<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-QSB

                                   (Mark One)

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
                 Act of 1934 for the period ended June 30, 2001

                                       OR

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
  Act of 1934 for the transition period from _____________ to _______________

                         Commission file number 0-26323

                            ADVANCED BIOTHERAPY, INC.
             (Exact name or registrant as specified in its charter)

Delaware                                                  95-4066865
(State of 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)

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

Indicate by mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for 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.

[X] YES             [ ] NO

As of June 30, 2001, the Registrant had 39,848,265 shares of common stock,
$0.001 par value, outstanding.

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

<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM                                                                                  PAGE
<S>                                                                                   <C>
                                     PART I.

1.   Financial Statements

       a.   Accountant's Review Report                                                  3

       b.   Balance Sheets -- June 30, 2001 (unaudited) and December 31, 2000           4

       c.   Statements of Operations -- Three Months Ended June 30, 2001, June 30,
            2000, Six Months Ended June 30, 2001, June 30, 2000 and from Inception
            through June 30, 2001                                                       5

       d.   Statements of Stockholders' Equity (Deficit)                                6

       e.   Statement's of Cash Flows -- Six Months Ended June 30, 2001, June 30,
            2000 and from Inception through June 30, 2001                               7

       f.   Notes to Financial Statements                                               9

2.   Management's Discussion and Analysis of Financial Condition and Results of
     Operations                                                                        22

                                    PART II.

5.   Other Information                                                                 24

6.   Exhibits and Reports on Form 8-K                                                  24
</TABLE>
<PAGE>   3

                                     PART I

ITEM 1. FINANCIAL STATEMENTS

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


                           ACCOUNTANT'S REVIEW REPORT

We have reviewed the accompanying balance sheet of Advanced Biotherapy, Inc.,
formerly Advanced Biotherapy Concepts, Inc. (a development stage company) as of
June 30, 2001, and the related statements of operations, stockholders' equity,
and cash flows for the six months ended June 30, 2001 and 2000 and for the
period from December 2, 1985 (inception) to June 30, 2001. All information
included in these financial statements is the representation of the management
of Advanced Biotherapy, Inc.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with accounting principles generally accepted in the United States of
America.

The financial statements for the year ended December 31, 2000 were audited by us
and we expressed an unqualified opinion on it in our report dated March 6, 2001.
We have not performed any auditing procedures since that date.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has generated little revenue in the past
years, and has suffered recurring losses from operations resulting in an
accumulated deficit of $4,587,157 at June 30, 2001. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding this issue are also discussed in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.



Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
July 25, 2001

<PAGE>   4

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)

                                 BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                            June 30,
                                                                              2001          December 31,
                                                                          (Unaudited)          2000
                                                                          -----------       -----------
<S>                                                                       <C>               <C>
CURRENT ASSETS
  Cash                                                                    $    53,928       $   758,267
  Deposits and prepaid expenses                                                26,477            32,692
                                                                          -----------       -----------
                                Total Current Assets                           80,405           790,959
                                                                          -----------       -----------

PROPERTY AND EQUIPMENT, net of depreciation                                     6,238            10,287
                                                                          -----------       -----------

OTHER ASSETS
   Notes receivable - related party                                           246,619           246,619
   Interest receivable                                                         29,105            15,548
   Investments                                                                250,432                --
   Deferred loan origination fees, net of accumulated amortization             88,647           102,503
   Patents and patents pending, net of accumulated amortization               227,411           173,509
                                                                          -----------       -----------
                                Total Other Assets                            842,214           538,179
                                                                          -----------       -----------

TOTAL ASSETS                                                              $   928,857       $ 1,339,425
                                                                          ===========       ===========


                             LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
  Accounts payable                                                        $    85,261       $    46,609
                                                                          -----------       -----------
                                Total Current Liabilities                      85,261            46,609
                                                                          -----------       -----------

LONG-TERM DEBT
  Convertible notes payable                                                 1,637,431         1,560,169
  Notes payable to related parties                                            127,631           127,631
                                                                          -----------       -----------
                                         Total Long-Term Debt               1,765,062         1,687,800
                                                                          -----------       -----------

                                Total Liabilities                           1,850,323         1,734,409
                                                                          -----------       -----------

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

STOCKHOLDERS' EQUITY (DEFICIT)
   Common stock, par value $0.001 per share; 100,000,000 shares
      authorized; 39,848,265 shares issued and outstanding                     39,848            39,848
   Additional paid-in capital                                               3,238,640         3,233,890
   Stock options and warrants                                                 387,203           379,403
   Deficit accumulated during development stage                            (4,587,157)       (4,048,125)
                                                                          -----------       -----------
                                Total Stockholders' Equity (Deficit)         (921,466)         (394,984)
                                                                          -----------       -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)                      $   928,857       $ 1,339,425
                                                                          ===========       ===========
</TABLE>


