Amendment No.3
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
NANNACO, INC.
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(Exact Name of Registrant as Specified in its Charter)
TEXAS 1799 74-2891747
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(State of Incorporation) (Primary Standard (IRS Employer ID No.)
Classification Code)
16410 Blanco Road, Suite 4, San Antonio TX 78232
(210) 545 3570
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(Address and Telephone Number of Registrant's Principal
Executive Offices and Principal Place of Business)
Andrew DeVries III
16410 Blanco Road, Suite 4,
San Antonio TX 78232
(210) 545 3570
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(Name, Address and Telephone Number of Agent for Service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
class of Amount Maximum Maximum Amount of
securities to be offering price aggregate registration
to be registered registered per share offering price fee
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Common Stock of
Selling Securities
Holders 1,495,000 $1.00 $1,495,000 $400.66
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE EXHIBIT INDEX APPEARS ON PAGE II-6 OF THE SEQUENTIALLY NUMBERED PAGES OF
THIS REGISTRATION STATEMENT. THIS REGISTRATION STATEMENT, INCLUDING EXHIBITS,
CONTAINS 71 PAGES.
NANNACO INC.
CROSS REFERENCE SHEET FOR REGISTRATION STATEMENT ON FORM SB-2
ITEM REGISTRATION STATEMENT HEADING LOCATION IN PROSPECTUS
1. Forepart of Registration Statement and Outside Front Cover Page of
Outside Front Cover Page of Prospectus Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Not Applicable
5. Determination of Offering Price Outside Front Cover of Prospectus
and Selling Securities Holders
Plan of Distribution
6. Dilution Market for Nannaco's Common
Stock and Related Stockholder
Matters
7. Selling Security Holders Selling Securities Holders
8. Plan of Distribution Selling Securities Holders Plan
of Distribution
9. Legal Proceedings Not Applicable
10. Directors and Executive Officers Management
11. Security Ownership of Certain
Beneficial Owners and Management Security Ownership of Management
and Principal Shareholders
12. Description of the Securities to be
Registered Prospectus Summary; Description
of Securities; Outside Front
Cover of Prospectus;
13. Interest of Named Experts and Counsel Not Applicable
14. Statement as to Indemnification Indemnification
15. Organization within 5 Years Business of Nannaco
16. Description of Business Business of Nannaco
17. Management's Plan of Operation Business of Nannaco
18. Description of Property Business of Nannaco
19. Certain Relationships and Related
Transactions Transactions with Management
20. Market for Common Equity and
Related Stockholder Matters Market for Nannaco's Common
Stock and Related Stockholder
Matters
21. Executive Compensation Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements With
Accountants Not Applicable
2
Prospectus
Nannaco Inc.
1,495,000 shares of common stock offered by the selling securities holders.
These selling securities holders are individually offering their shares.
The price of the shares and the number of shares sold will be determined by each
selling securities holder.
There is no time limit for the selling securities holders to sell the shares.
There are no minimum purchase requirements or escrow arrangements.
The selling securities holders may sell their shares in privately negotiated
transactions or in market transactions if a market develops.
No underwriters have been engaged to sell the shares for the selling securities
holders.
Nannaco Inc., is not offering these shares for sale and will not receive any
proceeds from the sale of the Shares.
The shares are not presently traded on any recognized exchange or market.
These are speculative securities involving a high degree of risk. These shares
should be purchased only by persons who can afford to lose their entire
investment. (see "Risk Factors, page 3.")
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
NANNACO LOGO
The date of this Prospectus is ___________, 2001
1
Prospectus Summary
Securities Offered
This Prospectus describes the offering of 1,495,000 shares of Nannaco common
stock by the named selling securities holders. These shares may be sold by their
holders from time to time at prevailing market prices. There are no minimum
purchase requirements. There are no escrow provisions with respect to the
offering by the selling securities holders. No underwriters or brokers have been
engaged to sell the shares for the selling securities holders.
Nannaco will not receive any of the proceeds from any sale of the selling
securities holders shares.
The Business of Nannaco Inc.
Our primary business is providing individualized service solutions for
residential, commercial, historical group, and environmental customers. Our area
of expertise is exterior surface maintenance and restoration. Our services vary
greatly depending upon customer need. We preserve, restore, clean, seal, and/or
wash practically any exterior surface, vehicle fleet, or heavy machinery. Our
cleaning and surface preparation services utilize countless task-specific
combinations of water, cleaning agents, pressure, heat, steam, abrasion, and
mechanical or chemical etching techniques. We also seal nearly any wooden or
masonry surface with the best oil-based, penetrating wood sealer available and
encapsulating silicone and/or acrylic-based stone sealers also of the highest
quality. We have obtained our state and federal licenses to operate as a
hazardous waste handler to clean and remove contaminated salt water used to
clean oil drilling and production equipment and expect to begin our hazardous
waste site remediation services during the third quarter of 2001.
Selected Financial Data
9-Months Ended June 9 Months Ended 12-Months Ended Sept. 12 Months Ended
30, 2001 June 30, 2000 30, 2000 Sept. 301, 1999
Net Sales $232,703 $240,662 $274,638 $378,222
Income (Loss) ($681,445) ($1,151,339) ($1,287,030) ($129,439)
(Loss) per Share ($0.01) ($0.09) ($0.1) ($0.03)
Total Assets $338,673 $1,466,657 $700,926 $397,343
LT Debt $23,633 $56,116 $111,944 $80,693
Shareholder Eq ($336,844) $1,191,934 $334,601 ($2,457)
Out. Shares 14,957,600 14,957,600 14,957,600 19,999,800
2
Risk Factors
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Investment in the shares offered involves a high degree of risk. Prospective
purchasers should consider carefully the following risks as well as the other
information in this Prospectus.
Our plan of operation calls for additional capital to facilitate growth and
support long-term development and marketing programs. It is likely that we will
seek additional financing through subsequent future public or private sales of
our securities, including equity securities. We may also seek funding for the
development and marketing of our services through strategic partnerships and
other arrangements with investment partners. There can be no assurance, however,
that such collaborative arrangements or additional funds will be available when
needed, or on terms acceptable to us, if at all. Any such additional financing
may result in significant dilution to existing stockholders. If adequate funds
are not available, we may be required to curtail one or more of our future
programs.
Potential liability for violations of the Securities Act of 1933 may increase
our losses and hinder our liquidity for the development of our business.
In December 2000, we sold three convertible debentures with a total principal
amount of $345,500 to three entities. The sale of these debentures was made
after we had filed the registration statement with the U.S. Securities and
Exchange Commission for the public offering described in this prospectus. As a
result the exemption from registration which we relied upon for the sale of the
debentures may not have been available resulting in the sale of the debentures
to have been in violation of section of the Securities Act of 1933. The
debenture holders would have the right to demand rescission of their
investments. If any of these debenture holders demand rescission, we could be
liable to repay the debentures as well as attorneys fees and possible other
incidental damages. In addition, we could face civil penalties from state and
federal securities law enforcement agencies. If rescission is demanded and or
penalties are imposed it would have a materially adverse effect upon our
financial condition by increasing our losses. Rescission and or the imposition
of penalties would also have a materially adverse effect upon the development of
our business as funds otherwise available for development purposes would be
required to be expended for the rescission and or penalties.
We face high insurance risks and the possiblity of uninsured losses and this may
prevent profitability.
There are certain risks associated with companies engaged in businesses
involving pressure cleaning, pre-coating and surface preparation, chemical
coating and historical preservation. The use of pressure machinery and chemicals
exposes us to potential liability if substances are inappropriately used.
Additionally, we could be exposed to certain risks for environmental damage and
manufacturer's and workers' liability costs. The combined insurance risks and
the possibility of uninsured losses could cause us irreparable financial harm
and force us to liquidate all or part of our assets. If that happens, investors
could lose all or part of their investment.
The lack of a public market for our common stock may cause an investor to have
difficulty reselling the shares.
Our common stock is not presently listed for trading on any recognized exchange
or market and it is not certain that a market for the shares will develop.
Investors may have to indefinitely hold their shares and may have difficulty
selling their shares.
Governmental regulation of our environmental remediation services may result in
substantially increased operating costs
Our environmental remediation services are subject to extensive federal, state
and local laws and regulations on the handling and disposal of hazardous wastes.
Operating permits are generally required by federal and state environmental
agencies for our remediation services. Most of these permits must be renewed
periodically and the governmental authorities involved have the power, under
various circumstances, to revoke, modify, or deny issuance or renewal of these
permits. It is generally our customers who must obtain such permits, if
applicable, and not us. However in the event we would ssek or be required to
obatin our own operating permits we would be required to commit significant
human and capital resources which could result in increased operating costs.
Such expenditures can be substantial and accordingly could have a material
adverse effect on our financial condition.
Potential liability from our contaminated soil and water removal and hauling
services may result in substantially increased operating costs and possibly
uninsured losses.
Environmental laws regulate, among other things, the transportation, storage,
handling and disposal of waste. Moreover, so-called "toxic tort" litigation has
increased markedly in recent years as persons allegedly injured by chemical
contamination seek recovery for personal injuries or property damage. These
legal developments present a risk of liability should we be deemed to be
responsible for contamination or pollution caused or increased by any
remediation services provided by us, or for an accident which occurs in the
course of remediation or cleanup efforts. There can be no assurance that our
policy of establishing and implementing proper procedures for complying with
environmental regulations will be effective at preventing us from incurring a
substantial environmental liability. If we were to incur a substantial uninsured
liability for environmental damage, our financial condition could be materially
adversely affected.
Furthermore, we may from time to time become subject to governmental enforcement
proceedings and resulting fines or other sanctions and may incur penalties. Such
expenditures could be substantial and accordingly could have a material adverse
effect on our financial condition. We presently have the ability to perform soil
remediation and recycling services that meet applicable federal and state
standards for the delivery of such services, and the standards for the level of
contaminant removal. The government can, however, impose new standards. If new
regulations were to be imposed, we may not be able to comply in either the
delivery of services, or in the level of contaminant removed from the soil.
Where You Can Get Additional Information
Nannaco will be subject to and will comply with the periodic reporting
requirements of Section 12(g) of the Securities Exchange Act of 1934. Nannaco
will furnish to its shareholders an Annual Report on Form 10-KSB containing
financial information examined and reported upon by independent certified public
accountants, and it may also provide unaudited quarterly or other interim
reports such as Forms 10-QSB or Form 8-K as it deems appropriate. Our
Registration Statement on Form SB-2 with respect to the Securities offered by
this prospectus, a part of the Registration Statement as well as our periodic
reports may be inspected at the public reference facilities of the U.S.
Securities and Exchange Commission, Judiciary Plaza, 450 Fifth Street N.W., Room
1024, Washington, D.C. 20549, or at the Commission's regional offices at
Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661 and at 7 World Trade Center, New York, New York 0007. Copies of
such materials can be obtained from the Commission's Washington, D.C. office at
prescribed rates or from the Commission's website "www.sec.gov" through its
EDGAR database. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
This section contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are not guarantees of our future
performance. They are subject to risks and uncertainties related to business
operations, some of which are beyond our control. Our actual results may differ
materially from those anticipated in these forward-looking statements. Amounts
presented here have been rounded to the nearest $1,000.
Nannaco's objective is to maximize shareholder value by focusing on growth,
product innovation and profitability. The following discussion highlights the
Nannaco's performance and should be read in conjunction with the Consolidated
Financial Statements and related notes included therein.
Overview
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We have been in operation since October 1998, beginning with pressure washing
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.
Results of Operations for Fiscal Year Ended September 30, 2000 Compared to
Fiscal Year Ended September 30, 1999
We had income from operations of $275,000 for the fiscal year ended September
30, 2000 and $378,000 for the fiscal year ended September 30, 1999, our first
full year of operations. The decline in income from operations is due to greater
selectivity in accepting commercial business, including the institution of
credit application procedures in order to reduce the amount of bad debt write
off. Cost of Sales was $487,000 for fiscal 2000 as compared to $284,000 for
fiscal 1999. The increase in cost of sales is due to increased payroll expense
for additional employees and higher pay rates, as well as increased supply costs
of cleaning materials which increased approximately one third over the previous
year. Cost of Goods Sold exceeded revenues because of the increased personnel
expenses, including hazadous waste handling training and because of the
unusually high number of work days lost to rain during the fall and winter. We
do not believe that this imbalance represents a trend as the training expenses
are not expected to be repeated and because rain resulted in work only being
deferred which will be made up.
Administrative and general expenses were $2,781,000 for fiscal 2000 as compared
with $223,000 for fiscal 1999. The increase in general and administrative
expense is due to several expense items which are expected to be non-recurring.
These are:
$72,000 paid in commissions on the private placements of our securities,
$50,000 recorded as the expense for the issuance of 50,000 shares of
our common stock for services,
$227,000 recorded as an expense of settling potential litigation,
$140,000 of bad debt expense and
$35,000 for legal fees in connection with securities law compliance.
We had a net loss from operations of $2,994,000 in fiscal 2000 as compared to a
net loss from operations of $129,000 for fiscal 1999 resulting in an increase
int he net loss of $2,865,000. We believe the loss is not indicative of future
results because of non-recurring expenses which contributed to greater general
and administrative expenses.
The remaining $732,000 of the increase in the net loss is due in part to:
$203,000 of increase Cost of Sales arising from higher payroll and
supplies cost,
$ 54,400 of advertising and public relations expense;
$136,500 in officer compensation
We also had office rent of $53,400 increased from $23,000 last year, telephone
expense of $34,000 as compared to $9,400 for last year, travel expense of
$16,500 increased from $1,100 last year. We also incurred higher operating
expenses created by employee training in hazardous chemical handling, marketing,
license applications and other expenses in equipping Nannaco to expand its
markets.
Our revenues are derived from the various services we provide. Our residential
services include wood restoration, stone restoration, sealing and pressure
cleaning. These had revenues in the fiscal year ended September 30, 2000 as
follows:
Wood Restoration $47,000
Stone Restoration $19,000
Sealing $92,000
Pressure Cleaning $13,000
Our commercial services include pressure cleaning, environmental services such
as fleet cleaning and vent hood cleaning and historical restoration. The
environmental services do not include contaminated soil and water removal and
hauling services which is not expected to produce revenues until the third
quarter of the current fiscal year. Please see Plan of Operation below. These
commercial services had revenues in the fiscal year ended September 30, 2000 as
follows:
Pressure Cleaning $18,000
Fleet and Hood Cleaning $68,000
Historical Restoration $20,000
Liquidity and Capital Resources for Fiscal Year Ended September 30, 2000
Compared to Fiscal Year Ended September 30, 1999
For the fiscal year ended September 30, 2000 we had current assets of $449,000
while in the fiscal year ended September 30, 1999, we had current assets of
$244,000. The increase in current assets is due to cash held in certificates of
deposit of $41,000, cash held in mutual funds of $256,000 and prepaid expenses
of $117,000. The certificates of deposit were made to secure our lines of
credit. The mutual funds investments were made to maximize earnings on idle
funds. The pre-paid expenses were for Nannaco's securities law compliance and
for perpay of our office leases. At the same time trade accounts receivable
decreased from $174,000 to $20,000 primarily reflecting the bad debt expense of
$140,000.
Fixed assets in fiscal 2000 were $200,000 as compared to fixed assets of
$154,000 for fiscal 1999. We had current liabilities of $328,000 in fiscal 2000
and $84,000 for fiscal 1999 while long term liabilities were $29,000 in fiscal
2000 as compared with $81,000 in fiscal 1999. The increase in current
liabilities is due to $133,000 in accounts payable which represents a loan from
the brokerage firm secured by the mutual funds as well as increased payroll
taxes and an increase of $83,000 in the current portion of long term debt.
Our contaminated soil and water removal and hauling services is 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 have 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 and anticipate receiving EPA ID number as and when we are selected as a
subcontractor.
We have not yet obtained our first contracts for contaminated soil and water
removal and hauling services and expect our first clean up contracts during the
second half of 2001. Revenue from these contracts is expected to be realized
monthly based upon invoices for services rendered and quantity of materials
removed.
During the second quarter of fiscal 2000, we converted debt in the total
principal amount of $154,105 into 1,029,200 shares of common stock. We recorded
an expense of $509,000 on this conversion to account for the difference between
the conversion prices and the market value based upon our private placement
price of $1 per share wherein we raised $1,443,400 in the sale of 1,443,400
shares of common stock in a private placement in July 2000. We also have a
$35,000 line of credit with a commercial bank, a $35,000 installment loan with
the same bank and two secured lines of credit totaling $40,000 with a second
commercial bank.
In December 2000, we issued three convertible promissory notes totaling $345,500
of principal. The notes mature in September 2001, accrue interest at ten percent
per annum and are convertible into common stock at the five day average closing
bid price for our common stock. The sale of these debentures was made after we
had filed the registration statement with the U.S. Securities and Exchange
Commission for the public offering described in this prospectus. As a result the
exemption from registration which we relied upon for the sale of the debentures
may not have been available resulting in the sale of the debentures to have been
in violation of section of the Securities Act of 1933. The debenture holders
would have the right to demand rescission of their investments. If any of these
debenture holders demand rescission, we could be liable to repay the debentures
as well as attorneys fees and possible other incidental damages. In addition, we
could face civil penalties from state and federal securities law enforcement
agencies. If rescission is demanded and or penalties are imposed it would have a
materially adverse effect upon our financial condition by increasing our losses.
Rescission and or the imposition of penalties would also have a materially
adverse effect upon the development of our business as funds otherwise available
for development purposes would be required to be expended for the rescission and
or penalties. In any event, we do not have presently have the cash to repay the
debentures at maturity. Therefore even if rescission is not demanded and the
debentures remain unconverted into common stock, the effect upon our liquidity
will be the same as we will be obligated to repay the debentures from capital
diverted from business development.
Weather can and does play a significant factor in revenue and liquidity.
Throughout the summer of 2000, we were faced with the prospect of water
shortages which could have resulted in forced curtailment of operations due to
either higher water cost or actual restrictions on outdoor use. During the fall
of 2000, extensive rainfall limited the work that could be performed out of
doors.
Plan of Operations
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We intend to achieve profitability through increased revenue and decreased
expenses. During the past fiscal year we hired the personnel we consider
necessary to expand our residential and commercial services as well as enter
into the hazardous waste remediation business including marketing expertise.
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 year as we establish our name and reputation
as a service provider in this business. In April 2001, our executive officers
and directors accepted a fifty percent salary reduction to realize an
approximate $48,000 per quarter savings on compensation expense.
The private placements completed in July 2000 and December 2000 provided net
proceeds of approximately $1,700,000 which we used to pay operating expenses and
to acquire additional equipment required for expanded residential and commercial
services as well as our projected hazardous waste site remediation services. We
anticipate needing to raise approximately $150,000 in additional capital over
the next six to twelve months primarily for marketing purposes. We intend to
make private placements of our equity securities as well as seeking traditional
debt financing when available.
Our residential and commercial services marketing plan includes the following
provisions:
Publish testimonials from satisfied clients in trade journals
Publish and distribute residential promotional literature, information
articles, and advertisements appearing in special interest publications
such as home guides
Participate in appropriate trade shows, premise sales calls, and
demonstrations of select services.
