of this Agreement, and for a period of two (2) years thereafter, Executive agrees that: (i) Business Activities. Executive will not, directly or indirectly, own an interest in, operate, join, control or participate in, or be connected as an officer, employee, agent, independent contractor, partner, shareholder or principal of any corporation, partnership, proprietorship, firm, association, person or other entity providing services and/or products or a combination thereof which directly or indirectly compete with Company's business, and she will not undertake planning for or organization of any business activity directly competitive with Company's business, or combine or conspire with other employees or representatives of Company's business for the purpose of organizing any such competitive business activity, except the purchase of less than four percent (4%) of the stock of a publicly traded company which is not affiliated with Company. (ii) Solicitation of Employees, Etc. Executive will not, directly or indirectly or by action in concert with others, induce or influence (or seek to induce or influence) any person who is engaged (as an employee, agent, independent contractor or otherwise) by Company to terminate his or her employment or engagement. (d) Covenant Not to Compete. Executive covenants and agrees that, if Executive's employment with Company is terminated by the Company, Executive will not engage or be engaged, in any capacity, directly or indirectly, including but not limited as employee, agent, consultant, manager, officer, owner or stockholder (except as a passive investor holding less than a four percent (4%) equity interest in any enterprise the securities of which are publicly traded) in any business entity doing business in the United States or Canada engaged in direct competition with the business conducted by Company on the date of termination for a period of two (2) years from the date of termination. 3 (e) Severability. Executive agrees, in the event that any provision of this Section 8 or any word, phrase, clause, sentence or other portion thereof shall be held to be unenforceable or invalid for any reason, such provision or portion thereof shall be modified or deleted in such a manner so as to make this Section 8 as modified legal and enforceable to the fullest extent permitted under applicable laws. The validity and enforceability of the remaining provisions or portions thereof shall not be affected thereby and shall remain valid and enforceable to the fullest extent permitted under applicable laws. A waiver of any breach of the provisions of this Section 8 shall not be construed as a waiver of any subsequent breach of the same or any other provision. 9. Termination. ------------ (a) Termination by Company. ----------------------- (i) Company may terminate this Agreement upon written notice for Cause. For purposes hereof, "Cause" shall mean (A) engaging by the Executive in conduct that constitutes activity in direct competition with Company's businesses; (B) the conviction of Executive for the commission of a felony; (C) the habitual abuse of alcohol or controlled substances; (D) deliberate actions taken by Executive to the material detriment of Company; and/or (E) material breach of this Agreement. Notwithstanding anything to the contrary in this Section 9(a)(i), Company may not terminate Executive's employment under this Agreement for Cause unless Executive shall have first received notice from the Board of Directors of the Company advising Executive of the specific acts or omissions alleged to constitute Cause, and such acts or omissions continue after Executive shall have had a reasonable opportunity (at least twenty (20) days from the date Executive receives the notice from the Board) to correct the acts or omissions so complained of. (ii) In the event that during the term of her employment with Company, Executive shall become Disabled (as that term is defined herein), the Company may terminate this Agreement and Executive's employment hereunder at any time upon ten (10) days' written notice to Executive and Executive shall be entitled to receive disability payments during the succeeding 12-month period at a rate equal to one-half of the rate of the base salary as provided in Section 4(a) to which she was theretofore entitled, payable in equal installments no less frequently than monthly. For the purposes of this Agreement, Executive shall be deemed to have become Disabled when, by reason of her physical or mental incapacity, Executive shall not perform his duties hereunder for a period of four (4) consecutive months or for an aggregate of one-hundred-twenty (120) days in any consecutive period of six (6) months. (iii) This Employment Agreement and Company's obligations hereunder shall terminate upon Executive's death. Upon termination for death, Company shall continue to pay the compensation payments pursuant to Section 4(a) to the surviving spouse of Executive (or if there is none to Executive's estate) for the succeeding six (6) months. 