UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      DC 20549







**FORM
      10-KSB**







(Mark
      One)




x
            Annual
                Report under Section 13 or 15 (d) of The Securities Exchange Act
                of 1934




For
      the
      fiscal year ended December 31, 2005 or





o
            Transition
                Report under Section 14 or 15 (d) of The Securities Exchange Act
                of
                1934




For
      the
      transition period from _________ to __________





**NaturalNano,
      Inc.**


(Exact
      name of registrant as specified in its charter)





**Nevada**
            
            **000-49901**
            
            **87-0646435**(State
                or other jurisdiction
            
            (Commission
                File No.)
            
            (I.R.S.
                Employerof
                incorporation)
            
            
            
            Identification
                No.)




**15
      Schoen Place**


**Pittsford,
      New York 14534**


(Address
      of principal executive offices) ****


**(585) 267-4850**


(Registrant’s
      telephone number, including area code)




Securities
      registered under Section 12 (b) of the Exchange Act: None





Securities
      registered under Section 12 (g) of the Exchange Act: Common Stock, $0.001 par
      value.





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act o





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15 (d) of the Exchange Act during the past twelve months (or for such shorter
      period that the registrant was required to file such reports), and (2) has
      been
      subject to such filing requirements for the past 90 days Yes x No o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of the Form 10-KSB
      or any amendment to this Form 10-KSB. o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act.) Yes o No x





State
      issuer’s revenues for its most recent fiscal year: $15,000





The
      aggregate market value of the voting and non-common equity held by
      non-affiliates computed by reference to the closing price of the registrant’s
      Common Stock on March 30, 2007 was $19,692,111.





The
      number of outstanding shares of the registrant’s Common Stock, $0.001 par value,
      as of March 30, 2007 was 121,860,740 shares.





DOCUMENTS
      INCORPORATED BY REFERENCE Not applicable





Transitional
      Small Business Disclosure Format: Yes o No x








**TABLE
      OF CONTENTS**




Page**PART
                I**Item
                1.
            Description
                of Business
            1Risks
                Related to Our Business
            12Risks
                Related to Our Common Stock
            15Item
                2.
            Description
                of Property
            18Item
                3.
            Legal
                Proceedings
            19Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            19**PART
                II**Item
                5.
            Market
                for Common Equity, Related Stockholder Matters and Small
                Business
            19Issuer
                Purchases of Equity SecuritiesItem
                6.
            Management’s
                Discussion and Analysis
            23Item
                7.
            Financial
                Statements
            31Item
                8.
            Changes
                in and Disagreements with Accountants on Accounting and
            32Financial
                DisclosureItem
                8A.
            Other
                Information
            32**PART
                III**Item
                9.
            Directors,
                Executive Officers, Promoters and Control Persons;
            32Compliance
                with Section 16(a) of the Exchange ActItem
                10.
            Executive
                Compensation
            39Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management
            40and
                Related Stockholder MattersItem
                12.
            Certain
                Relationships and Related Transactions
            42Item
                13.
            Exhibits
            43Item
                14.
            Principal
                Accountant Fees and Services
            46**SIGNATURES**
            47




i


**CAUTIONARY
      STATEMENT REGARDING**


**FORWARD-LOOKING
      STATEMENTS**





This
      annual report on Form 10-KSB and other reports that we file with the SEC contain
      statements that are considered forward-looking statements that involve risks
      and
      uncertainties. These include statements about our expectations, plans,
      objectives, assumptions or future events. In some cases, you can identify
      forward-looking statements by terminology such as “anticipate,” “estimate,”
“plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,”
“management believes,” “we believe,” “we intend” and similar expressions. All
      statements addressing operating performance, events or developments that the
      Company expects or anticipates will occur in the future, including statements
      relating to revenue realization, revenue growth, earnings, earnings per share,
      or similar projections, are forward looking statements within the meaning of
      the
      Private Securities Litigation Reform act of 1995 ( the “Reform Act”). Because
      they are forward-looking, they should be evaluated in light of important risk
      factors that involve estimates, assumptions and uncertainties that could cause
      actual results to differ materially from those expressed for the reasons
      described in this report. You should not place undue reliance on these
      forward-looking statements. You should be aware that our actual results could
      differ materially from those contained in the forward-looking statements due
      to
      a number of factors such as:




·
            the
                successful implementation of research and development
                programs;·
            the
                ability to demonstrate the effectiveness of our technology;·
            the
                timeline for customer accreditation for product
                formulations;·
            our
                ability to enter into strategic partnering and joint development
                agreements;·
            our
                ability to competitively market our Pleximer and filled tube
                products;·
            the
                terms and timing of product sales and licensing
                agreements;·
            the
                timing and approval of filed and pending patent
                applications;·
            the
                ability to raise additional capital to fund our operating and research
                activities until we generate adequate cashflow from operations
                and;·
            our
                ability to attract and retain key personnel;·
            general
                market conditions.





The
      forward-looking statements speak only as of the date on which they are made,
      and
      except to the extent required by federal securities laws, we undertake no
      obligation to update any forward-looking statement to reflect events or
      circumstances after the date on which the statement is made or to reflect the
      occurrence of unanticipated events. In addition, we cannot assess the impact
      of
      each factor on our business or the extent to which any factor, or combination
      of
      factors, may cause actual results to differ materially from those contained
      in
      any forward-looking statements.




**NOTE
        REGARDING MERGER**
  Prior
        to
        November 29, 2005, we were a “shell company” (as such term is defined in Rule
        12b-2 under the Securities Exchange Act of 1934) known as “Cementitious
        Materials, Inc.” Pursuant to an Agreement and Plan of Merger, dated
        September 26, 2005 (the “Merger Agreement”) by and among the Company,
        Cementitious Acquisitions, Inc., a Nevada corporation and wholly owned
        subsidiary of the Company (“Merger Sub”), and NaturalNano, Inc., now known as
        NaturalNano Research, Inc. (“NN Research”), on November 29, 2005 Merger Sub was
        merged with and into NN Research, with NN Research surviving as a wholly
        owned
        subsidiary of the Company (the “Merger”). Immediately following the Merger, we
        changed our name to “NaturalNano, Inc.” As a result of the Merger, we ceased
        being a shell company. Except where the context indicates otherwise, all
        references in this annual report of Form 10-KSB to “us”, “NaturalNano” or “the
        Company” refer, with respect to periods prior to the Merger, to NN Research and,
        with respect to periods after the Merger, to the consolidated enterprise
        consisting of NaturalNano, Inc. and NN Research.
 
 **NOTE
        REGARDING STOCK SPLIT**
  On
        February 8, 2006 we effected a two-for-one stock split. All references in
        this
        annual report on Form 10-KSB to the number of shares of our Common Stock
        and to
        related per-share prices (including references to periods prior to the effective
        date of the stock split) reflect this stock split.




**ITEM
      1. DESCRIPTION OF BUSINESS**





**The
      Company**




NaturalNano
      is a development stage company and we expect to remain so for at least the
      next
      twelve months. Our primary mission is to develop and commercialize material
      science technologies with a special emphasis on additives to polymers and other
      industrial and consumer products by taking advantage of technological advances
      we have developed in-house and through licenses from third parties. These
      technologies focus primarily on nanoscale materials using modifications to
      tubular materials found in halloysite clay. Our strategy is to develop
      proprietary and patentable processes and technologies related to these nanoscale
      materials and to commercialize these through product sales or license agreements
      to companies in the polymers, plastics and composites, cosmetics and personal
      care products, household products, and agrichemical industries.  The
      Company holds twenty issued or pending patents and proprietary know-how for
      extraction and separation processes of halloysite and other nanotubes, in
      combination with other materials.








-1-




**Terminology**





A
      summary
      of the terms used to describe our technologies and related science is presented
      below.





·
            **Nanotechnology**is
                research and technology development at the atomic, molecular or
                macromolecular levels, in the length scale of approximately 1 - 100
                nanometer range, to provide a fundamental understanding of phenomena
                and
                materials at the nanoscale and to create and use structures, devices
                and
                systems that have novel properties and functions because of their
                small
                and/or intermediate size. The novel and differentiating properties
                and
                functions are developed at a critical length scale of matter typically
                under 100 nm.





·
            **Nanoscale**means measurements using one-billionth of a meter
                units.





·
            **Active
                ingredient loading**refers to the process in which the lumen (inner opening) of the halloysite
                clay is filled with an application specific
                chemical.





·
            **Application
                technologies**refer to processes, treatments, or other innovations applied to a
                particular good or service for use by an end
                customer.





·
            **Commercial
                scale**means amounts by weight and/or volume that are suitable for use in
                goods
                that are intended for sale to, or by, a third
                party.





·
            **Concentration**relates to the amount of tubular material by weight or volume resident
                in
                the halloysite sample.





·
            **Extraction
                of halloysite nanotubes**is
                comprised of separating the nanotube components out of a mixture
                of
                various mineral materials which are often found in halloysite
                clay.





·
            **Elution
                attributes**relate to the amount of time required for a given quantity of active
                ingredient to flow from the
                nanotube.





·
            **Functionalized
                HNT**TMis
                an extracted halloysite nanotube that may have one or more of the
                following treatments: classification of size, outer surface treatment,
                outer surface metallization, inner surface coating, inner surface
                metallization or active ingredient
                loading.





·
            **Halloysite
                nanotubes (“HNT”)**is
                a term that defines the materials found in halloysite clay that are
                tube
                shaped and can be measured in one-billionth of a meter
                units.





·
            **Halloysite
                nanotube processing technology**means the manipulation of halloysite nanotubes, including mechanical
                and
                chemical treatments.





·
            **Metallization**is
                the process in which the lumen or surface of the halloysite clay
                is coated
                with a metal.





**·**
            **Nanotubular
                material**is
                used to define a material that has a tubular geometric shape that
                can be
                dimensionally measured in one-billionth of a meter
                unit.





·
            **Tubular
                content material**is
                used to define a material that has been processed and has a high
                percentage, or is completely comprised of, particles with tubular
                geometric shape.




-2-


**Products**





Our
      unique value-added technologies are directed to the production of our first
      innovative product, Pleximer TM as well
      as a related manufacturing solution utilizing advances in material science
      and
      chemistry to enhance and simplify current polymer manufacturing processes.
      Pleximer has been designed to address the manufacturing process challenges
      encountered by many polymer and plastics compounders in meeting end-user demands
      for stronger, lighter and lower cost polymer-based products. Pleximer is a
      turn-key halloysite nanotube polymer concentrate that can be added directly
      to a
      polymer extruder. Pleximer is formulated using NaturalNano’s proprietary and
      patent-pending processes that offer improved performance properties when
      compared to conventional fillers. The Pleximer product will be produced in
      pellet or flake form, sold in tons and designed to be added directly into a
      final stage polymer extruder with better cost and performance characteristics
      compared to conventional fillers.





Our
      future success with Pleximer will be dependent on our ability to tailor products
      and system-solutions in close cooperation with our potential customers. A
      further success factor will be our ability to solve our customer’s manufacturing
      problems quickly, within their manufacturing environment, and tailored to their
      market definitions and constraints. We believe a joint development approach
      with
      one or more customers will offer us opportunities to extend the range of
      Pleximer to a family of related products and new application solutions. We
      believe our initial commercialization of Pleximer will occur in the fourth
      quarter of 2007 and will most likely be within the transportation, packaging,
      sporting equipment or the commercial products industry.





We
      do not
      currently manufacture any products and do not expect to engage in large scale
      manufacturing activities in-house in the foreseeable future. We will make
      capital investments for lab scale equipment to produce prototype batches of
      Pleximer for customer attribute validation and characterization testing. This
      investment may allow us to produce manufactured materials for high margin,
      small
      volume niche market applications. Typically, we will utilize toll manufacturers
      or joint development partners in instances where our customer requires a
      finished formulation of Pleximer for incorporation into their manufacturing
      process.





We
      envision that in some customer instances, we will license our technology and
      thus incorporate our know-how and patented processes in the areas of
      functionalized nanotubes into the customer’s manufacturing process. In instances
      of licensing agreements, our customer (a materials compounder or polymer
      supplier, as an example) could then directly produce the functionalized
      materials for each of their specific applications. Our licensing strategies
      will
      focus on segmenting applications by (i) manufacturing technology used currently
      by the customer, (ii) the market addressed by the customer/licensee and (iii)
      the complexity of the processing application. We have not entered into any
      licensing agreements to date and believe that future agreements will be tailored
      based upon the customer’s industry segment and the complexity of the traditional
      processing alternatives available.





Pleximer




NaturalNano’s
      first family of products will center on our initial product, Pleximer, which
      is
      scheduled for market introduction in the fourth quarter of 2007. Pleximer is
      a
      turn-key halloysite nanotube polymer concentrate that can be added directly
      to a
      polymer extruder. Pleximer is formulated using NaturalNano’s proprietary and
      patent-pending processes that offer improved performance properties to polymer
      composites. The Pleximer product will be produced in pellet or flake form,
      sold
      in tons and designed to be added directly into a polymer extruder or molder
      with
      superior cost and performance characteristics compared to conventional
      fillers.





Today,
      most nanocomposites used in the plastics industry are made with “platy nanoclay”
materials that are often challenging and expensive to process. Platy nanoclays,
      such as montmorillonite, contain layered two-dimensional sheets held together
      by
      an intermediary layer. These clay sheets must be exfoliated (chemically
      separated) to produce a nanoparticulate filler with uniform dispersion
      characteristics within a polymer matrix. Today’s platy nanoclay composite
      production processes require multiple processing steps including: surface
      treatments, incorporation of nanoclay into the polymer synthesis process, and
      additional extrusion steps before the final polymer extruder or molding, in
      order to achieve the uniform dispersion required for most polymer composite
      products. These multiple manufacturing processes lead to complexity, increased
      cost and dispersion quality challenges. Even with the manufacturing processes
      described above, today’s nanoclays are only viable in a limited number of
      polymer families due to specialized chemistry and manufacturing requirements.
      We
      believe the up-front capital investment, in specialized manufacturing equipment
      and quality issues associated with exfoliation, are the biggest market barrier
      to the growth in the nanoclay market segment today.





-3-




NaturalNano’s
      Pleximer family of products will open significant opportunities for our
      potential customers, the polymer compounders and molders and other end-users,
      to
      introduce nanocomposite products without significant capital investment.
      NaturalNano began manufacturing scale production testing for Pleximer during
      the
      second half of 2006. Manufacturing scale tests, product specific attribute
      design and attribute validation will continue through 2007.





Filled
      tube products




NaturalNano’s
      second generation halloysite nanotube (“HNT TM ”)
      products will involve filling HNTs with active agents for use in the polymer
      composites, health and beauty, household product, and agrichemical industries.
      Halloysite nanotubes are unique nanomaterials, since the tube can be filled
      with
      active agents of interest to add a feature or property to a material. The filled
      tube product, planned for introduction in 2008, would be a second generation
      Pleximer product, which contains a material of interest within the tubes, such
      as an antimicrobial compound. Additional products planned for later in 2008
      and
      2009 would move into new markets, such as health and beauty, household products,
      and agrichemical. For example, HNTs can be filled with fragrances which, through
      our extended release technology under development, will elute out of the tube
      slowly over time. This would be of interest for household products such as
      laundry detergents, or health and beauty products. The filled tube technology
      provides potential for longer lasting treatments, with lower levels of active
      agents. In agrichemical applications, the tubes can be filled with pesticides
      for treatment of crops, thus providing a longer lasting treatment with lower
      levels of pesticides and a smaller environmental footprint.





The
      approaches for filling the tubes are covered by patents licensed from the U.S.
      Department of the Navy, and additional pending patents for specific applications
      of interest such as cosmetics and agricultural. In 2008, NaturalNano intends
      to
      obtain one or more JDA partners to work with us in the development of filled
      tube products for use in health and beauty, household, or agrichemical products.





**Technology**





We
      own or
      have the licensed rights to technology related to the extraction of halloysite
      nanotubes (which is taking the nanotube components out of a mixture of various
      minerals which are often found in halloysite clay) from processed halloysite
      clay that is provided by one or more halloysite mining companies. Halloysite
      clays differ in the concentration and physical characteristics, meaning the
      size
      and geometric shape, of tubular material content compared to platy clays.
      Classification of the halloysite nanotubes, for example by size and length,
      is
      important for certain applications. For example, longer HNTs will provide
      improved reinforcement compared to shorter HNTs in polymer composite
      applications. Therefore separating the longer tubes for use in polymer
      composites will result in better properties at lower fill levels, and therefore
      a lower weight nanocomposite. Classification will also be important for filled
      tube applications where determination of the loading potential of the halloysite
      nanotubes (which is the expected amount of active ingredients that may be placed
      in the hollow inner opening of the tubes) and determination of the resulting
      release characteristics of filled halloysite nanotubes (which is the amount
      of
      time required for a given quantity of active ingredient to flow from the
      nanotube) will provide control over the final properties. Many of the
      technologies related to extraction and classification of halloysite nanotubes
      are patent-pending and we expect to continue research in these areas which
      may
      lead to additional patent applications in the future.





Various
      treatments can be made to the halloysite nanotubes to prepare them for use
      in
      each end-use application. Examples of these treatments include: coating the
      outer surfaces of the nanotubes, metalizing outer and/or inner surfaces, loading
      or filling the nanotubes with active ingredients for possible controlled or
      extended release, and use of complementary technologies for further
      encapsulation of single or multiple functionalized nanotube. The combination
      of
      these technologies may present our prospective customers with significant and
      unique high-value-added niche market opportunities for their product
      offerings.





-4-




Our
      proprietary technologies include processing methods, formulations and specific
      surface treatments that enable the halloysite nanotubes to be classified and
      functionalized and thus be ready for use in a wide range of applications. The
      Company has the right to patented technologies as well as patents pending for
      processing methods, formulations and other surface treatment
      technologies.





**Strategy**





The
      NaturalNano commercialization strategy is focused on the development and
      introduction of a halloysite nanotube polymer concentrate, the Pleximer family
      of products, for commercial sale in the fourth quarter of 2007. This turn-key
      designed product, currently in the pilot and manufacturing scale testing phase
      of development, introduces a lower cost nanoclay alternative to the polymers
      and
      composites market segment. The Company’s researchers believe the unique
      characteristics of halloysite clay allow for the development of a novel process
      and material compound that will provide the stronger and lighter characteristics
      currently available from nanoclays, with a low cost processing structure
      relative to current nanomaterials such as carbon nanotubes and platy nanoclays.
      This low cost benefit results from naturally occurring materials (HNTs) that
      can
      be run in today’s manufacturing process; thereby capitalizing on a significant
      market that can not currently run nanocomposites. Market research indicates
      that
      the combination of stronger, lighter and less expensive materials is a high
      priority for companies producing products in the growing nanocomposites
      industry.





The
      critical milestones associated with the commercialization of the Pleximer family
      of products include: advanced pilot and manufacturing scale trials, application
      definitions and formulation optimization which will occur in combination with
      the customer validation and accreditation processes. The Company’s scientific
      advisory and commercialization leadership team includes experienced polymer
      extrusion and supply chain consultants as well as accomplished nanotube product
      development experts to advise NaturalNano in the commercialization and product
      development process.





**Market
      Opportunities**





The
      Company believes its technologies can provide benefits across many industry
      segments. Specific industries where management believes halloysite nanotubes
      may
      enhance products through controlled and extended release of active ingredients
      or through other treatments provided on the surfaces of the tubes
      include:





·
            Polymers,
                plastics and composites·
            Agricultural
                products





·
            Household
                products·
            Cosmetics,
                health and beauty products





·
            Performance
                sporting equipment





The
      potential markets for our technologies are significant and are projected to
      continue growing as future developments in material science and customer demands
      develop.




·
            The
                American Composites Manufacturers Association projected in 2004 that
                composite manufacturers alone generated over $13 billion in revenues
                and
                impacted over $45 billion in revenues from related composite suppliers
                and
                manufacturers.





·
            According
                to Plasticnews.com, BCC Research estimated the North American plastics
                compounding production in 2006 at 65.7 billion pounds and estimates
                growth
                to 79.5 billion pounds by 2011. This market segment was estimated
                by
                Plasticnews.com to be $10.6 billion in 2006.





·
            The
                total estimated North American market for polymers and plastics,
                as
                presented by the Society of the Plastics Industry (SPI) in 2004,
                was
                approximately $345 billion in shipments.





·
            The
                worldwide market for cosmetics and household care products, measured
                by
                Euromonitor International in 2003, estimated these markets at $201
                billion
                and $83 billion, respectively.





·
            The
                Freedonia Group, Inc. has estimated the U.S. nanomaterials demand
                in 2003
                at $263 million and projects growth in this market to $1.36 billion
                in
                2008 and $34 billion by 2020.





-5-




Polymer,
      Plastics and Composites




Composites
      are used in numerous market segments including: transportation, construction,
      and performance sporting goods. As cited above, the U.S. polymer composites
      market is currently estimated at $13 billion with nanocomposites highlighted
      as
      the fastest growing segment within the polymer composites market. NaturalNano
      believes that these markets will evolve into even larger market opportunities,
      as production cost and quality hurdles are resolved.





The
      Company’s nanomaterials can be used to replace conventional composite fillers in
      the production of a wide array of consumer and commercial products over numerous
      market segments. Conventional fillers are used in products to reduce weight,
      increase strength, improve machine efficiency, increase water and chemical
      resistance as well as to improve film integrity. The NaturalNano research
      indicates that our halloysite-based products will replicate or exceed the
      current performance standards achieved by conventional fillers and platy clays,
      and can be produced in a less-capital intensive process and therefore at a
      lower
      unit cost. The Company believes the introduction of the Pleximer family of
      products will result in stronger, lighter and less expensive nanocomposite
      materials.





Nanocomposite
      Market




Our
      prioritization of the nanocomposite market for our initial product introduction
      is based on a total world-wide market in 2005, measured by BCC Research in
      June
      2006, at approximately $273 million. This market study projects the
      nanocomposite market will grow to $741 million by 2010 and identifies the
      fastest growing component of the nanocomposite market as the nanoclay segment.
      We believe our Pleximer product offers significant product opportunities and
      advantages to current products within this segment and have therefore,
      prioritized our first product introduction in the nanocomposite
      market.





We
      believe Pleximer offers a unique solution, in that it is a turnkey solution
      using standard manufacturing equipment, and provides features that include
      high
      product strength, lower product weight and lower production cost. We believe
      these improved quality and cost characteristics will be available as a result
      of
      our unique patent pending processes and technologies. Our manufacturing and
      lab
      scale testing and research indicate that our technology and processing
      techniques could be applied in numerous applications that currently cannot
      utilize platy nanoclay solutions due to processing and chemical
      limitations.





**Raw
      Materials and Processing**





The
      Company has acquired from Atlas Mining Company (“Atlas”) a supply of halloysite
      clay, which the Company believes will be sufficient to meet the Company’s
      research and commercialization needs for at least the next twenty four months.
      NaturalNano has identified other halloysite sources that we believe are suitable
      as alternate suppliers of raw materials, and as such, we will not be solely
      dependent upon Atlas for the supply of raw materials.





Our
      process begins with raw or minimally processed halloysite material from the
      mine. The halloysite would then be separated and treated utilizing our
      proprietary technologies and would be surface treated, optimized for the polymer
      of interest. This refined and treated material may be shipped to a partner
      company or a designated toll manufacturing facility in the form of a dry powder
      or slurry mixture. Pleximer would be manufactured from the HNTs either at a
      partner company, toll manufacturer, or in-house (for small scale quantities)
      and
      would typically be shipped to the customer in pellet or flake form, although
      the
      customer’s specific requirements will determine the final form of delivery.
      NaturalNano can add further value to the refined and classified nanotubes by
      either adding material to the surface of the nanotubes or loading the lumen
      (hollow opening) of the nanotubes with active materials. The resulting
      intermediary materials can then be shipped to customers for use in their
      individual manufacturing processes.





These
      pellets, flakes, powders or suspensions will be designed as an intermediate
      component of a customer’s finished product. Typically, these materials would be
      incorporated with other ingredients to produce the finished product that our
      customer would sell, for instance providing a strengthening agent or extended
      release agent to be added to the partner’s existing materials or
      products.





-6-




If
      requested by a customer, we will evaluate and select suitable toll manufacturers
      in the targeted industry segment. Toll manufacturing is a contractual
      arrangement with a third-party firm that has existing equipment and personnel
      for manufacturing materials to specifications and utilizing technologies and
      materials provided by NaturalNano. The use of tolling arrangements would allow
      the Company to limit our capital investment requirements and direct
      manufacturing hiring. Any future tolling arrangements will include non-complete
      and non-disclosure agreements.





**Customers**





Our
      plan
      for 2007 includes our first projected revenues in the fourth quarter. The first
      market introductions for the Pleximer products are expected to be for
      transportation, packaging, sporting equipment, electronics or another commercial
      product application. The Company believes these 2007 operating revenues will
      be
      generated from the sale of processed and functionalized HNT products in a
      polymer-based pellet or flake under the product name “Pleximer.” It is most
      probable that the first delivered tons of Pleximer will be in conjunction with
      a
      joint development partner in the compounding or molding industry. Management
      anticipates that future results of manufacturing-scale testing, with joint
      development partners, will identify instances for common development that could
      offer both parties new market offerings to solve strength and dispersion issues
      that result from traditional nanoclay formulations. Management believes that
      the
      unique manufacturing solutions, generated from Pleximer technologies, will
      also
      lead to licensing opportunities in a variety of such customer circumstances.





**Sales**





The
      Company’s executive team is currently responsible for developing relationships
      with prospective customers and future joint research and development partners.
      We intend to recruit sales, marketing and product development employees and
      consultants with chemical, manufacturing and engineering experience to assist
      with the design and commercialization of system-solutions to generate product
      and licensing revenues for the Company.




Strategic
      partnerships and joint development agreements (“JDA”) are an important element
      of our commercialization strategy. We are currently evaluating several potential
      JDA partners. We anticipate that our JDA partners will help us to validate
      and
      expand our technology, develop and optimize extrusion (melt blending) processes,
      offer insight into additional application opportunities, as well as assist
      in
      the development of future sales channels.





**Competition**




Competitors
      in the nanotechnology industry include large public firms where nanotechnology
      may be a business unit and private firms that may focus solely on nanomaterials
      and nanotechnologies.





Many
      of
      our current and prospective competitors are larger and have greater financial
      resources, which could create significant competitive advantages for those
      companies. Our future success depends on our ability to compete effectively
      with
      other manufacturers of material additives that may have internal development
      programs. As a result, we may have difficulty competing with larger, established
      competitor companies. Generally, these competitors have:




·
            substantially
                greater financial, technical and marketing
                resources;





·
            larger
                customer bases;





·
            better
                name recognition; and





·
            potentially
                more expansive product offerings.




-7-




Many
      of
      these potential competitors have greater financial resources and are likely
      to
      command a larger market share, which may enable them to establish a stronger
      competitive position than we may have, in part through greater marketing
      opportunities. If we fail to address competitive developments quickly and
      effectively, we may not be able to remain a viable entity.





Larger
      companies that have nanotechnology business units or divisions that are working
      with nanotechnology, such as: Air Products and Chemicals, BASF, Cabot Corp.,
      Dow, E.I. DuPont de Nemours & Company, General Electric, Hewlett-Packard,
      Intel, IBM, Mitsubishi Chemical, Sumitomo Chemical, 3M, and others; have
      substantial resources. They have the capability to produce nanomaterials for
      their own internal use as well as for sale on the open market. Private firms
      include: Hyperion Catalysis International, Inc., Inframat Corporation, Nanogate
      AG, Nanogram Corporation, and Qinetiq Nanomaterials Limited. These firms may
      be
      considered competitive in the general field of supplying nanoscale materials
      for
      use by firms that NaturalNano may also consider as prospective
      customers.





NaturalNano’s
      Pleximer is a HNT/polymer concentrate designed to provide stronger, lighter,
      and
      less expensive materials for the polymer composite industry. Competitive
      products that provide similar mechanical property improvements include
      nanomaterial concentrates containing either carbon nanotubes or nanoclay
      platelets. As one example Hyperion Catalysis International, Inc. provides
      concentrates of carbon nanotubes (CNT) in various polymers. However, the CNT
      raw
      materials are very expensive; typically 1000x the cost of nanoclay materials,
      so
      NaturalNano believes that we will be cost advantaged.





