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, 2003

                                       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. [ ]

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

      December 31, 2003:            $-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 27, 2004, was $14,447,930, which market value excludes 8,688,531 shares
of common stock held by directors,  executive  officers and  stockholders  whose
beneficial  ownership  exceeds ten percent  (10%) of the shares  outstanding  on
February 27, 2004.

      As of February 27, 2004, the Registrant had outstanding  43,088,365 shares
of common stock.


Documents Incorporated by Reference:

None.

ITEM 1.       BUSINESS


<PAGE>

GENERAL INTRODUCTION

      Advanced  Biotherapy,  Inc. is a corporation  organized and existing under
the laws of the State of Delaware,  headquartered in Woodland Hills, California.
We are a biotechnology company developing therapeutics for 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. This results in localized tissue damage and leads to the pathology
seen in autoimmune  diseases (ADs).  The Company plans to develop drugs designed
to  reduce  the  levels of  certain  cytokines.  To date,  our  activities  have
consisted  primarily of research,  development  and non-United  States  clinical
trials.  Such  activities  have resulted in  accumulated  losses at December 31,
2003.

      We  plan  to  develop  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  (Nature,  Vol. 241, P 551-552,  1974).  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  a  variety  of
cytokines,  in autoimmune  diseases such as rheumatoid  arthritis (RA), multiple
sclerosis (MS), certain skin diseases, and a disease of the eye.

      In two randomized,  placebo-controlled,  double blind trials  conducted in
Russia, we believe we have demonstrated  efficacy of our anti-cytokine  strategy
in both RA and MS. 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."

      As of December 25, 2001,  the Company has been issued United States Patent
No. 6,333,032,  among other patents,  for the exclusive use of  interferon-gamma
(IFN-gamma)  antibodies  including  humanized  and fully human (as well as other
antibody types) 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 this
patent is a critical  milestone for the Company.  The Company believes that this
patent gives the Company patent protection for a new  anti-cytokine  approach to
treating different  autoimmune  diseases,  including the foregoing five specific
diseases,  principally  as  an  injectable  treatment.  The  Company's  patented
treatment also uses various methods to neutralize or block specific combinations
of cytokines and their receptors. The Company has also been issued United States
Patent No.  6,534,059 for the use of antibodies to gamma  interferon  (IFN-g) to
treat corneal transplant rejection.

      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 $8,701,401 at December 31, 2003. 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.



                                       1
<PAGE>

BUSINESS OBJECTIVE

      The  business  strategy  of the Company  involves  the  engagement  of, or
licensing to, a corporate  partner to assist in the clinical  development of its
drug treatments for certain autoimmune  disorders.  This will involve,  upon the
identification of such a partner, the filing of the necessary documents with the
FDA, conducting clinical trials and obtaining the necessary new drug application
regulatory approvals. The Company does not intend to market its drug products if
they are  approved by the FDA,  but will  instead  seek a licensing  and royalty
arrangement with a corporate  partner who will market the product when and if it
is approved.

      The amount spent on research and development by the Company for the fiscal
years  ended  December  31,  2003,  2002 and 2001 was  $488,141,  $313,597,  and
$133,747, 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.



                                       2
<PAGE>

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
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, 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.


                                       3
<PAGE>


      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 / 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  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
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


                                       4
<PAGE>

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.

CLINICAL STUDIES / JUVENILE RHEUMATOID ARTHRITIS-ASSOCIATED UVEITIS

      Children  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.

      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


                                       5
<PAGE>

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

      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.



                                       6
<PAGE>

      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.

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

Autoimmune                    A disease A disease in which the body  produces an
                              immune  response  to some


                                       7
<PAGE>

                              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.

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  a
                              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.



                                       8
<PAGE>

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.

PATENT STATUS AND PROTECTION OF PROPRIETARY TECHNOLOGY

      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 this patent is a critical  milestone for the Company.
The Company  believes that this recently  issued patent gives the Company patent
protection for a new  anti-cytokine  approach to treating  different  autoimmune
diseases,  including the  foregoing  five specific  diseases  principally  as an
injectable treatment. 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 and 5,888,511,  and Australia Patent No. 730498.  The Company also has
fourteen United States utility patents pending filed between  December 22, 1997,
and March 1, 2004. The Company also has two  applications  pending in Europe and
Canada,  respectively,  as well as a  pending  application  in each of Japan and
Australia. The Company has four PCT applications pending.

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

      The Company intends to continue its research and development activities on
its products and for the purpose of developing  proprietary  products.  Research
and development  activities,  by their nature, preclude definitive statements as
to the time  required  and costs  involved in reaching  certain  objectives.  If
research and development requires more funding than anticipated, the Company may
have to reduce product development efforts or 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 ("SEC") 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


                                       9
<PAGE>

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.
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, 2003, we realized a net loss
---------
of $2,108,440 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  $2,500,000.  That sum  excludes the amount of the
Company's  convertible  debt that becomes due on September 30, 2004. As of March
25,  2004,  the  projected  balance  of  that  indebtedness,  including  accrued
interest, that will become due on September 30, 2004, is approximately $218,408.
The Company's long-term convertible debt as of December 31, 2003 that matures on
June 30, 2006 and September 30, 2007 is  approximately  $3,600,000 and $819,000,
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  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,  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.



                                       10
<PAGE>

      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
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


                                       11
<PAGE>

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
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 four 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 fourteen 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
alternate therapies. A number of companies are pursuing the development of novel
products  which  target the same  diseases  as we are  targeting.  Many of these


                                       12
<PAGE>

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.

      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     developments or disputes as to 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

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  2003,  the  Company  paid  $6,240 per month 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
2003,  the Company  paid $700 per month 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, 2003, the Company had incurred  approximately  $237,000
in  costs  related  to  the  building  of  a  cleanroom  laboratory,   including
approximately  $7,700 for  laboratory  equipment.  The purpose of the laboratory
will be 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.  The Company arranged to
pay for the laboratory equipment by 18 monthly installments of $486 each.

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.


                                       13
<PAGE>


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

      On December 11, 2003, 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:

<TABLE>
<CAPTION>
           NAME OF DIRECTOR                                 FOR                WITHHELD AUTHORITY
           -------------------------------    --------------------------  -----------------------
           <S>                                     <C>                       <C>
           Joseph A. Bellanti, M.D.                   34,526,240                     136,300
           John M. Bendheim                           34,526,240                     136,300
           Edmond F. Buccellato                       34,449,464                     213,076
           Alexander L. Cappello                      33,024,624                   1,637,916
           Richard P. Kiphart                         34,529,240                     133,300
           Lawrence Loomis                            34,529,240                     133,300
           Thomas J. Pernice                          32,855,678                   1,806,862
           Boris Skurkovich, M.D.                     34,529,240                     133,300
           Simon Skurkovich, M.D.                     34,529,240                     133,300
</TABLE>

                                     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 2003 and 2002
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.

           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

           2002 FISCAL QUARTER ENDED:

           March 31                                 $0.38               $0.18
           June 30                                  $0.65               $0.25
           September 30                             $0.37               $0.21
           December 31                              $0.27               $0.14

      As of February 27,  2004,  the Company had  approximately  1346 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 3400.

      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 2003



                                       14
<PAGE>

      During the quarter ended December 31, 2003, the Company sold the principal
amount  of  $800,000  of its  Subordinated  Convertible  Pay-In-Kind  Notes  due
September 30, 2007 ("2003 Convertible Notes Due 2007") in a private placement to
two accredited  investors,  including Director Richard P. Kiphart,  who acquired
$700,000  principal  amount thereof.  The 2003  Convertible  Notes Due 2007 bear
interest  at the  rate  of 12%  per  annum  payable  semi-annually  in  cash  or
additional 2002 Convertible  Notes Due 2007. The 2003 Convertible Notes Due 2007
are  convertible  into shares of Company Common Stock at a conversion  price per
share  equal to  twenty-five  cents  ($0.25),  subject to certain  anti-dilution
provisions.  The 2003 Convertible Notes Due 2007 are to be paid ratably with the
Company's  Convertible  Subordinated  Debt due September 30, 2004, the Company's
Subordinated  Convertible  Pay-In-Kind  Notes due  September  30, 2004,  and the
Company's  Subordinated  Convertible  Pay-In-Kind  Notes due June 6,  2006.  The
holders of 2003  Convertible  Notes Due 2007 are  entitled to certain  piggyback
registration rights.

      The  Company  offered  the 2003  Convertible  Notes Due 2007  pursuant  to
Section  4(2) of the  Securities  Act of  1933,  as  amended,  and  Rule  506 of
Regulation D. The proceeds from the placement of 2003 Convertible Notes Due 2007
are  intended to be used for  working  capital  and  potential  Phase I clinical
trials, although no assurance can be given that the Company will qualify for any
Phase I clinical trials, or that the FDA would approve such clinical trials.

      Effective as of December 31, 2003,  pursuant to the Company's 2000 Omnibus
Equity  Incentive  Plan, the Company granted its directors  non-qualified  stock
options to purchase an aggregate  270,000 shares (30,000 shares per director) of
Common Stock, at an exercise price of $0.42 per share,  for services.  See "ITEM
10. EXECUTIVE COMPENSATION" for additional information.

PURCHASE OF EQUITY SECURITIES

      Edmond F.  Buccellato,  Lawrence  Loomis  and Dr.  Boris  Skurkovich  each
acquired shares under the Company's Stock Bonus Plan as of January 11, 2000, and
each issued a promissory  note  ("Stock  Bonus Note") in favor of the Company to
pay the purchase price. The Stock Bonus Notes accrued interest at 6.5% per annum
and matured on December 31, 2002. Effective July 30, 2002, the new federal laws,
known as the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act") prohibit a public
company,  among other  matters,  to extend or maintain a loan to any director or
officer of the company,  including  the extension of loans then existing on July
30, 2002,  subject to certain  exceptions  inapplicable  to the  Company.  As of
February 26, 2003, the Company  repurchased an aggregate 1,603,789 shares of the
Company's Common Stock from the three directors,  in full  satisfaction of their
Stock Bonus Notes,  including accrued  interest,  because the Notes could not be
extended under the Sarbanes-Oxley Act. The disinterested members of the Board of
Directors  determined that the Stock Bonus Notes should be repaid,  approved the
share  repurchase  and the  purchase  price  of  $0.15  per  share.  The  shares
repurchased are now available for future issuance under the Stock Bonus Plan.

