FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the
six month period ended: March 31, 2002
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 333-44188
NANNACO, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2891747
(State of incorporation) (IRS Employer ID No.)
9739 Cobb Street, # 1
San Antonio TX 78217
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (210) 545 3570
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
As of May 17, 2002, the Registrant had 15,335,342 Shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one); Yes No X
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
NANNACO, INC
(A Development Stage Company)
d.b.a. Surface Pro
Balance Sheets
March 31, 2002 and 2001
March March
31, 2002 31, 2001
--------- ---------
ASSETS
Current Assets:
Cash on hand and in banks $ -- $ 800
Cash invested with broker -- 1,582
Certificates of deposit 42,843 41,771
Accounts receivable 5,382 45,372
Other Current Assets:
Prepaids and deposits 2,390 18,021
--------- ---------
Total current assets 50,615 107,546
Fixed Assets:
Equipment and fixtures 190,936 197,936
Vehicles 66,714 66,714
Less: accumulated depreciation (114,136) (82,334)
--------- ---------
Net property and equipment 143,514 182,316
Other Assets:
Notes receivable - investors 109,000 109,000
Accrued interest on investors notes receivable 16,483 5,804
--------- ---------
Total other assets 125,483 114,804
--------- ---------
TOTAL ASSETS $ 319,612 $ 404,666
========= =========
UNAUDITED
F-2
NANNACO, INC
(A Development Stage Company)
d.b.a. Surface Pro
Balance Sheets
March 31, 2002 and 2001
LIABILITIES AND STOCKHOLDER'S EQUITY
March March
31, 2002 31, 2001
------------ ------------
Current Liabilities:
Bank overdrafts $ 5,323 $ 5,417
Accounts payable - trade 71,277 2,945
Accrued interest payable on loans 12,484 14,254
Accrued salaries payable 37,255 --
Current portion of notes payable 93,938 430,312
Sales taxes payable 39,599 33,072
Payroll taxes accured and/or withheld 100,975 84,211
----------- -----------
Total current liabilities 360,851 570,211
Long-Term Liabilities:
Installment notes payable 31,892 34,800
Notes payable - banks (lines of credit) 73,986 74,953
Stock conversion notes payable -- 345,500
Less: current portion (93,938) (430,312)
----------- -----------
Net long-term debt 11,940 24,941
----------- -----------
Other Liabilities:
Loans from shareholders 69,200 49,700
----------- -----------
Total liabilities 441,990 644,852
Common Stock Subject to Redemption:
Common stock (377,742 shares issued November 15, 2001,
and outstanding) 378
Additional paid-in capital 377,364
----------- -----------
Total common stock subjec to redemption 377,742 --
Stockholders' Equity:
Common stock (1,000 shares $1 par value authorized, 0 shares issued and
outstanding at 09/30/01 and
09/30/00) -- --
(50,000,000 shares $0.001 par value authorized,
14,957,600 shares issued and outstanding at
at 03/31/02 and 03/31/01) 14,958 14,958
Preferred stock - 10,000,000 shares authorized, none issued
and outstanding -- --
Paid in surplus 3,379,829 1,735,810
Retained deficit (3,894,908) (1,990,954)
----------- -----------
Total stockholder's equity (500,121) (240,186)
----------- -----------
TOTAL LIABLITIES AND STOCKHOLDER'S EQUITY $ 319,612 $ 404,666
=========== ===========
UNAUDITED
F - 3
NANNACO, INC.
