Crednology Holding 10QSB 2005 Q3 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-QSB

x   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-28829

SHARP HOLDING CORPORATION

(Name of Small Business Issuer in Its Charter)

DELAWARE	65-0970516
(State or Other Jurisdiction of	(IRS Employer
Incorporation or Organization)	Identification No.)

13231 CHAMPION FOREST DRIVE, SUITE 213, HOUSTON, TEXAS 77069

(Address of Principal Executive Offices) (Zip Code)

(713) 960-9100

(Issuer’s Telephone Number, Including Area code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

APPLICABLE ONLY TO CORPORATE ISSUERS

As of November 18, 2005 there were 77,662,696 shares of common stock, $.001 par value, outstanding.

Transitional Small Business Disclosure Format (check one): Yes o   No x

TABLE OF CONTENTS

PART I
Item 1.	Financial Statements
Item 2.	Management’s Discussion and Analysis or Plan of Operations
Item 3.	Controls and Procedures
PART II
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.	Exhibits

2

PART I

ITEM 1.     FINANCIAL STATEMENTS

3

SHARP HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2005 and December 31, 2004

__________

	September 30, 2005			December 31, 2004
ASSETS	(Unaudited)			(Note)
Current assets:
Cash and cash equivalents	$	136		$	35,074
Accounts receivable		2,820			-
Other current assets		27,207			42,700
Total current assets		30,163			77,774
Property and equipment, net		41,109			56,348
Deferred technology license, net		85,150			180,955
Other noncurrent assets		16,152			16,152
Total assets	$	172,574		$	331,229
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	723,340		$	657,400
Accrued payroll taxes		322,253			322,253
Accrued payroll and contract labor		856,951			635,897
Other accrued liabilities		1,303,920			778,568
Notes payable to related parties		960,259			1,006,315
Notes payable		1,419,559			1,530,844
Deferred revenue		274,485			224,485
Total current liabilities		5,860,767			5,155,762
Long term notes payable		93,541			68,222
Total liabilities		5,954,308			5,223,984
Commitments and contingencies
Stockholders’ equity (deficit):
Common stock, $.001 par value, 80,000,000 shares authorized, 77,662,696 shares and 27,075,452 shares issued and outstanding, respectively		77,663			27,076
Additional paid-in capital		10,490,044			8,610,718
Accumulated deficit		(16,349,441	)		(13,530,549	)
Total stockholders’ equity (deficit)		(5,781,734	)		(4,892,755	)
Total liabilities and stockholders’ equity (deficit)	$	172,574		$	331,229

Note: The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See accompanying notes to unaudited condensed consolidated financial statements.

4

SHARP HOLDING CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

for the three months and nine months ended September 30, 2005 and 2004

__________

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Revenues	$	21,119		$	13,340		$	41,007		$	55,060
Operating expenses:
Cost of sales and services		59,110			140,030			166,142			234,940
Selling, general and administrative		605,273			561,114			1,790,451			1,382,179
Total operating expenses		664,383			701,144			1,956,593			1,617,119
Loss from operations		(643,264	)		(687,804	)		(1,915,586	)		(1,562,059	)
Interest expense		(378,866	)		(47,326	)		(1,203,306	)		(103,557	)
Gain on settlement of payables		-			-			300,000			-
Net loss	$	(1,022,130	)	$	(735,130	)	$	(2,818,892	)	$	(1,665,616	)
Basic and diluted net loss per share	$	(0.01	)	$	(0.03	)	$	(0.06	)	$	(0.06	)
Weighted average shares used in computing basic and diluted net loss per share		76,493,045			26,261,763			49,904,997			25,871,889

See accompanying notes to unaudited condensed consolidated financial statements.

5

SHARP HOLDING CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

for the nine months ended September 30, 2005

__________

										Total
					Additional					Stockholders’
	Common Stock				Paid-In		Accumulated			Equity
	Shares		Value		Capital		Deficit			(Deficit)
Balance at December 31, 2004		27,075,452	$	27,076	$	8,610,718	$	(13,530,549	)	$	(4,892,755	)
Issuance of common stock on exercise of warrants		310,731		311		50,796		-			51,107
Issuance of common stock and warrants as compensation to consultants		8,725,000		8,725		289,302		-			298,027
Issuance of warrants in conjunction with notes payable agreements		-		-		95,082		-			95,082
Effect of beneficial conversion Feature		-		-		204,918		-			204,918
Issuance of common stock in settlement of debt		15,260,015		15,260		525,861		-			541,121
Issuance of common stock upon election to convert notes payable		26,291,498		26,291		713,367		-			739,658
Net loss		-		-		-		(2,818,892	)		(2,818,892	)
Balance at September 30, 2005		77,662,696	$	77,663	$	10,490,044	$	(16,349,441	)	$	(5,781,734	)

See accompanying notes to unaudited condensed consolidated financial statements.

