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 MARCH 31, 2004

                           Commission File #333-44188

                                  NANNACO, INC.

        (Exact name of small business issuer as specified in its charter)

                                      TEXAS

         (State or other jurisdiction of incorporation or organization)

                                   74-2891747

                      (IRS Employer Identification Number)

                   7235 North Creek Loop, Gig Harbor, WA 98335
               (Address of principal executive offices)(Zip Code)

                                 (253) 853-3632
                (Registrant's telephone no., including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes  |X|   No   |_|

The number of shares  outstanding of the Company's  common stock  outstanding on
March 31, 2004: 347,085,342


<PAGE>


                                  NANNACO, INC.
                                   FORM 10-QSB

Table of Contents

PART  I  -  FINANCIAL  INFORMATION

Item  1  -  Financial  Statements

Item  2  -  Management's  Discussion  and Analysis of Financial Condition and
            Results of Operations

Item  3  -  Controls and Procedures

PART II  -  OTHER INFORMATION

Item  1 -   Legal Proceedings

Item  2 -   Changes in Securities

Item  3 -   Defaults upon Senior Securities

Item  4 -   Submission of Matters to a Vote of Security Holders

Item  5 -   Other Information

Item  6  -  Exhibits and Reports on  Form  8-K

SIGNATURES


<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

Filed herewith are our following unaudited financial statements:

Balance Sheet at March 31, 2004

Statements of Operations for the three and six months ended March 31, 2004
and 2003

Statements of Changes in Stockholders' Deficiency for the six months ended
March 31, 2004

Statements of Cash Flows for the six months ended March  31, 2004 and 2003

Notes to Financial Statements


                                       1
<PAGE>
                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                                   (Unaudited)
                                 MARCH 31, 2004

                                     ASSETS



CURRENT ASSETS
Cash and cash equivalents                            $              -
Accounts receivable                                                 -
                                                     ----------------
Total current assets                                 $              -
                                                     ================

                                   LIABILITIES

CURRENT LIABILITIES
Convertible debentures                               $        175,000
Bank loans                                                     59,336
Bank overdrafts                                                     -
Accounts payable - trade                                      124,468
Accrued compensation, related party                            25,092
Accrued interest                                               47,790
Due to consultants                                              8,750
Other current liabilities                                      33,535
Accrued debenture liquidated damages                                -
Payroll taxes payable                                         246,427
Sales taxes payable                                            40,801
Judgment payable                                               50,995
Loan payable - related party                                   42,700
                                                     ----------------
                                                                    -
TOTAL CURRENT LIABILITIES                            $        854,894
                                                     ================



    The accompanying notes are an integral part of the financial statements.

                                       2
<PAGE>


                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                            BALANCE SHEET (Continued)
                                   (Unaudited)
                                 MARCH 31, 2004

                            STOCKHOLDERS' DEFICIENCY




COMMITMENTS AND CONTINGENCIES                                                 -

STOCKHOLDERS' DEFICIENCY
Common stock, $1.00 par value, 1,000 shares authorized:
Issued - none issued and outstanding                                          -

Preferred stock, $0.001 par value, 100,000,000 shares authorized
Issued - none issued and outstanding                                          -

Common stock, $0.001 par value, 500,000,000 shares authorized:
Issued - 347,085,342 issued and outstanding                             347,085

Common stock issuable, $0.001 par value, 5,000,000 shares                 5,000

Additional paid in capital                                            9,433,643

Accumulated deficit through September 30, 2003                       (5,048,764)

Deficit accumulated during development stage                         (4,974,183)
                                                                    ------------
                                                                       (237,219)

Less: Deferred compensation                                             (47,917)
Less: Deferred consulting                                              (569,758)
                                                                    ------------

TOTAL STOCKHOLDERS' DEFICIENCY                                         (854,894)
                                                                    ------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICENCY                               $ -
                                                                    ============


    The accompanying notes are an integral part of the financial statements.


                                       3
<PAGE>


                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------

                                                                                                              Period From
                                                                                                           October 1, 2003
                                                                                                             (Incepton of
                                                Six Months Ended                    Three Months Ended     Development Stage)
                                                    March 31,                           March 31,             To March 31,
                                             2004             2003               2004            2003            2004
                                      --------------------------------------------------------------------------------------
<S>                                   <C>                 <C>                <C>             <C>               <C>
REVENUES                              $       15,577      $     34,225       $      --       $      30,903     $      15,577
COST OF REVENUES                              16,848            17,613             3,715             9,079            16,848
                                      --------------------------------------------------------------------------------------
GROSS LOSS                                    (1,271)           16,612            (3,715)           21,824            (1,271

OPERATING EXPENSES:
Selling, general and administrative           15,217            26,228            (1,994)           16,272            15,217
Compensation and payroll taxes             1,983,397            25,000         1,637,032            12,500         1,983,397
Consulting                                 1,946,042               700         1,857,543               700         1,946,042
Penalties                                          3             1,062                 3              --                   3
Legal and professional                       984,894            18,810           769,594            16,810           984,894
Debenture liquidated damages                  24,500              --               3,500              --              24,500
Rent                                           1,495             3,648              --               2,931             1,495
Travel and entertainment                       3,726               215             2,445               200             3,726
Bad debt expense                               1,171              --               1,171              --               1,171
Depreciation                                    --              15,600              --               7,800              --
                                      --------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES                   4,960,445            91,263         4,269,295            57,213         4,960,445
                                      --------------------------------------------------------------------------------------

LOSS FROM OPERATIONS                      (4,961,716)          (74,651)       (4,273,009)          (35,389)       (4,961,716)

OTHER EXPENSE:
Interest expense, net                        (12,467)           (4,432)           (6,234)           (2,164)          (12,467)
                                      --------------------------------------------------------------------------------------
TOTAL OTHER EXPENSE                          (12,467)           (4,432)           (6,234)           (2,164)          (12,467)
                                      --------------------------------------------------------------------------------------


NET LOSS                              $   (4,974,183)     $    (79,083)       (4,279,244)    $     (37,553)    $  (4,974,183)
                                      ======================================================================================

NET LOSS PER SHARE -
BASIC AND DILUTED                     $        (0.03)     $      (0.01)      $    ( 0.02)    $        --
                                      ======================================================================
</TABLE>




                                       4
<PAGE>

                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
                                   (Unaudited)
                         SIX MONTHS ENDED MARCH 31, 2004


<TABLE>
<CAPTION>
                                                                                                  Common Stock
                                                                      Common Stock                  Issuable              Additional
                                                                --------------------------------------------------         Paid-In
                                                                    Shares        Amount       Shares      Amount          Capital
                                                                -------------------------------------------------------------------
<S>                                                              <C>         <C>           <C>          <C>            <C>
BALANCE AT  SEPTEMBER 30, 2003                                   33,057,600  $    33,058   75,000,000   $    75,000    $ 5,603,128

 Issuable at 9/30/03                                             75,000,000       75,000  (75,000,000)      (75,000)          --
 Issued for compensation-11/9/03-$0.01 per share                 15,000,000       15,000         --            --          135,000
 Issued for legal/consulting services-11/9/03-$0.01 per share    50,500,000       50,500         --            --          454,500
 Issued for legal/consulting services-12/10/03-$0.012 per share  11,400,000       11,400         --            --          125,400
 Reclassed from redeemable stock-12/11/03                           377,742          377         --            --          377,365
 Issued for legal/consulting services-1/12/04-$0.026 per share   45,000,000       45,000         --            --        1,125,000
 Issued for legal/consulting services-2/25/04-$0.02 per share    50,000,000       50,000         --            --          950,000
 Issued for debenture liquidated damages-3/4/04-$0.02 per share   1,750,000        1,750         --            --           33,250
 Issued for legal/consulting services-3/15/04-$0.01 per share    60,000,000       60,000         --            --          540,000
 Issuable for consulting services-3/15/04-$0.01 per share              --           --      5,000,000         5,000         45,000
 Issued for compensation-3/15/04-$0.01 per share                  5,000,000        5,000         --            --           45,000
 Amortization of deferred compensation                                 --           --           --            --             --
 Amortization of deferred consulting                                   --           --           --            --             --
 Net loss, six months ended March 31, 2004                             --           --           --            --             --
                                                                -------------------------------------------------------------------
BALANCE AT MARCH 31, 2004                                       347,085,342  $   347,085    5,000,000   $     5,000    $ 9,433,643
                                                                ===================================================================
<CAPTION>

