**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, 2006**





**Nanobac
      Pharmaceuticals, Incorporated**


(Exact
      name of registrant as specified in its charter)


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





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


(Address
      of Principal Executive Office) (Zip Code)





**(813)
      264-2241**


(Registrant’s
      telephone number, including area code)





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 [X] No [  ]





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.  [ 
      ]





Indicate
      by check mark whether the Registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Act): Yes [  ] No [X]





State
      issuer’s revenue for its most recent fiscal year: $225,086





The
      approximate aggregate market value of voting and non-voting stock held by
      non-affiliates of the registrant was $7,630,575 as of May 1, 2007. 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 May
      1, 2007 there were 247,476,426 shares of the Registrant’s Common Stock
      outstanding.





1


**Nanobac
      Pharmaceuticals, Incorporated**





**Form
      10-KSB**


**For
      the Year Ended December 31, 2006**




**Table
                  of Contents****Page****Part
                  I**Item
              1.
              
              Business
              3Item
              2.
              
              Properties
              11Item
              3.
              
              Legal
                  Proceedings
              11Item
              4.
              
              Submission
                  of Matters to a Vote of Security Holders
              12**Part
                  II**Item
              5.
              
              Market
                  for Registrant’s Common Stock and Related StockholderStockholder
                  Matters
              12Item
              6.
              
              Management’s
                  Discussion and Analysis or Plan of Operations
              15Item
              7.
              
              Financial
                  Statements
              29Item
              8.
              
              Changes
                  in and Disagreements with Accountants onAccounting
                  and Financial Disclosure
              29Item
              8A.
              
              Controls
                  and Procedures
              29**Part
                  III**Item
              9.
              
              Directors,
                  Executive Officers, Promoters and Control Persons
              31Item
              10.
              
              Executive
                  Compensation
              34Item
              11.
              
              Security
                  Ownership of Certain Beneficial Owners andManagement
                  and Related Stockholder Matters
              36Item
              12.
              
              Certain
                  Relationships and Related Transactions
              37Item
              13.
              
              Exhibits
              38Item
              14.
              
              Principal
                  Accountant Fees and Services
              43





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 pioneering research is establishing the pathogenic role of
      nanobacteria in soft tissue calcification, particularly in coronary artery
      heart
      disease, prostatitis and vascular disease.




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




Calcification
      is a significant feature in most diseases that are leading causes of death,
      including heart disease. Calcification is shown in numerous studies to block
      circulation, cause inflammation and cell disruption, and is a sign of various
      cancers. We have decided to have a sharpened focus on drug therapy based on
      findings by Nanobac scientists that certain drugs, when combined, are effective
      at halting the calcification process. Some of these drug combinations have
      not
      been tested in animals or humans. However, the Company has an advantage in
      that
      each of these drugs on its own has an FDA-approved record of being safe;
      therefore regulatory hurdles are significantly lower in every national
      jurisdiction.




Our
      plan
      is to focus on the following priorities over the next twelve months:




·
            **Therapy
                -**We
                are entering into agreements to support the FDA PIND to test our
                proprietary drug combinations to treat stone-forming diseases, with
                a
                preliminary focus on prostatitis, which affects millions of men and
                currently is largely untreatable. We will also conduct tests with
                other
                stone forming diseases such as gallstones and kidney stones.




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




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




3


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




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




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




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




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





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




4


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.





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




***Research***





Nanobacterial
      research is ongoing around the world. Our lead scientists Olavi Kajander and
      Neva Ciftcioglu, have 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.





Nanobac
      co-founder and Director of Science, Neva Ciftcioglu, Ph.D. will remain at NASA
      JSC as Staff Scientist and principal researcher. 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.





5


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.




**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. CP/CPPS
      type III accounts for the majority of CP/CPPS patients seen in an average
      urology practice. These patients often have prostatic calcification. The
      presence of prostatic calculi in younger men is associated with both
      inflammation and symptoms of CPPS. While prostatic calcification is often
      detected in asymptomatic 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 core
      of
      prostatic calculi is 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 of men
      with
      a diagnosis of prostatitis with serum from unaffected men revealed significantly
      higher rates of CNP antigen by ELISA analysis in the prostatitis
      group.





Kajander
      and Ciftcioglu proposed a new etiology 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* that
      CNPs can kill cultured mammalian cells and can cause cell damage.





6


When
      15
      human diseases were investigated for the presence of CNPs in peripheral blood,
      CP/CPPS patients showed the highest values of CNPs. A strategy to treat CP/CPPS
      should be based upon a new understanding of the basic disease process calcific
      inflammation.





A
      recent
      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. Neva Ciftcioglu, the
      Company’s Director of Science, and 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 were positive for
      Nanobacteria. Nanobac plans to initiate research trials that will evaluate
      the
      link between Nanobacteria and PKD.




7


**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, MD 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 and lipid profiles improved.





Also,
      at
      a recent American Heart Association scientific session, one of the world’s most
      prominent heart disease researchers, Stephen E. Epstein, MD, 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.




***Other
      Opportunities***




Calcifying
      Nano-Particles expose a risk for biopharmaceuticals containing human or animal
      blood components or blood and animal tissue derived raw materials or production
      substrates.




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.




8


**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.





In
      1991
      Dr. Kajander was joined by microbiologist Neva Ciftcioglu, Ph.D. at the
      University of Kuopio, Finland. Their research established that the blood-borne
      CNPs form slow-growing calcified colonies in arteries and organs, much as coral
      reefs are formed. CNPs have been found in human and animal blood, urine and
      saliva. The name "nanobacteria" was introduced and patented by Dr. Olavi
      Kajander as the name for very small mineral-associated bacteria-like particles
      now referred to as CNPs.




**Competition**





The
      market for providing physicians and managed care organizations with nanobacteria
      related disease management and services is just emerging, and we believe 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.





Nanobac
      believes that it will be able to grow and defend the specialized nanobacteria
      related disease market niche due to its expertise in the field, its disease
      management approach, and its technology leadership.





**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 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.





9


**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 revenue is from the United States. We may also develop markets in
      the
      European Union through the operations of our Finnish Subsidiary, Nanobac OY.





**Employees**





We
      have
      three employees in our corporate headquarters in Tampa, Florida, two employees
      at the NASA facility in Houston Texas and five employees in Finland.




**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.




10


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





The
      following table sets forth a description of our facilities:




Location
              
              Square
                    Feet(Approx)
              
              Lease
                  Expiration
              
              FunctionTampa,
                  Florida
              
              1,700
              
              December
                  2007
              
              Headquarters
                  for NanobacTampa,
                  Florida
              
              4100
              
              June
                  2007
              
              Former
                  Headquarters for Nanobac operations - space is currently
                  vacantTampa,
                  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. We do not believe that
      the Company is liable for the obligations of HealthCentrics.