6

SHARP HOLDING CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the nine months ended September 30, 2005 and 2004

__________

	2005			2004
Cash flows from operating activities:
Net loss	$	(2,818,892	)	$	(1,665,616	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Stock-based consideration for services and financing costs		298,027			147,300
Amortization of debt discount		764,967			-
Depreciation and amortization		114,667			100,239
Changes in operating assets and liabilities-
Increase in accounts receivable		(2,820	)		-
Decrease in other current assets		15,493			-
Decrease in other assets		-			(15,564	)
Increase in accounts payable and accrued liabilities		900,238			503,255
Increase in deferred revenue		50,000			144,485
Net cash used in operating activities		(678,320	)		(785,901	)
Cash flows from investing activities:
Purchases of property, plant and equipment		(3,623	)		(52,846	)
Net cash used in investing activities		(3,623	)		(52,846	)
Cash flows from financing activities:
Proceeds from issuance of common stock		51,107			30,724
Proceeds from borrowings		787,954			995,000
Repayment of borrowings		(192,056	)		(103,293	)
Net cash provided by financing activities		647,005			922,431
Net increase (decrease) in cash and cash equivalents		(34,938	)		83,684
Cash and cash equivalents at beginning of period		35,074			7,479
Cash and cash equivalents at end of period	$	136		$	91,163
Supplemental disclosure of cash flow information:
Cash paid for interest	$	55,765		$	5,178
Supplemental disclosure of noncash investing and financing activities:
Issuance of warrants in conjunction with notes payable agreements	$	95,082		$	-
Beneficial conversion feature on notes payable	$	204,918		$	-
Issuance of common stock upon election to convert notes payable	$	739,658		$	--
Issuance of common stock & warrants for notes payable & accrued interest	$	132,000		$	-
Issuance of common stock in settlement of debt	$	522,401		$	-
Conversion of accrued liabilities for notes payable	$	36,761		$	478,000

See accompanying notes to unaudited condensed consolidated financial statements.

7

SHARP HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

__________

1. Basis Of Presentation

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB of Regulation S-B. They do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the year ended December 31, 2004 included in the Company’s 2004 Annual Report on Form 10-KSB filed with the Securities and Exchange Commission. The interim unaudited financial statements should be read in conjunction with those financial statements included in the Form 10-KSB. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the nine-month period ended September 30, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

2. Organization and Operations

The consolidated financial statements of Sharp Holding Corporation (the “Company”) include Sharp Holding Corporation (“Sharp”), a Delaware corporation, along with its wholly owned subsidiaries Sharp Technology, Inc. (“Sharp Technology”), a Delaware corporation; Reserve Energy Corporation (“Reserve”), a Delaware corporation incorporated in February 2004 (which began operations in May 2004); and SCAN USA Corporation (“SCAN”), a Delaware corporation incorporated in September 2003 (which began operations in June 2004), (collectively, the “Company”).

Sharp provides capital resources, management and technical expertise to its subsidiary companies. Sharp Technology is a developer and marketer of internet-related software products and provides innovative marketing solutions to strategic partners. Reserve plans to deploy proprietary filtering technology that can turn sub-quality natural gas from shut-in and abandoned wells into pipeline quality natural gas. SCAN is developing, with corporate sponsors, a national alert system that will enable local police departments and other authorities to send alerts to localized recipients.

The Company has reported recurring losses from continuing operations of $1,022,130 and $735,130 for the three-month periods ended September 30, 2005 and 2004, as well as losses of $2,818,892 and $1,665,616 for the nine-month periods ended September 30, 2005 and 2004, respectively. These recurring losses have produced an accumulated deficit of $16,349,441, and a working capital deficit of $5,830,604 as of September 30, 2005. As a result of shortfalls in anticipated funding, the Company is delinquent on certain payroll tax deposits due the IRS. The Company expects cash flow deficits will continue, which will necessitate additional financing. There can be no assurances that future debt or equity funding will be available or have terms the Company will find acceptable. These events raise a substantial doubt as to the Company's ability to continue as a going concern. As a result, the report of our independent accountants, which accompanied our consolidated financial statements for the year ended December 31, 2004, was qualified with respect to that risk.

