Advanced Biotherapy 10QSB/A 2006 Q2 Quarterly report (small business) (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 1

TO

FORM 10-QSB/A

(Mark One)

x Amendment to Quarterly Report (as previously amended) pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period ended June 30, 2006.

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 or registrant as specified in its charter)

Delaware	51-0402415
(State of jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

141 West Jackson Blvd., Suite 2182

Chicago, IL 60604

(Address of principal executive offices, including zip code)

(312) 427-1912

(Registrant’s telephone number, including area code)

Indicate by mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x YESo NO

As of August 1, 2006, the Registrant had 54,348,346 shares of common stock, $0.001 par value, outstanding.

EXPLANATORY NOTE

We are amending our Quarterly Report on Form 10-QSB/A for the quarter ended June 30, 2006, filed on August 23, 2006 (the “Second Quarter Amended Report”), to restate our financial statements for the quarter ended June 30, 2006, and the related disclosures in the Notes to the financial statements (the “Restatement”).

The Restatement reflects the reclassification of certain expenses regarding the vesting of options and warrants (non-cash) as reflected in the Statements of Operations in our restated financial statements. This reclassification does not result in any additional expenses to the Company from such reclassification. The Restatement also reflects an additional $49,749 in accumulated deficit at December 31, 2005, resulting from an additional interest expense recorded as a finance charge in the amount of $49,749 for the year ended December 31, 2004. The additional interest expense was explained in the restatement of our financial statements filed in our Form 10-KSB/A for the year ended December 31, 2005. See Note 10, “Correction of an Error”, of the Notes to Financial Statements in this Form 10-QSB/A for a detailed discussion of the effect of the Restatement.

For the convenience of the reader, this Amendment (“Amendment”) restates in its entirety the Second Quarter Amended Report, as amended by, and to reflect the Restatement. This Amendment continues to speak as of the date of the Second Quarter Amended Report, and we have not updated the disclosures contained herein to reflect any events that occurred at a later date other than as described in this explanatory note. All information contained in this Amendment is subject to updating and supplementing as provided in our periodic reports filed with the Securities and Exchange Commission subsequent to the date of the filing of the Second Quarter Amended Report.

The restatement of the Second Quarter Amended Report is made because the Company and its accountants determined that certain errors were made with respect to the Company’s audited financial statements for the year ended December 31, 2004 and December 31, 2005. The errors in the Company’s audited financial statements were brought recently to the Company’s attention by the Securities and Exchange Commission (“SEC”), and the accounting procedures involved have been corrected.

Except for the sections of this Amendment to the Second Quarter Amended Report entitled Financial Statements, Note 10 of the Notes to Financial Statements, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Controls and Procedures, all of the information in this Amendment (except for the financial statements) is as of the date of the Second Quarter Amended Report, and does not reflect events occurring after the Second Quarter Amended Report other than the Restatement, or modify or update disclosures affected by subsequent events, except for the updated Exhibits 31.1, 31.2, 32.1, and 32.2 described below. In addition, in accordance with applicable SEC rules, this Amendment includes updated certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2, 32.1 and 32.2.

The following sections of this Amendment have been revised from the Second Quarter Amended Report:

	Introduction to Form 10-QSB/A - Deleted
Part I - Item 1	Financial Statements and Notes to Financial Statements
Part I - Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part I - Item 3	Controls and Procedures

TABLE OF CONTENTS

ITEM	PAGE
PART I.
1. Financial Statements (Restated)
a. Balance Sheets - June 30, 2006 (unaudited and restated) and December 31, 2005 (restated)	1
b. Statements of Operations -- Three months ended June 30, 2006 (unaudited), June 30, 2005 (unaudited); Six months ended June 30, 2006 (unaudited), June 30, 2005 (unaudited); and from Inception through June 30, 2006 (unaudited and restated)	2
c. Corrected Statements of Cash Flows - Six months ended June 30, 2006 (unaudited), June 30, 2005 (unaudited) and from Inception through June 30, 2006 (unaudited and restated)	3
d. Notes to Financial Statements (restated)	4
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
3. Controls and Procedures	14
PART II.
2. Changes in Securities	15
6. Exhibits and Reports on Form 8-K	15

