UpSnap, Inc. - FORM 8-K/A - EX-99.1 - UPSNAP?S AUDITED CONSOLIDATED BALANCE - November 20, 2009

Attached files

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8-K/A - UPSN 8-K/A 11/20/2009 - UpSnap, Inc.form8-ka.htm
EX-2.1 - SHARE EXCHANGE AGREEMENT, DATED AUGUST 29, 2008 - UpSnap, Inc.ex2_1.htm
EX-2.2 - ASSET PURCHASE AGREEMENT, DATED AUGUST 29, 2008 - UpSnap, Inc.ex2_2.htm
EX-99.2 - DURATECH?S UNAUDITED BALANCE SHEET - UpSnap, Inc.ex99_2.htm
EX-21.1 - LIST OF SUBSIDIARIES - UpSnap, Inc.ex21_1.htm
 
Exhibit 99.1
 
 

--------------------

CONSOLIDATED AUDITED FINANCIAL STATEMENTS

UpSnap Inc. F/K/A Duratech Group Inc.

January 31, 2009

-------------------




 
1
 
 
TABLE OF CONTENTS

INDEPENDENT AUDITOR’S REPORT
3
   
CONSOLIDATED BALANCE SHEET
4
   
CONSOLIDATED STATEMENT OF OPERATIONS
5
   
CONSOLIDATED STATEMENT OF STOCKHOLDERS’EQUITY/(DEFICIT)
6
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
7
   
NOTES TO THE CONSOLIDATED AUDITED FINANCIAL STATEMENTS
8-21



 
2
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 
 
To the Board of Directors and
 
Stockholders of Duratech Group, Inc. F/K/A Duratech Contracting, Inc.
 
We have audited the accompanying consolidated balance sheets of UpSnap Inc. F/K/A Duratech Group, Inc. as of January 31, 2009 and 2008, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the years in the two-year period ended January 31, 2009. UpSnap Inc. F/K/A Duratech Group, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of UpSnap Inc. F/K/A Duratech Group, Inc. as of January 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the two-year period ended January 31, 2009 in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note K to the financial statements, the Company has suffered a loss and has a net deficiency. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note K. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ Traci J. Anderson, CPA
  
Traci J. Anderson, CPA
Huntersville, NC
  
May 14, 2009, except for Note H as to which the date is November 5, 2009
 

 
 
3
 
 
UpSnap Inc. F/K/A Duratech Group, Inc.
Consolidated Balance Sheet
 
 
 
 
 
 
 
 
 
As of
 
 
As of
 
 
 
January 31, 2009
 
 
January 31, 2008
 
ASSETS
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash and Cash Equivalents
 
$
-
 
 
$
-
 
Accounts Receivable--Related Party
 
 
-
 
 
$
89,289
 
Accounts Receivable
 
 
812,355
 
 
 
466,522
 
Deposits/Holdback
 
 
117,973
 
 
 
-
 
Inventory - restated, revised, see note H
 
 
1,947,581
 
 
 
1,970,817
 
TOTAL CURRENT ASSETS
 
 
3,542,131
 
 
 
2,526,628
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OTHER ASSETS
 
 
365,934
 
 
 
-
 
PROPERTY, PLANT, AND EQUIPMENT, NET
 
 
638,305
 
 
 
190,969
 
TOTAL ASSETS
 
$
3,882,148
 
 
$
2,717,597
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
Bank Overdraft
 
$
319,263
 
 
$
539,319
 
Notes Payable, current
 
 
2,136,664
 
 
 
1,597,324
 
Due to related party, current
 
 
70,308
 
 
 
662,743
 
Accounts Payable and Accrued Liabilities
 
 
961,195
 
 
 
290,481
 
Customer Deposits
 
 
273,289
 
 
 
53,682
 
TOTAL LIABILITIES
 
 
3,760,719
 
 
 
3,143,549
 
 
 
 
 
 
 
 
 
 
STOCKHOLDERS' EQUITY/(DEFICIT)
 
 
 
 
 
 
 
 
Preferred Non-Voting Shares, Class C, unlimited shares authorized, 158,096 issued
 
 
-
 
 
 
38,000
 
Class, A, B, and C Common Voting Shares, unlimited shares authorized,
  195,514 issued
 
 
-
 
 
 
9,776
 
Class D, E, and F non-voting shares, unlimited authorized, none issued
 
 
-
 
 
 
-
 
Common Stock ($.001 par value, 97,500,000 authorized;
  75,224,676 issued and outstanding)
 
 
75,225
 
 
 
 
 
Paid in Capital
 
 
1,403,688
 
 
 
(52,160
)
Accumulated Other Comprehensive Income
 
 
109,209
 
 
 
(5,868
)
Retained Earnings/(Accumulated Deficit) - restated, revised, see note H
 
 
(1,466,693
)
 
 
(415,700
)
TOTAL STOCKHOLDERS' EQUITY/(DEFICIT)
 
 
121,429
 
 
 
(425,952
)
 
 
 
 
 
 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
 
$
3,882,148
 
 
$
2,717,597
 
 
The accompanying notes are an integral part of these financial statements.
 
 
4
 
 
UpSnap Inc. F/K/A Duratech Group, Inc.
Consolidated Statement of Operations
 
 
 
 
 
 
 
 
 
For the years ended January 31,
 
 
 
2009
 
 
2008
 
SALES AND COST OF SALES
 
 
 
 
 
 
Sales - restated, revised, see note H
 
$
6,678,563
 
 
$
4,974,460
 
Cost of Sales (excluding depreciation) - restated, revised, see note H
 
 
4,626,923
 
 
 
4,338,086
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXPENSES
 
 
 
 
 
 
 
 
Selling, general and administrative
 
 
991,689
 
 
 
306,199
 
Payroll Expense
 
 
1,712,613
 
 
 
489,321
 
Bad Debt Expense
 
 
62
 
 
 
3,746
 
Depreciation
 
 
124,397
 
 
 
21,598
 
TOTAL EXPENSES
 
 
2,828,761
 
 
 
820,864
 
 
 
 
 
 
 
 
 
 
Net Income/(Loss) from Operations
 
 
(777,121
)
 
 
(184,490
)
 
 
 
 
 
 
 
 
 
OTHER INCOME/(EXPENSE)
 
 
 
 
 
 
 
 
Other Income
 
 
-
 
 
 
-
 
Interest Expense
 
 
(277,653
)
 
 
(139,175
)
Interest Income
 
 
3,781
 
 
 
2,600
 
NET OTHER INCOME/(EXPENSE)
 
 
(273,872
)
 
 
(136,575
)
 
 
 
 
 
 
 
 
 
NET INCOME/(LOSS) FROM CONTINUED OPERATIONS
 
 
(1,050,993
)
 
 
(321,065
)
 
 
 
 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
 
Foreign Currency Translation Gain/(Loss)
 
 
115,077
 
 
 
(5,868
)
 
 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME (LOSS)
 
 
(935,916
)
 
 
(326,933
)
Net (Loss) per share—basic and fully-diluted
 
 
(0.02
)
 
 
(1.67
)
Weighted average shares outstanding
 
 
44,257,967
 
 
 
195,514
 
 
The accompanying notes are an integral part of these financial statements.
 
