measurements. This statement does not require any new fair value measurements, but for some entities, the application of this statement may change current practice. The adoption of this statement had no immediate material effect on the Company’s financial condition or results of operations.

(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF CASH FLOWS

							From Inception
							(December 2, 1985)
	Years Ended December 31,						through
	2006			2005			December 31, 2006

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)	$	(7,418,882	)	$	(2,158,352	)	$	(20,769,079	)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization		85,365			100,296			907,883
Loss on disposal of equipment		-			-			2,224
Loss on impairment of patents		92,500			28,823			136,175
Investment income		-			-			(157,520	)
Expenses paid through issuance of common stock		274,837			59,999			566,176
Expenses paid through issuance
of common stock warrants and options		300,820			729,273			1,700,282
Accrued interest paid by convertible debt		3,030,858			591,206			5,604,156
Beneficial Conversion		5,859,894						5,859,894
Expenses paid through contribution
of additional paid-in capital		3,332			4,455			68,078
Conveyance of patent in lieu of payable		39,500			-			39,500
Organization costs		-			-			(9,220	)
Decrease (increase) in assets:
Deposits and prepaid expenses		-			32,001			-
Interest receivable		(3,031	)		(3,030	)		(61,689	)
Deferred loan origination cost		-			-			(157,295	)
Increase (decrease) in liabilities:								-
Accounts payable and accrued expenses		(88,015	)		26,769			236,302
Accounts payable and accrued expenses - related parties		-			133,200			241,168
		-
Net cash used in operating activities		2,177,178			(455,360	)		(5,792,965	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets		-			(858	)		(385,339	)
Acquisition of patents		(86,942	)		(129,051	)		(1,291,547	)

Net cash used in investing activities		(86,942	)		(129,909	)		(1,676,886	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		5,400,000			-			7,857,254
(Purchase) sale of auctions rate securities		-			300,000			157,520
Proceeds from convertible notes		-			240,000			6,754,000
Proceeds from notes payable		(1,414,500	)		-			(1,025,992	)
Payments on notes payable		(15,460	)		-			(190,587	)

Net cash provided by financing activities		3,970,040			540,000			13,552,195

Net increase (decrease) in cash		6,060,276			(45,269	)		6,082,344

Cash beginning		22,068			67,337			-

Cash, ending	$	6,082,344		$	22,068		$	6,082,344

SUPPLEMENTAL CASH FLOW DISCLOSURES:

Interest expense paid	$	-		$	-		$	341,166
Income taxes paid	$	-		$	-		$	-

NON-CASH FINANCING AND INVESTING ACTIVITIES:

Common stock issued for a loan payable	$	1,414,500		$	-		$	1,627,881
Common stock issued for notes receivable	$	-		$	-		$	246,619
Common stock returned in payment of
notes and interest receivable	$	-		$	-		$	240,568
Common stock issued on cashless exercise of warrants	$	156,620		$	-		$	171,631
Accrued interest paid by convertible debt	$	505,203		$	-		$	2,865,316
Common stock issued for convertible debt	$	5,857,830		$	-		$	4,687,156
Forgiveness of debt	$	-		$	145,400		$	145,400

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

F-5

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS

December 31, 2006

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Advanced Biotherapy, Inc. was originally incorporated December 2, 1985 under the laws of the State of Nevada as Advanced Biotherapy Concepts, Inc. On July 14, 2000, the Company incorporated a wholly owned subsidiary, Advanced Biotherapy, Inc. in the State of Delaware. On September 1, 2000, the Company merged with its wholly owned subsidiary, effectively changing its name to Advanced Biotherapy, Inc. (hereinafter “the Company” or “ABI”) and its domicile to Delaware.

The Company has been engaged in the research and development for the treatment of autoimmune diseases in humans, most notably, multiple sclerosis, rheumatoid arthritis, and certain autoimmune skin diseases. 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.

For the year ended December 31, 2006, the Company incurred a net loss of $7,418,882 and had an accumulated deficit during the development stage of $20,769,079. For the twelve-month period subsequent to December 31, 2006, the Company anticipates that its minimum operating cash requirements will be approximately $450,000. Management’s goal are to acquire a revenue generating business and to forge a collaborative relationship with a profitable enterprise including, but not limited to a pharmaceutical or biotechnology company.

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.

Accounting Method

The Company’s financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

F-6

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

December 31, 2006

Recent Accounting Pronouncements

In February, 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115” (hereinafter “SFAS No. 159”). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, although earlier adoption is permitted. Management has not determined the effect that adopting this statement would have on the Company’s financial condition or results of operation.

