UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
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)
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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
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320-1778
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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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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 DFR
240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4 (c) under the
Exchange Act (17 CFR
240.13e-4(c))
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CU
RRENT REPORT ON FORM
8-K
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Item
1
.01. Entry
into a Material Definitive Agreement
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 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 Assets
As
required by Item 2.01 of Form 8-K, the following transactions were completed and
are disclosed hereby.
Share
Exchange and Asset Purchase
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 has sustained continued financial losses and revenue
declines as its business has grown more competitive, it has not been able to
raise additional capital to expand its operations, it has recent 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 has explored various financing and acquisition
alternatives. Based upon management’s review of alternatives, the
Share Exchange Agreement and the Asset Purchase Agreement present the most
viable present possibility for future enhancement of shareholder value and for
payment of creditors.
Pursuant
to the Share Exchange Agreement and the Asset Purchase Agreement, Philipp has
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 is 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 is an organization chart 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 BUSINESS
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 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 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 are experiencing 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 four 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; third, the company builds modular camp sites
for the oil mining industry; and fourth, the company buys and moves modular and
manufactured homes from the United States where markets have been depressed and
homes can be bought at discount prices.
Duratech
had $4.97 million in revenues for its fiscal year end January 31, 2008 compared
to $1.53 million for the prior fiscal year. Gross profit was $858,000
for the fiscal year end January 31, 2008 compared to $579,000 for the prior
fiscal year. Including reorganization and acquisition costs, the net
income for the period end January 31, 2008 was $(93,000) compared to $43,000 for
the prior fiscal year. Duratech currently has a pipeline of projects
for an estimated $13 million in revenue, although it cannot guarantee that each
of these will be completed and/or sold in its current 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 four 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 four product lines within its existing
marketplace.
Expand through Strategic
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 offers many potential
opportunities. Mr. Van Hierden has been an entrepreneur for 30 years
and has successfully turned around six failing corporations in the past 15 years
ranging in size from $1 to $30 million. Mr. Van Hierden has also
previously helped develop a fund which successfully raised $7 million of private
capital and has consistently been able to attain over 18% per annum return for
investors.
COMPANY
MARKETS:
Duratech’s
existing markets are Alberta and Saskatchewan, Canada, which have experienced
tremendous growth. 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. Canada has not suffered from the US
subprime debacle in which homes were financed at high debt levels for buyers
that could not afford them, because of its strong economy and government
regulations which prevent homes to be mortgaged beyond 80% without having
mortgage guarantees, thus foreclosures are rare. In September, 2006,
Statistics Canada confirmed Alberta’s current economic growth as the strongest
such growth by a province in Canadian history, averaging 12.6% per year since
2002 compared to China’s 14.8% average. While worldwide economic
conditions may well impact this growth, all indications are that the boom will
last well into the next decade.
COMPETITION
The
Company’s principal competitors on 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.
COMPETITIVE
ADVANTAGE
Duratech’s
key competitive advantages are: 1) Alberta and Saskatchewan market advantage; 2)
Factory construction advantage; 3) Direct sales advantage; and 4) Ready-to-move
(RTM) advantage.
Alberta and
Saskatchewan Market
Advantage:
As more
fully described under Company Markets, Duratech’s principle operating markets
are Alberta and Saskatchewan, Canada, which have experienced very strong growth
because of the various commodities that are indigenous to the provinces,
including oil, uranium and diverse mining. In September, 2006,
Statistics Canada confirmed Alberta’s current economic growth as the strongest
such growth by an province in Canadian history, averaging 12.6% per year since
2002 compared to China’s 14.8% average.
Furthermore,
Canada has not suffered from the US subprime debacle because of its strong
economy and government regulations which prevent homes to be mortgaged beyond
80% without having mortgage guarantee, thus foreclosures are rare.
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 house 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 MLS Real Estate. Duratech
increases its profitability by 30% by by-passing the dealer
network. The Company has also established relationships with
investors that are interested in carrying the cost of the home until it
sells.
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 detailed later in this
document that describe the more general risks 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 $4.97 million in revenues for its fiscal year end January 31, 2008 compared
to $1.53 million for the prior fiscal year. Duratech currently has a
pipeline of projects for an estimated $13 million in revenue, although it cannot
guarantee that each of these will be completed and/or sold in its current fiscal
year.
