**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


**September
      30, 2006**


**_______________________**





**Nanobac
      Pharmaceuticals, Incorporated**


(Exact
      name of registrant as specified in its charter)




**Florida**
            
            **0-24696**
            
            **59-3248917**(State
                or Other Jurisdiction
            
            (Commission
                File Number)
            
            (I.R.S.
                Employerof
                Incorporation)
            
            
            
            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 November 6, 2006 was 193,973,426.







**NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**





**PART
      I - FINANCIAL INFORMATION**




**Item
                1: Financial Statements**Condensed
                  Consolidated Balance Sheets as of September 30, 2006 (unaudited)and December 31, 2005
            
            3Condensed
                Consolidated Statements of Operations for the three andnine months
                ended September 30, 2006 and 2005 (unaudited)
            
            4Condensed
                  Consolidated Statements of Changes in Stockholders'Equity for the
                  nine months ended September 30, 2006 (unaudited)
            
            5Condensed
                Consolidated Statements of Cash Flows for the nine months ended September
                30, 2006 and 2005 (unaudited)
            
            6Notes
                to the Condensed Consolidated Financial Statements
            
            7**Item
                2:**
            **Management’s
                Discussion and Analysis of Financial****Condition
                and Results of Operations**
            
            11**Item
                3:**
            **Controls
                and Procedures**
            
            21**PART
                II - OTHER INFORMATION****Item
                1:**
            **Legal
                Proceedings**
            
            22**Item
                2:**
            **Unregistered
                Sales of Equity Securities and Use of Proceeds**
            
            23**Item
                3:**
            **Defaults
                Upon Senior Securities**
            
            24**Item
                4:**
            **Submission
                of Matters to a Vote of Security Holders**
            
            24**Item
                5:**
            **Other
                Information**
            
            24**Item
                6:**
            **Exhibits**
            
            24







NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES


CONDENSED
      CONSOLIDATED


BALANCE
      SHEETS





(UNAUDITED)


(Unaudited)September
                  30, 2006
              
              December
                  31, 2005**ASSETS****CURRENT
                  ASSETS**Cash
              
              $
              110,710
              
              $
              8,975Account
                  receivable
              
              
              9,052
              
              
              3,283Inventory
              
              
              112,108
              
              
              117,280Prepaid
                  expenses
              
              
              37,555
              
              
              43,725Total
                  current assets
              
              
              269,425
              
              
              173,263**FURNITURE
                  AND EQUIPMENT,**less
                  accumulated depreciationof$96,236
                    at
                    September 30, 2006 and $131,163 atDecember 31,
                    2005
              
              
              66,322
              
              
              106,952**OTHER
                  ASSETS**Security
                  deposits
              
              
              74,168
              
              
              20,695Intangible
                  assets, less accumulated amortizationof$1,169,811
                    at
                    September 30, 2006 and $1,539,621 atDecember 31,
                    2005
              
              
              4,073,231
              
              
              5,053,421Goodwill
              
              
              3,615,393
              
              
              3,615,393**Total
                  other assets**
              
              
              7,762,792
              
              
              8,689,509**TOTAL
                  ASSETS**
              
              $
              8,098,539
              
              $
              8,969,724**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              326,953
              
              $
              313,932Accrued
                  compensation
              
              
              211,065
              
              
              462,658Accrued
                  expenses
              
              
              368,379
              
              
              376,874Short-term
                  notes payable
              
              
              -
              
              
              50,843Other
                  liabilities
              
              
              9,068
              
              
              29,425Related
                  party loans
              
              
              4,674,493
              
              
              2,434,733**Total
                  current liabilities**
              
              
              5,589,958
              
              
              3,668,465**LONG-TERM
                  LIABILITIES**Stock
                  settlement obligation
              
              
              2,836,538
              
              
              2,836,538**Total
                  liabilities**
              
              
              8,426,496
              
              
              6,505,003**COMMITMENTS
                  AND CONTINGENCIES (Note 6)**
              
              
              -
              
              
              -**STOCKHOLDERS'
                  EQUITY (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,2006:
                  193,973,426 shares issued and outstanding2005:
                  189,006,760 shares issued and outstanding
              
