UpSnap,
Inc. F/K/A Duratech Group
Inc.
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Consolidated
Balance Sheet
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As
of
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As
of
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April
30, 2009
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January
31, 2009
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ASSETS
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CURRENT
ASSETS
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Cash
and Cash Equivalents
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Other
Receivables (Deposits/Holdback)
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PROPERTY,
PLANT, AND EQUIPMENT, NET
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LIABILITIES
AND STOCKHOLDERS' EQUITY/(DEFICIT)
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Shareholder
Notes Payable, current
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Accounts
Payable and Accrued Liabilities
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STOCKHOLDERS'
EQUITY/(DEFICIT)
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Common
Stock ($.001 par value, 97,500,000 authorized;
75,224,676
issued and outstanding)
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Retained
Earnings/(Accumulated Deficit)
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TOTAL
STOCKHOLDERS' EQUITY/(DEFICIT)
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
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The
accompanying notes are an integral part of these financial
statements.
UpSnap,
Inc. F/K/A Duratech Group
Inc.
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Consolidated
Statement of Operations
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For
the three months
ended
April 30,
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2009
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2008
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Selling,
general and administrative
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Net
Income/(Loss) from Operations
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NET
OTHER INCOME/(EXPENSE)
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NET
INCOME/(LOSS) FROM CONTINUED OPERATIONS
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OTHER
COMPREHENSIVE INCOME (LOSS)
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Foreign
Currency Translation Gain/(Loss)
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COMPREHENSIVE
INCOME (LOSS)
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The
accompanying notes are an integral part of these financial
statements.
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Consolidated
Statements of Cash Flows
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For
the three months ended April 30,
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For
twelve months ended January 31, 2009
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
Income/(loss) from continued operations
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Adjustments
to reconcile net loss to net cash provided by (used
in)
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Foreign
Currency Translation Gain/(Loss)
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Changes
in Assets and Liabilities:
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(Increase)/Decrease
in Accounts Receivable
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(Increase)/Decrease
in Accounts Receivable--Related Party
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(Increase)/Decrease
in Current Portion of Loans and Notes Receivable
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(Increase)/Decrease
in Other Receivables and Other Assets
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(Increase)/Decrease
in Inventories
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Increase/(Decrease)
in Accounts Payable and Accrued Expenses
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Increase/(Decrease)
In Customer Deposits
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NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
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CASH
FLOWS FROM INVESTING ACTIVITIES:
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Purchase
of Property, Plant, and Equipment
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NET
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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Proceeds/(Payment)
of /Notes Payable
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Proceeds
from Long-term Debt
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Proceeds/(Payment)
from Share Redemption
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Proceeds/(Payment)
of Shareholder Loans
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Issuance
of shares for Equipment
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Conversion
of Shareholder Loans to Equity
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Conversion
of Duratech Stock for UpSnap Stock
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Net
Change in value of Paid-in-Capital/Accumulated
Deficit
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Payment
for Structures Acquisition
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NET
CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES
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CASH
AND CASH EQUIVALENTS:
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SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
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CASH
PAID DURING THE PERIOD FOR:
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The
accompanying notes are an integral part of these financial
statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED APRIL 30, 2009 AND 2008
(Unaudited)
NOTE A—SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Organization
and Nature of Business
—UpSnap, Inc. (“UpSnap” or “the Company”) was
incorporated on July 24, 2003 under the laws of the State of
Nevada. The Company was a Development Stage Company, as defined by
the Statement of Financial Accounting Standard (“SFAS”) No. 7 “Accounting and
Reporting by Development Stage Enterprises”.
On August
29, 2008, UpSnap Inc. (the “Company”) entered into a Share Exchange Agreement
(the “Share Exchange Agreement”) by and among the Company; Tony Philipp, an
officer, director and shareholder of the Company (“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 Company in exchange for an agreement to issue to them
an aggregate of 50,349,342 shares of Common Stock of the Company, resulting
in Duratech becoming a majority owned subsidiary of the Company.
After the
consummation of the transactions contemplated by the Share Exchange Agreement,
the Company, 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 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”). As part
of the reverse merger, the Company will cease engaging in the mobile information
search services business.
