UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K/A
Amendment
No. 1
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event
reported):
August 29,
2008
UPSNAP,
INC.
(Exact
Name of Registrant as Specified in Charter)
Nevada
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0-50560
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20-0118697
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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c/o
Duratech Group Inc.
2920
9
th
Avenue North
Lethbridge,
Alberta, Canada T1H 5E4
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(Address
of principal executive
offices)
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Registrant’s
telephone number, including area code:
(403)
320-1778
134
Jackson Street, Suite 203
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Davidson,
North Carolina 20836
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(Former
name or former address, if changed since last
report)
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Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 DFR
240.14a-12)
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o
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
Pre-commencement
communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR
240.13e-4(c))
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CURRENT
REPORT ON FORM
8-K
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Page
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Item 1.01.
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Item 2.01.
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Item 3.02.
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Item 5.01.
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31
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Item
5.02.
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32
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Item 5.06.
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32
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Item 9.01.
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32
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Item
1.01. Entry into a Material Definitive Agree
ment
The
Share Exchange Agreement
On August
29, 2008, UpSnap Inc. (the “Registrant”) entered into a Share Exchange Agreement
(the “Share Exchange Agreement”) by and among the Registrant; Tony Philipp, an
officer, director and shareholder of Registrant (“Philipp”); Duratech Group
Inc., an Alberta, Canada corporation (“Duratech”) and the shareholders of
Duratech (“Duratech Shareholders”), including Peter Van Hierden, a citizen of
Alberta, Canada and owner directly or indirectly of approximately 96% of the
share capital of Duratech (“Van Hierden”).
Upon
closing of the share exchange transaction (the “Share Exchange”) on September
17, 2008, the Duratech Shareholders transferred all of their shares of common
stock in Duratech to the Registrant in exchange for an agreement to issue to
them an aggregate of 50,349,342 shares of Common Stock of the Registrant,
resulting in Duratech becoming a majority owned subsidiary of the Registrant. In
addition, P&R Gateway Developments Inc. and 1371009 Alberta Ltd., fifty
percent (50%) owned joint venture companies of Duratech became indirectly
controlled by the Registrant.
As part
of the Share Exchange, the Duratech Shareholders were issued options to purchase
18,950,334 shares of the Registrant’s Common Stock in substitution for options
to purchase 2,235,610 shares of Duratech common stock which they owned prior to
the transaction. In order to facilitate the exercise of these new options, the
Registrant has agreed to hold 18,950,334 shares of Common Stock in reserve, and
instead issue the balance of 50,349,342 shares to the Duratech Shareholders pro
rata pursuant to the Share Exchange Agreement.
The
shares of Duratech common stock, par value $0.05 per share, are validly issued,
fully paid, and nonassessable, and represent one hundred percent (100%) of the
common equity ownership of Duratech, and the Duratech Shareholders are the sole
record and beneficial owners thereof. The Duratech common stock represents
sixty-five percent (65%) of the issued and outstanding equity capitalization of
Duratech, with the other thirty-five percent (35%) consisting of two series of
preferred stock, one currently issued to three individuals and outstanding, and
the other issued to Van Hierden and Duratech Shareholders on the Closing Date
(as defined in the Share Exchange Agreement). Both of the series have a par
value of $1.00 per share. The first series, which is currently outstanding and
consists of 158,096 shares of Preferred Non-Voting stock, and has a $1.00
liquidation preference, is not entitled to any dividend or conversion privilege,
and is to be liquidated in three years. The second series, which is a new series
issued to Van Hierden and Duratech Shareholders as of the Closing Date, consists
of 3,198,362 shares of preferred stock and is entitled to one vote per share,
has a $1.00 liquidation preference and is not to be entitled to any dividend or
conversion privilege. In addition, holders of options to purchase Duratech
common stock were granted options to purchase an additional 1,203,790 shares of
this second series of preferred stock. All of the outstanding
Duratech share capital was offered and sold in accordance with applicable
Canadian and United States Federal and local securities laws.
Also, as
mentioned above, in connection with the Share Exchange, a total of 2,235,610
options to purchase Duratech common stock were converted into 18,950,334 options
to purchase common stock of the Registrant, calculated according to an agreed
upon formula. This will enable the Duratech Shareholders to transfer one hundred
percent (100%) of the common ownership of Duratech to the Registrant. These
options are included in the 69,299,676 shares referenced above.
After the
consummation of the transactions contemplated by the Share Exchange Agreement,
the Registrant, on the day after the Closing Date, consummated the sale of its
assets related to its mobile information search services, subject to assumption
and payment of all of the Registrant’s liabilities related to periods prior to
the closing, to UpSnap Services, LLC, a North Carolina limited liability
corporation (“UpSnap Services”), which is owned by Philipp, pursuant to an Asset
Purchase Agreement dated as of August 29, 2008 (the “Asset Purchase
Agreement”).
Pursuant
to the Share Exchange Agreement and the Asset Purchase Agreement, Philipp has
agreed, among other things, to indemnify and hold harmless the Registrant from
and against all liabilities as of the Closing Date up to $200,000. As part of
the Asset Purchase Agreement, the Registrant contributed $130,000 to UpSnap
Services at Closing (as defined in the Asset Purchase Agreement) solely toward
the payment and discharge of the Assumed Liabilities (as defined in the Asset
Purchase Agreement). The $130,000 contribution is not to be used to pay any of
Philipp’s advances to the Registrant or his accrued salary. Duratech funded this
$130,000 capital contribution by wire transfer of $130,000 to the Registrant on
the Closing Date. The Asset Purchase Agreement was approved by a majority of the
Board of Directors, with Philipp abstaining, in accordance with Nevada Revised
Statutes 78.140.
The
UpSnap Board of Directors has three members. At Closing, Philipp and Paul
Schmidt will resign from their positions as President and Chief Executive
Officer and of Chief Financial Officer, respectively, of the Registrant, and
Peter Van Hierden will be appointed as Chief Executive Officer and Richard von
Gnechten as Chief Financial Officer. At Closing, Mark McDowell will resign from
his position as a director of the Registrant and Peter Van Hierden will be
appointed to fill the vacancy created thereby. Philipp will resign as a director
of the Registrant effective following the expiration of the required ten (10)
day transmittal notification to the stockholders under Regulation 14f-1 of the
Securities Exchange Act, which notice is effected by the mailing of an
Information Statement to shareholders. At the effective time of Philipp’s
resignation, Robert Lundgren will be appointed as director of the Registrant.
Mr. von Gnechten, who is currently a member of the Board of Directors of the
Registrant, will remain on the Board following the closing.
In
addition, pursuant to the terms and conditions of the Share Exchange
Agreement:
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On
the Closing Date, the Registrant paid and satisfied all of its
“liabilities,” as such term is defined by U.S. GAAP as of the
closing.
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As
of the day after the Closing, the parties consummated the transactions
contemplated by the Asset Purchase
Agreement.
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As of the
date of the Share Exchange Agreement there were no material relationships
between the Registrant or any of its affiliates and the Duratech Subsidiaries,
or Duratech, other than in respect of the Share Exchange, except that Richard
von Gnecthen is employed by Global Kingdom Finance Co., an affiliate of Duratech
and he is also a member of the Board of Directors of the
Registrant.
The
foregoing description of the Share Exchange Agreement and the Asset Purchase
Agreement do not purport to be complete and is qualified in its entirety by
reference to the complete text of the Share Exchange Agreement, which is filed
as Exhibit 2.1 hereto, and the complete text of the Asset Purchase Agreement,
which is filed as Exhibit 2.2 hereto, both of which are incorporated herein by
reference.
As used
in this Current Report on Form 8-K, all references to the “Company,” “we,” “our”
and “us” for periods prior to the closing of the Share Exchange and Asset
Purchase refer to Registrant, and references to the “Company,” “we,” “our” and
“us” for periods subsequent to the closing of the Share Exchange and Asset
Purchase refer to the Registrant and its subsidiaries. Information regarding the
Company, Duratech and the principal terms of the Share Exchange are set forth
below.
Item
2.01. Completion of Acquisition or Disposition of As
sets
As
required by Item 2.01 of Form 8-K, the following transactions were completed and
are disclosed hereby.
Share
Exchange and Asset Purch
ase
The Share Exchange
. On August
29, 2008, the Registrant entered into a Share Exchange Agreement by and among
the Registrant; Philipp; Duratech and the Duratech Shareholders, including Van
Hierden.
Upon
closing of the share exchange transaction (the “Share Exchange”) on September
17, 2008, the Duratech Shareholders transferred all of their shares of common
stock in Duratech to the Registrant in exchange for an issuance to them of an
aggregate of 50,349.342 shares of common stock of the Registrant, resulting in
Duratech becoming a majority owned subsidiary of the Registrant. In addition,
P&R Gateway Developments Inc. and 1371009 Alberta Ltd., fifty percent (50%)
owned joint venture companies of Duratech became indirectly controlled by the
Registrant.
The Asset Purchase
. On August
29, 2008, the Registrant entered into the Asset Purchase Agreement with Philip,
UpSnap Services and the Company. After the consummation of the transactions
contemplated by the Share Exchange Agreement, the Company transferred its assets
related to its mobile information search services, subject to assumption and
payment of all of the Company’s liabilities related to periods prior to the
closing, to UpSnap Services, which is owned by Philipp, pursuant to an Asset
Purchase Agreement dated as of August 29, 2008.
Over
the past few years the Company had sustained continued financial losses and
revenue declined as its business had grown more competitive, it was not able to
raise additional capital to expand its operations, it had concerns about
obligations to its creditors and its continuation as a going concern, and
subsequent to the termination of the proposed merger transaction with Mobile
Greetings, Inc., it had explored various financing and acquisition alternatives.
Based upon management’s review of alternatives, the Share Exchange Agreement and
the Asset Purchase Agreement presented the most viable possibility for future
enhancement of shareholder value and for payment of creditors.
Pursuant
to the Share Exchange Agreement and the Asset Purchase Agreement, Philipp had
agreed, among other things, to indemnify and hold harmless the Company from and
against all liabilities as of the Closing Date up to $200,000. As part of the
Asset Purchase Agreement, the Company contributed $130,000 to UpSnap Services at
Closing solely toward the payment and discharge of the Assumed Liabilities (as
defined). The $130,000 contribution was not to be used to pay any of Philipp’s
advances to the Company or his accrued salary. Duratech funded this $130,000
capital contribution by wire transfer of $130,000 to the Registrant on the
Closing Date. The Asset Purchase Agreement was approved by a majority of the
Board of Directors, with Philipp abstaining, in accordance with Nevada Revised
Statutes 78.140.
Changes Resulting from the Share
Exchange and Asset Purchase
. At this time, the Company intends to carry
on Duratech’s business as its sole line of business. The Company has relocated
its executive offices to 2920 9
th
Avenue
North, Lethbridge, Alberta, Canada T1H 5E4 and its telephone number is (403)
320-1778.
Pre-Share
Exchange holders of Duratech common stock and holders of options to purchase
common stock of the Company may exchange their existing certificates or exercise
their options for certificates of the Registrant. This will be effected through
our transfer agent. The certificates of the Registrant’s Common Stock issued in
the Share Exchange are “restricted” from transfer to U.S. Persons for a period
of one year pursuant to Regulation S under the Securities Act.
Changes to the Board of Directors and
Officers
.
On the
Closing Date, the current officers of the Registrant resigned from such
positions and the persons chosen by Peter Van Hierden were appointed as the
officers of the Registrant, notably Mr. Peter Van Hierden, as Chairman, CEO and
President and Richard A. von Gnechten as CFO. Also on the Closing Date, Philipp
resigned from his position as a director effective upon the expiration of the
ten day notice period required by Rule 14f-1, at which time additional persons
designated by Mr. Van Hierden will be appointed as directors of the Registrant,
notably Robert Lundgren. Mr. von Gnechten, who is currently a member of the
Board of Directors of the Registrant, will remain on the Board following the
Closing.
All
directors hold office for one-year terms until the election and qualification of
their successors. Officers are elected by the board of directors and serve at
the discretion of the board of directors.
Accounting Treatment; Change of
Control
. The Share Exchange is being accounted for as a “reverse merger,”
since the Duratech Shareholders own a majority of the outstanding shares of the
Registrant’s common stock immediately following the Share Exchange and Asset
Purchase. Duratech is deemed to be the acquirer in the reverse merger.
Consequently, the assets and liabilities and the historical operations that are
reflected in the financial statements prior to the Share Exchange are those of
Duratech and are recorded at the historical cost basis of Duratech, and the
consolidated financial statements after completion of the Share Exchange include
the assets and liabilities of the Registrant and Duratech, historical operations
of Duratech, and operations of the Registrant from the closing date of the Share
Exchange. Except as described in the previous paragraphs, no arrangements or
understandings exist among present or former controlling stockholders with
respect to the election of members of the Company’s board of directors and, to
our knowledge, no other arrangements exist that might result in a change of
control of the Company. Further, as a result of the issuance of the shares of
the Registrant’s common stock pursuant to the Share Exchange, a change in
control of the Company occurred on the date of consummation of the Share
Exchange and Asset Purchase. The Registrant will continue to be a “smaller
reporting company,” as defined under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), following the Share Exchange and Asset
Purchase.
Organizational
Charts
Set forth
below are organization charts of the entities that existed prior to the Share
Exchange, pursuant to which the Duratech Shareholders exchanged all of the
Duratech common stock with the Registrant for an issuance of 50,349,342 shares
of the Registrant’s common stock, and after the Share Exchange was
consummated.
Before Share
Exchange
After Share
Exchange
DESCRIPTION
OF OUR BUSIN
ESS
All
references to the “Company,” “we,” “our” and “us” for periods prior to the
closing of the Share Exchange refer to the Registrant, and references
to the “Company,” “we,” “our” and “us” for periods subsequent to the closing of
the Share Exchange and Stock Purchase refer to the Registrant and its
subsidiaries.