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





During
      January 2007, the Company, along with the Company’s CEO and a Board of Director
      member was served with civil action in the Circuit Court of Cook County,
      Illinois by Nutmeg Group LLC, the sole unaffiliated holder of subscription
      agreements described in 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.




11




**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, 2006.




**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****2005**First
                Quarter
            $0.16
            $0.11Second
                Quarter
            $0.13
            $0.07Third
                Quarter
            $0.10
            $0.07Fourth
                Quarter
            $0.08
            $0.04**2006**First
                Quarter
            $0.03
            $0.06Second
                Quarter
            $0.04
            $0.08Third
                Quarter
            $0.36
            $0.05Fourth
                Quarter
            $0.35
            $0.10




On
      May 1,
      2007, the closing bid quote for the Common Shares was $0.07 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.




12




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





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





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





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





13


**Changes
      in Securities (continued)**





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.




**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**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
            )**2005
                Quarter ended**Revenue
            
            $
            151,865
            
            $
            167,988
            
            $
            130,394
            
            $
            206,555Gross
                profit
            
            $
            108,027
            
            $
            109,527
            
            $
            83,309
            
            $
            126,493Net
                loss
            
            
            ($1,505,921
            )
            
            ($984,153
            )
            
            ($645,547
            )
            
            ($551,716
            )Loss
                per share:Basic
                and Diluted
            
            
            ($0.01
            )
            
            ($0.01
            )
            $
            0.00
            
            $
            0.00




14


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





During
      calendar 2007, and for the foreseeable future, our primary focus is on the
      research of the role Nanobacteria plays in human diseases involving pathologic
      calcification deposits for the purpose of drug discovery and the development
      of
      diagnostic tests. Accordingly, during March 2006, we decided to terminate the
      marketing and selling of dietary supplements in order for the Company to focus
      exclusively on the science related to Nanobacteria, which we plan to lead to
      drug discovery and the development of diagnostic products for the detection
      and
      treatment of Nanobacteria related diseases.




**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, 2006 and 2005.  These comparisons of financial
      results are not necessarily indicative of future results.





**Year
                ended December 31**2006
            
            2005
            
            %
              Change
            
            $
                ChangeRevenue
            
            $
            225,086
            
            $
            656,802
            
            
            -66
            %
            
            
            ($431,716
            )Cost
                of revenue
            
            
            79,805
            
            
            229,446
            
            
            -65
            %
            
            
            (149,641
            )Gross
                Profit
            
            
            145,281
            
            
            427,356
            
            
            -66
            %
            
            
            (282,075
            )Gross
                Profit percentage
            
            
            65
            %
            
            65
            %Selling,
                general and administrative
            
            
            1,838,740
            
            
            1,311,501
            
            
            40
            %
            
            
            525,239Research
                and development
            
            
            1,994,797
            
            
            1,193,611
            
            
            67
            %
            
            
            801,186Impairment
                loss on intangible asset
            
            
            585,000
            
            
            0
            
            
            NM
            
            
            
            585,000Depreciation
                and amortization
            
            
            541,278
            
            
            759,935
            
            
            -29
            %
            
            
            (218,657
            )Operating
                loss
            
            
            (4,814,534
            )
            
            (2,837,691
            )
            
            69
            %
            
            
            (1,976,843
            )Other
                income (Expense)
            
            
            (158,819
            )
            
            (849,646
            )
            
            -81
            %
            
            
            690,827Net
                loss
            
            
            ($4,973,353
            )
            
            ($3,687,337
            )
            
            35
            %
            
            
            ($1,286,016
            )


15


**2006
      Compared to 2005**





**Revenue**





Revenue
      for the years ended December 31, 2006 and 2005 is summarized as
      follows:





**Year
                ended December 31**2006
            
            2005Nanobac
                Supplement
            
            $
            122,495
            
            $
            498,413Observation
                Rights
            
            
            15,000
            
            
            10,000Diagnostic
                Products
            
            
            87,591
            
            
            148,389$
            225,086
            
            $
            656,802





During
      March 2006, we discontinued the sale of our dietary supplements. Accordingly,
      we
      received no significant revenue from this product after March 2006 and
      anticipate no revenue from this product in the future.





Diagnostic
      product revenue decreased 41% from 2005 to 2006 primarily due to the termination
      of our United States diagnostic product sales in November 2006. In addition,
      in
      2005, we had a one-time large diagnostic sale of approximately $25,000 in our
      Finland office.





Revenue
      from observation rights was recognized over the agreement’s 12-month term using
      the straight-line method. Based on our current operations, we anticipate less
      than $50,000 of revenue for the year ending December 31, 2007.





**Cost
      of revenue**





Cost
      of
      revenue consists of direct materials, testing services (for diagnostic products)
      and shipping. As a percentage of revenue, cost of revenue was 35% for the years
      ended December 31, 2006 and 2005. The overall cost of revenue decreased 66%
      from
      2006 to 2005 due to a similar decrease in revenue.





**Gross
      Profit**





Gross
      profit as a percentage of revenue was 65%, for the years ended December 31,
      2006
      and 2005. The percentage profit remained the same for 2006 and 2005 as the
      product mix did not materially change.





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





For
      2006,
      38% of SG&A expenses are comprised of payroll and professional fees.
      Expenses to operate as a public company (primarily professional fees and
      investor relations costs) comprise an additional 40% of the remaining SG&A
      expense. Other significant SG&A expenses include facility rental and
      insurance.





SG&A
      expenses increased approximately $527,000 for the year ended December 31, 2006
      compared to the year ended December 31, 2005. This increase was primarily due
      to
      an increase in rent expense of $71,000 associated with the early termination
      of
      our lease in Tampa, Florida, a $165,000 increase in patent and professional
      fees
      as we work to perfect our patent holdings and $631,000 of expenses incurred
      for
      two engagements of investor relations professionals. This increase was partially
      offset by a reduction in payroll expenses of approximately $400,000 as we
      eliminated payroll associated with the supplement business, reorganized our
      staff to provide a greater emphasis on R&D and outsourced some of our
      functions.




16


**2006
      Compared to 2005 (continued)**





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





For
      the
      year ended December 31, 2006 and 2005 R&D expenses consisted of the
      following types of expenses:


Year
                  ended December 31,2006
              
              2005U.S.
                  Payroll and medical directors
              
              
              58
              %
              
              56
              %Finland
                  payroll and laboratory
              
              
              26
              %
              
              36
              %Research
                  studies
              
              
              14
              %
              
              4
              %Other
              
              
              2
              %
              
              4
              %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, 2006 increased $801,000 or 67% compared
      to the year ended December 31, 2005. This increase is summarized as
      follows:




Increase
                  in utilization of outside medical directors
              
              $
              386,000Increase
                  in R&D payroll
              
              
              276,000Increase
                  in specific research studies
              
              
              230,000Decrease
                  in Finland lab expenses and other
              
              
              (91,000
              )$
              801,000


**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, 2006 compared to the year ended December 31, 2005 as
      the
      amortization of product rights was eliminated due to the impairment of this
      intangible asset described above.





