Advanced Viral Research S1 IPO registration

As filed with the Securities and Exchange Commission on February 12, 2007

SEC Registration No. __________

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM S-1

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

ADVANCED VIRAL RESEARCH CORP.

(Exact name of registrant as specified in its charter)


Delaware	5129	59-2646820

(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

200 Corporate Boulevard South
Yonkers, New York 10701
(914) 376-7383
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)

Stephen M. Elliston
Advanced Viral Research Corp.
200 Corporate Boulevard South
Yonkers, New York 10701
(914) 376-7383
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

With copies to:
Charles J. Rennert
Berman Rennert Vogel & Mandler, P.A.
100 SE 2^ndStreet,
Suite 2900, Miami, FL 33131
Tel: (305) 577-4171 Fax: (305) 347-6463

Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.þ

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o

CALCULATION OF REGISTRATION FEE

Proposed Maximum

Title of Each Class of

Amount to be

Offering Price

Aggregate Amount

Amount of

Securities to be Registered

Registered

Per Unit (1)

of Offering Price (1)

Registration Fee

Common stock,
$0.001 par value per share

238,967,308(2)

$0.0325

$7,766,438

$831.01

(1)		Estimated solely for the purpose of calculating the registration fee for the shares registered hereunder and calculated pursuant to Rule 457(c) under the Securities Act of 1933. For purposes of this table, we have used the average of the closing bid and asked prices of the Registrant’s common stock on February 8, 2007, as reported by the OTC Bulletin Board.

(2)		Represents shares of our common stock being registered for resale that either have been issued or are issuable to the selling stockholders named in the registration statement upon the conversion of convertible debentures and exercise of warrants.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance withSection 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and the selling stockholders are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 12, 2007

Prospectus

238,967,308 SHARES

ADVANCED VIRAL RESEARCH CORP.

COMMON STOCK

This prospectus relates to the resale of up to 238,967,308 shares of common stock for sale on behalf of the existing holder of our convertible debentures and warrants to purchase our common stock, and certain other holders of our common stock as more particularly described under the heading “Selling Stockholders.” We will not receive any proceeds from this offering; however, we may receive proceeds from the exercise of warrants. We will bear all costs associated with this registration other than certain of the selling stockholders’ legal or accounting costs or commissions.

Our common stock is traded in the over-the-counter market and prices are reported on the OTC Bulletin Board under the symbol “ADVR.” On February 8, 2007, the closing bid price of our common stock was $0.032 per share.

No underwriter or person has been engaged to facilitate the sale of shares of common stock in this offering. None of the proceeds from the sale of stock by the Selling Stockholders will be placed in escrow, trust or any similar account.

SEE “RISK FACTORS” BEGINNING ON PAGE 4 FOR RISKS OF AN INVESTMENT IN THE SECURITIES OFFERED BY THIS PROSPECTUS, WHICH YOU SHOULD CONSIDER BEFORE YOU PURCHASE ANY SHARES.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this prospectus is _________ __, 2007.

We have not registered the sale of the shares under the securities laws of any state. Brokers or dealers effecting transactions in the shares of common stock offered hereby should confirm that the shares have been registered under the securities laws of the state or states in which sales of the shares occur as of the time of such sales, or that there is an available exemption from the registration requirements of the securities laws of such states.

This prospectus is not an offer to sell any securities other than the shares of common stock offered hereby. This prospectus is not an offer to sell securities in any circumstances in which such an offer is unlawful.

We have not authorized anyone, including any salesperson or broker, to give oral or written information about this offering, Advanced Viral Research Corp., or the shares of common stock offered hereby that is different from the information included in this prospectus. You should not assume that the information in this prospectus, or any supplement to this prospectus, is accurate at any date other than the date indicated on the cover page of this prospectus or any supplement to it.

TABLE OF CONTENTS


	Page
PROSPECTUS SUMMARY		1
RISK FACTORS		4
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS		9
CAPITALIZATION		10
USE OF PROCEEDS		10
SELLING STOCKHOLDERS		11
PLAN OF DISTRIBUTION		14
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS		17
SELECTED FINANCIAL DATA		18
SUPPLEMENTARY FINANCIAL INFORMATION		18
DESCRIPTION OF BUSINESS		19
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		25
CHANGES OR DISAGREEMENTS WITH ACCOUNTANTS		36
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		36
MANAGEMENT		36
EXECUTIVE COMPENSATION		38
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS		44
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		45
DESCRIPTION OF CAPITAL STOCK		45
INTERESTS OF NAMED EXPERT AND COUNSEL		46
WHERE YOU CAN FIND MORE INFORMATION		47
INDEX TO FINANCIAL STATEMENTS		F-1
EX-23.1 Consent of Independent Registered Public Accounting Firm

In this prospectus, references to “our company,” “we,” “us” and “our” refer to Advanced Viral Research Corp. and its subsidiaries, except where the context otherwise indicates.

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying shares of our common stock. You should read the entire prospectus carefully, especially the risks of investing in shares of our common stock that we describe under “Risk Factors,” and our consolidated financial statements and the related notes included at the end of this prospectus, before deciding to invest in shares of our common stock. Unless the context requires otherwise, references to “Advanced Viral,” “we,” “our,” “us,” and “the company” in this prospectus refer to Advanced Viral Research Corp. and our subsidiaries.

OUR COMPANY

Advanced Viral Research Corp. was incorporated in Delaware in July 1985 to engage in the development, production, marketing, promotion and sale of a pharmaceutical drug known by the trademark Reticulose^®. This drug was the forerunner of our current drug, “AVR118.” AVR118 is a complex mixture of peptides, amino acids, nucleosides, nucleotides and nucleic acid bases. We currently believe it may be employed in the treatment of conditions such as:

	•		systemic symptoms such as cachexia (body wasting), loss of appetite and lethargy experienced by patients with cancer, AIDS and other diseases;

	•		wound healing;

	•		as an anti-inflammatory; and

	•		as a palliative agent to minimize certain toxicities associated with chemo or immunotherapies.

Since our incorporation in July 1985, we have been engaged primarily in research and development activities. We have never generated material operating revenue, and as of September 30, 2006, we had incurred a cumulative net loss of approximately $71,507,000. Our ability to generate operating revenue depends upon our success in gaining approval for the commercial use and distribution of AVR118 from the Food and Drug Administration (FDA).

CURRENT TESTING OF AVR118

Phase II Dermatological Study

In January 2007 we began a Phase II study using a topically applied spray formulation of AVR118 as a wound healing agent. A report received from the University of Miami in August 2006 analyzing data from a limited animal study indicated that a topical application of AVR118 accelerates the rate at which wounds heal. Although preliminary, we believed that further study was merited, and accordingly we commenced the Phase II dermatological study.

Phase II Cancer Study

In February 2005, we entered into an agreement with the Biomedical Research Alliance (BRANY), as agent for a network of hospitals, pursuant to which the hospitals would conduct a Phase II clinical study to evaluate the effect of a 4.0 ml dose of AVR118 administered to patients with systemic symptoms related to advanced cancer who are not receiving chemotherapy. We experienced difficulty accruing patients for the Phase II Study and in December 2005, amended the protocol to permit patients undergoing third-line chemotherapy treatment to become participants in the Phase II Study, in order to facilitate patient accrual. As of September 30, 2006, only eleven patients had been enrolled in the Phase II cancer study. There has not been any activity in this study since the third quarter of 2006, when we commenced discussions with several teaching centers to expand the study to include patients in the earlier stages of disease to determine the efficacy of AVR118 on such patients. We believe transitioning the study to such centers would enable us to accelerate enrollment in an expanded program where higher patient accrual rates can be achieved.

JANUARY 2007 PRIVATE PLACEMENT

On January 1, 2007, we entered into a securities purchase agreement with Cornell Capital Partners, L.P. (“Cornell”), to sell $1,500,000 principal amount of our 9% secured convertible debentures, due January 1, 2010 (the “Debentures”), along with warrants (“Warrants”) to purchase an aggregate of 48,076,923 shares of our common stock, which are exercisable through January 1, 2012 at an exercise price equal to $0.0312 or as may be adjusted from time to time pursuant to the terms thereof (the “Cornell Agreement”).

Cornell acquired $1,000,000 principal amount of the Debentures upon the first closing under the Cornell Agreement on January 5, 2007, and the remaining $500,000 principal amount of the Debentures on February ___, 2007. In addition, Cornell has agreed to purchase up to an additional $750,000 of Debentures upon the satisfaction of certain conditions, including (i) our enrollment of the first patient in our Phase II dermatological study, (ii) the registration statement, of which this prospectus forms a part, being declared effective by the SEC, and the execution of similar transaction documents on terms mutually agreed upon by the parties. Our obligations under the Cornell Agreement, the Debentures and the ancillary documents entered into in connection therewith are secured by a first priority security interest in all of our assets.

For more information regarding this transaction, see “Selling Stockholders — Cornell Capital Partners, LP.”

AUTHORIZED CAPITAL STOCK

We have been and continue to be dependent upon the proceeds from the continued sale of securities for the funds required to continue operations and to fund further research and development activities. Our ability to raise capital is severely limited by the number of shares of common stock we are currently authorized to issue, which is one billion shares. In addition to the 696,587,734 shares of our common stock outstanding as of February 9, 2007, we have reserved for issuance approximately 245 million shares reserved for issuance upon the conversion or exercise of currently outstanding convertible debentures, stock options and warrants. Accordingly, we only have the authority to issue an additional 58 million shares of common stock. To increase the number of authorized shares of our common stock, we need to obtain stockholder approval to amend our certificate of incorporation to authorize additional securities beyond the current authorization of one billion shares of Common Stock. We have noticed and called a special meeting of stockholders to be held on March 21, 2007 in order to obtain this approval, however, we have no assurance that such amendment will be approved by our stockholders.

GOING CONCERN

The independent registered public accounting firm’s report on our consolidated financial statements for the fiscal year ended December 31, 2005 includes an explanatory paragraph regarding our ability to continue as a going concern. Note 2 to the consolidated financial statements states that our cash position is inadequate to pay all the costs associated with the full range of testing and clinical trials of AVR118 required by the FDA for commercial approval, and, unless and until AVR118 is approved for sale in the United States or another industrially developed country, we will be dependent upon the continued sale of our securities, debt or equity financing for funds to meet our cash requirements, which raises substantial doubt about our ability to continue as a going concern. Further, the independent registered public accounting firm’s report states that the consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. No assurance can be given that debt or equity financing will be available or that additional securities will be authorized beyond the current authorization of one billion shares of our common stock.

Conducting the clinical trials of AVR118 will require significant cash expenditures. AVR118 may never be approved for commercial distribution by any country. Because our research and development expenses and clinical trial expenses will be charged against earnings for financial reporting purposes, we expect that losses from operations will continue to be incurred for the foreseeable future.

Our offices are located at 200 Corporate Boulevard South, Yonkers, New York 10701. Our telephone number is (914) 376-7383. We have also established a website: www.adviral.com. Information contained on our website is not a part of this prospectus.

THE OFFERING


Common stock offered by selling stockholders (1)		238,967,308 shares of common stock, which includes (i) 118,775,000 shares of common stock; and (ii) up to 120,192,308 shares of common stock issuable upon conversion of the Debentures and exercise of the Warrants. See “Selling Stockholders.”

Offering price		Determined at the time of sale by the selling stockholders.

Common stock outstanding after this offering (2)		Up to 799,609,712 shares.

Use of proceeds		We will not receive any proceeds from the sale of the shares of common stock by the selling stockholders. Any proceeds we receive from the sale of common stock under the Warrants will be used for general working capital purposes. See “Use of Proceeds.”

Risk factors		An investment in our common stock involves a high degree of risk and our common stock should not be purchased by anyone who cannot afford the loss of their entire investment. Prospective purchasers of the shares of our common stock should carefully review and consider the factors set forth under “Risk Factors” beginning on page 4, such as our ability to be able to continue as a going concern, our lack of sufficient authorized shares of common stock, and immediate substantial dilution, as well as other information in this document, before purchasing any of our common stock.

OTC Bulletin Board symbol		ADVR


(1)		In accordance with the terms of the registration rights agreement we entered into with Cornell, this prospectus covers the resale of 120,192,308 shares of common stock which may be issuable upon conversion of the Debentures and the exercise of the Warrants. As of January 5, 2007, assuming an exercise price of $0.0273 per share, the Debentures would be convertible into 54,945,055 shares and the Warrants would be exercisable into an additional 48,076,923 shares. We agreed to register additional shares as a negotiated precaution for the selling stockholders to cover future adjustments to the conversion prices of the Debentures and the exercise price of the Warrants. The number of shares of our common stock into which the Debentures are convertible and the Warrants are exercisable will be adjusted to account for future stock splits, stock dividends, reclassifications, recapitalizations or other similar events, fundamental transactions, distributions of company assets, certain issuances of common stock, options, convertible securities or purchase rights, or if we take certain other actions with regard to our common stock that would diminish the value of the Debentures, Warrants or our common stock.

(2)		The number of outstanding shares of common stock includes shares issuable upon conversion of the Debentures and exercise of the Warrants including the additional shares referred to in footnote (1) above.

RISK FACTORS

There are numerous and varied risks, known and unknown, associated with an investment in our common stock, including those described below. You should carefully consider risks described below and the other information included in this registration statement, including our financial statements and related notes. Our business, financial condition and results of operations could be harmed by any of the following risks. However, the risks and uncertainties described below may not be the only ones we face. If any of the events or circumstances described below were to occur, our business, financial condition and results of operations could be materially adversely affected. As a result, the trading price of our common stock could decline, and our security holders could lose part or all of their investment.

RISKS RELATED TO OUR BUSINESS

There is substantial doubt about our ability to continue as a going concern due to our cash requirements which means that we may not be able to continue operations unless we obtain additional funding.

Our ability to continue as a going concern will depend upon our ability to obtain debt or equity financing for funds to meet our cash requirements. No assurance can be given that debt or equity financing will be available or that additional securities will be authorized beyond the current authorization of one billion shares of our common stock. Concern about our ability to continue as a going concern may place additional constraints on operations and make it more difficult for us to meet our obligations or adversely affect the terms of possible funding.

We have incurred losses since our inception, have no product revenue, and expect to incur additional losses in the future.

We have incurred substantial losses since our inception, and anticipate incurring substantial losses for the foreseeable future. We incurred net losses of $3,178,587, $5,200,171, $6,213,264 and $7,816,811 for the nine months ended September 30, 2006 and for the years ended December 31, 2005, 2004 and 2003, respectively. As of September 30, 2006, our accumulated deficit was $71,507,064 and we had stockholders’ equity of $1,821,263.

We have never generated material operating revenue nor do we currently have any source of product revenue. There is substantial risk that we will never generate operating revenue from the sale of AVR118. To generate operating revenue, AVR118 must be approved for sale in the United States or another industrially developed country. To the extent we acquire financing, we will continue clinical trials for AVR118. We currently do not have the capital to perform the full range of clinical testing necessary to complete the development of AVR118, and there is a substantial likelihood that we will never acquire such capital.

We need additional capital and our ability to raise capital is severely limited by the number of shares we are currently authorized to issue.

Since inception, our cash requirements have been met from the proceeds derived from the sale of our securities. Our ability to raise capital is severely limited by the number of shares of common stock we are currently authorized to issue, which is one billion shares. In addition to the 696,587,734 shares of our common stock outstanding as of February 9, 2007, we have reserved for issuance approximately 245 million shares reserved for issuance upon the conversion or exercise of currently outstanding convertible debentures, stock options and warrants. Accordingly, we only have the authority to issue an additional 58 million shares of common stock. To complete the full range of testing necessary to commercially offer AVR118, we will need substantially more capital than we can raise given the current number of authorized common shares. To increase the number of authorized shares of our common stock, we need to obtain stockholder approval to amend our certificate of incorporation to authorize additional securities beyond the current authorization of one billion shares of Common Stock. We have noticed and called a special meeting of stockholders to be held on March 21, 2007 in order to obtain this approval, however, we have no assurance that such amendment will be approved by our stockholders.

If we do not raise additional funds, we will not be able to complete the necessary clinical trials to complete development of AVR118 and will not be able to sell it anywhere.

AVR118 is the only product we are developing. We will not be able to sell it in the United States unless we submit, and the FDA approves, a new drug application, or NDA. We must conduct clinical trials of AVR118 in humans before we submit an NDA. We do not have enough capital currently to complete the necessary trials to complete the development of AVR118.

It is possible that the results of clinical trials of AVR118 will not prove that AVR118 is safe and effective. It is also possible that the FDA will not approve the sale of AVR118 in the United States if we submit an NDA. It is not known at this time how later stage clinical trials will be conducted, if at all. Even if the data show that AVR118 is safe and effective, obtaining approval of the NDA could take years and require financing of amounts not presently available to us.

Conducting the clinical trials of AVR118 will require significant cash expenditures and we do not have the funds necessary to complete all phases of clinical trials of AVR118 nor do we currently have sufficient number of shares of capital stock authorized to sell securities to raise the capital necessary to complete the trials necessary to complete the development of AVR118. AVR118 may never be approved for commercial distribution by any country. Because our research and development expenses and clinical trial expenses will be charged against earnings for financial reporting purposes, we expect that losses from operations will continue to be incurred for the near future. We currently do not have sufficient funds to complete all phases of clinical trials of AVR118 which are necessary to permit the commercial sale of AVR118.

If we obtain additional capital to support our operations, such capital could be expensive or result in dilution to our security holders.

In order to continue our operations, we will need to engage in further equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or other securities evidencing the right to acquire equity, our existing security holders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Due to restrictive covenants in our current financing documents and the seniority of the security interests granted to the financing investors, we may not be able to obtain additional financing on acceptable terms, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to our operations could be significantly limited.

We depend on patents and proprietary rights, which may offer only limited protection against potential infringement; if we are unable to protect our patents and proprietary rights, our business, financial condition and results of operations will be harmed.

Patent protection and trade secret protection are important to our business and our future will depend, in part, on our ability to maintain trade secret protection, obtain patents and operate without infringing the proprietary rights of others both in the United States and abroad. Litigation or other legal proceedings may be necessary to defend against claims of infringement, to enforce our patents, or to protect our trade secrets, and could result in substantial costs and diversion of our efforts.

To date, we have been issued or granted 14 U.S. patents, two Australian patents and one Canadian patent. In addition, we currently have five patent applications pending with the U.S. Patent Office and 16 foreign patent applications.

We can give no assurance that other companies, having greater economic resources, will not be successful in developing a similar product. There can be no assurance that either the patents which have been issued or patents which may issue in the future will be enforceable. As we learn more about the chemical composition and the biologic activity of AVR118, we may need to reassess our patent portfolio and seek additional patents. There is no assurance that we will be issued patents based on new information learned about AVR118 or if such patents are issued that they will afford material protection to us. As patent applications in the United States are maintained in secrecy until published or patents issue and as publication of discoveries in the scientific or patent literature often lag behind the actual discoveries, we cannot be certain that we were the first to make the inventions covered by each of our pending patent applications or that we were the first to file patent applications for such inventions. Furthermore, the patent positions of biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions, and, therefore, the breadth of claims allowed in biotechnology and pharmaceutical patents or their enforceability cannot be predicted. We cannot be sure that any additional patents will issue from any of our patent applications or, should any patents issue, that we will be provided with adequate protection against potentially competitive products. Furthermore, we cannot be sure that should patents issue, they will be of commercial value to us, or that private parties, including competitors, will not successfully challenge our patents or circumvent our patent position in the United States or abroad.

In order to protect the confidentiality of our technology, including trade secrets and know-how and other proprietary technical and business information, we require all of our employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the use or disclosure of information that is deemed confidential. The agreements also oblige our employees, consultants, advisors and collaborators to assign to us developments, discoveries and inventions made by such persons in connection with their work with us. We cannot be sure that confidentiality will be maintained or disclosure prevented by these agreements or that our proprietary information or intellectual property will be protected thereby or that others will not independently develop substantially equivalent proprietary information or intellectual property.

Claims by other companies that we infringe their proprietary technology may result in liability for damages or stop our development and commercialization efforts.

We cannot be sure that any license required under any such patents or proprietary rights would be made available on terms acceptable to us, if at all. If we do not obtain such licenses, we may encounter delays in product market introductions, or may find that the development, manufacture or sale of products requiring such licenses may be precluded. In addition, we could incur substantial costs in defending ourselves in legal proceedings instituted before the PTO or in a suit brought against it by a private party based on such patents or proprietary rights, or in suits by us asserting our patent or proprietary rights against another party, even if the outcome is not adverse to us. We have not conducted any searches or made any independent investigations of the existence of any patents or proprietary rights of other parties.

RISKS RELATING TO OUR SECURITIES

The market for our common stock is highly illiquid. Our stockholders may not be able to resell their shares at or above the purchase price paid by such stockholders, or at all.

Our common stock is quoted on NASD’s Over-the-Counter Bulletin Board (or the OTC Bulletin Board). Securities quoted for trading on the OTC Bulletin Board are generally highly illiquid. There is a greater chance of market volatility for securities that trade on the OTC Bulletin Board as opposed to a national exchange or quotation system. This volatility may be caused by a variety of factors including:

	•		the absence of consistent administrative supervision of “bid” and “ask” quotations;

	•		lower trading volume; and

	•		market conditions.

There is only sporadic trading in our common stock and our security holders may experience wide fluctuations in the market price of our securities. Such price and volume fluctuations that have particularly affected the trading prices of equity securities of many biotechnology companies. These price and volume fluctuations often have been unrelated to the operating performance of the affected companies. These fluctuations may have an extremely negative effect on the market price of our securities and may prevent a stockholder from obtaining a market price equal to the purchase price such stockholder paid when the stockholder attempts to sell our securities in the open market. In these situations, the stockholder may be required either to sell our securities at a market price which is lower than the purchase price the stockholder paid, or to hold our securities for a longer period of time than planned. An inactive market may also impair our ability to raise capital by selling shares of capital stock or to recruit and retain managers with equity-based incentive plans.

Our common stock is deemed to be “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements.

Our common stock is deemed to be “penny stock” as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline.

Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor.

The continuously adjustable conversion price feature of the Debentures could require us to issue a substantially greater number of shares, which will cause dilution to our existing stockholders and cause our stock price to decline.

The number of shares of common stock issuable upon conversion of the Debentures will increase if the market price of our stock declines, which will cause dilution to our existing stockholders. Our obligation to issue shares upon conversion of the Debentures is essentially limitless if the trading price per common share declines towards zero, as the Debentures are convertible into common stock at a conversion price equal to the lesser of $0.0312 or 95% of the lowest volume weighted average price of our common stock during the 30 consecutive trading days immediately preceding the applicable conversion date as quoted by Bloomberg, LP.

For example, the conversion price of the Debentures as of January 5, 2007 would have been $0.0273 per share, and if Cornell were to have converted $1,500,000 principal amount of the Debentures on that date, 54,945,055 shares of our common stock would have been issued to Cornell, which would represent 7.3% of our issued and outstanding common stock as of such date.

Cornell may not hold more than 4.99% of our common stock at any given time, and therefore, it will be required to sell our shares in the public market prior to converting additional principal amount of Debentures into common stock when it holds 4.99% of our outstanding common stock. Cornell intends to convert the Debentures and to sell in the public market the shares issuable by us upon conversion. There is no maximum number of shares of our common stock that we may be required to issue for the conversion of the Debentures. Such sales are likely to cause the conversion price of the Debentures to fall and our stock price to decline.

The continuously adjustable conversion price feature of the Debentures may encourage investors to make short sales in our common stock, which could have a depressive effect on the price of our common stock.

The Debentures are convertible into common stock at any time by dividing the dollar amount being converted by the lower of $0.0321 or 95% of the lowest volume weighted average price of our common stock for the 30 trading days immediately preceding the conversion date as quoted by Bloomberg, LP. The interest on the Debentures accrues on the outstanding principal balance at a rate of 9% per year. Each holder of the Debentures may only convert up to 4.99% of our then-issued and outstanding shares of common stock on the conversion date. The significant downward pressure on the price of the common stock as a selling stockholder converts and sells material amounts of common stock could encourage short sales by investors. This could place further downward pressure on the price of the common stock. A selling stockholder could sell common stock into the market in anticipation of covering the short sale by converting their securities, which could cause the further downward pressure on the stock price. In addition, not only the sale of shares issued upon conversion of the Debentures, but also the mere perception that these sales could occur, may adversely affect the market price of the common stock.

The holders of the Debentures may convert the Debentures into shares of our common stock, which may cause dilution of the shares of common stock held by then-existing investors.

The conversion of the Debentures into common stock will result in dilution to the interests of current holders of our common stock, since the number of shares held by current stockholders will then represent a smaller percentage of all outstanding shares of common stock and the equity received from the conversion of the Debentures and Warrants will be less than the current value of the common stock. In addition, significant dilution of current stockholders’ common stock may depress the market value and price for such shares.

The Debentures have a term of three years, accrue interest at 9% and are convertible into our common stock at a price per share equal to the lesser of (a) $0.0312 per share, or (b) an amount equal to 95% of the lowest volume weighted average price of our common stock for the 30 trading days immediately preceding the conversion date as quoted by Bloomberg, LP, subject to certain anti-dilution adjustments that could reduce the conversion price to any lower price at which we issue or become obligated to issue any common stock. By way of example, assuming conversion of $1,500,000 of the Debentures took place on January 5, 2007 at which time there were 696,587,734 shares outstanding, if the holders of the Debentures converted at the conversion price of $0.0273 per share, 54,945,055 shares would be issued representing approximately 7.3% of the common stock outstanding after conversion. The closing bid price of our common stock as quoted on the OTCBB on January 5, 2007 was $0.033.

The following table sets forth the number of shares issuable on conversion and the percentage of our outstanding common stock that those shares would represent after conversion of $1,500,000 principal amount of the Debentures at the conversion prices of $0.0312, $0.030, $0.025, and $0.020, respectively.


	Number of Shares Issuable on
	Conversion of $1,500,000	Percentage of Issued and
Conversion Price	Convertible Debentures	Outstanding
$0.0312	48,076,923	6.5%
$0.0300	50,000,000	6.7%
$0.0250	60,000,000	7.9%
$0.0200	75,000,000	9.7%

Our obligations under the Cornell Agreement, including the Debentures and the other ancillary agreements, are secured by all of our assets.

Our obligations under the Cornell Agreement, including the Debentures and the other ancillary agreements, are secured by a first lien on all of our assets. As a result, if we default under the terms of the Debentures, Cornell could foreclose on its security interest and liquidate all of our assets. This would cause us to cease operations.

If we fail to comply with our obligations under the registration rights agreement regarding the Debentures, we may be required to pay liquidated damages.

The Cornell Agreement requires that a registration statement covering the resale of shares issuable upon conversion of the Debentures and the Warrants include an aggregate of 120,192,308 shares. Under the registration rights agreement, the registration statement is required to be declared effective by the SEC by May 1, 2007. If we fail to meet the deadline for the effectiveness of the registration statement, or, after the effective date of the registration, sales cannot be made pursuant to the registration statement (whether because of a failure to keep the registration statement effective, failure to disclose such information as is necessary for sales to be made pursuant to the registration statement, failure to register sufficient shares of common stock or otherwise), we are required to pay liquidated damages of 2% of the aggregate purchase price of the liquidated value of the Debentures for each 30-day period after the deadline within three business days of such failure and every 30-day period thereafter until such failure is cured. Any liquidated damages begin accruing on the date of any such failure.

The exercise of our outstanding convertible securities or issuance of additional shares could have dilutive impact on our stockholders, and a significant negative impact on the market price of our common stock.

We have approximately 245 million shares of common stock reserved for issuance upon the conversion of the Debentures, and the exercise of the Warrants and certain other outstanding stock options and warrants. If all of our outstanding convertible securities were converted or exercised, we would receive proceeds of approximately $26.7 million, and we would have approximately 983 million shares of common stock outstanding. The sale or availability for sale of this number of shares of common stock in the public market could depress the market price of the common stock, and would have a dilutive impact on our stockholders. As a result, our net loss per share could increase in future periods, and the market price of our common stock could decline. Additionally, the sale or availability for sale of this number of shares may lessen the likelihood that additional equity financing will be available to us, on favorable or unfavorable terms. Furthermore, the sale or availability for sale of this number of shares could limit the annual amount of net operating loss carryforwards that could be utilized.

We will not pay cash dividends and investors may have to sell their shares in order to realize their investment.

We have not paid any cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable future. We intend to use our cash for reinvestment in the development and marketing of our products and services. As a result, investors may have to sell their shares of common stock to realize their investment.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements that are subject to risks and uncertainties and are based on the beliefs and assumptions of management and information currently available to management. The use of words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “should,” “likely” or similar expressions, indicates a forward-looking statement.

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future results may differ materially from those expressed in the forward-looking statements. Many of the factors that will determine these results are beyond our ability to control or predict. Stockholders are cautioned not to put undue reliance on any forward-looking statements, which speak only to the date made.

For a discussion of some of the factors that may cause actual results to differ materially from those suggested by the forward-looking statements, please read carefully the information under “Risk Factors”.

The identification in this document of factors that may affect future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

You may rely only on the information contained in this prospectus. We have not authorized anyone to provide information different from that contained in this prospectus. Neither the delivery of this prospectus nor the sale of common stock means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy these securities in any circumstances under which the offer or solicitation is unlawful.

CAPITALIZATION

The following table sets forth our capitalization on an actual basis and on an as adjusted basis as of September 30, 2006 to give effect to:

	•		the issuance of 48,076,923 shares of common stock upon the exercise of the Warrants; and

	•		the issuance of up to 54,945,055 shares of common stock upon the conversion of $1,500,000 principal amount of our 9% convertible debentures at an assumed conversion price of $0.0273.

This table should be read with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.


	September 30, 2006
	Actual			Proforma (1)
Cash, cash equivalents and marketable securities	$	1,718,186		$	4,538,186
Stockholders’ equity:
Common stock, $0.00001 par value, 1,000,000,000 authorized, 696,587,734 shares issued and outstanding actual and 799,609,712 outstanding Pro Forma as Adjusted (1)		6,966			7,996
Additional paid-in capital		73,321,361			76,320,331
Accumulated deficit		(71,507,064	)		(73,187,064	)

Total stockholders’ equity	$	1,821,263		$	3,141,263

(1)

The outstanding share information excludes approximately 166 million shares of common stock issuable upon the exercise of certain stock options and warrants outstanding as of September 30, 2006 and not held by the selling stockholders.

USE OF PROCEEDS

We will not receive any proceeds from the sale by the selling stockholders of the shares of common stock registered hereunder. Any proceeds we receive from the sale of common stock under the Warrants will be used for general working capital purposes. All proceeds from the sale of the shares offered under this prospectus will be for the account of the selling stockholders, as described below in the sections entitled “Selling Stockholders” and “Plan of Distribution.”

SELLING STOCKHOLDERS

The following table provides information known to us as of February 9, 2007 with respect to the selling stockholders’ beneficial ownership of our securities. The information is based in part on information provided to us by or on behalf of certain of the selling stockholders and may have changed since the date it was provided. The number and percentage of shares beneficially owned by each selling stockholder that may be offered pursuant to this prospectus is based on 696,587,734 shares of common stock outstanding as of February 9, 2007 and the shares owned by such holder determined in accordance with Rule 13d-3 of the Exchange Act. The information contained in the table below is not necessarily indicative of beneficial ownership for any other purpose. We believe that each individual or entity named has sole investment and voting power with respect to the securities indicated as beneficially owned by them, subject to community property laws, where applicable, except where otherwise noted. The selling stockholders listed in the table below may have transferred, in transactions exempt from the registration requirements of the Securities Act of 1933, as amended (the Securities Act), some or all of their shares since the date on which the information in the table below is presented. Information about the selling stockholders may change from time to time.

