**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549










**FORM
      10-QSB**


**QUARTERLY
      REPORT**





Pursuant
      to Section 13 or 15(d) of the Securities Exchange Act of 1934







For
      the
      Quarter Period Ended


**June
      30, 2007**










**Nanobac
      Pharmaceuticals, Incorporated**


(Exact
      name of registrant as specified in its charter)


**Florida**


(State
      or
      Other Jurisdiction of Incorporation)





**0-24696**


(Commission
      File Number)





**59-3248917**


(I.R.S.
      Employer Identification Number)





**4730
      North Habana Avenue, Suite 205, Tampa, Florida 33614**


(Address
      of Principal Executive Office) (Zip Code)





**(813)
      264-2241**


(Registrant’s
      telephone number, including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for a 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 xNo
o





Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Act):




Yes oNo
x





The
      number of shares issued and outstanding of the Registrant’s Common Stock, no par
      value, as of August 15, 2007 was 247,473,726.





Transitional
      Small Business Disclosure Format (check one) Yes oNo
x







**NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**




**PART
                I - FINANCIAL
                INFORMATION****Item 1:**
            **Financial
              Statements**Condensed Consolidated Balance Sheets
              as of
              June 30, 2007 (unaudited) and
              December 31, 2006
            
            3Condensed Consolidated Statements of
              Operations for the three and six months
              ended June 30, 2007 and 2006 (unaudited)
            
            4Condensed Consolidated Statements of
              Changes
              in Stockholders' Equity
              for the six months ended June 30, 2007 (unaudited)
            
            5Condensed Consolidated Statements of
              Cash
              Flows for the six months
              ended June 30, 2007 and 2006 (unaudited)
            
            6Notes to the Condensed Consolidated
              Financial
              Statements
            
            7**Item 2:**
            **Management’s Discussion and Analysis
              of Financial Condition
              and Results of Operations**
            
            10**Item 3:**
            **Controls and
              Procedures**
            
            21**PART
                II - OTHER
                INFORMATION****Item 1:**
            **Legal Proceedings**
            
            23**Item 2:**
            **Unregistered Sales of Equity
              Securities and Use of Proceeds**
            
            24**Item 3:**
            **Defaults Upon Senior
              Securities**
            
            25**Item 4:**
            **Submission of Matters to a
              Vote of
              Security Holders**
            
            25**Item 5:**
            **Other Information**
            
            25**Item 6:**
            **Exhibits**
            
            25




2


NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES


CONDENSED
      CONSOLIDATED


BALANCE
      SHEETS





(UNAUDITED)


(Unaudited)June
                  30, 2007
              
              December
                  31, 2006**ASSETS****CURRENT
                  ASSETS**Cash
              
              $
              967
              
              $
              39,505Account
                  receivable
              
              
              1,695
              
              
              708Inventory
              
              
              67,765
              
              
              66,352Prepaid
                  expenses
              
              
              62,798
              
              
              19,938Total
                  current assets
              
              
              133,225
              
              
              126,503**FURNITURE
                  AND EQUIPMENT,**less
                  accumulated depreciationof$117,362at
                  June 30, 2007 and $105,534 atDecember
                  31, 2006
              
              
              45,614
              
              
              60,321**OTHER
                  ASSETS**Security
                  deposits
              
              
              8,517
              
              
              58,503Intangible
                  assets, less accumulated amortizationof$1,497,501at
                  June 30, 2006 and $1,279,041 atDecember
                  31, 2006
              
              
              3,745,541
              
              
              3,964,001Goodwill
              
              
              3,615,393
              
              
              3,615,393**Total
                  other assets**
              
              
              7,369,451
              
              
              7,637,897**TOTAL
                  ASSETS**
              
              $
              7,548,290
              
              $
              7,824,721**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              929,520
              
              $
              408,665Accrued
                  compensation
              
              
              361,955
              
              
              87,385Accrued
                  expenses
              
              
              530,226
              
              
              436,590Related
                  party loans
              
              
              3,628,351
              
              
              5,367,205Derivative
                  Liability
              
              
              329,500
              
              
              -**Total
                  current liabilities**
              
              
              5,779,552
              
              
              6,299,845**LONG-TERM
                  LIABILITIES**Stock
                  settlement obligation:Related
                  party
              
              
              961,538
              
              
              961,538Other
              
              
              1,875,000
              
              
              1,875,000**Total
                  liabilities**
              
              
              8,616,090
              
              
              9,136,383**CONTINGENCIES
                  - (NOTE 6)**
              
              
              -
              
              
              -**STOCKHOLDERS'
                  DEFICIT**Preferred
                  stock, no par value, 1,000,000 shares authorized,no
                  shares issued and outstanding
              
              
              -
              
              
              -Common
                  stock, no par value, 250,000,000 shares authorized,2007:
                  247,473,726 shares issued and outstanding2006:
                  205,473,726 shares issued and outstanding
              
              
              22,720,050
              
              
              17,260,050Additional
                  paid-in capital
              
              
              3,174,031
              
              
              3,803,031Accumulated
                  deficit
              
              
              (26,927,168
              )
              
              (22,353,888
              )Accumulated
                  other comprehensive loss
              
              
              (34,713
              )
              
              (20,855
              )**Total
                  stockholders' deficit**
              
              
              (1,067,800
              )
              
              (1,311,662
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              $
              7,548,290
              
              $
              7,824,721







The
      accompanying notes are an integral part


of
      these
condensed
      consolidatedfinancial statements.





3


NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES





CONDENSED
      CONSOLIDATED


STATEMENTS
      OF OPERATIONS





(UNAUDITED)


Three
                  Months
              
              Three
                  Months
              
              Six
                  Months
              
              Six
                  Monthsended
              
              ended
              
              ended
              
              endedJune
                  30, 2007
              
              June
                  30, 2006
              
              June
                  30, 2007
              
              June
                  30, 2006**REVENUE**
              
              $
              2,432
              
              $
              37,565
              
              $
              7,444
              
              $
              198,851**COST
                  OF REVENUE**
              
              
              1,902
              
              
              22,623
              
              
              6,162
              
              
              67,818**GROSS
                  PROFIT**
              
              
              530
              
              
              14,942
              
              
              1,282
              
              
              131,033**OPERATING
                  EXPENSES**Selling,
                  general and administrative
              
              
              279,499
              
              
              275,289
              
              
              2,342,164
              
              
              1,261,159Including
                  $1,560,000 related partystock-based
                  compensation in 2007Research
                  and development
              
              
              285,132
              
              
              431,016
              
              
              664,107
              
              
              785,338Impairment
                  loss on intangible asset
              
              
              -
              
              
              -
              
              
              -
              
              
              585,000Depreciation
                  and amortization
              
              
              115,286
              
              
              117,811
              
              
              231,932
              
              
              306,028**Total
                  Operating Expenses**
              
              
              679,917
              
              
              824,116
              
              
              3,238,203
              
              
              2,937,525**OPERATING
                  LOSS**
              
              
              (679,387
              )
              
              (809,174
              )
              
              (3,236,921
              )
              
              (2,806,492
              )**OTHER
                  INCOME (EXPENSES)**Interest
                  expense
              
              
              (43,723
              )
              
              (46,269
              )
              
              (89,953
              )
              
              (84,508
              )Derivative
                  gain
              
              
              -
              
              
              -
              
              
              299,500
              
              
              -Loss
                  on related party debtextinguishment
              
              
              -
              
              
              -
              
              
              (1,560,000
              )
              
              -Other,
                  net
              
              
              6,548
              
              
              19,983
              
              
              14,094
              
              
              7,853**LOSS
                  BEFORE INCOME TAXES**
              
              
              (716,562
              )
              
              (835,460
              )
              
              (4,573,280
              )
              
              (2,883,147
              )**PROVISION
                  FOR INCOME TAXES**
              
              
              -
              
              
              -
              
              
              -
              
              
              -**NET
                  LOSS**
              
              $
              (716,562
              )
              $
              (835,460
              )
              $
              (4,573,280
              )
              $
              (2,883,147
              )**LOSS
                  PER COMMON SHARE**Basic
                  and Diluted
              
              $
              (0.00
              )
              $
              (0.00
              )
              $
              (0.02
              )
              $
              (0.01
              )**WEIGHTED
                  AVERAGE NUMBER OF****COMMON
                  SHARES OUTSTANDING**Basic
                  and Diluted
              
              
              247,473,726
              
              
              198,078,188
              
              
              241,237,162
              
              
              194,655,111







The
      accompanying notes are an integral part


of
      these
      condensed consolidated financial statements.





