SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002
Commission File #333-44188
NANNACO, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS
(State or other jurisdiction of incorporation or organization)
74-2891747
(IRS Employer Identification Number)
9739 Cobb Street, #1 San Antonio, Texas 78217
(Address of principal executive offices)(Zip Code)
(210) 545-3570
(Registrant's telephone no., including area code)
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 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 [ ] No [X]
The number of shares outstanding of the Company's common stock as of January 31,
2003 is shown below:
Title of Class Number of Shares Outstanding Common Stock, par value $.001 per
share 15,335,342
Documents Incorporated by Reference: None
NANNACO, INC.
FORM 10-QSB
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3 - Item 307 of Regulation S-B
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 6 - Reports on Form 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The financial statements of the company are set forth beginning on page F-1.
NANNACO, INC.
-------------
UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
NANNACO, INC.
TABLE OF CONTENTS
-------------
PAGE
----
Unaudited Financial Statements:
Unaudited Balance Sheets as of
December 31, 2002 and December 31, 2001 F-3
Unaudited Statements of Operations and Retained Deficits
for the three months ended December 31, 2002
and 2001 F-4
Unaudited Statements of Cash Flows
for the three months ended December 31, 2002 and 2001 F-5
Unaudited Statements of Stockholder's Equity
For the period October 20, 1998 to December 31, 2002 F-6
Notes to Unaudited Financial Statements F-7
NANNACO, INC
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
ASSETS
DECEMBER DECEMBER
31, 2002 31, 2001
---------- ----------
CURRENT ASSETS:
Cash on hand and in banks $ 6,131 $ 0
Certificates of deposit 0 42,547
Accounts receivable 0 3,481
OTHER CURRENT ASSETS:
Prepaids and deposits 0 2,390
---------- ----------
Total current assets 6,131 48,418
FIXED ASSETS:
Equipment and fixtures 158,807 190,936
Vehicles 3,000 66,714
Less: accumulated depreciation (71,960) (104,934)
---------- ----------
Net property and equipment 89,847 152,716
OTHER ASSETS:
Notes receivable - investors 59,000 109,000
Accrued interest on investors notes receivable 23,210 13,811
---------- ----------
Total other assets 82,210 122,811
---------- ----------
TOTAL ASSETS $ 178,188 $ 323,945
========== ==========
UNAUDITED
F-3
NANNACO, INC
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
LIABILITIES AND STOCKHOLDER'S EQUITY
DECEMBER DECEMBER
31, 2002 31, 2001
------------ ------------
CURRENT LIABILITIES:
Bank overdrafts $ 0 $ 7,525
Accounts payable - trade 54,999 62,678
Accounts payable - employees 62,684 9,790
Judgment payable 45,556
Accrued interest payable on loans 22,709 9,607
Current portion of notes payable 59,336 85,096
Sales taxes payable 40,801 38,943
Payroll taxes accured and/or withheld 188,330 100,975
------------ ------------
Total current liabilities 474,415 314,614
LONG-TERM LIABILITIES:
Installment notes payable 25,350 31,892
Notes payable - banks (lines of credit) 33,986 73,986
Less: current portion (59,336) (85,096)
------------ ------------
Net long-term debt 0 20,782
------------ ------------
OTHER LIABILITIES:
Loans from shareholders 44,382 69,200
------------ ------------
Total liabilities 518,797 404,596
COMMON STOCK SUBJECT TO REDEMPTION:
Common stock (377,742 shares issued November 15,
2001 and outstanding) 378 378
Additional paid-in capital 377,364 377,364
------------ ------------
Total common stock subject to redemption 377,742 377,742
STOCKHOLDERS' EQUITY:
Common stock (1,000 shares $1 par value authorized,
0 shares issued and outstanding at 12/31/02 and
12/31/01) 0 0
(50,000,000 shares $0.001 par value authorized,
14,957,600 shares issued and outstanding at
at 12/31/02 and 12/31/01) 14,958 14,958
Preferred stock - 10,000,000 shares authorized, none issued
and outstanding 0 0
Paid in surplus 3,379,829 3,379,829
Retained deficit (4,113,138) (3,853,180)
------------ ------------
Total stockholder's equity (718,351) (458,393)
------------ ------------
TOTAL LIABLITIES AND STOCKHOLDER'S EQUITY $ 178,188 $ 323,945
============ ============
UNAUDITED
F-3 CONT.
