Tomahawk Industries, Inc. Form 10KSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number: 0-9483
TOMAHAWK INDUSTRIES, INC.
(Name of small business issuer in its charter)
NEVADA 95-3502207
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 West 35th Street, Suite 402, New York, NY 10001
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 239-2666
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.001
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the 90 past days. YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year: $0.
The aggregate market value of voting and non-voting stock of the issuer held by
non-affiliates on June 30, 2004 was $7,871,392.
As of August 12, 2004, we had 200,000,000 shares of common stock issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
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TOMAHAWK INDUSTRIES, INC.
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business 3
Item 2. Description of Property 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 12
Item 6. Management's Discussion and Analysis and Plan of Operation 14
Item 7. Financial Statements 19
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 37
Item 8A. Controls and Procedures. 37
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act 38
Item 10. Executive Compensation 40
Item 11. Security Ownership of Certain Beneficial Owners and Management 43
Item 12. Certain Relationships and Related Transactions 45
Item 13. Exhibits and Reports on Form 8-K 46
Item 14. Principal Accountant Fees and Services 47
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL OVERVIEW
We are a Nevada corporation named Tomahawk Industries, Inc. ("Tomahawk," "we,"
"us," or the "Company").
We only recently began our current business operations. Prior to February 27,
2004, we did not conduct any substantive operations. On February 27, 2004, we
acquired the business of Sparta Commercial Services, LLC.
Sparta Commercial Services, LLC is a Delaware limited liability company formed
on October 1, 2001. Sparta's business plan is to act as an originator and
indirect lender for retail installment loan and lease financing for the purchase
or lease of new and used motorcycles, scooters, and all-terrain vehicles (ATVs).
From inception through April 30, 2004, Sparta has been in its start-up and
developmental stages. Through April 30, 2004, Sparta had no revenues and
incurred significant operational losses.
Our offices are located at 240 West 35th Street, Suite 402, New York, NY 10001,
telephone number: (212) 239-2666. We maintain a website at:
www.spartacommercial.com.
OUR ORGANIZATION HISTORY
Our company was incorporated under the laws of the State of Nevada on May 13,
1980 under the name Tomahawk Oil and Minerals, Inc. and engaged in oil and gas
exploration activities.
On November 6, 1983, the company changed its corporate name to Tomahawk
Industries, Inc.
In 1984, Tomahawk entered the business of installing energy recovery and energy
saving devices.
In July 1987, Tomahawk filed for protection under Chapter 11 of the U. S.
Bankruptcy Code and operated as a debtor-in-possession. The petition for
bankruptcy protection was denied. Tomahawk ceased all business operations,
liquidated its former subsidiary and abandoned all net assets remaining by April
30, 1988. Tomahawk effectively had no operations, assets or liabilities since
its fiscal year ended April 30, 1988 through February 27, 2004.
ACQUISITION OF SPARTA
On February 27, 2004, pursuant to an Agreement and Plan of Reorganization, we
acquired Sparta Commercial Services, LLC, in a transaction viewed as a reverse
acquisition
Under the terms of the agreement, we acquired all of the outstanding membership
interests in Sparta in exchange for the agreement to issue 629,874,626 shares of
our common stock. As of February 26, 2004, we had an authorized capital of
200,000,000 shares and 56,637,228 shares issued and outstanding, and we issued
the remaining 143,362,772 shares to Sparta members; accordingly, the balance of
the shares due to Sparta members will be issued upon completion of an increase
in Tomahawk's authorized capital or completion of a reverse split of the
outstanding shares. The shares issued and to be issued to the Sparta members
would constitute approximately 91.75% percent of our outstanding shares.
Sparta also entered into a consulting agreement for business and financial
services with Glenn A. Little, the former principal of Tomahawk. The agreement
is for a term of one year. Mr. Little received a fee of $100,000 pursuant to the
consulting agreement.
As a result of the acquisition, a change in control occurred in the ownership
and management of Tomahawk. In connection with the acquisition, the managing
member of Sparta, Anthony Havens, was appointed President and Chairman of
Tomahawk. The former directors and officers of Tomahawk resigned as of the
acquisition date.
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OUR BUSINESS
We seek to become a specialized consumer finance company engaged primarily in
the origination of lease and retail installment sales contracts of new and used
motorcycles, scooters, and ATVs. We believe that the market for consumer finance
programs for motorcycles and ATVs is underserved by traditional lenders.
We seek to provide both indirect loans and lease financing for motorcycles and
ATVs. We intend to be an originator and indirect lender for retail installment
loan and lease financing for the purchase or lease of new and used motorcycles,
scooters, and ATVs.
Our principal business is to provide financing programs, primarily to purchasers
of new and used motorcycles, scooters, and ATVs who meet our credit criteria.
We are developing relationships with vehicle dealers and manufacturers to
provide our financing programs to their customers. We also seek to provide
motorcycle, scooter, and all-terrain vehicle manufacturers a private label
version of our financing programs for their customers.
OUR BUSINESS MODEL
Our business model is centered around the following areas of the motorcycle
finance industry:
o retail installment loans and leases;
o private label financing programs for manufacturers;
o portfolio management services;
o remarketing of off-lease and repossessed vehicles; and
o ancillary products and services, such as gap insurance and extended
warranties.
Retail Installment Loans And Leases
-----------------------------------
We intend to finance touring, sport touring, cruiser models, and sport bikes
from Harley-Davidson, Honda, Yamaha, Suzuki, Triumph, Ducati and other popular
manufacturers. Loan terms from 24 to 60 months will be underwritten, with the
majority of installment sales structured to mature in either 36 or 60 months.
Customers' financing needs are projected to range from approximately $5,000 to
$35,000 per motorcycle.
Motorcycle lease terms can range from 24 to 60 months, although most lease terms
are either 36 or 60 months. Lessees generally make lower monthly payments than
installment purchasers because they finance only part of the vehicle with the
balance financed by the lessor.
We will seek to negotiate leases on terms to generate sufficient rental revenues
over the term of the lease. If the underlying asset is returned at the end of
the lease term, when total lease payments are added to the estimated value of
the equipment upon lease termination, the lessor should achieve a return of the
capital used to purchase the equipment plus an overall profit on the investment.
We intend to begin notifying lessees of their options as much as 11 months
before the expiration of their contracts. Leaseholders are prone to renew their
contracts if they have invested considerable amounts of money into improvements
in order to customize their vehicles and/or have positive equity positions in
their vehicles. We will aggressively court those customers who have established
a reliable payment history with us.
We expect that we will also receive other revenue related to servicing the lease
portfolio, such as lease acquisition fees, late payment fees, vehicle
disposition fees at lease-end, early termination fees, and charges for excess
wear-and-tear on leased motorcycles.
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Portfolio Management Services
-----------------------------
We intend that our business will be responsible for performing all portfolio
management services for our vehicle loan and lease finance portfolio.
We intend to develop a portfolio management and administrative infrastructure to
support both retail installment loans and leases. We intend to utilize a
licensed operating platform with which our management has prior experience,
saving us a substantial amount of time and money.
Our portfolio management is expected to include vehicle acquisition, management
and disposition services; credit analysis of potential purchasers and lessees;
identification, qualification and training of authorized dealers; collection of
revenues; monitoring customer compliance with property, sales and use tax,
titling, insurance and other terms of their retail installment loans and leases;
and arranging for necessary vehicle maintenance, repairs and remarketing.
Administrative activities will include the preparation of detailed reports to
meet management's demands for information. The existing automated systems are
able to prepare periodic summaries of the aggregate portfolio quality and
concentrations, delinquency reports by account, the location of inventoried and
off-lease motorcycles, the current status of equipment on consignment, insurance
status reports by customer, consumer credit reports to contracted credit
bureaus, applicant activity reports by dealer and real-time calculation of
prime-to-subprime credit risk weightings in the portfolio to determine if the
company is meeting its targets.
Remarketing Off-Lease And Repossessed Vehicles
----------------------------------------------
The potential sale or re-lease of off-lease motorcycles is another potential
revenue source for us.
Vehicle leasing companies seek to negotiate lease terms based in part on the
estimated value of the collateral upon termination of the contract. Lenders
calculate a spread so that the cumulative value of principal and interest
payments is high enough to cover unforeseen declines in residual values but low
enough to leave the customer with comfortable payment terms.
Our management is current with the latest developments in motorcycle technology
and trends. We intend to manage our residual risk primarily by focusing on the
leasing of motorcycle models that management believes will retain their value on
a relative basis and have broad appeal in the used motorcycle market. New
Harley-Davidson motorcycles, for example, often command a premium over
manufacturers suggested retail price and used Harleys frequently retain their
retail value over lease terms.
We intend to adjust vehicle prices to take into account the value of hard
accessories added to customized motorcycles, as well as the age, condition and
mileage of the used equipment. It is expected that vehicle values will be
further fine-tuned based on the historical performance of leased vehicles in our
portfolio. We expect to develop future residual values by looking at historical
prices for a particular make and model, and then seeing how closely current book
value resembles predicted book value. We may require larger down payments, for
example, on makes and models that we find are less popular than originally
projected.
Contracts may be terminated either because the lease has expired, or because the
lessee fails to meet payment obligations or to maintain required insurance. Any
of these conditions may lead to our taking possession of the vehicle. Because of
the considerable customization, also known as "silent equity," that most riders
put into their motorcycles, lessees tend to refinance their motorcycles at the
end of the lease term rather than return them.
Management's experience in this industry has shown that off-lease motorcycles
can be very profitable when lessors pay careful attention to pricing
fundamentals and carefully evaluate the underlying collateral. Management's
experience in recent years is that motorcycles of American, Japanese, German and
British manufacturers have come off-lease with values often above pay-off to the
lender.
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Re-leasing and Remarketing Channels
-----------------------------------
Management proposes to commence its re-leasing efforts as much as 11 months
prior to the end of the scheduled lease term. Lessees' options are expected to
include: extending the lease, returning the motorcycle to us or buying the
motorcycle at the buy-out option price established at the beginning of the
lease. We plan to offer a Purchase Plus lease program--a 60-month lease with a
low residual value (usually 11% of original price) that the lessee can typically
pay off in four or five additional monthly payments at the end of the 60-month
lease term.
If a motorcycle is returned to us at the end of the scheduled lease term, we
intend to have it inspected for excessive wear and mileage over maximum levels
specified under the lease and bill the lessee accordingly. Thereafter, we plan
to consign the vehicle to the originating dealer for sale or re-lease to a new
party. The market for used motorcycles is enormous, and the opportunity to
remarket the same motorcycle numerous times is a key selling point with
prospective dealerships. We believe that using our dealer network in such a
manner will result in a better overall economic return on the portfolio as well
as strengthening dealer relationships.
All repossessed motorcycles are similarly returned to the originating authorized
dealer to be reconditioned (if needed) for consignment sale or re-lease.
Another remarketing channel is dealer-only auctions. The opportunity to put up
motorcycles for dealer bids has been enhanced with the appearance of dedicated
auction houses such as National Powersports Auction. Management believes the
auction process, although viable, will not be its preference for remarketing
motorcycles due to the strong dealer market for used motorcycles that enables
companies like us to maximize residual values by selling motorcycles directly to
dealers or placing them on consignment.
Ancillary Products And Services
-------------------------------
We intend to position ourself as a full service organization providing products
and services that are costly to obtain on an individual dealer basis. Initially,
we plan to offer the following ancillary products and services:
o Gap Insurance - We plan to market gap insurance on a fee basis to
customers through dealers. This insurance protects the customer should
the motorcycle be stolen or wrecked and the holder's primary insurance
is inadequate to cover payoff to the bank that holds the lien on the
motorcycle.
o Extended Warranties - We plan to offer dealerships on a fee basis
private label extended warranty plans for purchased and leased
motorcycles. Warranties will be offered to anyone who finances a
motorcycle, whether through us or another source.
We expect that the revenues generated by these products will far exceed costs
associated with offering such products. Management will actively monitor the
network for other opportunities. We believe we can create products and services
to meet dealers' needs, creating company brand loyalty in the dealer community
and generating other revenue streams.
CREDIT ANALYSIS
We plan to maintain detailed policies and procedures for credit evaluation,
collections and insurance. We intend to impose strict credit parameters to
determine which retail installment loans and lease applications to approve.
