RNS Number:5146F
Spearhead Limited Inc.
30 June 2006
FOR IMMEDIATE RELEASE 30 June 2006
ANNOUNCEMENT TO THE LONDON STOCK EXCHANGE
Spearhead Limited, Inc. ("the Company" or "Spearhead")
Final Results of the Company
for the year ended 31 December 2005
The Board of Spearhead announces the Final Results of the Company for the year
ended 31 December 2005, which are set out below. These have been published today
and sent to shareholders.
Copies of these financial statements will be available from the offices of
Nabarro Wells & Co. Limited, Saddlers House, Cheapside, London EC2V 6HS and on
the Nabarro Wells website.
CHAIRMAN'S STATEMENT
I have pleasure in announcing the Company's results for the year under review,
its first since joining AIM in June 2005. In the year ended December 31 2005,
the Company made an operating loss of US$ 2,948,154 on revenues of US$
15,621,457. Total shareholders' equity at December 31 2005 stood at US$
(1,279,865).
The deficit was funded by the investor group led by the Company's chairman Mr.
Michel Marengere. The Company has since expanded its mission statement align
itself more closely with the merchant banking activities of its investor group,
which should provide more acquisition and roll-up opportunities.
During the period, the Company also considered a number of investment
opportunities which it ultimately decided to discontinue.
Post Balance Sheet Events:
On March 3 2006, the Company announced that it would not proceed with its offer
for Parity, as disclosed on RNS on that date.
Spearhead Limited, Inc. and Subsidiary
Consolidated Statements of Operations
Years ended 31 December
2005 2004
------------- -------------
Consulting revenues $ 15,621,457 $ 13,246,417
Direct expenses 13,014,489 11,250,077
------------- -------------
Gross margin 2,606,968 1,996,340
Selling, general and administration 2,161,073 1,713,341
------------- -------------
Income (loss) before merchant banking 467,407 282,999
expenses
Merchant banking expenses
General & administrative 1,155,059 1,007,222
Interest expense (includes $574,736 of 1,277,273 476,470
non-cash expenses for options granted
TY Vs $ LY $209,125)
Acquisition costs 983,229 249,928
------------- -------------
Operating (loss) (2,948,154) (1,450,621)
Non-recurring merchant banking expenses
AIM listing (includes $429,118 of 866,963
non-cash expense for options granted)
Lawsuit settlements awarded to former 84,200
employees for wrongful dismissals
Legal expenses related to the 65,331
consolidation of the wholly owned subsidiary
Loss on special purpose entity 1,735,000
------------- -------------
Net income (loss) before income taxes (5,699,648) (1,450,621)
Provision for income taxes 21,512 (150,315)
------------- -------------
Net income (loss) $ (5,721,160) $ (1,300,306)
============= =============
Spearhead Limited, Inc. and Subsidiary
Consolidated Balance Sheet
31 December
Current assets: 2005 2004
------------- -------------
Cash $ 6,227 $ 38,396
Accounts receivable - trade 3,011,113 3,026,148
Accounts receivable other 110,002
Prepaid expenses 444,348 382,805
Future income taxes 155,288 166,389
------------- -------------
Total current assets: 3,616,976 3,723,740
Property and equipment net 207,595 204,844
Goodwill 2,743,091 2,743,091
Future income taxes 16,897 22,875
------------- -------------
Total assets: $ 6,584,559 $ 6,694,550
============= =============
Current liabilities
Loan payable bank 622,327 -
Demand loan 2,003,896 1,126,317
Accounts payable and accrued expenses 2,366,990 2,167,626
Loans payable stockholders' 3,306,211 885,000
Loans payable 450,000 -
Income taxes payable - 27,795
------------- -------------
Total current liabilities 8,749,424 4,206,738
Total liabilities 8,749,424 4,206,738
Stockholders' equity
Capital stock, $.001 par value:
200,000,000 shares
Authorized; 40,651,512 issued and 40,651 40,058
outstanding
Common stock to be issued - 504,000
Paid in capital 5,526,218 4,018,531
Retained earnings (deficit) (7,922,364) (2,201,204)
Accumulated comprehensive income 190,630 126,427
------------- -------------
Total stockholders' equity (1,279,865) 2,487,812
------------- -------------
Total liabilities and $ 6,584,559 $ 6,694,550
stockholders' equity
============= =============
Spearhead Limited, Inc. and Subsidiary
Statement of Stockholders Equity
Years ended 31 December 2005 and 2004
Common Common Additional Retained Accumulated Total
Number of Stock - Stock To Paid-in Earnings Comprehensive Stockholders'
Shares Par Value Be Issued Capital (Deficit) Income (Loss) Equity
Balance, 34,677,285 $ 34,677 $ 703,700 $ 1,554,491 $ (900,898) (13,484) $ 1,378,486
January 1, 2004