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
STATEMENTS OF OPERATIONS AND RETAINED DEFICITS
FOR THE THREE MONTHS PERIODS ENDED DECEMBER 31, 2002 AND 2001
DECEMBER DECEMBER
31, 2002 31, 2001
------------ ------------
INCOME:
Revenue $ 3,322 $ 39,040
COST OF SALES:
Wages 14,140
Supplies 3,986 5,918
Contract labor 4,548 140
------------ ------------
Total cost of sales 8,534 20,198
------------ ------------
GROSS PROFIT (LOSS) (5,212) 18,842
ADMINISTRATIVE AND GENERAL:
Advertising and public relations 2,535 178
Bank charges and wire fees 1,123 1,200
Vehicle operation expense 600 4,026
Depreciation 7,800 9,202
Dues and subscripitions 25
Equipment rental 400
Legal and professional 2,000 14,400
Miscellaneous 315 459
Office expense 2,200 234
Officer compensation 12,500 20,300
Payroll tax expense 1,884
Penalties 1,062
Rent 717 8,100
Repairs and maintenance 522 700
Other taxes and licenses 933
Stock registration expense 182 391
Telephone 1,121 500
Trade show expense 178
Travel and entertainment 15 360
Utilities 730
------------ ------------
Total administrative and general expenses 34,050 62,842
------------ ------------
INCOME (LOSS) FROM OPERATIONS (39,262) (44,000)
OTHER INCOME (EXPENSE):
Interest income 1,449 2,981
Divivdend income
Loss on disposition of assets
Unrealized gains (losses) on mutual funds
Interest Expense (3,717) (8,865)
------------ ------------
Total other income (expense) (2,268) (5,884)
------------ ------------
NET INCOME (LOSS) (41,530) (49,884)
RETAINED DEFICIT, beginning of period (4,071,608) (3,803,296)
------------ ------------
RETAINED DEFICIT, End of Period $(4,113,138) $(3,853,180)
============ ============
NET (LOSS) PER SHARE OF COMMON STOCK $ (0.0028) $ (0.0033)
============ ============
UNAUDITED
F-4
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS PERIODS ENDED DECEMBER 31, 2002 AND 2001
DECEMBER DECEMBER
31, 2002 31, 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($41,530) ($49,884)
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash items:
Depreciation 7,800 9,202
(Increase) decrease in certificates of deposit (302)
(Increase) decrease in accounts receivable - trade (1,382)
(Increase) decrease in accounts receivable - employee 1,913
(Increase) decrease in accounts receivable - other (2,817)
Increase (decrease) in bank overdraft (3,286) 2,184
Increase (decrease) in accounts payable (9,000) 14,400
Increase (decrease) in accounts payable - employees 12,500 9,790
Increase (decrease) in accounts payable - other 2,597 8,409
Increase (decrease) in judgment payable 1,120
Increase (decrease) in sales taxes payable 2,451
Increase (decrease) in payroll tax liabilities (5,000) 6,036
---------- ----------
Total adjustments 6,731 49,884
---------- ----------
Net cash provided (used) by operating activities (34,799)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash advances (to) stockholders, and related accrued interest 44,505
(Purchase) dispositions of fixed assets (3,575)
---------- ----------
Net cash provided (used) by investing activities 40,930 0
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Conversion of debt to redeemable common stock:
(Decrease) in conversion notes payable (345,500)
(Decrease) in accrued inteest on conversion notes (32,242)
Issuance of redeemable common stock for conversion notes 377,742
---------- ----------
Net cash provided (used) by investing activities 0
---------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 6,131
Cash and equivalents, beginning of period 0 0
---------- ----------
CASH AND EQUIVALENTS, END OF PERIOD $ 6,131 $ 0
========== ==========
UNAUDITED
F-5
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD OF OCTOBER 20, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2002
SHARES COMMON STOCK DOLLARS
------------------- -------------------------------------------
$1.00 $0.001 TOTAL $1.00 $0.001 PAID
PAR PAR NUMBER PAR PAR IN RETAINED
DATE VALUE VALUE SHARES STOCK STOCK SURPLUS DEFICIT
- -------- ------- ------------- ------------ ------- -------- ----------- ------------
Balance at October 1, 1998 0 0 0 $ 0 $ 0 $ 0 $ 0
10/20/98 Original capitalization 500 500 500 500
10/20/98 Property contributed by stockholder 0 0 108,039
02/15/99 Surrendered certificates (300) (300) (300) 300
06/01/99 Issued for services 19,999,800 19,999,800 19,999
09/30/99 Loss for period ending 09/30/99 (131,495)
----------------------------------------------------------------------------------
Total 09/30/99 200 19,999,800 20,000,000 200 19,999 108,839 (131,495)
03/10/00 Reverse split (1,000,000 TO 1) (200) (19,999,788) (19,999,988)
----------------------------------------------------------------------------------
Sub Total 0 12 12 200 19,999 108,839 (131,495)
03/31/00 Forward split (1 to 1,000,000) 0 11,999,988 11,999,988
Fractional redemption (200) 199
Fractional redemption (7,999) (6,800)
----------------------------------------------------------------------------------
0 12,000,000 12,000,000 0 12,000 102,238 (131,495)
05/22/00 Shares issued for services 50,000 50,000 0 50 49,950
05/22/00 Shares issued for claim settlement 435,000 435,000 435 434,565
05/22/00 Shares issued for debt 1,029,200 1,029,200 1,019 1,028,172
less $154,105 costs 0 (154,105)
6/30/00 Shares sold at private placement 1,443,400 1,443,400 0 1,444 1,234,081
less $314,072 costs (307,563)
----------------------------------------------------------------------------------