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."



                                       15
<PAGE>

OVERVIEW

      We believe  that we are a leader in  conducting  investigational  clinical
trials that have lead 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  anticipates that its minimum cash requirements for operations
for the next twelve months will be less than  $2,500,000,  but that sum excludes
the amount of the Company's  convertible  debt that becomes due on September 30,
2004  ("Convertible Debt due 2004"). As of March 25, 2004, the projected balance
of Convertible Debt due 2004, including accrued interest that will become due on
September 30, 2004 is approximately $218,408. In March 2004 the Company recently
submitted  a proposal to the  holders of  Convertible  Debt due 2004 to exercise
their rights to convert such debt into shares of common stock at $0.24 per share
by March 31, 2004 (which has been extended to April 30, 2004).  During the month
of March, 2004,  holders of $2,403,787  principal amount of Convertible Debt due
2004 (including  accrued  interest) have as of March 24, 2004 elected to convert
such debt into 10,015,746  shares of Company Common Stock.  The Company plans to
raise additional capital, if necessary,  through the private placement of equity
or debt  securities to repay any balance of the remaining  convertible  debt due
September  30,  2004.  Notwithstanding  that such  convertible  debt  matures on
September  30, 2004, if before the  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 cause the mandatory  conversion of such debt
into shares of Company common stock at a conversion price of $0.25 per share. In
terms of the Company's long-term  convertible debt, as of December 31, 2003, the
approximate  principle  balance of $3,600,000 and $819,000,  matures on June 30,
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 objective also is 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, 2003, we had an accumulated deficit of
approximately  $8,700,000.  Over the next  several  years,  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.

      During  2004,  the  Company's  development  goal  is to  produce,  or have
produced,  a series  of  human  or  humanized  antibody-based  products  through
collaborations  with other biotechnology  companies.  The Company has identified
several biotechnology companies that can develop and manufacture such antibodies
for the Company,  although no such  development  arrangements  have been entered
into  by  the  Company.  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.

      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.

RESULTS OF OPERATIONS - Years ended December 31, 2003 and 2002.

      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.

LIQUIDITY AND CAPITAL RESOURCES.



                                       16
<PAGE>

      To date, we have financed our  operations  through  private  placements of
equity and convertible debt  securities.  The Company had $2,044,591 in cash and
cash  equivalents  as of  December  31,  2003  and had  issued  and  outstanding
43,088,365 shares of its Common Stock.

FISCAL 2003 COMPARED TO FISCAL 2002.

      For the year ended December 31, 2003,  the Company  realized a net loss of
$2,108,440  compared to a net loss of $1,524,535 for the year ended December 31,
2002.  The Company had  increases in expenses  over the year ended  December 31,
2002, consisting primarily of the following:  increased research and development
expenses  in the  amount of  $174,555,  increased  directors'  fees of  $56,700,
increased  administrative salaries and benefits of $156,102,  increased interest
expense  in  the  amount  of  $265,453  related  to  the  Company's  convertible
subordinated  debt and subordinated  convertible  pay-in-kind  notes,  increased
depreciation  and  amortization  in the  amount of  $25,724,  increased  rent of
$83,301, increased general and administrative expenses in the amount of $15,025,
net of  decreased  interest  income of $9,764,  decreased  professional  fees of
$242,410 and decreased office expenses in the amount of $2,262.

RESTATEMENT OF COMPANY FINANCIAL STATEMENTS

      The Company's  financial  statements for the years ended December 31, 2000
and 1999, respectively, have been restated to reflect the correction of an error
in common stock outstanding and weighted average number of shares outstanding as
of December 31, 2000. It was discovered  that the Company  mistakenly  cancelled
850,000  shares  of  common  stock  in 1999.  Under  the  terms of a  settlement
agreement and mutual general release and an escrow agreement each dated July 31,
1991  (collectively  referred to as "settlement  agreements") among the Company,
Dr. Simon Skurkovich, a consultant and certain other parties, the Company issued
850,000  shares in the name of the  consultant  and placed  into  escrow.  These
shares  were to be  released  to the  consultant  upon  performance  of  certain
services  that were to be provided by the  consultant  no later than January 15,
1993.  The settlement  agreements  also stated that the 850,000 shares of common
stock would be  distributed to Dr. Simon  Skurkovich,  if such services were not
provided by the  consultant.  Such services were not provided by the consultant,
in whole or in part,  and all 850,000  shares were  cancelled  by the Company in
1999.  Instead  of  being  cancelled,  however,  the  shares  should  have  been
distributed  to  Dr.  Simon  Skurkovich  in  1999  pursuant  to  the  settlement
agreements.  Therefore, the shares were reissued to Dr. Simon Skurkovich and are
reflected  in the  accompanying  financial  statements  as if  they  were  never
cancelled.

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, 2002,  through December 31, 2003, 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, 2003, 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


                                       17
<PAGE>

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.

                                    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 27, 2004,  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.              81        Chairman Emeritus, Director, and                    November, 1985
                                                  Director of Research and
                                                  Development (4)
Edmond F. Buccellato                59        Chairman of the Board, President and Chief          November, 1995
                                              Executive Officer, Director (3)
Thomas J. Pernice                   42        Treasurer and Secretary, Director (2)(4)            April, 2001
William M. Finkelstein              43        Chief Financial Officer (non-director)              April, 2001
Lawrence Loomis                     61        Director (2)(3)                                     December, 1986
Boris Skurkovich, M.D.              49        Director (2)(4)                                     December, 1986
Alexander L. Cappello               48        Director (1)(3)                                     April, 2000
John M. Bendheim                    50        Director (1)(4)                                     June, 2000
Richard P. Kiphart                  62        Director (1)(2)(3)                                  June, 2002
Joseph A. Bellanti, M.D.            69        Director (4)                                        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 once  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 was editor in chief of  "Pediatric  Research"
from 1974 to 1984 and editor of "Annals of Allergy"  from 1982 to 1989.  For his
achievements  in allergy and  immunology,  Dr.  Bellanti has  received  numerous
awards,  including two from the American College of Allergy and Immunology;  the
Humanitarian  Award  for  "excellence  and  service  and  teaching  of  clinical
immunology" in 1974, and the  Distinguished  Fellow Award in 1981. Dr.  Bellanti
was  President  of the Society  for  Pediatric  Research  (1980),  President  of
INTERASMA (1987-90), President of the American College of Allergy and Immunology


                                       18
<PAGE>

(1991-92),  President of the  Association  of Medical  Laboratory  Immunologists
(1974-84);  Editor of "Annals of Allergy" (1980-89). He is the recipient of many
national and  international  honors,  most recently  receiving the Honoris Causa
from the University of Palermo,  Italy (1992).  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.  in 1976 from the  University of Southern
California.

      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 was co-founder,  member of the
Board of Directors  and Vice  President of Finance of Phase  Medical,  Inc.,  an
infusion  therapy  company  sold  to  Becton  Dickinson  in  1994.  He was  also
co-founder,  member of the Board of Directors  and Vice  President of Finance of
Synergistic  Systems,  Inc., a company that became the largest  medical  billing
company in the western  United States.  He is also  co-founder and member of the
Board of Directors of Polymer Safety,  LLC, a manufacturer of synthetic  medical
and  industrial  examination  gloves and  co-founder  and member of the Board of
Directors  of  Physicians'  Choice  LLC,  a  medical  billing  company.  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 also serves 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., RAND Corporation (Center for Middle East
Public Policy),  CytRx Corporation  (NASDAQ),  Independent  Colleges of Southern
California   (ICSC),   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 in 1977.

      Formerly,  Mr.  Cappello  was a Member  of the Board of  Directors  of the
following:  Koo Koo Roo, Inc.  (NASDAQ),  Arcus Data  Security,  Inc.  (NASDAQ),
Maritime Bank of California (OTC), Executive Publications, Inc., and The Joffrey
Foundation.

      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
Concord EFS Inc. and a member of the Board of  Directors  of Photo  Control Inc.
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.  Mr. Loomis is President  and majority  shareholder  of New
Horizons Diagnostics,  Inc., a company that develops  bacteriological  screening
methods,  monoclonal  antibodies  for  detection of various  infectious  disease
agents, and rapid bacterial and viral assay kits. Prior to founding New Horizons
Diagnostics, Inc. in 1980, Mr. Loomis was in charge of the Immunology Department
for BBL, a division of Becton  Dickinson.  Mr. Loomis received his undergraduate
degree  in  Chemistry  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 of Modena Holding Corporation,  a financial
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.


                                       19
<PAGE>

Prior to joining the Cappello  Group,  Mr. Pernice served as a senior  corporate
executive in government and industry for more than 17 years.  Most recently,  he
was Vice  President,  Public  Affairs and a corporate  officer for Dole Food Co.
Inc.  (NYSE:DOL),  reporting to the chairman and CEO, David H. Murdock.  He also
served in similar capacities for the conglomerate of publicly and privately held
business  interests of Murdock,  including  the Castle & Cooke Inc.  real estate
company,  formerly  (NYSE:CCS),  now privately held.  Prior to joining Dole Food
Co., Mr.  Pernice served in the White House for more than seven years in various
capacities  for the  Reagan  and  Bush  administrations.  Mr.  Pernice  earned a
bachelor of arts degree from the University of Southern California in 1984.

      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 University  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 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  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 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
in 1982 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.

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.



