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, 2005
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)
4906 Point Fosdick Dr., Suite 102, 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
August 18, 2005: 499,999,995
NANNACO, INC.
FORM 10-QSB
Part I. Financial Information.
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(Unaudited)
JUNE 30, 2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ --
--------
Total current assets $ --
========
TOTAL ASSETS $ --
========
LIABILITIES
CURRENT LIABILITIES
Convertible debentures $ 45,700
Bank loans 59,336
Accounts payable - trade 127,093
Accrued compensation, related party 25,092
Accrued interest 49,565
Due to consultants 38,196
Other current liabilities 89,924
Payroll taxes payable 276,880
Sales tax payable 40,801
Judgment payable 56,283
Loan payable - related party 42,700
--------
Total current liabilities $851,570
========
The accompanying notes are an integral part of the financial statements.
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET (Continued)
(Unaudited)
JUNE 30, 2005
STOCKHOLDERS' DEFICIENCY
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' DEFICIENCY
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 - 352,233,635 issued and outstanding 352,234
Common stock issuable, $0.001 par value, 75,000,000 shares 75,000
Additional paid in capital 15,023,661
Accumulated deficit through September 30, 2003 (5,048,764)
Deficit accumulated during development stage (11,008,596)
------------
(606,465)
Less: Deferred compensation (138,462)
Less: Deferred consulting (106,643)
------------
TOTAL STOCKHOLDERS' DEFICIENCY (851,570)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICENCY $ --
============
The accompanying notes are an integral part of the financial statements.
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(Unaudited)
Period From
October 1, 2003
(Inception of
Nine Months Ended Three Months Ended Development Stage)
June 30, June 30, To June 30,
2005 2004 2005 2004 2005
-------------- -------------- -------------- -------------- --------------
REVENUES FROM DISCONTINUED OPERATIONS $ -- $ 15,577 $ -- $ -- $ 15,577
COST OF REVENUES -- 16,848 -- -- 16,848
-------------- -------------- -------------- -------------- --------------
GROSS LOSS -- (1,271) -- -- (1,271)
OPERATING EXPENSES:
Selling, general and administrative -- 15,219 -- -- 16,186
Compensation and payroll taxes 74,726 2,003,897 17,629 20,500 2,115,304
Consulting 2,613,758 2,810,884 701,503 864,842 5,571,754
Legal and professional 1,857,000 1,248,841 452,000 263,947 3,185,986
Rent -- 1,495 -- -- 1,495
Travel and entertainment -- 3,726 -- -- 3,726
Debenture liquidated damages 54,148 24,500 5,545 -- 80,888
Bad debt expense -- 1,171 -- -- 1,171
-------------- -------------- -------------- -------------- --------------
TOTAL OPERATING EXPENSES 4,599,632 6,109,733 1,176,677 1,149,289 10,976,510
-------------- -------------- -------------- -------------- --------------
LOSS FROM OPERATIONS (4,599,632) (6,111,004) (1,176,677) (1,149,289) (10,977,781)
OTHER INCOME (EXPENSE):
Interest income (expense), net (8,857) (18,701) (40) (6,234) (30,815)
-------------- -------------- -------------- -------------- --------------
TOTAL OTHER INCOME (EXPENSE) (8,857) (18,701) (40) (6,234) (30,815)
-------------- -------------- -------------- -------------- --------------
NET LOSS $ (4,608,489) $ (6,129,705) $ (1,176,717) $ (1,155,283) $ (11,008,596)
============== ============== ============== ============== ==============
NET LOSS PER SHARE -
BASIC AND DILUTED $ (0.05) $ (88.04) $ (0.00) $ (10.65) $ (0.28)
============== ============== ============== ============== ==============
WEIGHTED AVERAGE SHARES 93,239,033 69,621 237,376,493 108,488 39,944,071
============== ============== ============== ============== ==============
The accompanying notes are an integral part of the financial statements
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(Unaudited)
Period From
October 1, 2003
(Inception of
Nine Months Ended Development Stage)
June 30, To June 30,
2005 2004 2005
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,608,489) $ (4,974,183) $(11,008,596)
Adjustments to reconcile net loss to net cash used in
operating activities:
Bad debt expense -- 1,171 1,171
Reverse accrued interest -cancelled subscription note 208 -- --
Stock issued for legal services 1,840,000 1,202,800 3,042,800
Stock issued for consulting services 1,703,333 1,769,001 3,472,334
Debenture liquidated damages 54,148 24,500 80,888
Amortization of deferred compensation 56,455 1,938,387 2,019,842
Amortization of deferred consulting 910,424 1,035,083 2,092,619
Changes in operating assets and liabilities:
Increase in accounts receivable - trade -- (548) (548)
Decrease in bank overdrafts -- (1,976) (1,976)
Increase in accounts payable 15,000 7,344 103,873
Increase in accrued interest payable 5,476 15,529 22,996
Increase in due to consultants 2,000 36,196 38,196
Increase in other current liabilities -- 33,535 33,535
Increase in payroll taxes payable 18,271 65,010 95,462
Increase in judgment payable 3,173 3,173 7,404
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES $ -- $ -- $ --
============ ============ ============
The accompanying notes are an integral part of the financial statements
NANNACO, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Period From
October 1, 2003
(Inception of
Nine Months Ended Development Stage)
June 30, To June 30,
2005 2004 2005
------------ ------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES -- -- --
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES -- -- --
CASH FLOWS FROM FINANCING ACTIVITIES -- -- --
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- -- --
NET INCREASE IN CASH -- -- --
CASH AT BEGINNING OF PERIOD -- -- --
------------ ------------ ------------
CASH AT END OF PERIOD $ -- $ -- $ --
============ ============ ============
CASH INTEREST PAID $ -- $ -- $ --
============ ============ ============
Supplemental disclosure of non-cash transactions:
Stock issued for debenture liquidated damages $ -- $ 35,000 $ 35,000
Stock issued for conversion of debentures and interest 62,700 -- 141,067
Stock issued for conversion of accounts payable 25,404 -- 80,403
The accompanying notes are an integral part of the financial statements
1. HISTORY AND NATURE OF BUSINESS
Nannaco, Inc. ("Nannaco", "the Company", "we", "us", "our"), 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 in order to relate to its previous principal business
activity, since the Nannaco name did not indicate the type of 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, moving to a new line of business as a
consultant and advisor to customers but ceasing this activity in March 2004. The
Company thereafter continued to seek a merger/acquisition candidate, seeking to
be treated as a development stage company, effective October 1, 2003. Activities
during the new development stage included 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. ("Red Alert"), a company specializing in homeland
and global security. The Company anticipated that upon the successful completion
of the announced acquisition, the name of the Company would be changed to Red
Alert Group, Inc. and would apply to obtain a new stock ticker symbol. In July
2004, the Company filed a Schedule 14A with the Securities and Exchange
Commission ("SEC") giving notice that the Company and Red Alert had adopted an
Agreement and Plan of Merger ("Merger Agreement") that would result in Red Alert
becoming a wholly owned subsidiary of Nannaco. The Schedule 14 A was
subsequently withdrawn prior to any action being taken thereunder and, in
November 2004, the Company announced that the merger with Red Alert was
terminated. The Board of Directors of both Nannaco and Red Alert approved the
termination, without cause, of the Agreement and Plan of Merger. As a result of
the termination of the agreement, both companies incurred their own expenses in
connection with the proposed merger and neither company owed the other either
break-up fees or other costs and expenses.
In October 2004, a 1 for 100 reverse-split discussed above was completed
and the number of issued and outstanding shares was reduced from 474,253,389 to
4,742,534 as a result thereof. Additionally, in December 2004 the Board approved
and completed a 1 for 40 reverse-stock split. As a result of this reverse-stock
split, the number of issued and outstanding shares was reduced from 4,742,534 to
118,563.
On October 28, 2004 the Company and NAZZ Productions, Inc. entered into an
agreement to merge a subsidiary of Nannaco into NAZZ Productions, Inc. ("NAZZ")
and to rename the Company NAZZ Productions, Inc. (the "Nazz Merger Agreement").
The agreement provided that all of the shares of common stock of NAZZ issued and
outstanding at the time the merger becomes effective under applicable state law
would be converted into common stock of Nannaco such that the current holder of
NAZZ common stock would hold 95% of all shares of Registrant's common stock
outstanding immediately after the closing of this merger transaction, on a fully
diluted basis. The NAZZ merger agreement was subsequently extended by mutual
consent to close not later than March 31, 2005.
Based on the Company's and Nazz' subsequent due diligence assessments and
on the Company's opportunity to pursue a merger agreement with Amenni, Inc. (as
detailed in the paragraph immediately below), Nannaco and Nazz have restructured
the Nazz Merger Agreement such that the Company shall transfer of the
opportunity to merge with Nazz, to either a yet to be formed wholly-owned
subsidiary of the Company or independent entity, in contemplation of a merger of
such entity with Nazz (the "Revised Nazz Agreement"), followed by a distribution
of three to five percent (3-5%) of the common stock of Nazz, to the shareholders
of the Company existing at the time immediately prior to the merger between
Nannaco Acquisitions and Amenni, Inc., on a pro rata basis, which distribution
shall be conditioned upon Nazz filing a registration statement including such
shares and upon the SEC declaring such registration statement effective (the
"Distribution"). Concurrent with the filing of the registration statement, Nazz
will file a Form 15c2-11 to post a quotation and obtain a trading symbol for the
shares of Nazz on the Over-The Counter Bulletin Board. As with the Nazz Merger
Agreement, the obligation of Nazz to close is conditioned on, among other
things, the satisfactory completion of due diligence review. The Revised Nazz
Agreement may also be terminated at any time prior to the Distribution by
written agreement; by Nazz for breach of any of the representations and
warranties or covenants of the Company if such breach is not cured within thirty
days of written notice; by the Company for breach of any Nazz representations
and warranties or covenants if such breach is not cured within thirty days of
written notice.
On July 27, 2005 the Company and Amenni, Inc. ("Amenni"), entered into an
agreement to merge a wholly owned subsidiary of the Company with into Amenni,
Inc., and to rename Company "Amenni, Inc." (the "reverse merger"). The agreement
provides that all of the shares of common stock of Amenni issued and outstanding
at the time the merger becomes effective under applicable state law (the
"Effective Time"), will be converted into common stock of the Company such that
the current holders of Amenni common stock will hold 97% of all shares of the
Company's common stock outstanding immediately after the closing of this merger
transaction. The agreement may be terminated at any time prior to the Effective
Time by written agreement; by Amenni for breach of any of the representations
and warranties or covenants of the Company if such breach is not cured within
thirty days of written notice; by the Company for breach of any Amenni
representations and warranties or covenants if the breach is not cured within
thirty days of written notice; by wither party upon completion of due diligence.