Total 06/30/00 0 14,957,600 14,957,600 0 14,948 2,387,338 (131,495)
Shares issued for debt 10 (6,509)
07/24/00 Shares issued for services 999,000
09/30/00 Loss for FYE 09/30/00 (2,918,691)
----------------------------------------------------------------------------------
Total 09/30/00 0 14,957,600 14,957,600 0 14,958 3,379,829 (3,050,186)
09/30/01 Loss period ending 09/30/01 (753,110)
----------------------------------------------------------------------------------
Total 09/30/01 0 14,957,600 14,957,600 0 14,958 3,379,829 (3,803,296)
09/30/02 Loss period ending 09/30/02 (268,312)
----------------------------------------------------------------------------------
Total 09/30/02 0 14,957,600 14,957,600 0 14,958 3,379,829 (4,071,608)
12/31/02 Loss period ending 12/31/02 (41,530)
----------------------------------------------------------------------------------
Total 12/31/02 0 14,957,600 14,957,600 $ 0 $14,958 $3,379,829 $(4,113,138)
==================================================================================
TOTAL
------------
Balance at October 1, 1998 $ 0
Original capitalization 1,000
Property contributed by stockholder 108,039
Surrendered certificates 0
Issued for services 19,999
Loss for period ending 09/30/99 (131,495)
------------
Total 09/30/99 (2,457)
Reverse split (1,000,000 TO 1) 0
------------
Sub Total (2,457)
Forward split (1 to 1,000,000) 0
Fractional redemption (1)
Fractional redemption (14,799)
------------
(17,257)
Shares issued for services 50,000
Shares issued for claim settlement 435,000
Shares issued for debt 1,029,191
less $154,105 costs (154,105)
Shares sold at private placement 1,235,525
less $314,072 costs (307,563)
------------
Total 06/30/00 2,270,791
Shares issued for debt (6,499)
Shares issued for services 999,000
Loss for FYE 09/30/00 (2,918,691)
------------
Total 09/30/00 344,601
Loss period ending 09/30/01 (753,110)
------------
Total 09/30/01 (408,509)
Loss period ending 09/30/02 (268,312)
------------
Total 09/30/02 (676,821)
Loss period ending 12/31/02 (41,530)
------------
Total 12/31/02 $ (718,351)
============
UNAUDITED
F-6
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS PERIODS ENDED DECEMBER 31, 2002 AND 2001
(UNAUDITED)
NOTE 1 - GOING CONCERN
- ------
The accompanying financial statements of NANNACO, Inc. (a development stage
company) have been prepared in conformity with generally accepted
accounting principles, which contemplate continuation of the Company as a
going concern. The Company has devoted substantially all of its efforts to
financial planning, raising capital, diversification of services, and
developing markets for existing and expanded services. These factors create
an uncertainty about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might be
necessary, if the Company is unable to continue as a going concern.
The Company has taken steps to curtail the operating losses for future
periods. These steps include the reduction (not deferrals) of officers,
directors and key personnel salaries, as well as cuts in every expense
classification, where possible. Additionally, concentration has been
focused on the sources of current customers and business, instead of
spending time and money on new, untried sources of customer acquisition.
Additionally, a three phase plan of business development has been
implemented to increase current market share of existing business,
extending to new geographic areas, and shifting focus to business segments
which are not as weather sensitive, as is the current business core. With
these plans in place, as well as guarding against additional one time
charges to income, it is hoped the Company will be able curtail its
operating losses.
NOTE 2 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------
A. ORGANIZATION AND NATURE OF THE BUSINESS
NANNACO, INC. (The Company) was incorporated under the laws of the State of
Texas on October 20, 1998, and began operations immediately. The Company
provides industrial surface cleaning, surface protection, surface
restoration, and other services to commercial and industrial businesses, as
well to the owners of historical buildings, operating under the trade name
of Surface Pro in order to relate to the principal business activity, since
the NANNACO name does not indicate the type of business.
B. REVENUE AND COST RECOGNITION
The Company provides its services on a direct basis. A sale is recognized
when the service is provided and an account receivable is recorded or
payment is received. The criteria for recording a sale are that all agreed
services have been provided to the customer.
Supplies and materials are purchased and consumed as necessary.
Company warranties on its services are within the standards and customs of
the industry. Refunds and adjustments are recognized when granted. No
liability is accrued for this purpose and the adjustments and refunds are
recorded on a cash basis. Due to the immaterial amount of the adjustments
and refunds, management does not feel that this is a misleading method.
NOTE 2 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
- ------
POLICIES (CONTINUED)
C. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenue and expenses
during the reporting period. Actual results could differ from these
estimates. Such estimates relate primarily to depreciable assets and their
useful lives.