<PAGE>   5

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                              From Inception
                                                                                                            (December 2, 1985)
                                            Three Months Ended June 30,        Six Months Ended June 30,          Through
                                               2001             2000            2001             2000          June 30, 2001
                                           (Unaudited)       (Unaudited)     (Unaudited)      (Unaudited)       (Unaudited)
                                           ------------     ------------     ------------     ------------     ------------
<S>                                        <C>              <C>              <C>              <C>              <C>
REVENUES                                   $         --     $         --     $         --     $         --     $     89,947
                                           ------------     ------------     ------------     ------------     ------------

OPERATING EXPENSES
   Research and development                      39,479            5,044           66,408            5,692        2,211,033
   Promotional fees                                (375)              --              625               --            8,183
   Professional fees                            101,752           53,865          179,380          243,203        1,731,739
   Depreciation and amortization                 12,037            2,975           23,579            5,602          455,583
   Salaries and benefits                         11,576           13,757           84,185           13,757        1,010,299
   Insurance                                     11,500               --           23,959               --           34,857
   Shareholder relations and
     transfer fees                                5,070            5,485           10,421            7,210          158,180
   Rent                                          18,943              450           27,979              900          150,133
   Travel and entertainment                       7,965               --           22,998               --           84,358
   Telephone and communications                   3,914               --           10,852               --           25,468
   Office                                         3,845               --           12,291               --           40,203
   General and administrative                     8,494           40,097           14,032           53,307          582,030
                                           ------------     ------------     ------------     ------------     ------------
      Total Operating Expenses                  224,200          121,673          476,709          329,671        6,492,066
                                           ------------     ------------     ------------     ------------     ------------

Loss from operations                           (224,200)        (121,673)        (476,709)        (329,671)      (6,402,119)

Other income (expense)
   Miscellaneous income                              --               --               --               --           22,000
   Interest income                                7,885            4,066           21,013            7,632           52,104
   Internal gain on sale of
     securities                                      --           28,075               --          157,520          157,520
   Accounts payable forgiveness                      --               --               --               --           45,396
   Loss on disposal of office
     equipment                                   (2,224)              --           (2,224)              --           (2,224)
   Interest expense                             (40,801)          (3,579)         (81,112)          (5,569)        (507,271)
                                           ------------     ------------     ------------     ------------     ------------
      Total Other Income (Expense)              (35,140)          28,562          (62,323)         159,583         (232,475)
                                           ------------     ------------     ------------     ------------     ------------

Loss before extraordinary item                 (259,340)         (93,111)        (539,032)        (170,088)      (6,634,594)

Extraordinary item, forgiveness of debt              --               --               --               --        2,047,437
                                           ------------     ------------     ------------     ------------     ------------

NET INCOME (LOSS)                          $   (259,340)    $    (93,111)    $   (539,032)    $   (170,088)    $ (4,587,157)
                                           ============     ============     ============     ============     ============

BASIC AND DILUTED NET INCOME (LOSS)
  PER COMMON SHARE                         $      (0.01)           $ nil     $      (0.01)           $ nil     $      (0.20)
                                           ============     ============     ============     ============     ============

WEIGHTED AVERAGE NUMBER OF
BASIC AND DILUTED COMMON STOCK
SHARES OUTSTANDING                           39,848,265       39,398,265       39,848,265       38,842,221       22,735,731
                                           ============     ============     ============     ============     ============
</TABLE>


<PAGE>   6

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)

                   STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)


<TABLE>
<CAPTION>
                                                                                                                  DEFICIT
                                                                                                                ACCUMULATED
                                          COMMON STOCK            ADDITIONAL                       STOCK          DURING
                                    -----------------------        PAID-IN           STOCK       OPTIONS AND    DEVELOPMENT
                                      SHARES         AMOUNT        CAPITAL       SUBSCRIPTIONS    WARRANTS         STAGE
                                    ----------      -------      -----------       --------       --------      -----------
<S>                                 <C>             <C>          <C>             <C>             <C>           <C>
Balance, December 31, 1999          30,198,265      $30,198      $ 2,770,305       $(32,500)      $210,738      $(3,394,855)

Contribution of capital by
 shareholders in form of
 foregone interest and rent                 --           --            9,735             --             --               --

Stock subscriptions paid                    --           --               --         32,500             --               --

Stock issued as part of stock
 bonus plan in exchange for
 loan payable and notes
 receivable at $0.05 per share       9,200,000        9,200          450,800             --             --               --

Stock warrants issued in
 exchange for services                      --           --               --             --        168,665               --

Stock issued for cash at
 $0.01 from the exercise of
 options                               350,000          350            3,150             --             --               --

Stock adjustment                       100,000          100             (100)            --             --               --

Net loss for the year ended
 December 31, 2000                          --           --               --             --             --         (653,270)

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

Balance, December 31, 2000          39,848,265       39,848        3,233,890             --        379,403       (4,048,125)

Contribution of capital by
 shareholders in of
 foregone interest and rent                 --           --            4,750             --             --               --

Stock warrants issued in
 exchange for services                      --           --               --             --          7,800               --

Net loss for the six months
 ended June 30, 2001                        --           --               --             --             --         (539,032)
                                    ----------      -------      -----------       --------       --------      -----------

Balance, June 30, 2001
(Unaudited)                         39,848,265      $39,848      $ 3,238,640       $     --       $387,203      $(4,587,157)
                                    ==========      =======      ===========       ========       ========      ===========
</TABLE>

Summary of required information regarding stock issuances can be found in
Note 9.


