Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(x) Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934
For The Quarterly Period Ended September 30, 2005.
( ) Transition Report Under Section 13 or 15(d) Of The Securities Exchange Act
Of 1934
For The Transition Period From ______________To_________________
Commission File Number 333-108911
UpSNAP, Inc.
(formerly Manu Forti Group, Inc.)
- --------------------------------------------------------------------------------
(Exact Name Of Registrant As Specified In Its Charter)
Nevada 20-0118697
- ------------------------------ -------------------
State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7770 Regents Road
Suite 113-401
San Diego, CA 92122
(858) 518-1387
- --------------------------------------------------------------------------------
(Address, Including Zip Code, And Telephone Number, Including
Area Code, Of Registrant's mailing address in California)
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 ( )
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes (x) No ( )
The number of outstanding shares of the issuer's common stock, $0.001 par
value, as of October 19, 2005 was 4,013,100.
TABLE OF CONTENTS
Page
----
Part I
Item 1. Financial Statements
Balance Sheet as of September 30, 2005 (Unaudited) ....................... 1
Statements of Operations and accumulated deficit
for the three and six months ended September 30, 2005 and 2004,
and for the period July 25, 2003 (Date of inception) to
September 30, 2005 (unaudited) ......................................... 2
Statements of Stockholders Equity for the six
months ended September 30, 2005 and the period July 25, 2003
(Date of inception) to September 30, 2005 (unaudited) .................. 3
Statements of Cash Flows for the three and six months
ended September 30, 2005 and 2004, and for the period July 25, 2003
(Date of inception) to September 30, 2005 (unaudited) .................. 4
Notes To Financial Statements (Unaudited) ................................ 5
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operation ............................................... 12
Item 3. Controls and Procedures .......................................... 16
Part II - Other Information
Item 2. Unregistered Sale of Equity Securities and Use
of Proceeds ............................................................ 17
Item 4. Exhibits and Reports on Form 8-K ................................. 18
Item 5. Signatures ....................................................... 18
UpSNAP, Inc.
(formerly Manu Forti Group, Inc.)
(A Development Stage Company)
Unaudited Balance Sheet
September 30, 2005
- --------------------------------------------------------------------------------
September 30,
2005
-------------
ASSETS (Unaudited)
CURRENT ASSETS
Cash $ 1,305,318
Loan receivable (Note B) 180,000
-------------
TOTAL CURRENT ASSETS 1,485,318
TOTAL ASSETS $ 1,485,318
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 4,685
Loans from shareholders (Note D) 135,200
Accrued interest on loans from shareholders (Note D) 10,163
-------------
TOTAL CURRENT LIABILITIES 150,048
STOCKHOLDERS' DEFICIT (Note E)
Common stock, par value $.001, 75,000,000 shares authorized;
issued and outstanding 4,013,100 at September 30, 2005 4,013
Additional paid-in capital 137,799
Common stock subscribed 1,470,377
Deficit accumulated during the development stage (276,919)
-------------
TOTAL STOCKHOLDERS' DEFICIT 1,335,270
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,485,318
=============
1
UpSNAP, Inc.
(formerly Manu Forti Group, Inc.)
