<TABLE> NANOSCIENCE TECHNOLOGIES, INC. TABLE OF CONTENTS PART I <S> <C> <C> ITEM 1. DESCRIPTION OF BUSINESS.............................................................................1 ITEM 2. DESCRIPTION OF PROPERTY............................................................................16 ITEM 3. LEGAL PROCEEDINGS..................................................................................16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................16 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...........................................17 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..........................................18 ITEM 7. FINANCIAL STATEMENTS...............................................................................21 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...............22 ITEM 8A. CONTROLS AND PROCEDURES............................................................................22 ITEM 8b. OTHER INFORMATION..................................................................................22 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT................................................. 22 ITEM 10. EXECUTIVE COMPENSATION.............................................................................23 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....................................24 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................................................24 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...................................................................25 ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES............................................................26 SIGNATURES ...................................................................................................26 </TABLE> PART I ITEM 1. DESCRIPTION OF BUSINESS FORWARD-LOOKING AND CAUTIONARY STATEMENTS This report contains certain forward-looking statements. These statements relate to future events or our future performance and involve known and unknown risks and uncertainties. Actual results may differ substantially from such forward-looking statements, including, but not limited to, the following: o our ability to search for an appropriate business opportunity and to subsequently acquire or merge with such entity; o to meet our cash and working capital needs; o our ability to maintain our corporate existence as a viable entity; and o other risks detailed in our periodic report filings with the SEC. In some cases, you can identify forward-looking statements by terminology such as "may," "will" "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology. These statements are only predictions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. RECENT DEVELOPMENTS CESSATION OF OPERATIONS As disclosed prior to the date of the filing of this Annual Report on Form 10-KSB, we have experienced a chronic working capital deficiency, which has severely handicapped our ability to meet our business objectives. At the date hereof, we have no current assets and liabilities of approximately $2,214,000. We recorded no revenues during the fiscal year ended September 30, 2007. Further, we are in default with respect to loans in the principal amount of $1,858,100 from our principal creditor as described in Note 6. We have expended efforts to secure additional capital from both our principal creditor and other third parties, but such efforts have been unsuccessful. Currently, we have a severe working capital deficiency. We are party to an Amended and Restated Research and License Agreement, dated September 12, 2003, (the "License Agreement") with New York University ("NYU") that was further amended on November 11, 2003. The License Agreement is our sole material asset. Under the terms of the License Agreement, NYU granted to us a license to certain pre-existing inventions and certain intellectual property to be generated by a designated research project being conducted at NYU relating to DNA nanotechnology. Pursuant to the License Agreement, we are required to pay to NYU an annual licensing fee. At the date hereof, we are in default of our payment obligations under the License Agreement in the amount of $347,500 and have received notice from NYU that NYU intends to terminate the License Agreement. Further, we are required to reimburse NYU additional amounts for patent fees and other expenses. As of September 30, 2007 we have a payable due NYU of $433,615. 1 Accordingly, we have determined on December 1, 2006 to cease operations immediately and, at the request of such creditor appointed a director designated by such creditor to our Board of Directors. Immediately following such appointment, our existing directors resigned effective immediately and terminated their association with us. Accordingly, such creditor may be deemed to control us at the date of the filing of this Report. SHELL COMPANY STATUS As a result of our cessation of operations and the termination of the License Agreement, we became a "blank check" or "shell company" whose sole purpose at this time is to locate and consummate a merger or acquisition with a private entity. Many states have enacted statutes, rules and regulations limiting the sale of securities of "blank check" companies in their respective jurisdictions. Management does not believe it will undertake any efforts to cause a market to develop in our securities until such time as we have successfully implemented our business plan described herein. However, if we intend to facilitate the eventual creation of a public trading market in our outstanding securities, we must consider that our securities, when available for trading, will be subject to a Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors. For purposes of the rule, the phrase "accredited investors" means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse's income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker- dealers to sell our securities and also may affect the ability of holders of our securities to sell their securities in any market that might develop therefore. In addition, the Securities and Exchange Commission has adopted a number of rules to regulate "penny stocks." Because our securities are "penny stocks" within the meaning of the rules, the rules would apply to us and to our securities. See "Risk Factors - Our Common Stock is penny stock." The rules may further affect the ability of owners of the Common Stock to sell our securities in any market that might develop for them. Our business plan is to seek, investigate, and, if warranted, acquire one or more properties or businesses, and to pursue other related activities intended to enhance shareholder value. The acquisition of a business opportunity may be made by purchase, merger, exchange of stock, or otherwise, and may encompass assets or a business entity, such as a corporation, joint venture, or partnership. We have very limited capital, and it is unlikely that we will be able to take advantage of more than one such business opportunity. At the present time, we have not identified any business opportunity that it plans to pursue, nor have we reached any agreement or definitive understanding with any person concerning an acquisition. It is anticipated that our officers and directors may contact broker-dealers and other persons with whom they are acquainted who are involved in corporate finance matters to advise them of our existence and status and to determine if any companies or businesses they represent have an interest in considering a merger or acquisition with us. We can provide no assurance that we will be successful in finding or acquiring a desirable business opportunity, given the limited funds that are expected to be available to us for acquisitions, or that any acquisition that occurs will be on terms that are favorable to us or our stockholders. We anticipate that the business opportunities presented to us will (i) be recently organized with no operating history, or a history of losses attributable to under-capitalization or other factors; (ii) be experiencing financial or operating difficulties; (iii) be in need of funds to develop a new product or service or to expand into a new market; (iv) be relying upon an untested product or marketing concept; or (v) have a combination of the characteristics mentioned in (i) through (iv). We intend to concentrate our acquisition efforts on properties or businesses that we believe to be undervalued. Given the above factors, investors should expect that any acquisition candidate may have a history of losses or low profitability. 2 We do not propose to restrict our search for investment opportunities to any particular geographical area or industry, and may, therefore, engage in essentially any business, to the extent of our limited resources. This includes industries such as service, finance, natural resources, manufacturing, high technology, product development, medical, communications, construction, real estate development, and others. As a consequence of the registration of its securities, any entity which has an interest in being acquired by, or merging into us, is expected to be an entity that desires to become a public company and establish a public trading market for its securities. In connection with such a merger or acquisition, it is highly likely that an amount of stock constituting control of us would be issued by us or purchased from our current principal shareholders by the acquiring entity or its affiliates. In our judgment, none of our officers and directors would thereby become an "underwriter" within the meaning of the Section 2(11) of the Securities Act of 1933, as amended. The sale of a controlling interest by certain of our principal shareholders could occur at a time when our other shareholders remain subject to restrictions on the transfer of their shares. Depending upon the nature of the transaction, our current officers and directors may resign their management positions with us in connection with our acquisition of a business opportunity. In the event of such a resignation, our current management would not have any control over the conduct of our business following our combination with a business opportunity. It is anticipated that business opportunities will come to our attention from various sources, including our officers and directors, our other stockholders, professional advisors such as attorneys and accountants, securities broker-dealers, venture capitalists, members of the financial community, and others who may present unsolicited proposals. We have no plans, understandings, agreements, or commitments with any individual for such person to act as a finder of opportunities for us. While we will evaluate other business opportunities with which our officers and directors are currently affiliated, we do not foresee that we would enter into a merger or acquisition transaction with any business with which our officers or directors are currently affiliated. Should we determine in the future, contrary to the foregoing expectations, that a transaction with an affiliate would be in the best interests of us and its stockholders, we are in general permitted by Nevada law to enter into such a transaction if: 1. The material facts as to the relationship or interest of the affiliate and as to the contract or transaction are disclosed or are known to the Board of Directors, and the Board in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors constitute less than a quorum; or 2. The material facts as to the relationship or interest of the affiliate and as to the contract or transaction are disclosed or are known to our stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or 3. The contract or transaction is fair as to us as of the time it is authorized, approved or ratified, by the Board of Directors or the stockholders. 