New
Products
Duratech
is continually refining its manufacturing process to ensure the most efficient
operations possible. The Company is also continually exploring new
construction techniques that might allow it to develop new products in the
homebuilding industry. The company does not currently have any
patents on such techniques, but may file for such in the future.
REGULATION
The
Company’s principal regulatory bodies are the building code of each respective
province in which it does business. Duratech is CSA Certified as part
of A277 Program and Part 9 of 2006 Alberta Building Code.
LEGAL
PROCEEDINGS
The
Company is not involved in any pending or threatened legal
proceedings.
PROPERTY
The
company’s headquarters is located at #1 2920 9
th
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 also has a plant in Cardston, Alberta, Canada located at 855 2
nd
Avenue
E, which is comprised of 38,000 square feet and 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 60 employees.
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 OPERATIONS
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 Duratech Group
Inc. audited balance sheet as of January 31, 2008 and related
audited statements of operations and retained earnings and statements of
cash flows for the years ended January 31, 2008 and January 31,
2007. These audited financial statements are attached hereto as Exhibit
99.1.
Fiscal
Year Ended January 31, 2008 Compared to the Fiscal Year Ended January 31,
2007.
Revenues
. Revenues
for the 2008 fiscal year were $4.97 million, compared to revenues for the 2007
fiscal year of $1.53 million. The increase in revenues of $3.43
million is principally attributable to the growth in housing sales with its
Duratech Contracting division and the acquisition and growth of its Duratech
Structures division.
Gross
Profit
. Gross profit for the 2008 fiscal year was $858,572,
compared to gross profit for the 2007 fiscal year of $579,617. The
increase in gross profit is attributable to an increase in sales of the company
as described above.
Selling,
General and Administrative
Expenses
. Selling, general and administrative expenses for the 2008
fiscal year were $306,199, compared to selling, general and administrative
expenses for the 2007 fiscal year of $123,495, an increase of $182,704
principally due to transition costs associated with turning-around and expanding
its core business and in acquiring and turning around the Duratech Structures
division.
Payroll Expense
. Payroll
expense for the 2008 fiscal year were $489,321, compared to payroll expense for
the 2007 fiscal year expense of $349,145 principally due to an increase in
business operations at Duratech Contracting division and Duratech Structures
division.
Other
Expenses
. Bad debt expense
for the 2008 fiscal year was $3,746 compared to none for the same period in the
prior year; interest expense for the 2008 fiscal year was $139,175 compared to
$49,937 for the 2007 fiscal year due to larger borrowings associated with more
houses under construction; and depreciation and amortization expense for 2008
was $21,598 compared to $9,742 for the 2007 fiscal year due to greater property
plant and equipment associated with larger operations.
Net
Other
Income
. Net other income for
the 2008 fiscal year was $2,600 compared to $6,551 for the 2007 fiscal
year. The reason for the difference is the one-time gain on disposal
of $6,234 that occurred in 2007.
Net Income
. Net loss for the
2008 fiscal year was $(98,867) compared to net income for the 2007 fiscal
year of $53,849. The decrease is attributable to the increase in
selling, general and administrative expenses in 2008 and acquisition and
turn-around costs. The company does not expect to continue incurring
losses going forward as the company continues to grow.
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 $5,868 for the 2008 fiscal year compared to a loss of $2,103 for
the 2007 fiscal year.
Liquidity
and Capital Resources
As of
January 31, 2008, cash and cash equivalents totaled $0. The net cash
used in operations for fiscal year 2008 of $1,566,813 increased from 2007 fiscal
year of $310,566 principally due to an increase in inventories and
receivables associated with new housing production. The net cash used
in investing activities of $99,696 was mainly due to additions to property,
plant and equipment compared to $132,227 for the prior fiscal year. The
increase in financing activities of $1,657,231 for fiscal year 2008
compared to $452,071 in fiscal year 2007 was mainly due to the increase in the
proceeds of loans from shareholders of $662,743 and long-term debt of
$1,454,770.
