SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
Commission File #000-50672
NANNACO, INC.
(Exact name of small business issuer as specified in its charter)
Texas
(State or other jurisdiction of incorporation or organization)
74-2891747
(IRS Employer Identification Number)
7235 North Creek Loop, Gig Harbor, WA 98335
(Address of principal executive offices)(Zip Code)
(253) 853-3632 (Registrant's
telephone no., including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Company's common stock outstanding on
June 30, 2004: 474,253,389
NANNACO, INC.
FORM 10-QSB
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis or Plan of Operations
Item 3 - Controls and Procedures
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 2 - Changes in Securities
Item 3 - Defaults upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURES
2
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Page No.
Filed herewith are our following unaudited financial
statements:
Balance Sheet at June 30, 2004 4
Statements of Operations for the three and nine months ended June 30, 2004
and 2003 6
Statements of Cash Flows for the nine months ended June 30, 2004 and 2003 7
Notes to Financial Statements 8-18
3
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(Unaudited) JUNE 30, 2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ --
Accounts receivable --
----------
TOTAL CURRENT ASSETS $ --
==========
LIABILITIES
CURRENT LIABILITIES
Convertible debentures $ 107,500
Bank loans 59,336
Accounts payable - trade 55,969
Accrued compensation, related party 25,092
Accrued interest 52,966
Due to consultants 36,196
Other current liabilities 33,535
Payroll taxes payable 246,427
Sales taxes payable 40,801
Judgment payable 52,052
Loan payable - related party 42,700
----------
TOTAL CURRENT LIABILITIES $ 752,575
==========
The accompanying notes are an integral part of the financial statements.
4
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET (Continued)
(Unaudited) JUNE 30, 2004
STOCKHOLDERS' DEFICIENCY
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' DEFICIENCY
Common stock, $1.00 par value, 1,000 shares authorized:
Issued - none issued and outstanding --
Preferred stock, $0.001 par value, 100,000,000 shares authorized
Issued - none issued and outstanding --
Common stock, $0.001 par value, 500,000,000 shares authorized:
Issued - 474,253,389 issued and outstanding 474,253
Additional paid in capital 10,473,975
Accumulated deficit through September 30, 2003 (5,048,764)
Deficit accumulated during development stage (6,129,705)
------------
(230,242)
Less: Deferred compensation (69,417)
Less: Deferred consulting (452,917)
------------
TOTAL STOCKHOLDERS' DEFICIENCY (752,575)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICENCY $ --
============
The accompanying notes are an integral part of the financial statements.
5
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(Unaudited)
PERIOD FROM
OCTOBER 1, 2003
(INCEPTON OF
NINE MONTHS ENDED THREE MONTHS ENDED DEVELOPMENT STAGE)
JUNE 30, JUNE 30, TO JUNE 30,
2004 2003 2004 2003 2004
-----------------------------------------------------------------------------
REVENUES $ 15,577 $ 43,711 $ -- $ 9,486 $ 15,577
COST OF REVENUES 16,848 60,062 -- 42,449 16,848
-----------------------------------------------------------------------
GROSS LOSS (1,271) (16,351) -- (32,963) (1,271)
OPERATING EXPENSES:
Selling, general and administrative 15,217 68,412 0 42,184 15,217
Compensation and payroll taxes 2,003,897 37,500 20,500 12,500 2,003,897
Consulting 2,810,884 3,620 864,842 2,920 2,810,884
Penalties 3 1,574 -- 512 3
Legal and professional 1,248,841 35,075 263,947 16,265 1,248,841
Debenture liquidated damages 24,500 -- -- -- 24,500
Rent 1,495 6,435 -- 2,787 1,495
Travel and entertainment 3,726 215 -- -- 3,726
Bad debt expense 1,171 -- -- -- 1,171
Depreciation -- 23,400 -- 7,800 --
-----------------------------------------------------------------------
TOTAL OPERATING EXPENSES 6,109,734 176,231 1,149,289 84,968 6,109,734
-----------------------------------------------------------------------
LOSS FROM OPERATIONS (6,111,004) (192,582) (1,149,289) (117,931) (6,111,004)
OTHER EXPENSE:
Interest expense, net (18,701) (9,217) (6,234) (4,785) (18,701)
-----------
TOTAL OTHER EXPENSE (18,701) (9,217) (6,234) (4,785) (18,701)
-----------------------------------------------------------------------
NET LOSS $(6,129,705) $ (201,799) $(1,155,523) $ (122,716) $(6,129,705)
=======================================================================
NET LOSS PER SHARE -
BASIC AND DILUTED $ (0.02) $ (0.01) $ (0.00) $ (0.00)
========================================================
The accompanying notes are an integral part of the financial statements.
6
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(Unaudited)
Period From
OCTOBER 1, 2003
(INCEPTON OF
NINE MONTHS ENDED DEVELOPMENT STAGE)
JUNE 30, TO JUNE 30,
2004 2003 2004
----------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,129,705) $ (201,799) $(6,129,705)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation -- 23,400 --
Bad debt expense 1,171 -- 1,171
Stock issued for legal services 1,202,800 -- 1,202,800
Stock issued for consulting services 1,769,001 -- 1,769,001
Debenture liquidated damages 24,500 -- 24,500
Amortization of deferred compensation 1,938,887 -- 1,938,887
Amortization of deferred consulting 1,035,083 -- 1,035,083
Changes in operating assets and liabilities:
Increase in accounts receivable - trade (548) (2,540) (548)
Decrease in bank overdrafts (1,976) (2,678) (1,976)
Increase in accounts payable 7,346 31,152 7,346
Increase in accounts payable - employee -- 13,143 --
Increase in accrued interest receivable -- (4,286) --
Increase in accrued interest payable 15,529 -- 15,529
Increase in due to consultants 36,196 -- 36,196
Increase in other current liabilities 33,535 -- 33,535
Increase (decrease) in payroll taxes payable 65,010 (20,000) 65,010
Increase in judgment payable 3,173 1,116 3,173
-----------------------------------------
NET CASH USED IN OPERATING ACTIVITIES $ 0 $ (162,492) $ 0
=========================================
CASH FLOW FROM INVESTING ACTIVITIES
Cash advances from (to) stockholders $ -- $ -- $ 4,273
Purchase of property and equipment -- (15,381) --
-----------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES -- 28,892 --
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures -- 133,600 --
-----------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- 133,600 --
NET INCREASE IN CASH -- -- --
CASH AT BEGINNING OF PERIOD -- -- --
-----------------------------------------
CASH AT END OF PERIOD $ -- $ -- $ --
=========================================
CASH INTEREST PAID $ -- $ -- $ --
=========================================
SUPPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Stock issued for debenture liquidated damages $ 35,000 $ -- $ 35,000
Issuance of stock for conversion of convertible debentures 60,000 -- 60,000
Issuance of stock for conversion of accounts payable 54,999 -- 54,999
The accompanying notes are an integral part of the financial statements.
7
1. HISTORY AND NATURE OF BUSINESS
Nannaco, Inc. ("Nannaco", "the Company", "we", "us") is a publicly traded
company that previously provided surface cleaning, surface protection, surface
restoration, and other services to commercial and industrial businesses, as well
as to owners of historical buildings. The Company had operated under the trade
name Surface Pro since the Nannaco name did not indicate the type or nature of
its business. The Company was incorporated under the laws of the State of Texas
on October 20, 1998, and immediately began operations.
Until September 30, 2003, Nannaco focused on surface cleaning, surface
protection and restoration. However, sales from these products were not
sufficient to enable the company to continue operations and the Company changed
its strategy due to poor operating conditions and their operating results
coupled with difficulties in raising capital through debt and equity sources.
The Company adopted a new strategy that committed to the disposal of its current
business and to seek a merger/acquisition transaction with a company having
better financial resources and/or act as a holding company for newly developed
businesses. As of September 30, 2003, the Company ceased all operating
activities under the surface cleaning, surface protection and restoration
business and disposed of most of its assets while formulating a plan to improve
it financial position.
In December 2003 and January 2004, the Company issued several announcements
related to the change in business. The Company had moved to a new line of
business as a consultant and advisor to customers, however, they ceased this
activity in March 2004. The Company continues to seek a merger/acquisition
candidate. The Company will be treated as a development stage company, effective
October 1, 2003. Activities during the new development stage include
restructuring the Company and entering into contracts to provide consulting
services to customers. Additionally, in March 2004, the Company's CEO resigned
and was replaced by a new CEO.
In March 2004, the Company announced they had signed a letter of intent to
acquire Red Alert Group, Inc., a company specializing in homeland and global
security. The Company anticipates that upon the successful completion of the
announced acquisition, the name of the Company will be changed to Red Alert
Group, Inc. and will apply to obtain a new stock ticker symbol (See Note 8 -
Subsequent Events).