(A Development Stage Company)
Unaudited Statements of Operations
For the Three and Six Months Ended September 30, 2005 and 2004, and
The Period July 25, 2003 (Inception) to September 30, 2005
- --------------------------------------------------------------------------------
July 25, 2003
Three Months Ended Six Months Ended (Inception) to
September 30, September 30, September 30,
----------------------- ------------------------ -----------
2005 2004 2005 2004 2005
----------- --------- ----------- --------- -----------
General & administrative expenses
Audit fees $ 1,835 $ 1,652 $ 5,612 $ 21,598
Bad debts 63,000
Bank charges and interest 4,460 51 7,717 80 17,594
Consulting fees 14,835 27,563 78,563
Geological report 8,595 8,595 12,895
Legal expenses 2,574 6,902 60,469
Transfer agent and filing fees 125 75 245 275 4,951
Website development costs 1,500 13,500
Office cost 75 75
Licenses and permits 575 700 700
Rent 1,200 1,500 1,500
Travel 1,099 1,099 1,099
Incorporation costs written off 975
----------- --------- ----------- --------- -----------
Net loss $ (22,294) $ (10,556) $ (43,125) $ (22,964) $ (276,919)
=========== ========= =========== ========= ===========
Net (loss) per common share basic and diluted $ (0.006) $ (0.004) $ (0.013) $ (0.010)
=========== ========= =========== =========
Weighted average common shares outstanding
Basic and diluted 3,452,224 2,435,978 3,269,612 2,219,180
The average shares listed below were not included
in the computation of diluted losses per share
because to do so would have been antidilutive
for the periods presented:
Warrants 118,264 -- 59,132 --
2
Deficit
Accumulated Total
Common Stock Additional During the Stockholders'
--------------------------------- Paid-in Development Equity
Shares Amount Subscribed capital Stage (Deficit)
--------- ------- ----------- ----------- ------------ -------------
Balance, July 25, 2003 $ -- $ -- $ -- $ --
Shares issued (July 29, 2003) 2,000,000 2,000 -- 2,000
Stock subscribed 15,000 15,000
Net loss (134,043) (134,043)
--------- ------- ----------- ----------- ------------ -------------
Balance, March 31, 2004 2,000,000 2,000 15,000 -- (134,043) (117,043)
Shares issued for cash ($0.10 per share) 1,187,000 1,187 117,513 118,700
Share Subscriptions issued ($0.10 per share) 150,000 150 14,850 15,000
Stock subscribed (15,000) (15,000)
Interest foregone on loan from shareholder 6,112 6,112
Founder stock cancelled (250,000) (250) 250 --
Net loss (99,751) (99,751)
--------- ------- ----------- ----------- ------------ -------------
Balance, March 31, 2005 3,087,000 $ 3,087 $ -- $ 138,725 $ (233,794) $ (91,982)
1.3:1 forward stock split 926,100 926 (926) --
Common stock subscribed 1,470,377 1,470,377
Net loss (43,125) (43,125)
--------- ------- ----------- ----------- ------------ -------------
Balance, September 30, 2005 4,013,100 $ 4,013 $ 1,470,377 $ 137,799 $ (276,919) $ 1,335,270
3
UpSNAP, Inc.
(formerly Manu Forti Group, Inc.)
(A Development Stage Company)
Statements of Cash Flows
For the Three and six Months Ended September 30, 2005 and 2004, and
The Period July 25, 2004 (Date of Inception) to September 30, 2005
- --------------------------------------------------------------------------------
July 25, 2003
Three Months Ended Six Months Ended (Inception) to
September 30, September 30, September 30,
----------------------- ------------------------ -----------
2005 2004 2005 2004 2005
----------- --------- ----------- --------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (22,294) $ (10,556) $ (43,125) $ (22,964) $ (276,919)
Adjustments to reconcile net loss
to net cash used by operating activities:
Bad debts 63,000
CHANGES IN CURRENT ASSETS AND CURRENT
LIABILITIES: (Net of effect of acquisition)
(Increase) decrease in current assets:
Prepaid expenses 5,000
Increase (decrease) in currentliabilities:
Accounts payable and accrued expenses 5,918 (28,942) 2,421 (25,550) 8,741
----------- --------- ----------- --------- -----------
NET CASH USED FOR OPERATING ACTIVITIES (16,376) (39,498) (35,704) (48,514) (205,178)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments
Loans receivable (180,000) (180,000) (243,000)
----------- --------- ----------- --------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (180,000) -- (180,000) -- (243,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 133,700 133,700 135,700
Interest foregone on shareholder loan 6,112
Share subscriptions 1,470,377 (15,000) 1,470,377 (15,000) 1,470,377
Loans from shareholders, net (64,097) 141,307
----------- --------- ----------- --------- -----------
NET CASH PROVIDEDBY FINANCING ACTIVITIES 1,470,377 118,700 1,406,280 118,700 1,753,496
NET INCREASE IN CASH 1,274,001 79,202 1,190,576 70,186 1,305,318
CASH, beginning of period 31,317 5,115 114,742 14,131 --
----------- --------- ----------- --------- -----------
CASH, end of period $ 1,305,318 $ 84,317 $ 1,305,318 $ 84,317 $ 1,305,318
=========== ========= =========== ========= ===========
Taxes paid $ -- $ -- $ -- $ -- $ --
Interest paid $ -- $ -- $ -- $ -- $ --
Other non-cash investing and financing activities:
Shares issued for services $ -- $ -- $ -- $ -- $ --
4
UPSNAP, INC.