We intend to establish loan-to-value ratios that range from 50% to 120% for each
of our installment sales and leases, depending on the borrower's or
leasee's credit rating. We intend to utilize our own credit rating system
by using our empirical score card and then assigning its own letter rating (A,
A-, B, etc.) to numerical ranges based on management's experience.
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We plan to conduct both applicant credit risk and asset evaluation before
approving financing. We intend to implement a policy that we will not finance
more than 120% of a motorcycle's retail value. Should the customer seek
financing above this threshold, we intend to ask for a down payment from the
borrower or lessee to close the gap. The size of the payment will be a function
of the applicant's credit rating and the value of the underlying asset.
We plan to monitor the timing of payments on our accounts. Repossession is
generally an unattractive proposition and we may attempt to negotiate debt
restructuring or other arrangements to satisfy the deficiency while pursuing
collateral and obligors. To the extent that a deficiency has been permanently
established, we intend to pursue legal recourse.
When a loan is determined to be impaired, we intend to take a write-down or to
establish an impairment reserve, if required, based on the difference between
the carrying amount of the loan and the fair value of the collateral. We intend
to initially take a loan loss reserve of 5% of our outstanding loan income, and
adjust the reserve based on actual experience.
Management proposes to reduce portfolio risk not only by carefully screening
applicants and monitoring covenant compliance, but by diversifying our financing
activities across credit ratings models and motorcycle models.
We expect to maintain a portfolio dominated by A/B credit applicants over C/C-
applicants in the ratio of at least 70/30. Management anticipates that it will
be able to rebalance its portfolio by training its sales force to work closely
with dealerships in their territories to help us achieve and maintain our 70/30
target, which management believes is conservative.
Advance rates and other loan restrictions will be in effect for certain models
and years based on industry knowledge and the experience of our management team.
MOTORCYCLE INSURANCE AVAILABILITY
We will require our customers to obtain and maintain insurance at minimum
specified limits. Our minimum insurance requirements are expected to exceed all
state minimums for lease contracts. We will seek to quickly repossess a vehicle
if coverage lapses. We intend to utilize an automated portfolio services system
that includes an insurance coverage tracking feature. We may also retain the
services of an insurance tracking company which tracks policies. Lapsed or
cancelled policies will be covered by the Vendor Single Interest and gap
insurance.
SPARTA INSURANCE COVERAGE
We plan to carry skip, gap and Vendor Single Interest insurance on every
vehicle, to protect our assets should the person who is financing or leasing a
motorcycle, or the motorcycle itself, disappear. Gap insurance covers a lessee's
motorcycle that is stolen or wrecked, where the lessee's insurance is not
adequate to cover our payoff to the bank that holds the lien on the equipment.
We plan to carry gap insurance on all manufacturers' brands, except
Harley-Davidson, for which we will be self-insured. Vendor Single Interest
insurance replaces the insurance that a customer should have had (but did not)
in the face of loss and damages. Should the insurance payoff be inadequate to
cover our exposure, we will apply to the gap insurance coverage to make up the
difference.
CERTAIN AGREEMENTS WITH THIRD PARTIES
We entered into a license agreement, dated as of June 1, 2002, and as amended on
December 3, 2003, with American Motorcycle Leasing Corp. Under the agreement, we
have a non-exclusive, perpetual right to use American Motorcycle Leasing Corp.'s
proprietary operating systems related to consumer credit underwriting
procedures, vehicle and vehicle lease value evaluation methods, rental stream
collection and insurance tracking policies and procedures. The license fee
consisted of $300,000 and 330,433 membership interests of Sparta Commercial
Services, LLC, which will be represented by 34,256,941 shares of Tomahawk once
we effect an increase in our authorized capital.
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We entered into an agreement with Malaguti USA, an importer and distributor of
powersports products, motorcycles, and scooters manufactured in Italy. Pursuant
to the agreement, we provide to, and administer on behalf of, Malaguti, for a
term of five years, a private label version of our program for use by Malaguti
dealers with their customers.
We entered into a services agreement, dated as of March 1, 2004, with American
Motorcycle Leasing Corp. For a period of three years, American Motorcycle
Leasing Corp. is to provide personnel, computer equipment and software, and
facilities, in connection with our credit and underwriting activities and our
use of the operating systems that we had licensed from American Motorcycle
Leasing Corp. In return for such services, we agreed to pay $100,000 by March 1,
2005, and for the time of the personnel utilized at their salary rate at
American Motorcycle Leasing Corp.
We entered into an agreement with STR, Inc., an importer and distributor of
certain Kymco powersports products, scooters, ATVs, and motorcycles manufactured
in Taiwan. Pursuant to the agreement, we provide to, and administer on behalf
of, STR, Inc., for a term of five years, a private label version of our program
for use by STR.
MARKETING AND SALES PLANS
Our sales and marketing strategy will be aimed at enrolling motorcycle
dealerships into the authorized network as well as contracting with motorcycle
manufacturers for our private label installment sales and leasing program.
We plan to support direct sales initiatives with our dealer-oriented website and
by Sparta's attendance at dealer trade shows. While most dealerships have
dedicated Finance & Insurance personnel, our challenge will lie in educating
dealership personnel on the merits of our leasing program. Although prevalent in
the automobile industry, leasing is a relatively new concept in the motorcycle
arena.
New marketing materials will be created for Sparta authorized dealers. They will
be given posters, store decals, brochures and point-of-purchase stands to alert
customers to the affiliation.
Dealer Support Services
-----------------------
We intend to initiate and maintain dealer relationships through our dealer
support group and online dealer services. We plan to designate dealer
representatives who will be responsible for servicing dealers within a certain
geographic area. The duties of the support group will include contacting
dealerships to introduce our finance programs, providing training and ongoing
dealer support.
Qualifying Dealers
------------------
Our success will be due in great measure to our ability to initiate and maintain
dealer relationships. Management will consider, among other things, the
reputation of the dealership; experience and depth of management; quality of
product or service; compliance with state licensing regulations; banking
history; insurance information and trade relationships as qualifying criteria to
become an authorized Sparta dealer. Dealers must also have a service department
that can service purchased and leased inventory motorcycles and provide warranty
service.
Private Label Programs
----------------------
We will seek to form strategic alliances with motorcycle manufacturers to
private label their installment sales and leasing programs. Since ATVs are made
by motorcycle manufacturers, we would have the opportunity to attract not only
their motorcycle business, but their ATV business as well. We have entered into
agreements with both Malaguti USA and STR Inc. to provide and administer a
private label version of our program for their customers.
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Website
-------
The Customer Management section of the website will enable authorized dealers to
track the status of all applicants submitted by their dealership. The dealer
will be able to review pending, approved, declined and active (funded) deals
they've submitted as well as those applications sent to "credit committee" for
further review. This will enable the dealer to easily review their business with
Sparta and will give Sparta the ability to easily monitor dealer activity at any
point in time.
The Sparta Lease/Loan Calculator will configure both lease and loan payments,
simultaneously and instantaneously, allowing dealers to provide their customers
with highly accurate payment schedules. Dealers who do not have the time to use
the Calculator may refer to the sample lease and loan payment matrices to quote
estimated payments to their customers.
Authorized dealers will be able to advertise both new and used vehicles in the
Classified Section of our website, at no cost to the dealer. Sparta plans to use
this feature of the website to remarket its own inventory (both repossessed and
returned end-of-term vehicles) throughout the country. Our exclusive
"Second-Chance Express" program for customers with a poor or limited credit
history was created to help re-market our inventory. Incentives are in place for
authorized dealers who sell or lease either a Sparta inventory vehicle at their
dealership or one that is at another dealership in our network.
The website will provide authorized dealers with access to a PowerPoint
presentation that will fully acquaint their staff with the various Sparta
financing products, and how to sell them. A different PowerPoint presentation is
available on the website aimed at consumers.
While we do not market or sell directly to consumers, we do expect consumers to
access our website. Visiting consumers will be able to view Sparta advertising
and news and find general information about motorcycle makes and models, road
rallies, and other areas of motorcycle interest. They will also be able to
utilize our Dealer Locator to find the nearest authorized Sparta dealer in their
neighborhood. Consumers will be able to view the Classified Section of the
website and any consumer inquiring about the program will be directed to their
nearest authorized dealer.
COMPETITION
The consumer finance industry is highly fragmented and highly competitive.
Broadly speaking, we compete with commercial banks, savings & loans, industrial
thrift and credit unions, and a variety of local, regional and national consumer
finance companies. While there are numerous financial service companies that
provide consumer credit in the automobile markets, including banks, other
consumer finance companies, and finance companies owned by automobile
manufacturers and retailers, most financial service companies are reluctant to
lend to motorcyclists. Customers who approach these lending sources to take out
installment loans are often encouraged to pursue personal loans instead.
There are few companies that provide nationwide dealer-based leasing options in
the motorcycle industry segment, and these tend to be private label factory
programs supporting their own brands. Because of their narrow focus (such as
requiring that the equipment be covered by the brand's warranty), these
companies have met with limited success.
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Independent consumer financial services companies and large commercial banks
that participated in this market have withdrawn substantially from the
motorcycle loan niche over the past two years or have toughened their
underwriting criteria. We believe that those companies may have suffered as a
result of compromising their underwriting criteria for the sake of volume. In
addition, management believes that our competitors' practice of financing all
makes and models of a particular manufacturer results in lower overall portfolio
performance because of the poor demographics associated with some of those
product lines. The marketplace also includes small competitors such as local
credit unions, local banks and a few regional players.
REGULATION
Our planned financing operations are subject to regulation, supervision and
licensing under various federal, state and local statutes and ordinances.
Additionally, the procedures that we must follow in connection with the
repossession of vehicles securing contracts are regulated by each of the states
in which we plan to do business. Accordingly, the laws of such states, as well
as applicable federal law, govern our operations. Compliance with existing laws
and regulations has not had a material adverse affect on our operations to date.
Our management believes that we maintain all requisite licenses and permits and
are in material compliance with all applicable local, state and federal laws and
regulations. We will periodically review our office practices in an effort to
ensure such compliance.
The following constitute certain of the federal, state and local statutes and
ordinances with which we must comply:
o Fair Debt Collection Act. The Fair Debt Collection Act and applicable
state law counterparts prohibit us from contacting customers during
certain times and at certain places, from using certain threatening
practices and from making false implications when attempting to
collect a debt.
o Truth in Lending Act. The Truth in Lending Act requires us and the
dealers we do business with to make certain disclosures to customers,
including the terms of repayment, the total finance charge and the
annual percentage rate charged on each Contract or direct loan.
o Consumer Leasing Act. The Consumer Leasing Act applies to any lease of
consumer goods for more than four months. The law requires the seller
to disclose information such as the amount of initial payment, number
of monthly payments, total amount for fees, penalties for default, and
other information before a lease is signed.
o The Consumer Credit Protection Act of 1968. The Act required creditors
to state the cost of borrowing in a common language so that the
consumer could figure out what the charges are, compare costs, and
shop for the best credit deal.
o Equal Credit Opportunity Act. The Equal Credit Opportunity Act
prohibits creditors from discriminating against loan applicants on the
basis of race, color, sex, age or marital status. Pursuant to
Regulation B promulgated under the Equal Credit Opportunity Act,
creditors are required to make certain disclosures regarding consumer
rights and advise consumers whose credit applications are not approved
of the reasons for the rejection.
o Fair Credit Reporting Act. The Fair Credit Reporting Act requires us
to provide certain information to consumers whose credit applications
are not approved on the basis of a report obtained from a consumer
reporting agency.
o Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act requires us to
maintain privacy with respect to certain consumer data in our
possession and to periodically communicate with consumers on privacy
matters.
o Soldiers' and Sailors' Civil Relief Act. The Soldiers' and Sailor's
Civil Relief Act requires us to reduce the interest rate charged on
each loan to customers who have subsequently joined, enlisted, been
inducted or called to active military duty.
