**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


**March
31, 2005**


**_______________________**





**Nanobac
Pharmaceuticals, Incorporated**


(Exact
name of registrant as specified in its charter)




**Florida**
    **0-24696**
    **59-3248917**(State
      or Other Jurisdiction of Incorporation)
    (Commission
      File Number)
    (I.R.S.
      Employer Identification Number)







**2727
W. Dr. Martin Luther King Jr. Blvd, Suite 850, Tampa, Florida
33607**


(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 [X]
No [  ]





Indicate
by check mark whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Act):





Yes
[  ] No [X]




The
number of shares issued and outstanding of the Registrant’s Common Stock, no par
value, as of May 12, 2005 was 189,006,760.














**NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**




**PART
I - FINANCIAL INFORMATION**





**Item
      1: Financial Statements**Condensed
      Consolidated Balance Sheets as of March 31, 2005 (unaudited) and December
      31, 2004
    3Condensed
      Consolidated Statements of Operations for the three ended March 31, 2005
      (unaudited)
    4Condensed
      Consolidated Statements of Changes in Stockholders' Equity for the period
      ended March 31, 2005 (unaudited)
    5Condensed
      Consolidated Statements of Cash Flows for the three months ended March 31,
      2005 (unaudited)
    6Notes
      to the Condensed Consolidated Financial Statements
    7**Item
      2:  Management’s Discussion and Analysis of Financial Condition
      and Results of Operations**
    16**Item
      3:  Quantitative and Qualitative Disclosures About Market
      Risk**
    34**Item
      4:  Controls and Procedures**
    35**PART
      II - OTHER INFORMATION****Item
      1:  Legal Proceedings**
    35**Item
      2:  Unregistered Sales of Equity Securities and Use of
      Proceeds**
    36**Item
      3:  Defaults Upon Senior Securities**
    37**Item
      4:  Submission of Matters to a Vote of Security
      Holders**
    37**Item
      5:  Other Information**
    37**Item
      6:  Exhibits**
    37







-2-





NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES


CONDENSED
CONSOLIDATED


BALANCE
SHEETS





(UNAUDITED)




(Unaudited)March
      31,
      2005
    
    December
      31, 2004**ASSETS****CURRENT
      ASSETS**Cash
    
    $
    13,579
    
    $
    17,908Account
      receivable
    
    
    16,729
    
    
    3,395Inventory
    
    
    74,431
    
    
    70,571Prepaid
      expenses
    
    
    28,807
    
    
    23,649Total
      current assets
    
    
    133,546
    
    
    115,523**FIXED
      ASSETS,**less
      accumulated depreciationof$94,998
    
    
    145,665
    
    
    124,995**OTHER
      ASSETS**Security
      deposits
    
    
    67,758
    
    
    68,054Intangible
      assets, less accumulated amortizationof $1,009,431
    
    
    5,583,612
    
    
    5,760,342Goodwill
    
    
    3,615,393
    
    
    3,615,393**Total
      other assets**
    
    
    9,266,763
    
    
    9,443,789**TOTAL
      ASSETS**
    
    $
    9,545,974
    
    $
    9,684,307**LIABILITIES
      AND STOCKHOLDERS' EQUITY****CURRENT
      LIABILITIES**Accounts
      payable
    
    $
    629,319
    
    $
    645,491Accrued
      compensation
    
    
    422,067
    
    
    50,611Accrued
      expenses
    
    
    317,043
    
    
    335,861Short-term
      note payable
    
    
    77,207
    
    
    62,379Other
      liabilities
    
    
    18,185
    
    
    16,423Stockholder
      loans
    
    
    646,846
    
    
    194,068**Total
      current liabilities**
    
    
    2,110,667
    
    
    1,304,833**LONG-TERM
      LIABILITIES**Accrued
      compensation
    
    
    --
    
    
    350,000Stock
      settlement liability
    
    
    2,496,154
    
    
    1,918,630**Total
      liabilities**
    
    
    4,606,821
    
    
    3,573,463**COMMITMENTS
      AND CONTINGENCY (Note 9)**
    
    
    --
    
    
    --**STOCKHOLDERS'
      EQUITY**Common
      stock, no par value, 250,000,000 shares authorized,189,006,760
      shares issued and outstanding at March 31, 2005and
      187,240,093 shares issued and outstanding atDecember
      31, 2004
    
    
    16,307,050
    
    
    16,296,550Preferred
      stock, no par value, 1,000,000 shares authorized,no
      shares issued and outstanding
    
    
    --
    
    
    --Additional
      paid-in capital
    
    
    3,514,328
    
    
    3,539,328Accumulated
      deficit
    
    
    (13,837,581
    )
    
    (13,049,568
    )Accumulated
      other comprehensive loss
    
    
    (1,044,644
    )
    
    (675,466
    )**Total
      stockholders' equity**
    
    
    4,939,153
    
    
    6,110,844**TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY**
    
    $
    9,545,974
    
    $
    9,684,307
  The
accompanying notes are an integral part


of these
financial statements.







-3-





NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES





CONDENSED
CONSOLIDATED


STATEMENTS
OF OPERATIONS





(UNAUDITED)




Three
      Months
    
    Three
      Monthsended
    
    endedMarch
      31, 2005
    
    March
      31, 2004**REVENUE**
    
    $
    151,865
    
    $
    32,385**COST
      OF REVENUE**
    
    
    43,838
    
    
    7,189**GROSS
      PROFIT**
    
    
    108,027
    
    
    25,196**OPERATING
      EXPENSES**Sales,
      general and administrative
    
    
    275,786
    
    
    3,384,425Research
      and development
    
    
    411,294
    
    
    628,325Depreciation
      and amortization
    
    
    188,252
    
    
    158,113**Total
      Operating Expenses**
    
    
    875,332
    
    
    4,170,863**OPERATING
      LOSS**
    
    
    (767,305
    )
    
    (4,145,667
    )**OTHER
      INCOME (EXPENSES)**Interest
      expense
    
    
    (5,193
    )
    
    (82,967
    )Other,
      net
    
    
    (15,515
    )
    
    6,662****LOSS
      FROM CONTINUING OPERATIONS**BEFORE INCOME
      TAXES**
    
    
    (788,013
    )
    
    (4,221,972
    )**PROVISION
      FOR INCOME TAXES**
    
    
    --
    
    
    --**LOSS
      FROM CONTINUING OPERATIONS**
    
    
    (788,013
    )
    
    (4,221,972
    )**DISCONTINUED
      OPERATIONS:**Loss
      from discontinued operations (noapplicable income
      taxes)
    
    
    --
    
    
    (57,268
    )**NET
      LOSS**
    
    $
    (788,013
    )
    $
    (4,279,240
    )**LOSS
      PER COMMON SHARE (BASIC AND DILUTED):**Continuing
      operations
    
    $
    0.00
    
    $
    (0.03
    )Discontinued
      operations
    
    
    0.00
    
    
    0.00Net
      loss
    
    $
    0.00
    
    $
    (0.03
    )**WEIGHTED
      AVERAGE NUMBER OF **COMMON
      SHARES OUTSTANDING****Basic
      and Diluted
    
    
    188,394,671
    
    
    136,849,788
 The
accompanying notes are an integral part


of these
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, 2004**
    
    
    **187,240,093**
    
    **$**
    **16,296,550**
    
    **$**
    **3,539,328**
    
    **$**
    **(13,049,568**
    **)**
    
    
    
    **$**
    **(675,466**
    **)**
    **$**
    **6,110,844**Stock
      issued for services
    
    
    100,000
    
    
    10,500
    
    
    --
    
    
    --
    
    
    
    
    
    --
    
    
    10,500Sale
      of common stock
    
    
    1,666,667
    
    
    --
    
    
    (25,000
    )
    
    --
    
    
    
    
    
    --
    
    
    (25,000
    )Comprehensive
      loss:Net
      loss
    
    
    --
    
    
    --
    
    
    --
    
    
    (788,013
    )
    $
    (788,013
    )
    
    --
    
    
    (788,013
    )Foreign
      currency translationadjustment
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    8,346
    
    
    8,346
    
    
    8,346Derivative
      loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (377,524
    )
    
    (377,524
    )
    
    (377,524
    )Comprehensive
      loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,157,191
    )**Balance,
      March 31, 2005**
    
    
    **189,006,760**
    
    **$**
    **16,307,050**
    
    **$**
    **3,514,328**
    
    **$**
    **(13,837,581**
    **)**
    
    
    
    **$**
    **(1,044,644**
    **)**
    **$**
    **4,939,153******
    
    
    ****
    
    
    ****
    
    
    
    
    
    ****
    
    
    ****
 The
accompanying notes are an integral part


of these
financial statements.