              
              16,484,550
              
              
              16,307,050Additional
                  paid-in capital
              
              
              3,669,231
              
              
              3,503,681Accumulated
                  deficit
              
              
              (20,490,865
              )
              
              (17,380,535
              )Accumulated
                  other comprehensive income
              
              
              9,127
              
              
              34,525**Total
                  stockholders' equity (deficit)**
              
              
              (327,957
              )
              
              2,464,721**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)**
              
              $
              8,098,539
              
              $
              8,969,724


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
                  Months
              
              Nine
                  Months
              
              Nine
                  Monthsended
              
              ended
              
              ended
              
              endedSeptember
                  30, 2006
              
              September
                  30, 2005
              
              September
                  30, 2006
              
              September
                  30, 2005**REVENUE**
              
              $
              23,894
              
              $
              130,394
              
              $
              222,745
              
              $
              450,247**COST
                  OF REVENUE**
              
              
              11,286
              
              
              47,085
              
              
              79,104
              
              
              149,384**GROSS
                  PROFIT**
              
              
              12,608
              
              
              83,309
              
              
              143,641
              
              
              300,863**OPERATING
                  EXPENSES**Selling,
                  general and administrative
              
              
              273,813
              
              
              278,199
              
              
              974,972
              
              
              888,716Research
                  and development
              
              
              357,296
              
              
              264,503
              
              
              1,142,634
              
              
              858,765Impairment
                  loss on intangible asset
              
              
              -
              
              
              -
              
              
              585,000
              
              
              -Depreciation
                  and amortization
              
              
              117,860
              
              
              189,462
              
              
              423,888
              
              
              567,188**Total
                  Operating Expenses**
              
              
              748,969
              
              
              732,164
              
              
              3,126,494
              
              
              2,314,669**OPERATING
                  LOSS**
              
              
              (736,361
              )
              
              (648,855
              )
              
              (2,982,853
              )
              
              (2,013,806
              )**OTHER
                  INCOME (EXPENSES)**Interest
                  expense
              
              
              (52,847
              )
              
              (20,866
              )
              
              (137,355
              )
              
              (43,380
              )Loss
                  on stock settlement obligation
              
              
              -
              
              
              -
              
              
              -
              
              
              (717,908
              )Other,
                  net
              
              
              2,025
              
              
              (4,192
              )
              
              9,878
              
              
              (48,509
              )**LOSS
                  BEFORE INCOME TAXES**
              
              
              (787,183
              )
              
              (673,913
              )
              
              (3,110,330
              )
              
              (2,823,603
              )**PROVISION
                  FOR INCOME TAXES**
              
              
              -
              
              
              -
              
              
              -
              
              
              -**NET
                  LOSS**
              
              $
              (787,183
              )
              $
              (673,913
              )
              $
              (3,110,330
              )
              $
              (2,823,603
              )**LOSS
                  PER COMMON SHARE**Basic
                  and Diluted
              
              $
              0.00
              
              $
              (0.00
              )
              $
              (0.02
              )
              $
              (0.01
              )**WEIGHTED
                  AVERAGE NUMBER OF****COMMON
                  SHARES OUTSTANDING**Basic
                  and Diluted
              
              
              193,599,067
              
              
              189,006,759
              
              
              192,795,771
              
              
              188,700,715





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**
              
              
              **Income**
              
              
              **Total****Balance,
                  December 31, 2005**
              
              
              **189,006,760**
              
              
              **$**
              **16,307,050**
              
              
              **$**
              **3,503,681**
              
              
              **($17,380,535**
              **)**
              
              
              
              
              
              **$**
              **34,525**
              
              
              **$**
              **2,464,721**Stock
                  issued for services
              
              
              466,666
              
              
              
              56,000
              
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              56,000Stock
                  issued for conversionof
                  liabilities
              
