Dow Jones 9403.89 -25.01 9:30 am PST, August 20, 2003  NASDAQ 1762.82 +1.71 For info, visit access.smallcapnetwork.com S & P 500 1001.58 -0.77 To be removed, please click here Russell 2000 489.34 +0.64 VOLUME 03: ISSUE 46  Interview: CEO Declan French--Thinkpath Inc. On Monday, August 18th SmallCapDigest had the opportunity to interview Thinkpath CEO Declan French on his company regarding issues of interest to current and potential shareholders. No questions were pre-set or any topics off-limit. What resulted was a free-ranging discussion that we believe gives investors strong insight into the current and future fortunes of the company. SmallCapDigest: Good morning Mr. French. There seems to be some confusion on just how many shares are currently outstanding on ThinkPath. Declan French: 560 million shares. SCD: Is that number of shares likely to rise further? DF: Yes, because there are still convertible debentures in place that allow the investors to convert whenever they think it's appropriate. The maximum number of authorized shares is 800 million so at this stage that's the maximum, unless we are forced to increase our authorized capital. SCD: That gives ThinkPath a market cap of around $2 million at the current share price? DF: Yes. Which is just not reflective of the real value, I think. SCD: Let's explore that for a minute. You've just reported your second quarter numbers--have you published or given any guidance to what you think your total revenues will be this year--fiscal 2003? DF: They're going to come in at between $13 and $14 million. Which is down from last year. But what is really relevant is that what we're also predicting that we're going to come in, and we're on schedule right now, between $450 and $500 thousand in operating income from operations. And it's already happening. People have missed that in our filing. They haven't looked at the numbers closely enough. Not withstanding the fact that our second quarter showed a net loss of $645,000, the reality is that we had an operating income of $63,000 in those three months, after you adjust for depreciation and the benefit of the convertible debentures which is expensed as interest, which are non-cash items. So from a cash point of view we were, last quarter and also in the first quarter, generating cash from operations. Granted, it may seem negligible in terms of numbers but it's significant in terms of the effect this has on where the company is likely to go from here. We did $44,000 first quarter, $63,000 in the second, and we're projecting that we're on target to do $450-500,000 for the total year--fiscal 2003--in operating income. Now having said that, that sounds great, but after allowing for the losses incurred from beneficial conversion of debentures, then the actual loss figure will be over 5 million dollars. SCD: When will those charges stop? DF: Every quarter we will have to measure the benefit based on the current stock price and the exercise price. Some of the debentures do not expire until July '04. 2004. We are predicting a net loss for this year after expensing the beneficial conversion feature of approximately $5.5 million. SCD: In your opinion, at a market capitalization of $2 million, if Thinkpath averages annual revenues of say $15 million this year and next, would you say the stock is undervalued? DF: Well, I would think based on what I understand out there that this kind of a business with that kind of a gross profit, market cap should be worth at least 50% of revenue. SCD: You see the cash from operations continuing and improving, as we mentioned before, to the possibility that by the end of the year you could be doing somewhere in the area of $500,000 for the year? DF: That's right. That's what we expect, and we're on target to do it. SCD: So moving out to fiscal 2004, what do you see for Thinkpath? DF: Obviously, we expect to increase sales from here. Remember, we just got engineering off the ground in Canada for the first time to replace the IT business that we recently sold off, so therefore we are looking at Canada to contribute about $4 million. So next year we should hit sales of about $18 million. That's still substantially less than what we are used to over the past couple of years. SCD: You had sales of about $20-25 million for 2002. We're down here at about $13-14 million projected for 2003 and perhaps $17-20 million in sales for 2004. What factors do you see causing that to happen? DF: We've gone from a total of eighteen branches to six and contracted from about 600 employees down to 162. Our turnaround is based on selling off of the unrelated businesses--unrelated to engineering--and of course we've lost revenue as a result of that. The good news is that we've taken our gross profit from just over 20% average to the point where we are now at 35% gross profit and we are predicting that by fiscal year end (2003) we will average out at about 37%. That has a major impact in terms of what we will be capable of doing going forward. The IT business had become a commodity service whereby the only way to get the business in many cases was to underbid and the result was that the IT division we sold off had gross profits of 14% last year. Our core competency--engineering--can average between 35 and 40%, all day long. SCD: At 162 employees, you are basically down to 25% of the size you were last year at this time. And your profitability has gone up by 15%? DF: That's right. We continued to cut expenses in the second quarter. For example, we moved premises, which reduced our monthly rent cost from about $35,000 to $5000. That includes our corporate facilities as well as the Toronto engineering branch. SCD: Thinkpath now resides within the premises of Swiss engineering behemoth ABB Group. Will you be receiving business from ABB? DF: We are. While that has not contributed--so far--an awful lot to the top line, it has really helped our margins. We have negotiated with one of their divisions for the right of first refusal on all new projects that come up. And they are doing very well right now; they've turned the company right around. SCD: ABB Group is a massive Swiss engineering company. They have tentacles all over the world. Would you see getting some flow-through access to their clientele directly or would it be more a matter that you would be included on projects that they were running? DF: Well, no, it's already happened where we've gained new business directly with clients of ABB. We've been brought in as the independent, third party engineering company to help with sorting out quality issues. So we do expect that business area to continue to grow, although it takes time for that to really result in revenue. In the engineering business you have to build credibility, you have to build relationships, you have to demonstrate that you have the resources to actually do the work, and that all takes a bit of time. But it is working nicely. SCD: We have the numbers dealt with, we have the turnaround dealt with, where are your future prospects, what do you see out there to get this company clicking along like a well-oiled machine? DF: A lot of it has to do with focus. For the first time in at least 5 years the company is back to being focused on one discipline, engineering. The result of that will be increased sales from existing clients as well as a lot of referral business--which is already happening. We don't expect to be able to grow as dramatically as we once did because, after all, we were up at sales of $44 million in 2000. We will be growing the company much more on the basis that it's going to be only profitable growth. SCD: And we have no plans to issue any more of that type of those convertible vehicles? DF: No. SCD: Is there any talk, thought, corporate focus on reverse splitting the stock? DF: I think it's safe to assume that we will have a serious discussion on that as soon as the conversions have been completed. In other words, as soon as the debenture has been already taken care of. SCD: Again, hopefully by the end of 2003? DF: Yes, although some of the debentures do not expire until the middle of next year. It would be logical to speak of a reverse split then. Let's face it, the decision to do a reverse split is going to be driven not just by the health of our balance sheet--our balance sheet now has been improved dramatically as a result of settling a lot of outstanding issues, including all of our litigation. So we've improved our balance sheet very dramatically. We expect even more of an improvement by the end of the year, so it will be the year-end statement that is going to drive the decision as to when to look seriously at doing a reverse split. SCD: Any further plans, now that you've sold off your non-core businesses and you've dropped your personnel by 75%? DF: The only other thing for us to do as a company is to ensure that we have it all under control as far as the bottom line and we are still very conscious of costs. We are now focused on growing the top line as much as we can. That's the only thing we're going to be doing as well as adding maybe three or four key sales people over the next two quarters. SCD: Thank-you Mr. French. I'm sure that our readers appreciate your time and candor. DF: My pleasure. Got questions or comments? 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