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o Electronic Funds Transfer Act. The Electronic Funds Transfer Act
prohibits us from requiring our customers to repay a loan or other
credit by electronic funds transfer ("EFT"), except in limited
situations which do not apply to us. We are also required to provide
certain documentation to our customers when an EFT is initiated and to
provide certain notifications to our customers with regard to
preauthorized payments.
o Telephone Consumer Protection Act. The Telephone Consumer Protection
Act prohibits telephone solicitation calls to a customer's home before
8 a.m. or after 9 p.m. In addition, if we make a telephone
solicitation call to a customer's home, the representative making the
call must provide his or her name, our name, and a telephone number or
address at which our representative may be contacted. The Telephone
Consumer Protection Act also requires that we maintain a record of any
requests by customers not to receive future telephone solicitations,
which must be maintained for five years.
o Bankruptcy. Federal bankruptcy and related state laws may interfere
with or affect our ability to recover collateral or enforce a
deficiency judgment.
EMPLOYEES
We currently have six employees.
ITEM 2. DESCRIPTION OF PROPERTY
We presently maintain our executive offices at 240 West 35th Street, Suite 402,
New York, New York 10001 pursuant to a service agreement for services, equipment
and facilities. We believe that our present facilities are suitable for our
present needs.
ITEM 3. LEGAL PROCEEDINGS
As at April 30, 2004, we are not a party to any material pending legal
proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 1, 2004, holders of a majority of our outstanding common stock, owning
approximately 61% of the outstanding shares of our common stock (the "Majority
Stockholders"), have executed written consents in favor of the following
actions.
1. Amend our Articles of Incorporation to change the name of the
corporation to "Sparta Commercial Services, Inc."
2. Amend our Articles of Incorporation to increase our authorized number
of shares, and to designate a class of preferred stock. We propose to
initially increase our authorized number of shares to 700,000,000
shares, and subject to completion of stock split(s), reduce our
authorized number of shares to 350,000,000 shares. We will designate
10,000,000 shares of our authorized capital as preferred stock.
3. Effect a 1-for-200 reverse stock split of the outstanding shares of the
Company's common stock, which will be promptly followed by a forward
stock split of between 10-for-1 to 40-for-1.
4. Implement a 2005 Stock Incentive Compensation Plan for the Company's
employees and others entitled to participate under the plan.
Pursuant to Rule 14c-2 under the Securities Exchange Act of 1934, as amended,
the actions will not be effective until 20 days after the date that an
Information Statement concerning these actions is mailed to our shareholders. We
anticipate that the actions contemplated by the Information Statement will be
effected in August 2004.
11
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
Our common stock is quoted on the OTC Bulletin Board under the symbol "TMHK".
During 2001, we filed a request for clearance of quotations on the OTC Bulletin
Board under SEC Rule 15c2-11, Subsection (a)(5) with NASD Regulation Inc. A
Clearance Letter was issued in April 2001. The first posted trade was conducted
on May 3, 2001, and, historically, there has been very low volume of trading of
our common stock.
The quoted high and low closing market prices of our common stock on the OTC
Bulletin Board, for the periods indicated, are presented in the table below.
Prices prior to February 27, 2004 reflects prices for our former business, which
was essentially a public shell vehicle. Our business changed on February 27,
2004 when we acquired Sparta Commercial Services, LLC.
High Low
Fiscal Year 2003 (May 1, 2002 - April 30, 2003)
First quarter (May 1, 2002 - July 31, 2002) $0.06 $0.01
Second quarter (August 1, 2002 - October 31, 2002) $0.10 $0.01
Third quarter (November 1, 2002 - January 31, 2003) $0.03 $0.01
Fourth quarter (February 1, 2003 - April 30, 2003) $0.01 $0.01
Fiscal Year 2004 (May 1, 2003 - April 30, 2004)
First quarter (May 1, 2003 - July 31, 2003) $0.01 $0.01
Second quarter (August 1, 2003 - October 31, 2003) $0.05 $0.01
Third quarter (November 1, 2003 - January 31, 2004) $0.03 $0.017
Fourth quarter (February 1, 2004 - April 30, 2004) $0.20 $0.03
HOLDERS
The approximate number of holders of record of our common stock as of April 30,
2004 was 5,556, excluding stockholders holding common stock under nominee
security position listings.
DIVIDENDS
We have never declared any cash dividends on our common stock. Future cash
dividends on the common stock, if any, will be at the discretion of our Board of
Directors and will depend on our future operations and earnings, capital
requirements and surplus, general financial condition, contractual restrictions,
and other factors that the Board of Directors may consider important. The Board
of Directors does not intend to declare or pay cash dividends in the foreseeable
future. It is the current policy to retain all earnings, if any, to support
future growth and expansion.
TRANSFER AGENT
The transfer agent for our common stock is Executive Registrar & Transfer Inc.
12
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RECENT SALES OF UNREGISTERED SECURITIES
On February 27, 2004, pursuant to an Agreement and Plan of Reorganization, we
acquired Sparta Commercial Services, LLC. We acquired all of the outstanding
membership interests in Sparta in exchange for the agreement to issue
629,874,626 shares of our common stock, in a transaction deemed exempt from
registration pursuant to Section 4(2) of the Securities Act, which when fully
issued would represent approximately 91.75% of our outstanding shares, to Sparta
members. As of February 26, 2004, we had an authorized capital of 200,000,000
shares and 56,637,228 shares issued and outstanding. We issued the remaining
143,362,772 authorized shares to Sparta members. Accordingly, the balance of the
shares due to Sparta members will be issued upon completion of an increase in
our authorized capital or completion of a reverse split of the outstanding
shares.
Between May and July 2004, we sold rights to seven accredited investors for
aggregate gross proceeds of $535,000 in transactions deemed exempt from
registration pursuant to Section 4(2) of the Securities Act. In the event that
we conduct a private placement transaction in 2004 utilizing a designated
registered broker-dealer as a placement agent, the rights will automatically
convert into the securities sold in such private placement at the private
placement sale price. In the event that we do not complete any of the
aforementioned financing by the end of calendar 2004, the rights will
automatically convert into common stock at a purchase price of $0.0146 per
share, or the purchase of an aggregate of 36,643,836 shares, subject to
adjustment for stock split(s).
On August 2, 2004, we agreed to grant Daniel J. Lanjewar, our Chief Financial
Officer, pursuant to an employment agreement, 4,545,455 shares of our common
stock in a transaction deemed exempt from registration pursuant to Section 4(2)
of the Securities Act. The grant of shares is subject to vesting and subject to
continued employment. Twenty percent of the shares shall vest on January 1,
2005, and the reminder of the shares are to vest in equal portions on July 1,
2005, July 1, 2006, July 1, 2007, and July 1, 2008, subject to proportionate
adjustment in the event of employment termination for any incomplete vesting
period.
13
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND PLAN OF OPERATION
"FORWARD-LOOKING" INFORMATION
This report on Form 10-KSB contains certain "forward-looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
which represent our expectations and beliefs, including, but not limited to
statements concerning the Company's expected growth. The words "believe,"
"expect," "anticipate," "estimate," "project," and similar expressions identify
forward-looking statements, which speak only as of the date such statement was
made. These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond our control, and actual results may
differ materially depending on a variety of important factors.
INTRODUCTORY STATEMENT
The following discussion and analysis should be read in conjunction with the
information set forth in the audited financial statements for the year ended
April 30, 2004.
Unless otherwise stated, the discussion and analysis refers to the business of
Sparta Commercial Services, LLC, which we acquired on February 27, 2004 in a
transaction viewed as a reverse acquisition, and does not refer to the
operations for our former business which was essentially a non-operating shell
company. Under applicable accounting principles, the historical financial
statements of Sparta Commercial Services, LLC became those of our company.
COMPANY OVERVIEW
The year ended April 30, 2004 was a period of transition, as we acquired a new
development stage company.
Prior to February 27, 2004, we did not conduct any substantive operations. On
February 27, 2004, pursuant to an Agreement and Plan of Reorganization, we
acquired Sparta Commercial Services, LLC, in a transaction viewed as a reverse
acquisition. The purpose of the transaction was to try to create some value for
our shareholders. As an inactive publicly registered shell corporation with no
significant assets or operations, our business plan was to seek an acquisition
candidate. Sparta sought access to financing, as a publicly-held company. As a
result of the reverse acquisition, there was a change in control of our company.
We are a holding company that conducts our business activities through our
wholly-owned subsidiary, Sparta Commercial Services, LLC. Sparta has been a
development stage company. Sparta, have been principally devoted to developing
business as an originator and indirect lender for retail installment loan and
lease financing for the purchase or lease of new and used motorcycles
(specifically 500cc and higher) and utility-oriented 4-stroke all terrain
vehicles (ATVs).
To date, we have generated no sales revenues, has incurred expenses and has
sustained losses. Consequently, our operations are subject to all the risks
inherent in the establishment of a new business enterprise. For the period from
October 1, 2001 (date of Sparta's inception) through April 30, 2004, we have
accumulated losses of $1,858,931.
The year ended April 30, 2004 was a developmental stage period for us, setting
up credit procedures, setting our arrangements with vehicle distributors,
obtaining personnel, seeking financing to support our developmental efforts, and
seeking credit facilities. In fiscal year 2005, we will seek to obtain
regulatory approval in several states, where required, prior to commencing
active operations. We are actively signing up dealers to participate in our
financing programs, including our private label financing programs. We have
signed up two manufacturers to our private label programs, and are in
negotiations with several other manufacturers who have indicated an interest in
a private label program. Presently, we have very little operating capital to
fulfill our planned business plans. We estimate that we will need approximately
$700,000 to conduct limited operations during the next twelve months. The lack
of capital has made it difficult to obtain a credit line with a lending
institution which we will need before commencing full active operations. We are
presently in discussions with several institutions about obtaining a credit
line, which would permit us to more quickly implement our business plan.
14
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RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED APRIL 30, 2004 TO THE YEAR ENDED APRIL 30, 2003
Through April 30, 2004, we have generated no sales revenues, have incurred
significant expenses, and have sustained significant losses. We believe we will
begin earning revenues from operations in late calendar year 2004 as we
transition from a development stage company to an operating company.
Costs and Expenses
------------------
The Company incurred licensing fees of $630,433 for the year ended April 30,
2004 and $0 for the year ended April 30, 2003. These fees represent equity-based
costs of licensing certain proprietary software, operating systems and processes
for use in connection with the extension of credit and underwriting techniques
for the purchase and lease of motor vehicles.
The Company incurred organization costs of $733,344 for the year ended April 30,
2004 and $5,457 for the year ended April 30, 2003. This increase of $727,887
relates to $285,344 of costs incurred due to the reorganization plan with Sparta
Commercial Services and the subsequent reverse acquisition by Sparta Commercial
Services. Additionally, in June 2003, the Company issued 448,000 shares of
membership interest to various consultants in exchange for services valued at $1
per share.
The Company has included compensation paid to the Company's Managing Member as a
charge to operations. During the years ended April 30, 2004 and 2003, the
Company paid $135,140 and $0, respectively, to the Company's Managing Member in
the form of compensation.
The Company incurred compensation costs of $88,828 for the year ended April 30,
2004 and $0 for the year ended April 30, 2003. The increase is related to the
costs of the Company increasing its employment base during 2004. As the Company
continues to expand, the Company will incur additional costs for personnel. In
order for the Company to attract and retain quality personnel, management
anticipates it will continue to offer competitive salaries and issue common
stock to consultants and employees.
The Company incurred legal and accounting fees of $61,902 for the year ended
April 30, 2004 as compared to $30,293 for the year ended April 30, 2003, an
increase of $31,609. The increase is related to the costs of completing the
reverse acquisition with Sparta Commercial Services in February 2004. As a
result of the Company's recapitalization as a public company, the Company will
continue to incur legal and accounting expenses associated with complying with
various federal and state securities statutes, rules and regulations.
Net Loss
--------
Our net loss for the year ended April 30, 2004 was $1,772,257 in contrast to a
loss of $ 36,659 for the year ended April 30, 2003. The $1,735,598 increase in
net loss was due primarily to the fact that the Company has generated no sales
revenues and is in a development stage as defined by Statement of Financial
Accounting Standards No. 7 ("SFAS No. 7").
Our net loss per common share (basic and diluted) was $0.01 for the year ended
April 30, 2004 and $0 for the year ended April 30, 2003.