UpSnap,
Inc.’s principal operations following the reverse-merger are conducted through
Duratech Group Inc. (previously named Duratech Contracting
Inc.) Duratech commenced operations on December 18, 2002 as a small
homebuilding company constructing about 5 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’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.
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; 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 comp
sites for the oil mining industry.
On July
1, 2007, Duratech Contracting Inc. acquired Duratech Structures Inc. (Previously
known as Jobsite Structures). On July 28, 2008, Duratech Contracting Inc.
changed its name to become Duratech Group Inc.
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 April 30, 2009 and
January 31, 2009 was 0.8384 and .0.81248, respectively. The average for the
quarter ending April 30, 2009 and 2008 was 0.82544 and 0.9957,
respectively.
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.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED APRIL 30, 2009 AND 2008
(Unaudited)
NOTE A—SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
to 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.
Advertising
Costs
—Advertising costs are expensed as incurred. For the
quarter ended April 30, 2009 and 2008, the company incurred $8,460 and $0
respectively.
Net Loss
per Common Share
—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.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED APRIL 30, 2009 AND 2008
(Unaudited)
NOTE A—SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 quarters ended April 30, 2009 and
2008, no amounts were deemed uncollectible as of April 30,
2009. Outstanding Accounts Receivable as of April 30, 2009 was
$1,345,575. 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 paid are 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.
Property
and Equipment
—Property and equipment is stated at
cost. Depreciation is provided by the straight-line method over the
estimated economic life of the property and equipment. The following
table shows the estimated useful life used for each class of fixed
asset:
Asset
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Estimated Useful Life
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Buildings
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25
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years
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Shed
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10
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years
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Tools
and Equipment
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5
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years
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Small
tools and equipment
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4
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years
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Computer
and Office Equipment
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3
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years
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Automobiles
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3
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years
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Leasehold
Improvements
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5
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years
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Computer
Hardware
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2.5
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years
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The
estimated annual depreciation expense is $124,397 per year. Total
depreciation expense for the years ended January 31, 2009 and 2008 were $124,397
and $21,598 respectively.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED APRIL 30, 2009 AND 2008
(Unaudited)
NOTE A—SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Recent
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 SFAS 141(revised 2007), Business
Combinations (“SFAS 141R”). SFAS 141R 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 SFAS 141R, 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. SFAS 141R is effective for fiscal years beginning after
December 15, 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 SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51
(“SFAS 160”). SFAS 160 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.
SFAS 160 is effective for fiscal years beginning after December 15,
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 November 15,
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
May 2008, 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 December 15, 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.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED APRIL 30, 2009 AND 2008
(Unaudited)
NOTE B—SUPPLEMENTAL CASH
FLOW INFORMATION
Supplemental
disclosures of cash flow information for the quarter ended April 30, 2009 and
year ended January 31, 2009 is summarized as follows:
Cash
paid during the years for interest and income taxes:
|
|
April
30,
2009
|
|
|
Jan,
31
2009
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
85,224
|
|
|
$
|
277,653
|
|
|
|
|
|
|
|
|
|
|
NOTE C—PROPERTY AND
EQUIPMENT
Property
and equipment consisted of the following as of January 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small
Tools and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer
and Office Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
One half
of the depreciation is used in the year of acquisition.
NOTE D—INCOME
TAXES
Due to
the prior years’ operating losses and the inability to recognize an income tax
benefit therefrom, there is no provision for current or deferred federal or
state income taxes or Canadian taxes for the year ended January 31,
2009. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amount used for federal and state income tax
purposes.
For the
twelve month periods ended September 30, 2008 and 2007, prior to the
reverse-merger with Duratech, the Company incurred net operation losses and
accordingly, no provision for income taxes has been recorded. In
addition, no benefit for income taxes has been recorded due to the uncertainty
of the realization of any tax assets. For the period ending September
30, 2008, the Company had additional net operating loss carry-forward for its
operations through September 17 prior to the completion of its share exchange
agreement with Duratech. The figures here reflect an estimate of
those net operating loss carry-forward (see the Company’s 10-QSB for the period
ending June 30, 2008 filed on August 13, 2008 for additional
information). Thus, at September 30, 2008, the Company had
approximately $8,881,662 of accumulated net operating losses. The net
operating loss carry-forwards, if not utilized, will begin to expire in
2022.