COMPANY
OVERVIEW
Duratech
Group Inc. (“Duratech”) was founded as Duratech Contracting on December 18, 2002
as a small homebuilding company constructing about five homes a year until Peter
Van Hierden (“Van Hierden”) bought out the majority partners and took control of
the operations in July, 2007. Shortly thereafter, Mr. Van Hierden
identified a synergistic opportunity to acquire a modular oil camp factory which
was also in distress and acquired the company in July, 2007. Since
that time management has been able to turn both these operations around and now
seeks to grow the company organically and through additional
acquisitions. Duratech changed its name from Duratech Contracting to
Duratech Group Inc. in August, 2008.
Duratech’s
principle operations are building manufactured and stick-built homes and modular
oil camps in Alberta and Saskatchewan, Canada, which have historically
experienced very rapid growth primarily because of commodities such as oil,
uranium and diverse mining.
On
September 17, 2008, Duratech completed a reverse merger transaction with UpSnap,
Inc. (“UpSnap”), a Nevada corporation that was formed on July 25,
2003. In connection with the reverse merger, Duratech became a
wholly-owned subsidiary of UpSnap, and the Duratech Shareholders acquired
control of UpSnap. The Registrant expects to change the company’s
name from UpSnap Inc. to Duratech Group Inc. as soon as the filings can be
completed.
SUMMARY
OF OPERATIONS
Duratech
manufactures and builds homes and modular sites for its marketplace, principally
Alberta and Saskatchewan. The Company has three principal products
that it offers: first, the company builds on-site conventional homes through its
Duratech Contracting division; second, the company builds ready-to-move (RTM)
homes in factories and brings them on foundations to sell to end users; and,
third, the company builds modular camp sites for the oil mining industry through
its Duratech Structures division.
Duratech
had $6.68 million in revenues for its fiscal year end January 31, 2009 compared
to $4.97 million for fiscal year end January 31, 2008. Gross profit was
$2,051,000 for the fiscal year end January 31, 2009 compared to $858,000 for
the 2008 fiscal year. Including reorganization, acquisition costs and
foreign currency translation gains and losses, the net income for the period end
January 31, 2009 was $(935,916) compared to $(104,735) for the prior fiscal
year.
STRATEGY
FOR GROWTH
Duratech
has two principal strategies for growth: 1) build construction for its existing
marketplace and 2) expand through strategic acquisitions both in its existing
market and the United States.
Build Existing
Market:
In its
existing marketplace, Duratech supplies the three principal products previously
described. Given its competitive advantages in these product areas and the
strong growth prospects within Alberta and Saskatchewan, the Company believes
that it will be able to grow its three product lines within its existing
marketplace.
Expand through
Strat
egic
Acquisitions:
In
addition to expanding its existing operations in its existing market, Duratech
fully expects to leverage its operational success and the experience of its
Chairman, CEO and largest shareholder, Peter Van Hierden, to pursue attractive
and strategic acquisition targets within its existing market and also in the
United States where the real estate market and other business areas offer many
potential opportunities, principally businesses with revenues of $750,000 to $10
million and profits of $250,000 to $3 million. Mr. Van Hierden has been an
entrepreneur for 30 years and in the past 15 years has successfully helped
restore the profitability of six corporations that had losses to generating
revenues of $1 million to $30 million. However, Duratech currently has no
specific
acquisition
plans or targets.
COMPANY
MARKETS
Duratech’s
principle operating markets are Alberta and Saskatchewan, Canada, which have
historically experienced very strong growth because of the various commodities
that are indigenous to the provinces, including oil, uranium and diverse
mining. Alberta is a business friendly province with the lowest tax
load of any province in Canada, including no provincial retail tax. Alberta has
massive oil reserves with some estimates as high as 1.3 trillion barrels of
oil. For 2007, Statistics Canada confirmed Alberta’s and
Saskatchewan’s continued economic growth as evidenced by the increase in real
Gross Domestic Product of 3.1% and 3.0%, respectively, and the Saskatchewan
Bureau of Statistics reported that total corporate profits before taxes advanced
at an annual rate of 22.4% in the province. As of October 1, 2008,
Statistics Canada also showed an increase in the annual population growth rate
of 2.36% and 1.49% for Alberta and Saskatchewan, respectively, and an employment
growth rate of 2.8% and 2.2%, respectively. The global financial
crisis began to impact Canada and these provinces in late 2008 and thus growth
rates have deteriorated. The Company does expect long-term growth
will return once the global financial recession subsides and future growth is
expected to last well into the next decade.
COMPETITION
The
homebuilding industry is highly competitive and fragmented. We do not have a
significant market presence in any of the geographic areas where we are
currently building homes or where we expect to build homes in the future. Most
of our competitors have substantially greater financial resources than we do,
and they have much larger staffs and marketing organizations. However, we
believe we compete effectively in our existing markets as a result of our
product design, development expertise, and our reputation as a producer of
quality homes. We compete for homebuyers on the basis of price, location,
design, quality, service, and reputation. In addition to competition for
homebuyers, we also compete with other homebuilders for desirable properties,
raw materials and reliable, skilled labor.
The
manufactured housing industry is highly competitive at both the manufacturing
and retail levels, with competition based upon several factors, including price,
product features, reputation for service and quality, depth of field inventory,
promotion, merchandising and the terms of retail customer financing. We compete
with other producers of manufactured homes, as well as companies offering for
sale homes repossessed from wholesalers or consumers. In addition, manufactured
homes compete with new and existing site-built homes, as well as apartments,
townhouses and condominiums.
We do
not view any of our competitors as being dominant in the industry as a whole or
the principal markets in which we compete, although a number of our competitors
possess substantially greater financial, manufacturing, distribution and
marketing resources.
The
Company’s principal competitors for job site structures would be: Northern
Trailer, Arcticore Structures, Atco and BCT Structures. In the homebuilding and
ready-to-move homes area it would be: commercial stick builders, SRI Homes and
Triple M Homes. The Company has not found competition from these
larger competitors to be a constraint to future growth given the historical
growth that has occurred in the market.
BUSINESS
AND COMPETITIVE ADVANTAGE
Duratech’s
key business and competitive advantages are: 1) Factory construction advantage;
2) Direct sales advantage; and 3) Ready-to-move (RTM)
advantage.
Factory Construction
Advantage:
Alberta
has unique traffic laws which allow transporting homes to a width of 35 feet on
the highway. Building homes in a factory has many significant advantages,
including: 1) reduced construction time from 6-8 months to 2-3 weeks; 2) improve
efficiency in hours of construction by more than 40%; and 3) reduce labor costs
by as much as 50% due to using all company staff versus sub-contractors. Overall
cost savings of building in a factory is at least 30% compared to on-site,
stick-built homes. Using a factory also helps avoid potential weather
issues.
Direct Sales
Advantage:
Whereas
traditional modular home builders market their product through a
sophisticated dealer network, Duratech buys lots, sets the homes on the
foundation and then markets their product through the local Multiple Listing
Service (MLS) Real Estate. Duratech increases its profitability by
30% by bypassing the dealer network. The Company has also established joint
venture relationships with P&R Gateway Development Inc. and 1371009 Alberta
Ltd. that are interested in carrying approximately $2 million of the cost of
homes until they sell.
Ready-to-move (RTM)
Advantage:
Duratech
is also not constrained to its local real estate market, because the homes it
builds can be moved to “hot” real estate markets in Alberta and Saskatchewan, as
necessary. This is an advantage compared to stick built homes and allows the
company to put the house on a lot with basement and garage (taking out the
middleman). No marketing department is required as the company relies on
realtors to determine demand levels of individual areas.
SALES
AND MARKETING
Duratech
does not require an extensive in-house marketing department to sell its homes
because it has the flexibility of moving its homes to whatever market may be
“hot” in Alberta or Saskatchewan at a particular time. The Company uses real
estate brokers and realtors to identify opportunities and to sell the homes that
are constructed. The Company also engages a marketing consultant based in
Calgary that helps with job site structures (camp sites for oil mining
industry).
The
principle factors that affect sales volumes and prices are the economies of the
markets that the Company serves, principally Alberta and Saskatchewan. There are
other risk factors that could impact the company’s business operations,
including the impact of global geo-political issues and financial markets beyond
the company’s control
Duratech
had $6.68 million in revenues for its fiscal year end January 31, 2009 compared
to $4.97 million for the prior fiscal year.
New
Products
Duratech
is continually refining its manufacturing process to ensure the most efficient
operations possible. The Company’s management team is experienced in
cost management and process improvement and encourages this philosophy among its
manufacturing personnel. The Company is also continually exploring
new construction techniques that might allow it to develop new products in the
homebuilding industry. This is done through on-going discussions
with subject matter experts in the construction industry, including individuals
experimenting with alternative materials and construction techniques which are
proprietary in nature. The company does not currently have any
patents on such techniques, but may file for such in the
future.
RAW
MATERIALS AND SUPPLIERS
Duratech
is basically an assembler of components purchased from outside sources. The
major components used by Duratech are lumber, plywood, shingles, vinyl and wood
siding, steel, aluminum, insulation, home appliances, furnaces, plumbing
fixtures, hardware, and floor coverings. The suppliers are many and range in
size from large national companies to very small local companies. At the present
time, the Company is obtaining sufficient materials to fulfill its
needs.
REGULATION
The
Company’s principal regulatory bodies are the building code of each respective
province in which it does business. Duratech is Canadian Standards Association
(CSA) Certified as part of the A277 Program and Part 9 of 2006 Alberta Building
Code. CSA-A277 is the residential code and CSA-Z240 is the
manufactured home code.
CSA is
a governing body in the RTM, modular and manufactured home
industry. It abides by and inspects to the National Building Code of
Canada 1995, as well as all provincial building codes and has a higher standard
than both. It has a strict quality control procedure that inspects
the homes at every level of the building process from blueprint to completion
stage. Only companies meeting strict criteria can obtain CSA certification as it
can overrule jurisdictions’ local codes and is recognized over provincial codes
because of its high standards.
Another
certification Duratech holds is Part 10 of the National Building Code of Canada,
which governs relocatable commercial structures. It is regulated by a
strict quality control manual and program, which Duratech has in place, and is
continuously monitored and evaluated to insure compliance is being met. Both of
our certifications enable us to offer a quality product to the customer and give
the customer greater assurance of a problem-free structure because of the
guidelines, codes and regulations we as a builder must meet to keep the
certification.
The
Alberta Building Code attempts to detail the minimum provisions acceptable to
maintain the safety of buildings, with specific regard to public health, fire
protection, accessibility and structural sufficiency. The Building
Code sets forth technical provisions for construction, renovation and demolition
of structures. Part 9 is applicable to housing and small buildings
and directly impacts the Company’s operations. It is very
prescriptive in nature and is intended to be able to be applied by
contractors.
Compliance
with the Alberta Building Code is necessary in order for a structure to be
deemed fit for occupancy and is a cost of doing business. The Code is
enforceable by the Alberta Municipal Affairs Department, which in addition to
producing the Building Code is responsible for the development and dissemination
of Code interpretations, variances and bulletins.
Saskatchewan
does not have its own provincial building code but rather utilizes the standards
of the National Building Code of Canada 1995, as adopted by regulations under
the Uniform Building and Accessibility Standards Act. All site- and
factory-built homes and structures in Saskatchewan must comply with these
standards.
LEGAL
PROCEEDINGS
The
Company is not involved in any pending or threatened legal
proceedings.
PROPERTY
The
Company leases its facilities at the following locations:
The
company’s headquarters is located at #1 2920 9th Avenue North, Lethbridge,
Alberta, Canada T1H 5E4 and is comprised of 1,100 square feet of office space
and 27,000 square feet of plant.
The
Company previously had a plant in Cardston, Alberta, Canada located at 855 2nd
Avenue E, which was comprised of 38,000 square feet, but decided to consolidate
its operations in Lethbridge in early 2009 in an effort to reduce costs in
response to the global economic environment. The Company
continues to utilize a Calgary, Alberta, Canada office located at 95 Sandringham
Way NW, comprised of 1,000 square feet.
EMPLOYEES
Duratech
Group Inc. has a staff of approximately 30 employees, of which 15 are employed
on a full-time basis and approximately 15 are on a contract or part-time basis.
This number will fluctuate on a month-to-month basis.
FORWARD-LOOKING
STATEMENTS
This
Current Report on Form 8-K contains forward-looking statements. To
the extent that any statements made in this Report contain information that is
not historical, these statements are essentially
forward-looking. Forward-looking statements can be identified by the
use of words such as “expects,” “plans,” “will,” “may,” “anticipates,”
believes,” “should,” “intends,” “estimates,” and other words of similar meaning.
These statements are subject to risks and uncertainties that cannot be predicted
or quantified and, consequently, actual results may differ materially from those
expressed or implied by such forward-looking statements. Such risks and
uncertainties are outlined in “Risk Factors” and include, without limitation,
the Company’s ability to raise additional capital to finance the Company’s
activities; the effectiveness, profitability, and the marketability of its
products; legal and regulatory risks associated with the Share Exchange; the
future trading of the common stock of the Company; the ability of the Company to
operate as a public company; the Company’s ability to protect its proprietary
information; general economic and business conditions; the volatility of the
Company’s operating results and financial condition; the Company’s ability to
attract or retain qualified senior management personnel and research and
development staff; and other risks detailed from time to time in the Company’s
filings with the SEC, or otherwise.
Information
regarding market and industry statistics contained in this Report is included
based on information available to the Company that it believes is accurate. It
is generally based on industry and other publications that are not produced for
purposes of securities offerings or economic analysis. The Company has not
reviewed or included data from all sources, and cannot assure investors of the
accuracy or completeness of the data included in this Report. Forecasts and
other forward-looking information obtained from these sources are subject to the
same qualifications and the additional uncertainties accompanying any estimates
of future market size, revenue and market acceptance of products and services.