              
              4,500,000
              
              
              
              121,500
              
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              121,500Stock
                  options issued for services
              
              
              -
              
              
              
              -
              
              
              
              165,550
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              165,550Comprehensive
                  loss:Net
                  loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              (3,110,330
              )
              
              
              ($3,110,330
              )
              
              
              
              
              
              
              (3,110,330
              )Foreign
                  currency translationadjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              -
              
              
              
              (25,398
              )
              
              
              (25,398
              )
              
              
              (25,398
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              ($3,135,728
              )**Balance,
                  September 30, 2006**
              
              
              **193,973,426**
              
              
              **$**
              **16,484,550**
              
              
              **$**
              **3,669,231**
              
              **$**
              **(20,490,865**
              **)**
              
              
              
              
              
              **$**
              **9,127**
              
              
              **$**
              **(327,957**
              **)**





The
      accompanying notes are an integral part of
      these
      financial statements.





5


NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES





CONDENSED
      CONSOLIDATED


STATEMENTS
      OF CASH FLOWS


(UNAUDITED)


Nine
                  Months
              
              Nine
                  Monthsended
              
              endedSeptember
                  30, 2006
              
              September
                  30, 2005**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (3,110,330
              )
              $
              (2,823,603
              )Adjustments
                  to reconcile net loss to cashflows
                  from operating activities:Depreciation
                  and amortization
              
              
              423,888
              
              
              567,188Impairment
                  loss on intangible asset
              
              
              585,000
              
              
              -Loss
                  on disposition of fixed assets
              
              
              18,330
              
              
              -Loss
                  on stock settlement liability
              
              
              -
              
              
              717,908Charges
                  for common stock issued for services
              
              
              56,000
              
              
              10,500Interest
                  expense accrued for stockholder loan
              
              
              137,087
              
              
              41,048Net
                  (increase) decrease in assets:Accounts
                  receivable
              
              
              (5,769
              )
              
              (12,814
              )Inventory
              
              
              5,172
              
              
              2,613Other
                  assets
              
              
              6,170
              
              
              21,758Net
                  increase (decrease) in liabilities:Accounts
                  payable
              
              
              13,021
              
              
              (155,143
              )Accrued
                  compensation
              
              
              (14,943
              )
              
              (35,046
              )Accrued
                  expenses
              
              
              (8,495
              )
              
              (111,798
              )Deferred
                  revenue
              
              
              (20,357
              )
              
              15,400Total
                  adjustments
              
              
              1,195,104
              
              
              1,061,614**Net
                  cash flows from operating activities**
              
              
              (1,915,226
              )
              
              (1,761,989
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Acquisition
                  of furniture and equipment
              
              
              (11,144
              )
              
              (39,425
              )Proceeds
                  from sale of furniture and equipment
              
              
              6,547
              
              
              -Payment
                  of security deposit
              
              
              (2,731
              )
              
              -**Net
                  cash flows from investing activities**
              
              
              (7,328
              )
              
              (39,425
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Proceeds
                  from issuance of common stockpursuant
                  to subscription agreements
              
              
              -
              
              
              200,000Stock
                  issuance costs
              
              
              -
              
              
              (30,373
              )Proceeds
                  from stockholder loans
              
              
              2,102,673
              
              
              1,604,551Proceeds
                  from notes payable
              
              
              2,601
              
              
              12,581Payment
                  of notes payable
              
              
              (53,675
              )
              
              (23,378
              )**Net
                  cash flows from financing activities**
              
              
              2,051,599
              
              
              1,763,381**Effect
                  of exchange rate changes**
              
              
              (27,310
              )
              
              32,297Net
                  change in cash
              
              
              101,735
              
              
              (5,736
              )Cash
                  balance, beginning of year
              
              
              8,975
              
              
              17,908**Cash
                  balance, end of year**
              
              $
              110,710
              
              $
              12,172**Supplemental
                  disclosures of cash flow information:**Cash
                  paid for interest
              
              $
              268
              
              $
              2,332**Supplemental
                  schedule of non-cash investing and financing
                  activities:**Common
                  stock and options issued in exchange for current
                  liabilities
              
              $
              287,050
              
              $
              -








The
      accompanying notes are an integral part of
      these
      financial statements.