On June 13, 2005, the Company filed Form Pre 14-C Preliminary Information
Statement with the SEC as a notice to the shareholders requesting authorization
for the Board of Directors to effect a one for four hundred (1: 400) reverse
split of the Company's common stock. The Board of Directors, and persons owning
greater than two-thirds (2/3) of the outstanding voting securities of Nannaco,
have adopted, ratified and approved the proposed reverse split. No additional
votes are required to adopt the resolution authorizing the reverse split. The
reverse split authorized by the shareholders of Nannaco will become effective
upon final action by the Board of Directors and the filing of the required
notice with the National Association of Securities Dealers, Inc. The reverse
split will be conducted at a time to be determined by the Board but in no case
before the expiration of twenty (20) days after the date the Information
Statement was filed with the SEC in definitive form. As of the date of these
financial statements, the reverse split has not been completed.
See Note 9 - Subsequent Events for further information related to material
recent 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, 2005.
In addition, we are in default under our convertible debenture agreements and we
have no assets (See Note 9 - Subsequent Events for further information related
to material recent events). We had net losses of $4,608,489 for the nine months
ended June 30, 2005 and $6,129,705 for the nine months ended June 30, 2004. At
June 30, 2005, we have no cash or cash equivalents, our current liabilities
exceeded our current assets by $851,570, our stockholders' deficiency was
$851,570, we had an accumulated deficit from prior business operations of
$5,048,764 and we had a deficit accumulated during the development stage of
$11,008,596 at June 30, 2005. Additionally, we have no assets at June 30, 2005.
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 and no assets to satisfy these
obligations. As of June 30, 2005, we had $851,570 of liabilities as compared to
$840,706 as of September 30, 2004. Of the $851,570 outstanding at June 30, 2005,
$276,880 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 and is
in discussions with the IRS concerning resolution of the matter. The remaining
current obligations (which are all past due) include sales tax payable of
$40,801, accounts payable of $127,093, judgment payable of $56,283, bank loans
of $59,336, loan payable-related party of $42,700, accrued compensation-related
party of $25,092, due to consultants of $38,196, convertible debentures of
$45,700 and accrued debenture liquidated damages of $56,388. The Company does
not have any cash resources or any assets to pay these obligations.
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 (See History and
Nature of Business above). As of September of 2003, the Company ceased all
operating activities and has disposed of most of its assets while formulating a
plan to improve its financial position.
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 and three months ended
June 30, 2005 are not necessarily indicative of the results to be expected for
the year ending September 30, 2005. These Financial Statements should be read in
conjunction with the audited Financial Statements of Nannaco, Inc., for the
years ended September 30, 2004 and 2003 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
includes the realizability of a subscription note receivable, provision for
uncollectible investor loans, impairment of property and equipment, evaluation
of a beneficial conversion feature in convertible debentures and convertible
preferred stock, valuation of the fair value of financial instruments, valuation
of non-cash issuances of common stock and the valuation allowance for deferred
tax assets.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with a
maturity date of three months or less when purchased. At June 30, 2005, we had
no cash or cash equivalents.
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, 2005.
Stock-Based Compensation
The Company accounts for stock options issued to employees in accordance
with the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation cost is measured on the date of grant as the excess of the
current market price of the underlying stock over the exercise price. Such
compensation amounts are amortized over the respective vesting periods of the
option grant. The Company adopted the disclosure provisions of SFAS No. 123
"Accounting for Stock-Based Compensation," and SFAS No. 148 "Accounting for
Stock Based Compensation - Transition and Disclosure," which permits entities to
provide pro forma net income (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants as if the fair-valued based method
defined in SFAS No. 123 had been applied.
The Company accounts for stock options or warrants issued to non-employees
for goods or services in accordance with the fair value method of SFAS 123.
Under this method, the Company records an expense equal to the fair value of the
options or warrants issued. The fair value is computed using an options pricing
model.
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 are 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.
In September 2004, we completed a 1 for 100 reverse-split of the issued
and outstanding shares of the common stock of the Company. As a result of the 1
for 100 reverse-split, the number of issued and outstanding shares was reduced
from 474,253,389 to 4,742,534 after the reverse-split. In December 2004, we
completed a 1 for 40 reverse-split of the issued and outstanding shares of the
common stock of the Company. As a result of the 1 for 40 reverse-split, the
number of issued and outstanding shares was reduced from 4,742,534 to 118,563
after the reverse-split. In accordance with SFAS 128, the Company applied the
effect of both the 1 for 100 and the 1 for 40 reverse-splits from October 1,
2003 and the weighted average number of common shares outstanding was adjusted
retroactively to reflect the reverse splits.
Accumulated Other Comprehensive Income
As of the date of these Financial Statements, we had no components of
other comprehensive income as defined by Statement of Financial Accounting
Standards No. 130.
New Accounting Standards
On December 16, 2004, the Financial Accounting Standards Board issued SFAS
123 (revised 2004), Share-Based Payment ("SFAS 123(R)"), which is a revision of
SFAS 123, "Accounting for Stock-Based Compensation". SFAS 123(R) supersedes APB
Opinion 25, "Accounting for Stock Issued to Employees", and amends SFAS 95,
Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar to
the approach described in SFAS No. 123. However, SFAS 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values. Pro-forma
disclosure is no longer an alternative.
SFAS No. 123(R) permits public companies to adopt its requirements using
one of two methods:
(1) A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the requirements of
SFAS No. 123(R) for all share-based payments granted after the effective date
and (b) based on the requirements of SFAS No. 123 for all awards granted to
employees prior to the effective date of SFAS No. 123(R) that remain unvested on
the effective date.
(2) A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under SFAS No. 123 for
purposes of pro-forma disclosures either (a) all prior periods presented or (b)
prior interim periods of the year of adoption.
The Company is required to adopt SFAS No. 123(R) on January 1, 2006, and
is currently evaluating the adoption alternatives.
As permitted by SFAS 123, the Company currently accounts for share-based
payments to employees, vendors, or outside consultants/contractors, using APB
Opinion No.25's intrinsic value method and, as such, generally recognizes
expense to the extent of the fair market value of the shares exchanged, after
taking into account various factors, such as but not limited to, number of
shares, market, and other stock restrictions. Accordingly, the adoption of SFAS
123(R)'s fair value method may or may not have a significant impact on the
consolidated results of operations, although it will have no impact on the
Company's overall consolidated financial position. The impact of adopting SFAS
123(R) in future periods will depend on levels of share-based payments granted
in the future. This requirement is expected to reduce net operating cash flows
and increase net financing cash flows in periods after adoption.
4. SHORT-TERM DEBT
Our short-term debt at June 30, 2005 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. 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, 2005, 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, 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
$175,000 Convertible Debentures, dated March and April of 2003, bearing
interest at 6% per annum and due in March and April of 2006..............$ 45,700
=========
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.
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. Effective
March 31, 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 438 of the Company's common shares based on a $0.02 trading price of
the common stock on the settlement date. For the period from April 1, 2004
through June 30, 2005, the Company has recorded an additional $54,148 of
liquidated damages resulting in an accrued balance of $56,388 as of June 30,
2005.
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, 2005.
In April and May of 2004, $67,500 principal amount of the debentures was
converted into 3,167 shares of our common stock. $60,000 of the debentures was
converted in April 2004 into 2,736 shares at $0.0054825 per share and $7,500 of
the debentures was converted in May 2004 into 431 shares at $0.00435 per share.
In March 2005, $30,000 principal amount of the debentures was converted
into 8,239,998 shares of our common stock at $0.0375 per share. For this
conversion, one party with a debenture in the principal amount of $5,000,
converted accrued interest and accrued liquidated damages totaling $900 into
240,000 shares of our common stock, which are included in the 8,239,998 shares
discussed above. None of the other conversions included accrued interest or
accrued debenture liquidated damages and the Company has retained these accruals
in the accompanying Financial Statements.
In April 2005, $15,000 principal amount of the debentures was converted
into 3,999,999 shares of our common stock at $0.0375 per share. None of the
conversions included accrued interest or accrued debenture liquidated damages
and the Company has retained these accruals in the accompanying Financial
Statements.
In May 2005, $16,800 principal amount of the debentures was converted into
11,199,999 shares of our common stock at $0.0015 per share. None of the
conversions included accrued interest or accrued debenture liquidated damages
and the Company has retained these accruals in the accompanying Financial
Statements.
As a result of the above conversions, $45,700 principal amount of the
convertible debentures is outstanding as of June 30, 2005 (See Note 9 -
Subsequent Events for further information related to Material Recent Events).
5. CONTINGENT RETURNABLE COMMON STOCK
In October 2004, the Company issued 750,000 shares of common stock as
compensation to the Chief Executive Officer in his capacity as Chief Financial
Officer and director. The shares were issued as consideration of services past
and continuing and subject to substantial conditions constituting events of
forfeiture. Under conditions of the issuance, the officer was required to raise
capital in excess of $5,000,000 within 90 days following this issuance or
forfeit the shares. As of the date of these Financial Statements, the
requirement had not been met and the Company is commencing the process top have
the shares cancelled and returned. The shares were valued at $1.20 per share,
the fair market value on the grant date or $900,000. The Company anticipates
that these shares will be canceled and that the $900,000 of deferred
compensation recorded will be reversed at that time. Accordingly, the Company
had recorded the common stock and related deferred compensation as Contingent
Returnable Common Stock in the accompanying Balance Sheet as of March 31, 2005.
In May 2005, the 750,000 shares were cancelled and the Company has
reversed the amounts recorded above.
6. 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 352,233,635 shares were issued and
outstanding and 75,000,000 were issuable as of June 30, 2005. In September 2004,
we completed a 1 for 100 reverse-split of the issued and outstanding shares of
the common stock of the Company while maintaining the amount of common stock
shares we are authorized to issue at 500,000,000. As a result of the 1 for 100
reverse-split, the number of issued and outstanding shares was reduced from
474,253,389 to 4,742,534 after the reverse-split In December 2004, we completed
a 1 for 40 reverse-split of the issued and outstanding shares of the common
stock of the Company. In accordance with SFAS 128, the Company applied the
effect of the 1 for 40 reverse split from the beginning of the year and as a
result of the 1 for 40 reverse split, the number of issued and outstanding
shares was reduced from 4,742,534 to 118,563 after the reverse-split as of
September 30, 2004.
We are authorized to issue up to 100,000,000 shares of Preferred Stock,
$0.001 par value per share, of which none were issued and outstanding as of June
30, 2005 (See Issuances of Preferred Stock below).