d.b.a. Surface Pro
Statements of Operations and Retained Deficits
For the six month periods ended March 31, 2002 and 2001
March March
31, 2002 31, 2001
Income:
Revenue $ 73,010 $ 164,752
Cost of Sales:
Wages 14,140 204,026
Supplies 9,011 13,115
Contract labor 8,064 6,965
Commissions 140 --
----------- -----------
Total cost of sales 31,355 224,106
Gross Profit (Loss) 41,655 (59,354)
Administrative and General:
Advertising 178 16,991
Bank charges and wire fees 2,797 1,380
Gas, fuel and oil 5,140 10,255
Depreciation 18,404 23,409
Dues and subscriptions -- 1,294
Insurance 145 12,232
Legal and professional 23,000 102,601
Miscellaneous 617 4,881
Office supplies 541 7,895
Officer compensation 53,125 88,183
Payroll tax expense 1,884 23,718
Penalties -- 7,083
Rent 8,040 37,316
Repairs and maintenance 886 7,485
Truck lease 5,600
Stock transfer/offering expense 391 63,029
Travel and entertainment 360 18,119
Utilities 6,198 16,002
----------- -----------
Total administrative and general expenses 127,306 441,873
Income (Loss) from Operations (85,651) (501,227)
Other Income (Expense):
Interest income 5,949 7,060
Dividend income 19,533
Loss on disposition of assets (68,283)
Unrealized gains (losses) on mutual funds --
Interest expense (11,910) (29,512)
------------ -----------
Total other income (expense) (5,961) (71,202)
----------- -----------
Net Income (Loss) (91,612) (572,429)
Retained (deficit), beginning of period (3,803,296) (1,418,525)
----------- -----------
Retained (Deficit), End of Period (3,894,908) (1,990,954)
=========== ===========
Net Loss per share of common stock $ (0.0061) $ (0.0383)
=========== ===========
UNAUDITED
F - 4
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
Statements of Cash Flows
For the six months ended March 31, 2002 and 2001
March March
31, 2002 31, 2001
Cash flows from operating activities:
Net income (loss) (91,612) (572,429)
Adjustments to reconcile net income to net cash provided by operating
activities:
Non-cash items:
Depreciation 18,404 23,410
(Increase) decrease in certificates of deposit (599) -
(Increase) decrease in accounts receivable - trade (3,283) (25,068)
(Increase) decrease in accrued interest receivable 5,350 (4,791)
(Increase) decrease in accounts receivable - employee 1,913 -
Increase (decrease) in bank overdraft (18) (5,234)
Increase (decrease) in accounts payable 44,403 (138,732)
Increase (decrease) in accrued interest on loans (20,956)
Increase (decrease) in accrued salaries payable 37,255
Increase (decrease) in current portion of long-term debts - -
Increase (decrease) in sales taxes payable 3,107 -
Increase (decrease) in payroll tax liabilities 6,036 39,484
---------- ------------
Total adjustments 91,612 (110,931)
---------- ------------
Net cash provided (used) by operating activities 0 (683,360)
Cash Flows from investing activities:
(Purchase) of equipment and vehciles - (5,451)
(Increase) in loans receivable - (58,000)
(Increase) decrease in prepaids and deposits - 99,304
(Increase) decrease in investments - 252,826
---------- ------------
Net cash provided (used) by investing activities - 288,679
---------- ------------
Cash Flows from financing activities: Conversion of debt to redeemable common
stock:
(Decrease) in conversion notes patable (345,500) -
(Decrease) in accrued interest on conversion notes (32,242) -
Issuance of redeemable common stock for conversion notes 377,742 -
Proceeds from loans convertible for common stock - 345,500
Proceeds from loans - 52,223
(Retirement) of loans - (4,714)
---------- ------------
Net cash provided (used) by financing activities - 393,009
---------- ------------
Net increase (decrease) in cash and equivalents 0 (1,672)
Cash and equivalents, beginning of period - 2,472
---------- ------------
Cash and equivalents, end of period 0 800
========== ============
UNAUDITED
F-5
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
Statements of Stockholders' Equity
For the Period of October 20, 1998 (date of inception) through March 31, 2002
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
10/20/98 Original capitalization 500 500 500 500 1,000
10/20/98 Property contributed by stockholder 0 0 108,039 108,039
36,206 Surrendered certificates (300) (300) (300) 300 -
6/1/99 Issued for services 19,999,800 19,999,800 19,999 19,999
--------------------------------------------------------------------------------------
9/30/99 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)
3/10/00 Reverse split (1,000,000 TO 1) (200) (19,999,788)(19,999,988) -
--------------------------------------------------------------------------------------
Sub Total 0 12 12 200 19,999 108,839 (131,495) (2,457)
3/31/00 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)
5/22/00 Shares issued for services 50,000 50,000 0 50 49,950 50,000
5/22/00 Shares issued for claim settlement 435,000 435,000 435 434,565 435,000
5/22/00 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 $314,072 costs (307,563) (307,563)
--------------------------------------------------------------------------------------
Total 06/30/00 0 14,957,600 14,957,600 0 14,948 2,387,338 (131,495) 2,270,791
Shares issued for debt 10 (6,509) (6,499)
7/24/00 Shares issued for services 999,000 999,000
9/30/00 Loss for FYE 09/30/00 (2,918,691) (2,918,691)
--------------------------------------------------------------------------------------
Total 09/30/00 0 14,957,600 14,957,600 0 14,958 3,379,829 (3,050,186) 344,601
9/30/01 Loss period ending 09/30/01 (753,110) (753,110
--------------------------------------------------------------------------------------
Total 09/30/01 0 14,957,600 14,957,600 0 14,958 3,379,829 (3,803,296) (408,509)
--------------------------------------------------------------------------------------
3/31/02 Loss period ending 03/31/02 (91,612) (91,612)
Total 03/31/02 0 14,957,600 14,957,600 $0 $14,958 3,379,829($3,894,908) (500,121)
======================================================================================
UNAUDITED
F-6
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Six Months Periods Ended March 31, 2002 and 2001
(Unaudited)
Note 1 - GOING CONCERN
- ------
The accompanying financial statements of NANNACO, Inc. (a development
stage company) have been prepared in conformity with generally accepted
accounting principles, which contemplate continuation of the Company as
a going concern. The Company has devoted substantially all of its
efforts to financial planning, raising capital, diversification of
services, and developing markets for existing and expanded services.