6


**NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(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 research and development of therapeutic and diagnostic
      technologies related to nanobacterium sanguineum (“Nanobacteria”). Nanobacteria
      are believed to be small, calcifying nano-particles that can be found in human
      blood, kidney stones and arterial wall plaques.





**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 nine months ended September 30, 2006 are not
      necessarily indicative of the results for a full year.





The
      financial statements for the period ended September 30, 2006 and notes thereto
      should be read in conjunction with the financial statements and notes thereto
      for the year ended December 31, 2005 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 September 30, 2006. 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**


**SEPTEMBER
      30, 2006**


**(UNAUDITED)**





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





**Stock
      Options**




In
      January 2006, the Company adopted the accounting provisions of Statement of
      Financial Accounting Standards No. 123R, “Share-based Payments” (“SFAS 123R”),
      replacing “Accounting for Stock-based Compensation” (“SFAS 123”), which are
      similar and require the use of the fair-value based method to determine
      compensation for all arrangements under which employees and others receive
      shares of stock or equity instruments (warrants and options). The adoption
      of
      this standard had no significant impact on the Company’s results of operations.





**Impairment
      of Long-lived Assets and Intangible Assets**





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. Upon
      such
      an occurrence, recoverability of these assets is determined as follows. For
      long-lived assets that are held for use, the Company compares the forecasted
      undiscounted net cash flows to the carrying amount. If it is determined that
      the
      long-lived asset will be unable to recover its carrying amount, then it is
      written down to fair value. For long-lived assets held for sale, assets are
      written down to fair value. Fair value is determined based on discounted cash
      flows of appraised values from management’s estimates, depending upon the nature
      or the assets. Impairment within goodwill is tested using a two step method.
      The
      first step is to compare the fair value of the reporting unit to its book value,
      including goodwill. If the fair value of the unit is less than its book value,
      the Company then determines the implied fair value of goodwill by deducting
      the
      fair value of the reporting unit’s net assets from the fair value of the
      reporting unit. If the book value of goodwill is greater than its implied fair
      value, the Company writes down goodwill to its implied fair value. There were
      no
      impairment adjustments recorded in 2005. As described in Note 3, during the
      nine
      months ended September 30, 2006, the Company’s Product Rights intangible asset
      was deemed fully impaired based on the Company terminating the marketing and
      sales of dietary supplements and therefore the asset is not expected to be
      recoverable from the use or eventual disposition of the asset.





**Recent
      accounting pronouncements**





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) announced a new
      interpretation, FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (“FIN 48”), which will be effective for fiscal years beginning
      after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in
      income taxes recognized in an enterprise’s financial statements in accordance
      with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a
      recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. FIN 48 also provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods, disclosure and
      transition. The Company has not determined the impact of the adoption of FIN
      48
      on its consolidated financial statements.




8


**NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(UNAUDITED)**





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





**Recent
      accounting pronouncements (continued)**





In
      February 2006, the FASB issued Statement of Financial Accounting Standards
      No.155, “Accounting for Certain Hybrid Financial Instruments - an amendment of
      FASB Statements no. 133 and 140” (“SFAS 155”), which is effective for fiscal
      years beginning after September 15, 2006. The statement was issued to clarify
      the application of FASB Statements No. 133 to beneficial interests in
      securitized financial assets and to improve the consistency of accounting for
      similar financial instruments, regardless of the form of the instruments. The
      Company has determined that the adoption of SFAS 155 will not have a significant
      impact on the consolidated financial statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.157 “Fair Value Measurements” (SFAS 157”), which is effective for fiscal
      years beginning after November 15, 2007 and for interim periods within those
      years. This statement defines fair value, established a framework for measuring
      fair value and expands the related disclosure requirements. The Company is
      currently evaluating the potential impact of SFAS 157 on the consolidated
      financial statements.