(formerly Manu Forti Group, Inc.)
(A Development Stage Company)
Notes to Financial Statements
(Unaudited)
For The Three and Six Months Ended September 30, 2005
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited financial statements of UpSNAP, Inc. (formerly Manu Forti Group,
Inc. (A development stage company))(the "Company"), as of September 30, 2005 and
for the three and six month periods ended September 30, 2005 and 2004 have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial reporting. Accordingly, they do not include
all of the disclosures required by accounting principles generally accepted in
the United States for complete financial statements and should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Form 10-KSB for the year ended March 31, 2005. In the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation of the interim
financial information have been included. The results of operations for any
interim period are not necessarily indicative of the results of operations for
the entire year.
Organization
The Company was an exploration stage company incorporated in the State of Nevada
on July 25, 2003. Initially, the Company had contracted to acquire a mineral
property interest in the pursuit of developing a mining operation; however, the
Company never determined whether this property contained mineral resources that
were economically recoverable and has ceased all mining related activities.
During May 2005, the Company accepted the resignation and replacement of its
executive officers and board members and pursued an acquisition strategy of a
non mining operating company.
On August 24, 2005, the Company entered into a binding Letter of Intent (LOI)
with Up2004SNAP, Inc. or UpSnap 2004, a privately held provider of mobile search
services. UpSNAP 2004 is bridging the gap between the Internet and the more than
160 million text-enabled cell phones in the U.S. with its patent-pending
technology. Pursuant to the LOI, the Company committed to raise up to One
Million Nine Hundred and Eighty Thousand (USD$1,980,000.00).
On August 26, 2005, in anticipation of a successful business combination with
UpSnap 2004, the Company's board approved a name change from Manu Forti Group,
Inc. to UpSNAP, Inc.
5
Summary of Significant Accounting Principles
Accounting estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Loss per common share
The Company adopted Statement of Financial Accounting Standards No. 128 that
requires the reporting of both basic and diluted earnings (loss) per share.
Basic loss per share is calculated using the weighted average number of common
shares outstanding in the period. Diluted loss per share includes potentially
dilutive securities such as outstanding options and warrants, using the
"treasury stock" method and convertible securities using the "if-converted"
method.
Foreign Currency Transactions
The functional and reporting currency is the United States dollar. The financial
statements are presented in United States dollars. Foreign assets, liabilities
and equity accounts are translated at exchange rates as of the balance sheet
date or historical acquisition date, depending on the nature of the account.
Revenues and expenses are translated at average rates of exchange in effect
during the period. The gain or loss on translation is reported as a separate
component of stockholders' equity and is not recognized in net income. Capital
accounts are translated at their historical exchange rates when the capital
stock is issued. The effect of exchange rate changes on cash balances is
reported in the statement of cash flows as a separate part of the reconciliation
of change in cash and cash equivalents.
Issuance of common stock
The issuance of common stock for other than cash is recorded by the Company at
management's estimate of the fair value of the assets acquired or services
rendered.
Stock-Based Compensation
In December 2004 the Financial Accounting Standards Board issued FAS 123-R. FAS
123-R is a revision of FAS No. 123, as amended, Accounting for Stock-Based
Compensation ("FAS 123") and supersedes Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees. FAS 123-R eliminates
the alternative to use the intrinsic value method of accounting that was
provided in FAS 123, which generally resulted in no compensation expense
recorded in the financial statements related to the issuance of equity awards to
employees. FAS 123-R requires that the cost resulting from all share-based
payment transactions be recognized in the financial statements. FAS 123-R
establishes fair value as the measurement objective in accounting for
share-based payment arrangements and requires all companies to apply a
fair-value-based measurement method in accounting for generally all share-based
payment transactions with employees. The Company has adopted FAS 123-R and will
apply its provisions when it decides to initiate stock-based compensation
awards.