4


NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES





CONDENSED
      CONSOLIDATED


STATEMENT
      OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)


(UNAUDITED)


**Accumulated****Additional**
              
              
              
              **Other**
              
              **Other****Common****Stock**
              
              **Paid-in**
              
              **Accumulated**
              
              **Comprehensive**
              
              **Comprehensive****Shares**
              
              **Value**
              
              **Capital**
              
              **Deficit**
              
              **Loss**
              
              **Loss**
              
              **Total****Balance,
                  December 31, 2006**
              
              
              **205,473,726**
              
              **$**
              **17,260,050**
              
              **$**
              **3,803,031**
              
              **$**
              **(22,353,888**
              **)**
              
              
              
              **$**
              **(20,855**
              **)**
              **$**
              **(1,311,662**
              **)**Stock
                  issued for services
              
              
              12,000,000
              
              
              1,560,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,560,000Stock
                  issued for extinguishmentof
                  related party loans
              
              
              30,000,000
              
              
              3,900,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,900,000Reclassification
                  of equityto
                  derivative liability
              
              
              -
              
              
              -
              
              
              (629,000
              )
              
              -
              
              
              -
              
              
              -
              
              
              (629,000
              )Comprehensive
                  loss:Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,573,280
              )
              $
              (4,573,280
              )
              
              
              
              
              (4,573,280
              )Foreign
                  currency translationadjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (13,858
              )
              
              (13,858
              )
              
              (13,858
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (4,587,138
              )**Balance,
                  June 30, 2007**
              
              
              **247,473,726**
              
              **$**
              **22,720,050**
              
              **$**
              **3,174,031**
              
              **$**
              **(26,927,168**
              **)**
              
              
              
              **$**
              **(34,713**
              **)**
              **$**
              **(1,067,800**
              **)**







The
      accompanying notes are an integral part


of
      these
      condensed consolidated financial statements.




5


NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES





CONDENSED
      CONSOLIDATED


STATEMENTS
      OF CASH FLOWS


(UNAUDITED)


Six
                    Months
                
                Six
                    Monthsended
                
                endedJune
                    30, 2007
                
                June
                    30, 2006**CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    loss
                
                $
                (4,573,280
                )
                $
                (2,883,147
                )Adjustments
                    to reconcile net loss to cashflows
                    from operating activities:Depreciation
                    and amortization
                
                
                231,932
                
                
                306,028Impairment
                    loss on intangible asset
                
                
                -
                
                
                585,000Loss
                    on disposition of fixed assets
                
                
                -
                
                
                18,330Derivative
                    gain
                
                
                (299,500
                )
                
                -Charges
                    for common stock issued for services
                
                
                1,560,000
                
                
                560,000Loss
                    on related party debt extinguishment
                
                
                1,560,000
                
                
                -Interest
                    expense accrued for stockholder loan
                
                
                88,884
                
                
                84,280Net
                    (increase) decrease in assets:Accounts
                    receivable
                
                
                (987
                )
                
                (1,642
                )Inventory
                
                
                (1,413
                )
                
                6,382Other
                    assets
                
                
                (42,860
                )
                
                8,329Net
                    increase (decrease) in liabilities:Accounts
                    payable
                
                
                520,855
                
                
                61,716Accrued
                    compensation
                
                
                274,570
                
                
                (5,882
                )Accrued
                    expenses
                
                
                81,510
                
                
                12,784Deferred
                    revenue
                
                
                -
                
                
                (17,357
                )Total
                    adjustments
                
                
                3,972,991
                
                
                1,617,968**Net
                    cash flows from operating activities**
                
                
                (600,289
                )
                
                (1,265,179
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Acquisition
                    of furniture and equipment
                
                
                (1,532
                )
                
                (3,942
                )Proceeds
                    from sale of furniture and equipment
                
                
                3,221
                
                
                6,547Refund
                    (payment) of security deposits
                
                
                50,400
                
                
                (2,731
                )**Net
                    cash flows from investing activities**
                
                
                52,089
                
                
                (126
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Proceeds
                    from stockholder loans
                
                
                512,262
                
                
                1,502,673Proceeds
                    from notes payable
                
                
                -
                
                
                2,601Payment
                    of notes payable
                
                
                -
                
                
                (53,675
                )**Net
                    cash flows from financing activities**
                
                
                512,262
                
                
                1,451,599**Effect
                    of exchange rate changes**
                
                
                (2,600
                )
                
                (8,434
                )Net
                    change in cash
                
                
                (38,538
                )
                
                177,860Cash
                    balance, beginning of period
                
                
                39,505
                
                
                8,975**Cash
                    balance, end of period**
                
                $
                967
                
                $
                186,835**Supplemental
                    disclosures of cash flow information:**Cash
                    paid for interest
                
                $
                1,069
                
                $
                228**Supplemental
                    schedule of non-cash investing and financing
                    activities:**Common
                    stock issued in exchange for current liabilities
                
                $
                2,340,000
                
                $
                121,500Reclasification
                    of equity to derivative liability
                
                $
                629,000
                
                $
                -








The
      accompanying notes are an integral part


of
      these
      condensed consolidated financial statements.




6


**NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**


**(UNAUDITED)**





**1** . **Nature
      of operations and summary of significant accounting
      polices**





**Nature
      of business**





Nanobac
      Pharmaceuticals, Incorporated and subsidiaries, ("Nanobac”, the "Company", or
      "NNBP") trades under the symbol "NNBP."





Nanobac’s
      primary business is the study and development of therapeutic and diagnostic
      technologies related to nanobacterium sanguineum (“Nanobacteria”). Nanobacteria
      are believed to be small, slowly growing nano-particles that can be found in
      human blood, kidney stones and arterial wall plaques. The Company’s researchers
      are attempting to determine the role Calcifying Nano-Particles in human disease
      and develop products and services in the detection and treatment of
      Nanobacteria.





**Principles
      of Consolidation**





The
      consolidated financial statements include the accounts of the Company and its
      wholly-owned subsidiaries, Nanobac Sciences LLC, Nanobac OY and Nanobac Research
      Institute LLC. All material intercompany transactions and balances have been
      eliminated in consolidation.





**Basis
      of Presentation**





In
      the
      opinion of management, the accompanying financial statements include all
      adjustments, consisting only of normal recurring items, necessary for their
      fair
      presentation in conformity with generally accepted accounting principles. The
      results of operations for the three and six months ended June 30, 2007 are
      not
      necessarily indicative of the results for a full year.





