Advanced Viral Research (ADVR) 10-Q 2007 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission File Number 000-18293

ADVANCED VIRAL RESEARCH CORP.

(Exact name of registrant as specified in its charter)

Delaware	59-2646820
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

200 Corporate Boulevard South, Yonkers, New York	10701
Address of principal executive offices)	Zip Code

(914) 376-7383
(Registrant’s telephone number, including area code)

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

Yesx Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Securities Exchange Act of 1934).

Large accelerated filero Accelerated filero Non-accelerated filerx

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso Nox

Indicate the number of shares of the registrant’s Common Stock outstanding as of the close of business on November 13, 2007:750,400,345

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	1
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	1
	Condensed Consolidated Balance Sheets (Unaudited)	2
	Condensed Consolidated Statements Of Operations (Unaudited)	3
	Condensed Consolidated Statements Of Cash Flows (Unaudited)	4
	Notes to Condensed Consolidated Financial Statements	5
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28
ITEM 4.	CONTROLS AND PROCEDURES	28
PART II.	OTHER INFORMATION	28
ITEM 1.	LEGAL PROCEEDINGS	28
ITEM 1A.	RISK FACTORS	28
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	29
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	29
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	30
ITEM 5.	OTHER INFORMATION	30
ITEM 6.	EXHIBITS	30
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO
EX-32.2 Section 906 Certification of CFO

As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company” and “Advanced Viral” mean Advanced Viral Research Corp. and its subsidiaries (unless the context indicates a different meaning).

ADVANCED VIRAL RESEARCH CORP.

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

     The condensed consolidated financial statements include the accounts of the Company and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of the Company, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the information in the following unaudited consolidated financial statements of the Company have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year.

     These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K.

1

Advanced Viral Research Corp.
(A Development Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2007			2006
ASSETS
Current Assets:
Cash and cash equivalents	$	2,192,696		$	1,042,279
Prepaid insurance		118,612			52,023
Other current assets		27,016			7,981
Total current assets		2,338,324			1,102,283
Property and Equipment, Net		23,482			54,081
Assets Held for Sale		113,285			112,319
Other Assets		308,844			94,392
Total assets	$	2,783,935		$	1,363,075
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	39,482		$	65,151
Accrued liabilities		65,408			103,984
Total current liabilities		104,890			169,135
Long Term Debt
Convertible Debenture — Net of discounts, including accrued interest of approximately $95,000		437,948			—
Commitments and Contingencies
Stockholders’ Equity:
Common stock, $.00001 par value:
2,000,000,000 shares as of September 30, 2007 and 1,000,000,000 shares as of December 31, 2006 authorized, 739,705,158 shares as of September 30, 2007 and 696,587,734 shares as of December 31, 2006 issued and outstanding		7,397			6,966
Undesignated preferred stock, $0.00001 par value:
50,000,000 shares authorized as of September 30, 2007, no shares authorized as of December 31, 2006, no shares issued and outstanding		—			—
Additional paid-in capital		77,753,395			73,362,626
Deficit accumulated during the development stage		(75,519,695	)		(72,175,652	)
Total stockholders’ equity		2,241,097			1,193,940
Total liabilities and stockholders’ equity	$	2,783,935		$	1,363,075

See notes to condensed consolidated financial statements.

2

Advanced Viral Research Corp.
(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

													Inception
													(February 20,
	Three Months Ended						Nine Months Ended						1984) to
	September 30,						September 30,						September 30,
	2007			2006			2007			2006			2007
Revenues	$	—		$	—		$	—		$	—		$	231,892
Costs and Expenses:
Research and development		150,101			353,029			525,007			1,420,604			25,362,482
General and administrative		524,257			561,570			1,596,557			1,656,526			33,900,442
Cost in connection with settlement of distribution agreement		—			—			—			—			687,005
Depreciation and amortization		5,338			39,611			20,181			154,445			4,327,091
Impairment charge — patent cost		—			—			—			—			1,081,085
		679,696			954,210			2,141,745			3,231,575			65,358,105
Loss from Operations		(679,696	)		(954,210	)		(2,141,745	)		(3,231,575	)		(65,126,213	)
Other Income (Expense):
Interest income		16,947			20,533			42,138			85,568			1,346,310
Other income		—			—			—			—			120,093
Interest expense		(192,093	)		(1,968	)		(1,238,969	)		(4,585	)		(10,000,483	)
Severance expense — former directors		—			—			—			—			(302,500	)
		(175,146	)		18,565			(1,196,831	)		80,983			(8,836,580	)
Loss from Continuing Operations		(854,842	)		(935,645	)		(3,338,576	)		(3,150,592	)		(73,962,793	)
Loss from Discontinued Operations		(965	)		(2,872	)		(5,467	)		(27,995	)		(1,556,902	)
Net Loss	$	(855,807	)	$	(938,517	)	$	(3,344,043	)	$	(3,178,587	)	$	(75,519,695	)
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		739,705,158			696,587,734			715,247,235			696,587,734

See notes to condensed consolidated financial statements.

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,
	2007			2006			2007
Cash Flows from Operating Activities:
Net loss	$	(3,344,043	)	$	(3,178,587	)	$	(75,519,695	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		20,181			160,022			4,937,868
Impairment charge — patent cost		—			—			1,081,085
Gain on sale of fixed assets		(102,778	)		—			(102,778	)
Interest accrued on convertible debentures		94,882			—			94,882
Cost in connection with settlement of distribution agreement		—			—			687,005
Amortization of debt issuance costs		131,748			—			1,435,272
Amortization of beneficial conversion feature of convertible shares		525,815			—			5,949,394
Amortization of discount on warrants		482,305			—			2,163,838
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		414,146			175,768			4,507,559
Changes in operating assets and liabilities:
(Increase) decrease in other current assets		(85,624	)		16,553			(165,390	)
(Increase) decrease in other assets		(966	)		(602	)		(826,702	)
Increase (decrease) in accounts payable and accrued liabilities		(64,245	)		(55,815	)		111,092
Total adjustments		1,415,464			295,926			22,687,360
Net cash used by operating activities		(1,928,579	)		(2,882,661	)		(52,832,335	)
Cash Flows from Investing Activities:
Purchase of investments		—			—			(6,292,979	)
Proceeds from sale of fixed assets		116,328			—			116,328
Proceeds from sale of investments		—			—			6,292,979
Patent costs incurred		—			—			(1,239,119	)
Acquisition of property and equipment		(3,132	)		(9,764	)		(4,407,302	)
Net cash provided (used) by investing activities		113,196			(9,764	)		(5,530,093	)
Cash Flows from Financing Activities:
Proceeds from exercise of warrants		312,000			—			312,000
Proceeds (payment) from issuance of convertible debt		2,653,800			(5,000	)		17,223,188
Proceeds from sale of securities, net of issuance costs		—			—			43,410,584
Proceeds from common stock subscribed but not issued		—			—			1,163,900
Proceeds from exercise of stock options		—			—			9,000
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 by financing activities		2,965,800			(5,000	)		60,555,124
Net Increase (Decrease) in Cash and Cash Equivalents		1,150,417			(2,897,425	)		2,192,696
Cash and Cash Equivalents, Beginning		1,042,279			4,615,581			—
Cash and Cash Equivalents, Ending	$	2,192,696		$	1,718,156		$	2,192,696
Supplemental Disclosure of Non-Cash Financing Activities:
Cash paid during the year for interest	$	4,217		$	4,585

See notes to condensed consolidated financial statements.