6
Income taxes
Provisions for income taxes are based on taxes payable or refundable for the
current year and deferred taxes on temporary differences between the amount of
taxable income and pretax financial income and between the tax bases of assets
and liabilities and their reported amounts in the financial statements. Deferred
tax assets and liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled as prescribed in
FASB Statement No. 109, Accounting for Income Taxes. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.
Disclosure about Fair Value of Financial Instruments
The Company estimates that the fair value of all financial instruments at
September 30, 2005, as defined in FASB 107, does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is required in interpreting
market data to develop the estimates of fair value, and accordingly, the
estimates are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
Impact of accounting standards
In November 2004, the FASB issued SFAS 151, Inventory Costs--an amendment of ARB
No. 43, Chapter 4. The Statement amends the guidance of ARB No. 43, Chapter 4,
Inventory Pricing, by clarifying that abnormal amounts of idle facility expense,
freight, handling costs, and wasted materials (spoilage) should be recognized as
current-period charges and by requiring the allocation of fixed production
overheads to inventory based on the normal capacity of the production
facilities. The adoption of SFAS 151 did not have any impact on the Company's
financial condition or results of operations.
In December 2004, the FASB issued a revision to SFAS 123 (revised 2004),
Share-Based Payment. The revision requires all entities to recognize
compensation expense in an amount equal to the fair value of share-based
payments granted to employees. The statements eliminate the alternative method
of accounting for employee share-based payments previously available under APB
25. The provisions of SFAS 123R are effective as of the first interim period
that begins after June 15, 2005. Accordingly, the Company will implement the
revised standard in the second quarter of fiscal year 2006 ending on September
30, 2005. The Company currently has no options outstanding and does not believe
that this recent accounting pronouncement will have a material impact on their
financial position or results of operations.
7
In December 2004, the FASB issued SFAS No. 153 "Exchanges of Nonmonetary
Assets-amendment of APB Opinion No. 29". Statement 153 eliminates the exception
to fair value for exchanges of similar productive assets and replaces it with a
general exception for exchange transaction that do not have commercial
substance, defined as transaction that are not expected to result in significant
changes in the cash flows of the reporting entity. This statement is effective
for exchanges of nonmonetary assets occurring after June 15, 2005. The Company
does not believe that this recent accounting pronouncement will have a material
impact on their financial position or results of operations.
NOTE B - LOAN RECEIVABLE
During September 2005, the Company remitted $180,000 to UpSNAP 2004 for
operating capital. The Company anticipates forgiving the loan upon consummation
of the merger with UpSNAP 2004 (See NOTE E).
NOTE C - NET OPERATING LOSS CARRY FORWARD
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. At March 31, 2004 a
valuation allowance for the full amount of the net deferred tax asset was
recorded because of uncertainties as to the amount of taxable income that would
be generated in future years. The valuation allowance increased by approximately
$33,915 to $79,490 for the year ended March 31, 2005, assuming a tax rate of
34%.
Year of Loss Amount Expiration Date
-------------- -------- ----------------
March 31, 2005 $ 99,751 March 31, 2025
March 31, 2004 134,043 March 31, 2024
--------
$233,794
========
The expiration dates for U.S. net operating losses (NOL) may be extendable under
Section 381 of the U.S. Internal Revenue Code.
8
NOTE D - LOANS FROM SHAREHOLDERS
The Company currently has $135,200 in shareholder loans payable and $10,163 in
related accrued interest expense. Interest expense on the outstanding loans for
the three months ended September 30, 2005 was $4,056. The loans accrue interest
at 12% per annum, are unsecured and have no specific terms of repayment.
On May 2, 2005, the principal amount of a shareholder loan from Steve McManaman
for $101,874 was repaid in full.
NOTE E - COMMON STOCK
At inception on July 29, 2003, we issued 2,000,000 founders shares at par or
$0.001.
On September 1, 2004, upon the completion of an SB-2 registration and offering,
the Company issued 1,337,000 shares of common stock in exchange for $133,700, or
$0.10 per share.
On January 21, 2005 250,000 founder shares were returned and canceled leaving
3,087,000 shares outstanding as of our fiscal year end on March 31, 2005.
