RNS Number : 9121X
Spearhead Limited Inc.
30 June 2008
ANNOUNCEMENT TO THE LONDON STOCK EXCHANGE
Spearhead Limited, Inc. ("the Company" or "Spearhead")
Final Results of the Company
for the year ended 31 December 2007
The Board of Spearhead announces the Final Results of the Company for the year ended 31 December 2007, which are set out below.
Chairman's Statement
We take pleasure in announcing the 2007 full year results for Spearhead Limited, Inc. ("Spearhead" or the "Company")
For the twelve months ended December 31, 2007, Spearhead Limited, Inc. recorded an operating loss of US$ 1,110,370 as compared to US$
3,320,790 loss in 2006 on turnover of US$ 14,345,421 in 2007 as compared to US$ 15,457,850 in 2006.
Spearhead derives all of its revenues from its Canadian subsidiary, Spearhead Management Canada, Inc. ("SMC"), which generates over 90%
of its business from direct contracts with agencies of the Canadian federal, provincial and local governments.
Despite an increasingly competitive marketplace in the Canadian National Capital Region (SMC's principal target market), SMC was able to
maintain its market position.
Importantly, SMC was able to secure additional National Master Standing Offers ("NMSO") during 2007, which contributed to sustenance of
turnover. NMSO are Canadian government procurement vehicles that are awarded to companies via a competitive qualification, adjudication and
bidding process that takes approximately two years. We believe that SMC's strong base of solid NMSO places SMC in a strategic competitive
position to secure additional assignments from various departments and agencies.
The profit margin of the IT operations in 2007 increased to US$ 295,271 as compared to a loss of US$ 164,404 in 2006 even though the
Company experienced a drop in IT revenues of US$ 1,112,429 or 7.20% from last year. Said improvement resulted from corrective measures
implemented during the last quarter of 2006 and taking full effect during 2007 whereby the Company was able to lower overhead costs. The
reduction in operating costs resulted in a return to historical profit margin levels.
The net loss for the year of US$ 1,110,370 includes interest expense of US$1,011,999.
In addition to the IT services consulting business of its SMC subsidiary, the Company pursued during the year its search for acquisition
and roll-up opportunities, which continued to be funded by Spearhead`s Investor Group. In 2007 the Company conducted in-depth evaluations of
roll-up opportunities and strategic acquisition targets in both Europe and in North and South America. The Board and the investors have
agreed to renew the loans in the same consistent manner as has been done in the past.
Michel Marengere
Chairman
SPEARHEAD LIMITED, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31,
Current assets: 2007 2006 Restated
Cash $ 192,293 $ 1,514
Accounts receivable - trade 2,650,950 2,616,158
Prepaid expenses 20,752 98,331
Deferred income taxes 211,181 149,766
___________ ___________
Total current assets: 3,075,176 2,865,769
Property and equipment, net 114,656 155,016
Goodwill 2,743,091 2,743,091
Deferred income taxes 218,622 92,981
___________ ___________
Total assets: $ 6,151,545 $ 5,856,857
========== ==========
Current liabilities
Loan payable bank $ $ 22,307
-0-
Line of credit 2,141,051 1,937,283
Accounts payable and accrued expenses 3,653,147 4,071,973
Loan payable - CEO 879,370 810,577
Loans payable stockholders' and related parties -0- 3,850,860
Loans payable -0- 450,000
__________ __________
Total current Liabilities 6,673,568 11,143,000
Long term liabilities
Loans payable stockholders' and related parties 5,150,923
-0-
Loans payable 632,225 -0-
__________ __________
Total long term liabilities 5,783,148 -0-
___________ __________
Total liabilities 12,456,716 11,143,000
========== =========
Stockholders' equity
Common stock, $.001 par value: 200,000,000 shares authorized;
40,651,512 issued and outstanding 40,651 40,651
Preferred stock, $.001 par value: 20,000,000 shares authorized;
-0- shares issued and outstanding -0- -0-
Paid in capital 5,716,349 5,716,349
Retained deficit (12,353,524) (11,243,154)
Accumulated comprehensive
income 291,353 200,011
___________ ___________
Total stockholders' (6,305,171) (5,286,143)
