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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                    -----------------------------------------

                                   Form 10-KSB

[x]   ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) of the SECURITIES
      EXCHANGE ACT OF 1934

      For the fiscal year ended December 31, 2004

                                       or

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT of 1934

                         Commission file number 0-26323
               ---------------------------------------------------

                            Advanced Biotherapy, Inc.
             (Exact name of Registrant as specified in its charter)

Delaware                                                              51-0402415
(State or other jurisdiction of                                    (IRS Employer
incorporation or organization)                               Identification No.)

                    6355 Topanga Canyon Boulevard, Suite 510
                        Woodland Hills, California 91367
                    (Address of principal executive offices,
                              including zip code.)

              (Registrant's telephone number, including area code)
                                 (818) 883-6716

           Securities registered pursuant to Section 12 (b) of the Act
                                      None

           Securities registered pursuant to Section 12 (g) of the Act
                                  Common Stock

      Check  whether  the Issuer (1) filed all  reports  required to be filed by
Section 13 or 15 (d) of the  Exchange Act during the past 12 months (or for such
shorter period that the  Registrant was required to file such reports),  and (2)
has been subject to such filing  requirements for the past 90 days. YES [ X ] NO
[ ]

      Check  if no  disclosure  of  delinquent  filers  pursuant  to Item 405 of
Regulation S-B is contained herein, and no disclosure will 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 or any  amendment to
this Form 10-KSB. [X]

      State Issuer's revenues for its most recent fiscal year.

      December 31, 2004:                 $-0-

      The  aggregate   market  value  of  Registrant's   common  stock  held  by
non-affiliates  computed  by  reference  to the  closing  price of such stock on
February 28, 2005, was $9,912,614, which market value excludes 12,729,997 shares
of common stock held by directors,  executive  officers and  stockholders  whose
beneficial  ownership  exceeds ten percent  (10%) of the shares  outstanding  on
February 28, 2005.

      As of February 28, 2005, the Registrant had outstanding  54,032,557 shares
of common stock.

Documents Incorporated by Reference:

None.


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<PAGE>

ITEM 1. BUSINESS

GENERAL INTRODUCTION

      Advanced  Biotherapy,  Inc. is a corporation  organized and existing under
the laws of the State of Delaware,  headquartered in Woodland Hills,  California
with laboratories in Columbia, Maryland.

      The  Company  has  demonstrated   the   effectiveness  of  its  pioneering
scientific  strategy  in  the  use  of  therapeutic   antibodies  by  conducting
investigational  clinical trials treating patients suffering from AIDS, multiple
sclerosis,  rheumatoid  arthritis,  corneal  transplant  rejection,  uveitis and
certain autoimmune skin conditions,  including psoriasis,  and alopecia, all Th1
mediated autoimmune diseases which appear to have the same  proinflammatory Th-1
activity.  To  date,  our  activities  have  consisted  primarily  of  research,
development and non-United States  investigational  human clinical trials.  Such
activities have resulted in accumulated losses at December 31, 2004.

      Our Company is developing a biologic  therapeutic  approach for treating a
range of autoimmune  diseases  based on an  anti-cytokine  platform  technology.
Cytokines  are  soluble  components  of  the  immune  system  that  are  largely
responsible for regulating the immune response. When overproduced, as in certain
autoimmune  diseases,  interferons  and  cytokines  can  lead to  immune  system
disturbance and inflammation  resulting in localized tissue damage and pathology
seen in autoimmune  diseases (ADs).  The Company plans to develop biologic drugs
designed to reduce the levels of certain cytokines.

      We plan to develop  such drugs  through  out-licensing  or  co-development
arrangements  that may  effectively  treat a range of autoimmune  diseases.  Our
technology  is  based  upon  the  work of Dr.  Simon  Skurkovich  and Dr.  Boris
Skurkovich  who first  suggested  that  autoimmune  disease may be the result of
augmented  cytokine  production.  We have conducted a number of  investigational
clinical  trials at major  institutes  of the  Medical  Academy of  Sciences  in
Russia,  in which we have evaluated the efficacy of a series of  investigational
antibodies,  raised against certain  cytokines,  in autoimmune  diseases such as
rheumatoid  arthritis (RA),  multiple  sclerosis (MS),  certain  autoimmune skin
diseases,  and a disease of the eye. The Company's  primary  cytokine  target is
interferon-gamma.

      In two such studies, we sponsored randomized,  placebo-controlled,  double
blind trials, in which we believe we have demonstrated the therapeutic effect of
our anti-cytokine strategy in both RA and MS using investigational antibodies to
interferon-gamma.  These studies have permitted us to determine  which cytokines
are most active in the AD process,  and  therefore,  which need to be reduced to
treat the disorder. With a five-day treatment course,  statistically significant
and  clinically  relevant  responses were obtained that persisted for as long as
one year after  treatment  termination  in the MS studies and for one month (the
period of  observation)  in the RA  studies.  More  recently,  we  conducted  an
open-label  trial using  antibodies to gamma interferon to treat 13 patients who
were rejecting their corneas after  transplantation.  In all cases, we were able
to halt rejection in the patients with our investigational  biological drug. The
results  of the  studies  have  been  published  in the  peer-reviewed  journals
"Multiple  Sclerosis,"  "Scandinavian  Journal of  Rheumatology,"  the "American
Journal of Ophthalmology," and the journal, "Medical Hypotheses."

      On December  25, 2001,  the Company was issued  United  States  Patent No.
6,333,032 for the use of  interferon-gamma  antibodies as a monotherapy to treat
five diseases of autoimmune etiology: Multiple Sclerosis,  Rheumatoid Arthritis,
Juvenile Rheumatoid Arthritis,  Psoriatic Arthritis and Ankylosing  Spondylitis.
The  Company's  patented  treatment  also uses various  methods to neutralize or
block  specific  combinations  of cytokines  and their  receptors.  In addition,
recently the Company was issued United States Patent No. 6,534,059  covering the
use  of  interferon  gamma  antibodies  for  treatment  of  corneal   transplant
rejection.  On March 8, 2005,  the Company was issued  United  States Patent No.
6,863,890  for  use  of  antibodies  to  Tumor  Necrosis  Factor-alpha  (TNF-a),
Interferon-Gamma (IFN-g) and Interferon-alpha (IFN-a) for the treatment of AIDS.
On March 1, 2005, the Company was issued United States Patent No.  6,861,056 for
use of  antibodies to IFN-g and standard  therapy for treatment of uveitis.  The
Company also has been issued  United States  Patent Nos.  5,626,843,  5,888,511,
6,846,486 and Australia Patent No. 730498. In addition, the Company has nineteen
United States utility patents pending filed between December 22, 1997, and March
1, 2005.  The Company  also has two  applications  pending in Europe and Canada,
respectively,  as well as a pending  application in each of Japan, Hong Kong and
Australia. The Company has six PCT applications pending.


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<PAGE>

      Prior to marketing the Company's  development stage products,  the Company
must  obtain   regulatory   approval  from  the  United  States  Food  and  Drug
Administration  ("FDA").  The Company is not sufficiently  funded to allow it to
complete the product development  process,  obtain FDA approval,  and market its
products.  However,  the Company plans to seek additional  financing through the
private sale of restricted securities to investors, enter into joint ventures or
licensing or similar arrangements with large pharmaceutical companies to provide
the funding necessary for additional activities.  There can be no assurance that
the  Company  will enter  into any such  arrangements,  obtain  the  appropriate
regulatory   approvals,   or  develop,   manufacture,   market,   or  distribute
commercially viable products.

      To date, the Company's  activities  have consisted  primarily of research,
development  and human  clinical  testing.  Such  activities  have  resulted  in
accumulated deficit of $11,142,096 at December 31, 2004. The Company anticipates
that it will incur substantial  losses in the foreseeable  future as a result of
its continued product development. There are no assurances that the Company will
be  successful  in  completing  its product  development,  receive FDA approval,
implement manufacturing operations and commercially market its development stage
products.

BUSINESS OBJECTIVE

      The Company had $367,337 in cash and  investments as of December 31, 2004.
Management  anticipates  that current  funds will enable the Company to continue
operations  through  May 2005.  This  amount of cash is  inadequate  to meet the
Company's  projected  minimum cash requirements for full operations for the next
12  months.  The  Company  does not have a source of  revenue  to  continue  its
operations,  or research  and  development  costs  beyond the current  available
funds. In order to meet the foregoing cash  requirements,  the Company will have
to raise  funds  through the  issuance  for cash of common or  preferred  stock,
convertible debt or loans. There is no assurance, however, that the Company will
be able to raise sufficient capital to meet is cash requirements for the next 12
months.  Unless and until the Company raises additional  capital, of which there
can be no assurances, the Company plans to reduce its operations as discussed in
Item 6. Managements  Discussion and Analysis of Financial  Condition and Results
of Operations (Overview).

      The  Company's  business  development  plan for 2005,  subject  to raising
additional capital, principally focuses on the following five specific elements:

      1. Research and development as well as licensing  agreements with selected
pharmaceutical   companies  seeking   opportunities   related  to  our  patented
scientific approaches;

      2.  Commencement and completion of our FDA approved Phase I clinical trial
at Georgetown University Medical Center;

      3. Initiation of US clinical trials in a selected  autoimmune skin disease
and corneal transplant rejection;

      4. Evaluation of possible merger, acquisition or sale candidates; and

      5. Evaluation of financing alternatives and opportunities.

      As  described  above,   the  Company  seeks  to  establish   collaborative
relationships with one or more pharmaceutical or biotechnological companies that
could result in the generation of licensing,  milestone and royalty  payments to
the Company. The Company is, therefore,  seeking out-licensing or co-development
arrangements of its intellectual  property that will generate  recurring revenue
and cash flow.  As of the date  hereof,  the Company  has not  entered  into any
agreement  with a  pharmaceutical  or  biotechnological  company,  or  any  such
out-licensing arrangements.

      Subject to the Company's  capital needs,  the Company is in the process of
manufacturing  an antibody to  interferon  gamma at its  laboratory  facility in
Columbia,   Maryland.  The  Company  signed  a  cross-licensing  agreement  with
Innogenetics NV that enables the two companies to combine Innogenetics' patented
humanized  antibody to  interferon  gamma (known as INNO 202) and the  Company's
intellectual  property  in  the  field  of  various  immune  diseases  involving
interferon-gamma.  By granting access to their respective intellectual property,
the Company  believes  that the agreement  provides a joint  position to attract
interested  third parties when  negotiating  mutually  relevant  development and
commercial license agreements. See the Company's Form 8-K filed May 5, 2004, for
further  information  set  forth  in  the  Company's  press  release  about  the
cross-licensing  agreement.  Management  believes that the  availability of this
technology  will  make it  possible  to  produce  safer  and  more  standardized
antibodies for commencement of human clinical trials,  under FDA guidelines,  in
the United States.


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<PAGE>

      The amount spent on research and development by the Company for the fiscal
years  ended  December  31,  2004,  2003  and 2002 was  $557,807,  $488,141  and
$313,597, respectively.

TECHNICAL BACKGROUND

      The Company's main  biotechnology  platform involves the use of antibodies
directed against certain selected  cytokines.  An antibody is a protein secreted
by cells in the blood and is part of the body's  natural  defense system against
foreign  invaders  such as  viruses,  bacteria,  or  other  foreign  substances.
Antibodies  selectively  bind to their  targets,  producing  such effects as the
neutralization  of  toxins  and the  marshaling  of the  immune  system  against
infectious    microorganisms    and   certain   other   cells.   The   Company's
development-stage antibody treatment removes or neutralizes specific interferons
(IFNs) and other  cytokines.  These are soluble  components of the immune system
that  are  largely   responsible   for  regulating   the  immune   response  and
inflammation.  During  certain  autoimmune  diseases  (ADs),  such as rheumatoid
arthritis (RA), multiple sclerosis (MS), type I diabetes and psoriasis,  certain
IFNs and other cytokines are overproduced by the body,  disturbing immune system
regulation. It is now generally agreed that this loss of homeostasis contributes
significantly  to the localized damage to organs and tissues  characteristic  of
AD.

      The  biological  mechanism  for  autoimmunity,  in which the immune system
directs an attack against the body's own tissues, is still unclear,  though many
ADs are associated with  identifiable  antigents of the Human Leukocyte  Antigen
(HLA) complex, specifically, the Class II proteins.

      The cells  which  constitute  the immune  system are not  confined  to one
location or organ, so there is a need for them to communicate with each other in
order for the  various  components  (e.g.,  macrophages,  T-cells,  B-cells  and
others) to  function  in a  coordinated  manner.  Cytokines  are the agents that
effect this  communication.  The cytokines include IFNs (alpha, beta and gamma),
interleukins (IL), tumor necrosis factors (TNF-alpha and TNF-beta) and others.

      The key cytokines are generally  divided into those  produced by two types
of T helper cells,  called Th-1 and Th-2.  Th-1 cytokines are  pro-inflammatory,
including IL-2 and IFN-gamma.  Th-2  cytokines,  including IL-4, -5, -6, -10 and
-13, are  anti-inflammatory.  TNF-alpha and IFN-alpha are also  pro-inflammatory
cytokines.  Organ-specific ADs are generally thought to be mediated by disturbed
Th-1 cytokine production.

      Cytokine  interactions  with  cells  can  result  in  cell  proliferation,
suppression,  or  differentiation  and may also result in the synthesis of other
cytokines  by the  target  cell.  There is  substantial  data in the  literature
supporting  the idea that upon immune system  activation,  the cytokines  spring
into action in a coordinated manner that can best be described as a cascade.

      The  cytokine  cascade  is  extremely  complex  and it  appears  that  the
overproduction of certain pro-inflammatory cytokines, particularly IFN-gamma and
TNF-alpha,  underlies the pathology of AD. The Company's product  development is
conceptually  based on the postulate that in certain  autoimmune  conditions,  a
global  effect may be achieved by removing or reducing one of more of the agents
in the cascade.

      Both  TNF-alpha  and  IFN-gamma  work in  synthesis to induce HLA class II
antigens in a variety of cell types.  Induction of these  antigens is thought to
be associated  with  autoimmune  pathology.  The induction of activated  T-cells
requires  that these  specific  HLA class II  antigens  be  expressed,  and this
induction is a component of the resulting tissue destruction and inflammation in
autoimmune disorders.  Reduction of IFN-gamma or TNF-alpha would,  therefore, be
expected to inhibit  activation  of killer  T-cells  and,  therefore,  reduce or
inhibit the autoimmune reaction.

GAMMA INTERFERON (IFN-gamma)- AS A THERAPEUTIC TARGET

      Simply  blocking  TNF-alpha,  as do the drugs  Enbrel(R),  Remicade(R) and
Humira(R),  three products already on the market for the treatment of rheumatoid
arthritis,  may not effectively deal with the  overproduction  of IFN- alpha and
IFN-gamma.  Removing  IFN-gamma  could,  however,  remove  or  lower  all  three


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<PAGE>


inflammatory cytokines, since IFN-gamma is upstream of TNF-alpha in the cytokine
cascade.  IFN-gamma is  responsible  for the  activation of killer  T-cells that
produce many  inflammatory  cytokines.  The Company's drug development  strategy
therefore  centers on the blocking of IFN-gamma,  TNF-alpha,  and sometimes both
together in patients with Th1-mediated ADs.

      Many studies in the  literature  support the targeting of  IFN-gamma.  For
example,  it was shown that IFN-gamma levels correlate with the disability score
in MS patients  (Mult.  Scler.,  2000;  6:  19-23).  Another  study  showed that
blocking  IFN-gamma in mice  prevented the onset of type I diabetes  (Gene Ther.
1999; 6: 771-7).  Observations such as these provide further support for the key
role of IFN-gamma in the etiology of ADs and further support reducing the levels
of   this   cytokine   to   achieve   therapeutic   benefit.   The   therapeutic
proof-of-principle,   therefore,   already   exists   for  the   usefulness   of
cytokine-mediating strategies as therapeutic interventions in AD.

      ADs  probably  represent  one  of  the  single  largest  disease  classes,
comparable to the  cardiovascular,  central nervous system, and type II diabetes
markets.  The major  Th-1  mediated  autoimmune  diseases  are RA,  MS,  Crohn's
disease,  psoriasis  and  type I  diabetes,  but  also  include  a host of other
disorders  (See Table I below).  In addition to the  extensive  list of diseases
that have been  demonstrated  to be autoimmune in character,  there are numerous
other large-market  indications that involve cytokine disturbances and therefore
may  have  an  autoimmune   component.   These  include   Alzheimer's   disease,
schizophrenia and others that may involve autoimmune mechanisms.

                                     Table I
                     Major Th-1 Mediated Autoimmune Diseases

Addison's disease                                     Guillain-Barre syndrome
Alopecia Areata                                       Hasimoto's disease
Amyotrophic lateral sclerosis                         Male infertility
(Lou Gehrig's disease)                                Multiple sclerosis
Autoimmune diseases of the ear                        Myasthenia gravis
Autoimmune diseases of the eye                        Psoriasis
Autoimmune hepatitis                                  Rheumatic fever
Corneal transplant rejection                          Rheumatoid arthritis
Crohn's disease                                       Sarcoidosis
Diabetes (Type I)                                     Scleroderma
Epidermolysis Bullosa                                 Sjogren's syndrome
Epididymitis                                          Thyroiditis
Glomerulonephritis                                    Vasculitis
Graves' disease                                       Vitiligo

           Neurological Diseases With A Suspected Autoimmune Component

              Alzheimer's Disease                     Depression
              Autism                                  Parkinson's disease
                                  Schizophrenia

      Treatments  of ADs  have  long  involved  global  immunosuppression  using
adrenal steroids, cytotoxic agents,  immunosuppressants and antimitotics, all of
which  have  substantial  toxicity  associated  with  them due to their  lack of
specificity.  Recently, the anticytokine strategy has emerged in the therapeutic
arena  in  the  form  of  administering  anti-inflammatory  cytokines,  such  as
interferon-beta  (IFN-beta),  specifically Rebif(R),  Betaseron(R) and Avonex(R)
for treating MS.  IFN-beta  products may in fact work by  inhibiting  IFN-gamma.
Also  in  this  category  are  the  three  TNF-alpha   antagonists   (Enbrel(R),
Remicade(R) and Humira(R)),  which have further demonstrated the efficacy of the
cytokine-mediation  therapeutic  strategy.  Although  each of these  products is
useful in treating  ADs, it is our opinion  that they only  represent  the first
generation of products  based on this strategy and were  conceived and developed
at a time when the  knowledge of the cytokine  cascade was much less  understood
than it is today.


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      The now-appreciated pivotal position of IFN-gamma in the cytokine cascade,
coupled with the clinical  data  generated  in our  studies,  suggests  that the
anti-IFN-gamma  therapeutic  strategy may be superior to existing  therapies for
MS, RA, psoriasis,  Crohn's Diseases,  corneal transplant  rejection and others.
The  mission  of the  Company is to develop  these  improved  cytokine-mediating
therapeutic strategies and bring them to market as new drugs.

CLINICAL STUDIES / FDA APPROVED PHASE 1 TRIALS

      During 2004, the Company  sponsored a Phase I FDA-approved  clinical trial
at  the  Georgetown   University  Medical  Center.  The  study  is  designed  to
investigate  the  clinical  effect of treating  AIDS  patients,  who have become
resistant to highly active antiretroviral  therapy (HAART), with an inhibitor to
TNF-alpha.  This  study is  intended  to test the  safety  and  possibly  show a
clinical  effect of this inhibitor aimed at helping restore normal immune system
function in AIDS  patients  with advanced  disease.  While normal  production of
TNF-alpha helps the immune system fight disease, its overproduction may have the
contrary  effect  of  promoting  not  only  greater  viral  replication  in AIDS
patients,  but also a number of mental and physical  disorders  associated  with
immune system  breakdown.  A complex  cellular  relationship  referred to as the
cytokine  "network" or "cascade" is  responsible  for helping the immune  system
communicate and direct responses  against viruses,  bacteria,  fungi and tumors.
HIV  appears  to disrupt  the normal  balance  of this  network.  Restoring  the
functioning of this network may improve the ability of a patient's immune system
to fight the AIDS virus.  We believe that the greatest  challenge faced today by
clinicians  to treat  HIV is the  management  of  patients  who  have  developed
virologic failure and metabolic  complications of anti-HIV  treatment.  Although
treatment  failure can occur because of  non-compliance,  drug  discontinuation,
lack of drug potency or inadequate  drug plasma  concentration,  drug resistance
remains the single most important reason for virological  failure.  More than 50
percent of patients have detectable  plasma HIV RNA despite being on combination
highly-active antiretroviral therapy. Subject to raising capital and its capital
needs,  the Company plans future  studies that will also test a  combination  of
inhibitors including this and other overproduced  cytokines that may play a part
in this breakdown in AIDS patients in virologic failure.

CLINICAL STUDIES / RHEUMATOID ARTHRITIS (RA) AND PSORIATIC ARTHRITIS (PA)

      In an effort to  demonstrate  clinical  proof of principle  that IFN-gamma
antibodies are well tolerated and show efficacy,  two  investigational  clinical
trials were  sponsored  in Russia  with 67 patients  with RA (62) and PA (5). An
open-label  trial was conducted  using both  anti-IFN-gamma  and  anti-TNF-alpha
antibodies  separately.  Anti-IFN-gamma and anti-TNF-alpha both showed efficacy,
but patients receiving  anti-IFN-gamma  maintained a longer period of remission.
After this  preliminary  study, a double-blind,  randomized,  placebo-controlled
trial  was  conducted  in  RA  patients.  The  patients  received  intramuscular
injections of antibodies to IFN-gamma,  TNF-alpha,  or placebo for 5 consecutive
days as they did in the open-label trial. No other treatments were administered.
They were clinically  assessed daily for 7 days, then weekly up to the 28th day.
Clinical,  laboratory,  and ultrasound  indices were used to evaluate  treatment
efficacy.

      The results  indicated  that  anti-IFN-gamma  therapy  provided  rapid and
statistically  significant reduction of joint pain, swelling,  and inflammation.
The thickness of the inflamed synovial membrane assessed by ultrasound decreased
significantly only with anti-IFN-gamma (both by the 7th and the 28th days). Some
patients  receiving  anti-IFN-gamma  achieved  remission of 4-60 months, and one
receiving  anti-TNF-alpha,  7 months.  The  results of these  studies  have been
published  in the journals  International  Journal of  Immunotherapy  (14:23-32,
1998) and Scandinavian Journal of Rheumatology  (30:203-207,  2001).  Management
believes that both studies provide supportive  proof-in-principle in humans that
blocking IFN-gamma is a viable therapeutic strategy in RA.

CLINICAL STUDIES / MULTIPLE SCLEROSIS (MS)

      The Company sponsored two trials in Russia of 83 MS patients on the use of
anti-cytokine  therapy.  The first was an  open-label  trial with  patients with
secondary   progressive  MS.  Following  promising  results  in  this  trial,  a
double-blind,  placebo-controlled  trial was conducted in a study design similar
to that used in RA. The study compared  anti-IFN-gamma and  anti-TNF-alpha  with
placebo.  Only  patients  with MS who received  antibodies  to IFN-gamma  showed
statistically   significant   improvement   compared  to  the  placebo  group--a
significant  increase in the number of  patients  without  confirmed  disability
progression.  Positive  clinical  changes  in  this  group  at six  months  were
supported  by MRI data  showing a  decrease  in the  number of active  enhancing


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<PAGE>


lesions. After 12 months of follow-up,  the anti-IFN-gamma patients still showed
significant  improvement relative to the placebo group on a number of endpoints,
including disease progression and the number of active MRI lesions.