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, 2007 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, 2007 and results of operations for the three and nine months ended September 30, 2007 and 2006 and cash flows for the nine months ended September 30, 2007 and 2006. All such adjustments are of a normal recurring nature.
	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, 2006.
	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 $75,519,695 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 Food and Drug Administration (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.
	In the first nine months of 2007 the Company issued convertible debt for which it received net cash proceeds of approximately $2,653,800 and also received proceeds of $312,000 from the exercise of warrants to purchase 10,000,000 shares of the Company’s common stock under terms of the convertible debt issue, as discussed in further detail in Note 7. During 2006, the Company did not receive any proceeds from any debt or equity transactions.
	The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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
	Summary
	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.
	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 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.
	Wound Healing and Phase II Dermatological Study
	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 believed that further study was merited. Based on the results from the August 2006 report from the University of Miami, the Company filed an amendment with the FDA to its existing IND to expand the use of AVR118 to include a Phase II dermatological study involving topical therapy. Management believes these applications could potentially be used to treat a wide variety of common dermatologic conditions, such as micro-dermabrasion.

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)
	Wound Healing and Phase II Dermatological Study(Continued)
	In January 2007, the Company began the Phase II dermatological study using a topically applied spray formulation of AVR118 as a wound healing agent. The Phase II dermatological study involves patients with common skin problems ranging from acne scars to surgical wounds, and will study how AVR118’s ability to promote tissue repair and regeneration can be put to use in the clinical setting, and analyze the efficacy of AVR118 as a topical therapy. The protocol for the dermatological study provides for 12-20 patients to be treated with AVR118. While there can be no assurances, preliminary findings from the study show that topical treatment with AVR118 appears to have clinical activity in reducing inflammation and redness associated with surgical incisions or dermatologic dermabrasion. The first cohort of patients examined underwent dermabrasion for the treatment of severe acne. Following the procedure, AVR118 was applied directly to one half of the inflamed facial tissue. The other half of the face remained untreated. A preliminary examination of five patients demonstrated visible improvement on the treated side of their face. The treated area showed less inflammation as well as a reduction in the redness and swelling of acne lesions. The second cohort of patients examined underwent plastic surgery that resulted in a minimum of two bilateral surgical incisions. AVR118 was applied topically to one wound and the second wound served as an untreated control. In early results from two patients, one patient demonstrated a decrease in inflammation on the treated side. While patient accrual is ongoing, no material progress has been made in the dermatological study since the second quarter of 2007 due to the illness and subsequent death of the principal investigator in August 2007. The Company is actively recruiting a new principal investigator for the study and will continue the study once a new principal investigator is retained. Total costs incurred through September 30, 2007 relating to this study were approximately $9,600.
	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 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. The Company 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. Only eleven patients had been enrolled in the Phase II cancer study. The total cost relating to this Phase II cancer study was approximately $478,000.
	In the third quarter of 2006, the Company commenced discussions with several teaching centers in the U.S. and Canada 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 enable it to accelerate enrollment in an expanded program where higher patient accrual rates can be achieved, and to expand the Company’s network of clinical trial sites.

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)
	Phase II Cancer Study(Continued)
	In June 2007, the Therapeutic Products Division of Health Canada approved the Company’s clinical trial application for the use of AVR118 in cancer patients, which approval permits the Company to commence a clinical trial in patients with histologically confirmed malignancies who present with clinically demonstrable anorexia or anorexia-cachexia syndrome at Canadian centers which are recognized by the FDA as being fully compliant with U.S. clinical standards. The Phase II open label study will examine the effect of a 4.0 ml subcutaneous dose of AVR118 on weight, appetite, performance status and other measures of quality of life in patients with recurrent advanced malignancies. AVR118 will be administered daily for 28 days. Patients with favorable results may be eligible to continue for a longer period. Enrollment initially will include 14 patients. Pending review of preliminary data, there is a provision to increase enrollment to 30 patients.
	Subsequent Event. On October 3, 2007, the Company enrolled the first patient in the Canadian open label study at McGill University in Montreal, Quebec.
	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.
	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 September 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 costs incurred relating to this Phase I study were approximately $500,000.

8

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)
	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 relating to this study was approximately $7,000.

9

Advanced Viral Research Corp.
(A Development Stage Company)

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

NOTE 4.	EMPLOYMENT AGREEMENT
	Elliston Employment Agreement
	On May 14, 2007, the Company entered into a new employment agreement with Stephen M. Elliston for the period commencing May 15, 2007. Mr. Elliston’s existing employment agreement with the Company expired on May 14, 2007. Under the terms of Mr. Elliston’s renewed employment agreement, Mr. Elliston shall be President and Chief Executive Officer on a full time basis commencing May 15, 2007 until May 14, 2009 unless it is terminated earlier as provided in the agreement. Mr. Elliston shall receive a base salary of $350,000 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 other executives of the Company and their dependents. The agreement further provides that:

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

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

• 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 the Company 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 the Company’s normal payroll practices, and all applicable reimbursements due. Payment of the severance benefit is conditioned upon the release by Mr. Elliston of the Company, to the maximum extent permitted by law, from any and all claims he may have against the Company that relate to or arise out of his employment or termination of employment.

Upon the execution of his employment agreement, Mr. Elliston received an option to purchase 40,000,000 shares of the Company’s common stock. The option vests monthly in increments of 666,667 shares, and is exercisable at prices ranging from $0.05 to $0.08 per option share for a period of five years from the applicable vesting date.