Common stock 2,815,000 2,815 (703,700) 700,885
issued - sale
Common stock 1,422,059 1,422 1,205,328 1,206,750
issued to
acquire
subsidiary
Common stock 1,127,727 1,128 504,000 291,692 796,820
sold
Common stock 10,000 10 7,990 8,000
issued in
exchange for
fixed assets
Common stock 6,000 6 5,694 5,700
issued in
exchange for
services
Comprehensive
loss:
Net loss (1,300,306) (1,300,306)
Foreign 139,911 139,911
currency
translation
gain (loss)
Options 252,451 252,451
issued
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance 40,058,071 40,058 504,000 4,018,531 (2,201,204) 126,427 2,487,812
December 31,
2004
Common stock 592,941 593 (504,000) 503,407
issued - sale
Common stock 500 425 425
issued in
exchange for
services
Comprehensive (5,721,160) (5,721,160)
loss:
Net loss
Foreign 64,203 64,203
currency
translation
gain (loss)
Options 1,003,854 1,003,854
issued
Balance, 40,651,513 40,651 0 5,526,217 (7,922,364) 190,630 (2,164,866)
December 31,
2005
Spearhead Limited, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended 31 December 2005 and 2004
Cash flows from operating activities: 2005 2004
Net loss $(5,721,160) $(1,300,306)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization 81,481 73,662
Non-cash compensation 1,004,279 252,451
Change in assets and liabilities, net of effects of acquisition
and dispositions: 125,037 (516,486)
(Increase) decrease in accounts receivable (61,543) (285,333)
(Increase) decrease) in prepaid expenses (10,716) (422,865)
(Increase) decrease in income taxes future
Increase (decrease) in accounts payable and 199,364 (189,264)
accrued expenses
Total adjustments 1,337,902 (1,087,835)
Net cash used for operating activities (4,383,258) (2,388,141)
Cash flows from investing activities: (84,230) (52,345)
Purchase of equipment ___________ (816,500)
Acquisition of subsidiary
Net cash used for investing activities (84,230) (868,845)
Cash flows from financing activities: 1,499,906 1,122,460
Borrowings on line of credit 810,520
Proceeds from sale of common stock 3,430,000 1,485,000
Net borrowings from stockholders 450,000
Borrowing (1,008,789) (600,000)
Repayment of stockholder loans 4,371,117 2,817,980
Net cash provided by financing activities 64,203 139,911
Effect of exchange rate on cash (32,169) (299,095)
Net increase (decrease) in cash 38,396 337,491
Cash at beginning of period $ 6,227 $ 38,396
Cash at end of period
Supplement disclosures of cash flow information:
$ 413,672 $ 87,851
Cash paid for interest
Supplemental disclosure of noncash investing and financing
activities: $ 500 $ 5,700
Issuance of common stock for services
SPEARHEAD LIMITED, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
On October 31, 2003, the stockholders of 3323455 Canada Inc. ("3323"), a
Canadian company, exchanged all of their issued and outstanding shares for
shares of Total First Aid, Inc. The exchange was accounted for as a
recapitalization of the Company, wherein the shareholders of 3323 retained the
majority of the outstanding stock of Total First Aid, Inc. after the merger. At
the time of the acquisition, both companies were substantially inactive.
Collectively, 3323 and Total First Aid, Inc. are known as the "Company".
Additionally on October 31, 2003, the Company acquired Kischi Konsulting Inc.,
2906694 Canada Inc., and 3054276 Canada Inc, all Canadian companies, which was
accounted for as a purchase and at that time were wholly-owned subsidiaries of
the Company.
The consolidated Statements of Operations and Cash Flows present the operations
of the Company, and the acquired subsidiaries from date of acquisition.
During the year ended December 31, 2004, Total First Aid Inc. changed its name
to Spearhead Limited, Inc. and additionally, the Company acquired Progestic
International Inc. and FSG Consulting Inc. On December 31, 2004 all subsidiaries
were merged into Spearhead Management Canada Limited the only subsidiary as of
December 31, 2004 and 2005.
All amounts included in the consolidated financial statements are reflected in
US dollars, except where it is indicated as Canadian dollars (CDN).
(b) Business
The Company is a merchant bank in business of acquiring, financing, building and
divesting of subsidiary operations. Company's subsidiary, Spearhead Management
Canada Ltd is in business of providing information technology consulting and
outsourcing services designed to enhance clients' business performance through
the efficient and effective use of information technology.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary, Spearhead Management Canada Limited. All significant
inter-company accounts and transactions have been eliminated in consolidation.
