**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, 2007**


**_______________________**





**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)






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


(Address
      of Principal Executive Office) (Zip Code)






**(813)
      264-2241**


(Registrant’s
      telephone number, including area code)








Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for a shorter period that the registrant was required
      to
      file such reports), and (2) has been subject to such filing requirements for
      the
      past 90 days.





Yes x
      No o





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




Yes o
      No x




The
      number of shares issued and outstanding of the Registrant’s Common Stock, no par
      value, as of May 11, 2007 was 247,473,426.









**NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**








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




2


**NANOBAC
        PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES** CONDENSED CONSOLIDATED BALANCE
          SHEETS





(Unaudited)March
                  31, 2007
              
              December
                  31, 2006**ASSETS****CURRENT
                  ASSETS**Cash
              
              $
              6,231
              
              $
              39,505Account
                  receivable
              
              
              164
              
              
              708Inventory
              
              
              67,060
              
              
              66,352Prepaid
                  expenses
              
              
              25,095
              
              
              19,938Total
                  current assets
              
              
              98,550
              
              
              126,503**FURNITURE
                  AND EQUIPMENT,**less
                  accumulated depreciationof$110,963
                  at
                  March 31, 2007 and $105,534 atDecember
                  31, 2006
              
              
              51,426
              
              
              60,321**OTHER
                  ASSETS**Security
                  deposits
              
              
              8,160
              
              
              58,503Intangible
                  assets, less accumulated amortizationof$1,388,271at
                  March 31, 2007 and $1,279,041 atDecember
                  31, 2006
              
              
              3,854,771
              
              
              3,964,001Goodwill
              
              
              3,615,393
              
              
              3,615,393**Total
                  other assets**
              
              
              7,478,324
              
              
              7,637,897**TOTAL
                  ASSETS**
              
              $
              7,628,300
              
              $
              7,824,721**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              647,661
              
              $
              408,665Accrued
                  compensation
              
              
              339,969
              
              
              87,385Accrued
                  expenses
              
              
              509,246
              
              
              436,590Related
                  party loans
              
              
              3,310,436
              
              
              5,367,205Derivative
                  liability
              
              
              329,500
              
              
              -**Total
                  current liabilities**
              
              
              5,136,812
              
              
              6,299,845**LONG-TERM
                  LIABILITIES**Stock
                  settlement obligation:Related
                  party
              
              
              961,538
              
              
              961,538Other
              
              
              1,875,000
              
              
              1,875,000**Total
                  liabilities**
              
              
              7,973,350
              
              
              9,136,383**CONTINGENCIES
                  (Note 6)**
              
              
              -
              
              
              -**STOCKHOLDERS'
                  DEFICIT**Preferred
                  stock, no par value, 1,000,000 shares authorized,no
                  shares issued and outstanding
              
              
              -
              
              
              -Common
                  stock, no par value, 250,000,000 shares authorized,2007:
                  247,473,726 shares issued and outstanding2006:
                  205,473,726 shares issued and outstanding
              
              
              22,720,050
              
              
              17,260,050Additional
                  paid-in capital
              
              
              3,174,031
              
              
              3,803,031Accumulated
                  deficit
              
              
              (26,210,606
              )
              
              (22,353,888
              )Accumulated
                  other comprehensive loss
              
              
              (28,525
              )
              
              (20,855
              )**Total
                  stockholders' deficit**
              
              
              (345,050
              )
              
              (1,311,662
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              $
              7,628,300
              
              $
              7,824,721


The
        accompanying notes are an integral part of these condensed consolidated
        financial statements


3


**NANOBAC
      PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES**


**CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**


**(Unaudited)**


Three
                  Months
              
              Three
                  Monthsended
              
              endedMarch
                  31, 2007
              
              March
                  31, 2006**REVENUE**
              
              $
              5,012
              
              $
              161,286**COST
                  OF REVENUE**
              
              
              4,260
              
              
              45,195**GROSS
                  PROFIT**
              
              
              752
              
              
              116,091**OPERATING
                  EXPENSES**Selling,
                  general and administrative
              