The Company does not undertake any obligation to publicly update any
forward-looking statements. As a result, investors should not place undue
reliance on these forward-looking statements.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERA
TIONS
All
references to the “Company,” “we,” “our” and “us” for periods prior to the
closing of the Share Exchange refer to the Registrant, and references to the
“Company,” “we,” “our” and “us” for periods subsequent to the closing of the
Share Exchange refer to the Registrant and its subsidiaries.
The
following discussion highlights the principal factors that have affected our
financial condition and results of operations as well as our liquidity and
capital resources for the periods described. This discussion contains
forward-looking statements. Please see “Special cautionary statement concerning
forward-looking statements” and “Risk factors” for a discussion of the
uncertainties, risks and assumptions associated with these forward-looking
statements. The operating results for the periods presented were not
significantly affected by inflation.
In
August, 2008, the management of the Registrant determined that it was in the
best interests of the stockholders of the Registrant to agree to the Share
Exchange and acquire Duratech Group Inc., a Canadian company that is engaged in
the construction and manufacturing of homes in Alberta and Saskatchewan, Canada.
As part of the reverse merger, the Registrant will cease engaging in the mobile
information search services business. As a result of the Share Exchange,
Duratech Group Inc. will become a majority-owned subsidiary of the
Registrant.
The
financial results summarized below are based on the UpSnap, Inc. audited balance
sheet as of January 31, 2009 and January 31, 2008 and related audited
statements of operations and retained earnings and statements of cash flows for
the years ended January 31, 2009 and January 31, 2008. These audited financial
statements are attached hereto as Exhibit 99.1.
Fiscal
Year Ended January 31, 2009 Compared to the Fiscal Year Ended January 31,
2008
Operating Revenues
. Revenues
for the 2009 fiscal year were $6.68 million, compared to revenues for the 2008
fiscal year of $4.97 million. The increase in revenues of $1.71 million is
principally attributable to the growth in housing sales of $1 million through
its Duratech Structures division and $650,000 through Duratech Contracting
division.Sales for Duratech Contracting division increased from $3.12 million
for fiscal year 2008 to $3.76 million for fiscal year 2009 due to an
increase in new home sales.The Duratech Structures division went from $1.857
million for fiscal year 2008 to $2.921 million in sales for fiscal year 2009 due
to the increase in sales of modular structures.
Gross Profit
. Gross profit
for the 2009 fiscal year was $2,051,640 compared to gross profit for the 2008
fiscal year of $858,572. The increase in gross profit is attributable to an
increase in sales of the company as described above.The gross profit for
Duratech Contracting division increased from $336,000 to $1,227,000 principally
due to increase in new home sales.The gross profit for Duratech Structures
division increased from $522,000 to $824,000 reflecting the increase in sales of
modular structures.
Selling, General and Administrative
Expenses
. Selling, general and administrative expenses for the 2009
fiscal year were $991,689, compared to selling, general and administrative
expenses for the 2008 fiscal year of $396,670, an increase of about $600,000
principally due to transition costs associated with turning-around and expanding
its core business and additional overhead expenses associated with taking the
company public.
Payroll Expense
. Payroll
expense for the 2009 fiscal year were $1,712,613, compared to payroll expense
for the 2008 fiscal year expense of $489,321 principally due to an increase in
business operations at Duratech Contracting division and Duratech Structures
division in anticipation of greater growth that did not materialize because of
global economic conditions.The Company subsequently scaled back its operations
and overhead to be more in line with expected on-going operations going
forward.
Other Expenses
. Bad debt
expense for the 2009 fiscal year was $62 compared to $3,746 for the same period
in the prior year; interest expense for the 2009 fiscal year was $277,653
compared to $48,709 for the 2008 fiscal year due to larger borrowings associated
with more houses under construction; and depreciation and amortization expense
for 2009 was $124,397 compared to $21,598 for the 2008 fiscal year due to
greater property plant and equipment associated with larger operations and
purchase of truss equipment which is expected to save the company money in the
future.
Net Other Inco
me
. Net other income for the
2009 fiscal year was $3,781 compared to $2,600 for the 2008 fiscal year.This
income is from interest earned on balances carried by the
company.
Net Income
. Net loss for the
2009 fiscal year was $(1,050,993) compared to net loss for the 2008 fiscal year
of $(98,867). The increase in net loss is principally attributable to the
increase in payroll and selling, general and administrative expenses in fiscal
year 2009 including turn-around costs and acquisition expenses related to
reverse merger. The company does not expect to continue incurring losses going
forward as the company has scaled back its operations and overhead in line with
current revenue levels and can increase staff as economic conditions improve.The
net loss for 2008 was $(72,515) for Duratech Contracting division and
$(26,352) for Duratech Structures division principally due to expansion and
overhead costs incurred by each entity.The net loss for fiscal year 2009 was
$(774,965) for Duratech Contracting division which included overhead
expenses for the Company and $(276,028) for Duratech Structures
division.
Foreign Currency
Gains/Losses
. Because the Company operates in Alberta and Saskatchewan,
Canada, the company does incur foreign currency gains/losses for US GAAP
reporting purposes. The Company incurred a gain on currency conversion of
$115,077 for the 2009 fiscal year compared to a loss of $5,868 for the 2008
fiscal year. The prevailing exchange rate used to translate the Canadian dollars
to U.S dollars at January 31, 2009 was 0.81248. The average was
0.907744.
Liquidity
and Capital Resources
As of
January 31, 2009, cash and cash equivalents totaled $0. The net cash used in
operations for fiscal year 2009 of $589,559 decreased from 2008 fiscal year of
$2,106,132 principally due to an decrease in inventories and receivables
associated with new housing production as well as an increase in accounts
payable. The net cash used in investing activities of $447,336 was mainly due to
additions to property, plant and equipment (including truss equipment which was
paid for with common stock) compared to $99,696 for the prior fiscal year. The
decrease in financing activities of $1,036,895 for fiscal year 2009 compared to
$2,196,550 in fiscal year 2007 was mainly due to the decrease in the proceeds of
loans from shareholders of $592,435 which was converted into stock at the time
of the reverse merger, an issuance of shares as part of the reverse-merger and
less new long-term debt which was $1,454,770 in the prior fiscal
year.
The
working capital at January 31, 2009 was $(218,588), comprised of accounts
receivable, net of $812,355, other receivables of $117,973 and inventory of
$1,947,581 less payables of $961,195, customer deposit of $273,289, short term
loans of $319,263; current portion of notes payable of $2,136,664 and current
portion of shareholder notes payable of $70,308.
The
Company is currently experiencing the effects of a worldwide recession and
decreased demand for its products. The western provinces of Canada such as
Alberta and Saskatchewan, which had seen a shift in Canada’s economic power to
those areas because of oil revenues, have been keenly affected because of the
sharp decline in oil prices that began in the last quarter of 2008.The slump in
oil prices has caused oil companies in the region to curtail investment
spending, which has resulted in, among other things, increased unemployment,
lower wages, a slowdown in housing construction and a weakening housing
market.In addition, construction of modular campsites for oil production
facilities has declined as a result of the slower growth in the oil
industry.
If
economic conditions were to worsen and the Company’s products became unsellable,
the Company would not be able to recover the full cost of its inventory.As a
result, operations could deteriorate and our liquidity would be further
diminished.This risk, however, is principally related to the Company’s Duratech
Contracting division which builds stick-built homes and has approximately $1
million in inventory.The Company does not expect that this inventory would be
unsellable altogether, but may well have to be sold at a lower profit then in
the past.The Company does not expect at this time that it would have to sell
such inventory below its cost.The Company’s Duratech Structures division builds
modular homes and other structures on a contractual basis and is paid as work is
done so there is little risk that the Company’s inventory for these lines of
business would be impacted.
Going
forward we will rely substantially on revenue from existing contracts, new
business development efforts, and friendly investors that have indicated a
willingness to support the Company.Actual sales will be recorded upon completion
of each project while sales and service revenue will be recorded as earned.To
date, the Company has had investors willing to contribute equity or private
loans to finance on-going operations.In addition, the Company does have existing
relationships with lending institutions to provide financing on inventory and/or
completed homes, including joint venture relationships with P&R Gateway
Development Inc. and 1371009 Alberta Ltd., which are willing to finance up to
$250,000 of the cost of a project.
However,
private parties are under no legal obligation to provide us with future capital
infusions and the global economic environment could impact banks willingness to
continue to lend on real estate.Furthermore, the economic conditions within
Canada, particularly as a result of natural resources markets, could impact
future interest in housing and modular buildings.Overall, we have funded our
cash needs from inception through January 31, 2009 with a series of private
loan, debt and equity transactions.
Demand
for our products will be dependent upon, among other things, market acceptance
of our products, the real estate market in general, and global economic
conditions.Inasmuch as a major portion of our activities is the receipt of
revenues from the sales of new home services, our business operations may be
adversely affected by our competitors and prolonged recessionary periods.The
Company does believe that the Alberta and Saskatchewan regions, where its
principle operations are located, will continue to be attractive Canadian
markets, and that these areas will be less impacted by overall economic
conditions, but there is no guarantee this will remain so going
forward.
The
Company has provided a detailed list of risks and cautionary statements later in
this document.
Critical
Accounting Policies and Estimates
The
discussion and analysis of Duratech’s financial condition presented in this
section are based upon the audited consolidated financial statements of Duratech
Group Inc., which have been prepared in accordance with the generally accepted
accounting principles in the United States. During the preparation of the
financial statements Duratech is required to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis,
Duratech evaluates its estimates and judgments, including those related to
sales, returns, pricing concessions, bad debts, inventories, investments, fixed
assets, intangible assets, income taxes and other contingencies. Duratech bases
its estimates on historical experience and on various other assumptions that it
believes are reasonable under current conditions. Actual results may differ from
these estimates under different assumptions or conditions.
In
response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding
Disclosure About Critical Accounting Policy,” Duratech identified the most
critical accounting principles upon which its financial status depends. Duratech
determined that those critical accounting principles are related to the use of
estimates, inventory valuation, revenue recognition, income tax and impairment
of intangibles and other long-lived assets. Duratech presents these
accounting policies in the relevant sections in this management’s discussion and
analysis, including the Recently Issued Accounting Pronouncements discussed
below.
Cash and
Cash Equivalents
— For purposes of the Consolidated Statement of Cash
Flows, the Company considers liquid investments with an original maturity of
three months or less to be cash equivalents.
Management
’
s Use of
Estimates
— The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.Actual
results could differ from those estimates.
Presentation
and Foreign Currency Translation
— These consolidated financial
statement have been prepared in accordance with US generally accepted accounting
principles (GAAP) and translated into U.S dollars. The prevailing exchange rate
used to translate the Canadian dollars to U.S dollars at January 31, 2009 was
0.81248. The average was 0.907744.
Assets
and liabilities denominated in respective functional currencies are translated
into United States Dollars at the exchange rate as of the balance sheet date.The
share capital and retained earnings are translated at exchange rates prevailing
at the time of the transactions.Revenues, costs, and expenses denominated in
respective functional currencies are translated into United States Dollars at
the weighted average exchange rate for the period.The effects of foreign
currencies translation adjustments are included as a separate component of
accumulated other comprehensive income.
Revenue
Recognition
— Revenues from long-term construction contracts (over one
year) of the Duratech Contracting division are recognized using the
percentage-of-completion method. Revenues from short-term contracts of the
Duratech Structures division are recognized as the work is performed and
related costs are incurred. Contract costs include all direct materials and
labor costs and those indirect costs related to contract performance, such as
indirect labor, supplies, tools, and repair costs. General and administrative
costs are charged to expense as incurred.
As a
result of the global economic environment and decrease in natural resource
prices, demand for on-site conventional homes (long-term construction contracts)
have slowed slightly and prices have decreased up to 10% in some markets. In
regards to short-term contracts, the Company has found continued demand for
ready-to-move (RTM) homes and a moderation of demand for modular camp sites for
the oil mining industry. The Company expects demand for modular camp sites
accelerate with any increase in natural resource prices, principally oil
and natural gas.
Revenue
and all related costs and expenses from house and land sales are recognized at
the time that closing has occurred, when title and possession of the property
and the risks and rewards of ownership transfer to the buyer, and we do not have
a substantial continuing involvement in accordance with SFAS No.66,
“
Accounting for Sales of Real
Estate”
(“SFAS 66”). In order
to properly match revenues with expenses, we estimate construction and land
development costs incurred and to be incurred, but not paid at the time of
closing. Estimated costs to complete are determined for each closed home and
land sale based upon historical data with respect to similar product types and
geographical areas and allocated to closings along with actual costs incurred
based on a relative sales value approach. We monitor the accuracy of estimates
by comparing actual costs incurred subsequent to closing to the estimate made at
the time of closing and make modifications to the estimates based on these
comparisons.
Revenue
is recognized for long-term construction contract sales on the
percentage-of-completion method when the land sale takes place prior to all
contracted work being completed. Pursuant to the requirements of SFAS 66, if the
seller has some continuing involvement with the property and does not transfer
substantially all of the risks and rewards of ownership, profit shall be
recognized by a method determined by the nature and extent of the seller’s
continuing involvement. In the case of our land sales, this involvement
typically consists of final development activities. We recognize revenue and
related costs as work progresses using the percentage-of-completion method,
which relies on estimates of total expected costs to complete required work.
Revenue is recognized in proportion to the percentage of total costs incurred in
relation to estimated total costs at the time of sale. Actual revenues and costs
to complete construction in the future could differ from our current estimates.
If our estimates of development costs remaining to be completed and relative
sales values are significantly different from actual amounts, then our revenues,
related cumulative profits and costs of sales may be revised in the period
that estimates change.
Comprehensive
Income (Loss)
—The Company adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards (SFAS) No. 130,
“
Reporting Comprehensive
Income”
, which establishes standards for the reporting and display of
comprehensive income and its components in the consolidated financial
statements.There were no items of comprehensive income (loss) applicable to the
Company during the periods covered in the consolidated financial
statements.
Cash and
Bank Overdraft
— Cash consists of cash, cash equivalents and checks
issued in excess of cash on deposit. Cash is put in the Bank account which has a
negative balance. For the purpose of the cash flow statement, Bank overdrafts
are also classified as cash.
