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 JUNE 30, 2003
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 June 30,
2003 is shown below:
Title of Class Number of Shares Outstanding Common Stock, par value $.001 per
share 14,957,600
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 - Controls and Procedures
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 2 - Changes in Securities and Use of Proceeds
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NANNACO, INC
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
BALANCE SHEETS
JUNE 30, 2003 AND 2002
ASSETS
JUNE JUNE
30, 2003 30, 2002
------------- -------------
CURRENT ASSETS:
Cash on hand and in banks $ 0 $ 0
Certificates of deposit 21,717
Accounts receivable 2,540 11,002
OTHER CURRENT ASSETS:
Prepaids and deposits 2,390
------------- -------------
Total current assets 2,540 $ 35,109
FIXED ASSETS:
Equipment and fixtures 165,542 190,936
Vehicles 8,071 66,714
Less: accumulated depreciation (87,560) (123,338)
------------- -------------
Net property and
equipment 86,053 134,312
OTHER ASSETS:
Notes receivable - investors 59,000 109,000
Accrued interest on investors notes
receivable 26,046 19,208
------------- -------------
Total other assets 85,046 128,208
------------- -------------
TOTAL ASSETS $ 173,639 $ 297,629
============= =============
UNAUDITED
-F-1-
NANNACO, INC
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
BALANCE SHEETS
JUNE 30, 2003 AND 2002
LIABILITIES AND STOCKHOLDER'S EQUITY
JUNE JUNE
30, 2003 30, 2002
------------ ------------
CURRENT LIABILITIES:
Bank overdrafts $ 608 $ 4,475
Accounts payable - trade 82,768 186,697
Accounts payable - employees 63,327
Debenture escrow proceeds 133,600
Judgment payable 45,552
Accrued interest payable on loans 32,495
Current portion of notes payable 59,336 73,938
Sales taxes payable 40,801 40,801
Payroll taxes accured and/or withheld 173,330 100,975
------------ ------------
Total current liabilities 631,817 406,886
LONG-TERM LIABILITIES:
Installment notes payable 25,350 31,892
Notes payable - banks (lines of credit) 33,986 53,986
Less: current portion (59,336) (73,938)
------------ ------------
Net long-term debt 0 11,940
------------ ------------
OTHER LIABILITIES:
Loans from shareholders 42,700 43,700
------------ ------------
Total liabilities 674,517 462,526
COMMON STOCK SUBJECT TO REDEMPTION:
Common stock (377,742 shares issued November 15,
2001 and outstanding at 6/30/03 and 6/30/02) 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 6/30/03 and
6/30/02) 0 0
(50,000,000 shares $0.001 par value authorized,
14,957,600 shares issued and outstanding at
at 6/30/03 and 6/30/02) 14,958 14,958
Preferred stock - 10,000,000 shares authorized, none issued
and outstanding 0
Paid in surplus 3,379,829 3,379,829
Retained deficit (4,273,407) (3,937,426)
------------ ------------
Total stockholder's equity (878,620) (542,639)
------------ ------------
TOTAL LIABLITIES AND STOCKHOLDER'S EQUITY $ 173,639 $ 297,629
============ ============
UNAUDITED
-F-2-
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
STATEMENTS OF OPERATIONS AND RETAINED DEFICITS
FOR THE NINE MONTHS PERIODS ENDED JUNE 30, 2003 AND 2002
JUNE JUNE
30, 2003 30, 2002
------------- -------------
INCOME:
Revenue $ 43,711 $ 117,821
COST OF SALES:
Wages 22,651 18,079
Supplies 29,715 19,246
Contract labor 7,696 18,049
------------- -------------
Total cost of sales 60,062 55,374
------------- -------------
GROSS PROFIT (LOSS) (16,351) 62,447
ADMINISTRATIVE AND GENERAL:
Advertising and public relations 10,681 178
Bank charges and wire fees 1,851 4,055
Vehicle operation expense 13,181 11,806
Consulting fees 3,620
Depreciation 23,400 27,605
Dues and subscriptions 381
Insurance 228 933
Janitorial expense 875
Legal and professional 35,075 29,050
Miscellaneous 2,990 497
Office expense 9,498 622
Officer compensation 37,500 79,688
Payroll tax expense 1,884
Penalties 1,574
Rent 6,435 21,785
Repairs and maintenance 10,525 3,036
