================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

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

                                   Form 10-KSB

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

      For the fiscal year ended December 31, 2005

                                       or

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

                         Commission file number 0-26323

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

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

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

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

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

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

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

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

      Check  if no  disclosure  of  delinquent  filers  pursuant  to Item 405 of
Regulation S-B is contained herein, and no disclosure will be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. |_|

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

      December 31, 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.


                                       1
<PAGE>

ITEM 1. BUSINESS

GENERAL INTRODUCTION

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

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

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

      To date, the Company's  activities  have consisted  primarily of research,
development  and human  clinical  testing.  Such  activities  have  resulted  in
accumulated deficit of $13,300,448 at December 31, 2005. 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  pharmaceutical  companies seeking opportunities related to
            our patented scientific approaches;
      4.    Continuation   of  our  FDA  approved  Phase  I  clinical  trial  at
            Georgetown University Medical Center; 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.

      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

                                       3
<PAGE>

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

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

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

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

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

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

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

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

      Simply  blocking  TNF-alpha,  as do the drugs  Enbrel(R),  Remicade(R) and
Humira(R),  three products already on the market for the treatment of rheumatoid
arthritis,  may not effectively deal with the  overproduction  of IFN-alpha and
IFN-gamma.  Removing  IFN-gamma  could,  however,  remove  or  lower  all  three
inflammatory cytokines, since IFN-gamma is upstream of TNF-alpha in the cytokine
cascade.  IFN-gamma is  responsible  for the  activation of killer  T-cells that
produce many  inflammatory  cytokines.  The Company's drug development  strategy
therefore  centers on the blocking of IFN-gamma,  TNF-alpha,  and sometimes both
together in patients with Th1-mediated ADs.

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


                                       4
<PAGE>

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

                                    Table I
                    Major Th-1 Mediated Autoimmune Diseases

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

           Neurological Diseases With A Suspected Autoimmune Component

              Alzheimer's Disease                      Depression
              Autism                                   Parkinson's disease
                                                       Schizophrenia

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

      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
<PAGE>

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 28th day.
Clinical,  laboratory,  and ultrasound  indices were used to evaluate  treatment
efficacy.

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

CLINICAL STUDIES / MULTIPLE SCLEROSIS (MS)

      The Company sponsored two trials in Russia of 83 MS patients on the use of
anti-cytokine  therapy.  The first was an  open-label  trial with  patients with
secondary   progressive  MS.  Following  promising  results  in  this  trial,  a
double-blind,  placebo-controlled  trial was conducted in a study design similar
to that used in RA. The study compared  anti-IFN-gamma and  anti-TNF-alpha  with
placebo.  Only  patients  with MS who received  antibodies  to IFN-gamma  showed
statistically   significant   improvement   compared  to  the  placebo  group--a
significant  increase in the number of  patients  without  confirmed  disability
progression.  Positive  clinical  changes  in  this  group  at six  months  were
supported  by MRI data  showing a  decrease  in the  number of active  enhancing
lesions. After 12 months of follow-up,  the anti-IFN-gamma patients still showed
significant  improvement relative to the placebo group on a number of endpoints,
including disease progression and the number of active MRI lesions.

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


                                       6
<PAGE>

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
<PAGE>

      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.


                                       8
<PAGE>

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

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

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

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

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

      The third step that is necessary  prior to marketing a new drug is the New
Drug Application (NDA) submission  andapproval 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
<PAGE>

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
<TABLE>
<S>                            <C>
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.
</TABLE>


                                       10
<PAGE>

<TABLE>
<S>                            <C>
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.
</TABLE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

      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
<PAGE>

      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.

      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:


                                       15
<PAGE>

      o     material public announcements
      o     developments  or  disputes  as to our  patent  or other  proprietary
            rights.
      o     unsatisfactory clinical trial results
      o     failures or unexpected delays in obtaining  regulatory  approvals or
            unfavorable FDA advisory panel recommendations
      o     approval or introduction of competing products and technologies
      o     delays in manufacturing or clinical trial plans
      o     market  reaction  to   announcements   by  other   biotechnology  or
            pharmaceutical companies
      o     announcements in the scientific and research community
      o     initiation,   termination  or   modification   of  agreements   with
            collaborative partners
      o     loss of key personnel
      o     general market conditions