Net Loss
per Common Sha
re
— Statement
of Financial Accounting Standard (SFAS) No. 128 requires dual presentation of
basic and diluted earnings per share (EPS) with a reconciliation of the
numerator and denominator of the EPS computations.Basic earnings per share
amounts are based on the weighted average shares of common stock outstanding.If
applicable, diluted earnings per share would assume the conversion, exercise or
issuance of all potential common stock instruments such as options, warrants and
convertible securities, unless the effect is to reduce a loss or increase
earnings per share.Accordingly, this presentation has been adopted for the
period presented.There were no adjustments required to net loss for the period
presented in the computation of diluted earnings per share.
Income
Taxes
—Income taxes are provided in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109,
“
Accounting for Income
Taxes.”
A deferred tax asset or liability is recorded for all temporary
differences between financial and tax reporting and net operating
loss-carryforwards.
Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that, and some portion or the entire
deferred tax asset will not be realized.Deferred tax assets and liabilities are
adjusted for the effect of changes in tax laws and rates on the date of
enactment.
Fair
Value of Financial Instruments
—The carrying amounts reported in the
consolidated balance sheet for cash, accounts receivable and payable approximate
fair value based on the short-term maturity of these instruments.
Accounts
Receivable
— Accounts deemed uncollectible are written off in the year
they become uncollectible.For the years ended January 31, 2009 and 2008, no
amounts were deemed uncollectible as of January 31, 2009.Outstanding Accounts
Receivable as of January 31, 2009 was $812,355. Typical payment terms for
short-term contracts are 30% down, 60% upon completion and 10% holdback to be
released once the structure is on-site and attached. Typical payment terms for
stick-built homes (long-term construction contracts) are four draws from bank
upon completion of backfill, lockup, ready-to-paint and at completion and a 10%
holdback is held for 45 days to allow for builder liens by lawyer. Accounts
receivable are considered current as long as there is reasonable expectation
that payments will be made as agreed upon or otherwise negotiated, but in no
event longer than 12 months. The Company evaluates collectability based on
receiving payments as agreed upon or as otherwise negotiated.
Impairment
of Long-Lived Assets
— Using the guidance of Statement of Financial
Accounting Standards (SFAS) No. 144,
“
Accounting for the Impairment or
Disposal of Long-Lived Assets”
, the Company reviews the carrying value of
property, plant, and equipment for impairment whenever events and circumstances
indicate that the carrying value of an asset may not be recoverable from the
estimated future cash flows expected to result from its use and eventual
disposition. In cases where undiscounted expected future cash flows are less
than the carrying value, an impairment loss is recognized equal to an amount by
which the carrying value exceeds the fair value of assets. The factors
considered by management in performing this assessment include current operating
results, trends and prospects, the manner in which the property is used, and the
effects of obsolescence, demand, competition, and other economic
factors.
Inventory
— Inventory
is stated at the lower of accumulated cost or fair value, as determined in
accordance with Statement of Financial Accounting Standards No.144, “Accounting
for the Impairment or Disposal of Long Lived Assets” (“SFAS 144”). Accumulated
cost includes costs associated with land acquisition, land development, and home
construction costs, including certain direct and indirect overhead costs related
to development and construction. Land acquisition and development costs are
allocated to individual lots using actual lot cost determined based on the total
expected land acquisition and development costs and the total expected home
closings for the project. The specific identification method is used to
accumulate home construction costs.
Cost
of sales includes the construction cost of the home, the actual lot cost for the
home or project, and commissions and closing costs applicable to the home. The
construction cost of the home includes amounts paid through the closing date of
the home. Any costs incurred but not yet paidare expensed as incurred and are
typically very nominal in nature because the construction projects have
been completed before recorded as sales. The construction cycles for the
long-term construction projects (stick-built homes) are approximately one year
and for the short-term construction projects (modular and ready-to-move homes)
are approximately two to three months.
For
those projects for which construction and development activities have been idled
for an extended period of time, longer than three months, an impairment analysis
will be performed to determine if an adjustment may be necessary. If the fair
market value of a home (based on comparable units in the market) is less than
its cost, this would suggest impairment and an appropriate adjustment would be
made. Recent market activity has shown that such fair market value estimates are
not very sensitive or subjective. These analyses are performed on a regular
basis and confirmed before filing documents with the
Commission.
Customer
Deposits
—The cash deposit received from customers when project in
progress are shown in the balance sheet as current liabilities and apply against
the revenue expected from customers when the project is terminated and the
customers are billed. The deposit is without interest.
Recently
Issued Accounting Pronouncements
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, “The Fair Value for Financial Assets and Financial Liabilities—including an
amendment of FASB Statement No. 115.” This statement permits entities to
choose to measure many financial instruments and certain other items at
value.The objective is to improve financial reporting by providing entities with
the opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions.This Statement is expected to expand the use of fair value
measurement, which is consistent with the Board’s long-term measurement
objectives for accounting for financial instruments.Effective as of the
beginning of an entity’s first fiscal year that begins after November 15, 2007.
Early adoption is permitted as of the beginning of a fiscal year that begins on
or before November 15, 2007, provided the entity also elects to apply the
provisions of FASB Statement No. 157,
Fair Value Measurements.
No
entity is permitted to apply the Statement retrospectively to fiscal years
preceding the effective date unless the entity chooses early adoption. Adoption
of this standard is not expected to have a material effect on the Company’s
results of operations or its financial position.
In
December 2007, the FASB issued SFAS141(revised 2007), Business Combinations
(“SFAS141R”). SFAS141R will significantly change the accounting for business
combinations in a number of areas including the treatment of contingent
consideration, contingencies, acquisition costs, IPR&D and restructuring
costs. In addition, under SFAS141R, changes in deferred tax asset valuation
allowances and acquired income tax uncertainties in a business combination
after the measurement period will impact income tax expense. SFAS141R is
effective for fiscal years beginning after December15, 2008.Adoption of this
standard is not expected to have a material effect on the Company’s results of
operations or its financial position.
In
December 2007, the FASB issued SFAS160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No.51 (“SFAS160”). SFAS160 will change
the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests (NCI) and classified as a component
of equity. This new consolidation method will significantly change the account
with minority interest holders. SFAS160 is effective for fiscal years beginning
after December15, 2008. Adoption of this standard is not expected to have a
material effect on the Company’s results of operations or its financial
position.
In
March 2008, the FASB issued SFAS No.161, “Disclosures about Derivative
Instruments and Hedging Activities — an amendment to FASB Statement No.133.”
SFAS No.161 is intended to improve financial standards for derivative
instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entity’s financial
position, financial performance, and cash flows. Entities are required to
provide enhanced disclosures about: (a)how and why an entity uses derivative
instruments; (b)how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations; and (c)how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. It is effective for financial
statements issued for fiscal years beginning after November15, 2008, with
early adoption encouraged. The adoption of this statement, which is expected to
occur in the first quarter of 2009, is not expected to have a material effect on
the Company’s financial statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. It is effective 60 days following the SEC’s approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.” The adoption of this statement is not expected to have a material
effect on the Company’s financial statements.
In
May2008, the FASB issued SFAS No.163, “Accounting for Financial Guarantee
Insurance Contracts — An interpretation of FASB Statement No.60.” SFAS No.163
requires that an insurance enterprise recognize a claim liability prior to an
event of default when there is evidence that credit deterioration has occurred
in an insured financial obligation. It also clarifies how Statement No.60
applies to financial guarantee insurance contracts, including the recognition
and measurement to be used to account for premium revenue and claim liabilities,
and requires expanded disclosures about financial guarantee insurance contracts.
It is effective for financial statements issued for fiscal years beginning after
December15, 2008, except for some disclosures about the insurance enterprise’s
risk-management activities. SFAS No.163 requires that disclosures about the
risk-management activities of the insurance enterprise be effective for the
first period beginning after issuance. Except for those disclosures, earlier
application is not permitted. The adoption of this statement is not expected to
have a material effect on the Company’s financial statements.
Cautionary
Factors That May Affect Future Results
This
Current Report on Form 8-K and other written reports and oral statements made
from time to time by the Company may contain so-called “forward-looking
statements,” all of which are subject to risks and uncertainties. One
can identify these forward-looking statements by their use of words such as
“expects,” “plans,” “will,” “estimates,” “forecasts,” “projects” and other words
of similar meaning. One can identify them by the fact that they do not relate
strictly to historical or current facts. These statements are likely to address
the Company’s growth strategy, financial results and product and development
programs. One must carefully consider any such statement and should understand
that many factors could cause actual results to differ from the Company’s
forward-looking statements. These factors include inaccurate assumptions and a
broad variety of other risks and uncertainties, including some that are known
and some that are not. No forward-looking statement can be guaranteed and actual
future results may vary materially.
The
Company does not assume the obligation to update any forward-looking statement.
One should carefully evaluate such statements in light of factors described in
UpSnap’s filings with the SEC, especially on Forms 10-KSB, 10-QSB and 8-K.
Listed below are some important factors that could cause actual results to
differ from expected or historic results. One should understand that it is not
possible to predict or identify all such factors. Consequently, the
reader should not consider any such list to be a complete list of all potential
risks or uncertainties.
Investing
in the Company’s common stock involves a high degree of risk. Prospective
investors should carefully consider the risks described below, together with all
of the other information included or referred to in this Current Report on Form
8-K, before purchasing shares of the Company’s common stock. There are numerous
and varied risks, known and unknown, that may prevent the Registrant from
achieving its goals. The risks described below are not the only ones the Company
will face. If any of these risks actually occurs, the Company’s business,
financial condition or results of operation may be materially adversely
affected. In such case, the trading price of the Registrant’s common stock could
decline and investors in the Company’s common stock could lose all or part of
their investment. The risks and uncertainties described below are not exclusive
and are intended to reflect the material risks that are specific to the Company,
material risks related to the Company’s industry and material risks related to
companies that undertake a public offering or seek to maintain a class of
securities that is registered or traded on any exchange or over-the-counter
market.
The
Company’s future revenues will be derived from the production of ready-to-move
homes, modular units and building of site-built homes and acquisition and sale
of manufactured homes produced in the United States. There are
numerous risks, known and unknown, that may prevent the Company from achieving
its goals including, but not limited to, those described below. Additional
unknown risks may also impair the Company’s financial performance and business
operations. The Company’s business, financial condition and/or results of
operations may be materially adversely affected by the nature and impact of
these risks. In such case, the market value of the Company’s
securities could be detrimentally affected, and investors may lose part or all
of their investment. Please refer to the information contained under “Business”
in this report for further details pertaining to the Company’s business and
financial condition.
Risks
Related To Our Company
Our
business has posted net operating losses, has limited operating history and will
need capital to grow and finance its operations. For the investor, potential
adverse effects of this include failure of the company to continue as a going
concern. Our auditors have expressed substantial doubt about our ability to
continue as a going concern.
From the
inception of our operating subsidiary, Duratech Group Inc., until June 30, 2008,
the Company has had accumulated net losses of $199,368. Our auditors have raised
substantial doubt about our ability to continue as a going concern due to
accumulated losses from operations and net deficiency. Mr. Peter Van Hierden
acquired the company in July, 2007 and then quickly acquired another struggling
company the same month. While Mr. Van Hierden and management have consolidated
both entities, made substantial improvements to turn-around operations and put
the company on a growth path going forward, there is no guarantee that these
operations will be successful and will not continue to incur losses. The Company
has limited operating history and is essentially an early-stage operation. The
Company will continue to be dependent on having access to working capital that
will allow it to finance operations during its growth period. Continued net
operating losses together with limited working capital make investing in our
company a high-risk proposal. The adverse effects of a limited operating history
include reduced management visibility into forward sales, marketing costs,
customer acquisition and retention which could lead to missing targets for
achievement of profitability.
A
slowdown or other adverse developments in the Canadian economy may materially
and adversely affect the Company’s customers, demand for the Company’s products
and the Company’s business.
All of
the Company’s operations are conducted in Canada and all of its revenue is
generated from sales in Alberta and Saskatchewan, Canada. Although the Alberta
and Saskatchewan economy has grown significantly in recent years, the Company
cannot assure investors that such growth will continue. A slowdown in overall
economic growth, an economic downturn or recession or other adverse economic
developments in Canada could materially reduce the demand for our products and
materially and adversely affect the Company’s business.
Our
operating results could be affected by geographic concentration and declining
housing demand.
As a
participant in the homebuilding industry, we are subject to market forces beyond
our control. These market forces include employment and employment growth,
interest rates, land availability and development costs, apartment vacancy
levels, and the health of the general economy. Unfavorable changes in any of the
above factors or other issues could have an adverse affect on our sales and
earnings.
The
loss of any of our executive officers could reduce our ability to execute our
business strategy and could have a material adverse effect on our business and
results of operations.
We are
dependent to a significant extent upon the efforts of our executive officers,
particularly Peter Van Hierden, our Chief Executive Officer, and Richard A. von
Gnetchen, our Chief Financial Officer. The loss of the services of one or more
of our executive officers could impair our ability to execute our business
strategy and have a material adverse effect upon our business, financial
condition and results of operations. We currently have no key man life insurance
for our executive officers.
Peter
Van Hierden, Chief Executive Officer and our majority shareholder, can cause us
to take certain actions or preclude us from taking actions without the approval
of the other shareholders and may have interests that could conflict with other
shareholders.
Peter
Van Hierden, our Chief Executive Officer, as of January 31, 2009,
beneficially owns approximately 69.0% of the voting power of our common stock.
As a result, Mr. Van Hierden has the ability to control the outcome of virtually
all corporate actions, including the election of all directors, the approval of
any merger, the commencement of bankruptcy proceedings and other significant
corporate actions. His interest in exercising control over our business may
conflict with the interests of other shareholders. This voting power might also
discourage someone from acquiring us or from making a significant equity
investment in us, even if we need the investment to meet our obligations and to
operate our business.