                                                                                                           Deficit
                                                                                                         Accumulated
                                                                                                           During         Total
                                                                   Deferred      Deferred   Accumulated  Development   Stockholdrs'
                                                                 Compensation   Consulting    Deficit       Stage       Deficiency
                                                                -------------------------------------------------------------------
<S>                                                             <C>           <C>         <C>           <C>             <C>
BALANCE AT  SEPTEMBER 30, 2003                                  $(1,766,304)  $     --    $(5,048,764)  $      --       $(1,103,882)

 Issuable at 9/30/03                                                   --           --           --            --            --
 Issued for compensation-11/9/03-$0.01 per share                   (150,000)        --           --            --            --
 Issued for legal/consulting services-11/9/03-$0.01 per share          --       (405,000)        --            --           100,000
 Issued for legal/consulting services-12/10/03-$0.012 per share        --           --           --            --           136,800
 Reclassed from redeemable stock-12/11/03                              --           --           --            --           377,742
 Issued for legal/consulting services-1/12/04-$0.026 per share         --           --           --            --         1,170,000
 Issued for legal/consulting services-2/25/04-$0.02 per share          --       (100,000)        --            --           900,000
 Issued for debenture liquidated damages-3/4/04-$0.02 per share        --           --           --            --            35,000
 Issued for legal/consulting services-3/15/04-$0.01 per share          --       (450,000)        --            --           150,000
 Issuable for consulting services-3/15/04-$0.01 per share              --        (50,000)        --            --            --
 Issued for compensation-3/15/04-$0.01 per share                    (50,000)        --           --            --            --
 Amortization of deferred compensation                            1,918,387         --           --                       1,918,387
 Amortization of deferred consulting                                   --        435,241         --                         435,241
 Net loss, six months ended March 31, 2004                             --            --          --      (4,974,183)     (4,974,183
                                                                -------------------------------------------------------------------
BALANCE AT MARCH 31, 2004                                       $   (47,917) $  (569,759) $(5,048,764)  $(4,974,183)    $  (854,894)
                                                                ===================================================================
</TABLE>



    The accompanying notes are an integral part of the financial statements.



                                       5
<PAGE>

                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                              Period From
                                                                                                            October 1, 2003
                                                                                                             (Incepton of
                                                                         Six Months Ended                  Development Stage)
                                                                              March 31,                       To March 31,
                                                                  2004                      2003                 2004
                                                           ----------------------------------------------------------------
<S>                                                         <C>                       <C>                   <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                    $  (4,974,183)            $   (79,083)          $ (4,974,183)
Adjustments to reconcile net loss to net cash used in
operating activities:
   Depreciation                                                      -                     15,600                      -
   Bad debt expense                                                 1,171                     -                    1,171
   Stock issued for legal services                                952,800                     -                  952,800
   Stock issued for consulting services                         1,504,000                     -                1,504,000
   Debenture liquidated damages                                    24,500                     -                   24,500
   Amortization of deferred compensation                        1,918,387                     -                1,918,387
   Amortization of deferred consulting                            435,241                     -                  435,241
   Changes in operating assets and liabilities:
      Increase in accounts receivable - trade                        (548)                 (5,611)                  (548)
      Increase in accounts receivable - employee                     -                     (7,459)                    -
      Decrease in bank overdrafts                                  (1,976)                 (3,286)                (1,976)
      Increase in accounts payable - trade                         20,845                   6,000                 20,845
      Increase in accrued compensation - related party               -                     12,500                     -
      Increase in accrued interest receivable                        -                     (2,868)                    -
      Increase in accrued interest payable                         10,353                   4,095                 10,353
      Increase in due to consultants                                8,750                     -                    8,750
      Increase in other current liabilities                        33,535                     -                   33,535
      Increase (decrease) in payroll taxes payable                 65,010                  (5,000)                65,010
      Increase in judgment payable                                  2,115                   3,206                  2,115
                                                           ----------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES                       $           0             $   (61,906)          $          0
                                                           ================================================================

CASH FLOW FROM INVESTING ACTIVITIES
Cash advances from (to) stockholders                        $        -                $    50,000                     -
Purchase of property and equipment                                   -                     (4,575)                    -
                                                           ---------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES                            -                     45,425                     -

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures                     -                    104,750                     -
                                                           ---------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                            -                    104,750                     -

NET INCREASE  IN CASH                                                -                     88,269                     -
CASH AT BEGINNING OF PERIOD                                          -                        -                       -
                                                           ----------------------------------------------------------------
CASH AT END OF PERIOD                                       $        -                $    88,269                     -
                                                           ================================================================
CASH INTEREST PAID                                          $        -                $       -               $       -
                                                           ================================================================

Suppplemental disclosure of non-cash transactions:
Stock issued for debenture liquidated damages               $      35,000             $       -               $   35,000
                                                           ================================================================
</TABLE>


    The accompanying notes are an integral part of the financial statements.

                                       6
<PAGE>


                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                                   (Unaudited)
                                 MARCH 31, 2004


1.     HISTORY AND NATURE OF BUSINESS

Nannaco, Inc. ("Nannaco", "the Company", "we", "us") is a publicly traded
company that previously provided surface cleaning, surface protection, surface
restoration, and other services to commercial and industrial businesses, as well
as to owners of historical buildings. The Company has 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. The Company initially moved to a new line of
business as a consultant and advisor to customers but ceased that strategy in
February 2004 and continues to seek a merger/acquisition candidate. The Company
is treated as a development stage company, effective October 1, 2003. Activities
during the new development stage have primarily been the restructuring of the
Company and in March 2004, the Company's CEO resigned and was replaced by a new
CEO. Additional, in March 2004, the Company announced they had signed a letter
of intent to acquire Red Alert Group, Inc., a company specializing in homeland
and global security. The Company anticipates that upon the successful completion
of the announced acquisition, the name of the Company will be changed to Red
Alert Group, Inc. and will apply to obtain a new stock ticker symbol.

2.    GOING CONCERN

We have incurred net losses in prior years and this has resulted in a
significant accumulated deficit and stockholders' deficiency at March 31, 2004.
We had a net loss of $4,974,183 for the six months ended March 31, 2004, and at
March 31, 2004, we had no assets and our current liabilities were $854,894, our
stockholders' deficiency was $854,894, we had an accumulated deficit of
$5,048,764 from previous business operations and we had a deficit accumulated
during the development stage for our new business operations of $4,974,183.

We have substantial current obligations. As of March 31, 2004, we had no assets,
$854,894 of liabilities and we were not operating and had no customers. Of the
$854,894 outstanding at March 31, 2004, $246,427 is for unpaid federal payroll
taxes, interest and penalties. The Company has received correspondence from the
Internal Revenue Service ("IRS") detailing the obligation and remedies that the
IRS may pursue if not paid. The remaining current obligations (which are all
past due) include accounts payable of $124,468, judgment payable of $50,995,
sales tax payable of $40,801, bank loans of $59,336, loan payable-related party
of $42,700 and convertible debentures of $175,000. The Company does not have
sufficient cash resources 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

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.


                                       7
<PAGE>


                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                                   (Unaudited)
                                 MARCH 31, 2004


The financial statements do not include any adjustments to reflect the possible
effects on recoverability and classification of assets or the amounts and
classification of liabilities which may result from the inability of the Company
to continue as a going concern.

The Company has taken steps to curtail the operating losses for future periods.
These steps include the reduction of employees and all categories of operating
expenses, where possible. Additionally, as mentioned previously, the Company
adopted a new strategy during the fourth quarter of 2003 that committed to the
disposal of its current business and to seek a merger/acquisition transaction
with a Company having better financial resources. As of September 30, 2003, the
Company ceased all operating activities under the surface cleaning, surface
protection and restoration business and disposed of most of its assets while
formulating a plan to improve its financial position.

