**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549







**FORM
      10-KSB**


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


For
      the
      fiscal year ended


**December
      31, 2007**





**Nanobac
      Pharmaceuticals, Incorporated**


(Exact
      name of registrant as specified in its charter)


**Florida**
              **033-80612**
              **59-3248917**(State
                  or Other Jurisdiction of
              (Commission
                  File
              (I.R.S.
                  Employer IdentificationIncorporation)
              Number)
              Number)


**3000
      Bayport Drive Suite 910 Tampa FL 33607**


(Address
      of Principal Executive Office) (Zip Code)





**(813)
      865-1125**


(Registrant’s
      telephone number, including area code)





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





Securities
      registered under Section 12(g) of the Exchange Act:


**Common
      Stock, without par value**


(Title
      of
      Class)





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





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSBor any amendment to
      this Form 10-KSB. o





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





State
      issuer’s revenue for its most recent fiscal year: $17,621





The
      approximate aggregate market value of voting and non-voting stock held by
      non-affiliates of the registrant was $4,803,220 as of March 31, 2008. The shares
      of Common Stock held by each current executive officer and director and by
      each
      person who is known to the Company to own 5% or more of the outstanding Common
      Stock have been excluded from this computation on the basis that such persons
      may be deemed affiliates .
      The
      determination of affiliate status is not a conclusive determination for other
      purposes.





As
      of
      March 31, 2008 there were 249,506,760 shares of the Registrant’s Common Stock
      outstanding.







**Nanobac
      Pharmaceuticals, Incorporated**





**Form
      10-KSB**


**For
      the Year Ended December 31, 2007**





**Table
      of Contents**


**Page****Part
                  I**Item
                  1.
              Business
              
              3Item
                  2.
              Properties
              
              14Item
                  3.
              Legal
                  Proceedings
              
              14Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              
              15**Part
                  II**Item
                  5.
              Market
                  for Registrant’s Common Stock and Related StockholderStockholder
                  Matters
              
              16Item
                  6.
              Management’s
                  Discussion and Analysis or Plan of Operations
              
              19Item
                  7.
              Financial
                  Statements
              
              35Item
                  8.
              Changes
                  in and Disagreements with Accountants onAccounting
                  and Financial Disclosure
              
              36Item
                  8A.
              Controls
                  and Procedures**Part
                  III**Item
                  9.
              Directors,
                  Executive Officers, Promoters and Control Persons
              
              38Item
                  10.
              Executive
                  Compensation
              
              41Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners andManagement
                  and Related Stockholder Matters
              
              43Item
                  12.
              Certain
                  Relationships and Related Transactions
              
              44Item
                  13.
              Exhibits
              
              45Item
                  14.
              Principal
                  Accountant Fees and Services
              
              50
  2


**PART
      I**




**Item
      1.**  **Business**





Nanobac
      Pharmaceuticals, Incorporated and its subsidiaries (which may be referred to
      as
“Nanobac”, “the Company”, “NNBP”, “we”, “us”, or “our”) is a research-based
      bio-lifescience company formed in 1994 as a Florida corporation. The current
      business described below commenced in June 2003 with the acquisition of
      NanobacLabs Pharmaceuticals, Inc.




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




Nanobac’s
      drug discovery and development is focused on new and existing compounds that
      effectively inhibit, destroy or neutralize CNPs. Nanobac manufactures and
      markets In Vitro Diagnostic (IVD) kits and reagents for detecting calcifying
      nanoparticles. IVD products (blood and tissue tests) 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.




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




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




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





·
            **Pharmaceutical
                Drug Development -**The
                FDA approved Nanobac to move forward with PIND 73,524 for Chronic
                Prostatitis/Chronic Pelvic Pain Syndrome (“CP/CPPS”). We are currently
                evaluating several contract service providers who have formulation
                and
                manufacturing capabilities. Once a contract is entered into, we expect
                to
                begin assembling the supporting documentation for completing the
                Investigational New Drug (“IND”) application. We intend to have the IND
                submitted 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.




3


**Item
      1: Business (continued)**





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





·
            **Infection
                -**The
                gold standard for proving that something is infectious and causes
                diseases
                is Koch's postulates. We intend to validate earlier findings on Koch's
                postulates with calcifying nanoparticles in laboratory animals, including
                testing whether the infection can be prevented or treated with a
                proprietary drug combination. The Mayo Clinic is currently conducting
                a
                study to prove Koch’s postulates and the initial findings are
                encouraging.





**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. We own the intellectual property
      arising from the above experiments.





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





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





All
      of
      the aforementioned activities will require significant additional funding from
      third parties. During the past year, we have not been able to obtain the funding
      to pursue all the activities. No assurance can be given that such funding will
      be available at commercially reasonable terms, if at all.




4




**Item
      1: Business (continued)**





**Protein
      Array Development**




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




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




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





**Recent
      Developments**





As
      our
      liabilities continue to increase, several other creditors have indicated that
      they will initiate legal action. If the creditors are successful in the legal
      actions, Nanobac may lose or forfeit most or all of its assets including its
      rights to intellectual property.





5


**Item
      1: Business (continued)**





We
      signed
      a letter of intent (“LOI”) for the acquisition of DNAPrint Genomics, Inc.
      (OTCBB:DNAG - News )
      (“DNAPrint” or DNAP) on January 18, 2008 and an amendment on February 1, 2008.
      The terms of the LOI call for Nanobac to issue 75 million shares of its common
      stock in exchange for all of the common stock of DNAP. DNAP develops
      next-generation drug and diagnostics, applying advanced computational methods
      and systematic genome-based approaches to streamline clinical product
      development. The acquisition is contingent upon the approval of DNAP’s
      stockholders and our ability to raise $1.5 million to $5.0 million. The LOI
      is
      null and void if the funds are not raised by March 31, 2008. This deadline
      has
      past and an agreement has not been consummated.





We
      believe that DNAP’s efforts would enable Nanobac to increases its intellectual
      property rights and add an advanced drug and diagnostic pipeline that has near
      term product realization.





During
      February 2008, we announced publication in the International Journal of
      Nanomedicine research that scientists from the University of California San
      Francisco collaborating with Nanobac scientists at NASA's Johnson Space Center
      have concluded demonstrating that calcium deposits in the human kidney called
      Randall's Plaque may in fact be Calcifying Nano Particles (CNPs, also referred
      to as nanobacteria) which lead to the formation of Kidney Stones. The study,
      led
      by Marshall Stoller M.D. of University California San Francisco and Neva
      Ciftcioglu, formerly Nanobac's Director of Science at NASA Johnson Space Center,
      found that CNPs were identified and cultured from Randall's Plaques and detected
      by Nanobac's proprietary diagnostics. This could represent potential new early
      diagnosis and treatment opportunities for patients who suffer from Kidney
      Stones.




During
      January 2008, we announced that scientists at the Baylor College of Medicine,
      working under a collaborative agreement with Nanobac, have cited evidence
      showing the presence of Calcifying Nano Particles (“CNPs”) in surgically
      resected gallbladders with cholelithiasis (Gall Stones). This potentially
      represents a previously unrecognized factor in the development of cholecystitis
      and cholelithiasis disease. The project seeks to determine if human cell derived
      nanoparticles are pathogenic and induce inflammatory (cholecystitis) and
      calcific pathologic (cholelithiasis) disease. The project also seeks to confirm
      prior Nanobac studies, conducted in China, that Nanobac’s diagnostic test
      specifically identifies CNPs. The study results suggest a strong association
      between CNPs and cholelithiasis and conclude that it is conceivable that a
      specific therapy for CNPs may prevent cholecystitis and reduce the need for
      surgical intervention. The results were given at the 58th Annual Meeting of
      the
      American Association for the Study of Liver Diseases. The abstract was published
      in “Hepatology 46(4) 699A 1036 Suppl S, 2007” issue.





Beginning
      in late October 2007, we are offering our NanoCaptureTM and Nano-SeroTM ELISA kits
      for the detection of CNPs through an agreement with American Health Associates
“
under the trade name of “NB2”. As of December 31, 2007, we had not recognized
      any revenue under this agreement.





During
      September 2007 our Board of Directors approved a stock buy-back program for
      up
      to 20% of Nanobac’s outstanding public float. As of March 31, 2008, we did not
      have sufficient financial resources to initiate any buy back of Nanobac shares.




6


**Item
      1: 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. Our
      ability to pursue the grant of patents, has been significantly effected by
      our
      lack of funds. We have engaged legal counsel to pursue claims against others
      for
      infringement of our proprietary intellectual property rights.





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.




7


**Item
      1: Business (continued)**





***Research***





Nanobacterial
      research is ongoing around the world. Our lead scientist Olavi Kajander has
      formed multidisciplinary alliances with top researchers including: Marshall
      Stoller, University of California San Francisco; Rune Eliasson, Sweden;
      Hojatollah Vali, McGill University, Canada; Mayo Clinic, Rochester, Minnesota;
      University of South Florida; Iowa State University; D. Shoskes, Cleveland
      Clinic; Garcia-Cuerpo, Spain;  China Ghangsha group; Sommer, Univ. of
      Ulm;  Pretorius, South-Africa; G. Epstein/J.T. Salonen;  Tom &
Marcia Hjelle, Univ. of Illinois; Y. Av-Gay, University of British Columbia;
      and
      R. Berger, Miami Heart Institute, Miami FL. We intend to serve as the nexus
      for
      research scientists and become the premier leader in nanobacterial research
      and
      distribution of knowledge. We generally retain the rights for the
      commercialization of intellectual property that result from these collaborative
      studies.




To
      date,
      these collaborations have resulted in the publishing of over 86 articles,
      numerous abstracts and book chapters. Example publications since 1998 include
      articles in Science, Nature and Nature Medicine, Proceedings of the National
      Academy of Sciences, Lancet, Urology, New Scientist, Molecular Medicine, PDA
      Journal, Kidney International, Circulation, Journal of Pathophysiology, and
      American Society for Microbiology.





In
      2004,
      we entered into a Space Act Agreement with NASA’s Johnson Space Center (“JSC”),
      Houston Texas, to collaborate on the research of nanobacterium sanguineum and
      its nature and role in pathological calcification, including the detection
      and
      treatment of the pathogen. Since Astronauts may be more prone to an increased
      rate of pathological calcification while in a zero gravity environment, the
      collaboration will support NASA’s need to better understand the effects of
      long-term space travel on humans. In addition, Nanobac’s work provides a model
      for studying mineralized organic matters that could aid NASA in the search
      for
      extraterrestrial life.





Under
      the
      agreement, NASA will provide workspace at JSC for Nanobac’s personnel located at
      JSC. The agreement further provides Nanobac the opportunity to work together
      with a multidisciplinary team of NASA researchers while having access to basic
      laboratory services for CNPs science, including electron microscopy, molecular
      biology and geology-mineralogy research facilities. Projects ranging from
      searching for CNPs biosignatures in earth fossils and in Mars meteorites to
      diagnosing and treating CNPs are anticipated. Nanobac will provide JSC with
      equipment and specialty supplies for CNP research and apply its pioneering
      diagnostic and treatment experience in the field. Since the resignation of
      Dr.
      Neva Ciftcioglu in December 2007, Nanobac has not had any personnel working
      at
      the Johnson Space Center. We will continue to work with NASA on several research
      initiatives under a revised Space Act Agreement.





We
      own
      the rights for the commercialization of intellectual property that results
      from
      our collaborative research at NASA JSC. However, the U.S. Federal Government
      retains the right to use this intellectual property for U.S. Government purposes
      without compensation to us.




8




**Item
      1: Business (continued)**




**The
      Role of CNPs in Calcification Associated Diseases**




***Urological
      Diseases***




Researchers
      have shown a relationship between CNPs and urological diseases such as chronic
      prostatitis/chronic pelvic pain syndrome (CP/CPPS), kidney stones, and PKD.
      Until these studies, no single infection, viral or bacterial, had been
      identified that could have caused the progression of these diseases. Nanobac
      has
      focused on investigating the relationship between CNPs and these urological
      diseases.





*Chronic
      prostatitis/chronic pelvic pain syndrome (CP/CPPS)*





Chronic
      prostatitis/chronic pelvic pain syndrome (CP/CPPS) is a disease in males defined
      by pelvic pain and/or ejaculatory and/or urinating pain/discomfort lasting
      longer than 3 months. At any time 2-10% of adult men are suffering from CP
      symptoms and 15% of men will suffer from CP symptoms at some point of their
      lives. In the United States, more than 2 million men per year will visit their
      physician for CPPS. The cause for CP/CPPS is frequently unknown and thus the
      therapies are mostly empirical and target the symptoms. Antimicrobial and
      anti-inflammatory agents and a -adrenergic
      receptor blockers are frequently used, and seem to relieve the symptoms in
      many
      patients. However, men with refractory long-standing symptoms present a
      substantial problem to general practioners, internists and urologists, as the
      current therapies have inconsistent effects on the patient’s symptoms.
      Persistent unknown cause behind the symptoms leads to a situation where no
      evidence based medicine can be used as a basis for therapeutic
      efforts.





The
      prostatitis syndromes are a group of disorders with varying symptoms and
      probably diverse etiologies. Prostatitis is divided into four types. Of these
      four types, CP/CPPS type III accounts for the majority of CP/CPPS patients
      seen
      in an average urology practice. These patients often have prostatic
      calcification (prostate stones). The presence of prostatic stones in younger
      men
      is associated with both inflammation and symptoms of CPPS. While prostatic
      calcification is often detected in asymptomatic (not exhibiting symptoms of
      disease) older men who undergo prostate biopsy, the presence and degree of
      calcification in younger CP/CPPS patients can be striking. One hypothesis is
      that prostatic calculi in the prostatic ducts may increase intraprostatic
      pressures and lead to pain and swelling. Furthermore, the composition of
      prostate stones are typically calcium apatite, which is the hallmark of CNPs
      action. This association led researchers to postulate a role for CNPs in the
      development of CP/CPPS. Indeed, preliminary research comparing serum (blood)
      of
      men with a diagnosis of prostatitis with serum from unaffected men revealed
      significantly higher rates in the prostatitis group of CNP antigen by Enzyme-linked
      immunosorbent assays (ELISA) that are
      the
      simplest and most widely used diagnostic test systems. They are used to test
      a
      blood sample for the presence/absence of given antibodies and/or
      antigens.





Kajander
      proposed a new etiology (cause of disease) for CP/CPPS, simply because we have
      found that these patients very often have very high levels of CNPs in their
      blood. CNPs carry important players of inflammation and cell death on their
      surface. It has been shown *in
      vitro* (in
      Petri dishes, test tubes etc...) that CNPs can kill cultured mammalian cells and
      can cause cell damage. When 15 human diseases were investigated for the presence
      of CNPs in peripheral blood, CP/CPPS patients showed the highest values or
      highest antigen level of CNPs. A strategy to treat CP/CPPS should be based
      upon
      a new understanding of the basic disease process calcific
      inflammation.





9





**Item
      1: Business (continued)**





An
      observational study of prostatitis patients, led by Daniel A. Shoskes, M.D.,
      of
      Cleveland Clinic Florida, published in the leading peer-reviewed urology
      journal, The Journal of Urology, demonstrated a significant improvement in
      the
      symptoms of chronic prostatitis / chronic pelvic pain syndrome for those
      patients who took Nanobac Supplements for a period of three months. The treated
      group of 16 patients had prostatic stones and longstanding Chronic Pelvic Pain
      Syndrome (“CPPS”) symptoms that were not responsive to prior conventional
      therapies. Two of the patients in the test group who had been on complete
      medical disability have returned to work.