10

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, 2007		113,208,283		$	0.1656
Granted		50,675,000		$	.0618
Exercised		—			—
Forfeited		(100,000	)		($0.19	)
Expired unexercised		(500,000	)		($0.010	)
Outstanding at September 30, 2007		163,283,283		$	0.1337
Options exercisable at September 30, 2007		115,643,700		$	0.1613

During the first nine months of 2007, the Company recorded stock-based compensation in the amount of $414,146 compared with $175,768 for the first nine months of 2006, substantially all of which pertained to options granted to the Company’s officers and directors during 2007 and 2004. At September 30, 2007, there was approximately $1,257,000 of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 0.89 years.

During the nine months ended September 30, 2007, the Company granted stock options to purchase an aggregate of 50,675,000 shares of common stock to its President and members of its Board of Directors. No stock options were granted during the nine months ended September 30, 2006.

The weighted-average remaining contractual terms of outstanding stock options and exercisable stock options at September 30, 2007 was 4.3 years and 2.0 years, respectively. The aggregate intrinsic value of outstanding stock options and exercisable stock options at September 30, 2007 was approximately $0. The total fair value of the stock options granted during the nine months ended September 30, 2007 is $1,209,556.

11

Advanced Viral Research Corp.
(A Development Stage Company)

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

NOTE 5.	STOCK-BASED COMPENSATION(Continued)
	Stock Incentive Plan
	The Advanced Viral Research Corp. 2007 Stock Incentive Plan (the “2007 Plan”) was approved by the Company’s stockholders at a special meeting of stockholders on March 21, 2007. The 2007 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, stock bonuses and restricted stock awards, restricted stock units, performance shares, performance units and other stock-based awards to employees, including officers, non-employee directors and consultants options to purchase common shares of the company at an exercise or stock price based on the market value of the shares on the date of grant. A maximum aggregate of 100,000,000 shares of common stock may be issued pursuant to stock options, rights or awards granted under the 2007 Plan. The 2007 Plan will terminate in March 2017 unless it is terminated earlier in accordance with the terms thereof.
	On May 14, 2007, the Company granted stock options to purchase an aggregate of 10,675,000 shares of its common stock under the 2007 Plan at an exercise price of $0.05 for a period of ten years to members of the Board of Directors in consideration for their service on the Board. In addition, on May 14 2007, in connection with the new employment agreement with Mr. Elliston, the Company’s President and Chief Executive Officer, the Company granted Mr. Elliston stock options to purchase an aggregate of 40,000,000 shares of common stock under the 2007 Plan at exercise prices ranging from $0.05 to $0.08 for a period of five years from the vesting date.
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 15 U.S. patents, two Australian patents and one patent each for Canada, China, Israel and Mexico.. In addition, the Company currently has four 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.

12

Advanced Viral Research Corp.
(A Development Stage Company)

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

NOTE 7.	SECURITIES PURCHASE AGREEMENTS
	January 2007 Private Placement
	On January 1, 2007, pursuant to a securities purchase agreement, the Company sold to Cornell Capital Partners, L.P. (“Cornell”) $1,500,000 principal amount of its 9% secured convertible debentures, due December 31, 2009, along with warrants to purchase an aggregate of 48,076,923 shares of its common stock, which are exercisable through December 31, 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 of convertible debentures on January 5, 2007, and acquired an additional $500,000 of convertible debentures on February 16, 2007. In connection with the first closing, the Company received net proceeds of $875,000 on January 5, 2007. In connection with the second closing, the Company paid an additional $50,000 to Yorkville, and received net proceeds of $450,000 on February 16, 2007.
	Cornell may convert the debentures plus accrued interest, (which may be paid at the Company’s option, subject to certain conditions regarding registration of the shares underlying the debenture, in cash or common stock), in shares of the Company’s common stock at a conversion price equal to the lesser of $0.0312 or 95% of the lowest volume weighted average price of the Company’s common stock during the thirty consecutive trading days immediately preceding the applicable conversion date. Subject to certain exceptions, at the Company’s option, the Company may redeem a portion or the entire outstanding debenture at a price equal to 115% of the amount redeemed plus accrued interest. The Company was 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 convertible debentures or exercise of the warrants. The registration statement was filed on February 12, 2007 and was declared effective on May 29, 2007.
	An allocation of the proceeds received from the issuance of the secured convertible debentures was made between the debt instrument and the warrant by determining the pro-rata share of the proceeds for each by comparing the fair value of each security issued to the total fair value. The fair value of the warrant ($644,605) was determined using the Black-Scholes model with the following assumptions: expected volatility of 86%, risk-free interest rate of 4.7% and an expected holding period of five years. The fair value of the secured convertible debentures was determined by measuring the fair value of the common shares on an “as-converted” basis. The amount allocated to the warrant was recorded as a discount on the debt issued and additional paid-in capital. The value of the beneficial conversion feature of the secured convertible debentures ($731,143) was calculated by comparing the fair value of the underlying common shares on the date of issuance based on the closing price of the Company’s common stock to the “effective” conversion price. The beneficial conversion feature was recorded as a discount on the debenture and is being amortized as additional interest expense over the life of the debenture.

13

Advanced Viral Research Corp.
(A Development Stage Company)

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

NOTE 7.	SECURITIES PURCHASE AGREEMENTS(Continued)
	January 2007 Private Placement(Continued)
	Subject to the Company’s enrollment of the first patient in the Phase II study of AVR118 used as a topical therapy on dermatologic conditions and the registration statement being declared effective by the SEC, Cornell has agreed to purchase up to an additional $750,000 of convertible debentures upon the execution of similar transaction documents on terms mutually agreed upon by the parties.
	The Company’s 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 the Company’s 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) the Company receives $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.
	The registration rights agreement with Cornell requires the Company, subject to certain terms and conditions, to register the underlying shares of the Company’s common stock under the Securities Act. The registration rights granted are subject to customary exceptions and qualifications and compliance with certain registration procedures. The Company is required to pay to Cornell liquidated damages of 2% of the aggregate purchase price of the liquidated value of the convertible debentures for each 30-day period if any of the following events occurs and during the period such event is continuing: (i) the Company fails to file with the SEC the registration statement on or before the 60th day after January 1, 2007; (ii) the registration statement is not declared effective by the SEC 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 SEC declared the registration statement effective on May 29, 2007. The penalty was waived by Cornell.
	On May 30, 2007, Cornell exercised warrants to purchase 10,000,000 shares of the Company’s common stock at an exercise price of $0.0312 for net proceeds of $312,000. On May 31, 2007, Cornell converted $600,000 principal amount of the convertible debentures at a conversion price of $0.0239 for 25,104,603 shares of the Company’s common stock. On June 22, 2007, Cornell converted $250,000 principal amount of the convertible debentures at a conversion price of $0.0312 for 8,012,821 shares of the Company’s common stock. Upon the conversion of $850,000 principal amount of convertible debt, the Company recorded approximately $671,000 of interest expense relating to the beneficial conversion feature and discount on convertible debt.