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 six months and three months ended March 31,
2004 are not necessarily indicative of the results to be expected for the year
ending September 30, 2004. These Financial Statements should be read in
conjunction with the audited Financial Statements of Nannaco, Inc., DBA Surface
Pro, for the years ended September 30, 2003 and 2002 included in Form 10-KSB

ACCOUNTING ESTIMATES

When preparing financial statements in conformity with U.S. GAAP, our management
must make estimates based on future events which affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities as
of the date of the financial statements, and revenues and expenses during the
reporting period. Actual results could differ from these estimates. Significant
estimates in the accompanying financial statements include the valuation of
non-cash issuances of common stock and the valuation allowance for deferred tax
assets.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include all highly liquid investments with a maturity
date of three months or less when purchased.

ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

We account for the impairment of long-lived assets in accordance with Financial
Accounting Standards, SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets", which requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the book
value of the asset may not be recoverable. Recoverability of the asset is
measured by comparison of its carrying amount to the undiscounted cash flow that
the asset or asset group is expected to generate. If such assets or asset groups
are considered to be impaired, the loss recognized is the amount by which the
carrying amount of the property, if any, exceeds its fair market value. The
Company has no long-lived assets at March 31, 2004.

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 March 31, 2004.

REVENUE RECOGNITION

The Company recognizes revenues in accordance with the guidance in the
Securities and Exchange Commission Staff Accounting Bulletin 104. Revenues from
the surface services business were recognized when services were completed and



                                       8
<PAGE>

                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                                   (Unaudited)
                                 MARCH 31, 2004


collection of the fixed or determinable selling price was reasonable assured.
There has been no revenue to date from consulting services and this business has
been abandoned.

INCOME TAXES

Income taxes are accounted for under the asset and liability method of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes ("SFAS
109")." Under SFAS 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.

LOSS PER COMMON SHARE

Basic earnings per share is computed only on the weighted average number of
common shares outstanding during the respective periods. There were no
additional items to adjust the numerator or denominator in the EPS computations.

The following table summarizes the numerator and denominator elements of the
basic EPS computations.

<TABLE>
<CAPTION>
                                   SIX MONTHS ENDED MARCH 31,       THREE MONTHS ENDED MARCH 31,
                                 -----------------------------     -----------------------------
                                     2004             2003             2004             2003
                                 ------------     ------------     ------------     ------------
<S>                              <C>              <C>              <C>              <C>
Net loss available to common     $  4,974,183     $     79,083     $  4,279,244     $     37,553
                                 ============     ============     ============     ============
Weighted average number of
common shares outstanding
(Denominator)                     200,631,096       14,957,600      253,213,120       14,957,600
                                 ------------     ------------     ------------     ------------
Loss Per Share                   $        .01     $        .02     $        .00     $        .03
                                 ============     ============     ============     ============
</TABLE>


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

 In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an interpretation of ARB No. 51,"
which as an interpretation, defines when and who consolidates a "variable
interest entity," or "VIE." This new consolidation model applies to entities (i)
where the equity investors (if any) do not have a controlling financial
interest, or (ii) whose equity investment at risk is insufficient to finance
that entity's activities without receiving additional subordinated financial
support from other parties and requires additional disclosures for all
enterprises involved with the VIE. FIN 46 is effective during 2003 depending on
when the VIE is created. We do not believe that the adoption of FIN 46 will have
a significant impact on our financial position and results of operations.

In May 2003, the FASB issued SFAS No. 149; Amendment of Statement 133 on
Derivative Instruments and Hedging Activities ("SFAS 149") which provides for
certain changes in the accounting treatment of derivative contracts. SFAS 149 is
effective for contracts entered into or modified after June 30, 2003, except for
certain provisions that relate to SFAS No. 133 Implementation Issues that have
been effective for fiscal quarters that began prior to June 15, 2003, which
should continue to be applied in accordance with their respective effective
dates. The guidance should be applied prospectively. The adoption of SFAS 149
did not have a material impact on the Company's financial position, results of
operations or liquidity.

In May 2003, the Financial Accounting Standards Board issued SFAS No. 150 (SFAS
150), "Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity." It establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. This standard is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003.


                                       9
<PAGE>

                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                                   (Unaudited)
                                 MARCH 31, 2004


The  adoption  of FAS 150 did not have a  significant  impact  on our  financial
position and results of operations.

4.    SHORT-TERM DEBT

Our short-term debt at March 31 consisted of the following:

<TABLE>
<CAPTION>
<S>                                                                                  <C>
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
</TABLE>

On February 19, 2000, we obtained a bank installment loan in the amount of
$35,000, of which $25,350 is outstanding at March 31, 2004. The interest rate is
10% per annum and sixty monthly payments of principal and interest in the amount
of $745 are required. This note is secured by the personal guaranty of the
Company's former President.

At March 31, 2004, we had a bank line of credit, which provides for borrowings
of up to $35,000, of which $33,986 was outstanding. The interest rate is Prime
plus 1.25% per annum and monthly interest payments were required. The line of
credit matured on July 15, 2002 but the bank has not exercised its rights of
default and the facility was on a month to month basis. The line of credit is
secured by a personal guaranty of the Company's former President.

<TABLE>
<CAPTION>
<S>                                                                                  <C>
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
                                                                                      =========
</TABLE>

Beginning in January of 2001 and through July of 2001, Mark Triesch, a former
director of the Company, loaned $43,700 to the Company in the form of a
promissory note. The note bears interest at ten percent (10%) per annum and the
principal and accrued interest was due one year from each of the investments. As
of July 2002, the entire amount was due and payable. In April 2003, the Company
repaid $1,000 of principal resulting in the current balance due of $42,700.

<TABLE>
<CAPTION>
<S>                                                                                  <C>
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..................       $175,000
                                                                                      ========
</TABLE>

Pursuant to Securities Purchase Agreements, Convertible Debentures and related
contracts, in March of 2003, the Company issued $155,000 of six percent (6%)
convertible debentures due in March of 2006 and in April issued another $20,000
of the debentures due in April 2006. The Company received $122,100 of cash
proceeds, net of $52,900 of cash offering costs. The debenture holder has the
option of converting the principal and accrued interest into the Company's
common stock at a conversion price equal to seventy-five percent (75%) of the
lowest closing bid price per share for the twenty (20) trading days immediately
preceding the conversion. The Company has the option to redeem all or part of
the debentures prior to the maturity date at a price equal to one hundred thirty
percent (130%) of the principal amount plus accrued interest.


In March and April of 2003, the Company recognized an immediate $58,333 interest
expense and paid-in capital relating to a beneficial conversion feature inherent
in the debentures since the debentures were immediately convertible. In
connection with the offering, in addition to cash offering costs of $52,900, the
Company issued 500,000 of its common shares to the investment bankers. The
shares were valued on the 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


                                       10
<PAGE>


                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                                   (Unaudited)
                                 MARCH 31, 2004


started accruing at 2% or $3,500 per month at June 1, 2003 and at another 2% or
$3,500 per month starting September 1, 2003. The penalties for June and July
2003 were satisfied with the issuance of 350,000 of the Company's common shares
to the debenture investors and remaining accrued liquidated damages were $10,500
at September 30, 2003. The Company recognized a $1,750 gain on the settlement of
$7,000 of accrued liquidated damages in June and July 2003 based on the $0.015
trading price of the common stock on the settlement date. For the three month
period ended December 31, 2003, the Company recorded $21,000 of liquidated
damages expense and recorded an additional $3,500 of liquidated damages expense
for the three months ended march 31, 2004, resulting in an accrued balance of
$35,000. In March 2004, the Company reached an agreement with the debenture
investors and all outstanding penalties in the amount of $35,000 were satisfied
with the issuance of 1,750,000 of the Company's common shares based on a $0.02
trading price of the common stock on the settlement date. Accordingly, at March
31, 2004, there is no remaining accrued liquidated damages balance in the
accompanying balance sheet. (See Subsequent Events Note).


Due to the default under the Registration Rights Agreement, the debentures went
into default as of June 1, 2003. Accordingly, the debentures became due on
demand at that date and are presented as current liabilities at March 31, 2004.

5.    STOCKHOLDERS' EQUITY

CAPITAL STRUCTURE

We are authorized to issue up to 500,000,000 shares of our common stock, $0.001
par value per share, of which 347,085,342 were issued and outstanding at March
31, 2004. We are also authorized to issue up to 100,000,000 shares of preferred
stock, $0.001 par value per share, of which none was issued and outstanding at
March 31, 2004.

