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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								$                  -0-	$ 22,307
		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'		equity								___________ (6,305,171) ___________	___________ (5,286,143) ___________
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 - subsidiary	1,736,819	2,103,592
Income (loss) from subsidiary before other expenses	295,271	(164,404)
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
Balance, January 1, 2006	40,651,512	$40,651		$ 5,526,218	$ (7,922,364)	$ 190,630	$ (2,164,865)
Comprehensive income (loss):
Net loss					(3,320,790)		(3,320,790)
Foreign currency translation gain (loss)						9,381	9,381
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 gain (loss)						91,342	_91,342
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 accrued expenses	1,258,083		1,704,984
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 activities	44,980		(698,895)
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 credit	203,768		(66,613)
Repayment of loan payable bank	(22,307)		(600,020)
Net repayment of loan payable - CEO	(100,147)		-0-
Borrowings from loans payable stockholders' and related parties	-0-		86,841
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 allowance		-0-		200
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 group (5 persons)	11,064,483(1,2,3)	21.62%
Spiegel Sohmer Escrow Agent 5 Place Ville Marie, Bureau 1203 Montreal, Quebec, Canada H3B 2G2	4,000,000	7.81%
3772-063 Canada Inc. 208 Sidney Cunningham Beaconsfield, Quebec, Canada H9W 6E4	4,600,000	8.99%
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, 2002	-0-	$	0.00
Granted	1,000,000	$	0.30
Exercised	-0-	$	0.00
	---------------------
Outstanding at December 31, 2003	1,000,000	$	0.30
Granted	3,768,129	$	0.52
Exercised	-0-	$	0.00
	---------------------		---------------------
Outstanding at December 31, 2004	4,768,129	$	0.47
Granted	2,569,062	$	0.83
Exercised	-0-	$	0.00
	---------------------		---------------------
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
Granted	2,134,848	$	0.25
Expired	(700,000)	$	0.85
	---------------------		---------------------
Outstanding at December 31, 2007	10,536,767	$	0.37

 

The following table summarizes additional information about all of the stock options outstanding at December 31, 2007:

 

Outstanding options						Exercisable options
	Range of exercise prices	Shares	Weighted average remaining life (years)		Weighted avg. price	Shares		Weighted avg. price
$	.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

 

ENDFR URVSRWNRNOAR