              
              2,062,665
              
              
              425,870including
                  $1,560,000 relatedparty
                  stock based compensationin
                  2007Research
                  and development
              
              
              378,975
              
              
              354,322Impairment
                  loss on intangible asset
              
              
              -
              
              
              585,000Depreciation
                  and amortization
              
              
              116,646
              
              
              188,217**Total
                  Operating Expenses**
              
              
              2,558,286
              
              
              1,553,409**OPERATING
                  LOSS**
              
              
              (2,557,534
              )
              
              (1,437,318
              )**OTHER
                  INCOME (EXPENSES)**Interest
                  expense
              
              
              (46,230
              )
              
              (38,239
              )Derivative
                  gain
              
              
              299,500
              
              
              -Loss
                  on related party debt extinguishment
              
              
              (1,560,000
              )
              
              -Other,
                  net
              
              
              7,546
              
              
              (12,130
              )**LOSS
                  BEFORE INCOME TAXES**
              
              
              (3,856,718
              )
              
              (1,487,687
              )**PROVISION
                  FOR INCOME TAXES**
              
              
              -
              
              
              -**NET
                  LOSS**
              
              $
              (3,856,718
              )
              $
              (1,487,687
              )**LOSS
                  PER COMMON SHARE**Basic
                  and Diluted
              
              $
              (0.02
              )
              $
              (0.01
              )**WEIGHTED
                  AVERAGE NUMBER OF****COMMON
                  SHARES OUTSTANDING**Basic
                  and Diluted
              
              
              233,165,733
              
              
              191,232,034




The
        accompanying notes are an integral part of these condensed consolidated
        financial statements


4


**NANOBAC
        PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES**


**CONDENSED
        CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT** **FOR
          THE THREE MONTHS ENDED MARCH 31, 2007**
 **(Unaudited)**


**Accumulated****Additional**
              
              
              
              **Other**
              
              **Other****Common**
              
              **Stock**
              
              **Paid-in**
              
              **Accumulated**
              
              **Comprehensive**
              
              **Comprehensive****Shares**
              
              **Amount**
              
              **Capital**
              
              **Deficit**
              
              **Loss**
              
              **Loss**
              
              **Total****Balance,
                  December 31, 2006**
              
              
              **205,473,726**
              
              **$**
              **17,260,050**
              
              **$**
              **3,803,031**
              
              
              **($22,353,888**
              **)**
              
              -
              
              
              **($20,855**
              **)**
              
              **($1,311,662**
              **)**Stock
                  issued for services
              
              
              12,000,000
              
              
              1,560,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,560,000Stock
                  issued for extinguishmentof
                  related party loans
              
              
              30,000,000
              
              
              3,900,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,900,000Reclassifaction
                  of equity toderivative
                  liability
              
              
              -
              
              
              -
              
              
              (629,000
              )
              
              -
              
              
              -
              
              
              -
              
              
              (629,000
              )Comprehensive
                  loss:Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,856,718
              )
              
              ($3,856,718
              )
              
              -
              
              
              (3,856,718
              )Foreign
                  currency translationadjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (7,670
              )
              
              (7,670
              )
              
              (7,670
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              ($3,864,388
              )**Balance,
                  March 31, 2007**
              
              
              **247,473,726**
              
              **$**
              **22,720,050**
              
              **$**
              **3,174,031**
              
              **$**
              **(26,210,606**
              **)**
              
              
              
              **$**
              **(28,525**
              **)**
              **$**
              **(345,050**
              **)**





The
        accompanying notes are an integral part of these condensed consolidated
        financial statements


5


**NANOBAC
        PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES**


**CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS** **(Unaudited)**





Three
                  Months
              
              Three
                  Monthsended
              
              endedMarch
                  31, 2007
              
              March
                  31, 2006**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (3,856,718
              )
              $
              (1,487,687
              )Adjustments
                  to reconcile net loss to cashflows from operating activities:Depreciation
                  and amortization
              
              
              116,646
              
              
              188,217Impairment
                  loss on intangible asset
              
              
              -
              
              
              585,000Loss
                  on disposition of furniture and equipment
              
              
              -
              
              
              18,330Derivative
                  gain
              
              
              (299,500
              )
              