14

Advanced Viral Research Corp.
(A Development Stage Company)

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

NOTE 7.	SECURITIES PURCHASE AGREEMENTS(Continued)
	July 2007 Private Placement
	On July 24, 2007, the Company entered into a securities purchase agreement with Cornell to sell $2,750,000 principal amount of the Company’s 9% secured convertible debentures due July 24, 2010, consisting of: (i) $750,000 of the Company’s Series A secured convertible debentures (the “Series A Debentures”); and (ii) $2,000,000 of the Company’s Series B secured convertible debentures (the “Series B Debentures”). The Series A Debentures have a conversion price equal to the lesser of $0.0312 or 95% of the lowest volume weighted average price of the Company’s common stock during the thirty consecutive trading days immediately preceding the applicable conversion date, and the Series B Debentures have a conversion price equal to the lesser of $0.0262 or 95% of the lowest volume weighted average price of the Company’s common stock during the thirty consecutive trading days immediately preceding the applicable conversion date. In addition, pursuant to the agreement, the Company issued to Cornell (i) warrants to purchase an aggregate of 24,038,462 shares of the Company’s common stock at an exercise price equal to $0.0312; and (ii) warrants to purchase an aggregate of 76,335,878 shares of the Company’s common stock at an exercise price equal to $0.0262. The warrants are exercisable for five years from the date of issuance.
	An allocation of the proceeds received from the issuance of the Company’s Series A secured convertible debentures was made between the debt instrument and the warrant by determining the pro-rata share of the proceeds for each by comparing the fair value of each security issued to the total fair value. The fair value of the warrant ($323,019) was determined using the Black-Scholes model with the following assumptions: expected volatility of 87%, risk-free interest rate of 4.8% and an expected holding period of five years. The fair value of the secured convertible debentures was determined by measuring the fair value of the common shares on an “as-converted” basis. The amount allocated to the warrant was recorded as a discount on the debt issued and additional paid-in capital. The value of the beneficial conversion feature of the secured convertible debentures ($366,288) was calculated by comparing the fair value of the underlying common shares on the date of issuance based on the closing price of the Company’s common stock to the “effective” conversion price. The beneficial conversion feature was recorded as a discount on the debenture and is being amortized as additional interest expense over the life of the debenture.
	An allocation of the proceeds received from the issuance of the Company’s Series B secured convertible debentures was made between the debt instrument and the warrant by determining the pro-rata share of the proceeds for each by comparing the fair value of each security issued to the total fair value. The fair value of the warrant ($535,122) was determined using the Black-Scholes model with the following assumptions: expected volatility of 87%, risk-free interest rate of 4.8% and an expected holding period of five years. The fair value of the secured convertible debentures was determined by measuring the fair value of the common shares on an “as-converted” basis. The amount allocated to the warrant was recorded as a discount on the debt issued and additional paid-in

15

Advanced Viral Research Corp.
(A Development Stage Company)

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

NOTE 7.	SECURITIES PURCHASE AGREEMENTS(Continued)
	July 2007 Private Placement(Continued)
	capital. The value of the beneficial conversion feature of the secured convertible debentures ($214,878) was calculated by comparing the fair value of the underlying common shares on the date of issuance based on the closing price of the Company’s common stock to the “effective” conversion price. The beneficial conversion feature was recorded as a discount on the debenture and is being amortized as additional interest expense over the life of the debenture.
	Pursuant to the agreement, Yorkville Advisors LLC, the general partner of Cornell, will receive cash compensation equal to 10% of the gross proceeds of the convertible debentures purchased by Cornell as well as a $15,000 structuring fee and a $5,000 due diligence fee.
	Subject to certain exceptions, at the Company’s option, the Company may redeem a portion or all of the outstanding Convertible debentures at a price equal to 120% of the amount redeemed plus accrued interest. The Company is obligated to file a registration statement with the SEC registering the resale of all shares of common stock that may be issued to Cornell upon the conversion of the convertible debentures or exercise of the warrants.
	Cornell acquired the Series A Debentures, $750,000 principal amount of the Series B Debentures, and all of the warrants at the first closing upon execution of the agreement on July 25, 2007, from which the Company received net proceeds of $1,330,000, in reliance upon an applicable exemption from registration under Section 4(2) of the Securities Act of 1933 in connection with a transaction that did not involve a public offering. Cornell is also obligated to acquire an additional $625,000 of the Series B Debentures on the date the registration statement is filed; and $625,000 of the Series B Debentures on the date the registration statement is declared effective by the SEC.
	The registration rights agreement provides that the registration statement may be filed no earlier than the later of (i) November 29, 2007 or (ii) the date that is sixty (60) days from the date that Cornell has sold substantially all the shares registered for resale on the previous registration statement (file number 333-140634), or such earlier date that the Company may file the registration statement for the resale of shares underlying the convertible debentures and warrants in reliance on Rule 415 promulgated by the SEC pursuant to the Securities Act of 1933.
	The Company’s obligations under the agreement and the documents entered into in connection therewith are secured by a first priority security interest in all of its assets pursuant to a security agreement entered in connection with a previously disclosed private placement transaction with Cornell in January 1, 2007.

16

Advanced Viral Research Corp.
(A Development Stage Company)

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

NOTE 7.	SECURITIES PURCHASE AGREEMENTS(Continued)
	Outstanding Warrants
	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 January 1, 2007		68,041,501
Granted		148,451,263
Exercised		(10,000,000	)
Expired		(17,335,134	)
Outstanding at September 30, 2007		189,157,630

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
	Three Months						Nine Months						(February 20, 1984)
	Ended September 30,						Ended September 30,						to September 30,
	2007			2006			2007			2006			2007
Revenues	$	—		$	—		$	—		$	—		$	—
Costs and Expenses:
General and administrative		965			1,013			5,467			22,418			1,380.185
Depreciation		—			1,859			—			5,577			316,737
		965			2,872			5,467			27,995			1,696,922
Other Income		—			—			—			—			140,020
Loss from discontinued operations		($965	)		($2,872	)		($5,467	)		($27,995	)		($1,556,902	)

17

Advanced Viral Research Corp.
(A Development Stage Company)

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

NOTE 9.	RECENT ACCOUNTING PRONOUNCEMENTS.
	In February 2007, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities Including an amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company expects to adopt SFAS No. 159 on January 1, 2008 and has not yet determined the impact on the consolidated financial statements.
	In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under SFAS No. 157, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. The Company expects to adopt SFAS No. 157 on January 1, 2008 and has not yet determined the impact on the consolidated financial statements.