ISSUANCES OF COMMON STOCK:

On September 30, 2003, the Company granted 75,000,000 shares to the President as
discussed below under deferred compensation. The transfer agent did not issue
the shares until October 15, 2003 and accordingly; such shares were classified
as common stock issuable in the balance sheet at September 30, 2003. On October
15, 2003, the transfer agent issued these shares and they have been properly
reclassified as common stock in 2004.

In November 2003, the Company issued 65,500,000 shares of common stock.
15,000,000 of the shares were issued as an annual bonus for the President of the
Company and were valued at $0.01 per share, the closing price on the grant date
of November 9, 2003 and are being amortized over the remaining life of the
employment agreement from October 1, 2003 through June 1, 2005 - see Deferred
Compensation below. 40,500,000 of the shares were issued for consulting services
provided to the Company and were valued at $0.01 per share, the closing share
price on the grant date of November 9, 2003 and are being amortized over the one
year term of the agreements - see Deferred Consulting below. The remaining
10,000,000 shares were issued for legal services provided to the Company and
were valued at $0.01 per share, the closing price on the grant date of November
9, 2003. The agreement for services did not specify a term and can be terminated
by either party on a monthly basis. Accordingly, the Company has expensed the
entire amount and recorded $100,000 of legal expense in the accompanying
Statements of Operations.

In connection with 3,000,000 of the 40,500,000 common shares issued for
consulting services as discussed above, the Company on November 17, 2003
committed to issue two year warrants to purchase 3,000,000 of the Company's
common shares at an exercise price of $0.02 per share and two year warrants to
purchase 3,000,000 of the Company's common shares at an exercise price of $0.03
per share. As of March 31, 2004, the warrants have not been issued to the
consultant. The agreement contains a provision however that the holders of such
warrants shall not individually own more than 4.9% of the total shares of the
Company's outstanding shares.

In December 2003, the Company issued 11,400,000 shares of common stock.
9,400,000 of the shares were issued for legal services provided to the Company
and were valued at $0.012 per share, the closing share price on the grant date
of December 10, 2003. The resulting $112,800 was expensed as legal and
professional in the accompanying Statement of Operations. The remaining
2,000,000 shares were issued for consulting services provided to the Company and
were valued at $0.012 per share, the closing price on the grant date of December
10, 2003. The resulting $24,000 was expensed as consulting in the accompanying
Statements of Operations.

In December 2000, the Company received $345,500 of proceeds from the issuance of
ten percent (10%) convertible promissory notes to investors. The note holders
had the option of converting the principal and accrued interest into the


                                       11
<PAGE>


                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                                   (Unaudited)
                                 MARCH 31, 2004


Company's common stock at a conversion price equal to the market price on date
of conversion and the promissory notes were due in September of 2001. On
November 15, 2001, the Company and the note holders agreed to the conversion of
the principal and accrued interest into the Company's common stock at a value of
$1 per share, resulting in the issuance of 377,742 shares of common stock.

The promissory notes were issued to non-qualified investors and as such, the
investors had a right to redeem the purchase price plus accrued interest for a
period of three years from the original promissory note date, or through
December of 2003 and the Company had classified the transaction as Redeemable
Common Stock. As of December 31, 2003, the note holders did not elect to redeem
and the Company has reclassified this amount to permanent equity as common stock
and additional paid in capital in the Stockholders' Equity section of the
balance sheet.

In January 2004, the Company issued 45,000,000 shares of common stock.
30,000,000 of the shares were issued for consulting services provided to the
Company and were valued at $0.026 per share, the closing share price on the
grant date of January 12, 2004. These shares were issued as a modification of
the terms related to the November 9, 2003 issuance of 40,500,000 shares (see
Deferred Consulting below) and this issuance of shares was subsequently modified
as discussed below. Accordingly, due to the subsequent modifications discussed
below, the Company has expensed the entire amount of the 30,000,000 shares
issued and recorded $780,000 of consulting expense in the accompanying Statement
of Operations as the services were deemed completed. The remaining 15,000,000
shares of the 45,000,000 shares issued were for legal services provided to the
Company and were valued at $0.026 per share, the closing price on the grant date
of January 12, 2004. The agreement for services did not specify a term and can
be terminated by either party on a monthly basis. Accordingly, the Company has
expensed the entire amount and recorded $390,000 of legal expense in the
accompanying Statements of Operations.

In February 2004, the Company issued 50,000,000 shares of common stock.
35,000,000 of the shares were issued for consulting services provided to the
Company and were valued at $0.02 per share, the closing share price on the grant
date of February 25, 2004. These shares were issued as a modification of the
terms related to the November 9, 2003 issuance of 40,500,000 shares (see
Deferred Consulting below) and the January 2004, 30,000,000 share issuance
discussed above. Accordingly, the Company has expensed the entire amount of the
35,000,000 shares issued and recorded $700,000 of consulting expense in the
accompanying Statement of Operations. 10,000,000 shares of the 35,000,000 shares
issued were for legal services provided to the Company and were valued at $0.02
per share, the closing price on the grant date of February 25, 2004. The
agreement for services did not specify a term and can be terminated by either
party on a monthly basis. Accordingly, the Company has expensed the entire
amount and recorded $200,000 of legal expense in the accompanying Statements of
Operations. The remaining 5,000,000 shares of the 35,000,000 shares issued were
for new consulting services and were valued at $0.02 per share, the closing
share price on the grant date of February 25, 2004 and are being amortized over
the one year term of the agreement - see Deferred Consulting below.

In March 2004, the Company issued 65,000,000 shares of common stock (See Common
Stock Issuable below). 5,000,000 of the shares were issued as compensation for
the new CEO of the Company and were valued at $0.01 per share, the closing price
on the grant date of March 15, 2004 and are being amortized over the term of the
employment agreement from March 15, 2004 through March 15, 2005 - see Deferred
Compensation below. 45,000,000 of the 65,000,000 shares issued were for
consulting services provided to the Company and were valued at $0.01 per share,
the closing share price on the grant date of March 15, 2004. These shares were
issued as the last modification of the terms related to the November 9, 2003
issuance of 40,500,000 shares (see Deferred Consulting below) and additional
shares issued as discussed above. Accordingly, the Company will amortize these
shares over the term of the agreements based upon the grant date of March 15,
2004 through March 15, 2005 - see Deferred Consulting below. 15,000,000 shares
of the 65,000,000 shares issued were for legal services provided to the Company
and were valued at $0.01 per share, the closing price on the grant date of March
15, 2004. The agreement for services did not specify a term and can be
terminated by either party on a monthly basis. Accordingly, the Company has
expensed the entire amount and recorded $150,000 of legal expense in the
accompanying Statements of Operations.

COMMON STOCK ISSUABLE:

In March 2004, the Company issued 65,000,000 shares of common stock as discussed
above. Subsequently, the Company determined that an error was made and
70,000,000 shares of common stock should have been issued. The 5,000,000 shares
are for new consulting services and the Company has recorded the 5,000,000
shares as common stock issuable in the accompanying Financial Statements as of
March 31, 2004. The shares were valued at $0.01 per share, the closing price on
the date of grant of the 65,000,000 shares discussed above and is being


                                       12
<PAGE>


                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                                   (Unaudited)
                                 MARCH 31, 2004


amortized over the term of the agreement from March 15, 2004 through March 15,
2005. Accordingly, the Company has recorded $50,000 of Deferred Consulting - see
Deferred Consulting.

DEFERRED COMPENSATION

On September 30, 2003, the Company authorized the issuance of 75,000,000 shares
of common stock as compensation for the former President in accordance with an
amendment to the employment agreement. However, the transfer agent did not issue
the shares until October 15, 2003 and accordingly; such shares were classified
as common stock issuable in the balance sheet at September 30, 2003. On October
15, 2003, the transfer agent issued these shares and they have been properly
reclassified as common stock in 2004. Of the 75,000,000 shares, 4,347,826 were
issued to settle $50,000 of accrued and unpaid salary for the former President
through September 30, 2003. In accordance with the amended employment agreement,
these shares were valued based upon a thirty percent (30%) discount to the
average stock price for the month of September or $0.012 per share. There was no
loss on settlement recorded since this was a related party transaction. The
remaining 70,652,174 shares were valued based upon the closing price on
September 30, 2003, or $0.025 per share and the resulting $1,766,304 balance was
recorded as Deferred Compensation in the balance sheet at September 30, 2003.
The deferred compensation balance is 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.