                                       20
<PAGE>

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

      A Form 5 and a Form 4 were filed by Lawrence Loomis regarding the grant of
stock options, which transactions otherwise were not timely reported.

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, 2001 through  December 31, 2003, for the Chief  Executive  Officer of
the Company and the  Company's  other  executive  officers who were  compensated
during the year ended December 31, 2003 (the "Named Executive Officers"):

                                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                        Other     Restricted    Securities
                                    Salary  Bonus       Annual      Stock       Underlying    LTIP     All Other
Name and Principal Position  Year     ($)    ($)     Compensation  Award(s)    Options/SARs Payouts   Compensation
                                                         ($)         ($)          (#)         ($)         ($)
<S>                          <C>   <C>      <C>      <C>           <C>         <C>          <C>       <C>
Edmond F. Buccellato.......  2003  $180,000   $0       $10,500       $0        1,530,000       $0         $0
Chief Executive Officer      2002  $154,500   $0       $ 3,800       $0           20,000       $0         $0
(1)(3)(4)(5)(8)              2001  $ 84,000   $0       $ 2,150       $0           10,000       $0         $0

Paul J. Marangos...........  2001  $ 35,000   $0       $10,000       $0          100,000       $0         $0
Chief Executive Officer
(2)(7)
                             2003  $180,000   $0       $10,500       $0          480,000       $0         $0
Simon Skurkovich...........  2002  $131,500   $0       $ 3,800       $0           20,000       $0         $0
Chairman Emeritus,           2001  $ 60,000   $0       $ 2,150       $0           10,000       $0         $0
Director of Research &
Development (3)(4)(6)(8)
</TABLE>
------------------------------------

(1) Mr. Buccellato was the Chief Executive Officer of the Company prior to the
hiring of Dr. Marangos. Since April, 2001, Mr. Buccellato has served as
President and Chief Executive Officer of the Company.
(2) In April, 2001, Dr. Marangos resigned as an officer and employee of the
Company.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) During May, 2001, the Company issued to Dr. Marangos warrants to purchase
100,000 shares of the Company's Common Stock at $0.25 per share for his service
on the Board of Directors. The warrants expire in May, 2005. The fair value of
the warrants was estimated at $7,800 using the Black Scholes option price
method.
(8) 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 2003,  William M.  Finkelstein  did not  receive  any
compensation directly from the Company,  although the Company paid to Buccellato
&  Finkelstein,  Inc.,  the  sum of  $24,000  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


                                       21
<PAGE>

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
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,  2003  as set  forth  in the  chart  below  captioned
"OPTION/SAR GRANTS IN LAST FISCAL YEAR (2003)."

      None of the Named Executive  Officers exercised any options or SARs during
the 2003 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, 2003, to each of the Named Executive  Officers is provided in tabular format
below:

                                   OPTION/SAR GRANTS IN LAST FISCAL YEAR (2003)
                                                (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               20,000(1)                               $0.25         December 31, 2011
                                   30,000(2)                               $0.42         December 31, 2012
                                1,500,000(3)            71.4%              $0.16           February 6, 2010
-------------------------------------------------------------------------------------------------------------
Simon Skurkovich, M.D.             20,000(1)                               $0.25         December 31, 2011
                                   30,000(2)                               $0.42         December 31, 2012
                                  450,000(3)            21.4%              $0.16           February 6, 2010
-------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Options to purchase  20,000  shares of Common  Stock at $0.21 per share were
granted as of January 1, 2003 to all  directors  for  services  rendered  during
fiscal year 2002.
(2) During  January 2004,  options to purchase  30,000 shares of Common Stock at
$0.42 per share were  granted to all  directors  for  services  rendered  during
fiscal  year  2003,  and the fair  value of such  options  were  accrued  by the
Company's auditors for the 2003 fiscal year.
(3) During the quarter ended March 31, 2003, the Company  granted options to Mr.
Buccellato  and Dr.  Simon  Skurkovich  at an exercise  price of $0.16 per share
under the Company's OEI Plan. See Footnotes 5 and 6 to the Summary  Compensation
Table above for further information about these options.



                                       22
<PAGE>

                            AGGREGATED OPTIONS/SAR EXERCISES IN 2003 FISCAL YEAR
                                 OPTION/SAR VALUES AS OF DECEMBER 31, 2003



<TABLE>
<CAPTION>
                                                                                         Value of Unexercised
                                                           Number of Unexercised             In-The-Money
                                                           Securities Underlying        Options/SARs At FY-End
                                                         Options/SARs at FY-End(#)               ($)
                            Shares          Value              Exercisable/
         Name            Acquired on    Realized ($)         Unexercisable(1)          Exercisable/Unexercisable(2)
   ----------------      Exercise (#)   -------------- ------------------------------  ---------------------------
                        --------------
<S>                     <C>             <C>             <C>             <C>            <C>            <C>
Simon Skurkovich, M.D.        0              $0            300,000                     $ 96,000
                                                           623,000                     $199,360
                                                            10,000                     $  1,700
                                                            20,000                     $  4,200
                                                                          450,000                     $117,000
                                                                           30,000                     $      0

Edmond Buccellato             0              $0            105,543                     $ 33,774
                                                            50,000                     $ 18,000
                                                            50,000                     $ 11,000
                                                            10,000                     $  1,700
                                                            20,000                     $  4,200
                                                                        1,500,000                     $390,000
                                                                           30,000                     $      0
------------
</TABLE>

(1) All options were exercisable as of December 31, 2003, 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 commencing February 7, 2004; options to purchase
30,000 shares of Common Stock were approved for grant as of January 1, 2004 for
services rendered during the 2003 fiscal year.
(2) Determined on the basis of the share closing price of $0.42 on December 31,
2003, 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. In the case of Mr. Buccellato, consideration also was given to the
amount of Stock Bonus Plan shares which the Company repurchased from him in
order to enable the Company to comply with the Sarbanes-Oxley Act. The
disinterested 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 on the grant date.

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, 2003. The Board members
were granted stock options under the OEI Plan as described below. There are no
other contractual arrangements for director compensation with any member of the
Board of Directors.

      During March, 2003, the Company granted stock options to purchase an
aggregate 3,950,000 shares of Common Stock at an exercise price of $0.16 per
share to the following directors and officers under the OEI Plan, which options
vest in three equal annual installments commencing February 7, 2004:


                                  Name              Shares Underlying Options
                                  ----              -------------------------
                    John M. Bendheim                           350,000
                    Edmond F. Buccellato                     1,500,000
                    Lawrence Loomis                          1,200,000
                    Boris Skurkovich, M.D.                     450,000
                    Simon Skurkovich, M.D.                     450,000

      These stock options were granted to officers, directors and consultants
based upon, among other factors, the potential for individual contribution to
the Company. In the case of Mr. Buccellato, Mr. Loomis and Dr. Boris Skurkovich,
consideration also was given to the amount of stock bonus plan shares which the
Company repurchased from each such individual in order to enable the Company to
comply with the Sarbanes-Oxley Act. The disinterested 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 on the grant date.

      The Board approved the grant of warrants to purchase 100,000 shares of
Common Stock at an exercise price of $0.34 per share to Joseph A. Bellanti, M.D.
in connection with his appointment to the Board in October, 2003. Dr. Bellanti
assigned such stock warrants to the ICare Foundation, a non-profit research and
educational organization.

      Effective December 31, 2003, the Board approved the grant to each director
of stock options to purchase 30,000 shares of Common Stock at an exercise price
of $0.42 per share for Board services rendered during the year ended December
31, 2003. Director Joseph A. Bellanti, M.D. assigned his stock options to the
ICare Foundation, a non-profit research and educational organization.



                                       23
<PAGE>

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

<TABLE>
<CAPTION>
Equity Compensation Plan Information as of December 31, 2003
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                      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                                     4,720,000(1)                 $0.17                    30,000(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,
2004, to each director,  to purchase 30,000 shares of the Company's Common Stock
at $0.42 per share (aggregate 270,000 shares) for directorship services rendered
during the year ended  December 31,  2003,  and for which the fair value of such
options was accrued for the 2003 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, 2003. 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, 2003,  no shares have been granted
under the OEI Plan. As of December 31, 2003,  options to purchase  approximately
4,720,000 shares have been granted or approved for grant under the OEI.

      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  shares of Common  Stock at an exercise  price of
$0.16 per share to each of the following consultants:

                      Dr. Seji Haba                   50,000 shares
                      Joseph Tartel                   50,000 shares

      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.

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 27, 2004. 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 27, 2004, the Company
had 43,088,365 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                                         17,173,940(1)                      26.09%
222 W. Adams St.
Chicago, IL 60606

Boris Skurkovich, M.D.                                     6,440,599(2)                        9.78%
18 Blaisdell Ave.
Pawtucket, RI 01860

Leonard Millstein and                                      3,166,600(3)                        4.81%
Ellen Millstein
1677 Calle Alta
La Jolla, CA 92037



                                       24
<PAGE>

Simon Skurkovich, M.D.                                     2,601,770(4)                        3.95%
802 Rollins Avenue
Rockville, MD 20852

Alexander L. Cappello                                      2,105,196(5)                        3.19%
100 Wilshire Boulevard
Suite 1200
Santa Monica, CA 90401

Edmond F. Buccellato                                       1,820,408(6)                        2.76%
6355 Topanga Canyon
   Boulevard, Suite 510
Woodland Hills, CA 91367

Lawrence Loomis                                            1,584,053(8)                        2.40%
9110 Red Branch Road
Columbia, MD 21045

Thomas J. Pernice                                          1,368,599(7)                        2.06%
837 Chautauqua Blvd.
Pacific Palisades, CA 90272

John M. Bendheim                                            415,510(9)                          *
361 N. Canon Drive
Beverly Hills, CA 90210

Joseph A. Bellanti, M.D.                                     - 0 -                              *
6007 Corewood Lane
Bethesda MD 20816

All officers and directors as a group (10)                  33,934,901                       51.51%


-----------------------------------------
</TABLE>

(1) Shares held in the name of Richard P.  Kiphart  include the right to acquire
2,400,468  shares,  upon the  conversion  of  $600,117  principal  amount of the
Company's 2002 Subordinated Convertible Pay-In-Kind Notes due September 30, 2004
("2002  Convertible Notes Due 2004") and the right to acquire 10,653,124 shares,
upon the  conversion  of  $2,964,298  principal  amount  of the  Company's  2002
Subordinated  Convertible  Pay-In-Kind Notes Due June 1, 2006 ("2002 Convertible
Notes Due 2006"),  the right to acquire  2,866,280 shares upon the conversion of
$716,570  principal amount of the Company's 2003 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,  and options to purchase up to 30,000
shares of Common stock at an exercise price of $0.42 per share.