Issuances of Common Stock
In November 2003, the Company issued 16,325 shares of common stock. 3,750
of the shares were issued as an annual bonus for the President of the Company
and were valued at $40.00 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. 10,125 of the shares were issued for consulting services
provided to the Company and were valued at $40.00 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
2,500 shares were issued for legal services provided to the Company and were
valued at $40.00 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 for the period October 1, 2003 (inception of
development stage) to June 30, 2005.
In connection with 750 of the 10,125 common shares issued for consulting
services as discussed above, the Company on November 17, 2003 committed to issue
two year warrants to purchase 750 of the Company's common shares at an exercise
price of $0.02 per share and two year warrants to purchase 750 of the Company's
common shares at an exercise price of $0.03 per share. As of September 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 2,850 shares of common stock. 2,350
of the shares were issued for legal services provided to the Company and were
valued at $48.00 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 500 shares were
issued for consulting services provided to the Company and were valued at $48.00
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 January 2004, the Company issued 11,250 shares of common stock. 7,500
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 10,125 shares (see Deferred
Consulting below) and this issuance of shares was subsequently modified as
discussed below. Accordingly, the Company has expensed the entire amount of the
7,500 shares issued and recorded $780,000 of consulting expense in the
accompanying Statement of Operations for the period October 1, 2003 (inception
of development stage) to December 31, 2004. The remaining 3,750 shares of the
11,250 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 for the period October 1, 2003 (inception of
development stage) to June 30, 2005.
In February 2004, the Company issued 12,500 shares of common stock. 8,750
of the shares were issued for consulting services provided to the Company and
were valued at $104.00 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 10,125 shares (see Deferred
Consulting below) and the January 2004 issuance of 7,500 shares discussed above.
Accordingly, the Company has expensed the entire amount of the 8,750 shares
issued and recorded $700,000 of consulting expense in the accompanying Statement
of Operations for the period October 1, 2003 (inception of development stage) to
June 30, 2005. 2,500 shares of the 8,750 shares issued were for legal services
provided to the Company and were valued at $104.00 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 Statement of Operations for the period October
1, 2003 (inception of development stage) to March 31, 2005. The remaining 1,250
shares of the 8,750 shares issued were for new consulting services and were
valued at $104.00 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 16,250 shares of common stock (See
Common Stock Issuable below). 1,250 of the shares were issued as compensation
for the new CEO of the Company and were valued at $40.00 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. 11,250 of the 16,250 shares issued were for
consulting services provided to the Company and were valued at $40.00 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 10,125 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. 3,750 shares of the
16,250 shares issued were for legal services provided to the Company and were
valued at $40.00 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
Statement of Operations for the period October 1, 2003 (inception of development
stage) to June 30, 2005.
In April and May 2004, the Company issued 3,167 shares of Common Stock.
The shares were issued for the conversion of $67,500 of convertible debentures
at $24.7449 per share
In April 2004, the Company issued 2,750 shares of Common Stock. The shares
were valued at $40.00 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 for the period October 1,
2003 (inception of development stage) to June 30, 2005.
In April 2004, the Company issued 10,625 shares of common stock. 3,750
shares of the 10,625 shares issued were for legal services provided to the
Company and were valued at $40.00 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. 5,250 of the 10,625 shares issued were
for consulting services provided to the Company and were valued at $40.00 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 14,000 shares issuance below). Accordingly,
the Company has expensed the entire amount of the 5,250 shares issued and
recorded $210,000 of consulting expense in the accompanying Statement of
Operations. 1,625 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 1,250 shares of Common Stock. In March
2004, the Company issued 16,250 shares of common stock as discussed above.
Subsequently, the Company determined that an error was made and 17,500 shares of
common stock should have been issued. The 1,250 shares were recorded as common
stock issuable at March 31, 2004 and were valued at $40.00 per share, the
closing price on the date of grant of the 16,250 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 1,250 share issuance (see 14,000 share
issuance below) and the Company has expensed the remaining unamortized deferred
consulting balance - see Deferred Consulting below.
In May 2004, the Company issued 14,000 shares of common stock. 1,050 of
the shares were issued as compensation for the new CEO of the Company and were
valued at $40.00 per share, the closing price on the grant 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. 10,450 of the
14,000 shares issued were for consulting services provided to the Company and
were valued at $40.00 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. 2,500
of the 14,000 shares issued were for legal services provided to the Company and
were valued at $40.00 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
Statement of Operations for the period October 1, 2003 (inception of development
stage) to June 30, 2005.
In November 2004, the Company issued 25,000 shares of common stock as
compensation to the Chief Executive Officer and were issued as consideration of
services as Chief Executive Officer The shares were valued at $1.20 per share,
the fair market value on the grant date and $30,000 was recorded as deferred
compensation. The Company will amortize these shares over the term of the
agreement based upon the grant date of November 1, 2004 through October 31, 2005
- - see Deferred Consulting below.
In November 2004, the Company issued 650,000 shares of common stock.
250,000 shares of the 650,000 shares issued were for legal services provided to
the Company and were valued at $1.20 per share, the closing price on the grant
date of November 1, 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 $300,000 of legal expense in the
accompanying Statements of Operations. 250,000 of the 650,000 shares issued were
for consulting services provided to the Company and were valued at $1.20 per
share, the closing share price on the grant date of November 1, 2004. The
250,000 shares were issued as a modification of an existing agreement and the
term of the existing agreement has expired without modification. Accordingly,
the Company has expensed the entire amount of the 250,000 shares and recorded
$300,000 of consulting expense in the accompanying Statement of Operations.
25,000 of the 650,000 shares issued were for consulting services provided to the
Company and were valued at $1.20 per share, the closing price on the grant date
of November 1, 2004. Subsequently, additional shares were issued to the same
consultants as a modification of the agreement (see 75,000 shares issuance
below). Accordingly, the Company has expensed the entire amount of the 25,000
shares issued and recorded $30,000 of consulting expense in the accompanying
Statement of Operations. 75,000 of the 650,000 shares were issued as a
modification for the consultant who received the 25,000 shares discussed above
and were valued at $1.20 per share, the closing price on the grant date of
November 1, 2004. The Company will amortize the 75,000 shares or $90,000 over
the term of the agreement based upon the grant date of November 1, 2004 through
October 1, 2005 - see Deferred Consulting below. The final 50,000 of the 650,000
shares were issued to a consultant for prior and new consulting services and
were valued at $1.20 per share, the closing price on the grant date of November
1, 2004. The prior services were valued at $25,404 and had been recorded
previously and included in Accounts Payable as of September 30, 2004. The
Company will amortize the 50,000 shares or $34,596 ($60,000 less $25,404 of
Accounts payable converted) over the term of the agreement based upon the grant
date of November 1, 2004 through May 15, 2005 - see Deferred Consulting below.
In January 2005, the Company issued 76 shares as the result of fractional
rounding related to the reverse stock splits discussed previously.
In February 2005, the Company issued 43,000,000 shares of common stock.
17,500,000 shares of the 43,000,000 shares issued were for legal services
provided to the Company and were valued at $0.04 per share, the closing price on
the grant date of February 4, 2005. 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 $700,000 of legal expense in
the accompanying Statements of Operations. 12,500,000 of the 43,000,000 shares
issued were for consulting services provided to the Company and were valued at
$0.04 per share, the closing share price on the grant date of February 4, 2005.
The 12,500,000 shares were issued as a modification of an existing agreement and
the term of the existing agreement has expired without modification.
Accordingly, the Company has expensed the entire amount of the 12,500,000 shares
and recorded $500,000 of consulting expense in the accompanying Statement of
Operations. 7,000,000 of the 43,000,000 shares issued were for consulting
services provided to the Company and were valued at $0.04 per share, the closing
price on the grant date of February 4, 2005. Subsequently, additional shares
were issued to the same consultants as a modification of the agreement (see
45,000,000 shares issuance below). Accordingly, the Company has expensed the
entire amount of the 7,000,000 shares issued and recorded $280,000 of consulting
expense in the accompanying Statement of Operations. 6,000,000 of the 43,000,000
shares were issued as a modification for consultants who received shares
previously and were valued at $0.04 per share, the closing price on the grant
date of February 4, 2005. The Company will amortize the 6,000,000 shares or
$240,000 over the terms of the agreement based upon the grant date of February
4, 2005 through October 1, 2005 and October 29, 2005, the original termination
date for the shares issued previously - see Deferred Consulting below.
In March 2005, the Company issued 45,000,000 shares of common stock.
20,000,000 shares of the 45,000,000 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 March 3, 2005. 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 $400,000 of legal expense in
the accompanying Statements of Operations. 12,500,000 of the 45,000,000 shares
issued were for consulting services provided to the Company and were valued at
$0.02 per share, the closing share price on the grant date of March 3, 2005. The
12,500,000 shares were issued as a modification of an existing agreement and the
term of the existing agreement has expired without modification. Accordingly,
the Company has expensed the entire amount of the 12,500,000 shares and recorded
$250,000 of consulting expense in the accompanying Statement of Operations.
12,500,000 of the 45,000,000 shares were issued as a modification for
consultants who received shares previously and were valued at $0.02 per share,
the closing price on the grant date of March 3, 2005. The Company will amortize
the 12,500,000 shares or $250,000 over the terms of the agreement based upon the
grant date of March 3, 2005 through May 15, 2005 and February 3, 2006, the
original termination date for the shares issued previously - see Deferred
Consulting below.
In March 2005, the Company issued 8,239,998 shares of Common Stock. The
shares were issued for the conversion of $30,000 of convertible debentures and
$900 of accrued interest and accrued liquidated debenture damages at $0.00375
per share.
In April 2005, the Company issued 3,999,999 shares of Common Stock. The
shares were issued for the conversion of $15,000 of convertible debentures at
$0.00375 per share.
In April 2005, the Company issued 65,000,000 shares of common stock.
30,000,000 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 April 21, 2005. 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 $300,000 of legal expense in
the accompanying Statements of Operations. The remaining 35,000,000 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
April 21, 2005. 30,000,000 of the 35,000,000 shares were issued as a
modification of an existing agreement and the term of the existing agreement has
expired without modification. 5,000,000 of the 35,000,000 shares were issued as
a modification of an existing agreement. However, the consultant subsequently
received additional shares as a modification of the agreement also. Accordingly,
the Company has expensed the entire amount of the 35,000,000 shares and recorded
$350,000 of consulting expense in the accompanying Statement of Operations.
In May 2005, the Company issued 11,199,999 shares of Common Stock. The
shares were issued for the conversion of $16,800 of convertible debentures at
$0.0015 per share.
In June 2005, the Company issued 175,000,000 shares of common stock.