In 2005, Spearhead incurred net losses of $5.72M and its working capital
deficiency increased by $4.49M to $5.13M at December 31, 2005. The losses for
the year, other than the $1M of non-cash warrant expenses, were funded primarily
with short-term loans from shareholders of the company and through a subsidiary
credit facility.
In 2005, Spearhead pursued an IT consulting sector buildup strategy and its
merchant banking resources were focused on LSE listed IT companies in the UK.
The company was not successful in completing these acquisitions and at the end
of 2006 1st quarter Spearhead enlarged the scope of its merchant banking
activities past the IT sector focusing on privately negotiated, non listed
company, targets.
Following the change of strategy, the company reduced its staff and other
merchant banking cash expenses and the term of the shareholder loans was
extended to March 31, 2006 and subsequently to September 30, 2006.
In the light of the expense reductions and extension of loans, the company's
cash flow forecasts and progress being made regarding the new acquisitions, the
Board believes that the adoption of going concern basis is appropriate in
preparation of December 31, 2005 Report and Accounts.
If adoption of the going concern basis was not appropriate, adjustments would be
required to reclassify fixed assets as current assets, to adjust assets to their
recoverable values and to provide for any further liabilities that may result.
(d) Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States (GAAP) requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying disclosures. Although these estimates are based on
management's knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
(f) Accounts Receivable
Accounts receivable are uncollateralized customer obligations due under normal
trade terms requiring payment within 30-45 days from the invoice date. Unpaid
accounts receivable with invoice dates over the 30-45 days old bear no
interest. Payments of accounts receivable are allocated to the specific
invoices identified on the customer's remittance advice or, if unspecified, are
applied to the earliest unpaid invoices. No allowance for doubtful accounts has
been provided on the trade accounts receivable as they are insured as part of
the credit facility with the bank.
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Gain or loss
on disposition of assets is recognized currently. Repairs and maintenance which
do not extend the lives of the respective assets are charged to expense as
incurred. Major replacements or betterments are capitalized and depreciated over
the remaining useful lives of the assets.
(h) Goodwill
Goodwill represents the excess of cost over fair value of net assets acquired
through December 31, 2005. The Company had previously adopted SFAS 142 effective
January 1, 2002. With the adoption of SFAS 142, goodwill is not subject to
amortization. Rather, goodwill is subject to at least an annual assessment for
impairment by applying a fair-value based test. The Company performed an
additional fair-value based impairment test as of December 31, 2005, and no
impairment charge was deemed necessary.
(i) Revenue Recognition, work-process and deferred contract revenue
Revenue from fixed price contracts is recognized in accordance with the
percentage-of-completion method of accounting. Degree of completion is generally
based on predetermined milestones within the contracts. The effect of changes to
total estimated income for each contract is recognized in the period in which
the determination is made and losses, if any, are recognized fully when
anticipated.
Work in progress represents unbilled work which results from the excess of
contract costs and profits recognized to date on the percentage-of-completion
accounting method over billings to date. Work-in-progress was non-material and
has been included in other accounts receivable.
Deferred contract revenue represents the excess of billings to date over the
amount of contract costs and profits recognized to date on the
percentage-of-completion accounting method. Deferred contract revenue was
non-material and has been included in other accounts receivable.
(j) Long-lived assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. In performing the review of recoverability the Company estimates
the future cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the expected future cash flows is less than
the carrying amount of the assets, an impairment loss is recognized by comparing
the fair value of assets to their carrying value. Long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value, fewer
costs to sell. The Company has determined that no impairment losses need to be
recognized through the fiscal year ended December 31, 2005.
(k) Income Taxes
The Company files federal and state income tax returns in the United States for
its domestic operations, and files separate foreign tax returns for the
Company's Canadian subsidiaries. The Company accounts for its income taxes using
Statement of Financial Accounting Standards (SFAS) No. 109, ("Accounting For
Income Taxes"), which requires the recognition of deferred tax liabilities and
assets for expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The Company provides a valuation allowance against its deferred tax assets when
it believes that it is more likely than not that the asset will not be realized.
(l) Net Income (Loss) Per Common Share
The Company has adopted SFAS No. 128, ("Income Per Share"), which requires the
reporting of both basic and diluted income per share. Basic net income (loss)
per share is determined by dividing income (loss) available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted income (loss) per share reflects the potential dilution that
could occur if options or other contracts to issue common stock were exercised
or converted into common stock, as long as the effect of their inclusion is not
anti-dilutive.