*Kidney
      Stones* :





Kidney
      stones are one of the most common disorders of the urinary tract. A kidney
      stone
      is a solid piece of material that forms in the kidney out of substances in
      the
      urine. A problem stone can block the flow of urine and cause great
      pain.





Several
      studies conducted by prominent medical researchers have collectively shown
      CNPs
      as a probable cause of kidney stone formation. Depending upon the patient
      population, researchers have found that 62% to 97% of kidney stones have CNPs.
      The presence of CNPs is independent of the type of kidney stone.





It
      is
      believed that CNPs create the calcific deposits that are physically present
      in
      the kidney stones and therefore may be the cause of kidney stone
      formation.





The
      Company has been working with scientists at NASA to research the effects of
      CNPs
      in the formation of kidney stones during space flights. A team of NASA
      scientists used multiple techniques to determine that CNPs multiply faster
      in
      space flight simulated conditions than on Earth. This determination is
      especially important to NASA as it indicates that astronauts on future long-term
      missions to the moon and Mars are at an increased risk for developing kidney
      stones.





The
      Company is continuing its collaboration with NASA. The observation that CNPs
      grow faster in conditions simulating the microgravity conditions of space also
      allows researchers to grow cultures faster. A problem facing researchers in
      studying CNPs had been in developing a sufficient amount of material. CNPs
      double about once every three days compared to typical bacteria which doubles
      about every 20 minutes.





*Polycystic
      Kidney Disease (“PKD”)* :





Polycystic
      kidney disease (“PKD”) is a genetic disorder characterized by the growth of
      numerous cysts in the kidneys. PKD cysts can slowly replace much of the mass
      of
      the kidneys, reducing kidney function and leading to kidney failure.





Studies
      have shown that 100% of kidney cyst fluids and urine tested positive for the
      presence of Nanobacteria. Nanobac plans to initiate research trials that will
      evaluate the link between Nanobacteria and PKD.




10




**Item
      1: Business (continued)**




***Cardiovascular
      Diseases***





The
      most
      serious and widespread of the diseases caused by calcified plaque are
      atherosclerosis (hardening of the arteries) and coronary heart disease. Coronary
      heart disease is caused by a narrowing of the coronary arteries that feed the
      heart, which may be caused by the build-up of CNPs.





Many
      cardiovascular researchers have shown that atherosclerosis might be the
      life-long result of our bodies’ various healing mechanisms and inflammatory
      responses to infection. Researchers have sought to isolate an infectious agent
      that is present in our tissues that could stimulate the development of
      atherosclerotic plaques. Until recently, no single infection, viral or
      bacterial, had been implicated.




Three
      recently published studies conducted by prominent medical researchers have
      collectively shown that CNPs might be the previously unidentified agent involved
      in the development of atherosclerotic heart disease. A group of researchers
      at
      the Mayo Clinic, led by Virginia Miller, PhD showed that CNPs are present in
      calcified atherosclerotic coronary arteries and heart valves.




Cardiovascular
      researcher Benedict Maniscalco, M.D., who is the Company’s Director of Medical
      Research, Medical Director, and member of the the Company’s Board of Directors,
      published a study that showed that patients with severe coronary artery disease
      tested positive for nanobacterial antigen. The study also indicated that a
      majority of cardiac patients that received the Nanobac Supplements had a
      decrease in their coronary artery calcium scores. Angina was decreased or
      ablated in 16 of 19 patients. Lipid (fats and fat like materials) profiles
      also
      improved in most patients. Dr. Maniscalco’s study concluded that the coronary
      artery calcium scores of most coronary artery disease patients decreased during
      the period they used the Nanobac Supplements inferring regression of calcified
      coronary artery plaque volume. The patients tolerated the therapy well and
      their
      angina ( a
      heart
      condition marked by chest pain due to reduced oxygen to the heart) and
      lipid
      profiles improved.





Also,
      at
      an American Heart Association scientific session, one of the world’s most
      prominent heart disease researchers, Stephen E. Epstein, M.D, Director of the
      Cardiovascular Research Institute at Washington Hospital Medical Center in
      Washington D.C., reported that 94% of people with calcified coronary arteries
      have nanobacterial infection as measured by the Company’s Nanobacterial Antibody
      Assay, and that antibody results correlated with coronary calcification scoring.
      Therefore, the Nanobacterial Antibody Assay may be a predictor of patients
      with
      high levels of calcium in their coronary arteries. These patients are at the
      highest risk for a heart attack. Thus, the Nanobacterial Antibody Assay could
      be
      used as a biomarker that may predict which patients are at greatest risk for
      a
      heart attack.





The
      collective weight of the three studies suggests that CNPs infection may be
      the
      previously unknown infectious agent associated with atherosclerotic plaque.
      The
      physical presence of CNPs in the diseased artherosclerotic tissues and the
      correlation with heart disease calcification levels suggests that long-term
      CNP
      presence may be involved in the development of the calcification in
      atherosclerotic heart disease.




Nanobac
      is continuing its research of the relationship between CNPs and heart disease
      and has expanded its research to include other diseases involving pathological
      calcification.




11




**Item
      1: Business (continued)**




***Other
      Opportunities***




Calcifying
      Nano-Particles expose a risk of contamination for biopharmaceuticals
      ( a
      pharmaceutical produced by biotechnology and especially by genetic
      engineering ) containing human or animal blood components or blood and animal tissue derived
      raw materials that are used to produce the end product.




Nanobac
      BioAnalytical Services develop and apply methods for avoiding, detecting, and
      inactivating or eliminating CNPs from raw materials or production substrates.
      Our contamination control program focuses on host cell lines, animal and human
      derived materials, raw materials, availability of diagnostic procedures and
      downstream processes capable of inactivating or removing contaminants. We are
      considering enlisting biopharmaceutical partners to further this line of
      business.




**Calcifying
      Nano-Particle (CNP) Background and Description**




CNPs
      were
      discovered in 1988 by Finnish researcher Olavi Kajander, M.D., PhD. Dr. Kajander
      was carrying out mammalian cell research when a routine mammalian cell culture
      experiment, using commercially available fetal bovine serum as the growth media,
      just wasn't getting off the ground. The cells weren't thriving and dividing
      like
      they should; the cells were sickly and died off before any study could be done.
      Strange vacuoles were forming up in many of the cells, and these cells
      subsequently died. Dr. Kajander, like all basic cell researchers, had
      encountered this problem before; sometimes their cell cultures worked, and
      sometimes they didn't. Dr. Kajander researched this further and after several
      weeks of culture, turbidity developed in one of the flasks. We believe this
      represented the first isolation of CNPs.




**Competition**





The
      market for providing physicians and managed care organizations with nanobacteria
      related disease management and services is just emerging, and we believe we
      are
      currently the only company providing a comprehensive approach to managing
      nanobacterial diseases.





The
      general market for academic researchers and clinical laboratories with in vitro
      diagnostic test kits is highly competitive and includes diagnostic companies
      such as, Roche, Abbott, Bayer, Johnson & Johnson, and Dade
      Behring.





The
      general market for pharmaceuticals is also highly competitive and includes
      Fortune 500 pharmaceutical companies as well as small to medium sized
      pharmaceutical and dietary supplement companies.





12


**Item
      1: Business (continued)**





**Government
      Regulation**





*Clinical
      Reference Laboratory*




Clinical
      reference laboratories in the United States are regulated under the federal
      Clinical Laboratory Improvement Act (CLIA). Our reference laboratory is located
      in Kuopio Finland and is regulated by European Union and Finland laws and is
      not
      regulated by the CLIA.





*In
      Vitro Diagnostics*




The
      FDA
      regulates in vitro diagnostic kits and reagents. We intend to begin clinical
      studies to support an FDA filing for our assays. The timing of our clinical
      trials and FDA approval is dependent on future funding and preliminary research
      results. We received notification that our NANO-CAPTURE and NANO-SERO assays
      meet the criteria for CE Mark in Europe.





**Environmental
      Matters**





We
      have
      not been impacted financially or operationally by environmental laws.





**Geographic**





We
      will
      initially focus our drug discovery business in the United States. To date,
      over
      90% of our prior revenue was from the United States. We may also develop markets
      in the European Union through the operations of our Finnish Subsidiary, Nanobac
      OY.





**Employees**





We
      currently have one employee in Finland. Our executives are uncompensated or
      independent contractors.




**Factors
      That May Affect the Company**




We
      operate in a rapidly changing environment that involves a number of risks,
      uncertainties, and assumptions, many of which are beyond our control. For a
      discussion of some of these risks, see “—Risk Factors” in Item 6 of this report.
      Other risks are discussed elsewhere in this Form 10-KSB.




**Investor
      Information**




We
      are
      subject to the information requirements of the Securities Exchange Act of 1934
      (the “Exchange Act”). Therefore, we file periodic reports, proxy statements, and
      other information with the Securities and Exchange Commission (the “SEC”). Such
      reports, proxy statements, and other information may be obtained by visiting
      the
      Public Reference Room of the SEC at 450 Fifth Street, NW, Washington, DC 20549
      or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an
      Internet site ( http://www.sec.gov )
      that
      contains reports, proxy and information statements, and other information
      regarding issuers that file electronically.




Financial
      and other information about the Company is available on our website
      ( http://www.nanobac.com ).
      We
      make available on our website, through links to the SEC website, copies of
      our
      annual report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports
      on Form 8-K, and amendments to those reports filed or furnished pursuant to
      Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
      after filing such material electronically or otherwise furnishing it to the
      SEC.




13




**Item
      2.**  **Properties**





The
      following table sets forth a description of our facilities:


Location
              
              Square
                  Feet (Approx)
              
              Lease
                  Expiration
              
              FunctionTampa,
                  Florida
              
              1,700
              
              1
                  month notice
              
              Headquarters
                  for NanobacTampa,
                  Florida
              
              2,100
              
              June
                  2010
              
              Office
                  space subleased to an unaffiliated entityKoupio,
                  Finland
              
              1,500
              
              3
                  months notice
              
              Research
                  and laboratory facility




All
      facilities are in good condition. We expect that our current facilities will
      be
      sufficient for the foreseeable future. To the extent that we require additional
      space in the near future, we believe that we will be able to secure additional
      leased facilities at commercially reasonable rates.





**Item
      3.** **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. During December 2005,
      a
      final judgment was awarded to Folz by the Superior Court of Fulton County for
      approximately $79,000 and this amount is included in accrued liabilities in
      the
      accompanying financial statements.





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. However, due to lack of funding, we were unable to continue to defend
      this lawsuit although we were confident that EliteCorp’s suit was without merit.
      As a result of our inability to defend this lawsuit, EliteCorp was awarded
      a
      judgment of approximately $481,000 and this amount is included in accrued
      liabilities in the accompanying financial statements.




14


**Item
      3.** **Legal
      Proceedings (continued)**





During
      January 2007, the Company, along with the Company’s CEO and a Board of Director
      member was served with civil action in the Circuit Court of Cook County,
      Illinois by Nutmeg Group LLC, the sole unaffiliated holder of subscription
      agreements described in Note 10. The suit is seeking damages for alleged
      breaches of contract by the Company and the affiliates as a result of the
      alleged failure to deliver stock and warrants that were allegedly due to be
      delivered under certain subscription agreements between the parties. We have
      filed a motion to quash 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.





During
      October 2007, we were served with a civil action in the District Court of Harris
      County, Texas 61 st Judicial
      District by Neva Ciftcioglu (“Ciftcioglu”), our former employee. The petition
      and subsequent amended petitions and motion for default judgment allege that
      Nanobac owes Ciftcioglu unpaid compensation of $95,000 and 5 million shares
      of
      Nanobac’s common stock. Ciftcioglu is seeking to have a substantial portion of
      Nanobac’s intellectual property assigned to her as settlement for her claim. We
      are defending this lawsuit as we do not believe Ciftcioglu is entitled to our
      intellectual property. We have included approximately $110,000 in the
      accompanying financial statements for Ciftcioglu’s claim, related payroll taxes
      and related legal costs. No liability has been recorded for the 5 million shares
      of Nanobac stock as these shares were issued to Ciftcioglu in 2004.





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





No
      matters were submitted to a vote of the Company’s stockholders during the fourth
      quarter of the year ended December 31, 2007.




15


**PART
      II**





**Item
      5.** **Market
      for Registrant’s Common Stock and Related Stockholder
      Matters**





Our
      common stock is traded under the symbol “NNBP”.





From
      October 12, 1994 through August 18, 1997, the Company's Common Shares were
      traded in the NASDAQ SmallCap Market under the symbol "NATD". Beginning August
      18, 1997 the Company's Common Shares were traded on the Over The Counter
      Bulletin Board. Effective March 27, 2000, the trade symbol was changed to
      "AMER". Effective July 21, 2003, the trade symbol was changed to "NNBP". From
      March 2001 through November 2004, our Common Shares have traded through the
      Over
      The Counter Pink Sheets. From November 2004 to present, our Common Shares have
      been traded on the Over The Counter Bulletin Board (“OTCBB”). The following
      table sets forth the high and low bid prices for Common Shares as reported
      by
      NASDAQ, OTC Pink Sheets, and OTCBB for the periods indicated. Quotations on
      NASDAQ, OTC Pink Sheets and OTCBB reflect inter-dealer prices, without retail
      mark-up, mark-down or commission and may not represent actual transactions.





**High**
            
            **Low****2006**First
                Quarter
            
            $
            0.06
            
            $
            0.03Second
                Quarter
            
            $
            0.08
            
            $
            0.04Third
                Quarter
            
            $
            0.36
            
            $
            0.05Fourth
                Quarter
            
            $
            0.35
            
            $
            0.10**2007**First
                Quarter
            
            $
            0.16
            
            $
            0.07Second
                Quarter
            
            $
            0.11
            
            $
            0.05Third
                Quarter
            
            $
            0.17
            
            $
            0.06Fourth
                Quarter
            
            $
            0.15
            
            $
            0.05




On
      March
      31, 2008, the closing bid quote for the Common Shares was $0.04 per share,
      and
      there were approximately 250 holders of record of Common Shares. Our common
      shares are issued in registered form. Continental Stock Transfer & Trust
      Company, 17 Battery Place, New York, NY 10004 is the transfer agent for our
      common shares.




We
      have
      not paid cash dividends on our Common Shares and we do not anticipate doing
      so
      in the foreseeable future. The Company intends to retain earnings, if any,
      for
      future growth and expansion opportunities. Payment of cash dividends in the
      future, as to which there can be no assurance, will be dependent upon the
      Company's earnings, financial condition, capital requirements and other factors
      determined by the Board of Directors.




16




**** **Changes
      in Securities**




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,
      a related party acquired the rights and obligations under the above Stock
      Subscription Agreements from two of the three unaffiliated investors except
      for
      common stock previously issued to these investors and 2.7 million of the
      warrants. The minimum number of shares and warrants that will be issued under
      these Subscription Agreements (assuming a Fixed Price of $0.12 per share) is
      as
      follows:





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





The
      actual number of shares and warrants that ultimately will be issued under these
      Subscription Agreements may be substantially higher due to the variability
      of
      the Fixed Price. Based on our recent traded price of $0.04 to $0.06 per share,
      approximately six times as many shares and warrants would be issued as described
      above.





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





A
      success
      fee was awarded to a broker for 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.