2. GOING CONCERN
We have incurred net losses in prior years and this has resulted in a
significant accumulated deficit and stockholders' deficiency at June 30, 2004.
We had a net loss of $6,129,705 for the nine months ended June 30, 2004, and at
June 30, 2004, we had no assets and our current liabilities were $752,575, our
stockholders' deficiency was $752,575, we had an accumulated deficit of
$5,048,764 from previous business operations and we had a deficit accumulated
during the development stage for our new business operations of $6,129,705.
The time required for us to become profitable is highly uncertain, and we cannot
assure you that we will achieve or sustain profitability or generate sufficient
cash flow from operations to meet our planned capital expenditures, working
capital and debt service requirements. If required, our ability to obtain
additional financing from other sources also depends on many factors beyond our
control, including the state of the capital markets and the prospects for our
business. The necessary additional financing may not be available to us or may
be available only on terms that would result in further dilution to the current
owners of our common stock.
We have substantial current obligations. As of June 30, 2004, we had no assets
and $752,575 of liabilities. Of the $752,575 outstanding at June 30, 2004,
$246,427 is for unpaid federal payroll taxes, interest and penalties. The
Company has received correspondence from the Internal Revenue Service ("IRS")
detailing the obligation and remedies that the IRS may pursue if not paid. The
remaining current obligations (which are all past due) include accounts payable
of $55,969, judgment payable of $52,052, sales tax payable of $40,801, bank
loans of $59,336, loan payable-related party of $42,700 and convertible
debentures of $107,500. The Company does not have sufficient cash resources to
pay these obligations.
8
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
Our substantial debt obligations pose risks to our business and stockholders by:
o making it more difficult for us to satisfy our obligations;
o requiring us to dedicate a substantial portion of our cash flow to
principal and interest payments on our debt obligations, thereby
reducing the availability of our cash flow to fund working capital,
capital expenditures and other corporate requirements;
o impeding us from obtaining additional financing in the future for
working capital, capital expenditures and general corporate
purposes; and
o making us more vulnerable to a downturn in our business and limit
our flexibility to plan for, or react to, changes in our business.
We cannot assure you that we will generate sufficient cash flow from operations
or obtain additional financing to meet scheduled debt payments and financial
covenants. If we fail to make any required payment under the agreements and
related documents governing our indebtedness or fail to comply with the
financial and operating covenants contained in them, we would be in default. The
financial statements do not include any adjustments to reflect the possible
effects on recoverability and classification of assets or the amounts and
classification of liabilities which may result from the inability of the Company
to continue as a going concern.
The Company has taken steps to curtail the operating losses for future periods.
These steps include the reduction of employees and all categories of operating
expenses, where possible. Additionally, as mentioned previously, the Company
adopted a new strategy during the fourth quarter of 2003 that committed to the
disposal of its current business and to seek a merger/acquisition transaction
with a Company having better financial resources. As of September 30, 2003, the
Company ceased all operating activities under the surface cleaning, surface
protection and restoration business and disposed of most of its assets while
formulating a plan to improve its financial position. The Company is classified
as a development stage company.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of America
("U.S. GAAP") and the rules and regulations of the U.S. Securities and Exchange
Commission for interim financial information. Accordingly, they do not include
all of the information and footnotes required for a comprehensive presentation
of financial position and results of operations. In the opinion of management,
all adjustments considered necessary for a fair presentation have been included.
The results of operations for the nine months and three months ended June 30,
2004 are not necessarily indicative of the results to be expected for the year
ending September 30, 2004. These Financial Statements should be read in
conjunction with the audited Financial Statements of Nannaco, Inc., DBA Surface
Pro, for the years ended September 30, 2003 and 2002 included in Form 10-KSB
ACCOUNTING ESTIMATES
When preparing financial statements in conformity with U.S. GAAP, our management
must make estimates based on future events which affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities as
of the date of the financial statements, and revenues and expenses during the
reporting period. Actual results could differ from these estimates. Significant
estimates in the accompanying financial statements include the valuation of
non-cash issuances of common stock and the valuation allowance for deferred tax
assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS
We define the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The carrying value of accounts receivable, accounts payable and accrued
liabilities approximates fair value because of the short maturity of those
instruments. The estimated fair value of our other obligations is estimated
based on the current rates offered to us for similar maturities. Based on
prevailing interest rates and the short-term maturity of all of our
indebtedness, management believes that the fair value of our obligations
approximates book value at June 30, 2004.
9
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
REVENUE RECOGNITION
The Company recognizes revenues in accordance with the guidance in the
Securities and Exchange Commission Staff Accounting Bulletin 104. Revenues from
the surface services business, if any, were recognized when services were
completed and collection of the fixed or determinable selling price is
reasonable assured. Revenue from consulting services will be recognized when
services are completed and collectibility is assured, generally upon receipt of
payment.
INCOME TAXES
Income taxes are accounted for under the asset and liability method of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes ("SFAS
109")." Under SFAS 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
LOSS PER COMMON SHARE
Basic earnings per share is computed only on the weighted average number of
common shares outstanding during the respective periods. There were no
additional items to adjust the numerator or denominator in the EPS computations.
The following table summarizes the numerator and denominator elements of the
basic EPS computations.
NINE MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
-------------------------- ---------------------------
2004 2003 2004 2003
Net loss available to common $6,129,705 $201,799 $1,155,523
========== ======== ===========
$122,716
Weighted average number of
common shares outstanding
(Denominator) 278,485,465 14,957,600 433,951,247 14,957,600
----------- ---------- ----------- ----------
Loss Per Share $.02 $.01 $.00 ($.01)
==== ==== ==== =====
NEW ACCOUNTING STANDARDS
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an interpretation of ARB No. 51,"
which as an interpretation, defines when and who consolidates a "variable
interest entity," or "VIE." This new consolidation model applies to entities (i)
where the equity investors (if any) do not have a controlling financial
interest, or (ii) whose equity investment at risk is insufficient to finance
that entity's activities without receiving additional subordinated financial
support from other parties and requires additional disclosures for all
enterprises involved with the VIE. FIN 46 is effective during 2003 depending on
when the VIE is created. We do not believe that the adoption of FIN 46 will have
a significant impact on our financial position and results of operations.
In May 2003, the FASB issued SFAS No. 149; Amendment of Statement 133 on
Derivative Instruments and Hedging Activities ("SFAS 149") which provides for
certain changes in the accounting treatment of derivative contracts. SFAS 149 is
effective for contracts entered into or modified after June 30, 2003, except for
certain provisions that relate to SFAS No. 133 Implementation Issues that have
been effective for fiscal quarters that began prior to June 15, 2003, which
should continue to be applied in accordance with their respective effective
dates. The guidance should be applied prospectively. The adoption of SFAS 149
did not have a material impact on the Company's financial position, results of
operations or liquidity.
10
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
In May 2003, the Financial Accounting Standards Board issued SFAS No. 150 (SFAS
150), "Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity." It establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. This standard is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of FAS 150 did not have a significant impact on our financial position
and results of operations.
4. SHORT-TERM DEBT
Our short-term debt at June 30, 2004 consisted of the following:
BANK LOANS
$35,000 bank installment loan, dated Feb. 19, 2000, bearing interest at 10% per
annum, 60 monthly payments of principal and interest............................ $ 25,350
$35,000 bank line of credit, bearing interest at prime plus 1.25% per annum,
interest payable monthly and line of credit due July 15, 2002................... 33,986
----------
$ 59,336
==========
On February 19, 2000, we obtained a bank installment loan in the amount of
$35,000, of which $25,350 is outstanding at June 30, 2004. The interest rate is
10% per annum and sixty monthly payments of principal and interest in the amount
of $745 are required. This note is secured by the personal guaranty of the
Company's former President.
At December 31, 2003, we had a bank line of credit, which provides for
borrowings of up to $35,000, of which $33,986 was outstanding. The interest rate
is Prime plus 1.25% per annum and monthly interest payments were required. The
line of credit matured on July 15, 2002 but the bank has not exercised its
rights of default and the facility is on a month to month basis. The line of
credit is secured by a personal guaranty of the Company's former President.
LOAN PAYABLE - RELATED PARTY
Loan payable, dated January through July of 2001, bearing interest at 10% per
annum and due in July of 2002.................................... $ 42,700
=========
Beginning in January of 2001 and through July of 2001, Mark Triesch, a former
director of the Company, loaned $43,700 to the Company in the form of a
promissory note. The note bears interest at ten percent (10%) per annum and the
principal and accrued interest was due one year from each of the investments. As
of July 2002, the entire amount was due and payable. In April 2003, the Company
repaid $1,000 of principal resulting in the current balance due of $42,700.