The
working capital at January 31, 2008 was $(150,144), comprised of accounts
receivable, net of $555,811 and inventory of $2,193,015, less payables of
$290,481, customer deposit of $53,682, short term loans of $539,319; current
portion of notes payable of $1,352,745 and current portion of shareholder notes
payable of $662,743.
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.
Revenue
Recognition
— Revenues from long-term construction contracts (over one
year) are recognized using the percentage-of-completion method. Revenues from
short-term contracts 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.
Accounts
Receivable
—Accounts deemed uncollectible are written off in the year they
become uncollectible. For the years ended January 31, 2008 and 2007,
no amounts were deemed uncollectible as of January 31,
2008. Outstanding Accounts Receivable as of January 31, 2008 was
$555,811, which includes a receivable due from a shareholder (related party) in
the amount of $89,289.
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, 2008 was
1.0034. The average was 0.94737.
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.
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 Bank overdraft when its negative.
For the purpose of the cash flow statement, Bank overdrafts are also classified
as cash.
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.
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.
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 2006, the FASB issued SFAS Statement No. 155, “Accounting for Certain
Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140”
("SFAS 155"). This Statement amends FASB Statements No. 133, Accounting for
Derivative Instruments and Hedging Activities, and No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
This Statement resolves issues addressed in Statement 133 Implementation Issue
No. D1, “Application of Statement 133 to Beneficial Interests in Securitized
Financial Assets.” This Statement permits fair value re-measurement for any
hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation, clarifies which interest-only strips and
principal-only strips are not subject to the requirements of Statement 133,
establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring bifurcation,
clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives and amends Statement 140 to eliminate the prohibition
on a qualifying special-purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than another derivative
financial instrument. SFAS 155 is effective for all financial instruments
acquired or issued for the Company for fiscal year begins after September 15,
2006. The adoption of this standard is not expected to have a material effect on
the Company’s results of operations or financial position.
In March
2006, the FASB issued SFAS Statement No. 156, “Accounting for Servicing of
Financial Assets—an amendment of FASB Statement No. 140.” This Statement
amends FASB Statement No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities” with respect to the
accounting for separately recognized servicing assets and servicing
liabilities. This Statement requires that an entity recognize a
servicing asset or servicing liability each time it undertakes an obligation to
service a financial asset by entering into a servicing contract. This
Statement requires all separately recognized servicing assets and servicing
liabilities to be initially measured at fair value, if practicable and it
permits an entity to choose either the Amortization Method or the Fair Value
Method for each class of separately recognized servicing assets and servicing
liabilities. At its initial adoption, the Statement permits a
one-time reclassification of available-for-sale securities to trading securities
by entities with recognized servicing rights, without calling into question the
treatment of other available-for-sale securities under SFAS No.
115. This Statement is effective as of the beginning of an entity's
first fiscal year that begins after September 15, 2006. Earlier application is
permitted if the entity has not yet issued interim or annual financial
statements for that fiscal year. The adoption of this standard is not
expected to have a material effect on the Company’s results of operations or
financial position.
In June
2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an
interpretation of FASB No. 109. This Interpretation clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FASB No. 109, “Accounting for Income
Taxes.” This interpretation prescribes recognition of threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. This
interpretation also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure, and
transition. This interpretation is effective for fiscal years
beginning after December 15, 2006. Earlier application is permitted if the
entity has not yet issued interim or annual financial statements for that fiscal
year. The adoption of this standard is not expected to have a
material effect on the Company’s results of operations or financial
position.
In
September 2006, the FASB issued Statement No. 157, “Fair Value
Measurements”. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This
statement applies under other accounting pronouncements that require or permit
fair value measurements, the Board having previously concluded in those
accounting pronouncements that fair value is the relevant measurement
attribute. Accordingly, SFAS No. 157 does not require any new fair
value measurements. However, for some entities, the application of
SFAS No. 157 will change current practice. This Statement is
effective for fiscal years beginning after November 15, 2007, and all interim
periods within those fiscal years. Earlier application is permitted if the
entity has not yet issued interim or annual financial statements for that fiscal
year. Early adoption of this standard is not expected to have a
material effect on the Company’s results of operations or its financial
position, but the Company is evaluating the Statement to determine what impact,
if any, it will have on the Company.