17





**Purchases
      of Equity Securities by the Small Business Issuer and Affiliated
      Purchases**





None





**Selected
      Quarterly Financial Data**





Mar
                31
            
            Jun
                30
            
            Sep
                30
            
            Dec
                31**2007
                Quarter ended**Revenue
            
            $
            5,012
            
            $
            2,432
            
            $
            5,809
            
            $
            4,368Gross
                profit
            
            $
            752
            
            $
            530
            
            $
            1,142
            
            $
            678Net
                loss
            
            
            ($3,856,718
            )
            
            ($716,562
            )
            
            ($835,763
            )
            
            ($1,167,068
            )Loss
                per share:Basic
                and Diluted
            
            
            ($0.01
            )
            $
            0.00
            
            $
            0.00
            
            
            ($0.02
            )**2006
                Quarter ended**Revenue
            
            $
            161,286
            
            $
            37,565
            
            $
            23,894
            
            $
            2,341Gross
                profit
            
            $
            116,091
            
            $
            14,942
            
            $
            12,608
            
            $
            1,640Net
                loss
            
            
            ($1,487,687
            )
            
            ($1,395,460
            )
            
            ($787,183
            )
            
            ($1,303,023
            )Loss
                per share:Basic
                and Diluted
            
            
            ($0.01
            )
            $
            0.00
            
            $
            0.00
            
            
            ($0.01
            )




18


**Item
      6.** **Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations**




**Results
      of Operation**




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





**Year
                ended December 31**2007
            
            2006
            
            %
                Change
            
            $
                ChangeRevenue
            
            $
            17,621
            
            $
            225,086
            
            
            -92
            %
            
            ($207,465
            )Cost
                of revenue
            
            
            14,519
            
            
            79,805
            
            
            -82
            %
            
            (65,286
            )Gross
                Profit
            
            
            3,102
            
            
            145,281
            
            
            -98
            %
            
            (142,179
            )Gross
                Profit percentage
            
            
            18
            %
            
            65
            %Selling,
                general and administrative
            
            
            3,308,255
            
            
            1,838,740
            
            
            80
            %
            
            1,469,515Research
                and development
            
            
            1,149,356
            
            
            1,994,797
            
            
            -42
            %
            
            (845,441
            )Impairment
                loss on intangible asset
            
            
            0
            
            
            585,000
            
            
            NM
            
            
            (585,000
            )Depreciation
                and amortization
            
            
            460,302
            
            
            541,278
            
            
            -15
            %
            
            (80,976
            )Operating
                loss
            
            
            (4,914,811
            )
            
            (4,814,534
            )
            
            2
            %
            
            (100,277
            )Other
                income (Expense)
            
            
            (1,661,300
            )
            
            (158,819
            )
            
            946
            %
            
            (1,502,481
            )Net
                loss
            
            
            ($6,576,111
            )
            
            ($4,973,353
            )
            
            32
            %
            
            ($1,602,758
            )





19


**2007
      Compared to 2006**





**Revenue**





Revenue
      for the years ended December 31, 2007 and 2006 is summarized as
      follows:





**Year
                ended December 31**2007
            
            2006Nanobac
                Supplement
            
            $
            0
            
            $
            122,495Observation
                Rights
            
            
            0
            
            
            15,000Diagnostic
                Products
            
            
            17,621
            
            
            87,591$
            17,621
            
            $
            225,086




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 year ended December 31, 2007. We expect
      no revenue from dietary supplements in future periods.




Diagnostic
      product revenue decreased from 2006 to 2007 due to the termination of our United
      States diagnostic product sales in November 2006. Approximately 97% of the
      2007
      diagnostic revenue was generated in Finland. Beginning in October 2007, we
      have
      initiated plans to offer our NB2 diagnostic tests in the United States through
      an agreement with American Health Associates. We had previously offered NB2
      diagnostic tests in the United States through November 2006. We did not
      recognize any revenue from this initiative in 2007.





Revenue
      from observation rights was recognized over the agreement’s 12-month term using
      the straight-line method. This term ended on August 31, 2006, accordingly,
      there
      is no revenue from observation rights in 2007.





Based
      on
      our current operations, we anticipate less than $50,000 of revenue for the
      year
      ending December 31, 2008





**Cost
      of revenue**





For
      2007,
      cost of revenue consisted of direct materials and testing services at of Finland
      laboratory. For 2006, cost of revenue consisted of direct materials, testing
      services (for diagnostic products) and shipping.





**Gross
      Profit**





Gross
      profit as a percentage of revenue was 18% for the year ended December 31, 2007
      and 65% for the year ended December 31, 2006. The percentage profit decreased
      as
      we discontinued the higher margin diagnostic services in the United States
      in
      November 2006. The gross profit in Finland is lower due to high laboratory
      costs
      in relation to the relatively small volume of revenue.




20


**2007
      Compared to 2006 (continued)**





**Selling,
      General and Administrative (“SG&A”)**





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). For financial
      reporting purposes, these shares were valued at $1.6 million, which is included
      in our selling, general and administrative (“SG&A”) expenses.





During
      2007, we recognized a charge of approximately $481,000 in connection with the
      judgment awarded to EliteCorp. While we did not believe the EliteCorp legal
      action had merit, we did not have sufficient funds to defend this litigation.





Excluding
      the stock issuance and judgment referred to above, approximately 87% of SG&A
      expenses were comprised of payroll and professional fees for the year ended
      December 31, 2007. 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 approximately $1.5 million for the year ended December 31, 2007
      compared to the year ended December 31, 2006. Of this increase, $1.6 million
      was
      attributable to the stock issuance and $481,000 was attributable to the
      EliteCorp judgment as described above. In addition, a $147,000 royalty expense
      in 2007 was recorded in connection with potential payments due under our
      Subscription Agreements and a $150,000 expense for stock issued to outside
      consultants for investor and other services. These increases were offset by
      decreases in payroll expenses of $173,000 as we eliminated payroll associated
      with the sale of Nanobac Supplements; a decrease in rent expense of $135,000
      associated with an abandoned lease; and a decrease in other compensation
      associated with a stock grant bonus issued in 2006 of $560,000.





**Research
      and Development (“R&D”)**





For
      the
      year ended December 31, 2007 and 2006 R&D expenses consisted of the
      following types of expenses:




Year
                ended December 31,2006
            
            2005U.S.
                Payroll and medical directors
            
            
            57
            %
            
            58
            %Finland
                payroll and laboratory
            
            
            22
            %
            
            26
            %Research
                studies
            
            
            20
            %
            
            14
            %Other
            
            
            1
            %
            
            2
            %100
            %
            
            100
            %





Expenses
      for research studies fluctuate from year to year as these expenses are dependent
      on specific initiatives and funding sources.





R&D
      expenses for the year ended December 31, 2007 decreased $845,000 compared to
      the
      year ended December 31, 2006 as we reduced every aspect of our R&D
      initiatives due to lack of funding.




21


**2007
      Compared to 2006 (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 year ended December 31, 2006.





**Depreciation
      and amortization**





Approximately
      93% of depreciation and amortization are related to the amortization of
      intangible assets acquired in the 2003 and 2004 acquisitions of NanobacLabs
      Pharmaceuticals, Inc. and Nanobac OY. Amortization expense decreased for the
      year ended December 31, 2007 compared to the year ended December 31, 2006 as
      the
      amortization of product rights was eliminated due to the impairment of this
      intangible asset described above.





**Operating
      loss**





Our
      operating loss for the year ended December 31, 2007 was $4.9 million compared
      to
      $4.8 million for the year ended December 31, 2006. This increased loss primarily
      reflects the $1.6 million charge attributable to stock issuances during 2007
      compared to a $560,000 charge in 2006 and the $481,000 charge for the EliteCorp
      judgment. These additional costs were offset by an $845,000 decrease in R&D
      expenses and a $585,000 decrease in impairment expense.





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




22


**2007
      Compared to 2006 (continued)**





**Other
      income (expense)**





Other
      income for the years ended December 31, 2007 and 2006 is summarized as
      follows:





Year
                ended December 31,2007
            
            2006Interest
                expenseStockholder
                loan
            
            
            ($183,866
            )
            
            ($198,999
            )Other
            
            
            (3,038
            )
            $
            0Loss
                on related party debt extinguishment
            
            
            (1,560,000
            )
            $
            0Foreign
                exchange gain
            
            
            85,266
            
            $
            54,915Loss
                on disposition of assets
            
            
            0
            
            
            ($18,330
            )Other,
                net
            
            
            338
            
            
            3,595($1,661,300
            )
            
            ($158,819
            )





The
      Form
      10-QSB filings during 2007 reflect a derivative gain which relates to five
      million exercisable warrants for which we did not have sufficient authorized
      and
      unissued shares. The related derivative liability for the warrants was computed
      based upon the value of our stock as of January 30, 2007 as quoted on
      established markets, using the Black-Scholes method, assuming an expiration
      date
      of the warrants of August 31, 2009, a 100% volatility percentage and an annual
      interest rate of 4.87%. This was the date the Company first had insufficient
      authorized and unissued shares to allow the issuance of shares of its common
      stock if the warrants were fully exercised. As a result of the Company
      increasing the number of its authorized shares of common stock, there are now
      sufficient authorized shares to issue the shares if the five million warrants
      were exercised. Accordingly, the full amount of the derivative gain was reversed
      in the fourth quarter of 2007.





The
      loss
      on related party debt extinguishment resulted from the use, for financial
      reporting purposes, of the price quoted on the OTCBB for a small number of
      fully
      registered and free trading shares of the Company’s common stock. In determining
      the ratio of debt for stock in the related party exchange, the valuation
      utilized in the Subscription Agreements with unaffiliated investors was used.
      This lower value reflects the economic realities that the Company faces in
      attempting to raiser capital by issuing large amounts of restricted stock which
      cannot be immediately sold on the open market.





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.




23


**Liquidity
      and Capital Resources**





As
      of
      December 31, 2007, we had total assets of $7.2 million of which only $31,000
      were current assets. At December 31, 2007, we had total current liabilities
      of
      $6.7 million and a working capital deficit of $6.7 million. Approximately $4.1
      million of the $6.7 million working capital deficit is attributable to related
      party loans.





The
      Company funded its activities during the past year primarily through loans
      made
      by entities affiliated with our Chief Executive Officer and through the issuance
      of common stock. The related party 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 related parties, and it is also
      unlikely that any financing could have been obtained under any terms without
      the
      financing of the related parties.





As
      discussed in Item 5, 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
      there is no current plan to issue a registration statement.




Net
      cash
      used in operations was $911,000 for the year ended December 31, 2007. The
      negative cash flow from operations reflects the $6.6 million net loss for the
      period offset by non-cash charges of $1.6 million for the common stock issuances
      to member of our Board of Directors, $1.6 million for the loss incurred on
      the
      extinguishment of related party debt in exchange for our common stock, $644,000
      for non-cash charges for depreciation, amortization and interest accrued on
      the
      related party loan and a $1.7 million increase in current liabilities including
      the $481,000 judgment for the EliteCorp legal action.





Net
      cash
      provided by investing activities for the year ended December 31, 2007 reflects
      the refund of a $50,400 security deposit offset by $2,000 for the purchase
      of
      fixed assets.





Net
      cash
      provided by financing activities for the year ended December 31, 2007 was
      $911,000, which is attributable to $893,000 of related party loans and $18,000
      of employee loans to our Finland subsidiary.





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





24


**Recent
      Accounting Pronouncements**





**Critical
      Accounting Policies and Estimates**





*Valuation
      of goodwill and other intangibles:*





Our
      intangible assets include goodwill patents and product rights all of which
      are
      accounted for based on Financial Accounting Standard Statement No. 142 *Goodwill
      and Other Intangible Assets* (“FAS
      142”). As described below, goodwill is not amortized but is tested at least
      annually for impairment or more frequently if events or changes in circumstances
      indicate that the assets might be impaired. Intangible assets with limited
      useful lives (patents and product rights) are amortized using the straight-line
      method over their estimated period of benefit. We obtain a valuation of all
      intangibles purchased in any acquisition.





Goodwill,
      with a carrying value of $3.6 million, is tested for impairment using a two
      step
      method. The first step is to compare the fair value of the reporting unit to
      which the goodwill relates (the Company’s enterprise value, or market
      capitalization) to its book value, including goodwill. If the fair value of
      the
      reporting unit is less than its books 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 goodwill impairment
      adjustments recorded in 2007 or 2006.





The
      impairment test for the other intangible assets with limited useful lives is
      performed by comparing the carrying amount to the sum of the undiscounted
      expected future cash flows that relate to the respective asset. Impairment
      exists if the sum of the undiscounted cash flows is less than the carrying
      amount of the intangible asset or to its related group of assets. If that were
      to occur, we would record an impairment loss for any excess of the carrying
      value of the patents or product rights over the expected future discounted
      cash
      flows related to those assets. In that respect, we predominately use a
      discounted cash flow model derived from internal budgets in assessing fair
      values for our impairment testing. Factors that could change the result of
      our
      impairment test include, but are not limited to, different assumptions used
      to
      forecast future net sales, expenses, capital expenditures, and working capital
      requirements used in our cash flow models. In addition, selection of a
      risk-adjusted discount rate on the estimated undiscounted cash flows is
      susceptible to future changes in market conditions and, when unfavorable, can
      adversely affect our original estimates of fair values. In the event that our
      management determines that the value of intangible assets have become impaired
      using this approach, we will record an accounting charge for the amount of
      the
      impairment. We did not recognize any impairment charges with respect to our
      patents in either 2007 or 2006 but did recognize a $585,000 impairment charge
      in
      2006 for the total carrying value of product rights based upon the Company’s
      decision to terminate the marketing and sale of dietary supplements (the
      products to which the product rights relate).





25


*Stock-based
      transactions:*





In
      December 2004, the FASB issued SFAS No. 123R - *Accounting
      for Share-Based Payments* .
      This
      establishes standards for the accounting of transactions in which an entity
      exchanges its equity instruments for goods or services, particularly
      transactions in which an entity obtains employee services in share-based payment
      transactions. The statement requires a public entity to measure the cost of
      employee services received in exchange for an award of equity instruments based
      on the grant-date fair value of the award. That cost is recognized over the
      period during which the employee is required to provide service in exchange
      for
      the award.





We
      use
      the Black-Scholes options-pricing model to determine the fair value of each
      option grant as of the date of grant for expense incurred. In applying the
      Black-Scholes option-pricing model during fiscal 2006, we assumed no dividend
      yield, risk-free interest rates ranging from 5.00% to 5.25%, expected option
      term of 5 years, and a volatility factor of 100%. Additionally, the Company
      uses
      the trading price of its common stock as the measure of the value for financial
      reporting purposes of the Company’s common stock in connection with valuation of
      stock grant awards.





**Contractual
      obligations**




At
      December 31, 2007, the Company’s contractual cash obligations, with initial or
      remaining terms in excess of one year, were as follows:





Amount
                of CommitmentExpired
                by year ending December 31,Other
            
            OperatingLiabilities
            
            Leases
            
            TotalLess
                than 1 year
            
            
            25,000
            
            
            64,213
            
            $
            89,2131
                -
                2 years
            
            
            -
            
            
            89,611
            
            
            89,6113
                -
                4 years
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            25,000
            
            $
            153,824
            
            $
            178,824





26


**Quantitative
      and Qualitative Risk - Foreign Currency**





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. Our net currency gain for 2007
      was
      approximately $85,000.