70,000,000 shares of the 175,000,000 shares issued were for legal services
provided to the Company and were valued at $0.002 per share, the closing price
on the grant date of June 3, 2005. 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 $140,000 of legal expense in
the accompanying Statements of Operations. 71,666,667 of the 175,000,000 shares
issued were for consulting services provided to the Company and were valued at
$0.002 per share, the closing share price on the grant date of June 3, 2005. The
71,666,667 shares were issued as a modification of an existing agreement and the
term of the existing agreement has expired without modification. Accordingly,
the Company has expensed the entire amount of the 71,666,667 shares and recorded
$143,333 of consulting expense in the accompanying Statement of Operations.
33,333,333 of the 175,000,000 shares were issued as a modification for
consultants who received shares previously and were valued at $0.002 per share,
the closing price on the grant date of June 3, 2005. The Company will amortize
the 33,333,333 shares or $66,667 over the terms of the agreement based upon the
grant date of June 3, 2005 through June 3, 2006 - see Deferred Consulting below.
See Subsequent Events Note 9.
Issuances of Preferred Stock:
On August 23, 2004, the Company sold 10,000,000 shares of newly designated
Series A Convertible Preferred Stock. The obligation to buy the Series A
Convertible Preferred Stock created by the Subscription Agreement was, on the
same date, exchanged for a promissory note executed by the buyer as maker and
the Company as holder. The promissory note is in the principal amount of
$100,000, bears interest at the rate of 2% per annum and will be paid in
installments. The first installment was due on October 15, 2004 in the amount of
$10,000 and thereafter installments of $7,500 plus accrued interest are due each
month with all principal and interest due to be paid on or before October 15,
2005.
The first installment under a promissory note receivable held by the
Company was due on October 15, 2004 in the amount of $10,000. The Company did
not receive this payment. Additionally, installments of $7,500 plus accrued
interest are due each month with all principal and interest due to be paid on or
before October 15, 2005. The second through fifth installments due on the 15th
day of November 2004, December 2004, January 2005, February 2005 and March 2005
in the amount of $7,500 each plus accrued interest were not received by the
Company either.
The Company had recorded $1,205 of accrued interest on the promissory note
through March 31, 2005.
Pursuant to the Designation Certificate, The Series A Convertible
Preferred Stock will have no preferences in the event of liquidation and has no
stated dividend rate or dividend preference. The newly designated Series A
Convertible Preferred Stock has voting rights equal to the equivalent of 100
shares of common stock for each 1 share of Series A Convertible Preferred held.
These voting rights are limited to the specific purpose of voting on a 100 to 1
reverse stock split of Registrant's issued and outstanding common stock, but not
the total authorized common capital stock, of the Registrant. Otherwise, the
Series A Preferred Convertible Stock has no voting rights on any matter. The
Series A Convertible Preferred Stock is convertible into the common stock of
Registrant at the option of Registrant at a rate calculated to grant all holders
of the Series A Convertible Preferred Stock 5% of Registrant's common stock then
outstanding.
In accordance with EITF Issue 98-5, as amended by EITF Issue 00-27, the
Company has evaluated that the convertible preferred stock discussed above does
not have a beneficial conversion feature as the preferred stock is not
convertible at the option of the holder and is therefore not deemed convertible
preferred stock for evaluation of the beneficial conversion.
In April 2005, the Company determined that the Subscription promissory
note was unenforceable and uncollectible. As a result, the principal and accrued
interest aggregating $101,205 was reversed and the 10,000,000 shares of Series A
Convertible Preferred Stock were cancelled.
Deferred Compensation
On September 30, 2003, the Company authorized the issuance of 18,750
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 18,750 shares, 1,087 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 $48.00 per share. There was no
loss on settlement recorded since this was a related party transaction. The
remaining 17,663 shares were valued based upon the closing price on September
30, 2003, or $100.00 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 3,750 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 $40.00 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 1,250 shares as
compensation for the new CEO of the Company. The shares were valued at $40.00
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 all of the balance
has been amortized and recorded as compensation in the accompanying Statement of
Operations.
On May 7, 2004, the Company authorized the issuance of 1,050 shares as
compensation for the new CEO of the Company. The shares were valued at $40.00
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 all of the balance
has been amortized and recorded as compensation in the accompanying Statement of
Operations.
On May 31, 2005, the Company authorized the issuance of 75,000,000 shares
as compensation for the CEO of the Company. The shares were valued at $0.002 per
share, the closing price on the grant date of May 31, 2005 and are being
amortized over the remaining term of the employment agreement from May 31, 2005
through April 29, 2006. Accordingly, the Company has recorded Deferred
Compensation in the amount of $150,000 on the grant date of May 31, 2005 and
$11,538 of the balance has been amortized and recorded as compensation in the
accompanying Statement of Operations.
Deferred Consulting
On November 9, 2003, the Company authorized the issuance of 10,125 shares
of common stock for consulting services provided to the Company and was valued
at $40.00 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, in May 2004, 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.
In February 2004, the Company issued 1,250 shares of common stock for new
consulting services. The shares were valued at $80.00 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 has been
amortized and recorded as consulting expense in the accompanying Statement of
Operations.
In April 2004, the Company issued 11,250 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 $40.00 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 the
balance has been amortized and recorded as consulting expense in the
accompanying Statement of Operations.
In March 2004, the Company issued 16,250 shares of common stock as
discussed above. Subsequently, the Company determined that an error was made and
17,500 shares of common stock should have been issued. The 1,250 shares are for
new consulting services and the Company recorded the 1,250 shares as common
stock issuable at March 31, 2004. In April 2004, the 1,250 shares were issued by
the transfer agent and reclassed from Common Stock Issuable to Common Stock. The
shares were valued at $40.00 per share, the closing price on the date of grant
of the 16,250 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 $500,000 of Deferred Consulting on the grant date of March 15,
2004 and the balance has been amortized and recorded as consulting expense in
the accompanying Statement of Operations.
In April 2004, the Company issued 1,625 shares of common stock as the last
modification for two consultants that were issued shares previously. The Company
is amortizing 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 $65,000 of Deferred Consulting on the grant date of April 12,
2004 and the balance has been amortized and recorded as consulting expense in
the accompanying Statement of Operations.
In April 2004, the Company issued 10,450 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 the balance has been amortized and recorded as consulting expense in
the accompanying Statement of Operations.
In November 2004, the Company issued 75,000 shares as a modification for a
consultant and valued at $1.20 per share, the closing price on the grant date of
November 1, 2004. The Company will amortize the 75,000 shares or $90,000 over
the term of the agreement based upon the grant date of November 1, 2004 through
October 1, 2005. Accordingly, the Company recorded $90,000 of Deferred
Consulting on the grant date of November 1, 2004. Subsequently, additional
shares of common stock were issued to the consultant and the entire balance has
been amortized and recorded as consulting expense in the accompanying Statement
of Operations.
In November 2004, the Company issued 50,000 shares to a consultant for
prior and new consulting services and valued at $1.20 per share, the closing
price on the grant date of November 1, 2004. The prior services were valued at
$25,404 and had been recorded previously and included in Accounts Payable as of
September 30, 2004. The Company will amortize the 50,000 shares or $34,596
(60,000 less $25,404 of Accounts payable converted) over the term of the
agreement based upon the grant date of November 1, 2004 through May 15, 2005.
Subsequently, additional shares of common stock were issued to the consultant
and the entire balance has been amortized and recorded as consulting expense in
the accompanying Statement of Operations.
In February 2005, the Company issued 6,000,000 shares to two consultants
as a modification of their agreements and valued at $0.04 per share, the closing
price on the grant date of February 4, 2005. The Company will amortize the
6,000,000 shares or $240,000 over the terms of the agreement based upon the
grant date of February 4, 2005 through October 1, 2005 and October 29, 2005, the
original termination date for the shares issued previously. Accordingly, the
Company recorded $240,000 of Deferred Consulting on the grant date of February
4, 2005. Subsequently, in March 2005, one of the consultants representing
5,000,000 of the 6,000,000 shares was issued additional shares as a modification
of their agreement. The Company has expensed all of the deferred consulting
related to this issuance. The remaining 1,000,000 shares of the 6,000,000 shares
is being amortized per the existing amortization period. As a result, $221,873
of the $240,000 original deferred consulting amount has been amortized and
recorded as consulting expense in the accompanying Statement of Operations.
In March 2005, the Company issued 12,500,000 shares to three consultants
as a modification of their agreements and valued at $0.02 per share, the closing
price on the grant date of March 3, 2005. The Company will amortize the
12,500,000 shares or $250,000 over the terms of the agreement based upon the
grant date of March 3, 2005 through May 15, 2005 and February 3, 2006, the
original termination date for the shares issued previously. Accordingly, the
Company recorded $250,000 of Deferred Consulting on the grant date of March 3,
2005. Subsequently, in June 2005, two of the consultants representing 10,500,000
of the 12,500,000 shares were issued additional shares as a modification of
their agreements. The Company has expensed all of the deferred consulting
related to these issuances. The remaining 2,000,000 shares of the 12,500,000
shares is being amortized per the existing amortization period. As a result,
$223,041of the $250,000 original deferred consulting amount has been amortized
and recorded as consulting expense in the accompanying Statement of Operations.
In June 2005, the Company issued 33,333,333 shares to two consultants as a
modification of their agreements and valued at $0.02 per share, the closing
price on the grant date of June 3, 2005. The Company will amortize the
33,333,333 shares or $666,667 over the one year terms of the agreement based
upon the grant date of June 3, 2005 through June 3, 2006. Accordingly, the
Company recorded $666,667 of Deferred Consulting on the grant date of June 3,
2005 and $51,100 of the balance has been amortized and recorded as consulting
expense in the accompanying Statement of Operations.
Stock Based Compensation Plans
On September 29, 2003, the Company adopted a stock based compensation plan
for 5,000,000 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 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 2,350 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, 2005............................... 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
Average Weighted
Number Remaining Weighted Number Average
Range of Exercise Outstanding at Contractual Average Exercisable at Exercise
Prices Jun. 30, 2005 Life Exercise Price Jun. 30, 2005 Price
- ------------------------ ------------------- --------------- ---------------- ------------------ ------------
$1.00 40,000 .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.
7. 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.
The Company is in litigation with Wyndham Hotel Corporation ("Wyndham")
for unpaid charges. On June 14, 2002, Wyndham obtained a summary judgment
against Nannaco in the amount of $42,308, representing $32,045 of unpaid charges
plus $10,263 of 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, 2005, the total amount due is $55,226 (including $12,918 of
accrued interest) and is included under the caption Judgment Payable in the
accompanying Financial Statements.
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, 2005, the Company has recorded $276,880 in the accompanying Balance
Sheet for the estimated amount due (including accrued interest and penalties).
As a result, the IRS could attach a lien against the Company's assets and bank
accounts to protect their claim.