Selling Stockholder Table


				% of Shares			Shares			Shares		% of Shares
	Shares Beneficially			Beneficially			To Be			Beneficially		Beneficially
	Owned Before			Owned Before			Sold In			Owned After		Owned After
Selling Stockholder	Offering			Offering⁽¹⁾			The Offering			Offering		Offering⁽¹⁾
Cornell Capital Partners, L.P. 101 Hudson Street, Suite 3700 Jersey City, New Jersey 07302		120,192,308	(2)		14.7%	(3)		120,192,308	(2)		—	—

James F. Dicke II Crown Equipment 44 South Washington Street New Bremen, Ohio 45869		72,042,086			10.3	%		60,000,000			12,042,086		1.7	%

James F. Dicke III Crown Equipment 44 South Washington Street New Bremen, Ohio 45869		58,775,000			8.4	%		58,775,000			—	—

Total		251,009,394						238,967,308


(1)		Applicable percentage of ownership is based on 696,587,734 shares of common stock outstanding as of February 9, 2007, together with securities exercisable or convertible into shares of common stock within 60 days thereof for such selling stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within 60 days of February 9, 2007 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Note that affiliates are subject to Rule 144 and Insider trading regulations - percentage computation is for form purposes only.

(2)		In accordance with the terms of the registration rights agreement we entered into with Cornell, this prospectus covers the resale of 120,192,308 shares of common stock which may be issuable upon conversion of the Debentures and the exercise of the Warrants. As of January 5, 2007, assuming an exercise price of $0.0273 per share, the Debentures would be convertible into 54,945,055 shares. We agreed to register additional shares as a negotiated precaution for the selling stockholders to cover future adjustments to the conversion prices of the Debentures and the exercise price of the Warrants. The number of shares of our common stock into which the Debentures are convertible and the Warrants are exercisable will be adjusted to account for future stock splits, stock dividends, reclassifications, recapitalizations or other similar events, fundamental transactions, distributions of company assets, certain issuances of common stock, options, convertible securities or purchase rights, or if we take certain other actions with regard to our common stock that would diminish the value of the Debentures, Warrants or our common stock.

(3)		This percentage does not reflect that the terms of the convertible debentures and warrants provide that in no event shall Cornell be entitled to convert the convertible debentures or exercise the warrants for a number of shares which, upon giving effect to the conversion or exercise, would cause the aggregate number of shares beneficially owned by Cornell and its affiliates to exceed 4.99% of our outstanding common stock following such conversion or exercise.

Cornell Capital Partners, L.P.

Cornell Capital Partners, LP, a Delaware limited partnership (“Cornell”), is a selling stockholder in this offering. Yorkville Advisors, LLC, a Delaware limited liability company, is the general partner of Cornell. Mark Angelo, Matthew Beckman, Gerald C. Eicke and David Gonzalez are the members of Yorkville Advisors, LLC. Mark Angelo, the President of Yorkville Advisors, LLC and the portfolio manager of Cornell Capital Partners, LLC, makes all the investment decisions on behalf of Cornell.

On January 1, 2007, we entered into a securities purchase agreement with Cornell to sell $1,500,000 principal amount of our 9% secured convertible debentures, due January 1, 2010 (the “Debentures”), along with warrants (“Warrants”) to purchase an aggregate of 48,076,923 shares of our common stock, which are exercisable through January 1, 2012 at an exercise price equal to $0.0312 or as may be adjusted from time to time pursuant to the terms thereof (the “Cornell Agreement”).

For purposes of the following table which summarizes information regarding the Debentures, we have assumed that $1,500,000 aggregate principal amount of the Debentures were issued and sold on January 5, 2007:


				Total Value of
		Total Shares	Total Value of	Shares at	Total Possible
		Underlying	Shares at Market	Conversion	Discount to
Market Price (1)	Conversion Price (2)	Debentures (3)	Price (4)	Price (5)	Market Price (6)
$0.0330	$0.0273	54,945,055	$1,813,187	$1,500,000	$313,187


(1)		The closing bid price of our shares of Common Stock as quoted on the OTCBB on January 5, 2007.

(2)		Conversion price per share of our common stock underlying the Debentures on January 5, 2007. Pursuant to the terms of the Debentures, the conversion price is equal to the lesser of the fixed conversion price of $0.0312, or the market conversion price, defined as 95% of the lowest volume weighted average price of our common stock for the 30 trading days immediately preceding the conversion date as quoted by Bloomberg, LP. The lowest volume weighted average price of our common stock for the 30 trading days prior to January 5, 2007 was $0.0287 and accordingly the conversion price on January 5, 2007 was $0.0273.

(3)		Total number of shares of common stock underlying the Debentures assuming full conversion as of January 5, 2007 at a conversion price of $.0273 per share. Since the conversion price of the Debentures can decrease as the market price decreases, the actual number of shares that underlying the Debentures can also fluctuate.

(4)		Total market value of shares of common stock underlying the Debentures assuming full conversion as of January 5, 2007 (convertible into 54,945,055 shares) and based on the closing bid price of our shares of Common Stock as quoted on the OTCBB on January 5, 2007 ($.0330).

(5)		Total value of shares of common stock underlying the Debentures assuming full conversion of the Debentures as of January 5, 2007 (convertible into 54,945,055 shares) and based on a conversion price of $.0273.

(6)		Discount to market price calculated by subtracting the result in footnote (5) from the result in footnote (4).

The following table relates to the Warrants, which we issued to Cornell on January 5, 2007 and which provide Cornell the right to purchase an aggregate of 48,076,923 shares of our common stock at an exercise price of $0.0312 per share on a cash basis provided we are not in default the Debentures, with the aggregate exercise price of $1,500,000 if exercised on a cash basis:


		Total Shares	Total Value of	Total Value of	Total Possible
		Underlying	Shares at Market	Shares at Exercise	Discount to Market
Market Price (1)	Exercise Price (2)	Warrants (3)	Price (4)	Price (5)	Price (6)
$0.0330	$0.0312	48,076,923	$1,586,538	$1,500,000	$86,538


(1)		The closing bid price of our shares of Common Stock as quoted on the OTCBB on January 5, 2007.

(2)		Exercise price per share of our common stock on January 5, 2007. The exercise price of the Warrants is fixed pursuant to the terms of each of the Warrants except that each of the Warrants contain anti-dilution protections which in certain circumstances, may result in a reduction to the Exercise Price.

(3)		Total number of shares of common stock underlying each Warrant assuming full exercise as January 5, 2007. Upon certain adjustments of the Exercise Price of the Warrants, the number of shares underlying the Warrants may also be adjusted such that the proceeds to be received by us would remain constant.

(4)		Total market value of the shares of common stock underlying each Warrant assuming full exercise of the Warrants as of January 5, 2007 (exercisable into 48,076,023 shares) based on the closing bid price of our shares of Common Stock as quoted on the OTCBB on January 5, 2007 ($.0330).

(5)		Total value of shares of common stock underlying the Warrants assuming full exercise of the Warrants as of January 5, 2007 and based on the exercise price per share ($.0312).

(6)		Discount to market price calculated by subtracting the result in footnote (5) from the result in footnote (4).

Pursuant to the Cornell Agreement, we are obligated to pay Yorkville Advisors LLC, the general partner of Cornell, cash compensation equal to 10% of the gross proceeds of the Debentures purchased by Cornell as well as a $20,000 structuring fee and a $10,000 due diligence fee. In connection with the first closing of $1,000,000 principal amount of Debentures, we paid $125,000 to Yorkville ($5,000 of the due diligence fee was previously paid), and received net proceeds of $875,000 on January 5, 2007. In connection with the second closing of $500,000 principal amount of Debentures, we paid an additional $50,000 to Yorkville, and received net proceeds of $450,000 on February ___, 2007.

Our obligations under the Cornell Agreement, the Debentures and the ancillary documents entered into in connection therewith are secured by a first priority security interest in all of our assets. This security interest expires upon the earlier to occur of (i) $500,000 or less principal amount of the Debentures remains outstanding; (ii) we receive $3,000,000 of capital, in any form other than through the issuance of free-trading shares of common stock, from sources other than Cornell, which is utilized to either repay the Debentures in full, or reduce the outstanding principal amount of the Debentures to $500,000; or (iii) the satisfaction of the Company’s obligations under the agreement, the Debentures and the ancillary documents entered into in connection therewith.

Under the terms of the Debentures and Warrants, Cornell may not convert the Debentures or exercise the Warrants if following such conversion or exercise Cornell, together with its affiliates, would beneficially own more than 4.99% of our then outstanding shares of common stock (not counting the shares issuable upon conversion of the Debentures and Warrants remaining to be converted or exercised). Subject to certain exceptions, at our option, we may redeem a portion or the entire amount of outstanding Debentures at a price equal to 115% of the amount redeemed plus accrued interest.

We are obligated to file a registration statement registering the resale of all shares of common stock that may be issued to Cornell upon the conversion of the Debentures or exercise of the Warrants. The registration rights granted are subject to customary exceptions and qualifications and compliance with certain registration procedures. We are required to pay to Cornell liquidated damages of 2% of the aggregate purchase price of the liquidated value of the Debentures for each 30-day period if any of the following events occurs and during the period such event is continuing: (i) we fail to file with the Securities and Exchange Commission the registration statement on or before the 60th day after January 1, 2007; (ii) the registration statement is not declared effective by the Securities and Exchange Commission on or before May 1, 2007; or (iii) after the effective date of the registration, sales cannot be made pursuant to the registration statement (whether because of a failure to keep the registration statement effective, failure to disclose such information as is necessary for sales to be made pursuant to the registration statement, failure to register sufficient shares of common stock or otherwise). Such payments must be made within three business days of such failure and every 30-day period thereafter until such failure is cured. Any liquidated damages begin accruing on the date of any such failure.

The following is a schedule of the possible payments paid or to be paid to Cornell or its affiliates in connection with the Cornell Agreement. For purposes of this table, we have assumed that all $1,500,000 aggregate principal amount of convertible secured debentures were issued and sold on January 5, 2007.

Total

Maximum

Structuring and

Maximum

Payments

Total Net

Commitment

Due Diligence

Interest

Redemption

Liquidated

During

Proceeds to

Fee (1)

Fees (2)

Payments (3)

Premiums (4)

Damages (5)

1st Year(6)

Company (7)

$150,000

$30,000

$405,000

$225,000

$300,000

$840,000

$915,000

(1)		Represents a 10% commitment fee we are required to pay to Yorkville Advisors, LLC.

(2)		Represents a $20,000 structuring and $10,000 due diligence fee.

(3)		Maximum amount of interest that can accrue assuming all the Debentures remaining outstanding until the maturity date. The Company may pay accrued interest in either cash or, at our option, in shares of our common stock.

(4)		Under certain circumstances we have the right to redeem the full principal amount of the Debentures prior to the maturity date by repaying the principal plus a redemption premium of 15%. This represents the maximum redemption premium the Company would pay assuming we redeem the all of the Debentures prior to maturity at the highest redemption premium.

(5)		Maximum amount of liquidated damages the Company may be required to pay for the twelve months following the sale of the all Debentures in the event the registration statement, of which this prospectus is a part, is not declared effective by the SEC on or before May 1, 2007.

(6)		Total maximum payments that the Company may be required to make for the twelve months following the sale of all the Debentures and assuming that we made all of the payments described in footnotes 1 through 5, excluding two years of interest payments.

(7)		Total net proceeds to the Company assuming that the Company was not required to make any payments as described in footnotes (4) and (5).

We plan to use the proceeds from the sale of the Debentures for general corporate purposes and for working capital. The following table summarizes the potential proceeds available we will receive pursuant to the Cornell Agreement. For purposes of this table, we have assumed that the entire $1,500,000 aggregate principal amount of the Debentures was issued and sold on January 5, 2007 and that Cornell exercises all of the Warrants on a cash basis.


Total		Net Proceeds			% of Payments and Profit
Gross	Total Maximum	to AVRC	Total	% of Payments	over Net
Proceeds	Payments by	Assuming Max	Possible	and Profit	Proceeds
Payable to	AVRC Until	Pmts Made	Profit to	over Net	per Year
AVRC (1)	Maturity (2)	by AVRC (3)	Cornell (4)	Proceeds (5)	of Term (6)
$1,500,000	$885,000	$615,000	$399,725	208.90%	69.63%


(1)		Total gross proceeds payable to the Company on the sale of $1,500,000 of Debentures.

(2)		Total possible payments payable by us to Cornell or its affiliates assuming the Debentures remain outstanding until the maturity date and the maximum amount of liquidated damages is incurred, but excluding any redemption premiums.

(3)		Total net proceeds to us calculated by subtracting the result in footnote (2) from the result in footnote (1).

(4)		Total possible profit to Cornell based on the aggregate discount to market price of the conversion of the Debentures and Warrants.

(5)		Percentage of the amount of possible payments to Cornell as calculated in footnote (2) plus total possible discount to the market price of the shares underlying the Debentures and Warrants ($399,725) compared to the net proceeds disclosed in footnote (3) over entire term of Debentures.

(6)		Percentage of the amount of possible payments to Cornell as calculated in footnote (2) plus total possible discount to the market price of the shares underlying the Debentures and Warrants ($399,725) compared to the net proceeds disclosed in footnote (3) per year of term.

Other than the Cornell Agreement, we have not entered into an agreement or transaction with Cornell in the last three years, and the only securities of Advanced Viral that Cornell holds are the securities covered by this prospectus. Cornell has no agreements to purchase our securities other than as described in this prospectus.

James F. Dicke II and James F. Dicke III

On February 5, 2004, in a private offering transaction pursuant to Section 4(2) of the Securities Act, we entered into a securities purchase agreement with James Dicke II and his son James Dicke III to sell an aggregate of 120 million shares of our common stock and warrants to purchase 15 million shares of our common stock for an aggregate purchase price of $12 million. Pursuant to the agreement, the funding took place in four equal stages of $3 million each, once every 90 days on February 5, May 5, August 4 and November 3, 2004. There were no conditions precedent to the investors’ obligation to close other than the accuracy of our representations and warrants and our compliance with the agreement. The warrants expired unexercised on February 2, 2007. In addition, we granted demand and piggyback registration rights to the investors for the shares issued or issuable in connection with the transaction. James F. Dicke II is the Chairman and CEO of Crown Equipment Corporation and a former member of our Board of Directors.

PLAN OF DISTRIBUTION

We are registering the shares of common stock issuable upon conversion of the Debentures and upon exercise of the Warrants as well as certain shares outstanding. to permit the resale of these shares of common stock by the holders of such securities from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling stockholders of the shares of common stock. We will bear all fees and expenses incident to our obligation to register the shares of common stock.

The selling stockholders may sell all or a portion of the shares of common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the selling stockholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions,

	•		on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;

	•		in the over-the-counter market;

	•		in transactions otherwise than on these exchanges or systems or in the over-the-counter market;

	•		through the writing of options, whether such options are listed on an options exchange or otherwise;

	•		ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

	•		block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

	•		purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

	•		an exchange distribution in accordance with the rules of the applicable exchange;

	•		privately negotiated transactions;

	•		short sales;

	•		sales pursuant to Rule 144;

	•		broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

	•		a combination of any such methods of sale; and

	•		any other method permitted pursuant to applicable law.

�� If the selling stockholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholders may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.

The selling stockholders may pledge or grant a security interest in some or all of the Debentures, Warrants or shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties, subject to applicable law, may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

The selling stockholders and any broker-dealers or agents that are involved in selling the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.

Cornell Capital Partners, L.P. was formed in February 2000 as a Delaware limited partnership. Cornell Capital Partners is a domestic hedge fund in the business of investing in and financing public companies. Cornell Capital Partners does not intend to make or market in our common stock or to otherwise engage in stabilizing or other transactions intended to help support the stock price. Prospective investors should take these factors into consideration before purchasing our common stock.

Under the securities laws of certain states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. The selling stockholders are advised to ensure that any underwriters, brokers, dealers or agents effecting transactions on behalf of the selling stockholders are registered to sell securities in all fifty states. In addition, in certain states the shares of common stock may not be sold unless the shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

We will pay all expenses incident to the registration, offering and sale of the shares of common stock to the public hereunder other than commissions, fees and discounts of underwriters, brokers, dealers and agents. If any of these other expenses exists, we expect the selling stockholders to pay these expenses. Pursuant to the Cornell Agreement, we have agreed to indemnify Cornell Capital Partners and its controlling persons against certain liabilities, including liabilities under the 1933 Act. We estimate that the expenses of the offering to be borne by us will be approximately $90,831. For services rendered in connection with the Cornell Agreement, we paid to Yorkville Advisors, LLC (“Yorkville”) $150,000. We also paid to Yorkville $30,000 as a structuring and due diligence fee. Both amounts were paid directly from the gross proceeds of the first and second closing. The estimated offering expenses consist of: an SEC registration fee of $831, printing expenses of $10,000, accounting fees of $10,000, legal fees of $60,000 and miscellaneous expenses of $10,000. We will not receive any proceeds from the sale of any of the shares of common stock by the selling stockholders. However, we did receive proceeds from the issuance and sale to Cornell of the Debentures pursuant to the Cornell Agreement equal to $875,000 on January 5, 2006 and $450,000 on February ___, 2007. We will also receive proceeds upon the exercise of warrants held by our several selling stockholders in this offering.

There can be no assurance that any selling stockholder will sell any or all of the shares of common stock registered pursuant to the registration statement, of which this prospectus forms a part.

The selling stockholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities in respect to the shares of common stock.

We will pay all expenses of the registration of the shares of common stock pursuant to the registration rights agreements including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or “blue sky” laws;provided,however, that a selling stockholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the selling stockholders against liabilities, including some liabilities under the Securities Act, in accordance with the registration rights agreements, or the selling stockholders will be entitled to contribution in connection with certain losses they may incur. We may be indemnified by the selling stockholders against civil liabilities, including liabilities under the Securities Act that may arise from any written information furnished to us by the selling stockholder specifically for use in this prospectus, in accordance with the related registration rights agreements or we may be entitled to contribution in connection therewith.

Once sold under the registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

The principal United States market in which our common stock is traded is the over-the-counter market electronic Bulletin Board under the symbol “ADVR.” The following table shows the range of reported low bid and high bid per share quotations for our common stock for each full quarterly period during the two recent years ended December 31, 2005 and 2006, and for 2007 to date. The high and low bid prices for the periods indicated reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.


	High Bid		Low Bid
2005
First Quarter	$	0.141	$	0.105
Second Quarter		0.112		0.090
Third Quarter		0.122		0.090
Fourth Quarter		0.102		0.069
2006
First Quarter		0.088		0.051
Second Quarter		0.088		0.052
Third Quarter		0.074		0.054
Fourth Quarter		0.056		0.028
2007
First Quarter through February 8		0.035		0.030

Stockholders

The approximate number of holders of record of our common stock as of February 9, 2007 is 3,517, inclusive of those brokerage firms and/or clearing houses holding shares of common stock for their clientele (with each such brokerage house and/or clearing house being considered as one holder).

Dividend Policy

We have not declared or paid any dividends on our shares of common stock. We intend to retain future earnings, if any, that may be generated from our operations to finance our future operations and expansion and do not plan for the reasonably foreseeable future to pay dividends to holders of our common stock. Any decision as to the future payment of dividends will depend on our results of operations and financial position and such other factors as our board of directors in its discretion deems relevant.

SELECTED FINANCIAL DATA

The following selected historical financial data as of and for the years ended December 31, 2005, 2004, 2003, 2002 and 2001 has been derived from our audited financial statements. The financial data as of and for the nine months ended September 30, 2006 is derived from our unaudited consolidated financials included elsewhere in this prospectus. The selected consolidated financial data set forth below should be read along with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included elsewhere in this prospectus.

Selected Statement of Operations Data


	9 Months Ended			Year Ended December 31,
	Sept 30, 2006			2005			2004			2003			2002			2001
Net revenues	$	0		$	0		$	0		$	0		$	0		$	17,601
Net loss		(3,178,587	)		(5,200,171	)		(6,213,264	)		(7,816,811	)		(9,321,065	)		(11,086,567	)
Net loss per common share	$	(0.00	)	$	(0.02	)	$	(0.03	)	$	(0.03	)	$	(0.02	)	$	(0.02	)
Weighted average # of shares		696,587,734			696,523,624			568,838,679			495,008,372			439,009,322			389,435,324

Selected Balance Sheet Data


	As of		As of December 31,
	Sep 30, 2006		2005		2004		2003		2002		2001
Total assets	$	2,090,843	$	5,149,477	$	10,431,902	$	2,988,918	$	4,946,029	$	5,448,791
Total current liabilities		269,580		325,395		416,649		928,457		684,591		1,932,149
Total long-term debt		—		—		—		1,427,946		1,621,212		74,568
Total stockholders’ equity (deficiency)		1,821,263		4,824,082		10,015,253		352,515		1,756,326		3,442,074
Total liabilities and stockholders’ equity	$	2,090,843	$	5,149,477	$	10,431,902	$	2,988,918	$	4,946,029	$	5,448,791
Shares outstanding at period end		696,587,734		696,587,734		696,487,734		544,591,722		455,523,990		403,296,863

SUPPLEMENTARY FINANCIAL INFORMATION

The following table presents our condensed operating results for each of the ten (10) fiscal quarters through the period ended September 30, 2006 The information for each of these quarters is unaudited. In the opinion of management, all necessary adjustments, which consist only of normal and recurring accruals, have been included to fairly present the unaudited quarterly results. This data should be read together with our consolidated financial statements and the notes thereto, and Management’s Discussions and Analysis of Financial Condition and Results of Operations.


	2006						2005								2004
	Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
	(in thousands)
Net Sales	$	0.0	$	0.0	$	0.0	$	0.0	$	0.0	$	0.0	$	0.0	$	0.0	$	0.0	$	0.0	$	0.0
Costs and Expenses		954		1,025		1,252		2,135		1,074		971		1,169		1,157		1,244		1,219		2,124
Net Loss		(939)		(1,018)		(1,222)		(2,100)		(1,034)		(934)		(1,132)		(986)		(1,227)		(1,209)		(2,791)
Loss Per Share	$	0.00	$	0.00	$	0.01	$	0.00	$	0.00	$	0.00	$	0.00	$	0.00	$	0.00	$	0.00	$	0.01

DESCRIPTION OF BUSINESS

OVERVIEW

We were incorporated in Delaware in July 1985 to engage in the development, production, marketing, promotion and sale of a pharmaceutical drug known by the trademark Reticulose^®. Reticulose was the forerunner of our current drug, “AVR118.” AVR118 is a complex mixture of peptides, amino acids, nucleosides, nucleotides and nucleic acid bases. We currently believe it may be employed in the treatment of conditions such as:

	•		systemic symptoms such as cachexia (body wasting), loss of appetite and lethargy experienced by patients with cancer, AIDS and other diseases;

	•		wound healing;

	•		as an anti-inflammatory; and

	•		as a palliative agent to minimize certain toxicities associated with chemo or immunotherapies.

CURRENT TESTING OF AVR118

Phase II Dermatological Study

In January 2007 we began a Phase II study using a topically applied spray formulation of AVR118 as a wound healing agent. A report received from the University of Miami in August 2006 analyzing data from a limited animal study (three pigs) indicated that a topical application of AVR118 accelerates the rate at which wounds heal. Although preliminary, we believed that further study was merited, and accordingly we commenced the Phase II dermatological study.

The study population will be divided into two cohorts of patients who will undergo a one week course of therapy. The first cohort of patients will have undergone plastic surgery and must present a minimum of two bilateral surgical wounds. AVR118 will be applied to one wound so that the second wound will serve as an untreated control. The objective is to determine if AVR 118 can accelerate the time taken for the wound to close. A secondary objective will determine if AVR 118 can reduce or eliminate subsequent scar formation. The second cohort of patients will have undergone an exfoliative dermatologic procedure for eliminating acne induced scarring known as dermabrasion. Following the dermabrasion therapy, AVR 118 will be applied directly to one half of the inflamed facial tissue using the topically applied AVR 118 spray. The other half of the face will serve as an untreated control. The objective is to determine if AVR 118 can effectively reduce inflammation and accelerate the rate of tissue regeneration.

Phase II Cancer Study

In February 2005, we entered into an agreement with the Biomedical Research Alliance (BRANY), as agent for a network of hospitals, pursuant to which the hospitals would conduct our Phase II clinical study to evaluate the effect of a 4.0 ml dose of AVR118 administered to patients with systemic symptoms related to advanced cancer who are not receiving chemotherapy. We experienced difficulty accruing patients for the Phase II cancer study and in December 2005, amended the protocol to permit patients undergoing third-line chemotherapy treatment to become participants in the Phase II cancer study, in order to facilitate patient accrual. In the Phase II cancer study, patients are administered AVR118 for three weeks in order to compare treatment versus no treatment, after which the results of the study are to be analyzed. Those patients who did not receive AVR118 during the first three-week period are permitted to take the drug for the second three-week period.

The total cost incurred through September 30, 2006 relating to the Phase II cancer study is approximately $474,000. As of September 30, 2006, only eleven patients had been enrolled in the Phase II Study. We are currently in discussions with several teaching centers to expand the study to include patients in the earlier stages of disease to determine the efficacy of AVR118 on such patients. We believe transitioning the study to such centers would not only enable us to accelerate enrollment in an expanded program where higher patient accrual rates can be achieved, but would also be a more cost-efficient method for accruing patients by eliminating a private vendor.

GOVERNMENT REGULATION

The FDA imposes substantial requirements upon and conditions precedent to the introduction of therapeutic drug products, such as AVR118, through lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time consuming procedures to demonstrate that such products are both safe and effective in treating the indications for which approval is sought. After testing in animals, an Investigational New Drug (IND), application must be submitted to the FDA to obtain authorization for human testing. When the clinical testing has been completed and analyzed, final manufacturing processes and procedures are in place, and certain other required information is available, a manufacturer may submit a NDA to the FDA. No action can be taken to market AVR118, or any therapeutic drug product, in the United States until an NDA has been approved by the FDA.

The IND process in the United States is governed by regulations established by the FDA which strictly control the use and distribution of investigational drugs in the United States. The guidelines require that an application contain sufficient information to justify administering the drug to humans, that the application include relevant information on the chemistry, pharmacology and toxicology of the drug derived from chemical, laboratory and animal or in vitro testing, and that a protocol be provided for the initial study of the new drug to be conducted on humans.

In order to conduct a clinical trial of a new drug in humans, a sponsor must prepare and submit to the FDA a comprehensive IND. Central to the IND is a description of the overall plan for investigating the drug product and a comprehensive protocol for each planned study. The plan is carried out in three phases: Phase I clinical trials, which involve the administration of the drug to a small number of subjects to determine safety and tolerability. Phase II clinical trials, which involve the administration of the drug to a limited number of patients for a specific disease to determine dose response, efficacy and safety; and Phase III clinical trials, which involve the study of the drug to gain confirmatory evidence of efficacy and safety from a wide base of investigators and patients.

An investigator’s brochure must be included in the IND and the IND must commit the sponsor to obtain initial and continual review and approval of the clinical investigation. A section describing the composition, manufacture and control of the drug is included in the IND. Sufficient information is required to be submitted to assure the proper identification, quality, purity and strength of the investigational drug. A description of the drug, including its physical, chemical, and biological characteristics, must also be included in the IND. The general method of preparation of the drug must be included. A list of all components including inactive ingredients must also be submitted. There must be adequate information about pharmacological and toxicological studies of the drug involving laboratory animals or in vitro tests on the basis of which the sponsor has concluded that it is reasonably safe to conduct the proposed clinical investigation. Where there has been widespread use of the drug outside of the United States or otherwise, it is possible in some limited circumstances to use well documented clinical experience as a substitute for other pre-clinical work.

After the FDA allows the IND, the investigation is permitted to proceed, during which the sponsor must keep the FDA informed of new studies, including animal studies, make progress reports on the study or studies covered by the IND, and also be responsible for alerting FDA and clinical investigators immediately of unforeseen serious side effects or injuries.

When all clinical testing has been completed and the data analyzed, final manufacturing processes and procedures are in place, and certain other required information is available to the manufacturer, a manufacturer may submit an NDA to the FDA. An NDA must be approved by the FDA covering the drug before its manufacturer can commence commercial distribution of the drug. The NDA contains a section describing the clinical investigations of the drug which section includes, among other things, the following: a description and analysis of each clinical pharmacology study of the drug; a description and analysis of each controlled clinical study pertinent to a proposed use of the drug; a description of each uncontrolled clinical study including a summary of the results and a brief statement explaining why the study is classified as uncontrolled; and a description and analysis of any other data or information relevant to an evaluation of the safety and effectiveness of the drug product obtained or otherwise received by the applicant from any source foreign or domestic. The NDA also includes an integrated summary of all available information about the safety of the drug product including pertinent animal and other laboratory data, demonstrated or potential adverse effects of the drug, including clinically significant potential adverse effects of administration of the drug contemporaneously with the administration of other drugs and other related drugs. A section is included describing the statistical controlled clinical study and the documentation and supporting statistical analysis used in evaluating the controlled clinical studies.

Another section of the NDA describes the data concerning the action of a drug in the human body over a period of time and data concerning the extent of drug absorption in the human body or information supporting a waiver of the submission of such data. Also included in the NDA is a section describing the composition, manufacture and specification of the drug including the following: a full description of the drug, its physical and chemical characteristics; its stability; the process controls used during manufacture and packaging; and such specifications and analytical methods as are necessary to assure the identity, strength, quality and purity of the drug substance as well as the availability of the drug made from the substance. NDAs contain lists of all components used in the manufacture of the drug and a statement of the specifications and analytical methods for each component. Also included are studies of the toxicological actions of the drug as they relate to the drug’s intended uses.

The data in the NDA must establish that the drug has been shown to be safe for use under its proposed labeling conditions and that there is substantial evidence that the drug is effective for its proposed use(s). Substantial evidence is defined by statute and FDA regulation to mean evidence consisting of adequate and well-controlled investigations, including clinical investigations by experts qualified by scientific training and experience, to evaluate the effectiveness of the drug involved.

It is possible that the results of human clinical trials, if performed, will not prove that AVR118 is safe or effective in the treatment of diseases, or that the FDA will not approve the sale of AVR118 in the United States if we submitted a proper NDA. It is not known at this time how extensive the Phase II and Phase III clinical trials will be, if they are conducted. The data generated may not show that the drug AVR118 is safe and effective, and even if the data shows that AVR118 is safe and effective, obtaining approval of the NDA could take several years and require financing of amounts not presently available to us.

In the past we have conducted and we may conduct in the future certain clinical activities outside the United States. Activities outside the United States are subject to various additional regulatory requirements governing the testing, approval, manufacture, labeling, marketing and sale of pharmaceutical and diagnostic products imposed by foreign countries. Government regulation in certain countries may delay marketing of AVR118 for a considerable period of time and impose costly procedures upon our activities. The extent of potentially adverse government regulations which might arise from future legislation or administrative action cannot be predicted. Whether or not FDA approval has been obtained for a product, approval of the product by comparable regulatory authorities of foreign countries must be obtained prior to marketing the product in those countries. The approval process may be more or less rigorous from country to country, and the time required for approval may be longer or shorter than that required in the United States. Clinical studies conducted outside of any country may not be accepted by such country, and the approval of any pharmaceutical or diagnostic product in one country does not assure that such product will be approved in another country. Accordingly, until registration is granted, if ever, in the United States or another developed or developing country, we do not expect that we will be able to generate material sales revenue.

PATENTS

Patent protection and trade secret protection are important to our business and our future will depend, in part, on our ability to maintain trade secret protection, obtain patents and operate without infringing the proprietary rights of others both in the United States and abroad. To date, we have been issued or granted 14 U.S. patents, two Australian patents and one Canadian patent. In addition, we currently have five patent applications pending with the U.S. Patent and Trademark Office (“PTO”) and 16 foreign patent applications.

As patent applications in the United States are maintained confidentially until published or patents issue and as publication of discoveries in the scientific or patent literature often lag behind the actual discoveries, we cannot be certain that we were the first to make the inventions covered by each of our pending patent applications or that we were the first to file patent applications for such inventions. Furthermore, the patent positions of biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions, and, therefore, the breadth of claims allowed in biotechnology and pharmaceutical patents or their enforceability cannot be predicted. We cannot be sure that any additional patents will issue from any of our patent applications or, should any patents issue, that we will be provided with adequate protection against potentially competitive products. Furthermore, we cannot be sure that any patents will be of commercial value to us, or that private parties, including competitors, will not successfully challenge our patents or circumvent our patent position in the United States or abroad.