(2) Shares held in the name of Boris Skurkovich  include shares held in his name
(1,404,829),  and shares held in the name of Carol Marjorie Dorros  (1,935,000),
and Samuel Aaron Skurkovich (2,880,770), 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,
and options to purchase 160,000 shares at $0.16 per share.

(3) Includes shares held in Leonard  Millstein's name (415,100),  shares held in
Ellen Millstein's name (2,273,250)  shares held in the name of William Millstein
(448,250 shares),  options to purchase up to 10,000 shares of Common Stock at an
exercise  price of $0.25 per share,  and options to purchase up to 20,000 shares
of Common Stock at an exercise price of $0.21 per share.

(4) 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,  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 Company  Common Stock at an exercise  price of $0.42 per share,
and options to purchase up to 150,000  shares at an exercise  price of $0.16 per
share.  Simon  Skurkovich is the father of Boris  Skurkovich and Ellen Millstein
but disclaims  beneficial ownership of the shares attributed to both of them and
disclaims that the three of them are part of a "group" for SEC purposes.

(5) 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,  and options to purchase up to 30,000 shares
of Common Stock at an exercise price of $0.42 per share. Also includes the right
of the Family Trust to acquire 139,284 shares of Common Stock upon conversion of
Company's  Convertible  Subordinated  Debt due September 30, 2004  ("Convertible
Debt"), and the right to acquire 207,696 shares of Common Stock upon exercise of
an option to purchase up to $51,924  principal amount of Convertible Debt at par
and the conversion of such  Convertible  Debt,  which option CCC assigned to the
Family Trust.

(6) Shares held in the name of Edmond F. Buccellato  comprise shares held in the
names of Edmond F. and Leana J. Buccellato  Living Trust (813,719  shares),  the
Buccellato  Living Trust (17,000  shares),  and Buccellato &  Finkelstein,  Inc.
(88,334).  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


                                       25
<PAGE>

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
500,000 shares of Common Stock at an exercise price of $0.16 per share,  and the
right to acquire  135,812  shares of Common Stock upon the conversion of $33,953
principal amount of the Company's 2002 Convertible Notes Due 2004.

(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,  and options to
purchase  up to 30,000  shares of Common  Stock at an  exercise  price of $0.42.
Also, includes the right to acquire 166,156 shares of Common Stock upon exercise
of an option to purchase up to $41,539  principal  amount of Convertible Debt at
par and the conversion of such  Convertible  Debt,  which option CCC assigned to
him.

(8) Includes shares held in the names of Lawrence  Loomis  (924,053  shares) and
New  Horizons  Diagnostics,  Inc.  (200,000  shares),  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 400,000 shares
of Common Stock at an exercise price of $0.16 per share.

(9) 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,  and the
right to  acquire  138,844  shares of Common  Stock upon  conversion  of $34,711
principal  amount of  Convertible  Debt held by a trust for the  benefit  of his
minor  child,  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,  and options to
purchase up to 116,666  shares of Common Stock at an exercise price of $0.16 per
share.

(10) Includes  2,940,659 shares of Common Stock underlying  warrants,  2,925,209
shares of Common Stock underlying  options and 16,704,664 shares of Common Stock
underlying Convertible Debt.

*Represents less than 1% of the outstanding Shares of Common Stock.

ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Effective  as of  September  1, 2003,  the then  directors  of the Company
entered into a written  agreement  whereby each director  agrees not to sell any
securities of the Company, including common stock, until August 31, 2004, unless
prior  thereto  the  share  price of the  Company  common  stock for at least 14
consecutive trading days shall have been at least $1.50 per share.

      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 2003,  the Company paid  $32,238 to Boris  Skurkovich,
M.D. for consulting services and reimbursement for out-of-pocket  expenses.  The
Company paid $247,150 to New Horizons  Diagnostics,  Inc. ("New  Horizons"),  of
which Director  Lawrence Loomis is the majority  shareholder,  for production of
monoclonal  antibodies,  and the Company  also paid New  Horizons  an  aggregate
$74,900  in  rent,  payable  at  approximately  $6,240  monthly,  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 2003,  the Company paid an  aggregate  $8,400 in rent,
payable $700 monthly, for the use of office space from Buccellato & Finkelstein,
Inc., of which Edmond F.  Buccellato is a shareholder.  During fiscal year 2003,
the Company  paid to  Buccellato  &  Finkelstein,  Inc.,  the sum of $24,000 for
accounting   services  and  tax   preparation  and   approximately   $15,600  in
resimbursements for medical and dental insurance for company employees.

      Alexander  L.  Cappello  is the  brother of Gerard K.  Cappello,  the sole
shareholder,  president and chief executive  officer of Cappello  Capital Corp.,
which was retained 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.


                                       26
<PAGE>


      As of March 24, 2004, John M. Bendheim, Edmond F. Buccellato, Alexander L.
Cappello  and Richard P. Kiphart  elected to convert  into Company  Common Stock
all, or a portion of, their Company  Convertible Debt or Convertible Notes, upon
which the Company was  indebted to such  individuals  as of such date.  Director
Richard P. Kiphart holds certain other  Convertible Notes upon which the Company
is indebted to such individual.

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.

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.



                                       27
<PAGE>

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.

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

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, 2003:

      1.  October 1, 2003.  The  Registrant  reported  results of its  sponsored
investigational   clinical   trial   comparing  two  different   investigational
treatments known as anticytokine  therapy for patients suffering from rheumatoid
arthritis.

      2. October 24, 2003. The Registrant  reported that Dr. Joseph A. Bellanti,
Professor  of  Pediatrics  and   Microbiology-Immunology  and  Director  of  the
International Center for  Interdisciplinary  Studies of Immunology at Georgetown
University School of Medicine, has rejoined the Registrant's Board of Directors.

      3. October 28, 2003.  The Registrant  reported that it raised  $800,000.00
through the private  placement  to  accredited  investors  of 2003  Subordinated
Convertible  Pay-In-Kind Notes Due September 30, 2007 in the aggregate principal
amount of  $800,000.00  during the week of October 27, 2003,  of which  Director
Richard P. Kiphart acquired $700,000.00 principal amount thereof.

      4.  October  29,  2003.  The  Registrant  reported  beneficial  effects of
investigational  antibodies to Interferon-Gamma in treating rheumatoid arthritis
at the  American  College of  Rheumatology  67th  Annual  Scientific  Meeting in
Orlando, Florida.

      5. October 29, 2003. The Registrant  reported the  inauguration of its new
website at http://www.advancedbiotherapy.com.

      6.  November 21, 2003.  The  Registrant  reported  that  President and CEO
Edmond   Buccellato   has  joined  the   delegation  to  develop   international
biotechnology relationships between the United States and Taiwan.

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

(1) Exhibit 10.13 was  erroneously  identified as Exhibit 10.12 and is correctly
identified herein.
(2) Exhibit 10.14 was  erroneously  identified as Exhibit 10.12 and is correctly
identified herein.

                                       28
<PAGE>

      7. November 25, 1993.  The  Registrant  reported that the Office of Orphan
Products  Development  of the US Food and Drug  Administration  has  granted the
Company  "Orphan  Drug  Designation"  for  its  investigational   antibodies  to
interferon-gamma to treat Immunologic Corneal Allograft Rejection.

      8. December 9, 2003.  The Registrant  reported that Edmond F.  Buccellato,
Chief  Executive  Officer and Chairman of the Board of  Directors,  received the
"First Annual Healthcare Leadership Award" as Bioscience Leader of the Year from
the San Fernando Valley Business Journal.

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 $35,800 for 2003 and $29,500
            for 2002.

      (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 $1,243 for 2003 for  assistance  with Stock Bonus Notes
            receivable calculations and $3,900 for 2002 for assistance with Form
            SB-2 filings.

      (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 2003 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 -%

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 25th day of
March, 2004.

                                Advanced Biotherapy, Inc.
                                (Registrant)

                                By:  /s/  Edmond F. Buccellato
                                     ---------------------------
                                     President and Chief Executive Officer


                                       29
<PAGE>


      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 25, 2004             /s/ Edmond F. Buccellato                 President and Chief Executive Officer,
                          ------------------------------------
                          Edmond F. Buccellato                      Director

March 25, 2004             /s/ William M. Finkelstein               Chief Financial Officer
                          ------------------------------------
                          William M. Finkelstein                    (Principal Financial and Accounting
                                                                    Officer)

March 25, 2004             /s/ Joseph A. Bellanti, M.D.             Director
                          ------------------------------------
                          Joseph A. Bellanti, M.D.

March 25, 2004             /s/ John M. Bendheim                     Director
                          ------------------------------------
                          John M. Bendheim

March 25, 2004             /s/ Alexander L. Cappello                Director
                          ------------------------------------
                          Alexander L. Cappello

March 29, 2004             /s/ Richard P. Kiphart                   Director
                          ------------------------------------
                          Richard P. Kiphart

March 25, 2004             /s/ Lawrence Loomis                      Director
                          ------------------------------------
                          Lawrence Loomis

March 26, 2004             /s/ Thomas J. Pernice                    Director
                          ------------------------------------
                          Thomas J. Pernice

March 25, 2004             /s/ Boris Skurkovich, M.D.               Director
                          ------------------------------------
                          Boris Skurkovich, M.D.