In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (hereinafter “FIN 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of FIN 48 to have a material impact on its financial reporting, and the Company is currently evaluating the impact, if any, the adoption of FIN 48 will have on its disclosure requirements.

In September, 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87,88,106, and 132(R)” (hereinafter “SFAS No. 158”). This statement requires an employer to recognize the overfunded or underfunded statues of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not for profit organization. This statement also requires an employer to measure the funded status of a plan as of the date of its year end statement of financial position, with limited exceptions. The adoption of this statement had no immediate material effect on the Company’s financial condition or results of operations.

In September, 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (hereinafter “SFAS No. 157”). This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosure about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value

F-7

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

December 31, 2006

In March 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140.” This statement requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in any of the following situations: a transfer of the servicer’s financial assets that meets the requirements for sale accounting; a transfer of the servicer’s financial assets to a qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities; or an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates. The statement also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable and permits an entity to choose either the amortization or fair value method for subsequent measurement of each class of servicing assets and liabilities. The statement further permits, at its initial adoption, a one-time reclassification of available for sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available for sale securities under Statement 115, provided that the available for sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value and requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. This statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an entity’s fiscal year. Management believes the adoption of this statement will have no impact on the Company’s financial condition or results of operations at December 31, 2006.

In February 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments, an Amendment of FASB Standards No. 133 and 140” (hereinafter “SFAS No. 155”). This statement established the accounting for certain derivatives embedded in other instruments. It simplifies accounting for certain hybrid financial instruments by permitting fair value remeasurement for any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation under SFAS No. 133 as well as eliminating a restriction on the passive derivative instruments that a qualifying special-purpose entity (“SPE”) may hold under SFAS No. 140. This statement allows a public entity to irrevocably elect to initially and subsequently measure a hybrid instrument that would be required to be separated into a host contract and derivative in its entirety at fair value (with changes in fair value recognized in earnings) so long as that instrument is not designated as a hedging instrument pursuant to the statement. SFAS No. 140 previously prohibited a qualifying special-purpose entity from holding a derivative financial

F-8

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

December 31, 2006

instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an entity’s fiscal year. Management believes the adoption of this statement will have no impact on the Company’s financial condition or results of operations at December 31, 2006.

Accounting for Long-Lived Assets

In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). This standard establishes a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations. SFAS No. 144 requires that these long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations. The Company has adopted this statement and has made certain adjustments to the carrying value of its assets, specifically patents, at December 31, 2006. See Note 5.

Accounting for Convertible Notes and Securities with Beneficial Conversion Features

Following guidance by EITF 00-27, the Company allocates a portion of proceeds received from convertible notes to the beneficial conversion feature of the debt. The value of the beneficial conversion feature are recorded on the balance sheet as a debt discount and as an increase to stockholders’ equity. The discounts are amortized over the life of the loans. All of the Company’s convertible debentures were initially recorded without a beneficial conversion feature, however, the conversion of these debts at per share amounts lower than the debt agreements, triggered a beneficial conversion feature that was recorded as additional interest. See Note 12.

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.

Concentration of Credit Risk

The Company maintains its cash in several commercial accounts at a major financial institution. Although the financial institution is considered creditworthy and has not experienced any losses on its deposits, at December 31, 2006 the Company’s cash balances exceeded Federal Deposit Insurance Corporation (FDIC) limits by $5,979,634 and at December 31, 2005, the Company did not exceed the FDIC limits. See Note 7.

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.

F-9

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

December 31, 2006

Provision for Taxes

Income taxes are provided based upon the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by SFAS No. 109 to allow recognition of such an asset. See Note 14.

Reclassifications

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

Promotional Fees

Promotional fees are charged to operations in the year incurred. Promotional fees amounted to $0 and $256 for the years ended December 31, 2006 and 2005, respectively.

Research and Development Costs

Costs of research and development are expensed as incurred.

Compensated Absences

Employees of the Company are entitled to paid vacation, paid sick days and personal days off, depending on job classification, length of service, and other factors. No liability has been recorded in the accompanying financial statements, because of the relative immateriality of this obligation. At December 31, 2006 the Company had no employees.

Revenue Recognition

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

Fair Value of Financial Instruments

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

Deferred Loan Origination Fees

During the year ended December 31, 2002, the Company entered into convertible subordinated debt, which required the payment of loan origination fees. See Note 12. These loan origination fees, which totaled $7,283, net of accumulated amortization at December 31, 2005, are amortized over the life of the related debt. During the years ended December 31, 2006 and 2005, the

F-10

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

December 31, 2006

Company recorded amortization expense related to these fees of $7,283 and $19,036 and respectively.

