**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D. C. 20549**








**Form
      10-KSB** **/A**


**(Amendment
      No. 1)**




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





**For
      the fiscal year ended December 31, 2005**


**or**





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




**141
      West Jackson Blvd., Suite 2182**


**Chicago,
      IL 60604**





(Address
      of principal executive offices, including zip code.)





**(Registrant’s
      telephone number, including area code)**


**(312)
      427-1912**





**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 o




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. o





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





December
      31, 2005:   $-0-





The
      aggregate market value of Registrant’s common stock held by non-affiliates
      computed by reference to the closing price of such stock on February 28, 2006,
      was $3,755,247, which market value excludes 12,623,383 shares of common stock
      held by directors, executive officers and stockholders whose beneficial
      ownership exceeds ten percent (10%) of the shares outstanding on February 28,
      2006.




As
      of
      February 28, 2006, the Registrant had outstanding 54,348,346 shares of common
      stock.





Documents
      Incorporated by Reference:





None.









EXPLANATORY
      NOTE





We
      are
      filing this Amendment No.1 to Form 10-KSB for the fiscal year ended
      December 31, 2005, filed on April 14, 2006 (the “Original Filing”), to restate
      our financial statements for the year ended December 31, 2004 and December
      31,
      2005, and the related disclosures in the Notes to the financial statements
      (the
“Restatement”).





The
      Restatement reflects the reclassification of certain patent and patent pending
      costs, the reclassification of certain auction rate securities, and the
      reclassification of certain expenses regarding the vesting of options and
      warrants (non-cash), none of which results in any additional expenses to the
      Company from such reclassifications. The Restatement also reflects the
      additional interest expense as a finance charge in the amount of $49,749 for
      the
      year ended December 31, 2004. The additional interest expense resulted from
      a
      correction in the accounting in connection with the Company’s reduction of the
      conversion price from $0.25 to $0.24 per share with respect to our outstanding
      2000 and 2002 convertible notes. The impact of the additional finance charge
      due
      to the foregoing results in an increase of $49,749 in our net loss for the
      year
      ended December 31, 2004, resulting in a total net loss of $2,490,444 for the
      year ended December 31, 2004. See Note 12, “Conventional Convertible Debt”, and
      Note 16, “Correction of an Error”, of the Notes to Financial Statements for a
      detailed discussion of the effect of the Restatement.





For
      the
      convenience of the reader, this Amendment (“Amendment”) amends in its entirety
      the Original Filing. This Amendment continues to speak as of the date of the
      Original Filing, and we have not updated the disclosures contained herein to
      reflect any events that occurred at a later date other than as described in
      this
      explanatory note. All information contained in this Amendment is subject to
      updating and supplementing as provided in our periodic reports filed with the
      Securities and Exchange Commission subsequent to the date of the filing of
      the
      Original Filing.





The
      restatement of the Original Filing in this Amendment includes adjustments
      arising from the determinations of the Company and its accountants that certain
      errors were made with respect to the Company’s audited financial statements for
      the year ended December 31, 2004 and December 31, 2005. The errors in the
      Company’s audited financial statements for both years were brought recently to
      the Company’s attention by the Securities and Exchange Commission (“SEC”), and
      the accounting procedures involved have been corrected.





We
      have
      not amended and we do not intend to amend any of our other previously filed
      annual reports on Form 10-KSB for the periods affected by the Restatement other
      than this Amendment. As a result of the Restatement of our financial statements,
      we will also restate the interim financial statements for the quarterly and
      year
      to date periods ended March 31, June 30, and September 30, 2006 to be included
      in our quarterly reports on Forms 10-QSB. For this reason, the consolidated
      financial statements and related financial information contained in such
      previously filed reports should no longer be relied upon. Except for the
      sections of this Form 10-KSB/A entitled Management’s Discussion and Analysis of
      Financial Condition and Results of Operations, Financial Statements, Controls
      and Procedures and Notes 5, 7, 12 and 16 of the Notes to Financial Statements,
      all of the information in this Amendment is as of December 31, 2005, and does
      not reflect events occurring after the Original Filing other than the
      Restatement, or modify or update disclosures affected by subsequent events,
      except for the updated Exhibits 31.1, 31.2, 32.1, and 32.2 described below).
      Accordingly, this amended Annual Report on Form 10-KSB/A should be read in
      conjunction with our periodic filings made with the SEC subsequent to the date
      of the Original Filing, including any amendments to those filings, as well
      as
      any Current Reports filed on Form 8-K subsequent to the date of the Original
      Filing. In addition, in accordance with applicable SEC rules, this Amendment
      includes updated certifications from our Chief Executive Officer and Chief
      Financial Officer as Exhibits 31.1, 31.2, 32.1 and 32.2.





For
      the
      convenience of the reader, this Amendment restates the Original Filing in its
      entirety, as amended by, and to reflect, the Restatement. The following items
      have been amended principally as a result of, and to reflect, the Restatement,
      and no other information in the Original Filing is amended hereby as a result
      of
      the Restatement:





Part
                I - Item 1
            Executive
                OfficesPart
                II - Item 6
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations.Part
                II - Item 7
            Financial
                StatementsPart
                II - Item 8A
            Controls
                and ProceduresFinancial
                Statements
            Report
                of Independent Registered Public Accounting FirmBalance
              SheetsStatements
              of
              OperationsStatement
              of
              Stockholders’ DeficitStatements
                of Cash FlowsNotes
                to Financial Statements
            Notes
                5, 7, 12 and 16




1




ITEM
              1.
            BUSINESS





GENERAL
      INTRODUCTION





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




The
      Company has demonstrated the effectiveness of its pioneering scientific strategy
      in the use of therapeutic antibodies by conducting investigational clinical
      trials treating patients suffering from AIDS, multiple sclerosis, rheumatoid
      arthritis, corneal transplant rejection, uveitis and certain autoimmune skin
      conditions, including psoriasis, and alopecia, all Th1 mediated autoimmune
      diseases which appear to have the same proinflammatory Th-1 activity. To date,
      our activities have consisted primarily of research, development and non-United
      States investigational human clinical trials. Such activities have resulted
      in
      accumulated losses at December 31, 2005.




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




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





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





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




2




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
      $13,350,197 at December 31, 2005 (restated).





The
      Company anticipates that it will incur substantial losses in the foreseeable
      future as a result of its continued product development. There are no assurances
      that the Company will be successful in completing its product development,
      receive FDA approval, implement manufacturing operations and commercially market
      its development stage products.





BUSINESS
      OBJECTIVE




The
      Company had $22,068 in cash and investments as of December 31, 2005. Management
      anticipates that current funds will enable the Company to continue operations
      through April, 2006. This amount of cash is inadequate to meet the Company’s
      projected minimum cash requirements for full operations for the next 12 months.
      The Company does not have a source of revenue to continue its operations, or
      research and development costs beyond the current available funds. In order
      to
      meet the foregoing cash requirements, the Company will have to raise funds
      through the issuance for cash of common or preferred stock, convertible debt
      or
      loans. There is no assurance, however, that the Company will be able to raise
      sufficient capital to meet is cash requirements for the next 12 months. Unless
      and until the Company raises additional capital, of which there can be no
      assurances, the Company plans to reduce its operations as discussed in Item
      6.
      Managements Discussion and Analysis of Financial Condition and Results of
      Operations (Overview).





The
      Company’s business development plan for 2006, subject to raising additional
      capital, principally focuses on the following five specific elements:




1.
            Evaluation
                of possible merger, acquisition or sale
                candidates;


2.
            Evaluation
                of financing alternatives and
                opportunities;


3.
            Research
                and development as well as licensing agreements with selected
                pharmaceuticalcompanies
                seeking opportunities related to our patented scientific
                approaches;


4.
                Continuation
                    of our FDA approved Phase I clinical trial at Georgetown University
                    MedicalCenter;
                    and


5.
                Initiation
                    of US clinical trials in a selected autoimmune skin
                    disease.





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





Subject
      to the Company’s capital needs, the Company is in the process of manufacturing
      an antibody to interferon gamma at its laboratory facility in Columbia,
      Maryland. The Company previously signed a cross-licensing agreement with
      Innogenetics NV that would have enabled the two companies to combine
      Innogenetics' patented humanized antibody to interferon gamma (known as INNO
      202) and the Company's intellectual property in the field of various immune
      diseases involving interferon-gamma. By granting access to their respective
      intellectual property, the Company believed that the agreement would have
      provided a joint position to attract interested third parties when negotiating
      mutually relevant development and commercial license agreements. Such agreement
      was terminated by the Company on March 27, 2005.




3




The
      amount spent on research and development by the Company for the fiscal years
      ended December 31, 2005, 2004 and 2003 was $277,617, $557,807 and $488,141,
      respectively.





TECHNICAL
      BACKGROUND





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





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





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





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





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





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





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





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





Simply
      blocking TNF-alpha, as do the drugs Enbrel®, Remicade® and Humira®, 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.




4




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
                IMajor
                Th-1 Mediated Autoimmune DiseasesAddison's
                disease
            Guillain-Barre
                syndromeAlopecia
              Areata
            Hasimoto's
              diseaseAmyotrophic
                lateral sclerosis
            Male
              infertility(Lou Gehrig's
              disease)
            Multiple
              sclerosisAutoimmune
              diseases of
              the ear
            Myasthenia
              gravisAutoimmune
              diseases of
              the eye
            PsoriasisAutoimmune
              hepatitis
            Rheumatic
              feverCorneal
                transplant rejection
            Rheumatoid
              arthritisCrohn's
              disease
            SarcoidosisDiabetes (Type
              I)
            SclerodermaEpidermolysis
              Bullosa
            Sjogren's
              syndromeEpididymitis
            ThyroiditisGlomerulonephritis
            VasculitisGraves'
                disease
            Vitiligo





Neurological
      Diseases With A Suspected Autoimmune Component





Alzheimer's
                Disease
            DepressionAutism
            Parkinson's
              diseaseSchizophrenia




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 â ,
      Betaseron â and
      Avonex â 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 â ,
      Remicade â and
      Humira®), which have further demonstrated the efficacy of the cytokine-mediation
      therapeutic strategy. Although each of these products is useful in treating
      ADs,
      it is our opinion that they only represent the first generation of products
      based on this strategy and were conceived and developed at a time when the
      knowledge of the cytokine cascade was much less understood than it is
      today.





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.




5




CLINICAL
      STUDIES / FDA APPROVED PHASE 1 TRIALS





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





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





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




6




CLINICAL
      STUDIES / CORNEAL TRANSPLANT REJECTION




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




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





CLINICAL
      STUDIES / AUTOIMMUNE SKIN DISEASES





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





CLINICAL
      STUDIES / TYPE I DIABETES





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





CLINICAL
      STUDIES / JUVENILE RHEUMATOID ARTHRITIS-ASSOCIATED UVEITIS





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





CLINICAL
      STUDIES / HERPES SIMPLEX VIRUS TYPE 1





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




7




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




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




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





GOVERNMENT
      REGULATION





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





FEDERAL
      DRUG ADMINISTRATION REGULATION





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





They
      are:





1.
            Investigational
                new drug application (IND)


2.
            Clinical
                trials


3.
            New
                drug application (review and
                approval)


4.
            Post-marketing
                surveys





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.




8




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





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





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





Phase
                I -
            up
                to 30Phase II
              -
            200Phase
                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.




9




COMPETITION





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





PRODUCT
      LIABILITY EXPOSURE





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





GLOSSARY
      OF CERTAIN TERMS





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





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





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





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





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





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.




10




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





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





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





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





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





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





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




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





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





PATENT
      STATUS AND PROTECTION OF PROPRIETARY TECHNOLOGY





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




11




DEPENDENCE
      UPON KEY PERSONNEL





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





UNCERTAINTIES
      ASSOCIATED WITH RESEARCH AND DEVELOPMENT ACTIVITIES





Research
      and development activities, by their nature, preclude definitive statements
      as
      to the time required and costs involved in reaching certain objectives. Subject
      to raising additional capital to meet its cash requirements for full operations
      for the 12-month period ending December 31, 2006, the Company plans to reduce
      product development efforts while continuing to seek additional financing.
      There
      can be no assurance that the Company would be able to secure any necessary
      additional financing or that such financing would be available on favorable
      terms.





MARKETING





If
      the
      Company were 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
      statements, including any statements of the plans and objectives of management
      for future operations, any statements concerning proposed new product candidates
      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. 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, if any; (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. Factors that could cause or contribute to such differences include,
      but are not limited to, those discussed in the section entitled “Item 1.
      Business,” and all subsections therein, including, without limitation, the
      subsections entitled, Technical Background, Government Regulation, Federal
      Drug
      Administration Regulation, Competition and Factors That May Affect the Company,
      and the section entitled “Market for Registrant's Common Stock and Related
      Stockholder Matters,” all contained in this Annual Report on Form 10-KSB for the
      fiscal year ended December 31, 2005. 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. You are advised, however, to consult any further disclosures we
      make
      on related subjects in our reports to the Securities and Exchange Commission.




12




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, 2005, we realized a net loss of $2,158,352 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 $6,400,000, including payment of the current portion of
      convertible notes payable due June 1, 2006, in the amount of $4,490,485 and
      other notes due June 1, 2006 in the principal amount of $188,000. The Company’s
      long-term convertible debt as of December 31, 2005 that matures on June 30,
      2006, September 30, 2007 and September 30, 2009 is approximately $4,490,485,
      $1,033,883 and $252,251, respectively. If the Company is unable to repay its
      convertible notes and other notes payable, or is unable to make satisfactory
      arrangements with the holders of its convertible notes and other notes payable
      to defer payment, then upon the expiration of the applicable cure period, the
      Company will be in payment default. We have been required to curtail operations
      substantially. We are
      seeking to obtain additional funds through public and private equity and debt
      financings, collaborative or other arrangements with corporate partners,
      acquisitions or mergers with companies with strong capital positions or cash
      flow from product sales or from other sources. There
      is
      no assurance that we will be able to obtain additional capital if required,
      or
      if capital is available, to obtain it on terms favorable to us. We may suffer
      from a lack of liquidity in the future that could impair our research and
      development efforts and adversely affect our results of operations.





*We
      do
      not have any of our own products in FDA clinical trials, and if we cannot
      successfully complete any clinical trials, we will be unable to obtain
      regulatory approvals required to market our products.*  Our
      products are in the development stage, have not been subjected to clinical
      studies in the United States (except for preliminary initiation of Phase I
      clinical trials at Georgetown Medical University), have limited clinical data
      based upon studies conducted in Russia, have not been cleared for marketing
      by
      the FDA or foreign regulatory authorities, and cannot be commercially
      distributed in the United States and/or in foreign markets unless and until
      such
      clearance is obtained. Failure to obtain FDA clearance would delay sales of
      our
      products and would materially affect our financial condition.





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





*Our
      research and development and marketing efforts will be dependent on
      collaborations and if our collaborations are not successful, we may not be
      able
      to successfully develop and market products.* Because
      we have limited resources, we anticipate entering into a number of collaboration
      agreements with other companies. At present, however, we have no such
      agreements. These agreements may be expected to call for our partners to control
      the supply of bulk or formulated 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.