The
components of the Company’s deferred tax asset are as follows:
|
|
Twelve
Month Period
Ended
September 30
|
|
|
Twelve
Month Period
Ended
September 30
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Federal
and state income tax benefit
|
|
|
|
|
|
|
|
|
Change
in valuation allowance on deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED APRIL 30, 2009 AND 2008
(Unaudited)
NOTE D—INCOME TAXES
(CONTINUED)
A
reconciliation between the amounts of income tax benefit determined by applying
the applicable U.S. and State statutory income tax rate to pre-tax loss is as
follows:
|
|
Twelve
Month Period
Ended
September 30
|
|
|
Twelve
Month Period
Ended
September 30
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Federal
and state statutory rate
|
|
|
|
|
|
|
|
|
Change
in valuation allowance on deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
reconciliation of income taxes computed at the federal statutory income tax rate
to total income taxes for the year ended September 30, 2008 is as
follows:
|
|
2008
|
|
|
2007
|
|
Income
tax computed at the federal statutory rate
|
|
|
|
|
|
|
|
|
State
income tax, net of federal tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company’s principle subsidiary (Duratech Group Inc.) is subject to income taxes
on income arising in or derived from the tax jurisdiction in which it is
domiciled and operates (Canada). However, because of the Company’s
lack of earnings history, the deferred tax asset has been fully offset by a
valuation allowance. The valuation allowance increased (decreased) by
$1,050,993 and $98,867 for the year ended January 31, 2009 and 2008
respectively.
The
components of Company’s estimated deferred tax asset, calculated using federal
and state effective tax rates, as of January 31, 2009 and 2008 are as
follows:
|
|
Twelve
Month Period
Ended January
31
|
|
|
Twelve
Month Period
Ended
January 31
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Federal
and state income tax benefit
|
|
|
|
|
|
|
|
|
Change
in valuation allowance on deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
January 31, 2009, the Company had Canadian net operating loss carryforwards of
approximately $1,372,058 which will expire at various times through the year
2028.
NOTE E—NOTES
PAYABLE
|
|
|
|
|
|
|
|
|
|
Note
due September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Line of Credit a
|
|
|
|
|
|
|
|
|
|
|
|
a This
is a residential loan line of credit. Progress loans are available
upon satisfactory inspection
|
|
|
|
|
|
|
|
There are
no covenants associated with the above debt arrangements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED APRIL 30, 2009 AND 2008
(Unaudited)
NOTE F—FINISHED GOODS AND
WORK IN PROGRESS INVENTORY
Land
(finished goods) and residential spec home inventory is valued at the lower of
cost and net realizable value with the cost being determined on an actual cost
basis. Presold residential homes in work in Progress are recorded at the actual
expenses incurred to date.
Raw
materials inventory is stated at the lowest cost, on first-in, first-out basis,
and net realizable value. Periodic inventory method is used for it
evaluation.
Inventories
are as follows:
|
|
|
|
|
|
Raw
Materials
|
|
$
|
68,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE G—SEGMENT
REPORTING
The
Company has two reportable segments—Duratech Structures, Inc. and Duratech
Contracting, Inc.
The Net Sales and
Profit/(Loss) by Segment for the year ended
April 30
, 2009 are as
follows:
Net
Sales by Segment
|
|
For
the quarter ended April 30, 2009
|
|
|
|
Duratech
Structures, Inc.
|
|
|
Duratech
Contracting, Inc.
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the quarter ended April 30, 2009
|
|
|
|
Duratech
Structures, Inc.
|
|
|
Duratech
Contracting, Inc.
|
|
|
|
|
Net
Operating Profit/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
The Net Sales and
Profit/(Loss) by Segment for the year ended
April 30
, 2008 are as
follows:
Net
Sales by Segment
|
|
For
the quarter ended April 30, 2008
|
|
|
|
Duratech
Structures, Inc.
|
|
|
Duratech
Contracting, Inc.
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the quarter ended April 30, 2008
|
|
|
|
Duratech
Structures, Inc.
|
|
|
Duratech
Contracting, Inc.
|
|
|
|
|
Net
Operating Profit/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED APRIL 30, 2009 AND 2008
(Unaudited)
NOTE
G—SEGMENT REPORTING (CONTINUED)
Total Assets by Segment as
of
April
30
, 2009 and
January 31,
2009
are as
follows:
Total
Assets by Segment
|
|
For
the period ended April 30, 2009
|
|
|
|
Duratech
Structures, Inc.
|
|
|
Duratech
Contracting, Inc.
