****UNITEDSTATES****

****SECURITIES ANDEXCHANGE COMMISSION****

****Washington, D.C. 20549****

----

 

****FORM 10-QSB/A****

| **(Mark One)**                           | ** **                                                                                                                                                                                                                                                                                                                                                       | ** ** |
|------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                               | ** **                                                                                                                                                                                                                                                                                                                                                       | ** ** |
| **x**                                    | **QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                     |
| ** **                               | **For the quarterly period ended January 31, 2007**                                                                                                                                                                                                                                                                                                              |
| ** **                               | ** **                                                                                                                                                                                                                                                                                                                                                       | ** ** |
| **o**                                    | **TRANSITION REPORT UNDER SECTION 13 or 15(d) OF  THE EXCHANGE ACT**                                                                                                                                                                                                                                                                                             |
| ** **                               | ** **                                                                                                                                                                                                                                                                                                                                                       | ** ** |
| ** **                               | **For the transition period from                         to                               ** |
| ** **                               | ** **                                                                                                                                                                                                                                                                                                                                                       | ** ** |
| ** Commission  File No.333-116480** |

 

****FERMAVIRPHARMACEUTICALS, INC.****

(Exactname of small business issuer as specified in its charter)

 

| **Florida**                                                |   | **16-1639902**                     |
|------------------------------------------------------------|--------|------------------------------------|
| (State or  jurisdiction of incorporation or  organization) |   | (IRS Employer  Identification No.) |

 

**420Lexington Avenue, Suite 445, New York, NY 10170**

(Address ofPrincipal Executive Office)

 

**(212)413-0802**

(Issuer’stelephone number)

 

**N/A**

(Former name,former address and former fiscal year, if changed since last report)

 

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

                             Yes x                    No o

Indicate by check mark whether the registrant is a shell company (asdefined by Rule 12b-2 of the Exchange Act:

 Yes o                                  No x

The number of sharesoutstanding of the Registrant’s Common Stock, $.0001 par value, as of March 19,2007 was 20,853,231.

 

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****EXPLANATORYNOTE****

****This Amendment to Form 10-QSB includes restatedunaudited condensed consolidated financial statements for the three and ninemonths ended January 31, 2007 and for the period from inception (November 15,2002) to January 31, 2007.  Such financialstatements have been revised to a reduction of accounts payable and a reductionof research and development expenses of $242,460 during the three months endedJanuary 31, 2007.  This Amendment speaks asof the original filing date of our Form 10-QSB and has not been updated toreflect events occurring subsequent to the original filing date except for FinancialStatement Footnote 10, Subsequent Events.****

----

**INTRODUCTORY NOTE**

 

This Report onForm 10-QSB for FermaVir Pharmaceuticals, Inc. may contain forward-lookingstatements. You can identify these statements by forward-looking words such as “may,”“will,” “expect,” “intend,” “anticipate,” believe,” “estimate” and “continue”or similar words. Forward-looking statements include information concerningpossible or assumed future business success or financial results. You shouldread statements that contain these words carefully because they discuss futureexpectations and plans, which contain projections of future results ofoperations or financial condition or state other forward-looking information. Webelieve that it is important to communicate future expectations to investors. However,there may be events in the future that we are not able to accurately predict orcontrol. Accordingly, we do not undertake any obligation to update anyforward-looking statements for any reason, even if new information becomesavailable or other events occur in the future.

The forward-lookingstatements included herein are based on current expectations that involve anumber of risks and uncertainties set forth under “Risk Factors” in our Form10-KSB filed with the SEC on August 16, 2006. Accordingly, to the extent thatthis Quarterly Report contains forward-looking statements regarding thefinancial condition, operating results, business prospects or any other aspectof the Company, please be advised that the Company’s actual financialcondition, operating results and business performance may differ materiallyfrom that projected or estimated by the Company in forward-looking statements.

2

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**PART I - FINANCIAL INFORMATION**

 
| **Item 1:** | ** ** | **Financial Statements** |
|-------------|------------|--------------------------|

 

**FermaVir Pharmaceuticals, Inc. andSubsidiary**

**(A Development Stage Company)**

**Condensed Consolidated Balance Sheets**

 
| ** **                                                                                                                                                              | ** ** | **January 31,** | ** ** | **April 30** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-------------------|------------|
| ** **                                                                                                                                                              | ** ** | **2007**             | ** ** | **2006**          | ** ** |
| ** **                                                                                                                                                              | ** ** | **(Unaudited)**      | ** ** | **(Note 2)** | ** ** |
| ** **                                                                                                                                                              |       | **(RESTATED)**       |       |              |       |
| **Assets**                                                                                                                                                              |       |                 |       |              |       |
| ** **                                                                                                                                                              |       |                 |       |              |       |
| Current assets:                                                                                                                                                         |       |                 |       |              |       |
| Cash                                                                                                                                                                    |       | $                    | 503,508    |              | $          | 127,121 |   |
| Prepaid expenses                                                                                                                                                        |       | 91,555               |       | 17,439            |       |
| Total current  assets                                                                                                                                                   |       | 595,063              |       | 144,560           |       |
|                                                                                                                                                                    |       |                 |       |              |       |
| Property and equipment,  net                                                                                                                                            |       | 14,599               |       | 22,490            |       |
| Other assets                                                                                                                                                            |       | 43,890               |       | 43,890            |       |
|                                                                                                                                                                    |       |                 |       |              |       |
| Total assets                                                                                                                                                            |       | $                    | 653,552    |              | $          | 210,940 |   |
|                                                                                                                                                                    |       |                 |       |              |       |
| **Liabilities  and Stockholders’ Equity (Deficiency)**                                                                                                             |       |                 |       |              |       |
|                                                                                                                                                                    |       |                 |       |              |       |
| Current Liabilities -  Accounts payable and accrued expenses                                                                                                            |       | $                    | 202,287    |              | $          | 401,743 |   |
|                                                                                                                                                                    |       |                 |       |              |       |
| Non-current liabilities  - Deferred rent                                                                                                                                |       | 16,507               |       | 12,157            |       |
|                                                                                                                                                                    |       |                 |       |              |       |
| Total  liabilities                                                                                                                                                      |       | 218,794              |       | 413,900           |       |
|                                                                                                                                                                    |       |                 |       |              |       |
| Commitments                                                                                                                                                             |       |                 |       |              |       |
|                                                                                                                                                                    |       |                 |       |              |       |
| Stockholders’ equity  (deficiency):                                                                                                                                |       |                 |       |              |       |
| Preferred stock,  $0.001 par value, 20,000,000 shares authorized, no shares outstanding                                                                                 |       | 0                    |       | 0                 |       |
| Common stock,  $0.0001 par value, 100,000,000 shares authorized, 20,853,231 and 17,575,884  issued and outstanding at January 31, 2007 and April 30, 2006, respectively |       | 2,085                |       | 1,757             |       |
| Additional  paid-in capital                                                                                                                                             |       | 11,307,135           |       | 5,685,785         |       |
| Deferred  stock-based compensation                                                                                                                                      |       | 0                    |       | (308,615          | )          |
| Deficit  accumulated during development stage                                                                                                                           |       | (10,874,462          | )          | (5,581,887        | )          |
| Total  stockholders’ equity (deficiency)                                                                                                                           |       | 434,758              |       | (202,960          | )          |
|                                                                                                                                                                    |       |                 |       |              |       |
| Total liabilities and  stockholders’ equity (deficiency)                                                                                                           |       | $                    | 653,552    |              | $          | 210,940 |   |

 

The accompanying notes are an integral part of theseunaudited condensed consolidated financial statements