13




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





*Research
      and development activities, including future clinical trials, are inherently
      uncertain and we may be unable to obtain or maintain regulatory approval for
      any
      products.* Preclinical testing and clinical trials must demonstrate that a product
      candidate is safe and efficacious. The results from preclinical testing and
      early clinical trials may not be predictive of results obtained in subsequent
      clinical trials, and we cannot be sure that these clinical trials will
      demonstrate the safety and efficacy necessary to obtain regulatory approval
      for
      any product candidates. A number of companies in the biotechnology industries
      have suffered significant setbacks in advanced clinical trials, even after
      obtaining promising results in earlier trials. In addition, certain clinical
      trials are conducted with patients having the most advanced stages of disease.
      During the course of treatment, these patients often die or suffer other adverse
      medical effects for reasons that may not be related to the pharmaceutical agent
      being tested. Such events can have a negative impact on the statistical analysis
      of clinical trial results.





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





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





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





*Manufacturing
      difficulties could materially impair our competitive position and our
      possibility of conducting clinical trials.* We lack
      the facilities to manufacture our products and do not have an adequate supply
      of
      product to begin clinical studies in the United States. If we are unable to
      contract for manufacturing capabilities on acceptable terms, it would result
      in
      the delay of the manufacturing of antibodies for clinical trial
      purposes.





*Uncertainty
      relating to favorable third-party reimbursement may have a material adverse
      effect on the commercial success of products we may develop.* In
      the
      United States, success in obtaining favorable third-party payment for a new
      product depends greatly on the ability to present data which demonstrates
      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.




14




*Our
      dependence on products could have a material adverse affect on the Company’s
      financial condition.* We
      expect
      to derive a substantial majority of our revenues from our proprietary
      development stage products through product licensing and royalty fees. The
      life
      cycle of our products, if approved for marketing, is difficult to estimate
      in
      terms of current and future technological developments, competition, and other
      factors. Our failure to successfully commercialize products or to realize
      significant revenues from the products would have a material adverse effect
      on
      our financial condition. As of the date hereof, we have not realized any
      revenues from the sale of products.





*If
      we
      are unable to protect our patents, we may not be able to develop products or
      compete successfully.* We have
      six issued United States patents and one patent issued in Australia. Our success
      and ability to compete effectively will depend, in part, on the strength of
      our
      patents and the ability to obtain protection for our products, if any, in
      foreign markets. No assurance can be given that any patents issued to us will
      not be challenged, invalidated, or circumvented. Litigation, which could result
      in substantial cost to us, may also be necessary to enforce any patents issued
      to us and/or determine the scope and validity of other parties' proprietary
      rights.





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





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





*We
      face substantial competition and others may discover, develop, acquire or
      commercialize products before or more successfully than we may
      do.* The
      products that we are planning to develop may compete for market share with
      alternative therapies. A number of companies are pursuing the development of
      novel products which target the same diseases as we are targeting. Many of
      these
      competitors have substantially greater capital resources, research and
      development staffs and facilities than we do. They may develop and introduce
      products and processes competitive with those of ours. They represent
      significant long-term competition for us. For certain of our products, an
      important factor in competition may be the timing of market introduction of
      these competitive products. This timing will be based on the effectiveness
      with
      which we or the competition can complete clinical trials and approval processes
      and supply quantities of these products to market. Competition among products
      approved for sale will be based on, among other things, efficacy, safety,
      reliability, price, marketing capability and patent position.




15




*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:




·
            material
                public announcements


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


·
            unsatisfactory
                clinical trial results


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


·
            approval
                or introduction of competing products and
                technologies


·
            delays
                in manufacturing or clinical trial
                plans


·
            market
                reaction to announcements by other biotechnology or pharmaceutical
                companies


·
            announcements
                in the scientific and research
                community


·
            initiation,
                termination or modification of agreements with collaborative
                partners


·
            loss
                of key personnel


·
            general
                market conditions





Our
      Outstanding Convertible Promissory Notes Leverages Us Considerably. As a result
      of issuing our convertible subordinated notes due June 1, 2006 and our
      convertible subordinated notes due September 30, 2007 and convertible
      subordinated notes due September 30, 2009, we have incurred long-term
      indebtedness of approximately $5,776,619 as of December 31, 2005, excluding
      the
      $127,631 owed to a director/officer. The degree to which we are leveraged could
      harm our ability to obtain future financing and could make us more vulnerable
      to
      industry downturns and competitive pressures. Our ability to meet our debt
      obligations will be dependent upon our future performance, which will be subject
      to financial, business and other factors affecting our operations, many of
      which
      are beyond our control.




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





EXECUTIVE
      OFFICES





As
      of the
      Original Filing, our executive offices were located at 6355 Topanga Canyon
      Boulevard, Woodland Hills, California 91367, and our telephone number was (818)
      883-6716.





ITEM
              2.
            DESCRIPTION
                OF PROPERTY





During
      2005, the Company paid no rent for the use of approximately 3,500 square feet
      of
      commercial building space of a firm, New Horizons Diagnostics, that is partially
      owned by director Lawrence Loomis. During 2005, the Company paid an average
      of
      $1700 per month (aggregate $20,400) in rent for the use of office space and
      facilities on a month-to-month basis from a firm owned by Edmond F. Buccellato.
      No formal agreement memorializes these month-to-month arrangements. The
      Company’s laboratory is used to evaluate and manufacture limited supplies of
      antibodies for possible U.S. and foreign clinical trial purposes.





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





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.




16




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





The
      Company did not hold its annual meeting of stockholders for 2005 for financial
      reasons.





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 2005 and 2004 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.





**2005
                Fiscal Quarter Ended:**
            **High
                Bid**
            **Low
                Bid**March 31
            $0.19
            $0.17June 30
            $0.21
            $0.20September
              30
            $0.20
            $0.18December
                31
            $0.16
            $0.13**2004
                Fiscal Quarter Ended:**
            **High
                Bid**
            **Low
                Bid**March 31
            $0.48
            $0.32June 30
            $0.44
            $0.22September
              30
            $0.29
            $0.15December
                31
            $0.38
            $0.15





As
      of
      February 28, 2006, the Company had approximately 1393 holders of record of
      its
      Common Stock. This number does not include those beneficial owners whose
      securities are held by brokers or in street name. The total number of record
      and
      beneficial stockholders is estimated to be more than 3300.





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





ITEM
              6.
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF
                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.”




17




The
      discussion and analysis set forth below in this Item 6 has been amended to
      reflect the restatement as described above in the Explanatory Note to this
      Amendment and in Note 12 - Conventional Convertible Debt - to the Notes to
      Financial Statements. For this reason, the data reflects the incorporation
      of
      $49,749 in additional financing expense which was not reflected in the Original
      Filing.





OVERVIEW





The
      Company had $22,068 in cash and investments as of December 31, 2005. Management
      anticipates that current funds will enable the Company to continue severely
      restricted operations through April 2006. This amount of cash is inadequate
      to
      meet the Company’s projected minimum cash requirements for full operations for
      the next 12 months of approximately $6,400,000, including payment of the current
      portion of convertible notes payable due June 1, 2006 in the amount of
      $4,490,485 and other notes due June 1, 2006, in the principal amount of
      $188,000. If the Company is unable to repay its convertible debt and other
      notes
      payable, or is unable to make satisfactory arrangements with the holders of
      its
      convertible notes and other notes payable to defer payment, then upon the
      expiration of the applicable cure period, the Company will be in payment
      default.





The
      Company does not have a source of revenues to continue its operations, or
      research and development costs beyond the current available funds. In order
      to
      meet the foregoing cash requirements, the Company will have to raise funds
      through the issuance for cash of common or preferred stock, convertible debt
      or
      loans. There is no assurance, however, that the Company will be able to raise
      sufficient capital to meet its cash requirements for the next three
      months.





The
      Company has initiated reductions in certain research and development projects
      and plans to postpone certain patent applications and other patent matters.
      Management is monitoring the Company’s funds and considering financing
      alternatives with the Company’s directors. In order to conserve resources,
      management may consider delaying or discontinuing the filing of the Company’s
      periodic reports to the Securities and Exchange Commission.





In
      terms
      of the Company's long-term convertible debt, as of December 31, 2005, the
      approximate principal balance of $4,490,485, $1,033,883 and $252,251 matures
      on
      June 1, 2006, September 30, 2007 and September 30, 2009, respectively.
      Additionally, the Company owes $7,400 to one noteholder whose convertible
      pay-in-kind note matured on September 30, 2004. The Company has attempted
      unsuccessfully to locate this noteholder. If before this long-term convertible
      debt would be repaid the market price of the Company common stock is at least
      $0.75 per share for 20 consecutive trading days, then the Company may also
      cause
      the mandatory conversion of such debt into shares of Company common stock at
      a
      conversion price of $0.25 per share.





The
      Company’s business development plan for 2006, subject to raising additional
      capital, principally focuses on the following five specific elements:





1.
            Evaluation
                of possible merger, acquisition or sale
                candidates;


2.
            Evaluation
                of financing alternatives and
                opportunities;


3.
            Research
                and development as well as licensing agreements with selected
                pharmaceuticalcompanies
                seeking opportunities related to our patented scientific
                approaches;


4.
                Continuation
                    of our FDA approved Phase I clinical trial at Georgetown University
                    MedicalCenter;
                    and


5.
            Initiation
                of US clinical trials in a selected autoimmune skin
                disease.





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





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




18




In
      general, we have a history of operating losses and have not generated any
      revenue. As of December 31, 2005, we had an accumulated deficit of approximately
      $13,350,197. Subject to raising capital and making satisfactory arrangements
      with the holders of convertible notes that are due on June 1, 2006, over the
      next several months, we expect to incur substantial additional expenses as
      we
      continue to identify and develop potential products and invest in research.
      Since we or potential collaborative partners or licensees may not be able to
      successfully develop additional products, obtain required regulatory approvals,
      manufacture products at an acceptable cost and with appropriate quality, or
      successfully market such products with desired margins, we may never achieve
      profitable operations. The amount of net losses and the time required to reach
      sustained profitability are highly uncertain.





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





As
      of
      January 1, 2005, the Company entered into an agreement with Paul Hopper, now
      a
      member of the Board of Directors, whereby the consultant utilized his business
      development efforts and reasonable commercial efforts to secure a commercial
      relationship with potential candidates. The agreement contemplated that this
      commercial relationship would include the license or transfer of intellectual
      property, product rights, manufacturing rights, patents, or development
      assistance. The agreement was for nine months, subject to termination after
      the
      initial 90 days. Such agreement was terminated on approximately June 30, 2005.
      The payment of fees to Mr. Hopper was made in the form of 315,789 shares of
      common stock, with restrictive legend. A success fee is included in the
      agreement if the Company enters into a commercial relationship within 18 months
      from the termination of the agreement, with a candidate introduced to the
      Company by Mr. Hopper.





Subsequent
      to the financial statements the Company entered into consulting agreements
      with
      two Director/Shareholders whereby the consultants will utilize their established
      process and reasonable commercial efforts to secure a commercial relationship
      with potential candidates. This commercial relationship may include the license
      or transfer of intellectual property, product rights, manufacturing rights,
      patents, or development assistance. A fee will be paid to the consultants in
      the
      amount of $5,000 per month for services provided between January 1, 2006 and
      June 30, 2006, in the form of common stock priced at $0.10 per share. A success
      fee is included in the agreement if the Company enters into a commercial
      relationship.





Subsequent
      to the financial statements, two directors, one of whom is an officer, loaned
      the Company a cumulative amount of $125,000 in the form of term notes, due
      and
      payable on June 30, 2006 bearing interest at the rate of 12% per year. The
      Company was also loaned $35,000 by two non-insider stockholders under the same
      terms and conditions.





RESTATEMENT
      OF FINANCIAL INFORMATION





As
      discussed in the Notes to our financial statements, we restated our December
      31,
      2005 and December 31, 2004, financial statements, respectively, to:





1.
            Reclassify
                certain patent and patent pending
                costs.


2.
            Reclassify
                certain auction rate securities held by the
                Company.


3.
            Reclassify
                certain expenses regarding the vesting of options and warrants
                (non-cash).


4.
            Increase
                interest expenses as a finance charge in the amount of $49,749 for
                the
                year ended December 31, 2004.





The
      foregoing reclassifications do not result in any additional expense to the
      Company. The additional interest expense of $49,749 results in an increase
      of
      $49,749 in our net loss for the year ended December 31, 2004, resulting in
      a
      total net loss of $2,490,444 for the year ended December 31, 2004.




19




RESULTS
      OF OPERATIONS - Years ended December 31, 2005 and 2004 (As
      Restated).





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.





To
      date,
      we have financed our operations through private placements of equity and
      convertible debt securities. The Company had $22,068 in cash and cash
      equivalents as of December 31, 2005 and had issued and outstanding 54,348,346
      shares of its Common Stock.





FISCAL
      2005 COMPARED TO FISCAL 2004 (As Restated)




The
      following data has been restated to recognize in 2004 an additional interest
      expense as a finance charge of $49,749 due to a correction in the accounting
      in
      connection with the Company’s reduction of the conversion price from $0.25 to
      $0.24 per share with respect to its outstanding 2000 and 2002 convertible notes.
      See Note 12 - Conventional Convertible Debt - of the Notes to Financial
      Statements for more detailed information regarding this
      restatement.




For
      the
      year ended December 31, 2005, the Company realized a net loss of $2,158,352
      compared to a net loss of $2,490,444 for the year ended December 31, 2004.
      The
      Company had decreases in expenses over the year ended December 31, 2004,
      consisting primarily of the following: decreased research and development
      expenses in the amount of $280,190, decreased promotional fees of $27,422,
      decreased professional fees of $21,363, decreased depreciation and amortization
      of $17,597, decreased administrative salaries and benefits of $26,051, decreased
      insurance of $23,816, deceased shareholder relations fees and transfer fees
      of
      $27,373, decreased rent of $71,161, decreased travel and entertainment of
      $31,344 decreased general and administrative expenses of $28,287, decreased
      interest and dividend income of $113,762, increase of business development
      expenses of $81,500, increased vesting of options of $377,500, increased
      directors’ fees of $56,673, increased loss on abandonment of patents of $13,971,
      decreased interest expense of $168,614, increase of gain on forgiveness of
      debt
      of $145,400, and increased stock option and warrant vesting of
      377,500.