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets by Segment
|
|
For
the year ended January 31, 2009
|
|
|
|
Duratech
Structures, Inc.
|
|
|
Duratech
Contracting, Inc.
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accounting policies used for segment reporting are the same as those described
in Note A “Summary of Significant Accounting Policies”;
NOTE
H—EQUITY
The
outstanding share data as at April 30, 2009 and January 31, 2009 is as
follows:
|
|
Number of shares
outstanding
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Options
to purchase common shares
|
|
|
|
|
Warrants
to purchase common shares
|
|
|
|
|
Debentures
convertible to common shares
|
|
|
|
|
Accrued
interest convertible to common shares
|
|
|
|
|
Shares Issued from Share
Exchange Agreement
The
following common shares were issued to Duratech Shareholders following the
closing of the Share Exchange Agreement on September 17, 2008:
Stock
Plan
On
November 2, 2006 the Board of Directors of UpSNAP, Inc. approved a 2006 Omnibus
Stock and Incentive Plan. The Plan made four million (4,000,000) shares, either
unissued or reacquired by the Company, available for awards of either 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 seven and one half million
(7,500,000) total shares on August 8, 2007, which was ratified by stockholders
in September 2007.
Stock-Based
Compensation
Under the
fair value recognition provisions of SFAS No. 123(R), stock-based
compensation cost is estimated at the grant date based on the fair value of the
award and is recognized as expense over the requisite service period of the
award. The Company has awarded stock-based compensation both as restricted stock
and stock options.
We use
the Black-Scholes option valuation model to value option awards under SFAS
No. 123(R). The Company currently has awards outstanding with only service
conditions and graded-vesting features. We recognize compensation cost on a
straight-line basis over the requisite service period.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED APRIL 30, 2009 AND 2008
(Unaudited)
NOTE
H—EQUITY (CONTINUED)
Time-Based Stock
Awards
The fair
value of each time-based award is estimated on the date of grant using the
Black-Scholes option valuation model, which uses the assumptions described
below. Our weighted-average assumptions used in the Black-Scholes valuation
model for equity awards with time-based vesting provisions granted during the
quarter ended April 30, 2009 are shown in the following table:
Expected
volatility
|
70.0%
|
Expected
dividends
|
0%
|
Expected
terms
|
6.0-6.25
years
|
Pre-vesting
forfeiture rate
|
50%
|
Risk-free
interest rate
|
4.45%-4.76%
|
The
expected volatility rate was estimated based on historical volatility of the
Company’s common stock over approximately the seventeen month period since the
reverse merger and comparison to the volatility of similar size companies in the
similar industry. The expected term was estimated based on a simplified method,
as allowed under SEC Staff Accounting Bulletin No. 107, averaging the
vesting term and original contractual term. The risk-free interest rate for
periods within the contractual life of the option is based on U.S. Treasury
securities. The pre-vesting forfeiture rate was based upon plan to date
experience. As required under SFAS No. 123(R), we will adjust the estimated
forfeiture rate to our actual experience. Management will continue to assess the
assumptions and methodologies used to calculate estimated fair value of
share-based compensation. Circumstances may change and additional data may
become available over time, which could result in changes to these assumptions
and methodologies, and thereby materially impact our fair value
determination.
A summary
of the time-based stock awards as of April 30, 2009, and changes during the
quarter ended April 30, 2009, is as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2008
|
|
|
|
|
|
|
|
|
Granted
(part of Share Exchange Agreement)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
April 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at April 30, 2009
|
|
|
|
|
|
|
|
|
The
following tables summarize information about fixed stock options outstanding and
exercisable at April 30, 2009:
|
|
|
Stock
Options Outstanding
|
Range
of Exercise Prices
|
|
Number
of
Shares
Outstanding
|
|
Weighted
Average
Contractual
Life
in
Years
|
$0.10
|
|
700,000
|
|
8.00
|
$0.10
|
|
170,000
|
|
9.09
|
$0.10
|
|
1,700,000
|
|
9.17
|
$0.10
|
|
18,950,334
|
|
9.42
|
|
|
|
21,520,334
|
|
9.35
|
|
|
|
|
|
|
|
|
|
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
|
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED APRIL 30, 2009 AND 2008
(Unaudited)
NOTE H—EQUITY
(CONTINUED)
The
exercise price of stock options granted during the period ended April 30, 2009
was equal to the market price of the underlying common stock on the grant
date.