<PAGE>   7
                           ADVANCED BIOTHERAPY, INC.
                 (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                         From Inception
                                                                                       (December 2, 1985)
                                                          Six Months Ended June 30,         through
                                                             2001           2000         June 30, 2001
                                                         (Unaudited)     (Unaudited)      (Unaudited)
                                                          ---------       ---------       -----------
<S>                                                      <C>             <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                         $(539,032)      $(170,088)      $(4,587,157)
     Extraordinary gain                                          --              --        (1,684,068)
Adjustments to reconcile net loss to cash
  used in operating activities:
     Depreciation and amortization                           23,579           5,602           455,583
     Loss on disposal of equipment                            2,224              --             2,224
     Investment income                                           --        (157,520)         (157,520)
     Expenses paid through issuance
       of common stock                                           --              --           231,340
     Expenses paid through issuance
       of common stock warrants                               7,800         168,665           176,465
     Interest expense accrued to convertible debt            77,262              --           126,931
     Expenses paid through contribution
       of additional paid in capital                          4,750           4,905            42,583
     Organization costs                                          --              --            (9,220)
     Decrease (increase) in:
         Deposits and prepaid expenses                        6,215              --           (26,477)
         Interest receivable                                (13,556)         (7,489)          (29,104)
         Deferred loan origination cost                          --              --          (113,288)
     Increase (decrease) in:
         Accounts payable                                    38,652          (9,916)           85,261
         Accounts and notes payable, related parties             --        (129,444)          127,631
         Payroll and payroll taxes payable                       --              --         1,682,984
         Accrued interest                                        --           1,564             9,962
                                                          ---------       ---------       -----------

Net cash used in operating activities                      (392,106)       (293,721)       (3,665,870)

CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of fixed assets                                    --              --           (48,003)
     Internal gain on sale of securities                         --         157,520           157,520
     Purchase of investments                               (250,432)             --          (250,432)
     Acquisition of patents                                 (61,801)        (23,673)         (312,922)
                                                          ---------       ---------       -----------

Net cash used in investing activities                      (312,233)        133,847          (453,837)
</TABLE>


<PAGE>   8

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)

                      STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<S>                                                      <C>             <C>           <C>
CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from issuance of common stock                      --          32,500         2,449,754
     Proceeds from convertible note                              --              --         1,510,500
     Proceeds from notes payable                                 --         100,000           388,508
     Payments on notes payable                                   --              --          (175,127)
                                                          ---------       ---------       -----------
Net cash provided by financing activities                        --         132,500         4,173,635
                                                          ---------       ---------       -----------

Net increase (decrease) in cash                            (704,339)        (27,374)           53,928

Cash, beginning                                             758,267          34,958                --
                                                          ---------       ---------       -----------

Cash, ending                                              $  53,928       $   7,584       $    53,928
                                                          =========       =========       ===========

Supplemental cash flow disclosures:

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

NON-CASH FINANCING AND INVESTING ACTIVITIES:

     Common stock issued in exchange for
       professional fees and expenses                     $      --       $      --       $   340,869
     Contributed expenses                                 $   4,750       $   4,950       $    42,583
     Common stock issued for a loan payable               $      --       $ 213,381       $   213,381
     Common stock issued for notes receivable             $      --       $ 246,619       $   246,619
     Warrants issued for services                         $   7,800       $ 168,665       $   176,465
     Accrued interest paid by convertible debt            $  77,262       $      --       $   126,931

</TABLE>


<PAGE>   9

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2001


NOTE 1 -- ORGANIZATION AND DESCRIPTION OF BUSINESS

Advanced Biotherapy, Inc. (formerly Advanced Biotherapy Concepts, Inc.) was
originally incorporated December 2, 1985 under the laws of the State of Nevada.
The Company is involved in the research and development of the treatment of
autoimmune diseases in humans, most notably, multiple sclerosis and rheumatoid
arthritis. The Company conducts its research in Maryland. The Company's fiscal
year-end is December 31. The Company is a development stage enterprise.

On July 14, 2000, the Company incorporated a wholly owned subsidiary, Advanced
Biotherapy, Inc. in the state of Delaware. On September 1, 2000, the Company
merged with its wholly owned subsidiary, effectively changing its name to
Advanced Biotherapy, Inc. (hereinafter "the Company") and its domicile to
Delaware.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Development Stage Activities

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

Going Concern

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

As shown in the accompanying financial statements, the Company incurred a net
loss of $539,032 for the six months ended June 30, 2001. At June 30, 2001, the
Company has an accumulated deficit during the development stage of $4,587,157.
The future of the Company is dependent upon future profitable operations from
the commercial success of its medical research and development of products to
combat diseases of the human immune system and products for treatment of viral
and bacterial diseases of animals. Management has established plans designed to
increase the capitalization of the Company and is actively seeking additional
capital that will provide funds needed to fund the research and development and
therefore the internal growth of the Company in order to fully implement its
business plans. For the twelve-month period subsequent to June 30, 2001, the
Company anticipates that its minimum cash requirements to continue as a going
concern will be less than $800,000. The anticipated source of funds may be the
issuance for cash of additional debt and/or equity instruments. See Note 13. In
addition, management is actively seeking a collaborative relationship with
either a pharmaceutical or biotechnology company. If successful, cash
requirements may be met through royalty or licensing fees. 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.