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 ANDFINANCIAL
                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, 2004, through December 31, 2005,
      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, 2005, the Chief Executive Officer and
      Chief Financial Officer of the Company (the “Certifying Officers”) conducted
      evaluations of the Company’s disclosure controls and procedures. As defined
      under Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934,
      as amended (the “Exchange Act”), the term “disclosure controls and procedures”
means controls and other procedures of an issuer that are designed to ensure
      that information required to be disclosed by the issuer in the reports that
      it
      files or submits under the Exchange Act is recorded, processed, summarized
      and
      reported, within the time periods specified in the Commission’s rules and forms.
      Disclosure controls and procedures include, without limitation, controls and
      procedures designed to ensure that information required to be disclosed by
      an
      issuer in the reports that it files or submits under the Exchange Act is
      accumulated and communicated to the issuer’s management, including its principal
      executive officer or officers and principal financial officer or officers,
      or
      persons performing similar functions, as appropriate to allow timely decisions
      regarding required disclosure. At the time of the preparation and filing of
      the
      Annual Report on Form 10-KSB for the year ended December 31, 2004 and December
      31, 2005, respectively, the then Chief Executive Officer and Chief Financial
      Officer had reviewed the Company’s disclosure controls and procedures and
      concluded that those disclosure controls and procedures were 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.




20




Since
      the
      filing of the Form 10-KSB on April 14, 2006, we concluded that certain errors
      were made in the Company’s financial statements for the year ended December 31,
      2004 and December 31, 2005, respectively, as more specifically described in
      the
      Restatement and Notes 5, 7, 12 and 16 thereto. The Company believes that its
      internal controls, disclosure controls and procedures were adequate with respect
      to the Original Filing, but recognizes that its former CFO was unfamiliar with
      the technical accounting procedure for reduction in the conversion price of
      convertible notes, and the Company has taken steps to improve our internal
      controls and disclosure controls. The Company believes that its internal
      disclosure controls and procedures continue to be adequate with respect to
      its
      status as a development stage company and its past and current business
      regarding research and development of its patent portfolio. The Company has
      not
      generated revenue from operations for several years. The Company recognizes
      that
      the balance of the errors in its financial statements filed in the Original
      Filing relate to reclassification of certain patent and patent pending costs,
      reclassification of certain auction rate securities that were ultimately
      liquidated during 2005, and reclassification of certain expenses regarding
      vesting of options and warrants (non-cash), from which reclassifications no
      additional expense resulted to the Company. See Notes 5 and 7 to our financial
      statements (restated) for the year ended December 31, 2005 for additional
      information regarding such reclassifications.





We
      expect
      to restate our financial statements for each of the quarters of 2006 as a result
      of an increase of $49,749 in our net loss for the year ended December 31, 2004,
      and the reclassifications described herein.





PART
      III





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





The
      following table sets forth the names and nature of all positions and offices
      held by all directors and executive officers of the Company as of February
      28,
      2006, and the period or periods during which each such director or executive
      officer served in his or her respective positions.




**Name**
            **Age**
            **Position
                Held**
            **Director
                Since**Simon Skurkovich, M.D.
            83
            Chairman
                Emeritus, Director, and Director
                of Research andDevelopment
            November,
              1985Edmond
              F.
              Buccellato
            60
            Chairman
                of the Board, President and Chief Executive Officer,
                Director (3)
            November,
              1995Thomas
              J.
              Pernice
            43
            Treasurer
              and
              Secretary, Director (2)
            April,
              2001William
              M.
              Finkelstein
            46
            Chief Financial
              Officer (non-director)
            April,
              2001Lawrence
              Loomis
            63
            Director
              (2)(3)
            December,
              1986Boris Skurkovich,
              M.D.
            51
            Director
              (2)(4)
            December,
              1986Richard
              P.
              Kiphart
            64
            Director
              (1)(2)(3)
              (4)
            June,
              2002Joseph
              A. Bellanti,
              M.D.
            71
            Director
            October,
              2003Keith
              Gregg
            42
            Director
                (1)
            November,
              2005Paul
              Hopper
            49
            Director
                (1)
            November,
                2005





(1)  Member
      of
      the Audit Committee of the Board of Directors.


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


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


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





TERM
      OF
      OFFICE





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




21




BIOGRAPHICAL
      DESCRIPTIONS OF DIRECTORS AND OFFICERS





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





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





Keith
      Gregg - Mr. Gregg is the Managing Partner of BioPharm Development Group, LLC,
      a
      retained, global corporate strategy, business development and licensing
      firm.  He has over 20 years of business development, marketing and
      corporate strategy experience in high growth life science and healthcare
      companies.  Mr. Gregg has held various positions of increasing
      responsibility at Praxis Biologics, Molecular Oncology, NABI/Univax Biologics,
      and FARO Pharmaceuticals, Inc.  His responsibilities have included
      corporate development, business development and licensing, government liaison,
      corporate promotion, product management and launches, financing, and mergers.
      Mr. Gregg is an active member on several public and private company/foundation
      boards.  Mr. Gregg received his MBA from the University of Maryland and a
      BS in Biomedical Engineering from Vanderbilt University.  Mr. Gregg has
      completed post-graduate business strategy work at the Wharton School of Business
      and Mr. Gregg is a guest lecturer at several U.S. business schools in the area
      of entrepreneurship and licensing.





Paul
      Hopper - Mr. Hopper is acting director of business development, chairman of
      the
      board of directors of Innovate Oncology, Inc. and former CEO of Australian
      Cancer Technology. Mr. Hopper has extensive international business development
      and M&A biotech experience, including the in-licensing of RP-101 a highly
      promising pancreatic chemoresistance compound undergoing Phase 2 trials in
      Germany. He initiated a Phase IIb prostate cancer vaccine trial in Melbourne
      Australia during 2004 and also acquired Galenica Pharmaceuticals, whose lead
      product; GPI-100 is an immune potentiator, or adjuvant, and a key component
      of a
      small cell lung cancer vaccine. Mr. Hopper holds a BA in Political
      Science.





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





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




22




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





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





Simon
      Skurkovich, M.D. - Dr. Skurkovich is the founder of Advanced Biotheraphy, Inc.,
      and presently serves as its Director of Research and Development. From 1985
      until September 2000, Dr. Skurkovich served as Chairman of the Board of the
      Company. He has been granted 28 patents in the United States and Europe. He
      is
      the creator of immune preparations from human blood against antibiotic resistant
      bacteria that saved thousands of lives in the Soviet Union and Eastern Europe.
      In Russia, he was professor and Chief of the Immunology Laboratory
      of the Institute of Hematology and Blood Transfusion and was awarded gold and
      silver medals for his scientific discoveries. His laboratory was also awarded
      the nation's highest honor, the Lenin Prize, for his patented work. Dr.
      Skurkovich received an M.D., Ph.D. and a Doctorate in Medical Sciences (D.Sc.)
      from Pirogov State Medical Institute in Moscow. He is the pioneer of
      anticytokine therapy, which opened the way to a new understanding of the
      pathogenesis and treatment of autoimmune diseases and thus helped bring
      treatments that have improved the health of many people. He has written more
      than 240 articles for scientific publications. In 1974, he published in the
      journal Nature a new explanation for the pathogenesis and treatment of
      autoimmune diseases, which has been the basis for successful clinical trials
      and
      is now well accepted around the world.





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





AUDIT
      COMMITTEE





Keith
      Gregg, Paul Hopper and Richard Kiphart serve on the Company’s Audit Committee.
      Although the Company’s securities are not quoted on Nasdaq, the Company has
      elected to apply the Nasdaq Marketplace Rules regarding the definition of
“independence” for the members of the Audit Committee. Under the Nasdaq
      Marketplace Rules, directors Keith Gregg, Paul Hopper and Richard Kiphart
      qualify as “independent.” Based upon current Nasdaq Marketplace Rules, K eith
      Gregg, Paul Hopper and Richard P. Kiphart have financial sophistication,
      although none of the committee members may currently qualify as a “financial
      expert” for purposes of SEC rules, adopted pursuant to the Sarbanes-Oxley Act of
      2002. Since the Company is a development stage company, the Board of Directors
      believes that the current members of the Audit Committee have sufficient
      knowledge of financial statement preparation, analysis and evaluation even
      if
      none of them qualify as a “financial expert.”





FAMILY
      RELATIONSHIPS





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




23




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.





COMPLIANCE
      WITH SECTION 16(a) OF THE EXCHANGE ACT





All
      directors filed Form 5’s regarding grants of stock options (some pending
      stockholder approval), which transactions otherwise were not timely reported.
      Directors Edmond F. Buccellato, Lawrence Loomis, Boris Skurkovich, M.D. and
      Simon Skurkovich, M.D. filed Form 4’s regarding the vesting of stock options
      during 2005, 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,
      2003 through December 31, 2005, for the Chief Executive Officer of the Company
      and the Company’s other executive officers who were compensated during the year
      ended December 31, 2005 (the "Named Executive Officers"):


Summary
                  Compensation TableName
                  and Principal Position
              
              Year
              
              Salary
                ($)
              
              Bonus
                ($)
              
              Other
                  Annual Compensation
                ($)
              
              Restricted
                Stock
                  Award(s)
                ($)
              
              Securities
                  Underlying Options/SARs
                (#)
              
              LTIP
                  Payouts
                ($)
              
              All
                  Other Compensation
                ($)Edmond
                F. Buccellato
              
              
              2005
              
              $
              144,000
              
              $
              0
              
              $
              0
              
              $
              0
              
              
              0
              
              $
              0
              
              $
              0Chief
                Executive Officer (1)(2)(3)(5)
              
              
              2004
              
              $
              176,000
              
              $
              0
              
              $
              4,500
              
              $
              0
              
              
              25,000
              
              $
              0
              
              $
              02003
              
              $
              180,000
              
              $
              0
              
              $
              10,500
              
              $
              0
              
              
              1,530,000
              
              $
              0
              
              $
              0Simon
                Skurkovich
              
              
              2005
              
              $
              49,500
              
              $
              0
              
              $
              0
              
              $
              0
              
              
              0
              
              $
              0
              
              $
              0Chairman
                Emeritus, Director of Research &
              
              
              2004
              
              $
              175,500
              
              $
              0
              
              $
              4,500
              
              $
              0
              
              
              25,000
              
              $
              0
              
              $
              0Development
                  (1)(2)(4)(5)
              
              
              2003
              
              $
              180,000
              
              $
              0
              
              $
              10,500
              
              $
              0
              
              
              450,000
              
              $
              0
              
              $
              0







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


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


(3)  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.


(4)  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.


(5)  During
      2005, the salaries for Mr. Buccellato and Dr. Skurkovich were set by the
      Compensation Committee at $180,000, respectively. They received actual
      compensation of $134,000 and $49,500, respectively.




24




During
      fiscal year 2005, 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 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





None
      of
      the Named Executive Officers received or exercised any stock options or SARs
      during the 2005 fiscal year, other than those stock options reported in the
      section below captioned “ADDITIONAL EQUITY COMPENSATION SUBJECT TO PLAN SHARE
      INCREASE.”


AGGREGATED
                  OPTIONS/SAR EXERCISES IN 2005 FISCAL YEAR
                OPTION/SAR
                  VALUES AS OF DECEMBER 31, 2005Name
              
              Shares
                  Acquired on Exercise (#)
              
              Value
                  Realized ($)
              
              Number
                  of Unexercised Securities
                Underlying
                  Options/SARs at FY-End(#)
                Exercisable/
                  Unexercisable(1)
              
              Value
                  of Unexercised In-The-
                Money
                  Options/SARs At FY-End ($)
                Exercisable/Unexercisable(2)Simon Skurkovich,
                M.D.
              
              0
              
              0
              
              300,000
              
              
              
              18,000623,000
              
              
              
              37,38010,000
              
              
              
              - 0 -20,000
              
              
              
              - 0 -30,000
              
              
              
              - 0 -300,000
              
              150,000
              
              - 0 -
              
              -
                  0 -25,000
              
              
              
              - 0 -Edmond
                Buccellato
              
              0
              
              
              
              105,543
              
              
              
              10,55450,000
              
              
              
              5,00050,000
              
              
              
              - 0 -10,000
              
              
              
              - 0 -20,000
              
              
              
              - 0 -30,000
              
              
              
              - 0 -1,000,000
              
              500,000
              
              - 0 -
              
              -
                  0
                  -25,000
              
              
              
              -
                  0
                  -


(1)  All
      options were exercisable as of December 31, 2005, except as follows: Options
      granted to Dr. Skurkovich and Mr. Buccellato to purchase 450,000 and 1,500,000
      shares of Common Stock, respectively, became exercisable in three equal annual
      installments. Two-thirds have vested as of February 7, 2005 and the balance
      vests on February 7, 2006, which vesting has occurred.


(2)  Determined
      on the basis of the share closing price of $0.16 on December 30, 2005, as
      published by Commodity Systems, Inc., available through
      Yahoo!Finance.




25




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, 2005.





ADDITIONAL
      EQUITY COMPENSATION SUBJECT TO PLAN SHARE INCREASE





In
      May
      2005, upon the recommendation of the Company’s Compensation Committee, the
      directors approved the grant of stock options (“2005 Options”) to the directors
      and officers as described below and to other employees and consultants. The
      grant of the 2005 Options was made subject to approval by the stockholders
      of an
      increase in the number of shares of common stock reserved for the Company’s 2000
      Omnibus Equity Incentive Plan (“Plan Share Increase”) in an amount sufficient to
      cover the 2005 Options. The Company expensed the 2005 Options during 2005.
      Subsequent to May 2005, the directors reaffirmed the grant of the 2005 Options,
      again subject to approval by the stockholders of the Plan Share Increase. As
      of
      March 31, 2005, stockholder approval of the Plan Share Increase had not been
      obtained.





Since
      the
      Plan Share Increase has not occurred, the 2005 Options are not reported in
      this
      Annual Report as beneficially owned by such directors and officers. See “ITEM
      10. EXECUTIVE COMPENSATION” for additional information.





The
      2005
      Option contained a grant to each director of options to purchase 250,000 shares
      of Company common stock at an exercise price of $0.16 per share (total of
      2,250,000 option shares) for director services during 2005. In addition, the
      2005 Options contained the grant to each of Lawrence Loomis and Joseph Bellanti,
      M.D. of options to purchase 200,000 shares at an exercise price of $0.16 per
      share (total of 400,000 option shares) in recognition of services rendered
      to
      the Company besides director services.





The
      2005
      Options also contained a grant of stock options to the following
      officers:




Edmond Buccellato
            300,000
                shares at $0.16 per
                shareSimon Skurkovich, M.D.
            300,000
                shares at $0.16 per
                shareWilliam Finkelstein
            150,000
                shares at $0.16 per
                shareThomas Pernice
            150,000
                shares at $0.16 per
                share





Options
      to purchase an aggregate of 250,000 shares of Company Common Stock, at $0.16
      per
      share, were granted to non-directors and non-officers as part of the 2005
      Options.





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





Equity
      Compensation Plan Information as of December 31, 2005


Number
                  of securities to
                be
                  issued upon exercise
                of
                  outstanding options,
                warrants
                  and rights
              Weighted-average
                  exercise
                price
                  of outstanding
                options,
                  warrants and rights
              Number
                  of securities
                remaining
                  available for
                future
                  issuance under
                equity
                  compensation plans
                (excluding
                  securities
                reflected
                  in column (a)(a)
              (b)
              (c)Equity
                  compensation plans approved by security holders
              4,990,000
              $0.18
              260,000Equity
                  compensation plans not approved by security holders(1)
              -
                  0
                  -
              
              -
                  0
                  -




(1) 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, 2005. 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, 2005, no shares have been granted
      under the OEI Plan. As of December 31, 2005, options to purchase approximately
      4,990,000 shares have been granted or approved for grant under the OEI Plan.