On August 28, 2005, the Board approved a 1.3 for 1 forward stock split which was
approved by a majority of the existing shareholders. The forward stock split
resulted in an additional 926,100 shares bringing the total share outstanding as
of September 30, 2005 to 4,013,100.
On August 24, 2005, the Company entered into a binding LOI with UpSNAP 2004 The
terms of the LOI required the Company to raise up to One Million Nine Hundred
and Eighty Thousand (USD$1,980,000.00) Dollars in equity financing. During
September 2005, the Company received $1,470,377 in exchange for 1,633,752 shares
of common stock, or $0.90 per share. Each purchaser of a share in the private
placement also received one non-transferable series A warrant with an exercise
price of $1.50 and a term of twelve months. As of September 30, 2005 no shares
related to the placement were issued. Accordingly, the Company recorded these
funds to Common Stock Subscribed. The Company has included the shares to be
issued in the placement in our weighted average share calculation for EPS
purposes.
NOTE F - WARRANTS
At September 30, 2005, pursuant to the private placement described in Note E,
the Company had 1,633,752 Series A Warrants outstanding entitling the holder
thereof the right to purchase one common share for each warrant held as follows:
9
Exercise
Warrant Number of Price Per Expiration
Series Warrants Warrant Date
------- --------- --------- ----------
A 100,000 $ 1.50 9/9/2006
A 100,000 $ 1.50 9/13/2006
A 12,500 $ 1.50 9/20/2006
A 12,500 $ 1.50 9/20/2006
A 72,000 $ 1.50 9/21/2006
A 25,000 $ 1.50 9/22/2006
A 125,002 $ 1.50 9/22/2006
A 25,000 $ 1.50 9/23/2006
A 87,500 $ 1.50 9/23/2006
A 100,000 $ 1.50 9/23/2006
A 12,500 $ 1.50 9/26/2006
A 25,000 $ 1.50 9/26/2006
A 50,000 $ 1.50 9/26/2006
A 525,000 $ 1.50 9/26/2006
A 22,000 $ 1.50 9/27/2006
A 27,750 $ 1.50 9/27/2006
A 150,000 $ 1.50 9/27/2006
A 22,000 $ 1.50 9/28/2006
A 25,000 $ 1.50 9/28/2006
A 115,000 $ 1.50 9/29/2006
---------
Total 1,633,752
=========
NOTE G - RELATED PARTY TRANSACTIONS
In June, the Company entered into an administrative consulting agreement with
Todd M. Pitcher to manage and administrate the operations and regulatory
requirements of the Company. During the quarter ended September 30, 2005, the
Company paid Mr. Pitcher $8,098.
In July, the Company entered into a professional services agreement with Justin
Frere to perform certain accounting services on behalf of the Company. During
the quarter ended September 30, 2005, the Company paid Mr. Frere $6,000.
NOTE H - GOING CONCERN AND MANAGEMENT'S PLANS
The Company has incurred losses since inception of $276,919 to September 30,
2005. There can be no assurance that the Company will continue as a going
concern. The Company has incurred recurring losses and cash flow deficiencies
from operations that raise substantial doubt about its ability to continue as a
going concern. The Company's continued existence is dependent upon its ability
to increase operating revenues and/or raise additional equity capital sufficient
to generate enough cash flow to finance operations in future periods. There can
be no assurance that such additional financing will be obtained. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
10
NOTE I - SUBSEQUENT EVENTS
From September 30, 2005 through October 31, 2005 the company received an
additional $675,823 pursuant to the September 2005 private placement.
On October 31, 2005 the Board of Directors voted to amend the September 2005
private placement to accept the oversubscribed amount of $166,200.
On October 31, 2005, the Board of Directors voted to convert the existing
shareholder debt totaling $145,363 in principal and accrued interest to common
stock.
As filed in an 8-K with the Securities and Exchange Commission on October 24,
2005, on October 20, 2005, Bedinger & Company was appointed as the independent
auditor for the Company's financial statements for the period ended September
30, 2005 and to review the pro forma consolidated financial statements of the
Company and to perform the Company's audit for the year ended March 31, 2006.