**2.
      Related Party Transactions**





An
      entity
      controlled by the Chief Executive Officer (who is also the largest stockholder
      of NNBP), has loaned NNBP approximately $4.7 million as of September 30, 2006.
      These loans bear interest at the rate of 5% per annum and are due on demand.
      Interest expense for the above loans for the three and nine months ended
      September 30, 2006 was approximately $53,000 and $137,000,
      respectively.





**3.
      Discontinuance of Product Line**





During
      March 2006, the Company’s management established a plan for Nanobac to
      discontinue the sale of dietary supplements and the Company’s focus to be
      exclusively on the science that will ultimately lead to drug discovery and
      the
      development of diagnostic products. Effective March 30, 2006, the Company
      assigned these product rights to an entity owned by the primary stockholder
      for
      no compensation. As a result of the above decision, a charge to earnings of
      $585,000 for the impairment of the product rights intangible asset has been
      recognized in operating expenses in the accompanying condensed consolidated
      statement of operations for the nine months ended September 30, 2006.





**4.
      Abandonment of Lease**





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 $125,000 for the write-off leasehold improvements and the
      acceleration of lease payments associated with the abandoned lease has been
      recognized in operating expenses and other expenses in the accompanying
      condensed consolidated statement of operations for the nine months ended
      September 30, 2006.




9


**NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(UNAUDITED)**








**5.
      Stockholders’ Equity**





Effective
      July 1, 2006 the Company amended an employment agreement to settle a $175,000
      bonus that was due to the employee since January 31, 2006 through the issuance
      of 3,500,000 stock options with an exercise price of $0.05 per common share,
      with immediate vesting. In accordance with SFAS No. 123(R), this grant was
      valued at approximately $166,000 using the Black-Scholes valuation model and
      assuming a risk-free interest rate of 5%, volatility of 100% and an expected
      term of 60 months. The Stock option grant was approved by a corporate officer
      who has been provided this authority by the Board of Directors. In addition,
      the
      employment agreement provides for additional compensation in the form of stock
      options on an annual basis valued at $225,000 plus bonus stock option grants
      of
      up to $80,000 in equivalent stock for completion of specific research functions
      and reports through December 31, 2006. At September 30, 2006, the Company did
      not have a formal stock option plan for the above stock option issuances.





In
      July
      2006, the Company entered into an agreement with Wall Street Resources, Inc.
      (“Wall Street”) whereby Wall Street will provide the Company with written
      analytical coverage and reports and to advise and assist the Company in
      developing and implementing a business plan, strategy and objectives to present
      to the financial community. The agreement required the Company to issue 466,667
      shares of common stock, valued at $56,000, and pay $15,000 cash to Wall Street
      upon the issuance of Wall Street’s initial report, which was dated September 12,
      2006. The agreement remains in effect through March 11, 2007.





10


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





**Business**




Nanobac
      Pharmaceuticals, Inc. and its subsidiaries (which may be referred to as
“Nanobac”, “the Company”, “NNBP”, “we”, “us” or “our”) is a life science company
      dedicated to the discovery and developments of products and services to improve
      people's health through the detection and treatment of Calcifying Nanoparticles
      (“CNPs”), otherwise known as "nanobacteria". The Company's 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. However, the Company has an advantage in
      that
      each of these drugs on its own has an FDA-approved record of being safe;
      therefore regulatory hurdles are significantly lower in every national
      jurisdiction.




11




**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 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.


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


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


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


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




***Current
      Developments*** -
      During
      September 2006, we announced our agreement with Mayo Clinic to study whether
      calcifying nanoparticles, already found in atherosclerotic plaque, are
      infectious and contribute to the onset of heart diseases




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 will have a compelling and well-rounded
      scientific basis for the Company to move forward.