Other taxes and licenses 933
Stock registration expense/transfer/offering expense 11,690 1,826
Travel and entertainment 215 360
Utilities 5,579 9,346
------------- -------------
Total administrative and general expenses 176,231 192,671
------------- -------------
Income (Loss) from Operations (192,582) (130,224)
Other Income (Expense):
Interest income 4,287 11,049
Divivdend income
Loss on disposition of assets
Unrealized gains (losses) on mutual funds
Interest Expense (13,504) -14,955
------------- -------------
Total other income (expense) (9,217) (3,906)
------------- -------------
NET INCOME (LOSS) (201,799) (134,130)
Retained deficit, beginning of period (4,071,608) (3,803,296)
------------- -------------
Retained Deficit, End of Period ($4,273,407) ($3,937,426)
============= =============
NET (LOSS) PER SHARE OF COMMON STOCK ($0.01349) ($0.00897)
============= =============
UNAUDITED
-F-3-
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS PERIODS ENDED JUNE 30, 2003 AND 2002
JUNE JUNE
30, 2003 30, 2002
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($201,799) (134,130)
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash items:
Depreciation 23,400 27,605
(Increase) decrease in certificates of deposit 20,526
(Increase) decrease in accounts receivable - trade (2,540) (1,534)
(Increase) decrease in accounts receivable - employee (5,455)
(Increase) decrease in loans to investors 50,000
(Increase) decrease in accrued interest receivable (4,286) (8,075)
Increase (decrease) in bank overdraft (2,678) (866)
Increase (decrease) in accounts payable 18,769 55,627
Increase (decrease) in accounts payable - employees 13,143 43,228
Increase (decrease) in accounts payable - other 12,383 12,730
Increase (decrease) in judgment payable 1,116
Increase (decrease) in sales taxes payable 4,308
Increase (decrease) in payroll tax liabilities (20,000) 6,036
----------- ----------
Total adjustments 89,307 154,130
----------- ----------
Net cash provided (used) by operating activities (112,492) 20,000
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) dispositions of fixed assets (15,381)
----------- ----------
Net cash provided (used) by investing activities (15,381) 0
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debentures 133,600
Conversion of debt to redeemable common stock:
(Decrease) in loans from shareholders (5,727)
(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 127,873 0
----------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 0 0
Cash and equivalents, beginning of period 0 0
----------- ----------
CASH AND EQUIVALENTS, END OF PERIOD $ 0 $ 0
=========== ==========
UNAUDITED
-F-4-
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 JUNE 30, 2003
SHARES COMMON STOCK DOLLARS
------------------- -------
$1.00 $0.00 TOTAL $1.00 $0.00 PAID
PAR PAR NUMBER PAR PAR IN
DATE VALUE VALUE SHARES STOCK STOCK SURPLUS
- ---------- ----- ----- ------ ----- ----- -------
Balance at October 1, 1998 0 0 0 $ 0 $ 0 $ 0
10/20/1998 Original capitalization 500 500 500 500
10/20/1998 Property contributed by stockholder 0 0 108,039
2/15/1999 Surrendered certificates (300) (300) (300) 300
6/1/1999 Issued for services 19,999,800 19,999,800 19,999
9/30/1999 Loss for period ending 09/30/99
------------------------------------------------------------------
Total 09/30/99 200 19,999,800 20,000,000 200 19,999 108,839
3/10/2000 Reverse split (1,000,000 TO 1) (200) (19,999,788) (19,999,988)
Sub Total 0 12 12 200 19,999 108,839
3/31/2000 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
5/22/2000 Shares issued for services 50,000 50,000 0 50 49,950
5/22/2000 Shares issued for claim settlement 435,000 435,000 435 434,565
5/22/2000 Shares issued for debt 1,029,200 1,029,200 1,019 1,028,172
less $154,105 costs 0 (154,105)
6/30/2000 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
Shares issued for debt 10 (6,509)
7/24/2000 Shares issued for services 999,000
9/30/2000 Loss for FYE 09/30/00
------------------------------------------------------------------