 
5
 
 
UpSnap Inc. F/K/A Duratech Group, Inc.
Consolidated Statement of Stockholders' Deficit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
Duratech (Pre-Merger)
 
 
Duratech (Pre-Merger)
 
 
UpSnap (Post-Merger)
 
 
 
 
 
  
 
 
 
 
Preferred Shares--Class C
 
 
Class A
 
 
Class A
 
 
 
 
 
  
 
 
 
 
Shares
 
 
Stock
 
 
Shares
 
 
Stock
 
 
Shares
 
 
Stock
 
 
Paid in Capital/
(Distributions)
 
 
Accum. Other
Comprehensive
Income
Retained Earnings/(Accumulated Deficit) - Restated
 
Balances, February 1, 2007
 
 
158,096
 
 
$
38,000
 
 
 
222,693
 
 
$
11,443
 
 
  
-
 
 
$
-
 
 
$
(24,035
)
 
 
$                  0
$
89,732
 
Adjustment to Stock (Redemption
 
 
-
 
 
 
-
 
 
 
(27,179)
 
 
 
(1,467)
 
 
 
-
 
 
 
-
 
 
 
(28,125)
 
 
  
 
-
 
Negative Equity from Structures Acquisition
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
  
 
(184,367)
 
Net Income (loss)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
  
 
(98,867)
 
Prior year adjustments - see note H
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
                       -
 
(222,198)
 
Comprehensive Income (Loss)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
               (5,868)
 
                 -
 
Balances, January 31, 2008
 
 
158,096
 
 
$
38,000
 
 
 
195,514
 
 
$
9,976
 
 
  
-
 
 
$
-
 
 
$
(52,160
)
 
 
$             (5,868)
 
$
    (415,700
)
Stock split prior to reverse merger
   
3,040,266
     
-
     
5,151,867
     
-
                                   
Conversion of due to related party to equity
   
-
     
-
     
592,435
     
592,435
     
-
     
-
     
-
       
-
 
Share effectively issued to former UpSnap s/h
                                   
23,370,324
     
23,370
                   
Adjustment to Stock (Reverse Merger)
 
 
(3,198,362)
 
 
 
(38,000)
 
 
 
(5,939,816)
 
 
 
(602,411)
 
 
 
50,349,342
 
 
 
50,350
 
 
$
1,025,700
 
 
 
                        -
 
-
 
Sale of Assets to UpSnap Services, LLC
   
-
     
-
     
-
     
-
     
-
     
-
     
0
       
-
 
Net Income (loss)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
                        -
 
(1,050,993)
 
Comprehensive Income (Loss)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
            115,077
 
-
 
Issuance of Shares for Equipment
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
1,505,010
 
 
 
1,505
 
 
 
430,148
 
 
 
                       -
 
-
 
                                                                   
Balances, January 31, 2009
 
 
0
 
 $
 
0
 
 
 
0
 
 $
 
0
 
 
 
75,224,676
 
 $
 
75,225
 
 $
 
1,403,688
 
 $
 
           109,209
$
(1,466,693)
 
 
The accompanying notes are an integral part of these financial statements.
 
 
6
 
 
UpSnap Inc. F/K/A Duratech Group, Inc.
Consolidated Statements of Cash Flows
 
 
 
 
 
 
 
 
 
For the years ended January 31,
 
 
 
2009
 
 
2008
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 Net Income/(loss) from continued operations
 
$
(1,050,993
)
 
$
(321,065
)
Adjustments to reconcile net loss to net cash provided by (used in)
 
 
 
 
 
 
 
 
operating activities:
 
 
 
 
 
 
 
 
Depreciation
 
 
124,397
 
 
 
21,598
 
Bad Debt Expense
 
 
62
 
 
 
3,746
 
 
 
 
  
 
 
 
    
Changes in Assets and Liabilities:
 
 
 
 
 
 
 
 
(Increase)/Decrease in Accounts Receivable
 
 
(345,833
)
 
 
(364,378
)
(Increase)/Decrease in Accounts Receivable--Related Party
 
 
89,289
 
 
 
(89,289
)
(Increase)/Decrease in Current Portion of Loans and Notes Receivable
 
 
-
 
 
 
4,530
 
(Increase)/Decrease in Deposits/Holdbacks
 
 
(117,973
)
 
 
-
 
(Increase)/Decrease in Inventories
 
 
23,236
 
 
 
(1,566,863
)
Increase/(Decrease) in Accounts Payable and Accrued Expenses
 
 
670,714
 
 
 
157,775
 
Increase/(Decrease) In Customer Deposits
 
 
219,607
 
 
 
53,682
 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
 
 
(387,494
)
 
 
(2,100,264
)
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
Purchase of Property, Plant, and Equipment
 
 
(46,867
)
 
 
(99,696
)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
 
 
(46,867
)
 
 
(99,696
)
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
Proceeds/(Payment) of Notes Payable
 
 
539,340
 
 
 
(9,471
)
Proceeds/(Payment) of Shareholder Loans
 
 
-
 
 
 
(236,852
)
Proceeds from Long-term Debt
 
 
-
 
 
 
1,454,770
 
Increase/(decrease) in Due to related party
 
 
   -  
 
 
662,743
 
Proceeds/(Payment) of Bank Overdraft
 
 
(220,056
)
 
 
539,319
 
Proceeds/(Payment) from Share Redemption
 
 
-
 
 
 
(29,592
)
Payment for Structures Acquisition
 
 
-
 
 
 