(m) Stock-based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,
("Accounting For Stock Issued to Employees") ("APB No. 25"), and related
interpretations, in accounting for its employee stock based compensation rather
than the alternative fair value accounting allowed by SFAS No. 123, ("Accounting
for Stock-based Compensation"). APB No. 25 provides that the compensation
expense relative to the Company's employee stock options is measured based on
the intrinsic value of the stock option. SFAS No. 123 requires companies that
continue to follow APB No. 25 to provide a pro-forma disclosure of the impact of
applying the fair value method of SFAS No. 123.
(n) Foreign Currency Translation
The accounts of the Company's foreign subsidiary are translated into U.S.
dollars. For subsidiaries where the functional currency is other than the U.S.
dollar, balance sheet accounts are translated at the exchange rate in effect at
the end of the year. Income and expense accounts are translated at the average
exchange rates in effect during the year. Resulting translation adjustments are
reflected as a separate component of stockholders' equity ("other comprehensive
income (loss)"). Realized foreign currency transaction gains and losses are
included in operations.
(o) Recent Accounting Pronouncements
In July 2004, the FASB issued EITF Issue No. 02-14, "Whether an Investor Should
Apply the Equity Method of Accounting to Investments Other than Common Stock"
("EITF 02-14") EITF 002-14 requires application of the equity method of
accounting when an investor is able to exert significant influence over
operating and financial policies of an investee through ownership of common
stock or in-substance common stock. EITF 02-14 is effective for reporting
periods beginning after September 15, 2004. The adoption of EITF 02-14 will not
have a significant impact on the Company's financial statements.
On December 16, 2004, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 123 (revised 2004), Share-Based Payment, ("SFAS 123R").
SFAS 123R requires all share-based payments to employees to be recognized at
fair value in the financial statements. SFAS 123R replaces SFAS No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), supersedes Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"), and SFAS No. 148, Accounting for Stock-Based Compensation
- Transition and Disclosure - an Amendment of FASB Statement No. 123 and amends
FASB Statement No. 95, Statement of Cash Flows. SFAS 123R is effective for
public companies at the beginning of the first interim or annual period
beginning after June 15, 2005. The Company adopted SFAS 123R effective July 1,
2005.
As such, effective with the Company's fiscal quarter ending September 30, 2005,
SFAS 123R eliminated the Company's ability to account for stock options using
the method permitted under APB 25 and instead require us to recognize
compensation expense should the Company issue options to its employees or
non-employee directors.
On December 21, 2004, the Financial Accounting Standards Board (the "FASB")
issued FASB Staff Position No. 109-2, Accounting and Disclosure Guidance for the
Foreign Earning Repatriation Provision within the American Jobs Creation Act of
2004 ("FSP 109-2"). The American Jobs Creation Act of 2004 (the "Act") was
enacted on October 22, 2004, and introduces, among other things; a special
one-time dividends received deduction on the repatriation of certain foreign
earnings to a U.S. taxpayer ("repatriation provision"), provided certain
criteria are met. FSP 109-2 was issued to allow additional time for companies to
determine whether any foreign earnings will be repatriated under the Act's
repatriation provision, given the law was enacted late in the year and certain
provisions are unclear. Under FSP 109-2, companies that take the additional time
are required to provide disclosures about the status of the Company's evaluation
and the potential effects of its decision. FSP 109-2 is effective for the year
ended December 31, 2004. The adoption of this standard does not have an effect
on the Company's financial statements.
SFAS No. 153, Exchange of Nonmonetary Assets, an amendment of APB Opinion No. 29
("SFAS 153"), was issued in December 2004. APB Opinion No. 29, Accounting for
Nonmonetary Transactions ("APB 29"), provides the basic principle that exchanges
of nonmonetary assets should be measured based on the fair value of the assets
exchanged. However, APB 29 includes certain exceptions to that principle. SFAS
153 amends APB 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. SFAS 153 is
effective for nonmonetary exchanges occurring on or after July 1, 2005. The
adoption of this standard does not have an effect on the Company's financial
statements.
On March 9, 2004, the U.S. Securities and Exchange Commission ("SEC") Staff
issued Staff Accounting Bulletin ("SAB") 105, Application of Accounting
Principles to Loan Commitments ("SAB 105"), in which the SEC Staff expressed
their view that the fair value of recorded loan commitments, including interest
rate lock commitments ("IRLCs"), that are required to follow derivative
accounting under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"), should not consider the expected future cash flows
related to the associated servicing of the loan. The adoption of this standard
does not have an effect on the Company's financial statements.
(2) DISPOSITIONS AND ACQUISITIONS
Acquisition of Companies
---------------------------
On June 3, 2004, Spearhead Limited, Inc. (the "Company") acquired all of the
issued and outstanding capital stock of Progestic International Inc.
("Progestic") and FSG Consultants Inc. ("FSG"). Each of the acquired companies
is a Canadian corporation engaged in providing information technology-related
consulting services. Progestic and FSG were each operated as a wholly-owned
subsidiary of the Company until the merger was effected on December 31, 2004.