Derivative Instruments

The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB No. 133”, SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, and SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. These statements establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.

If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.

Historically, the Company has not entered into derivatives contracts to hedge existing risks or for speculative purposes.

At December 31, 2006 and 2005, the Company has not engaged in any transactions that would be considered derivative instruments or hedging activities.

Earnings (loss) per share

Basic earnings (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares outstanding during the period. The weighted average number of shares is calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding.

Diluted earnings (loss) per share is computed by dividing the net income (loss), adjusted for interest expense on convertible debt, by the weighted average number of basic shares outstanding increased by the number of shares that would be outstanding assuming conversion of the exercisable stock options (15,845,120 shares), warrants (5,424,228 shares), and convertible debt (539,933 shares). Diluted net loss per share is the same as basic net loss per share as inclusion of the common stock equivalents would be antidilutive.

F-11

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

December 31, 2006

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.

The following is a summary of property, equipment and accumulated depreciation at December 31, 2006 and 2005:

	December 31, 2006				December 31, 2005
			Accumulated				Accumulated
	Cost		Depreciation		Cost		Depreciation
Lab equipment	$	31,891		19,828	$	31,891	$	13,450
Office equipment		13,777		12,559		13,777		11,905
Furniture and fixtures		22,539		16,342		22,539		10,918
Clean room		271,786		16,261		271,786		9,292
	$	339,993		64,990	$	339,993	$	45,565

Depreciation expense for the years ended December 31, 2006 and 2005 was $19,425 and $21,532, respectively.

NOTE 4 - INVESTMENTS

Marketable Securities

In 2004, the Company’s investments in equity securities that are intended to be held for a short period are classified as trading securities. These securities are recorded at fair value as current assets on the balance sheet under the caption of marketable securities. The change in fair value of those securities is included in earnings during the period presented. During the year ended December 31, 2005, a total of $300,000 was redeemed and transferred to cash with no gain or loss being recognized.

NOTE 5 - INTANGIBLE ASSETS

Patents and Patents Pending

Costs relating to the development and approval of patents, other than research and development costs which are expensed, are capitalized and amortized using the straight-line method over seventeen years. Patents prior to 1998 were abandoned in prior years, therefore, an abandonment loss on patents of $14,851 was recognized. Patents in the amount of $92,500 and $28,823, net of amortization, were abandonded in the years ending December 13, 2006 and 2005, respectively, and the abandonment loss has been recognized in the accompanying financial statements. The Company’s patents relate to the treatment of autoimmune diseases.

The following is a summary of the costs of patents and patents pending:

F-12

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

December 31, 2006

				Accumulated			Net
	Cost			Amortization			Amount
Balance, December 31, 2004	$	966,389		$	(123,888	)	$	842,503
2005 Activity		131,803			(64,537	)		67,266
Abandonment of Patents		(35,000	)		8,235			(26,765	)
Balance, December 31, 2005		1,063,192			(108,190	)		883,002
2006 Activity		86,942			(75,486	)		36,924
Abandonment of Patents		(120,000	)		34,783			(85,217	)
Pending Patent expenses
conveyed in payment of
liability		(39,500	)		-			(39,500	)
Balance at December 31, 2006	$	990,634		$	(211,347	)	$	779,287

The following is a summary of the costs of patents separated into pending and granted:

	2006		2005
Pending Patents	$	712,941	$	796,948
Granted Patents		277,693		266,244
	$	990,634	$	1,063,192

NOTE 6 - RELATED PARTY TRANSACTIONS

At December 31, 2006 and 2005, the Company has notes receivable in the aggregate amount of $46,619 from non-officer/director shareholders of the Company in connection with a payment plan for the purchase of Company stock. The notes accrue interest at a rate of 6.5% per annum and mature on December 31, 2007.

The note payable to related parties consists of a loan payable to one of the Company’s directors. The note has no specific due date, is currently uncollateralized, and is non-interest bearing, however, interest is calculated at the applicable federal rate each quarter. The calculated interest of $3,030 and $4,455 was recorded during the year ending December 31, 2006 and 2005, respectively, as interest expense and contributed capital in the accompanying financial statements because the note holder elected to forgive this interest. At December 31, 2006, the balance of the note $127,631 was converted into 8,508,733 shares of common stock at $0.015 per share.

See Note 13 for related party occupancy agreements.

F-13

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

December 31, 2006

NOTE 7 - CONCENTRATIONS

Bank Accounts and investments

The Company maintains cash on deposit in various financial institutions in California and Illinois. The funds in California reflect a balance of $1,263 and are not insured by the FDIC and are considered at risk.

