UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

OR

Commission File Number 33-2262-A

ADVANCED VIRAL RESEARCH CORP.

Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes o No þ

As of June 30, 2004, the last business day of the registrant’s most recently completed second fiscal quarter, there were 633,187,734 shares of the registrant’s common stock, $0.00001 par value, outstanding, which is the only class of common or voting stock of the registrant issued as of that date. The aggregate market value of the voting stock held by non-affiliates, computed by reference to the average of the bid and asked prices for the common stock as quoted on the OTC Bulletin Board as of that date, was approximately $66.2 million. Shares of common stock held by each executive officer and director and by each person who owns 10% or more of the registrant’s outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

     As of March 28, 2005, there were 696,487,734 shares of the registrant’s common stock outstanding.

     DOCUMENTS INCORPORATED BY REFERENCE: None.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

     Advanced Viral cautions readers that some of the information in this report contains forward-looking statements within the meaning of the federal securities laws. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements typically are identified by use of terms like “may,” “will,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “could,” “would” and similar words, although some forward-looking statements are expressed differently. You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including our substantial operating losses, availability of capital resources, ability to effectively compete, economic conditions, unanticipated difficulties in pharmaceutical research and development, ability to continue research and development, ability to gain governmental approvals, uncertainty relating to timing of governmental approval process, dependence on equity and debt financing for continued operations, dependence on third party distributors and consultants, dependence on our key personnel, ability to protect our intellectual property and the impact of future government regulation on our business. You should also consider carefully the risks described in this report or detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”).

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

PART I

ITEM 1. BUSINESS

OVERVIEW

     Advanced Viral Research Corp. was incorporated in Delaware in July 1985 to engage in the production and 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 biopolymer that possesses immunomodulatory activity. It is a peptide-nucleic acid complex, and we believe it may be employed in the treatment of diseases and conditions such as:

	•	Cachexia, or body wasting, in patients with acquired immune deficiency syndrome (AIDS), and cancer;
	•	Various conditions associated with cancer;
	•	Human immunodeficiency virus, or HIV, including AIDS as a combination therapy;
	•	Human papilloma virus, or HPV; and
	•	Rheumatoid arthritis.

     Since our incorporation in July 1985, we have been engaged primarily in research and development activities. We have not generated material operating revenues, and as of December 31, 2004, we had incurred a cumulative net loss of $63,128,000. Our ability to generate material operating revenue depends upon our success in gaining approval for the commercial use and distribution of AVR118 from the Food and Drug Administration (“FDA”).

     Our cash requirements to date have been satisfied by the sale of our securities. Our most recent sale of securities took place in February 2004 when we entered into an agreement with James Dicke II and James Dicke III. In this February 2004 financing arrangement, for an aggregate purchase price of $12 million, we agreed to sell an aggregate of (i) 120 million shares of our common stock; and (ii) warrants to purchase 15 million shares of our common stock through February 2, 2007 with an exercise price of $0.20 per share: 3,750,000 of the warrants are exercisable from February 5, 2004 through February 2, 2007; 3,750,000 of the warrants are exercisable from May 5, 2004 through February 2, 2007; 3,750,000 of the warrants are exercisable from August 4, 2004 through February 2, 2007; and 3,750,000 of the warrants are exercisable from November 3, 2004 through February 2, 2007. The funding took place in four equal stages of $3 million each, once every 90 days on February 5, May 5, August 4 and November 3, 2004.

     The independent registered public accounting firm’s report on our consolidated financial statements for the fiscal year ended December 31, 2004 includes an emphasis paragraph regarding certain liquidity considerations. Note 2 to the Consolidated Financial Statements states that our cash position may be 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 may be dependent upon the continued sale of our securities, debt or equity financing for funds to meet our cash requirements. We believe that cash flows from sales of securities and from current financing arrangements will be sufficient to fund our current operations. Although we may not be successful in doing so, we intend to continue to sell our securities in an attempt to mitigate the effects of our cash position. No assurance can be given that equity or debt financing, if and when required, will be available or that additional securities will be authorized beyond the current authorization of 1 billion shares of our common stock.

     Our offices are located at 200 Corporate Boulevard South, Yonkers, New York 10701. Our telephone number is (914) 376-7383, and we have also established a website: www.adviral.com. Information contained on our website is not a part of this Annual Report on Form 10-K.

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RESEARCH, DEVELOPMENT, CLINICAL TRIALS AND DRUG TESTING

     For the period from inception (February 20, 1984) through December 31, 2004 we expended $21,435,000 on testing and research and development activities either in our laboratories or pursuant to various testing agreements with both domestic and foreign companies.

     In November 2004 we submitted an Investigational New Drug (IND) application to the FDA to initiate a clinical development program for the systemic use of AVR118 in patients with advanced malignancies. In late December 2004, the FDA notified us that our IND application was allowed, and that we could proceed with our planned Phase II, multi-center study in the United States to examine the safety, tolerability and efficacy of AVR118 in patients with advanced cancer who are suffering from symptoms of progressive disease.

     In March 2005, in collaboration with The Biomedical Research Alliance of New York (“BRANY”), we began to recruit patients to participate in our Phase II study, two of whom have been enrolled. Among the several investigators for the Phase II study is James D’Olimpio, M.D., a member of our Scientific Advisory Board.

     The Phase II study is designed to evaluate the effect of a 4.0 ml dose of AVR118 administered to patients with systemic symptoms related to advanced cancers who are not candidates for, or who do not wish to receive, chemotherapy. Patients will be on the drug for three weeks in order to compare treatment versus no treatment, after which the results of the study will be analyzed. Those patients who did not receive AVR118 during the first three weeks will be permitted to take the drug for three weeks. Patients who appear to benefit from treatment may be eligible to remain on AVR118, generating longer term safety data. Approximately 40 adult patients with advanced cancer are expected to be entered into the study. Eligible patients will be between the ages of 18 and 80, will have a Karnofsky performance score between 40 and 80, and a life expectancy of more than four months.

     In 2004 we completed a Phase I/II open-label, dose-escalation clinical trial in Israel of injectable AVR118 for cachectic patients with AIDS who may or may not have been receiving anti-retroviral therapy or highly active anti-retroviral therapy (HAART). Our objective for this study was to determine the safety and tolerability of AVR118. All 30 patients contemplated under the study protocol completed the study. Interim results of the clinical study were presented at The American Society of Clinical Oncology’s (ASCO) 40^th Annual Meeting held in June 2004. The final results of the study were presented at the 2005 Annual Assembly of the American Academy of Hospice and Palliative Medicine and Hospice and Palliative Nurses Association held in January 2005. Results from the patients in three different dose groups of AVR118 showed improvement in appetite, weight gain or stability, body mass index, and fat percentage with more significant improvements in the two higher dose levels. None of the patients reported any serious side effects associated with AVR118 therapy. The costs associated with the clinical studies in Israel were $1,851,000 through December 31, 2004.

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

     Conducting the clinical trials of AVR118 will require significant cash expenditures. AVR118 may never be approved for commercial distribution by any country. Because our research and development expenses and clinical trial expenses will be charged against earnings for financial reporting purposes, we expect that losses from operations will continue to be incurred for the near future. We currently do not have sufficient funds to complete all phases of clinical trials of AVR118 which are necessary to permit the commercial sale of AVR118.

GOVERNMENT REGULATION

     The FDA imposes substantial requirements upon and conditions precedent to the introduction of therapeutic drug products, such as AVR118, through lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time consuming procedures to demonstrate that such products are both safe and effective in treating the indications for which approval is sought. After testing in animals, an Investigational New Drug, or IND, application must be submitted to the FDA to obtain authorization for human testing. When the clinical testing has been completed and analyzed, final manufacturing processes and procedures are in place, and certain other required

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information is available to the manufacturer, a manufacturer may submit a new drug application, or NDA, to the FDA. No action can be taken to market AVR118, or any therapeutic drug product, in the United States until an NDA has been approved by the FDA.

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

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

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

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

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

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

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drug and a statement of the specifications and analytical methods for each component. Also included are studies of the toxicological actions of the drug as they relate to the drug’s intended uses.

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

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

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

PATENTS

     Patent protection and trade secret protection are important to our business and our future will depend, in part, on our ability to maintain trade secret protection, obtain patents and operate without infringing the proprietary rights of others both in the United States and abroad. To date, we have been issued or granted 12 U.S. patents, two Australian patents and one patent in China. In addition, we currently have eight patent applications pending with the U.S. Patent Office and 19 foreign patent applications.