On July 1, 2002, the Company relocated its facility and had a single
month-to-month operating lease agreement for the business office located in San
Antonio, Texas. There was no restriction on our activities concerning dividends,
additional debt or further leasing. In 2004, the Company closed this facility
and moved the business office from San Antonio, Texas to Gig Harbor, Washington.
We currently do not have a lease and we are not paying rent for our office
space. It is being provided to the Company by an officer/director free of charge
(See Note 8 - Related Party Transactions). Usage of this office space and the
related value is de minimis. Therefore, no expense has been recorded in the
accompanying Financial Statements. We expect we will have to lease more
substantial office in the near future and that the cost of the space may be
material to our operations.
See Note 9 - Subsequent Events for further information related to material
recent events.
8. 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 at June 30, 2005.
At September 30, 2004, the same director discussed above was owed $25,092
in accrued compensation related to legal services provided to the Company and
has been classified as accrued compensation - related party in the accompanying
Balance Sheet at June 30, 2005.
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, 2005.
We currently do not have a lease and we are not paying rent for our office
space. It is being provided to the Company by an officer/director free of charge
(See Note 7 - Commitments and Contingencies). Usage of this office space and the
related value is de minimis. Therefore, no expense has been recorded in the
accompanying Financial Statements. We expect we will have to lease more
substantial office in the near future and that the cost of the space may be
material to our operations.
9. SUBSEQUENT EVENTS
In July 2005, the Company filed Form 8-K with the SEC disclosing that
Nannaco and Amenni Inc. ("Amenni"), entered into an agreement to merge a wholly
owned subsidiary of Nannaco with and into Amenni and to rename Nannaco "Amenni
Inc," (the "reverse merger"). The agreement provides that all of the shares of
common stock of Amenni issued and outstanding at the time the merger becomes
effective under applicable state law (the "Effective Time"), will be converted
into common stock of Nannaco such that the current holders of Amenni common
stock will hold 97% of all shares of Nannaco's common stock outstanding
immediately after the closing of this merger transaction. The agreement may be
terminated at any time prior to the Effective Time by written agreement; by
Amenni for breach of any of the representations and warranties or covenants of
Nannaco if such breach is not cured within thirty days of written notice; by
Nannaco for breach of any Amenni representations and warranties or covenants if
the breach is not cured within thirty days of written notice; by either party
upon completion of due diligence.
On August 15, 2005 the Company received a notice of default from Devine
Capital Markets, LLC ("Divine Capital"), pursuant to a Securities Purchase
Agreement, entered into on March 28, 2003, with the Troy and Jennifer Otillio
Revocable Trust as the purchaser and Registrant as the seller. Devine Capital
Market's notice of default alleges that the Company failed to issue shares
pursuant to debenture conversion rights. If the Company is deemed to be in
default, it is subject to acceleration of the debenture according to which the
Registrant would be obligated to repurchase the note for its original amount of
$50,000, less the amount of principal paid on the debenture, prior to the
debenture due date of March 28, 2006. The Company disputes that it is in default
on the agreement and is currently working to address and, if appropriate, settle
the purchaser's concerns.
The debentures are convertible by the holders on demand into Nannaco
common stock at a 25% discount to the lowest closing bid price of the 20 trading
days immediately preceding the date of conversion. Divine Capital acted as the
Company's placement agent in connection with the issuance of the debentures.
In August 2005, the Company authorized the issuance of 150,000,000 shares
of stock for legal and consulting services and will be valued at $0.0005 per
share, the closing price on the grant date of August 1, 2005. The Company filed
a Form S-8 for the issuance of these shares but determined that the issuance of
all 150,000,000 shares would have exceeded the authorized limit of 500,000,000
shares. Accordingly, the issuance was reduced to 145,000,000 shares and the
Company will file an amended S-8 in the near future. As a result of the adjusted
145,000,000 shares, the valuation of these shares will be $72,500.
In April 2005, the Company issued 2,766,360 shares of Common Stock. The
shares were issued for the conversion of $788 of convertible debentures at
$0.000285 per share.
As a result of the above items, the Company has 499,999,995 shares outstanding
as of the date of these financial statements and the authorized limit is
500,000,000 shares. Additionally, the Company has 75,000,000 shares issuable at
June 30, 2005 that cannot be issued until the 500,000,000 authorized share limit
is amended. As a result, the Company is unable to obtain additional services
through the sale of its common stock and this may have a significant impact on
the Company's ability to continue as a going concern.
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 our Form 10-KSB for the year ended September 30, 2004 and 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", "the Company", "we", "us", "our") 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 previously provided surface cleaning, surface
protection, surface restoration, and other services to commercial businesses, as
well to the owners of historical buildings. The Company previously operated
under the trade name of Surface Pro.
Until September 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. In September 2003, the Company
changed its strategy due to poor operating conditions and financial results
coupled with difficulties in raising capital through debt and equity sources.
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 of 2003, the Company ceased all operating activities and has
disposed of most of its assets. The Company has entered a new development phase,
while formulating a plan to improve its financial position.
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
cash resources to sustain its operations. During the nine months ended June 30,
2005 and 2004, the Company reported net losses of $4,608,489 and $6,129,705
respectively.
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 vital professional
services in exchange for the issuance by the Company of registered
and unregistered capital stock.
- The Company's ability to find a suitable merger or acquisition
candidate that can increase profitability and sustain a cash flow
level that will ensure support for continuing operations.
Our Twelve- Month Operating Plan
Our business has evolved over the past several months to providing services,
either directly or through our advisers, consultants and other professionals, to
private companies interested in securing needed capital for their growth and
development and that perceive that becoming publicly traded companies in the
United States aids in securing capital.
We specialize in the acquisition and sale of small private companies and we may
maintain ownership interests in these companies for the benefit of our
shareholders. We give our client companies critical guidance and advice about
conducting due diligence, valuation analysis, and strategic positioning in
negotiations with providers of capital. Ultimately, we lend strategic support to
assist growing enterprises in setting and meeting strategic and financial
objectives.
In the next twelve months we will continue to seek out, receive, evaluate and
pursue to fruition opportunities to assist in securing financing through merger
or acquisition of private companies we believe have the potential to benefit
from being publicly traded companies. Companies we believe that have such
potential are companies with proprietary technology or information that
differentiates their products from those of their competitors and who have a
short path to cash flow or profitability.
We have not generated revenues from any source for several calendar quarters. We
expect to generate revenues from operations in the next twelve months through
our merger, acquisition and financing activities but cannot reasonably estimate
the level of revenues to be generated, if any are generated at all. We estimate
that our primary operating expense is the cost of remaining in compliance with
the Securities Exchange Act of 1934: an expense we estimate at $75,000 to
$125,000 per fiscal year. Our effort at capital raising is a transaction
intensive exercise. Additionally, the operations of the company are law
intensive and require legal services at higher levels. Finally, we rely heavily
on the services of outside advisers, consultants and other professionals to
supply us with business opportunities, the means to evaluate such opportunities,
and the skills to advance the acquisition process. The fees associated with such
processes are high and, since we have no revenues and no capital, we plan to
continue to pay our advisers, consultants and other professionals by issuing
registered common stock in payment for their needed services. Over the last
twelve months we have been presented the opportunity to acquire several
companies that, after completion of our due diligence process, were rejected as
merger or acquisition candidates. We will continue to assess the merits of a
proposed merger or acquisition considering the best interests of our
shareholders.
Otherwise, we believe that there is no other immediate need for cash absent a
merger or acquisition transaction. To the extent cash is required to pay
expenses, including audit expenses which cannot be paid for by issuing common
stock to the independent public auditor, we will continue to rely on short-term
advances and loans from consultants, advisers and other professional service
providers which advances and loans are provided on an ad hoc basis and may not
be forthcoming in the next twelve months.
RECENT DEVELOPMENTS
On August 23, 2004, the Company sold 10,000,000 shares of newly designated
Series A Convertible Preferred Stock. The obligation to buy the Series A
Convertible Preferred Stock created by the Subscription Agreement was, on the
same date, exchanged for a promissory note executed by the buyer as maker and
the Company as holder. The promissory note is in the principal amount of
$100,000, bears interest at the rate of 2% per annum and will be paid in
installments. The first installment was due on October 15, 2004 in the amount of
$10,000 and thereafter installments of $7,500 plus accrued interest are due each
month with all principal and interest due to be paid on or before October 15,
2005. The Company had recorded $1,205 of accrued interest on the promissory note
through March 31, 2005. In April 2005, the Company determined that the
Subscription promissory note was unenforceable and uncollectible. As a result,
the principal and accrued interest aggregating $101,205 was reversed and the
10,000,000 shares of Series A Convertible Preferred Stock were cancelled.
In April 2005, the Company issued 3,999,999 shares of its 0.001 par value common
stock for the conversion of $15,000 principal amount of convertible debentures
at a conversion rate of $0.00375 per share.
In May 2005, the Company issued 11,199,999 shares of its 0.001 par value common
stock for the conversion of $16,800 principal amount of convertible debentures
at a conversion rate of $0.0015 per share.
In April 2005, the Company issued 65,000,000 shares of its 0.001 par value
common stock for legal and consulting services. The shares were valued at $0.007
per share, the market price of the common stock on the date of grant.
In May 2005, the Company cancelled 750,000 shares of common stock issued as
compensation to the Chief Executive Officer in his capacity as Chief Financial
Officer and director. The shares were issued as consideration of services past
and continuing and subject to substantial conditions constituting events of
forfeiture. Under conditions of the issuance, the officer was required to raise
capital in excess of $5,000,000 within 90 days following this issuance or
forfeit the shares. The shares were valued at $1.20 per share, the fair market
value on the grant date or $900,000 and since the Company anticipated that the
shares may be canceled, the $900,000 was recorded as deferred compensation and
Contingent Returnable Common Stock. As a result of the cancellation, Company has
reversed the amounts recorded above.
In July 2005, the Company filed Form 8-K with the SEC disclosing that Nannaco
and Amenni Inc. ("Amenni"), entered into an agreement to merge a wholly owned
subsidiary of Nannaco with and into Amenni and to rename Nannaco "Amenni Inc,"
(the "reverse merger"). The agreement provides that all of the shares of common
stock of Amenni issued and outstanding at the time the merger becomes effective
under applicable state law (the "Effective Time"), will be converted into common
stock of Nannaco such that the current holders of Amenni common stock will hold
97% of all shares of Nannaco's common stock outstanding immediately after the
closing of this merger transaction. The agreement may be terminated at any time
prior to the Effective Time by written agreement; by Amenni for breach of any of
the representations and warranties or covenants of Nannaco if such breach is not
cured within thirty days of written notice; by Nannaco for breach of any Amenni
representations and warranties or covenants if the breach is not cured within
thirty days of written notice; by either party upon completion of due diligence.