The funds in Illinois reflect a balance of the following accounts:


Regular Checking	$	1,446
Money Market		999,862
Certificates of Deposit		5,079,773
Total	$	6,081,081

At December 31, 2006, $5,979,634 of these amounts were in excess of FDIC insured limits.

NOTE 8 - COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

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

	Common Stock
	Average
	price per							Additional 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
2006		.015		359,999,998		360,000			5,040,000
				370,800,498		370,801			7,439,703

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

F-14

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

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

	Common Stock
	Average					Additional
	price per					Paid-in
	share	Shares		Amount		Capital

Contribution of
additional paid-in
capital:
1991	-	-		-		35,825
1999	-	-		-		28,098
2000	-	-		-		9,735
2001	-	-		-		8,113
2002	-	-		-		5,635
2003	-	-		-		4,230
2004						4,480
2005		-		-		4,455
2006		-		-		3,332
		-		-		103,903

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

Cancellation of
escrowed shares in	.001	(850,000	)	(850	)	850
1999
Reissued escrowed
shares cancelled in
error:
2001	.001	850,000		850		(850	)
		-		-		-

Common stock issued

F-15

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

	Common Stock
	Average
	price per						Additional Paid-in
	share		Shares		Amount		Capital

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
2006		.015		10,989,133		10,989		153,845
				11,164,133		11,164		173,670

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
2006		.015		1,568,004		1,568		1,566,436
				3,482,999		3,483		1,700,271

F-16

Effective with the merger in September 2000 of Advanced Biotherapy Concepts, Inc. into its wholly owned subsidiary, each issued and outstanding share of Advanced Biotherapy Concepts,

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

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

Common stock issued
for convertible debt:
2001	.25	1,605,346	1,605	399,504
2002	.25	1,147,706	1,147	285,781
2004	.25	788,991	789	196,460
2005	.25	10,896,275	10,897	2,604,747
2006	.015	418,416,459	418,416	5,857,830
		432,854,777	432,801	9,344,322

	Common Stock
	Average
	price per						Additional Paid-in
	share		Shares		Amount		Capital

Expiration of stock
options
2005		-		-		-		210,738
2006		-		-		-		39,200
		-		-		-		249,938
Stock warrants
exercised:
2003 (cashless		.05		151,846		152		7,059
exercise)
2004 (cashless		.16		47,917		48		7,752
exercise)
				199,763		200		14,811
Stock options
exercised:
1997		.01		325,000		325		2,929
2000		.01		350,000		350		3,150
2002		.04		150,000		150		5,850
2003		.01		150,000		150		1,350
				975,000		975		13,279
Total				946,561,870	$	946,561	$	25,417,862

(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.

F-17

Inc. common stock was converted automatically into one share of $0.001 par value common stock of Advanced Biotherapy, Inc.

Effective in 2006, the Company amended its articles of incorporation to increase the maximum amount of its authorized common stock to 2,000,000,000 shares with a par value of $0.001.

Stock Bonus Plan

In January 2000, the Company approved a stock bonus plan the purpose of which is to retain personnel of experience and ability in the employ of the Company and to compensate them for their contributions to the growth of the Company, thereby inducing them to continue to make such contributions in the future. During January 2000, the Company issued 9,200,000 shares of common stock under this plan to certain key officers and directors subject to various restrictions. Such stock bonuses were issued at the weighted average price at which the Company had been selling shares of stock out of authorized but yet unissued common stock to third parties during the six months immediately preceding the issuance of the bonus shares, or $0.05 per share. On February 7, 2004, the board of directors unanimously approved the repurchase and cancellation of 1,603,789 of these shares of common stock at the fair market value of $0.16 per share in satisfaction of outstanding notes receivable and accrued interest. At December 31, 2004, a total of 2,403,7829 shares were available under this plan. During 2005, the Company terminated its Stock Bonus Plan. All shares available under the plan are to be available for grant under the Company’s Omnibus Equity Incentive Plan. See Note 10.

2005 Equity Issuances

During the year ended December 31, 2005, the Company issued 315,789 shares of common stock in payment of services totaling $59,999 ($0.19 per share).

2006 Equity Issuances

During the year ended December 31, 2006, the Company sold in private placement 359,999,998 shares of common stock for $.015 per share, or a total of $5,040,000 in cash.

