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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 September 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
(State of jurisdiction of incorporation or organization) 95-4066865
(IRS Employer 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 September 30, 2001, the Registrant had 39,848,265 shares of common stock, $0.001 par value, outstanding.

—————————————————

TABLE OF CONTENTS

ACCOUNTANT’S REVIEW REPORT

BALANCE SHEETS

STATEMENTS OF OPERATIONS

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

STATEMENTS OF CASH FLOW

NOTES TO FINANCIAL STATEMENTS

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Part II

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

Table of Contents

ADVANCED BIOTHERAPY, INC.
(Formerly Advanced Biotherapy Concepts, Inc.)
(A Development Stage Enterprise)
REVIEWED FINANCIAL STATEMENTS
September 30, 2001
 
 
 
 
 
 

WILLIAMS & WEBSTER PS
Certified Public Accountants
Bank of America Financial Center
W 601 Riverside, Suite 1940
Spokane, WA 99201
(509) 838-5111

Table of Contents

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 September 30, 2001, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the nine months ended September 30, 2001 and 2000 and for the period from December 2, 1985 (inception) to September 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 $4,774,290 at September 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
October 30, 2001

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

BALANCE SHEETS

ASSETS

					September 30,
					2001				December 31,
					(Unaudited)				2000
CURRENT ASSETS
	Cash				$	165,408			$	758,267
	Deposits and prepaid expenses					15,375				32,692
		Total Current Assets				180,783				790,959
PROPERTY AND EQUIPMENT, net of accumulated depreciation						5,563				10,287
OTHER ASSETS
	Notes receivable — related party					246,619				246,619
	Interest receivable					27,571				15,548
	Deferred loan origination fees, net of accumulated amortization					81,719				102,503
	Patents and patents pending, net of accumulated amortization					254,382				173,509
		Total Other Assets				610,291				538,179
TOTAL ASSETS					$	796,637			$	1,339,425
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
	Accounts payable				$	81,582			$	46,609
	Accrued interest on convertible debt					41,272				—
		Total Current Liabilities				122,854				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				1,887,916				1,734,409
COMMITMENTS AND CONTINGENCIES						—				—
STOCKHOLDERS’ EQUITY (DEFICIT)
	Preferred stock, par value $0.001 per share; 20,000,000 shares authorized; no shares issued and outstanding					—				—
	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					3,240,480				3,233,890
	Stock options and warrants					402,683				379,403
	Deficit accumulated during development stage					(4,774,290	)			(4,048,125	)
		Total Stockholders’ Equity (Deficit)				(1,091,279	)			(394,984	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)					$	796,637			$	1,339,425

See accompanying notes and accountant’s review report.

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

STATEMENTS OF OPERATIONS

																				From Inception
				Three Months Ended September 30,								Nine Months Ended September 30,								(December 2, 1985)
																				Through
				2001				2000				2001				2000				September 30, 2001
				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
REVENUES				$	—			$	—			$	—			$	—			$	89,947
OPERATING EXPENSES
	Research and development				33,648				876				100,056				6,568				2,244,681
	Promotional fees				9,761				15,020				10,386				15,020				17,944
	Professional fees				43,807				85,277				223,187				366,556				1,775,546
	Director’s fees				23,280				—				23,280				—				23,280
	Depreciation and amortization				12,235				7,410				35,814				13,012				467,818
	Salaries and benefits				—				81,773				84,185				95,530				1,010,299
	Insurance				10,838				—				34,797				—				45,695
	Shareholder relations and transfer fees				5,319				9,573				15,740				16,783				163,499
	Rent				5,983				5,050				33,962				5,950				156,116
	Travel and entertainment				5,840				—				28,838				—				90,198
	Telephone and communications				176				—				11,028				—				25,644
	Office				3,280				—				15,571				—				43,483
	General and administrative				122				38,768				14,154				53,999				582,152
		Total Operating Expenses			154,289				243,747				630,998				573,418				6,646,355
Loss From Operations					(154,289	)			(243,747	)			(630,998	)			(573,418	)			(6,556,408	)
Other income (expense)
	Miscellaneous income				—				—				—				—				22,000
	Interest income				10,268				8,659				31,281				16,291				62,372
	Internal gain on sale of securities				—				—				—				157,520				157,520
	Accounts payable forgiveness				—				—				—				—				45,396
	Loss on disposal of office equipment				—				—				(2,224	)			—				(2,224	)
	Interest expense				(43,112	)			(16,215	)			(124,224	)			(21,784	)			(550,383	)
		Total Other Income (Expense)			(32,844	)			(7,556	)			(95,167	)			152,027				(265,319	)
Loss Before Income Taxes					(187,133	)			(251,303	)			(726,165	)			(421,391	)			(6,821,727	)
Income Taxes					—				—				—				—				—
Loss Before Extraordinary Item					(187,133	)			(251,303	)			(726,165	)			(421,391	)			(6,821,727	)
Extraordinary item, forgiveness of debt					—				—				—				—				2,047,437
NET (LOSS)				$	(187,133	)		$	(251,303	)		$	(726,165	)		$	(421,391	)		$	(4,774,290	)
BASIC AND DILUTED NET (LOSS) PER COMMON SHARE				$	nil			$	(0.01	)		$	(0.02	)		$	(0.01	)		$	(0.21	)
WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED COMMON STOCK SHARES OUTSTANDING					39,848,265				39,573,265				39,848,265				39,087,681				23,009,436

See accompanying notes and accountant’s review report.