These factors create an uncertainty about the Company's ability to
continue as a going concern. The financial statements do not include
any adjustments that might be necessary, if the Company is unable to
continue as a going concern.
The Company has taken steps to curtail the operating losses for future
periods. These steps include the reduction (not deferrals) of officers,
directors and key personnel salaries, as well as cuts in every expense
classification, where possible. Additionally, concentration has been
focused on the sources of current customers and business, instead of
spending time and money on new, untried sources of customer
acquisition. Additionally, a three phase plan of business development
has been implemented to increase current market share of existing
business, extending to new geographic areas, and shifting focus to
business segments which are not as weather sensitive, as is the current
business core. With these plans in place, as well as guarding against
additional one time charges to income, it is hoped the Company will be
able curtail its operating losses.
Note 2 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
- ------ POLICIES
A. ORGANIZATION AND NATURE OF THE BUSINESS
NANNACO, INC. (The Company) was incorporated under the laws of the
State of Texas on October 20, 1998, and began operations immediately.
The Company provides industrial surface cleaning, surface protection,
surface restoration, and other services to commercial and industrial
businesses, as well to the owners of historical buildings, operating
under the trade name of Surface Pro in order to relate to the principal
business activity, since the NANNACO name does not indicate the type of
business.
B. REVENUE AND COST RECOGNITION
The Company provides its services on a direct basis. A sale is
recognized when the service is provided and an account receivable is
recorded or payment is received. The criteria for recording a sale is
that all agreed services have been provided.
Supplies and materials are purchased and consumed as necessary.
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.
F-7
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Six Months Periods Ended March 31, 2002 and 2001
(Unaudited)
Note 2 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
- ------
POLICIES (Continued)
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 March 31, 2002, no deferred taxes
or benefit from income taxes has been provided.
Note 3 - CERTIFICATES OF DEPOSIT
- ------
On June 23, 2000, the Company invested in two certificates of deposit
in the amounts of $20,000 each, earning interest at the rate of 5.75%
annually. These certificates mature in one year from the date of
purchase. These certificates matured June 23, 2001, and along with
accrued interest, in the amount of $1,365, were renewed for one year at
the interest rate of 3% per annum. Interest in the amount of $1,175 was
accrued on both certificates. These certificates secure line of credit
notes payable.
Note 4 - ACCOUNTS RECEIVABLE - TRADE
- ------
The trade accounts receivable are recorded by the date of the invoice,
which is the date the work is completed. The terms on the invoices are
due upon completion, unless other arrangements are made prior to the
beginning of the project. At March 31, 2002 and 2001, the balances of
trade receivables were $5,383 and $45,372 respectively, which are
deemed to be collectible in full.
Note 5 - PREPAIDS AND DEPOSITS
- ------
The following schedule details the content of the asset Prepaids and
Deposits:
03/31/02 03/31/01
-------- --------
Final month's rent on warehouse $ 0 $ 1,600
Prepaid office lease 7,164
Prepaid legal fees 6,583
Prepaid interest on installment loan 2,390 2,674
-------- --------
Total prepaids and deposits $ 2,390 $18,021
======== ========
The final month's rent on warehouse facility and the prepaid office
lease were absorbed into operating expenses during the fiscal year
ended September 30, 2001, with occupancy of the facilities being
terminated June 15, 2001.
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. On
December 5, 2000, $45,000 was refunded to the Company by the attorney,
leaving the amount or $6,583 as prepaid at March 31, 2001. All
prepayments were utilized for future legal expenses. This
(Continued)
F-8
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Six Months Periods Ended March 31, 2002 and 2001
(Unaudited)
Note 5 - PREPAIDS AND DEPOSITS (Continued):
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 as each installment payment is made.
Note 6 - EQUIPMENT AND FIXTURES AND VEHICLES
Fixed assets are recorded at cost and are summarized as follows:
03/31/02 03/31/01
Equipment $190,936 $197,936
Vehicles 66,714 66,714
--------- --------
Total Fixed Assets (at Cost) $257,650 $264,650
Less Accumulated Depreciation from
Inception (October 20, 1998) to
March 31, 2002 and 2001 (114,136) (82,334)
Net Fixed Assets at March 31,
2002 and 2001 $143,514 $182,316
======== ========
Depreciation expense charged against operations for the period ending
March 31, 2002, totaled $18,404 and $23,409 for the period ended March
31,2001.
Note 7 - Other Assets
- ------
A. Notes Receivable - Investors
The Company has made advances to sixteen of its investors in the amounts
of $109,000 at March 31, 2002, 2001. These cash advances were secured by
promissory notes due on January 1, 2003. These notes carry the provision
of 9.75% per annum interest from the date of the advance to the due
date.