(184,367
)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
 
319,284
 
 
 
2,196,550
 
 
 
 
 
 
 
 
 
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
 
 
115,077
 
 
 
(5,868
)
                 
NET INCREASE IN CASH AND
 
 
 
 
 
 
 
 
 CASH EQUIVALENTS
 
 
-
 
 
 
(9,278
)
CASH AND CASH EQUIVALENTS:
 
 
 
 
 
 
 
 
Beginning of Period
 
 
-
 
 
 
9.278
 
 
 
 
 
 
 
 
 
 
End of Period
 
$
-
 
 
$
-
 
 
 
 
 
 
 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 
 
 
 
 
 
 
 
CASH PAID DURING THE PERIOD FOR:
 
 
 
 
 
 
 
 
Interest
 
$
277,653
 
 
$
139,175
 
Taxes
 
$
-
 
 
$
-
 
NON-CASH FINANCING ACTIVITIES
               
Issuance of shares for Equipment
   
431,653
       -  
Conversion of Due to related party to Equity
   
592,435
       -  
Conversion of Duratech Stock for UpSnap Stock
   
459,209
       -  
 
The accompanying notes are an integral part of these financial statements.
 
 
7
 
 
UPSNAP INC. F/K/A DURATECH GROUP, INC.
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2009 AND 2008
 
NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business—UpSnap, Inc. (“UpSnap” or “the Company”) was incorporated on July 24, 2003 under the laws of the State of Nevada.  The Company was a Development Stage Company, as defined by the Statement of Financial Accounting Standard (“SFAS”) No. 7 “Accounting and Reporting by Development Stage Enterprises”.

On August 29, 2008, UpSnap Inc. (the “Company”) entered into a Share Exchange Agreement (the “Share Exchange Agreement”) by and among the Company; Tony Philipp, an officer, director and shareholder of Company (“Philipp”); Duratech Group Inc., an Alberta, Canada corporation (“Duratech”) and the shareholders of Duratech (“Duratech Shareholders”), including Peter Van Hierden, a citizen of Alberta, Canada and owner directly or indirectly of approximately 96% of the share capital of Duratech (“Van Hierden”).

Upon closing of the share exchange transaction (the “Share Exchange”) on September 17, 2008, the Duratech Shareholders transferred all of their shares of common stock in Duratech to the Company in exchange for an agreement to issue to them an aggregate of 50,349,342 shares of Common Stock of the Company, resulting in Duratech becoming a majority owned subsidiary of the Company.

After the consummation of the transactions contemplated by the Share Exchange Agreement, the Company, on the day after the Closing Date, consummated the sale of its assets related to its mobile information search services, subject to assumption and payment of all of the Company’s liabilities related to periods prior to the closing, to UpSnap Services, LLC, a North Carolina limited liability corporation (“UpSnap Services”), which is owned by Philipp, pursuant to an Asset Purchase Agreement dated as of August 29, 2008 (the “Asset Purchase Agreement”). As part of the reverse merger, the Company will cease engaging in the mobile information search services business.

UpSnap, Inc.’s principal operations following the reverse-merger are conducted through Duratech Group Inc. (previously named Duratech Contracting Inc.).  Prior to the date of the reverse-merger, the historical financial statements only include the historical results and operations of Duratech Group, Inc. (the accounting acquirer).  Duratech commenced operations on December 18, 2002 as a small homebuilding company constructing about 5 homes a year until Peter Van Hierden (“Van Hierden”) bought out the majority partners and took control of the operations in July, 2007.  Shortly thereafter, Mr. Van Hierden identified a synergistic opportunity to acquire a modular oil camp factory which was also in distress and acquired the company in July, 2007.  Since that time management has been able to turn both these operations around and now seeks to grow the company organically and through additional acquisitions.

Duratech’s principle operations are building manufactured and stick-built homes and modular oil camps in Alberta and Saskatchewan.

Duratech manufactures and builds homes and modular sites for its marketplace, principally Alberta and Saskatchewan.  The Company has three principal products that it offers: First, the company builds on-site conventional homes; second, the company builds ready-to-move (RTM) homes in factories and brings them on foundations to sell to end users; third, the company builds modular comp sites for the oil mining industry.
 
On July 1, 2007, Duratech Contracting Inc. acquired Duratech Structures Inc. (Previously known as Jobsite Structures).

On July 28, 2008, Duratech Contracting Inc. changed its name to become Duratech Group Inc.

Cash and Cash Equivalents—For purposes of the Consolidated Statement of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents.

Management’s Use of Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Presentation and Foreign currency translation—These consolidated financial statement have been prepared in accordance with US generally accepted accounting principles (GAAP) and translated into U.S dollars. The prevailing exchange rate used to translate the Canadian dollars to U.S dollars at January 31, 2009 was 0.81248. The average was 0.907744.
 
 
8
 
 
UPSNAP INC. F/K/A DURATECH GROUP, INC.
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2009 AND 2008
 
NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Presentation and Foreign currency translation (Continued)
 
Assets and liabilities denominated in respective functional currencies are translated into United States Dollars at the exchange rate as of the balance sheet date.  The share capital and retained earnings are translated at exchange rates prevailing at the time of the transactions.  Revenues, costs, and expenses denominated in respective functional currencies are translated into United States Dollars at the weighted average exchange rate for the period.  The effects of foreign currencies translation adjustments are included as a separate component of accumulated other comprehensive income.
 
Revenue Recognition— Revenues from long-term construction contracts (over one year) of the Duratech Contracting division, which builds on-site conventional homes,  are recognized using the percentage-of-completion method. Revenues from short-term contracts of the Duratech Structures division, which builds ready-to-move homes and modular camp sites, are recognized as the work is performed and related costs are incurred. Contract costs include all direct materials and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, and repair costs. General and administrative costs are charged to expense as incurred.
 
As a result of the global economic environment and decrease in natural resource prices, demand for on-site conventional homes (long-term construction contracts) have slowed slightly and prices have decreased up to 10% in some markets.  In regards to short-term contracts, the Company has found continued demand for ready-to-move (RTM) homes and a moderation of demand for modular camp sites for the oil mining industry.  The Company expects demand for modular camp sites accelerate with any increase in natural resource prices, principally oil and natural gas.

