10-Q 1 v131800_10q.htm
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934

for the quarterly period ended September 30, 2008

OR

o
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 or Other Jurisdiction of
(IRS Employer      
Incorporation or Organization)
Identification No.)
   
227 West Monroe, Suite 3900, Chicago, IL
60606
(Address of Principal Executive Offices)
(Zip Code)

(312) 701-0793
(Registrant’s Telephone Number, Including Area Code)

Indicate by check 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 o NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

o Large accelerated filer o Accelerated filer o Non-accelerated filer S Smaller reporting company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o YES x NO

Number of shares of registrant’s common stock outstanding as of September 30, 2008: 1,167,621,940 shares of common stock, $0.001 par value.



TABLE OF CONTENTS

ITEM
   
PAGE
       
   
PART I.
 
       
1.
Financial Statements
 
     
 
a.
Balance Sheets – September 30, 2008 (unaudited)
 
   
and December 31, 2007
1
       
 
c.
Statements of Operations — Three Months Ended September 30, 2008 (unaudited), September 30, 2007 (unaudited); Nine Months Ended September 30, 2008 (unaudited), September 30, 2007 (unaudited), and from Inception through September 30, 2008 (unaudited)
2
       
 
d.
Statements of Cash Flows – Nine Months Ended September 30, 2008 (unaudited), September 30, 2007 (unaudited) and from Inception through September 30, 2008 (unaudited)
3
       
 
e.
Condensed Notes to Interim Financial Statements
4
       
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
9
       
4T.
 
Controls and Procedures
11
   
PART II.
 
6.
 
Exhibits
12



PART I

ITEM 1. FINANCIAL STATEMENTS
 
ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED BALANCE SHEETS


   
 September 30,
 
 December 31,
 
   
 2008
 
 2007
 
             
ASSETS
             
               
CURRENT ASSETS
             
Cash
 
$
4,978,391
 
$
6,620,659
 
Interest receivable
   
84,555
   
20,328
 
Note receivable - Organic Farm Marketing
   
800,000
   
800,000
 
Notes receivable - Lime Energy
   
1,500,000
   
-
 
Total Current Assets
   
7,362,947
   
7,440,987
 
               
PROPERTY, PLANT AND EQUIPMENT, net
   
11,458
   
-
 
               
OTHER ASSETS
             
Equity investment - Organic Farm Marketing
   
50,000
   
50,000
 
Restricted cash
   
1,000,000
   
1,000,000
 
Total Other Assets
   
1,050,000
   
1,850,000
 
               
TOTAL ASSETS
 
$
8,424,405
 
$
8,490,987
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY
             
               
CURRENT LIABILITIES
             
Accounts payable and accrued expenses
 
$
65,230
 
$
34,997
 
Accounts payable - related party
   
1,265
   
2,422
 
Total Current Liabilities
   
66,495
   
37,419
 
               
Total Liabilities
   
66,495
   
37,419
 
               
COMMITMENTS AND CONTINGENCIES
   
-
   
-
 
               
STOCKHOLDERS' EQUITY
             
Preferred stock, par value $0.001; 20,000,000 shares authorized, no shares issued and outstanding
   
-
   
-
 
Common stock, par value $0.001; 2,000,000,000 shares authorized, 1,167,621,940 shares issued and outstanding
   
1,167,621
   
1,167,621
 
Additional paid-in capital
   
27,730,277
   
27,763,610
 
Stock options and warrants
   
1,749,892
   
1,716,559
 
Deficit accumulated during development stage
   
(22,289,880
)
 
(22,194,222
)
Total Stockholders' Equity
   
8,357,911
   
8,453,568
 
               
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
8,424,405
 
$
8,490,987
 

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

1


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


                       
 From Inception 
 
                       
 (December 2, 1985) 
 
   
 Three Months Ended September 30, 
 
 Nine Months Ended September, 
 
 through 
 
   
 2008
 
 2007
 
 2008
 
 2007
 
 September 30, 2008
 
   
 (unaudited)
 
 (unaudited)
 
 (unaudited)
 
