**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549








**FORM
      10-KSB/A**


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


For
      the
      fiscal year ended


**December
      31 2004**





**Nanobac
      Pharmaceuticals, Incorporated**


(Exact
      name of registrant as specified in its charter)




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




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


(Address
      of Principal Executive Office) (Zip Code)





**(813)
      264-2241**


(Registrant’s
      telephone number, including area code)





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 o No x





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-KSB/Aor any amendment
      to
      this Form 10-KSB/A. o





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





State
      issuer’s revenue for its most recent fiscal year: $358,361





The
      approximate aggregate market value of voting and non-voting stock held by
      non-affiliates of the registrant was $9,183,809  as
      of
      June 15, 2005. 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
      June 15, 2005 there were 187,340,093 shares of the Registrant’s Common Stock
      outstanding.





1




**Nanobac
      Pharmaceuticals, Incorporated**





**Form
      10-KSB/A**


**For
      the Year Ended December 31, 2004**





**Table
      of Contents**





**Amendment
      Number 1**





In
      response to the Securities and Exchange Commission's periodic review of our
      filings under the Securities Exchange Act of 1934, the undersigned registrant
      hereby files Amendment No. 1 to amend the following Items with respect to its
      Annual Report on Form 10-KSB/A for the year ended December 31,
      2004:





**Item
      7**





We
      have
      amended Item 7, "Management Discussion and Analysis of Financial Condition
      and
      Results of Operations," to: (1) exclude non-GAAP information from the section
      titled “Selling, General and Administrative” and to revise the description to
      enhance the description of the components of this financial statement line
      item.
      And (2) to revise the section titled “Loss from continuing operations” to add a
      description for the following:





·
            the
                manner in which we use a non-GAAP measure to conduct or evaluate
                our
                business;


·
            the
                economic substance behind our decision to use such a
                measure;


·
            the
                material limitations associated with the use of the non-GAAP financial
                measure as compared to the use of the most directly comparable GAAP
                financial measure; and


·
            the
                substantive reasons why we believe the non-GAAP financial measure
                provides
                useful information.




**Item
      15**





We
      have
      amended footnote 1 to our financial statements for the years ended December
      31,
      2004 and 2003 to correct the presentation of “Net loss per share”.




**Page****Part
                  II**Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition
                  and Results of Operations
              3**Part
                  IV**Item
                  15.
              Exhibits,
                  Financial Statements, Schedules and Reports on
                  Form 8-K
              21




2




**PART
      II**





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





During
      calendar 2004, and for the foreseeable future, our primary focus is on the
      research of the role Nanobacteria plays in human diseases in which pathologic
      calcification deposits are found. Since the beginning of 2004, there have been
      an increasing number of studies linking Nanobacteria to serious health problems,
      including cardiovascular diseases, peripheral vascular diseases, prostatitis,
      kidney stones, and Polycystic Kidney Disease. These studies have provided
      additional evidence of a relationship between Nanobacteria and these diseases
      in
      which pathological calcification is present. Our focus is in determining how
      Nanobacteria works and what countermeasures can be developed to better treat
      these diseases.





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





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





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





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





3




We
      began
      direct sales of our Nanobac Supplements in June 2004. Nanobac Supplements are
      currently being marketed to the alternative medicine market and directly to
      the
      customer over the Internet. We anticipate that the Nanobac Supplements are
      the
      first generation of treatment therapies that we will develop and that the
      portfolio of treatments will increase as a result of our continuing research
      into the effect of Nanobacteria in numerous diseases.





During
      calendar 2004, our two diagnostic tests have gained additional recognition
      for
      their ability to identify Nanobacteria. We plan to initiate marketing our
      diagnostic testing kits in Europe during the first half of 2005.





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




**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, 2004 and 2003.  These comparisons of financial
      results are not necessarily indicative of future results.


**Year
                ended December**2004
            
            2003
            
            %
                ChangeRevenue
            
            $
            358,361
            
            $
            482,815
            
            
            -26
            %Cost
                of revenue
            
            
            100,470
            
            
            333,122
            
            
            -70
            %Gross
                Profit
            
            
            257,891
            
            
            149,693
            
            
            72
            %Gross
                Profit percentage
            
            
            72
            %
            
            31
            %Selling,
                general and administrative
            
            
            4,765,841
            
            
            2,128,375
            
            
            124
            %Research
                and development
            
            
            2,375,363
            
            
            540,426
            
            
            340
            %Depreciation
                and amortization
            
            
            717,070
            
            
            181,103
            
            
            296
            %Operating
                loss
            
            
            (7,600,383
            )
            
            (2,700,211
            )
            
            181
            %Other
                income (Expense)
            
            
            (217,127
            )
            
            (60,922
            )
            
            256
            %Loss
                from continuing operations
            
            
            (7,817,510
            )
            
            (2,761,133
            )
            
            183
            %Discontinued
                Operations
            
            
            (57,268
            )
            
            (938,358
            )
            
            -94
            %Net
                loss
            
            
            ($7,874,778
            )
            
            ($3,699,491
            )
            
            113
            %




4




**2004
      Compared to 2003**





**Revenue**





Revenue
      for the years ended December 31, 2004 and 2003 is summarized as
      follows:





2004
            
            2003Nanobac
                Supplements
            
            $
            230,321
            
            $
            0License
                revenue
            
            
            46,800
            
            
            0Nanobac
                TX
            
            
            0
            
            
            407,242Diagnostic
                Products
            
            
            81,240
            
            
            75,573$
            358,361
            
            $
            482,815




During
      December 2003, we voluntarily discontinued offering NanobacTX, which accounted
      for 84% of our revenue for the year ended December 31, 2003. Accordingly, our
      revenue for the first half of 2004 was significantly reduced from the level
      experienced in the last half of 2003. During February 2004, we licensed a new
      product to an affiliated third party. Effective June 2004, the above license
      agreement was cancelled and we initiated sales of this product directly to
      customers under the name of Nanobac Supplements. We are in the process of
      accelerating our research and developing new products for better patient
      acceptance.





Revenue
      for the last quarter of 2004 averaged approximately $45,000 per month. Revenue
      for the year ended December 31, 2003 represents seven months of sales subsequent
      to our acquisition of LABS in June 2003.





**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 28% for the year
      ended December 31, 2004 compared to 69% for the year ended December 31, 2003.
      Cost of revenue for 2003 included $150,000 of fixed lab fees for our diagnostic
      products. Without this fee, our cost of revenue would have been approximately
      38% as a percentage of revenue. This fixed lab fee was eliminated in October
      2003 and replaced with a variable cost structure, which significantly decreased
      cost of revenue.





In
      addition, the lower cost of revenue in 2004 was due in part to the 2004 license
      revenue having no direct costs. During June 2004, this licensing agreement
      was
      terminated and we initiated sales of Nanobac Supplements directly to customers,
      which has resulted in higher revenue and cost of revenue.




5




**2004
      Compared to 2003 (continued)**





**Gross
      Profit**





Gross
      profit as a percentage of revenue was 72%, for the year ended December 31,
      2004
      compared to 31% for the year ended December 31, 2003. The increase in gross
      profit percentage is attributable to the 2004 license revenue having no costs
      and the existence of $150,000 of fixed lab costs in 2003 which were not incurred
      in 2004. We anticipate gross profit as a percentage of revenue to be between
      65%
      and 70% for 2005.





**Selling,
      General and Administrative**





Selling,
      general and administrative (“SG&A”) expenses for the years ended December
      31, 2004 and 2003 are summarized as follows:


**Year
                ended December**2004
            
            2003Charges
                for stock issuances
            
            $
            2,562,750
            
            $
            750,000Other
                SG&A
            
            
            2,203,091
            
            
            1,378,375Total
                SG&A
            
            $
            4,765,841
            
            $
            2,128,375





The
      charges for stock issuances relate to stock issued as part of the Plan of
      Reorganization as confirmed by the Bankruptcy Court. There will be no further
      charges for stock issuances related to this bankruptcy.





For
      2004,
      64% of the Other SG&A expenses are comprised of payroll, travel and
      professional fees. Expenses to operate as a public company (primarily
      professional fees and investor relations costs) comprise an additional 18%
      of
      the remaining SG&A expense. Other significant SG&A expenses include
      facility rental and insurance.





The
      increase in SG&A for the year ended December 31, 2004 over December 31, 2003
      (net of charges for stock issuances) is primarily attributable to the timing
      of
      the acquisition of LABS in June 2003. Only seven months of SG&A for LABS is
      included in the above SG&A expenses for 2003 compared to twelve months of
      expenses in 2004.





SG&A
      expenses for HealthCentrics are included in “Discontinued Operations”.