3 INVESTIGATION AND SELECTION OF BUSINESS OPPORTUNITIES To a large extent, a decision to participate in a specific business opportunity may be made upon management's analysis of the quality of the other company's management and personnel, the anticipated acceptability of new products or marketing concepts, the merit of technological changes, the perceived benefit the company will derive from becoming a publicly held entity, and numerous other factors which are difficult, if not impossible, to analyze through the application of any objective criteria. In many instances, it is anticipated that the historical operations of a specific business opportunity may not necessarily be indicative of the potential for the future because of the possible need to shift marketing approaches substantially, expand significantly, change product emphasis, change or substantially augment management, or make other changes. We anticipate that we will be dependent upon the owners of a business opportunity to identify any such problems which may exist and to implement, or be primarily responsible for the implementation of, required changes. Because we may participate in a business opportunity with a newly organized firm or with a firm which is entering a new phase of growth, we emphasize that we will incur further risks, because management in many instances will not have proved its abilities or effectiveness, the eventual market for such company's products or services will likely not be established, and such company may not be profitable when acquired. We anticipate that we will not be able to diversify, but will essentially be limited to one such venture because of our limited financing. This lack of diversification will not permit us to offset potential losses from one business opportunity against profits from another, and should be considered an adverse factor affecting any decision to purchase our securities. We emphasize that our management may effect transactions having a potentially adverse impact upon our shareholders pursuant to the authority and discretion of our management to complete acquisitions without submitting any proposal to the stockholders for their consideration. Holders of our securities should not anticipate that we necessarily will furnish such holders, prior to any merger or acquisition, with financial statements, or any other documentation, concerning a target company or its business. In some instances, however, the proposed participation in a business opportunity may be submitted to the stockholders for their consideration, either voluntarily by such directors to seek the stockholders' advice and consent or because state law so requires. Since our management has no current plans to use any outside consultants or advisors to assist in the investigation and selection of business opportunities, no policies have been adopted regarding use of such consultants or advisors, the criteria to be used in selecting such consultants or advisors, the services to be provided, the term of service, or regarding the total amount of fees that may be paid. We anticipate that we will consider, among other things, the following factors: 1. Potential for growth and profitability, indicated by new technology, anticipated market expansion, or new products; 2. Our perception of how any particular business opportunity will be received by the investment community and by our stockholders; 3. Whether, following the business combination, the financial condition of the business opportunity would be, or would have a significant prospect in the foreseeable future of becoming sufficient to enable our securities to qualify for listing on an exchange or on a national automated securities quotation system, such as NASDAQ, so as to permit the trading of such securities to be exempt from the requirements of Rule 15c2-6. 4 4. Capital requirements and anticipated availability of required funds, to be provided by us or from operations, through the sale of additional securities, through joint ventures or similar arrangements, or from other sources; 5. The extent to which the business opportunity can be advanced; 6. Competitive position as compared to other companies of similar size and experience within the industry segment as well as within the industry as a whole; 7. Strength and diversity of existing management, or management prospects that are scheduled for recruitment; 8. The cost of participation by us as compared to the perceived tangible and intangible values and potential; and 9. The accessibility of required management expertise, personnel, raw materials, services, professional assistance, and other required items. No one of the factors described above will be determinative in the selection of a business opportunity, and management will attempt to analyze all factors appropriate to each opportunity and make a determination based upon reasonable investigative measures and available data. Potentially available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Potential investors must recognize that, because of our limited capital available for investigation and management's limited experience in business analysis, we may not discover or adequately evaluate adverse facts about the opportunity to be acquired. As part of our investigation, our executive officers and directors may meet personally with management and key personnel, may visit and inspect material facilities, obtain independent analysis or verification of certain information provided, check references of management and key personnel, and take other reasonable investigative measures, to the extent of our limited financial resources and management expertise. Our management believes that various types of potential merger or acquisition candidates might find a business combination with us to be attractive. These include acquisition candidates desiring to create a public market for their shares in order to enhance liquidity for current shareholders, acquisition candidates which have long-term plans for raising capital through the public sale of securities and believe that the possible prior existence of a public market for their securities would be beneficial, and acquisition candidates which plan to acquire additional assets through issuance of securities rather than for cash, and believe that the possibility of development of a public market for their securities will be of assistance in that process. Acquisition candidates who have a need for an immediate cash infusion are not likely to find a potential business combination with us to be an attractive alternative. FORM OF ACQUISITION We cannot currently predict the manner in which we may participate in a business opportunity. Specific business opportunities will be reviewed as well as the respective needs and desires of us and the promoters of the opportunity and, upon the basis of that review and the relative negotiating strength of us and such promoters, the legal structure or method deemed by management to be suitable will be selected. Such structure may include, but is not limited to leases, purchase and sale agreements, licenses, joint ventures and other contractual arrangements. We may act directly or indirectly through an interest in a partnership, corporation or other form of organization. Implementing such structure may require our merger, consolidation or reorganization with other corporations or forms of business organization, and although it is likely, there is no assurance that we would be the surviving entity. In addition, our present management and stockholders most likely will not have control of a majority of our voting shares following a reorganization transaction. As part of such a transaction, our existing directors may resign and new directors may be appointed without any vote by stockholders. 5 Management may actively negotiate or otherwise consent to the purchase of any portion of their common shares as a condition to or in connection with a proposed merger or acquisition transaction. We emphasize that our management may effect transactions having a potentially adverse impact upon our shareholders pursuant to the authority and discretion of our management to complete acquisitions without submitting any proposal to the stockholders for their consideration. Holders of our securities should not anticipate that we necessarily will furnish our holders, prior to any merger or acquisition, with financial statements, or any other documentation, concerning a target company or its business. In some instances, however, the proposed participation in a business opportunity may be submitted to the stockholders for their consideration, either voluntarily by such directors to seek the stockholders' advice and consent or because state law so requires. We believe that it is likely that we will acquire our participation in a business opportunity through the issuance of our common stock or our other securities. Although we cannot currently predict the terms of any such transaction, we note that in certain circumstances the criteria for determining whether or not an acquisition is a so-called "tax free" reorganization under the Internal Revenue Code of 1986, depends upon the issuance to the stockholders of the acquired company of a controlling interest (i.e. 80% or more) of the common stock of the combined entities immediately following the reorganization. If a transaction were structured to take advantage of these provisions rather than other "tax free" provisions provided under the Internal Revenue Code, our current stockholders would retain in the aggregate 20% or less of the total issued and outstanding shares. This could result in substantial additional dilution in the equity of those who were our stockholders prior to such reorganization. Any such issuance of additional shares might also be done simultaneously with a sale or transfer of shares representing a controlling interest in us by the current officers, directors and principal shareholders. We anticipate that any new securities that we issue in any reorganization would be issued in reliance upon exemptions, if any are available, from registration under applicable federal and state securities laws. In some circumstances, however, as a negotiated element of the transaction, we may agree to register such securities either at the time the transaction is consummated, or under certain conditions or at specified times thereafter. The issuance of substantial additional securities and their potential sale into any trading market that might develop in our securities may have a depressive effect upon such market. We will participate in a business opportunity only after the negotiation and execution of a written agreement. Although the terms of such agreement cannot be predicted, generally such an agreement would require specific representations and warranties by all of the parties thereto, specify certain events of default, detail the terms of closing and the conditions which must be satisfied by each of the parties thereto prior to such closing, outline the manner of bearing costs if the transaction is not closed, set forth remedies upon default, and include miscellaneous other terms. 