4 (b) Termination by Executive. Executive shall have the right to terminate his employment under this Agreement upon thirty (30) days' notice to Company given within ninety (90) days following the occurrence of any of the following events: (A) Company acts to materially reduce Executive's duties and responsibilities hereunder; (B) A reduction in Executive's rate of base compensation or material reduction in Executive's other benefits; or (C) A material breach of this Agreement by Company, which is not cured within thirty (30) days of written notice of such breach by Company. If Company shall terminate Executive's employment other than due to his death or disability or for Cause (as defined in Section 9(a)(i) of this Agreement), or if Executive shall terminate this Agreement under Section 9(b), Executive shall continue to be entitled to receive all amounts provided for by Section 4 and all additional employee benefits under Section 4 regardless of the amount of compensation she may earn with respect to any other employment she may obtain for the remainder of the Term. 10. 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 State of New York. No provision of this Agreement shall be construed against or interpreted to the disadvantage to any party hereto by any court or other governmental or judicial authority or by any board of arbitrators by reason of such party or its counsel having or being deemed to have structured or drafted such provision. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 11. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the transactions contemplated herein and supersedes, effective as of the date hereof, any prior agreement or understanding between Company and Executive and Micro Tech and Executive with respect to Executive's employment by Company. The unenforceability of any provision of this Agreement shall not effect the enforceability of any other provision. This Agreement may not be amended except by an agreement in writing signed by Executive and Company, or any waiver, change, discharge or modification as sought. Waiver of or failure to exercise any rights provided by this Agreement and in any respect shall not be deemed a waiver of any further or future rights. 5 12. Binding Effect. This Agreement shall inures to the benefit of, and is binding upon, the Company and its respective successors and assigns, and Executive, together with Executive's executor, administrator, personal representatives, heirs, and legatees. 13. Survival of Obligations. The covenants in Section 8 of this Agreement shall survive the termination of Executive's employment for the period set forth therein. 14. 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. 15. Notices. All notices, responses, demands or other communications under this Agreement shall be in writing and shall be deemed to have been given when (a) delivered by hand; (b) sent be telex or telefax, (with receipt confirmed), provided that a copy is mailed by registered or certified mail, return receipt requested; or (c) received by the addressee as sent be express delivery service (receipt requested) in each case to the appropriate addresses, telex numbers and telefax numbers as the party may designate to itself by notice to the other parties: (i) if to the Company: ThinkPath.Com Inc. 55 University Avenue, Suite 505 Toronto, Ontario, Canada M5J 2H7 Attention: Declan French, Chief Executive Officer Telefax: (416) 364-2424 Telephone: (416) 264-8800 With a copy to: Gersten, Savage & Kaplowitz, LLP 101 East 52nd Street New York, New York 10022 Attention: Christopher J. Kelly, Esq. Telefax: (212) 813-9768 Telephone: (212) 752-9700 (ii) if to the Executive: Denise Dunne-Fushi 109 Brimstone Lane Sudbury, Massachusetts 01766 6 16. Severability of Agreement. Should any part of this Agreement for any reason be declared invalid by a court of competent jurisdiction, such decision shall not affect the validity of any remaining portion, which remaining provisions shall remain in full force and effect as if this Agreement had been executed with the invalid portion thereof eliminated, and it is hereby declared the intention of the parties that they would have executed the remaining portions of this Agreement without including any such part, parts or portions which may, for any reason, be hereafter declared invalid. 17. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one (1) and the same instrument. IN WITNESS WHEREOF, the undersigned have executed this agreement as of the day and year first above written. THINKPATH.COM INC. By: ------------------------------------- Declan French Chief Executive Officer By: ------------------------------------- Denise Dunne-Fushi 7 EX-10.19 4 0004.txt EXHIBIT 10.19 EXHIBIT 10.19 Mike Reid TidalBeach Inc. 55 City Centre Drive, Suite 549 Mississauga, Ontario L5B 1M3 Re: Letter of Intent "TidalBeach" --------------------------------- Dear Mr. Reid: This letter will set forth our understanding with respect to the terms and conditions of a proposed transaction between Thinkpath.com Inc., an Ontario Corporation ("THP") and TidalBeach Inc. ("TBI") an Ontario Corporation. 1. Pursuant to an agreement among THP or one of its subsidiaries and TBI, THP or one of its subsidiaries will purchase 100% of the common stock of TBI on and subject to the terms and conditions hereinafter set forth. Such transaction is referred to as the "Purchase." 2. At the effective time of the purchase, THP will issue 250,000 THP shares in exchange for 100% of the outstanding shares of TBI . Note: 1. The share price will be the average trading price two weeks prior to closing. 2. The same shares will be registered within 3 months of issuance. 3. As a result of the Purchase, as described in (2) of this letter, TBI will become a wholly-owned subsidiary of THP and the holders of TBI stock will become stockholders of THP shares. 