6





**2004
      Compared to 2003 (continued)**





**Research
      and Development**





For
      the
      year ended December 31, 2004, approximately 65% of research and development
      (“R&D“) expenses are for payroll and medical director fees and approximately
      25% of R&D expenses are for research studies. Expenses for research studies
      fluctuate from year to year as these expenses are dependent on specific
      initiatives and funding sources. Remaining R&D expenses include patents, our
      Finland lab and travel.





R&D
      expenses for the year ended December 31, 2004 increased 340% compared to the
      year ended December 31, 2003. The increase in R&D for the year ended
      December 31, 2004 over December 31, 2003 is primarily attributable to the
      acquisitions of LABS and OY. LABS was acquired in June 2003 and OY was acquired
      in November 2003 and includes our laboratory in Koupio Finland. Accordingly,
      only seven months of R&D for LABS and one and one-half months of R&D for
      OY are included in the above expenses for the year ended December 31, 2003
      compared to twelve months for 2004. This increase also reflects our emphasis
      on
      R&D subsequent to the June 2003 acquisition of LABS. Specific increases
      include increased payroll, initiation of research studies, expansion of our
      patents and $500,000 of signing bonuses with the execution of employment
      agreements for key scientific personnel.





R&D
      expenses for HealthCentrics are included in “Discontinued Operations”. We intend
      to continue to our R&D investment in the coming year.





**Depreciation
      and amortization**





Approximately
      95% of depreciation and amortization are related to the amortization of
      intangible assets acquired in the 2003 and 2004 acquisitions of LABS and OY.





**Other
      income (Expense)**





Other
      income for the years ended December 31, 2004 and 2003 is summarized as
      follows:





2004
            
            2003Interest
                expenseStockholder
                loan
            
            
            ($237,957
            )
            
            ($23,703
            )Other
            
            
            (10,096
            )
            
            (19,231
            )Foreign
                currency exchange gain
            
            
            32,021
            
            
            0Other,
                net
            
            
            (1,095
            )
            
            (17,988
            )($217,127
            )
            
            ($60,922
            )





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.





7




**2004
      Compared to 2003 (continued)**





**Loss
      from continuing operations**





Loss
      from
      continuing operations for the year ended December 31, 2004 was $7.8 million
      compared to $2.8 million for the year ended December 31, 2003. Excluding
      non-cash items for stock issuances and amortization and depreciation, the loss
      from continuing operations for the years ended December 31, 2004 and 2003 were
      as follows:





2004
            
            2003
            
            ChangeLoss
                from continuing operations
            
            
            ($7,817,510
            )
            
            ($2,761,133
            )
            
            ($5,056,377
            )Depreciation
                and amortization
            
            
            717,070
            
            
            181,103
            
            
            535,967Charges
                for stock issuances
            
            
            2,562,750
            
            
            750,000
            
            
            1,812,750Loss
                  from continuing operations
                excluding
                  non-cash items
            
            
            ($4,537,690
            )
            
            ($1,830,030
            )
            
            ($2,707,660
            )





The
      loss
      from continuing operations excluding the above non-cash items increased $2.7
      million for the year ended December 31, 2004 compared to the year ended December
      31, 2003. This increase reflects $1.8 million of additional R&D costs and an
      additional five months of LABS SG&A expenses in 2004 compared to 2003.





The
      loss
      from continuing operations excluding non-cash items is a non-GAAP (Generally
      Accepted Accounting Principles) financial measure. We believe this measure
      is
      relevant for our company as this loss more closely approximates the amount
      of
      cash losses we are experiencing for the above periods. Non-GAAP financial
      measures have inherent, material limitations as compared to the use of GAAP
      financial measures. Non-GAAP financial measures are not defined within GAAP
      used
      in the United States and accordingly the calculation of non-GAAP financial
      measures can be interpreted differently by different sources. In addition,
      non-GAAP financial measures are not comparable to other public company operating
      results.





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.





8




**2004
      Compared to 2003 (continued)**





**Discontinued
      Operations**





During
      October 2003, we decided to divest our HealthCentrics’ business unit to focus
      exclusively on our nanobacteria business unit. We were unsuccessful in finding
      a
      buyer in 2003 for this business unit. During March 2004, this business unit
      was
      sold to an affiliate of our CEO for consideration of $250,000 plus assumption
      of
      net liabilities of approximately $499,000. Our gain on disposal of approximately
      $749,000 is accounted for as a capital contribution given the related party
      nature of the arrangement.





As
      a
      result of our decision to dispose of the HealthCentrics business unit, the
      operations of HealthCentrics were retroactively removed from continuing
      operations and disclosed as a single line item on the statements of operations.
      The loss from discontinued operations for the years ended December 31, 2004
      and
      2003 is summarized as follows:




2004
            
            2003Revenue
            
            $
            5,301
            
            $
            19,970Cost
                of revenue
            
            
            9,208
            
            
            62,570Gross
                profit (loss)
            
            
            (3,907
            )
            
            (42,600
            )Selling,
                general & administrative
            
            
            53,361
            
            
            692,407Research
                and development
            
            
            -
            
            
            203,351Net
                loss
            
            
            ($57,268
            )
            
            ($938,538
            )




9





**Liquidity
      and Capital Resources**





As
      of
      December 31, 2004, we had total assets of $9.7 million of which only $115,000
      were current assets. At December 31, 2004, we had total current liabilities
      of
      $1.3 million and a working capital deficit of $1.2 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”). These loans were made as funding was needed and were extremely
      advantageous to the Company in that the amounts were funded as the Company
      needed financial infusions and allowed the Company to avoid the costs and
      distractions of attempting to raise these amounts from unrelated parties. It
      is
      unrealistic to believe that unrelated parties would have offered terms as
      generous as those obtained from the Affiliated Entities, and it is also unlikely
      that any financing could have been obtained under any terms without the
      financing of the Affiliated Entities.





As
      discussed in Item 5, from time to time the Affiliated Entities have agreed
      to
      allow a portion of the loan balances to be converted into shares of the
      Company’s common stock. On September 30, 2004, $7,500,000 of the loan balance
      was converted into 29,999,964 shares of our common stock at a price of $.25
      per
      share. There is no obligation on the part of the Affiliated Entities to make
      additional loans to the Company. The Affiliated Entities are also under no
      obligation to convert any portion of the loan balances owed to it into
      additional shares of the Company’s stock.





As
      is
      also 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 filed 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,
      a
      registration statement has not yet been filed with the Securities and Exchange
      Commission (“SEC”) and there are no assurances that the SEC will declare a
      registration statement effective.





Net
      cash
      used in operations was $3.4 million for the year ended December 31, 2004. The
      negative cash flow from operations reflects the $7.9 million net loss for the
      year offset by the non-cash charge for common stock issuances of $2.6 million,
      depreciation and amortization of $717,000, interest expense added to the
      principal balance of the stockholder loan of $238,000, and an increase in
      current liabilities of approximately $1.0 million.





10





**Liquidity
      and Capital Resources (continued)**





Net
      cash
      provided by investing activities was approximately $165,000 for the year ended
      December 31, 2004, which reflects the receipt of $200,000 from a common stock
      option exercise related to the acquisition of LABS offset by our purchase of
      fixed assets of approximately $37,000.





Net
      cash
      provided by financing activities was $3.2 million for the year ended December
      31, 2004, which is attributable to stockholder loans of $2.1 million and $1.2
      million from common stock Subscription Agreements as described in the preceding
      paragraphs.





We
      are
      dependent on raising additional funding necessary to implement our business
      plan
      as outlined above. Should we not be successful in raising cash from the
      Affiliated Entities and other investors, we are unlikely to continue as a going
      concern.





**Recent
      Accounting Pronouncements**




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





In
      December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary
      Assets - An Amendment of APB Opinion No. 29.” APB Opinion No. 29,
“Accounting for Nonmonetary Transactions,” is based on the opinion that
      exchanges of nonmonetary assets should be measured based on the fair value
      of
      the assets exchanged. SFAS No. 153 amends Opinion No. 29 to eliminate
      the exception for nonmonetary exchanges of similar productive assets and
      replaces it with a general exception for exchanges of nonmonetary assets whose
      results are not expected to significantly change the future cash flows of the
      entity. The adoption of SFAS No. 153 is not expected to have any impact
      on
      our current financial condition or results of operations.





