10QSB 1 v018176_10qsb.txt 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 March 31, 2005 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 of registrant as specified in its charter) Delaware 51-0402415 (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 May 6, 2005, the Registrant had 54,032,557 shares of common stock, $0.001 par value, outstanding. ----------------------------------------------------------- TABLE OF CONTENTS ITEM PAGE PART I. 1. Financial Statements a. Balance Sheets - March 31, 2005 (unaudited) and December 31, 2004.......1 c. Statements of Operations -- Three Months Ended March 31, 2005 (unaudited), March 31, 2004 (unaudited), and from Inception through March 31, 2005 (unaudited)..............................................2 d. Statement of Cash Flows - Three Months Ended March 31, 2005 (unaudited), March 31, 2004 (unaudited) and from Inception through March 31, 2005 (unaudited)..............................................3 e. Notes to Financial Statements...........................................4 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........................................................9 3. Controls and Procedures...................................................12 PART II. 4. Other Information.........................................................12 6. Exhibits and Reports on Form 8-K..........................................14 PART I ITEM 1. FINANCIAL STATEMENTS ADVANCED BIOTHERAPY, INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS --------------------------------------------------------------------------------
March 31, 2005 December 31, (Unaudited) 2004 -------------- -------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 127,239 $ 367,337 Marketable securities -- -- Notes receivable - related party 46,619 46,619 Interest receivable - related party 15,818 15,060 Deposits and prepaid expenses 37,888 32,001 -------------- -------------- Total Current Assets 227,564 461,017 -------------- -------------- PROPERTY, PLANT AND EQUIPMENT, net 310,616 315,101 -------------- -------------- OTHER ASSETS Deferred loan origination fees, net of accumulated amortization 21,560 26,319 Patents and patents pending, net of accumulated amortization 851,883 842,503 -------------- -------------- Total Other Assets 873,443 868,822 -------------- -------------- TOTAL ASSETS $ 1,411,623 $ 1,644,940 ============== ============== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable $ 285,606 $ 220,007 Accounts payable - related party 8,447 40,500 Accrued expenses - related party 9,160 8,500 Loan payable - related party -- -- Accrued interest on convertible debt 139,571 Current portion of convertible notes payable 6,654 -- Other Current Liabilities 274 -- -------------- -------------- Total Current Liabilities 449,712 269,007 -------------- -------------- LONG-TERM DEBT Convertible notes payable, net of current portion 4,938,759 4,945,413 Note payable to related parties 127,631 127,631 -------------- -------------- Total Long-Term Debt 5,066,390 5,073,044 -------------- -------------- TOTAL LIABILITIES 5,516,102 5,342,051 -------------- -------------- COMMITMENTS AND CONTINGENCIES -- -- -------------- -------------- STOCKHOLDERS' DEFICIT Preferred stock, par value $0.001; 20,000,000 shares authorized, no shares issued and outstanding -- -- Common stock, par value $0.001; 200,000,000 shares authorized, 54,032,557 shares issued and outstanding 54,032 54,032 Additional paid-in capital 6,526,135 6,525,037 Stock options and warrants 1,080,516 865,916 Deficit accumulated during development stage (11,765,162) (11,142,096) -------------- -------------- Total Stockholders' Deficit (4,104,479) (3,697,111) -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,411,623 $ 1,644,940
The accompanying notes are an integral part of these financial statements. 1 ADVANCED BIOTHERAPY, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF OPERATIONS --------------------------------------------------------------------------------
From Inception Year Ended March 31, (December 2, 1985) ---------------------------------- through 2005 2004 March 31, 2005 (Unaudited) (Unaudited) (Unaudited) -------------- -------------- -------------- REVENUES $ -- $ -- $ 89,947 -------------- -------------- -------------- OPERATING EXPENSES Research and development 93,685 181,975 3,731,602 Promotional fees -- 593 62,314 Professional fees 70,663 69,557 2,850,370 Vesting of stock options and warrants 172,200 172,200 853,209 Directors' fees -- -- 201,880 Depreciation and amortization 24,707 45,989 804,817 Administrative salaries and benefits 69,177 79,744 1,198,846 Insurance 18,257 20,110 287,939 Shareholder relations and transfer fees 8,690 3,123 299,996 Rent 5,100 25,477 336,078 Travel and entertainment 13,568 15,447 319,794 Telephone and communications 1,791 3,522 58,409 Office 1,773 1,354 77,190 General and administrative 5,984 7,854 737,403 -------------- -------------- -------------- Total Operating Expenses 485,595 626,945 11,819,847 -------------- -------------- -------------- LOSS FROM OPERATIONS (485,595) (626,945) (11,729,900) OTHER INCOME (EXPENSES) Miscellaneous income 250 -- 25,250 