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

     In the absence of adequate patent protection, our business may be adversely affected by competitors who develop comparable technology or products. Moreover, pursuant to the terms of the Uruguay Round Agreements Act, patents filed on or after June 8, 1995 have a term of 20 years from the date of such filing, irrespective of the period of time it may take for such patent to ultimately issue. This may shorten the period of patent protection afforded to our products as patent applications in the biopharmaceutical sector often take considerable time to issue. Under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Patent Act”), a sponsor may obtain marketing exclusivity for a period of time following FDA approval of certain drug applications, regardless of patent status, if the drug is a new chemical entity or if new clinical studies were used to support the marketing application for the drug.

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Pursuant to the FDA Modernization Act of 1997, the period of exclusivity can be extended if the applicant performs certain studies in pediatric patients. This marketing exclusivity prevents a third party from obtaining FDA approval for a similar or identical drug under an Abbreviated New Drug Application (“ANDA”) or a “505(b)(2)” New Drug Application. The statute also allows a patent owner to obtain an extension of applicable patent terms for a period equal to one-half the period of time elapsed between the filing of an IND and the filing of the corresponding NDA plus the period of time between the filing of the NDA and FDA approval, with a five year maximum patent extension. We cannot be sure that we will be able to take advantage of either the patent term extension or marketing exclusivity provisions of this law. In order to protect the confidentiality of our technology, including trade secrets and know-how and other proprietary technical and business information, we require all of our employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the use or disclosure of information that is deemed confidential. The agreements also oblige our employees, consultants, advisors and collaborators to assign to us developments, discoveries and inventions made by such persons in connection with their work with us. We cannot be sure that confidentiality will be maintained or disclosure prevented by these agreements or that our proprietary information or intellectual property will be protected thereby or that others will not independently develop substantially equivalent proprietary information or intellectual property.

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

MARKETING AND SALES

     Except for limited sales of AVR118 for testing and other purposes, AVR118 is not sold commercially anywhere in the world. To date, our efforts or the efforts of our representatives have produced no material benefits to us regarding our ability to have AVR118 sold commercially anywhere in the world. We previously entered into exclusive distribution agreements with four separate entities granting exclusive rights to distribute Reticulose in the countries of Canada, China, Japan, Hong Kong, Macao, Taiwan, Mexico, Argentina, Bolivia, Paraguay, Uruguay, Brazil and Chile. Pursuant to these agreements, the distributors were obligated to cause Reticulose to be approved for commercial sale in such countries and upon such approval, to purchase from us certain minimum quantities of Reticulose to maintain the exclusive distribution rights. Our marketing plans are still dependent upon product registration in various jurisdictions. We have made no sales under the distribution agreements other than for testing purposes.

     During February 2004, we terminated the exclusive distribution agreement with DCT S.R.L. Pursuant to the agreement, DCT: (i) released any rights it may have had to distribute AVR118 in Argentina, Bolivia, Paraguay, Uruguay, Brazil and Chile, and (ii) released us from any and all obligations incurred in connection with testing and other services provided to us by DCT in Argentina, in consideration for a payment to DCT of $60,000 and the issuance to their affiliates of an aggregate of 5,000,000 warrants to purchase our common stock at $0.16 per share until February 2009. The warrant holders are subject to a lock up agreement pursuant to which such persons shall be restricted from selling more than 2,000,000 shares of our common stock in any six-month period during the term of the warrants. In addition, the warrant holders have “piggyback” registration rights with respect to the resale of the shares of common stock underlying the warrants.

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     To date we have received no information that would lead us to believe that we will be positioned to sell AVR118 commercially anywhere in the world, due to, among other reasons, the lack of financial resources necessary to complete the clinical trials required by the FDA. Until AVR118 is registered and approved for sale in the United States or in another developed country, we will not generate any material sales of AVR118. For the years ended December 31, 2004, 2003 and 2002, we reported no commercial sales except limited sales for testing purposes. AVR118 is not legally available for commercial sale anywhere in the world, except for testing purposes.

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

COMPETITION

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

	•	have significantly greater financial, technical and human resources than we have and may be better equipped to develop, manufacture and market products;
	•	have extensive experience in preclinical testing and clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products; and
	•	have products that have been approved or are in late stage development, and operate large, well-funded research and development programs.

     Several products are currently marketed for the treatment of cachexia (body wasting) including Megace^® oral suspension manufactured by Bristol-Myers Squibb and Serostim^® (injectable human growth hormone) marketed by Serono Laboratories Inc. A number of therapeutics are currently marketed or are in advanced stages of clinical development for the treatment of HIV infection and AIDS, including several products currently marketed as part of a “cocktail” in the United States. Among the companies with significant commercial presence in the AIDS market are GlaxoSmithKline, Bristol-Myers Squibb, Hoffmann-La Roche, Gilead Pharmaceuticals and Merck & Co. Products developed by our competitors or advances in other methods of the treatment of conditions associated with cancer, HIV and AIDS (such as cachexia and anorexia) could have a negative impact on the commercial viability of AVR118.

     Several products are currently marketed or are in advanced stages of clinical development for the treatment of rheumatoid arthritis. Immunex/Amgen Corp.’s product Enbrel, a biologic response modifier, was approved by the FDA in November 1998 for the treatment of moderate to severe rheumatoid arthritis. Centocor Inc.’s product, Remicade, is a monoclonal antibody with anti-inflammatory properties and has been approved for the treatment of Crohn’s disease and rheumatoid arthritis. These products represent significant competition for AVR118 as a treatment for rheumatoid arthritis.

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

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     If we successfully develop and obtain approval of AVR118 for commercial sale, we will face competition based on the safety and effectiveness of AVR118, the timing and scope of regulatory approvals, the availability of supply, marketing and sales capability, reimbursement coverage, price, patent position and other factors. Our competitors may develop or commercialize more effective or more affordable products, or obtain more effective patent protection, than we do. In addition, our competitors may commercialize products more rapidly or effectively than we do, which could hurt our competitive position and adversely affect our business. If and when we obtain FDA approval for AVR118, we expect to compete primarily on the basis of product performance and price with a number of pharmaceutical companies, both in the United States and abroad.

EMPLOYEES

     We have nine full-time employees, consisting of our President and Chief Executive Officer, our Acting Chief Financial Officer, one employee involved in operations, three employees responsible for quality assurance and quality control, and three information systems/administrative employees. Additionally, we may hire, as and when needed, and as available, such sales and technical support staff and consultants for specific projects on a contract basis. See “Management —Employment Contracts, Termination of Employment and Change-in-Control Arrangements.”

AVAILABLE INFORMATION

     Our Internet address is www.adviral.com. Our investor relations website is located at http://www.adviral.com/ADVR/invest/index.htm. We make available free of charge on our investor relations website under “SEC Filings” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. Further, a copy of this Annual Report on Form 10-K is located at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

ITEM 2. DESCRIPTION OF PROPERTY

     We lease 16,650 square feet for executive offices, including research laboratory space and production area at 200 Corporate Boulevard South, Yonkers, New York from an unaffiliated third party (the “Yonkers Lease”). The term of the Yonkers Lease is five years through April 2005 and our annual rental obligation under the Yonkers Lease is $290,000. On December 23, 2004 we amended the lease for an additional three-year term through April 2008 at a reduced annual rental obligation of $283,000. We manufacture AVR118 exclusively at our facility in Yonkers, New York. Our Bahamian facility, which we acquired in December 1987, is located in Freeport, Bahamas and consists of an approximately 29,000 square foot site with a one-story concrete building of 7,300 square feet. We are attempting to sell the Bahamian facility.

ITEM 3. LEGAL PROCEEDINGS

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

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

     During the year ended December 31, 2004, no matters were submitted to a vote of security holders of Advanced Viral.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

COMMON STOCK

     The principal United States market in which our common stock is traded is the over-the-counter market electronic Bulletin Board. The following table shows the range of reported low bid and high bid per share quotations for our common stock for each full quarterly period during the two recent years ended December 31, 2003 and 2004, and for the first quarter of 2005 to date. The high and low bid prices for the periods indicated reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.

STOCKHOLDERS

     The approximate number of holders of record of our common stock as of March 28, 2005 is 3,440, inclusive of those brokerage firms and/or clearing houses holding shares of common stock for their clientele (with each such brokerage house and/or clearing house being considered as one holder).

DIVIDEND POLICY

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

ISSUER PURCHASES OF EQUITY SECURITIES

     We did not repurchase any of our equity securities during the year ended December 31, 2004.

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ITEM 6. SELECTED FINANCIAL DATA

     The following selected historical financial data as of and for the years ended December 31, 2004, 2003, 2002, 2001 and 2000 have been derived from our audited financial statements. The selected consolidated financial data set forth below should be read along with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included elsewhere in this report.