      Our Outstanding Convertible Promissory Notes Leverage Us Considerably.  As
a result of issuing our convertible  subordinated notes due June 1, 2006 and our
convertible   subordinated   notes  due  September  30,  2007  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

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

ITEM 2. DESCRIPTION OF PROPERTY

      During 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
<PAGE>

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               $0.17
           June 30                                 $0.21               $0.20
           September 30                            $0.20               $0.18
           December 31                             $0.16               $0.13

           2004 Fiscal Quarter Ended:             High Bid            Low Bid
           March 31                                $0.48               $0.32
           June 30                                 $0.44               $0.22
           September 30                            $0.29               $0.15
           December 31                             $0.38               $0.15


      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 RESULTS
OF OPERATIONS

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


                                       17
<PAGE>

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  pharmaceutical  companies seeking opportunities related to
            our patented scientific approaches;
      4.    Continuation   of  our  FDA  approved  Phase  I  clinical  trial  at
            Georgetown University Medical Center; 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
<PAGE>

      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  $13,300,448.  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.

RESULTS OF OPERATIONS - Years ended December 31, 2005 and 2004.

      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

      For the year ended December 31, 2005,  the Company  realized a net loss of
$2,158,352  compared to a net loss of $2,440,695 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  $13,759,  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 $118,865,  increase of gain on forgiveness of debt
of $145,400, and increased stock option and warrant vesting of 377,500.


                                       19
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

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

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

      There have been no disagreements with the Company's accountants,  Williams
& Webster P.C., on accounting and financial disclosures during the Company's two
most recent fiscal years,  i.e. January 1, 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")
have conducted  evaluations of the Company's disclosure controls and procedures.
As defined under Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act
of 1934, as amended (the  "Exchange  Act"),  the term  "disclosure  controls and
procedures"  means controls and other  procedures of an issuer that are designed
to ensure that information required to be disclosed by the issuer in the reports
that it  files  or  submits  under  the  Exchange  Act is  recorded,  processed,
summarized and reported,  within the time periods  specified in the Commission's
rules and forms. Disclosure controls and procedures include, without limitation,
controls  and  procedures  designed  to ensure that  information  required to be
disclosed  by an  issuer  in the  reports  that it files or  submits  under  the
Exchange  Act  is  accumulated  and  communicated  to the  issuer's  management,
including its principal  executive  officer or officers and principal  financial
officer or officers, or persons performing similar functions,  as appropriate to
allow timely decisions  regarding required  disclosure.  The Certifying Officers
have  reviewed  the  Company's  disclosure  controls  and  procedures  and  have
concluded that those disclosure controls and procedures are effective in causing
information to be recorded,  processed,  summarized and reported within the time
periods  specified  in the  Commission's  rules and forms  and  communicated  to
management  of the Company to allow timely  decisions  regarding  the  Company's
public disclosures.  In compliance with Section 302 of the Sarbanes-Oxley Act of
2002, (18 U.S.C.  1350),  each of the Certifying  Officers executed an Officer's
Certification included in this Annual Report on Form 10-KSB.

                                    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.

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


                                       20
<PAGE>

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

(1)   Member of the Audit Committee of the Board of Directors.
(2)   Member of the Compensation Committee of the Board of Directors.
(3)   Member of the Executive Committee of the Board of Directors.
(4)   Member of the Nominating Committee of the Board of Directors.

TERM OF OFFICE

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

BIOGRAPHICAL DESCRIPTIONS OF DIRECTORS AND OFFICERS

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

      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.


                                       21
<PAGE>

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

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

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

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


                                       22
<PAGE>

FAMILY RELATIONSHIPS

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

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

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

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

      (b) any criminal convictions;

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

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

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

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.

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 Table

<TABLE>
<CAPTION>
                                                            Other       Restricted    Securities
                                                            Annual        Stock       Underlying       LTIP       All Other
Name and Principal        Year     Salary      Bonus     Compensation    Award(s)    Options/SARs    Payouts    Compensation
Position                  ($)       ($)         ($)          ($)           ($)            (#)          ($)           ($)
                          ----   ---------   ---------   ------------   ----------   ------------   ---------   ------------
<S>                       <C>    <C>         <C>         <C>            <C>          <C>            <C>         <C>
Edmond F. Buccellato      2005   $ 144,000   $       0   $          0   $        0              0   $       0   $          0
Chief Executive Officer   2004   $ 176,000   $       0   $      4,500   $        0         25,000   $       0   $          0
  (1)(2)(3)(5)            2003   $ 180,000   $       0   $     10,500   $        0      1,530,000   $       0   $          0

Simon Skurkovich          2005   $  49,500   $       0   $          0   $        0              0   $       0   $          0
Chairman Emeritus,        2004   $ 175,500   $       0   $      4,500   $        0         25,000   $       0   $          0
Director of Research &    2003   $ 180,000   $       0   $     10,500   $        0        450,000   $       0   $          0
Development (1)(2)(4)(5)
</TABLE>

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

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

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


                                       23
<PAGE>

(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.