Pleximer
      will compete most directly with compounding (polymer melt-blending) companies
      marketing nanoclay concentrates, or master batches, such as PolyOne Corporation
      and NanoCor, Inc. (a wholly owned subsidiary of AMCOL International
      Corporation.). However, products of PolyOne and NanoCor are currently limited
      to
      platy clay materials, which as described previously, are typically challenging
      and expensive to process. Research in nanocomposites has been ongoing for 5-10
      years; however, limited products exist on the market currently, due to the
      manufacturing issues associated with processing the materials. Current solutions
      are used in specialized, high margin applications within the transportation,
      sporting equipment, electronics, and high-end commercial markets. NaturalNano
      believes that our lower processing costs (relative to platy nanoclays) will
      allow us to maintain higher margins for the next several years.





Today’s
      nanoclays are only viable in a limited number of polymer families due to
      specialized chemistry and manufacturing requirements. The compatibility of
      HNTs
      with a broader range of polymers will provide an opportunity for NaturalNano
      to
      compete in the polymer composite industry in segments where platy clays cannot
      currently be used. NaturalNano intends to develop joint development partnerships
      with compounding companies to enter directly into the supply chain and bring
      the
      product to the end user through our partners.





NaturalNano’s
      second generation products will involve filling HNTs with active agents for
      use
      in the agrichemical industries, health and beauty, and household products
      markets. There are very few companies, that we are aware of, that are working
      with HNTs for this purpose. NanoDynamics, Inc. is working with HNTs in the
      building materials segment for wallboard and paperboard applications. This
      is
      not a target market for NaturalNano, and we believe that the activities in
      an
      alternate industry will help to strengthen the market validation of this
      material, without competing directly. The ability to fill tubes is unique to
      HNTs, and will thereby generate high margin, value-added product opportunities.





The
      nanoclay segment of the nanocomposite market, which includes halloysite, is
      expected to grow from $75M today, to $348M in 2010 (according to BCC Research).
      Therefore there is a large opportunity for growth and market share for multiple
      companies in this segment.





**Employees**





The
      Company currently has seven full-time employees and anticipates the addition
      of
      two research staff within the next twelve months in connection with the product
      development and commercialization of the Pleximer product. Our evaluation of
      human resource needs often results in our use of experienced part-time
      consultants in various functional areas in lieu of the immediate hiring of
      full-time employees.





-8-




The
      Company has at its disposal a number of engineering consultants and scientific
      advisors, many with PhD credentials, to assist in development and
      commercialization efforts. All of our employees and consultants have signed
      confidentiality agreements and non-compete agreements, as
      appropriate.





**Intellectual
      Property**





Numerous
      applications for halloysite purification, formulation, processes, and
      applications have been identified to date and are potential opportunities for
      our intellectual property development. NaturalNano assesses potential
      development opportunities through consultation with its Scientific Advisory
      Board, direct contact with prospective customers and evaluation of market
      research generally sourced from research reports and through internal discussion
      of potential product development concepts. As research and development
      continues, we intend to seek patent protection for new developments and
      technologies in the United States and in strategic foreign markets, in addition
      to licensing-in patents to augment our development opportunities.





The
      Company has the rights to over twenty issued or pending patents related to
      our
      processes and technologies and expect to continually invest in the growth of
      the
      intellectual property portfolio through in-house development of unique concepts
      and processes as well as through third party licensing and research programs.
      NaturalNano intends to continually strengthen this group of intangible assets
      through patent filings and through the development of proprietary knowledge
      and
      trade-secrets. At December 31, 2006, our intellectual property portfolio
      included applications in the areas of material processing, new compositions
      of
      matter and specific applications for the use of functionalized materials. The
      Company also uses trademark protection for current and anticipated
      products.





An
      overview of the Company’s issued or pending patents is summarized
      below.





Patents
      applications developed internally cover the following processes and
      applications:




·  Improved
      polymeric composite including nano-particle filler,




·  Nanocomposite
      master batch composition and method of manufacture, and




·  Nanocomposite
      method of manufacture.




Patent
      applications assigned from Technology Innovations, LLC, during the first quarter
      of 2007, include the following processes and applications:




·  Halloysite
      microtubule processes, structures, and composites,,




·  Ultra-capacitors
      comprised of mineral microtubules,




·  Hydrogen
      storage apparatus comprised of halloysite and mineral microtubules,
      and




·  Method
      for stabilizing nanotubular halloysite.




Patent
      licensed from Ambit Corporation under non-exclusive license
      agreement:




·  Patent
      #
      6,885,845 expires on 4/26/23 for Personal Communication Device Connectivity
      Arrangement








Patents
      developed jointly with the Naval Research Labs under a Cooperative Research
      and
      Development Agreement (CRADA) include the following:




·  Cosmetic
      skincare applications employing mineral-derived tubules for controlled
      release,




·  Radiation
      absorptive composite and methods of production




-9-


·  A
      method
      for treating agricultural crops using materials associated with tubular carriers.





Issued
      patents licensed from the Naval Research Laboratories include the following
      processes and applications:




·  Patent
      #5049382 expires on 9/17/2008 for Metal Clad Lipid Microstructures,




·  Patent
      #5492696 expires on 2/20/2013 for Controlled Release
      Microstructures,




·  Patent
      #5651976 expires on 7/29/2014 for Controlled Release of Active Agents Using
      Inorganic tubules,




·  Patent
      #5705191 expires on 1/6/2015 for Sustained Delivery of Active Compounds
      from Tubules with Rational Control,




·  Patent
      #6013206 expires on 1/11/2017 for Process for Formulation of High Aspect
      Ratio Lipid microtubules.




·  Patent
      #6280759 B1 expires on 8/28/18 for Method of Controlled Release and Controlled
      Release Microstructures.





Patent
      Assignment modifying License Agreement with Technology Innovations, LLC




During
      the first quarter of 2007, our principal stockholder, Technology Innovations
      LLC
      (“TI”) assigned us all rights, title, interests in, and improvements to various
      issued patents and pending applications which TI had previously licensed to
      us.





License
      with Naval Research Laboratory




On
      August
      12, 2005, we entered into a non-exclusive license agreement with the United
      States Department of the Navy, as represented by the Naval Research Laboratory
      (“NRL”) for non-exclusive rights and a license to patented technologies in the
      fields of halloysite clay and nanotubules. The license had an original term
      of
      six months during which time the parties would actively negotiate a partially
      exclusive license within specific fields of use. This agreement allows for
      the
      extension of the original term for the purpose of completing license
      negotiations. The license is not transferable or assignable and does not allow
      sub-licenses. The NRL and the Company are engaged in negotiations in connection
      with the completion of a partially exclusive license and anticipate the
      completion of such an agreement in 2007. The current agreement includes a
      non-refundable license issue fee of $10,000, paid at signing, and annual minimum
      license fees of $5,000 in each of the calendar years 2006 and 2007, and $10,000
      for calendar year 2008 and each year thereafter throughout the period of the
      license. The annual license fees are not refundable and shall be credited toward
      payment of royalties earned during the calendar year following such
      payment.





License
      Agreement with Ambit Corporation




On
      December 31, 2005, we entered into a License Agreement with Ambit Corporation
      (the “Ambit License”) for the rights to a patented technology in the field of
      electronics shielding. On November 13, 2006, the parties signed an amended
      and
      restated license agreement, effective October 1, 2006, modifying the terms
      of
      the original agreement. The amended agreement changes the scope of the license
      from exclusive to non-exclusive and changes the original royalty stream to
      20%
      royalty payments upon the sale of licensed products utilizing the technology
      or
      in instances of sublicense agreements. The amended agreement also includes
      annual reporting progress made on product development and various
      confidentiality elements. This agreement shall remain in effect until the
      expiration date of the last to expire related patent that is covered by the
      agreement, which is projected to be in fiscal 2014. In consideration for the
      rights granted under the original agreement, the Company paid $100,000 in cash
      and issued to Ambit 200,000 shares of common stock valued at $1.45 per share
      in
      connection with the original agreement. In connection with the November 13,
      2006
      amendment, the purchase price was modified and the 200,000 shares issued to
      Ambit were returned to the Company.





-10-




**Company
      History**





We
      were
      originally organized in Idaho on May 6, 1971 as Hall Mountain Silver Mines,
      Inc.
      For a period after inception, Hall Mountain was involved in the ownership and
      operation of certain mining claims, but operations discontinued in 1981 and
      we
      were inactive until 1989. In June 1989 we changed our name to Network Videotex
      Systems, Inc. and in November 1989 we changed our name to Wessex International,
      Inc. On May 22, 1991, we acquired Ocean Express Lines, Inc., a Florida
      corporation engaged in the business of operating a scheduled steamship between
      Miami, Florida and ports in the Western Caribbean and Gulf of Mexico. In
      connection with this transaction, we changed our name to Ocean Express Lines,
      Inc. We did not achieve profitability and ceased operating activities in 1992.
      On February 18, 2000, we relocated our domicile of incorporation from Idaho
      to
      the Nevada. On June 19, 2003, we changed our corporate name to American Thorium,
      Inc. On October 10, 2003, in connection with our all of the issued and
      outstanding shares of Cementitious Material Technologies, Inc. (“CMTI”), we
      changed our corporate name to Cementitious Materials, Inc. It was our intent
      that following the acquisition of CMTI we would engage in the business of
      licensing, marketing and promoting new construction materials based on CMTI’s
      proprietary technology. However, shortly after the acquisition it was determined
      by the parties involved that it would be in the best interest of all concerned
      to rescind the acquisition and accordingly, in April 2004, the acquisition
      of
      CMTI was rescinded. As a result of the rescission, we ceased conducting business
      operations and became a shell company.





NaturalNano,
      Inc. was incorporated under the laws of the State of Delaware on December 22,
      2004. Pursuant to an Agreement and Plan of Merger, dated September 26, 2005
      (the “Merger Agreement”) by and among Cementitious Materials, Inc., Cementitious
      Acquisitions, Inc., a Nevada corporation and wholly owned subsidiary of the
      Company (“Merger Sub”), and NaturalNano, Inc., now known as NaturalNano
      Research, Inc. (“NN Research”), Merger Sub was merged with and into NN Research,
      with NN Research surviving as a wholly owned subsidiary of the Company (the
      “Merger”). Immediately following the Merger, Cementitious Materials, Inc.
      changed its name to “NaturalNano, Inc.” As a result of the Merger, we ceased
      being a shell company.





Pursuant
      to the Merger Agreement, we issued 89,838,756 shares of our authorized but
      previously unissued common stock to the stockholders of NN Research in exchange
      for all of the issued and outstanding common stock of NN Research. An additional
      20,939,200 shares of our authorized but previously unissued common stock were
      issued in consideration for the conversion of outstanding NN Research
      convertible debt. The shares issued to the former stockholders and note holders
      of NN Research represented, in the aggregate, approximately 91.7% of the total
      issued and outstanding shares of the Company immediately following the Merger.
      Pursuant to the Merger Agreement, we also issued options and warrants for the
      purchase of an aggregate of 14,400,000 shares of our common stock to the holders
      of outstanding NN Research options and warrants, in consideration of the
      cancellation of such options and warrants.





Because
      the shares issued to NN Research’s stockholders and note holders in the Merger
      represented a controlling interest in the Company, the transaction was accounted
      for as a recapitalization, and NN Research was considered the acquirer for
      accounting purposes.





**Government
      Regulation**





The
      Company is subject to governmental regulation much like many other companies.
      There are still relatively few laws or regulations specifically addressing
      nanotechnology. As a result, the manner in which existing laws and regulations
      should be applied to nanotechnology in general, and how they relate to the
      business in particular, is unclear in many cases. The Company expects new laws
      and regulations to be adopted that may be directly applicable to the operating
      objectives and activities, described herein. Any existing or new legislation
      could expose the Company to substantial liability, including significant
      expenses necessary to comply with such laws and regulations and could dampen
      the
      growth in the use of nanotechnology in general.








**Executive
      Officers of the Registrant**





See
      Part
      III, Item 9 of this Report for information about Executive Officers of the
      Company.





-11-




**Available
      Information**





The
      Company’s internet address is http:// www.naturalnano.com .
      The
      Company’s filings with the Securities and Exchange Commission (“SEC”), including
      its annual report on Form 10-KSB, quarterly reports on Form 10-QSB, current
      reports on Form 8-K and amendments to those reports, filed or furnished pursuant
      to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are accessible
      free of charge at http://www.naturalnano.com as soon
      as reasonably practicable after the Company electronically files such material
      with, or furnishes it to, the SEC. Alternatively, such reports may be accessed
      at the internet address of the SEC, which is http://www.sec.gov .
      Also,
      the public may read and copy any materials that the Company files with the
      SEC’s
      Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549.
      The public may obtain information on the operation of the Public Reference
      Room
      by calling the SEC at 1-800-SEC-0330.




**RISKS
      RELATED TO OUR BUSINESS**





***We
      have a limited operating history, no material revenues to date and therefore
      a
      high risk of potential business failure unless we can overcome the various
      obstacles inherent to a development stage business.***





We
      are a
      development stage company with limited prior business operations. Our primary
      mission is to develop and commercialize material science technologies with
      a
      special emphasis on additives to polymers and other industrial and consumer
      products by taking advantage of technological advances we have developed
      in-house and through licenses from third parties. Because of our limited
      operating history, you may not have adequate information on which you can base
      an evaluation of our business and prospects. Investors
      should be aware of the difficulties, delays and expenses normally encountered
      by
      an enterprise in its development stage, many of which are beyond our control,
      including unanticipated research and development expenses, employment costs,
      and
      administrative expenses. We cannot assure our investors that our proposed
      business plans as described herein will materialize or prove successful, or
      that
      we will be able to finalize development of our products or operate
      profitably.





From
      our
      inception on December 22, 2004 through December 31, 2006, we have incurred
      cumulative losses of $11,356,635. As a result of the start-up nature of our
      business, we expect to sustain substantial expenses before generating
      significant revenues. There can be no assurance that we will achieve
      profitability in the immediate future or at any time. Management has taken
      actions to ensure that the Company will continue as a going-concern through
      December 31, 2007, including the completion of a private placement of $3,347,500
      of 8% Senior Secured Convertible Notes on March 7, 2007 which, net of fees
      provided working capital proceeds of $3,132,500. Management believes this
      funding vehicle will enable the company to continue as a viable business through
      the end of 2007.





We
      are
      dependent on continued funding and the successful development and marketing
      of
      our products. Investors should be aware of the increased risks, uncertainties,
      difficulties and expenses we face as a research and development company and
      that
      an investment in our common stock may become worthless if our business
      fails.





***If
      we cannot achieve commercial application of our nanoscale materials, we may
      not
      achieve profitability.***





We
      must
      develop commercial applications for halloysite nanotubes, which we intend to
      develop through joint development agreements in specific market segments in
      identified potential fields of use. If we fail to establish such collaborative
      relationships or if we are unable to develop sufficiently attractive commercial
      uses for our nanoscale materials or if we are unable to produce these materials
      at a competitive cost, we may not achieve profitability.





***We
      may not be able to manage our growth effectively, which could slow or prevent
      our ability to achieve profitability.***





The
      ability to manage and operate our business as we execute our development and
      growth strategy will require effective planning. Significant rapid growth could
      strain our internal resources and delay or prevent our efforts to achieve
      profitability. We expect that our efforts to grow will place a significant
      strain on our personnel, management systems, infrastructure and other resources.
      Our ability to manage future growth effectively will also require us to
      successfully attract, train, motivate, retain and manage new employees and
      continue to update and improve our operational, financial and management
      controls and procedures. If we do not manage our growth effectively slower
      growth is likely to occur and thereby slowing or negating our ability achieve
      and sustain profitability.





-12-




***We
      may not be able to fully protect* *our proprietary rights and we may
      infringe the proprietary rights of others which could result in costly
      litigation.***





Our
      future success depends on our ability to protect and preserve the proprietary
      rights related to our technology and resulting products. We have the rights
      to
      twenty issued or pending patents relating to processes and technologies and
      expect to continually invest in the growth of our intellectual property
      portfolio through in-house development and through third party licensing and
      joint venture research. We cannot assure you that we will be able to prevent
      third parties from using our intellectual property rights and technology without
      our authorization. The Company intends to pursue aggressively all efforts to
      obtain patent protection for our technology. The Company also relies on trade
      secrets, common law trademark rights and trademark registrations, as well as
      confidentiality and work for hire, development, assignment and license
      agreements with employees, consultants, third party developers, licensees and
      customers. Our protective measures for these intangible assets afford only
      limited protection and may be flawed or inadequate.





Policing
      unauthorized use of our technology is difficult and some foreign laws do not
      provide the same level of protection as U.S. laws. Litigation may be necessary
      in the future to enforce our intellectual property rights, to protect our trade
      secrets or patents that we may obtain, or to determine the validity and scope
      of
      the proprietary rights of others. Such litigation could result in substantial
      costs and diversion of resources and have a material adverse effect on our
      future operating results.





In
      recent
      years, there has been significant litigation in the United States involving
      patents and other intellectual property rights. In particular, there has been
      an
      increase in the filing of suits alleging infringement of intellectual property
      rights, which pressure defendants into entering settlement arrangements quickly
      to dispose of such suits, regardless of their merits. Other companies or
      individuals may allege that we infringe on their intellectual property rights.
      Litigation, particularly in the area of intellectual property rights, is costly
      and the outcome is inherently uncertain. In the event of an adverse result,
      we
      could be liable for substantial damages and we may be forced to discontinue
      our
      use of the subject matter in question or obtain a license to use those rights
      or
      develop non-infringing alternatives.





***We
      may not have opportunities to enter into joint development agreements for the
      commercialization of our technologies which could have a severe negative impact
      on our ability to market our products.***





Leveraging
      strategic partnerships is an important part of our business plan. We plan to
      achieve product commercialization through joint development agreements as these
      relationships will help us to validate and expand our technology, develop
      extraction and separation processes, offer insight into additional application
      opportunities and develop future sales channels. We intend to continue our
      development of these strategic partnerships with research teams at leading
      industry manufacturers, and suppliers in order to develop the manufacturing
      and
      marketing efforts that we believe will be required to commercialize our
      products. If we are unable to enter into strategic alliances and joint
      development agreements in the future, we may be unable to complete the
      commercialization of our products as effectively as we currently
      envision.





***The
      industry in which we operate is highly competitive and has relatively low
      barriers to entry. Increased competition could result in margin erosion, which
      would make profitability even more difficult to achieve and
      sustain.***




We
      expect
      that our future product offerings will provide new capabilities and superior
      performance compared to existing materials. However, many of our current and
      prospective competitors are larger and have greater financial resources, which
      could create significant competitive advantages for those companies. Our future
      success depends on our ability to compete effectively with other manufacturers
      of material additives that may have internal development programs. As a result,
      we may have difficulty competing with larger, established competitor companies.
      Generally, these competitors have:


·
              substantially
                  greater financial, technical and marketing
                  resources;


-13-




·
            larger
                customer bases;





·
            better
                name recognition; and





·
            potentially
                more expansive product offerings.





Many
      existing and potential competitors have greater financial resources and are
      likely to command a larger market share, which may enable them to establish
      a
      stronger competitive position than we may have, in part through greater
      marketing opportunities. If we fail to address competitive developments quickly
      and effectively, we may not be able to remain a viable entity.





***Our
      business could be negatively affected by any adverse economic developments
      in
      the advanced materials industry and/or the economy in
      general.***





We
      depend
      on the demand for the application of our technology and nanoscale materials
      and
      our business is susceptible to downturns in the advanced materials industry
      and
      the economy in general. Any significant downturn in the market or in general
      economic conditions would likely result in additional investments in research
      and marketing and thereby increase our costs to bring our licensing products
      to
      market.





***Our
      future success depends on retaining our existing key employees and hiring and
      assimilating new key employees. The loss of key employees or the inability
      to
      attract new key employees could limit our ability to execute our growth
      strategy, resulting in lost sales and a slower rate of
      growth.***





Our
      success depends in part on our ability to retain key employees including our
      executive officers.


Although
      we have certain employment agreements in effect with our executives, each
      executive can terminate his or her agreement generally with 90 days notice.
      It
      would be difficult for us to replace any one of these individuals. In addition,
      as we grow we may need to hire additional key personnel. We may not be able
      to
      identify and attract high quality employees or successfully assimilate new
      employees into our existing management structure.





***Because
      Technology Innovations, LLC has a 49.6% ownership of our outstanding shares
      there may be circumstances that give rise to conflicts of interests between
      the
      Company and this principal stockholder.***





Because
      of the nature and development stage of the Company and the business objectives
      of Technology Innovations, LLC, there may be circumstances of potential
      conflicts of interest and differing objectives between these entities. Any
      potential conflicts may not be resolved in a manner that is considered favorable
      to all stockholders, considering Technology Innovations voting influence. We
      do
      not believe it is possible to predict the precise circumstances under which
      future potential conflicts may arise and therefore intend to address potential
      conflicts on a case-by-case basis. Our disinterested board members will make
      all
      determinations and decisions relating to issues involving Technology
      Innovations, LLC.





***Because
      one of our directors is a significant equity owner and manager of Technology
      Innovations, LLC, our principal stockholder, there may be conflicts of
      interest.***





Michael
      L. Weiner, the Chairman of our Board of Directors, is the Manager and a 42.74%
      beneficial equity member of Technology Innovations LLC, (“TI”) a company engaged
      in the business of identifying and acquiring intellectual property for
      investment and exploitation. TI beneficially own 49.6% of our outstanding common
      stock. Further, Mr. Weiner is on the board of Nanolution, LLC, a wholly owned
      subsidiary of Biophan Technologies, Inc., an entity with which we have entered
      into a joint research agreement. Because
      of the nature of our business and the business of these other entities, the
      relationships of Mr. Weiner with these other entities may give rise to conflicts
      of interest with respect to certain matters affecting us. All potential
      conflicts may not be resolved in a manner that is favorable to us. We believe
      it
      is impossible to predict the precise circumstances under which future potential
      conflicts may arise and therefore intend to address potential conflicts on
      a
      case-by-case basis. Under Nevada law, directors have a fiduciary duty to act
      in
      good faith and with a view to the best interests of the corporation. Our
      disinterested board members will make all determinations and decisions relating
      to Technology Innovations and other affiliates as they may arise.





-14-





**RISKS
      RELATED TO OUR COMMON STOCK**





***We
      have a history of operating losses and expect to report future losses that
      may
      cause our stock price to decline.***





For
      the
      operating period since inception (December 22, 2004) through December 31, 2006,
      we have incurred a net cumulative loss of $11,536,635. We expect to continue
      to
      incur losses as we spend additional capital to develop and market our
      technologies and establish our infrastructure and organization to support
      anticipated operations. We cannot be certain whether we will ever earn a
      significant amount of revenues or profit, or if we do, that we will be able
      to
      continue earning such revenues or profit. Also, any economic weakness or global
      recession may limit our ability to develop and ultimately market our
      technologies. Any of these factors could cause our stock price to decline and
      result in you losing a portion or all of your investment.




***Our
      research and development efforts may not result in commercially viable products
      which could result in a decline of our stock price and a loss of your
      investment.***





Our
      technologies are in the development stage. Further research and development
      efforts will be required to develop these technologies to the point where they
      can be incorporated into commercially viable or saleable products. We may not
      succeed in developing commercially viable products from our technologies. If
      we
      are not successful in developing commercially viable products or if such
      products become obsolete, our ability to generate revenues from our technologies
      will be severely limited. This would result in the loss of all or part of your
      investment.





***We
      may need to raise additional capital. If we are unable to raise additional
      capital, our business may fail.***





Because
      we are a development stage company and have no material revenues, we need to
      secure on-going funding. The private placement of $3,347,500 of 8% Senior
      Secured Convertible Notes which, net of fees, provided working capital proceeds
      of $3,132,500 in the first quarter of 2007, may not be sufficient to carry
      out
      all of our plans and to fund our operating losses until we are able to
      generate enough revenues to sustain our business. If we are unable to obtain
      adequate funding, we may not be able to successfully develop and market our
      products and our business will most likely fail. To secure additional financing,
      we may need to borrow money or sell more securities. Under these circumstances,
      we may be unable to secure additional financing on favorable terms or at
      all.





Selling
      additional stock, either privately or publicly, would dilute the equity
      interests of our stockholders. If we borrow money, we will have to pay interest
      and may also have to agree to restrictions that limit our operating flexibility.
      If we are unable to obtain adequate financing, we may have to curtail business
      operations which would have a material negative effect on operating results
      and
      most likely result in a lower stock price.





***Our
      common stock has experienced in the past, and is expected to experience in
      the
      future, significant price and volume volatility, which substantially increases
      the risk that you may not be able to sell your shares at or above the price
      that
      you pay for the shares.***


Certain
        factors, some of which are beyond our control, that may cause our share price
        to
        fluctuate significantly include, but are not limited to, the
        following:
 ·
                variations
                    in our quarterly operating results;


-15-




·
            our
                ability to complete the research and development of our
                technologies;





·
            the
                development of a future market for our
                products;





·
            changes
                in market valuations of similar
                companies;




·
            announcement
                by us or our competitors of significant contracts, acquisitions,
                strategic
                partnerships, joint ventures or capital
                commitments;




·
            additions
                or departures of key personnel; and





·
            fluctuations
                in stock market price and volume.





Additionally,
      in recent years the stock market in general, and the Over-the-Counter Bulletin
      Board and technology stocks in particular, have experienced extreme price and
      volume fluctuations. In some cases these fluctuations are unrelated or
      disproportionate to the operating performance of the underlying company. These
      market and industry factors may materially and adversely affect our stock price
      regardless of our operating performance. The historical trading of our common
      stock is not necessarily an indicator of how it will trade in the future and
      our
      trading price as of the date of this prospectus is not necessarily an indicator
      of what the trading price of our common stock might be in the
      future.





In
      the
      past, class action litigation has often been brought against companies following
      periods of volatility in the market price of those companies' common stock.
      If
      we become involved in this type of litigation in the future it could result
      in
      substantial costs and diversion of management attention and resources, which
      could have a further negative effect on your investment in our
      stock.





***Our
      issuance of common stock at a price below prevailing trading prices at the
      time
      of issuance may cause our stock price to decline.***





As
      of
      December 31, 2006 there were outstanding options to purchase an aggregate of
      10,464,000 shares of our common stock with a weighted average exercise price
      of
      $0.19 per share. There are also outstanding warrants for the purchase of
      9,470,000 shares of our common stock, having a weighted average exercise price
      of $0.57 per share. These options and warrants, as well as other options and
      warrants that we may issue in the future, may also result in shares being issued
      for consideration that is less than the trading price of our common stock at
      the
      time the shares are issued.





We
      may
      also issue shares in the future at a discount to the trading price of our common
      stock. Any such below market issuances, or the potential for such issuances,
      could cause our stock price to decline.





***Shares
      of our common stock may be subject to price illiquidity and volatility because
      our shares may continue to be thinly traded and may never become eligible for
      trading on Nasdaq or a national securities exchange.***





Although
      a trading market for our common stock exists, the trading volume has not been
      significant and an active trading market for our common stock may never develop.
      There currently is no analyst coverage of our business. The volume of shares
      in
      our public “float” will continue to be limited due to resale restrictions under
      applicable securities laws on shares issued to the former stockholders of
      NaturalNano and the fact that significant portions of our outstanding shares
      are
      held by our officers, directors or our principal stockholder. As a result of
      the
      thin trading market for our common stock and the lack of analyst coverage,
      the
      market price for our shares may continue to fluctuate significantly and will
      likely be more volatile than the stock market as a whole. There may be a limited
      demand for shares of our common stock due to the reluctance or inability of
      certain investors to buy stocks quoted for trading on the OTC Bulletin Board
      (OTCBB), lack of analyst coverage of our common stock, and a negative perception
      by investors of stocks traded on the OTCBB. As a result, even if prices appear
      favorable, there may not be sufficient demand to complete a stockholder’s sell
      order. Without an active public trading market or broader public ownership,
      shares of our common stock are likely to be less liquid than the stock of most
      public companies, and any of our stockholders who attempt to sell their shares
      in any significant volumes may not be able to do so at all, or without
      depressing the publicly quoted bid prices for our shares.