      Although  preliminary  in nature,  both the RA and MS pilot clinical trial
results   provide,   in  management's   opinion,   a   proof-of-principle   that
anti-IFN-gamma is a promising and perhaps superior therapeutic strategy for both
of these  autoimmune  disorders.  It is reasonable to speculate that longer-term
treatments with  anti-IFN-gamma  could provide longer remission.  The results of
this study have been reported in the  peer-reviewed  journal Multiple  Sclerosis
(7:277-284, 2001).

CLINICAL STUDIES / CORNEAL TRANSPLANT REJECTION

      In a clinical trial sponsored in Russia, 13 patients  experiencing corneal
transplant  rejection were  administered  anti-IFN-gamma  antibodies in eye drop
form. Patients were chosen from those for whom standard treatment with steroids,
antibiotics,  anti-inflammatory drugs and vitamins produced no improvement after
rejection.   In  all  patients  prior  to  treatment,   vision  was  limited  to
distinguishing  hand  movement  in front of the  eyes.  Standard  treatment  was
stopped,  and the Company's antibodies were given at 2-3 drops three times a day
for 7-10 days.  Patients were  observed for 3-6 months.  Two to three days after
the start of treatment,  transplant  transparency  improved,  edema dropped, and
visual acuity  increased.  At the end of the first week, the transplants  became
almost  fully  transparent  and  inflammation  of the  patients'  eyes (13 eyes)
disappeared.  Improvement  was  sustained  for about 6 months in all 13 patients
including 2 patients given re-treatment. All patients experienced improvement in
vision.  The  results  of this  study have been  reported  in the  peer-reviewed
journal American Journal of Ophthalmology (133, 829-830, 2002).

      Subsequent to the  completion of the trials for RA and MS, the Company was
issued United States Patent No.  6,333,032 and,  after  completion of the trials
for Corneal  Transplant  rejection,  the Company was issued United States Patent
No.  6,534,059 as more fully  described  under "PATENT  STATUS AND PROTECTION OF
PROPRIETARY TECHNOLOGY."

CLINICAL STUDIES / AUTOIMMUNE SKIN DISEASES

      Company-sponsored  pilot  studies  in  Russia  of  patients  with  various
autoimmune  skin diseases were conducted  using  anti-IFN-gamma.  Seven patients
with psoriasis  vulgaris  treated with antibodies  showed  complete  clearing of
psoriatic  plaques by weeks 2 to 3. The  results  in many  cases were  dramatic.
Remission was  maintained  for the 4- to 6- month period of  observation.  Of 17
patients with alopecia areata treated with antibodies to IFN-gamma,  11 patients
with  progressive-stage  disease  experienced  partial,  but  ongoing  or  fully
restored hair growth in the treated  lesions by 4-6 months.  Patients with total
baldness had some brow and eyelash hair growth but only vellus hair in the scalp
by week 12 after the  completion  of therapy.  In a small group of patients with
vitiligo  receiving  intradermal or intramuscular  injections of  anti-IFN-gamma
around their lesions, abnormal redness of the skin disappeared after therapy and
areas of  normal-colored  skin were observed in the treated  area.  The distinct
border between the depigmented and normal skin also diminished on day 10 after a
short-course of the antibodies.

CLINICAL STUDIES / TYPE I DIABETES

      A small  group of  children  in  Russia,  recently  diagnosed  with Type 1
Diabetes,  were given 2-3 short courses of antibodies to IFN-gamma.  An increase
in  C-peptide  levels,  a marker of  insulin  production,  was  observed  in all
patients a month or two after each  treatment,  including an additional  rise in
one patient after a second treatment.  One month after the first treatment,  the
injected  insulin  dose was also reduced in several of the  patients.  After the
first  treatment,  hemoglobin  A1c, a measure of long-term blood glucose levels,
showed a drop in most patients to within the ideal range,  a sign of improvement
in the disease.


                                       7
<PAGE>


CLINICAL STUDIES / JUVENILE RHEUMATOID ARTHRITIS-ASSOCIATED UVEITIS

      A  group  of  children  in  Russia,  diagnosed  with  juvenile  rheumatoid
arthritis-associated   uveitis  were  treated  with  anti-IFN-gamma.   When  the
antibodies  were  combined with standard  therapy,  exacerbation  of the disease
symptoms were halted more quickly and  remission  lasted longer than in patients
not receiving anti-IFN-gamma.

CLINICAL STUDIES / HERPES SIMPLEX VIRUS TYPE 1

      The Company  completed a pilot  investigational  study using antibodies to
IFN-gamma in the  treatment  of patients  suffering  from Genital  Herpes at the
Department of Skin and Venereal  Diseases,  Russian  State  Medical  University,
Moscow,  Russia.  Patients with  recurrent  herpes  simplex virus type 2 (HSV-2)
genital lesions were treated topically for several days with our investigational
antibodies  to  interferon-gamma.  Our  principal  investigators  reported  that
itching and pain were relieved  within hours of the application of the antibody,
and the  eroded  area of the  skin  epithelialized  within  3-4  days.  Research
indicates  that the HSV-2  causing  recurrent  genital  lesions  may belong to a
special  category of viruses,  such as HIV and certain other  viruses,  in which
interferons  promote  rather  than stop  viral  replication.  The  Company  also
completed a pilot investigational study in Herpes type 1 with similar results.

      It is emphasized that investigational antibodies were used in all clinical
trials  only and solely  for the  purpose  of  establishing  proof-of-principle.
Commercialization of a drug product is expected to be in the form of fully-human
or humanized antibodies.

DRUG PRODUCT DEVELOPMENT

      The Company intends to co-develop  product  development and  manufacturing
and  has  identified  several  companies  that  have  suitable   facilities  for
manufacturing  large  quantities  of  antibodies.  We are also  considering  the
out-licensing of certain indications protected under our patents.

      The Company has not entered  into any drug  development  or  manufacturing
agreement for antibodies  and there is no assurance that any agreements  will be
entered into in the future.

GOVERNMENT REGULATION

      The Company's  activities are subject to extensive federal,  state, county
and local laws and regulations controlling the development, testing, manufacture
and  distribution of medical  treatments.  The type of  antibody-based  products
described in the sections entitled  "CLINICAL  STUDIES" above will be subject to
regulation as  therapeutics or devices by the FDA, as well as varying degrees of
regulation by a number of foreign governmental  agencies. To comply with the FDA
regulations  regarding  the  manufacture  and  marketing of such  products,  the
Company would likely incur substantial costs relating to laboratory and clinical
testing of new products,  and for the preparation and filing of documents in the
formats  required by the FDA.  There are no  assurances  that the  Company  will
receive FDA approval necessary to commercially market its products,  if any, and
that if the Company is successful,  it will not encounter delays in bringing its
new  products to market as a result of being  required by the FDA to conduct and
document additional investigations of product safety and effectiveness.

FEDERAL DRUG ADMINISTRATION REGULATION

      The FDA  approved  process for  conducting  clinical  trials in the United
States  consists of four steps that all new drugs,  antibiotics  and biologicals
must follow.

            They are:

      1.    Investigational new drug application (IND)

      2.    Clinical trials

      3.    New drug application (review and approval)

      4.    Post-marketing surveys


                                       8
<PAGE>


      On January 11, 1993,  the FDA approved new  procedures to  accelerate  the
approval of certain  new drugs and  biological  products  directed at serious or
life-threatening illnesses. These new procedures will expedite the approvals for
patients  suffering  from terminal  illness when the drugs provide a therapeutic
advantage over existing treatments. The Company believes that the products under
consideration  by the Company will fall under the FDA guidelines for accelerated
approval  for  drugs  and  biological  products  directed  at  serious  and life
threatening  disease  because the  Company's  products are targeted as potential
treatments for RA and MS.

      The Company  believes  that the first step in the  approval  process,  IND
approval,  will take approximately 24 to 36 months. The Company will provide the
FDA with the results of  comprehensive  human clinical trials already  conducted
outside the U.S.

      Upon successful completion of the IND phase, the next step typically would
be to  commence  large-scale  clinical  trials  with  the  Company's  compounds.
Clinical trials are conducted in three phases,  normally involving progressively
larger numbers of patients.  The Company, in conjunction with its FDA consultant
and to-be-identified  corporate partner, would plan to select key physicians and
hospitals to actively  conduct these  studies.  Phase I clinical  trials will be
concerned primarily with learning more about the safety of the drug, though they
may also provide some  information  about the safety of the drug and information
about effectiveness. Phase I testing is normally performed on healthy volunteers
although for drugs directed at HIV/AIDS and cancer,  testing on infected  people
is  permitted.  The test  subjects  are paid to submit to a variety  of tests to
learn what happens to a drug in the human body; how it is absorbed,  metabolized
and excreted,  what effect it has on various  organs and tissues;  and what side
effects  occur as the dosages  are  increased.  The  principal  objective  is to
determine the drugs' toxicity.  Phase I trials generally involve up to 30 people
at an  estimated  cost of $10,000  per  patient,  taking  three to six months to
complete.

      Assuming the results of Phase I testing  present no toxic or  unacceptable
safety problems,  Phase II trials may begin. In many cases,  Phase II trials may
commence  before all the Phase I trials are completely  evaluated if the disease
is life threatening and preliminary toxicity data in Phase I shows no toxic side
effects.  In the case of  clinical  trials  on  drugs to treat  life-threatening
disease,  Phase I and Phase II trials are  sometimes  combined  to show  initial
toxicity and efficacy in a shorter period of time. The primary objective of this
stage of clinical  testing is designed to show  whether the drug is effective in
treating the disease or condition for which it is intended, and to establish the
optimal dose level for pivotal  efficacy Phase III trials.  Phase II studies may
take  one or more  years  or  longer  and  involve  a few  hundred  patients  in
randomized,  controlled  trials that also  attempt to disclose  short-term  side
effects and risks in people whose health is impaired.  A number of patients with
the disease or illness will  receive the  treatment  while a control  group will
receive a placebo. The cost per patient is estimated at $10,000.

      At the conclusion of Phase II trials,  the FDA and the Company will have a
clear  understanding of the short-term safety and effectiveness of the drugs and
their optimal dosage  levels.  Phase III clinical  trials will  generally  begin
after the results of Phase II are  evaluated.  The  objective of Phase III is to
develop  information  that will allow the drug to be marketed  and used  safely.
Phase III trials will involve hundreds, and sometimes thousands,  of people with
the objective of expanding on the research.

      Patient  estimates  for each phase of the  clinical  trial  process are as
follows:

            Phase I -                up to 30
            Phase II -                    200
            Phase III -                   500

      The third step that is necessary  prior to marketing a new drug is the New
Drug Application (NDA) submission and approval for an injectable product that is
administered  directly to a patient. In this step, all the information generated
by the  clinical  trials will be reviewed  and if  successful,  the drug will be
approved for marketing.

      The final step is the  post-marketing  surveillance or surveys of patients
being  treated with the drug to determine  its  long-term  effects.  This has no
effect on the marketing of the drug unless highly toxic  conditions  arise.  The
time required to complete the above  procedures  averages seven years,  however,
there is no assurance  that the Company will ever receive FDA approval of any of
its products.


                                       9
<PAGE>

      The  Company's  clinical  trials are at a very early stage and the Company
has not received approval from the FDA or any other governmental  agency for the
manufacturing or marketing of any products under development.  Consequently, the
commencement of  manufacturing  and marketing of any products in the U.S. is, in
all likelihood,  a number of years away. The FDA may also require post-marketing
testing and  surveillance  to monitor the effects of approved  products or place
conditions on any approvals that could restrict the commercial  applications  of
such products.  Product approvals may be withdrawn if compliance with regulatory
standards is not maintained or if problems occur  following  initial  marketing.
With  respect  to  patented  products  or  technologies,  delays  imposed by the
governmental  approval process may materially reduce the period during which the
Company will have the exclusive right to exploit them.

      Upon contracting with a strategic partner, the Company anticipates that it
will take up to 60 months before an injectable product will be available for FDA
investigation and approval.

COMPETITION

      The Company will encounter  significant  competition  from firms currently
engaged in the biotechnology industries. The majority of these companies will be
substantially larger than the Company, and have substantially  greater resources
and  operating  histories.  The  Company is aware of other  competitors  seeking
treatments for ADs such as MS and RA,  however,  the Company is not aware of any
competitors seeking to produce the same antibody-based products as the Company.

PRODUCT LIABILITY EXPOSURE

      The Company does not maintain any product liability insurance. Even if the
Company  obtains  product  liability  insurance,  there  is  no  assurance  that
available  amounts of coverage  will be  sufficient  to  adequately  protect the
Company in the event of a successful  product liability claim.  Accordingly,  if
litigation  is initiated  against the Company,  the Company will have to pay all
costs  associated with the litigation as well as any judgment  rendered  against
the Company.  In the event a large judgment is entered against the Company,  the
Company may not be able to pay the same and the Company could be forced to cease
operations.  However,  the Company believes that it would not be held liable for
injuries  suffered by  participants  in its clinical  trials because it plans to
require each participating  patient to execute a waiver of claims as a result of
adverse reaction to the Company's products.

GLOSSARY OF CERTAIN TERMS

Antibody                            A protein in the blood that is  generated by
                                    B-lymphocytes or plasma cells in reaction to
                                    foreign  proteins  or  antigens.  Antibodies
                                    neutralize   antigens   and  may  result  in
                                    immunity to the antigens.

Antigen                             substance (usually foreign) that induces the
                                    formation of antibodies.

Autoimmune disease                  A  disease  in which  the body  produces  an
                                    immune  response to some  constituent of its
                                    own tissue.  Such  diseases  include MS, RA,
                                    insulin dependent  diabetes,  systemic lupus
                                    erythematosis, and AIDS.

Cytokine                            A soluble substance produced by cells of the
                                    immune  system  to  communicate  with  other
                                    immune   system    cells.    These   include
                                    colony-stimulating   factors,   interferons,
                                    interleukins,  and tumor  necrosis  factors.
                                    Cytokines    can    be    either    pro   or
                                    anti-inflammatory  in nature.  Also referred
                                    to as soluble mediators.

Humanized antibody                  An  antibody  produced by  generating  human
                                    antibodies    with   fully   human   protein
                                    sequences   using   genetically   engineered
                                    strains of mice in which mouse antibody gene
                                    expression  is suppressed  and  functionally
                                    replaced    with   human    antibody    gene
                                    expression, while leaving intact the rest of
                                    the mouse immune system.


                                       10
<PAGE>



Ig (immunoglobulin)                 (IgA,  IgD,  IgE,  IgG,  and IgM) A group of
                                    serum proteins representing antibodies.  See
                                    Antibody.

Immune response                     The  events  that occur in humans and  other
                                    vertebrate animals when the body is  invaded
                                    by foreign protein.  It is characterized  by
                                    the  production  of  antibodies  and may  be
                                    stimulated  by an  infectious  organism   or
                                    parasite (bacteria,  yeast, fungi, protozoa,
                                    etc.), transplanted material, vaccine, sperm
                                    or even the host's own tissue.

Immune System                       The cells  and  tissues  that   collectively
                                    recognize  and eliminate  invading   foreign
                                    substances like  microorganisms,  parasites,
                                    and tumor cells from the body.

Interferon-gamma                    A glycoprotein inflammatory cytokine induced
                                    in  different  cell sites and in response to
                                    an appropriate stimulus.

Lymphocyte                          A type of  white  blood  cell  arising  from
                                    tissue of the  lymphoid  systems.  There are
                                    two  types  of  lymphocytes:  B cells  and T
                                    cells.  These  cells  are  capable  of being
                                    stimulated   by  an  antigen  to  produce  a
                                    specific  antibody  to that  antigen  and to
                                    proliferate  to produce a population of such
                                    antibody-producing cells.

Lymphokine                          Any of a number of  soluble  physiologically
                                    active factors  produced by T lymphocytes in
                                    response to specific antigens.  Important in
                                    cell-mediated immunity,  lymphokines include
                                    interferon,    macrophage   arming   factor,
                                    lymphocyte  inhibition  factor,   macrophage
                                    inhibition  factor,  chemotactic  factor and
                                    various cytotoxic factors.

Macrophage                          A motile white cell type found in vertebrate
                                    tissue,  including  connective  tissue,  the
                                    spleen,  lymph nodes, liver,  adrenal glands
                                    and pituitary, as well as in the endothelial
                                    lining of blood vessels and the sinusoids of
                                    bone  marrow,  and  in the  monocytes.  They
                                    display  phagocytic   activity  and  process
                                    antigens for  presentation  to  lymphocytes,
                                    which    then    prepare    antigen-specific
                                    antibodies.

Pathogenic                          Descriptive  of a substance or organism that
                                    produces a disease.

Placebo                             An  indifferent  substance  in the form of a
                                    medicine given for the suggestive effect.

Protein                             Any  group of  complex  nitrogenous  organic
                                    compounds of high molecular  weight that has
                                    amino acids as their basic structural units.
                                    Proteins are found in all living  matter and
                                    are  required  for the  growth and repair of
                                    tissue.

T-Cell                              A type of  lymphocyte  that  matures  in the
                                    thymus  gland.  These cells are  responsible
                                    for the cellular immunity processes, such as
                                    direct  cell  binding  to an  antigen,  thus
                                    destroying  it.  T  lymphocytes  also act as
                                    regulators of the immune  response as helper
                                    T cells, or suppressor T cells.

Tumor Necrosis Factor (TNF)         A substance that is capable of killing tumor
                                    cells and eliciting inflammatory  responses.
                                    It  is  produced  by  host   monocytes   and
                                    macrophages  and  is  also  referred  to  as
                                    cachectin.


                                       11
<PAGE>


PATENT STATUS AND PROTECTION OF PROPRIETARY TECHNOLOGY

      On March 8,  2005,  the  Company  was  issued  United  States  Patent  No.
6,863,890  for  use  of  antibodies  to  Tumor  Necrosis  Factor-alpha  (TNF-a),
Interferon-Gamma (IFN-g) and Interferon-alpha (IFN-a) for the treatment of AIDS.
On March 1, 2005, the Company was issued United States Patent No.  6,861,056 for
use of  antibodies to IFN-g and standard  therapy for treatment of uveitis.  The
Company  has been  issued  United  States  Patent No.  6,333,032  for the use of
interferon-gamma  (IFN-gamma) antibodies as a monotherapy to treat five diseases
of autoimmune  etiology:  Multiple  Sclerosis,  Rheumatoid  Arthritis,  Juvenile
Rheumatoid Arthritis, Psoriatic Arthritis and Ankylosing Spondylitis. Management
believes  that these  patents  are a critical  milestone  for the  Company.  The
Company believes that these patents give the Company patent protection for a new
anti-cytokine  approach to treating different autoimmune diseases. The Company's
patented  treatment  also uses various  methods to neutralize or block  specific
combinations  of cytokines  and their  receptors.  In addition,  the Company was
recently  issued  United  States  Patent  No.  6,534,059  covering  the  use  of
interferon gamma antibodies for treatment of corneal transplant  rejection.  The
Company also has been issued  United States  Patent Nos.  5,626,843,  5,888,511,
6,846,486 and Australia Patent No. 730498.  The Company also has nineteen United
States  utility  patents  pending filed between  December 22, 1997, and March 1,
2005.  The  Company  also has two  applications  pending in Europe  and  Canada,
respectively,  as well as a pending  application in each of Japan, Hong Kong and
Australia.  The Company has six PCT applications pending. The ultimate degree of
patent protection that will be afforded to biotechnology products and processes,
including ours, in the United States and other markets remains  uncertain and is
dependent  upon the scope of  protection  decided  upon by the  patent  offices,
courts and lawmakers in these countries. There is no certainty that our existing
patents,  or others,  if  obtained,  will afford us  substantial  protection  or
commercial benefit.

DEPENDENCE UPON KEY PERSONNEL

      The Company relies greatly in its efforts on the services and expertise of
its key staff, such as the Chief Executive Officer, the Director of Research and
Development  and other officers and directors.  The operation and future success
of the  Company  would be  adversely  affected  in the event that any of them is
incapacitated or the Company otherwise loses their services.

UNCERTAINTIES ASSOCIATED WITH RESEARCH AND DEVELOPMENT ACTIVITIES

      Research and development activities,  by their nature, preclude definitive
statements  as to the time  required  and costs  involved  in  reaching  certain
objectives.  Subject to raising additional capital to meet its cash requirements
for full  operations  for the 12-month  period  ending  December  31, 2005,  the
Company plans to reduce  product  development  efforts while  continuing to seek
additional  financing.  There can be no assurance that the Company would be able
to secure any necessary  additional  financing or that such  financing  would be
available on favorable terms.

MARKETING

      Assuming  the  Company  is able to obtain  FDA  approval  of its  products
currently in  development,  it intends to market the same through  collaborative
relationships  with other  companies.  It is the Company's  intention that joint
venture  partners will be selected on the basis of experience  and the degree of
financial success they exhibit in the industry. There are no assurances that the
Company will obtain FDA approval for its  products,  and there are no assurances
that the Company will be successful in entering into agreements with established
multinational companies.

FORWARD-LOOKING STATEMENTS

      This Annual  Report and other  documents we file with the  Securities  and
Exchange Commission contain forward-looking statements that are based on current
expectations,   estimates,  forecasts  and  projections  about  us,  our  future
performance,  our business,  our beliefs and our management's  assumptions.  All
statements  other  than  statements  of  historical  facts  are  forward-looking
statements,  including any  statements of the plans and objectives of management
for future  operations,  any  statements  concerning  proposed  new products and
prospects for regulatory approval,  any projections of revenue earnings or other
financial  items,  any  statements   regarding  future  economic  conditions  or
performance, and any statement of assumptions underlying any of the foregoing.


                                       12
<PAGE>

Some of these  forward-looking  statements may be identified by the use of words
in  the  statements  such  as  "anticipate,"   "estimate,"   "could,"  "expect,"
"project,"  "intend,"  "plan,"  "believe,"  "seek,"  "should,"  "may," "assume,"
"continue,"  variations of such words and similar expressions.  These statements
are  not   guarantees  of  future   performance   and  involve   certain  risks,
uncertainties,  and  assumptions  that are difficult to predict.  We caution you
that our performance and results could differ materially from what is expressed,
implied, or forecast by our forward-looking statements due to general financial,
economic,  regulatory and political  conditions  affecting the biotechnology and
pharmaceutical  industries as well as more specific risks and uncertainties such
as those set forth below and described  elsewhere in this Annual  Report.  Given
these risks and uncertainties,  any or all of these  forward-looking  statements
may  prove  to be  incorrect.  Therefore,  you  should  not  rely  on  any  such
forward-looking  statements.  Furthermore,  we do not  intend  (and  we are  not
obligated)  to update  publicly  any  forward-looking  statements,  whether as a
result of new information, future events, changes in assumptions, or otherwise.