11




**Recent
      Accounting Pronouncements (continued)**




In
      December 2004, the FASB revised its SFAS No. 123 (“SFAS
      No. 123R”), “Accounting for Stock Based Compensation.” The revision
      establishes standards for the accounting of transactions in which an entity
      exchanges its equity instruments for goods or services, particularly
      transactions in which an entity obtains employee services in share-based payment
      transactions. The revised statement requires a public entity to measure the
      cost
      of employee services received in exchange for an award of equity instruments
      based on the grant-date fair value of the award. That cost is to be recognized
      over the period during which the employee is required to provide service in
      exchange for the award. Changes in fair value during the requisite service
      period are to be recognized as compensation cost over that period. In addition,
      the revised statement amends SFAS No. 95, “Statement of Cash Flows,” to
      require that excess tax benefits be reported as a financing cash flow rather
      than as a reduction of taxes paid. The provisions of the revised statement
      are
      effective for financial statements issued for the first interim or annual
      reporting period beginning after June 15, 2005, with early adoption
      encouraged. We are currently evaluating the impact that this statement will
      have
      on our financial condition or results of operations.




**Critical
      accounting policies**





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





**Contractual
      obligations**




At
      December 31, 2004, 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
            
            OperatingLiability
            
            Leases
            
            TotalLess
                than 1 year
            
            $
            -
            
            $
            174,281
            
            $
            174,2811
                -
                2 years
            
            
            350,000
            
            
            287,633
            
            
            637,6333
                -
                4 years
            
            
            -
            
            
            112,063
            
            
            112,0635
                -
                7 years
            
            
            -
            
            
            27,234
            
            
            27,234Total
            
            $
            350,000
            
            $
            601,211
            
            $
            951,211





12




**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 Dr. Kajander’s theories
      that the human body does not recognize nanobacteria as harmful, and accordingly,
      nanobacteria could be the cause of pathological disease causing calcification
      found in multiple diseases. Assumptions relating to budgeting, marketing,
      product development and other management decisions are subjective in many
      respects and thus susceptible to interpretations and periodic revisions based
      on
      actual experience and business developments, the impact of which may cause
      the
      Company to alter its capital expenditure or other budgets, which may in turn
      affect the Company's financial position and results of operations.





**Risk
      Factors**





**Trends,
      Risks and Uncertainties**





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





**Cautionary
      Factors that may affect Future Results**





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




13




**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
      2004 and 2003, affiliates of our Chief Executive Officer have provided our
      capital needs through loans and capital contributions. While these affiliates
      continue to provide for the majority of our cash requirements, they are under
      no
      obligation to continue such financing and/or strategic guidance. In the event
      these affiliates should discontinue their support, we may have difficulty in
      continuing our operations. In such an event, shareholders could lose their
      investment in its entirety. Historically, these affiliates have provided capital
      to us on a demand debt basis after which they may 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, shareholders may experience
      dilution. At present, we do not maintain key man insurance for our CEO.





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




14




**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, 2004, we have incurred aggregate losses of $13.0
      million. Our net loss for the year ended December 31, 2004 and 2003 was $7.9
      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, our operating results in the future may be subject to significant
      fluctuations due to many factors not within our control, such as the
      unpredictability of when customers will order products, the size of customers'
      orders, the demand for our products, and the level of competition and general
      economic conditions.




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




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





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





**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.




15




**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.




16





**Risk
      Factors (continued)**





**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.





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





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




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





**Risk
      of Third Party Lawsuits** .





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




17





**Risk
      Factors (continued)**





**Government
      Regulation**





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





**Intellectual
      Property Rights**





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





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





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





**Competition**





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





18




**Risk
      Factors (continued)**





**Lack
      of Independent Directors**





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





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





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





**Continued
      Control by Current Officers and Directors**





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




19




**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.




20





**PART
      IV**








**Item
      15.** **Exhibits,
      Financial Statement Schedules and Reports on Form 8-K**





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





(1)
            Financial
                Statements





The
      following Financial Statements are included herein:


**Page
                  Number**ŸReport of Aidman Piser & Company, Independent
                  Auditors
              F-1ŸConsolidated
                  Balance Sheet at December 31, 2004
              F-2ŸConsolidated
                  Statements of Operations for the years ended December 31, 2004
                  and
                  2003
              F-3ŸConsolidated
                  Statements of Stockholders’ Equity (Deficit) for the years ended December
                  31, 2004 and 2003
              F-4ŸConsolidated
                  Statements of Cash Flows for the years ended December 31, 2004
                  and
                  2003
              F-5ŸNotes
                  to
                  Consolidated Financial Statements
              F-6-F-22




(2)
            Financial
                Statement Schedules




Financial
      Statement Schedules have been omitted because they are not applicable or are
      not
      required or the information required to be set forth therein is included in
      the
      consolidated financial statements or notes thereto.





21




**EXHIBIT
      INDEX**


ExhibitNumber
              
              Description23.1
              
              Consent
                  of Aidman, Piser & Company, P.A.31.1
              
              Certification
                  to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive
                  Officer31.2
              
              Certification
                  to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial
                  Officer32.1
              
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002 - Chief Executive
                  Officer32.2
              
              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




22





**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 this 16th day of June, 2005.


**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 June 16, 2005.




**Signature**
            
            **Title**/s/ John
                D. Stanton
              
              John
                D. Stanton
            
            Chairman
                of the Board of Directors
              Chief
                Executive Officer and Chief Financial Officer (Principal Executive
                and
                Financial Officer)/s/ Alexander
                Edwards III
              
              Alexander
                Edwards III
            
            Director/s/
                Jan Egberts
              Jan
                Egberts, M.D.
            
            Director/s/
                Stephan Rechtschaffen
              Stephan
                Rechtschaffen, M.D.
            
            Director/s/
                Michael J Dean
              
              Michael
                J Dean
            
            Vice
                President - Finance and Controller (Principal Accounting
                Officer)





23


Independent
        Auditors’ Report
 Board
        of
        Directors
 Nanobac
        Pharmaceuticals, Incorporated and Subsidiaries
 Tampa,
        Florida
 
 We
        have
        audited the accompanying consolidated balance sheet of Nanobac Pharmaceuticals,
        Incorporated and Subsidiaries (F/K/A American Enterprise Corporation) (the
        “Company”), as of December 31, 2004, and the related consolidated statements of
        operations, stockholders’ deficit and cash flows for the two years then ended.
        These financial statements are the responsibility of the Company’s management.
        Our responsibility is to express an opinion on these financial statements
        based
        on our audits.
 
 We
        conducted our audit in accordance with standards of the Public 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, 2004, and
        the
        consolidated results of their operations and their cash flows for the two
        years
        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 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 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.
  /s/ Aidman, Piser & Company,
                  P.A.
  April
        12,
        2005, except for Note 1, for which
 the
        date
        is June 10, 2005
 Tampa,
        Florida
  F-1




**NANOBAC
                  PHARMACEUTICALS INCORPORATEDAND
                  SUBSIDIARIES****CONSOLIDATED
                  BALANCE SHEET**December
                  31, 2004**ASSETS****CURRENT
                  ASSETS**Cash
              
              $
              17,908Account
                  receivable
              
              
              3,395Inventory
              
              
              70,571Prepaid
                  expenses
              
              
              23,649Total
                  current assets
              
              
              115,523**FIXED
                  ASSETS,**less
                  accumulated depreciation
                of
                  $84,143
              
              
              124,995**OTHER
                  ASSETS**Security
                  deposits
              
              
              68,054Intangible
                  assets, less accumulated amortization
                of
                  $832,701
              
              
              5,760,342Goodwill
              
              
              3,615,393**Total
                  other assets**
              
              
              9,443,789**TOTAL
                  ASSETS**
              
              $
              9,684,307**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              645,491Accrued
                  compensation
              
              
              50,611Accrued
                  expenses
              
              
              335,861Short-term
                  note payable
              
              
              62,379Other
                  liabilities
              
              
              16,423Stockholder
                  loans
              
              
              194,068**Total
                  current liabilities**
              
              
              1,304,833**LONG-TERM
                  LIABILITIES**Accrued
                  compensation
              
              
              350,000Stock
                  settlement liability
              
              
              1,918,630**Total
                  liabilities**
              
              
              3,573,463**COMMITMENTS
                  AND CONTINGENCY (Notes 9, 11 and 13)**
              
              
              -**STOCKHOLDERS'
                  EQUITY**Common
                    stock, no par value, 250,000,000 shares authorized,
                  187,240,093
                    shares issued and outstanding
              
              
              16,296,550Preferred
                    stock, no par value, 1,000,000 shares authorized,
                  no
                    shares issued and outstanding
              
              
              -Additional
                  paid-in capital
              
              
              3,539,328Accumulated
                  deficit
              
              
              (13,049,568
              )Accumulated
                  other comprehensive loss
              
              
              (675,466
              )**Total
                  stockholders' equity**
              
              
              6,110,844**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              9,684,307
  The
        accompanying notes are an integral part of these financial
        statements
  F-2


**NANOBAC
                PHARMACEUTICALS INCORPORATED AND
                SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF OPERATIONS**Year
            
