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 DECEMBER 31, 2004

                           Commission File #000-50672

                                  NANNACO, INC.
        (Exact name of small business issuer as specified in its charter)

                                      Texas
         (State or other jurisdiction of incorporation or organization)

                                   74-2891747
                      (IRS Employer Identification Number)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|

The number of shares outstanding of the Company's common stock outstanding on
February 22, 2005: 44,543,563
<PAGE>

                                  NANNACO, INC.
                                   FORM 10-QSB

Table of Contents

PART  I  -  FINANCIAL  INFORMATION

Item  1  -  Financial  Statements

Item  2  -  Management's  Discussion  and Analysis or Plan of Operations

Item  3  -  Controls and Procedures


PART II  -  OTHER INFORMATION

Item  1 -   Legal Proceedings

Item  2 -    Unregistered Sales of Equity Securities and Use of Proceeds

Item  3 -    Defaults upon Senior Securities

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

Item  5 -    Other Information

Item  6  -  Exhibits

SIGNATURES

                                       (i)


                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Filed herewith are our following unaudited financial statements:
                                                                        Page No.

Balance Sheet at December 31, 2004                                         4
Statements of Operations for the three months ended
  December 31, 2004 and 2003                                               6
Statements of Cash Flows for the three months ended
  December 31, 2004 and 2003                                               7
Notes to Financial Statements                                              9


                                       3
<PAGE>

                                  NANNACO, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                                   (Unaudited)

                                DECEMBER 31, 2004

                                    ASSETS

CURRENT ASSETS
Cash and cash equivalents                                               $     --
                                                                        --------

Total current assets                                                    $     --
                                                                        ========

                                 LIABILITIES

CURRENT LIABILITIES
Convertible debentures                                                  $107,500
Bank loans                                                                59,336
Accounts payable - trade                                                 117,093
Accrued compensation, related party                                       25,092
Accrued interest                                                          48,254
Due to consultants                                                        36,196
Other current liabilities                                                 73,978
Payroll taxes payable                                                    264,699
Sales tax payable                                                         40,801
Judgment payable                                                          54,168
Loan payable - related party                                              42,700
                                                                        --------

Total current liabilities                                               $869,817
                                                                        ========

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


                                       4
<PAGE>

                                  NANNACO, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                            BALANCE SHEET (Continued)
                                   (Unaudited)

                                DECEMBER 31, 2004

                          STOCKHOLDERS' DEFICIENCY

CONTINGENT RETURNABLE COMMON STOCK
Common stock, $0.001 par value, 750,000 shares
issued and outstanding                                             $        750
Additional paid in capital                                              899,250
Less: Deferred compensation                                            (900,000)
                                                                   ------------

TOTAL CONTINGENT RETURNABLE COMMON STOCK                                     --

COMMITMENTS AND CONTINGENCIES                                                --

STOCKHOLDERS' DEFICIENCY
Preferred stock, $0.001 par value, 100,000,000 shares authorized
Issued - 10,000,000 issued and outstanding                               10,000

Common stock, $0.001 par value, 500,000,000 shares authorized:
Issued - 793,563 issued and outstanding                                     794

Additional paid in capital                                           11,858,301

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

Deficit accumulated during development stage                         (7,382,989)
                                                                   ------------

                                                                        562,657

Less: Subscription receivable                                          (100,712)
Less: Deferred compensation                                             (45,417)
Less: Deferred consulting                                              (161,029)
                                                                   ------------

TOTAL STOCKHOLDERS' DEFICIENCY                                         (869,817)
                                                                   ------------

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

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


                                       5
<PAGE>

                                  NANNACO, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                         Period From
                                                                                       October 1, 2003
                                                                                        (Inception of
                                                    Three Months Ended                Development Stage)
                                                       December 31,                     To December 31,
                                                 2004                 2003                   2004
                                             ---------------------------------           -----------
<S>                                          <C>                   <C>                   <C>
REVENUES                                     $        --           $    15,577           $    15,577
COST OF REVENUES                                      --                13,133                16,848
                                             ---------------------------------           -----------
GROSS LOSS                                            --                 2,444                (1,271)

OPERATING EXPENSES:
Selling, general and administrative                   --                17,210                16,186
Compensation and payroll taxes                    35,590               346,365             2,076,168
Consulting                                       599,371                88,499             3,557,367
Legal and professional                           305,000               215,300             1,633,986
Rent                                                  --                 1,495                 1,495
Travel and entertainment                              --                 1,281                 3,726
Debenture liquidated damages                      38,203                21,000                64,943
Bad debt expense                                      --                    --                 1,171
                                             ---------------------------------           -----------
TOTAL OPERATING EXPENSES                         978,165               691,150             7,355,043
                                             ---------------------------------           -----------

LOSS FROM OPERATIONS                            (978,165)             (688,706)           (7,356,313)

OTHER INCOME (EXPENSE):
Interest expense, net                             (4,717)               (6,234)              (26,676)
                                             ---------------------------------           -----------
TOTAL OTHER INCOME (EXPENSE)                      (4,717)               (6,234)              (26,676)
                                             ---------------------------------           -----------

NET LOSS                                     $  (982,882)          $  (694,940)          $(7,382,989)
                                             =================================           ===========

NET LOSS PER SHARE -
BASIC AND DILUTED                            $     (1.74)          $     (0.01)          $    (41.07)
                                             =================================           ===========

WEIGHTED AVERAGE SHARES                          566,118                82,360               179,746
                                             =================================           ===========
</TABLE>

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


                                       6
<PAGE>

                                  NANNACO, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                          Period From
                                                                                                        October 1, 2003
                                                                                                         (Inception of
                                                                      Three Months  Ended              Development Stage)
                                                                          December 31,                  To December 31,
                                                                   2004                  2003                2004
                                                               -------------------------------------------------------
<S>                                                            <C>                   <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                       $  (982,882)          $  (201,799)          $(7,382,989)
Adjustments to reconcile net loss to net cash used in
operating activities:
   Bad debt expense                                                     --                    --                 1,171
   Accrued interest on subscription promissory note                   (504)                   --                  (712)
   Stock issued for legal services                                 300,000               212,800             1,502,800
   Stock issued for consulting services                            330,000                24,000             2,099,001
   Debenture liquidated damages                                     38,203                21,000                64,943
   Amortization of deferred compensation                            29,500               287,446             1,992,887
   Amortization of deferred consulting                             269,371                57,699             1,451,566
   Changes in operating assets and liabilities:
      Increase in accounts receivable - trade                           --                  (548)                 (548)
      Decrease in bank overdrafts                                       --                   890                (1,976)
      Increase in accounts payable                                   5,000                    --                93,873
      Increase in accrued interest payable                           4,163                 5,176                21,684
      Increase in due to consultants                                    --                    --                36,196
      Increase in other current liabilities                             --                26,500                33,535
      Increase in payroll taxes payable                              6,090                58,919                83,281
      Increase in judgment payable                                   1,058                 1,058                 5,289
                                                               -------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES                          $        --           $        --           $        --
                                                               =======================================================
</TABLE>

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


                                       7
<PAGE>

                                  NANNACO, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                      STATEMENTS OF CASH FLOWS (Continued)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                               Period From
                                                                                             October 1, 2003
                                                                                              (Inception of
                                                                     Three Months Ended     Development Stage)
                                                                        December 31,          To December 31,
                                                                    2004            2003          2004
                                                             --------------------------------------------------
<S>                                                                <C>             <C>          <C>
CASH FLOW FROM INVESTING ACTIVITIES                                    --              --            --
                                                                   ------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                                  --              --            --

CASH FLOWS FROM FINANCING ACTIVITIES                                   --              --            --
                                                                   ------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                              --              --            --

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

Supplemental disclosure of non-cash transactions:
Stock issued for debenture liquidated damages                      $   --          $   --       $35,000
Stock issued for conversion of Convertible debentures and
accrued interest                                                       --              --        78,367
Stock issued for conversion of accounts payable                    25,404              --        80,403
</TABLE>

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


                                       8
<PAGE>

1. HISTORY AND NATURE OF BUSINESS

      Nannaco, Inc. ("Nannaco", "the Company", "we", "us") 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 operated under the trade name Surface Pro. 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 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 an acquisition transaction with a company having better financial
resources or that would permit the Company to 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.

      The Company is treated for accounting purposes as a development stage
company, effective October 1, 2003.

      In October 2004, a 1 for 100 reverse-split discussed above was completed
and the number of issued and outstanding shares was reduced from 474,253,389 to
4,742,534 as a result thereof. Additionally, in December 2004 the Board approved
and completed a 1 for 40 reverse-stock split. As a result of this reverse-stock
split, the number of issued and outstanding shares was reduced from 4,742,534 to
118,563 as of September 30, 2004.