FACTORS THAT MAY AFFECT THE COMPANY

      The Company  operates in a rapidly  changing  environment  that involves a
number of risk  factors,  many of which are beyond the  Company's  control.  The
following  discussion   highlights  some  of  these  risks,   uncertainties  and
assumptions that could affect the outcome of the  forward-looking  statements in
this Annual  Report,  and other  risks are  discussed  elsewhere  in this Annual
Report.  Other  unanticipated  occurrences  besides  those listed in this Annual
Report could also adversely affect us.

      WE HAVE A  HISTORY  OF  OPERATING  LOSSES  AND HAVE A NEED FOR  ADDITIONAL
FINANCING.  For the fiscal year ended  December 31, 2004, we realized a net loss
of $2,440,695 and expect such losses to continue for the foreseeable future. The
Company  anticipates  that its  minimum  cash  requirements  for the next twelve
months will be approximately  $2,000,000.  The Company's  long-term  convertible
debt as of December  31, 2004 that  matures on June 30, 2006 and  September  30,
2007 is approximately $4,018,602 and $920,158, respectively. If we are unable to
raise additional capital and/or generate a positive cash flow before our cash is
depleted,  we will be  required  to  curtail  operations  substantially.  We are
seeking to obtain  additional  funds through  public and private equity and debt
financings,   collaborative  or  other  arrangements  with  corporate  partners,
acquisitions  or mergers with companies  with strong  capital  positions or cash
flow from product  sales or from other  sources.  There is no assurance  that we
will be able  to  obtain  additional  capital  if  required,  or if  capital  is
available,  to obtain it on terms  favorable to us. We may suffer from a lack of
liquidity in the future that could impair our research and  development  efforts
and adversely affect our results of operations.

      WE DO NOT HAVE ANY OF OUR OWN PRODUCTS IN FDA CLINICAL  TRIALS,  AND IF WE
CANNOT  SUCCESSFULLY  COMPLETE ANY CLINICAL TRIALS,  WE WILL BE UNABLE TO OBTAIN
REGULATORY  APPROVALS  REQUIRED TO MARKET OUR PRODUCTS.  Our products are in the
development  stage,  have not been  subjected to clinical  studies in the United
States  (except  for  preliminary  initiation  of  Phase I  clinical  trials  at
Georgetown  Medical  University),  have limited clinical data based upon studies
conducted in Russia,  have not been cleared for  marketing by the FDA or foreign
regulatory  authorities,  and cannot be  commercially  distributed in the United
States and/or in foreign  markets  unless and until such  clearance is obtained.
Failure to obtain FDA  clearance  would  delay sales of our  products  and would
materially affect our financial condition.

      The  development,  manufacture  and sale of drug  products  are subject to
extensive  and  rigorous  regulation  by  federal,   state,  local  and  foreign
governmental authorities.  In particular,  products for human health are subject
to substantial  preclinical and clinical testing and other approval requirements
by the FDA and  comparable  foreign  regulatory  authorities.  The  process  for
obtaining the required  regulatory  approvals from the FDA and other  regulatory
authorities  takes many years and is very  expensive.  There can be no assurance
that any  product  developed  by us will  prove  to meet  all of the  applicable
standards to receive marketing approval. There can be no assurance that any such
approvals will be granted on a timely basis,  if at all.  Delays in and costs of
obtaining these approvals  could adversely  affect our ability to  commercialize
our products,  if any, and to generate sales revenues. If regulatory approval of
a product is obtained, such approval may involve restrictions and limitations on
the use of the product.

      OUR RESEARCH AND  DEVELOPMENT  AND MARKETING  EFFORTS WILL BE DEPENDENT ON
COLLABORATIONS AND IF OUR COLLABORATIONS ARE NOT SUCCESSFUL,  WE MAY NOT BE ABLE
TO SUCCESSFULLY DEVELOP AND MARKET PRODUCTS.  Because we have limited resources,
we anticipate  entering  into a number of  collaboration  agreements  with other
companies. At present, however, we have no such agreements. These agreements may
be expected to call for our partners to control the supply of bulk or formulated


                                       13
<PAGE>

drugs for commercial use or for use in clinical trials;  design and execution of
clinical  studies;  process  of  obtaining  regulatory  approval  to market  the
product; and/or marketing and selling of any approved product.

      In each of these areas,  our  partners may not support  fully our research
and commercial  interests since our program may compete for time,  attention and
resources with the internal programs of our corporate collaborators. As such, we
cannot be sure that our corporate  collaborators  will share our perspectives on
the  relative  importance  of our  program,  that  they will  commit  sufficient
resources  to our  program to move it forward  effectively,  or that the program
will advance as rapidly as it might if we had retained  complete  control of all
research, development,  regulatory and commercialization decisions. We also rely
on several of these  collaborators and other third parties for the production of
compounds  and  the   manufacture   and  supply  of   pharmaceutical   products.
Additionally,  we may  find it  necessary  from  time  to  time  to seek  new or
additional  partners  to  assist  us  in  commercializing  our  products.  It is
uncertain  whether  we  would  be  successful  in  establishing  any such new or
additional relationships.

      RESEARCH AND DEVELOPMENT ACTIVITIES, INCLUDING FUTURE CLINICAL TRIALS, ARE
INHERENTLY  UNCERTAIN  AND WE MAY BE UNABLE TO  OBTAIN  OR  MAINTAIN  REGULATORY
APPROVAL  FOR  ANY  PRODUCTS.  Preclinical  testing  and  clinical  trials  must
demonstrate that a product  candidate is safe and efficacious.  The results from
preclinical  testing and early clinical  trials may not be predictive of results
obtained  in  subsequent  clinical  trials,  and we cannot  be sure  that  these
clinical  trials will  demonstrate  the safety and efficacy  necessary to obtain
regulatory  approval  for any product  candidates.  A number of companies in the
biotechnology industries have suffered significant setbacks in advanced clinical
trials,  even after obtaining  promising results in earlier trials. In addition,
certain  clinical  trials are conducted  with patients  having the most advanced
stages of disease.  During the course of treatment,  these patients often die or
suffer other adverse  medical effects for reasons that may not be related to the
pharmaceutical agent being tested. Such events can have a negative impact on the
statistical analysis of clinical trial results.

      We cannot be sure that we will be permitted by regulatory  authorities  to
undertake  clinical  trials for any of our product  candidates,  or that if such
trials are conducted,  any of our product  candidates  will prove to be safe and
efficacious or will receive regulatory  approvals.  Any delays in or termination
of these  clinical  trial  efforts  may have a  material  adverse  effect on our
business.

      The completion of clinical trials,  if any, of our product  candidates may
be  delayed  by many  factors.  One such  factor  is the rate of  enrollment  of
patients.  Neither we nor our prospective  collaborators can control the rate at
which patients present themselves for enrollment, and we cannot be sure that the
rate of  patient  enrollment  will be  consistent  with our  expectations  or be
sufficient to enable clinical  trials of our product  candidates to be completed
in a timely  manner or at all. Any  significant  delays in, or  termination  of,
clinical trials of our product  candidates may have a material adverse effect on
our business.

      OUR LACK OF EXPERIENCE IN SALES,  MARKETING  AND  DISTRIBUTION  MAY HAMPER
MARKET  INTRODUCTION AND ACCEPTANCE OF OUR PRODUCTS.  Our management has limited
sales,  distribution and marketing experience,  and therefore,  if the necessary
regulatory approvals are obtained, we intend to market,  distribute and sell our
products,  through a network of qualified independent distributors,  agents, and
key  strategic  partners,  none of which are  currently  in place.  There are no
assurances that we can establish the necessary  relationships  for marketing and
selling  products or that the network will  successfully  implement an effective
marketing  and sales  strategy.  We expect to rely on third  parties  to provide
customer  service  activities  and accept and  process  returns.  Although it is
anticipated  that we will  employ a small  number of persons to  coordinate  and
manage the  activities  undertaken by these third  parties,  we have  relatively
limited  experience in this regard.  Any  disruption in these  activities  could
impede our ability to sell our products and could reduce sales revenues.

      MANUFACTURING   DIFFICULTIES   COULD  MATERIALLY  IMPAIR  OUR  COMPETITIVE
POSITION  AND OUR  POSSIBILITY  OF  CONDUCTING  CLINICAL  TRIALS.  We  lack  the
facilities  to  manufacture  our products and do not have an adequate  supply of
product to begin  clinical  studies in the  United  States.  If we are unable to
contract for manufacturing  capabilities on acceptable terms, it would result in
the delay of the manufacturing of antibodies for clinical trial purposes.

      UNCERTAINTY  RELATING TO FAVORABLE  THIRD-PARTY  REIMBURSEMENT  MAY HAVE A
MATERIAL ADVERSE EFFECT ON THE COMMERCIAL SUCCESS OF PRODUCTS WE MAY DEVELOP. In
the United States,  success in obtaining favorable third-party payment for a new
product  depends  greatly  on the  ability to  present  data which  demonstrates


                                       14
<PAGE>

positive outcomes and reduced utilization of other products or services, as well
as cost data which shows that treatment costs using the new product are equal to
or less than what is  currently  covered  for other  products.  Our  failure  to
present  such  clinical  data  would  adversely  affect  our  ability  to obtain
favorable  third-party  reimbursement  as well as the commercial  success of our
products.

      OUR  DEPENDENCE ON PRODUCTS  COULD HAVE A MATERIAL  ADVERSE  AFFECT ON THE
COMPANY'S FINANCIAL CONDITION. We expect to derive a substantial majority of our
revenues  from  our  proprietary  development  stage  products  through  product
licensing  and royalty  fees.  The life cycle of our  products,  if approved for
marketing, is difficult to estimate in terms of current and future technological
developments,  competition,  and other  factors.  Our  failure  to  successfully
commercialize  products or to realize  significant  revenues  from the  products
would have a material adverse effect on our financial condition.  As of the date
hereof, we have not realized any revenues from the sale of products.

      IF WE ARE UNABLE TO  PROTECT  OUR  PATENTS,  WE MAY NOT BE ABLE TO DEVELOP
PRODUCTS OR COMPETE  SUCCESSFULLY.  We have six issued United States patents and
one patent issued in Australia.  Our success and ability to compete  effectively
will depend,  in part,  on the strength of our patents and the ability to obtain
protection  for our products,  if any, in foreign  markets.  No assurance can be
given that any  patents  issued to us will not be  challenged,  invalidated,  or
circumvented. Litigation, which could result in substantial cost to us, may also
be necessary to enforce any patents issued to us and/or  determine the scope and
validity of other parties' proprietary rights.

      We have nineteen United States utility patent  applications  pending.  The
United States patent position of pharmaceutical  companies involves many complex
legal and technical issues and has recently been the subject of much litigation.
There is no clear  policy  establishing  the  breadth of claims or the degree of
protection afforded under such patents.  As a result,  there can be no assurance
that any of our patent applications will be approved,  except where claims under
an application have already been examined and allowed,  nor that we will develop
additional  proprietary products that are patentable.  There can be no assurance
that any United States patents issued to us will provide us with any competitive
advantages or will not be challenged by third parties or that patents  issued to
others will not have an adverse  effect on our ability to conduct our  business.
We could incur substantial costs in asserting our patent rights and in defending
patent infringement suits against us or our executives relating to ownership of,
or rights to, patents and other  intellectual  property of third  parties.  Such
disputes could substantially delay our drug development or commercialization.

      Furthermore,  we cannot be certain that we were the first  chronologically
to make the  inventions  covered by each of our pending patent  applications  or
that we were the first to file patent  applications for such inventions  because
prior to  November  29,  2000,  patent  applications  in the United  States were
maintained in secrecy until issue, and are only published now following  certain
rules,  and because  publication  of  discoveries  in the  scientific and patent
literature often lag behind actual discoveries.  In the event that a third party
has also filed a patent  application for any of its  inventions,  we may have to
participate in interference proceedings declared by the United States Patent and
Trademark  Office  (PTO) to  determine  priority of the  invention,  which could
result in substantial  cost to us, even if the eventual  outcome is favorable to
us. In the event of an adverse  decision as to priority of  invention,  we would
not be  entitled  to a patent  on the  invention  at  issue in the  interference
proceeding.  The PTO or a  private  party  could  also  institute  reexamination
proceedings involving us in connection with one or more of our patents, and such
proceedings  could result in an adverse  decision as to the validity or scope of
the patents.  In addition,  there can be no assurance  that our patents would be
held valid by a court of law of  competent  jurisdiction.  We could be forced to
either seek a license to intellectual  property rights of others,  which may not
be  available  to us on  acceptable  terms,  if at all, or alter our products or
processes so that they no longer infringe on the proprietary rights of others.

      WE FACE SUBSTANTIAL COMPETITION AND OTHERS MAY DISCOVER,  DEVELOP, ACQUIRE
OR  COMMERCIALIZE  PRODUCTS  BEFORE  OR MORE  SUCCESSFULLY  THAN WE MAY DO.  The
products  that we are  planning to develop  may  compete  for market  share with
alternative  therapies.  A number of companies are pursuing the  development  of
novel products which target the same diseases as we are targeting. Many of these
competitors  have  substantially   greater  capital   resources,   research  and
development  staffs and  facilities  than we do. They may develop and  introduce
products  and  processes   competitive   with  those  of  ours.  They  represent
significant  long-term  competition  for us.  For  certain of our  products,  an
important  factor in  competition  may be the timing of market  introduction  of
these competitive products.  This timing will be based on the effectiveness with
which we or the competition can complete clinical trials and approval  processes
and supply  quantities of these products to market.  Competition  among products
approved  for sale will be based  on,  among  other  things,  efficacy,  safety,
reliability, price, marketing capability and patent position.


                                       15
<PAGE>

      OUR COMMON STOCK PRICE IS VOLATILE, AND AN INVESTMENT IN OUR COMPANY COULD
DECLINE IN VALUE. Our stock price, like that of other  biotechnology  companies,
is highly volatile,  so that investment in our stock involves  substantial risk.
Additionally,  the stock  market from time to time has  experienced  significant
price and volume fluctuations that may be unrelated to the operating performance
of particular companies. Our stock price may be affected by such factors as:

      o     material public announcements

      o     developments  or  disputes  as to our  patent  or other  proprietary
            rights.

      o     unsatisfactory clinical trial results

      o     failures or unexpected delays in obtaining  regulatory  approvals or
            unfavorable FDA advisory panel recommendations

      o     approval or introduction of competing products and technologies

      o     delays in manufacturing or clinical trial plans

      o     market  reaction  to   announcements   by  other   biotechnology  or
            pharmaceutical companies

      o     announcements in the scientific and research community

      o     initiation,   termination  or   modification   of  agreements   with
            collaborative partners

      o     loss of key personnel

      o     general market conditions

      OUR OUTSTANDING CONVERTIBLE PROMISSORY NOTES LEVERAGE US CONSIDERABLY.  As
a result of issuing our convertible  subordinated notes due June 1, 2006 and our
convertible  subordinated  notes  due  September  30,  2007,  we  have  incurred
long-term  indebtedness  of  approximately  $4,945,413  as of December 31, 2004,
excluding the $127, 631 owed to a  director/officer.  The degree to which we are
leveraged  could harm our ability to obtain  future  financing and could make us
more vulnerable to industry downturns and competitive pressures.  Our ability to
meet our debt obligations will be dependent upon our future  performance,  which
will  be  subject  to  financial,  business  and  other  factors  affecting  our
operations, many of which are beyond our control.

      If any of these  factors  causes  us to fail to meet the  expectations  of
securities  analysts  or  investors,  or if  adverse  conditions  prevail or are
perceived to prevail with respect to our business, the price of our common stock
would likely drop significantly.

EXECUTIVE OFFICES

      Our  executive  offices  are  located at 6355  Topanga  Canyon  Boulevard,
Woodland Hills, California 91367, and our telephone number is (818) 883-6716.

ITEM 2. DESCRIPTION OF PROPERTY

      During 2004,  the Company  paid an average of $6,013 per month  (aggregate
$72,150) in rent for the use of  approximately  3,500 square feet of  commercial
building space on a month-to-month  basis from a firm that is partially owned by
director Lawrence Loomis.  During 2004, the Company paid an average of $1617 per
month (aggregate  $19,400) in rent for the use of office space and facilities on
a  month-to-month  basis  from a firm owned by Edmond F.  Buccellato.  No formal
agreement memorializes these month-to-month arrangements.

      The Company owns a nominal amount of office  equipment and furniture,  all
of which have been entirely or substantially written off as depreciated assets.

      As of December 31, 2004, the Company had incurred  approximately  $271,000
in  costs  related  to  the  building  of  a  cleanroom  laboratory,   including
approximately $31,900 for laboratory equipment. The purpose of the laboratory is
to evaluate and manufacture limited supplies of antibodies for possible U.S. and
foreign  clinical  trial  purposes.  The  laboratory  is located in the premises
leased by the Company from New Horizons  Diagnostics,  Inc.,  of which  Director
Lawrence Loomis is the majority shareholder.


                                       16
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

      The Company is not the subject of any pending legal  proceeding and to the
knowledge of management,  no proceedings are presently  contemplated against the
Company by any federal, state or local governmental agency.

      Further, to the knowledge of management,  no director or executive officer
is party to any  action in which  such  director  or  executive  officer  has an
interest adverse to the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      On December 16, 2004, the Company held its annual meeting of  stockholders
("Annual Meeting").

      A brief description of each matter voted upon at the Annual Meeting is set
forth below:

      (1) The stockholders  elected nine directors to hold office until the next
annual meeting of the  stockholders  and until their  respective  successors are
elected and qualified, or until death, resignation or removal:

 Name of Director                     For              Withheld Authority
 ------------------------    ---------------------  -------------------------
 Joseph A. Bellanti, M.D.         44,034,198                       30,950
 John M. Bendheim                 44,031,698                       33,450
 Edmond F. Buccellato             42,933,938                    1,131,210
 Alexander L. Cappello            43,909,398                      155,750
 Richard P. Kiphart               44,034,398                       30,750
 Lawrence Loomis                  43,953,453                      111,695
 Thomas J. Pernice                43,953,353                      111,795
 Boris Skurkovich, M.D.           43,962,253                      102,895
 Simon Skurkovich, M.D.           43,963,453                      101,695

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

      The  Company's  Common  Stock is quoted on the  Over-The-Counter  Bulletin
Board operated by the National Association of Securities Dealers, Inc. under the
symbol  "ADVB."  The table below  shows the high and low bid  quotations  of the
Company's  Common  Stock  during each of the four  quarters of the 2004 and 2003
calendar  years,  and reflects  inter-dealer  prices,  without  retail  mark-up,
mark-down or commission and may not represent actual transactions. The quotation
information has been obtained from Commodity  Systems,  Inc.,  available through
Yahoo! Finance.

      2004 Fiscal Quarter Ended:            High Bid            Low Bid

      March 31                               $0.48               $0.32
      June 30                                $0.44               $0.22
      September 30                           $0.29               $0.15
      December 31                            $0.38               $0.15

      2003 Fiscal Quarter Ended:            High Bid            Low Bid

      March 31                               $0.23               $0.10
      June 30                                $0.39               $0.12
      September 30                           $0.51               $0.16
      December 31                            $0.80               $0.32


                                       17
<PAGE>

      As of February 28,  2005,  the Company had  approximately  1392 holders of
record of its Common Stock. This number does not include those beneficial owners
whose  securities  are held by brokers or in street  name.  The total  number of
record and beneficial stockholders is estimated to be more than 3300.

      The Company has never paid a cash  dividend on its Common Stock and has no
present  intention  to declare or pay cash  dividends on the Common Stock in the
foreseeable  future.  The  Company  intends to retain any  earnings  that it may
realize in the future to finance its operations.  Future dividends, if any, will
depend on earnings, financing requirements and other factors, and the payment of
cash  dividends,  if  any,  will  be at the  sole  discretion  of the  Board  of
Directors.

SALE OF UNREGISTERED SECURITIES IN THE FOURTH QUARTER OF 2004

      Effective as of December 31, 2004,  pursuant to the Company's 2000 Omnibus
Equity  Incentive  Plan, the Company granted its directors  non-qualified  stock
options to purchase an aggregate  225,000 shares (25,000 shares per director) of
Common Stock, at an exercise price of $0.20 per share,  for services.  See "ITEM
10. EXECUTIVE COMPENSATION" for additional information.

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      Except  for the  historical  information  contained  herein,  the  matters
discussed   herein   are  by  their   nature   forward-looking.   See  "ITEM  1.
FORWARD-LOOKING   STATEMENTS."  Investors  are  cautioned  that  forward-looking
statements made by the Company,  including those made in this Annual Report, are
subject  to risks and  uncertainties  that may cause  actual  results  to differ
materially   from  those   projected.   Reference  is  made  in   particular  to
forward-looking statements regarding product development,  capital sources, plan
of  operations  and  expenses.  The  Company  operates  in  a  rapidly  changing
environment  that  involves  a number of risks,  some of which  are  beyond  the
Company's control. Future operating results and the Company's stock price may be
affected by a number of factors, including, without limitation: (i) availability
of capital  for  research  and  development;  (ii)  availability  of capital for
clinical  trials;   (iii)   opportunities   for  joint  ventures  and  corporate
partnering;  (iv)  opportunities  for  mergers  and  acquisitions  to expand the
Company's  biotechnology  base  or  acquire  revenue  generating  products;  (v)
regulatory  approvals of preclinical  and clinical  trials;  (vi) the results of
preclinical  and  clinical  trials;   (vii)  regulatory   approvals  of  product
candidates,  new indications and  manufacturing  facilities;  (viii) health care
guidelines  and  policies  relating  to  prospective   Company  products;   (ix)
intellectual  property  matters  (patents)  and (x)  competition.  See  "ITEM 1.
FACTORS THAT MAY AFFECT THE COMPANY."

OVERVIEW

      We believe  that we are a leader in  conducting  investigational  clinical
trials  allowing us to secure  intellectual  property  for  anti-cytokine  based
treatments of certain autoimmune  diseases by the use of antibodies  directed at
certain   cytokines,   most   notably   interferon-gamma   and  tumor   necrosis
factor-alpha.  We have no revenues or FDA-approved  products, and cannot predict
when we might anticipate having proprietary marketed products.  Accordingly, our
cash flows  depend  substantially  on the  success of our  ability to enter into
licensing and royalty arrangements,  and raise capital through the use of equity
or debt private placements.

      The Company had $367,337 in cash and  investments as of December 31, 2004.
Management  anticipates  that current  funds will enable the Company to continue
operations  through  May 2005.  This  amount of cash is  inadequate  to meet the
Company's  projected  minimum cash requirements for full operations for the next
12 months of  approximately  $2,000,000.  The Company  does not have a source of
revenues to continue its operations,  or research and  development  costs beyond
the current  available funds. In order to meet the foregoing cash  requirements,
the Company will have to raise funds  through the issuance for cash of common or
preferred stock, convertible debt or loans. There is no assurance, however, that
the  Company  will  be  able to  raise  sufficient  capital  to  meet  its  cash
requirements  for the next 12 months,  in which case the Company would undertake
to adjust its  operations  including the  significant  reduction of research and
development costs.

      The Company has initiated  reductions in certain  research and development
projects  and plans to postpone  certain  patent  applications  and other patent
matters.  Management is monitoring the Company's funds and considering financing
alternatives with the Company's directors.