-5-





NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES





CONDENSED
CONSOLIDATED


STATEMENTS
OF CASH FLOWS


(UNAUDITED)




Three
      Months
    
    Three
      Monthsended
    
    endedMarch
      31, 2005
    
    March
      31, 2004**CASH
      FLOWS FROM OPERATING ACTIVITIES**Net
      Loss
    
    $
    (788,013
    )
    $
    (4,279,240
    )Adjustments
      to reconcile net loss to cashflows from operating
      activities:Depreciation
      and amortization
    
    
    188,252
    
    
    158,113Charges
      from common stock issuances
    
    
    10,500
    
    
    2,562,750Interest
      expense added to stockholder loan
    
    
    3,895
    
    
    82,500Net
      (increase) decrease in assets:Stock
      issued for servicesAccounts
      receivable
    
    
    (13,334
    )
    
    (11,189
    )Inventory
    
    
    (3,860
    )
    
    489Other
      assets
    
    
    (5,158
    )
    
    (13,967
    )Net
      increase (decrease) in liabilities:Accounts
      payable
    
    
    (16,172
    )
    
    (19,439
    )Accrued
      compensation
    
    
    21,456
    
    
    189,309Accrued
      expenses
    
    
    (18,818
    )
    
    55,898Deferred
      revenue
    
    
    1,762
    
    
    --Total
      adjustments
    
    
    168,523
    
    
    3,004,464**Net
      cash flows from operating activities**
    
    
    (619,490
    )
    
    (1,274,776
    )**CASH
      FLOWS FROM INVESTING ACTIVITIES**Acquisition
      of fixed assets
    
    
    (33,866
    )
    
    (8,952
    )Cash
      received from exercise of stock option in subsidiary
    
    
    --
    
    
    200,000**Net
      cash flows from investing activities**
    
    
    (33,866
    )
    
    191,048**CASH
      FLOWS FROM FINANCING ACTIVITIES**Proceeds
      from issuance of common stock andstock
      subscription agreements, net of expenses
    
    
    175,000
    
    
    --Proceeds
      from stockholder loans, net
    
    
    448,883
    
    
    1,186,113Proceeds
      (payments) of notes payable, net
    
    
    14,828
    
    
    (70,000
    )**Net
      cash flows from financing activities**
    
    
    638,711
    
    
    1,116,113**Effect
      of exchange rate changes**
    
    
    10,316
    
    
    3,644Net
      change in cash
    
    
    (4,329
    )
    
    36,029Cash
      balance, beginning of period
    
    
    17,908
    
    
    49,755**Cash
      balance, end of period**
    
    $
    13,579
    
    $
    85,784******Supplemental
      disclosures of cash flow information:**Cash
      paid for interest expense
    
    $
    1,298
    
    $
    467**Supplemental
      schedule of non-cash investing and financing
      activities:**Common
      stock issued in acquisition
    
    $
    --
    
    $
    4,267,500Capital
      contribution associated with sale of subsidiary to
    affiliateReduction
      in stockholder loan
    
    $
    --
    
    $
    250,000Assumption
      of accounts payable and accrued expenses
    
    $
    --
    
    $
    499,327
  The
accompanying notes are an integral part


of these
financial statements.





-6-





**NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
31, 2005**


**(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."





NNBP’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.





**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 months ended March 31, 2005 are not
necessarily indicative of the results for a full year.





The
financial statements for the period ended March 31, 2005 and notes thereto
should be read in conjunction with the financial statements and notes thereto
for the year ended December 31, 2004 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 March 31, 2005. The Company is dependent on
continued financing from outside investors including additional shareholder
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
shareholders.





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.








-7-





**NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
31, 2005**


**(UNAUDITED)**





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





**Principles
of Consolidation**





The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All material intercompany transactions and balances
have been eliminated in consolidation.





**Revenue
Recognition**





Revenue
is recognized when the Company’s products are shipped and title has passed or
when diagnostic results are provided to the customer. Revenue is recorded net of
reserves for estimated discounts and incentives.





**Use
of estimates**





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.





**Financial
instruments**





The
carrying value of the Company’s financial instruments, including cash, accounts
receivable, accounts payable, short-term note payable and stockholder loans
approximate their fair market values.





**Inventory**





Inventory
is stated at the lower of cost or market. Cost is determined in a manner which
approximates the first-in, first-out (FIFO) method. Inventory consists of raw
materials for currently marketed products and materials and processing costs for
antibodies and antigens used in our Finland laboratory. Inventory is shown net
of applicable reserves and allowances. Shipping costs are expensed as incurred
and are included in cost of revenue.





-8-





**NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
31, 2005**


**(UNAUDITED)**





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





**Fixed
Assets**





Fixed
assets consist of furniture, fixtures, computers and lab equipment and are
recorded at cost. Fixed assets are depreciated using the straight-line method
over the estimated useful lives of three to seven years.





**Intangible
assets and goodwill**





Intangible
assets are recorded at cost, less accumulated amortization. Amortization of
intangible assets is provided over the following estimated useful lives on a
straight-line basis:





Patents      12
years


Product
rights     5 years





In
accordance with Statement of Financial Accounting Standards No. 142, “Goodwill
and Other Intangible Assets” (“SFAS No. 142”), and Statement of Financial
Accounting Standards, No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS No. 144”), the Company reviews its non-amortizable
long-lived assets, including intangible assets and goodwill for impairment
annually, or sooner whenever events or changes in circumstances indicate the
carrying amounts of such assets may not be recoverable. Other depreciable or
amortizable assets are reviewed when indications of impairment exist.





**Research
and development expenses**





Research
and development expenses are comprised of the following types of costs incurred
in performing R&D activities: salaries and benefits, allocated overhead and
occupancy costs, clinical trial and related clinical manufacturing costs,
contract services, and other outside costs. Research and development costs are
expensed as incurred.





**Income
taxes**





The
Company records its federal and state tax liability in accordance with Financial
Accounting Standards Board Statement No. 109 “Accounting for Income Taxes”.
Deferred taxes are recorded for temporary differences between the recognition of
income and expenses for tax and financial reporting purposes, using current tax
rates. Deferred assets and liabilities represent the future tax consequences of
those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.











-9-





**NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
31, 2005**


**(UNAUDITED)**





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





**Derivative
financial instruments**





The
Company accounts for derivative financial instruments indexed to and potentially
settled in, its own stock in accordance with Emerging Issues Task Force 00-19,
which provides that if the number of shares deliverable in a transaction is
indeterminable, that said shares be presented as a liability in the balance
sheet.  Further, the liability is to be measured at fair value until such
time as the obligation is settled.  The shares issued in connection with
the 2004 Subscription Agreement transactions discussed in Note 5 are derivative
transactions and as such have been presented in the accompanying balance sheets
as liabilities and accumulated other comprehensive loss.  The accumulated
other comprehensive loss component represents the difference in the share value
as issued and the value of said shares at the balance
sheet date based on the trading value of the stock at March 31,
2005.  At settlement, accumulated other comprehensive loss will be charged
to retained earnings as a constructive dividend.