 Revenue and all related costs and expenses from house and land sales are recognized at the time that closing has occurred, when title and possession of the property and the risks and rewards of ownership transfer to the buyer, and we do not have a substantial continuing involvement in accordance with SFAS No. 66, “Accounting for Sales of Real Estate” (“SFAS 66”). In order to properly match revenues with expenses, we estimate construction and land development costs incurred and to be incurred, but not paid at the time of closing. Estimated costs to complete are determined for each closed home and land sale based upon historical data with respect to similar product types and geographical areas and allocated to closings along with actual costs incurred based on a relative sales value approach. We monitor the accuracy of estimates by comparing actual costs incurred subsequent to closing to the estimate made at the time of closing and make modifications to the estimates based on these comparisons.

Revenue is recognized for long-term construction contract sales on the percentage-of-completion method when the land sale takes place prior to all contracted work being completed. Pursuant to the requirements of SFAS 66, if the seller has some continuing involvement with the property and does not transfer substantially all of the risks and rewards of ownership, profit shall be recognized by a method determined by the nature and extent of the seller’s continuing involvement. In the case of our land sales, this involvement typically consists of final development activities. We recognize revenue and related costs as work progresses using the percentage-of-completion method, which relies on estimates of total expected costs to complete required work. Revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs at the time of sale. Actual revenues and costs to complete construction in the future could differ from our current estimates. If our estimates of development costs remaining to be completed and relative sales values are significantly different from actual amounts, then our revenues, related cumulative profits and costs of sales may be revised in the period that estimates change.
 
Comprehensive Income (Loss)—The Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive Income”, which establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial statements.  The other comprehensive income (loss) applicable to the Company during the periods covered in the consolidated financial statements were foreign currency translation gains/(loss).
 
Cash and Bank overdraft—Cash consists of cash, cash equivalents and checks issued in excess of cash on deposit. Cash is put in the Bank account has a negative balance. For the purpose of the cash flow statement, Bank overdrafts are also classified as cash.

Advertising Costs—Advertising costs are expensed as incurred.  For the years ended January 31, 2008 and 2007, the company incurred $39,019 and $14,773 respectively.

Net Loss per Common Share—Statement of Financial Accounting Standard (SFAS) No. 128 requires dual presentation of basic and diluted earnings per share (EPS) with a reconciliation of the numerator and denominator of the EPS computations.  Basic earnings per share amounts are based on the weighted average shares of common stock outstanding.  If applicable, diluted earnings per share would assume the conversion, exercise or issuance of all potential common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share.  Accordingly, this presentation has been adopted for the period presented.  There were no adjustments required to net loss for the period presented in the computation of diluted earnings per share.

Income Taxes—Income taxes are provided in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.”  A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss-carryforwards.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that, and some portion or the entire deferred tax asset will not be realized.  Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.
 
 
9
 
 
UPSNAP INC. F/K/A DURATECH GROUP, INC.
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2009 AND 2008
 
NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Fair Value of Financial Instruments—The carrying amounts reported in the consolidated balance sheet for cash, accounts receivable and payable approximate fair value based on the short-term maturity of these instruments.
 
Accounts Receivable— Accounts deemed uncollectible are written off in the year they become uncollectible.  For the years ended January 31, 2009 and 2008, no amounts were deemed uncollectible as of January 31, 2009.  Outstanding Accounts Receivable as of January 31, 2009 was $812,355.  Typical payment terms for short-term contracts are 30% down, 60% upon completion and 10% holdback to be released once the structure is on-site and attached.  Typical payment terms for stick-built homes (long-term construction contracts) are four draws from bank upon completion of backfill, lockup, ready-to-paint and at completion and a 10% holdback is held for 45 days to allow for builder liens by lawyer.  Accounts receivable are considered current as long as there is reasonable expectation that payments will be made as agreed upon or otherwise negotiated, but in no event longer than 12 months.  The Company evaluates collectability based on receiving payments as agreed upon or as otherwise negotiated.

Impairment of Long-Lived Assets— Using the guidance of Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors.

Inventory—Inventory is stated at the lower of accumulated cost or fair value, as determined in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets” (“SFAS 144”). Accumulated cost includes costs associated with land acquisition, land development, and home construction costs, including certain direct and indirect overhead costs related to development and construction. Land acquisition and development costs are allocated to individual lots using actual lot cost determined based on the total expected land acquisition and development costs and the total expected home closings for the project. The specific identification method is used to accumulate home construction costs.

Cost of sales includes the construction cost of the home, the actual lot cost for the home or project, and commissions and closing costs applicable to the home. The construction cost of the home includes amounts paid through the closing date of the home.  Any costs incurred but not yet paid are expensed as incurred and are typically very nominal in nature because the construction projects have been completed before recorded as sales.  The construction cycles for the long-term construction projects (stick-built homes) are approximately one year and for the short-term construction projects (modular and ready-to-move homes) are approximately two to three months.

For those projects for which construction and development activities have been idled for an extended period of time, longer than three months, an impairment analysis will be performed to determine if an adjustment may be necessary.  If the fair market value of a home (based on comparable units in the market) is less than its cost, this would suggest impairment and an appropriate adjustment would be made.  Recent market activity has shown that such fair market value estimates are not very sensitive or subjective.  These analyses are performed on a regular basis and confirmed before filing documents with the Commission. 

Property and Equipment—Property and equipment is stated at cost.  Depreciation is provided by the straight-line method over the estimated economic life of the property and equipment.  The following table shows the estimated useful life used for each class of fixed asset:

Asset
Estimated Useful Life
   
Buildings
25
years
Shed
10
years
Tools and Equipment
5
years
Small tools and equipment
4
years
Computer and Office Equipment
3
years
Automobiles
3
years
Leasehold Improvements
5
years
Computer Hardware
2.5
years

The estimated annual depreciation expense is $124,397 per year.  Total depreciation expense for the years ended January 31, 2009 and 2008 were $124,397 and $21,598 respectively.
 
 
10
 
 
UPSNAP INC. F/K/A DURATECH GROUP, INC.
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2009 AND 2008
 
NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 
Customer deposits—The cash deposit received from customers when project in progress are shown in the balance sheet as current liabilities and apply against the revenue expected from customers when the project is terminated and the customers are billed. The deposit is without interest.
 
Deposits/Holdback—The deposits referenced under Deposits/Holdbacks are land deposits for future development that are refundable and not deposits from customers for home construction.  The holdbacks included under Deposits/Holdback are deficiency holdbacks that are held by the closing attorney on a completed project until it’s determined that there will not be any further claims by sub-contractors on the project.
 