CONVERTIBLE DEBENTURES
$175,000 Convertible Debentures, dated March and April of 2003, bearing
interest at 6% per annum and due in March and April of 2006....... $107,500
========
Pursuant to Securities Purchase Agreements, Convertible Debentures and related
contracts, in March of 2003, the Company issued $155,000 of six percent (6%)
convertible debentures due in March of 2006 and in April issued another $20,000
of the debentures due in April 2006. The Company received $122,100 of cash
proceeds, net of $52,900 of cash offering costs. The debenture holder has the
option of converting the principal and accrued interest into the Company's
common stock at a conversion price equal to seventy-five percent (75%) of the
lowest closing bid price per share for the twenty (20) trading days immediately
preceding the conversion. The Company has the option to redeem all or part of
the debentures prior to the maturity date at a price equal to one hundred thirty
percent (130%) of the principal amount plus accrued interest.
11
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
In March and April of 2003, the Company recognized an immediate $58,333 interest
expense and paid-in capital relating to a beneficial conversion feature inherent
in the debentures since the debentures were immediately convertible. In
connection with the offering, in addition to cash offering costs of $52,900, the
Company issued 500,000 of its common shares to the investment bankers. The
shares were valued on the grant date at the trading price of $0.03 per share or
$12,500. The total offering costs of $65,400 were initially deferred to be
amortized over the term of the debentures, however due to a default provision
which changed the debentures maturity to due on demand (see below); the $65,400
was fully expensed as of September 30, 2003. Under a related Registration Rights
Agreement, the Company is subject to a 2% monthly liquidated damages penalty for
not filing a registration statement with the Securities and Exchange Commission,
within a stipulated timeframe, to register the common shares underlying the
convertible debentures and another 2% monthly liquidated damages penalty
relating to that registration statement not becoming effective within a
stipulated timeframe. The liquidated damages penalty started accruing at 2% or
$3,500 per month at June 1, 2003 and at another 2% or $3,500 per month starting
September 1, 2003. The penalties for June and July 2003 were satisfied with the
issuance of 350,000 of the Company's common shares to the debenture investors
and remaining accrued liquidated damages were $10,500 at September 30, 2003. The
Company recognized a $1,750 gain on the settlement of $7,000 of accrued
liquidated damages in June and July 2003 based on the $0.015 trading price of
the common stock on the settlement date. For the three month period ended
December 31, 2003, the Company recorded an additional $24,500 of liquidated
damages expense resulting in an accrued balance of $35,000. In March 2004, the
Company reached an agreement with the debenture investors and all outstanding
penalties in the amount of $35,000 were satisfied with the issuance of 1,750,000
of the Company's common shares based on a $0.02 trading price of the common
stock on the settlement date. Accordingly, at June 30, 2004, there is no
remaining accrued liquidated damages balance in the accompanying balance sheet.
(See Subsequent Events Note).
Due to the default under the Registration Rights Agreement, the debentures went
into default as of June 1, 2003. Accordingly, the debentures became due on
demand at that date and are presented as current liabilities at June 30, 2004.
In April and May of 2004, $67,500 principal amount of the debentures was
converted into 12,668,047 shares of our common stock. $60,000 of the debentures
was converted in April 2004 into 10,943,910 shares at $0.0054825 per share and
$7,500 of the debentures was converted in May 2004 into 1,724,137 shares at
$0.00435 per share.
As a result of the above conversions, $107,500 principal amount of the
convertible debentures is outstanding at June 30, 2004.
5. STOCKHOLDERS' EQUITY
CAPITAL STRUCTURE
We are authorized to issue up to 500,000,000 shares of our common stock, $0.001
par value per share, of which 474,253,389 were issued and outstanding at June
30, 2004. We are also authorized to issue up to 100,000,000 shares of preferred
stock, $0.001 par value per share, of which none was issued and outstanding at
June 30, 2004.
ISSUANCES OF COMMON STOCK:
On September 30, 2003, the Company granted 75,000,000 shares to the President as
discussed below under deferred compensation. The transfer agent did not issue
the shares until October 15, 2003 and accordingly; such shares were classified
as common stock issuable in the balance sheet at September 30, 2003. On October
15, 2003, the transfer agent issued these shares and they have been properly
reclassified as common stock in 2004.
In November 2003, the Company issued 65,500,000 shares of common stock.
15,000,000 of the shares were issued as an annual bonus for the President of the
Company and were valued at $0.01 per share, the closing price on the grant date
of November 9, 2003 and are being amortized over the remaining life of the
employment agreement from October 1, 2003 through June 1, 2005 - see Deferred
Compensation below. 40,500,000 of the shares were issued
12
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
for consulting services provided to the Company and were valued at $0.01 per
share, the closing share price on the grant date of November 9, 2003 and are
being amortized over the one year term of the agreements - see Deferred
Consulting below. The remaining 10,000,000 shares were issued for legal services
provided to the Company and were valued at $0.01 per share, the closing price on
the grant date of November 9, 2003. The agreement for services did not specify a
term and can be terminated by either party on a monthly basis. Accordingly, the
Company has expensed the entire amount and recorded $100,000 of legal expense in
the accompanying Statements of Operations. In connection with 3,000,000 of the
40,500,000 common shares issued for consulting services as discussed above, the
Company on November 17, 2003 committed to issue two year warrants to purchase
3,000,000 of the Company's common shares at an exercise price of $0.02 per share
and two year warrants to purchase 3,000,000 of the Company's common shares at an
exercise price of $0.03 per share. As of June 30, 2004, the warrants have not
been issued to the consultant. The agreement contains a provision however that
the holders of such warrants shall not individually own more than 4.9% of the
total shares of the Company's outstanding shares.
In December 2003, the Company issued 11,400,000 shares of common stock.
9,400,000 of the shares were issued for legal services provided to the Company
and were valued at $0.012 per share, the closing share price on the grant date
of December 10, 2003. The resulting $112,800 was expensed as legal and
professional in the accompanying Statement of Operations. The remaining
2,000,000 shares were issued for consulting services provided to the Company and
were valued at $0.012 per share, the closing price on the grant date of December
10, 2003. The resulting $24,000 was expensed as consulting in the accompanying
Statements of Operations.
In December 2000, the Company received $345,500 of proceeds from the issuance of
ten percent (10%) convertible promissory notes to investors. The note holders
had the option of converting the principal and accrued interest into the
Company's common stock at a conversion price equal to the market price on date
of conversion and the promissory notes were due in September of 2001. On
November 15, 2001, the Company and the note holders agreed to the conversion of
the principal and accrued interest into the Company's common stock at a value of
$1 per share, resulting in the issuance of 377,742 shares of common stock.
The promissory notes were issued to non-qualified investors and as such, the
investors had a right to redeem the purchase price plus accrued interest for a
period of three years from the original promissory note date, or through
December of 2003 and the Company had classified the transaction as Redeemable
Common Stock. As of December 31, 2003, the note holders did not elect to redeem
and the Company has reclassified this amount to permanent equity as common stock
and additional paid in capital in the Stockholders' Equity section of the
balance sheet.
In January 2004, the Company issued 45,000,000 shares of common stock.
30,000,000 of the shares were issued for consulting services provided to the
Company and were valued at $0.026 per share, the closing share price on the
grant date of January 12, 2004. These shares were issued as a modification of
the terms related to the November 9, 2003 issuance of 40,500,000 shares (see
Deferred Consulting below) and this issuance of shares was subsequently modifies
as discussed below. Accordingly, the Company has expensed the entire amount of
the 30,000,000 shares issued and recorded $780,000 of consulting expense in the
accompanying Statement of Operations. The remaining 15,000,000 shares of the
45,000,000 shares issued were for legal services provided to the Company and
were valued at $0.026 per share, the closing price on the grant date of January
12, 2004. The agreement for services did not specify a term and can be
terminated by either party on a monthly basis. Accordingly, the Company has
expensed the entire amount and recorded $390,000 of legal expense in the
accompanying Statements of Operations.
In February 2004, the Company issued 50,000,000 shares of common stock.
35,000,000 of the shares were issued for consulting services provided to the
Company and were valued at $0.02 per share, the closing share price on the grant
date of February 25, 2004. These shares were issued as a modification of the
terms related to the November 9, 2003 issuance of 40,500,000 shares (see
Deferred Consulting below) and the January 2004 30,000,000 share issuance
discussed above. Accordingly, the Company has expensed the entire amount of the
35,000,000 shares issued and recorded $700,000 of consulting expense in the
accompanying Statement of Operations. 10,000,000 shares of the 35,000,000 shares
issued were for legal services provided to the Company and were valued at $0.02
per share, the closing price on the grant date of February 25, 2004. The
agreement for services did not specify a term and can be terminated by either
party on a monthly basis. Accordingly, the Company has expensed the entire
amount and recorded $200,000 of legal expense in the accompanying Statements of
Operations. The remaining
13
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
5,000,000 shares of the 35,000,000 shares issued were for new consulting
services and were valued at $0.02 per share, the closing share price on the
grant date of February 25, 2004 and are being amortized over the one year term
of the agreement - see Deferred Consulting below.