3

----

**FermaVirPharmaceuticals, Inc. and Subsidiary**

**(A Development Stage Company)**

**Condensed Consolidated Statements ofOperations**

**(Unaudited)**

 
| ** **                                                                                                     | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** | **For the period  November 15, 2002** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **January 31**              | ** ** | **January 31**             | ** ** | **(Inception) to January**                      | ** ** |
| ** **                                                                                                     | ** ** | **2007**                         | ** ** | **2006**                        | ** ** | **2007**                                                  | ** ** | **2006** | ** ** | **31, 2007** | ** ** |
| ** **                                                                                                     | ** ** | **(RESTATED)**                   | ** ** | ** **                      | ** ** | **(RESTATED)**                                            | ** ** | ** ** | ** ** | **(RESTATED)** | ** ** |
| Revenues                                                                                                       |       | $                                | 0          |                            | $          | 0                                                         |       | $ | 0 |   | $ | 0 |   | $ | 0 |   |
|                                                                                                           |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| Operating  expenses:                                                                                           |       |                             |       |                            |       |                                                      |       |   |   |   |   |
|                                                                                                           |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| Research and development:                                                                                      |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| Non-cash charge for stock-based compensation                                                                   |       | 14,220                           |       | 0                               |       | 42,660                                                    |       | 0 |   | 72,553 |   |
| Other                                                                                                          |       | 272,506                          |       | 263,410                         |       | 547,190                                                   |       | 554,682 |   | 1,400,954 |   |
| Total research and development                                                                                 |       | 286,726                          |       | 263,410                         |       | 589,850                                                   |       | 554,682 |   | 1,473,507 |   |
|                                                                                                           |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| Charge for acquired in-process research and development                                                        |       | 0                                |       | 0                               |       | 0                                                         |       | 2,695,054 |   | 2,713,996 |   |
|                                                                                                           |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| General and administrative:                                                                                    |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| Non-cash charges for:                                                                                          |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| Fair value of common stock and warrants issued to a  related party in satisfaction of a contractual obligation |       | 2,055,570                        |       | 0                               |       | 2,055,570                                                 |       | 0 |   | 2,055,570 |   |
| Fair value of common stock and warrants issued to a  related party in excess of net cash received              |       | 99,729                           |       | 0                               |       | 99,729                                                    |       | 0 |   | 99,729 |   |
| Warrants issued for services                                                                                   |       | 0                                |       | 1,081,230                       |       | 0                                                         |       | 1,085,093 |   | 1,086,546 |   |
| Stock-based compensation                                                                                       |       | 39,744                           |       | 21,726                          |       | 102,480                                                   |       | 38,445 |   | 144,150 |   |
| Other                                                                                                          |       | 98,962                           |       | 243,428                         |       | 560,977                                                   |       | 429,614 |   | 1,277,371 |   |
| Total general and administrative                                                                               |       | 2,294,005                        |       | 1,346,384                       |       | 2,818,756                                                 |       | 1,553,152 |   | 4,663,366 |   |
|                                                                                                           |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| Total operating expenses                                                                                       |       | 2,580,731                        |       | 1,609,794                       |       | 3,408,606                                                 |       | 4,802,888 |   | 8,850,869 |   |
|                                                                                                           |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| Operating loss                                                                                                 |       | (2,580,731                       | )          | (1,609,794                      | )          | (3,408,606                                                | )          | (4,802,888 | ) | (8,850,869 | ) |
|                                                                                                           |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| Other income  (expense):                                                                                       |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| ** **                                                                                                     | ** ** | ** **                       |       |                            | ** ** | ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest income                                                                                                |       | 0                                |       | 4,298                           |       | 134                                                       |       | 6,164 |   | 8,766 |   |
| Interest expense                                                                                               |       | (1,645,218                       | )          | (143,883                        | )          | (1,884,103                                                | )          | (148,256 | ) | (2,032,359 | ) |
| Total other expense                                                                                            |       | (1,645,218                       | )          | (139,585                        | )          | (1,883,969                                                | )          | (142,092 | ) | (2,023,593 | ) |
|                                                                                                           |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| Net loss                                                                                                       |       | $                                | (4,225,949 | )                               | $          | (1,749,379                                                | )          | $ | (5,292,575 | ) | $ | (4,944,980 | ) | $ | (10,874,462 | ) |
|                                                                                                           |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| Net loss per common share:                                                                                     |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| Basic and diluted                                                                                              |       | $                                | (0.22      | )                               | $          | (0.10                                                     | )          | $ | (0.29 | ) | $ | (0.12 | ) |   |   |
|                                                                                                           |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| Weighted average shares of common stock outstanding:                                                           |       |                             |       |                            |       |                                                      |       |   |   |   |   |
| Basic and  diluted                                                                                             |       | 19,181,700                       |       | 17,466,688                      |       | 18,116,455                                                |       | 41,404,983 |   |   |   |

 

The accompanying notes are an integral part of theseunaudited condensed consolidated financial statements

4

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**FermaVirPharmaceuticals, Inc. and Subsidiary**

**(A Development Stage Company)**

**Condensed Consolidated Statements ofStockholders’ Equity (Deficiency)**

**(Unaudited)**
| ** **                                                                                                                                                                                                                             | ** ** | ** **               | ** ** | ** **            | ** ** | ** **  | ** ** | ** **       | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | **Deficit**     | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------|------------|-------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|-----------------|------------|------------|------------|
| ** **                                                                                                                                                                                                                             | ** ** | ** **               | ** ** | ** **            | ** ** | ** **  | ** ** | ** **       | ** ** | ** **     | ** ** | ** **      | ** ** | **Deferred**     | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                                                                                                                                                                                                                             | ** ** | ** **               | ** ** | ** **            | ** ** | ** **  | ** ** | ** **       | ** ** | **Additional** | ** ** | ** **      | ** ** | **Stock-**       | ** ** | **During**      | ** ** | ** ** | ** ** |
| ** **                                                                                                                                                                                                                             | ** ** | **Preferred Stock** | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Subscription** | ** ** | **Based**      | ** ** | **Development** | ** ** | ** **       | ** ** |
| ** **                                                                                                                                                                                                                             | ** ** | **Shares**               | ** ** | **Amount**            | ** ** | **Shares**  | ** ** | **Amount**       | ** ** | **Capital**    | ** ** | **Receivable**  | ** ** | **Compensation** | ** ** | **Stage**       | ** ** | **Total**  | ** ** |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Balance, November 15,  2002 (Inception)                                                                                                                                                                                                |       | 0                        |       | $                     | 0          |        | 0          |             | $          | 0              |       | $               | 0          |             | $          | 0               |       | $          | 0          |   | $ | 0 |   | $ | 0 |   |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Issuance  of common stock to founders for cash at $0.00003 per share                                                                                                                                                                   |       |                     |       |                  |       | 70,560,000  |       | 7,050            |       | (5,050         | )          | (2,000          | )          |             |       |            |       | 0          |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Balance, April 30, 2003                                                                                                                                                                                                                |       | 0                        |       | 0                     |       | 70,560,000  |       | 7,050            |       | (5,050         | )          | (2,000          | )          | 0                |       | 0               |       | 0          |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Payment  of subscription receivable                                                                                                                                                                                                    |       |                     |       |                  |       |        |       |             |       |           |       | 2,000           |       |             |       |            |       | 2,000      |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Issuance  of common stock for cash at $0.0014 per share                                                                                                                                                                                |       |                     |       |                  |       | 8,820,000   |       | 882              |       | 11,618         |       |            |       |             |       |            |       | 12,500     |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Net  loss                                                                                                                                                                                                                              |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       | (159            | )          | (159       | )          |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Balance, April 30, 2004                                                                                                                                                                                                                |       | 0                        |       | 0                     |       | 79,380,000  |       | 7,932            |       | 6,568          |       | 0               |       | 0                |       | (159            | )          | 14,341     |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Net  loss                                                                                                                                                                                                                              |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       | (24,117         | )          | (24,117    | )          |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Balance, April 30, 2005                                                                                                                                                                                                                |       | 0                        |       | 0                     |       | 79,380,000  |       | 7,932            |       | 6,568          |       | 0               |       | 0                |       | (24,276         | )          | (9,776     | )          |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Acquisition  of FermaVir Research, Inc:                                                                                                                                                                                                |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Stock  issued valued at $0.70 per share                                                                                                                                                                                                |       |                     |       |                  |       | 1,829,000   |       | 183              |       | 1,280,117      |       | (5,600          | )          |             |       |            |       | 1,274,700  |       |
| Issuance  of stock options to consultants                                                                                                                                                                                              |       |                     |       |                  |       |        |       |             |       | 504,835        |       |            |       |             |       |            |       | 504,835    |       |
| Issuance  of stock options to employee                                                                                                                                                                                                 |       |                     |       |                  |       |        |       |             |       | 303,348        |       |            |       | (303,348         | )          |            |       | 0          |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Issuance  of common stock and warrants for cash at $0.75 per share net of expenses                                                                                                                                                     |       |                     |       |                  |       | 3,863,527   |       | 386              |       | 2,864,431      |       |            |       |             |       |            |       | 2,864,817  |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Issuance  of common stock and warrants in exchange for note payable with a fair value  of $1.55 per share and $1.06 per warrant ($23,865)                                                                                              |       |                     |       |                  |       | 150,000     |       | 15               |       | 256,350        |       |            |       |             |       |            |       | 256,365    |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Issuance  of stock options to employee                                                                                                                                                                                                 |       |                     |       |                  |       |        |       |             |       | 64,348         |       |            |       | (64,348          | )          |            |       | 0          |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Stock  issued in connection with the exercise of warrants at $1.50                                                                                                                                                                     |       |                     |       |                  |       | 33,334      |       | 3                |       | 49,998         |       |            |       |             |       |            |       | 50,001     |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Redemption  and retirement of stock at $0.011 per share                                                                                                                                                                                |       |                     |       |                  |       | (67,679,977 | )          | (6,762           | )          | (743,238       | )          |            |       |             |       |            |       | (750,000   | )          |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Issuance  of warrants to consultants                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       | 1,086,546      |       |            |       |             |       |            |       | 1,086,546  |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Amortization  of deferred stock-based compensation for employee and directors                                                                                                                                                          |       |                     |       |                  |       |        |       |             |       | 12,482         |       |            |       | 59,081           |       |            |       | 71,563     |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Collection  of subscription receivable                                                                                                                                                                                                 |       |                     |       |                  |       |        |       |             |       |           |       | 5,600           |       |             |       |            |       | 5,600      |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Net  loss                                                                                                                                                                                                                              |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       | (5,557,611      | )          | (5,557,611 | )          |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Balance, April 30, 2006                                                                                                                                                                                                                |       | 0                        |       | 0                     |       | 17,575,884  |       | 1,757            |       | 5,685,785      |       | 0               |       | (308,615         | )          | (5,581,887      | )          | (202,960   | )          |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Reclassification  of deferred stock-based compensation upon adoption of SFAS 123R                                                                                                                                                      |       |                     |       |                  |       |        |       |             |       | (308,615       | )          |            |       | 308,615          |       |            |       | 0          |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Stock  based compensation expense:                                                                                                                                                                                                     |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Employees                                                                                                                                                                                                                              |       |                     |       |                  |       |        |       |             |       | 119,138        |       |            |       |             |       |            |       | 119,138    |       |
| Directors                                                                                                                                                                                                                              |       |                     |       |                  |       |        |       |             |       | 26,002         |       |            |       |             |       |            |       | 26,002     |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Common  stock issued in connection with issuance of notes payable                                                                                                                                                                      |       |                     |       |                  |       | 40,625      |       | 5                |       | 27,931         |       |            |       |             |       |            |       | 27,936     |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Warrants  issued in connection with issuance of notes payable                                                                                                                                                                          |       |                     |       |                  |       |        |       |             |       | 460,093        |       |            |       |             |       |            |       | 460,093    |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Adjustment  of warrant terms                                                                                                                                                                                                           |       |                     |       |                  |       |        |       |             |       | 64,315         |       |            |       |             |       |            |       | 64,315     |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Issuance  of common stock and warrants with a fair value of $1,765,265 ($1.95 per share  common share and 325,695 warrants at $1.52 per warrant) in exchange for notes  payable with face value and accrued interest totaling $488,541 |       |                     |       |                  |       | 651,389     |       | 65               |       | 1,765,199      |       |            |       |             |       |            |       | 1,765,264  |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Issuance  of common stock and warrants with a fair value of $2,146,320 ($1.95 per share  common share and 396,000 warrants at $1.52 per warrant) in exchange for a  contractual obligation to a related party of $594,000              |       |                     |       |                  |       | 792,000     |       | 79               |       | 2,146,241      |       |            |       |             |       |            |       | 2,146,320  |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Issuance  of common stock and warrants with a fair value of $8,908,977 ($1.69 per share  common share and 4,186,666 warrants at $1.28 per warrant) in exchange for net  cash proceeds of $1,221,500                                    |       |                     |       |                  |       | 1,793,333   |       | 179              |       | 1,321,046      |       |            |       |             |       |            |       | 1,321,225  |       |
|                                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       |            |       |       |       |
| Net  loss (RESTATED)                                                                                                                                                                                                                   |       |                     |       |                  |       |        |       |             |       |           |       |            |       |             |       | (5,292,575      | )          | (5,292,575 | )          |
| Balance, January 31,  2007  (RESTATED)                                                                                                                                                                                            |       | 0                        |       | $                     | 0          |        | 20,853,231 |             | $          | 2,085          |       | $               | 11,307,135 |             | $          | 0               |       | $          | 0          |   | $ | (10,874,462 | ) | $ | 434,758 |   |