                                       18
<PAGE>

      In terms of the Company's  long-term  convertible debt, as of December 31,
2004, the approximate  principal  balance of $4,018,602 and $920,158  matures on
June 1, 2006 and September 30, 2007,  respectively.  If before this  convertible
debt would be repaid the market  price of the Company  common  stock is at least
$0.75 per share for 20 consecutive trading days, then the Company may also cause
the mandatory  conversion of such debt into shares of Company  common stock at a
conversion price of $0.25 per share.

      The  Company's  business  development  plan for 2005,  subject  to raising
additional capital, principally focuses on the following five specific elements:

      1. Research and development as well as licensing  agreements with selected
pharmaceutical   companies  seeking   opportunities   related  to  our  patented
scientific approaches;

      2.  Commencement and completion of our FDA approved Phase I clinical trial
at Georgetown University Medical Center;

      3. Initiation of US clinical trials in a selected  autoimmune skin disease
and corneal transplant rejection;

      4. Evaluation of possible merger, acquisition or sale candidates; and

      5. Evaluation of financing alternatives and opportunities.

      As  described  above,   the  Company  seeks  to  establish   collaborative
relationships with one or more pharmaceutical or biotechnological companies that
could result in the generation of licensing,  milestone and royalty  payments to
the Company. The Company is, therefore,  seeking out-licensing or co-development
arrangements of its intellectual  property that will generate  recurring revenue
and cash flow.  As of the date  hereof,  the Company  has not  entered  into any
agreement  with a  pharmaceutical  or  biotechnological  company,  or  any  such
out-licensing arrangements.

      In general,  we have a history of operating  losses and have not generated
any  revenue.  As of  December  31,  2004,  we had  an  accumulated  deficit  of
approximately  $11,142,096.  Over the next  several  months,  we expect to incur
substantial additional expenses as we continue to identify and develop potential
products and invest in research. Since we or potential collaborative partners or
licensees may not be able to successfully  develop additional  products,  obtain
required regulatory  approvals,  manufacture  products at an acceptable cost and
with  appropriate  quality,  or  successfully  market such products with desired
margins,  we may never achieve profitable  operations.  The amount of net losses
and the time required to reach sustained profitability are highly uncertain.

      The Company has no expected  purchases or sales of  significant  equipment
and there are no expected  significant changes in the number of employees of the
Company.

      As of  January 1, 2005,  the  Company  entered  into an  agreement  with a
consultant  whereby the  consultant  will  utilize its  established  process and
reasonable commercial efforts to secure a commercial relationship with potential
candidates.  This commercial relationship may include the license or transfer of
intellectual  property,  product  rights,   manufacturing  rights,  patents,  or
development  assistance.  A fee will be paid to the  consultant in the amount of
$5,000 per month. Additionally, the consultant will be reimbursed for reasonable
out-of-pocket  costs.  The agreement is for nine months,  subject to termination
after the initial 90 days.  A success fee is  included in the  agreement  if the
Company enters into a commercial  relationship  during the term of the agreement
or within 18 months  from the  termination  of the  agreement,  with a candidate
introduced to the Company by the consultant.

      RESULTS OF OPERATIONS - Years ended December 31, 2004 and 2003.

      The Company is  considered  to be in the  development  stage as defined in
Statement of Financial Accounting Standards No. 7. There have been no operations
since incorporation.


                                       19
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES.

      To date, we have financed our  operations  through  private  placements of
equity and  convertible  debt  securities.  The Company had $368,397 in cash and
cash  equivalents  as of  December  31,  2004  and had  issued  and  outstanding
54,032,557 shares of its Common Stock.

FISCAL 2004 COMPARED TO FISCAL 2003.

      For the year ended December 31, 2004,  the Company  realized a net loss of
$2,440,695  compared to a net loss of $2,108,440 for the year ended December 31,
2003.  The Company had  increases in expenses  over the year ended  December 31,
2003, consisting primarily of the following:  increased research and development
expenses  of  $69,666,   increased   promotional  fees  of  $19,210,   increased
professional fees of $9,163, increased depreciation and amortization of $14,864,
increased  administrative salaries and benefits of $192,760,  increased interest
expense in the  amount of  $65,848  related  to the  Company's  convertible  and
subordinated  pay-in-kind  notes, and increased rent of $8,260, net of decreased
interest  income of  $16,586,  decreased  travel and  entertainment  of $21,259,
decreased general  administrative  expenses of $9,463, and decreased  directors'
fees of $54,000.

ITEM 7. FINANCIAL STATEMENTS

      The financial  statements are included herewith and incorporated herein by
reference beginning with Page F-1.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

      There have been no disagreements with the Company's accountants,  Williams
& Webster P.C., on accounting and financial disclosures during the Company's two
most recent fiscal years,  i.e. January 1, 2003,  through December 31, 2004, and
through the date hereof.

ITEM 8A. CONTROLS AND PROCEDURES

      In  accordance  with  Item 307 of  Regulation  S-B  promulgated  under the
Securities Act of 1933, as amended, as of December 31, 2004, the Chief Executive
Officer and Chief Financial  Officer of the Company (the "Certifying  Officers")
have conducted  evaluations of the Company's disclosure controls and procedures.
As defined under Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act
of 1934, as amended (the  "Exchange  Act"),  the term  "disclosure  controls and
procedures"  means controls and other  procedures of an issuer that are designed
to ensure that information required to be disclosed by the issuer in the reports
that it  files  or  submits  under  the  Exchange  Act is  recorded,  processed,
summarized and reported,  within the time periods  specified in the Commission's
rules and forms. Disclosure controls and procedures include, without limitation,
controls  and  procedures  designed  to ensure that  information  required to be
disclosed  by an  issuer  in the  reports  that it files or  submits  under  the
Exchange  Act  is  accumulated  and  communicated  to the  issuer's  management,
including its principal  executive  officer or officers and principal  financial
officer or officers, or persons performing similar functions,  as appropriate to
allow timely decisions  regarding required  disclosure.  The Certifying Officers
have  reviewed  the  Company's  disclosure  controls  and  procedures  and  have
concluded that those disclosure controls and procedures are effective in causing
information to be recorded,  processed,  summarized and reported within the time
periods  specified  in the  Commission's  rules and forms  and  communicated  to
management  of the Company to allow timely  decisions  regarding  the  Company's
public disclosures.  In compliance with Section 302 of the Sarbanes-Oxley Act of
2002, (18 U.S.C.  1350),  each of the Certifying  Officers executed an Officer's
Certification included in this Annual Report on Form 10-KSB.


                                       20
<PAGE>

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

      The  following  table sets forth the names and nature of all positions and
offices  held by all  directors  and  executive  officers  of the  Company as of
February 28, 2005,  and the period or periods during which each such director or
executive officer served in his or her respective positions.

<TABLE>
<CAPTION>
             Name                  Age       Position Held                                       Director Since

<S>                                 <C>       <C>                                                 <C>
Simon Skurkovich, M.D.              82        Chairman Emeritus, Director, and                    November, 1985
                                                Director of Research and
                                                Development
Edmond F. Buccellato                59        Chairman of the Board, President and Chief          November, 1995
                                              Executive Officer, Director (3)
Thomas J. Pernice                   43        Treasurer and Secretary, Director (2)               April, 2001
William M. Finkelstein              46        Chief Financial Officer (non-director)              April, 2001
Lawrence Loomis                     62        Director (2)(3)                                     December, 1986
Boris Skurkovich, M.D.              50        Director (2)(4)                                     December, 1986
Alexander L. Cappello               49        Director (1)(3)(4)                                  April, 2000
John M. Bendheim                    51        Director (1)                                        June, 2000
Richard P. Kiphart                  63        Director (1)(2)(3) (4)                              June, 2002
Joseph A. Bellanti, M.D.            70        Director                                            October, 2003
</TABLE>
----------
(1)   Member of the Audit Committee of the Board of Directors.

(2)   Member of the Compensation Committee of the Board of Directors.

(3)   Member of the Executive Committee of the Board of Directors.

(4)   Member of the Nominating Committee of the Board of Directors.

TERM OF OFFICE

      Each director serves for a term of one year or until his successor is duly
elected and  qualified.  The  Company's  officers are  appointed by the Board of
Directors and hold office at the discretion of the Board.

BIOGRAPHICAL DESCRIPTIONS OF DIRECTORS AND OFFICERS

      Joseph A. Bellanti,  M.D. - Since October 2003, Dr. Bellanti has served as
a member  of the  Board  of  Directors.  Dr.  Bellanti  joined  the  faculty  of
Georgetown University School of Medicine in 1963, and continued to serve on that
faculty    where    he   is    currently    Professor    of    Pediatrics    and
Microbiology-Immunology   and   Director   of  the   International   Center  for
interdisciplinary Studies of Immunology at Georgetown University Medical Center.
In  addition  to  teaching  medical  students  and  residents,  as  well  as his
continuing  direct  patient  care of  children  and adults  exhibiting  the full
spectrum of allergic and immunologic  disorders,  Dr. Bellanti has been actively
engaged    in    research    dealing    with    antimicrobial    immunity    and
immunologically-mediated  diseases and has  published  more than 400  scientific
articles and abstracts.  He is editor of the well-known  textbook  "Immunology,"
published by W.B.  Saunders Co. He is currently  editor-in-chief  of the Allergy
and Asthma  Proceedings.  For his  achievements in allergy and  immunology,  Dr.
Bellanti has received numerous awards,  including the Golden Cane Award in 2002.
He is the recipient of many national and  international  honors. He received his
M.D.  degree  from the  University  of  Buffalo,  trained in  immunology  at the
University of Florida School of Medicine and continued his studies as a research
virologist at Walter Reed Army Institute of Research, Washington D.C.

      John M. Bendheim - Since June 2000, Mr. Bendheim has served as a member of
the Board of Directors.  Mr.  Bendheim is Chairman of the  Cedars-Sinai  Medical
Center  Board of  Governors  in Los  Angeles,  California.  During the past five
years, he has served as President of Bendheim  Enterprises,  Inc., a real estate
investment   holding   company.   He  received  his  B.S.   degree  in  Business
Administration   in  1975  and  his  M.B.A.  from  the  University  of  Southern
California.

                                       21
<PAGE>

      Edmond F. Buccellato - Since October,  2002, Mr.  Buccellato has served as
Chairman  of the Board,  and since April 2001,  he has served as  President  and
Chief Executive Officer.  Mr. Buccellato served as President and Chief Operating
Officer of the Company  from  September  1, 2000 to December  12,  2000,  and he
served as Chief Executive Officer from 1995 to August 31, 2000. He has served as
a member of the Board of Directors since 1995. He is a shareholder of Buccellato
&  Finkelstein,   a  public  accountancy  firm.  Mr.  Buccellato   received  his
undergraduate  degree from  California  State  University at San Diego,  and his
graduate degree from the University of Southern California.

      Alexander  L.  Cappello  - Since May 2000,  Mr.  Cappello  has served as a
member of the Board of  Directors.  Mr.  Cappello also served as Chairman of the
Board from April 2001, through October, 2002. Mr. Cappello is Chairman and Chief
Executive Officer of Cappello Group,  Inc., a merchant banking firm specializing
in principal  transactions,  corporate finance,  institutional equity placements
for public companies,  project finance and merger and acquisitions services. Mr.
Cappello has managed Cappello Group, Inc. and its predecessor firms since 1975).
He served  as  Chairman  of the  International  Board of the  Young  Presidents'
Organization for 2003-2004.  Currently, he is a Member of the Board of Directors
of the following:  Cappello Group, Inc., Advanced Biotherapy (ADVB.OB),  Benitec
BLT.  Sydney  Stock  Exchange  -  ASX,  Genius  Products  Inc.  (GNPI.OB),  RAND
Corporation  (Center  for Middle East Public  Policy),  Independent  Colleges of
Southern  California  (ICSC),  USC Board of  Governors,  USC Marshall  School of
Business,  Greif Center for Entrepreneurial  Studies,  USC Advancement  Council,
Trustee Friends of Florence  (Florence Italy), and Chairman Emeritus of Catholic
Big Brothers of Los Angeles.  He received his B.S.  Degree in Finance  (Order of
the Palm) from the University of Southern California.

      Richard P. Kiphart - Since June,  2002, Mr. Kiphart has served as a member
of the Board of  Directors.  He  currently  serves as  Chairman  of the Board of
Saflink (SFLK Nasdaq) and a member of the Board of Directors of First Data Corp.
(FDC-NYSE). Mr. Kiphart is the Head of Corporate Finance for the Investment Firm
of William Blair & Company,  L.L.C.  Mr. Kiphart has been with William Blair for
over 36 years.  Mr.  Kiphart  received his B.A. from  Dartmouth  College and his
M.B.A. from Harvard Business School.

      Lawrence  Loomis - Since  1986,  Mr.  Loomis has served as a member of the
Board of Directors of the Company.  During the past five years,  Mr.  Loomis has
been the major shareholder and President of New Horizons Diagnostics. Founded in
1980,  NHD, under the direction of Mr. Loomis,  has developed rapid test methods
for small and large  molecules.  Methods  include:  luminescence,  fluorescence,
fiber optics, and colloidal gold immunoassays.  He also directed  development of
tests for the rapid screening of water and food for microbial contamination. Mr.
Loomis received his undergraduate degree in math, chemistry and biology from New
York University and his graduate degree in chemistry from City University.

      Thomas J.  Pernice - Since  April  2001,  Mr.  Pernice  has  served as the
Treasurer  and  Secretary  of the  Company  and as a  member  of  the  Board  of
Directors. Mr. Pernice is President and Founder of Modena Holding Corporation, a
business  consulting  services  company,  and most  recently was also a managing
director of Cappello Group, Inc., a merchant banking firm, from January, 1999 to
July,  2002. Prior to joining the Cappello Group, Mr. Pernice served as a senior
corporate executive in government and industry for more than 20 years, including
seven years'  service in various  capacities in the Reagan and George H. W. Bush
administrations  Currently,  Mr.  Pernice  serves  as a  consultant  to the U.S.
Department  of  Energy  in  Washington,  D.C.  and is a member  of the  Board of
Directors of United Heritage  Corporation  (OTCBB-"UHCP").  Mr. Pernice earned a
bachelor of arts degree from the University of Southern California.

      Boris Skurkovich, M.D. - Since 1986, Dr. Skurkovich has served as a member
of the Board of Directors, and from that same date until December 2000, he was a
Vice President of the Company.  He completed a clinical and research  fellowship
at the Maxwell Finland Laboratory for Infectious Diseases, Boston City Hospital,
Boston,  Massachusetts,  and  presently  is,  and has been  during the past five
years, a professor at Brown Medical School. He has collaborated with his father,
Simon  Skurkovich,  on the development of the Company's  treatment of autoimmune
diseases.  Dr.  Skurkovich  received  his M.D.  from the  Moscow  State  Medical
Institute.

      Simon  Skurkovich,  M.D.  - Dr.  Skurkovich  is the  founder  of  Advanced
Biotheraphy,  Inc.,  and  presently  serves  as its  Director  of  Research  and
Development.  From 1985 until September 2000, Dr.  Skurkovich served as Chairman
of the Board of the Company. He has been granted 28 patents in the United States
and Europe.  He is the creator of immune  preparations  from human blood against
antibiotic  resistant bacteria that saved thousands of lives in the Soviet Union
and Eastern Europe. In Russia, he was professor and Chief of the Immunology

                                       22
<PAGE>

Laboratory of the Institute of Hematology and Blood  Transfusion and was awarded
gold and silver medals for his scientific  discoveries.  His laboratory was also
awarded the nation's  highest honor, the Lenin Prize, for his patented work. Dr.
Skurkovich  received an M.D.,  Ph.D. and a Doctorate in Medical Sciences (D.Sc.)
from  Pirogov  State  Medical   Institute  in  Moscow.  He  is  the  pioneer  of
anticytokine  therapy,  which  opened  the  way  to a new  understanding  of the
pathogenesis  and  treatment  of  autoimmune  diseases  and  thus  helped  bring
treatments  that have  improved the health of many  people.  He has written more
than 240  articles for  scientific  publications.  In 1974,  he published in the
journal  Nature  a  new  explanation  for  the  pathogenesis  and  treatment  of
autoimmune diseases, which has been the basis for successful clinical trials and
is now well accepted around the world.

      William M. Finkelstein.  Since April,  2001, Mr. Finkelstein has served as
Chief Financial Officer.  For the past eight years, he has been a shareholder of
Buccellato &  Finkelstein,  Inc., a public  accountancy  firm.  Mr.  Finkelstein
received his  undergraduate  degree in Accounting from the University of Houston
and became licensed as a certified public  accountant in 1984. He is a member of
the American Institute of Certified Public Accounts,  and the California Society
of Certified Public Accountants.

AUDIT COMMITTEE

         Alexander L.  Cappello,  John M. Bendheim and Richard  Kiphart serve on
the Company's Audit Committee.  Although the Company's securities are not quoted
on  Nasdaq,  the  Company  has  elected to apply the  Nasdaq  Marketplace  Rules
regarding  the  definition  of  "independence"  for  the  members  of the  Audit
Committee.  Under the Nasdaq Marketplace  Rules,  directors John M. Bendheim and
Richard Kiphart qualified as "independent." Director Alexander L. Cappello would
not likely be deemed "independent," because of the aggregate value of cash fees,
warrants and options of the Company he received in fiscal years 2000 and 2001 by
assignment from Cappello  Capital Corp., an investment  banking firm retained by
the Company from January, 2000, through January, 2002, which received such fees,
warrants  and options in  connection  with the  Company's  private  placement of
Convertible Debt in 2000 and other services.  The Board of Directors  determined
to appoint Alexander L. Cappello to the Audit Committee in the best interests of
the Company and its Stockholders  due to his management and financial  expertise
involving  publicly-held  companies,  among other expertise.  Based upon current
Nasdaq Marketplace Rules, John M. Bendheim, Alexander L. Cappello and Richard P.
Kiphart have financial  sophistication,  although none of the committee  members
may currently qualify as a "financial expert" for purposes of SEC rules, adopted
pursuant to the  Sarbanes-Oxley  Act of 2002. Since the Company is a development
stage company,  the Board of Directors  believes that the current members of the
Audit Committee have sufficient  knowledge of financial  statement  preparation,
analysis and evaluation even if none of them qualify as a "financial expert."

FAMILY RELATIONSHIPS

      The  only  known  family  relationship  between  any  directors  is  Simon
Skurkovich, father to Boris Skurkovich.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

      During the past five years,  no present  director or executive  officer of
the  Company  has  been  the  subject  matter  of  any of  the  following  legal
proceedings:

      (a) any bankruptcy petition filed by or against any business of which such
person was a general  partner  or  executive  officer  either at the time of the
bankruptcy or within two years prior to that time;

      (b) any criminal convictions;

      (c) any order,  judgment, or decree permanently or temporarily  enjoining,
barring,  suspending  or  otherwise  limiting  his  involvement  in any  type of
business, securities or banking activities; and

      (d) any finding by a court, the SEC or the CFTC to have violated a federal
or state securities or commodities law.

      Further,  no such  legal  proceedings  are  known  to be  contemplated  by
governmental authorities against any director or executive officer.


                                       23
<PAGE>

CODE OF ETHICS

      The  Company  has  adopted  a Code of  Ethics  that  applies  to its chief
executive officer, chief financial officer and all other executive officers. You
may  request a copy of the  Company's  Code of Ethics  by  sending a request  to
Advanced  Biotherapy,  Inc., 6355 Topanga Canyon Boulevard,  Suite 510, Woodland
Hills, California 91367, Attention:  Secretary (include your return address), or
by email to www.advancedbiotherapy.com.

ITEM 10. EXECUTIVE COMPENSATION

      The following table sets forth the compensation  paid by the Company since
January 1, 2002 through  December 31, 2004, for the Chief  Executive  Officer of
the Company and the  Company's  other  executive  officers who were  compensated
during the year ended December 31, 2004 (the "Named Executive Officers"):

<TABLE>
<CAPTION>
                                           Summary Compensation Table

                                                        Other       Restricted   Securities
                                                       Annual         Stock       Underlying    LTIP      All Other
  Name and Principal                Salary   Bonus   Compensation    Award(s)    Options/SARs  Payouts   Compensation
       Position              Year     ($)     ($)        ($)            ($)          (#)         ($)          ($)
  ------------------         ----   ------   -----   ------------    --------    ------------  -------   ------------
<S>                          <C>   <C>        <C>       <C>             <C>       <C>             <C>        <C>
Edmond F. Buccellato.......  2004  $176,000   $0        $ 4,500         $0           25,000       $0         $0
Chief Executive Officer      2003  $180,000   $0        $10,000         $0        1,530,000       $0         $0
(1)(2)(3)(4)(6)              2002  $154,500   $0        $ 3,800         $0           20,000       $0         $0

Simon Skurkovich...........  2004  $175,500   $0        $ 4,500         $0           25,000       $0         $0
Chairman Emeritus,           2003  $180,000   $0        $10,500         $0          450,000       $0         $0
Director of Research &       2002  $131,500   $0        $ 3,800         $0           20,000       $0         $0
Development (1)(2)(3)(5)(6)
</TABLE>

----------
(1)   During January, 2005, the Company granted stock options to purchase 25,000
      shares of the  Company's  Common Stock at $0.20 per share to each director
      for services  rendered  during the year ended  December 31, 2004.  For the
      2004 fiscal year,  the estimated fair value of such options was accrued at
      $4,500 per director using the Black Scholes option price method.

(2)   During January, 2004, the Company granted stock options to purchase 30,000
      shares of the  Company's  Common Stock at $0.42 per share to each director
      for services  rendered  during the year ended  December 31, 2003.  For the
      2003 fiscal year,  the estimated fair value of such options was accrued at
      $10,500 per director using the Black Scholes option price method.

(3)   Effective December 31, 2002, the Company granted stock options to purchase
      20,000  shares of the  Company's  Common  Stock at $0.21 per share to each
      director for services  rendered  during the year ended  December 31, 2002.
      The fair value of the stock  options was  estimated at $3,800 per director
      using the Black Scholes option price method.

(4)   During March, 2003, the Company granted Mr. Buccellato options to purchase
      1,500,000  shares at an exercise  price of $0.16 per share,  which options
      vest in three equal annual installments commencing February 7, 2004. These
      options  were  granted in part to replace  the amount of stock  bonus plan
      shares which the Company  repurchased from Mr. Buccellato in February 2003
      in order to enable the  Company  to comply  with the  Sarbanes-Oxley  Act,
      which  prohibits  the  extension  of  credit  in the form of a loan by the
      Company to any executive  officer in connection with the sale of shares to
      such officer.  The options expire in February 2010, and cease to vest upon
      complete termination of his services as a director,  officer,  employee or
      consultant  of the Company.  Since no portion of these  options  vested in
      2003, the Company's  auditors did not accrue any value to such options for
      fiscal year 2003.

(5)   During  March,  2003,  the Company  granted to Dr.  Skurkovich  options to
      purchase  450,000  shares at an exercise  price of $0.16 per share,  which
      options vest in three equal  annual  installments  commencing  February 7,
      2004. The options expire in February 2010, and cease to vest upon complete
      termination of his services as a director, officer, employee or consultant
      of the  Company.  Since no portion of these  options  vested in 2003,  the
      Company's  auditors  did not accrue any value to such  options  for fiscal
      year 2003.