      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, 2005

<TABLE>
<CAPTION>
                                                          Number of Unexercised
                                                          Securities Underlying
                            Shares                       Options/SARs at FY-End(#)      Value of Unexercised In-The-Money
                         Acquired on        Value             Exercisable/                  Options/SARs At FY-End ($)
       Name              Exercise (#)    Realized ($)       Unexercisable(1)                Exercisable/Unexercisable(2)
     ----------         --------------   ------------    -------------------------      ---------------------------------
<S>                     <C>              <C>             <C>                            <C>
Simon Skurkovich, M.D.        0               0               300,000                          18,000
                                                              623,000                          37,380
                                                               10,000                           - 0 -
                                                               20,000                           - 0 -
                                                               30,000                           - 0 -
                                                              300,000      150,000              - 0 -          - 0 -
                                                               25,000                           - 0 -

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

(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.


                                       24
<PAGE>

(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.

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 share
         Simon Skurkovich, M.D.             300,000 shares at $0.16 per share
         William Finkelstein                150,000 shares at $0.16 per share
         Thomas 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
RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information as of December 31, 2005

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

(1) Stock Bonus Plan


                                       25
<PAGE>

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.

      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.

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

<S>                                                      <C>                            <C>
Richard P. Kiphart                                         22,852,231(1)                      29.60%
222 W. Adams St.
Chicago, IL 60606

Boris Skurkovich, M.D.                                      7,297,264(2)                      11.84%
18 Blaisdell Ave.
Pawtucket, RI 01860

Edmond F. Buccellato                                        3,044,021(3)                       5.30%
6355 Topanga Canyon
   Boulevard, Suite 510
Woodland Hills, CA 91367

Lawrence Loomis                                             2,409,053(4)                       4.24%
9110 Red Branch Road
Columbia, MD 21045

Simon Skurkovich, M.D.                                      1,843,440(5)                       3.28%
802 Rollins Avenue
Rockville, MD 20852
</TABLE>


                                       26
<PAGE>

<TABLE>
<S>                                                      <C>                            <C>

Thomas J. Pernice                                           1,227,443(6)                        2.21%
6355 Topanga Canyon Boulevard
Suite 510
Woodland Hills, CA 91367

Paul Hopper                                                   315,789(7)                           *
7982 Doug Hill
San Diego CA 92127

Keith Gregg                                                         0(8)                           *
6524 Edinburgh Drive
Nashville TN 37221

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

All officers and directors as a group (10)                 39,439,067                          48.66%
</TABLE>

----------

(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.


                                       27
<PAGE>

(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.

(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.


                                       28
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       29
<PAGE>

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

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

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

The following financial statements are included herein:

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

Financial Statements:

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

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

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

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

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


REPORTS ON FORM 8-K

      The Registrant filed the following  reports on Form 8-K during the quarter
ended December 31, 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) of  Schedule  14A that were  approved  by the Audit
            Committee  pursuant  to  paragraph  (c)(7)(ii)(c)  of  Rule  2-01 of
            Regulation S-X: - 0 -%


                                       30
<PAGE>

                                   SIGNATURES

      Pursuant to the  requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned,  thereunto duly  authorized,  on this 30th day of
March, 2005.

                                     Advanced Biotherapy, Inc.
                                     (Registrant)

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

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities indicated and on the dates indicated.

Date                Signature                              Title


April 13, 2005      /s/Edmond F. Buccellato        President and Chief
                    ----------------------------   Executive Officer, Director
                    Edmond F. Buccellato

April 13, 2005      /s/William M. Finkelstein      Chief Financial Officer
                    ----------------------------   Accounting (Principal
                    William M. Finkelstein         Financial and Officer)


April 13, 2005      /s/Joseph A. Bellanti, M.D.    Director
                    ----------------------------
                    Joseph A. Bellanti, M.D.