-16-





While
      we
      may at some point be able to meet the requirements necessary for our common
      stock to be listed on one of the Nasdaq stock markets or on a national
      securities exchange, we cannot assure you that we will ever achieve a listing
      of
      our common stock on Nasdaq or on a national securities exchange. Initial listing
      on one of the Nasdaq markets or one of the national securities exchanges is
      subject to a variety of requirements, including minimum trading price and
      minimum public “float” requirements, and could also be affected by the general
      skepticism of such markets concerning companies that are the result of mergers
      with inactive publicly-held companies. There are also continuing eligibility
      requirements for companies listed on public trading markets. If we are unable
      to
      satisfy the initial or continuing eligibility requirements of any such market,
      then our stock may not be listed or could be delisted. This could result in
      a
      lower trading price for our common stock and may limit your ability to sell
      your
      shares, any of which could result in you losing some or all of your
      investments.





***The
      so-called "penny stock rule" could make it cumbersome for brokers and dealers
      to
      trade in our common stock, making the market for our common stock less liquid
      which could cause the price of our stock to decline.***





Trading
      of our common stock on the OTC Bulletin Board may be subject to certain
      provisions of the Securities Exchange Act of 1934, commonly referred to as
      the
      "penny stock" rule. A penny stock is generally defined to be any equity security
      that has a market price less than $5.00 per share, subject to certain
      exceptions. If our stock is deemed to be a penny stock, trading in our stock
      will be subject to additional sales practice requirements on
      broker-dealers.





These
      may
      require a broker-dealer to:




·
            make
                a special suitability determination for purchasers of our
                shares;





·
            receive
                the purchaser's written consent to the transaction prior to the purchase;
                and





·
            deliver
                to a prospective purchaser of our stock, prior to the first transaction,
                a
                risk disclosure document relating to the penny stock
                market.





Consequently,
      penny stock rules may restrict the ability of broker-dealers to trade and/or
      maintain a market in our common stock. Also, prospective investors may not
      want
      to get involved with the additional administrative requirements which may have
      a
      material adverse effect on the trading of our shares.





***A
      recapitalization through a reverse merger transaction is often heavily
      scrutinized by the SEC and we may encounter difficulties or delays in obtaining
      future regulatory approvals.***





Historically,
      the SEC and NASD have not generally favored transactions in which a
      privately-held company merges into a largely inactive company with publicly
      traded stock. Therefore, there is a significant risk that we may encounter
      difficulties in obtaining the regulatory approvals necessary to conduct future
      financing or acquisition transactions, or to achieve a listing of shares on
      Nasdaq or a national securities exchange. On June 29, 2005, the SEC adopted
      rules dealing with private company mergers into dormant or inactive public
      companies. It is likely that we will be scrutinized carefully by the SEC and
      possibly by the National Association of Securities Dealers or Nasdaq, which
      could result in difficulties or delays in achieving SEC clearance of any future
      registration statements or other SEC filings that we may pursue, in attracting
      NASD-member broker-dealers to serve as market-makers in our stock, or in
      achieving admission to one of the Nasdaq stock markets or any other national
      securities market. As a consequence, our financial condition and the value
      and
      liquidity of your shares may be negatively impacted.




-17-





***The
      authorization and issuance of preferred stock may prevent or discourage a change
      in our management.***





Our
      amended Articles of Incorporation authorize the Board of Directors to issue
      up
      to 10,000,000 shares of preferred
      stock without stockholder approval. Such shares will have terms, conditions,
      rights, preferences and designations as the Board may determine. The rights
      of
      the holders of our common stock will be subject to, and may be adversely
      affected by, the rights of the holders of any preferred stock that may be issued
      in the future. The issuance of preferred stock, while providing desirable
      flexibility in connection with
      possible acquisitions and other corporate purposes, could have the effect of
      discouraging a person from acquiring a majority of our outstanding common
      stock.





***It
      may be difficult for a third party to acquire us, and this could depress our
      stock price.***





Nevada
      corporate law includes provisions that could delay, defer or prevent a change
      in
      control of our company or our management. These provisions could discourage
      information contests and make it more difficult for you and other stockholders
      to elect directors and take other corporate actions. As a result, these
      provisions could limit the price that investors are willing to pay in the future
      for shares of our common stock. For example:




(i)
            without
                prior stockholder approval, the Board of Directors has the authority
                to
                issue one or more classes of preferred stock with rights senior to
                those
                of common stock and to determine the rights, privileges and inference
                of
                that preferred stock;(ii)
            there
                is no cumulative voting in the election of directors, which would
                otherwise allow less than a majority of stockholders to elect director
                candidates; and(iii)
            stockholders
                cannot call a special meeting of
                stockholders.




**ITEM
      2. DESCRIPTION OF PROPERTY**





During
      the first quarter of 2007, we relocated our primary business operations to
      leased office space located at 15 Schoen Place in Pittsford, New York from
      the
      Lennox Tech Enterprise Center in West Henrietta, New York. The Schoen Place
      lease calls for annual rent of $44,000 for each the first two years of the
      lease
      term. This agreement also includes annual rate increases of 5% for years three
      through five and annual increases of 3% for years six through fifteen. The
      lease
      agreement provides for the use of the office space through April 30, 2022
      (subject to our right to terminate under certain conditions, including landlord
      re-leasing of the property, after March 1, 2009 with 90 days notice). The
      landlord is responsible for all real property taxes for the first 38 months
      of
      the term; thereafter, the landlord will absorb the first 3% of any increases
      and
      half of the remaining 97% will be reimbursed by the Company based on its
      proportionate share (17%) of the building usage. In addition to being
      responsible for utilities within our leased space, we have agreed to pay our
      proportionate share of utility charges for common area within the
      building.





We
      currently lease approximately 3,000 square feet of laboratory space in
      Rochester, New York under a two year agreement that expires on January 31,
      2008.
      This agreement includes a one-year renewal option that allows for the extension
      of this agreement through January 31, 2009. The annual base rent under this
      agreement is $46,187 annually, plus a pro rata share of the operating expenses,
      for each of the first two years and increases to $47,687 for the optional
      renewal year.





We
      believe our current office and laboratory facilities will be adequate for
      our anticipated needs for the next twelve months. We believe that appropriate
      insurance coverage is in place and effective for these facilities and related
      business needs.





As
      of
      December 31, 2006, we conducted our primary business operations using office
      space rented from Lennox Tech Enterprise Center in West Henrietta New York.
      This
      agreement included an annual rent of $50,316 and was terminated in connection
      with the relocation of our offices as described above.




-18-





**ITEM
      3. LEGAL PROCEEDINGS**





There
      are
      no material pending legal proceedings to which we are a party or to which any
      of
      our property is subject and, to the best of our knowledge, no such actions
      against us are contemplated or threatened.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





No
      matter
      was submitted to a vote of security holders, through the solicitation of proxies
      or otherwise, during the fourth quarter of the fiscal year ended December 31,
      2006.





**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**





**Market
      Information**





The
      Company’s common stock is listed on the OTC Bulletin Board under the symbol
      NNAN.





The
      high
      and low share prices for the Company’s common stock as reported on the OTC: BB
      for each quarterly period during 2006 is presented below. These quotations
      reflect inter-dealer prices, without mark-up, mark-down or commission, and
      may
      not represent actual transactions. Because our shares had traded only on a
      limited and sporadic basis prior to the November 29, 2005 Merger, there is
      no
      meaningful history of reported trades in the public market before that date
      and
      we therefore have not included a price history of our trades prior to this
      date.





For
                the year ended December 31, 2006
            
            Sales
                PricesHigh
            
            LowFirst
                quarter
            
            $
            2.50
            
            $
            1.05Second
                quarter
            
            $
            1.90
            
            $
            1.05Third
                quarter
            
            $
            1.35
            
            $
            0.49Fourth
                quarter
            
            $
            0.95
            
            $
            0.25





The
      closing price of the Company’s common stock on December 31, 2006, as reported on
      the OTC:BB, was $0.28 per share. As of December 31, 2006, we had 121,700,740
      shares of our common stock outstanding, which were held by approximately 254
      shareholders of record.





Prior
      to
      the November 29, 2005 Merger, our stock was listed on the OTC Bulletin Board
      under the symbol “CTTM.”





**Dividend
      Policy**





We
      have
      never paid any cash dividends and have no plans to do so in the foreseeable
      future. Our future dividend policy will be determined by our Board of Directors
      and will depend upon a number of factors, including our financial condition
      and
      performance, our cash needs and expansion plans, income tax consequences and
      the
      restrictions that applicable laws and other arrangements then impose.





**Securities
      Authorized for Issuance under Equity Compensation Plans**





The
      Company maintains two equity compensation plans.





The
      NaturalNano, Inc. 2005 Incentive Stock Plan (“the 2005 Plan”) was adopted on
      September 23, 2005 by the shareholders and Board of Directors of the Company
      and
      became effective upon the Merger on November 29, 2005. The 2005 Plan authorizes
      the issuance of up to 14,000,000 shares of common stock; 400,000 shares remain
      available for future grants. Under the 2005 Plan, officers, employees, directors
      and consultants may be granted options to purchase the Company’s common stock at
      fair market value as of the date of grant. Options become exercisable over
      varying vesting periods commencing from the date of grant and have terms of
      five
      to ten years. The plan also provides for the granting of performance-based
      and
      restricted stock awards.




-19-





The
      NaturalNano, Inc. 2007 Incentive Stock Plan (“the 2007 Plan”) was adopted by the
      Board of Directors of the Company on February 25, 2007 but has not yet been
      presented for shareholder approval. The 2007 Plan authorizes the issuance of
      up
      to 7,000,000 shares of common stock; 5,800,000 shares remain available for
      future grants. Under the 2007 Plan, officers, employees, directors and
      consultants may be granted options to purchase the Company’s common stock at
      fair market value as of the date of grant. Options become exercisable over
      varying vesting periods commencing from the date of grant and have terms of
      five
      to ten years. The plan also provides for the granting of performance-based
      and
      restricted stock awards.




In
      2006 we granted, to one of our executive officers
      and to a consultant, options for the purchase of an aggregate of  90,000
      shares of common stock. These options are governed by separate agreements
      between the Company and the option holders and were not granted under a
      shareholder-approved plan.





The
      following chart sets forth information regarding our equity compensation plans
      as of December 31, 2006:


Plan
                  category
              
              Number
                  of securities to be issued upon exercise of outstanding options
                (a)
              
              Weighted
                  average exercise price of outstanding options
                (b)
              
              Number
                  of securities remaining available for future issuance under equity
                  compensation plans (excluding securities reflected in column
                  (a))
                (c
                  )Equity
                  compensation plans approved by security holders
              
              
              10,374,000
              
              $
              0.19
              
              
              2,800,000Other
                  equity compensation plans not approved by security holders
              
              
              90,000
              
              $
              0.10
              
              
              noneTotal
              
              
              10,464,000
              
              $
              0.19
              
              
              2,800,000





**Recent
      Sales of Unregistered Securities**





I.
      Prior
      to the Merger (described below), NN Research issued the following securities
      without registration under the Securities Act of 1933, all of which were issued
      in private placements not involving a public offering and in reliance on the
      exemption from the registration requirements of such Act provided in Section
      4(2) thereof.





a.
            In
                connection with is organization, on December 22, 2004 NN Research
                issued
                10,000,000 shares of its Common Stock to Technology Innovations,
                Inc. for
                an aggregate purchase price of
                $100,000.





b.
            On
                the dates indicated, NN research granted options under its 2004 Stock
                Option Plan to officers, directors, employees and consultants for
                the
                purchase of the number of shares of its Common Stock (all at an exercise
                price of $0.10 per share):




**Date
                of Grant**
            
            **Number
                of Individuals**
            
            **Number
                of Shares**March
                1, 2005
            
            
            18
            
            
            3,725,000April
                4, 2006
            
            
            1
            
            
            25,000July
                1-27, 2005
            
            
            9
            
            
            1,080,000August
                1-3, 2005
            
            
            2
            
            
            120,000Total
                Option Grants
            
            
            30
            
            
            4,950,000




-20-





c.
            On
                March 31, 2005, NN Research issued to SBI USA, LLC a warrant for
                the
                purchase of 2,250,000 shares of its Common Stock at a purchase price
                of
                $0.23 per share. The warrant was issued in connection with the performance
                by SBI USA of consulting services for NN Research. NN Research attributed
                a value of $273,442 to the warrant. In the Merger described below,
                this
                warrant was exchanged for a warrant to purchase 4,500,000 shares
                of our
                Common Stock; the new warrant expired without being exercised on
                March 31,
                2007.





d.
            Between
                June 13, 2005 and September 9, 2005, NN Research issued Convertible
                Promissory Notes having an aggregate face amount of $4,156,000 to
                a total
                of 59 investors.





II.
        On November 29, 2005, pursuant to an Agreement and Plan of Merger,
      dated as of September 26, 2005 (the “Merger Agreement”) by and among
      Cementitious Materials, Inc., a Nevada corporation, (the “Company”),
      Cementitious Acquisitions, Inc., a Nevada corporation and wholly-owned
      subsidiary of the Company (“Merger Sub”), and NaturalNano, Inc., a Delaware
      corporation now known as NaturalNano Research, Inc. (“NN Research”), Merger Sub
      was merged with and into NN Research, with NN Research surviving as a
      wholly-owned subsidiary of the Company (the “Merger”). Immediately following the
      Merger, the Company changed its name to “NaturalNano, Inc.” Pursuant to the
      Merger Agreement, we issued the following securities to former security holders
      of NN Research, without registration under the Securities Act of 1933 in
      reliance on the exemption provided in Section 4(2) of such Act:




a.
            89,838,756
                shares of our Common Stock to the former stockholders of NN Research
                in
                exchange for all of the issued and outstanding Common Stock of NN
                Research.





b.
            20,939,200
                shares of our Common Stock in consideration for the conversion of
                $4,156,000 face amount of outstanding NN Research Convertible Promissory
                Notes which were, by their terms, automatically converted at the
                effectiveness of the Merger.





c.
            Options
                and warrants for the purchase of an aggregate of 14,400,000 shares
                of our
                common stock to the holders of outstanding NN Research options and
                warrants (identified above), in consideration of the cancellation
                of such
                options and warrants.





III.
        On February 1 and 9, 2006 we issued an aggregate of 314,700 shares of our
      Common Stock to three entities in private placement transactions exempt from
      the
      registration requirements of the Securities Act of 1933 pursuant to Section
      4
      (2) of such Act. Specifically, we issued:





a.
            40,000
                shares of Common Stock to High Technology of Rochester, Inc., our
                landlord, in consideration for leasehold improvements to our office
                facilities.





b.
            74,700
                shares of Common Stock to Medienimpuls GmbH as payment for consulting
                services.





c.
            200,000
                shares of Common Stock to Ambit Corporation in partial consideration
                for
                Ambit’s grant to us of license to certain patented technology in the field
                of electronic shielding.





IV.
        On March 30, 2006, in connection with the agreement by SBI Brightline
      XIII, LLC to purchase shares of our Common Stock, we issued to SBI a warrant
      for
      the purchase of up to 3,300,000 shares of our Common Stock. The transaction
      with
      SBI was a private placement not involving a public offering and was exempt
      from
      the registration requirements of the Securities Act of 1933 pursuant to Section
      4(2) of such Act. On July 9, 2006, we cancelled the warrant.




V.
      On
      July 9, 2006, following the cancellation of the warrant that had been issued
      to
      SBI Brightline XIII, LLC on March 30, 2006 and in connection with a new
      agreement by SBI to purchase shares of our Common Stock, we issued to SBI a
      warrant for the purchase of up to 4,770,000 shares of our Common Stock. The
      transaction with SBI was a private placement not involving a public offering
      and
      was exempt from the registration requirements of the Securities Act of 1933
      pursuant to Section 4(2) of such Act.





VI.
        On March 7, 2007, pursuant to a Loan and Security Agreement (the
“Purchase Agreement”) with Platinum Partners Long Term Growth IV (“Platinum”),
      Longview Special Financing, Inc. (“Longview”) and Platinum Advisors LLC (the
“Agent”), for its own account and as agent for the other investors. Pursuant to
      the Purchase Agreement, we issued $3,250,000 face amount of 8% Senior Secured
      Promissory Notes (the “Notes”) to Platinum and Longview. The holders of the
      Notes may elect to convert the Notes at any time into shares of our common
      stock
      at a price of $0.22 per share (subject to certain anti-dilution adjustments.
      On
      March 7, 2007 we also issued to Platinum and Longview two series of warrants,
      for the purchase at any time on or before March 7, 2011, of an aggregate of
      22,159,092 shares of our common stock. The first series of warrants (the “Series
      A Warrants”) covers the purchase of an aggregate of 11,079,546 shares of our
      common stock at an exercise price of $0.22 per share. The second series of
      warrants (the “Series B Warrants”) covers the purchase of an additional
      aggregate of 11,079,546 shares of our common stock at an exercise price of
      $0.33
      per share. Each series of Warrants contain provisions for anti-dilution
      adjustments to the exercise prices. In connection with those issuances, on
      March
      7, 2007, as consideration for due diligence services in connection with the
      Purchase Agreement, we paid to the Agent a cash fee of $97,500 and issued to
      that firm (i) a Note (identical in form to the Notes issued to the other
      investors) in the principal amount of $97,500, (ii) Series A warrants for the
      purchase of 332,387 shares of our common stock at $0.22 per share,(iii) Series
      B
      Warrants for the purchase of a total of 1,473,581 shares of our common stock
      at
      $0.33 per share, and (iv) a warrant (the “Series C Warrant”) for the purchase at
      any time on or before March 7, 2011 of 1,141,194 shares of our common stock
      at
      an exercise price of $0.22 per share (subject to certain anti-dilution
      adjustments). The Notes and Warrants were issued in a private placement not
      involving a public offering and in reliance on the exemption from the
      registration requirements of the Securities Act of 1933 provided in Section
      4(2)
      thereof and Regulations D and S promulgated thereunder.





-21-




VII.
      On
      March 26, 2007 we issued an aggregate of 160,000 shares of common stock to
      two
      entities in transactions exempt from the registration requirements of the
      Securities Act of 1933 pursuant to Section 4 (2) of such Act. We issued 100,000
      shares to Schoen Facilities Group, LLC, and 60,000 shares to Pittsford Flour
      Mill, LLC in connection with services performed on our behalf in connection
      with
      the relocation and planning for our new office location. These issuances were
      made as private placements not involving a public offering and in reliance
      on
      the exemption from the registration requirements of the Securities Act of 1933
      provided in Section 4(2) thereof.





VIII.
      On
      the dates indicated, we granted options under our 2005 Incentive Stock Plan
      to
      officers, directors, employees and consultants for the purchase of the number
      of
      shares of our Common Stock (at the indicated exercise prices per
      share):





**Option
                Grants made in the quarter ended:**
            
            **Number
                of Shares**
            
            **Date
                of Grant**
            
            **Exercise
                Price**June
                30, 2006
            
            
            205,000
            
            
            5/31/06
                to 6/19/06
            
            $
            1.30-$1.44September
                30, 2006
            
            
            380,000
            
            
            7/10/06
                to 7/24/06
            
            $
            1.06-$1.20December
                31, 2006
            
            
            2,115,000
            
            
            11/16/06
                to 12/7/06
            
            $
            0.35-$0.42Grants
                made during 2006
            
            
            2,700,000





The
      shares of our Common Stock issuable under our 2005 Incentive Stock Plan have
      been registered on Form S-8 (No 333-132607).




IX.
 
On
      July 24, 2006 we granted an option to
      Cathy A. Fleischer, at the time our Chief Technology Officer, for the purchase
      of 40,000 shares of Common Stock at an exercise price of $0.10 per share. This
      option was not granted under a stockholder-approved plan.




X.
 
On
      December 7, 2006, we granted an option
      to Sir Harold W. Kroto, a consultant to the Company and a member of our
      Scientific Advisory Board, for the purchase of 50,000 shares of Common Stock
      at
      an exercise price of $0.10 per share. This option was not granted under a
      stockholder-approved plan.




XI.
        On March 2, 2007, we granted an option under our 2007 Incentive
      Stock Plan to Cathy A.Fleischer, our President, for the purchase of 1,200,000
      shares of Common Stock at an exercise price of $0.21 per share. The shares of our Common Stock issuable under our 2007
      Incentive Stock
      Plan have not been registered under the Securities Act of 1933; we intend to
      file a Registration Statement on Form S-8 covering such shares promptly after
      the Plan has been approved by our shareholders.




-22-


**ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS**




**General**





We
      are a
      development stage company and expect to remain so for at least the next twelve
      months. Our primary mission is to develop and exploit technologies in the area
      of materials science, with a special emphasis on additives to polymers and
      other
      industrial and consumer products, taking advantage of technological advances
      we
      have developed in house and licensed from third parties. These technologies
      include a specific focus on nanoscale materials using modifications to tubular
      and spherical materials found in clay. Our strategy is to develop patentable
      processes and technologies related to these nanoscale materials and to develop
      products in the polymers, plastics and composites, and cosmetics and personal
      industries. Our near-term goal is to commercialize our core technology and
      application processes utilizing halloysite nanotubes.





We
      do not
      expect to generate significant revenues in 2007 during which time we will engage
      in significant research, development and commercialization efforts. We project
      total spending of approximately $3 million (including capital investments of
      $256,300 and $100,000 in licensing investments) in 2007.





**Critical
      Accounting Policies and Estimates**





Our
      consolidated financial statements are prepared in accordance with accounting
      principles generally accepted in the United States of America. The preparation
      of these consolidated financial statements requires us to make assumptions
      that
      affect the reported amounts of assets, liabilities, revenue, costs and expenses,
      and related disclosures. Our actual results may differ from these
      estimates.





We
      believe, that of the significant accounting policies described in the notes
      to
      our consolidated financial statements, the following policies involve a greater
      degree of judgment and complexity and accordingly; these policies are the most
      critical to aid in fully understanding and evaluating our consolidated financial
      condition and results of operations.





**Revenue
      Recognition**





We
      have
      earned only nominal operating revenue since our inception (December 22, 2004).
      This revenue was generated from the delivery of sample products requested by
      consumer product manufacturers in connection with early product development
      evaluations. The Company earns and recognizes such revenue when the shipment
      of
      the sample products has occurred and when no further performance obligation
      exists.





**Liquidity
      and Capital Resources**





Overview




As
      of
      December 31, 2006 the Company had a cash balance of $139,638 and negative
      working capital of $940,605, which reflects $600,000 of advances made under
      the
      2006 Line of Credit Agreement with Technology Innovations, LLC, our principal
      shareholder. As shown in the accompanying financial statements, the Company
      has
      incurred losses from operations and negative cash flows from operations. Since
      inception on December 22, 2004, the Company’s growth has been funded through a
      combination of convertible debt from private investors and cash advances from
      Technology Innovations, LLC.





Management
      has taken actions to ensure that the Company will continue as a going-concern
      through December 31, 2007, including the completion of a private placement
      of
      $3,347,500 of 8% Senior Secured Convertible Notes on March 7, 2007 which, net
      of
      fees of $215,000, provided working capital proceeds of $3,132,500 in the first
      quarter of 2007. Management believes this funding vehicle will enable the
      company to continue as a viable business through the end of 2007. During 2007,
      we plan to fund our research and development and commercialization activities
      by
      utilizing the proceeds of this private placement funding.





-23-




The
      Company will continually evaluate funding options including additional offerings
      of its securities to private and institutional investors and other credit
      facilities as they become available. There can be no assurance as to the
      availability or terms upon which such financing alternatives might be
      available.





Line
      of Credit Agreements with TI




As
      further described in Note 3 “Agreements with Technology Innovations, LLC” to the
      Company’s consolidated financial statements for the year ended December 31,
      2006, our principal shareholder Technology Innovations, LLC provided us with
      a
      $1 million line of credit (the “2006 line of credit”). TI is headed by Michael
      L. Weiner, the Chairman of our Board of Directors who is a 42.7% owner of TI.
      Under the 2006 line of credit agreement, the Company initiated and received
      advances of $600,000 during the year ended December 31, 2006 and an additional
      $300,000 through February 14, 2007. Amounts borrowed under the line bear
      interest at the rate of 8% per annum. The 2006 TI line of credit was established
      on terms we believe to be competitive with comparable transactions involving
      unaffiliated parties and was approved by the independent members of our Board
      of
      Directors.





On
      March
      7, 2007 in connection with the Loan and Security Agreement (the ”Loan and
      Security Agreement”) with Platinum Partners Long Term Growth IV, Longview
      Specialty Financing, Inc. and Platinum Investors LLC., TI agreed as long as
      any
      notes were outstanding under this Agreement, that TI would not demand repayment
      on the 2006 line of credit, except as specifically permitted under the Loan
      and
      Security Agreement.





Sale
      of Atlas Mining Warrants - August 9, 2006




On
      August
      9, 2006, we entered into a Warrant Purchase Agreement with a third party to
      sell
      the Atlas Mining warrant for $562,500, less fees of $56,250. We received net
      cash proceeds of $506,250 from this Warrant Purchase Agreement upon the transfer
      of the warrant on August 22, 2006.




March
      7, 2007 8% Senior Secured Convertible Notes and Warrants




On
      March
      7, 2007, we entered into a Loan and Security Agreement (the “Purchase
      Agreement”) for $3,347,500 with Platinum Partners Long Term Growth IV
      (“Platinum”), Longview Special Financing, Inc. (“Longview”) and Platinum
      Advisors LLC (the “Agent”), for its own account and as agent for the other
      investors.





Pursuant
      to the Purchase Agreement, we issued $3,250,000 face amount of 8% Senior Secured
      Promissory Notes (the “Notes”) to Platinum and Longview. The holders of the
      Notes may elect to convert the Notes at any time into shares of our common
      stock
      based upon a price of $0.22 per share (the “Conversion Price”). The Notes
      contain anti-dilution protection that will automatically adjust the Conversion
      Price should we issue equity or equity-linked securities at a price per common
      share below the Conversion Price to the price at which we issue such equity
      or
      equity-linked securities. Interest on the outstanding principal amount under
      the
      Notes is payable quarterly at a rate of 8% per annum, payable at our option
      in
      cash or in shares of our common stock registered for resale under the Securities
      Act of 1933 (the “Securities Act”). If we elect to make an interest payment in
      common stock, the number of shares issuable by us will be based upon the 85%
      of
      the 20-day trailing volume weighted average price per share as reported on
      Bloomberg LP (the “VWAP”). Principal on the Notes is due and payable on March 7,
      2009. If the closing price of our common stock on the principal market or
      exchange on which our stock is traded (currently the Over-the-Counter Bulletin
      Board) is at least $1.00 for twenty consecutive trading days, we can compel
      conversion of the Notes at the Conversion Price.





Our
      obligations under the Notes are secured by first priority security interests
      in
      substantially all of our assets and substantially all of the assets of our
      wholly-owned subsidiary, NaturalNano Research, Inc. (“NN Research”). In
      connection with the grant of these security interests, on March 7, 2007, we
      entered into a Pledge Agreement (the “Pledge Agreement”) with the Agent and the
      other investors, pursuant to which we granted to the investors and the Agent
      a
      security interest in all of the outstanding shares of the common stock of NN
      Research. In connection with the grant of these security interests, on March
      7,
      2007, NN Research entered into the Patent Security Agreement (the “Patent
      Security Agreement”) with the Agent and the other investors, pursuant to which
      NN Research granted to the investors and the Agent a security interest in all
      of
      NN Research’s patent interests.





-24-




As
      further consideration, on March 7, 2007 we issued to Platinum and Longview
      two
      series of warrants, for the purchase at any time on or before March 7, 2011,
      of
      an aggregate of 22,159,092 shares of our common stock. The first series of
      warrants (the “Series A Warrants”) covers the purchase of an aggregate of
      11,079,546 shares of our common stock at an exercise price of $0.22 per share.
      The second series of warrants (the “Series B Warrants”) covers the purchase of
      an additional aggregate of 11,079,546 shares of our common stock at an exercise
      price of $0.33 per share. If the closing price of our common stock on the
      principal market or exchange on which our stock is traded (currently the
      Over-the-Counter Bulletin Board) is at least $0.75 for twenty consecutive
      trading days, we can compel exercise of the Series A Warrants. Each series
      of
      Warrants contain anti-dilution protection that will automatically adjust the
      exercise price of such series of Warrants should we issue equity or
      equity-linked securities at a price per common share below the exercise price
      of
      such series to the price at which we issue such equity or equity-linked
      securities.