In March 2004, the Company issued 65,000,000 shares of common stock (See Common
Stock Issuable below). 5,000,000 of the shares were issued as compensation for
the new CEO of the Company and were valued at $0.01 per share, the closing price
on the grant date of March 15, 2004 and are being amortized over the term of the
employment agreement from March 15, 2004 through March 15, 2005 - see Deferred
Compensation below. 45,000,000 of the 65,000,000 shares issued were for
consulting services provided to the Company and were valued at $0.01 per share,
the closing share price on the grant date of March 15, 2004. These shares were
issued as the last modification of the terms related to the November 9, 2003
issuance of 40,500,000 shares (see Deferred Consulting below) and additional
shares issued as discussed above. Accordingly, the Company will amortize these
shares over the term of the agreements based upon the grant date of March 15,
2004 through March 15, 2005 - see Deferred Consulting below. 15,000,000 shares
of the 65,000,000 shares issued were for legal services provided to the Company
and were valued at $0.01 per share, the closing price on the grant date of March
15, 2004. The agreement for services did not specify a term and can be
terminated by either party on a monthly basis. Accordingly, the Company has
expensed the entire amount and recorded $150,000 of legal expense in the
accompanying Statements of Operations.
In April and May 2004, the Company issued 12,668,047 shares of Common Stock. The
shares were issued for the conversion of $60,000 of convertible debentures at
$0.0054825 per share and $7,500 of convertible debentures at $0.00435 per share.
In April 2004, the Company issued 11,000,000 shares of Common Stock. The shares
were valued at $0.01 per share, the closing price on the grant date of April 12,
2004, and were issued to a consultant for the conversion of $54,999 of accounts
payable and $55,001 of additional consulting services provide to the Company.
The agreement for the additional consulting services was for a term of three
months and the Company has expensed the entire $55,001 as consulting expense in
the accompanying statement of operations.
In April 2004, the Company issued 42,500,000 shares of common stock. 15,000,000
shares of the 42,500,000 shares issued were for legal services provided to the
Company and were valued at $0.01 per share, the closing price on the grant date
of April 12, 2004. The agreement for services did not specify a term and can be
terminated by either party on a monthly basis. Accordingly, the Company has
expensed the entire amount and recorded $150,000 of legal expense in the
accompanying Statements of Operations. 21,000,000 of the 42,500,000 shares
issued were for consulting services provided to the Company and were valued at
$0.01 per share, the closing share price on the grant date of April 12, 2004.
Subsequently, additional shares were issued to the same consultants as a
modification of the agreements (see 56,000,000 shares issuance below).
Accordingly, the Company has expensed the entire amount of the 21,000,000 shares
issued and recorded $210,000 of consulting expense in the accompanying Statement
of Operations. 6,500,000 of the shares were issued as the last modification for
two consultants that were issued shares previously. Accordingly, the Company
will amortize these shares over the six month term of the agreements based upon
the grant date of April 19, 2004 through October 19, 2004 - see Deferred
Consulting below.
In April 2004, the Company issued 5,000,000 shares of Common Stock. In March
2004, the Company issued 65,000,000 shares of common stock as discussed above.
Subsequently, the Company determined that an error was made and 70,000,000
shares of common stock should have been issued. The 5,000,000 shares were
recorded as common stock issuable at March 31, 2004 and were valued at $0.01 per
share, the closing price on the date of grant of the 65,000,000 shares discussed
above and was being amortized over the term of the agreement from March 15, 2004
through March 15, 2005. The Company recorded $50,000 of Deferred Consulting at
March 31, 2004 and subsequently, additional shares were granted to this
consultant as a modification of the agreement for the 5,000,000 share issuance
(see 56,000,000 share issuance below) and the Company has expensed the remaining
unamortized deferred consulting balance - see Deferred Consulting below.
In May 2004, the Company issued 56,000,000 shares of common stock. 4,200,000 of
the shares were issued as compensation for the new CEO of the Company and were
valued at $0.01 per share, the closing price on the grant
14
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
date of March 7, 2004 and are being amortized over the term of the employment
agreement from March 15, 2004 through March 15, 2005 - see Deferred Compensation
below. 41,800,000 of the 56,000,000 shares issued were for
consulting services provided to the Company and were valued at $0.01 per share,
the closing share price on the grant date of May 7, 2004. These shares were
issued as the last modification of the terms related to previously issued shares
to the consultants. Accordingly, the Company will amortize these shares over the
term of the agreements based upon the grant date of May 7, 2004 through May 7,
2005 - see Deferred Consulting below. 10,000,000 of the 56,000,000 shares issued
were for legal services provided to the Company and were valued at $0.01 per
share, the closing price on the grant date of May 7, 2004. The agreement for
services did not specify a term and can be terminated by either party on a
monthly basis. Accordingly, the Company has expensed the entire amount and
recorded $150,000 of legal expense in the accompanying Statements of Operations.
DEFERRED COMPENSATION
On September 30, 2003, the Company authorized the issuance of 75,000,000 shares
of common stock as compensation for the former President in accordance with an
amendment to the employment agreement. However, the transfer agent did not issue
the shares until October 15, 2003 and accordingly; such shares were classified
as common stock issuable in the balance sheet at September 30, 2003. On October
15, 2003, the transfer agent issued these shares and they have been properly
reclassified as common stock in 2004. Of the 75,000,000 shares, 4,347,826 were
issued to settle $50,000 of accrued and unpaid salary for the former President
through September 30, 2003. In accordance with the amended employment agreement,
these shares were valued based upon a thirty percent (30%) discount to the
average stock price for the month of September or $0.012 per share. There was no
loss on settlement recorded since this was a related party transaction. The
remaining 70,652,174 shares were valued based upon the closing price on
September 30, 2003, or $0.025 per share and the resulting $1,766,304 balance was
recorded as Deferred Compensation in the balance sheet at September 30, 2003.
The deferred compensation balance was being amortized over the remaining life of
the employment agreement from October 1, 2003 through June 1, 2005. For the
three months ended December 31, 2003, $264,946 was amortized and recorded as
compensation in the accompanying Statements of Operations (See below for
subsequent write-off).
On November 9, 2003, the Company authorized the issuance of 15,000,000 shares of
common stock as compensation for the former President in accordance with an
amendment to the employment agreement. The shares were valued based upon the
closing price on the grant date of November 9, 2003, or $0.01 per share and the
resulting $150,000 was recorded as Deferred Compensation. The deferred
compensation balance was being amortized over the remaining life of the
employment agreement from November 9, 2003 through June 1, 2005. For the three
months ended December 31, 2003, $22,500 was amortized and recorded as
compensation in the accompanying Statements of Operations (See below for
subsequent write-off).
On March 15, 2004, the President of the Company resigned from his position.
Accordingly, the Company has expensed the remaining balance of the deferred
compensation for the two issuances discussed above and recorded $1,628,858 of
compensation in the accompanying Statement of Operations.
On March 15, 2004, the Company authorized the issuance of 5,000,000 shares as
compensation for the new CEO of the Company. The shares were valued at $0.01 per
share, the closing price on the grant date of March 15, 2004 and are being
amortized over the term of the employment agreement from March 15, 2004 through
March 15, 2005. Accordingly, the Company has recorded Deferred Compensation in
the amount of $50,000 on the grant date of March 15, 2004 and $14,583 of the
balance was amortized and recorded as compensation in the accompanying Statement
of Operations.
On May 7, 2004, the Company authorized the issuance of 4,200,000 shares as
compensation for the new CEO of the Company. The shares were valued at $0.01 per
share, the closing price on the grant date of May 7, 2004 and are being
amortized over the term of the employment agreement from March 15, 2004 through
March 15, 2005. Accordingly, the Company has recorded Deferred Compensation in
the amount of $42,000 on the grant date of May 7, 2004 and $8,000 of the balance
was amortized and recorded as compensation in the accompanying Statement of
Operations.
15
15
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
DEFERRED CONSULTING
On November 9, 2003, the Company authorized the issuance of 40,500,000 shares of
common stock for consulting services provided to the Company and was valued at
$0.01 per share, the closing share price on the grant date of November 9, 2003
and the resulting $405,000 was recorded as Deferred Compensation. The deferred
compensation balance is being amortized over the one year term of the agreements
through November 9, 2004 and for the three months ended December 31, 2003,
$57,699 was amortized and recorded as consulting expense in the accompanying
Statements of Operations. As a result of the issuance of additional shares to
the consultants as discussed below, the entire remaining Deferred Consulting
balance in the amount of $347,301 was expensed by the Company and recorded as
consulting expense in the accompanying Statement of Operations as of March 31,
2004.