SELECTED STATEMENT OF OPERATIONS DATA

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SELECTED BALANCE SHEET DATA

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion of the results of operations and the financial condition of Advanced Viral should be read in conjunction with Advanced Viral’s Consolidated Financial Statements and Notes thereto included elsewhere in this report.

OVERVIEW

     Since our incorporation in Delaware in July 1985, we have been engaged primarily in research and development activities. We have not generated significant operating revenues, and as of December 31, 2004 we had incurred an accumulated deficit of $63,128,000. Our ability to generate substantial operating revenue depends upon our success in gaining FDA approval for the commercial use and distribution of AVR118. Substantially all of our research and development efforts have been devoted to drug development.

     Conducting the clinical trials of AVR118 will require significant cash expenditures. AVR118 may never be approved for commercial distribution by any country. Because our research and development expenses and clinical trial expenses will be charged against earnings for financial reporting purposes, we expect that losses from operations will continue to be incurred for the foreseeable future. We currently do not have sufficient funds to complete all phases of clinical trials of AVR118. We are attempting to secure funds through the sale of our securities.

     The costs relating to our research and development efforts for the years 2000, 2001, 2002, 2003 and 2004 are presented below.

COSTS RELATING TO RESEARCH AND DEVELOPMENT EFFORTS
FROM JANUARY 2000 THROUGH DECEMBER 31, 2004

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     During 2002, the Board of Directors approved a plan to sell Advance Viral Research Ltd. (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 LTD have been classified on our Balance Sheet as of December 31, 2004 and 2003 as Assets held for Sale. LTD had no liabilities as of December 31, 2004, except inter-company payables which have been eliminated in consolidation. The operations for LTD have been classified in the Consolidated Statements of Operations for the year ended December 31, 2004 as Income from Discontinued Operations and for the years ended December 31, 2003 and 2002 as Loss from Discontinued Operations.

     We have met our cash requirements over the last several years from the proceeds derived from the sale of our securities. Our most recent sale of securities took place in February 2004 when we entered into an agreement with James Dicke II and James Dicke III. In this February 2004 financing arrangement, for an aggregate purchase price of $12 million, we agreed to sell an aggregate of (i) 120 million shares of our common stock; and (ii) warrants to purchase 15 million shares of our common stock through February 2, 2007 at an exercise price of $0.20 per share: 3,750,000 of the warrants are exercisable from February 5, 2004 through February 2, 2007; 3,750,000 of the warrants are exercisable from May 5, 2004 through February 2, 2007; 3,750,000 of the warrants are exercisable from August 4, 2004 through February 2, 2007; and 3,750,000 of the warrants are exercisable from November 3, 2004 through February 2, 2007. The funding took place in four equal stages of $3 million each, once every 90 days on February 5, May 5, August 4 and November 3, 2004.

     The independent certified public accountants’ report on our consolidated financial statements for the fiscal year ended December 31, 2004 includes an emphasis paragraph regarding certain liquidity considerations. Note 2 to the Consolidated Financial Statements states that our cash position may be inadequate to pay all the costs associated with the full range of testing and clinical trials of AVR118 required by the FDA, and, unless and until AVR118 is approved for sale in the United States or another industrially developed country, we may be dependent upon the continued sale of our securities, debt or equity financing for funds to meet our cash requirements. We believe that cash flows from sales of securities and from current financing arrangements will be sufficient to fund our current operations. Although we may not be successful in doing so, we intend to continue to sell our securities in an attempt to mitigate the effects of our cash position. No assurance can be given that equity or debt financing, if and when required, will be available or that additional securities will be authorized beyond the current authorization of 1 billion shares of our common stock.

RESULTS OF OPERATIONS

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

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

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

	•	increased payroll and related expenses relating to research and development of $912,000 for the year ended 2004 vs. $175,000 for the year ended 2003. In 2004, 56% of salaries and benefits were allocated to research and development as a result of the hiring of our new CEO and President Elma Hawkins and the redirection of personnel to the review of projects and to filing an IND in late 2004, compared to 15% in 2003, primarily due to a reduction in staff at the end of 2002 and the resulting decrease in research and development activities;
	•	increased consulting fees of $862,000 for the year ended 2004 vs. $96,000 for the year ended 2003. The 797% increase in 2004 from 2003 was primarily attributable to payments made to MediVector ($595,000) and Merchant-Taylor International, Inc. ($121,000) for biopharmaceutical consulting services in connection with our ongoing studies and IND activities, payments for consulting services made to Oxford Pharmaceuticals ($32,000), and our consultant retained in Rechovot, Israel ($115,000). In 2003 we paid $80,000 to Oxford Pharmaceuticals and $16,000 to our consultant retained in Rechovot, Israel in connection with consulting agreements for research and development purposes;
	•	decreased research and development expense relating to our agreement with EnviroGene, LLC of $448,000 as a result of the derecognition of accrued expenses associated with termination of the agreement for nonperformance during the year ended 2004, compared to $697,000 in 2003; and

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

     General and Administrative Expense. General and administrative expenses decreased 26.9% to $2,353,000 in 2004 from $3,221,000 in 2003. The decrease in 2004 was primarily attributable to decreased payroll expenses, decreased professional fees and decreased consulting fees relating to fundraising activities. Included in general and administrative expense for these periods was:

	•	decreased payroll and related expenses of $703,000 for the year ended 2004 vs. $989,000 for the year ended 2003. In 2004, only 44% of salaries and benefits were allocated to general and administrative expense, with the remainder allocated to research and development as a result of the hiring of our new CEO and President Elma Hawkins and the redirection of personnel to the review of projects and to filing an IND in late 2004, compared to 85% in 2003 attributable to a reduction in staff at the end of 2002 and the resulting decrease in research and development activities;
	•	increased benefit and insurance costs of $486,000 in 2004 vs. $456,000 in 2003. The increase in 2004 was primarily attributable to increased D&O insurance costs ($312,000 in 2004 vs. $269,000 in 2003);
	•	decreased professional fees to $266,000 in 2004 vs. $815,000 in 2003 primarily attributable to the decreased attorneys fees relating to litigation ($1,000 in 2004 vs. $307,000 in $2003; and
	•	decreased consulting costs in 2004 of $24,000 vs. $157,000 in 2003 primarily attributable to consultants retained for fund raising initiatives in 2003.

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

	•	the calculation of the fair value of granting an option to a non-employee of $6,000 for 2004;
	•	the issuance of options to our Scientific Advisory Board resulting in compensation expense of $0 and $347,000 for the years ended 2004 and 2003, respectively; and
	•	the fair value of warrants issued for our 2001 equity line of credit with Cornell Capital Partners of $0 and $255,000 for the years ended 2004 and 2003, respectively.

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

     Depreciation Expense. Depreciation expense decreased 12% to $810,000 in 2004 from $922,000 in 2003. This decrease resulted from equipment which became fully depreciated in 2003 combined with no material equipment purchases in 2004.

     Amortization Expense. Amortization expense increased to $120,000 in 2004 from $0 in 2003, resulting primarily from the recognition of the reduced useful life of granted patents.

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

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

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	•	amortization of warrant costs associated with convertible debentures of $0 and $517,000 for the years ended 2004 and 2003, respectively;
	•	amortization of loan costs relating to the issuance of convertible debentures of $232,000 and $253,000 for the years ended 2004 and 2003, respectively; and
	•	interest expense associated with convertible debentures of $16,000, $101,000 and $43,000 for the years ended 2004, 2003 and 2002, respectively.

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

     Loss from Continuing Operations. Losses from continuing operations decreased 13% to $6,315,000 for 2004 from $7,784,000 in 2003. The decrease from 2004 to 2003 resulted primarily from a reduction in interest expense.

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

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

     Revenues. We generated no sales revenue for the years ended 2003 or 2002.

     Research and Development Expense. Research and development expense in 2003 decreased 70% to $1,350,000 from $4,440,000 in 2002. The decrease in 2003 from 2002 was primarily attributable to increased consulting fees and to the allocation in 2003 of a majority of expenses relating to salaries and benefits to general and administrative instead of research and development, resulting in decreased research and development activities. Included in research and development expense for these periods was:

	•	decreased payroll and related expenses relating to research and development of $175,000 for the year ended 2003 vs. $1,805,000 for the year ended 2002, primarily due to a reduction in staff at the end of 2002 and the resulting decrease in research and development activities. In 2003, only 15% of salaries and benefits were allocated to research and development, compared to 68% in 2002;
	•	decreased research and development expenditures relating to our agreement with GloboMax in connection with the preparation of our first IND filing of $0 and $904,000 for the years ended 2003 and 2002, respectively;
	•	decreased laboratory supplies expenses of $0 for 2003 vs. $295,000 for 2002; and
	•	increased consulting fees of $96,000 for 2003 vs. $82,000 for 2002 in connection with consulting agreements for research and development services with Oxford Pharmaceuticals ($80,000) vs. payments made to Keystone Validation Group for equipment validation services ($66,000).