In August 2005, the Company issued 150,000,000 shares of its 0.001 par value
common stock for legal and consulting services. The shares were valued at
$0.0005 per share, the market price of the common stock on the date of grant.
On August 15, 2005 the Company received a notice of default from Devine Capital
Markets, LLC ("Divine Capital"), pursuant to a Securities Purchase Agreement,
entered into on March 28, 2003, with the Troy and Jennifer Otillio Revocable
Trust as the purchaser and Registrant as the seller. Devine Capital Market's
notice of default alleges that the Company failed to issue shares pursuant to
debenture conversion rights. If the Company is deemed to be in default, it is
subject to acceleration of the debenture according to which the Registrant would
be obligated to repurchase the note for its original amount of $50,000, less the
amount of principal paid on the debenture, prior to the debenture due date of
March 28, 2006. The Company disputes that it is in default on the agreement and
is currently working to address and, if appropriate, settle the purchaser's
concerns. The debentures are convertible by the holders on demand into Nannaco
common stock at a 25% discount to the lowest closing bid price of the 20 trading
days immediately preceding the date of conversion. Divine Capital acted as the
Company's placement agent in connection with the issuance of the debentures.
In August 2005, the Company authorized the issuance of 150,000,000 shares of
stock for legal and consulting services and will be valued at $0.0005 per share,
the closing price on the grant date of August 1, 2005. The Company filed a Form
S-8 for the issuance of these shares but determined that the issuance of all
150,000,000 shares would have exceeded the authorized limit of 500,000,000
shares. Accordingly, the issuance was reduced to 145,000,000 shares and the
Company will file an amended S-8 in the near future. As a result of the adjusted
145,000,000 shares, the valuation of these shares will be $72,500.
In April 2005, the Company issued 2,766,360 shares of Common Stock. The shares
were issued for the conversion of $788 of convertible debentures at $0.000285
per share.
As a result of the above items, the Company has 499,999,995 shares outstanding
as of the date of these financial statements and the authorized limit is
500,000,000 shares. Additionally, the Company has 75,000,000 shares issuable at
June 30, 2005 that cannot be issued until the 500,000,000 authorized share limit
is amended. As a result, the Company is unable to obtain additional services
through the sale of its common stock and this may have a significant impact on
the Company's ability to continue as a going concern.
GOING CONCERN
The independent registered public accounting firm's report to our financial
statements for the years ended September 30, 2004 and September 30, 2003,
include an emphasis paragraph in addition to their audit opinion stating that
the Company's recurring losses from operations including a net loss in 2004 of
$6,400,107, working capital deficit of $840,706 at September 30, 2004,
accumulated deficit from prior business operations and deficit accumulated
during the development stage at September 30, 2004 of $5,048,764 and $6,400,107,
respectively, and substantial obligations and default on convertible debentures
with no current resources to satisfy the obligations 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.
VALUATION OF NON-CASH ISSUANCES OF COMMON STOCK
The Company issued common stock to several parties in non-cash transactions
during the nine months ending June 30, 2005. For the majority of these
issuances, valuation was determined based upon the stock closing price on the
date of issuance.
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS
In assessing the recoverability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. Net operating loss carry-forwards aggregate
approximately $2,819,000 and expire in the years through 2023.
As of October 1, 2003 the Company changed its strategy and moved into a new line
of business. As a result of this change, under IRS rules, approximately
2,537,000 of the net operating loss carry-forward, through September 30, 2003
discussed above will not be allowable.
RESULTS OF OPERATIONS
Financial Analysis of the Nine and Three Months Ended June 30, 2005 and 2004
Period From
October 1, 2003
(Inception of
Development
Nine Months Ended Three Months Ended Stage)
June 30, June 30, To June 30,
2005 2004 2005 2004 2005
------------ ------------ ------------ ------------ ------------
REVENUES FROM DISCONTINUED OPERATIONS $ -- $ 15,577 $ -- $ -- $ 15,577
COST OF REVENUES -- 16,848 -- -- 16,848
------------ ------------ ------------ ------------ ------------
GROSS LOSS -- (1,271) -- -- (1,271)
OPERATING EXPENSES:
Selling, general and administrative -- 15,219 -- -- 16,186
Compensation and payroll taxes 74,726 2,003,897 17,629 20,500 2,115,304
Consulting 2,613,758 2,810,884 701,503 864,842 5,571,754
Legal and professional 1,857,000 1,248,841 452,000 263,947 3,185,986
Rent -- 1,495 -- -- 1,495
Travel and entertainment -- 3,726 -- -- 3,726
Debenture liquidated damages 54,148 24,500 5,545 -- 80,888
Bad debt expense -- 1,171 -- -- 1,171
------------ ------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 4,599,632 6,109,733 1,176,677 1,149,289 10,976,510
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (4,599,632) (6,111,004) (1,176,677) (1,149,289) (10,977,781)
OTHER INCOME (EXPENSE):
Interest expense, net (8,857) (18,701) (40) (6,234) (30,815)
------------ ------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (8,857) (18,701) (40) (6,234) (30,815)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (4,608,489) $ (6,129,705) $ (1,176,717) $ (1,155,523) $(11,008,596)
============ ============ ============ ============ ============
Nine Months Ended June 30, 2005
Revenues:
Operating revenue decreased $15,577, or 100%, to zero for 2005 from $15,577 for
2004. The Company adopting 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 of 2003, the Company ceased all operating activities and has
disposed of most of its assets. The Company has entered a new development phase,
while formulating a plan to improve its financial position.
Cost of Sales:
Cost of sales decreased $16,848, or 100%, to zero for 2005 from $16,848 for
2004. The Company adopting 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 of 2003, the Company ceased all operating activities and has
disposed of most of its assets. The Company has entered a new development phase,
while formulating a plan to improve its financial position.
Operating Expenses:
Operating expenses decreased $1,510,101, or 25%, to $4,599,632 for 2005 from
$6,109,733 for 2004. The decrease was primarily the result of a $1,929,171
decrease in compensation and a $197,126 decrease in consulting, offset by a
$608,159 increase in legal and professional. The increase in legal and
professional and consulting was primarily from an increase in the issuance of
stock for services while the decrease in compensation and consulting was
primarily the result of a decrease in the issuance of stock for compensation in
2005 versus 2004.
Other Expense:
Other expense decreased $9,844, or 53% to $8,857 for 2005 from $18,701 for 2004.
The decrease was primarily from a decrease in interest expense as a result of
less convertible debentures outstanding in 2005 as compared to 2004.
Three Months Ended June 30, 2005
Revenues:
There was no operating revenue for either 2005 or 2004. The Company adopting 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 of 2003, the Company ceased
all operating activities and has disposed of most of its assets. The Company has
entered a new development phase, while formulating a plan to improve its
financial position.
Cost of Sales:
There was no cost of sales for either 2005 or 2004. The Company adopting 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 of 2003, the Company ceased
all operating activities and has disposed of most of its assets. The Company has
entered a new development phase, while formulating a plan to improve its
financial position.
Operating Expenses:
Operating expenses increased $27,388, or 2%, to $1,176,677 for 2005 from
$1,149,289 for 2004. The increase was primarily the result of a $188,053
increase in legal and professional, offset by a $163,339 decrease in
compensation. The increase in legal and professional and consulting was
primarily from an increase in the issuance of stock for services while the
decrease in compensation and consulting was primarily the result of a decrease
in the issuance of stock for compensation in 2005 versus 2004.
Other Expense:
Other expense decreased $6,194, or 99% to $40 of other expense for 2005 from
$6,234 of other expense for 2004. The decrease was primarily from a decrease in
interest expense as a result of less convertible debentures outstanding in 2005
as compared to 2004.
Liquidity and Capital Resources
Cash and cash equivalents were $0 at June 30, 2005 as compared to $0 at
September 30, 2004, and working capital deficit was $851,570 at June 30, 2005 as
compared to $840,706 at September 30, 2004.
Operating Activities:
Cash used in operating activities was $0 for both 2005 and 2004 as a result of
the Company having no cash balances outstanding for either period.
Investing Activities:
There were no investing activities for both 2005 and 2004 as a result of the
Company having no cash balances outstanding for either period.
Financing Activities:
There were no financing activities for both 2005 and 2004 as a result of the
Company having no cash balances outstanding for either period.
Short-Term Debt
Our short-term debt at June 30, 2005 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. 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, 2005, 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
$175,000 Convertible Debentures, dated March and April of 2003, bearing interest
at 6% per annum and due in March and April of 2006........................................$ 45,700
=========
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.
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. Effective
March 31, 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 438 of the Company's common shares based on a $0.02 trading price of
the common stock on the settlement date. For the period from April 1, 2004
through June 30, 2005, the Company has recorded an additional $54,148 of
liquidated damages resulting in an accrued balance of $56,388 as of June 30,
2005.
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, 2005.
In April and May of 2004, $67,500 principal amount of the debentures was
converted into 3,167 shares of our common stock. $60,000 of the debentures was
converted in April 2004 into 2,736 shares at $0.0054825 per share and $7,500 of
the debentures was converted in May 2004 into 431 shares at $0.00435 per share.
In March 2005, $30,000 principal amount of the debentures was converted into
8,239,998 shares of our common stock at $0.0375 per share. For this conversion,
one party with a debenture in the principal amount of $5,000, converted accrued
interest and accrued liquidated damages totaling $900 into 240,000 shares of our
common stock, which are included in the 8,239,998 shares discussed above. None
of the other conversions included accrued interest or accrued debenture
liquidated damages and the Company has retained these accruals in the
accompanying Financial Statements.
In April 2005, $15,000 principal amount of the debentures was converted into
3,999,999 shares of our common stock at $0.0375 per share. None of the
conversions included accrued interest or accrued debenture liquidated damages
and the Company has retained these accruals in the accompanying Financial
Statements.
In May 2005, $16,800 principal amount of the debentures was converted into
11,199,999 shares of our common stock at $0.0015 per share. None of the
conversions included accrued interest or accrued debenture liquidated damages
and the Company has retained these accruals in the accompanying Financial
Statements.
As a result of the above conversions, $45,700 principal amount of the
convertible debentures is outstanding as of June 30, 2005.
On August 15, 2005 the Company received a notice of default from Devine Capital
Markets, LLC ("Divine Capital"), pursuant to a Securities Purchase Agreement,
entered into on March 28, 2003, with the Troy and Jennifer Otillio Revocable
Trust as the purchaser and Registrant as the seller. Devine Capital Market's
notice of default alleges that the Company failed to issue shares pursuant to
debenture conversion rights. If the Company is deemed to be in default, it is
subject to acceleration of the debenture according to which the Registrant would
be obligated to repurchase the note for its original amount of $50,000, less the
amount of principal paid on the debenture, prior to the debenture due date of
March 28, 2006. The Company disputes that it is in default on the agreement and
is currently working to address and, if appropriate, settle the purchaser's
concerns. The debentures are convertible by the holders on demand into Nannaco
common stock at a 25% discount to the lowest closing bid price of the 20 trading
days immediately preceding the date of conversion. Divine Capital acted as the
Company's placement agent in connection with the issuance of the debentures.
