Spearhead Limited Inc.
29 June 2007
For Immediate Release
29 June
ANNOUNCEMENT TO THE LONDON STOCK EXCHANGE
Spearhead Limited, Inc. ( 'the Company' or 'Spearhead')
Final Results of the Company
for the year ended 31 December 2006
The Board of Spearhead announces the Final Results of the Company for the year
ended 31 December 2006, which are set out below. These have been published today
and sent to shareholders.
Chairman's Statement
We take pleasure in announcing the 2006 full year results for Spearhead Limited,
Inc. ('Spearhead' or the 'Company')
For the twelve months ended December 31, 2006, Spearhead Limited, Inc. recorded
an operating loss of US$ 3,320,790 as compared to US$ 5,721,160 loss in 2005 on
turnover of US$ 15,457,850 in 2006 as compared to US$ 15,621,457 in 2005.
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 the 2006, which contributed to sustenance of turnover. NMSO are
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 is placing SMC in a
strategic competitive position to secure additional assignments from various
departments and agencies.
The margin of the IT operations in 2006 eroded to US$ (164,404) as compared to
US$ 467,407 in 2005 and the required corrective measure have been implemented
during the last quarter and have taken full effect during the first quarter of
2007 when the operations returned to historical margin levels.
The net loss for the year of US$ 3,320,790 includes interest expenses of
US$1,259,487 and a write down of the deferred charges of US$ 341,788 in
accordance with a change in the Canadian accounting principle relative to
deferred charges; the interest expenses include non cash expenses of US$ 190,131
for options and warrants granted during the current fiscal year.
In addition to the IT services consulting business of its SMC subsidiary, the
Company pursued during the year its acquisition and roll-up opportunities, which
continued to be funded by Spearhead's Investor Group. In 2006 the Company
conducted in-depth evaluations of roll-up opportunities and strategic
acquisition targets in Europe and in North and South America.
Michel Marengere
Chairman
SPEARHEAD LIMITED, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31,
Current assets: 2006 2005
Cash $ $
1,514 6,227
Accounts receivable - trade 2,616,158 3,011,113
Prepaid expenses 98,331 444,348
Deferred income taxes 149,766 155,288
___________ ___________
Total current assets: 2,865,769 3,616,976
Property and equipment net 155,016 207,595
Goodwill 2,743,091 2,743,091
Deferred income taxes 92,981 16,897
____________ ____________
Total assets: $ $
5,856,857 6,584,559
========== ==========
Current liabilities
Loan payable bank $ 22,307 $ 622,327
Line of credit 1,937,283 2,003,896
Accounts payable and accrued expenses 4,071,973 2,366,990
Loans payable stockholders' 3,310,578 3,306,211
Loans payable 1,800,859 450,000
___________ ___________
Total current 11,143,000 8,749,424
liabilities
Total 11,143,000 8,749,424
liabilities
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
Paid in capital 5,716,349 5,526,218
Retained earnings (deficit) (11,243,154) (7,922,364)
Accumulated comprehensive income 200,011 190,630
__________ __________
Total stockholders' equity (5,286,143) (2,164,865)
__________ __________
Total liabilities and stockholders' equity $ 5,856,857 $ 6,584,559
========== ==========
See accompanying notes to consolidated financial statements.
SPEARHEAD LIMITED, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years Ended December 31,
2006 2005
Consulting revenues $ 15,457,850 $ 15,621,457
Direct expenses 13,518,662 13,014,489
Gross margin 1,939,188 2,606,968
Selling, general and administration 2,103,592 2,139,561
Income (loss) before merchant banking expenses (164,404) 467,407
Merchant banking expenses
General & administrative 1,627,972 1,155,059
Interest expense (includes $190,131 and $574,736 of
non-cash expense for options granted in 2006 and 2005)
1,259,487 1,277,273
Acquisition costs __________ 983,228
Operating loss (3,051,863) (2,948,153)
Non-recurring merchant banking expenses
Write-off of deferred costs 341,788
AIM listing (includes $429,118 of non-cash expense
for options granted)
866,963
Lawsuit settlements awarded to former employees for
wrongful dismissals 84,200
Legal expenses related to the consolidation of the 65,332
wholly owned subsidiary
Write off provision for loan receivable _________ 1,735,000
Net loss before income taxes (3,393,651) (5,699,648)
Provision for income taxes (72,861) 21,512
Net loss $ (3,320,790) $ (5,721,160)
========= =========
See accompanying notes to consolidated financial statements.