B. Accrued Interest on Notes Receivable - Investors
Interest accrual on Investors Notes Receivable retroactively accrued on
the advances to investors from the date of the advance to March 31, 2002
and 2001. This interest is due on January 1, 2003, along with the
principal. Accumulated amounts were $16,483 at March 31, 2002, and
$5,804 at March 31,2001.
Note 8 - CURRENT LIABILITIES
A. Bank overdrafts on March 31, 2002 in the amounts of $5,323, and $5,417
at March 31, 2001, were created by the practice of writing checks at
the end of the month and clearing the overdrafts by the first banking
day of the following month.
B. Trade accounts payable of $71,276 and $2,945 on March 31, 2002 and
2001 respectively, were the amounts owed to suppliers, utilities and
other monthly operating expenses at the end of the periods. These
amounts are normally cleared during the month following the purchase,
or as soon as possible thereafter.
C. Accrued interest on loans and notes payable is accrued from the date
of the last payment through March 31, 2002 and 2001.
(Continued)
F-9
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Six Months Periods Ended March 31, 2002 and 2001
(Unaudited)
Note 8 - CURRENT LIABILITIES
- ------
D. CONVERSION NOTES PAYABLE
On December 7, 2000, an agreement was signed for the purchase of a
NANNACO, Inc Convertible Promissory Note in the amount of $140,000. This
note was 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 note contains the provision for the payment of 10%
interest.
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.
By mutual agreement with all parties, as of November 15, 2001, these
notes were converted into NANNACO, Inc. $0.001 common stock at a value
of $1 per share. Including accrued interest, this conversion resulted in
the issuance of 377,742 shares of common stock (See Note 12, concerning
Redeemable Common Stock) .
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.
Note 9 - LONG TERM LIABILITIES
- ------
A. 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 March 31, 2002 and
2001, 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.
03/31/02 03/31/01
-------- --------
Original Amount $ 23,400 $ 23,400
Current Balance $ 6,542 $ 6,773
Long-Term Portion $ 0 $ 2,093
Current Portion Due $ 6,542 $ 4,680
Interest rate 20.75% 20.75%
Unamortized interest $ 2,390 $ 2,674
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 March 31, 2002 and 2001 are as
follows:
03/31/02 03/31/01
-------- --------
Original Amount $35,000 $35,000
Current Balance $25,350 $28,191
Long-Term Portion $18,920 $21,893
Current portion due $13,410 $ 6,298
Interest Rate 10% 10%
Due Date Monthly Monthly
(Continued)
F-10
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Six Months Periods Ended March 31, 2002 and 2001
(Unaudited)
Note 9 - LONG TERM LIABILITIES (Continued)
B. NOTES PAYABLE - LINES OF CREDIT
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 was July 15, 2002, with interest at prime plus 1.25% to be paid
monthly.
03/31/02 03/31/01
-------- --------
Available Amount $ 35,000 $ 35,000
Current Balance $ 33,986 $ 34,953
Long-Term Portion $ 0 $ 0
Current Portion Due $ 33,986 $ 34,953
Interest Rate Prime plus 1.25% Prime plus 1.25%
Due date 07/15/02 07/15/01
Additionally, on June 21, 2000, the company established two new line of
credit notes with the Frost National Bank. These notes are identical in
structure and allow draws up to $20,000 each. Both notes are secured by
certificates of deposit (See Note 3). The two notes were due June 21,
2001 and both require interest on the outstanding balance at the rate of
9.5% per annum. These notes were renewed with a new due date of June 21,
2002, and an interest rate of 5.00%. The summary of both notes at March
31, 2002 and 2001 is as follows:
Note #1 Note #2
Available Amount $ 20,000 $ 20,000
Current Balances $ 20,000 $ 20,000
Long-Term Portion $ 0 $ 0
Current Portion Due $ 20,000 $ 20 000
Interest Rate 5.0%/9.5% 5.0%/9.5%
Due Dates 06/21/02 06/21/02
06/21/01 06/21/01
Note 10- LOANS FROM SHAREHOLDERS
- -------
Since its inception, the Company has been compelled to seek capital on
an interim basis to support its operation. Two stockholders have
provided the necessary cash advances to meet the requirements of the
Company. These advances are evidenced by notes from the Company and bear
interest at the rate of 10% per annum, with a due date of one year from
the dates of the advances.
Note 11 - LEASE COMMITMENTS
- -------
The Company leased a warehouse location and office space on an annual
basis. The warehouse lease was in the amount of $18,674, payable in
monthly installments of $1,600 per month, following an initial payment
of $1,074. The final month's rent in the amount of $1,600 was on deposit
with the lessor. A twelve month lease on the office space from June 15,
2000 through June 15, 2001 was prepaid in full at the inception of the
lease. This lease was amortized each month in the amount of $2,886. Both
of these leases expired on June 15, 2001, and were not renewed. All
prepaid amounts were utilized as rent payments and are included in the
Company's operations for September 30, 2001.