D. PROPERTY AND EQUIPMENT
Equipment and vehicles are stated at cost. Depreciation is calculated on
the straight- line method over the estimated useful lives of the assets for
book purposes and the Modified Accelerated Cost Recovery System (MACRS) for
tax purposes.
E. FEDERAL INCOME TAXES
Provisions for income taxes are calculated on pretax income reported for
financial statement purposes. Deferred income taxes or benefit from income
taxes are provided through timing differences between the reporting of
financial statement income and taxable income. These differences result
primarily from the use of straight line depreciation for reporting purposes
and Modified Accelerated Cost Recovery System for tax purposes. If
material, these differences will be recorded as deferred income taxes or
benefit from income taxes. Due to the accumulated deficit from inception to
September 30, 2002, no deferred taxes or benefit from income taxes has been
provided.
NOTE 3 - CERTIFICATES OF DEPOSIT
- ------
On June 23, 2000, the Company invested in two certificates of deposit in
the amounts of $20,000 each, earning interest at the rate of 5.75%
annually. These certificates mature in one year from the date of purchase.
These certificates matured June 23, 2001, and along with accrued interest,
in the amount of $1,365, were renewed for one year at the interest rate of
3% per annum. Interest in the amount of $1,175 was accrued on both
certificates. These certificates secure line of credit notes payable. On
June 23, 2002, the date of maturity, one of these certificates was cashed
and the proceeds utilized to pay the line of credit note, which it secured.
The second certificate was cashed during July, 2002, and the proceeds
utilized to retire the corresponding line of credit note, which it secured.
NOTE 4 - ACCOUNTS RECEIVABLE - TRADE
- ------
The trade accounts receivable are recorded by the date of the invoice,
which is the date the work is completed. The terms on the invoices are due
upon completion, unless other arrangements are made prior to the beginning
of the project. Due to the residential nature of business at December 31,
2002, no accounts receivable were outstanding. At December 31, 2001, there
was a balance of $3,481.
NOTE 5 - PREPAIDS AND DEPOSITS
- ------
The prepaid interest amount carried on the balance sheet was the interest
included in an installment loan on a vehicle purchased by the company. The
amounts taken to expense each period are based on the straight-line method
over the life of the loan as each installment payment is made. Since the
loan was liquidated during the year, no amount remains at December 31,
2002.
NOTE 6 - EQUIPMENT AND FIXTURES AND VEHICLES
- ------
Fixed assets are recorded at cost and are summarized as follows:
12/31/02 12/31/01
-------- ---------
Equipment $158,807 $190,936
Vehicles 3,000 66,714
-------- ---------
Total Fixed Assets (at Cost) $161,807 $257,650
Less Accumulated Depreciation from
Inception (October 20, 1998) to
December 31, 2002 and 2001 (71,960) (104,934)
-------- ---------
Net Fixed Assets at December 31,
2002 and 2001 $ 89,847 $152,716
========= =========
Depreciation expense charged against operations for the period ending
December 31, 2002, totaled $7,800 and $9,202 for the period ended December
31,2001.
NOTE 7 - OTHER ASSETS
- ------
A. NOTES RECEIVABLE - INVESTORS
The Company has made advances to sixteen of its investors in the amounts of
$59,000 at December 31, 2002. The balance was $109,000 at December 31,
2001. These cash advances were secured by promissory notes due on January
1, 2003. These notes carry the provision of 9.75% per annum interest from
the date of the advance to the due date.
B. ACCRUED INTEREST ON NOTES RECEIVABLE - INVESTORS
Interest accrual on Investors Notes Receivable retroactively accrued on the
advances to investors from the date of the advance to December 31, 2002 and
2001. This interest was due on January 1, 2003, along with the principal.
Accumulated amounts were $23,210 at December 31, 2002, and $13,811 at
December 31, 2001.
NOTE 8 - CURRENT LIABILITIES
- ------
A. BANK OVERDRAFTS in the amount of $7,525 at December 31, 2001, were
created by the practice of writing checks at the end of the month and
clearing the overdrafts by the first banking day of the following month.
B. TRADE ACCOUNTS PAYABLE of $54,999 and $62,678 on December 31, 2002 and
2001 respectively, were the amounts owed to suppliers, utilities, and other
monthly operating expenses at the end of the periods. These amounts are
normally cleared during the month following the purchase, or as soon as
possible thereafter.
C. JUDGMENT PAYABLE The company is currently in litigation with the
Wyndham Hotel Corporation concerning a debt for unpaid lodging and meal
charges which arose as a result of a convention sponsorship. On June 14,
2002, the Wyndham obtained a summary judgment against NANNACO, Inc. in the
amount $32.045, plus $10,263 legal fees. Interest to December 31, 2002, was
$3,248. Until paid, the interest accrues at a rate of 10%, or $11.60 per
day. At this time, according to the Company's legal counsel, the matter is
on hold until further notice.