On
      March
      7, 2007, as consideration for due diligence services in connection with the
      Purchase Agreement, we paid to the Agent a cash fee of $97,500 and issued to
      that firm (i) a Note (identical in form to the Notes issued to the other
      investors) in the principal amount of $97,500, (ii) Series A warrants for the
      purchase of 332,387 shares of our common stock at $0.22 per share, (iii) Series
      B Warrants for the purchase of a total of 1,473,581 shares of our common stock
      at $0.33 per share, and (iv) a warrant (the “Series C Warrant”) for the purchase
      at any time on or before March 7, 2011 of 1,141,194 shares of our common stock
      at an exercise price of $0.22 per share.





On
      March
      7, 2007, we entered into a Registration Rights Agreement (the “Registration
      Rights Agreement”) with the Agent and the other investors, pursuant to which we
      agreed to register for resale under the Securities Act the common stock issuable
      upon the exercise of the Warrants, in payment of interest on, or upon conversion
      of, the Notes, or, at the option of the investors, in satisfaction of certain
      liquidated damages provisions in the Registration Rights Agreement.





In
      connection with the Purchase Agreement, NN Research entered into Patent
      Assignment agreements (the “Patent Assignments”) with Technology Innovations,
      LLC (“TI”), our principal stockholder, on March 2 and 5, 2007, pursuant to which
      TI assigned to NN Research all of its rights, title and interest in certain
      issued patents and pending patent applications, with respect to which TI had
      previously granted NN Research licenses. This assignment relinquishes TI’s
      rights under the license agreement and results in the Company’s receipt of the
      marketable title to the patents, free and clear of any liens or encumbrances
      and
      eliminates future license fees and royalty payments as defined in the license.





TI
      also
      agreed, in a letter to the Agent and the other investors dated March 7, 2007
      (the “Lock-Up Letter”), that for a period of two years from the date of the
      Lock-Up Letter it will not (except as permitted under the Lock-Up Letter in
      certain limited circumstances) sell, transfer or otherwise dispose of any shares
      of our common stock or any securities convertible into or exchangeable or
      exercisable for shares of our common stock. TI further agreed, in a letter
      to
      the Agent and the other investors dated March 7, 2007 (the “Standstill Letter”),
      that it would not demand repayment by us or NN Research of any obligations
      for
      money borrowed except as permitted under Section 7.20 of the Purchase
      Agreement.





**Stock-based
      compensation**





On
      January 1, 2006, the Company adopted the stock option expensing rules of
      Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share-Based
      Payment,” using the fair value recognition provisions of FAS No. 123,
“Accounting for Stock-Based Compensation” for stock options already granted. The
      Company utilized the modified prospective approach of adoption under SFAS No.
      123(R). Results for prior periods have not been restated. The Company previously
      accounted for its employee stock option plan under Accounting Principles Board
      (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly,
      no stock-based employee compensation cost was reflected in the statement of
      operations in reporting periods prior to the first quarter of 2006, as all
      options granted had an exercise price equal to the market value of the
      underlying common stock on the date of grant. For the year ended December 31,
      2006, the Company recorded stock-based compensation costs of $2,970,959 in
      accordance with SFAS No. 123(R).





-25-




As
      of
      December 31, 2006, unvested compensation cost for stock options previously
      issued to employees was approximately $853,000 and will be recognized in future
      years through 2009. The unvested cost of stock options previously issued to
      consultants was approximately $181,000 as of December 31, 2006 and will be
      revalued quarterly and charged to operations as the vesting occurs, during
      the
      periods through 2008, which is when the required performance by the consultants
      is complete.





**Research
      and Development Expenses and Capital Expenditures**





Research
      and development expenditures consist primarily of:




·
            Salaries
                and related benefit costs for our research and development
                employees,





·
            Collaborative
                consulting fees and reimbursements of costs for product and manufacturing
                evaluations and testing,





·
            Legal
                fees to file, renew and expand our intellectual property
                portfolio,





·
            Investments
                in the expansion of our laboratory and testing facilities, including
                investments in capital and specialized leased assets,
                and





·
            Licensing
                fees for access to technologies developed by
                others.





Our
      research and development plans for the next twelve months include material
      characterization and formulation testing in the areas of:




·
      Use of halloysite as an additive in
      composites and polymers,




·
      Halloysite characterization, purification
      and separation, and




·
      Extended release properties of HNTs in
      polymers, health and beauty, and household product applications.




We
      anticipate our spending in support of research, product development and
      intellectual property will continue as our characterization testing expands
      to
      commercial formulations which, we believe, will result in our product sales
      in
      the fourth quarter of 2007. For the year ended December 31, 2006 and 2005,
      we
      incurred costs of $2,034,426 and $660,284, respectively, in our research and
      development programs. Capital expenditures relating to research and development
      efforts aggregated $140,206 during year ended December 31, 2006.





During
      2007, we anticipate investments of $362,400 and $256,300, respectively, for
      collaborative research and licensing agreements and capital investments, for
      our
      research and development programs. Research and development expenses for this
      twelve month period will include: testing and validation costs associated with
      product design and attribute validation, manufacturing scale experiments and
      research support, lab materials, and employee costs. We project total research
      and development spending of approximately $1,878,300 (including capital
      investments of $256,300 and $100,000 in licensing investments) in 2007.





**Contractual
      Obligations**





The
      following table lists our cash contractual obligations as of December 31,
      2006:





For
                the years ending December 31:
            
            Office
                and lab space
            
            Equipment
            
            License
            
            Total2007
            
            $
            90,897
            
            $
            26,609
            
            $
            5,000
            
            $
            122,5062008
            
            
            44,000
            
            
            11,013
            
            
            10,000
            
            
            65,0132009
            
            
            45,833
            
            
            1,550
            
            
            0
            
            
            47,3832010
            
            
            48,125
            
            
            0
            
            
            0
            
            
            48,1252011
            
            
            49,723
            
            
            0
            
            
            0
            
            
            49,723Thereafter
            
            
            598,308
            
            
            0
            
            
            0
            
            
            598,308Total
                contractual cash obligations
            
            $
            876,886
            
            $
            39,172
            
            $
            15,000
            
            $
            931,058





The
      leased office and laboratory space are subject to certain escalations for our
      proportionate share of increases on the buildings operating costs.





-26-


**Investment
      in Capital Expenditures**





We
      expect
      our capital requirements will increase progressively over the next several
      years
      as we commence new research and development efforts and increase our business
      and administrative structure. Our future liquidity and capital funding
      requirements will depend on numerous factors, including, but not limited to,
      the
      levels and costs of our research and development initiatives, the nature of
      our
      strategic partners infrastructure and the cost and timing of the growth in
      our
      business development and staffing.





**Accounting
      for Income Taxes**





We
      are a
      development stage company with an accumulated deficit of $11,536,635 through
      December 31, 2006. As a result, our accounting for income taxes is not
      significant to our results of operations. We will utilize net operating loss
      carryforwards as an offset to future taxable net income until the tax effect
      of
      this accumulated deficit is exhausted.





We
      have
      recorded a cumulative valuation allowance against our deferred tax assets of
      $4,306,565 at December 31, 2006. This valuation allowance relates to net
      operating loss carryforwards on deferred tax assets where the utilization of
      the
      tax benefits are not assured.





We
      have
      employment agreements with our executive officers that provide for minimum
      salary levels which are adjusted from time to time and may include incentive
      bonuses that are payable when authorized and approved by the Compensation
      Committee of the Board.




**2006
      Accomplishments**





·
            On
                November 1, 2006 we appointed Cathy A. Fleischer, PhD as our President
                and
                as a member of our Board of Directors. Dr. Fleischer joined the Company
                in
                July 2006 as our Chief Technology Officer and retained this lead
                technical
                position with her expanded responsibilities. Dr. Fleischer has extensive
                experience in polymers and was formerly R&D Director at Eastman
                Kodak’s polarizer films group.·
            On
                November 6, 2006 we announced our adoption of a strategy to focus
                on the
                nanocomposite segment of the polymer composite market for our first
                products. We anticipate that this strategy will produce the sale
                of
                commercial products in the fourth quarter of 2007 and positive cash
                flow
                in 2008.
              
              Our
                first generation product, a halloysite-polymer concentrate, is planned
                for
                introduction in the fourth quarter of 2007 and will utilize unique
                proprietary technologies with specially treated halloysite nanotubes.
                The
                combination of these halloysite nanotubes with polymers is designed
                to
                result in a nanocomposite material with notable improvements in strength
                and modulus (resistance to fracture) without sacrificing ductility
                (ability to flow without breaking), and demonstrating an improved
                uniformity of finished materials, reduced component weight and improved
                performance at higher temperatures. Our treated halloysite nanotubes
                will
                eliminate the need for exfoliation, which involves separating layers
                of
                traditional nanoclay materials with chemicals and other processing
                steps.
                Our researchers believe the NaturalNano process eliminates the expensive,
                time-consuming exfoliation process with improved uniformity and ductility
                attributes. The result is a nano-enhanced product with reduced weight
                and
                increased performance properties, which provides a higher value and
                lower
                cost product to our customers.




·
            Tests
                performed with Cornell University, during the first half of the year,
                indicated that adding specially treated halloysite nanotubes improves
                polymer performance. These results showed that halloysite nanotubes
                provide strengthening improvements in certain polymers including
                those
                that are widely used in consumer products such as casings used in
                many
                electronic products like televisions, cell phones, mp3 players and
                numerous other devices. Other potential markets would include
                transportation, electronics and packaging where improvement in strength
                and thermal properties of polymers is needed.
              
              Pilot
                and manufacturing scale compounding and molding trials of nylon
                nanocomposites in the fourth quarter validated the strength enhancement
                properties found in the Cornell lab-scale experiments. In addition
                excellent run-ability of the material was observed in the pilot and
                manufacturing scale trials at a wider range of higher HNT concentrations,
                compared to the bench-top
                experiments.




-27-




·
            Our
                laboratory has been equipped with capital investments in materials
                processing and analytical equipment, including an electron microscope
                and
                an infrared spectrometer to facilitate on-site material characterization
                studies. We expect that our research and development in polymer
                nanocomposites, elution and encapsulation technologies will allow
                us to
                identify new commercial opportunities and assist us in commercializing
                our
                intellectual property portfolio.




·
            We
                joined the National Composite Center to facilitate our prioritization
                of
                our product commercialization opportunities in utilizing halloysite
                nanotubes in nanocomposite
                materials.





·
            Our
                Scientific Advisory Board was expanded in 2006 with the additions
                of:
              ·David
                J. Arthur from Chasm Technologies, a highly experienced engineer
                specializing in commercialization strategies;
              
              ·John
                Hickman, President of PlasTech Consulting and a renowned expert in
                polymer
                extrusion processes;
              
              ·Sir
                Harold W. Kroto, Ph.D. a Nobel laureate in chemistry for his discovery
                and
                work with carbon nanotubes and the development and advancement of
                Nanoscience; and
              
              ·Dr.
                Duncan Moore, Professor of Optical Engineering and Business Administration
                at University of Rochester and a former White House Advisor.
              
              We
                have benefited significantly from these additions to our scientific
                advisory board in the technical advancement and commercialization
                process
                related to our halloysite-based
                materials.





**Comparison
      of Statement of Operations for the years ended December 31, 2006 and 2005**





**Revenues**




Revenues
      of $15,000 and $500 were generated in 2006 and 2005, respectively, from the
      delivery of specifically formulated sample products, requested by consumer
      product manufacturers, in connection with early product development evaluations.
      These revenues are not recurring in nature, as they reflect delivery of
      processed halloysite based on defined attributes for evaluation
      purposes.





**Operating
      Expenses**




Total
      research and development expenses for the year ended December 31, 2006 were
      $2,034,426, which reflects an increase of $1.4 million over total research
      and
      development expenses of $660,284 in the comparable period in 2005. The most
      significant component of this increase is the non-cash expense of $1,038,631
      in
      incentive compensation expenses recognized in 2006 compared to non-cash stock
      option expenses of $77,280 for 2005. Additional investments in headcount and
      laboratory supplies and technical halloysite testing also contributed to the
      year-over-year increase in research and development expenses. As of December
      31,
      2006 and 2005, respectively we employed 7 and 3 employees on our technical
      research team.





Total
      general and administrative expenses for the year ended December 31, 2006 were
      $4,078,776, which reflects an increase of $2.1 million over general and
      administrative expenses of $2,017,291 in the comparable period in 2005. The
      most
      significant component of this increase is the non-cash expense of $1,932,328
      in
      incentive compensation expense reflecting the vesting of stock options in 2006
      compared to non-cash stock option expenses of $192,802 for 2005. Increases
      in
      salaries and benefits as well as legal and audit fees also contributed to the
      year-over-year increase in general and administrative expenses in 2006 compared
      to 2005.





-28-


**Other
      Income (expense** **)**





Interest
      income (net) for the year ended December 31, 2006 was $5,821, which reflects
      a
      decrease of $8,314 compared to $14,135 in the comparable period in 2005. For
      the
      year ended December 31, 2006, the Company realized a reduction in net interest
      income earned reflecting the lower average cash balance available for interest
      income and the accrued interest expense incurred on advances made under the
      2006
      TI line of credit beginning in the third quarter of 2006. During 2006, the
      Company realized $22,566 in interest income on money market accounts and accrued
      $16,745 in interest expense on the 2006 TI line of credit. During 2005, the
      Company realized $26,028 in earnings on money market accounts and paid $11,893
      in interest expense on the 2004 TI line of credit.





On
      January 28, 2005, NaturalNano was granted a two-year warrant for the right
      to
      acquire 750,000 shares of Atlas Mining common stock at $.40 per share. The
      Company accounted for this warrant as a free-standing derivative and recorded
      an
      asset and recognized other income of $180,000 upon receipt. On August 9, 2006,
      the Company entered into a Warrant Purchase Agreement with a third party to
      sell
      the Atlas Mining warrant for $562,500 less fees of $56,250. The Company received
      the net cash proceeds of $506,250 as a result of this agreement on August 22,
      2006. Prior to the sale of the warrant in 2006, the Company accounted for this
      warrant as a free-standing derivative and, accordingly, had recorded the warrant
      at its fair market value which resulted in non-cash unrealized gains, in 2005,
      of $90,000.





Financing
      fees for the year ended December 31, 2006 were $3,006,786, which reflects an
      increase of $2.7 million compared to $273,442 in the comparable period in 2005.
      These non-cash expenses reflect the fair market value of warrants granted during
      each of the years ended December 31, 2006 and 2005 at amounts valued utilizing
      the Black-Scholes model, as further described below.





On
      July
      9, 2006, the Company issued a warrant to purchase 4,770,000 shares of common
      stock at exercise prices ranging from $0.75 to $1.30 per share (with a weighted
      average exercise price of $1.02 per share) to SBI Brightline XIII, LLC. This
      warrant was fully vested on the date of grant, expires on March 30, 2009 and
      has
      been valued using the Black-Scholes model on the date of grant. This valuation
      resulted in a third quarter 2006 charge of $3,006,786 included in the caption
      “Financing fees” in the accompanying Statement of Operations.





During
      the first quarter of 2005, the Company received $225,000 in financial consulting
      services from SBI USA, LLC for which payment was satisfied through the issuance
      of 4,500,000 common stock warrants. These warrants have an exercise price of
      $0.115 per share, were fully vested as of the March 31, 2005 issuance date
      and
      had an original expiration date of March 31, 2006. On December 19, 2005, the
      Board of Directors extended the expiration date of this instrument to March
      31,
      2007. As a result, the Company recorded $48,442 as an incremental cost for
      these
      services reflecting the estimated fair market value associated with the term
      extension, as calculated using the Black-Scholes valuation method. The
      consulting expenses relating to these warrants were provided during the first
      quarter of 2005 and were included in Financing fees in the accompanying
      Statements of Operations.





**Comparison
      of Statement of Cash flows for the years ended December 31, 2006 and 2005**





Operating
      activities




Total
      cash used in operating activities for the year ended December 31, 2006 was
      $2,740,292, which reflects an increase of $500,000 over the total cash used
      in
      operations of $2,225,051 in 2005. The Net loss realized in 2006 and 2005,
      adjusted for non-cash expenses relating to grants of options and warrants
      accounted for the majority of the 2006 increase in cash used in operations.
      Non-cash items consisted of depreciation and amortization on capitalized assets
      and license agreements, the fair market value of warrants granted for services
      received, and the vesting of stock option grants in accordance with SFAS 123
      (R). The Atlas Mining warrants, received by the Company in January 2005,
      were recorded as a free standing derivative and as such, unrealized non-cash
      gains were marked-to market and included in the operating results during 2006
      and 2005. The net change in operating assets and liabilities since 2005 reflects
      the prepayment of the halloysite clay in 2005 and the decrease in accounts
      payable and accrued liabilities in 2006.





-29-


Investing
      activities




Net
      cash
      provided from investing activities in 2006 was $350,726, which resulted
      primarily from the net cash proceeds of $506,250, received in August 2006,
      upon
      the sale of the Atlas Mining warrants. Cash used for capital expenditures during
      2006 reflect investments in our laboratory of $140,206 and in office furniture
      and equipment of $15,318. The Company made capital investments of $39,500 for
      furniture and computer equipment during 2005.





Financing
      activities




Net
      cash
      provided from financing activities for the year ended December 31, 2006 was
      $810,839, which reflects a decrease of approximately
      $3,300,000 compared to the total cash provided from financing activities of
      $4,082,916 in 2005. During 2006, the Company entered into a line of credit
      with
      TI and initiated advances in accordance with this agreement aggregating
      $600,000. During 2006, the Company received net cash inflows, from affiliated
      entities for shared services agreements, of $169,539. During 2005 the Company
      had net disbursements of $73,084 in connection with affiliate service
      agreements. During 2006, several participants in the Company’s Incentive Stock
      Plan exercised their options and provided $41,300 in cash inflows. During
      2005, the Company received $4,156,000 in cash in connection with the issuance
      of
      convertible bridge notes. These bridge notes were converted in common stock
      as a
      result of the November 29, 2005 merger with Cementitious Materials,
      Inc.





-30-


**ITEM
      7. FINANCIAL STATEMENTS**





**NATURALNANO,
      INC.**


**(A
      Development Stage Company)**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





**CONTENTS**





**FOR
                THE YEAR ENDED DECEMBER 31, 2006**Report
                of Independent Registered Public Accounting Firm
            
            
            F-1Consolidated
                Balance Sheet at December 31, 2006 and 2005
            
            
            F-2Consolidated
                Statement of Operations for the years ended December 31, 2006 and
                2005 and
                for the cumulative period from December 22, 2004 (inception) to December
                31, 2006
            
            
            F-3Consolidated
                Statement of Stockholders’ (Deficiency) Equity for the years ended
                December 31, 2006 and 2005 and for the cumulative period from December
                22,
                2004 (inception) to December 31, 2006
            
            
            F-4Consolidated
                Statement of Cash Flows for the years ended December 31, 2006 and
                2005 and
                for the cumulative period from December 22, 2004 (inception) to December
                31, 2006
            
            
            F-5Notes
                to Consolidated Financial Statements
            
            
            F-6
                - F-19




-31-


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Stockholders of


NaturalNano,
      Inc.




We
      have
      audited the accompanying consolidated balance sheets of NaturalNano, Inc. and
      Subsidiary (a development stage company) as of December 31, 2006 and 2005,
      and
      the related consolidated statements of operations, stockholders’
deficiency/equity and cash flows for the years then ended and the cumulative
      amounts from December 22, 2004 (inception) to December 31, 2006. 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 the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit 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 consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of NaturalNano, Inc. as of
      December 31, 2006 and 2005 and the results of its operations and its cash flows
      for the years then ended and the cumulative amounts from December 22, 2004
      (inception) to December 31, 2006 in conformity with United States generally
      accepted accounting principles.





As
      discussed in Note 1 to the consolidated financial statements, effective January
      1, 2006, the Company adopted the fair value method of accounting for stock-based
      compensation as required by Statement of Financial Accounting Standards No.
      123(R), Share-Based Payment.




**GOLDSTEIN
      GOLUB KESSLER LLP**


New
      York,
      New York





March
      29,
      2007





F-1





**NaturalNano,
      Inc.**


(A
      Development Stage Company)





**CONDENSED
      CONSOLIDATED BALANCE SHEET**


**December
                31,**
            
            **December
                31,****2006**
            
            **2005****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            139,638
            
            $
            1,718,365Prepaid
                halloysite materials
            
            
            15,000
            
            
            249,650Other
                current assets
            
            
            49,197
            
            
            34,704Due
                from related parties
            
            
            
            
            
            40,748Total
                current assets
            
            
            203,835
            
            
            2,043,467Prepaid
                halloysite materials
            
            
            234,650Atlas
                Mining warrant
            
            
            
            
            
            270,000License,
                net of amortization
            
            
            265,212
            
            
            314,000Property
                and equipment, net
            
            
            159,239
            
            
            34,752Total
                non-current assets
            
            
            659,101
            
            
            618,752Total
                Assets
            
            $
            862,936
            
            $
            2,662,219**Liabilities
                and Stockholders' (Deficiency) Equity****Liabilities**Current
                liabilities:Related
                party note payable
            
            $
            600,000Accounts
                payable
            
            
            241,478
            
            $
            286,433Accrued
                payroll
            
            
            85,550
            
            
            73,164Accrued
                expenses
            
            
            88,621
            
            
            148,316Due
                to related parties
            
            
            128,791Total
                current liabilities
            
            
            1,144,440
            
            
            507,913Other
                liability
            
            
            28,000
            
            
            28,500Total
                Liabilities
            
            
            1,172,440
            
            
            536,413**Stockholders’
                (Deficiency) Equity**Preferred
                Stock – $.001 par value,10,000,000
                shares authorized, no shares issuedCommon
                stock - $.001 par value200,000,000
                shares authorizedIssued
                and outstanding 121,700,740 and120,760,040
                shares, respectively
            
            
            121,701
            
            
            120,760Additional
                paid in capital
            
            
            11,105,430
            
            
            4,678,764Deficit
                accumulated in the development stage
            
            
            (11,536,635
            )
            
            (2,673,718
            )Total
                stockholders' (deficiency) equity
            
            
            (309,504
            )
            
            2,125,806Total
                liabilities and stockholders' (deficiency) equity
            
            $
            862,936
            
            $
            2,662,219


See
        notes
        to consolidated financial statements


F-2




**NaturalNano,
      Inc.**


(A
      Development Stage Company)





**CONSOLIDATED
      STATEMENT OF OPERATIONS**




For
                the year ended
            
            From
                inception:**December
                31,**
            
            **December
                22, 2004**to
                December 31,**2006**
            
            **2005**
            
            **2006****Income:**Sample
                revenue
            
            $
            15,000
            
            $
            500
            
            $
            15,500**Operating
                expenses:**Research
                and development (a)
            
            
            2,034,426
            
            
            660,284
            
            
            2,699,710General
                and administrative (a)
            
            
            4,078,776
            
            
            2,017,291
            
            
            6,098,4036,113,202
            
            
            2,677,575
            
            
            8,798,113**Loss
                from Operations**
            
            
            (6,098,202
            )
            
            (2,677,075
            )
            
            (8,782,613
            )**Other
                income (expense):**Interest
                income, net
            
            
            5,821
            
            
            14,135
            
            
            19,956Income
                from cooperative research project
            
            
            
            
            
            180,000
            
            
            180,000Gain
                on warrant
            
            
            236,250
            
            
            90,000
            
            
            326,250Financing
                fees
            
            
            (3,006,786
            )
            
            (273,442
            )
            
            (3,280,228
            )(2,764,715
            )
            
            10,693
            
            
            (2,754,022
            )**Net
                loss**
            
            $
            (8,862,917
            )
            $
            (2,666,382
            )
            $
            (11,536,635
            )**Loss
                per common share - basic and diluted**
            
            $
            (0.07
            )
            $
            (0.03
            )**Weighted
                average shares outstanding**
            
            
            121,572,369
            
            
            101,565,773






(a)    
        Stock based compensation expense included in the Statement of Operations
        for the
years
        ended December 31, 2006 and 2005, respectively, are as
        follows:
  ·        
          Research and development expense of $1,038,631 and $77,280.
  ·        
          General and administrative expense of $1,932,328 and
          $192,802.