Also during the year, the Company converted a portion of its notes payable, accrued expenses, convertible debt and capitalized interest into shares of common stock. The company converted a total of $8,009,087 of liabilities into 532,213,526 shares of common stock ($0.015 per share). Pursuance to this conversion, the Company recognized $5,859,894 in beneficial conversion costs. See Note 12.

F-18

The Company has authorized 20,000,000 shares of $0.001 par value preferred stock. As of December 31, 2006, the Company has not issued any preferred stock.

NOTE 9 - PREFERRED STOCK

NOTE 10 - STOCK OPTIONS AND ISSUANCE COMMITMENTS

Omnibus Equity Incentive Plan

In 2000, the board of directors approved an Omnibus Equity Incentive Plan, which was later approved by the stockholders in December 2001. The purpose of the plan is to promote the long-term success of the Company and the creation of stockholder value by encouraging employees, outside directors and consultants to focus on the achievement of critical long-range objectives. The plan endeavors to attract and maintain such individuals with exceptional qualifications and to link them directly to stockholder interests through increased stock ownership. The plan seeks to achieve this purpose by providing for awards in the form of restricted shares, stock units, options (which may constitute incentive stock options or non-statutory stock options) and stock appreciation rights (“SAR’s”). The aggregate number of options, SARs, stock units and restricted shares awarded under the plan was initially 4,000,000 common shares plus an annual increase of the lesser of two and one-half percent of the total number of common shares then outstanding or 250,000 common shares. No options were issued under this plan during the twelve months ending December 31, 2006. However, 1,200,000 options vested during the first quarter of 2006, and the resulting expense of $147,600 was recorded in the accompanying statement of operations.

During the year ended December 31, 2006 the board of directors approved the issuance of 7,210,000 options to members of the board of directors. The options were exercisable at the closing stock price on the date of issuance, or $0.03 per share. 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 $0.03; risk free interest rate of 4%; expected life of ten years; and expected volatility of 103% with no dividends expected to be paid. The Company recorded expenses totaling $144,200.

During January, 2004, the Company approved the issuance of stock options to its board of directors to purchase a total of 270,000 shares of the Company’s stock at $0.42 per share for services rendered during the year ended December 31, 2004. The options vest immediately and have a term of ten years. In accordance with Statement of Financial Accounting Standard No. 123, the fair value of the options was estimated using the Black Scholes Option Price Calculation. The following assumptions were made to value the stock options: strike price at $0.10 -$0.20; risk free interest rate of 4% expected life of five to ten years; and expected volatility of 62% to 92% with no dividends expected to be paid. The Company recorded expenses totaling $515,173 ($0.10 per option for the value of these options based upon these Black Scholes assumptions).

F-19

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

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


(1) Omnibus Equity Incentive Plan

Following is a summary of the status of the options during the years December 31, 2006 and 2005:

				Weighted
	Number of			Average
	Shares			Exercise Price
Outstanding at January 1, 2005		6,357,953		$	0.17
Granted		5,178,453			0.15
Exercised		-			-
Forfeited		(2,637,953	)		(0.14	)
Options outstanding at December 31, 2005		8,898,453		$	0.16
Granted		7,210,000			0.03
Exercised		-			-
Forfeited/Expired		(263,333	)		(0.15	)

Options outstanding at December 31, 2006		15,845,120		$	0.10
Weighted average fair value of options
granted in 2006				$	0.02
Options exercisable at December 31, 2005		15,845120		$	0.10

Summarized information about stock options outstanding and exercisable at December 31, 2006 is as follows:

	Outstanding and Exercisable Options
Exercise Price	Number of		Weighted Average		Weighted Average
Range	Shares		Remaining Life		Exercise Price
$0.03 - $0.42		15,845,120		7.88	$	0.10

At December 31, 2006, all options granted in prior years have vested.

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NOTE 11 - NON-CASH COMMITMENT AND WARRANTS

During February 2003, the Company issued warrants to purchase a total of 100,000 shares of common stock to two outside consultants. These warrants have an exercise price of $0.16 per share, expire in seven years, and vest over a period of three years, with the first one-third of such warrants vesting in 2004, the next one-third in 2005 and the remaining one-third vesting in 2006. In accordance with Statement of Financial Accounting Standard No. 123, the fair value of the warrants was estimated using the Black Scholes Option Price Calculation. The following assumptions were made to value the stock warrants: strike price at $0.16, risk free interest rate of 5%, expected life of seven years, and expected volatility of 82% with no dividends expected to be paid. The Company records an expense for the value of these warrants based upon these Black Scholes assumptions of $12,300 ($0.123 per option) over the three years as the warrants vest.