3. Notes Payable

Notes payable to related parties are included in related-party transactions Footnote 4. Other notes payable outstanding at September 30, 2005 and December 31, 2004 consist of the following:

	2005		2004
Note payable to an individual, bearing interest of 10% per year, payable on demand, uncollateralized	$	245,000	$	245,000
Note payable to an individual		465,000		465,000

8

SHARP HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

__________

3. Notes Payable, continued

Note payable to a company, bearing interest of 12% per year, payable on December 31, 2003, uncollateralized		75,000		75,000
Note payable to a company, bearing interest of 6% per year, payable on May 31, 2005, uncollateralized		-		370,000
Notes payable to one company and one individual, bearing interest of 8% per year, payable in May and June 2005, collateralized by 630,000 shares of the Company’s common stock		210,000		210,000
Callable convertible secured notes payable to four companies, bearing interest of 8%, maturing in November 2006 through January 2007, collateralized by substantially all assets and intellectual property as well as registration rights, net of debt discount of $166,802 at September 30, 2005 and $631,778 at December 31, 2004		93,541		68,222
Note payable to an individual, due July 22, 2005		25,000		-
Notes payable to six individuals, due September 30, 2005		184,715		-
Note payable to an individual, due October 15, 2005		50,000		-
Notes payable to two companies and one individual, non-interest bearing, due in monthly installments, with maturities in 2003 and 2004		164,844		165,844
	$	1,513,100	$	1,599,066

The Company is in default on $939,844 of the total notes payable balance as a result of being past due on payments as of September 30, 2005.

On November 30, 2004, December 30, 2004 and January 19, 2005 the Company entered into agreements to issue convertible promissory notes and warrants to purchase a total of 1,000,000 shares of the Company's common stock in exchange for gross proceeds of $1,000,000, $300,000 of which was received in the nine months ended September 30, 2005. The notes are for a term of two years, bear interest at 8% per annum, require monthly interest payments, and are collateralized by substantially all assets and intellectual property as well as registration rights of the Company. The holder of the note has the option to convert the note at any time after the issuance date of the note. The note is convertible at the lesser of $.21 or 65% multiplied by the average of the lowest three trading prices for the common stock during the twenty trading day period ending one trading day prior to the date the conversion notice is sent by the holder to the Company.

In accordance with generally accepted accounting principles, in the event the conversion price is less than the Company’s stock price on the date of issuance, the difference is considered to be a beneficial conversion feature and is amortized as additional interest expense over the period from the date of issuance to the stated redemption date of the notes. The Company has calculated the beneficial conversion feature of these notes to be $709,039, $204,918 of which was associated with the $300,000 note payable agreement entered into on January 19, 2005. Through September 30, 2005, the Company recognized $595,104 in interest expense related to the amortization of the beneficial conversion feature recorded on these convertible promissory notes, $579,960 of which was recorded in the nine months ended September 30, 2005.

9

SHARP HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

__________

3. Notes Payable, continued

During the nine months ended September 30, 2005, four individual holders of these convertible promissory notes elected to convert $739,658 of these notes pursuant to the original terms of conversion and were issued 26,291,498 shares of common stock.

The warrants entitle the holders to purchase 1,000,000 shares of the Company's common stock at $0.17 per share and expire five years from the date of issuance. The Company allocates the proceeds received from debt or convertible debt with detachable warrants using the relative fair value of the individual elements at the time of issuance. The amount allocated to the warrants as a debt discount was calculated at $241,797, $95,082 of which related to the warrants issued on January 19, 2005, and will be recognized as interest expense over the period until the notes mature. In the event the debt is settled prior to the maturity date, an expense will be recognized based on the difference between the carrying amount and the amount of the payment. Through September 30, 2005, the Company recognized $188,931 in interest expense related to the accretion of the debt discount associated with the warrants, $185,016 of which was recorded in the nine months ended September 30, 2005.

4. Related-Party Transactions

During April and July 2000, the Company incurred a related party accounts payable liability to a company owned by a shareholder. The total amount owed of $68,500 is included in accounts payable at September 30, 2005.

During April and June of 2002, the Company entered into two notes payable agreements with a stockholder in the amount of $140,000 and $130,000, respectively. The notes bear interest at 10 percent per annum and were payable in January 2003 and September 2002, respectively. As of September 30, 2005, the entire balance of both notes was past due.

On March 20, 2003, the Company entered into a note payable agreement with a stockholder in the amount of $175,000 bearing interest at 10% per annum and payable on June 30, 2003. On May 12, 2003, the Company extinguished this note payable plus $21,875 of accrued interest on such note through issuance of 1,000,000 shares of common stock and a new note in the amount of $96,875 bearing interest at 10 percent per annum and payable in 24 monthly installments beginning July 1, 2003. As of September 30, 2005, this note was paid off and the balance on this note is $-0-.