26




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





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





SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





The
      following table sets forth the Common Stock ownership, including options to
      purchase stock, of each person known by the Company to be the beneficial owner
      of five percent (5%) or more of the Company's Common Stock, each director
      individually and all officers and directors of the Company as a group as of
      February 28, 2006. Each person has sole voting and investment power with respect
      to the shares of Common Stock shown, unless otherwise noted, and all ownership
      is of record and beneficial. As of February 28, 2006, the Company had 54,348,346
      shares of Common Stock outstanding.


Name
                  and Address of Owner
              Number
                  of Shares
                Beneficially
                  Owned
              Percentage
                  of TotalRichard
                  P. Kiphart
                222
                  W. Adams St.
                Chicago,
                  IL 60606
              22,852,231(1)
              29.60%Boris
                  Skurkovich, M.D.
                18
                  Blaisdell Ave.
                Pawtucket,
                  RI 01860
              7,297,264(2)
              11.84%Edmond
                  F. Buccellato
                6355
                  Topanga Canyon
                Boulevard,
                  Suite 510
                Woodland
                  Hills, CA 91367
              3,044,021(3)
              5.30%Lawrence
                  Loomis
                9110
                  Red Branch Road
                Columbia,
                  MD 21045
              2,409,053(4)
              4.24%Simon
                  Skurkovich, M.D.
                802
                  Rollins Avenue
                Rockville,
                  MD 20852
              1,843,440(5)
              3.28%Thomas
                  J. Pernice
                6355
                  Topanga Canyon Boulevard
                Suite
                  510
                Woodland
                  Hills, CA 91367
              1,227,443(6)
              2.21%
  27
  Paul
                  Hopper
                7982
                  Doug Hill
                San
                  Diego CA 92127
              315,789(7)
              *Keith
                  Gregg
                6524
                  Edinburgh Drive
                Nashville
                  TN 37221
              0(8)
              *Joseph
                  A. Bellanti, M.D.
                6007
                  Corewood Lane
                Bethesda
                  MD 20816
              25,000(9)
              *All
                  officers and directors as a group (10)
              39,439,067
              48.66%


(1)
      Shares held in the name of Richard P. Kiphart include the right to acquire
      14,688,980 shares, upon the conversion of $3,672,245 principal amount of the
      Company’s 2002 Subordinated Convertible Pay-In-Kind Notes Due June 1, 2006
      (“2002 Convertible Notes Due 2006”) and the right to acquire 3,618,612 shares,
      upon the conversion of $904,653 principal amount of the Company’s 2003
      Subordinated Convertible Pay-In-Kind Notes Due September 30, 2007, the right
      to
      acquire 1,763,238 shares upon the conversion of $185,140 principal amount of
      the
      Company’s 2005 Subordinated Convertible Pay-In-Kind Notes Due September 30,
      2009, options to purchase up to 20,000 shares of Common Stock at an exercise
      price of $0.21 per share, options to purchase up to 30,000 shares of Common
      Stock at an exercise price of $0.42 per share and options to purchase up to
      25,000 shares of Common Stock at an exercise price of $0.20 per
      share.


(2)
      Shares held in the name of Boris Skurkovich include shares held in his name
      (1,785,384), and shares held in the name of Carol Marjorie Dorros (1,965,555)
      and Samuel Aaron Skurkovich (3,011,325) and options to purchase up to 10,000
      shares of Common Stock at an exercise price of $0.25 per share, options to
      purchase up to 20,000 shares of Common Stock at an exercise price of $0.21
      per
      share, options to purchase up to 30,000 shares at an exercise price of $0.42
      per
      share, options to purchase up to 450,000 shares of Common Stock at an exercise
      price of $0.16 per share and options to purchase up to 25,000 shares at $0.20
      per share.


(3)
      Shares held in the name of Edmond F. Buccellato comprise shares held in the
      name
      of the Buccellato Living Trust (17,000 shares), shares held in the name of
      the
      Edmond F. and Leana J. Buccellato Living Trust (828,719 shares), shares held
      in
      the name of Buccellato & Finkelstein, Inc. (88,334 shares) and shares held
      in the name of Amy Buccellato (76,558 shares). Includes options to purchase
      up
      to 105,543 shares of Common Stock at an exercise price of $0.10 per share,
      options to purchase up to 50,000 shares of Common Stock at an exercise price
      of
      $0.10 per share, options to purchase up to 50,000 shares of Common Stock at
      an
      exercise price of $0.20 per share, options to purchase up to 10,000 shares
      of
      Common Stock at an exercise price of $0.25 per share, options to purchase up
      to
      20,000 shares of Common Stock at an exercise price of $0.21 per share, options
      to purchase up to 30,000 shares of Common Stock at an exercise price of $0.42
      per share, options to purchase up to 1,500,000 shares of Common Stock at an
      exercise price of $0.16 per share and options to purchase up to 25,000 shares
      of
      Common Stock at an exercise price of $0.20 per share, and the right to acquire
      242,867 shares upon the conversion of $25,501 principal amount of the Company’s
      2005 Subordinated Convertible Pay-In-Kind Notes Due September 30,
      2009.


(4)
      Includes shares held in the names of Lawrence Loomis (924,053 shares) and New
      Horizons Diagnostics, Inc. (200,000 shares), and options to purchase up to
      10,000 shares of Common Stock at an exercise price of $0.25 per share, options
      to purchase up to 20,000 shares of Common Stock at an exercise price of $0.21
      per share, options to purchase up to 30,000 shares of Common stock at an
      exercise price of $0.42 per share, options to purchase up to 1,200,000 shares
      of
      Common Stock at an exercise price of $0.16 per share and options to purchase
      up
      to 25,000 shares of Common Stock at an exercise price of $0.20 per
      share.


(5)
      Includes shares held in the name of Simon Skurkovich (385,440), options to
      purchase up to 300,000 shares of Common Stock at an exercise price of $0.10
      per
      share, options to purchase up to 623,000 shares of Common Stock at an exercise
      price of $0.10 per share, and options to purchase up to 10,000 shares of Common
      Stock at an exercise price of $0.25 per share, up to 20,000 shares of Common
      Stock at an exercise price of $0.21 per share, up to 30,000 shares of Common
      Stock at an exercise price of $0.42 per share, options to purchase up to 450,000
      shares of Common Stock at an exercise price of $0.16 per share and options
      to
      purchase up to 25,000 shares of Common Stock at an exercise price of $0.20
      per
      share. Simon Skurkovich is the father of Boris Skurkovich but disclaims
      beneficial ownership of the shares attributed to him and disclaims that the
      two
      of them are part of a "group" for SEC purposes.


(6)
      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 Cappello Capital Corp. to purchase 1,042,443 shares of Common Stock
      at an exercise price of $0.15 per share, options to purchase up to 10,000 shares
      of Common Stock at an exercise price of $0.25 per share, options to purchase
      up
      to 20,000 shares of Common Stock at an exercise price of $0.21 per share,
      options to purchase up to 30,000 shares of Common Stock at an exercise price
      of
      $0.42 per share and options to purchase up to 25,000 shares of Common Stock
      at
      an exercise price of $0.20 per share.




28




**(7)
      Shares held in the name of Paul Hopper comprise 315,789 shares held in his
      name
      but do not include 60,000 shares of Common Stock underlying a warrant issued
      at
      an exercise price of $0.10 which vests in three equal installments beginning
      December 31, 2006.**


(8)
      Shares held in the name of Keith Gregg do not include 60,000 shares of Common
      Stock underlying a warrant issued at an exercise price of $0.10 which vests
      in
      three equal installments beginning December 31, 2006.


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


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





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





*See* ITEM 10.
      ADDITIONAL EQUITY COMPENSATION SUBJECT TO PLAN SHARE INCREASE. Additional stock
      options have been approved by the Board for grants to directors and officers
      subject to approval by the stockholders of an increase in the number of shares
      reserved for the OEI Plan.





ITEM
              12.
            CERTAIN
                RELATIONSHIPS AND RELATED
                TRANSACTIONS





The
      Company is currently indebted to Simon Skurkovich, M.D., Vice President of
      Research and Development, in the amount of $127,631 and accrued salary in the
      amount of $135,000.





The
      Company is currently indebted to Edmond F. Buccellato, the Company’s Chairman of
      the Board of Directors and Chief Executive Officer, for accrued salary in the
      amount of $40,000. The Company also is indebted to Mr. Buccellato in the amount
      of $10,000 for term notes due June 30, 2006.





During
      fiscal year 2005 the Company paid $252 to Boris Skurkovich, M.D. for consulting
      services and reimbursement for out-of-pocket expenses. The Company paid $42,375
      to New Horizons Diagnostics, Inc. (“New Horizons”), of which Director Lawrence
      Loomis is the majority shareholder, for expenses related to research and
      development, including machinery and equipment expenses of $486 and salaries
      totaling $41,890, including approximately $6,069 for Lawrence Loomis.




During
      fiscal year 2005, the Company paid an aggregate $20,400 in rent, payable $1,700
      monthly, for the use of office space from Buccellato & Finkelstein, Inc., of
      which Edmond F. Buccellato is a shareholder. During fiscal year 20056 the
      Company paid to Buccellato & Finkelstein, Inc., the sum of $24,000 for
      accounting services and tax preparation and approximately $21,618 in
      reimbursements for medical and dental insurance for Company employees, including
      Edmond F. Buccellato and Amy Buccellato. The Company also paid $33,982 to Amy
      Buccellato, daughter of Edmond Buccellato, for administrative and bookkeeping
      services.





Director
      Richard P. Kiphart holds Company Convertible Notes in the aggregate principal
      amount of $4,762,038, upon which the Company is indebted to him according to
      the
      terms of that Convertible Debt. The Company also is indebted to Director Kiphart
      in the aggregate principal amount of $115,000 for term notes payable June 30,
      2006.





ITEM
              13.
            EXHIBITS
                AND REPORTS ON FORM 8-K





**Exhibit**


**Number**  **Description**





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





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




29




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 endedDecember, 1999.
                Filed as an exhibit to Registrant’s Form 10-KSB for the fiscal year ended
                December, 1999.





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





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





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





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





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





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





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





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





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





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





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





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





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.





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.





1Exhibit 10.13 was erroneously identified as Exhibit 10.12 in the original
        filing and is correctly identified herein.
 2
        Exhibit 10.14 was erroneously identified as Exhibit 10.13 in the original
        filing
        and is correctly identified herein.
  30




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-1Financial
                  Statements:Balance
                  Sheets:
              F-2Statements
                  of Operations
              F-3Statement
                  of Stockholders’ Equity (Deficit)
              F-4Statements
                  of Cash Flows
              F-5Notes
                  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, 2005:





1. November
      14, 2005. The Registrant reported that Keith Gregg, managing partner of BioPharm
      Development Group, LLC, a retained, global business development and licensing
      firm, and Paul Hopper, acting director of Business Development for Advanced
      Biotherapy, have joined the Company’s Board of Directors.





2. November
      25, 2005. The Registrant reported that Directors Alexander L. Cappello and
      John
      M. Bendheim resigned effective November 23, 2005.




3. November
      29, 2005. The Registrant reported that Advanced Biotherapy, Inc. issued a letter
      to its stockholders, dated November 15, 2005 (and sent on or around November
      25,
      2005), the full text of which was set forth in Exhibit 99.2 to the
      report.





4. December
      20, 2005. The Registrant reported that Dr. Daniel Levitt, Chief Medical Officer
      and Head of Clinical and Regulatory Affairs of Dynavax Technologies has joined
      the Company’s scientific advisory board.





ITEM
              14.
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES




(1)
            Audit
                Fees. The aggregate fees billed for each of the last two fiscal years
                for
                audit and review were approximately $41,000 for 2005 and $40,500
                for
                2004.


(2)
            Audit-Related
                Fees. The aggregate fees billed for each of last two fiscal years
                for
                assurance and related services related to audit or review were $-
                0 - for
                2005 and $0.00 for 2004.


(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 2005 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) ofSchedule
                14A that were approved by the Audit Committee pursuant to paragraph
                (c)(7)(ii)(c) ofRule
                2-01 of Regulation S-X: - 0 -%




31


SIGNATURES
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities and Exchange
        Act of
        1934, the Registrant,
        Advanced Biotherapy, Inc., has duly caused this Report to be signed on its
        behalf by the undersigned, thereunto
        duly authorized, on this 11 " day
        of
        January, 2007.




Advanced
                Biotherapy, Inc.(Registrant)By:
            /s/ Christopher
              W. CappsPresident
              and Chief Executive Officer


By:
            /s/ Michael
              G. BansleyChief
              Financial Officer


32




Board
        of
        Directors
 Advanced
        Biotherapy, Inc.
 Woodland
        Hills, CA
 
 
 REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 We
        have
        audited the accompanying balance sheets of Advanced Biotherapy, Inc. (a
        development stage enterprise) as of December 31, 2005 and 2004, and the related
        statements of operations, stockholders’ deficit and cash flows for the years
        then ended and for the period from December 2, 1985 (inception) to December
        31,
        2005. These financial statements are the responsibility of the Company’s
        management. Our responsibility is to express an opinion on these financial
        statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits 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
        audits provide 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, 2005 and 2004 and the results of its operations, stockholders’
deficit and its cash flows for the years then ended, and for the period from
        December 2, 1985 (inception) to December 31, 2005, in conformity with accounting
        principles generally accepted in the United States of America.
 
 The
        accompanying financial statements have been prepared assuming that the Company
        will continue as a going concern. As discussed in Note 2 to the financial
        statements, the Company’s significant operating losses raise substantial doubt
        about its ability to continue as a going concern. Management’s plans regarding
        the resolution of this issue are also discussed in Note 1. The financial
        statements do not include any adjustments that might result from the outcome
        of
        this uncertainty.
  