See
        notes
        to consolidated financial statements


F-3


**NaturalNano,
      Inc.**


(A
      Development Stage Company)





**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ (DEFICIENCY) EQUITY**


**Deficit****Accumulated****Additional**
              
              **during
                  the**
              
              **Stockholders’****Common
                  Stock**
              
              **Paid-in**
              
              **Development**
              
              **(Deficiency)****Shares**
              
              **Amount**
              
              **Capital**
              
              **Stage**
              
              **Equity****December
                  22, 2004 (inception)**20,000,000
                  shares issued for cash
                  @ $.005 per share
              
              
              20,000,000
              
              $
              20,000
              
              $
              80,000
              
              
              
              
              $
              100,000Net
                  loss from inception throughDecember
                  31, 2004
              
              
              
              
              
              
              
              
              
              
              
              ($7,336
              )
              
              (7,336
              )**Balance
                  at December 31, 2004**
              
              
              20,000,000
              
              $
              20,000
              
              $
              80,000
              
              
              ($7,336
              )
              $
              92,664Warrant
                  issued for 4,500,000 shares
              
              
              
              
              
              
              
              
              273,442
              
              
              
              
              
              273,442of
                  common stock for servicesVesting
                  of stock options granted
              
              
              
              
              
              
              
              
              270,082
              
              
              
              
              
              270,082Shares
                  issued pursuant to convertiblebridge
                  notes on November 29, 2005
              
              
              20,939,200
              
              
              20,939
              
              
              4,135,061
              
              
              
              
              
              4,156,000Recapitalization
                  on November 29, 2005
              
              
              79,820,840
              
              
              79,821
              
              
              (79,821
              )
              
              
              
              
              0Net
                  loss for the year ended
              
              
              
              
              
              
              
              
              
              
              
              (2,666,382
              )
              
              (2,666,382
              )December
                  31, 2005**Balance
                  at December 31, 2005**
              
              
              120,760,040
              
              $
              120,760
              
              $
              4,678,764
              
              
              ($2,673,718
              )
              $
              2,125,806Grant
                  of common stock in exchange for license @ $1.45 per share
              
              
              200,000
              
              
              200
              
              
              289,800
              
              
              
              
              
              290,000Grant
                  of common stock as settlement of liability @ $1.45 per
                  share
              
              
              60,600
              
              
              61
              
              
              87,809
              
              
              
              
              
              87,870Grant
                  of common stock as settlement of liability @ $1.52 per
                  share
              
              
              54,100
              
              
              54
              
              
              82,178
              
              
              
              
              
              82,232Common
                  stock returned and cancelled @ $0.42 per share
              
              
              (200,000
              )
              
              (200
              )
              
              (83,800
              )
              
              
              
              
              (84,000
              )Vesting
                  of stock options granted
              
              
              
              
              
              
              
              
              2,970,959
              
              
              
              
              
              2,970,959Warrants
                  issued:4,770,000
                  shares at exercise prices ranging from $0.75 to $1.30 per
                  share
              
              
              
              
              
              
              
              
              3,006,786
              
              
              
              
              
              3,006,786200,000
                  shares at $0.28 per share
              
              
              
              
              
              
              
              
              32,460
              
              
              
              
              
              32,460Exercise
                  of stock options @ $.05 per share
              
              
              826,000
              
              
              826
              
              
              40,474
              
              
              
              
              
              41,300Net
                  loss for the year endedDecember
                  31, 2006
              
              
              
              
              
              
              
              
              
              
              
              (8,862,917
              )
              
              (8,862,917
              )**Balance
                  at December 31, 2006**
              
              
              121,700,740
              
              $
              121,701
              
              $
              11,105,430
              
              $
              (11,536,635
              )
              $
              (309,504
              )





See
        notes
        to consolidated financial statements


F-4


**NaturalNano,
      Inc.**


(A
      Development Stage Company)





**CONSOLIDATED
      STATEMENT OF CASH FLOWS**


From
                  inception**December
                  22,**For
                  the year ended
              
              **2004**through**December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**
              
              **2006****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (8,862,917
              )
              $
              (2,666,382
              )
              $
              (11,536,635
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              71,825
              
              
              4,748
              
              
              76,573Issuance
                  of warrants for services
              
              
              3,039,246
              
              
              273,442
              
              
              3,312,688Vesting
                  of stock options
              
              
              2,970,959
              
              
              270,082
              
              
              3,241,041Receipt
                  of Atlas Mining warrant
              
              
              
              
              
              (180,000
              )
              
              (180,000
              )Gain
                  on warrant
              
              
              (236,250
              )
              
              (90,000
              )
              
              (326,250
              )Changes
                  in operating assets and liabilities:(Increase)
                  in prepaid halloysite materials
              
              
              
              
              
              (124,650
              )
              
              (249,650
              )(Increase)
                  in other current assets
              
              
              (14,493
              )
              
              (34,704
              )
              
              (49,197
              )Increase
                  in accounts payable,accrued
                  payroll and accrued expenses
              
              
              291,838
              
              
              293,913
              
              
              585,751Increase
                  (Decrease) in other liability
              
              
              (500
              )
              
              28,500
              
              
              28,000**Net
                  cash used in operating activities**
              
              
              (2,740,292
              )
              
              (2,225,051
              )
              
              (5,097,679
              )**Cash
                  flows from investing activities:**Purchase
                  of property and equipment
              
              
              (155,524
              )
              
              (39,500
              )
              
              (195,024
              )Purchase
                  of license
              
              
              
              
              
              (100,000
              )
              
              (100,000
              )Proceeds
                  from sale of Atlas Mining warrant
              
              
              506,250
              
              
              
              
              
              506,250**Net
                  cash provided from (used in) investing activities**
              
              
              350,726
              
              
              (139,500
              )
              
              211,226**Cash
                  flows from financing activities:**Advances
                  on related party line of credit
              
              
              600,000
              
              
              
              
              
              600,000Advances
                  from related parties
              
              
              324,590
              
              
              409,451
              
              
              766,377Repayment
                  of amounts due to related parties
              
              
              (155,051
              )
              
              (482,535
              )
              
              (637,586
              )Issuance
                  of convertible notes
              
              
              
              
              
              4,156,000
              
              
              4,156,000Issuance
                  of common stock
              
              
              
              
              
              
              
              
              100,000Proceeds
                  from exercise of stock options
              
              
              41,300
              
              
              
              
              
              41,300**Net
                  cash provided by financing activities**
              
              
              810,839
              
              
              4,082,916
              
              
              5,026,091(Decrease)
                  increase in cash and cash equivalents
              
              
              (1,578,727
              )
              
              1,718,365
              
              
              139,638**Cash
                  and cash equivalents at beginning of period**
              
              
              1,718,365
              
              
              -
              
              
              -**Cash
                  and cash equivalents at end of period**
              
              $
              139,638
              
              $
              1,718,365
              
              $
              139,638**Non-cash
                  investing and financing activities:**Common
                  stock issued for convertible notes
              
              
              
              
              $
              4,156,000
              
              $
              4,156,000Settlement
                  of liabilities for serviceswith
                  common stock
              
              $
              170,102
              
              
              
              
              $
              170,102Acquisition
                  of license settled through issuanceof
                  common stock in 2006 (net of $100,000 cash)
              
              $
              76,000
              
              $
              214,000
              
              $
              290,000Common
                  stock returned and cancelled in connection with license
                  amendment
              
              $
              (84,000
              )
              
              
              
              $
              (84,000
              )


See
      notes
      to consolidated financial statements


F-5




**NaturalNano,
      Inc.**


(A
      Development Stage Company)


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2006**




**1.**
            **PRINCIPAL
                BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING
                POLICIES**





**Basis
      of Consolidation**




The
      consolidated financial statements include the accounts of NaturalNano, Inc.
      (“NaturalNano”), a Nevada corporation, and its wholly owned subsidiary
      NaturalNano Research Inc. (“NN Research”) a Delaware corporation. All
      significant inter-company accounts and transactions have been eliminated in
      consolidation.





**Description
      of the Business**




NaturalNano
      (the “Company”), located in Pittsford, New York, is a development stage company
      engaged in the discovery, refinement and commercialization of naturally
      occurring nanoscale materials. The Company’s current activities are directed
      toward research, development, production and marketing of its proprietary
      technologies relating to the treatment and separation of nanotubes from
      halloysite clay and the development of related commercial applications
      for:





·
            material
                additives for polymers, plastics and composites,·
            health
                and beauty and household products,
                and





·
            agrichemical
                products.




NaturalNano
      is domiciled in the state of Nevada as a result of the merger with Cementitious
      Materials, Inc., (“CMI”), which was completed on November 29, 2005.





**Cash
      Equivalents**




Cash
      equivalents consist of money market securities with a maturity of three months
      or less when purchased. Cash equivalents are stated at cost plus accrued
      interest, which approximates market value.





**Concentration
      of Credit Risk**




The
      Company maintains cash in bank deposit accounts which, at times, exceed
      federally insured limits. The Company has not experienced any losses on these
      accounts.





**Liquidity**




As
      shown
      in the accompanying financial statements, the Company has incurred a loss from
      operations and negative cash flows from operations. Since inception (December
      22, 2004), the Company’s growth was funded through a combination of convertible
      debt from private investors and cash advances from Technology Innovations,
      LLC.
      Management has taken notable actions to ensure that the Company will continue
      as
      a going-concern through December 31, 2007, including the completion of a private
      placement of $3,347,500 of 8% Senior Secured Convertible Notes on March 7,
      2007
      which, net of fees of $215,000, provided working capital proceeds of $3,132,500.
      Management believes this funding vehicle will enable the Company to continue
      as
      a viable business through 2007. See Note 11 “Subsequent Event” for disclosures
      relating to the terms of the March 7, 2007 8% Senior Secured Convertible Notes
      and related Warrants issued to Platinum Partners Long Term Growth IV, Longview
      Special Financing, Inc. and Platinum Advisors LLC.





The
      Company will continually evaluate funding options including additional offerings
      of its securities to private and institutional investors and other credit
      facilities as they become available. There can be no assurance as to the
      availability or terms upon which such financing alternatives might be
      available.





**Research
      and Development**




Research
      and development costs are expensed in the period the expenditures are incurred.
      Capital assets acquired in support of research and development are capitalized
      and depreciated over their estimated useful life and related depreciation
      expense is included in research and development expense.





F-6




**NaturalNano,
      Inc.**


(A
      Development Stage Company)


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2006**


**Intangible
      Assets**




Licenses
      are initially measured and recorded based on their fair market value at the
      date
      of their acquisition. The Company evaluates the recoverability of identifiable
      intangibles whenever events or changes in circumstances indicate that an
      intangible asset’s carrying value may not be recoverable. Such circumstances
      could include, but are not limited to, a significant decrease in market value
      of
      the asset or a significant adverse change in the extent or manner in which
      an
      asset is used. The evaluation of potential asset impairment requires significant
      judgments about future cash flows over the life of the asset under evaluation
      and actual future results may differ from assumed and estimated amounts.





**Property
      and Equipment**




Property
      and equipment, at cost, consists of the following:




2006
            
            2005
            
            Useful
                LifeLab
                equipment
            
            $
            140,206
            
            
            
            
            
            5
                yearsFurniture
                and office equipment
            
            
            34,053
            
            $
            26,079
            
            
            5
                yearsComputers
                and software
            
            
            20,765
            
            
            13,421
            
            
            3
                years195,024
            
            
            39,500Accumulated
                depreciation
            
            
            (35,785
            )
            
            (4,748
            )Net
                property and equipment
            
            $
            159,239
            
            $
            34,752




Depreciation
      of property and equipment is provided on a straight-line basis over the
      estimated useful lives of the related assets. Costs of internally developed
      intellectual property rights with indeterminate lives are expensed as
      incurred.





**Deferred
      Taxes**




Deferred
      tax assets and liabilities are recognized for future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their respective tax bases. Deferred tax
      assets and liabilities are measured using enacted rates expected to apply when
      the differences are expected to be realized. A valuation allowance is recognized
      if it is anticipated that some or all of the deferred tax asset may not be
      realized.





**Loss
      Per Share**




Basic
      loss per common share is computed by dividing net loss by the weighted-average
      number of shares of common stock outstanding during the period. Diluted loss
      per
      common share gives effect to dilutive options and warrants outstanding during
      the period. Shares to be issued upon the exercise of the outstanding options
      and
      warrants are not included in the computation of diluted loss per share as their
      effect is anti-dilutive. There were 19,934,000 shares underlying outstanding
      options and warrants which have been excluded from the calculation at December
      31, 2006.





**Estimates**




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires the use of estimates by management. Actual
      results could differ from these estimates.





**Stock
      Options**




The
      Company has a stock option plan which provides for the granting of up to
      14,000,000 nonqualified or incentive stock options to officers, key employees,
      non-employee directors and consultants. The terms and vesting schedules for
      share-based awards vary by type of grant and the employment status of the
      grantee. Generally, option awards vest based upon time-based conditions and
      are
      granted at exercise prices based on the closing market price of the Company’s
      stock on the date of grant.




F-7


**NaturalNano,
        Inc.**
 (A
        Development Stage Company)
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


On
      January 1, 2006, the Company adopted the stock option expensing rules of
      Statement of Financial Accounting Standards (SFAS) No. 123R, “Share-Based
      Payment,” using the fair value recognition provisions of FAS No. 123,
“Accounting for Stock-Based Compensation” for stock options already granted. The
      Company utilized the modified prospective approach of adoption under SFAS No.
      123R which resulted in the recognition of $2,035,912 of employee compensation
      cost and $935,047 in consultant related option costs for the year ended December
      31, 2006. Results for prior periods have not been restated.





The
      Company previously accounted for its employee stock option plan under Accounting
      Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to
      Employees.” Accordingly, no stock-based employee compensation cost was reflected
      in the statement of operations in reporting periods prior to the first quarter
      of 2006, as all options granted had an exercise price equal to the market value
      of the underlying common stock on the date of grant. Had the Company determined
      compensation cost based on the fair value at the grant date for its stock
      options under FAS 123, the Company’s net loss and per share results would have
      been adjusted to the pro forma amounts indicated below:





For
                the year ended
              December
                31, 2005Net
                Loss, as reported
            
            $(2,666,382)Deduct:
              Total
                stock-based compensation determined under fair-value-based method
                for all
                awards, net of related tax effects
            
            
            (316,051
            )Pro
                Forma Net Loss
            
            $
            (2,982,433
            )Basic
                and diluted loss per share- as reported
            
            
            ($0.03
            )Basic
                and diluted loss per share- pro forma
            
            
            ($0.03
            )





The
      fair
      value of each stock option grant has been determined using the Black-Scholes
      model. The Black-Scholes method was developed for use in estimating the fair
      value of traded options, which have no vesting restrictions and are fully
      transferable. Such option valuation methods require various subjective
      assumptions including the expected stock price volatility. Because the Company’s
      stock options have characteristics different from those of traded options and
      because changes in the assumptions can materially affect their fair value
      estimate, in management’s opinion, the existing model does not necessarily
      provide a reliable single measure of the fair value of the Company’s stock
      options. No income tax benefits were recognized due to the Company’s net
      operating loss carryforward position. The Company’s Board of Directors estimated
      the fair market value of stock option grants made during the first quarter
      of
      2005 at $0.05 per share.





**Stock
      Split**




On
      January 27, 2006, the Company pursuant to a resolution of its Board of Directors
      acting under Section 78.207 of the Nevada General Corporation law filed a
      Certificate of Change to its Restated Articles of Incorporation to increase
      the
      number of authorized shares of our common stock, par value $0.001 per share,
      from 100 million shares to 200 million shares. This correspondingly increased
      the number of issued and outstanding shares of its common shares held by each
      stockholder of record as of February 8, 2006, the effective date of the
      Certificate of Change. The $0.001 par value was not changed as a result of
      this
      action. In conjunction with this resolution, the board authorized a two-for-one
      stock split of common stock effected in the form of a stock dividend to holders
      of record on February 8, 2006. Accordingly, all references to numbers of shares
      and to per share information in the consolidated financial statements have
      been
      adjusted to reflect the stock split on a retroactive basis.


F-8


**NaturalNano,
        Inc.**
 (A
        Development Stage Company)
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**Recent
      Accounting Pronouncements**




In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
      interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the
      accounting for uncertainty in income taxes recognized in a company’s financial
      statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN
      48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. The Company is currently evaluating the
      effect, if any, that FIN 48 will have on its consolidated financial position
      or
      results of operations.




In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS
      No. 157"). SFAS No. 157 defines fair value, establishes a framework for
      measuring fair value in generally accepted accounting principles, and expands
      disclosures about fair value measurements. SFAS No. 157 applies under other
      accounting standards that require or permit fair value measurements.
      Accordingly, SFAS No. 157 does not require any new fair value measurement.
      SFAS
      No. 157 emphasizes that fair value is a market-based measurement that should
      be
      determined based on the assumptions that market participants would use in
      pricing an asset or liability. Companies will be required to disclose the extent
      to which fair value is used to measure assets and liabilities, the inputs used
      to develop the measurements and the effect of certain of the measurements on
      earnings (or changes in net assets) for the period. SFAS No. 157 is effective
      for financial statements issued for fiscal years beginning after November 15,
      2007, and interim periods within those fiscal years. The Company is currently
      evaluating the effect, if any, that SFAS No. 157 will have on its consolidated
      financial position or results of operations.





In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108 "Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements" ("SAB No. 108"). SAB No. 108 provides
      guidance on the consideration of the effects of prior year misstatements in
      quantifying current year misstatements for the purpose of determining whether
      the current year's financial statements are materially misstated. SAB No. 108
      is
      effective as of the end of the Company's 2006 fiscal year, allowing a one-time
      transitional cumulative effect adjustment to beginning retained earnings as
      of
      January 1, 2006, for errors that were not previously deemed material, but are
      material under the guidance in SAB No. 108. The Company does not believe that
      SAB No. 108 had a material effect on its consolidated financial position or
      results of operations for the year ended December 31, 2006.





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 payment 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 will adopt this EITF in the first quarter
      of 2007 in connection with the issuance of the 8% Senior Secured Convertible
      Notes and related warrants. See Note 11, “Subsequent Event.”





Management
      does not believe that any other recently issued, but not yet effective,
      accounting standards if currently adopted would have a material effect on the
      accompanying financial statements.





F-9




**NaturalNano,
      Inc.**


(A
      Development Stage Company)


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2006**


**Reclassifications**




For
      comparability, certain 2005 amounts have been reclassified, where appropriate,
      to conform to the financial statement presentation used in 2006. ****








**2.**
            **RELATED
                PARTY RESEARCH AGREEMENT**





On
      May
      25, 2005, the Company entered into a joint research agreement with Nanolution,
      LLC, a wholly owned subsidiary of Biophan Technologies, Inc. (“BTI”). BTI is
      related to the Company’s principal stockholder, Technology Innovations, LLC,
      through common ownership. This agreement covers the exchange of ideas in support
      of a new drug delivery capability. The term of this agreement shall continue
      until the desired technology becomes commercially viable or until mutually
      terminated by both parties. ** All
      medical uses and inventions that arise as a result of this agreement will be
      owned by Nanolution, LLC and all purification processes for raw halloysite
      and
      non-medical applications will be owned by the Company.





**3.**
            **AGREEMENTS
                WITH TECHNOLOGY INNOVATIONS,
                LLC**





Technology
      Innovations, LLC (“TI”) is our principal stockholder with an equity ownership of
      49% of our outstanding common stock as of December 31, 2006. TI is a New York
      limited liability corporation established in 1999 to develop intellectual
      property assets. The Chairman of our Board of Directors is the managing member
      of TI and has a 42.74% ownership of TI. TI founded NaturalNano, Inc., a Delaware
      corporation on December 22, 2004, with an initial cash contribution of $100,000
      for all the outstanding shares of common stock.





On
      July
      1, 2005, the Company granted 1 million stock options to TI with an exercise
      price of $0.05 per share. This exercise price reflects the estimated fair market
      value of these options on the date of grant as determined by the Company’s Board
      of Directors. This option grant has a ten-year term and as such expires on
      July
      1, 2015. Under the vesting schedule, the options vest one-half on the date
      of
      grant and the balance on the first anniversary of the grant.





On
      March
      2, 2007, Technology Innovations assigned all rights, title, interests in, and
      improvements to, the applications of various issued patents and pending
      applications to NaturalNano. This assignment relinquishes TI’s rights, under the
      April 27, 2005 license agreement, and results in the Company’s receipt of the
      marketable title to the patents, free and clear of any liens or encumbrances
      and
      eliminates future license fees and royalty payments as defined in the license.
      The April 27, 2005 exclusive, field of use limited license agreement (the
“License Agreement”) with Technology Innovations, LLC granted the Company an
      exclusive world-wide license to make, use and sell the products developed under
      these patents. The License Agreement covered several patent applications and
      provisional patents owned by Technology Innovations LLC that will expire at
      various future dates.





On
      June
      28, 2006, we entered into a Line of Credit agreement with TI pursuant to which
      TI committed to make advances in an aggregate amount of $1 million. Under the
      Line of Credit Agreement, advances were allowed in such amounts and at such
      times upon 15 days, notice except that no more than $300,000 could be advanced
      in any 30-day period. Amounts borrowed bear interest at the rate of 8% per
      annum. The Agreement contains conventional terms, including provisions relating
      to events of default. Amounts borrowed under this agreement are to be used
      for
      general working capital needs. As of December 31, 2006 and February 14, 2007,
      $600,000 and $900,000, respectively, had been advanced under the Line of Credit
      Agreement. The TI line of credit was established on terms we believed to be
      competitive with comparable transactions involving unaffiliated parties and
      was
      approved by the independent members of our Board of Directors. Based on the
      borrowing rates currently available to the Company for loans with similar terms
      and average maturities, the fair value of the debt approximates the carrying
      amount. The repayment obligation under the Line of Credit Agreement and the
      Note
      were originally scheduled to expire on March 31, 2007, at which time TI would
      be
      able to demand repayment upon 15 days notice. In connection with the March
      7,
      2007 issuance of the 8% Senior Secured Convertible Notes (the “Notes”), TI
      agreed not to demand repayment as long as any amounts were outstanding on the
      Notes. See Note 11, “Subsequent Event” for additional description of the terms
      and conditions of the issuance of these Notes.




F-10


**NaturalNano,
        Inc.**
 (A
        Development Stage Company)
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


On
      December 29, 2004 the Company entered into a Line of Credit Agreement and a
      Promissory Note with TI that allowed for borrowings of up to $500,000 for
      working capital purposes and included an interest rate of 8% per annum. This
      agreement expired and all outstanding advances were repaid as of December 31,
      2005.





During
      the first quarter of 2005, TI paid $10,400 in fees for licensing and business
      strategy consultations, to a firm owned by the Company’s former president.
      During fiscal 2005, the Company’s former President and former Chief Technology
      Officer provided technical consultations to an affiliate, Biophan Technologies,
      Inc. (“Biophan”). Biophan is an entity related to TI through common ownership.
      In connection with these consulting services, Biophan reimbursed the Company
      $16,500 and $5,077 for these services respectively which represented the cost
      of
      the salary and benefits for the proportionate time spent consulting.





**4.**
            **AMBIT
                LICENSE AGREEMENT**





On
      December 31, 2005, the Company entered into an exclusive licensing agreement
      for
      the rights to a patented technology in the field of electronics shielding.
      On
      November 13, 2006, the parties signed an amended and restated non-exclusive
      license agreement, effective October 1, 2006, modifying the terms of the
      original agreement. The amended license agreement calls for 20% royalty payments
      upon our sale of licensed products utilizing the technology or in instances
      of
      sublicense agreements and eliminates the original requirement calling for
      minimum royalty payments. The amended agreement includes annual reporting of
      progress made on product development and various confidentiality elements.
      This
      agreement shall remain in effect until the expiration date of the last-to-expire
      related patent that is cited in the agreement, which is currently projected
      to
      be in fiscal year 2014.





In
      consideration for the rights granted to NaturalNano under the original
      agreement, the Company paid $100,000 in cash and issued 200,000 shares of common
      stock valued at $1.45 per share. In connection with the amendment, the purchase
      price was modified and as a result the 200,000 shares issued to Ambit under
      the
      original agreement were returned to the Company.





The
      license was recorded as a non-current asset and is amortized on a straight
      line
      basis over an estimated useful life of nine years ending in fiscal year 2014.
      Amortization expense of $40,788 was recognized for this license agreement in
      2006 and will be $33,152 annually for each year beginning in 2007 through 2014.
      Future royalty payments resulting from this agreement will be expensed as
      incurred.





**5.**
            **TRANSACTIONS
                WITH ATLAS MINING COMPANY**





On
      December 29, 2004, the Company contracted with Atlas Mining Company (OTC BB:
      ALMI) in Utah for the purchase of 500 tons of processed halloysite nanotubes.
      The Company paid $250,000 to a designated distributor of Atlas Mining with
      an
      additional $100,000 payable when commercial shipments in excess of $250,000
      are
      achieved. As additional consideration, NaturalNano will pay 10% of the resale
      cash proceeds received from unaffiliated third parties in instances where the
      purchase price is in excess of $700 per ton up to a maximum of $2,000 per ton.




F-11


**NaturalNano,
        Inc.**
 (A
        Development Stage Company)
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


The
      Company estimates that approximately 30 tons of processed halloysite will be
      utilized under this supply agreement in the next twelve months. The remaining
      tonnage available under this agreement is expected to be used by the Company
      for
      customer order fulfillment and in research during periods beyond 2007.
      Accordingly, the balance sheet at December 31, 2006 presents $15,000 of this
      prepaid contract as a current asset and the balance as a non-current asset
      to
      reflect this material sourcing. Research and development expenses are recognized
      in the period the nanotubules are used in the development of proprietary
      applications and processes and cost of goods sold will be charged as customer
      shipments are made.





NaturalNano
      has identified various sources of halloysite that are considered suitable as
      alternate suppliers of this raw material, and as such, is not solely dependent
      upon Atlas Mining Company for delivery of halloysite materials.




On
      January 28, 2005, NaturalNano was issued a two-year warrant for the right to
      acquire 750,000 shares of Atlas Mining common stock at $.40 per share. The
      Company accounted for this warrant as a free-standing derivative and,
      accordingly, had recorded the warrant as an asset, at its fair market value
      and
      recognized Other income of $180,000 upon receipt. On August 9, 2006, the Company
      entered into a Warrant Purchase Agreement with a third party to sell the Atlas
      Mining warrant for $562,500 less fees of $56,250. The Company received the
      net
      proceeds of $506,250 as a result of this agreement on August 22,
      2006.





The
      fair
      value of the Atlas Mining warrant was measured using the Black-Scholes valuation
      model on January 28, 2005 and December 31, 2005 and was estimated at $180,000
      and $270,000, respectively. The Black-Scholes assumptions used in estimating
      fair market value of the warrant at each of these dates are as
      follows:


January
                28, 2005
            
            December
                31, 2005Risk-free
                interest rate
            
            
            3.2
            %
            
            4.3
            %Expected
                life of the warrant-days
            
            
            730
            
            
            393Expected
                stock price volatility
            
            
            115
            %
            
            86
            %Expected
                dividends
            
            
            Zero
            
            
            Zero





At
      December 31, 2005, the warrant was marked-to-market at $270,000 with the change
      in fair market value recorded as other income.




**6.**
            **INCOME
                TAXES**





As
      of
      December 31, 2006, the Company had a net operating loss carryforward, for
      federal income tax purposes, of approximately $6.0 million which expires from
      2024 to 2026. The deferred tax asset was comprised of the
      following:




December
                31, 2006
            
            December
                31, 2005Net
                operating loss carryforwards
            
            $
            2,080,470
            
            $
            750,197Future
                tax deductions for stock options and warrants granted
            
            
            2,205,810
            
            
            146,312Other
                temporary differences
            
            
            20,285
            
            
            31,2044,306,565
            
            
            927,713Valuation
                allowance
            
            
            (4,306,565
            )
            
            (927,713
            )Net
                deferred tax asset
            
            $
            0
            
            $
            0





In
      recognition of the uncertainty regarding the ultimate amount of income tax
      benefits to be derived, the Company has recorded a full valuation allowance
      for
      the deferred tax assets measured as of December 31, 2006.




F-12


**NaturalNano,
        Inc.**
 (A
        Development Stage Company)
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**





**7.**
            **STOCKHOLDERS’
                EQUITY AND CONVERTIBLE BRIDGE
                NOTES**





**November
      29, 2005 Merger with CMI**




On
      November 29, 2005, the Company completed a recapitalization as a result of
      the
      reverse merger with Cementitious Materials, Inc. (a public shell company).
      Under
      the merger agreement, the Company merged into a newly formed subsidiary of
      Cementitious with NaturalNano, Inc. being the surviving entity. The components
      of the recapitalization are presented below.





Common
                Shares
            
            Common
                Stock
            
            Additional
                Paid in Capital
            
            Accumulated
                Deficit
            
            Stock-holders
                EquityCMI
                equity November 29, 2005
            
            
            9,982,084
            
            $
            9,982
            
            $
            357,483
            
            
            ($367,465
            )
            
            0Issuance
                of new shares to NN stockholders
            
            
            89,838,756
            
            
            89,839
            
            
            10,161
            
            
            
            
            $
            100,000Cancellation
                of NN shares November 29, 2005
            
            
            (20,000,000
            )
            
            (20,000
            )
            
            (80,000
            )
            
            
            
            
            (100,000
            )Elimination
                of CMI accumulated deficit
            
            
            
            
            
            
            
            
            (367,465
            )
            
            367,465November
                29, 2005 Recapitalization
            
            
            79,820,840
            
            $
            79,821
            
            
            ($79,821
            )
            $
            0
            
            $
            0





In
      connection with the merger, TI, the Company’s principal stockholder, exchanged
      each of its outstanding shares for 4.492 shares of Cementitious stock for an
      aggregate of 89,838,756 shares. Each of the Company’s previously outstanding
      options and warrants were cancelled and replaced with the same number of options
      and warrants of Cementitious with rights to acquire common stock at economic
      and
      contractual terms consistent with the rights as defined in the original
      NaturalNano option and warrant agreements. The original options were not
      modified to accelerate vesting or extend the term of the new options.





**Convertible
      Bridge Notes**




As
      a
      result of the merger on November 29, 2005, $4,156,000 of Convertible Bridge
      Notes (the “Bridge Notes”) were converted into 20,939,200 shares of the
      Company’s common stock. These bridge notes included a mandatory conversion
      feature whereby $800,000 in debt was converted into 4,159,200 common shares
      and
      $3,356,000 in debt was converted into 16,780,000 shares of common stock in
      connection with the Cementitious Materials, Inc. merger which was completed
      on
      November 29, 2005. The Bridge Notes included an accrued interest provision
      of 8%
      per annum, generally beginning six months after the date of issuance. No
      interest was accrued or paid on these notes since all of this outstanding debt
      was satisfied with the conversion into common stock coincident with the
      merger.





These
      bridge notes were converted using a per share conversion price of $0.20 which
      was the estimated fair market value of the common stock on the date this debt
      was issued, as determined by the Company’s Board of Directors. The closing
      market price per common share on November 29, 2005 was $0.625.