      On October 28, 2004 the Company and NAZZ Productions, Inc. entered into an
agreement to merge a subsidiary of Nannaco into NAZZ Productions, Inc. ("NAZZ")
and to rename the Company NAZZ Productions, Inc. (the "reverse merger"). The
agreement provides that all of the shares of common stock of NAZZ issued and
outstanding at the time the merger becomes effective under applicable state law
(the "Effective Time"), will be converted into common stock of Nannaco such that
the current holder of NAZZ common stock will hold 95% of all shares of
Registrant's common stock outstanding immediately after the closing of this
merger transaction, on a fully diluted basis. The obligation of NAZZ to close is
conditioned on, among other things, the satisfactory completion of due diligence
review by NAZZ and the reduction of Registrant's liabilities to $50,000 or less.
The agreement may be terminated at any time prior to the Effective Time by
written agreement; by NAZZ for breach of any of the representations and
warranties or covenants of Registrant if such breach is not cured within thirty
days of written notice; by Registrant for breach of any NAZZ representations and
warranties or covenants if the breach is not cured within thirty days of written
notice; by either party in the event the merger is not closed by December 30,
2004. In the event Registrant breaches the agreement with NAZZ by engaging in
efforts leading to the acquisition of Registrant by a corporation other than
NAZZ then, NAZZ shall be entitled to a $200,000 "break-up fee". The NAZZ merger
agreement was extended by mutual consent to close not later than March 31, 2005.

2. GOING CONCERN

      We have incurred net losses in prior years and this has resulted in a
significant accumulated deficit and stockholders' deficiency at December 31,
2004. In addition, we are in default under our convertible debenture agreements.
We had net losses of $982,882 for the three months ended December 31, 2004 and
$694,940 for the three months ended December 31, 2003. At December 31, 2004, our
current liabilities exceeded our current assets by $869,817, our stockholders'
deficiency was $869,817, we had an accumulated deficit from prior business
operations of $5,048,764 and we had a deficit accumulated during the development
stage of $7,382,989 as December 31, 2004.

      The time required for us to become profitable is highly uncertain, and we
cannot assure you that we will achieve or sustain profitability or generate
sufficient cash flow from operations to meet our planned capital expenditures,
working capital and debt service requirements. If required, our ability to
obtain additional financing from other sources also depends on many factors
beyond our control, including the state of the capital markets and the prospects
for our business. The necessary additional financing may not be available to us
or may be available only on terms that would result in further dilution to the
current owners of our common stock.

      We have substantial current obligations. As of December 31, 2004, we had
$869,817 of liabilities as compared to $840,706 as of September 30, 2004. Of the
$869,817 outstanding at December 31, 2004, $264,699 is for unpaid federal
payroll taxes, interest and penalties. The Company has received correspondence
from the Internal Revenue Service ("IRS") detailing the obligation and remedies
that the IRS may pursue if not paid and is in discussions with the IRS
concerning resolution of the matter. The remaining current obligations (which
are all past due) include sales tax payable of $40,801, accounts payable of
$117,093, judgment payable of $54,168, bank loans of $59,335, loan
payable-related party of $42,700, accrued compensation-related party of $25,092,
due to consultants of $36,196, convertible debentures of $107,500 and accrued
debenture liquidated damages of $40,443. The Company does not have sufficient
cash resources to pay these obligations.


                                       9
<PAGE>

      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 future cash
            flow, if any, to principal and interest payments on our debt
            obligations, thereby reducing the availability of our future 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 in the future we will generate sufficient cash flow
from operations or obtain additional financing to meet scheduled debt payments
and financial covenants. We have failed to make required payments under the
agreements and related documents governing our indebtedness and have failed to
comply with the financial and operating covenants contained in them, and we are
in default. The financial statements do not include any adjustments to reflect
the possible effects on recoverability and classification of assets or the
amounts and classification of liabilities which may result from the inability of
the Company to continue as a going concern.

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

      The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America ("U.S. GAAP") and the rules and regulations of the U.S. Securities and
Exchange Commission for interim financial information. Accordingly, they do not
include all of the information and footnotes required for a comprehensive
presentation of financial position and results of operations. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. The results of operations for the three months ended December 31,
2004 are not necessarily indicative of the results to be expected for the year
ending September 30, 2005. These Financial Statements should be read in
conjunction with the audited Financial Statements of Nannaco, Inc., for the
years ended September 30, 2004 and 2003 included in Form 10-KSB.

Accounting Estimates

      When preparing financial statements in conformity with U.S. GAAP, our
management must make estimates based on future events which affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities as of the date of the financial statements, and revenues and
expenses during the reporting period. Actual results could differ from these
estimates. Significant estimates in the accompanying financial statements
include the realizability of a subscription note receivable, provision for
uncollectible investor loans, impairment of property and equipment, evaluation
of a beneficial conversion feature in convertible debentures and convertible
preferred stock, valuation of the fair value of financial instruments, valuation
of non-cash issuances of common stock and the valuation allowance for deferred
tax assets.

Cash and Cash Equivalents

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


                                       10
<PAGE>

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 December 31, 2004.

Stock-Based Compensation

      The Company accounts for stock options issued to employees in accordance
with the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation cost is measured on the date of grant as the excess of the
current market price of the underlying stock over the exercise price. Such
compensation amounts are amortized over the respective vesting periods of the
option grant. The Company adopted the disclosure provisions of SFAS No. 123
"Accounting for Stock-Based Compensation," and SFAS No. 148 "Accounting for
Stock Based Compensation - Transition and Disclosure," which permits entities to
provide pro forma net income (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants as if the fair-valued based method
defined in SFAS No. 123 had been applied.

      The Company accounts for stock options or warrants issued to non-employees
for goods or services in accordance with the fair value method of SFAS 123.
Under this method, the Company records an expense equal to the fair value of the
options or warrants issued. The fair value is computed using an options pricing
model.

Income Taxes

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

Loss per Common Share

      Basic earnings per share 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.

      In September 2004, we completed a 1 for 100 reverse-split of the issued
and outstanding shares of the common stock of the Company. As a result of the 1
for 100 reverse-split, the number of issued and outstanding shares was reduced
from 474,253,389 to 4,742,534 after the reverse-split. In December 2004, we
completed a 1 for 40 reverse-split of the issued and outstanding shares of the
common stock of the Company. As a result of the 1 for 40 reverse-split, the
number of issued and outstanding shares was reduced from 4,742,534 to 118,563
after the reverse-split and as of September 30, 2004. In accordance with SFAS
128, the Company applied the effect of both the 1 for 100 and the 1 for 40
reverse-splits from October 1, 2003 and the weighted average number of common
shares outstanding was adjusted retroactively to reflect the reverse splits.

Accumulated Other Comprehensive Income

      As of the date of these Consolidated Financial Statements, we had no
components of other comprehensive income as defined by Statement of Financial
Accounting Standards No. 130.


                                       11
<PAGE>

New Accounting Standards

      In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others," which established additional
accounting and disclosure requirements when an enterprise guarantees the
indebtedness of others. The enterprise providing the guarantee is required to
recognize a liability for the fair value of the guarantee and disclose the
information in its interim and annual financial statements.

      In December 2002, the FASB issued Statement No. 148 (FAS 148), "Accounting
for Stock-Based Compensation-Transition and Disclosure" which amends FASB No.
123 (FAS 123), "Accounting for Stock-Based Compensation." FAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation and amends the
disclosure requirements of FAS 123 to require disclosures in both the annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
transition guidance and disclosure provisions of FAS 148 were effective for the
Company's financial statements issued for the first quarter of 2003. The
adoption of SFAS 148 did not have a significant impact on our financial position
and results of operations.

      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. The adoption of FIN 46 did not have a significant
impact on our financial position and results of operations.

      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 SFAS No. 150 did not have a significant impact on our
financial position and results of operations.

4. SHORT-TERM DEBT

Our short-term debt at December 31, 2004 consisted of the following:

Bank Loans
----------
$35,000 bank installment loan, dated Feb. 19, 2000, bearing interest
  at 10% per annum, 60 monthly payments of principal and interest ...... $25,350
$35,000 bank line of credit, bearing interest at prime plus
  1.25% per annum, interest payable monthly and line of credit
  due July 15, 2002 ....................................................  33,986
                                                                         -------
                                                                         $59,336
                                                                         =======

      On February 19, 2000, we obtained a bank installment loan in the amount of
$35,000, of which $25,350 is outstanding at 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 December 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.

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.