PROGESTIC INTERNATIONAL INC.
The Company acquired all of the issued and outstanding capital stock of
Progestic for a purchase price consisting of cash in the amount of CDN$500,000
and the issuance of 863,824 shares of the Company's common stock. The
consideration was paid to the former shareholders of Progestic, pro-rata to
their ownership interests in Progestic. The source of the funds used by the
Company to pay the cash portion of the purchase price was a combination of the
sale of equity securities and loans from shareholders and an officer. In
connection with this acquisition, the Company entered into consulting agreement
with the former principal shareholder. The agreement was for an initial term of
two years and was subject to a one-year renewal terms at the election of the
parties in the amount of $7,500 per month. The agreement expired May 31, 2006
and was not renewed.
FSG CONSULTANTS INC.
The Company acquired all of the issued and outstanding capital stock of FSG for
a purchase price consisting of cash in the amount of CDN$350,000 and the
issuance of 558,235 shares of the Company's common stock. The consideration was
paid to the former shareholders of FSG, pro-rata to their ownership interests in
FSG. The source of the funds used by the Company to pay the cash portion of the
purchase price was a combination of the sale of equity securities and loans from
shareholders and an officer. In connection with this acquisition, the Company
entered into consulting agreement with the former principal shareholder. The
agreement was for an initial term of two years and was subject to a one-year
renewal terms at the election of the parties in the amount of $7,500 per month.
The agreement expired May 31, 2006 and was not renewed.
On June 3, 2004 Spearhead Limited, Inc. sold/transferred its shares of Kischi
Konsulting, Progestic International, Inc., FSG Consulting, Inc. and Spearhead
Canada Limited, Inc. to its wholly owned subsidiary Spearhead Management Canada
Limited, Inc. In exchange Spearhead Management Canada Limited, Inc. issued
2,500,000 shares of common stock to Spearhead Limited, Inc.
The goodwill recognized on acquisitions represents the actual stock issued and
cash paid in excess of the fair market value of all the net assets acquired in
the transaction.
(3) PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, less accumulated
depreciation as of December 31, 2005:
Estimated
Useful Lives
---------------
Furniture and equipment $ 361,299 5 years
Less accumulated depreciation (156,455)
-------------
$ 214,981
=============
Depreciation expense for the years ended December 31, 2005 and 2004 was $81,481
and $73,662 respectively.
(4) LINES OF CREDIT
The Company's Canadian subsidiary (Spearhead Management Canada Limited, Inc.)
has a demand revolving operating loan which provides for borrowing up to
$3,000,000 (CDN), $2,495,840 (US), bearing interest at the Canadian bank's prime
rate plus 1% per annum. As of December 31, 2005 $2,330,561 (CDN), $2,003,896
(US) is outstanding. The demand loan is secured by a first ranking registered
security interest in favor of the bank over all of the property of the Company;
corporate guarantee for $3,050,000 (CDN), $2,537,438 (US) from its parent
company (Spearhead Limited, Inc.); assignment of accounts receivable insurance
and fire insurance; subordination of dividends payable, funds due to parent
company (Spearhead Limited, Inc.) and funds due a company controlled by a
director.
The terms of the banking agreement require the Company to maintain certain
financial ratios, which the Company did not comply with at December 31, 2005.
The agreement is subject to renegotiation on an annual basis.
(5) COMMITMENTS AND CONTINGENCIES
Leases
------
The Company's Canadian subsidiary has entered into long-term lease agreements
with minimal annual lease obligations, exclusive of escalation costs as follows:
2006 118,988
2007 100,708
2008 73,134
2009 71,009
Thereafter 17,752
--------
$ 381,691
========
Contingency
-----------
The Company is contingently liable in the amount of $104,513 for services
rendered by legal counsel for third parties on behalf of a former subsidiary
which was subsequently wound-up into the Company. In the opinion of management,
this debt had been settled and no balance is owing. No provision for possible
losses therein has been reflected in the accounts of the Company.
(6) RELATED PARTY TRANSACTIONS
Consulting Agreements
---------------------
Pursuant to consulting services agreements with its officers and directors the
Company paid the following during the periods 2005 and 2004:
2005 2004
Michel L Marengere C.E.O. Chairman of the Board $240,000 $240,000
Jeffrey N Tabin C.F.O. 86,000 72,000
Jacques R Delorme Director 90,000 90,000
Scott Siegel Past Director 150,000 150,000
We have no other written agreements with any of our executive officers or
directors and we maintain no retirement, fringe benefit or similar plans for the
benefit of executive officers or directors. We may, however, enter into
employment or consulting contracts with our officers and key employees, adopt
various benefit plans and begin paying compensation to our officers and
directors as we deem appropriate to attract and retain the services of such
persons. We do not pay fees to directors for their attendance at meetings of the
board of directors or of committees; however, we may adopt a policy of making
such payments in the future. We will reimburse out-of-pocket expenses incurred
by directors in attending board and committee meetings.
