UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(D) of the Securities Act of 1934
For the quarterly period ended: October 31, 2006
Commission File number: 000-49896
Downside Up, Inc.
(Exact name of small business issuer as specified in its charter)
Colorado
(State or other jurisdiction of Incorporation or organization)
84-1493159
(IRS Employee Identification No.)
750 Broad Street
Shrewsbury, New Jersey 07702
(732) 598-2543
(Address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $0.001 par value 1,230,000
(Class) (Outstanding as of October 31, 2006)
DOWNSIDE UP, INC.
FORM 10-QSB
October 31, 2006
INDEX
Part I - FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Cash Flows F-4
Consolidated Statements of Stockholders' Equity F-5
Notes to Consolidated Financial Information F-6
Item 2 Management's Discussion and Analysis or Plan of Operation 3
Item 3 Controls and Procedures 9
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Unregistered Sales of Equity Securities and use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission Of Matters To A Vote Of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits 10
Signatures 10
Certifications 11
PART I: FINANCIAL INFORMATION
DOWNSIDE UP, INC.
Condensed Balance Sheet
October 31, 2006
(Unaudited)
Assets
Total assets $ --
========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable and accrued liabilities $ 2,500
Indebtedness to merger candidate 3,500
--------
Total current liabilities 6,000
--------
Shareholders' deficit:
Common stock 2,672
Additional paid-in capital 20,671
Deficit accumulated during development stage (29,343)
--------
Total shareholders' deficit (6,000)
--------
Total liabilities and shareholders' deficit $ --
========
See accompanying notes to condensed financial statements
F-2
DOWNSIDE UP, INC.
Condensed Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
October 31, October 31,
-------------------------- --------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Costs and expenses:
Contributed rent (Note 2) $ 300 $ 300 $ 600 $ 600
Other general and administrative costs -- 300 -- 300
----------- ----------- ----------- -----------
300 600 600 900
----------- ----------- ----------- -----------
Loss before
income taxes (300) (600) (600) (900)
Income tax provision (Note 3) -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (300) $ (600) $ (600) $ (900)
=========== =========== =========== ===========
Basic and diluted loss per share $ (0.00) $ (0.00) $ (0.00) $ (0.00)
=========== =========== =========== ===========
Weighted average common shares outstanding 1,230,000 1,230,000 1,230,000 1,230,000
=========== =========== =========== ===========
See accompanying notes to condensed financial statements
F-3
DOWNSIDE UP, INC.
Condensed Statements of Cash Flows
(Unaudited)
Six Months Ended
October 31,
------------------------
2006 2005
----------- ----------
Net cash used in operating activities $ -- $ --
----------- ----------
Net change in cash -- --
Cash:
Beginning of period -- --
----------- ----------
End of period $ -- $ --
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ -- $ --
=========== ==========
Interest $ -- $ --
=========== ==========
See accompanying notes to condensed financial statements
F-4
Note 1: Basis of Presentation
The financial statements presented herein have been prepared by the Company in
accordance with the accounting policies in its audited financial statements for
the year ended April 30, 2006 as filed in its Form 10-KSB and should be read in
conjunction with the notes thereto. The Company has no revenue producing
operations and is classified as a "blank check" company. The Company's business
plan is to evaluate, structure and complete a merger with or acquisition of, a
privately owned corporation.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary to provide a fair presentation of
operating results for the interim periods presented have been made. The results
of operations for the period presented are not necessarily indicative of the
results to be expected for the year.
Interim financial data presented herein are unaudited.
Note 2: Related Party Transactions
An affiliate provided free office space to the Company, on an as needed basis,
for all periods presented in the accompanying financial statements. The
Company's Board of Directors valued this service at approximately $100 per
month, based on prevailing local market conditions. The accompanying financial
statements include a charge to "Contributed rent" and a credit to "Additional
paid-in capital" of $600 and $600, respectively, for the six months ended
October 31, 2006 and 2005.
Note 3: Indebtedness to Merger Candidate
During May 2006, a potential merger candidate (see Note 5) paid professional
fees on behalf of the Company totaling $3,500. The payment has been included in
the accompanying unaudited interim financial statements as Indebtedness to
merger candidate.
Note 4: Income Taxes
The Company records its income taxes in accordance with Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes". The Company incurred
net operating losses during the periods shown on the accompanying unaudited
interim financial statements resulting in a deferred tax asset, which was fully
allowed for, therefore the net benefit and expense result in $-0- income taxes.