**Accumulated
other comprehensive loss**





Accumulated
other comprehensive loss at March 31, 2005 consists the following:





Derivative
      financial instruments (see above)
    
    
    ($1,021,154
    )Cumulative
      foreign currency translationadjustment
      related to our Finland subsidiary
    
    
    (23,490
    )($1,044,644
    )





Accumulated
other comprehensive loss has no applicable income tax effect.





**Net
loss per share**





Net loss
per share represents the net loss attributable to common stockholders divided by
the weighted average number of common shares outstanding during the period. The
effect of incremental shares from common stock equivalents is not included in
the calculation of net loss per share as the inclusion of such common stock
equivalents would be anti-dilutive. Accordingly, fully dilutive shares
outstanding equal basic shares outstanding as of and for the periods ended March
31, 2005 and 2004.





**Reclassifications**





Certain
prior year amounts have been reclassified to conform to the current year
presentation.








-10-





**NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
31, 2005**


**(UNAUDITED)**





**2.
Acquisitions**





**Nanobac
OY**





Nanobac
OY is a Finnish company that performs similar nanobacterial research to that of
the Company. On November 11, 2003, NNBP completed the acquisition of 65% of
Nanobac OY when a final cash payment was made and the Company exercised the
conversion option in acquired convertible promissory notes.




During
January through March 2004, NNBP acquired the remaining 35% of Nanobac OY from
two individuals who are currently employees of the Company (“OY Minority
Shareholders”). The purchase price was (a) 5 million shares of NNBP’s common
stock, (b) 5 million warrants convertible into NNBP’s common stock at $.005 per
share and (c) cash consideration of 15,000 Euros. Total consideration to the OY
Minority Stockholders is valued at $4.3 million.




The total
consideration to date for OY is $5.1 million, which included cash payments, the
fair value of NNBP common stock issued, as well as direct transaction costs. The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed as of the acquisition date:




Current
      assets
    
    $
    37,534Fixed
      assets
    
    
    29,286Identifiable
      intangible assets
    
    
    5,243,048Other
      assets
    
    
    4,731Current
      liabilities
    
    
    (11,884
    )Advances
      from Nanobac
    
    
    (228,119
    )$
    5,074,596





Acquired
identifiable intangible assets consist of patents for the detection and
treatment of Nanobacteria. The
allocation of the purchase price was based, in part, on third-party valuations
of the fair values of identifiable intangible assets. Amortization
of this asset commenced as of the acquisition date.




In
addition, as part of the above agreement, the OY Minority Shareholders agreed to
employment agreements with NNBP. These agreements included $500,000 of signing
bonuses of which $150,000 was paid in 2004 and the remaining $350,000 (earned
upon certain triggering events that occurred in 2004) is payable two years from
the agreement dates (January and March 2006) and is included in current
liabilities at March 31, 2005.







-11-





**NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
31, 2005**


**(UNAUDITED)**








**2.
Acquisitions (continued)**





**Proforma**





The
following unaudited table compares NNBP's reported operating results to pro
forma information prepared on the basis that the acquisitions had taken place at
the beginning of the period for the three months ended March 31,
2004:





As
      ReportedRevenue
    
    $
    32,385Net
      loss
    
    $
    (4,279,240
    )Basic
      loss per share
    
    $
    (0.03
    )Diluted
      loss per share
    
    $
    (0.03
    )ProformaRevenue
    
    $
    32,385Net
      loss
    
    $
    (4,308,246
    )Basic
      loss per share
    
    $
    (0.03
    )Diluted
      loss per share
    
    $
    (0.03
    )





In
management's opinion, the unaudited pro forma combined results of operations are
not indicative of the actual results that would have occurred had the
acquisitions been consummated at the beginning of each period presented or of
future operations of the combined companies under the ownership and management
of NNBP.











-12-





**NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
31, 2005**


**(UNAUDITED)**








**3.
Discontinued Operations**





During
March 2004, the Company sold its HealthCentrics business unit an affiliate of
the Company’s CEO for consideration of $250,000 (a reduction in amounts
otherwise owed to the affiliate). The Company’s gain on disposal was $749,326,
which is accounted for as a capital contribution given the related party nature
of the arrangement. Summary operating results for the discontinued operations
for the three months ended March 31, 2004 are as follows:





2004Revenue
    
    $
    5,301Loss
      before income taxes
    
    
    ($
      57,268
    )Provision
      for income taxes
    
    
    --Net
      loss
    
    
    ($
      57,268
    )





**4.
Income taxes**





NNBP has
accumulated a net operating loss carryforward of approximately $8.3 million for
income tax purposes, which can be used to offset future taxable income through
2024.





Estimated
      future tax benefit
    
    $
    3,930,000Valuation
      allowance
    
    
    (3,930,000
    )Estimated
      future tax benefit
    
    $
    --





**5.
Stockholders' deficit**





**Preferred
stock:**





The
holder(s) of preferred shares are entitled to receive non-cumulative dividends
not to exceed $.10 per share when and as declared by the Board of Directors. In
the event of any liquidation, dissolution or winding down of the company, either
voluntary or involuntary, the holder(s) of each preferred share shall be
entitled to be paid on an amount equal to $4.00 per share. In the event that the
Company authorizes the redemption of all or any preferred shares, the redemption
price shall be $4.30 per share. The preferred shares are convertible at any time
into common at the ratio of 44.11 common shares to one preferred share. Holders
of preferred shares have a right to cast eight votes per preferred share and the
right to elect fifty percent of the authorized members of the board of
directors.











-13-





**NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
31, 2005**


**(UNAUDITED)**





**5.
Stockholders' deficit (continued)**





**Common
stock:**





From
August 2004 through February 2005, the Company entered into Subscription
Agreements with three unaffiliated investors. Under the terms of the
Subscription Agreements, the Company received cash of $852,500 (net of $122,500
of expenses) through March 31, 2005. The Company is to receive additional cash
of $975,000 within five days of registering the common shares and warrants
issued as a result of the Subscription Agreements. The number of common shares
to be issued is equal to the amount received divided by the lesser of $.12 or
52% of the average closing bid price of the Company’s common stock on the five
trading days immediately prior to the date on which the registration statement
is declared effective (“Fixed Price”). In addition, the Subscription Agreements
provide for the issuance of warrants equal to the number of common shares
issued. Fifty percent (50%) of the warrants are exercisable at 110% of the Fixed
Price and the remaining 50% of the warrants are exercisable at 150% of the Fixed
Price. Unexercised warrants will expire December 31, 2008. The Company has
agreed to use its best efforts to promptly register the common shares and
warrants.





During
December 2004, the Company entered into a Subscription Agreement with an
affiliate of the Company’s Chief Executive Officer. Under the terms of the
Subscription Agreement, the Company received cash of $500,000 during the year
ended December 31, 2004. The Company is to receive additional cash of $500,000
within five days of registering the common shares and warrants issued as a
result of the Subscription Agreement. All other terms of the Subscription
Agreement are substantially the same as the Subscription Agreements to the
unaffiliated investors described in the preceding paragraph. This amount is
classified as Stock Settlement Liability at March 31, 2005.