17


**2006
      Compared to 2005 (continued)**





**Operating
      loss**





Our
      operating loss for the year ended December 31, 2006 was $4.8 million compared
      to
      $2.8 million for the year ended December 31, 2005. This increased loss primarily
      reflects the increased R&D costs of $801,000, increased SG&A expenses of
      $471,000 primarily related to investor relations, the impairment loss on
      intangible assets of $585,000, and a reduction in gross profit of $312,000
      due
      to the discontinuance of supplement and diagnostic product sales in the United
      States. The loss was partially decreased due to the reduction of amortization
      expense of $219,000.





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





**Other
      income (expense)**





Other
      income for the years ended December 31, 2006 and 2005 is summarized as
      follows:





Year
                ended December 31,2006
            
            2005Interest
              expenseStockholder
                loan
            
            
            
            
            $
            (198,999
            )
            $
            (67,372
            )Other
            
            
            
            
            
            (268
            )
            
            (3,513
            )Loss
                on stock settlement obligation
            
            
            
            
            
            0
            
            
            (717,908
            )Foreign
                exchange gain (loss)
            
            
            
            
            
            54,915
            
            
            (38,239
            )Sublease
                of excess office space expense
            
            
            
            
            
            (3,561
            )
            
            (10,276
            )Other,
                net
            
            
            
            
            
            (10,906
            )
            
            (12,338
            )$
            (158,819
            )
            $
            (849,646
            )




Interest
      expense increased due to the higher average outstanding balance of related
      party
      loans in 2006 compared to 2005 as the Company continues to receive the majority
      of its funding from related parties.





The
      shares issued in connection with the 2005 and 2004 Subscription Agreement
      transactions have been presented in the accompanying consolidated balance sheets
      as a liability. Changes in the liability in 2005 are recorded as charges to
      the
      statement of operations as a loss on the stock settlement obligation.





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.





18


**2006
      Compared to 2005 (continued)**




**Liquidity
      and Capital Resources**





As
      of
      December 31, 2006, we had total assets of $7.8 million of which only $127,000
      were current assets. At December 31, 2006, we had total current liabilities
      of
      $6.3 million and a working capital deficit of $6.2 million.





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





As
      discussed in 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.
      Successful registration of the shares contemplated under the agreements
      discussed above will provide significant amounts of needed capital into the
      Company. However, there are no assurances that the SEC will declare a
      registration statement effective.




Net
      cash
      used in operations was $2.6 million for the year ended December 31, 2006. The
      negative cash flow from operations reflects the $4.9 million net loss for the
      year offset by the non-cash charges of $1.1 million for depreciation,
      amortization and impairment loss, $956,000 of expenses which were settled with
      the issuance of common stock and $199000 of non-cash charges for interest
      expenses accrued on the related party loan.





Net
      cash
      used by investing activities for the year ended December 31, 2006 was $15,000
      for the purchase of fixed assets and a $3,000 security deposit.





Net
      cash
      provided by financing activities for the year ended December 31, 2006 was $2.7
      million, which is attributable to the related party loans.





As
      noted
      above, cash from related party loans 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
      our CEO and other investors, we are unlikely to continue as a going concern.





19


**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 2006 or 2005.





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 2006 or 2005 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).




*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. The standard was effective commencing in 2006. There was no effect
      of
      adoption of this standard on the 2005 financial statement since there were
      no
      stock options granted or outstanding as of or during the year ended December
      31,
      2005.





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 fair value of the
      Company’s stock in connection with valuation of stock grant awards.





*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.





**Contractual
      obligations**




At
      December 31, 2006, 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
            
            $
            50,000
            
            $
            134,618
            
            $
            184,6181
                -
                2 years
            
            
            -
            
            
            122,775
            
            
            122,7753
                -
                4 years
            
            
            -
            
            
            29,957
            
            
            29,957Total
            
            $
            50,000
            
            $
            287,350
            
            $
            337,350




The
      Company’s contractual obligations excludes related party loans that have
      subsequently been converted to stockholders’ equity through the issuance of
      common stock.




20


**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 2006
      was
      $55,000.





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. ****


21


**Forward
      Looking Statements**





Our
      disclosure and analysis in this 2004 Form 10-KSB/A 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.


22


**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
      2006 and 2005, affiliates of our Chief Executive Officer have provided our
      capital needs through loans and capital contributions. While these affiliates
      continue to provide for the majority of our cash requirements, they are under
      no
      obligation to continue such financing and/or strategic guidance. In the event
      these affiliates should discontinue their support, we may have difficulty in
      continuing our operations. In such an event, stockholders could lose their
      investment in its entirety. Historically, these affiliates have provided capital
      to us on a demand debt basis after which they may convert debt into shares
      of
      our common stock. If, in the future we require additional capital, these
      affiliates may contribute some or all of our requirements. We anticipate that
      as
      a part of any such loan, these affiliates would have rights to convert into
      additional shares of our common stock. In such an event and to the degree of
      which we require these affiliates’ support, stockholders may experience
      dilution. At present, we do not maintain key man insurance for our CEO.





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





23


**Risk
      Factors (continued)**




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




Since
      inception through December 31, 2006, we have incurred aggregate losses of $22.3
      million. Our net loss for the year ended December 31, 2006 and 2005 was $4.9
      million and $3.7 million, respectively. 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 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.


24


**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.





**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.


25


**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 Employment at
      Any
      Time** . ****





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


26


**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.


27


**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.





28


**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.




**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.




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




***Disclosure
      controls and procedures***





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





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





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


29




**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
      2007 to include a report of management on internal control over financial
      reporting. Internal control over financial reporting, as defined under these
      rules, is a process designed to provide reasonable assurance regarding the
      reliability of financial reporting and the preparation of financial statements
      for external purposes in accordance with generally accepted accounting
      principles.




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




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





***Changes
      in internal controls***





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




30





**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
            58
            November
                2000Alex
                Edwards
            Director
            42
            March
                2003 and January 2004Dr.
                Benedict Maniscalco
            Director
            65
            March
                2006Dr.
                Stephen Rechtschaffen
            Director
            57
            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 Florida Engineered Construction Products, Corporation.
      Mr. Stanton has served as Chairman of the Board of Directors of publicly-traded
      EarthFirst Technologies, Inc. from May 15, 2000 through the present. Mr. Stanton
      also serves on the Board of Directors of publicly traded Medical Technology
      Systems, Inc., Powercerv Corporation, Cybercare, Inc. and Online Sales
      Strategies, Incorporated. Since the early 1990's, Mr. Stanton has been, and
      continues to be, involved in turn-around management for financially distressed
      companies, providing both management guidance and financing. In 1981, Mr.
      Stanton assumed the role of Chief Financial Officer for Florida Engineered
      Construction Products, Corporation, a privately held manufacturer of residential
      and commercial construction products, located in Tampa, Florida. 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.