In February 2004, the Company issued 5,000,000 shares of common stock for new
consulting services. The shares were valued at $0.02 per share, the closing
share price on the grant date of February 25, 2004 and are being amortized over
the one year term of the agreement. Accordingly, the Company recorded $100,000
of Deferred Consulting on the grant date of February 25, 2004 and $17,409 of the
balance was amortized and recorded as consulting expense in the accompanying
Statement of Operations through June 30, 2004.
In April 2004, the Company issued 45,000,000 shares of common stock for
consulting services as a modification of the November 9, 2003 and subsequent
issuances as discussed previously under Issuances of Common Stock. The shares
were valued at $0.01 per share, the closing share price on the grant date of
March 15, 2004 and are being amortized over the one year term of the agreement
from the grant date of March 15, 2004. Accordingly, the Company recorded
$450,000 of Deferred Consulting on the grant date of March 15, 2004 and $18,750
of the balance was amortized and recorded as consulting expense in the
accompanying Statement of Operations. As a result of the issuance of additional
shares to the consultants as discussed below, the entire remaining Deferred
Consulting balance in the amount of $431,250 was expensed by the Company and
recorded as consulting expense in the accompanying Statement of Operations as of
June 30, 2004.
In March 2004, the Company issued 65,000,000 shares of common stock as discussed
above. Subsequently, the Company determined that an error was made and
70,000,000 shares of common stock should have been issued. The 5,000,000 shares
are for new consulting services and the Company recorded the 5,000,000 shares as
common stock issuable at March 31, 2004. In April 2004, the 5,000,000 shares
were issued by the transfer agent and reclassed from Common Stock Issuable to
Common Stock. The shares were valued at $0.01 per share, the closing price on
the date of grant of the 65,000,000 shares discussed above and was being
amortized over the term of the agreement from March 15, 2004 through March 15,
2005. Accordingly, the Company recorded $50,000 of Deferred Consulting on the
grant date of March 15, 2004 and $2,083 of the balance was amortized and
recorded as consulting expense at March 31, 2004. As a result of the issuance of
additional shares to the consultant as discussed below, the entire remaining
Deferred Consulting balance in the amount of $47,917 was expensed by the Company
and recorded as consulting expense in the accompanying Statement of Operations
as of June 30, 2004.
In April 2004, the Company issued 6,500,000 shares of common stock as the last
modification for two consultants that were issued shares previously. The Company
will amortize these shares over the six month term of the agreements based upon
the grant date of April 19, 2004 through October 19, 2004. Accordingly, the
Company recorded $6,500 of Deferred Consulting on the grant date of April 12,
2004 and $27,083 of the balance was amortized and recorded as consulting expense
at June 30, 2004
In April 2004, the Company issued 41,800,000 shares of common stock as the last
modification for several consultants that were issued shares previously. The
Company will amortize these shares over the one year term of the agreements
based upon the grant date of May 7, 2004 through May 7, 2005. Accordingly, the
Company recorded $418,000 of Deferred Consulting on the grant date of May 7,
2004 and $69,667 of the balance was amortized and recorded as consulting expense
at June 30, 2004
STOCK BASED COMPENSATION PLANS
On September 29, 2003, the Company adopted a stock based compensation plan for
5,000,000 shares of common
16
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
stock for which stock options, restricted stock and common stock may be granted
from time to time to employees and consultants of the Company in lieu of cash.
Under this plan, the Company issued 2,000,000 shares of common stock into escrow
for a pending merger. The merger was terminated and the shares were subsequently
cancelled. On October 3, 2003, the Company adopted a stock based compensation
plan for 10,000,000 shares of common stock for which stock options, restricted
stock and common stock may be granted from time to time to employees and
consultants of the Company in lieu of cash. Under this plan, the Company issued
9,400,000 shares of common stock into escrow for a pending merger. The merger
was terminated and the shares were subsequently cancelled.
OPTIONS
In April 2000, the Company adopted the Nannaco 2000 Stock Option Plan (the "2000
Plan"). The purpose of the 2000 Plan is to advance the business and development
of the Company and its shareholders by affording to the employees, directors and
officers of the Company the opportunity to acquire a proprietary interest in the
Company by the grant of Options to such persons under the 2000 Plan's terms. The
2000 Plan reserved 5,000,000 shares for grant or issuance upon the exercise of
options granted under the plan. Stock Options under the Plan may be granted by
the Board of Directors or a Compensation Committee of the Board of Directors.
The exercise prices for Options granted will be at the fair market value of the
common stock at the time of the grant if a public market develops for the common
stock or not less than the most recent price at which the Company had sold its
common stock.
The following table summarizes activity related to options:
NUMBER OF SHARES WEIGHTED AVERAGE
Balance at September 30, 2003........... 40,000 $1.00
Granted............................... 0 0
Exercised............................. 0 0
Forfeited............................. 0 0
------ ------
Balance at June 30, 2004................ 40,000 $1.00
====== ======
All options to purchase our common stock have been issued with exercise prices
equal to or greater than fair market value on the date of issuance.
The terms of options to purchase our common stock are summarized below:
- ----------------------------OPTIONS OUTSTANDING------------------------------ ------OPTIONS EXERCISABLE------
- ----------------------------------------------------------------------------------------------------------------
Weighted
Number Average Weighted
Outstanding at Remaining Weighted Number Average
Jun 30, 2004 Contractual Average Exercisable at Exercise
Range of Exercise Prices Life Exercise Price June 30, 2004 Price
- ------------------------- ------------------- -------------- ----------------- ------------------ -------------
$1.00 40,000 1.58 Years 1.00 40,000 $1.00
===== ====== ========== ==== ====== =====
COMPENSATION EXPENSE FOR OPTIONS GRANTED TO EMPLOYEES, OFFICERS AND DIRECTORS
Had compensation cost for our stock options not been determined consistent with
SFAS 123, the Company's net loss per share would not have changed.
6. COMMITMENTS AND CONTINGENCIES
From time to time we may become subject to proceedings, lawsuits and other
claims in the ordinary course of business including proceedings related to
environmental and other matters. Such matters are subject to many uncertainties,
and outcomes are not predictable with assurance.
17
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
The Company has not made timely payments of Federal payroll taxes and has not
remitted payments under an executed installment agreement with the IRS. At June
30, 2004, the Company has recorded the total amount due (including accrued
interest and penalties) for the unpaid Federal payroll taxes as $246,427 in the
accompanying Balance Sheet. As a result of the lack of payments, the IRS could
attach a lien against the Company's assets and bank accounts to protect their
claim.
7. RELATED PARTY TRANSACTIONS
Beginning in January of 2001 and through July of 2001, a director of the
Company, loaned $43,700 to the Company in the form of a promissory note. The
note bears interest at ten percent (10%) per annum and the principal and accrued
interest was due one year from each of the investments. In April 2003, the
Company repaid $1,000 of principal resulting in the current balance due of
$42,700. Additionally, at June 30, 2004, $13,164 has been accrued as interest in
the accompanying balance sheet. On November 9, 2003, this director resigned
their position.
At June 30, 2004, the same director discussed above was owed $25,092 in
accrued compensation related to legal services provided to the Company.
From October through December of 2003, the father of the Company's President
advanced $26,500 of funds to the Company and this has been classified as other
current liabilities in the accompanying balance sheet at June 30, 2004.
8. SUBSEQUENT EVENTS
In July 2004, the Company filed a preliminary proxy statement on Schedule 14A
with the Securities and Exchange Commission ("SEC") to seek approval from
stockholders of an Agreement and Plan of Merger ("Merger Agreement") between the
Company and Red Alert Group, Inc. In August 2004, Red Alert and the Company
terminated the proposed Merger of the two companies and entered into a
Termination Agreement that provided that each party would bear its own espenses
in connection with the terminated merger and that no other fees or expenses in
the nature of a break-up fee would be paid by either the Company or Red Alert.
The Schedule 14A preliminary proxy statement was withdrawn by the Company on or
about August 12, 2004.
[This Space Intentionally Left Blank]
18
Item 2. Management's Discussion and Analysis or Plan of Operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The following is a discussion of our financial condition, results of operations,
liquidity and capital resources. This discussion should be read in conjunction
with our audited financial statements and the notes thereto included elsewhere
in this Form 10-QSB and with our annual report on Form 10-KSB for the year ended
September 30, 2003.