Zip code targeted mailing for residential services
Targeted mailing and marketing to the Texas Historical Society
Personal sales calls for fleet washing services in our market area
Commission based telemarketing of residential services
Radio advertisement and endorsement on a Home Improvement Show
Since February 2001 we have tendered over fifty commercial services bids with an
average price of $3,800 for work up through June 2001. As of June 1, 2001 bids
for approximately $123,000 have been accepted and work has begun or is
scheduled. Based upon our past experience, we anticipate having about 60% or
higher of the bids accepted. In addition, we continue to seek out and submit
additional bids and repeat customer business.
Our plan of operations for our contaminated soil and water removal and hauling
services has been to first obtain the necessary licenses and permits to handle
and transport hazardous material in the State of Texas. At present we have the
neccessary licenses and permits to bid as a sub-contractor to a fully licensed
hazardous waste site remediation service provider in the State of Texas. It is
our intention to bid on various clean-up projects as either the sole contractor
or as a sub-contractor for specific portions of the clean up plan. We will rely
upon our licensing consultant to keep us informed as to the timing and
requirements of specific bids. As of September 2001, we have bid upon three sub
contracting projects for contaminated soil and water removal and hauling
servics. We were not the accepted bidder on one project and are still waiting
for the two remaining projects to be awarded. These bids each represent over
$1,000,000 in revenue for which we expect a 20% profit margin. However, there
can be no assurances that we will be awarded these sub-contract or any other
bids
Commencing contaminated soil and water removal and hauling services as a
sub-contractor is not initially expected to increase our operating expenses as
we currently have the necessary equipment and personnel to handle the projects
for which we have outstanding bids. In the event that that multiple,
simultaneous projects become available we will either need to purchase
additional equipment and hire additional personnel or further sub-contract out
work.. In any event, as contamination removal and hauling projects are awarded
with compensatory draw schedules, as and when we are awarded projects, we will
be able to collect start-up/materials draws to commence and sustain each
job-site.
Results of Operations for the Nine Month Period Ended June 30, 2001 Compared to
the Nine Month Period ended June 30, 2000
Gross sales were $232,000 for the nine months ended June 30, 2001 compared to
$240,000 for the nine months ended June 30, 2000. The increase in sales is due
to a greater number of sources of revenue over the previous year. However sales
are believed to be below our capacity and expectations. Persistent rains
throughout the fall of 2000 substantially inhibited our ability to conduct
outdoor operations. The weather particularly deterred residential services which
are more discretionary than commercial services, however as most of our
commercial services are performed outdoors, much of these services were also
deferred. Beginning in January 2001, the persistent rain ended and we are
experiencing a substantial increase in demand for residential and commercial
services which we expect to be sustained through the next six to nine months.
Our cost of sales were $ 351,000 for the nine month period ended June 30, 2001
as compared to $457,000 for the nine month period ended June 30, 2000. General
and Administrative expense was $477,000 as of June 30, 2001 as compared to $
925,000 for the nine month period ended June 30, 2000. The decrease in general
and administrative expense are the result of decreases in officer compensation.
As a result We had a loss from operations of $596,000 for the nine months ended
June 30, 2001 and a loss from operations of $1,141,000 for the nine months ended
June 30, 2000. Additionally, the total loss for the nine months ended June 30,
2001 of $681,000 includes a loss of $71,000 on mutual funds and $19,000 on the
disposition of assets.
Our revenues from services for the nine months ended June 30, 2001 were as
follows:
Residential Services
Wood Restoration $ 65,643
Stone Restoration $ 33,237
Sealing $ 47,879
Pressure Cleaning $ 7,796
Commercial Services
Pressure Cleaning $ 13,609
Fleet and Hood Cleaning $ 53,061
Historical Restoration $ 11,176
Liquidity and Capital Resources for the Nine Month Period Ended June 30,
2001 Compared to the Nine Month Period ended June 30, 2000
We had current assets of $ 11,000 for the nine months ended June 30, 2001 as
compared to $ 463,000 for the nine months ended June 30, 2000. We had fixed
assets costing $ 164,000 for the nine months ended June 30, 2001 as compared to
$ 152,000 for the nine months ended June 30, 2000. Total assets were $339,000
for the nine months ended June 30, 2001 as compared to $1,467,000 for the nine
months ended June 30, 2000.The decrease in assets of $1,128,000 is primarily due
to $650,000 of cash spent over the period, a reduction of $315,000 in accounts
receivable and the use of $110,000 of pre-paid expenses.
9
Nannaco and Its 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
Management believes that we have developed efficient and useful systems for
carrying out these activities which places us in a strong market position. As a
result, we have determined a need to expand into additional markets.
Services
--------
We provide surface maintenance and restoration services to the residential and
commercial markets. Much of our activity is based on custom tailored solutions
to our client's individual problems.
Specifically, our services include, but are not limited to:
Pressure Cleaning
-----------------
Our pressure cleaning procedures vary with each application. We clean wood,
glass, stone, concrete, masonry and exposed aggregate. Each requires a different
cleaning approach. For example, the surface and other factors will determine
whether we use water vs. steam, heat vs. cold, wide-area attachment vs. wand
cleaning, sprayed-on or pump-injected chemical applications or water only
cleaning. We maintain a complete line of equipment and accessories as well as a
documented library of procedures for all applications. Since our incorporation,
we have continued to add new processes, chemicals, equipment and technique
documentation to our library as we develop new procedures. Currently, the trade
association Power Washers of North America can certify the extensive nature of
our pressure cleaning resources. NANNACO is a certified member of this trade
association.
Among other tasks, we pressure clean solid waste containers, we de-grease
engines with pressure, and we conduct fleet washing with pressure cleaning.
Pre-coating surface preparation for walls, exteriors, etc.
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Surface preparation usually follows pressure cleaning procedures. The primary
difference between pressure cleaning and surface preparation is that preparation
work requires either chemical or mechanical etching. That means that either
high-friction equipment or chemicals such as very strong acids are used to
prepare a surface to accept some type of sealant or coating. Two of the
processes we employ for preparation work are sandblasting and shot-blasting,
which is a process by which tiny metal ball bearings are propelled against
horizontal epoxy surfaces to break out existing coating. We also use
ultra-high-pressure water abrading systems, acid etching, and magnetized water
saturating on limestone applications.
As with pressure cleaning, the processes utilized in surface preparation are as
diverse as the substrate being prepared. We maintain a complete inventory of
equipment and chemicals for common applications. We also subcontract certain
types of high-rise set-up equipment to reduce liabilities.
Chemical coating applications for sidewalks and exterior walls
--------------------------------------------------------------
Following is a partial list of some of the types of coatings we apply:
* Oil based, penetrating sealers for wood restoration
* Silicon-based, encapsulating sealers for masonry and some stone
applications
* Acrylic sealers on exposed aggregate and other "high gloss" horizontal
surfaces
* Xyloxenes to eliminate porosity in sedimentary stones such as limestones
Chemical coatings incorporate three of our processes: pressure cleaning, surface
preparation and the actual application of product.
Historical Restoration
----------------------
Historical Building Restoration is a process which incorporates three of our
services: pressure cleaning, surface preparation, and coating application. We
combine these services to provide the most delicate of our objectives, which is
reducing or eliminating evidence of time (erosion or other damage) from a piece
of historically significant architecture. These processes are often time
consuming and labor intensive since pressure cleaning is generally substituted
with steam applications, and acid etchers are replaced by milder solvents to
achieve the type of substrate protection necessary to comply with many
preservation society maintenance codes. We have provided restoration services on
five projects for the South Texas Catholic Archdiocese in Texas to date.
Kitchen Vent Hood Maintenance
-----------------------------
Restaurants, delicatessens and other food service establishments generally have
big exhaust systems mounted over their cooking equipment. These hoods collect
grease and dirt, and can be hazardous if not properly maintained. Fire Marshals
require hoods to be cleaned from the hanging hood and fan, all the way up the
flue, through the ceiling and out the vents which are mounted on the roof. We
begin on the roof, using a special synthetic de-greaser and steam machines at
high pressure with a low flow-rat to clean the entire system down to the bare
metal. We then check the safety system latches and tag the system for inspection
by the Fire Marshal.
Fleet and Heavy Equipment Services
----------------------------------
We clean fleet service vehicles and de-grease engines on heavy equipment in
order to keep them running cooler. This service is part of one of our regular
preventative maintenance programs. Water temperatures range from 140-200 degrees
Fahrenheit, and we use pressure anywhere from 3000 to 6000 psi. For aluminum
trailers, we utilize acidizing techniques.
Solid Waste Containers
----------------------
We provide an on-site service for some of our waste management clients. We
regularly visit receptacle sites and provide exterior cleaning, graffiti removal
and touch-up painting on solid waste containers.
Residential Services
--------------------
We perform cleaning and sealing services for decks, patios, fences, arbors,
sidewalks, driveways, exterior walls, and many outdoor furnishings such as
furniture sets, planters, fountains and children's play sets. We offer complete
restoration and preservation services in the exterior residential market.
Contaminated Soil and Water Removal and Hauling Services
--------------------------------------------------------
In the state of Texas there are currently an estimated 45,000 oil
industry-related abandoned contaminated sites. We have chosen oil field site
remediation as our entry point into this market. We are currently in
negotiations with the state of Texas to clean up an abandoned salt-water
decontamination site.
These sites are typically less than a half acre in size and our services will be
sub-contracted from the State or other responsible party which drafts and
supervises the entire cleanup process for the site. The sites are typically
abandoned well drilling sites, some of which have pits or open tanks with used
drilling equipment cleaning sludge. We expect our abandoned oil industry site
remediation will involve the removal of contaminated water and sludge using
vacuum pumps to tanker trucks to be delivered to a hazardous waste disposal
site. We will also remove debris and the top layer of contaminated soil for
transport to a disposal site. Well holes will be capped with concrete. Cleaned
pits will be lined with a water impermeable layer and sealed with concrete.
We have obtained the permits for hazardous material transportation from the
U.S. Department of Transportation. At present we are able to bid as a
sub-contractor to a fully licensed hazardous waste site remediation service
provider in the State of Texas. We have also obtained the full time service of
key environmental personnel with the proper licenses and experience. The
personnel include federally registered Environmental Compliance Officers,
Department of Transportation-permitted Environmental Emergency and First
Responders, EPA Hazardous Material Handlers, and Department of Defense-licensed
Hazardous Material Waste Site Managers.
We are not required to obtain an EPA identification number or permit. EPA
Identification numbers are fixed-site specific and must be obtained by the
fixed-site owner who is the individual or entity which owns the contaminated
property and is liable for its clean-up of each specific project.
Customer List
-------------
Our customers come from both the commercial and residential market sectors. The
most typical commercial customer is a store or commercial truck company. A
partial list of current customers includes San Antonio to Houston, Texas
locations of American Freightways, Earth Grains, St. Mary's University, Allied
Van Lines, Continental Airlines, North American Van Lines, HEB Grocery Company,
Albertson's Groceries, the Kroger Company, Texas Disposal Systems, Southton
Convenience Stores, Olmos Construction, TETCO, Fiesta Texas, Lozano Trucking,
Diamond Shamrock, Otis Spunkmeyer Cookies, and Scobey Moving Services. The
Archdiocese of San Antonio and the San Antonio Preservation Society have both
recommended us for restoration and historic preservation work. We are on the
Texas State Contracts Vendors list.
The Market
----------
We have not prepared or commissioned an in-depth study of the market for our
services in south and central Texas or other urban, suburban or industrial areas
of the United States. However, based upon our growth with limited marketing
efforts, we believe that the market for our services exceeds our present and
planned capacity. We believe that our market crosses many industrial
classifications with hundreds of thousands if not millions of potential
customers.
We believe the categories of potential customers include:
Homeowners with decks, driveways and fences
Retail businesses with outdoor exteriors and walkways
Businesses using fleets of vehicles such as trucks, vans, earth moving
equipment, airplanes, boats and ships
Office building owners
Historical building owners
Businesses using oil, natural gas and mining equipment
Restaurants
Drilling Companies
Marketing Plan
--------------
Historically, referrals have been our largest source of new customers. During
the current fiscal year we have begun a marketing campaign with direct mail
advertising to potential residential customers. In addition, our residential
specialist, Barry Hagendorf, is the host of a half hour, Saturday morning radio
show focused on home improvement and maintenance.
Pricing
-------
Pricing for our services varies greatly depending on specific needs of each
project, such as equipment, chemicals or personnel required. We periodically
review the advertised prices of competitors for standard pressure washing and
attempt to maintain commercial prices 25% below comparable competitor pricing.
Our residential prices are 10 - 15% higher than most other local companies
claiming similar services. However we believe that we provide a superior level
of services, use the best people and materials available, and provide liability
coverage for our work.
Competition
-----------
Our competitors tend to be relatively small businesses working primarily on
referral basis. We believe the means of competition is predominately based upon
customer satisfaction with timeliness and results. With respect to fleet
washing, we also compete with the cost of in-house fleet cleaning. We also
compete with a Houston, Texas based company which handles substantially larger
commercial businesses than we do. This competitor has substantially greater
resources than we do. Our strategy to compete with this competitor is primarily
by servicing residential and smaller commercial projects that the competitor
does not pursue.
Governmental Regulation
-----------------------
We are subject to general business regulations, including Texas and Federal
environmental and hazardous material handling regulations. The majority of our
services do not result in air pollution emissions or waste water discharge and
no special environmental permits or licenses are required. However, projects
that involve the cleaning and removal of hazardous waste do require specific
permits which are obtained by the site owner or operator who then contracts with
licensed handlers and disposal sites. We have applied for the necessary licenses
from the State of Texas to conduct this portion of our business. In addition,
our products are used by companies which are subject to regulation by various
governmental agencies, such as the Environmental Protection Agency, Edwards
Aquifer Authority, Texas Natural Resources Commission and the Bexar County Water
District, and our services must comply with such regulations.
The environmental regulation of fleet-cleaning services involves the containment
of the oil and grease runoff that results when large pieces of equipment are
washed with pressure washers. The regulatory agencies include the U.S.
Environmental Protection Agency and the Edwards Underground Water District
because much of our work is performed within this district. We use a wastewater
containment system that meets the standards set by the District and the
Environmental Protection Agency. Our containment mat and pumping system allows
our clients to meet Department of Transportation requirements set up to regulate
the over-the-road trucking industry as well as Edwards aquifer restrictions.
We were issued a permanent Hazardous Waste Transportation Registration, Number
072400 851 0081, by the U. S. Department of Transportation. Annual registration
costs for the license are $350.00. The permit allows us to evacuate hazardous
materials from immediate response site remediation locations and deposit it at
approved disposal locations. It also allows us to clean and pump runoff to
tankers at oil cleanup operations. Costs associated with Environmental Emergency
Response and Site Cleanup Operations include annual re-certification
requirements for team members to meet the requirements of 29CFR1910.120, NAPA
472, and NFPA 1561, and purchase of specialized hazardous materials certified
equipment. Costs for certification/re-certification courses for four team
members total $2850.00 per year. Purchase of start-up equipment to meet
regulatory agency certifications is estimated at $6,300.00.
Employees
---------
As of August 31, 2001, Nannaco employed 15 people, all of whom are full-time
individuals whose principal responsibilities are: Operations/Labor has 11
employees, Sales, Marketing and Customer Service has 2 employees, and
Administration has 2 employees. Our staff is not presently covered by any
collective bargaining or union relationship. Skilled labor is available from San
Antonio and the surrounding communities with a population of approximately 1.5
million. We have a training program for all staff.
Properties
----------
Nannaco operates out of two primary locations, both located in the north-central
area of San Antonio. The first is a 10,000 square foot warehouse facility
housing all equipment, chemical inventories and operations offices. This
facility is leased on a yearly basis at a cost of $19,200 per year.
Our second facility is our administrative office. We currently lease this 2500
square foot facility on a yearly basis at $34,632 per year. All administrative
duties are conducted at this location.
Security Ownership of Management and Principal Shareholders
The following table sets forth the persons known to us as beneficially owning
more than five percent (5%) of the 14,957,600 shares outstanding as of September
10, 2001 plus 60,000 shares underlying exercisable options held by certain
directors. The table also shows the number of shares of Common Stock
beneficially owned as of September 10, 2001, by individual directors and
executive officers and by all directors and executive officers as a group. The
number of shares shown for Linda Morton, W.M. Jackson and Mark Triesch include
currently exercisable Options to acquire 20,000 shares of common stock at $1.00
per share expiring April 24, 2005 for each officer and director. The Joy
Foundation is an unincorporated business trust organization. Jack Malone is the
managing director.
Name/Address/Title Shares % Ownership
--------------------------------------------------------------------------------
The Joy Foundation 1,443,400 9.6%
2915 State Rd. 590 Ste.19
Clearwater, FL 33759
Andrew DeVries III 11,000,000 73.2%
President, CEO, Chairman
807 Arizona Ash
San Antonio, TX 78232
Linda Morton 20,000 0.1%
Director
1305 Woodbranch
San Antonio, TX 78232
W. M. Jackson 90,000 0.6%
Director
12024 Hart Path
San Antonio, TX 78249
Mark Triesch 49,000 0.3%
Director
353 South Hackberry Ave
New Braunfels, TX 78130
All Executive Officers and Directors 11,159,000 74.3%
(4 persons)
Management
The executive officers and directors of the Company and their ages are as
follows:
Name Age Position Position Since
--------------------------------------------------------------------------------
Andrew DeVries, III 34 President, CEO, 1998
Chairman of the Board
Linda Morton 51 Secretary, Treasurer, Director 1998
Mark A. Triesch 41 Director 1999
W.M. Jackson 70 Director 1998
The Directors serve until their successors are elected by the shareholders.
Vacancies on the Board of Directors may be filled by appointment of the majority
of the continuing directors. The executive officers serve at the discretion of
the Board of Directors.
Business Experience
-------------------
Board of Directors/Executive Officers
ANDREW DEVRIES III is President of Nannaco, Inc. Mr. DeVries is also the
Principal Shareholder. He founded the Nannaco in 1998 and has served as
President since that time. Mr. DeVries develops the policies and objectives of
the Nannaco. He manages market planning, advertising and public relations, and
he directs sales and distribution. Prior to this, Mr. DeVries was Sales Director
for Internet Direct, Inc. in San Antonio from 1994 to 1997. In 1993, Mr. DeVries
founded DeVries and Associates, a financial services company and serves as its
president until the founding of Nannaco. Mr. DeVries holds a Bachelor of Arts
from North Texas State University and a Master of Arts from the University of
North Texas.
LINDA MORTON is our Corporate Secretary, Treasurer and a Director. She has
an officer and director of Nannaco and a a shareholder since October 1998. Prior
to her position with Nannaco, Inc., Ms. Morton was Manager of the Classifieds
Department, Texas City Sun Newspapers Corp. for five years, where she managed
sales and staff operations. Ms. Morton's business experience includes
administration, accounting and personnel.
MARK A. TRIESCH is General Counsel and a Director to the corporation. Prior to
joining Nannaco, Inc. in September 1999, Mr. Triesch operated a general practice
that concentrated on business litigation, real estate and family law. He earned
his Juris Doctor's degree from St. Mary's University in San Antonio. Mr. Triesch
also holds Bachelor's and Master's degrees in English from Texas A&M University,
and taught American Literature and composition at the University of North Texas
and Texas A&M University. Currently, he handles transactional matters for
Nannaco, Inc., and acts in an advisory role concerning the day-to-day operations
of Nannaco.