The
      December 31, 2006 condensed consolidated balance sheet data was derived from
      audited financial statements, but does not include all disclosures required
      by
      accounting principles generally accepted in the United States of
      America.





The
      financial statements for the period ended June 30, 2007 and notes thereto should
      be read in conjunction with the financial statements and notes thereto for
      the
      year ended December 31, 2006 for the Company as filed in the annual report
      on
      Form 10-KSB, which information is included herein by reference.





**Liquidity
      and Management Plans**





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. The Company has incurred recurring losses
      and
      has a working capital deficiency at June 30, 2007. The Company is dependent
      on
      continued financing from outside investors including additional stockholder
      loans. All of these matters raise substantial doubt about the ability of the
      Company to continue as a going concern. Management believes that the Company
      will need to raise additional capital in order to launch new clinical trials,
      fund research and development for new treatment areas, and general working
      capital requirements. Capital may be raised through further sales of equity
      securities, which may result in dilution of the position of current
      stockholders. At this time, there is no firm commitment to invest in NNBP.





7


**NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**


**(UNAUDITED)**





**1.
      Nature of operations and summary of significant accounting policies
      (continued):**





There
      can
      be no assurances that NNBP will be successful in obtaining debt or equity
      financing in order to achieve its financial objectives and continue as a going
      concern. The financial statements do not include any adjustments to the carrying
      amount of assets and the amounts and classifications of liabilities that might
      result from an adverse outcome of this uncertainty.





**2.
      Related Party Transactions:**





An
      entity
      controlled by the Chief Executive Officer (who is also the largest stockholder
      of NNBP), has provided working capital loans to NNBP throughout 2006 and 2007.
      These loans bear interest at the rate of 5% per annum and are due on demand.
      During January 2007, $2.3 million of the above loan was converted into
      30,000,000 shares of the Company’s common stock with a fair value (based on the
      trading price of the Company’s stock on the date of the transaction of $0.13 per
      share) of approximately $3.9 million. The excess of the fair value of the shares
      issued over the amount of the related party loan paid was approximately $1.6
      million and is included as a charge to other expenses in the accompanying
      condensed consolidated statements of operations. The remaining loan balance
      at
      June 30, 2007 was approximately $3.6 million. Interest expense for the above
      loans for the three and six months ended June 30, 2007 was $43,442 and $88,884,
      respectively.





**3.
      Financial Instruments**





On
      January 30, 2007, the Company’s board of directors approved the issuance of
      42,000,000 shares of common stock (see notes 2 and 4). As a result of this
      issuance, the Company does not have sufficient authorized and unissued shares
      available to settle all commitments that may require the issuance of stock.
      The
      Company’s inability to settle these commitments caused the outstanding warrants
      (which had previously been classified as stockholders’ equity) to qualify as
      derivative liabilities. On January 30, 2007, the Company reclassified $629,000
      of additional paid-in capital (representing the fair value of the warrants
      on
      that date) to a derivative liability. At June 30, 2007, the derivative liability
      had a fair value of approximately $329,500 resulting in a derivative gain of
      $299,500 being recognized in the condensed consolidated statements of operations
      for the six months ended June 30, 2007.





**4.
      Stockholders’ Equity**





On
      January 29, 2007, the Company issued 12,000,000 shares of the Company’s common
      stock valued at $1.6 million to the individual members of the Board of Directors
      for services.





**5.
      Income Taxes**





The
      Company is required to file income tax returns in the U.S. federal jurisdiction
      and various states. Nanobac OY, a wholly owned subsidiary is required to file
      income tax returns in Finland. With few exceptions, the Company is no longer
      subject to federal, state, local or non-US income examinations by tax
      authorities for years before 2002. The Company has not filed a U.S. federal
      or
      state income tax returns since 2001. Nanobac OY has filed tax returns through
      December 31, 2005.





8




**NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007**


**(UNAUDITED)**





**5.
      Income Taxes (Continued):**





The
      Company adopted the provisions of FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”) *,* on
      January 1, 2007. As a result or the implementation of FIN 48, the Company
      recognized a $6,000 decrease in the deferred tax asset related to net operating
      loss. As this loss was wholly offset by the Company’s valuation adjustment,
      there is no impact on retained earnings or prior year operations. The Company
      classifies interest and penalties on income tax deficiencies as interest expense
      and income tax expense, respectively.





**6.
      Contingencies**





On
      August
      10, 2004, the Company was served with a civil action as filed in the Superior
      Court of Fulton County State of Georgia by Foltz Martin LLC and Openbook
      Learning Club, Inc. (“Foltz”). This suit alleges that the Company is liable for
      approximately $67,000 of liabilities plus approximately $11,000 interest for
      services performed by the plaintiffs for HealthCentrics, Inc. in 2003 and 2004.
      The Company owned 100% of HealthCentrics from December 2003 through March 2004
      when HealthCentrics was sold by the Company to an affiliate. Management does
      not
      believe that the Company is liable for the obligations of
      HealthCentrics.





On
      January 19, 2006, the Company was served with a civil action as filed in the
      Superior Court of Fulton County State of Georgia by EliteCorp Atlanta, LLC
      (“EliteCorp”). This suit alleges that the Company is liable for approximately
      $318,000 of liabilities plus approximately $110,000 interest for services
      performed by the plaintiffs for HealthCentrics, Inc. in 2003 and 2004. The
      Company responded to this action on February 17, 2006 and denied virtually
      all
      the allegations of EliteCorp. Management does not believe that the Company
      is
      liable for the obligations of HealthCentrics.





During
      January 2007, the Company, along with the Company’s CEO and a Board of Director
      member was served with civil action in the Circuit Court of Cook County,
      Illinois by Nutmeg Group LLC, an unaffiliated holder of subscription agreements
      described in our most recent Form 10-KSB. The suit is seeking damages for
      alleged breaches of contract by the Company and the affiliates as a result
      of
      the alleged failure to register and deliver stock and warrants that were
      allegedly due to be registered and delivered under certain subscription,
      registration rights, and other agreements between the parties. Additionally,
      the
      suit seeks the recovery of $65,000 for penalties for failure to register shares
      subject to the registration rights agreement. We filed a motion to quash the
      summons, contending there is no jurisdiction in Illinois for this matter. The
      Court granted a substantial portion of the Company’s motion to dismiss. The
      Court also granted Nutmeg a chance to replead. The Company has not changed
      its
      posture as to the Nutmeg litigation.





Management
      believes that no amount is owed and therefore, no liability related to the
      aforementioned matters has been recorded in the financial
      statements.




9


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





**Business**





Nanobac
      is a research-based bio-lifescience company formed in 1994 as a Florida
      corporation. The current business described below commenced in June 2003 with
      the acquisition of NanobacLabs Pharmaceuticals, Inc.




We
      are a
      life science company dedicated to the discovery and developments of products
      and
      services to improve people's health through the detection and treatment of
      Calcifying Nanoparticles (“CNPs”), otherwise known as "nanobacteria". The
      Company's research is directed toward establishing the pathogenic role of
      nanobacteria in soft tissue calcification, particularly in coronary artery
      heart
      disease, prostatitis and vascular disease.