15
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LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2004, the Company had a working capital deficit of $80,254. The
Company generated a deficit in cash flow from operations of $781,098 for the
year ended April 30, 2004. The deficit in cash flow from operating activities
for the year ended April 30, 2004 is primarily attributable to the Company's net
loss from operations of $1,772,257, adjusted for depreciation and amortization
of $30, compensation expense on options granted to consultants and licensors of
$ 778,433, an increase in payables of $160,220, acquisition costs of $61,187 and
a gain on sale of investments of $8,711.
Cash flows used in investing activities for the year ended April 30, 2004 was
$5,891.
The Company met its cash requirements during the period through proceeds from
the issuance of equity of $775,000. Subsequent to this period, the Company has
received proceeds from the issuance of equity of $535,000. Additionally, the
Company has received limited revenues from its recently launched private label
programs and from dealer sign-up fees.
While we have raised capital to meet our working capital and financing needs in
the past, additional financing is required in order to meet our current and
projected cash flow deficits from operations and development. We are seeking
financing in the form of equity in order to provide the necessary working
capital. We currently have no commitments for financing. There is no guarantee
that we will be successful in raising the funds required.
We estimate that we will need approximately $700,000 to conduct limited
operations during the next twelve months. Based on capital received from equity
financing after our fiscal year ended 2004, and certain indications of interest
to purchase our equity, we believe that we have, or will have, sufficient
capital resources to meet projected cash flow deficits through the next twelve
months. However, if we are not successful in generating sufficient liquidity
from operations or in raising sufficient capital resources, on terms acceptable
to us, this could have a material adverse effect on our business, results of
operations , liquidity and financial condition, and we will have to adust our
planned operations and development on a more limited scale.
The effect of inflation on the Company's revenue and operating results was not
significant. The Company's operations are located in North America and there are
no seasonal aspects that would have a material effect on the Company's financial
condition or results of operations.
AUDITOR'S OPINION EXPRESSES DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A
"GOING CONCERN"
The independent auditors report on our April 30, 2004 financial statements
included in this Annual Report states that the Company's historical losses and
the lack of revenues raise substantial doubts about the Company's ability to
continue as a going concern, due to the Company's status as a development stage
company and its lack of significant operations. If we are unable to develop our
business, we have to discontinue operations or cease to exist, which would be
detrimental to the value of the Company's common stock. We can make no
assurances that our business operations will develop and provide us with
significant cash to continue operations.
PLAN OF OPERATIONS
Addressing the Going Concern Issues
-----------------------------------
In order to improve the Company's liquidity, the Company's management is
actively pursing additional equity financing through discussions with investment
bankers and private investors. There can be no assurance the Company will be
successful in its effort to secure additional equity financing.
We continue to experience net operating losses. Our ability to continue as a
going concern is subject to our ability to develop profitable operations. We are
devoting substantially all of our efforts to developing our business and raising
capital. Our net operating losses increases the difficulty in meeting such goals
and there can be no assurances that such methods will prove successful.
16
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The primary issues management will focus on in the immediate future to address
this matter include:
o seeking a credit line from institutional lenders;
o seeking institutional investors for equity investments in our company;
and
o initiating negotiations to secure short term financing through
promissory notes or other debt instruments on an as needed basis;
To address these issues, we are negotiating the potential sale of securities
with investment banking companies to assist us in raising capital.
Product Research and Development
--------------------------------
We do not anticapte incurring significant research and development expenditures
during the next twelve months
Acquisition or Disposition of Plant and Equipment
-------------------------------------------------
We do not anticipate the sale of any significant property, plant or equipment
during the next twelve months. We do not anticipate the acquisition of any
significant property, plant or equipment during the next 12 months.
Number of Employees
-------------------
From our inception through the period ended April 30, 2004, we have relied on
the services of outside consultants for services and currently have six
employees. In order for us to attract and retain quality personnel, we
anticipate we will have to offer competitive salaries to future employees. We do
not anticipate our employment base will significantly change during the next
twelve months. As we continue to expand, we will incur additional cost for
personnel. This projected increase in personnel is dependent upon our generating
revenues and obtaining sources of financing. There is no guarantee that we will
be successful in raising the funds required or generating revenues sufficient to
fund the projected increase in the number of employees.
CRITICAL ACCOUNTING POLICIES
The preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on various
other assumptions we believe to be reasonable under the circumstances. Future
events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements; we believe the following
critical accounting policy involves the most complex, difficult and subjective
estimates and judgments:
Stock-Based Compensation
------------------------
In December 2003, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation.
17
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In addition, this statement amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in APB Opinion No. 25 and related interpretations.
Accordingly, compensation expense for stock options is measured as the excess,
if any, of the fair market value of the Company's stock at the date of the grant
over the exercise price of the related option. The Company has adopted the
annual disclosure provisions of SFAS No. 148 in its financial reports for the
period from January 1, 2003 through April 30, 2003 and will adopt the interim
disclosure provisions for its financial reports for the subsequent periods. The
Company does not have stock based awards of compensation to employees granted or
outstanding during the period from October 1, 2001 (date of inception) through
April 30, 2004.
NEW ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. SFAS 149 amends SFAS No. 133 to provide clarification on the
financial accounting and reporting of derivative instruments and hedging
activities and requires that contracts with similar characteristics be accounted
for on a comparable basis. The provisions of SFAS 149 are effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 will not
have a material impact on the Company's results of operations or financial
position.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS 150
establishes standards on the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The provisions
of SFAS 150 are effective for financial instruments entered into or modified
after May 31, 2003 and to all other instruments that exist as of the beginning
of the first interim financial reporting period beginning after June 15, 2003.
The adoption of SFAS 150 will not have a material impact on the Company's
results of operations or financial position.
In December 2003, the FASB issued SFAS No. 132 (revised), EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88 AND 106. This statement retains the disclosure
requirements contained in FASB statement no. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which it replaces. It requires
additional disclosures to those in the original statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. The required
information should be provided separately for pension plans and for other
postretirement benefit plans. The revision applies for the first fiscal or
annual interim period ending after December 15, 2003 for domestic pension plans
and June 15, 2004 for foreign pension plans and requires certain new disclosures
related to such plans. The adoption of this statement will not have a material
impact on the Company's results of operations or financial position.
18
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ITEM 7. FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheet as of April 30, 2004 F-2
Consolidated Statements of Losses for the years ended F-3
April 30, 2004 and 2003 and for the period
October 1, 2001 (date of inception) to April 30, 2004
Consolidated Statement of Deficiency in Stockholders' Equity F-4
for the period October 1, 2001 (date of inception) to
April 30, 2004
Consolidated Statements of Cash Flows for the years ended F-5 to F-6
April 30, 2004 and 2003 and for the period October 1, 2001
(date of inception) to April 30, 2004
Notes to Consolidated Financial Statements F-7 to F-17
19
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RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Tomahawk Industries, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of Tomahawk
Industries, Inc. (a development stage company), as of April 30, 2004 and the
related consolidated statements of losses, deficiency in stockholders' equity,
and cash flows for each of the two years in the period ended April 30, 2004 and
for the period October 1, 2001 (date of inception) through April 30, 2004. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on the financial statements based upon
our audits.
We have conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States of America). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tomahawk
Industries, Inc. (a development stage company) at April 30, 2004 and the results
of its operations and its cash flows for each of the two years in the period
ended April 30, 2004 and for the period October 1, 2001 (date of inception) to
April 30, 2004, in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming the
company will continue as a going concern. As discussed in the Note I to the
accompanying financial statements, the company is in the development stage and
has not established a source of revenues. This raises substantial doubt about
the company's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
---------------------------------------------
Russell Bedford Stefanou Mirchandani LLP
Certified Public Accountants
New York, New York
July 26, 2004
(except for note J, as to which
the date is August 13, 2004)
F-1
20
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TOMAHAWK INDUSTRIES, INC.
(A development stage company)
CONSOLIDATED BALANCE SHEET
APRIL 30, 2004
ASSETS
------
Current Assets:
Cash and cash equivalents $ 11,973
Marketable securities 13,379
-----------
Total Current Assets 25,352
Property and Equipment: (Note C) 1,223
Less: accumulated depreciation 30
-----------
Total Property and Equipment 1,193
Total Assets $ 26,545
===========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
--------------------------------------------------
Current Liabilities:
Accounts payable $ 81,721
Due to related party (Note D) 23,885
-----------
Total Current Liabilities 105,606
Commitments & Contingencies (Note H) --
Deficiency in Stockholders' Equity: (Note E)
Common Stock, no par value; 200,000,000 shares authorized;
56,637,228 shares issued and outstanding at April 30, 2004 56,637
Common stock - subscription payable 143,363
Additional paid-in-capital 1,579,870
Deficit accumulated during development stage (1,858,931)
-----------
Total Deficiency in Stockholders' Equity (79,061)
Liabilities and Deficiency in Stockholders' Equity $ 26,545
===========
See accompanying notes to consolidated financial statements
F-2
21
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TOMAHAWK INDUSTRIES, INC.
(A development stage company)
CONSOLIDATED STATEMENT OF LOSSES
For the Period
October 1, 2001
(date of inception)
through April 30,
For the Year Ended April 30, 2004
2004 2003
----------- ----------- -----------
Operating Expenses:
General and administrative $ 1,780,968 $ 36,659 $ 1,867,642
----------- ----------- -----------
Total Operating Expenses 1,780,968 36,659 1,867,642
Loss from Operations (1,780,968) (36,659) (1,867,642)
----------- ----------- -----------
Other Income 8,711 -- 8,711
----------- ----------- -----------
Income Taxes (benefit) -- -- --
----------- ----------- -----------
Net Loss $(1,772,257) $ (36,659) $(1,858,931)
=========== =========== ===========
Loss per common share (basic and assuming
dilution) (Note G) $ (0.01) $ (0.00)
============ ===========
Weighted average common shares outstanding 136,330,030 120,708,012
See accompanying notes to consolidated financial statements
F-3
22
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TOMAHAWK INDUSTRIES, INC.
(A development stage company)
CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR THE PERIOD OCTOBER 1, 2001 (Date of Inception) THROUGH
APRIL 30, 2004
Sparta
Commercial Tomahawk Deficit
Services Industries, Subscription Accumulated Total
LLC Inc. Payable- Additional During Stockholders'
Membership Common Common Subscription Paid-in Development Equity
interest Shares Amount Shares Payable Capital Stage (Deficiency)
----------- ---------- ----------- ----------- --------- ---------- ----------- -----------
Balance at October 1, 2001 -- -- $ -- -- $ -- $ -- $ -- $ --
Issuance of shares of
membership interest to
the founders 5,100,000 -- 250 -- -- -- -- 250
Proceeds from capital
contributions 50,000 -- 50,000 -- -- -- -- 50,000
Net Loss -- -- -- -- -- -- (50,015) (50,015)
Balance at April 30, 2002 5,150,000 -- 50,250 -- -- -- (50,015) 235
Proceeds from capital
contributions 115,000 -- 115,000 -- -- -- -- 115,000
Net Loss -- -- -- -- -- -- (36,659) (36,659)
----------- ---------- ----------- ----------- --------- ---------- ----------- -----------
Balance at April 30, 2003 5,265,000 -- 165,250 -- -- -- (86,674) 78,576
Proceeds from capital
contributions 775,000 -- 775,000 -- -- -- -- 775,000
Membership interests
issued to consultants
in exchange for
services in June 2003
at $1 per unit 448,000 -- 448,000 -- -- -- -- 448,000
Membership interests
issued in exchange for
licensing fees in
December 2003 at $1
per unit 330,433 -- 330,433 -- -- -- -- 330,433
Tomahawk Shares retained by
Tomahawk stockholders in
connection with merger with
Sparta Commercial Services
LLC in February 2004 -- 56,637,228 56,637 -- -- 4,550 -- 61,187
Shares deemed to be
issued to Sparta
members in relation to
merger with Sparta
Commercial Services
LLC in February 2004 (6,818,433) -- (1,718,683) 143,362,772 143,363 1,575,320 -- --
Net Loss -- -- -- -- -- -- (1,772,257) (1,772,257)
----------- ---------- ----------- ----------- --------- ---------- ----------- -----------
Balance at April 30, 2004 -- 56,637,228 $ 56,637 143,362,772 $ 143,363 $1,579,870 $(1,858,931) $(79,061)
=========== ========== =========== =========== ========= ========== =========== ===========
See accompanying notes to consolidated financial statements
F-4
23
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TOMAHAWK INDUSTRIES, INC.