31


**Dr.
      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. 2001 to 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.





**Alex
      Edwards - 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 CEO.
      From March 2003 through January 2004, Mr. Edwards served as our Executive Vice
      President and Chief Operating Officer. From May 2002 through December 2004,
      Mr.
      Edwards was a managing partner of 360 Partners as well as president and CEO
      of
      360 Energy, Inc. From January 1997 to May 2002, Edwards was an executive with
      SRI/Surgical Express. 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.





32


**Dr.
      Stephan Rechtschaffen** - **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**





We
      have
      not adopted a Code of Ethics as of May 1, 2007. The Board of Directors is in
      the
      process of drafting a Code of Ethics specific to our Company.





33




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




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




(a)
            our company's chief executive officer
              (the
              "CEO");(b)
            eachof 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 under(d)
            but for the fact that the individual
              was not
              serving as an executive officer of ourcompany
              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**
            **Other
                Annual**
            **All
                Other****Name
                and Principal Position**
            **Year**
            **Salary**
            **Bonus**
            **Compensation**
            **Compensation
                (1)**John
                D. Stanton (2)
            2006
            $0
            $0
            $0
            $0Chairman
                of the Board and
            2005
            $0
            $0
            $0
            $0Chief
                Executive Officer and
            2004
            $0
            $0
            $0
            $0Chief
                Financial OfficerAlex
                Edwards (3)
            2006
            $23,660
            $0
            $0
            $0Board
                of Director member
            2005
            $6,123
            $0
            $0
            $0former
                Chief Executive Officer
            2004
            $228,536
            $0
            $5,000
            $0Benedict
                S Maniscalco (4)
            2006
            $0
            $0
            $113,462
            $0Director
                of Clinical ResearchBoard
                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 received
                consulting compensation in 2006 for his services as Director of Clinical
                Research.




34


**Employment
      and Compensation Agreement**





***John
      Stanton*** - Mr.
      Stanton does not have an employment or similar agreement with Nanobac. To date,
      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 present.




***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:




Pangea
                  Ultima (an affiliate of John Stanton)
              
              
              3,000,000Alexander
                  Edwards
              
              
              3,000,000Benedict
                  Maniscalco
              
              
              3,000,000Stephan
                  Rechtschaffen
              
              
              3,000,00012,000,000




The
      above
      stock was estimated to be worth $1.6 million on the date of issuance.





**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 the
      present.





**Stock
      Options**




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




35




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




**Principal
      Stockholders**The
      following table sets forth, as of May 1, 2007, 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.




**Name
                and Address of Beneficial Owner**
            **Amount
                and Nature of**
            **Percentage****Beneficial
                Ownership**
            **of
                Class****(1)**Gary
                S. Mezo (3)
            24,560,000
            9.93%11407
                Minaret DriveTampa,
                FL 33626John
                D. Stanton (4) (5) (6)
            107,442,658
            43.45%Alexander
                Edwards III (5) (6)
            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
                247,476,426 shares outstanding as May 1, 2007. 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 May 1,
                2007.





(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 the corporate entities of Escape Velocity
                of
                Tampa Bay, Inc., White Knight SST, Inc., Stone Enclosure, Inc., Wade
                Inc.
                of Tampa Bay, Denouement Strategies, Inc., Pagena Ultima, Inc., Vital
                Trust Business Development Corp., and Saint Anton Capital Corporation
                in
                which Mr. Stanton owns a controlling ownership.




**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.


36




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




**Loans
      from Entity Affiliate with the Company’s Chief Executive
      Officer**





Since
      emerging from bankruptcy in November 2002, Nanobac has financed its activities
      primarily from advances from affiliates of the Company’s CEO (“CEO Affiliates”).
      From time to time the CEO Affiliates have converted these loans into shares
      of
      Nanobac’s common stock with the most recent conversion in January 2007 when $4.6
      million of the CEO Affiliate loans were converted to 30,000,000 shares of our
      common stock. As of May 1, 2007, $1.2 million is due to CEO Affiliates for
      the
      remaining cash loans to Nanobac. These loans bear interest at the rate of 5%
      per
      annum.




**Subscription
      Agreement**





During
      December 2004, the Company entered into a Subscription Agreement with a CEO
      Affiliate. Under the terms of the Subscription Agreement, the entity converted
      a
      $500,000 loan to equity. During 2006, the CEO Affiliate 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 May
      1, 2007, 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.


37


**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**·Report
                of Aidman Piser & Company, P.A. Independent Registered Public
                Accounting Firm
            
            F-1·Consolidated
                Balance Sheet at December 31, 2006
            
            F-2·Consolidated
                Statements of Operations for the years ended December 31, 2006 and
                2005
            
            F-3·Consolidated
                Statements of Stockholders’ Deficit for the years ended December 31, 2006
                and 2005
            
            F-4·Consolidated
                Statements of Cash Flows for the years ended December 31, 2006 and
                2005
            
            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,
      2006:





None





(c)
      Exhibits





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





38




EXHIBIT
      INDEX


ExhibitNumber
                Description


3.1
              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 fore 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 fore the year ended December 31, 2005 and
                  incorporated herein by reference)


39


10.10
            Loan
                Agreement dated December 31, 2003 between Nanobac Pharmaceuticals,
                Incorporated and Escape Velocity, 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
                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 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 fore the year ended December 31,
                2005 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)





40


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 fore 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, 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 (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 W. 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
                fore the year ended December 31, 2006 and incorporated herein by
                reference)





10.27
            Agreement
                with Calgenex Corporation





10.28
            Amendment
                to Executive Employment Agreement dated June 8, 2006 between Nanobac
                Pharmaceuticals, Incorporated and E. Olavi Kajander, MD, PhD, an
                individual.





10.29
            Amendment
                to Executive Employment Agreement dated September 1, 2006 between
                Nanobac
                Pharmaceuticals, Incorporated and Neva Ciftcioglu, PhD, an individual.


41


21.1
            List
                of Subsidiaries





23.1
            Consent
                of Aidman, Piser & Company,
                P.A.





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





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





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




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




42




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




The
      following summarizes the fees paid to Aidman,
      Piser & Company, P.A., Independent Auditors for the
      years ended December 31, 2006 and 2005:





2006
            
            2005Audit
            
            $
            114,000
            
            $
            71,365Audit
                related
            
            
            -
            
            $
            22,040Tax
            
            
            -
            
            
            -Other
            
            
            -
            
            
            -Total
            
            $
            114,000
            
            $
            93,405





Audit-Related
      fees are attributable to (i) services performed in connection with SB-2
      registration statement and (ii) 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, 2006 and 2005.