W. M. JACKSON is a Director and operates the Jackson Tax Service in San
Antonio, Texas. He has more than 30 years experience in the accounting,
financial and banking fields. He provides the management team with advice and
guidance in gathering and reporting financial data as needed for accounting,
internal budget preparation and analysis, financial reporting, and taxes.
Key Employees
-------------
Operations
Jerry Birchard, Director of Residential Sales
Jerry Birchard has more than 11 years in sales and customer service. Previously
he owned and operated a commercial grade tool business in South Texas.
Barry Hagendorf is our Residential Services expert. Mr. Hagendorf founded Deck
and Patio Care in 1984 after recognizing a need in the local market of San
Antonio. He has refinished over 1,700 residential decks. He earned a degree in
Business Administration from Sam Houston State University.
Maintenance
Rick Watson, Director of Service Maintenance
Rick Watson is a graduate of West Texas State University. He entered the surface
coating business in 1972 and has been refining restoration techniques and
sealing applications ever since. In 1976, he participated in the restoration of
the historic Menger and Crockett Hotels in San Antonio, and has since been
involved in historic restorations throughout the Southwest. His company is the
premier service provider for the renovation of high-rise structures because of
the specially developed processes and equipment that he has created. His
alignment with NANNACO, Inc., brings the two top service providers in the
industry together and provides synergistic marketing opportunities to both
entities.
Family Relationships
--------------------
Andrew DeVries III is the son of Linda Morton. There are no other family
relationships between any Director, executive or person nominated or chosen by
the Company to become a Director or executive officer.
Executive Compensation
Summary Compensation Table
The following table shows for the fiscal years ending September 30, 2000 and
1999, the compensation awarded or paid by the Company to its Chief Executive
Officer and any of the executive officers of the Company whose total salary and
bonus exceeded $100,000 US during such year (The "Named Executive Officers"):
Summary Compensation Table
-------------------------------------------------------------------------------------------------------
Long Term Compensation
-------------------------------------------------------------------------------------------------------
Annual Compensation | Awards | Payouts |
-------------------------------------------------------------------------------------------------------
| | | | Other | Restricted | Securities | LTIP | All Other
Name and | Year | Salary | Bonus | Annual | Stock | Underlying | Payouts | Comp. ($)
Principle | | ($) | | Comp. | Award(s) | Options/SARs | |
Position | | | | ($) | ($) | (#) | ($) |
--------------------------------------------------------------------------------------------------------
A. DeVries 1999 $52,000 0 0 0 0 0 0
--------------------------------------------------------------------------------------------------------
A. DeVries 2000 $52,000 0 0 0 0 0 0
--------------------------------------------------------------------------------------------------------
No other executive officer earned more than $100,000 US during the most recent
fiscal year.
Employment Agreements and Executive Compensation
------------------------------------------------
Nannaco does not have written employment agreements with its executive officers.
Andrew DeVries was paid a salary of $104,000 per annum effective October 1, 2000
until April 2001 when his salary was decreased to $52,000 per annum. Barry
Hagendorff receives a salary of $96,800 per annum until April 2001 when his
salary was decreased to $48,400 per annum. Linda Morton receives a salary of
$39,000 per annum until April 2001 when her salary was decreased to $19,500 per
annum. Mark Triesch receives a salary of $44,500 per annum until April 2001 when
his salary was decreased to $26,000 per annum.
Compensation of Directors
-------------------------
Directors are entitled to receive reimbursement for all out-of-pocket expenses
incurred for attendance at Board of Directors meetings.
Other Arrangements
------------------
The Company has the Nannaco 2000 Stock Option Plan which was adopted on April
20, 2000. The purpose of the Plan is to advance the business and development of
the Company and its shareholders by affording to the employees, directors and
officers of the Company the opportunity to acquire a proprietary interest in the
Company by the grant of Options to such persons under the Plan's terms. The 2000
Plan reserved 5,000,000 shares for grant or issuance upon the exercise of
options granted under the plan. Stock Options under the Plan will be granted by
the Board of Directors or a Compensation Committee of the Board of Directors.
The exercise prices for Options granted will be at the fair market value of the
common stock at the time of the grant if a public market develops for the common
stock or not less than the most recent price at which the Company had sold its
common stock. As of February 16, 2001, the following options have been granted
by Executive Officers and Directors under the plan:
Name # of Shares Optioned Ex. Price Expiration Date
--------------------------------------------------------------------------------
Mark Triesch 20,000 shares $1.00 April 24, 2005
Linda Morton 20,000 shares $1.00 April 24, 2005
W. M. Jackson 20,000 shares $1.00 April 24, 2005
Termination of Employment and Change of Control Arrangement
-----------------------------------------------------------
There is no compensatory plan or arrangement with respect to any individual
named above which results or will result from the resignation, retirement or any
other termination of employment with the Company, or from a change in the
control of the Company.
Transactions with Management, Promoters and Principal Shareholders
------------------------------------------------------------------
Transactions with Management
On September 30, 2000 Nannaco's President, Andrew DeVries III, obtained the
assignment of the repayment rights of a shareholder loan to the Company in the
principal amount of $234,936 as of September 30, 1999. This debt was then paid
through the offset of funds paid to Mr. DeVries during the fiscal year ended
September 30, 2000.
In October 1998, Nannaco's President, Andrew DeVries, III contributed equipment
valued in excess of $108,039 for 12,000,000 shares of common stock as part of
the organization of the Company. Mr. DeVries paid $108,039 for these assets in
1998.
Transactions with a Promoter
In 1999, Nannaco engaged the services of Harold T. Crum, a resident of Houston,
Texas to assist with capital formation and provide advise as to Nannaco being a
publicly held company. Mr. Crum is considered a promoter of Nannaco. 3,000,0000
shares of Nannaco common stock was issued to several of Mr. Crum's nominees for
these purposes. The shares were issued as follows:
Name Shares
--------------------------------------------------------------------------------
Petty International, Inc. 300,000
WAPI 700,000
Ley Industries, Inc. 600,000
Millennium Business Associates, Inc. 300,000
CPR Holdings, Inc. 500,000
DPA Holdings 600,000
Subsequently five individuals contacted Nannaco to determine the status of their
investment in Nannaco made through Mr. Crum. Nannaco never received any funds
from Mr. Crum for these investments and in July 1999, Nannaco terminated its
relationship with Mr. Crum. In March 2000 Nannaco completed the one million to
one reverse split of its outstanding common stock in order to eliminate the
shares paid to Mr. Crum and his associates. Nannaco subsequently learned that
Mr. Crum was on probation from the District Court of Harris County, Texas for a
conviction of offense of engaging in organized crime in connection with
defrauding an IBM computer financing program. Nannaco believes that Mr. Crum's
engagement as a consultant on publicly held company matters and his interstate
travel on behalf of Nannaco violated the terms of his probation. In June 1999
Nannaco promised to pay the five individuals a total of $227,000. The promise to
pay were given in consideration of the individuals' agreement to hold Nannaco
harmless for any liability under federal and state securities laws and common
law resulting from their payments to Harold Crum. In April 2000, the individuals
agreed to convert the debt into common stock of Nannaco. A total of 434,000
shares were issued for conversion of these debts.
Transactions with a Principal Shareholder
In April 2000, Nannaco sold 500,000 shares of its common stock to the Joy
Foundation in conversion of a debt of $250,000. In June 2000, Nannaco sold
943.400 shares of its common stock to the Joy Foundation in a private placement.
As a result of these transactions, the Joy Foundation currently holds 9.6% of
our outstanding common stock.. The Joy Foundation is an unincorporated business
trust organization. Jack Malone is the managing director.
Indemnification of Officers and Directors from Liability under the Securities
Act of 1933
-----------------------------------------------------------------------------
The Nannaco Articles of Incorporation permit Nannaco to indemnify and hold
harmless its officers and directors from any liability and expenses incurred by
them as a result of being an officer or director. This right of indemnity would
include any liability arising under the Securities Act of 1933. However, in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy and is unenforceable. In the event that a claim for
indemnification against liabilities under the Securities Act is asserted by an
officer or director in connection with the securities offered by this
Prospectus, Nannaco will submit the question whether such indemnification by it
is against public policy to a court of appropriate jurisdiction and will be
governed by the final adjudication of such issue. Submitting the question of
indemnity for Securities Act liability to a court will not occur in the case of
the payment of expenses incurred in the successful defense of any action, suit
or proceeding or if in the opinion of its counsel the matter has been settled by
controlling precedent.
Market for Nannaco's Common Stock and Related Stockholder Matters
Market Information/Penny Stock Rules: Nannaco's common stock is not listed for
trading on any recognized market. We believe that it is likely that our common
stock will be characterized as penny stock. As such, broker-dealers dealing in
our common stock will be subject to the disclosure rules for transactions
involving penny stocks which require the broker-dealer to determine if
purchasing our common stock is suitable for a particular investor. The
broker-dealer must also obtain the written consent of purchasers to purchase our
common stock. The broker-dealer must also disclose the best bid and offer prices
available for our stock and the price at which the broker-dealer last purchased
or sold our common stock. These additional burdens imposed upon broker-dealers
may discourage them from effecting transactions in our common stock, which could
make it difficult for an investor to sell their shares.
Securities Holders: As of September 25, 2001, Nannaco had 38 holders of record
of its common stock of which 11,099,000 are restricted securities held by three
members of Management which have held the shares for less than one year. There
are presently 14,957,600 shares of common stock outstanding as of September 25,
2001.
Dividend Plans: Nannaco paid no common stock cash dividends and has no current
plans to do so.
Dilution
At September 30, 2000, the net tangible book value of our common stock was
$331,230 or $0.02 per share. Assuming a public offering price of $1.00 per
share by the Selling Securities Holders, there would be an immediate dilution of
$0.98 per share or 98% to new investors. The actual price per share sold will be
determined by each Selling Securities Holder and may be higher or lower than
$1.00. Investors should be aware they are likely to experience approximately
100% dilution of the net tangible book value of their investment.
Settlement of Potential Claims by Issuance of Common Stock
In the first quarter of 1999, Nannaco engaged the services of Harold T. Crum, a
resident of Houston, Texas to assist with capital formation and provide advise
as to Nannaco being a publicly held company. Mr. Crum and several of his
associates were issued 3,000,000 shares of common stock for these purposes.
Subsequently five individuals contacted Nannaco to determine the status of their
investment in Nannaco made through Mr. Crum. Nannaco never received any funds
from Mr. Crum for these investments and in July 1999, Nannaco terminated its
relationship with Mr. Crum. In March 2000 Nannaco completed the one million to
one reverse split of its outstanding common stock in order to eliminate the
shares paid to Mr. Crum and his associates. Nannaco subsequently learned that
Mr. Crum was on probation from the District Court of Harris County, Texas for a
conviction of offense of engaging in organized crime in connection with
defrauding an IBM computer financing program. Nannaco believes that Mr. Crum's
engagement as a consultant on publicly held company matters and his interstate
travel on behalf of Nannaco violated the terms of his probation. In June 1999
Nannaco promised to pay these five individuals a total of $227,000. The promise
to pay were given in consideration of the individuals' agreement to hold Nannaco
harmless for any liability under federal and state securities laws and common
law resulting from their payments to Harold Crum. In April 2000, the individuals
agreed to convert the debt into common stock of Nannaco. A total of 434,000
shares were issued for conversion of these debts.
Description of Securities
Common Stock
------------
Nannaco is authorized to issue 50,000,000 shares of Common Stock, $.001 par
value. There are presently 14,957,600 shares of common stock outstanding as of
June 7, 2001. The holders of the Common Stock are entitled to one vote per share
held and have the sole right and power to vote on all matters on which a vote of
the stockholders is taken. Voting rights are non-cumulative. The holders of
shares of Common Stock are entitled to receive dividends when, as, and if
declared by the Board of Directors, out of funds legally available therefore and
to share pro rata in any distribution to stockholders. Upon liquidation,
dissolution, or winding up of Nannaco, the holders of the Common Stock are
entitled to receive the net assets of Nannaco in proportion to the respective
number of shares held by them after payment of liabilities which may be
outstanding. The holders of Common Stock do not have any preemptive right to
subscribe for or purchase any shares of any class of stock of Nannaco. The
outstanding shares of Common Stock will not be subject to further call or
redemption and will be fully paid and non-assessable.
Preferred Stock
---------------
Nannaco is authorized to issue up to 10,000,000 shares of preferred stock. There
are no shares of preferred stock outstanding as of June 7, 2001. The preferred
stock can be issued in different series. The rights and preferences of different
series of the preferred stock can be set from time to time by our Board of
Directors. These rights and preferences may include class voting rights,
specific dividend rights and priority over common stock with respect to assets
of Nannaco upon liquidation.
Convertible Promissory Notes
In September 2000, Nannaco issued three convertible promissory notes in the
total principal amount of $345,400. convertible promissory notes accrue interest
at the rate of ten percent per annum and mature on September 25, 2001. The notes
may be converted into common stock at a price per share equal to the five day
average closing bid price for Nannaco's common stock prior to the date of a
Notice of Conversion.
Selling Securities Holders
The following selling securities holders whose shares have been registered for
public resale under the registration statement are set forth below:
Selling Securities Securities Owned Shares / % Shares / %
Holder And Offered Before Off. After Offering
James Letsos, III 35,000 70,000 / * 35,000 / *
Dave Lennox 30,000 60,000 / * 30,000 / *
Vinh Bao-Phong 2,000 2,000 / * 0 / *
Eugenio Aguilar 5,000 5,000 / * 0 / *
Linda Conley 3,000 3,000 / * 3,000 / *
Edward Canahuati 10,000 10,000 / * 10,000 / *
Cameron Cappleman 1,000 1,000 / * ,000 / *
Kenneth Davidson 200,000 416,000 / 2.6% 216,000 / 1.3%
Joseph Shunta 40,000 80,000 / * 40,000 / *
The Joy Foundation 590,000 1,443,400 / 9.3% 853,400 / 5%
Robert Welch 5,000 5,000 / * 0 / *
John Starnes 15,000 15,000 / * 0 / *
Joseph Butler 15,000 15,000 / * 0 / *
Ralph Polito 15,000 15,000 / * 0 / *
Arthur W. Hughes 2,000 2,000 / * 0 / *
Dwayne Muzny 1,000 1,000 / * 0 / *
Michael Mason 3,000 3,000 / * 0 / *
Jeff Sergent 2,300 2,300 / * 0 / *
Hector Moreno 5,000 5,000 / * 0 / *
Brad Stapp 1,000 1,000 / * 0 / *
Brett Vallery 1,000 1,000 / * 0 / *
Johnny Alexander 2,000 2,000 / * 0 / *
Long H. Nguyen 5,000 5,000 / * 0 / *
Roger N. Schmidt 50,000 50,000 / * 0 / *
Lavon Dan Baker 4,500 4,500 / * 0 / *
Robert Martin 1,200 1,200 / * 0 / *
Richard Beymer 200 200 / * 0 / *
Carlivegen Enterprises 250,000 500,000 / 5.2% 250,000 / *
------
Total 1,495,000
The Joy Foundation is an unincorporated business trust organization. Jack Malone
is the managing director.
Carlivegan Interprises is an unincorporated business trust organization.
Genevieve Schiffmann is the managing director.
None of the selling securities holders have never held any position, office, or
other material relationship with the Company.
The selling securities holders do not own any other securities of Nannaco.
Selling Securities Holders Plan of Distribution
Selling security holders may sell or distribute their shares in transactions
through underwriters, brokers, dealers or agents from time to time or through
privately negotiated transactions, including distributions to shareholders or
partners or other persons affiliated with the selling securities holders.
The distribution of the selling securities holders shares may be effected from
time to time in one or more transactions that may involve crosses or block
transactions. These transactions may occur in any of the following ways:
1. In Market Transactions;
2. In Privately Negotiated Transactions with Investors;
3. Through the writing of options on the shares, whether such options are
listed on an options exchange or otherwise.
Any such transactions may be effected at market prices prevailing at the time
of sale, at prices related to such prevailing market prices, at negotiated
prices or at fixed prices.
If the selling securities holders effect such transactions by selling the shares
to or through underwriters, brokers, dealers or agents, such underwriters,
brokers, dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the selling securities holders or commissions
from purchasers of the shares for whom they may act as agent, which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents might be in excess of those customary in the types of transactions
involved. Nannaco is not aware of any plan, agreement or understanding to use
underwriters in the distribution of the shares. In the event an underwriter or
underwriters are added to the offering, Nannaco will file a post effective
amendment to reflect the underwriter's involvement in the offering.
Selling securities holders and any brokers, dealers or agents that participate
in the distribution of the securities might be deemed to be underwriters, and
any profit on the sale of the securities by them and any discounts, concessions
or commissions received by any such underwriters, brokers, dealers or agents
might be deemed to be underwriting discounts and commissions under the
Securities Act.
Selling securities holders may pledge their shares from time to time in
connection with such selling securities holders' financing arrangements. To the
extent any such pledgees exercise their rights to foreclose on any such pledge,
and sell the shares, such pledgees may be deemed underwriters with respect to
such shares and sales by them may be effected under this Prospectus.
The Company will not receive any of the proceeds from the sale of any of the
shares by the selling securities holders.
Under the Exchange Act and applicable rules and regulations, any person engaged
in a distribution of any of the shares may not simultaneously engage in market
making activities with respect to the shares for a period, depending upon
certain circumstances, of either two days or nine days prior to the commencement
of such distribution. In addition, the selling securities holders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations, including Regulation M, which provisions may limit the timing of
purchases and sales of any of the shares by the selling securities holders.
Under the securities laws of certain states, the shares may be sold in such
states only through registered or licensed brokers or dealers. In addition, in
certain states the shares may not be sold unless the shares have been registered
or qualify for sale in such state or an exemption from registration or
qualification is available and is complied with.
Transfer Agent
The transfer agent with respect to the shares is ComputerShare Investor
Services, Inc., Lakewood, Colorado.
Legal Matters
The legality of the securities of the Company offered have been passed on for
Nannaco by Dennis Brovarone, Attorney at Law, Littleton, Colorado.
Independent Public Accountant
The balance sheet as of September 30, 1999 and 2000 and the related statements
of income, retained earnings, and cash flows incorporated by reference in this
prospectus, have been included herein in reliance on the report of James J.
Taylor Certified Public Accountant given on the authority of that firm as
experts in auditing and accounting.
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
For the year ended September 30, 2000 and for the period beginning October 20,
1998 (date of inception) and ending September 30, 1999
TABLE OF CONTENTS PAGE
NUMBER
Independent Auditors' Review Report on Basic Financial Statements F-1
Financial Statements:
Balance Sheet F-2
Statements of Income and Retained Deficit F-4
Statement of Cash Flows F-5
Statement of Stockholders' Equity F-6
Independent Auditors' Notes to Financial Statements F-7
Unaudited Financial Statements for the six month periods ended June 30, 2001
and 2000
Balance Sheets F-28
Statements of Operation and REtained Deficits F-30
Statements of Cash Flows F-31
Statements of Stockholders' Equity F-32
Notes to Unaudited Financial Statements F-33
JAMES J. TAYLOR
Certified Public Accountant
Report of Independent Certified Public Accountant
The Board of Directors
NANNACO, INC.