April 13, 2005      /s/Lawrence Loomis             Director
                    ----------------------------
                    Lawrence Loomis

April 13, 2005      /s/Richard P. Kiphart          Director
                    ----------------------------
                    Richard P. Kiphart

April 13, 2005      /s/Thomas J. Pernice           Director
                    ----------------------------
                    Thomas J. Pernice

April 13, 2005      /s/Boris Skurkovich, M.D.      Director
                    ----------------------------
                    Boris Skurkovich, M.D.

April 13, 2005      /s/Paul Hopper                 Director
                    ----------------------------
                    Paul Hopper


                                       32


<PAGE>

ADVANCED BIOTHERAPY, INC.
(A Development Stage Enterprise)
December 31, 2005



CONTENTS

Report of Independent Registered Public Accounting Firm                     F-1

Balance Sheets                                                              F-2

Statements of Operations                                                    F-3

Statement of Stockholders' Deficit                                          F-4

Statements of Cash Flows                                                    F-5

Notes to Financial Statements                                               F-6

<PAGE>

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


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We have audited the accompanying balance sheets of Advanced Biotherapy,  Inc. (a
development  stage enterprise) as of December 31, 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
Bank of America Financial Center
W. 601 Riverside, Suite 1940
Spokane, Washington
April 6, 2006

                                       F-1
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                      December 31,    December 31,
                                                                                          2005            2004
                                                                                      ------------    ------------
ASSETS
<S>                                                                                   <C>             <C>
      CURRENT ASSETS
          Cash                                                                        $     22,068    $    367,337
          Notes receivable - related party                                                  46,619          46,619
          Interest receivable - related party                                               18,090          15,060
          Deposits and prepaid expenses                                                         --          32,001
                                                                                      ------------    ------------
               Total 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          26,319
          Patents and patents pending, net of accumulated amortization                     883,002         842,503
                                                                                      ------------    ------------
               Total 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    $    220,007
          Accounts payable and accrued expenses - related party                            182,200          49,000
          Current 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       4,945,413
          Note payable to related parties                                                  127,631         127,631
                                                                                      ------------    ------------
               Total 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          54,032
          Additional paid-in capital                                                     6,948,814       6,525,037
          Stock options and warrants                                                     1,235,551         865,916
          Deficit accumulated during development stage                                 (13,300,448)    (11,142,096)
                                                                                      ------------    ------------
               Total Stockholders' Deficit                                              (5,061,736)     (3,697,111)
                                                                                      ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                           $  1,271,490    $  1,644,940
                                                                                      ============    ============
</TABLE>

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

                                      F-2
<PAGE>

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

<TABLE>
<CAPTION>
                                                         From Inception
                                                      Year Ended December 31,      (December 2, 1985)
                                                   ----------------------------         through
                                                       2005            2004        December 31, 2005
                                                   ------------    ------------    -----------------
REVENUES                                           $         --    $         --    $          89,947
                                                   ------------    ------------    -----------------
<S>                                                <C>             <C>             <C>
OPERATING EXPENSES
      Research and development                          277,617         557,807            3,915,534
      Promotional fees                                      256          27,678               62,570
      Professional fees                                 181,367         202,730            2,961,074
      Business development                               81,500              --               81,500
      Vesting of options and warrants (non-cash)        549,700         172,200            1,272,109
      Warrants - scientific advisory board                1,900              --                1,900
      Directors' fees                                    97,173          40,500              258,553
      Depreciation and amortization                     100,296         117,893              880,406
      Administrative salaries and benefits              249,229         275,280            1,377,998
      Insurance                                          54,770          78,586              324,452
      Shareholder relations and transfer fees            20,092          47,465              311,398
      Rent                                               20,400          91,561              351,378
      Travel and entertainment                           24,573          55,917              330,799
      Telephone and communications                        5,799          10,987               62,417
      Office                                              6,451          10,361               81,868
      General and administrative                         20,337          48,624              751,756
                                                   ------------    ------------    -----------------
          Total 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               27,682
      Interest and dividend income                        5,056          18,818              171,439
      Internal gain on sale of securities                    --              --              157,520
      Forgiveness of debt                               145,400              --            2,192,837
      Forgiveness of payables                                --              --               45,396
      Loss on disposal of office equipment                   --              --               (2,224)
      Loss on impairment of patents                     (28,823)        (14,852)             (43,675)
      Interest expense                                 (591,207)       (710,072)          (2,913,658)
                                                   ------------    ------------    -----------------
          Total Other Income (Expenses)                (466,892)       (703,106)            (364,683)
                                                   ------------    ------------    -----------------
LOSS BEFORE INCOME TAXES                             (2,158,352)     (2,440,695)         (13,300,448)