Moen & Company was dismissed as the Company's independent auditor. The decision
to change auditors was approved by the Company's Board of Directors on October
17, 2005.
During the Company's most recent completed fiscal years and during the
subsequent period ending June 30, 2005, with respect to the financial
statements, there were no disagreements with Moen & Company on any matter of
accounting principals or practices, financial statement disclosure, or auditing
scope or procedure,
11
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Our Company is engaged in the search for and completion of merger with an
operating company. Our Company's principal capital resources have been acquired
through issuance of common stock and from shareholder loans.
From inception on July 25, 2003 to present, our operations consisted of
acquiring and staking our first potential mining property, preparing the
registrations of our securities and conducting our public offering. In the
summer of 2005, the board of directors of the Company determined that it would
no longer seek to fulfill its business plan of developing mining properties. At
that time, the Company began searching for private companies to acquire in a
reverse acquisition transaction. In August 2005, we entered into a binding
letter of intent relating to the reverse acquisition of UpSnap 2004, a provider
of mobile search services.
Since inception, we have raised funds from the sale of common stock and interest
bearing loans. Net cash provided by financing activities from inception to
September 30, 2005 was $1,753,496, as the result of proceeds received from the
founders of the Company, the public offering and other lenders ($283,119) and
our September 2005 private placement ($1,470,377).
Since the summer of 2005, we have been a non operating company. We have not yet
generated or realized any revenues.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, revenues and
expenses reported in the accompanying financial statements and related
footnotes. Management bases its estimates and assumptions on historical
experience, observance of industry trends and various other sources of
information and factors. Actual results may differ from these estimates.
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially could result in
materially different results under different assumptions and conditions. In
consultation with our Board of Directors, we have identified six accounting
principles that we believe are key to an understanding of our financial
statements. These important accounting policies require management's most
difficult, subjective judgments.
General and Administration Expenses
General and Administration expenses are written off to operations when incurred.
12
Income taxes
Provisions for income taxes are based on taxes payable or refundable for the
current period and deferred taxes on temporary differences between the amount of
taxable income and pretax financial income and between the tax bases of assets
and liabilities and their reported amounts in the financial statements. Deferred
tax assets and liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled as prescribed in
FASB Statement No. 109, Accounting for Income Taxes. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.
Deferred Taxes
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. At March 31, 2004 a
valuation allowance for the full amount of the net deferred tax asset was
recorded because of uncertainties as to the amount of taxable income that would
be generated in future years. The valuation allowance increased by approximately
$33,915 to $79,490 for the year ended March 31, 2005, assuming a tax rate of
34%.
Results of Operations
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
General and Administrative expenses for the three and six months ended September
30, 2005 totaled $22,294 and $43,125, respectively and included $14,835 in
professional fees and $4,056 of interest expense for the three months ended
September 30, 2005 and $30,137 in professional fees and $7,217 in interest
expense for the six months ended September 30, 2005.
Net loss for the three and six months ended September 30, 2005 was $22,294 and
$43,125 compared to $10,556 and $22,964 for the three and six months ended
September 30, 2004 The three and six month increase in net loss of $11,738 and
$20,161 was primarily due to increased professional fees as a result of the
Company's transition to operating primarily in the United States from Canada and
preparing the Company for outside equity investment while pursuing potential
merger candidates in addition to increased interest expense.
Financial Condition
From inception to September 30, 2005, we incurred an accumulated deficit of
$276,919, and we expect to incur additional losses through the year ending March
31, 2006 and for the foreseeable future. To present this loss has been incurred
through a combination of professional fees and expenses supporting our
discontinued plan to establish and expand mining operations.
13
We have financed our operations since inception primarily through debt and
equity financing. During the three months ended September 30, 2005, we had a net
increase in cash of $1,274,001 due primarily to the September 2005 private
placement (see Note E to our financial statements). Total cash resources as of
September 30, 2005 was $1,305,318 compared with $31,317 at June 30, 2005.
Our independent registered public accountants, Bedinger and Company have
indicated that, based on the Company's financial statements, there can be no
assurance the Company will continue as a going concern. Moreover, Bedinger and
Company has noted that the Company has suffered recurring losses from operations
that raises substantial doubt about its ability to continue as a going concern.