March 26, 2004             /s/ Simon Skurkovich, M.D.               Director
                          ------------------------------------
                          Simon Skurkovich, M.D.
</TABLE>



                                       30

<PAGE>


ADVANCED BIOTHERAPY, INC.
(A Development Stage Enterprise)


                                December 31, 2003


                                    CONTENTS



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


<PAGE>

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


                          INDEPENDENT AUDITOR'S REPORT


We have audited the accompanying balance sheets of Advanced Biotherapy,  Inc. (a
Delaware  corporation and development  stage enterprise) as of December 31, 2003
and  2002,  and the  related  statements  of  operations,  stockholders'  equity
(deficit)  and cash  flows for the years  then  ended  and for the  period  from
December  2,  1985  (inception)  through  December  31,  2003.  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 auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  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,  2003 and 2002 and the  results of its  operations,  stockholders'
equity (deficit) and cash flows for the years then ended and for the period from
December 2, 1985  (inception)  through  December 31, 2003,  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 has  generated no revenue in the past years,
and has suffered  recurring  losses from operations  resulting in an accumulated
deficit of $8,701,401 at December 31, 2003. These  conditions raise  substantial
doubt about the Company's  ability to continue as a going concern.  Management's
plans  regarding  this  issue  are  also  discussed  in  Note 2.  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, WA 99201
(509) 838-5111
March 3, 2004



                                      F-1
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                             December 31,    December 31,
                                                                                 2003            2002
                                                                             -----------     -----------
<S>                                                                          <C>             <C>
ASSETS

      CURRENT ASSETS
          Cash                                                               $    44,591     $    31,081
          Marketable securities                                                2,000,000       3,000,000
          Notes receivable - related party                                        46,619         246,619
          Interest receivable - related party                                     12,030          47,609
          Deposits and prepaid expenses                                           54,967          54,882
                                                                             -----------     -----------
               Total Current Assets                                            2,158,207       3,380,191
                                                                             -----------     -----------

      PROPERTY, PLANT AND EQUIPMENT, net                                         249,156          16,414
                                                                             -----------     -----------

      OTHER ASSETS
          Deferred loan origination fees, net of accumulated amortization         71,022         128,910
          Patents and patents pending, net of accumulated amortization           611,924         365,713
                                                                             -----------     -----------
               Total Other Assets                                                682,946         494,623
                                                                             -----------     -----------

TOTAL ASSETS                                                                 $ 3,090,309     $ 3,891,228
                                                                             ===========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

      CURRENT LIABILITIES
          Accounts payable                                                   $   148,727     $   113,457
          Accounts payable - related party                                         6,713          14,174
          Accrued expenses - related party                                        94,500          63,367
          Loan payable - related party                                             4,992              --
          Current portion of convertible notes payable                         2,429,710              --
                                                                             -----------     -----------
               Total Current Liabilities                                       2,684,642         190,998
                                                                             -----------     -----------

      LONG-TERM DEBT
          Convertible notes payable, net of current portion                    4,421,276       5,604,010
          Note payable to related parties                                        127,631         127,631
                                                                             -----------     -----------
               Total Long-Term Debt                                            4,548,907       5,731,641
                                                                             -----------     -----------

      Total Liabilities                                                        7,233,549       5,922,639
                                                                             -----------     -----------

      COMMITMENTS AND CONTINGENCIES                                                   --              --
                                                                             -----------     -----------
      STOCKHOLDERS' EQUITY (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, 43,088,365 and 43,601,317 shares
              issued and outstanding, respectively                                43,087          43,600
          Additional paid-in capital                                           3,908,058       3,937,923
          Stock options and warrants                                             607,016         580,027
          Deficit accumulated during development stage                        (8,701,401)     (6,592,961)
                                                                             -----------     -----------
               Total Stockholders' Equity (Deficit)                           (4,143,240)     (2,031,411)
                                                                             -----------     -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                         $ 3,090,309     $ 3,891,228
                                                                             ===========     ===========
</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
                                                     2003             2002        December 31, 2003
                                                 ------------     ------------   ------------------
<S>                                              <C>              <C>              <C>
REVENUES                                         $         --     $         --     $     89,947
                                                 ------------     ------------     ------------
OPERATING EXPENSES
      Research and development                        488,141          313,597        3,080,110
      Promotional fees                                  8,468            9,624           34,636
      Professional fees                               193,567          435,977        2,576,977
      Directors' fees                                  94,500           37,800          161,380
      Depreciation and amortization                   103,029           77,305          662,217
      Administrative salaries and benefits            254,720           98,618        1,363,198
      Insurance                                        74,335           57,787          191,096
      Shareholder relations and transfer fees          40,348           26,946          243,841
      Rent                                             83,301               --          239,417
      Travel and entertainment                         77,176           73,977          250,309
      Telephone and communications                     14,111            4,140           45,631
      Office                                            9,837           12,099           65,056
      General and administrative                       58,087           43,062          682,795
                                                 ------------     ------------     ------------
          Total Operating Expenses                  1,499,620        1,190,932        9,596,663
                                                 ------------     ------------     ------------

LOSS FROM OPERATIONS                               (1,499,620)      (1,190,932)      (9,506,716)

OTHER INCOME (EXPENSES)
      Miscellaneous income                                 --               --           22,000
      Interest and dividend income                     35,404           45,168          147,565
      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)
      Interest expense                               (644,224)        (378,771)      (1,612,379)
                                                 ------------     ------------     ------------
          Total Other Income (Expenses)              (608,820)        (333,603)         805,315
                                                 ------------     ------------     ------------

LOSS BEFORE INCOME TAXES                           (2,108,440)      (1,524,535)      (8,701,401)

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

NET LOSS                                         $ (2,108,440)    $ (1,524,535)    $ (8,701,401)
                                                 ============     ============     ============
      BASIC AND DILUTED NET LOSS
      PER COMMON SHARE                           $      (0.05)    $      (0.04)
                                                 ============     ============
      WEIGHTED AVERAGE NUMBER OF
      BASIC AND DILUTED COMMON STOCK
      SHARES OUTSTANDING                           42,615,700       43,175,909
                                                 ============     ============
</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' EQUITY (DEFICIT)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                              Deficit
                                                                                            Accumulated
                                        Common Stock           Additional       Stock         During
                                --------------------------      Paid-in      Options and    Development
                                   Shares         Amount        Capital        Warrants        Stage           Total
                                -----------    -----------    -----------    -----------    -----------    -----------
<S>                              <C>           <C>            <C>            <C>            <C>            <C>
Balance, December 31, 2001       42,303,611    $    42,303    $ 3,640,657    $   477,683    $(5,068,426)   $  (907,783)

Contribution of capital by
shareholders in form of
foregone interest                        --             --          5,635             --             --          5,635

Common stock issued in
exchange for convertible
debt at $0.25 per share           1,147,706          1,147        285,781             --             --        286,928

Stock issued for cash at
an average price of $0.04
per share from the exercise
of options                          150,000            150          5,850             --             --          6,000

Stock warrants issued in
exchange for services                    --             --             --         54,344             --         54,344

Stock options issued in
exchange for services                    --             --             --         48,000             --         48,000

Net loss for the year ended
December 31, 2002                        --             --             --             --     (1,524,535)    (1,524,535)
                                -----------    -----------    -----------    -----------    -----------    -----------

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)
                                ===========    ===========    ===========    ===========    ===========    ===========

Summary of required  information  regarding stock issuances can be found in Note 8.
</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
                                                                 2003           2002       December 31, 2003
                                                             ------------   ------------   ------------------
<S>                                                          <C>            <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net (loss)                                              $(2,108,440)   $(1,524,535)     $(8,701,401)
     Adjustments to reconcile net loss to cash
     used in operating activities:
         Depreciation and amortization                            45,141         77,305          604,329
         Loss on disposal of equipment                                --             --            2,224
         Investment income                                            --             --         (157,520)
         Expenses paid through issuance of common stock               --             --          231,340
         Expenses paid through issuance
           of common stock warrants and options                   34,200        102,344          403,489
         Accrued interest paid by convertible debt               644,224        373,136        1,222,271
         Expenses paid through contribution
           of additional paid-in capital                           4,230          5,635           55,811
         Organization costs                                           --             --           (9,220)
         Decrease (increase) in assets:
             Marketable securities                             1,000,000     (3,000,000)      (2,000,000)
             Deposits and prepaid expenses                           (85)       (14,172)         (54,967)
             Interest receivable                                  (4,989)       (16,030)         (52,598)
             Deferred loan origination cost                       57,888       (101,895)        (157,295)
         Increase (decrease) in liabilities:
             Accounts payable                                     35,270         25,452          226,268
             Accounts and notes payable, related parties          28,664             --          156,295
             Payroll and payroll taxes payable                        --             --            8,878
                                                             -----------    -----------      -----------
                 Net cash used in operating activities          (263,897)    (4,072,760)      (8,222,096)
                                                             -----------    -----------      -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of fixed assets                                   (239,976)       (15,270)        (303,249)
     Acquisition of patents                                     (284,117)      (127,004)        (772,219)
                                                             -----------    -----------      -----------
                 Net cash used in investing activities          (524,093)      (142,274)      (1,075,468)
                                                             -----------    -----------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from issuance of common stock                        1,500          6,000        2,457,254
     Internal gain on sale of securities                              --             --          157,520
     Proceeds from convertible notes                             800,000      4,203,500        6,514,000
     Proceeds from notes payable                                      --             --          388,508
     Payments on notes payable                                        --             --         (175,127)
                                                             -----------    -----------      -----------
                 Net cash provided by financing activities       801,500      4,209,500        9,342,155
                                                             -----------    -----------      -----------
     Net increase (decrease) in cash                              13,510         (5,534)          44,591

     Cash, beginning                                              31,081         36,615               --
                                                             -----------    -----------      -----------
     Cash, ending                                            $    44,591    $    31,081      $    44,591
                                                             ===========    ===========      ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:

     Interest expense paid                                   $        --    $        --      $   339,927
                                                             ===========    ===========      ===========
     Income taxes paid                                       $        --    $        --      $        --
                                                             ===========    ===========      ===========

NON-CASH FINANCING AND INVESTING ACTIVITIES:

Common stock issued in exchange for
    professional fees and expenses                           $        --    $        --      $   340,869
Contributed expenses                                         $     4,230    $     5,635      $    55,811
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                                  $    34,200    $    48,000      $   157,200
Common stock issued on cashless exercise of warrants         $     7,211    $        --      $     7,211
Warrants issued for services                                 $        --    $    54,344      $   246,289
Accrued interest paid by convertible debt                    $   644,224    $   373,136      $ 1,222,271
Common stock issued for convertible debt                     $   197,249    $   286,928      $   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, 2003
--------------------------------------------------------------------------------

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") and its domicile to Delaware.