(6)   During  the  first  six  months  of  2002,  Edmond  Buccellato  and  Simon
      Skurkovich,  M.D. were  compensated as contract  consultants at the annual
      rate of $120,000 and $80,000,  respectively,  and effective  July 1, 2002,
      their salaries were set at $180,000, respectively.

      During  fiscal  year 2004,  William M.  Finkelstein  did not  receive  any
compensation directly from the Company,  although the Company paid to Buccellato
&  Finkelstein,  Inc.,  the  sum of  $24,480  for  accounting  services  and tax
preparation. Mr. Finkelstein and Mr. Buccellato are shareholders of Buccellato &
Finkelstein, Inc.

      There are no retirement,  pension, or profit sharing plans for the benefit
of the Company's  officers and  directors.  The Company has  previously  granted
non-qualified  stock  options  and  warrants  for the  benefit of  officers  and
directors.  In December 2000, the Board of Directors of the Company approved the
2000  Omnibus  Equity  Incentive  Plan (the "OEI Plan") and  reserved  4,000,000
shares of Common  Stock to be issued  thereunder,  subject  to annual  increases
equal to the lesser of 2.5% of outstanding shares or 250,000 shares.

      The   stockholders   approved  the  OEI  Plan  at  the  Company's   Annual
Stockholders  Meeting on December  13,  2001.  The purpose of the OEI Plan is to
promote the  long-term  success of the Company and the  creation of  stockholder
value by (a) encouraging employees, outside directors and consultants to focus


                                       24
<PAGE>

on critical long-term  objectives,  (b) encouraging the attraction and retention
of employees,  outside directors and consultants with exceptional qualifications
and (c)  linking  employees,  outside  directors  and  consultants  directly  to
stockholder  interests through increased stock ownership.  The OEI Plan seeks to
achieve this purpose by providing for awards in the form of  restricted  shares,
stock units,  incentive and  nonstatutory  stock options and stock  appreciation
rights.  The OEI Plan will be administered by the Board of Directors  unless and
until the Board delegates administration to a committee.

OPTION/SAR GRANTS TO EXECUTIVE OFFICERS

      The Named  Executive  Officers  received  grants of stock  options (not in
tandem with stock appreciation rights ("SARs"), or freestanding SARs) during the
year  ended  December  31,  2004  as set  forth  in the  chart  below  captioned
"OPTION/SAR GRANTS IN LAST FISCAL YEAR (2004)."

      None of the Named Executive  Officers exercised any options or SARs during
the 2004 fiscal year.

      The information  concerning individual grants of stock options (whether or
not in tandem with SARs) and freestanding SARs,  including options and SARs that
subsequently  have been  transferred) made during the fiscal year ended December
31, 2004, to each of the Named Executive  Officers is provided in tabular format
below:

                  OPTION/SAR GRANTS IN LAST FISCAL YEAR (2004)
                               (Individual Grants)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                            Number of Securities   Percent of Total
                                 Underlying          Options/SARs       Exercise of
                                Options/SARs          Granted To        Base Price          Expiration
           Name                   Granted            Employees in         ($/Sh)               Date
                                    (#)              Fiscal Year
-------------------------------------------------------------------------------------------------------------
<S>                                 <C>                  <C>               <C>           <C>
Edmond F. Buccellato                25,000(1)            50%               $0.20         December 30, 2014
-------------------------------------------------------------------------------------------------------------
Simon Skurkovich, M.D.              25,000(1)            50%               $0.20         December 30, 2014
-------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   During January 2005,  options to purchase 25,000 shares of Common Stock at
      $0.20 per share were granted to all directors for services rendered during
      fiscal  year 2004,  and the fair value of such  options was accrued by the
      Company's auditors for the 2004 fiscal year.

              AGGREGATED OPTIONS/SAR EXERCISES IN 2004 FISCAL YEAR
                    OPTION/SAR VALUES AS OF DECEMBER 31, 2004

<TABLE>
<CAPTION>

                                                                Number of Unexercised Securities   Value of Unexercised In-The-Money
                       Shares Acquired on                     Underlying Options/SARs at FY-End(#)     Options/SARs At FY-End ($)
             Name         Exercise (#)     Value Realized ($)    Exercisable/ Unexercisable(1)        Exercisable/Unexercisable(2)
---------------------  ------------------  ------------------ ------------------------------------  --------------------------------
<S>                             <C>                 <C>              <C>           <C>                     <C>            <C>
Simon Skurkovich, M.D.          0                   0                300,000                               30,000
                                                                     623,000                               62,300
                                                                      10,000                                - 0 -
                                                                      20,000                                  200
                                                                      30,000                                - 0 -
                                                                     150,000         300,000                6,000         12,000
                                                                                      25,000                                - 0-

Edmond Buccellato               0                                    105,543                               10,554
                                                                      50,000                                5,000
                                                                      50,000                                - 0 -
                                                                      10,000                                - 0 -
                                                                      20,000                                - 0 -
                                                                      30,000                               -  0 -
                                                                     500,000       1,000,000               20,000          40,000
                                                                                      25,000                                 - 0-
</TABLE>

----------
(1)   All options were  exercisable as of December 31, 2004,  except as follows:
      Options granted to Dr.  Skurkovich and Mr.  Buccellato to purchase 450,000
      and 1,500,000 shares of Common Stock, respectively,  become exercisable in
      three  equal  annual  installments  with the initial  one-third  vested on
      February 7, 2004.  Options to purchase  25,000 shares of Common Stock were
      approved  for grant as of January 3, 2005 for director  services  rendered
      during the 2004  fiscal  year.

(2)   Determined  on the basis of the share  closing  price of $0.20 on December
      30,  2004,  as published by Commodity  Systems,  Inc.,  available  through
      Yahoo!Finance.

      The  above-described  stock options were granted to officers and directors
based upon, among other factors,  the potential for individual  contributions to
the Company.  The members of the Board of Directors determined the amount of the
stock  options,  and the exercise  price of the  options,  which was set at fair
market value as of December 30, 2004.


                                       25
<PAGE>

COMPENSATION OF DIRECTORS

      Directors did not receive any cash  compensation for serving as members of
the Board of Directors for the year ended December 31, 2004.

      Effective December 31, 2004, the Board approved the grant to each director
of stock options to purchase  25,000 shares of Common Stock at an exercise price
of $0.20 per share for Board  services  rendered  during the year ended December
31, 2004.

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information as of December 31, 2004
<TABLE>
<CAPTION>
---------------------------------------------- ------------------------ --------------------------- -------------------------
                                                                                                      Number of securities
                                                                                                    remaining available for
                                                Number of securities                                 future issuance under
                                                  to be issued upon     Weighted-average exercise     equity compensation
                                                     exercise of           price of outstanding         plans (excluding
                                                outstanding options,      options, warrants and     securities reflected in
                                                 warrants and rights              rights                   column (a)
---------------------------------------------- ------------------------ --------------------------- -------------------------
                                                         (a)                        (b)                        (c)
---------------------------------------------- ------------------------ --------------------------- -------------------------
<S>                                                  <C>                          <C>                      <C>
Equity compensation plans approved by
security holders                                     4,990,000(1)                 $0.18                    10,000(1)
---------------------------------------------- ------------------------ --------------------------- -------------------------
Equity compensation plans not approved by
security holders(2)                                     - 0 -                                             2,403,789(3)
---------------------------------------------- ------------------------ --------------------------- -------------------------
</TABLE>

(1)   This figure  excludes stock options granted by the Company during January,
      2005, to each director,  to purchase 25,000 shares of the Company's Common
      Stock at $0.20 per  share  (aggregate  225,000  shares)  for  directorship
      services  rendered  during the year ended December 31, 2004, and for which
      the fair value of such options was accrued for the 2004 fiscal year.

(2)   Stock Bonus Plan

(3)   This  figure  includes  1,603,787  shares of the  Company's  Common  Stock
      repurchased  by the Company as of February 26,  2003,  from an officer and
      two directors, in satisfaction of outstanding notes receivable,  issued by
      the three individuals in consideration for shares issued to them under the
      Stock Bonus Plan on January 11,  2000.  Such notes were due and payable on
      December 31, 2002, and could not be extended  under  provisions of federal
      legislation known as the  Sarbanes-Oxley Act of 2002. These shares are now
      available for future issuance under the Stock Bonus Plan.

EQUITY COMPENSATION AND LONG-TERM INCENTIVE PLAN AWARDS

      The Company  adopted a Stock Bonus Plan  ("Stock  Bonus  Plan") in January
2000 and reserved 10,000,000 shares of Common Stock to be issued thereunder,  of
which 7,596,211  shares have been granted and issued as of December 31, 2004. In
December 2000, the Board of Directors approved the Company's 2000 Omnibus Equity
Incentive Plan ("OEI Plan") and reserved  4,000,000 shares of Common Stock to be
issued  thereunder to employees,  consultants  and directors,  subject to annual
increases equal to the lesser of 2.5% of the then  outstanding  shares of Common
Stock or 250,000  shares.  As of December 31, 2004,  no shares have been granted
under the OEI Plan. As of December 31, 2004,  options to purchase  approximately
4,990,000 shares have been granted or approved for grant under the OEI Plan.

      Prior to January,  2001,  the  Company  granted  other  stock  options and
warrants to purchase Company Common Stock which were not granted pursuant to any
equity  compensation  plan.  In  addition,  as of February 7, 2003,  the Company
granted  warrants to purchase 50,000 shares of Common Stock at an exercise price
of $0.16  per  share to each of the  following  consultants:  Dr.  Seji Haba and
Joseph  Tartel.  Subject to the terms  applicable to such grants,  the foregoing
warrants become exercisable in three equal  installments  commencing on February
7, 2004,  and expire seven years from the grant date. The warrants cease to vest
upon complete termination of the recipient's services as a consultant, employee,
officer or director of the Company.

      During the first quarter of 2005, the Company granted  BioEquity  Partners
warrants to purchase up to 300,000  shares of Common Stock at an exercise  price
of $0.20 per share  for  consulting  services,  partly  in  connection  with the
Company's  Phase I clinical  trials at Georgetown  University  Medical Center to
study an  investigational  treatment  for  AIDS.  Subject  to the  terms of such
warrants, the warrants become exercisable on March 20, 2006, and expire on March
20, 2015. The Company granted Dr. Yehuda  Shoenfeld,  Director of the Center for
Autoimmune  Diseases at the Israel Sheba Medial Center,  warrants to purchase up


                                       26
<PAGE>

to 10,000  shares of Common  Stock at an  exercise  price of $0.20 per share for
services as a member of the Company's  scientific advisory board. Subject to the
terms of such warrants,  the warrants are presently  exercisable,  and expire on
February 24, 2015.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The  following  table  sets forth the Common  Stock  ownership,  including
options  to  purchase  stock,  of each  person  known by the  Company  to be the
beneficial  owner of five percent (5%) or more of the  Company's  Common  Stock,
each  director  individually  and all officers and directors of the Company as a
group as of February 28, 2005. Each person has sole voting and investment  power
with respect to the shares of Common Stock shown,  unless  otherwise  noted, and
all ownership is of record and beneficial.  As of February 28, 2005, the Company
had 54,032,557 shares of Common Stock outstanding.

<TABLE>
<CAPTION>
                                              Number of Shares
Name and Address of Owner                    Beneficially Owned             Percentage of Total

<S>                                             <C>                               <C>
Richard P. Kiphart                              19,199,300(1)                     27.22%
222 W. Adams St.
Chicago, IL 60606

Boris Skurkovich, M.D.                          7,147,264(2)                      13.13%
18 Blaisdell Ave.
Pawtucket, RI 01860

Edmond F. Buccellato                            2,301,154(3)                       4.16%
6355 Topanga Canyon
   Boulevard, Suite 510
Woodland Hills, CA 91367

Alexander L. Cappello                           2,146,857(4)                       3.83%
100 Wilshire Boulevard
Suite 1200
Santa Monica, CA 90401

Lawrence Loomis                                 2,009,053(5)                       3.66%
9110 Red Branch Road
Columbia, MD 21045

Simon Skurkovich, M.D.                          1,693,440(6)                       3.06%
802 Rollins Avenue
Rockville, MD 20852

Thomas J. Pernice                               1,393,599(7)                       2.51%
6355 Topanga Canyon Boulevard
Suite 510
Woodland Hills, CA 91367

John M. Bendheim                                 573,790(8)                        1.10%
361 N. Canon Drive
Beverly Hills, CA 90210

Joseph A. Bellanti, M.D.                          25,000(9)                          *
6007 Corewood Lane
Bethesda MD 20816

All officers and directors as a group (10)       36,820,283                       47.01%
</TABLE>

(1)   Shares held in the name of Richard P. Kiphart include the right to acquire
      13,197,348 shares,  upon the conversion of $3,299,337  principal amount of
      the Company's 2002 Subordinated  Convertible Pay-In-Kind Notes Due June 1,
      2006  ("2002  Convertible  Notes  Due  2006")  and the  right  to  acquire
      3,220,552 shares,  upon the conversion of $805,138 principal amount of the
      Company's 2003  Subordinated  Convertible  Pay-In-Kind Notes Due September
      30,  2007,  options to purchase up to 20,000  shares of Common Stock at an
      exercise price of $0.21 per share, options to purchase up to 30,000 shares
      of Common  Stock at an  exercise  price of $0.42 per share and  options to
      purchase up to 25,000 shares of Common Stock at an exercise price of $0.20
      per share.


                                       27
<PAGE>

(2)   Shares  held in the name of Boris  Skurkovich  include  shares held in his
      name  (2,165,939),  and shares held in the name of Carol  Marjorie  Dorros
      (1,996,110)  and  Samuel  Aaron  Skurkovich  (3,141,880)  and  options  to
      purchase up to 10,000 shares of Common Stock at an exercise price of $0.25
      per share,  options to purchase up to 20,000  shares of Common Stock at an
      exercise price of $0.21 per share, options to purchase up to 30,000 shares
      at an exercise price of $0.42 per share, options to purchase up to 300,000
      shares of Common Stock at an exercise price of $0.16 per share and options
      to purchase up to 25,000 shares at $0.20 per share.

(3)   Shares held in the name of Edmond F.  Buccellato  comprise  shares held in
      the name of the Buccellato  Living Trust (17,000  shares),  shares held in
      the name of the Edmond F. and Leana J.  Buccellato  Living Trust  (828,719
      shares), shares held in the name of Buccellato & Finkelstein, Inc. (88,334
      shares) and shares  held in the name of Amy  Buccellato  (76,558  shares).
      Includes  options to purchase up to 105,543  shares of Common  Stock at an
      exercise price of $0.10 per share, options to purchase up to 50,000 shares
      of Common  Stock at an  exercise  price of $0.10  per  share,  options  to
      purchase up to 50,000 shares of Common Stock at an exercise price of $0.20
      per share,  options to purchase up to 10,000  shares of Common Stock at an
      exercise price of $0.25 per share, options to purchase up to 20,000 shares
      of Common  Stock at an  exercise  price of $0.21  per  share,  options  to
      purchase up to 30,000 shares of Common Stock at an exercise price of $0.42
      per share,  options to purchase up to 1,000,000  shares of Common Stock at
      an exercise  price of $0.16 per share and options to purchase up to 25,000
      shares of Common Stock at an exercise price of $0.20 per share.

(4)   Shares held in the name of Alexander L. Cappello  include warrants held in
      his name to purchase  100,000  shares of Common Stock at an exercise price
      of $0.25 per share, warrants assigned by Cappello Capital Corp. ("CCC") to
      the  Alexander  L. and Linda  Cappello  Family Trust  ("Family  Trust") to
      purchase  1,598,216  shares of Common Stock at an exercise  price of $0.15
      per share,  options to purchase up to 10,000  shares of Common Stock at an
      exercise price of $0.25 per share, options to purchase up to 20,000 shares
      of Common  Stock at an  exercise  price of $0.21  per  share,  options  to
      purchase up to 30,000 shares of Common Stock at an exercise price of $0.42
      per share,  and options to purchase up to 25,000 shares of Common Stock at
      an  exercise  price of $0.20 per  share.  Also  includes  the right of the
      Family Trust to acquire 207,696 shares of Common Stock upon exercise of an
      option to  purchase  at par up to  $51,924  principal  amount  of  Company
      convertible  debt  initially  issued  in 2000 and the  conversion  of such
      convertible debt at the original conversion price of $0.25 per share.

(5)   Includes shares held in the names of Lawrence Loomis (924,053  shares) and
      New Horizons  Diagnostics,  Inc. (200,000 shares), and options to purchase
      up to  10,000  shares of Common  Stock at an  exercise  price of $0.25 per
      share,  options  to  purchase  up to 20,000  shares of Common  Stock at an
      exercise price of $0.21 per share, options to purchase up to 30,000 shares
      of Common  stock at an  exercise  price of $0.42  per  share,  options  to
      purchase  up to 800,000  shares of Common  Stock at an  exercise  price of
      $0.16 per share and  options  to  purchase  up to 25,000  shares of Common
      Stock at an exercise price of $0.20 per share.

(6)   Shares held in the name of Simon Skurkovich include options to purchase up
      to 300,000 shares of Common Stock at an exercise price of $0.10 per share,
      options to  purchase up to 623,000  shares of Common  Stock at an exercise
      price of $0.10 per share,  and options to purchase up to 10,000  shares of
      Common Stock at an exercise price of $0.25 per share,  up to 20,000 shares
      of Common  Stock at an  exercise  price of $0.21 per  share,  up to 30,000
      shares of Common Stock at an exercise price of $0.42 per share, options to
      purchase  up to 300,000  shares of Common  Stock at an  exercise  price of
      $0.16 per share and  options  to  purchase  up to 25,000  shares of Common
      Stock at an exercise  price of $0.20 per share.  Simon  Skurkovich  is the
      father of Boris  Skurkovich  but  disclaims  beneficial  ownership  of the
      shares  attributed to him and disclaims that the two of them are part of a
      "group" for SEC purposes.

(7)   Shares held in the name of Thomas J. Pernice include  warrants to purchase
      100,000  shares of Common  Stock at an exercise  price of $0.25 per share,
      warrants  assigned by CCC to purchase  1,042,443 shares of Common Stock at
      an  exercise  price of $0.15 per share,  options to  purchase up to 10,000
      shares of Common Stock at an exercise price of $0.25 per share, options to
      purchase up to 20,000 shares of Common Stock at an exercise price of $0.21
      per share,  options to purchase up to 30,000  shares of Common Stock at an
      exercise  price of $0.42 per share and  options to  purchase  up to 25,000
      shares of Common  Stock at an  exercise  price of $0.20 per  share.  Also,
      includes the right to acquire 166,156 shares of Common Stock upon exercise
      of an option to purchase at par up to $41,539  principal amount of Company
      convertible  debt  and  the  conversion  of such  convertible  debt at the
      original conversion price of $0.25 per share.

(8)   Shares held in the name of John M. Bendheim  comprise warrants to purchase
      100,000  shares of Common  Stock at an exercise  price of $0.25 per share,
      options to  purchase  up to 10,000  shares of Common  Stock at an exercise
      price of $0.25 per  share,  options  to  purchase  up to 20,000  shares of
      Common Stock at an exercise price of $0.21 per share,  options to purchase
      up to 30,000 shares of Common Stock at an exercise price of $0.42, options
      to purchase up to 233,332  shares of Common Stock at an exercise  price of
      $0.16 per share and options to purchase up to 25,000 shares at an exercise
      price of $0.20.


                                       28
<PAGE>

(9)   Shares held in the name of Joseph A. Bellanti comprise options to purchase
      up to 25,000  shares of Common Stock at an exercise  price of $0.20.

(10)  Includes 2,840,659 shares of Common Stock underlying  warrants,  4,456,876
      shares of Common Stock underlying  options and 16,417,900 shares of Common
      Stock  underlying  outstanding  2002  Convertible  Notes  Due  2006,  2003
      Convertible  Notes Due 2007 and 373,852 shares of Common Stock  underlying
      options to acquire Convertible Debt.

---------------------------------------------------------------------------
* Represents less than 1% of the outstanding shares of Company Common Stock.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The Company is currently indebted to Simon Skurkovich, M.D., the Company's
Chairman  Emeritus of the Board of  Directors,  and  Director  of  Research  and
Development, in the amount of $127,631.

      During fiscal year 2004 the Company paid $7,500 to Boris Skurkovich,  M.D.
for  consulting  services and  reimbursement  for  out-of-pocket  expenses.  The
Company paid $309,576 to New Horizons  Diagnostics,  Inc. ("New  Horizons"),  of
which Director Lawrence Loomis is the majority shareholder, for expenses related
to research  and  development,  including  clean room  expenses  of  $64,059.64,
machinery  and  equipment  expenses of $3,325,  drug product  materials  and lab
supplies  in the amount of  $38,158,  capitalized  loan  payments  of $5,829 and
salaries totaling $198,205, including approximately $60,000 for Lawrence Loomis.
The Company  also paid New  Horizons an  aggregate  $72,160 in rent,  payable in
monthly  installments,  for  the  use of  approximately  3,500  square  feet  of
commercial building space. Mr. Loomis has personally guaranteed the repayment by
the  Company  of   approximately   $500,000   principal  amount  of  Convertible
Pay-In-Kind Notes held by Director Richard P. Kiphart.

      During  fiscal year 2004,  the Company paid an aggregate  $19,400 in rent,
payable $1,700 monthly (except for $700 in January, 2004), for the use of office
space from  Buccellato & Finkelstein,  Inc., of which Edmond F.  Buccellato is a
shareholder.  During  fiscal  year  2004,  the  Company  paid  to  Buccellato  &
Finkelstein,   Inc.,  the  sum  of  $24,480  for  accounting  services  and  tax
preparation and approximately  $23,047 in reimbursements  for medical and dental
insurance  for  Company  employees,  including  Edmond  F.  Buccellato  and  Amy
Buccellato. The Company also paid $35,600 to Amy Buccellato,  daughter of Edmond
Buccellato, for administrative and bookkeeping services.

      During  fiscal year 2004,  the  Company  paid an  aggregate  of $25,000 to
Cappello Capital Corp. for financial advisory services. Alexander L. Cappello is
a managing director of Cappello Capital Corp., which was retained  previously by
the Company in January, 2000 to render financial advisory and investment banking
services and  thereupon  was granted  warrants to purchase  4,685,135  shares of
Common Stock at $0.15 per share.  Such  warrants  have been  assigned to certain
individuals,  including  Alexander L. Cappello.  Cappello  Capital Corp.  raised
$1,510,500 in convertible  subordinated debt for the Company,  was paid $124,981
in fees and  expenses  related  thereto,  and was  granted an option to purchase
$151,050  principal  amount of  Convertible  Debt at par,  which option has been
assigned to certain  individuals  including  Alexander  L.  Cappello.  Thomas J.
Pernice was  formerly a managing  director of Cappello  Group,  Inc., a merchant
banking firm, which is owned by Alexander L. Cappello.  Mr. Pernice was assigned
a portion of the foregoing warrants and options.

      Director  Richard  P.  Kiphart  holds  Company  Convertible  Notes  in the
aggregate principal amount of $4,104,475,  upon which the Company is indebted to
him according to the terms of that Convertible Debt.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

Exhibit
Number      Description

2.1         Agreement  of  Merger  dated  as  of  July  14,  2000,  between  the
            Registrant,   a  Delaware   corporation,   and  Advanced  Biotherapy
            Concepts,  Inc.,  a  Nevada  corporation.  Filed  as  Appendix  A to
            Registrant's  Proxy Statement dated July 14, 2000, and  incorporated
            herein by reference.