18

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and the related Notes to Condensed Consolidated Financial Statements of Advanced Viral Research Corp. included in Item 1 of this Quarterly Report on Form 10-Q. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2006.

OVERVIEW

     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 chemotherapy 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, 2007, we had incurred a cumulative net loss of approximately $75,520,000. 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).

Research and Development

     The costs relating to our research and development efforts for the years 2000 to 2006 and the three and nine months ended September 30, 2007 are presented below. Since March 31, 2006, our expenditures for research and development have decreased significantly over each subsequent quarter (from $497,000 as of March 31, 2006 to $150,000 as of September 30, 2007), primarily due to the internalization of certain research and development functions, the increased efficiencies resulting from such internalization, and the elimination of certain expenses resulting from the transition of the Phase II cancer/cachexia study, the cessation of the type 2 diabetes study, the termination of the MediVector agreement, and the implementation of more cost effective patient accrual and other procedures relating to the Phase II dermatological study.

19

Costs Relating to Research and Development Efforts
from January 2000 through September 30, 2007

			3 MONTHS			9 MONTHS ENDED			2000-9/30/07
COST CATEGORY	2000-2006		9/30/07			9/30/07			TO DATE
Hospital fees
Phase I (topical)		254,246		—			—			254,246
Phase I/II (I AIDS, (Israel)		140,500		—			—			140,500
Phase I leukemia/lymphoma (Israel)		19,000		—			—			19,000
Phase I solid tumor (Israel)		8,000		—			—			8,000
Phase II cancer study (NY)		115,002		—			—			115,002
Phase II cancer study (Canada)		—		25,000			25,000			25,000
Phase I diabetes study		266,452		(16,296	)		(16,296	)		250,156
In vitro and Avian Flu		41,868		—			—			41,868
Anti-Inflammatory		7,542		—			—			7,542
Wound healing / Dermatological study		35,487		(3,200	)		9,600			45,087
Lab fees		138,292		—			—			138,292
Insurance cost		101,679		6,250			19,208			120,887
TOTAL CLINICAL FEES		1,128,068		11,754			37,512			1,165,580
IND preparation/maintenance		286,209		—			—			286,209
CRO clinical trial management
Phase I (topical)		47,527		—			—			47,527
Phase I/II AIDS (Israel)		1,447,919		—			(6,113	)		1,441,806
Argentina patient experiences		253,168		—			—			253,168
Data management & study reports		932,163		—			—			932,163
Clinical & Regulatory consulting		2,384,255		—			1,594			2,385,849
TOTAL CLINICAL/REGULATORY OPERATIONS		5,351,241		—			(4,519	)		5,346,722
General lab supplies		1,174,047		3,178			13,317			1,187,364
Toxicology		197,135		—			—			197,135
Contracted research & development		617,368		—			—			617,368
Validation		705,249		—			—			705,249
Drug preparation and support		1,982,421		—			—			1,982,421
Salary & Facility allocations		8,111,822		135,170			478,698			8,590,520
R&D Miscellaneous Expenses		37,720		—			—			37,720
TOTAL PRECLINICAL RESEARCH & DEVELOPMENT		12,825,762		138,348			492,015			13,317,777
TOTAL RESEARCH AND DEVELOPMENT		19,305,071		150,102			525,008			19,830,079

     Phase II Dermatological Study

     In April 2006, we 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, we believed that further study was merited. Based on the results from the August 2006 report from the University of Miami, we filed an amendment with the FDA to our existing IND to expand the use of AVR118 to include a Phase II dermatological study involving topical therapy. We believe these applications could potentially be used to treat a wide variety of common dermatologic conditions, such as micro-dermabrasion.

     In January 2007, we began the Phase II dermatological study using a topically applied spray formulation of AVR118 as a wound healing agent. The Phase II dermatological study involves patients with common skin problems ranging from acne scars to surgical wounds, and will study how AVR118’s ability to promote tissue repair and regeneration can be put to use in the clinical setting, and analyze the efficacy of AVR118 as a topical therapy. The protocol for the dermatological study provides for 12-20 patients to be treated with AVR118. While there can be no assurances, preliminary findings from the study show that topical treatment with AVR118 appears to have clinical activity in reducing inflammation and redness associated with surgical incisions or dermatologic dermabrasion. The first cohort of patients examined underwent dermabrasion for the treatment of severe acne. Following the procedure, AVR118 was applied

20

directly to one half of the inflamed facial tissue. The other half of the face remained untreated. A preliminary examination of five patients demonstrated visible improvement on the treated side of their face. The treated area showed less inflammation as well as a reduction in the redness and swelling of acne lesions. The second cohort of patients examined underwent plastic surgery that resulted in a minimum of two bilateral surgical incisions. AVR118 was applied topically to one wound and the second wound served as an untreated control. In early results from two patients, one patient demonstrated a decrease in inflammation on the treated side. We are currently reviewing the possibility of opening additional study sites to increase patient recruitment. While patient accrual is ongoing, no material progress has been made in the dermatological study since the second quarter of 2007 due to the illness and subsequent death of the principal investigator in August 2007. We are actively recruiting a new principal investigator for the study and will continue the study once a new principal investigator is retained. Total costs incurred through September 30, 2007 relating to this study were approximately $9,600.

     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, 2007 relating to the Phase II cancer study is approximately $478,000. Only eleven patients had been enrolled in the Phase II Study.

     In the third quarter of 2006, 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 it to accelerate enrollment in an expanded program where higher patient accrual rates can be achieved, and to expand our network of clinical trial sites.

     In June 2007, the Therapeutic Products Division of Health Canada approved our clinical trial application for the use of AVR118 in cancer patients, which approval permits us to commence a clinical trial in patients with histologically confirmed malignancies who present with clinically demonstrable anorexia or anorexia-cachexia syndrome at Canadian centers which are recognized by the FDA as being fully compliant with U.S. clinical standards. The Phase II open label study will examine the effect of a 4.0 ml subcutaneous dose of AVR118 on weight, appetite, performance status and other measures of quality of life in patients with recurrent advanced malignancies. AVR118 will be administered daily for 28 days. Patients with favorable results may be eligible to continue for a longer period. Enrollment initially will include 14 patients. Pending review of preliminary data, there is a provision to increase enrollment to 30 patients.