9739 Cobb St.
San Antonio, Texas 78217
I have audited the balance sheet of NANNACO, INC. (a Texas corporation and
development stage company) as of September 30, 2000 and 1999, and the related
statements of operation and retained deficits, statement of cash flows, and the
statement of stockholders' equity for the year ended September 30, 2000, and the
period from October 20, 1998 (the date of inception) and ended September 30,
1999. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on the financial
statements based on my examination.
I conducted the audit in accordance with generally accepted auditing standards.
These standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. My audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluation the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
As discussed in Note 14 to the financial statements, certain errors resulting in
overstatement of previously reported benefit for income taxes and understatement
of organization expenses as of September 30, 1999, were discovered during the
current year. Accordingly, the September 30, 1999 financial statements have been
restated and an adjustment to retained deficit has been made to correct the
error.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of NANNACO, INC. as of September 30,
2000 and 1999, and the results of its operations, changes in retained earnings,
and cash flows for the year ended September 30, 2000, and the period beginning
October 20, 1998 (date of inception) and ended September 30, 1999 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming NANNACO, Inc.
will continue as a going concern. As shown in the financial statements, the
Company has a deficit from operations for the period of October 20, 1998 (date
of inception) through September 30, 1999, in the amount of $131,495, and for the
year ending September 30, 2000, in the amount of $2,993,729. These conditions
raise substantial doubt about the Company's continued existence. The financial
statements do not include any adjustments that might result form the outcome of
these uncertainties.
January 4, 2001
and May 18, 2001
and September 14,2001
James J. Taylor
----------------
Certified Public Accountant
New Braunfels, Texas
555 IH 35 South, Suite 312 * New Braunfels, Texas 78130
Telephone(830)624-0100 * Fax (830)624-0300
e-mail address: james_j_taylor@msn.com
-1-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
Balance Sheets
September 30, 2000 and 1999
ASSETS
------
September September
30, 2000 30, 1999
--------- ---------
Current Assets:
Cash on hand and in banks $ 0 $ 2,403
Certificates of deposit 40,624 5,000
Cash held in escrow 2,472
Accounts receiveable
Trade 20,304 174,364
Trade receiveable reserve 2,634
Other 27,087
-------- --------
Total accounts receiveable 20,304 204,085
-------- --------
Investment in mutual funds (at fair market value
cost at September 30, 2000, $255,555) $267,913 0
Other Current Assets:
Prepaids and deposits 117,325 32,246
-------- -------
Total current assets 448,638 243,734
Fixed Assets:
Equipment and fixtures 192,485 132,489
Vehicles 66,714 48,045
Less:accumulated depreciation (58,924) (26,925)
------- -------
Net property and equipment 200,275 153,609
Other Assets:
Notes receivable - investors 51,000 0
Accrued interest on investors notes receivable 1,013
------- -------
Total Other Assets 52,013 0
TOTAL ASSETS $700,926 $397,343
======== ========
See Accountants' Report and Note to Financial Statements
-2-
NANNACO, INC
(A Developement Stage Company)
d.b.a. Surface Pro
Balance Sheets
September 30, 2000 and 1999
LIABILITIES AND STOCKHOLDER'S EQUITY
September September
30, 2000 30, 1999
Current Liabilities: --------- ----------
Bank overdrafts $10,651 $8,623
Accounts payable - trade 23,134 4,212
Loan payable - brokerage firm 132,797 8,675
Current portion of notes payable 83,408 21,838
Sales taxes payable 27,367 29,832
Payroll taxes accured and/or withheld 50,432 10,991
--------- --------
Total current liabilities 327,789 84,171
Long-Term Liabilities:
Installment notes payable 39,514 29,581
Notes payable - banks (lines of credit) 72,430 40,000
Notes payable - individuals 32,950
Less: current portion (83,408) (21,838)
--------- --------
Net long-term debt 28,536 80,693
--------- --------
Other Liabilities:
Loans from shareholders 0 234,936
--------- --------
Total liabilities 356,325 399,800
Stockholders' Equity:
Common stock (1,000 shares $1 par value authorized 0 shares
issued and outstanding at 09/30/00.
200 shares issued and outstanding at 09/30/99) 200
(50,000,000 shares $0.001 par value authorized,
14,957,600 shares issued and outstanding at
09/30/00, 19,999,800 shares issued and outstanding
at 09/30/99) 14,958 19,999
Preferred stock - 10,000,000 shares authorized, none issued
and outstanding 0 0
Paid in surplus 3,452,311 108,839
Retained earnings (3,122,668) (131,495)
------------ -----------
Total stockholder's equity 344,601 (2,457)
------------ -----------
TOTAL LIABLITIES AND STOCKHOLDER'S EQUITY $700,926 $397,343
============ ===========
See Accountants' Report and Note to Financial Statements
-3-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
Statements of Operations and Retained Deficits
For the year ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through September 30, 1999
September September
30, 2000 30, 1999
--------- ---------
Income:
Revenue $277,613 $386,929
Less: refunds and adjustments (2,975) (8,707)
-------- --------
Total 274,638 378,222
Cost of Sales:
Wages 366,382 206,906
Supplies 89,532 60,229
Contract labor 30,993 16,844
-------- --------
Total cost of sales 486,907 283,979
-------- --------
Gross Profit (Loss) (212,269) 94,243
Administrative and General:
Advertising and public relations 54,437 8,696
Bank charges and wire fees 3,931 4,014
Stock offering costs 72,482 0
Consulting fees 1,049,000 0
Cost of debt converted stock 509,500 0
Gas, fuel and oil 35,122 22,341
Bad debt expense 139,762 0
Bonus expense 3,750 3,860
Depreciation 37,752 26,925
Dues and subscripitions 10,311 2,908
Equipment rental 7,055 2,340
Factoring fees 0 12,238
Insurance 28,352 10,099
Claim settlement expense 435,000 0
Legal and professional 35,447 7,827
Meals and entertainment 6,945 1,067
Miscellaneous 18,076 2,196
Office supplies 18,900 6,384
Officer compensation 136,500 14,080
Organization expense 0 20,315
Payroll tax expense 36,865 18,711
Rent 53,487 23,013
Repairs and maintenance 26,421 23,854
Other taxes 5,506 640
Stock registration expense 1,924
Supplies and tools 1,170
Telephone 33,864 9,471
Trade show expense 1,967 0
Travel and entertainment 16,541 1,125
Utilities 2,562 408
--------- ---------
Total administrative and general expenses 2,781,460 223,682
--------- ---------
Net Income (Loss) from Operations (2,993,729) (129,439)
Other Income (Expense)
Interest income 2,692 87
Divivdend income 672 0
Loss on disposition of securities (321) 0
Interest Expense (12,845) (2,143)
Unrealized gains (losses) on mutual funds 12,358 0
--------- --------
Total other income (expense) (2,556) (2,056)
--------- --------
Net Income (Loss) to Retained Deficit (2,991,173) (131,495)
Retained deficit, beginning of period (131,495) 0
------------- ----------
Deficit, End of Period ($3,122,668) (131,495)
============= ==========
Net (loss) per share of common stock ($0.2988) ($0.0260)
============= ==========
See Accountants' Report and Notes to Financial Statements
-4-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
Statements of Cash Flows
For the year ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through September 30, 1999
September September
30, 2000 30, 1999
Cash flows from operating activities:
Net income (loss) ($2,991,173) ($131,495)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 37,752 26,925
(Increase) decrease in certificates of deposit (35,624) (5,000)
(Increase) decrease in accounts receivable - trade 154,060 (174,364)
(Increase) decrease in accounts receivable - reserve 2,634 (2,634)
(Increase) decrease in accounts receivable - other 24,615 (27,087)
Increase in bank overdraft 2,028 8,623
(Increase) decrease in mutual fund shares (255,555) 0
(Increase) in fair market value of mutual fund shares (12,358) 0
Increase (decrease) in accounts payable 18,922 4,212
Increase (decrease) in loans payable - brokerage firm 124,122 8,675
Increase (decrease) in current portion of long-term debts 61,570 21,838
Increase (decrease) in sales taxes payable (2,465) 29,832
Increase (decrease) in payroll tax liabilities 39,441 10,991
-------------- ------------
Total adjustments 159,142 (97,989)
-------------- ------------
Net cash provided (used) by operating activities (2,832,031) (229,484)
Cash Flows from investing activities:
Cash advances to stockholders, and related accrued interest (52,013) 0
(Purchase) of fixed assets (84,418) (180,534)
(Increase) in prepaid expense and deposits (85,079) (32,246)
-------------- ------------
Net cash provided (used) by investing activities (221,510) (212,780)
Cash Flows from financing activities:
Proceeds (repayment) long-term debts
Loans from shareholders (234,936) 234,936
Installment obligations 4,913 29,581
Current portion to current liabilities (256) (10,722)
Bank lines of credit 37,450 40,000
Current portion to current liabilities (61,314) (11,116)
Loans from individuals (32,950) 32,950
-------------- ------------
(287,093) 315,629
-------------- ------------
Proceeds (redemption) of common stock:
Initial capitalization (8,199) 200
Common stock issued for services 50 19,999
Common stock issued in debt conversion 1,029 0
Common stock issued for claims settlement 435 0
Common stock issued in private placement 1,444 0
-------------- ------------
(5,241) 20,199
-------------- ------------
Proceeds (redemption) of paid-in capital
Redemption of fractional shares conversion from $1.00
par value to $0.001 par value (6,601) 800
Related paid-in capital amounts issued in debt conversion 874,067 0
Related paid-in capital amounts issued for claims settlement 434,565 0
Related paid-in capital amounts issued in private placement 992,491 0
Related paid-in capital amounts common stock issued
for services 1,048,950 0
Stated value of equipment contributed in excess of value of
common shares 0 108,039
-------------- ------------
3,343,472 108,839
-------------- ------------
Net cash provided (used) by investing activities 3,051,138 444,667
-------------- ------------
Net increase (decrease) in cash and equivalents (2,403) 2,403
Cash and equivalents, beginning of period 2,403 0
------------- ------------
Cash and equivalents, end of period $ 0 $2,403
============= ============
See Accoutants' report and Notes to Financial Statements
-5-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
Statements of Stockholders' Equity
For the Period of October 20, 1998 (date of inception)
through September 30, 2000
SHARES COMMON STOCK DOLLARS
--------------------------------- --------------------------------------------------
1.00 PAR 0.001 PAR TOTAL 1.00 0.001 PAID IN RETAINED
DATE VALUE VALUE SHARES STOCK STOCK SURPLUS DEFICIT TOTAL
---- -------- --------- ------- ----- ----- ------- -------- -----
Balance at October 1, 1998 $ 0 $ 0 $0 $0 $0
10/20/98 Original capitalization 500 500 500 500 1,000
10/20/98 Property contributed by stockholder 0 0 108,039 108,039
02/15/99 Surrendered certificates (300) (300) (300) 300 0
06/1/99 Issued for services 19,999,800 19,999,800 19,999 19,999
09/30/99 Loss for period ending 09/30/99 (131,495) (131,495)
--------------------------------------------------------------------------------------
Total 09/30/99 200 19,999,800 20,000,000 200 19,999 108,839 (131,495) (2,457)
03/10/00 Reverse split (1,000,000 TO 1) (200) (19,999,788) (19,999,988) 0
--------------------------------------------------------------------------------------
Sub Total 0 12 12 200 19,999 108,839 (131,495) (2,457)
03/31/00 Forward split (1 to 1,000,000) 0 11,999,988 11,999,988 0
Fractional redemption (200) 199 (1)
Fractional redemption (7,999) (6,800) (14,799)
--------------------------------------------------------------------------------------
0 12,000,000 12,000,000 0 12,000 102,238 (131,495) (17,257)
05/22/00 Shares issued for services 50,000 50,000 0 50 1,048,950 1,049,000
05/22/00 Shares issued for claim settlement 435,000 435,000 435 434,565 435,000
05/22/00 Shares issued for debt 1,029,200 1,029,200 1,029 1,028,172 1,029,201
less $154,105 costs 0 (154,105) (154,105)
07/13/00 Shares sold at private placement 1,443,400 1,443,400 0 1,444 1,234,081 1,235,525
less $241,590 costs (241,590) (241,590)
09/30/00 Fiscal year transactions
09/30/00 Loss for FYE 09/30/00 (2,991,173)(2,991,173)
--------------------------------------------------------------------------------------
Total 09/30/00 0 14,957,600 14,957,600 $ 0 $14,958 $3,452,311 (3,122,668) 344,601
======================================================================================
See Accountants' report and Notes to Financial Statements
-6-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Note 1 - GOING CONCERN
------
The accompanying financial statements of NANNACO, Inc. (a developement
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
neccessary, if the Company is unable to continue as a going concern.
The Company has taken drastic 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 drastic 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 is that all agreed
services have been provided. .
Supplies and materials are purchased and consumed as necessary.
(Continued)
-7-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
B. REVENUE AND COST RECOGNITION (Continued)
The Company warranties its service 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.
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. SALES OF ACCOUNTS RECEIVABLE
The Company entered into a contract in December, 1998, to sell certain of
its accounts receivable as a means of facilitating cash flow and generating
working capital. The terms of the contract call for the establishment of a
reserve account for charge backs in an amount equal to ten percent (10%) of
the accounts sold. This amount is refunded in varying percentages based on
the collection of the purchaser. The Company's reserve may also be charged
for any account not collected in 90 days. As of September 30, 1999, the
Company was contingently liable on $26,340 of accounts receivable, which
was secured by a reserve account totaling $2,634. This practice was
terminated during the year ended September 30, 2000, and at that date there
were no accounts sold, therefore no reserves are withheld and no potential
future liability exists for uncollected accounts.
E. 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.
F. 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.
(Continued)
-8-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
F. FEDERAL INCOME TAXES (Continued)
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, 2000, no deferred taxes or benefit
from income taxes has been provided.
Note 3 - CERTIFICATES OF DEPOSIT
------
On April 16, 1999, the Company invested $5,000.00 in a certificate of
deposit at Frost National Bank for one year at the interest rate of 3.8%.
This certificate is pledged as security for a $5,000.00 line of credit,
which at September 30, 1999, was in full use by the Company. This
certificate matured April 16, 2000, paying $190 in interest, and was
renewed at a rate of 5.5% per annum, but was redeemed on July 6, 2000,
including $56 interest income.
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.
Both certificates secure notes payable and have interest income accrued in
the amount of $312 each at September 30, 2000.
Note 4 - CASH HELD IN ESCROW
------
On June 12, 2000, an amount of $20,000 was deposited into the Company
attorney's escrow account for the payment of Company expenses associated
with the attorney's activities. To September 30, 2000, expenses in the
amount of $17,528 have been paid out by the attorney for Company benefit.
This leaves the balance at $2,472 on deposit. All of this activity has been
included in the Company's books.
Note 5 - ACCOUNTS RECEIVABLE
------
A. 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 September 30, 2000, the balance of trade receivables was
$20,304, which is deemed to be 100% collectible in full. At September 30,
1999, there was a balance of $174,364 due, of which $150,000 has been
determined to be uncollectible. Texas sales taxes on this amounted to
$10,238, therefore the charge against income was $139,762.
B. TRADE RECEIVABLE RESERVE
In compliance with the agreement to sell receivables to a third party, an
amount equal to 10% of the balances of the accounts was required to remain
(Continued)
-9-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
B. TRADE RECEIVEABLE RESERVE (Continued)
on deposit with the third party purchaser of the accounts. This amount was
adjusted monthly to equal the specified amount. At September 30, 1999,
there was a balance retained in the amount of $2,634. This amount was
refunded at the end of the agreement, which terminated during the year
ended September 30, 2000, and as of that date, there was no reserve deposit
in existence.
For the period ended September 30, 1999, the other receivables consisted of
$87 in interest accrued on the $5,000 certificate of deposit and a $27,000
cash advance to an individual, which was repaid in the year ended September
30, 2000.
Note 6 - INVESTMENT IN MUTUAL FUNDS
------
On July 10, 2000, an amount of $520,000 was invested, through a broker, in
mutual funds and certificates of deposit in an effort to maximize earnings
on idle funds. Therefore, these investments are treated as trading
investments. These funds have been withdrawn as neceaary for usage in
operations. During the period, funds were withdrawn as necessary to meet
obligations, leaving a cost basis of $255,555 invested at September 30,
2000. This amount had a market value of $267,913at September 30, 2000. The
increase in market value created an investment appreciation and an
unrealized gain on investments of $12,358 at Balance Sheet date.
9/30/00
UNREALIZED
MARKET GAIN
FUND VALUE COST (LOSS)
---- ------ ---- ------
Davis New York Venture Class B $85,962 $85,000 962
Pimco Innovation Fund 87,867 85,555 2,312
MFS Utilities Fund Cl B 94,084 85,000 9,084
------ ------ -----
$267,913 $255,555 $ 12,358
======== ======== ========
Beginning in August, 2000, the Company was allowed to draw cash amounts as
needed, using the invested funds as security. As of September 30, 2000,
funds in the amount of $132,797 had been withdrawn (see Loans Payable -
Brokerage Firm) and was secured by the mutual funds investment. Interest in
the amount $653 at the rate of 9.625% was charged for the month of
September, 2000.
(Continued)
-10-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Note 7 - PREPAIDS AND DEPOSITS
------
The following schedule details the content of the asset Prepaids and
Deposits:
09/30/00 09/30/99
--------- ---------
Final month's rent on warehouse $ 1,600 $ 1,600
Prepaid office lease 24,480
Prepaid consulting fees 25,000
Prepaid legal fees 87,382
Prepaid interest on installment loan 3,863 5,646
--------- ---------
Total prepaids and deposits $117,325 $32,246
========= =========
The final month's rent on warehouse facility will be absorbed the last
month of occupancy of the facility, and the amount will become an expense
at that time.
The prepaid office lease consists of the unamortized portion of a year's
lease in the amount of $34,632 on the Company's office facility. The year's
lease was prepaid in full on June 14, 2000, with the lease on the premises
beginning on June 15, 2000, and continues for a period of twelve months.
Each calendar month, 1/12 of the total amount is taken into expense.
The prepaid consulting fees at September 30, 1999, was for services to be
rendered to the Company during the year ended September 30, 2000. The
services were rendered and the amount taken to the proper expense.
The prepaid legal fees was the result of an agreement between the Company
and their legal counsel. A retainer of $100,000 was paid to the attorney
for future services and applicable expenses. An amount of $5,000 per month
plus expenses was to be taken into income by the attorney and a like amount
expensed for legal expense by the Company. At September 30, 2000, an amount
of $12,618 had been treated in this manner, leaving the amount shown as
prepaid. On December 5, 2000, subsequent to the period covered in this
report, the attorney has refunded $45,000 to the Company, which will reduce
the amount prepaid at that time. This attorney is retained for SEC
compliance issues, including prior placements and offerings, registration
statements and other SEC issues. There is no litigation pending at this
time.
The prepaid interest amount carried on the balance sheet is 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.
(Continued)
-11-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Note 8 - EQUIPMENT AND FIXTURES AND VEHICLES
------
Fixed assets are recorded at cost and are summarized as follows:
09/30/00 09/30/99
--------- ---------
Equipment $ 192,485 $ 132,489
Vehicles 66,714 48,045
--------- ---------
Total Fixed Assets (at Cost) $ 259,199 $ 180,534
Less Accumulated Depreciation from
Inception (October 20, 1998) to
September 30, 2000 (58,924) (26,925)
--------- ---------
Net Fixed Assets at September 30, 2000 $200,275 $153,609
========= =========
Depreciation expense charged against operations for the period ending
September 30, 1999 totaled $26,925 and $37,752 for the year ended September
30, 2000.