In the absence of adequate patent protection, our business may be adversely affected by competitors who develop comparable technology or products. Moreover, pursuant to the terms of the Uruguay Round Agreements Act, patents filed on or after June 8, 1995 have a term of 20 years from the date of first U.S. filing to which priority is claimed, irrespective of the period of time it may take for such patent to ultimately issue, subject to certain patent term adjustments that may be available in the event of certain PTO delays. This may shorten the period of patent protection afforded to our products as patent applications in the biopharmaceutical sector often take considerable time to issue. Under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Patent Act”), a sponsor may obtain marketing exclusivity for a period of time following FDA approval of certain drug applications, regardless of patent status, if the drug is a new chemical entity or if new clinical studies were used to support the marketing application for the drug. Pursuant to the FDA Modernization Act of 1997, the period of exclusivity can be extended if the applicant performs certain studies in pediatric patients. This marketing exclusivity prevents a third party from obtaining FDA approval for a similar or identical drug under an Abbreviated New Drug Application or a “505(b)(2) New Drug Application.” The statute also allows a patent owner to obtain an extension of applicable patent terms for a period equal to one-half the period of time elapsed between the filing of an IND and the filing of the corresponding NDA plus the period of time between the filing of the NDA and FDA approval, with a five year maximum patent extension. We cannot be sure that we will be able to take advantage of either the patent term extension or marketing exclusivity provisions of this law. In order to protect the confidentiality of our technology, including trade secrets and know-how and other proprietary technical and business information, we require all of our employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the use or disclosure of information that is deemed confidential. The agreements also oblige our employees, consultants, advisors and collaborators to assign to us developments, discoveries and inventions made by such persons in connection with their work with us. We cannot be sure that confidentiality will be maintained or disclosure prevented by these agreements or that our proprietary information or intellectual property will be protected thereby or that others will not independently develop substantially equivalent proprietary information or intellectual property.

The pharmaceutical industry is highly competitive and patents have been applied for by, and issued to, other parties relating to products competitive with AVR118. Therefore, AVR118 and any other drug candidates may give rise to claims that they infringe the patents or proprietary rights of other parties existing now and in the future. Furthermore, to the extent that we or our consultants or research collaborators use intellectual property owned by others in work performed for or by us, disputes may also arise as to the rights in such intellectual property or in related or resulting know-how and inventions. An adverse claim could subject us to significant liabilities to such other parties and/or require disputed rights to be licensed from such other parties. We cannot be sure that any license required under any such patents or proprietary rights would be made available on terms acceptable to us, if at all. If we do not obtain such licenses, we may encounter delays in product market introductions, or may find that the development, manufacture or sale of products requiring such licenses may be precluded. In addition, we could incur substantial costs in defending ourselves in proceedings instituted before the PTO, other administrative body, or court in a suit or other proceeding brought against us by a private party based on such patents or proprietary rights, or in suits by us asserting our patent or proprietary rights against another party, even if the outcome is not adverse to us. We have not conducted any searches or made any independent investigations of the existence of any patents or proprietary rights of other parties.

MARKETING AND SALES

To date, our efforts or the efforts of our representatives have produced no material benefits to us regarding our ability to have AVR118 sold commercially anywhere in the world, and we have received no information that would lead us to believe that we will be positioned to do so, due to, among other reasons, the lack of financial resources to complete the necessary clinical trials.

Until AVR118 is registered and approved for sale in the United States or in another developed country we will not generate any sales of AVR118. For the years ended December 31, 2005, 2004 and 2003, we reported no commercial sales. AVR118 is not legally available for commercial sale anywhere in the world.

We currently produce bulk clinical trial material of AVR118 in our facility in Yonkers, New York under current Good Manufacturing Practices (cGMP) as set forth by the FDA. The FDA has not approved AVR118 for distribution or sale in the United States, nor has it approved our Yonkers, New York facility.

COMPETITION

The pharmaceutical drug industry is highly competitive and rapidly changing. If we successfully develop AVR118, it will compete with numerous existing therapies. In addition, many companies are pursuing novel drugs that target the same diseases we are targeting with AVR118. We believe that a number of drugs are currently under development and will become available in the future for the treatment of cachexia (body wasting) and other similar conditions associated with cancer, HIV, and other viruses, and wound healing. We anticipate that we will face intense and increasing competition as new products enter the market and advanced technologies become available. Our competitors’ products may be more effective, or more effectively marketed and sold, than AVR118. Competitive products may render AVR118 obsolete or noncompetitive before we can recover the expenses of developing and commercializing AVR118. Furthermore, the development of a cure or new treatment methods for the diseases we are targeting could render AVR118 noncompetitive, obsolete or uneconomical. Many of our competitors:

	•		have significantly greater financial, technical and human resources than we have and may be better equipped to develop, manufacture and market products;

	•		have extensive experience in preclinical testing and clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products; and

	•		have products that have been approved or are in late stage development and operate large, well-funded research and development programs.

Several products are currently marketed for the treatment of cachexia (body wasting) including Megace^® oral suspension manufactured by Bristol-Myers Squibb and Serostim^® (injectable human growth hormone) marketed by Serono Laboratories Inc.

In the area of wound healing, Johnson & Johnson has a marketed growth factor product with the name Regranex^®, and Genentech, Inc. is performing a Phase II trial in diabetic wound healing, evaluating the protein growth factor vascular endothelial cell growth factor (“VEGF”). In addition, several large well-established and well-funded companies such as Smith and Nephew sell a broad range of wound care products, including topical anti-infectives and antibiotics, as well as some advanced wound technologies, such as skin substitutes, growth factors and sophisticated delayed release silver-based dressings. There are also a large number of prescription and over-the-counter products for the prevention and treatment of infections, including topical anti-infectives, such as Betadine, silver sulfadiazine, hydrogen peroxide, Dakin’s solution and hypochlorous acid, and topical antibiotics, such as Neosporine and Bacitracin. Currently, no single anti-infective product dominates the chronic or acute wound markets because many of the products have serious limitations or tend to inhibit the wound healing process.

Other small companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and biotechnology companies. Academic institutions, governmental agencies and other public and private research organizations are also becoming increasingly aware of the commercial value of their inventions and are more actively seeking to commercialize the technology they have developed.

If we successfully develop and obtain approval for AVR118, we will face competition based on the safety and effectiveness of AVR118, the timing and scope of regulatory approvals, the availability of supply, marketing and sales capability, reimbursement coverage, price, patent position and other factors.

Our competitors may develop or commercialize more effective or more affordable products, or obtain more effective patent protection, than we do. Accordingly, our competitors may commercialize products more rapidly or effectively than we do, which could hurt our competitive position and adversely affect our business.

If and when we obtain FDA approval for AVR118, we expect to compete primarily on the basis of product performance and price with a number of pharmaceutical companies, both in the United States and abroad.

EMPLOYEES

We have seven employees. Of these employees, two are executive officers, one is in operations, two are responsible for research, quality assurance and quality control, and two are information systems or administrative employees. Additionally, we may hire, as and when needed, and as available, such technical support staff and consultants for specific projects on a contract basis.

DESCRIPTION OF PROPERTY

We lease 16,650 square feet for executive offices, including research laboratory space and production area at 200 Corporate Boulevard South, Yonkers, New York from an unaffiliated third party (the “Yonkers Lease”). The term of the Yonkers Lease expires in April 2008 and has an annual rental obligation of $283,000. We manufacture AVR118 exclusively at our facility in Yonkers, New York. Our Bahamian facility, which we acquired in December 1987, is located in Freeport, Bahamas and consists of an approximately 29,000 square foot site with a one-story concrete building of 7,300 square feet. We are attempting to sell the Bahamian facility.

LEGAL PROCEEDINGS

We are not currently a party to any material litigation, nor to the knowledge of management, is any such litigation threatened.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with the consolidated financial statements of Advanced Viral and the notes thereto appearing elsewhere in this filing. Statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this prospectus that are not statements of historical or current fact constitute “forward-looking statements.”

OVERVIEW

Research and Development Costs

The costs relating to our research and development efforts for the years 2000, 2001, 2002, 2003, 2004 and 2005, and for the nine months ended September 30, 2006 are presented below.

COSTS RELATING TO RESEARCH AND DEVELOPMENT EFFORTS
FROM JANUARY 2000 THROUGH SEPTEMBER 30, 2006


											9 Months			2000-2006
Cost Category	2000-2002		2003		2004			2005			Ended 2006			to Date
Hospital fees:
Phase I (topical)		254,246		—		—			—			—			254,246
Phase I/II (Israel AIDS, leukemia/lymphoma, solid tumor)				102,750		107,250			(12,500	)		(30,000	)		167,500
Phase II cancer study (NY)		—		—		—			107,507			7,495			115,002
Phase I diabetes study		—		—		—			103,410			152,595			256,005
In vitro and Avian Flu		—		—		—			—			41,868			41,868
Anti-Inflammatory		—		—		—			—			7,542			7,542
Wound healing		—		—		—			—			35,487			35,487
Lab fees		500		61,729		80,970			(4,907	)		—			138,292
Insurance cost		3,359		38,195		11,000			18,167			23,250			93,971

TOTAL CLINICAL FEES		258,105		202,674		199,220			211,677			238,237			1,109,913

									��
IND preparation/maintenance		103,713		—		182,496			—			—			286,209
CRO clinical trial management:
Phase I (topical)		47,527		—		—			—			—			47,527
Phase I/II AIDS (Israel)		920,064		807,111		(295,883	)		16,627			—			1,447,919
Argentina patient experiences		253,168		—		—			—			—			253,168
Data management & study reports		122,300		—		276,674			287,500			240,689			927,163
Clinical & Regulatory consulting		1,274,200		83,230		288,109			471,134			263,550			2,380,223

TOTAL CLINICAL/REGULATORY OPS		2,720,972		890,341		451,396			775,261			504,239			5,342,209


General lab supplies		1,030,006		—		17,289			56,622			53,480			1,157,397
Toxicology		197,135		—		—			—			—			197,135
Contracted research & development		562,106		55,262		—			—			—			617,368
Validation		705,249		—		—			—			—			705,249
Drug preparation and support		1,982,421		—		—			—			—			1,982,421
Salary & Facility allocations		5,317,974		175,219		1,099,225			718,355			624,648			7,935,421
R&D Miscellaneous Expenses		9,044		26,822		1,854			—			—			37,720

TOTAL PRECLINICAL RESEARCH & DEVELOPMENT		9,803,935		257,303		1,118,368			774,977			678,128			12,632,711


TOTAL RESEARCH AND DEVELOPMENT		12,783,012		1,350,318		1,768,984			1,761,915			1,420,604			19,084,833

During 2002, our board of directors approved a plan to sell Advance Viral Research Ltd. (“AVR Ltd”), our Bahamian subsidiary. The decision was based upon the completion of construction on our facility in Yonkers, New York capable of providing all functions previously provided by the Freeport, Bahamas plant. The assets of AVR Ltd. have been classified on our Consolidated Balance Sheet at September 30, 2006 and December 31, 2005 as Assets held for Sale. AVR Ltd. had no liabilities as of September 30, 2006 and December 31, 2005, except inter-company payables which have been eliminated in consolidation. The operations for AVR Ltd. have been classified in the Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and September 30, 2005 as Loss from Discontinued Operations.

GOING CONCERN

Whether we will be able to proceed with studies and trials discussed above is dependent upon our ability to secure sufficient funds. If sufficient funds do not become available, we will have to materially limit our operations by, among other things, limiting our clinical trials for AVR118. We may not be able to raise the funds we currently need to continue or complete the clinical trials for AVR118. While we continue to attempt to secure funds through the sale of our securities, there is no assurance that such funds will be raised on favorable terms, if at all. Our ability to raise capital is severely limited by the number of shares of common stock we are currently authorized to issue, which is one billion shares. To increase the number of authorized shares of our common stock, we need to obtain stockholder approval to amend our certificate of incorporation to authorize additional securities beyond the current authorization of one billion shares of Common Stock. We have noticed and called a special meeting of stockholders to be held on March 21, 2007 in order to obtain this approval, however, we have no assurance that such amendment will be approved by our stockholders.

Conducting the clinical trials of AVR118 will require significant cash expenditures. AVR118 may never be approved for commercial distribution by any country . Because our research and development expenses and clinical trial expenses will be charged against earnings for financial reporting purposes, we expect that losses from operations will continue to be incurred for the foreseeable future.

RESULTS OF OPERATIONS

For the Three and Nine Months ended September 30, 2006 vs. September 30, 2005

We incurred losses from continuing operations of $936,000 vs. $1,031,000 for the three months ended September 30, 2006 and 2005, respectively, and $3,151,000 vs. $3,082,000 for the nine months ended September 30, 2006 and 2005, respectively. Our losses were attributable primarily to:

Research and Development Expense. Research and development expenses for the three months ended September 30, 2006 decreased 40% to $353,000 compared to $588,000 for the three months ended September 30, 2005. Research and development expenses for the nine months ended September 30, 2006 increased 4% to $1,421,000 compared to $1,363,000 for the nine months ended September 30, 2005. The change in research and development expenses primarily resulted from:

•

Research and development expenditures relating to salaries, benefits and facilities were $148,000 vs. $158,000 for the three months ended September 30, 2006 and 2005, respectively, and $436,000 vs. $496,000 for the nine months ended September 30, 2006 and 2005, respectively. This decrease was due to the elimination of the salary expense associated with Elma Hawkins, who resigned as President and CEO from the Company in February 2006, partly offset by the increase in expense associated with the salary of our new President and CEO, Stephen Elliston in May 2006. For the three months ended September 30, 2006 and 2005, 50% and 46% of our payroll and related expenses were allocated to research and development expenses, respectively. For the nine months ended September 30, 2006 and 2005, 49% and 47% of our payroll and related expenses were allocated to research and development expenses, respectively;

	•		Research and development expenditures for consulting services by Elma Hawkins relating to scientific matters was $0 for both the three months ended September 30, 2006 and 2005, and $153,000 vs. $0 for the nine months ended September 30, 2006 and 2005, respectively;

	•		Clinical testing fees were $66,000 vs. $124,000 for the three months ended September 30, 2006 and 2005, respectively, and $238,000 vs. 160,000 for the nine months ended September 30, 2006 and 2005, respectively. The decrease for the three month period ended September 30, 2006 vs. 2005 was primarily attributable to lower Phase I diabetes trial costs and no Phase II cancer/cachexia trial costs, offset by the commencement of various studies, including the wound healing study. The increase for the nine month period ended September 30, 2006 vs. 2005 was primarily attributable to higher payments for a Phase I diabetes trial and various studies, including the wound healing and avian flu study and;

	•		Expenses associated with clinical and regulatory activities were $121,000 and $274,000 for the three months ended September 30, 2006 and 2005, respectively, and $504,000 and $657,000 for the nine months ended September 30, 2006 and 2005, respectively. The decrease for the three months and nine months ended September 30, 2006 vs. 2005 was primarily attributable to lower regulatory consulting costs and data management fees for processing the current Phase II Study and Phase I diabetes studies.

General and Administrative Expense. General and administrative expense decreased 2% to $472,000 from $484,000 for the three months ended September 30, 2006 and 2005, respectively, and decreased 3% to $1,481,000 from $1,520,000 for the nine months ended September 30, 2006 and 2005, respectively. The changes in general and administrative expenses primarily resulted from:

	•		Decreased payroll and related expenses of $94,000 vs. $129,000 for the three months ended September 30, 2006 and 2005, respectively, and $289,000 vs. $387,000 for the nine months ended September 30, 2006 and 2005, respectively, due to the elimination of the salary expense associated with Elma Hawkins, who resigned as President and CEO from the Company in February 2006, partly offset by the salary of our new President and CEO, Stephen Elliston in May 2006.

	•		Professional fees increased 82% to $104,000 vs. $57,000 for the three months ended September 30, 2006 and 2005, respectively, and increased 76% to $336,000 vs. $189,000 for the nine months ended September 30, 2006 and 2005, respectively, primarily due to the expensing of patent costs of $45,000 and $148,000 for the three and nine months ended September 30, 2006. Patent costs of $43,000 and $140,000 for the three and nine months ended September 30, 2005 were capitalized to cost of patents. The 2005 cost was subsequently included in an impairment charge in December 2005.

Compensation and Other Expense for Options and Warrants. The Company has applied the fair value recognition provisions of FASB Statement No. 123R, Share-Based Payments, to stock-based employee compensation. In the nine months ended September 30, 2006, $175,767 of stock-based employee compensation cost is reflected in the net loss. In 2005, this employee compensation of $1,901,116 was presented on a pro forma basis as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant.

Depreciation and Amortization Expense. Depreciation and amortization expense increased 1710% to $40,000 vs. $2,000 for the three months ended September 30, 2006 and 2005, respectively, and decreased 53% to $154,000 vs. $331,000 for the nine months ended September 30, 2006 and 2005, respectively. The increase for the comparative three month periods reflects a depreciation reduction in the three months ended September 30, 2005. This decrease for the comparative nine month periods was due to assets acquired in prior years that were fully depreciated in 2005.

Interest Income (Expense). Interest income decreased 54% to $21,000 vs. $45,000 for the three months ended September 30, 2006 and 2005, respectively, and decreased 37% to $86,000 vs. $137,000 for the nine months ended September 30, 2006 and 2005, respectively, as a result of decreased cash balances invested in money market accounts. Interest expense remained the same at $2,000 and $4,000 for the three and nine months ended September 30, 2006 and 2005.

Loss From Continuing Operations. Losses from continuing operations decreased 9% to $936,000 vs. $1,031,000 for the three months ended September 30, 2006 and 2005, respectively, and increased 2% to $3,151,000 vs. 3,082,000 for the nine months ended September 30, 2006 and 2005, respectively. The change for the comparable periods was primarily due to increases or decreases in research and development expenses.

Loss From Discontinued Operations. Losses from discontinued operations were $3,000 vs. $4,000 for the three months ended September 30, 2006 and 2005, respectively, and $28,000 vs. $18,000 for the nine months ended September 30, 2006 and 2005, respectively, which losses resulted from our 99% owned Bahamian subsidiary, Advance Viral Research Ltd. held for sale. During 2002, our board of directors approved a plan to sell Advance Viral Research Ltd.

Revenues. We had no revenues for the three and nine months ended September 30, 2006 nor for the three and nine months ended September 30, 2005.

For the Years ended December 31, 2005 vs. December 31, 2004

Revenues. We generated no sales revenue for the year ended 2005 or 2004.

Research And Development Expense.Research and development expense remained essentially unchanged at $1,762,000 in 2005 compared to $1,769,000 in 2004. During 2005 payroll and related expenses related to research and development were lower compared to 2004 but these decreases were substantially offset by increased clinical trial and consulting fees, as follows:

	•		Payroll and related expenses relating to research and development decreased to $513,000 for the year ended 2005 vs. $912,000 for 2004. This reduction reflects the elimination of salary expense associated with Dr. Shalom Hirschman, who left the Company at the end of 2004, and a reduced year-end bonus for 2005 to our former President and Chief Executive Officer, Dr. Elma Hawkins. For the year ended 2005, 48% of salaries and benefits were allocated to research and development, compared to 56% in 2004;

	•		Consulting fees increased to $1,006,000 for the year ended 2005 vs. $862,000 for 2004. The 17% increase in 2005 from 2004 was primarily attributable to increased payments made to MediVector ($714,000 in 2005 vs. $595,000 in 2004) for biopharmaceutical consulting services in connection with our ongoing studies; and

	•		Laboratory supplies expense increased to $57,000 in 2005 vs. $17,000 in 2004.

General and Administrative Expenses. General and administrative expenses decreased 11% to $2,101,000 in 2005 from $2,353,000 in 2004. The decrease in 2005 was primarily attributable to decreased payroll expenses, decreased insurance costs and computer costs.

	•		Payroll and related expenses decreased to $566,000 for the year ended 2005 vs. $703,000 for the year ended 2004 primarily due to a decrease in bonuses paid to Dr. Hawkins in 2005 compared to 2004 ($103,000), and decreased payroll expense as a result of the resignation of our Chief Financial Officer in 2004 ($58,000). In addition, for the year ended 2005, 52% of salaries and benefits were allocated to general and administrative expense, compared to 44% in 2004.

	•		Benefit and insurance costs decreased to $435,000 in 2005 vs. $486,000 in 2004. The decrease in 2005 was primarily attributable to decreased D&O insurance costs in 2005 of $288,000 vs. $312,000 in 2004, with additional savings in medical and general liability insurance; and

	•		Computer costs decreased to $32,000 in 2005 vs. $57,000 in 2004 primarily attributable to the decreased in computer leasing and maintenance costs.

Compensation and Other Expense For Options and Warrants.Compensation expense decreased 100% to $0 in 2005 from $6,000 in 2004. The compensation expense for 2004 was primarily attributable to the calculation of the fair value of granting an option to a non-employee.

Cost in Connection with Settlement of Distribution Agreement.Under the terms of a termination and release agreement with DCT entered in February 2004, warrants for five million shares of our common stock were issued. The fair value of these warrants was estimated to be $687,000 for 2004.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased 56% to $405,000 in 2005 from $929,000 in 2004. Amortization expense decreased to $38,000 in 2005 from $120,000 in 2004 resulting primarily from a change in the useful life of patents.

Asset Impairment Charges. We recognized an asset impairment charge for our patents and patents pending in 2005 of $1,081,000. In 2004 and 2003 we did not recognize any impairment charges.

Interest Expense. Interest expense decreased 99% to $6,000 in 2005 from $687,000 in 2004. The decrease was primarily attributable to decreased interest expense associated with convertible debentures, the beneficial conversion feature on the debentures and amortization of warrant costs. Included in interest expense for these periods was:

	•		the beneficial conversion feature on convertible debentures of $0 and $431,000 for the years ended 2005 and 2004, respectively;

	•		amortization of loan costs relating to the issuance of convertible debentures of $0 and $232,000 for the years ended 2005 and 2004, respectively; and

	•		interest expense associated with convertible debentures of $0 and $16,000 for the years ended 2005 and 2004, respectively.

Interest Income.Interest income increased 50% to $175,000 in 2005 from $117,000 in 2004. The increase in interest income resulted from our increased cash balances invested in money market and overnight banking obligations.

Loss from Continuing Operations.Losses from continuing operations decreased 18% to $5,181,000 in 2005 from $6,315,000 in 2004. The decrease from 2005 to 2004 resulted primarily from reductions in non-cash expenses items in 2005 compared to 2004 including non-cash expenses related to the termination of a distribution agreement, beneficial conversion feature on convertible debentures including amortization of loan costs offset by higher depreciation and amortization expense. This was offset by the recognition of an impairment charge on patents of $1,081,000.

Loss/Income from Discontinued Operations.Losses from discontinued operations in 2005 were $20,000, compared to income received from discontinued operations of $101,000 in 2004. We derived income from our discontinued operations because of an insurance recovery of $132,000 related to hurricane damage sustained at our Freeport, Bahamas facility in 2004.

For the Years ended December 31, 2004 vs. December 31, 2003

Revenues. We generated no sales revenue for the year ended 2004 or 2003.

Research And Development Expense.Research and development expense in 2004 increased 31% to $1,769,000 from $1,350,000 in 2003. The increase in 2004 was primarily attributable to the allocation in 2004 of expenses relating to salaries and benefits to research and development and increased consulting fees.

	•		increased payroll and related expenses relating to research and development of $912,000 for the year ended 2004 vs. $175,000 for the year ended 2003. In 2004, 56% of salaries and benefits were allocated to research and development as a result of the hiring of a new CEO and President and the redirection of personnel to the review of projects and to filing an IND in late 2004, compared to 15% in 2003, primarily due to a reduction in staff at the end of 2002 and the resulting decrease in research and development activities;

	•		increased consulting fees of $862,000 for the year ended 2004 vs. $96,000 for the year ended 2003. The 797% increase in 2004 from 2003 was primarily attributable to payments made to MediVector ($595,000) and Merchant-Taylor International, Inc. ($121,000) for biopharmaceutical consulting services in connection with our ongoing studies and IND activities, payments for consulting services made to Oxford Pharmaceuticals ($32,000), and our consultant retained in Rechovot, Israel ($115,000). In 2003 we paid $80,000 to Oxford Pharmaceuticals and $16,000 to our consultant retained in Rechovot, Israel in connection with consulting agreements for research and development purposes;

	•		decrease in research and development expense relating to our agreement with EnviroGene, LLC of $448,000 as a result of the derecognition of accrued expenses associated with termination of the agreement for nonperformance during the year ended 2004, compared to $697,000 in 2003; and

	•		increased laboratory supplies expense of $17,000 in 2004 vs. $0 in 2003.

General and Administrative Expenses. General and administrative expenses decreased 26.9% to $2,353,000 in 2004 from $3,221,000 in 2003. The decrease in 2004 was primarily attributable to decreased payroll expenses, decreased professional fees and decreased consulting fees relating to fundraising activities.

	•		decreased payroll and related expenses of $703,000 for the year ended 2004 vs. $989,000 for the year ended 2003. In 2004, only 44% of salaries and benefits were allocated to general and administrative expense, with the remainder allocated to research and development as a result of the hiring of a new CEO and President and the redirection of personnel to the review of projects and to filing an IND in late 2004, compared to 85% in 2003 attributable to a reduction in staff at the end of 2002 and the resulting decrease in research and development activities;

	•		increased benefit and insurance costs of $486,000 in 2004 vs. $456,000 in 2003. The increase in 2004 was primarily attributable to increased D&O insurance costs ($312,000 in 2004 vs. $269,000 in 2003);

	•		decrease in professional fees to $266,000 in 2004 vs. $815,000 in 2003 primarily attributable to the decreased attorneys fees relating to litigation ($1,000 in 2004 vs. $307,000 in $2003; and

	•		decrease in consulting costs in 2004 of $24,000 vs. $157,000 in 2003 primarily attributable to consultants retained for fund raising initiatives in 2003.

Compensation And Other Expense For Options And Warrants.Compensation expense decreased 99% to $6,000 in 2004 from $606,000 in 2003. The decrease in compensation expense for 2004 was primarily attributable to the calculation of fair value in 2003 of options and warrants in connection with options issued to our Scientific Advisory Board ($347,000) and warrants issued in connection with our 2001 equity line of credit. Included in compensation expense for 2004 was:

	•		the calculation of the fair value of granting an option to a non-employee of $6,000 for 2004;

	•		the issuance of options to our Scientific Advisory Board resulting in compensation expense of $0 and $347,000 for the years ended 2004 and 2003, respectively; and

	•		the fair value of warrants issued for our 2001 equity line of credit with Cornell of $0 and $255,000 for the years ended 2004 and 2003, respectively.

Depreciation and Amortization Expense. Depreciation and amortization expense increased 1% to $929,000 in 2004 from $922,000 in 2003. This decrease resulted from equipment which became fully depreciated in 2003 combined with no material equipment purchases in 2004. Amortization expense increased to $120,000 in 2004 from $0 in 2003, resulting primarily from the recognition of the reduced useful live of granted patents.

Interest Expense. Interest expense decreased 60% to $687,000 in 2004 from $1,697,000 in 2003. The decrease was primarily attributable to decreased interest expense associated with convertible debentures, the beneficial conversion feature on the debentures and amortization of warrant costs. Included in interest expense for these periods was:

	•		the beneficial conversion feature on convertible debentures of $431,000 and $809,000 for the years ended 2004 and 2003, respectively;

	•		amortization of warrant costs associated with convertible debentures of $0 and $517,000 for the years ended 2004 and 2003, respectively;

	•		amortization of loan costs relating to the issuance of convertible debentures of $232,000 and $253,000 for the years ended 2004 and 2003, respectively; and

	•		interest expense associated with convertible debentures of $16,000 and $101,000 for the years ended 2004 and 2003, respectively.

Interest Income.Interest income increased 792% to $116,000 from $13,000 in 2003. The increase in interest income resulted from our increased cash balances invested in money market and overnight banking obligations.

Loss from Continuing Operations.Losses from continuing operations decreased 19% to $6,315,000 for 2004 from $7,784,000 in 2003. The decrease from 2004 to 2003 resulted primarily from a reduction in interest expense.

Income/Loss from Discontinued Operations.Income from discontinued operations for the year ended 2004 was $101,000 while losses from discontinued operations for the year ended 2003 was $33,000. We derived income from our discontinued operations because of an insurance recovery of $132,000 related to hurricane damage sustained at our Freeport, Bahamas facility.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2006, we had current assets of $1,822,000, compared to $4,737,000 as of December 31, 2005. We had total assets of $2,091,000 at September 30, 2006 compared to $5,149,000 at December 31, 2005. The decrease in current and total assets was primarily attributable to the use of cash on hand to fund current operations. We had current liabilities of $270,000 as of September 30, 2006, compared to $325,000 as of December 31, 2005.

During the nine months ended September 30, 2006 we used cash of $2,883,000 for operating activities, compared to $2,934,000 during the nine months ended September 30, 2005. During the nine months ended September 30, 2006, our expenses included:

	•		$600,000 for payroll and related costs primarily for administrative staff, scientific personnel and executive officers;

	•		$938,000 for expenditures for AVR118 research;

	•		$435,000 for other professional and consulting fees;

	•		$287,000 for insurance costs;

	•		$283,000 for rent and utilities for our Yonkers facility; and

	•		$96,000 in recruiting and public relations costs.

During the nine months ended September 30, 2006, we used $10,000 for investment activities, compared to $188,000 during the nine months ended September 30, 2005 related to leasehold improvements, equipment purchases and incurred patent costs.

$5,000 in funds were used by financing activities for the nine months ended September 30, 2006 for a potential investor’s due diligence review compared to $9,000 provided for the nine months ended September 30, 2005 relating to the exercise of outstanding stock options.

During 2004, we completed several equity transactions and issued convertible debt for which it received cash proceeds of approximately $13,208,000. During 2005 and the nine months ended September 30, 2006, we did not receive any proceeds from any debt or equity transactions. Subsequent to September 30, 2006, as described below, we raised $1,500,000 in aggregate gross proceeds from the private placement of convertible debentures and warrants. We may need to raise additional capital in the future to finance our operations; however, there can be no assurance whether we will be able to do so.

We have been and continue to be dependent upon the proceeds from the continued sale of securities for the funds required to continue operations at present levels and to fund further research and development activities. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. No assurance can be given that the Company will be able to sustain its operations until FDA approval of AVR118 for commercial sale is granted or that any approval will ever be granted. Management is currently seeking equity and debt financing, and exploring the sale of certain assets.

JANUARY 2007 PRIVATE PLACEMENT

On January 1, 2007, we entered into a securities purchase agreement with Cornell to sell to Cornell the Debentures and the Warrants.

Under the terms of the Debentures and Warrants, Cornell may not convert the Debentures or exercise the Warrants if following such conversion or exercise Cornell, together with its affiliates, would beneficially own more than 4.99% of our then outstanding shares of common stock (not counting the shares issuable upon conversion of the Debentures and Warrants remaining to be converted or exercised). Subject to certain exceptions, at our option, we may redeem a portion or the entire outstanding debenture at a price equal to 115% of the amount redeemed plus accrued interest.

For more information regarding this transaction, see “Selling Stockholders — Cornell Capital Partners, LP.”

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet transactions, arrangements or obligations (including contingent obligations) that would have a material effect on our financial results.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

A summary of our contractual obligations as of September 30, 2006 is as follows:


	Payments Due By Period
			Less Than						More Than
Contractual Obligations	Total		1 Year		1-3 Years		3-5 Years		5 Years
Long-Term Debt Obligations (1)	$	0	$	0	$	0	$	0	$	0
Capital Lease Obligations	$	0	$	0	$	0	$	0	$	0
Notes Payable	$	0	$	0	$	0	$	0	$	0
Operating Lease Obligations	$	448,165	$	283,050	$	165,115	$	0	$	0
Employment Agreement (Stephen Elliston)	$	163,462	$	163,462	$	0	$	0	$	0
Purchase Obligations (2)	$	0	$	0	$	0	$	0	$	0
Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under GAAP	$	0	$	0	$	0	$	0	$	0
Total	$	611,627	$	446,512	$	165,115	$	0	$	0


(1)		Does not include amounts due under $1,500,000 principal amount of Debentures sold to Cornell Capital in January 2007.