On June 15, 2001, the Company relocated to new facilities, which offered
a combination of warehouse space and office accommodations. This space
is leased for one year payable at the rate of $1,300 per month. No
prepayment was required.
F-11
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Six Months Periods Ended March 31, 2002 and 2001
(Unaudited)
Note 12 - REDEEMABLE COMMON STOCK AND PAID IN SURPLUS
- -------
As discussed in Note 8E, the Company entered into an agreement with
three parties for purchase of a NANNACO, Inc. common stock through
Convertible Promissory Notes. These notes were made with non-qualified
purchasers. As of November 15, 2001, these notes were converted into
377,742 shares of NANNACO, Inc. $0.001 common stock. This resulted in an
allocation of $378 to the stock and $377,364 to additional paid-in
capital. Since the purchasers were non-qualified purchasers, this stock
can be redeemed at the option of the purchaser at any time for three
years from the dates of the original notes. The company has a liability
to redeem these shares, at the option of the shareholder, at the issued
value, plus accrued interest to the date of redemption. This stock is
therefore carried on the balance sheet in a special category and not
included in the equity portion of the Company, since the Company has no
control of the redemption. Also, this stock is not included in the
computation of earnings (losses) per share of common stock outstanding.
The treatment of this stock will continue to be segregated until it is
redeemed or the three year period of optional redemption expires (three
years from the date of the original notes). The potential liability of
interest on the redemption of this stock was not considered in the
computation of the net loss for the period ended March 31, 2002, since
it is only due if the option to redeem is exercised by the purchasers of
the stock. As of that date, the potential liability for interest on this
stock is $14,075.
Note 13 - COMMON STOCK, PREFERRED STOCK, PAID IN SURPLUS
- -------
The company was charted October 20, 1998 under the laws of the State of
Texas. 1,000 shares of $1.00 par value common stock was authorized. Nine
individuals were party to the initial capitalization of 500 shares at an
issue price of $2.00 per share.
Included in Paid-In Capital is $108,039, which represents equipment
contributed by the company's president and founder. The valuation
assigned by the board of directors is less than the original cost or the
fair market value of the equipment.
An additional 50,000,000 shares of $0.001 par value common stock and
10,000,000 shares of $0.00 par value preferred stock was authorized in a
charter amendment in 1999.
Also, in 1999, the company issued 19,999,800 shares of the new par
value ($0.001) per share common stock for services. Details as to the
type of services and the number of shares is as follows:
------------------------------ -------------------------
Summary of Service Number of Shares
------------------------------ -------------------------
Administrative and accounting 73,000
------------------------------ -------------------------
Business development 3,300,000
------------------------------ -------------------------
Corporate attorney 1,015,000
------------------------------ -------------------------
Employment 3,000
------------------------------ -------------------------
Company president 12,302,800
------------------------------ -------------------------
Procedure consultant 3,000
------------------------------ -------------------------
Public relations 300,000
------------------------------ -------------------------
Technical advisor 3,000
------------------------------ -------------------------
Trust shares for expansion 3,000,000
------------------------------ -------------------------
Total 19,999,800
------------------------------ -------------------------
(Continued)
F-12
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Six Months Periods Ended March 31, 2002 and 2001
(Unaudited)
Note 13 - COMMON STOCK, PREFERRED STOCK, PAID IN SURPLUS (Continued):
- -------
At a stockholders meeting in March of 2000 a 1,000,000 to 1 reverse
stock split was approved. All certificates for under a 1,000,000 shares
were canceled and the resultant amounts were refunded to the respective
shareholders. Later in March, 2000, a 1,000,000 to 1 forward split was
declared by the board of directors.
During 2000 the company became aware that certain individuals have
raised money from five investors allegedly on behalf of the company.
These investors had been promised NANNACO, INC. Common stock in exchange
for cash. The company never received the funds raised 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 issue them the appropriate number of shares in exchange
for a Memoranda of Agreement not to take legal action against the
company. A non-cash charge of $435,000 ($1.00 per share) was made
against operations for the year ending September 30, 2000.
In exchange for consulting services, public relations the company issued
50,000 shares of new par value ($.001 per share) common stock.
Consulting fees of $50,000 ($1.00 per share) was charged (non-cash)
against operations for the year ending September 30, 2000, and an
increase in common stock of $50 and paid-in capital $49,950.