PART I

ITEM 1. FINANCIAL STATEMENTS

ADVANCED BIOTHERAPY, INC. **= Restated

(A DEVELOPMENT STAGE ENTERPRISE)

BALANCE SHEETS 

	June 30, 2006 (Unaudited and Restated)			December 31,  2005 (Restated)
ASSETS
CURRENT ASSETS
Cash	$	21,447		$	22,068
Notes receivable - related party		46,619			46,619
Interest receivable - related party		19,605			18,090
Deposits and prepaid expenses		-			-
Total Current Assets		87,671			86,777
PROPERTY, PLANT AND EQUIPMENT, net		284,920			294,428
OTHER ASSETS
Deferred loan origination fees, net of accumulated amortization		-			7,283
Patents and patents pending, net of accumulated amortization		816,222			883,002
Total Other Assets		816,222			890,285
TOTAL ASSETS	$	1,188,813		$	1,271,490
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	189,823		$	246,776
Accounts payable and accrued expenses - related party		219,837			182,200
Loan payable - related party		361,500			-
Accrued interest on term and convertible debt		8,962			-
Current portion of term and convertible notes payable		4,740,466			4,490,485
Other Current Liabilities		-			-
Total Current Liabilities		5,520,588			4,919,461
LONG-TERM DEBT
Convertible notes payable, net of current portion		1,362,624			1,286,134
Note payable to related parties		127,631			127,631
Total Long-Term Debt		1,490,255			1,413,765
TOTAL LIABILITIES		7,010,843			6,333,226
COMMITMENTS AND CONTINGENCIES		-			-
STOCKHOLDERS' DEFICIT
Preferred stock, par value $0.001; 20,000,000 shares authorized,
no shares issued and outstanding		-			-
Common stock, par value $0.001; 200,000,000 shares authorized,
54,348,346 shares issued and outstanding		54,347			54,347
Additional paid-in capital**		7,039,972			6,998,563
Stock options and warrants		1,348,051			1,235,551
Deficit accumulated during development stage**		(14,264,400	)		(13,350,197	)
Total Stockholders' Deficit		(5,822,030	)		(5,061,736	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	1,188,813		$	1,271,490

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

1

ADVANCED BIOTHERAPY, INC. **= Restated

(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF OPERATIONS

													From Inception (December 2, 1985) through
	Three Months Ended June 30,						Six Months Ended June 30,						June 30, 2006 (Unaudited
	2006 (Unaudited)			2005 (Unaudited)			2006 (unaudited)			2005 (unaudited)			and Restated)
REVENUES	$	-		$	-			-		$	-		$	89,947
OPERATING EXPENSES
Research and development		2,303			72,746			4,900			166,431			3,920,434
Promotional fees		-			212			-			212			62,570
Professional fees		59,573			38,793			101,991			109,456			3,063,065
Business development		-						39,500						121,000
Consulting, Research and Development (non-cash)**		-			418,000			151,700			590,200			1,383,309
Warrants - scientific advisory board		-			1,900			-			1,900			1,900
Directors' fees		-						-						299,053
Depreciation and amortization		24,067			25,354			50,172			50,061			930,578
Administrative salaries and benefits		11,575			71,184			103,771			140,361			1,481,769
Insurance		-			18,256			-			36,513			324,452
Shareholder relations and transfer fees		3,000			3,000			6,000			11,690			317,398
Rent		5,100			5,100			10,200			10,200			361,578
Travel and entertainment		1,349			5,313			1,384			18,881			332,183
Telephone and communications		1,460			1,157			2,303			2,948			64,720
Office		371			1,409			1,742			3,182			83,610
General and administrative		8,190			9,116			12,252			15,100			764,008
Total Operating Expenses		116,988			671,540			485,915			1,157,135			13,511,627
LOSS FROM OPERATIONS		(116,988	)		(671,540	)		(485,915	)		(1,157,135	)		(13,421,680	)
OTHER INCOME (EXPENSES)
Miscellaneous income		-						-						27,682
Interest and dividend income		916			2,432			1,854			2,682			173,293
Internal gain on sale of securities		-			1,237			-			3,087			157,520
Forgiveness of debt		-						-						2,192,837
Forgiveness of payables		-						-						45,396
Loss on disposal of office equipment		-						-						(2,224	)
Loss on impairment or abandonment of patents		(92,500	)					(92,500	)					(136,175	)
Interest expense**		(171,218	)		(143,091	)		(337,642	)		(282,662	)		(3,301,049	)
Total Other Income (Expenses)**		(262,802	)		(139,422	)		(428,288	)		(276,893	)		(842,720	)
LOSS BEFORE INCOME TAXES**		(379,790	)		(810,962	)		(914,203	)		(1,434,028	)		(14,264,400	)
INCOME TAXES		-			-			-			-			-
NET LOSS**	$	(379,790	)	$	(810,962	)		(914,203	)	$	(1,434,028	)	$	(14,264,400	)
BASIC AND DILUTED NET LOSS
PER COMMON SHARE	$	(0.01	)	$	(0.02	)		(0.02	)	$	(0.03	)
WEIGHTED AVERAGE NUMBER OF
BASIC AND DILUTED COMMON STOCK
SHARES OUTSTANDING		54,348,346			54,032,557			54,348,346			54,032,557