Our
success depends on our ability to acquire land suitable for residential
homebuilding at reasonable prices.
The
homebuilding industry is highly competitive for suitable land. The availability
of finished and partially finished developed lots and undeveloped land for
purchase that meet our criteria depends on a number of factors outside our
control, including land availability in general, competition with other
homebuilders and land buyers for desirable property, inflation in land prices,
zoning, allowable housing density, and other regulatory requirements. Should
suitable lots or land become less available, the number of homes we may be able
to build and sell could be reduced, and the cost of land could be increased,
perhaps substantially, which could adversely impact our results of
operations.
Our
long-term ability to build homes depends on our acquiring land suitable for
residential building at reasonable prices in locations where we want to build.
As competition for suitable land increases, and as available land is developed,
the cost of acquiring suitable remaining land could rise, and the availability
of suitable land at acceptable prices may decline. Any land shortages or any
decrease in the supply of suitable land at reasonable prices could result in
increased land costs. We may not be able to pass through to our customers any
increased land costs, which could adversely impact our revenues, earnings, and
margins.
Our
future growth may require additional capital, which may not be
available.
Our
operations require significant amounts of cash. We may be required to seek
additional capital, whether from sales of equity or debt or additional bank
borrowings, for the future growth and development of our business. We can give
no assurance as to the availability of such additional capital or, if available,
whether it would be on terms acceptable to us. If we are not successful in
obtaining sufficient capital, it could reduce our sales and may adversely affect
our future growth and financial results.
We
may not be successful in our effort to identify, complete or integrate
acquisitions or to enter new markets through start-up operations, which could
disrupt the activities of our current business, adversely affect our results of
operations and future growth or cause losses.
A
principal component of our business strategy is to continue to grow profitably,
including, when appropriate, by acquiring other homebuilders or related
businesses that will streamline our operations. We may not be successful in
implementing our acquisition strategy, and growth may not continue at historical
levels or at all. When acquiring another company, we may have difficulty
assimilating the operations of acquired businesses, incur unanticipated
liabilities or expenses, and our management’s attention may be diverted from our
current business. The acquisition of other companies may also result in our
entering markets in which we have limited or no experience. The failure to
identify or complete business acquisitions, or successfully integrate the
businesses we acquire, could adversely affect our results of operations and
future growth. In addition, our acquisitions may not be as profitable as we
anticipate or could even produce losses.
Furthermore,
we may choose to enter new markets or expand operations in existing markets by
starting new operations, rather than by acquiring an existing homebuilding
company. If we choose to expand through start-up operations, we will not have
the advantage of the experience and brand recognition of an established
homebuilding company. As a result, we may incur substantial start-up costs in
establishing our operations in new markets, and we may not be successful in
taking operations from the start-up phase to profitability. If we are not
successful in making start-up operations profitable, we may not be able to
recover our investment and may incur losses.
Risks
Related to the Housing Industry
The
manufactured, modular and ready-to-move housing industry is highly
competitive.
The
manufactured, modular and ready-to-move housing industry is highly competitive
at both the manufacturing and retail levels, with competition based upon several
factors, including price, product features, reputation for service and quality,
depth of field inventory, promotion, merchandising and the terms of retail
customer financing. We compete with other retailers of manufactured homes, as
well as companies offering for sale homes repossessed from wholesalers or
consumers. In addition, manufactured homes compete with other forms of housing,
such as new and existing site-built homes, apartments, condominiums and
townhouses. The inability to effectively compete in this environment could
result in lower sales, operating results and cash flows.
Availability
and cost of financing for our retail customers, particularly in our manufactured
housing business, could constrain our sales.
Retail
buyers of our products generally secure financing from independent lenders,
which, in the case of manufactured housing, could be negatively affected by
adverse loan experience. Reduced availability of such financing and higher
interest rates could have an adverse effect on the manufactured housing business
and our housing sales. If this financing were to become unavailable or were to
be restricted, our results of operations would suffer. Availability of financing
depends on the lending practices of financial institutions, financial markets,
governmental policies, and economic conditions, all of which are largely beyond
our control.
Downward
changes in general economic, real estate construction, or other business
conditions could adversely affect our business or our financial
results.
The
residential homebuilding industry is sensitive to changes in economic conditions
and other factors, such as the level of employment, consumer confidence,
consumer income, availability of financing, and interest rate levels. Adverse
changes in any of these conditions generally, or in the markets where we
operate, could decrease demand and pricing for new homes in these areas or
result in customer cancellations of pending contracts, which could adversely
affect the number of home deliveries we make or reduce the prices we can charge
for homes, either of which could result in a decrease in our revenues and
earnings and would adversely affect our financial condition.
Future
increases in interest rates, reductions in mortgage availability, or increases
in the effective costs of owning a home could prevent potential customers from
buying our homes and adversely affect our business and financial
results.
Increases
in interest rates or decreases in availability of mortgage financing could
reduce the market for new homes. Potential homebuyers may be less willing or
able to pay the increased monthly costs or to obtain mortgage financing that
exposes them to interest rate changes. Lenders may increase the qualifications
needed for mortgages or adjust their terms to address any increased credit risk.
Even if potential customers do not need financing, changes in interest rates and
mortgage availability could make it harder for them to sell their current homes
to potential buyers who need financing. These factors could adversely affect the
sales or pricing of our homes.
A.
Manufactured, Modular
and Ready-To-Move Housing
The
cyclical and seasonal nature of the manufactured housing industry causes our
revenues and operating results to fluctuate, and we expect this cyclicality and
seasonality to continue in the future.
The
manufactured housing industry is highly cyclical and seasonal and is influenced
by many national and regional economic and demographic factors,
including:
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the
availability of consumer financing for homebuyers;
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the
availability of wholesale financing for retailers;
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seasonality
of demand;
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consumer
confidence;
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interest
rates;
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demographic
and employment trends;
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income
levels;
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housing
demand;
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general
economic conditions, including inflation and recessions;
and
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the
availability of suitable homesites.
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As a
result of the foregoing economic, demographic and other factors, our revenues
and operating results fluctuate, and we expect them to continue to fluctuate in
the future. Moreover, we may experience operating losses during cyclical
downturns in the manufactured housing market.
The
manufactured, modular and ready-to-move housing industry is highly competitive,
and competition may increase the adverse effects of industry
conditions.
The
manufactured, modular and ready-to-move housing industry is highly competitive.
Competition at both the manufacturing and retail levels is based upon several
factors, including price, product features, reputation for service and quality,
merchandising, terms of retailer promotional programs and the terms of retail
customer financing. Numerous companies produce manufactured homes in our
markets. In addition, our homes compete with repossessed homes that are offered
for sale in our markets. A number of our manufacturing competitors also have
their own retail distribution systems and consumer finance and insurance
operations. The ability to offer consumer finance and insurance products may
provide some competitors with an advantage. In addition, there are many
independent manufactured housing retail locations in most areas where we have
retail operations. We believe that where wholesale floor plan financing is
available, it is relatively easy for new retailers to enter into our markets as
competitors. In addition, our products compete with other forms of low to
moderate-cost housing, including new and existing site-built homes, apartments,
townhouses and condominiums. If we are unable to compete effectively in this
environment, our retail sales and wholesale shipments could be reduced. As a
result, our growth could be limited.
Changing
consumer preferences can affect sales, operating results and cash
flows.
Changes
in consumer preferences for manufactured, modular and ready-to-move housing
occur over time, and consequently the Company responds to changing demand by
evaluating the market acceptability of its products. Delays in responding to
changing consumer preferences could have an adverse effect on sales, operating
results and cash flows.
B.
Site-Built
Housing
We
may not be able to acquire suitable land at reasonable prices, which could
result in cost increases we are unable to recover and reduce our total earned
revenues and earnings.
We have
experienced an increase in competition for available land and developed
homesites in some of our markets as a result of a reduced availability of
suitable parcels of land and developed homesites in these markets. Our ability
to continue our homebuilding activities over the long-term depends upon our
ability to locate and acquire suitable parcels of land or developed homesites to
support our homebuilding operations. As competition for land increases, the cost
of acquiring it may rise and the availability of suitable parcels at acceptable
prices may decline. If we are unable to acquire suitable land or developed
homesites at reasonable prices, it could limit our ability to develop new
communities or result in increased land costs that we may not be able to pass
through to our customers. Consequently, this competition could reduce the number
of homes we sell or our profit margins and lead to a decrease in our total
earned revenues and earnings.
Shortages
of labor or materials and increases in the price of materials can harm our
business by delaying construction, increasing costs, or both.
We and
the homebuilding industry from time to time have experienced significant
difficulties with respect to:
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shortages
of qualified trades people and other labor;
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shortages
of materials; and
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increases
in the cost of certain materials, including lumber, drywall and cement,
which are significant components of home construction
costs.
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These
difficulties can cause unexpected short-term increases in construction costs and
cause construction delays for us. We will not be able to recover unexpected
increases in construction costs by raising our home prices because, typically,
the price of each home is established at the time a customer executes a home
sale contract. Furthermore, sustained increases in construction costs may, over
time, erode our profit margins. We may be able to offset sustained increases in
construction costs with increases in the prices of our homes and through
operating efficiencies. However, in the future, pricing competition may restrict
our ability to pass on any additional costs, and we may not be able to achieve
sufficient operating efficiencies to maintain our current profit
margins.
Adverse
weather conditions may increase costs, cause project delays and reduce consumer
demand for housing, all of which would adversely affect the Company’s results of
operations and prospects.
As a
homebuilder, the Company is subject to numerous risks, many of which are beyond
management’s control, including: adverse weather conditions, such as extended
periods of rain, snow or cold temperatures and natural disasters, which could
damage projects, cause delays in completion of projects, or reduce consumer
demand for housing; and shortages in labor or materials, which could delay
project completion and cause increases in the prices for labor or materials,
thereby affecting the Company’s sales and profitability.
There are
some risks of loss for which the Company may be unable to purchase insurance
coverage. A sizeable uninsured loss could adversely affect the Company’s
business, results of operations and financial condition.
Risks
Related to Doing Business in the Canada
Inflation
in Canada could negatively affect our profitability and growth.
While the
economy in Alberta and Saskatchewan has experienced rapid growth, such growth
has been uneven among other provinces and various sectors of the economy and in
different geographical areas of the country. Rapid economic growth
can lead to growth in the money supply and rising inflation. If prices for the
Company’s products rise at a rate that is insufficient to compensate for the
rise in the costs of supplies, it may have an adverse effect on
profitability.
The
fluctuation of the Canadian dollar may materially and adversely affect
investments in the Company.
The value
of the Canadian dollar against the U.S. dollar and other currencies may
fluctuate and is affected by, among other things, changes in the Canada’s
political and economic conditions. As the Company relies principally on revenues
earned in Canada, any significant revaluation of Canadian dollar may materially
and adversely affect the Company’s cash flows, revenues and financial condition.
For example, to the extent that the Company needs to convert U.S. dollars it
receives from an offering of its securities into Canadian dollars for the
Company’s operations, appreciation of the Canadian dollar against the U.S.
dollar could have a material adverse effect on the Company’s business, financial
condition and results of operations. Conversely, if the Company decides to
convert its Canadian dollars into U.S. dollars for the purpose of making
payments for dividends on its common stock or for other business purposes and
the U.S. dollar appreciates against the Canadian dollar, the U.S. dollar
equivalent of the Canadian dollar that the Company converts would be reduced. In
addition, the depreciation of significant U.S. dollar denominated assets could
result in a charge to the Company’s income statement and a reduction in the
value of these assets.
The
effect of changes in international, national and local economic and market
conditions as a result of global developments
Beyond
the risks of doing business in Canada or the United States, there is also the
potential impact of changes in the international, national and local economic
and market conditions as a result of global developments, including the effects
of global financial crisis, effects of terrorist acts and war on terrorism, US
and Canadian presence in Iraq and Afghanistan, potential conflict or crisis in
North Korea or Middle East and potential avian flu pandemic or related
illnesses, negatively affecting local homebuilding industry and adversely
affecting new home installation market.
Risks
Relating to the Share Exchange
The
Company’s Chief Executive Officer, Peter Van Hierden, beneficially owns 69.0% of
the Company’s outstanding common stock, which gives him control over certain
major decisions on which the Company’s stockholders may vote, which may
discourage an acquisition of the Company.
As a
result of the Share Exchange, most of management of the Company do not
beneficially own any of the Company’s outstanding common stock at this point in
time, and one of the Company’s officers and directors beneficially owns 69.0% of
the Company’s outstanding shares. The interests of this director may differ from
the interests of other stockholders. As a result, this officer and director will
have the right and ability to control virtually all corporate actions requiring
stockholder approval, irrespective of how the Company’s other stockholders may
vote, including the following actions:
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Electing or defeating
the election of directors;
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Amending or preventing
amendment of the Company’s Certificate of Incorporation or By-laws;
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Effecting or preventing
a merger, sale of assets or other corporate transaction; and
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Controlling the outcome
of any other matter submitted to the stockholders for vote.
The
Company’s stock ownership profile may discourage a potential acquirer from
seeking to acquire shares of the Company’s common stock or otherwise attempting
to obtain control of the Company, which in turn could reduce the Company’s stock
price or prevent the Company’s stockholders from realizing a premium over the
Company’s stock price
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As
a result of the Share Exchange, Duratech has become a wholly-owned subsidiary of
a company that is subject to the reporting requirements of U.S. federal
securities laws, which can be expensive.
As a
result of the Share Exchange, Duratech has become an indirect wholly-owned
subsidiary of a company that is a public reporting company and, accordingly, is
subject to the information and reporting requirements of the Exchange Act and
other federal securities laws, including compliance with the Sarbanes-Oxley Act.
The costs of preparing and filing annual and quarterly reports, proxy statements
and other information with the SEC (including reporting of the Share Exchange)
and furnishing audited reports to stockholders will cause the Company’s expenses
to be higher than they would be if Duratech had remained privately-held and did
not consummate the Share Exchange.