Total 09/30/00 0 14,957,600 14,957,600 0 14,958 3,379,829
9/30/2001 Loss period ending 09/30/01
------------------------------------------------------------------
Total 09/30/01 0 14,957,600 14,957,600 0 14,958 3,379,829
9/30/2002 Loss period ending 09/30/02
------------------------------------------------------------------
Total 09/30/02 0 14,957,600 14,957,600 0 14,958 3,379,829
6/30/2003 Loss period ending 06/30/03
------------------------------------------------------------------
Total 06/30/03 0 14,957,600 14,957,600 $ 0 $14,958 $3,379,829
==================================================================
UNAUDITED
RETAINED
DATE DEFICIT TOTAL
- ---------- ------------- ------------
$ 0 $ 0
10/20/1998 1,000
10/20/1998 108,039
2/15/1999 0
6/1/1999 19,999
9/30/1999 (131,495) (131,495)
---------------------------
(131,495) (2,457)
3/10/2000 0
(131,495) (2,457)
3/31/2000 0
(1)
(14,799)
(131,495) (17,257)
5/22/2000 50,000
5/22/2000 435,000
5/22/2000 1,029,191
(154,105)
6/30/2000 1,235,525
(307,563)
---------------------------
(131,495) 2,270,791
(6,499)
7/24/2000 999,000
9/30/2000 (2,918,691) (2,918,691)
---------------------------
(3,050,186) 344,601
9/30/2001 (753,110) (753,110)
---------------------------
(3,803,296) (408,509)
9/30/2002 (268,312) (268,312)
---------------------------
(4,071,608) (676,821)
6/30/2003 (201,799) (201,799)
---------------------------
($4,273,407) ($878,620)
===========================
UNAUDITED
-F-5-
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS PERIODS ENDED JUNE 30, 2003 AND 2002
(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.
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS PERIODS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
(CONTINUED)
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 June 30, 2003, 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. At June 30, 2003, there was $2,540 in
current receivables on hand and June 30, 2002, $11,002. All amounts
are deemed to be collectable in full.
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 previous
year, no amount remains at March 31, 2003.
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS PERIODS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
NOTE 6 - EQUIPMENT AND FIXTURES AND VEHICLES
- ------
Fixed assets are recorded at cost and are summarized as follows:
06/30/03 06/30/02
---------- ----------
Equipment $ 165,542 $ 190,936
Vehicles 8,071 66,714
---------- ----------
Total Fixed Assets (at Cost) $ 173,613 $ 257,650
Less Accumulated Depreciation from
Inception (October 20, 1998) to
June 30, 2003 and 2002 (87,560) (123,338)
---------- ----------
Net Fixed Assets at June 30,
2003 and 2002 $ 86,053 $ 134,312
========== ==========
Depreciation expense charged against operations for the periods ending
June 30, 2003, totaled $23,400 and $27,605 for the period ended June
30, 2002.
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 June 30, 2003. The balance was $109,000 at June
30, 2002. 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 June 30, 2003.
B. ACCRUED INTEREST ON NOTES RECEIVABLE - INVESTORS
Interest accrual on Investors Notes Receivable accrued on the advances
to investors from the date of the advance to June 30, 2003 and 2002.
This interest was due on January 1, 2003, along with the principal.
Accumulated amounts were $26,046 at June 30, 2003, and $19,208 at June
30, 2002.
NOTE 8 - CURRENT LIABILITIES
- ------
A. BANK OVERDRAFTS in the amount of $608 and $4,475 at June 30, 2003 and
2002 respectively, 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 $82,768 on June 30, 2003 and $186,697 on
June 30, 2002, 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. DEBENTURE ESCROW PROCEEDS NANNACO, Inc. has received advances on a
debenture agreement based upon a disclosure statement to be filed at a
future date. It is anticipated that these debentures will be repaid
with in one operating cycle, therefore are treated as current debt.