4. The purchase is deemed effective July 1, 2000. TBI shall not (from the effective date): a. Make any payments out of the ordinary course b. Declare or pay any dividends c. Make any payments to shareholders except salaries payable in the ordinary course All earnings of the company from the effective date shall be for the account of THP. 5. Attached herewith are management-prepared financial statements as at August 31, 2000. 6. At closing, the employment agreement between TBI and Messrs. Mike Reid, Keith Yau, and Dmitry Stakhov shall be amended as follows: a. The term of the agreement shall be for a period of two years from the point of closing. b. The base salary shall be based on historical levels. c. The allowances (car, dues) shall be based on historical levels; medical benefits will be in effect until termination or retirement. d. Mike Reid will be appointed President of TBI and a Vice-President of THP. Keith Yau and Dmitry Stakhov will be appointed Vice-Presidents of TBI. e. There will be a non-compete agreement in effect for one (1) year from date of termination or retirement unless otherwise agreed. 7. The Purchase Agreement shall include customary representations, warranties and covenants; provided, however, that the respective representations and warranties of TBI and THP shall terminate one (1) years from the closing date. 8. The closing shall be held at the offices of THP counsel or such other place as may be agreed upon by the parties on such date as may be mutually agreed upon by the parties, but not later than two (2) business days after the Purchase has been approved by the stockholders of both TBI and THP. 9. During the period from the date of this letter of Intent until the first to occur of the closing or the termination of negotiations with respect to the Purchase Agreement, both TBI and THP shall conduct their respective businesses in the ordinary course in a manner consistent with past practices, and shall not make any changes in its business without prior approval of the other party. 10. Each party will assist the other party in its due diligence investigation. In this connection, each party will make available to the other party its financial statements, tax return and other books and records concerning such party and its business and prospects. The due diligence investigation shall be conducted in a manner, which is not disruptive of the parties= respective businesses. Neither party shall contact any of the other party=s clients except pursuant to an agreed-upon procedure. 11. TBI agrees that until November 5, 2000 or such later date as may be agreed on by TBI and THP, TBI shall not, without prior written approval of THP, conduct any discussions, negotiations or consultations with respect to, or engage or permit anyone acting on behalf of any of them, from entering into or conducting, or enter into any agreement, letter of intent or memorandum of understanding, whether written or oral, that relate, directly or indirectly to any merger or business combinations involving TBI, other than potential acquisitions by THP. 12. A joint press release shall be issued following execution of the Letter by both parties. Nothing in this Paragraph shall be construed from precluding any party from including required disclosure in any report filed with the Commission or any state or provincial securities commission, provided, that prior notice shall be given to the other party. 13. Each party shall bear its own expenses in connection with this transaction contemplated by this Letter of Intent. This Letter of Intent sets forth the terms of a transaction proposed to be entered into among the parties, and, except as provided in Paragraphs 10, 11 and 13 of this Letter, which paragraphs are binding upon the parties immediately upon execution, does not constitute an agreement or an agreement to enter into an agreement. The rights of the parties shall be subject, among other things, to the completion of due diligence investigations by the parties and the execution of a definitive Purchase Agreement, and no party shall have any rights or obligations under this Letter except as expressly provided in this Letter of Intent. Except as set forth in Paragraph 12 of this Letter, the failure of any party to enter into definitive agreement shall not give rise to any liability to any other party. This expression of interest expires September 22, 2000 at 5:00 P.M. Please confirm your agreement with the foregoing by signing this Letter where indicated and returning it to THP. Very truly yours, THINKPATH.COM INC. By: /s/ Declan French ------------------------------------------ Declan French, President and CEO AGREED TO AND ACCEPTED This 21st day of September 2000 TIDALBEACH INC. By: /s/ Mike Reid ----------------------------------- Mike Reid, President EX-10.20 5 0005.txt EXHIBIT 10.20 EXHIBIT 10.20 October 17, 2000 The Shareholders of Aquila Holdings Limited (the "Vendors") c\o Mr. Charlie Troup Schroder Ventures SVA Limited 20 Southampton Street London WC2E 7QG United Kingdom Re: DPP International Limited (the "Company") ----------------------------------------- VIA FACSIMILE 020 7240 5072 - --------------------------- Dear Mr. Troup: We are writing on behalf of Thinkpath.com, Inc. ("THTH") to confirm that it is prepared to present an offer to acquire all the issued shares of Aquila Holdings Limited ("Aquila") whose wholly owned subsidiary is the Company on the following terms: 1. Thinkpath.com Inc. (the "Purchaser") will acquire all of the issued shares of Aquila from the existing shareholders of Aquila (the "Vendors"). 