12


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





**Business
      (continued)**





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





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





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




13


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





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




**Results
      of Operations**




The
      following table presents the percentage of period-over-period dollar change
      for
      the line items in our Condensed Consolidated Statements of Operations for the
      three and nine month periods ended September 30, 2006 and 2005. These
      comparisons of financial results are not necessarily indicative of future
      results.





**Three
                months ended September 30,**
            
            
            **Nine
                months ended September 30,**2006
            
            
            2005
            
            %
                Change
            
            
            2006
            
            
            2005
            
            %
                ChangeRevenue
            
            $
            23,894
            
            
            $
            130,394
            
            
            -82
            %
            
            $
            222,745
            
            
            $
            450,247
            
            
            -51
            %Cost
                of revenue
            
            
            11,286
            
            
            
            47,085
            
            
            -76
            %
            
            
            79,104
            
            
            
            149,384
            
            
            -47
            %Gross
                Profit
            
            
            12,608
            
            
            
            83,309
            
            
            -85
            %
            
            
            143,641
            
            
            
            300,863
            
            
            -52
            %Gross
                Profit percentage
            
            
            53
            %
            
            
            64
            %
            
            
            
            
            
            64
            %
            
            
            67
            %Selling,
                general and admin
            
            
            273,813
            
            
            
            278,199
            
            
            -2
            %
            
            
            974,972
            
            
            
            888,716
            
            
            10
            %Research
                and development
            
            
            357,296
            
            
            
            264,503
            
            
            35
            %
            
            
            1,142,634
            
            
            
            858,765
            
            
            33
            %Impairment
                loss
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            585,000
            
            
            
            -Depreciation
                and amortization
            
            
            117,860
            
            
            
            189,462
            
            
            -38
            %
            
            
            423,888
            
            
            
            567,188
            
            
            -25
            %Operating
                loss
            
            
            (736,361
            )
            
            
            (648,855
            )
            
            13
            %
            
            
            (2,982,853
            )
            
            
            (2,013,806
            )
            
            48
            %Other
                income (Expense)
            
            
            (50,822
            )
            
            
            (25,058
            )
            
            103
            %
            
            
            (127,477
            )
            
            
            (809,797
            )
            
            -84
            %Net
                loss
            
            
            ($787,183
            )
            
            
            ($673,913
            )
            
            17
            %
            
            
            ($3,110,330
            )
            
            
            ($2,823,603
            )
            
            10
            %




14




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





**Revenue**





Revenue
      for the three and nine months ended September 30, 2006 and 2005 is summarized
      as
      follows:





**Three
                months ended Sep 30,**
            
            **Nine
                months ended Sep 30,**2006
            
            2005
            
            2006
            
            2005Dietary
                Supplements
            
            $
            -
            
            $
            101,338
            
            $
            122,495
            
            $
            363,652Observation
                Rights
            
            
            3,000
            
            
            4,000
            
            
            15,000
            
            
            4,000Diagnostic
                Products
            
            
            20,894
            
            
            25,056
            
            
            85,250
            
            
            82,595$
            23,894
            
            $
            130,394
            
            $
            222,745
            
            $
            450,247







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 September 30, 2006.
      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, testing services and shipping.





**Gross
      Profit**





As
      a
      percentage of revenue, our gross profit (“gross margin”) was 65% to 70% of
      revenue when we were selling dietary supplements. Our diagnostic product line
      has historically generated a gross profit margin of 40% to 50%. During October
      2006, we announced our agreement with American Health Associates Clinical
      Laboratories to serve as the exclusive U.S. provider of our proprietary blood
      diagnostic tests. We do not anticipate a material impact on our future gross
      margins as a result of this agreement.




15


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





**Selling,
      General and Administrative**





Approximately
      75% of selling, general and administrative (“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
      decreased to $274,000 for the three months ended September 30, 2006 from
      $278,000 for the three months ended September 30, 2005. This decrease of $4,000
      was attributable to a $135,000 increase in professional fees connected with
      patents, consultants and accountants offset by a $133,000 decrease in payroll
      related costs and $6,000 decrease in other SG&A expenses. The higher
      professional fees and lower payroll reflect our shift to a research based
      company.