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




27


**Forward
      Looking Statements**





Our
      disclosure and analysis in this Form 10-KSB 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 personnel; our forecasts may not
      accurately anticipate market demand; and there may be other material adverse
      changes in our operations or business. Certain important factors affecting
      the
      forward looking statements made herein include, but are not limited to (i)
      accurately forecasting capital expenditures; (ii) obtaining new sources of
      external financing; (iii) serving as the nexus for nanobacteria research and
      (iv) conducting successful clinical trials supporting our theories that the
      human body does not recognize nanobacteria as harmful, and accordingly,
      nanobacteria could be the cause of pathological disease causing calcification
      found in multiple diseases. Assumptions relating to budgeting, marketing,
      product development and other management decisions are subjective in many
      respects and thus susceptible to interpretations and periodic revisions based
      on
      actual experience and business developments, the impact of which may cause
      the
      Company to alter its capital expenditure or other budgets, which may in turn
      affect the Company's financial position and results of operations.





**Risk
      Factors**





**Trends,
      Risks and Uncertainties**





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





**Cautionary
      Factors that may affect Future Results**





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




28


**Risk
      Factors (continued)**





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




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




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





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


**Growth
      and Capital Requirements**





Throughout
      2007 and 2006, related parties have provided funding that has allowed the
      Company to continue. our capital needs through loans and capital contributions.
      These related parties are under no obligation to continue such funding. In
      the
      event these related parties should discontinue their support, we will likely
      have difficulty in continuing our operations. In such an event, stockholders
      could lose their investment in its entirety. Related party loans may, but are
      not required, be exchanged for shares of the Company’s common stock, which would
      cause dilution of existing shareholders.





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





**Legal
      Actions**





We
      are
      being suited by a former employee and have had over $560,000 of judgments
      awarded against us. These creditors have indicated that they will attempt to
      levy claims against our assets which, if they are successful, we may be forced
      to cease operations.




29


**Risk
      Factors (continued)**





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




The
      Company has a history of incurring operating losses. There is no assurance
      that
      we will operate profitably or will generate positive cash flow in the future.
      In
      addition, we anticipate incurring losses from operations over the next two
      years
      as we focus on research and development for eventual drug discovery and the
      development of diagnostic products. Consequently, we expect to incur operating
      losses and negative cash flow until our products gain market acceptance
      sufficient to generate a commercially viable and sustainable level of sales,
      and/or additional products are developed and commercially released and sales
      of
      such products made so that we are operating in a profitable manner.




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





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





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





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





**Intellectual
      Property Rights**





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





**Key
      Man Life Insurance**





We
      do not
      maintain key man life insurance on the life of any officer, director, employee,
      or independent contractor.




30


**Risk
      Factors (** continued **)**





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





We
      have a
      limited operating history upon which an evaluation of our Company and our
      prospects can be based. Our prospects must be evaluated with a view to the
      risks
      encountered by companies in early stages of development, particularly in light
      of the uncertainties relating to the new and evolving biolife science research
      which we intend to develop and market, and the acceptance of our business model.
      We will be incurring costs to: (i) perform research studies to prove the
      effectiveness of our pharmaceutical products, (ii) further develop and market
      our products; (iii) establish distribution relationships; and (iv) build an
      organization. To the extent that such expenses are not subsequently followed
      by
      commensurate revenues, our business, results of operations and financial
      condition will be materially adversely affected. We, therefore, cannot insure
      that we will be able to immediately generate sufficient revenues. We expect
      negative cash flow from operations to continue for at least the next 12 months
      as we continue to develop and market our business. If cash generated by
      operations is insufficient to satisfy our liquidity, we may be required to
      sell
      additional equity or debt securities. The sale of additional equity or
      convertible debt securities would result in additional dilution to our
      stockholders. Our initial operations may not be profitable, since time will
      be
      required to build our business to the point that our revenues will be sufficient
      to cover our total operating costs and expenses. Our reaching a sufficient
      level
      of sales revenues will depend upon a large number of factors, including
      availability of sufficient working capital, the number of customers we are
      able
      to attract and the costs of continuing development of our product line. It
      is
      possible that the Company will never be profitable.





**Federal
      Food and Drug Administration**





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





**Data
      Obtained Through Clinical Trials** .





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





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





Drug
      companies and/or other health care companies may seek to develop and market
      technologies which may compete with our Company’s technology. While we believe
      that our technology regarding the prescription treatment of nanobacterial
      infections caused by nanobacterium sanguineum is unique, other competitors
      may
      develop similar or different treatments which may become more accepted by the
      marketplace.




31


**Risk
      Factors (continued)**





**Risk
      of Third Party Lawsuits** .





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





**Government
      Regulation**





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





**Competition**





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





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





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




32


**Risk
      Factors (continued)**





**Lack
      of Independent Directors**





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





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





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





**Continued
      Control by Current Officers and Directors**





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




33


**Risk
      Factors (continued)**





**Limited
      Market Due To Penny Stock**





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





34


**I** **tem
      7.**  **Financial
      Statements**





The
      information required by this item is incorporated herein by reference to the
      financial statements listed in Item 13 (a) of Part III of this Form 10-KSB
      Annual Report.





35




**Item
      8.**  **Changes
      in and Disagreements with Independent Auditors on Accounting and Financial
      Disclosures**




There
      have been no disagreements with any of our accountants on any matter of
      accounting principles or practices, financial statement disclosure, or auditing
      scope or procedure.





On
      October 11, 2007, we appointed Rottenberg, Merril, Solomon, Bertiger and
      Guttilla, P.C. as our independent auditors. The decision to change our
      independent auditors was approved by our Board of Directors on October 11,
      2007.
      For further information relating to our change in independent auditors, please
      refer to our Current Reports on Forms 8-K dated October 10, 2007 and October
      12,
      2007 and amended Current Reports on Forms 8-K/A dated November 20, 2007 and
      December 5, 2007 on file with the Commission.




**Item
      8(a).**  **Controls
      and Procedures**




***Disclosure
      controls and procedures***




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting for the company. Internal control over
      financial reporting is a process to provide reasonable assurance regarding
      the
      reliability of our financial reporting for external purposes in accordance
      with
      accounting principles generally accepted in the United States of America.
      Internal control over financial reporting includes maintaining records that
      in
      reasonable detail accurately and fairly reflect our transactions; providing
      reasonable assurance that transactions are recorded as necessary for preparation
      of our financial statements; providing reasonable assurance that receipts and
      expenditures of company assets are made in accordance with management
      authorization; and providing reasonable assurance that unauthorized acquisition,
      use or disposition of company assets that could have a material effect on our
      financial statements would be prevented or detected on a timely basis. Because
      of its inherent limitations, internal control over financial reporting is not
      intended to provide absolute assurance that a misstatement of our financial
      statements would be prevented or detected.




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 as required by Rule 307 of Regulation S-B as of the end of the period
      covered by this report. Based on this evaluation, management concluded that
      the
      company’s internal control over financial reporting was effective as of December
      31, 2007. There were no changes in our internal control over financial reporting
      during the quarter ended December 31, 2007 that have materially affected, or
      are
      reasonably likely to materially affect, our internal control over financial
      reporting.




36




**Item
      8(a).**  **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
      2008 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.





37


**PART
      III**




**Item
      9.**  **Directors
      and Executive Officers of the registrant**




**Name**
            
            **Position
                Held with the Company**
            
            **Age**
            
            **Date
                First**
              **Elected
                or Appointed**John
                Stanton
            
            Chief
                Executive and Financial Officer, and Chairman
            
            59
            
            November
                2000Alexander
                H. Edwards III
            
            Director
            
            43
            
            March
                2003 and January 2004Dr.
                Benedict Maniscalco
            
            Director
            
            66
            
            March
                2006Dr.
                Stephen Rechtschaffen
            
            Director
            
            58
            
            January
                2004




**Business
      Experience**




The
      following is a brief account of the education and business experience during
      at
      least the past five years of each director and executive officer, indicating
      the
      principal occupation during that period, and the name and principal business
      of
      the organization in which such occupation and employment were carried
      out.




**John
      Stanton - Chairman Chief Executive Officer and Chief Financial
      Officer** - **** Mr.
      Stanton has served as our Chief Executive Officer (“CEO”) July 23, 2004 to
      present and from March 2001 through January 2004. From March, 2001 through
      the
      present, Mr. Stanton has served as our Chairman of the Board of Directors and
      Chief Financial Officer. From 1987 through the present, Mr. Stanton served
      as
      the President and CEO of a private company headquartered in Tampa Florida
      engaged in the business of manufacturing residential concrete construction
      products. Mr. Stanton has served as Chairman of the Board of Directors of
      publicly-traded EarthFirst Technologies, Incorporated from May 15, 2000 through
      the present. Mr. Stanton also serves on the Board of Directors of publicly
      traded Medical Technology Systems, Inc., and several other public companies.
      Mr.
      Stanton worked as an auditor with the international professional services firm
      that is now known as Ernst & Young, LLP from 1973 through 1981. Mr. Stanton,
      a Vietnam veteran of the United States Army, graduated from the University
      of
      South Florida with a Bachelors Degree in Marketing and Accounting in 1972,
      and
      with an MBA in 1973. Mr. Stanton earned the designation of Certified Public
      Accountant in 1974 and was a Sells Award winner in the CPA
      examination.





38


**Benedict
      S. Maniscalco, M.D. - Director of Clinical Research, Medical Director and member
      of the Board of Directors -** Dr.
      Maniscalco joined the Board of Directors on March 29, 2006. From 2001 to the
      present, Dr. Maniscalco has been in the private practice of cardiology. He
      was
      with Tampa Heart Center in Tampa Florida in 2000 to 2001. Dr. Maniscalco was
      in
      private practice for consultive cardiology with Health Centers of Excellence,
      Inc. as Chief Executive Officer in Tampa Florida from March 1998 thorough
      January 2000. From 1976 through 1998, he was an officer and board member of
      a
      large multi specialty cardiovascular group practice. From 1979 through 1996
      he
      was co-founder of St. Joseph’s Heart Institute in Tampa, Florida and served as
      Director of Cardiac Catheterization and Director of Cardiology during his
      tenure.





Over
      past
      30 years, Dr. Maniscalco has been a member of numerous local, state and national
      professional societies. He has served as President and Governor of the Florida
      Chapter of the American College of Cardiology and has been involved in numerous
      committees dealing with socioeconomic and medical policies in both the American
      College of Cardiology and the Society for Cardiac Angiography and Interventions.
      He has been a frequent lecturer at the local, state and national level, on
      both
      clinical and non-clinical matters affecting the delivery of cardiovascular
      services. Dr. Maniscalco received his medical degree from the Duke University
      School of Medicine in 1967. He interned at Grady Memorial Hospital in Atlanta
      and did his junior and senior residencies at Emory University Affiliated
      Hospitals, followed by a fellowship in Cardiovascular diseases from 1973-1975.
      He is licensed to practice in both Florida and Georgia and is certified by
      the
      American Board of Internal Medicine and the American Sub-Specialty Board in
      Cardiovascular disease.





**Alexander
      H. Edwards III - Director** -
      Mr.
      Edwards has served on our Board of Directors from January 2004 through the
      present. Mr. Edwards had previously served on our Board from March 2003 through
      May 2003. From January 2004 through July 2004, Mr. Edwards served as our Chief
      Executive Officer. From March 2003 through January 2004, Mr. Edwards served
      as
      our Executive Vice President and Chief Operating Officer. Mr. Edwards currently
      serves as the Chief Executive Officer and a member of the Board of Directors
      of
      VitalTrust Business Development Corporation, a publicly traded company
      attempting to develop renewable sources of energy. From 2007 through January
      of
      2008, Mr. Edwards was the Chief Executive Officer and Chief Financial Officer
      of
      Nano Chemical Systems Holdings, Inc.





From
      May
      2002 through December 2004, Mr. Edwards was a managing partner of 360 Partners
      as well as president and CEO of 360 Degree Energy, Inc. and 360 Sports, Inc.
      Mr.
      Edwards has also served as the Managing Member of Trident Consulting Partners,
      LLC. From January 1997 to May 2002, Edwards was an executive with SRI/Surgical
      Express, Inc. He served in roles that ranged from vice-president/general manager
      to spending his last year with the company as president. From February 1993
      through December 1996, he worked in sales and marketing with Dianon Systems,
      Inc. His positions included sales and sales management roles as well as field
      and corporate marketing. Mr. Edwards also served as an officer in the United
      States Navy with duty assignments ranging from shipboard divisional leadership
      to executive assistant for the Naval Surface Group Commander in Norfolk,
      Virginia. Mr. Edwards is a 1987 graduate of the United States Naval
      Academy.





In
      August
      2003 Mr. Edwards settled a civil enforcement action brought against him by
      the
      Securities and Exchange Commission in U.S. District Court in Tampa, Florida.
      The
      complaint alleged that Mr. Edwards, while serving as president of SRI/Surgical
      Express, Inc. (“SRI”), a publicly traded Florida hospital supply company, caused
      SRI to enter into two transactions that resulted in SRI overstating its fiscal
      2001 third quarter revenue. Without admitting or denying the allegations in
      the
      complaint, Mr. Edwards consented to the entry of a Final Judgment permanently
      enjoining him from future violations of (or aiding and abetting violations
      of)
      Sections 10(b), 13(b)(5), and 13(b)(2)(A) and (B) of the Securities Exchange
      Act
      of 1934 and Exchange Act Rule 13b2-1. The Final Judgment also imposed a $50,000
      civil penalty.





39


**Stephan
      Rechtschaffen, M.D.** - **Director
      -** Dr.
      Rechtschaffen joined the Board of Directors on February 2, 2004. He co-founded
      Omega Institute in 1977 and is the present CEO and Chairman of the Board. He
      was
      the developer and director of Foxhollow Wellness Spa in Lenox, MA from September
      1987 through June 1989, and director of the Rhinebeck Health Center in
      Rhinebeck, NY, from November 1983 through March1989. Dr. Rechtschaffen is the
      author of: *TimeShifting;
      Creating More Time to Enjoy Your Life* ,
      1996,
      published in the United States by Doubleday, and in England, Europe, Japan
      and
      Australia by Random House. He is co-author of *Vitality
      and Wellness* ,
      1999,
      published by Dell. Dr. Rechtschaffen received his medical degree in 1973 from
      New York Medical College in New York City. His residency was at Harkness
      Community Hospital in San Francisco.




**Family
      Relationships**




There
      are
      no family relationships between any of our company's directors or executive
      officers.





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





Section
      16 of the Exchange Act requires Nanobac's directors and officers and persons
      who
      own more than 10% of a registered class of Nanobac's equity securities, to
      file
      initial reports of ownership and reports of changes in ownership with the SEC.
      Such persons are required by SEC regulations to furnish Nanobac with copies
      of
      all Section 16(a) forms they file.




Specific
      due dates for such reports have been established by the Commission and the
      Company is required to disclose any failure to file reports by such
      dates.  The Company notes that John Stanton, Alexander Edwards, Benedict
      Maniscalco and Gary Mezo have not filed any reports of ownership or changes
      in
      ownership pursuant to Section 16(a) filing requirements.




**Audit
      Committee**





We
      have
      not established a separate audit committee. Accordingly, the Board of Directors
      serves as the audit committee. The Chairman of the Board of Directors is also
      our CEO and is not considered an independent director. An audit committee
      financial expert has not been identified on the Board of Directors.





**Code
      of Ethics**





Effective
      May 10, 2007, The Board of Directors adopted a Code of Ethics for our Company.