     General and Administrative Expense. General and administrative expenses increased 21% to $3,221,000 in 2003 from $2,654,000 in 2002. The increase in 2003 was primarily attributable to and increased consulting fees and to the allocation in 2003 of a majority of expenses relating to salaries and benefits to general and administrative instead of research and development, resulting in increased general and administrative expense. Included in general and administrative expense for these periods was:

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increased payroll and related expenses allocated to general and administrative expense of $989,000 for the year ended 2003 vs. $866,000 for the year ended 2002, primarily due to a reduction in staff at the end of 2002 and the resulting decrease in research and development activities. In 2003, 85% of salaries and benefits were allocated to general and administrative expense, compared to 32% in 2002;

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	•	decrease in benefit and insurance costs to $456,000 in 2003 vs. $564,000 in 2002. The decrease in 2003 is primarily attributable to lower benefit costs (due to a reduction in staff at the end of 2002) offset by higher insurance premiums.
	•	increase in professional fees to $815,000 in 2003 from $501,000 in 2002, primarily attributable to attorneys fees related to litigation of $307,000 in 2003 vs. $44,000 in 2002;
	•	increase in consulting fees to 2003 vs. 2002 of $157,000 and $34,000 respectively, primarily for consultants retained by us for fund raising initiatives.

     Compensation and Other Expense for Options and Warrants. Compensation expense decreased 31% to $606,000 in 2003 from $884,000 in 2002. The decrease in 2003 was primarily attributable to the calculation of fair value of options and warrants in connection with options issued to our Scientific Advisory Board and warrants issued in connection with for our 2001 equity line. Included in compensation expense for these periods was:

	•	the fair value of warrants issued for our 2001 equity line of credit with Cornell Capital Partners of $255,000 and $408,000 for the years ended 2003 and 2002, respectively;
	•	the calculation of the fair value of extending the expiration dates of non-employee options outstanding of $178,000 for 2002;
	•	the issuance of options to our Scientific Advisory Board resulting in compensation expense of $347,000 and $108,000 for the years ended 2003 and 2002, respectively; and
	•	the fair value of warrants issued in consideration for terminating a contract resulting in our recording compensation expense of $191,000 in 2002.

     Depreciation Expense. Depreciation expense decreased 6% to $922,000 in 2003 from $978,000 in 2002. The decrease in 2003 resulted from equipment which became fully depreciated with no major equipment purchases in 2003.

     Interest Expense. Interest expense increased 784% to $1,697,000 in 2003 from $192,000 in 2002. The increase was primarily attributable to increased interest expense associated with convertible debentures, the beneficial conversion feature on the debentures and amortization of warrant costs. Included in interest expense for these periods was:

	•	the beneficial conversion feature on convertible debentures of $809,000 and $89,000 for the years ended 2003 and 2002, respectively;
	•	amortization of warrant costs associated with convertible debentures of $517,000 and $0 for the years ended 2003 and 2002, respectively;
	•	amortization of loan costs relating to the issuance of convertible debentures of $253,000 and $34,000 for the years ended 2003 and 2002, respectively; and
	•	interest expense associated with convertible debentures of $101,000 and $43,000 for the years ended 2003 and 2002, respectively.

     Interest Income. Interest income decreased 54% to $13,000 in 2003 from $28,000 in 2002. The decrease in interest income resulted from our decreased cash balances invested in money market and overnight banking obligations.

     Loss from Continuing Operations. Losses from continuing operations decreased 15% to $7,784,000 in 2003 from 9,120,000 in 2002. The decrease resulted primarily from a reduction in research and development expenses due to a reduction in personnel during 2002 from 33 to 10 employees and limiting our research and development efforts to one clinical trial in Israel.

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     Loss from Discontinued Operations. Loss from discontinued operations for the year ended December 31, 2003 was $33,000 vs. 201,000 for 2002, relating to losses from our 99% owned subsidiary, Advance Viral Research, Ltd.

LIQUIDITY

Years Ended December 31, 2004 and 2003

     As of December 31, 2004, we had current assets of $8,845,000 compared to $494,000 at December 31, 2003. We had total assets of $10,432,000 and $2,989,000 at December 31, 2004 and 2003, respectively. Current assets increased by $8,351,000 due to an increase in cash and cash equivalents generated from the sale of our securities. Total assets increased due to an increase in cash and cash equivalents offset by depreciation of fixed assets and a revaluation of patent costs.

     During 2004, we used cash of $4,564,000 for operating activities, as compared to $4,337,000 in 2003. During 2004, our expenses included:

	•	$1,615,000 for payroll and related costs primarily for administrative staff, scientific personnel and executive officers;
	•	$196,000 in public relations and recruiting fees;
	•	$427,000 for rent and utilities for our Yonkers facility;
	•	$670,000 in expenditures on AVR118 research in Israel and the submission of an IND application to the FDA;
	•	$486,000 for insurance and $267,000 for other professional fees.

     During 2004, cash flows provided by financing activities resulted primarily from the proceeds from the sale of our common stock of $12,028,000, convertible debentures of $900,000, offset by the $16,000 repayment of a grant. This compares to the year ended December 31, 2003, where funds of $3,127,000 were provided from the sale of our common stock of $2,133,000, convertible debentures of $2,169,000, offset by payments under a litigation settlement agreement of $1,051,000 and principal payments of $122,000 and 3,000 on equipment obligations and the repayment of a grant, respectively.

Years Ended December 31, 2003 and 2002

     As of December 31, 2003, we had current assets of $494,000 compared to $1,770,000 at December 31, 2002. We had total assets of $2,989,000 and $4,946,000 at December 31, 2003 and 2002, respectively. Total current assets changed due to a decrease in case and cash equivalents of $1,205,000. Total assets declined due to depreciation of fixed assets.

     During 2003, we used cash of $4,337,000 for operating activities compared to $8,701,000 in 2002. During 2003, our expenses included:

	•	$1,164,000 for payroll and related costs primarily for administrative staff, scientific personnel and executive officers;
	•	$250,000 in consulting fees;
	•	$421,000 for rent and utilities for our Yonkers facility;
	•	$1,056,000 in expenditures on AVR118 research in Israel;
	•	$456,000 for insurance; and

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$815,000 for other professional fees.

     During the year ended December 31, 2003, cash flows provided by financing activities was primarily due to the proceeds from the sale of our common stock of $2,133,000, convertible debentures of $2,169,000, offset by payments under a litigation settlement agreement of $1,051,000 and principal payments of $122,000 and 3,000 on equipment obligations and the repayment of a grant, respectively. This compares to the year ended December 31, 2002 where funds of $7,114,000 were provided from the sale of our common stock; convertible debentures of $2,000,000, offset by principal payments of $169,000 for equipment obligations.

LIQUIDITY CONSIDERATIONS

     The independent certified public accountants’ report on our consolidated financial statements for the fiscal year ended December 31, 2004 includes an emphasis paragraph regarding certain liquidity considerations. Note 2 to the Consolidated Financial Statements states that our cash position may be inadequate to pay all the costs associated with the full range of testing and clinical trials of AVR118 required by the FDA, and, unless and until AVR118 is approved for sale in the United States or another industrially developed country, we may be dependent upon the continued sale of our securities, debt or equity financing for funds to meet our cash requirements. We believe that cash flows from sales of securities and from current financing arrangements will be sufficient to fund our current operations. Although we may not be successful in doing so, we intend to continue to sell our securities in an attempt to mitigate the effects of our cash position. No assurance can be given that equity or debt financing, if and when required, will be available or that additional securities will be authorized beyond the current authorization of 1 billion shares of our common stock.

     We have no off-balance sheet transactions.

     The following table shows total contractual payment obligations as of December 31, 2004.

TOTAL CONTRACTUAL OBLIGATIONS TABLE

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CAPITAL RESOURCES

     We have 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. The following table summarizes sales of our securities over the last two years.