SPEARHEAD LIMITED, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2006 and 2005
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, $ $ $ $ $ $
January 1,
2005
40,058,071 40,058 504,000 4,018,533 (2,201,204) 126,427 2,487,814
Common stock
issued - sale
592,941 593 (504,000) 503,407
Common stock
issued in
exchange for
services 500 425 425
Comprehensive
loss:
Net loss (5,721,160) (5,721,160)
Foreign 64,203 64,203
currency
translation
gain (loss)
Options 1,003,853 1,003,853
issued
____________ ____________ ____________ ____________ ____________ ____________ ____________
Balance 40,651,512 40,651 5,526,218 (7,922,364) 190,630 (2,164,865)
December 31,
2005
Common stock
issued in
exchange for
services
Comprehensive (3,320,790) (3,320,790)
loss:
Net loss
Foreign 9,381 9,381
currency
translation
gain (loss)
Options 190,131 190,131
issued
Balance,
December 31, 40,651,512 $ 40,651 $ 5,716,349 $ (11,243,153) $ 200,011 $(5,286,143)
2006
____________ ____________ ____________ ____________ ____________ ____________
See accompanying notes to consolidated financial statements.
SPEARHEAD LIMITED, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31,
2006 2005
Net Loss $ $
(3,320,790) (5,721,160)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 56,371 81,481
Non-cash compensation 190,131 1,004,279
Change in assets and liabilities, net of effects of
acquisitions and dispositions
(Increase) decrease in accounts receivable 394,955 125,037
(Increase) decrease in prepaid expenses 346,016 (61,543)
Increase (decrease) in accounts payable and accrued expenses 1,704,984 199,364
Increase (decrease) in deferred income taxes (70,562) (10,716)
Total adjustments 2,621,895 1,337,902
Net cash provided by operating activities (698,895) (4,383,258)
Cash flows from investing activities
Purchases of equipment (3,792) (84,230)
Net cash used by investing activities (3,792) (84,230)
Cash flows from financing activities
Borrowings (repayment) on line of credit (666,633) 1,499,906
Borrowings from loans payable stockholders' 274,251 3,430,000
Borrowings from loans payable 1,350,859 450,000
Repayment of loans payable stockholders' (269,885) (1,008,789)
Net cash provided by financing activities 688,592 4,371,117
Effect of exchange rate changes on cash 9,382 64,202
Net decrease in cash (4,713) (32,169)
Cash at beginning of period 6,227 38,396
Cash at end of period $ $
1,514 6,227
Cash paid for interest $ $
143,235 413,672
Supplemental disclosure of non-cash investing and
financial activities:
Issuance of common stock for services 500
See accompanying notes to consolidated financial statements
SPEARHEAD LIMITED, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(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 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 is a merchant bank in business of acquiring, financing, building and
divesting of subsidiary operations. Company's subsidiary, Spearhead Management
Canada Limited is in the 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 2006, Spearhead incurred net losses of $3.3M and its working capital
deficiency increased by $3.14M to $8.28M at December 31, 2006. The losses for
the year were funded primarily with short-term loans.
In 2005 and through the first quarter of 2006, 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.
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, 2006 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, 2006. 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, 2006 and 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 immaterial 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
immaterial 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, 2006 and 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 adopted SFAS No. 123R ('Share Based Payment'). SFAS No. 123R
requires all share-based payments to employees to be recognized at fair value in
the financial statements.
(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.
(2) DISPOSITIONS AND ACQUISITIONS
Acquisition of Companies
---------------------------
During the years ended December 31, 2006 and 2005 the Company made no
acquisitions.
Disposition of Companies
---------------------------
During the years ended December 31, 2006 and 2005 the Company made no
dispositions.
(3) PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, less accumulated
depreciation as of December 31, 2006:
Estimated Useful Lives
------------------------------
Furniture and equipment $ 367,842 5 years
Less accumulated depreciation (212,826)
-------------
$ 155,016
Depreciation expense for the years ended December 31, 2006 and 2005 was $56,371
and $81,481 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), $2,495,840 (US), bearing interest at the Canadian bank's prime
rate plus 1% per annum. As of December 31, 2006 $2,257,710 (CDN), $1,937,283
(US) is outstanding. As of December 31, 2005 $2,330,561 (CDN), $2,003,896 (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), $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, 2006.
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. 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 .55p 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 .45p 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 .55p and .45p respectively to $.025.
In 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 261,250 shares of
Company common stock at $0.25 per share. In addition all warrants were re-dated
to September 30, 2009.
During the 2006 the Company borrowed $1,350,859. 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 lenders acquired warrants to purchase 658,889 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 loans 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.
(6) LEASE COMMITMENTS
Leases
------
The Company's Canadian subsidiary has entered into long-term lease agreements
with minimal annual lease obligations, exclusive of escalation costs as follows:
2007 $ 100,708
2008 73,134
2009 71,009
Thereafter 17,752
-----------
$ 381,691
(7) RELATED PARTY TRANSACTIONS
Consulting Agreements
---------------------
Pursuant to consulting services agreements with its officers and directors the
Company paid the following during the periods 2006 and 2005:
2006 2005
Michel L Marengere C.E.O. Chairman of the Board $240,000 $240,000
Jeffrey N Tabin C.F.O. - resigned 8/31/06 70,635 86,000
Jacques R Delorme Director 11,082 90,000
Rene Amyot Director 9,855 -
Scott Siegel Past Director - 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
$810,578 due to a company controlled by a shareholder and senior executive
officer of the Company as at December 31, 2006. The Company has guaranteed this
loan by granting the lender a second ranking moveable hypothec on the
universality of its subsidiary accounts receivable.