(2)		Does not include research and development agreements pursuant to which fees are incurred as services are requested.

OUTSTANDING SECURITIES

We have been and continue to be dependent upon the proceeds from the continued sale of securities for the funds required to continue operations and to fund further research and development activities. Our ability to raise capital is severely limited by the number of shares of common stock we are currently authorized to issue, which is one billion shares. In addition to the 696,587,734 shares of our common stock outstanding as of February 9, 2007, we have reserved for issuance approximately 245 million shares reserved for issuance upon the conversion or exercise of currently outstanding convertible debentures, stock options and warrants. Accordingly, we only have the authority to issue an additional 58 million shares of common stock. To complete the full range of testing necessary to commercially offer AVR118, we will need substantially more capital than we can raise given the current number of authorized common shares. To increase the number of authorized shares of our common stock, we need to obtain stockholder approval to amend our certificate of incorporation to authorize additional securities beyond the current authorization of one billion shares of Common Stock. We have noticed and called a special meeting of stockholders to be held on March 21, 2007 in order to obtain this approval, however, we have no assurance that such amendment will be approved by our stockholders.

If all of the foregoing securities were fully issued, exercised and/or converted, as the case may be, we would receive proceeds of approximately $26.7 million, and we would have approximately 983 million shares of common stock outstanding. The sale or availability for sale of this number of shares of common stock in the public market could depress the market price of the common stock. Additionally, the sale or availability for sale of this number of shares may lessen the likelihood that additional equity financing will be available to us, on favorable or unfavorable terms. Furthermore, the sale or availability for sale of this number of shares could limit the annual amount of net operating loss carryforwards that could be utilized.

PROJECTED EXPENSES

During the next 12 months, we expect to incur significant expenditures relating to operating expenses and expenses relating to regulatory filings and clinical trials for AVR118. We currently do not have cash availability to meet our anticipated expenditures. We anticipate that we can continue operations through September 2007 with our current liquid assets, if no stock options or warrants are exercised, nor additional securities sold.

Any proceeds received from the exercise of outstanding options or warrants will contribute to working capital and increase our budget for research and development and clinical trials and testing, assuming AVR118 receives subsequent approvals to justify such increased levels of operation. The recent prevailing market price for shares of common stock has from time to time been below the exercise prices of certain of our outstanding options or warrants. As such, recent trading levels may not be sustained nor may any additional options or warrants be exercised. If none of the outstanding options or warrants is exercised, and we obtain no other additional financing, in order for us to achieve the level of operations contemplated by management, management anticipates that we will have to materially limit or suspend operations.

We are currently seeking debt financing, licensing agreements, joint ventures and other sources of financing, but the likelihood of obtaining such financing on favorable terms is uncertain. To complete the full range of testing necessary to commercially offer AVR118, we will need substantially more capital than we can raise given the current number of authorized common shares and we will need to obtain stockholder approval to increase the number of authorized shares of our common stock as discussed above under “Outstanding Securities”. Management is not certain whether, at present, debt or equity financing will be readily obtainable or whether it will be on favorable terms. Because of the large uncertainties involved in the FDA approval process for commercial drug use on humans and our lack of access to capital, it is highly probable that we will never be able to sell AVR118 commercially.

CRITICAL ACCOUNTING POLICIES

Other Assets. Patent development costs are tested as a “long lived asset” under SFAS 144. Under this testing procedure, we must determine that there is a present value for the costs incurred. We have expensed costs incurred cumulatively to 2005 as an impairment charge. Loan costs include fees paid in connection with the February 2001 private equity line of credit agreement and have been amortized over the life of the agreement, which has expired.

Stock Based Compensation.In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment”. This statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”, supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and amends SFAS No. 95, “Statement of Cash Flows.” The statement eliminates the alternative to use the intrinsic value method of accounting that was provided in SFAS No. 123, which generally resulted in no compensation expense recorded in financial statements related to the issuance of equity awards to employees. The statement also requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. It establishes fair value as the measurement objective in accounting for share-based payment arrangements and generally requires all companies to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees. The Company adopted SFAS No. 123R effective January 1, 2006, using a modified version of prospective application in accordance with the statement. This application requires the Company to record compensation expense for all awards granted to employees and directors after the adoption date and for the unvested portion of awards that are outstanding at the date of adoption.

Recent Accounting Pronouncements.In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS Statement No. 109. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS Statement No. 109, Accounting for Income Taxes. This Interpretation 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. This Interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact that the adoption of Interpretation No. 48 may have upon the financial condition or results of operation of the Company.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140.” This statement permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, and eliminates a restriction on the passive derivative instruments that a qualifying special purpose entity (SPE) may hold. The statement is effective for fiscal years beginning after September 15, 2006. The Company does not believe this standard will have a material effect on the Company’s financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting for Changes and Error Corrections, a Replacement of APB Opinion No. 20 and FASB Statement No. 3” SFAS 154 applies to all voluntary changes in accounting principle and requires retrospective application to prior periods’ financial statements of changes in accounting principle. This statement also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS 154 carries forward without change the guidance contained in Opinion No. 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of this standard to have a material impact on its financial condition, results of operations, or liquidity.

In March 2005, the FASB issued Interpretation No. 47 (“FIN 47), “Accounting for Conditional Asset Retirement Obligations”, an interpretation of FASB Statement No. 143, “Accounting for Asset Retirement Obligations.” The interpretation clarifies that the term conditional asset retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. An entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The effective date of this interpretation is no later than the end of fiscal years ending after December 15, 2005. The Company does not expect the adoption of this standard to have a material impact on the Company’s financial position, cash flows and results of operations.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs — An Amendment of ARB No. 43, Chapter 4” (SFAS No. 151). SFAS No. 151 requires all companies to recognize a current-period charge for abnormal amounts of idle facility expense, freight, handling costs and wasted materials. This statement also requires that the allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 will be effective for fiscal years beginning after June 15, 2005. The Company does not expect the adoption of this statement to have a material effect on its consolidated financial statements.

In December 2003, the FASB issued FASB Interpretation Number 46-R “Consolidation of Variable Interest Entities.” FIN 46-R, which modifies certain provisions and effective dates of FIN 46, and sets for the criteria to be used in determining whether an investment in a variable interest entity should be consolidated. These provisions are based on the general premise that if a company controls another entity through interests other than voting interests, that company should consolidate the controlled entity. The adoption of this statement did not have a significant impact of the Company’s financial position or results of operations.

CHANGES OR DISAGREEMENTS WITH ACCOUNTANTS

There have been no changes to, or disagreements with, our accountants, Rachlin Cohen & Holtz LLP, during the past two fiscal years.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not own any securities or instruments subject to market risk for which disclosure is required.

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table sets forth certain information concerning our executive directors, executive officers and key employees as of February 12, 2007:


Name	Age	Position
Stephen M. Elliston	56	President and Chief Executive Officer, Director
Eli Wilner (1)	51	Chairman of the Board
Angelo S. Botter (2)	60	Director
Roy S. Walzer (1) (2)	59	Director
Martin Bookman	63	Acting Chief Financial Officer, Secretary


(1)		Member of our compensation committee. Mr. Wilner is the chairman of the committee.

(2)		Member of our audit committee. Mr. Walzer is the chairman of the committee.

The following is certain summary information with respect to our directors and executive officers. There are no family relationships between or among the directors and executive officers. None of our directors or executive officers is a director of any other company that files reports with the SEC. None of our directors have been involved in any bankruptcy or criminal proceeding (excluding traffic or other minor offenses), nor has any director been enjoined from engaging in any business.

Stephen M. Ellistonhas been our President, Chief Executive Officer and a member of our board of directors since May 2006. From 2003 until May 15, 2006, Mr. Elliston’s company, The Elliston Group, Inc., a North Carolina corporation of which he is the President and sole stockholder, provided consulting services to pharmaceutical/biotechnology startup companies or organizations, including the Baylor Institute for Immunological Research and the McGill Cancer Center. From 2001 to 2003, Mr. Elliston was the Vice President Business Development and Managing Director of Europe for Argos Therapeutics, Inc. (formerly known as Merix Bioscience, Inc.), a biopharmaceutical company which develops dendritic cell-based vaccines used in the areas of oncology, infectious diseases, autoimmune disorders and transplantation.

Eli Wilner,the Chairman of the board of directors, has been a director since December 2001, Chairman of the Board since May 2002, President and Chief Executive Officer from August 2003 to February 2004 and from February 2006 to May 2006 and Secretary from August 2003 through June 2006. He is the founder and CEO of Eli Wilner & Company, a New York City art gallery established in 1983, and is also a leading frame dealer, restorer, collector and published author. Mr. Wilner was a Bryant Fellows Member of the Metropolitan Museum of Art in New York City from 1990 to 2000 and since 1990 has been a member of the Forum and Director’s Circle of the National Museum of American Art in Washington, D.C.

Angelo S. Botterhas been a director since May 2006. Mr. Botter was Senior Executive Director, Pharmaceutical Division of Abbott Laboratories, Canada from March 1994 until March 2005. During his tenure with Abbott, Mr. Botter assisted with the launch of several products in the HIV, anti-infective, gastroenterology, cancer therapy, immunology and cardiovascular fields.

Roy S. Walzer, a director since June 2002, has been the President of the private investment firms Litchfield Partners, Ltd. since 1987 and the Managing Partner of Litchfield Partners I since 1999, which firms invest in pharmaceuticals, biotech and technology companies. Prior to founding Litchfield Partners, Mr. Walzer served as Executive Vice President and General Counsel with Sealy Connecticut from 1976 to 1986.

Martin Bookmanhas been Acting CFO since April 2004. Mr. Bookman was our assistant controller from March 2001 to April 2004. From August 2000 to March 2001 Mr. Bookman was a senior consultant for Prodigy Communications, Inc. From August 1997 to August 2000 Mr. Bookman was manager of policies and procedures and assistant controller for Murray Feiss Import Corp.

BOARD OF DIRECTORS

Board Composition

Our certificate of incorporation and bylaws provide that the authorized number of directors may be increased or decreased by action of the stockholders or of the board of directors. Directors are elected at annual meetings of stockholders and hold office until the next succeeding annual meeting and the election and qualification of their respective successors. Our bylaws permit the board of directors to fill any vacancy and such director may serve until the next annual meeting of stockholders and the due election and qualification of his successor. We have not had an annual meeting of stockholders since 1987.

Director Independence

Our board of directors has reviewed the materiality of any relationship that each of our directors has with Advanced Viral, either directly or indirectly. Based on this review, the board has determined that the following directors are “independent directors” as defined under the rules promulgated by the SEC: Messrs. Botter, Wilner, and Walzer.

Director Compensation Policy

We do not currently pay directors for their attendance at meetings of the board of directors or committee meetings. Directors are reimbursed for their out-of-pocket expenses incurred in connection with their attendance at meetings and have, in the past, been granted stock options for their service on the Board and its committees.

Committees of the Board of Directors

Our board of directors has an audit committee and a compensation committee, each of which has the composition and responsibilities described below.

Audit Committee. Our audit committee is composed of Messrs. Botter and Walzer (chairman). All members of the audit committee satisfy the current independence standards promulgated by the SEC, as such standards apply specifically to members of audit committees. Our audit committee is responsible for selecting our independent auditors, reviewing our accounting policies, financial procedures and internal controls, the engagement of independent auditors and the general scope of the annual audit and any other services that the auditors may be asked to perform, and review with the auditors their report on our financial statements following the completion of each audit. In addition, the Board of Directors has determined that Mr. Walzer possesses the level of financial literacy required by applicable laws and regulations and that Mr. Walzer is an “audit committee financial expert” within the meaning of the regulations promulgated by the SEC.

Compensation Committee. Our compensation committee is composed of Messrs. Wilner (chairman) and Walzer. All members of the compensation committee qualify as independent under the current definition in the rules promulgated by the SEC. Our compensation committee is responsible for reviewing the compensation arrangements in effect for our executive officers and directors.

Nominations for the Election of Directors.Currently we do not have a nominating committee. Instead, nominations for the election of directors have been handled by the full board of directors, which permits all directors to participate in the process. Due to the small size of the Company and our board of directors, we believe that this is appropriate. In identifying and evaluating candidates to be nominated as directors, the board seeks individuals with stated relevant experience that can add to the ability of the board to fulfill its fiduciary obligations and its stated business goals. Director candidates must also have high personal and professional ethics, integrity and values. Additionally, director nominees must have sufficient time to devote to our affairs. As a small company, we have generally used an informal process to identify and evaluate director candidates. We have encouraged both independent directors and directors that are not independent to identify nominees for the board of directors. We have not paid any third party a fee to assist in the nomination process or to identify or evaluate candidates. We will consider candidates that are nominated by its stockholders. The name, together with the business experience and other relevant background information of a candidate, should be sent to our Chief Executive Officer who will then forward such information to our directors for their review and consideration. The process for determining whether to nominate a director candidate put forth by a stockholder is the same as that used for reviewing candidates submitted by directors. Other than candidates submitted by our directors and executive officers, we have never received a proposed candidate for nomination from any security holder that beneficially owned more than 5% of our voting common stock.

Compensation Committee Interlocks and Insider Participation

Our compensation committee is composed of Messrs. Walzer and Wilner. No member of our compensation committee has at any time been an employee of ours. None of our executive officers serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.

Codes of Conduct and Ethics

Our board of directors has adopted a code of business conduct and ethics applicable to our directors, officers and employees, in accordance with applicable federal securities laws.

Stockholder Communications

Stockholders may communicate with our board of directors or one or more directors by sending a letter addressed to our board or to any one or more directors in care of our Corporate Secretary, Advanced Viral Research Corp., 200 Corporate Boulevard South, Yonkers, New York 10701, in an envelope clearly marked “Stockholder Communication.” Our Corporate Secretary will forward such correspondence unopened to the members of our audit committee or another independent director as the board of directors may specify from time to time, unless the envelope specifies that it should be delivered to another director. If multiple communications are received on a similar topic, our Corporate Secretary may, in his or her discretion, forward only representative correspondence.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Philosophy and Objectives

While our primary objective with respect to executive compensation is to attract, retain, and motivate the best possible executive talent, we have been materially limited in our ability to attract executive talent given our severely limited resources. While we have, in the past, granted stock options as a means to attract and provide equity incentives to executives, no options have been granted since January 2005 because we do not have sufficient authorized but unissued shares to do so. Our Chief Executive Officer and President, Stephen Elliston was hired in May 2006 under a one year employment agreement and our Acting Chief Financial Officer, Martin Bookman has been serving us in this capacity since April 2004 with no written employment agreement. If funds become available, of which there is no assurance, we may expand our executive management team to include a scientific officer and business development officer.

In connection with setting Mr. Elliston’s and Mr. Bookman’s compensation, we were primarily driven by what we could afford to pay but we did, to a very limited extent, review summaries of publicly available compensation data for small companies in the biopharmaceutical industry. We were limited, however, in what we could afford to pay given our extremely low cash reserves and our desire to preserve as much cash as possible for clinical trial expenditures. Although we considered it, due to our limited resources, we did not and do not intend to engage consultants to help us analyze this data or to compare our executive compensation levels with the practices of the companies represented in the compensation data we reviewed.

The factors we considered in determining the compensation levels of Messrs: Elliston and Bookman included:

	•		Their respective background and circumstances, including training and prior relevant work experience;

	•		Their respective role with us and responsibility level; and

Our compensation committee annually reviews the compensation of our current management and sets performance goals for management. In connection with its annual review of compensation, our compensation committee receives information regarding corporate goals which information is initially proposed by management, but no goals are established unless approved by our board of directors. We generally target the achievement of specific research, clinical, regulatory, and operational milestones as goals. Our compensation committee may award annual salary increases, annual bonuses, and annual equity incentives based on the achievement of performance goals.

Compensation Components

The components of our compensation packages to our executive team are as follows:

Base Salary. Base salaries for our executives are established based on (i) the scope of their responsibilities and their prior relevant background, training, and experience, taking into account competitive market compensation paid by the companies represented in the compensation data we review for similar positions and (ii) the overall market demand for such executives at the time of hire, balanced against what we can afford to pay. An executive’s base salary is also evaluated together with other components of the executive’s other compensation to ensure that the executive’s total compensation is in line with our overall compensation philosophy.

Base salaries are reviewed annually and increased for merit reasons, based on the executive’s success in meeting or exceeding established goals. Although we have never done so, our compensation committee also may increase salaries if necessary to meet market levels for the same position, if we identify significant market changes. Additionally, we have in the past and will continue to do so in the future, adjust base salaries as warranted throughout the year for promotions or other changes in the scope or breadth of an executive’s role or responsibilities.

Annual Bonus. Our compensation program includes eligibility for an annual performance-based cash bonus in the case of all executives and certain other employees. The amount of the cash bonus depends on the level of achievement of the stated performance goals, with a target bonus generally set as a percentage of base salary. As provided in his employment agreement, Mr. Elliston, our Chief Executive Officer is eligible for an annual performance-based bonus, the amount of which, if any, is determined by the board of directors or the compensation committee in their sole discretion.

Stock option awards/equity incentives. We have never had a stock incentive program approved by our stockholders. Our Board of Directors has recommended that our stockholders approve a stock incentive program at our Special Stockholders Meeting called for March 21, 2007. We have, in the past, granted stock options to executives as well as to members of the board. No stock options have been granted since January 2005 because we lack sufficient authorized but unissued shares to do so. At our special stockholders meeting called for March 21, 2007, we are asking our stockholders to consider an amendment to our certificate of incorporation which has the effect of increasing our authorized shares to two billion shares. If our stockholders approve this amendment, we may grant stock options or other equity incentives to our executives, other employees and directors. Our compensation committee believes that equity incentives provide a strong link to long-term corporate performance and the creation of stockholder value.

Other Compensation. We maintain benefits that are provided to all employees, including health insurance, disability insurance, dental insurance, and a 401(k) plan. In particular circumstances, we have , in the past, utilized cash signing bonuses when certain executives joined us. Whether a signing bonus is paid and the amount thereof is determined on a case-by-case basis under the specific hiring circumstances. We also reimburse our Chief Executive Officer for commuting costs for travel from his residence in North Carolina to our offices in Yonkers, New York. Our board of directors and compensation committee believe that these payments facilitate the Chief Executive Officer’s travel between North Carolina and New York, where our Chief Executive Officer is required to conduct significant business activities on behalf of the company.

Termination Based Compensation

Under his employment agreement, upon termination of his employment for reasons other than cause, disability or death, Mr. Elliston is entitled to his base salary for the remainder of the term, payable in accordance with our normal payroll practices, and all applicable reimbursements due. In setting the term of this severance arrangement, the compensation committee recognized that executives, especially highly ranked executives, often face challenges securing new employment following termination. We believe that Mr. Elliston’s severance package is generally in line with severance packages offered to chief executive officers of the companies of similar size to us represented in the summary compensation data we reviewed.

SUMMARY COMPENSATION TABLE

The following table sets forth information regarding the compensation paid, distributed, or accrued for services rendered by our principal executive officer, our principal financial officer and our other executive officers whose total salary and bonus exceeded $100,000 (collectively, the “Named Executives “) for services rendered in all capacities to us during the years indicated.


													Change in Pension
													Value and
													Non-Qualified
													Deferred
											Non-Equity Plan		Compensation		All Other
Name and			Salary		Bonus		Stock Awards		Option Awards		Compensation		Earnings		Compensation		Total
Principal Position	Year		($)		($)		($)		($)		($)		($)		($)		($)
Stephen Elliston (1)		2006		149,308		—		—		—		—		—		12,753		162,061
		2005		—		—		—		—		—		—		—		—
		2004		—		—		—		—		—		—		—		—

Elma Hawkins (2)		2006		67,308		—		—		128,314		—		—		1,905		197,527
		2005		350,000		87,000		—		1,171,213		—		—		22,495		1,280,708
		2004		300,278		225,000		—		1,045,364		—		—		22,214		1,592,856

Eli Wilner (3)		2006		—		—		—		145,497		—		—		—		145,497
		2005		—		—		—		509,537		—		—		—		509,537
		2004		—		—		—		137,525		—		—		—		137,525

Shalom Hirschman MD(4)		2006		—		—		—		—		—		—		—		—
		2005		—		—		—		—		—		—		—		—
		2004		361,000	$	50,000		—		—		—		—		34,133		445,133

Martin Bookman (5)		2006		95,107		—		—		20,052		—		—		15,879		131,038
		2005		87,692		—		—		20,052		—		—		15,160		122,904
		2004		80,000		—		—		5,759		—		—		9,971		95,730

Alan Gallantar (6)		2006		—		—		—		—		—		—		—		—
		2005		—		—		—		—		—		—		—		—
		2004		66,923		—		—		—		—		—	$	1,750		68,673


(1)		Mr. Elliston has been President and CEO since May 2006.

(2)		Dr. Hawkins was President and CEO from February 2004 to February 2006. Dr. Hawkins received a signing bonus of $50,000 upon the commencement of her employment in February 2004, a bonus of $175,000 paid in February 2005 for the year 2004, and a bonus of $87,500 for 2005 which was paid in three installments of $29,166.66 in February, March and April 2006. All Other Compensation for Dr. Hawkins included medical insurance premiums paid by Advanced Viral on her behalf, and the aggregate incremental cost to Advanced Viral of Dr. Hawkins’ travel expenses.

(3)		Mr. Wilner was President and CEO from August 2003 to February 2004 and Interim President and CEO from February to May 2006.

(4)		Dr. Hirschman was Chief Scientist from August 2003 until December 2004, and was President and CEO from October 1996 until August 2003. Other Annual Compensation for Dr. Hirschman included medical insurance premiums paid by Advanced Viral on his behalf, and aggregate incremental cost to Advanced Viral of Dr. Hirschman’s automobile lease, gas, oil, repairs and maintenance.

(5)		Mr. Bookman has been Acting CFO since April 2004.

(6)		Mr. Gallantar was CFO from October 1999 to April 2004. Other Annual Compensation for Mr. Gallantar includes an automobile allowance of $500 per month.

GRANT OF PLAN-BASED AWARDS

There were no grants of plan-based awards or any other securities to Named Executives during the fiscal year ended December 31, 2006.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (2006)


						Equity Incentive												Equity Incentive
						Plan Awards:										Equity Incentive		Plan Awards: Market
						Number of										Plan Awards: Number		Payout Value of
	Number of		Number of			Securities								Market Value of		of Unearned Shares,		Unearned Shares,
	Securities		Securities			Underlying		Option				Number of Shares or		Shares or Units of		Units or Other		Units or Other
	Underlying		Underlying			Unexercised		Exercise		Option		Units of Stock that		Stock that have not		Rights that have		Rights that have
	Unexercised Options		Unexercised Options			Unearned Options		Price		Expiration		have not Vested		Vested		not Vested		not Vested
Name	(#) Exercisable		(#) Unexercisable			(#)		($)		Date		(#)		($)		(#)		($)
Eli Wilner		10,000,000		—			—	$	0.052		8/26/13		—		—		—		—
		5,000,000		—			—	$	0.063		8/26/13		—		—		—		—
		2,750,000		—			—	$	0.075		12/20/10		—		—		—		—
		1,400,000		—			—	$	0.12		5/5/10		—		—		—		—
		2,700,000		—			—	$	0.135		1/10/15		—		—		—		—
		3,166,667		1,833,333	(1)		—	$	0.15		2/9/09		—		—		—		—
		4,450,000		—			—	$	0.18		12/19/13		—		—		—		—

Martin Bookman		20,000		5,000	(2)		—	$	0.17		1/1/12		—		—		—		—
		400,000		600,000	(3)		—	$	0.10		9/28/2009		—		—		—		—


(1)		These options vest in monthly increments of 83,333.

(2)		These options vest on January 1, 2008

(3)		These options vest in yearly increments of 200,000 every September 28.

OPTION EXERCISES AND STOCK VESTED

There were no exercises of stock options or vesting of shares of restricted stock held by Named Executives during the fiscal year ended December 31, 2006.

PENSION BENEFITS

We do not have any qualified or non-qualified defined benefit plans.

NONQUALIFIED DEFERRED COMPENSATION

We do not have any non-qualified defined contribution plans or other deferred compensation plans.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

Other than with respect to Mr. Ellistion as set forth below, we have not entered into any agreements or plans that may require us to make certain payments and/or provide certain benefits to the Named Executives in the event of a termination of employment or a change of control.

EXECUTIVE CONTRACTS

Elliston Employment Agreement. Pursuant to an Employment Agreement dated May 15, 2006, we retained Stephen M. Elliston as our President and Chief Executive Officer on a full time basis commencing May 15, 2006 until May 14, 2007 unless terminated earlier as provided in the agreement. Mr. Elliston receives a base salary of $250,000 per year. The agreement also entitles Mr. Elliston and his dependents to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to our other executives and their dependents. The agreement further provides that:

	•		We shall pay the dues of such professional associations and societies of which Mr. Elliston is a member in furtherance of his duties.

	•		We shall reimburse Mr. Elliston for reasonable expenses relating to travel, professional licenses, entertainment and similar items in accordance with our policies, practices and procedures.

	•		Mr. Elliston will be entitled to four (4) weeks paid vacation annually or such other time as authorized by the Board of Directors during which time his compensation shall be paid in full. Vacation Days unused in any calendar year may not be accumulated and carried forward and used in future years.

If the agreement is terminated by us for cause, or Mr. Elliston voluntarily resigns, becomes disabled or dies, then Mr. Elliston or his estate shall be entitled to his base salary earned through the date of termination, accrued vacation and all applicable reimbursements due. If the agreement is terminated for other reasons by either party, Mr. Elliston shall be entitled to his base salary for the remainder of the term, payable in accordance with our normal payroll practices, and all applicable reimbursements due. Payment of the severance benefit is conditioned upon the release by Mr. Elliston of Advanced Viral, to the maximum extent permitted by law, from any and all claims he may have against Advanced Viral that relate to or arise out of his employment or termination of employment.

Hawkins Employment Agreement and Consulting Agreement. Pursuant to an Employment Agreement dated February 10, 2004, we retained Elma S. Hawkins, Ph.D., MBA as our President and Chief Executive Officer commencing February 18, 2004 until February 18, 2006 unless terminated earlier or renewed as provided in the agreement. Effective February 18, 2006, Dr. Hawkins resigned as President and Chief Executive and a member of the Board of Directors of Advanced Viral.

Pursuant to her employment agreement, Dr. Hawkins received a signing bonus of $50,000, a base salary of $350,000 per year, and was eligible to receive an annual cash bonus of up to 50% of her then base salary based on certain performance objectives in the sole discretion of the Board of Directors. In addition, Dr. Hawkins was entitled to reimbursement of certain expenses and to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of Advanced Viral and their families. Upon the execution of her employment agreement, Dr. Hawkins received an option to purchase 40,000,000 shares of our common stock through February 2009. The option vested in increments of 666,667 on a monthly basis, and is exercisable at prices ranging from $0.12 to $0.16 per option share. On February 14, 2006, our Board of Directors approved a cash bonus payment of $87,500 to Dr. Hawkins with respect to the year ended December 31, 2005. The bonus is payable in three equal installments of $29,166.66 on February 21, 2006, March 21, 2006 and April 21, 2006.

Pursuant to the agreement, upon termination, Dr. Hawkins received her base salary earned through the date of termination, accrued vacation, and all applicable reimbursements due. In addition, all unvested options (24,000,000 option shares) were cancelled, and all vested options (16,375,000 option shares) became exercisable until May 18, 2006. These options were not exercised and expired upon their terms.

Hirschman Employment Agreement. On August 27, 2003, Shalom Z. Hirschman, M.D. resigned as an officer and director of Advanced Viral upon the terms and conditions of a Third Amended and Restated Employment Agreement dated August 27, 2003. Pursuant to the terms of the Employment Agreement, we employed Dr. Hirschman on a full business time basis as our Chief Scientist. The agreement expired by its terms on December 31, 2004 and was not renewed.

DIRECTOR COMPENSATION

No compensation was earned by or paid to our directors during the year ended December 31, 2006.

In June 2006, we entered into a consulting agreement with a member of our board of directors, Angelo Botter, pursuant to which Mr. Botter receives a consulting fee of $1,000 per day for his services. The initial term of the consulting agreement is nine months, unless automatically extended by successive thirty (30) day periods unless either party notifies the other in writing of its intent not to extend the term within five days of the end of the then existing term.

EMPLOYEE BENEFIT PLANS

We have a 401(k) plan that allows eligible employees to contribute up to 20% of their salary, subject to annual limits imposed by the Internal Revenue Service. Until March 2003, we matched 50% of the first 6% of the employee contributions in common stock and may, at its discretion, make additional contributions based upon earnings.

LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Delaware General Corporation Law (DGCL) authorizes corporations to limit or eliminate, subject to certain conditions, the personal liability of directors to corporations and their stockholders for monetary damages for breach of their fiduciary duties. Our certificate of incorporation provides that a director shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to us or our stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of laws, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit.

Delaware law also permits a corporation to purchase and maintain insurance on behalf of any person who is or was a director or officer against any liability asserted against him and incurred by him in such capacity or arising out of his status as such, whether or not the corporation has the power to indemnify him against that liability under Section 145 of the DGCL. We have obtained director and officer liability insurance to cover liabilities our directors and officers may incur in connection with their services to us, including matters arising under the Securities Act. Our certificate of incorporation provides that we shall, to the fullest extent permitted by Section 145 of the DGCL, indemnify any and all persons whom we shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person, who has ceased to be director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

Such limitation of liability and indemnification does not affect the availability of equitable remedies. In addition, we have been advised that in the opinion of the SEC, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act and is therefore unenforceable.

There is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification.

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

The following table sets forth information regarding the beneficial ownership of the shares of our common stock as of February 9, 2007 by (i) stockholders known by us to beneficially own more than five percent of our outstanding common stock; (ii) each of our directors, (iii) each of our Named Executives identified in the Summary Compensation Table above and (iv) all of our directors and executive officers as a group. Beneficial ownership of shares is determined under the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as indicated by footnote, and subject to applicable community property laws, we believe that each person identified in the following table possesses sole voting and investment power with respect to all shares of common stock held by that person. Shares of common stock subject to options currently exercisable or exercisable within 60 days of February 9, 2007 are deemed outstanding for calculating the percentage of outstanding shares of the person holding these options, but are not deemed outstanding for calculating the percentage of any other person. The beneficial ownership of shares of our common stock after the offering as set forth below is calculated assuming an aggregate of 238,967,308 shares will be sold in this offering. In the event that a different number of shares is sold, the beneficial ownership of holders of our common stock may be significantly different from that set forth below.


	Amount and Nature of			Percent of
Name and Address of Beneficial Owner	Beneficial Ownership(1)			Common Stock (2)
Stephen M. Elliston 200 Corporate Boulevard South, Yonkers, NY 10701		—			—

Eli Wilner 1525 York Avenue, New York, NY 10028		31,494,267	(3)		4.3	%

Angelo S. Botter 318 London Drive, Beaconsfield, Quebec, Canada H9W 5X5		—			—

Roy S. Walzer 141 5¹/2 Mile Road, Goshen, CT 06756		9,878,800	(4)		1.4	%

Martin Bookman 200 Corporate Boulevard South, Yonkers, NY 10701		453,160	(5)		*

Shalom Z. Hirschman, M.D. 5240 Blackstone Avenue, Riverdale, NY 10471		39,100,000	(6)		5.3	%

James F. Dicke II (7) 44 South Washington Street, New Bremen, OH 45869		73,917,086	(7)		10.6	%

James F. Dicke III (8) 44 South Washington Street, New Bremen, OH 45869		58,775,000	(8)		8.4	%

All current officers & directors as a group (5 persons)		41,826,227			5.7	%


*		Less than 1%.

(1)		For purposes of this table, beneficial ownership is computed pursuant to Rule��13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); the inclusion of shares as beneficially owned should not be construed as an admission that such shares are beneficially owned for purposes of the Exchange Act. Shares of the Company’s common stock subject to options or warrants that are exercisable within 60 days of February 9, 2007 are also deemed outstanding for purposes of calculating the percentage ownership of that person, and if applicable, the percentage ownership of executive officers and directors as a group, but are not treated as outstanding for the purpose of calculating the percentage ownership of any other person.

