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
three month period ended: December 31, 2001
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 X No
--- ---
As of February 25, 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
December 31, 2001 and 2000
ASSETS
December December
31, 2001 31, 2000
-------- --------
Current Assets:
Cash on hand and in banks 0 932
Certificates of deposit 42,547 41,443
Cash held in escrow 2,472
Accounts receivable 3,481 15,422
Investment in mutual funds (at fair market
value Cost at 12/31/00, $221,341) 0 178,996
Other Current Assets:
Prepaids and deposits 2,390 50,478
-------- --------
Total current assets 48,418 289,743
Fixed Assets:
Equipment and fixtures 190,936 196,436
Vehicles 66,714 93,783
Less: accumulated depreciation (104,934) (70,629)
-------- --------
Net property and equipment 152,716 219,590
Other Assets:
Notes receivable - investors 109,000 135,000
Accrued interest on investors notes receivable 13,811 2,429
-------- --------
Total other assets 122,811 137,429
-------- --------
TOTAL ASSETS 323,945 646,762
======== ========
UNAUDITED
F-1
NANNACO, INC
(A Development Stage Company)
d.b.a. Surface Pro
Balance Sheets
December 31, 2001 and 2000
LIABILITIES AND STOCKHOLDER'S EQUITY
December December
31, 2001 31, 2000
---------- ----------
Current Liabilities:
Bank overdrafts $ 7,525 $ --
Accounts payable - trade 62,678 28,918
Accrued interest payable on loans 9,607 352
Accrued salaries payable 9,790
Loan payable - brokerage firm -- 117,550
Conversion notes payable
Current portion of notes payable 85,096 394,788
Sales taxes payable 38,943 31,682
Payroll taxes accured and/or withheld 100,975 41,071
---------- ----------
Total current liabilities 314,614 614,361
Long-Term Liabilities:
Installment notes payable 31,892 37,614
Notes payable - banks (lines of credit) 73,986 65,835
Stock conversion notes payable -- 317,975
Less: current portion (85,096) (394,788)
---------- ----------
Net long-term debt 20,782 26,636
---------- ----------
Other Liabilities:
Loans from shareholders 69,200 --
---------- ----------
Total liabilities 404,596 640,997
---------- ----------
Common Stock Subject to Redemption:
Common stock (377,742 shares issued November
15, 2001, an outstanding) 378 --
Additional paid-in capital 377,364
---------- ----------
Total common stock subject to redemption 377,742 --
---------- ----------
Stockholders' Equity:
Common stock (1,000 shares $1 par value
authorized, 0 shares issued and
outstanding at 12/31/01 and 12/31/00) -- --
(50,000,000 shares $0.001 par value
authorized, 14,957,600 shares issued
and outstanding at 12/31/01 and 12/31/00) 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 (3,853,180) (1,745,003)
---------- ----------
Total stockholder's equity (458,393) (5,765)
---------- ----------
TOTAL LIABLITIES AND STOCKHOLDER'S EQUITY $ 323,945 $ 646,762
========== ==========
UNAUDITED
F-2
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
Statements of Operations and Retained Deficits
For the three months periods ended December 31, 2001 and 2000
December December
31, 2001 31, 2000
-------------- --------------
Income:
Revenue $39,040 $65,995
Cost of Sales:
Wages 14,140 100,565
Supplies 5,918 16,777
Contract labor 5,390
Commissions 140 36,600
-------------- --------------
Total cost of sales 20,198 159,332
-------------- --------------
Gross Profit (Loss) $18,842 (93,337)
Administrative and General:
Advertising and public relations 178 10,231
Bank charges and wire fees 1,200 258
Gas, fuel and oil 4,026 5,021
Depreciation 9,202 11,705
Dues and subscripitions -- 1,031
Insurance -- 7,292
Legal and professional 14,400 43,528
Miscellaneous 459 3,629
Office supplies 234 2,283
Officer compensation 20,300 48,425
Payroll tax expense 1,884 10,989
Penalties -- 7,084
Rent 8,100 19,358
Repairs and maintenance 700 6,700
Other taxes 230
Stock transfer expense 391 --
Telephone 500 9,634
Trade show expense 178 1,333