     From December 2002 through June 2003, we authorized the issuance of and sold 22,650,000 shares of our common stock and warrants to purchase up to 13,590,000 shares of our common stock at $0.08 per share, for an aggregate purchase price of $1,812,000 pursuant to securities purchase agreements with the purchasers listed below, in the following amounts in a private offering transaction pursuant to Section 4(2) of the Securities Act. In connection with the agreement, we paid finders’ fees to Harbor View Group, AVIX, Inc. and Robert Nowinski consisting of an aggregate (i) $98,095 and (ii) warrants to purchase 1,246,500 shares of our common stock. All of the aforementioned warrants are exercisable at $0.12 per share, for a period of five years. As of the date hereof, none of such warrants had been exercised.

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     On April 11, 2003 pursuant to a securities purchase agreement with James F. Dicke II, a former member of our Board of Directors, we sold 3,125,000 shares of common stock and warrants to purchase 1,875,000 shares of common stock at an exercise price of $0.12 per share through April 2008, for an aggregate purchase price of $250,000 in a private offering transaction pursuant to Section 4(2) of the Securities Act.

     On April 28, 2003 pursuant to a securities purchase agreement with David Provence in a private offering transaction pursuant to Section 4(2) of the Securities Act, we sold 312,500 shares of common stock and warrants to purchase 187,500 shares of common stock at an exercise price of $0.12 per share through April 2007, for an aggregate purchase price of $25,000. In connection with the transaction, we paid a finders’ fee to Diego Vallone consisting of warrants to purchase 15,625 shares of our common stock at an exercise price per share of $0.12 until April 2008.

     On April 28, 2003, we entered into an Equity Line of Credit Agreement with Cornell Capital Partners in a private offering transaction pursuant to Section 4(2) of the Securities Act. The equity line agreement provides, generally, that Cornell Capital Partners has committed to purchase up to $50 million of our common stock over a three-year period, with the timing and amount of such purchases, if any, at our discretion, provided, however, that the maximum amount of each advance is $500,000, and the date of each advance shall be no less than six trading days after our notification to Cornell Capital Partners of its obligation to purchase shares. Any shares of common stock sold under the equity line will be priced at the lowest closing bid price of our common stock during the five consecutive trading days following our notification to Cornell Capital Partners requesting an advance under the equity line. In addition, at the time of each advance, we are obligated to pay Cornell Capital Partners a fee equal to five percent (5%) of the amount of each advance. However, Cornell Capital Partners’ obligation to purchase and our obligation to sell our common stock is conditioned upon the per share purchase price being equal to or greater than a price we set on the advance notice date, the minimum acceptable price, which may not be set any closer than 7.5% percent below the closing bid price of the common stock the day prior to the date we notify Cornell Capital Partners of its obligation to purchase shares. In addition, there are certain other conditions applicable to our ability to draw down on the equity line including the filing and effectiveness of a registration statement registering the resale of all shares of common stock that may be issued to Cornell Capital Partners under the equity line and our adherence with certain covenants. There can be no assurance of the amount of proceeds we will receive, if any, under the equity line of credit with Cornell Capital Partners. For its services as placement agent, Katalyst Securities LLC received 107,527 shares of our common stock, which was valued at $10,000. Katalyst Securities may be deemed to be an underwriter in connection with the sale of common stock under the equity line.

     On April 28, 2003 we entered into a securities purchase agreement with Cornell Capital Partners, in a private offering transaction pursuant to Section 4(2) of the Securities Act, to sell up to $2,500,000 of our 5% convertible debentures, due April 28, 2008, $1 million of which was purchased on April 28, 2003; $1.5 million of which was purchased on July 18, 2003; and $1 million of which was purchased on January 8, 2004. Interest was payable in cash or common stock at the option of Cornell Capital Partners. Pursuant to the agreement, Cornell Capital Partners received a 10% discount to the purchase price of the convertible debentures purchased. Pursuant to the terms of the agreement, commencing July 27, 2003, Cornell Capital Partners became eligible to convert the debenture plus accrued interest, in shares of our common stock at a conversion price equal to the lesser of (a) $0.08 or (b) 80% of the lowest closing bid price of our common stock for the four trading days immediately preceding the conversion date. In addition, in

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connection with the securities purchase agreement, we issued to Cornell Capital Partners a warrant to purchase 15 million shares of our common stock exercisable for five years at an exercise price of $0.091. The warrant became exercisable on October 28, 2003.

     On July 18, 2003, we entered into an additional securities purchase agreement with Cornell Capital Partners, in a private offering transaction pursuant to Section 4(2) of the Securities Act, whereby Cornell Capital Partners purchased $1 million of our 5% secured convertible debentures, due July 17, 2008. Pursuant to the agreement, Cornell Capital Partners received a 10% discount to the purchase price of the convertible debentures purchased. Pursuant to the terms of the agreement, commencing October 18, 2003, Cornell Capital Partners became eligible convert the debenture plus accrued interest, in shares of our common stock at a conversion price equal to the lesser of (a) $0.08 or (b) 80% of the lowest closing bid price of our common stock for the four trading days immediately preceding the conversion date. Our obligations under the convertible debentures and the April and July Agreements were secured by a first priority security interest in substantially all of our assets. Pursuant to the agreements, this security interest terminated upon Advanced Viral receiving $3 million of capital in any form other than through the issuance of free-trading shares of our common stock from sources other than Cornell Capital Partners. This termination occurred during February 2004 upon the funding of $3 million under the Dicke Agreement. As of the date hereof, the April and July debentures have been fully converted into an aggregate of 57,971, 662 shares of common stock, as follows:

	•	On September 10, 2003, Cornell Capital Partners converted $600,000 principal amount of the convertible debenture into 14,150,943 shares of common stock at a conversion price of $0.0424 per share.
	•	On November 6, 2003, Cornell Capital Partners converted $600,000 principal amount of the convertible debentures into 12,500,000 shares of common stock at a conversion price of $0.048 per share.
	•	On November 20, 2003, Cornell Capital Partners converted $600,000 principal amount of convertible debentures into 9,375,000 shares of common stock at a conversion price of $0.064 per share. At December 31, 2003, the outstanding balance was $750,000 including accrued interest.
	•	On January 8, 2004, Cornell Capital Partners converted the remaining $700,000 principal amount of convertible debentures plus $51,000 of interest into 9,387,500 shares of common stock at a conversion price of $0.08 per share.
	•	Upon our registration statement being declared effective by the SEC, we issued to Cornell Capital Partners on January 7, 2004 a $1 million 5% convertible debenture and received consideration of $882,402. On February 11, 2004, Cornell Capital Partners converted $1 million principal amount plus interest of $4,657 into 12,558,219 shares of our common stock at a conversion price of $0.08 per share.

     In September 2003, in connection with a private offering transaction pursuant to Section 4(2) of the Securities Act, we authorized the issuance of and sold 21,620,000 shares of our common stock and warrants to purchase up to 10,810,000 shares of our common stock, for an aggregate purchase price of $1,081,000, or $0.05 per share, pursuant to securities purchase agreements with the purchasers listed below, in the amounts listed below. The warrants are exercisable at $0.10 per share. In connection with the agreements, we paid finders’ fees to Harbor View Group, AVIX, Inc and Robert Nowinski consisting in the aggregate of (i) $115,667 and (ii) warrants to purchase 2,378,200 shares of our common stock. All of the aforementioned warrants are exercisable at $0.10 per share, for a period of five years. As of the date hereof, none of such warrants had been exercised.

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     In January 2004, in connection with a private offering transaction pursuant to Section 4(2) of the Securities Act, we authorized the issuance of and sold 2,166,666 shares of our common stock and warrants to purchase up to 758,334 shares of our common stock, for an aggregate purchase price of $325,000, or $0.15 per share, pursuant to securities purchase agreements with the purchasers listed below, in the amounts listed below. In connection with the agreements, we paid finders’ fees to Harbor View Group consisting in the aggregate of (i) $26,000 and (ii) warrants to purchase 173,333 shares of our common stock. All of the aforementioned warrants are exercisable at $0.19 per share, for a period of five years. As of the date hereof, none of such warrants had been exercised.

     On February 5, 2004, in connection with a private offering transaction pursuant to Section 4(2) of the Securities Act, we entered into an agreement with James Dicke II and his son James Dicke III, whereby we agreed to sell an aggregate of 120 million shares of our common stock and warrants to purchase 15 million shares of our common stock for an aggregate purchase price of $12 million. Pursuant to the agreement, the funding took place in four equal stages of $3 million each, once every 90 days on February 5, May 5, August 4 and November 3, 2004. There were no conditions precedent to the investors’ obligation to close other than the accuracy of our representations and warrants and our compliance with the agreement. The warrants have an exercise price of $0.20 per share and are exercisable at any time through February 2, 2007. In addition, we granted demand and piggyback registration rights to the investors for the shares issued or issuable in connection with the transaction. James F. Dicke II is the Chairman and CEO of Crown Equipment Corporation and a former member of our Board of Directors.