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 23, 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 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.
(8) INCOME TAXES
The components of the provision for income taxes (benefit) provided on
continuing operations are:
Current Deferred Total
Year ended December 31, 2006
Federal $ - $ - $ -
State - - -
Foreign - (72,861) (72,861)
Total $ - $ (72,861) $ (72,861)
Year ended December 31, 2005
Federal $ - $ - $ -
State - - -
Foreign 27,308 (5,796) 21,512
Total $ 27, 308 $ (5,796) $ 21,512
A reconciliation of income tax computed at the statutory federal rate to income
tax expense (benefit) is as follows:
2006 2005
Tax provision at the statutory rate of 34% $ (9,600) $ (1,954,000)
Increase (decrease) in deferred tax valuation allowance 200 2,024,000
Foreign income taxes, other (72,861) 21,512
Foreign exchange and other 9,400 (70,000)
$ (72,861) $ 21,512
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, 2006 and 2005
are as follows:
2006 2005
Net operating loss carry forward -U.S. $ 2,360,000 $ 1,841,000
Net operating loss carry forward - Foreign 1,512,947 1,365,185
Notes receivable allowance - 598,000
Depreciation and amortization - (2,000)
Less valuation allowance, Foreign NOL (1,270,200) (1,193,000)
Less valuation allowance, other (2,360,000) (2,437,000)
Net deferred tax asset $ 242,747 $ 172,185
As of December 31, 2006, 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, 2006 and 2005 was a $200 increase and a $2,023,800 increase,
respectively.
At December 31, 2006 and 2005, the Company had net operating loss carry forwards
for federal and state income tax purposes of approximately $6,942,000 and
$5,414,000, which are available to offset future taxable income, if any, through
2026.
At December 31, 2006, and 2005 the Company had net operating loss carry forwards
for foreign (federal and provincial) income tax purposes of approximately
$4,449,000 and $4,016,000, respectively, which are available to offset future
taxable income, if any, through 2016.
(9) COMMON STOCK
During the years ended December 31, 2006 and 2005 the company did not issue any
common shares.
(10) 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 8,519,675 (1) 17.12%
Nicholas Matossian (2) 672,408 (2) 1.35 %
Jacques R Delorme (4) 205,095 (3) 0.41%
Officers and Directors as a group (5 persons)
9,397,178(1,2,3) 18.89%
3772-063 Canada Inc. 208
Sidney Cunningham
Beaconsfield, Quebec, Canada H9W 6E4 4,600,000 9.25%
Cede & Co
Box 222 Bowling Green Station
New York, NY 10274 7,406,508 14.89%
(1) 2,851,407 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, (a)
4,024,629outstanding 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) 736,099 shares
issuable upon exercise of presently exercisable warrants issued to 373 Florida
Corp (controlled by Mr. Marengere) and (d) 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 672,408 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.
(3) Consists of 205,095 shares held Servidel Inc. a corporation wholly-owned by
Mr. Delorme.
(11) STOCK OPTIONS
During 2006 the Company charged $190,131 against operations for options issued
during the year (options valued utilizing the Black Shoals Method at date of
issue) and during 2005 the Company charged $961,068 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:
Number of Shares Weighted Average Price
--------------------- ---------------------
Outstanding at December 31, 2002 --
Granted 1,000,000 $ 0.30
Exercised --
---------------------
Outstanding at December 31, 2003 1,000,000 $ 0.30
Granted 3,768,129 $ 0.52
Exercised --
--------------------- ---------------------
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
Granted 2,614,728 $ 0.25
Expired (850,000) $ 0.30
--------------------- ---------------------
Outstanding at December 31, 2006 9,101,919 $ 0.51
The following table summarizes additional information about all of the stock
options outstanding at December 31, 2006:
Outstanding options Exercisable options
Range of Shares Weighted average Weighted avg. Shares Weighted avg.
exercise prices remaining life price price
(years)
$ .25 - .25 2,614,728 2.75 $ 0.28 2,614,728 0.28
.30 - 1.00 2,723,128 1.83 0.42 2,723,128 0.42
.85 - 1.00 1,020,001 .30 0.95 1,020,001 0.95
.50 - 1.00 175,000 .83 0.65 175,000 0.65
.70 - .97 2,569,062 1.06 0.78 2,569,062 0.78
$ .25 - 1.00 9,101,919 1.56 $ 0.51 9,101,919 $ 0.51
(12) 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, 2006 and 2005 were
with one agency within the Canadian government.
(13) 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, 2006. 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.
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 7710 7400
This information is provided by RNS
The company news service from the London Stock Exchange