              -Charges
                  for common stock issued for services
              
              
              1,560,000
              
              
              -Loss
                  on related party debt extinguishment
              
              
              1,560,000
              
              
              -Interest
                  expense accrued for stockholder loan
              
              
              45,442
              
              
              38,023Net
                  (increase) decrease in assets:Accounts
                  receivable
              
              
              544
              
              
              (9,714
              )Inventory
              
              
              (708
              )
              
              8,089Other
                  assets
              
              
              (5,157
              )
              
              3,171Net
                  increase (decrease) in liabilities:Accounts
                  payable
              
              
              238,996
              
              
              (41,691
              )Accrued
                  compensation
              
              
              252,584
              
              
              50,582Accrued
                  expenses
              
              
              72,656
              
              
              110,957Deferred
                  revenue
              
              
              -
              
              
              (8,304
              )Total
                  adjustments
              
              
              3,541,503
              
              
              942,660**Net
                  cash flows from operating activities**
              
              
              (315,215
              )
              
              (545,027
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Acquisition
                  of furniture and equipment
              
              
              (1,532
              )
              
              (3,825
              )Proceeds
                  from sale of furniture and equipment
              
              
              3,221
              
              
              6,547Refund
                  (payment) of security deposits
              
              
              50,400
              
              
              (2,731
              )**Net
                  cash flows from investing activities**
              
              
              52,089
              
              
              (9
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Proceeds
                  from related party loans
              
              
              237,789
              
              
              1,204,218Proceeds
                  from notes payable
              
              
              -
              
              
              2,601Payment
                  of notes payable
              
              
              -
              
              
              (39,000
              )**Net
                  cash flows from financing activities**
              
              
              237,789
              
              
              1,167,819**Effect
                  of exchange rate changes**
              
              
              (7,937
              )
              
              (5,753
              )Net
                  change in cash
              
              
              (33,274
              )
              
              617,030Cash
                  balance, beginning of period
              
              
              39,505
              
              
              8,975**Cash
                  balance, end of period**
              
              $
              6,231
              
              $
              626,005**Supplemental
                  disclosures of cash flow information:**Cash
                  paid for interest
              
              $
              788
              
              $
              216**Supplemental
                  schedule of non-cash investing and financing
                  activities:**Common
                  stock issued in exchange for current liabilities
              
              $
              2,340,000
              
              $
              121,500Reclassifaction
                  of equity to derivative liability
              
              $
              629,500
              
              $
              -




The
        accompanying notes are an integral part of these condensed consolidated
        financial statements


6


**NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**


**(UNAUDITED)**





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





**Nature
      of business**





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





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





**Principles
      of Consolidation**





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





**Basis
      of Presentation**





In
      the
      opinion of management, the accompanying financial statements include all
      adjustments, consisting only of normal recurring items, necessary for their
      fair
      presentation in conformity with generally accepted accounting principles. The
      results of operations for the three months ended March 31, 2007 are not
      necessarily indicative of the results for a full year.





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





**Liquidity
      and Management Plans**





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. The Company has incurred recurring losses
      and
      has a working capital deficiency at March 31, 2007. 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. At this time, there is no firm commitment to invest in NNBP.





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, 2007**


**(UNAUDITED)**





**2.
      Related Party Transactions:**





An
      entity
      controlled by the Chief Executive Officer (who is also the largest stockholder
      of NNBP), has provided working capital loans to NNBP throughout 2006 and 2007.
      These loans bear interest at the rate of 5% per annum and are due on demand.
      During January 2007, $2.3 million of the above loan was paid with the issuance
      of 30,000,000 shares of the Company’s common stock with a fair value (based on
      the trading price of the Company’s stock on the date of the transaction of $0.13
      per share) of approximately $3.9 million. The excess of the fair value of the
      shares issued over the amount of the related party loan paid was approximately
      $1.6 million and is included as a charge to other expenses in the accompanying
      condensed consolidated statements of operations. The remaining loan balance
      at
      March 31, 2007 was approximately $3.3 million. Interest expense for the above
      loans for the three months ended March 31, 2007 and 2006 was approximately
      $45,000 and $38,000, respectively.