Interest and dividend income 1,850 5,919 168,233 Internal gain on sale of securities -- -- 157,520 Forgiveness of debt -- -- 2,047,437 Forgiveness of payables -- -- 45,396 Loss on disposal of office equipment -- -- (2,224) Loss on abandonment of patents -- (14,852) Interest expense (139,571) (315,725) (2,462,022) -------------- -------------- -------------- Total Other Income (Expenses) (137,471) (309,806) (35,262) -------------- -------------- -------------- LOSS BEFORE INCOME TAXES (623,066) (936,751) (11,765,162) INCOME TAXES -- -- -- -------------- -------------- -------------- NET LOSS $ (623,066) $ (936,751) $ (11,765,162) -------------- -------------- -------------- BASIC AND DILUTED NET LOSS PER COMMON SHARE $ 0 $ 0 -------------- -------------- -------------- WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED COMMON STOCK SHARES OUTSTANDING 54,032,557 43,105,741 -------------- -------------- --------------
The accompanying notes are an integral part of these financial statements. 2 ADVANCED BIOTHERAPY, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS --------------------------------------------------------------------------------
From Inception Quarter Ended March 31, (December 2, 1985) ------------------------------ through 2005 2004 March 31, 2005 ------------- ------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $ (623,066) $ (936,751) $ (11,765,162) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 24,707 45,989 746,929 Loss on disposal of equipment -- -- 2,224 Loss on impairment of patents -- -- 14,852 Investment income -- -- (157,520) Expenses paid through issuance of common stock -- -- 231,340 Expenses paid through issuance -- of common stock warrants and options 214,600 172,200 884,789 Accrued interest paid by convertible debt -- 189,744 1,932,343 Expenses paid through contribution -- of additional paid-in capital 1,098 1,123 61,389 Organization costs -- -- (9,220) Decrease (increase) in assets: -- Marketable securities -- 500,000 -- Deposits and prepaid expenses (5,887) (16,755) (37,888) Interest receivable (758) (757) (56,386) Deferred loan origination cost -- -- (157,295) Increase (decrease) in liabilities: -- Accounts payable 65,599 83,580 363,147 Accounts and notes payable, related parties (31,393) 8,092 67,697 Payroll and payroll taxes payable 274 25,528 Accrued Interest 139,571 125,979 148,449 ------------- ------------- Net cash used in operating activities (215,255) 197,972 (7,730,312) ------------- ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets (858) (41,476) (385,339) Acquisition of patents (23,985) (98,443) (1,099,539) ------------- ------------- Net cash used in investing activities (24,843) (139,919) (1,484,878) ------------- ------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock -- -- 2,457,254 Internal gain on sale of securities -- -- 157,520 Proceeds from convertible notes -- -- 6,514,000 Proceeds from notes payable -- -- 388,508 Payments on notes payable -- (1,300) (175,127) ------------- ------------- Net cash provided by financing activities -- (1,300) 9,342,155 ------------- ------------- -------------- Net increase (decrease) in cash (240,098) 56,753 127,239 Cash and cash equivalents, beginning 367,337 44,591 -- ------------- ------------- -------------- Cash and cash equivalents, ending $ 127,239 $ 101,344 $ 127,239 ============= ============= ============== SUPPLEMENTAL CASH FLOW DISCLOSURES: Interest expense paid $ 128 $ -- $ 341,166 ============= ============= ============== Income taxes paid $ -- $ -- $ -- ============= ============= ============== NON-CASH FINANCING AND INVESTING ACTIVITIES: Common stock issued in exchange for professional fees and expenses $ -- $ -- $ 340,869 Contributed expenses $ 1,098 $ 1,123 $ 60,291 Common stock issued for a loan payable $ -- $ -- $ 213,381 Common stock issued for notes receivable $ -- $ -- $ 246,619 Common stock returned in payment of notes and interest receivable $ -- $ -- $ 240,568 Warrants and options issued for services and accrued expenses $ 214,600 $ 266,700 $ 423,900 Common stock issued on cashless exercise of warrants $ -- $ 7,800 $ 15,011 Warrants issued for services $ -- $ -- $ 246,289 Accrued interest paid by convertible debt $ -- $ 189,744 $ 1,932,343 Common stock issued for convertible debt $ -- $ 2,399,826 $ 707,156
The accompanying notes are an integral part of these financial statements. 3 ADVANCED BIOTHERAPY, INC. (A DEVELOPMENT STAGE ENTERPRISE) CONDENSED NOTES TO FINANCIAL STATEMENTS March 31, 2005 -------------------------------------------------------------------------------- NOTE 1 - BUSINESS ORGANIZATION AND BASIS OF PRESENTATION Advanced Biotherapy, Inc. was originally incorporated December 2, 1985 under the laws of the State of Nevada as Advanced Biotherapy Concepts, Inc. On July 14, 2000, the Company incorporated a wholly owned subsidiary, Advanced Biotherapy, Inc. in the State of Delaware. On September 1, 2000, the Company merged with its wholly owned subsidiary, effectively changing its name to Advanced Biotherapy, Inc. (hereinafter "the Company" or "ABI") and its domicile to Delaware. The Company is involved in the research and development for the treatment of autoimmune diseases in humans, most notably, multiple sclerosis, rheumatoid arthritis, and certain autoimmune skin diseases and AIDS. The Company conducts its research in Maryland. The Company's fiscal year-end is December 31. The Company is a development stage enterprise. The Company has been in the development stage since its formation in 1985 and has not realized any significant revenues from its planned operations. It is primarily engaged in the research and development of the treatment of autoimmune diseases in humans, most notably, multiple sclerosis and rheumatoid arthritis. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the three months ended March 31, 2005, the Company incurred a net loss of $623,066 and had an accumulated deficit during the development stage of $11,765,162. The Company has limited funds for research and development costs and operations and it does not have a source of revenues to continue its operations, research and development costs or to service its debt at maturity beyond such funding. For the twelve-month period subsequent to March 31, 2005, the Company anticipates that its minimum operating cash requirements to continue as a going concern will be less than $2,500,000. The future of the Company is dependent upon securing additional debt or equity funding and future profitable operations from the commercial success of its medical research and development of products to combat diseases of the human immune system. Management's goal is to forge a collaborative relationship with either a pharmaceutical or biotechnology company. If successful, future cash requirements may be met through licensing fees and royalties. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10QSB and Regulation S-B as promulgated by the Securities and Exchange Commission ("SEC"). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for 4 ADVANCED BIOTHERAPY, INC. (A DEVELOPMENT STAGE ENTERPRISE) CONDENSED NOTES TO FINANCIAL STATEMENTS March 31, 2005 -------------------------------------------------------------------------------- complete financial statements. These unaudited financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2004. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented. Operating results for the three-month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. NOTE 2 - LIMITED SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company 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. Accounting Method ----------------- The Company's financial statements are prepared using the accrual method of accounting. 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. Accounting for Stock Options and Warrants Granted to Employees and Nonemployees Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", defines a fair value-based method of accounting for stock options and other equity instruments. The Company has adopted this method, which measures compensation costs based on the estimated fair value of the award and recognizes that cost over the service period. 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. Research and Development ------------------------ Costs of research and development are expensed as incurred. NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets of three to thirty-nine years. 5 ADVANCED BIOTHERAPY, INC. (A DEVELOPMENT STAGE ENTERPRISE) CONDENSED NOTES TO FINANCIAL STATEMENTS March 31, 2005 -------------------------------------------------------------------------------- The following is a summary of property, equipment and accumulated depreciation at March 31, 2005 and December 31, 2004: March 31, 2005 December 31, 2004 -------------- -------------- Cost Cost -------------- -------------- Lab equipment $ 31,891 $ 31,891 Office equipment 13,777 12,918 Furniture and fixtures 22,539 22,539 Clean room 271,786 271,786 -------------- -------------- Total assets 339,993 339,134 -------------- -------------- Less accumulated depreciation (29,377) (24,033) -------------- -------------- Net fixed assets $ 310,616 $ 315,101 ============== ============== Depreciation and amortization expense for the three months ended March 31, 2005 and 2004 were $5,344 and $2,758 respectively. NOTE 4 - CAPITAL STOCK Preferred Stock --------------- The Company is authorized to issue 20,000,000 shares of non-assessable $0.001 par value preferred stock. As of March 31, 2005, the Company has not issued any preferred stock. Common Stock ------------ The Company is authorized to issue 200,000,000 shares of non-assessable $0.001 par value common stock. Each share of stock is entitled to one vote at the annual shareholders' meeting. The Company issued no additional stock during the three months ended March 31, 2005. NOTE 5 - COMMON STOCK OPTIONS AND WARRANTS Omnibus Equity Incentive Plan ----------------------------- In 2000, the board of directors approved an Omnibus Equity Incentive Plan, which was later approved by the stockholders in December 2001. The purpose of the plan is to promote the long-term success of the Company and the creation of stockholder value by encouraging employees, outside directors and consultants to focus on the achievement of critical long-range