<PAGE>   10

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2001

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounting Method

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

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.

Provision for Taxes

Income taxes are provided based upon the liability method of accounting pursuant
to SFAS No. 109 "Accounting for Income Taxes." Under this approach, deferred
income taxes are recorded to reflect the tax consequences on 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.

At June 30, 2001, the Company had net deferred tax assets of approximately
$1,313,500, principally arising from net operating loss carryforwards for income
tax purposes. As management of the Company cannot determine that it is more
likely than not that the Company will realize the benefit of the net deferred
tax asset, a valuation allowance equal to the net deferred tax asset has been
established at June 30, 2001.

At June 30, 2001, the Company has net operating loss carryforwards of
approximately $3,714,500, which expire in the years 2001 through 2020.

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.

Impaired Asset Policy

In March 1995, the Financial Accounting Standards Board issued a statement
titled "Accounting for Impairment of Long-lived Assets." In complying with this
standard, the Company reviews its long-lived assets quarterly to determine if
any events or changes in circumstances have transpired which indicate that the
carrying value of its assets may not be recoverable. The Company determines
impairment by comparing the undiscounted future cash flows estimated to be
generated by its assets to their respective carrying amounts. The Company does
not believe any adjustments are needed to the carrying value of its assets at
June 30, 2001.

<PAGE>   11

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2001

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Reclassifications

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

Promotional Fees

Promotional fees are charged to operations in the year incurred. Promotional
fees amounted to $625 and $-0- for the six months ended June 30, 2001 and 2000,
respectively.

Interim Financial Statements

The interim financial statements as of and for the quarter ended June 30, 2001,
included herein, have been prepared for the Company without audit. These
statements reflect all adjustments, which are, in the opinion of management,
necessary to present fairly the results of operations for these periods. All
such adjustments are normal recurring adjustments. The results of operations for
the periods presented are not necessarily indicative of the results to be
expected for the full fiscal year.

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. It is impracticable to estimate the amount of compensation for future
absences, and, accordingly, no liability has been recorded in the accompanying
financial statements. The Company's policy is to recognize the costs of
compensated absences when actually paid to employees.

Revenue Recognition

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

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
14. These loan origination fees, which totaled $88,647, net of accumulated
amortization at June 30, 2001, are amortized over the life of the related debt.
During the six months ended June 30, 2001, the Company recorded amortization
expense in the amount of $13,856 related to these fees.



<PAGE>   12

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2001

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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", and SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities", which is effective for the Company as of January 1,
2001. This standard establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the consolidated
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 June 30, 2001, the Company has not engaged in any transactions that would be
considered derivative instruments or hedging activities.

Fair Value of Financial Instruments

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

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. The
following is a summary of property, equipment and accumulated depreciation at
June 30, 2001:

<TABLE>
<CAPTION>
                                         Cost     Accumulated Depreciation
                                        -------          -------
<S>                                     <C>       <C>
Lab equipment                           $27,582          $27,582
Office equipment                         12,874            6,636
Furniture and fixtures                    1,302            1,302
                                        -------          -------
                                        $41,758          $35,520
                                        =======          =======
</TABLE>

Depreciation expense for the six months ended June 30, 2001 was $1,824. There
was no depreciation taken in 2000.



<PAGE>   13

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2001

NOTE 4 -- INVESTMENTS

The Company's investments in debt securities that are intended to be held for an
indefinite period, yet not to maturity, are classified as available-for-sale.
Available-for-sale securities are recorded at fair value under investments in
other assets on the balance sheet with the change in fair value during the
period excluded from earnings and recorded net of tax as a component of other
comprehensive income. At June 30, 2001 the Company's investment included a
single corporate bond. There had not been a material change in the fair value of
the bond at June 30, 2001.

NOTE 5 -- INTANGIBLE ASSETS

Patents and Patents Pending

Costs relating to the development and approval of patents, other than research
and development costs, which are expensed, are capitalized and amortized using
the straight-line method over seventeen years. The Company's patents relate to
the treatment of autoimmune diseases.

The following is a summary of the costs of patents and patents pending at June
30, 2001:

<TABLE>
<CAPTION>
                                                    Accumulated
                                      Cost         amortization         Net amount
                                    --------          --------           --------
<S>                                 <C>            <C>                  <C>
Balance, December 31, 1999          $178,236          $(64,917)          $113,319
2000 Activity                         72,884           (12,694)            60,190
                                    --------          --------           --------
Balance, December 31, 2000           251,120           (77,611)           173,509
2001 Activity                         61,802            (7,900)            53,902
                                    --------          --------           --------
Balance, June 30, 2001              $312,922          $(85,511)          $227,411
                                    ========          ========           ========
</TABLE>

NOTE 6 -- RELATED PARTY TRANSACTIONS

Transactions in 2000

The Company has notes receivable in the amount of $246,619 from 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 are payable on
December 31, 2002.