 Williams
        & Webster, P.S.
 Certified
        Public Accountants
 Spokane,
        Washington
 April
        6,
        2006, except for Note 16, which is dated January 3, 2007




F-1


**ADVANCED
                  BIOTHERAPY, INC.**
              
              
              
              **
                = Restated**(A
                  DEVELOPMENT STAGE ENTERPRISE)****BALANCE
                  SHEETS****December
                  31,**
              
              **December
                  31,****2005**
              
              **2004****(Restated)**
              
              **(Restated)****ASSETS****CURRENT
                  ASSETS**Cash**
              
              $
              22,068
              
              $
              67,337Auction
                  rate securities**
              
              
              -
              
              
              300,000Notes
                  receivable - related party
              
              
              46,619
              
              
              46,619Interest
                  receivable - related party
              
              
              18,090
              
              
              15,060Deposits
                  and prepaid expenses
              
              
              -
              
              
              32,001Total
                  Current Assets
              
              
              86,777
              
              
              461,017**PROPERTY,
                  PLANT AND EQUIPMENT, net**
              
              
              294,428
              
              
              315,101**OTHER
                  ASSETS**Deferred
                  loan origination fees, net of accumulated amortization
              
              
              7,283
              
              
              26,319Patents
                  and patents pending, net of accumulated amortization
              
              
              883,002
              
              
              842,503Total
                  Other Assets
              
              
              890,285
              
              
              868,822**TOTAL
                  ASSETS**
              
              $
              1,271,490
              
              $
              1,644,940**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****CURRENT
                  LIABILITIES**Accounts
                  payable and accrued expenses
              
              $
              246,776
              
              $
              220,007Accounts
                  payable and accrued expenses - related party
              
              
              182,200
              
              
              49,000Current
                  portion of convertible notes payable
              
              
              4,490,485
              
              
              -Total
                  Current Liabilities
              
              
              4,919,461
              
              
              269,007**LONG-TERM
                  DEBT**Convertible
                  notes payable, net of current portion
              
              
              1,286,134
              
              
              4,945,413Note
                  payable to related parties
              
              
              127,631
              
              
              127,631Total
                  Long-Term Debt
              
              
              1,413,765
              
              
              5,073,044**Total
                  Liabilities**
              
              
              6,333,226
              
              
              5,342,051**COMMITMENTS
                  AND CONTINGENCIES**
              
              
              -
              
              
              -**STOCKHOLDERS'
                  DEFICIT**Preferred
                    stock, par value $0.001; 20,000,000 shares authorized, no
                    shares issued and outstanding
              
              
              -
              
              
              -Common
                    stock, par value $0.001; 200,000,000 shares authorized, 54,348,346
                    and 54,032,557 shares issued and outstanding,
                    respectively
              
              
              54,347
              
              
              54,032Additional
                  paid-in capital**
              
              
              6,998,563
              
              
              6,574,786Stock
                  options and warrants
              
              
              1,235,551
              
              
              865,916Deficit
                  accumulated during development stage**
              
              
              (13,350,197
              )
              
              (11,191,845
              )Total
                  Stockholders' Deficit**
              
              
              (5,061,736
              )
              
              (3,697,111
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              $
              1,271,490
              
              $
              1,644,940




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





F-2


**ADVANCED
                  BIOTHERAPY, INC.**
              
              
              
              
              
              **
                = Restated**(A
                  DEVELOPMENT STAGE ENTERPRISE)****STATEMENTS
                  OF OPERATIONS****From
                  Inception****(December
                  2, 1985)****Year
                  Ended December 31,**
              
              **through****2005**
              
              **2004**
              
              **December
                  31, 2005****(Restated)**
              
              **(Restated)****REVENUES**
              
              $
              -
              
              $
              -
              
              $
              89,947**OPERATING
                  EXPENSES**Research
                  and development
              
              
              277,617
              
              
              557,807
              
              
              3,915,534Promotional
                  fees
              
              
              256
              
              
              27,678
              
              
              62,570Professional
                  fees
              
              
              181,367
              
              
              202,730
              
              
              2,961,074Business
                  development
              
              
              81,500
              
              
              -
              
              
              81,500Consulting,
                  research & development (non-cash)**
              
              
              549,700
              
              
              172,200
              
              
              1,231,609Warrants
                  - scientific advisory board
              
              
              1,900
              
              
              -
              
              
              1,900Directors'
                  fees
              
              
              97,173
              
              
              40,500
              
              
              299,053Depreciation
                  and amortization
              
              
              100,296
              
              
              117,893
              
              
              880,406Administrative
                  salaries and benefits
              
              
              249,229
              
              
              275,280
              
              
              1,377,998Insurance
              
              
              54,770
              
              
              78,586
              
              
              324,452Shareholder
                  relations and transfer fees
              
              
              20,092
              
              
              47,465
              
              
              311,398Rent
              
              
              20,400
              
              
              91,561
              
              
              351,378Travel
                  and entertainment
              
              
              24,573
              
              
              55,917
              
              
              330,799Telephone
                  and communications
              
              
              5,799
              
              
              10,987
              
              
              62,417Office
              
              
              6,451
              
              
              10,361
              
              
              81,868General
                  and administrative
              
              
              20,337
              
              
              48,624
              
              
              751,756Total
                  Operating Expenses
              
              
              1,691,460
              
              
              1,737,589
              
              
              13,025,712**LOSS
                  FROM OPERATIONS**
              
              
              (1,691,460
              )
              
              (1,737,589
              )
              
              (12,935,765
              )**OTHER
                  INCOME (EXPENSES)**Miscellaneous
                  income
              
              
              2,682
              
              
              3,000
              
              
              27,682Interest
                  and dividend income
              
              
              5,056
              
              
              18,818
              
              
              171,439Internal
                  gain on sale of securities
              
              
              -
              
              
              -
              
              
              157,520Forgiveness
                  of debt
              
              
              145,400
              
              
              -
              
              
              2,192,837Forgiveness
                  of payables
              
              
              -
              
              
              -
              
              
              45,396Loss
                  on disposal of office equipment
              
              
              -
              
              
              -
              
              
              (2,224
              )Loss
                  on impairment of patents
              
              
              (28,823
              )
              
              (14,852
              )
              
              (43,675
              )Interest
                  expense**
              
              
              (591,207
              )
              
              (759,821
              )
              
              (2,963,407
              )Total
                  Other Income (Expenses)**
              
              
              (466,892
              )
              
              (752,855
              )
              
              (414,432
              )**LOSS
                  BEFORE INCOME TAXES****
              
              
              (2,158,352
              )
              
              (2,490,444
              )
              
              (13,350,197
              )**INCOME
                  TAXES**
              
              
              -
              
              
              -
              
              
              -**NET
                  LOSS****
              
              $
              (2,158,352
              )
              $
              (2,490,444
              )
              $
              (13,350,197
              )BASIC
                    AND DILUTED NET LOSS PER
                    COMMON SHARE
              
              $
              (0.04
              )
              $
              (0.05
              )WEIGHTED
                    AVERAGE NUMBER OFBASIC
                    AND DILUTED COMMON STOCK SHARES
                    OUTSTANDING
              
              
              54,137,820
              
              
              52,102,082






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




F-3


**ADVANCED
                  BIOTHERAPY, INC.**
              
              
              
              
              
              
              
              
              
              
              
              **
                = Restated**(A
                  DEVELOPMENT STAGE ENTERPRISE)****STATEMENT
                  OF STOCKHOLDERS' DEFICIT****Deficit****Accumulated****Common
                  Stock**
              
              **Additional**
              
              **Stock**
              
              **During****Paid-in**
              
              **Options
                  and**
              
              **Development****Shares**
              
              **Amount**
              
              **Capital**
              
              **Warrants**
              
              **Stage**
              
              **Total**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
              
              
              -
              
              
              -
              
              
              4,230Common
                    stock issued in exchange for
                    convertible debt at $0.25 per share
              
              
              788,991
              
              
              789
              
              
              196,460
              
              
              -
              
              
              -
              
              
              197,249Stock
                    issued for cash at an average price of $0.01
                    per share from the exercise of options
              
              
              150,000
              
              
              150
              
              
              1,350
              
              
              -
              
              
              -
              
              
              1,500Stock
                    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
              
              
              -
              
              
              34,200Stock
                    issued for cashless exercise of warrants at
                    $0.00 per share
              
              
              151,846
              
              
              152
              
              
              7,059
              
              
              (7,211
              )
              
              -
              
              
              -Net
                    loss for the year ended December
                    31, 2003
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,108,440
              )
              
              (2,108,440
              )Balance,
                  December 31, 2003
              
              
              43,088,365
              
              
              43,087
              
              
              3,908,058
              
              
              607,016
              
              
              (8,701,401
              )
              
              (4,143,240
              )Contribution
                    of capital by shareholders in form
                    of foregone interest
              
              
              -
              
              
              -
              
              
              4,480
              
              
              -
              
              
              -
              
              
              4,480Common
                    stock issued in exchange for
                    convertible debt at $0.24 per share**
              
              
              10,896,275
              
              
              10,897
              
              
              2,654,496
              
              
              -
              
              
              -
              
              
              2,665,393Stock
                    options issued to directors in exchange
                    for services
              
              
              -
              
              
              -
              
              
              -
              
              
              94,500
              
              
              -
              
              
              94,500Stock
                    options and warrants issued in exchange for
                    services, one third vested
              
              
              -
              
              
              -
              
              
              -
              
              
              172,200
              
              
              -
              
              
              172,200Stock
                    issued for cashless exercise of warrants at
                    $0.16 per share
              
              
              47,917
              
              
              48
              
              
              7,752
              
              
              (7,800
              )
              
              -
              
              
              -Net
                    loss for the year ended December
                    31, 2004 (restated)**
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,490,444
              )
              
              (2,490,444
              )Balance,
                  December 31, 2004 (restated)**
              
              
              54,032,557
              
              $
              54,032
              
              $
              6,574,786
              
              $
              865,916
              
              $
              (11,191,845
              )
              $
              (3,697,111
              )Contribution
                    of capital by shareholders in form
                    of foregone interest
              
              
              -
              
              
              -
              
              
              4,455
              
              
              -
              
              
              -
              
              
              4,455Common
                    stock issued to Paul Hopper in
                    exchange for services at $0.19 per share
              
              
              315,789
              
              
              315
              
              
              59,684
              
              
              -
              
              
              -
              
              
              59,999Stock
                    options issued to directors inexchange
                    for services
              
              
              -
              
              
              -
              
              
              -
              
              
              97,173
              
              
              -
              
              
              97,173Stock
                    options and warrants issued in exchange for
                    services, one third vested
              
              
              -
              
              
              -
              
              
              -
              
              
              172,200
              
              
              -
              
              
              172,200Stock
                    options and warrants in exchange for
                    services
              
              
              -
              
              
              -
              
              
              -
              
              
              459,900
              
              
              -
              
              
              459,900Expiration
                  of stock options
              
              
              -
              
              
              -
              
              
              359,638
              
              
              (359,638
              )
              
              -
              
              
              -Net
                    loss for the year ended December
                    31, 2005
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,158,352
              )
              
              (2,158,352
              )Balance,
                  December 31, 2005 (restated)**
              
              
              54,348,346
              
              $
              54,347
              
              $
              6,998,563
              
              $
              1,235,551
              
              $
              (13,350,197
              )
              $
              (5,061,736
              )




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




F-4




**ADVANCED
                  BIOTHERAPY, INC.**
              
              
              
              **
                = Restated**(A
                  DEVELOPMENT STAGE ENTERPRISE)****STATEMENTS
                  OF CASH FLOWS****From
                  Inception****(December
                  2, 1985)****Year
                  Ended December 31,**
              
              **through****2005**
              
              **2004**
              
              **December
                  31, 2005****(Restated)**
              
              **(Restated)****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  (loss)**
              
              $
              (2,158,352
              )
              $
              (2,490,444
              )
              $
              (13,350,197
              )Adjustments
                    to reconcile net loss to cash used
                    in operating activities:Depreciation
                  and amortization
              
              
              100,296
              
              
              117,893
              
              
              822,518Loss
                  on disposal of equipment
              
              
              -
              
              
              -
              
              
              2,224Loss
                  on impairment of patents
              
              
              28,823
              
              
              14,852
              
              
              43,675Investment
                  income
              
              
              -
              
              
              -
              
              
              (157,520
              )Expenses
                  paid through issuance of common stock
              
              
              59,999
              
              
              -
              
              
              291,339Expenses
                    paid through issuance of
                    common stock warrants and options
              
              
              729,273
              
              
              266,700
              
              
              1,399,462Accrued
                  interest paid by convertible debt**
              
              
              591,206
              
              
              759,821
              
              
              2,573,298Expenses
                    paid through contributionof
                    additional paid-in capital
              
              
              4,455
              
              
              4,480
              
              
              64,746Organization
                  costs
              
              
              -
              
              
              -
              
              
              (9,220
              )Decrease
                  (increase) in assets:Marketable
                  securities
              
              
              -
              
              
              2,000,000
              
              
              -Deposits
                  and prepaid expenses
              
              
              32,001
              
              
              22,966
              
              
              -Interest
                  receivable
              
              
              (3,030
              )
              
              (3,030
              )
              
              (58,658
              )Deferred
                  loan origination cost
              
              
              -
              
              
              -
              
              
              (157,295
              )Increase
                  (decrease) in liabilities:Accounts
                  payable and accrued expenses
              
              
              26,769
              
              
              71,280
              
              
              324,317Accounts
                  payable and accrued expenses - related parties
              
              
              133,200
              
              
              (57,205
              )
              
              241,168Net
                  cash used in operating activities**
              
              
              (455,360
              )
              
              707,313
              
              
              (7,970,143
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchase
                  of fixed assets
              
              
              (858
              )
              
              (81,232
              )
              
              (385,339
              )Acquisition
                  of patents
              
              
              (129,051
              )
              
              (303,335
              )
              
              (1,204,605
              )Net
                  cash used in investing activities
              
              
              (129,909
              )
              
              (384,567
              )
              
              (1,589,944
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from issuance of common stock
              
              
              -
              
              
              -
              
              
              2,457,254(Purchase)
                  sale of auctions rate securities**
              
              
              300,000
              
              
              (300,000
              )
              
              -Internal
                  gain on sale of securities
              
              
              -
              
              
              -
              
              
              157,520Proceeds
                  from convertible notes
              
              
              240,000
              
              
              -
              
              
              6,754,000Proceeds
                  from notes payable
              
              
              -
              
              
              -
              
              
              388,508Payments
                  on notes payable
              
              
              -
              
              
              -
              
              
              (175,127
              )Net
                  cash provided by financing activities**
              
              
              540,000
              
              
              (300,000
              )
              
              9,582,155Net
                  increase (decrease) in cash**
              
              
              (45,269
              )
              
              22,746
              
              
              22,068**Cash,
                  beginning****
              
              
              67,337
              
              
              44,591
              
              
              -**Cash,
                  ending****
              
              $
              22,068
              
              $
              67,337
              
              $
              22,068**SUPPLEMENTAL
                  CASH FLOW DISCLOSURES:**Interest
                  expense paid
              
              $
              -
              
              $
              1,239
              
              $
              341,166Income
                  taxes paid
              
              $
              -
              
              $
              -
              
              $
              -**NON-CASH
                  FINANCING AND INVESTING ACTIVITIES:**Common
                  stock issued for a loan payable
              
              $
              -
              
              $
              -
              
              $
              213,381Common
                  stock issued for notes receivable
              
              $
              -
              
              $
              -
              
              $
              246,619Common
                    stock returned in payment of notes
                    and interest receivable
              
              $
              -
              
              $
              -
              
              $
              240,568Common
                  stock issued on cashless exercise of warrants
              
              $
              -
              
              $
              7,800
              
              $
              15,011Common
                  stock issued for convertible debt
              
              $
              -
              
              $
              -
              
              $
              707,156Forgiveness
                  of debt
              
              $
              145,400
              
              $
              -
              
              $
              145,400






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




F-5




**ADVANCED
      BIOTHERAPY, INC.**


**(A
        DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
        TO FINANCIAL STATEMENTS**
 **December
        31, 2005**
 
 **NOTE
          1 - ORGANIZATION AND DESCRIPTION OF BUSINESS**
 
 Advanced
          Biotherapy, Inc. was originally incorporated December 2, **** 1985
          under the laws of the State of Nevada as Advanced Biotherapy Concepts,
          Inc. On
          July 14, 2000, the Company incorporated a wholly owned subsidiary, Advanced
          Biotherapy, Inc. in the State of Delaware. On September 1, 2000, the Company
          merged with its wholly owned subsidiary, effectively changing its name
          to
          Advanced Biotherapy, Inc. (hereinafter “the Company” or “ABI”) and its domicile
          to Delaware.
 