(A development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period
October 1, 2001
(date of
inception)
through April
For the Year Ended April 30, 30, 2004
2004 2003
----------- ----------- -----------
Cash Flows From Operating Activities:
Net loss $(1,772,257) $ (36,659) $(1,858,931)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 30 -- 30
Shares issued in exchange for licensing fees (Note D&E) 330,433 -- 330,433
Shares issued to founders -- -- 250
Shares issued to consultants for services (Note D) 448,000 -- 448,000
Acquisition costs 61,187 -- 61,187
Gain on sale of investments (8,711) -- (8,711)
Increase(decrease) in:
Accounts payable 79,221 2,500 81,721
Due to related party 80,999 (57,114) 23,885
----------- ----------- -----------
Net Cash Used In Operating Activities (781,098) (91,273) (922,136)
Cash Flows From Investing Activities:
Net payments for property and equipments (1,223) -- (1,223)
Net payments for purchase of marketable securities (4,668) -- (4,668)
----------- ----------- -----------
Net Cash Used In Investing Activities (5,891) -- (5,891)
Cash Flows From Financing Activities:
Capital contributions from members 775,000 115,000 940,000
----------- ----------- -----------
Net Cash Provided By Financing Activities 775,000 115,000 940,000
Net (decrease)increase in cash and equivalents (11,989) 23,727 11,973
Cash and equivalents at beginning of period 23,962 235 --
Cash and equivalents at end of period $ 11,973 $ 23,962 $ 11,973
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ -- $ -- $ --
----------- ----------- -----------
Cash paid during the period for taxes $ -- $ -- $ --
----------- ----------- -----------
See accompanying notes to consolidated financial statements
F-5
24
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TOMAHAWK INDUSTRIES, INC.
(A development stage company)
STATEMENT OF CASH FLOWS
(Continued)
Non Cash Investing and Financing Transactions:
Shares issued in exchange for licensing fees $ 330,433 $ -- $ 330,433
Shares issued to founders in exchange for services -- 250 250
Shares issued in exchange for services 448,000 -- 448,000
Merger with Sparta: (Note B)
Common stock retained 56,637 -- 56,637
Liabilities assumed in excess of assets acquired 4,550 -- 4,550
Shares issued in exchange for services 61,187 -- 61,187
See accompanying notes to consolidated financial statements
F-6
25
--------------------------------------------------------------------------------
TOMAHAWK INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.
Business and Basis of Presentation
----------------------------------
Tomahawk Industries, Inc. (the "Company" or "Tomahawk") was formed on May 13,
1980 under the laws of the State of Nevada. On February 27, 2004, the Company
entered into an Agreement of Plan and Reorganization ("Agreement") with Sparta
Commercial Services, LLC ("Sparta") a limited liability company formed on
October 1, 2001 under the laws of the State of Delaware under the name of Sparta
Financial Services, LLC. The liabilities of the Company's members are limited.
In accordance with SFAS No. 141, the Company was the acquiring entity. While the
transaction is accounted for using the purchase method of accounting, in
substance the Agreement is a recapitalization of the Company's capital
structure. As a result of the Agreement, there was a change in control of the
Company. From April 1988 until the date of the Agreement, the Company was an
inactive publicly registered shell corporation with no significant assets or
operations.
The Company is in the development stage, as defined by Statement of Financial
Accounting Standards No. 7 ("SFAS No. 7") and its efforts, through its
wholly-owned subsidiary, Sparta, have been principally devoted to developing
business as an originator and indirect lender for retail installment loan and
lease financing for the purchase or lease of new and used motorcycles
(specifically 500cc and higher) and utility-oriented 4-stroke all terrain
vehicles (ATVs).
To date, the Company has generated no sales revenues, has incurred expenses and
has sustained losses. Consequently, its operations are subject to all the risks
inherent in the establishment of a new business enterprise. For the period from
October 1, 2001 (date of Sparta's inception) through April 30, 2004, the Company
has accumulated losses of $1,858,931.
Estimates
---------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Revenue Recognition
-------------------
For revenue from products and services, the Company recognizes revenue in
accordance with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101 requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services have been rendered;
(3) the selling price is fixed and determinable; and (4) collectibility is
reasonably assured. Determination of criteria (3) and (4) are based on
management's judgments regarding the fixed nature of the selling prices of the
products delivered/services rendered and the collectibility of those amounts.
Provisions for discounts and rebates to customers, estimated returns and
allowances, and other adjustments are provided for in the same period the
related sales are recorded. The Company defers any revenue for which the product
has not been delivered or services has not been rendered or is subject to refund
until such time that the Company and the customer jointly determine that the
product has been delivered or services has been rendered or no refund will be
required.
F-7
26
--------------------------------------------------------------------------------
TOMAHAWK INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
On December 17, 2003, the SEC staff released Staff Accounting Bulletin (SAB) No.
104, Revenue Recognition. The staff updated and revised the existing revenue
recognition in Topic 13, Revenue Recognition, to make its interpretive guidance
consistent with current accounting guidance, principally EITF Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables." Also, SAB 104 incorporates
portions of the Revenue Recognition in Financial Statements - Frequently Asked
Questions and Answers document that the SEC staff considered relevant and
rescinds the remainder. The Company's revenue recognition policies are
consistent with this guidance; therefore, this guidance will not have an
immediate impact on the Company's financial statements.
Cash Equivalents
----------------
For the purpose of the accompanying financial statements, all highly liquid
investments with a maturity of three months or less are considered to be cash
equivalents.
Marketable Securities
---------------------
The Company classifies its marketable securities as "available for sale"
securities which may be sold in response to changes in interest rates, liquidity
needs and for other purposes. Securities classified as "available for sale" are
carried in the financial statement at fair value. Realized gains and losses are
included in other income. Unrealized gains and losses are reported as a separate
component of stockholders' equity.
At April 30, 2004, marketable securities consist of:
Fair Market
Cost Unrealized Gain Value
Equity securities $ -- $ -- $ --
Mutual funds 13,379 13,379
------- ------ -------
Total $13,379 $ -- $13,379
======= ====== =======
At April 30, 2003, marketable securities balance was $0.
Income Taxes
------------
Deferred income taxes are provided using the asset and liability method for
financial reporting purposes in accordance with the provisions of Statements of
Financial Standards No. 109, "Accounting for Income Taxes". Under this method,
deferred tax assets and liabilities are recognized for temporary differences
between the tax bases of assets and liabilities and their carrying values for
financial reporting purposes and for operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be removed or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the statements
of operations in the period that includes the enactment date. Temporary
differences between taxable income reported for financial reporting purposes and
income tax purposes are insignificant.
F-8
27
--------------------------------------------------------------------------------
TOMAHAWK INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
Impairment of Long-Lived Assets
-------------------------------
The Company has adopted Statement of Financial Accounting Standards No. 121
(SFAS 121). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. SFAS No. 121 also requires assets to be
disposed of be reported at the lower of the carrying amount or the fair value
less costs to sell.
Intangible Assets
-----------------
Organization costs have been expensed as incurred.
Comprehensive Income
--------------------
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting
Comprehensive Income," establishes standards for reporting and displaying of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. At April 30, 2004 and 2003, the Company has $0, as
accumulated unrealized gain (loss) on marketable securities classified as held
for sale.
F-9
28
--------------------------------------------------------------------------------
TOMAHAWK INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
Segment Information
-------------------
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS 131 also establishes standards for related disclosures about
products and services and geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete financial information
is available for evaluation by the chief operating decision maker, or decision
making group, in making decisions how to allocate resources and assess
performance. The information disclosed herein, materially represents all of the
financial information related to the Company's principal operating segment.
Guaranteed Payments to the Members
----------------------------------
The Company has included compensation paid to Sparta's Managing Member as a
charge to operations. During the years ended April 30, 2004 and 2003, Sparta
paid $135,140 and $0, respectively, to the Company's Managing Member in the form
of compensation.
Stock Based Compensation
------------------------
In December 2003, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation.
In addition, this statement amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in APB Opinion No. 25 and related interpretations.
Accordingly, compensation expense for stock options is measured as the excess,
if any, of the fair market value of the Company's stock at the date of the grant
over the exercise price of the related option. The Company has adopted the
annual disclosure provisions of SFAS No. 148 in its financial reports for the
period from January 1, 2003 through April 30, 2003 and will adopt the interim
disclosure provisions for its financial reports for the subsequent periods. The
Company does not have stock based awards of compensation to employees granted or
outstanding during the period from October 1, 2001 (date of inception) through
April 30, 2004.
Liquidity
---------
As shown in the accompanying financial statements, the Company incurred a net
loss of $(1,858,931) during the period October 1, 2001 (date of inception)
through April 30, 2004. The Company's current liabilities exceeded its current
assets by $80,254 as of April 30, 2004.
F-10
29
--------------------------------------------------------------------------------
TOMAHAWK INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
Concentrations of Credit Risk
-----------------------------
Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash, cash equivalents
and trade receivables. The Company places its cash and temporary cash
investments with high credit quality institutions. At times, such investments
may be in excess of the FDIC insurance limit.
Research and Development
------------------------
Company-sponsored research and development costs related to both present and
future products will be expended in the period incurred.
Property and Equipments
-----------------------
Property and equipment are recorded at cost. Minor additions and renewals are
expensed in the year incurred. Major additions and renewals are capitalized and
depreciated over their estimated useful lives. Depreciation is calculated using
the straight-line method over the estimated useful lives. Estimated useful lives
of major depreciable assets are as follows:
Leasehold improvements 5 years
Automobiles 5 years
Furniture and equipment 5 years
Computer Equipment 3 years
Advertising
-----------
The Company follows a policy of charging the costs of advertising to expenses
incurred. During the years ended April 30, 2004 and 2003, and the period October
1, 2001 (date if inception) through April 30, 2004, the Company incurred
advertising costs of $4,057 and $0, respectively.
Net Earnings (Losses) Per Common Share
--------------------------------------
The Company computes earnings per share under Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"). Net earnings (losses) per
common share is computed by dividing net income (loss) by the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding during the year. Dilutive common stock equivalents consist of shares
issuable upon conversion of convertible preferred shares and the exercise of the
Company's stock options and warrants (calculated using the treasury stock
method).
Reclassifications
-----------------
Certain reclassifications have been made to conform to prior periods' data to
the current presentation. These reclassifications had no effect on reported
losses.
F-11
30
--------------------------------------------------------------------------------
TOMAHAWK INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
New Accounting Pronouncements
-----------------------------
In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. SFAS 149 amends SFAS No. 133 to provide clarification on the
financial accounting and reporting of derivative instruments and hedging
activities and requires that contracts with similar characteristics be accounted
for on a comparable basis. The provisions of SFAS 149 are effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 will not
have a material impact on the Company's results of operations or financial
position.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS 150
establishes standards on the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The provisions
of SFAS 150 are effective for financial instruments entered into or modified
after May 31, 2003 and to all other instruments that exist as of the beginning
of the first interim financial reporting period beginning after June 15, 2003.
The adoption of SFAS 150 will not have a material impact on the Company's
results of operations or financial position.
In December 2003, the FASB issued SFAS No. 132 (revised), EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88 AND 106. This statement retains the disclosure
requirements contained in FASB statement no. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which it replaces. It requires
additional disclosures to those in the original statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. The required
information should be provided separately for pension plans and for other
postretirement benefit plans. The revision applies for the first fiscal or
annual interim period ending after December 15, 2003 for domestic pension plans
and June 15, 2004 for foreign pension plans and requires certain new disclosures
related to such plans. The adoption of this statement will not have a material
impact on the Company's results of operations or financial position.