Note 5: Letter of Intent
On May 1, 2006 the Company entered into a Letter of Intent with Protection
Sciences, Inc. ("PSI"), whereby the Company would acquire all of the issued and
outstanding common shares of PSI in exchange for 91.8% of the Company's total
issued and outstanding common shares. The transaction would result in a change
in control of the Company. The transaction had not closed as of October 31,
2006.
F-5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with our audited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward-looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward-looking
statements made by, or on our behalf. We disclaim any obligation to update
forward-looking statements.
OVERVIEW
(a) History of the Company
Downside Up, Inc. (the "Company" or the "Registrant"), is a Colorado
corporation. Our principal business address is 750 Broad Street, Shrewsbury, New
Jersey 07702. Our phone number is 973-598-2543.
We were organized under the laws of the State of Colorado on April 9, 1998 to
engage in any lawful corporate undertaking, including selected mergers and
acquisitions.
Our only activity to date has been to attempt to locate and negotiate with a
business entity for the merger of that target company into our Company.
(b) Current Operations
Our current operations consist solely of seeking merger or acquisition
candidates.
We will attempt to locate and negotiate with a business entity for the merger of
that target company into the Company or a wholly owned subsidiary of the Company
formed for the purpose of such a merger. In certain instances, a target company
may wish to become a subsidiary of the Company or may wish to contribute assets
to the Company rather than merge. No assurances can be given that the Company
will be successful in locating or negotiating a transaction with any target
company.
3
We have attempted to provide a method for a foreign or domestic private company
to become a reporting ("public") company whose securities are qualified for
trading in the United States secondary market.
We believe there are certain perceived benefits to being a reporting company
with a class of publicly-traded securities. These benefits are commonly thought
to include the following:
* the ability to use registered securities to acquire assets or
businesses;
* increased visibility in the marketplace;
* ease of borrowing from financial institutions;
* improved stock trading efficiency;
* shareholder liquidity;
* greater ease in subsequently raising capital;
* compensation of key employees through stock options;
* enhanced corporate image;
* a presence in the United States capital market.
Target companies interested in a business combination with the Company may
include the following:
* a company for whom a primary purpose of becoming public is the use of
its securities for the acquisition of other assets or businesses;
* a company which is unable to find an underwriter of its securities or is
unable to find an underwriter of securities on terms acceptable to it;
* a company which desires to become public with less dilution of its
common stock than would occur upon an underwriting;
* a company which believes that it will be able to obtain investment
capital on more favorable terms after it has become public;
* a foreign company which may wish an initial entry into the United States
securities market;
* a special situation company, such as a company seeking a public market
to satisfy redemption requirements under a qualified Employee Stock Option Plan;
* a company seeking one or more of the other mentioned perceived benefits
of becoming a public company.
A business combination with a target company will normally involve the transfer
to the target company of the majority of the issued and outstanding common stock
of the Company, and the election by the target business of its own management
and board of directors.
The proposed business activities described herein classify the Company as a
"blank check" company. The Securities and Exchange Commission and many states
have enacted statutes, rules and regulations limiting the sale of securities of
blank check companies. At the present time, there is no market for the Company's
securities.
4
(c) Risks Related to the Plan of Operation
The Company's business is subject to numerous risk factors, including the
following:
WE HAVE NO RECENT OPERATING HISTORY, NO OPERATING REVENUES, AND WE HAVE MINIMAL
ASSETS. The Company has had no operations nor any revenues or earnings from
operations. The Company has only limited assets and financial resources. The
Company will, in all likelihood, sustain operating expenses without
corresponding revenues, at least until the consummation of a business
combination. This may result in the Company incurring a net operating loss which
will increase continuously until the Company can consummate a business
combination with a target company. There is no assurance that the Company can
identify such a target company and consummate such a business combination.
THE SPECULATIVE NATURE OF OUR PROPOSED OPERATIONS. The success of the Company's
proposed plan of operation will depend to a great extent on the operations,
financial condition and management of the identified target company. While
management intends to seek business combinations with entities having
established operating histories, there can be no assurance that the Company will
be successful in locating candidates meeting such criteria. In the event the
Company completes a business combination the success of the Company's operations
may be dependent upon the management, operations, and financial condition of the
target company, and numerous other factors beyond the Company's control.