The
      Board
      of Directors has considered whether the Audit-Related services provided by
      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. There were no such
      non-audit services in 2006 or 2005.


43


**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 May 1, 2007.




**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 May 1, 2007.




**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
                Edwards III
              Alexander
                Edwards III
            
            Director/s/    Stephan
                Rechtschaffen
              Stephan
                Rechtschaffen, M.D.
            
            Director





44




REPORT
        OF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 Board
        of
        Directors
 Nanobac
        Pharmaceuticals, Incorporated
 and
        Subsidiaries
 Tampa,
        Florida
 
 We
        have
        audited the accompanying consolidated balance sheet of Nanobac Pharmaceuticals,
        Incorporated and Subsidiaries (the “Company”), as of December 31, 2006, and the
        related consolidated statements of operations, stockholders’ equity (deficit)
        and cash flows for each of the two years in the period. These consolidated
        financial statements are the responsibility of the Company’s management. Our
        responsibility is to express an opinion on these consolidated financial
        statements based on our audits.
 
 We
        conducted our audits in accordance with standards of the Public Company
        Accounting Oversight Board (United States of America). Those standards require
        that we plan and perform the audit to obtain reasonable assurance about whether
        the financial statements are free of material misstatement. The Company is
        not
        required to have, nor were we engaged to perform, an audit of its internal
        control over financial reporting. Our audit included consideration of internal
        control over financial reporting as a basis for designing audit procedures
        that
        are appropriate in the circumstances, but not for the purpose of expressing
        an
        opinion on the effectiveness of the Company’s internal control over financial
        reporting. Accordingly, we express no such opinion. An audit includes examining,
        on a test basis, evidence supporting the amounts and disclosures in the
        financial statements. An audit also includes assessing the accounting principles
        used and significant estimates made by management, as well as evaluating
        the
        overall financial statement presentation. We believe that our audits provide
        a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of Nanobac
        Pharmaceuticals, Incorporated and Subsidiaries, at December 31, 2006, and
        the
        consolidated results of their operations and their cash flows for each of
        the
        two years in the period then ended in conformity with accounting principles
        generally accepted in the United States of America.
 
 The
        accompanying financial statements have been prepared assuming that the Company
        will continue as a going concern. As discussed in Note 1 to the consolidated
        financial statements, the Company has suffered recurring losses from operations,
        has working capital and net capital deficiencies and is dependent upon continued
        financing from stockholders and/or outside investors, all of which raise
        substantial doubt about its ability to continue as a going concern. Management’s
        plans in regard to these matters are also described in Note 1. The financial
        statements do not include any adjustments that might result from the outcome
        of
        this uncertainty.
  Aidman
        Piser & Company, P.A.
 May
        3,
        2007
 Tampa,
        Florida






F-1




**NANOBAC
        PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET**


December
                  31, 2006**ASSETS****CURRENT
                  ASSETS**Cash
              
              $
              39,505Accounts
                  receivable
              
              
              708Inventory
              
              
              66,352Prepaid
                  expenses
              
              
              19,938Total
                  current assets
              
              
              126,503**FURNITURE
                  AND EQUIPMENT,**less
                  accumulated depreciationof$105,534
              
              
              60,321**OTHER
                  ASSETS**Security
                  deposits
              
              
              58,503Intangible
                  assets, less accumulated amortizationof$1,279,041
              
              
              3,964,001Goodwill
              
              
              3,615,393**Total
                  other assets**
              
              
              7,637,897**TOTAL
                  ASSETS**
              
              $
              7,824,721**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              408,665Accrued
                  compensation
              
              
              87,385Accrued
                  expenses and other current liabilities
              
              
              436,590Related
                  party loans, including $504,328 of accrued interest
              
              
              5,367,205**Total
                  current liabilities**
              
              
              6,299,845**LONG-TERM
                  LIABILITIES**Stock
                  settlement obligation:Related
                  party
              
              
              961,538Other
              
              
              1,875,000**Total
                  liabilities**
              
              
              9,136,383**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, 250,000,000 shares authorized,205,473,426
                  shares issued and outstanding
              
              
              17,260,050Additional
                  paid-in capital
              
              
              3,803,031Accumulated
                  deficit
              
              
              (22,353,888
              )Accumulated
                  other comprehensive loss
              
              
              (20,855
              )**Total
                  stockholders' deficit**
              
              
              (1,311,662
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              $
              7,824,721




The
      accompanying notes are integral part of these financial statements





F-2




**NANOBAC
        PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
  Year
                
                Yearended
                
                endedDecember
                    31, 2006
                
                December
                    31, 2005**REVENUE**
                
                $
                225,086
                
                $
                656,802**COST
                    OF REVENUE,**exclusive
                    ofdepreciation
                    and amortizationshown
                    below
                
                
                79,805
                
                
                229,446**GROSS
                    PROFIT**
                
                
                145,281
                
                
                427,356**OPERATING
                    EXPENSES**Selling,
                    general and administrative
                
                
                1,838,740
                
                
                1,311,501Research
                    and development
                
                
                1,994,797
                
                
                1,193,611Impairment
                    loss on intangible asset
                
                
                585,000
                
                
                -Depreciation
                    and amortization
                
                
                541,278
                
                
                759,935**Total
                    Operating Expenses**
                
                
                4,959,815
                
                
                3,265,047**OPERATING
                    LOSS**
                
                
                (4,814,534
                )
                
                (2,837,691
                )**OTHER
                    INCOME (EXPENSES)**Interest
                    expense, related party
                
                
                (198,999
                )
                
                (70,885
                )Loss
                    on stock settlement obligation
                
                
                -
                
                
                (717,908
                )Other,
                    net
                
                
                40,180
                
                
                (60,853
                )**LOSS
                    BEFORE INCOME TAXES**
                
                
                (4,973,353
                )
                
                (3,687,337
                )**PROVISION
                    FOR INCOME TAXES**
                
                
                -
                
                
                -**NET
                    LOSS**
                
                $
                (4,973,353
                )
                $
                (3,687,337
                )**LOSS
                    PER COMMON SHARE****(BASIC
                    AND DILUTED)**
                
                $
                (0.02
                )
                $
                (0.02
                )**WEIGHTED
                    AVERAGE NUMBER OF****COMMON
                    SHARES OUTSTANDING**Basic
                    and Diluted
                
                
                199,425,481
                
                
                190,625,664




The
      accompanying notes are 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, 2005 AND 2006**


**Accumulated****Additional**
              
              
              
              **Other**
              
              **Other****Common**
              
              **Stock**
              
              **Paid-in**
              
              **Accumulated**
              
              **Comprehensive**
              
              **Comprehensive****Shares**
              
              **Value**
              
              **Capital**
              
              **Deficit**
              
              **Income
                  (Loss)**
              
              **Loss**
              
              **Total****Balance,
                  January 1, 2005**
              
              
              **187,240,093**
              
              **$**
              **16,296,550**
              
              **$**
              **3,539,328**
              
              **$**
              **(13,693,198**
              **)**
              
              
              