On May 19, 2003, the Company converted accounts payable to a company owned by a director of the Company to equity and a note payable through issuance of 300,000 shares of common stock and the signing of a note payable to the owner of such company in the amount of $100,000 bearing interest at 10 percent per annum and payable in 36 monthly installments beginning July 1, 2003. At September 30, 2005, the balance of this note was $85,259 and the Company was in default on the note due to non-payment of required monthly amounts due under the note.

On May 17, 2004, the Company entered into notes payable agreements with a director of a subsidiary and two companies owned by such director in the amount of $700,000 bearing interest at 8% per annum and payable on May 15, 2005. Such notes are callable by the Company at any time after 90 days from issuance. The notes are collateralized by 2.1 million shares of the Company’s common stock. The holder of the notes received 1,869,000 REC warrants to purchase shares of the subsidiary’s common stock at $.75 per share with a term of three years. The Company allocates the proceeds received from debt with detachable warrants using the relative fair value of the individual elements at the time of issuance. The amount allocated to the warrants as a debt discount was calculated at $-0- due to the fair value of the warrants being $-0-. At September 30, 2005, the balance of these notes was $500,000 and the entire amount of such notes is past due.

10

SHARP HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

__________

4. Related-Party Transactions, continued

On March 15, 2005, the Company entered into a note payable agreement with a stockholder in the amount of $50,000 paying interest of $5,000 on maturity at April 30, 2005. On April 30, 2005, the Company extinguished this note payable, plus $5,000 of accrued interest on such note, through issuance of 1,375,000 shares of common stock. At September 30, 2005, the balance on this note is $-0-.

On April 8, 2005, the Company entered into a note payable agreement with a stockholder in the amount of $50,000 paying interest of $5,000 on maturity at May 23, 2005. On May 23, 2005, the Company extinguished this note payable, plus $5,000 of accrued interest on such note, through issuance of 1,375,000 shares of common stock. At September 30, 2005, the balance on this note is $-0-.

On April 19, 2005, the Company entered into a note payable agreement with a stockholder in the amount of $10,000 paying interest of $1,000 on maturity at June 8, 2005. On June 8, 2005, the Company extinguished this note payable, plus $1,000 of accrued interest on such note, through issuance of 275,000 shares of common stock. At September 30, 2005, the balance on this note is $-0-.

On May 6, 2005, the Company entered into a note payable agreement with a stockholder in the amount of $50,000 paying interest of $5,000 on maturity at June 6, 2005. On June 6, 2005, the Company paid the $5,000 of accrued interest and rolled the principal amount ($50,000) into a new note dated June 6, 2005 paying interest of $5,000 on maturity at July 15, 2005. On July 15, 2005, the Company paid the $5,000 of accrued interest and rolled the principal amount ($50,000) into a new note dated July 15, 2005 paying interest at $5,000 on maturity at August 18, 2005. On August 18, 2005, the Company received an additional $30,000 from the stockholder and rolled the principal amount maturing on August 18, 2005 ($50,000) into a new note dated August 18, 2005 paying interest at $10,000 on maturity at September 10, 2005. On September 11, 2005, the Company rolled the principal amount ($80,000) into a new note dated September 11, 2005, paying monthly payments of $3,000 in interest with principal due October 16, 2006. At September 30, 2005, the balance on this note is $80,000.

On March 8, 2005, the Company entered into a note payable agreement with Commercial Capital Trading Corporation, a company owned by our chief executive officer in the amount of $25,000 paying interest of $5,000 on maturity at April 22, 2005. At September 30, 2005, the balance on this note is $25,000 and the entire amount is past due.

5. Commitments and Contingencies

At September 30, 2005, the Company was delinquent on approximately $322,000 in payroll tax deposits. The Company is subject to interest and penalties for making payroll tax deposits with the Internal Revenue Service after the due date. The Company has accrued estimated interest and penalties through September 30, 2005. Management believes additional interest and penalties, if any are levied, will not be material to the Company's financial position or results of operations.

From time to time, the Company is involved in various claims and other actions arising in the ordinary course of business. Management believes these matters will not have a material adverse effect on the financial position or results of operations of the Company.

11

SHARP HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

__________

6. Segment Reporting

The Company’s operating segments include two of the Company’s subsidiaries, Reserve and Scan. Each of these subsidiaries represents a discrete operating segment upon which management evaluates and measures financial performance. Therefore, each of these operating subsidiaries represents a segment of the Company. A third segment encompasses the activity of the Company’s Sharp Technology subsidiary and other technology related activity of Sharp. Each of the Company’s operating segments are engaged in business activities in the United States and, as a result, all of the Company’s revenues are generated and assets are held in this country.