(2)		Based on 696,587,734 shares of common stock outstanding as of February 9, 2007.

(3)		Includes (i) 29,466,667 shares underlying stock options which are currently exercisable subject to the satisfaction of certain conditions precedent in that certain Lockup Agreement dated January 1, 2007 of Mr. Wilner; (ii) 362,500 shares beneficially owned by his wife Barbara Ann Brennan; and (iii) 50,000 shares beneficially owned by his step-daughter Celia Conaway.

(4)		Represents 9,878,800 shares underlying stock options which are currently exercisable subject to the satisfaction of certain conditions precedent in that certain Lockup Agreement dated January 1, 2007 of Mr. Walzer.

(5)		Includes 420,000 shares underlying stock options which are currently exercisable.

(6)		Represents 39,100,000 shares that may be acquired pursuant to currently exercisable options to purchase common stock.

(7)		Includes 1,875,000 shares issuable pursuant to currently exercisable outstanding warrants. James F. Dicke II disclaims beneficial ownership of stock owned by his son, James F. Dicke III.

(8)		James F. Dicke III disclaims beneficial ownership of stock owned by his father, James F. Dicke II.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Other than as set forth below, we are not aware of any related party transactions that have occurred or are occurring at this time. Our Directors and Officers Questionnaire is the primary vehicle used for determining whether or not related party transactions have occurred. A Directors and Officers Questionnaire is completed annually by each director and each Named Executive. The Questionnaire includes a variety of questions which specifically address related party transactions.

On February 14, 2006, our Board of Directors approved a cash bonus payment of $87,500 to Dr. Hawkins for her services during the year ended December 31, 2005. The bonus was payable in three equal installments of $29,166.66 on February 21, 2006, March 21, 2006 and April 21, 2006. On February 17, 2006, we entered into a 90-day consulting agreement with Dr. Hawkins that effective February 18, 2006 pursuant to which she provided consulting services to us as requested of her by our Board of Directors. Dr. Hawkins was paid a consulting fee of $325 per hour for her consulting services.

We believe that the above transactions were conducted at “arm’s length”, representing what we believe to be fair market value for those services.

Indemnification Arrangements

As discussed above under “Executive Compensation — Limitation of Liability and Indemnification of Officers and Directors”, our certificate of incorporation and bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law.

DESCRIPTION OF CAPITAL STOCK

GENERAL

The following description of our capital stock does not purport to be complete and is subject to the provisions of our certificate of incorporation and bylaws, which have been previously filed with the SEC. The following descriptions are qualified in their entirety by reference to our certificate of incorporation and bylaws and to applicable law.

COMMON STOCK

Our authorized capital stock consists of 1,000,000,000 shares of common stock, par value $0.00001 per share. As of February 9, 2007, there were outstanding 696,587,734 shares of common stock, all of which are fully paid for and non-assessable. The holders of common stock: (i) have equal ratable rights to dividends from funds legally available therefore, when, as and if declared by our board of directors; (ii) entitled to share ratably in all of our assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of our affairs; (iii) do not have preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions applicable thereto; and (iv) are entitled to one noncumulative vote per share on all matters which stockholders may vote on at all meeting of stockholders.

REGISTRATION RIGHTS

The selling stockholders named in this prospectus are entitled to certain registration rights with respect to their securities as set forth in a registration rights agreement. We are generally required to pay all expenses incurred in connection with registrations effected in connection with the following rights, excluding underwriting discounts and commissions, and fees and expenses of counsel to the registering security holders.

The registration rights agreement with Cornell requires us, subject to certain terms and conditions, to register the underlying shares of our common stock under the Securities Act. The registration rights granted are subject to customary exceptions and qualifications and compliance with certain registration procedures. We are required to pay to Cornell liquidated damages of 2% of the aggregate purchase price of the liquidated value of the Debentures for each 30-day period if any of the following events occurs and during the period such event is continuing: (i) we fail to file with the Securities and Exchange Commission the registration statement on or before the 60th day after January 1, 2007; (ii) the registration statement is not declared effective by the Securities and Exchange Commission on or before May 1, 2007; or (iii) after the effective date of the registration, sales cannot be made pursuant to the registration statement (whether because of a failure to keep the registration statement effective, failure to disclose such information as is necessary for sales to be made pursuant to the registration statement, failure to register sufficient shares of common stock or otherwise). Such payments must be made within three business days of such failure and every 30-day period thereafter until such failure is cured. Any liquidated damages begin accruing on the date of any such failure.

LOCKUP AGREEMENTS

In connection with the Cornell Agreement, two of our directors, Mr. Walzer and Mr. Wilner, each agreed that for a period commencing on January 1, 2007 and expiring on the date thirty (30) days after the date that all amounts owed to Cornell under the Cornell Agreement have been paid, he will not, directly or indirectly, without the prior written consent of Cornell, issue, offer, agree or offer to sell, sell, grant an option for the purchase or sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber or dispose of any of our securities, including common stock or options, rights, warrants or other securities underlying, convertible into, exchangeable or exercisable for or evidencing any right to purchase or subscribe for any common stock, or any beneficial interest therein, except in accordance with the volume limitations set forth in Rule 144(e) promulgated under the Securities Act.

In addition, in connection with the Cornell Agreement, Mr. Walzer and Mr. Wilner each entered into lockup agreements releasing us from our obligations to reserve an aggregate of 41,178,800 shares of common stock underlying stock options held by such directors (the “Director Options”), in order to enable us to sell additional securities in connection with the Cornell Agreement. Such agreements expire on such date that we have reserved a sufficient number of shares of common stock authorized for issuance upon the full exercise of the Director Options, and either (i) the transactions contemplated by the Cornell Agreement are consummated; or (ii) the Cornell Agreement is terminated and is no longer in force or effect. During such lockup period, Mr. Walzer and Mr. Wilner have each agreed not to exercise the Director Options, sell, assign, transfer, encumber, or otherwise enter into an arrangement for the disposition of the Director Options or the shares issuable thereunder, or enter into any swap, derivative or transaction or other arrangement that transfers to another any of the economic benefits or risks of ownership of the Director Options or option shares.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company.

INTERESTS OF NAMED EXPERT AND COUNSEL

The audited consolidated financial statements of Advanced Viral Research Corp. for the years ended December 31, 2005, December 31, 2004, and December 31, 2003, have been included herein and in the registration statement in reliance upon the report of Rachlin Cohen & Holtz LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. Rachlin Cohen & Holtz LLP does not have any interests in Advanced Viral and has never been employed by Advanced Viral on a contingent basis.

The validity of the issuance of the common stock offered by us in this offering will be passed upon for us by Berman Rennert Vogel & Mandler, P.A. of Miami, Florida. Berman Rennert Vogel & Mandler, P.A. does not have any interests in Advanced Viral and has never been employed by Advanced Viral on a contingent basis.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports and other information with the SEC. You may read and copy any reports, statements or other information we file at the SEC’s public reference room at 100 F Street, NE, Washington D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings are also available free of charge on our investor relations website under “SEC Filings” after we electronically file or furnish such materials to the SEC. Our filings are also available to the public from commercial document retrieval services and at the Web site maintained by the SEC at http://www.sec.gov. Our Web site address is http://www.adviral.com. The information on our Web site is not incorporated into this prospectus. Our investor relations website is located at http://www.adviral.com/ADVR/invest/index.htm.

We have filed a registration statement on Form S-1 under the Securities Act with the SEC covering the common stock to be offered by the selling stockholders. As permitted by the rules and regulations of the SEC, this document does not contain all information set forth in the registration statement and exhibits thereto, all of which are available for inspection as set forth above. For further information, please refer to the registration statement, including the exhibits thereto. Statements contained in this document relating to the contents of any contract or other document referred to herein are not necessarily complete, and reference is made to the copy of that contract or other document filed as an exhibit to the registration statement or other document, and each statement of this type is qualified in all respects by that reference.

No person is authorized to give any information or make any representation not contained in this document. You should not rely on any information provided to you that is not contained in this document. This prospectus does not constitute an offer to sell or a solicitation of an offer to purchase the securities described herein in any jurisdiction in which, or to any person to whom, it is unlawful to make the offer or solicitation. Neither the delivery of this document nor any distribution of shares of Common Stock made hereunder shall, under any circumstances, create any implication that there has not been any change in our affairs as of any time subsequent to the date hereof.

INDEX TO FINANCIAL STATEMENTS


Consolidated Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005			F-2

Consolidated Statements of Operations for the nine months ended September 30, 2006 and September 30, 2005 and from Inception (February 20, 1984) to September 30, 2006 (unaudited)			F-3

Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and September 30, 2005 and from Inception (February 20, 1984) to September 30, 2006 (unaudited)			F-4

Notes to Consolidated Financial Statements			F-5

Report of Independent Registered Public Accounting Firm			F-15

Consolidated Balance Sheets as of December 31, 2005 and 2004			F-16

Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003 and from Inception (February 20, 1984) to December 31, 2005			F-17

Consolidated Statements of Changes in Stockholders’ Equity and from Inception (February 20, 1984) to December 31, 2005			F-18

Consolidated Statements of Cash Flows for the years December 31, 2005, 2004 and 2003 and from Inception (February 20, 1984) December 31, 2005			F-32

Notes to Consolidated Financial Statements			F-33

ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30,			December 31,
	2006			2005
ASSETS

Current Assets:
Cash and cash equivalents	$	1,718,156		$	4,615,581
Prepaid insurance		79,057			88,683
Other current assets		24,553			32,445

Total current assets		1,821,766			4,736,709

Property and Equipment, Net		68,051			212,732
Assets Held for Sale		107,707			112,319
Other Assets		93,319			87,717

Total assets	$	2,090,843		$	5,149,477


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	166,910		$	140,278
Accrued liabilities		102,670			185,117

Total current liabilities		269,580			325,395


Commitments and Contingencies

Stockholders’ Equity:
Common stock; 1,000,000,000 shares of $.00001 par value authorized, 696,587,734 shares issued and outstanding		6,966			6,966
Additional paid-in capital		73,321,361			73,145,593
Deficit accumulated during the development stage		(71,507,064	)		(68,328,477	)

Total stockholders’ equity		1,821,263			4,824,082

Total liabilities and stockholders’ equity	$	2,090,843		$	5,149,477

See notes to condensed consolidated financial statements

F-2

ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


													Inception
	Three Months Ended						Nine Months Ended						(February 20,
	September 30,						September 30,						1984) to
													September 30,
	2006			2005			2006			2005			2006
											`
Revenues	$	—		$	—		$	—		$	—		$	231,892


Costs and Expenses:
Research and development		353,029			587,627			1,420,604			1,362,750			24,617,237
General and administrative		472,179			484,089			1,480,758			1,520,145			26,751,220
Compensation and other expense for options and warrants		89,391			—			175,768			—			5,110,576
Cost in connection with settlement of distribution agreement		—			—			—			—			687,005
Depreciation and amortization		39,611			2,188			154,445			331,391			4,284,062
Impairment charge — patent cost		—			—			—			—			1,081,085

		954,210			1,073,904			3,231,575			3,214,286			62,531,185


Loss from Operations		(954,210	)		(1,073,904	)		(3,231,575	)		(3,214,286	)		(62,299,293	)


Other Income (Expense):
Interest income		20,533			44,841			85,568			137,008			1,290,890
Other income		—			—			—			—			120,093
Interest expense		(1,968	)		(1,547	)		(4,585	)		(4,386	)		(8,760,208	)
Severance expense — former directors		—			—			—			—			(302,500	)

		18,565			43,294			80,983			132,622			(7,651,725	)


Loss from Continuing Operations		(935,645	)		(1,030,610	)		(3,150,592	)		(3,081,664	)		(69,951,018	)
Loss from Discontinued Operations		(2,872	)		(3,824	)		(27,995	)		(18,134	)		(1,556,046	)


Net Loss	$	(938,517	)	$	(1,034,434	)	$	(3,178,587	)	$	(3,099,798	)	$	(71,507,064	)


Net Loss Per Common Share
Basic and Diluted:
Continuing operations	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Discontinued operations		(0.00	)		(0.00	)		(0.00	)		(0.00	)

Net loss	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)


Weighted Average Number of Common Shares Outstanding		696,587,734			696,531,067			696,587,734			696,502,178

See notes to condensed consolidated financial statements

F-3

Advanced Viral Research Corp.
(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


							Inception
							(February 20,
	Nine Months Ended						1984) to
	September 30,						September 30,
	2006			2005			2006
Cash Flows from Operating Activities:
Net loss	$	(3,178,587	)	$	(3,099,798	)	$	(71,507,064	)

Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		160,022			344,428			4,900,416
Impairment charge — patent cost		—			—			1,081,085
Cost in connection with settlement of distribution agreement		—			—			687,005
Amortization of debt issuance costs		—			—			1,303,524
conversion feature of convertible debenture		—			—			5,423,579
Amortization of discount on warrants		—			—			1,681,533
Amortization of discount on warrants — consulting services		—			—			230,249
Amortization of deferred compensation cost		—			—			760,500
Issuance of common stock for debenture interest		—			—			237,486
Issuance of common stock for services		—			—			1,586,000
Compensation expense for options and warrants		175,768			—			4,052,148
Changes in operating assets and liabilities:
(Increase) decrease in other current assets		16,553			(2,189	)		(124,338	)
(Increase) decrease in other assets		(602	)		—			(819,663	)
Increase (decrease) in accounts payable and accrued liabilities		(55,815	)		(176,608	)		275,782

Total adjustments		295,926			165,631			21,275,306

Net cash used by operating activities		(2,882,661	)		(2,934,167	)		(50,231,758	)


Cash Flows from Investing Activities:
Purchase of investments		—			—			(6,292,979	)
Patent costs incurred		—			(139,990	)		(1,239,119	)
Acquisition of property and equipment		(9,764	)		(48,484	)		(4,395,291	)

Net cash used by investing activities		(9,764	)		(188,474	)		(11,927,389	)


Cash Flows from Financing Activities:
Proceeds (payment) from issuance of convertible debt		(5,000	)		—			14,564,388
Proceeds from sale of securities, net of issuance costs		—			9,000			43,410,584
Proceeds from common stock subscribed but not issued		—			—			1,163,900
Proceeds from sale of investments		—			—			6,301,979
Payments under litigation settlement		—			—			(1,050,647	)
Payments under capital lease		—			—			(420,581	)
Payments on note payable		—			—			(111,320	)
Recovery of subscription receivable written off		—			—			19,000

Net cash provided (used) by financing activities		(5,000	)		9,000			63,877,303


Net Increase (Decrease) in Cash and Cash Equivalents		(2,897,425	)		(3,113,641	)		1,718,156

Cash and Cash Equivalents, Beginning		4,615,581			8,600,590			—


Cash and Cash Equivalents, Ending	$	1,718,156		$	5,486,949		$	1,718,156


Supplemental Disclosure of Non-Cash Financing Activities:
Cash paid during the year for interest

See notes to consolidated condensed financial statements.

F-4

ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements as of September 30, 2006 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information on Form 10-Q and reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position as of September 30, 2006 and results of operations for the three and nine months ended September 30, 2006 and 2005 and cash flows for the nine months ended September 30, 2006 and 2005. All such adjustments are of a normal recurring nature. Certain general and administrative expenses from inception relating to consulting services were reclassified to compensation expense for options and warrants to be consistent with current presentation.

The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. The statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

Certain amounts in prior year financial statements have been reclassified for comparative purposes to conform to the presentation in the current year financial statements.

NOTE 2. GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has suffered accumulated net losses of $71,507,064 since inception and is dependent upon registration of AVR118 for sale before it can begin commercial operations. The Company’s current cash position is inadequate to pay all the costs associated with operations and the full range of testing and clinical trials required by the FDA. Unless and until AVR118 is approved for sale in the United States or another industrially developed country, the Company will be dependent upon the continued sale of its securities, debt or equity financing for funds to meet its cash requirements. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. No assurance can be given that the Company will be able to sustain its operations until FDA approval of AVR118 for commercial sale is granted or that any approval will ever be granted. Management is currently seeking equity and debt financing, and exploring the sale of certain assets.

During 2005 and the first nine months of 2006, the Company did not receive any proceeds from any debt or equity transactions. During 2004, the Company completed several equity transactions and issued convertible debt for which it received cash proceeds of approximately $13,208,000.

F-5

ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)

NOTE 3. RESEARCH AND DEVELOPMENT, CLINICAL TRIALS AND DRUG TESTING

Status of FDA Filings and Studies

In December 2004, the FDA notified the Company that its IND application was allowed and that it could proceed with a clinical study to evaluate the effect of a 4.0 ml dose of AVR118 administered to patients with systemic symptoms related to advanced cancers who are not receiving chemotherapy (the “Phase II Study”).

Phase II Study

In February 2005, the Company entered into an agreement with the Biomedical Research Alliance (BRANY), as agent for a network of hospitals, pursuant to which the hospitals would conduct the Phase II Study. The agreement with BRANY, among other things, defined the protocol for the study, outlined the terms of payment and provided for cancellation of the contract by either party.

The Company experienced difficulty accruing patients for the Phase II Study and in December 2005, amended the protocol to permit patients undergoing third-line chemotherapy treatment to become participants in the study, in order to facilitate patient accrual.

In the Phase II Study, patients are administered AVR118 for three weeks in order to compare treatment versus no treatment, after which the results of the study are be analyzed. Those patients who did not receive AVR118 during the first three-week period are permitted to take the drug for the second three-week period. Patients who appear to benefit from treatment may be eligible to remain on AVR118, generating longer term safety data. The total cost incurred through September 30, 2006 relating to this Phase II study is approximately $474,000.

As of September 30, 2006, only eleven patients had been enrolled in the Phase II Study. The Company is currently in discussions with several teaching centers to expand the study to include patients in the earlier stages of disease to determine the efficacy of AVR118 on such patients. The Company believes transitioning the study to such centers would not only enable it to accelerate enrollment in an expanded program where higher patient accrual rates can be achieved, but would also be a more cost-efficient method for accruing patients by eliminating a private vendor. The Company has requested that BRANY provide a complete report on the status of patients currently enrolled in the Phase II Study.

Phase I Study on Type 2 Diabetes

In October 2005 the Company initiated a Phase I, double blind, placebo controlled, randomized, single center, safety study with AVR118 in subjects with Type 2 diabetes in the United States. Approximately 30 patients were to be entered in the study, the primary objective of which was to explore the effect of a 4.0 ml dose of AVR118 given subcutaneously on blood glucose in subjects with Type 2 diabetes who are on sulfonylureas and/or metformin, as compared to subjects not receiving AVR118. Sulfonylureas and metformin are commonly used drugs to control Type 2 diabetes. Additional objectives of this study were to explore the potential for AVR118 in decreasing blood glucose in patients with Type 2 diabetes.

F-6

ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)

NOTE 3. RESEARCH AND DEVELOPMENT, CLINICAL TRIALS AND DRUG TESTING(Continued)

Status of FDA Filings and Studies(Continued)

Phase I Study on Type 2 Diabetes(Continued)

In February 2006, the Company amended the protocol for the Phase I diabetes study to include an additional 12 patients at a dose of 1.0 ml of AVR118 given subcutaneously. The purpose of this study was to determine if a lower dose would produce a more pronounced effect on blood glucose levels.

In May 2006, the Company completed enrollment of the first 30 patients on the 4.0 ml dosage portion of the study. In June 2006, the Company terminated further accrual of the patients on the 1.0 ml dosage after three patients had been accrued. Following an interim analysis of the 30 patients treated with the 4.0 ml dose as well as the additional three patients treated with the 1.0 ml dose, the Company concluded that: (i) AVR118 can be given safely to patients with Type 2 diabetes, and (ii) in contrast to previous reports, AVR118 had no apparent effects on blood glucose levels in patients receiving oral hypoglycemic therapies, and no demonstrable effect on blood chemistry, hematology, weight gain or lean body mass in Type 2 diabetes patients. The total cost incurred through September 30, 2006 relating to this Phase I study is approximately $500,000.

Wound Healing

In April 2006, the Company commenced a study at the University of Miami to preliminarily test the efficacy of topically applying AVR118 to wounds in animal models (e.g. pigs). A report received from the University of Miami in August 2006 analyzing the data from the three pig study indicated that the topical application of AVR118 accelerates the rate at which wounds heal. Although preliminary, the Company believes that further study is merited. Total costs incurred through September 30, 2006 relating to this study were approximately $35,000.

Testing on Avian Flu

In 2006, the Company performed testing for the efficacy of AVR118 on the H5N1 hybrid strain of the avian flu. Although antiviral activity was seen at very high dosages, there are no current plans to pursue further work in this area. The total cost incurred through September 30, 2006 relating to this study was approximately $6,000.

F-7

ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)

NOTE 3. RESEARCH AND DEVELOPMENT, CLINICAL TRIALS AND DRUG TESTING(Continued)

Status of FDA Filings and Studies(Continued)

MediVector Agreement

In March 2004, the Company entered into a Master Contract Services Agreement with MediVector, Inc. whereby, pursuant to various project orders, MediVector processed and analyzed data and provided biopharmaceutical consulting services in connection with the Company’s ongoing studies and IND activities on a project by project basis. Through September 2006, the Company has incurred and paid MediVector approximately $1,779,000.

In April 2004, the Company appointed Carol Epstein, MD, a co-founder of MediVector, Inc. as acting Medical Director to Advanced Viral Research Corp to guide the Company in the clinical development of AVR118, including choice of clinical indications, design and preparation of protocols for clinical trials, analysis of compiled data, the processing of adverse events in clinical trials, writing clinical sections of the IND and meeting with the FDA.

In June 2006, the Master Contract Services Agreement and associated project orders were amended to provide, among other things, that instead of a monthly retainer of $35,000, MediVector shall be available to provide consulting services at the Company’s request at the rate of $400 per hour through June 1, 2007. MediVector completed the outstanding project orders and delivered the required reports and documentation. The agreement and associated project orders can be terminated by the Company at any time upon written notice to MediVector in the event of a breach by MediVector that cannot be cured (i.e. breach of the confidentiality obligations), or by either party for cause at any time upon thirty (30) days prior written notice to the other party. The Company made final project payments of $79,000 in October 2006.

Conducting the clinical trials of AVR118 will require significant cash expenditures. AVR118 may never be approved for commercial distribution by any country, and because the Company’s research and development expenses and clinical trial expenses will be charged against earnings for financial reporting purposes, the Company expects that losses from operations will continue to be incurred for the foreseeable future. The Company currently does not have sufficient funds to complete all phases of clinical trials of AVR118 which are necessary to permit the commercial sale of AVR118. The Company is attempting to secure funds through the sale of its securities.

The Company cannot provide assurances that it will acquire additional financial resources to complete all phases of the clinical trials of AVR118, or, if it acquires such resources, that it will do so on favorable terms. It is possible that the results of clinical trials will not prove that AVR118 is safe and effective. It is also possible that the FDA will not approve the sale of AVR118 in the United States if the Company submits a New Drug Application, or NDA. It is not known at this time how later stage clinical trials will be conducted, if at all. Even if the data show that AVR118 is safe and effective, obtaining approval of the NDA could take years and require financing of amounts not presently available to the Company.

F-8

ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)

NOTE 4. CONSULTING AND EMPLOYMENT AGREEMENTS

Hawkins Consulting Agreement

On February 17, 2006, the Company entered into a consulting agreement with Dr. Elma Hawkins, the Company’s former President and Chief Executive Officer, pursuant to which she provided consulting services to the Company as requested of her by our Chairman of the Board of Directors or his designee. Dr. Hawkins received a consulting fee of $325 per hour for her consulting services. The consulting agreement was 90 days, which term was extended by 30 days until its termination on June 18, 2006. Through June 18, 2006 the Company has incurred approximately $153,000 for such consulting services.

Botter Consulting Agreement

In June 2006, the Company entered into a consulting agreement with a member of the Board of Directors, Angelo Botter, pursuant to which Mr. Botter receives a consulting fee of $1,000 per day for his services. The initial term of the consulting agreement is nine months, unless automatically extended by successive thirty (30) day periods unless either party notifies the other in writing of its intent not to extend the term within five days of the end of the then existing term.

Pike Consulting Agreement

In June 2006, the Company entered into a consulting agreement with Izzy Pike, MD, Consulting, LLC, whose principal is Isadore Murray Pike, M.D., pursuant to which Dr. Pike provides consulting services in connection with the Company’s clinical programs and related matters. Dr. Pike’s firm receives a consulting fee of $375 per hour for his consulting services. The initial term of the consulting agreement shall be for nine months, unless automatically extended by successive thirty (30) day periods unless either party notifies the other in writing of its intent not to extend the term within five days of the end of the then existing term.

KGA Consulting Agreement

In June 2006, the Company entered into a consulting agreement with Kensington Global Alliances LLC (“KGA”), whose principal is Dr. Pablo A. Scolnick, pursuant to which KGA will provide consulting services to the Company on matters relating to business development. KGA receives a retainer of $5,000 per month for such consulting services. The agreement may be terminated by either party at any time upon thirty (30) days written notice.

F-9

ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)

NOTE 5. STOCK-BASED COMPENSATION

Stock Options Granted to Officers, Directors, Advisory Boards and Employees

From time to time, the Company has granted options to purchase common stock to officers, various members of the Board of Directors, Advisory Boards and employees for their services. The following is a summary of those options that have been recently granted.


				Weighted Average
	Total Options			Exercise Price
Outstanding at January 1, 2006		154,014,554		$	0.1588
Granted		—			—
Exercised		—			—
Forfeited		(24,000,000	)	($	0.1493	)
Expired unexercised		(16,806,271	)	($	0.1251	)


Outstanding at September 30, 2006		113,208,283		$	0.1658

Options exercisable at September 30, 2006		108,717,616		$	0.1676

No stock options were granted during the nine months ended September 30, 2006. During the nine months ended September 30, 2005, a total of 9,550,000 stock options were issued with a weighted-average fair value of $1,289,250. No stock options were exercised during the nine months ended September 30, 2006 however, 100,000 stock options were exercised during the nine months ended September 30, 2005 by a former employee.

The weighted-average remaining contractual terms of outstanding stock options and exercisable stock options at September 30, 2006 was 4.5 years and 4.2 years, respectively. The aggregate intrinsic value of outstanding stock options and exercisable stock options at September 30, 2006 was approximately $78,000 and $74,800 respectively.

In January 2005, the Company granted options to purchase an aggregate of 9,550,000 shares of the Company’s common stock to certain members of the Board of Directors and various committees of the Board of Directors. Options to purchase these shares are exercisable at $0.14 per share and vest 25% immediately, 25% on April 11, 2005, 25% on July 11, 2005, and 25% on October 11, 2005 through January 10, 2015. The fair value of the options was estimated to be $1,287,625 ($0.1348 per option) based upon a financial analysis of the terms of the options using the Black-Scholes pricing model with the following assumptions: expected volatility of 200%; a risk-free interest rate of 4.26% and an expected holding period of ten years.

In February 2006, Elma Hawkins resigned as CEO, President and as a member of the Board of Directors. Pursuant to a termination agreement with Dr. Hawkins, options to purchase an aggregate of 24,000,000 shares were cancelled. In May 2006, options to purchase an aggregate of 16,375,000 shares expired in accordance with their terms.

The exercise period of director options expire upon the earlier to occur of the expiration date of the option or three years from the date of termination of a director’s service to the Company as a member of the Board of Directors.

F-10

ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)

NOTE 5. STOCK-BASED COMPENSATION(Continued)

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). SFAS No. 123R supersedes APB No. 25, “Accounting for Stock Issued to Employees”, and amends SFAS No. 95, “Statement of Cash Flows”. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based upon their fair values. As a result, the intrinsic value method of accounting for stock options with pro forma footnote disclosure, as allowed for under SFAS No. 123, is no longer permitted.

The Company adopted SFAS No. 123R using the modified prospective method, which requires the Company to record compensation expense for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Accordingly, prior period amounts have not been restated to reflect the adoption of FAS 123R. The fair value assumptions for stock-based compensation did not change significantly under SFAS No. 123R. After assessing alternative valuation models and amortization assumptions, the Company chose to continue using both the Black-Scholes valuation model and straight-line amortization of compensation expense over the requisite service period of the grant. The Black-Scholes valuation model is based on a series of assumptions, including the risk free interest rate, expected life and expected volatility. The risk free interest rate is based on the U.S. Treasury yield in effect at the time of grant; the expected life is based on historical and expected exercise behavior; and expected volatility is based on the historical volatility of the Company’s stock price, over a time period that is consistent with the expected life of the option.

During the first nine months of 2006, the Company recorded stock-based compensation in the amount of $175,768, substantially all of which pertained to options granted to the Company’s officers and directors during 2004. The adoption of SFAS No. 123R resulted in an increase to selling, general and administrative expenses, loss before income taxes and net loss of approximately $176,000, or $0.0 per share, over what would have been recorded under the original provisions of SFAS No. 123. At September 30, 2006, there was approximately $405,000 of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.0 years.

SFAS No. 123R also requires entities to report the excess tax benefits from the exercise of stock options as cash inflows from financing activities. This requirement did not have an effect upon the Company due to the substantial amount of net operating loss carryforwards the Company had at December 31, 2005.

F-11

ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)

NOTE 5. STOCK-BASED COMPENSATION(Continued)

Prior to January 1, 2006, the Company had historically followed SFAS No. 123, “Accounting for Stock-Based Compensation,” which permitted entities to continue to apply the provisions of Accounting Principles Board Opinion No. 25 (“APB 25”) and provide pro forma net earnings (loss) disclosures for employee stock option grants as if the fair-value-based method defined in SFAS 123 had been applied. Under this method, compensation expense was recorded on the date of grant only if the then current market price of the underlying stock exceeded the exercise price. The following table presents the Company’s pro forma net loss for the nine months ended September 30, 2005, had the Company determined compensation cost based on the fair value at the grant date for all of its employee stock options issued under SFAS No. 123:


	Nine months ended
	September 30, 2005
Net loss as reported	$	(3,099,798	)
Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(1,901,116	)

Pro forma net loss	$	(5,000,914	)


Earnings per share — basic and diluted:
As reported	($	0.00	)

Pro forma	($	0.01	)

F-12

ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)

NOTE 6. COMMITMENTS AND CONTINGENCIES

POTENTIAL CLAIM FOR ROYALTIES

The Company may be subject to claims from certain third parties for royalties due on sale of AVR118. The Company has not as yet received any notice of claim from such parties.

LACK OF PATENT PROTECTION

During the third quarter of 2006, the Company reviewed its patent inventory and the cost to maintain them, and determined that certain patents and patent applications were not useful, or that the cost to apply for and maintain patents in certain countries is not justified, and such patents should be abandoned. Patent costs are expensed when incurred and therefore the cost of abandoned patents and patent applications has no effect on the financial statements. The Company presently has issued or granted 14 U.S. patents, two Australian patents and one Canadian patent. In addition, the Company currently has five patent applications pending with the U.S. Patent Office and 16 foreign patent applications. The Company can give no assurance that other companies, having greater economic resources, will not be successful in developing a similar product. There can be no assurance that such patents, if obtained, will be enforceable.