 (unaudited)
 
 (unaudited)
 
                            
REVENUES
 
$
-
 
$
-
 
$
-
 
$
-
 
$
89,947
 
                                 
OPERATING EXPENSES
                               
Research and development
   
-
   
-
   
-
   
-
   
3,925,134
 
Promotional fees
   
-
   
-
   
-
   
-
   
62,570
 
Professional fees
   
81,217
   
44,549
   
290,225
   
253,290
   
3,942,922
 
Business development
   
-
   
-
   
-
   
-
   
121,000
 
Consulting - research and development (non-cash)
   
-
   
-
   
-
   
-
   
1,388,229
 
Warrants - scientific advisory board
   
-
   
-
   
-
   
-
   
6,820
 
Options expense - directors
   
-
   
-
   
-
   
-
   
192,649
 
Directors' fees
   
-
   
-
   
-
   
-
   
443,253
 
Depreciation and amortization
   
1,273
   
19,332
   
3,819
   
58,157
   
1,046,730
 
Administrative salaries and benefits
   
26,034
   
15,055
   
70,520
   
15,055
   
1,614,754
 
Insurance
   
-
   
-
   
-
   
-
   
324,452
 
Shareholder relations and transfer fees
   
3,387
   
41,236
   
14,154
   
68,709
   
408,698
 
Rent
   
-
   
-
   
-
   
-
   
361,578
 
Travel and entertainment
   
-
   
167
   
113
   
167
   
332,876
 
Telephone and communications
   
300
   
484
   
977
   
662
   
66,896
 
Office
   
22
   
380
   
772
   
476
   
85,525
 
General and administrative
   
1,354
   
3,898
   
20,444
   
49,614
   
906,767
 
Total Operating Expenses
   
113,587
   
125,101
   
401,023
   
446,129
   
15,230,853
 
                                 
LOSS FROM OPERATIONS
   
(113,587
)
 
(125,101
)
 
(401,023
)
 
(446,129
)
 
(15,140,906
)
                                 
OTHER INCOME (EXPENSES)
                               
Miscellaneous income
   
-
   
-
   
-
   
-
   
27,682
 
Interest and dividend income
   
34,470
   
84,405
   
150,672
   
240,038
   
720,804
 
Income from extension of line of credit
   
84,673
   
-
   
154,693
   
-
   
248,118
 
Internal gain on sale of securities
   
-
   
-
   
-
   
-
   
157,520
 
Forgiveness of debt
   
-
   
-
   
-
   
-
   
2,192,836
 
Forgiveness of payables
   
-
   
-
   
-
   
-
   
45,396
 
Loss on uncollectable notes receivable
   
-
   
-
   
-
   
-
   
(70,770
)
Loss on disposal of office equipment
   
-
   
-
   
-
   
-
   
(259,755
)
Loss on abandonment of patents
   
-
   
-
   
-
   
-
   
(881,814
)
Interest expense
   
-
   
(268
)
 
-
   
(488
)
 
(9,328,992
)
Total Other Income (Expenses)
   
119,143
   
84,137
   
305,366
   
239,551
   
(7,148,973
)
                                 
INCOME /(LOSS) BEFORE INCOME TAXES
   
5,556
   
(40,964
)
 
(95,658
)
 
(206,578
)
 
(22,289,880
)
                                 
INCOME TAXES
   
-
   
-
   
-
   
-
   
-
 
                                 
NET INCOME / (LOSS)
 
$
5,556
 
$
(40,964
)
$
(95,658
)
$
(206,578
)
$
(22,289,880
)
                                 
BASIC AND DILUTED NET LOSS PER COMMON SHARE
 
$
nil
 
$
nil
 
$
nil
 
$
nil
       
                                 
WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED COMMON STOCK SHARES OUTSTANDING
   
966,182,814
   
985,803,758
   
966,182,814
   
959,642,499
       

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

2


(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS


             
 From Inception
 
             
 (December 2, 1985)
 
   
 Nine Months Ended September 30,
 
 through
 
   
 2008
 
 2007
 
 September 30, 2008
 
   
 (unaudited)
 