Equity Financing
None
Liquidity
To continue with our business plan, we will require additional short-term
working capital and we have not had generating sufficient cash from operations
to fund our operating activities through the end of fiscal 2005. Presently, we
have no source of revenues and have moved into a new business concept as a
consultant and advisor to customers. We cannot assure you that the new business
concept will provide sufficient proceeds, if any, and borrowings under any
interim financing we are able to secure will be sufficient to meet our projected
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 increasing the
number of shares of common stock we are authorized to issue. 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. Failure to obtain commitments for interim financing and subsequent
project 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.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Contractual Obligations and Commercial Commitments
The following table highlights, as of June 30, 2005, 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 45,700 45,700 -- -- --
------------ ------------ ------------ ------------ ------------
Total Short-Term Debt $ 147,736 $ 147,736 $ -- -- --
============ ============ ============ ============ ============
2005 OUTLOOK
Our ability to continue in existence is heavily dependent on securing additional
capital from investors or debt. There is no assurance that additional equity or
debt financing will be available on terms acceptable to Management, or on any
terms at all.
Item 3A. 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 as of the date of the financial statements reported in this Form
10-QSB. He has evaluated these controls and procedures as of the end of the
period covered by this report on Form 10-QSB. During the last fiscal quarter the
Company has not undergone any changes in internal control that have materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II
Item 1. Legal Proceedings
The company is not presently engaged in legal proceedings not previously
reported and there have been no material changes in previously reported legal
proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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").
On August 15, 2005 the Company received a notice of default from Devine Capital
Markets, LLC ("Divine Capital"), pursuant to a Securities Purchase Agreement,
entered into on March 28, 2003, with the Troy and Jennifer Otillio Revocable
Trust as the purchaser and Registrant as the seller. Devine Capital Market's
notice of default alleges that the Company failed to issue shares pursuant to
debenture conversion rights. If the Company is deemed to be in default, it is
subject to acceleration of the debenture according to which the Registrant would
be obligated to repurchase the note for its original amount of $50,000, less the
amount of principal paid on the debenture, prior to the debenture due date of
March 28, 2006. The Company disputes that it is in default on the agreement and
is currently working to address and, if appropriate, settle the purchaser's
concerns. The debentures are convertible by the holders on demand into Nannaco
common stock at a 25% discount to the lowest closing bid price of the 20 trading
days immediately preceding the date of conversion. Divine Capital acted as the
Company's placement agent in connection with the issuance of the debentures.
Item 4. Submission of matters to a Vote of Securities Holders
In June of 2005, the Company provided an Information Statement to its
stockholders indicating consents had been obtained in sufficient number to
authorize the board of directors to effect a 1 for 400 reverse stock split of
the common stock. The Company is currently authorized to issue 500,000,000
shares of its common stock. Shareholders holding in excess of 67% of voting
capital stock consented in writing to the proposal. The reverse split has not
yet been made effective and the Information Statement has not yet been filed in
definitive form. stock.
Item 5. Other Information
NONE.
Item 6. Exhibits
(a) Exhibits
- ---------------------------------------------------------------------------------------------------------------------
Exhibit Title Location
- ---------------------------------------------------------------------------------------------------------------------
2 Plan and Agreement of Merger with Incorporated by Reference to
NAZZ Productions Inc. Form 8-K dated August 23 2004
- ---------------------------------------------------------------------------------------------------------------------
2.1 Amendment to Plan and Agreement of Incorporated by
Merger with NAZZ Productions Inc. Reference to Form
10-QSB
filed
February 22, 2005
- ---------------------------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation Incorporated by Reference to
the SB-2
Registration
Statement filed
August 21, 2000
- ---------------------------------------------------------------------------------------------------------------------
3.2 Bylaws Incorporated by Reference to
Form SB-2 Registration filed on
August 21 2000
- ---------------------------------------------------------------------------------------------------------------------
3.2a Certificate of Amendment to Articles Incorporated by Reference to
of Incorporation Form SB-2
Registration
Statement filed on
August 21 2000
- ---------------------------------------------------------------------------------------------------------------------
3.3 Certificate of Amendment to Articles Incorporated by Reference to
of Incorporation Preliminary Schedule 14C
filed February 10 2004
- ---------------------------------------------------------------------------------------------------------------------
3.4 Certificate of Designation of Series Incorporated by Reference to
A Convertible Preferred Stock Form 8-K dated August 23 2004
- ---------------------------------------------------------------------------------------------------------------------
4.01 2003 Stock Option And Grant Plan Incorporated by Reference to
Form S-8 Registration Statement filed
September 30 2003
- ---------------------------------------------------------------------------------------------------------------------
4.1 Form of Common Stock Certificate Incorporated by Reference to
the SB-2 Registration filed on
August 21 2000
- ---------------------------------------------------------------------------------------------------------------------
4.1a Engagement Agreement with The Otto Incorporated by Reference
Law Group PLLC to the Form S-8
Registration Statement
Filed November 21 2003
- ---------------------------------------------------------------------------------------------------------------------
4.1b Consulting Services Agreement with Incorporated by Reference to
James J. Taylor Form S-8 filed April 21 2004
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
4.1c Amendment No. 5 to Consulting Incorporated by Reference to
Services Agreement between Form S-8 filed
Bartholomew International Investments May 11 2004
Limited Inc. and NANNACO Inc.
- ---------------------------------------------------------------------------------------------------------------------
4.2 Consulting Services Agreement between Incorporated by reference
Aequitas Company and NANNACO Inc. to Form S-8 Registration
Statement filed November 21 2003
- ---------------------------------------------------------------------------------------------------------------------
4.2a Amendment No. 1 to Consulting Incorporated by Reference to
Services Agreement with Form S-8 filed May 11 2004
Nicole Van Coller
- ---------------------------------------------------------------------------------------------------------------------
4.3 Consulting Services Agreement with Incorporated by reference to
T.T. Byrne Capital Investments Inc. the Form S-8 Registration
Statement filed November 21 2003
- ---------------------------------------------------------------------------------------------------------------------
4.3b Consulting Services Agreement between Incorporated by reference
Michael Nerone and NANNACO Inc. to the Form S-8
Registration Statement
Filed January 13 2004
- ---------------------------------------------------------------------------------------------------------------------
4.4 Consulting Services Agreement between Incorporated by reference
Bartholomew International Investments to the Form S-8
Limited Inc. and NANNACO Inc. filed November 21 2003
- ---------------------------------------------------------------------------------------------------------------------
4.4a Consulting Services Agreement between Incorporated by Reference
Kenneth Davidson and NANNACO Inc. to the Form S-8
Registration Statement
filed January 13 2004
- ---------------------------------------------------------------------------------------------------------------------
4.4b Amendment No. 1 to Consulting Incorporated by Reference to
Services Agreement with Michael Nerone the Form S-8 Registration
Statement filed March 2 2004
- ---------------------------------------------------------------------------------------------------------------------
4.4c Amendment No. 1 to Agreement with Incorporated by Reference
Vintage Filings LLC dated May 6 2004 to Form S-8 filed May 11 2004
- --------------------------------------------------------------------------------------------------------------------
4.5 Consulting Services Agreement between Incorporated by reference
Mark Triesch and NANNACO Inc. to Form S-8 Registration Statement
filed January 13 2004
- ---------------------------------------------------------------------------------------------------------------------
4.5a Amendment No.1 to Consulting Services Incorporated by Reference
Agreement between Kenneth Davidson to Form S-8 Registration
and NANNACO Inc. Statement filed March 2 2004
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
4.5b Consulting Services Agreement with Incorporated by Reference to
Chris Ebersole Form S-8 Filed May 11 2004
- ---------------------------------------------------------------------------------------------------------------------
4.5c Amendment No. 9 to Consulting Incorporated by Reference to
Services Agreement between Terry Form S-8 filed April 21, 2005
Byrne at Bartholomew International
Investments Limited Inc. and NANNACO
Inc.
- ---------------------------------------------------------------------------------------------------------------------
4.6 Consulting Services Agreement with Incorporated by reference to
Vintage Filings LLC the Form S-8 Registration
Statement filed November 21 2003
- ---------------------------------------------------------------------------------------------------------------------
4.6a Amendment No. 1 to Consulting Incorporated by Reference to
Services Agreement between Mark Form S-8 Registration
Triesch and NANNACO Inc. Statement filed March 2, 2004
- ---------------------------------------------------------------------------------------------------------------------
4.6b Amendment No. 4 to Consulting Incorporated by Reference to
Services Agreement between Form S-8 Registration
Bartholomew International Statement filed April 15, 2004
Limited Inc. and NANNACO Inc.
- ---------------------------------------------------------------------------------------------------------------------
4.6c Amendment No.3 Consulting Services Incorporated by Reference
Agreement between Lou Digiaimo Jr. to Form S-8 April 21, 2005
and Nannaco Inc.
- ---------------------------------------------------------------------------------------------------------------------
4.7 Amendment No. 1 to Consulting Incorporated by Reference to
Services Agreement between Aequitas Form S-8 Registration
Company and NANNACO Inc. Statement filed January 13 2004
- ---------------------------------------------------------------------------------------------------------------------
4.7a Amendment No. 1 to Employment Incorporated by reference to
Agreement with Andrew Devries III the Form S-8 Registration
Statement filed November 21 2003
- ---------------------------------------------------------------------------------------------------------------------
4.7b Amendment No. 2 to Consulting Incorporated by Reference to
Services Agreement between Bradford Form S-8 filed April 21, 2004
van Siclen and NANNACO Inc.
- ---------------------------------------------------------------------------------------------------------------------
4.8 Amendment No. 1 to Consulting Incorporated by Reference to
Services Agreement between Form S-8 Registration
Bartholomew International Investments Statement filed January 13 2004
Limited Inc. and NANNACO Inc.
- ---------------------------------------------------------------------------------------------------------------------
4.8c Consulting Services Agreement with Incorporated by Reference to
Vintage Filings LLC Form S-8 filed April 15, 2004
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
4.3(e) Amendment No. 6 to Consulting Incorporated by Reference to
Services Agreement between Form S-8 filed November 4
Bartholomew International Investments 2004
Limited Inc. and NANNACO Inc.