The Company's need to raise additional equity or debt financing and the
Company's ability to generate cash flow from operations will depend on its
future performance and the Company's ability to successfully implement business
and growth strategies. The Company's performance will also be affected by
prevailing economic conditions. Many of these factors are beyond the Company's
control. If future cash flows and capital resources are insufficient to meet the
Company's commitments, the Company may be forced to reduce or delay activities
and capital expenditures or obtain additional equity capital. In the event that
the Company is unable to do so, the Company may be left without sufficient
liquidity.
Liquidity and Capital Resources
As of September 30, 2005, we have yet to generate any revenues from our business
operations.
At inception on July 29, 2003, we issued 2,000,000 founders shares at par or
$0.001. On September 1, 2004, upon the completion of an SB-2 registration and
offering, the Company issued 1,337,000 shares of common stock in exchange for
$133,700, or $0.10 per share. Since our inception, Mr. McMannaman advanced
demand loans to us with the total sum of $101,874 outstanding, part of which was
used for organizational and start-up costs. The loans did not bear interest and
were paid in full on May 2, 2005.
We issued two promissory notes reflecting demand loans and they are due upon
demand. In February 2005 we received a further $101,214 in interest bearing
loans from other parties.
As of September 30, 2005, we had cash resources of $1,305,318 due primarily to
funds received pursuant to our September 2005 private placement. We had
liabilities totaling $150,048 including accounts payable of $4,685, accrued
interest of $10,163 and shareholder loans payable of $135,200.
14
Risk Factors
Risks Related To Our Business:
We expect losses to continue, and failure to generate revenues or find outside
investment will cause us to go out of business.
We were incorporated on July 25, 2003, and we have not started our proposed
business operations or realized any revenues. We have no operating history upon
which an evaluation of our future success or failure can be made. We have not
generated any operating revenues since inception. Our net loss since inception
to September 30, 2005 is $276,919. Our ability to achieve and maintain
profitability and positive cash flow is dependent upon our ability to
successfully complete the merger with UpSNAP, Inc. or develop a profitable
operation.
Risks Relating To Our Common Stock:
There is a limited market for our common stock.
Our common stock is traded in the Over-the-Counter Bulletin Board market, and
this may cause delays in the timing of transactions and reductions in the number
and quality of securities analysts' reporting on us and the extent of our
coverage in the media. Trading in our common stock has been sporadic, and at
present, there is a limited market for it. There can be no assurance that a
stronger market will develop. Even if such a market does develop, it may not be
sustained.
Future sales of our common stock by existing shareholders under Rule 144 could
decrease the trading price of our common stock.
As of September 30, 2005, a total of 1,738,100 shares of our outstanding common
stock were "restricted securities" and could be sold in the public markets only
in compliance with Rule 144 adopted under the Securities Act of 1933 or other
applicable exemptions from registration. Rule 144 provides that a person holding
restricted securities for a period of one year may thereafter sell, in brokerage
transactions, an amount not exceeding in any three-month period the greater of
either (i) 1% of the issuer's outstanding common stock or (ii) the average
weekly trading volume in the securities during a period of four calendar weeks
immediately preceding the sale. Persons who are not affiliated with the issuer
and who have held their restricted securities for at least two years are not
subject to the volume limitation. Possible or actual sales of our common stock
by present shareholders under Rule 144 could have a depressive effect on the
price of our common stock.
15
Our common stock is subject to "penny stock" rules.