 (unaudited)
 
 (unaudited)
 
                  
CASH FLOWS FROM OPERATING ACTIVITIES:
                   
Net (loss)
 
$
(95,658
)
$
(206,578
)
$
(22,289,880
)
Adjustments to reconcile net loss to cash used in operating activities:
                   
Depreciation and amortization
   
3,819
   
58,157
   
988,841
 
Loss on disposal of equipment
   
-
   
-
   
259,755
 
Loss on impairment of patents
   
-
   
-
   
881,815
 
Loss on uncollectable notes receivable
   
-
   
-
   
46,618
 
Investment income
   
-
   
-
   
(157,520
)
Expenses paid through issuance of common stock
   
-
   
-
   
566,176
 
Expenses paid through issuance warrants and options
   
-
   
- -
   
1,892,931
 
Accrued interest paid by convertible debt
   
-
   
-
   
5,609,076
 
Beneficial conversion
   
-
   
-
   
5,859,894
 
Expenses paid through contribution of additional paid-in capital
   
-
   
-
   
68,078
 
Conveyance of patent in lieu of payable
   
-
   
- -
   
39,500
 
Organization costs
   
-
   
-
   
(9,220
)
Decrease (increase) in assets:
                   
Deposits and prepaid expenses
   
-
   
(272
)
 
(61,687
)
Interest receivable
   
(64,227
)
 
(2,273
)
 
(220,730
)
Increase (decrease) in liabilities:
                   
Accounts payable and accrued expenses
   
30,233
   
(78,462
)
 
197,771
 
Accounts and notes payable, related parties
   
(1,158
)
 
879
   
242,433
 
Accrued interest
   
-
   
-
   
-
 
 Net cash provided by (used) in operating activities
   
(126,990
)
 
(228,550
)
 
(6,086,150
)
                     
CASH FLOWS FROM INVESTING ACTIVITIES:
                   
Purchase of fixed assets
   
(15,277
)
 
-
   
(400,617
)
Investments in companies
   
(50,000
)
 
-
   
(900,000
)
Notes Receivable
   
(700,000
)
           
Change in restricted cash
   
(750,000
)
 
-
   
(1,750,000
)
Acquisition of patents
   
-
   
(25,962
)
 
(1,317,565
)
 Net cash used in investing activities
   
(1,515,277
)
 
(25,962
)
 
(4,368,182
)
                     
CASH FLOWS FROM FINANCING ACTIVITIES:
                   
Proceeds from issuance of common stock
   
-
   
39,242
   
8,078,313
 
Internal gain on sale of securities
   
-
   
549,386
   
2,525,088
 
Proceeds from convertible notes
   
-
   
-
   
6,754,000
 
Proceeds from notes payable
   
-
   
-
   
(1,025,992
)
Payments on notes payable
   
-
   
(8,099
)
 
(198,686
)
 Net cash provided by (used) in financing activities
   
-
   
580,529
   
16,132,723
 
                     
Net increase in cash
   
(1,642,268
)
 
326,017
   
5,678,391
 
                     
Cash, beginning
   
6,620,659
   
6,082,344
   
-
 
                     
Cash, ending
 
$
4,978,391
 
$
6,408,361
 
$
4,978,391
 
                   
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
 
$
-
 
$
-
 
$
3,042,381
 
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
 
$
-
 
$
-
 
$
328,251
 
Accrued interest paid by convertible debt
 
$
-
 
$
-
 
$
3,370,519
 
Common stock issued for convertible debt
 
$
-
 
$
-
 
$
10,544,986
 
Forgiveness of debt
 
$
-
 
$
-
 
$
145,400
 

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

3


ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2008


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 was primarily 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 and AIDS, until 2007 when the Company decided to discontinue such research and development. 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. Management’s goal has been to acquire control or non-control investments in one or more revenue generating companies.

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 10-Q and Regulation S-K 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 complete financial statements. These unaudited financial statements should be read in conjunction with the audited financial statements included in our annual reports on Form 10-KSB for the year ended December 31, 2007. 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 nine month period ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

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.
 