6 As a general matter, we anticipate that we, and/or our officers and principal shareholders will enter into a letter of intent with the management, principals or owners of a prospective business opportunity prior to signing a binding agreement. Such a letter of intent will set forth the terms of the proposed acquisition but will not bind any of the parties to consummate the transaction. Execution of a letter of intent will by no means indicate that consummation of an acquisition is probable. Neither we nor any of the other parties to the letter of intent will be bound to consummate the acquisition unless and until a definitive agreement concerning the acquisition as described in the preceding paragraph is executed. Even after a definitive agreement is executed, it is possible that the acquisition would not be consummated should any party elect to exercise any right provided in the agreement to terminate it on specified grounds. We anticipate that the investigation of specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity, the costs theretofore incurred in the related investigation would not be recoverable. Moreover, because many providers of goods and services require compensation at the time or soon after the goods and services are provided, our inability to pay until an indeterminate future time may make it impossible to procure goods and services. INVESTMENT COMPANY ACT AND OTHER REGULATION We may participate in a business opportunity by purchasing, trading or selling the securities of such business. We do not, however, intend to engage primarily in such activities. Specifically, we intend to conduct our activities so as to avoid being classified as an "investment company" under the Investment Company Act of 1940 (the "Investment Act"), and therefore to avoid application of the costly and restrictive registration and other provisions of the Investment Act, and the regulations promulgated thereunder. Section 3(a) of the Investment Act contains the definition of an "investment company," and it excludes any entity that does not engage primarily in the business of investing, reinvesting or trading in securities, or that does not engage in the business of investing, owning, holding or trading "investment securities" (defined as "all securities other than government securities or securities of majority-owned subsidiaries") the value of which exceeds 40% of the value of its total assets (excluding government securities, cash or cash items). We intend to implement our business plan in a manner which will result in the availability of this exception from the definition of "investment company." Consequently, our participation in a business or opportunity through the purchase and sale of investment securities will be limited. Our plan of business may involve changes in our capital structure, management, control and business, especially if we consummate a reorganization as discussed above. Each of these areas is regulated by the Investment Act, in order to protect purchasers of investment company securities. Since we will not register as an investment company, stockholders will not be afforded these protections. Any securities which we might acquire in exchange for our common stock will be "restricted securities" within the meaning of the Securities Act of 1933, as amended (the "Act"). If we elect to resell such securities, such sale cannot proceed unless a registration statement has been declared effective by the Securities and Exchange Commission or an exemption from registration is available. Section 4(1) of the Act, which exempts sales of securities not involving a distribution, would in all likelihood be available to permit a private sale. Although the plan of operation does not contemplate resale of securities acquired, if such a sale were to be necessary, we would be required to comply with the provisions of the Act to effect such resale. 7 An acquisition made by us may be in an industry which is regulated or licensed by federal, state or local authorities. Compliance with such regulations can be expected to be a time-consuming and expensive process. COMPETITION We expect to encounter substantial competition in our efforts to locate attractive opportunities, primarily from business development companies, venture capital partnerships and corporations, venture capital affiliates of large industrial and financial companies, small investment companies, and wealthy individuals. Many of these entities will have significantly greater experience, resources and managerial capabilities than we have and will therefore be in a better position than we are to obtain access to attractive business opportunities. We also will experience competition from other public "blind pool" companies, many of which may have more funds available than we do. EMPLOYEES We currently have 1 employee, our Chief Executive Officer, John T. Ruddy. Our management expects to use consultants, attorneys and accountants as necessary, and does not anticipate a need to engage any other full-time employees so long as it is seeking and evaluating business opportunities. The need for further employees and their availability will be addressed in connection with the decision whether or not to acquire or participate in specific business opportunities. RISK FACTORS AN INVESTMENT IN OUR SECURITIES IS HIGHLY SPECULATIVE AND SUBJECT TO NUMEROUS AND SUBSTANTIAL RISKS. THESE RISKS INCLUDE THOSE SET FORTH BELOW AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-KSB. READERS ARE ENCOURAGED TO REVIEW THESE RISKS CAREFULLY BEFORE MAKING ANY INVESTMENT DECISION. OUR FINANCIAL STATEMENT INCLUDE SUBSTANTIAL NON-OPERATING GAINS OR LOSSES RESULTING FROM REQUIRED QUARTERLY REVALUATION UNDER GAAP OF OUR OUTSTANDING DERIVATIVE INSTRUMENTS. GAAP requires that we report the value of certain derivative instruments we have issued as current liabilities on our balance sheet and report changes in the value of these derivatives as non-operating gains or losses on our statement of operations. The value of the derivatives is required to be recalculated (and resulting non-operating gains or losses reflected in our statement of operations and resulting adjustments to the associated liability amounts reflected on our balance sheet) on a quarterly basis, and is based on the market value of our common stock. Due to the nature of the required calculations and the larger number of shares of our common stock involved in such calculations, changes in our common stock price may result in significant changes in the value of the derivatives and resulting gains and losses on our statement of operations. WE MAY NOT CONTINUE AS A GOING CONCERN. Our financial statements were prepared on the assumption that we will continue as a going concern, and the independent accountants have expressed doubt as to that assumption. If sufficient capital is not available, we would likely be required to discontinue our operations. We have recurring net losses of approximately $813,000 and $1,880,000 in 2007 and 2006 respectively and an accumulated deficit of approximately $5,142,000 as of September 30, 2007. We are trying to raise additional capital through sales of our common stock as well as financing from third parties. However if we are unable to raise additional capital or financing we may not continue as a going concern. 8 THERE MAY BE CONFLICTS OF INTEREST BETWEEN OUR MANAGEMENT AND OUR NON-MANAGEMENT STOCKHOLDERS. Conflicts of interest create the risk that management may have an incentive to act adversely to the interests of other investors. A conflict of interest may arise between our management's personal pecuniary interest and its fiduciary duty to our stockholders. Further, our management's own pecuniary interest may at some point compromise its fiduciary duty to our stockholders. In addition, our officers and directors are currently involved with other blank check companies and conflicts in the pursuit of business combinations with such other blank check companies with which they and other members of our management are, and may in the future be, affiliated with may arise. If we and the other blank check companies that our officers and directors are affiliated with desire to take advantage of the same opportunity, then those officers and directors that are affiliated with both companies would abstain from voting upon the opportunity. In the event of identical officers and directors, the officers and directors will arbitrarily determine the company that will be entitled to proceed with the proposed transaction. THERE IS COMPETITION FOR THOSE PRIVATE COMPANIES SUITABLE FOR A MERGER TRANSACTION OF THE TYPE CONTEMPLATED BY MANAGEMENT. We are in a highly competitive market for a small number of business opportunities which could reduce the likelihood of consummating a successful business combination. We are and will continue to be an insignificant participant in the business of seeking mergers with, joint ventures with and acquisitions of small private and public entities. A large number of established and well-financed entities, including small public companies and venture capital firms, are active in mergers and acquisitions of companies that may be desirable target candidates for us. Nearly all these entities have significantly greater financial resources, technical expertise and managerial capabilities than we do; consequently, we will be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. These competitive factors may reduce the likelihood of our identifying and consummating a successful business combination. FUTURE SUCCESS IS HIGHLY DEPENDENT ON THE ABILITY OF MANAGEMENT TO LOCATE AND ATTRACT A SUITABLE ACQUISITION. The nature of our operations is highly speculative and there is a consequent risk of loss of your investment. The success of our plan of operation will depend to a great extent on the operations, financial condition and management of the identified business opportunity. While management intends to seek business combination(s) with entities having established operating histories, we cannot assure you that we will be successful in locating candidates meeting that criterion. In the event we complete a business combination, the success of our operations may be dependent upon management of the successor firm or venture partner firm and numerous other factors beyond our control. WE HAVE NO EXISTING AGREEMENT FOR A BUSINESS COMBINATION OR OTHER TRANSACTION. We have no arrangement, agreement or understanding with respect to engaging in a merger with, joint venture with or acquisition of, a private or public entity. No assurances can be given that we will successfully identify and evaluate suitable business opportunities or that we will conclude a business combination. Management has not identified any particular industry or specific business within an industry for evaluation. We cannot guarantee that we will be able to negotiate a business combination on favorable terms, and there is consequently a risk that funds allocated to the purchase of our shares will not be invested in a company with active business operations. 9 THE TIME AND COST OF PREPARING A PRIVATE COMPANY TO BECOME A PUBLIC REPORTING COMPANY MAY PRECLUDE US FROM ENTERING INTO A MERGER OR ACQUISITION WITH THE MOST ATTRACTIVE PRIVATE COMPANIES. Target companies that fail to comply with SEC reporting requirements may delay or preclude acquisition. Sections 13 and 15(d) of the Exchange Act require reporting companies to provide certain information about significant acquisitions, including certified financial statements for the company acquired, covering one, two, or three years, depending on the relative size of the acquisition. The time and additional costs that may be incurred by some target entities to prepare these statements may significantly delay or essentially preclude consummation of an acquisition. Otherwise suitable acquisition prospects that do not have or are unable to obtain the required audited statements may be inappropriate for acquisition so long as the reporting requirements of the Exchange Act are applicable. WE MAY BE SUBJECT TO FURTHER GOVERNMENT REGULATION WHICH WOULD ADVERSELY AFFECT OUR OPERATIONS. Although we will be subject to the reporting requirements under the Exchange Act, management believes we will not be subject to regulation under the Investment Act, since we will not be engaged in the business of investing or trading in securities. If we engage in business combinations which result in our holding passive investment interests in a number of entities, we could be subject to regulation under the Investment Act. If so, we would be required to register as an investment company and could be expected to incur significant registration and compliance costs. We have obtained no formal determination from the SEC as to our status under the Investment Act and, consequently, violation of the Investment Act could subject us to material adverse consequences. ANY POTENTIAL ACQUISITION OR MERGER WITH A FOREIGN COMPANY MAY SUBJECT US TO ADDITIONAL RISKS. If we enter into a business combination with a foreign concern, we will be subject to risks inherent in business operations outside of the United States. These risks include, for example, currency fluctuations, regulatory problems, punitive tariffs, unstable local tax policies, trade embargoes, risks related to shipment of raw materials and finished goods across national borders and cultural and language differences. Foreign economies may differ favorably or unfavorably from the United States economy in growth of gross national product, rate of inflation, market development, rate of savings, and capital investment, resource self-sufficiency and balance of payments positions, and in other respects. OUR BUSINESS WILL HAVE NO REVENUE UNLESS AND UNTIL WE MERGE WITH OR ACQUIRE AN OPERATING BUSINESS. We are a development stage company and have had no revenue from operations. We may not realize any revenue unless and until we successfully merge with or acquire an operating business. WE INTEND TO ISSUE MORE SHARES IN A MERGER OR ACQUISITION, WHICH WILL RESULT IN SUBSTANTIAL DILUTION. As of September 30, 2007, our Certificate of Incorporation authorized the issuance of a maximum of 100,000,000 shares of common stock. Any merger or acquisition effected by us may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. Moreover, the common stock issued in any such merger or acquisition transaction may be valued on an arbitrary or non-arm's-length basis by our management, resulting in an additional reduction in the percentage of common stock held by our then existing stockholders. 