Recent Accounting Pronouncements—In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115”.  This statement permits entities to choose to measure many financial instruments and certain other items at value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments.  Effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. No entity is permitted to apply the Statement retrospectively to fiscal years preceding the effective date unless the entity chooses early adoption. The Company has adopted these pronouncements and determined that it had no effect on the Company’s results of operations or its financial position.
 
In December 2007, the FASB issued SFAS 141(revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, IPR&D and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income tax expense. SFAS 141R is effective for fiscal years beginning after December 15, 2008.   Adoption of this standard is not expected to have a material effect on the Company’s results of operations or its financial position.

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests (NCI) and classified as a component of equity. This new consolidation method will significantly change the account with minority interest holders. SFAS 160 is effective for fiscal years beginning after December 15, 2008. Adoption of this standard is not expected to have a material effect on the Company’s results of operations or its financial position.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment to FASB Statement No. 133.” SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The adoption of this statement, which is expected to occur in the first quarter of 2009, is not expected to have a material effect on the Company’s financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts — An interpretation of FASB Statement No. 60.” SFAS No. 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement No. 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosures about financial guarantee insurance contracts. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, except for some disclosures about the insurance enterprise’s risk-management activities. SFAS No. 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period beginning after issuance. Except for those disclosures, earlier application is not permitted. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

NOTE B—SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of cash flow information for the years ended January 31, 2009 and 2008 is summarized as follows:

          Cash paid during the years for interest and income taxes:

   
2009
    
2008
  
             
Interest
   $ 277,653     $
139,175
 
Income Taxes
   $ -     $ -  
 
 
11
 
 
UPSNAP INC. F/K/A DURATECH GROUP, INC.
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2009 AND 2008
12
NOTE C—PROPERTY AND EQUIPMENT
 
Property and equipment consisted of the following as of January 31, 2009:
 
Asset
  
Cost
    
Accumulated Depreciation
    
Net Book Value
  
                   
Land
  
$
32,855
    
$
-
    
$
32,855
  
Buildings
    
69,088
      
6,660
      
62,428
  
Tools and Equipment
    
457,908
      
72,045
      
385,863
  
Small Tools and Equipment
    
19,294
      
9,878
      
9,416
  
Computer and Office Equipment
    
47,002
      
22,473
      
24,529
  
Automobiles
    
97,485
      
55,486
      
41,999
  
Leasehold Improvements
    
99,752
      
18,537
      
81,215
  
   
$
823,384
    
$
185,079
    
$
638,305
  
 
One half of the depreciation is used in the year of acquisition.
 
NOTE D—INCOME TAXES
 
Due to the prior years’ operating losses and the inability to recognize an income tax benefit therefrom, there is no provision for current or deferred federal or state income taxes or Canadian taxes for the year ended January 31, 2009.  Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes.
 
For the twelve month periods ended September 30, 2008 and 2007, prior to the reverse-merger with Duratech, the Company incurred net operation losses and accordingly, no provision for income taxes has been recorded.  In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets.  For the period ending September 30, 2008, the Company had additional net operating loss carry-forward for its operations through September 17 prior to the completion of its share exchange agreement with Duratech.  The figures here reflect an estimate of those net operating loss carry-forward (see the Company’s 10-QSB for the period ending June 30, 2008 filed on August 13, 2008 for additional information).  Thus, at September 30, 2008, the Company had approximately $8,881,662 of accumulated net operating losses.  The net operating loss carry-forwards, if not utilized, will begin to expire in 2022.
 
The components of the Company’s deferred tax asset are as follows:

   
Twelve Month Period
Ended September 30
    
Twelve Month Period
Ended September 30
  
             
   
2008
    
2007
  
             
Federal and state income tax benefit
  
$
5,909,622
    
$
1,040,214
  
Change in valuation allowance on deferred tax assets
    
(5,909,622
)
    
(1,040,214
)
Net deferred tax assets
  
$
-
    
$
-
  
 
A reconciliation between the amounts of income tax benefit determined by applying the applicable U.S. and State statutory income tax rate to pre-tax loss is as follows:
 
   
Twelve Month Period
Ended September 30
    
Twelve Month Period
Ended September 30
  
             
   
2008
    
2007
  
             
Federal and state statutory rate
  
$
5,909,622
    
$
1,040,214
  
Change in valuation allowance on deferred tax assets
    
(5,909,622
)
    
(1,040,214
)
   
$
-
    
$
-
  
 
 
13
 
 
UPSNAP INC. F/K/A DURATECH GROUP, INC.
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2009 AND 2008
 
NOTE D—INCOME TAXES (CONTINUED)
 
The reconciliation of income taxes computed at the federal statutory income tax rate to total income taxes for the year ended September 30, 2008 is as follows:

   
2008
    
2007
  
Income tax computed at the federal statutory rate
     34 %     34 %
State income tax, net of federal tax benefit
     0 %     0 %
Total
     34 %     34 %
Valuation allowance
     -34 %     -34 %
Total deferred tax asset
     0 %     0 %

The Company’s principle subsidiary (Duratech Group Inc.) is subject to income taxes on income arising in or derived from the tax jurisdiction in which it is domiciled and operates (Canada).  However, because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance.  The valuation allowance increased (decreased) by $1,050,993 and $98,867 for the year ended January 31, 2009 and 2008 respectively. 

The components of Company’s estimated deferred tax asset, calculated using federal and state effective tax rates, as of January 31, 2009 and 2008 are as follows:
 
   
Twelve Month Period
Ended January 31
    
Twelve Month Period
Ended January 31
  
             
   
2009
    
2008
  
             
Federal and state income tax benefit
   $ 1,050,993     $ 98,867  
Change in valuation allowance on deferred tax assets
     (1,050,993 )     (98,867 )
Net deferred tax assets
    $ -      $ -  
 
As of January 31, 2009, the Company had Canadian net operating loss carryforwards of approximately $1,372,058 which will expire at various times through the year 2028.