NOTE 7. SECURITIES PURCHASE AGREEMENTS

STOCK PURCHASE AGREEMENTS

From time to time, the Company has issued warrants to purchase common stock to various parties as part of a stock purchase agreement or a settlement. The following is a summary of those warrants that have been issued:


	Warrants
Outstanding at December 31, 2005		73,776,501

Granted		—
Exercised		—
Forfeited		(5,735,000	)


Outstanding at September 30, 2006		68,041,501

F-13

ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)

NOTE 8. DISCONTINUED OPERATIONS

During 2002, the Board of Directors approved a plan to sell Advance Viral Research, Ltd., the Company’s Bahamian subsidiary. SFAS No. 144 requires the operating results of any assets with their own identifiable cash flows that are disposed of or held for sale to be removed from income from continuing operations and reported as discontinued operations. The operating results for any such assets for any prior periods presented were reclassified as discontinued operations. The following table details the amounts reclassified to discontinued operations:


													Inception (February
	Three Months						Nine Months						20, 1984)
	Ended September 30,						Ended September 30,						to September 30,
	2006			2005			2006			2005			2006
Revenues	$	—		$	—		$	—		$	—		$	—

Costs and Expenses:
General and administrative		1,013			3,793			22,418			6,925			1,373,752
Depreciation		1,859			1,859			5,577			13,037			322,314

		2,872			5,652			27,995			19,962			1,696,066

Loss from Operations		(2,872	)		(5,652	)		(27,995	)		(19,962	)		(1,696,066	)
Other Income		—			1,828			—			1,828			140,020

Discontinued operations	($	2,872	)	($	3,824	)	($	27,995	)	($	18,134	)	($	1,556,046)

F-14

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Directors
Advanced Viral Research Corp.
(A Development Stage Company)
Yonkers, New York

We have audited the accompanying consolidated balance sheets of Advanced Viral Research Corp. (A Development Stage Company) as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the three year period ended December 31, 2005 and for the period from inception (February 20, 1984) to December 31, 2005. These consolidated financial statements are the responsibility of the management of the Company. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Advanced Viral Research Corp. (A Development Stage Company) as of December 31, 2005 and 2004 and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2005 and for the period from inception (February 20, 1984) to December 31, 2005 in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and is dependent upon the continued sale of its securities or obtaining debt financing for funds to meet its cash requirements. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


RACHLIN COHEN & HOLTZ LLP

Miami, Florida
March 20, 2006

F-15

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2005 AND 2004


	2005			2004
ASSETS
Current Assets:
Cash and cash equivalents	$	4,615,581		$	8,600,590
Prepaid insurance		88,683			82,508
Other current assets		32,445			34,947

Total current assets		4,736,709			8,718,045

Property and Equipment, Net		212,732			531,104
Assets Held for Sale		112,319			127,246
Patents and Other Assets		87,717			1,055,507

Total assets	$	5,149,477		$	10,431,902


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	140,278		$	96,123
Accrued liabilities		185,117			320,526

Total current liabilities		325,395			416,649


Commitments, Contingencies and Subsequent Events		—			—

Stockholders’ Equity:
Common stock; 1,000,000,000 shares of $.00001 par value authorized, 696,587,734 and 696,487,734 shares issued and outstanding		6,966			6,965
Additional paid-in capital		73,145,593			73,136,594
Deficit accumulated during the development stage		(68,328,477	)		(63,128,306	)

Total stockholders’ equity		4,824,082			10,015,253

Total liabilities and stockholders’ equity	$	5,149,477		$	10,431,902

See notes to consolidated financial statements.

F-16

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS


										Inception (February 20,
	Year Ended December 31,									1984) to
										December 31,
	2005			2004			2003			2005
Revenues	$	—		$	—		$	—		$	231,892


Costs and Expenses:
Research and development		1,761,915			1,768,984			1,350,318			23,196,633
General and administrative		2,101,053			2,353,499			3,221,433			25,270,462
Compensation and other expense for											—
options and warrants		—			5,784			605,788			4,934,808
Cost in connection with settlement of distribution agreement		—			687,005			—			687,005
Depreciation and amortization		405,286			929,182			922,024			4,129,617
Impairment charge — patent cost		1,081,085			—			—			1,081,085

		5,349,339			5,744,454			6,099,563			59,299,610


Loss from Operations		(5,349,339	)		(5,744,454	)		(6,099,563	)		(59,067,718	)


Other Income (Expense):
Interest income		174,545			116,557			12,785			1,205,322
Other income		—			—			—			120,093
Interest expense		(5,786	)		(686,808	)		(1,697,325	)		(8,755,623	)
Severance expense — former directors		—			—			—			(302,500	)

		168,759			(570,251	)		(1,684,540	)		(7,732,708	)


Loss from Continuing Operations		(5,180,580	)		(6,314,705	)		(7,784,103	)		(66,800,426	)
(Loss) Income from Discontinued Operations		(19,591	)		101,441			(32,708	)		(1,528,051	)


Net Loss	$	(5,200,171	)	$	(6,213,264	)	$	(7,816,811	)	$	(68,328,477	)


Net Loss Per Common Share
Basic and Diluted:
Continuing operations	$	(0.01	)	$	(0.01	)	$	(0.02	)
Discontinued operations		(0.00	)		0.00			(0.00	)

Net loss	$	(0.01	)	$	(0.01	)	$	(0.02	)


Weighted Average Number of Common Shares Outstanding		696,523,624			568,838,679			495,008,372

See notes to consolidated financial statements.

F-17

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 2005


											Deficit
											Accumulated
	Amount		Common Stock					Additional			during the
	Per							Paid-In			Development
	Share		Shares		Amount			Capital			Stage
Balance, inception (February 20, 1984) as previously reported				—	$	1,000		$	—		$	(1,000	)

Adjustment for pooling of interests				—		(1,000	)		1,000			—


Balance, inception, as restated				—		—			1,000			(1,000	)

Net loss, period ended December 31, 1984				—		—			—			(17,809	)


Balance, December 31, 1984				—		—			1,000			(18,809	)

Issuance of common stock for cash	$	0.00		113,846,154		1,138			170			—
Net loss, year ended December 31, 1985				—		—			—			(25,459	)


Balance, December 31, 1985				113,846,154		1,138			1,170			(44,268	)

Issuance of common stock — public offering		0.01		40,000,000		400			399,600			—
Issuance of underwriter’s warrants				—		—			100			—
Expenses of public offering				—		—			(117,923	)		—
Issuance of common stock, exercise of “A” warrants		0.03		819,860		9			24,587			—
Net loss, year ended December 31, 1986				—		—			—			(159,674	)


Balance, December 31, 1986				154,666,014	$	1,547		$	307,534		$	(203,942	)

See notes to consolidated financial statements.

F-18

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Continued)

INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 2005


										Deficit
										Accumulated
	Amount		Common Stock				Additional			during the
	Per						Paid-In			Development
	Share		Shares		Amount		Capital			Stage
Balance, December 31, 1986				154,666,014	$	1,547	$	307,534		$	(203,942	)

Issuance of common stock, exercise of “A” warrants	$	0.03		38,622,618		386		1,158,321			—
Expenses of stock issuance		—		—		—		(11,357	)		—
Acquisition of subsidiary for cash		—		—		—		(46,000	)		—
Cancellation of debt due to stockholders		—		—		—		86,565			—
Net loss, year ended December 31, 1987		—		—		—		—			(258,663	)


Balance, December 31, 1987				193,288,632		1,933		1,495,063			(462,605	)

Net loss, year ended December 31, 1988				—		—		—			(199,690	)


Balance, December 31, 1988				193,288,632		1,933		1,495,063			(662,295	)
Net loss, year ended December 31, 1989				—		—		—			(270,753	)

Balance, December 31, 1989				193,288,632		1,933		1,495,063			(933,048	)


Issuance of common stock, expiration of redemption offer on “B” warrants		0.05		6,729,850		67		336,475			—
Issuance of common stock, exercise of “B” warrants		0.05		268,500		3		13,422			—
Issuance of common stock, exercise of “C” warrants		0.08		12,900		—		1,032			—
Net loss, year ended December 31, 1990				—		—		—			(267,867	)


Balance, December 31, 1990				200,299,882	$	2,003	$	1,845,992		$	(1,200,915	)

See notes to consolidated financial statements.

F-19

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Continued)

INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 2005


										Deficit
										Accumulated
	Amount		Common Stock				Additional			during the
	Per						Paid-In			Development
	Share		Shares		Amount		Capital			Stage
Balance, December 31, 1990				200,299,882	$	2,003	$	1,845,992		$	(1,200,915	)

Issuance of common stock, exercise of “B” warrants	$	0.05		11,400		—		420			—
Issuance of common stock, exercise of “C” warrants		0.08		2,500		—		200			—
Issuance of common stock, exercise of underwriter warrants		0.12		3,760,000		38		45,083			—
Net loss, year ended December 31, 1991		—		—		—		—			(249,871	)


Balance, December 31, 1991				204,073,782		2,041		1,891,695			(1,450,786	)

Issuance of common stock, for testing		0.04		10,000,000		100		404,900			—
Issuance of common stock, for consulting services		0.06		500,000		5		27,495			—
Issuance of common stock, exercise of “B” warrants		0.05		7,458,989		75		372,875			—
Issuance of common stock, exercise of “C” warrants		0.08		5,244,220		52		419,487			—
Expenses of stock issuance		—		—		—		(7,792	)		—
Net loss, year ended December 31, 1992		—		—		—		—			(839,981	)


Balance, December 31, 1992				227,276,991		2,273		3,108,660			(2,290,767	)

Issuance of common stock, for consulting services		0.06		500,000		5		27,495			—
Issuance of common stock, for consulting services		0.03		3,500,000		35		104,965			—
Issuance of common stock, for testing		0.04		5,000,000		50		174,950			—
Net loss, year ended December 31, 1993		—		—		—		—			(563,309	)


Balance, December 31, 1993				236,276,991	$	2,363	$	3,416,070		$	(2,854,076	)

See notes to consolidated financial statements.

F-20

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Continued)

INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 2005


											Deficit
											Accumulated
	Amount		Common Stock				Additional				during the			Deferred
	Per						Paid-In		Subscription		Development			Compensation
	Share		Shares		Amount		Capital		Receivable		Stage			Cost
Balance, December 31, 1993				236,276,991	$	2,363	$	3,416,070	$	—	$	(2,854,076	)	$	—

Issuance of common stock, for consulting services	$	0.05		4,750,000		47		237,453		—		—			—
Issuance of common stock, exercise of options		0.08		400,000		4		31,996		—		—			—
Issuance of common stock, exercise of options		0.10		190,000		2		18,998		—		—			—
Net loss, year ended December 31, 1994		—		—		—		—		—		(440,837	)		—


Balance, December 31, 1994				241,616,991		2,416		3,704,517		—		(3,294,913	)		—

Issuance of common stock, exercise of options		0.05		3,333,333		33		166,633		—		—			—
Issuance of common stock, exercise of options		0.08		2,092,850		21		167,407		—		—			—
Issuance of common stock, exercise of options		0.10		2,688,600		27		268,833		—		—			—
Issuance of common stock, for consulting services		0.11		1,150,000		12		126,488		—		—			—
Issuance of common stock, for consulting services		0.14		300,000		3		41,997		—		—			—
Net loss, year ended December 31, 1995		—		—		—		—		—		(401,884	)		—


Balance, December 31, 1995				251,181,774	$	2,512	$	4,475,875	$	—	$	(3,696,797	)	$	—

See notes to consolidated financial statements.

F-21

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Continued)

INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 2005


												Deficit
												Accumulated
	Amount		Common Stock				Additional					during the			Deferred
	Per						Paid-In		Subscription			Development			Compensation
	Share		Shares		Amount		Capital		Receivable			Stage			Cost
Balance, December 31, 1995				251,181,774	$	2,512	$	4,475,875	$	—		$	(3,696,797	)	$	—

Issuance of common stock, exercise of options	$	0.05		3,333,334		33		166,634		—			—			—
Issuance of common stock, exercise of options		0.08		1,158,850		12		92,696		—			—			—
Issuance of common stock, exercise of options		0.10		7,163,600		72		716,288		—			—			—
Issuance of common stock, exercise of options		0.11		170,000		2		18,698		—			—			—
Issuance of common stock, exercise of options		0.12		1,300,000		13		155,987		—			—			—
Issuance of common stock, exercise of options		0.18		1,400,000		14		251,986		—			—			—
Issuance of common stock, exercise of options		0.19		500,000		5		94,995		—			—			—
Issuance of common stock, exercise of options		0.20		473,500		5		94,695		—			—			—
Issuance of common stock, for services rendered		0.50		350,000		3		174,997		—			—			—
Options granted		—		—		—		760,500		—			—			(473,159	)
Subscription receivable		—		—		—		—		(19,000	)		—			—
Net loss, year ended December 31, 1996		—		—		—		—		—			(1,154,740	)		—


Balance, December 31, 1996				267,031,058	$	2,671	$	7,003,351	$	(19,000	)	$	(4,851,537	)	$	(473,159	)

See notes to consolidated financial statements.

F-22

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Continued)

INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 2005


												Deficit
												Accumulated
	Amount		Common Stock				Additional					during the			Deferred
	Per						Paid-In		Subscription			Development			Compensation
	Share		Shares		Amount		Capital		Receivable			Stage			Cost
Balance, December 31, 1996				267,031,058	$	2,671	$	7,003,351	$	(19,000	)	$	(4,851,537	)	$	(473,159	)

Issuance of common stock, exercise of options	$	0.08		3,333,333		33		247,633		—			—			—
Issuance of common stock, conversion of debt		0.20		1,648,352		16		329,984		—			—			—
Issuance of common stock, conversion of debt		0.15		894,526		9		133,991		—			—			—
Issuance of common stock, conversion of debt		0.12		2,323,580		23		269,977		—			—			—
Issuance of common stock, conversion of debt		0.15		1,809,524		18		265,982		—			—			—
Issuance of common stock, conversion of debt		0.16		772,201		8		119,992		—			—			—
Issuance of common stock, for services rendered		0.41		50,000		—		20,500		—			—			—
Issuance of common stock, for services rendered		0.24		100,000		1		23,999		—			—			—
Beneficial conversion feature, February debenture		—		—		—		413,793		—			—			—
Beneficial conversion feature, October debenture		—		—		—		1,350,000		—			—			—
Warrant costs, February debenture		—		—		—		37,242		—			—			—
Warrant costs, October debenture		—		—		—		291,555		—			—			—
Amortization of deferred compensation cost		—		—		—		—		—			—			399,322
Imputed interest on convertible debenture		—		—		—		4,768		—			—			—
Net loss, year ended December 31, 1997		—		—		—		—		—			(4,141,729	)		—


Balance, December 31, 1997				277,962,574	$	2,779	$	10,512,767	$	(19,000	)	$	(8,993,266	)	$	(73,837	)

See notes to consolidated financial statements.

F-23

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Continued)

INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 2005


							��							Deficit
														Accumulated
	Amount		Common Stock					Additional						during the			Deferred
	Per							Paid-In			Subscription			Development			Compensation
	Share		Shares		Amount			Capital			Receivable			Stage			Cost
Balance, December 31, 1997				277,962,574	$	2,779		$	10,512,767		$	(19,000	)	$	(8,993,266	)	$	(73,837	)

Issuance of common stock, exercise of options	$	0.12		295,000		3			35,397			—			—			—
Issuance of common stock, exercise of options		0.14		500,000		5			69,995			—			—			—
Issuance of common stock, exercise of options		0.16		450,000		5			71,995			—			—			—
Issuance of common stock, exercise of options		0.20		10,000		—			2,000			—			—			—
Issuance of common stock, exercise of options		0.26		300,000		3			77,997			—			—			—
Issuance of common stock, conversion of debt		0.13		1,017,011		10			132,990			—			—			—
Issuance of common stock, conversion of debt		0.14		2,512,887		25			341,225			—			—			—
Issuance of common stock, conversion of debt		0.15		5,114,218		51			749,949			—			—			—
Issuance of common stock, conversion of debt		0.18		1,491,485		15			274,985			—			—			—
Issuance of common stock, conversion of debt		0.19		3,299,979		33			619,967			—			—			—
Issuance of common stock, conversion of debt		0.22		1,498,884		15			335,735			—			—			—
Issuance of common stock, conversion of debt		0.23		1,870,869		19			424,981			—			—			—
Issuance of common stock, for services rendered		0.21		100,000		1			20,999			—			—			—
Beneficial conversion feature, November debenture		—		—		—			625,000			—			—			—
Warrant costs, November debenture		—		—		—			48,094			—			—			—
Amortization of deferred compensation cost		—		—		—			—			—			—			59,068
Write off of subscription receivable		—		—		—			(19,000	)		19,000			—			—
Net loss, year ended December 31, 1998		—		—		—			—			—			(4,557,710	)		—


Balance, December 31, 1998		—		296,422,907	$	2,964		$	14,325,076		$	—		$	(13,550,976	)	$	(14,769	)

See notes to consolidated financial statements.

F-24

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Continued)

INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 2005


										Deficit
										Accumulated
	Amount		Common Stock				Additional			during the			Deferred			Discount
	Per						Paid-In			Development			Compensation			on
	Share		Shares		Amount		Capital			Stage			Cost			Warrants
Balance, December 31, 1998				296,422,907	$	2,964	$	14,325,076		$	(13,550,976	)	$	(14,769	)	$	—

Issuance of common stock, securities purchase agreement	$	0.16		4,917,276		49		802,451			—			—			—
Issuance of common stock, securities purchase agreement		0.27		1,851,852		18		499,982			—			—			—
Issuance of common stock, for services rendered		0.22		100,000		1		21,999			—			—			—
Issuance of common stock, for services rendered		0.25		180,000		2		44,998			—			—			—
Beneficial conversion feature, August debenture		—		—		—		950,036			—			—			—
Beneficial conversion feature, December debenture		—		—		—		361,410			—			—			—
Amortization of warrant costs, convertible debentures		—		—		—		300			—			—			(300	)
Warrant costs, related to convertible debentures		—		—		—											2,455
Warrant costs, August debenture		—		—		—		49,964			—			—			—
Warrant costs, December debenture		—		—		—		4,267			—			—			—
Amortization of warrant costs, securities purchase agreement		—		—		—		—			—			—			—
Amortization of deferred compensation cost		—		—		—		(14,769	)		—			14,769			—
Credit arising from modification of option terms		—		—		—		210,144			—			—			—
Net loss, year ended December 31, 1999		—		—		—		—			(6,323,431	)		—			—


Balance, December 31, 1999 (Restated)				303,472,035	$	3,034	$	17,255,858		$	(19,874,407	)	$	—		$	2,155

See notes to consolidated financial statements.

F-25

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Continued)

INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 2005


										Deficit
										Accumulated
	Amount		Common Stock				Additional			during the			Discount
	Per						Paid-In			Development			on
	Share		Shares		Amount		Capital			Stage			Warrants
Balance, December 31, 1999 (Restated)				303,472,035	$	3,034	$	17,255,858		$	(19,874,407	)	$	2,155

Issuance of common stock, exercise of options	$	0.1400		600,000		6		83,994			—			—
Issuance of common stock, exercise of options		0.1500		1,600,000		16		239,984			—			—
Issuance of common stock, exercise of options		0.1600		650,000		7		103,994			—			—
Issuance of common stock, exercise of options		0.1700		100,000		1		16,999			—			—
Issuance of common stock, exercise of options		0.2100		792,500		8		166,417			—			—
Issuance of common stock, exercise of options		0.2500		1,000,000		10		246,090			—			—
Issuance of common stock, exercise of options		0.2700		281,000		3		75,867			—			—
Issuance of common stock, exercise of options		0.3600		135,000		1		48,599			—			—
Issuance of common stock, exercise of warrants		0.2040		220,589		2		44,998			—			—
Issuance of common stock, exercise of warrants		0.2448		220,589		2		53,998			—			—
Issuance of common stock, exercise of warrants		0.2750		90,909		1		24,999			—			—
Issuance of common stock, exercise of warrants		0.3300		90,909		1		29,999			—			—
Issuance of common stock, conversion of debt		0.1400		35,072,571		351		4,907,146			—			—
Issuance of common stock, conversion of debt		0.1900		1,431,785		14		275,535			—			—
Issuance of common stock, conversion of debt		0.2000		1,887,500		19		377,481			—			—
Issuance of common stock, conversion of debt		0.3600		43,960		—		15,667			—			—
Issuance of common stock, cashless exercise of warrants		—		563,597		6		326,153			—			—
Issuance of common stock, services rendered		0.4650		100,000		1		46,499			—			—
Private placement of common stock		0.2200		13,636,357		136		2,999,864			—			—
Private placement of common stock		0.3024		4,960,317		50		1,499,950			—			—
Private placement of common stock		0.4000		13,265,000		133		5,305,867			—			—
Cashless exercise of warrants		—		—		—		(326,159	)		—			—
Beneficial conversion feature, January Debenture		—		—		—		395,236			—			—
Warrant costs, consulting agreement		—		—		—		200,249			—			—
Warrant costs, January Debenture		—		—		—		13,418			—			—
Warrant costs, related to convertible debentures		—		—		—								(2,454	)
Recovery of subscription receivable previously written off		—		—		—		19,000			—			—
Credit arising from modification of option terms		—		—		—		1,901,927			—			—
Net loss, year ended December 31, 2000		—		—		—		—			(8,816,192	)		—


Balance, December 31, 2000 (Restated)				380,214,618	$	3,802	$	36,349,629		$	(28,690,599	)	$	(299	)

See notes to consolidated financial statements.

F-26

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Continued)

INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 2005


										Deficit
										Accumulated
	Amount		Common Stock				Additional			during the			Discount
	Per						Paid-In			Development			on
	Share		Shares		Amount		Capital			Stage			Warrants
Balance, December 31, 2000 (Restated)				380,214,618	$	3,802	$	36,349,629		$	(28,690,599	)	$	(299	)

Issuance of common stock, exercise of options	$	0.2700		40,000		1		10,799			—			—
Issuance of common stock, exercise of options		0.3600		20,000		1		7,199			—			—
Issuance of common stock, cashless exercise of warrants		—		76,411		1		77,491			—			—
Issuance of common stock, for services rendered		0.3500		100,000		1		34,999			—			—
Sale of common stock, for cash		0.1500		6,666,667		66		999,933			—			—
Sale of common stock, for cash		0.3000		2,000,000		20		599,980			—			—
Sale of common stock, for cash		0.3200		3,125,000		31		999,969			—			—
Sale of common stock, for cash		0.4000		1,387,500		14		554,986			—			—
Sale of common stock, for cash		0.2700		9,666,667		96		2,609,904			—			—
Warrant costs, private equity line of credit		—		—		—		1,019,153						(1,019,043	)
Amortization of warrant costs, equity line of credit		—		—		—		—			—			356,594
Cashless exercise of warrants		—		—		—		(77,491	)		—			—
Credit arising from modification of option terms		—		—		—		691,404			—			—
Net loss, year ended December 31, 2001		—		—		—		—			(11,086,567	)		—


Balance, December 31, 2001 (Restated)				403,296,863	$	4,033	$	43,877,955		$	(39,777,166	)	$	(662,748	)

See notes to consolidated financial statements.

F-27

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 2005


										Deficit
										Accumulated
	Amount		Common Stock				Additional			during the			Discount
	Per						Paid-In			Development			on
	Share		Shares		Amount		Capital			Stage			Warrants
Balance, December 31, 2001 (Restated)				403,296,863	$	4,033	$	43,877,955		$	(39,777,166	)	$	(662,748	)

Sale of common stock, for cash	$	0.1109		17,486,491		175		1,938,813			—			—
Sale of common stock, for cash		0.1400		22,532,001		225		2,840,575			—			—
Sale of common stock, for cash		0.1500		9,999,999		100		1,499,900			—			—
Issuance of common stock, conversion of debt		0.1100		909,091		9		99,991			—			—
Issuance of common stock, conversion of debt		0.1539		1,299,545		13		199,987			—			—
Warrant costs, termination agreement		—		—		—		190,757			—			—
Warrant costs, issued with sale of common stock, for cash		—		—		—		36,086			—			—
Expenses of stock issuance		—		—		—		(50,160	)		—			(36,087	)
Warrants granted for consulting services		—		—		—		107,382			—			—
Credit arising from modification of option terms		—		—		—		177,963			—			—
Amortization of warrant costs, equity line of credit		—		—		—		—			—			407,660
Beneficial conversion feature, May debenture		—		—		—		55,413			—			—
Beneficial conversion feature, July debentures		—		—		—		166,515			—			—
Net loss, year ended December 31, 2002		—		—		—		—			(9,321,065	)		—


Balance, December 31, 2002 (Restated)				455,523,990	$	4,555	$	51,141,177		$	(49,098,231	)	$	(291,175	)

See notes to consolidated financial statements.

F-28

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(Continued)

INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 2005


										Deficit
										Accumulated
	Amount		Common Stock				Additional			during the			Discount
	Per						Paid-In			Development			on
	Share		Shares		Amount		Capital			Stage			Warrants
Balance, December 31, 2002 (Restated)		—		455,523,990	$	4,555	$	51,141,177		$	(49,098,231	)	$	(291,175	)

Sale of common stock, for cash	$	0.0500		21,620,000		216		1,080,784			—			—
Sale of common stock, for cash		0.0800		22,650,000		226		1,811,774			—			—
Issuance of common stock, conversion of debt		0.0424		14,150,943		142		599,858			—			—
Issuance of common stock, conversion of debt		0.0480		12,500,000		125		599,875			—			—
Issuance of common stock, conversion of debt		0.0640		9,375,000		94		599,906			—			—
Issuance of common stock, conversion of debt		0.1000		7,255,754		73		725,653			—			—
Issuance of common stock, conversion of debt		0.1442		745,643		7		107,499			—			—
Issuance of common stock, conversion of debt		0.1818		562,865		6		102,323			—			—
Issuance of common stock, for services rendered		0.0790		100,000		1		7,899			—			—
Issuance of common stock, for services rendered		0.0930		107,527		1		9,999			—			—
Warrant costs, issued with issue of convertible debenture		—		—		—		517,141			—			(517,141	)
Expenses of stock issuance		—		—		—		(199,989	)		—			36,386
Amortization of warrant costs, related to convertible debenture		—		—		—		—			—			517,141
Amortization of warrant costs, equity line of credit		—		—		—		—			—			254,789
Litigation settlement - cash		—		—		—		(1,050,647	)		—			—
Options issued for services rendered		—		—		—		351,000			—			—
Beneficial conversion feature, April debenture		—		—		—		482,859			—			—
Beneficial conversion feature, July debenture		—		—		—		375,000			—			—
Net loss, year ended December 31, 2003		—		—		—		—			(7,816,811	)		—


Balance, December 31, 2003				544,591,722	$	5,446	$	57,262,111		$	(56,915,042	)	$	—

See notes to consolidated financial statements.

F-29

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(Continued)

INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 2005


										Deficit
										Accumulated
	Amount		Common Stock				Additional			during the
	Per						Paid-In			Development
	Share		Shares		Amount		Capital			Stage			Total
Balance, December 31, 2003	$	—		544,591,722	$	5,446	$	57,262,111		$	(56,915,042	)	$	352,515

Exercise of stock option		0.08500		100,000		1		8,499			—			8,500
Sale of common stock, for cash		0.10000		120,000,000		1,200		11,998,800			—			12,000,000
Sale of common stock, for cash		0.15000		2,166,666		21		324,979			—			325,000
Issuance of common stock, conversion of debt		0.08000		21,945,719		220		1,755,438			—			1,755,658
Issuance of common stock, conversion of debt		0.10000		3,300,000		33		329,967			—			330,000
Issuance of common stock, conversion of debt		0.11574		1,857,730		19		214,995			—			215,014
Issuance of common stock, conversion of debt		0.12276		896,057		9		109,991			—			110,000
Issuance of common stock, conversion of debt		0.13194		1,629,840		16		215,025			—			215,041
Expenses of stock issuance		—		—		—		(26,000	)		—			(26,000	)
Beneficial conversion feature, January debenture		—		—		—		250,000			—			250,000
Warrants issued in settlement of distribution agreement		—		—		—		687,005			—			687,005
Option granted for services		—		—		—		5,784			—			5,784
Net loss, year ended December 31, 2004		—		—		—		—			(6,213,264	)		(6,213,264	)


Balance, December 31, 2004				696,487,734	$	6,965	$	73,136,594		$	(63,128,306	)	$	10,015,253

See notes to consolidated financial statements.

F-30

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(Continued)

INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 2005


									Deficit
									Accumulated
	Amount		Common Stock				Additional		during the
	Per						Paid-In		Development
	Share		Shares		Amount		Capital		Stage			Total
Balance, December 31, 2004				696,487,734	$	6,965	$	73,136,594	$	(63,128,306	)	$	10,015,253

Exercise of stock option	$	0.09000		100,000		1		8,999		—			9,000
Net loss, year ended December 31, 2005				—		—		—		(5,200,171	)		(5,200,171	)


Balance, December 31, 2005				696,587,734	$	6,966	$	73,145,593	$	(68,328,477	)	$	4,824,082

See notes to consolidated financial statements.

F-31

Advanced Viral Research Corp.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS


										Inception
										(February 20,
	Year Ended December 31,									1984) to
										December 31,
	2005			2004			2003			2005
Cash Flows from Operating Activities:
Net loss	$	(5,200,171	)	$	(6,213,264	)	$	(7,816,811	)	$	(68,328,477	)

Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		420,182			943,681			937,868			4,740,394
Impairment charge — patent cost		1,081,085			—			—			1,081,085
Cost in connection with settlement of distribution agreement		—			687,005			—			687,005
Amortization of debt issuance costs		—			232,374			242,513			1,303,524
conversion feature of convertible debenture		—			431,383			809,401			5,423,579
Amortization of discount on warrants		—			—			517,141			1,681,533
Amortization of discount on warrants — consulting services		—			—			—			230,249
Amortization of deferred compensation cost		—			—			—			760,500
Issuance of common stock for debenture interest		—			16,383			101,466			237,486
Issuance of common stock for services		—			—			—			1,586,000
Compensation expense for options and warrants		—			5,784			605,788			3,876,380
Changes in operating assets and liabilities:
(Increase) decrease in other current assets		(3,642	)		(42,710	)		50,772			(140,891	)
(Increase) decrease in other assets		—			6,461			(87,717	)		(819,061	)
Increase (decrease) in accounts payable and accrued liabilities		(91,254	)		(496,234	)		358,178			331,597

Total adjustments		1,406,371			1,784,127			3,535,410			20,979,380

Net cash used by operating activities		(3,793,800	)		(4,429,137	)		(4,281,401	)		(47,349,097	)


Cash Flows from Investing Activities:
Purchase of investments		—			—			—			(6,292,979	)
Patent costs incurred		(151,725	)		(134,708	)		(55,302	)		(1,239,119	)
(Acquisition) disposal of property and equipment		(48,484	)		(18,428	)		4,769			(4,385,527	)

Net cash used by investing activities		(200,209	)		(153,136	)		(50,533	)		(11,917,625	)


Cash Flows from Financing Activities:
Proceeds from issuance of convertible debt		—			900,000			2,169,388			14,569,388
Proceeds from sale of securities, net of issuance costs		—			12,027,500			1,853,398			43,410,584
Proceeds from common stock subscribed but not issued		—			—			280,000			1,163,900
Proceeds from sale of investments		9,000			—			—			6,301,979
Payments under litigation settlement		—			—			(1,050,647	)		(1,050,647	)
Payments under capital lease		—			—			(110,553	)		(420,581	)
Payments on note payable		—			(15,573	)		(14,471	)		(111,320	)
Recovery of subscription receivable written off		—			—			—			19,000

Net cash provided by financing activities		9,000			12,911,927			3,127,115			63,882,303


Net Increase (Decrease) in Cash and Cash Equivalents		(3,985,009	)		8,329,654			(1,204,819	)		4,615,581

Cash and Cash Equivalents, Beginning		8,600,590			270,936			1,475,755			—


Cash and Cash Equivalents, Ending	$	4,615,581		$	8,600,590		$	270,936		$	4,615,581


Supplemental Disclosure of Non-Cash Financing Activities:
Cash paid during the year for interest	$	5,786		$	6,667		$	16,804


Supplemental Schedule of Non-Cash Investing and Financing Activities:
A note was issued in 2003 for approximately $16,000 to secure an obligation to an agency of New York State.

See notes to consolidated financial statements.

F-32

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Advanced Viral Research Corp. (the Company) was incorporated in Delaware on July 31, 1985. The Company was organized for the purpose of developing, manufacturing and marketing a pharmaceutical product initially named Reticulose. This drug was the forerunner of the Company’s current drug, “AVR118.” The success of the Company will be dependent upon obtaining certain regulatory approval for its pharmaceutical product, AVR118, to commence commercial operations.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its 99.6% owned subsidiary, Advance Viral Research, Ltd. (LTD), a Bahamian Corporation. LTD is presented in the financial statements under “Discontinued Operations” (See Notes 5 and 10). All significant intercompany accounts have been eliminated.