The Company adopted the provisions of SFAS No. 157 related to its financial assets and liabilities measured at fair value on a recurring basis. SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
 
The three levels of the fair value hierarchy defined by SFAS No. 157 are as follows:
 
Level 1 - Quoted prices are available in active markets for identical assets or liabilities. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
 
Level 2 - Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
 
Level 3 - Pricing inputs include significant inputs that are generally unobservable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Level 3 instruments include those that may be more structured or otherwise tailored to the Company’s needs.
 
As required by SFAS No. 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
 
The following table discloses by level within the fair value hierarchy the Company’s assets and liabilities measured and reported on the Consolidated Balance Sheet as of September 30, 2008 at fair value on a recurring basis:
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Assets: 
 
 
 
  
 
  
 
  
 
Equity Investment in Organic Farm Marketing
 
$
50,000
 
$
-
 
$
-
 
$
50,000
 
 
           -    
-
       
   
$
50,000
 
$
-
 
$
-
 
$
50,000
 
 
Our level 3 investments fair value is determined by using valuation models that use market-based and observable inputs.
 
Accounting Method
The Company’s financial statements are prepared using the accrual method of accounting.

4


ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2008


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, equipment, and furniture, at December 31, 2007. See Note 3.

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.
 
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 was primarily engaged in the research and development of the treatment of autoimmune diseases in humans, most notably, multiple sclerosis and rheumatoid arthritis.

Loans Receivable
Loans are stated at their unpaid principal balance adjusted for unamortized premiums and unearned discounts and deferred loan fees and costs.  Interest income is computed using the simple interest method and is recorded in the period earned. The company determines that principal or interest payments paid later than 60 days past the due date, or otherwise governed by the loan agreement, is considered to be in default.

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 five years.

The following is a summary of property, equipment and accumulated depreciation at September 30, 2008 and December 31, 2007:

   
September 30,
2008
 
December 31,
2007
 
Cost:
             
Office equipment
 
$
15,278
 
$
12,922
 
Furniture and fixtures
   
-
   
10,082
 
Total assets
   
15,278
   
23,004
 
Less accumulated depreciation
   
(3,819
)
 
(23,004
)
Net fixed assets
 
$
11,459
 
$
-
 

5


ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2008


Depreciation expense for the nine months ended September 30, 2008 and 2007 were $3,819 and $19,332, 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 September 30, 2008, the Company had not issued any preferred stock.

Common Stock
The Company is authorized to issue 2,000,000,000 shares of non-assessable $0.001 par value common stock. Each share of common stock is entitled to one vote. During the nine months ended September 30, 2008 no shares were issued.

NOTE 5– CONCENTRATIONS

Bank Accounts and Investments
The Company maintains cash on deposit in Illinois. As of September 30, 2008, all of the deposits are insured by the FDIC up to $250,000 per account.

The funds in Illinois reflect a balance of the following accounts:
Restricted Cash
 
$
1,000,000
 
Regular Checking
   
20,000
 
Money Market
   
4,958,391
 
Total
 
$
5,978,391
 

At September 30, 2008, $5,728,391 of these amounts were in excess of FDIC insured limits.

NOTE 6- INVESTMENTS

Organic Farm Marketing
On December 18, 2007, the Company and Organic Farm Marketing, LLC (“OFM”), a Wisconsin limited liability company, entered into an agreement whereby the Company arranged for The Northern Trust Company of Chicago, Illinois (“Bank”) to issue a $1.0 million irrevocable letter of credit (“Letter of Credit”) for the benefit of the Wisconsin Department of Agriculture, Trade and Consumer Protection (“Wisconsin Department”), the designee of OFM. As collateral for repayment of funds advanced under the Letter of Credit, the Company pledged to the bank a certificate of deposit in the amount of $1.0 million. OFM’s obligations to reimburse the Company for payments made by the Company to the Bank are evidenced by a promissory note (“OFM Note”) and a reimbursement agreement (“Reimbursement Agreement”) secured by OFM’s assets. OFM further agreed to pay a cash fee of $50,000 and issue to the Company 5,000 units of OFM as payment for obtaining the Letter of Credit.