THERE IS A SCARCITY OF AND COMPETITION FOR BUSINESS OPPORTUNITIES AND
COMBINATIONS. The Company is and will continue to be an insignificant
participant in the business of seeking mergers with and acquisitions of business
entities. A large number of established and well-financed entities, including
venture capital firms, are active in mergers and acquisitions of companies which
may be merger or acquisition target candidates for the Company. Nearly all such
entities have significantly greater financial resources, technical expertise and
managerial capabilities than the Company. Consequently, the Company will be at a
competitive disadvantage in identifying possible business opportunities and
successfully completing a business combination.
WE HAVE NO AGREEMENT FOR ANY BUSINESS COMBINATION OR OTHER TRANSACTION. The
Company has no arrangement, agreement or understanding with respect to engaging
in a merger with or acquisition of a business entity, other than a Letter of
Intent as set forth herein. There can be no assurance the Company will be
successful in identifying and evaluating suitable business opportunities or in
concluding a business combination. Management has not identified any particular
industry or specific business within an industry for evaluation by the Company.
There is no assurance the Company will be able to negotiate a business
combination on terms favorable to the Company. The Company has not established a
specific length of operating history or a specified level of earnings, assets,
net worth or other criteria which it will require a target business opportunity
to have achieved to consider a business combination with it. Accordingly, the
Company may enter into a business combination with a business entity having no
significant operating history, losses, limited or no potential for earnings,
limited assets, negative net worth or other negative characteristics.
5
OUR MANAGEMENT HAS ONLY A LIMITED TIME COMMITMENT TO THE COMPANY. Our
President/CEO has several business interests and will devote a limited amount of
his time to the Company's business. While seeking a business combination, our
President/CEO anticipates devoting up to ten hours per month to the business of
the Company. The Company's President/CEO has not entered into a written
employment agreement with the Company and he is not expected to do so in the
foreseeable future. We have not obtained key man life insurance on our
President/CEO. Notwithstanding the combined limited experience and time
commitment of our President/CEO, loss of the services of this individual would
adversely affect development of the Company's business and its likelihood of
continuing operations.
OUR OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTEREST WITH THE BUSINESS OF
OUR COMPANY. The Company's officers and directors participate in other business
ventures which may result in conflicts of interest and non- arms length
transactions arising in the future. Management has adopted a policy that the
Company will not seek a merger with, or acquisition of, any entity in which any
member of management serves as an officer, director or partner, or in which they
or their family members own or hold any ownership interest.
BEING A REPORTING COMPANY COMPLICATES AND COULD DELAY AN ACQUISITION. Section 13
of the Securities Exchange Act of 1934 (the "Exchange Act") requires us to
provide certain information about significant acquisitions including certified
financial statements for the company acquired covering one or two years,
depending on the relative size of the acquisition. The time and additional costs
that may be incurred by some target companies to prepare such statements may
significantly delay or essentially preclude consummation of an otherwise
desirable acquisition by the Company. Acquisition prospects that do not have or
are unable to obtain the required audited statements may not be appropriate for
acquisition so long as the reporting requirements of the Exchange Act are
applicable.
WE HAVE A LACK OF MARKET RESEARCH AND NO MARKETING ORGANIZATION. We have neither
conducted, nor have others made available to us, results of market research
indicating that market demand exists for the transactions contemplated by the
Company. Moreover, the Company does not have, and does not plan to establish, a
marketing organization. Even in the event demand is identified for the type of
merger or acquisition contemplated by the Company, there is no assurance the
Company will be successful in completing any such business combination.
CERTAIN REGULATIONS MAY APPLY TO OUR OPERATIONS. Although the Company will be
subject to regulation under the Exchange Act, management believes the Company
will not be subject to regulation under the Investment Company Act of 1940,
insofar as the Company will not be engaged in the business of investing or
trading in securities. In the event the Company engages in business combinations
which result in the Company holding passive investment interests in a number of
entities, the Company could be subject to regulation under the Investment
Company Act of 1940. In such event, the Company would be required to register as
an investment company and could be expected to incur significant registration
and compliance costs. We have not obtained a formal determination from the
Securities and Exchange Commission as to the status of the Company under the
Investment Company Act of 1940. If we inadvertently violate such Act, we could
be subjected to material adverse consequences.
6
THERE WILL BE A CHANGE IN MANAGEMENT. A business combination involving the
issuance of the Company's common stock will, in all likelihood, result in
shareholders of a target company obtaining a controlling interest in the
Company. Any such business combination may require our Management to sell or
transfer all or a portion of the Company's common stock held by them, and to
resign as directors and officers of the Company. The resulting change in control
of the Company will likely result in removal of the present officers and
directors of the Company and a corresponding reduction in or elimination of
their participation in the future affairs of the Company.