As a
result of the above Subscription Agreements, the Company has issued 12,291,667
shares of common shares, which represents the minimum number of shares to be
issued under the Subscription Agreements in exchange for cash received through
March 31, 2005. If the price of the Company’s stock is less than $0.23 per share
when the Company’s registration statement is declared effective, the Company
will be required to issue additional shares under the above Subscription
Agreements equal to a price of 52% of the average closing bid price of the
Company’s common stock on the five trading days immediately prior to the date on
which the registration statement is declared effective. The ultimate number of
shares to be issued is indeterminate as the number of shares is dependent on
NNBP’s closing bid price when a registration statement is declared effective. As
a result, the $1,475,000 of cash received under the Subscription Agreements
through March 31, 2005 is classified as Stock Settlement Liability at March 31,
2005.


.


At March
31, 2005 the Company measured the value of the shares to be issued under the
Subscription Agreements based on the Company’s closing bid price at March 31,
2005 compared to the actual shares issued. As a result of this measurement, an
additional $643,630 Stock Settlement Liability was recorded as of March 31, 2005
with a charge to other comprehensive loss.











-14-





**NANOBAC
PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
31, 2005**


**(UNAUDITED)**








**5.
Stockholders' deficit (continued)**





**Warrants:**





As of
March 31, 2005, in connection with the OY acquisition, 5,000,000 warrants were
outstanding with an exercise price of $.005 per common share and an expiration
date of August 31, 2009 (see Note 2).





At the
finalization of the Subscription Agreements described above, management
estimates between 18 million to 44 million warrants will be issued with an
estimated weighted average exercise price of $.07 to $.16 per common share and
an expiration date of five years from the date of issuance. The ultimate number
of warrants to be issued and the related exercise price is indeterminate as the
number of shares is dependent on NNBP’s closing bid price when a registration
statement is declared effective.


**6.
Related Party Transactions:**





Stockholder
Loan





An
affiliate of the Chief Executive Officer has loaned NNBP approximately $647,000
as of March 31, 2005. These loans had interest at 5% and were due on demand.
Interest expense for the above loans for the three months ended March 31, 2005
was approximately $4,000. During April 2005, an affiliate of the Chief Executive
Officer loaned an additional $750,000 to the Company under the same terms as the
above loan.














-15-





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





**Business**





Nanobac
Pharmaceuticals, Incorporated and its subsidiaries (which may be referred to as
“Nanobac”, “the Company”, “NNBP”, “we”, “us”, or “our”) is a research-based
lifescience company.




Our
research is focused on investigating the role of Nanobacterium sanguineum,
(“Nanobacteria”) in human diseases. Researchers at Nanobac have discovered a
novel nano-sized particle that we believe is responsible for a majority of
diseases associated with soft tissue calcification or plaque. While
calcification is a normal process for building healthy bones and teeth,
calcification also plays a role in other conditions related to diseases, such as
strokes and heart attacks. We believe that blood-borne nanobacteria forms
slow-growing calcified colonies in arteries and organs, much as coral reefs are
formed. Calcification of blood vessels typically involves the heart’s coronary
arteries in atherosclerosis. It also occurs in arteries more generally
throughout the body in arteriosclerosis, or hardening of the arteries. Kidney
stones are calcifications within the urinary tracts. In addition, pathologic or
soft tissue calcifications are observed in many other diseases such as,
prostatitis (a painful inflammation of the prostate gland), and Polycystic
Kidney Disease (growths of cysts in the kidneys). Research has shown the
presence of Nanobacteria in the parts of the body affected by these diseases.





Our
objective is to gain a better understanding of the role Nanobacteria plays in
diseases associated with soft tissue calcification (or the build up of calcified
deposits within the body), and to develop new methods to detect and treat
diseases associated with nanobacterial infection. At the same time, we intend to
expand the sales of our Dietary Supplements and In Vitro Diagnostic products.
Our business is comprised of three areas:








·
    Dietary
      Supplements


·
    In
      Vitro Diagnostics


·
    Bio-Medical
      Research - Pharmaceutical Drug Discovery





We
believe these three areas will fuel each other. Our research will lead to a
better understanding of Nanobacteria and its role in disease. This in turn will
enable us to develop better diagnostic tests to detect the presence of
Nanobacteria. The development of new and more effective methods to diagnose
nanobacterial infection and diseases involving pathologic calcification should
increase the demand for our dietary supplements and for new drugs that we may
bring to the market alone or in partnership. Likewise, as more effective
therapies come to market, diagnostic test ordering tends to increase.





While
there remains significant work ahead, we are encouraged by the progress being
made in the study of Nanobacteria and the increasing level of acceptance in the
medical community that there may be a relationship between the nano-particles we
call Nanobacteria and the progression of certain diseases involving pathologic
calcification. Our continuing research and development efforts, along with our
efforts in obtaining recognition by various regulatory agencies (e.g. the FDA
and similar agencies throughout the world), will require significant additional
amounts of financing over the next several years.











-16-





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





***Current
Developments*** -
Recently we signed a collaborative agreement with the Mayo Foundation for
Medical Education and Research to conduct research relating to the prevalence
and treatment of nanobacteria in specific disease populations. The parties will
evaluate the role of nanobacteria through four studies utilizing diagnostic test
kits developed by Nanobac.





We
continue with our collaborative efforts with scientists at NASA researching the
effects of Nanobacteria in the formation of kidney stones under conditions
simulating space flight. We also signed a collaborative agreement with Iowa
State University to work with the Department of Geological and Atmospheric
Sciences to explore novel methodologies for detecting calcified nano-particles
which may be related to nanobacteria.





***Intellectual
Property -*** We are
attempting to protect the intellectual property rights to our discoveries
including our treatment therapies and our diagnostic methods by obtaining
patents. We currently have one issued patent and multiple patent applications
for treatment therapies including the combination of EDTA and tetracycline to
treat nanobacteria infections and the formula mix and treatment regimen for
Nanobac Supplements, We also have one issued patent and multiple patent
applications related to our diagnostic products We are attempting to further
protect our intellectual property rights by obtaining additional patents in
unique areas of research with respect to the role of Nanobacteria in pathologic
calcification. These efforts are ongoing and will require significant additional
infusions of financing to complete. It is also anticipated that additional
patents will be sought in the future as our research and development efforts
yield new discoveries.





***Change
of Name -*** During
April 2004, we announced a name change from Nanobac Pharmaceuticals,
Incorporated to Nanobac Life Sciences, Inc. to become effective upon approval by
the shareholders.






-17-





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




**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 month period ended March 31, 2005. These comparisons of financial results
are not necessarily indicative of future results.





**Quarter
      ended March**2005
    
    2004
    
    %
      ChangeRevenue
    
    $
    151,865
    
    $
    32,385
    
    
    369
    %Cost
      of revenue
    
    
    43,838
    
    
    7,189
    
    
    510
    %Gross
      Profit
    
    
    108,027
    
    
    25,196
    
    
    329
    %Gross
      Profit percentage
    
    
    71
    %
    
    78
    %Selling,
      general and administrative
    
    
    356,038
    
    
    3,534,425
    
    
    -90
    %Research
      and development
    
    
    331,042
    
    
    478,325
    
    
    -31
    %Depreciation
      and amortization
    
    
    188,252
    
    
    158,113
    
    
    19
    %Operating
      loss
    
    
    (767,305
    )
    
    (4,145,667
    )
    
    -81
    %Other
      income (Expense)
    
    
    (20,708
    )
    
    (76,305
    )
    
    -73
    %Loss
      from continuing operations
    
    
    (788,013
    )
    
    (4,221,972
    )
    
    -81
    %Discontinued
      Operations
    
    
    0
    
    
    (57,268
    )
    
    -100
    %Net
      loss
    
    
    ($788,013
    )
    
    ($4,279,240
    )
    