              **$**
              **(31,836**
              **)**
              **$**
              **6,110,844**Stock
                  issued for services
              
              
              100,000
              
              
              10,500
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              10,500Sale
                  of common stock pursuantto
                  subscription
                  agreement
              
              
              1,666,667
              
              
              -
              
              
              (35,647
              )
              
              -
              
              
              -
              
              
              -
              
              
              (35,647
              )Comprehensive
                  loss:Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,687,337
              )
              
              ($3,687,337
              )
              
              
              
              
              (3,687,337
              )Foreign
                  currency translationadjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              66,361
              
              
              66,361
              
              
              66,361Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              ($3,620,976
              )**Balance,
                  December 31, 2005**
              
              
              **189,006,760**
              
              **$**
              **16,307,050**
              
              **$**
              **3,503,681**
              
              **$**
              **(17,380,535**
              **)**
              
              
              
              **$**
              **34,525**
              
              **$**
              **2,464,721**Stock
                  issued for services
              
              
              8,466,666
              
              
              616,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              616,000Stock
                  and stock options issuedfor
                  conversion of liabilities
              
              
              4,500,000
              
              
              162,000
              
              
              250,000
              
              
              -
              
              
              -
              
              
              -
              
              
              412,000Stock
                  options issued for services
              
              
              -
              
              
              -
              
              
              49,350
              
              
              -
              
              
              -
              
              
              -
              
              
              49,350Exercise
                  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**
              **)**-
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -




The
      accompanying notes are integral part of these financial statements





F-4




**NANOBAC
      PHARMACEUTICALS INCORPORATED AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


Year
                  ended
              
              Year
                  endedDecember
                  31, 2006
              
              December
                  31, 2005**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (4,973,353
              )
              $
              (3,687,337
              )Adjustments
                  to reconcile net loss to cashflows
                  from operating activities:Depreciation
                  and amortization
              
              
              541,278
              
              
              759,935Impairment
                  loss on intangible asset
              
              
              585,000
              
              
              -Loss
                  on disposition of fixed assets
              
              
              18,330
              
              
              1,855Loss
                  on settlement of stock obligation
              
              
              -
              
              
              717,908Loss
                  on stock issued for conversion of liabilities
              
              
              40,500Charges
                  for common stock and options issued for services
              
              
              665,350
              
              
              10,500Interest
                  expense accrued for related party loan
              
              
              198,999
              
              
              67,372Net
                  (increase) decrease in assets:Accounts
                  receivable
              
              
              2,575
              
              
              112Inventory
              
              
              50,928
              
              
              (46,709
              )Other
                  assets
              
              
              39,660
              
              
              26,551Net
                  increase (decrease) in liabilities:Accounts
                  payable
              
              
              94,733
              
              
              (331,559
              )Accrued
                  compensation
              
              
              120,827
              
              
              412,047Accrued
                  expenses
              
              
              50,648
              
              
              (308,987
              )Deferred
                  revenue
              
              
              (20,357
              )
              
              13,002Total
                  adjustments
              
              
              2,388,471
              
              
              1,322,027**Net
                  cash flows from operating activities**
              
              
              (2,584,882
              )
              
              (2,365,310
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Acquisition
                  of furniture and equipment
              
              
              (12,759
              )
              
              (40,632
              )Payment
                  of security deposit
              
              
              (2,731
              )
              
              -**Net
                  cash flows from investing activities**
              
              
              (15,490
              )
              
              (40,632
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Proceeds
                  from issuance of common stockpursuant
                  to subscription agreements
              
              
              -
              
              
              200,000Stock
                  issuance costs
              
              
              -
              
              
              (35,647
              )Proceeds
                  from stockholder loans
              
              
              2,740,019
              
              
              2,173,293Proceeds
                  from notes payable
              
              
              2,601
              
              
              11,842Payment
                  of notes payable
              
              
              (53,675
              )
              
              (23,378
              )**Net
                  cash flows from financing activities**
              
              
              2,688,945
              
              
              2,326,110**Effect
                  of exchange rate changes**
              
              
              (58,043
              )
              
              70,899Net
                  change in cash
              
              
              30,530
              
              
              (8,933
              )Cash
                  balance, beginning of year
              
              
              8,975
              
              
              17,908**Cash
                  balance, end of year**
              
              $
              39,505
              
              $
              8,975**Supplemental
                  disclosures of cash flow information:**Cash
                  paid for interest
              
              $
              -
              
              $
              3,513**Supplemental
                  schedule of non-cash investing and financing
                  activities:**Common
                  stock and options issued in exchange for current
                  liabilities
              
              $
              412,000
              
              $
              -Options
                  exercised for reduction in accrued compensation
              
              $
              175,000
              
              $
              -Property
                  and equipment exchanged for reduction in related
                  party loans
              
              $
              6,546
              
              $
              -




The
        accompanying notes are integral part of these financial statements
 
 F-5




NANOBAC
        PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
        ENDED DECEMBER 31, 2006 AND 2005
  **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 working capital deficiency at December 31, 2006. The Company is
        dependent on the continued financing from outside investors including additional
        stockholder loans. All of these matters raise substantial doubt about the
        ability of the Company to continue as a going concern. Management believes
        that
        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, 2006 AND 2005
  **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
        years
 Product
        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
        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
        of 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 goodwill impairment
        adjustments recorded in 2006 or 2005. 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, 2006 AND 2005
  **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, 2006 and 2005.
 
 **Accumulated
        other comprehensive income (loss)**
 
 Accumulated
        other comprehensive income (loss) consists of foreign currency translation
        adjustments related to our Finland operations. Accumulated other comprehensive
        income (loss) 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 9 are
        stock
        settlement obligations and, as such, have been presented in the accompanying
        consolidated balance sheet as a liability and in the accompanying 2005 statement
        of operations as a loss on the stock settlement obligation.
 
 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, 2006 AND 2005
  **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
        June
        2006, the Financial Accounting Standards Board (“FASB”) announced a new
        interpretation, FASB Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes” (“FIN 48”), which will be effective for fiscal years beginning
        after December 15, 2006. FIN 48 clarifies the accounting for uncertainty
        in
        income taxes recognized in an enterprise’s financial statements in accordance
        with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a
        recognition threshold and measurement attribute for the financial statement
        recognition and measurement of a tax position taken or expected to be taken
        in a
        tax return. FIN 48 also provides guidance on derecognition, classification,
        interest and penalties, accounting in interim periods, disclosure and
        transition. Management has determined that the impact on the Company’s financial
        statements is less than $10,000.
  In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No.157 “Fair Value Measurements” (SFAS 157”), which is effective for fiscal
        years beginning after November 15, 2007 and for interim periods within those
        years. This statement defines fair value, established a framework for measuring
        fair value and expands the related disclosure requirements. The Company is
        currently evaluating the potential impact of SFAS 157 on the consolidated
        financial statements.
 