2. The shares (consisting of all classes of preference and ordinary shares) and loan notes of Aquila will be valued at (pound)3,885,000 in total. This is based on the information contained in the Information Memorandum that has been supplied and there being no material adverse findings in the due diligence process. 3. The consideration for the acquisition of the shares to be sold will be satisfied by the payment to those of the Vendors that are the institutional investors of (pound)3,461,000 which is to be satisfied as to (pound)2,500,000 in cash and as to the balance of (pound)961,000 by the transfer of common stock ("Acquisition Shares") of Thinkpath.com, Inc. whose shares are quoted on the NASDAQ, Small Cap Market Systems, under the symbol THTH. The total number of Acquisitions Shares to be issued will be based on the average closing price of THTH common stock five (5) days prior to the closing date ("Stock Closing Price"). Purchaser will guaranty price protection of 100% of the Stock Closing Price of the Acquisition Shares for ninety (90) days from the closing date. The Acquisition Shares price guaranty is a fixed amount regardless of any price movement each time any shares are sold in the open market. Aquila and the Company will have the option of the 100% Put guaranty or accepting a 180 day all cash note in the amount of (pound)961,000 in the lieu of the Acquisition Shares. THTH will issue a Put option guarantying 100% of the strike price for the underlying shares to Aquila and the Company for ninety (90) days from the effective date. Aquila and the Company will have the option to redeem he shares for the original strike price or the greater amount and/or the option to receive the all cost amount (pound)961,000 in one hundred eighty (180) days. The consideration payable to the other Vendors, namely Mr. Chalmers, Mr. Reilly, Mr. Foxwell and other employees of the Company, which is to be satisfied as to(pound)60,000 in cash to repay the executive loan holders in the relevant proportions and of(pound)364,000 redeemable preference shares of each of the Purchaser in the following proportions. Name Preference Shares Mr. Chalmers 280,255 Mr. Reilly 67,261 Mr. Foxwell 4,484 Other Managers 12,000 ------- 364,000 The preference shares will carry the following rights: (1) no preferential dividend or coupon (2) priority on a winding up or return of capital (3) redemption at par by four equal annual installments starting one year after the date of completion or on a sale of the Purchaser if earlier (4) no voting rights 4. The acquisition will also be subject to the following additional conditions: 4.1 due diligence, to be conducted by the Purchaser's accountants and solicitors; the directors of Aquila and of the Company are to co-operate by making available all information reasonably requested by the Purchaser's professional advisers. 4.2 suppliers and customers continuing to trade with the Company without materially changing the terms of trading or the nature or volume of business. 4.3 regulatory consents, (if any) that may be required 5. Mr. Chalmers (the "Executive Director") will enter into mutually acceptable new service contracts with the Company and Aquila subject to six (6) months' notice and with a bonus package that is to be agreed between the Purchaser and the Executive Director. 6. The Executive Director will enter into restrictive covenants to protect the business of the Company and Aquila. The restrictive covenants will apply for a period of three years after the Executive Director sells shares and/or leave the employment of the Company or Aquila. 7. The Executive Director will be appointed as a director of the Purchaser and the Board of Directors of Aquila and of the Company will be reconstituted to comprise of at least two new directors appointed by the Purchaser giving the Purchaser a voting majority of the Board of Directors. 8. The Purchaser recognizes the Vendor is an institutional financial investor and will grant limited and specific overall warranties. Warranties, representations and indemnities will be required by the Purchaser on the terms usually applied to transactions of this type, covering, inter alia, the following: 8.1 The statutory accounts of the Company and Aquila. 8.2 There being no adverse change in the financial or trading position or prospects of the Company or Aquila since the date of the last audited accounts. 8.3 Onerous or unusual trading agreements. 8.4 The Vendor is not aware of any litigation. 8.5 The Company and Aquila's title to its assets, and in particular to the properties that it occupies. 9. The Vendors will consider a retention up to the maximum amount(pound)250,000 in cash and this will be the only remedy for warranty claims. The Vendor will address overall issues identified during the due diligence review and warranties will be finalized in the Acquisition Agreement. Any warranty claim will be reclaimable solely against the retention. This amount will be held in an interest bearing escrow account in the joint name of the parties' solicitors to be released with interest earned when the statutory accounts for the present financial year have been prepared and signed by the auditors, or in any event nine months after the end of the financial year or twelve months after completion, whichever is earlier. 10. The business of the Company or Aquila will continue in the ordinary course in the period prior to completion and no exceptional or unusual transaction will be undertaken by the Company or Aquila without the approval of the Purchaser. The Vendors who are executive directors will receive the emoluments to which they are entitled in the ordinary course of the business and no bonuses, pension contributions, dividends or other payments to or transactions with the Vendors or any person connected with them will take place prior to completion of the sale without the Purchaser's prior written consent. 