Nanobac’s
      drug discovery and development is focused on new and existing compounds that
      effectively inhibit, destroy or neutralize CNPs. Nanobac manufactures and
      markets In Vitro Diagnostic (IVD) kits and reagents for detecting calcifying
      nanoparticles. IVD products include assays, proprietary antibodies and reagents
      for uniquely recognizing CNPs. Nanobac's BioAnalytical Services works with
      biopharmaceutical partners to develop and apply methods for avoiding, detecting,
      and inactivating or eliminating CNPs from raw materials. Nanobac's drug
      discovery and development efforts are focused on developing new and existing
      compounds that effectively inhibit, destroy or neutralize CNPs.




Calcification
      is a significant feature in most diseases that are leading causes of death,
      including heart disease. Calcification is shown in numerous studies to block
      circulation, cause inflammation and cell disruption, and is a sign of various
      cancers. We have decided to have a sharpened focus on drug therapy based on
      findings by Nanobac scientists that certain drugs, when combined, are effective
      at halting the calcification process. Some of these drug combinations have
      not
      been tested in animals or humans.




Our
      plan
      is to focus on the following priorities over the next 12-18 months:




·
            **Therapy
                -**We
                are entering into agreements to support the United States Food and
                Drug
                Administration pre-Investigational New Drug “(PIND”) to test our
                proprietary drug combinations to treat stone-forming diseases, with
                a
                preliminary focus on prostatitis, which affects millions of men and
                currently is largely untreatable. We also expect to conduct tests
                with
                other stone forming diseases such as gallstones and kidney
                stones.





·
            **Pharmaceutical
                Drug Development -**The
                FDA approved Nanobac to move forward with PIND 73,524 for Chronic
                Prostatitis/Chronic Pelvic Pain Syndrome (“CP/CPPS”). We are currently
                evaluating several contract service providers who have formulation
                and
                manufacturing capabilities. Once a contract is entered into, we expect
                to
                begin assembling the supporting documentation for completing the
                Investigational New Drug (“IND”) application. We intend to have the IND
                submitted by the end of the third quarter, financing permitted. The
                submission is part of the process for obtaining FDA approval to begin
                clinical studies to determine if Nanobac’s therapy is effective for Type
                III Prostatitis patients. Additional clinical and non-clinical studies
                will be determined by the outcome of the first
                study.




10


**Item
      2: Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations (continued)**





**Business
      (continued)**





The
      decision to proceed with the clinical development program (guidance for which
      is
      given by the FDA and the purpose for which is to inform prescribers and patients
      about the documented benefits of a product, in this case, a new drug
      combination) is on hold until proper funding is obtained by the Company. The
      kinetics (the study of reaction rates, an important area of chemistry) pilot
      study is the first study to be submitted to the FDA for commencing Nanobac’s IND
      and starting clinical trials. The study will evaluate EDTA and two well
      established bisphosphonates (etidronate and alendronate). (EDTA is the acronym
      for the chemical compound ethylenediamine tetraacetic acid. EDTA refers to
      the
      chelating agent. This amino acid is widely used to sequester di- and trivalent
      metal ions). To meet the requirements set forth by the FDA, stability testing
      is
      required for any drug to be utilized in any clinical trial. Therefore, the
      use
      of a Good Manufacturing Process (“GMP”) compliant facility is required to
      formulate and manufacture the EDTA.





·
            **Infection
                -**The
                gold standard for proving that something is infectious and causes
                diseases
                is Koch's postulates. We intend to validate earlier findings on Koch's
                postulates with calcifying nanoparticles in laboratory animals, including
                testing whether the infection can be prevented or treated with a
                proprietary drug combination. In June 2006, a new study published
                by
                independent scientists in a peer reviewed journal demonstrated key
                elements of Koch’s postulates by showing that CNPs are implicated in
                formation of black pigment gallstones in an animal model. In August
                2006,
                we announced that we entered into an agreement to validate this finding
                with the same scientists including Dr. LiMin Wang from Shantou University
                Medical College, Guangdong, China, who will be the Principle
                Investigator.





**Characterization
      -** We have
      preliminary photographic and biochemical evidence that calcifying nanoparticles
      self-replicate in non-precipitating conditions, suggesting further that they
      have a self-sustaining mechanism and might be infectious. In a recent agreement
      with Fetzer Memorial Trust, we have begun experiments at our NASA laboratory
      in
      Houston to demonstrate this replication via time-lapse photography using
      award-winning CytoViva microscope technology capable of breaking through the
      200
      nanometer (nm) barrier for light microscopes. Our Scientific Director at NASA’s
      Johnson Space Center has recently taken preliminary photographs of CNPs at
      magnifications that we believe had not been previously achieved. We own the
      intellectual property arising from the above experiments.





·
            **Thrombosis
                -**Thrombosis
                is the cause of death in most hemodialysis patients. We intend to
                validate
                findings that calcifying nanoparticles discovered in human blood
                provoke
                thrombosis and might be preventable.





·
            **Diagnostics**-
                We believe that our proprietary Elisa antibody test uniquely recognizes
                calcifying nanoparticles known as nanobacteria, and plan to further
                validate the functionality of this diagnostic test.





All
      of
      the aforementioned activities will require additional funding from third
      parties. No assurance can be given that such funding will be available at
      commercially reasonable terms, if at all.





11





**Item
      2: Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations (continued)**





**Business
      (continued)**





**Protein
      Array Development**




Our
      monoclonal antibody (mAb 8D10) used in our NanoCaptureTM and Nano-SeroTM ELISA
      kits detects CNPs. This is the first step in our diagnostic information to
      clinicians. From this base knowledge, we characterized the antibody targets
      and
      developed a Surface Antigen Pattern ImmunoAssay (“SAPIA”) for finding out what
      antigens are present on the accessible surface of CNPs. We can utilize this
      technique to map the antigens in human identified CNP blood samples. Previously,
      specific antibodies against calcium-dependent conformation of Factor II, Factor
      IX and Factor X have been produced and used in analysis of the auto assembly
      and
      catalytical activation of the clotting cascade. 8D10 is the first case known
      to
      us where the noncovalent phosphate-mediated interaction with calcium phosphate
      mineral is the key element detected. Since blood does not normally contain
      apatite mineral, this target is specific for the detection of CNPs.




We
      screened serum samples of patients with 13 diseases, 40 samples per disease
      using ELISA tests for CNPs and for anti-CNP antibodies. The results indicate
      CNPs are present in several diseases with a very high correlation and
      prevalence. In diseases such as Parkinson’s disease and breast cancer, there are
      negative and positive patients. CNPs also caused a measurable immune response
      with IgG antibodies. Further studies are needed. Further studies include running
      more disease state samples, creating more specific antibodies to different
      diseases, running those sample panels with new antibodies, performing the
      statistical analysis for sensitivity, specificity, positive prediction and
      negative prediction values. Upon completion of the studies, we will likely
      seek
      a GMP kit manufacturing partner to manufacture and validate the kits. We will
      concurrently go to diagnostic equipment manufacturers and discuss platform
      solutions and possible level of interest in a joint development
      project.




We
      will
      continue optimizing our proprietary diagnostics, with a clear focus on
      developing effective therapies in cooperation with well-established partners
      including NASA, Mayo Clinic, Cleveland Clinic, and numerous other institutions.
      Once these experiments are completed, we hope to have a compelling and
      well-rounded scientific basis for the Company to move forward.




12


**Item
      2: Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations (continued)**





**Business
      (continued)**





***Patents
      -*** We
      have
      filed applications for a number of patents, have been granted patents, and
      await
      prosecution of pending application in the US and International
      Stages.