During the year ended December 31, 2004, a warrant to purchase 100,000 shares of common stock was exercised using the cashless conversion feature, resulting in the issuance of 47,917 shares of common stock.

During 2005, the Company granted warrants to purchase up to 380,000 shares of common stock at an exercise price of $0.10 - $0.20 per share for services. Subject to the terms of such warrants, 260,000 warrants are presently exercisable, and expire February 24, 2015 through August 24, 2015. The remaining 120,000 warrants vest 1/3 each year commencing December 31, 2006, with a value of $4,100 being recorded as an expense each year.

Summarized information about stock warrants outstanding and exercisable at December 31, 2006 is as follows:

	Number of		Weighted Average		Average exercise
	warrants		Remaining Life		price
Outstanding		5,504,227		3.86	$	0.16
Exercisable		5,424,228		3.95	$	0.16

NOTE 12 - CONVENTIONAL CONVERTIBLE DEBT AND BENEFICIAL CONVERSION

2000 Convertible Notes

During the year ended December 31, 2000, the Company sold in a private placement to accredited investors $1,510,500 of convertible subordinated debt due and payable September 30, 2005. The debt bears interest at the rate of 10% per annum and is payable semi-annually in cash or through the issuance of additional convertible subordinated debt. This debt was convertible into shares of Company common stock at a conversion price equal to $0.25 per share, subject to certain anti-dilution provisions. As of December 31, 2004 a total of $497,912 of unpaid accrued interest was converted to additional convertible debt.

F-21

The Company offered the convertible subordinated debt pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D, promulgated under the Securities Act. In connection with the placement of the debt, the Company paid a loan origination fee of $113,288 to its financial advisor, in addition to the granting of an option to the financial advisor to purchase an equivalent principal amount of convertible subordinated debt at the face amount thereof over a period of ten years. The aforementioned fee was fully amortized as of December 31, 2004. Amortization for the year ended December 31, 2003 was $19,368.

During the year ended December 31, 2001, a total of $355,000 original debt and $46,109 of accrued interest and previously converted interest was converted into 1,605,346 shares of common stock at $0.25 per share. During the year ended December 31, 2002, a total of $245,000 original debt and $41,928 of accrued interest and previously converted interest was converted into 1,147,706 shares of common stock at $0.25 per share. During the year ended December 31, 2003, a total of $152,500 original debt and $35,393 of accrued interest and previously converted interest was converted into 751,574 shares of common stock at $0.25 per share.

In February, 2004 the Company offered the holders of the remaining $773,000 of unconverted convertible debt an incentive of a reduced conversion price from $0.25 to $0.24 and payment of interest through the maturity date of September 30, 2005, if the holders would convert prior to April 30, 2004. The Company issued 4,558,771 shares for the principal and accrued interest through March 31, 2004, valued at $1,094,105 and 222,404 shares of common stock valued at $53,377 for the additional interest from April to September. Additionally, since the Company changed the conversion price, following SFAS No. 84, the Company recognized a beneficial conversion feature and calculated additional interest equal to the difference in the fair market value on the date of the conversion and the new conversion rate, multiplied by the difference in the shares converted. The Company recorded interest expense totaling $21,882 for this difference.

2002 Convertible Notes due September 30, 2004

During the year ended December 31, 2002, the Company sold in a private placement to accredited investors 2002 Subordinated Convertible Pay-in-kind Notes due September 30, 2004 ("2002-2005 convertible notes") in the principal amount of $1,148,500 in cash. A Company director personally guaranteed a total of $500,000 worth of this debt offering. The 2002-2004 convertible notes bear interest at the rate of 11% per annum payable semi-annually in cash or through the issuance of additional 2002-2004 convertible notes.

This debt is convertible into shares of Company common stock at a conversion price equal to $0.25 per share, subject to certain anti-dilution provisions. The Company offered the convertible subordinated debt pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D, promulgated under the Securities Act. In connection with the placement of the debt, the Company paid a loan origination fee of $41,895 to two advisors, together with a

F-22

warrant to acquire 239,400 shares of common stock at $0.25 per share. The loan was totally amortized at December 31, 2005.

During the year ended December 31, 2004, a total of $8,000 original debt and $1,354 of accrued interest and previously converted interest was converted into 37,416 shares of common stock at $0.25 per share.

2002 Convertible Notes due June 1, 2006

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

This debt is convertible into shares of Company common stock at a conversion price equal to $0.11 and $0.25 per share, subject to certain anti-dilution provisions. The Company offered the convertible subordinated debt pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D, promulgated under the Securities Act. In connection with the placement of the debt, the Company paid a related party a loan origination fee of $60,000. Amortization of the loan origination fee for the year ended December 31, 2005 was $53,750.