Loans from Related Parties
--------------------------
During 2004 the Company borrowed $1,485,000 and repaid $600,000 from companies
controlled by shareholders and a senior executive officer of the Company. The
Company agreed to repay the loans with interest at a fixed rate of ten (10%)
until maturity and at an annual rate of 20% after maturity until paid in full,
compounded monthly and not in advance. Interest on overdue interest shall accrue
and be payable at the interest rate. In addition, the lenders acquired warrants
to purchase 495,001 shares of Company common stock at $.50 per share. There was
$806,211 (due to a company controlled by a shareholder and senior executive
officer of the Company, as Company repaid $78,789 of outstanding loan)
outstanding as at December 31, 2005. The Company has guaranteed this loan by
granting the lender a second ranking moveable hypothec on the universality of
its subsidiary accounts receivable. The aggregate liability is $806,211 as at
December 31, 2005.
On March 28, 2005 the Company borrowed $330,000 from shareholders. The lenders
acquired warrants to purchase 70,000 shares of Company common stock at $.70 per
share. These loans were subsequently repaid.
On June 27, 2005 the Company borrowed $600,000 from shareholders. The lenders
acquired warrants to purchase 260,000 shares of Company common stock at $.70 per
share. These loans were subsequently repaid.
On August 3, 2005 the Company borrowed $1,500,000 from companies controlled by
shareholders and a senior executive officer of the Company. The Company agreed
to repay the loans with interest at a fixed rate of 10% (total of $150,000) due
December 31, 2005. The Company subsequently renegotiated the loans payment to
March 31, 2006 and again agreed to repay the loan with interest at a fixed rate
of 10% (total due $1,815,000). In addition, the lenders acquired warrants to
purchase 658,889 shares of Company common stock at .55p per share and warrants
to purchase 334,938 shares of Company common stock at .45p per share.
On December 23, 2005 the Company borrowed $1,000,000 from companies controlled
by shareholders. The Company agreed to repay the loans with interest at a fixed
rate of 10% (total of $100,000) due March 31, 2006. In addition, the lenders
acquired warrants to purchase 150,000 shares of Company common stock at .45p per
share.
In March 2006 the August 3, 2005 and December 2005 loans were re-negotiated to
September 30, 2006 and the Company agreed to repay the loan with interest at a
fixed rate of 10%. In addition the lenders acquired warrants to purchase
1,457,500 shares of Company common stock at $0.25 per share. In addition the
strike point for all warrants acquired from lenders on theses re-negotiated
loans were reset from .55p and .45p respectively to $.025.
In 2005, pursuant to a deed of pledge, Spearhead advanced funds to a Special
Purpose Entity (SPE), a related party related by a common board of director,
expressly set up to assist to Company in acquiring a non-controlling, minority
interest in a target company that the Company was interested in acquiring
control of. The acquisition process devolved into a hostile takeover attempt of
the target which subsequently failed. As a result of the transaction the Company
recognized a $1,735,000 loss on its Statement of Profit and Loss for the year
ended December 31, 2005.
(7) INCOME TAXES
The components of the provision for income taxes (benefit) provided on
continuing operations are:
Current Deferred Total
Year ended December 31, 2005
Federal $ - $ - $ -
State - - -
Foreign 27,308 (5,796) 21,512
--------- ---------- ----------
Total $ 27,308 $ (5,769) $ 21,512
========= ========== ==========
Year ended December 31, 2004
Federal $ - $ - $ -
State - - -
Foreign 16,074 (166,389) (150,315)
--------- ---------- ----------
Total $ 16,074 $(166,389) $(150,315)
========= ========== ==========
A reconciliation of income tax computed at the statutory federal rate to income
tax expense (benefit) is as follows:
2005 2004
Tax provision at the statutory rate of 34% $(1,954,000) $(407,000)
State income taxes, net of federal income tax - -
Benefit of foreign net operating loss - (166,000)
Increase (decrease) in deferred tax valuation allowance 2,024,000 400,000
Foreign income taxes, other 22,000 16,000
Foreign exchange and other (70,000) (7,000)
$ 22,000 $(150,000)
The net tax effects of temporary differences between the carrying amount of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes are reflected in deferred income taxes. Significant
components of the Company's deferred tax assets as of December 31, 2005 and 2004
are as follows:
2005 2004
Net operating loss carry forward - U.S. $ 1,841,000 $ 488,000
Net operating loss carry forward - Foreign 1,365,000 1, 287,000
Notes receivable allowance 598,000 -
Depreciation and amortization (2,000) (2,800)
Less valuation allowance, Foreign NOL (1,193,000) (1,121,000)
Less valuation allowance, other (2,437,000) (485,200)
Net deferred tax asset $ 172,000 $ 166,000
As of December 31, 2005, sufficient uncertainty exists regarding the reliability
of these deferred tax assets and, accordingly, a significant valuation allowance
has been established. The net change in the valuation allowance for the years
ended December 31, 2005 and 2004 was a $2,023,800 increase and a $400,200
increase, respectively.