Travel and entertainment 360 3,213
Utilities 730 561
-------------- --------------
Total administrative and general expenses 62,842 192,505
-------------- --------------
Income (Loss) from Operations (44,000) (285,842)
Other Income (Expense)
Interest income 2,981 3,249
Divivdend income -- 17,692
Loss on disposition of assets -- (1,906)
Unrealized gains (losses) on mutual funds -- (42,345)
Interest Expense (8,865) (16,313)
-------------- --------------
Total other income (expense) (5,884) (39,623)
-------------- --------------
Net Income (Loss) (49,884) (325,465)
Retained (deficit), beginning of period (3,803,296) (1,419,538)
-------------- --------------
Retained (Deficit), End of Period ($3,853,180) ($1,745,003)
============== ==============
Net (loss) per share of common stock ($0.00) ($0.02)
============== ==============
UNAUDITED
F-3
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
Statements of Cash Flows
For the years ended December 31, 2001 and 2000
December December
31, 2001 31, 2000
-------- --------
Cash flows from operating activities:
Net income (loss) (49,884) (325,465)
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash items:
Depreciation 9,202 11,705
(Increase) decrease in certificates of deposit (302) (819)
(Increase) decrease in accounts receivable - trade (1,382) 4,882
(Increase) decrease in accounts receivable - investors -- (84,000)
(Increase) decrease in accounts receivable - employee 1,913 353
(Increase) decrease in accounts receivable - other (2,817) (2,429)
Increase (decrease) in bank overdraft 2,184 (10,651)
(Increase) decrease in mutual fund shares -- 34,214
(Increase) decrease in fair market value of mutual fund shares -- 42,345
(Increase) decrease in prepaid expense and deposits -- 66,847
(Increase) decrease in equipment -- (3,951)
(Increase) decrease in vehicles -- (27,069)
Increase (decrease) in accounts payable 14,400 5,784
Increase (decrease) in accounts payable - other 8,409 --
Increase (decrease) in accounts payable - employees 9,790 --
Increase (decrease) in loans payable - brokerage firm -- (15,247)
Increase (decrease) in notes payable -- (8,495)
Increase (decrease) in conversion notes payable -- 317,975
Increase (decrease) in sales taxes payable 2,451 4,314
Increase (decrease) in payroll tax liabilities 6,036 (9,361)
-------- --------
Total adjustments 49,884 326,397
-------- --------
Net cash provided (used) by operating activities -- 932
Cash Flows from financing activities:
Conversion of debt to redeemable common stock:
(Decrease) in conversion notes payable (345,500) --
(Decrease) in accrued interest on conversion notes (32,242) --
Issuance of redeemable common stock for conversion notes 377,742 --
-------- --------
Net cash provided (used) by financing activities -- --
-------- --------
Net increase (decrease) in cash and equivalents -- 932
Cash and equivalents, beginning of period -- 2,472
-------- --------
Cash and equivalents, end of period -- 3,404
======== ========
UNAUDITED
F-4
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
Statements of Stockholders' Equity
For the Period of October 20, 1998 (date of inception)
through December 31, 2001
SHARES COMMON STOCK
-----------------------------------------
$1.00 PAR $0.001 PAR TOTAL
VALUE VALUE SHARES
----------- ----------- -----------
Balance at October 1, 1998 -- -- --
Original capitalization 500 -- 500
Property contributed by stockholder -- -- --
Surrendered certificates (300) -- (300)
Issued for services -- 19,999,800 19,999,800
Loss for period ending 09/30/99 -- -- --
----------- ----------- -----------
Total 09/30/99 200 19,999,800 20,000,000
Reverse split (1,000,000 TO 1) (200) (19,999,788) (19,999,988)
----------- ----------- -----------
Sub Total -- 12 12
Forward split (1 to 1,000,000) -- 11,999,988 11,999,988
Fractional redemption -- -- --
Fractional redemption -- -- --
----------- ----------- -----------
-- 12,000,000 12,000,000
Shares issued for services -- 50,000 50,000