The segments’ accounting policies are the same as those described in the summary of significant accounting policies in the notes to the financial statements for the year ended December 31, 2004 included in the Company’s 2004 Annual Report on Form 10-KSB filed with the Securities and Exchange Commission. Transactions between reportable segments are reported gross in segment reporting and are eliminated in consolidation.

The following represents selected segment information for the three months ended September 30, 2005:

	Other
	Technology			Reserve			Scan			Totals
Revenues from external customers	$	19,784		$	-		$	1,335		$	21,119
Segment loss		(20,571	)		(61,904	)		(314,539	)		(397,014	)
Segment assets		88,342			41,938			14,485			144,765

The following represents selected segment information for the three months ended September 30, 2004:

	Other
	Technology			Reserve			Scan			Totals
Revenues from external customers	$	13,340		$	-		$	-		$	13,340
Segment loss		(82,398	)		(87,690	)		(476,914	)		(647,002	)
Segment assets		215,421			142,857			6,480			364,758

The following represents reconciliations from segment totals to the totals reflected in the unaudited consolidated financial statements for the three-month periods ended September 30, 2005 and 2004:

	2005			2004
Profit or Loss
Total loss for reportable segments	$	(397,014	)	$	(647,002	)
Corporate interest expense		(344,634	)		(27,863	)
Intercompany management fees		-			5,000
Unallocated corporate general and administrative expenses		(280,482	)		(65,265	)
Loss before income taxes	$	(1,022,130	)	$	(735,130	)
Assets
Total assets for reportable segments	$	144,765		$	364,758
Assets held by corporate:
Cash		14			8,334
Other current assets		27,207			-
Other assets		588			588
Total consolidated assets	$	172,574		$	373,680

12

SHARP HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

__________

6. Segment Reporting, continued

The following represents selected segment information for the nine months ended September 30, 2005:

	Other
	Technology			Reserve			Scan			Totals
Revenues from external customers	$	37,857		$	-		$	3,150		$	41,007
Segment loss		(83,206	)		(218,858	)		(994,408	)		(1,296,472	)

The following represents selected segment information for the nine months ended September 30, 2004:

	Other
	Technology			Reserve			Scan			Totals
Revenues from external customers	$	55,060		$	-		$	-		$	55,060
Segment loss		(138,121	)		(488,172	)		(486,439	)		(1,112,732	)

The following represents the reconciliations from segment profit to the total profit reflected in the unaudited consolidated financial statements for the nine-month periods ended September 30, 2005 and 2004:

	2005			2004
Total loss for reportable segments	$	(1,298,472	)	$	(1,112,732	)
Corporate interest expense		(1,115,472	)		(76,335	)
Gain on settlement of lawsuit		300,000			-
Intercompany management fees		-			55,000
Unallocated corporate general and administrative expenses		(706,948	)		(531,549	)
Loss before income taxes	$	(2,818,892	)	$	(1,665,616	)

7. Settlement of Lawsuit

In November 1999, the Company entered into a development and distribution partnership agreement with Qwest Communications (“Qwest”, then US West). Pursuant to the provisions of this agreement, the Company completed the development of a certain Internet software application which Qwest agreed to advertise and actively market for a period of three years to its current and future Internet access customers. Qwest did not perform under this agreement. The Company pursued its right to binding arbitration with Qwest for specific performance under this agreement or compensation for a loss of revenue.

In connection with that same development and distribution partnership agreement with Qwest, the Company engaged the software development services of the Navi-Gates Corporation, a company controlled by our former chief financial officer. As part of its compensation, Navi-Gates was to receive a royalty on each unit of software sold by Qwest and the Company under this agreement. On May 15, 2002 Cause Number 2002-24598, “Navi-Gates Corporation vs. Sharp Technology, Inc. and Qwest Communications, Inc., et al…” was filed against our subsidiary, Sharp Technology, Inc. in the District Court of Harris County, Texas, 269^th Judicial District. In the petition, Navi-Gates Corporation attempted to secure reimbursement of its damages arising from the failure of Qwest to fulfill its marketing commitments.

In June 2004 the above legal matters between Sharp Technology and Qwest and Navi-Gates were scheduled for an arbitration hearing to be held at the Houston, Texas offices of the American Arbitration Association in February 2005. On January 26, 2005 the matters were resolved to all parties’ satisfaction with no additional expense to the Company.