On November 9, 2003, the Company authorized the issuance of 15,000,000 shares of
common stock as compensation for the former President in accordance with an
amendment to the employment agreement. The shares were valued based upon the
closing price on the grant date of November 9, 2003, or $0.01 per share and the
resulting $150,000 was recorded as Deferred Compensation. The deferred
compensation balance is 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.

On March 15, 2004, the President of the Company resigned from his position.
Accordingly, the Company has expensed the remaining balance of the deferred
compensation for the two issuances discussed above and recorded $1,628,858 of
compensation in the accompanying Statement of Operations.

On March 15, 2004, the Company authorized the issuance of 5,000,000 shares were
issued as compensation for the new CEO of the Company. The shares were valued at
$0.01 per share, the closing price on the grant date of March 15, 2004 and are
being amortized over the term of the employment agreement from March 15, 2004
through March 15, 2005. Accordingly, the Company has recorded Deferred
Compensation in the amount of $50,000 on the grant date of March 15, 2004 and
$2,083 of the balance was amortized and recorded as compensation in the
accompanying Statement of Operations.

DEFERRED CONSULTING

On November 9, 2003, the Company authorized the issuance of 40,500,000 shares of
common stock for consulting services provided to the Company and was valued at
$0.01 per share, the closing share price on the grant date of November 9, 2003
and the resulting $405,000 was recorded as Deferred Compensation. The deferred
compensation balance is being amortized over the one year term of the agreements
through November 9, 2004 and for the three months ended December 31, 2003,
$57,699 was amortized and recorded as consulting expense in the accompanying
Statements of Operations. As a result of the issuance of additional shares to
the consultants as discussed below, the entire remaining Deferred Consulting
balance in the amount of $347,301 was expensed by the Company and recorded as
consulting expense in the accompanying Statement of Operations as of March 31,
2004.

In February 2004, the Company issued 5,000,000 shares of common stock for new
consulting services. The shares were valued at $0.02 per share, the closing
share price on the grant date of February 25, 2004 and are being amortized over
the one year term of the agreement. Accordingly, the Company recorded $100,000
of Deferred Consulting on the grant date of February 25, 2004 and $9,409 of the
balance was amortized and recorded as consulting expense in the accompanying
Statement of Operations.

In March 2004, the Company issued 45,000,000 shares of common stock for
consulting services as a modification of the November 9, 2003 and subsequent
issuances as discussed previously under Issuances of Common Stock. The shares
were valued at $0.01 per share, the closing share price on the grant date of
March 15, 2004 and are being amortized over the one year term of the agreement
from the grant date of March 15, 2004. Accordingly, the Company recorded


                                       13
<PAGE>


                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                                   (Unaudited)
                                 MARCH 31, 2004


$450,000 of Deferred Consulting on the grant date of March 15, 2004 and $18,750
of the balance was amortized and recorded as consulting expense in the
accompanying Statement of Operations.

In March 2004, the Company issued 65,000,000 shares of common stock as discussed
above. Subsequently, the Company determined that an error was made and
70,000,000 shares of common stock should have been issued. The 5,000,000 shares
are for new consulting services and the Company has recorded the 5,000,000
shares as common stock issuable in the accompanying Financial Statements as of
March 31, 2004 - see Common Stock Issuable. The shares were valued at $0.01 per
share, the closing price on the date of grant of the 65,000,000 shares discussed
above and is being amortized over the term of the agreement from March 15, 2004
through March 15, 2005. Accordingly, the Company recorded $50,000 of Deferred
Consulting on the grant date of March 15, 2004 and $2,083 of the balance was
amortized and recorded as consulting expense 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 9,400,000 shares of common stock into escrow
for a pending merger. The merger was terminated and the shares were subsequently
cancelled.

OPTIONS

In April 2000, the Company adopted the Nannaco 2000 Stock Option Plan (the "2000
Plan"). The purpose of the 2000 Plan is to advance the business and development
of the Company and its shareholders by affording to the employees, directors and
officers of the Company the opportunity to acquire a proprietary interest in the
Company by the grant of Options to such persons under the 2000 Plan's terms. The
2000 Plan reserved 5,000,000 shares for grant or issuance upon the exercise of
options granted under the plan. Stock Options under the Plan may be granted by
the Board of Directors or a Compensation Committee of the Board of Directors.
The exercise prices for Options granted will be at the fair market value of the
common stock at the time of the grant if a public market develops for the common
stock or not less than the most recent price at which the Company had sold its
common stock.

The following table summarizes activity related to options:

<TABLE>
<CAPTION>
                                                          NUMBER OF SHARES            WEIGHTED AVERAGE
                                                          ----------------            ----------------
<S>                                                       <C>                         <C>
Balance at September 30, 2003..........................        40,000                       $1.00
  Granted..............................................             0                           0
  Exercised............................................             0                           0
  Forfeited............................................             0                           0
                                                           ----------                    --------
Balance at March 31, 2004..............................        40,000                       $1.00
                                                           ==========                    ========
</TABLE>


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:

<TABLE>
<CAPTION>
----------------------------OPTIONS OUTSTANDING---------------------------------  ------OPTIONS EXERCISABLE----

---------------------------------------------------------------------------------------------------------------
                                               Weighted
                                                Average                            Number
                               Number          Remaining         Weighted       Exercisable       Weighted
                           Outstanding at     Contractual        Average        at March 31,       Average
Range of Exercise Prices   March 31, 2003         Life        Exercise Price        2003       Exercise Price
------------------------- ----------------- ---------------- ----------------- --------------- ----------------
<S>                       <C>               <C>              <C>               <C>             <C>
          $1.00                40,000         1.58 Years           1.00            40,000           $1.00
          =====                ======         ==========           ====            ======           =====
</TABLE>



                                       14
<PAGE>

                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                                   (Unaudited)
                                 MARCH 31, 2004


COMPENSATION EXPENSE FOR OPTIONS GRANTED TO EMPLOYEES, OFFICERS AND DIRECTORS

Had compensation cost for our stock options not been determined consistent with
SFAS 123, the Company's net loss per share would not have changed.

6.     COMMITMENTS AND CONTINGENCIES

From time to time we may become subject to proceedings, lawsuits and other
claims in the ordinary course of business including proceedings related to
environmental and other matters. Such matters are subject to many uncertainties,
and outcomes are not predictable with assurance.

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 March 31, 2004, the total amount due is $50,995 (including $8,686 of accrued
interest) and is included under the caption Judgment Payable in the accompanying
balance sheet.

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 March
31, 2004, the Company has recorded the total amount due (including accrued
interest and penalties) for the unpaid Federal payroll taxes as $246,427 in the
accompanying Balance Sheet. As a result of the lack of payments, the IRS could
attach a lien against the Company's assets and bank accounts to protect their
claim.

7.    RELATED PARTY TRANSACTIONS

Beginning in January of 2001 and through July of 2001, a director of the
Company, loaned $43,700 to the Company in the form of a promissory note. The
note bears interest at ten percent (10%) per annum and the principal and accrued
interest was due one year from each of the investments. In April 2003, the
Company repaid $1,000 of principal resulting in the current balance due of
$42,700. Additionally, at March 31, 2004, $13,164 has been accrued as interest
in the accompanying balance sheet. On November 9, 2003, this director resigned
their position.

At September 30, 2003, the same director discussed above was owed $25,092 in
accrued compensation related to legal services provided to the Company.

From October through December of 2003, the father of the Company's former
President advanced $26,500 of funds to the Company and this has been classified
as other current liabilities in the accompanying balance sheet at March 31,
2004.

8.    SUBSEQUENT EVENTS

In April 2004, the Company issued 5,000,000 shares recorded as common stock
issuable at March 31, 2004.

In April 2004, the Company issued 11,000,000 shares of common stock for new
consulting services with an individual.

In April 2004, the Company issued 42,500,000 shares of common stock for
consulting services with several entities.

In April 2004, the Company reached an agreement with the convertible debenture
holders and converted the entire $175,000 balance plus accrued interest into
10,943,910 shares of common stock.

As a result of the above issuances of common stock, 416,529,252 shares of common
stock were outstanding at April 30, 2004.