Development Stage Enterprise

As described above, the Company was incorporated on July 31, 1985, and, since that time, has been primarily involved in organizational activities, research and development activities, and raising capital. Planned operations, as described above, have not commenced to any significant extent. Accordingly, the Company is considered to be in the development stage, and the accompanying consolidated financial statements represent those of a development stage enterprise.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments (primarily a money market fund), with original maturities of three months or less.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Gain or loss on disposition of assets is recognized currently. Maintenance and repairs are charged to expense as incurred. Major replacements and betterments are capitalized and depreciated over the remaining useful lives of the assets.

F-33

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Research and Development

Research and development costs are expensed as incurred by the Company. Internal research and development services that the Company contracts out are also expensed as incurred. The Company does not conduct research and development for third parties. Research and development costs may include consultants, studies conducted in Israel, studies at universities in the U.S., laboratory supplies and travel.

When it is appropriate, the Company makes allocations of costs between research and development and general and administrative costs. These allocations are calculated based on estimates of the employees’ time, square footage or other available measures consumed in each activity.

At certain periods in the Company’s history, research and development activities were reduced or suspended based on available funding. In early 2004, the Company returned to its research and development efforts. Projects that were previously deferred were reassessed and a major effort was initiated to file the Company’s new Investigational New Drug (IND) application. As a result, beginning in 2004, allocations of costs to research and development were determined on an employee by employee basis along with the measurement of facilities and utilities related to these projects.

Impairment of Long-Lived Assets

As detailed in Note 2, there is substantial doubt about the Company’s ability to continue as a going concern. As a result, pursuant to SFAS No. 144 the Company has evaluated its long-lived assets for indicators of possible impairment since the circumstances indicate that the carrying amount of the assets may not be fully recoverable. Under this procedure, an impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.

The Company has reviewed its patent costs for impairment and identified patents for which there are no signed distribution or license agreements or for which no revenues or cash flows are included or projected. In 2004 and 2003 the Company did not recognize any impairment charges. In 2005 the Company recognized impairment charges of $1,081,000, which represented the gross carrying amount net of accumulated amortization for the identified patents. After the impairment charge, the gross carrying amount and accumulated amortization of patents, which are the only intangible assets of the Company subject to amortization, was $0 at December 31, 2005.

Other Assets

Patent development costs are capitalized as incurred and amortized over the life of the patent once issued. Loan costs include fees paid in connection with the convertible debenture agreements and are amortized over the life of the agreement (see Note 4).

F-34

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Income Taxes

The Company accounts for its income taxes using Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes,” which requires recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Estimated Fair Value of Financial Instruments

The information set forth below provides disclosure of the estimated fair value of the Company’s financial instruments presented in accordance with the requirements of Statement of Financial Accounting Standards (SFAS) No. 107. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2005 and 2004. Since the reported fair values of financial instruments are based upon a variety of factors, they may not represent actual values that could have been realized as of December 31, 2005 and 2004 or that will be realized in the future.

The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, a money market fund and accounts payable. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are payable on demand.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. At various times during the year, the Company had cash balances in excess of federally insured limits. At December 31, 2005, the Company had bank deposits on hand of approximately $4,164,000 in excess of these limits. The Company maintains its cash, which consists primarily of demand deposits, with high quality financial institutions, which the Company believes limits this risk.

In addition, the Company maintains an investment account which is not insured by the FDIC. These funds, which were invested in money market funds at December 31, 2005, may be subject to insurance by SIPC, Securities Investor Protection Corporation, subject to various limitations. At December 31, 2005, there was approximately $296,000 held in this account.

F-35

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25), and related interpretations, in accounting for its employee stock options rather than the alternative fair value accounting allowed by SFAS No. 123, “Accounting for Stock-Based Compensation.” APB No. 25 provides that the compensation expense relative to the Company’s employee stock options is measured based on the intrinsic value of the stock option. SFAS No. 123 requires companies that continue to follow APB No. 25 to provide a pro forma disclosure of the impact of applying the fair value method of SFAS No. 123. The Company follows SFAS No. 123 in accounting for stock options issued to non-employees.

No stock-based employee compensation cost is reflected in net loss, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.


	2005			2004			2003
Net loss as reported	$	(5,200,171	)	$	(6,213,264	)	$	(7,816,811	)
Deduct: total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(2,503,246	)		(3,655,762	)		(2,790,859	)

Pro forma net loss	$	(7,703,417	)	$	(10,607,670	)	$	(10,607,670	)

Loss per share — basic and diluted
As reported	$	(0.01	)	$	(0.02	)	$	(0.02	)

Pro forma	$	(0.01	)	$	(0.02	)	$	(0.02	)

In December 2004, the FASB issued SFAS No. 123 (Revised 2004) (“SFAS No. 123(R)”), Share-Based Payment. SFAS No. 123(R) requires companies to expense the estimated fair value of stock options and similar equity instruments issued to employees. Currently, companies are required to calculate the estimated fair value of these share-based payments and can elect to either include the estimated cost in earnings or disclose the pro forma effect in the footnotes to their financial statements. As discussed above, the Company has chosen to disclose the pro forma effect. SFAS No. 123(R) will be effective for the Company beginning with the quarter ending March 31, 2006. Transition options allow companies to choose whether to adopt prospectively or retrospectively, based on the amounts that have been included in the footnotes. The Company has not yet concluded on which transition option it will select. The Company expects the adoption of this standard to have a material impact on its results of operations.

F-36

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Net Loss Per Common Share

The Company computes loss per share in accordance with SFAS No. 128, “Earnings Per Share.” This standard requires dual presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the diluted earnings per share computation.

Net loss per common share (basic and diluted) is based on the net loss divided by the weighted average number of common shares outstanding during the year. The Company’s potentially issuable shares of common stock pursuant to outstanding stock options and warrants are excluded from the Company’s diluted computation, as their effect would be anti-dilutive.

Revenue Recognition

The limited sales generated by the Company have consisted of sales of AVR118 for testing and other purposes. The Company records sales when the product is shipped to customers.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results.

Reclassifications

Certain amounts in the financial statements have been reclassified to conform to the current presentation.

F-37

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Recent Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140.” This statement permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, and eliminates a restriction on the passive derivative instruments that a qualifying special-purpose entity (SPE) may hold. The statement is effective for fiscal years beginning after September 15, 2006. The Company does not believe this standard will have a material effect on the Company’s financial position or results of operations.

F-38

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Recent Accounting Pronouncements(Continued)

NOTE 2. GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has suffered accumulated net losses of $68,328,477 since inception and is dependent upon registration of AVR118 for sale before it can begin commercial operations. The Company’s cash position may be inadequate to pay all the costs associated with operations and the full range of testing and clinical trials required by the FDA. Unless and until AVR118 is approved for sale in the United States or another industrially developed country, the Company will be dependent upon the continued sale of its securities, debt or equity financing for funds to meet its cash requirements. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. No assurance can be given that the Company will be able to sustain its operations until FDA approval of AVR118 for commercial sale is granted or that any approval will ever be granted. Management is currently (i) seeking equity and debt financing, and (ii) exploring the sale of certain assets.

During 2005, the Company did not receive any proceeds from any debt or equity transactions. During 2004, the Company completed several equity transactions and issued convertible debt for which it received cash proceeds of approximately $13,208,000.

F-39

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 3. PROPERTY AND EQUIPMENT


	Estimated Useful
	Lives (Years)		2005		2004
Land and improvements		15	$	34,550	$	34,550
Building and improvements		5-30		1,432,803		1,410,165
Machinery and equipment		5		3,428,667		3,402,821

				4,896,020		4,847,536
Less accumulated depreciation				4,571,613		4,189,861

				324,407		657,675
Less property and equipment included in assets held for sale, net (Note 5)				111,675		126,571

			$	212,732	$	531,104

NOTE 4. OTHER ASSETS


	2005		2004
Patent development costs, net of accumulated amortization	$	0	$	967,790
Other		87,717		87,717

		87,717		1,055,507

As detailed in Note 2, there is substantial doubt about the Company’s ability to continue as a going concern. Consequently, the Company recognized impairment charges in 2005 of $1,081,000, which represented the gross carrying amount net of accumulated amortization for the Company’s patents. After the impairment charge, the gross carrying amount and accumulated amortization of patents, which are the only intangible assets of the Company subject to amortization, was $0 at December 31, 2005.

NOTE 5. ASSETS HELD FOR SALE

During 2002, the Board of Directors approved a plan to sell Advance Viral Research, Ltd. (LTD), the Company’s Bahamian subsidiary. As required under SFAS 144, the net book values of the assets (LTD had no liabilities as of December 31, 2005 other than an inter-company payable that has been eliminated) have been reflected on the balance sheet as held for sale and the operations have been included in discontinued operations for the years ended December 31, 2005, 2004 and 2003 (see Note 10). Management continues to evaluate offers and believes that the estimated selling price less estimated cost to sell exceeds the net book value of LTD and therefore there is no impairment loss charged to discontinued operations.

F-40

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 6. ACCRUED LIABILITIES


	2005		2004
Accrued bonus	$	87,500	$	175,000
Accrued payroll		43,965		47,053
Other		53,652		98,473

	$	185,117	$	320,526

NOTE 7. SECURITIES PURCHASE AGREEMENTS

Summary

The Company is in the development stage and, as a development stage company, has devoted significant time and resources to capital raising activities since its inception. Substantially all cash used by the Company thus far and continuing into the foreseeable future has been and is expected to be the result of the continued sale of its securities, debt or equity.

During the period January 1, 2003 through December 31, 2005, the Company raised approximately $5,400,000 gross proceeds through the sale of convertible debentures, which, including accrued interest, were subsequently converted into 74,219,551 shares of Company common stock. The Company also sold 166,436,666 shares of Company common stock for total net proceeds of approximately $15,218,000 during the period January 1, 2003 through December 31, 2005. In connection with the sale of convertible debentures and shares of common stock, the Company issued warrants to acquire an aggregate of 57,273,367 common shares, including warrants to placement agents. As of December 31, 2005, warrants to acquire an aggregate of 73,776,501 shares remain exercisable.

Stock Purchase Agreements

In February 2004 the Company entered into an agreement with James Dicke II and James Dicke III, pursuant to which, for an aggregate purchase price of $12 million, the Company agreed to sell an aggregate of (i) 120 million shares of common stock; and (ii) warrants to purchase 15 million shares of common stock through February 2, 2007 at an exercise price of $0.20 per share: 3,750,000 of the warrants are exercisable from February 5, 2004 through February 2, 2007; 3,750,000 of the warrants are exercisable from May 5, 2004 through February 2, 2007; 3,750,000 of the warrants are exercisable from August 4, 2004 through February 2, 2007; and 3,750,000 of the warrants are exercisable from November 3, 2004 through February 2, 2007. The funding took place in four equal stages of $3 million each, once every 90 days on February 5, May 5, August 4 and November 3, 2004.

In addition, the Company granted demand and piggyback registration rights to the investors for the shares issued or issuable in connection with the transaction pursuant. James F. Dicke II is the Chairman and CEO of Crown Equipment Corporation and a former member of the Board of Directors.

F-41

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 7. SECURITIES PURCHASE AGREEMENTS(Continued)

Warrants Issued in Settlement

On February 9, 2004, the Company entered into a termination and release agreement with DCT, S.R.L. and certain of its affiliates pursuant to which various agreements were terminated (see Note 8). In consideration, the Company agreed to pay DCT $60,000 and granted warrants to purchase an aggregate of 5 million shares of common stock to certain of DCT’s affiliates at an exercise price of $0.16 for a period of five years. The warrants were valued at $687,005 and are included in the accompanying consolidated statement of operations as cost in connection with settlement of distribution agreement. In addition the recipients of the warrants agreed not to sell more than an aggregate of 2 million shares of common stock in any six-month period for a period of five years.

Summary of Warrant Activity

A summary of warrants issued and outstanding in connection with convertible debentures and equity transactions since inception is presented below. Upon exercise, warrants are convertible into an equal number of the Company’s .00001 par value common stock. The warrants are exercisable immediately.


				2005					2004					2003
				Weighted-					Weighted-					Weighted-
	Warrants			Average		Warrants			Average		Warrants			Average
	1/1/2005 -			Exercise		1/1/2004 -			Exercise		1/1/2003 -			Exercise
	12/31/2005			Price		12/31/2004			Price		12/31/2003			Price
Outstanding at beginning of year		90,423,909			.237		70,418,170			.253		57,118,572			.342
Granted		0			.0		20,931,667			.191		36,127,700			.101
Exercised		0			.0		0			.0		0			.0
Forfeited		(16,647,408	)		.394		(925,928	)		.351		(22,828,102	)		.0236

Outstanding at end of year		73,776,501			.202		90,423,909			.237		70,418,170			.253

Warrants exercisable at year end		73,776,501			.202		90,423,909			.237		70,418,170			.253

F-42

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 7. SECURITIES PURCHASE AGREEMENTS(Continued)

Summary of Warrant Activity(Continued)

The following table summarizes information for warrants to purchase common stock outstanding at December 31, 2005:


		Warrants Outstanding and Exercisable
	Number		Weighted-Average
Range of	Outstanding		Remaining		Weighted-Average
Exercise Prices	at 12/31/05		in months		Exercise Price
$0.91 — $0.11		28,188,200		32		.0952
$0.12 — $0.18		20,836,500		29		.1325
$0.19 — $0.27		18,481,667		29		.2036
$0.28— $0.41		178,378		7		.2880
$0.42 — $0.61		913,378		14		.5309
$0.62 — $0.92		178,378		14		.8640
$1.00		5,000,000		2		1.0000

Private Equity Line of Credit

On April 28, 2003, the Company entered into an equity line of credit with Cornell Capital Partners LP for a period of three years. Pursuant to the equity line of credit, the Company may, at its discretion, periodically sell to Cornell Capital Partners shares of common stock for a total purchase price of up to $50 million for a period of three years. For each share of common stock purchased under the equity line of credit, Cornell Capital Partners will pay Advanced Viral 100% of the lowest closing bid price of its common stock on the over-the-counter Bulletin Board or other principal market on which its common stock is traded for the five days immediately following the notice date. Further, Cornell Capital Partners is entitled to retain 5% of each advance under the equity line of credit. The Company’s obligation to sell its common stock is conditioned, at its option, upon the per share purchase price being equal to or greater than a minimum acceptable price, set by the Company on the advance notice date, which may not be set any closer than 7.5% below the closing bid price of its common stock the day prior to the notice date. In December 2003, the Company registered 95,712,595 shares that may be issued under the equity line of credit. For its services as placement agent, Katalyst Securities LLC received 107,527 shares of common stock, which were valued at $10,000.

F-43

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 8. COMMITMENTS AND CONTINGENCIES

General

Potential Claim for Royalties

The Company may be subject to claims from certain third parties for royalties due on sale of AVR118. The Company has not as yet received any notice of claim from such parties.

Product Liability

The Company is unaware of any claims or threatened claims since Reticulose was initially marketed in the 1940’s; however, one study noted adverse reactions from highly concentrated doses in guinea pigs. In the future, the Company could be subjected to claims for adverse reactions resulting from the use of AVR118. In the event any claims for substantial amounts were successful, they could have a material adverse effect on the Company’s financial condition and on the marketability of AVR118. During November 2003, the Company secured $3,000,000 of product liability coverage at a cost of approximately $15,000 per annum. In addition, the Company extended at no cost, liability coverage for its clinical trials in Israel. In November 2005, the Company renewed its product liability insurance until November 2006 at a cost of approximately $31,000. There can be no assurance that the Company will be able to continue to secure additional insurance in adequate amounts or at reasonable premiums if it determined to do so. Should the Company be unable to secure additional product liability insurance, the risk of loss to the Company in the event of claims would be greatly increased and could have a material adverse effect on the Company.

Lack of Patent Protection

To date, the Company has been issued or granted 13 U.S. patents, two Australian patents, one Mexican patent, one Israeli patent and two patents in China. In addition, the Company currently has eight patent applications pending with the U.S. Patent Office and 27 foreign patent applications. The Company can give no assurance that other companies, having greater economic resources, will not be successful in developing a similar product. There can be no assurance that such patents, if obtained, will be enforceable.

F-44

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 8. COMMITMENTS AND CONTINGENCIES(Continued)

Status of FDA Filings and Studies

In November 2004 the Company submitted an Investigational New Drug (IND) application to the FDA. The purpose of the application was to obtain approval from the FDA to begin a clinical study in the United States for AVR118. In December 2004, the FDA notified the Company that the IND application was allowed and that it could proceed with its planned study.

Phase II Cancer Study

In February 2005, the Company entered into an agreement with the Biomedical Research Alliance (BRANY), as agent for a network of hospitals, pursuant to which the hospitals will conduct a planned, Phase II multi-center study approved in December 2004 by the FDA. The study commenced March 14, 2005 and will continue as long as necessary to complete the study. The agreement with BRANY, among other things, defines the protocol for the study, outlines the terms of payment and provides for cancellation of the contract by either party.

The Phase II study was originally designed to evaluate the effect of a 4.0 ml dose of AVR118 administered to patients with systemic symptoms related to advanced cancers who are not receiving chemotherapy. The Company has experienced difficulty in accruing patients for the Phase II study and in December 2005, amended the protocol to permit patients undergoing third-line chemotherapy treatment to become participants in the study, in order to facilitate patient accrual.

In the Phase II study, patients are administered AVR118 for three weeks in order to compare treatment versus no treatment, after which the results of the study will be analyzed. Those patients who did not receive AVR118 during the first three-week period are permitted to take the drug for the second three-week period. Patients who appear to benefit from treatment may be eligible to remain on AVR118, generating longer term safety data. The total cost incurred through December 31, 2005 relating to this Phase II study is approximately $260,000.

Phase I Study on Type 2 Diabetes

In October 2005 the Company initiated a Phase I, double blind, placebo controlled, randomized, single center, safety study with AVR118 in type 2 diabetic subjects in the U.S. Approximately 30 patients are expected to be entered in the trial, the primary objective of which is to explore the effect of 4.0 ml of AVR118 given subcutaneously on blood glucose in patients with type 2 diabetes who are taking sulfonylureas and/or metformin, as compared to subjects not receiving AVR118. Sulfonylureas and metformin are commonly used drugs to treat type 2 diabetes.

In February 2005, the Company amended the protocol for the Phase I diabetes study to include an additional 12 patients at a dose of 1.0 ml of AVR118 given subcutaneously in order to provide the Company with more comprehensive data regarding the effects of AVR118. To date, 27 patients were enrolled in the study, of which 5 are currently still receiving treatment. The total cost incurred through December 31, 2005 relating to this Phase I study is approximately $238,000.

F-45

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 8. COMMITMENTS AND CONTINGENCIES(Continued)

Status of FDA Filings and Studies(Continued)

In-Vitro Testing on Avian Flu

In December 2005, the Company performed in-vitro testing for the efficacy of AVR118 on the H5N1 hybrid strain of the avian flu. The total cost incurred through December 31, 2005 relating to this study was approximately $1,000.

Phase I/II Study on Cachexia in AIDS (Israel)

In December 2004, the Company completed a Phase I/II study in Israel to test the safety and tolerance of injectable AVR118 involving cachectic AIDS patients who may or may not be receiving anti-retroviral therapy or highly active anti-retroviral therapy (HAART). The Company’s objective for this study was to determine the safety and tolerance of AVR118. Results from the 30 patients in three different dose groups of AVR118 showed improvement in appetite, weight gain or stability, body mass index, and fat percentage with more significant improvements in the two higher dose levels. None of the patients reported any serious side effects associated with AVR118 therapy. The total cost incurred through December 31, 2004 relating to this clinical trial was approximately $1,851,000. No costs were incurred in 2005 in connection with this study.

In connection with the clinical trial in Israel, the Company entered into a contract with an unrelated party to conduct, evaluate and maintain the scientific quality for the clinical studies. Total costs to be incurred in connection with these clinical trials were $1,551,000, of which approximately $1,323,000 has been expensed and approximately $875,000 has been paid through December 31, 2004. At the end of 2004, it was determined that the previously recorded and unpaid balance of approximately $448,000 should be derecognized due to lack of performance on this contract.

Conducting the clinical trials of AVR118 will require significant cash expenditures. AVR118 may never be approved for commercial distribution by any country. Because the Company’s research and development expenses and clinical trial expenses will be charged against earnings for financial reporting purposes, the Company expects that losses from operations will continue to be incurred for the near future. The Company currently does not have sufficient funds to complete all phases of clinical trials of AVR118 which are necessary to permit the commercial sale of AVR118. The Company is attempting to secure funds through the sale of its securities.

F-46

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 8. COMMITMENTS AND CONTINGENCIES(Continued)

Status of FDA Filings and Studies(Continued)

MediVector

In March 2004, the Company entered into a Master Contract Services Agreement with MediVector, Inc. whereby MediVector shall process and analyze data and provide biopharmaceutical consulting services in connection with the Company’s ongoing studies and IND activities on a project by project basis. Since inception of the agreement through December 2005, the Company has expensed and paid $1,309,000.

In April 2004, the Company appointed Carol Epstein, MD, a co-founder of MediVector, Inc. as acting Medical Director to Advanced Viral Research Corp in order help guide the Company in the clinical development of AVR118, including choice of clinical indications, design and preparation of protocols for clinical trials, analysis of compiled data, the processing of adverse events in clinical trials, writing clinical sections of the IND and meeting with the FDA.

Compensatory Awards

Hawkins Employment Agreement

Pursuant to an Employment Agreement dated February 10, 2004, the Company engaged Elma S. Hawkins, Ph.D., MBA as its President and Chief Executive Officer commencing February 18, 2004 until February 2006 unless terminated earlier or renewed as provided in the agreement. Effective February 18, 2006, Dr. Hawkins resigned as President and Chief Executive and a member of the Board of Directors of Advanced Viral.

F-47

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 8. COMMITMENTS AND CONTINGENCIES(Continued)

Compensatory Awards(Continued)

option to purchase 40 million shares of the Company’s common stock through February 2009. The option vested in increments of 666,667 on a monthly basis, and is exercisable at prices ranging from $0.12 to $0.16 per option share. On February 14, 2006, the Company approved a cash bonus payment of $87,500 to Dr. Hawkins with respect to the year ended December 31, 2005. The bonus is payable in three equal installments of $29,166.66 on February 21, 2006, March 21, 2006 and April 21, 2006.

Pursuant to the agreement, upon termination Dr. Hawkins received her base salary earned through the date of termination, accrued vacation, and all applicable reimbursements due. In addition, all unvested options (24 million option shares) were cancelled, and all vested options (16.4 million option shares) are exercisable until May 18, 2006.

Hawkins Consulting Agreement

On February 17, 2006, the Company entered into a consulting agreement with Dr. Hawkins which provides that she will provide consulting services to the Company on such matters pertaining to its business as may, from time to time, be requested of her by our Chairman of the Board of Directors or his designee. Dr. Hawkins shall receive a consulting fee of $325 per hour for her consulting services. The initial term of the consulting agreement shall be for 90 days, and shall be automatically extended by successive sixty (60) day periods unless either the Company or Dr. Hawkins notifies the other in writing of its intent not to extend the term within 10 days of the end of the then existing term.

Other

In September 2004, the Company issued options to purchase 2,500,000 shares of common stock at an exercise price of $0.10 through September 2009 to certain employees. These options vests in annual installments over five years. The fair value of the option was estimated to be $240,632 ($0.0963 per option) based upon a financial analysis of the term of the option using the Black-Scholes Pricing Model with the following assumptions: expected volatility of 183%; a risk-free interest rate of 3.28% and an expected holding period of five years. The Company will recognize the fair value of the options as compensation expense on a pro forma basis over approximately five years (the vesting period of the options).

In August 2004, the Company issued an option to purchase 100,000 shares of common stock at an exercise price of $0.09 through August 2005 for outside services rendered in connection with the maintenance of its facility in the Bahamas from March 2004 through February 2005. This option vests immediately. The fair value of the option was estimated to be $5,784 ($0.0578 per option) based upon a financial analysis of the term of the option using the Black-Scholes Pricing Model with the following assumptions: expected volatility of 183%; a risk-free interest rate of 1.97% and an expected holding period of one year. The Company recorded an expense of $5,784 in the accompanying consolidated statement of operations for the year ended December 31, 2004.

F-48

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 8. COMMITMENTS AND CONTINGENCIES(Continued)

Compensatory Awards(Continued)

Board of Directors

In December 2003, the Company granted an aggregate of 21,200,000 options to purchase shares of the Company’s common stock to certain members of the Board of Directors and various committees of the Board of Directors. Options to purchase 12,200,000 shares are exercisable at $0.18 per share, which options vest 25% immediately, 25% on March 19, 2004, 25% on June 19, 2004 and 25% on September 19, 2004, through December 19, 2013. The remaining 9,000,000 shares are exercisable at $0.18 per share and vest at the rate of 75,000 options every 30 days commencing December 20, 2003, through December 2013. The fair value of the options was estimated to be $3,698,678 ($0.1745 per option) based upon a financial analysis of the terms of the options using the Black-Scholes pricing model with the following assumptions: expected volatility of 131%; a risk free interest rate of 4.20% and on expected holding period of ten years. The Company recognized the fair value of the options as compensation expense on a pro forma basis based on the vesting period, which was all in 2004.

In February 2004, in connection with the hiring of Dr. Hawkins as the Company’s new President and Chief Executive Officer, certain outstanding options were amended:

	•		an option to purchase 9 million shares of the Company’s common stock originally granted by the Company in December 2003 to Eli Wilner in his capacity as acting CEO, was amended to reduce the number of shares underlying the option to 1.5 million shares of the Company’s common stock, and became exercisable immediately at $0.18 per share through December 2013. The fair value of this option was estimated to be $261,731 ($0.1745 per option) based upon a financial analysis of the terms of the options using the Black-Scholes pricing model with the following assumptions: expected volatility of 131%; a risk-free interest rate of 4.20% and an expected holding period of 10 years; and

	•		an option to purchase 1.5 million shares of the Company’s common stock originally granted by the Company in December 2003 to Dr. Hawkins in her capacity as a member of the Board of Directors, was amended to reduce the number of shares underlying the option to 375,000 shares of the Company’s common stock, and became exercisable immediately at $0.18 per share through December 2013. The fair value of this option was estimated to be $65,433 ($0.1745 per option) based upon a financial analysis of the terms of the options using the Black-Scholes pricing model with the following assumptions: expected volatility of 131%; a risk-free interest rate of 4.20% and an expected holding period of 10 years.

F-49

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 8. COMMITMENTS AND CONTINGENCIES(Continued)

Compensatory Awards(Continued)

Board of Directors(Continued)

In February 2004, an option to purchase 5 million shares of the Company’s common stock was granted to Eli Wilner, Chairman of the Board of Directors with monthly vesting over five years, exercisable at $0.15 per share. The fair value of this option was estimated to be $727,486 ($0.1455 per option) based upon a financial analysis of the terms of the options using the Black-Scholes pricing model with the following assumptions: expected volatility of 156%; a risk-free interest rate of 3.08% and an expected holding period of 5 years. The Company will recognize the fair value of the options as compensation expense on a pro forma basis over the vesting period.

In June 2004, in recognition of the effectiveness of the Company’s new President and CEO, Dr. Elma Hawkins, the Board of Directors elected to disband the Executive Management Committee and 750,000 options previously granted in December 2003 were cancelled.

In January 2005, the Company granted options to purchase an aggregate of 9,550,000 shares of the Company’s common stock to certain members of the Board of Directors and various committees of the Board of Directors. Options to purchase these shares are exercisable at $0.14 per share and vest 25% immediately, 25% on April 11, 2005, 25% on July 11, 2005, and 25% on October 11, 2005 and are exercisable through January 10, 2015. The fair value of the options was estimated to be $1,287,625 ($0.1348 per option) based upon a financial analysis of the terms of the options using the Black-Scholes pricing model with the following assumptions: expected volatility of 200%; a risk-free interest rate of 4.26% and an expected holding period of ten years. The Company will recognize the fair value of the options as compensation expense on a pro-forma basis based on the percentage vested at each vesting period.

The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and related interpretations, in accounting for its employee stock options rather than the alternative fair value accounting allowed by SFAS no. 123, Accounting for Stock-Based Compensation. APB No. 25 provides that the compensation expense relative to the Company’s employee stock options is measured based on the intrinsic value of the stock option. SFAS No. 123 requires companies that continue to follow APB No. 25 to provide a pro-forma disclosure of the impact of applying the fair value method of SFAS No. 123. The Company follows SFAS No. 123 in accounting for stock options issued to non-employees.

Upon resignation, directors no longer provide services to the Company and there are no modifications to the terms of their options.

F-50

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 8. COMMITMENTS AND CONTINGENCIES(Continued)

Compensatory Awards(Continued)

Summary of Stock Options

The fair value of each option is estimated on the date of grant using Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2005, 2004, and 2003, respectively:


	2005			2004			2003
Expected life		10			5			8-10
Expected volatility		200	%		156-183	%		113-128	%
Risk-free rate		4	%		3-4	%		4	%
Dividend yield		—			—			—

A summary of the status of the Company’s fixed price stock options as of December 31, 2005, 2004, and 2003 and changes during the years ending on those dates is presented below:


				2005						2004						2003
				Weighted-Average						Weighted-Average						Weighted-Average
	2005			Exercise			2004			Exercise			2003			Exercise
	Shares			Price			Shares			Price			Shares			Price
Outstanding at beginning of year		147,137,705			.1704			110,174,705			.2122			63,833,427			.2122
Granted		9,550,000			.135			47,600,000			.113			48,410,000			.113
Exercised		(100,000	)		(.09	)		(100,000	)					—
Forfeited		(2,573,151	)		(.1319	)		(10,537,000	)		(.1277	)		(2,068,722	)		(.1277	)

Outstanding at end of year		154,014,554			.1588			147,137,705			.1704			110,174,705			.1704

Options exercisable at year end		121,332,554			.1704			106,047,038			.1383			90,824,305			.1724

The following table summarizes information about stock options outstanding at December 31, 2005:


	Options Outstanding					Options Exercisable
			Weighted-	Weighted-				Weighted-
Range of	Number		Average	Average		Number		Average
Exercise	Outstanding		Remaining	Exercise		Exercisable		Exercise
Prices	at 12/31/05		Contractual Life	Price		at 12/31/05		Price
$0.01 - $0.07		24,500,000	8.5 years		.0542		23,300,000		.0544
$0.08 - $0.12		25,995,492	4.9 years		.1001		24,495,492		.1023
$0.13 - $0.18		63,102,382	5.2 years		.1534		33,230,382		.1582
$0.19 - $0.27		35,677,880	3.4 years		.2573		35,651,880		.2573
$0.28 - $0.36		4,738,800	4.8 years		.3513		4,654,800		.3517

F-51

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 8. COMMITMENTS AND CONTINGENCIES(Continued)

Distribution Agreements

The Company previously entered into separate agreements with four different entities, whereby the Company granted exclusive rights to distribute Reticulose in the countries of Canada, China, Japan, Macao, Hong Kong, Taiwan, Mexico, Argentina, Bolivia, Paraguay, Uruguay, Brazil and Chile. Pursuant to these agreements, distributors were obligated to cause Reticulose to be approved for commercial sale in such countries and, upon such approval, to purchase from the Company certain minimum quantities of Reticulose to maintain the exclusive distribution rights. Leonard Cohen, a former consultant to the Company, has informed the Company that he is an affiliate of two of these entities. To date, the Company has recorded revenue classified as other income for the sale of territorial rights under the distribution agreements. The Company has made no sales under the distribution agreements other than for testing purposes.

On February 9, 2004, the Company entered into a termination and release agreement with DCT, S.R.L. and certain of its affiliates pursuant to which a distribution agreement and various testing agreements with DCT, along with any and all distribution rights and rights to royalties or fees thereunder, were terminated. In addition, the agreement provides that any and all intellectual property rights relating to the terminated agreements were the property of Advanced Viral, and the parties released each other from claims relating thereto. In consideration, the Company agreed to pay DCT $60,000 and granted warrants to purchase an aggregate of 5 million shares of common stock to certain of DCT’s affiliates at an exercise price of $0.16 for a period of five years. In addition the recipients of the warrants agreed not to sell more than an aggregate of 2 million shares of common stock in any six-month period for a period of five years. The warrants were valued at $687,005 and are included in the accompanying consolidated statement of operations as cost in connection with settlement of distribution agreement.