The accompanying notesare an integral part of these unaudited condensed consolidated financialstatements

5

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**FermaVir Pharmaceuticals, Inc. andSubsidiary**

**(ADevelopment Stage Company)**

**CondensedConsolidated Statement of Cash Flows**

**(Unaudited)**
| ** **                                                                                                                                                    | ** ** | **Nine Months Ended  January 31** | ** ** | **For the period  November 15, 2002  (Inception) to January** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                                    | ** ** | **2007**                                         | ** ** | **2006**                                                                                    | ** ** | **31, 2007** | ** ** |
| ** **                                                                                                                                                    | ** ** | **(RESTATED)**                                   | ** ** | ** **                                                                                  | ** ** | **(RESTATED)** | ** ** |
| Operating  activities:                                                                                                                                        |       |                                             |       |                                                                                        |       | ** ** |   |
|                                                                                                                                                          |       |                                             |       |                                                                                        |       |   |   |
| Net loss                                                                                                                                                      |       | $                                                | (5,292,575 | )                                                                                           | $          | (4,944,980 | ) | $ | (10,874,462 | ) |
|                                                                                                                                                          |       |                                             |       |                                                                                        |       |   |   |
| Adjustments to  reconcile net loss to net cash used in operating activities:                                                                                  |       |                                             |       |                                                                                        |       |   |   |
| Non-cash charges  for                                                                                                                                         |       |                                             |       |                                                                                        |       |   |   |
| Value of shares  and warrants issued to a related party for services                                                                                          |       | 503,250                                          |       | 0                                                                                           |       | 503,250 |   |
| Value of shares  and warrants issued in excess of the contractual obligation to a related  party                                                              |       | 1,552,320                                        |       | 0                                                                                           |       | 1,552,320 |   |
| Value of shares  and warrants issued in excess of the carrying amount of principal and  interest of notes payable in connection with repayment of those notes |       | 1,553,928                                        |       | 0                                                                                           |       | 1,553,928 |   |
| Value of shares  and warrants issued in excess of consideration received from a related party                                                                 |       | 99,729                                           |       | 0                                                                                           |       | 99,729 |   |
| Value of shares  and warrants issued in excess of the principal amount repaid in connection  with a note due to related party                                 |       | 0                                                |       | 143,865                                                                                     |       | 143,865 |   |
| Write-off of  acquired in-process research and development                                                                                                    |       | 0                                                |       | 2,695,054                                                                                   |       | 2,713,996 |   |
| Issuance of  warrants for services                                                                                                                            |       | 0                                                |       | 1,085,093                                                                                   |       | 1,086,546 |   |
| Charge for  revision of warrant terms                                                                                                                         |       | 64,315                                           |       | 0                                                                                           |       | 64,315 |   |
| Stock-based  compensation                                                                                                                                     |       | 145,140                                          |       | 38,445                                                                                      |       | 216,703 |   |
| Depreciation                                                                                                                                                  |       | 7,891                                            |       | 2,770                                                                                       |       | 12,453 |   |
| Accretion of debt  discount to interest expense                                                                                                               |       | 82,988                                           |       | 0                                                                                           |       | 82,988 |   |
| Other non-cash  interest expense                                                                                                                              |       | 57,868                                           |       | 0                                                                                           |       | 57,868 |   |
| Write-off of  unamortized debt discount to interest expense in connection with amendment of  notes payable                                                    |       | 125,009                                          |       | 0                                                                                           |       | 125,009 |   |
| Changes in operating  assets and liabilities:                                                                                                                 |       |                                             |       |                                                                                        |       |   |   |
| (Increase)  decrease in prepaid expenses                                                                                                                      |       | (74,116                                          | )          | 25,300                                                                                      |       | (39,285 | ) |
| Increase in other  assets                                                                                                                                     |       | 0                                                |       | (43,890                                                                                     | )          | (43,890 | ) |
| Increase  (decrease) in accounts payable and accrued expenses                                                                                                 |       | (108,706                                         | )          | (176,937                                                                                    | )          | 127,395 |   |
| Increase in  non-current liabilities                                                                                                                          |       | 4,350                                            |       | 10,341                                                                                      |       | 16,507 |   |
|                                                                                                                                                          |       |                                             |       |                                                                                        |       |   |   |
| Net cash used in  operating activities                                                                                                                        |       | (1,278,609                                       | )          | (1,164,939                                                                                  | )          | (2,600,765 | ) |
|                                                                                                                                                          |       |                                             |       |                                                                                        |       |   |   |
| Investing  activities:                                                                                                                                        |       |                                             |       |                                                                                        |       |   |   |
|                                                                                                                                                          |       |                                             |       |                                                                                        |       |   |   |
| Purchase of  property and equipment                                                                                                                           |       | 0                                                |       | (27,052                                                                                     | )          | (27,052 | ) |
| Cash acquired in  acquisition                                                                                                                                 |       | 0                                                |       | 27,156                                                                                      |       | 27,156 |   |
| Cash paid in  connection with acquisition transaction costs                                                                                                   |       | 0                                                |       | 0                                                                                           |       | (145,025 | ) |
|                                                                                                                                                          |       |                                             |       |                                                                                        |       |   |   |
| Net cash provided  by (used in) investing activities                                                                                                          |       | 0                                                |       | 104                                                                                         |       | (144,921 | ) |
|                                                                                                                                                          |       |                                             |       |                                                                                        |       |   |   |
| Financing  activities:                                                                                                                                        |       |                                             |       |                                                                                        |       |   |   |
|                                                                                                                                                          |       |                                             |       |                                                                                        |       |   |   |
| Proceeds from  issuance of notes payable net of expenses                                                                                                      |       | 433,500                                          |       | 0                                                                                           |       | 433,500 |   |
| Proceeds from  sale of common stock net of expenses                                                                                                           |       | 1,221,496                                        |       | 2,864,817                                                                                   |       | 4,150,814 |   |
| Redemption of  common stock                                                                                                                                   |       | 0                                                |       | (400,000                                                                                    | )          | (400,000 | ) |
| Repayment of  notes payable to related party                                                                                                                  |       | 0                                                |       | (940,720                                                                                    | )          | (940,720 | ) |
| Collection of  subscription receivable                                                                                                                        |       | 0                                                |       | 0                                                                                           |       | 5,600 |   |
|                                                                                                                                                          |       |                                             |       |                                                                                        |       |   |   |
| Net cash provided  by financing activities                                                                                                                    |       | 1,654,996                                        |       | 1,524,097                                                                                   |       | 3,249,194 |   |
|                                                                                                                                                          |       |                                             |       |                                                                                        |       |   |   |
| Net change in  cash                                                                                                                                           |       | 376,387                                          |       | 359,262                                                                                     |       | 503,508 |   |
|                                                                                                                                                          |       |                                             |       |                                                                                        |       |   |   |
| Cash - Beginning  of period                                                                                                                                   |       | 127,121                                          |       | 224                                                                                         |       | 0 |   |
|                                                                                                                                                          |       |                                             |       |                                                                                        |       |   |   |
| Cash - End of  period                                                                                                                                         |       | $                                                | 503,508    |                                                                                        | $          | 359,486 |   | $ | 503,508 |   |
|                                                                                                                                                          |       |                                             |       |                                                                                        |       |   |   |
| Supplemental  disclosure of non-cash investing and financing activities:                                                                                      |       |                                             |       |                                                                                        |       |   |   |
|                                                                                                                                                          |       |                                             |       |                                                                                        |       |   |   |
| Issuance of notes  payable:                                                                                                                                   |       |                                             |       |                                                                                        |       |   |   |
| Value attributed  to common stock                                                                                                                             |       | $                                                | 27,936     |                                                                                        | $          | 0 |   | $ | 27,936 |   |
| Value attributed  to warrants                                                                                                                                 |       | 460,093                                          |       | 0                                                                                           |       | 460,093 |   |
| Issuance of  equity instruments in connection with payment of notes payable:                                                                                  |       |                                             |       |                                                                                        |       |   |   |
| Value attributed  to common stock                                                                                                                             |       | 1,270,208                                        |       | 0                                                                                           |       | 1,270,208 |   |
| Value attributed  to warrants                                                                                                                                 |       | 495,056                                          |       | 0                                                                                           |       | 495,056 |   |
| Issuance of  equity instruments in connection with payment of obligation to a related  party:                                                                 |       |                                             |       |                                                                                        |       |   |   |
| Value attributed  to common stock                                                                                                                             |       | 1,544,400                                        |       | 0                                                                                           |       | 1,544,400 |   |
| Value attributed  to warrants                                                                                                                                 |       | 601,920                                          |       | 0                                                                                           |       | 601,920 |   |
| Issuance of  common stock in business combination                                                                                                             |       | 0                                                |       | 1,280,300                                                                                   |       | 1,280,300 |   |
| Assumption of  consultants’ options in connection with business combination                                                                              |       | 0                                                |       | 504,835                                                                                     |       | 504,835 |   |
| Assumption of  employee options in connection with business combination                                                                                       |       | 0                                                |       | 303,348                                                                                     |       | 303,348 |   |
| Net liabilities  assumed in business combination                                                                                                              |       | 0                                                |       | 785,992                                                                                     |       | 785,992 |   |
| Note payable  issued in connection with redemption of shares                                                                                                  |       | 0                                                |       | 350,000                                                                                     |       | 350,000 |   |
| Shares and  warrants issued in connection with repayment of note payable                                                                                      |       | 0                                                |       | 112,500                                                                                     |       | 112,500 |   |

 

The accompanying notes are an integral part of theseunaudited condensed consolidated financial statements

6

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**FermaVir Pharmaceuticals, Inc.and Subsidiary**

**(A Development Stage Company)**

**Notes to Condensed ConsolidatedFinancial Statements**

**(Unaudited)**

**1)****            Business**

****FermaVirPharmaceuticals, Inc. (t****he “Company”) was organizedunder the laws of the State of Florida on November 15, 2002 as Venus BeautySupply, Inc.  The Company had nooperations through August 16, 2005.  Onthat date, it acquired 100% of the outstanding common shares of FermaVirResearch, Inc. (“FermaVir”), raised funds through the sale of common stock, andchanged its name to FermaVir Pharmaceuticals, Inc.

Through its whollyowned subsidiary, the Company has licensed patents on a series of compounds forthe treatment of viral diseases including compounds for the treatment ofvaricella zoster virus (“VZV”), the causative agent for shingles andchickenpox, and human cytomegalovirus (“CMV”), a member of the herpes virusgroup which includes the viruses that cause chicken pox, mononucleosis, herpeslabialis (cold sores) and genitalis (genital herpes).

Additionally,through its wholly owned subsidiary, the Company has performed preclinicalstudies on its compounds and has selected a clinical candidate for developmentfor the treatment of shingles.  TheCompany’s clinical candidate will undergo extensive preclinical testing.  The Company is conducting pharmacology andsafety studies of its clinical candidate in order to file an InvestigationalNew Drug Application (“IND”) with the Food and Drug Administration.

Upon acceptance ofthe IND, the Company intends to commence Phase I safety studies of its clinicalcandidate for the treatment of shingles in humans.  In addition, the Company intends to identifyfrom its proprietary anti-viral compounds, a clinical candidate for thetreatment of CMV infections in transplant patients.  The Company is also currently seeking otheropportunities and technologies for in-licensing from academic, researchinstitutions, and commercial sources which would complement and enhance its business.

The Company’sprimary activities have been organizational in nature, including recruitingpersonnel, establishing office facilities, licensing patents, conductingresearch and development, performing business and financial planning, andraising capital.  Since inception, theCompany has not generated any revenues and, accordingly, is considered to be inthe development stage.

**2)****            Basisof Presentation and Significant Accounting Policies**

***Basis of Presentation***

The accompanyingunaudited condensed consolidated financial statements include the accounts ofFermaVir Research, Inc., a 100% owned subsidiary, and have been prepared inaccordance with accounting principles generally accepted in the United Statesof America for interim 

7

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financialinformation and the rules and regulations of the Securities and ExchangeCommission.  Accordingly, theconsolidated financial statements do not include all information and footnotesrequired by accounting principles generally accepted in the United States ofAmerica for complete annual financial statements.  In the opinion of management, theaccompanying unaudited condensed consolidated financial statements reflect alladjustments, consisting of only normal recurring adjustments, considerednecessary for a fair presentation. Interim operating results are not necessarily indicative of results thatmay be expected for the fiscal year ending April 30, 2007 or for any otherinterim period.  These unauditedcondensed consolidated financial statements should be read in conjunction withthe Company’s audited financial statements as of and for the year ended April30, 2006, which are included in the Company’s Annual Report on Form 10-KSB forsuch year.  The condensed consolidatedbalance sheet as of April 30, 2006 has been derived from the auditedconsolidated financial statements included in the Form 10-KSB for that year.