Notes payable to related parties consist of notes payable to the former chairman
and principal shareholder. During 2000, $85,750 of the notes was used to offset
a bonus stock sale. 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. This interest was recorded as
interest expense and contributed capital in the accompanying financial
statements.



<PAGE>   14

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2001

NOTE 6 -- RELATED PARTY TRANSACTIONS (CONTINUED)

Transactions in 1999

The Company's former chairman and principal shareholder has advanced funds to
pay a significant portion of the Company's expenses since 1989. At December 31,
1999, the cumulative amounts owed to him for expenses amount to $257,076. Even
though he was not charging interest to the Company, interest was calculated at
the applicable federal rate of 5.59% at December 31, 1999. This interest was
recorded as interest expense and contributed capital in the accompanying
financial statements. During 2000, the Company paid part of this note and the
balance was used to offset a bonus stock sale to the chairman. At December 31,
1998, the amounts owing for accrued salary was $1,146,000. During 1999,
additional salary was accrued in the amount of $100,000. At December 31, 1999,
in accordance with an agreement with other employee/shareholders of the Company,
he received options to purchase 623,000 shares of common stock at $0.10 per
share. The value of these options, in the amount of $155,750, was used to reduce
his accrued salary. See Note 11. In 1999, he forgave the balance of accrued
salary of $1,090,250 along with accrued interest of $9,962. This is recorded in
the financial statements as a component of extraordinary income in 1999.

At December 31, 1999, the Company owed its then secretary/treasurer $13,381 for
expenses paid in previous years and recorded in notes payable. During 2000, this
note was used as partial payment for a bonus stock purchase by the
secretary/treasurer. At December 31, 1998 the Company also owed this employee
$184,000 in unpaid salary recorded as salary payable. During 1999, additional
salary in the amount of $45,000 was accrued for this employee. At December 31,
1999, in accordance with an agreement with other employee/shareholders of the
Company, she received options to purchase 114,500 shares of common stock at
$0.10 per share. The value of these options, in the amount of $28,625, was used
to reduce the accrued salary of this employee/shareholder. See Note 11. In 1999,
she forgave the balance of accrued salary in the amount of $200,375. This is
recorded in the financial statements as a component of extraordinary income in
1999.

At December 31, 1998, the then president of the Company was owed $171,360 in
accrued salary. During 1999, a portion of this liability was paid. Also during
1999, additional salary in the amount of $75,000 was accrued. At December 31,
1999, in accordance with an agreement with other employee/shareholders of the
Company, he received options to purchase 105,453 shares of common stock at $0.10
per share. The value of these options in the amount of $26,363 was used to
reduce the accrued salary of the president. See Note 11. In 1999, he forgave the
balance of accrued salary in the amount of $181,622. This is recorded in the
financial statements as a component of extraordinary income in 1999.

Transactions Involving Leased Space

During 2000, the Company received the use of approximately 3,500 square feet of
commercial building space on a rent-free basis from a firm owned by one of the
Company's directors. The utilization of the facility in this manner was mutually
beneficial to the Company and the owner of this otherwise empty facility. No
formal agreement memorialized this month-to-month arrangement. The value of the
use of the facility was approximately $150 per month, and was recorded in the
financial statements as rent expense and contributed capital.

During 2000 the Company leased office space from a company owned in part by a
shareholder. The minimum base lease payment was $4,800 annually. This lease was
terminated effective December 31, 2000. See Note 15.



<PAGE>   15

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2001

NOTE 7 -- INTERNAL GAIN ON SALE OF SECURITIES

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

NOTE 8 -- CONCENTRATIONS

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
$53,928 is at risk.

NOTE 9 -- COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

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

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

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

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

Common stock issued for note receivable:
 1986                                                    1.00              10,000            10             9,990
 2000                                                     .05           4,932,380         4,932           241,687
                                                                        ----------      --------       -----------
                                                                         4,942,380         4,942           251,677
                                                                        ----------      --------       -----------
</TABLE>


<PAGE>   16

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)
                         NOTES TO FINANCIAL STATEMENTS
                                 JUNE 30, 2001


NOTE 9 -- COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL (CONTINUED)

<TABLE>
<CAPTION>
                                                                   Common Stock
                                                    --------------------------------------------
                                                     Average
                                                    price per                                          Additional
                                                      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                                                        --                  --            --             4,750
                                                                        ----------      --------       -----------
                                                                                --            --            78,408
                                                                        ----------      --------       -----------

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

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

Common stock issued for services (1):
1988                                                       .50              25,000            25            12,475
1989                                                       .38              25,000            25             9,475
1990                                                       .66              37,375            37            24,635
1991                                                       .51             159,500           160            81,010
1992                                                       .75              62,500            62            46,563
1993                                                       .25             120,000           120            29,880
1996                                                       .05             308,500           308            13,832
1997                                                       .05             155,500           155             7,619
1999                                                       .05              99,190            99             4,860
                                                                        ----------      --------       -----------
                                                                           992,565           991           230,349
                                                                        ----------      --------       -----------