There was
no aggregate intrinsic value as of April 30, 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.
Warrants
The
Company has recorded the warrant instruments as equity in accordance with SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activity, paragraph
11(a), and EITF 00-19, Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company's Own Stock.
A summary
of warrant activity for the period ended April 30, 2009 is as
follows:
Series
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Warrants
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Warrants
Exercisable
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
April 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Warrants
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Warrants
Exercisable
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Outstanding,
January 31, 2009
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Outstanding,
April 30, 2009
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At April
30, 2009, the range of warrant prices for shares under warrants and the
weighted-average remaining contractual life is as follows:
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Warrants
Outstanding
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Warrants
Exercisable
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Range
of
Warrant
Exercise
Price
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Number
of
Warrants
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Weighted-
Average
Exercise
Price
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Weighted-
Average
Remaining
Contractual
Life
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Number
Of
Warrants
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Weighted-
Average
Exercise
Price
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The
Company may from time to time reduce the exercise price for any of the warrants
either permanently or for a limited period or extend their expiration
date.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED APRIL 30, 2009 AND 2008
(Unaudited)
NOTE
I—COMMITMENTS/LEASES
As of
April 30, 2009, the company had commitments for the acquisition of residential
lots and land. The company had paid non-refundable deposits $24,374. This
deposit is included in Other Receivable.
NOTE J—RELATED
PARTIES
The
Company has an outstanding amount Due to a shareholder in the amount of
$64,167. This outstanding amount is due upon demand, is unsecured and
does not bear an interest rate.
NOTE K—GOING
CONCERN
As shown
in the accompanying financial statements, the Company had a loss for the period
ended April 30, 2009. During the years ended January 31, 2009 and
2008, the Company had a net loss of $935,916 and $104,735
respectively. The Company has a net deficiency of
$1,966,819.
Management
believes that actions presently being taken to win more contracts, raise equity
capital, seek strategic relationships and alliances, and build its marketing
efforts to generate positive cash flow provide the means for the Company to
continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
ITEM
2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERAT
IONS
PRELIMINARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
discussion contains forward-looking statements. The reader should understand
that several factors govern whether any forward-looking statement contained
herein will be or can be achieved. Any one of those factors could cause actual
results to differ materially from those projected herein. These forward-looking
statements include plans and objectives of management for future operations,
including plans and objectives relating to the products and the future economic
performance of the company. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions, future business decisions, and the time and money required to
successfully complete development projects, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
company. Although the company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of those
assumptions could prove inaccurate and, therefore, there can be no assurance
that the results contemplated in any of the forward-looking statements contained
herein will be realized. Based on actual experience and business development,
the company may alter its marketing, capital expenditure plans or other budgets,
which may in turn affect the company's results of operations. In light of the
significant uncertainties inherent in the forward-looking statements included
therein, the inclusion of any such statement should not be regarded as a
representation by the company or any other person that the objectives or plans
of the company will be achieved.
OVERVIEW
On
September 17, 2008, the Company consummated a reverse merger with Duratech Group
Inc., a corporation organized and existing under the laws of the province of
Alberta (“Duratech”). As a result, Duratech became a majority owned
subsidiary of the Company, and the existing businesses of the Company were
disposed of. one day after the closing. From and after September 18, 2008,
the Company has and will engage only in Duratech’s businesses, and any other
businesses that it may acquire.
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 $800,563 in revenues for the three months ended April 30, 2009 compared
to $1,529,447 for the three months ended April 30, 2008. Gross profit was
$4,840 for the three months ended April 30, 2009 compared to $435,708 for the
corresponding period in 2008. Including reorganization, acquisition costs
and foreign currency translation gains and losses, the net loss for the period
ended April 30, 2009 was $565,079 compared to net income of $16,252 for the
same period in 2008. 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.
RESULTS
OF OPERATIONS
The
following discussion should be read in conjunction with the unaudited
consolidated Financial Statements of the Company for the three-month period
ended April 30, 2009 and 2008 and related notes thereto.