The accompanyingunaudited condensed consolidated financial statements have been prepared on agoing concern basis which contemplates the realization of assets and thesettlement of liabilities and commitments in the normal course ofbusiness.  The Company has incurredlosses totaling $10,874,462 from November 15, 2002 (Inception) to January 31,2007 and has limited working capital. These factors, among others, raise substantial doubt that the Companywill be able to continue as a going concern. The financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.

The Company hassustained operating losses since its inception and expects such losses tocontinue over the next several years. Management plans to continue financing the operations with a combinationof equity issuances and debt arrangements. If adequate funds are not available, the Company may be required todelay, reduce the scope of, or eliminate its research or development programs,or cease operations.

Our continuedoperations will depend on whether we are able to raise additional funds throughvarious potential sources, such as equity and debt financing, collaborative andlicensing agreements, strategic alliances, and our ability to realize the fullpotential of our technology in development. Such additional funds may not become available on acceptable terms, ifat all, and there can be no assurance that any additional funding that we doobtain will be sufficient to meet our needs in the long term.  From November 15, 2002 (Inception) to January31, 2007, all of our financing has been through private placements of commonstock and warrants and the issuances of notes payable.  We intend to continue to fund operations fromcash on-hand and through the similar sources of capital previously describedfor the foreseeable future.  We can giveno assurances that any additional capital that we are able to obtain will besufficient to meet our needs.  We believethat we will continue to incur net losses and negative cash flows fromoperating activities for the foreseeable future.  Based on the resources available to us atJanuary 

8

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31, 2007, we willneed additional equity or debt financing to sustain our operations through thebalance of 2007 and we will need additional financing thereafter until we canachieve profitability, if ever.  Thesematters raise substantial doubt about our ability to continue as a goingconcern.

***Use of Estimates***

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities andthe disclosure of contingent liabilities at the date of the financialstatements as well as the reported expenses during the reporting periods.  On an ongoing basis, management evaluates itsestimates and judgments.  Management basesestimates on its historical experience and on various other factors that itbelieves are reasonable under the circumstances, the results of which form thebasis for making judgments about the carrying value of assets and liabilitiesthat are not readily apparent from other sources.  Actual results may differ from theseestimates under different assumptions or conditions.

***Propertyand Equipment***

Property andequipment are recorded at cost. Depreciation is provided for furniture and equipment on a straight-linebasis over their estimated useful lives of five and three years, respectively.

***Research and Development***

Research anddevelopment expenses consist of costs incurred to further the Company’sresearch and development activities and include salaries and related employeebenefits, costs associated with clinical trials, non-clinical activities suchas testing, regulatory activities, and fees paid to external service providersand contract research organizations who conduct certain research and developmentactivities on behalf of the Company. Research and development costs are expensed as incurred.

**Accounting for Acquisitions**

Acquisitions areaccounted for utilizing the purchase method in accordance with Statement ofFinancial Accounting Standards No. 141 “Business Combinations”.  Under the purchase method, assets acquiredand liabilities assumed by the Company are recorded at their estimated fairvalues as of the date of acquisition and the results of operations of theacquired company are consolidated with those of the Company from the date ofacquisition.

***Computation of Net Loss Per Common Share***

Basic net loss percommon share is calculated by dividing net loss applicable to common shares bythe weighted-average number of common shares outstanding for the period.  Diluted net loss per common share is the sameas basic net loss per common share because the potentially dilutive securityissuances from the exercise of stock options and stock warrants would have ananti-dilutive effect on the Company’s net loss per common share during eachperiod presented.  The 

9

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amounts ofpotentially dilutive stock options excluded from the calculation were 2,451,000and 2,188,000 shares at January 31, 2007 and 2006, respectively.  The amounts of potentially dilutive stock warrantsexcluded from the calculation were 6,260,142 and 1,904,695 shares at January31, 2007 and 2006, respectively.

***Stock-Based Compensation***

EffectiveMay 1, 2006, the Company adopted Financial Accounting Standards Board issuedStatement of Financial Accounting Standard No. 123 (Revised 2004), *Share-Based Payments* (“SFAS 123R”).  SFAS 123R requires a public entity to measurethe cost of employee services received in exchange for the award of equityinstruments based on the fair value of the award at the date of grant.  The expense is to be recognized over theperiod during which an employee is required to provide services in exchange forthe award.  See Note 7, “Adoption ofStatement of Financial Accounting Standard No. 123 (Revised 2004), *Share-Based Payments”*, for additional disclosuresregarding the adoption of SFAS 123R and the Company’s accounting forstock-based compensation expense.

**3)****            Acquisitionof FermaVir Research, Inc.**

On August 16,2005, the Company issued 1,829,000 common shares in exchange for alloutstanding common shares of FermaVir Research, Inc (“FermaVir”).  Additionally, the Company exchanged 1,850,000options to purchase common stock of the Company with the holders of alloutstanding options to purchase common stock of FermaVir as of that date.

After thecompletion of this transaction and the simultaneous financing, the shareholdersof the Company owned approximately 70% of the combined company.  The acquisition of FermaVir has been accountedfor by the Company under the purchase method of accounting in accordance withStatement of Financial Accounting Standards No. 141 “Business Combinations”.  Under the purchase method, assets acquiredand liabilities assumed by the Company are recorded at their estimated fairvalues as of the date of acquisition and the results of operations of theacquired company are consolidated with those of the Company from the date ofacquisition.

The followingunaudited pro forma financial information presents the consolidated results ofoperations of the Company and FermaVir, as if the acquisition had occurred onMay 1, 2005 instead of August 16, 2005 and includes the charge for thewrite-off of acquired in process research and development of $2,695,056.  The pro forma information does notnecessarily reflect the results of operations that would have occurred had theentities been a single company during those periods.

10

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** **
|                                                            | ** ** | **Three Months**          | ** ** | **Nine Months**           | ** ** |
|------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                                 | ** ** | **Ended**                      | ** ** | **Ended**                      | ** ** |
| ** **                                                 | ** ** | **January 31, 2006** | ** ** | **January 31, 2006** | ** ** |
|                                                       |       |                           |       |                           |       |
| Pro forma Net  loss                                        |       | $                              | (1,754,629 | )                              | $          | (5,307,680 | ) |
|                                                       |       |                           |       |                           |       |
| Weighted average  number of common shares outstanding      |       | 17,542,550                     |       | 17,768,234                     |       |
|                                                       |       |                           |       |                           |       |
| Pro forma Loss per  common share - Basic and fully diluted |       | $                              | (0.10      | )                              | $          | (0.30 | ) |

 

**4)****            LicensingAgreement and Commitments**

On February 2,2005, FermaVir entered into a Patent and Technology License Agreement (the “LicenseAgreement”) with University College Cardiff Consultants Limited (“Cardiff”), anaffiliate of Cardiff University located in the United Kingdom, for a series ofpharmaceutical compounds for the treatment of viral diseases.

Under the terms ofthis License Agreement, the Company, through its wholly owned subsidiary, hasthe exclusive, worldwide rights to research, develop, and commercially exploitsuch technology during the period of existing patent protection which extendsfrom fifteen to twenty years in targeted markets in North America, WesternEuropean nations, Japan, Australia, and New Zealand and any new relatedpatents.  Remaining obligations underthis License Agreement consist of milestone payments aggregating $550,000during the clinical trial phase of development for each product, and royaltypayments based upon net sales of such products as defined in the Agreement.  Additionally, the Company is obligated tomake good faith expenditures of at least $2,000,000 for the clinicaldevelopment of at least one pharmaceutical compound during the initial threeyears of the License Agreement.  As ofJanuary 31, 2007, no milestone payments were due to Cardiff.

**5)****            Stockholders’Equity**

***StockSplit***

On August 22,2005, the Company effected a 35.28 for one stock split resulting in authorizedcapital stock of 120,000,000 shares consisting of 100,000,000 shares of commonstock with 

11

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$0.0001 par valueand 20,000,000 shares of preferred stock with $0.001 par value.  All share and per share data have beenrestated for this stock split.

***FinancingActivities***

On June 16 and July 28, 2006, the Company issuedpromissory notes in the aggregate principal amount of $325,000 together withwarrants and received net proceeds of $298,500. The notes bear interest at 12% and mature on January 1, 2007.  The warrants entitle the holder to purchase325,000 shares of common stock at $1.00 per share and expire on June 30, 2012.

Proceeds from the issuance of these instruments wereallocated to notes payable and warrants based upon the relative amounts of theface value of the notes and the estimated fair value of the warrants.  This resulted in allocation of $130,835 tothe notes payable (resulting in a debt discount of $194,164) and $167,665 tothe warrants.  The amounts allocated towarrants were accounted for as an increase to additional paid in capital.  That discount is being amortized to interestexpense utilizing the interest method through the scheduled maturity date ofthe notes.  The Company recorded non-cashexpense for the amortization of that discount of zero, $69,154, and $69,154during the three and nine months ended January 31, 2007 and the period from November15, 2002 (Inception) to January 31, 2007, respectively.