                                       12
<PAGE>

Convertible Debentures
----------------------
$175,000 Convertible Debentures, dated March and April of 2003, bearing
  interest at 6% per annum and due in March and April of 2006.......... $107,500
                                                                        ========

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

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

      Under a related Registration Rights Agreement, the Company is subject to a
2% monthly liquidated damages penalty for not filing a registration statement
with the Securities and Exchange Commission, within a stipulated timeframe, to
register the common shares underlying the convertible debentures and another 2%
monthly liquidated damages penalty relating to that registration statement not
becoming effective within a stipulated timeframe. The liquidated damages penalty
started accruing at 2% or $3,500 per month at June 1, 2003 and at another 2% or
$3,500 per month starting September 1, 2003. The penalties for June and July
2003 were satisfied with the issuance of 350,000 of the Company's common shares
to the debenture investors and remaining accrued liquidated damages were $10,500
at September 30, 2003. The Company recognized a $1,750 gain on the settlement of
$7,000 of accrued liquidated damages in June and July 2003 based on the $0.015
trading price of the common stock on the settlement date. For the three month
period ended December 31, 2003, the Company recorded an additional $24,500 of
liquidated damages expense resulting in an accrued balance of $35,000. Effective
March 31, 2004, the Company reached an agreement with the debenture investors
and all outstanding penalties in the amount of $35,000 were satisfied with the
issuance of 438 of the Company's common shares based on a $0.02 trading price of
the common stock on the settlement date. For the period from April 1, 2004
through December 31, 2004, the Company has recorded an additional $40,443 of
liquidated damages resulting in an accrued balance of $40,443 as of December 31,
2004.

      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 December 31,
2004.

      In April and May of 2004, $67,500 principal amount of the debentures was
converted into 3,167 shares of our common stock. $60,000 of the debentures was
converted in April 2004 into 2,736 shares at $0.0054825 per share and $7,500 of
the debentures was converted in May 2004 into 431 shares at $0.00435 per share.

      As a result of the above conversions, $107,500 principal amount of the
convertible debentures is outstanding at December 31, 2004.


                                       13
<PAGE>

5. CONTINGENT RETURNABLE COMMON STOCK

      In October 2004, the Company issued 750,000 shares of common stock as
compensation to the Chief Executive Officer in his capacity as Chief Financial
Officer and director. The shares were issued as consideration of services past
and continuing and subject to substantial conditions constituting events of
forfeiture. Under conditions of the issuance, the officer was required to raise
capital in excess of $5,000,000 within 90 days following this issuance or
forfeit the shares. As of the date of these Financial Statements, the
requirement had not been met and the Company is commencing the process to have
the shares cancelled and returned. The shares were valued at $1.20 per share,
the fair market value on the grant date: or $900,000 in total. It is anticipated
that the shares will be canceled and the $900,000 of deferred compensation will
be reversed at that time by the Company. Accordingly, the Company has recorded
the common stock and related deferred compensation as Contingent Returnable
Common Stock in the accompanying Balance Sheet as of December 31, 2004.

6. STOCKHOLDERS' EQUITY

Capital Structure

      We are authorized to issue up to 500,000,000 shares of our common stock,
$0.001 par value per share, of which 793,563 shares were issued and outstanding
at December 31, 2004. In September 2004, we completed a 1 for 100 reverse-split
of the issued and outstanding shares of the common stock of the Company while
maintaining the amount of common stock shares we are authorized to issue at
500,000,000. As a result of the 1 for 100 reverse-split, the number of issued
and outstanding shares was reduced from 474,253,389 to 4,742,534 after the
reverse-split In December 2004, we completed a 1 for 40 reverse-split of the
issued and outstanding shares of the common stock of the Company. In accordance
with SFAS 128, the Company applied the effect of the 1 for 40 reverse-split from
the beginning of the year and as a result of the 1 for 40 reverse-split, the
number of issued and outstanding shares was reduced from 4,742,534 to 118,563
after the reverse-split as of September 30, 2004.

      We are authorized to issue up to 100,000,000 shares of Preferred Stock,
$0.001 par value per share, of which 10,000,000 shares were issued and
outstanding at December 31, 2004 (See Issuances of Preferred Stock below).

Issuances of Common Stock

      In November 2003, the Company issued 16,325 shares of common stock. 3,750
of the shares were issued as an annual bonus for the President of the Company
and were valued at $40.00 per share, the closing price on the grant date of
November 9, 2003 and are being amortized over the remaining life of the
employment agreement from October 1, 2003 through June 1, 2005 - see Deferred
Compensation below. 10,125 of the shares were issued for consulting services
provided to the Company and were valued at $40.00 per share, the closing share
price on the grant date of November 9, 2003 and are being amortized over the one
year term of the agreements - see Deferred Consulting below. The remaining 2,500
shares were issued for legal services provided to the Company and were valued at
$40.00 per share, the closing price on the grant date of November 9, 2003. The
agreement for services did not specify a term and can be terminated by either
party on a monthly basis. Accordingly, the Company has expensed the entire
amount and recorded $100,000 of legal expense in the accompanying Statements of
Operations for the period October 1, 2003 (inception of development stage) to
December 31, 2004.

      In connection with 750 of the 10,125 common shares issued for consulting
services as discussed above, the Company on November 17, 2003 committed to issue
two year warrants to purchase 750 of the Company's common shares at an exercise
price of $0.02 per share and two year warrants to purchase 750 of the Company's
common shares at an exercise price of $0.03 per share. As of September 30, 2004,
the warrants have not been issued to the consultant. The agreement contains a
provision however that the holders of such warrants shall not individually own
more than 4.9% of the total shares of the Company's outstanding shares.

      In December 2003, the Company issued 2,850 shares of common stock. 2,350
of the shares were issued for legal services provided to the Company and were
valued at $48.00 per share, the closing share price on the grant date of
December 10, 2003. The resulting $112,800 was expensed as legal and professional
in the accompanying Statement of Operations. The remaining 500 shares were
issued for consulting services provided to the Company and were valued at $48.00
per share, the closing price on the grant date of December 10, 2003. The
resulting $24,000 was expensed as consulting in the accompanying Statements of
Operations for the period October 1, 2003 (inception of development stage) to
December 31, 2004.


                                       14
<PAGE>

      In January 2004, the Company issued 11,250 shares of common stock. 7,500
of the shares were issued for consulting services provided to the Company and
were valued at $0.026 per share, the closing share price on the grant date of
January 12, 2004. These shares were issued as a modification of the terms
related to the November 9, 2003 issuance of 10,125 shares (see Deferred
Consulting below) and this issuance of shares was subsequently modified as
discussed below. Accordingly, the Company has expensed the entire amount of the
7,500 shares issued and recorded $780,000 of consulting expense in the
accompanying Statement of Operations for the period October 1, 2003 (inception
of development stage) to December 31, 2004. The remaining 3,750 shares of the
11,250 shares issued were for legal services provided to the Company and were
valued at $0.026 per share, the closing price on the grant date of January 12,
2004. The agreement for services did not specify a term and can be terminated by
either party on a monthly basis. Accordingly, the Company has expensed the
entire amount and recorded $390,000 of legal expense in the accompanying
Statements of Operations for the period October 1, 2003 (inception of
development stage) to December 31, 2004.

      In February 2004, the Company issued 12,500 shares of common stock. 8,750
of the shares were issued for consulting services provided to the Company and
were valued at $104.00 per share, the closing share price on the grant date of
February 25, 2004. These shares were issued as a modification of the terms
related to the November 9, 2003 issuance of 10,125 shares (see Deferred
Consulting below) and the January 2004 7,500 share issuance discussed above.
Accordingly, the Company has expensed the entire amount of the 8,750 shares
issued and recorded $700,000 of consulting expense in the accompanying Statement
of Operations for the period October 1, 2003 (inception of development stage) to
December 31, 2004. 2,500 shares of the 8,750 shares issued were for legal
services provided to the Company and were valued at $104.00 per share, the
closing price on the grant date of February 25, 2004. The agreement for services
did not specify a term and can be terminated by either party on a monthly basis.
Accordingly, the Company has expensed the entire amount and recorded $200,000 of
legal expense in the accompanying Statement of Operations for the period October
1, 2003 (inception of development stage) to December 31, 2004. The remaining
1,250 shares of the 8,750 shares issued were for new consulting services and
were valued at $104.00 per share, the closing share price on the grant date of
February 25, 2004 and are being amortized over the one year term of the
agreement - see Deferred Consulting below.

      In March 2004, the Company issued 16,250 shares of common stock (See
Common Stock Issuable below). 1,250 of the shares were issued as compensation
for the new CEO of the Company and were valued at $40.00 per share, the closing
price on the grant date of March 15, 2004 and are being amortized over the term
of the employment agreement from March 15, 2004 through March 15, 2005 - see
Deferred Compensation below. 11,250 of the 16,250 shares issued were for
consulting services provided to the Company and were valued at $40.00 per share,
the closing share price on the grant date of March 15, 2004. These shares were
issued as the last modification of the terms related to the November 9, 2003
issuance of 10,125 shares (see Deferred Consulting below) and additional shares
issued as discussed above. Accordingly, the Company will amortize these shares
over the term of the agreements based upon the grant date of March 15, 2004
through March 15, 2005 - see Deferred Consulting below. 3,750 shares of the
16,250 shares issued were for legal services provided to the Company and were
valued at $40.00 per share, the closing price on the grant date of March 15,
2004. The agreement for services did not specify a term and can be terminated by
either party on a monthly basis. Accordingly, the Company has expensed the
entire amount and recorded $150,000 of legal expense in the accompanying
Statement of Operations for the period October 1, 2003 (inception of development
stage) to December 31, 2004.