D. ACCRUED INTEREST ON LOANS and notes payable is accrued from the date
of the last payment through September 30, 2002 and 2001.
(Continued)
NOTE 8 - CURRENT LIABILITIES (CONTINUED):
- ------
E. The accumulations in SALES TAXES PAYABLE AND PAYROLL TAXES ACCRUED
AND/OR WITHHELD are the amounts due to government agencies for taxes. The
Sales Taxes due is the aggregate non-remitted amount due to the State of
Texas for sales taxes applicable to commercial jobs. The Payroll Taxes are
the employees' portions and the employers' portion of payroll taxes, plus
penalties and interest on past due amounts. An installment agreement was
executed with the Internal Revenue Service on December 10, 2002, which
calls for payments of $5,000 on December 10, 2002, and $5,000 each month
until the taxes are paid in full.
NOTE 9- LONG TERM LIABILITIES
- ------
A. INSTALLMENT NOTES PAYABLE
Installment obligations consist of two notes payable. The first note is
secured by a vehicle, plus and the endorsement of the Company President.
The funds were utilized for the purchase of a truck to transport Company
equipment from one job site to another. Interest on this obligation is
included in the note balance, and capitalized as a deferred charge. This
interest was amortized straight-line method over the term of the note. This
note was liquidated during the year ended September 30, 2002.
On February 19, 2000, an installment loan was obtained from Bank One. This
note is secured by the personal guarantee of the Company president and is
payable in sixty monthly installments of $745 each. The interest rate is
10% per annum. The details at December 31, 2002 and 2001 are as follows:
12/31/02 12/31/01
---------- ----------
Original Amount $ 35,000 $ 35,000
Current Balance $ 25,350 $ 25,350
Long-Term Portion $ 0 $ 18,920
Current portion due $ 25,350 $ 6,430
Interest Rate 10% 10%
Due Date Monthly Monthly
B. NOTES PAYABLE - LINES OF CREDIT
One line of credit loan was originated on July 15, 1999, and was secured by
the personal guarantee of the Company president. The due date was July 15,
2002, with interest at prime plus 1.25% to be paid monthly.
12/31/02 12/31/01
----------------- -----------------
Available Amount $ 35,000 $ 35,000
Current Balance $ 33,986 $ 33,986
Long-Term Portion $ 0 $ 0
Current Portion Due $ 33,986 $ 33,986
Interest Rate Prime plus 1.25% Prime plus 1.25%
Due date 07/15/02 07/15/01
Additionally, on June 21, 2000, the company established two new line of
credit notes with the Frost National Bank. These notes are identical in
structure and allow draws up to $20,000 each. Both notes are secured by
certificates of deposit (See Note 3). The two notes were due June 21, 2001
and both require interest on the outstanding balance at the rate of 9.5%
per annum. These notes were renewed with a new due date of June 21, 2002,
and an interest rate of 5.00%. Note #1 was retired at maturity of the CD
(June 21, 2002), while Note #2 was retired in July, 2002.
NOTE 10- LOANS FROM SHAREHOLDERS
- -------
Since its inception, the Company has been compelled to seek capital on an
interim basis to support its operation. Two stockholders have provided the
necessary cash advances to meet the requirements of the Company. These
advances are evidenced by notes from the Company and bear interest at the
rate of 10% per annum, with a due date of one year from the dates of the
advances.
NOTE 11 - LEASE COMMITMENTS
- -------
On July 1, 2002, the Company relocated its facilities, which offered a
combination of warehouse space and office accommodations. This space is
leased for one year payable at the rate of $950 per month. No prepayment
was required.
NOTE 12 - REDEEMABLE COMMON STOCK AND PAID IN SURPLUS
- -------
The Company entered into an agreement with three parties for purchase of a
NANNACO, Inc. common stock through Convertible Promissory Notes. These
notes were made with non-qualified purchasers. As of November 15, 2001,
these notes were converted into 377,742 shares of NANNACO, Inc. $0.001
common stock. This resulted in an allocation of $378 to the stock and
$377,364 to additional paid-in capital. Since the purchasers were
non-qualified purchasers, this stock can be redeemed at the option of the
purchaser at any time for three years from the dates of the original notes.
The company has a liability to redeem these shares, at the option of the
shareholder, at the issued value, plus accrued interest to the date of
redemption at the annual interest rate of 10%. This stock is therefore
carried on the balance sheet in a special category and not included in the
equity portion of the Company, since the Company has no control of the
redemption. Also, this stock is not included in the computation of earnings
(losses) per share of common stock outstanding. The treatment of this stock
will continue to be segregated until it is redeemed or the three-year
period of optional redemption expires (three years from the date of the
original notes). The potential liability of interest on the redemption of
this stock was not considered in the computation of the net loss for the
periods ended December 31, 2002 and 2001, since it is only due if the
option to redeem is exercised by the purchasers of the stock. As of that
date, the potential liability for interest on this stock is $42,526.