            Yearended
            
            endedDecember
                31, 2004
            
            December
                31, 2003**REVENUE**
            
            $
            358,361
            
            $
            482,815**COST
                OF REVENUE**
            
            
            100,470
            
            
            333,122**GROSS
                PROFIT**
            
            
            257,891
            
            
            149,693**OPERATING
                EXPENSES**Sales,
                general and administrative
            
            
            4,765,841
            
            
            2,128,375Research
                and development
            
            
            2,375,363
            
            
            540,426Depreciation
                and amortization
            
            
            717,070
            
            
            181,103**Total
                Operating Expenses**
            
            
            7,858,274
            
            
            2,849,904**OPERATING
                LOSS**
            
            
            (7,600,383
            )
            
            (2,700,211
            )**OTHER
                INCOME (EXPENSES)**Interest
                expense
            
            
            (248,053
            )
            
            (42,934
            )Foreign
                currency exchange gain
            
            
            32,021
            
            
            -Other,
                net
            
            
            (1,095
            )
            
            (17,988
            )**LOSS
                FROM CONTINUING OPERATIONS**
              **BEFORE
                INCOME TAXES**
            
            
            (7,817,510
            )
            
            (2,761,133
            )**PROVISION
                FOR INCOME TAXES**
            
            
            -
            
            
            -**LOSS
                FROM CONTINUING OPERATIONS**
            
            
            (7,817,510
            )
            
            (2,761,133
            )**DISCONTINUED
                OPERATIONS:**Loss
                from discontinued operations (no
              applicable
                income taxes)
            
            
            (57,268
            )
            
            (938,358
            )**NET
                LOSS**
            
            $
            (7,874,778
            )
            $
            (3,699,491
            )**LOSS
                PER COMMON SHARE (BASIC AND DILUTED):**Continuing
                operations
            
            $
            (0.05
            )
            $
            (0.04
            )Discontinued
                operations
            
            
            0.00
            
            
            (0.01
            )Net
                loss
            
            $
            (0.05
            )
            $
            (0.05
            )**WEIGHTED
                  AVERAGE NUMBER OF**
                COMMON
                  SHARES OUTSTANDINGBasic
                and Diluted
            
            
            152,903,084
            
            
            67,489,524




The
      accompanying notes are an integral part of these
      financial statements




F-3




**NANOBAC
                  PHARMACEUTICALS INCORPORATED AND
                  SUBSIDIARIES****CONSOLIDATED
                  STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)****FOR
                  THE YEARS ENDED DECEMBER 31, 2003 AND 2004****Accumulated****Additional**
              
              **Due
                  from**
              
              
              
              **Other**
              
              **Other****Common**
              
              **Stock**
              
              **Preferred**
              
              **Stock**
              
              **Paid-in**
              
              **Option**
              
              **Accumulated**
              
              **Comprehensive**
              
              **Comprehensive****Shares**
              
              **Value**
              
              **Shares**
              
              **Value**
              
              **Capital**
              
              **Exercise**
              
              **Deficit**
              
              **Loss**
              
              **Loss**
              
              **Total**December
                  31, 2002 Balance
              
              
              19,982,965
              
              $
              1,134,377
              
              
              368,815
              
              $
              -
              
              $
              -
              
              $
              -
              
              
              ($1,475,299
              )
              $
              -
              
              $
              -
              
              
              ($340,922
              )Conversion
                  of preferred stockto
                  common stock
              
              
              16,268,430
              
              
              -
              
              
              (368,815
              )
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              0Stock
                  issued in connectionwith
                  bankruptcy
              
              
              23,335,445
              
              
              399,516
              
              
              794,569
              
              
              350,484
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              750,000Stock
                  issues for services
              
              
              50,000
              
              
              30,175
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              30,175Conversion
                  of liabilities toshares
                  of common stock
              
              
              3,644,000
              
              
              728,800
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              728,800Sale
                  of common stock(see
                  Notes 1 and 10)
              
              
              1,690,000
              
              
              548,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              548,000Common
                  stock issued inacquisition
                  of NanobacLabsPharmaceuticals,
                  Inc.
              
              
              34,998,000
              
              
              1,392,920
              
              
              -
              
              
              -
              
              
              -
              
              
              (200,000
              )
              
              -
              
              
              -
              
              
              -
              
              
              1,192,920Comprehensive
                  loss:Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,699,491
              )
              
              (3,699,491
              )
              
              -
              
              
              (3,699,491
              )Foreign
                  currency translationadjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (15,638
              )
              
              (15,638
              )
              
              (15,638
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,715,129
              )**Balance,
                  December 31, 2003**
              
              
              **99,968,840**
              
              **$**
              **4,233,788**
              
              
              **794,569**
              
              **$**
              **350,484**
              
              **$**
              **-**
              
              **$**
              **(200,000**
              **)**
              **$**
              **(5,174,790**
              **)**
              
              
              
              **$**
              **(15,638**
              **)**
              **$**
              **(806,156**
              **)**Conversion
                  of preferred stockto
                  common stock
              
              
              35,048,445
              
              
              350,484
              
              
              (794,569
              )
              
              (350,484
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Cash
                  received fromoption
                  exercise
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              200,000
              
              
              -
              
              
              -
              
              
              -
              
              
              200,000Stock
                  issued in connectionwith
                  bankruptcy
              
              
              4,500,000
              
              
              2,562,750
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,562,750Common
                  stock issued inacquisition
                  of Nanobac OY
              
              
              5,000,000
              
              
              4,267,500
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,267,500Capital
                  contributionassociated
                  with salesubsidiary
                  to affiliate
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              749,327
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              749,327Conversion
                  of liabilities toshares
                  of common stock
              
              
              32,097,808
              
              
              4,882,028
              
              
              -
              
              
              -
              
              
              2,887,501
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              7,769,529Sale
                  of common stock
              
              
              10,625,000
              
              
              -
              
              
              -
              
              
              -
              
              
              (97,500
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (97,500
              )Comprehensive
                  loss:Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (7,874,778
              )
              
              (7,874,778
              )
              
              -
              
              
              (7,874,778
              )Foreign
                  currency translationadjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (16,198
              )
              
              (16,198
              )
              
              (16,198
              )Derivative
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (643,630
              )
              
              (643,630
              )
              
              (643,630
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (8,534,606
              )**Balance,
                  December 31, 2004**
              
              
              **187,240,093**
              
              **$**
              **16,296,550**
              
              
              **-**
              
              **$**
              **-**
              
              **$**
              **3,539,328**
              
              **$**
              **-**
              
              **$**
              **(13,049,568**
              **)**
              
              
              
              **$**
              **(675,466**
              **)**
              **$**
              **6,110,844**




The
      accompanying notes are an integral part of these
      financial statements




F-4




**NANOBAC
                  PHARMACEUTICALS INCORPORATEDAND
                  SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS**Year
              
              Yearended
              
              endedDecember
                  31, 2004
              
              December
                  31, 2003**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  Loss
              
              $
              (7,874,778
              )
              $
              (3,699,491
              )Adjustments
                  to reconcile net loss to cashflows
                  from operating activities:Depreciation
                  and amortization
              
              
              717,070
              
              
              181,103Loss
                  on disposition of assets
              
              
              -
              
              
              7,659Charges
                  from common stock issuances
              
              
              2,562,750
              
              
              780,175Minority
                  interest in net loss
              
              
              -
              
              
              (3,545
              )Interest
                  expense added to stockholder loan
              
              
              237,958
              
              
              -Net
                  (increase) decrease in assets:Accounts
                  receivable
              
              
              2,370
              
              
              9,125Inventory
              
              
              (54,360
              )
              
              67,286Other
                  assets
              
              
              (8,769
              )
              
              78,383Net
                  increase (decrease) in liabilities:Accounts
                  payable
              
              
              530,196
              
              
              278,107Accrued
                  compensation
              
              
              464,768
              
              
              46,658Accrued
                  expenses
              
              
              10,628
              
              
              99,218Deferred
                  revenue
              
              
              16,423
              
              
              -Total
                  adjustments
              
              
              4,479,034
              
              
              1,544,169**Net
                  cash flows from operating activities**
              
              
              (3,395,744
              )
              
              (2,155,322
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Acquisition
                  of fixed assets
              
              
              (36,765
              )
              
              (18,157
              )Security
                  deposits
              
              
              2,500
              
              
              (2,932
              )Acquisition
                  of subsidiary, net of cash received
              
              
              (901
              )
              
              (81,022
              )Cash
                  received from exercise of stock option in subsidiary
              
              
              200,000
              
              
              300,000**Net
                  cash flows from investing activities**
              
              
              164,834
              
              
              197,889**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Advances
                  from line of credit, net
              
              
              -
              
              
              (36,453
              )Proceeds
                  from issuance of common stock andstock
                  subscription agreements, net of expenses
              