2.2         Certificate of Incorporation  of Registrant.  Filed as an exhibit to
            Registrant's  10-QSB for the quarter ended  September 30, 2000,  and
            incorporated herein by reference.


                                       29
<PAGE>

2.3         Bylaws of Registrant. Filed as an exhibit to Registrant's 10-QSB for
            the quarter ended  September 30, 2000,  and  incorporated  herein by
            reference.

2.4         Certificate  of  Amendment  of  Certificate  of   Incorporation   of
            Registrant  filed  December 26, 2002,  in the office of the Delaware
            Secretary of State.

4.1         Form of Registrant's  Common Stock Certificate.  Filed as an exhibit
            to Registrant's Form 10-QSB filed on June 10, 1999, and incorporated
            herein by reference.

4.2         Form of 2002 Subordinated  Convertible  Pay-In-Kind Note due June 1,
            2006, dated November 14, 2002.

10.1        Form of Stock Bonus Plan.  Filed as an exhibit to Registrant's  Form
            10-KSB for the fiscal year ended December, 1999. Filed as an exhibit
            to  Registrant's  Form  10-KSB for the fiscal  year ended  December,
            1999.

10.2        Form of Common Stock Purchase  Warrant in favor of Cappello  Capital
            Corporation. Filed as an exhibit to Registrant's Form 10-QSB for the
            quarter ended March 31, 2000, and incorporated herein by reference.

10.3        Form of 2000 Omnibus Equity  Incentive Plan.  Filed as an exhibit to
            Registrant's  Form  10-KSB for the fiscal  year ended  December  31,
            2000, and incorporated herein by reference.

10.4        Form of Option  Agreement.  Filed as an exhibit to Registrant's Form
            10-KSB for the fiscal year ended December 31, 2000, and incorporated
            herein by reference.

10.5        Form of 10% Convertible  Subordinated  Debt Instrument.  Filed as an
            exhibit to  Registrant's  Form 10-QSB for the quarter ended June 30,
            2000, and incorporated herein by reference.

10.6        Form of Convertible  Subordinated Debt Purchase Agreement.  Filed as
            an exhibit to  Registrant's  Form  10-KSB for the fiscal  year ended
            December 31, 2000, and incorporated herein by reference.

10.7        Form  of  Investor  Rights   Agreement.   Filed  as  an  exhibit  to
            Registrant's  Form  10-KSB for the fiscal  year ended  December  31,
            2000, and incorporated herein by reference.

10.8        Form of 2002 Subordinated Convertible Pay-In-Kind Note due September
            30, 2004.  Filed as an exhibit to  Registrant's  Form 10-QSB for the
            quarter ended March 31, 2002, and incorporated herein by reference.

10.9        Form of Investor Rights  Agreement dated as of April 15, 2002. Filed
            as an exhibit to  Registrant's  Form  10-QSB for the  quarter  ended
            March 31, 2002, and incorporated herein by reference.

10.10       Form of 2002 Subordinated  Convertible  Pay-In-Kind Note due June 1,
            2006.  Filed as an  exhibit  to  Registrant's  Form  10-QSB  for the
            quarter  ended  September  30,  2002,  and  incorporated  herein  by
            reference.

10.11       Form of Investor Rights Agreement dated as of June 1, 2002. Filed as
            an exhibit to Registrant's  Form 10-QSB/A for the quarter ended June
            30, 2002, and incorporated by reference herein.

10.12       Form of Integrated  Project Service  Agreement for Pilot Formulation
            and Filling Area dated March 31, 2003. Filed on January 30, 2004, as
            Exhibit  10.12 to the  Company's  Form 10-QSB/A for the period ended
            March 31, 2003, and incorporated by reference herein.

10.13       Form of 2003  Subordinated  Convertible  Pay-In-Kind  Note Due 2007.
            Filed as an exhibit to Registrant's Form 8-K on October 28, 2004 and
            incorporated by reference herein.(1)

10.14       Form of the  Investor  Rights  Agreement.  Filed  as an  exhibit  to
            Registrant's  Form  8-K on  October  28,  2004 and  incorporated  by
            reference herein.(2)

31.1        Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).

31.2        Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).

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

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

----------

(1) Exhibit 10.13 was erroneously identified as Exhibit 10.12 in the original
filing and is correctly identified herein.

(2) Exhibit  10.14 was  erroneously  identified as Exhibit 10.13 in the original
filing and is correctly identified herein.


                                       30
<PAGE>

--------------------------------------------------------------------------------

The financial statements are incorporated herein by reference and begin with
Page F-1.

The following financial statements are included herein:

Independent Auditor's Report.................................................F-1

Financial Statements:

      Balance Sheets: .......................................................F-2

      Statements of Operations ..............................................F-3

      Statement of Stockholders' Equity (Deficit) ...........................F-4

      Statements of Cash Flows ..............................................F-5

Notes to Financial Statements: ..............................................F-6

REPORTS ON FORM 8-K

      The Registrant filed the following  reports on Form 8-K during the quarter
ended December 31, 2004:

      1.  October 4, 2004.  The  Registrant  reported  that  Edmond  Buccellato,
President and CEO of the Company, had been invited to make a presentation at the
William Blair & Company 7th Annual Private Equity Conference.

      2. October 11, 2004. The Registrant  reported that the Company completed a
pilot   investigational  study  using  antibodies  to  interferon-gamma  in  the
treatment  of  patients  suffering  from  Herpes  Simplex  Virus  Type  1 at the
Department of Skin and Venereal  Diseases,  Russian  State  Medical  University,
Moscow, Russia.

      3. October 19, 2004. The Registrant  reported that Simon  Skurkovich,  MD,
Ph.D., D.Sc., Senior Scientist of Advanced Biotherapy,  Inc. had been invited as
one of 40  internationally  renowned experts to present an  authoritative  paper
regarding  the Company's  approach to treating  autoimmune  skin diseases  using
anticytokine  therapy at workshop sponsored by Berlex and organized by the Ernst
Schering Research Foundation.

      4. December 1, 2004. The Registrant reported that the Company had received
a "Notice of Allowance"  from the United States Patent and Trademark  Office for
the use of  inhibitors,  including  antibodies,  to  interferon-gamma  to  treat
Uveitis, an autoimmune condition causing inflammation inside the eye.

      5. December 8, 2004.  The  Registrant  reported that Dr. Joseph  Bellanti,
Professor of Pediatrics and  Microbiology-Immunology at the International Center
for  Interdisciplinary  Studies of Immunology at Georgetown University School of
Medicine, presented the Company's-sponsored Phase I FDA-approved clinical trials
in AIDS patients at the Adult AIDS Clinical Trial Group (AACTG) winter meeting.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      (1)   Audit  Fees.  The  aggregate  fees  billed  for each of the last two
            fiscal  years for audit and review  were  approximately  $40,500 for
            2004 and $35,800 for 2003.

      (2)   Audit-Related  Fees.  The aggregate fees billed for each of last two
            fiscal years for assurance and related  services related to audit or
            review were $0.00 for 2004 and $1,243 for 2003 for  assistance  with
            Stock Bonus Notes receivable calculations.

      (3)   Tax Fees.  No fees were  billed  for  either of the last two  fiscal
            years for compliance, tax advice and tax planning.

      (4)   There were no other fees paid to the Company's  outside auditors for
            either of the last two fiscal years.

      (5)   (i)   Before the  Company  engaged  its  current  auditors to render
            services to the Company for or relating to the 2004 fiscal year, the
            engagement was approved by the Company's Audit Committee.

            (ii)  Disclose  percentage  of services  described  in each of Items
            9(e)(2)  through  9(e)(4) of Schedule 14A that were  approved by the
            Audit Committee pursuant to paragraph  (c)(7)(ii)(c) of Rule 2-01 of
            Regulation S-X: - 0 -%


                                       31
<PAGE>

                                   SIGNATURES

      Pursuant to the  requirements of Section 13 or 15(d) of the Securities and
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 30th day of
March, 2005.

                                       Advanced Biotherapy, Inc.
                                       (Registrant)

                                       By: /s/ Edmond F. Buccellato
                                           -------------------------------------
                                           President and 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 the
Registrant and in the capacities indicated and on the dates indicated.

<TABLE>
<CAPTION>
Date                      Signature                              Title
----                      ---------                              -----
<S>                       <C>                                    <C>
March 30, 2005            /s/ Edmond F. Buccellato               President and Chief Executive Officer,
                          -------------------------------        Director
                          Edmond F. Buccellato

March 30, 2005            /s/ William M. Finkelstein             Chief Financial Officer
                          -------------------------------        (Principal Financial and Accounting
                          William M. Finkelstein                 Officer)


March 30, 2005            /s/ Joseph A. Bellanti, M.D.           Director
                          -------------------------------
                          Joseph A. Bellanti, M.D.

March 30, 2005            /s/ John M. Bendheim                   Director
                          -------------------------------
                          John M. Bendheim

March 30, 2005            /s/ Alexander L. Cappello              Director
                          -------------------------------
                          Alexander L. Cappello

March 30, 2005            /s/ Richard P. Kiphart                 Director
                          -------------------------------
                          Richard P. Kiphart

March 30, 2005            /s/ Thomas J. Pernice                  Director
                          -------------------------------
                          Thomas J. Pernice

March 30, 2005            /s/ Boris Skurkovich, M.D.             Director
                          -------------------------------
                          Boris Skurkovich, M.D.

March 30, 2005            /s/ Simon Skurkovich, M.D.             Director
                          -------------------------------
                          Simon Skurkovich, M.D.
</TABLE>


                                       32

<PAGE>

ADVANCED BIOTHERAPY, INC.
(A Development Stage Enterprise)
December 31, 2004

CONTENTS

Report of Independent Registered Public Accounting Firm                      F-1

Balance Sheets                                                               F-2

Statements of Operations                                                     F-3

Statement of Stockholders' Deficit                                           F-4

Statements of Cash Flows                                                     F-5

Notes to Financial Statements                                                F-6

<PAGE>

Board of Directors
Advanced Biotherapy, Inc.
Woodland Hills, CA

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying balance sheets of Advanced Biotherapy,  Inc. (a
development  stage enterprise) as of December 31, 2004 and 2003, and the related
statements  of  operations,  stockholders'  deficit and cash flows for the years
then ended and for the period from Decemberr 2, 1985 (inception) to December 31,
2004.  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 audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  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  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Advanced Biotherapy, Inc. as of
December  31,  2004 and 2003 and the  results of its  operations,  stockholders'
deficit  and its cash flows for the years then  ended,  and for the period  from
December 2, 1985 (inception) to December 31, 2004, 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 2 to the
financial   statements,   the  Company's   significant  operating  losses  raise
substantial doubt about its ability to continue as a going concern. Management's
plans  regarding the  resolution of this issue are also discussed in Note 1. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

Williams & Webster, P.S.
Certified Public Accountants
Bank of America Financial Center
W. 601 Riverside, Suite 1940
Spokane, Washington 99201
(509) 838-5111
March 29, 2005


                                       F-1
<PAGE>
ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                          December 31,    December 31,
                                                                                              2004           2003
                                                                                         ------------    ------------
ASSETS
<S>                                                                                     <C>             <C>
    CURRENT ASSETS

             Cash and cash equivalents                                                   $    367,337    $     44,591
             Marketable securities                                                                 --       2,000,000
             Notes receivable - related party                                                  46,619          46,619
             Interest receivable - related party                                               15,060          12,030
             Deposits and prepaid expenses                                                     32,001          54,967
                                                                                         ------------    ------------
                      Total Current Assets                                                    461,017       2,158,207
                                                                                         ------------    ------------

    PROPERTY, PLANT AND EQUIPMENT, net                                                        315,101         249,156
                                                                                         ------------    ------------

    OTHER ASSETS

             Deferred loan origination fees, net of accumulated amortization                   26,319          71,022
             Patents and patents pending, net of accumulated amortization                     842,503         611,924
                                                                                         ------------    ------------
                      Total Other Assets                                                      868,822         682,946
                                                                                         ------------    ------------

TOTAL ASSETS                                                                             $  1,644,940    $  3,090,309
                                                                                         ============    ============


LIABILITIES AND STOCKHOLDERS' DEFICIT

    CURRENT LIABILITIES

             Accounts payable                                                            $    220,007    $    148,727
             Accounts payable - related party                                                  40,500           6,713
             Accrued expenses - related party                                                   8,500          94,500
             Loan payable - related party                                                          --           4,992
             Current portion of convertible notes payable                                          --       2,429,710
                                                                                         ------------    ------------
                      Total Current Liabilities                                               269,007       2,684,642
                                                                                         ------------    ------------

    LONG-TERM DEBT

             Convertible notes payable, net of current portion                              4,945,413       4,421,276
             Note payable to related parties                                                  127,631         127,631
                                                                                         ------------    ------------
                      Total Long-Term Debt                                                  5,073,044       4,548,907
                                                                                         ------------    ------------

    TOTAL LIABILITIES                                                                       5,342,051       7,233,549
                                                                                         ------------    ------------

    COMMITMENTS AND CONTINGENCIES                                                                  --              --
                                                                                         ------------    ------------

    STOCKHOLDERS' DEFICIT

             Preferred stock, par value $0.001; 20,000,000 shares authorized,
                 no shares issued and outstanding                                                  --              --
             Common stock, par value $0.001; 200,000,000 shares authorized,
                 54,032,557 and 43,088,365 shares issued and outstanding, respectively         54,032          43,087
             Additional paid-in capital                                                     6,525,037       3,908,058
             Stock options and warrants                                                       865,916         607,016
             Deficit accumulated during development stage                                 (11,142,096)     (8,701,401)
                                                                                         ------------    ------------
                      Total Stockholders' Deficit                                          (3,697,111)     (4,143,240)
                                                                                         ------------    ------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                              $  1,644,940    $  3,090,309
                                                                                         ============    ============

</TABLE>

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


                                      F-2
<PAGE>


ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                             From Inception
                                               Year Ended December 31,     (December 2, 1985)
 -                                           ---------------------------        through
                                                 2004             2003      December 31, 2004
                                                 ----             ----      ----------------
<S>                                        <C>             <C>             <C>
REVENUES                                    $         --    $         --    $     89,947
                                            ------------    ------------    ------------

OPERATING EXPENSES

  Research and development                       557,807         488,141       3,637,917
  Promotional fees                                27,678           8,468          62,314
  Professional fees                              202,730         193,567       2,779,707
  Directors' fees                                 40,500          94,500         201,880
  Depreciation and amortization                  117,893         103,029         780,110
  Administrative salaries and benefits           447,480         254,720       1,810,678
  Insurance                                       78,586          74,335         269,682
  Shareholder relations and transfer fees         47,465          40,348         291,306
  Rent                                            91,561          83,301         330,978
  Travel and entertainment                        55,917          77,176         306,226
  Telephone and communications                    10,987          14,111          56,618
  Office                                          10,361           9,837          75,417
  General and administrative                      48,624          58,087         731,419
                                            ------------    ------------    ------------
           Total Operating Expenses            1,737,589       1,499,620      11,334,252
                                            ------------    ------------    ------------

LOSS FROM OPERATIONS                          (1,737,589)     (1,499,620)    (11,244,305)

OTHER INCOME (EXPENSES)

  Miscellaneous income                             3,000              --          25,000
  Interest and dividend income                    18,818          35,404         166,383
  Internal gain on sale of securities                 --              --         157,520
  Forgiveness of debt                                 --              --       2,047,437
  Forgiveness of payables                             --              --          45,396
  Loss on disposal of office equipment                --              --          (2,224)
  Loss on abandonment of patents                 (14,852)             --         (14,852)
  Interest expense                              (710,072)       (644,224)     (2,322,451)
                                            ------------    ------------    ------------
           Total Other Income (Expenses)        (703,106)       (608,820)        102,209
                                            ------------    ------------    ------------

LOSS BEFORE INCOME TAXES                      (2,440,695)     (2,108,440)    (11,142,096)

INCOME TAXES                                          --              --              --
                                            ------------    ------------    ------------

NET LOSS                                    $ (2,440,695)   $ (2,108,440)   $(11,142,096)
                                            ============    ============    ============

  BASIC AND DILUTED NET LOSS

  PER COMMON SHARE                          $      (0.05)   $      (0.05)
                                            ============    ============

  WEIGHTED AVERAGE NUMBER OF
  BASIC AND DILUTED COMMON STOCK
  SHARES OUTSTANDING                          52,102,082      42,615,700
                                            ============    ============

</TABLE>

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

                                      F-3
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' DEFICIT

-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                                      Deficit
                                              Common Stock                                          Accumulated
                                        ---------------------        Additional        Stock          During
                                                                      Paid-in       Options and     Development
                                        Shares         Amount         Capital         Warrants         Stage             Total
                                        ------         ------         -------         --------         -----             -----
<S>                                  <C>           <C>             <C>             <C>             <C>             <C>
Balance, December 31, 2002            43,601,317    $     43,600    $  3,937,923    $    580,027    $ (6,592,961)   $ (2,031,411)

Contribution of capital by
  shareholders in form
   of foregone interest                       --              --           4,230              --              --           4,230

Common stock issued in
  exchange for convertible
   debt at $0.25 per share               788,991             789         196,460              --              --         197,249

Stock issued for cash at
  an average price of $0.01
   per share from the exercise
    of options                           150,000             150           1,350              --              --           1,500

Stock returned in settlement
  of notes and accrued
   interest receivable                (1,603,789)         (1,604)       (238,964)             --              --        (240,568)

Stock options issued in exchange
  for services                                --              --              --          34,200              --          34,200

Stock issued for cashless
  exercise of warrants at
   $0.00 per share                       151,846             152           7,059          (7,211)             --              --

Net loss for the year ended
  December 31, 2003                           --              --              --              --      (2,108,440)     (2,108,440)
                                    ------------    ------------    ------------    ------------      ----------    ------------

Balance, December 31, 2003            43,088,365          43,087       3,908,058         607,016      (8,701,401)     (4,143,240)

Contribution of capital by
  shareholders in form
   of foregone interest                       --              --           4,480              --              --           4,480

Common stock issued in
  exchange for convertible
   debt at $0.24 per share            10,896,275          10,897       2,604,747              --              --       2,615,644

Stock options issued to
  directors in exchange
   for services                               --              --              --          94,500              --          94,500

Stock options and warrants
  issued in exchange for
   services, one third vested                 --              --              --         172,200              --         172,200

Stock issued for cashless
  exercise of warrants at $0.16
   per share                              47,917              48           7,752          (7,800)             --              --

Net loss for the year ended
  December 31, 2004                           --              --              --              --      (2,440,695)     (2,440,695)
                                    ------------    ------------    ------------    ------------   --------------    ------------

Balance, December 31, 2004            54,032,557    $     54,032    $  6,525,037    $    865,916    $(11,142,096)   $ (3,697,111)
                                    ============    ============    ============    ============   ==============    ============
</TABLE>

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


                                      F-4
<PAGE>


ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>


                                                                                                            From Inception
                                                                               Year Ended December 31,    (December 2, 1985
                                                                            ----------------------------       through
                                                                                 2004            2003      December 31, 2004
                                                                                 ----            ----      -----------------
<S>                                                                        <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

         Net (loss)                                                         $  2,440,695)   $ (2,108,440)   $(11,142,096)
         Adjustments to reconcile net loss to cash
         used in operating activities:
                 Depreciation and amortization                                   117,893          45,141         722,222
                 Loss on disposal of equipment                                        --              --           2,224
                 Loss on impairment of patents                                    14,852              --          14,852
                 Investment income                                                    --              --        (157,520)
                 Expenses paid through issuance of common stock                       --              --         231,340
                 Expenses paid through issuance
                   of common stock warrants and options                          266,700          34,200         670,189
                 Accrued interest paid by convertible debt                       710,072         644,224       1,932,343
                 Expenses paid through contribution
                   of additional paid-in capital                                   4,480           4,230          60,291
                 Organization costs                                                   --              --          (9,220)
                 Decrease (increase) in assets:
                         Marketable securities                                 2,000,000       1,000,000              --
                         Deposits and prepaid expenses                            22,966             (85)        (32,001)
                         Interest receivable                                      (3,030)         (4,989)        (55,628)
                         Deferred loan origination cost                               --          57,888        (157,295)
                 Increase (decrease) in liabilities:
                         Accounts payable                                         71,280          35,270         297,548
                         Accounts and notes payable, related parties             (57,205)         28,664          99,090
                         Payroll and payroll taxes payable                            --              --           8,878
                                                                            ------------    ------------    ------------

                                Net cash used in operating activities            707,313        (263,897)     (7,514,783)
                                                                            ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

         Purchase of fixed assets                                                (81,232)       (239,976)       (384,481)
         Acquisition of patents                                                 (303,335)       (284,117)     (1,075,554)
                                                                            ------------    ------------    ------------

                                Net cash used in investing activities           (384,567)       (524,093)     (1,460,035)
                                                                            ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:

         Proceeds from issuance of common stock                                       --           1,500       2,457,254
         Internal gain on sale of securities                                          --              --         157,520
         Proceeds from convertible notes                                              --         800,000       6,514,000
         Proceeds from notes payable                                                  --              --         388,508
         Payments on notes payable                                                    --              --        (175,127)
                                                                            ------------    ------------    ------------

                                Net cash provided by financing activities             --         801,500       9,342,155
                                                                            ------------    ------------    ------------

         Net increase (decrease) in cash                                         322,746          13,510         367,337

         Cash and cash equivalents, beginning                                     44,591          31,081              --
                                                                            ------------    ------------    ------------

         Cash and cash equivalents, ending                                  $    367,337    $     44,591         367,337
                                                                            ============    ============    ============

SUPPLEMENTAL CASH FLOW DISCLOSURES:

         Interest expense paid                                              $      1,239    $        651    $    341,166
                                                                            ============    ============    ============
         Income taxes paid                                                  $         --    $         --    $         --
                                                                            ============    ============    ============

NON-CASH FINANCING AND INVESTING ACTIVITIES:

         Common stock issued in exchange for
                 professional fees and expenses                             $         --    $         --    $    340,869
         Contributed expenses                                               $      4,480    $      4,230    $     60,291
         Common stock issued for a loan payable                             $         --    $         --    $    213,381
         Common stock issued for notes receivable                           $         --    $         --    $    246,619
         Common stock returned in payment of
                 notes and interest receivable                              $         --    $    240,568    $    240,568
         Options issued for services                                        $    266,700    $     34,200    $    423,900
         Common stock issued on cashless exercise of warrants               $      7,800    $      7,211    $     15,011
         Warrants issued for services                                       $         --    $         --    $    246,289
         Accrued interest paid by convertible debt                          $    710,072    $    644,224    $  1,932,343
         Common stock issued for convertible debt                           $         --    $    197,249    $    707,156

</TABLE>

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

                                      F-5
<PAGE>
ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS

December 31, 2004
--------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Advanced Biotherapy, Inc. was originally incorporated December 2, 1985 under the
laws of the State of Nevada as Advanced  Biotherapy  Concepts,  Inc. On July 14,
2000, the Company  incorporated a wholly owned subsidiary,  Advanced Biotherapy,
Inc. in the State of Delaware. On September 1, 2000, the Company merged with its
wholly owned subsidiary,  effectively  changing its name to Advanced Biotherapy,
Inc. (hereinafter "the Company" or "ABI") and its domicile to Delaware.