10 To the extent that additional shares of common stock or preferred stock are issued in connection with a business combination or otherwise, dilution to the interests of our stockholders will occur and the rights of the holders of common stock might be materially adversely affected. WE MAY NOT BE ABLE TO IDENTIFY A BUSINESS TO MERGE WITH OR ACQUIRE. There is assurance that market demand exists for a merger or acquisition as contemplated by us. Our management has not identified any specific business combination or other transactions for formal evaluation by us, such that it may be expected that any such target business or transaction will present such a level of risk that conventional private or public offerings of securities or conventional bank financing will not be available. There is no assurance that we will be able to acquire a business opportunity on terms favorable to us. Decisions as to which business opportunity to participate in will be unilaterally made by our management, which may act without the consent, vote or approval of our stockholders. BECAUSE WE MAY SEEK TO COMPLETE A BUSINESS COMBINATION THROUGH A "REVERSE MERGER", FOLLOWING SUCH A TRANSACTION WE MAY NOT BE ABLE TO ATTRACT THE ATTENTION OF MAJOR BROKERAGE FIRMS. Additional risks may exist since we will assist a privately held business to become public through a "reverse merger." Securities analysts of major brokerage firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of our post-merger company in the future. OUR COMMON STOCK IS CONSIDERED TO BE "PENNY STOCK". Our common stock is deemed to be "penny stock" as that term is defined in Rule 3a51-1, promulgated under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Penny stocks are stocks: o with a price of less than $5.00 per share; o that are not traded on a "recognized" national exchange; o whose prices are not quoted on the NASDAQ automated quotation system; or o of issuers with net tangible assets less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average revenue of less than $6,000,000 for the last three years. Section 15(g) of the Exchange Act and Rule 15g-2 promulgated thereunder require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a "penny stock" for the investor's account. We urge potential investors to obtain and read this disclosure carefully before purchasing any shares that are deemed to be "penny stock." Rule 15g-9 promulgated under the Exchange Act requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any "penny stock" to that investor. This procedure requires the broker-dealer to: 11 o obtain from the investor information about his or her financial situation, investment experience and investment objectives; o reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has enough knowledge and experience to be able to evaluate the risks of "penny stock" transactions; o provide the investor with a written statement setting forth the basis on which the broker-dealer made his or her determination; and o receive a signed and dated copy of the statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it harder for investors in our common stock to resell their shares to third parties. Accordingly, our common stock should only be purchased by investors, who understand that such investment is a long-term and illiquid investment, and are capable of and prepared to bear the risk of holding the common stock for an indefinite period of time. A LIMITED PUBLIC TRADING MARKET MAY CAUSE VOLATILITY IN THE PRICE OF OUR COMMON STOCK. Our common stock is currently quoted on the OTC Bulletin Board. The quotation of our common stock on the OTC Bulletin Board does not assure that a meaningful, consistent and liquid trading market currently exists, and in recent years such market has experience extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies like us. Our common stock is thus subject to this volatility. Sales of substantial amounts of common stock, or the perception that such sales might occur, could adversely affect prevailing market prices of our common stock and our stock price may decline substantially in a short time and our shareholders could suffer losses or be unable to liquidate their holdings. WE MAY NOT BE ABLE TO ACHIEVE SECONDARY TRADING OF OUR STOCK IN CERTAIN STATES BECAUSE OUR COMMON STOCK IS NOT NATIONALLY TRADED. Because our common stock is not approved for trading on the Nasdaq National Market or listed for trading on a national securities exchange, our common stock is subject to the securities laws of the various states and jurisdictions of the United States in addition to federal securities law. This regulation covers any primary offering we might attempt and all secondary trading by our stockholders. While we intend to take appropriate steps to register our common stock or qualify for exemptions for our common stock, in all of the states and jurisdictions of the United States, if we fail to do so the investors in those jurisdictions where we have not taken such steps may not be allowed to purchase our stock or those who presently hold our stock may not be able to resell their shares without substantial effort and expense. These restrictions and potential costs could be significant burdens on our stockholders. IT IS UNCERTAIN WHETHER WE WILL EVER PAY DIVIDENDS OR EVER PROVIDE AN OPPORTUNITY FOR ANY RETURN ON INVESTMENT. OUR SECURITIES SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. It is uncertain whether we will ever pay dividends on our common stock. Our securities should not be purchased by persons who can not afford the loss of their entire investment. 12 HISTORY Nanoscience Technologies, Inc. ("NTI") was incorporated in Idaho on September 14, 1987. In July 2001, we formed a new Nevada corporation for the purpose of changing our corporate domicile from Idaho to Nevada. On November 8, 2001, we implemented the change of domicile to Nevada by filing Articles of Merger between the Idaho and Nevada corporations. Also in November 2001, we changed our authorized capitalization to 100,000,000 shares of Common Stock, par value $.001 per share. On November 16, 2001, we affected a forward split of our outstanding shares of common stock on a 12.5 shares for 1 share basis. In May 2002, we changed our corporate name from Eagles Nest Mining Company to Nanoscience Technologies, Inc. BUSINESS PRIOR TO CESSATION OF OPERATIONS We have a limited operating history and no representation is made, nor is any intended, that we will be able to carry on our future business activities successfully. As a result of the License Agreement with NYU, we were engaged in the development and commercialization of the inventions and intellectual property to be generated by the research project being conducted at NYU relating to DNA Nanotechnology. Structural DNA Nanotechnology seeks to exploit the architectural properties of DNA with the ultimate goal of organizing matter in three dimensions. Pharmaceutical development, nano-electronics and the creation of new materials are among the potential applications of this research. BACKGROUND OF TECHNOLOGY We were originally formed to commercialize significant nanotechnology research and intellectual property developed at New York University (NYU). The technology and its related intellectual property are the result of twenty-three years of research at NYU by Dr. Nadrian C. Seeman, Ph.D. and his research group. Dr. Seeman is an internationally recognized scientist and a pioneer in developments pertaining to DNA nanotechnology. In September 2003, NTI executed an exclusive worldwide Research and License Agreement with NYU for all of Dr. Seeman's past, current and future developments pertaining to nanotechnology. Nanotechnology is the "cutting edge" of science and technology on our planet. It is technology at the molecular level. The nano scale is measured in billionths of a meter, one nanometer being one-billionth of a meter. To provide a reference for the size of a nanometer, the average human hair measures between 50,000 to 75,000 nanometers in diameter, and there are approximately 24,500,000 nanometers in an inch. Nanotechnology will allow the ability to construct precise molecular formations by combining individual molecules with other molecules to make larger and more defined constructs. Applications for nanotechnology are vast and include huge areas of opportunity in chemicals, physics, engineered materials, life sciences and a long list of other applications. It is an enabling technology expected to create in excess of one million jobs and contribute billions of dollars to the U.S. Economy over the next decade. The U.S. National Science Foundation estimates the global market opportunity for nanotechnology products and service-related industries will be $25 billion annually by 2007 and $1 trillion annually by 2015. We believed that the commercial applications that will result from the research and development programs at NYU are scientifically significant, highly extensive and novel. In addition, the technology is well patented. We had identified a two-phase research and development plan which is based on the research conducted/accomplished to date and planned future research and the need to meet long-term business objectives that will result in viable commercial product opportunities. 