                                       15
<PAGE>

                                  NANNACO, INC.
                               D.B.A. SURFACE PRO
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                                   (Unaudited)
                                 MARCH 31, 2004


ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following is a discussion of our financial condition, results of operations,
liquidity and capital resources. This discussion should be read in conjunction
with our audited financial statements and the notes thereto included elsewhere
in this Form 10-QSB and with our annual report on Form 10-KSB for the year ended
September 30, 2003.

Some of the statements under "Description of Business," "Risk Factors,"
"Management's Discussion and Analysis or Plan of Operation," and elsewhere in
this Report and in the Company's periodic filings with the Securities and
Exchange Commission constitute forward-looking statements. These statements
involve known and unknown risks, significant uncertainties and other factors
what may cause actual results, levels of activity, performance or achievements
to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by such forward- looking
statements. Such factors include, among other things, those listed under "Risk
Factors" and elsewhere in this Report.

In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "could," "intends," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other comparable terminology.

The forward-looking statements herein are based on current expectations that
involve a number of risks and uncertainties. Such forward-looking statements are
based on assumptions that the Company will obtain or have access to adequate
financing for each successive phase of its growth, that there will be no
material adverse competitive or technological change in condition of the
Company's business, that the Company's President and other significant employees
will remain employed as such by the Company, and that there will be no material
adverse change in the Company's operations, business or governmental regulation
affecting the Company. The foregoing assumptions are based on judgments with
respect to, among other things, further economic, competitive and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control.

Although management believes that the expectations reflected in the
forward-looking statements are reasonable, management cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither
management nor any other persons assumes responsibility for the accuracy and
completeness of such statements.

GENERAL

Nannaco, Inc. ("Nannaco" or the "Company") is a reporting company under the
federal securities laws and its shares of common stock are publicly traded on
the Over The Counter Electronic Bulletin Board ("OTCBB") under the symbol
"NNCO". The Company was incorporated under the laws of the State of Texas on
October 20, 1998, and immediately thereafter began operations. The Company's
shares began trading on September 5, 2002 on the OTCBB. The Company provided
surface cleaning, surface protection, surface restoration, and other services to
commercial businesses, as well to the owners of historical buildings. The
Company has operated under the trade name of Surface Pro in order to relate to
the principal business activity, since the Nannaco name does not indicate the
type of business.


                                       16
<PAGE>


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. 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 and
is treated as a development stage company, effective October 1, 2003. The
Company adopted a new strategy during the fourth quarter of 2003 that committed
to the disposal of its current business and to seek a merger/acquisition
transaction with a Company having better financial resources. In December 2003
and January 2004, the Company issued several announcements related to the change
in business. The Company initially moved to a new line of business as a
consultant and advisor to customers but has abandoned this strategy and is
actively seeking a merger-acquisition candidate.

In January 2004, the Company formed a new wholly owned subsidiary named American
Qualified Financial Services, Inc. ("AQFS"). AQFS is a Texas Corporation and the
company planned to utilize AQFS to market the reinsurance of debt securities
primarily to qualified benefit plans. However, this plan has been abandoned.


                                       17
<PAGE>


OVERVIEW OF COMPANY.

Since its inception, the Company has suffered recurring losses from operations
and has been dependent on existing stockholders and new investors to provide the
cash resources to sustain its operations. We have substantial current
obligations. As of March 31, 2004, we had no assets and $854,894 of liabilities.
Of the $854,894 outstanding at March 31, 2004, $246,427 is for unpaid federal
payroll taxes, interest and penalties. The Company has received correspondence
from the Internal Revenue Service ("IRS") detailing the obligation and remedies
that the IRS may pursue if not paid. The remaining current obligations (which
are all past due) include accounts payable of $124,468, judgment payable of
$50,995, sales tax payable of $40,801, bank loans of $59,336, loan
payable-related party of $42,700 and convertible debentures of $175,000. The
Company does not have sufficient cash resources to pay these obligations.

The Company's long-term viability as a going concern is dependent on certain key
factors, as follows:

      -     The  Company's  ability  to  continue  to obtain  sources of outside
            financing to support near term  operations  and to allow the Company
            to continue to make investments

      -     The Company's  ability to increase  profitability and sustain a cash
            flow level that will ensure support for continuing operations.

RECENT DEVELOPMENTS

In March 2004, the Company announced they had signed a letter of intent to
acquire Red Alert Group, Inc., a company specializing in homeland and global
security. The Company anticipates that upon the successful completion of the
announced acquisition, the name of the Company will be changed to Red Alert
Group, Inc. and will apply to obtain a new stock ticker symbol.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

The methods, estimates and judgment we use in applying our most critical
accounting policies have a significant impact on the results we report in our
financial statements. The Securities and Exchange Commission has defined the
most critical accounting policies as the ones that are most important to the
portrayal of our financial condition and results, and require us to make our
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based upon this definition,
our most critical estimates include going concern and the valuation of non-cash
issuances of common stock. We also have other key accounting estimates and
policies, but we believe that these other policies either do not generally
require us to make estimates and judgments that are as difficult or as
subjective, or it is less likely that they would have a material impact on our
reported results of operations for a given period. For additional information
see Note 3 "Summary of Significant Accounting Policies" in the notes to our
unaudited financial statements contained in our quarterly report on Form 10-QSB
for the three months ended December 31, 2003. Although we believe that our
estimates and assumptions are reasonable, they are based upon information
presently available. Actual results may differ significantly from these
estimates.

GOING CONCERN

The independent auditors' reports to our financial statements for the year ended
September 30, 2003 and September 30, 2002, include an emphasis paragraph in
addition to their audit opinion stating that our recurring losses from
operations, working capital deficiency and default on our convertible debentures
raise substantial doubt about our ability to continue as a going concern. Our
financial statements do not include any adjustments to reflect the possible
effects on recoverability and classification of assets or the amounts and
classification of liabilities that may result from our inability to continue as
a going concern.

VALUATION OF NON-CASH ISSUANCES OF COMMON STOCK

The Company issued common stock to several parties in non-cash transactions
during the six months ended March 31, 2004. For these issuances, valuation was
determined based upon the stock closing price on the date of grant.


                                       18
<PAGE>

RESULTS OF OPERATIONS

FINANCIAL ANALYSIS OF THE THREE AN SIX MONTHS ENDED MARCH 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                       Six Months Ended                Three Months Ended
                                                             March 31,                      March 31,
                                                       2004            2003            2004            2003
                                                 --------------------------------------------------------------
<S>                                <C>                 <C>                  <C>                 <C>
REVENUES                           $          15,577   $        34,225       $           --     $       30,903
COST OF REVENUES                              16,848            17,613                 3,715             9,079
                                   ----------------------------------------------------------------------------
GROSS LOSS                                    (1,271)           16,612                (3,715)           21,824

OPERATING EXPENSES:
Selling, general and administrative           15,217            26,228                (1,994)           16,272
Compensation and payroll taxes             1,983,397            25,000             1,637,032            12,500
Consulting                                 1,946,042               700             1,857,543               700
Penalties                                     31,062                 3                  --
Legal and professional                       984,894            18,810               769,594            16,810
Debenture liquidated damages                  24,500              --                   3,500              --
Rent                                           1,495             3,648                  --               2,931
Travel and entertainment                       3,726               215                 2,445               200
Bad debt expense                               1,171              --                   1,171              --
Depreciation                                  15,600              --                   7,800
                                   ----------------------------------------------------------------------------
TOTAL OPERATING EXPENSES                   4,960,445            91,263             4,269,295            57,213
                                   ----------------------------------------------------------------------------

LOSS FROM OPERATIONS                      (4,961,716)          (74,651)           (4,273,009)          (35,389)

OTHER EXPENSE:
Interest expense, net                        (12,467)           (4,432)               (6,234)           (2,164)
                                   ----------------------------------------------------------------------------

TOTAL OTHER EXPENSE                          (12,467)           (4,432)               (6,234)           (2,164)
                                   ----------------------------------------------------------------------------


NET LOSS                           $      (4,974,183)  $       (79,083)     $     (4,279,244)   $      (37,553)
                                   ===================================== ======================================
</TABLE>

<PAGE>


Revenue:

Operating revenue decreased $30,903, or 100%, to zero for the three months ended
March 31, 2004 from $30,903 for the three months ended March 31, 2003. The
decrease is due to the result of the Company making the decision to exit the
surface cleaning, surface protection and restoration business and to focus on
being a consultant and advisor to customers. No revenue was generated from
consulting services and the company ceased this activity in February 2004.