Patent
            
            General
                Subject Matter
            Expiration
                DateUS
                5,135,851
            U.S.
            -Method
                for the culture and detection of nanobacteria also known as calcifying
                nanoparticles
              (issued
                in 1992)
            August
                11, 2010US
                6,706,290
              PCT/EP1999/004555
            U.S.
                & International Application
              (PCT)
            -Methods
                for the eradication of Nanobacteria from articles and animals using
                various novel combinations of systems, chemicals, compounds, drugs,
                prodrugs, supplements, etc.
              (issued
                in 2004)
            Jul
                6, 2018U.S.
                & PCT Applications Filed
            -Methods
                and Compositions (combinations) for treating diseases characterized
                by
                pathological calcification
              (Filed
                in 2004)U.S.
                & PCT Applications Filed
            -Methods
                and combinations of compositions including Bisphosphonates, chelators,
                and
                citrates
              (Filed
                in 2004)U.S.
            -Methods
                for the treatment of disease associated with calcification and/or
                plaque
                formation
              (Filed
                in 2004)U.S.
                & PCT Application Filed
            -Detection
                of antibodies against compositions of conformationally changed proteins
                comprising calcium binding protein hydroxy apatite complexes and
                novel in
                vitro test methods
              (Filed
                in 2005)U.S.
                & PCT Applications filed
            -Methods
                and compositions to detect calcifying nanoparticles including the
                identification and quantification of proteins thereon and correlation
                to
                diseases thereof
              (Filed
                in 2005)





There
      can
      be no assurance that our patents or pending applications will afford legal
      protection against competitors or provide significant proprietary protection
      or
      competitive advantage. In addition, our patents or pending applications could
      be
      held invalid or unenforceable by a court, or infringed or circumvented by
      others, or others could obtain patents that we would need to license or
      circumvent. Competitors or potential competitors may have filed patent
      applications or received patents, and may obtain additional patents and
      proprietary rights relating to proteins, small molecules, compounds, or
      processes competitive with ours. Additionally, for certain of our product
      candidates, competitors, or potential competitors may claim that their existing
      or pending patents prevent us from commercializing such product candidates
      in
      certain territories. Further, when our patents expire, other companies could
      develop new competitive products to our products.




13


**Item
      2: Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations (continued)**





***Patents
      (continued) -*** Trade
      secret protection for our unpatented confidential and proprietary information
      is
      important to us. To protect our trade secrets, we generally require our staff
      members, material consultants, scientific advisors, and parties to collaboration
      and licensing agreements to execute confidentiality agreements upon the
      commencement of employment, the consulting relationship, or the collaboration
      or
      licensing arrangement with us. However, others could either develop
      independently the same or similar information or obtain access to our
      information.




**Results
      of Operations**




The
      following table presents the percentage of period-over-period dollar change
      for
      the line items in our Condensed Consolidated Statements of Operations for the
      three and six month periods ended June 30, 2007 and 2006. These comparisons
      of
      financial results are not necessarily indicative of future results.





**Three
                months ended June 30**
            
            **Six
                months ended June 30**2007
            
            2006
            
            %
              Change
            
            2007
            
            2006
            
            %
                ChangeRevenue
            
            $
            2,432
            
            $
            37,565
            
            
            -94
            %
            $
            7,444
            
            $
            198,851
            
            
            -96
            %Cost
                of revenue
            
            
            1,902
            
            
            22,623
            
            
            -92
            %
            
            6,162
            
            
            67,818
            
            
            -91
            %Gross
                Profit
            
            
            530
            
            
            14,942
            
            
            -96
            %
            
            1,282
            
            
            131,033
            
            
            -99
            %Gross
                Profit percentage
            
            
            22
            %
            
            40
            %
            
            
            
            
            17
            %
            
            66
            %Selling,
                general and administrative
            
            
            279,499
            
            
            275,289
            
            
            2
            %
            
            2,342,164
            
            
            1,261,159
            
            
            86
            %Research
                and development
            
            
            285,132
            
            
            431,016
            
            
            -34
            %
            
            664,107
            
            
            785,338
            
            
            -15
            %Impairment
                loss on
              intangible
                asset
            
            
            -
            
            
            -
            
            
            
            
            
            -
            
            
            585,000
            
            
            -100
            %Depreciation
                and amortization
            
            
            115,286
            
            
            117,811
            
            
            -
                2
            %
            
            231,932
            
            
            306,028
            
            
            -24
            %Operating
                loss
            
            
            (679,387
            )
            
            (809,174
            )
            
            -16
            %
            
            (3,236,921
            )
            
            (2,806,492
            )
            
            15
            %Other
                income (Expense)
            
            
            (37,175
            )
            
            (26,286
            )
            
            41
            %
            
            (1,336,359
            )
            
            (76,655
            )
            
            1,643
            %Net
                loss
            
            $
            (716,562
            )
            $
            (835,460
            )
            
            (14
            %)
            $
            (4,573,280
            )
            $
            (2,883,147
            )
            
            59
            %




14


**Item
      2: Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations (continued)**





**Revenue**





Revenue
      for the three and six months ended June 30, 2007 and 2006 is summarized as
      follows:





**Three
                months ended June 30**
            
            **Six
                months ended June 30**2007
            
            2006
            
            2007
            
            2006Nanobac
                Supplement
            
            $
            -
            
            $
            2,202
            
            $
            -
            
            $
            122,495Observation
                Rights
            
            
            -
            
            
            6,000
            
            
            -
            
            
            12,000Diagnostic
                Products
            
            
            2,432
            
            
            29,363
            
            
            7,444
            
            
            64,356$
            2,432
            
            $
            37,565
            
            $
            7,444
            
            $
            198,851




Revenue
      for the three and six months ended June 30, 2007 was primarily from our Finland
      office.




During
      March 2006, we terminated the marketing and selling of dietary supplements
      in
      order for the Company to focus exclusively on the science related to CNPs,
      which
      we plan to lead to drug discovery and the development of diagnostic products
      for
      the detection and treatment of CNP related diseases. Accordingly, we had no
      revenue from dietary supplements for the three or six months ended June 30,
      2007. We expect no revenue from dietary supplements in future periods.




Revenue
      from observation rights was recognized over the agreement’s 12-month term using
      the straight-line method. This term ended on August 31, 2006, accordingly,
      there
      is no revenue from observation rights in future periods.





**Cost
      of Revenue**





Cost
      of
      revenue consists of direct materials and testing services in our Finland office.





15


**Item
      2: Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations (continued)**





**Selling,
      General and Administrative**





During
      January 2007, we issued 3,000,000 shares of our common stock to each of the
      members of our Board of Directors (total of 12,000,000 shares). The fair value
      of these shares as of the date of issuance was $1.6 million, which is included
      in our selling, general and administrative (“SG&A”) expenses.





Excluding
      the stock issuance referred to above, over 75% of SG&A expenses are
      comprised of payroll and professional fees. The majority of professional fees
      are related to patents and public company expenses for audit, legal and investor
      relations. Other significant SG&A expenses include facility rental and
      insurance.





SG&A
      remained essentially the same for the three months ended June 30, 2007 as
      compared to the three months ended June 30, 2006.





SG&A
      increased $1.1 million for the six months ended June 30, 2007 compared to the
      six months ended June 30, 2006. $1.6 million of this increase was attributable
      to the stock issuance to the Board of Directors as described above. In addition,
      we recorded a $147,000 royalty expense in 2007 in connection with potential
      payments due under Subscription agreements and our patents and professional
      fees
      increased by $192,000. These increases were offset by decreases in payroll
      expenses of $135,000 as we eliminated payroll associated with the sale of
      Nanobac Supplements; a decrease rent expense of $124,000 primarily associated
      with the abandoned lease described below; and a decrease in other compensation
      associated with a stock grant bonus issued in 2006 of $560,000.