Note 9 - Other Assets
------
A. Notes Receivable - Investors
The Company has made advances to four of its investors in the amount of
$51,000 at September 30, 2000. These cash advances were secured by
promissory notes signed on February 14, 2001, and are 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 September 30,
2001. This interest is due on January 1, 2003, along with the
principal.
Note 10 - CURRENT LIABILITIES
------
A. Bank overdrafts on September 30, 2000 and September 30, 1999 in the
amounts of $10,651 and $8,623 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 $23,134 and $4,212 for September 30, 2000 and
September 30, 1999 were the amounts owed to suppliers, utilities and
other monthly operating expenses at the end of the periods. These
amounts are cleared during the month following the purchase.
C. At September 30, 1999, the other accounts payable consisted of an
accumulation of payroll deductions from employees which were expended
for the benefit of the employee during the following year.
(Continued)
-12-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Note 10 - CURRENT LIABILITES(Continued)
-------
D. Accrued interest on loans and notes payable is accrued from the date
of the last payment through September 30, 2000. The detail of this
accrual through September 30, 2000, is as follows:
Loans payable - paid through 09/30/00 $ 0
Frost Bank Line of Credit #1 312
Frost Bank Line of Credit #2 312
Installment note - Bank One 935
Bank One Line of Credit 783
------
Total accrued interest payable at 09/30/00 $2,342
======
The interest on the Auto One note is included in the balance and
prepaid interest account. This is expensed on a monthly basis and has
been expensed through September 30, 2000.
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 unremitted 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.
F. LOANS PAYABLE
Loans payable for September 30, 2000, in the amount of
$132,767, is the amount owed to the brokerage firm cash account,
secured by mutual funds held by the firm. See Note 20,
Subsequent Events, Page 24. Interest charges on the outstanding balance
is added to the Company's account at the end of the month. For
September 30, 2000, the interest is included in the balance of the loan
amount owed by NANNACO, Inc.
Note 11 - LONG TERM LIABILITIES
-------
B. INSTALLMENT NOTES PAYABLE
Installment obligations consist of two notes payable. The first note
is secured by a vehicle and the endorsement of the Company President,
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 is
being amortized straight-line method over the term of the note. As of
September 30, 2000 and 1999, the details are as follows:
(Continued)
-13-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Note 11 - LONG TERM LIABILITIES (Continued)
-------
A. INSTALLMENTNOTES PAYABLE(Continued)
Note payable to Auto One Acceptance Corporation, payable in 60 monthly
installments of $390 each, secured by a 1994 GMC truck.
09/30/00 09/30/99
-------- --------
Original Amount $23,400 $23,400
Current Balance $10,140 $15,580
Long-Term Portion $ 5,460 $10,900
Portion due in twelve months $ 4,680 $ 4,680
Interest rate 20.75% 20.75%
Unamortized interest at 09/30 $ 3,863 $ 5,646
At September 30, 1999, a second note payable was secured by the
guarantee of the Company President and is payable to Frost National
Bank. Interest, at the rate of 10% per annum, is not included in the
balance and is taken into expense as it paid. This note is payable in
21 monthly installments at the amount of $750.00 each. This note was
retired during the year ended September 30, 2000. The details as of
September 30, 1999 were as follows:
Original Amount $14,000
Long-Term Portion at 09/30/99 $ 6,042
Portion due in twelve months
at September 30, 1999 $ 7,958
Interest Rate 10%
Due Date Monthly
Balance September 30, 2000$ -0-
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 September 30, 2000 are as
follows:
Original Amount $35,000
Current Balance $29,374
Long-Term Portion $23,076
Portion due in twelve months $ 6,298
Interest Rate 10%
Due Date Monthly
(Continued)
-14-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Note 11 - LONG TERM LIABILITIES (Continuted)
-------
B. NOTES PAYABLE - LINES OF CREDIT
At September 30, 1999, the Company has established a line of credit
with two banks. The Frost National Bank note is secured by a
certificate of deposit (Note 3). The details on the Frost National Bank
loan are:
Original Amount $5,000
Long-Term Portion at 09/30/99 -0-
Portion due in twelve months
at September 30, 1999 $5,000
Interest Rate 11.8%
Balance at September 30, 2000 $ -0-
The Bank 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 is July 15, 2001, with interest at prime plus 1.25% to be paid
monthly.
Available Amount $35,000
Balance September 30, 2000 $34,980
Long-Term Portion at 09/30/00 $ -0-
Portion due in twelve months
at September 30, 2000 $34,980
Interest Rate Prime plus 1.25%
Due date 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 are due June 21,
2001 and both require interest on the outstanding balance at the rate
of 9.5% per annum. The summary of both notes is as follows:
Note #1 Note #2
Available Amount $20,000 $20,000
Balances at 09/30/00 $19,450 $18,000
Long-Term Portion at 09/30/00 $ -0- $ -0-
Portion Due in Twelve Months $19,450 $18,000
Interest Rate 9.5% 9.5%
Due Dates 06/21/01 06/21/01
(Continued)
-15-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Note 11 - LONG TERM LIABILITIES (Continued)
-------
C. NOTE PAYABLE - INDIVIDUAL
The Company obtained a startup loans from an individual. This loan is
due within five years of incorporation in cash or stock in the
corporation. There is no provision for interest. This note was
partially repaid and partially converted to common stock during the
year. The note is as follows:
Mark A. Tresch $ 32,950
========
Note 12- LOANS FROM SHAREHOLDER
-------
Due to the rapidly expanding business opportunities, the Company has
been compelled to seek capital on an interim basis to support its
expanding operation and to purchase additional equipment to meet these
needs. One stockholder, Clifford Munson, has made these necessary
advances in the amount of $234,936 at September 30, 1999. These loans
were liquidated during the year ended September 30, 2000.
Note 13 - LEASE COMMITMENTS
-------
The Company leases its warehouse location on an annual basis. This
lease for twelve months is in the amount of $18,674, payable in monthly
installments of $1,600 per month following an initial payment of
$1,074. The last month's rent in the amount of $1,600 remains on
deposit with the lessor.
The Company also leases office space for its operation. This lease is
for twelve months and is in the amount of $34,632, which was paid in
advance. The period of the lease is from June 15, 2000 through June 15,
2001. The prepayment is amortized each month in the amount of $2,886
(See Note 7).
Note 14 - COMMON STOCK, PREFERRED STOCK, PAID IN SURPLUS
-------
NANNACO, Inc. was originally chartered on October 20, 1998, under the
laws of the State of Texas. 1,000 shares of $1 par value common stock
was authorized. Of this, 500 shares were purchased and issued on
organization of the corporation. This stock was sold at a value at
that time of $2 per share to nine shareholders, with a stock
capitalization of $500 and a paid in capital amount of $500. On
February 15, 1999, four of these shareholders surrendered their
certificates and an additional amount of $300 was taken into paid in
capital.
(Continued)
-16-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Note 14 - COMMON STOCK, PREFERRED STOCK, PAID IN SURPLUS (Continued)
-------
The Paid-In Capital in the amount of $108,039 upon incorporation was
generated from equipment contributed by the founder and president upon
incorporation of the Company and was approved by the board of
directors. This equipment was recorded at an amount agreed upon by the
corporation officers and directors, said amount being less than the
founder's cost or the fair market value at the date of organization.
On June 1, 1999, the Company amended its charter to authorize the
issuance of additional common stock and one class of preferred stock.
This amendment authorized a change from one thousand (1,000) shares of
$1.00 par value common stock to fifty million (50,000,000) shares of
$0.001 par value common stock and 10,000,000 shares of preferred stock.
During the period of June 1, 1999 through July 1, 1999, the Company
sold or converted 19,999,800 shares of this new value of common stock.
This stock was issued at the new par value ($0.001 per share), with a
charge against operating expenses during the period. To date, no
shares of the preferred stock have been issued.
On March 10, 2000, at a duly called stockholders meeting, a 1,000,000
to one reverse stock split was approved with all certificates under
1,000,000 shares being canceled. The result of this reverse stock split
resulted in only one stockholder, Andrew DeVries III, remaining.
Exhibit A on Page 26 of this report reflects this common stock activity.
On March 31, 2000, a 1,000,000 to 1 forward split was declared by the
board of directors. This resulted in Andrew DeVries III, the only
stockholder, now holding 12,000,000 shares.
Subsequently, on May 22, 2000, $519,700 in debt being held for
conversion was converted and the appropriate 1,029,200 shares of
common stock were issued to the debtors. A corrective issue took place
on August 8, 2000. These shares were converted at the price of $1 per
share. This caused an amount of $509,500 to be charged to operating
income and is included in the Statement of Operations for the period
ending September 30, 2000.
(Continued)
-17-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Note 14 - COMMON STOCK, PREFERRED STOCK, PAID IN SURPLUS (Continued)
On June 24, 2000, 1,443,400 shares of common stock were sold in a
Regulation D private offering. These shares were sold at $1 per share
pursuant to Rule 506 and were entirely private transactions.
Subsequent to this sale, all shares of stock and conversion agreements
have been at $1 per share.
On July 24, 2000, Andrew DeVries III canceled one of his 1,000,000
shares personal certificates and distributed it as a personal gift to
ten individuals. At the time of the gift, Mr. DeVries held 82.2% of
the outstanding common stock. A charge of $999,000 was taken in the
statement of operations for the year ending September 30, 2000. This
charge is included in the consulting fees expense.
EXHIBIT B ON PAGE 27 OF THIS REPORT REFLECTS THE ACTIVITIES OF MARCH 31,
MAY 22, JUNE 24, AND JULY 24, 2000
On August 21, 2000, Form SB-2 Registration Statement was filed under
the Securities Act of 1933 was filed with the Securities and Exchange
Commission of the United States. On October 5, 2000, the SEC issued
issued their comments, and at this time, the Company attorney is in the
process of preparing a response.
In April of 2000, NANNACO, Inc. became aware of the fact that certain
individuals had raised money from five investors on behalf of the
Company. These investors had been promised NANNACO, Inc. common stock
in exchange for their money. The Company never received any of the
funds raised from these investors. In an effort to protect the good
name of the Company, the Board of Directors agreed to honor the
investment made by these individuals and to issue them the appropriate
number of shares, in exchange for Memoranda of Agreement agreeing not
to take legal action against the Company. This transaction was treated
as an operating expense during the year ended September 30, 2000, in
the amount of $435,000 with the appropriate entries to Common Stock
and Paid-In Surplus.
Exhibit C on Page 29 of this report reflects this common stock activity
On May 22, 2000, 50,000 shares of common stock in the Company were
issued in exchange for consulting services. This transaction was
treated as an operating expense for the year ended September 30, 2000,
and proper treatment in the Common Stock and Paid-In Surplus accounts
Exhibit D on Page 29 of this report reflects this common stock activity
(Continued)
-18-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Note 15 - RECONCILIATION OF COMMON STOCK AND PAID-IN CAPITAL BETWEEN THE
------- STATEMENTS OF CASH FLOWS AND THE STATEMENTS OF STOCKHOLDERS' EQUITY
A. PERIOD OF OCTOBER 28, 1998 (date of inception) THROUGH
SEPTEMBER 30, 1999:
STATEMENT OF STOCKHOLDERS' EQUITY
COMMON PAID-IN
STOCK CAPITAL TOTAL
Original capitalization
1,000 Shares $1.00 par
value common stock, 500
shares issued $500 $500 $1,000
Surrender of shares (300) 300 0
------ ------ -----
200 800 1,000
Contribution of equipment by
Company founder 0 108,039 108,039
------ ------- -------
200 108,839 109,039
Common stock issued for services
19,999 shares of $0.001 par
value common stock 19,999 0 19,999
------- ------- -------
Totals at September 30, 1999 $20,199 $108,839 $129,038
======= ======== ========
STATEMENT OF CASH FLOWS
COMMON PAID-IN
STOCK CAPITAL TOTAL
------ ------- -----
Original common stock issue $200 $500 $700
Redemption of shares 300 300
Common stock issued for services 19,999 19,999
Contribution of equipment 108,039 108,039
------- -------- --------
Totals at September 30, 1999 $20,199 $108,839 $129,039
======= ======== ========
(Continued)
-19-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Note 15 - RECONCILIATION OF COMMON STOCK AND PAID-IN CAPITAL BETWEEN THE
STATEMENTS OF CASH FLOWS AND THE STATEMENTS OF STOCKHOLDERS' EQUITY
(Continued)
B. YEAR ENDED SEPTEMBER 30, 2000
STATEMENT OF STOCKHOLDERS' EQUITY
COMMON PAID-IN
STOCK CAPITAL TOTAL
------ --------- ------
Redemption of fractional shares:
Original issue @ $1.00 sh. $(200) $199 $(1)
Original issue @ $0.001 sh. (7,999) (6,800) (14,799)
Common stock issued during year
ending 09/30/00:
Shares issued for services 50 1,048,950 1,049,000
Shares issued for claim
settlements 435 434,565 435,000
Shares issued for debt conversion 1,029 1,028,172
Less - conversion costs (154,105) 875,096
Shares sold at private placement 1,444 1,234,081
Less - placement costs 0 (241,590) 993,935
------- ---------- ----------
Totals at September 30, 2000 $(5,241) $3,343,472 $3,338,231
======= ========== ==========
STATEMENT OF CASH FLOWS
COMMON PAID-IN
STOCK CAPITAL TOTAL
Common stock issued as follows:
For services $50 $1,048,950 $1,049,000
For claim settlement 435 434,565 435,000
For debt conversion 1,029 874,067 875,096
For private placement 1,444 992,491 993,935
------- ---------- ----------
$ 2,958 $3,350,073 $3,253,031
======= ========== ==========
Less - Redemption of fractional shares:
Original issue @ $1.00 sh. (200) 199 (1)
Original issue @ $0.001 sh. (7,999) (6,800) (14,799)
-------- ---------- ---------
Totals at September 30, 2000 $(5,241) $3,343,472 $3,338,231
======== ========== ==========
Note 16 - 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 othe changes in equity have
been taken into consideration in this computation.
(Continued)
-20-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Note 17 - ERROR CORRECTIONS
For the period beginning October 20, 1998 (date of inception) and
ended September 30, 1999, there is no basis for recording the income
tax benefits or the deferred tax asset reflected in the financial
statements for the period. Additionally, for the same period, it has
been deemed that all of the organization expenses should be expensed
in full, instead of amortized over a 60 month period, as previously
recorded. Proper adjustments have been made to the proper accounts and
the financial statements for the period have been restated resulting
with an increase in retained deficits in the amount of $18,252 for
organization expenses and $15,288 for tax benefits. These combined
amounts result in a net loss per share of common stock outstanding in
the amount of $0.0066 per share.
Note 18 - SEGMENTED DISCLOSURES
A. Reportable Segments - Due to the criteria for the selection of
reporting segments, NANNACO,Inc. has seven reporting segments. These
segments all meet one or more of the required criteria now or in past
periods. These segments are classified by the type of customer to
which the services are provided. The customers are divided into two
categories, which are residential customers and commercial customers.
The services performed for residential customers are wood restoration,
stone restoration, sealing, and pressure washing. For commercial
customers the service classifications are pressure washing,
environmental services, and historical restoration.
Residential wood restoration involves wood surface preparation,
including chemical or mechanical stripping. Stone restoration involves
essentially the same process, except on concrete and stone surfaces.
The sealing service to residential customers is the chemical finishing
process applied to either stone or wood surfaces, whether or not the
surface is cleaned by the Company. Pressure washing for residential
customers is general water and pressure cleaning of surfaces where
water reclamation procedures are not a factor and need not apply.
For commercial customers, the pressure washing is essentially the same
service as offered to residential customers, only provided to
commercial (business) customers. The environmental services offered to
commercial customers is spill response and/or other specialized
cleaning services that require water containment or special chemical
processes and waste water removal. For historical restoration services
to commercial customers, NANNACO, Inc. performs services similar to a
combination of residential wood restoration and residential stone
restoration, plus specialized cleaning and sealing procedures for
historical structures.
(Continued)
-21-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Note 18 - SEGMENTED DISCLOSURES (Continued):
B. Measurement of Segment Profit or Loss and Segment Assets - The
accounting policies of all the segments are the same as those
described in the summary of significant accounting policies. Sales
revenue and cost of goods sold for each segment can be determined on a
segment basis. The remaining operating expenses are general corporate
expenses, but are allocated to the various segments on the basis of
the same percentages as result from the allocation of the cost of
sales for the individual segments. Management feels that this is a
fair allocation of the general corporate expenses to give a net profit
from operations for each individual segment. The allocation for
interest expense is based upon the same percentages. Since all fixed
assets are jointly utilized by all segments, the depreciation expense
is allocated to the segments by the percentage of revenue generated by
the segment. Interest income and investment revenues are common to all
segments, so this also is allocated by the segment income percentage.
Gains or losses on asset dispositions are also allocated by the income
allocation method.
SCHEDULE OF SEGMENTED ACCOUNTS FOR THE YEAR ENDED SEPTEMBER 30, 2000:
RESIDENTIAL SEGMENTS
--------------------------------------------------
WOOD STONE PRESSURE
RESTORATION RESTORATION SEALING WASHING
----------- ----------- ------- --------
Net sales 46,948 19,137 91,885 13,395
Interest income 458 188 889 135
Dividend income 114 47 222 34
Unrealized gain or (loss)
On mutual funds 2,101 865 4,078 618
(Loss) on disposition
of securities (55) (22) (106) (17)
Interest (expense) (1,412) (1,670) (2,827) (1,284)
Depreciation (expense) (6,418) (2,643) (12,457) (1,888)
Segment profits (loss) (325,157) (384,277) (650,314) (295,598)
Allocation of fixed
assets to segments 44,064 18,144 85,535 12,960
(Continued)
-22-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Note 18 - SEGMENTED DISCLOSURES (Continued):
SCHEDULE OF SEGMENTED ACCOUNTS FOR THE YEAR ENDED SEPTEMBER 30, 2000
(Continued)
COMMERCIAL SEGMENTS
--------------------------------------------------
PRESSURE ENVIRONMENT HISTORIC COMPANY
WASHING SERVICES RESTORATION TOTALS
------- -------- ----------- --------
Net sales 18,469 64,697 20,107 274,638
Interest income 188 646 188 2,692
Dividend income 47 161 47 672
Unrealized gain or (loss)
on mutual funds 865 2,966 865 12,358
(Loss) on disposition
of securities (22) (77) (22) (321)
Interest (expense) (1,284) (2,441) (1,927) (12,845)
Depreciation (expense) (2,643) (9,060) (2,643) (37,752)
Segment profits (loss) (295,598) (561,636) (443,397) (2,955,977)
Allocation of fixed
assets to segments 18,144 62,208 18,144 344,736
SCHEDULE OF SEGMENTED ACCOUNTS FOR THE YEAR ENDED SEPTEMBER 30, 1999:
RESIDENTIAL SEGMENTS
--------------------------------------------
WOOD STONE PRESSURE
RESTORATION RESTORATION SEALING WASHING
----------- ----------- ------- -------
Net sales 57,086 27,085 132,750 19,346
Interest income 13 6 31 4
Interest expense 407 150 600 150
Depreciation 4,039 1,885 9,693 1,346
Segment profits (loss) (19,478) (7,176) (28,704) (7,176)
Allocation of fixed
assets to segments 27,080 12,637 64,992 9,027
COMMERCIAL SEGMENTS
------------------------------------------
PRESSURE ENVIRONMENT HISTORIC COMPANY
WASHING SERVICES RESTORATION TOTALS
------- ---------- ----------- --------
Net sales 23,217 87,784 30,954 378,222
Interest income 5 21 7 87
Interest expense 150 450 236 2,143
Depreciation 1,615 6,193 2,154 26,925
Segment profits (loss) (7,176) (21,528) (11,276) (102,514)
Allocation of fixed
assets to segments 10,832 41,523 14,443 180,534
(Continued)
-23-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
C. RECONCILIATION OF SEGMENTED AMOUNTS:
PERIOD ENDED
9/30/00 9/30/99
------- -------
Interest income $ 2,692 $ 87
Dividend income 672
Unrealized gain (loss) on mutual funds 12,358
(Loss) on disposition of securities (321)
Interest (expense) (12,845) (2,143)
Depreciation (expense) (37,752) (26,925)
Segmented profits (loss) (2,955,977) (102,514)
----------- ---------
Net income (loss) to retained earnings $(2,991,173) $(131,495)
=========== =========
Note 19 - BAD DEBT EXPENSE
Early in its operation, the Company entered into an agreement to perform
several of its services at a discounted rate, with the condition that it
could be shown to prospective customers as an example of its services.