- ---------------------------------------------------------------------------------------------------------------------
4.4e Consulting Services Agreement between Incorporated by Reference
Bruce Arthur Hall and Nannaco Inc. to Form S-8 filed November 4 2004
- ---------------------------------------------------------------------------------------------------------------------
4.5e Consulting Services Agreement between Incorporated by Reference
Lou Digiaimo Jr. and Nannaco Inc. to Form S-8 filed November 4 2004
- ---------------------------------------------------------------------------------------------------------------------
4.7b Amendment No.2 to Consulting Services Incorporated by Reference
Agreement between Lou Digiaimo Jr. to Form S-8
and Nannaco Inc. filed February 10, 2005
- ---------------------------------------------------------------------------------------------------------------------
4.6e Amendment No.1 to Consulting Services Incorporated by Reference
Agreement between Lou Digiaimo Jr. to Form S-8 filed
and Nannaco Inc. November 4 2004
- ---------------------------------------------------------------------------------------------------------------------
4.6f Amendment No. 7 to Consulting Incorporated by Reference
Services Agreement between to Form S-8 filed February
Bartholomew International Investments 10, 2005
Limited Inc. and NANNACO Inc.
- ---------------------------------------------------------------------------------------------------------------------
4.7a Consulting Services Agreement between Incorporated by Reference
Steve Careaga and Nannaco Inc. to Form S-8 filed
November 4 2004
- ---------------------------------------------------------------------------------------------------------------------
4.7b Amendment No. 8 to Consulting Incorporated by Reference to
Services Agreement between Terry Form S-8 filed March 10,
Byrne at Bartholomew International
Investments Limited Inc. and NANNACO
- ---------------------------------------------------------------------------------------------------------------------
4.8 Amendment No. 1 to Consulting Incorporated by Reference to
Services Agreement with Michael Park Form S-8 filed February 10,
dated April 14 2004 2005
- ---------------------------------------------------------------------------------------------------------------------
4.8a Amendment No. 2 to Consulting Incorporated by Reference to
Services Agreement with Michael Park Form S-8 filed March 10,
dated April 14 2004 2005
- --------------------------------------------------------------------------------------------------------------------
4.9 Amendment No. 1 to Consulting Incorporated by Reference to
Services Agreement with Capital Group Form S-8 filed April 15 2004
International
- ---------------------------------------------------------------------------------------------------------------------
4.9a Amendment No. 1 to Consulting Incorporated by Reference
Agreement with Steve Careaga dated to Form S-8
October 29, 2004 filed February 10, 2005
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
4.9b Amendment No. 1 to Consulting Incorporated by Reference to
Services Agreement between Bruce Form S-8 filed March 10,
Arthur Hall and Nannaco Inc. 2005
- ---------------------------------------------------------------------------------------------------------------------
4.10 Consulting Services Agreement with Incorporated by Reference to
Michael Park dated April 14 2004 Form S-8 filed April 15 2004
- ---------------------------------------------------------------------------------------------------------------------
4.10a Consulting Services Agreement between Incorporated by Reference
Bradford van Siclen and NANNACO Inc. to Form S-8 filed
February 10, 2005
- ---------------------------------------------------------------------------------------------------------------------
4.10b Amendment No. 1 to Consulting Incorporated by Reference to
Services Agreement between Bradford Form S-8 filed March 10,
van Siclen and NANNACO Inc. 2005
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4.11 Consulting Services Agreement between Incorporated by Reference
Kevin Evans and Nannaco Inc. to Form S-8 filed
February 10, 2005
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4.11a Amendment No. 1 to Consulting Incorporated by Reference to
Services Agreement between Kevin Form S-8 filed March 10,
Evans and Nannaco Inc. 2005
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4.12 Amendment No. 2 to Consulting Incorporated by Reference to
Services Agreement between Form S-8 filed March 2
Bartholomew International Investments 2004
Limited Inc. and NANNACO Inc.
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4.13 Amendment No. 2 to Consulting Incorporated by Reference to
Services Agreement between Aequitas Form S-8 filed March 2
Company and NANNACO Inc. Form S-8
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4.14 Consulting Services Agreement with Incorporated by Reference to
Bagswell Capital LLC dated February Form S-8 Filed March 23 2004
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4.15 Consulting Services Agreement with Incorporated by Reference to
Seth Elliott dated February 23 2004 Form S-8 filed March 2 2004
- ---------------------------------------------------------------------------------------------------------------------
10.1 Settlement Agreement and Release with Incorporated by Reference
and by James J. Taylor to Form 10 QSB filed May 24 2004
- ---------------------------------------------------------------------------------------------------------------------
10.1a Employment Agreement with Andrew Incorporated by
Devries III dated June 1 2002 filed November 18 2004
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
10.1b Amendment No. 1 to Employment Incorporated by Reference
Agreement with Andrew Devries III to Form 8-K/A filed
dated June 1 2003 February 10,
2004
- ---------------------------------------------------------------------------------------------------------------------
10.2 Employment Agreement with Steve Incorporated by Reference
Careaga to the Form S-8
registration statement filed on
March 16 2004
- ---------------------------------------------------------------------------------------------------------------------
10.3 $375000 Promissory Note executed by Incorporated by Reference
Andre DeVries III payable to the to Form 10-QSB/A filed
Registrant June 21 2004
- ---------------------------------------------------------------------------------------------------------------------
10.4 Agreement and Plan of Merger dated Incorporated by Reference
July 8 2004 between Nannaco and Red to Form 10-QSB filed
Alert August 25 2004
- ---------------------------------------------------------------------------------------------------------------------
10.5 Termination Agreement dated August 16 Incorporated by Reference
terminating Nannaco/Red Alert merger to Form 10-QSB filed
August 25 2004
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10.6 Nelana Holdings Ltd. Subscription for Incorporated by Reference to
Series A Convertible Preferred Stock Form 8-K dated August 23 2004
- ---------------------------------------------------------------------------------------------------------------------
10.7 Promissory Note dated August 23 2004: Incorporated by Reference
Nelana Holdings Ltd. Maker to Form 8-K dated August 23 2004
- ---------------------------------------------------------------------------------------------------------------------
10.8 Consulting Agreement with Steve Incorporated by Reference to
Careaga dated October 29 2004 Form 8-K filed October 29 2004
- ---------------------------------------------------------------------------------------------------------------------
10.9 Amendment No. 10 to Consulting Incorporated by Reference to
Services Agreement between and Form S-8 filed June 3, 2005
Terry Byrne and Nannaco, Inc.
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10.10 Amendment No. 1 to Consulting Incorporated by Reference to
Services Agreement between and Form S-8 filed June 3, 2005
Seth Elliot and Nannaco, Inc.
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10.10a Amendment No. 11 to Consulting Incorporated by Reference to
Services Agreement between and Form S-8 filed August 1, 2005
Terry Byrne and Nannaco, Inc.
- --------------------------------------------------------------------------------------------------------------------
10.11 Amendment No. 4 to Consulting Incorporated by Reference to
Services Agreement between and Form S-8 filed June 3, 2005
Lou Digiaimo, Jr., and Nannaco, Inc.
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- ------------------------------------------------------------------------------------------------------------
10.11a Amendment No. 4 to Consulting Incorporated by Reference to
Services Agreement between and Form S-8 filed August 1, 2005
Bradford van Siclen and Nannaco, Inc.
- ------------------------------------------------------------------------------------------------------------
10.12 Amendment No. 2 to Consulting Incorporated by Reference to
Services Agreement between and Form S-8 filed June 3, 2005
Bruce Arthur Hall and Nannaco, Inc.
- ------------------------------------------------------------------------------------------------------------
10.12a Amendment No. 1 to Consulting Incorporated by Reference to
Services Agreement between and Form S-8 filed August 1, 2005
Anthony John Doyle and Nannaco, Inc.
- ------------------------------------------------------------------------------------------------------------
10.13 Amendment No. 3 to Consulting Incorporated by Reference to
Services Agreement between and Form S-8 filed June 3, 2005
Bradford van Siclen and Nannaco, Inc.
- ------------------------------------------------------------------------------------------------------------
41 Amendment No. 3 to Consulting Incorporated by Reference to
Services Agreement with Bartholomew Form S-8 filed March 16
International Investments Limited 2004
dated February 23 2004
- ------------------------------------------------------------------------------------------------------------
42 Amendment No.2 to Consulting Services Incorporated by Reference
Agreement between Kenneth Davidson to Form S-8 filed March
and NANNACO Inc. dated March 15 2004 16 2004
- ------------------------------------------------------------------------------------------------------------
43 Amendment No. 2 to Consulting Incorporated by Reference to
Services Agreement between Mark Form S-8 filed March 16
Triesch and NANNACO Inc. 2004
- ------------------------------------------------------------------------------------------------------------
44 Consulting Services Agreement with Incorporated by Reference to
Daedalus Ventures Inc. Form S-8 filed March 16 dated March 15
2004
- ------------------------------------------------------------------------------------------------------------
45 Consulting Services Agreement with Incorporated by Reference to
Nicole Leigh Van Coller dated March Form S-8 filed March 16 15 2004
2004
- ------------------------------------------------------------------------------------------------------------
46 Amendment No. 1 to Consulting Incorporated by Reference to
Services Agreement with Bagswell Form S-8 filed March 16
Capital LLC 2004
- ------------------------------------------------------------------------------------------------------
47 Consulting Services Agreement with Incorporated by Reference to
Saratoga Capital Partner Inc. dated Form S-8 filed March 16
February 23 2004 2004
- ------------------------------------------------------------------------------------------------------------
48 Employment Agreement with Steve Incorporated by Reference
Careaga dated March 15 2004 to Form S-8 filed March
March 16 2004
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
48 Consulting Services Agreement with Incorporated by Reference to
Capital Group International LLLP - Form S-8 filed March 16
Western Series dated March 15 2004 2004
- ------------------------------------------------------------------------------------------------------------
31.1 Certificate of Principal Executive Filed Herewith
Officer
- ------------------------------------------------------------------------------------------------------------
31.2 Certificate of Principal Financial Filed Herewith
Officer
- ------------------------------------------------------------------------------------------------------------
32 Certification Pursuant to 906 Filed Herewith
- ------------------------------------------------------------------------------------------------------------
(b) Reports on Form 8-K.
During the period ended June 30, 2005, the Company filed the following reports
on Form 8-K:
- --------------------------------------------------------------------------------
Date of Event Reported Items Reported
- --------------------------------------------------------------------------------
May 6, 2005 Items 8.01 and 9.01
- --------------------------------------------------------------------------------
June 27, 2005 Items 1.01 and 9.01
- --------------------------------------------------------------------------------
August 19, 2005 Item 2.04
- --------------------------------------------------------------------------------
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
Principal Executive Officer, August 26, 2005
Principal Financial Officer,
/s/ Steve Careaga Sole Director
- ---------------------------
Steve Careaga