Shares issued for claim settlement -- 435,000 435,000
Shares issued for debt -- 1,029,200 1,029,200
less $154,105 costs -- -- --
Shares sold at private placement -- 1,443,400 1,443,400
less $314,072 costs -- -- --
----------- ----------- -----------
Total 06/30/00 -- 14,957,600 14,957,600
Shares issued for debt -- -- --
Shares issued for services -- -- --
Loss for FYE 09/30/00 -- -- --
----------- ----------- -----------
Total 09/30/00 -- 14,957,600 14,957,600
Loss period ending 09/30/01 -- -- --
----------- ----------- -----------
Total 09/30/01 -- 14,957,600 14,957,600
Loss period ending 12/31/01 -- -- --
Total 12/31/01 -- 14,957,600 14,957,600
=========== =========== ===========
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
Statements of Stockholders' Equity
For the Period of October 20, 1998 (date of inception)
through December 31, 2001
CONTINUED - #2
DOLLARS
------------------------------------------------------------------
$1.00 $0.001 PAID IN RETAINED
STOCK STOCK SURPLUS DEFICIT TOTAL
---------- ---------- ---------- ---------- ----------
Balance at October 1, 1998 -- -- -- -- --
Original capitalization 500 -- 500 -- 1,000
Property contributed by stockholder -- -- 108,039 -- 108,039
Surrendered certificates (300) -- 300 -- --
Issued for services -- 19,999 -- -- 19,999
Loss for period ending 09/30/99 -- -- -- (131,495) (131,495)
---------- ---------- ---------- ---------- ----------
Total 09/30/99 200 19,999 108,839 (131,495) (2,457)
Reverse split (1,000,000 TO 1) -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Sub Total 200 19,999 108,839 (131,495) (2,457)
Forward split (1 to 1,000,000) -- -- -- -- --
Fractional redemption (200) -- 199 -- (1)
Fractional redemption -- (7,999) (6,800) -- (14,799)
---------- ---------- ---------- ---------- ----------
-- 12,000 102,238 (131,495) (17,257)
Shares issued for services -- 50 49,950 -- 50,000
Shares issued for claim settlement -- 435 434,565 -- 435,000
Shares issued for debt -- 1,019 1,028,172 -- 1,029,191
less $154,105 costs -- (154,105) -- (154,105)
Shares sold at private placement -- 1,444 1,234,081 -- 1,235,525
less $314,072 costs -- -- (307,563) -- (307,563)
---------- ---------- ---------- ---------- ----------
Total 06/30/00 -- 14,948 2,387,338 (131,495) 2,270,791
Shares issued for debt -- 10 (6,509) -- (6,499)
Shares issued for services -- -- 999,000 -- 999,000
Loss for FYE 09/30/00 -- -- -- (2,918,691) (2,918,691)
---------- ---------- ---------- ---------- ----------
Total 09/30/00 -- 14,958 3,379,829 (3,050,186) 344,601
Loss period ending 09/30/01 -- -- -- (753,110) (753,110)
---------- ---------- ---------- ---------- ----------
Total 09/30/01 -- 14,958 3,379,829 (3,803,296) (408,509)
Loss period ending 12/31/01 -- -- -- -- (49,884)
Total 12/31/01 -- 14,958 3,379,829 (3,803,296) (458,393)
========== ========== ========== ========== ==========
UNAUDITED
F-5
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Three Months Periods Ended December 31, 2001 and 2000
(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. 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.
F-6
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Three Months Periods Ended December 31, 2001 and 2000
(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 September 30, 2001, 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 $879
was accrued on both certificates. These certificates secure line of
credit notes payable.
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 December 31,, 2001 and 2000, the balances
of trade receivables were $3,481 and $15,422, 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:
12/31/01 12/31/00
------- -------
Final month's rent on warehouse $ -- $ 1,600
Prepaid office lease -- 15,822
Prepaid legal fees -- 29,639
Prepaid interest on installment loan 2,390 3,417
------- -------
Total prepaids and deposits $ 2,390 $50,478
======= =======
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.