      In April and May 2004, the Company issued 3,167 shares of Common Stock.
The shares were issued for the conversion of $67,500 of convertible debentures
at $24.7449 per share

      In April 2004, the Company issued 2,750 shares of Common Stock. The shares
were valued at $40.00 per share, the closing price on the grant date of April
12, 2004, and were issued to a consultant for the conversion of $54,999 of
accounts payable and $55,001 of additional consulting services provide to the
Company. The agreement for the additional consulting services was for a term of
three months and the Company has expensed the entire $55,001 as consulting
expense in the accompanying Statement of Operations for the period October 1,
2003 (inception of development stage) to December 31, 2004.

      In April 2004, the Company issued 10,625 shares of common stock. 3,750
shares of the 10,625 shares issued were for legal services provided to the
Company and were valued at $40.00 per share, the closing price on the grant date
of April 12, 2004. The agreement for services did not specify a term and can be
terminated by either party on a monthly basis. Accordingly, the Company has
expensed the entire amount and recorded $150,000 of legal expense in the
accompanying Statements of Operations. 5,250 of the 10,625 shares issued were
for consulting services provided to the Company and were valued at $40.00 per
share, the closing share price on the grant date of April 12, 2004.
Subsequently, additional shares were issued to the same consultants as a
modification of the agreements (see 14,000 shares issuance below). Accordingly,
the Company has expensed the entire amount of the 5,250 shares issued and
recorded $210,000 of consulting expense in the accompanying Statement of
Operations. 1,625 of the shares were issued as the last modification for two
consultants that were issued shares previously. Accordingly, the Company will
amortize these shares over the six month term of the agreements based upon the
grant date of April 19, 2004 through October 19, 2004 - see Deferred Consulting
below.


                                       15
<PAGE>

      In April 2004, the Company issued 1,250 shares of Common Stock. In March
2004, the Company issued 16,250 shares of common stock as discussed above.
Subsequently, the Company determined that an error was made and 17,500 shares of
common stock should have been issued. The 1,250 shares were recorded as common
stock issuable at March 31, 2004 and were valued at $40.00 per share, the
closing price on the date of grant of the 16,250 shares discussed above and was
being amortized over the term of the agreement from March 15, 2004 through March
15, 2005. The Company recorded $50,000 of Deferred Consulting at March 31, 2004
and subsequently, additional shares were granted to this consultant as a
modification of the agreement for the 1,250 share issuance (see 14,000 share
issuance below) and the Company has expensed the remaining unamortized deferred
consulting balance - see Deferred Consulting below.

      In May 2004, the Company issued 14,000 shares of common stock. 1,050 of
the shares were issued as compensation for the new CEO of the Company and were
valued at $40.00 per share, the closing price on the grant date of March 7, 2004
and are being amortized over the term of the employment agreement from March 15,
2004 through March 15, 2005 - see Deferred Compensation below. 10,450 of the
14,000 shares issued were for consulting services provided to the Company and
were valued at $40.00 per share, the closing share price on the grant date of
May 7, 2004. These shares were issued as the last modification of the terms
related to previously issued shares to the consultants. Accordingly, the Company
will amortize these shares over the term of the agreements based upon the grant
date of May 7, 2004 through May 7, 2005 - see Deferred Consulting below. 2,500
of the 14,000 shares issued were for legal services provided to the Company and
were valued at $40.00 per share, the closing price on the grant date of May 7,
2004. The agreement for services did not specify a term and can be terminated by
either party on a monthly basis. Accordingly, the Company has expensed the
entire amount and recorded $150,000 of legal expense in the accompanying
Statement of Operations for the period October 1, 2003 (inception of development
stage) to December 31, 2004.

      In November 2004, the Company issued 25,000 shares of common stock as
compensation to the Chief Executive Officer and were issued as consideration of
services as Chief Executive Officer The shares were valued at $1.20 per share,
the fair market value on the grant date and $30,000 was recorded as deferred
compensation. The Company will amortize these shares over the term of the
agreement based upon the grant date of November 1, 2004 through October 31, 2005
- see Deferred Consulting below.

      In November 2004, the Company issued 650,000 shares of common stock.
250,000 shares of the 650,000 shares issued were for legal services provided to
the Company and were valued at $1.20 per share, the closing price on the grant
date of November 1, 2004. The agreement for services did not specify a term and
can be terminated by either party on a monthly basis. Accordingly, the Company
has expensed the entire amount and recorded $300,000 of legal expense in the
accompanying Statements of Operations. 250,000 of the 650,000 shares issued were
for consulting services provided to the Company and were valued at $1.20 per
share, the closing share price on the grant date of November 1, 2004. The
250,000 shares were issued as a modification of an existing agreement and the
term of the existing agreement has expired without modification. Accordingly,
the Company has expensed the entire amount of the 250,000 shares and recorded
$300,000 of consulting expense in the accompanying Statement of Operations.
25,000 of the 650,000 shares issued were for consulting services provided to the
Company and were valued at $1.20 per share, the closing price on the grant date
of November 1, 2004. Subsequently, additional shares were issued to the same
consultants as a modification of the agreement (see 75,000 shares issuance
below). Accordingly, the Company has expensed the entire amount of the 25,000
shares issued and recorded $30,000 of consulting expense in the accompanying
Statement of Operations. 75,000 of the 650,000 shares were issued as a
modification for the consultant who received the 25,000 shares discussed above
and were valued at $1.20 per share, the closing price on the grant date of
November 1, 2004. The Company will amortize the 75,000 shares or $90,000 over
the term of the agreement based upon the grant date of November 1, 2004 through
October 1, 2005 - see Deferred Consulting below. The final 50,000 of the 650,000
shares were issued to a consultant for prior and new consulting services and
were valued at $1.20 per share, the closing price on the grant date of November
1, 2004. The prior services were valued at $25,404 and had been recorded
previously and included in Accounts Payable as of September 30, 2004. The
Company will amortize the 50,000 shares or $34,596 ($60,000 less $25,404 of
Accounts payable converted) over the term of the agreement based upon the grant
date of November 1, 2004 through May 15, 2005 - see Deferred Consulting below.


                                       16
<PAGE>

Issuances of Preferred Stock:

      On August 23, 2004, the Company sold 10,000,000 shares of newly designated
Series A Convertible Preferred Stock. The obligation to buy the Series A
Convertible Preferred Stock created by the Subscription Agreement was, on the
same date, exchanged for a promissory note executed by the buyer as maker and
the Company as holder. The promissory note is in the principal amount of
$100,000, bears interest at the rate of 2% per annum and will be paid in
installments. The first installment is due on October 15, 2004 in the amount of
$10,000 and thereafter installments of $7,500 plus accrued interest are due each
month with all principal and interest due to be paid on or before October 15,
2005.

      The first installment under a promissory note receivable held by the
Company was due on October 15, 2004 in the amount of $10,000. The Company did
not receive this payment. Additionally, installments of $7,500 plus accrued
interest are due each month with all principal and interest due to be paid on or
before October 15, 2005. The second and third installments due on November 15,
2004 and December 15, 2004 in the amount of $7,500 each plus accrued interest
were not received by the Company either. As of the date of these Financial
Statements, the Company has not notified the nonperforming party that an event
of default has occurred. However, the Company believes that the promissory note
is fully collectible and will obtain the required proceeds in the foreseeable
future.

      The Company has recorded $712 of accrued interest on the promissory note
through December 31, 2004 in the accompanying Financial Statements.

      Pursuant to the Designation Certificate, The Series A Convertible
Preferred Stock will have no preferences in the event of liquidation and has no
stated dividend rate or dividend preference. The newly designated Series A
Convertible Preferred Stock has voting rights equal to the equivalent of 100
shares of common stock for each 1 share of Series A Convertible Preferred held.
These voting rights are limited to the specific purpose of voting on a 100 to 1
reverse stock split of Registrant's issued and outstanding common stock, but not
the total authorized common capital stock, of the Registrant. Otherwise, the
Series A Preferred Convertible Stock has no voting rights on any matter. The
Series A Convertible Preferred Stock is convertible into the common stock of
Registrant at the option of Registrant at a rate calculated to grant all holders
of the Series A Convertible Preferred Stock 5% of Registrant's common stock then
outstanding.

      In accordance with EITF Issue 98-5, as amended by EITF Issue 00-027, the
Company has evaluated that the convertible preferred stock discussed above does
not have a beneficial conversion feature as the preferred stock is not
convertible at the option of the holder and is therefore not deemed convertible
preferred stock for evaluation of the beneficial conversion.