This work included cleaning the premises, upgrading the offices, and a
resurface of the parking area. At the reduced price, this work was
priced at $139,762, and the customer was to pay all or part as it was
able. Subsequently, the customer's business has declined and they have
been unable to pay any amount on the invoices. It was therefore
determined by management that this was an uncollectible account ant to
charge it to operations for the year ending September 30, 2000.
Note 19 - SUBSEQUENT EVENTS
A. Investments in Mutual Funds
In accordance with the cash necessities, the Company liquidated the
substantial portion of their mutual fund investments, subsequent to the
date of this Balance Sheet. These dispositions resulted in a net loss,
when based on historic cost. This loss also absorbs the unrealized
appreciation, which was reported at September 30, 2000. The details of
the liquidation are as follows:
SALES GAIN
DATE FUND PRICE COST (LOSS)
------------------------------------------------------------------
10/11/00 Davis New York Venture $10,384 $10,288 $ 96
10/11/00 Primco Innovation Fund 10,432 10,216 216
10/11/00 MFS Utilities Fund Cl B 31,213 31,402 (189)
01/05/01 Davis New York Venture 74,456 81,271 (6,815)
01/05/01 Primco Innovation Fund 43,358 81,748 (38,390)
01/05/01 MFS Utilities Fund Cl B 52,863 60,013 (7,150)
-------
Net loss from disposition of mutual funds subsequent
To Balance Sheet date $(52,232)
=========
The proceeds from these transactions were used to retire the loans from
the brokerage firm, as well as supplement operations.
As of March 31, 2001, 12.30 shares of MFS Utilities Fund Class B at a
cost of $155.40 and a cash balance of $1,274.26 remained on deposit in
the brokerage account.
B. Conversion Notes Payable On December 7, 2000, an agreement was signed
for the purchase of the Company's Convertible Promissory Note in the
amount of $140,000. This note was for conversion to 140,000 shares of
NANNACO, Inc. common stock, at the market price on the date of
conversion. The maturity date is set as September 25, 2001 and the
note contains the provision for the payment of 10% interest. $140,000
was received by the Company following the closing of the Company's
books on September 30, 2000.
On December 11, 2000, two additional agreements were signed for the
purchase of the Company's Convertible Promissory Notes in the amount
of $205,500. These notes were for conversion to 205,500 shares of
NANNACO, Inc. common stock, at the market price on the date of
conversion. The maturity date is set as September 25, 2001 and the
notes contain the provision for the payment of 10% interest. $205,500
was received by the Company following the close of the Company's books
on September 30, 2000.
C. CHANGE IN FACILITIES - The Company's leases on both office space and
warehouse expired on June 30, 2001. The Company terminated these
leases on July 1, 2001, and moved into a combined office and warehouse
space.
-24-
EXHIBIT A
N
O
ISSUE NANNACO, Inc. RELATED ACCOUNTING T ISSUED
DATE HOLDER RELATIONSHIP PARTY PRICE BASIS FOR PRICE TREATMENT E SHARES
---- ------ ------------ ------- ----- --------------- ---------- - ------
Original Incorporators ($1 Par Value Common Stock):
---------------------------------------------------
12/1/98 Linda J. Morton Administrative Systems Mother of President 1.00 Original Investment Paid Investment 125
12/1/98 Andrew DeVries, III President 1.00 Original Investment Paid Investment 75
12/1/98 Ian Wellborn Technical Advisor 1.00 Original Investment Paid Investment(1) 50
12/1/98 Mark Triesch Corporate Attorney 1.00 Original Investment Paid Investment(1) 50
12/1/98 Clifford Munson Accounting Consultant 1.00 Original Investment Paid Investment(1) 35
12/1/98 Mark Sarlo Procedures Consultant 1.00 Original Investment Paid Investment(1) 50
12/1/98 Albert Limon Technical Advisor 1.00 Original Investment Paid Investment(1) 15
12/1/98 Kevin Morton Consultant Step Father of Pres. 1.00 Original Investment Paid Investment 50
12/1/98 Andrew DeVries, Jr. Management Consultant Father of President 1.00 Original Investment Paid Investment 50
----
Total Original Issue 500
2/15/99 Certificates Surrendered:
------- -------------------------
Linda J. Morton (125)
Andrew DeVries, III (75)
Kevin Morton (50)
Andrew DeVries, Jr. (50)
----
Total Certificates Surrendered (300)
----
Balance Outstanding 200
Issued in Accordance with Charter Amendment of June 1, 1999:
--------------------------------------------------------------
06/1/99 Linda J. Morton Administrative Systems Mother of President 0.001 Services Expensed (1) 8,000
06/1/99 Andrew DeVries, Jr. President 0.001 Services Expensed (1) 203,000
06/1/99 Ian Wellborn Technical Advisor 0.001 Services Expensed (1) 3,000
06/1/99 Mark Triesch Corporate Attorney 0.001 Services Expensed (1) 15,000
06/1/99 Mark Sarlo Procedures Consultant 0.001 Services Expensed (1) 3,000
06/1/99 Albert Limon Employment 0.001 Services Expensed (1) 3,000
06/1/99 Clifford Munson Accounting Consultant 0.001 Services Expensed (1) 30,000
07/1/99 WAPI Consultants 0.001 Services Expensed (1)
07/1/99 WAPI Consultants 0.001 Services Expensed (1)
07/1/99 WAPI Consultants 0.001 Services Expensed (1)
07/1/99 Petty Interna Consultant. 0.001 Services Expensed (1) 300,000
07/1/99 W.M. Jackson Escrow Agent Trust shares for expansion 0.001 Services Expensed (1) 300,000
07/1/99 W.M. Jackson Escrow Agent Trust shares for expansion 0.001 Services Expensed (1) 300,000
07/1/99 W.M. Jackson Escrow Agent Trust shares for expansion 0.001 Services Expensed (1) 300,000
07/1/99 W.M. Jackson Escrow Agent Trust shares for expansion 0.001 Services Expensed (1) 300,000
07/1/99 W.M. Jackson Escrow Agent Trust shares for expansion 0.001 Services Expensed (1) 300,000
07/1/99 W.M. Jackson Escrow Agent Trust shares for expansion 0.001 Services Expensed (1) 300,000
07/1/99 W.M. Jackson Escrow Agent Trust shares for expansion 0.001 Services Expensed (1) 300,000
07/1/99 W.M. Jackson Escrow Agent Trust shares for expansion 0.001 Services Expensed (1) 300,000
07/1/99 W.M. Jackson Escrow Agent Trust shares for expansion 0.001 Services Expensed (1) 300,000
07/1/99 W.M. Jackson Escrow Agent Trust shares for expansion 0.001 Services Expensed (1) 300,000
07/1/99 Ley Industries, Inc Business Development Consultant 0.001 Services Expensed (1) 600,000
07/1/99 Millennium Business Assoc Public Relations Consultant 0.001 Services Expensed (1) 300,000
07/1/99 CPR Holdings, Inc Business Development Consultant 0.001 Services Expensed (1) 500,000
07/1/99 DPA Holdings Business Development Consultant 0.001 Services Expensed (1) 600,000
07/1/99 R. Jay Cassell Local Business Development 0.001 Services Expensed (1) 100,000
07/1/99 R. Jay Cassell Local Business Development 0.001 Services Expensed (1) 100,000
07/1/99 R. Jay Cassell Local Business Development 0.001 Services Expensed (1) 100,000
07/1/99 R. Jay Cassell Local Business Development 0.001 Services Expensed (1) 100,000
07/1/99 R. Jay Cassell Local Business Development 0.001 Services Expensed (1) 100,000
07/1/99 R. Jay Cassell Local Business Development 0.001 Services Expensed (1) 100,000
07/1/99 Andrew DeVries III President 0.001 Services Expensed(1&2)(1)12,099,800
07/1/99 Mark Triesch Corporate Attorney 0.001 Services Expensed (1) 200,000
07/1/99 Mark Triesch Corporate Attorney 0.001 Services Expensed (1) 200,000
07/1/99 Mark Triesch Corporate Attorney 0.001 Services Expensed (1) 200,000
07/1/99 Mark Triesch Corporate Attorney 0.001 Services Expensed (1) 200,000
07/1/99 Mark Triesch Corporate Attorney 0.001 Services Expensed (1) 200,000
07/1/99 W.M. Jackson Bookkeeper 0.001 Services Expensed (1) 35,000
Balances September 30, 1999
(1) Certificates cancelled in 1,000,000 to 1 reverse split on March 10, 2000.
(2) Certificate reissued for 12 shares as a result of 1,000,000 to 1 reverse
split on March 10, 2000, then cancelled and reissued for 12,000,000 shares
follwing 1,000,000 to 1 forward split on March 31, 2000.
-25-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
EXHIBIT B
ISSUE NANNACO, Inc DEBT CONVERSION ACCOUNTING TREATMENT NUMBER
DATE HOLDER RELATIONSHIP CONVERTED COSTS COMMON ST PAID IN CAP SHARES
---- ------ ------------ --------- --------- --------- ----------- ------
5/22/00 Dave Lennox Lender $30,000 $30,000 60 59,940 60,000
5/22/00 Vinh Bao Phong Lender 2,000 2 1,998 2,000
5/22/00 Joseph Shunta Lender 40,000 40,000 80 79,920 80,000
5/22/00 Kenneth Triesch Lender 20,000 20,000 40 39,960 40,000
5/22/00 W.M. Jackson Lender 35,000 35,000 70 69,930 70,000
5/22/00 Robert Welch Lender 5,000 5 4,995 5,000
5/22/00 John Starnes Lender 10,000 5,000 15 14,985 15,000
5/22/00 Joseph Butler Lender 10,000 5,000 15 14,985 15,000
5/22/00 Ralph Polito Lender 10,000 5,000 15 14,985 15,000
5/22/00 Arthur W. Hughes Lender 2,000 2 1,998 2,000
5/22/00 Dwayne Muzny Lender 1,000 1 999 1,000
5/22/00 Michael Mason Lender 3,000 3 2,997 3,000
5/22/00 Jeff Sergent Lender 2,300 2 2,297 2,300
5/22/00 Hector Moreno Lender 1,200 1 1,199 1,200
5/22/00 The Joy Foundation Lender 250,000 250,000 500 499,500 500,000
5/22/00 Brad Stapp Lender 1,000 1 999 1,000
5/22/00 Brett Vallery Lender 1,000 1 999 1,000
5/22/00 Johnny Alexander Lender 2,000 2 1,998 2,000
5/22/00 Long H. Nguyen Lender 5,000 5 4,995 5,000
5/22/00 Roger N. Smith Lender 25,000 25,000 50 49,950 50,000
5/22/00 Mark Sarlo Lender 5,000 45,000 50 49,950 50,000
5/22/00 Mark Triesch Lender 14,500 14,500 29 28,971 29,000
5/22/00 James Lestos III Lender 35,000 35,000 70 69,930 70,000
5/22/00 Andrew DeVries III Originator (1) 0 1,000 0 1,000,000
5/22/00 Andrew DeVries III Originator (1) 0 1,000 0 1,000,000
5/22/00 Andrew DeVries III Originator (1) 0 1,000 0 1,000,000
5/22/00 Andrew DeVries III Originator (1) 0 1,000 0 1,000,000
5/22/00 Andrew DeVries III Originator (1) 0 1,000 0 1,000,000
5/22/00 Andrew DeVries III Originator (1) 0 1,000 0 1,000,000
5/22/00 Andrew DeVries III Originator (1) 0 1,000 0 1,000,000
5/22/00 Andrew DeVries III Originator (1) 0 1,000 0 1,000,000
5/22/00 Andrew DeVries III Originator (1) 0 1,000 0 1,000,000
5/22/00 Andrew DeVries III Originator (1) 0 1,000 0 1,000,000
5/22/00 Andrew DeVries III Originator (1) 0 1,000 0 1,000,000
5/22/00 Andrew DeVries III Originator (1) 0 1,000 0 1,000,000
7/13/00 The Joy Foundation Investor 0 943 942,457 943,400
7/13/00 Carlievegen Enterprises Investor 0 500 499,500 500,000
5/22/00 Andrew DeVries III Personal Gift (2) 0 (1,000) 0 (1,000,000)
7/24/00 Shari Massey Personal Gift (2) 0 29,970 30 29,970 30,000
7/24/00 Shari Massey Personal Gift (2) 0 9,990 10 9,990 10,000
7/24/00 Shari Massey Personal Gift (2) 0 9,990 10 9,990 10,000
7/24/00 Linda Conley Personal Gift (2) 0 4,995 5 4,995 5,000
7/24/00 Eugenio Aguilar Personal Gift (2) 0 9,990 10 9,990 10,000
7/24/00 Roger N. Smith Personal Gift (2) 0 15,984 16 15,984 16,000
7/24/00 Arthur W. Hughes Personal Gift (2) 0 3,996 4 3,996 4,000
7/24/00 Jeff Sergent Personal Gift (2) 0 300 0 300 300
7/24/00 Mark Sarlo Personal Gift (2) 0 14,685 15 14,685 14,700
7/24/00 Robert Welch Personal Gift (2) 0 199,800 200 199,800 200,000
7/24/00 John G. Gutierrez Personal Gift (2) 0 49,950 50 49,950 50,000
7/24/00 Dale A. Heine Personal Gift (2) 0 199,800 200 199,800 200,000
7/24/00 Jerry Bromberg Personal Gift (2) 0 449,550 450 449,550 450,000
8/8/00 Lavon Dan Baker Lender 4,500 5 4,495 4,500
8/8/00 Hector Moreno Lender 3,800 4 3,796 3,800
8/8/00 Robert Martin Lender 1,200 1 1,199 1,200
8/8/00 Richard Beymer Lender 200 0 200 200
------------------------------------------------------
519,700 $1,508,500 14,472 3,469,127 14,472,600
======================================================
(1) Issued in accordance with 1,000,000 to 1 split on March 31, 2000.
(2) Gift of personal holdings by President.
-26-
NANNACO, INC.