13 Prior to our cessation of operations, our commercialization strategy was as follows: o Enter into research collaboration relationships early in the research and development process with market leaders in each industry sector that NTI plans to pursue; o Establish relationships with targeted companies that will result in exclusive, or in certain instances, non-exclusive licenses for a DEFINED field of use; and o Focus on collaboration partners/licensees that have a substantial manufacturing and marketing capability which may result in a more defined product development effort and a shorter time to commercialization. The intellectual property portfolio contained five issued patents and five patent applications. POTENTIAL COMMERCIAL APPLICATIONS Nanotechnology is in its commercial infancy; however, there is already a substantial market in place for nanotechnology products. The earliest application of nanoscale materials occurred in systems where nanoscale powders and particles could be used in their free form, without consolidation or blending. For example, nanoscale titanium dioxide and zinc oxide powders are now commonly used by cosmetics manufacturers for facial base creams and sunscreen lotions. Nanoscale iron oxide powder is now being used as a base material for rouge and lipstick. Paints with reflective properties are also being manufactured using nanoscale titanium dioxide particles. Nanotechnology is also being used in various technology and defense applications. Nano-structured cemented carbide coatings are used on some U.S. Navy ships for their increased durability. Nano-structured materials are in wide use in information technology, integrated into complex products such as the hard disk drives that store information and the silicon integrated circuit chips that process information in every Internet server and personal computer. In 2003 IBM announced the introduction of an atomically thin layer of ruthenium to substantially increase the information storage density of its products. Greater storage density translates directly to less expensive storage cost. In biomedical areas, structures called liposomes have been synthesized for improved delivery of therapeutic agents. Liposomes are lipid spheres about 100 nanometers in diameter. They have been used to encapsulate anti-cancer drugs for the treatment of Kaposi's Sarcoma. Several companies are presently using magnetic nanoparticles in the analyses of blood, urine, and other body fluids to speed up separation and improve selectivity. Other companies have developed derivatized fluorescent nanospheres and nanoparticles that form the basis for new detection technologies. These reagent nanoparticles are used in new devices and systems for infectious and genetic disease analysis and for drug discovery. Many uses of nanoscale particles have appeared in specialty markets, such as defense applications, and markets for scientific and technical equipment. Producers of optical materials and electronics substrates such as silicon and gallium arsenide have embraced the use of nanosize particles for chemomechanical polishing of these substrates. Nanosize particles of silicon carbide, diamond and boron carbide are used as "lapping compounds" to reduce the waviness of finished surfaces from corner to corner and produce surface finishes to one and two nanometer smoothness. The ability to produce high-quality components is significant as electric devices shrink and optical communications systems become a larger part of the nation's communications network. 14 OTHER APPLICATIONS As nanoscale science and technology continue to grow, it is certain that many new materials, properties and applications will be discovered. Research in areas related to nanofabrication is needed to develop new and advanced manufacturing techniques. These new techniques would allow the fabrication of highly integrated two- and three-dimensional devices and structures to form diverse molecular and nanoscale components. They would allow many of the new and promising nanostructures, such as carbon nanotubes, organic molecular electronic components, and quantum dots, to be rapidly assembled into more complex circuitry to form useful logic and memory devices. Such new devices would have computational performance characteristics and data storage capacities many orders of magnitude higher than present devices, and would come in even smaller packages. Nanomaterials and their performance properties will also continue to improve. Thus, even better and cheaper nanopowders, nanoparticles, and nanocomposites will be available for more widespread applications. Another important application for future nanomaterials will be highly selective and efficient catalysts for chemical and energy conversion processes. This will be important economically not only for energy and chemical production, but also for conservation and environmental applications. Thus, nanomaterial-based catalysis may play an important role in photoconversion devices, fuel cell devices, bioconversion (energy) and bioprocessing (food and agriculture) systems, and waste and pollution control systems. Nanoscale science and technology could have a continuing impact on biomedical areas such as therapeutics, diagnostic devices, and biocompatible materials for implants and prostheses. There will continue to be opportunities for the use of nanomaterials in drug delivery systems. Combining new nanosensors with nanoelectronic components could lead to a further reduction in size and improved performance for many diagnostic devices and systems. Ultimately, it may be possible to make implantable in vivo diagnostic and monitoring devices that approach the size of cells. New biocompatible nanomaterials and nanomechanical components could lead to the creation of new materials and components for implants, artificial organs, and greatly improved mechanical, visual, auditory, and other prosthetic devices. Exciting predictions aside, these advances will not be realized without considerable research and development. For example, the present state of nanodevices and nanotechnology resembles that of semiconductor and electronics technology in 1947, when the first point contact transistor was realized, ushering in the INFORMATION AGE, which blossomed in the 1990s. The full power of the transistor was not fully evident until the invention of the integrated circuit with reliable processing techniques that produce numerous uniform devices and connect them across a large wafer, wafer-scale packaging and interconnection techniques for large-scale integrated circuits. Similarly, it will require an era of advances in the development of processes to integrate nanoscale components into devices, both with other nanoscale components and with microscale and larger components, accompanied by the ability to do so reliably and cost-effectively. Since nanoscale technology spans a much broader range of scientific disciplines and potential applications than does solid state electronics, its societal impact may be many times greater than that of the Microelectronics and Computing Revolution. Nanotechnology is definitely a "disruptive technology", that is, a technology that will have a widespread effect and change many societal norms. It will eventually precipitate massive shifts in industries and their importance to the world economy. At the date hereof, we are in default of our payment obligations under the License Agreement in the amount of $347,500 and have received notice from NYU that NYU intends to terminate the License Agreement. Further, we are required to reimburse NYU additional amounts for patent fees and other expenses estimated to be approximately $80,000 at the date hereof. Presently, we have no marketable products or licensable technology. Our collaboration with NYU has terminated. We have been dependent upon NYU's successful research and development of a marketable product or licensable technology. At this time, we have lost our license with NYU and have no other technology, products or services from which we can expect to generate revenues. 15 GOVERNMENT REGULATION Presently, we are not presently subject to government regulations or consents because we do not have any marketable or licensable technology. We can provide no assurances that in the foreseeable future we will not be subject to government regulation or will not have to obtain government consents to conduct our business and there is no guarantee that we will be in compliance with such regulations at the time they become applicable. The relevant regulations and necessary consents cannot be discerned until the type of technology developed is determined. RESEARCH AND DEVELOPMENT We have incurred $0 and $447,288 in research and development expenses in 2007 and 2006 respectively. EMPLOYEES As of the date hereof, we have only one employee. We may find it necessary to periodically hire part-time clerical help on an as-needed basis. We also fulfill several of our management functions through the use of independent contractors. These functions include legal, accounting and investor relations. FACILITIES We currently use as our principal place of business the business offices of our President and Chief Executive Officer located in Jersey City, NJ. It is contemplated that at such future time as business warrants, we will secure commercial office space. However, we have no current plans to secure such commercial office space. INDUSTRY SEGMENTS ITEM 2. DESCRIPTION OF PROPERTY We do not own any material property. ITEM 3. LEGAL PROCEEDINGS We are not a party to any material pending legal proceedings and, to best of our knowledge, no such action by or against us, has been threatened. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of our security holders during the year ended September 30, 2007. 16 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OFEQUITY SECURITIES Our common stock is currently quoted on the OTC Bulletin Board under the symbol "NANS." Inclusion on the OTC Bulletin Board permits price quotations for our shares to be published by such service. For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions. <TABLE> <CAPTION> Fiscal 2007 Fiscal 2006 Fiscal 2005 --------------------- -------------------------- -------------------------- --------------------------- Quarter Ended High Low High Low High Low --------------------- -------------------------- -------------------------- --------------------------- <S> <C> <C> <C> <C> <C> <C> March 31 $ 0.09 $ 0.05 $ 0.91 $ 0.18 $ 1.55 $ 0.70 June 30 $ 0.05 $ 0.03 $ 0.40 $ 0.15 $ 1.45 $ 0.65 September 30 $ 0.03 $ 0.02 $ 0.20 $ 0.11 $ 0.92 $ 0.62 December 31 $ $ $ 0.14 $ 0.04 $ 0.92 $ 0.32 </TABLE> On November 16, 2001, we affected a forward split of our outstanding common stock on a 12.5 shares for 1 share basis. The forward split was treated as a stock dividend. The ability of an individual shareholder to trade their shares in a particular state may be subject to various rules and regulations of that state. A number of states require that an issuer's securities be registered in their state or appropriately exempted from registration before the securities are permitted to trade in that state. Presently, we have no plans to register our securities in any particular state. Further, our shares will most likely be subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act. The SEC generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be a penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the Commission; authorized for quotation on The Nasdaq Stock Market; issued by a registered investment company; excluded from the definition on the basis of price (at least $5.00 per share) or the issuer's net tangible assets; or exempted from the definition by the SEC. If our shares are deemed to be a penny stock, trading in the shares will be subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors, generally persons with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such securities and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealers to trade and/or maintain a market in our common stock and may affect the ability of shareholders to sell their shares. 