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ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2008


The Company also loaned to OFM the sum of $800,000 to be used for working capital and to repurchase a member’s interest in OFM. OFM issued to the Company a convertible note (“Convertible Note”) in the principal amount of $800,000, which bears interest at 10% per annum, payable quarterly. The Convertible Note has a stated maturity date of May 17, 2009, subject to acceleration upon default by OFM. Commencing June 18, 2008, the Convertible Note is convertible into OFM units at the conversion rate of $10.00 per unit. The loan also is secured by all of OFM’s assets.
 
Prior to the Company entering into the OFM Transaction, Richard P. Kiphart, the Company’s Chairman of the Board, made loans to OFM in April and June, 2007, evidenced by convertible notes (collectively “Kiphart Convertible Notes”), which notes are secured by OFM’s assets. Mr. Kiphart and the Company agreed that Mr. Kiphart will subordinate his claims under the Kiphart Convertible Notes to the Company’s claims against OFM relative to the OFM Note and the Reimbursement Agreement. The Company’s claims also will be senior to Mr. Kiphart as to payment and rights to collateral securing the OFM Note and the Reimbursement Agreement. Mr. Kiphart agreed that the Company’s Convertible Note will rank on the same priority as to payment and rights to collateral as the Kiphart Convertible Notes. Mr. Kiphart has advanced additional funds to OFM, which advances are junior in priority to the Company’s loans as to payment and rights to collateral.

NOTE 7- RELATED PARTY NOTES RECEIVABLE

Lime Energy, Inc.
On March 12, 2008, the Company and Richard P. Kiphart, Chairman of the Board of the Company, agreed to provide Lime Energy, Inc. (“LIME”) (NASDAQ:LIME), a developer, manufacturer and integrator of energy saving technologies, with a $3 million revolving line of credit, for which the Company and Mr. Kiphart each will be responsible to fund up to $1.5 million. The Company and Mr. Kiphart will fund the line of credit and receive principal and interest payments on a pro-rata basis. As of September 30, 2008, LIME has requested $1,500,000 on the line of credit. Advances in the amount of $250,000 were requested on May 19, 2008, May 28, 2008, June 9, 2008, July 3, July 10, and July 31, respectively. Mr. Kiphart subsequently has increased his loan commitment to LIME to $14,500,000, which will be repaid pro-rata with the Company’s loans.
 
The LIME note matures on March 31, 2009, and bears interest at 17% per annum payable quarterly, with 12% payable in cash and the remaining 5% to be capitalized and added to the principal balance of the note. The note also provides for payment quarterly of an unused funds fee of 4% per annum, as well as a fee payable upon termination of the facility prior to its scheduled maturity. LIME may borrow any amount during the term of the note, so long as it is not in default at the time of the advance. If the LIME note is not timely repaid, then the Company may convert such note at the conversion rate of $7.93 per share.

7


ADVANCED BIOTHERAPY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2008


Mr. Kiphart is also the Chairman of the Board of LIME and its largest individual investor, and Mr. David Valentine, one of the Company’s directors, is also a director of LIME.

NOTE 8- SUBSEQUENT EVENTS

As of October 6, 2008, the $1.0 million irrevocable letter of credit for the benefit of the Wisconsin Department of Agriculture, Trade and Consumer Protection aforementioned in Note 6 has been released. This amount is no longer restricted cash, and upon maturity of the CD the funds will be transferred into the Northern Trust Money Market Account.

As of October 31, 2008, the Company entered into an amended and restated note issuance agreement with Lime Energy, Inc., pursuant to which the Company committed to provide an additional $3.0 million to Lime on the same terms as the line of credit described in Note 7 above, except that the conversion rate for the entire $4.5 million loan was adjusted to $4.76 per share. Advances in the amount of $250,000 were made on November 3, 2008, resulting in an outstanding principal balance of $1,750,000.

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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 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,” “will,” “assume,” “continue,” or 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, 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. 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 subsection “Factors That May Affect the Company,” and Item 5. the “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, 2007. 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.
 