              
              1,177,500
              
              
              548,000Proceeds
                  from stockholder loans, net
              
              
              2,066,091
              
              
              1,997,467Payment
                  of notes payable, net
              
              
              (27,621
              )
              
              (486,188
              )**Net
                  cash flows from financing activities**
              
              
              3,215,970
              
              
              2,022,826**Effect
                  of exchange rate changes**
              
              
              (16,907
              )
              
              (15,638
              )Net
                  change in cash
              
              
              (31,847
              )
              
              49,755Cash
                  balance, beginning of period
              
              
              49,755
              
              
              -**Cash
                  balance, end of period**
              
              $
              17,908
              
              $
              49,755**Supplemental
                  disclosures of cash flow information:**Cash
                  paid for interest expense
              
              $
              10,095
              
              $
              42,934**Supplemental
                  schedule of non-cash investing and financing
                  activities:**Common
                  stock issued in acquisition
              
              $
              4,267,500
              
              $
              1,392,920Common
                  stock issued for the conversion of debt
              
              $
              7,769,529
              
              $
              728,800Stockholder
                  loan used for acquisition
              
              $
              -
              
              $
              4,071,342Capital
                  contribution associated with sale of subsidiary to
                  affiliateReduction
                  in stockholder loan
              
              $
              250,000
              
              $
              -Assumption
                  of accounts payable and accrued expenses
              
              $
              499,327
              
              $
              -




The
      accompanying notes are an integral part of these
      financial statements




F-5


NANOBAC
          PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
          ENDED DECEMBER 31, 2004 AND 2003


**1** . **Nature
        of operations and summary of significant accounting
        polices**
 
 **Nature
        of business**
 
 Nanobac
        Pharmaceuticals, Incorporated and subsidiaries, ("Nanobac”, the "Company", or
        "NNBP") trades under the symbol "NNBP."
 
 NNBP’s
        primary business is the study and development of therapeutic and diagnostic
        technologies related to nanobacterium sanguineum (“Nanobacteria”). Nanobacteria
        are believed to be small, slowly growing nano-particles that can be found
        in
        human blood, kidney stones and arterial wall plaques.
 
 **Principles
        of Consolidation**
 
 The
        consolidated financial statements include the accounts of the Company and
        its
        wholly-owned subsidiaries. All material intercompany transactions and balances
        have been eliminated in consolidation. On June 4, 2003, the Company acquired
        a
        majority interest in NanobacLabs Pharmaceuticals, Inc. and on November 11,
        2003,
        the Company acquired 65% of Nanobac OY (see Note 2, “Acquisitions”). In
        accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141,
“Business Combinations”, NNBP has included the results of operations of LABS
        from June 4, 2003 and the results of operations of OY from November 11, 2003.
 
 Where
        losses applicable to the minority interest in a subsidiary exceed the minority
        interest in the equity capital of the subsidiary, such excess and any further
        losses applicable to the minority interest shall be charged against the majority
        interest, as there is no obligation of the minority interest to make good
        such
        losses.
  **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, 2004. The Company is
        dependent on the continued financing from outside investors including additional
        shareholder loans. All of these matters raise substantial doubt about the
        ability of the Company to continue as a going concern. Management believes
        that
        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
        shareholders. At this time, there are no firm commitments to invest in NNBP.
        If
        NNBP is unable to obtain such financing, the business might not attain
        profitability.
 
 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 is recorded
        net of
        reserves for estimated discounts and incentives.
 
 F-6
 NANOBAC
              PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
              ENDED DECEMBER 31, 2004 AND 2003
 **1.
        Nature of operations and summary of significant accounting polices
        (continued)**
 
 **Financial
        instruments**
 
 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.
 
 **Inventory**
 
 Inventory
        is stated at the lower of cost or market. Cost is determined in a manner
        which
        approximates the first-in, first-out (FIFO) method. Inventory consists of
        raw
        materials for currently marketed products and materials and processing costs
        for
        antibodies and antigens used in our Finland laboratory. Inventory is shown
        net
        of applicable reserves and allowances. Shipping costs are expensed as incurred
        and are included in cost of revenue.
 
 **Fixed
        Assets**
 
 Fixed
        assets consist of furniture, fixtures, computers and lab equipment and are
        recorded at cost. Fixed assets are depreciated using the straight-line method
        over the estimated useful lives of three to seven years.
 
 **Intangible
        assets and goodwill**
 
 Intangible
        assets are recorded at cost, less accumulated amortization. Intangible assets
        consist of acquired technology rights obtained in the acquisition of LABS
        and OY
        (see Note 2). Amortization of intangible assets is provided over the following
        estimated useful lives on a straight-line basis:
 
 Patents      12
        years
 Product
        rights     5 years
 
 In
        accordance with Statement of Financial Accounting Standards No. 142, “Goodwill
        and Other Intangible Assets” (“SFAS No. 142”), and Statement of Financial
        Accounting Standards, No. 144, “Accounting for the Impairment or Disposal of
        Long-Lived Assets” (“SFAS No. 144”), the Company reviews its non-amortizable
        long-lived assets, including intangible assets and goodwill for impairment
        annually, or sooner whenever events or changes in circumstances indicate
        the
        carrying amounts of such assets may not be recoverable. Other depreciable
        or
        amortizable assets are reviewed when indications of impairment exist. 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, appraised values for management’s estimates, depending upon the nature or
        the assets. Impairment within goodwill is tested using a two step method.
        The
        first step is to compare the fair value of the reporting unit to its book
        value,
        including goodwill. If the fair value of the unit is less than its book value,
        the Company than 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. The Company’s
        goodwill and intangible assets relate to the acquisition of NanobacLabs
        Pharmaceuticals, Inc. and Nanobac OY. Goodwill
        and intangible asset amortization is not deductible for income tax purposes.
  F-7
 NANOBAC
            PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
            ENDED DECEMBER 31, 2004 AND 2003
 **1.
        Nature of operations and summary of significant accounting polices
        (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.
 
 **Net
        loss per share**
 
 Net
        loss
        per share represents the net loss attributable to common stockholders divided
        by
        the weighted average number of common shares outstanding during the period.
        The
        effect of incremental shares from common stock equivalents is not included
        in
        the calculation of net loss per share as the inclusion of such common stock
        equivalents would be anti-dilutive. Accordingly, fully dilutive shares
        outstanding equal basic shares outstanding as of December 31, 2004 and 2003.
 
 F-8
 NANOBAC
            PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
            ENDED DECEMBER 31, 2004 AND 2003
 **1.
        Nature of operations and summary of significant accounting polices
        (continued)**
 
 **Accumulated
        Other Comprehensive Loss**
 
 Accumulated
        other comprehensive loss consists of derivative loss from derivative financial
        instruments and foreign currency translation adjustment related to our Finland
        operations. Accumulated other comprehensive income has no applicable income
        tax.
 
 **Derivative
        financial instruments**
  The
        Company accounts for derivative financial instruments indexed to and potentially
        settled in, its own stock in accordance with Emerging Issues Task Force 00-19,
        which provides that if the number of shares deliverable in a transaction
        be
        indeterminable, that said shares be presented as a liability in the balance
        sheet.  Further, the liability is to be measured at fair value until
        such
        time as the obligation is settled.  The shares issued in connection
        with
        the 2004 Subscription Agreement transactions discussed in Note 10 are derivative
        transactions and as such have been presented in the accompanying balance
        sheets
        as liabilities and other comprehensive income (loss).  The other
        comprehensive income (loss) component represents the difference in the share
        value as issued and the value of said shares at the balance
        sheet date based on the trading value of the stock at
        December
        31, 2004.  At settlement, other comprehensive income (loss) will be
        charged
        to retained earnings as a constructive dividend.
 
 **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.
 
 **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.
 
 F-9
 NANOBAC
              PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
              ENDED DECEMBER 31, 2004 AND 2003
 **1.
        Nature of operations and summary of significant accounting polices
        (continued)**
 
 **Recent
        accounting pronouncements**
 
 In
        November 2004, the FASB issued SFAS No. 151, “Inventory Costs.” The
        statement amends Accounting Research Bulletin (“ARB”) No. 43, “Inventory
        Pricing,” to clarify the accounting for abnormal amounts of idle facility
        expense, freight, handling costs, and wasted material. ARB No. 43 previously
        stated that these costs must be “so abnormal as to require treatment as
        current-period charges.” SFAS No. 151 requires that those items be
        recognized as current-period charges regardless of whether they meet the
        criterion of “so abnormal.” In addition, this statement requires that allocation
        of fixed production overhead to the costs of conversion be based on the normal
        capacity of the production facilities. The statement is effective for inventory
        costs incurred during fiscal years beginning after June 15, 2005,
        with
        earlier application permitted for fiscal years beginning after the issue
        date of
        the statement. The adoption of SFAS No. 151 is not expected to have
        any
        significant impact on the Company’s current financial condition or results of
        operations.
 