At December 31, 2000, an amount of $25,361 had been treated in this
manner and on December 5, 2000, $45,000 was refunded, leaving the
amount shown as prepaid. All prepayments were utilized
(Continued)
F-7
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Three Months Periods Ended December 31, 2001 and 2000
(Unaudited)
Note 5 - PREPAIDS AND DEPOSITS (Continued):
- ------ during the period ended September 30, 2001. 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 as each installment
payment is made.
Note 6 - EQUIPMENT AND FIXTURES AND VEHICLES
- ------ Fixed assets are recorded at cost and are summarized as follows:
12/31/01 12/31/00
--------- ---------
Equipment $ 190,936 $ 196,436
Vehicles 66,714 93,783
--------- ---------
Total Fixed Assets (at Cost) $ 257,650 $ 290,219
Less Accumulated Depreciation from
Inception (October 20, 1998) to
December 31, 2001 and 2000 (104,934) (70,629)
--------- ---------
Net Fixed Assets at December 31,
2001 and 2000 $ 152,716 $ 219,590
========= =========
Depreciation expense charged against operations for the period ending
December 31, 2001 totaled $9,202 and $11,705 for the period ended
December 31, 2000.
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 December 31, 2001, and $135,000 at December 31,
2000. These cash advances were secured by promissory notes due on
January 1, 2003. These notes carry the provision of 9.75% per annum
interest from the date of the advance to the due date.
B. Accrued Interest on Notes Receivable - Investors
Interest accrual on Investors Notes Receivable retroactively accrued
on the advances to investors from the date of the advance to December
31, 2001and 2000. This interest is due on January 1, 2003, along with
the principal. Accumulated amounts were $13,811 at December 31, 2001,
and $2,429 at December 31, 2000.
Note 8 - CURRENT LIABILITIES
- ------ A. Bank overdrafts on December 31, 2001 in the amounts of $7,525 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 $62,678 and $28,918on December 31, 2001
and December 31, 2000 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 December 31, 2001 and 2000.
(Continued)
F-8
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Three Months Periods Ended December 31, 2001 and 2000
(Unaudited)
Note 8 - CURRENT LIABILITIES
- ------ D. LOANS PAYABLE
Included in current liabilities at December 31, 2000 is $117,550,
which represents money owed to a brokerage firm's cash account. The
stocks held by the brokerage firm secure these funds. Interest accrues
on the balance at the rate of 9.625% and is charged the company on a
monthly basis. For the month of December, 2000 interest in the amount
of $1,184 was included in the balance due the brokerage firm.
E. 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) .
F. The accumulations in Sales Taxes Payable and Payroll Taxes Accrued
and/or Withheld are the amounts due to government agencies for taxes.
The Sales Taxes due is the aggregate 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 December 31, 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.
12/31/01 12/31/00
-------- --------
Original Amount $ 23,400 $23,400
Current Balance $ 6,542 $ 8,240
Long-Term Portion $ 1,862 $ 2,780
Portion due in twelve months $ 4,680 $ 4,680
Interest rate 20.75% 20.75%
Unamortized interest $ 2,390 $ 3,418
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
(Continued)
F-9
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Three Months Periods Ended December 31, 2001 and 2000
(Unaudited)
Note 9 - LONG TERM LIABILITIES (Continued)
- ------ A. INSTALLMENT NOTES PAYABLE
is 10% per annum. The details at December 31, 2001 and 2000 are as
follows:
12/31/01 12/31/00
-------- --------
Original Amount $35,000 $35,000
Current Balance $25,350 $29,374
Long-Term Portion $18,920 $23,076
Portion due in twelve months $ 6,430 $ 6,298
Interest Rate 10% 10%
Due Date Monthly Monthly
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.
12/31/01 12/31/00
-------- --------
Available Amount $35,000 $35,000
Current Balance $33,986 $33,834
Long-Term Portion $ 0 $ 0
Portion due in twelve months $33,986 $33,834
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 December 31, 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
Portion Due in twelve months $20,000 $20 000
Interest Rate 5.0% 5.0%
Due Dates 06/21/02 06/21/02
At December 31, 2000, the summary is as follows:
Note #1 Note #2
------- -------
Available Amount $20,000 $20,000
Current Balances $14,000 $18,000
Long-Term Portion $ 0 $ 0
Portion Due in Twelve Months $14,000 $18,000
Interest Rate 9.5% 9.5%
Due Dates 06/21/01 06/21/01
(Continued)
F-10
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Three Months Periods Ended December 31, 2001 and 2000
(Unaudited)
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.