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

2

ADVANCED BIOTHERAPY, INC. **= Restated

(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF CASH FLOWS 

							From Inception
							(December 2, 1985)
	Period Ended June 30,						through
	2006 (Unaudited)			2005 (Unaudited)			June 30, 2006 (Unaudited and Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)**	$	(914,203	)	$	(1,434,028	)	$	(14,264,400	)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization		50,172			50,061			872,690
Loss on disposal of equipment					-			2,224
Loss on impairment of patents		92,500			-			136,175
Investment income					-			(157,520	)
Expenses paid through issuance of common stock					-			291,339
Expenses paid through issuance								-
of common stock warrants and options		151,700			632,600			1,551,162
Accrued interest paid by convertible debt**		326,471			280,325			2,927,769
Expenses paid through contribution								-
of additional paid-in capital		2,209			2,209			66,955
Organization costs					-			(9,220	)
Decrease (increase) in assets:								-
Marketable securities					-			-
Deposits and prepaid expenses					13,076			-
Interest receivable		(1,515	)		(1,515	)		(60,173	)
Deferred loan origination cost					-			(157,295	)
Increase (decrease) in liabilities:								-
Accounts payable and accrued expenses		(56,953	)		79,875			267,364
Accounts payable and accrued expenses - related parties		37,637			14,350			278,805
Accrued Interest		8,962			-			8,962
Net cash used in operating activities		(303,020	)		(363,047	)		(8,245,163	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets					(858	)		(385,339	)
Acquisition of patents		(59,101	)		(66,786	)		(1,263,706	)
Net cash used in investing activities		(59,101	)		(67,644	)		(1,649,045	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		-			-			2,457,254
Internal gain on sale of securities		-			-			157,520
Proceeds from convertible notes		-			100,000			6,754,000
Proceeds from notes payable		361,500			-			750,008
Payments on notes payable		-			-			(175,127	)
Net cash provided by financing activities		361,500			100,000			9,915,655
Net increase (decrease) in cash		(621	)		(330,691	)		21,447
Cash beginning		22,068			367,337			-
Cash, ending	$	21,447		$	36,646		$	21,447
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	$	-		$	-		$	213,381
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	$	-		$	-		$	15,011
Accrued interest paid by convertible debt**	$	354,471		$	280,325		$	2,927,769
Common stock issued for convertible debt	$	-		$	-		$	707,156

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

3

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO FINANCIAL STATEMENTS

June 30, 2006

NOTE 1 - BUSINESS ORGANIZATION AND BASIS OF PRESENTATION

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

The Company is involved in the research and development for the treatment of autoimmune diseases in humans, most notably, multiple sclerosis, rheumatoid arthritis, and certain autoimmune skin diseases and AIDS. The Company conducts its research in Maryland. The Company’s fiscal year-end is December 31. The Company is a development stage enterprise.