OVERVIEW
 
At September 30, 2008, the Company had a total cash balance of $5,978,391, of which $1,000,000 of cash was restricted due to its pledge as collateral for a bond that was secured for Organic Farm Marketing, LLC. As of October 6, 2008, such bond was terminated and the $1,000,000 in cash is no longer classified as restricted cash. This amount of cash is projected to be adequate to meet the Company’s projected minimum cash requirements for operations for the next 12-month period ending September 30, 2009, of approximately $350,000 to $400,000. Currently, the Company’s only source of income is from interest earned on its cash and investments. Based upon the Company’s current business plan, management believes that for the period ending September 30, 2009, the earned interest will be sufficient to fund approximately 45% to 55% of our projected operating expenses excluding certain non-recurring expenses. The Company, however, does not have a source of revenue to continue its operations beyond the currently available funds.

9


As previously reported, the Company has ceased all research and development projects and new patent applications. It is expected that the Company’s current position regarding use of its funds for research and development and patent matters will continue during the next 12 months, unless otherwise determined by the Board of Directors.
 
The Company’s business plan for the first three quarters of 2008 principally focused on the following three specific elements:
 
1.
Evaluation of possible acquisition candidates;
 
2.
Acquisition of a control or non-control position in one or more revenue generating companies or development stage companies, through investment in equity or convertible debt, or an asset acquisition or other financing; and
 
3.
Sale of our patents and/or licensing agreements with companies seeking opportunities related to our patents.
 
As of October 31, 2008, the Company had committed to loan an additional $3.0 million to Lime Energy, Inc., as reported in the Company’s Current Report on Form 8-K filed November 4, 2008. The Company has funded approximately $250,000 of such commitment. Based upon the foregoing loan and the Company’s cash position, during the remainder of the fourth quarter of 2008, the Company does not expect to pursue the acquisition of or investment in any revenue generating company.
 
As of the date hereof, the Company has not entered into any agreement to acquire a revenue generating company, nor has it entered into any agreement for the sale or license of its patents.
 
We have a history of operating losses and have not generated any revenue. At September 30, 2008, we had an accumulated deficit of $22,289,880. The amount of time required to reach sustained profitability is highly uncertain.
 
The Company does not expect to purchase any significant equipment.
 
RESULTS OF OPERATIONS
 
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 $4,978,391 in available cash and $1,000,000 in restricted cash at September 30, 2008 (which restricted cash has since become unrestricted), and had issued and outstanding 1,167,621,940 shares of its Common Stock.

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THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO 2007
 
For the three months ended September 30, 2008, the Company realized net income of $5,556 compared to a net loss of $40,964 for the three months ended September 30, 2007. The Company had decreases in expenses and increases in interest income over the three months ended September 30, 2007, consisting primarily of the following: decreased general and administrative expenses by $2,544, decreased shareholder and transfer agent fees of $37,849, decrease in administrative salaries of $10,979, decreased depreciation and amortization of $18,509, increased interest and dividend income of $34,738, offset by increased professional fees of $36,668.
 
NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO 2007
 
For the nine months ended September 30, 2008, the Company realized a net loss of $40,964 compared to a net loss of $206,578 for the nine months ended September 30, 2007. The Company had decreases in expenses and increases in interest income over the nine months ended September 30, 2007, consisting primarily of the following: decreased general and administrative expenses of $29,170, decreased shareholder relations and transfer fees of $54,555, decreased depreciation and amortization of $54,337, and increased interest and dividend income of $65,327, offset by increased administrative salaries and benefits of $55,465 and an increase in professional fees of $36,935.
 
4T. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.
 
Changes in Internal Control over Financial Reporting
 
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II: OTHER INFORMATION
 
ITEM 6. EXHIBITS
 
Exhibits required by Item 601 of Regulation S-K

Exhibit
   
 
Description of Exhibit
     
2.1
 
Agreement of Merger dated as of July 14, 2000, between the registrant, a Delaware corporation, and Advanced Biotherapy Concepts, Inc., a Nevada corporation. Filed as Appendix A to registrant’s Proxy Statement dated July 14, 2000, and incorporated herein by reference.
     