During the year ended December 31, 2006 the Company offered the holders of the remaining $4,853,216 of unconverted convertible debt and interest an incentive of a reduced conversion price from $0.11 and $0.25 to $0.015 if the holders would convert in August 2006. The Company issued 323,547,734 shares for the principal and accrued interest through August 31, 2006. Additionally, since the Company changed the conversion price, following SFAS No. 84, the Company recognized a beneficial conversion feature and calculated additional interest equal to the difference in the fair market value on the date of the conversion and the new conversion

F-23

rate, multiplied by the difference in the shares converted. The Company recorded interest expense totaling $4,556,658 for this difference.

2004 Convertible Notes due September 30, 2007

During the year ended December 31, 2003, the Company sold in a private placement to accredited investors 2004 Subordinated Convertible Pay-in-kind Notes due September 30, 2007 ("2003-2007 convertible notes") in the principal amount of $800,000 in cash. The interest rate of the 2003-2007 convertible notes is 12% per annum, payable semi-annually in cash or through the issuance of additional 2004-2007 convertible notes. The unpaid accrued interest as of December 31, 2005 of $58,976 has been converted to additional convertible debt.

During the year ended December 31, 2006 the Company offered the holders of the remaining $1,108,038 of unconverted convertible debt and interest an incentive of a reduced conversion price from $0.25 to $0.015 if the holders would convert in August 2006. The Company issued 127,775,467 shares for the principal and accrued interest through August 31, 2006. Additionally, since the Company changed the conversion price, following SFAS No. 84, the Company recognized a beneficial conversion feature and calculated additional interest equal to the difference in the fair market value on the date of the conversion and the new conversion rate, multiplied by the difference in the shares converted. The Company recorded interest expense totaling $2,652,375 for this difference.

2005 Convertible Notes due September 30, 2009

During the year ended December 31, 2005, the Company sold in a private placement to Officer/Directors and an accredited investor 2005 Subordinated Convertible Pay-in-kind Notes due September 30, 2009 in the principal amount of $240,000 in cash. The interest rate of the 2005 convertible notes is 12% per annum, payable semi-annually in cash or through the issuance of additional 2005 convertible notes. The unpaid accrued interest as of December 31, 2005 of $12,245 has been converted to additional convertible debt.

This debt is convertible into shares of Company common stock at a conversion price equal to $0.09 and $.105 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.

During the year ended December 31, 2006 the Company offered the holders of the $275,206 of unconverted convertible debt and interest an incentive of a reduced conversion price from $.09 and $0.105 to $0.015 if the holders would convert in August 2006. The Company issued 18,347,046 shares for the principal and accrued interest through August 31, 2006. Additionally, since the Company changed the conversion price, following SFAS No. 84, the Company

F-24

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

December 31, 2006

recognized a beneficial conversion feature and calculated additional interest equal to the difference in the fair market value on the date of the conversion and the new conversion rate, multiplied by the difference in the shares converted. The Company recorded interest expense totaling $230,418 for this difference.

2006 Convertible Notes due June 30, 2006

In April 2006, the Company sold in a private placement to accredited investors 2006 Subordinated Convertible Pay-in-kind Notes due June 30, 20066 in the principal amount of $38,000 in cash. The interest rate of the 2006 convertible notes is 12% per annum, payable semi-annually in cash or through the issuance of additional 2005 convertible notes.

This debt is convertible into shares of Company common stock at a conversion price equal to $0.07 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 August 2006 the Company offered the holders of the $39,787 of unconverted convertible debt and interest an incentive of a reduced conversion price from $0.07 to $0.015 if the holders would convert in August 2006. The Company issued 2,652,479 shares for the principal and accrued interest through August 31, 2006. Additionally, since the Company changed the conversion price, following SFAS No. 84, the Company calculated additional interest equal to the difference in the fair market value on the date of the conversion and the new conversion rate, multiplied by the difference in the shares converted. The Company recorded interest expense totaling $31,261 for this difference.

Other 2006 Convertible Debt

During 2006, the Company sold in a private placement to an officer Subordinated Convertible Pay-in-kind Notes the principal amount of $1,414,500 in cash. The interest rate of the 2006 convertible notes was 12% per annum.