___________ ___________
equity
Total liabilities and stockholders' equity $ 6,151,545 $ 5,856,857
========== ==========
SPEARHEAD LIMITED, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years Ended December 31,
2007 2006 Restated
Consulting revenues $ 14,345,421 $ 15,457,850
Direct expenses 12,313,331 13,518,662
Gross margin 2,032,090 1,939,188
Selling, general and administration - 1,736,819 2,103,592
subsidiary
Income (loss) from subsidiary before other 295,271 (164,404)
expenses
General & administrative - parent company 526,945 1,627,972
Interest expense (includes $-0- and $190,131,
respectively of non-cash expense for options
granted in 2007 and 2006)
1,011,999 1,259,487
__________ __________
Operating loss (1,243,673) (3,051,863)
Write-off of deferred costs -0- 341,788
_________ _________
Net loss before income taxes (1,243,673) (3,393,651)
Provision (benefit) for income taxes (133,303) (72,861)
Net loss $ (1,110,370) $ (3,320,790)
========= =========
SPEARHEAD LIMITED, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2007 and 2006 (Restated)
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
40,651,512 $40,651 $ 5,526,218 $ (7,922,364) $ (2,164,865)
Balance, January 1, 2006 $ 190,630
Comprehensive income (loss):
Net loss (3,320,790) (3,320,790)
Foreign currency translation 9,381 9,381
gain (loss)
Net comprehensive loss (3,311,409)
Options issued 190,131 190,131
________ ________ _______ _________ ________ _______ _________
Balance December 31, 2006 40,651,512 40,651 5,716,349 (11,243,154) 200,011 (5,286,143)
Comprehensive income (loss):
Net loss (1,110,370) (1,110,370)
Foreign currency translation 91,342 _91,342
gain (loss)
Net comprehensive loss (1,019,028)
________ ________ _______ _________ ________ _______ _________
Balance, December 31, 2007 40,651,512 $40,651 $ 5,716,349 $(12,353,524) $291,353 $(6,305,171)
SPEARHEAD LIMITED, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31,
2007 2006 Restated
Net Loss $(1,110,370) $(3,320,790)
Adjustments to reconcile net loss to net cash
used
by operating activities:
Depreciation and amortization 41,536 56,371
Non-cash compensation -0- 190,131
Change in assets and liabilities, net of
effects of
acquisitions and dispositions
(Increase) decrease in accounts receivable (34,792) 394,955
(Increase) decrease in prepaid expenses 77,579 346,016
Increase (decrease) in accounts payable and 1,258,083 1,704,984
accrued expenses
Increase (decrease) in deferred income taxes (187,056) (70,562)
Total adjustments 1,155,350 2,621,895
Net cash provided by (used in) operating 44,980 (698,895)
activities
Cash flows from investing activities
Purchases of equipment (1,176) (3,792)
Net cash used by investing activities (1,176) (3,792)
Cash flows from financing activities
Net borrowings (repayment) on line of 203,768 (66,613)
credit
Repayment of loan payable bank (22,307) (600,020)
Net repayment of loan payable - CEO (100,147) -0-
Borrowings from loans payable stockholders' -0- 86,841
and related parties
Borrowings from loans payable -0- 1,538,269
Repayment of loans payable stockholders' (25,680) (269,885)
Net cash provided by financing activities 55,634 688,592
Effect of exchange rate changes on cash 91,341 9,382
Net increase (decrease) in cash 190,779 (4,713)
Cash at beginning of period 1,514 6,227
Cash at end of period $192,293 $1,514
Cash paid for interest $143,652 $143,235
SPEARHEAD LIMITED, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006 (Restated)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
These financial statements present the financial position, results of operations and cash flows of the company and its wholly owned
subsidiary, Spearhead Management Canada Limited.
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 performs merchant bank transactions of acquiring, financing, building and divesting of subsidiary operations. The Company's
subsidiary, Spearhead Management Canada Limited is in the business of providing information technology consulting and outsourcing services
primarily to Canadian government offices 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 wholly owned subsidiary, Spearhead Management Canada
Limited. All significant inter-company accounts and transactions have been eliminated in consolidation.