**Common
      Stock Issuances**




On
      February 1 and 9, 2006 we issued an aggregate of 314,700 shares of our common
      stock to three entities in settlement of liabilities accrued for services and
      assets received by the Company during 2005. On February 1 and 9, 2006 we issued:
      (i) 40,000 shares to High Technology of Rochester, Inc., our previous landlord,
      in consideration for certain leasehold improvements and rent concessions to
      our
      office facilities, (ii) 74,700 shares to Medienimpuls GmbH as payment for
      consulting services, and (iii) 200,000 shares to Ambit Corporation in connection
      with the license of certain patented technology in the field of electronic
      shielding. The 200,000 shares to Ambit Corporation were returned to the Company
      during the fourth quarter of 2006 in connection with the November 13, 2006
      amended license agreement. The value of the common stock issued and received
      in
      connection with these transactions has been valued based on the market price
      of
      the Company’s common stock on the date of these issuances and receipts.





F-13


**NaturalNano,
        Inc.**
 (A
        Development Stage Company)
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**Warrant
      Grants**




As
      of
      December 31, 2006, there were common stock warrants outstanding to purchase
      an
      aggregate 9,470,000 shares of common stock pursuant to the warrant grants
      described below.





On
      December 27, 2006, the Company granted 200,000 warrants to PR Financial
      Marketing, LLC (“PRM”) with an exercise price of $0.28 per share in connection
      with a consulting services agreement. This warrant was fully vested on the
      date
      of grant and expires on December 27, 2008. The value of the services received
      in
      connection with this agreement, have been measured utilizing the Black-Scholes
      model as of the date of the warrant grant. The assumptions used in this
      valuation included: (i) risk-free interest rate of 4.7%, (ii) weighted average
      expected term of two years; (iii) weighted average expected stock volatility
      109% and (iv) expected dividends of zero. This valuation resulted in a fourth
      quarter 2006 charge of $32,460 included in the Statement of
      Operations.





On
      July
      9, 2006, the Company issued a warrant to purchase 4,770,000 shares of common
      stock at exercise prices ranging from $0.75 to $1.30 per share (with a weighted
      average exercise price of $1.01 per share) to SBI Brightline XIII, LLC. This
      warrant was fully vested on the date of grant and may not be exercised if and
      to
      the extent that, immediately following such exercise the holder thereof would
      beneficially own 5% or more of the Company’s common stock. The warrant may be
      exercised in cash or by cashless exercise in lieu of cash. The warrant expires
      on March 30, 2009 and has been valued, using the Black-Scholes model, as of
      the
      date of grant. The assumptions used in this valuation included: (i) risk-free
      interest rate of 5.1%, (ii) weighted average expected term of 2.7 years, (iii)
      weighted average expected stock volatility 90% and (iv) expected dividends
      of
      zero. This valuation resulted in a third quarter 2006 charge of $3,006,786
      included in the caption “Financing fees” in the accompanying Statement of
      Operations. None of these warrants had been exercised as of December 31, 2006.
      Neither these warrants nor the common stock issuable upon exercise of the
      warrants, have been registered under the Securities Act of 1933.





During
      the first quarter of 2005, the Company received $225,000 in financial consulting
      services from SBI USA, LLC for which payment was satisfied through the issuance
      of 4,500,000 common stock warrants. These warrants have an exercise price of
      $0.115 per share, were fully vested as of the March 31, 2005 issuance date
      and
      had an original expiration date of March 31, 2006. On December 19, 2005, the
      Board of Directors extended the expiration date of this instrument to March
      31,
      2007. As a result, the Company recorded $48,442 as an incremental cost for
      these
      services reflecting the estimated fair market value associated with the term
      extension, as calculated using the Black-Scholes valuation method. The
      assumptions used in this valuation were as follows: (i) risk-free interest
      rate
      of 4.49%, (ii) expiration date of the warrant of March 31, 2007, (iii) expected
      volatility of 113.2%, and (iv) expected dividends of zero. The consulting
      expenses relating to these warrants were provided during the first quarter
      of
      2005 and were included in Financing fees in the accompanying Statements of
      Operations. None of these warrants had been exercised as of December 31, 2006.
      Neither these warrants nor the common stock issuable upon exercise of the
      warrants, have been registered under the Securities Act of 1933.




**8.**
            **INCENTIVE
                STOCK PLAN**





Under
      the
      NaturalNano 2005 Incentive Stock Plan, officers, employees, directors and
      consultants may be granted options to purchase the Company’s common stock at
      fair market value as of the date of grant. Options become exercisable over
      varying vesting periods commencing from the date of grant and have terms of
      five
      to ten years. The plan also provides for the granting of performance-based
      and
      restricted stock awards.




F-14


**NaturalNano,
        Inc.**
 (A
        Development Stage Company)
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


A
      summary
      of the status of NaturalNano’s incentive stock plan is presented
      below:




**2006**
            
            
            **2005**Shares
            
            
            
            Weighted
                Average
              Exercise
                Price
            
            
            Weighted
                Average RemainingLife-years
            
            
            Shares
            
            
            
            Weighted
                Average
              Exercise
                Price
            
            Weighted
                Average RemainingLife-yearsOutstanding
                at beginning of year
            
            9,810,000
            
            
            $
            0.05
            
            
            9.34
            
            
            0Granted
                during the year
            
            2,700,000
            
            
            $
            0.59
            
            
            9.59
            
            
            9,900,000
            
            
            $
            0.05
            
            9.34Exercised
            
            (826,000
            )
            
            $
            0.05
            
            
            8.25
            
            
            0Cancelled
                or forfeited
            
            (1,310,000
            )
            
            $
            0.09
            
            
            8.39
            
            
            (90,000
            )
            
            $
            0.05
            
            9.49Options
                outstanding at end of year
            
            10,374,000
            
            
            $
            0.19
            
            
            8.67
            
            
            9,810,000
            
            
            $
            0.05
            
            9.34Options
                exercisable at end of year
            
            8,105,666
            
            
            $
            0.11
            
            
            8.48
            
            
            4,940,000
            
            
            $
            0.05
            
            9.29Available
                for future grant
            
            2,800,000
            
            
            
            
            
            
            10.00
            
            
            4,190,000
            
            
            $
            0.05
            
            10.00




The
      weighted average fair market value of the options granted during the year were
      $0.48 and $0.05 (before recapitalization) for 2006 and 2005
      respectively.




**Options
                Outstanding**
            
            **Options
                Exercisable**Range
                of Exercise Prices
            
            Shares
                Outstanding 12/31/06
            
            Weighted
                Average Exercise Price
            
            Weighted
                Average Remaining Life- Years
            
            Shares
                Exercisable 12/31/06
            
            Weighted
                Average Exercise Price$0.05
            
            
            7,724,000
            
            $
            0.05
            
            
            8.4
            
            
            7,224,000
            
            $
            0.05$0.35
                - $0.42
            
            
            2,115,000
            
            $
            0.42
            
            
            4.9
            
            
            711,666
            
            $
            0.42$1.06
                - $1.20
            
            
            330,000
            
            $
            1.10
            
            
            9.6
            
            
            10,000
            
            $
            1.20$1.30
                - $1.44
            
            
            205,000
            
            $
            1.42
            
            
            9.4
            
            
            160,000
            
            $
            1.4310,374,000
            
            $
            0.19
            
            
            8.67
            
            
            8,105,666
            
            $
            0.11





As
      of
      December 31, 2006, the aggregate intrinsic value of stock options outstanding
      and stock options exercisable was $2,904,720 and $1,377,963 respectively. During
      2006, options for 826,000 common shares were exercised at $0.05 per share,
      generating $41,300 in proceeds to the Company.





**Non-vested
                stock option activity**
            
            Non-vested
              Shares
            
            Weighted
                Average Grant Price Fair ValueNon-vested
                outstanding at December 31, 2005
            
            
            4,870,000
            
            $
            0.05Granted
                during the year
            
            
            2,700,000
            
            $
            0.32Vested
            
            
            (3,991,666
            )
            $
            0.11Cancelled
                or forfeited
            
            
            (1,310,000
            )
            $
            0.08Non-vested
                outstanding at December 31, 2006
            
            
            2,268,334
            
            $
            0.37




F-15


**NaturalNano,
        Inc.**
 (A
        Development Stage Company)
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


The
      fair
      value of
      stock
      options granted to consultants (including the options granted to Technology
      Innovations, LLC) has been recorded as an expense of $935,047 for the year
      ended
      December 31, 2006, and reflects changes in fair market value since the prior
      reporting period, calculated using the Black-Scholes valuation method. The
      Black-Scholes model utilizes the undiscounted quoted market price of the
      Company’s common stock and considers assumptions related to exercise price,
      expected volatility, risk-free interest rate, and the weighted average expected
      term of the stock option grants. Expected volatility assumptions utilized in
      the
      model were based on volatility of the Company’s stock price, the risk-free rate
      is derived from the U.S. treasury yield and the Company used a weighted average
      expected term.





Black-Scholes
                Valuation Assumptions:
            
            **12/31/06**
            
            **12/31/05**Risk-free
                interest rate
            
            
            4.6%
                to 5.2
            %
            
            4.6
            %Expected
                life in years
            
            
            5
                to 10
            
            
            4.9Weighted
                average expected stock volatility
            
            
            88%
                -118
            %
            
            90.5
            %Expected
                dividends
            
            
            zero
            
            
            zero





As
      of
      December 31, 2006, unvested compensation cost for stock options previously
      issued to employees was approximately $853,000 and will be recognized in future
      years through 2009. The unvested cost of stock options previously issued to
      consultants was approximately $181,000 as of December 31, 2006 and will be
      revalued quarterly and charged to operations as the vesting occurs, during
      the
      periods through 2008, which is when the required performance by the consultants
      is complete.





In
      addition to options granted under the NaturalNano, Inc. 2005 Incentive Stock
      Plan, the Company has made certain option grants, for an aggregate of 90,000
      common stock options, outside of this plan. These grants include vesting
      criteria commencing from the grant date, an exercise price of $0.10 per share
      and expiration dates varying from five to ten years from the date of grant.
      The
      cost of the fair value of these stock options has been determined utilizing
      the
      Black-Scholes model as described above.




**9.**
            **COMMITMENTS
                AND LEASE OBLIGATIONS**





On
      August
      12, 2005 we entered into a non-exclusive license agreement with the United
      States Department of the Navy, as represented by the Naval Research Laboratory
      (“NRL”) for non-exclusive rights and a license to patented technologies in the
      fields of halloysite clay and nanotubules. The license had an original term
      of
      six months during which time the parties would actively negotiate a partially
      exclusive license within specific fields of use. The agreement allows for the
      extension of the original term from the effective date for the purpose of
      completing license negotiations. The license is not transferable or assignable
      and does not allow sub-licenses. The NRL and the Company are engaged in
      negotiations in connection with the completion of a partially exclusive license
      and anticipate the completion of such an agreement in 2007. The current
      agreement includes a non-refundable license issue fee of $10,000, paid at
      signing, and annual minimum license fees of $5,000 in each of the calendar
      years
      2006 and 2007, and $10,000 for calendar year 2008 and each year thereafter
      throughout the period of the license. The annual license fees are not refundable
      and shall be credited toward any payment of royalties earned during the calendar
      year following such payment.





The
      Company leases office and laboratory space as well as certain research and
      development equipment under the terms of various operating leases. Certain
      of
      the equipment leases contain purchase options at prices representing the fair
      market value of the related equipment at the expiration of the term of the
      lease.





On
      February 1, 2006, the Company entered into a two year lease agreement that
      included a one year renewal option that expires on January 31, 2009. This space,
      representing approximately 3,000 square feet of laboratory space, has been
      used
      in establishing our research facility and is located in Rochester, New York.
      The
      annual rent for each of the initial two years of the agreement is $46,187 and
      increases to $47,687, if the final year option is exercised. The Company is
      also
      responsible for a pro rata allocation of the operating costs of this facility,
      to be assessed annually by the landlord.  The
      Company utilizes approximately 4% of the total facility.





F-16


**NaturalNano,
        Inc.**
 (A
        Development Stage Company)
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**




On
      September 19, 2006, the Company entered into a lease agreement covering
      approximately 2,250 square feet for office space. This lease expires on April
      30, 2022 subject to our right to terminate at any time after March 1, 2009
      upon
      90 days notice. For lease years commencing March 1, 2007 and 2008, we will
      pay
      an annual base rent of $44,000. For each year commencing on March 1, 2009 and
      continuing through April 30, 2011, the base rent will increase by 5% over the
      previous year’s rent. For each year beginning March 1, 2009 and continuing
      through April 30, 2017, the base rent will increase by 3% over the previous
      year’s rent. The landlord is responsible for all real property taxes for the
      first 38 months of the term; thereafter, the landlord will absorb the first
      3%
      of any increases and half of the remaining 97% will be reimbursed by the Company
      based on our proportionate share (17%) of the building usage. In addition to
      being responsible for utilities within our leased space, we have agreed to
      pay
      our proportionate share of utility charges for common areas within the building.
      This facility lease provides for scheduled increases in base rent and as such,
      rent expense will be charged ratably over the term of the lease resulting in
      deferred rent payable, which will represent cumulative rent expense charged
      to
      operations from inception of the lease in excess of required lease
      payments.





On
      May
      13, 2005, the Company entered into an operating lease agreement for office
      space
      expiring May 31, 2008. The lease allowed for the termination at any time after
      May 31, 2006 upon ninety days prior written notice to the landlord. In
      accordance with this provision, the Company provided notice to the landlord
      terminated this agreement during the first quarter of 2007 coincident with
      the
      relocation of our primary business operations, described above.





Total
      rent expense for the years ended December 31, 2006 and 2005 were $79,728 and
      $
      31,970 respectively.


Presented
      below are the minimum future payments under these license and lease
      agreements:





For
                each of the years ending December 31:
            
            Office
                and lab space
            
            Equipment
            
            License
            
            Total2007
            
            $
            90,897
            
            $
            26,609
            
            $
            5,000
            
            $
            122,5062008
            
            
            44,000
            
            
            11,013
            
            
            10,000
            
            
            65,0132009
            
            
            45,833
            
            
            1,550
            
            
            
            
            
            47,3832010
            
            
            48,125
            
            
            0
            
            
            
            
            
            48,1252011
            
            
            49,723
            
            
            0
            
            
            
            
            
            49,723Thereafter
            
            
            598,308
            
            
            0
            
            
            
            
            
            598,308Total
            
            $
            876,886
            
            $
            39,172
            
            $
            15,000
            
            $
            931,058




**10.**
            **STOCK
                PURCHASE AGREEMENT WITH SBI**





On
      July
      9, 2006 we entered into the Stock Purchase Agreement with SBI Brightline XIII,
      LLC (“SBI”), pursuant to which SBI agreed to purchase up to 15,321,154 shares of
      our Common Stock for an aggregate purchase price of $15,500,000. The shares
      are
      to be sold in eighteen (18) tranches at increasing per share purchase prices
      ranging from $0.75 to $1.30, for a weighted average price of $1.01 per share.
      Except for the requirement to sell the tranches in order and the requirement
      that the resale of the shares be covered by an effective registration statement
      under the Securities Act of 1933, there is no limitation on when we require
      SBI
      to purchase the shares. We are not obligated to sell any shares to SBI unless
      and until we make an election to do so. SBI is not obligated to purchase shares,
      pursuant to the Stock Purchase Agreement, unless the resale of the shares have
      been registered under the Securities Act. On July 11, 2006, we filed a
      registration statement on Form SB-2 covering the shares issuable to SBI under
      the Stock Purchase Agreement. The registration had not been declared effective
      by the Securities and Exchange Commission when, on March 1, 2007 the Company
      formally withdrew the registration statement due to management’s continuing
      concern as to the viability of this financing agreement. No securities have
      been
      sold to SBI in connection with this Purchase Agreement.





F-17




**NaturalNano,
        Inc.**
 (A
        Development Stage Company)
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**11.**
            **SUBSEQUENT
                EVENT**





**8%
      Senior Secured Convertible Notes and related Warrants**





On
      March
      7, 2007, we entered into a Loan and Security Agreement (the “Purchase
      Agreement”) for $3,347,500 with Platinum Partners Long Term Growth IV
      (“Platinum”), Longview Special Financing, Inc. (“Longview”) and Platinum
      Advisors LLC (the “Agent”), for its own account and as agent for the other
      investors.





Pursuant
      to the Purchase Agreement, we issued $3,250,000 face amount of 8% Senior Secured
      Promissory Notes (the “Notes”) to Platinum and Longview. The holders of the
      Notes may elect to convert the Notes at any time into shares of our common
      stock
      at a price of $0.22 per share (the “Conversion Price”). The Notes contain
      anti-dilution protection that will automatically adjust the Conversion Price
      should we issue equity or equity-linked securities at a price per common share
      below the Conversion Price to the price at which we issue such equity or
      equity-linked securities. Interest on the outstanding principal amount under
      the
      Notes is payable quarterly at rate of 8% per annum, payable at our option in
      cash or in shares of our common stock registered for resale under the Securities
      Act of 1933 (the “Securities Act”). If we elect to make an interest payment in
      common stock, the number of shares issuable by us will be based upon 85% of
      the
      20-day trailing volume weighted average price per share as reported on Bloomberg
      LP (the “VWAP”). Principal on the Notes is due and payable on March 7, 2009. If
      the closing price of our common stock on the principal market or exchange on
      which our stock is traded (currently, the Over-the-Counter Bulletin Board)
      is at
      least $1.00 for twenty consecutive trading days, we can compel conversion of
      the
      Notes at the Conversion Price.





Our
      obligations under the Notes are secured by first priority security interests
      in
      substantially all of our assets and substantially all of the assets of our
      wholly-owned subsidiary, NaturalNano Research, Inc. (“NN Research”). In
      connection with the grant of these security interests, on March 7, 2007, we
      entered into a Pledge Agreement (the “Pledge Agreement”) with the Agent and the
      other investors, pursuant to which we granted to the investors and the Agent
      a
      security interest in all of the outstanding shares of the common stock of NN
      Research. In connection with the grant of these security interests, on March
      7,
      2007, NN Research entered into the Patent Security Agreement (the “Patent
      Security Agreement”) with the Agent and the other investors, pursuant to which
      NN Research granted to the investors and the Agent a security interest in all
      of
      NN Research’s patent interests.





As
      further consideration, on March 7, 2007 we issued to Platinum and Longview
      two
      series of warrants, for the purchase at any time on or before March 7, 2011,
      of
      an aggregate of 22,159,092 shares of our common stock. The first series of
      warrants (the “Series A Warrants”) covers the purchase of an aggregate of
      11,079,546 shares of our common stock at an exercise price of $0.22 per share.
      The second series of warrants (the “Series B Warrants”) covers the purchase of
      an additional aggregate of 11,079,546 shares of our common stock at an exercise
      price of $0.33 per share. If the closing price of our common stock on the
      principal market or exchange on which our stock is traded (currently the
      Over-the-Counter Bulletin Board) is at least $0.75 for twenty consecutive
      trading days, we can compel exercise of the Series A Warrants. Each series
      of
      Warrants contain anti-dilution protection that will automatically adjust the
      exercise price of such series of Warrants should we issue equity or
      equity-linked securities at a price per common share below the exercise price
      of
      such series to the price at which we issue such equity or equity-linked
      securities.




F-18


**NaturalNano,
        Inc.**
 (A
        Development Stage Company)
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


On
      March
      7, 2007, as consideration for due diligence services in connection with the
      Purchase Agreement, we paid to the Agent a cash fee of $97,500 and issued to
      that firm (i) a Note (identical in form to the Notes issued to the other
      investors) in the principal amount of $97,500, (ii) Series A warrants for the
      purchase of 332,387 shares of our common stock at $0.22 per share, (iii) Series
      B Warrants for the purchase of a total of 1,473,581 shares of our common stock
      at $0.33 per share, and (iv) a warrant (the “Series C Warrant”) for the purchase
      at any time on or before March 7, 2011 of 1,141,194 shares of our common stock
      at an exercise price of $0.22 per share.





On
      March
      7, 2007, we entered into a Registration Rights Agreement (the “Registration
      Rights Agreement”) with the Agent and the other investors, pursuant to which we
      agreed to register for resale under the Securities Act the common stock issuable
      upon the exercise of the Warrants, in payment of interest on, or upon conversion
      of, the Notes, or, at the option of the investors, in satisfaction of certain
      liquidated damages provisions in the Registration Rights Agreement.





In
      connection with the Purchase Agreement, on March 2 and 5, 2007, NN Research
      entered into Patent Assignment agreements (the “Patent Assignments”) with
      Technology Innovations, LLC (“TI”), our principal stockholder, pursuant to which
      TI assigned to NN Research all of its rights, title and interest in certain
      issued patents and pending patent applications, with respect to which TI had
      previously granted NN Research licenses. TI also agreed, in a letter to the
      Agent and the other investors dated March 7, 2007 (the “Lock-Up Letter”), that
      for a period of two years from the date of the Lock-Up Letter it will not
      (except as permitted under the Lock-Up Letter in certain limited circumstances)
      sell, transfer or otherwise dispose of any shares of our common stock or any
      securities convertible into or exchangeable or exercisable for shares of our
      common stock. TI further agreed, in a letter to the Agent and the other
      investors dated March 7, 2007 (the “Standstill Letter”), that it would not
      demand repayment by us or NN Research of any obligations for money borrowed
      except as defined in the Purchase Agreement.





F-19


**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





Not
      applicable.





**ITEM
      8A. CONTROLS AND PROCEDURES**





Based
      on
      their evaluation as of the end of the period covered by this annual report
      on
      Form 10-KSB, our principal executive officer and principal financial officer,
      with the participation and assistance of our management, concluded that our
      disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated
      under the Securities Exchange Act of 1924, were effective in design and
      operation.




On
      May 4,
      2006 and on August 11, 2006, we received letters from the Staff of the
      Securities and Exchange Commission commenting on the Registration Statements
      on
      Form SB-2 (File No. 333-133005 and No. 333-135667) which we filed with the
      Commission on April 5, 2006 and July 10, 2006, respectively. Certain of those
      comments related to the presentation of information included in our previously
      filed Annual Report on Form 10-KSB for the year ended December 31, 2005 and
      Quarterly Reports on Form 10-QSB for the quarters ended March 31, 2006 and
      June
      30, 2006. As a result of these comments, we revised: (i) certain of our
      measurements of fair-market value determined utilizing the Black-Scholes
      valuation model, specifically relating to share-based compensation expense
      and
      the valuation of the change in fair market value resulting from a modification
      of a previously issued warrant, (ii) the accounting period in which certain
      common stock was issued, thereby properly reflecting current liabilities and
      outstanding shares on December 31, 2005 and, (iii) the accounting period in
      which revenue from Atlas Mining was recognized.





Our
      management and the Audit Committee of our Board of Directors have discussed
      these matters with Goldstein Golub Kessler LLP, our independent registered
      public accounting firm. As a result of this discussion, management recommended
      to the Audit Committee that previously filed financial results be restated
      to
      reflect the correction of the errors identified in the comment letters from
      the
      Commission’s Staff. The Audit Committee agreed with this recommendation.
      Pursuant to the recommendation of the Audit Committee, the Board of Directors
      determined that our previously issued financial results for the year ended
      December 31, 2005 and for the periods ended March 31, 2006 and June 30, 2006
      be
      restated





In
      connection with the restatement, under the direction of our President (our
      chief
      executive officer) and our Chief Financial Officer, we reevaluated our
      disclosure controls and procedures. We identified the following material
      weaknesses in our internal control over financial reporting:




·
            a
                failure to utilize the correct assumptions in the Black-Scholes model
                in
                measuring share-based compensation and changes in other equity
                instruments,·
            a
                failure to implement a proper accounting cut-off relating to the
                issuance
                of common shares, and·
            a
                failure to record income from Atlas Mining upon receipt of a
                warrant.





Solely
      as
      a result of these material weaknesses, we concluded that our disclosure controls
      and procedures were not effective as of December 31, 2005, March 31, 2006 and
      June 30, 2006.





We
      are
      confident that, as of the date of this filing, we have fully remediated the
      material weaknesses in our internal control over financial reporting with
      respect to the items cited above. The remedial actions
      included:




·
            Improving
                education and accounting reviews to ensure that personnel involved in
                Black- Scholes valuation transactions understand and apply fair-value
                accounting appropriately.·
            Improving
                education and accounting reviews to ensure personnel involved in
                financial reporting understand and apply appropriate period-end accounting
                cut-off reviews and analysis.·
            Improving
                education and accounting reviews to ensure personnel involved in
                financial
                reporting understand and apply appropriate accounting for receipt
                of
                equity instruments.




There
      have been no other changes in our system of internal control over financial
      reporting in connection with the evaluation by our principal executive officer
      and principal financial officer during the period since December 31, 2005
      through the date of the filing of this annual report on Form 10-KSB that have
      materially affected, or are reasonably likely to materially affect, our internal
      control over financial reporting.




**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
      WITH
      SECTION 16(a) OF THE EXCHANGE ACT**





The
      following table shows information about our directors and executive officers
      as
      of December 31, 2006:





**Name**
            
            **Age**
            
            **Position**Steven
                Katz
            
            58
            
            DirectorJohn
                F. Lanzafame
            
            39
            
            DirectorSharell
                Mikesell
            
            63
            
            DirectorMichael
                L. Weiner
            
            59
            
            DirectorCathy
                A. Fleischer
            
            46
            
            President
                and DirectorKathleen
                A. Browne
            
            51
            
            Chief
                Financial Officer, Treasurer and Secretary




The
      business experience of each of the persons listed above during the past five
      years is as follows:





***Steven
      Katz*** is
      President of Steven Katz & Associates, Inc., a health care and
      technology-based management consulting firm specializing in strategic planning,
      corporate development, new product planning, technology licensing, and
      structuring and securing various forms of financing. Mr. Katz has been President
      of Steven Katz & Associates, Inc. since 1982. From January 2000 to October
      2001 Mr. Katz was President, Chief Operating Officer and a director of Senesco
      Technologies, Inc., an American Stock Exchange listed company engaged in the
      identification and development of proprietary gene technology with application
      to human, animal and plant systems. From 1983 to 1984 he was a co-founder and
      Executive Vice President of S.K.Y. Polymers, Inc., a bio-materials company.
      Prior to this, Mr. Katz was Vice President and General Manager of a non-banking
      division of Citicorp. From 1976 to 1981 he held various senior management
      positions at National Patent Development Corporation, including President of
      three subsidiaries. Prior positions were with Revlon, Inc. (1975) and Price
      Waterhouse & Co. (1969 to 1974). Mr. Katz received a Bachelors of Business
      Administration degree in Accounting from the City College of New York in 1969.
      Mr. Katz resigned his board position with Biophan Technologies, Inc., on March
      9, 2007. He is presently a member of the Board of Directors of Health Systems
      Solutions, Inc., USA Technologies, Inc., and GammaCann International, Inc.
      as
      well as several private companies. Mr. Katz has been a Director of the Company
      since June 1, 2005.




-32-





***John
      Lanzafame*** has
      served as Chief Operating Officer of Biophan Technologies, Inc. since April
      2006
      and currently leads operations and business development for Biophan. Mr.
      Lanzafame joined Biophan in September 2004 and previously served as the
      President of Nanolution, LLC, the drug delivery division of Biophan. Until
      early
      2004, Mr. Lanzafame was employed by STS Biopolymers, Inc., a privately held
      medical device company that marketed high performance polymer-based coatings
      for
      the medical device industry, including drug eluting surfaces for devices such
      as
      coronary stents and indwelling catheters.  Mr. Lanzafame held a variety of
      positions with STS Biopolymers, including positions in research, product
      development, and sales and marketing, ultimately leading to his assuming the
      position of President of STS Biopolymers beginning in 2003.  In 2004, Mr.
      Lanzafame left STS Biopolymers following sale of the company to Angiotech
      Pharmaceuticals. Mr. Lanzafame has fifteen years experience in the medical
      device industry, with a background that includes a bachelor’s degree in chemical
      engineering and a master’s degree in industrial engineering. Mr. Lanzafame
      has been a Director of the Company since its inception in 2004.