INCOME TAXES                                                 --              --                   --
                                                   ------------    ------------    -----------------
NET LOSS                                           $ (2,158,352)   $ (2,440,695)   $     (13,300,448)
                                                   ============    ============    =================
      BASIC AND DILUTED NET LOSS
      PER COMMON SHARE                             $      (0.04)   $      (0.05)
                                                   ============    ============
      WEIGHTED AVERAGE NUMBER OF
      BASIC AND DILUTED COMMON STOCK
      SHARES OUTSTANDING                             54,137,820      52,102,082
                                                   ============    ============
</TABLE>

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

                                      F-3

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Contribution of capital by
  shareholders in form of
  foregone interest                            --              --           4,455              --              --           4,455

Common stock issued to Paul Hopper
  in exchange for services at
  $0.19 per share                         315,789             315          59,684              --              --          59,999

Stock options issued to directors
  in exchange for services                     --              --              --          97,173              --          97,173

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

Stock options and warrants in
  exchange for services                        --              --              --         459,900              --         459,900

Expiration 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             54,348,346    $     54,347    $  6,948,814    $  1,235,551    $(13,300,448)   $ (5,061,736)
                                     ============    ============    ============    ============    ============    ============
</TABLE>

Summary of required  information  regarding stock issuances can be found in Note
8.

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

                                      F-4

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                          From Inception
                                                                           Year Ended December 31,      (December 2, 1985)
                                                                         ----------------------------        through
                                                                             2005            2004        December 31, 2005
                                                                         ------------    ------------    -----------------
<S>                                                                      <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net (loss)                                                         $ (2,158,352)   $ (2,440,695)   $     (13,300,448)
      Adjustments to reconcile net loss to cash
      used in operating activities:
          Depreciation and amortization                                       100,296         117,893              822,518
          Loss on disposal of equipment                                            --              --                2,224
          Loss on impairment of patents                                        28,823          14,852               43,675
          Investment income                                                        --              --             (157,520)
          Expenses paid through issuance of common stock                       59,999              --              291,339
          Expenses paid through issuance
            of common stock warrants and options                              729,273         266,700            1,399,462
          Accrued interest paid by convertible debt                           591,206         710,072            2,523,549
          Expenses paid through contribution
            of additional paid-in capital                                       4,455           4,480               64,746
          Organization 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              324,317
               Accounts payable and accrued expenses - related parties        133,200         (57,205)             241,168
                                                                         ------------    ------------    -----------------
                   Net 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
      Internal gain on sale of securities                                          --              --              157,520
      Proceeds from convertible notes                                         240,000              --            6,754,000
      Proceeds from notes payable                                                  --              --              388,508
      Payments on notes payable                                                    --              --             (175,127)
                                                                         ------------    ------------    -----------------

                   Net cash provided by financing activities                  240,000              --            9,582,155
                                                                         ------------    ------------    -----------------

      Net increase (decrease) in cash                                        (345,269)        322,746               22,068

      Cash, beginning                                                         367,337          44,591                   --
                                                                         ------------    ------------    -----------------

      Cash, ending                                                       $     22,068    $    367,337    $          22,068
                                                                         ============    ============    =================

SUPPLEMENTAL CASH FLOW DISCLOSURES:

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

NON-CASH FINANCING AND INVESTING ACTIVITIES:

      Common stock issued in exchange for
          professional fees and expenses                                 $     59,999    $         --    $         400,868
      Contributed expenses                                               $      4,455    $      4,480    $          64,746
      Common stock issued for a loan payable                             $         --    $         --    $         213,381
      Common stock issued for notes receivable                           $         --    $         --    $         246,619
      Common stock returned in payment of
          notes and interest receivable                                  $         --    $         --    $         240,568
      Options issued for services                                        $    683,273    $    266,700    $       1,107,173
      Common stock issued on cashless exercise of warrants               $         --    $      7,800    $          15,011
      Warrants issued for services                                       $     46,000    $         --    $         292,289
      Accrued interest paid by convertible debt                          $    591,206    $    710,072    $       2,523,549
      Common stock issued for convertible debt                           $         --    $         --    $         707,156
      Forgiveness of debt                                                $    145,400    $         --    $         145,400
</TABLE>

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

                                      F-5
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 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
$13,300,448.  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
<PAGE>

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
<PAGE>

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
<PAGE>

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.