40




**Item
      10.**  **Executive
      Compensation**




Particulars
      of compensation awarded to, earned by or paid to:




(a)
            our company's chief executive officer
              ("CEO")
              and Chief Financial Officer (“CFO”);  (b)
            each
                of our company's four most highly compensated executive officers
                who were
                serving as executive officers at the end of the most recently completed
                fiscal year and whose total salary and bonus exceeds $100,000 per
                year;
                and  (c)
            any additional individuals for whom disclosure would
              have
              been provided underbut
              for the fact that the individual was not serving as an executive officer
              of our company at the end of the most recently completed fiscal
              year





the
      Named
      Executive Officers are set out in the summary compensation table below.




**Annual
                Compensation****Name
                and Principal Position**
            
            **Year**
            
            **Salary**
            
            **Bonus**
            
            **Other
                    Annual**
                  **Compensation**
            
            **All
                  Other**
                **Compensation
                  (1)**John
                D. Stanton (2)
            
            
            2007
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0Chairman
                of the Board and
            
            
            2006
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0Chief
                Executive Officer and
            
            
            2005
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0Chief
                Financial OfficerAlex
                Edwards (3)
            
            
            2007
            
            $
            8,874
            
            $
            0
            
            $
            0
            
            $
            0Board
                of Director member
            
            
            2006
            
            $
            23,660
            
            $
            0
            
            $
            0
            
            $
            0former
                Chief Executive Officer
            
            
            2005
            
            $
            6,123
            
            $
            0
            
            $
            5,000
            
            $
            0Benedict
                S Maniscalco, M.D.,(4)
            
            
            2007
            
            $
            0
            
            $
            0
            
            $
            87,500
            
            $
            0Director
                of Clinical Research
            
            
            2006
            
            $
            0
            
            $
            0
            
            $
            113,462
            
            $
            0Board
                of Director member





1)
            In
                accordance with SEC rules, other compensation in the form of perquisites
                and other personal benefits is omitted, such perquisites and other
                personal benefits constituted less than the lesser of $50,000 or
                10% of
                the total annual salary and bonus for the Named Executive Officer
                for such
                year.





2)
            Mr.
                Stanton has served as the Chairman of the Board of Directors and
                Chief
                Financial Officer since March 2001 and served as Chief Executive
                Officer
                from March 2001 through January 2004 and July 2004 through present.





3)
            Mr.
                Edwards commenced employment with Nanobac in March 2003 and was named
                Chief Executive Officer in January 2004. He relinquished the Chief
                Executive Officer role in July 2004.





4)
            Dr.
                Maniscalco joined Nanobac’s Board of Directors in March 2006. He earned
                consulting compensation in 2007 and 2006 for his services as Director
                of
                Clinical Research. Due to lack of funding, the $87,500 of consulting
                income for 2007 has hot been paid to Dr. Maniscalco as of March 31,
                2008.
                This amount is included in accounts payable in our December 31, 2007
                financial statements.




41





**Employment
      and Compensation Agreement**





***John
      Stanton*** - Mr.
      Stanton does not have an employment or similar agreement with Nanobac. Mr.
      Stanton has received no salary or other compensation for the past three years.




***Alexander
      Edwards*** *-* On
      July
      23, 2004, Mr. Edwards resigned as Chief Executive Officer. Mr. Edwards continues
      to serve as a member of the Board of Directors. As a result of his resignation
      as Chief Executive Officer, Mr. Edwards voluntarily terminated his employment
      agreement and his salary was adjusted to $23,660 for the performance of limited
      services to Nanobac from July 2004 through April 1, 2005 and from January 2006
      through May 15, 2007. Subsequent to May 15, 2007, Mr. Edwards is no longer
      compensated by the Company.




***Benedict
      Maniscalco -*** Dr.
      Maniscalco has a consulting agreement with Nanobac to perform services as
      Director of Clinical Research under a non-employee consulting agreement.





**Directors'
      Compensation**





Nanobac’s
      directors receive non-monetary compensation for their director services. Each
      director is entitled to receive reimbursement of out-of-pocket expenses for
      attending Board of Director or committee meetings. Each independent Director
      is
      eligible to receive options to acquire 1,500,000 shares of Nanobac’s common
      stock. During January 2007, in lieu of issuance of stock options, the Board
      of
      Directors issued the following shares of common stock to members of the Board
      of
      Directors:


John
                  Stanton
              
              
              3,000,000Alexander
                  Edwards
              
              
              3,000,000Benedict
                  Maniscalco
              
              
              3,000,000Stephan
                  Rechtschaffen
              
              
              3,000,00012,000,000





The
      stock
      issued to the directors was valued for financial reporting purposes at $1.6
      million.





**Compensation
      Committee Interlocks and Insider Participation**





The
      Company has not formed a Compensation Committee, accordingly, the Board of
      Directors acts in the Compensation Committee’s capacity. The Board of Directors
      is responsible for reviewing and recommending salaries, bonuses and other
      compensation for Nanobac's executive officers.





Mr.
      Edwards is currently on the Board of Directors and was an employee of the
      Company from September 2003 through March 2004 and January 2006 through May
      15,
      2007.





**Stock
      Options**




No
      stock
      options have ever been granted to any of the Named Executive Officers of Board
      of Director members.




42




**Item
      11.**  **Security
      Ownership of Certain Beneficial Owners and Management and Related Stockholder
      Matters**




**Principal
      Stockholders**The
      following table sets forth, as of March 31, 2008, certain information with
      respect to the beneficial ownership of our common stock by each stockholder
      known by us to be the beneficial owner of more than 5% of our common stock
      and
      by each of our current directors and executive officers. Each person has sole
      voting and investment power with respect to the shares of common stock, except
      as otherwise indicated. Beneficial ownership consists of a direct interest
      in
      the shares of common stock, except as otherwise indicated.




**Amount
                  and Nature of Beneficial**
              
              **Percentage****Name
                  and Address of Beneficial Owner**
              
              **Ownership**
              
              **of
                  Class****(1)**Gary
                  S. Mezo (3)
              
              
              24,560,000
              
              
              9.93
              %11407
                  Minaret DriveTampa,
                  FL 33626John
                  D. Stanton (4)
              
              
              107,442,658
              
              
              43.45
              %Alexander
                  Edwards III
              
              
              12,166,667
              
              
              4.92
              %Benedict
                  Maniscalco
              
              
              4,566,925
              
              
              1.85
              %Stephan
                  Rechtschaffen
              
              
              3,000,000
              
              
              1.21
              %**Directors
                  and Executive Officers as a****Group
                  (Four persons)**
              
              
              **127,176,250**
              
              
              **51.43**
              **%**




(1)
            Beneficial
                ownership is determined in accordance with the rules of the Securities
                and
                Exchange Commission and generally includes voting or investment power
                with
                respect to securities. For purposes of calculating the percentage
                beneficially owned, the number of shares deemed outstanding includes
                249,506,760 shares outstanding as March 31, 2008. Unless otherwise
                provided, the street address of each beneficial owner is c/o Nanobac
                Pharmaceuticals, Incorporated, 4730 N. Habana Avenue, Suite 205,
                Tampa,
                Florida 33614.





(2)
            Nanobac
                has relied upon information reported by the respective stockholder
                to the
                SEC pursuant to Section 13(d) or 13(g) of the Securities Exchange
                Act of
                1934, as amended, as of March 31,
                2008.





(3)
            Includes
                9,760,000 shares held by Mr. Mezo’s spouse, Nancy Schriewer, and 160,000
                shares held by Nancy Schriewer’s father as to which he disclaims
                beneficial ownership.





(4)
            Includes
                82,442,658 shares held by entities related to Mr. Stanton.




**Changes
      in Control**




We
      are
      unaware of any contract or other arrangement the operation of which may at
      a
      subsequent date result in a change of control of Nanobac.




43




**Item
      12.**  **Certain
      Relationships and Related Transactions**




**Loans
      from Related Parties**





The
      Company funded a portion of its activities during the past year primarily
      through loans made by entities affiliated with its Chief Executive Officer.
      It
      is possible that some or all of these loans made be repaid through the issuance
      of the Company’s common stock. There is no requirement that the lender accept
      repayment in stock. As of December 31, 2007, the loan balance was approximately
      $4.1 million.





**Subscription
      Agreement**





During
      December 2004, the Company entered into a Subscription Agreement with a related
      party. Under the terms of the Subscription Agreement, the entity converted
      a
      $500,000 loan to equity. During 2006, the related party was assigned future
      stock subscription and warrant rights from two unaffiliated investors. In
      accordance with these subscription agreements, the Company is to receive
      additional cash of $825,000 within five days of registering the common shares
      and warrants issued as a result of the Subscription Agreements. The number
      of
      common shares to be issued is equal to the amount received divided by the lesser
      of $.12 or 52% of the average closing bid price of the Company’s common stock on
      the five trading days immediately prior to the date on which the registration
      statement is declared effective (“Fixed Price”). In addition, the Subscription
      Agreement provided for the issuance of warrants equal to the number of common
      shares issued. Fifty percent (50%) of the warrants are exercisable at 110%
      of
      the Fixed Price and the remaining 50% of the warrants are exercisable at 150%
      of
      the Fixed Price. Unexercised warrants will expire December 31, 2008.





As
      of
      March 31, 2008, the registration statement has not been declared effective
      and
      the Fixed Price has not been determined. Accordingly, the additional cash of
      $825,000 for common shares has not been received, no warrants have been issued
      and the number of shares to be issued under this subscription agreement has
      not
      been determined.





44


**Item
      13.** **Exhibits**





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





(1) Financial
      Statements





The
      following Financial Statements are included herein:




**Page
                Number**·
            
            F-1·Consolidated
                Balance Sheet at December 31, 2007
            
            F-2·Consolidated
                Statements of Operations for the years ended December 31, 2007 and
                2006
            
            F-3·Consolidated
                Statements of Stockholders’ Deficit for the years ended December 31, 2007
                and 2006
            
            F-4·Consolidated
                Statements of Cash Flows for the years ended December 31, 2007 and
                2006
            
            F-5·Notes
                to Consolidated Financial Statements
            
            F-6-F-18




(b) Form
      8-K





(1)
      Reports on Form 8-K filed during the quarter ended December 31,
      2007:





None





(c)
      Exhibits





The
      following exhibits are filed as a part of, or are incorporated by reference
      into, this Report on Form 10-KSB:




45


**EXHIBIT
      INDEX**


ExhibitNumber
              
              Description3.1
              
              Restated
                  Articles of Incorporation (Previously filed with the SEC as an
                  exhibit to
                  the Registrant’s Annual Report on Form 10-KSB for the year ended December
                  31, 2003 and incorporated herein by reference)3.2
              
              By-Laws
                  (Previously filed with the SEC as an exhibit to the Registrant’s Annual
                  Report on Form 10-KSB for the year ended December 31, 2002 and
                  incorporated herein by reference.)10.1
              
              First
                  Amended Plan of Reorganization of American Enterprise.com Corp.
                  (Previously filed with the SEC as an exhibit to the Registrant’s Current
                  Report on Form 8-K dated December 10, 2002, and incorporated herein
                  by
                  reference.)10.2
              
              Acquisition
                  Agreement dated December 6, 2002, between American Enterprise Corporation
                  and HealthCentrics, Inc. and its stockholders. (Previously filed
                  with the
                  SEC as an exhibit to the Registrant’s Current Report on Form 8-K dated
                  December 13, 2002, and incorporated herein by
                  reference.)10.4
              
              Agreement
                  and Plan of Reorganization dated June 1, 2003 between Nanobac
                  Pharmaceuticals, Incorporated and NanobacLabs Pharmaceuticals,
                  Inc.
                  (Previously filed with the SEC as an exhibit to the Registrant’s Annual
                  Report on Form 10-KSB for the year ended December 31, 2003 and
                  incorporated herein by reference.)10.5
              
              Share
                  Purchase Agreement dated September 25, 2002 between NanobacLabs,
                  L.L.C.
                  and selected stockholders of Nanobac OY. (Previously filed with
                  the SEC as
                  an exhibit to the Registrant’s Current Report on Form 8-K dated November
                  26, 2003, and incorporated herein by reference.)10.6
              
              Convertible
                  Promissory Note Loans Purchase Agreement dated September 25, 2002
                  between
                  NanobacLabs, L.L.C. and selected stockholders of Nanobac OY. (Previously
                  filed with the SEC as an exhibit to the Registrant’s Current Report on
                  Form 8-K dated November 26, 2003, and incorporated herein by
                  reference.)10.7
              
              Closing
                  Agreement dated November 5, 2003 between NanobacLabs, L.L.C. and
                  selected
                  stockholders of Nanobac OY. (Previously filed with the SEC as an
                  exhibit
                  to the Registrant’s Current Report on Form 8-K dated November 26, 2003,
                  and incorporated herein by reference.)10.9
              
              Lease
                  Agreement dated April 17, 2002 between NanobacLabs, L.L.C. and
                  MLK- Tampa
                  Associates, LLC regarding 5,593 square feet of office space located
                  at
                  2727 W. Martin Luther King Blvd. - Suite 850, Tampa, Florida and
                  First
                  Amendment to Lease dated September 1, 2002 between NanobacLabs,
                  L.L.C. and
                  MLK-Tampa Associates, LLC regarding 2,121 square feet of office
                  space
                  located at 2727 W. Martin Luther King Blvd. - Suite 101, Tampa,
                  Florida
                  (Previously filed with the SEC as an exhibit to the Registrant’s Annual
                  Report on Form 10-KSB for the year ended December 31, 2006 and
                  incorporated herein by
                  reference.)




46




10.10
            
            Loan Agreement
              dated
              December 31, 2003 between Nanobac Pharmaceuticals, Incorporated and
              Escape
              Velocity of Tampa Bay, Inc. (Previously filed with the SEC as an exhibit
              to the Registrant’s Annual Report on Form 10-KSB for the year ended
              December 31, 2003.)10.11
            
            Employment
                Agreement by and between Nanobac
                Pharmaceuticals, Incorporated and Alex H. Edwards III dated January
                26,
                2004. (Previously filed with the SEC as an exhibit to the Registrant’s
                Annual Report on Form 10-KSB for the year ended December 31,
                2003.)10.12
            
            Sublease Agreement
              dated May 18, 2004 between NanobacLabs, L.L.C. and Tampa Bay Surgery
              Center Associates, Ltd regarding the sublease of 2,121 square feet
              of
              office space located at 2727 West Dr. Martin Luther King Blvd. - Suite
              101, Tampa, Florida. (Previously filed with the SEC as an exhibit to
              the
              Registrant’s Annual Report on Form 10-KSB fore the year ended December 31,
              2006 and incorporated herein by reference.)10.13
            
            Share Purchase
              Agreement dated March 30, 2004 between Nanobac Pharmaceuticals,
              Incorporated and Escape Velocity of Tampa Bay, Incorporated for the
              sale
              of HealthCentrics, Inc. (Previously filed with the SEC as an exhibit
              to
              the Registrant’s Current Report on Form 8-K dated March 30, 2004, and
              incorporated herein by reference.)10.14
            
            Executive
              Employment
              Agreement between Nanobac Pharmaceuticals, Incorporated, and E. Olavi
              Kajander, MD, PhD, an individual dated January 15, 2004. (Previously
              filed
              with the SEC as an exhibit to the Registrant’s Current Report on
              Form 8-K dated March 31, 2004, and incorporated herein by
              reference.)10.15
            
            Executive
              Employment
              Agreement between Nanobac Pharmaceuticals, Incorporated and Neva
              Ciftcioglu, PhD, an individual dated March 31, 2004. (Previously filed
              with the SEC as an exhibit to the Registrant’s Current Report on
              Form 8-K dated March 31, 2004, and incorporated herein by
              reference.)10.16
            
            Nonreimbursable
              Space
              Act Agreement between The National Aeronautics and Space Administration
              Lyndon B. Johnson Space Center and Nanobac Pharmaceuticals, Incorporated.
              (Previously filed with the SEC as an exhibit to the Registrant’s Current
              Report on Form 8-K dated September 13, 2004 and incorporated herein
              by reference.)10.17
            
            Debt Cancellation
              Agreement dated August 30, 2004 between Nanobac Pharmaceuticals,
              Incorporated and E. Olavi Kajander. (Previously filed with the SEC
              as an
              exhibit to the Registrant’s Annual Report on Form 10-KSB fore the year
              ended December 31, 2005 and incorporated herein by
              reference.)10.18
            
            Amendment
              to Executive
              Employment Agreement dated August 30, 2004 between Nanobac
              Pharmaceuticals, Incorporated and E. Olavi Kajander. (Previously filed
              with the SEC as an exhibit to the Registrant’s Annual Report on Form
              10-KSB fore the year ended December 31, 2005 and incorporated herein
              by
              reference.)10.19
            
            Stock Purchase
              Agreement dated August 30, 2004 between Nanobac Pharmaceuticals,
              Incorporated and E. Olavi Kajander. (Previously filed with the SEC
              as an
              exhibit to the Registrant’s Annual Report on Form 10-KSB fore the year
              ended December 31, 2005 and incorporated herein by
              reference.)