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”).
This statement requires balance sheet recognition of the funded status, which is
the difference between the fair value of plan assets and the benefit obligation,
of pension and postretirement benefit plans as a net asset or liability, with an
offsetting adjustment to accumulate other comprehensive income in shareholders’
deficit. In addition, the measurement date, the date at which plan assets and
the benefit obligation are measured, is required to be the company’s fiscal year
end. The Company is currently evaluating the Statement to determine what impact,
if any, it will have on the Company.
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. Early adoption of this standard is not expected to have
a material effect on the Company’s results of operations or its financial
position, but the Company is evaluating the Statement to determine what impact,
if any, it will have on the Company.
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. The Company has not yet determined the
impact, if any, of SFAS 141R on its consolidated financial
statements.
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. The Company has not yet determined the impact, if any, of SFAS 160 on
its consolidated 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.
Risk
Factors
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.
Our
results of operations can be adversely affected by labor shortages and the
pricing and availability of raw materials.
The
homebuilding industry has from time to time experienced labor shortages and
other labor related issues. A number of factors may adversely affect the labor
force available to us and our subcontractors in one or more of our markets
including high employment levels, construction market conditions and government
regulation which include laws and regulations related to workers’ health and
safety, wage and hour practices and immigration. An overall labor shortage or a
lack of skilled labor could cause significant increases in costs or delays in
construction of homes which could have a material adverse effect upon our sales
and profitability.
Our
results of operations can be affected by the pricing and availability of raw
materials. Although we attempt to increase the sales prices of our homes in
response to higher materials costs, such increases typically lag behind the
escalation of materials costs. Sudden increases in price and lack of
availability of raw materials can be caused by natural disaster or other market
forces, as has occurred in recent years. Although we have not experienced any
production halts, severe or prolonged shortages of some of our most important
building materials, which include wood and wood products, gypsum wallboard,
steel, insulation, and other petroleum-based products, have occurred. There can
be no assurance that sufficient supplies of these and other raw materials will
continue to be available to us.
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 September 17, 2008, beneficially
owns approximately 49.5% 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.
Cost
and availability of raw materials is subject to fluctuation.
Prices
and availability of raw materials used to manufacture the Company’s products can
change significantly due to fluctuations in supply and demand. The Company has
historically been able to have an adequate supply of raw materials by
maintaining good relations with its vendors. In addition, increased prices have
historically been passed on to customers by raising the price of manufactured
homes. There is no certainty that the Company will be able to pass on future
price increases and maintain adequate supply of raw materials. The inability to
raise the price of its products and to maintain a proper supply of materials
could have a negative impact on 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, have been negatively affected by
adverse loan experience. Reduced availability of such financing and higher
interest rates have had, and continue to have, an adverse effect on the
manufactured housing business and our housing sales. If this financing were to
become unavailable or were to be further 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
49.5% 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 49.5% 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
Volatility
of our stock price is a risk to investors.
The price
of our common stock may fluctuate widely, depending upon a number of factors,
many of which are beyond our control. These factors include the perceived
prospects of our business and the manufactured housing industry as a whole;
differences between our actual financial and operating results and those
expected by investors and analysts; changes in analysts’ recommendations or
projections; changes affecting the availability of financing in the wholesale
and consumer lending markets; actions or announcements by competitors; changes
in the regulatory environment in which we operate; and changes in general
economic or market conditions. In addition, stock markets generally experience
significant price and volume volatility from time to time which may adversely
affect the market price of our common stock for reasons unrelated to our
performance.
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 Certificate 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.
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 and may similarly discourage the filing of derivative
litigation by the Company’s stockholders against the Company’s directors and
officers even though such actions, if successful, might otherwise benefit the
Company and its stockholders.
SECU
RITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT
The
following table sets forth as of Closing Date, 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. The number of common shares issued and outstanding as of
September 5, 2008, the record date for the Information Statement, is 23,370,324,
each with a par value of $0.001, and 4,830,000 options or warrants on common
shares.
On the
Closing Date, after giving effect to the issuance of 69,299,676 shares and
options to the Duratech Shareholders, there will be issued and outstanding
97,500,000 shares and options of the Company’s Common Stock.
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