In 2007, Spearhead incurred net losses of $1.11M and its working capital deficiency decreased by $4.68M from $8.28M to $3.6M at December
31, 2007. The decrease was primarily due to the Company's' ability to secure from its lenders agreement to convert their short term debt to
long term.
In 2007 and through the first quarter of 2008, Spearhead has continued to pursue an acquisition strategy and enlarged the scope of its
merchant banking activities past the IT sector focusing on privately negotiated as well as non listed company targets.
(d) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(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 in the year of disposition. 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 is accounted for based on Financial Accounting Standards Board Statement No. 142 Goodwill and Other Intangible Assets (SFAS No.
142). Goodwill represents the excess of cost over fair value of net assets acquired through December 31, 2007. The Company evaluates
goodwill for impairment on an annual basis. Additionally, goodwill is tested for impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of an asset group below its carrying value. These events or
circumstances would include a significant change in the business climate, legal factors, operating performance indicators, competition, sale
or disposition of a significant portion of the business or other factors. The carrying value of goodwill is evaluated in relation to the
operating performance and estimated future discounted cash flows of the asset group. The Company performed fair-value based impairment
tests as of December 31, 2007 and 2006, and no impairment charge was deemed necessary.
(i) Long-lived assets
The Company evaluates 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, 2007 and 2006.
(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. At December 31, 2007 and 2006, work-in-progress was $47,942 and $58,897,
respectively, 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. At December 31, 2007 and 2006, deferred contract revenue was $383 and $24,644,
respectively, and has been included in other accounts receivable.
(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.
The Company has not yet filed its income tax returns in the United States for 2007 and 2006. At this time the amounts of any penalties,
fines or interest due to the delinquent filing of the 2006 returns, if any, can not be estimated.
(l) Stock-based Compensation
The Company has adopted SFAS No. 123R ("Share Based Payment"). SFAS No. 123R requires all share-based payments to employees to be
recognized at fair value at the grant date in the financial statements.
(m) 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.
(2) GOING CONCERN
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
that are applicable to a going concern. Under the going concern assumption, a company is viewed as being able to realize its assets and
discharge its liabilities in the normal course of operations. However, the use of accounting principles generally accepted in the United
States of America applicable to a going concern would be inappropriate, if there is significant doubt about the appropriateness of the going
concern assumption.
Given the accumulated operating losses in prior years and the deficiency in working capital, the Company's ability to realize its assets
and discharge its liabilities depends on continued support from its investors. The financial statements do not reflect adjustments that
would be necessary if the going concern assumption would not be appropriate because management is of the opinion that the rationalization of
current operating expenses, renewal of major government contracts and interim operating results are all measures that mitigate the effect of
the conditions and facts that may raise doubt about the appropriateness of this assumption.
(3) PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, less accumulated depreciation as of December 31, 2007:
2007 2006 Estimated Useful
Lives
--------------------
----------
Furniture and equipment $ 369,018 $ 367,842 5 years
Less accumulated depreciation (254,362) (212,826)
------------- -------------
$ 114,656 $ 155,016
Depreciation expense for the years ended December 31, 2007 and 2006 was $41,536 and $56,371 respectively.
(4) LINE 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), $3,026,329 (US), bearing interest at the Canadian bank's prime rate plus 1% per annum. As of December 31,
2007 $2,122,424 (CDN), $2,141,051 (US) is outstanding. As of December 31, 2006 $2,257,710 (CDN), $1,937,283 (US) was 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), $3,076,767 (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, 2007. The bank waived all non-compliance with financial covenants for 2007 and extended the Company's line of credit. The
agreement is subject to renegotiation on an annual basis.
(5) LOANS PAYABLE
On August 3, 2005 the Company borrowed $250,000 from an unrelated company. The Company agreed to repay the loans with interest at a
fixed rate of 10% (total of $25,000) due December 31, 2005 and issued 62,500 stock warrants at �0.55 per share. The Company subsequently
renegotiated the loan payment to March 31, 2006 and agreed to repay the loan with interest at a fixed rate of 10% (total due $302,500). In
addition, the lender acquired warrants to purchase 37,500 shares of Company common stock at �0.55 per share.