THE PLAN OF OPERATION PROVIDES FOR SUBSTANTIAL DILUTION TO OUR EXISTING
SHAREHOLDERS AS A RESULT OF A MERGER. Our plan of operation is based upon a
business combination with a business entity which, in all likelihood, will
result in the Company issuing securities to shareholders of such business
entity. The issuance of previously authorized and unissued common stock of the
Company would result in a reduction in percentage of shares owned by the present
shareholders of the Company and would most likely result in a change in control
or management of the Company.
WE MAY NOT BE ABLE TO ENGAGE IN A TAX FREE ACQUISITION. We intend to structure
any business combination so as to minimize the federal and state tax
consequences to both the Company and the target entity. However, there can be no
assurance that such a business combination will meet the statutory requirements
of a tax-free reorganization or that the parties will obtain the intended
tax-free treatment upon a transfer of stock or assets. A non-qualifying
reorganization could result in the imposition of both federal and state taxes
which may have an adverse effect on the parties to the transaction and therefore
the transaction itself.
THE REQUIREMENT OF AUDITED FINANCIAL STATEMENTS MAY DISQUALIFY BUSINESS
OPPORTUNITIES. Management of the Company will require any potential business
combination entity to provide audited financial statements. One or more
attractive prospects may choose to forego the possibility of a business
combination with the Company rather than incur the expenses associated with
preparing audited financial statements.
Such audited financial statements may not be immediately available. In such
case, the Company intends to obtain certain assurances as to the target
company's assets, liabilities, revenues and expenses prior to consummating a
business combination, with further assurances that an audited financial
statement will be provided after closing of such a transaction. Closing
documents relative thereto will include representations that the audited
financial statements will not materially differ from the representations
included in such closing documents.
(d) Plan of Operation
We intend to merge with or acquire a business entity in exchange for our
securities. We have no particular acquisition in mind and have not entered into
any negotiations regarding such an acquisition.
7
We anticipate seeking out a target business through solicitation. Such
solicitation may include newspaper or magazine advertisements, mailings and
other distributions to law firms, accounting firms, investment bankers,
financial advisors and similar persons, the use of one or more World Wide Web
sites and similar methods. No estimate can be made as to the number of persons
who will be contacted or solicited. Such persons will have no relationship to
management.
We have no full time employees. The Company's President/CEO and other officers
have agreed to allocate a portion of their time to the activities of the Company
as a consultant. The President/CEO anticipates that the business plan of the
Company can be implemented by his devoting approximately 10 hours per month to
the business affairs of the Company and, consequently, conflicts of interest may
arise with respect to the limited time commitment by such officer.
The Company's Officers and Directors are currently involved with other companies
which have a business purpose similar to that of the Company. A conflict may
arise in the event that another blank check company with which management is
affiliated is formed and actively seeks a target business. Management
anticipates that target businesses will be located for the Company and other
blank check companies in chronological order of the date of formation of such
blank check companies. It may be that a target business may be more suitable for
or may prefer a certain blank check company formed after the Company. In such
case, a business combination might be negotiated on behalf of the more suitable
or preferred blank check company regardless of date of formation.
The Articles of Incorporation of the Company provide that the Company may
indemnify officers and/or directors of the Company for liabilities, which can
include liabilities arising under the securities laws. Therefore, assets of the
Company could be used or attached to satisfy any liabilities subject to such
indemnification.
Our plan is to seek, investigate and, if such investigation warrants, acquire an
interest in a business entity which desires to seek the perceived advantages of
a corporation which has a class of securities registered under the Exchange Act.
The Company will not restrict its search to any specific business, industry, or
geographical location and the Company may participate in a business venture of
virtually any kind or nature. This discussion of the proposed business is not
meant to be restrictive of the Company's virtually unlimited discretion to
search for and enter into potential business opportunities.
We may seek a business opportunity with entities which have recently commenced
operations, or which wish to utilize the public marketplace in order to raise
additional capital in order to expand into new products or markets, to develop a
new product or service, or for other corporate purposes. The Company may acquire
assets and establish wholly-owned subsidiaries in various businesses or acquire
existing businesses as subsidiaries.