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

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.

Development Stage Activities
----------------------------
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.

Going Concern
-------------
The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern.  For the year ended December 31, 2003,
the Company  incurred a net loss of $2,108,440  and had an  accumulated  deficit
during the development stage of $8,701,401.  Although the Company has sufficient
funds for  research and  development  costs and  operations,  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,  2003,  the Company  anticipates  that its minimum
operating  cash  requirements  to continue as a going  concern will be less than
$2,500,000,  and therefore,  believes that it has adequate resources to maintain
operations  during  that  period.  The future of the Company is  dependent  upon
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.

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


                                      F-6
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements
--------------------------------
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.

In April 2003,  the Financial  Accounting  Standards  Board issued  Statement of
Financial   Accounting  Standards  No.  149,  "Amendment  of  Statement  133  on
Derivative  Instruments and Hedging  Activities"  (hereinafter  "SFAS No. 149").
SFAS No. 149 amends and clarifies the  accounting  for  derivative  instruments,
including  certain  derivative  instruments  embedded in other contracts and for
hedging  activities under SFAS No. 133,  "Accounting for Derivative  Instruments
and Hedging Activities".  This statement is effective for contracts entered into
or modified after June 30, 2003 and for hedging  relationships  designated after
June 30,  2003.  The  adoption  of SFAS No.  149 did not have an  impact  on the
financial statements of the Company.

In December 2002, the Financial  Accounting Standards Board issued Statement No.
148   (hereinafter    "SFAS   No.   148")   on   "Accounting   for   Stock-Based
Compensation--Transition  and Disclosure." This statement  provides  alternative
methods of  transition  for  companies  that  choose to switch to the fair value
method of accounting for stock  options.  SFAS No. 148 also makes changes in the
disclosure requirements for stock-based compensation, regardless of which method
of accounting is chosen.  Under the new standard,  companies must report certain
types of information more prominently and in a more understandable format in the
footnotes to the financial statements,  and this information must be included in
interim as well as annual  financial  statements.  The Company has complied with
the disclosure requirements of SFAS No. 148 in these financial statements.

In October 2002, the Financial  Accounting  Standards Board issued Statement No.
147  (hereinafter   "SFAS  No.  147")  on  "Acquisitions  of  Certain  Financial
Institutions."  This  statement  provides  guidance  on the  accounting  for the
acquisition of a financial institution. This standard does not have an effect on
the Company's financial statements.

In June 2002,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 146,  "Accounting for Costs Associated with
Exit or  Disposal  Activities"  (hereinafter  "SFAS  No.  146").  SFAS  No.  146
addresses  significant  issues  regarding  the  recognition,   measurement,  and
reporting  of costs  associated  with exit and  disposal  activities,  including
restructuring  activities.  SFAS No. 146 also  addresses  recognition of certain
costs related to  terminating a contract that is not a capital  lease,  costs to
consolidate facilities or relocate employees,  and termination benefits provided
to employees  that are  involuntarily  terminated  under the terms of a one-time
benefit  arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation  contract.  SFAS No. 146 is effective for activities after
December 31, 2002. There has been no impact on the Company's  financial position
or results of operations from adopting SFAS No. 146.


                                      F-7
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)
--------------------------------------------
In April 2002,  the Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 145, "Rescission of SFAS Statements No. 44, 4
and  64,  Amendment  of  SFAS  Statement  No.  13,  and  Technical  Corrections"
(hereinafter "SFAS No. 145"), which updates,  clarifies and simplifies  existing
accounting pronouncements.  SFAS No. 4, which required all gains and losses from
the  extinguishment of debt to be aggregated and, if material,  classified as an
extraordinary  item, net of related tax effect was rescinded.  As a result, SFAS
No. 64, which amended SFAS No. 4, was rescinded,  as it was no longer necessary.
SFAS No. 44,  "Accounting for Intangible Assets of Motor Carriers",  established
the accounting  requirements  for the effects of transition to the provisions of
the Motor Carrier Act of 1980. Since the transition has been completed, SFAS No.
44 is no longer necessary and has been rescinded.  SFAS No. 145 amended SFAS No.
13  to  eliminate  an   inconsistency   between  the  required   accounting  for
sale-leaseback  transactions  and the  required  accounting  for  certain  lease
modifications  that have  economic  effects  that are similar to  sale-leaseback
transactions.  During the year ended December 31, 2002, the Company adopted SFAS
No.  145,  and as a  result,  has  reclassified  a total of  $2,047,437  in debt
forgiveness to other income from the previous  classification  as  extraordinary
income.  The other  provisions  of this  standard  did not have an effect 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 does not believe any adjustments are needed to the carrying value of its
assets at December 31, 2003.

Accounting for Stock Options and Warrants Granted to Employees and Non-Employees
--------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation"  ("SFAS No. 123"), defines a fair value-based method of accounting
for stock  options and other  equity  instruments.  The Company has adopted this
method,  which measures  compensation costs based on the estimated fair value of
the award and recognizes that cost over the service period.

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, 2003
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Provision for Taxes
-------------------
Income taxes are provided based upon the liability method of accounting pursuant
to SFAS 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 $8,468 and $9,624 for the years ended  December  31, 2003 and
2002, respectively.

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.

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,  which totaled  $19,368,  net of  accumulated
amortization  at December 31, 2003,  are amortized  over the life of the related
debt. During the year ended December 31, 2003, the Company recorded amortization
expense in the amount of $27,712 related to these fees.

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  $50,240,  net of  accumulated
amortization  at December 31, 2003,  are amortized  over the life of the related
debt. During the year ended December 31, 2003, the Company recorded amortization
expense in the amount of $30,176 related to these fees.


                                      F-9
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Internal Gain On Sale of Securities
-----------------------------------
During the year ending December 31, 2000,  officers of the Company sold stock at
a gain shortly after  purchasing stock through a stock bonus plan. In compliance
with the Securities and Exchange Rule 16b, the stockholders remitted the gain to
the Company.  The gain amounted to $157,520 and is reflected in the statement of
operations as internal gain on sale of securities.

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",  which is effective for the Company as of
January 1, 2001. 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, 2003, 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.

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  (1,298,440
shares) and  warrants  (3,141,908  shares),  and  convertible  debt  (27,400,080
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.


                                      F-10
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

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
five years.  During the year ended  December 31, 2003,  the Company  wrote off a
total of $33,723 of fully depreciated assets as they had been abandoned.

The following is a summary of property,  equipment and accumulated  depreciation
at December 31, 2003 and 2002:

                               December 31, 2003          December 31, 2002
                          -------------------------   -------------------------
                                        Accumulated                 Accumulated
                              Cost      Depreciation      Cost      Depreciation
                          -----------   -----------   -----------   -----------
Lab equipment             $    28,566   $     1,184   $    27,582   $    27,582
Office equipment               16,909        10,268        18,062        11,073
Furniture and fixtures         10,082         2,674        11,384         1,959
Filing room under
  construction                207,725            --            --            --
                          -----------   -----------   -----------   -----------
                          $   263,282   $    14,126   $    57,028   $    40,614
                          ===========   ===========   ===========   ===========

Depreciation  expense for the years ended  December 31, 2003 and 2002 was $7,235
and $3,744, respectively.

NOTE 4 - INVESTMENTS

Marketable Securities
---------------------
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. In the year ended December 31,
2003,  there was no  change in the fair  market  value of the  securities  held,
however,  the  Company  sold a portion of its  securities  during the year.  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. This investment is not insured, and therefore,  a total of
$2,000,000 was at risk on December 31, 2003.  During the year ended December 31,
2003, a total of $1,700,000 was redeemed and transferred to cash with no gain or
loss being recognized.



                                      F-11
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

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. 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
                                     Cost      Amortization    Net Amount
                                 -----------   -----------    -----------
    Balance, December 31, 2001   $   361,097   $   (96,604)   $   264,493
    2002 Activity                    127,005       (25,785)       101,220
                                 -----------   -----------    -----------
    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
                                 ===========   ===========    ===========

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 matured on December 31, 2003. Subsequent to the date of these
financial  statements,  the board of directors  proposed the  extension of these
notes.

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 $4,230
was recorded  during the year ending  December 31, 2003 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 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 balance due at December 31, 2003 is $4,992.

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.


                                      F-12
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

NOTE 6 - RELATED PARTY TRANSACTIONS (Continued)

Transactions in 2002
--------------------
During the year ended  December 31, 2002, the Company sold a total of $28,000 in
subordinated  convertible  pay-in-kind  notes to the Company's  chief  executive
officer. See Note 12.

During the year ended  December 31, 2002, the Company paid $60,000 to a director
in connection with the sale of subordinated debt. See Note 12.