The Company is involved in the research  and  development  for the  treatment of
autoimmune  diseases in humans,  most notably,  multiple  sclerosis,  rheumatoid
arthritis,  and certain  autoimmune skin diseases and AIDS. The Company conducts
its  research in Maryland.  The  Company's  fiscal  year-end is December 31. The
Company is a development stage enterprise.

The Company has been in the  development  stage since its  formation in 1985 and
has not realized any  significant  revenues from its planned  operations.  It is
primarily engaged in the research and development of the treatment of autoimmune
diseases in humans, most notably, multiple sclerosis and rheumatoid arthritis.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern.

For the year  ended  December  31,  2004,  the  Company  incurred  a net loss of
$2,440,695  and had an  accumulated  deficit  during  the  development  stage of
$11,142,096.  The Company has limited funds for research and  development  costs
and  operations  and it does not have a  source  of  revenues  to  continue  its
operations,  research and  development  costs or to service its debt at maturity
beyond such  funding.  For the  twelve-month  period  subsequent to December 31,
2004, the Company  anticipates that its minimum  operating cash  requirements to
continue  as a going  concern  will be less than  $2,400,000.  The future of the
Company is dependent upon securing  additional debt or equity funding and future
profitable  operations from the commercial  success of its medical  research and
development  of  products  to  combat  diseases  of  the  human  immune  system.
Management's  goal is to  forge  a  collaborative  relationship  with  either  a
pharmaceutical or biotechnology company. If successful, future cash requirements
may be met through licensing fees and royalties. The financial statements do not
include any adjustments  relating to the  recoverability  and  classification of
recorded assets, or the amounts and  classification of liabilities that might be
necessary in the event the Company cannot continue in existence.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Advanced Biotherapy,  Inc. is
presented to assist in understanding  the Company's  financial  statements.  The
financial statements and notes are representations of the Company's  management,
which is  responsible  for their  integrity and  objectivity.  These  accounting
policies  conform to  accounting  principles  generally  accepted  in the United
States of America,  and have been consistently applied in the preparation of the
financial statements.



                                      F-6
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS

December 31, 2004
--------------------------------------------------------------------------------

Accounting Method

The Company's  financial  statements  are prepared  using the accrual  method of
accounting.

Recent Accounting Pronouncements

In December 2004, the Financial  Accounting  Standards Board issued Statement of
Financial Accounting Standards No. 153. This statement addresses the measurement
of  exchanges  of  nonmonetary  assets.  The  guidance  in APB  Opinion  No. 29,
"Accounting  for  Nonmonetary  Transactions,"  is  based on the  principle  that
exchanges of  nonmonetary  assets should be measured  based on the fair value of
the assets exchanged.  The guidance in that opinion;  however,  included certain
exceptions to that principle.  This statement amends Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general  exception for exchanges of  nonmonetary  assets that do not have
commercial  substance.  A nonmonetary  exchange has commercial  substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. This statement is effective for financial statements for fiscal
years  beginning  after June 15, 2005.  Earlier  application  is  permitted  for
nonmonetary  asset  exchanges  incurred  during fiscal years beginning after the
date of this  statement  is issued.  Management  believes  the  adoption of this
statement will have no impact on the financial statements of the Company.

In December 2004, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards  No. 152,  which amends FASB  statement No. 66,
"Accounting for Sales of Real Estate," to reference the financial accounting and
reporting guidance for real estate time-sharing transactions that is provided in
AICPA Statement of Position (SOP) 04-2, "Accounting for Real Estate Time-Sharing
Transactions." This statement also amends FASB Statement No. 67, "Accounting for
Costs and Initial Rental  Operations of Real Estate Projects," to state that the
guidance  for (a)  incidental  operations  and (b) costs  incurred  to sell real
estate  projects does not apply to real estate  time-sharing  transactions.  The
accounting  for those  operations  and costs is subject to the  guidance  in SOP
04-2.  This  statement is effective  for financial  statements  for fiscal years
beginning  after  June  15,  2005.  Management  believes  the  adoption  of this
statement will have no impact on the financial statements of the Company.

In December 2004, the Financial  Accounting Standards Board issued a revision to
Statement of Financial  Accounting  Standards  No. 123R,  "Accounting  for Stock
Based  Compensation." This statement  supercedes APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and its related  implementation  guidance.  This
statement  establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. It also addresses
transactions  in which an entity  incurs  liabilities  in exchange  for goods or
services that are based on the fair value of the entity's equity  instruments or
that may be settled by the issuance of those equity instruments.  This statement
focuses  primarily on accounting  for  transactions  in which an entity  obtains
employee services in share-based payment  transactions.  This statement does not
change the accounting guidance for share based payment transactions with parties
other than employees provided in Statement of Financial Accounting Standards No.
123. This statement does not address the accounting for employee share ownership
plans,  which are  subject to AICPA  Statement  of  Position  93-6,  "Employers'
Accounting  for  Employee  Stock  Ownership  Plans."  The  Company  has  not yet
determined  the impact to its  financial  statements  from the  adoption of this
statement.

                                      F-7
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS

December 31, 2004
--------------------------------------------------------------------------------

In November  2004,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement of  Financial  Accounting  Standards  No. 151,  "Inventory  Costs-- an
amendment of ARB No. 43, Chapter 4." This  statement  amends the guidance in ARB
No. 43, Chapter 4,  "Inventory  Pricing," to clarify the accounting for abnormal
amounts of idle facility expense,  freight,  handling costs, and wasted material
(spoilage).  Paragraph  5 of ARB 43,  Chapter 4,  previously  stated that ". . .
under  some  circumstances,  items  such as  idle  facility  expense,  excessive
spoilage,  double freight, and rehandling costs may be so abnormal as to require
treatment as current period charges.  . . ." This statement  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  overheads to the costs of conversion be based on
the normal  capacity of the production  facilities.  This statement is effective
for inventory  costs incurred during fiscal years beginning after June 15, 2005.
Management  does not  believe  the  adoption  of this  statement  will  have any
immediate material impact on the Company.

In May 2003,  the  Financial  Accounting  Standards  Board  issued  Statement of
Financial  Accounting  Standards  No. 150,  "Accounting  for  Certain  Financial
Instruments with  Characteristics  of Both Liabilities and Equity"  (hereinafter
"SFAS  No.  150").  SFAS No.  150  establishes  standards  for  classifying  and
measuring certain financial instruments with characteristics of both liabilities
and equity and requires that those  instruments  be classified as liabilities in
statements of financial  position.  Previously,  many of those  instruments were
classified  as  equity.  SFAS No. 150 is  effective  for  financial  instruments
entered  into or modified  after May 31, 2003 and  otherwise is effective at the
beginning  of the first  interim  period  beginning  after  June 15,  2003.  The
Company's  adoption of this  statement  did not have an impact on the  financial
statements of the Company.

Accounting for Long-Lived Assets

In October 2001, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards  No. 144,  "Accounting  for the  Impairment  or
Disposal of Long-Lived  Assets"  ("SFAS No. 144").  This standard  establishes a
single  accounting  model  for  long-lived  assets  to be  disposed  of by sale,
including discontinued  operations.  SFAS No. 144 requires that these long-lived
assets be measured  at the lower of  carrying  amount or fair value less cost to
sell, whether reported in continuing operations or discontinued operations.  The
Company has adopted  this  statement  and does not believe any  adjustments  are
needed to the carrying value of its assets at December 31, 2004.

Cash and Cash Equivalents

For purposes of the  statement  of cash flows,  the Company  considers  all bank
accounts,  certificates  of deposit,  money market  accounts and short-term debt
securities  purchased  with a  maturity  of  three  months  or  less  to be cash
equivalents.

Use of Estimates

The process of preparing  financial  statements  in conformity  with  accounting
principles  generally  accepted in the United States of America requires the use
of estimates and  assumptions  regarding  certain types of assets,  liabilities,
revenues,   and  expenses.   Such  estimates   primarily   relate  to  unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.

                                      F-8
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS

December 31, 2004
--------------------------------------------------------------------------------

Provision for Taxes

Income taxes are provided based upon the liability method of accounting pursuant
to Statement of Financial  Accounting  Standards No. 109, "Accounting for Income
Taxes." Under this approach,  deferred  income taxes are recorded to reflect the
tax consequences in future years of differences  between the tax basis of assets
and  liabilities  and their  financial  reporting  amounts at each  year-end.  A
valuation  allowance is recorded  against deferred tax assets if management does
not believe the Company has met the "more likely than not"  standard  imposed by
SFAS No. 109 to allow recognition of such an asset.

Reclassifications

Certain  amounts from prior periods have been  reclassified  to conform with the
current period presentation. These reclassifications have resulted in no changes
to the Company's accumulated deficit or net losses presented.

Promotional Fees

Promotional  fees are charged to  operations in the year  incurred.  Promotional
fees  amounted to $27,678 and $8,468 for the years ended  December  31, 2004 and
2003, respectively.

Advertising Expenses

Advertising  expenses  consist  primarily  of  costs  incurred  in  the  design,
development,  and printing of Company  literature and marketing  materials.  The
Company expenses all advertising  expenditures as incurred.  The Company did not
incur advertising expenses for the years ended December 31, 2004 and 2003.

Research and Development Costs

Costs of research and development are expensed as incurred.

Compensated Absences

Employees  of the Company  are  entitled  to paid  vacation,  paid sick days and
personal days off, depending on job classification, length of service, and other
factors.   No  liability  has  been  recorded  in  the  accompanying   financial
statements, because of the relative immateriality of this obligation.

Revenue Recognition

Upon  entering into license  agreements  with other  companies,  revenue will be
recognized  when fees are earned.  Prior to 1994,  revenues were recognized when
fees for services related to research activities were received.

Fair Value of Financial Instruments

The  carrying  amounts for cash,  investments,  deposits  and prepaid  expenses,
receivables,   accounts  payable,   accrued   liabilities,   notes  payable  and
convertible debt approximate their fair value.

                                      F-9
<PAGE>

Deferred Loan Origination Fees

During the year ended  December 31, 2000, the Company  entered into  convertible
subordinated debt, which required the payment of loan origination fees. See Note
12. These loan  origination fees are amortized over the life of the related debt
and were fully  amortized at December 31, 2004.  During the years ended December
31, 2004 and 2003, the Company  recorded  amortization  expense related to these
fees of $19,368 and $27,712, respectively.

During the year ended  December 31, 2002, the Company  entered into  convertible
subordinated debt, which required the payment of loan origination fees. See Note
12. These loan  origination  fees,  which totaled  $26,319,  net of  accumulated
amortization  at December 31, 2004,  are amortized  over the life of the related
debt.  During the years ended December 31, 2004 and 2003,  the Company  recorded
amortization expense related to these fees of $25,336 and $30,176 respectively.

Derivative Instruments

The  Financial   Accounting   Standards  Board  issued  Statement  of  Financial
Accounting  Standards ("SFAS") No. 133,  "Accounting for Derivative  Instruments
and Hedging  Activities," as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging  Activities - Deferral of the Effective Date of FASB No.
133", SFAS No. 138,  "Accounting for Certain Derivative  Instruments and Certain
Hedging Activities", and SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging  Activities".  These statements establish accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments  embedded  in other  contracts,  and for  hedging  activities.  They
require that an entity recognize all derivatives as either assets or liabilities
in the balance sheet and measure those instruments at fair value.

If certain conditions are met, a derivative may be specifically  designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging  derivative  with the  recognition of (i) the changes in the fair
value of the hedged asset or liability that are  attributable to the hedged risk
or  (ii)  the  earnings  effect  of the  hedged  forecasted  transaction.  For a
derivative  not  designated  as a  hedging  instrument,  the  gain  or  loss  is
recognized in income in the period of change.

Historically,  the Company has not entered into  derivatives  contracts to hedge
existing risks or for speculative purposes.

At December 31, 2004, the Company has not engaged in any transactions that would
be considered derivative instruments or hedging activities.

Earnings (loss) per share

Basic earnings (loss) per share is computed by dividing the net income (loss) by
the  weighted  average  number of shares  outstanding  during  the  period.  The
weighted  average  number of shares is calculated by taking the number of shares
outstanding and weighting them by the amount of time that they were outstanding.

                                      F-10
<PAGE>


ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS

December 31, 2004
--------------------------------------------------------------------------------

Diluted earnings (loss) per share is computed by dividing the net income (loss),
adjusted for  interest  expense on  convertible  debt,  by the weighted  average
number of basic shares outstanding  increased by the number of shares that would
be outstanding  assuming  conversion of the exercisable  stock options  (516,310
shares),  warrants (993,023 shares),  and convertible debt (19,781,699  shares).
Diluted net loss per share is the same as basic net loss per share as  inclusion
of the common stock equivalents would be antidilutive.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment are stated at cost.  Depreciation  is provided  using the
straight-line  method over the estimated  useful lives of the assets of three to
thirty-nine  years.  During the year ended December 31, 2004, the Company placed
the clean room in service  and wrote off a total of $5,380 of fully  depreciated
assets as they had been abandoned.

The following is a summary of property,  equipment and accumulated  depreciation
at December 31, 2004 and 2003:

                              December 31, 2004             December 31, 2003
                           -----------------------        ----------------------
                                      Accumulated                   Accumulated
                           Cost       Depreciation        Cost      Depreciation
                           ----       ------------        ----      ------------
Lab equipment            $ 31,891       $  3,875       $ 28,566       $  1,184
Office equipment           12,918         10,621         16,909         10,268
Furniture and fixtures     22,539          7,214         10,082          2,674
Clean room                271,786          2,323        207,725             --
                         --------       --------       --------       --------
                         $339,134       $ 24,033       $263,282       $ 14,126
                         ========       ========       ========       ========


Depreciation  expense for the years ended December 31, 2004 and 2003 was $15,287
and $7,235, respectively.

NOTE 4 - INVESTMENTS

Marketable Securities

In 2003, the Company's  investments in equity securities that are intended to be
held for a short period are classified as trading  securities.  These securities
are  recorded  at fair value as current  assets on the  balance  sheet under the
caption of marketable  securities.  The change in fair value of those securities
is  included  in  earnings  during the period  presented.  During the year ended
December 31, 2004, a total of $1,700,000  was redeemed and  transferred  to cash
with no gain or loss being  recognized.  As of December 31, 2004,  the Company's
marketable  securities investment consists of auction rate preferred stock money
market  alternatives  that roll  every  seven days at the then  existing  market
interest rate. As these  investments  are readily  convertible to cash, they are
reported as cash equivalents.  These investments are not insured, and therefore,
a total of $300,000 was at risk on December 31, 2004.

                                      F-11
<PAGE>
ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS

December 31, 2004
--------------------------------------------------------------------------------


NOTE 5 - INTANGIBLE ASSETS

Patents and Patents Pending

Costs relating to the development  and approval of patents,  other than research
and  development  costs which are expensed,  are capitalized and amortized using
the straight-line  method over seventeen years.  Patents prior to 1998 have been
abandoned;  therefore,  an  abandonment  loss on  patents  of  $14,852  has been
recognized.  The  Company's  patents  relate  to  the  treatment  of  autoimmune
diseases.

The following is a summary of the costs of patents and patents pending:

                                                   Accumulated           Net
                                       Cost        Amortization         Amount
                                       ----        ------------         ------
Balance, December 31, 2002          $ 488,102        $(122,389)       $ 365,713
2003 Activity                         284,117          (37,906)         246,211
                                    ---------        ---------        ---------
Balance, December 31, 2003            772,219         (160,295)         611,924
2004 Activity                         303,332          (57,901)         245,431
Abandonment of Patents               (109,162)          94,310          (14,852)
                                    ---------        ---------        ---------
Balance, December 31, 2004          $ 966,389        $(123,888)       $ 842,503
                                    =========        =========        =========

NOTE 6 - RELATED PARTY TRANSACTIONS

Transactions in 2003

On February 7, 2003, the board of directors  unanimously approved the repurchase
and  cancellation  of  1,603,789  shares of common stock from an officer and two
directors to the Company in  satisfaction  of outstanding  notes  receivable and
accrued interest totaling  $240,568.  The notes were due and payable on December
31, 2002 and could not be extended under provisions of federal legislation known
as the  Sarbanes-Oxley  Act.  These  shares  had been  previously  issued to the
officer and directors under the Stock Bonus Plan on January 11, 2000.

The  Company  has notes  receivable  in the  aggregate  amount of  $46,619  from
non-officer/director  shareholders  of the Company in connection  with a payment
plan for the purchase of Company stock.  The notes accrue  interest at a rate of
6.5% per annum and mature on December 31, 2007.

The note  payable to related  parties  consists of a loan  payable to one of the
Company's   directors.   The  note  has  no  specific  due  date,  is  currently
uncollateralized,  and is non-interest bearing,  however, interest is calculated
at the applicable federal rate each quarter.  The calculated  interest of $3,357
was recorded  during the year ending  December 31, 2004 as interest  expense and
contributed  capital in the accompanying  financial  statements because the note
holder elected to forgive this interest.

The Company purchased  laboratory equipment for $7,767 from a firm, which has as
a  shareholder,  one of the directors in 2003 of Advanced  Biotherapy,  Inc. The
Company agreed to make monthly  payments of $486 for a total of 18 months on the
invoice for this equipment.  The balances due at December 31, 2004 and 2003 were
$0 and $4,992, respectively.

                                      F-12
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS

December 31, 2004
--------------------------------------------------------------------------------


The board of directors adopted a policy that restricts the sale of shares of the
Company's  common stock by  directors  for a period of one year  terminating  on
August 31, 2004, unless prior to that date the Company's common stock achieves a
market price of $1.50 for fourteen consecutive trading days.

See Note 13 for related party occupancy agreements.

NOTE 7 - CONCENTRATIONS

Bank Accounts and investments

The Company  maintains  cash in a money market  account at a bank in California.
The funds on  deposit  are not  insured by the FDIC and,  therefore,  a total of
$68,397 is at risk on December 31, 2004.

The Company also has cash  equivalents  which consist of auction rate  preferred
money market  alternatives.  This  investment is not insured,  and therefore,  a
total of $300,000 is at risk as of December 31, 2004. See Note 4.

NOTE 8 - COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

Information regarding the number of shares issued and consideration  received is
as follows:

                                    Common Stock
                     ----------------------------------------
                      Average
                     price per                                   Additional Paid
                       share          Shares           Amount      -in Capital
                     ---------        ------           ------      -----------
Common stock
  issued for cash:

        1985         $    .50        100,000         $     100      $  49,900
        1986             1.00        639,500               640        678,861
        1987             1.00        850,500               850        759,650
        1988             1.00         25,000                25         24,975
        1993              .25      2,402,000             2,402        475,900
        1995              .05      1,000,000             1,000         49,000


                                      F-13
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS

December 31, 2004
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>

                                               Common Stock
                             ----------------------------------------------
                             Average                                                  Additional Paid
                             price per            Shares             Amount             -in Capital
                               share
                             --------             ------             ------           ---------------
<S>                        <C>                <C>                  <C>              <C>
1996                             .05                520,000              520              25,480
1997                             .09              1,800,500            1,801             153,749
1998                             .10                305,000              305              30,195
1999                             .05              3,158,000            3,158             151,993
                                                 ----------         --------           ---------
                                                 10,800,500           10,801           2,399,703
                                                 ----------         --------           ---------

Common stock
  issued for patents
  assigned:

1984                             .01                550,000            5,500                  --
1985, adjustment to
  reflect change in
  number and par
  value of shares
  outstanding                     --              2,750,000           (2,200)              2,200
                                                 ----------         --------           ---------
                                                  3,300,000            3,300               2,200
                                                 ----------         --------           ---------

Common stock
  issued for
  acquisitions:

1985                             .01             13,333,500           13,334             (41,112)
                                                 ----------         --------           ---------
Common stock
  issued for note
  receivable:

1986                            1.00                 10,000               10               9,990
2000                             .05              4,932,380            4,932             241,687
                                                 ----------         --------           ---------
                                                  4,942,380            4,942             251,677
                                                 ----------         --------           ---------

Common stock
  returned in
  payment of notes
  receivable:
2003                             .16             (1,603,789)          (1,604)           (238,964)
                                                 ----------         --------           ---------
Contribution of
  additional paid-in
  capital:

1991                              --                    --               --              35,825
1999                              --                    --               --              28,098
2000                              --                    --               --               9,735


</TABLE>


                                      F-14
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS

December 31, 2004
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>

                                                Common Stock
                                ------------------------------------------------
                                 Average
                                price per                                           Additional Paid-
                                  share            Shares            Amount            in Capital
                                ---------          ------            ------         ----------------
<S>                             <C>              <C>               <C>              <C>
2001                              --                    --               --               8,113
2002                              --                    --               --               5,635
2003                              --                    --               --               4,230
2004                              --                    --               --               3,357
                                  --                    --               --              94,993
                                                 ----------         --------           ---------

Stock subscriptions:

1999                             .05               650,000              650              31,850
                                                 ----------         --------           ---------

Cancellation of
  escrowed shares in
  1999                          .001              (850,000)            (850)                850
Reissued escrowed
  shares cancelled in
  error:
2001                            .001               850,000              850                (850)
                                                 ----------         --------           ---------
                                                        --               --                  --
                                                 ----------         --------           ---------

Common stock
  issued for services (1):

1988                             .50                25,000               25              12,475
1989                             .38                25,000               25               9,475
1990                             .66                37,375               37              24,635
1991                             .51               159,500              160              81,010
1992                             .75                62,500               62              46,563
1993                             .25               120,000              120              29,880
1996                             .05               308,500              308              13,832
1997                             .05               155,500              155               7,619
1999                             .05                99,190               99               4,860
                                                 ----------         --------           ---------
                                                   992,565              991             230,349
                                                 ----------         --------           ---------

Common stock
  issued to replace
  unrecorded
  certificates:

1988                            .001                 1,200                 1                 (1)
1992                            .001                   500                 1                 (1)
2000                            .001               100,000               100               (100)
                                                 ----------         --------           ---------
                                                   101,700               102               (102)

</TABLE>


                                      F-15
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS

December 31, 2004
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>

                                                Common Stock
                                ------------------------------------------------
                                 Average
                                price per                                           Additional Paid-
                                  share            Shares            Amount            in Capital
                                ---------          ------            ------         ----------------
<S>                             <C>             <C>               <C>               <C>
Common stock
  issued for
  forgiveness of
  accounts payable
  (1):
1990                             .50                25,000                25             12,475
1996                             .05               150,000               150              7,350
                                                 ----------         --------           ---------
                                                   175,000               175             19,825
                                                 ----------         --------           ---------

Common stock
  issued in payment
  of notes payable
(1):
1993                             .25               200,000               200             49,800
2000                             .05             1,714,995             1,715             84,035
                                                 ----------         --------           ---------
                                                 1,914,995             1,915            133,835
                                                 ----------         --------           ---------

Common stock
  issued in payment
  of loans payable
  (1):
2000                             .05             2,552,625             2,553            125,078
                                                ----------          --------           --------

Common stock
  issued for
  commissions (1):
1993                            .001             1,260,000             1,260                 --
                                                ----------          --------           --------

Common stock
  issued for
  convertible debt:
2001                             .25             1,605,346             1,605            399,504
2002                             .25             1,147,706             1,147            285,781
2003                             .25               788,991               789            196,460
2004                             .25            10,896,275            10,844          2,591,624
                                                ----------          --------          ---------
                                                14,438,318            14,385          3,473,369
                                                ----------          --------          ---------

</TABLE>


                                      F-16
<PAGE>


ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

December 31, 2004
--------------------------------------------------------------------------------
                                                Common Stock
                                ------------------------------------------------
                                 Average
                                price per                                           Additional Paid-
                                  share            Shares            Amount            in Capital
                                ---------          ------            ------         ----------------
<S>                             <C>             <C>               <C>               <C>

Stock warrants
  exercised:

2003 (cashless
  exercise)                      .05               151,846               152              7,059
2004 (cashless
  exercise)                      .16                47,917                48              7,752
                                                ----------          --------          ---------
                                                   199,763               200             14,811
Stock options
  exercised:

1997                             .01               325,000               325              2,929
2000                             .01               350,000               350              3,150
2002                             .04               150,000               150              5,850
2003                             .01               150,000               150              1,350
                                                ----------          --------          ---------
                                                   975,000               975             13,279
                                                ----------          --------          ---------
Total                                           54,032,557         $  43,087        $ 3,908,058
                                                ==========          ========          =========

</TABLE>

(1)   Per share amounts  determined by information deemed most reliable based on
      circumstances of each case:  trading price at time of issuance or value of
      services received.