During
      March 2006, the Company ceased occupying leased office space in Tampa, Florida.
      As a result of the early abandonment of this office lease, a charge to earnings
      of approximately $106,000 for the acceleration of lease payments associated
      with
      the abandoned lease has been recognized in the accompanying financial statements
      for the six months ended June 30, 2006. An additional charge is included in
      other expense for the write-off of leasehold improvements.





**Research
      and Development**





For
      the
      six months ended June 30, 2007 and 2006 research and development (“R&D)
      expenses consisted of the following types of expenses:




Six
                Months ended Jun 302007
            
            2006U.S.
                Payroll and medical directors
            
            
            54
            %
            
            54
            %Finland
                payroll and laboratory
            
            
            22
            %
            
            32
            %Research
                studies
            
            
            24
            %
            
            9
            %Other
            
            
            1
            %
            
            6
            %100
            %
            
            100
            %





R&D
      expenses decreased $146,000 for the three months ended June 30, 2007 as compared
      to the three months ended June 30, 2006 and R&D expenses decreased $121,000
      for the six months ended June 30, 2007 compared to the six months ended June
      30,
      2006. The decrease was primarily associated with the contraction of research
      activities due to lower levels of cash funding.




16


**Item
      2: Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations (continued)**





**Impairment
      loss on intangible assets**





During
      March 2006, we established a plan to discontinue the sale of dietary
      supplements. As a result of the above decision, the product rights’ intangible
      asset was deemed fully impaired and an impairment loss of $585,000 was
      recognized during the six months ended June 30, 2006.





**Depreciation
      and amortization**





Approximately
      95% of depreciation and amortization are related to the amortization of
      intangible assets (primarily patents) acquired in the June 2003 acquisition
      of
      LABS and the November 2003 acquisition of OY. Amortization expense decreased
      for
      the three and six months ended June 30, 2007 compared to the three and six
      months ended June 30, 2006 as the amortization of product rights was eliminated
      due to the impairment of this intangible asset in March 2006 as described above.





**Operating
      Loss**





Our
      operating loss increased to $3.2 million for the six months ended June 30,
      2007
      compared to $2.8 million for the six months ended June 30, 2006. Revenue
      decreased by approximately $191,000 during the six months ended June 30, 2007
      as
      compared to the same period during 2006 as a result of our termination of the
      sale of dietary supplements. Approximately $1.6 million of the 2007 loss was
      the
      result of the stock issuance to our Board of Directors. This was partially
      offset by the $585,000 impairment loss on intangible assets that occurred during
      2006. The remaining differences were related to slight reductions during the
      six
      months ended June 30, 2007 in research and development expenses and depreciation
      and amortization expenses as compared to the six months ended June 30, 2006.




17


**Item
      2: Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations (continued)**





**Other
      income (expense)**





Other
      income (expense) for the three and six months ended June 30, 2007 and 2006
      is
      summarized as follows:





**Three
                months ended June 30**
            
            **Six
                months ended June 30**2007
            
            2006
            
            2007
            
            2006Interest
                expenseRelated
                party loans
            
            $
            (43,442
            )
            $
            (46,257
            )
            $
            (88,884
            )
            $
            (84,280
            )Other
            
            
            (281
            )
            
            (12
            )
            
            (1,069
            )
            
            (228
            )Derivative
                gain
            
            
            0
            
            
            0
            
            
            299,500
            
            
            0Loss
                on related party debt extinguishment
            
            
            0
            
            
            0
            
            
            (1,560,000
            )
            
            0Loss
                on disposition of assets
            
            
            0
            
            
            0
            
            
            (18,330
            )
            
            (18,330
            )Foreign
                exchange gain (loss)
            
            
            6,925
            
            
            17,236
            
            
            14,132
            
            
            24,238Other,
                net
            
            
            (377
            )
            
            2,747
            
            
            18,292
            
            
            1,945Total
            
            $
            (37,175
            )
            $
            (26,286
            )
            $
            (1,336,359
            )
            $
            (76,655
            )





The
      derivative gain relates to 5 million exercisable warrants for which we do not
      have sufficient authorized and unissued shares. The related derivative liability
      for the warrants was computed based upon the value of our stock as of January
      30, 2007 as quoted on established markets, using the Black-Scholes method,
      assuming an expiration date of the warrants of August 31, 2009, a 100%
      volatility percentage and an annual interest rate of 4.87%. This was the date
      the Company first had insufficient authorized and unissued shares to allow
      the
      issuance of shares of its common stock if the warrants were fully exercised.
      The
      fair value of the derivative liability was again determined at June 30, 2007,
      the last date of the period, based upon the Black-Scholes methodology described
      above. Since the value of the Company’s common stock, as quoted on these
      established markets, decreased between these dates, the total amount of the
      obligation decreased resulting in the recognition of a derivative gain.





The
      loss
      on related party debt extinguishment relates to the settlement of $2.3 million
      of related party debt in exchange for the issuance of 30,000,000 shares of
      our
      common stock valued at $3.9 million based on the trading price of the Company’s
      stock on the date of the transaction of $0.13 per share.





Loss
      on
      disposition of assets is attributable to leasehold improvements in connection
      with the abandonment of our lease in March 2006. Foreign currency gain results
      from exchange rate changes between the U.S. dollar and the Euro on intercompany
      advances between our U.S. subsidiary and our Finland subsidiary.





**Net
      Loss**





We
      are
      experiencing significant losses as we conduct research and development related
      to nanobacteria. We believe it will take significant time before we will earn
      meaningful revenue to offset our expenses and there is no assurance that we
      will
      be able to accomplish this goal. As a result of the losses, we are dependent
      on
      affiliates of our CEO and other investors to provide sufficient cash sources
      to
      fund our operations.




18


**Item
      2: Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations (continued)**





**Liquidity
      and Capital Resources**





Since
      the
      United States Bankruptcy Court confirmed a plan of reorganization that allowed
      the Company to emerge from Chapter 11 during calendar 2002, the Company has
      financed its activities primarily through loans made by entities affiliated
      with
      our current Chief Executive Officer (referred to herein as “the Affiliated
      Entities”) and the sale of common stock. The stockholder loans were made as
      funding was needed and were extremely advantageous to the Company in that the
      amounts were funded as the Company needed financial infusions and allowed the
      Company to avoid the costs and distractions of attempting to raise these amounts
      from unrelated parties. It is unrealistic to believe that unrelated parties
      would have offered terms as generous as those obtained from the Affiliated
      Entities, and it is also unlikely that any financing could have been obtained
      under any terms without the financing of the Affiliated Entities.





As
      discussed in the Company’s most recent Form 10-KSB, since August of 2004, the
      Company has received $1.4 million (net of $125,000 of expenses) from three
      unaffiliated investors and one affiliate for shares of the Company’s stock and
      an equal amount of warrants to acquire additional shares of the Company’s stock.
      The exact number of shares to be issued is dependent upon the average closing
      bid price of the Company’s stock on the five trading days immediately prior to
      the date on which a registration statement for these shares is declared
      effective. The purchase price of the shares is equal to the lesser of (1) $.12
      or (2) 52% of the average closing price described above. An additional $1.5
      million is to be received from these investors within five days of registering
      the common shares and warrants. A registration statement was filed in 2005
      for
      these shares and is now dormant. Additional information concerning the above
      obligation is included in the Company’s most recent Form 10-KSB and is
      incorporated herein by reference.