Leases

Operating Leases

The Company has executed a lease, as amended, for the laboratory facilities in Yonkers, New York. The lease is for a total of 16,650 square feet and expired April 2005. The total annual rental commitment for the Yonkers facilities was $290,000 from May 2002 until April 2005. In December 2004, the Company amended this lease extending its term until April 2008. A lower annual rent of $283,000 was negotiated for this three year extension.

Total lease expense for the years ended December 31, 2005, 2004 and 2003 amounted to $287,911, $298,763 and $298,763, respectively.

F-52

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 8. COMMITMENTS AND CONTINGENCIES(Continued)

Leases(Continued)

Operating Leases(Continued)

Future minimum lease commitments as of December 31, 2005 are as follows:


Year ending December 31:
2006		$283,000
2007		283,000
2008		94,000

Total		$660,000

NOTE 9. INCOME TAXES

The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.” SFAS No. 109 is an asset and liability approach for computing deferred income taxes.

As of December 31, 2005, the Company had net operating loss carryforwards for Federal income tax reporting purposes amounting to approximately $52,679,000, which expire in varying amounts to 2024.

The Company presently has temporary differences between financial reporting and income tax reporting relating to the amortization of warrant costs, compensation expense for the extension of options, depreciation and patent costs.

The components of the deferred tax asset as of December 31, 2005 and 2004 were as follows.


	2005			2004
Benefit of net operating loss carry forwards	$	21,072,000		$	19,490,000
Less valuation allowance		(21,072,000	)		(19,490,000	)

Net deferred tax asset	$	—		$	—

As of December 31, 2005 and 2004, sufficient uncertainty exists regarding the realizability of these operating loss carry forwards and, accordingly, a 100% valuation allowance has been established regarding these deferred tax assets.

In accordance with certain provisions of the Tax Reform Act of 1986, a change in ownership of greater than 50% of a corporation within a three year period will place an annual limitation on the corporation’s ability to utilize its existing tax benefit carry forwards. The Company’s utilization of its tax benefit carry forwards may be further restricted in the event of future changes in the ownership of the Company from the exercise of options and warrants or other future issuances of common stock.

F-53

Advanced Viral Research Corp.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 10. DISCONTINUED OPERATIONS

SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” requires the operating results of any assets with their own identifiable cash flows that are disposed of or held for sale to be removed from income from continuing operations and reported as discontinued operations. The operating results for any such assets for any prior periods presented must also be reclassified as discontinued operations. See Note 5 for more detail regarding the planned sale of LTD and classification as held for sale. The following table details the amounts reclassified to discontinued operations:


										Inception
										(February 20, 1984)
	Year Ended December 31,										to December 31,
	2005			2004			2003			2005
Revenues	$	—		$	—		$	—		$	—

Costs and Expenses:
General and administrative		7,963			16,157			16,864			1,351,334
Depreciation		14,896			14,499			15,844			316,737

		22,859			30,656			32,708			1,668,071

Loss from Operations		(22,859	)		(30,656	)		(32,708	)		(1,668,071	)
Other Income		3,268			132,097			—			140,020

Discontinued operations	$	(19,591	)	$	101,441		$	(32,708	)	$	(1,528,051	)

NOTE 11. 401(K) PLAN

The Company has adopted a 401(k) plan that allows eligible employees to contribute up to 20% of their salary, subject to annual limits imposed by the Internal Revenue Service. Until March 2003, the Company matched 50% of the first 6% of the employee contributions in common stock and may, at its discretion, make additional contributions based upon earnings. In March 2003, the Company amended the terms of the Company’s 401(k) plan to terminate the obligation to make matching contributions.

F-54

We have not authorized any dealer, salesperson or other person to provide any information or make any representations about Advanced Viral Research Corp. except the information or representations contained in this prospectus. You should not rely on any additional information or representations if made.

This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy any securities:

except the common stock offered by this prospectus;

in any jurisdiction in which the offer or solicitation is not authorized;

in any jurisdiction where the dealer or other salesperson is not qualified to make the offer or solicitation;

to any person to whom it is unlawful to make the offer or solicitation; or

to any person who is not a United States resident or who is outside the jurisdiction of the United States.

The delivery of this prospectus or any accompanying sale does not imply that:

there have been no changes in the affairs of Advanced Viral USA, Inc. after the date of this prospectus; or

the information contained in this prospectus is correct after the date of this prospectus.

Until ___, 2007, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters.

PROSPECTUS

238,967,308 Shares of Common Stock

ADVANCED VIRAL RESEARCH CORP.

______________, 2007

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth estimated expenses expected to be incurred in connection with the issuance and distribution of the securities being registered. Advanced Viral will pay all expenses in connection with this offering.


Securities and Exchange Commission Registration Fee	$	831
Printing and Engraving Expenses	$	10,000
Accounting Fees and Expenses	$	10,000
Legal Fees and Expenses	$	60,000
Miscellaneous	$	10,000

TOTAL	$	90,831

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our Certificate of Incorporation include an indemnification provision under which we have agreed to indemnify directors and officers of Advanced Viral from and against certain claims arising from or related to future acts or omissions as a director or officer of Advanced Viral. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Advanced Viral pursuant to the foregoing, or otherwise, Advanced Viral has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following information relates to our securities issued or sold within the past three years which were not registered under the Securities Act. No underwriters were employed with respect to the sale of any of the securities listed below. Each of these transactions was completed without registration of the respective securities under the Securities Act in reliance upon the exemptions provided by Section 4(2) of the Securities Act and the rules and regulations promulgated thereunder on the basis that such transactions did not involve a public offering. The purchasers were sophisticated with access to the kind of information registration would provide and such purchasers acquired such securities without a view toward the distribution thereof.

1. In February 2004 we entered into an agreement with James Dicke II and James Dicke III, pursuant to which, for an aggregate purchase price of $12 million, we agreed to sell an aggregate of (i) 120 million shares of our common stock; and (ii) warrants to purchase 15 million shares of our common stock through February 2, 2007 at a per share purchase price of $.20 per share. The funding took place in four equal stages of $3 million each, once every 90 days on February 5, May 5, August 4 and November 3, 2004.

2. In January 2007, we entered into a securities purchase agreement with Cornell Capital Partners, L.P. (“Cornell”), to sell $1,500,000 principal amount of our 9% secured convertible debentures, due January 1, 2010, along with warrants to purchase an aggregate of 48,076,923 shares of its common stock, which are exercisable through January 1, 2012 at an exercise price equal to $0.0312 or as may be adjusted from time to time pursuant to the terms thereof. Pursuant to the agreement, Yorkville Advisors LLC, the general partner of Cornell, received cash compensation equal to 10% of the gross proceeds of the convertible debentures purchased by Cornell as well as a $20,000 structuring fee and a $10,000 due diligence fee.

Cornell acquired $1,000,000 principal amount of the debentures upon the first closing under the Cornell Agreement, and another $500,000 principal amount of the debentures February ___, 2007. In connection with the first and second closings of the transactions contemplated by the agreement, we received net proceeds of $875,000 on January 5, 2007, and $450,000 on February ___, 2007. In addition, Cornell has agreed to purchase up to an additional $750,000 of convertible debentures upon the satisfaction of certain conditions, including (i) our enrollment of the first patient in our Phase II study of AVR118 used as a topical or intralesional therapy in certain dermatologic conditions and providing proof thereof to the satisfaction of Cornell, (ii) this registration statement being declared effective by the SEC, subject to the execution of similar transaction documents on terms mutually agreed upon by the parties.

II-1

Our obligations under the agreement, the convertible debentures and the ancillary documents entered into in connection therewith are secured by a first priority security interest in all of our assets. This security interest expires upon the earlier to occur of (i) $500,000 or less principal amount of the convertible debentures remains outstanding; (ii) we receive $3,000,000 of capital, in any form other than through the issuance of free-trading shares of common stock, from sources other than Cornell, which is utilized to either repay the convertible debentures in full, or reduce the outstanding principal amount of the convertible debentures to $500,000; or (iii) the satisfaction of the Company’s obligations under the agreement, the convertible debentures and the ancillary documents entered into in connection therewith.

We relied upon the exemption provided in Section 4(2) of the Securities Act and/or Rule 506 thereunder, which cover “transactions by an issuer not involving any public offering,” to issue securities discussed above without registration under the Securities Act of 1933. We made a determination in each case that the person to whom the securities were issued did not need the protection that registration would afford. The certificates representing the securities issued displayed a restrictive legend to prevent transfer except in compliance with applicable laws, and our transfer agent was instructed not to permit transfers unless directed to do so by us, after approval by our legal counsel. We believe that the investors to whom securities were issued had such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the prospective investment. We also believe that the investors had access to the same type of information as would be contained in a registration statement.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits


Exhibit		Description
	3.1	Certificate of Incorporation of the Registrant. (2)
	3.2	Bylaws of the Registrant, as amended. (1)
	3.3	Amendment to Certificate of Incorporation of the Registrant. (2)
	4.1	Specimen Certificate of Common Stock. (1)
	4.2	Specimen Warrant Certificate. (1)
	4.3	Warrant Agreement between the Registrant and American Stock Transfer and Trust Company. (1)
	4.4	Forms of Common Stock Options and Agreements granted by the Registrant to TRM Management Corp. (5)
	4.5	Form of Common Stock Option and Agreement granted by the Registrant to Plata Partners Limited Partnership. (12)
	4.6	Consulting Agreement, dated September 11, 1992, and Form of Common Stock granted by the Registrant to Leonard Cohen. (6)
	4.7	Addendum to Agreement granted by the Registrant to Shalom Z. Hirschman, MD dated March 24, 1996. (10)
	4.8	Securities Purchase Agreement dated November 16, 1998 by and between the Registrant and RBB Bank AG. (11o)
	4.9	7% Convertible Debenture dated November 16, 1998. (11o)
	4.10	Warrant dated November 16, 1998 to purchase 375,000 shares of common stock at $0.20 per share. (11o)
	4.11	Warrant dated November 16, 1998 to purchase 375,000 shares of common stock at $0.24 per share. (11o)
	4.12	Securities Purchase Agreement dated December 22, 1998 by and between the Registrant and various purchasers. (15)
	4.13	Form of Warrant dated December 22, 1998 to purchase shares of common stock of the Registrant at $0.2040 per share. (15)
	4.14	Form of Warrant dated December 22, 1998 to purchase shares of common stock of the Registrant at $0.2448 per share. (15)
	4.15	Securities Purchase Agreement dated June 23, 1999 by and between the Registrant and various purchasers. (15)
	4.16	Form of Warrant dated June 23, 1999 to purchase shares of common stock of the Registrant at $0.324 per share. (15)
	4.17	Form of Warrant dated June 23, 1999 to purchase shares of common stock of the Registrant at $0.378 per share. (15)
	4.18	Securities Purchase Agreement dated August 3, 1999 by and between the Registrant and Focus Investors, LLC. (15)
	4.19	Form of 7% Convertible Debenture dated August 3, 1999. (15)
	4.20	Form of Warrant dated August 3, 1999 to purchase 50,000 shares of common stock at $0.2461 per share. (15)
	4.21	Securities Purchase Agreement dated December 28, 1999 between the Registrant and Endeavour Capital Fund S.A. (16)
	4.22	Form of 7% Convertible Debenture dated December 28, 1999. (16)

II-2


Exhibit		Description
	4.23	Form of Warrant dated December 28, 1999 to purchase shares of common stock at $0.19916667 per share. (16)
	4.24	Form of Warrant dated February 7, 2000 to purchase shares of common stock at $0.21 per share. (17)
	4.25	Form of Warrant dated February 7, 2000 to purchase shares of common stock at $0.26 per share. (17)
	4.26	Form of Warrant dated February 16, 2000 to purchase shares of common stock at $0.275 per share. (17)
	4.27	Form of Warrant dated February 16, 2000 to purchase shares of common stock at $0.33 per share. (17)
	4.28	Form of Class A Warrant dated September 18, 2000 to purchase 5 million shares of common stock. (19)
	4.29	Form of Class B Warrant dated September 18, 2000 to purchase 5 million shares of common stock. (19)
	4.30	Form of Class A Warrant dated February 9, 2001 to purchase 5 million shares of common stock. (21)
	4.31	Form of Class B Warrant dated February 9, 2001 to purchase 5 million shares of common stock. (21)
	4.32	Promissory Note and Guaranty in favor of Alan V. Gallantar dated November 29, 2001 by the Registrant. (11p)
	4.33	Form of Warrant dated September 9, 2002 between the Registrant and various investors. 11(q)
	4.34	5% Convertible Debenture dated April 28, 2003. (27)
	4.35	Warrant dated April 28, 2003 to purchase 15 million shares of common stock at an exercise price of $0.091 per share. (27)
	4.36	5% Convertible Debenture dated July 18, 2003. (28)
	4.37	Warrant dated February 3, 2003 to purchase 7,500,000 shares of common stock at an exercise price of $0.20 per share granted to James F. Dicke II. (11s)
	4.38	Warrant dated February 3, 2003 to purchase 7,500,000 shares of common stock at an exercise price of $0.20 per share granted to James F. Dicke III. (11s)
	4.39	Form of Warrant dated February 9, 2004 to purchase shares of common stock at an exercise price of $0.16 per share granted to certain affiliates of DCT. (29)
	4.40	Stock Option Agreement dated February 10, 2004 to purchase 40 million shares of common stock granted to Elma S. Hawkins. (29)
	5.1	Opinion and Consent of the law firm of Berman Rennert Vogel & Mandler, P.A. (to be filed by amendment)
	10.1	Declaration of Trust by Bernard Friedland and William Bregman in favor of the Registrant dated November 16, 1987. (12)
	10.2	Clinical Trials Agreement, dated September 19, 1990, between Clinique Medical Actuel and the Registrant. (3)
	10.3	Letter, dated March 15, 1991 to the Registrant from Health Protection Branch. (3)
	10.4	Agreement dated August 20, 1991 between TRM Management Corp. and the Registrant. (11a)
	10.5	Lease dated December 18, 1991 between Bayview Associates, Inc. and the Registrant. (4)
	10.6	Lease Agreement, dated February 16, 1993 between Stortford Brickell Inc. and the Registrant. (7)
	10.7	Consulting Agreement dated February 28, 1993 between Leonard Cohen and the Registrant. (8)
	10.8	Medical Advisor Agreement, dated as of September 14, 1993, between Lionel Resnick, MD and the Registrant. (11b)
	10.9	Agreement, dated November 9, 1993, between Dormer Laboratories Inc. and the Registrant. (12)
	10.10	Exclusive Distribution Agreement, dated April 25, 1994, between C.U.R.E. Pharmaceutical Corp. and the Registrant. (11c)
	10.11	Exclusive Distribution Agreement, dated as of June 1, 1994, between C.U.R.E. Pharmaceutica Central Americas Ltd. and the Registrant. (11d)
	10.12	Exclusive Distribution Agreement dated as of June 17, 1994 between DCT S.R.L. and the Registrant, as amended. (11e)
	10.13	Contract, dated as of October 25, 1994 between Commonwealth Pharmaceuticals of the Channel Islands and the Registrant. (11f)
	10.14	Agreement dated May 24, 1995 between the Registrant and Deborah Silver. (9)
	10.15	Agreement dated May 29, 1995 between the Registrant and Shalom Z. Hirschman, MD. (9)
	10.16	Exclusive Distribution Agreement, dated as of June 2, 1995, between AVIX International Pharmaceutical Corp. and the Registrant. (12)
	10.17	Supplement to Exclusive Distribution Agreement, dated November 2, 1995 with Commonwealth Pharmaceuticals. (12)
	10.18	Exclusive Distributorship & Limited License Agreement, dated December 28, 1995, between AVIX International Pharmaceutical Corp., Beijing Unistone Pharmaceutical Co., Ltd. and the Registrant. (11g)
	10.19	Modification Agreement, dated December 28, 1995, between AVIX International Pharmaceutical Corp. and the Registrant. (11g)
	10.20	Agreement dated April 1, 1996, between DCT S.R.L. and the Registrant. (11h)
	10.21	Addendum, dated as of March 24, 1996, to Consulting Agreement between the Registrant and Shalom Z. Hirschman, MD. (10)
	10.22	Addendum to Agreement, dated July 11, 1996, between AVIX International Pharmaceutical Corp. and the Registrant. (11i)
	10.23	Employment Agreement, dated October 17, 1996, between the Registrant and Shalom Z. Hirschman, MD. (11j)
	10.24	Lease, dated February 7, 1997 between Robert Martin Company, LLC and the Registrant. (12)
	10.25	Copy of Purchase and Sale Agreement, dated February 21, 1997 between the Registrant and Interfi Capital Group. (11k)
	10.26	Material Transfer Agreement-Cooperative Research And Development Agreement, dated March 13, 1997, between National Institute of Health, Food and Drug Administration and the Centers for Disease Control and Prevention. (11l)
	10.27	Copy of Purchase and Sale Agreement, dated September 26, 1997 between the Registrant and RBB Bank AG. (11m)
	10.28	Copy of Extension to Materials Transfer Agreement-Cooperative Research and Development Agreement, dated March 4, 1998, between National Institute of Health, Food and Drug Administration and the Centers for Disease Control and Prevention. (13)

II-3


Exhibit		Description
	10.29	Amended and Restated Employment Agreement dated July 8, 1998 between the Registrant and Shalom Z. Hirschman, MD. (11n)
	10.30	Agreement between the Registrant and Angelo Chinnici, MD dated July 1, 1999. (14)
	10.31	Consulting Agreement between the Registrant and GloboMax LLC dated January 18, 1999. (15)
	10.32	Registration Rights Agreement dated August 3, 1999 between the Registrant Research and Focus Investors LLC. (15)
	10.33	Employment Agreement dated October 1, 1999 between the Registrant and Alan V. Gallantar. (15)
	10.34	Registration Rights Agreement dated December 28, 1999 between the Registrant and Endeavour Capital Fund, S.A. (16)
	10.35	Consulting Agreement dated February 7, 2000 between the Registrant and Harbor View Group, Inc. (17)
	10.36	Securities Purchase Agreement dated February 16, 2000 between the Registrant and Harbor View Group, Inc. (17)
	10.37	Letter Agreement dated November 16, 1999 between the Registrant and Bratskeir & Company. (18)
	10.38	Amended and Restated Employment Agreement dated May 12, 2000 between the Registrant and Shalom Z. Hirschman, MD. (18)
	10.39	Equity Line of Credit Agreement dated as of September 18, 2000 between the Registrant and Spinneret Financial Systems, Inc. (19)
	10.40	Registration Rights Agreement dated as of September 18, 2000 between the Registrant and Spinneret Financial Systems, Inc. (19)
	10.41	Registration Rights Agreement dated as of September 18, 2000 between the Registrant and May Davis Group, Inc. (19)
	10.42	Placement Agent Agreement dated September 18, 2000 between the Registrant and May Davis Group, Inc. (19)
	10.43	Assignment and Assumption Agreement dated December 12, 2000 between Spinneret Financial Systems, Inc. and GMF Holdings Inc. (20)
	10.44	Agreement to Waive Assignment Rights dated December 12, 2000 by GMF Holdings Inc. (20)
	10.45	Termination Agreement dated January 22, 2001 between GMF Holdings, Inc., May Davis Group, Inc. and the Registrant. (21)
	10.46	Equity Line of Credit Agreement dated as of February 9, 2001 between the Registrant and Cornell Capital Partners, LP. (21)
	10.47	Registration Rights Agreement dated as of February 9, 2001 between the Registrant and Cornell Capital Partners, LP. (21)
	10.48	Registration Rights Agreement dated as of February 9, 2001 between the Registrant and May Davis Group, Inc. (21)
	10.49	Placement Agent Agreement dated February 9, 2001 between the Registrant and May Davis Group, Inc. (21)
	10.50	Agreement dated as of April 2, 2001 between the Registrant and Selikoff Center of Ra’Anana, Israel. (22)
	10.51	Agreement dated as of January 29, 2001 between the Registrant and The Weizmann Institute of Science and Yeda. (22)
	10.52	Securities Purchase Agreement dated November 8, 2000 by and between the Registrant and various investors. (23)
	10.53	Securities Purchase Agreement dated July 27, 2001 by and between the Registrant and various investors. (23)
	10.54	Severance Agreement dated November 29, 2001 by and between the Registrant and William Bregman. (11p)
	10.55	Severance Agreement dated November 29, 2001 by and between the Registrant and Bernard Friedland. (11p)
	10.56	Severance Agreement dated November 29, 2001 by and between the Registrant and Louis Silver. (11p)
	10.57	Settlement Agreement dated March 20, 2002 by and among the Registrant, Immune Modulation Maximum Corporation, Commonwealth Pharmaceuticals, Ltd, and Charles E. Miller. (24)
	10.58	Termination Agreement dated May 30, 2002 between the Registrant and Harbor View Group, Inc. (25)
	10.59	Securities Purchase Agreement dated May 30, 2002 between the Registrant and O. Frank Rushing and Justine Simoni, as joint tenants. (25)
	10.60	Securities Purchase Agreement dated July 3, 2002 between the Registrant and James F. Dicke III. (25)
	10.61	Securities Purchase Agreement dated July 15, 2002 between the Registrant and Peter Lunder. (25)
	10.62	Securities Purchase Agreement dated September 9, 2002 between the Registrant and various investors. 11(q)
	10.63	Registration Rights Agreement dated September 9, 2002 between the Registrant and various investors. 11(q)
	10.66	Agreement dated May 1, 2002 (effective September 2002) between Advanced Viral Research Corp. and EnviroGene LLC. (26)
	10.64	Agreement dated October 8, 2002 between Advanced Viral Research Corp. and Quintiles Israel Ltd. (26)
	10.65	Securities Purchase Agreement dated as of April 28, 2003 between the Registrant and Cornell Capital Partners, LP. (27)
	10.66	Registration Rights Agreement dated as of April 28, 2003 between the Registrant and Cornell Capital Partners, LP. (27)
	10.67	Equity Line of Credit Agreement dated as of April 28, 2003 between the Registrant and Cornell Capital Partners, LP. (27)
	10.68	Registration Rights Agreement dated as of April 28, 2003 between the Registrant and Cornell Capital Partners, LP. (27)
	10.69	Consulting Agreement dated April 22, 2003 between Registrant and Robert Nowinski, Ph.D. (28)
	10.70	Securities Purchase Agreement dated as of July 18, 2003 between the Registrant and Cornell Capital Partners, LP. (28)
	10.71	Investor Registration Rights Agreement dated as of July 18, 2003 between the Registrant and Cornell Capital Partners, LP. (28)
	10.72	Escrow Agreement dated July 18, 2003, between Registrant and Butler Gonzalez, LLP. (28)
	10.73	Security agreement dated July 18, 2003 between Registrant and Cornell Capital Partners, L.P. (28)
	10.74	Placement Agent Agreement dated April 28, 2003, between Registrant and Katalyst Securities LLC. (28)
	10.75	Third Amended and Restated Employment Agreement dated August 27, 2003 between Registrant And Shalom Z. Hirschman, M.D. (11r)

II-4


Exhibit		Description
	10.76	First Supplementary Agreement dated July 8, 2002 by and between Registrant and Yeda Research And Development Company Limited. (28)
	10.77	Agreement dated November 19, 2002 by and between Registrant and Kaplan Medical Center. (28)
	10.78	Securities Purchase Agreement dated as of February 3, 2003 between the Registrant, James F. Dicke II and James F. Dicke III. (11s)
	10.79	Registration Rights Agreement dated as of February 3, 2003 between the Registrant, James F. Dicke II and James F. Dicke III. (11s)
	10.80	Termination and Release Agreement dated as of February 9, 2004 between the Registrant, DCT and certain affiliates of DCT. (29)
	10.81	Employment Agreement dated as of February 10, 2004 between the Registrant and Dr. Elma Hawkins. (29)
	10.82	Consulting Agreement dated as of February 14, 2006 between the Registrant and Dr. Elma Hawkins. (11t)
	10.83	Employment Agreement dated May 15, 2006 between the Registrant and Stephen M. Elliston. (30)
	10.84	Securities Purchase Agreement dated January 1, 2007 between the Registrant and Cornell Capital Partners, L.P. (11u)
	10.85	Convertible Debenture dated January 1, 2007 issued by the Registrant to Cornell Capital Partners, L.P. (11u)
	10.86	Warrant dated January 1, 2007 issued by the Registrant to Cornell Capital Partners, L.P. (11u)
	10.87	Registration Rights Agreement dated January 1, 2007 between the Registrant and Cornell Capital Partners, L.P. (11u)
	10.88	Security Agreement dated January 1, 2007 between the Registrant and Cornell Capital Partners, L.P. (11u)
	21.1	Subsidiaries of Registrant. (31)
	23.1	Consent of Rachlin Cohen & Holtz LLP, independent registered public accounting firm. (Provided herewith)
	23.2	Consent of Berman Rennert Vogel & Mandler, P.A. (Included in Exhibit 5.1)

FOOTNOTES

(1)		Documents incorporated by reference herein to certain exhibits our registration statement on Form S-1, as amended, File No. 33-33895, filed with the Securities and Exchange Commission on March 19, 1990.

(2)		Documents incorporated by reference herein to certain exhibits to our registration statement on Form S-18, File No. 33-2262-A, filed with the Securities and Exchange Commission on February 12, 1989.

(3)		Documents incorporated by reference herein to certain exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 1990.

(4)		Documents incorporated by reference herein to certain exhibits to our Annual Report on Form 10-K for period ended March 31, 1991.

(5)		Documents incorporated by reference herein to certain exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 1991.

(6)		Documents incorporated by reference herein to certain exhibits to our Quarterly Report on Form 10-Q for the period ended September 30, 1992.

(7)		Documents incorporated by reference herein to certain exhibits to our Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992.

(8)		Documents incorporated by reference herein to certain exhibits to our Quarterly Report on Form 10-QSB for the period ended March 31, 1993.

(9)		Documents incorporated by reference herein to certain exhibits to our Quarterly Report on Form 10-QSB for the period ended June 30, 1995.

(10)		Documents incorporated by reference herein to certain exhibits to our Quarterly Report on Form 10-QSB for the period ended March 31, 1996.

(11)		Incorporated by reference herein to our Current Reports on Form 8-K and exhibits thereto as follows:

	(a)		A report on Form 8-K dated January 3, 1992.

	(b)		A report on Form 8-K dated September 14, 1993.

	(c)		A report on Form 8-K dated April 25, 1994.

	(d)		A report on Form 8-K dated June 3, 1994.

	(e)		A report on Form 8-K dated June 17, 1994.

	(f)		A report on Form 8-K dated October 25, 1994.

	(g)		A report on Form 8-K dated December 28, 1995.

	(h)		A report on Form 8-K dated April 22, 1996.

	(i)		A report on Form 8-K dated July 12, 1996.

	(j)		A report on Form 8-K dated October 17, 1996.

	(k)		A report on Form 8-K dated February 21, 1997.

	(l)		A report on Form 8-K dated March 25, 1997.

	(m)		A report on Form 8-K dated September 26, 1997.

	(n)		A report on Form 8-K dated July 21, 1998.

	(o)		A report on Form 8-K dated November 24, 1998.

	(p)		A report on Form 8-K dated December 3, 2001.

	(q)		A report on Form 8-K dated September 10, 2002.

	(r)		A report on Form 8-K dated August 27, 2003.

II-5

	(s)		A report on Form 8-K dated February 4, 2004.

	(t)		A report on Form 8-K dated February 20, 2006.

	(u)		A report on Form 8-K dated January 5, 2007.

(12)		Documents incorporated by reference herein to certain exhibits to our Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996.

(13)		Documents incorporated by reference herein to certain exhibits to our Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997.

(14)		Documents incorporated by reference herein to certain exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 1998.

(15)		Documents incorporated by reference herein to certain exhibits to our registration statement on Form S-1, as amended, File No. 33-70523, filed with the Securities and Exchange Commission on January 13, 1999, and Amendment No. 5 thereto, declared effective on December 15, 1999.

(16)		Documents incorporated by reference herein to certain exhibits to our registration statement on Form S-1, as amended, File No. 333-94529, filed with the Securities and Exchange Commission on January 12, 2000.

(17)		Documents incorporated by reference herein to certain exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 1999.

(18)		Documents incorporated by reference herein to certain exhibits to our registration statement on Form S-1, as amended, File No. 333-37974, filed with the Securities and Exchange Commission on June 6, 2000.

(19)		Documents incorporated by reference herein to certain exhibits to Post-effective Amendment No. 1 to our Registration Statement on Form S-1, as amended, File No. 333-70523, filed with the Securities and Exchange Commission on September 25, 2000.

(20)		Documents incorporated by reference herein to certain exhibits to our Registration Statement on Form S-1, File No. 333-49038, filed with the Securities and Exchange Commission on October 31, 2000 and amended pursuant to Amendment No. 1 to Form S-1 filed with the Commission on December 15, 2000.

(21)		Documents incorporated by reference herein to certain exhibits to our Registration Statement on Form S-1, File No. 333-55430, filed with the Securities and Exchange Commission on February 12, 2001 and amended pursuant to Amendment No. 1 to Form S-1 filed with the Commission on February 13, 2000.

(22)		Documents incorporated by reference herein to certain exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

(23)		Documents incorporated by reference herein to certain exhibits to our Registration Statement on Form S-1, File No. 333-62788, filed with the Securities and Exchange Commission on June 13, 2001 and amended pursuant to Amendment No. 1 to Form S-1 filed with the Commission on August 23, 2001.

(24)		Documents incorporated by reference herein to certain exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

(25)		Documents incorporated by reference herein to certain exhibits to our Quarterly Report on Form 10-Q for the period ended June 30, 2002.

(26)		Documents incorporated by reference herein to certain exhibits to our Quarterly Report on Form 10-Q for the period ended September 30, 2002.

(27)		Document incorporated by reference herein to certain exhibits to our quarterly report for the period ended March 31, 2003.

(28)		Documents incorporated by reference herein to certain exhibits to our Registration Statement on Form S-1, File No. 333-107178, filed with the Securities and Exchange Commission on July 18, 2003 and amended pursuant to Amendment No. 1 to Form S-1 filed with the Commission on September 19, 2003, Amendment No. 2 to Form S-1 filed with the Commission on November 18, 2003, Amendment No. 3 to Form S-1 filed with the Commission on December 19, 2003 and declared effective by the Commission on December 23, 2003.

(29)		Documents incorporated by reference herein to certain exhibits to our Registration Statement on Form S-1, File No. 333-112296, filed with the Securities and Exchange Commission on January 29, 2004, as amended pursuant to Amendment No. 1 to Form S-1 filed with the Commission on February 12, 2004, and declared effective by the Commission on February 17, 2004.

(30)		Documents incorporated by reference herein to certain exhibits to our Quarterly Report on Form 10-Q for the period ended March 31, 2006.

(31)		Documents incorporated by reference herein to certain exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004.

(b) Financial Statement Schedules. Schedules not listed above have been omitted because the information to be set forth therein is not material, not applicable or is shown in the financial statements or notes thereto.

II-6

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(1) To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of the securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of a prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any additional or changed material information on the plan of distribution;

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the end of the offering.

Insofar as indemnification arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

II-7

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Yonkers, State of New York, on February 12, 2007.


Date: February 12, 2007	ADVANCED VIRAL RESEARCH CORP. (Registrant)
	By:	/s/ Stephen M. Elliston
		Stephen M. Elliston
		President, Chief Executive Officer, Director

Pursuant to the requirements of the Securities Act of 1933 as amended, this Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.



Date: February 12, 2007	By:	/s/ Eli Wilner
		Eli Wilner, Chairman



Date: February 12, 2007	By:	/s/ Angelo Botter
		Angelo Botter, Director



Date: February 12, 2007	By:	/s/ Roy Walzer
		Roy Walzer, Director

II-8

Advanced Viral Research (ADVR) Inactive S-1IPO registration