    -82
    %








-18-





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





**Revenue**





Revenue
for the three months ended March 31, 2005 and 2004 is summarized as
follows:





**Quarter
      ended March**2005
    
    2004Nanobac
      Supplement
    
    $
    125,128
    
    $
    0License
      revenue
    
    
    0
    
    
    16,875Diagnostic
      Products
    
    
    26,737
    
    
    15,510$
    151,865
    
    $
    32,385





During
February 2004, we initiated the license of a new product to a third party.
Effective June 2004, the above license agreement was cancelled and we initiated
sales of this product directly to customers under the name of Nanobac
Supplement. Since the introduction of our new product, our revenue has increased
on a quarterly basis as follows:





Quarter
      1 - 2004
    
    $
    32,385Quarter
      2 - 2004
    
    
    73,564Quarter
      3 - 2004
    
    
    118,141Quarter
      4 - 2004
    
    
    134,271Quarter
      1 - 2005
    
    
    151,865





We intend
to continue to expand our sales through increased marketing efforts, accelerating
our research and developing new products for better patient
acceptance





**Cost
of revenue**





Cost of
revenue consists of direct materials, testing services (for diagnostic products)
and shipping. As a percentage of revenue, cost of revenue was 29% for the three
months ended March 31, 2005 compared to approximately 22% for the three months
ended March 31, 2004. The lower cost of revenue in 2004 was due to the 2004
license revenue having no direct costs. During June 2004, this licensing
agreement was terminated and we initiated sales of Nanobac Supplement directly
to customers, which has resulted in higher revenue and cost of revenue.





**Gross
Profit**





Gross
profit as a percentage or revenue was 71%, respectively for the three months
ended March 31, 2005 compared to 78% for the three months ended March 31, 2004.
The decrease in gross profit percentage is attributable to the 2004 license
revenue having no costs. We anticipate our future gross profit as a percentage
of revenue to be 65% to 75% based on our current product mix and pricing
strategy.








-19-





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





**Selling,
General and Administrative**





Approximately
70% of selling, general and administrative (“SG&A”) expenses are comprised
of payroll, travel and professional fees. The majority of professional fees are
related to public company expenses for audit, legal and investor relations.
Other significant SG&A expenses include facility rental and insurance.





SG&A
expenses for the three months ended March 31, 2004 include a $2.6 million charge
for stock issued as part of the Plan of Reorganization as confirmed by the
Bankruptcy Court. SG&A expenses, excluding the above charges, are summarized
as follows:





**Quarter
      ended March**2005
    
    2004SG&A
      as reported
    
    $
    275,786
    
    $
    3,384,425Less
      charge for stock issuance
    
    
    
    
    
    (2,562,750
    )SG&A
      expenses net of charge for stock issuance
    
    $
    275,786
    
    $
    821,675





SG&A
expenses decreased approximately $545,000 for the three months ended March 31,
2005 compared to the three months ended March 31, 2004. In particular,
professional fees were reduced by approximately $350,000 and travel expenses
were reduced $130,000 for the three months ended March 31, 2005 compared to the
same period in 2004.





The
reduction in SG&A expenses is consistent with the results for the prior two
quarters ended September 30, 2004 and December 31, 2004 as management made a
significant effort to reduce the level of SG&A expenses.








-20-





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





**Research
and Development**





For the
three months ended March 31, 2005 and 2004 research and development (“R&D)
expenses consisted of the following types of expenses:





Quarter
      ended March2005
    
    2004U.S.
      Payroll and medical directors
    
    
    60
    %
    
    34
    %Finland
      payroll and laboratory
    
    
    20
    %
    
    9
    %Research
      studies
    
    
    2
    %
    
    27
    %Signing
      bonuses
    
    
    0
    %
    
    24
    %Other
    
    
    18
    %
    
    6
    %Total
      R&D
    
    
    100
    %
    
    100
    %





Other
R&D expenses include professional fees related to development of patents and
other office expenses.





R&D
expenses for the three months ended March 31, 2005 of approximately $411,000
represents a $217,000 decrease compared to R&D expenses of approximately
$628,000 for the three months ended March 31, 2004. The majority of this
decrease is related to $150,000 of signing bonuses incurred in the first quarter
of 2004 with the execution of employment agreements for key scientific
personnel. The remaining decrease is due to no significant research studies
being conducted during the three months ended March 31, 2005.





We
anticipate increasing R&D expenses during the next several months.





**Depreciation
and amortization**





Approximately
95% of depreciation and amortization are related to the amortization of Product
Rights and Patents acquired in the June 2003 acquisition of LABS and the
November 2003 acquisition of OY.








-21-





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





**Other
income (Expense)**





Other
income for the three months ended March 31, 2005 and 2004 is summarized as
follows:





2005
    
    2004Interest
      expenseStockholder
      loan
    
    
    ($3,895
    )
    
    ($82,500
    )Other
    
    
    (1,298
    )
    
    (467
    )Foreign
      exchange gain (loss)
    
    
    (10,717
    )
    
    6,307Other,
      net
    
    
    (4,798
    )
    
    355($20,708
    )
    
    ($76,305
    )





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.





**Loss
from Continuing Operations**





The
increase in the loss is primarily attributable to the $206,000 of additional
R&D expenses and $368,000 of additional intangible asset amortization
expenses.





Loss from
continuing operations for the three months ended March 31, 2005 was $788,000
compared to $4.2 million for the three months ended March 31, 2004. Excluding
non-cash items for stock issuances and amortization and depreciation, the loss
from continuing operations for the three months ended March 31, 2005 and 2004
was as follows:





2005
    
    2004
    
    ChangeLoss
      from continuing operations
    
    
    ($788,013
    )
    
    ($4,221,972
    )
    $
    3,433,959Depreciation
      and amortization
    
    
    188,252
    
    
    158,113
    
    
    30,139Charges
      for stock issuances
    
    
    0
    
    
    2,562,750
    
    
    (2,562,750
    )Loss
      from continuing operationsexcluding non-cash
      items
    
    
    ($599,761
    )
    
    ($1,501,109
    )
    $
    901,348





The loss
from continuing operations excluding the above non-cash items decreased $901,000
for the three months ended March 31, 2005 compared to the three months ended
March 31, 2004. This decrease reflects (a) increased gross profit of $83,000;
(b) $545,000 decrease in SG&A expenses; (c) $150,000 signing bonuses
incurred in the first quarter of 2004 and (d) $67,000 reduction in other R&D
expenses (primarily research studies).





We are
experiencing significant losses as we conduct research and development related
to nanobacteria and launch our products and services. 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.








-22-





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





**Discontinued
Operations**





During
March 2004, our HealthCentrics business unit was sold to an affiliate of the CEO
for consideration of $250,000 plus assumption of net liabilities of
approximately $499,000. Our gain on disposal of approximately $749,000 is
accounted for as a capital contribution given the related party nature of the
arrangement.





As a
result of our decision to dispose of the HealthCentrics business unit, the
operations of HealthCentrics are retroactively removed from continuing
operations and disclosed as a single line item on the statements of operations.
The loss from discontinued operations for the three months ended March 31, 2004
is summarized as follows:




2004Revenue
    
    $
    5,301Cost
      of revenue
    
    
    9,208Gross
      profit (loss)
    
    
    (3,907
    )Selling,
      general & administrative
    
    
    53,361Research
      and development
    
    
    --Net
      loss
    
    
    ($57,268
    )








-23-





**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”). These 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. From time to time the Affiliated Entities
have agreed to allow a portion of the loan balances to be converted into shares
of the Company’s common stock. There is no obligation on the part of the
Affiliated Entities to make additional loans to the Company. The Affiliated
Entities are also under no obligation to convert any portion of the loan
balances owed to it into additional shares of the Company’s stock.