Also in the fiscal year ended September 30, 2000, 1,029,200 shares of
new par value ($.001) common stock was converted from debts held by
certain individuals. This conversion converted $519,700 of debt received
through April, 2000, and a charge against operations in the amount of
$509,500. Allocation of the $1,029,200 (based on an issue price of $1.00
per share) was as follows:
----------------------------------------------- ----------
Debt conversion 519,700
----------------------------------------------- ----------
Non-cash charge against operations 509,500
----------------------------------------------- ----------
1,029,200
----------------------------------------------- ----------
Less cash expenses relating to conversion 154,105
----------------------------------------------- ----------
875,095
----------------------------------------------- ----------
A regulation D private placement of 1,442,400 shares of new par value
($.001) common stock was held in 2000. These shares were sold at a
$1.00 per share pursuant to Rule 506 of the Securities and Exchange
Commission, and this is the value ($1.00) that is the benchmark for
securities transactions during fiscal years 2001 and 2000.
The company president and founder also canceled 1,000,000 of his
personal shares, and distributed these shares as gifts to selected
individuals. Individual gifts ranged in size from 300 shares to
450,000 shares and were for uncompensated services rendered in
assisting with the formation, organization and operation of the
company in this development stage. A non-cash charge of $999,000 was
made against operation at September 30, 2000.
Note 14 - NET LOSS PER SHARE OF COMMON STOCK
- -------
In the computation of the net loss per share of common stock for the
period, the retroactive stock splits and other changes in equity have
been taken into consideration in this computation, however, the
Redeemable Common Stock shares have not been considered in this
computation..
F-13
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Six Months Periods Ended March 31, 2002 and 2001
(Unaudited)
Note 15 - 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.
SCHEDULE OF SEGMENTED ACCOUNTS FOR THE SIX MONTH PERIOD ENDED
MARCH 31, 2002:
RESIDENTIAL SEGMENTS
--------------------------------------------
WOOD STONE PRESSURE
RESTORATION RESTORATION SEALING WASHING
----------- ----------- ------- --------
Net sales 1,903 8,026 23,792 1,480
Interest income 155 654 1,939 121
Interest (expense) (310) (1,309) (3,881) (241)
Depreciation (expense) (480) (2,023) (5,997) (373)
Segmented profits (loss) (1,753) (7,392) (21,914) (1,363)
Allocation of fixed assets
To segments 6,716 28,324 83,961 5,223
(Continued)
F-14
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Six Months Periods Ended March 31, 2002 and 2001
(Unaudited)
Note 15 - SEGMENTED DISCLOSURES (Continued)
- -------
SCHEDULE OF SEGMENTED ACCOUNTS FOR THE SIX MONTH PERIOD ENDED
MARCH 31, 2002 (Continued):
COMMERCIAL SEGMENTS
-----------------------------------------
PRESSURE ENVIRONMENT HISTORIC COMPANY
WASHING SERVICES RESTORATION TOTALS
--------- ----------- ----------- -------
Net sales 12,776 16,898 8,135 73,010
Interest income 1,041 1,377 662 5,949
Interest (expense) (2,084) (2,757) (1,328) (11,910)
Depreciation (expense) (3,221) (4,260) (2,050) (18,404)
Segmented profits (loss) (11,768) (15,564) (7,493) (67,247)
Allocation of fixed assets
To segments 45,086 59,633 28,707 257,650
SCHEDULE OF SEGMENTED ACCOUNTS FOR THE SIX MONTH PERIOD ENDED
MARCH 31, 2001:
RESIDENTIAL SEGMENTS
-------------------------------------------------------
WOOD STONE PRESSURE
RESTORATION RESTORATION SEALING WASHING
Net sales 28,009 9,090 57,688 6,595
Interest income 1,200 390 2,472 283
Dividend income 3,321 1,078 6,839 782
(Loss) on disposition of
assets (11,609) (3,767) (23,909) (2,733)
Interest (expense) (5,017) (1,628) (10,334) (1,181)
Depreciation (expense) (3,980) (1,292) (8,197) (937)
Segmented profits (loss) (81,232) (26,363) (167,308) (19,127)
Allocation of fixed assets
To segments 39,894 12,947 82,166 9,393
COMMERCIAL SEGMENTS
---------------------------------------------------
PRESSURE ENVIRONMENT HISTORIC COMPANY
WASHING SERVICES RESTORATION TOTALS
-------- ----------- ----------- --------
Net sales 10,790 38,314 14,266 164,752
Interest income 462 1,642 611 7,060
Dividend income 1,279 4,543 1,691 19,533
(Loss) on disposition of
assets (4,472) (15,880) (5,913) (68,283)
Interest (expense) (1,933) (6,863) (2,556) (29,512)
Depreciation (expense) (1,533) (5,444) (2,026) (23,409)
Segmented profits (loss) (31,293) (111,119) (41,376) (477,818)
Allocation of fixed assets
To segments 15,368 54,571 20,321 234,660
(Continued)
F-15
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Six Months Periods Ended March 31, 2002 and 2001
(Unaudited)
C. RECONCILIATION OF SEGMENTED AMOUNTS
PERIOD ENDED
03/31/02 03/31/01
Interest income $ 5,949 $ 7,060
Dividend income 19,533
(Loss) on disposition of assets (68,283)
Interest (expense) (11,910) (29,512)
Depreciation (expense) (18,404) (23,409)
Segmented profits (loss) (67,247) (477,818)
-------- ---------
Net income (loss) to retained earnings $(91,612) $(572,429)
======== =========
Note 16 - MANAGEMENT STATEMENT
- -------
These unaudited financial statements contain all of the adjustments
and notes considered necessary by management.