(A Developement Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Year Ended September 30, 2000 and
the Period of October 20, 1998 (date of inception) through
September 30, 1999
(See Accountants' Report)
Exhibit C
ISSUE NANNACO, Inc. SHARE EXPENSED ACCOUNTING TREATMENT NUMBER
DATE HOLDER RELATIONSHIP PRICE AMOUNT COMMON ST PAID IN CAP SHARES
5/22/00 Eugenio Aguilar Claim Settlement 1.000 5,000 5 4,995 5,000
5/22/00 Linda Conley Claim Settlement 1.000 3,000 3 2,997 3,000
5/22/00 Edward Canahuati Claim Settlement 1.000 10,000 10 9,990 10,000
5/22/00 Cameron Cappleman Claim Settlement 1.000 1,000 1 999 1,000
5/22/00 Kenneth Davidson Claim Settlement 0.500 208,000 416 207,584 416,000
--------------------------------------------
227,000 435 226,565 435,000
============================================
Exhibit D
5/22/00 Stephen Payne Consultant 1.00 50,000 50 49,950 50,000
===========================================
Total Common Stock Outstanding at September 30, 2000 $14,957 3,953,642 14,951,600
===============================
-27-
NANNACO, INC
(A Development Stage Company)
d.b.a. Surface Pro
Balance Sheets
June 30, 2001 and 2000
ASSETS
June 30, 2001 June 30, 2000
-------------- -------------
Current Assets:
Cash on hand and in banks 0 649,973
Certificates of deposit 42,328 45,000
Accounts receivable
Trade 8,057 194,350
Trade receivable reserve 0 0
Other 3,251 268,895
--------- ----------
Total accounts receivable 11,308 463,245
--------- ----------
Investment in mutual funds (at fair market value,
cost at June 30, 2001, $1,582) 1,582 0
Supplies inventory 0 43,534
Other Current Assets:
Prepaids and deposits 2,390 113,338
--------- ----------
Total current assets 57,609 1,315,090
Fixed Assets:
Equipment and fixtures 190,936 141,027
Vehicles 66,713 60,645
Less: accumulated depreciation (94,039) (50,105)
--------- ----------
Net property and equipment 163,611 151,566
--------- ----------
Other Assets
Notes receivable - investors 109,000 0
Accrued interest - investors notes receivable 8,453 0
--------- ----------
117,453 0
--------- ----------
TOTAL ASSETS 338,672 1,466,657
========= ==========
UNAUDITED
-28-
NANNACO, INC
(A Development Stage Company)
d.b.a. Surface Pro
Balance Sheets
June 30, 2001 and 2000
LIABILITIES AND STOCKHOLDER'S EQUITY
June 30, 2001 June 30, 2000
Current Liabilities:
Bank overdrafts 5,919 0
Accounts payable - trade 47,844 7,811
Notes payable 377,663 69,278
Current portion of notes payable 83,319 23,480
Sales taxes payable 35,076 34,684
Payroll taxes accured and/or withheld 102,062 83,354
--------- ----------
Total current liabilities 651,883 218,607
Long-Term Liabilities:
Installment notes payable 32,050 28,020
Notes payable - banks (lines of credit) 74,903 51,576
Notes payable - individuals 0
Less: current portion (83,319) (23,480)
--------- ----------
Net long-term debt 23,633 56,116
--------- ----------
Other Liabilities:
Loans from shareholders 0
--------- ----------
Total liabilities 675,517 274,723
Stockholders' Equity:
Common stock (1,000 shares $1 par value authorized
0 shares issued and outstanding at 06/30/01
0 shares issued and outstanding at 06/30/00)
(50,000,000 shares $0.001 par value authorized,
14,957,600 shares issued and outstanding at
06/30/01, 14,947,600 shares issued and outstanding
at 06/30/00) 14,958 14,948
Preferred stock - 10,000,000 shares authorized, none issued
and outstanding 0
Paid in surplus 3,452,311 2,459,820
Retained earnings (3,804,113) (1,282,834)
--------- ----------
Total stockholder's equity (336,844) 1,191,934
--------- ----------
TOTAL LIABLITIES AND STOCKHOLDER'S EQUITY 338,673 1,466,657
========= ==========
UNAUDITED
-29-
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
Statements of Operations and Retained Deficits
For the nine months ended June 30, 2001 and 2000
June June
30, 2001 30, 2000
Income:
Revenue 232,703 243,562
Less: refunds and adjustments 0 (2,900)
---------- -----------
Total 232,703 240,662
Cost of Sales:
Wages 259,892 377,501
Supplies 49,362 34,103
Contract labor 41,793 45,778
---------- -----------
Total cost of sales 351,047 457,382
---------- -----------
Gross Profit (Loss) (118,344) (216,720)
Administrative and General:
Advertising and public relations 18,012 25,745
Bank charges and wire fees 2,027 3,811
Stock offering costs 0 10,641
Consulting fees 27,357 247,500
Cost of debt converted stock 0 0
Gas, fuel and oil 13,962 24,951
Bad debt expense 0 0
Bonus expense 875 3000
Depreciation 35,114 23,180
Dues and subscripitions 1,294 1,177
Equipment rental 7,075 0
Factoring fees 0 0
Insurance 18,327 20,252
Claim settlement expense 0 435,000
Legal and professional 105,559 12,229
Meals and entertainment 0 0
Miscellaneous 8,579 179
Office supplies 9,649 6,339
Officer compensation 96,858 0
Organization expense 0 0
Payroll tax expense 28,655 28,887
Rent 48,330 38,708
Repairs and maintenance 9,378 11,295
Other taxes 1,056 5,317
Stock registration expense 1,921 0
Supplies and tools 0 0
Telephone 19,929 24,203
Trade show expense 2,428 800
Travel and entertainment 20,026 762
Utilities 956 678
---------- -----------
Total administrative and general expenses 477,366 924,655
---------- -----------
Net Income (Loss) from Operations (595,711) (1,141,374)
Other Income (Expense)
Interest income 10,266 283
Divivdend income 19,533 0
Loss on disposition of assets (80,641) 0
Interest Expense (34,893) (10,248)
---------- -----------
Total other income (expense) (85,735) (9,965)
---------- -----------
Net Income (Loss) (681,445) (1,151,339)
Retained deficit, beginning of period (3,122,668) (131,495)
---------- -----------
Retained Deficit, End of Period (3,804,113) (1,282,834)
========== ===========
Net (loss) per share of common stock ($ 0.0068) ($ 0.0877)
========== ===========
UNAUDITED
-30-
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
Statements of Cash Flows
For the nine months ended June 30, 2001 and 2000
June June
30, 2001 30, 2000
Cash flows from operating activities:
Net income (loss) (681,445) (1,151,339)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 35,114 23,180
(Increase) decrease in certificates of deposit (1,703) (40,000)
(Increase) decrease in cash held in escrow 2,472 0
(Increase) decrease in accounts receivable - trade 12,247 (19,986)
(Increase) decrease in accounts receivable - reserve 0 2,634
(Increase) decrease in accounts receivable - other (3,118) (241,808)
Increase (decrease) in bank overdraft (4,732) (8,623)
(Increase) decrease in mutual fund shares 253,973 0
(Increase) decrease in fair market value of mutual fund shares 12,358 0
(Increase) decrease in supplies inventory 0 (43,534)
Increase (decrease) in accounts payable 24,710 3,420
Increase (decrease) in loans payable - brokerage firm (132,797) (8,675)
Increase (decrease) in notes payable 377,663 69,278
Increase (decrease) in current portion of long-term debts (88) 1642
Increase (decrease) in sales taxes payable 7,710 4,852
Increase (decrease) in payroll tax liabilities 51,630 72,363
------- --------
Total adjustments 635,439 (185,257)
------- --------
Net cash provided (used) by operating activities (46,006) (1,336,596)
Cash Flows from investing activities:
Cash advances to stockholders, and related accrued interest (65,440) 0
(Purchase) of fixed assets 1,550 (21,138)
(Increase) in prepaid expense and deposits 114,799 (81,015)
------- --------
Net cash provided (used) by investing activities 50,909 (102,153)
Cash Flows from financing activities:
Proceeds (repayment) long-term debts
Loans from shareholders 0 (234,936)
Installment obligations (7,463) (1,561)
Current portion to current liabilities 2,560 (6,042)
Bank lines of credit 2,472 11,576
Current portion to current liabilities (2,472) 4,400
Loans from individuals 0 (32,950)
------- --------
(4,903) (259,513)
------- --------
Proceeds (redemption) of common stock:
Initial capitalization (8,199)
Common stock issued for services 50
Common stock issued in debt conversion 1,029
Common stock issued for claims settlement 435
Common stock issued in private placement 1,444
------- --------
0 (5,241)
------- --------
Proceeds (redemption) of paid-in capital
Redemption of fractional shares conversion from $1.00
par value to $0.001 par value 0
Related paid-in capital amounts issued in debt conversion 874,067
Related paid-in capital amounts issued for claims settlement 434,565
Related paid-in capital amounts issued in private placement 992,491
Related paid-in capital amounts common stock issued
for services 49,950
Stated value of equipment contributed in excess of value of
common shares 0 0
------- ---------
0 2,351,073
------- ---------
Net cash provided (used) by investing activities (4,903) 2,086,319
------- ---------
Net increase (decrease) in cash and equivalents 0 647,570
Cash and equivalents, beginning of period 0 2,403
------- --------
Cash and equivalents, end of period 0 649,973
======= ========
UNAUDITED
-31-
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, 2001
SHARES COMMON STOCK DOLLARS
-------------------
-------------------------------------------------
$1.00 PAR $0.001 PAR TOTAL $1.00 $0.001 PAID IN RETAINED
DATE VALUE VALUE SHARES STOCK STOCK SURPLUS DEFICIT TOTAL
---- ----- ----- ------ ----- ----- ------- ------- ------
Balance at October 1, 1998 $ 0 $0 $0 $0 $0
10/20/98 Original capitalization 500 500 500 500 1,000
10/20/98 Property contributed by stockholder 0 0 108,039 108,039
02/15/99 Surrendered certificates (300) (300) (300) 300 0
06/01/99 Issued for services 19,999,800 19,999,800 19,999 19,999
09/30/99 Loss for period ending 09/30/99 (131,495)(131,495)
---------------------------------------------------------------------------------
Total 09/30/99 200 19,999,800 20,000,000 200 19,999 108,839 (131,495) (2,457)
03/10/00 Reverse split (1,000,000 TO 1) (200)(19,999,788)(19,999,988) 0
---------------------------------------------------------------------------------
Sub Total 0 12 12 200 19,999 108,839 (131,495) (2,457)
03/31/00 Forward split (1 to 1,000,000) 0 11,999,988 11,999,988 0
Fractional redemption (200) 199 (1)
Fractional redemption (7,999) (6,800) (14,799)
---------------------------------------------------------------------------------
0 12,000,000 12,000,000 0 12,000 102,238 (131,495) (17,257)
05/22/00 Shares issued for services 50,000 50,000 0 50 49,950 50,000
05/22/00 Shares issued for claim settlement 435,000 435,000 435 434,565 435,000
05/22/00 Shares issued for debt 1,029,200 1,029,200 1,019 1,028,172 1,029,191
less $154,105 costs 0 (154,105) (154,105)
6/30/00 Shares sold at private placement 1,443,400 1,443,400 0 1,444 1,234,081 1,235,525
less $241,590 costs (235,081) (235,081)
Loss period ending 6/30/00 (1,151,339)(1,151,339)
---------------------------------------------------------------------------------
Total 06/30/00 0 14,957,600 14,957,600 0 14,948 2,459,820 (1,282,834) 1,191,934
Shares issued for debt 10 (6,509) (6,499)
07/24/00 Shares issued for services 999,000 999,000
09/30/00 Loss for FYE 09/30/00 (1,839,834)(1,839,834)
----------------------------------------------------------------------------------
Total 09/30/00 0 14,957,600 14,957,600 0 14,958 3,452,311 (3,122,668) $344,601
06/30/01 Loss period ending 6/30/01 (681,445) (681,445)
----------------------------------------------------------------------------------
0 14,957,600 14,957,600 0 14,958 3,452,311(3,804,113) (336,844)
==================================================================================
UNAUDITED
-32-
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Periods Ended June 30, 2001 and
June 30, 2000
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 is
that all agreed services have been provided.
Supplies and materials are purchased and consumed as necessary.
(Continued)
-33-
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Periods Ended June 30, 2001 and
June 30, 2000
B. REVENUE AND COST RECOGNITION (Continued)
The Company warranties its service within the standards and customs of
the industry. Due to the immaterial amounts involved, 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.
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, 2000, 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 the
accrued interest, in the amount of $2,300 each, were renewed for one
year at the interest rate of 3% per annum. Interest in the amount of
$28 was accrued on both certificates. These certificates secure line of
credit notes payable.
-34-
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Periods Ended June 30, 2001 and
June 30, 2000
Note 4 - ACCOUNTS RECEIVABLE
------
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, 2001, the balance of trade
receivables was $8,057, which is deemed to be 100% collectible in full.
At June 30, 2000, there was a balance of $194,350 due, of which
$150,000 has been determined to be uncollectible. Texas sales taxes on
this amounted to $10,238, therefore the charge against income was
$139,762.
Note 5 - PREPAIDS AND DEPOSITS
------ The following schedule details the content of the asset Prepaids and
Deposits:
06/30/01 06/30/00
Final month's rent on warehouse $ 0 $ 1,600
Prepaid office lease
Prepaid consulting fees 25,000
Prepaid legal fees 81,686
Prepaid interest on installment loan 2,390 5,052
------- ------
Total prepaids and deposits $ 2,390 $113,338
======= ========
The final month's rent on warehouse facility will be absorbed the last
month of occupancy of the facility, and the amount will become an
expense at that time.
The prepaid office lease consists of the unamortized portion of a
year's lease in the amount of $34,632 on the Company's office
facility. The year's lease was prepaid in full on June 14, 2000, with
the lease on the premises beginning on June 15, 2000, and continues
for a period of twelve months. Each calendar month, 1/12 of the total
amount is taken into expense.
The prepaid consulting fees at June 30, 2000, was for services to be
rendered to the Company during the year ended September 30, 2000. The
services were rendered and the amount taken to the proper expense.
The prepaid legal fees was the result of an agreement between the
Company and their legal counsel. A retainer of $100,000 was paid to
the attorney for future services and applicable expenses. An amount of
$5,000 per month plus expenses was to be taken into income by the
attorney and a like amount expensed for legal expense by the Company.
This attorney is retained for SEC compliance issues, including prior
placements and offerings, registration statements, and other SEC
issues. There is no litigation pending, at this time.
The prepaid interest amount carried on the balance sheet is 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.
-35-
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Periods Ended June 30, 2001 and
June 30, 2000
Note 6 - EQUIPMENT AND FIXTURES AND VEHICLES
------ Fixed assets are recorded at cost and are summarized as follows:
06/30/01 06/30/00
-------- --------
Equipment $190,936 $141,027
Vehicles 66,714 60,645
--------- --------
Total Fixed Assets (at Cost) $257,650 $201,672
Less Accumulated Depreciation from
Inception (October 20, 1998) to
June 30, 2001 (94,039) (50,105)
--------- ---------
Net Fixed Assets at June 30, $163,611 $151,567
========= ========
Depreciation expense charged against operations for the period ending
June 30, 2001 totaled $35,114 and $23,180 for the period ended June
30, 2000.
Note 7 - OTHER ASSETS
------ A. Notes Receivable - Investors
The Company has made advances to four of its investors in the amount
of $109,000 at June 30, 2001. These cash advances were secured by
promissory notes signed on February 14, 2001, and are 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 June 30,
2001. This interest is due on January 1, 2003, along with the
principal.
Note 8 - CURRENT LIABILITIES
------
A. Bank overdraft on June 30, 2001 in the amount of $5,919 was 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 $47,844 and $7,811 for June 30, 2001 and
June 30, 2000 were the amounts owed to suppliers, utilities and other
monthly operating expenses at the end of the periods. These amounts
are cleared during the month following the purchase.
-36-
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Periods Ended June 30, 2001 and
June 30, 2000
Note 9 - LONG TERM LIABILITIES
------A. INSTALLMENT NOTES PAYABLE
The first note is secured by a vehicle and the endorsement of the
Company President, 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 is being amortized straight-line method over the term of
the note. As of June 30, 2001 and 2000, the details are as follows:
Note payable to Auto One Acceptance Corporation, payable in 60
monthly installments of $390 each, secured by a 1994 GMC truck.
06/30/01 06/30/00
-------- --------
Original Amount $23,400 $23,400
Current Balance $ 6,280 $14,020
Long-Term Portion $ 1,600 $ 9,340
Portion due in twelve months $ 4,680 $ 4,680
Interest rate 20.75% 20.75%
Unamortized interest at 06/30 $ 2,390 $ 5,646
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 June 30, 2001 are as follow:
06/30/01
--------
Original Amount $35,000
Current Balance $34,962
Long-Term Portion $31,252
Portion due in twelve months $ 3,710
Interest Rate 10%
Due Date Monthly
-37-
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Periods Ended June 30, 2001 and
June 30, 2000
Note 9 - LONG TERM LIABILITIES (Continued)
-----B. NOTES PAYABLE - LINES OF CREDIT
The Company has established a line of credit with two banks.
The Bank 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 is July 15, 2001, with interest at prime plus 1.25% to be
paid monthly.
Available Amount $35,000
Balance June 30, 2001 $34,980
Long-Term Portion $ -0-
Portion due in twelve months
at June 30, 2001 $34,980
Interest Rate Prime plus 1.25%
Due date 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 are
due June 21, 2002 and both require interest on the outstanding balance
at the rate of 9.5% per annum. The summary of both notes is as
follows:
Note #1 Note #2
------- -------
Available Amount $20,000 $20,000
Balances at 06/30/01 $19,949 $20,000
Long-Term Portion at 06/30/01 $ -0- $ -0-
Portion Due in Twelve Months $19,949 $20,000
Interest Rate 9.5% 9.5%
Due Dates 06/21/02 06/21/02
Note 10 - COMMON STOCK, PREFERRED STOCK, PAID IN SURPLUS
------- NANNACO, Inc. was originally chartered on October 20, 1998, under the
laws of the State of Texas. 1,000 shares of $1 par value common stock
was authorized. Of this, 500 shares were purchased and issued on
organization of the corporation. This stock was sold at a value at
that time of $2 per share to nine shareholders, with a stock
capitalization of $500 and a paid in capital amount of $500. On
February 15, 1999, four of these shareholders surrendered their
certificates and an additional amount of $300 was taken into paid in
capital.
-38-
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Periods Ended June 30, 2001 and
June 30, 2000
Note 10 - COMMON STOCK, PREFERRED STOCK, PAID IN SURPLUS (Continued)
-------
The Paid-In Capital in the amount of $108,039 upon incorporation was
generated from equipment contributed by the founder and president upon
incorporation of the Company and was approved by the board of
directors. This equipment was recorded at an amount agreed upon by the
corporation officers and directors, said amount being less than the
founder's cost or the fair market value at the date of organization.
On June 1, 1999, the Company amended its charter to authorize the
issuance of additional common stock and one class of preferred stock.
This amendment authorized a change from one thousand (1,000) shares of
$1.00 par value common stock to fifty million (50,000,000) shares of
$0.001 par value common stock and 10,000,000 shares of preferred
stock.
During the period of June 1, 1999 through July 1, 1999, the Company
sold or converted 19,999,800 shares of this new value of common stock.
This stock was issued at the new par value ($0.001 per share), with a
charge against operating expenses during the period. To date, no
shares of the preferred stock have been issued.
On March 10, 2000, at a duly called stockholders meeting, a 1,000,000
to one reverse stock split was approved with all certificates under
1,000,000 shares being canceled. The result of this reverse stock
split resulted in only one stockholder, Andrew DeVries III, remaining.
On March 31, 2000, a 1,000,000 to 1 forward split was declared by the
board of directors. This resulted in Andrew DeVries III, the only
stockholder, now holding 12,000,000 shares.
Subsequently, on May 22, 2000, $519,700 in debt being held for
conversion was converted and the appropriate 1,029,200 shares of
common stock were issued to the debtors. A corrective issue took place
on August 8, 2000. All shares were converted at the price of $1 per
share. This caused an amount of $509,500 to be charged to operating
income and is included in the Statement of Operations for the period
ending September 30, 2000.
On June 24, 2000, 1,443,400 shares of common stock were sold in a
Regulation D private offering. These shares were sold at $1 per share
pursuant to Rule 506 and were entirely private transactions.
Subsequent to this sale, all shares of stock and conversion agreements
have been at $1 per share.
-39-
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Periods Ended June 30, 2001 and
June 30, 2000
Note 10 - COMMON STOCK, PREFERRED STOCK, PAID IN SURPLUS (Continued)
-------
On July 24, 2000, Andrew DeVries III canceled one of his 1,000,000
personal certificates and distributed it as a personal gift to ten
individuals. At the time of the gift, Mr. DeVries held 82.2% of the
outstanding common stock. A charge of $999,000 was taken in the
statement of operations for the year ending September 30, 2000. This
charge is included in the consulting fees expense.
On August 21, 2000, Form SB-2 Registration Statement was filed under
the Securities Act of 1933 was filed with the Securities and Exchange
Commission of the United States. The SEC issued their comments, and at
this time, the Company is in the process of preparing a response.
In April of 2000, NANNACO, Inc. became aware of the fact 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 their money. The Company never received any of
the funds raised from these investors. In an effort to protect the
good name of the Company, the Board of Directors agreed to honor the
investment made by these individuals and to issue them the appropriate
number of shares, in exchange for Memoranda of Agreement agreeing not
to take legal action against the Company. This transaction was treated
as an operating expense during the year ended September 30, 2000, in
the amount of $435,000 with the appropriate entries to Common Stock
and Paid-In Surplus. This amount was an agreed amount, based on
comparable sales of stock in the same time frame that the investors
paid their monies to the third party. Blocks of $10,000 or less were
valued at $1 per share, while amounts greater than $10,000 were at a
lesser price per share. In this instance, 416,000 shares of NANNACO,
Inc. common stock were valued at $0.50 per share.
On May 22, 2000, 50,000 shares of common stock in the Company were
issued in exchange for consulting services. These shares were issued
at the price of $1 per share. This transaction was treated as an
operating expense for the year ended September 30, 2000, in the amount
of $50,000, and proper treatment in the Common Stock and Paid-In
Surplus accounts
Note 11 - 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 in this computation.
-40-
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Periods Ended June 30, 2001 and
June 30, 2000
Note 12 - SEGMENTED DISCLOSURES
A. Reportable Segments - Due to the criteria for the selection of
reporting segments, NANNACO,Inc. has seven reporting segments. These
segments all meet one or more of the required criteria now or in past
periods. These segments are classified by the type of customer to
which the services are provided. The customers are divided into two
categories, which are residential customers and commercial customers.