objectives. The plan endeavors to attract and maintain such individuals with exceptional qualifications and to 6 ADVANCED BIOTHERAPY, INC. (A DEVELOPMENT STAGE ENTERPRISE) CONDENSED NOTES TO FINANCIAL STATEMENTS March 31, 2005 -------------------------------------------------------------------------------- link them directly to stockholder interests through increased stock ownership. The plan seeks to achieve this purpose by providing for awards in the form of restricted shares, stock units, options (which may constitute incentive stock options or non-statutory stock options) and stock appreciation rights ("SAR's"). The aggregate number of options, SARs, stock units and restricted shares awarded under the plan was initially 4,000,000 common shares plus an annual increase of the lesser of two and one-half percent of the total number of common shares then outstanding or 250,000 common shares. At March 31, 2005, there are 260,000 shares available under this plan. During the first quarter of 2005, the Company approved the issuance of stock options to its board of directors to purchase a total of 225,000 shares of the Company's stock at $0.20 per share for services rendered during the year ended December 31, 2004. The options vest immediately and have a term of ten years. In accordance with Statement of Financial Accounting Standard No. 123, the fair value of the options was estimated using the Black Scholes Option Price Calculation. The following assumptions were made to value the stock options: strike price at $0.20; risk free interest rate of 5%; expected life of ten years; and expected volatility of 92% with no dividends expected to be paid. The Company recorded $40,500 ($0.18 per option) for the value of these options based upon these Black Scholes assumptions. Following is a summary of the status of the options during the periods ended March 31, 2005 and December 31, 2004: Weighted Average Exercise Number of Shares Price --------------- --------------- Outstanding at January 1, 2004 6,087,953 $ 0.16 Granted 270,000 0.16 Exercised -- -- Forfeited -- -- Outstanding at December 31, 2004 6,357,953 0.16 --------------- --------------- Granted 225,000 0.20 Exercised -- -- Rescinded -- -- --------------- --------------- Options outstanding at March 31, 2005 6,582,953 $ 0.16 =============== =============== Options exercisable at March 31, 2005 5,216,287 $ 0.16 =============== =============== Weighted average fair value of options granted in 2005 $ 0.18 =============== Warrants -------- During the first quarter of 2005, the Company granted Dr. Yehuda Shoenfeld, Director of the Center for Autoimmune Diseases at the Israel Sheba Medial Center, warrants to purchase up to 10,000 shares of common stock at an exercise price of $0.20 per share for services as a member of the Company's scientific advisory board. Subject to the terms of such warrants, the warrants are presently exercisable, and expire on February 24, 2015. In accordance with Statement of Financial Accounting Standard No. 123, the fair value of the warrants was estimated using the Black Scholes Option Price Calculation. The following assumptions were made to value the warrants: strike price at $0.20; risk free interest rate of 5%; expected life of ten years; and expected volatility of 92% with no dividends expected to be paid. The Company recorded $1,900 ($0.19 per warrant) for the value of these warrants based upon these Black Scholes assumptions. 7 ADVANCED BIOTHERAPY, INC. (A DEVELOPMENT STAGE ENTERPRISE) CONDENSED NOTES TO FINANCIAL STATEMENTS March 31, 2005 -------------------------------------------------------------------------------- NOTE 6- CONCENTRATIONS Bank Accounts and investments ----------------------------- The Company maintains cash in a money market account at a bank in California. The funds on deposit are not insured by the FDIC and, therefore, a total of $126,647 is at risk on March 31, 2005. NOTE 7- COMMITMENTS AND CONTINGENCIES During the first quarter of 2005, the Company entered into an agreement with a consultant whereby the consultant will utilize its established process and reasonable commercial efforts to secure a commercial relationship with potential candidates. This commercial relationship may include the license or transfer of intellectual property, product rights, manufacturing rights, patents, or development assistance. A fee will be paid to the consultant in the amount of $5,000 per month. Additionally, the consultant will be reimbursed for reasonable out-of-pocket costs. The agreement is for nine months, subject to termination after the initial ninety days. A success fee is included in the agreement if the Company enters into a commercial relationship within eighteen months from the termination of the agreement with a candidate brought to the Company by the consultant. During the first quarter of 2005, the Company granted warrants to purchase up to 300,000 shares of common stock at an exercise price of $0.20 per share for consulting services, partly in connection with the Company's Phase I clinical trials at Georgetown University Medical Center to study an investigational treatment for AIDS. Subject to the terms of such warrants, the warrants vest and become exercisable on March 20, 2006, and expire on March 20, 2015. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This Quarterly Report and other documents we file with the Securities and Exchange Commission ("SEC") contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business, our beliefs and our management's assumptions. All statements other than statements of historical facts are forward-looking statements, including any statements of the plans and objectives of management for future operations, any statements concerning proposed new product candidates and prospects for regulatory approval, any projections of revenue earnings or other financial items, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. Some of these forward-looking statements may be identified by the use of words in the statements such as "anticipate," "estimate," "could" "expect," "project," "intend," "plan," "believe," "seek," "should," "may," "assume," "continue," variations of such words and similar expressions. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. We caution you that our performance and results could differ materially from what is expressed, implied, or forecast by our forward-looking statements due to general financial, economic, regulatory and political conditions affecting the biotechnology and pharmaceutical industries as well as more specific risks and uncertainties. The Company operates in a rapidly changing environment that involves a number of risks, some of which are beyond the Company's control. Future operating results and the Company's stock price may be affected by a number of factors, including, without limitation: (i) availability of capital for research and development; (ii) availability of capital for clinical trials; (iii) opportunities for joint ventures and corporate partnering; (iv) opportunities for mergers and acquisitions to expand the Company's biotechnology base or acquire revenue generating products; (v) regulatory approvals of preclinical and clinical trials; (vi) the results of preclinical and clinical trials, if any; (vii) regulatory approvals of product candidates, new indications and manufacturing facilities; (viii) health care guidelines and policies relating to prospective Company products; (ix) intellectual property matters (patents); and (x) competition. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Item 1. Business," and all subsections therein, including, without limitation, the subsections entitled, Technical Background, Government Regulation, Federal Drug Administration Regulation, Competition and Factors That May Affect the Company, and the section entitled "Market for Registrant's Common Stock and Related Stockholder Matters," all contained in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004. Given these risks and uncertainties, any or all of these forward-looking statements may prove to be incorrect. Therefore, you should not rely on any such forward-looking statements. Furthermore, we do not intend (and we are not obligated) to update publicly any forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our reports to the Securities and Exchange Commission. 9 OVERVIEW We believe that we are a leader in conducting investigational clinical trials allowing us to secure intellectual property for anti-cytokine based treatments of certain autoimmune diseases by the use of antibodies directed at certain cytokines, most notably interferon-gamma and tumor necrosis factor-alpha. We have no revenues or FDA-approved products, and cannot predict when we might anticipate having proprietary marketed products. Accordingly, our cash flows depend substantially on the success of our ability to enter into licensing and royalty arrangements, and raise capital through the use of equity or debt private placements. The Company had $127,239 in cash and cash equivalents as of March 31, 2005. Management anticipates that current funds will enable the Company to continue operations through June 2005. This amount of cash is inadequate to meet the Company's projected minimum cash requirements for full operations for the next 12 months of approximately $2,500,000. The Company does not have a source of revenues to continue its operations, or research and development costs beyond the current available funds. In order to meet the foregoing cash requirements, the Company will have to raise funds through the issuance for cash of common or preferred stock, convertible debt or loans. There is no assurance, however, that the Company will be able to raise sufficient capital to meet its cash requirements for the next 12 months, in which case the Company would undertake to adjust its operations including the significant reduction of research and development costs. The Company has initiated reductions of general and administrative expenses, and certain research and development activities. Management is monitoring the Company's funds and considering financing alternatives with the Company's directors. In terms of the Company's long-term convertible debt, as of March 31, 2005, the approximate principal balance of $4,018,602 and $920,158 matures on June 1, 2006 and