THREE
MONTHS ENDED APRIL 30, 2009 COMPARED TO THREE MONTHS ENDED APRIL 30,
2008
Operating Revenues
. Revenues
for the three months ended April 30, 2009 were $800,563, compared to revenues
for the three months ended April 30, 2008 of $1,529,447. The decrease in
revenues of $728,884 is principally attributable to a decline in housing sales
as a result of the global recession and its impact on the Canadian economy since
late 2008 compared to a very rapidly growing economy during the prior year
period when oil prices were substantially higher. Sales for the
Duratech Contracting division decreased to $588,395 for the period ended April
30, 2009 from $911,490 for period ended April 30, 2008 due to a decrease in
new home sales. The Duratech Structures division went from $617,957 for the
quarter ended April 30, 2008 to $212,515 in sales for the quarter ended April
30, 2009 due to a decrease in sales of modular structures.
Gross Profit
. Gross profit
for the three months ended April 30, 2009 was $4,840 compared to gross profit
for the same period in 2008 of $435,708. The decrease in gross profit
is attributable to a decrease in sales of the company as described
above. The gross profit for Duratech Contracting division decreased from
$223,652 for the period ended April 30, 2008 to $59,262 for the period
ended April 30, 2009 principally due to an decrease in new home sales. The
gross profit for Duratech Structures division decreased from $212,056 to a loss
of $54,422 for the three months ended April 30, 2008 and 2009,
respectively, reflecting a decrease in sales of modular structures and sale of
some structures at a loss. The company has started to see an increase
in new orders as reflected by the increase in Customer Deposits and Accounts
Receivable.
Selling, General and Administrative
Expenses
.
Selling, general and administrative expenses for the period ended April 30, 2009
were $207,724, compared to selling, general and administrative expenses of
$166,183 for the corresponding period in 2008, an increase of about $41,541
principally due to transition costs associated with turning-around, expanding
its core business and additional overhead expenses associated with taking the
company public offset by reduction in expenses in response to the decrease in
sales from the global economic recession.
Payroll Expense
. Payroll
expense for the three months ended April 30, 2009 fiscal year were $239,956,
compared to payroll expense for the same period in 2008 of $213,042 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 offset by reduction in
expenses as a result of same.
Other Expenses
. Bad debt
expense for the period ended April 30, 2009 and 2008 was $0; interest expense
for the three months ended April 30, 2009 was $85,224 compared to $40,226 for
the corresponding period in 2008 due to larger borrowings associated with more
houses under construction; and depreciation and amortization expense for the
quarter ended April 30, 2009 was $28,280 compared to $0 for the same quarter in
2008 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 Income
. Net other
income for the three months ended April 30, 2009 and 2008 was $0.
Net Income
. Net loss for the
quarter ended April 30, 2009 was $556,344 compared to a net gain for the same
quarter in 2008 of $16,257. The increase in net loss is principally
attributable to the increase in payroll and selling, general and administrative
expenses in the three month period ended April 30, 2009, including turn-around
costs and acquisition expenses related to reverse merger as well as the decrease
in sales as a result of the global economic recession. The net income for the
period ended April 30, 2008 was $65,035 for Duratech Contracting division and a
loss of $48,778 for Duratech Structures division which reflects growth of the
respective divisions prior to the company’s reverse merger. The net
loss for the period ended April 30, 2009 was $346,169 for Duratech Contracting
division which included overhead expenses for the Company and $210,175 for
Duratech Structures division principally as a result of a decline in sales due
to the global economic recession.
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 loss on currency conversion of $8,735
for the three months ended April 30, 2009 compared to a loss of $5 for the same
period in 2008. The prevailing exchange rate used to translate the Canadian
dollars to U.S dollars at April 30, 2009 and January 31, 2009 was 0.8384 and
.0.81248, respectively. The average for the quarter ending April 30, 2009 and
2008 was 0.82544 and 0.9957, respectively.