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

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

																						Deficit
		Common Stock																				Accumulated
										Additional								Stock				During
										Paid-in				Stock				Options and				Development
		Shares				Amount				Capital				Subscriptions				Warrants				Stage
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 form of foregone interest and rent			—				—				6,590				—				—				—
Stock warrants issued in exchange for services			—				—				—				—				23,280				—
Net loss for the nine months ended September 30, 2001			—				—				—				—				—				(726,165	)
Balance, September 30, 2001 (Unaudited)			39,848,265			$	39,848			$	3,240,480			$	—			$	402,683			$	(4,774,290	)

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

See accompanying notes and accountant’s review report.

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

STATEMENTS OF CASH FLOW

												From Inception
				Nine Months Ended September 30,								(December 2, 1985)
												through
				2001				2000				September 30, 2001
				(Unaudited)				(Unaudited)				(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)				$	(726,165	)		$	(421,391	)		$	(4,774,290	)
	Extraordinary gain				—				—				(1,684,068	)
Adjustments to reconcile net loss to cash used in operating activities:
	Depreciation and amortization				35,814				13,012				467,818
	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				23,280				168,665				191,945
	Interest expense accrued to convertible debt				77,262				—				126,931
	Expenses paid through contribution of additional paid-in capital				6,590				7,328				44,423
	Organization costs				—				—				(9,220	)
	Decrease (increase) in:
		Deposits and prepaid expenses			17,317				—				(15,375	)
		Interest receivable			(12,023	)			(11,519	)			(27,571	)
		Deferred loan origination cost			—				(88,256	)			(113,288	)
	Increase (decrease) in:
		Accounts payable			34,973				88,024				81,582
		Accounts and notes payable, related parties			—				(129,444	)			127,631
		Payroll and payroll taxes payable			—				21,807				1,682,984
		Accrued interest			41,272				14,822				51,234
Net cash used in operating activities					(499,456	)			(494,472	)			(3,773,220	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchase of fixed assets				—				(4,411	)			(48,003	)
	Internal gain on sale of securities				—				157,520				157,520
	Acquisition of patents				(93,403	)			(52,917	)			(344,524	)
Net cash used in investing activities					(93,403	)			100,192				(235,007	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from issuance of common stock				—				36,000				2,449,754
	Proceeds from convertible notes				—				1,276,750				1,510,500
	Proceeds from notes payable				—				—				388,508
	Payments on notes payable				—				(100,000	)			(175,127	)
Net cash provided by financing activities					—				1,212,750				4,173,635
Net increase (decrease) in cash					(592,859	)			818,470				165,408
Cash, beginning					758,267				34,958				—
Cash, ending				$	165,408			$	853,428			$	165,408
SUPPLEMENTAL CASH FLOW DISCLOSURES:
	Interest expense paid			$	—			$	984			$	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			$	6,590			$	7,328			$	44,423
	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			$	23,280			$	168,665			$	191,945
	Accrued interest paid by convertible debt			$	77,262			$	—			$	126,931

See accompanying notes and accountant’s review report.

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

NOTES TO FINANCIAL STATEMENTS

September 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 $726,165 for the nine months ended September 30, 2001. At September 30, 2001, the Company has an accumulated deficit during the development stage of $4,774,290. 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 September 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.

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ADVANCED BIOTHERAPY, INC.
(FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
September 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 September 30, 2001, the Company had net deferred tax assets of approximately $1,370,000, 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 September 30, 2001, the Company has net operating loss carryforwards of approximately $4,200,000, 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 September 30, 2001.

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ADVANCED BIOTHERAPY, INC.
(FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
September 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 $10,386 and $15,020 for the nine months ended September 30, 2001 and 2000, respectively.

Interim Financial Statements

The interim financial statements as of and for the quarter ended September 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 $81,719, net of accumulated amortization at September 30, 2001, are amortized over the life of the related debt. During the nine months ended September 30, 2001, the Company recorded amortization expense in the amount of $20,784 related to these fees.

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

						Accumulated
		Cost				Depreciation
Lab equipment		$	27,582				27,582
Office equipment			12,874				7,311
Furniture and fixtures			1,302				1,302
		$	41,758				36,195

Depreciation expense for the nine months ended September 30, 2001 and 2000 was $2,499 and $154, respectively.

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ADVANCED BIOTHERAPY, INC.
(FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
September 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. During the quarter ended September 30, 2001, the Company liquidated its investment in a single corporate bond at no gain or loss.

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 September 30, 2001:

						Accumulated
		Cost				amortization				Net amount
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			93,405				(12,532	)			80,873
Balance, September 30, 2001		$	344,525			$	(90,143	)		$	254,382

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.