 In
        December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary
        Assets - An Amendment of APB Opinion No. 29.” APB Opinion No. 29,
“Accounting For Nonmonetary Transactions,” is based on the opinion that
        exchanges of nonmonetary assets should be measured based on the fair value
        of
        the assets exchanged. SFAS No. 153 amends Opinion No. 29 to
        eliminate
        the exception for nonmonetary exchanges of similar productive assets and
        replaces it with a general exception for exchanges of nonmonetary assets
        whose
        results are not expected to significantly change the future cash flows of
        the
        entity. The adoption of SFAS No. 153 is not expected to have any impact
        on
        the Company’s current financial condition or results of operations.
 
 In
        December 2004, the FASB revised its SFAS No. 123 (“SFAS
        No. 123R”), “Accounting for Stock Based Compensation.” The revision
        establishes standards for the accounting of transactions in which an entity
        exchanges its equity instruments for goods or services, particularly
        transactions in which an entity obtains employee services in share-based
        payment
        transactions. The revised statement requires a public entity to measure the
        cost
        of employee services received in exchange for an award of equity instruments
        based on the grant-date fair value of the award. That cost is to be recognized
        over the period during which the employee is required to provide service
        in
        exchange for the award. Changes in fair value during the requisite service
        period are to be recognized as compensation cost over that period. In addition,
        the revised statement amends SFAS No. 95, “Statement of Cash Flows,” to
        require that excess tax benefits be reported as a financing cash flow rather
        than as a reduction of taxes paid. The provisions of the revised statement
        are
        effective for financial statements issued for the first interim or annual
        reporting period beginning after June 15, 2005, with early adoption
        encouraged. The Company is currently evaluating the impact that this statement
        will have on its financial condition or results of operations.
 
 **Reclassifications**
 
 Certain
        prior year amounts have been reclassified to conform to the current year
        presentation.
 
 F-10
 NANOBAC
            PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
            ENDED DECEMBER 31, 2004 AND 2003
 **2.
        Acquisitions**
 
 **NanobacLabs
        Pharmaceuticals, Inc.**
 
 On
        June
        4, 2003, NNBP acquired approximately 74.4% of LABS in exchange for 24,400,000
        restricted shares of NNBP. From June 5, 2003 through December 31, 2003, NNBP
        acquired the remaining 25.6% of LABS from various stockholders in exchange
        for
        6,598,000 restricted shares and additional consideration (in addition, see
        Note
        10 for stock issued in connection with bridge funding for this acquisition).
 
 The
        total
        consideration for LABS was approximately $5.5 million, which included
        the
        fair value of NNBP common stock issued, as well as direct transaction costs. The
        following table summarizes the estimated fair values of the assets acquired
        and
        liabilities assumed as of the acquisition date:
 
 Current
                  assets
              
              $
              895,058Investment
                  in OY
              
              
              693,778Fixed
                  assets
              
              
              113,651Identifiable
                  intangible assets
              
              
              1,350,000Goodwill
              
              
              3,615,393Other
                  assets
              
              
              62,500Current
                  liabilities
              
              
              (768,280
              )Note
                  payable
              
              
              (486,188
              )$
              5,475,912
  Acquired
        identifiable intangible assets consist of product rights for the treatment
        of
        Nanobacteria. The
        allocation of the purchase price was based, in part, on third-party valuations
        of the fair values of identifiable intangible assets. Amortization
        of this asset commenced as of the acquisition date.
 F-11
 NANOBAC
          PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
          ENDED DECEMBER 31, 2004 AND 2003
  **2.
        Acquisitions (continued)**
 
 **Nanobac
        OY**
 
 Nanobac
        OY is a Finnish company that performs similar research to that of the Company
        in
        nanobacteria infection. On September 25, 2002, LABS entered into an agreement
        to
        purchase 27% of Nanobac OY stock from three Finnish entities for 11,430 Euros.
        A
        separate agreement also required LABS to acquire convertible promissory notes
        in
        Nanobac OY in the amount of 686,000 Euros plus interest. On November 11,
        2003,
        NNBP completed the acquisition of Nanobac OY when the final payment was made
        and
        the Company exercised the conversion option in the convertible promissory
        notes.
        Upon the conclusion of this transaction, the Company owned 65% of OY.
  During
        January through March 2004, NNBP acquired the remaining 35% of Nanobac OY
        from
        Dr. Kajander and Dr. Ciftcioglu (“OY Minority Shareholders”). The purchase price
        was (a) 5 million shares of NNBP’s common stock, (b) 5 million warrants
        convertible into NNBP’s common stock at $.005 per share and (c) cash
        consideration of 15,000 Euros. Total consideration to the OY Minority
        Stockholders is valued at $4.3 million.
  The
        total
        consideration to date for OY is $5.1 million, which included cash payments
        (made
        before and after the acquisition of LABS), the fair value of NNBP common
        stock
        issued, as well as direct transaction costs. The
        following table summarizes the estimated fair values of the assets acquired
        and
        liabilities assumed as of the acquisition date:
  Current
                  assets
              
              $
              37,534Fixed
                  assets
              
              
              29,286Identifiable
                  intangible assets
              
              
              5,243,048Other
                  assets
              
              
              4,731Current
                  liabilities
              
              
              (11,884
              )Advances
                  from Nanobac
              
              
              (228,119
              )$
              5,074,596
 
 Acquired
        identifiable intangible assets consist of patents for the detection and
        treatment of Nanobacteria. The
        allocation of the purchase price was based, in part, on third-party valuations
        of the fair values of identifiable intangible assets. Amortization
        of this asset commenced as of the acquisition date.
  In
        addition, as part of the above agreement, the OY Minority Shareholders agreed
        to
        employment agreements with NNBP. These agreements included $500,000 of signing
        bonuses of which $150,000 was paid in 2004 and the remaining $350,000 (earned
        upon certain triggering events that occurred in 2004) is payable two years
        from
        the agreement dates (January and March 2006) and is included in long-term
        liabilities.
  F-12
 NANOBAC
              PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
              ENDED DECEMBER 31, 2004 AND 2003
 **2.
        Acquisitions (continued)**
 
 The
        following unaudited table compares NNBP’s reported operating results to pro
        forma information prepared on the basis that the above acquisitions had taken
        place at January 1, 2003. In management’s opinion, the unaudited pro forma
        combined results of operations are not indicative of the actual results that
        would have occurred had the acquisitions been consummated at the beginning
        of
        2003 or 2004 or of future operations of the combined companies under the
        ownership and management of NNBP.
 
 Year
                  ended December 31,2004
              
              2003As
                  ReportedRevenue
              
              $
              358,361
              
              $
              482,815Net
                  loss
              
              $
              (7,874,778
              )
              $
              (3,699,491
              )Basic
                  loss per share
              
              $
              (0.05
              )
              $
              (0.05
              )Diluted
                  loss per share
              
              $
              (0.05
              )
              $
              (0.05
              )ProformaRevenue
              
              $
              358,361
              
              $
              1,183,210Net
                  loss
              
              $
              (7,911,923
              )
              $
              (5,518,739
              )Basic
                  loss per share
              
              $
              (0.05
              )
              $
              (0.06
              )Diluted
                  loss per share
              
              $
              (0.05
              )
              $
              (0.06
              )
 
 **3.
        Discontinued Operations**
 
 During
        October 2003, NNBP decided to divest its HealthCentrics business unit to
        focus
        exclusively on its nanobacteria business unit. NNBP was unsuccessful in finding
        a non-affiliated buyer for this business unit. During March 2004, this business
        unit was sold to an affiliate of the current CEO for consideration of $250,000
        (a reduction in amounts otherwise owed to the affiliate). NNBP’s gain on
        disposal was $749,326, which is accounted for as a capital contribution given
        the related party nature of the arrangement. Summary operating results for
        the
        discontinued operations for the years ended December 31, 2004 and 2003 are
        as
        follows:
 2004
                
                2003Revenue
                
                $
                5,301
                
                $
                19,970Loss
                    before income taxes
                
                
                ($
                    57,268
                )
                
                ($
                    938,358
                )Provision
                    for income taxes
                
                
                --
                
                
                --Net
                    loss
                
                
                ($
                    57,268
                )
                
                ($
                    938,358
                )
 F-13
 NANOBAC
            PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
            ENDED DECEMBER 31, 2004 AND 2003
  **4.
        Fixed Assets**
 
 Fixed
        assets at December 31, 2004 are summarized as follows: ****
  Dec
                  2004Computer
                  equipment
              
              $
              44,683Computer
                  software
              
              
              17,982Lab
                  equipment
              
              
              49,008Office
                  equipment
              
              
              20,769Furniture
                  and fixtures
              
              
              21,729Leasehold
                  improvements
              
              
              54,967209,138Accumulated
                  Depreciation
              
              
              (84,143
              )$
              124,995
 
 Depreciation
        expense for the years ended December 31, 2004 and 2003 was $47,295 and $18,177,
        respectively.
 