     On October 3, 2007, we enrolled the first patient in the Canadian open label study at McGill University in Montreal, Quebec.

Private Placements with Cornell Capital Partners, LP

     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, along with 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

21

equal to $0.0312 or as may be adjusted from time to time pursuant to the terms thereof. The convertible 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. Cornell acquired $1,000,000 principal amount of the convertible debentures upon the first closing under the purchase agreement on January 5, 2007, and the remaining $500,000 principal amount of the convertible debentures on February 16, 2007. In addition, Cornell 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 dermatological study, (ii) the registration statement, of which this prospectus forms a part, being declared effective by the Securities and Exchange Commission (SEC), and the execution of similar transaction documents on terms mutually agreed upon by the parties. Our obligations under the Cornell 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. The registration statement registering the resale of all shares of common stock that may be issued to Cornell upon the conversion of the convertible debentures or exercise of the warrants was filed on February 12, 2007 and was declared effective on May 29, 2007.

     On May 30, 2007, Cornell exercised warrants to purchase 10,000,000 shares of our common stock at an exercise price of $0.0312 for net proceeds of $312,000. On May 31, 2007, Cornell exercised its right to convert $600,000 principal amount of the convertible debentures at a conversion price of $0.0239 for 25,104,603 shares of our common stock. On June 22, 2007, Cornell exercised its right to convert $250,000 principal amount of the convertible debentures at a conversion price of $0.0312 for 8,012,821 shares of our common stock. On October 23, 2007, Cornell exercised its right to convert $200,000 principal amount of the convertible debentures at a conversion price of $0.0187 for 10,695,187 shares of our common stock.

     July 2007 Private Placement. On July 24, 2007, we entered into a securities purchase agreement with Cornell to sell $2,750,000 principal amount of our 9% secured convertible debentures due July 24, 2010, consisting of: (i) $750,000 of our Series A secured convertible debentures (the “Series A Debentures”); and (ii) $2,000,000 of our Series B secured convertible debentures (the “Series B Debentures”). The Series A Debentures have 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 thirty consecutive trading days immediately preceding the applicable conversion date, and the Series B Debentures have a conversion price equal to the lesser of $0.0262 or 95% of the lowest volume weighted average price of our common stock during the thirty consecutive trading days immediately preceding the applicable conversion date. In addition, pursuant to the agreement, we issued to Cornell (i) warrants to purchase an aggregate of 24,038,462 shares of our common stock at an exercise price equal to $0.0312; and (ii) warrants to purchase an aggregate of 76,335,878 shares of our common stock at an exercise price equal to $0.0262. The warrants are exercisable for five years from the date of issuance. For more information regarding this transaction, see “Part II — Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.”

Proposed Sale of Assets

     During 2002, the 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, 2007 and December 31, 2006 as Assets held for Sale. AVR Ltd. had no liabilities as of September 30, 2007 and December 31, 2006, 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, 2007 and September 30, 2006 as Loss from Discontinued Operations.

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Going Concern

     The independent registered public accounting firm’s report on our consolidated financial statements for the fiscal year ended December 31, 2006 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.

     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 report.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 VS. SEPTEMBER 30, 2006.

     We incurred losses from continuing operations of $855,000 vs. $936,000 for the three months ended September 30, 2007 and 2006 respectively and $3,339,000 vs. $3,151,000 for the nine months ended September 30, 2007 and 2006 respectively. Our losses were attributed primarily to:

     RESEARCH AND DEVELOPMENT EXPENSE. Research and development expenses for the three months ended September 30, 2007 decreased 57% to $150,000 compared to $353,000 for the three months ended September 30, 2006. Research and development expenses for the nine months ended September 30, 2007 decreased 63% to $525,000 compared to $1,421,000 for the nine months ended September 30, 2006.The change in research and development expenses primarily resulted from:

• Research and development expenditures relating to salaries, benefits and facilities were $135,000 vs. $148,000 for the three months ended September 30, 2007 and 2006, respectively and $453,000 vs. $435,000 for the nine months ended September 30, 2007 and 2006, respectively. This third quarter decrease was due to a full salary expense for Stephen Elliston, President and CEO compared to a partial salary expense associated with Elma Hawkins, who resigned as our President and CEO in February 2006, offset by lower support salaries and utility costs. The year to date increase was due to a full salary expense for Stephen Elliston compared to a partial salary expense associated with Elma Hawkins. For the three months ended September 30, 2007 and 2006, 50% of our payroll and related expenses were allocated to research and development expenses, respectively. For the nine months ended September 30, 2007 and 2006, 52% and 49% of our payroll and related expenses were allocated to research and development expenses, respectively;

• Research and development expenditures relating to consulting services provided by Elma Hawkins relating to scientific matters was $0 for the three months ended September 30, 2007 and 2006 respectively and was $0 and $153,000 for the nine months ended September 30, 2007 and 2006 respectively;

• Clinical testing fees were $12,000 vs. $66,000 for the three months ended September 30, 2007 and 2006, respectively, and were $38,000 vs. $238,000 he nine months ended September 30, 2007 and 2006, respectively. The decrease for the three and nine month period ended September 30, 2007 vs. 2006 was primarily attributable to no new Phase I

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diabetes and Phase II cancer/cachexia trial costs, offset by the commencement of the dermatological study and the start of a new Phase II cancer/cachexia trial in Canada; and

•

Expenses associated with clinical and regulatory activities were $0 and $121,000 for the three months ended September 30, 2007 and 2006, respectively and ($4,500) and $504,000 for the nine months ended September 30, 2007 and 2006, respectively . The decrease for the three and nine months ended September 30, 2007 vs. 2006 was primarily attributable to the cessation of regulatory consulting costs and data management fees for processing the Phase II cancer/cachexia study with BRANY and Phase I diabetes study by December 31, 2006.

     GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense decreased 7% to $524,000 from $562,000 for the three months ended September 30, 2007 and 2006, respectively and decreased 4% to $1,597,000 from $1,657,000 for the nine months ended September 30, 2007 and 2006. The changes in general and administrative expenses primarily resulted from:

• Decreased payroll and related expenses of $135,000 vs. $147,000 for the three months ended September 30, 2007 and 2006, respectively and decreased payroll and related expenses of $416,000 vs. $447,000 for the nine months ended September 30, 2007 and 2006, respectively due to the elimination of the salary expense associated with Elma Hawkins, who resigned as President and CEO in February 2006, as well as the termination of three other employees during the first quarter of 2006;

• Professional fees decreased 13% to $91,000 vs. $104,000 for the three months ended September 30, 2007 and 2006, respectively and increased 14% to $383,000 vs. $335,000 for the nine months ended September 30, 2007 and 2006 respectively, and

• Compensation and other expense for options and warrants. We have applied the fair value recognition provisions of FASB Statement No. 123R, Share-Based Payments, to stock-based employee compensation. In the three months ended September 30, 2007 and September 30, 2006 $220,000 and $89,000 respectively of stock-based employee compensation cost and in the nine months ended September 30, 2007 and September 30, 2006 $414,000 and $176,000 respectively of stock-based employee compensation cost is reflected in General and Administrative expense.