We anticipate that the selection of a business opportunity in which to
participate will be complex and extremely risky. Due to general economic
conditions, rapid technological advances being made in some industries and
shortages of available capital, management believes that there are numerous
firms seeking the perceived benefits of a publicly registered corporation. Such
perceived benefits may include facilitating or improving the terms on which
additional equity financing may be sought, providing liquidity for incentive
stock options or similar benefits to key employees, and providing liquidity for
shareholders and other factors. Business opportunities may be available in many
different industries and at various stages of development, all of which will
make the task of comparative investigation and analysis of such business
opportunities difficult and complex.
8
The Company has, and will continue to have, only limited capital with which to
provide the owners of business opportunities with any cash or other assets.
However, we believe the Company will be able to offer owners of acquisition
candidates the opportunity to acquire a controlling ownership interest in a
publicly registered company without incurring the cost and time required to
conduct an initial public offering. Management has not conducted market research
and is not aware of statistical data to support the perceived benefits of a
merger or acquisition transaction for the owners of a business opportunity.
The analysis of new business opportunities will be undertaken by, or under the
supervision of the Company's President/CEO who is not a professional business
analyst. In analyzing prospective business opportunities, management will
consider such matters as available technical, financial and managerial
resources; working capital and other financial requirements; history of
operations, if any; prospects for the future; nature of present and expected
competition; the quality and experience of management services which may be
available and the depth of that management; the potential for further research,
development, or exploration; specific risk factors not now foreseeable, but
which then may be anticipated to impact the proposed activities of the Company;
the potential for growth or expansion; the potential for profit; the perceived
public recognition or acceptance of products, services, or trades; name
identification; and other relevant factors. Management will meet personally with
management and key personnel of the target business entity as part of its
investigation. To the extent possible, the Company intends to utilize written
reports and personal investigation to evaluate the above factors. The Exchange
Act requires that any merger or acquisition candidate comply with all certain
reporting requirements, which include providing audited financial statements to
be included in the reporting filings made under the Exchange Act. The Company
will not acquire or merge with any company for which audited financial
statements cannot be obtained at or within a reasonable period of time after
closing of the proposed transaction.
We will in all likelihood not be experienced in matters relating to the business
of a target company, and management will rely upon its own experience in
accomplishing the business purposes of the Company. Therefore, it is anticipated
that outside consultants or advisors may be utilized to assist us in the search
for and analysis of qualified target companies.
The Company will not restrict its search to any specific kind of firm, but may
acquire a venture which is in its preliminary or development stage, one which is
already in operation, or in a more mature stage of its corporate existence. The
acquired business may need to seek additional capital, may desire to have its
shares publicly traded, or may seek other perceived advantages which the Company
may offer. However, the Company does not intend to obtain additional funds to
finance the operation of any acquired business opportunity until such time as
the Company has successfully consummated the merger or acquisition transaction.
9
MANNER OF ACQUISITION
In implementing a structure for a particular business acquisition, the Company
may become a party to a merger, consolidation, reorganization, joint venture, or
licensing agreement with another entity. We also may acquire stock or assets of
an existing business. On the consummation of a transaction it is probable that
the present Management and shareholders of the Company will no longer be in
control of the Company. In addition, the Company's President/CEO and director,
as part of the terms of the acquisition transaction, likely will be required to
resign and be replaced by one or more new officers and directors without a vote
of our shareholders.
It is anticipated that any securities issued in any such reorganization would be
issued in reliance upon exemption from registration under applicable federal and
state securities laws. In some circumstances, however, as a negotiated element
of a transaction, the Company may agree to register all or a part of such
securities immediately after the transaction is consummated or at specified
times thereafter. If such registration occurs, of which there can be no
assurance, it will be undertaken by the surviving entity after the Company has
entered into an agreement for a business combination or has consummated a
business combination and the Company is no longer considered a blank check
company. Until such time as this occurs, the Company will not attempt to
register any additional securities. The issuance of substantial additional
securities and their potential sale into any trading market which may develop in
the Company's securities may have a depressive effect on that market.
While the actual terms of a transaction to which the Company may be a party
cannot be predicted, it may be expected that the parties to the business
transaction will find it desirable to avoid the creation of a taxable event and
thereby structure the acquisition as a "tax-free" reorganization under Sections
351 or 368 of the Internal Revenue Code of 1986, as amended.
With respect to any merger or acquisition, negotiations with target company
management are expected to focus on the percentage of the Company which the
target company shareholders would acquire in exchange for all of their
shareholdings in the target company. Depending upon, among other things, the
target company's assets and liabilities, the Company's shareholders will in all
likelihood hold a substantially lesser percentage ownership interest in the
Company following any merger or acquisition. The percentage ownership may be
subject to significant reduction in the event the Company acquires a target
company with substantial assets. Any merger or acquisition effected by the
Company can be expected to have a significant dilutive effect on the percentage
of shares held by the Company's shareholders at such time.