17 As of December 17, 2007 there were approximately 181 holders of record of our common stock, which figure does not take into account those shareholders whose certificates are held in the name of broker-dealers or other nominees. As of December 17, 2007 we had 19,176,755 shares of common stock issued and outstanding. Of the total outstanding shares, 5,626,772 may be sold, transferred or otherwise traded in the public market without restriction, unless held by an affiliate or controlling shareholder. Of these 5,626,772 shares, we have not identified any shares as being held by affiliates. A total of 13,549,983 shares are considered restricted securities. Under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares for at least one year, including any person who may be deemed to be an "affiliate" as defined under the Act, is entitled to sell, within any three-month period, an amount of shares that does not exceed the greater of (i) the average weekly trading volume in the security as reported through the automated quotation system of a registered securities association, during the four calendar weeks preceding such sale or (ii) 1% of the shares then outstanding. A person who is not deemed to be an "affiliate" and has not been an affiliate for the most recent three months, and who has held restricted shares for at least two years would be entitled to sell such shares without regard to the resale limitations of Rule 144. RECENT ISSUANCE OF SECURITIES In connection with the License Agreement and Stock Purchase Agreement, we issued in October 2003 a total of 4,812,377 shares of our common stock to NYU in further consideration for entering into the License Agreement. This issuance was made in an isolated, private transaction to a single accredited investor in reliance upon the exemptions from registration provided by Sections 4(2) and 4(6) of the Securities Act of 1933. On October 17, 2003, we sold an aggregate of 1,222,192 shares of our authorized but previously unissued common stock in a private placement to four accredited investors (305,548 shares each) for the aggregate purchase price of $400,000. We used the funds to make the initial $300,000 payment to NYU under the License Agreement, the payment of various expenses and fees related to finalization and execution of the License Agreement, professional fees, and for working capital. The sale of securities was made in an isolated, private transaction to four accredited investors only and in reliance upon the exemption from registration provided by Section 4(6) of the Securities Act. On December 15, 2004, we issued 125,000 shares of our common stock to one person as a loan commitment fee valued at $218,750, or $1.75 per share. The issuance was made pursuant to a private, isolated transaction in reliance upon the exemption from the registration provided by Section 4(2) of the Securities Act of 1933. On January 17, 2005, we issued 130,000 shares of our common stock to one person for cash consideration of $130,000, or $1.00 per share. The funds realized were used for general corporate operating expenses. The issuance was made pursuant to a private, isolated transaction in reliance upon the exemption from the registration provided by Section 4(2) of the Securities Act of 1933. On December 31, 2006, we issued 250,000 shares of our common stock for services and fees in the amount of $15,000 @ $0.06 per share. On January 17, 2007 a principal shareholder converted $4,359 of their convertible debenture into 108,980 restricted shares of common stocks at $0.04 per share. On March 28, 2007 a principal shareholder converted $2,900 of their convertible debenture into 113,281 restricted shares of common stocks at $0.0256 per share. On July 13, 2007 a principal shareholder converted $5,000 of their convertible debenture into 312,500 restricted shares of common stocks @ $0.016 per share. DIVIDEND POLICY We have not declared or paid cash dividends or made distributions in the past, and we do not anticipate that we will pay cash dividends or make distributions in the foreseeable future. We currently intend to retain and invest any future earnings to finance our operations. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-KSB. We have determined on December 1, 2007 to cease operations immediately and, at the request of our principal creditor appointed a director designated by such creditor to our Board of Directors. Immediately following such appointment, our existing directors 18 resigned effective immediately and terminated their association with us. Accordingly, such creditor may be deemed to control us at the date of the filing of this Report. As a result of our cessation of operations and the termination of the License Agreement, we became a "blank check" or "shell company" whose sole purpose at this time is to locate and consummate a merger or acquisition with a private entity. RESULTS OF OPERATIONS - YEAR ENDED SEPTEMBER 30, 2007 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 2006 OPERATIONS. We incurred a loss from operations of approximately $813,000 for the year ended September 30, 2007 compared to a loss of approximately $1,880,000 for the year ended September 30, 2006. The decrease was due to our discontinued operations since December 1, 2006. RESEARCH AND DEVELOPMENT. Included in the loss for 2007 and 2006 was $0 and $447,288, respectively, to NYU for research and development of Nanotechnology. In connection with our fund raising activities and securities reporting requirements we incurred approximately $50,000 in 2007 on professional fees compared to approximately $269,000 in 2006. GENERAL AND ADMINISTRATIVE. We also expended $0 in 2007 in consulting costs in our fund raising efforts compared to $24,250 in 2006. INTEREST EXPENSE, OTHER. Our interest expense was approximately $785,800 in 2007 because our funding came primarily from convertible debentures as compared to approximately $620,000 in 2006. LIQUIDITY AND CAPITAL RESOURCES We used cash of approximately $696,000 during the year ended September 30, 2007 compared to approximately $702,000 in 2006. We had cash on hand of $0 as of September 30, 2007 and $2,803 as of September 30, 2006. Our source of cash in 2007 were the sale of convertible notes in December 2006 of $60,000 and shareholder loans of approximately $23,000. Our cash was short of covering our accounts payable and accrued liabilities by approximately $1,063,000 at September 30, 2007. This includes an accrual of $433,615 for which we are in default on our obligation to pay to NYU on May 1, 2006. The related party loans of approximately $347,810 are due upon demand, unless we are able to persuade our creditors to convert the debts to equity. We expect that we will need approximately $1,000,000 to fund our operations in 2008. We intend to raise the needed funds from the sale of our shares of our common stock. There is no assurance that the funds will be available or that even if they are available that the terms will be acceptable to us. PLAN OF OPERATION In September 2003, we entered into a License Agreement with NYU whereby NYU granted to us a license to certain pre-existing inventions and certain intellectual property to be generated by a designated research project being conducted at NYU relating to DNA Nanotechnology. The License Agreement further provides that NYU grants to us an exclusive worldwide license to develop, manufacture, use, lease or sell any licensed products and/or processes related to the research project, together with the right to grant sublicenses. The Company is required to pay NYU a royalty fee relating to sales generated using technology developed by NYU. The term of the License Agreement is equal to the life of the longest patent licensed to the Company. There is no provision for renewal in the License Agreement. 19 We intended to re-license the technology we acquired from NYU and to license any newly developed technology to companies which have the financial resources to economically market the related products to the public. We did not intend to market the products ourselves. We expected that the licensees would pay us royalties as a percentage of their sales of any products which use our technology. However, in November 2006, we forfeited our technology rights and licenses due to our failure to pay the research and license fees under the terms the License Agreement. Presently we are seeking a merger or acquisition of an existing operating company by which we can continue to operate. NET OPERATING LOSS We have accumulated approximately $3,360,000 of net operating loss carry-forwards as of September 30, 2007, which may be offset against taxable income and income taxes in future years. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the net operating loss carry-forwards. The carry-forwards expire in the year 2027. In the event of certain changes in control, there will be an annual limitation on the amount of net operating loss carry-forwards which can be used. No tax benefit has been reported in the financial statements for the year ended September 30, 2007 because there is a 50% or greater chance that the carry-forward will not be used. Accordingly, the potential tax benefit of the loss carry-forward is offset by a valuation allowance of the same amount. NEW ACCOUNTING PRONOUNCEMENTS In February 2006, the FASB issued SFAS No. 155, ACCOUNTING FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS ("SFAS No. 155"), which amends SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, and SFAS No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. SFAS No. 155 simplifies the accounting for certain derivatives embedded in other financial instruments by allowing them to be accounted for as a whole if the holder elects to account for the whole instrument on a fair value basis. SFAS No. 155 also clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. SFAS No. 155 is effective for all financial instruments acquired, issued, or subject to a re-measurement event occurring in fiscal years beginning after September 15, 2006. Earlier adoption is permitted, provided the company has not yet issued financial statements, including for interim periods, for that fiscal year. The Company does not expect the adoption of SFAS No. 155 to have a material impact on its financial position, results of operations, or cash flows. In June 2006, the FASB ratified the Emerging Issues Task Force ("EITF") consensus on EITF Issue No. 06-3, HOW TAXES COLLECTED FROM CUSTOMERS AND REMITTED TO GOVERNMENTAL AUTHORITIES SHOULD BE PRESENTED IN THE INCOME STATEMENT (THAT IS, GROSS VERSUS NET PRESENTATION) ("EITF No. 06-3"). EITF No. 06-3 provides guidance for income statement presentation and disclosure of any tax assessed by a governmental authority that is both imposed on and con current with a specific revenue-producing transaction between a seller and a customer, including but not limited to sales, use, value added, and some excise taxes. Presentation of taxes within the scope of this EITF issue may be made on either a gross basis (included in revenues and costs) or a net basis (excluded from revenues), with appropriate accounting policy disclosure. EITF No. 06-3 is effective for reporting periods beginning after December 15, 2006. The impact of adoption of this statement is not expected to be significant. In July 2006, the FASB issued FASB Interpretation No. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES - AN INTERPRETATION OF FASB STATEMENT 109 ("FIN No. 48"), which is effective in fiscal years beginning after December 15, 2006. FIN 48 prescribes a comprehensive model for recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken on the Company's tax return. The cumulative effect of applying the provisions of FIN No. 48 will be reported as an adjustment to the opening balance of retained earnings for that fiscal year, presented separately. The impact of adoption of this statement is not expected to be significant. 20 In March 2006, the FASB issued FASB Statement No. 156, ACCOUNTING FOR SERVICING OF FINANCIAL ASSETS - AN AMENDMENT OF FASB STATEMENT NO. 140. This Statement amends FASB Statement No. 140 with respect to the accounting for separately recognized servicing assets and servicing liabilities. The impact of adoption of this statement is not expected to be significant. In September 2006, the FASB issued FASB Statement No. 157, FAIR VALUE MEASUREMENT ("SFAS No. 157"), which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles (GAAP). As a result of SFAS No. 157, there will be a common definition of fair value to be used throughout GAAP. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the accounting and disclosure requirements of SFAS No. 157. EITF 00-19.2--In December 2006, the FASB issued Staff Position No. EITF 00-19-2. This FSP addresses an issuer's accounting for registration payment arrangements and specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with FASB No. 5. The guidance in this FSP amends FASB Statements 133 and 150 and FASB Interpretation No. 45 to include scope exceptions for registration payments arrangements. This FSP further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2006. The Company is currently assessing the impact this pronouncement will have on its financial statements if any. In February 2007, the FASB issued FASB Statement No. 159, THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES - INCLUDING AN AMENDMENT OF FASB STATEMENT NO. 115. This Statement permits entities to choose to measure meany financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The effective date will be as of the beginning of each reporting entity's first fiscal year that begins after November 15, 2007. The impact of adoption of this statement is not expected to be significant. ITEM 7. FINANCIAL STATEMENTS Our financial statements, as of and for the fiscal years ended September 30, 2007 and September 30, 2006, have been examined to the extent indicated in its report by Moore and Associates Chartered, independent certified accountants, and have been prepared in accordance with generally accepted accounted principles and pursuant to Regulation S-B promulgated by the SEC. The aforementioned financial statements are included herein in response to Item 7 of this Form 10-KSB. 21 NANOSCIENCE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTS SEPTEMBER 30, 2007 C O N T E N T S Report of Independent Registered Public Accounting Firm F-1 Balance Sheet F-2 Statements of Operations F-3 Statements of Stockholders' Equity F-4 Statements of Cash Flows F-8 Notes to the Financial Statements F-10 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF DIRECTORS NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) We have audited the accompanying balance sheet of NanoScience Technologies, Inc. (A Development Stage Company) as of September 30, 2007, and the related statements of operations, stockholders' equity and cash flows for the years ended September 30, 2007 and September 30, 2006, and from inception on September 14, 1987 through September 30, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NanoScience Technologies, Inc. (A Development Stage Company) as of September 30, 2007, and the related statements of operations, stockholders' equity and cash flows for the years ended September 30, 2007 and September 30, 2006, and from inception on September 14, 1987 through September 30, 2007, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has accumulated deficit of approximately $5,142,000 and has a working capital deficiency of approximately $1,063,000, which raises substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /S/ MOORE & ASSOCIATES, CHARTERED Moore & Associates Chartered Las Vegas, Nevada December 28, 2007 F-1 NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) BALANCE SHEET ASSETS SEPTEMBER 30, 2007 ================= Current assets Cash $ -- ----------------- Total current assets -- ----------------- Total Assets $ -- ================= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable and accrued liabilities $ 777,874 Accrued interest 262,123 Notes payable - related parties 22,750 ----------------- Total current liabilities 1,062,747 Warrant liability 3,137 Convertible debentures, net 1,148,231 ----------------- Total Liabilities 2,214,115 ----------------- Stockholders' deficit Common stock; $0.001 par value; authorized 100,000,000 shares, 11,101,946 shares issued and outstanding shares issued and outstanding for September 30, 2007 and 11,887 Additional paid-in capital 2,916,234 Deficit accumulated during the development stage (5,142,236) ----------------- Total stockholders' deficit (2,214,115) ----------------- Total liabilities and stockholders' deficit $ 0 ================= The accompanying notes are an integral part of these financial statements. F-2 NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF OPERATIONS <TABLE> <CAPTION> From Inception of the For the Years Ended Development Stage on -------------------------------------- September 14, 1987 September 30, September 30, Through September 30, 2007 2006 2007 ----------------- ----------------- --------------------- <S> <C> <C> <C> REVENUES $ -- $ -- $ -- OPERATING EXPENSES General and administrative 51,785 46,879 2,218,195 Research and development -- 447,288 1,293,038 Licensing fees 0 -- 96,248 ----------------- ----------------- ----------------- TOTAL OPERATING EXPENSES 51,785 1,294,167 3,607,481 ----------------- ----------------- ----------------- LOSS FROM OPERATIONS (51,785) (1,294,167) (3,607,481) OTHER INCOME (EXPENSES) Other income 24,257 33,748 86,376 Interest expense (785,800) (619,610) (1,621,131) ----------------- ------------------------------------------ TOTAL OTHER INCOME (EXPENSES) (761,543) (585,862) # (1,534,755) ----------------- ------------------------------------------ NET LOSS $ (813,328) $ (1,880,029) $ (5,142,236) ================= ================= ================= BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.04) $ (0.17) ================= ================= BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 19,057,707 11,011,823 ================= ================= </TABLE> The accompanying notes are an integral part of these financial statements. F-3 NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) <TABLE> <CAPTION> Common Stock Stock Deficit Accumulated ------------------------------ Additional Subscriptions During the Shares Amount Paid-in Capital Receivable Development Stage --------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Balance from inception of the development stage at September 14, 1987 -- $ -- $ -- $ -- $ -- Common stock issued to directors for services on September 17, 1987 at $0.008 per share 3,750,000 3,750 26,250 -- -- Common stock issued for for cash on September 17, 1987 at $0.008 per share 27,500 28 192 -- -- Common stock issued for for cash on January 12, 1988 at $0.008 per share 6,250 6 44 -- -- Common stock issued to a director for cash on October 10, 1997 at $0.0004 per share 12,500,000 12,500 (7,500) -- -- Common stock issued to directors for services on November 12, 1997 at $0.0004 per share 1,125,000 1,125 (675) -- -- Net loss for the period from inception on September 14, 1987 through September 30, 1999 -- -- -- -- (37,470) ----------------------------------------------------------------------------------- Balance, September 30, 1999 17,408,750 17,409 18,311 -- (37,470) Net loss for the year ended September 30, 2000 -- -- -- -- (3,200) ----------------------------------------------------------------------------------- Balance, September 30, 2000 17,408,750 17,409 18,311 -- (40,670) Net loss for the year ended September 30, 2001 -- -- -- -- (7,097) ----------------------------------------------------------------------------------- Balance, September 30, 2001 17,408,750 17,409 18,311 -- (47,767) </TABLE> The accompanying notes are an integral part of these financial statements. F-4 NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) <TABLE> <S> <C> <C> <C> <C> <C> Common stock issued for for cash on October 2, 2001 at $0.01 per share 250,000 250 -- -- -- Net loss for the year ended September 30, 2002 -- -- -- -- (9,140) ----------------------------------------------------------------------------------- Balance, September 30, 2002 17,658,750 17,659 18,311 -- (56,907) Common stock issued for for cash on September 18, 2003 at $0.33 per share 1,222,192 1,222 398,778 -- -- Common stock issued for for licensing fees at $0.02 per share on September 18, 2003 4,812,377 4,812 91,436 -- -- Forgiveness of debt by a related party -- -- 30,367 -- -- Contributed services -- -- 290 -- -- Net loss for the year ended September 30, 2003 -- -- -- -- (429,380) ----------------------------------------------------------------------------------- Balance, September 30, 2003 23,693,319 23,693 539,182 -- (486,287) Common stock cancelled on October 10, 2003 (12,846,373) (12,846) 12,846 -- -- Common stock warrants granted for services -- -- 6,875 -- -- Net loss for the year ended September 30, 2004 -- -- -- -- (532,409) ----------------------------------------------------------------------------------- Balance, September 30, 2004 10,846,946 10,847 558,903 -- (1,018,696) Common stock issued for stock subscriptions at $1.00 per share 130,000 130 129,870 -- -- Common stock issued as a loan commitment fee at $1.75 per share 125,000 125 218,625 -- -- Preproduction coss contributed by shareholders -- -- 110,000 (110,000) -- Completed preproduction work -- -- -- 44,000 -- </TABLE> (Continued) The accompanying notes are an integral part of these financial statements. F-5 NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) <TABLE> <S> <C> <C> <C> <C> <C> Accrued interest contributed by shareholders -- -- 38,530 -- -- Termination of derivatives feature of debenturess -- -- 113,481 -- -- Common stock warrants issued for services -- -- 68,555 -- -- Net loss for the year ended September 30, 2005 -- -- -- -- (1,430,183) ----------------------------------------------------------------------------------- Balance, September 30, 2005 11,101,946 11,102 1,237,964 (66,000) (2,448,879) Completed preproduction work -- -- -- 66,000 -- Fair value of beneficial conversion feature of the convertible debt -- -- 1,527,284 -- -- Accrued interest contributed by shareholders -- -- 32,006 -- -- Net loss for the year ended September 30, 2006 -- -- -- -- (1,880,029) ----------------------------------------------------------------------------------- Balance, September 30, 2006 11,101,946 11,102 2,797,254 -- (4,328,908) Accrued interest contributed by shareholders -- -- 32,506 -- -- Common stock issued for fee on Dec. 31, 2006 @ $0.06 250,000 250 14,750 -- -- Fair value of beneficial conversion feature of the convertible debt 60,000 -- -- Conversion of convertible debenture into stock on January 17, 2007 @ $0.04 per share. 108,980 109 4,250 -- -- Conversion of convertible debenture into stock on March 29, 2007 @ $0.0256 per share. 113,281 113 2,787 -- -- Conversion of convertible debenture into stock on July 13, 2007 @ $0.016 per share. 312,500 313 4,687 -- -- </TABLE> (Continued) The accompanying notes are an integral part of these financial statements. F-6 NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) <TABLE> <S> <C> <C> <C> <C> <C> Net loss for the year ended September 30, 2007 -- -- -- -- (813,328) ----------------------------------------------------------------------------------- Balance, September 30, 2007 11,886,707 11,887 2,916,234 -- (5,142,236) =================================================================================== </TABLE> (Continued) The accompanying notes are an integral part of these financial statements. F-7 NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> From Inception of the For the Years Ended Development Stage on September 30, September 14, 1987 ------------------ ---------------- Through September 30, 2007 2006 2007 ------------------ ---------------- --------------------- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (813,328) $(1,880,029) (5,142,236) Adjustments to reconcile loss to net cash used by operating activities: Change in fair value of warrant liability (7,572) (33,748) (41,320) Accrued interest contributed by sharehoulders 32,506 32,006 103,042 Common stock issued for services and fees 14,750 -- 345,448 Common stock warrants granted for services -- -- 75,430 Depreciation and amortization expense -- 38,762 43,658 Amortization of marketing expense -- 66,000 110,000 Contributed services -- -- 290 Amortization of discount on debt 553,859 447,939 1,115,279 Changes in operating assets and liabilities (Increase) Decrease in prepaid expenses -- 30,438 - Increase (Decrease) in accounts payable and accrued expenses 85,941 596,260 647,361 ------------------ ---------------- ------------------------- Net cash used in operating activities (133,844) (702,372) (2,743,048) ------------------ ---------------- ------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment -- -- (4,931) Lease deposits 550 -- 0 Patent costs -- -- (38,727) ------------------ ---------------- ------------------------- Net cash used in investing activities 550 -- (43,658) ------------------ ---------------- ------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable - related parties 22,750 25,200 398,377 Proceeds from convertible debentures payable 60,000 650,593 1,710,593 Proceeds from stock subscriptions payable -- -- 130,000 Repayment of notes payable - related parties -- (15,200) (20,200) Common stock issued for cash -- -- 405,520 Fair value of beneficial conversion feature of debt 60,000 -- 60,000 Conversion of convertible debentures to stock (12,259) -- (12,259) ------------------ ---------------- ------------------------- Net cash provided by financing activities 130,491 660,593 2,672,031 ------------------ ---------------- ------------------------- NET INCREASE (DECREASE) IN CASH (2,803) (41,779) (114,675) CASH AT BEGINNING OF PERIOD 2,803 44,582 -- ------------------ ---------------- ------------------------- CASH AT END OF PERIOD $ - $ 2,803 $ (114,675) ================== ================ ========================= </TABLE> The