47




10.20
            
            Amendment
              to Executive
              Employment Agreement dated September 10, 2004 between Nanobac
              Pharmaceuticals, Incorporated and Neva Ciftcioglu. (Previously filed
              with
              the SEC as an exhibit to the Registrant’s Annual Report on Form 10-KSB
              fore the year ended December 31, 2005 and incorporated herein by
              reference.)10.21
            
            Subscription
              Agreement,
              Registration Rights Agreement and Form of Warrant dated August 13,
              2004
              between Nanobac Pharmaceuticals, Incorporated and The Nutmeg Group,
              LLC
              (serves as form of agreement for similar subscription
              agreements).10.22
            
            Subscription
              Agreement,
              Registration Rights Agreement and Form of Warrant dated September 3,
              2004
              between Nanobac Pharmaceuticals, Incorporated and Jaytern Associates,
              Inc.
              (Previously filed with the SEC as an exhibit to the Registrant’s Annual
              Report on Form 10-KSB for the year ended December 31, 2005 and
              incorporated herein by reference.)10.23
            
            Debt Cancellation
              Agreement dated September 20, 2004 between Nanobac Pharmaceutical,
              Incorporated and Escape Velocity of Tampa Bay, Inc. (Previously filed
              with
              the SEC as an exhibit to the Registrant’s Annual Report on Form 10-KSB
              fore the year ended December 31, 2005 and incorporated herein by
              reference)10.24
            
            Debt Cancellation
              Agreement dated October 18, 2004 between Nanobac Pharmaceutical,
              Incorporated and Benedict Maniscalco, M.D. (Previously filed with the
              SEC
              as an exhibit to the Registrant’s Annual Report on Form 10-KSB fore the
              year ended December 31, 2005 and incorporated herein by
              reference.)10.25
            
            Debt Cancellation
              Agreement dated December 14, 2004 between Nanobac Pharmaceutical,
              Incorporated and MacFarlane Ferguson & McMullen. (Previously filed
              with the SEC as an exhibit to the Registrant’s Annual Report on Form
              10-KSB fore the year ended December 31, 2005 and incorporated herein
              by
              reference.)10.26
            
            Second amendment
              to
              lease agreement between Nanobac Sciences, LLC and CNL Retirement MOP
              Tampa, Florida, LP regarding reduction of 5,593 square feet of office
              space located at 2727 West Dr. Martin Luther King Blvd. - Suite 850,
              Tampa, Florida to 4,053 square feet of office space. (Previously filed
              with the SEC as an exhibit to the Registrant’s Annual Report on Form
              10-KSB for the year ended December 31, 2005 and incorporated herein
              by
              reference.)10.27
            
            Agreement
              with Calgenex
              Corporation. (Previously filed with the SEC as an exhibit to the
              Registrant’s Annual Report on Form 10-KSB for the year ended December 31,
              2006 and incorporated herein by reference.)10.28
            
            Amendment
              to Executive
              Employment Agreement dated June 8, 2006 between Nanobac Pharmaceuticals,
              Incorporated and E. Olavi Kajander, MD, PhD, an individual. (Previously
              filed with the SEC as an exhibit to the Registrant’s Annual Report on Form
              10-KSB for the year ended December 31, 2006 and incorporated herein
              by
              reference.)10.29
            
            Amendment
              to Executive
              Employment Agreement dated September 1, 2006 between Nanobac
              Pharmaceuticals, Incorporated and Neva Ciftcioglu, PhD, an individual.
              (Previously filed with the SEC as an exhibit to the Registrant’s Annual
              Report on Form 10-KSB fore the year ended December 31, 2006 and
              incorporated herein by reference.)




48




21.1
            
            List
                of Subsidiaries




49




**Item
      14.**  **Principal
      Accountant Fees and Services**




The
      following summarizes the fees expensed to Rottenberg,
      Merril, Solomon, Bertiger and Guttilla, P.C. and Aidman, Piser & Company,
      P.A., our Independent Auditors for the
      years ended December 31, 2007 and 2006:





2007
            
            2006Audit
            
            $
            117,162
            
            $
            114,000Audit
                related
            
            
            -
            
            
            -Tax
            
            
            -
            
            
            -Other
            
            
            -
            
            
            -Total
            
            $
            117,162
            
            $
            114,000





Audit-Related
      fees are attributable to (i) quarterly review services connected with our filing
      of our quarterly reports, Forms 10-QSB (ii) services performed in connection
      with SB-2 registration statement and (iii) services performed in connection
      with
      the SEC comment letter on our 2004 Form 10-KSB. Aidman, Piser & Company,
      P.A. did not perform any professional services with respect to information
      systems design and implementation for the years ended December 31, 2007 and
      2006.





The
      Board
      of Directors has considered whether the Audit-Related services provided by Rottenberg,
      Merril, Solomon, Bertiger and Guttilla, P.C. and Aidman,
      Piser & Company, P.A. are compatible with maintaining that firm’s
      independence.





From
      and
      after the effective date of the SEC rule requiring Audit Committee pre-approval
      of all audit and permissible non-audit services provided by independent
      registered public accountants, the Board of Directors has approved audit
      services provided by Aidman, Piser & Company, P.A. No non-audit procedures
      were performed during 2007.




50




**NANOBAC
      PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES**
 **CONSOLIDATED
      BALANCE SHEET**
 
 **(UNREVIEWED
      AND UNAUDITED)**
  (UNAUDITED)December
                  31, 2007**ASSETS****CURRENT
                  ASSETS**Cash
              
              $
              3,933Account
                  receivable
              
              
              1,869Inventory
              
              
              10,303Prepaid
                  expenses
              
              
              14,656Total
                  current assets
              
              
              30,761**FURNITURE
                  AND EQUIPMENT,**less
                  accumulated depreciationof$130,695
              
              
              37,502**OTHER
                  ASSETS**Security
                  deposits
              
              
              9,025Intangible
                  assets, less accumulated amortizationof$1,715,961
              
              
              3,527,081Goodwill
              
              
              3,615,393**Total
                  other assets**
              
              
              7,151,499**TOTAL
                  ASSETS**
              
              $
              7,219,762**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              1,078,369Accrued
                  compensation
              
              
              526,438Accrued
                  expenses
              
              
              1,009,652Employee
                  loans
              
              
              18,178Other
                  liabilities
              
              
              9,068Related
                  party loans, including $688,194 of accrued interest
              
              
              4,103,779**Total
                  current liabilities**
              
              
              6,745,484**LONG-TERM
                  LIABILITIES**Stock
                  settlement obligation:Related
                  party
              
              
              961,538Other
              
              
              1,875,000**Total
                  liabilities**
              
              
              9,582,022**COMMITMENTS
                  AND CONTINGENCIES (notes 10, 11 and 12)**
              
              
              -**STOCKHOLDERS'
                  DEFICIT**Preferred
                  stock, no par value, 1,000,000 shares authorized,no
                  shares issued and outstanding
              
              
              -Common
                  stock, no par value, 500,000,000 shares authorized,249,506,760
                  shares issued and outstanding
              
              
              22,870,050Additional
                  paid-in capital
              
              
              3,803,031Accumulated
                  deficit
              
              
              (28,929,999
              )Accumulated
                  other comprehensive loss
              
              
              (105,342
              )**Total
                  stockholders' deficit**
              
              
              (2,362,260
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              $
              7,219,762
 The
      accompanying notes are an integral part
 of
      these
      financial statements
  F-2
 
 **NANOBAC
      PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES**
 **CONSOLIDATED
      STATEMENTS OF OPERATIONS**
  **(UNREVIEWED
      AND UNAUDITED)**
 
 (UNAUDITED)Year
            
            Yearended
            
            endedDecember
                31, 2007
            
            December
                31, 2006**REVENUE**
            
            $
            17,621
            
            $
            225,086**COST
                OF REVENUE and Amortization,**exclusive
                ofdepreciation andamortization
                shown below
            
            
            14,519
            
            
            79,805**GROSS
                PROFIT**
            
            
            3,102
            
            
            145,281**OPERATING
                EXPENSES**Selling,
                general and administrative
            
            
            3,308,255
            
            
            1,838,740Research
                and development
            
            
            1,149,356
            
            
            1,994,797Impairment
                loss on intangible asset
            
            
            -
            
            
            585,000Depreciation
                and amortization
            
            
            460,302
            
            
            541,278**Total
                Operating Expenses**
            
            
            4,917,913
            
            
            4,959,815**OPERATING
                LOSS**
            
            
            (4,914,811
            )
            
            (4,814,534
            )**OTHER
                INCOME (EXPENSES)**Interest
                expense
            
            
            (186,904
            )
            
            (198,999
            )Loss
                on related party debtdebt
                extinguishment
            
            
            (1,560,000
            )
            
            -Other,
                net
            
            
            85,604
            
            
            40,180**LOSS
                BEFORE INCOME TAXES**
            
            
            (6,576,111
            )
            
            (4,973,353
            )**PROVISION
                FOR INCOME TAXES**
            
            
            -
            
            
            -**NET
                LOSS**
            
            $
            (6,576,111
            )
            $
            (4,973,353
            )**LOSS
                PER COMMON SHARE****(BASIC
                AND DILUTED)**
            
            $
            (0.03
            )
            $
            (0.02
            )**WEIGHTED
                AVERAGE NUMBER OF****COMMON
                SHARES OUTSTANDING**Basic
                and Diluted
            
            
            245,197,535
            
            
            199,425,481
 
 The
      accompanying notes are an integral part
 of
      these
      financial statements
  F-3
  **NANOBAC
      PHARMACEUTICALS INCORPORATED AND
      SUBSIDIARIES**
  **CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)**
 **FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2007**
 
 **(UNREVIEWED
      AND UNAUDITED)**
 
 **Accumulated****Additional**
            
            
            
            **Other**
            
            **Other****Common**
            
            **Stock**
            
            **Paid-in**
            
            **Accumulated**
            
            **Comprehensive**
            
            **Comprehensive****Shares**
            
            **Value**
            
            **Capital**
            
            **Deficit**
            
            **Loss**
            
            **Loss**
            
            **Total****Balance,
                January 1, 2006**
            
            
            **189,006,760**
            
            **$**
            **16,307,050**
            
            **$**
            **3,503,681**
            
            **$**
            **(17,380,535**
            **)**
            
            
            
            **$**
            **34,525**
            
            **$**
            **2,464,721**Stock
                issued for services
            
            
            8,466,666
            
            
            616,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            616,000Stock
                issued for conversionof
                liabilities
            
            
            4,500,000
            
            
            162,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            162,000Stock
                options issued for services
            
            
            -
            
            
            -
            
            
            299,350
            
            
            -
            
            
            -
            
            
            -
            
            
            299,350Exercise
                of stock options
            
            
            3,500,000
            
            
            175,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            175,000Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (4,973,353
            )
            
            ($4,973,353
            )
            
            
            
            
            (4,973,353
            )Foreign
                currency translationadjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (55,380
            )
            
            (55,380
            )
            
            (55,380
            )Comprehensive
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            ($5,028,733
            )**Balance,
                December 31, 2006**
            
            
            **205,473,426**
            
            **$**
            **17,260,050**
            
            **$**
            **3,803,031**
            
            **$**
            **(22,353,888**
            **)**
            
            
            
            **$**
            **(20,855**
            **)**
            **$**
            **(1,311,662**
            **)**Stock
                issued for services
            
            
            14,033,334
            
            
            1,710,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,710,000Stock
                issued for extinguishmentof
                related party loans
            
            
            30,000,000
            
            
            3,900,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,900,000Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (6,576,111
            )
            
            ($6,576,111
            )
            
            
            
            
            (6,576,111
            )Foreign
                currency translationadjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (84,487
            )
            
            (84,487
            )
            
            (84,487
            )Comprehensive
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            ($6,660,598
            )**Balance,
                December 31, 2007**
            
            
            **249,506,760**
            
            **$**
            **22,870,050**
            
            **$**
            **3,803,031**
            
            **$**
            **(28,929,999**
            **)**
            
            
            
            **$**
            **(105,342**
            **)**
            **$**
            **(2,362,260**
            **)**
 
 The
      accompanying notes are an integral part
 of
      these
      financial statements
  F-4
 **NANOBAC
        PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 
 **(UNREVIEWED
        AND UNAUDITED)**
 
 **(UNAUDITED)**Year
                  ended
              
              Year
                  endedDecember
                  31, 2007
              
              December
                  31, 2006**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (6,576,111
              )
              $
              (4,973,353
              )Adjustments
                  to reconcile net loss to cashflows
                  from operating activities:Depreciation
                  and amortization
              
              
              460,302
              
              
              541,278Impairment
                  loss on intangible asset
              
              
              -
              
              
              585,000Loss
                  on disposition of fixed assets
              
              
              -
              
              
              18,330Loss
                  on settlement of stock obligation
              
              
              1,560,000
              
              
              -Charges
                  for common stock and options issued for services
              
              
              1,710,000
              
              
              665,350Loss
                  on stock issued for conversion of liabilities
              
              
              -
              
              
              40,500Interest
                  expense accrued for related party loan
              
              
              183,866
              
              
              198,999Net
                  (increase) decrease in assets:Accounts
                  receivable
              
              
              (1,161
              )
              
              2,575Inventory
              
              
              56,049
              
              
              50,928Other
                  assets
              
              
              5,282
              
              
              39,660Net
                  increase (decrease) in liabilities:Accounts
                  payable
              
              
              669,704
              
              
              94,733Accrued
                  compensation
              
              
              439,053
              
              
              120,827Accrued
                  expenses
              
              
              582,130
              
              
              50,648Deferred
                  revenue
              
              
              -
              
              
              (20,357
              )Total
                  adjustments
              
              
              5,665,225
              
              
              2,388,471**Net
                  cash flows from operating activities**
              
              
              (910,886
              )
              
              (2,584,882
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Acquisition
                  of furniture and equipment
              
              
              (1,533
              )
              
              (12,759
              )Refund
                  of security deposit
              
              
              50,400
              
              
              -Payment
                  of security deposit
              
              
              (300
              )
              
              (2,731
              )**Net
                  cash flows from investing activities**
              
              
              48,567
              
              
              (15,490
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Proceeds
                  from stockholder loans
              
              
              892,708
              
              
              2,740,019Proceeds
                  from employee loans
              
              
              18,178
              
              
              2,601Payment
                  of notes payable
              
              
              -
              
              
              (53,675
              )**Net
                  cash flows from financing activities**
              
              
              910,886
              
              
              2,688,945**Effect
                  of exchange rate changes**
              
              
              (84,139
              )
              
              (58,043
              )Net
                  change in cash
              
              
              (35,572
              )
              
              30,530Cash
                  balance, beginning of year
              
              
              39,505
              
              
              8,975**Cash
                  balance, end of year**
              
              $
              3,933
              
              $
              39,505**Supplemental
                  disclosures of cash flow information:**Cash
                  paid for interest
              
              $
              3,038
              
              $
              -**Supplemental
                  schedule of non-cash investing and financing
                  activities:**Common
                  stock and options issued in exchange for current
                  liabilities
              
              $
              2,340,000
              
              $
              412,000Options
                  exercised for reduction in accrued compensation
              
              $
              -
              
              $
              175,000Property
                  and equipment exchanged for reduction in stockholder loan
              
              $
              -
              
              $
              6,546
 
 The
        accompanying notes are an integral part
 of
        these
        financial statements
  F-5
 NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
      ENDED DECEMBER 31, 2007 AND 2006
 (UNREVIEWED
        AND UNAUDITED)
 **1** . **Nature
      of operations and summary of significant accounting
      policies**
 
 **Nature
      of business**
 
 Nanobac
      Pharmaceuticals, Incorporated and subsidiaries, ("Nanobac”, the "Company", or
      "NNBP") trades under the symbol "NNBP."
 