The Company will participate in a business opportunity only after the
negotiation and execution of appropriate agreements. Although the terms of such
agreements cannot be predicted, generally such agreements will require certain
representations and warranties of the parties thereto, will specify certain
events of default, will detail the terms of closing and the conditions which
must be satisfied by the parties prior to and after such closing, will outline
the manner of bearing costs, including costs associated with the Company's
attorneys and accountants, and will include miscellaneous other terms.
10
We are presently subject to all of the reporting requirements included in the
Exchange Act. Included in these requirements is the duty of the Company to file
audited financial statements as part of its Form 8-K to be filed with the
Securities and Exchange Commission upon consummation of a merger or acquisition,
as well as the Company's audited financial statements included in its annual
report on Form 10-K (or 10-KSB, as applicable). If such audited financial
statements are not available at closing, or within time parameters necessary to
insure the Company's compliance with the requirements of the Exchange Act, or if
the audited financial statement,s provided do not conform to the representations
made by the target company, the closing documents may provide that the proposed
transaction will be voidable at the discretion of the present management of the
Company.
COMPETITION
The Company will remain an insignificant participant among the firms which
engage in the acquisition of business opportunities. There are many established
venture capital and financial concerns which have significantly greater
financial and personnel resources and technical expertise than the Company. In
view of the Company's limited financial resources and limited management
availability, the Company may be at a competitive disadvantage compared to the
Company's competitors.
Subsequent Events
On May 4, 2006, the Company entered into a Letter of Intent, dated May 1, 2006,
with Protection Sciences, Inc. ("Protection"). Pursuant to the Letter of Intent,
at the time of the execution of a Definitive Stock Purchase Agreement and the
conclusion of the transaction between the parties, Protection (and any assignees
as set forth by them) shall be the owners of a total of 91.8% of the total
issued and outstanding shares of Downside. The current shareholders shall own
8.2% of the issued and outstanding shares issued.
Although there can be no assurance that the transaction will actually close it
is expected to close during the current fiscal quarter.
ITEM 3. CONTROLS AND PROCEDURES
The Registrant's principal executive officer/principal financial officer, based
on their evaluation of the registrant's disclosure controls and procedures (as
defined in Rules 13a-14 (c) of the Securities Exchange Act of 1934) as of April
1, 2004, have concluded that the Registrants' disclosure controls and procedures
are adequate and effective to ensure that material information relating to the
registrants and their consolidated subsidiaries is recorded, processed,
summarized and reported within the time periods specified by the SEC's rules and
forms, particularly during the period in which this quarterly report has been
prepared.
11
The Registrants' principal executive officer and principal financial officer has
concluded that there were no significant changes in the registrants' internal
controls or in other factors that could significantly affect these controls
subsequent to April 1, 2004, the date of their most recent evaluation of such
controls, and that there was no significant deficiencies or material weaknesses
in the registrant's internal controls.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
No legal proceedings to which the Company is a party were pending during the
reporting period, and the Company knows of no legal proceedings of a material
nature, pending or threatened, or judgments entered against the Company.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On May 1, 2006 the Company entered into a Letter of Intent with Protection
Sciences, Inc. to purchase of a total of 91.8% of the total issued and
outstanding shares of Downside. The current shareholders shall own 8.2% of the
issued and outstanding shares issued.
At the conclusion of the transaction Protection Sciences, Inc. shall be the
operating entity of the Registrant.
ITEM 6. EXHIBITS
(a) Exhibits
3.1 Articles of Incorporation of the Registrant, as amended*
3.2 By-laws of the Registrant, as amended*
31.1 Section 302 Certification of Chief Executive Officer and Chief
Accounting/Financial Officer (1)
32.1 Section 906 Certification of Chief Executive Officer and Chief
Accounting/Financial Officer (1)
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* Previously filed as an exhibit to the Company's Form 10-SB filed on
June 28, 2002
(1) Filed herewith
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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.
Date: March 9, 2007 Downside Up, Inc.
/s/ Michael J. Cavaleri
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Michael J. Cavaleri, President/CEO,
Chief Executive Officer and Chief
Financial officer
/s/ Angelo Luca
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Angelo Luca, Vice-President/CEO
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