In
addition, it may be time consuming, difficult and costly for the Registrant to
develop and implement the internal controls and reporting procedures required by
the Sarbanes-Oxley Act. The Registrant may need to hire additional
financial reporting, internal controls and other finance personnel in order to
develop and implement appropriate internal controls and reporting procedures. If
the Registrant is unable to comply with the internal controls requirements of
the Sarbanes-Oxley Act, the Registrant may not be able to obtain the independent
accountant certifications required by the Sarbanes-Oxley Act.
Public
company compliance may make it more difficult to attract and retain officers and
directors.
The
Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have
required changes in corporate governance practices of public companies. As a
public entity, the Registrant expects these new rules and regulations to
increase compliance costs in 2008 and beyond and to make certain activities more
time consuming and costly. As a public entity, the Registrant also expects that
these new rules and regulations may make it more difficult and expensive for the
Registrant to obtain director and officer liability insurance in the future and
it may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. As a result,
it may be more difficult for the Registrant to attract and retain qualified
persons to serve as directors or as executive officers.
Because
Duratech became public by means of a share exchange, the Company may not be able
to attract the attention of major brokerage firms.
There may
be risks associated with Duratech becoming public through a share exchange.
Specifically, securities analysts of major brokerage firms may not provide
coverage of the company since there is no incentive to brokerage firms to
recommend the purchase of the company’s common stock. No assurance can be given
that brokerage firms will, in the future, want to conduct any secondary
offerings on behalf of the company.
Risks
Relating to the Common Stock
The
Company’s stock price may be volatile.
The
market price of the Company’s common stock is likely to be highly volatile and
could fluctuate widely in price in response to various factors, many of which
are beyond the Company’s control, including the following:
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Additions
or departures of key personnel;
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Limited
“public float” following the Share Exchange, in the hands of a small
number of persons whose sales or lack of sales could result in positive or
negative pricing pressure on the market price for the common
stock;
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Sales
of the common stock;
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The
Company’s ability to execute its business plan;
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Operating
results that fall below expectations;
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Loss
of any strategic relationship;
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Industry
developments;
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Economic
and other external factors; and
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Period-to-period
fluctuations in the Company’s financial
results.
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In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also materially and
adversely affect the market price of the Company’s common stock.
There
is currently no liquid trading market for the Company’s common stock and the
Company cannot ensure that one will ever develop or be sustained.
There is
currently no liquid trading market for the Company’s common stock. The Company
cannot predict how liquid the market for the Company’s common stock might
become. The Company’s common stock is currently approved for quotation on the
OTC Bulletin Board trading under the symbol UPSN. The Company currently does not
satisfy the initial listing standards, and cannot ensure that it will be able to
satisfy such listing standards on a higher exchange, or that its common stock
will be accepted for listing on any such exchange. Should the Company fail to
satisfy the initial listing standards of such exchanges, or its common stock be
otherwise rejected for listing and remain on the OTC Bulletin Board or be
suspended from the OTC Bulletin Board, the trading price of the Company’s common
stock could suffer, the trading market for the Company’s common stock may be
less liquid and the Company’s common stock price may be subject to increased
volatility.
The
Company’s common stock may be deemed a “penny stock”, which would make it more
difficult for investors to sell their shares.
The
Company’s common stock may be subject to the “penny stock” rules adopted under
section 15(g) of the Exchange Act. The penny stock rules apply to companies
whose common stock is not listed on the NASDAQ Stock Market or other national
securities exchange and trades at less than $5.00 per share or that have
tangible net worth of less than $5,000,000 ($2,000,000 if the company has been
operating for three or more years). These rules require, among other things,
that brokers who trade penny stock to persons other than “established customers”
complete certain documentation, make suitability inquiries of investors and
provide investors with certain information concerning trading in the security,
including a risk disclosure document and quote information under certain
circumstances. Many brokers have decided not to trade penny stocks because of
the requirements of the penny stock rules and, as a result, the number of
broker-dealers willing to act as market makers in such securities is limited. If
the Company remains subject to the penny stock rules for any significant period,
it could have an adverse effect on the market, if any, for the Company’s
securities. If the Company’s securities are subject to the penny stock rules,
investors will find it more difficult to dispose of the Company’s
securities.
Furthermore,
for companies whose securities are quoted on the OTC Bulletin Board, it is more
difficult (1) to obtain accurate quotations, (2) to obtain coverage for
significant news events because major wire services generally do not publish
press releases about such companies, and (3) to obtain needed
capital.
Offers
or availability for sale of a substantial number of shares of the Company’s
common stock may cause the price of the Company’s common stock to
decline.
If the
Company’s stockholders sell substantial amounts of common stock in the public
market, or upon the expiration of any statutory holding period, under Rule 144,
it could create a circumstance commonly referred to as an “overhang” and in
anticipation of which the market price of the Company’s common stock could fall.
The existence of an overhang, whether or not sales have occurred or are
occurring, also could make more difficult the Company’s ability to raise
additional financing through the sale of equity or equity-related securities in
the future at a time and price that the Company deems reasonable or appropriate.
Additional shares of common stock will be freely tradable upon the earlier of:
(i) effectiveness of the registration statement the Company is required to file;
and (ii) the date on which such shares may be sold without registration pursuant
to Rule 144 under the Securities Act.
Provisions
of the Company’s Certificate of Incorporation and Nevada law could deter a
change of control, which could discourage or delay offers to acquire the
Company.
Provisions
of the Company’s Articles of Incorporation and Nevada law may make it more
difficult for someone to acquire control of the Company or for the Company’s
stockholders to remove existing management, and might discourage a third party
from offering to acquire the Company, even if a change in control or in
management would be beneficial to stockholders. For example, Article
VIII of the Articles of Incorporation provides that there shall be no cumulative
voting for any purpose, including the election of directors of the
Company. Inasmuch as the insiders of the Company own common stock and
options on common stock representing approximately 70% of the issued and
outstanding common stock of the Company, such holders will be able to elect all
of its directors at a general or special meeting. There is no
cumulative voting to give a minority shareholder the right to elect a director.
This may have an anti-takeover effect. Similarly Article XI provides
for indemnification of directors, officers, employees or agents of the Company
to the fullest extent permitted by Nevada law pursuant to NRS 78.502 and NRS
78.751, as well as successor provisions. Such indemnification could
enable the Company’s board of directors to take actions that would discourage a
third party takeover attempt with impunity; other than a lawsuit by or in the
right of the Company, for which indemnification is not
available.
Volatility
in the Company’s common stock price may subject the Company to securities
litigation.
The
market for the Company’s common stock is characterized by significant price
volatility when compared to seasoned issuers, and the Company expects that its
share price will continue to be more volatile than a seasoned issuer for the
indefinite future. In the past, plaintiffs have often initiated securities class
action litigation against a company following periods of volatility in the
market price of its securities. The Company may, in the future, be the target of
similar litigation. Securities litigation could result in substantial costs and
liabilities and could divert management’s attention and resources.
The
elimination of monetary liability against the Company’s directors, officers and
employees under the Company’s Articles of Incorporation and
Nevada law, and the existence of indemnification rights to the
Company’s directors, officers and employees may result in substantial
expenditures by the Company and may discourage lawsuits against the Company’s
directors, officers and employees.
Article
XI of the Registrant’s Articles of Incorporation provides that the Company shall
indemnify all directors, officers, employees, and agents to the fullest extent
permitted by Nevada law as provided within NRS 78.7502 and NRS 78.751 or any
other law then in effect or as it may hereafter be amended. Further Article XI
provides that the Company shall indemnify each present and future director,
officer, employee or agent of the Company who becomes a party or is threatened
to be made a party to any suit or proceeding, whether pending, completed or
merely threatened, and whether said suit or proceeding is civil, criminal,
administrative, investigative, or otherwise, except an action by or in the right
of the Company, by reason of the fact that he is or was a director, officer,
employee, or agent of the Company, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against expenses,
including, but not limited to, attorneys' fees, judgments, fines, and amounts
paid in settlement actually and reasonably incurred by him in connection with
the action, suit, proceeding or settlement, provided such person acted in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interest of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.
The
foregoing indemnification obligations could result in the Company incurring
substantial expenditures to cover the cost of settlement or damage awards
against directors and officers, which the Company may be unable to
recoup. These provisions and resultant costs may also discourage the
Company from bringing a lawsuit against directors and officers for breaches of
their fiduciary duties even though such actions, if successful, might
otherwise benefit the Company and its stockholders. However, legal
actions brought “by or in the right of the Company,” so called shareholder
derivative actions, are expressly carved out from the indemnification rights of
directors, officers, employees or agents of the Company and such director,
officer, employee or agent would not be entitled to indemnification in the event
of such a lawsuit.
To the
extent that the legal expenses of a director, officer, employee or agent are
paid for by the Company pursuant to its indemnification obligations, a potential
litigant may be deterred from bringing a lawsuit against a director, officer,
employee or agent because it may be costly to the litigant but not to the
indemnified party.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWN
ERS
AND
MANAGEMENT
The
following table sets forth as of January 31, 2009, the number of shares of the
Company’s Common Stock owned of record or beneficially by each person known to
be the beneficial owner of 5% or more of the issued and outstanding shares of
the Company’s voting stock, and by the directors and officers of the
Company.
As of
January 31, 2009, after giving effect to the issuance of 70,804,686 shares and
options to the Duratech Shareholders and others, there will be issued and
outstanding 75,224,676 shares of the Company’s Common Stock.
Title
of Class
|
Name
and Address
|
|
Number
of
Shares
Owned
(1)
|
|
|
Percent
of
Voting
Power
(2)
|
|
|
|
|
|
|
|
|
|
Principal
Stockholders
|
|
|
|
|
|
|
Common
|
Janet
Van Hierden
2920
9
th
Avenue North
Lethbridge,
Alberta, Canada T1H 5E4
|
|
|
51,927,331
|
(3)
|
|
|
69.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Common
|
Tony
Philipp
P.O.
Box 2399
Davidson,
North Carolina 28036
|
|
|
4,910,000
|
(4)
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
and Executive Officers
|
|
|
|
|
|
|
|
|
Common
|
Peter
Van Hierden
2920
9
th
Avenue North
Lethbridge,
Alberta, Canada T1H 5E4
|
|
|
51,927,331
|
(3)
|
|
|
69.0
|
%
|
Common
|
Richard
von Gnechten
2920
9
th
Avenue North
Lethbridge,
Alberta, Canada T1H 5E4
|
|
|
1,365,265
|
(5)
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Common
|
All
Officers and Directors as a Group (2 persons)
|
|
|
53,292,596
|
|
|
|
70.8
|
%
|
(1)
Except
as otherwise indicated, the shares are owned of record and beneficially by the
persons named in the table.
(2)
|
Based
on 75,224,676 issued and outstanding shares of common stock on January 31,
2009. There were also 23,780,334 options to purchase shares of
common stock or warrants awarded as of January 31,
2009.
|
(3)
|
Janet
Van Hierden and Peter Van Hierden are husband and wife, and beneficially
own the 6,387,729 and 41,255,710 shares, respectively, of Common Stock
owned by each and 2,765,292 options to purchase Common Stock owned by
Peter Van Hierden. In addition, Mr. and Mrs. Van Hierden beneficially own
580,703 shares of Common Stock owned by their son Jason Van Hierden and
the 116,141 shares of Common Stock owned by their son Brendon Van
Hierden. They also beneficially own the 547,837 options to
purchase shares of Common Stock owned by their daughter Amanda Van Hierden
and the 273,919 options to purchase shares of Common Stock owned by their
daughter Carlarene Van Hierden.
|
(4)
|
Mr.
Philipp’s shareholdings are comprised of 1,000,000 fully-vested options
and 3,910,000 shares. Mr. Philipp is the former CEO of the
Company, who resigned on September 17,
2008.
|
(5)
Mr.
von Gnechten owns 1,054 shares of Common Stock and 1,364,211 options to purchase
Common Stock.
Di
r
e
ctors and Executive Offi
cers
The
following table sets forth information regarding the members of our board of
directors and our executive officers and other significant employees. All
directors hold office for one-year terms until the election and qualification of
their successors. Officers are elected annually by the board of directors and
serve at the discretion of the board.
The table
below sets forth who our directors and executive officers will be upon the
expiration of the ten day notice period under Rule 14f-1, and, in that
connection, we filed with the Commission and mailed to our shareholders of
record a Schedule 14F-1, which serves to provide such notice on September 11,
2008. Such notice period expired on September 21, 2008. In the interim, all of
the officers of the Registrant serving at closing resigned from such positions
and the following persons were designated to the specified offices by Peter Van
Hierden, namely, Mr. Van Hierden, as Chairman, CEO and President, Richard A. von
Gnechten as CFO. Also on the Closing Date, Philipp resigned from his position as
a director effective upon the expiration of the ten day notice period required
by Rule 14f-1, at which time additional persons designated by Mr. Van Hierden
will be appointed as directors of the Registrant, notably Mr. Robert
Lundgren.
To the
best of the Company’s knowledge, immediately prior to the Closing, Peter Van
Hierden and Robert Lundgren were not directors, did not hold any position with
the Company, nor had they been involved in any transactions with the Company or
any of its directors, executive officers, affiliates or associates which would
be required to be disclosed pursuant to the rules and regulations of the U.S.
Securities and Exchange Commission, other than the transactions in the Share
Exchange Agreement and the Asset Purchase Agreement. Richard von Gnechten, who
will be appointed Chief Financial Officer at Closing, has served as director of
the Company and as a partner of Naviscent Group, LLC with Paul Schmidt, the
Chief Financial Officer of the Company prior to Closing. Mr. Van Hierden serves
as Chairman of the Board of Directors of Global Kingdom Alliance which has
secured Mr. von Gnechten’s services as a financial advisor to its affiliated
companies. To the best of the Company’s knowledge, none of such persons has been
convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, nor has he been a party to any judicial or administrative
proceeding during the past five years that resulted in a judgment, decree or
final order enjoining the person from future violations of, or prohibiting
activities subject to, federal or state securities laws, or a finding of any
violation of federal or state securities laws, except for matters that were
dismissed without sanction or settlement.