Transactions in 1999
--------------------
The Company's former chairman and principal  shareholder advanced funds to pay a
significant  portion of the Company's expenses since 1989. At December 31, 1999,
the cumulative  amounts owed to him for expenses were $257,076.  Although he was
not charging interest to the Company,  interest was calculated at the applicable
federal rate of 5.59% at December 31, 1999 and was recorded as interest  expense
and contributed capital in the accompanying  financial statements.  During 2000,
the  Company  paid part of this note and the  balance was used to offset a bonus
stock sale to the chairman.  At December 31, 1998, the amounts owing for accrued
salary were $1,146,000. During 1999, additional salary was accrued in the amount
of $100,000.  At December 31, 1999, in accordance  with an agreement  with other
employee/shareholders  of the Company,  he received  options to purchase 623,000
shares of common stock at $0.10 per share.  The value of these  options,  in the
amount of $155,750, was used to reduce his accrued salary. See Note 10. In 1999,
he forgave  the  balance  of accrued  salary of  $1,090,250  along with  accrued
interest of $9,962. This is recorded in the financial  statements as forgiveness
of debt.

At December 31, 1999, the Company owed its then secretary/treasurer  $13,381 for
expenses paid in previous years and recorded in notes payable. During 2000, this
note  was  used  as  partial   payment  for  a  bonus  stock   purchase  by  the
secretary/treasurer.  At December 31, 1998,  the Company also owed this employee
$184,000 in unpaid salary  recorded as salary payable.  During 1999,  additional
salary in the amount of $45,000 was accrued for this  employee.  At December 31,
1999, in accordance  with an agreement with other  employee/shareholders  of the
Company,  she  received  options to purchase  114,500  shares of common stock at
$0.10 per share. The value of these options, in the amount of $28,625,  was used
to reduce the accrued salary of this employee/shareholder. See Note 10. In 1999,
she  forgave the balance of accrued  salary in the amount of  $200,375.  This is
recorded in the financial statements as forgiveness of debt.

At December 31,  1998,  the then  president of the Company was owed  $171,360 in
accrued  salary.  During 1999, a portion of this liability was paid. Also during
1999,  additional  salary in the amount of $75,000 was accrued.  At December 31,
1999, in accordance  with an agreement with other  employee/shareholders  of the
Company, he received options to purchase 105,453 shares of common stock at $0.10
per share.  The value of these  options  in the  amount of  $26,363  was used to
reduce the accrued salary of the president. See Note 10. In 1999, he forgave the
balance of accrued  salary in the amount of  $181,622.  This is  recorded in the
financial statements as forgiveness of debt.


                                      F-13
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

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
$44,591 is at risk on December 31, 2003.

The  Company's  marketable   securities  investment  consists  of  auction  rate
preferred  money  market  alternatives.  This  investment  is not  insured,  and
therefore, a total of $2,000,000 is at risk as of December 31, 2003. 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:

<TABLE>
<CAPTION>
                                                                 Common Stock
                                                 --------------------------------------------
                                                   Average
                                                  price per                                          Additional
                                                    share            Shares          Amount        Paid-in Capital
                                                 -----------      -----------      ----------       -------------
<S>                                              <C>               <C>              <C>               <C>
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
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
                                                                  ------------     -----------      --------------
</TABLE>


                                      F-14
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                 Common Stock
                                                 --------------------------------------------
                                                   Average
                                                  price per                                          Additional
                                                    share            Shares          Amount        Paid-in Capital
                                                 -----------      -----------      ----------       -------------
<S>                                              <C>               <C>              <C>               <C>
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
2001                                                  --                   --              --               8,113
2002                                                  --                   --              --               5,635
2003                                                  --                   --              --               4,230
                                                                  ------------     -----------      --------------
                                                                           --              --              91,636
                                                                  ------------     -----------      --------------

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, 2003
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                 Common Stock
                                                 --------------------------------------------
                                                   Average
                                                  price per                                          Additional
                                                    share            Shares          Amount        Paid-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
                                                                  ------------     -----------      --------------
                                                                    3,542,043           3,541             881,745
                                                                  ------------     -----------      --------------

Stock warrants exercised:
2003 (cashless exercise)                             .05              151,846             152               7,059
                                                                  ------------     -----------      --------------

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                                                              43,088,365       $  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.


                                      F-16
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

NOTE 8 - COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL (Continued)

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, 2003, a total of 2,403,789 shares are available under this plan.

NOTE 9 - PREFERRED STOCK

The  Company  has  authorized  20,000,000  shares of $0.001 par value  preferred
stock. As of December 31, 2003, 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 were 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, 2003,  there are 30,000
shares available under this plan.


                                      F-17
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

NOTE 10 - STOCK OPTIONS AND ISSUANCE COMMITMENTS (Continued)

Subsequent to the  financial  statements,  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 are exercisable 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  accrued  expenses  totaling $94,500 ($0.35 per option) for
the value of these options based upon these Black Scholes assumptions.

On  February  7,  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  will record 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.

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.

During the year ended  December 31, 2002,  the Company  issued stock  options to
purchase a total of 110,000 shares of the Company's stock at $0.25 per share for
services.  The options are  exercisable  immediately and expire between July 28,
2007 and April 15, 2011.  The options have piggyback  registration  rights to be
effective in the Company's next SEC registration  statement.  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
$0.25,  risk free interest rate of 5%, expected lives of five to nine years, and
expected  volatility of 98% with no dividends  expected to be paid.  The Company
recorded  a total  expense  of  $30,800  (an  average  of $0.28 per  option)  as
professional  fees for the value of the options  based upon these Black  Scholes
assumptions.


                                      F-18
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

NOTE 10 - STOCK OPTIONS AND ISSUANCE COMMITMENTS (Continued)

During January 2002, the Company issued stock options to purchase  80,000 shares
of the Company's stock at $0.25 per share to its board of directors for services
rendered  during the year ended December 31, 2001.  The options are  exercisable
immediately  and expire on December 31, 2011.  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 $0.25,  risk
free interest rate of 5%, expected life of ten years, and expected volatility of
38% with no  dividends  expected  to be paid.  The  Company  recorded a total of
$17,200 ($0.215 per option) of expense for the value of these options based upon
these Black Scholes assumptions.

During  November  2001,  the Company  issued stock  options to purchase  250,000
shares of the Company's  stock at $0.25 per share to a  consultant.  The options
are  exercisable  immediately  and expire on November 15, 2011. The options have
piggyback  registration  rights  to be  effective  in the next SEC  registration
statement.  See Note 13. 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  $0.25,  risk  free  interest  rate of 5%,
expected  life of ten years,  and expected  volatility  of 38% with no dividends
expected to be paid. At November 15, 2001, the Company  recorded  $75,000 ($0.30
per option) of expense to professional fees for the value of these options based
upon these Black Scholes assumptions.

Options Issued Outside an Incentive Plan
----------------------------------------
On December 31, 1999, three officers of the Company received options to purchase
842,953  shares of common  stock in partial  payment of accrued  salaries in the
amount of $210,738. In addition,  the same three officers forgave the balance of
their accrued salaries and interest in the amount of $1,482,209.  See Note 6. 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 $0.10,  risk free  interest  rate of 5%,  expected  life of five
years, and expected  volatility of 30% with no dividends expected to be paid. At
December 31, 1999, the Company  recorded  $210,738  ($0.25 per option) to reduce
accrued  wages for the value of these  options  based upon these  Black  Scholes
assumptions.  These stock  options are  exercisable  immediately,  and expire on
December 31, 2005. See Note 6.

Options were issued effective February 1, 1993, for a total of 250,000 shares at
a price of $0.01 per  share,  with an  exercise  period of  February  1, 1993 to
February 1, 2003.  During  2002,  options to purchase  100,000  shares of common
stock were  exercised and the  remaining  option to purchase  150,000  shares of
common stock was exercised during January 2003. During 1995,  options for 50,000
shares  were  granted at $0.20 per share,  which  expire in 2005.  During  1996,
options for  525,000  shares were  granted at $0.10 per share,  which  expire in
2006. During 2002, options for 50,000 shares of common stock were exercised. The
shares  purchased  under the Company's  option  grants will be  restricted  and,
therefore,  may not be transferred without registration under applicable federal
and state securities laws.


                                      F-19
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

NOTE 10 - STOCK OPTIONS AND ISSUANCE COMMITMENTS (Continued)

On February 25, 1991, the Company granted nonstatutory options to purchase stock
to members of its board of directors,  officers, and outside consultants.  These
options  offer a total of  860,000  shares at a price of $0.20 per share with an
exercise  period of February 25, 1991 to February 25, 2001. The expiration  date
of these options was extended to February 25, 2002 at which time all the options
expired.