Deferred Compensation

      On September 30, 2003, the Company authorized the issuance of 18,750
shares of common stock as compensation for the former President in accordance
with an amendment to the employment agreement. However, the transfer agent did
not issue the shares until October 15, 2003 and accordingly; such shares were
classified as common stock issuable in the balance sheet at September 30, 2003.
On October 15, 2003, the transfer agent issued these shares and they have been
properly reclassified as common stock in 2004. Of the 18,750 shares, 1,087 were
issued to settle $50,000 of accrued and unpaid salary for the former President
through September 30, 2003. In accordance with the amended employment agreement,
these shares were valued based upon a thirty percent (30%) discount to the
average stock price for the month of September or $48.00 per share. There was no
loss on settlement recorded since this was a related party transaction. The
remaining 17,663 shares were valued based upon the closing price on September
30, 2003, or $100.00 per share and the resulting $1,766,304 balance was recorded
as Deferred Compensation in the balance sheet at September 30, 2003. The
deferred compensation balance was being amortized over the remaining life of the
employment agreement from October 1, 2003 through June 1, 2005. For the three
months ended December 31, 2003, $264,946 was amortized and recorded as
compensation in the accompanying Statements of Operations (See below for
subsequent write-off).

      On November 9, 2003, the Company authorized the issuance of 3,750 shares
of common stock as compensation for the former President in accordance with an
amendment to the employment agreement. The shares were valued based upon the
closing price on the grant date of November 9, 2003, or $40.00 per share and the
resulting $150,000 was recorded as Deferred Compensation. The deferred
compensation balance was being amortized over the remaining life of the
employment agreement from November 9, 2003 through June 1, 2005. For the three
months ended December 31, 2003, $22,500 was amortized and recorded as
compensation in the accompanying Statements of Operations (See below for
subsequent write-off).


                                       17
<PAGE>

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

      On March 15, 2004, the Company authorized the issuance of 1,250 shares as
compensation for the new CEO of the Company. The shares were valued at $40.00
per share, the closing price on the grant date of March 15, 2004 and are being
amortized over the term of the employment agreement from March 15, 2004 through
March 15, 2005. Accordingly, the Company has recorded Deferred Compensation in
the amount of $50,000 on the grant date of March 15, 2004 and $39,583 of the
balance has been amortized and recorded as compensation in the accompanying
Statement of Operations.

      On May 7, 2004, the Company authorized the issuance of 1,050 shares as
compensation for the new CEO of the Company. The shares were valued at $40.00
per share, the closing price on the grant date of May 7, 2004 and are being
amortized over the term of the employment agreement from March 15, 2004 through
March 15, 2005. Accordingly, the Company has recorded Deferred Compensation in
the amount of $42,000 on the grant date of May 7, 2004 and $32,000 of the
balance has been amortized and recorded as compensation in the accompanying
Statement of Operations.

      In November 2004, the Company issued 25,000 shares of common stock as
compensation to the Chief Executive Officer and were issued as consideration of
services as Chief Executive Officer The shares were valued at $1.20 per share,
the fair market value on the grant date and $30,000 was recorded as deferred
compensation. The Company will amortize these shares over the term of the
agreement based upon the grant date of November 1, 2004 through October 31, 2005
and $5,000 of the balance has been amortized and recorded as compensation in the
accompanying Statement of Operations.

Deferred Consulting

      On November 9, 2003, the Company authorized the issuance of 10,125 shares
of common stock for consulting services provided to the Company and was valued
at $40.00 per share, the closing share price on the grant date of November 9,
2003 and the resulting $405,000 was recorded as Deferred Compensation. The
deferred compensation balance is being amortized over the one year term of the
agreements through November 9, 2004 and for the three months ended December 31,
2003, $57,699 was amortized and recorded as consulting expense in the
accompanying Statements of Operations. As a result of the issuance of additional
shares to the consultants as discussed below, in May 2004, the entire remaining
Deferred Consulting balance in the amount of $347,301 was expensed by the
Company and recorded as consulting expense in the accompanying Statement of
Operations.

      In February 2004, the Company issued 1,250 shares of common stock for new
consulting services. The shares were valued at $80.00 per share, the closing
share price on the grant date of February 25, 2004 and are being amortized over
the one year term of the agreement. Accordingly, the Company recorded $100,000
of Deferred Consulting on the grant date of February 25, 2004 and $83,333 of the
balance has been amortized and recorded as consulting expense in the
accompanying Statement of Operations.

      In April 2004, the Company issued 11,250 shares of common stock for
consulting services as a modification of the November 9, 2003 and subsequent
issuances as discussed previously under Issuances of Common Stock. The shares
were valued at $40.00 per share, the closing share price on the grant date of
March 15, 2004 and are being amortized over the one year term of the agreement
from the grant date of March 15, 2004. Accordingly, the Company recorded
$450,000 of Deferred Consulting on the grant date of March 15, 2004 and $448,509
of the balance has been amortized and recorded as consulting expense in the
accompanying Statement of Operations.

      In March 2004, the Company issued 16,250 shares of common stock as
discussed above. Subsequently, the Company determined that an error was made and
17,500 shares of common stock should have been issued. The 1,250 shares are for
new consulting services and the Company recorded the 1,250 shares as common
stock issuable at March 31, 2004. In April 2004, the 1,250 shares were issued by
the transfer agent and reclassed from Common Stock Issuable to Common Stock. The
shares were valued at $40.00 per share, the closing price on the date of grant
of the 16,250 shares discussed above and was being amortized over the term of
the agreement from March 15, 2004 through March 15, 2005. Accordingly, the
Company recorded $500,000 of Deferred Consulting on the grant date of March 15,
2004 and $490,147 of the balance has been amortized and recorded as consulting
expense in the accompanying Statement of Operations.


                                       18
<PAGE>

      In April 2004, the Company issued 1,625 shares of common stock as the last
modification for two consultants that were issued shares previously. The Company
is amortizing these shares over the six month term of the agreements based upon
the grant date of April 19, 2004 through October 19, 2004. Accordingly, the
Company recorded $65,000 of Deferred Consulting on the grant date of April 12,
2004 and all of the balance has been amortized and recorded as consulting
expense in the accompanying Statement of Operations.

      In April 2004, the Company issued 10,450 shares of common stock as the
last modification for several consultants that were issued shares previously.
The Company will amortize these shares over the one year term of the agreements
based upon the grant date of May 7, 2004 through May 7, 2005. Accordingly, the
Company recorded $418,000 of Deferred Consulting on the grant date of May 7,
2004 and $382,423 of the balance has been amortized and recorded as consulting
expense in the accompanying Statement of Operations.

      In November 2004, the Company issued 75,000 shares as a modification for a
consultant and valued at $1.20 per share, the closing price on the grant date of
November 1, 2004. The Company will amortize the 75,000 shares or $90,000 over
the term of the agreement based upon the grant date of November 1, 2004 through
October 1, 2005. Accordingly, the Company recorded $90,000 of Deferred
Consulting on the grant date of November 1, 2004 and $16,388 of the balance has
been amortized and recorded as consulting expense in the accompanying Statement
of Operations.

      In November 2004, the Company issued 50,000 shares to a consultant for
prior and new consulting services and valued at $1.20 per share, the closing
price on the grant date of November 1, 2004. The prior services were valued at
$25,404 and had been recorded previously and included in Accounts Payable as of
September 30, 2004. The Company will amortize the 50,000 shares or $34,596
(60,000 less $25,404 of Accounts payable converted) over the term of the
agreement based upon the grant date of November 1, 2004 through May 15, 2005 and
$10,767 of the balance has been amortized and recorded as consulting expense in
the accompanying Statement of Operations.

Stock Based Compensation Plans

      On September 29, 2003, the Company adopted a stock based compensation plan
for 5,000,000 shares of common stock for which stock options, restricted stock
and common stock may be granted from time to time to employees and consultants
of the Company in lieu of cash. Under this plan, the Company issued 2,000,000
shares of common stock into escrow for a pending merger. The merger was
terminated and the shares were subsequently cancelled. On October 3, 2003, the
Company adopted a stock based compensation plan for 10,000,000 shares of common
stock for which stock options, restricted stock and common stock may be granted
from time to time to employees and consultants of the Company in lieu of cash.
Under this plan, the Company issued 2,350 shares of common stock into escrow for
a pending merger. The merger was terminated and the shares were subsequently
cancelled.

Options

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

The following table summarizes activity related to options:
                                                        Number of       Weighted
                                                          Shares         Average
                                                          ------         -------
Balance at September 30, 2003 ..................          40,000          $ 1.00
  Granted ......................................               0               0
  Exercised ....................................               0               0
  Forfeited ....................................               0               0
                                                          ------          ------
Balance at December 31, 2004 ...................          40,000          $ 1.00
                                                          ======          ======

      All options to purchase our common stock have been issued with exercise
prices equal to or greater than fair market value on the date of issuance.

The terms of options to purchase our common stock are summarized below:


                                       19
<PAGE>

<TABLE>
<CAPTION>
--------------------------Options Outstanding--------------------------------- -------Options Exercisable------

---------------------------------------------------------------------------------------------------------------
                                                Weighted
                                                 Average                                            Weighted
                                Number          Remaining        Weighted           Number          Average
                            Outstanding at     Contractual       Average        Exercisable at      Exercise
Range of Exercise Prices     Sep. 30, 2004        Life        Exercise Price     Sep. 30, 2004       Price
------------------------- ------------------- -------------- ----------------- ------------------ -------------
          <S>                   <C>             <C>                <C>              <C>              <C>
          $1.00                 40,000          .58 Years          1.00             40,000           $1.00
          =====                 ======          =========          ====             ======           =====
</TABLE>

Compensation Expense for Options Granted to Employees, Officers and Directors

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

7. COMMITMENTS AND CONTINGENCIES

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

      On June 14, 2002, Wyndham Hotel Corporation ("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 December 31, 2004, the total amount due is $54,168
(including $11,860 of accrued interest) and is included under the caption
Judgment Payable in the accompanying balance sheet as of December 31, 2004.