***Sharell
      L. Mikesell*** ***,
      Ph.D.*** was
      elected to the Company’s Board of Directors in April 2006. Dr. Mikesell has
      served as Co-Chair of the Center for Multifunctional Polymer Nanomaterials
&
Devices, Ohio’s first state funded multi-university center for nanotechnology,
      since April 2006. In March 2001, he became the first Executive Director of
      the
      Ohio Polymer Strategy Council and continues to serve in that role. In July
      2005,
      Dr. Mikesell was appointed Co-Director of the Center for Multifunctional Polymer
      Nanomaterials & Devices, Ohio’s first state funded multi-university center
      in nanotechnology. Dr. Mikesell has 30 years of corporate leadership experience
      in global research & development and business operations. His background
      includes experience with polymer and material technologies in diverse positions
      with major companies including General Electric, Owens-Corning, and Advanced
      Elastomer Systems, L.P., an Exxon-Mobil subsidiary. Dr. Mikesell’s
      responsibilities included the global technical leadership for product, process,
      and applications development as well as applied research and technical support
      to manufacturing and customers worldwide. Dr. Mikesell has served on several
      corporate boards and advisory councils including: Corporate representative
      to
      the Industrial Research Institute; Advancement Council for the College of
      Polymer Science and Engineering at the University of Akron; Research Advisory
      Council of NorTech; Advisory Board of the Ohio Business Development Coalition;
      Scientific Advisory Board of UTEK Corporation; Board of Asahi Fiberglass in
      Japan, as an advisor to the Center of Photochemistry at Bowling Green State
      University; Advisor to the Chemical Engineering Department at the University
      of
      West Virginia; Board of Trustees for the Ohio Polymer Enterprise Development,
      Inc.; PolymerOhio, Inc.; the Edison Polymer Innovation Corporation; and the
      Olivet Nazarene University Foundation. A native of Ohio, Dr. Mikesell received
      a
      Bachelor of Arts in Chemistry from Olivet Nazarene University, Kankakee,
      Illinois and a Master of Science from the Ohio State University, Columbus.
      Dr.
      Mikesell received a Ph.D. Degree in Polymer Science from the University of
      Akron, Ohio.





***Michael
      L. Weiner*** is
      President, Chief Executive Officer and co-founder of Biophan Technologies,
      Inc.
      He began his career at Xerox Corporation in 1975, where he served in a variety
      of capacities in sales and marketing, including manager of software market
      expansion and manager of sales compensation planning. In 1982, he received
      the
      President’s award, the top honor at Xerox for an invention benefiting a major
      product line. In 1985, Mr. Weiner founded Microlytics, a Xerox spin-off company
      which developed technology from the Xerox Palo Alto Research Center into a
      suite
      of products, including the award-winning Word Finder Thesaurus, with licenses
      out to over 150 companies, including Apple, Microsoft, and Sony. Microlytics
      was
      acquired by a merger with a public company in 1990, which Mr. Weiner then headed
      up through 1993. In February 1999, Mr. Weiner founded Technology Innovations,
      LLC, to develop intellectual property assets. In August 2000, Technology
      Innovations, LLC created a subsidiary, Biomed Solutions, LLC, to pursue certain
      biomedical and nanotechnology opportunities, investing in embryonic-to-seed
      stage innovations which generate new ventures and/or licenses. Mr. Weiner is
      the
      CEO and a director of Biophan Technologies, Inc., a medical research and
      development company located in West Henrietta, New York engaged in providing
      technology to enable implantable medical devices and interventional devices
      to
      be used safely and effectively in conjunction with Magnetic Resonance Imaging
      (MRI), since December 2000. Mr. Weiner serves on the Boards of Biophan
      Technologies, Inc., Biomed Solutions, LLC, Technology Innovations, LLC, Stem
      Capture, Inc., OncoVista, Inc., Myotech, LLC, TE Bio, LLC, and Nanoset, LLC,.
      Mr. Weiner holds seventeen U.S. patents. He has been a Director of the Company
      since its inception in 2004.




-33-





***Cathy
      A. Fleischer*** ***,*** ***Ph.D.,*** became
      the President and a Director of NaturalNano, Inc. in November 2006, after
      joining as Chief Technology Officer in July 2006. The focus of her work since
      joining NaturalNano has been on the commercialization of the Company’s
      technology and the expansion of its intellectual property portfolio. Dr.
      Fleischer is a highly recognized scientist and manager with extensive experience
      leading diverse technical organizations and teams to deliver in research,
      business and manufacturing. During the last five years, Fleischer led
      organizations that delivered highly innovative products and over 200 patents.
      Dr. Fleischer holds eleven patents individually and has numerous publications
      in
      the fields of polymer materials science, composites, adhesion and surface
      science. During the period of 1992 to June 2006, Dr. Fleischer held a variety
      of
      leadership positions at Eastman Kodak, including that of Research &
Development Director in Polarizer Films from January 2006 to June 2006; Program
      Manager in Light Management Solutions from July 2004 to December 2005;
      Commercialization leader for Optical Display Film polymer from February 2004
      to
      December 2004; Research Manager in Advanced Flexible Substrates Lab from
      December 2000 to July 2004; and, Research Associate in Manufacturing Research
      from February 1992 to December 2000. In recent leadership roles, she was
      responsible for the research, vision and strategy of joint development projects
      with international corporations including project leadership and patent
      portfolio development as well as developing technology roadmaps and business
      cases for new products. From March 1984 to May 1990, Dr. Fleischer served as
      Senior Development Engineer at Rogers Corporation, a specialty polymers and
      high-technology company based in Connecticut. Dr. Fleischer received a doctorate
      degree in Polymer Science from the University of Connecticut and a master’s
      degree in Chemical Engineering from Massachusetts Institute of Technology.
      Her
      undergraduate degree in Bioengineering/Material Science was received at the
      University of Pennsylvania.





***Kathleen
      A. Browne*** became
      Chief Financial Officer of NaturalNano in April 2005. For the period from
      January 2001 to December 2004, Ms. Browne was the Corporate Controller and
      Chief
      Accountant of Paychex, Inc., a payroll service provider in Rochester, New York.
      During the period from May 1996 to December 2000, she served as the Vice
      President and Corporate Controller of W.R. Grace, a worldwide specialty
      chemicals manufacturer located in Boca Raton, Florida. From 1992-1996, Ms.
      Browne served in various financial positions for Bausch & Lomb in Rochester,
      New York. From 1977 to 1992, Ms. Browne was with the Rochester, New York office
      of Price Waterhouse. Ms. Browne holds a Bachelor of Science degree from St.
      John
      Fisher College.  She is a member of the American Institute of Certified
      Public Accountants and the New York State Society of CPAs.





**Potential
      Conflicts of Interest**




The
      Chairman of our Board of Directors, Michael L. Weiner is the manager and
      significant equity holder of Technology Innovations, LLC, which owns
      approximately 49% of our outstanding common stock. Mr. Weiner and Technology
      Innovations are significant equity holders of Biomed Solutions LLC, a company
      engaged in the business of identifying and acquiring for exploitation
      technologies in the biomedical field. Mr. Weiner and John Lanzafame are on
      the
      NaturalNano board of directors and are executive officers of Biophan
      Technologies, Inc., a company with whose wholly-owned subsidiary, Nanolution,
      LLC, we have a joint research and development agreement for the development
      of
      drug delivery and medical applications utilizing nanotechnology discoveries.
      Steven Katz is a member of our board of directors and serves as the Chairman
      of
      our Audit Committee. Until March 9, 2007, Mr. Katz also served on the board
      of
      directors of Biophan Technologies, Inc.





Because
      of the nature of our business and the business of these other entities, the
      relationships of all of the members of our Board of Directors with these other
      entities may give rise to conflicts of interest with respect to certain matters
      affecting us. Potential conflicts may not be resolved in a manner that is
      favorable to us. We believe it is not possible to predict the precise
      circumstances under which future potential conflicts may arise and therefore
      intend to address potential conflicts on a case-by-case basis. Under Nevada
      law,
      directors have a fiduciary duty to act in good faith and with a view to the
      best
      interests of the corporation.





**The
      Board and Committees of the Board**




The
      standing committees of the Board are the Audit Committee and the Compensation
      Committee. The Board does not currently have a nominating committee and has
      not
      established specific procedures for selecting candidates for director. However,
      directors are currently nominated by a majority vote of the Board. There is
      also
      no established procedure for shareholder communications with members of the
      Board or the Board as a whole. However, shareholders may communicate with the
      investor relations department of the Company and such communications are either
      responded to immediately or are referred to the president or chief financial
      officer of the Company for a response.





-34-


***Audit
      Committee*** *.* The
      Audit
      Committee is currently composed only of Mr. Katz as Chairman. The
      responsibilities of the Audit Committee are more fully set forth in the Audit
      Committee Charter which the Board adopted in December 2005. The Audit Committee
      Charter has been posted on our website at *www.naturalnano.com* .
      The
      Audit Committee reviews with the independent accountants the results of the
      audit engagement, approves professional services provided by the accountants
      including the scope of non-audit services, if any, and reviews the adequacy
      of
      our internal accounting controls. The Board has determined that Mr. Katz meets
      the qualifications as an audit committee financial expert.





***Compensation
      Committee*** *.* The
      Compensation Committee is composed of Messrs. Weiner and Katz. The
      responsibilities of the Compensation Committee are more fully set forth in
      the
      Compensation Committee Charter which the Board adopted in December 2005. The
      Compensation Committee Charter has been posted on our website at *www.naturalnano.com* .





**Compensation
      of the Board**




Directors
      who are also our employees do not receive additional compensation for serving
      on
      the Board or its committees. Non-employee directors, for their services as
      directors, are paid an annual fee of $8,000. Mr. Katz receives an additional
      $5,000 annually for serving as the Chairman of the Audit Committee. Otherwise,
      no additional compensation is paid to any director for serving as a member
      of
      any committee of the Board. In addition, non-employee directors receive an
      automatic annual option grant of 50,000 common stock options as provided
      under the Company’s 2005 Incentive Stock Plan. All directors are reimbursed for
      their reasonable expenses incurred in attending all board meetings. We maintain
      directors and officers liability insurance.


The
        following table shows compensation for the fiscal year ended December 31,
        2006
        to our directors who are not also named executive officers:
 
 DIRECTOR
        COMPENSATION (1)
  Name
                
                Fees
                    Earned or Paid in Cash ($)
                
                Option
                    Awards ($)(2)
                
                Total
                    ($)Steven
                    Katz
                
                $
                13,000
                
                $
                41,430
                    (3
                )
                $
                54,430Ross
                    B. Kenzie (4)
                
                
                8,000
                
                
                95,050
                    (5
                )
                
                103,050Sharell
                    L. Mikesell (6)
                
                
                6,000
                
                
                95,050
                    (7
                )
                
                101,050John
                    Lanzafame
                
                
                8,000
                
                
                41,430
                    (8
                )
                
                49,430Michael
                    L. Weiner
                
                
                8,000
                
                
                41,430
                    (9
                )
                
                49,430
 
 (1)
        Certain columnar information required by Item 402(f)(2) of Regulation S-B
        has
        been omitted for categories where there was no compensation awarded to, or
        paid
        to, the named directors during the fiscal year ended December 31,
        2006.
 
 (2)
        The
        reported amounts reflect the dollar amounts recognized for financial statement
        reporting purposes for the fiscal year ended December 31, 2006, in accordance
        with FAS 123R, of awards pursuant to our 2005 Stock Incentive Plan and may
        include amounts from awards granted both in and prior to the fiscal year
        ended
        December 31, 2006. As required, the amounts shown exclude the impact of any
        forfeitures related to service-based vesting conditions.
        The actual amount realized by the director will likely vary based on a number
        of
        factors, including the Company's performance, stock price fluctuations and
        applicable vesting.
  (3)
        An
        option to purchase 50,000 shares at an exercise price of $1.10 per share
        was
        granted to Mr. Katz on July 19, 2006. This option becomes fully vested and
        exercisable on the earlier of (i) completion of one year of service as a
        director measured from the date of grant or (ii) continuation of such service
        through the day immediately preceding the first annual shareholders meeting
        following the date of grant. This option has a termination date of July 19,
        2016. At December 31, 2006, Mr. Katz held options for the purchase of an
        aggregate of 250,000 shares, of which options for the purchase of 200,000
        shares
        were exercisable.
 
 (4)
        Resigned on October 31, 2006.
 
 (5)  An
        option
        to purchase 50,000 shares at an exercise price of $1.44 per share was granted
        to
        Mr. Kenzie on June 6, 2006. These options were fully vested on the date of
        grant
        and have a termination date of June 6, 2016. An option to purchase 50,000
        shares
        at an exercise price of $1.10 per share was granted to Mr. Kenzie on July
        19,
        2006. These options required (i) completion of one year of service as a director
        measured from the date of grant or (ii) continued such service through the
        day
        immediately preceding the first annual shareholders meeting following the
        date
        of grant. Because Mr. Kenzie resigned before satisfaction of the vesting
        requirements, these options terminated without becoming exercisable. At December
        31, 2006, Mr. Kenzie held options for 50,000 shares, all of which were
        exercisable.
 
 (6) Elected
        to the Board April 21, 2006.
 
 (7)  An
        option
        to purchase 50,000 shares at an exercise price of $1.44 per share was granted
        to
        Dr. Mikesell on June 6, 2006. These options were fully vested on the date
        of
        grant and have a termination date of June 6, 2016. An option to purchase
        50,000
        shares at an exercise price of $1.10 per share was granted to Dr. Mikesell
        on
        July 19, 2006. These options become fully vested and exercisable on the earlier
        of (i) completion of one year of service as a director measured from the
        date of
        grant or (ii) continuation of such service through the day immediately preceding
        the first annual shareholders meeting following the date of grant. These
        options
        have a termination date of July 19, 2016. At December 31, 2006, Dr.
        Mikesell held options for the purchase of an aggregate of 100,000 shares,
        of
        which options for the purchase of 50,000 shares were exercisable.
 
 (8)
        An
        option to purchase 50,000 shares at an exercise price of $1.10 per share
        was
        granted to Mr. Lanzafame on July 19, 2006. This option becomes fully vested
        and
        exercisable on the earlier of (i) completion of one year of service as a
        director measured from the date of grant or (ii) continuation of such service
        through the day immediately preceding the first annual shareholders meeting
        following the date of grant. This option has a termination date of July 19,
        2016. At December 31, 2006, Mr. Lanzafame held options for the purchase of
        an
        aggregate of 450,000 shares, of which options for the purchase of 266,667
        shares
        were exercisable.
 
 (9)
        An
        option to purchase 50,000 shares at an exercise price of $1.10 per share
        was
        granted to Mr. Weiner on July 19, 2006. This option becomes fully vested
        and
        exercisable on the earlier of (i) completion of one year of service as a
        director measured from the date of grant or (ii) continuation of such service
        through the day immediately preceding the first annual shareholders meeting
        following the date of grant. This option has a termination date of July 19,
        2016. At December 31, 2006, Mr. Weiner held options for the purchase of an
        aggregate of 50,000 shares, none of which were exercisable.




**Code
      of Ethics**




The
      Company has adopted a Code of Ethics for Senior Executive and Financial Officer
      that is applicable to our principal executive officer and principal financial
      officer and can be viewed on our website *www.naturalnano.com* .





**Limitation
      on Liability and Indemnification of Directors and Officers**




Our
      articles of incorporation provide that no director or officer shall have any
      liability to the Company if the person acted in good faith and with the same
      degree of care and skill as a prudent person in similar circumstances.




Our
      articles of incorporation and bylaws provide that we will indemnify our
      directors and officers and may indemnify our employees or agents to the fullest
      extent permitted by law against liabilities and expenses incurred in connection
      with litigation in which they may be involved because of their offices. However,
      nothing in our articles of incorporation or bylaws protects or indemnifies
      a
      director, officer, employee or agent against any liability to which he would
      otherwise be subject by reason of willful misfeasance, bad faith, gross
      negligence or reckless disregard of the duties involved in the conduct of his
      or
      her office. To the extent that a director has been successful in defense of
      any
      proceeding, the Nevada Revised Business Corporations Act provides that he or
      she
      shall be indemnified against reasonable expenses incurred in connection with
      the
      proceeding.





-35-




**Scientific
      Advisory Board**




The
      Company’s Scientific Advisory Board is a significant source of technical and
      scientific expertise and is an integral part of the Company’s technology
      development and product commercialization team. The advisory board’s purpose is
      to inform and guide our management on relevant nanotechnology research,
      development, validation and evaluation in the global marketplace. The advisory
      board includes experts in a broad range of scientific disciplines including
      materials science, nanocomposites, plastics and polymers, cosmetics,
      pharmaceutical, and other related nanotechnologies. These industry experts
      have
      agreed to act as a forum for the exchange of ideas on an ad-hoc basis through
      conference calls and on-site meetings and at relevant industry conferences.
      The
      agreement with each member of this board includes confidentiality and
      non-disclosure criteria as well as technology assignment relevant to the subject
      matter of the agreement.





The
      members of our Scientific Advisory Board serve without fixed cash compensation
      but are each entitled to receive 30,000 stock options that are subject to
      vesting as follows: 10,000 options vesting on December 1 in the year of grant
      and 20,000 options vesting on December 1of the year following the date of grant,
      provided that the option holder remains on the Scientific Advisory Board through
      these vesting dates. The option exercise price for these grants is determined
      based on the closing market price of the Company’s stock on the date of grant
      and generally have ten year terms.





The
      members of the NaturalNano Scientific Advisory Board are:





David
      J. Arthur, Chasm Technologies




Mr.
      Arthur has more than twenty five years experience commercializing products
      utilizing advanced materials, working at Rogers Corporation, AT Cross Company,
      TPI Composites, Helix Technology Corporation and Eikos, Inc. He is the
      co-founder of Chasm Technologies, Inc. a consulting firm that specializes in
      helping start-up companies commercialize nanotechnology. He is also CEO of
      SouthWest NanoTechnologies, Inc., a manufacturer of single wall carbon
      nanotubes. Mr. Arthur has a BS in chemical engineering from Tufts University,
      a
      MS in chemical engineering from the University of Connecticut, and an MBA from
      Northeastern University. He is founding member of American Institute of Chemical
      Engineers, Materials Research Society, Society for the Advancement of Material
      and Process Engineering, and Society for Information Display. Mr. Arthur is
      an
      inventor on more than twenty five patents.





Robert
      Corkery, Ph.D., YKI, Ytkemiska Institute AB-Institute for Surface Chemistry,
      Stockholm




Dr.
      Corkery is globally recognized as a key physical chemistry and materials science
      problem solver. He has been granted patents in nanozeolite chemical technology
      and porous materials technology with four patents pending in materials science
      technology. Dr. Corkery is the Area Manager for Nanostructured Materials at
      the
      YKI, Institute for Surface Chemistry in Stockholm, Sweden, one of the leading
      surface chemistry institutes in the world. Dr. Corkery’s research is aimed at
      technical understanding and breakthrough, new materials discovery and industrial
      innovation in the areas of nano- and bio-nanotechnologies. He was formerly
      a
      research scientist with The Procter & Gamble Company and was leader of the
      company’s corporate colloid laboratory and was responsible for developing
      nanostructure, biomembrane and complex fluid technologies. Dr. Corkery received
      his Bachelor of Science degree in Geology and Geophysics from the Australian
      National University as well as his Ph.D. in Physical and Materials Science
      where
      he was devoted entirely to nanotech and included extensive experimental and
      theoretical work on nanostructured clays, including halloysite. Dr. Corkery
      carried out postdoctoral research at the Australian National University as
      well
      as at the University of Lund in Sweden.





Emmanuel
      P. Giannelis, Ph.D., Professor of Engineering and Director of Material Science
      and Engineering at Cornell University




Dr.
      Giannelis is internationally recognized as a pioneer and one of the leading
      experts in polymer nanocomposites. He is the Walter R. Reed Professor of
      Engineering and Director of Materials Science and Engineering at Cornell
      University. He is also a member of the Fields of Chemistry and Chemical Biology
      and Chemical and Biomolecular Engineering at Cornell. His research interests
      range from synthesis of new nanostructured materials to characterization and
      property evaluation and include polymer nanocomposites, nanocomposite
      electrolytes, nanobiohybrids and nanofluids. Dr. Giannelis has served on the
      editorial boards of *Chemistry
      of Materials* and *Macromolecules* and
      currently serves on the editorial boards of *Polymer* and *Small* .
      He is
      the author or co-author of over 135 papers and 9 patents and is listed as one
      of
      the top 25 cited authors on Nanotechnology and a Highly-Cited Author in
      Materials Science by Thompson Scientific (formerly Thompson ISI), an information
      provider to researchers and scholars. He received a Bachelor of Science degree
      in Chemistry from the University of Athens, Greece and a PhD in Inorganic
      Chemistry from Michigan State University.





-36-




John
      Hickman, President and CEO of Plastech Consulting, Inc.




John
      Hickman is founder, president and chief executive officer of Ohio-based Plastech
      Consulting, Inc. (PCI). Founded in 1988, PCI is a full service
      productivity-based engineering firm providing state-of-the-art solutions to
      the
      challenges of today’s plastic products. Mr. Hickman has over 34 years in the
      polymer industry in management, engineering and consultation. He has held key
      engineering and management positions with Wealtherchem Corporation, Scott &
Fetzer, Carlisle and ITT before founding PCI. Mr. Hickman has over 30 trade
      secrets and four polymer component patents currently in practice, with several
      pending. He has been involved in multiple turn-around situations, mostly
      involving polymer-based companies. One such company under his management,
      Wealtherchem Corporation, was recognized by Case Western Reserve University’s
      Weatherhead School of Management as being one of the 100 fastest growing
      companies in northeast Ohio. Mr. Hickman has significant hands-on experience
      with nanocomposites, productivity programs, product design/development,
      concurrent engineering, team building. Labor partnerships, engineering value
      assessments, market analysis, management evaluations and advanced manufacturing
      and total business evaluations. Mr. Hickman has a background in chemical
      engineering from Ohio State University and an MBA from Case Western Reserve
      University, with management courses beyond the Master’s program. A significant
      portion of Mr. Hickman’s experience in the polymer industry was obtained on the
      manufacturing floor, directing a problem-solving environment. In addition,
      Mr.
      Hickman completed several assignments as an executive advisor to students in
      the
      nationally recognized MBA program at Case Western Reserve University and served
      as the Co-Chairman of the Technology Committee on the PolymerOhio, Inc. board;
      on which he is currently a trustee. Mr. Hickman participates on various boards
      of directors for privately held companies and teaches several plastics-related
      courses for the Akron Polymer Training Center as well as other clients. The
      Akron Section of the Society of Plastics Engineers inducted Mr. Hickman into
      the
      plastics Hall of Honor located at the University of Akron.





Raymond
      Kurzweil, Kurzweil Technologies, Inc.




Dr.
      Kurzweil has been described as “the restless genius” by the *Wall
      Street Journal* and “the
      ultimate thinking machine” by *Forbes.* In
      addition, *Inc.* magazine
      ranked him #8 among entrepreneurs in the United States calling him the “rightful
      heir to Thomas Edison,” and PBS included Dr. Kurzweil as one of 16
“revolutionaries who made America.” Dr. Kurzweil is the recipient of the
      $500,000 MIT-Lemelson Prize, the world's largest prize for innovation. In 1999,
      he received the National Medal of Technology, the United States’ highest honor
      in technology. In 2002, he was inducted into the National Inventor's Hall of
      Fame established by the US Patent Office. As one of the leading inventors of
      our
      time, Dr. Kurzweil has worked in such areas as music synthesis, speech and
      character recognition, reading technology, virtual reality and cybernetic art.
      He was the principal developer of the first omni-font optical character
      recognition, the first print-to-speech reading machine for the blind, the first
      CCD flat-bed scanner, the first text-to-speech synthesizer, the first music
      synthesizer capable of recreating the grand piano and other orchestral
      instruments, and the first commercially marketed large-vocabulary speech
      recognition.





Sir
      Harold W. Kroto, Nobel Laureate and Francis Eppes Professor for the Department
      of Chemistry and Biochemistry at Florida State University




Dr.
      Kroto
      received the 1996 Nobel Prize for Chemistry, along with colleagues Richard
      Smalley and Robert Curl, Jr. for the discovery of a new form of carbon, C60,
      considered one of the most important cornerstones in the development of
      Nanoscience. Much of today’s nanotechnology research and commercialization
      focuses on the tubes and wires derived from these spherical carbon molecules,
      named “buckyballs.” His co-discovery of fullerenes represented a revolution in
      material science and helped usher in the Nanotechnology age. In 2004, Dr. Kroto
      was named the Francis Eppes Professor for the Department of Chemistry and
      Biochemistry at Florida State University. Prior to this, Dr. Kroto taught at
      the
      University of Sussex in England for 37 years. In 2001, he won the Royal
      Society’s prestigious Michael Farady Award, given annually to a scientist who
      has done the most to further public communication of science, engineering,
      or
      technology in the United Kingdom. Dr. Kroto has contributed major research
      in
      spectroscopy, liquid-phase interactions, and quantum chemistry.




-37-




Duncan
      Moore, Professor of Optical Engineering and Business Administration at
      University of Rochester




Dr.
      Moore
      is a Professor of Optical Engineering and Business Administration at the
      university of Rochester.


From
      1997
      to 2001, Dr. Moore served as Associate Director for technology in the White
      House Office of Science and Technology Policy for the Clinton Administration.
      He
      also served as Science and Technology advisor to Senator John D. Rockefeller
      IV.
      Dr. Moore is the Rudolf and Hilda Kingslake Professor of Business and
      Administration and Entrepreneurship at the Simon Graduate School of Business.
      He
      is currently working on several advanced projects including the James Webb
      Space
      Telescope, which will be the replacement for the Hubble telescope. From 2002
      until 2004, Dr. Moore served as President and Chief Executive Officer of the
      Infotonics Technology Center, Inc. an industry, academia and governmental
      partnership fostering cutting-edge research prototyping of new technology and
      economic development in Upstate New York State. Dr. Moore founded
      Rochester-based Gradient Lens Corp., which makes and sells industry boroscopes.
      Other major areas of Dr. Moore’s research include computer-aided design for
      manufacturing methods, the manufacture of optical systems, medical optics and
      optics for minimally invasive surgery, and optical instrumentation. He serves
      on
      the Board of Trustees of the Rochester museum and Science Center. Dr. Moore
      earned a doctorate and master degree in Optics from the University of Rochester.
      His undergraduate degree was received from the University of Maine in Physics.
      Dr. Moore was elected to the National Academy of Engineering in
      1998.





**Section
      16(a) Beneficial Ownership Reporting Compliance**




Section
      16(a) of the Securities Exchange Act of 1937, as amended (the “Exchange Act”)
      requires our executive officers and directors and persons who own more than
      ten
      percent of our common stock to file reports of ownership and changes in
      ownership with the SEC. Such executive officers, directors and greater than
      ten
      percent stockholders are also required by SEC rules to furnish us with copies
      of
      all Section 16(a) forms they file. Based on information supplied to the Company
      and filings made with the SEC, during the fiscal year ended December 31, 2006,
      the following Section 16(a) filings were made late by our directors
      and officers:





Reporting
                Person
            
            Form
            
            Transaction
                Date
            
            Filing
                DateCathy
                A. Fleischer
            
            Form
                3
            
            7/24/06
            
            8/17/06Cathy
                A. Fleischer
            
            Form
                4
            
            11/16/06
            
            11/22/06Steven
                Katz
            
            Form
                4
            
            7/19/06
            
            11/22/06John
                Lanzafame
            
            Form
                4
            
            7/19/06
            
            11/22/06Sharell
                Mikesell
            
            Form
                4
            
            7/19/06
            
            11/22/06Michael
                Weiner
            
            Form
                4
            
            7/19/06
            
            11/22/06




-38-


**ITEM
      10. EXECUTIVE COMPENSATION**





**SUMMARY
      COMPENSATION TABLE**





The
      table
      set forth below summarizes the compensation earned by our named
      executive officers in 2006.


Name
                  and Principal Position
              
              Year
              
              Salary
              
              Bonus
              
              Option
                  Awards (a)
              
              All
                  Other Compen-sation (b)
              
              (#)
                  Securities Underlying
                Options
              
              TotalCathy
                  Fleischer, President (11/06 –
                  12/06) and
                  CTO (7/06 –
                  12/06)
              
              
              2006
              
              $
              53,100*
              
              
              none
              
              $
              466,759
              
              
              none
              
              
              1,140,000
              
              $
              519,859Michael
                  Riedlinger, President (1/06 –
                  11/06)
              
              
              2006
              
              $
              112,500*
              
              $
              20,000
              
              
              none
              
              $
              47,500
              
              
              none
              
              $
              180,000Kathleen
                  Browne, CFO
              
              
              2006
              
              $
              135,000
              
              $
              20,000
              
              
              none
              
              $
              80,000
              
              
              none
              
              $
              235,000Sarah
                Cooper, CTO (1/06-7/06)
              
              
              2006
              
              $
              90,961*
              
              
              none
              
              
              none
              
              
              none
              
              
              none
              
              $
              90,961





*
      reflects employment for a partial year.