On September 22, 2006, the Company entered into anagreement with an investor under which the investor agreed to purchase $75,000principal amount of 8% notes due January 1, 2008 (the “New Note”) and 112,500warrants to purchase shares of the Company’s common stock for $1.00 per shareuntil June 30, 2014 (the “2014 New Warrants”) for net proceeds of $67,500.

Additionally on September 22, 2006, the Companysimultaneously entered into a Letter Agreement and Amendment Agreement (the “Amendment”)with certain investors (the “Prior Investors”) who participated in a privateplacement of the Company’s $325,000 principal amount 12% notes due January 1,2007 (the “Prior Notes”) and warrants (the “Prior Warrants”) in June and July2006 (the “Prior Placement”).  Pursuantto the Letter Agreement, the Investors agreed to amend the Prior Notes by (i)extending the maturity date of the Prior Notes to January 1, 2008 (the “MaturityDate”), (ii) lowering the interest rate accruing on the principal amount of thePrior Notes from 12% per annum to 8% commencing as of September 1, 2006, (iii)increasing the financing trigger requiring mandatory redemption of the PriorNotes from two to three times the outstanding principal of the Prior Notes, and(iv) lowering the optional redemption price of 106% of the principal amount ofthe Prior Notes, plus accrued interest to 103% of the principal for the periodfrom July 1, 2007 to the Maturity Date. In addition, pursuant to the Amendment, the Investors agreed to amendthe Prior Warrants by extending the expiration date of the Prior Warrants fromJune 30, 2012 to June 20, 2014.  TheAmendment essentially changed the terms of the Prior Notes and Prior Warrantsto be equivalent to the New Note and New Warrants, 

12

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including extending the maturity date of the PriorNotes from January 1, 2007 to January 1, 2008. In exchange for the Investors entering into the Amendment, the Companyissued 40,625 shares of common stock and 162,500 New Warrants.

The amendment referred to above constitutes a materialmodification.  Consequently thetransaction was accounted for in accordance with the guidance in the consensusof Emerging Issues Task Force Issue No. 96-19, “Debtors Accounting for Modificationor Exchange of Debt Instruments” as an extinguishment of the existing debt withthe issuance of new debt.  A loss fromthe extinguishment of debt of $125,009 resulted from the write-off of theunamortized debt discount relating to the original debt and is included ininterest expense.

The fair value of common stock and warrants issued inconnection with the modification was allocated to the instruments based ontheir relative fair values.  Thisresulted in allocation of $152,522 to the notes payable (resulting in therecording of a debt discount of $247,478), $17,623 to the common stock, and$397,416 to the warrants.  The amountsallocated to common stock and warrants were accounted for as an increase toadditional paid in capital.  The Companyrecorded non-cash expense for the amortization of the debt discount of $3,711,$12,839, and $12,839 for the three and nine months ended January 31, 2007 andfor the period from November 15, 2002 (Inception) to January 31, 2007.

Additionally on September 22, 2006, the Company issueda warrant for the purchase of 40,000 common shares at an exercise price of$1.00 per share with a fair value of $33,897 to an advisor who providedassistance with the transactions.  Thefair value of the warrant was charged to interest expense.

On November 9, 2006, the Company issued a promissorynote in the principal amount of $75,000 together with warrants and received netproceeds of $67,500.  The notes bearinterest at 8% and mature on January 1, 2008. The warrants entitle the holder to purchase 112,500 shares of commonstock at price of $1.00 per share and expire on December 31, 2016. Inconnection with this transaction, the Company issued a warrant for the purchaseof 31,250 common shares at an exercise price of $1.00 per share to an advisorwho provided assistance with this transaction.

Proceeds from the issuance of these instruments wereallocated to notes payable and warrants based upon the relative amounts of theface value of the notes and the estimated fair value of the warrants.  This resulted in allocation of $32,688 and$34,812 to the notes payable (resulting in the recording of a debt discount of$42,312) and warrants, respectively.  Theamounts allocated to warrants were accounted for as an increase to additionalpaid in capital.  The Company recordednon-cash expense for the amortization of that discount of $1,005 for each ofthe three and nine month periods ended January 31, 2007 and for the period fromNovember 15, 2002 (Inception) to January 31, 2007.

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Additionally on November 9, 2006, the Company enteredinto an Amendment Agreement (“Agreement”) with the Investors in the notespayable with principal amounts aggregating $400,000 and warrants (the “PriorWarrants”) issued in June, July and September 2006 and described above.  Pursuant to the Agreement, the Investorsagreed to amend (the “Amendment”) the Prior Warrants by (i) extending the termof the warrants to December 31, 2016, (ii) adding in a full ratchetanti-dilution clause for issuances or sales of common stock or common stockequivalents below the exercise price of the Prior Warrants and (iii) adding ina covenant that the Company shall file a registration statement by January 31,2007.  The fair value of the amendedwarrants on November 9, 2006 in excess of all amounts previously allocated tosuch warrants was $64,315.  This amountwas accounted for as an increase to additional paid in capital with acorresponding charge to interest expense.

On November 15, 2006, the Company entered into a DebtConversion Agreement (the “Conversion Agreement”) with the Investors in thenotes payable described above.  Under theterms of the Conversion Agreement, the Company issued 651,389 shares of commonstock and warrants to purchase 325,695 shares of common stock at $1.00 per sharethrough December 31, 2016 with a combined fair market value of $1,765,265 inpayment of notes with principal amounts aggregating $475,000 plus accruedinterest and having a carrying value of $211,336.  The fair market value of the common stock andwarrants was accounted for as an increase to equity.  The excess of that amount over the carryingvalue of the notes payable and accrued interest was $1,553,928 and was chargedto interest expense.

Additionally on November 15, 2006, the Company enteredinto a Debt Conversion Agreement (the “Conversion Agreement”) with a relatedparty.  Under the terms of the ConversionAgreement, the Company issued 792,000 shares of common stock and warrants topurchase 396,000 shares of common stock at $1.00 per share through December 31,2016 with a combined fair market value of $2,146,320 in payment of $594,000 duein connection with a consulting agreement. The fair market value of the common stock and warrants was accounted foras an increase to equity.  The excess ofthat amount over the amount due in connection with the consulting agreement was$1,552,320 and was charged to administrative expense.

In a series of transactions from December 21, 2006through January 26, 2007, the Company issued 1,793,333 shares of common stock andwarrants to purchase 3,966,668 shares of common stock and received net proceedsof $1,221,496 at a price of $0.75 per share. The warrants have an exercise price of $1.00 per share and 266,667 ofthe warrants expire on December 21, 2016, 3,119,999 of the warrants expire onJanuary 10, 2017 and 200,000 of the warrants expire on January 26, 2017.  Other than pursuant to certain issuances, ifthe Company sells or grants any option to purchase, dispose of, or issue anycommon stock or common stock equivalents at an effective price per share lessthan the then exercise price of these 

14

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warrants while they are outstanding, then the exerciseprice of these warrants shall be reduced to the same amount.  Included in the amounts above were 26,667shares of common stock and warrants to purchase 53,333 shares of common stockwith a combined fair market value of $117,615 which were sold to a relatedparty.  The fair market value of thecommon stock and warrants was accounted for as an increase to equity.  The excess of that amount over theconsideration received was $99,729 and was charged to other expense.

**6)****            StockOptions and Warrants**

On January 31,2007, the Company granted options to members of management and the Board ofDirectors to purchase 158,000 shares of common stock at an exercise price of$1.90 for a period of 10 years.  TheCompany estimated the fair value of these options as of the date of the grantto be $201,882 utilizing the Black-Scholes model and will record stock basedcompensation expense ratably over the vesting period.

**7)****            Share Based Payments**

InDecember 2004, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standard No. 123 (Revised 2004), *Share-Based Payments* (“SFAS 123R”).  SFAS 123R requires a public entity to measurethe cost of employee services received in exchange for the award of equityinstruments based on the fair value of the award at the date of grant.  The expense is to be recognized over the periodduring which an employee is required to provide services in exchange for theaward.  SFAS 123R is effective as of thebeginning of the first interim or annual reporting period that begins afterDecember 15, 2005 and, accordingly, the Company adopted this standard on May 1,2006.

Forall awards granted prior to May 1, 2006, the unrecognized portion of stockbased compensation is being recognized as an expense on a straight line basisover the remaining requisite service period. The Company has chosen the modified prospective method for transitioningto SFAS 123R and, accordingly, the financial results for prior periods have notbeen restated.