Our common stock is classified as a penny stock by the Securities and Exchange
Commission. This classification severely and adversely affects the market
liquidity for our common stock. The Commission has adopted Rule 15g-9, which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require: (i) that a broker or dealer approve a person's account for
transactions in penny stocks; and (ii) the broker or dealer receive from the
investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a person's
account for transactions in penny stocks, the broker or dealer must (i) obtain
financial information and investment experience objectives of the person; and
(ii) make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks. The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prepared by the Commission relating to
the penny stock market, which, in highlight form, sets forth (i) the basis on
which the broker or dealer made the suitability determination and (ii) that the
broker or dealer received a signed, written agreement from the investor prior to
the transaction. Disclosure also has to be made about the risks of investing in
penny stocks in public offerings and secondary trading and about the commissions
payable to the broker-dealer and registered representative, current quotations
for the securities and the rights and remedies available to an investor in cases
of fraud in penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
ITEM 3. CONTROLS AND PROCEDURES
Based on his most recent evaluation, which was completed within 90 days of
filing of this Form 10-QSB, the Company's chief executive officer and chief
financial officer believe the Company's disclosure controls and procedures (as
defined in Exchange Act Rule 13a-14 and 15d-14) are effective. There were not
any significant changes in the Company's internal controls or no other facts
that could significantly affect these controls subsequent to the date of this
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses. The Company is presently unable to provide
segregation of duties within the Company as a means of internal control. As a
result, the Company is presently relying on overriding management reviews, and
assistance from its board of directors in providing short-term review procedures
until such time as additional funding is provided to hire additional executives
to segregate duties within the Company.
16
Part II
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS.
In September and October, 2005, we closed a private placement of 2,384,668 Units
to 51 accredited investors in consideration of $2,146,200. Each Unit consists of
one share of our common stock at a price of $0.90 per share and one
non-transferable series A warrant with an exercise price of $1.50 and a term of
twelve months. The foregoing offering was made in reliance upon exemptions from
registration requirements of the Securities Act afforded by Section 4(2) of the
Securities Act and Regulation S of the Securities Act. This offering was not
registered under the Securities Act and accordingly the shares may not be
offered or sold in the Untied States absent registration or an applicable
exemption from registration requirements of the Securities Act.
On October 31, 2005, we entered into a Debt Conversion Agreement with four
holders of company notes having an aggregate principal amount plus accrued
interest of $145,363. Under the Debt Conversion Agreement, we converted all of
these notes and any accrued interest into our common stock at a rate of $0.50
per share. An aggregated 290,726 shares of our common stock were delivered to
the holders of the notes. The foregoing issuances were made in reliance upon an
exemption from registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act for offers and sales of securities that do
not involve a public offering. This offering was not registered under the
Securities Act and accordingly the shares may not be offered or sold in the
Untied States absent registration or an applicable exemption from registration
requirements of the Securities Act.
In October, 2005, we issued 1,500,000 series B warrants to purchase an equal
number of shares of our common stock to Sundar Communications in consideration
of services provided by Sundar. We also issued 700,000 series B warrants to
Executive Forums LLC giving them the right to purchase an equal number of shares
in consideration of services provided by Executive Forums. These warrants have
an exercise price of $1.10 and expire in five years. The foregoing offering was
made in reliance upon an exemption provided by Section 4(2) of the Securities
Act for offers and sales of securities that do not involve a public offering.
This offering was not registered under the Securities Act and accordingly the
shares may not be offered or sold in the Untied States absent registration or an
applicable exemption from registration requirements of the Securities Act.
17
ITEM 4. Exhibits
10.1 Form of Subscription Agreement for September 2005 Private Placement
10.2 Form of Registration Rights Agreement for September 2005 Private
Placement
10.3 Debt Conversion Agreement, dated October 31, 2005, among the Company,
518464 B.C. Ltd., Art Mapp Communications, inc., Jason Sundar, and
Yvonne New.
10.4 Form of Series A Warrant
10.5 Form of Series B Warrant
31 Certification of Principal Executive Officer and Principal Financial
Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Principal Executive Officer and Principal Financial
Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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ITEM 5. Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UpSNAP, Inc.
/s/ Todd M. Pitcher
------------------------
Name: Todd M. Pitcher
Title: CEO
19
EXHIBIT INDEX
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
10.1 Form of Subscription Agreement for September 2005 Private Placement
10.2 Form of Registration Rights Agreement for September 2005 Private
Placement
10.3 Debt Conversion Agreement, dated October 31, 2005, among the Company,
518464 B.C. Ltd., Art Mapp Communications, inc., Jason Sundar, and
Yvonne New.
10.4 Form of Series A Warrant
10.5 Form of Series B Warrant
31 Certification of Principal Executive Officer and Principal Financial
Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32 Certification of Principal Executive Officer and Principal Financial
Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
20