As of
March 31, 2005, we had total assets of $9.5 million of which only $133,000 were
current assets. At March 31, 2005, we had total current liabilities of $2.1
million and a working capital deficit of $2.0 million.





Net cash
used in operations for the three months ended March 31, 2005 was $619,000 for
the three months ended March 31, 2005. The negative cash flow from operations
reflects the $788,000 net loss for the period offset by the non-cash charge of
$188,000 for depreciation and amortization.





Net cash
used by investing activities for the three months ended March 31, 2004 was
$34,000 for the purchase of fixed assets.





Net cash
provided by financing activities for the three months ended March 31, 2005 was
$639,000, which is attributable to stockholder loans of $449,000, common stock
subscriptions of $175,000 (net of expenses of $25,000) and an increase in notes
payable of $15,000.





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.








-24-





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





**Recent
Accounting Pronouncements**




In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs.” The
statement amends Accounting Research Bulletin (“ARB”) No. 43, “Inventory
Pricing,” to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material. ARB No. 43 previously
stated that these costs must be “so abnormal as to require treatment as
current-period charges.” SFAS No. 151 requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of “so abnormal.” In addition, this statement requires that allocation
of fixed production overhead to the costs of conversion be based on the normal
capacity of the production facilities. The statement is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005, with
earlier application permitted for fiscal years beginning after the issue date of
the statement. The adoption of SFAS No. 151 is not expected to have any
significant impact on our current financial condition or results of operations.





In
December 2004, the FASB revised its SFAS No. 123 (“SFAS
No. 123R”), “Accounting for Stock Based Compensation.” The revision
establishes standards for the accounting of transactions in which an entity
exchanges its equity instruments for goods or services, particularly
transactions in which an entity obtains employee services in share-based payment
transactions. The revised statement requires a public entity to measure the cost
of employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. That cost is to be recognized
over the period during which the employee is required to provide service in
exchange for the award. Changes in fair value during the requisite service
period are to be recognized as compensation cost over that period. In addition,
the revised statement amends SFAS No. 95, “Statement of Cash Flows,” to
require that excess tax benefits be reported as a financing cash flow rather
than as a reduction of taxes paid. The provisions of the revised statement are
effective for financial statements issued for the first interim or annual
reporting period beginning after June 15, 2005, with early adoption
encouraged. The adoption of SFAS No. 123 is not expected to have any
significant impact on our current financial condition or results of operations.





**Critical
accounting policies**





***Use
of estimates -*** The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.








-25-





**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) serving as the nexus for nanobacteria
research and (iv) conducting successful clinical trials supporting Dr.
Kajander’s theories that the human body does not recognize nanobacteria as
harmful, and accordingly, nanobacteria could be the cause of pathological
disease causing calcification found in multiple diseases. 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.





**Risk
Factors**





**Trends,
Risks and Uncertainties**





We have
sought to identify what we believe to be the most significant risks to our
business. However, we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. You should not consider the risks and assumptions
identified in this report to be a complete discussion of all potential risks and
uncertainties affecting the Company. Investors should carefully consider all
risk factors before making an investment decision with respect to our Common
Stock.





**Cautionary
Factors that may affect Future Results**





We
provide the following cautionary discussion of risks, uncertainties and possible
inaccurate assumptions relevant to our business and our products. These are
factors that we think could cause our actual results to differ materially from
expected results. Other factors besides those listed here could adversely affect
us.






-26-





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





**Risk
Factors (continued)**





**We
require additional financing in order to continue in business as a going
concern, the availability of which is uncertain. We may be forced by business
and economic conditions to accept financing terms which will require us to issue
our securities at a discount, which could result in further dilution to our
existing stockholders.**




As
discussed under the heading, "Management's Discussion and Analysis - Liquidity
and Capital Resources," we require additional financing to fund our operations.
There can be no assurance that additional financing will be available to us when
needed or, if available, that it can be obtained on commercially reasonable
terms. In addition, any additional equity financing may involve substantial
dilution to our stockholders. If we fail to raise sufficient financing to meet
our immediate cash needs, we will be forced to scale down or perhaps even cease
the operation of our business, which may result in the loss of some or all of
your investment in our common stock.




In
addition, in seeking debt or equity private placement financing, we may be
forced by business and economic conditions to accept terms which will require us
to issue our securities at a discount from the prevailing market price or face
amount, which could result in further dilution to our existing
stockholders.




**Liquidity
and Working Capital Risks; Need for Additional Capital to Finance** **Growth
and Capital Requirements**





Throughout
2005 and 2004, affiliates of our Chief Executive Officer have provided our
capital needs through loans and capital contributions. While these affiliates
continue to provide for the majority of our cash requirements, they are under no
obligation to continue such financing and/or strategic guidance. In the event
these affiliates should discontinue their support, we may have difficulty in
continuing our operations. In such an event, shareholders could lose their
investment in its entirety. Historically, these affiliates have provided capital
to us on a demand debt basis after which they may agree to convert debt into
shares of our common stock. If, in the future we require additional capital,
these affiliates might contribute some or all of our requirements. We anticipate
that as a part of any such loan, these affiliates would have rights to convert
into additional shares of our common stock. In such an event and to the degree
of which we require these affiliates’ support, shareholders may experience
dilution. At present, we do not maintain key man insurance for our CEO.





In
addition to the financial support we may receive from affiliates of our CEO, we
may continue to seek to raise capital from public or private equity or debt
sources to provide working capital to meet our general and administrative costs
until net revenues make the business self-sustaining. We cannot guarantee that
we will be able to raise any such capital on terms acceptable to us or at all.
Such financing may be upon terms that are dilutive or potentially dilutive to
our stockholders. If alternative sources of financing are required, but are
insufficient or unavailable, we will be required to modify our growth and
operating plans in accordance with the extent of available funding.








-27-





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





**Risk
Factors (continued)**





**We
have a history of operating losses and fluctuating operating results, which
raise substantial doubt about our ability to continue as a going
concern.**




Since
inception through March 31, 2005, we have incurred aggregate losses of $13.8
million. There is no assurance that we will operate profitably or will generate
positive cash flow in the future. In addition, our operating results in the
future may be subject to significant fluctuations due to many factors not within
our control, such as the unpredictability of when customers will order products,
the size of customers' orders, the demand for our products, and the level of
competition and general economic conditions.




Although
we are confident that revenues will increase, we also expect an increase in
research and development costs and operating costs. Consequently, we expect to
incur operating losses and negative cash flow until our products gain market
acceptance sufficient to generate a commercially viable and sustainable level of
sales, and/or additional products are developed and commercially released and
sales of such products made so that we are operating in a profitable manner.




**Potential
Incorrect Conclusions on the Detection and Eradication of
Nanobacteria**





Most of
our future revenue is based on our ability to detect and eradicate Nanobacteria.
If it is ultimately proved that our diagnostic methodologies and treatment
regimens as covered by our patents are ineffective or based upon incorrect
scientific conclusions, our existing patents and product lines may lose most or
all of their value. Further, if we are unsuccessful in leveraging our diagnostic
and therapeutic products to detect and treat nanobacterial diseases, we may not
generate sufficient revenue to offset our expenses.





**Development
and Commercialization of Pharmaceutical and Nurtraceutical
Products**





Pharmaceutical
and nutraceutical research and development is highly speculative and involves a
high and significant degree of risk.  The marketability of any product
developed by us will be affected by numerous factors beyond our control,
including:





·
    the
      discovery of unexpected toxicities or lack of sufficient efficacy of
      products which make them unattractive or unsuitable for human
      use;


·
    preliminary
      results as seen in animal and/or limited human testing may not be
      substantiated in larger controlled clinical
trials;


·
    manufacturing
      costs or other factors may make manufacturing of products impractical and
      non-competitive;


·
    proprietary
      rights of third parties or competing products or technologies may preclude
      commercialization; and


·
    requisite
      regulatory approvals for the commercial distribution of products may not
      be obtained.