To the
Company’s knowledge, no director, officer or affiliate of the Company, and no
owner of record or beneficial owner of more than five percent (5%) of the
securities of the Company, or any associate of any such director, officer or
security holder is a party adverse to the Company or has a material interest
adverse to the Company in reference to pending litigation.
The names
of the officers and directors of the Company following the Closing Date, as well
as certain information about them are set forth below:
Name
|
|
Age
|
|
Position(s)
with the Company
|
|
|
|
|
|
Tony
Philipp
(1)
|
|
45
|
|
CEO,
President and Director
|
Mark
McDowell
(2)
|
|
42
|
|
Director
|
Paul
Schmidt
(3)
|
|
52
|
|
CFO
|
Peter
Van Hierden
(4)
|
|
49
|
|
CEO
and Director
|
Richard
von Gnechten
(5)
|
|
45
|
|
CFO
and Director
|
Robert
Lundgren
(6)
|
|
64
|
|
Director
|
(1)
|
Philipp
resigned as an officer at Closing and as a director of the Company
effective ten days following the mailing of the Schedule
14F-1.
|
(2)
Mr.
McDowell resigned as a director of the Company effective at
Closing.
(3)
Mr.
Schmidt resigned as an officer of the Company at Closing.
(4)
|
Mr.
Van Hierden was appointed as the CEO on the date Philipp’s resignation
became effective and his appointment as a director became effective on the
Closing Date.
|
(5)
|
Mr.
von Gnechten was appointed as the CFO on the date Mr. Schmidt’s
resignation became effective. He remains in his position as a
director.
|
(6)
|
Mr.
Lundgren was appointed as a director on the date ten days following the
mailing of the Schedule 14F-1. He subsequently resigned his position as a
director of the Company effective December 8,
2008.
|
Tony Philipp
.
Tony Philipp
was a director and our Chief Executive Officer and President since
November 15, 2005, when we acquired UpSnap USA. Philipp is the co-founder of
UpSnap USA and acted as a director and the Chief Executive Officer of UpSnap USA
since its formation in April 2004. During 2002 to 2004, Philipp was the
president of Vivisimo Inc., Europe, the leading provider of automatic
content-clustering software, which powers 10% of web searches worldwide, with
blue chip customers including the U.S. Government, HP, NASA, German Government,
AOL, Infospace, and Overture. Philipp was responsible for establishing worldwide
sales and marketing strategy for Vivisimo during that period. Philipp was the
former Chief Operating Officer of Lycos Europe. Philipp was instrumental in the
joint venture with Bertelsmann, and took the company to a $5 billion IPO in
2000. Philipp previously served on the board of Mobileway, Inc. and has in the
past served as Non-Executive board member of selected 3i investments, the
largest European venture group. Philipp is a dual citizen in Germany and the
USA, and holds a Bachelor of Science Degree from Clemson University, a Master of
International Business (MBA) from the University of South Carolina, and was a
Fulbright Scholar at the University of Cologne (Germany).
Mark McDowell
.
Mark
McDowell
, was a director since April 19, 2006, has served since November
2004 as co-founder of Acta Wireless Capital LLC, an investment firm focused on
early stage companies in the wireless sector, and the Managing Partner of Actium
Advisors, LLC, a consulting firm with clients such as Verizon Wireless,
Vodafone, Hewlett-Packard, and AOL since November 2004. Mr. McDowell served as
President of McDowell Technology Ventures from September 2002 - October 2004,
and was President and COO of Invertix Corporation, a global pioneer in wireless
instant messaging from 1997 until August 2002. Mr. McDowell previously served as
co-founder and director of TeleCorp PCS (acquired by AT&T Wireless Services
in February 2002) and holds BSEE and MSEE degrees from the Massachusetts
Institute of Technology.
Paul Schmidt
.
Paul Schmidt
was our Chief Financial Officer since November 15, 2005 and prior to that
served as Chief Financial Officer of UpSnap USA from October 1, 2005. From
2005-2006, Mr. Schmidt served as a managing director at Von Steuben Financial,
LLC, a service firm that provides part-time senior level financial executive
services. From 2001 to 2004, Mr. Schmidt was the Vice President and Chief
Financial Officer of B.R. Lee Industries, Inc., a large manufacturer of
commercial asphalt paving equipment. From 1999 to 2001, Mr. Schmidt served as
the Treasurer and Chief Financial Officer of Powerscape Equipment Corp., an
outdoor power equipment dealership. Mr. Schmidt is currently serving as Managing
Partner for Naviscent Group, LLC, a firm that provides senior level CFO-type
services on a fractional use basis. Mr. Schmidt has an inactive CPA license and
has a Bachelor of Business Administration degree from University of
Michigan.
Peter Van
Hierden
.
Peter Van
Hierden
, a director, is President and CEO and principal owner of Duratech
Group Inc. Duratech is engaged in the homebuilding and manufactured housing
business in Alberta and Saskatchewan, Canada, which have historically
experienced rapid growth primarily because of commodities such as oil,
uranium and diverse mining. Duratech operates through its business units
Duratech Contracting and Duratech Structures and through its ownership of 50% of
the share capital of two joint venture companies: P&R Gateway Developments
Inc. and 1371009 Alberta Ltd., both Alberta corporations. Mr. Van Hierden has
been an entrepreneur for over 30 years, and in the past 15 years has
helped successfully restore the profitability of six corporations that had
losses to generating revenues of $1 million to $30
million.
Richard von
Gnechten
.
Richard von
Gnechten
, a director since April 19, 2006, has served since 2005 as
President and CEO of Ravon Corp., which provides corporate financial advisory
services. Mr. von Gnechten joined Hawaiian Electric Company (HECO) in 1991 and
served as Financial Vice President & CFO from 2000 to 2004,
managing/implementing Sarbanes-Oxley, SEC and NYSE compliance. During his
tenure, Hawaiian Electric was recognized by a Dow Jones public company survey as
a top 5 company for corporate governance and top 10 for disclosure transparency.
Mr. von Gnechten also serves as Managing Director and CEO for Global Kingdom
Finance Co. and Partner of Naviscent Group, LLC and board member for several
companies. He has an MBA from Dartmouth’s Tuck School of Business,
Financial Management Program graduate from Stanford’s Graduate School of
Business and a degree in Economics from the University of Denver.
Robert Lundgren
.
Robert
Lundgren
, who retired in 1999, was a director who subsequently
resigned on December 8, 2008, and has served as Senior Vice President, Finance
and Corporate Development (and Chief Financial Officer) of The Loewen Group,
Inc. (“Loewen”), a large Canadian public company, from 1984 to 1993 before
retiring from the company. He was later asked by the Loewen Board of
Directors to step in as President from late-1997 to early-1999 to replace the
founder on a short-term basis and help the company with a financial
restructuring. In his capacities as Senior Vice President, he was a
leader in the company’s strategic planning process and directed a rapid
acquisition growth program, which required access to significant capital from
the public markets as well as direction of management development and system
needs. He has also served as a director of a number of corporate and charitable
boards. Mr. Lundgren is a Chartered Accountant and has a Bachelor of Arts in
Economics from the University of British Columbia and a Master of Divinity from
Canadian Theological Seminary.
BOARD
OF DIRECTORS’ MEETINGS AND COMMITTEES
Meetings
of Our Board of Directors
Our
Board of Directors met in person or via telephone occasionally during our fiscal
year ended January 31, 2009. Each member of the Board of Directors attended at
least 75% of the meetings.
The
Company presently does not have a compensation committee or nominating
committee. The Company does have an audit committee, with committee duties
currently carried out by a member of our Board of Directors. Our Board of
Directors has determined that the audit committee member has sufficient
knowledge in financial and accounting matters to serve on the committee and that
the member is an “audit committee financial expert” as defined by the rules of
the Securities and Exchange Commission. The Board of Directors has not adopted a
written charter for the audit committee as the management of the Company
believes that until this point it has been premature at the current stage of the
Company’s management and business development to adopt a formal
charter.
The same
reasoning applies to the decision not to form a compensation or nominating
committee. However, the new management of the Company may form a compensation
and nominating committee in the future. Until these committees are established,
these decisions will continue to be made by the Board of Directors. New
management may also adopt a formal audit committee charter. Although the Board
of Directors has not established any minimum qualifications for director
candidates, when considering potential director candidates, the Board considers
the candidate’s character, judgment, skills and experience in the context of the
needs of the Company and the Board of Directors.
The
Company’s Board of Directors does not currently provide a process for
stockholders to send communications to the Board of Directors as the Company
management believes that until this point it has been premature given the
limited liquidity of the common stock of the Company to develop such processes.
However, the new management of the Company may establish a process for
stockholder communications in the future.
Director
Compensation
We
have no standard arrangement pursuant to which our directors are compensated for
their services in their capacity as directors. The Board of Directors may award
special remuneration to any director undertaking any special services on behalf
of our company other than services ordinarily required of a
director.
Summary
Compensation Table
The
following Summary Compensation Table sets forth, for the years indicated, all
cash compensation paid, distributed or accrued for services, including salary
and bonus amounts, rendered in all capacities by the Company’s chief executive
officer and president who received or was entitled to receive remuneration in
excess of $100,000 during the stated periods.
SUMMARY
COMPENSATION TABLE
Name
of officer
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock
Awards
|
|
Option
Awards
|
|
Non-Equity
Incentive Plan Compensa-tion
|
|
Nonqualified
Deferred Compensa-tion
|
|
All
Other Compensa-tion
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Mr.
Philipp was our former Chairman and CEO who resigned as CEO on September 17,
2008 and later resigned as Chairman.
Option
Grants in Last Fiscal Year
There
were options to purchase 1,000,000 shares of Common Stock granted to Philipp
during the twelve-months ended January 31, 2009, exercisable at $.10 per share,
vesting over a four year period, with all unvested options to vest upon the
Closing.
During
the years ended January 31, 2009 and, 2008, Philipp did not exercise any stock
options.
GRANTS
OF PLAN-BASED AWARDS
|
Name
|
Grant
Date
|
|
Estimated
Future Payouts Under Non-Equity Incentive Plan Awards
|
|
|
Estimated
Future Payouts Under Equity Incentive Plan Awards
|
|
|
All
Other Stock Awards: Number of Shares of Stocks or Units
(#)
|
|
|
All
Other Option Awards: Number of Securities Underlying
Options
(#)
|
|
|
Exercise
or Base Price of Option Awards
($/Sh)
|
|
|
Grant
Date Fair Value of Stock and Option Awards
|
|
|
Threshold
($)
|
|
|
Target
($)
|
|
|
Maximum
($)
|
|
|
Threshold
($)
|
|
|
Target
($)
|
|
|
Maximum
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tony
Philipp
|
5/14/08
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,000,000
|
|
|
$
|
0.10
|
|
|
|
0
|
|
Employment
Agreements
The
Company has no employment agreements with any of its employees.
Equity
Compensation Plan Information
The
Company does have a stock and incentive plan entitled “UpSnap, Inc. Amended 2006
Omnibus Stock and Incentive Plan,” as detailed on Exhibit A of Schedule 14-C
Definitive Information Statement filed with the SEC on October 3, 2007. The
Board plans to make any necessary changes to this plan to accommodate the
conversion of 2,235,610 options to purchase Duratech common stock into UpSnap
options.
Shares Authorized Under
Equity Compensation Plans
On
November 2, 2006, our Board of Directors approved a 2006 Omnibus Stock and
Incentive Plan. The Plan made 4,000,000 shares of common stock, either
unissued or reacquired by the Company, available for awards of options, stock
appreciation rights, restricted stocks, other stock grants, or any combination
thereof. Eligible recipients include employees, officers, consultants, advisors
and directors. Options granted generally have a ten-year term and vest over four
years from the date of grant. Certain of the stock options granted under the
Plan have been granted pursuant to various stock option agreements. Each stock
option agreement contains specific terms. The Board of Directors increased the
size of the Plan to 7,500,000 total shares on August 8,
2007.
Series
B Warrants and other Warrants
There
are 1,800,000 Series B warrants and 560,000 Viant Capital warrants outstanding
that give the holders thereof the right to acquire 2,360,000 shares of our
common stock,
|
Series
B warrants for the purchase of 1,100,000 and 700,000 shares of our common
stock to Sundar Communications and Executives Corner LLC, respectively.
These warrants are fully vested and have an exercise price of $1.10 per
share and a term of five years expiring in November 2010. The Series B
warrants are subject to earlier expiration and must be exercised after our
common stock trades above the exercise price of series B warrant for more
than 10 days with 10 day total trading volume at least two times the
number of series B warrant shares
outstanding.
|
|
Warrants
for the purchase of 560,000 shares of our common stock to Viant Capital
LLC. These warrants are fully vested and have an exercise price of $0.90
per share and a term of five years expiring in November 2010. These
warrants are subject to early expiration and must be exercised in their
entirety within 90 days after the mandatory exercise provision of the
Series B warrants has been triggered or will
lapse.
|
Other
Equity Awards
A
summary of the time-based stock awards as of January 31, 2009, and changes
during the quarter ended January 31, 2009, is as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
(part of Share Exchange Agreement)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at January 31, 2009
|
|
|
|
|
|
|
|
|
The
following tables summarize information about fixed stock options outstanding and
exercisable at January 31, 2009:
|
|
|
Stock
Options Outstanding
|
Range
of Exercise Prices
|
|
Number
of
Shares
Outstanding
|
|
Weighted
Average
Contractual
Life
in
Years
|
$0.10
|
|
700,000
|
|
8.25
|
$0.10
|
|
170,000
|
|
9.34
|
$0.10
|
|
1,700,000
|
|
9.42
|
$0.10
|
|
18,950,334
|
|
9.67
|
|
|
|
21,520,334
|
|
9.60
|
|
|
|
|
|
|
|
|
|
Stock
Options Exercisable
|
Range
of Exercise Prices
|
|
Number
of
Shares
Exercisable
|
|
Weighted
Average
Exercise
Price
|
$0.10
|
|
2,570,000
|
|
$0.10
|
$0.016
– 0.125
|
|
18,950,334
|
|
$0.05
|
|
|
|
|
|
|
|
|
|
21,520,334
|
|
|
The
exercise price of stock options granted during the period ended January 31, 2009
was equal to the market price of the underlying common stock on the grant
date.