Effective  with the merger in September  2000 of Advanced  Biotherapy  Concepts,
Inc.  into its wholly owned  subsidiary,  each issued and  outstanding  share of
Advanced Biotherapy Concepts, Inc. common stock was converted automatically into
one share of $0.001 par value common stock of Advanced Biotherapy, Inc.

Effective  December 26, 2002, the Company amended its articles of  incorporation
to increase the maximum  amount of its  authorized  common stock to  200,000,000
shares.

Stock Bonus Plan

In January 2000, the Company approved a stock bonus plan the purpose of which is
to retain  personnel of experience  and ability in the employ of the Company and
to compensate them for their contributions to the growth of the Company, thereby
inducing  them to continue  to make such  contributions  in the  future.  During
January 2000,  the Company  issued  9,200,000  shares of common stock under this
plan to certain key officers and directors subject to various restrictions. Such
stock bonuses were issued at the weighted average price at which the Company had
been selling shares of stock out of authorized but yet unissued  common stock to
third parties  during the six months  immediately  preceding the issuance of the
bonus shares,  or $0.05 per share.  On February 7, 2003,  the board of directors
unanimously  approved  the  repurchase  and  cancellation  of 1,603,789 of these
shares  of  common  stock  at the  fair  market  value  of  $0.16  per  share in
satisfaction of outstanding notes receivable and accrued  interest.  At December
31, 2004, a total of 2,403,789 shares are available under this plan.

                                      F-17
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS


NOTE 9 - PREFERRED STOCK

The  Company  has  authorized  20,000,000  shares of $0.001 par value  preferred
stock. As of December 31, 2004, the Company has not issued any preferred stock.

NOTE 10 - STOCK OPTIONS AND ISSUANCE COMMITMENTS

Omnibus Equity Incentive Plan

In 2000, the board of directors approved an Omnibus Equity Incentive Plan, which
was later approved by the stockholders in December 2001. The purpose of the plan
is to  promote  the  long-term  success  of the  Company  and  the  creation  of
stockholder value by encouraging employees, outside directors and consultants to
focus on the achievement of critical long-range  objectives.  The plan endeavors
to attract and maintain such individuals with exceptional  qualifications and to
link them directly to stockholder  interests  through increased stock ownership.
The plan seeks to achieve this  purpose by  providing  for awards in the form of
restricted shares,  stock units,  options (which may constitute  incentive stock
options or non-statutory stock options) and stock appreciation rights ("SAR's").
The aggregate number of options, SARs, stock units and restricted shares awarded
under the plan was initially  4,000,000 common shares plus an annual increase of
the lesser of two and one-half percent of the total number of common shares then
outstanding  or 250,000 common  shares.  At December 31, 2004,  there are 10,000
shares available under this plan.

During January,  2004, the Company approved the issuance of stock options to its
board of directors to purchase a total of 270,000 shares of the Company's  stock
at $0.42 per share for  services  rendered  during the year ended  December  31,
2003. The options vest  immediately  and have a term of ten years. In accordance
with Statement of Financial  Accounting  Standard No. 123, the fair value of the
options was estimated  using the Black  Scholes  Option Price  Calculation.  The
following  assumptions  were made to value the stock  options:  strike  price at
$0.42;  risk free interest rate of 5%; expected life of ten years;  and expected
volatility of 82% with no dividends  expected to be paid.  The Company  recorded
expenses  totaling  $94,500  ($0.35 per option)  for the value of these  options
based upon these Black Scholes assumptions.

During  February,  2003,  the  disinterested  members of the board of  directors
approved  the  issuance of  4,100,000  stock  options to certain key  employees,
directors and consultants.  These  seven-year  options have an exercise price of
$0.16 per share and vest over a period of three years,  with the first one-third
of such options  vesting in 2004,  the next  one-third in 2005 and the remaining
one-third vesting in 2006. In accordance with Statement of Financial  Accounting
Standard  No. 123, the fair value of the options was  estimated  using the Black
Scholes Option Price Calculation.  The following  assumptions were made to value
the stock  options:  strike  price at  $0.16,  risk  free  interest  rate of 5%,
expected life of seven years,  and expected  volatility of 82% with no dividends
expected  to be paid.  The  Company  records an  expense  for the value of these
options  based upon these Black  Scholes  assumptions  of  $504,300  ($0.123 per
option) during the next three years as the options vest.

                                      F-18
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS


During January 2003, the Company issued stock options to purchase 180,000 shares
of the Company's stock at $0.21 per share to its board of directors for services
rendered  during the year ended December 31, 2002.  The options are  exercisable
immediately  and expire on December 31, 2012.  In accordance  with  Statement of
Financial  Accounting  Standard  No.  123,  the fair  value of the  options  was
estimated  using the Black  Scholes  Option  Price  Calculation.  The  following
assumptions  were made to value the stock options:  strike price at $0.21;  risk
free interest rate of 5%; expected life of ten years; and expected volatility of
98% with no  dividends  expected  to be paid.  The  Company  recorded a total of
$34,200  ($0.19 per option) of expense for the value of these options based upon
these Black Scholes assumptions.

The following is a summary of the Company's equity compensation plans:

<TABLE>
<CAPTION>

                                                                      Number of securities
                        Number of securities   Weighted-average        remaining available
                         to be issued upon    exercise price of        for future issuance
                            exercse of           outstanding               under equity
      Plans            outstanding options         options              compensation plans
      -----            -------------------    -----------------       ---------------------
<S>                   <C>                    <C>                      <C>
Equity compensation
  plan approved by
  security holders (1)       4,990,000             $  0.18                   10,000

Equity compensation
  plan not approved by
  security holders (2)              --                  --                2,403,789
                             ---------                                    ---------
Total                        4,990,000                                    2,413,789
                             =========                                    =========

</TABLE>

(1) Omnibus Equity Incentive Plan

(2) Stock Bonus Plan. See Note 8.

Following  is a summary of the status of the options  during the years  December
31, 2004 and 2003:


                                                                   Weighted
                                              Number of            Average
                                                Shares          Exercise Price
                                              ---------         --------------
Outstanding at January 1, 2003                1,957,953             $   0.13
Granted                                       4,280,000                 0.16
Exercised                                      (150,000)                0.01
Forfeited                                            --                   --
                                             ----------             --------
Outstanding at December 31, 2003              6,087,953                 0.16
Granted                                         270,000                 0.16
Exercised                                            --                   --
Forfeited                                            --                   --
                                             ----------             --------
Options outstanding at December 31, 2004      6,357,953             $   0.17
                                             ==========             ========
Options exercisable at December 31, 2004      3,624,620             $   0.17
                                             ==========             ========
Weighted average fair value of options
  granted in 2004                                                   $   0.13
                                                                    ========



                                      F-19
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS


Summarized  information  about stock  options  outstanding  and  exercisable  at
December 31, 2004 is as follows:

                                 Outstanding Options
                    -----------------------------------------------------
  Exercise Price      Number      Weighted Average        Weighted Average
      Range         of Shares      Remaining Life         Exercise Price
  --------------    ---------     ----------------        ----------------
  $0.10 - $0.42     6,357,953          4.57               $  0.17

                                 Exercisable Options
                    -----------------------------------------------------
  Exercise Price      Number      Weighted Average        Weighted Average
      Range         of Shares      Remaining Life         Exercise Price
  --------------    ---------     ----------------        ----------------
  $0.10 - $0.42     3,624,620          4.17               $  0.17


NOTE 11 - NON-CASH COMMITMENT AND WARRANTS

During February 2003, the Company issued warrants to purchase a total of 100,000
shares  of common  stock to two  outside  consultants.  These  warrants  have an
exercise price of $0.16 per share, expire in seven years, and vest over a period
of three years,  with the first one-third of such warrants  vesting in 2004, the
next  one-third  in  2005  and the  remaining  one-third  vesting  in  2006.  In
accordance  with  Statement of Financial  Accounting  Standard No. 123, the fair
value of the  warrants  was  estimated  using the  Black  Scholes  Option  Price
Calculation.  The following  assumptions  were made to value the stock warrants:
strike price at $0.16,  risk free  interest  rate of 5%,  expected life of seven
years, and expected volatility of 82% with no dividends expected to be paid. The
Company  records an  expense  for the value of these  warrants  based upon these
Black Scholes assumptions of $12,300 ($0.123 per option) over the three years as
the warrants vest.

During the year ended December 31, 2004, a warrant to purchase 100,000 shares of
common stock was exercised using the cashless conversion  feature,  resulting in
the issuance of 47,917  shares of common stock.  During the year ended  December
31, 2003,  a warrant to purchase  200,308  shares of common stock was  exercised
using the  cashless  conversion  feature,  resulting  in the issuance of 151,847
shares of common stock.

Summarized  information  about stock  warrants  outstanding  and  exercisable at
December 31, 2004 is as follows:

                    Number of     Weighted Average        Average exercise
                    warrants       Remaining Life              price
                    ---------     ----------------        ----------------
  Outstanding       5,124,227          5.43               $  0.16
  Exercisable       5,057,560          5.42               $  0.16



                                      F-20
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS


NOTE 12 - CONVERTIBLE DEBT

2000 Convertible Notes

During the year ended December 31, 2000, the Company sold in a private placement
to accredited  investors  $1,510,500 of  convertible  subordinated  debt due and
payable September 30, 2004. The debt bears interest at the rate of 10% per annum
and is payable  semi-annually  in cash or through  the  issuance  of  additional
convertible  subordinated debt. This debt was convertible into shares of Company
common stock at a conversion price equal to $0.25 per share,  subject to certain
anti-dilution  provisions. As of December 31, 2004 a total of $497,912 of unpaid
accrued interest was converted to additional convertible debt.

The Company offered the convertible  subordinated  debt pursuant to Section 4(2)
of the  Securities  Act of 1933,  as  amended,  and Rule  506 of  Regulation  D,
promulgated  under the Securities  Act. In connection  with the placement of the
debt,  the Company  paid a loan  origination  fee of  $113,288 to its  financial
advisor,  in addition to the granting of an option to the  financial  advisor to
purchase an equivalent principal amount of convertible  subordinated debt at the
face amount thereof over a period of ten years. The aforementioned fee was fully
amortized as of December 31, 2004.  Amortization for the year ended December 31,
2003 was $19,368.

During the year ended  December 31, 2001, a total of $355,000  original debt and
$46,109 of accrued interest and previously converted interest was converted into
1,605,346  shares of common  stock at $0.25 per  share.  During  the year  ended
December  31,  2002,  a total of $245,000  original  debt and $41,928 of accrued
interest and previously  converted  interest was converted into 1,147,706 shares
of common stock at $0.25 per share.  During the year ended  December 31, 2003, a
total of $152,500  original debt and $35,393 of accrued  interest and previously
converted  interest was converted  into 751,574  shares of common stock at $0.25
per share.

In February,  2004 the Company offered the holders of the remaining  $773,000 of
unconverted  convertible  debt an incentive of a reduced  conversion  price from
$0.25 to $0.24 and accrual of interest  through the  maturity  date of September
30, 2004,  if the holders  would  convert  prior to April 30,  2004.  All of the
remaining  debt was  converted  to common  stock as of March 31, 2004 under this
offer.

2002 Convertible Notes due September 30, 2004

During the year ended December 31, 2002, the Company sold in a private placement
to accredited  investors 2002  Subordinated  Convertible  Pay-in-kind  Notes due
September 30, 2004  ("2002-2004  convertible  notes") in the principal amount of
$1,148,500 in cash. A Company director personally guaranteed a total of $500,000
worth of this debt offering.  The 2002-2004  convertible  notes bear interest at
the rate of 11% per annum payable  semi-annually in cash or through the issuance
of additional  2002-2004  convertible notes. The unpaid accrued interest to date
of $223,109 has been converted to additional convertible debt.

This debt is  convertible  into shares of Company  common  stock at a conversion
price equal to $0.25 per share, subject to certain anti-dilution provisions. The
Company  offered the convertible  subordinated  debt pursuant to Section 4(2) of
the  Securities  Act  of  1933,  as  amended,  and  Rule  506 of  Regulation  D,
promulgated  under the Securities  Act. In connection  with the placement of the
debt,  the  Company  paid a loan  origination  fee of $41,895  to two  advisors,
together with a warrant to acquire  239,400  shares of common stock at $0.25 per
share.  Amortization of the loan origination fee for the year ended December 31,
2003 was $15,176.

                                      F-21
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS


During the year ended  December 31, 2003,  a total of $8,000  original  debt and
$1,354 of accrued interest and previously  converted interest was converted into
37,416 shares of common stock at $0.25 per share.

In February, 2004 the Company offered the holders of the remaining $1,140,500 of
unconverted  convertible  debt an incentive of a reduced  conversion  price from
$0.25 to $0.24 and accrual of interest  through the  maturity  date of September
30, 2004,  if the holders  would convert prior to April 30, 2004. As of December
31, 2004,  all but $5,000 of the  remaining  debt was  converted to common stock
under this offer.

2002 Convertible Notes due June 1, 2006

During the year ended December 31, 2002, the Company sold in a private placement
to accredited investors 2002 Subordinated Convertible Pay-in-kind Notes due June
1, 2006 ("2002-2006 convertible notes") in the principal amount of $3,055,000 in
cash. The interest rate of the 2002-2006  convertible notes is 11% per annum for
$2,555,000 of the debt,  and 12.5% per annum for $500,000 of the debt.  Interest
is payable semi-annually in cash or through the issuance of additional 2002-2006
convertible  notes. As of December 31, 2004, unpaid accrued interest of $963,602
has been converted to additional  convertible debt, which totaled  $4,018,602 at
year end.

This debt is  convertible  into shares of Company  common  stock at a conversion
price equal to $0.25 per share, subject to certain anti-dilution provisions. The
Company  offered the convertible  subordinated  debt pursuant to Section 4(2) of
the  Securities  Act  of  1933,  as  amended,  and  Rule  506 of  Regulation  D,
promulgated  under the Securities  Act. In connection  with the placement of the
debt,  the  Company  paid a related  party a loan  origination  fee of  $60,000.
Amortization  of the loan  origination  fee for the year ended December 31, 2004
was $23,750.

At December 31, 2004, the remaining 2002-2006 notes, including converted accrued
interest, could be converted into a total of 16,074,407 shares of common stock.

2003 Convertible Notes due September 30, 2007

During the year ended December 31, 2003, the Company sold in a private placement
to accredited  investors 2003  Subordinated  Convertible  Pay-in-kind  Notes due
September 30, 2007  ("2003-2007  convertible  notes") in the principal amount of
$800,000 in cash.  The interest rate of the 2003-2007  convertible  notes is 12%
per annum,  payable  semi-annually in cash or through the issuance of additional
2003-2007 convertible notes. The unpaid accrued interest as of December 31, 2004
of $52,353 has been converted to additional convertible debt.

This debt is  convertible  into shares of Company  common  stock at a conversion
price equal to $0.25 per share, subject to certain anti-dilution provisions. The
Company  offered the convertible  subordinated  debt pursuant to Section 4(2) of
the  Securities  Act  of  1933,  as  amended,  and  Rule  506 of  Regulation  D,
promulgated under the Securities Act.

                                      F-22
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS


At December 31, 2004, the remaining 2003-2007 notes, including converted accrued
interest, could be converted into a total of 3,680,628 shares of common stock.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Occupancy Agreements

During the period ended March 31, 2003, the company  entered a verbal  agreement
to pay  approximately  $4,000 a month to a firm  owned  by the  Company's  chief
executive  officer and chief  financial  officer for tax  preparation  services,
monthly accounting, and reimbursement for rent and employee benefits. A total of
$65,321 was paid during 2004 under this month-to-month agreement.

The Company also entered into a verbal  agreement  for research and  development
laboratory space with a firm,  which has as a shareholder,  one of the directors
of Advanced  Biotherapy,  Inc. This agreement calls for a monthly rent of $6,110
along with reimbursement for research and development services at a monthly cost
of $12,000.  A total of $300,283 was paid during 2004 under this  month-to-month
agreement.

Contracts

During  March  2003,  the  Company  entered  into an  agreement  for the design,
construction   and  validation  in  accordance  with  FDA  standards  and  other
regulatory  requirements  of a new  pilot  formulation  and  filling  room to be
located in Columbia,  Maryland,  within the facilities currently leased from New
Horizons  Diagnostics,  Inc., a company  principally  owned by a director of the
Company. As of December 31, 2004, the costs associated with the construction are
$271,786.

In April 2004, the Company entered into an agreement for an unrelated  entity to
identify  possible  product  development,   distribution  or  license  agreement
opportunities.  The term of the  contract  is one year with  automatic  one-year
renewals.  Compensation  terms  include a 10%  commission  on 3rd party sales or
warrants to purchase common stock for milestones reached on research contracts.

In July 2004,  the Company  entered into a contract  with an unrelated  party to
provide  investment  banking services related to a possible private placement or
other sale of securities  by the Company.  The Company paid a retainer of $5,000
and, in the event a private  placement is executed,  will pay a total commission
of 8.5% of proceeds received. Of this commission,  7.5% will be paid in cash and
1% in the form of warrants.  This  agreement  can be  terminated by either party
without cause.


                                      F-23
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS


NOTE 14 - INCOME TAXES

The  following  is a  reconciliation  of income  tax,  computed  at the  federal
statutory rate, to the provision for taxes:

                                December 31, 2004           December 31, 2003
                             -----------------------      -------------------
                             Amount          Percent        Amount      Percent
                             ------          -------        ------      -------
Federal tax (benefit)     $  (810,000)             (34)%  $  (716,000)    (34)%
State tax (benefit)          (191,000)              (8)%     (168,000)     (8)%
Valuation allowance         1,001,000               42%       884,000      42%
                          -----------      -----------    -----------     ---
                          $        --               --    $        --      --
                          ===========      ===========    ===========     ===

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes.

Significant  components of the deferred tax assets at December 31, 2004 and 2003
are as follows:

<TABLE>
<CAPTION>

                                                  December 31, 2004  December 31, 2003
                                                  -----------------  -----------------
<S>                                              <C>                <C>
Deferred tax asset:
       Net operating loss carryforwards               $ 3,236,000       $ 2,636,000
       General business credit carryforwards               74,000            73,000
       Excess book accumulated amortization                29,000            29,000
                                                      -----------       -----------
                                                        3,339,000         2,738,000
Deferred tax liabilities:
       Excess tax accumulated depreciation                  3,000             2,000
                                                      -----------       -----------
Total deferred tax asset                                3,336,000         2,736,000
       Valuation allowance for deferred tax asset      (3,336,000)       (2,736,000)
                                                      -----------       -----------
Net deferred tax asset                                $        --       $        --
                                                      ===========       ===========

</TABLE>

At December 31, 2004, the Company has federal net operating  loss  carryforwards
of approximately $8,100,000,  which expire in the years 2004 through 2023, state
net operating loss  carryforwards of approximately  $6,200,000,  which expire in
the years 2010  through  2013,  and general  business  credit  carryforwards  of
approximately  $74,000, which expire in the years 2012 through 2023. At December
31,  2004 and 2003,  federal  net  operating  losses  expired  in the  amount of
approximately  $259,000 and  $195,000,  respectively.  A total of  approximately
$221,000 federal net operating losses is set to expire on December 31, 2005.

The change in the valuation allowance account from December 31, 2003 to December
31, 2004 was $600,000,  which is principally  due to the change in  management's
estimates  as  well  as  an  increase  in  the  Company's  net  operating   loss
carryforward.



                                      F-24
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS


NOTE 15 - SUBSEQUENT EVENTS

Subsequent to the  financial  statements,  the Company  approved the issuance of
stock options to its board of directors to purchase a total of 225,000 shares of
the  Company's  stock at $0.20 per share for services  rendered  during the year
ended  December 31, 2004.  The options vest  immediately  and have a term of ten
years.  In accordance with Statement of Financial  Accounting  Standard No. 123,
the fair value of the options was estimated using the Black Scholes Option Price
Calculation.  The following  assumptions  were made to value the stock  options:
strike  price at $0.20;  risk free  interest  rate of 5%;  expected  life of ten
years; and expected volatility of 92% with no dividends expected to be paid. The
Company recorded  accrued  expenses  totaling $40,500 ($0.18 per option) for the
value of these options based upon these Black Scholes assumptions.

Furthermore, the Company entered into an agreement with a consultant whereby the
consultant  will  utilize  its  established  process and  reasonable  commercial
efforts to secure a commercial  relationship  with  potential  candidates.  This
commercial  relationship  may include  the  license or transfer of  intellectual
property,   product  rights,   manufacturing  rights,  patents,  or  development
assistance.  A fee will be paid to the  consultant  in the  amount of $5,000 per
month.   Additionally,   the  consultant   will  be  reimbursed  for  reasonable
out-of-pocket  costs.  The agreement is for nine months,  subject to termination
after the initial ninety days. A success fee is included in the agreement if the
Company enters into a commercial  relationship  within  eighteen months from the
termination  of the  agreement  with a  candidate  brought to the Company by the
consultant.


During the first quarter of 2005, the Company granted warrants to purchase up to
300,000  shares  of  common  stock at an  exercise  price of $0.20 per share for
consulting  services,  partly in connection  with the Company's Phase I clinical
trials at  Georgetown  University  Medical  Center  to study an  investigational
treatment for AIDS.  Subject to the terms of such warrants,  the warrants become
exercisable on March 20, 2006, and expire on March 20, 2015. The Company granted
Dr.  Yehuda  Shoenfeld,  Director of the Center for  Autoimmune  Diseases at the
Israel Sheba Medial  Center,  warrants to purchase up to 10,000 shares of common
stock at an  exercise  price of $0.20 per share for  services as a member of the
Company's scientific advisory board. Subject to the terms of such warrants,  the
warrants are presently exercisable, and expire on February 24, 2015.

                                      F-25