     On February 9, 2004, we entered into a termination and release agreement with DCT, S.R.L. and certain of its affiliates pursuant to which pursuant to which a distribution agreement and various testing agreements with DCT, along with any and all distribution rights and rights to royalties or fees thereunder, were terminated. In addition, the agreement provides that any and all intellectual property rights relating to the terminated agreements were the property of Advanced Viral, and the parties released each other from claims relating thereto. In consideration, we agreed to pay DCT $60,000 and granted warrants to purchase an aggregate of 5 million shares of our common stock to certain of DCT’s affiliates at an exercise price of $0.16 for a period of five years. In addition the recipients of the warrants agreed

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not to sell more than an aggregate of 2 million shares of our common stock in any 6-month period through February 8, 2009.

OUTSTANDING SECURITIES

     Currently, in addition to the 696,487,734 shares of our common stock currently outstanding: (i) approximately 155.8 million shares of common stock are issuable pursuant to outstanding stock options at exercise prices ranging from $0.052 to $0.36, of which options to purchase approximately 110.6 million shares are currently exercisable; (ii) approximately 90.4 million shares of common stock are issuable pursuant to outstanding warrants at prices ranging from $0.091 to $1.00, all of which warrants are currently exercisable. The foregoing does not include shares issuable pursuant to the equity line of credit with Cornell Capital Partners which expires in April 2006.

     If all of the foregoing securities were fully issued, exercised and/or converted, as the case may be, we would receive proceeds of approximately $43.9 million, and we would have approximately 942.7 million shares of common stock outstanding. The sale or availability for sale of this number of shares of common stock in the public market could depress the market price of the common stock. Additionally, the sale or availability for sale of this number of shares may lessen the likelihood that additional equity financing will be available to us, on favorable or unfavorable terms. Furthermore, the sale or availability for sale of this number of shares could limit the annual amount of net operating loss carryforwards that could be utilized.

     There is a possibility that we may not currently have sufficient authorized shares to issue all of the shares underlying the Cornell equity line and outstanding convertible securities and a proposal may be required to be placed before the stockholders to facilitate an increase in the number of authorized shares within the next several years. Based on the 696.5 million shares of stock currently outstanding, we do not have sufficient authorized shares of common stock to draw down the entire $50 million available under the equity line at an assumed stock price of $0.10 per share. To increase the number of authorized shares of our common stock, we would need to obtain stockholder approval. We are uncertain that we could obtain this approval based on the dilutive effect of the issuance of shares under the equity line.

PROJECTED EXPENSES

     During the next 12 months, we expect to incur significant expenditures relating to operating expenses and expenses relating to regulatory filings and clinical trials for AVR118.

     We believe that our current liquid assets and cash flows from the sale of securities and current financing arrangements will be sufficient to fund our current operations for the next 12 months. Any proceeds received from the exercise of outstanding options or warrants will contribute to working capital and increase our budget for research and development and clinical trials and testing, assuming AVR118 receives subsequent approvals to justify such increased levels of operation. The recent prevailing market price for shares of common stock has from time to time been below the exercise prices of certain of our outstanding options or warrants. As such, recent trading levels may not be sustained nor may any additional options or warrants be exercised. If none of the outstanding options or warrants is exercised, and we obtain no other additional financing, in order for us to achieve the level of operations contemplated by management, management anticipates that we will have to materially limit or suspend operations. We are currently seeking debt financing, licensing agreements, joint ventures and other sources of financing, but the likelihood of obtaining such financing on favorable terms is uncertain. Management is not certain whether, at present, debt or equity financing will be readily obtainable or whether it will be on favorable terms. Because of the large uncertainties involved in the FDA approval process for commercial drug use on humans, it is possible that we will never be able to sell AVR118 commercially.

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CRITICAL ACCOUNTING POLICIES

     Other Assets. Patent development costs are capitalized as incurred. Such costs will be amortized over the life of the patent, commencing at the time a patent is approved (granted). Loan costs include fees paid in connection with the February 2001 private equity line of credit agreement and have been amortized over the life of the agreement, which has expired.

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

     Recent Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board (the “FASB”) issued “Share-Based Payment” an Amendment of FASB Statements No. 123 that will significantly change the accounting for employee stock options and other equity-based compensation. The standard requires companies to expense the fair value of stock options on the grant date and is effective for interim or annual periods beginning after June 15, 2005. In accordance with the revised statement, the expense attributable to stock options granted or vested subsequent to July 1, 2005 will be required to be recognized.

     In October 2004, the FASB concluded that Statement 123R, “ Share-Based Payment,” which would require all companies to measure compensation cost for all share-based payments (including employee stock options) at fair value, would be effective for public companies for interim or annual periods beginning after June 15, 2005. The proposed standard would require companies to expense the fair value of all stock options that have future vesting provisions, are modified, or are newly granted beginning on the grant date of such options. We do not intend to adopt a fair value based method of accounting for stock based employee compensation until a final standard is issued by the FASB that requires this accounting. Pro forma disclosures of quarterly earnings are included in Note 5 of this quarterly statement.

     In January 2003, the FASB released Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 requires that all primary beneficiaries of Variable Interest Entities (VIE) consolidate that entity in their financial statements. FIN 46 is effective for VIEs created after January 31, 2003 and for VIEs in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to VIEs in which an enterprise holds a variable interest it acquired before February 1, 2003. In December 2003, the FASB published a revision to FIN 46 (“FIN 46R”) to clarify some of the provisions of the interpretation and defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, entities that do not have interests in structures that are commonly referred to as special purpose entities are required to apply the provisions of the interpretation in financials statements for periods ending after March 15, 2004. The adoption of FIN 46 and FIN 46R does not have a material impact on our financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Advanced Viral does not own any securities or instruments subject to market risk for which disclosure is required.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Annual Financial Statements and Selected Quarterly Financial Data: The consolidated financial statements and accompanying notes listed in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K are included elsewhere in this Annual Report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

ITEM 9A. CONTROLS AND PROCEDURES

     Management, including our Chief Executive Officer and Acting Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2004. Based upon the evaluation, management concluded that our disclosure controls and procedures are effective to ensure that all material information requiring disclosure in this annual report was made known to them in a timely manner.

     We made no significant changes in internal controls over financial reporting or in other factors that could materially affect our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

     None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

MANAGEMENT

     Our executive officers serve at the discretion of the Board. The following table sets forth certain information regarding our directors and executive officers as of March 30, 2005

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

     Dr. Elma Hawkins, our President and Chief Executive Officer since February 18, 2004, has been a member of our Board of Directors and Executive Management Committee since December 9, 2003. Dr. Hawkins was Vice Chairman of Antigenics Inc., a publicly traded biotechnology company from 1996 to February 2004. Prior to joining Antigenics in 1996 as Chief Operating Officer, Dr. Hawkins served in a number of senior positions with Genzyme Corporation and its affiliates, including Director of Corporate Development and Director of Clinical and Regulatory Affairs. Dr. Hawkins has also held positions in preclinical and clinical research at Warner-Lambert/Parke-Davis and at the Center for the Study of Drug Development at Tufts Medical School. Dr. Hawkins holds a PhD in medicinal chemistry from the University of Alabama and an M.B.A. from Boston University.

     Eli Wilner, our Secretary and Chairman of the Board of Directors, has been a director since December 2001, Chairman of the Board since May 2002 and President and Chief Executive Officer from August 2003 to February 2004. He is the founder and CEO of Eli Wilner & Company, a New York City art gallery established in 1983, and is also a leading frame dealer, restorer, collector and published author. Mr. Wilner was a Bryant Fellows Member of the Metropolitan Museum of Art in New York City from 1990 to 2000 and since 1990 has been a member of the Forum and Director’s Circle of the National Museum of American Art in Washington, D.C. Mr. Wilner is a graduate of Brandeis University, where he received his B.A. in Fine Arts in 1976, and Hunter College, where he received his M.A. in 1978.