accompanying notes are an integral part of these financial statements. F-8 NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: <TABLE> <S> <C> <C> <C> Cash paid during the year for: Interest $ - $ 487 $ 487 Income taxes $ - $ - $ - NON-CASH FINANCING AND INVESTING ACTIVITIES: Forgiveness of debt by related party $ - $ - $ 30,367 Common stock warrants granted for services $ - $ - $ 75,430 Common stock issued for services and fees $ 14,750 $ - $ 360,198 Accrued interest converted to debt $ - $ 31,801 $ 41,148 Production costs contributed by shareholders $ - $ - $ 111,000 Issuance of common stock for stock subscription payable $ - $ - $ 130,000 Termination of derivative feature of debentures $ - $ - $ 113,418 Allocation of convertible debt proceeds to beneficial conversion feature $ 60,000 $1,527,284 $1,587,284 Conversion of convertible debentures to common stock $ 12,259 $ - $ 12,259 </TABLE> (Continued) The accompanying notes are an integral part of these financial statements. F-9 NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Business and Organization Nanoscience Technologies, Inc. (the "Company") was organized on September 14, 1987, under the laws of the State of Idaho, under the name Eagle's Nest Mining Company. As set forth in its Articles of Incorporation, the Company was created to engage in the business of acquiring and developing mining claims and prospecting, developing, processing and marketing all types of mineral resources. However, from the time of its inception the Company has not engaged in any material business operations. Pursuant to Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by Development Stage Enterprises," the Company is classified as a development stage company. On July 31, 2001, the Company formed a corporation in Nevada with the intent to move its domicile to Nevada. On November 8, 2001, the Company implemented its change of domicile and became a Nevada Corporation. As a result, the Idaho corporation was dissolved. On October 12, 2001, the Company elected to change the authorized capitalization from 10,000 shares of no par value common stock to 100,000,000 shares of $0.001 par value common stock. All share and per share values within these financial statements have been adjusted to reflect this change. On November 5, 2001, the Company approved a 12.5 for 1 forward stock split. All share and per share values within these financial statements have been adjusted to reflect this change. On May 23, 2002 the Company changed its name from Eagles Nest Mining Company to Nanoscience Technologies, Inc. As a result of the License Agreement with NYU, we have become engaged in the development and commercialization of the inventions and intellectual property to be generated by the research project being conducted at NYU relating to DNA Nanotechnology. Structural DNA Nanotechnology seeks to exploit the architectural properties of DNA with the ultimate goal of organizing matter in three dimensions. Pharmaceutical development, nano-electronics and the creation of new materials are among the potential applications of this research. b. Accounting Method The Company's financial statements are prepared using the accrual method of accounting. The Company has elected a September 30 year-end. c. Cash and Cash Equivalents For purposes of financial statement presentation, the Company considers all highly liquid investments with a maturity of three months or less, from the date of purchase, to be cash equivalents. F-10 NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) d. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. e. Revenue Recognition The Company currently has no source of revenues. Revenue recognition policies will be determined when principal operations begin. f. Basic and Diluted Loss Per Common Share The Computation of basic loss per share of common stock is based on the weighted average number of shares outstanding during the period. Common stock equivalents if any are not included in the weighted average shares outstanding because they would be anti-dilutive. g. Research and Development The Company follows the policy of expensing its research and development costs in the period in which they are incurred. h. Income Taxes Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will fail to be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. F-11 NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) h. Income Taxes (continued) Net deferred tax assets consist of the following components as of September 30, 2007 and 2006: 2007 2006 ------------ ------------- Deferred tax assets: NOL Carryover $ 1,310,723 $ 1,222,207 Deferred tax liabilities: Valuation allowance (1,310,723) (1,222,207) ------------ ------------- Net deferred tax asset $ - $ - ============ ============= The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the years ended September 30, 2007 and 2006 due to the following: 2007 2006 ------------ ------------- Book Income $ (317,198) (733,212) Stock, Discount and Warrants Expense 216,005 164,843 Other 12,677 12,482 Valuation allowance 88,516 555,887 ------------ ------------- $ - $ - ============ ============= At September 30, 2007, the Company had net operating loss carryforwards of approximately $3,360,000 that may be offset against future taxable income from the year 2003 through 2026. No tax benefit has been reported in the September 30, 2007 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years. i. Advertising The Company expenses advertising costs in the period in which they are incurred. Advertising expense was $0 and $66,000 for the 2007 and 2006, respectively. F-12 NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) j. Patents Qualifying patent costs totaling $38,728 have been capitalized at September 30, 2005. The patents which have been granted are being amortized over a period of 10 years. Costs associated with patent applications which are pending or are being developed are not being amortized. Amortization expense for the years ended September 30, 2007 and 2006 was $0 and $34,406, respectively. The Company evaluates the recoverability of intangibles and reviews the amortization period on a continual basis utilizing the guidance of SFAS No. 142, "Goodwill and Other Intangible Assets." Several factors are used to evaluate intangibles, including, but not limited to, management's plans for future operations, recent operating results and projected, undiscounted cash flows. In 2006, the Company amortized the balance of its capitalized patent costs due to their forfeiture for non payment of the fees due NYU under the technology licensing agreement. k. Fixed Assets The Company has no fixed assets. The computer was depreciated over its estimated useful life of 5 years under the straight-line method. Depreciation expense for the years ended September 30, 2007 and 2006 was $0 and $4,356, respectively. In 2006, the Company depreciated the balance of the cost of its computer equipment as it was determined that the equipment's useful life was reduced to zero. l. Recent Accounting Pronouncements During the year ended September 30, 2007, the Company adopted the following accounting pronouncements: ADOPTED: SFAS NO. 123(R) -- In December 2004, the FASB issued SFAS No.123 (Revised 2004) (SFAS 123 (R)) "Share-based payment". SFAS 123 (R) will require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be re-measured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. FASB 123 (R) replaces FASB 123, Accounting for Stock-Based Compensation and supersedes APB option No. 25, Accounting for Stock Issued to Employees. This guidance is effective as of the first interim or annual reporting period after December 15, 2005 for Small Business filers. Under review: EITF 00-19.2--In December 2006, the FASB issued Staff Position No. EITF 00-19-2. This FSP addresses an issuer's accounting for registration payment arrangements and specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with FASB No. 5. The guidance in this FSP amends FASB Statements 133 and 150 and FASB Interpretation No. 45 to include scope exceptions for registration payments arrangements. This FSP further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2006. The Company is currently assessing the impact this pronouncement will have on its financial statements if any. F-13 NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) NOTE 2 - GOING CONCERN The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. Historically, the Company has incurred significant annual loses, which have resulted in an accumulated deficit of approximately $5,142,000, has a working capital deficiency of approximately $1,063,000, shareholders' deficiency of approximately $2,214,000 at September 30, 2007, which raises substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operation. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty. Management's plans to obtain such resources for the Company include obtaining capital in the form of loans from significant shareholders sufficient to meet its minimal operating expenses and from the sale of shares of its common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. NOTE 3 - COMMON STOCK On September 17, 1987, the Company issued 3,750,000 shares of $0.001 per value common stock to directors of the Company, for services, at $0.008 per share. On September 17, 1987, the Company issued 27,500 shares of $0.001 par value common stock, for cash, at $0.008 per share. On January 12, 1988, the Company issued 6,250 shares of $0.001 par value common stock, for cash, at $0.008 per share. On October 10, 1997, the Company issued 12,500,000 shares of $0.001 par value common stock to directors of the Company, for services, at $0.0004 per share. On November 12, 1997, the Company issued 1,125,000 shares of $0.0001 par value common stock to directors of the Company, for services, at $0.0004 per share. On October 2, 2001, the Company issued 250,000 shares of $0.001 par value common stock for cash at $0.001. On October 12, 2001, the Company elected to change the authorized capitalization from 10,000,000 shares of no par value common stock to 100,000,000 shares of $0.001 par value common stock. All share and per share values within these financial statements have been adjusted to reflect this change. On November 5, 2001, the Company approved a 12.5 for 1 forward stock split. All share and per share values within these financial statements have been adjusted to reflect this change. F-14 NANOSCIENCE TECHNOLOGIES, INC. (A Development Stage Company) NOTE 3 - COMMON STOCK (CONTINUED) On September 18, 2003, the Company sold 1,222,192 common shares for cash at $0.33 per share, or an aggregate of $400,000. Additionally, on September 18, 2003, the Company entered into a Stock Purchase Agreement with New York University (NYU) (see Note 5) whereby it issued 4,812,377 shares of common stock to NYU as partial consideration for certain licensing rights related to NYU-developed technologies. On October 10, 2003, the Company cancelled an aggregate of 12,846,373 shares of its previously issued common stock, pursuant to the terms of the Stock Purchase Agreement with NYU. In June 2004, the Company received $130,000 from an unrelated individual as payment for 86,667 shares of the Company's common stock (at $1.50 per share). However, before the shares could be properly issued, the Company began drafting a Private Placement Memorandum ("the PPM"), under which the Company would issue shares of common stock to various investors at $1.00 per share. Therefore, management deemed it most appropriate to issue shares to this investor under the terms of the PPM, at $1.00 per share, rather than according to the terms of the original subscription agreement, which was at $1.50 per share. In January 2005, the Company issued 130,000 shares of its common stock in satisfaction of the subscription payable. The Company issued 130,000 stock purchase warrants in connection with the funding which allows the holder to purchase an additional 130,000 shares of common stock at $1.50 per share. In April 2004, the Company entered into an Investment Banking Agreement "the Agreement") with Divine Capital Markets ("Divine") whereby Divine contracted to