Priorto May 1, 2006, the Company had employed the principles of Statement ofFinancial Accounting Standard No. 123, *Accounting for Stock-BasedCompensation* (SFAS 123”).  Asprovided for by SFAS 123, the Company had elected to record compensationexpense to the extent of employee or director services rendered based on thefair value of stock options granted under the plan.  The Company estimated the fair value of stockoptions and warrants utilizing the Black-Scholes option-pricing model andcommon stock utilizing its market value.

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Becausethe Company had previously adopted FAS 123, recording stock based compensationat fair value, there was no effect upon the results of operations for the threeand nine months ended January 31, 2007 for the adoption of SFAS 123R.  The remaining unrecognized compensation costrelated to non-vested share-based compensation arrangements for all employeestock options outstanding at January 31, 2007, as measured at the date ofgrant, was approximately $437,000.  Thisamount is being expensed over the remaining requisite service period of therelated options, which averages thirty-one months.

Inconnection with the adoption of SFAS 123R on May 1, 2006, the balance ofdeferred unamortized stock based compensation of $308,615 as of April 30, 2006has been eliminated against the appropriate equity accounts during the threemonths ended July 31, 2006.

Therisk-free interest rate assumption is based upon observed interest ratesappropriate for the expected term of the Company’s employee stock options.  The expected volatility is based on thehistorical volatility of the stock of comparable companies.  The Company has not paid any dividends oncommon stock since its inception and does not anticipate paying dividends onits common stock in the foreseeable future. The computation of the expected option term is based on expectationsregarding future exercises of options which generally vest over three years andhave a ten year life.

Theassumptions made in calculating the fair value of all options and warrants areas follows:
|                           | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|---------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                | ** ** | **January 31**              | ** ** | **January 31**             | ** ** |
| ** **                | ** ** | **2007**                         | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| Risk free  interest rate  |       | 4.8%                             |       | 4.5%                            |       | .8% |   | 4.0  to 4.5% |   |
| Dividend yield            |       | 0.0%                             |       | 0.0%                            |       | 0.0% |   | 0.0% |   |
| Volatility                |       | 80.0%                            |       | 80.0%                           |       | 80.0% |   | 80%  to 82% |   |
| Expected life (in  years) |       | 1 to 3                           |       | 1                               |       | 1 to 3 |   | 1 to 5 |   |

 

SFAS 123R requiresforfeitures to be estimated at the time of grant and revised, if necessary, insubsequent periods if actual forfeitures differ from those estimates.  Based on very limited historical experiencethe Company has assumed no forfeitures in the determination of stock-basedcompensation expense under SFAS 123R.

TheCompany’s determination of fair value is affected by the Company’ stock priceas well as the assumptions discussed above which require judgment.

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Asummary of the changes in options outstanding during the nine months endedJanuary 31, 2007 is as follows:
|                                                                                               | ** ** | ** **         | ** ** | ** **             | ** ** | **Weighted**          | ** ** | ** **    | ** ** |
|-----------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|-----------------------|------------|---------------|------------|
| ** **                                                                                    | ** ** | ** **         | ** ** | ** **             | ** ** | **Average**           | ** ** | ** **    | ** ** |
| ** **                                                                                    | ** ** | ** **         | ** ** | **Weighted**           | ** ** | **Remaining**         | ** ** | **Aggregate** | ** ** |
| ** **                                                                                    | ** ** | **Number of** | ** ** | **Average Price** | ** ** | **Contractual**       | ** ** | **Intrinsic** | ** ** |
| ** **                                                                                    | ** ** | **Shares**         | ** ** | **Per Share**     | ** ** | **Term (Years)** | ** ** | **Value**     | ** ** |
|                                                                                          |       |               |       |                   |       |                  |       |          |       |
| Outstanding at  April 30, 2006                                                                |       | 2,248,000          |       | $                      | 0.97       |                  | 9.0        |          | $          | 288,200 |   |
| Granted                                                                                       |       | 203,000            |       | 1.71                   |       | 9.9                   |       | —        |       |
| Exercised                                                                                     |       | —             |       |                   |       |                  |       |          |       |
| Terminated                                                                                    |       | —             |       |                   |       |                  |       |          |       |
| Outstanding at  January 31, 2007                                                              |       | 2,451,000          |       | $                      | 1.03       |                  | 8.4        |          | $          | 2,123,450 |   |
|                                                                                          |       |               |       |                   |       |                  |       |          |       |
| Options  exercisable at January 31, 2007                                                      |       | 1,394,666          |       | $                      | 0.87       |                  | 8.2        |          | $          | 1,473,783 |   |
|                                                                                          |       |               |       |                   |       |                  |       |          |       |
| Weighted-average fair  value of options granted during the nine months ended January 31, 2007 |       | $                  | 1.28       |                   |       |                  |       |          |       |   |
|                                                                                               |            |                    |            |                        |            |                       |            |               |            |  |  |  |

 

Thefollowing table represents all warrants issued, exercised, cancelled andoutstanding during the nine months ended January 31, 2007:
|                                                          | ** ** | **Number**         | ** ** | **Weighted Average**     | ** ** |
|----------------------------------------------------------|------------|--------------------|------------|-------------------------------|------------|
| ** **                                               | ** ** | **Of Shares** | ** ** | **Price per Share** | ** ** |
|                                                     |       |               |       |                          |       |
| Outstanding at May 1,  2006                              |       | 1,754,695          |       | $                             | 1.45       |   |
| Issued                                                   |       | 5,472,113          |       | 0.99                          |       |
| Cancelled                                                |       | (966,666           | )          | 1.50                          |       |
| Warrants outstanding and exercisable at January 31, 2007 |       | 6,260,142          |       | 1.04                          |       |
|                                                          |            |                    |            |                               |            |  |

 

**8)            Related Party Transactions**

On November 15,2006, the Company entered into a Debt Conversion Agreement (the “ConversionAgreement”) and on January 10, 2007 sold common stock and warrants to relatedparties.  A full description of suchactivities is included in Note 5.

**9)            Restatement of Prior Period Results**

** **

Due to an error consisting of an over accrual of research anddevelopment expenses, the Company has restated our financial statements for thequarter ended January 31, 2007. The following table set forth certain unauditedrestated Consolidated Statement of Operations for the three and nine monthsended January 31, 2007:

 
| ** **                      | ** ** | **Three Months Ended  January 31, 2007** | ** ** | **Nine Months Ended  January 31, 2007** | ** ** |
|---------------------------------|------------|--------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                      | ** ** | **As Reported**                                         | ** ** | **Adjustment**                                              | ** ** | **As Restated** | ** ** | **As Reported** | ** ** | **Adjustment** | ** ** | **As Restated** | ** ** |
| Operating Expenses:             |       |                                                         |       |                                                        |       |   |   |   |   |   |   |   |   |
| Research and  development:      |       |                                                         |       |                                                        |       |   |   |   |   |   |   |   |   |
| Other                           |       | $                                                            | 514,966    |                                                        | $          | 242,460 |   | $ | 272,506 |   | $ | 789,650 |   | $ | 242,460 |   | $ | 547,190 |   |
| Total research and  development |       | 529,186                                                      |       | 242,460                                                     |       | 286,726 |   | 832,310 |   | 242,460 |   | 589,850 |   |
| Total operating  expenses       |       | 2,823,191                                                    |       | 242,460                                                     |       | 2,580,731 |   | 3,651,066 |   | 242,460 |   | 3,408,606 |   |
| Operating Loss                  |       | (2,823,191                                                   | )          | 242,460                                                     |       | (2,580,731 | ) | (3,651,066 | ) | 242,460 |   | (3,408,606 | ) |
| Net Loss                        |       | $                                                            | (4,468,409 | )                                                           | $          | 242,460 |   | $ | (4,225,949 | ) | $ | (5,535,035 | ) | $ | 242,460 |   | $ | (5,292,575 | ) |
|                            |       |                                                         |       |                                                        |       |   |   |   |   |   |   |   |   |
| Net loss per common share:      |       |                                                         |       |                                                        |       |   |   |   |   |   |   |   |   |
| Basic and diluted               |       | $                                                            | (0.23      | )                                                           | $          | (0.01 | ) | $ | (0.22 | ) | $ | (0.31 | ) | $ | (0.02 | ) | $ | (0.29 | ) |