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.


                                      F-9
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
--------------------------------------------------------------------------------


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.

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.


                                      F-10
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
--------------------------------------------------------------------------------


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.


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.


                                      F-11
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
--------------------------------------------------------------------------------

The following is a summary of property,  equipment and accumulated  depreciation
at December 31, 2005 and 2004:

                             December 31, 2005        December 31, 2004
                         -----------------------   -----------------------
                                    Accumulated               Accumulated
                           Cost     Depreciation     Cost     Depreciation
                         --------   ------------   --------   ------------
Lab equipment            $ 31,891         13,450   $ 31,891   $      3,875
Office equipment           13,777         11,905     12,918         10,621
Furniture and fixtures     22,539         10,918     22,539          7,214
Clean 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,  other than research
and  development  costs which are expensed,  are capitalized and amortized using
the straight-line  method over seventeen years.  Patents prior to 1998 have been
abandoned;  therefore,  an  abandonment  loss on  patents  of  $14,852  has been
recognized.  The  Company's  patents  relate  to  the  treatment  of  autoimmune
diseases.


                                      F-12
<PAGE>

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:

                                               Accumulated          Net
                                   Cost        Amortization       Amount
                               -----------    -------------    -----------
Balance, December 31, 2003     $   772,219    $    (160,295)   $   611,924
2004 Activity                      303,332          (57,901)       245,431
Abandonment of Patents            (109,162)          94,310        (14,852)
                               -----------    -------------    -----------
Balance, December 31, 2004         966,389         (123,888)       842,503
2005 Activity                      131,803          (64,537)        67,266
Abandonment of Patents             (35,000)           8,235        (26,765)
                               -----------    -------------    -----------
Balance at December 31, 2005   $ 1,063,192    $    (180,190)   $   883,002
                               ===========    =============    ===========


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.


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.

The Company also has cash  equivalents  which consist of auction rate  preferred
money market  alternatives.  This  investment is not insured,  and therefore,  a
total of $300,000 is at risk as of December 31, 2005. See Note 4.


                                      F-13
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
--------------------------------------------------------------------------------


NOTE 8 - COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

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

<TABLE>
<CAPTION>
                                               Common Stock
                                 ------------------------------------
                                 Average price                              Additional
                                   per share        Shares     Amount    Paid-in Capital
                                 --------------   ----------   -------   ---------------
<C>                              <C>              <C>          <C>       <C>
Common stock issued
for cash:
1985                             $          .50      100,000   $   100   $        49,900
1986                                       1.00      639,500       640           678,861
1987                                       1.00      850,500       850           759,650
1988                                       1.00       25,000        25            24,975
1993                                        .25    2,402,000     2,402           475,900
1995                                        .05    1,000,000     1,000            49,000
1996                                        .05      520,000       520            25,480
1997                                        .09    1,800,500     1,801           153,749
1998                                        .10      305,000       305            30,195
1999                                        .05    3,158,000     3,158           151,993
                                                  ----------   -------   ---------------
                                                  10,800,500    10,801         2,399,703
                                                  ----------   -------   ---------------

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

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

Common stock issued for note
  receivable:
1986                                       1.00       10,000        10             9,990
2000                                        .05    4,932,380     4,932           241,687
                                                  ----------   -------   ---------------
                                                   4,942,380     4,942           251,677
                                                  ----------   -------   ---------------
Common stock returned in
  payment of notes
  receivable:
2003                                        .16   (1,603,789)   (1,604)         (238,964)
                                                  ----------   -------   ---------------
</TABLE>


                                      F-14
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                               Common Stock
                                 ------------------------------------
                                 Average price                              Additional
                                   per share        Shares     Amount    Paid-in Capital
                                 --------------   ----------   -------   ---------------
<S>                              <C>              <C>          <C>       <C>
Contribution of additional
  paid-in capital:
1991                                         --           --         --             35,825
1999                                         --           --         --             28,098
2000                                         --           --         --              9,735
2001                                         --           --         --              8,113
2002                                         --           --         --              5,635
2003                                         --           --         --              4,230
2004                                                                                 4,480
                                                  ----------    -------    ---------------
2005                                                      --         --              4,455
                                                  ----------    -------    ---------------
                                                          --         --            100,571
                                                  ----------    -------    ---------------