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 December 31, 2001, since it is only due if the option to redeem
is exercised by the purchasers of the stock. As of December 31, 2001,
the potential liability for interest on this stock is $4,354.
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:
(Continued)
F-11
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Three Months Periods Ended December 31, 2001 and 2000
(Unaudited)
Note 13 - COMMON STOCK, PREFERRED STOCK, PAID IN SURPLUS (Continued):
- -------
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
-------------------------------- ------------
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 $1.00 per share) was as follows:
Debt conversion 519,700
------------------------------------------ -----------
Non-cash charge against operations 509,500
------------------------------------------ -----------
1,029,200
------------------------------------------ -----------
Less cash expenses relating to conversion 154,105
------------------------------------------ -----------
875,095
------------------------------------------ -----------
(Continued)
F-12
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Three Months Periods Ended December 31, 2001 and 2000
(Unaudited)
Note 13 - COMMON STOCK, PREFERRED STOCK, PAID IN SURPLUS (Continued):
- ------- A regulation D private placement of 1,442,400 shares of new par value
($.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..
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
(Continued)
F-13
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Three Months Periods Ended December 31, 2001 and 2000
(Unaudited)
Note 16 - SEGMENTED DISCLOSURES (Continued)
- ------- 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 THREE MONTH PERIOD ENDED
DECEMBER 31, 2001:
RESIDENTIAL SEGMENTS
--------------------------------------------------
WOOD STONE PRESSURE
RESTORATION RESTORATION SEALING WASHING
--------------------------------------------------
Net sales 568 1,419 9,706 1,480
Interest income 45 104 745 119
Interest (expense) (133) (310) (2,216) (355)
Depreciation (expense) (138) (322) (2,301) (368)
Segmented profits (loss) (521) (1,218) (8,700) (1,392)
Allocation of fixed assets
To segments 3,865 9,018 64.413 10,306
COMMERCIAL SEGMENTS
--------------------------------------------------
PRESSURE ENVIRONMENT HISTORIC COMPANY
WASHING SERVICES RESTORATION TOTALS
--------------------------------------------------
Net sales 11,276 8,780 5,811 39,040
Interest income 850 671 447 2,981
Interest (expense) (2,526) (1,995) (1,330) (8,865)
Depreciation (expense) (2,623) (2,070) (1,380) (9,202)
Segmented profits (loss) (9,917) (7,830) (5,220) (34,798)
Allocation of fixed assets
To segments 73,429 57,971 38,648 257,650
SCHEDULE OF SEGMENTED ACCOUNTS FOR THE THREE MONTH PERIOD ENDED
DECEMBER 31, 2000:
RESIDENTIAL SEGMENTS
--------------------------------------------------
WOOD STONE PRESSURE
RESTORATION RESTORATION SEALING WASHING
--------------------------------------------------
Net sales 11,192 939 18,787 1,916
Interest income 552 49 926 97
Unrealized gain or (loss)
on mutual funds (7,199) (635) (12,068) (1,270)
(Loss) on disposition of
assets (324) (29) (543) (57)
Interest (expense) (2,773) (245) (4,649) (489)
Depreciation (expense) (1,990) (176) (3,336) (351)
Segmented profits (loss) (43,596) (3,847) (73,087) (7,693)
Allocation of fixed assets
To segments 49,337 4,353 82,712 8,707
(Continued)
F-14
NANNACO, INC.