(a)
      The
      amounts in the column “Options Award” reflect the dollar amount recognized for
      financial statement reporting purposes in accordance with FAS 123R, for option
      awards granted pursuant to the NaturalNano 2005 Incentive Compensation Plan.
      Assumptions used in the calculation of these amounts are included in Note 8
      “Incentive Compensation Plan” to the Company’s consolidated financial statements
      for the year ended December 31, 2006.





(b)
      The
      amounts in the column “All Other Compensation” reflect the following
      items:




·
            During
                2006, Mr. Riedlinger earned $47,500 in connection with the October
                31,
                2006 Separation Agreement whereby the Company agreed to pay to Mr.
                Riedlinger severance over twelve equal bi-weekly installments commencing
                November 15, 2006.





·
            During
                2006, Ms. Browne performed financial services for our principal
                stockholder, Technology Innovations, LLC, and certain of its
                affiliates. Ms. Browne earned cash remuneration of $54,000 and non-cash
                remuneration of $26,000 directly from these entities in connection
                with
                such activity.


Certain
      columnar information required by Item 402(a) (2) of Regulation SB has been
      omitted for categories where there has been no compensation awarded to, or
      paid
      to, the named executive officers required to be reported in the table during
      2006.





**Stock
      Options**





On
      September 23, 2005, the Board of Directors adopted the NaturalNano, Inc. 2005
      Stock Incentive Plan (“the Plan.”) The Plan provides for incentive and
      non-qualified stock options to employees, the grant of non-qualified options
      to
      selected consultants and to directors and advisory board members. The Plan
      is
      administered by the Compensation Committee of the Board of Directors and
      authorizes the grant of 14,000,000 shares. The Compensation Committee determines
      the employees and consultants who participate under the Plan, the terms and
      conditions of options, the option price, the vesting schedule of options and
      other terms and conditions of the options granted pursuant thereto. As of
      December 31, 2006 the Company had granted options for 12,690,000 shares of
      common stock and 10,464,000 options were outstanding; certain of these
      options were not subject to the Plan.




-39-





In
      addition to options granted under the NaturalNano, Inc. 2005 Incentive Stock
      Plan, the Company has made certain option grants, for an aggregate of 90,000
      common stock options, outside of this plan. These grants include vesting
      criteria commencing from the grant date, an exercise price of $0.10 per share
      and expiration dates varying from five to ten years from the date of
      grant.





**OUTSTANDING
      EQUITY AWARDS AT DECEMBER 31, 2006**





The
      following table summarizes information concerning outstanding equity awards
      held by the named executive officers at December 31, 2006. No named
      executive officer exercised options or received any stock awards in the fiscal
      year ended December 31, 2006.





The
      Company did not grant any stock awards during the year. The following table
      presents the number and values of exercisable and unexercisable options at
      December 31, 2006:




Stock
                  Option AwardsName
              
              Securities
                  underlying unexercised options(#)Exercisable
              
              Securities
                  underlying unexercised options(#)Unexercisable
              
              Option
                  Exercise Price($)
              
              Option
                  Expiration DateCathy
                  A. Fleischer
              
              
              0
              
              
              40,000
              
              $
              0.10
              
              
              7/24/160
              
              
              100,000
              
              $
              1.06
              
              
              7/24/16333,333
              
              
              666,667
              
              $
              0.42
              
              
              11/16/16Kathleen
                  A. Browne
              
              
              400,000
              
              
              0
              
              $
              0.05
              
              
              3/1/15200,000
              
              
              200,000
              
              $
              0.05
              
              
              7/1/15Michael
                  Riedlinger
              
              
              2,000,000
              
              
              0
              
              $
              0.05
              
              
              3/1/15




**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**





The
      following table sets forth certain information as of March 30, 2007 with respect
      to beneficial ownership of our common stock by each stockholder known by us
      to
      be the beneficial owner of more than 5% of our common stock and by each of
      our
      directors and executive officers and by all of the directors and executive
      officers as a group. Unless otherwise indicated, the address of each of the
      persons below is c/o NaturalNano, Inc., 15 Schoen Place Pittsford, New York
      14534. Unless otherwise indicated in the footnotes, shares are owned of record
      and beneficially by the person.





For
      purposes of the following table, a person is deemed to be the beneficial owner
      of any shares of common stock (a) over which the person has or shares, directly
      or indirectly, voting or investment power, or (b) of which the person has a
      right to acquire beneficial ownership at any time within 60 days after March
      30,
      2007. “Voting power” is the power to vote or direct the voting of shares and
“investment power” includes the power to dispose or direct the disposition of
      shares.


-40-




**Name
                and Address**
              **of
                Beneficial Owner**
            
            **Number
                of Shares**
              **Beneficially
                Owned**(1)
            
            **Percent
                of**
              **Class**(2)*Directors
                and Executive Officers*:Steven
                Katz(5)
            
            
            200,000
            
            
            *John
                F. Lanzafame(5)
            
            
            500,000
            
            
            *Sharell
                L. Mikesell(5)
            
            
            50,000
            
            
            *Michael
                L. Weiner(3)
                (5)
            
            
            61,356,226
            
            
            49.9
            %Cathy
                A. Fleischer(5)
            
            
            633,334
            
            
            *Kathleen
                A. Browne(5)
            
            
            600,000
            
            
            *All
                Directors and Executive Officers as a group (6 persons)
            
            
            63,339,560
            
            
            50.7
            %*Other
                5% Beneficial Owners*:Technology
                Innovations, LLC(4),
                (5)
              15
                Schoen PlacePittsford,
                NY 14534
            
            
            60,925,526
            
            
            49.6
            %Jeffrey
                Smith
              3564
                Thorndale Road
              Pasadena,
                CA 91107
            
            
            10,296,251
            
            
            8.4
            %




*
                      Less
                          than 1%  1)
                      Except
                        as may be set forth below, the persons named in the table
                        have sole voting
                        and investment power with respect to all shares shown as
                        beneficially
                        owned by them.  2)
                      Applicable
                          percentage of ownership is based on 121,860,740 shares
                          outstanding
                          together with applicable optionsfor
                          such stockholder. Shares subject to options currently exercisable
                          or
                          exercisable within 60 days are included in the number of
                          shares
                          beneficially owned and are deemed outstanding for purposes
                          of computing
                          the percentage ownership of the person holding such options,
                          but are not
                          deemed outstanding for computing the percentage of any
                          other stockholder.
  3)
                  Includes
                      59,925,526 shares and 1,000,000 options held by or issuable
                      to Technology
                      Innovations, LLC, of which Mr. Weiner is a member and manager.
                      Mr. Weiner
                      disclaims beneficial ownership of the shares held by Technology
                      Innovations, LLC except to the extent of his beneficial ownership
                      of a
                      membership interest in Technology Innovations,
                      LLC.




4)
            Includes
                1,000,000 shares issuable to Technology Innovations, LLC pursuant
                to
                currently exercisable options.5)
            Includes
                shares that may be acquired upon exercise of stock options, which
                are
                exercisable on or prior to May 29, 2007. The shares beneficially
                owned
                include: Ms. Fleischer - 633,334 shares; Mr. Katz - 200,000 shares;
                Mr.
                Lanzafame - 400,000 shares; Mr. Mikesell - 50,000 shares: Mr. Weiner
                -
                133,333 shares; Ms. Browne - 600,000 shares; Technology Innovations,
                LLC -
                1,000,000 shares; and all Directors and Officers as a group - 3,016,667
                shares.




-41-


**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**




Technology
      Innovations, LLC (“TI”) is our principal stockholder with an equity ownership of
      approximately 49% of our outstanding common stock as of December 31, 2006.
      TI is
      a New York limited liability corporation established in 1999 to develop
      intellectual property assets. The Chairman of our Board of Directors is the
      managing member of TI and has a 42.74% ownership of TI. TI founded NaturalNano,
      Inc., a Delaware corporation on December 22, 2004, with an initial cash
      contribution of $100,000 for all the outstanding shares of common stock.





On
      July
      1, 2005, the Company granted to TI an option to purchase 1,000,000 shares of
      common stock at an exercise price of $0.05 per share. This exercise price
      reflects the estimated fair market value of these options on the date of grant
      as determined by the Company’s Board of Directors. This option has a
      ten-year term and as such expires on July 1, 2015.





On
      March
      2, 2007, TI assigned all rights, title, interests in, and improvements to,
      the
      applications of various issued patents and pending applications to NaturalNano.
      This assignment relinquishes TI’s rights, under the April 27, 2005 license
      agreement, and results in the Company’s receipt of the marketable title to the
      patents, free and clear of any liens or encumbrances and eliminates future
      license fees and royalty payments as defined in the license. The April 27,
      2005
      exclusive, field of use limited license agreement (the “License Agreement”) with
      Technology Innovations, LLC granted the Company an exclusive world-wide license
      to make, use and sell the products developed under these patents. The License
      Agreement covered several patent applications and provisional patents owned
      by
      Technology Innovations LLC that will expire at various future dates.





On
      June
      28, 2006, we entered into a Line of Credit agreement with TI pursuant to which
      TI committed to make advances in an aggregate amount of $1 million. Under the
      Line of Credit Agreement, advances were allowed in such amounts and at such
      times upon 15 days, notice except that no more than $300,000 could be advanced
      in any 30-day period. Amounts borrowed bear interest at the rate of 8% per
      annum. The Agreement contains conventional terms, including provisions relating
      to events of default. Amounts borrowed under this agreement are to be used
      for
      general working capital needs. As of December 31, 2006 and February 14, 2007,
      $600,000 and $900,000, respectively, had been advanced under the Line of Credit
      Agreement. The TI line of credit was established on terms we believed to be
      competitive with comparable transactions involving unaffiliated parties and
      was
      approved by the independent members of our Board of Directors. The repayment
      obligation under the Line of Credit Agreement and the Note were originally
      scheduled to expire on March 31, 2007, at which time TI would be able to demand
      repayment upon 15 days notice. In connection with the March 7, 2007 issuance
      of
      the 8% Senior Secured Convertible Notes (the “Notes”), TI agreed not to demand
      repayment as long as any amounts were outstanding on the Notes. The 2006 line
      of
      credit agreement was established on terms we believe to be competitive with
      comparable transactions involving unaffiliated parties and was approved by
      the
      independent members of our Board of Directors. See Note 11, “Subsequent Event”
for additional description of the terms and conditions of the issuance of these
      Notes.





On
      December 29, 2004 the Company entered into a Line of Credit Agreement and a
      Promissory Note with TI that allowed for borrowings of up to $500,000 for
      working capital purposes and included an interest rate of 8% per annum. This
      agreement expired and all outstanding advances were repaid as of December 31,
      2005.





During
      the first quarter of 2005, TI paid $10,400 in fees for licensing and business
      strategy consultations, to a firm owned by Michael Riedlinger, who at the
      time was our President. During fiscal 2005, Mr. Riedlinger and Sarah Cooper,
      at
      the time our Chief Technology Officer, provided technical consultations to
      our
      affiliate, Biophan Technologies, Inc. (“Biophan”). In connection with these
      consulting services, Biophan reimbursed the Company $16,500 and $5,077,
      respectively, for these services, which represented the cost of the salary
      and benefits for the proportionate time spent consulting.  During 2006, Ms.
      Cooper provided consulting services to Biophan and Biophan reimbursed the
      Company $46,538, which represented the cost of Ms. Cooper's salary and benefits
      for the proportionate time spent consulting. Neither Mr. Riedlinger nor Ms.
      Cooper received any additional compensation from either the Company or Biophan
      for these services.




On
        May
        25, 2005, the Company entered into a joint research agreement with Nanolution,
        LLC, a wholly owned subsidiary of Biophan. Biophan is related to the
        Company’s principal stockholder, Technology Innovations, LLC, through common
        ownership. This agreement covers the exchange of ideas in support of a new
        drug
        delivery capability. The term of this agreement shall continue until the
        desired
        technology becomes commercially viable or until mutually terminated by both
        parties. ** All
        medical uses and inventions that arise as a result of this agreement will
        be
        owned by Nanolution, LLC and all purification processes for raw halloysite
        and
        non-medical applications will be owned by the Company.


-42-




**ITEM
      13. EXHIBITS**





**NaturalNano,
      Inc.**


(A
      Development Stage Company)


**EXHIBIT
                  INDEX**
 Exhibit
                      No.
                  Description
                  
                  Location2.1
                  Agreement
                      and Plan of Merger among NaturalNano, Inc., Cementitious Materials,
                      Inc.
                      and Cementitious Acquisitions, Inc.
                  
                  (1)3.1
                  Restated
                      Articles of Incorporation
                  
                  (2)3.2
                  Certificate
                      of Change to Articles of Incorporation
                  
                  (3)3.3
                  By-laws
                  
                  (4)4.1
                  NaturalNano,
                      Inc. 2007 Incentive Stock Plan #
                  
                  *4.2
                  NaturalNano,
                      Inc. 2005 Incentive Stock Plan #
                  
                  (5)4.3
                  Form
                      of Non-Qualified Stock option Agreement #
                  
                  (6)4.4
                  Non-Qualified
                      Stock Option Agreement dated July 24, 2006 between NaturalNano,
                      Inc. and
                      Cathy A. Fleischer #
                  
                  (7)4.5
                  Non-Qualified
                    Stock Option Agreement dated December 7, 2006 between NaturalNano,
                    Inc.
                    and Sir Harold Kroto
                  
                  *4.6
                  Registration
                      Rights Agreement dated as of December 22, 2004 between NaturalNano,
                      Inc.
                      and Technology Innovations, LLC
                  
                  (8)4.7
                  Form
                      of Subscription Agreement for the Purchase of Convertible Notes
                      of
                      NaturalNano, Inc.
                  
                  (9)4.8
                  Loan
                      and Security Agreement, dated March 7, 2007, by and among NaturalNano,
                      Inc., NaturalNano Research, Inc., Platinum Advisors LLC, as
                      Agent, and the
                      Investors named therein
                  
                  (10)4.9
                  Registration
                      Rights Agreement, dated March 7, 2007, by and among NaturalNano,
                      Inc., and
                      the Investors named therein
                  
                  (11)4.10
                  Warrant
                      for 4,770,000 shares of Common Stock issued to SBI Brightline
                      XIII
                  
                  (12)4.11
                  Warrant
                      for 4,500,000 shares of Common Stock issued to SBI USA, LLC
                  
                  (13)4.12
                  Form
                      of 8% Senior Secured Promissory Notes due March 7, 2009 issued
                      pursuant to
                      the Loan and Security Agreement, dated March 7, 2007, by and
                      among
                      NaturalNano, Inc., NaturalNano Research, Inc., Platinum Advisors
                      LLC, as
                      Agent, and the Investors named therein
                  
                  (14)4.13
                  Form
                      of Series A Common Stock Purchase Warrants issued pursuant
                      to the Loan and
                      Security Agreement, dated March 7, 2007, by and among NaturalNano,
                      Inc.,
                      NaturalNano Research, Inc., Platinum Advisors LLC, as Agent,
                      and the
                      Investors named therein
                  
                  (15)4.14
                  Form
                      of Series B Common Stock Purchase Warrants issued pursuant
                      to the Loan and
                      Security Agreement, dated March 7, 2007, by and among NaturalNano,
                      Inc.,
                      NaturalNano Research, Inc., Platinum Advisors LLC, as Agent,
                      and the
                      Investors named therein
                  
                  (16)4.15
                  Form
                      of Series C Common Stock Purchase Warrants issued to Platinum
                      Advisors LLC
                      pursuant to the Loan and Security Agreement, dated March 7,
                      2007, by and
                      among NaturalNano, Inc., NaturalNano Research, Inc., Platinum
                      Advisors
                      LLC, as Agent, and the Investors named therein
                  
                  (17)
 10.1
                  Lease
                      Agreement - Schoen Place
                  
                  (18)10.2
                  Amendment
                      No. 1 to Lease between Schoen Place LLC and NaturalNano,
                      Inc.
                  
                  (19)10.3
                  Exclusive
                      License Agreement between Technology Innovations, LLC and NaturalNano,
                      Inc. effective as of January 24, 2006
                  
                  (20)10.4
                  Joint
                      Research Agreement between Nanolution, LLC and NaturalNano
                      Inc. dated as
                      of May 25, 2005
                  
                  (21)10.5
                  Patent
                      Assignments dated March 2, 2007 and March 5, 2007 by and between
                      Technology Innovations, LLC and NaturalNano Research, Inc.
                  
                  (22)
  -43-
  10.6
                  Restated
                      and Amended License Agreement between Ambit Corporation and
                      NaturalNano,
                      Inc., effective as of October 1, 2006
                  
                  (23)10.7
                  Nonexclusive
                      License between NaturalNano and U.S. Department of the Navy
                      at Naval
                      Research Laboratory
                  
                  *10.8
                  Employment
                      Agreement with Cathy A. Fleischer, Ph.D. #
                  
                  (24)10.9
                  Employment
                      Letter of Michael D. Riedlinger and Amendment No. 1 thereto
                      #
                  
                  (25)10.10
                  Separation
                      Agreement and Mutual Release dated as of October 31, 2006 between
                      NaturalNano, Inc. and Michael D. Riedlinger #
                  
                  (26)10.11
                  Employment
                      Letter of Kathleen A. Browne and Amendment No. 1 thereto #
                  
                  (27)10.12
                  Employment
                      Letter of Sarah Cooper #
                  
                  (28)10.13
                  Stock
                      Purchase Agreement dated March 30, 2006 between NaturalNano,
                      Inc. and SBI
                      Brightline XIII, LLC
                  
                  (29)10.14
                  Termination
                      Agreement dated July 9, 2006 between SBI Brightline XIII, LLC
                      and
                      NaturalNano, Inc.
                  
                  (30)10.15
                  Stock
                      Purchase Agreement dated July 9, 2006 between NaturalNano,
                      Inc. and SBI
                      Brightline XIII, LLC
                  
                  (31)10.16
                  Line
                      of Credit Agreement dated as of December 29, 2004 between NaturalNano,
                      Inc. and Technology Innovations, LLC
                  
                  (32)10.17
                  Line
                      of Credit Agreement dated as of June 28, 2006 between NaturalNano,
                      Inc.
                      and Technology Innovations, LLC
                  
                  (33)10.18
                  Promissory
                      Note dated June 28, 2006 to the order of Technology Innovations,
                      LLC
                  
                  (34)10.19
                  Pledge
                      Agreement, dated March 7, 2007, by and among NaturalNano, Inc.,
                      Platinum
                      Advisors LLC, as Agent, and the Investors named therein
                  
                  (35)10.20
                  Patent
                      Security Agreement, dated March 7, 2007, by and among NaturalNano
                      Research, Inc., Platinum Advisors LLC, as Agent, and the Investors
                      named
                      therein
                  
                  (36)
  10.21
                  Warrant
                      Purchase Agreement dated August 9, 2006 between NaturalNano,
                      Inc. and
                      Crestview Capital Master, LLC
                  
                  (37)14.1
                  Code
                      of Ethics for CEO and Senior Financial Officer
                  
                  (38)21.1
                  Subsidiaries
                  
                  (39)23.1
                  Consent
                      of Goldstein Golub Kessler LLP, independent registered public
                      accounting
                      firm
                  
                  *31.1
                  Certification
                      of Chief Executive Officer pursuant to Rule 13a-14(a)
                  
                  *31.2
                  Certification
                      of Chief Financial Officer pursuant to Rule 13a-14(a)
                  
                  *32.1
                  Certification
                      of Chief Executive Officer pursuant to 18 U.S.C. Section
                      1350
                  
                  *32.2
                  Certification
                      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
                  
                  *
  -44-
  *
                  Filed
                      herewith#
                  May
                      be deemed a compensatory plan or arrangement1.
                  Incorporated
                      by reference to Exhibit 2.1 to Current Report on Form 8-K filed
                      September
                      30, 20052.
                  Incorporated
                      by reference to Exhibit 3.1 to Current Report on Form 8-K dated
                      November
                      29, 20053.
                  Incorporated
                      by reference to Exhibit 3.1 to Current Report on Form 8-K filed
                      January
                      27, 20064.
                  Incorporated
                      by reference to Exhibit 3.2 to Form 10-SB filed July
                      20025.
                  Incorporated
                      by reference to Appendix C to Information Statement on Schedule
                      14C filed
                      November 29, 20056.
                  Incorporated
                      by reference to Exhibit 4.2 to Current Report on Form 8-K filed
                      December
                      5, 20057.
                  Incorporated
                      by reference to Exhibit 4.1 to Current Report on Form 8-K filed
                      July 28,
                      20068.
                  Incorporated
                      by reference to Exhibit 4.4 to Current Report on Form 8-K filed
                      December
                      5, 20059.
                  Incorporated
                      by reference to Exhibit 4.5 to Current Report on Form 8-K filed
                      December
                      5, 200510.
                  Incorporated
                      by reference to Exhibit 4.1 to Current Report on Form 8-K filed
                      March 8,
                      200711.
                  Incorporated
                      by reference to Exhibit 4.6 to Current Report on Form 8-K filed
                      March 8,
                      200712.
                  Incorporated
                      by reference to Exhibit 4.1 to Current Report on Form 8-K filed
                      July 10,
                      200613.
                  Incorporated
                      by reference to Exhibit 4.6 to Registration Statement on Form
                      SB-2 (No.
                      333-135667) filed July 10, 200614.
                  Incorporated
                      by reference to Exhibit 4.2 to Current Report on Form 8-K filed
                      March 8,
                      200715.
                  Incorporated
                      by reference to Exhibit 4.3 to Current Report on Form 8-K filed
                      March 8,
                      200716.
                  Incorporated
                      by reference to Exhibit 4.4 to Current Report on Form 8-K filed
                      March 8,
                      2007
  17.
                  Incorporated
                      by reference to Exhibit 4.5 to Current Report on Form 8-K filed
                      March 8,
                      200718.
                  Incorporated
                      by reference to Exhibit 10.2 to Quarterly Report on Form 10-QSB
                      for the
                      period ended September 30, 200619.
                  Incorporated
                      by reference to Exhibit 10.1 to Current Report on Form 8-K
                      filed March 7,
                      200720.
                  Incorporated
                      by reference to Exhibit 10.2 to Quarterly Report (amended)
                      on Form
                      10-QSB/A for the period ended March 31, 2006, filed June 26,
                      200621.
                  Incorporated
                      by reference to Exhibit 10.2 to Registration Statement on Form
                      SB-2 (No.
                      333-135667) filed July 10, 200622.
                  Incorporated
                      by reference to Exhibit 10.3 to Current Report on Form 8-K
                      filed March 8,
                      200723.
                  Incorporated
                      by reference to Exhibit 10.1 to Quarterly Report on Form 10-QSB
                      for the
                      period ended September 30, 200624.
                  Incorporated
                      by reference to Exhibit 10.1 to Current Report on Form 8-K
                      filed July 28,
                      200625.
                  Incorporated
                      by reference to Exhibit 10.4 to Registration Statement on Form
                      SB-2 (No.
                      333-135667) filed July 10, 200626.
                  Incorporated
                      by reference to Exhibit 10.1 to Current Report on Form 8-K
                      filed November
                      2, 200627.
                  Incorporated
                      by reference to Exhibit 10.5 to Registration Statement on Form
                      SB-2 (No.
                      333-135667) filed July 10, 200628.
                  Incorporated
                      by reference to Exhibit 10.6 to Registration Statement on Form
                      SB-2 (No.
                      333-135667) filed July 10, 200629.
                  Incorporated
                      by reference to Exhibit 4.1 to Current Report on Form 8-K filed
                      March 31,
                      200630.
                  Incorporated
                      by reference to Exhibit 10.1 to Current Report on Form 8-K
                      filed July 10,
                      200631
                  Incorporated
                      by reference to Exhibit 10.2 to Current Report on Form 8-K
                      filed July 10,
                      200632.
                  Incorporated
                      by reference to Exhibit 10.7 to Registration Statement on Form
                      SB-2 (No.
                      333-135667) filed July 10, 200633.
                  Incorporated
                      by reference to Exhibit 10.1 to Current Report on Form 8-K
                      filed July 3,
                      200634.
                  Incorporated
                      by reference to Exhibit 10.2 to Current Report on Form 8-K
                      filed July 3,
                      200635.
                  Incorporated
                      by reference to Exhibit10.1 to Current Report on Form 8-K filed
                      March 8,
                      200736.
                  Incorporated
                      by reference to Exhibit 10.2 to Current Report on Form 8-K
                      filed March 8,
                      200737.
                  Incorporated
                      by reference to Exhibit 10.1 to Current Report on Form 8-K
                      filed August
                      14, 200638.
                  Incorporated
                      by reference to Exhibit 14.1 to Annual Report on Form 10-KSB
                      for the
                      fiscal year ended December 31, 200539.
                  Incorporated
                      by reference to Exhibit 21.1 to Annual Report on Form 10-KSB
                      for the
                      fiscal year ended December 31,
                      2005


-45-




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





Our
      accountant is Goldstein Golub Kessler LLP (the “Firm”) which had a continuing
      relationship with RSM McGladrey, Inc. (RSM) from which it leased auditing staff
      who were full-time, permanent employees of RSM and through which its partners
      provided non-audit services. The Firm has no full time employees and therefore,
      none of the audit services performed for us were provided by permanent full-time
      employees of the Firm. The Firm manages and supervises the audit and audit
      staff, and is exclusively responsible for the opinion rendered in connection
      with its examination.





1)
            Audit
                Fees
              
              The
                  aggregate fees billed and expected to be billed by Goldstein Golub
                  Kessler
                  LLP for professional services rendered for the audit of the Company’s
                  annual financial statements for the years ended December 31, 2006
                  and 2005
                  and for the related quarterly reports for these periods were $239,300
                  and
                  $116,900 respectively.




2)
            Audit-Related
                Fees
              
              The
                  aggregate fees billed and expected to be billed by Goldstein Golub
                  Kessler
                  LLP for professional services rendered for assurance and related
                  services
                  for the years ended December 31, 2006 were
                  $15,900.




3)
            Tax
                Fees
              
              The
                Company did not engage its principal
                accountants to provide tax compliance, tax advice and tax planning
                services during the last two fiscal
                years.




4)
            All
                Other Fees
              
              The
                  Company did not engage its principal accountants to render services
                  to the
                  Company during the last two fiscal years, other than reported
                  above.




5)
            Pre-Approval
                Policies and Procedures
              
              In
                  accordance with its charter, the Audit Committee is required to
                  approve
                  all audit and non-audit services provided by the independent auditors
                  and
                  shall not engage the independent auditors to perform the specific
                  non-audit services prescribed by law or
                  regulation.








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**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


NATURALNANO,
                INC.Dated: 
                April 2, 2007
            By:
            \s\
                Cathy A. FleischerName:
                Cathy A. FleischerTitle:President and Chief Technology
                Officer




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





Signature
            
            Title
            
            Date\s\
                Cathy A. Fleischer
            
            President
                and Chief Technology Officer and Director
            
            April
                2, 2007Cathy
                A. Fleischer
            
            (Principal
                Executive Officer)\s\
                Kathleen A. Browne
            
            Chief
                Financial Officer,
            
            April
                2, 2007Kathleen
                A. Browne
            
            Secretary
                and Treasurer(Principal
                Financial andAccounting
                Officer)\s\
                Steven Katz
            
            Director
            
            April
                2, 2007Steven
                Katz\s\
                John Lanzafame
            
            Director
            
            April
                2, 2007John
                Lanzafame\s\
                Sharell L. Mikesell Ph.D.
            
            Director
            
            April
                2, 2007Sharell
                L. Mikesell Ph.D.\s\
                Michael L. Weiner
            
            Director
            
            April
                2, 2007Michael
                L. Weiner





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