Common stock issued to replace unrecorded
 certificates:
1988                                                      .001               1,200             1                (1)
1992                                                      .001                 500             1                (1)
2000                                                      .001             100,000           100              (100)
                                                                        ----------      --------       -----------
                                                                           101,700           102              (102)
                                                                        ----------      --------       -----------

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

<PAGE>   17

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)
                         NOTES TO FINANCIAL STATEMENTS
                                 JUNE 30, 2001


NOTE 9 -- COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL (CONTINUED)


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

Stock options exercised:
1997                                                       .01             325,000           325             2,929
2000                                                       .01             350,000           350             3,150
                                                                        ----------      --------       -----------
                                                                           675,000           675             6,079
                                                                        ----------      --------       -----------
Total                                                                   39,848,265     $  39,848       $ 3,238,640
                                                                        ==========     =========       ===========
</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 of Advanced Biotherapy Concepts, Inc. into its wholly
owned subsidiary, each issued and outstanding share of Advanced Biotherapy
Concepts, Inc. common stock has been converted automatically into one share of
$0.001 par value common stock of Advanced Biotherapy, Inc.

Stock Bonus Plan

On January 11, 2000, the Company issued 9,200,000 shares of common stock to
certain key officers and directors under a stock bonus plan, subject to various
restrictions. The plan's purpose is to keep 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. 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.

Omnibus Equity Incentive Plan

During December 2000, the Board of Directors of the Company approved an Equity
Incentive Plan. A maximum of 4,000,000 shares of common stock will be available
for the incentive plan with annual increases equal to the lesser of 2.5% of
outstanding shares or 250,000 shares.


<PAGE>   18

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2001

NOTE 10 -- PREFERRED STOCK

With the merger into its Delaware subsidiary, the Company has authorized
20,000,000 shares of $0.001 par value preferred stock authorized. As of June 30,
2001 and as of the date of these financial statements, the Company has not
issued any of its preferred stock.

NOTE 11 -- STOCK OPTIONS AND ISSUANCE COMMITMENTS

On February 25, 1991, the Corporation granted non-statutory options to purchase
stock to members of its board of directors, officers, and outside consultants.
These remaining options offer a total of 860,000 shares at a price of $0.20 per
share with an exercise period of February 25, 1991, to February 25, 2001. The
expiration of these options has been extended to February 23, 2002. Additional
options were issued effective February 1, 1993, for a total of 250,000 shares at
a price of $0.01 per share, with an exercise period of February 1, 1993, to
February 1, 2003. During 1995, options for 50,000 shares were granted at $0.20
per share, which expire in 2005. Also in 1995, options for 350,000 shares were
granted at $0.01 per share expiring in 2005. During 1996, options for 525,000
shares were granted at $0.10 per share, which expire in 2006. The shares
purchased will be restricted and, therefore, may not be transferred without
registration under applicable Federal and State securities laws.

Stock options granted to a director of the Company for 325,000 shares at a price
of $.01 were exercised in 1997. On December 31, 1999, three officers of the
Company received 842,953 stock options in partial payment of accrued salaries in
the amount of $210,738. In addition the same three officers forgave the balance
of their accrued salaries and interest in the amount of $1,482,209. See Note 6.
In accordance with Statement of Financial Accounting Standard No. 123, the fair
value of the options was estimated using the Black Scholes Option Price
Calculation. The following assumptions were made to value the stock options:
strike price at $0.10, risk free interest rate of 5%, expected life of 5 years,
and expected volatility of 30% and no dividends are expected to be paid. At
December 31, 1999, the Company recorded $210,738 ($0.25 per options) to reduce
accrued wages for the value of these options based upon these Black Scholes
assumptions. These stock options are exercisable immediately, and expire on
December 31, 2005. See Note 6. During the six months ended June 30, 2001, no
options were exercised and for the year ended December 31, 2000, 350,000 options
were exercised at $0.01 per share.

Following is a summary of the status of the options during the six months ended
June 30, 2001 and the year ended December 31, 2000:

<TABLE>
<CAPTION>
                                                             Weighted Average
                                          Number of Shares    Exercise Price
                                              ---------          ---------
<S>                                       <C>                <C>
Outstanding at January 1, 2000                2,877,953          $     .10
Granted                                              --                 --
Exercised                                      (350,000)               .01
Forfeited                                            --                 --
                                              ---------          ---------
Outstanding at December 31, 2000              2,527,953                .11
Granted                                              --                 --
Exercised                                            --                 --
Forfeited                                            --                 --
                                              ---------          ---------
Outstanding at June 30, 2001                  2,527,953                .11
                                              =========          =========

Options exercisable at June 30, 2001          2,527,953          $     .11
                                              =========          =========

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

                                              =========          =========
</TABLE>

<PAGE>   19

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2001


NOTE 11 -- STOCK OPTIONS AND ISSUANCE COMMITMENTS (CONTINUED)

During January 2001, the Company enacted an Equity Incentive Plan for the
issuance of stock options to employees, outside directors and consultants. See
Note 16.