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

<TABLE>
<CAPTION>
                                                                                           Number of securities
                                     Number of securities to       Weighted-average       remaining available for
                                     be issued upon exercise      exercise price of        future issuance under
               Plan                   of outstanding options     outstanding options     equity compensation plans
----------------------------------- --------------------------- ----------------------- ----------------------------

<S>                                                  <C>                         <C>                      <C>
Equity compensation plan approved                    4,720,000                   $0.17                       30,000
   by security holders (1)
Equity compensation plan not
   approved by security holders                             --                      --                    2,403,789
   (2)
                                    ---------------------------                         ----------------------------
Total                                                4,720,000                                            2,433,789
                                    ===========================                         ============================
</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, 2003 and 2002:

<TABLE>
<CAPTION>
                                                                                 Weighted Average
                                                          Number of Shares        Exercise Price
                                                         -----------------     --------------------
<S>                                                          <C>                    <C>
Outstanding at January 1, 2002                               2,777,953              $      0.14
Granted                                                        190,000                     0.25
Exercised                                                     (150,000)                    0.04
Forfeited                                                     (860,000)                    0.20
                                                         -----------------     --------------------
Outstanding at December 31, 2002                             1,957,953                     0.13
Granted                                                      4,280,000                     0.16
Exercised                                                     (150,000)                    0.01
Forfeited                                                           --                       --
                                                         -----------------     --------------------
Options outstanding at December 31, 2003                     6,087,953              $      0.16
                                                         =================     ====================
Options exercisable at December 31, 2003                     1,987,953              $      0.15
                                                         =================     ====================
Weighted average fair value of options granted in 2003                              $      0.13
                                                                               ====================
</TABLE>


                                      F-20
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

NOTE 10 - STOCK OPTIONS AND ISSUANCE COMMITMENTS (Continued)

Summarized  information  about stock  options  outstanding  and  exercisable  at
December 31, 2003 is as follows:

<TABLE>
<CAPTION>
                                                         Outstanding Options
                                -----------------------------------------------------------------------
      Exercise Price Range        Number of          Weighted Average             Weighted Average
                                   Shares             Remaining Life               Exercise Price
      ---------------------     --------------    ------------------------     ------------------------
<S>                               <C>                      <C>                         <C>
         $0.01 - $0.25            6,087,953                5.38                        $ 0.16

<CAPTION>
                                                         Exercisable Options
                                -----------------------------------------------------------------------
      Exercise Price Range        Number of          Weighted Average             Weighted Average
                                   Shares             Remaining Life               Exercise Price
      ---------------------     --------------    ------------------------     ------------------------
<S>                               <C>                      <C>                         <C>
         $0.01 - $0.25            1,987,953                3.87                        $ 0.15
</TABLE>


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 will record an expense for the value of these  warrants based upon these
Black Scholes  assumptions of $12,300  ($0.123 per option) during the next three
years as the warrants vest.

During the year ended  December 31,  2002,  the Company  issued  warrants to two
advisors to purchase  239,400 shares of common stock in connection with the sale
of subordinated  convertible pay-in-kind notes. The warrants are exercisable for
ten years and have an  exercise  price of $0.25 per share.  In  accordance  with
Statement  of  Financial  Accounting  Standards  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 warrants:  strike price at $0.25,
risk  free  interest  rate of 5%,  expected  life  of ten  years,  and  expected
volatility of 98% with no dividends  expected to be paid.  During the year ended
December  31,  2002,  the  Company  recorded  $54,344  ($0.23  per  warrant)  as
professional fees for the aforementioned  services.  A cash-less exercise may be
used for these warrant transactions.

During the year ended December 31, 2001, the Company issued to four directors of
the Company  warrants to purchase up to 100,000  shares of common  stock with an
exercise  price of $0.25 per share.  The  warrants  expire  between May 2005 and
April 2006. In accordance with Statement of Financial  Accounting  Standards 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 warrants:
strike price at $0.25,  risk free  interest  rate of 5%,  expected  life of five
years,  and expected  volatility  of 38% with no dividends  expected to be paid.
During the year ended December 31, 2001, the Company recorded $23,280 ($0.23 per
warrant) as directors' fees for these warrants.


                                      F-21
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

NOTE 11 - NON-CASH COMMITMENT AND WARRANTS (Continued)

On January 19,  2000,  the Company  engaged an  investment  banking firm and, as
partial  compensation  for its  services,  issued  warrants  to  purchase  up to
4,685,135  shares of the Company's  common stock with an exercise price of $0.15
per share.  The warrants  are  exercisable  for ten years.  In  accordance  with
Statement  of  Financial  Accounting  Standards  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 warrants:  strike price at $0.15,
risk  free  interest  rate of 6.2%,  expected  life of 10  years,  and  expected
volatility of 30% with no dividends  expected to be paid.  During the year ended
December  31,  2000,  the  Company  recorded  $168,665  ($0.04 per  warrant)  as
consulting  fees for the  aforementioned  investment  banking firm  services.  A
cash-less exercise may be used for all warrant transactions. No fees are payable
to the investment advisor in connection with the exercise of the warrants, which
contain full,  unconditional piggy-back registration rights without any holdback
obligations.

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

Summarized  information  about stock  warrants  outstanding  and  exercisable at
December 31, 2003 is as follows:

                         Number of        Weighted Average     Average exercise
                         warrants          Remaining Life            price
                      --------------   ---------------------  ------------------
      Outstanding        5,224,227              5.84                 $0.16
      Exercisable        5,124,227              5.83                 $0.16


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. The unpaid accrued interest to date of $432,992
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  $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 is
currently  included in other assets and is being  amortized over the term of the
debt. Amortization for the year ended December 31, 2003 was $27,712.


                                      F-22
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

NOTE 12 - CONVERTIBLE DEBT (Continued)

2000 Convertible Notes (Continued)
----------------------------------
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.

At December 31, 2003,  the remaining  2000 notes,  including  converted  accrued
interest, may be converted into a total of 4,270,239 shares of common stock. The
balance of these notes has been reclassified to current  liabilities as they are
payable on September 30, 2004,  unless  converted to stock earlier.  See Note 15
for subsequent conversions to common stock.

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.

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.

At December 31, 2003, the remaining 2002-2004 notes, including converted accrued
interest, may be converted into a total of 5,449,016 shares of common stock. The
balance due on these notes have been reclassified to current liabilities as they
are payable on September 30, 2004,  unless converted to stock earlier.  See Note
15 for subsequent conversions to common stock.

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.  The unpaid  accrued  interest to date of $547,339  has been
converted to additional convertible debt.


                                      F-23
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

NOTE 12 - CONVERTIBLE DEBT (Continued)

2002 Convertible Notes due June 1, 2006 (Continued)
--------------------------------------------------
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, 2003
was $15,000.

At December 31, 2003, the remaining 2002-2006 notes, including converted accrued
interest, could be converted into a total of 14,409,355 shares of common stock.

2002 Convertible Notes
----------------------
The proceeds from the two  aforementioned  placements of 2002 convertible  notes
will  be  used to  satisfy  outstanding  payables  and to pay  operating  costs,
scientific  development costs and patent  application legal costs, and to pursue
certain  collaborative  relationships with other biotechnology or pharmaceutical
companies.

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 to date of $18,937 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.

At December 31, 2003, the remaining 2003-2007 notes, including converted accrued
interest, could be converted into a total of 3,275,748 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.

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.


                                      F-24
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Contracts
---------
During June 2002,  the Company  entered into a  cooperative  agreement  with the
Department of Energy's ("DOE") Pacific Northwest  National  Laboratory  ("PNNL")
for research and development.  According to this agreement,  the Company will be
responsible  for up to 50%  of  the  costs  associated  with  the  research  and
development,  principally  represented  by  non-cash  in-kind  contributions  of
approximately  $480,000 over a period of two years.  In return,  DOE has granted
the  Company  a  non-exclusive,  non-transferable,   royalty-free,  field-of-use
license to any inventions PNNL derives under the agreement. The Company also has
a first option to negotiate for greater rights, such as exclusive, transferable,
domestic and foreign  marketing and development  rights.  If the Company obtains
the right to sublicense,  the sublicenses must be royalty-bearing,  and, subject
to negotiation,  the Company will pay a reasonable  royalty to PNNL,  which will
share   prospective   royalties   with  a  Russian   research   facility,   upon
commercialization, if any, of the resulting research.

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, 2003, the costs associated with the construction are
$270,725.


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, 2003          December 31, 2002
                               Amount      Percent        Amount      Percent
                             ---------    ---------     ---------    ---------
Federal tax (benefit)        $(716,000)         (34)%   $(356,000)         (25)%
State tax (benefit)           (168,000)          (8)%    (114,000)          (8)%
Valuation allowance            884,000           42%      470,000           33%
                             ---------    ---------     ---------    ---------
                             $      --           --     $      --           --
                             =========    =========     =========    =========

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.


                                      F-25
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
--------------------------------------------------------------------------------

NOTE 14 - INCOME TAXES (Continued)

Significant  components of the deferred tax assets at December 31, 2003 and 2002
are as follows:

                                                  December 31,   December 31,
                                                      2003           2002
                                                  -----------    -----------
Deferred tax asset:
    Net operating loss carryforwards              $ 2,636,000    $ 1,160,000
    General business credit carryforwards              73,000             --
    Excess book accumulated amortization               29,000             --
                                                  -----------    -----------
Deferred tax asset                                  2,738,000      1,160,000
Deferred tax liabilities:
    Excess tax accumulated depreciation                 2,000             --
                                                  -----------    -----------
Total deferred tax asset                            2,736,000      1,160,000
    Valuation allowance for deferred asset         (2,736,000)    (1,160,000)
                                                  -----------    -----------
Net deferred tax asset                            $        --    $        --
                                                  ===========    ===========

At December 31, 2003, the Company has federal net operating  loss  carryforwards
of approximately $6,600,000,  which expire in the years 2004 through 2023, state
net operating loss  carryforwards of approximately  $4,700,000,  which expire in
the years 2010  through  2013,  and general  business  credit  carryforwards  of
approximately  $73,000, which expire in the years 2012 through 2023. At December
31,  2002 and 2003,  federal  net  operating  losses  expired  in the  amount of
approximately  $878,000 and  $195,000,  respectively.  A total of  approximately
$259,000 federal net operating losses will expire on December 31, 2004.

The change in the allowance  account from December 31, 2002 to December 31, 2003
was $1,576,000, which is principally due to the change in management's estimates
as well as an increase in the Company's net operating loss carryforward.

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 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 are exercisable 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  accrued  expenses  totaling $94,500 ($0.35 per option) for
the value of these options based upon these Black Scholes assumptions.

Subsequent to the financial  statements,  the Company  offered to all holders of
convertible debt which is due on September 30, 2004, the option to convert their
outstanding  debt to shares of common stock at $0.24 per share,  if agreed to by
March 31, 2004. As of March 24, 2004,  original  principal of  $1,756,000  along
with  interest in the amount of $647,787,  for a total debt of  $2,403,787,  was
converted into 10,015,746 shares of common stock.



                                      F-26