On December 23, 2005 the Company borrowed $200,000 from external companies and individuals. The Company agreed to repay the loans with
interest at a fixed rate of 10% (total of $20,000) due March 31, 2006. In addition, the lenders acquired warrants to purchase 30,000 shares
of Company common stock at �0.45 per share.
In March 2006 the August 3, 2005 and December 23, 2005 loans were re-negotiated to September 30, 2006 and the Company agreed to repay
the loans with interest at a fixed rate of 10%. In addition the lenders acquired warrants to purchase 261,250 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 �0.55
and �0.45 respectively to $0.25.
In September 2006 the Company re-negotiated the loans due to September 30, 2007 and the Company agreed to repay the loan with interest
at a fixed rate of 10%. In addition, the lenders acquired warrants to purchase 261,250 shares of Company common stock at $0.25 per share. In
addition, all warrants were re-dated to September 30, 2009.
In September 30, 2007 the Company re-negotiated the loans to January 31, 2009 and the Company agreed to repay the loans with interest at
a fixed rate of 15% guaranteeing 12 months of interest irrespective of any early payment. In addition all warrants granted as part of the
initial and subsequent renewals were extended to September 30, 2010.
Loans payable at December 31, 2007 and 2006 were $632,225 and $450,000, respectively.
(6) NON CASH OPERATING & FINANCING ACTIVITIES
During the year ended December 31, 2007 the Company reclassified accrued interest of $1,676,908 and consolidated this amount with loans
payable, effectively increasing the principle amount of the loans payable to stockholders, non-stockholders and the CEO. The increase in
principle due to reclassification of interest on loans payable stockholders and related parties was $1,325,743. The increase in principle
due to reclassification of interest on loans payable unrelated parties was $182,225. The increase in principle due to reclassification of
interest on the loan payable - CEO was $168,940. The $1,676,908 decrease in accrued interest is included within accounts payable and other
accrued expenses.
(7) LEASE COMMITMENTS
The Company's Canadian subsidiary has entered into long-term lease agreements with minimal annual lease obligations, exclusive of
escalation costs as follows:
Year ending December 31,
2008 $ 85,379
2009 88,592
2010 23,704
-----------
$ 197,675
(8) RELATED PARTY TRANSACTIONS
Consulting Agreements
---------------------
Pursuant to consulting services agreements with its officers and directors the Company paid the following during the periods 2007 and
2006:
2007 2006
Michel L Marengere C.E.O. Chairman of the Board $240,000 $240,000
Rene Amyot Director $ 7,078 $9,855
The Company has no other written agreements with any of its executive officers or directors and maintains no retirement, fringe benefit
or similar plans for the benefit of executive officers or directors. The Company may, however, enter into employment or consulting contracts
with its officers and key employees, adopt various benefit plans and begin paying compensation to its officers and directors as it deems
appropriate to attract and retain the services of such persons. The Company does not pay fees to directors for their attendance at meetings
of the board of directors or of committees; however, it may adopt a policy of making such payments in the future. The Company will reimburse
out-of-pocket expenses incurred by directors in attending board and committee meetings.
Loans Payable - CEO
--------------------------
During 2004 the Company borrowed $1,485,000 and repaid $600,000 from companies controlled by the Company's CEO. 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
lender acquired warrants to purchase 495,001 shares of Company common stock at $0.50 per share. At December 31, 2007 and 2006 there was
$879,370 and $810,577, respectively, due to a company controlled by the Company's CEO. The Company has guaranteed this loan by granting the
lender a second ranking moveable hypothec on the universality of its subsidiary accounts receivable.
Loans Payable from Stockholders and Related Parties
--------------------------
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 and issued
warrants to purchase 375,000 shares of Company common stock at �0.55 per share. The Company subsequently renegotiated the repayment of the
loans to March 31, 2006 and again agreed to repay the loans with interest at a fixed rate of 10% (total due $1,815,000). In addition, the
lenders acquired warrants to purchase 225,000 shares of Company common stock at �0.45 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 �0.45 per share.
In March 2006 the August 3, 2005 and December 23, 2005 loans were re-negotiated to September 30, 2006 and the Company agreed to repay
the loans 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
�0.55 and �0.45, respectively to $0.25.