This debt is convertible into shares of Company common stock at a conversion price equal to $0.015 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 August 2006 the Company converted this debt and accrued interest into 90,117,267 shares of common stock, at the same time as all the other debt conversions.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Occupancy Agreements

During the period ended March 31, 2003, the Company entered a verbal agreement to pay approximately $4,000 a month to a firm owned by the Company’s chief executive officer and

F-25

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

December 31, 2006

chief financial officer for tax preparation services, monthly accounting, and reimbursement for rent and employee benefits. A total of $65,321 was paid during 2004 under this month-to-month agreement. Under this verbal agreement, a total of $24,200 has been accrued in the financial statements as of December 31, 2005

The Company also entered into a verbal agreement for research and development laboratory space with a firm, which has as a shareholder, one of the directors of Advanced Biotherapy, Inc. This agreement calls for a monthly rent of $6,110 along with reimbursement for research and development services at a monthly cost of $12,000. A total of $300,283 was paid during 2004 under this month-to-month agreement.

Contracts

During the first quarter of 2005, the Company entered into an agreement with a consultant whereby the consultant will utilize its established process and reasonable commercial efforts to secure a commercial relationship with potential candidates. This commercial relationship may include the license or transfer of intellectual property, product rights, manufacturing rights, patents, or development assistance. A fees will be paid to the consultant in the amount of $5,000 per month for services provided between January 1, 2005 and September 30, 2005 upon the Company receiving funding either in the form of a licensing agreement or equity or debt financing. Additionally, the consultant will be reimbursed for reasonable out-of-pocket costs. A success fee is included in the agreement of the Company enters into a commercial relationship within eighteen months from the termination of the agreement with candidates brought to the company by the consultant. This agreement was terminated on September 30, 2005.

NOTE 14 - INCOME TAXES

The following is a reconciliation of income tax, computed at the federal statutory rate, to the provision for taxes:

	December 31, 2006						December 31, 2005
	Amount			Percent			Amount			Percent
Federal tax (benefit)	$	(436,000	)		(34	)%	$	(490,000	)		(34	)%
California State tax (benefit)		(73,000	)		(8	)%		(111,000	)		( 8	)%
Illinois State tax (benefit)		(23,000	)		(7.3	)%		-			-
Valuation allowance		536,000			42	%		601,000			42	%

	$	-			-		$	-			-

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

Significant components of the deferred tax assets at December 31, 2006 and 2005 are as follows:

F-26

At December 31, 2006, the Company has federal net operating loss carryforwards of approximately $10,960,000, which expire in the years 2007 through 2025, state net operating loss carryforwards of approximately $9,780,000, which expire in the years 2011 through 2014, and general business credit carryforwards of approximately $95,000, which expire in the years 2012 through 2023. Not included in the calculation of deferred tax assets are permanent differences of $5,859,938 and temporary differences of $274,328. At December 31, 2006 and 2005, federal net operating losses expired in the amount of approximately $219,832 and $221,164, respectively. A total of approximately $199,262 federal net operating losses is set to expire on December 31, 2006.

	December 31,			December 31,
	2006			2005
Deferred tax asset:
Net operating loss carryforwards	$	4,570,000		$	4,040,000
General business credit carryforwards		95,000			95,000
Excess book accumulated amortization		21,000			24,000
		4,686,000			4,159,000
Deferred tax liabilities:
Excess tax accumulated depreciation		3,000			3,000
Total deferred tax asset		4,683,000			4,156,000
Valuation allowance for deferred tax asset		(4,683,000	)		(4,156,000	)
Net deferred tax asset	$	-		$	-

The change in the valuation allowance account from December 31, 2005 to December 31, 2006 was $527,000, which is principally due to the change in management’s estimates as well as an increase in the Company’s net operating loss carryforward including expiration of prior years’ net operating losses.

NOTE 15 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In October 2006, the Company reported that Richard P. Kiphart had converted into shares of Company Common Stock all his Company convertible notes and other indebtedness at $0.015 per share, and that he and other investors had purchased an additional $5,400,000 of Company Common Stock at $0.015 per share pursuant to the Share Purchase and Debt Restructure Agreement dated as of August 28, 2006, between the Company and Mr. Kiphart.

In August 2006, the Company paid Edmond F. Buccellato, the Company’s former Chief Executive Officer, an aggregate of 6,522,466 in shares of Company common stock in payment of his accrued but unpaid salary in the sum of $55,500 and payment of the Company’s accounts payable of $42,337 owed to the accounting firm of Buccellato and Finkelstein, of which Mr. Buccellato is a principal. Simon Skurkovich, M.D., former Chairman Emeritus and Director of Research and Development, and current member of the advisory committee of the Company, was paid 14,675,400 in shares of common stock of the Company in payment of accrued but unpaid salary of $147,500, and a note payable in the sum of $127,631. During 2006 the

F-27