NOTE 12 -- INCOME (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 stock options, warrants, and convertible
debt. Diluted net loss per share is the same as basic net loss per share as
inclusion of the common stock equivalents would be antidilutive. All effective
dilutions are reflected in the accompanying statements of operations.

Required earnings per share information related to extraordinary income is as
follows:

<TABLE>
<CAPTION>
                                                                          From Inception
                                                                         (December 2, 1985)
                                                June 30,      June 30,       through
                                                  2001          2000       June 30, 2001
                                                --------       -------    -----------------
<S>                                             <C>           <C>        <C>
Earnings per share
         Extraordinary gains                     $  --          $  --          $0.09
                                                 =====          =====          =====

Earnings per share -- assuming dilution
         Extraordinary gains                     $  --          $  --          $0.09
                                                 =====          =====          =====
</TABLE>

NOTE 13 -- NON-CASH COMMITMENT AND WARRANTS

On May 25, 2001, the Company issued to a director of the Company warrants to
purchase up to 100,000 shares of common stock with an exercise price of $0.25
per share. The warrants expire on May 8, 2005. During the period ended June 30,
2001, the Company recorded $7,800 as consulting fees for these warrants.

On January 19, 2000, the Company engaged an investment banking firm and, as
partial compensation for its services, issued warrants to purchase up to
4,685,135 shares of the Company's common stock with an exercise price of $0.15
per share. The warrants are exercisable for ten years. In accordance with
Statement of Financial Accounting Standards No. 123, the fair value of the
warrants was estimated using the Black Scholes Option Price Calculation. The
following assumptions were made to value the warrants: strike price at $0.09,
risk free interest rate of 6.2%, expected life of 10 years, and expected
volatility of 30%. During the year ended December 31, 2000, the Company recorded
$168,665 as consulting fees for the aforementioned investment banking firm
services. A cash-less exercise may be used for all warrant transactions. No fees
are payable to the investment advisor in connection with the exercise of the
warrants, which contain full, unconditional piggy-back registration rights
without any holdback obligations.


<PAGE>   20

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2001

NOTE 13 -- NON-CASH COMMITMENT AND WARRANTS (CONTINUED)

At June 30, 2001, the exercisable warrants are 4,785,135. The average exercise
price of the warrants at June 30, 2001 is $0.15 per share.

Subsequently, on July 23, 2001, the Company issued warrants to purchase up to
300,000 shares of common stock to new directors of the Company. The warrants
have an exercise price of $0.25 per share and expire on May 8, 2005.

NOTE 14 -- CONVERTIBLE DEBT

During the year ended December 31, 2000, the Company sold in a private placement
to accredited investors $1,510,500 of convertible subordinated debt due and
payable September 30, 2004. The debt bears interest at the rate of 10% per annum
and is payable semi-annually in cash or additional convertible subordinated
debt. The unpaid accrued interest at June 30, 2001 and December 31, 2000 of
$77,262 and $49,669, respectively, was re-characterized as additional
convertible debt. This debt is convertible into shares of Company common stock
at a conversion price equal to $0.25 per share, subject to certain anti-dilution
provisions. The Company offered the convertible subordinated debt pursuant to
Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of
Regulation D, promulgated under the Securities Act. In connection with the
placement of the debt, the Company paid a loan origination fee of $113,288 to
its financial advisor, in additional to the granting of an option to purchase an
equivalent principal amount of convertible subordinated debt at the face amount
thereof over a period of ten years. The aforementioned fee is currently included
in other assets and is being amortized over the term of the debt. Amortization
for the six months ended June 30, 2001 was $13,865.

NOTE 15 -- COMMITMENTS AND CONTINGENCIES

Office Lease

The Company leased office space from a related party during 2000 at a minimum
annual rate of $4,800. This lease was terminated effective December 31, 2000.

During January 2001, the Company signed an office lease agreement for three
years beginning March 1, 2001. The lease calls for monthly rental payments of
$3,600 plus its portion of operating expenses with an annual escalation clause
of 4%. The lease required a $15,580 deposit. Effective June 28, 2001, the
Company cancelled this lease. The cost of such cancellation included the payment
of rent for the months of July and August 2001 in the amount of $7,200, and the
payment of a broker's commission of approximately $6,700.

Consulting Contract

During July 2000, the Company signed a contract with a consultant to provide
information on possible partnering companies to divest or license certain rights
to its technologies or products. The contract calls for the payment of a $5,000
monthly retainer. This contract can be cancelled with a 60 day written notice.
On January 24, 2001, the contract was modified to waive the termination notice.
The contract was terminated effective February 1, 2001.

<PAGE>   21

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2001


NOTE 15 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)

Financial Services Agreement

During January 2001, the Company signed a contract with a financial advisor to
provide information on possible candidates for acquisition, merger or
combination. The contract term is for two months and continues thereafter on a
month-to-month basis. A monthly retainer of $3,000 is payable and is credited
toward the fee if a successful candidate is found. The contract was terminated
effective March 31, 2001.

NOTE 16 -- SUBSEQUENT EVENTS

On July 23, 2001, the Company issued warrants to purchase up to 300,000 shares
of common stock to new directors of the Company. The warrants have an exercise
price of $0.25 per share and expire on May 8, 2005.