**3.
      Financial Instruments:**





On
      January 30, 2007, the Company’s board of directors approved the issuance of
      42,000,000 shares of common stock (see notes 2 and 4). As a result of this
      issuance, the Company does not have sufficient authorized and unissued shares
      available to settle all commitments that may require the issuance of stock.
      The
      Company’s inability to settle these commitments caused the outstanding warrants
      (which had previously been classified as stockholders’ equity) to qualify as
      derivative liabilities. On January 30, 2007, the Company reclassified $629,000
      of additional paid-in capital (representing the fair value of the warrants
      on
      that date) to a derivative liability. At March 31, 2007, the derivative
      liability had a fair value of $329,500 resulting in a derivative gain of
      $299,500 being recognized in the condensed consolidated statements of operations
      for the three months then ended.





**4.
      Stockholders’ Equity**





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





**5.
      Income Taxes**





The
      Company is required to file income tax returns in the U.S. federal jurisdiction
      and various states. Nanobac OY, a wholly owned subsidiary is required to file
      income tax returns in Finland. The Company has not filed a U.S. federal or
      state
      income tax return since 2001. Nanobac OY has filed tax returns through December
      31, 2005.





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


8


**NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**


**(UNAUDITED)**




**6.
      Contingencies**





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





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





The
      Company, along with the Company’s CEO and a Board of Director member was served
      with civil action in the Circuit Court of Cook County, Illinois by Nutmeg Group
      LLC, an unaffiliated holder of subscription agreements described in our most
      recent Form 10-KSB. The suit is seeking damages for alleged breaches of contract
      by the Company and the affiliates as a result of the alleged failure to register
      and deliver stock and warrants that were allegedly due to be registered and
      delivered under certain subscription, registration rights, and other agreements
      between the parties. Additionally, the suit seeks the recovery of $65,000 for
      penalties for failure to register shares subject to the registration rights
      agreement. We have filed a motion to quash the summons, contending there is
      no
      jurisdiction in Illinois for this matter. The amount of damages, if any, that
      will be payable under this legal action is currently unknown.




9


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





**Business**


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




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




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




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




10


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





**Business
      (continued)**




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




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




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




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




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




·
            **Characterization
                -**We
                have preliminary photographic and biochemical evidence that calcifying
                nanoparticles self-replicate in non-precipitating conditions, suggesting
                further that they have a self-sustaining mechanism and might be
                infectious. In a recent agreement with Fetzer Memorial Trust, we
                have
                begun experiments at our NASA laboratory in Houston to demonstrate
                this
                replication via time-lapse photography using award-winning




11


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





**Business
      (continued)**




CytoViva
      microscope technology capable of breaking through the 200 nanometer (nm) barrier
      for light microscopes. Our Scientific Director at NASA’s Johnson Space Center
      was successful in demonstrating the differences between CNPs and organic
      crystal. This was an important step in demonstrating to the scientific community
      that CNPs are not just crystal artifacts. We are currently conducting
      experiments at NASA with a Nikon biostation system that we hope will confirm
      the
      CytoViva experiment and also demonstrate the replication process. Since Nanobac
      performed the experiment, we own the intellectual property arising from the
      above experiments.




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




·
            **Diagnostics**-
                We believe that our proprietary Enzyme-Linked ImmunoSorbent Assay
                (“ELISA”) antibody test uniquely recognizes calcifying nanoparticles known
                as nanobacteria, and plan to further validate the functionality of
                this
                diagnostic test. ELISA is a biochemical technique used mainly as
                a
                diagnostic tool in medicine.




**Protein
      Array Development**




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




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




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


12





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





**Business
      (continued)**





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





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





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





13





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








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


**Results
      of Operations**




The
      following table presents the percentage of period-over-period dollar change
      for
      the line items in our Condensed Consolidated Statements of Operations for the
      three month periods ended March 31, 2007 and 2006. These comparisons of
      financial results are not necessarily indicative of future results.