13

SHARP HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

__________

8. Stock Options and Warrants

The Company follows SFAS No. 123, "Accounting for Stock-Based Compensation," which establishes fair value as the measurement for transactions in which an entity acquires goods or services from non employees in exchange for equity instruments.

A summary of the Company's stock options as of September 30, 2005 and December 31, 2004 is as follows:

									Weighted
									Average
	Number of						Exercise		Exercise
	Shares			Exercisable			Price		Price
Options outstanding at December 31, 2004		3,156,469			3,156,469		$	0.10-$15.00	$	0.39
Options expired		(28,333	)		(28,333	)	$	5.10-$6.00	$	5.42
Options outstanding at September 30, 2005		3,128,136			3,128,136		$	0.10-$15.00	$	0.35

The following table summarizes information about stock options outstanding and exercisable at September 30, 2005:

		Weighted
	Outstanding	Average	Weighted
Range of	as of	Remaining	Average
Exercise	September 30,	Contractual	Exercise
Prices	2005	Life (In Years)	Price
$5.10-$15.00	128,136	1.60	$6.12
$0.10	3,000,000	3.20	$0.10
$0.10-$15.00	3,128,136	3.10	$0.35

A summary of the Company’s warrants as of September 30, 2005 and December 31, 2004 and warrant activity for the nine months ended September 30, 2005 is as follows:

									Weighted
									Average
	Number of						Exercise		Exercise
	Shares			Exercisable			Price		Price
Warrants outstanding at
December 31, 2004		8,864,346			8,864,346		$	0.01-$6.00	$	0.75
Warrants issued		3,100,000			3,100,000		$	0.05-$0.30	$	0.23
Warrants exercised		(200,000	)		(200,000	)	$	0.25	$	0.25
Warrants expired/forfeited		(1,000,555	)		(1,000,555	)	$	0.05-$6.00	$	1.16
Warrants outstanding at
June 30, 2005		10,763,791			10,763,791		$	0.01-$6.00	$	0.57

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SHARP HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

__________

8.          Stock Options and Warrants, continued

The following table summarizes information about stock warrants outstanding and exercisable at September 30, 2005:

		Weighted
	Outstanding	Average	Weighted
Range of	as of	Remaining	Average
Exercise	September 30,	Contractual	Exercise
Prices	2005	Life (In Years)	Price
$0.01-$0.25	9,105,459	1.90	$0.15
$0.50-$1.00	700,000	2.30	$0.82
$3.00-$6.00	958,332	2.90	$4.44
	10,763,791	2.00	$0.57

The fair value of each option and warrant grant was estimated on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used for the grants in the periods ended September 30, 2005 and 2004:

	September			September
	30, 2005			30, 2004
Dividend yield		-0-	%		-0-	%
Expected volatility		200	%		200	%
Risk free interest		5	%		5	%
Expected lives		Actual			Actual

The Black-Scholes option pricing model and other existing models were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of, and are highly sensitive to, subjective assumptions including the expected stock price volatility. The Company's stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate.

During the three month and nine month periods ended September 30, 2005, the Company recorded approximately $-0- and $139,934, respectively, at the fair value of the warrants granted in compensation and finance costs for warrants issued through September 30, 2005.

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 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our audited and unaudited consolidated financial statements and related notes thereto included in this Form 10-QSB and our 10-KSB filed with the Securities and Exchange Commission on April 15, 2005.

FORWARD LOOKING STATEMENTS AND INFORMATION

We include the following cautionary statement in this Form10-QSB to make applicable and take advantage of the safe harbor provision of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by or on our behalf. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are other than statements of historical facts. Certain statements in this Form10-QSB are forward-looking statements. Words such as “plans”, “believes”, "expects", "anticipates" and "estimates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Our expectations, beliefs and projections are expressed in good faith and we believe they have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that our expectations, beliefs or projections will result, be achieved, or be accomplished.

In addition to other factors and matters discussed elsewhere herein, the following are important factors that, in our view, could cause material adverse effects on our financial condition and results of operations: the ability of our existing cash reserves and cash flows from operations to cover our ongoing cash requirements and our ability to secure short-term cash funds to the extent our cash reserves are unable to meet our cash requirements, uncertainties relating to our product development and marketing, competitive factors, and our dependence on key personnel. We have no obligation to update or revise these forward-looking statements to reflect the occurrence of future events or circumstances.

OPERATIONS

Sharp Holding Corporation, a Delaware corporation, (the “Company,” “Sharp” or “we”) seeks opportunities to develop and grow early-stage technology companies that have the potential to increase shareholder value.