F-16
Item 2. Management's Discussion and Analysis or Plan of Operation.
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
Nannaco's performance and should be read in conjunction with the Consolidated
Financial Statements and related notes included therein.
Overview
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 the Six Months Ended March 31, 2002 Compared to the
Six Months Ended March 31, 2002
We had gross profit from operations of $42,000 for the six months ended March
31, 2002 and a loss of $59,000 for the six months ended March 31, 2002. Revenues
were $73,000 for the six months ended March 31, 2002 compared to $165,000 for
the for the six months ended March 31, 2001. The $92,000 decrease in revenues is
due primarily to a severe general downturn in business in the weeks and months
directly following the tragedies of September eleventh. Calls from residential
customers declined severely for a period of three to four weeks. Commercial
calls also declined, but for a shorter period of time. Currently, the volume of
customer calls has resumed its pre-September eleventh levels. Revenues were also
affected by a lag period between the purchase of large yellow pages ads, and
their appearance in the current edition of the yellow pages. The company opted
to shift advertising resources away from a targeted, direct mail program, which
was not producing desired results. Calls from the yellow pages ads have been
steadily coming in, and should improve revenues during the next quarter. Also,
due to the length of time the business has existed, the benefits of repeat
opportunities and positive customer referrals have become a source of additional
revenue.
Cost of Sales was $31,000 for the six months ended March 31, 2002 as compared to
$224,000 for the six months ended March 31, 2001. The decrease in cost of sales
is due to better management of labor and supply costs per job, including
elimination and decreases in executive compensation. We believe we have improved
our cost of sales management to achieve positive cash flow from operations
during the current fiscal year.
Administrative and general expenses were $127,000 for the six months ended March
31, 2002 as compared with $442,000 for the six months ended March 31, 2001. The
$315,000 reduction in administrative and general expenses results from
approximately $80,000 less in legal and professional expense, $63,000 less in
stock transfer and offering expense, $35,000 less in officer compensation,
$31,000 less in payroll and other tax expenses and penalties, $29,000 less in
rent expense, $17,000 less in advertising expense, $17,000 less in travel
expense, and $9,000 less in telephone expenses.
We had a net loss of $92,000 for the six months ended March 31, 2002 and
$572,000 for the six months ended March 31, 2001. The reduction in the net loss
is a result of management's efforts to reduce expenses and improve operating
efficiency as well as the elimination of legal expenses relative to the
registration statement with the Securities and Exchange Commission which became
effective on January 16, 2002.
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 six months ended March 31, 2002 and for the
six months ended March 31, 2001 as follows:
6 months ended 03/31/02 6 months ended 03/31/01
----------------------- -----------------------
Wood Restoration $1,903 $28,009
Stone Restoration $8,026 $9,090
Sealing $23,792 $57,688
Pressure Cleaning $1,480 $6,595
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 are expected to produce revenues in the current fiscal
quarter. Please see Plan of Operation below. These commercial services had
revenues in the three months ended December 31, 2001 and for the three months
ended December 31, 2000 as follows:
6 months ended 03/31/02 6 months ended 03/31/01
----------------------- -----------------------
Pressure Cleaning $12,776 $10,790
Fleet and Hood Cleaning $16,898 $38,314
Historical Restoration $8,135 $14,266
The decrease in commercial revenue is also a reflection of the allocation of
advertising resources to residential wood and stone restoration. The increase in
wood and stone restoration revenue is due to our increased advertising for these
services. The decrease in sealing revenue is a result of our not advertising
this service in favor of advertising stone restoration.
The current quarter's operations have included our first contaminated soil and
water removal and hauling project. Despite the minimal revenue from this first
project we believe we have demonstrated our abilities to the Texas Railroad
Commission and anticipate additional contracts during the current fiscal year
which will substantially increase revenues.
The current quarter's operations have also included an expansion of our services
to include metal fabrication and installation of metal framing for solar panels
and other applications. These services allow us to utilize our existing metal
fabrication equipment and personnel skills for directly producing revenue where
previously used primarily for equipment maintenance. We have obtained and are
performing under two contracts for these types of services with anticipated
revenue of approximately $100,000 for fiscal year 2002, with approximately
$65,000 realized during the current quarter.