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

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

For the six months ended June 30, 2006, the Company incurred a net loss of $914,203 and had an accumulated deficit during the development stage of $14,264,400. The Company has limited funds for research and development costs and operations and it does not have a source of revenues to continue its operations, research and development costs or to service its debt at maturity. For the twelve-month period subsequent to June 30, 2006, the Company anticipates that its minimum cash requirements will be approximately $4,930,000 to repay the current portion of convertible and term debt, before consideration of its going concern cash requirements.. The Company is currently in default on convertible debt in the amount of $4,740,466 and term debt in the amount of approximately $190,000. The future of the Company is dependent upon securing additional debt or equity funding and future profitable operations from the commercial success of its medical research and development of products to combat diseases of the human immune system. One of management’s goals is to forge a collaborative relationship with either a pharmaceutical or biotechnology company. If successful, future cash requirements may be met through licensing fees and royalties. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Regulation S-B as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2005. 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 six month period ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

4

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO FINANCIAL STATEMENTS

June 30, 2006

NOTE 2 - LIMITED SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Accounting Method

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

Use of Estimates

The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.

Accounting for Stock Options and Warrants Granted to Employees and Nonemployees

Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”, defines a fair value-based method of accounting for stock options and other equity instruments. The Company has adopted this method, which measures compensation costs based on the estimated fair value of the award and recognizes that cost over the service period.

Development Stage Activities

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

Research and Development

Costs of research and development are expensed as incurred.

5

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO FINANCIAL STATEMENTS

June 30, 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 June 30, 2006 and December 31, 2005:

	March 31, 2006			December 31, 2005
	Cost			Cost
Lab equipment	$	31,891		$	31,891
Office equipment		13,777			13,777
Furniture and fixtures		22,539			22,539
Clean room		271,786			271,786
Total assets		339,993			339,993
Less accumulated depreciation		(55,073	)		(45,565	)
Net fixed assets	$	284,920		$	294,428

Depreciation expense for the six months ended June 30, 2006 and 2005 were $9,509 and $10,705, 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 June 30, 2006, the Company has not issued any preferred stock.

Common Stock

The Company is authorized to issue 200,000,000 shares of non-assessable $0.001 par value common stock. Each share of stock is entitled to one vote at the annual shareholders’ meeting. No common stock shares were issued during the six months ended June 30, 2006.

NOTE 5 - COMMON STOCK OPTIONS AND WARRANTS

Omnibus Equity Incentive Plan

In 2000, the board of directors approved an Omnibus Equity Incentive Plan, which was later approved by the stockholders in December 2001. The purpose of the plan is to promote the long-term success of the Company and the creation of stockholder value by encouraging employees, outside directors and consultants to focus on the achievement of critical long-range objectives. The plan endeavors to attract and maintain such individuals with exceptional qualifications and to 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 six months ended June 30, 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.

6

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO FINANCIAL STATEMENTS

June 30, 2006

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

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

(1) Omnibus Equity Incentive Plan

Following is a summary of the status of the options during the year ended December 31, 2005 and the period ended June 30, 2006:

	Number of Shares			Weighted Average 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		-			-
Exercised		-			-
Forfeited/Expired		-			-
Options outstanding and exercisable at June 30, 2006		8,898,453		$	0.16

7

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO FINANCIAL STATEMENTS

June 30, 2006

Summarized information about stock options outstanding and exercisable at June 30, 2006 is as follows:

	Outstanding and Exercisable Options
Exercise Price Range		Number of Shares	Weighted Average Remaining Life		Weighted Average Exercise Price
$0.10 - $0.42		8,898,453	5.91	$	0.16

NOTE 6 - 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 2005, 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 three months ended March 31, 2006, the final $4,100 was recorded under these warrants.

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.

Summarized information about stock warrants outstanding and exercisable at June 30, 2006, is as follows:

	Number of warrants		Weighted Average Remaining Life		Average exercise price
Outstanding		5,504,227		3.61	$	0.16
Exercisable		5,384,227		3.70	$	0.16

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.

NOTE 7- CONCENTRATIONS

Bank Accounts and investments

The Company maintains cash in a money market account at a bank in California. The funds on deposit are not insured by the FDIC and, therefore, a total of $21,447 is at risk on June 30, 2006.

8

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO FINANCIAL STATEMENTS

June 30, 2006

NOTE 8- COMMITMENTS AND CONTINGENCIES

The Company was not able to repay its convertible debt payable as of June 1, 2006, and therefore is in default in the amount of approximately $4,740,000. Additionally, the Company had term notes due June 30, 2006 in the amount of approximately $190,000, which are unpaid, and therefore also in default. The Company through a special committee of the Board of Directors is exploring discussions with the lead holder of such convertible notes (a director of the Company) regarding terms and conditions relating to raising additional capital for the Company and modifying the convertible notes to reduce the conversion price of such outstanding convertible notes and other notes payable. No assurances can be given that any satisfactory arrangements will be made with the convertible note holders, or, if the convertible note holders propose a debt restructuring, that the Board of Directors will approve any such arrangements. No assurances can be given that the holders of the convertible notes would agree to defer payment beyond June 1, 2006. Absent any other arrangements with the convertible note holders, it is expected that after expiration of the applicable cure period, the Company will be in payment default.