September 30, 2007, respectively. If before this convertible debt would be repaid the market price of the Company common stock is at least $0.75 per share for 20 consecutive trading days, then the Company may also cause the mandatory conversion of such debt into shares of Company common stock at a conversion price of $0.25 per share. The Company's business development plan, subject to and only if the Company raises additional capital, principally focuses on the following five specific elements: 1. Research and development as well as licensing agreements with selected pharmaceutical companies seeking opportunities related to our patented scientific approaches; 2. Commencement and completion of our FDA approved Phase I clinical trial at Georgetown University Medical Center; 3. Initiation of US clinical trials in a selected autoimmune skin disease and corneal transplant rejection; 4. Evaluation of possible merger, acquisition or sale candidates; and 10 5. Evaluation of appropriate financing opportunities. As described above, the Company seeks to establish collaborative relationships with one or more pharmaceutical or biotechnological companies that could result in the generation of licensing, milestone and royalty payments to the Company. The Company is, therefore, seeking out-licensing or co-development arrangements of its intellectual property that will generate recurring revenue and cash flow. As of the date hereof, the Company has not entered into any agreement with a pharmaceutical or biotechnological company, or any such out-licensing arrangements. In general, we have a history of operating losses and have not generated any revenue. As of March 31, 2005 we had an accumulated deficit of approximately $11,765,162. Since we or potential collaborative partners or licensees may not be able to successfully develop additional products, obtain required regulatory approvals, manufacture products at an acceptable cost and with appropriate quality, or successfully market such products with desired margins, we may never achieve profitable operations. The amount of net losses and the time required to reach sustained profitability are highly uncertain. The Company has no expected purchases or sales of significant equipment and there are no expected significant changes in the number of employees of the Company. RESULTS OF OPERATIONS - Three months ended March 31, 2005 and 2004. The Company is considered to be in the development stage as defined in Statement of Financial Accounting Standards No. 7. There have been no operations since incorporation. LIQUIDITY AND CAPITAL RESOURCES. To date, we have financed our operations through private placements of equity and convertible debt securities. The Company had approximately $127,239 in cash and cash equivalents as of March 31, 2005 and had issued and outstanding 54,032,557 shares of its Common Stock. THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO 2004. For the three months ended March 31, 2005, the Company realized a net loss of $623,066 compared to a net loss of $936,751 for the three months ended March 31, 2004. The Company had decreases in expenses over the three months ended March 31, 2004, consisting primarily of the following: decreased research and development expenses of $88,290, decreased depreciation and amortization expenses of $21,282, decreased administrative salaries and benefits of $10,567, decreased rent of $20,377, decreased general and administrative expenses of $1,870 and decreased interest expense of $176,154, and decreased interest and dividend income of $4,069, net of increased shareholder relations and transfer fees expenses of $5,567. ITEM 3. CONTROLS AND PROCEDURES In accordance with Item 307 of Regulation S-B promulgated under the Securities Act of 1933, as amended, and within 90 days of the date of this Quarterly Report on Form 10-QSB, the Chief Executive Officer and Chief Financial 11 Officer of the Company (the "Certifying Officers") have conducted evaluations of the Company's disclosure controls and procedures. As defined under Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the term "disclosure controls and procedures" means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Certifying Officers have reviewed the Company's disclosure controls and procedures and have concluded that those disclosure controls and procedures are effective in causing information to be recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms and communicated to management of the Company to allow timely decisions regarding the Company's public disclosures. In compliance with Section 302 of the Sarbanes-Oxley Act of 2002, (18 U.S.C. 1350), each of the Certifying Officers executed an Officer's Certification included in this Quarterly Report on Form 10-QSB. As of the date of this Quarterly Report on Form 10-QSB, there have not been any significant changes in the Company's internal controls or in other factors that could significantly affect these internal controls subsequent to the date of the Certifying Officers' evaluation. PART II ITEM 5. OTHER INFORMATION The Compensation Committee of the Company recommended that the Company's 2000 Omnibus Equity Incentive