NOTE 13 - COMMON STOCK, PREFERRED STOCK, PAID IN SURPLUS
- -------
The company was charted October 20, 1998 under the laws of the State of
Texas. 1,000 shares of $1.00 par value common stock was authorized. Nine
individuals were party to the initial capitalization of 500 shares at an
issue price of $2.00 per share.
Included in Paid-In Capital is $108,039, which represents equipment
contributed by the company's president and founder. The valuation assigned
by the board of directors is less than the original cost or the fair market
value of the equipment.
An additional 50,000,000 shares of $0.001 par value common stock and
10,000,000 shares of $0.00 par value preferred stock was authorized in a
charter amendment in 1999.
(Continued)
NOTE 13 - COMMON STOCK, PREFERRED STOCK, PAID IN SURPLUS
- --------
Also, in 1999, the company issued 19,999,800 shares of the new par value
($0.001) per share common stock for services. Details as to the type of
services and number of shares is as follows:
CLASSIFICATION NUMBER
OF OF
SERVICE SHARES
Administrative and Accounting 73,000
Business Development 3,300,000
Corporate Attorney 1,015,000
Employment 3,000
Company President 12,302,800
Procedure Consultant 3,000
Public Relations 300,000
Technical Advisor 3,000
Trust Shares for Expansion 3,000,000
Total 19,999,800
==========
At a stockholders meeting on March 12, 2000, a 1,000,000 to 1 reverse split
was approved. All certificates for under 1,000,000 shares were cancelled
and the resultant amounts were refunded to the respective shareholders.
Later, on March 31, 2000, a 1,000,000 to 1 forward split was declared by
the board of directors.
During the year 2000, the company became aware that certain individuals had
raised money from five investors, allegedly on behalf of the Company. These
investors had been promised NANNACO, Inc. common stock in exchange for
cash. The company never received the funds raised by these investors. In an
effort to protect the good name of the Company, the board of directors
agreed to honor the investments made by these individuals and issue them
the appropriate number of shares of common stock ($0.001 par value) in
exchange for a Memoranda of Agreement not to take legal action against the
Company. A one-time, non-cash charge of $435,000 ($1.00 per share) was made
against operations for the year ended September 30, 2000.
In exchange for consulting services, public relations, the Company issued
50,000 shares of common stock ($0.001 par value). Consulting fees of
$50,000 ($1.00 per share) was charged against operations for the year ended
September 30, 2000.
Also in the fiscal year ended September 30, 2000, 1,029,200 shares of
$0.001 par value common stock was converted from debts held by certain
individuals. This conversion converted $519,700 of debt received through
April, 2000, and a charge against operations in the amount of $509,500.
Allocation of the $1,029,000 (based on an issue price of $1.00 per share)
was as follows:
Debt Conversion $ 519,700
Non-cash Charge against Operations 509,500
Less: Cash Expenses Relating to Conversion (154,105)
----------
$ 875,095
==========
NOTE 13 - COMMON STOCK, PREFERRED STOCK, PAID IN SURPLUS (CONTINUED):
- -------
A Regulation D private placement of 1,442,400 shares of $0.001 par value
common stock was held in 2000. These shares were sold at $1.00 per share
pursuant to Rule 506 of the Securities and Exchange Commission, and this is
the value that set the benchmark for securities transactions of the Company
during the fiscal years 2001 and 2000.
(Continued)
The Company president and founder also gifted 1,000,000 shares of his
personal holdings of $0.001 common stock to selected individuals for
uncompensated services rendered to the Company in the formation,
organization, and operation of in the development stage. These gifts ranged
in size from 300 shares to 450,000 shares. A one-time, non-cash charge of
$999,000 was made against operations for the period ended September 30,
2000.
On April 15, 2002, the Company president and founder sold 2,250,000 of his
personal shares of NANNACO, Inc. $0.001 par value common stock for the sum
of $1,600,000. As the proceeds of these sales become available, they will
be injected into the Company as working capital.
NOTE 14 - NET LOSS PER SHARE OF COMMON STOCK
- --------
In the computation of the net loss per share of common stock for the
period, the retroactive stock splits and other changes in equity have been
taken into consideration, however the Redeemable Common Stock shares have
not been considered in this computation.
NOTE 15 - MANAGEMENT STATEMENT
These unaudited financial statements contain all of the adjustments and
notes considered necessary by management.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with our unaudited
consolidated interim financial statements and related notes thereto included in
this quarterly report and in our audited consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") contained in our Form 10-KSB for the year ended September
30, 2002. Certain statements in the following MD&A are forward looking
statements. Words such as "expects", "anticipates", "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.