Liquidity and Capital Resources for Six Months Ended March 31, 2002 Compared to
the Six Months Ended March 31, 2001
For the six months ended March 31, 2002, we had current assets of $51,000 and
$108,000 for the six months ended March 31, 2001. The $57,000 decrease in
current assets is due primarily to $16,000 less in prepaid legal expenses and
deposits. The was also a $40,000 reduction in accounts receivable which where
written off. Fixed assets for the six months ended March 31, 2002 were $144,000
as compared to fixed assets of $182,000 for the six months ended March 31, 2001
The $38,000 decrease in fixed assets is from a $32,000 increase in depreciation
and a $7,000 decrease in equipment and fixtures.
We had total liabilities of $442,000 for the six months ended March 31, 2002 and
$645,000 for the six months ended March 31, 2001. The $203,000 decrease in
liabilities is primarily due to a $69,000 increase in trade payables, $37.000 in
accrued officer salaries and a $17,000 increase in accrued payroll taxes.
In December 2000, we issued three convertible promissory notes totaling $345,500
of principal. The notes matured 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 November 2001,
the debentures were converted into 377,742 shares of common stock. As of the
date of this report, none of the debenture holders have demanded rescission. The
value of the shares subject to recession is $377,742. These shares are accounted
for in a separate section of the balance sheet entitled Common Stock Subject to
Recession, with a description of the shares issued and outstanding in the
transaction. A footnote to the financial statements fully describes the
transaction and the potential ramifications thereof. These shares will remain in
this classification until the expiration of the recession rights, and at no time
during this period will these shares be included in the Stockholders' Equity
section of the balance sheet, nor will these shares be included in the
computation of Earnings (Loss) per share calculations until the recession
possibility expires.
Our contaminated soil and water removal and hauling services are expected to
improve our liquidity, however no assurances can be made that liquidity will in
fact improve. Recently enacted Texas legislation requires the state to pay
for the remediation of abandoned or closed oil or gas well drilling sites which
have pits and ponds of used waste water and drilling sludge. During the fourth
quarter of fiscal 2000 we 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 as and when we are selected to provide sub-contractor services for
contaminated soil and water removal and hauling.
We have obtained and completed our first contract for contaminated soil and
water removal and hauling services. We anticipate revenue from these contracts
to increase during the current fiscal year and result in a substantial increase
in revenues.
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 2001 we experienced problems on the other end of the spectrum. A wetter than
usual weather pattern created delays in the wood sealing segment of our
operations. We require approximately two days of dry weather between the
cleaning and sealing components of our wood restoration projects. An unusual
pattern of constant, intermittent rainfall during the fall created unforeseen
problems with project completion. The weather pattern did, however, alleviate
any concerns over water usage or restrictions in our commercial operations, as
the local aquifer remained at levels well above normal.
Plan of Operations
We intend to achieve profitability through increased revenue and decreased
expenses. During the previous 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.
Since February 2001 we have tendered over fifty commercial services bids with an
average price of $3,800. As of December 1, 2001 bids for approximately
$1,480,000 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 and be placed on the
approved vendors list of the State of Texas. At present we have the necessary
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 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
February 1, 2002, we have bid upon four sub contracting projects for
contaminated soil and water removal and hauling services. We were not the
accepted bidder on one project and have been awarded our first project with the
Railroad Commission of Texas. We have completed this first project and our
performance has been rated as superior work..
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 and we are not required to operating permits
as a sub-contractor. 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. However in the
event we would seek or be required to obtain 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.
The current quarter's operations have also included an expansion of our services
to include metal fabrication and installation of metal framing for solar panels
and other applications. These services allow us to utilize our existing metal
fabrication equipment and personnel skills for directly producing revenue where
previously used primarily for equipment maintenance. We have obtained and are
performing under two contracts for these types of services with anticipated
revenue of approximately $100,000 for fiscal year 2002, with approximately
$65,000 realized during the current quarter. We intend to pursue this additional
service revenue primarily through repeat business with our current contracts.
We estimate that we require approximately $250,000 to $500,000 to expand
business as planned for the remainder of our current fiscal year. These funds
will be used primarily for repayment of debt, equipment and marketing. However,
in the event such funds are not obtained, we believe we can continue to operate
at our present levels. Further reductions in operating expenses, particularly
executive salaries may be required to operate within cash flow. Sources of
capital will be sought primarily through the private placement of securities by
our officers. While we do not believe commercial loans are available to us for
operating expenses, debt financing of durable equipment is believed available
through commercial lenders and equipment dealers.
Part II - Other Information
Item 1 - Legal Proceedings: There are no proceedings to report.
Item 2. - Changes in Securities: None
Item 3. - Default Upon Senior Securities: There are no defaults to report.
Item 4. - Submission of Matters to a Vote of Security Holders: None.
Item 5. - Other Information: None
Item 6. - Exhibits and Reports on Form 8-K: none
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NANNACO, INC.
Dated: May 20, 2002
/s/ANDREW DEVRIES, III
- -----------------------
ANDREW DEVRIES, III, President