F-12
31
--------------------------------------------------------------------------------
TOMAHAWK INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2004 AND 2003
NOTE B - BUSINESS COMBINATION AND CORPORATE RESTRUCTURE
On February 27, 2004, the Company entered into an Agreement of Plan and
Reorganization ("Agreement") with Sparta Commercial Services LLC ("Sparta"). In
accordance with SFAS No. 141, Sparta was the acquiring entity. While the
transaction is accounted for using the purchase method of accounting, in
substance the Agreement is a recapitalization of the Sparta's capital structure.
For accounting purposes, the Company accounted for the transaction as a reverse
acquisition and Sparta is the surviving entity. The total purchase price and
carrying value of net assets acquired was $61,187. The Company did not recognize
goodwill or any intangible assets in connection with the transaction. From April
1988 until the date of the Agreement, Tomahawk was an inactive corporation with
no significant assets and liabilities.
Effective with the Agreement, all previously outstanding membership interests
owned by the Sparta's members were exchanged for an aggregate of 143,362,772
shares of the Company's common stock. The value of the stock that was issued was
the historical cost of the Tomahawk's net tangible assets, which did not differ
materially from their fair value.
Subject to shareholder approval, Tomahawk is obligated to issue an additional
486,511,854 shares of its common stock to the Sparta's former members (see Note
E).
The total consideration paid was $61,187 and the significant components of the
transaction are as follows:
Common stock retained $ 56,637
Assets acquired (594)
Liabilities assumed 5,144
Cash paid
--
--------
Total consideration paid/organization cost $ 61,187
========
In accordance with SOP 98-5, the Company expensed $61,187 as organization costs.
NOTE C - PROPERTY AND EQUIPMENT
Major classes of property and equipment at April 30, 2004 and 2003 consist of
the followings:
2004 2003
------- ------
Computer equipment $ 1,223 $ --
Less: Accumulated Depreciation (30) --
------- ------
Net Property and Equipment $ 1,193 $ --
======= ======
Depreciation expense was $30 and $0 for the years ended April 30, 2004 and 2003,
respectively.
F-13
32
--------------------------------------------------------------------------------
TOMAHAWK INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2004 AND 2003
NOTE D - RELATED PARTY TRANSACTIONS
The Company entered into a licensing agreement relating to the use of a
proprietary operating system, with an entity controlled by the Company's
President and Chief Executive Officer. During the years ended April 30, 2004
and 2003, the Company charged to operations $300,000 in connection with the
licensing agreement. Also, in December 2003, Sparta issued 330,433 shares of its
membership interests to the entity valued at $330,433 which was charged to
operations in exchange for licensing the proprietary operating systems. At April
30, 2004, the balance outstanding on account of licensing agreement payable to
related party was $23,885. (see Note H)
During the years ended April 30, 2004 and 2003, the Company paid $135,140 and
$0, in exchange for services to the Company's President and Chief Executive
Officer. These amounts were charged to operations.
The Company leases office space from an entity controlled by the Company's
President and Chief Executive Officer (see Note H).
NOTE E - EQUITY INSTRUMENTS
The Company is authorized to issue 200,000,000 shares of common stock with
$0.001 par value per share. As of April 30, 2004, the Company has issued and
outstanding 56,637,228 shares of common stock.
In 2002, Sparta issued 5,100,000 shares to the founder members in exchange for
services relating to formation of the Sparta. The Company charged $250 to
expenses in relation to the issuance. The units of membership interest issued
was valued at approximately $0.00005 per share, which represents the fair value
of the units issued, which did not differ materially from the value of the
services rendered.
In March 2002, Sparta issued 50,000 shares of membership interest for cash
consideration of $50,000.
During the year ended April 30, 2003, Sparta issued for cash 115,000 shares of
membership interest for $115,000.
In June 2003, Sparta issued 448,000 shares of membership interest to various
consultants in exchange for services valued at $1 per share. The units of
membership interest issued was valued at approximately $1 per share, which
represents the fair value of the units issued, which did not differ materially
from the value of the services rendered.
During the year ended April 30, 2004, Sparta issued for cash 775,000 shares of
membership interest for $775,000.
In December 2003, Sparta issued 330,433 shares of membership interest for
licensing fees payable to a company controlled by principal members of Sparta.
The units of membership interest issued were valued at approximately $1 per
share, which represents the fair value of the units issued, which did not differ
materially from the value of the services rendered.
F-14
33
--------------------------------------------------------------------------------
TOMAHAWK INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2004 AND 2003
NOTE E - EQUITY INSTRUMENTS (Continued)
In February 2004, as per agreement of Plan and Reorganization ("Agreement") with
Sparta, all previously outstanding membership interests owned by the Sparta's
members were exchanged for an aggregate of 143,362,772 shares of the Tomahawk's
common stock. The value of the stock that was issued was the historical cost of
the Company's net tangible assets, which did not differ materially from their
fair value. Subject to shareholder approval regarding an increase in authorized
capital and/or a reverse split, the Company is obligated to issue an additional
486,511,854 shares of its common stock to the Sparta's former members. Also, as
per the Agreement, 56,637,617 shares of common stock were retained by the
stockholders of Tomahawk.
NOTE F - INCOME TAXES
Financial Accounting Standard No. 109 requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statement or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between financial statements and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Temporary differences between taxable income reported for financial
reporting purposes and income tax purposes are insignificant.
At April 30, 2004, the Company has available for federal income tax purposes a
net operating loss carryforward of approximately $300,000, expiring in the year
2024, that may be used to offset future taxable income. The Company has provided
a valuation reserve against the full amount of the net operating loss benefit,
since in the opinion of management based upon the earnings history of the
Company, it is more likely than not that the benefits will not be realized.
Also, due to change in the control after reverse acquisition of Sparta
Commercial Services, LLC, the Company's past accumulated losses to be carried
forward may be limited.
Components of deferred tax assets as of April 30, 2004 are as follows:
Non current:
Net operating loss carryforward $ 102,000
Valuation allowance (102,000)
---------
Net deferred tax asset $ --
=========
NOTE G - LOSSES PER COMMON SHARE
The following table presents the computation of basic and diluted loss per
share:
2004 2003
---- ----
Net loss available for common shareholders $ (1,772,257) $ (36,659)
============ ============
Basic and fully diluted loss per share $ (0.01) $ (0.00)
============ ============
Weighted average common shares outstanding 136,330,030 120,708,012
F-15
34
--------------------------------------------------------------------------------
TOMAHAWK INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2004 AND 2003
NOTE H - COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
---------------------------
The Company sub-leases office space on a month to month basis under an informal
operating lease with an entity controlled by the Company's President and Chief
Executive Officer at amounts that approximate the underlying cost of the master
lease. During the years ended April 30, 2004 and 2003 and the period October 1,
2001 (date of inception) through April 30, 2004, the Company incurred rent
expense of $19,772, $0 and $19,772, respectively, under the lease agreement.
(see Note D)
Licensing Agreement
-------------------
The Company, through Sparta, entered into a licensing agreement relating to the
use of a proprietary operating system, with an entity controlled by the
Company's President and Chief Executive Officer. During the years ended April
30, 2004 and 2003, the Company charged to operations $300,000 in connection with
the licensing agreement. Also, in December 2003, Sparta issued 330,433 shares of
its membership interests valued at $330,433 which was charged to operations in
exchange for licensing the proprietary operating systems. At April 30, 2004, the
balance outstanding on account of licensing agreement payable to related party
was $23,885. (see Note D)
Services Agreement
------------------
In March 2004, the Company entered into a services agreement with an entity
controlled by the Company's President and Chief Executive Officer. For a period
of three years, related party is to provide personnel, computer equipment and
software, and facilities, in connection with Company's credit and underwriting
activities and use of the operating systems that the Company has licensed. In
return for such services, the Company agreed to pay $100,000 by March 1, 2005,
and for the time of the related party's personnel utilized at their salary rate.
NOTE I - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the accompanying
financial statements during the period October 1, 2001 (date of inception)
through April 30, 2004, the Company incurred a loss of $1,858,931 and had no
revenue. These factors among others may indicate that the Company will be unable
to continue as a going concern for a reasonable period of time.
The Company's existence is dependent upon management's ability to develop
profitable operations. Management is devoting substantially all of its efforts
to developing its business and raising capital and there can be no assurance
that the Company's efforts will be successful. However, the planned principal
operations have not commenced and no assurance can be given that management's
actions will result in profitable operations or the resolution of its liquidity
problems. The accompanying statements do not include any adjustments that might
result should the Company be unable to continue as a going concern.
In order to improve the Company's liquidity, the Company's management is
actively pursing additional equity financing through discussions with investment
bankers and private investors. There can be no assurance the Company will be
successful in its effort to secure additional equity financing.
F-16
35
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TOMAHAWK INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2004 AND 2003
NOTE J - SUBSEQUENT EVENTS
Subsequent to the date of the financial statements, the Company sold rights to
acquire securities of the Company to investors for aggregate gross proceeds of
$535,000. In the event that the Company conducts a private placement transaction
in 2004 utilizing a designated registered broker-dealer as a placement agent,
the rights will automatically convert into the securities sold in such private
placement at the private placement sale price. In the event that the Company
does not complete any of the aforementioned financing by the end of calendar
2004, the rights will automatically convert into common stock at a purchase
price of $0.0146 per share, or the purchase of an aggregate of 36,643,836
shares.
The Company has proposed the following actions, which have been approved by the
Company's shareholders::
o To amend its Articles of Incorporation to change its name to Sparta
Commercial Services, Inc.;
o To amend its Articles of Incorporation, to increase authorized shares
from 200,000,000 to 700,000,000, and subject to completion of stock
split(s), to reduce authorized shares to 350,000,000, and designate
10,000,000 of its authorized shares as preferred shares; and
o Effect a 1 for 200 reverse stock split of the outstanding shares
followed by a forward split.
F-17
36
--------------------------------------------------------------------------------
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Former Principal Accountant
---------------------------
On February 27, 2003, pursuant to an Agreement and Plan of Reorganization, we
acquired substantially all of the outstanding membership interests in Sparta
Commercial Services, LLC and issued shares representing approximately 91.75% of
the registrant, resulting in a change in control of our company.
On June 9, 2004, we notified S. W. Hatfield, CPA, our independent public
accountants, that we were terminating its services, effective as of that date.
Our decision to change its principal accountant was recommended and approved by
our Board of Directors.
The former principal accountants' report on our financial statements for the
years ended April 30, 2002 and 2003 (prior to our reverse acquisition of
Sparta), expressed substantial doubt with respect to our ability, at that time,
to continue as a going concern. The former principal accountants' reports on our
financial statements for the past two years did not contain an adverse opinion
or disclaimer of opinion, and were not modified as to uncertainty, audit scope,
or accounting principles, except as to going concern issues. Furthermore, during
such period, there were no disagreements with the former principal accountants
within the meaning of Instruction 4 to Item 304 of Regulation S-B under the
Securities Exchange Act of 1934 on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of the former principal
accountants, would have caused them to make reference in connection with their
opinion to the subject matter of the disagreement in connection with any report
they might have issued. We have authorized the former accountants to respond
fully to all inquires of the successor accountant concerning any matter.
New Principal Accountant
------------------------
On June 9, 2004, we engaged Russell Bedford Stefanou Mirchandani LLP as our
principal registered public accounting firm. Our Board of Directors approved the
selection of Russell Bedford Stefanou Mirchandani LLP as our principal
registered public accounting firm. We did not previously consult with Russell
Bedford Stefanou Mirchandani LLP regarding any matter, including but not limited
to:
o the application of accounting principles to a specified transaction,
either completed or proposed; or
o the type of audit opinion that might be rendered on the Company's
financial statements; or
o any matter that was either the subject matter of a disagreement (as
defined in Item 304(a)(1)(iv) of Regulation S-B and the related
instructions) or a reportable event (as defined in Item 304(a)(1)(v)
of Regulation S-B).
ITEM 8A. CONTROLS AND PROCEDURES
Based on a recent evaluation, as of the end of the period covered by this Annual
Report on Form 10-KSB, our Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures (as defined in the
Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective in timely alerting
them to material information relating to the Company (including its consolidated
subsidiaries) required to be included in periodic reports filed or submitted
under the Securities Exchange Act of 1934.
There were no changes in our internal control over financial reporting that
occurred during our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
37
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
OUR MANAGEMENT
The persons listed in the table below are our present directors and executive
officers.