  In
        February 2007, the Financial Accounting Standards Board issued FASB Statement
        No. 159, *The
        Fair Value Option for Financial Assets and Financial Liabilities* (FAS
        159), which includes an amendment to FASB Statement No. 115. The statement
        permits entities to choose, at specified election dates, to measure eligible
        financial assets and financial liabilities at fair value (referred to as
        the
“fair value option”) and report associated unrealized gains and losses in
        earnings. Statement 159 is effective for fiscal years beginning after
        November 15, 2007. As of December 31, 2006, the Company has not
        determined the effect that the fair value option, if elected, will have on
        the
        consolidated financial position or results of operations.
  In
        September 2006, the Securities and Exchange Commission issued Staff Accounting
        Bulletin No. 108, "Considering the Effects of Prior Year Misstatements in
        Current Year Financial Statements," which requires registrants to consider
        the
        effect of all carryover and reversing effects or prior year misstatements
        when
        quantifying errors in current year financial statements. The cumulative
        effective of initial application is to be reported in the carrying amount
        of
        assets and liabilities as of the beginning of the fiscal year, and the
        offsetting is to be made to the opening balance of retained earnings for
        that
        year. The provisions of SAB 108 are effective for the Company's fiscal year
        ending September 30, 2007. The Company is in the process of evaluating the
        requirements of SAB 108 and has not yet determined the impact, if any, on
        its
        consolidated financial statements.
  F-9
 **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, 2006 is summarized as follows: ****
 
 Computer
                  equipment
              
              $
              21,991Computer
                  software
              
              
              17,982Lab
                  equipment
              
              
              98,547Office
                  equipment
              
              
              16,624Furniture
                  and fixtures
              
              
              10,711165,855Accumulated
                  Depreciation
              
              
              (105,534
              )$
              60,321
 
 Depreciation
        expense for the years ended December 31, 2006 and 2005 was $36,858 and $53,015,
        respectively.
 
 
 **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
                
                
                (1,279,041
                )$
                3,964,001
  F-10
  NANOBAC
          PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
          ENDED DECEMBER 31, 2006 AND 2005
  Amortization
        expense for the years ended December 31, 2006 and 2005 was $504,420 and
        $706,920, respectively. Expected future amortization is summarized as
        follows:
  Year ending December
                31,2007
              
              
              
              
              $
              436,9202008
              
              
              
              
              
              436,9202009
              
              
              
              
              
              436,9202010
              
              
              
              
              
              436,9202011
              
              
              
              
              
              436,920Thereafter
              
              
              
              
              
              1,779,401$
              3,964,001
 
 Recoverability
        of the Company’s intangibles is dependent upon the successful development and
        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 charges 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 31,2006
              
              2005RevenueUnited
                  States
              
              
              
              
              $
              204,272
              
              $
              608,445Finland
              
              
              
              
              
              20,814
              
              
              48,357$
              225,086
              
              $
              656,802AssetsUnited
                  States
              
              
              
              
              $
              7,500,543Finland
              
              
              
              
              
              324,178$
              7,824,721
 
 The
        geographic classification of revenue was based upon the domicile of the entity
        from which the revenue was earned.
 
  F-11
 NANOBAC
            PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
            ENDED DECEMBER 31, 2006 AND 2005
  **5.
        Income taxes**
 
 There
        was
        no current or deferred provision or benefit for income taxes for the years
        ended
        December 31, 2006 and 2005. The components of deferred tax asset as of December
        31, 2006 and 2005 are as follows:
 2006
                
                2005Deferred
                    tax asset:
                
                $
                5,910,000
                
                $
                4,333,000Net
                    operating loss carryforwards
                
                
                413,000
                
                
                242,000Accrued
                    expensesValuation
                    allowance
                
                
                (6,323,000
                )
                
                (4,575,000
                )Deferred
                  tax asset net of valuation allowance
                
                $
                -
                
                $
                -
 
 As
        of
        December 31, 2006, the Company had approximately $15 million of net operating
        loss carryforwards which expire between 2016 and 2026.
 
 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:
 
 2006
              
              2005Statutory
                  tax benefit
              
              $
              1,721,000
              
              $
              2,981,000State
                  taxes, net of federal benefit
              
              
              224,000
              
              
              335,000Nondeductible
                  expense for commonstock
                  issued for services
              
              
              
              
              
              (999,000
              )Amortization
                  of intangible assets
              
              
              (197,000
              )
              
              (261,000
              )-Discontinued
                  operations
              
              
              -
              
              
              305,000Nontaxable
                  derivative loss
              
              
              -
              
              
              (251,000
              )Increase
                  in valuation allowance
              
              
              (1,748,000
              )
              
              (2,116,000
              )Other,
                  net
              
              
              -
              
              
              6,000$
              0
              
              $
              0
 
 Changes
        in the valuation allowance during the years ended December 31, 2006 and 2005
        were as follows:
 
 2006
              
              
              2005Valuation
                  allowance, beginning of year
              
              $
              4,575,000
              
              $
              2,459,000Increase
                  from continuing operations
              
              $
              1,748,000
              
              
              2,116,000Valuation
                  allowance, end of year
              
              $
              6,323,000
              
              $
              4,575,000
  
 As
        a
        result of the implementation of FIN 48, the Company expects to recognize
        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, no impact is
        anticipated 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, 2006 AND 2005
  **6.
        Related party transactions**
 
 An
        entity
        controlled by the Chief Executive Officer (who is also the largest stockholder
        of NNBP), has loaned NNBP approximately $5.4 million as of December 31, 2006.
        This loan bears interest at 5% and is due on demand. Interest expense for
        the
        above loan for the years ended December 31, 2006 and 2005 was approximately
        $200,000 and $67,000, respectively.
 
 See
        Note
        9 regarding related party subscriptions agreement and stock settlement
        liability.
 
 **7.
        Discontinuance of product line**
 
 During
        March 2006, the Company’s management established a plan for Nanobac to
        discontinue the sale of dietary supplements and the Company’s focus to be
        exclusively on the science that 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 were conveyed in connection with this transaction.
 
 **8.
        Abandonment of lease**
 
 During
        March 2006, the Company ceased occupying leased office space in Tampa, Florida.
        As a result of the early abandonment of this office lease, a charge to earnings
        of approximately $125,000 for the write-off 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.
 
 **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, 2006 and 2005, there were no preferred
        shares issued or outstanding.
 