Some of the statements under "Description of Business," "Risk Factors,"
"Management's Discussion and Analysis or Plan of Operation," and elsewhere in
this Report and in the Company's periodic filings with the Securities and
Exchange Commission constitute forward-looking statements. These statements
involve known and unknown risks, significant uncertainties and other factors
what may cause actual results, levels of activity, performance or achievements
to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by such forward- looking
statements. Such factors include, among other things, those listed under "Risk
Factors" and elsewhere in this Report.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "could," "intends," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other comparable terminology.
The forward-looking statements herein are based on current expectations that
involve a number of risks and uncertainties. Such forward-looking statements are
based on assumptions that the Company will obtain or have access to adequate
financing for each successive phase of its growth, that there will be no
material adverse competitive or technological change in condition of the
Company's business, that the Company's President and other significant employees
will remain employed as such by the Company, and that there will be no material
adverse change in the Company's operations, business or governmental regulation
affecting the Company. The foregoing assumptions are based on judgments with
respect to, among other things, further economic, competitive and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control.
Although management believes that the expectations reflected in the
forward-looking statements are reasonable, management cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither
management nor any other persons assumes responsibility for the accuracy and
completeness of such statements.
GENERAL
Nannaco, Inc. ("Nannaco" or the "Company") is a reporting company under the
federal securities laws and its shares of common stock are publicly traded on
the Over The Counter Electronic Bulletin Board ("OTCBB") under the symbol
"NNCO". The Company was incorporated under the laws of the State of Texas on
October 20, 1998, and immediately thereafter began operations. The Company's
shares began trading on September 5, 2002 on the OTCBB. The Company provided
surface cleaning, surface protection, surface restoration, and other services to
commercial businesses, as well to the owners of historical buildings. The
Company operated under the trade name of Surface Pro since the Nannaco name did
not indicate the nature of the Company's business.
Until September 30, 2003, Nannaco focused on surface cleaning, surface
protection and restoration. However, sales from these products were not
sufficient to enable the Company to continue operations and the Company changed
its strategy due to poor operating conditions and operating results coupled with
difficulties in raising capital through debt and equity sources. As of September
30, 2003, the Company ceased all operating activities under the surface
cleaning, surface protection and restoration business and disposed of most of
its assets while formulating a plan to improve it financial position. The
Company is treated as a development stage company and has been since October 1,
2003. The Company adopted a new strategy during the fourth quarter of 2003 that
committed to the disposal of its current business and to seek a business
combination transaction with a Company having greater financial resources. In
December 2003 and January 2004, the Company issued several announcements related
to the change in business. The Company initially moved to a new line of business
as a consultant and advisor to customers but has abandoned this strategy and is
actively seeking a business combination candidate.
19
In January 2004, the Company formed a new wholly owned subsidiary named American
Qualified Financial Services, Inc. ("AQFS"), a Texas Corporation. The Company
planned to utilize AQFS to market the reinsurance of debt securities primarily
to qualified benefit plans. However, that plan has been abandoned.
In March 2004, the Company announced it had signed a letter of intent to acquire
Red Alert Group, Inc., a company specializing in homeland and global security.
On or about July 8, 2004 both Boards of Directors approve an Agreement and Plan
of Merger. In August 2004, the Company and Red Alert Group, Inc. entered into a
Termination Agreement providing that the merger was terminated and that each
party would bear its own costs in connection with the merger.
OVERVIEW OF COMPANY.
Since its inception, the Company has suffered recurring losses from operations
and has been dependent on existing stockholders and new investors to provide the
cash resources to sustain its operations. We have substantial current
obligations. As of June 30, 2004, we had no assets and $752,575 of liabilities.
Of the $752,575 outstanding at June 30, 2004, $246,427 is for unpaid federal
payroll taxes, interest and penalties. The Company has received correspondence
from the Internal Revenue Service ("IRS") detailing the obligation and remedies
that the IRS may pursue if not paid. The remaining current obligations (which
are all past due) include accounts payable of $55,969, judgment payable of
$52,052, sales tax payable of $40,801, bank loans of $59,336, loan
payable-related party of $42,700 and convertible debentures of $107,500. The
Company does not have sufficient cash resources to pay these obligations.
The Company's long-term viability as a going concern is dependent on certain key
factors, as follows:
- The Company's ability to continue to obtain sources of outside
financing to support near term operations and to allow the Company
to continue to make investments
- The Company's ability to increase profitability and sustain a cash
flow level that will ensure support for continuing operations.
RECENT DEVELOPMENTS
In August 2004, Red Alert and Nannaco entered into a Termination Agreement
providing for the termination of the proposed merger between the two companies.
The Company is presently in early stage negotiations to effect a merger with a
different company but no assurance can be given that in the future a merger with
a new candidate for merger will be effected.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The methods, estimates and judgment we use in applying our most critical
accounting policies have a significant impact on the results we report in our
financial statements. The Securities and Exchange Commission has defined the
most critical accounting policies as the ones that are most important to the
portrayal of our financial condition and results, and require us to make our
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based upon this definition,
our most critical estimates include going concern and the valuation of non-cash
issuances of common stock. We also have other key accounting estimates and
policies, but we believe that these other policies either do not generally
require us to make estimates and judgments that are as difficult or as
subjective, or it is less likely that they would have a material impact on our
reported results of operations for a given period. For additional information
see Note 3 "Summary of Significant Accounting Policies" in the notes to our
unaudited financial statements contained in our quarterly report on Form 10-QSB
for the three months ended June 30, 2004. Although we believe that our
estimates and assumptions are reasonable, they are based upon information
presently available. Actual results may differ significantly from these
estimates.
GOING CONCERN
The independent auditors' reports to our financial statements for the year ended
September 30, 2003 and September 30, 2002, include an emphasis paragraph in
addition to their audit opinion stating that our recurring losses from
operations, working capital deficiency and default on our convertible debentures
raise substantial doubt about our ability to continue as a going concern. Our
financial statements do not include any adjustments to reflect the possible
effects on recoverability and classification of assets or the amounts and
classification of liabilities that may result from our inability to continue as
a going concern.
20
VALUATION OF NON-CASH ISSUANCES OF COMMON STOCK
We issued common stock to several parties in non-cash transactions during the
nine months ended June 30,2004. For these issuances, valuation was determined
based upon the stock closing price on the date of grant.
RESULTS OF OPERATIONS
Financial Analysis of the Three and Nine Months Ended June 30, 2004 and 2003
NINE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
--------------------------------------------------------
REVENUES $ 15,577 $ 43,711 $ -- $ 9,486
COST OF REVENUES 16,848 60,062 -- 42,449
--------------------------------------------------------
GROSS LOSS (1,271) (16,351) -- (32,963)
OPERATING EXPENSES:
Selling, general and administrative 15,217 68,412 0 42,184
Compensation and payroll taxes 2,003,897 37,500 20,500 12,500
Consulting 2,810,884 3,620 864,842 2,920
Penalties 3 1,574 -- 512
Legal and professional 1,248,841 35,075 263,947 16,265
Debenture liquidated damages 24,500 -- -- --
Rent 1,495 6,435 -- 2,787
Travel and entertainment 3,726 215 -- --
Bad debt expense 1,171 -- -- --
Depreciation -- 23,400 -- 7,800
--------------------------------------------------------
TOTAL OPERATING EXPENSES 6,109,734 176,231 1,149,289 84,968
--------------------------------------------------------
LOSS FROM OPERATIONS (6,111,004) (192,582) (1,149,289) (117,931)
OTHER EXPENSE:
Interest expense, net (18,701) (9,217) (6,234) (4,785)
--------------------------------------------------------
TOTAL OTHER EXPENSE (18,701) (9,217) (6,234) (4,785)
--------------------------------------------------------
NET LOSS $(6,129,705) $ (201,799) $(1,155,523) $ (122,716)
========================================================
Revenue:
Operating revenue decreased $9,486 or 100%, to zero for the three months ended
June 30, 2004 from $9,486 for the three months ended June 30, 2003 and decreased
$28,134, or 64%, to $15,577 for the nine months ended June 30, 2004 from $43,711
for the nine months ended June 30, 2003. The decrease is due to the result of
the Company making the decision to exit the surface cleaning, surface protection
and restoration business and to focus on being a consultant and advisor to
customers. No revenue was generated from consulting services and the company
ceased this activity in February 2004.
Cost of Sales:
Cost of sales decreased $42,449, or 100%, to zero for the three months ended
June 30, 2004 from $42,449 for the three months ended June 30, 2003 and
decreased $43,214 or 72%, to $16,848 for the nine months ended June 30, 2004
from $60,062 for the nine months ended June 30, 2003. The decrease is due to the
result of the Company making the decision to exit the surface cleaning, surface
protection and restoration business and to focus on being a consultant and
advisor to customers.