The services performed for residential customers are wood restoration,
stone restoration, sealing, and pressure washing. For commercial
customers the service classifications are pressure washing,
environmental services, and historical restoration.
Residential wood restoration involves wood surface preparation,
including chemical or mechanical stripping. Stone restoration involves
essentially the same process, except on concrete and stone surfaces.
The sealing service to residential customers is the chemical finishing
process applied to either stone or wood surfaces, whether or not the
surface is cleaned by the Company. Pressure washing for residential
customers is general water and pressure cleaning of surfaces where
water reclamation procedures are not a factor and need not apply.
For commercial customers, the pressure washing is essentially the same
service as offered to residential customers, only provided to
commercial (business) customers. The environmental services offered to
commercial customers is spill response and/or other specialized
cleaning services that require water containment or special chemical
processes and waste water removal. For historical restoration services
to commercial customers, NANNACO, Inc. performs services similar to a
combination of residential wood restoration and residential stone
restoration, plus specialized cleaning and sealing procedures for
historical structures.
B. Measurement of Segment Profit or Loss and Segment Assets - The
accounting policies of all the segments are the same as those
described in the summary of significant accounting policies. Sales
revenue and cost of goods sold for each segment can be determined on a
segment basis. The remaining operating expenses are general corporate
expenses, but are allocated to the various segments on the basis of
the same percentages as result from the allocation of the cost of
sales for the individual segments. Management feels that this is a
fair allocation of the general corporate expenses to give a net profit
from operations for each individual segment. The allocation for
interest expense is based upon the same percentages. Since all fixed
assets are jointly utilized by all segments, the depreciation expense
is allocated to the segments by the percentage of revenue generated by
the segment. Interest income and investment revenues are common to all
segments, so this also is allocated by the segment income percentage.
Gains or losses on asset dispositions are also allocated by the income
allocation method.
-41-
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Periods Ended June 30, 2001 and
June 30, 2000
Note 12 - SEGMENTED DISCLOSURES (Continued)
SCHEDULE OF SEGMENTED ACCOUNTS FOR THE NINE MONTHS ENDED JUNE 30, 2001:
RESIDENTIAL SEGMENTS
----------------------------------------------------
WOOD STONE PRESSURE
RESTORATION RESTORATION SEALING WASHING
Net sales 65,643 33,237 47,879 7,796
Interest income 2,875 1,437 2,156 308
Dividend income 5,469 2,735 4,102 586
Gain or(loss)on
disposition of assets (22,580) (11,290) (16,935) (2,419)
Interest (expense) (8,723) (4,536) (8,374) (1,047)
Depreciation (expense) (9,832) (4,916) (7,374) (1,053)
Segment profits (loss) (140,148) (72,877) (134,543) (16,818)
Allocation of fixed
assets to segments 72,142 36,071 54,106 7,730
COMMERCIAL SEGMENTS
-------------------------------------------------
PRESSURE ENVIRONMENT HISTORIC COMPANY
WASHING SERVICES RESTORATION TOTALS
Net sales 13,909 53,061 11,178 232,703
Interest income 616 2,361 513 10,266
Dividend income 1,172 4,493 976 19,533
Gain or (loss)
on disposition of assets (4,838) (18,547) (4,032) (80,641)
Interest (expense) (2,094) (8,374) (1,745) (34,893)
Depreciation (expense) (2,107) (8,076) (1,756) (35,114)
Segment profits (loss) (33,636) (134,543) (28,031) (560,596)
Allocation of fixed
assets to segments 15,459 59,259 12,883 257,650
-42-
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Periods Ended June 30, 2001 and
June 30, 2000
Note 12 - SEGMENTED DISCLOSURES (Continued)
SCHEDULE OF SEGMENTED ACCOUNTS FOR THE NINE MONTHS ENDED JUNE 30, 2000:
RESIDENTIAL SEGMENTS
----------------------------------------------
WOOD STONE PRESSURE
RESTORATION RESTORATION SEALING WASHING
----------- ----------- ------- --------
Net sales 38,573 16,925 81,576 11,391
Interest income 45 20 96 14
Interest (expense) (2,357) (1,025) (2,460) (615)
Depreciation (expense) (6,032) (2,623) (6,294) (1,574)
Segment profits (loss) (257,185) (111,819) (268,367) (67,091)
Allocation of fixed
assets to segments 46,385 20,167 48,401 12,100
COMMERCIAL SEGMENTS
--------------------------------------------------
PRESSURE ENVIRONMENT HISTORIC COMPANY
WASHING SERVICES RESTORATION TOTALS
------- -------- ----------- --------
Net sales 16,594 58,554 17,049 240,662
Interest income 20 68 20 283
Interest (expense) (717) (2,255) (819) (10,248)
Depreciation (expense) (1,836) (5,770) (2,098) (26,227)
Segment profits (loss) (78,274) (246,003) (89,455) (1,118,194)
Allocation of fixed
assets to segments 14,117 44,368 16,134 201,672
-43-
C. RECONCILIATION OF SEGMENTED AMOUNTS:
PERIOD ENDED
06/30/01 06/30/00
-------- --------
Interest income $10,266 $283
Dividend income 19,533
Gain (loss) on disposition of assets (80,641)
Interest (expense) (34,893) (10,248)
Depreciation (expense) (35,114) (23,180)
Segmented profits (loss) (560,596) (1,118,194)
--------- -----------
Net income (loss) to retained earnings $(681,445) (1,151,339)
========== ===========
-44-
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Periods Ended June 30, 2001 and
June 30, 2000
Note 13 - SUBSEQUENT EVENTS
A. CONVERSION NOTES PAYABLE
On December 7, 2000, an agreement was signed for the purchase of the
Company's Convertible Promissory Note in the amount of $140,000. This note
was for conversion NANNACO, Inc. common stock, at the market price on the
date of conversion. The maturity date is set as September 25, 2001 and the
note contains the provision for the payment of 10% interest. $140,000was
received by the Company following the closing of the Company's books on
September 30, 2000.
On December 11, 2000, two additional agreements were signed for the
purchase of the Company's Convertible Promissory Notes in the amount of
$205,500. These notes were for conversion to NANNACO, Inc. common stock at
the market price on the date of conversion. The maturity date is set as
September 25, 2001 and the notes contain the provision for the payment of
10% interest. $205,500 was received by the Company following the close of
the Company's books on September 30, 2000.
B. CHANGE IN FACILITIES
On July 1, 2001, the Company consolidated its offices and warehouse into a
single facility. This facility is leased for one year, with a monthly lease
payment in the amount of $1,300 per month.
Note 14 - MANAGEMENT STATEMENT
These unaudited financial statements contain all of the adjustments and
notes considered necessary by management to make the statements not
misleading
-45-
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES UNDERLYING
THE CLASS A WARRANTS OFFERED BY THIS PROSPECTUS OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES AND THE CLASS A WARRANTS IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
TABLE OF CONTENTS
Prospectus Summary 2
Risk Factors 3
Where You Can Get Additional Information 5
Management's Discussion and Analysis 6
of Financial Condition
Nannaco and its Business 12
Security Ownership of Management and Principal Shareholders 18
Management 19
Executive Compensation 20
Transactions with Management, Promoters and Principal Shareholders 22
Market for Nannaco's Common Stock and Related Stockholder Matters 24
Description of Securities 25
Selling Securities Holders 26
Selling Securities Holders Plan of Distribution 27
Transfer Agent 28
Legal Matters 28
Independent Public Accountant 28
Financial Statements F-1
UNTIL ______, 2001 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
NANNACO, INC.
LOGO
-------------------------
PROSPECTUS
-------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Texas Business Corporations Act
Article 2.02-1 sections J and O of the Texas Business Corporations Act contains
provisions authorizing indemnification by the Company of its directors,
officers, employees or agents against certain liabilities and expenses which
they may incur as our directors, officers, employees or agents of certain other
entities. Section H also provides that such indemnification may include payment
by us of expenses incurred in defending a civil or criminal action or a
proceeding in advance of the final disposition of such action or proceeding upon
receipt of an undertaking by the indemnified person to repay such payment if he
shall be ultimately found not to be entitled to indemnification under the
Section. Indemnification may be provided even though the person to be
indemnified is no longer a director, officer, employee or agent of Nannaco,
Inc., or such other entities. Section R also contains provisions authorizing us
to obtain insurance on behalf of any such director, officer employee or agent
against liabilities, whether or not we would have the power to indemnify such
person against such liabilities under the provisions of the Section.
The indemnification and advancement of expenses provided pursuant to Article
2.02 are not exclusive, and subject to certain conditions, we may make other or
further indemnification or advancement of expenses of any of our directors,
officers, employees or agents. Because the Articles of Incorporation, as
amended, do not otherwise provide, notwithstanding our failure to provide
indemnification and despite a contrary determination by the Board of Directors
or our shareholders in a specific case, a director, officer, employee or agent
who is or was a party to a proceeding may apply to a court of competent
jurisdiction for indemnification or advancement of expenses or both, and the
court may order indemnification and advancement of expenses, including expenses
incurred in seeking court-ordered indemnification or advancement of expenses if
it determines that the petitioner is entitled to mandatory indemnification
pursuant to Section H, J, O or R because he has been successful on the merits,
or because we have the power to indemnify on a discretionary basis pursuant to
the statute or because the court determines that the petitioner is fairly and
reasonably entitled indemnification or advancement of expenses or both in view
of all the relevant circumstances.
Articles of Incorporation and By-Laws
Our Articles of Incorporation and By-Laws, as amended, empower us to
indemnify current or former directors, officers, employees or agents serving at
our request in such capacities in any other enterprise or persons who have
served at our request in such capacities in any other enterprise to the full
extent permitted by the laws of the State of Texas.
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Limitation on Liability
Our Articles of Incorporation eliminate directors' and officers' liabilities to
the maximum extent permitted under Texas Law. Thus, even if an officer or
director loses a lawsuit, it is possible, unless such officer or director was
guilty of gross negligence or willful misconduct in the performance of his/her
duties, that we or our insurance carrier will pay the amount of such judgement
or settlement and reasonable legal fees.
Article 2.02 of the Texas Business Corporation Act provides that a director is
not liable for damages to any person for any statement, vote, decision, or
failure to act, regarding corporate management or policy, unless the director
breached or failed to perform his duties as a director and director's breach or
failure to perform constitutes (i) a violation of criminal law (ii) a
transaction from which the director received an improper benefit, (iii) an
unlawful distribution, conscious disregard for the best interest of the
corporation or willful misconduct in connection with a suit by or in the right
of the corporation or by or in the right of a shareholder, or (iv) recklessness
or an act of omission in bad faith or with malicious purpose or in a manner
exhibiting wanton and willful disregard of human rights, safety, or property in
connection with a proceeding by or in the right of someone other than the
corporation or a shareholder.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by the
Registrant, are as follows:
SEC Filing Fee $ 440
NASD Filing Fee NA
Printing Expenses 10,000
Accounting Fees and Expenses 35,000
Legal Fees and Expenses 50,000
Blue Sky Fees and Expenses 5,000
Total Estimated Expenses $110,440
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ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant sold securities, which were not
registered under the Securities Act of 1933, as amended, as follows:
Shares issued pursuant to Section 4(2)
Date Name # of Shares Consideration
-------------------------------------------------------------------------------
10/04/99 Mark Triesch 1,015,050 $ 1,015
10/04/99 Andrew DeVries II 8,000 $ 8
10/04/99 Ian Wellborn 3,050 $ 3
10/04/99 Mark Sarlo 3,050 $ 3
10/04/99 Andrew DeVries III 12,297,800 $12,298
10/04/99 Linda Morton 8,000 $ 8
10/04/99 Albert Limon 3,015 $ 3
10/04/99 Clifford Munson 27,035 $ 27
10/04/99 W.M. Jackson 35,000 $ 35
10/04/99 Petty International, Inc. 300,000 $ 300
10/04/99 WAPI 700,000 $ 700
10/04/99 Ley Industries, Inc. 600,000 $ 600
10/04/99 Millennium Business
Associates, Inc. 300,000 $ 300
10/04/99 CPR Holdings, Inc. 500,000 $ 500
10/04/99 DPA Holdings 600,000 $ 600
10/04/99 R. Jay Casell 600,000 $ 600
-------
Total 17,000,000 $17,000
These shares were issued without consideration pursuant to the Nannaco's
organizational plans in anticipation of future fund raising. The value of the
transactions is shown at par value of $.001 per share. The shareholders are
officers and directors of Nannaco, their family members or consultants of the
Nannaco. The shareholders were provided and had unlimited access to all material
information regarding Nannaco as a result of their relationship with the Nannaco
or its officers and directors. On March 10, 2000, holders of 97% of these
outstanding shares of common stock voted to reverse split the outstanding shares
of common stock on the basis of one new share for every 1,000,000 shares held.
Fractional shares were redeemed at the rate of .00185. After the reverse split
Andrew DeVries III was the sole remaining shareholder with 12 shares. On March
31, 2000, Mr. DeVries as the sole shareholder voted to forward split his 12
shares on a million shares for one basis.
Nannaco relied on Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
securities were offered for investment only and not for the purpose of resale or
distribution, and the transfer thereof was appropriately restricted by the
Nannaco. Each shareholder was a sophisticated investor at the time.
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Shares Exchanged for Promissory Notes
Promissory
Note Consideration
Date Name # of Shares Prom. Note Prin.
-------------------------------------------------------------------------------
08/98 Mark Sarlo 50,000 $5,000
10/98 Mark Triesch 29,000 $14,500
04/99 James Letsos, III 70,000 $35,000
05/99 Dave Lennox 60,000 $30,000
06/99 Vinh Bao-Phong 2,000 $2,000
06/99 Eugenio Aguilar 5,000 $5,000
06/99 Linda Conley 3,000 $3,000
06/99 Edward Canahuati 10,000 $10,000
07/99 Cameron Cappleman 1,000 $1,000
07/99 Kenneth Davidson 416,000 $208,000
09/99 Joseph Shunta 80,000 $40,000
10/99 Kenneth Triesch 40,000 $20,000
11/99 The Joy Foundation 500,000 $250,000
12/99 W.M Jackson 70,000 $35,000
12/99 Robert Welch 5,000 $5,000
12/99 Robert Martin 1,200 $1,200
12/99 Richard Beymer 200 $200
01/00 John Starnes 15,000 $5,000
01/00 Joseph Butler 15,000 $5,000
01/00 Ralph Polito 15,000 $5,000
01/00 Arthur W. Hughes 2,000 $2,000
01/00 Dwayne Muzny 1,000 $1,000
01/00 Michael Mason 3,000 3,000
02/00 Jeff Sergent 2,300 $2,300
02/00 Hector Moreno 5,000 $5,000
02/00 Brad Stapp 1,000 $1,000
02/00 Brett Vallery 1,000 $1,000
02/00 Johnny Alexander 2,000 $2,000
03/00 Long H Nguyen 5,000 $5,000
03/00 Roger N. Schmidt 50,000 $25,000
06/99 Lavon Dan Baker 4,500 $4,500
Total: 1,464,200
Except for the five shareholders described in the next sentence, the above
shareholders lent the principal amounts to Nannaco on the dates listed. Engenio
Aguilar, Linda Conley, Edward Canahauti and Kenneth Davidson surrendered
promissory notes in these principal amounts which were given in consideration of
the shareholders' agreement to hold Nannaco harmless for any liability to the
shareholder resulting from the shareholders' payments to a Harold Crum of
Houston, Texas which the shareholder had believed to be for an investment in
Nannaco. The debt was converted into common stock of the Company in April, 2000.
The shareholders were provided and had unlimited access to all material
information regarding Nannaco.
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Nannaco relied on Section 4(2) of the Securities Act of 1933, as amended for the
issuance of the original promissory notes and the conversion into equity
securities. No advertising or general solicitation was employed in offering the
securities. The securities were offered for investment only and not for the
purpose of resale or distribution, and the transfer thereof was appropriately
restricted by the Nannaco. Each shareholder was a sophisticated investor at the
time.
Shares Issued in Regulation D Offering
Date Name # of Shares Consideration
--------------------------------------------------------------------------------
06/00 The Joy Foundation 943,400 $943,400
06/00 Carlivegen Enterprises 500,000 $500,000
------- --------
Total 1,443,400 $1,443,400
Shares issued in Regulation D Offering
The Shares were sold at $1.00 per Share in June, 2000 pursuant to the Rule 506
safe harbor. These sales were entirely private transactions pursuant to which
all material information as specified in Rule 502(b)(2) was made available to
the purchasers who were all accredited investors. No advertising or general
solicitation was employed in offering the securities. The securities were
offered for investment only and not for the purpose of resale or distribution,
and the transfer thereof was appropriately restricted by Nannaco.
Shares Issued for Services
Date of
Grant Name # of Shares Consideration
-------------------------------------------------------------------------------
05/00 Stephen P. Payne 50,000 Services
Shares Issued for Services
The shares issued for services are for compensation to a Nannaco consultant,
pursuant to the exemption contained in Section 4(2) of the Securities Act. The
shareholder was provided and had unlimited access to all material information
regarding Nannaco as a result of his employment. With respect to the sale,
Nannaco relied on Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
securities were offered for investment only and not for the purpose of resale or
distribution, and the transfer thereof was appropriately restricted by Nannaco.
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Nannaco has recorded $50,000 of expense for the issuance of these shares.
Convertible Promissory Notes
Date Name Note Principal
-------------------------------------------------------------------
12/07/00 West Face Investments, Inc. $140,000
12/11/00 Professional Trust Management $105,500
12/11/00 Uncle John's Other Band $100,000
Nannaco relied on Section 4(2) of the Securities Act of 1933, as amended for
the issuance of the convertible promissory notes. The promissory notes mature on
September 25, 2001, accrue interest at the rate of ten percent per annum and may
be converted at the option of the holder at any time for the average closing bid
price for Nannaco common stock for the five days prior to the date of
conversion. No advertising or general solicitation was employed in offering the
securities. The securities were offered for investment only and not for the
purpose of resale or distribution, and the transfer thereof was appropriately
restricted by Nannaco. Each shareholder was a sophisticated investor at the
time.
ITEM 27. EXHIBITS.
The following Exhibits are filed as part of this Registration Statement pursuant
to Item 601 of Regulation S-B:
3.1 -- Articles of Incorporation*
3.2 -- Bylaws*
4.1 -- Form of Common Stock Certificate*
5.1 -- Opinion of Dennis Brovarone, Attorney at Law
23.1 -- Consent of Dennis Brovarone, Attorney at Law (see opinion)
23.2 -- Consent of James J. Taylor, Certified Public Accountant
99.1 -- Imbiber Agreement*
*Previously filed
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ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933 as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of San Antonio, Texas, on February 15, 2001
NANNACO, INC.
BY: /s/ Andrew DeVries III
-----------------------
Andrew DeVries III, President
/s/ Linda Morton
------------------
Linda Morton, Chief Financial Officer and Principal Accounting Officer
In accordance with the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
/s/ Andrew DeVries III President, Chief Executive Setpember 25, 2001
------------------ Officer and Director
Andrew DeVries III
/s/ Linda Morton
------------
Linda Morton Secretary, Treasurer, Director September 25, 2001
/s/ Mark A. Triesch
---------------
Mark A. Triesch Director September 25, 2001
/s/ W.M. Jackson
------------
W.M. Jackson Director September 25, 2001
II-8