Sharp has three wholly-owned subsidiaries: SCAN USA Corporation (“SCAN”), Reserve Energy Corporation (“Reserve” or “REC”), and Sharp Technology, Inc. (“Sharp Technology”).

SCAN has partnered with the California Organization of Police and Sheriffs (COPS) and the National Coalition of Public Safety Officers (NCPSO) to deliver the SCAN service. This service is designed to be the first of its kind that broadcasts alerts and critical safety information from public safety agencies, law enforcement, emergency management, schools and hospitals to local community and neighborhood residents. Alerts such as Neighborhood Crime, Sexual Predators, Public Safety Announcements, Weather, Traffic and Amber alerts are sent directly to the computers, mobile phones and PDAs of U.S. citizens who register for the program, which was launched in California during December, 2004 and planned for nationwide expansion throughout 2005.

In June 2004, SCAN entered into a professional services contract with SBC Communications calling for SBC to actively market the SCAN service to their 35 million telephone customers in their thirteen-state area along with participating in a marketing and public relations press tours to promote the service. The SCAN service provides revenue generation opportunities via corporate sponsorships, sponsor-branded CD-based family safety information, distribution of co-branded credit cards, pre-paid calling cards, security software and other security-related products to a massive security-conscious consumer database.

During the second quarter of 2005, significant enhancements were made to the SCAN service and expansion of the service area continued. The SCAN core service of broadcasting alerts for public safety agencies was initiated in Nevada, Texas, Missouri, Arkansas, Kansas and Oklahoma. Several hundred police, fire, dispatch and emergency management agencies now utilize the SCAN service. Functionality enhancements included additional alert types, usage of SCAN for inter-agency communications and implementation of unique codes permitting alert broadcast within campus borders.

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On May 24, 2005, SCAN launched the first national registered sex offender/predator movement tracking service. SCAN users are now informed via a SCAN alert when a registered sex offender moves into their neighborhood, tracked by changes in zip code or permanent street address. This unique service is built on publicly available information posted on each of the U.S. States’ Sex Offender Registry websites. Tracking of offender movements in 49 states plus the District of Columbia that have public registries was completed on July 30, 2005.

SCAN intensified its focus on family safety with the completion of two agreements. “RetroBill™,” the national D.A.R.E. celebrity spokesperson who speaks about child safety and self-esteem to hundreds of thousands of students annually, now promotes the SCAN service nationally and SCAN sells RetroBill safety DVDs. ChildKeep™, a service for parents that allows online storage of pictures and identifying features of their children, now offers their service via the SCAN consumer website.

REC plans to deploy a proprietary and patented filtering technology that will convert non-pipeline quality natural gas located in contaminated shut-in wells, into saleable pipeline quality gas. One out of every three natural gas wells contains contaminants that make the gas un-marketable. If a well produces less than ten million cubic feet per day it is generally considered too expensive to purchase standard filtering equipment. These low producing wells are capped and listed as "shut-in wells." There are currently more than 200,000 shut-in wells in the U.S., containing in excess of 61 trillion cubic feet of natural gas valued at over $240 billion. Reserve plans to capture a share of that market.

Sharp Technology is a developer of software products that provide marketing and e-finance solutions to companies. We target large corporations for use of our technology and distribute our software products as premium components in their strategic marketing and e-finance campaigns.

RESULTS OF OPERATIONS FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2005 AND 2004

During the three and nine-month periods ended September 30, 2005, we had total revenues of $21,000 and $41,000, respectively, compared to total revenues of $13,000 and $55,000 for the same respective periods ended September 30, 2004. Revenues during both periods were related primarily to Hyper CD technology and fluctuations in such revenues are due entirely to variations in customer requirements.

Costs of sales totaled $59,000 and $166,000 for the three and nine-month periods ended September 30, 2005, respectively, compared to $140,000 and $235,000 for the same respective periods ended September 30, 2004. The decrease in cost of sales in 2005 from 2004 was due to the one time purchasing of technology to serve as the basis for our SCAN system and related costs during 2004.

Selling, general and administrative expenses totaled $605,000 and $1,790,000 for the three and nine-month periods ended September 30, 2005, respectively, compared to $561,000 and $1,382,000 for the same respective periods ended September 30, 2004. The $44,000 and $408.000 increases in these expenditures between the respective three and nine-month periods ended September 30, 2005 and 2004 can be attributed to higher levels of payroll, consulting expense, travel and professional fees associated operating our two new subsidiaries for a full nine months in 2005 as compared to approximately three months in 2004.