NOTE 9 - SUBSEQUENT EVENTS

Subsequent to June 30, 2006, the Company raised an additional $26,000 from demand loans.

NOTE 10 - CORRECTION OF AN ERROR

The accompanying financial statements for December 31, 2005 have been restated to correct an error in the recording of interest expense in the year ended December 31, 2004. The Company discovered there was an error in the accounting for the proper amount of interest expense related to the conversion of debt into shares of common stock. The effect of the restatement was to increase the additional paid-in capital and net loss in the amount of $49,749, with a diminimus effect on the earnings per share amount.

The following is a summary of the effect:

As of December 31, 2005:

	As Originally Filed		As Corrected		Change
Financial Position
Additional Paid-in Capital	$	6,948,814	$	6,998,563	$	49,749
Deficit Accumulated	$	13,300,448	$	13,350,197	$	49,749

9

ADVANCED BIOTHERAPY, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED NOTES TO FINANCIAL STATEMENTS

June 30, 2006

As of June 30, 2006:

	As Originally Filed		As Corrected		Change
Financial Position
Additional Paid-in Capital	$	6,990,223	$	7,039,972	$	49,749
Deficit Accumulated	$	14,214,651	$	14,264,400	$	49,749

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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 statements concerning proposed new product candidates and prospects for regulatory approval, any projections of revenue earnings or other financial items, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. Some of these forward-looking statements may be identified by the use of words in the statements such as "anticipate," "estimate," “could” "expect," "project," "intend," "plan," "believe,” “seek,” “should,” “may,” “assume,” “continue,” variations of such words and similar expressions. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. We caution you that our performance and results could differ materially from what is expressed, implied, or forecast by our forward-looking statements due to general financial, economic, regulatory and political conditions affecting the biotechnology and pharmaceutical industries as well as more specific risks and uncertainties. The Company operates in a rapidly changing environment that involves a number of risks, some of which are beyond the Company’s control. Future operating results and the Company’s stock price may be affected by a number of factors, including, without limitation: (i) availability of capital for research and development; (ii) availability of capital for clinical trials; (iii) opportunities for joint ventures and corporate partnering; (iv) opportunities for mergers and acquisitions to expand the Company’s biotechnology base or acquire revenue generating products; (v) regulatory approvals of preclinical and clinical trials; (vi) the results of preclinical and clinical trials, if any; (vii) regulatory approvals of product candidates, new indications and manufacturing facilities; (viii) health care guidelines and policies relating to prospective Company products; (ix) intellectual property matters (patents); and (x) competition. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Item 1. Business,” and all subsections therein, including, without limitation, the subsections entitled, Technical Background, Government Regulation, Federal Drug Administration Regulation, Competition and Factors That May Affect the Company, and the section entitled “Market for Registrant's Common Stock and Related Stockholder Matters,” all contained in the Company's Annual Report on Form 10-KSB/A for the fiscal year ended December 31, 2005, filed on or around January 12, 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.

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OVERVIEW

The Company had $21,447 in cash and investments as of June 30, 2006. Management anticipates that current funds will enable the Company to continue severely restricted operations through September 2006. This amount of cash is inadequate to meet the Company’s projected minimum cash requirements for full operations for the next 12 months.

The Company has failed to pay the holders of its convertible notes due June 1, 2006 in the principal amount of approximately $4,740,000 as of June 30, 2006 and other Company term notes that matured June 30, 2006, in the principal amount of $190,000. Additionally, the Company has demand notes of approximately $170,000.