 The
          Company is involved in the research and development for the treatment of
          autoimmune diseases in humans, most notably, multiple sclerosis, rheumatoid
          arthritis, and certain autoimmune skin diseases and AIDS. The Company conducts
          its research in Maryland. The Company’s fiscal year-end is December 31. The
          Company is a development stage enterprise.
 
 The
          Company has been in the development stage since its formation in 1985 and
          has
          not realized any significant revenues from its planned operations. It is
          primarily engaged in the research and development of the treatment of autoimmune
          diseases in humans, most notably, multiple sclerosis and rheumatoid
          arthritis.
 
 The
          accompanying financial statements have been prepared assuming that the
          Company
          will continue as a going concern.
  For
          the
          year ended December 31, 2005, the Company incurred a net loss of $2,158,352
          and
          had an accumulated deficit during the development stage of $13,350,197.
          The
          Company has limited funds for research and development costs and operations
          and
          it does not have a source of revenues to continue its operations, research
          and
          development costs or to service its debt at maturity beyond such funding.
          For
          the twelve-month period subsequent to December 31, 2005, the Company anticipates
          that its minimum operating cash requirements to continue as a going concern
          will
          be approximately $6,000,000. The future of the Company is dependent upon
          securing additional debt or equity funding and future profitable operations
          from
          the commercial success of its medical research and development of products
          to
          combat diseases of the human immune system. Management’s goal is to forge a
          collaborative relationship with either a pharmaceutical or biotechnology
          company. If successful, future cash requirements may be met through licensing
          fees and royalties. The financial statements do not include any adjustments
          relating to the recoverability and classification of recorded assets, or
          the
          amounts and classification of liabilities that might be necessary in the
          event
          the Company cannot continue in existence.
 
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 This
          summary of significant accounting policies of Advanced Biotherapy, Inc.
          is
          presented to assist in understanding the Company’s financial statements. The
          financial statements and notes are representations of the Company’s management,
          which is responsible for their integrity and objectivity. These accounting
          policies conform to accounting principles generally accepted in the United
          States of America, and have been consistently applied in the preparation
          of the
          financial statements.
  F-6
 **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
  Accounting
          Method
 The
          Company’s financial statements are prepared using the accrual method of
          accounting.
 
 Recent
          Accounting Pronouncements
 In
          March
          2006, the Financial Accounting Standards Board issued Statement of Financial
          Accounting Standards No. 156, “Accounting for Servicing of Financial Assets—an
          amendment of FASB Statement No. 140.” This statement requires an entity to
          recognize a servicing asset or servicing liability each time it undertakes
          an
          obligation to service a financial asset by entering into a servicing contract
          in
          any of the following situations: a transfer of the servicer’s financial assets
          that meets the requirements for sale accounting; a transfer of the servicer’s
          financial assets to a qualifying special-purpose entity in a guaranteed
          mortgage
          securitization in which the transferor retains all of the resulting securities
          and classifies them as either available-for-sale securities or trading
          securities; or an acquisition or assumption of an obligation to service
          a
          financial asset that does not relate to financial assets of the servicer
          or its
          consolidated affiliates. The statement also requires all separately recognized
          servicing assets and servicing liabilities to be initially measured at
          fair
          value, if practicable and permits an entity to choose either the amortization
          or
          fair value method for subsequent measurement of each class of servicing
          assets
          and liabilities. The statement further permits, at its initial adoption,
          a
          one-time reclassification of available for sale securities to trading securities
          by entities with recognized servicing rights, without calling into question
          the
          treatment of other available for sale securities under Statement 115, provided
          that the available for sale securities are identified in some manner as
          offsetting the entity’s exposure to changes in fair value of servicing assets or
          servicing liabilities that a servicer elects to subsequently measure at
          fair
          value and requires separate presentation of servicing assets and servicing
          liabilities subsequently measured at fair value in the statement of financial
          position and additional disclosures for all separately recognized servicing
          assets and servicing liabilities. This statement is effective for fiscal
          years
          beginning after September 15, 2006, with early adoption permitted as of
          the
          beginning of an entity’s fiscal year. Management believes the adoption of this
          statement will have no impact on the Company’s financial condition or results of
          operations at December 31, 2005.
 
 In
          February 2006, the Financial Accounting Standards Board issued Statement
          of
          Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial
          Instruments, an Amendment of FASB Standards No. 133 and 140” (hereinafter “SFAS
          No. 155”). This statement established the accounting for certain derivatives
          embedded in other instruments. It simplifies accounting for certain hybrid
          financial instruments by permitting fair value remeasurement for any hybrid
          instrument that contains an embedded derivative that otherwise would require
          bifurcation under SFAS No. 133 as well as eliminating a restriction on
          the
          passive derivative instruments that a qualifying special-purpose entity
          (“SPE”)
          may hold under SFAS No. 140. This statement allows a public entity to
          irrevocably elect to initially and subsequently measure a hybrid instrument
          that
          would be required to be separated into a host contract and derivative in
          its
          entirety at fair value (with changes in fair value recognized in earnings)
          so
          long as that instrument is not designated as a hedging instrument pursuant
          to
          the statement. SFAS No. 140 previously prohibited
          a qualifying special-purpose entity from holding a derivative financial
          instrument that pertains to a beneficial interest other than another derivative
          financial instrument. This
          statement is effective for fiscal years beginning after September 15, 2006,
          with
          early adoption permitted as of the beginning of an entity’s fiscal year.
          Management believes the adoption of this statement will have no impact
          on the
          Company’s financial condition or results of operations at December 31,
          2005.
  F-7
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
 In
          May
          2005, the Financial Accounting Standards Board issued Statement of Financial
          Accounting Standards No. 154, “Accounting Changes and Error Corrections,”
(hereinafter “SFAS No. 154”) which replaces Accounting Principles Board Opinion
          No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in
          Interim Financial Statements - An Amendment of APB Opinion No. 28”. SFAS No. 154
          provides guidance on accounting for and reporting changes in accounting
          principle and error corrections. SFAS No. 154 requires that changes in
          accounting principle be applied retrospectively to prior period financial
          statements and is effective for fiscal years beginning after December 15,
          2005.
          The Company does not expect SFAS No. 154 to have a material impact on its
          consolidated financial position, results of operations, or cash flows at
          December 31, 2005.
 
 In
          December 2004, the Financial Accounting Standards Board issued Statement
          of
          Financial Accounting Standards No. 153. This statement addresses the measurement
          of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29,
          “Accounting for Nonmonetary Transactions,” is based on the principle that
          exchanges of nonmonetary assets should be measured based on the fair value
          of
          the assets exchanged. The guidance in that opinion; however, included certain
          exceptions to that principle. This statement amends Opinion 29 to eliminate
          the
          exception for nonmonetary exchanges of similar productive assets and replaces
          it
          with a general exception for exchanges of nonmonetary assets that do not
          have
          commercial substance. A nonmonetary exchange has commercial substance if
          the
          future cash flows of the entity are expected to change significantly as
          a result
          of the exchange. This statement is effective for financial statements for
          fiscal
          years beginning after June 15, 2005. Earlier application is permitted for
          nonmonetary asset exchanges incurred during fiscal years beginning after
          the
          date of this statement is issued. Management believes the adoption of this
          statement will have no impact on the financial statements of the Company
          at
          December 31, 2005.
  In
          December 2004, the Financial Accounting Standards Board issued a revision
          to
          Statement of Financial Accounting Standards No. 123R, “Accounting for Stock
          Based Compensation.” This statement supercedes APB Opinion No. 25, “Accounting
          for Stock Issued to Employees,” and its related implementation guidance. This
          statement establishes standards for the accounting for transactions in
          which an
          entity exchanges its equity instruments for goods or services. It also
          addresses
          transactions in which an entity incurs liabilities in exchange for goods
          or
          services that are based on the fair value of the entity’s equity instruments or
          that may be settled by the issuance of those equity instruments. This statement
          focuses primarily on accounting for transactions in which an entity obtains
          employee services in share-based payment transactions. This statement does
          not
          change the accounting guidance for share based payment transactions with
          parties
          other than employees provided in Statement of Financial Accounting Standards
          No.
          123. This statement does not address the accounting for employee share
          ownership
          plans, which are subject to AICPA Statement of Position 93-6, “Employers’
Accounting for Employee Stock Ownership Plans.” The Company believes adoption of
          this statement will have an immaterial effect on the financial statements
          of the
          Company, as the Company currently accounts for stock based compensation
          under
          SFAS No. 123.
  F-8
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
  Accounting
          for Long-Lived Assets
 In
          October 2001, the Financial Accounting Standards Board issued Statement
          of
          Financial Accounting Standards No. 144, “Accounting for the Impairment or
          Disposal of Long-Lived Assets” (“SFAS No. 144”). This standard establishes a
          single accounting model for long-lived assets to be disposed of by sale,
          including discontinued operations. SFAS No. 144 requires that these long-lived
          assets be measured at the lower of carrying amount or fair value less cost
          to
          sell, whether reported in continuing operations or discontinued operations.
          The
          Company has adopted this statement and does not believe any adjustments
          are
          needed to the carrying value of its assets at December 31, 2005.
 
 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.
 
 Provision
          for Taxes
 Income
          taxes are provided based upon the liability method of accounting pursuant
          to
          Statement of Financial Accounting Standards No. 109, “Accounting for Income
          Taxes.” Under this approach, deferred income taxes are recorded to reflect the
          tax consequences in future years of differences between the tax basis of
          assets
          and liabilities and their financial reporting amounts at each year-end.
          A
          valuation allowance is recorded against deferred tax assets if management
          does
          not believe the Company has met the “more likely than not” standard imposed by
          SFAS No. 109 to allow recognition of such an asset.
  F-9
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
 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 $256 and $27,678 for the years ended December 31, 2005 and 2004,
          respectively.
 
 Advertising
          Expenses
 Advertising
          expenses consist primarily of costs incurred in the design, development,
          and
          printing of Company literature and marketing materials. The Company expenses
          all
          advertising expenditures as incurred. The Company did not incur advertising
          expenses for the years ended December 31, 2005 and 2004.
 
 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 are amortized over the life of the related
          debt
          and were fully amortized at December 31, 2005. During the years ended December
          31, 2005 and 2004, the Company recorded amortization expense related to
          these
          fees of $-0- and $19,368, respectively.
  F-10
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
  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 $7,283, net of accumulated
          amortization at December 31, 2005, are amortized over the life of the related
          debt. During the years ended December 31, 2005 and 2004, the Company recorded
          amortization expense related to these fees of $19,036 and $25,336 and
          respectively.
 
 Derivative
          Instruments
 The
          Financial Accounting Standards Board issued Statement of Financial Accounting
          Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging
          Activities,” as amended by SFAS No. 137, “Accounting for Derivative Instruments
          and Hedging Activities - Deferral of the Effective Date of FASB No. 133”, SFAS
          No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging
          Activities”, and SFAS No. 149, “Amendment of Statement 133 on Derivative
          Instruments and Hedging Activities”. These statements establish accounting and
          reporting standards for derivative instruments, including certain derivative
          instruments embedded in other contracts, and for hedging activities. They
          require that an entity recognize all derivatives as either assets or liabilities
          in the balance sheet and measure those instruments at fair value.
 
 If
          certain conditions are met, a derivative may be specifically designated
          as a
          hedge, the objective of which is to match the timing of gain or loss recognition
          on the hedging derivative with the recognition of (i) the changes in the
          fair
          value of the hedged asset or liability that are attributable to the hedged
          risk
          or (ii) the earnings effect of the hedged forecasted transaction. For a
          derivative not designated as a hedging instrument, the gain or loss is
          recognized in income in the period of change.
 
 Historically,
          the Company has not entered into derivatives contracts to hedge existing
          risks
          or for speculative purposes.
 
 At
          December 31, 2005 and 2004, the Company has not engaged in any transactions
          that
          would be considered derivative instruments or hedging activities.
 
 Earnings
          (loss) per share
 Basic
          earnings (loss) per share is computed by dividing the net income (loss)
          by the
          weighted average number of shares outstanding during the period. The weighted
          average number of shares is calculated by taking the number of shares
          outstanding and weighting them by the amount of time that they were outstanding.
 
 Diluted
          earnings (loss) per share is computed by dividing the net income (loss),
          adjusted for interest expense on convertible debt, by the weighted average
          number of basic shares outstanding increased by the number of shares that
          would
          be outstanding assuming conversion of the exercisable stock options (516,310
          shares), warrants (993,023 shares), and convertible debt (19,781,699 shares).
          Diluted net loss per share is the same as basic net loss per share as inclusion
          of the common stock equivalents would be antidilutive.
  F-11
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
 **NOTE
          3 - PROPERTY AND EQUIPMENT**
 
 Property
          and equipment are stated at cost. Depreciation is provided using the
          straight-line method over the estimated useful lives of the assets of three
          to
          thirty-nine years. During the year ended December 31, 2005, the Company
          placed
          the clean room in service and wrote off a total of $5,380 of fully depreciated
          assets as they had been abandoned.
 
 The
          following is a summary of property, equipment and accumulated depreciation
          at
          December 31, 2005 and 2004:
 
 December
                    31, 2005
                
                December
                    31, 2004Cost
                
                Accumulated
                  Depreciation
                
                Cost
                
                Accumulated
                  DepreciationLab
                    equipment
                
                $
                31,891
                
                
                13,450
                
                $
                31,891
                
                $
                3,875Office
                    equipment
                
                
                13,777
                
                
                11,905
                
                
                12,918
                
                
                10,621Furniture
                    and fixtures
                
                
                22,539
                
                
                10,918
                
                
                22,539
                
                
                7,214Clean
                    room
                
                
                271,786
                
                
                9,292
                
                
                271,786
                
                
                2,323$
                339,993
                
                
                45,565
                
                $
                339,134
                
                $
                24,033
 
 Depreciation
          expense for the years ended December 31, 2005 and 2004 was $21,532 and
          $15,287,
          respectively.
 