Operating revenue decreased $18,648, or 54%, to $15,577 for the six months ended
March 31, 2004 from $34,225 for the six months ended March 31, 2003. The
decrease is due to the result of the Company making the decision to exit the
surface cleaning, surface protection and restoration business and to focus on
being a consultant and advisor to customers. However, no revenue was generated
from consulting services and the Company ceased this activity ion February 2004.

Cost of Sales:

Cost of sales decreased $5,364, or 59%, to $3,715 for the three months ended
March 31, 2004 from $9,079 for the three months ended March 31, 2003. 15,577 for
the six months ended March 31, 2004 from $34,225 for the six months ended March
31, 2003. The decrease is due to the result of the Company making the decision

                                       19
<PAGE>

to exit the surface cleaning, surface protection and restoration business and to
focus on being a consultant and advisor to customers.


                                       20
<PAGE>


Cost of sales decreased $765, or 4%, to $16,848 for the six months ended March
31, 2004 from $17,613 for the six months ended March 31, 2003. The decrease is
due to the result of the Company making the decision to exit the surface
cleaning, surface protection and restoration business and to focus on being a
consultant and advisor to customers.

Operating Expenses:

Operating expenses increased $4,212,082, or 7,362%, to $4,269,295 for the three
months ended March 31, 2004 from $57,213 for the three months ended March 31,
2003. The increase was primarily the result of a $1,624,532 increase in
compensation, a $1,856,843 increase in consulting, and a $752,784 increase in
legal and professional. The increase in compensation, consulting and legal and
professional was primarily the result of the issuance of common stock for
compensation and services.

Operating expenses increased $4,869,182, or 5,335%, to $4,960,445 for the six
months ended March 31, 2004 from $91,263 for the six months ended March 31,
2003. The increase was primarily the result of a $1,958,397 increase in
compensation, a $1,945,342 increase in consulting, and a $966,084 increase in
legal and professional. The increase in compensation, consulting and legal and
professional was primarily the result of the issuance of common stock for
compensation and services.

Other Expense:

Other expense increased $4,070, or 188% to $6,234 for the three months ended
March 31, 2004 from $2,164 for the three months ended March 31, 2003. The
increase was primarily due to accrued interest for indebtedness.

Other expense increased $8,035, or 181% to $12,467 for the six months ended
March 31, 2004 from $4,432 for the six months ended March 31, 2003. The increase
was primarily due to accrued interest for indebtedness.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $0 at March 31, 2004 as compared to $0 at
September 30, 2003, and working capital deficit was $854,894 at March 31, 2004
as compared to $726,139 at September 30, 2003. The increase in the working
capital deficit is primarily due to the fact of increases in accounts payable,
accrued interest, other current liabilities, payroll taxes payable and judgment
payable. Additionally, the Company has no assets at March 31, 2004.

Operating Activities: Net cash provided by operating activities was $0 for the
six months ended March 31, 2004 while cash that was used in operating activities
was $61,906 for the six months ended March 31, 2003. The increase in cash
provided by operations resulted primarily due to the fact of increases in
accrued interest, other current liabilities, accounts payable, payroll taxes
payable and judgment payable.

Investing Activities: There were no investing cash flow activities for the six
months ended March 31, 2004 while cash that was provided by investing activities
was $45,425 for the six months ended March 31, 2003. The decrease in cash
provided from investing activities was the result of the Company receiving
$50,000 in cash advances from shareholders and $4,575 for the purchase of
property and equipment in 2003 with no such amounts for 2004.

Financing Activities There were no financing cash flow activities for the six
months ended March 31, 2004 while cash provide by financing activities was
$104,750. The decrease in cash provided by operations was the result of the
Company receiving $104,750 of proceeds from the issuance of convertible
debentures in 2003 with no such amount in 2004.


                                       21
<PAGE>


SHORT-TERM DEBT

We are highly leveraged. At March 31, 2004, we have no assets and have current
liabilities of $854,894, our stockholders' deficiency is $854,894, we have an
accumulated deficit of $5,048,764 from previous business operations and we had a
deficit accumulated during the development stage for our new business operations
of $4,974,183. The following table is a summary of our short-term debt as of
March 31, 2004:

<TABLE>
<CAPTION>
                                                                                                BALANCE AT
                                                                                              MARCH 31, 2004
<S>                                                                                              <C>
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
</TABLE>

On February 19, 2000, we obtained a bank installment loan in the amount of
$35,000, of which $25,350 is outstanding at March 31, September 30, 2003. 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 March 31, 2004, we had a bank line of credit, which provides for borrowings
of up to $35,000, of which $33,986 was outstanding. The interest rate is Prime
plus 1.25% per annum and monthly interest payments were required. The line of
credit matured on July 15, 2002 but the bank has not exercised its rights of
default and the facility was on a month to month basis. The line of credit is
secured by a personal guaranty of the Company's former President.

<TABLE>
<CAPTION>
<S>                                                                                          <C>
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.......................         $175,000
                                                                                             ========
TOTAL SHORT-TERM DEBT                                                                        $277,036
</TABLE>

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


                                       22
<PAGE>


the debentures prior to the maturity date at a price equal to one hundred thirty
percent (130%) of the principal amount plus accrued interest.


In March and April of 2003, the Company recognized an immediate $58,333 interest
expense and paid-in capital relating to a beneficial conversion feature inherent
in the debentures since the debentures were immediately convertible. In
connection with the offering, in addition to cash offering costs of $52,900, the
Company issued 500,000 of its common shares to the investment bankers. The
shares were valued on the issuance date at the trading price of $0.03 per share
or $12,500. The total offering costs of $65,400 were initially deferred to be
amortized over the term of the debentures, however due to a default provision
which changed the debentures maturity to due on demand (see below), the $65,400
was fully expensed as of September 30, 2003.


Under a related Registration Rights Agreement, the Company is subject to a 2%
monthly liquidated damages penalty for not filing a registration statement with
the Securities and Exchange Commission, within a stipulated timeframe, to
register the common shares underlying the convertible debentures and another 2%
monthly liquidated damages penalty relating to that registration statement not
becoming effective within a stipulated timeframe. The liquidated damages penalty
started accruing at 2% or $3,500 per month at June 1, 2003 and at another 2% or
$3,500 per month starting September 1, 2003. The penalties for June and July
2003 were satisfied with the issuance of 350,000 of the Company's common shares
to the debenture investors and remaining accrued liquidated damages were $10,500
at September 30, 2003. The Company recognized a $1,750 gain on the settlement of
$7,000 of accrued liquidated damages in June and July 2003 based on the $0.015
trading price of the common stock on the settlement date. For the three month
period ended December 31, 2003, the Company recorded $21,000 of liquidated
damages expense and recorded an additional $3,500 of liquidated damages expense
for the three months ended March 31, 2004, resulting in an accrued balance of
$35,000. In March 2004, the Company reached an agreement with the debenture
investors and all outstanding penalties in the amount of $35,000 were satisfied
with the issuance of 1,750,000 of the Company's common shares based on a $0.02
trading price of the common stock on the settlement date. Accordingly, at March
31, 2004, there is no remaining accrued liquidated damages balance in the
accompanying balance sheet.


Due to the default under the Registration Rights Agreement, the debentures went
into default as of June 1, 2003. Accordingly, the debentures became due on
demand at that date and are presented as current liabilities at March 31, 2004.

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 2004. Presently, we
have no source of revenues and are seeking a merger-acquisition candidate 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 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.


                                       23
<PAGE>


CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table highlights, as of March 31, 2004, our contractual
obligations and commitments by type and period:

<TABLE>
<CAPTION>
                                            PAYMENTS DUE BY PERIOD
                                       LESS THAN 1
CONTRACTUAL OBLIGATIONS         TOTAL     YEAR     1-3 YEARS    4-5 YEARS   AFTER 5 YEARS
--------------------------   --------   --------   ----------   ---------   -------------
<S>                          <C>        <C>        <C>          <C>         <C>
Short-Term Debt:                   --         --           --          --              --
Bank Loans                     59,336     59,336           --          --              --
Loan Payable-Related Party     42,700     42,700           --          --              --
Convertible Debentures        175,000    175,000           --          --              --
                             --------   --------   ----------   ---------   -------------

Total Short-Term Debt        $277,036   $277,036   $                                   --
                             ========   ========   ==========   =========   =============
</TABLE>


RECENT ACCOUNTING DEVELOPMENTS

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an interpretation of ARB No. 51,"
which as an interpretation defines when and who consolidates a "variable
interest entity," or "VIE." This new consolidation model applies to entities (i)
where the equity investors (if any) do not have a controlling financial
interest, or (ii) whose equity investment at risk is insufficient to finance
that entity's activities without receiving additional subordinated financial
support from other parties and requires additional disclosures for all
enterprises involved with the VIE. FIN 46 is effective during 2003 depending on
when the VIE is created. We do not believe that the adoption of FIN 46 will have
a significant impact on our financial position and results of operations.