Liquidity
and Capital Resources
As of
April 30, 2009, cash and cash equivalents totaled $0. The net cash
provided by operations for the three months ended April 30, 2009 of $276,217
increased from the net cash used in fiscal year end January 31, 2009 of $589,559
principally due to an increase in accounts payable and customer deposits offset
by an increase in inventories and receivables associated with new housing
production. The net cash used in investing activities of $49,892 for the
period was mainly due to additions to property, plant and equipment compared to
$447,336 for the fiscal year end January 31, 2009 which included the acquisition
of Truss Equipment. The decrease in financing activities of $226,325 for quarter
ended April 30, 2009 compared to $1,036,895 generated for the prior fiscal year
end was mainly due to the decrease in the proceeds from notes payable of
$207,491.
The
working capital at April 30, 2009 was $(1,424,522), comprised of accounts
receivable, net of $1,345,575, other receivables of $71,279 and inventory of
$2,136,512 less payables and accrued liabilities of $1,488,224, customer
deposits of $1,192,681, short term loans of $303,643; current portion of notes
payable of $1,929,173 and current portion of shareholder notes payable of
$64,167.
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 $2.1 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 April 30, 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.
CRITICAL
ACCOUNTING POLICIES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the U.S., or GAAP, requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. In recording
transactions and balances resulting from business operations, the Company uses
estimates based on the best information available for such items as depreciable
lives. The Company revises the recorded estimates when better information is
available, facts change or actual amounts can be determined. These revisions can
affect operating results.
The
critical accounting policies and use of estimates are discussed in and should be
read in conjunction with the annual consolidated financial statements and notes
included in the latest 10-K, as filed with the SEC, which includes audited
consolidated financial statements for the two fiscal years ended January 31,
2009.
ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RI
SK
Exchange
Rate Risk
The
Company cannot guarantee that the current exchange rate will remain steady;
therefore there is a possibility that the Company could post the same amount of
profit for two comparable periods and because of the fluctuating exchange rate
actually post higher or lower profit depending on exchange rate of Canadian$
converted to US$ on that date. The exchange rate could fluctuate depending on
changes in economic environments without notice.
Inflation
Inflationary
factors, such as increases in the cost of raw materials and overhead costs,
could impair our operating results. Although we do not believe that inflation
has had a material impact on our financial position or results of operations to
date, a high rate of inflation in the future may have an adverse effect on our
ability to maintain current levels of gross margin and selling, general and
administrative expenses as a percentage of sales revenue if the selling prices
of our products do not increase with these increased costs.
ITEM
4(A) - CONTROLS AND PROCEDU
RES
The Chief
Executive Officer and Chief Financial Officer (the principal executive officer
and principal financial officer, respectively) of the Company have concluded,
based on their evaluation as of April 30, 2009, that the design and operation of
the Company's "disclosure controls and procedures" (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934, as amended ("Exchange Act")) are
effective to ensure that information required to be disclosed in the reports
filed or submitted by the Company under the Exchange Act is accumulated,
recorded, processed, summarized and reported to the management, including the
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding whether or not disclosure is required.
ITEM
4(A)T – INTERNAL CONTROL OVER FINANCIAL REPOR
TING
(a) The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Securities Exchange Act of 1934, as amended). Management conducted an
evaluation of the effectiveness of the Company’s internal control over financial
reporting based on the criteria set forth in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this evaluation, management has concluded that the
Company’s internal control over financial reporting was effective as of April
30, 2009.
(b) This
quarterly report does not include an attestation report of the company’s
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the company’s
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the company to provide only management’s
report in this quarterly report.
(c) There
were no changes in the Company's internal controls over financial reporting,
known to the chief executive officer or the chief financial officer that
occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
PART
II - OTHER INFORMATION
ITEM
1 - LEGAL PROCEEDI
NGS
None.
ITEM
2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCE
EDS
None.
ITEM
3 - DEFAULTS UPON SENIOR SECURI
TIES
None.
ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOL
DERS
None.
ITEM
5 - OTHER INFORM
ATION
None.
31.1
|
Certification
of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934
|
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31.2
|
Certification
of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934
|
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32
|
Certification
of the Company's Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. SS. 1350 Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
Pursuant
to the requirements of the Exchange Act, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
UPSNAP,
INC.
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Date:
June 22, 2009
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By:
|
/
s/
Peter van
Hierden
|
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Peter
van Hierden
|
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Chief
Executive Officer
|
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Date:
June 22, 2009
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By:
|
/s/Richard
von Gnechten
|
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Richard
von Gnechten
|
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Chief
Financial Officer
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