 **Common
        stock, preferred stock and warrant issuances**
 
 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, 2005. The Company is to receive additional
        cash of approximately $800,000 (net of expenses) within five
  F-13
  NANOBAC
          PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
          ENDED DECEMBER 31, 2006 AND 2005
  **9.
        Stockholders' equity (continued)**
 
 days
        of
        registering the common shares and warrants issued as a result of the
        Subscription Agreements. The number of common shares to be issued is equal
        to
        the amount received divided by the lesser of $.12 or 52% of the average closing
        bid price of the Company’s common stock on the five trading days immediately
        prior to the date on which the registration statement is declared effective
        (“Fixed Price”). In addition, the Subscription Agreements provide for the
        issuance of warrants equal to the number of common shares issued. Fifty percent
        (50%) of the warrants are exercisable at 110% of the Fixed Price and the
        remaining 50% of the warrants are exercisable at 150% of the Fixed Price.
        Unexercised warrants will expire December 31, 2008. The Company 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 an
        affiliate of the Company’s Chief Executive Officer (“CEO Affiliate”). 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.
 
 As
        a
        result of the above Subscription Agreements, at December 31, 2006, 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, 2006. 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, 2006, 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 $1,500,000 of cash received under the
        Subscription Agreements through December 31, 2006 is included in Stock
        Settlement Liability. 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
        $1,336,538 million is included in Stock Settlement Liability at December
        31,
        2006 (of which approximately $718,000 relates to the year ended December
        31,
        2005) $961,538 of this liability is due to the CEO Affiliate at December
        31,
        2006 and the balance is due to the unaffiliated investors.
 
 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 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 remains 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
  F-14
  NANOBAC
            PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
            ENDED DECEMBER 31, 2006 AND 2005
  **9
        Stockholders' equity (continued)**
 
 and
        objectives to present to the financial community. The agreement requires
        the
        Company to issue 466,666 shares of the Company’s common stock valued at $56,000
        and pay $15,000 cash to Wall Street upon the issuance of Wall Street’s initial
        report, which was dated September 12, 2006. The agreement expired March 11,
        2007.
 
 **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 4,250,000 stock options with an exercise price of
        $0.05
        per common share, with immediate vesting. 3,500,000 of these stock options
        were
        exercised 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. 123(R), these
        grants were valued 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, 2006, 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 year ended December 31, 2006:
 
 Outstanding
                  at December 31, 2005
              
              
              -Granted
              
              
              4,250,000Exercised
              
              
              (3,500,000
              )Outstanding
                  at December 31, 2006
              
              
              750,000
 
 The
        following table summarizes information about stock options outstanding at
        December 31, 2006:
 
 Weighted
                  averageNumber
              remaining
              Number
              IntrinsicExercise
                  price
              outstanding
              contractual
                  life
              exercisable
              value$
                  0.05
              750,000
              9.7
              750,000
              $52,500
 
 No
        stock
        options were outstanding for the year ended December 31, 2005.
 
 **Warrants**
 
 As
        of
        December 31, 2006, 5,000,000 warrants were outstanding and exercisable with
        an
        exercise price of $.005 per common share and an expiration date of August
        31,
        2009.
 
 F-15
  NANOBAC
              PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
              ENDED DECEMBER 31, 2006 AND 2005
 
 **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,
 2007
              
              134,6182008
              
              63,4852009
              
              59,2902010
              
              29,957$
              287,350
 
 Rent
        expense on operating leases for the years ended December 31, 2006 and 2005
        was
        approximately $183,000 and $186,000, respectively.
 The
          Company has entered into employment agreements with two employees which
          expire
          in 2009. One of these employment agreements requires the issuance of $225,000
          of
          equity based compensation on an annual basis in addition to base compensation.
 **11
        Contingencies**
  On
        August
        10, 2004, the Company was served with a civil action as filed in the Superior
        Court of Fulton County State of Georgia by Foltz Martin LLC and Openbook
        Learning Club, Inc. (“Foltz”). This suit alleges that the Company is liable for
        approximately $67,000 of liabilities plus approximately $11,000 interest
        for
        services performed by the plaintiffs for HealthCentrics, Inc. in 2003 and
        2004.
        The Company owned 100% of HealthCentrics from December 2003 through March
        2004
        when HealthCentrics was sold by the Company to an affiliate. 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. The Company’s management believes that Nanobac is
        not responsible for the liabilities of HealthCentrics and that the Company
        will
        ultimately prevail in this legal action. No liability has been included in
        the
        accompanying balance sheet for this matter.
 
  F-16
 NANOBAC
            PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
            ENDED DECEMBER 31, 2006 AND 2005
  **12
        Subsequent Events**
 
 On
        January 29, 2007, the Company issued 12,000,000 shares of the Company’s common
        stock valued at $1.6 million to the individual members of the Board of Directors
        for services. On January 29, 2007, 30,000,000 shares with a value of $4.7
        million were issued to an affiliate of the Company’s CEO in exchange for the
        reduction of the related party loans of $4.7 million. This conversion will
        be
        treated as a capital transaction.
 
 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 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.
  During
        January 2007, the CEO Affiliate agreed to acquire the rights and obligations
        under the Stock Subscription Agreements (see Note 9) from two of the three
        unaffiliated investors except for common stock previously issued to these
        investors and 2.7 million of the warrants. As of May 3, 2007, this transaction
        has not closed.
  F-17
 NANOBAC
            PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
            ENDED DECEMBER 31, 2006 AND 2005
 
 **13
        Quarterly Data (unaudited)**
 
 Mar
                  31
              
              Jun
                  30
              
              Sep
                  30
              
              Dec
                  31**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
              )**2005
                  Quarter ended**Revenue
              
              $
              151,865
              
              $
              167,988
              
              $
              130,394
              
              $
              206,555Gross
                  profit
              
              $
              108,027
              
              $
              109,527
              
              $
              83,309
              
              $
              126,493Net
                  loss
              
              $
              (1,505,921
              )
              $
              (984,153
              )
              $
              (645,547
              )
              $
              (551,716
              )Loss
                  per share:Basic
                  and Diluted
              
              
              ($0.01
              )
              
              ($0.01
              )
              $
              0.00
              
              $
              0.00***Reconciliation
                  of 2006 Quarterly Data to Forms 10-QSB as
                  filed***Mar
                  31
              
              
              Jun
                  30
              
              
              Sep
                  30**Net
                  loss**Net
                  loss as reported on Form 10Q
              
              $
              (1,487,687
              )
              $
              (835,460
              )
              $
              (787,183
              )Common
                  stock issued forinvestor
                  relation services
              
              
              
              
              
              (560,000
              )Net
                  loss per above
              
              $
              (1,487,687
              )
              $
              (1,395,460
              )
              $
              (787,183
              )
 
 During
        May 2006, the Company issued 8,000,000 shares to an outside consultant valued
        at
        $560,000. This transaction was not reported on Form 10-QSB for the six months
        ended June 30, 2006. The Company has revised its procedures to request all
        stock
        transactions from the transfer agent prior to releasing future filings.
   F-18