<PAGE>   22

                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)


ITEM 2. 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. Investors are cautioned that
forward-looking statements or projections made by the Company, including those
made in this document, are subject to risks and uncertainties that may cause
actual results to differ materially from those projected. 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: availability of capital for research and development; availability
for capital for clinical trials; opportunities for joint ventures and corporate
partnering; opportunities for mergers and acquisitions to expand the Company's
biotechnology base or acquire revenue generating products; the results of
preclinical and clinical trials, if any; regulatory approvals of product
candidates new indications and manufacturing facilities; health care guidelines
and policies relating to prospective Company products; intellectual property
matters (patents); and 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, and Factors That May Affect
the Company, and the section entitled "Market for Registrant's Common Stock and
Related Stockholder Matters", all contained in the Company's Annual Report (Form
10-KSB) for the fiscal year ended December 31, 2000.

Results of Operations

Liquidity and Capital Resources

        As of June 30, 2001, the Company has issued and outstanding 39,848,265
shares of its Common Stock. The Company is a development stage company and has
no material assets other than cash. The Company had $304,360 in cash and
short-term investments as of June 30, 2001. For the twelve-month period
subsequent to June 30, 2001, the Company anticipates that its minimum cash
requirements to continue as a going concern will be less than $800,000, and
therefore, believes that it has inadequate cash to maintain operations during
that period. In order to meet the foregoing cash requirements, the Company will
have to raise additional capital or obtain loans. There is no assurance,
however, that the Company will be able to raise additional capital or obtain
loans. The Company's objective is to establish collaborative relationships with
either a pharmaceutical or biotechnological company that could result in the
generation of royalty payments to the Company. As of the date hereof, the
Company has not entered into agreements with any pharmaceutical or
biotechnological companies. In the event that the Company does not raise
additional capital from any of the foregoing sources, it may have to curtail
operations. The Company is also seeking out merger and acquisition candidates
that can either expand the Company's technology base in the area of autoimmune
disease therapeutics or bring FDA-approved products into the Company that will
generate recurring revenue and cash flow.

Three Months Ended June 30, 2001 and 2000

For the three months ended June 30, 2001, the Company realized a net loss of
$259,340 compared to a net loss of $93,111 for the three months ended June 30,
2000, which $93,111 represented a loss from operations of $121,673 reduced by an
extraordinary internal gain on sale of securities. The Company had increases in
expenses over 2000 related to the following: professional fees in the amount of
$47,887 principally due to increased legal fees related to its regulatory filing
requirements with the Securities and Exchange Commission and other corporate
matters, increased research and development expenses in the amount of $34,435,
increased insurance in the amount of $11,500, increased depreciation and
amortization in the amount of $9,029, increased rent in the amount of


<PAGE>   23


                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

$18,493, and increased interest expense in the amount of $37,222 related to the
Company's convertible subordinated debt.

Six Months Ended June 30, 2001 and 2000

For the six months ended June 30, 2001, the Company realized a net loss of
$539,032 compared to a net loss of $170,088 for the six months ended June 30,
2000, which $170,088 represented a loss from operations of $329,671 reduced by
an extraordinary internal gain on sale of securities. The Company had increases
in expenses over 2000 related to the following: increased research and
development expenses in the amount of $60,716, increased insurance in the amount
of $23,959, increased depreciation and amortization in the amount of $17,977,
increased rent in the amount of $127,079, increased interest expense in the
amount of $75,543 related to the Company's convertible subordinated debt, and
increased expenditures for legal fees related to its regulatory filing
requirements with the Securities and Exchange Commission, other corporate
matters, and patents and patents pending in the amount of $61,801. During the 6
months ended June 30, 2000, two officers of the Company sold stock at a gain
after purchasing stock through a stock bonus plan. In compliance with the
Securities and Exchange Rule 16b, the stockholders remitted the gains to the
Company. The gains amounted to $129,445 for one officer, $28,075 for the other
officer, both which are reflected in the income statement as internal gain on
sale of securities.




<PAGE>   24


                            ADVANCED BIOTHERAPY, INC.
                  (FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
                        (A DEVELOPMENT STAGE ENTERPRISE)


Part II

        Item 5. Other Information.

                        (a) Effective as of May 25, 2001, Paul J. Marangos
resigned as a director of the Company. As of August 13, 2001, the Company has
eight (8) directors.

        Item 6. Exhibits and Reports on Form 8-K.

                        (b) Reports on Form 8-K. The Company filed a Form 8-K on
April 24, 2001, which reported the resignation of certain officers and the
appointment of Alexander L. Cappello, Chairman of the Board, Edmond F.
Buccellato, Chief Executive Officer and William M. Finkelstein, Chief Financial
Officer.



Dated: August 13, 2001                    ADVANCED BIOTHERAPY, INC.
                                          a Delaware corporation



                                          By: /s/  Edmond Buccellato
                                          Edmond Buccellato, President and
                                          Chief Executive Officer


                                          By: /s/  Thomas J. Pernice
                                          Thomas J. Pernice, Secretary/Treasurer