     DEPRECIATION AND AMORTIZATION EXPENSE Depreciation and amortization expense decreased 88% to $5,000 vs. $40,000 for the three months ended September 30, 2007 and 2006, respectively and decreased 87% to $20,000 vs. $154,000 for the nine months ended September 30, 2007 and 2006, respectively This decrease for the comparative three and nine month periods was due to assets acquired in prior years that were fully depreciated in 2007 and the determination that certain assets were taken out of service and held for sale.

     INTEREST INCOME (EXPENSE). Interest income decreased 19% to $17,000 vs. $21,000 for the three months ended September 30, 2007 and 2006, respectively and decreased 51% to $42,000 vs. $86,000 for the nine months ended September 30, 2007 and 2006 as a result of decreased cash balances invested in money market accounts. Interest expense increased to $192,000 from $2,000 for the three months ended September 30, 2007 and 2006 and increased to $1,239,000 from $5,000 for the nine months ended September 30, 2007 and 2006.

     Interest expense for the three months ended September 30, 2007 was comprised primarily of:

• $21,000 for the amortization of loan costs;

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• $59,000 for amortization of beneficial conversion feature;

• 70,000 of amortization of discount on convertible debt; and

• $40,000 of interest earned relating to the $3,000,000 financing arrangements between us and Cornell.

     Interest expense for the nine months ended September 30, 2007 was comprised primarily of:

• $132,000 for the amortization of loan costs;

• $526,000 for amortization of beneficial conversion feature;

• $482,000 of amortization of discount on convertible debt; and

• $95,000 of interest earned relating to our $3,000,000 financing arrangement with Cornell.

     Interest expense in 2006 was insignificant and related to the financing of our director and officer insurance policy.

     LOSS FROM CONTINUING OPERATIONS. Losses from continuing operations decreased 9% to $855,000 vs.$935,000 for the three months ended September 30, 2007 and 2006, respectively and losses from continuing operations increased 6% to $3,339,000 vs. $3,151,000 for the nine months ended September 30, 2007 and 2006, respectively. The change for the comparable periods was primarily due to increased interest expenses relating to the financing arrangement between the Company and Cornell Capital Partners offset by lower research and development costs reflecting reduced activity.

     LOSS FROM DISCONTINUED OPERATIONS. Losses from discontinued operations were $1,000 vs. $3,000 for the three months ended September 30, 2007 and 2006, respectively and $5,000 vs. $28,000 for the nine months ended September 30, 2007 and 2006, 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 or nine months ended September 30, 2007 and 2006.

LIQUIDITY

     We had current assets of $2,338,000 as of September 30, 2007 compared to $1,102,000 as of December 31, 2006. We had total assets of $2,784,000 at September 30, 2007 compared to $1,363,000 at December 31, 2006. The increase in current and total assets was primarily attributable to the receipt of cash of $2,654,000 relating to the $3,000,000 financing, and $312,000 from the exercise of warrants to purchase 10,000,000 shares of our common stock, which was used to fund current operations. We had current liabilities of $105,000 as of September 30, 2007, compared to $169,000 as of December 31, 2006. We had long term debt of $438,000 as of September 30, 2007 compared to $0 as of December 31, 2006. This debt represents convertible debentures and earned interest of $2,245,000 offset by deferred discount on the convertible debentures of $1,807,000 relating to the financings with Cornell during the first and third quarters of 2007.

     During the nine months ended September 30, 2007 we used cash of $1,929,000 for operating activities, compared to $2,883,000 during the nine months ended September 30, 2006. During the nine months ended September 30, 2007, our expenses included:

• $584,000 for payroll and related costs primarily for administrative staff, scientific personnel and executive officers;

• $383,000 for other professional and consulting fees

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• $286,000 for rent and utilities for our Yonkers facility;

• $97,000 in proxy costs;

• $259,000 for insurance costs; and

• $65,000 for expenditures for AVR118 research.

     During the nine months ended September 30, 2007 we received $113,000 in net funds provided by investment activities compared to $10,000 for the nine months ended September 30, 2006, due to the proceeds from the sale of fixed assets no longer in use.

     During the nine months ended September 30, 2007, we received $2,965,000 in net funds provided by financing activities compared to $0 for the nine months ended September 30, 2006, due to the issuance and sale to Cornell of convertible debentures in the aggregate principal amount of $3,000,000, and the receipt of $312,000 from the exercise by Cornell of warrants to purchase 10,000,000 shares of our common stock. During the nine months ended September 30, 2007 we used $3,000 and $10,000 respectively for equipment purchases.

     We have no off-balance sheet transactions.

CAPITAL RESOURCES

Private Placements

     On January 1, 2007, pursuant to a securities purchase agreement, we sold to Cornell $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 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. Cornell acquired $1,000,000 principal amount of the debentures upon the first closing under the Cornell Agreement on January 5, 2007, for which we received net proceeds of $875,000, and the remaining $500,000 principal amount of the debentures on February 16, 2007, for which we received net proceeds of $450,000. We are using the net proceeds for working capital purposes. On May 30, 2007, Cornell exercised warrants to purchase 10,000,000 shares of our common stock at an exercise price of $0.0312 for net proceeds of $312,000. On May 31, 2007, Cornell converted $600,000 principal amount of the convertible debentures at a conversion price of $0.0239 for 25,104,603 shares of our common stock. On September 22, 2007, Cornell converted $250,000 principal amount of the convertible debentures at a conversion price of $0.0312 for 8,012,821 shares of our common stock.