 **NOTE
          4 - INVESTMENTS**
 
 Marketable
          Securities
 In
          2004,
          the Company’s investments in equity securities that are intended to be held for
          a short period are classified as trading securities. These securities are
          recorded at fair value as current assets on the balance sheet under the
          caption
          of marketable securities. The change in fair value of those securities
          is
          included in earnings during the period presented. During the year ended
          December
          31, 2005, a total of $300,000 was redeemed and transferred to cash with
          no gain
          or loss being recognized.
 
 **NOTE
          5 - INTANGIBLE ASSETS**
 
 Patents
          and Patents Pending
 Costs
          relating to the development and approval of patents, primarily fees paid
          to the
          Company’s attorneys, are capitalized and amortized using the straight-line
          method over seventeen years. The exceptions to this are research and development
          costs which are expensed in the period they are incurred, Patents prior
          to 1998
          have been abandoned; therefore, an abandonment loss on patents of $14,852
          has
          been recognized. The Company’s patents relate to the treatment of autoimmune
          diseases.
  F-12
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
 The
          following is a summary of the costs of patents and patents pending:
  Cost
                
                Accumulated
                  Amortization
                
                Net
                  AmountBalance,
                    December 31, 2003
                
                $
                772,219
                
                $
                (160,295
                )
                $
                611,9242004
                    Activity
                
                
                303,332
                
                
                (57,901
                )
                
                245,431Abandonment
                    of Patents
                
                
                (109,162
                )
                
                94,310
                
                
                (14,852
                )Balance,
                    December 31, 2004
                
                
                966,389
                
                
                (123,888
                )
                
                842,5032005
                    Activity
                
                
                131,803
                
                
                (64,537
                
                
                67,266Abandonment
                    of Patents
                
                
                (35,000
                )
                
                8,235
                
                
                (26,765
                )Balance
                    at December 31, 2005
                
                $
                1,063,192
                
                $
                (180,190
                )
                $
                883,002
  The
          following is a summary of the costs of patents separated into pending and
          granted:
 
 2005
                
                2004Pending
                    Patents
                
                $
                796,948
                
                $
                707,473Granted
                    Patents
                
                
                266,244
                
                
                258,916Total
                    Cost of Patents
                
                $
                1,063,192
                
                $
                966,389
  **NOTE
          6 - RELATED PARTY TRANSACTIONS**
 
 At
          December 31, 2005 and 2004, the Company has notes receivable in the aggregate
          amount of $46,619 from non-officer/director shareholders of the Company
          in
          connection with a payment plan for the purchase of Company stock. The notes
          accrue interest at a rate of 6.5% per annum and mature on December 31,
          2007.
 
 The
          note
          payable to related parties consists of a loan payable to one of the Company’s
          directors. The note has no specific due date, is currently uncollateralized,
          and
          is non-interest bearing, however, interest is calculated at the applicable
          federal rate each quarter. The calculated interest of $4,455 and $4,480
          was
          recorded during the year ending December 31, 2005 and 2004, respectively,
          as
          interest expense and contributed capital in the accompanying financial
          statements because the note holder elected to forgive this
          interest.
 
 See
          Note
          13 for related party occupancy agreements.
  F-13
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
 **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
          $2,973
          and $68,397 is at risk on December 31, 2005 and 2004, respectively.
 
 **NOTE
          8 - COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL**
 
 Information
          regarding the number of shares issued and consideration received is as
          follows:
  Common
                    StockAverage
                    price
                  per
                    share
                
                Shares
                
                Amount
                
                Additional
                  Paid-in
                    CapitalCommon
                    stock issued for cash:1985
                
                $
                .50
                
                
                100,000
                
                $
                100
                
                $
                49,9001986
                
                
                1.00
                
                
                639,500
                
                
                640
                
                
                678,8611987
                
                
                1.00
                
                
                850,500
                
                
                850
                
                
                759,6501988
                
                
                1.00
                
                
                25,000
                
                
                25
                
                
                24,9751993
                
                
                .25
                
                
                2,402,000
                
                
                2,402
                
                
                475,9001995
                
                
                .05
                
                
                1,000,000
                
                
                1,000
                
                
                49,0001996
                
                
                .05
                
                
                520,000
                
                
                520
                
                
                25,4801997
                
                
                .09
                
                
                1,800,500
                
                
                1,801
                
                
                153,7491998
                
                
                .10
                
                
                305,000
                
                
                305
                
                
                30,1951999
                
                
                .05
                
                
                3,158,000
                
                
                3,158
                
                
                151,99310,800,500
                
                
                10,801
                
                
                2,399,703Common
                    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
                )
                
                2,2003,300,000
                
                
                3,300
                
                
                2,200Common
                    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
                
                
                9,9902000
                
                
                .05
                
                
                4,932,380
                
                
                4,932
                
                
                241,6874,942,380
                
                
                4,942
                
                
                251,677Common
                    stock returned in payment of notes receivable:2003
                
                
                .16
                
                
                (1,603,789
                )
                
                (1,604
                )
                
                (238,964
                )
  F-14
  **ADVANCED
          BIOTHERAPY, INC.**
 **(A
            DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **December
            31, 2005**
  Common
                    StockAverage
                    price
                  per
                    share
                
                
                Shares
                
                
                Amount
                
                
                Additional
                  Paid-in
                    CapitalContribution
                    of additional paid-in capital:1991
                
                
                -
                
                
                -
                
                
                -
                
                
                35,8251999
                
                
                -
                
                
                -
                
                
                -
                
                
                28,0982000
                
                
                -
                
                
                -
                
                
                -
                
                
                9,7352001
                
                
                -
                
                
                -
                
                
                -
                
                
                8,1132002
                
                
                -
                
                
                -
                
                
                -
                
                
                5,6352003
                
                
                -
                
                
                -
                
                
                -
                
                
                4,2302004
                
                
                
                
                
                
                
                
                
                
                
                4,4802005
                
                
                
                
                
                -
                
                
                -
                
                
                4,455-
                
                
                
                
                
                
                
                
                -
                
                
                100,571Stock
                    subscriptions:1999
                
                
                .05
                
                
                650,000
                
                
                650
                
                
                31,850Cancellation
                    of escrowed shares in 1999
                
                
                .001
                
                
                (850,000
                )
                
                (850
                )
                
                850Reissued
                    escrowed shares cancelled in error:2001
                
                
                .001
                
                
                850,000
                
                
                850
                
                
                (850
                )-
                
                
                
                
                
                
                
                
                -
                
                
                -Common
                    stock issued for services (1):1988
                
                
                .50
                
                
                25,000
                
                
                25
                
                
                12,4751989
                
                
                .38
                
                
                25,000
                
                
                25
                
                
                9,4751990
                
                
                .66
                
                
                37,375
                
                
                37
                
                
                24,6351991
                
                
                .51
                
                
                159,500
                
                
                160
                
                
                81,0101992
                
                
                .75
                
                
                62,500
                
                
                62
                
                
                46,5631993
                
                
                .25
                
                
                120,000
                
                
                120
                
                
                29,8801996
                
                
                .05
                
                
                308,500
                
                
                308
                
                
                13,8321997
                
                
                .05
                
                
                155,500
                
                
                155
                
                
                7,6191999
                
                
                .05
                
                
                99,190
                
                
                99
                
                
                4,8602005
                
                
                .19
                
                
                315,784
                
                
                315
                
                
                59,6841,308,354
                
                
                1,306
                
                
                290,033
  F-15
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
  Common
                    StockAverage
                    price
                  per
                    share
                
                
                Shares
                
                
                Amount
                
                
                Additional
                  Paid-in
                    CapitalCommon
                    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
                )Common
                    stock issued for forgiveness of accounts payable (1):1990
                
                
                .50
                
                
                25,000
                
                
                25
                
                
                12,4751996
                
                
                .05
                
                
                150,000
                
                
                150
                
                
                7,350175,000
                
                
                175
                
                
                19,825Common
                    stock issued in payment of notes payable (1):1993
                
                
                .25
                
                
                200,000
                
                
                200
                
                
                49,8002000
                
                
                .05
                
                
                1,714,995
                
                
                1,715
                
                
                84,0351,914,995
                
                
                1,915
                
                
                133,835Common
                    stock issued in payment of loans payable (1):2000
                
                
                .05
                
                
                2,552,625
                
                
                2,553
                
                
                125,078Common
                    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
                
                
                399,5042002
                
                
                .25
                
                
                1,147,706
                
                
                1,147
                
                
                285,7812003
                
                
                .25
                
                
                788,991
                
                
                789
                
                
                196,4602004
                
                
                .25
                
                
                10,896,275
                
                
                10,897
                
                
                2,654,49614,438,318
                
                
                14,385
                
                
                3,536,241
  F-16
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
  Common
                    StockAverage
                    price
                  per
                    share
                
                
                Shares
                
                
                Amount
                
                
                Additional
                  Paid-in
                    CapitalExpiration
                    of stock options2005
                
                
                -
                
                
                -
                
                
                
                
                
                210,738Stock
                    warrants exercised:2003
                    (cashless exercise)
                
                
                .05
                
                
                151,846
                
                
                152
                
                
                7,0592004
                    (cashless exercise)
                
                
                .16
                
                
                47,917
                
                
                48
                
                
                7,752199,763
                
                
                200
                
                
                14,811Stock
                    options exercised:1997
                
                
                .01
                
                
                325,000
                
                
                325
                
                
                2,9292000
                
                
                .01
                
                
                350,000
                
                
                350
                
                
                3,1502002
                
                
                .04
                
                
                150,000
                
                
                150
                
                
                5,8502003
                
                
                .01
                
                
                150,000
                
                
                150
                
                
                1,350975,000
                
                
                975
                
                
                13,279Total
                
                
                
                
                
                54,348,346
                
                $
                54,347
                
                $
                6,998,563
  (1)
                Per
                    share amounts determined by information deemed most reliable
                    based on
                    circumstances of each case: trading price at time of issuance
                    or value of
                    services received.
 
 Effective
          with the merger in September 2000 of Advanced Biotherapy Concepts, Inc.
          into its
          wholly owned subsidiary, each issued and outstanding share of Advanced
          Biotherapy Concepts, Inc. common stock was converted automatically into
          one
          share of $0.001 par value common stock of Advanced Biotherapy, Inc.
  F-17
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
 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, 2004, the board of directors
          unanimously approved the repurchase and cancellation of 1,603,789 of these
          shares of common stock at the fair market value of $0.16 per share in
          satisfaction of outstanding notes receivable and accrued interest. At December
          31, 2004, a total of 2,403,789 shares were available under this plan. During
          2005, the Company terminated its Stock Bonus Plan. All shares available
          under
          the plan are to be available for grant under the Company’s Omnibus Equity
          Incentive Plan. See Note 10.
 
 **NOTE
          9 - PREFERRED STOCK**
 
 The
          Company has authorized 20,000,000 shares of $0.001 par value preferred
          stock. As
          of December 31, 2005, the Company has not issued any preferred stock.
 
 **NOTE
          10 - STOCK OPTIONS AND ISSUANCE COMMITMENTS**
 
 Omnibus
          Equity Incentive Plan
 In
          2000,
          the board of directors approved an Omnibus Equity Incentive Plan, which
          was
          later approved by the stockholders in December 2001. The purpose of the
          plan is
          to promote the long-term success of the Company and the creation of stockholder
          value by encouraging employees, outside directors and consultants to focus
          on
          the achievement of critical long-range objectives. The plan endeavors to
          attract
          and maintain such individuals with exceptional qualifications and to link
          them
          directly to stockholder interests through increased stock ownership. The
          plan
          seeks to achieve this purpose by providing for awards in the form of restricted
          shares, stock units, options (which may constitute incentive stock options
          or
          non-statutory stock options) and stock appreciation rights (“SAR’s”). The
          aggregate number of options, SARs, stock units and restricted shares awarded
          under the plan was initially 4,000,000 common shares plus an annual increase
          of
          the lesser of two and one-half percent of the total number of common shares
          then
          outstanding or 250,000 common shares. At December 31, 2005, there are 10,000
          shares available under this plan.
  F-18
 **ADVANCED
              BIOTHERAPY, INC.**
 **(A
                DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
                TO FINANCIAL STATEMENTS**
 **December
                31, 2005**
 During
          January, 2004, the Company approved the issuance of stock options to its
          board
          of directors to purchase a total of 270,000 shares of the Company’s stock at
          $0.42 per share for services rendered during the year ended December 31,
          2004.
          The options vest immediately and have a term of ten years. In accordance
          with
          Statement of Financial Accounting Standard No. 123, the fair value of the
          options was estimated using the Black Scholes Option Price Calculation.
          The
          following assumptions were made to value the stock options: strike price
          at
          $0.10-$0.20; risk free interest rate of 4%; expected life of five to ten
          years;
          and expected volatility of 62% to 92% with no dividends expected to be
          paid. The
          Company recorded expenses totaling $515,173 ($0.10 per option for the value
          of
          these options based upon these Black Scholes assumptions.
 
 The
          following is a summary of the Company's equity compensation plans:
 
 Plan
                Number
                    of securities
                  to
                    be issued upon
                  exercise
                    of
                  outstanding
                    options
                Weighted-average
                  exercise
                    price of
                  outstanding
                    options
                Number
                    of securities
                  remaining
                    available
                  for
                    future issuance
                  under
                    equity
                  compensation
                    plansEquity
                    compensation plan approved by security holders (1)
                4,990,000
                $0.18
                260,000
 
 (1)
          Omnibus Equity Incentive Plan
 
 Following
          is a summary of the status of the options during the years December 31,
          2005 and
          2004:
 Number
                    of
                  Shares
                
                Weighted
                  Average
                  Exercise
                    PriceOutstanding
                    at December 31, 2003
                
                
                6,087,953
                
                $
                0.16Granted
                
                
                270,000
                
                
                0.16Exercised
                
                
                -
                
                
                -Forfeited
                
                
                -
                
                
                -Options
                    outstanding at December 31, 2004
                
                
                6,357,953
                
                $
                0.17Granted
                
                
                5,178,453
                
                
                0.15Exercised
                
                
                -
                
                
                -Forfeited/Expired
                
                
                (2,637,953
                )
                
                (0.14
                )Options
                    outstanding at December 31, 2005
                
                
                8,898,453
                
                $
                0.16Weighted
                    average fair value of options granted in 2005
                
                
                
                
                $
                0.10Options
                    exercisable at December 31, 2005
                
                
                7,698,453
                
                $
                0.17
  F-19
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
 Summarized
          information about stock options outstanding and exercisable at December
          31, 2005
          is as follows:
 
 Outstanding
                    OptionsExercise
                  Price
                    Range
                
                Number
                  of
                    Shares
                
                Weighted
                    Average
                  Remaining
                    Life
                
                Weighted
                    Average
                  Exercise
                    Price$0.10
                    - $0.42
                
                
                8,898,453
                
                
                6.41
                
                $
                0.16
 
 Exercisable
                    OptionsExercise
                  Price
                    Range
                
                Number
                  of
                    Shares
                
                Weighted
                    Average
                  Remaining
                    Life
                
                Weighted
                    Average
                  Exercise
                    Price$0.10
                    - $0.42
                
                
                7,698,453
                
                
                6.77
                
                $
                0.17
  For
          non-vested options as of December 31, 2005, an expense of $168,100 had
          not yet
          been recognized over a weighted average remaining vesting period of 0.10
          years.
 