On September 30, 2006 the Company re-negotiated the loans due to September 30, 2007 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 all warrants were re-dated to September 30, 2009.
On September 30, 2007 the Company re-negotiated the loans due to January 31, 2009 and the Company agreed to repay the loan with interest
at a fixed rate of 15% additionally guaranteeing twelve months of interest. There were no additional options issued as part of the notes
renewals however the warrants granted as part of the initial loan and subsequent renewals have been extended to September 30, 2010.
During the 2006 the Company borrowed $1,350,859 from an entity related through common control to the Chief Executive Officer. The
Company agreed to repay the loan with interest at a fixed rate of 11% (total of $1,499,453) due January 7, 2007. In addition, the lender
acquired warrants to purchase 675,429 shares of Company common stock at terms and conditions to be established by the Broker / Dealer
retained by Spearhead at the time of a secondary issue on the AIM Exchange to be completed prior to December 2007. The Company subsequently
renegotiated the loan maturity date to September 30, 2007 and agreed to repay the loans with interest at a fixed rate of 11% (total due
$1,664,393). In addition, the lenders acquired warrants to purchase 416,098 shares of Company common stock at terms and conditions to be
established by the Broker / Dealer retained by Spearhead at the time of a secondary issue on the AIM Exchange to be completed prior to
December 2007. The Company subsequently renegotiated the loan maturity date to January 31, 2009 with a fixed interest rate of 15%. In addition all warrants granted as part of the initial and subsequent renewals
were extended to September 30, 2010.
Loans payable from stockholders and related parties were $5,150,923 and $3,850,860 at December 31, 2007 and 2006, respectively.
During 2007, the Company advanced, and was subsequently reimbursed during 2007, funds of approximately $474,000 to an entity under
common control. (9) INCOME TAXES
The components of the provision for income taxes (benefit) provided on continuing operations are:
Current Deferred Total
Year ended December 31, 2007
Federal $ - $ - $ -
State - - -
Foreign - (133,303) (133,303)
Total $ - $ (133,303) $ (133,303)
Year ended December 31, 2006
Federal $ - $ - $ -
State - - -
Foreign - (72,861) (72,861)
Total $ - $ (72,861) $ (72,861)
A reconciliation of income tax computed at the statutory federal rate to income tax expense (benefit) is as follows:
2007 2006
Tax provision at the statutory rate of 34% $ -0- $ (9,600)
Increase (decrease) in deferred tax valuation -0- 200
allowance
Foreign income taxes, other (133,303) (72,861)
Foreign exchange and other -0- 9,400
$ (133,303) $ (72,861)
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, 2007 and 2006 are as follows:
2007 2006
Net operating loss carry forward -U.S. $ 2,416,000 $ 2,360,000
Net operating loss carry forward - Foreign 1,595,000 1,512,947
Less valuation allowance, Foreign NOL (1,165,197) (1,270,200)
Less valuation allowance, other (2,416,000) (2,360,000)
Net deferred tax asset $ 429,803 $ 242,747
As of December 31, 2007, 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, 2007 and
2006 was a $-0- increase and a $200 increase, respectively.
At December 31, 2007 and 2006, the Company had net operating loss carry forwards for federal and state income tax purposes of
approximately $7,105,000 and $6,942,000, which are available to offset future taxable income, if any, through 2027.
At December 31, 2007, and 2006 the Company had net operating loss carry forwards for foreign (federal and provincial) income tax
purposes of approximately $4,415,000 and $4,449,000, respectively, which are available to offset future taxable income, if any, through
2026.
(10) COMMON STOCK
During the years ended December 31, 2007 and 2006 the company did not issue any common shares.