NOTE E—NOTES PAYABLE
 
Description
Rate
 
Balance
 
         
Note due September 30, 2017
prime rate plus 1.5%
  
$
279,519
  
Note due June 30, 2009
prime rate plus 2%
  
$
135,492
  
Demand Note
Vary 8-18%
 
$
119,418
  
Demand Note
Vary 8-18%
 
$
851,988
  
Residential Line of Credit a
Vary 8-18%
 
$
750,247
  
     
$
2,136,664
  
a This is a residential loan line of credit. Progress loans are available
  
upon satisfactory inspection.
          
 
There are no covenants associated with the above debt arrangements.

NOTE F—FINISHED GOODS AND WORK IN PROGRESS INVENTORY

Land (finished goods) and residential spec home inventory is valued at the lower of cost and net realizable value with the cost being determined on an actual cost basis. Presold residential homes in work in Progress are recorded at the actual expenses incurred incurred to date.

Raw materials inventory is stated at the lowest cost, on first-in, first-out basis, and net realizable value. Periodic inventory method is used for it evaluation.

Inventories are as follows:
  
       
Raw Materials
   $ 72,939  
Work in Progress
   $ 1,382,604  
Finished Goods
   $ 492,038  
    $ 1,947,581  
 
 
14
 
 
UPSNAP INC. F/K/A DURATECH GROUP, INC.
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2009 AND 2008
 
NOTE G—SEGMENT REPORTING

The Company has two reportable segments—Duratech Structures, Inc. and Duratech Contracting, Inc.
 
The Net Sales and Profit/(Loss) by Segment for the year ended January 31, 2009 are as follows:

Net Sales by Segment
 
For the year ended January 31, 2009
 
   
Duratech Structures, Inc.
   
Duratech Contracting, Inc.
   
Totals
 
Sales, net
  $ 2,921,420     $ 3,757,143     $ 6,678,563  
Cost of Sales (exluding depreciation)
    2,096,948       2,529,975       4,626,923  
                         
 
Profit/(Loss) by Segment
 
For the year ended January 31, 2009
 
   
Duratech Structures, Inc.
   
Duratech Contracting, Inc.
   
Totals
 
Net Operating Profit/(Loss)
  $ (276,028 )   $ (774,965 )   $ (1,050,993 )
 
The Net Sales and Profit/(Loss) by Segment for the year ended January 31, 2008 are as follows:

Net Sales by Segment
  
For the year ended January 31, 2008
  
   
Duratech Structures, Inc.
    
Duratech Contracting, Inc.
    
Totals
  
Sales, net
   $ 1,857,508     $ 3,116,952     $ 4,974,460  
Cost of Sales (exluding depreciation)
    1,334,844       3,003,241       4,338,086  
                         
 
Profit/(Loss) by Segment
  
For the year ended January 31, 2008
  
   
Duratech Structures, Inc.
    
Duratech Contracting, Inc.
    
Totals
  
Net Operating Profit/(Loss)
   $ (26,352 )   $ (294,713 )   $ (321,065 )
 
Total Assets by Segment as of January 31, 2009 and 2008 are as follows:

Total Assets by Segment
  
For the year ended January 31, 2009
  
   
Duratech Structures, Inc.
    
Duratech Contracting, Inc.
    
Totals
  
Total Assets
   $ 1,034,908     $ 2,847,240     $ 3,882,148  
 
Total Assets by Segment
  
For the year ended January 31, 2008
  
   
Duratech Structures, Inc.
    
Duratech Contracting, Inc.
    
Totals
  
Total Assets
 
$
718,535
   
$
1,999,062
   
$
2,717,597
 
 
The accounting policies used for segment reporting are the same as those described in Note A “Summary of Significant Accounting Policies”;

 
15
 
 
UPSNAP INC. F/K/A DURATECH GROUP, INC.
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2009 AND 2008
 
NOTE H—EQUITY

OUTSTANDING SHARE DATA

The outstanding share data as at January 31, 2009 and September 30, 2007 is as follows:
 
   
Number of shares 
outstanding
  
             
   
2009
    
2007
  
             
Common shares
    
75,224,676
      
22,170,324
  
Options to purchase common shares
    
21,520,334
      
1,120,000
  
Warrants to purchase common shares
  
 
2,360,000
      
2,360,000
  
Debentures convertible to common shares
     -       -  
Accrued interest convertible to common shares
     -       -  
 
Shares Issued from Share Exchange Agreement

The following common shares were issued to Duratech Shareholders following the closing of the Share Exchange Agreement on September 17, 2008:
 
Janet Van Hierden
     6,387,729  
Jason Van Hierden
     580,703  
Peter Van Hierden
     41,255,711  
Brendon Van Hierden
     116,141  
George Sawatzky
     2,009,058  
         
Total
     50,349,342  
 
Stock Plan
 
On November 2, 2006 the Board of Directors of UpSNAP, Inc. approved a 2006 Omnibus Stock and Incentive Plan. The Plan made four million (4,000,000) shares, either unissued or reacquired by the Company, available for awards of either options, stock appreciation rights, restricted stocks, other stock grants, or any combination thereof. Eligible recipients include employees, officers, consultants, advisors and directors. Options granted generally have a ten-year term and vest over four years from the date of grant. Certain of the stock options granted under the Plan have been granted pursuant to various stock option agreements. Each stock option agreement contains specific terms. The Board of Directors increased the size of the Plan to seven and one half million (7,500,000) total shares on August 8, 2007, which was ratified by stockholders in September 2007.

Stock-Based Compensation

Under the fair value recognition provisions of SFAS No. 123(R), stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award. The Company has awarded stock-based compensation both as restricted stock and stock options.

We use the Black-Scholes option valuation model to value option awards under SFAS No. 123(R). The Company currently has awards outstanding with only service conditions and graded-vesting features. We recognize compensation cost on a straight-line basis over the requisite service period.
 
Time-Based Stock Awards
 
The fair value of each time-based award is estimated on the date of grant using the Black-Scholes option valuation model, which uses the assumptions described below. Our weighted-average assumptions used in the Black-Scholes valuation model for equity awards with time-based vesting provisions granted during the quarter ended January 31, 2009 are shown in the following table:
 
Expected volatility            70.0%
Expected dividends                 0%
Expected terms 6.0-6.25 years
Pre-vesting forfeiture rate               50%
Risk-free interest rate  4.45%-4.76%
 
 
16
 
 
UPSNAP INC. F/K/A DURATECH GROUP, INC.
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2009 AND 2008
 
NOTE H—EQUITY (CONTINUED)
 
The expected volatility rate was estimated based on historical volatility of the Company’s common stock over approximately the seventeen month period since the reverse merger and comparison to the volatility of similar size companies in the similar industry. The expected term was estimated based on a simplified method, as allowed under SEC Staff Accounting Bulletin No. 107, averaging the vesting term and original contractual term. The risk-free interest rate for periods within the contractual life of the option is based on U.S. Treasury securities. The pre-vesting forfeiture rate was based upon plan to date experience. As required under SFAS No. 123(R), we will adjust the estimated forfeiture rate to our actual experience. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies, and thereby materially impact our fair value determination.
 