D. 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 June 30, 2003, was $5,346. 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.
E. ACCRUED INTEREST ON LOANS and notes payable is accrued from the date
of the last payment through June 30, 2003 and 2002.
F. 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.
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS PERIODS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
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.
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 June 30, 2003 and 2002, 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 $61,258.
..
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.
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
D.B.A. SURFACE PRO
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS PERIODS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
(Continued)
NOTE 13 - COMMON STOCK, PREFERRED STOCK, PAID IN SURPLUS (CONTINUED):
- -------
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
========
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.
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 Bulletin Board 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.
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 nine months ended June 30, 2003 and
2002, the Company reported net losses and negative cash flows from operations as
follows:
NINE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, 2003 JUNE 30, 2002
-------------- -------------
Net loss $ 192,582 $ 130,224
Retained deficit $ 4,273,407 $3,937,426
These factors raise substantial doubt about the Company's ability 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.
In addition, 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 NINE MONTHS ENDED JUNE 30, 2002 TO NINE MONTHS ENDED JUNE 30 2003.
The net loss of $192,582 for the nine months ended June 30, 2003 increased by
$62,358 as compared to a net loss of $130,224 for the nine months ended June 30,
2002. The increase is attributable primarily to a decrease in revenue.
During the nine months ended September 30, 2002, general and administrative
expenses were lower. During They decreased by $16,440 from $176,231 in the nine
months ended June 30, 2003 compared to $192,671 for the nine months ended June
30, 2002. This decrease was primarily due to a $42,188 decrease in officer
compensation and a $15,350 decrease in rent expense. However, this decrease in
rent expense was due to a consolidation of office space and warehouse space
which resulted in a $6,025 increase in office expense. Additionally,
advertising and public relations expenses increased by $10,503. The Company has
recently started advertising in specialized segment and anticipates that it will
take several months prior to seeing the results from this advertisement.
Repairs and maintenance also increased from $3,036 for the nine months ended
June 30, 2002 to $10,525 for the nine months ended June 30, 2003.
REVENUE AND GROSS MARGIN. Revenue of $43,711 during the nine months ended
June 30, 2003 generated a negative gross margin of $16,351 as compared to
revenue of $117,821 and positive gross margin of $62,447 in the comparable nine
month period ended June 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES FOR NINE MONTHS ENDED JUNE 30, 2003 COMPARED TO
NINE MONTHS ENDED JUNE 30, 2002
For the nine months ended June 30, 2003 we had current assets of $2,540 while in
the nine months ended June 30, 2002, we had current assets of $35,109. Fixed
assets in the nine months ended June 30, 2003 were $86,053 as compared to fixed
assets of $134,312 for the nine months ended June 30, 2002.
We had current liabilities of $631,817 for the nine months ended June 30, 2003
and $462,526 for the nine months ended June 30, 2002 while long-term liabilities
were $0 for the nine months ended June 30, 2003 as compared with $11,940 nine
months ended June 30, 2002. The increase in current liabilities is related to
an increase in
debenture escrow proceeds, a judgment payable as well as an increase in payroll
taxes.
The Company continues to minimize expenses and to take steps to increase
revenue. The Company has developed a plan and has taken measurable steps to
improve its financial position and to deal with its liquidity issues. The
Company has reduced general and administrative costs by reducing officer,
directors and key personnel salaries until such time revenues can support
salaries and by minimizing expenses wherever 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.
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.
Additionally, 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.
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 June 30, 2003, 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 2. CHANGES IN SECURITIES
None
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 August 18, 2003.
NANNACO, INC.
By: /s/ Andrew DeVries, III Date: August 18, 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: August 18, 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: August 18, 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 June 30, 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: August 18, 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 June 30, 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: August 18, 2003 /s/ Andrew DeVries, III
-------------------
Andrew DeVries, III,
Chief Financial Officer of
Nannaco, Inc.