**Three
                months ended March**2007
            
            2006
            
            %
                ChangeRevenue
            
            $
            5,012
            
            $
            161,286
            
            
            -97%Cost
                of revenue
            
            
            4,260
            
            
            45,195
            
            
            -91%Gross
                Profit
            
            
            752
            
            
            116,091
            
            
            -99%Gross
                Profit percentage
            
            
            15%
            
            
            72%Selling,
                general and administrative
            
            
            2,062,665
            
            
            425,870
            
            
            384%Research
                and development
            
            
            378,975
            
            
            354,322
            
            
            7%Impairment
                loss on intangible asset
            
            
            -
            
            
            585,000
            
            
            -Depreciation
                and amortization
            
            
            116,646
            
            
            188,217
            
            
            -38%Operating
                loss
            
            
            (2,557,534)
            
            
            (1,437,318)
            
            
            78%-
            
            
            -Other
                income (expense)
            
            
            (1,299,184)
            
            
            (50,369)
            
            
            2,479%Net
                loss
            
            
            ($3,856,718)
            
            
            ($1,487,687)
            
            
            159%




14


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





**Revenue**





Revenue
      for the three months ended March 31, 2007 and 2006 is summarized as
      follows:





**Three
                months ended March**2007
            
            2006Nanobac
                Supplement
            
            $
            -
            
            $
            120,293Observation
                Rights
            
            
            -
            
            
            6,000Diagnostic
                Products
            
            
            5,012
            
            
            34,993$
            5,012
            
            $
            161,286




Revenue
      for the three months ended March 31, 2007 was from our Finland office.




During
      March 2006, we terminated the marketing and selling of dietary supplements
      in
      order for the Company to focus exclusively on the science related to CNPs,
      which
      we plan to lead to drug discovery and the development of diagnostic products
      for
      the detection and treatment of CNP related diseases. Accordingly, we had no
      revenue from dietary supplements for the three months ended March 31, 2007.
      We
      expect no revenue from dietary supplements in future periods.




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





**Cost
      of Revenue**





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




15


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





**Selling,
      General and Administrative**





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





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





SG&A
      increased by approximately $1.6 million for the three months ended March 31,
      2007 compared to the three months ended March 31, 2006. Of this increase, $1.6
      million was attributable to the stock issuance to members of the Board of
      Directors as described above. An additional accrual of payroll to an employee
      also resulted in an increase of $225,000 during the three months ended March
      31,
      2007. These increases were offset by a decrease in payroll expenses of $135,000
      as we eliminated payroll associated with the sale of Nanobac Supplements and
      a
      decrease in rent expense of $124,000 primarily associated with the abandoned
      lease described below.





During
      March 2006, the Company ceased occupying leased office space in Tampa, Florida.
      As a result of the early abandonment of this office lease, a charge to earnings
      of approximately $106,000 for the acceleration of lease payments associated
      with
      the abandoned lease has been recognized in the accompanying financial statements
      for the three months ended March 31, 2006. An additional charge is included
      in
      other expense for the write-off of leasehold improvements.





**Research
      and Development**





For
      the
      three months ended March 31, 2007 and 2006 research and development (“R&D)
      expenses consisted of the following types of expenses:




Three
                Months ended Mar 312007
            
            2006U.S.
                Payroll and medical directors
            
            
            51%
            
            
            52%Finland
                payroll and laboratory
            
            
            25%
            
            
            31%Research
                studies
            
            
            23%
            
            
            10%Other
            
            
            1%
            
            
            7%100%
            
            
            100%





R&D
      expenses increased by approximately $25,000 for the three months ended March
      31,
      2007 compared to the three months ended March 31, 2006. This increase was
      associated with expanded medical studies with the Mayo Clinic.




16


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




**Impairment
      loss on intangible assets**





During
      March 2006, we established a plan to discontinue the sale of dietary
      supplements. As a result of the above decision, the product rights’ intangible
      asset was deemed fully impaired and an impairment loss of $585,000 has been
      recognized during the three months ended March 31, 2006.