SG&A
      increased to $975,000 for the nine months ended September 30, 2006 compared
      to
      $889,000 for the nine months ended September 30, 2005. This increase is
      attributable to the abandoned lease described below offset by other net
      decreases in SG&A.





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 nine months ended September 30, 2006. An additional charge is included
      in other expense for the write-off of leasehold improvements.





**Research
      and Development**





For
      the
      nine months ended September 30, 2006 and 2005 research and development
      (“R&D) expenses consisted of the following types of expenses:




Nine
                months ended September 30,2006
            
            
            2005U.S.
                Payroll and medical directors
            
            
            52
            %
            
            
            60
            %Finland
                payroll and laboratory
            
            
            33
            %
            
            
            31
            %Research
                studies
            
            
            11
            %
            
            
            6
            %Other
            
            
            4
            %
            
            
            3
            %100
            %
            
            
            100
            %





For
      the
      three months ended September 30, 2006, R&D expenses increased to $357,000 or
      by 35% compared to $265,000 for the three months ended September 30, 2005.
      For
      the nine months ended September 30, 2006, R&D expenses increased to $1.1
      million or by 33% compared to $859,000 for the nine months ended September
      30,
      2005. The increase was the result of greater payroll expenses and medical
      director costs as we have shifted our primary emphasis to R&D.




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 nine months ended September 30, 2006.





**Depreciation
      and amortization**





Over
      95%
      of depreciation and amortization are related to the amortization of intangible
      assets (primarily patents) acquired in the June 2003 acquisition of LABS and
      the
      November 2003 acquisition of OY. Amortization expense decreased for the three
      and nine months ended September 30, 2006 compared to the three and nine months
      ended September 30, 2005 as the amortization of product rights was eliminated
      due to the impairment of this intangible asset described above.





**Operating
      Loss**





Our
      operating loss increased to $736,000 for the three months ended September 30,
      2006 compared to $649,000 for the three months ended September 30, 2005.
      Approximately $45,000 of this increased loss was the result of the elimination
      of the dietary supplement business. In addition, R&D costs increased $93,000
      due to our increased focus on research initiatives. These increases were
      partially offset by a decrease in amortization expense of $61,000.





Our
      operating loss increased to $3.0 million for the nine months ended September
      30,
      2006 compared to $2.0 million for the nine months ended September 30, 2005.
      The
      majority of the increase is attributable to the $106,000 charge for the
      abandonment of our Tampa lease and the $585,000 additional amortization expense
      for our product right’s intangible asset due to our termination of marketing and
      selling of dietary supplements. We also experienced an increase in R&D
      expense for this period.




17


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





**Other
      income (expense)**





Other
      income (expense) for the three and nine months ended September 30, 2006 and
      2005
      is summarized as follows:





**Three
                months ended Sep 30,**
            
            **Nine
                months ended Sep 30,**2006
            
            2005
            
            2006
            
            2005Interest
                expense:Stockholder
                loan
            
            
            ($52,807
            )
            
            ($20,385
            )
            
            ($137,087
            )
            
            ($41,048
            )Other
            
            
            (40
            )
            
            (481
            )
            
            (268
            )
            
            (2,332
            )Loss
                on stock settlement obligation
            
            
            -
            
            
            -
            
            
            -
            
            
            (717,908
            )Loss
                on disposition of assets
            
            
            -
            
            
            -
            
            
            (18,330
            )
            
            -Foreign
                exchange gain (loss)
            
            
            1,197
            
            
            (2,107
            )
            
            25,435
            
            
            (38,239
            )Other,
                net
            
            
            828
            
            
            (2,085
            )
            
            2,773
            
            
            (10,270
            )Total
            
            
            ($50,822
            )
            
            ($25,058
            )
            
            ($127,477
            )
            
            ($809,797
            )





The
      shares issued in connection with the 2005 and 2004 Subscription Agreement
      transactions are financial instruments with characteristics of both liabilities
      and equity and as such have been presented in the accompanying consolidated
      balance sheets as a liability. Changes in the liability were recorded as charges
      to the statement of operations as a loss on the stock settlement obligation
      for
      the nine months ended September 30, 2005.