Name Age Position
---- --- --------
Anthony L. Havens 50 Chief Executive Officer, President and Chairman
Daniel J. Lanjewar 40 Chief Financial Officer and Treasurer
Sandra L. Ahman 41 Vice President, Secretary and Director
None of our directors, officers, affiliates, or 5% beneficial owners known to us
are involved in any material proceeding adverse to Tomahawk or has a material
interest adverse to Tomahawk.
None of the our directors or officers are directors of another reporting
company.
MANAGEMENT PROFILE
Anthony L. Havens, Chief Executive Officer, President and Chairman. On February
27, 2004, Mr. Havens became the Chief Executive Officer, President and Chairman
of the Board of the Company. Mr. Havens has been the Managing Member and Chief
Executive Officer of Sparta Commercial Services, LLC since its inception in
2001. He is involved in all aspects of Sparta's operations, including providing
strategic direction, and developing sales and marketing strategies. From 1994 to
the present, Mr. Havens has been Chief Executive Officer and a director of
American Motorcycle Leasing Corp. He co-founded American Motorcycle Leasing
Corp. in 1994, and developed its operating platform and leasing program to
include a portfolio which includes both prime and sub-prime customers. Mr.
Havens has over 20 years of experience in finance and investment banking.
Daniel J. Lanjewar, Chief Financial Officer and Treasurer. Mr. Lanjewar has
served as our principal financial officer since July 6, 2004 and became our
Chief Financial Officer and Treasurer on August 2, 2004. From 2001 to June 2004,
Mr. Lanjewar had served as Chief Financial Officer for a diversified holding
company, G. Holdings Corp., where he had managed the accounting and operations
of various companies that develop and manage hotels and commercial and
residential buildings and an international wholesale company with offices in
four countries. From 1991 until 2001, Mr. Lanjewar had served initially as
Controller and then Chief Financial Officer for ACG Communications, Inc., a
marketing communications company owned by Havas Advertising. Prior to this, Mr.
Lanjewar was employed by Deloitte & Touche LLP and then by MasterCard
International, Inc. Mr. Lanjewar is a member of the American Institute of
Certified Public Accountants and currently serves as a volunteer for the
Valhalla Ambulance Corps. He graduated Fordham University with a BS in
Accounting.
Sandra L. Ahman, Vice President, Secretary and Director. On March 1, 2004,
Sandra Ahman became Vice President of Operations and Secretary of the Company,
and a Director on June 1, 2004. She has been a Vice President of Sparta
Commercial Services, LLC since formation. From 1994 to 2004, she was Vice
President of Operations of American Motorcycle Leasing Corp. Prior to joining
American Motorcycle Leasing Corp., Ms. Ahman was with Chatham Capital Partners,
Ltd. Before joining Chatham in 1993, she was Manager, Human Resources for Comart
and Aniforms, a sales promotion and marketing agency in New York, where she
worked from 1986 to 1993. For the past 10 years, Ms. Ahman has been an active
volunteer with The Children's Aid Society in New York City. She is the
Chairperson of its Associates Council, a membership of 500 committed volunteers.
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BOARD OF DIRECTORS, COMMITTEES AND MEETING
Our directors are elected annually to serve for one year and hold office until
the next annual meeting of the shareholders and until their successors are
elected and qualified. Our Board of Directors may increase the size of the Board
of Directors. Any director who fills a position created by the Board of
Directors serves until the next annual meeting of the shareholders. Our officers
are elected by the Board of Directors at the first meeting after each annual
meeting of our shareholders, and hold office until their death, resignation or
removal from office.
During the fiscal year that ended on April 30, 2004, the Board of Directors held
one meeting, attended or participated in by all of the directors. Other matters
were undertaken by written consent by the Board of Directors.
The Board of Directors does not currently maintain an audit, nominating or
compensation committee, or similar committees, of the Board of Directors. We
plan to appoint an audit, nominating and compensation committee in the near
future.
The Board of Directors is responsible for matters typically performed by an
audit committee. We do not have a separate audit committee, or any other
committee, of the Board of Directors. No person serving on our Board of
Directors qualifies as a financial expert. We seek to attract persons with
financial experience to serve on our Board of Directors and we intend to form an
audit committee of the Board of Directors during our fiscal year 2005.
CONFLICTS OF INTEREST
Certain management employees of our company have worked for American Motorcycle
and Leasing Corp. and will continue to do so on a limited basis for the near
future as we transition from a development stage company and commence active
operations. While our business plans differ from those of American Motorcycle
and Leasing Corp., we operate in the same industry as American Motorcycle and
Leasing Corp. Mr. Havens is an officer, director and significant equity owner of
American Motorcycle and Leasing Corporation. Pursuant to a license agreement
between Sparta Commercial Services and American Motorcycle and Leasing Corp.,
Sparta Commercial Services issued 330,433 membership interests to American
Motorcycle and Leasing Corp., which will be exchanged for 34,256,941 shares of
our common stock after we increase our authorized capital. Officers and
directors of Sparta who are also shareholders of American Motorcycle and Leasing
Corp. disclaim ownership of, and entitled to, any of those shares. Issues could
arise with respect to the taking of corporate opportunities of each other. Any
competition with American Motorcycle and Leasing Corp. could adversely affect
our business, operating results and financial condition. Accordingly, we may be
subject to legal proceedings and claims, including claims of alleged
infringement of the intellectual property, competition, conflict of interest,
and other business governance related claims. Such claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources.
CODE OF ETHICS
We have not yet adopted a code of ethics applicable to our directors, officers
and employees. However, we expect to adopt a code of ethics during our fiscal
year 2005.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers, and persons who own more than ten percent of our common
stock, to file with the SEC initial reports of beneficial ownership and reports
of changes in beneficial ownership of our common stock. Such persons are also
required by SEC regulations to furnish us with copies of all such Section 16(a)
forms they file. Based solely on a review of the copies of such reports
furnished to us, we are not aware of any material delinquencies in the filing of
such reports, except that we are not aware of any filings by any person,
including former officers and directors, reporting the termination of such
person's status as an officer, director, or ten percent shareholder as a
consequence of our acquisition of Sparta on February 27, 2004.
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ITEM 10. EXECUTIVE COMPENSATION
Prior to February 27, 2004, management spent less than five hours per month on
company matters. Accordingly, no officer or director received any compensation
other than reimbursement for out-of-pocket expenses incurred on behalf of
Tomahawk, and no cash compensation, deferred compensation, employee stock
options, or long-term incentive plan awards were issued or granted to our
management through February 27, 2004.
SUMMARY COMPENSATION TABLE
The table below sets forth information concerning the annual and long-term
compensation during our last three fiscal years of our Chief Executive Officer
and all of our other officers ("Named Executive Officers").
--------------------------------- ---------------------- ---------------- -------------
Long Term
Compensation
Annual Compensation Awards
Securities All Other
Name and Principal Position Year Salary Bonus Underlying Compensation
Options/SARS (#)
--------------------------------- ---- ------- ----- ---------------- -------------
Anthony L. Havens (1) 2004 $36,000 $0 0 $0
Chief Executive Officer,
President, and Director
Sandra L. Ahmen (2) 2004 $0 $0 0 $0
Vice President and Secretary
Glenn Little (3) 2004 $0 $0 0 $0
Former President and Director 2003 $0 $0 0 $0
2002 $0 $0 0 $0
Matthew Blair (3) 2004 $0 $0 0 $0
Former Secretary, Treasurer, and 2003 $0 $0 0 $0
Director 2002 $0 $0 0 $0
--------------------------------- ---- ------- ----- ---------------- -------------
(1) Became an officer on February 27, 2004. His reported fiscal year 2004
compensation covers the period February 27, 2004 through April 30, 2004.
(2) Became an officer on March 1, 2004. Her reported fiscal year 2004
compensation covers the period March 1, 2004 through April 30, 2004.
(3) Resigned, effective February 27, 2004.
STOCK OPTION INFORMATION
No employee stock options or long-term incentive plan awards were issued or
granted to management during the year ended April 30, 2004.
During our fiscal year 2005, we intend to implement an employee stock incentive
plan, whereby we may issue shares of common stock and stock options to our
employees and consultants. We intend for the plan to cover the issuance of an
amount equal to up to approximately 10% of our outstanding shares of common
stock.
OPTION EXERCISES IN FISCAL 2004 AND YEAR END OPTION VALUES
No options to purchase common stock have been exercised during the year ended
April 30, 2004.
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DIRECTOR COMPENSATION
Directors have not been compensated for their services on the Board of
Directors. We may, in the future, establish a compensation plan for our
independent directors.
MANAGEMENT EMPLOYMENT AGREEMENTS
Through the year ended April 30, 2004, we did not have any employment agreement
with our executive officers.
We reserve the right to enter into written employment agreements with our
executive officers and other employees for their services at competitive
compensation rates, including bonuses and other benefits, including issuance of
stock options, as may be determined by the Board of Directors.
Employment Agreement with CEO
-----------------------------
We entered into an employment agreement, dated as of July 12, 2004, with Anthony
L. Havens who serves as our Chief Executive Officer. The employment is for a
term of five years. The employment term is to be automatically extended for one
five-year period, and additional one-year periods, unless written notice is
given three months prior to the expiration of any such term that the term will
not be extended. His base salary is at an annual rate of $280,000. He is
entitled to defer a portion of his base salary each year. He is entitled to
annual increases in his base salary and other compensation as may be determined
by the Board of Directors. He is entitled to a $1,000,000 term insurance policy.
He is entitled to six weeks of paid vacation per year, and health insurance,
short term and long term disability insurance, retirement benefits, fringe
benefits, and other employee benefits on the same basis as is generally made
available to other senior executives. He is entitled to reimbursement of
reasonable business expenses incurred by him in accordance with company
policies. If terminated, he is entitled to three months of severance for up to
six months of service for each year of employment, plus full participation in
all standard employee benefits during the period of severance payments. The
employment agreement provides for termination for cause. If he resigns for good
reason or is terminated without cause within twelve months after a change in
control, he is entitled to receive an additional lump sum payment equal to the
greater of the severance payment or the balance of his base salary for the
remaining employment term, continued coverage under any welfare benefits plans
for two years, and full vesting of any account balance under a 401(k) plan. For
purposes of the employment agreement, a change in control refers to:
o a change in voting power, due to a person becoming the beneficial
owner of 50% or more of the voting power of our securities and our
largest shareholder;
o during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors, including
later approved directors, ceasing to consisted a majority of the Board
of Directors;
o a merger, consolidation or sale of our company with a third party,
after which our shareholders do not own more than 50% of the voting
power; or
o a sale of all or substantially all of our assets to a third party.
If we elect not to renew the employment agreement, he shall be entitled to
receive severance equal to thirty months of his base salary plus standard
employment benefits. If we fail to fully perform all or any portion of our
post-termination obligations, we are be obligated to pay to him an amount equal
to five times the value of the unperformed obligation.
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Employment Agreement with CFO
-----------------------------
On August 2, 2004, we entered into an employment agreement with Daniel J.
Lanjewar who serves as our Chief Financial Officer pursuant to a two-year
employment agreement. The employment term is to be automatically extended for
one two-year period, and additional one-year periods, unless written notice is
given three months prior to the expiration of any such term that the term will
not be extended. His base salary is at an annual rate of $140,000. He is
entitled to annual increases in his base salary and other compensation as may be
determined by the Board of Directors. He is entitled to a grant of 4,545,455
shares of our common stock. The grant of shares is subject to vesting and
subject to continued employment. Twenty percent of the shares shall vest on
January 1, 2005, and the reminder of the shares are to vest in equal portions on
July 1, 2005, July 1, 2006, July 1, 2007, and July 1, 2008, subject to
proportionate adjustment in the event of employment termination for any
incomplete vesting period. He is entitled to four weeks of paid vacation per
year, and health insurance, short term and long term disability insurance,
retirement benefits, fringe benefits, and other employee benefits on the same
basis as is made generally available to other senior executives. He is entitled
to reimbursement of reasonable business expenses incurred by him in accordance
with company policies. If terminated, he is entitled to severance, based on his
base salary, as follows: three months of severance for up to six months of
service, six months of severance if terminated during the seventh through the
twelfth month of service, and one year of severance if terminated after one year
or more of service. The employment agreement provides for termination for cause.