      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
December 31, 2004, the Company has recorded $264,699 in the accompanying Balance
Sheet for the estimated amount due (including accrued interest and penalties).
As a result, the IRS could attach a lien against the Company's assets and bank
accounts to protect their claim.

      On July 1, 2002, the Company relocated its facility and had a single month
to month operating lease agreement for the business office located in San
Antonio, Texas. There was no restriction on our activities concerning dividends,
additional debt or further leasing. In 2004, the Company closed this facility
and moved the business office from San Antonio, Texas to Gig Harbor, Washington.
We currently do not have a lease and we are not paying rent for our office
space. It is being provided to the Company by an officer/director free of charge
(See Note 8 - Related Party Transactions). Usage of this office space and the
related value is de minimis. Therefore, no expense has been recorded in the
accompanying Financial Statements. We expect we will have to lease more
substantial office in the near future and that the cost of the space may be
material to our operations.

8. RELATED PARTY TRANSACTIONS

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

      At September 30, 2004, the same director discussed above was owed $25,092
in accrued compensation related to legal services provided to the Company and
has been classified as accrued compensation - related party in the accompanying
Balance Sheet at December 31, 2004.

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


                                       20
<PAGE>

      We currently do not have a lease and we are not paying rent for our office
space. It is being provided to the Company by an officer/director free of charge
(See Note 7 - Commitments and Contingencies). Usage of this office space and the
related value is de minimis. Therefore, no expense has been recorded in the
accompanying Financial Statements. We expect we will have to lease more
substantial office in the near future and that the cost of the space may be
material to our operations.

9. SUBSEQUENT EVENTS

      In February 2005, the Company issued 43,000,000 shares of its 0.001 par
value common stock to seven (7) groups for legal and consulting services. The
shares were valued at $0.035 per share, the market price of the common stock on
the date of grant. The Company will record legal and consulting expense in the
amount of $1,505,000.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following is a discussion of our financial condition, results of operations,
liquidity and capital resources. This discussion should be read in conjunction
with our audited financial statements and the notes thereto included elsewhere
in our Form 10-KSB for the year ended September 30, 2004 and 2003.

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

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

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

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

GENERAL

      Nannaco, Inc. ("Nannaco", "the Company", "we", "us") was incorporated
under the laws of the State of Texas on October 20, 1998, and immediately
thereafter began operations. The Company's shares began trading on September 5,
2002 on the OTCBB. The Company previously provided surface cleaning, surface
protection, surface restoration, and other services to commercial businesses, as
well to the owners of historical buildings. The Company previously operated
under the trade name of Surface Pro.


                                       21
<PAGE>

      Until September 2003, Nannaco focused on surface cleaning, surface
protection and restoration. However, sales from these products were not
sufficient to enable the company to continue operations. In September 2003, the
Company changed its strategy due to poor operating conditions and financial
results coupled with difficulties in raising capital through debt and equity
sources. The Company adopted a new strategy during the fourth quarter of 2003
that committed to the disposal of its current business and to seek a
merger/acquisition transaction with a Company having better financial resources.
As of September of 2003, the Company ceased all operating activities and has
disposed of most of its assets. The Company has entered a new development phase,
while formulating a plan to improve its financial position.

OVERVIEW OF COMPANY.

      Since its inception, the Company has suffered recurring losses from
operations and has been dependent on existing stockholders and new investors to
provide cash resources to sustain its operations. During the three months ended
December 31, 2004 and 2003, the Company reported net losses of $982,882 and
$694,940 respectively.

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

      -     The Company's ability to continue to obtain vital professional
            services in exchange for the issuance by the Company of registered
            and unregistered capital stock

      -     The Company's ability to find a suitable merger or acquisition
            candidate that can increase profitability and sustain a cash flow
            level that will ensure support for continuing operations.

RECENT DEVELOPMENTS

      In February 2005, the Company issued 43,000,000 shares of its 0.001 par
value common stock to seven (7) groups for legal and consulting services. The
shares were valued at $0.035 per share, the market price of the common stock on
the date of grant. The Company will record legal and consulting expense in the
amount of $1,505,000.

GOING CONCERN

      The independent registered public accounting firm's report to our
financial statements for the years ended September 30, 2004 and September 30,
2003, include an emphasis paragraph in addition to their audit opinion stating
that the Company's recurring losses from operations including a net loss in 2004
of $6,400,107, working capital deficit of $840,706 at September 30, 2004,
accumulated deficit from prior business operations and deficit accumulated
during the development stage at September 30, 2004 of $5,048,764 and $6,400,107,
respectively, and substantial obligations and default on convertible debentures
with no current resources to satisfy the obligations raise substantial doubt
about our ability to continue as a going concern. Our financial statements do
not include any adjustments to reflect the possible effects on recoverability
and classification of assets or the amounts and classification of liabilities
that may result from our inability to continue as a going concern.

VALUATION OF NON-CASH ISSUANCES OF COMMON STOCK

      The Company issued common stock to several parties in non-cash
transactions during the three months ending December 31, 2004. For the majority
of these issuances, valuation was determined based upon the stock closing price
on the date of issuance.

VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS

      In assessing the recoverability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. Net operating loss carry-forwards
aggregate approximately $2,819,000 and expire in the years through 2023.

      As of October 1, 2003 the Company has changed its strategy and moved into
a new line of business. As a result of this change, under IRS rules,
approximately 2,537,000 of the net operating loss carry-forward, through
September 30, 2003 discussed above will not be allowable.


                                       22
<PAGE>

RESULTS OF OPERATIONS

Three months ended December 31, 2004 compared to three months ended December 31,
2003

                                                          Three Months Ended
                                                             December 31,
                                                         2004            2003
                                                      -------------------------

REVENUES FROM DISCONTINUED OPERATIONS                 $      --       $  15,577

COST OF REVENUES                                             --          13,133
                                                      -------------------------

GROSS LOSS                                                   --           2,444

OPERATING EXPENSES:

Selling, general and administrative                          --          17,210

Compensation and payroll taxes                           35,590         346,365

Consulting                                              599,371          88,499

Legal and professional                                  305,000         215,300

Rent                                                         --           1,495

Travel and entertainment                                     --           1,281

Debenture liquidated damages                             38,203          21,000

Bad debt expense                                             --              --
                                                      -------------------------

TOTAL OPERATING EXPENSES                                978,165         691,150
                                                      -------------------------

LOSS FROM OPERATIONS                                   (978,165)       (688,706)

OTHER EXPENSE:

Interest expense, net                                    (4,717)         (6,234)
                                                      -------------------------

TOTAL OTHER EXPENSE                                      (4,717)         (6,234)
                                                      -------------------------

NET LOSS                                              $(982,882)      $(694,940)
                                                      =========================

Revenue:

Operating revenue decreased $15,577, or 100%, to zero for 2004 from $15,577 for
2003. The decrease was primarily the result of the Company making the decision
to exit the current line of business.


                                       23
<PAGE>

Cost of Sales:

Cost of sales decreased $13,133, or 100%, to zero for 2004 from $13,133 for
2003. The decrease was primarily the result of making the decision to exit the
current line of business.

Operating Expenses:

Operating expenses increased $287,015, or 42%, to $978,165 for 2004 from
$691,150 for 2003. The increase was primarily the result of a $510,872 increase
in consulting and an $89,700 increase in legal and professional, offset by a
$310,775 decrease in compensation. The increase in consulting and legal and
professional was primarily the result of the issuance of stock for services and
amortization of deferred services. The decrease in compensation was primarily
the result of a decrease in the issuance of stock for compensation.

Other Expense:

Other expense decreased $1,517, or 24% to $4,717 for 2004 from $6,234 for 2003.
The decrease was primarily from a decrease in interest expense as a result of
less convertible debentures outstanding in 2004 as compared to 2003.

Liquidity and Capital Resources

      Cash and cash equivalents were $0 at December 31, 2004 as compared to $0
at September 30, 2004, and working capital deficit was $869,817 at December 31,
2004 as compared to $840,706 at September 30, 2004. The increase in the working
capital deficit was primarily due to a $38,203 increase in other current
liabilities as a result of accrued liquidated damages for convertible
debentures.

Operating Activities: Cash used in operating activities was $0 for both 2004 and
2003 as a result of the Company having no cash balances outstanding for either
period.

Investing Activities: There were no investing activities for both 2004 and 2003
as a result of the Company having no cash balances outstanding for either
period.

Financing Activities: There were no financing activities for both 2004 and 2003
as a result of the Company having no cash balances outstanding for either
period.