There
was no aggregate intrinsic value as of January 31, 2009. Intrinsic value
represents the pretax value (the period’s closing market price, less the
exercise price, times the number of in-the-money options) that would have been
received by all option holders had they exercised their options at the end of
the period.
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options, warrants,
rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
2)
|
|
|
|
|
Equity
compensation plans approved by security holders
|
23,880,334
|
$0.15
|
0
|
Equity
compensation plans not approved by security holders
|
0
|
0
|
0
|
Total
|
23,880,334
|
$0.15
|
0
|
Directors’
and Officers’ Liability Insurance
The
Company has insurance insuring directors and officers against certain
liabilities.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACT
IONS
For
the ten-months ended July 31, 2008, Philipp, the CEO, advanced a total of
$61,333 to the Company. For the year ended September 30, 2007 and 2006, Philipp
advanced $0 and $0 to the Company, respectively. Philipp was paid $32,000 by the
Company for 2008 (as of July 31, 2008), and has an accrued salary for 2008
amounting to $61,333 (as of July 31, 2008), which was transferred to UpSnap
Services LLC as part of the Asset Sale on September 18, 2008.
After
the consummation of the transactions contemplated by the Share Exchange
Agreement, the Company consummated the sale of its assets related to its
mobile information search services, subject to assumption and payment of all of
the Company’s liabilities related to periods prior to the closing, to UpSnap
Services, LLC, a North Carolina limited liability corporation (“UpSnap
Services”), which is owned by Philipp, pursuant to an Asset Purchase Agreement
dated as of August 29, 2008 (the “Asset Purchase Agreement”).
Over
the past few years the Company had sustained continued financial losses and
revenue declines as its business had grown more competitive, it was not able to
raise additional capital to expand its operations, it had concerns about
obligations to its creditors and its continuation as a going concern, and
subsequent to the termination of the proposed merger transaction with Mobile
Greetings, Inc., it had explored various financing and acquisition alternatives.
Based upon management’s review of alternatives, the Share Exchange Agreement and
the Asset Purchase Agreement presented the most viable possibility for future
enhancement of shareholder value and for payment of creditors.
Pursuant
to the Share Exchange Agreement and the Asset Purchase Agreement, Philipp had
agreed, among other things, to indemnify and hold harmless the Company from and
against all liabilities as of the Closing Date up to $200,000. As part of the
Asset Purchase Agreement, the Company contributed $130,000 to UpSnap Services at
Closing solely toward the payment and discharge of the Assumed Liabilities (as
defined). The $130,000 contribution was not to be used to pay any of
Philipp’s advances to the Company or his accrued salary. Duratech funded this
$130,000 capital contribution by wire transfer of $130,000 to the Registrant on
the Closing Date. The Asset Purchase Agreement was approved by a majority of the
Board of Directors, with Philipp abstaining, in accordance with Nevada Revised
Statutes 78.140.
Richard
A. von Gnechten, a member of the Board of the Company and also a Managing
Director and CEO for Global Kingdom Finance Co., an affiliate of
Duratech, was appointed as Chief Financial Officer of the Company as of the
Closing. He does not plan to have a salary paid by the Company, nor will he have
an employment contract with the Company.
Except
for the transactions described above, there are no proposed transactions and no
transactions during the past two years to which the Company was (or is) a party,
and in which any officer, director, or principal stockholder, or their
affiliates or associates, was also a party.
Item
3.02. Unregistered Sales of Equity Securi
ties
In
connection with the Share Exchange, as of September 17, 2008, the Company issued
to the Duratech Shareholders 50,349,342 shares of common stock in a transaction
intended to be exempt from registration under the Securities Act pursuant to
Regulation S. The Company relied on Regulation S based on the fact that all of
the offerees of common stock and options on common stock were non-“U.S. persons”
within the meaning of Rule 902 of the Securities Act of 1933, as
amended. In addition, the Duratech Shareholders were issued options
to purchase 18,950,334 shares of the Registrant’s Common Stock in substitution
for options to purchase 2,235,610 shares of Duratech common stock which they
owned prior to the transaction. Pursuant to Regulation S, the consideration for
the issuance of the shares of common stock and options was the exchange by the
Duratech Shareholders of 100% of the common share capital of Duratech Group Inc.
Pursuant to the exchange, P&R Gateway Developments Inc. and 1371009 Alberta
Ltd. became 50% owned subsidiaries of the Company.
On
January 31, 2009, the Company issued 1,495,010 and 10,000 shares of common
stock, respectively, to a supplier and a business broker in connection with the
Company’s purchase of truss equipment used in its operations. The
Company relied on Regulation S in issusing the shares based on the fact that all
of the offerees were non-“U.S. Persons” within the meaning of Rule 902 of the
Securities Act of 1933, as amended.
The
options that were granted to the Duratech Shareholders pursuant to the UpSnap,
Inc. Amended 2006 Omnibus Stock and Incentive Plan had the following terms and
conditions:
1.
|
Exercise
Price
. Various
prices ranging from $0.10 to $1.00 prior to
conversion.
|
2.
|
Option
Term
.
Typically a ten (10) year term.
|
3.
|
Time and Method of
Exercise
. Each option holder has vesting requirements ranging
from a four year vesting period, consistent with their continued
employment with the company, to fully vested as a result of an issuance as
part of a financing agreement. Each option is entitled to one
share of common stock of Duratech. At the time the option
holder exercises its option and pays its exercise fee, it will be issued,
at the company’s earliest convenience s, common shares in the
company.
|
Description
of Securities
The
Company is authorized to issue 97,500,000 shares of common stock, $.001 par
value. Immediately following the Share Exchange, there were 73,719,666 shares of
common stock issued and outstanding and 23,780,334 options and warrants to
purchase shares of common stock as of the Closing Date.
Common
Stock
As of
January 31, 2009, the Company has 62 shareholders of record. The
holders of common stock are entitled to one vote per share. They are not
entitled to cumulative voting rights or preemptive rights. The holders of common
stock are entitled to receive ratably such dividends, if any, as may be declared
by the board of directors out of legally available funds. However, the current
policy of the board of directors is to retain earnings, if any, for operations
and growth. Upon liquidation, dissolution or winding-up, the holders of common
stock are entitled to share ratably in all assets that are legally available for
distribution after payment in full of any preferential amounts. The holders of
common stock have no subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of any series of preferred
stock, which may be designated solely by action of the board of directors and
issued in the future.
Registration
Rights
The
Duratech Shareholders have demand and piggy-back registration rights for all
restricted securities that they received in the Share Exchange, at the expense
of the Company.
Market
Price and Dividends
Duratech
Group Inc. is, and has always been, a privately-held company and now is a
wholly-owned subsidiary of the Company. There is not, and never has been, a
public market for the securities of Duratech Group Inc. The Registrant’s common
stock is approved for trading on the OTC Bulletin Board under the symbol UPSN,
but there is currently no liquid trading market.
For the
foreseeable future, the Company does not intend pay cash dividends to its
stockholders. Duratech Group does not intend to pay any cash dividends to its
parent preferred stockholders.
Indemnification
of Directors and Officers
Pursuant
to Section 78.7502 of the Nevada Revised Statutes, the Company will indemnify to
the fullest extent permitted by, and in the manner permissible under law, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed claim, action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was
director, officer, employee or agent of the corporation, or is or was serving at
our request as a director, partner, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
indemnification covers expenses (including attorneys’ fees), judgments, fines
and amounts paid in settlement. It also covers costs. The Company may pay
advancements towards these expenses. The power to indemnify applies only if such
person acted in good faith and in a manner such person reasonably believed to be
in the best interests, or not opposed to the best interests, of the corporation
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his or her conduct was unlawful.
Article
XI of the Registrant’s Articles of Incorporation provides that the Company shall
indemnify all directors, officers, employees, and agents to the fullest extent
permitted by Nevada law as provided within NRS 78.7502 and NRS 78.751 or any
other law then in effect or as it may hereafter be amended, other than lawsuits
by or in the right of the Company.
Further,
Article XI provides that the Company shall indemnify each present and future
director, officer, employee or agent of the Company who becomes a party or is
threatened to be made a party to any suit or proceeding, whether pending,
completed or merely threatened, and whether said suit or proceeding is civil,
criminal, administrative, investigative, or otherwise, except an action by or in
the right of the Company, by reason of the fact that he is or was a director,
officer, employee, or agent of the Company, or is or was serving at the request
of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses, including, but not limited to, attorneys' fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit, proceeding or settlement, provided such person acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interest of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.
Trading
Information
The
Company’s common stock is currently approved for quotation on the OTC Bulletin
Board maintained by the National Association of Securities Dealers, Inc. under
the symbol “UPSN,” but there is currently no liquid trading market. The
challenge for the Company will be to educate the market as to the values
inherent in a home and manufactured housing market in Canada, and to develop an
actively trading market.
The
transfer agent for our common stock is Nevada Agent and Trust Company, 50 West
Liberty Street, Suite 880 Reno, Nevada 89501, telephone: (775)
322-0626.
Quarter
|
Hi
|
Lo
|
|
|
|
Oct
1 – Dec 31, 2006
|
NA
|
NA
|
Jan
1 – Mar 31, 2007
|
NA
|
NA
|
Apr
1 – Jun 30, 2007
|
.45
|
.25
|
Jul
1 – Sep 30, 2007
|
.51
|
.19
|
|
|
|
Oct
1 – Dec 31, 2007
|
.42
|
.15
|
Jan
1 – Mar 31, 2008
|
.23
|
.07
|
Apr
1 – Jun 30, 2008
|
.10
|
.02
|
Jul
1 – Sep 30, 2008
|
.08
|
.015
|
|
|
|
Nov
1, 2008 – Jan 31, 2009
(1)
|
.06
|
.002
|
(1)
The
Company changed its fiscal year end from September 30 to January 31on December
15, 2008.
Item
5.01. Changes in Control of Regis
trant
Reference
is made to the disclosure set forth under Item 2.01 of this Current Report on
Form 8-K, which disclosure is incorporated herein by reference.
Item
5.02. Departure of Directors or Certain Officers; Election of
Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain
O
fficers
At
Closing, the officers of the Registrant tendered their resignations to the Board
of Directors, and new officers designated by Peter Van Hierden were appointed as
follows: Mr. Peter Van Hierden, Chairman, CEO and President, and Richard von
Gnechten, Chief Financial Officer. Tony Philipp tendered his resignation as
Chairman and President of the Company. Also on the Closing Date, Philipp
resigned from his position as a director effective upon the expiration of the
ten day notice period required by Rule 14f-1, at which time additional persons
designated by Mr. Van Hierden will be appointed as directors of the Registrant,
notably Robert Lundgren.
The
biographies of each of the new directors and officers are set forth in the
section entitled “Directors and Executive Officers,” which begins on page 24 of
this Form 8-K.
The
Registrant discloses that there are no transactions since the beginning of its
last fiscal year, or any currently proposed transaction, in which the Registrant
was or is to be a participant and the amount involved exceeds the lesser of
$120,000 or one percent of the average of the Registrant’s total assets at
year-end for the last three completed fiscal years, and in which Mr. Van Hierden
and von Gnechten had or will have a direct or indirect material interest, other
than the ownership of shares of common stock in the Registrant as a result of
the reverse merger transaction. Such beneficial ownership is set
forth in the table under the caption “Security Ownership of Certain Beneficial
Owners and Management.” In addition, the Registrant does not have an employment
contract with any of Messrs. Van Hierden and von Gnechten.
Item
5.06. Change in Shell Company St
atus
As a
result of the consummation of the Share Exchange described in Item 1.01 of this
Current Report on Form 8-K, the Company believes that it is not a “shell
corporation,” as that term is defined in Rule 405 of the Securities Act and Rule
12b-2 of the Exchange Act.
Item
9.01. Financial Statements and Ex
hibits
(a)
Financial Statements of Businesses Acquired.
In
accordance with Item 9.01(a), UpSnap’s audited financial statements for the
fiscal years ended January 31, 2009 and 2008 are filed in this Current Report on
Form 8-K as Exhibit 99.1.
Interim
financial statements for Duratech for the quarterly period ended October
31, 2008 are filed in this Current Report on Form 8-K as Exhibit
99.3.
(b)
Pro Forma Financial Information.
In
accordance with Item 9.01(b), the Company’s pro forma financial statements are
filed in this Current Report on Form 8-K as Exhibit 99.2.
(d)
Exhibits.
The
exhibits listed in the following Exhibit Index are filed as part of this Current
Report on Form 8-K.
Exhibit No.
|
Description
|
|
|
2.1
|
|
2.2
|
|
3.1
|
Articles
of Incorporation of UpSnap, Inc. (incorporated by reference to Exhibit 3.1
from Form SB-2 filed on September 18, 2003)
|
3.2
|
By-laws
of UpSnap, Inc. (incorporated by reference to Exhibit 3.2 from Form
SB-2 filed on September 18, 2003)
|
3.3
|
Certificate
of Amendment to Articles of Incorporation changing name of corporation and
authorizing 3:1forward split (incorporated by reference to Exhibit 3.1
from Form 8-K filed on November 17, 2005)
|
21.1
|
|
99.1
|
|
99.2
|
|
99.3
|
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
UpSnap,
Inc.
|
|
|
|
|
|
|
By:
|
/s/ Peter
Van Hierden
|
|
|
|
Peter
Van Hierden
|
|
|
|
Chairman
and CEO
|
|
|
|
|
|
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