11. The solicitation of an offer is to be made by the Purchaser on the basis that, if accepted, the Purchaser will be willing to proceed with related transactions and to incur the expenditure involved in due diligence and the negotiation of documentation. The Vendors will accordingly undertake to the Purchaser that they will not enter into any negotiations or make or accept any offer or arrangement which would lead to the sale of Aquila and the Company or a substantial part of its undertaking and assets or of any shares in Aquila or the Company in the period of November 15, 2000 or such later date as the parties may agree. It is expected that the exchange of contracts for the sale of shares of Aquila and the Company will take place as soon as the due diligence has been completed and the draft legal documentation has been settled. The timetable must of necessity remain flexible, but it is the Purchaser's intention to proceed as quickly as possible and assuming that the terms outlined by this letter are acceptable the Purchaser will endeavor to complete at the latest by November 15, 2000. 12. The parties will keep this agreement confidential and will not disclose its existence of the terms set out herein to any third party other than their professional advisers insofar as is required for the implementation of the transaction. The purchaser will treat any information obtained during the course of its due diligence exercise as confidential and will use it for no other purpose than considering the acquisition of Aquila and the Company. It will return all written information immediately that discussions between the two parties are discontinued. 13. The offer contained in this letter is subject to contract and is not intended to create any legally binding obligation or commitment on the part of the Purchaser, the Vendors, Aquila or the Company with the exception of paragraphs 12 and 16 which are to be legally binding. 14. Closing/Post Closing The total number of Acquisitions Shares to be issued will be based on the average closing price of THTH common Stock five (5) days prior to the closing date ("Stock Closing Price"). The Purchaser will immediately file a registration statement for the Acquisition Shares that are being issued and will be effective for the underlying shares. The underlying shares will be freely trading and will not be subject to any liquidity restrictions. THTH will issue a Put option guarantying 100% of the strike price for the underlying shares to Aquila and the Company will have the option to redeem the shares for the original strike price or the greater amount and/or the option to receive the all cash amount of (pound)961,000 in one hundred eighty (180) days. Burlington Capital Markets Inc. New York, New York will be given the right of first refusal to purchase any Acquisition Shares sold by the Company or individuals receiving these shares from the Company. 15. Governing Law and Disputes. The Agreement shall be governed by the laws of the United Kingdom, without regard to choice of law provisions, except with respect to any matter governed by applicable United States federal securities laws. The parties agree that any dispute under this Agreement will be resolved in a court located in the City of London, United Kingdom, and will submit to the jurisdiction of such court of such purpose. 16. General. After executing and for a period of two (2) years thereafter, the Purchaser agrees and shall use its best efforts to cause its officers, directors, employees, agents and stockholders, not to solicit or encourage directly or indirectly, in any manner or any discussions with, any employees, customers or client accounts of Aquila or the Company. In the event that for any reason the definitive Acquisition Agreement is not executed by October 31, 2000, any party may discontinue negotiations and terminate this letter without liability to any other party. Please confirm your acceptance of the terms of this letter by signing and returning the enclosed copy to us at the address given above by no later than October 14, 2000. The offer contained in this letter will remain open until that date or such later date as the Purchaser may agree. On acceptance the Purchaser will instruct its solicitors to prepare draft documentation. Yours faithfully, BURLINGTON CAPTIAL MARKETS INC. By: /s/ Vincent R. Molinari ----------------------------------------- Vincent R. Molinari, Chairman and CEO Agreed to and Accepted this 17th day of October, 2000 /s/ Declan French - -------------------------------------------- duly authorized for and on behalf of THINKPATH.COM, INC. EX-23.1 6 0006.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF SCHWARTZ, LEVITSKY, FELDMAN, llp The undersigned, Schwartz Levitsky Feldman, llp, hereby consents to the use of our name and use of our Report of Independent Auditors dated March 22, 2000 except for Notes 1, 12 and 19 for which date is October 18, 2000 for ThinkPath.com Inc. formerly known as IT Staffing Ltd. (the "Company") as filed with the Company's Registration Statement on Form SB-2, and any amendments thereto, being filed by the Company. /s/ Schwartz Levitsky Feldman, llp ---------------------------------------- Schwartz Levitsky Feldman, llp Chartered Accountants October 20, 2000 -----END PRIVACY-ENHANCED MESSAGE-----