 Nanobac’s
      primary business is the study and development of therapeutic and diagnostic
      technologies related to nanobacterium sanguineum (“Nanobacteria”). Nanobacteria
      are believed to be small, slowly growing nano-particles that can be found in
      human blood, kidney stones and arterial wall plaques.
 
 **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.
 
 **Liquidity
      and management plans**
 
 The
      accompanying consolidated financial statements have been prepared assuming
      that
      NNBP will continue as a going concern. The Company has incurred recurring losses
      and has a large working capital deficiency at December 31, 2007. The Company
      is
      dependent on the continued financing from outside investors including related
      party loans. All of these matters raise substantial doubt about the ability
      of
      the Company to continue as a going concern. Management believes that NNBP will
      need to raise additional capital in order to launch new clinical trials, fund
      research and development for new treatment areas, and general working capital
      requirements. Capital may be raised through further sales of equity securities,
      which may result in dilution of the position of current stockholders. At this
      time, there are no firm commitments 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 the outcome of this uncertainty.
 
 **Revenue
      recognition**
 
 Revenue
      is recognized when the Company’s products are shipped and title has passed or
      when diagnostic results are provided to the customer. Revenue from the Company’s
      observation rights’ agreement is being recognized over the agreement’s 12-month
      term using the straight-line method. Revenue is recorded net of allowances
      for
      estimated discounts and incentives.
 
 **Inventory**
 
 Inventory
      is stated at the lower of cost or market. Cost is determined in a manner which
      approximates the first-in, first-out (FIFO) method. Inventory consists of raw
      materials for currently marketed products and materials and processing costs
      for
      antibodies and antigens used in our Finland laboratory. Inventory is shown
      net
      of applicable allowances. Shipping costs are expensed as incurred and are
      included in cost of revenue.
  F-6
  NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
      ENDED DECEMBER 31, 2007 AND 2006
 (UNREVIEWED
        AND UNAUDITED)
 **1.
      Nature of operations and summary of significant accounting policies
      (continued)**
 
 **Furniture
      and equipment**
 
 Furniture
      and equipment consist of furniture, fixtures, computers and lab equipment and
      are recorded at cost. Furniture and equipment are depreciated using the
      straight-line method over the estimated useful lives of three to seven
      years.
 
 **Intangible
      assets and goodwill**
 
 Intangible
      assets are recorded at cost, less accumulated amortization. Intangible assets
      consist of patents, product rights and goodwill obtained in the acquisition
      of NanobacLabs
      Pharmaceuticals, Inc. and Nanobac OY .
      Amortization of intangible assets is provided over the following estimated
      useful lives on a straight-line basis:
 Patents
              
              12
                  yearsProduct
                  rights
              
              5
                  years (fully impaired and written off in
                  2006)
 **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 or 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 which the goodwill relates (the
      Company’s enterprise value) to its book value, including goodwill. If the fair
      value of the reporting 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 2007. As described in Note 7, during the year ended
      December 31, 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.
  F-7
 NANOBAC
        PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
        ENDED DECEMBER 31, 2007 AND 2006
 (UNREVIEWED
          AND UNAUDITED)
  **1.
      Nature of operations and summary of significant accounting policies
      (continued)**
 
 **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.
 
 **Loss
      per share**
 
 Loss
      per
      share represents net loss divided by the weighted average number of common
      shares outstanding during the period. The effect of incremental shares from
      common stock equivalents (options and warrants - see Note 9) is not included
      in
      the calculation of net loss per share as the inclusion of such common stock
      equivalents would be anti-dilutive. Accordingly, fully dilutive shares
      outstanding equal basic shares outstanding as of December 31, 2007 and 2006.
 
 **Accumulated
      other comprehensive loss**
 
 Accumulated
      other comprehensive loss consists of foreign currency translation adjustments
      related to our Finland operations. Accumulated other comprehensive income has
      no
      applicable income tax.
 
 **Financial
      Instruments**
 
 The
      Company accounts, classifies and measures certain financial instruments with
      characteristics of both liabilities and equity in accordance with Financial
      Accounting Standards Board Statement No. 150, “Accounting for certain Financial
      Instruments with Characteristics of both Liabilities and Equity” (“FAS 150”).
      Pursuant to FAS 150, a financial instrument that embodies an unconditional
      obligation, or a financial instrument other than an outstanding share that
      embodies a conditional obligation, that the issuer must or may settle by issuing
      a variable number of its equity shares, if, at inception, the monetary value
      of
      the obligation is based solely or predominantly on a fixed monetary amount
      known
      at inception requires the issuer to classify the financial instrument as a
      liability. Further, the liability is to be measured initially and subsequently
      at the fair value that the financial instrument obligates the issuer to convey
      to the holder at the settlement date. The shares issued in connection with
      the
      2005 and 2004 Subscription Agreement transactions discussed in Note 10 are
      stock
      settlement obligations and, as such, have been presented in the accompanying
      consolidated balance sheet as a liability.
 
 The
      carrying value of NNBP’s financial instruments, including cash, accounts
      receivable, accounts payable, short-term note payable and stockholder loans
      approximate their fair market values.
 
 **Research
      and development expenses**
 
 Research
      and development expenses are comprised of the following types of costs incurred
      in performing R&D activities: salaries and benefits, occupancy costs of our
      Finland laboratory, professional fees, clinical trial and related clinical
      manufacturing costs. Research and development costs are expensed as incurred.
  F-8
 NANOBAC
        PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
        ENDED DECEMBER 31, 2007 AND 2006
 (UNREVIEWED
          AND UNAUDITED)
  **1.
      Nature of operations and summary of significant accounting policies
      (continued)**
 
 **Income
      taxes**
 
 NNBP
      records its federal and state tax liability in accordance with Financial
      Accounting Standards Board Statement No. 109 “Accounting for Income Taxes”. The
      deferred taxes are recorded for temporary differences between the recognition
      of
      income and expenses for tax and financial reporting purposes, using current
      tax
      rates. Deferred assets and liabilities represent the future tax consequences
      of
      those differences, which will either be taxable or deductible when the assets
      and liabilities are recovered or settled.
 
 **Recent
      accounting pronouncements**
 
 In
      February 2008, the FASB issued FASB Staff Position (FSP) Financial
      Accounting Standard (FAS) 157-1, “Application of FASB Statement No. 157 to
      FASB Statement No. 13 and Its Related Interpretive Accounting
      Pronouncements That Address Leasing Transactions,” and FSP FAS 157-2, “Effective
      Date of FASB Statement No. 157.” FSP FAS 157-1 removes leasing from the
      scope of SFAS No. 157, “Fair Value Measurements.” FSP FAS 157-2 delays the
      effective date of SFAS No. 157 from 2008 to 2009 for all nonfinancial
      assets and nonfinancial liabilities, except those that are recognized or
      disclosed at fair value in the financial statements on a recurring basis (at
      least annually). The Company does not expect the above statement, as amended,
      to
      have a material impact on the Company’s financial statements.
  In
      December 2007, the FASB issued SFAS No. 141(R), “Business
      Combinations,” which will become effective in 2009 via prospective application
      to new business combinations. This Statement requires that the acquisition
      method of accounting be applied to a broader set of business combinations,
      amends the definition of a business combination, provides a definition of a
      business, requires an acquirer to recognize an acquired business at its fair
      value at the acquisition date and requires the assets and liabilities assumed
      in
      a business combination to be measured and recognized at their fair values as
      of
      the acquisition date (with limited exceptions). The company will adopt this
      Statement in fiscal year 2009 and its effects on future periods will depend
      on
      the nature and significance of any acquisitions subject to this
      statement.
  In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
      in Consolidated Financial Statements—an amendment of ARB No. 51.” This
      Statement requires that the noncontrolling interest in the equity of a
      subsidiary be accounted for and reported as equity, provides revised guidance
      on
      the treatment of net income and losses attributable to the noncontrolling
      interest and changes in ownership interests in a subsidiary and requires
      additional disclosures that identify and distinguish between the interests
      of
      the controlling and noncontrolling owners. The Company does not have any
      noncontrolling interests in other entities and does not expect the adoption
      of
      this Statement to have a material effect on the Company’s financial statements.
  In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
      for Financial Assets and Financial Liabilities, Including an amendment of FASB
      Statement No. 115,” which will become effective in 2008. SFAS No. 159
      permits entities to measure eligible financial assets, financial liabilities
      and
      firm commitments at fair value, on an instrument-by-instrument basis, that
      are
      otherwise not permitted to be accounted for at fair value under other generally
      accepted accounting principles. The fair value measurement election is
      irrevocable and subsequent changes in fair value must be recorded in earnings.
      The company does not expect the adoption of this Statement to have a material
      effect on the Company’s financial statements.
  F-9
  NANOBAC
        PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
        ENDED DECEMBER 31, 2007 AND 2006
 (UNREVIEWED
          AND UNAUDITED)
 **1.
      Nature of operations and summary of significant accounting policies
      (continued)**
 
 **Stock
      Options**
  In
      January 2006, the Company adopted the accounting provisions of Statement of
      Financial Accounting Standards No. 123R, “Share-based Payments” (“SFAS 123 R”),
      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.
 
 **Reclassifications**
 
 Certain
      prior year amounts have been reclassified to conform to the current year
      presentation.
 
 **2.
      Furniture and equipment**
 
 Furniture
      and equipment at December 31, 2007 is summarized as follows:
 Computer
                  equipment
              
              $
              21,179Computer
                  software
              
              
              17,982Lab
                  equipment
              
              
              101,701Office
                  equipment
              
              
              16,624Furniture
                  and fixtures
              
              
              10,711168,197Accumulated
                  Depreciation
              
              
              (130,695
              )$
              37,502
 
 Depreciation
      expense for the years ended December 31, 2007 and 2006 was $23,382 and $36,858,
      respectively.
 F-10
  NANOBAC
        PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
        ENDED DECEMBER 31, 2007 AND 2006
 (UNREVIEWED
          AND UNAUDITED)
  **3.
      Goodwill and Other Intangible Assets**
 
 Goodwill
      relates to the 2003 acquisition of Nanobac Sciences, LLC (formerly known as
      NanobacLabs, LLC) and the 2004 acquisition of Nanobac OY. Other intangible
      assets as of December 31, 2006 are summarized as follows:
 Patents
              
              
              5,243,042Less
                  accumulated amortization
              
              
              (1,715,961
              )$
              3,527,081
  Amortization
      expense for the years ended December 31, 2007 and 2006 was $436,920 and
      $504,420, respectively. Expected future amortization is summarized as
      follows:
 
 Year
                  ending December 31,2008
              
              $
              436,9202009
              
              
              436,9202010
              
              
              436,9202011
              
              
              436,9202012
              
              
              436,920Thereafter
              
              
              1,342,481$
              3,527,081
 
 Recoverability
      of the Company’s intangibles is dependent upon the successful commercialization
      of its technologies related to nanobacteria. While management believes there
      is
      a significant market for products to which these technologies can be applied,
      substantial additional financing will be required in order to successfully
      develop the technology. Should required funding not be available at acceptable
      terms, if at all, then future impairment changes may result with regard to
      the
      Company’s intangible assets.
 
 **4.
      Geographic Information**
 
 The
      Company operates in a single business segment. Geographic information is
      summarized as follows:
  Year
                ended December 31,2007
            
            2006RevenueUnited
                States
            
            $
            540
            
            $
            204,272Finland
            
            
            17,081
            
            
            20,814$
            17,621
            
            $
            225,086Assets
            
            
            -
            
            
            -United
                States
            
            $
            7,012,428Finland
            
            
            207,334$
            7,219,762
 
  F-11
  NANOBAC
        PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
        ENDED DECEMBER 31, 2007 AND 2006
 (UNREVIEWED
          AND UNAUDITED
 The
      geographic classification of revenue was based upon the domicile of the entity
      from which the revenue was earned.
  **5.
      Income taxes**
 
 There
      was
      no current or deferred provision or benefit for income taxes for the years
      ended
      December 31, 2007 and 2006. The components of deferred tax asset as of December
      31, 2007 and 2006 are as follows:
  2007
              
              2006Deferred
                  tax asset:Net
                  operating loss carryforwards
              
              $
              6,474,000
              
              $
              5,887,000Accrued
                  expenses
              
              
              599,000
              
              
              97,000Valuation
                  allowance
              
              
              (7,073,000
              )
              
              (5,984,000
              )Deferred
                  tax asset net of valuation allowance
              
              $
              -
              
              $
              -
  As
      of
      December 31, 2007, the Company had approximately $18 million of net operating
      loss carryforwards which expire between 2016 and 2027.
 