Plan ("OEI Plan") be amended to increase the number of shares available for future issuance under the OEI Plan by 6,000,000 shares to provide greater flexibility for the Company to pay non-cash compensation and accommodate certain stock option recommendations made by the Committee as more fully described below. The Committee also recommended that the Company's Stock Bonus Plan adopted in January, 2000 ("Stock Bonus Plan") be terminated, and that the shares available for issuance thereunder in the amount of approximately 2,400,000 shares be made available for grant under the Company's OEI Plan. The shares otherwise available under the Stock Bonus Plan will no longer be held in reserve for that plan. Based upon the termination of the Stock Bonus Plan, the net increase to the total outstanding shares available for future issuance under the OEI Plan would be approximately 3,600,000 shares. The Compensation Committee recommended that the Company grant the following individuals options to purchase Company common stock at an exercise price of $0.16 per share based upon the share closing price as of May 2, 2005: 12 Name Number of Options Edmond F. Buccellato 300,000 Simon Skurkovich, M.D. 300,000 William M. Finkelstein 150,000 Thomas J. Pernice 150,000 Lawrence Loomis 200,000 Joseph A. Bellanti, M.D. 200,000 Jeanne Kelly 100,000 Dr. Seiji Haba 100,000 Amy Buccellato 50,000 The stock options were granted to the foregoing directors, officers, employees and consultants based upon, among other factors, the lack of available cash compensation and the potential for individual contribution to the Company. With respect to the directors listed below, the Compensation Committee recommended that for services rendered in the year 2005, each director would be granted options to purchase 250,000 shares of Company common stock at an exercise price of $0.16 per share. The exercise price of $0.16 per share was based upon the share closing price as of May 2, 2005. Director Number of Options Joseph A. Bellanti, M.D. 250,000 John M. Bendheim 250,000 Edmond F. Buccellato 250,000 Alexander L. Cappello 250,000 Richard P. Kiphart 250,000 Lawrence Loomis 250,000 Thomas J. Pernice 250,000 Boris Skurkovich, M.D. 250,000 Simon Skurkovich, M.D. 250,000 The foregoing stock option grants and the termination of the Company's Stock Bonus Plan are subject to ratification by the Company's Board of Directors, which ratification is expected. The increase in the amount of shares reserved under the OEI Plan by 6,000,000 shares is subject to approval by the Company's stockholders and all the foregoing stock option grants would be made subject to such approval. 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit Number Description 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a). 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a). 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K The Registrant filed the following reports on Form 8-K during the quarter ended March 31, 2005: 1. January 19, 2005. The Registrant reported that the Company completed a pilot investigational study using antibodies to interferon-gamma in the treatment of patients suffering from Genital Herpes at the Department of Skin and Venereal Diseases, Russian State Medical University, Moscow, Russia. 2. February 17, 2005. The Registrant reported that the Company will be further extending additional resources to its HIV research programs. 3. March 4, 2005. The Registrant reported that Dr. Yehuda Shoenfeld, one of the world's foremost immunologists and Director of the Center for Autoimmune Diseases at the Sheba Medical Center, Israel's largest hospital, has joined the Company's scientific advisory board. 4. March 14, 2005. The Registrant reported that the United States Patent and Trademark Office has assigned U.S. Patent No. 6,863,890 to the Company for use of antibodies to Tumor Necrosis Factor-alpha (TNF-a), Interferon-Gamma (IFN-g) and Interferon-alpha (IFN-a) for the treatment of HIV infection and AIDS. 5. March 15, 2005. The Registrant reported that very preliminary results of the recently initiated Phase I, FDA-approved clinical trial appear promising and suggest a beneficial effect in the treatment of AIDS by inhibiting Tumor Necrosis Factor-alpha (TNP-alpha). 14 6. March 22, 2005. The Registrant reported that Mr. Paul Hopper, former Chief Executive Officer of Australian Cancer Technology Limited, an international biotechnology company focused on developing immunotherapy and oncology products, has joined the Company as Director of Business Development. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-QSB to be signed on its behalf by the undersigned thereunto duly authorized as of May 12, 2005. Advanced Biotherapy, Inc. (Registrant) By: /s/Edmond F. Buccellato By: /s/William M. Finkelstein ------------------------ ------------------------------------ Edmond F. Buccellato William M. Finkelstein President and CEO Chief Financial Officer 16 EXHIBIT INDEX Exhibit Description ------- ----------- 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a). 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a). 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 17