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

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ADVANCED BIOTHERAPY, INC.
(FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
September 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 stockholders 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 $165,408 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:

		Common Stock
														Additional
		Average price per												Paid-in
		share				Shares				Amount				Capital
Common stock issued for cash:
1985		$	.50				100,000			$	100			$	49,900
1986			1.00				639,500				640				678,861
1987			1.00				850,500				850				759,650
1988			1.00				25,000				25				24,975
1993			.25				2,402,000				2,402				475,900
1995			.05				1,000,000				1,000				49,000
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

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

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

		Common Stock
														Additional
		Average price per												Paid-in
		share				Shares				Amount				Capital
Contribution of additional paid-in capital:
1991		$	—				—			$	—			$	35,825
1999			—				—				—				28,098
2000			—				—				—				9,735
2001			—				—				—				6,590
							—				—				80,248
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

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

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

		Common Stock
														Additional
		Average price per												Paid-in
		share				Shares				Amount				Capital
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			$	3,240,480

(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.

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ADVANCED BIOTHERAPY, INC.
(FORMERLY ADVANCED BIOTHERAPY CONCEPTS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
September 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 September 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 $0.01 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 option) to reduce accrued wages for the value of these options based upon these Black Scholes assumptions. These stock options are exercisable immediately, and expire on December 31, 2005. See Note 6. During the nine months ended September 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 nine months ended September 30, 2001 and the year ended December 31, 2000:

						Weighted Average
		Number of Shares				Exercise Price
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 September 30, 2001			2,527,953				.11
Options exercisable at September 30, 2001			2,527,953			$	.11

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

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:

											From Inception
											(December 2, 1985)
											through
			September 30, 2001				September 30, 2000				September 30, 2001
Earnings per share
	Extraordinary gains		$	—			$	—			$	0.09
Earnings per share – assuming dilution
	Extraordinary gains		$	—			$	—			$	0.09

NOTE 13 – NON-CASH COMMITMENT AND WARRANTS

During the nine months ended September 30, 2001, the Company issued to four directors of the Company warrants to purchase up to 100,000 shares of common stock with an exercise price of $0.25 per share. The warrants expire on May 8, 2005. During the period ended September 30, 2001, the Company recorded $23,280 as director’s 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.

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

NOTE 13 – NON-CASH COMMITMENT AND WARRANTS (Continued)

At September 30, 2001, the total of the Company’s exercisable warrants is 5,085,135. The average exercise price of the warrants at September 30, 2001 is $0.16 per share.

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 addition 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 nine months ended September 30, 2001 was $20,784.

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 called 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 and has received a refund of the deposit. 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.

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

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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 of 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 Equity 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 September 30, 2001, the Company had 39,848,265 shares of Common Stock issued and outstanding. The Company is a development stage company and has no material assets other than cash. The Company had $165,408 in cash and short-term investments as of September 30, 2001. For the twelve-month period subsequent to September 30, 2001, the Company anticipates that its minimum cash requirements to continue as a going concern will be less than $800,000. The Company therefore believes that it has inadequate cash to maintain operations during that period of time in order to meet the foregoing cash requirements and 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 either a pharmaceutical or biotechnological company that could result

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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 September 30, 2001 and 2000

For the three months ended September 30, 2001, the Company realized a net loss of $187,133 compared to a net loss of $251,303 for the three months ended September 30, 2000. The Company had increases and decreases in expenses over 2000 related to the following: decreased professional fees in the amount of $41,470, decreased salaries and benefits in the amount of $81,773, decreased general and administrative expenses of $38,646, increased insurance costs in the amount of $10,838, increased director’s fees related to the issuance of warrants to new directors in the amount of $23,380, increased research and development expenses in the amount of $32,772 and increased interest expense of $26,897, related to the Company’s convertible subordinated debt due September 30, 2004 (“Convertible Debt”) which interest expense was paid by issuance of additional Convertible Debt in lieu of cash payment.

Nine Months Ended September 30, 2001 and 2000

For the nine months ended September 30, 2001, the Company realized a net loss of $726,165 compared to a net loss of $421,391 for the nine months ended September 30, 2000. The Company had increases and decreases in expenses over 2000 related to the following: increased research and development expenses in the amount of $93,488, increased insurance costs in the amount of $34,797, increased rent in the amount of $28,012, increased depreciation and amortization in the amount of $22,802, increased director’s fees related to the issuance of warrants to new directors in the amount of $23,380, increased travel and entertainment in the amount of $28,838, increased interest expense in the amount of $102,440, decreased professional fees in the amount of $143,369 and decreased general and administrative expenses of $13,246. The Company also had increased legal fees related to patents and patents pending in the amount of $93,403. During the 9 months ended September 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.

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Part II

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

                       (b)  Reports on Form 8-K. The Company filed a Form 8-K on August 22, 2001, which reported that the Company received a “Notice of Allowance” from the United States Patent and Trademark Office for a utility patent for an antibody to treat five autoimmune diseases.

Dated: November 6, 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

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