21
Operating Expenses:
Operating expenses increased $1,064,321 or 1,253%, to $1,149,289 for the three
months ended June 30, 2004 from $84,968 for the three months ended June 30,
2003. The increase was primarily the result of a $861,922 increase in consulting
fees and a $247,682 increase in legal and professional fees. The increase in
consulting and legal and professional fees was primarily the result of the
issuance of common stock for services.
Operating expenses increased $5,953,503 or 3,367%, to $6,109,734 for the nine
months ended June 30, 2004 from $176,231 for the nine months ended June 30,
2003. The increase was primarily the result of a $1,966,397 increase in
compensation, a $2,807,264 increase in consulting fees, and a $1,213,766
increase in legal and professional fees. The increase in compensation,
consulting and legal and professional fees was primarily the result of the
issuance of common stock for compensation and services.
Other Expense:
Other expense increased $1,449 or 30% to $6,234 for the three months ended June
30, 2004 from $4,785 for the three months ended June 30, 2003 and increased
$9,484, or 103% to $18,701 for the nine months ended June 30, 2004 from $9,217
for the nine months ended June 30, 2003. The increase was primarily due to
accrued interest for indebtedness.
Liquidity and Capital Resources:
Cash and cash equivalents were $0 at June 30, 2004 as compared to $0 at
September 30, 2003, and working capital deficit was $752,575 at June 30, 2004 as
compared to $726,139 at September 30, 2003. The increase in the working capital
deficit is primarily due to increases in accounts payable, accrued interest,
other current liabilities, payroll taxes payable and judgment payable. The
Company has no assets at June 30, 2004.
Operating Activities: Net cash provided by operating activities was $0 for the
nine months ended June 30, 2004 while cash that was used in operating activities
was $162,492 for the nine months ended June 30, 2003. The increase in cash
provided by operations resulted primarily due to increases in accrued interest,
other current liabilities, accounts payable, payroll taxes payable and judgment
payable.
Investing Activities: There were no investing cash flow activities for the nine
months June 30, 2004 while cash that was provided by investing activities was
$28,892 for the nine months ended June 30, 2003. The decrease in cash provided
from investing activities was the result of the Company receiving $44,273 in net
cash advances from shareholders and $15,381 for the purchase of property and
equipment in 2003 with no such amounts for 2004.
Financing Activities There were no financing cash flow activities for the nine
months ended June 30, 2004 while cash provided by financing activities was
$133,600 for the same period ending 2003. The decrease in cash provided by
operations was the result of the Company receiving $133,600 of proceeds from the
issuance of convertible debentures in 2003 with no such amount in 2004.
Short-Term Debt
We are highly leveraged. At June 30, 2004, we have no assets and have current
liabilities of $752,575, our stockholders' deficiency is $752,575, we have an
accumulated deficit of $5,048,764 from previous business operations and we had a
deficit accumulated during the development stage for our new business operations
of $6,129,705. The following table is a summary of our short-term debt as of
June 30, 2004:
Balance at
June 30, 2004
-------------
Bank Loans
$35,000 bank installment loan, dated Feb. 19, 2000, bearing
interest at 10% per annum, 60 monthly payments of principal and
interest.............................. $ 25,350
$35,000 bank line of credit, bearing interest at prime plus 1.25%
per annum, interest payable monthly and line of credit due
July 15, 2002 (In default at June 30, 2004)........................ 33,986
---------
$ 59,336
=========
22
On February 19, 2000, we obtained a bank installment loan in the amount of
$35,000, of which $25,350 is outstanding at June 30, 2004. The interest rate is
10% per annum and sixty monthly payments of principal and interest in the amount
of $745 are required. This note is secured by the personal guaranty of the
Company's former President.
At June 30, 2004, we had a bank line of credit, which provides for borrowings of
up to $35,000, of which $33,986 was outstanding. The interest rate is Prime plus
1.25% per annum and monthly interest payments were required. The line of credit
matured on July 15, 2002 but the bank has not exercised its rights of default
and the facility was on a month to month basis. The line of credit is secured by
a personal guaranty of the Company's former President.
Loan Payable - Related Party
Loan payable, dated January through July of 2001, bearing interest at
10% per annum and due in July of 2002............................ $ 42,700
==========
Beginning in January of 2001 and through July of 2001, Mark Triesch, a director
Of the Company, loaned $43,700 to the Company in the form of a promissory note.
The note bears interest at ten percent (10%) per annum and the principal and
accrued interest was due one year from each of the investments. As of July 2002,
the entire amount was due and payable. In April 2003, the Company repaid $1,000
of principal resulting in the current balance due of $42,700.
Convertible Debentures
$175,000 Convertible Debentures, dated March and April of 2003,
bearing interest at 6% per annum and due in March and April
of 2006 .......................................................... $ 107,500
==========
Total Short-Term Debt $209,536
==========
Pursuant to Securities Purchase Agreements, Convertible Debentures and related
contracts, in March of 2003, the Company issued $155,000 of six percent (6%)
convertible debentures due in March of 2006 and in April issued another $20,000
of the debentures due in April 2006. The Company received $122,100 of cash
proceeds, net of $52,900 of cash offering costs. The debenture holder has the
option of converting the principal and accrued interest into the Company's
common stock at a conversion price equal to seventy-five percent (75%) of the
lowest closing bid price per share for the twenty (20) trading days immediately
preceding the conversion. The Company has the option to redeem all or part of
the debentures prior to the maturity date at a price equal to one hundred thirty
percent (130%) of the principal amount plus accrued interest.
In March and April of 2003, the Company recognized an immediate $58,333 interest
expense and paid-in capital relating to a beneficial conversion feature inherent
in the debentures since the debentures were immediately convertible. In
connection with the offering, in addition to cash offering costs of $52,900, the
Company issued 500,000 of its common shares to the investment bankers. The
shares were valued on the issuance date at the trading price of $0.03 per share
or $12,500. The total offering costs of $65,400 were initially deferred to be
amortized over the term of the debentures, however due to a default provision
which changed the debentures maturity to due on demand (see below), the $65,400
was fully expensed as of September 30, 2003.
Under a related Registration Rights Agreement, the Company is subject to a 2%
monthly liquidated damages penalty for not filing a registration statement with
the Securities and Exchange Commission, within a stipulated timeframe, to
register the common shares underlying the convertible debentures and another 2%
monthly liquidated damages penalty relating to that registration statement not
becoming effective within a stipulated timeframe. The liquidated damages penalty
started accruing at 2% or $3,500 per month at June 1, 2003 and at another 2% or
$3,500 per month starting September 1, 2003. The penalties for June and July
2003 were satisfied with the issuance of 350,000 of the Company's common shares
to the debenture investors and remaining accrued liquidated damages were $10,500
at September 30, 2003. The Company recognized a $1,750 gain on the settlement of
$7,000 of accrued liquidated damages in June and July 2003 based on the $0.015
trading price of the common stock on the settlement date. For the three month
period ended December 31, 2003, the Company recorded $21,000 of liquidated
damages expense and recorded an additional $3,500 of liquidated damages expense
for the three months ended March 31, 2004, resulting in an accrued balance of
$35,000. In March 2004, the Company reached an agreement with the debenture
investors and all outstanding penalties in the amount of $35,000 were
23
satisfied with the issuance of 1,750,000 of the Company's common shares based on
a $0.02 trading price of the common stock on the settlement date. Accordingly,
at June 30, 2004, there is no remaining accrued liquidated damages balance in
the accompanying balance sheet.
Due to the default under the Registration Rights Agreement, the debentures went
into default as of June 1, 2003. Accordingly, the debentures became due on
demand at that date and are presented as current liabilities at [June 30], 2004.
In April and May of 2004, $67,500 principal amount of the debentures was
converted into 12,668,047 shares of our common stock. $60,000 of the debentures
was converted in April 2004 into 10,943,910 shares at $0.0054825 per share and
$7,500 of the debentures was converted in May 2004 into 1,724,137 shares at
$0.00435 per share.
As a result of the above conversions, $107,500 principal amount of the
convertible debentures is outstanding at June 30, 2004.
Equity Financing
The Company's practice of paying service providers and settling debts with the
issuance of common stock is in effect a method of equity financing. Such
issuances and the circumstances under which they were made are described
elsewhere in this analysis and in the Notes to Financial Statements.
Liquidity
To continue with our business plan, we will require additional short-term
working capital and we have not generated sufficient cash from operations to
fund our operating activities through the end of fiscal 2004. Presently, we have
no source of revenues and are seeking a business combination candidate We cannot
assure you that the new business concept we have adopted will provide sufficient
operating revenues, if any, or that the proceeds from borrowings under any
interim financing we are able to secure will be sufficient to meet our
anticipated cash flow needs.