If he resigns for good reason or is terminated without cause within twelve
months after a change in control, he is entitled to receive an additional lump
sum payment equal to the greater of the severance payment or the balance of his
base salary for the remaining employment term, continued coverage under any
welfare benefits plans for one year, and full vesting of any account balance
under a 401(k) plan. For purposes of the employment agreement, a change in
control refers to:
o a change in voting power, due to a person becoming the beneficial
owner of 50% or more of the voting power of our securities and our
largest shareholder;
o during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors, including
later approved directors, ceasing to consisted a majority of the Board
of Directors;
o a merger, consolidation or sale of our company with a third party,
after which our shareholders do not own more than 50% of the voting
power; or
o a sale of all or substantially all of our assets to a third party.
If we elect not to renew the employment agreement during the first two years, he
shall be entitled to receive severance equal to six months of his base salary,
and up to twelve months of severance depending on the number of years served.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the number of shares of the
common stock beneficially owned as of August 13, 2004, by each person who is
known by us to beneficially own 5% or more of our common stock, each of our
directors and executive officers, and all of our directors and executive
officers as a group.
All persons named in the table have the sole voting and dispositive power with
respect to common stock beneficially owned. The information was determined in
accordance with Rule 13(d)-3 under the Securities Exchange Act of 1934, and is
based upon the information provided by the persons listed below.
Beneficial ownership of shares of common stock after giving effect to shares
acquirable within 60 days are listed separately.
-------------------------------- -------------------- -------- ------------------------ --------
Name Amount and Nature of Percent Amount and Nature of Percent
Beneficial Ownership of Class Beneficial Ownership of Class
(1)(2) (1)(2) (Giving effect to shares (1)(3)
issuable to Sparta
members and pursuant
to other right)(1)(3)
-------------------------------- -------------------- -------- ------------------------ --------
Anthony Havens, 60,057,309 30% 263,866,095 36%
President and Director (1)(4)
Daniel J. Lanjewar (6) 0 0% 4,545,455 1%
Kristian Srb (1)(5) 60,171,111 30% 264,366,095 36%
Sandra L. Ahman, 1,057,663 0.5% 4,646,919 1%
Vice President and Director (1)
Glenn A. Little 40,000,000 20% 40,000,000 6%
211 West Wall Street
Midland, Texas 79701
All Directors and 61,114,972 31% 273,058,469 38%
Executive Officers (3 persons)
-------------------------------- -------------------- -------- ------------------------ --------
(1) On February 27, 2004, the Company acquired all of the outstanding
membership interests in Sparta in exchange for 629,874,626 shares of the
common stock of the Company. As of February 27, 2004, the Company had an
authorized capital of 200,000,000 shares and 56,637,228 shares issued and
outstanding, and issued the remaining 143,362,772 shares to Sparta members;
accordingly, the balance of the 486,511,854 shares due to Sparta members
will be issued upon completion of an increase in the Company's authorized
capital, or, upon completion of a reverse split of the outstanding shares.
(2) Assumes 200,000,000 shares outstanding as of July 1, 2004.
(3) Assumes 727,701,145 shares outstanding, after giving effect to the increase
in authorized capital and the issuance of shares to Sparta members, and
after giving effect to an estimated 36,643,836 shares issuable pursuant to
other rights and 4,545,455 shares subject to vesting issuable pursuant to
an employment agreement.
(4) Havens' minor son owns 113,803 shares (totalling 500,000 shares after full
issuance to Sparta members) of the Company in a trust account. Havens is
not the trustee for his son's trust account, and does not have direct
voting control of such shares. For purposes of this statement, Havens' is
not reported as having the sole or shared power to vote or direct the vote
of such shares. For purposes of this statement, Havens disclaims beneficial
ownership of such shares held in his son's trust account.
(5) Includes 113,803 shares (equally 500,000 shares after full issuance to
Sparta members) held by Srb's minor daughter, for which Srb may be deemed
to have beneficial ownership of such shares.
(6) Refers to common stock grant of 4,545,455 shares, subject to vesting,
pursuant to an employment agreement.
Except as otherwise set forth below, the business address of each of the persons
listed below is c/o the Company, 240 West 35th Street, Suite 402, New York, NY
10001.
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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Number of securities to Weighted average
be issued upon exercise exercise price of Number of securities
of outstanding options, outstanding options, remaining available for
Plan category warrants and rights warrants and rights future issuance
------------- ------------------- ------------------- ---------------
Equity compensation plans approved by 0 N/a N/a
securities holders
Equity compensation plans not 0 N/a N/a
approved by security holders
Total 0 N/a N/a
CHANGES IN CONTROL
We do not have any arrangements that may result in a change in control.
44
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 27, 2004, pursuant to an Agreement and Plan of Reorganization with
Sparta Commercial Services, LLC and its members, we acquired all of the
membership interests of Sparta in exchange for the agreement for the issuance of
629,874,626 shares of our common stock. At February 26, 2004, we had an
authorized capital of 200,000,000 shares and 56,637,228 shares issued and
outstanding, and we issued the remaining balance of authorized capital of
143,362,772 shares to Sparta members; accordingly, the remaining unissued
balance of 486,511,854 shares due to the Sparta members will be issued upon
completion of an increase in our authorized capital or completion of a reverse
split of the outstanding shares on a post-split adjusted basis. The shares
issued and issuable to the Sparta members would constitute, when fully issued,
approximately 91.75% percent of our outstanding shares. Pursuant to the
acquisition, all of our former directors and officers resigned, and nominated
Anthony Havens, the designee of Sparta, as the officer and director. Present
officers of the company, Anthony Havens and Sandra Ahman, acquired their
respective ownership interest in our common stock pursuant to their exchange of
membership interests of Sparta. Glenn A. Little, the former principal
stockholder of the company, prior to the completion of acquisition owned
40,000,000 shares, or 71%, of our then issued and outstanding shares of common
stock. Sparta also entered into a consulting agreement for business and
financial services with Glenn A. Little. The agreement is for a term of one
year. Mr. Little received a fee of $100,000 pursuant to the consulting
agreement.
We entered into a license agreement, dated as of June 1, 2002, and as amended on
December 3, 2003, with American Motorcycle Leasing Corp. Under the agreement, we
have a non-exclusive, perpetual right to use American Motorcycle Leasing Corp.'s
proprietary operating systems related to consumer credit underwriting
procedures, vehicle and vehicle lease value evaluation methods, rental stream
collection and insurance tracking policies and procedures. The license fee
consisted of $300,000 and 330,433 membership interests of Sparta Commercial
Services, LLC, which will be exchanged for 34,256,941 shares of Tomahawk upon an
increase in our authorized capital.
We entered into a services agreement, dated as of March 1, 2004, with American
Motorcycle Leasing Corp. For a period of three years, American Motorcycle
Leasing Corp. is to provide personnel, computer equipment and software, and
facilities, in connection with our credit and underwriting activities and our
use of the operating systems that we had licensed from American Motorcycle
Leasing Corp. In return for such services, we agreed to pay $100,000 by March 1,
2005, and for the time of the personnel utilized at their salary rate at
American Motorcycle Leasing Corp.
On August 2, 2004, we agreed to grant Daniel J. Lanjewar, our Chief Financial
Office, pursuant to an employment agreement, 4,545,455 shares of our common
stock. The grant of shares is subject to vesting and subject to continued
employment. Twenty percent of the shares shall vest on January 1, 2005, and the
reminder of the shares are to vest in equal portions on July 1, 2005, July 1,
2006, July 1, 2007, and July 1, 2008, subject to proportionate adjustment in the
event of employment termination for any incomplete vesting period.
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Exhibits required to be filed by Item 601 of Regulation S-B are included as
exhibits to this Report, as follows:
Exhibit Description
------- -----------
2* Agreement and Plan of Reorganization, dated as of February 27, 2004
3(i)(1)* Articles of Incorporation of Tomahawk Oil and Minerals, Inc.
3(i)(2)* Certificate of Amendment of Articles of Incorporation
3(ii)(1)* By-laws
3(ii)(2)* By-laws Resolution
4* Form of Company 2004 Stock Incentive Compensation Plan
10.1* Service Agreement with American Motorcycle Leasing Corp.
10.2* License Agreement with American Motorcycle Leasing Corp.
10.3* Amended License Agreement with American Motorcycle Leasing Corp.
10.4* Form of Employment Agreement with Anthony Havens
10.5* Employment Agreement with Danny Lanjewar
10.6* Consulting Agreement with Glenn Little
11* Statement Concerning Computation of Per Share Earnings is
hereby incorporated by reference to "Financial Statements" of
Part II - Item 7, contained in this Form 10-KSB.
21* List of Subsidiaries
31.1* Certification of Chief Executive Officer Pursuant to Securities
Exchange Act Rule 13a-14(a)/15d-14(a)
31.2* Certification of Chief Financial Officer Pursuant to Securities
Exchange Act Rule 13a-14(a)/15d-14(a)
32.1* Certification of Chief Executive Officer Pursuant to Securities
Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350
32.2* Certification of Chief Financial Officer Pursuant to Securities
Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350
---------
* Filed herewith.
REPORT ON FORM 8-K
On March 1, 2004, we filed a report on Form 8-K reporting the reverse
acquisition of Sparta Commercial Services, LLC under Items 1 and 2, and
reporting the resignation of our former directors and officer in connection with
the reverse acquisition under Item 6.
On June 9, 2004, we filed a report on Form 8-K reporting under Item 4 a change
in our certifying accountant.
On June 15, 2004, we filed a report on Form 8-K/A supplementing our report on
Form 8-K filed on March 1, 2004, by reporting under Item 7 the financial
information in connection with the reverse acquisition of Sparta Commercial
Services, LLC.
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
----------
Fees for audit services provided by our principal accountant during the years
ended April 30, 2003 and 2004 were $7,500 and $7,500, respectively. Audit
services consisted primarily of the annual audits, review of our financial
statements, and services that are normally provided by our accountants in
connection with statutory and regulatory filings or engagements for those fiscal
years.
Audit-Related Fees
------------------
There were no fees billed for services reasonably related to the performance of
the audit or review of our financial statements outside of those fees disclosed
above under the caption Audit Fees for fiscal years ended April 30, 2003 and
2004.
Tax Fees
--------
Fees for tax services provided by our principal accountant during the years
ended April 30, 2003 and 2004 were $2,500 and $2,500, respectively. Tax services
related primarily to the preparation of company tax filings with regulatory
agencies.
All Other Fees
--------------
There were no other fees billed for services.
Audit Committee Procedure
-------------------------
The Board of Directors is responsible for matters typically performed by an
audit committee. We do not presently have a separate audit committee of the
Board of Directors. The Board of Directors considered whether, and determined
that, the auditor's provision of non-audit services was compatible with
maintaining the auditor's independence. All of the services described above for
fiscal years ended April 30, 2003 and 2004 were approved by the Board of
Directors. We intend to continue using our principal registered public
accounting firm, solely for audit and audit- related services, tax consultation
and tax compliance services, and, as needed, for due diligence in acquisitions
and similar transactions.
Pre-Approval Policies and Procedures
------------------------------------
The Board of Directors approved all of the services described above, and all
fees paid. The Board of Directors did not have pre-approval policies and
procedures in place during our fiscal years ended April 30, 2003 and 2004. In
fiscal year 2005, we intend to implement a policy whereby, we will, prior to
engaging our accountants to perform a particular service, obtain an estimate for
the service to be performed and begin pre-approving all services.
47
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TOMAHAWK INDUSTRIES, INC.
By: /s/ Anthony L. Havens
----------------------------
Anthony L. Havens
Chief Executive Officer
Date: August 13, 2004
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
indicated and on the dates indicated:
Date: August 13, 2004 By: /s/ Anthony L. Havens
----------------------------
Anthony L. Havens
Chief Executive Officer, and
Chairman of the Board
Date: August 13, 2004 By: /s/ Daniel J. Lanjewar
----------------------------
Daniel J. Lanjewar
Chief Financial Officer
Date: August 13, 2004 By: /s/ Sandra L. Ahman
-------------------------
Sandra L. Ahman
Vice President and Director
48
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