As
      of
      June 30, 2007, we had total assets of $7.5 million of which only $133,000 were
      current assets. At June 30, 2007, we had total current liabilities of $5.8
      million and a working capital deficit of $5.7 million. $3.6 million of the
      $5.7
      million working capital deficit is attributable to the related party loans
      from
      CEO Affiliated Entities described above.





Net
      cash
      used in operations for the six months ended June 30, 2007 was $600,000. The
      negative cash flow from operations reflects the $4.6 million net loss for the
      period offset by non-cash charges of $1.6 million for the common stock issuance
      to our Board of Directors, $1.6 million for the loss incurred on the
      extinguishment of related party debt in exchange for our common stock, $232,000
      for non-cash charges for depreciation and amortization and $877,000 increase
      in
      current liabilities.





Net
      cash
      provided by investing activities for the three months ended June 30, 2007 of
      $49,000 primarily reflects the return of a $50,000 security deposit.





Net
      cash
      provided by financing activities for the three months ended June 30, 2007 was
      $512,000, which is attributable to related party loans.





As
      noted
      above, cash from related party loans financed our negative cash flow from
      operations. We are dependent on raising additional funding necessary to
      implement our business plan. Should we not be successful in raising cash from
      our CEO and other investors, we are unlikely to continue as a going concern.




19


**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations (continued)**




**Forward
      Looking Statements**





Our
      disclosure and analysis in this Form 10-QSB contains some forward-looking
      statements, within the meaning of the Private Securities Litigation Reform
      Act
      of 1995 (“the Act”), that set forth anticipated results based on our plans and
      assumptions. From time to time, we also provide forward-looking statements
      in
      other materials we release to the public as well as oral forward-looking
      statements. Such statements give our current expectations or forecasts of future
      events; they do not relate strictly to historical and current facts. We have
      tried wherever possible to identify such statements by using words such as
      “anticipate”, “estimate”, “expect”, “project”, “intend”, “plan”, “believe”,
“will” and similar expressions in connection with any discussion of future
      operating or financial performance.





In
      light
      of the important factors that can materially affect results, including those
      set
      forth above and elsewhere in this report, the inclusion of forward-looking
      information herein should not be regarded as a representation by us or any
      other
      person that our objectives or plans will be achieved. We may encounter
      competitive, technological, financial and business challenges making it more
      difficult than expected to continue to market our products and services;
      competitive conditions within our industry may change adversely; we may be
      unable to retain existing key management and research personnel; our forecasts
      may not accurately anticipate market demand; and there may be other material
      adverse changes in our operations or business. Certain important factors
      affecting the forward looking statements made herein include, but are not
      limited to (i) accurately forecasting capital expenditures; (ii) obtaining
      new
      sources of external financing; (iii) successfully conducting experiments to
      support that CNPs are an infectious in accordance with Koch’s postulates and
      (iv) successfully implementing and protecting our intellectual property.
      Assumptions relating to budgeting, marketing, product development and other
      management decisions are subjective in many respects and thus susceptible to
      interpretations and periodic revisions based on actual experience and business
      developments, the impact of which may cause the Company to alter its capital
      expenditure or other budgets, which may in turn affect the Company's financial
      position and results of operations.





20


**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations (continued)**




**Quantitative
      and Qualitative Disclosures About Market Risk**





While
      most of our operations are conducted in the United States, we also operate
      a
      laboratory in Kuopio Finland. We face two risks related to foreign currency
      exchange: translation risk and transaction risk. Amounts invested in our Finland
      operations are translated into US Dollars at the exchange rates in effect at
      the
      balance sheet date. Since the functional currency of our Finland subsidiary
      is
      the local currency, foreign currency translation of the balance sheet is
      reflected as a component of stockholders’ equity and does not impact operating
      results.





Our
      Finland subsidiary collects revenue and pays expenses in Euros, mitigating
      transaction risk. Revenues and expenses in Euros translate into varying amounts
      of US Dollars depending upon whether the US Dollar weakens or strengthens
      against the Euro. Therefore, changes in exchange rates may negatively affect
      the
      Company’s consolidated revenues and expenses (as expressed in US Dollars) from
      foreign operations.





Currency
      transaction gains or losses are incurred on our US Subsidiary’s intercompany
      advance to our Finland Subsidiary. We recognize a gain on the intercompany
      advance as the US Dollar weakens against the Euro and we recognize a loss when
      the US Dollar strengthens against the Euro.





The
      Company has not entered into any material amount of foreign currency forward
      exchange contracts or other derivative financial instruments to hedge the
      effects of adverse fluctuations in foreign currency exchange rates.





**Item
      3: Controls and Procedures**





***Disclosure
      controls and procedures***





Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we have evaluated
      the effectiveness of the design and operation of our disclosure controls and
      procedures within 90 days of the filing date of this report. Based on their
      evaluation, our principal executive officer and principal financial officer
      have
      concluded that there are material weakness in our internal controls and
      procedures.





During
      the quarter ended June 30, 2006, we neglected to record the issuance of
      8,000,000 shares of common stock and the resultant charge to operations of
      $560,000. To correct this material weakness, we have instituted procedures
      whereby we will reconcile our stock records to the transfer agent’s records on a
      quarterly basis.





Disclosure
      controls and procedures are our controls and other procedures that are designed
      to ensure that information required to be disclosed by us in the reports we
      file
      or submit under the Exchange Act is recorded, processed, summarized and
      reported, within the time periods specified in the Securities and Exchange
      Commission's rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed by us in the reports that we file under the Exchange
      Act is accumulated and communicated to our management, including our principal
      executive officer and principal financial officer, as appropriate to allow
      timely decisions regarding required disclosure.




21


**Item
      3: Controls and Procedures (continued)**





***Section
      404 of the Sarbanes-Oxley Act of 2002***




Section
      404 of the Sarbanes-Oxley Act of 2002 requires our report on Form 10-KSB for
      2007 to include a report of management on internal control over financial
      reporting. Internal control over financial reporting, as defined under these
      rules, is a process designed to provide reasonable assurance regarding the
      reliability of financial reporting and the preparation of financial statements
      for external purposes in accordance with generally accepted accounting
      principles.




In
      our
      report, we will be required, among other things, to assess the effectiveness
      of
      our internal control over financial reporting. The report must also disclose
      any
      material weaknesses in internal control over financial reporting identified
      by
      management, and if there are any material weaknesses, we must conclude that
      our
      internal control over financial reporting was not effective. A material
      weakness, under the applicable rules, is a control deficiency, or combination
      of
      control deficiencies, that results in more than a remote likelihood that a
      material misstatement of the annual or interim financial statements will not
      be
      prevented or detected.




In
      conducting our ongoing assessment of its internal control over financial
      reporting to prepare for compliance with the requirements under Section 404
      of the Sarbanes-Oxley Act, we have identified a lack of segregation of duties
      to
      be a potential material weakness in internal controls. Lack of segregation
      of
      duties is inherent to our company due to the small number of employees. Our
      assessment is still in process to determine if this situation is actually a
      material weakness or if there are any other material weaknesses. We have also
      identified our procedures for accounting for stock-based transactions as having
      a material weakness. To correct this material weakness, we have instituted
      procedures whereby we will reconcile our stock records to the transfer agent
      records on a quarterly basis.