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








**Net
      Loss**





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




18


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


**Liquidity
      and Capital Resources**





Since
      the
      United States Bankruptcy Court confirmed a plan of reorganization that allowed
      the Company to emerge from Chapter 11 during calendar 2002, the Company has
      financed its activities primarily through loans made by entities affiliated
      with
      our current Chief Executive Officer (referred to herein as “the CEO 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 CEO Affiliated Entities, and it is also
      unlikely that any financing could have been obtained under any terms without
      the
      financing of the CEO Affiliated Entities. From time to time the CEO 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 CEO Affiliated Entities to make additional loans to the Company. The CEO
      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.





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 and we do not know if and when
      a
      registration statement will be declared effective for these shares. Also there
      are no assurances that the SEC will declare a registration statement
      effective.





As
      of
      September 30, 2006, we had total assets of $8.1 million of which only $269,000
      were current assets. At September 30, 2006, we had total current liabilities
      of
      $5.6 million and a working capital deficit of $5.3 million. $4.7 million of
      the
      $5.3 million working capital deficit is attributable to the related party loans
      from CEO Affiliated Entities described above.





Net
      cash
      used in operations for the nine months ended September 30, 2006 was $1.9
      million. The negative cash flow from operations reflects the $3.1 million net
      loss for the period offset by non-cash charges of $1.0 million for depreciation,
      amortization and impairment loss.





Net
      cash
      used by investing activities for the three months ended September 30, 2006
      included $11,000 for the purchase of fixed assets, $3,000 for a security deposit
      offset by $6,000 of proceeds from the sale of property and equipment to CEO
      Affiliated Entities at book value.





Net
      cash
      provided by financing activities for the three months ended September 30, 2006
      was $2.1 million, which is attributable to stockholder loans.





As
      noted
      above, cash from stockholder loans and capital contributions 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)**




**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.





**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 Chief
      Executive Officer, we have evaluated the effectiveness of the design and
      operation of our disclosure controls and procedures as of the end of the quarter
      covered by 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.




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
      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 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.




22


**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. 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
            
            
            
            
            $
            2,950,000Number
            
            
            Exerciseof
                Warrants
            
            
            PriceWarrants:Unaffiliated
                Investors
            
            
            8,125,000
            
            $
            0.13Unaffiliated
                Investors
            
            
            8,125,000
            
            $
            0.18Affiliates
            
            
            4,166,667
            
            $
            0.13Affiliates
            
            
            4,166,666
            
            $
            0.1824,583,333





As
      of
      September 30, 2006, proceeds of $1,475,000 have been received and 12,297,667
      unregistered 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 $0.04 to $0.09 per share,
      three to six times as many shares and warrants would be issued as described
      above. Further, if the Fixed Price is less than $0.09 per share, 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.





A
      success
      fee was awarded to a broker for one of the above unaffiliated investor
      transactions 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 2 million warrants will be issued to this broker.




23





**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




24


**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.




Date: November
              6, 2006
            NANOBAC
              PHARMACEUTICALS, INCORPORATEDBy:
            /s/ John
              D
              StantonJohn
              D StantonChief
              Executive Officer





25


**Nanobac
      Pharmaceuticals, Incorporated**





**EXHIBIT
      INDEX**


EXHIBITNUMBER
              DESCRIPTION
              
              PAGE31.1
              Certification
                    to Section 302 of the Sarbanes-Oxley Actof 2002 - Chief Executive
                    Officer
              
              2731.2
              Certification
                  to Section 302 of the Sarbanes-Oxley Act of
                  2002 - Chief Financial Officer
              
              2832.1
              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
              
              2932.2
              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
              
              30
  26