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 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 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 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 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 NANNACO, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS (Unaudited) Period From October 1, 2003 (Inception of Three Months Ended Development Stage) December 31, To December 31, 2004 2003 2004 --------------------------------- ----------- 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 ================================= =========== The accompanying notes are an integral part of the financial statements. 6 NANNACO, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS (Unaudited) Period From October 1, 2003 (Inception of Three Months Ended Development Stage) December 31, To December 31, 2004 2003 2004 ------------------------------------------------------- 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 $ -- $ -- $ -- ======================================================= The accompanying notes are an integral part of the financial statements. 7 NANNACO, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS (Continued) (Unaudited) Period From October 1, 2003 (Inception of Three Months Ended Development Stage) December 31, To December 31, 2004 2003 2004 -------------------------------------------------- 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 The accompanying notes are an integral part of the financial statements. 8 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 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 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 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 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 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 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 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 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 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 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 - --------------------------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 - ------------------------- ------------------- -------------- ----------------- ------------------ ------------- $1.00 40,000 .58 Years 1.00 40,000 $1.00 ===== ====== ========= ==== ====== ===== Compensation Expense for Options Granted to Employees, Officers and Directors Had compensation cost for our stock options not been determined consistent with SFAS 123, the Company's net loss per share would not have changed. 7. COMMITMENTS AND CONTINGENCIES From time to time we may become subject to proceedings, lawsuits and other claims in the ordinary course of business including proceedings related to environmental and other matters. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. 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 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 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 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 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 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 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 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: Exhibit Title Location - ------- ----- -------- 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 27 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 28 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. 29 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 30 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 31 32 Certifications of Principal Executive Filed Herewith and Financial Officer Pursuant to 906 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