GENERAL
Nannaco, Inc. ("Nannaco or the "Company") is a publicly traded company listed on
the OTC Electronic BulletinBoard under the symbol "NNCO". The Company was
incorporated under the laws of the State of Texas on October 20, 1998, and
immediately began operations. The Company became publicly traded on September 5,
2002 on the OTCBB. The Company provides industrial surface cleaning, surface
protection, surface restoration, and other services to commercial and industrial
businesses, as well to the owners of historical buildings. The Company operates
under the trade name of Surface Pro in order to relate to the principal business
activity, since the Nannaco name does not indicate the type of business.
Since our incorporation in October of 1998, we have focused on industrial
surface cleaning, surface protection and restoration. We specialize in pressure
cleaning, pre-coating surface preparation, chemical coating on surfaces such as
sidewalks and exterior walls, kitchen vent hood maintenance programs (primarily
for restaurants), providing historical preservation products and services, solid
waste container maintenance, engine and machinery de-greasing, residential
services and historical restorations.
RESULTS OF OPERATIONS
Nannaco has been in operation since October 1998, beginning with varied
treatments for commercial exterior surfaces. Since that time we have expanded
to include our residential services, other commercial services and vehicle
cleaning. Beginning in the current fiscal year, we have begun contaminated soil
and water removal and hauling services. Also, we have begun negotiations
concerning one merger and one business development entity within the corporation
that we intend to implement in 2003.
Nannaco's objective is to maximize shareholder value by focusing on growth,
product innovation and profitability. The following discussion highlights
Nannaco's performance and should be read in conjunction with the Consolidated
Financial Statements and related notes included therein.
We have had and could have losses, deficits and deficiencies in liquidity, which
could impair our ability to continue as a going concern.
In Note #1 to our consolidated financial statements, our independent auditors
have indicated that certain factors raise substantial doubt about our ability to
continue as a going concern. Since its inception, the Company has suffered
recurring losses from operations. During the three months ended December 31,
2002 and 2001, the Company reported net losses and negative cash flows from
operations as follows:
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
2002 2002
------------- --------------
Net loss $ 41,530 $ 49,884
Accumulated deficit 4,113,138 3,853,180
The Company's continuing negative operating results have produced a retained
deficit of $(4,113,138) at September 30, 2002. Additionally, the Company had
current assets of 6,131 as of December 31, 2002. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's strategic plan for dealing with its cash flow problems is
currently being developed, but may include additional private placements of the
Company's common stock, reduction in officer salaries or curtailment of existing
operations. There can be no assurance that any of the plans developed by the
Company will produce cash flows sufficient to overcome current liquidity
problems. Additionally, the Company has relied on key stockholders and officers
to bear the substantial costs that are involved in positioning Nannaco to
commence commercial operations. Nannaco expects to continue to incur losses and
face cash flow problems for a period that could extend for several years.
COMPARISON OF QUARTER ENDED DECEMBER 31, 2001 TO QUARTER ENDED DECEMBER 31,
2002.
During the first quarter the Company had $3,322 in revenue compared to $39,040
for the three months ended December 31, 2001. The reduction in revenue reduced
the net loss for the quarter ended December 31, 2002 from $41,530 compared to
$49,884 for the quarter ended December 31, 2001 is due to the impact of the
weather on sales, general economic uncertainty and a reduction in advertising
resources.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES FOR THREE MONTHS ENDED DECEMBER 30, 2002
COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2001
For the three months ended December 31, 2002 we had current assets of $6,131
while in the three months ended December 31, 2001, we had current assets of
$48,418. Fixed assets in the three months ended December 31, 2002 were $89,847
as compared to fixed assets of $152,716 for the three months ended December 31,
2001.
We had current liabilities of $474,415 for the three months ended December 31,
2002 and $314,614 for the three months ended December 31, 2001 while long-term
liabilities were $0 for the three months ended December 31, 2002 as compared
with $20,782 three months ended December 31, 2001.
Our contaminated soil and water removal and hauling services are expected to
improve our liquidity, however no assurances can be made that liquidity will in
fact improve. Recently enacted Texas legislation requires the state to pay for
the remediation of abandoned or closed oil or gas well drilling sites which have
pits and ponds of used waste water and drilling sludge. During the fourth
quarter of fiscal 2000, we obtained the necessary U.S. Department of
Transportation and Texas registrations to act as a sub-contractor to a fully
licensed provider of remediation services and anticipate obtaining contracts for
specific sites. Presently we are only licensed to provide sub-contractor
services as and when we are selected to provide sub-contractor services for
contaminated soil and water removal and hauling.
2003 OUTLOOK
We intend to achieve profitability through increased revenue and decreased
expenses. Additionally, we intend to make private placements of our equity
securities as well as seeking traditional debt financing when available.
Further, the sale of equity securities would substantially dilute our existing
stockholders' interests, and borrowings from third parties could result in our
assets being pledged as collateral. Loan terms, which would increase our debt
service requirements, could restrict our operations. There is no assurance that
we can obtain financing on favorable terms.
