Replies to post #145 on THPHF - Thinkpath, Inc. (THPHF)

[skruggs1967]

TheRoadHome.....an article on Thinkpath's CD deal...


That’s one, FinWiz. Now to the Death Spiral that is Thinkpath (NASDAQ: THTHF).

Thinkpath shares are now trading at the absurdly low level of $.002, down over 40% since our recent interview. If the company is doing so well, you might wonder how could it trade so low?

The answer is in the financing the company entered into last year. At the end of 2002 ThinkPath was nearly forced into bankruptcy. The company had defaulted on its debts, and was facing extinction. Shareholders would have lost everything, and the company would have closed its doors if they had not raised enough capital to right the ship. However, the cost of that capital is now destroying the value of the stock.

Thinkpath raised money the only way it could- through a convertible security. These securities have a feature that allows the holder to convert his/her security into common stock at a discount to the prevailing market, no matter how low the market goes. Therefore, no matter how low the price goes, until the conversion is completed, there is always the possibility someone owns the stock at a discount to the market and can sell at a profit.

These kinds of financing instruments are commonly known as "toxic financing" or "death spirals”, due to the fact that the stock continues spiraling down as holders convert and sell. The problem is further exacerbated because as the stock goes lower, the company must continually issue more shares for each conversion.

Two days after our August 20th interview with Thinkpath CEO Declan French, the company filed a proxy (http://www.sec.gov/Archives/edgar/data/1070630/000090901203000607/t300525.txt) concerning a number of corporate issues. Included in the filing was the solicitation of a shareholder vote at the AGM on October 2nd to raise the company’s authorized shares from the current cap of 800 million to unlimited.

Should all the remaining convertible debentures expiring out until mid-2004 be exercised and converted, the number of outstanding shares will exceed 2 billion. Needless to say, the resolution will likely pass. If it doesn’t, the defeat to the amendment—according to the filing-- “would have a materially adverse effect on the Company's operations and financial condition.”

If the shares of THTHF were to sink to say, 1/10 of a cent and the number of shares increased to 2 billion, I would have to guess a reverse split would have to appear at some point. Oddly enough, the market cap at the previous numbers would still only be a bit over $2 million and positive cash flow is expected to continue and even rise over the next few months. If, as we have often surmised, the company can grow revenues –which are to average around $15-$17 million this year and next—there may well be a light at the end of this very long tunnel.

With the excess supply gone, the stock should then be a phenomenal buy. The financiers will have made their money. Management will no doubt restructure its compensation package to adjust for the changing capital structure of the company. While less than ideal for the common shareholders, it’s better than closing the doors.

The ironic thing is that the Thinkpath fundamentals do look reasonable. Apparently though, with the growing number of shares, no one seems to care. Do we think Thinkpath is a reasonable speculation? Sure. Is there a quick fix? No. What we do know is that five minutes after the AGM and Special Meeting on October 2nd, we should have a modicum of clarity--unless the share resolution doesn’t pass.
Stay tuned.


http://www.smallcapnetwork.net/archive/listserv/20030905-1.html

[skruggs1967]

I just had to educate rheeman what a CD is.....he apparently isn't as well rehearsed on this stuff as I thought he was.

What a shame.