Other
factors may become apparent during the course of research, up-scaling or
manufacturing which may result in the discontinuation of research and other
critical projects.





-28-





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





**Risk
Factors (continued)**





**Acceptance
of Products in the Marketplace is Uncertain** .





Our
future financial performance will depend, at least in part, upon the
introduction and customer acceptance of our proposed treatments and products.
Our treatments and products may not achieve market acceptance, and such adverse
marketing results could materially harm the Company.





**Limited
Operating History Anticipated Losses; Uncertainty of Future
Results**





We have a
limited operating history upon which an evaluation of our Company and our
prospects can be based. Our prospects must be evaluated with a view to the risks
encountered by companies in early stages of development, particularly in light
of the uncertainties relating to the new and evolving lifescience research which
we intend to develop and market, and the acceptance of our business model. We
will be incurring costs to: (i) perform research studies to prove the
effectiveness of our pharmaceutical products, (ii) further develop and market
our products; (iii) establish distribution relationships; and (iv) build an
organization. To the extent that such expenses are not subsequently followed by
commensurate revenues, our business, results of operations and financial
condition will be materially adversely affected. We, therefore, cannot insure
that we will be able to immediately generate sufficient revenues. We expect
negative cash flow from operations to continue for at least the next 12 months
as we continue to develop and market our business. If cash generated by
operations is insufficient to satisfy our liquidity, we may be required to sell
additional equity or debt securities. The sale of additional equity or
convertible debt securities would result in additional dilution to our
stockholders. Our initial operations may not be profitable, since time will be
required to build our business to the point that our revenues will be sufficient
to cover our total operating costs and expenses. Our reaching a sufficient level
of sales revenues will depend upon a large number of factors, including
availability of sufficient working capital, the number of customers we are able
to attract and the costs of continuing development of our product
line.





**Federal
Food and Drug Administration**





Some or
all of our products may be governed by rules and regulations established by the
United States Food and Drug Administration (“FDA”). Changes in FDA regulations
and the enforcement thereof may affect our lifescience business. Furthermore, we
may not be successful in filing and obtaining approval of our 510K or PMA
filings with the FDA for our Nano-Capture Antigen and Nano-Sero IgG ELISA
assays.





**Data
Obtained Through Clinical Trials** .





Data
obtained from pre-clinical studies and clinical trials do not necessarily
predict results that will be obtained from later pre-clinical studies and
clinical trials. Moreover, pre-clinical and clinical data is susceptible to
varying interpretations, which could delay, limit or prevent regulatory
approval. A number of companies in the pharmaceutical industry have suffered
significant setbacks in advanced clinical trials, even after experiencing
promising results in earlier trials. The failure to adequately demonstrate the
safety and/or effectiveness of an intended product under development could delay
or prevent regulatory clearance of the potential drug or treatment, resulting in
delays to commercialization, and could materially harm the
business.






-29-





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





**Risk
Factors (continued)**





**Competitors
in the Nutraceutical and Pharmaceutical Industry May Develop Competing
Technologies**





We have a
number of competitors, some of whom are better able to commercialize their
products, which could render our products obsolete or uncompetitive prior to
recovering our expenses. We anticipate that we will face increased competition
in the future as new products enter the market and advanced technologies become
available.





**Regulations
may Inhibit our Ability to Sell Nanobac Supplements**





Codex is
a joint body comprising government representatives
and non-governmental organizations, jointly managed by the United
Nation's (U.N.) Food and Agriculture Organization (FAO) and the World
Health Organization (WHO) of the U.N. The Codex Committee on Nutrition and Foods
for Special Dietary Uses (CCNFSDU) has been attempting to develop international
guidelines for vitamins and minerals since 1991. In November 2004, these
guidelines were finalized and a vote to ratify will take place in July,
2005.





There is
a school of thought within the dietary supplement community that
buying vitamins and other dietary supplements will be severely limited by
this CODEX. Passage of the above guidelines may inhibit our ability to sell
Nanobac Supplement outside of the United States. We do not believe that the
passage will impact United State revenue as the U.S. draft position states that
"The United States supports consumer choice and access to dietary supplements
that are safe and are labelled in a truthful and non-misleading manner." 
Further, the CODEX Draft notes that the Codex Guidelines for Vitamin and Mineral
Supplements will not adversely affect the availability of safe and truthfully
labelled supplement products in the U.S. marketplace or to U.S. consumers. If
our interpretation is not correct passage of the international guidelines may
inhibit the sales of Nanobac Supplement inside and outside of the United States





**Risk
of Third Party Lawsuits** .





We are
exposed to potential product liability risks that are inherent in the testing,
manufacturing and marketing of pharmaceutical products. We cannot assure
potential investors that such claims will not be asserted against the Company. A
successful liability claim or series of claims brought against us could have a
material adverse effect on our financial condition. In addition, we may be sued
by third parties who claim that our products and treatments infringe upon the
intellectual property rights of others or that we have misappropriated trade
secrets of others. This risk is exacerbated by the fact that the validity and
breadth of claims covered in medical technology patents and the breadth and
scope of trade secret protection involve complex legal and factual questions for
which important legal principles are unresolved. Any litigation or claims
against us, whether or not valid, could result in substantial costs, could place
a significant strain on our financial resources, and could harm our
reputation.






-30-





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





**Risk
Factors (continued)**





**Government
Regulation**





Healthcare
in general and the pharmaceuticals industry in particular are highly regulated
markets, subject to both federal and a multitude of state regulations and
guidelines. The majority of our business is still in clinical research
applications and is governed by the medical community. There can be no assurance
that changes to state or federal laws will not materially restrict our ability
to sell our products or develop new product lines.





**Intellectual
Property Rights**





We have a
family of patents encompassing the detection and eradication of nanobacteria.
There are risks inherent in any intellectual property rights in that they may be
challenged as being invalid or not original. Additionally, other parties may
abuse such intellectual rights, causing the Company to defend its rights.





**Dependency
upon Key Technical and Scientific Personnel Who May Terminate Employment at Any
Time** . ****





Our
success will depend to a significant degree upon the continued services of key
technical and scientific personnel, including but not limited to E. Olavi
Kajander, MD, PhD. In addition, our success may depend on our ability to attract
and retain other highly skilled personnel. Competition for qualified personnel
is intense, and the process of hiring and integrating such qualified personnel
is often lengthy. We may be unable to recruit personnel on a timely basis, if at
all. All of the Company’s management and other employees may voluntarily
terminate their employment with us at any time. The loss of the services of key
personnel, or the inability to attract and retain additional qualified
personnel, could result in delays to development, loss of sales, and/or
diversion of management resources that could have a material adverse affect on
the Company.





**Competition**





The
markets in which we compete include successful and well-capitalized competitors
that vary in size and scope. Principal competitors include Pfizer, Merck and
other pharmaceutical companies having unique treatments for cardiovascular
disease. All of these competitors are more established, benefit from greater
name recognition and have substantially greater resources than us. Moreover, we
could face additional competition as other established and emerging companies
enter the market and new products and technologies are introduced. Increased
competition could result in price reductions, fewer customer subscriptions,
reduced gross margins and loss of market share, any of which could materially
adversely affect our business, financial condition and operating results. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third-parties,
thereby increasing the ability of their products to address the needs of our
prospective consumers. While we believe we can differentiate our product from
these current and future competitors, focusing on the products' functionality,
flexibility, adaptability and features, there can be no assurance that we will
be able to compete successfully against current and future competitors. The
failure to effectively compete would have a material adverse effect upon our
business, financial condition and operating results.