In May 2003, the FASB issued SFAS No. 149; Amendment of Statement 133 on
Derivative Instruments and Hedging Activities ("SFAS 149") which provides for
certain changes in the accounting treatment of derivative contracts. SFAS 149 is
effective for contracts entered into or modified after June 30, 2003, except for
certain provisions that relate to SFAS No. 133 Implementation Issues that have
been effective for fiscal quarters that began prior to June 15, 2003, which
should continue to be applied in accordance with their respective effective
dates. The guidance should be applied prospectively. The adoption of SFAS 149
did not have a material impact on the Company's financial position, results of
operations or liquidity.

In May 2003, the Financial Accounting Standards Board issued SFAS No. 150 (SFAS
150), "Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity." It establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. This standard is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of FAS 150 did not have a significant impact on our financial position
and results of operations.


                                       24
<PAGE>


2004 OUTLOOK

The ability to invest further will be 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.

ITEM 3. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.

Steve Careaga, our Chief Executive Officer and Chief Financial Officer, has
concluded that our disclosure controls and procedures are appropriate and
effective. He has evaluated these controls and procedures as of a date within 90
days of the filing date of this report on Form 10-QSB. There were no significant
changes in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

                                     PART II

Pursuant to the Instructions on Part II of the Form 10-QSB, Items 1, 3, and 5
are omitted.

ITEM 1.  LEGAL PROCEEDINGS

On June 14, 2002, Wyndham obtained a summary judgment against the Company in the
amount $32.045, plus $10,263 legal fees. The Company does not have sufficient
resources to pay the judgment and interest accrued at a rate of ten percent
(10%) until paid in full. At March 31, 2004, the total amount due is $50,994
(including $8,686 of accrued interest) and is included under the caption
Judgment Payable in the accompanying balance sheet. The Company is currently in
discussions with Wyndham in an attempt to settle the matter.

The Company has not made timely payments of Federal payroll taxes and has not
remitted payments under an executed installment agreement with the IRS. At March
31, 2004, the Company has recorded the total amount due (including accrued
interest and penalties) for the unpaid Federal payroll taxes as $246,427 in the
accompanying Balance Sheet. As a result of the lack of payments, the IRS could
attach a lien against the Company's assets and bank accounts to protect their
claim.

ITEM 2. CHANGES IN SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

During the months of March and April 2003, certain investors purchased $175,000
worth of convertible debentures from the Company (the "Debentures").

Pursuant to section 2(a)(i) of the Registration Rights Agreements (The
Registration Rights Agreement is Exhibit B to the Securities Purchase Agreement,
the definitive document outlining the terms and conditions of the parties in
connection with the purchase of a Convertible Debenture. The Debenture is
Exhibit A to the Securities Purchase Agreement.) executed by the Debenture
Holders and the Company, the Company is required to file a registration
statement no later than ten (10) days following the "Final Closing Date" (the
"Registration Statement"), for purposes of registering the shares of common
stock into which the Debentures convert (the "Debenture Shares"). Pursuant to
section 2(b)(iii) of the Registration Rights Agreements, in the event the
Company is in default of the provisions of section 2(b)(i) (requiring filing of
a registration statement by the "Required Filing Date" set forth in section
2(a)(i)) ("Default"), the Company must pay the Debenture Holders (a) a cash
amount equal to Two Percent (2%) per month of the outstanding principal amount
of the Debentures, and (b) that same Two Percent (2%) per month of the
outstanding principal amount of the Debentures for each subsequent month after a
Default until section 2(b)(i) is complied with.

In March 2004, the Company reached an agreement with the Debenture Holders and
in lieu of making cash payments to the Debenture Holders as a result of the
Default, the Company issued 1,750,000 shares of its common stock to the
Debenture Holders (the "Penalty Shares").

                                       25
<PAGE>


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

On May 13, 2004 the Registrant filed a preliminary 14A proxy statement with the
Commission regarding the calling of a special meeting of the shareholders (the
"Meeting") to consider and vote upon a proposal to effect a 100-for-1
reverse-split of the issued and outstanding shares of the common stock of the
Company and to maintain the amount of shares we are authorized to issue at
500,000,000.

ITEM 5. OTHER INFORMATION

On March 15, 2004, the Registrant entered into Employment Agreement with Steve
Careaga for a term of one year and pursuant to which Careaga was issued
5,000,000 shares of common stock and may be issued additional shares of common
stock from time to time in consideration of his services required as CEO.

On or around April 8, 2004, the Company executed a Settlement and Release
Agreement with James Taylor pursuant to which Taylor agreed to release the
Registrant and settle all disputes arising out of $72,999.22 in back accounting
fees in exchange for further employment as an accountant/consultant.

On or around March 12, 2004, Andre DeVries resigned all executive positions with
and as a director of the Registrant and Steve Careaga was appointed CEO and
director of the Registrant.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibits

<TABLE>
<CAPTION>
------------------------------------- ----------------------------------- -----------------------------------
Exhibit                               Title                               Location
------------------------------------- ----------------------------------- -----------------------------------
<S>                                   <C>                                 <C>
3                                     Articles of Incorporation           Incorporated by Reference to the
                                                                          SB-2 registration statement filed
                                                                          on August 21, 2000.
------------------------------------- ----------------------------------- -----------------------------------
3.1                                   Bylaws                              Incorporated by Reference to the
                                                                          SB-2 registration statement filed
                                                                          on August 21, 2000.
------------------------------------- ----------------------------------- -----------------------------------
3.2                                   Certificate of Amendment to         Incorporated by Reference to the
                                      Articles of Incorporation           SB-2 registration statement filed
                                                                          on August 21, 2000.
------------------------------------- ----------------------------------- -----------------------------------
3.3                                   Certificate of Amendment to         Incorporated by Reference to the
                                      Articles of Incorporation           SB-2 registration statement filed
                                                                          on August 21, 2000.
------------------------------------- ----------------------------------- -----------------------------------
10.1                                  Settlement Agreement with James     Attached
                                      Taylor
------------------------------------- ----------------------------------- -----------------------------------
10.2                                  Employment Agreement with Steve     Incorporation by reference to the
                                      Careaga                             Form S-8 registration statement
                                                                          filed on March 16, 2004
------------------------------------- ----------------------------------- -----------------------------------
31.1                                  Certification by Principal          Attached
                                      Executive Officer
------------------------------------- ----------------------------------- -----------------------------------
31.2                                  Certification of Principal          Attached
                                      Financial Officer
------------------------------------- ----------------------------------- -----------------------------------
32                                    Certifications of Principal         Attached
                                      Executive and Financial Officer
                                      Pursuant to 906
------------------------------------- ----------------------------------- -----------------------------------
</TABLE>

(b) Reports on Form 8-K.

During the period ended March 31, 2004, the Company filed the following reports
on Form 8-K:

<TABLE>
<CAPTION>
-------------------------------------------------------------- ------------------------------------------------------------
<S>                                                            <C>
Date of Event Reported                                         Items Reported
-------------------------------------------------------------- ------------------------------------------------------------
January 12, 2004                                               Items 4 and 7
-------------------------------------------------------------- ------------------------------------------------------------
February 3, 2004                                               Items 1, 2 and 7
-------------------------------------------------------------- ------------------------------------------------------------
</TABLE>



                                       26
<PAGE>


                                   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.

<TABLE>
<CAPTION>
NAME AND SIGNATURE                                    TITLE                            DATE

<S>                                                   <C>                              <C>
                                                                                       May 24, 2004
                                                      Principal Executive Officer,
----------------------------------------------------  Principal Financial Officer,
/s/ Steve Careaga                                     Sole Director
</TABLE>


                                       29