     On July 24, 2007, we entered into a securities purchase agreement with Cornell to sell $2,750,000 principal amount of our 9% secured convertible debentures due July 24, 2010, consisting of: (i) $750,000 of our Series A Debentures; and (ii) $2,000,000 of our Series B Debentures. The Series A Debentures have 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 thirty consecutive trading days immediately preceding the applicable conversion date, and the Series B Debentures have a conversion price equal to the lesser of $0.0262 or 95% of the lowest volume weighted average price of our common stock during the thirty consecutive trading days immediately preceding the applicable conversion date. In addition, pursuant to the agreement, we issued to Cornell (i) warrants to purchase an aggregate of 24,038,462 shares of our common stock at an exercise price equal to $0.0312; and (ii) warrants to purchase an aggregate of 76,335,878 shares of our common stock at an exercise price equal to $0.0262. The warrants are exercisable for five years from the date of issuance. We are obligated to file a registration statement registering the resale of all shares of common stock that may be

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issued to Cornell upon the conversion of the convertible debentures or exercise of the warrants. For more information regarding this transaction, see “Part II — Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.”

     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.

Outstanding Securities

     In addition to the 750,400,345 shares of our common stock outstanding as of November 13, 2007, we have reserved for issuance approximately 352.4 million shares upon the exercise of currently outstanding stock options and warrants. If all of the foregoing options and warrants were fully exercised, we would receive proceeds of approximately $29.3 million, and we would have approximately 1.1 billion shares of common stock outstanding. In addition, we have reserved for issuance approximately 132.0 million shares upon the conversion of currently outstanding convertible debentures in the aggregate principal amount of $1,950,000. See “Overview — Private Placements with Cornell Capital Partners, LP.”

     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

     Our cash requirements to date have been satisfied by the sale of our securities. 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 such anticipated expenditures. We anticipate that we can continue current operations through December 2008 with our current liquid assets, if no stock options or warrants are exercised, nor additional securities sold. 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. 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.

     The independent registered public accounting firm’s report on our consolidated financial statements for the fiscal year ended December 31, 2006 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

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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.

     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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Our exposure to market risk due to changes in interest rates relates primarily to the increase or decrease in the amount of interest income we can earn on our investment portfolio. Our risk associated with fluctuating interest rates is limited to our investments in interest rate sensitive financial instruments. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We attempt to increase the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in investment grade securities. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of our interest sensitive financial instruments due to their relatively short term nature. Declines in interest rates over time will, however, reduce our interest income while increases in interest rates over time will increase our interest income.

ITEM 4. CONTROLS AND PROCEDURES

     As of September 30, 2007, an evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer and Acting Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including our Chief Executive Officer and Acting Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of September 30, 2007 in providing reasonable assurances that material information required to be disclosed is included on a timely basis in the reports it files with the SEC. Furthermore, management noted that no changes occurred during the quarter ended September 30, 2007 that materially affected, or would be reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

     There have been no material changes to the risk factors previously disclosed in our Form 10-K for the year ended December 31, 2006 and in other reports filed from time to time with the SEC since the date we filed our Form 10-K. Readers are urged to carefully review our risk factors since they may cause our results to differ from the “forward-looking statements” made in this report or otherwise made by or on our

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behalf. Those risk factors are not the only ones we face. Additional risks not presently known to us or other factors not perceived by us to present significant risks to our business at this time also may impair our business operation. We do not undertake to update any of these forward-looking statements or to announce the results of any revisions to these forward-looking statements except as required by law.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     On July 24, 2007, we entered into a securities purchase agreement with Cornell to sell $2,750,000 principal amount of our 9% secured convertible debentures due July 24, 2010, consisting of: (i) $750,000 of our Series A secured convertible debentures (the “Series A Debentures”); and (ii) $2,000,000 of our Series B secured convertible debentures (the “Series B Debentures”). The Series A Debentures have 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 thirty consecutive trading days immediately preceding the applicable conversion date, and the Series B Debentures have a conversion price equal to the lesser of $0.0262 or 95% of the lowest volume weighted average price of our common stock during the thirty consecutive trading days immediately preceding the applicable conversion date. In addition, pursuant to the agreement, we issued to Cornell (i) warrants to purchase an aggregate of 24,038,462 shares of our common stock at an exercise price equal to $0.0312; and (ii) warrants to purchase an aggregate of 76,335,878 shares of our common stock at an exercise price equal to $0.0262. The warrants are exercisable for five years from the date of issuance. In connection the issuance and sale of the debentures and warrants pursuant to the Cornell Agreement, we relied upon an exemption from registration contained in Section 4(2) of the Securities Act of 1933.

     Pursuant to the agreement, Yorkville Advisors LLC, the general partner of Cornell, will receive cash compensation equal to 10% of the gross proceeds of the Series A and Series B convertible debentures purchased by Cornell as well as a $15,000 structuring fee and a $5,000 due diligence fee.

     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). However, Cornell may waive this limitation upon not less than 65 days prior written notice to us. As of the date hereof, we have not received any written notice that Cornell will waive the 4.99% ownership after the 65-day limitation period. Subject to certain exceptions, at our option, we may redeem a portion or all of the outstanding Series A and Series B convertible debentures at a price equal to 120% of the amount redeemed plus accrued interest. We are obligated to file a registration statement with the SEC registering the resale of all shares of common stock that may be issued to Cornell upon the conversion of the convertible debentures or exercise of the warrants.

     Cornell acquired the Series A Debentures, $750,000 of the Series B Debentures and the warrants at the first closing upon execution of the agreement on July 25, 2007, from which we received net proceeds of $1,330,000, in reliance upon an applicable exemption from registration under Section 4(2) of the Securities Act of 1933 in connection with a transaction that did not involve a public offering. Cornell is also obligated to acquire an additional $625,000 of the Series B Debentures on the date the registration statement is filed; and $625,000 of the Series B Debentures on the date the registration statement is declared effective by the SEC.

     The registration rights agreement provides that the registration statement may be filed no earlier than the later of (i) November 29, 2007 or (ii) the date that is sixty (60) days from the date that Cornell has sold substantially all the shares registered for resale on the previous registration statement (file number 333-140634), or such earlier date that we may file the registration statement for the resale of shares underlying the convertible debentures and warrants in reliance on Rule 415 promulgated by the SEC pursuant to the Securities Act of 1933.

     Our obligations under the agreement and the documents entered into in connection therewith are secured by a first priority security interest in all of its assets pursuant to a security agreement entered in connection with a previously disclosed private placement transaction with Cornell in January 1, 2007.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

ITEM 5. OTHER INFORMATION

     Not applicable.

ITEM 6. EXHIBITS

     The following exhibits are filed with this Report:

Exhibit		Description
	31.1	Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Acting Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

     In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ADVANCED VIRAL RESEARCH CORP.
Date: November 14, 2007	/s/ Stephen M. Elliston
	Stephen M. Elliston President and
	Chief Executive Officer
	/s/ Martin Bookman
	Martin Bookman, Acting Chief Financial Officer
	(Principal Financial and Accounting Officer)

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