-31-





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





**Risk
Factors (continued)**





**Lack
of Independent Directors**





We cannot
guarantee our Board of Directors will have a majority of independent directors
in the future. In the absence of a majority of independent directors, our
executive officers, who are also principal stockholders and directors, could
establish policies and enter into transactions without independent review and
approval thereof. This could present the potential for a conflict of interest
between the Company’s stockholders and the controlling officers and/or
directors.





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





Our
officers and directors are required to exercise good faith and high integrity in
our management affairs. Our Articles of Incorporation and By Laws provide,
however, that our officers and directors shall have no liability to our
shareholders for losses sustained or liabilities incurred which arise from any
transaction in their respective managerial capacities unless they violated their
duty of loyalty, did not act in good faith, engaged in intentional misconduct or
knowingly violated the law, approved an improper dividend or stock repurchase,
or derived an improper benefit from the transaction. Our Articles and By-Laws
also provide for the indemnification by us of the officers and directors against
any losses or liabilities they may incur as a result of the manner in which they
operate our business or conduct the internal affairs, provided that in
connection with these activities they act in good faith and in a manner they
reasonably believe to be in, or not opposed to, the best interests of the
Company, and their conduct does not constitute gross negligence, misconduct or
breach of fiduciary obligations.





**Continued
Control by Current Officers and Directors**





The
present officers and directors control approximately 50% of the outstanding
shares of Common Stock, and are in a position to elect all of our Directors and
otherwise control the Company, including, without limitation, authorizing the
sale of equity or debt securities of the Company, the appointment of officers,
and the determination of officer's salaries. Shareholders have no cumulative
voting rights.






-32-





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





**Limited
Market Due To Penny Stock**


NNBP's
stock differs from many stocks, in that it is a "penny stock." The Securities
and Exchange Commission has adopted a number of rules to regulate penny stocks.
These rules include, but are not limited to, Rules 3a5l-l, 15g-1, 15g-2, 15g-3,
15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and Exchange Act of 1934, as
amended. Because our securities constitute penny stock within the meaning of the
rules, the rules would apply to us and our securities. The rules may further
affect the ability of owners of our stock to sell their securities in any market
that may develop for them. There may be a limited market for penny stocks, due
to the regulatory burdens on broker-dealers. The market among dealers may not be
active. Investors in penny stock often are unable to sell stock back to the
dealer that sold them the stock. The mark-ups or commissions charged by the
broker-dealers may be greater than any profit a seller may make. Because of
large dealer spreads, investors may be unable to sell the stock immediately back
to the dealer at the same price the dealer sold the stock to the investor. In
some cases, the stock may fall quickly in value. Investors may be unable to reap
any profit from any sale of the stock, if they can sell it at all. Stockholders
should be aware that, according to the Securities and Exchange Commission
Release No. 34- 29093, the market for penny stocks has suffered in recent years
from patterns of fraud and abuse. These patterns include: - Control of the
market for the security by one or a few broker-dealers that are often related to
the promoter or issuer; - Manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; - "Boiler room"
practices involving high pressure sales tactics and unrealistic price
projections by inexperienced sales persons; - Excessive and undisclosed bid-ask
differentials and markups by selling broker-dealers; and - The wholesale dumping
of the same securities by promoters and broker- dealers after prices have been
manipulated to a desired level, along with the inevitable collapse of those
prices with consequent investor losses. Furthermore, the penny stock designation
may adversely affect the development of any public market for NNBP's shares of
common stock or, if such a market develops, its continuation. Broker-dealers are
required to personally determine whether an investment in penny stock is
suitable for customers. Penny stocks are securities (i) with a price of less
than five dollars per share; (ii) that are not traded on a "recognized" national
exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation
system (NASDAQ-listed stocks must still meet requirement (i) above); or (iv) of
an issuer with net tangible assets less than $2,000,000 (if the issuer has been
in continuous operation for at least three years) or $5,000,000 (if in
continuous operation for less than three years), or with average annual revenues
of less than $6,000,000 for the last three years. Section 15(g) of the Exchange
Act, and Rule 15g-2 of the Commission require broker-dealers dealing in penny
stocks to provide potential investors with a document disclosing the risks of
penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor's
account. Potential investors in NNBP's common stock are urged to obtain and read
such disclosure carefully before purchasing any shares that are deemed to be
"penny stock." Rule 15g-9 of the Commission requires broker-dealers in penny
stocks to approve the account of any investor for transactions in such stocks
before selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements
may make it more difficult for NNBP's stockholders to resell their shares to
third parties or to otherwise dispose of them.




-33-


**Item
3: 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 a 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
4: Controls and Procedures**





***Disclosure
controls and procedures***





Under the
supervision and with the participation of our management, including our Chief
Executive 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, and, based on this evaluation, our Chief Executive Officer
has concluded that these controls and procedures are effective.





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.








-34-





**Item
4: 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
2006 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.





***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.





**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 shareholders are an
adverse party or have a material interest adverse to us.




On
September 24, 2004 a civil action was filed in United States District Court -
Southern District of California by World Health Products, LLC (“World Health”)
broadly alleging that the Company, together with a customer of the Company
(“Customer”), has infringed on its Patent Number 5,602,180 related to the sale
of suppositories included in the Company’s supplement product. World Health
alleged additional complaints against the Customer to which the Company is not
liable. During February 2005, World Health dropped the Company from their
lawsuit as their tests of our suppositories determined that World Health’s
patents were not being infringed upon.




-35-




**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 120% of the Fixed
Price and the remainder will be priced at 150% of the Fixed Price. 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:





Numberof
      Shares
    
    Per
      Share
    
    ProceedsCommon
      Stock:Unaffiliated
      Investors
    
    
    16,250,000
    
    $
    0.12
    
    $
    1,950,000Affiliates
    
    
    8,333,333
    
    $
    0.12
    
    $
    1,000,00024,583,333
    
    
    
    
    $
    2,950,000
  Number
    
    Exerciseof
      Warrants
    
    PriceWarrants:Unaffiliated
      Investors
    
    
    8,125,000
    
    $
    0.132Unaffiliated
      Investors
    
    
    8,125,000
    
    $
    0.180Affiliates
    
    
    4,166,667
    
    $
    0.132Affiliates
    
    
    4,166,666
    
    $
    0.18024,583,333





As of
December 31, 2004, 10,625,000 shares had been issued under the above
Subscription Agreements. 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 $0.09 to $0.14 per share, approximately twice as many
shares and warrants would be issued as described above.





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.





A success
fee was awarded to a broker for completing the transaction to one of the above
unaffiliated investors in the form of 5-year warrants equal to 20% of the value
of the transaction. These warrants have exercise prices equal to $0.16 to $0.22
per share for transactions completed to date. Future warrants issued under this
agreement will have an exercise price equal to NNBP’s stock price on the date of
closing. We estimate that approximately 2.2 million warrants will be issued to
this broker.








-36-





**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











-37-





**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.




**NANOBAC
      PHARMACEUTICALS, INCORPORATED**Date: May 12, 2005
    By:
    /s/ John D.
  StantonJohn D. Stanton
      Chief Executive
Officer





-38-





**Nanobac
Pharmaceuticals, Incorporated**








EXHIBIT
INDEX




EXHIBITNUMBER
    
    DESCRIPTION
    
    PAGE31.1
    
    Certification
      to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive
      Officer
    
    4031.2
    
    Certification
      to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial
      Officer
    
    4132.1
    
    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
    
    4232.2
    
    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
    
    43









-39-