The Company is not able to repay its convertible notes and other term notes that matured on or before June 30, 2006, or recent loans subsequent to June 30, 2006, which are payable on demand. The Company through a special committee of the Board of Directors continues to negotiate with the lead holder of its convertible notes, who is Richard Kiphart, a director of the Company, regarding terms and conditions relating to raising additional capital for the Company, restructuring the Company’s convertible notes to reduce the conversion price thereof, and cancel the Company’s indebtedness to noteholders and other creditors (non-professionals) through conversion or exchange of Company debt into Company common stock. No assurances can be given that any satisfactory arrangements will be made with Mr. Kiphart or other debtholders, or, that the Board of Directors will approve the terms and conditions proposed by the convertible noteholders. No assurances can be given that the holders of the convertible notes and other Company indebtedness will not seek to enforce their remedies against the Company.

The Company does not have a source of revenues to continue its operations, or pay for research and development costs beyond the current available funds. In order to meet projected operational and research and development costs, the Company will have to raise funds through the issuance, for cash, of common or preferred stock, convertible debt or other loans. There is no assurance, however, that the Company will be able to raise sufficient capital to meet its cash requirements for the next three months or longer.

During the second quarter of 2006, the Company has basically curtailed its operations and deferred its research and development projects. In order to conserve resources, management may consider delaying or discontinuing the filing of the Company’s periodic reports to the Securities and Exchange Commission.

As of June 30, 2006, with respect to the Company's original long-term convertible notes, the approximate principal balance of $4,740,000, matured on June 1. 2006, and $1,096,000 and $268,000 mature on September 30, 2007 and September 30, 2009, respectively. Additionally, the Company owes $7,400 to one noteholder whose convertible pay-in-kind note matured on September 30, 2004. The Company has attempted unsuccessfully to locate this noteholder.

During the second quarter of 2006, the Company also borrowed $173,500, payable upon demand, which loans have matured on June 30, 2006. Subsequent to June 30, 2006, the Company raised an additional $26,000 in demand loans.

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The Company’s business development plan for 2006 is now under reconsideration, subject to satisfying its obligations to holders of its convertible notes and other indebtedness, and raising additional capital. Subject to the foregoing, it is anticipated that the Company’s business development plan for 2006 will focus on the following, among other steps:

1.	Evaluation of possible merger, acquisition or sale candidates;
2.	Evaluation of financing alternatives and opportunities;
3.	Research and development as well as licensing agreements with selected pharmaceutical companies seeking opportunities related to our patented scientific approaches;
4.	Continuation of our FDA approved Phase I clinical trial at Georgetown University Medical Center; and
5.	Initiation of US clinical trials in a selected autoimmune skin disease.

We believe that the Company is a leader in conducting investigational clinical trials allowing us to secure intellectual property for anti-cytokine based treatments of certain autoimmune diseases by the use of antibodies directed at certain cytokines, most notably interferon-gamma and tumor necrosis factor-alpha. We have no revenues or FDA-approved products, and cannot predict when we might anticipate having proprietary marketed products. As of the date hereof, the Company has not entered into any agreement with a pharmaceutical or biotechnological company, or any out-licensing arrangements.

In general, we have a history of operating losses and have not generated any revenue. As of June 30, 2006, we had an accumulated deficit of $14,264,400.

The Company has no expected purchases or sales of significant equipment

RESTATEMENT OF FINANCIAL INFORMATION

As discussed in Note 10 of the Notes to our financial statements, we restated our financial statements for the quarter ended June 30, 2006, to reclassify certain expenses regarding the vesting of options and warrants (non-cash) and to increase the accumulated deficit by $49,749 at June 30, 2006, as a result of additional interest expenses in the amount of $49,749 for the fiscal year ended December 31, 2004.

RESULTS OF OPERATIONS - Six months ended June 30, 2006 and 2005.

The Company is considered to be in the development stage as defined in Statement of Financial Accounting Standards No. 7. There have been no operations since incorporation.

LIQUIDITY AND CAPITAL RESOURCES.

To date, we have financed our operations through private placements of equity and convertible debt securities. The Company had approximately $21,447 in cash and cash equivalents as of June 30, 2006, and had issued and outstanding 54,348,346 shares of its Common Stock.

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THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO 2005.

For the three months ended June 30, 2006, the Company realized a net loss of $379,790 compared to a net loss of $810,692 for the three months ended June 30, 2005. The Company had decreases in expenses over the three months ended June 30, 2006, consisting primarily of the following: decreased research and development expenses of $70,443, decreased stock option and warranty vesting of $418,000, decreased salaries and benefits of $59,609, decreased insurance of $18,256, decreased travel and entertainment of $3,964 and decreased interest and dividend income of $1,516, net of increased professional fees of $20,780, and net of loss on impairment or abandonment of patents of $92,500, and net of increased interest expense of $38,127.

SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO 2005.

For the six months ended June 30, 2006, the Company realized a net loss of $914,203 compared to a net loss of $1,434,028 for the six months ended June 30, 2005. The Company had decreases in expenses over the six months ended June 30, 2006, consisting primarily of the following: decreased research and development expenses in the amount of $161,531, decreased professional fees of $7,465, decreased stock option and warrant vesting of $438,500, decreased administrative salaries and benefits of $36,590, decreased insurance of $36,513, deceased shareholder and transfer fees of $5,690, decreased travel and entertainment of $17,497, decreased interest and dividend income of $828, net of increased business development expenses of $39,500, net of loss on impairment or abandonment of patents of $92,500 and net of increased interest expense of $54,980.

ITEM 3. CONTROLS AND PROCEDURES.

In accordance with Item 307 of Regulation S-B promulgated under the Securities Act of 1933, as amended, and within 90 days of the date of this amended Form 10-QSB, the Chief Executive Officer and Chief Financial Officer of the Company (the “Certifying Officers”) conducted evaluations of the Company’s disclosure controls and procedures. As defined under Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. At the time of the preparation and filing of the Second Quarter Amended Report on Form-10-QSB/A for the quarter ended June 30, 2006, the then Chief Executive Officer and Chief Financial Officer had reviewed the Company’s disclosure controls and procedures and concluded that those disclosure controls and procedures were effective in causing information to be recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and communicated to management of the Company to allow timely decisions regarding the Company’s public disclosures. The Company believes that its internal disclosure controls and procedures continue to be adequate with respect to its status as a development stage company and its past and current business regarding research and development of its patent portfolio.

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As of the date of this amended Form 10-QSB/A, there had not been any significant changes in the Company’s internal controls or in other factors that could have significantly affected these internal controls subsequent to the date of the Certifying Officers’ evaluation.

PART II

ITEM 2. (a)CHANGES IN SECURITIES.

During the quarter ended June 30, 2006, the Board of Directors approved the issuance of additional convertible debt and convertible notes, respectively, in payment of accrued and unpaid interest (in lieu of cash payments) as of June 30, 2006, for the Company’s 2002 Subordinated Convertible Pay-In-Kind Notes due June 1, 2006, the 2003 Subordinated Convertible Pay-In-Kind Notes due September 30, 2007, and the 2005 Subordinated Convertible Pay-In-Kind Notes due September 30, 2009.

During the quarter ended June 30, 2006, the Company sold in a private placement (i) $38,000 principal amount of the Company’s term promissory notes due June 30, 2006 that are convertible into the Company’s 2005 Subordinated Convertible Pay-In-Kind Notes due September 30, 2009 or shares of Company Common Stock at a conversion price equal to $0.07 per share (“2006 Convertible Notes”) and (ii) $173,500 principal amount of the Company’s term promissory notes due June 30, 2006 (“2006 Term Notes”), which 2006 Term Notes were placed with Richard P. Kiphart, a director of the Company. The 2006 Convertible Term Notes and 2006 Term Notes bear interest at the rate of 12% per annum payable in cash. The Company offered the 2006 Convertible Notes and 2006 Term Notes pursuant to Section 4(2) of the Securities Act of 1933, as amended. The proceeds from the placement of such Notes have been used for Company working capital purposes.

Subsequent to the quarter ended June 30, 2006, the Company raised an additional $26,000 from demand loans made by Richard P. Kiphart, a director of the Company.

ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K

(a)	Exhibit Number	Description
	31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).
	31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).
	32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

The Registrant filed no reports on Form 8-K during the quarter ended June 30, 2006.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to its Report on Form 10-QSB/A to be signed on its behalf by the undersigned thereunto duly authorized as of January 11, 2007.

		Advanced Biotherapy, Inc. (Registrant)
By:	/s/ Christopher W. Capps	By:	/s/ Michael G. Bansley
	Christopher W. Capps President and CEO		Michael G. Bansley Chief Financial Officer

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EXHIBIT INDEX

Exhibit	Description
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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