At December 31, 2005 and 2004, the Company had net operating loss carry forwards
for federal and state income tax purposes of approximately $5,414,000 and
$1,434,000, which are available to offset future taxable income, if any, through
2025.
At December 31, 2005, and 2004 the Company had net operating loss carry forwards
for foreign (federal and provincial) income tax purposes of approximately
$4,016,000 and $3,780,000, respectively, which are available to offset future
taxable income, if any, through 2015.
(8) COMMON STOCK
On October 31, 2003 Total First Aid, Inc. authorized the issuance of 26,692,285
shares of its common stock in exchange for all of the issued and outstanding
shares of 3323455 Canada Inc. The Company then issued 4,000,000 shares of its
common stock to acquire the additional Canadian subsidiaries.
During the year ended December 31, 2004 the Company issued 2,815,000 shares of
common stock ($703,700) which had been sold through a "Securities Purchase
Agreement" during 2003. Each share of common stock sold entitles the shareholder
to one-half a warrant, exercisable at $.30 per share for a period of three
years, expiring on October 30, 2006. The warrants were immediately exercisable.
The Company also sold an additional 1,110,080 shares ($277,820) of its common
stock at $.25 per share. Each share of common stock purchased entitles the
shareholder to one-half a warrant, exercisable at $.30 per share for a period of
three years, expiring on October 30, 2006. The warrants were immediately
exercisable. In 2004 the Company issued 17,647 shares ($15,000) of its common
stock at $.85 per share, which had been sold through a "Securities Purchase
Agreement". Each share of common stock purchased entitles the shareholder to one
warrant, exercisable at $1.00 per share for a period of three years, expiring on
October 31, 2006. The warrants were immediately exercisable.
In conjunction with the two acquisitions during June 2004, the Company issued
863,824 shares of common stock for the acquisition of Progestic International
and another 558,235 shares of common stock for the acquisition of FSG
Consulting.
The Company sold an additional 592,941 shares at $.85 per share ($504,000),
through a "Securities Purchase Agreement". These shares were issued in 2005.
Each share of common stock purchased entitles the shareholder to one warrant,
exercisable at $1.00 per share for a period of three years, expiring on October
31, 2006.
In 2004 the Company exchanged 10,000 shares ($8,000) of its common stock at $.80
per share for fixed assets and also exchanged 6,000 shares ($5,700) of its
common stock at $.95 per share for services. Both of these transactions were
with unaffiliated third parties. In 2005 the Company exchanged 500 shares of its
common stock at $.85 per share in exchange for services with unaffiliated third
party.
(9) Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The following table sets forth certain information, to the knowledge of
management, concerning the beneficial ownership of shares of our common stock as
of June 6, 2006 by:
* each person who is the beneficial owner of more than 5% of our
outstanding shares of common stock;
* each of our directors;
* each of our executive officers; and
* all of our executive officers and directors as a group.
Beneficial ownership is generally attributed to person(s) who have the right to
vote or dispose of securities. Under securities laws, a person is considered to
be the beneficial owner of securities owned by him (or certain persons whose
ownership is attributed to him) and that can be acquired by him within 60 days
from the date of this report, including upon the exercise of options, warrants
or convertible securities. We determine a beneficial owner's percentage
ownership by assuming that options, warrants or convertible securities that are
held by him, but not those held by any other person, and which are exercisable
within 60 days of the date of this prospectus, have been exercised or converted.
Unless otherwise indicated, each person in the table has sole investment and
voting power with respect to all shares shown as beneficially owned. Unless
otherwise indicated the address of each beneficial owner is 21218 St Andrews
Boulevard #509, Boca Raton, Fl 33433.