Short-Term Debt

Our short-term debt at December 31, 2004 consisted of the following:

Bank Loans
----------
$35,000 bank installment loan, dated Feb. 19, 2000, bearing interest
  at 10% per annum, 60 monthly payments of principal and interest .....  $25,350
$35,000 bank line of credit, bearing interest at prime plus
  1.25% per annum, interest payable monthly and line of credit
  due July 15, 2002 ...................................................   33,986
                                                                         -------
                                                                         $59,336
                                                                         =======

      On February 19, 2000, we obtained a bank installment loan in the amount of
$35,000, of which $25,350 is outstanding at 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 December 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.

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.


                                       24
<PAGE>

Convertible Debentures
----------------------
$175,000 Convertible Debentures, dated March and April of 2003, bearing
  interest at 6% per annum and due in March and April of 2006 ........  $107,500
                                                                        ========

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

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

      Under a related Registration Rights Agreement, the Company is subject to a
2% monthly liquidated damages penalty for not filing a registration statement
with the Securities and Exchange Commission, within a stipulated timeframe, to
register the common shares underlying the convertible debentures and another 2%
monthly liquidated damages penalty relating to that registration statement not
becoming effective within a stipulated timeframe. The liquidated damages penalty
started accruing at 2% or $3,500 per month at June 1, 2003 and at another 2% or
$3,500 per month starting September 1, 2003. The penalties for June and July
2003 were satisfied with the issuance of 350,000 of the Company's common shares
to the debenture investors and remaining accrued liquidated damages were $10,500
at September 30, 2003. The Company recognized a gain on 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 period from April 1,
2004 through December 31, 2004, the Company has recorded an additional $40,443
of liquidated damages resulting in an accrued balance of $40,443 as of December
31, 2004.

      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 December 31,
2004.

      In April and May of 2004, $67,500 principal amount of the debentures was
converted into 12,668,047 shares of our common stock. $60,000 of the debentures
was converted in April 2004 into 10,943,910 shares at $0.0054825 per share and
$7,500 of the debentures was converted in May 2004 into 1,724,137 shares at
$0.00435 per share.

      As a result of the above conversions, $107,500 principal amount of the
convertible debentures is outstanding at December 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 2005. Presently, we
have no source of revenues and have moved into a new business concept as a
consultant and advisor to customers. We cannot assure you that the new business
concept will provide sufficient proceeds, if any, and borrowings under any
interim financing we are able to secure will be sufficient to meet our projected
cash flow needs.


                                       25
<PAGE>

Our ability to obtain additional financing depends on many factors beyond our
control, including the state of the capital markets, the market price of our
common stock, the prospects for our business and the approval by our
stockholders of an amendment to our certificate of incorporation increasing the
number of shares of common stock we are authorized to issue. The necessary
additional financing may not be available to us or may be available only on
terms that would result in further dilution to the current owners of our common
stock. Failure to obtain commitments for interim financing and subsequent
project financing, would have a material adverse effect on our business, results
of operations and financial condition. If the financing we require to sustain
our working capital needs is unavailable or insufficient or we do not receive
the necessary financing, we may be unable to continue as a going concern.

Contractual Obligations and Commercial Commitments

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

                                                Payments Due by Period
                                                ----------------------
                                        Less than     1-3       4-5      After
Contractual Obligations         Total     1 year     years     years    5 years
-----------------------       --------   --------   -------   -------   -------

Short-Term Debt:
---------------
Bank Loans ..................   59,336     59,336        --        --        --
Loan Payable-Related Party ..   42,700     42,700        --        --        --
Convertible Debentures ......  107,500    107,500        --        --        --
                              --------   --------   -------   -------   -------
Total Short-Term Debt ....... $209,536   $209,536   $    --        --        --
                              ========   ========   =======   =======   =======

2005 OUTLOOK

      Our ability to continue in existence is heavily dependent on securing
additional capital from investors or debt. There is no assurance that additional
equity or debt financing will be available on terms acceptable to Management, or
on any terms at all.

Item 3. Evaluation of Disclosure Controls and Procedures.

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

PART II

Item 1.  Legal Proceedings

      The company is not presently engaged in legal proceedings not previously
reported and there have been no material changes in previously reported legal
proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

      In October 2004, in reliance on section 4(2) of the Securities Act of 1933
the Company issued 750,000 shares of common stock as compensation to the Chief
Executive Officer in his capacity as Chief Financial Officer and director. The
shares were issued as consideration of services past and continuing and subject
to substantial conditions constituting events of forfeiture. Under conditions of
the issuance, the officer was required to raise capital in excess of $5,000,000
within 90 days following this issuance or forfeit the shares. As of the date of
these Financial Statements, the requirement had not been met and the Company is
commencing the process to have the shares cancelled and returned. The shares
were valued at $1.20 per share, the fair market value on the grant date: or
$900,000 in total. It is anticipated that the shares will be canceled and the
$900,000 of deferred compensation will be reversed at that time by the Company.
Accordingly, the Company has recorded the common stock and related deferred
compensation as Contingent Returnable Common Stock in the accompanying Balance
Sheet as of December 31, 2004.


                                       26
<PAGE>

Item 3. Defaults Upon Senior Securities

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

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

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

Item 4. Submission of matters to a Vote of Securities Holders

      In December 2004, the Company provided an Information Statement to its
stockholders indicating consents had been obtained in sufficient number to
authorize the board of directors to effect a 1 for 40 reverse stock split of the
common stock. Nannaco is currently authorized to issue 500,000,000 shares of its
common stock of which approximately 61,742,534 shares were issued and
outstanding as of November 4, 2004. Shareholders holding 51,000,000 of the
voting capital stock consented in writing to the proposal, constituting approval
in excess of 67% of the shares entitled to vote. A reverse split on a 1 for 40
basis reduced the number of issued and outstanding shares to approximately
793,563 (excluding 750,000 shares classified as Contingent Returnable Common
Stock), but did not reduce the number of authorized shares of common stock. The
reverse split did not have any effect on the stated par value of the common
stock.

Item 5. Other Information

On December 30, 2004 the Registrant and NAZZ Productions, Inc. entered into an
amended merger agreement providing that the time for completion of the merger is
extended to March 31, 2005. The previous unamended agreement provided for
completion prior to December 31, 2004.

Item 6. Exhibits

      The following exhibits are filed herewith:

<TABLE>
<CAPTION>
Exhibit                  Title                                      Location
-------                  -----                                      --------
<S>      <C>                                           <C>
2        Plan and Agreement of Merger with NAZZ        Incorporated by Reference to Form
         Productions, Inc.                             8-Kdated August 23, 2004

2.1      Amendment to Plan and Agreeement of           Filed Herewith
         Merger with NAZZ Productions, Inc.


3.1      Articles of Incorporation                     Incorporated by Reference to the
                                                       SB-2 Registration Statement filed
                                                       August 21, 2000

3.2      Bylaws                                        Incorporated by Reference to the
                                                       SB-2 Registration Statement filed on
                                                       August 21, 2000
</TABLE>


                                       27
<PAGE>

<TABLE>
<CAPTION>
<S>      <C>                                           <C>
3.2a     Certificate of Amendment to Articles of       Incorporated by Reference to the
         Incorporation                                 SB-2 Registration Statement filed on
                                                       August 21, 2000

3.3      Certificate of Amendment to Articles of       Incorporated by Reference to the
         Incorporation                                 Preliminary Schedule 14C filed
                                                       February 10, 2004

3.4      Certificate of Designation of Series A        Incorporated by Reference to Form
         Convertible Preferred Stock                   8-K dated August 23, 2004

4.01     2003 Stock Option And Grant Plan              Incorporated by Reference to Form
                                                       S-8 Registration Statement filed
                                                       September 30, 2003

4.1      Form of Common Stock Certificate              Incorporated by Reference to the
                                                       SB-2 Registration Statement filed on
                                                       August 21, 2000

4.1a     Engagement Agreement with The Otto Law        Incorporated by Reference to the
         Group, PLLC                                   Form S-8 Registration Statement
                                                       filed November 21, 2003

4.1b     Consulting Services Agreement with James J.   Incorporated by Reference to Form
         Taylor                                        S-8 filed April 21, 2004

4.1c     Amendment No. 5 to Consulting Services        Incorporated by Reference to Form
         Agreement between Bartholomew International   S-8 filed May 11, 2004
         Investments Limited, Inc. and NANNACO, Inc.