 **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 2005, the next
          one-third in 2005 and the remaining one-third vesting in 2006. In accordance
          with Statement of Financial Accounting Standard No. 123, the fair value
          of the
          warrants was estimated using the Black Scholes Option Price Calculation.
          The
          following assumptions were made to value the stock warrants: strike price
          at
          $0.16, risk free interest rate of 5%, expected life of seven years, and
          expected
          volatility of 82% with no dividends expected to be paid. The Company records
          an
          expense for the value of these warrants based upon these Black Scholes
          assumptions of $12,300 ($0.123 per option) over the three years as the
          warrants
          vest.
 
 During
          the year ended December 31, 2004, a warrant to purchase 100,000 shares
          of common
          stock was exercised using the cashless conversion feature, resulting in
          the
          issuance of 47,917 shares of common stock.
 
 Summarized
          information about stock warrants outstanding and exercisable at December
          31,
          2005 is as follows:
 
 Number
                    of
                  warrants
                
                Weighted
                    Average
                  Remaining
                    Life
                
                Average
                  exercise
                    priceOutstanding
                
                
                5,504,227
                
                
                4.11
                
                $
                0.16Exercisable
                
                
                5,350,894
                
                
                4.20
                
                $
                0.16
 
 During
          2005, the Company granted warrants to purchase up to 380,000 shares of
          common
          stock at an exercise price of $0.10 - $0.20 per share for services. Subject
          to
          the terms of such warrants, 260,000 warrants are presently exercisable,
          and
          expire February 24, 2015 through August 24, 2015. The remaining 120,000
          warrants
          vest 1/3 each year commencing December 31, 2006.
  F-20
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
 **NOTE
          12 - CONVENTIONAL 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, 2005. The debt bears interest at the rate of 10% per annum
          and is
          payable semi-annually in cash or through
          the issuance of additional
          convertible subordinated debt. This
          debt
          was convertible into shares of Company common stock at a conversion price
          equal
          to $0.25 per share, subject to certain anti-dilution provisions. As of
          December
          31, 2004 a total of $497,912 of unpaid accrued interest was converted to
          additional convertible debt.
 
 The
          Company offered the convertible subordinated debt pursuant to Section 4(2)
          of
          the Securities Act of 1933, as amended, and Rule 506 of Regulation D,
          promulgated under the Securities Act. In connection with the placement
          of the
          debt, the Company paid a loan origination fee of $113,288 to its financial
          advisor, in addition to the granting of an option to the financial advisor
          to
          purchase an equivalent principal amount of convertible subordinated debt
          at the
          face amount thereof over a period of ten years. The aforementioned fee
          was fully
          amortized as of December 31, 2004. Amortization for the year ended December
          31,
          2003 was $19,368.
 
 During
          the year ended December 31, 2001, a total of $355,000 original debt and
          $46,109
          of accrued interest and previously converted interest was converted into
          1,605,346 shares of common stock at $0.25 per share. During the year ended
          December 31, 2002, a total of $245,000 original debt and $41,928 of accrued
          interest and previously converted interest was converted into 1,147,706
          shares
          of common stock at $0.25 per share. During the year ended December 31,
          2003, a
          total of $152,500 original debt and $35,393 of accrued interest and previously
          converted interest was converted into 751,574 shares of common stock at
          $0.25
          per share.
 
 In
          February, 2004 the Company offered the holders of the remaining $773,000
          of
          unconverted convertible debt an incentive of a reduced conversion price
          from
          $0.25 to $0.24 and payment of interest through the maturity date of September
          30, 2005, if the holders would convert prior to April 30, 2004. The Company
          issued 4,558,771 shares for the principal and accrued interest through
          March 31,
          2004, valued at $1,094,105 and 222,404 shares of common stock valued at
          $53,377
          for the additional interest from April to September. Additionally, since
          the
          Company changed the conversion price, following SFAS No. 84, the Company
          calculated additional interest equal to the difference in the fair market
          value
          on the date of the conversion and the new conversion rate, multiplied by the
          difference in the shares converted. The Company recorded interest expense
          totaling $21,882 for this difference.
 
 F-21
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
  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 ("2002-2005 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.
 
 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. The
          loan
          was totally amortized at December 31, 2005.
 
 During
          the year ended December 31, 2004, a total of $8,000 original debt and $1,354
          of
          accrued interest and previously converted interest was converted into 37,416
          shares of common stock at $0.25 per share.
 
 In
          February, 2004 the Company offered the holders of the remaining $1,140,500
          of
          unconverted convertible debt an incentive of a reduced conversion price
          from
          $0.25 to $0.24 and accrual of interest through the maturity date of September
          30, 2005, if the holders would convert prior to April 30, 2004. The Company
          issued 5,805,702 shares for the principal and accrued interest through
          March 31,
          2004, valued at $1,393,369 and 311,635 shares of common stock valued at
          $74,800
          for the additional interest from April to September. Additionally, since
          the
          Company changed the conversion price, following SFAS No. 84, the Company
          calculated additional interest equal to the difference in the fair market
          value
          on the date of the conversion and the new conversion rate, multiplied by
          the
          difference in the shares converted. The Company recorded interest expense
          totaling $27,867 for this difference.
 
 2002
          Convertible Notes due June 1, 2006
 During
          the year ended December 31, 2002, the Company sold in a private placement
          to
          accredited investors 2002 Subordinated Convertible Pay-in-kind Notes due
          June 1,
          2006 ("2002-2006 convertible notes") in the principal amount of $3,055,000
          in
          cash. The interest rate of the 2002-2006 convertible notes is 11% per annum
          for
          $2,555,000 of the debt, and 12.5% per annum for $500,000 of the debt. Interest
          is payable semi-annually in cash or through the issuance of additional
          2002-2006
          convertible notes. As of December 31, 2005, unpaid accrued interest of
          $1,428,085 has been converted to additional convertible debt, which totaled
          $4,483,085 at year end.
  F-22
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
 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, 2005 was $53,750.
 
 At
          December 31, 2005, the remaining 2002-2006 notes, including converted accrued
          interest, could be converted into a total of 17,932,339 shares of common
          stock.
 
 2004
          Convertible Notes due September 30, 2007
 During
          the year ended December 31, 2003, the Company sold in a private placement
          to
          accredited investors 2004 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
          2004-2007 convertible notes. The unpaid accrued interest as of December
          31, 2005
          of $58,976 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, 2005, the remaining 2003-2007 notes, including converted accrued
          interest, could be converted into a total of 4,135,556 shares of common
          stock.
 
 2005
          Convertible Notes
 During
          the year ended December 31, 2005, the Company sold in a private placement
          to
          Officer/Directors and an accredited investor 2005 Subordinated Convertible
          Pay-in-kind Notes due September 30, 2009 in the principal amount of $240,000
          in
          cash. The interest rate of the 2005 convertible notes is 12% per annum,
          payable
          semi-annually in cash or through the issuance of additional 2005 convertible
          notes. The unpaid accrued interest as of December 31, 2005 of $12,245 has
          been
          converted to additional convertible debt.
 
 **NOTE
          13 - COMMITMENTS AND CONTINGENCIES**
 
 Occupancy
          Agreements
 During
          the period ended March 31, 2003, the Company entered a verbal agreement
          to pay
          approximately $4,000 a month to a firm owned by the Company’s chief executive
          officer and chief financial officer for tax preparation services, monthly
          accounting, and reimbursement for rent and employee benefits. A total of
          $65,321
          was paid during 2004 under this month-to-month agreement. Under this verbal
          agreement, a total of $24,200 has been accrued in the financial statements
          as of
          December 31, 2005
  F-23
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
 The
          Company also entered into a verbal agreement for research and development
          laboratory space with a firm, which has as a shareholder, one of the directors
          of Advanced Biotherapy, Inc. This agreement calls for a monthly rent of
          $6,110
          along with reimbursement for research and development services at a monthly
          cost
          of $12,000. A total of $300,283 was paid during 2004 under this month-to-month
          agreement.
 
 Contracts
 During
          the first quarter of 2005, the Company entered into an agreement with a
          consultant whereby the consultant will utilize its established process
          and
          reasonable commercial efforts to secure a commercial relationship with
          potential
          candidates. This commercial relationship may include the license or transfer
          of
          intellectual property, product rights, manufacturing rights, patents, or
          development assistance. A fees will be paid to the consultant in the amount
          of
          $5,000 per month for services provided between January 1, 2005 and September
          30,
          2005 upon the Company receiving funding either in the form of a licensing
          agreement or equity or debt financing. Additionally, the consultant will
          be
          reimbursed for reasonable out-of-pocket costs. A success fee is included
          in the
          agreement of the Company enters into a commercial relationship within eighteen
          months from the termination of the agreement with candidates brought to
          the
          company by the consultant. This agreement was terminated on September 30,
          2005.
 
 In
          April
          2004, the Company entered into an agreement for an unrelated entity to
          identify
          possible product development, distribution or license agreement opportunities.
          The term of the contract is one year with automatic one-year renewals.
          Compensation terms include a 10% commission on 3 rd party
          sales or warrants to purchase common stock for milestones reached on research
          contracts. This agreement was terminated on December 31, 2004.
 
 In
          July
          2005, the Company entered into a contract with an unrelated party to provide
          investment banking services related to a possible private placement or
          other
          sale of securities by the Company. The Company paid a retainer of $5,000
          and, in
          the event a private placement is executed, will pay a total commission
          of 8.5%
          of proceeds received. Of this commission, 7.5% will be paid in cash and
          1% in
          the form of warrants. This agreement was terminated on January 31,
          2004.
 
 **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, 2005
                
                December
                    31, 2004Amount
                
                Percent
                
                Amount
                
                PercentFederal
                    tax (benefit)
                
                $
                (490,000
                )
                
                (34
                )%
                $
                (817,000
                )
                
                (34)
                %State
                    tax (benefit)
                
                
                (111,000
                )
                
                (8
                )%
                
                (192,000
                )
                
                (
                    8)
                %Valuation
                    allowance
                
                
                601000
                
                
                42
                %
                
                1,009,000
                
                
                42
                %$
                -
                
                
                -
                
                $
                -
                
                
                -
  F-24
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
 Deferred
          income taxes reflect the net tax effects of temporary differences between
          the
          carrying amounts of assets and liabilities for financial reporting purposes
          and
          the amounts used for income tax purposes.
 
 Significant
          components of the deferred tax assets at December 31, 2005 and 2004 are
          as
          follows:
 
 December
                    31, 2005
                
                December
                    31, 2004Deferred
                    tax asset:Net
                    operating loss carryforwards****
                
                $
                4,061,000
                
                $
                3,257,000General
                    business credit carryforwards
                
                
                95,000
                
                
                74,000Excess
                    book accumulated amortization
                
                
                24,000
                
                
                29,0004,180,000
                
                
                3,360,000Deferred
                    tax liabilities:Excess
                    tax accumulated depreciation
                
                
                3,000
                
                
                3,000Total
                    deferred tax asset
                
                
                4,177,000
                
                
                3,357,000Valuation
                    allowance for deferred tax asset
                
                
                (4,177,000
                )
                
                (3,357,000
                )Net
                    deferred tax asset
                
                $
                -
                
                $
                -
 
 At
          December 31, 2005, the Company has federal net operating loss carryforwards
          of
          approximately $8,100,000, which expire in the years 2006 through 2024,
          state net
          operating loss carryforwards of approximately $6,200,000, which expire
          in the
          years 2010 through 2013, and general business credit carryforwards of
          approximately $74,000, which expire in the years 2012 through 2023. At
          December
          31, 2005 and 2004, federal net operating losses expired in the amount of
          approximately $259,000 and $195,000, respectively. A total of approximately
          $221,000 federal net operating losses is set to expire on December 31,
          2005.
 
 The
          change in the valuation allowance account from December 31, 2004 to December
          31,
          2005 was $890,000, which is principally due to the change in management’s
          estimates as well as an increase in the Company’s net operating loss
          carryforward including expiration of prior years’ net operating
          losses.
 
 **NOTE
          15 - SUBSEQUENT EVENTS**
 
 Subsequent
          to the financial statements the company entered into consulting agreements
          with
          two Director/Shareholders whereby the consultants will utilize its established
          process and reasonable commercial efforts to secure a commercial relationship
          with potential candidates. This commercial relationship may include the
          license
          or transfer of intellectual property, product rights, manufacturing rights,
          patents, or development assistance. A fee will be paid to the consultant
          in the
          amount of $5,000 per month for services provided between January 1, 2006
          and
          June 30, 2006, in the form of common stock priced at $0.10 per share. A
          success
          fee is included in the agreement of the Company enters into a commercial
          relationship.
  F-25
  **ADVANCED
            BIOTHERAPY, INC.**
 **(A
              DEVELOPMENT STAGE ENTERPRISE)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **December
              31, 2005**
 Subsequent
          to the financial statements two officer/Directors loaned the Company a
          cumulative amount of $125,000 in the form of a conventional term note,
          due and
          payable on June 30, 2006 bearing at interest rate of 12% per year. The
          Company
          was also loaned $35,000 by two non-Officer/Director shareholders under
          the same
          terms and conditions.
  **NOTE
          16 - CORRECTION OF AN ERROR**
 
 The
          accompanying financial statements for December 31, 2005 and 2004 have been
          restated to correct an error in the recording of interest expense. The
          Company
          discovered there was an error in the accounting for the proper amount of
          interest expense related to the conversion of debt into shares of common
          stock.
          The effect of the restatement was to increase the additional paid-in capital
          and
          net loss in the amount of $49,749, with a de minimus effect on the earnings
          per
          share amount.
 
 The
          following is a summary of the effect:
 
 As
          of
          December 31, 2004:
  As
                  Originally
                  Filed
                
                As
                  Corrected
                
                ChangeFinancial
                    PositionAdditional
                    Paid-in Capital
                
                $
                6,525,037
                
                $
                6,574,786
                
                $
                49,749Net
                    Loss
                
                $
                2,440,695
                
                $
                2,490,444
                
                $
                49,749Deficit
                    Accumulated
                
                $
                11,042,096
                
                $
                11,191,845
                
                $
                49,749Results
                    of OperationsInterest
                    Expense
                
                $
                710,072
                
                $
                759,821
                
                $
                49,749
 
 As
          of
          December 31, 2005:
 
 As
                  Originally
                  Filed
                
                As
                  Corrected
                
                ChangeFinancial
                    PositionAdditional
                    Paid-in Capital
                
                $
                6,948,814
                
                $
                6,998,563
                
                $
                49,749Deficit
                    Accumulated
                
                $
                13,300,448
                
                $
                13,350,197
                
                $
                49,749
 
 F-26