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

     Charles H. Moore, a director since December 2004, serves as the Executive Director of the Committee to Encourage Corporate Philanthropy, having served as deputy to the Chairs from November 1999 through March 2001. Mr. Moore served as the Director of Athletics at Cornell University between 1994 and August 1999. Previously, Mr. Moore served as Executive Vice President of Illinois Tool Works, Inc. in 1991 and 1992, and as President and Chief Executive Officer of Ransburg Corporation from 1988 to 1992. Mr. Moore served as a Public Sector Director of the United States Olympic Committee and as Chairman of that organization’s Audit Committee between 1992 and 2000. Mr. Moore is currently a Governor of the National Art Museum of Sport, and formerly served as the Chairman and Chief Executive Officer of that organization. Mr. Moore is also a National Board member of the Smithsonian Institution, a Commissioner of the Smithsonian American Art Museum, a Regent of Mercersburg Academy, and a member of the President’s Council on Physical Fitness and Sports. He has served on a variety of for-profit Board of Directors, including most recently, Turner Construction and The Sports Authority.

     Nancy J. Van Sant, Esq., a director since May 2002, has been a director of the Miami, Florida law firm of Sacher, Zelman, Van Sant, Paul, Beiley, Hartman, Rolnick & Waldman, P.A. and/or its predecessors since 1992. From 1977 through 1990, Ms. Van Sant was an attorney with the SEC serving as Regional Trial Counsel and Chief of the Branch of Investigations and Enforcement.

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

ELECTION OF DIRECTORS AND OFFICERS

     Directors are elected at annual meetings of stockholders and hold office until the next succeeding annual meeting and the election and qualification of their respective successors. Our Bylaws permit the Board of Directors to fill any vacancy and such director may serve until the next annual meeting of stockholders and the due election and qualification of his successor. We have not had an annual meeting of stockholders since 1987.

COMMITTEES OF THE BOARD OF DIRECTORS

     Advanced Viral’s Board of Directors currently has an Audit Committee and Compensation Committee. The Board of Directors does not have a standing Nominating Committee.

     Audit Committee. The members of the Audit Committee during the year ended December 31, 2004 were Roy W. Walzer, Charles H. Moore and David Seligman (who passed away in January 2005). The audit committee oversees, reviews and evaluates our financial statements, accounting and financial reporting processes, internal control functions and the audits of our financial statements. The audit committee is responsible for the appointment, compensation, retention and oversight of our independent auditor. Each of the current members of the Audit Committee is “independent” as defined under the Securities Exchange Act of 1934 (the “Exchange Act”) as they apply to audit committee members. In addition, the Board of Directors has determined that each member of the Audit Committee possesses the level of financial literacy required by applicable laws and regulations and that Mr. Walzer, the Audit Committee’s Chairman, is an “audit committee financial expert” within the meaning of the regulations promulgated by the SEC.

     Compensation Committee. The current members of the Compensation Committee are Charles H. Moore, Nancy Van Sant, Roy S. Walzer and Eli Wilner. The Compensation Committee is responsible for recommending compensation and benefits for the executive officers of Advanced Viral to the Board of Directors. Prior to his death, Mr. Seligman was the Chairman of the Compensation Committee.

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The members of the Compensation Committee during the year ended December 31, 2004 were Charles H. Moore, Nancy Van Sant, Roy S. Walzer, Eli Wilner (Chairman of the Board and Secretary), and David Seligman. During the last fiscal year, no interlocking relationship existed between Advanced Viral’s Board of Directors or Compensation Committee and the board of directors or compensation committee of any other company.

CODES OF CONDUCT AND ETHICS

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

SCIENTIFIC ADVISORY BOARD

     In January 2002, we formed a Scientific Advisory Board currently consisting of people with experience in oncology, hematology, women’s health and related fields for the purpose of having access to additional expertise and counsel to support the development of AVR118 in connection with the rigorous clinical trials required by the FDA’s regulatory approval process. The current members of the Scientific Advisory Board are as follows:

     Dr. George P. Canellos is the William Rosenberg Professor of Medicine at Harvard Medical School where he served as Chief of the Division of Medical Oncology for 20 years at the Dana-Farber Cancer Institute, and was Acting Clinical Director of the National Cancer Institute (NCI) and a member of the FDA’s Oncologic Drugs Advisory Committee. Dr. Canellos was also a past president of the American Society for Clinical Oncology and a former Editor- in-Chief of the Journal of Clinical Oncology. Dr. Canellos currently serves as Medical Director for Network Development, Dana-Farber/Partners CancerCare and is on the senior staff at the Brigham and Women’s Hospital, Dana-Farber Cancer Institute and Massachusetts General Hospital.

     Dr. Michael Harris is Director of the Tomorrow’s Children’s Institute for Cancer and Blood Disorders, Chief of Pediatric Hematology-Oncology at the Hackensack University Medical Center and Professor of Pediatrics at the UMDNJ-New Jersey Medical School. Additionally, Dr. Harris is a member of the National Cancer Institute’s Special Review Committee where he is responsible for the review of Community Clinical Oncology Programs, and Associate Editor for Pediatric Oncology for the scientific journal Cancer Investigation. Dr. Harris previously served as Chief of Pediatric Hematology-Oncology at The Mt. Sinai Medical Center in New York City.

     Dr. James D’Olimpio is Director of the North Shore University Hospital’s Supportive Oncology and Palliative Care Service and is also Associate Professor of Medical Oncology at New York University’s School of Medicine. His research has focused on improving the quality of life of cancer patients, especially by reversing the wasting process (cachexia) associated with cancer, and in cancer treatment related fatigue syndrome. In February 2005, Dr. D’Olimpio became an investigator in a clinical trial being conducted at North Shore University Hospital in Manhasset, New York. During 2003 and 2002, we paid Dr. D’Olimpio $7,500 and $18,000 for consulting services to us. We also retained Dr. D’Olimpio as our “spokesperson at large.” In this capacity, Dr. D’Olimpio was paid on an hourly basis to provide such services as requested, including representing us at industry-wide and scientific conferences. Dr. D’Olimpio billed us and was paid $15,158 for these services during 2004.

     Dr. Sidney Pestka, a recipient of the National Medal of Technology for 2001, is currently Professor and Chairman of the Department of Molecular Genetics, Microbiology and Immunology at New Jersey’s Robert Wood Johnson Medical School of the University of Medicine and Dentistry. Previously he was Associate Director of the Roche Institute of Molecular Biology. His work in the development of interferons, which are used clinically for treating a range of diseases, including hepatitis B, multiple sclerosis and hairy cell leukemia, is the basis of several U.S. and more than 100 foreign patents. Dr. Pestka was inducted into the New Jersey Inventor’s Hall of Fame in 1993. He has also received the Selman Waksman Award in Microbiology and the Milstein Award from the International Society for Interferon and Cytokine Research. He has served on the National Cancer Institute’s Breast Cancer Task Force, the Basic Pharmacology Advisory Committee of the Pharmaceutical Manufacturers Association Foundation and is secretary, and former President, of the International Society of Interferon Research. Dr. Pestka received his undergraduate degree in chemistry from Princeton University in 1957 and his medical degree from the University of Pennsylvania School of Medicine in 1961. Over the past 30 years, he has published several books and written more than 400 research articles for prestigious peer-reviewed scientific journals.

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     In October 2004, Dr. Howard Young resigned from the Scientific Advisory Board and forfeited options to purchase 250,000 shares of our common stock at an exercise price of $0.18 per share, which were previously granted in December 2003. Dr. Young informed us that the reason for his resignation was due to recently adopted guidelines of The National Institute of Health which prohibit NIH employees from accepting consulting fees or stock options from biomedical companies.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION TO DIRECTORS

     We currently do not pay directors cash fees for their attendance at meetings of the board of directors or committees. We may revisit this position in the future. Directors are reimbursed for their out-of-pocket expenses incurred in connection with their attendance at meetings as well as granted stock options for their service on the Board and its committees.

COMPENSATION TO EXECUTIVE OFFICERS

     The following table summarizes all compensation awarded to, earned by or paid to (a) our Chief Executive Officer and (b) our other executive officers whose total salary and bonus exceeded $100,000 (together, the “Named Executive Officers”) for services rendered in all capacities to us during the years indicated.

SUMMARY COMPENSATION TABLE

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STOCK OPTIONS

     The following table provides information concerning grants of stock options made during 2004 to each of our Named Executive Officers. The percentage of total options granted to our employees in 2004 is based on an aggregate of 47,500,000 shares underlying options granted to all employees. We have never granted any stock appreciation rights.

     The exercisability of the options issued vests with respect to the shares underlying the option in 60 equal monthly installments. Each option has a maximum term of five years from the applicable exercise date, subject to earlier termination if the optionee’s services are terminated.

     The amounts shown in the table as potential realizable value represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These amounts represent assumed rates of appreciation in the value of our common stock from the fair market value on the date of grant. The 5% and 10% assumed compounded annual rates of stock price appreciation are mandated by rules of the Securities and Exchange Commission and do not represent our estimate or projection of the future price of our common stock. Actual gains, if any, on stock option exercises depend on the future performance of our common stock.