These monies will be used to increase advertising, which we believe will
stimulate sales. Residential and commercial services will remain our primary
business focus for the next year. While we believe the hazardous waste
remediation business will develop into a substantial portion of our business, we
believe the development will be incremental over the next several years as we
establish our name and reputation as a service provider in this business.
FORWARD-LOOKING INFORMATION-GENERAL
The statements contained herein and other information contained in this report
may be based, in part, on management's estimates, projections, plans and
judgments. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or those anticipated. In this report, the words
"anticipates", "believes", "expects", "intends", "future", "plans", "targets"
and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on the forward-looking statements
contained herein. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that may arise
after the date hereof. Additionally, these statements are based on certain
assumptions that may prove to be erroneous and are subject to certain risks
including, but not limited to, the Company's dependence on limited cash
resources, its dependence on certain key personnel within the Company, and its
ability to raise additional capital. The Company's ability to generate
long-term value for the common stockholder is dependent upon the acquisition of
profitable energy prospects. There are many companies participating in the oil
and gas industry, many with resources greater than the Company. Greater
competition for profitable operations can increase prices and make it more
difficult to acquire assets at reasonable multiples of cash flow. The Company
believes that it will be able to compete in this environment and will be able to
find attractive investments; however, it is not possible to predict competition
or the effect this will have on the Company's operations. The Company's
operations are also significantly affected by factors, which are outside the
control of the Company, including the prices of oil and natural gas,
environmental and governmental regulations. Accordingly, actual results may
differ, possibly materially, from the predictions contained herein.
ITEM 3. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Andrew DeVries, III, our President and Chief Executive Officer and Chief
Financial Officer, has concluded that our disclosure controls and procedures are
appropriate and effective. He has evaluated these controls and procedures as
of a date within 90 days of the filing date of this report on Form 10-QSB.
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II
Pursuant to the Instructions on Part II of the Form 10-QSB, Items 1, 3, and 5
are omitted.
ITEM 1. LEGAL PROCEEDINGS
The company is currently in litigation with the Wyndham Hotel Corporation
concerning a debt for unpaid lodging and meal charges which arose as a result of
a convention sponsorship. On June 14, 2002, the Wyndham obtained a summary
judgment against NANNACO, Inc. in the amount $32.045, plus $10,263 legal fees.
Interest to December 31, 2002, was $3,248. Until paid, the interest accrues at
a rate of 10%, or $11.60 per day. At this time, according to the Company's
legal counsel, the matter is on hold until further notice.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the undersigned has duly caused this Form 10-QSB to be signed on
its behalf by the undersigned, there unto duly authorized, in the City of San
Antonio, Texas, on February 14, 2003.
NANNACO, INC.
By: /s/ Andrew DeVries, III Date: February 14, 2003
----------------------------------
Andrew DeVreis, III,
President, Chief Executive Officer and Chief Financial Officer
CERTIFICATIONS
I, Andrew DeVries, III, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Nannaco, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 14, 2003
/s/ Andrew DeVries, III
- -----------------------
Andrew DeVries, III
Chief Executive Officer
I, Andrew DeVries, III, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Nannaco, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 14, 2003
/s/ Andrew DeVries, III
- -----------------------
Andrew DeVries, III
Chief Executive Officer
Chief Financial Officer
Certification of Chief Executive Officer and Chief Financial Officer of Nannaco,
- --------------------------------------------------------------------------------
Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 1992 and Section 1350
- -------------------------------------------------------------------------------
of 18 U.S.C. 63.
- ---------------
I, Andrew DeVries, III, the Chief Executive Officer and Chief Financial Officer
of Nannaco, Inc. hereby certify that to my knowledge, Nannaco, Inc.'s periodic
report on Form 10-QSB for the period ended December 31, 2002, fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 and that information contained in the periodic report on Form 10-QSB and
the financial statements contained therein fairly presents, in all material
respects, the financial condition and results of the operations of Nannaco, Inc.
Date: February 14, 2003 /s/ Andrew DeVries, III
-------------------
Andrew DeVries, III,
Chief Executive Officer
Nannaco, Inc.
Certification of Chief Executive Officer and Chief Financial Officer of Nannaco,
- --------------------------------------------------------------------------------
Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 1992 and Section 1350
- -------------------------------------------------------------------------------
of 18 U.S.C. 63.
- ---------------
I, Andrew DeVries, III, the Chief Executive Officer and Chief Financial Officer
of Nannaco, Inc. hereby certify that to my knowledge, Nannaco, Inc.'s periodic
report on Form 10-QSB for the period ended December 31, 2003, fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 and that information contained in the periodic report on Form 10-QSB and
the financial statements contained therein fairly presents, in all material
respects, the financial condition and results of the operations of Nannaco, Inc
Date: February 14, 2003 /s/ Andrew DeVries, III
------------------------
Andrew DeVries, III,
Chief Financial Officer of
Nannaco, Inc.