(11) 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 December 31, 2007 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 (fully diluted) Percent of shares
Michel L Marengere 10,186,980 (1) 19.90%
Nicholas Matossian (2) 672,408 (2) 1.31 %
Jacques R Delorme (3) 205,095 (3) 0.40%
Officers and Directors as a 11,064,483(1,2,3) 21.62%
group (5 persons)
Spiegel Sohmer Escrow Agent
5 Place Ville Marie, Bureau
1203 4,000,000 7.81%
Montreal, Quebec, Canada H3B
2G2
3772-063 Canada Inc. 208
Sidney Cunningham
Beaconsfield, Quebec, Canada 4,600,000 8.99%
H9W 6E4
Cede & Co
Box 222 Bowling Green Station
New York, NY 10274 8,871,478 17.33%
(1) (a) 4,024,629 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, (b) 475,000 shares issuable upon exercise of presently
exercisable options granted to Mr. Marengere and (c) 1,311,877 shares issuable upon exercise of presently exercisable warrants issued to 373
Florida Corp (controlled by Mr. Marengere) and (d) 2,851,407 outstanding shares and 432,540 shares issuable upon exercise of presently
exercisable warrants issued to Wellgate International, Inc. in which Mr. Marengere is a director and shareholder and (e) 1,091,527 shares
issuable upon exercise of presently exercisable warrants issued to Agroline, S.A., a company of which Mr. Marengere is a director.
(2) Consists of 672,408 outstanding shares registered in the name of New Consultant LLC, an entity in which Mr. Matossian is a director
and principal shareholder and in which he shares voting and investment powers.
(3) Consists of 205,095 shares held Servidel Inc. a corporation wholly-owned by Mr. Delorme.
(12) STOCK OPTIONS
During 2007 the Company charged $-0- against operations for options issued during the year (options valued utilizing the Black Scholes
Method at date of issue) and during 2006 the Company charged $190,131 against operations for options during the period (options valued
utilizing the Black Scholes Method at date of issue). All charges for issuance of stock options are recorded as interest expense.
A summary of the Company's stock options is detailed as follows:
Number of Shares Weighted Average Price
------------------------ -----------------------
Outstanding at December 31, -0- $ 0.00
2002
Granted 1,000,000 $ 0.30
Exercised -0- $ 0.00
---------------------
Outstanding at December 31, 1,000,000 $ 0.30
2003
Granted 3,768,129 $ 0.52
Exercised -0- $ 0.00
--------------------- ---------------------
Outstanding at December 31, 4,768,129 $ 0.47
2004
Granted 2,569,062 $ 0.83
Exercised -0- $ 0.00
--------------------- ---------------------
Outstanding at December 31, 7,337,191 $ 0.60
2005
Granted 2,614,728 $ 0.25
Expired (850,000) $ 0.30
--------------------- ---------------------
Outstanding at December 31, 9,101,919 $ 0.51
2006
Granted 2,134,848 $ 0.25
Expired (700,000) $ 0.85
--------------------- ---------------------
Outstanding at December 31, 10,536,767 $ 0.37
2007
The following table summarizes additional information about all of the stock options outstanding at December 31, 2007:
Outstanding options Exercisable options
Range of exercise Shares Weighted average Weighted avg. price Shares Weighted avg. price
prices remaining life
(years)
$ .25 - .25 6,173,403 2.75 $ 0.25 6,173,403 $ 0.25
.30 - .30 1,962,540 2.75 $ 0.30 1,962,540 $ 0.30
.50 - .50 495,001 2.75 $ 0.50 495,001 $ 0.50
.70 - .70 755,000 0.50 $ 0.70 755,000 $ 0.70
.85 - .85 1,150,823 1.60 $ 0.85 1,150,823 $ 0.85
$ .25 - .85 10,536,767 2.46 $ 0.37 10,536,767 $ 0.37
(13) 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, 2007 and 2006 were with one agency within the Canadian government.
(14) 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, 2007. 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.
(15) PRIOR PERIOD RESTATEMENT
The accompanying financial statements for the year ended December 31, 2006 have been restated to correct an error that resulted in the
misclassification of the Company's loans payable and loans payable stockholders. The effect of restating was to increase loans payable
stockholders and decrease loans payable $1,350,859, respectively. This restatement had no effect on net income or income taxes of the
Company.
The Company advises that its report and accounts for the year ended 31 December 2007 has been posted to shareholders and will available
from the Company's website at www.spearheadlimited.ca.
Enquiries:
Michel Marengere:
C.E.O. Chairman of the Board
Spearhead Limited, Inc. +1 561 912 9977
David Nabarro
Nabarro Wells & Co. Limited +44 (0) 20 7634 4700
This information is provided by RNS
The company news service from the London Stock Exchange
END
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