***Changes
      in internal controls***





There
      were no significant changes in our internal controls or in other factors that
      could significantly affect these controls subsequent to the date of their
      evaluation except for the material weakness and our corrective plan as described
      above.





22


**PART
      II - OTHER INFORMATION**





**Item
      1: Legal Proceedings**





Except
      as
      described below, we know of no material, active or pending legal proceedings
      against us, nor are we involved as a plaintiff in any material proceedings
      or
      pending litigation. There are no proceedings in which any of our directors,
      officers or affiliates, or any registered or beneficial stockholders are an
      adverse party or has a material interest adverse to us.




On
      August
      10, 2004, we were served with a civil action as filed in the Superior Court
      of
      Fulton County State of Georgia by Foltz Martin LLC and Openbook Learning Club,
      Inc. (“Foltz”). This suit alleges that the Company is liable for approximately
      $67,000 of liabilities plus approximately $11,000 interest for services
      performed by the plaintiffs for HealthCentrics, Inc. in 2003 and 2004. The
      Company owned 100% of HealthCentrics from December 2003 through March 2004
      when
      HealthCentrics was sold by the Company to an affiliate. We do not believe that
      the Company is liable for the obligations of HealthCentrics.





On
      January 19, 2006, we were served with a civil action as filed in the Superior
      Court of Fulton County State of Georgia by EliteCorp Atlanta, LLC (“EliteCorp”).
      This suit alleges that the Company is liable for approximately $318,000 of
      liabilities plus approximately $110,000 interest for services performed by
      the
      plaintiffs for HealthCentrics, Inc. in 2003 and 2004. We responded to this
      action on February 17, 2006 and denied virtually all the allegations of
      EliteCorp. We do not believe that the Company is liable for the obligations
      of
      HealthCentrics.





During
      January 2007, the Company, along with the Company’s CEO and a Board of Director
      member was served with civil action in the Circuit Court of Cook County,
      Illinois by Nutmeg Group LLC, the sole unaffiliated holder of subscription
      agreements described in our most recent Form 10KSB. The suit is seeking damages
      for alleged breaches of contract by the Company and the affiliates as a result
      of the alleged failure to deliver stock and warrants that were allegedly due
      to
      be delivered under certain subscription agreements between the parties.
      Additionally, the suit seeks the recovery of $65,000 for penalties for failure
      to register shares subject to the registration rights agreement. We filed a
      motion to quash summons, contending there is no jurisdiction in Illinois for
      this matter. The Court granted a substantial portion of the Company’s motions to
      dismiss. The Court also granted Nutmeg a chance to replead.





Management
      believes that no amount is owed and therefore, no liability related to the
      aforementioned matters has been recorded in the financial
      statements.




23


**Item
      2: Unregistered Sales of Equity Securities and Use of
      Proceeds**





From
      August 2004 through February 2005, we executed Subscription Agreements with
      three unaffiliated investors and one affiliated investor. These investors paid
      us 50% of the subscription price at execution and the remaining 50% is due
      within five days from the date that a registration statement is declared
      effective for the common shares that are being issued. In exchange for the
      cash
      consideration, we are to issue these investors shares of our common stock equal
      to the amount paid divided by the lesser of (a) $0.12 or (b) fifty-two percent
      of the average closing bid price for our common stock for the five days
      immediately prior to the date on which a registration statement is declared
      effective (“The Fixed Price”). In addition, each of these investors will receive
      an equivalent number of warrants with expiration dates of five years from the
      date of issuance. One half of these warrants will be priced at 110% of the
      Fixed
      Price and the remainder will be priced at 150% of the Fixed Price. During 2006,
      the CEO Affiliate acquired the rights and obligations under the above Stock
      Subscription Agreements from two of the three unaffiliated investors except
      for
      common stock previously issued to these investors and 2.7 million of the
      warrants. The minimum number of shares and warrants that will be issued under
      these Subscription Agreements (assuming a Fixed Price of $0.12 per share) is
      as
      follows:





Number
                of Shares
            
            Per
                Share
            
            ProceedsCommon
                Stock, previously issued:Unaffiliated
                Investors
            
            
            8,125,000
            
            $
            0.12
            
            $
            975,000Affiliates
            
            
            4,166,667
            
            $
            0.12
            
            
            500,00012,291,667
            
            
            
            
            $
            1,475,000Common
                Stock, future issuancesUnaffiliated
                Investors
            
            
            5,416,667
            
            $
            0.12
            
            $
            650,000Affiliates
            
            
            6,875,000
            
            $
            0.12
            
            
            825,00012,291,667
            
            
            
            
            $
            1,475,000Warrants:Unaffiliated
                Investors
            
            
            8,125,000
            
            $
            0.13Affiliates
            
            
            4,166,667
            
            $
            0.13Unaffiliated
                Investors
            
            
            5,416,667
            
            $
            0.18Affiliates
            
            
            6,875,000
            
            $
            0.1824,583,333





The
      actual number of shares and warrants that ultimately will be issued under these
      Subscription Agreements may be substantially higher due to the variability
      of
      the Fixed Price. Based on our recent traded price of $0.04 to $0.08 per share,
      three to six times as many shares and warrants would be issued as described
      above. Further, we do not have sufficient authorized shares to issue the common
      stock and warrants required under the above subscription agreements. Our
      stockholders need to approve any increase in our authorized shares.





Each
      of
      these investors received their shares in reliance upon Section 4(2) of the
      Securities Act of 1933, because each of the holders was knowledgeable,
      sophisticated and had access to comprehensive information about us. At all
      relevant times we were a reporting company under the Securities Exchange Act
      of
      1934 and there was readily available adequate current public information with
      respect to the Company.





24


**Item
      3: Defaults upon Senior Securities**





None.





**Item
      4: Submission of Matters to a Vote of Security Holders**





None.





**Item
      5: Other Information**





None





**Item
      6: Exhibits and Reports on Form 8-K**





(a)
      The
      following exhibits are filed as part of this report:





Exhibit
      31.1 - Certification to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief
      Executive Officer





Exhibit
      31.2 - Certification to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief
      Financial Officer





Exhibit
      32.1 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to
      Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Executive
      Officer





Exhibit
      32.2 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to
      Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Financial
      Officer




(b) Reports
      on Form 8-K





None





25


**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      caused this report to be signed on its behalf by the undersigned thereunto
      duly
      authorized.




Dated:
              August 20, 2007
            NANOBAC
              PHARMACEUTICALS, INCORPORATEDBy:
            /s/ John
              D
              StantonJohn
              D StantonChief
              Executive Officer and Chief
              Financial Officer




26


**Nanobac
      Pharmaceuticals, Incorporated**





**EXHIBIT
      INDEX**





EXHIBITNUMBER
            
            DESCRIPTION
            
            PAGE31.1
            
            Certification to Section 302 of the
              Sarbanes-Oxley Act of
              2002 - Chief Executive Officer
            
            2831.2
            
            Certification to Section 302 of the
              Sarbanes-Oxley Act of
              2002 - Chief Financial Officer
            
            2932.1
            
            Certification pursuant to 18 U.S.C.
              Section
              1350, as adopted pursuant
              to Section 906 of the Sarbanes-Oxley Act of 2002 -Chief
              Executive Officer
            
            3032.2
            
            Certification pursuant to 18 U.S.C.
              Section
              1350, as adopted pursuant
              to Section 906 of the Sarbanes-Oxley Act of 2002 -Chief
              Financial Officer
            
            31




27