 **5.
        Intangible Assets**
 
 Intangible
        assets as of December 31, 2004 are summarized as follows:
 Product
                    rights
                
                $
                1,350,000Patents
                
                
                5,243,0436,593,043Accumulated
                    amortization
                
                
                (832,701
                )$
                5,760,342
 Amortization
        expense for the years ended December 31, 2004 and 2003 was $669,775 and
        $162,926, respectively. Expected future amortization is summarized as
        follows:
 
 Year
                    ending December 31,2005
                
                $
                706,9202006
                
                
                706,9202007
                
                
                706,9202008
                
                
                549,4202009
                
                
                436,920Thereafter
                
                
                2,653,242$
                5,760,342
 F-14
 NANOBAC
          PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
          ENDED DECEMBER 31, 2004 AND 2003
  **6.
        Accrued Expenses**
 
 Accrued
        expenses as of December 31, 2004 are summarized as follows:
 
 Accrued
                  professional fees
              
              $
              79,500Royalty
              
              
              150,479Employee
                  expense reports
              
              
              19,843Payroll
                  taxes and benefits
              
              
              18,507Other
              
              
              67,532$
              335,861
 
 **7.
        Segment Information**
 
 With
        the
        disposition of its HealthCentrics business unit (see Note 3), NNBP operates
        a
        single business segment. Geographic information is summarized as
        follows:
 
 Year
                  ended December 31,2004
              
              2003RevenueUnited
                  States
              
              $
              343,444
              
              $
              472,735Finland
              
              
              14,917
              
              
              10,080$
              358,361
              
              $
              482,815AssetsUnited
                  States
              
              $
              3,281,026Finland
              
              
              6,403,281$
              9,684,307
 
 The
        geographic classification of revenue was based upon the domicile of the entity
        from which the revenues were earned. Approximately 98% of Finland assets
        relate
        to patents recorded as a result of the acquisition of OY (see Note 2).
 F-15
 NANOBAC
          PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
          ENDED DECEMBER 31, 2004 AND 2003
  **8.
        Income taxes**
 
 There
        was
        no current or deferred provision or benefit for income taxes for the years
        ended
        December 31, 2004 and 2003. The components of deferred tax asset as of December
        31, 2004 and 2003 are as follows:


2004
                
                2003Deferred
                    tax asset:Net
                    operating loss carryforwards
                
                $
                3,690,000
                
                $
                2,487,000Valuation
                    allowance
                
                
                (3,690,000
                )
                
                (2,487,000
                )Deferred
                    tax asset net of valuation allowance
                
                $
                -
                
                $
                -
  As
        of
        December 31, 2004, the Company had approximately $9.1 million of net operating
        loss carryovers which expire between 2016 and 2024.
 
 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 from continuing operations before income taxes and minority
        interest:
 
 2004
              
              2003Statutory
                  tax benefit
              
              $
              2,756,000
              
              $
              967,000State
                  taxes, net of federal benefit
              
              
              309,000
              
              
              72,000Nondeductible
                  expense for commonstock
                  issued for services
              
              
              (999,000
              )
              
              (292,000
              )Amortization
                  of intangible assets
              
              
              (261,000
              )
              
              (57,000
              )Nontaxable
                  income in connectionwith
                  HealthCentrics' disposition
              
              
              305,000
              
              
              -Increase
                  in valuation allowance
              
              
              (2,116,000
              )
              
              (715,000
              )Other,
                  net
              
              
              6,000
              
              
              25,000Provision
                  for taxes
              
              $
              -
              
              $
              -
 
 Changes
        in the valuation allowance during the year ended December 31, 2004 were as
        follows:
 
 Valuation
                  allowance, beginning of year
              
              $
              2,487,000Discontinued
                  operations
              
              
              (913,000
              )Increase
                  from continuing operations
              
              
              2,116,000Valuation
                  allowance, end of year
              
              $
              3,690,000
 
 F-16
 NANOBAC
              PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
              ENDED DECEMBER 31, 2004 AND 2003
 **9.
        Related Party Transactions**
 
 Stockholder
        Loan
 
 An
        entity
        controlled by the Chief Executive Officer (who is also the largest stockholder
        of NNBP), had loaned NNBP approximately $8.2 million from June 2003 through
        December 2004. This loan had interest at 5% and is due on demand. On September
        30, 2004, $7.5 million of the above loan was converted into 29,999,964 shares
        of
        the Company’s common stock. On December 13, 2004 an additional $500,000 of the
        above loan was converted into 4,166,667 shares of the of the Company’s common
        stock, which is included in the Stock Settlement Liability at December 31,
        2004
        (see Note 10). The remaining loan balance at December 31, 2004 was approximately
        $194,000.
 
 Interest
        expense for the above loans for the years ended December 31, 2004 and 2003
        was
        approximately $238,000 and $23,000, respectively.
 
 Short-Term
        Notes Payable
 
 Short-term
        notes payable consist of unsecured advances from employees of the Company.
        These
        notes bear interest at 5% and are due on demand.
 
 Conversion
        of Debt into Equity
 
 During
        August 2004, an employee and minority stockholder (less than 5% ownership
        of the
        Company) converted an $111,000 liability due from the Company into 923,458
        shares of the Company’s common stock.
 
 License
        Agreement
 
 During
        February 2004, NNBP entered into a licensing agreement with Pegasus Worldwide,
        Inc. (“Pegasus”) to market one of NNBP's over the counter products. NNBP’s Chief
        Executive Officer is a director of Pegasus. Under the terms of the license
        agreement, NNBP was due $75 for each unit of product sold. For the year ended
        December 31, 2004, NNBP recognized revenue of $46,800 under this license
        agreement. Effective June 1, 2004, this license agreement was cancelled and
        NNBP
        is selling this product directly to customers.
 
 Royalty
        Agreement
 
 The
        Company was a party to a royalty agreement with the former majority owner
        of
        LABS who, along with his spouse, own approximately 24.4 million common shares
        of
        NNBP. Under the terms of the royalty agreement, this stockholder would receive
        an annual fee of $50,000 plus ten percent of gross sales from applicable
        products. On March 16, 2004, the U.S. Patent Office printed Patent 6,706,290
        “Methods for Eradication of Nanobacteria”. With the approval of this patent,
        management believes that the above royalty agreement is not valid and no
        amounts
        will ultimately be due under the above royalty agreement.
 
 F-17
 NANOBAC
              PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
              ENDED DECEMBER 31, 2004 AND 2003
 **10** **.
        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.
 
 **Common
        stock, preferred stock and warrant issuances**
 
 During
        2004, creditors of the Company converted $7.8 million of liabilities into
        32,097,808 shares of the Company’s common stock as follows:
  Shareholder
                    loan (Note 9)
                
                
                29,999,964
                
                $
                7,499,990Employee
                    (Note 9)
                
                
                923,458
                
                
                110,815Unaffiliated
                    vendors
                
                
                1,174
                    385
                
                
                158,72432,097,807
                
                $
                7,769,529
  During
        2004, the Company issued 5.0 million shares of its common stock and 5.0 million
        warrants with an exercise price of $0.005 per share in connection with the
        acquisition of the minority interest in OY (see Note 2). The value of these
        stock and stock equivalent issuances was $4.3 million.
 
 From
        August 2004 through November 2004, the Company entered into Subscription
        Agreements with two unaffiliated investors. Under the terms of the Subscription
        Agreements, the Company received cash of $677,500 (net of $97,500 of expenses)
        during the year ended December 31, 2004. The Company is to receive additional
        cash of $775,000 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”). These amounts are classified as Stock
        Settlement Liability at December 31, 2004. In addition, the Subscription
        Agreements provide for the issuance of warrants equal to the number of common
        shares issued. Fifty percent (50%) of the warrants are exercisable at 110%
        of
        the Fixed Price and the remaining 50% of the warrants are exercisable at
        150% of
        the Fixed Price. Unexercised warrants will expire December 31, 2008. The
        Company
        has agreed to use its best efforts to promptly register the common shares
        and
        warrants.
 