A summary of the time-based stock awards as of January 31, 2009, and changes during the quarter ended January 31, 2009, is as follows:
 
   
Shares
    
Weighted
Average
Exercise Price
  
             
Outstanding at June 30, 2008
     2,570,000     $ 0.10  
                 
Granted (part of Share Exchange Agreement)
           $ 0.05  
                 
Forfeited or expired
     -     $ -  
                 
Outstanding January 31, 2009
     21,520,334     $ 0.056  
                 
Exercisable at January 31, 2009
     2,570,000     $ 0.10  
 
 
The following tables summarize information about fixed stock options outstanding and exercisable at January 31, 2009:
 
     
Stock Options Outstanding
Range of Exercise Prices
  
Number of
Shares
Outstanding
  
Weighted
Average
Contractual Life
in Years
 
$0.10
  
700,000
  
8.25
 
$0.10
  
170,000
  
9.34
 
$0.10
  
1,700,000
  
9.42
 
$0.10
  
18,950,334
  
9.67
 
 
 
21,520,334
  
9.60
         
 
     
Stock Options Exercisable
Range of Exercise Prices
  
Number of
Shares
Exercisable
  
Weighted
Average
Exercise Price
 
$0.10
  
2,570,000
 
$0.10
 
$0.016 – 0.125
  
14,562,544
 
$0.05
 
      
 
 
     
17,132,544
   
 
 
The exercise price of stock options granted during the period ended January 31, 2009 was equal to the market price of the underlying common stock on the grant date.

There was no aggregate intrinsic value as of January 31, 2009. Intrinsic value represents the pretax value (the period’s closing market price, less the exercise price, times the number of in-the-money options) that would have been received by all option holders had they exercised their options at the end of the period.

Warrants

The Company has recorded the warrant instruments as equity in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activity, paragraph 11(a), and EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock.
 
 
17
 
 
UPSNAP INC. F/K/A DURATECH GROUP, INC.
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2009 AND 2008
 
NOTE H—EQUITY (CONTINUED)
 
A summary of warrant activity for the period ended January 31, 2009 is as follows:
 
Series B
                        
   
Number of
Warrants
    
Weighted-
Average
Exercise
Price
    
Warrants
Exercisable
    
Weighted-
Average
Exercise
Price
  
                         
                         
Outstanding, September 30, 2007
     1,800,000     $ 1.10       1,800,000     $ 1.10  
Granted
     -                          
Expired
 
   -                          
Exercised
     -       -               -  
                                 
Outstanding, January 31, 2009
     1,800,000     $ 1.10       1,800,000     $ 1.10  
 
 
                        
   
Number of
Warrants
    
Weighted-
Average
Exercise
Price
    
Warrants
Exercisable
    
Weighted-
Average
Exercise
Price
  
                         
                         
Outstanding, September 30, 2007
     560,000     $ 0.90       560,000     $ 0.90  
Granted
     -                          
Exercised
     -                          
                                 
Outstanding, January 31, 2009
     560,000     $ 0.90       560,000     $ 0.90  
 
At January 31, 2009, the range of warrant prices for shares under warrants and the weighted-average remaining contractual life is as follows:
 
     
Warrants Outstanding
    
Warrants Exercisable
  
Range of
Warrant
Exercise Price
    
Number of
Warrants
    
Weighted-
Average
Exercise
Price
    
Weighted-
Average
Remaining
Contractual
Life
    
Number
Of
Warrants
    
Weighted-
Average
Exercise Price
  
                                 
$ 1.10       1,800,000     $ 1.10       2.53       1,800,000     $ 1.10  
$ 0.90       560,000     $ 0.90       2.62       560,000     $ 0.90  
          2,360,000                       2,360,000          
 
 
The Company may from time to time reduce the exercise price for any of the warrants either permanently or for a limited period or extend their expiration date.
 
 
18
 
 
UPSNAP INC. F/K/A DURATECH GROUP, INC.
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2009 AND 2008
 
NOTE H—EQUITY (CONTINUED)
 
RETAINED EARNINGS—PRIOR YEAR ADJUSTMENT

The Company made a prior year adjustment of $222,198 to reflect cost of goods sold for two projects that had been completed and sold in the period ending January 31, 2008.  The financial statements for the period ending January 31, 2008 have been revised to reflect this adjustment to Cost of Goods Sold.  This correction only affected the period ending January 31, 2008 and the beginning balance of retained earnings for the period ending January 31, 2009.  The following financial statement line items were adjusted:

Income Statement for period ending January 31, 2008 before and after correction:
 
 
 
For the year ended January 31,
 
 
 
2008
(Before
Correction)
 
 
2008
(After
Correction)
 
SALES AND COST OF SALES
 
 
 
 
 
 
Sales
 
$
4,974,460
 
 
$
4,974,460
 
Cost of Sales (excluding depreciation)
 
 
4,115,888
 
 
 
4,338,086
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXPENSES
 
 
 
 
 
 
 
 
Selling, general and administrative
 
 
306,199
 
 
 
306,199
 
Payroll Expense
 
 
489,321
 
 
 
489,321
 
Bad Debt Expense
 
 
3,746
 
 
 
3,746
 
Depreciation
 
 
21,598
 
 
 
21,598
 
TOTAL EXPENSES
 
 
820,864
 
 
 
820,864
 
 
 
 
 
 
 
 
 
 
Net Income/(Loss) from Operations
 
 
37,708
 
 
 
(184,490
)
 
 
 
 
 
 
 
 
 
OTHER INCOME/(EXPENSE)
 
 
 
 
 
 
 
 
Other Income
 
 
-
 
 
 
-
 
Interest Expense
 
 
(139,175
)
 
 
(139,175
)
Interest Income
 
 
2,600
 
 
 
2,600
 
NET OTHER INCOME/(EXPENSE)
 