(A Development Stage Company)
d.b.a. Surface Pro
NOTES TO FINANCIAL STATEMENTS
For the Three Months Periods Ended December 31, 2001 and 2000
(Unaudited)
SCHEDULE OF SEGMENTED ACCOUNTS FOR THE THREE MONTH PERIOD ENDED
DECEMBER 31, 2000:
(Continued)
COMMERCIAL SEGMENTS
--------------------------------------------------
PRESSURE ENVIRONMENT HISTORIC COMPANY
WASHING SERVICES RESTORATION TOTALS
--------------------------------------------------
Net sales 5,510 19,442 8,209 65,995
Interest income 276 942 406 3,249
Unrealized gain or (loss)
on mutual funds (3,599) (12,280) (5,293) (42,345)
(Loss) on disposition of
assets (162) (553) (238) (1,906)
Interest (expense) (1,387) (4,731) (2,039) (16,313)
Depreciation (expense) (995) (3,394) (1,463) (11,705)
Segmented profits (loss) (21,798) (74,369) (32,055) (256,445)
Allocation of fixed assets
To segments 24,669 24,669 36,277 290,219
C. RECONCILIATION OF SEGMENTED AMOUNTS:
PERIOD ENDED
-------------------------
12/31/01 12/31/00
--------- ---------
Interest income $ 2,981 $ 3,249
Unrealized gain (loss) on mutual funds -- (42,345)
(Loss) on disposition of assets -- (1,906)
Interest (expense) (8,865) (16,313)
Depreciation (expense) (9,202) (11,705)
Segmented profits (loss) (34,798) (256,445)
--------- ---------
Net income (loss) to retained earnings $ (49,884) $(325,465)
========= =========
Note 17 - MANAGEMENT STATEMENT
- ------- These unaudited financial statements contain all of the adjustments
and notes considered necessary by management.
F-15
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 Three Months Ended December 31, 2001 Compared to
the Three Months Ended December 31, 2000
We had gross profit from operations of $19,000 for the three months ended
December 31, 2001 and a loss of $93,000 for the three months ended December 31,
2000 Revenues were $39,000 for the three months ended December 31, 2001 compared
to $66,000 for the for the three months ended December 31, 2000. The $27,000
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.
2
Cost of Sales was $20,000 for the three months ended December 31, 2001 as
compared to $159,000 for the three months ended December 31, 2000. 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 $63,000 for the three months ended
December 31, 2001as compared with $193,000 for the three months ended December
31, 2000. The $130,000 reduction in administrative and general expenses results
from approximately $30,000 less in legal and professional expense, $28,000 less
in officer compensation, $10,000 less in advertising expense, $16,000 less in
payroll and other tax expenses, $11,000 less in rent expense, and $9,000 less in
telephone expenses.
We had a net loss from operations of $50,000 for the three months ended December
31, 2001 and $325,000 for the three months ended December 31, 2000. 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 three months ended December 31, 2001 and for
the three months ended December 31, 2000 as follows:
3 months ended 12/31/01 3 months ended 12/31/00
----------------------- -----------------------
Wood Restoration $16,825 $11,750
Stone Restoration $9,250 $4,750
Sealing $12,950 $23,000
Pressure Cleaning $4,200 $3,250
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:
3 months ended 12/31/01 3 months ended 12/31/00
----------------------- -----------------------
Pressure Cleaning $4,225 $4,500
Fleet and Hood Cleaning $12,775 $17,000
Historical Restoration $4,200 $5,000
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.
3
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 Three Months Ended December 31, 2001
Compared to the Three Months Ended December 31, 2000
For the three months ended December 31, 2001 , we had current assets of $48,000
and $290,000 for the three months ended December 31, 2000. The $242,000 decrease
in current assets is due primarily to $48,000 less in prepaid legal expenses and
deposits and the liquidation of $179,000 of an investment in mutual funds which
was used for operating expenses. Fixed assets for the three months ended
December 31, 2001 were $153,000 as compared to fixed assets of $220,000 for the
three months ended December 31, 2000. The $67,000 decrease in fixed assets is
from $27,000 less in vehicles and a $30,000 increase in depreciation.
We had total liabilities of $405,000 for the three months ended December 31,
2001 and $641,000 for the three months ended December 31, 2000. The $236,000
decrease in liabilities is primarily due to the conversion of the below
described promissory notes into common stock.
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.
4
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.
5
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.
6
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: February 13, 2002
-----------------
/s/ANDREW DEVRIES, III
- ------------------------------
ANDREW DEVRIES, III, President
7