Beneficially owned
Name Number of shares Percent of shares
Michel L Marengere 9,099,940 (1) 18.81%
Rene Amyot (2) 2,022,405 (2) 4.18%
Nicholas Matossian (3) 843,329 (3) 1.74%
Jacques R Delorme (4) 255,095 (4) 0.53%
Jeffrey N Tabin 351,500 (5) 0.73%
Officers and Directors as a group (5
persons) 12,572,269(1,2,3,4,5) 25.98%
3772-063 Canada Inc. 208
Sidney Cunningham
Beaconsfield, Quebec, Canada H9W 6E4 4,600,000 9.51%
Louis R Glaser
74 Green Bush Crescent Thornhill,
Ontario, Canada L4J 5M5 2,500,000 5.17%
(1) Consists of (a) 927,930 outstanding shares registered in the name of 3489566
Canada Inc. and 2,500,000 outstanding shares registered in the name of 9044-9273
Quebec Inc., corporations wholly-owned by Mr. Marengere, (b) 2,598,568
outstanding shares registered in the name of Wellgate International Inc., a
corporation in which Mr. Marengere is a director and principal shareholder and
in which he shares voting and investment powers, (c) 500,000 outstanding shares
registered in the name of Wellgate International Inc. Ltd. in which Mr.
Marengere is a director and principal shareholder and in which he shares voting
and investment powers, (d) 977,074 outstanding shares registered in the name of
Savage Worldwide Limited in which Mr. Marengere is a director and principal
shareholder and in which he shares voting and investment powers, (e) 475,000
shares issuable upon exercise of presently exercisable options granted to Mr.
Marengere and (f) 668,828 shares issuable upon exercise of presently exercisable
warrants issued to 373 Florida Corp (controlled by Mr. Marengere) and (h)
432,540 shares issuable upon exercise of presently exercisable warrants issued
to Wellgate International, Inc. Mr. Marengere disclaims beneficial ownership of
the securities owned by Wellgate International, Inc., except to the extent of
his pecuniary interest in such corporation.
(2) Consists of 2,022,405 outstanding shares registered in the name of 9115-8154
Canada Inc. a corporation in which Mr. Amyot is a director and in which he
shares voting and investment powers
(3) Consists of 843,329 outstanding shares registered in the name of 9056-1850
Quebec Inc. a corporation in which Mr. Matossian is a director and principal
shareholder and in which he shares voting and investment powers.
Includes 100,000 options to purchase common stock.
(4) Consists of 205,095 shares held Servidel Inc. a corporation wholly-owned by
Mr. Delorme and 50,000 shares issuable upon exercise of presently exercisable
options granted to Mr. Delorme.
(5) Consists of 251,500 shares held by Mr. Tabin and 100,000 shares issuable
upon exercise of options granted to Mr. Tabin.
(9) STOCK OPTIONS
For 2005 the Company charged $$961,068 against operations for options issued
during the year (options valued utilizing the Black Shoals Method at date of
issue). And during 2004 the Company charged $234,451 against operations for
options during the period (options valued utilizing the Black Shoals Method at
date of issue).
A summary of the Company's stock options is detailed as follows:
Outstanding at December 31, 2002 Number of Shares Weighted Average Price
Granted 1,000,000 $ 0.30
Exercised -- --
--------------- ------------
Outstanding at December 31,2003 1,000,000 $0.30
Granted 3,768,129 $0.52
--------------- ------------
Outstanding at December 31, 2004 4,768,129 $0.47
=============== ============
Granted 2,569,062 $0.83
Exercised -- --
--------------- ------------
Outstanding at December 31, 2005 7,337,191 $0.60
=============== ============
The following table summarizes additional information about all of the stock
options outstanding at December 31, 2005:
Outstanding options Exercisable options
Weighted
average
Range of remaining Weighted Weighted
exercise prices Shares life (years) avg. price Shares avg. price
$ .30 - 1.00 3,573,128 .83 $ 0.42 3,573,128 $ .42
.85 - 1.00 1,020,001 1.30 0.95 1,020,001 0.95
.50 - 1.00 175,000 1.83 0.65 175,000 0.65
.70 - .97 2,569,062 2.06 0.78 2,569,062 0.78
$ .30 - 1.00 7,337,191 1.93 $ 0.58 4,728,129 $ 0.58
(10) CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCY
Financial instruments that potentially subject the Company to concentrations of
credit risk are cash and accounts receivable. The Company maintains deposit
balances at financial institutions that, from time to time during the year, may
exceed federally insured limits. The Company maintains its cash with high
quality financial institutions which the Company believes limits these risks.
The Company's operating subsidiary in Canada derives approximately 75-80% of its
consulting revenues from the Canadian federal government, through various
contracts with different agencies. Approximately 40% of the revenues generated
by the subsidiaries during the fiscal year ended December 31, 2005 and 2004 were
with one agency within the Canadian government.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, receivables, accounts payable
and accrued liabilities approximated their fair values due to the short maturity
of these instruments as of December 31, 2005. No allowance for doubtful accounts
has been provided on the trade accounts receivable as they are insured as part
of the credit facility with the bank.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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