 
(136,575
)
 
 
(136,575
)
 
 
 
 
 
 
 
 
 
NET INCOME/(LOSS) FROM CONTINUED OPERATIONS
 
 
(98,867
)
 
 
(321,065
)
 
 
 
 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
 
Foreign Currency Translation Gain/(Loss)
 
 
(5,868
)
 
 
(5,868
)
 
 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME (LOSS)
 
 
(104,735
)
 
 
(326,933
)
Net (Loss) per share—basic and fully-diluted
 
 
(0.54
)
 
 
(1.67
)
Weighted average shares outstanding
 
 
195,514
 
 
 
195,514
 
 
 
19
 
 
UPSNAP INC. F/K/A DURATECH GROUP, INC.
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2009 AND 2008
 
NOTE H—EQUITY (CONTINUED)
 
RETAINED EARNINGS—PRIOR YEAR ADJUSTMENT (CONTINUED)
 
Balance Sheet for period ending January 31, 2008 before and after correction:
 
 
 
As of
 
 
As of
 
 
 
January 31, 2008
(Before
Correction)
 
 
January 31, 2008
(After
Correction)
 
ASSETS
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash and Cash Equivalents
 
$
-
 
 
$
-
 
Accounts Receivable--Related Party
 
 
89,289
 
 
$
89,289
 
Accounts Receivable
 
 
466,522
 
 
 
466,522
 
Deposits/Holdback
 
 
-
 
 
 
-
 
Inventory
 
 
2,193,015
 
 
 
1,970,817
 
TOTAL CURRENT ASSETS
 
 
2,748,826
 
 
 
2,526,628
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OTHER ASSETS
 
 
-
 
 
 
-
 
PROPERTY, PLANT, AND EQUIPMENT, NET
 
 
190,969
 
 
 
190,969
 
TOTAL ASSETS
 
$
2,939,795
 
 
$
2,717,597
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
Bank Overdraft
 
$
539,319
 
 
$
539,319
 
Notes Payable, current
 
 
1,597,324
 
 
 
1,597,324
 
Due to related party, current
 
 
662,743
 
 
 
662,743
 
Accounts Payable and Accrued Liabilities
 
 
290,481
 
 
 
290,481
 
Customer Deposits
 
 
53,682
 
 
 
53,682
 
TOTAL LIABILITIES
 
 
3,143,549
 
 
 
3,143,549
 
 
 
 
 
 
 
 
 
 
STOCKHOLDERS' EQUITY/(DEFICIT)
 
 
 
 
 
 
 
 
Preferred Non-Voting Shares, Class C, unlimited shares authorized, 158,096 issued
 
 
38,000
 
 
 
38,000
 
Class, A, B, and C Common Voting Shares, unlimited shares authorized,
  195,514 issued
 
 
9.776
 
 
 
9,776
 
Class D, E, and F non-voting shares, unlimited authorized, none issued
 
 
-
 
 
 
-
 
Common Stock ($.001 par value, 97,500,000 authorized;
  75,224,676 issued and outstanding)
 
 
-
 
 
 
 
 
Paid in Capital
 
 
(52,160
)
 
 
(52,160
)
Accumulated Other Comprehensive Income
 
 
(5,868
)
 
 
(5,868
)
Retained Earnings/(Accumulated Deficit)
 
 
(193,502
)
 
 
(415,952
)
TOTAL STOCKHOLDERS' EQUITY/(DEFICIT)
 
 
(203,754
)
 
 
(425,952
)
 
 
 
 
 
 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
 
$
2,939,795
 
 
$
2,717,597
 
 
 
20
 
 
UPSNAP INC. F/K/A DURATECH GROUP, INC.
NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2009 AND 2008
 
NOTE H—EQUITY (CONTINUED)

RETAINED EARNINGS—PRIOR YEAR ADJUSTMENT (CONTINUED)

Cash Flow from Operations from the Statement of Cash Flow for period ending January 31, 2008 before and after correction:
 
 
 
As of
 
 
As of
 
 
 
January 31, 2008
(Before
Correction)
 
 
January 31, 2008
(After
Correction)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 Net Income/(loss) from continued operations
 
$
(98,867
)
 
$
(321,065
)
Adjustments to reconcile net loss to net cash provided by (used in)
 
 
 
 
 
 
 
 
operating activities:
 
 
 
 
 
 
 
 
Depreciation
 
 
21,598
 
 
 
21,598
 
Bad Debt Expense
 
 
3,746
 
 
 
3,746
 
Foreign Currency Translation Gain/(Loss)
 
 
(5,868
)
 
 
(5,868
)
Changes in Assets and Liabilities:
 
 
 
 
 
 
 
 
(Increase)/Decrease in Accounts Receivable
 
 
(364,378
)
 
 
(364,378
)
(Increase)/Decrease in Accounts Receivable--Related Party
 
 
89,289
 
 
 
(89,289
)
(Increase)/Decrease in Current Portion of Loans and Notes Receivable
 
 
4,530
 
 
 
4,530
 
(Increase)/Decrease in Other Receivables
 
 
-
 
 
 
-
 
(Increase)/Decrease in Inventories
 
 
(1,789,061
)
 
 
(1,566,863
)
Increase/(Decrease) in Accounts Payable and Accrued Expenses
 
 
157,775
 
 
 
157,775
 
Increase/(Decrease) In Customer Deposits
 
 
53,682
 
 
 
53,682
 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
 
 
(2,106,132
)
 
 
(2,106,132
)
 
 
NOTE I—COMMITMENTS/LEASES

As of January 31, 2009, the company had commitments for the acquisition of residential lots and land. The company had paid non-refundable deposits $ 24,374. This deposit is included in Deposits/Holdback.

NOTE J—RELATED PARTIES

The Company has an outstanding amount Due to a shareholder in the amount of $70,308.  This outstanding amount is due upon demand, is unsecured and does not bear an interest rate.
 
NOTE K—GOING CONCERN

As shown in the accompanying financial statements, the Company had a loss for the year ended January 31, 2009.  During the years ended January 31, 2009 and 2008, the Company had a net loss of $935,916 and $104,735 respectively.  The Company has a net deficiency of $1,357,484.

Management believes that actions presently being taken to win more contracts, raise equity capital, seek strategic relationships and alliances, and build its marketing efforts to generate positive cash flow provide the means for the Company to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
21