OPTION GRANTS IN 2004

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AGGREGATE OPTION EXERCISES IN 2004 AND OPTION VALUES AT DECEMBER 31, 2004

     The following table sets forth certain summary information concerning exercised and unexercised options to purchase our common stock as of December 31, 2004 held by the Named Executive Officers. No options were exercised during the year ended December 31, 2004 by the Named Executive Officers.

OPTION VALUES AT DECEMBER 31, 2004

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS

Hawkins Employment Agreement

     Pursuant to an Employment Agreement dated February 10, 2004, we retained Elma S. Hawkins, PhD, MBA as our President and Chief Executive Officer commencing February 18, 2004 until February 2006 unless terminated earlier as provided in the agreement. The initial term may be extended for successive one (1) year periods unless either party gives the other thirty (30) days prior written notice of its intent not to renew prior to the expiration of the then current term. Dr. Hawkins receives a base salary of $350,000 per year, and is eligible to receive an annual cash bonus of up to 50% of her then base salary based on certain performance objectives in the sole discretion of the Board of Directors. In addition, we paid Dr. Hawkins a signing bonus of $50,000. The agreement also entitles Dr. Hawkins and her dependents to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of Advanced Viral and their families. The agreement further provides that:

	•	We shall pay the dues of such professional associations and societies of which Dr. Hawkins is a member in furtherance of her duties.
	•	We shall reimburse Dr. Hawkins for reasonable expenses relating to professional licenses, entertainment, travel, and similar items in accordance with the policies, practices and procedures of Advanced Viral.
	•	We shall furnish Employee with an automobile and pay all expenses related to such automobile for

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		use in the performance of her duties, or, at our discretion provide, at our expense, car transportation between New York City and our Yonkers, New York headquarters.
	•	Dr. Hawkins will be entitled to four (4) weeks paid vacation annually or such other time as authorized by the Board of Directors during which time her 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.

     Furthermore, if the agreement is terminated by us for cause, or Dr. Hawkins voluntarily resigns, becomes disabled or dies, then Dr. Hawkins or her estate shall be entitled to her 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, Dr. Hawkins shall be entitled to, in one lump sum payment, that amount which is equivalent to her base salary paid for the fiscal year immediately prior to her termination, and all applicable reimbursements due. Payment of the lump sum severance benefit is conditioned upon the release by Dr. Hawkins of Advanced Viral, to the maximum extent permitted by law, from any and all claims she may have against us that relate to or arise out of her employment or termination of employment.

     Pursuant to the agreement, Dr. Hawkins received an option to purchase 40 million shares of our common stock through February 2009. The option vests in increments of 666,667 on a monthly basis, and is exercisable at four different prices, as follows: (i) $0.12 for the first 8 million option shares; (ii) $0.129 for the next 8 million option shares; (iii) $0.139 for the next 8 million option shares and (iv) $0.160 for the last 8 million option shares. If Dr. Hawkins is terminated for cause or if she voluntarily resigns without cause, the option shall expire for all option shares which have as of such date not become exercisable but shall survive with respect to option shares that have become exercisable as of such date, (the “Surviving Options”), provided, however, she shall have 90 days to exercise the Surviving Options. Upon the termination of her employment for reasons other than by for cause; or due to her voluntary unilateral decision to terminate her employment without cause, including her death or disability, the option shall immediately become exercisable for that number of option shares equal to the number of option shares which would have been subject to exercise by Dr. Hawkins during the then current term of the agreement (without giving effect to any extensions thereof).

HIRSCHMAN EMPLOYMENT AGREEMENT

     On August 27, 2003, Shalom Z. Hirschman, M.D. resigned as an officer and director of Advanced Viral upon the terms and conditions of a Third Amended and Restated Employment Agreement dated August 27, 2003 (the “Employment Agreement”). The resignation of Dr. Hirschman was not due to any disagreement with Advanced Viral on any matter relating to Advanced Viral’s operations, policies or practices. Pursuant to the terms of the Employment Agreement, we employed Dr. Hirschman on a full business time basis as our as our Chief Scientist. The agreement expired by its terms on December 31, 2004 and was not renewed.

ADVANCED VIRAL RESEARCH CORP. CASH OR DEFERRED PLAN AND TRUST (401(k))

Advanced Viral has a 401(k) plan that allows eligible employees to contribute up to 20% of their salary, subject to annual limits.

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ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

     The following table sets forth certain information known to us with respect to beneficial ownership of the Common Stock as of March 28, 2005, by (i) each stockholder known to us to be the beneficial owner of more than 5% of our common stock, (ii) each director, (iii) each of the executive officers named in the Summary Compensation Table set forth under “Item 11: Executive Compensation — Summary of Compensation” and (iv) all executive officers and directors as a group. Except as otherwise indicated, each person listed below has sole voting and investment power with respect to such common shares.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

DESCRIPTION OF SECURITIES

     Our Certificate of Incorporation authorizes us to issue 1,000,000,000 shares of common stock, par value $0.00001 per share. As of March 28, 2005, there were outstanding 696,487,734 shares of common stock, all of which are fully paid for and non-assessable. The holders of common stock (i) have equal ratable rights to dividends from funds legally available therefore, when, as and if declared by our board of directors; (ii) are entitled to share ratable in all of our assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of our affairs; (iii) do not have preemptive, subscription, or conversion rights and there are no redemption or sinking fund provisions applicable thereto; and (iv) are entitled to one noncumulative vote per share on all matters which stockholders may vote on at all meetings of stockholders.

TRANSFER AGENT

     The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, located in Brooklyn, New York. The transfer agent’s phone number is 718-921-8200.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

     As permitted by the Delaware General Corporation Law (“DGCL”), we have included in Article 9 of our Certificate of Incorporation the following with respect to indemnification of directors and officers:

“The Corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person, who has ceased to be director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.”

     Delaware law also permits a corporation to purchase and maintain insurance on behalf of any person who is or was a director or officer against any liability asserted against him and incurred by him in such capacity or arising out of his status as such, whether or not the corporation has the power to indemnify him against that liability under Section 145 of the DGCL. Pursuant to the foregoing, we currently maintain directors and officers insurance coverage. We may be required to indemnify certain officers and directors against liabilities that arise by reason of their status or service as officers or directors. In certain circumstances, we may be required to advance the expenses an officer or director incurs in legal proceedings. We believe that the provisions in our Certificate of Incorporation are necessary to attract and retain qualified persons as directors and officers. Our Certificate of Incorporation was amended on December 30, 1987, to limit or eliminate director liability by incorporating new Article 11, which provides:

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“A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of laws, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit.”

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Rachlin Cohen & Holtz LLP, independent certified public accountants, are the principal independent accountants of Advanced Viral and its subsidiaries. Advanced Viral’s auditors are retained solely to provide audit and audit-related services and advice with respect to tax matters, and have never provided any other type of non-audit services to Advanced Viral or its subsidiaries.

     Audit Fees. Rachlin Cohen & Holtz LLP billed Advanced Viral $81,000, $82,000 and $75,000 in 2004, 2003 and 2002, respectively, for the following audit services: (i) audit of the annual consolidated financial statements of Advanced Viral for the fiscal years ended December 31, 2004, 2003 and 2002; (ii) review of the interim financial statements of Advanced Viral included in quarterly reports on Form 10-Q and quarterly reports to shareholders for the periods ended March 31, June 30 and September 30, 2004, 2003 and 2002; (iii) the provision of consent letters; and (iv) review and advice in respect of accounting matters in connection with registration statement and prospectus filings of Advanced Viral and related public offerings by Advanced Viral of its equity securities.

     Audit-Related Fees. No audit-related services were provided by Rachlin Cohen & Holtz LLP to Advanced Viral during 2004, 2003 and 2002.

     Tax Fees. Rachlin Cohen & Holtz LLP billed Advanced Viral $5,000, $6,000 and $6,000 in 2004, 2003 and 2002, respectively, for the following tax services: (i) tax compliance; (ii) tax planning; and (iii) tax advice, including preparation of United States and state related tax filings.

     All Other Fees. No other services were provided by Rachlin Cohen & Holtz LLP to Advanced Viral during 2004, 2003 and 2002.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)

Financial Statements. The following consolidated financial statements are included in Part II, Item 8:

	(a)(2)	Financial Statements Schedules. No schedules have been submitted because they are not applicable or the required information is included in the financial statements or notes thereto.
	(a)(3)	Exhibits. The Exhibits listed below are filed or incorporated by reference as part of this report.