**Depreciation
      and amortization**





Approximately
      95% of depreciation and amortization are related to the amortization of
      intangible assets (primarily patents) acquired in the June 2003 acquisition
      of
      LABS and the November 2003 acquisition of OY. Amortization expense decreased
      for
      the three months ended March 31, 2007 compared to the three months ended March
      31, 2006 by approximately $72,000 as the amortization of product rights was
      eliminated due to the impairment of this intangible asset in March 2006 as
      described above.




**Operating
      Loss**





Our
      operating loss increased to $2.6 million for the three months ended March 31,
      2007 compared to $1.4 million for the three months ended March 31, 2006. This
      increase was caused primarily by the $1.6 million expense associated with the
      stock issuance to our directors offset by the $585,000 expense recognized in
      the
      first quarter of 2006 resulting from the recognition of the impairment loss
      on
      the intangible asset.




17


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





**Other
      income (expense)**





Other
      income (expense) for the three months ended March 31, 2007 and 2006 is
      summarized as follows:





**Three
                months ended March**2007
            
            2006Interest
                expenseRelated
                party loans
            
            
            ($45,442
            )
            
            ($38,023
            )Other
            
            
            ($788
            )
            
            (216
            )Derivative
                gain
            
            
            299,500
            
            
            -Loss
                on related party debt extinguishment
            
            
            (1,560,000
            )
            
            -Loss
                on disposition of assets
            
            
            -
            
            
            (18,330
            )Foreign
                exchange gain (loss)
            
            
            7,207
            
            
            7,002Other,
                net
            
            
            339
            
            
            (802
            )Total
            
            
            ($1,299,184
            )
            
            ($50,369
            )





The
      derivative gain relates to 5 million exercisable warrants for which we do not
      have sufficient authorized and unissued shares. The derivative related liability
      for the warrants was computed based upon the value of our stock as of January
      30, 2007 as quoted on established markets, using the Black-Scholes method,
      assuming an expiration date of the warrants of August 31, 2009, a 100%
      volatility percentage and an annual interest rate of 4.75%. This was the date
      the Company first had insufficient authorized and unissued shares to allow
      the
      issuance of shares of its common stock if the warrants were fully exercised.
      The
      fair value of the derivative liability was again determined at March 31, 2007,
      the last date of the period, based upon the Black-Scholes methodology described
      above. Since the value of the Company’s common stock, as quoted on these
      established markets, decreased between these dates, the total amount of the
      obligation decreased resulting in the recognition of a derivative gain.





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





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





**Net
      Loss**





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


18





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





**Liquidity
      and Capital Resources**





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





As
      discussed in the Company’s most recent Form 10-KSB, since August of 2004, the
      Company has received $1.4 million (net of $125,000 of expenses) from three
      unaffiliated investors and one affiliate for shares of the Company’s stock and
      an equal amount of warrants to acquire additional shares of the Company’s stock.
      The exact number of shares to be issued is dependent upon the average closing
      bid price of the Company’s stock on the five trading days immediately prior to
      the date on which a registration statement for these shares is declared
      effective. The purchase price of the shares is equal to the lesser of (1) $.12
      or (2) 52% of the average closing price described above. An additional $1.5
      million is to be received from these investors within five days of registering
      the common shares and warrants. A registration statement has not yet been
      declared effective for these shares. Successful registration of the shares
      contemplated under the agreements discussed above will provide significant
      amounts of needed capital into the Company. However, there are no assurances
      that the SEC will declare a registration statement effective.





As
      of
      March 31, 2007, we had total assets of $7.6 million of which only $99,000 were
      current assets. At March 31, 2007, we had total current liabilities of $5.1
      million and a working capital deficit of $5.0 million. Of the $5.0 million
      working capital deficit, $3.3 million is attributable to the related party
      loans
      from CEO Affiliated Entities described above.





Net
      cash
      used in operations for the three months ended March 31, 2007 was $315,000.
      The
      negative cash flow from operations reflects the $3.9 million net loss for the
      period offset by non-cash charges of $1.6 million for the common stock issuance
      to our Board of Directors, $1.6 million for the loss incurred on the
      extinguishment of related party debt in exchange for common stock and $117,000
      of non-cash charges for depreciation and amortization.