 During
        December 2004, the Company entered into a Subscription Agreement with an
        affiliate of the Company’s Chief Executive Officer. Under the terms of the
        Subscription Agreement, the Company received cash of $500,000 during the
        year
        ended December 31, 2004. The Company is to receive additional cash of $500,000
        within five days of registering the common shares and warrants issued as
        a
        result of the Subscription Agreement. All other terms of the Subscription
        Agreement are substantially the same as the Subscription Agreements to the
        unaffiliated investors described in the preceding paragraph. This amount
        is
        classified as Stock Settlement Liability at December 31, 2004.
 
 F-18
 NANOBAC
            PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
            ENDED DECEMBER 31, 2004 AND 2003
 **10** **.
        Stockholders' equity (continued)**
 
 As
        a
        result of the above Subscription Agreements, at December 31, 2004, the Company
        has issued 10,625,000 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, 2004. If the price of the Company’s stock is
        less than $0.23 per share when the Company’s registration statement is declared
        effective, the Company will be required to issue additional shares under
        the
        above Subscription Agreements equal to a price of 52% of the average closing
        bid
        price of the Company’s common stock on the five trading days immediately prior
        to the date on which the registration statement is declared effective. The
        ultimate number of shares to be issued is indeterminate as the number of
        shares
        is dependent on NNBP’s closing bid price when a registration statement is
        declared effective. As a result, the $1,275,000 of cash received under the
        Subscription Agreements through December 31, 2004 is included in long-term
        liabilities.
 
 At
        December 31, 2004, the Company measured the value of the shares to be issued
        under the Subscription Agreements through December 31, 2004 based on the
        Company’s closing bid price at December 31, 2004 compared to the actual shares
        issued. As a result of this measurement, an additional $643,630 long-term
        liability was recorded as of December 31, 2004 with a charge to Other
        Comprehensive Income.
 
 From
        May
        2001 through November 2002, the Company was subject to the jurisdiction of
        the
        United States Bankruptcy Court (“the Bankruptcy Court”) under Chapter 11 of the
        United States Bankruptcy Code. Throughout the bankruptcy proceedings, the
        Company’s CEO and an affiliated entity funded the Company’s operations and
        existence. As part of the plan of reorganization as approved by the Bankruptcy
        Court, the Company was to issue 75 million shares of the Company’s stock to
        affiliates of the CEO in satisfaction of this obligation. This transaction
        was
        recorded at $750,000 or $.01 per share fair value at the date of the award
        (based on the value at the measurement date) although shares were issued
        periodically throughout 2003. Certain shares were issued as preferred shares
        (at
        an equivalent value based on the conversion ratio of 44.11 per share). During
        January 2004, the number of authorized shares was increased to 250,000,000,
        at
        which time the previously issued preferred stock was converted to 35,048,445
        shares of common stock.
 
 During
        January 2004, a remaining Bankruptcy obligation was satisfied when the Company
        issued 4.5 million common shares to an entity that is an affiliate of the
        Company’s CEO. The Company recognized an expense of $2.6 million in 2004 in
        connection with this 4.5 million stock issuance which is the approximate
        fair
        value of the stock on the issuance date.
 
 During
        2003, a total of 34,998,000 shares of the Company’s common stock were issued for
        the acquisition of LABS (see Note 2) including 4.0 million common shares
        to an
        affiliate of the Company’s Chief Executive Officer in connection with the
        facilitation and bridge funding for this acquisition. The value of these
        share
        issuances was approximately $1.4 million.
 
 An
        aggregate of 3,644,000 shares of stock were issued during 2003 in connection
        with the conversion of $728,800 in related party debt to equity. Stock issued
        for services in 2003 aggregated 50,000 shares valued at $30,175.
 
 In
        addition, the Company sold 1,690,000 shares of stock at prices ranging from
        $.20
        to $.40 for aggregate proceeds of $548,000 and 368,815 shares of preferred
        stock
        were converted to 16,268,430 shares of common stock.
 
 F-19
 NANOBAC
              PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
              ENDED DECEMBER 31, 2004 AND 2003
 **10** **.
        Stockholders' equity (continued)**
 
 **Warrants**
 
 As
        of
        December 31, 2004, in connection with the OY acquisition, 5,000,000 warrants
        were outstanding with an exercise price of $.005 per common share and an
        expiration date of August 31, 2009 (see Note 2).
 
 At
        the
        finalization of the Subscription Agreements described above, approximately
        23.4
        million additional warrants will be issued with an estimated weighted average
        exercise price of $.16 per common share and an expiration date of five years
        from the date of issuance.
 
 **Stock
        Option Plan**
 
 No
        stock
        options were outstanding for the years ended December 31, 2004 and 2003.
 
 **11.
        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, 2004:
  Year
                ending
                December 31,2005
              
              $
              174,2812006
              
              
              178,4082007
              
              
              109,2252008
              
              
              58,1632009
              
              
              53,9002010
              
              
              27,234$
              601,211
  Rent
        expense on operating leases for the years ended December 31, 2004 and 2003
        was
        approximately $222,000 and $167,000, respectively.
 
 F-20
 NANOBAC
            PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
            ENDED DECEMBER 31, 2004 AND 2003
 **13.
        Contingency**
 
 On
        September 24, 2004 a civil action was filed in United States District Court
        -
        Southern District of California by World Health Products, LLC (“World Health”)
        broadly alleging that the Company, together with a customer of the Company
        (“Customer”), has infringed on its Patent Number 5,602,180 related to the sale
        of suppositories included in the Company’s supplement product. World Health
        alleged additional complaints against the Customer to which the Company is
        not
        liable. During February 2005, World Health dropped the Company from their
        lawsuit as their tests of the Company’s suppositories determined that World
        Health’s patents were not being infringed upon.
 
 F-21
 NANOBAC
            PHARMACEUTICALS, INCORPORATED AND SUBSIDIARIES
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
            ENDED DECEMBER 31, 2004 AND 2003
 **15.
        Quarterly Data**
 
 Mar
                  31
              
              Jun
                  30
              
              Sep
                  30
              
              Dec
                  31**2004
                  Quarter ended**Revenue
              
              $
              32,385
              
              $
              73,564
              
              $
              118,141
              
              $
              134,271Gross
                  profit
              
              $
              25,196
              
              $
              42,072
              
              $
              76,037
              
              $
              114,586Loss
                  from continuingoperations
              
              
              ($4,221,972
              )
              
              ($1,384,238
              )
              
              ($994,276
              )
              
              ($1,217,024
              )Net
                  loss
              
              
              ($4,279,240
              )
              
              ($1,384,238
              )
              
              ($994,276
              )
              
              ($1,217,024
              )Loss
                  per share:Basic
                  and Diluted
              
              
              ($0.03
              )
              
              ($0.01
              )
              
              ($0.01
              )
              
              ($0.00
              )**2003
                  Quarter ended**Revenue
              
              $
              0
              
              $
              77,637
              
              $
              241,340
              
              $
              163,838Gross
                  profit
              
              $
              0
              
              $
              17,174
              
              $
              63,932
              
              $
              68,587Loss
                  from continuingoperations
              
              
              ($935,446
              )
              
              ($166,229
              )
              
              ($679,241
              )
              
              ($980,217
              )Net
                  loss
              
              
              ($1,234,083
              )
              
              ($468,666
              )
              
              ($929,230
              )
              
              ($1,067,512
              )Loss
                  per share:Basic
                  and Diluted
              
              
              ($0.03
              )
              
              ($0.01
              )
              
              ($0.01
              )
              
              ($0.01
              )
 
 ***Reconciliation
        of 2003 Quarterly Data to Forms 10-QSB as filed***
 
 Mar
                  31
              
              Jun
                  30
              
              Sep
                  30**Revenue**Revenue
                  as reported on Form 10Q
              
              $
              5,812
              
              $
              84,049
              
              $
              244,616Discontinued
                  operations
              
              
              (5,812
              )
              
              (6,412
              )
              
              (3,276
              )Revenue
                  per above
              
              $
              0
              
              $
              77,637
              
              $
              241,340**Gross
                  Profit**Gross
                  profit as reported on Form 10Q
              
              
              ($10,300
              )
              $
              3,034
              
              $
              38,503Discontinued
                  operations
              
              
              10,300
              
              
              14,140
              
              
              25,429Gross
                  profit per above
              
              $
              0
              
              $
              17,174
              
              $
              63,932**Net
                  loss**Net
                  loss as reported on Form 10Q
              
              
              ($595,222
              )
              
              ($449,924
              )
              
              ($913,780
              )Amortization
                  of intangible assets
              
              
              -
              
              
              (18,742
              )
              
              (90,000
              )Charge
                  or reversal thereof for stock issuances to affiliates of
                  officers
              
              
              (650,000
              )
              
              
              
              
              74,550Other
              
              
              11,139
              
              
              -
              
              
              -Net
                  loss per above
              
              
              ($1,234,083
              )
              
              ($468,666
              )
              
              ($929,230
              )
 
 F-22