Stock subscriptions:
1999                                        .05      650,000        650             31,850
                                                  ----------    -------    ---------------

Cancellation of escrowed
  shares in 1999                           .001     (850,000)      (850)               850

Reissued escrowed shares
   cancelled in error:
2001                                       .001      850,000        850               (850)
                                                  ==========    =======    ===============

Common stock issued
  for services (1):
1988                                        .50       25,000         25             12,475
1989                                        .38       25,000         25              9,475
1990                                        .66       37,375         37             24,635
1991                                        .51      159,500        160             81,010
1992                                        .75       62,500         62             46,563
1993                                        .25      120,000        120             29,880
1996                                        .05      308,500        308             13,832
1997                                        .05      155,500        155              7,619
1999                                        .05       99,190         99              4,860
2005                                        .19      315,784        315             59,684
                                                  ----------    -------    ---------------
                                                   1,308,354      1,306            290,033
                                                  ----------    -------    ---------------
</TABLE>


                                      F-15
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                               Common Stock
                                 ------------------------------------
                                 Average price                              Additional
                                   per share        Shares     Amount    Paid-in Capital
                                 --------------   ----------   -------   ---------------
<S>                              <C>              <C>          <C>       <C>
Common stock issued to
  replace unrecorded
  certificates:
1988                                       .001        1,200          1                (1)
1992                                       .001          500          1                (1)
2000                                       .001      100,000        100              (100)
                                                  ----------    -------   ---------------
                                                     101,700        102              (102)

Common stock issued for
  forgiveness of accounts
  payable (1):
1990                                        .50       25,000         25            12,475
1996                                        .05      150,000        150             7,350
                                                  ----------    -------   ---------------
                                                     175,000        175            19,825
                                                  ----------    -------   ---------------

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

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

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

Common stock issued for
  convertible debt:
2001                                        .25    1,605,346      1,605           399,504
2002                                        .25    1,147,706      1,147           285,781
2004                                        .25      788,991        789           196,460
2005                                        .25   10,896,275     10,897         2,604,747
                                                  ----------    -------   ---------------
                                                  14,438,318     14,385         3,486,492
                                                  ----------    -------   ---------------
</TABLE>


                                      F-16
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
--------------------------------------------------------------------------------


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

Expiration of stock
 options
  2005                                                    --        --           210,738

Stock warrants exercised:
  2003 (cashless exercise)                  .05      151,846       152             7,059
  2004 (cashless exercise)                  .16       47,917        48             7,752
                                                  ----------   -------   ---------------
                                                     199,763       200            14,811
Stock options exercised:
  1997                                      .01      325,000       325             2,929
  2000                                      .01      350,000       350             3,150
  2002                                      .04      150,000       150             5,850
  2003                                      .01      150,000       150             1,350
                                                  ----------   -------   ---------------
                                                     975,000       975            13,279
                                                  ----------   -------   ---------------
Total                                             54,348,346   $54,347   $     6,948,814
                                                  ==========   =======   ===============
</TABLE>


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

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

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

Stock Bonus Plan


                                      F-17
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
--------------------------------------------------------------------------------


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.

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.


                                      F-18
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
--------------------------------------------------------------------------------


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

<TABLE>
<CAPTION>
                                          Number of securities to be     Weighted-average exercise   Number of securities remaining
                                           issued upon exercise of          price of outstanding      available for future issuance
                 Plan                        outstanding options                  options            under equity compensation plans
------------------------------------      --------------------------     -------------------------   -------------------------------
<S>                                       <C>                            <C>                         <C>
Equity compensation plan approved by                       4,990,000                       $0.18                          260,000
   security holders (1)
</TABLE>

(1)   Omnibus Equity Incentive Plan

Following  is a summary of the status of the options  during the years  December
31, 2005 and 2004:

<TABLE>
<CAPTION>
                                                                               Weighted Average
                                                          Number of Shares      Exercise Price
                                                         -----------------    -----------------
<S>                                                      <C>                  <C>
Outstanding at December 31, 2003                                 6,087,953    $            0.16
Granted                                                            270,000                 0.16
Exercised                                                               --                   --
Forfeited                                                               --                   --
                                                         -----------------    -----------------
Options outstanding at December 31, 2004                         6,357,953    $            0.17
Granted                                                          5,178,453                 0.15
Exercised                                                               --                   --
Forfeited/Expired                                               (2,637,953)               (0.14)
                                                         -----------------    -----------------

Options outstanding at December 31, 2005                         8,898,453    $            0.16
                                                         =================    =================
Weighted average fair value of options granted in 2005                        $            0.10
                                                         =================    =================
Options exercisable at December 31, 2005                         7,698,453    $            0.17
                                                         =================    =================
</TABLE>

Summarized  information  about stock  options  outstanding  and  exercisable  at
December 31, 2005 is as follows:

                                      F-19
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
--------------------------------------------------------------------------------


                                Outstanding Options
                -------------------------------------------------
   Exercise        Number     Weighted Average   Weighted Average
 Price Range     of Shares     Remaining  Life    Exercise Price
-------------   -----------   ----------------   ----------------
$0.10 - $0.42     8,898,453               6.41   $           0.16

                                Exercisable Options
                -------------------------------------------------
   Exercise        Number     Weighted Average   Weighted Average
 Price Range     of Shares     Remaining  Life    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    Weighted Average       Average
                 Warrants     Remaining  Life    Exercise Price
                -----------   ----------------   ----------------
Outstanding       5,504,227               4.11   $           0.16
Exercisable       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
<PAGE>

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 accrual of interest  through the  maturity  date of September
30, 2005,  if the holders  would  convert  prior to April 30,  2004.  All of the
remaining  debt was  converted  to common  stock as of March 31, 2004 under this
offer.

2002 Convertible Notes due September 30, 2004

During the year ended December 31, 2002, the Company sold in a private placement
to accredited  investors 2002  Subordinated  Convertible  Pay-in-kind  Notes due
September 30, 2004  ("2002-2005  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.


                                      F-21
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
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. At December 31,
2005 and 2004,  all but $5,000 of the  remaining  debt was  converted  to common
stock under this offer.

2002 Convertible Notes due June 1, 2006

During the year ended December 31, 2002, the Company sold in a private placement
to accredited investors 2002 Subordinated Convertible Pay-in-kind Notes due June
1, 2006 ("2002-2006 convertible notes") in the principal amount of $3,055,000 in
cash. The interest rate of the 2002-2006  convertible notes is 11% per annum for
$2,555,000 of the debt,  and 12.5% per annum for $500,000 of the debt.  Interest
is payable semi-annually in cash or through the issuance of additional 2002-2006
convertible  notes.  As  of  December  31,  2005,  unpaid  accrued  interest  of
$1,428,085  has been  converted to additional  convertible  debt,  which totaled
$4,483,085 at year end.

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


                                      F-22
<PAGE>

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.

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

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.



                                      F-23
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 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 3rd 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, 2004
                        ---------------------     ------------------------
                         Amount      Percent        Amount       Percent
Federal tax (benefit)   $(483,000)       (34)%   $  (810,000)         (34)%
State tax (benefit)      (114,000)        (8)%      (191,000)          (8)%
Valuation allowance       597,000         42%      1,001,000           42%
                        ---------    -------     -----------    ---------
                        $      --         --     $        --           --
                        =========    =======     ===========    =========

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

Significant  components of the deferred tax assets at December 31, 2005 and 2004
are as follows:

                                                 December 31,    December 31,
                                                     2005           2004
                                                 ------------    ------------
Deferred tax asset:
    Net operating loss carryforwards             $  4,040,000    $  3,236,000
    General business credit carryforwards              95,000          74,000
    Excess book accumulated amortization               24,000          29,000
                                                 ------------    ------------
                                                    4,159,000       3,339,000
Deferred tax liabilities:
    Excess tax accumulated depreciation                 3,000           3,000
                                                 ------------    ------------
Total deferred tax asset                            4,156,000       3,336,000
    Valuation allowance for deferred tax asset     (4,156,000)     (3,336,000)
                                                 ------------    ------------
Net deferred tax asset                           $         --    $         --
                                                 ============    ============


                                      F-24
<PAGE>

ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
--------------------------------------------------------------------------------


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 $883,000,  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.

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.


                                      F-25