Net
      cash
      provided by investing activities for the three months ended March 31, 2007
      of
      $52,000 primarily reflects the return of a $50,000 security deposit.





Net
      cash
      provided by financing activities for the three months ended March 31, 2007
      was
      $238,000, which is attributable to related party loans.





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




19


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




**Forward
      Looking Statements**





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





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


20





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




**Quantitative
      and Qualitative Disclosures About Market Risk**





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





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





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





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





**Item
      3: Controls and Procedures**





***Disclosure
      controls and procedures***





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





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





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


21





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





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




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




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




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





***Changes
      in internal controls***





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




22


**PART
      II - OTHER INFORMATION**





**Item
      1: Legal Proceedings**





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




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





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





The
      Company, along with the Company’s CEO and a Board of Director member was served
      with civil action in the Circuit Court of Cook County, Illinois by Nutmeg Group
      LLC, an unaffiliated holder of subscription agreements described in our most
      recent Form 10-KSB. The suit is seeking damages for alleged breaches of contract
      by the Company and the affiliates as a result of the alleged failure to register
      and deliver stock and warrants that were allegedly due to be registered and
      delivered under certain subscription, registration rights, and other agreements
      between the parties. Additionally, the suit seeks the recovery of $65,000 for
      penalties for failure to register shares subject to the registration rights
      agreement. We have filed a motion to quash the summons, contending there is
      no
      jurisdiction in Illinois for this matter. The amount of damages, if any, that
      will be payable under this legal action is currently unknown.


23





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





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





Number
                of Shares
            
            Per
                Share
            
            ProceedsCommon
                Stock, previously issued:Unaffiliated
                Investors
            
            
            8,125,000
            
            $
            0.12
            
            $
            975,000Affiliates
            
            
            4,166,667
            
            $
            0.12
            
            
            500,00012,291,667
            
            
            
            
            $
            1,475,000Common
                Stock, future issuancesUnaffiliated
                Investors
            
            
            5,416,667
            
            $
            0.12
            
            $
            650,000Affiliates
            
            
            6,875,000
            
            $
            0.12
            
            
            825,00012,291,667
            
            
            
            
            $
            1,475,000Warrants:Unaffiliated
                Investors
            
            
            8,125,000
            
            $
            0.13Affiliates
            
            
            4,166,667
            
            $
            0.13Unaffiliated
                Investors
            
            
            5,416,667
            
            $
            0.18Affiliates
            
            
            6,875,000
            
            $
            0.1824,583,334





The
      actual number of shares and warrants that ultimately will be issued under these
      Subscription Agreements may be substantially higher due to the variability
      of
      the Fixed Price. Based on our recent traded price of $0.04 to $0.09 per share,
      three to six times as many shares and warrants would be issued as described
      above. Further, we do not have sufficient authorized shares to issue the common
      stock and warrants required under the above subscription agreements. Our
      stockholders need to approve any increase in our authorized shares.





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








24





**Item
      3: Defaults upon Senior Securities**





None.





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





None.





**Item
      5: Other Information**





None





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





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





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





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





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





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




(b)
            Reports
                on Form 8-K





None




25


**SIGNATURES**







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







Dated: May
              18, 2007
            NANOBAC
              PHARMACEUTICALS, INCORPORATED/s/
                John D Stanton---------------------------------------John
                D StantonChief
                Executive Officer







26


**Nanobac
      Pharmaceuticals, Incorporated**





**EXHIBIT
      INDEX**





EXHIBITNUMBER
            DESCRIPTION
            PAGE_________
            _____________
            _____31.1
            Certification
                to Section 302 of the Sarbanes-Oxley Act of
                2002 - Chief Executive Officer
            2831.2
            Certification
                to Section 302 of the Sarbanes-Oxley Act of
                2002 - Chief Financial Officer
            2932.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant
                to Section 906 of the Sarbanes-Oxley Act of 2002 - Chief
                Executive Officer
            3032.2
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant
                to Section 906 of the Sarbanes-Oxley Act of 2002 - Chief
                Financial Officer
            31


27