4.2      Consulting Services Agreement between         Incorporated by reference to the
         Aequitas Company and NANNACO, Inc.            Form S-8 Registration Statement
                                                       filed November 21, 2003

4.2a     Amendment No. 1 to Consulting Services        Incorporated by Reference to Form
         Agreement with Nicole Van Coller              S-8 filed May 11, 2004

4.3      Consulting Services Agreement with T.T.       Incorporated by reference to the
         Byrne Capital Investments, Inc. dated         Form S-8 Registration Statement
         11-17-2003                                    filed November 21, 2003

4.3b     Consulting Services Agreement                 Incorporated by reference to the
          between Michael Nerone and NANNACO, Inc.     Form S-8 Registration Statement
                                                       filed January 13, 2004

4.4      Consulting Services Agreement between         Incorporated  by  reference  to the
         Bartholomew International Investments         Form S-8 filed November 21, 2003
         Limited, Inc. and NANNACO, Inc. (1

4.4a     Consulting Services Agreement between         Incorporated by Reference to Form
         Kenneth Davidson and NANNACO, Inc.            S-8 Registration Statement filed
                                                       January 13, 2004
</TABLE>


                                       28
<PAGE>

<TABLE>
<CAPTION>
<S>      <C>                                           <C>
4.4b     Amendment No. 1 to Consulting Services        Incorporated by Reference to the
         Agreement with Michael Nerone                 Form S-8 Registration Statement
                                                       filed March 2, 2004

4.4c     Amendment No. 1 to Agreement with Vintage     Incorporated by Reference to Form
         Filings, LLC dated May 6, 2004                S-8 filed May 11, 2004

4.5      Consulting Services Agreement between         Form S-8 Registration Statement
         Mark Triesch and NANNACO, Inc.                filed January 13, 2004

4.5a     Amendment No.1 to Consulting Services         Form S-8 Registration Statement
         Agreement between Kenneth Davidson and        filed March 2, 2004
         NANNACO, Inc.

4.5b     Consulting Services Agreement with Chris      Incorporated by Reference to Form
         Ebersole dated May 6, 2004                    S-8 filed May 11, 2004

4.6      Consulting Services Agreement with Vintage    Incorporated by reference to the
         Filings, LLC                                  Form S-8 Registration Statement
                                                       filed November 21, 2003

4.6a     Amendment No. 1 to Consulting Services        Incorporated by Reference to Form
         Agreement between Mark Triesch and NANNACO,   S-8 Registration Statement filed
         Inc.                                          March 2, 2004

4.6b     Amendment No. 4 to Consulting Services        Incorporated by Reference to Form
         Agreement between Bartholomew International   S-8 Registration Statement filed
         Investments Limited, Inc. and NANNACO, Inc.   April 15, 2004

4.7      Amendment No. 1 to Consulting Services        Incorporated by Reference to Form
         Agreement between Aequitas Company and        S-8 Registration Statement filed
         NANNACO, Inc.                                 January 13, 2004

4.7a     Amendment No. 1 to Employment Agreement       Incorporated by reference to the
         with Andrew Devries III                       Form S-8 Registration Statement
                                                       filed November 21, 2003

4.8      Amendment No. 1 to Consulting Services        Incorporated by Reference to Form
         Agreement between Bartholomew International   S-8 Registration Statement filed
         Investments Limited, Inc. and NANNACO, Inc.   January 13, 2004

4.8c     Consulting Services Agreement with Vintage    Incorporated by Reference to Form
         Filings, LLC dated April 6, 2004              S-8 filed April 15, 2004

4.3(e)   Amendment No. 6 to Consulting Services        Incorporated by Reference to Form
         Agreement between Bartholomew                 S-8 filed November 4, 2004
         International Investments Limited, Inc.,
         and Nannaco, Inc.
</TABLE>


                                       29
<PAGE>

<TABLE>
<CAPTION>
<S>      <C>                                           <C>
4.4e     Consulting Services Agreement between Bruce   Incorporated by Reference to Form
         Arthur Hall and Nannaco, Inc.                 S-8 filed November 4, 2004
                                                       o
4.5e     Consulting Services Agreement between Lou     Incorporated by Reference to Form
         Digiaimo, Jr. and Nannaco, Inc.               S-8 filed November 4, 2004

4.6e     Amendment No.1 to Consulting Services         Incorporated by Reference to Form
         Agreement between Lou                         S-8 filed November 4, 2004
          Digiaimo, Jr. and Nannaco, Inc

4.7a     Consulting Services Agreement between Steve   Incorporated by Reference to Form
         Careaga and Nannaco, Inc.                     S-8 filed November 4, 2004

4.9      Amendment No. 1 to Consulting Services        Incorporated by Reference to Form
         Agreement with Caopital Group International   S-8 filed April 15, 2004
         dated April 14, 2004

4.10     Consulting Services Agreement with Michael    Incorporated by Reference to Form
         Park dated April 14, 2004                     S-8 filed April 15, 2004

4.12     Amendment No. 2 to Consulting Services        Incorporated by Reference to Form
         Agreement between Bartholomew International   S-8 filed March 2, 2004
         Investments Limited, Inc. and NANNACO, Inc.

4.13     Amendment No. 2 to Consulting Services        Incorporated by Reference to Form
         Agreement between Aequitas Company and        S-8 filed March 2, 2004
         NANNACO, Inc.

4.14     Consulting Services Agreement with Bagswell   Incorporated by Reference to Form
         Capital LLC dated February 23, 2004           S-8 filed March 2, 2004

4.15     Consulting Services Agreement with Seth       Incorporated by Reference to Form
         Elliott dated February 23, 2004               S-8 filed March 2, 2004

10.1     Settlement Agreement and Release with and     Incorporated by Reference to Form 10
         by  James J. Taylor                           QSB filed May 24, 2004

10.1a    Employment Agreement with Andrew Devries      Incorporated by Reference to Form8-K
         III dated June 1, 2002                        filed November 18, 2004

10.1b    Amendment No. 1 to Employment Agreement       Incorporated by Reference to
         with Andrew Devries III dated June 1, 2003    Form8-K/A filed February 10,2004

10.2     Employment Agreement with Steve Careaga       Incorporated by Reference to the
                                                       Form S-8 registration statement
                                                       filed on March 16, 2004

10.3     $375,000 Promissory Note executed by          Incorporated by Reference to Form
         Andre DeVries, III payable to the             10QSB/A filed June 21, 2004
         Registrant
</TABLE>


                                       30
<PAGE>

<TABLE>
<CAPTION>
<S>      <C>                                           <C>
10.4     Agreement and Plan of Merger dated July 8,    Incorporated by Reference to Form
         2004 between Nannaco and Red Alert            10QSB filed August 25, 2004

10.5     Termination Agreement dated                   Incorporated by Reference to Form
         August 16 terminating Nannaco/Red             10QSB filed August 25, 2004
         Alert merger

10.6     Nelana Holdings, Ltd. Subscription for        Incorporated by Reference to Form
         Series A Convertible Preferred Stock          8-K dated August 23, 2004

10.7     Promissory Note dated August 23, 2004:        Incorporated by Reference to Form
         Nelana Holdings, Ltd. Maker                   8-K dated August 23, 2004

10.8     Consulting Agreement with Steve Careaga,      Incorporated by Reference to Form
         dated October 29, 2004                        8-K filed October 29, 2004

41       Amendment No. 3 to Consulting Services        Incorporated by Reference to Form
         Agreement with Bartholomew International      S-8 filed March 16, 2004
         Investments Limited dated February 23, 2004

42       Amendment No.2 to Consulting Services         Incorporated by Reference to Form
         Agreement between Kenneth Davidson and        S-8 filed March 16, 2004
         NANNACO, Inc. dated March 15, 2004

43       Amendment No. 2 to Consulting Services        Incorporated by Reference to Form
         Agreement between Mark Triesch and NANNACO,   S-8 filed March 16, 2004
         Inc.

44       Consulting Services Agreement with Daedalus   Incorporated by Reference to Form
         Ventures, Inc. dated March 15, 2004           S-8 filed March 16, 2004

45       Consulting Services Agreement with Nicole     Incorporated by Reference to Form
         Leigh Van Coller dated March 15, 2004         S-8 filed March 16, 2004

46       Amendment No. 1 to Consulting Services        Incorporated by Reference to Form
         Agreement with Bagswell Capital LLC           S-8 filed March 16, 2004

47       Consulting Services Agreement with Saratoga   Incorporated by Reference to Form
         Capital Partner, Inc. dated February 23,      S-8 filed March 16, 2004
         2004

48       Employment Agreement with Steve Careaga       Incorporated by Reference to Form
         dated March 15, 2004                          S-8 filed March 16, 2004

418      Cobnsulting Services Agreement with Capital   Incorporated by Reference to Form
         Group International LLLP - Western Series     S-8 filed March 16, 2004
         dated March 15, 2004

31.1     Certificate of Principal Executive Officer    Filed Herewith

31.2     Certificate of Principal Financial Officer    Filed Herewith
</TABLE>


                                       31
<PAGE>

<TABLE>
<CAPTION>
<S>      <C>                                           <C>
32       Certifications of Principal Executive         Filed Herewith
         and Financial Officer Pursuant to 906
</TABLE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of NANNACO, Inc.,
in the capacities and on the dates indicated.


NAME AND SIGNATURE              TITLE                          DATE

                                Principal Executive Officer,   February 22, 2005
                                Principal Financial Officer,
/s/ Steve Careaga               Sole Director
---------------------------
Steve Careaga


                                       32