Our ability to obtain additional financing depends on many factors beyond our
control, including the state of the capital markets, the market price of our
common stock, the prospects for our business and the approval by our
stockholders of an amendment to our certificate of incorporation decreasing by
reverse split the number of shares of common stock issued and outstanding and
therefore increasing the number of shares we are authorized to issue. Necessary
additional financing may not be available to us or may be available only on
terms that would result in further dilution to the current owners of our common
stock. Failure to obtain commitments for financing would have a material adverse
effect on our business, results of operations and financial condition. If the
financing we require to sustain our working capital needs is unavailable or
insufficient or we do not receive the necessary financing, we may be unable to
continue as a going concern.
Contractual Obligations and Commercial Commitments
The following table highlights, as of June 30, 2004, our contractual obligations
and commitments by type and period:
Payments Due by Period
---------------------------------------------------
Less than 1
Contractual Obligations Total year 1-3 years 4-5 years After 5 years
- ----------------------- ----- ----------- --------- --------- ------------
Short-Term Debt:
Bank Loans...................... $ 59,336 $ 59,336 -- -- --
Loan Payable-Related Party...... 42,700 42,700 -- -- --
Convertible Debentures.......... 107,500 107,500 -- -- --
-------- --------- ------ ------ ------
Total Short-Term Debt........... $209,536 $ 209,536 $ -- $ -- $ --
======== ========= ====== ====== ======
Recent Accounting Developments
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an interpretation of ARB No. 51,"
which as an interpretation defines when and who consolidates a "variable
interest entity," or "VIE." This new consolidation model applies to entities (i)
where the equity investors (if any) do not have a controlling financial
interest, or (ii) whose equity investment at risk is insufficient to finance
that entity's activities
24
without receiving additional subordinated financial support from other parties
and requires additional disclosures for all enterprises involved with the VIE.
FIN 46 is effective during 2003 depending on when the VIE is created. We do not
believe that the adoption of FIN 46 will have a significant impact on our
financial position and results of operations.
In May 2003, the FASB issued SFAS No. 149; Amendment of Statement 133 on
Derivative Instruments and Hedging Activities ("SFAS 149") which provides for
certain changes in the accounting treatment of derivative contracts. SFAS 149 is
effective for contracts entered into or modified after June 30, 2003, except for
certain provisions that relate to SFAS No. 133 Implementation Issues that have
been effective for fiscal quarters that began prior to June 15, 2003, which
should continue to be applied in accordance with their respective effective
dates. The guidance should be applied prospectively. The adoption of SFAS 149
did not have a material impact on the Company's financial position, results of
operations or liquidity.
In May 2003, the Financial Accounting Standards Board issued SFAS No. 150 (SFAS
150), "Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity." It establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. This standard is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of FAS 150 did not have a significant impact on our financial position
and results of operations.
2004 OUTLOOK
The ability to continue to operate will be heavily dependent on securing
additional capital from investors or from borrowings as a result of the issuance
of debt. There is no assurance that additional equity or debt financing will be
available on terms acceptable to Management.
Item 3. Evaluation of Disclosure Controls and Procedures.
Steve Careaga, our Chief Executive Officer and Chief Financial Officer, has
concluded that our disclosure controls and procedures are appropriate and
effective. He has evaluated these controls and procedures as of the filing date
of this report on Form 10-QSB. There were no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
[This Space Intentionally Left Blank]
25
PART II
Item 1. Legal Proceedings
The company is currently in litigation with the Wyndham Hotel Corporation
concerning a debt for unpaid lodging and meal charges which arose as a result of
a convention sponsorship. On June 14, 2002, the Wyndham obtained a summary
judgment against the Company in the amount $32.045, plus $10,263 legal fees. The
Company does not have sufficient resources to pay the judgment and interest
accrued at a rate of ten percent (10%) until paid in full. At June 30, 2004, the
total amount due is $52,052 (including $9,744 of accrued interest) and is
included under the caption Judgment Payable in the accompanying balance sheet.
The Company is currently in discussions with Wyndham in an attempt to settle the
matter.
The Company has not made timely payments of Federal payroll taxes and has not
remitted payments under an executed installment agreement with the IRS. At June
30, 2004, the Company has recorded the total amount due (including accrued
interest and penalties) for the unpaid Federal payroll taxes as $246,427 in the
accompanying Balance Sheet. As a result of the lack of payments, the IRS could
attach a lien against the Company's assets and bank accounts to protect their
claim.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
During the months of March and April 2003, certain investors purchased $175,000
worth of convertible debentures from the Company (the "Debentures").
Pursuant to section 2(a)(i) of the Registration Rights Agreements (The
Registration Rights Agreement is Exhibit B to the Securities Purchase Agreement,
the definitive document outlining the terms and conditions of the parties in
connection with the purchase of a Convertible Debenture. The Debenture is
Exhibit A to the Securities Purchase Agreement.) executed by the Debenture
Holders and the Company, the Company is required to file a registration
statement no later than ten (10) days following the "Final Closing Date" (the
"Registration Statement"), for purposes of registering the shares of common
stock into which the Debentures convert (the "Debenture Shares"). Pursuant to
section 2(b)(iii) of the Registration Rights Agreements, in the event the
Company is in default of the provisions of section 2(b)(i) (requiring filing of
a registration statement by the "Required Filing Date" set forth in section
2(a)(i)) ("Default"), the Company must pay the Debenture Holders (a) a cash
amount equal to Two Percent (2%) per month of the outstanding principal amount
of the Debentures, and (b) that same Two Percent (2%) per month of the
outstanding principal amount of the Debentures for each subsequent month after a
Default until section 2(b)(i) is complied with.
In March 2004, the Company reached an agreement with the Debenture Holders and
in lieu of making cash payments to the Debenture Holders as a result of the
Default, the Company issued 1,750,000 shares of its common stock to the
Debenture Holders (the "Penalty Shares").
Item 4. Submission of matters to a Vote of Securities Holders
On May 13, 2004 the Registrant filed a preliminary Schedule 14A proxy statement
with the Securities and Exchange Commission. This proxy statement has been
withdrawn without dissemination to stockholders.
Item 5. Other Information
On March 15, 2004, the Registrant entered into Employment Agreement with Steve
Careaga for a term of one year and pursuant to which Careaga was issued
5,000,000 shares of common stock and may be issued additional shares of common
stock from time to time in consideration of his services required as CEO.
On or around April 8, 2004, the Company executed a Settlement and Release
Agreement with James Taylor pursuant to which Taylor agreed to release the
Registrant and settle all disputes arising out of $72,999.22 in back accounting
fees in exchange for 11,000,000 shares of Company common stock and further
engagement as a financial consultant.
26
On or around March 12, 2004, Andre DeVries resigned all executive positions with
and as a director of the Registrant and Steve Careaga was appointed CEO and
director of the Registrant.
On or around March 9, 2004 Andrew DeVries, III, the former CEO and member of the
board of directors of the Registrant executed a $375,000 promissory note in
favor of the Registrant (the "Note"). All principal and interest on the Note was
due on April 9, 2004. No payment has been made by Mr. DeVries. The Note is
currently in default.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
- --------------------------------------------------------------------------------
Exhibit Title Location
- --------------------------------------------------------------------------------
3 Articles of Incorporation Incorporated by Reference to
the SB-2 registration
statement filed on August 21,
2000.
- --------------------------------------------------------------------------------
3.1 Bylaws Incorporated by Reference to
the SB-2 registration
statement filed on August 21,
2000.
- --------------------------------------------------------------------------------
3.2 Certificate of Amendment to Incorporated by Reference to
Articles of Incorporation the SB-2 registration
statement filed on August 21,
2000.
- --------------------------------------------------------------------------------
3.3 Certificate of Amendment to Incorporated by Reference to
Articles of Incorporation the SB-2 registration
statement filed on August 21,
2000.
- --------------------------------------------------------------------------------
10.4 Agreement and Plan of Merger Filed Herewith
dated July 8, 2004 between
Nannaco and Red Alert
- --------------------------------------------------------------------------------
10.5 Termination Agreement dated Filed Herewith
August 16 terminating Nannaco Red
Alert merger
- --------------------------------------------------------------------------------
31.1 Certification by Principal Attached
Executive Officer
- --------------------------------------------------------------------------------
31.2 Certification of Principal Attached
Financial Officer
- --------------------------------------------------------------------------------
32 Certifications of Principal Attached
Executive and Financial Officer
Pursuant to 906
- --------------------------------------------------------------------------------
27
(b) Reports on Form 8-K.
During the period ended June 30, 2004, the Company filed the following reports
on Form 8-K:
None.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of NANNACO, Inc.,
in the capacities and on the dates indicated.
NAME AND SIGNATURE TITLE DATE
- ------------------ ----- ----
/s/ Principal Executive Officer, August 23, 2004
- -------------------------- Principal Financial Officer,
Steve Careaga Sole Director
29