 The
      following table accounts for the differences between the actual tax provision
      and the amounts obtained by applying the statutory U.S. federal income tax
      rates
      of 34% to the loss before income taxes:
  2007
            
            2006Statutory
                tax benefit
            
            $
            2,301,000
            
            $
            1,696,000State
                taxes, net of federal benefit
            
            
            253,000
            
            
            173,000Nondeductible
                expense for commonstock
                issued for services
            
            
            (1,275,000
            )
            
            (185,000
            )Amortization
                of intangible assets
            
            
            (170,000
            )
            
            (197,000
            )Nontaxable
                impairment loss
            
            
            (6,000
            )
            
            (228,000
            )Increase
                in valuation allowance
            
            
            (1,110,000
            )
            
            (1,285,000
            )Other,
                net
            
            
            7,000
            
            
            26,000$
            0
            
            $
            0
 
 Changes
      in the valuation allowance during the year ended December 31, 2007 were as
      follows:
 
 Valuation
                allowance, beginning of year
            
            $
            5,957,000Increase
                from continuing operations
            
            
            1,110,000Impact
                of adoption of FIN 48
            
            
            6,000Valuation
                allowance, end of year
            
            $
            7,073,000
 
 As
      a
      result of the implementation of FIN 48, the Company recognized a $6,000 decrease
      in the deferred tax asset related to net operating loss. As this loss was wholly
      offset by the Company’s valuation adjustment, there was no impact on retained
      earnings as of January 1, 2007 from the adoption of this standard.
  F-12
  NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
      ENDED DECEMBER 31, 2007 AND 2006
 (UNREVIEWED
        AND UNAUDITED)
  **6.
      Related party transactions**
 
 Related
      parties have 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 exchanged for 30,000,000
      shares of the Company’s common stock. For financial reporting purposes, these
      shares were valued at approximately $3.9 million. The difference between the
      value for financial reporting purposes of the shares and the amount of the
      debt
      was recorded as a loss on related party debt extinguishment. In determining
      the
      ratio of debt for stock in the related party conversion, the valuation utilized
      in the Subscription Agreements with unaffiliated investors was used. The
      remaining loan balance at December 31, 2007 was approximately $4.1 million.
      Interest expense for the above loan for the years ended December 31, 2007 and
      2006 was approximately $183,000 and $200,000, respectively.
 
 Accounts
      payable includes $98,000 of consulting fees and travel expenses due to our
      Director of Clinical Research who is also a member of the Board of Directors.
 
 **7.
      Accrued Expenses**
 
 Accrued
      expenses at December 31, 2007 are summarized as follows:
 
 Accrued
                professional fees
            
            $
            122,000Payroll
                taxes and benefits
            
            
            4,680Legal
                judgments
            
            
            560,568Legal
                contingencies
            
            
            306,502Other
            
            
            15,902$
            1,009,652
 
 **8.
      Discontinuance of product line and abandonment of lease**
 
 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 is expected to ultimately lead to drug discovery
      and the development of diagnostic products. Effective March 30, 2006, the
      Company assigned the dietary supplement 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 (the net book value of the then unamortized product rights)
      has
      been recognized in operating expenses in the accompanying consolidated statement
      of operations for the year ended December 31, 2006. No other assets or
      liabilities are conveyed in connection with this transaction.
 
 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 of 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 year ended December
      31,
      2006.
  F-13
  NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
      ENDED DECEMBER 31, 2007 AND 2006
 (UNREVIEWED
        AND UNAUDITED)
 **9.
      Stockholders' equity**
 
 **Preferred
      stock**
 
 The
      holder(s) of preferred shares are entitled to receive non-cumulative dividends
      not to exceed $.10 per share when and as declared by the Board of Directors.
      In
      the event of any liquidation, dissolution or winding down of the company, either
      voluntary or involuntary, the holder(s) of each preferred share shall be
      entitled to be paid on an amount equal to $4.00 per share. In the event that
      the
      Company authorizes the redemption of all or any preferred shares, the redemption
      price shall be $4.30 per share. The preferred shares are convertible at any
      time
      into common at the ratio of 44.11 common shares to one preferred share. Holders
      of preferred shares have a right to cast eight votes per preferred share and
      the
      right to elect 50% of the authorized members of the board of directors. As
      of
      and for the years ended December 31, 2007 and 2006, there were no preferred
      shares issued or outstanding.
 
 **Common
      stock, preferred stock and warrant issuances**
 
 During
      December 2007, the Company increased its authorized shares from 250,000,000
      to
      500,000,000 shares.
 
 From
      August 2004 through February 2005, the Company entered into Subscription
      Agreements with three unaffiliated investors. Under the terms of the
      Subscription Agreements, the Company received cash of $852,500 (net of $122,500
      of expenses) through December 31, 2006. The Company is to receive additional
      cash of approximately $800,000 (net of expenses) within five days of registering
      the common shares and warrants issued as a result of the Subscription
      Agreements. The number of common shares to be issued is equal to the amount
      received divided by the lesser of $.12 or 52% of the average closing bid price
      of the Company’s common stock on the five trading days immediately prior to the
      date on which the registration statement is declared effective (“Fixed Price”).
      These amounts are classified as Stock Settlement Liability at December 31,
      2007.
      In addition, the Subscription Agreements provide for the issuance of warrants
      equal to the number of common shares issued. Fifty percent (50%) of the warrants
      are exercisable at 110% of the Fixed Price and the remaining 50% of the warrants
      are exercisable at 150% of the Fixed Price. Unexercised warrants will expire
      December 31, 2008. The Company had agreed to use its best efforts to promptly
      register the common shares and warrants.
 
 During
      December 2004, the Company entered into a Subscription Agreement with a related
      party. Under the terms of the Subscription Agreement, the Company received
      cash
      of $500,000 during the year ended December 31, 2004. The Company is to receive
      additional cash of $500,000 within five days of registering the common shares
      and warrants issued as a result of the Subscription Agreement. All other terms
      of the Subscription Agreement are substantially the same as the Subscription
      Agreements to the unaffiliated investors described in the preceding paragraph.
      This amount is classified as Stock Settlement Liability at December 31, 2007.
 
 During
      2006, the related party acquired the rights and obligations under the above
      Stock Subscription Agreements from two of the three unaffiliated investors
      except for common stock previously issued to these investors and 2.7 million
      of
      the warrants. At December 31, 2007, the related party has the rights to
      approximately 56% of the above stock subscription agreements.
  F-14
  NANOBAC
      PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
      ENDED DECEMBER 31, 2007 AND 2006
 (UNREVIEWED
        AND UNAUDITED)
 **9
      Stockholders' equity (continued)**
 
 As
      a
      result of the above Subscription Agreements, at December 31, 2007, the Company
      has issued 12,291,667 shares of common shares, which represents the minimum
      number of shares to be issued under the Subscription Agreements in exchange
      for
      cash received through December 31, 2007. If the price of the Company’s stock is
      less than $0.23 per share when the Company’s registration statement is declared
      effective, the Company will be required to issue additional shares under the
      above Subscription Agreements equal to a price of 52% of the average closing
      bid
      price of the Company’s common stock on the five trading days immediately prior
      to the date on which the registration statement is declared effective. As of
      December 31, 2007, the registration statement had not been declared effective.
 
 The
      ultimate number of shares to be issued is indeterminate as the number of shares
      is dependent on NNBP’s closing bid price when a registration statement is
      declared effective. As a result, the $1.5 million of cash received under the
      Subscription Agreements through December 31, 2006 is included in long-term
      liabilities. In addition, the Company measured the value of the variable number
      of shares to be issued under the Subscription Agreements at the fair value
      that
      the financial instrument obligates the Company to convey to the holder at the
      settlement date. As a result of this measurement, an additional $1.3 million
      is
      included in long-term liabilities at December 31, 2007.
 
 On
      January 29, 2007, the Company issued 12,000,000 shares of the Company’s common
      stock valued for financial reporting purposes at $1.6 million to the members
      of
      the Board of Directors for services. On January 29, 2007, 30,000,000 shares
      were
      issued to related parties in exchange for the reduction of the related party
      loans (see Note 6).
 
 In
      August
      2007, the Company issued 2,033,334 shares of the Company’s common stock valued
      for financial reporting purposes at $150,000, to three consultants for services,
      which was recorded as a charge in the statement of operations during the year
      ended December 31, 2007 as the issuance was not revocable by the
      Company.
 
 In
      May
      2006, the Company entered into an agreement with Redwood Consultants, LLC
      (“Redwood”) whereby Redwood provided the Company with investor communications
      and public relations services. Under the terms of the agreement, the Company
      issued 8,000,000 shares of the Company’s common stock valued for financial
      reporting purposes at $560,000, which was recorded as a charge in the statement
      of operations during the year ended December 31, 2006 as the issuance was not
      revocable by the Company. The agreement remained in effect through May 8,
      2007.
 
 In
      July
      2006, the Company entered into an agreement with Wall Street Resources, Inc.
      (“Wall Street”) whereby Wall Street provided the Company with written analytical
      coverage and reports and advised and assisted the Company in developing and
      implementing a business plan, strategy and objectives to present to the
      financial community. The agreement requires the Company to issue 466,667 shares
      of the Company’s common stock valued for financial reporting purposes 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 remained in effect
      through March 11, 2007.
  F-15
 NANOBAC
        PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
        ENDED DECEMBER 31, 2007 AND 2006
 (UNREVIEWED
          AND UNAUDITED)
 **9
      Stockholders' equity (continued)**
 
 **Stock
      Options**
 
 Effective
      July 2006 and November 2006, the Company amended the employment agreements
      for
      two employees to settle $225,000 of bonuses that were due to these employees
      through the issuance of options to acquire 4,250,000 shares of the Company’s
      common stock with an exercise price of $0.05 per common share, with immediate
      vesting. These employees exercised a portion of these options to acquire
      3,500,000 shares of the Company’s common stock in December 2006. No proceeds
      were received by the Company for the exercise price as the Company granted
      additional compensation to the option holder equal to the exercise price. In
      accordance with SFAS No. 123R, these grants were valued for financial reporting
      purposes at approximately $300,000 using the Black-Scholes valuation model
      and
      assuming a risk-free interest rate of 5.00% and 5.25%, volatility of 100% and
      an
      expected term of 60 months. The stock option grants were approved by a corporate
      officer who has been provided this authority by the Board of Directors. At
      December 31, 2007, the Company did not have a formal stock option plan for
      the
      above stock option issuances. The following table summarizes stock option
      activity for the years ended December 31, 2007 and 2006:
 
 Outstanding
                at December 31, 2005
            
            
            -Granted
            
            
            4,250,000Exercised
            
            
            (3,500,000
            )Outstanding
                at December 31, 2006
            
            
            750,000Granted
            
            
            -Exercised
            
            
            -Outstanding
                at December 31, 2007
            
            
            750,000
 
 The
      following table summarizes information about stock options outstanding at
      December 31, 2007:
 
 Weighted
                averageNumber
            
            remaining
            
            Number
            
            IntrinsicExercise
                price
            
            outstanding
            
            contractual
                life
            
            exercisable
            
            value$
                0.05
            
            
            750,000
            
            
            8.7
            
            
            750,000
            
            $
            0
  **Warrants**
 
 As
      of
      December 31, 2007, the following warrants were outstanding:
 
 Number
            
            Exercise
                Price
            
            Expiration5,000,000
            
            $
            0.005
            
            
            August
                20091,666,666
            
            $
            0.01
                to $0.06
            
            
            April
                20166,666,666
  F-16
 
 NANOBAC
        PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
        ENDED DECEMBER 31, 2007 AND 2006
 (UNREVIEWED
          AND UNAUDITED)
 **10
      Commitments**
 
 The
      Company leases administrative and laboratory facilities and office equipment
      under cancelable and non-cancelable operating leases that expire through June
      2010. The following table summarizes the minimum future rental commitments
      under
      non-cancelable operating leases at December 31, 2006:
 
 Year
                ending December 31,2008
            
            $
            64,2132009
            
            
            59,6542010
            
            
            29,957$
            153,824
 
 Rent
      expense on operating leases for the years ended December 31, 2007 and 2006
      was
      approximately $71,000 and $183,000, respectively.
 
 **11
      Contingencies**
 
 The
      Company has entered into an employment agreement with an employee which expires
      in 2009. This employment agreement may require the issuance of $225,000 of
      equity based compensation on an annual basis in addition to base compensation.
 
 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. A judgment was
      awarded to Foltz in 2006. A $79,000 liability has been included in the
      accompanying balance sheet for this matter.
 
 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. A judgment was awarded to EliteCorp in 2007.
      A
      $481,000 liability has been included in the accompanying balance sheet for
      this
      matter.
 
 During
      January 2007, the Company, along with the Company’s Chief Executive Officer and
      a Board of Director member was served with civil action in the Circuit Court
      of
      Cook County, Illinois by Nutmeg Group LLC, the sole unaffiliated holder of
      subscription agreements described in Note 9. The suit is seeking damages for
      alleged breaches of contract by the Company and the affiliates as a result
      of
      the alleged failure to deliver stock and warrants that were allegedly due to
      be
      delivered under certain subscription agreements between the parties. The Company
      has filed a motion to quash 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 and, as such, no liability has
      been
      recorded in the financial statements.
  F-17
 NANOBAC
        PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
        ENDED DECEMBER 31, 2007 AND 2006
 (UNREVIEWED
          AND UNAUDITED)
 **11
      Contingencies (continued)**
 
 During
      October 2007, the Company was served with a civil action in the District Court
      of Harris County, Texas 61 st Judicial
      District by Neva Ciftcioglu (“Ciftcioglu”), a former employee. The petition and
      subsequent amended petitions and motion for default judgment allege that Nanobac
      owes Ciftcioglu unpaid compensation of $95,000 and 5 million shares of Nanobac’s
      common stock. Ciftcioglu is seeking to have a substantial portion of Nanobac’s
      intellectual property assigned to her as settlement for her claim. The Company
      is defending this lawsuit as the Company does not believe Ciftcioglu is entitled
      to intellectual property. A $110,000 liability has been included in accrued
      payroll in the accompanying financial statements for unpaid wages to
      Ciftcioglu’s claim, related payroll taxes and related legal costs. No liability
      has been recorded for the 5 million shares of Nanobac stock as 5,000,000 shares
      were issued to Ciftcioglu in 2004 and are already included in the Company’s
      outstanding common stock.
 
 **12
      Quarterly Data (unaudited)**
  Mar
                31
            
            Jun
                30
            
            Sep
                30
            
            Dec
                31**2007
                Quarter ended**Revenue
            
            $
            5,012
            
            $
            2,432
            
            $
            5,809
            
            $
            4,368Gross
                profit
            
            $
            752
            
            $
            530
            
            $
            1,142
            
            $
            678Net
                loss
            
            
            ($3,856,718
            )
            
            ($716,562
            )
            
            ($835,763
            )
            
            ($1,167,068
            )Loss
                per share:Basic
                and Diluted
            
            
            ($0.01
            )
            $
            0.00
            
            $
            0.00
            
            
            ($0.02
            )**2006
                Quarter ended**Revenue
            
            $
            161,286
            
            $
            37,565
            
            $
            23,894
            
            $
            2,341Gross
                profit
            
            $
            116,091
            
            $
            14,942
            
            $
            12,608
            
            $
            1,640Net
                loss
            
            
            ($1,487,687
            )
            
            ($1,395,460
            )
            
            ($787,183
            )
            
            ($1,303,023
            )Loss
                per share:Basic
                and Diluted
            
            
            ($0.01
            )
            $
            0.00
            
            $
            0.00
            
            
            ($0.01
            )
  F-18




**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned; thereunto duly authorized, on April 14, 2008.


**Nanobac
                Pharmaceuticals, Incorporated**By:
            /s/ John
                D. StantonJohn
                D. Stanton
              Chief
                Executive Officer


Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of Registrant and in the
      capacities indicated on March 31, 2008.




**Signature**
            
            **Title**/s/    John
                D. Stanton
              John
                D. Stanton
            
            Chairman
                of the Board of Directors
              Chief
                Executive Officer and Chief Financial Officer (Principal Executive,
                Financial and Accounting Officer)/s/    Benedict
                S. Maniscalco
              Benedict
                S. Maniscalco, M.D.
            
            Director,
                Director of Clinical Research and Medical Director/s/    Alexander
                H. Edwards
                III
              Alexander
                H. Edwards III
            
            Director/s/    Stephan
                Rechtschaffen
              Stephan
                Rechtschaffen, M.D.
            
            Director





51