Interest expense totaled $379,000 and $1,203,000 for the three and nine-month periods ended September 30, 2005, respectively, compared to $47,000 and $104,000 for the same respective periods ended September 30, 2004. The $332,000 and $1,099,000 increases between the respective three and nine month periods ended September 30, 2005 and 2004 is attributed to the convertible promissory notes signed in the fourth quarter of 2004 and the first quarter of 2005. The cost of the beneficial conversion feature as well as costs attributed to warrants issued with such debt are amortized over the life of the notes to interest expense ($481,000 in the first quarter of 2005, $225,000 in the second quarter of 2005 and $59,000 in the third quarter of 2005). The remaining increase over 2004 is strictly a function of increase in borrowings and cost of such borrowings.

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LIQUIDITY AND CAPITAL RESOURCES

Through September 30, 2005 we have an accumulated deficit of $16.3 million. We have a working capital deficit of $5.8 million at September 30, 2005. Operating losses have continued during 2005, which have been funded through proceeds of $788,000 from new debt in the nine months ended September 30, 2005. As a result of shortfalls in anticipated funding, we are delinquent on certain payroll tax deposits due the IRS. We are also delinquent on payments under certain notes payable agreements. We expect cash flow deficits to continue, which will necessitate additional financing. However, there can be no assurances that future debt or equity funding will be available or have terms we find acceptable. These events raise a substantial doubt as to our ability to continue as a going concern. As a result, the report of our independent public accountants, which accompanied our consolidated financial statements for the year ended December 31, 2004, was qualified with respect to that risk.

At September 30, 2005 we have no material outstanding purchase commitments and during fiscal years 2005 and 2004 there are no significant elements of income or loss that do not arise from our continuing operations. Further, we do not expect material changes in our results of operations from period to period based upon the seasonality of our business.

New Accounting Pronouncements

Please refer to the Annual Report Form 10-KSB for the year ended December 31, 2004 for disclosures regarding the Company’s treatment of new accounting pronouncements.

CRITICAL ACCOUNTING POLICIES

We believe the following critical accounting policies affect our more significant judgments and estimates used in preparation of our consolidated financial statements:

Revenue Recognition

We generate revenues from licensing software and providing post contract customer support (PCS) and other professional services. We use written contracts to document the elements and obligations of arrangements with our customers. At times, arrangements that include the licensing of software also include PCS, such as the right to technical support. When we sell several elements to a customer through a single contract, the revenues from such multiple-element arrangements are allocated to each element based upon vendor-specific objective evidence of fair value, if available. We have not established sufficient vendor-specific objective evidence of fair value for PCS since this element is not sold separately from software licenses. Accordingly, we recognize revenue from software licenses that include PCS ratably over the term of technical support.

Accounting for Stock-Based Compensation

In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," we have elected to account for stock-based compensation plans under Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and to provide the proforma disclosures required by SFAS No. 123.

ITEM 3. CONTROLS AND PROCEDURES

As of September 30, 2005, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e)). Based upon that evaluation, the Company's Chief Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures are effective at a reasonable level in timely alerting them to material information relating to the Company that is required to be included in the Company's periodic filings with the Securities and Exchange Commission. There has been no change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the Company's internal control over financial reporting.

The Company's management, including the Chief Executive Officer and Principal Financial Officer, do not expect that the Company's disclosure controls or internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met due to numerous factors, ranging from errors to conscious acts of an individual, or individuals acting together. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error and/or fraud may occur and not be detected.

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PART II

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarter ended September 30, 2005, we made the following transactions in reliance upon exemptions from registration under Section 4(2) of the Securities Act of 1933 as amended (the "Act").

Unless stated otherwise, we believe that:

(1)   Each of the persons who received these unregistered securities had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities, and that they were knowledgeable about our operations and financial condition.

(2)   No underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with the transactions.

(3)  No transaction involved a public offering.

(4)   Each certificate issued for these unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities.

In July 2005 we issued 4,065,078 shares of common stock to four companies pursuant to the conversion provisions of notes payable owed to the companies. We valued this transaction at a total of $31,738.

In July 2005 we issued 275,000 shares of common stock to an individual as payment in full of a note payable and related accrued interest. We valued this transaction at $11,000.

In July 2005 we issued 1,200,000 shares of common stock to an individual as payment in full of a liability. We valued this transaction at $18,720.

In July 2005 we issued 7,400,000 shares of common stock to two companies as payment-in-kind for consulting services rendered to us. We valued these transactions at $155,400.

ITEM 6. EXHIBITS

Exhibit No.Identification of Exhibit

31.1Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Sharp Holding Corporation

By: /s/ George Sharp	November 21, 2005
George Sharp, Director, Chief Executive Officer,
Principal Financial Officer and President

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