3.1
 
Form of Amendment to Certificate of Incorporation. Filed as an exhibit to registrant’s Form 8-K on October 16, 2006.
     
3.2
 
Bylaws of registrant. Filed as an exhibit to registrant’s 10-QSB for the quarter ended September 30, 2000, and incorporated herein by reference.1 
     
4.1
 
Form of registrant’s Common Stock Certificate. Filed as an exhibit to registrant’s Form 10-QSB
   
filed on June 10, 1999, and incorporated herein by reference.
     
10.19
 
Investment Agreement. Filed as an exhibit to registrant’s Form 8-K on December 21, 2007.
     
10.20
 
OFM Secured Promissory Note. Filed as an exhibit to registrant’s Form 8-K on December 21, 2007.
     
10.21
 
OFM Convertible Note. Filed as an exhibit to registrant’s Form 8-K on December 21, 2007.
     
10.22
 
OFM General Business Security Agreement. Filed as an exhibit to registrant’s Form 8-K on December 21, 2007.
     
10.23
 
OFM Reimbursement Agreement. Filed as an exhibit to registrant’s Form 8-K on December 21, 2007.
     
10.24
 
Intercreditor Agreement. Filed as an exhibit to registrant’s Form 8-K on December 21, 2007.
     
10.25
 
The Northern Trust Company Pledge Agreement (Deposit Account). Filed as an exhibit to registrant’s Form 8-K on December 21, 2007.
     
10.26
 
Subscription Agreement. Filed as an exhibit to registrant’s Form 8-K on December 21, 2007.
     
10.27
 
Revolving Line of Credit Note. Filed as an exhibit to registrant’s Form 8-K on March 14, 2008.
     
10.28
 
Note Issuance Agreement. Filed as an exhibit to registrant’s Form 8-K on March 14, 2008.
     
10.29
 
Amended and Restated Revolving Line of Credit Note. Filed as an exhibit to registrant’s Form 8-K on June 12, 2008.2  
     
10.30
 
AR Note Issuance Agreement. Filed as an exhibit to registrant’s Form 8-K on June 12, 2008.3 
     
10.31
 
Third Amended and Restated Revolving Line of Credit Note - $4,500,000. (Incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on November 4, 2008.)
     
10.32
 
Amended and Restated Note Issuance Agreement. (Incorporated herein by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on November 4, 2008.)
 

1 Exhibit 3.2 was erroneously identified as Exhibit 2.3 in the original filing and is correctly identified herein.
2 Exhibit 10.29 was erroneously identified as Exhibit 10.30 in the original filing and is correctly identified herein.
3 Exhibit 10.30 was erroneously identified as Exhibit 10.31 in the original filing and is correctly identified herein.

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10.33
 
Amendment No. 1 to Security Agreement and Security Agreement. (Incorporated herein by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K and filed on November 4, 2008.)
     
31.1
 
Rule 13a-14 Certification dated November 13, 2008 by Christopher W. Capps, President and Chief Executive Officer.*
     
31.2
 
Rule 13a-14 Certification dated November 13, 2008 by John L. Drew, Chief Financial Officer and Controller.*
     
32.1
 
Section 1350 Certification dated November 13, 2008 by Christopher W. Capps, President and Chief Executive Officer.*
     
32.2
 
Section 1350 Certification dated November 13, 2008 by John L. Drew, Chief Financial Officer and Controller.*

(b) Reports on Form 8-K
 
The registrant filed no reports on Form 8-K during the quarter ended September 30, 2008.

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SIGNATURES
FORM 10-Q
For the Quarter Ended September 30, 2008
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 13th day of November, 2008.
 
     
ADVANCED BIOTHERAPY, INC.
     
(registrant)
         
         
By:
/s/Christopher W. Capps
 
By:
/s/John L. Drew
 
Christopher W. Capps
   
John L. Drew
 
President and Chief
   
Chief Financial Officer and Controller
 
Executive Officer
     

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