 

 
|                                 | ** ** | **For the period November 15, 2002 (inception) to January 31, 2007** | ** **  |
|---------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|-------------|
| ** **                      | ** ** | **As Reported**                                                                                                   | ** **  | **Adjustment** | ** ** | **As Restated** | ** ** |
| Operating  Expenses:            |       |                                                                                                                   |        |   |   |   |   |
| Research and development:       |       |                                                                                                                   |        |   |   |   |   |
| Other                           |       | $                                                                                                                      | 1,643,414   |   | $ | 242,460 |   | $ | 1,400,954 |   |
| Total research  and development |       | 1,715,967                                                                                                              |        | 242,460 |   | 1,473,507 |   |
| Total operating  expenses       |       | 9,093,329                                                                                                              |        | 242,460 |   | 8,850,869 |   |
| Operating Loss                  |       | (9,093,329                                                                                                             | )           | 242,460 |   | (8,850,869 | ) |
| Net Loss                        |       | $                                                                                                                      | (11,116,922 | ) | $ | 242,460 |   | $ | (10,874,462 | ) |

** **

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**10)          Subsequent Event**

Effective on March16, 2006, the founders of FermaVir Research, Inc. who collectively own1,029,100 shares of the Company and fully-vested options to purchase 1,050,100shares of the Company at $0.75 per share, granted to the Company anirrevocable, exclusive option to repurchase 926,100 of those shares and cancelwarrants to purchase 945,000 shares under certain conditions in exchange for acash payment to those founders of $214,000. Effective March 13, 2007, thisarrangement was terminated by mutual agreement of all parties.

On March 19, 2007, the Company entered into an amendmentwith the holders of the warrants that were modified on November 15, 2006 inconnection with the Conversion Agreements previously discussed.  Under that amendment, the holders agreed towaive the full ratchet anti-dilution provisions and registration rightsprovisions in such warrants in exchange for reducing the exercise price of thewarrants from $1.00 per share to $0.275 per share and increasing the number ofshares issuable pursuant to such warrants from an aggregate 1,505,445 to6,021,780.  Additionally on March 19,2007, the Company entered into an amendment to the warrants issued to theinvestors in the private placement conducted by the Company in December 2006and January 2007.  In exchange forwaiving the full ratchet anti dilution provisions in such warrants, theexercise price of the warrants was reduced from $1.00 per share to $0.525 pershare.  The fair value of these amendedwarrants in excess of all amounts previously attributed to such warrants hasbeen accounted for during the quarter ended April 30, 2007 as an increase toadditional paid in capital with a corresponding charge to expense.

On April 9, 2007, the Company entered into a definitive Agreement andPlan of Merger and Reorganization (the “Merger Agreement”) with Inhibitex, Inc.(“Inhibitex”).  Under the terms of theagreement, each of the approximately 20.8 million outstanding shares of theCompany’s common stock will be exchanged for 0.55 shares of Inhibitex commonstock.  Immediately following thetransaction, the Company’s shareholders are expected to own approximately 27%of the combined entity.  Inhibitex willalso assume up to 13.9 million of outstanding FermaVir options and warrants atthe same exchange ratio.  Completion ofthe transaction is subject to the approval of Inhibitex and FermaVirshareholders, required regulatory approvals, and certain other conditions asset forth in the definitive agreement.

 

In connection with this transaction, Inhibitex agreed to purchase up to$1,500,000 in senior secured promissory notes issued by the Company (the“Notes”) through August 2007.  As of thedate of this document, Inhibitex has purchased $750,000 in Notes.  The Notes bear interest at 12% per annum andare due upon the earlier of December 31, 2007 or the termination of the MergerAgreement.  The Company must comply withcertain covenants with respect to the operation of its business so long as anyamounts due under the Notes are outstanding, which include a prohibition onincurring additional debt or liens without the consent of the holders of theNotes.

 

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**Item 2:****          Management’s Discussionand Analysis or Plan of Operation**

The followingdiscussion should be read in conjunction with our condensed consolidatedfinancial statements and notes to those statements included elsewhere in thisreport. In addition to historical information, the following discussion andother parts of this report contain forward-looking information that involvesrisks and uncertainties.

**Overview**

Since inception onNovember 15, 2002 through January 31, 2007, we have sustained cumulative netlosses of $10,874,462.  Our losses haveresulted primarily from research and development expenses, patent costs andlegal and accounting expenses.  Frominception through January 31, 2007, we have not generated any revenue fromoperations.  We expect to incuradditional losses to perform further research and development activities.  We do not currently have any commercialproducts and we do not expect to have any for the foreseeable future.  Our product development efforts are in theirearly stages and we cannot make estimates of the costs or the time it will taketo complete.  The risk of completion ofany program is high because of the long duration of clinical testing, regulatoryapproval and review cycles and uncertainty of the costs.  Net cash inflows from any products developedmay take several years to achieve.

Management plansto continue financing the operations with a combination of equity issuances anddebt arrangements.  If adequate funds arenot available, we may be required to delay, reduce the scope of, or eliminateour research or development programs, or cease operations.  In light of these factors, among others, ourindependent registered public accounting firm has stated that there issubstantial doubt about our ability to continue as a going concern.  The financial statements do not include anyadjustments that might result from the outcome of this uncertainty.

**Plan ofOperation**

We are adevelopment stage biotechnology company that has licensed patents for a seriesof compounds for the treatment of viral diseases including compounds for thetreatment of varicella zoster virus, or VZV, the causative agent for shinglesand chickenpox and human cytomegalovirus, or CMV, a member of the herpes virusgroup which includes the viruses that cause chickenpox, mononucleosis, herpeslabialis (cold sores) and genitalis (genital herpes).

We have performedpreclinical studies on a series of our compounds and have selected FV-100,prodrug of CF-1743 for development for the treatment of shingles.  A prodrug is a drug which is administered ina form which enhances the pharmacology of the active compound and onceadministered, is metabolized in the body into an active compound.  Our clinical candidate, FV-100, is currentlyundergoing extensive preclinical testing. We are contracting and supervising the pharmacology and safety studiesof our clinical candidate in order to file an Investigational New DrugApplication (IND) with the Food and Drug Administration (FDA).

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Upon acceptance ofthe IND, we intend to commence Phase I safety studies of our clinical candidatefor the treatment of shingles in humans. In addition, we intend to identify a clinical candidate for thetreatment of CMV infections in transplant patients from our proprietaryanti-viral compounds.  We are alsocurrently seeking other opportunities and technologies for in-licensing fromacademia, research institutions and commercial sources which would complementand enhance our business.

On November 30,2005, we submitted a pre-IND submission to the FDA requesting a consultation onour proposed plan for development of CF-1743 for the treatment ofshingles.  In January 2006, we received aresponse from the FDA on our pre-IND submission.  The FDA provided guidance on our preclinicaland early stage clinical plans.  We alsofiled a pre-IND submission to the FDA for FV-100 in April 2006 and received a responsefrom the FDA in June.  We are using theFDA’s guidance from both pre-IND responses in preparing an IND for our shinglesdrug candidate, FV-100.

On December 12,2005, we entered into a marketing and public relations service agreement withTrilogy Capital Partners, Inc.  Under theterms of the agreement, Trilogy was to be paid $12,500 per month and was issuedwarrants to purchase 1,000,000 shares of our common stock at an exercise priceof $1.50 per share which are exercisable for a period of three years.  This agreement was terminated effective June3, 2006.  On October 12, 2006, by actionof the Board of Directors, we canceled the unexercised portion of theoutstanding warrants issued to Trilogy and its assignees for the purchase of966,666 shares of common stock.

**Resultsof Operations**

**ThreeMonths Ended January 31, 2007 Compared To The Three Months Ended January 31,2006**

During the threemonths ended January 31, 2007 and 2006, we had no revenue.  We do not expect to have revenues relating toour product candidates in development for several years, if at all.

Research anddevelopment expense for the three months ended January 31, 2007 was $286,726 ascompared to $263,410 for the comparable period in 2006.  This increase is due to the increased levelsof performance of preclinical studies for development of a treatment for shinglesduring the current period.

General andadministrative expense for the three months ended January 31, 2007 was $2,294,005as compared to $1,346,384 for the comparable period in 2006.  This increase is primarily due to an increaseof $974,340 in the value of warrants issued for services, an increase of$99,729 related to the sale of common stock & warrants below market valueto a related party, and a decrease of $144,466 related to cost containmentefforts in the areas of payroll and benefits, marketing expenses, legal andaccounting fees, occupancy expenses, directors’ fees, and general operatingexpenses.

Other expense forthe three months ended January 31, 2007 was $1,645,218 as compared to $139,585for the comparable period in 2006.  Thisincrease is primarily attributable to an 

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increase of$1,501,335 related to financing costs for notes payable issued and subsequentlyconverted to equity during the current period.

Net loss for thethree months ended January 31, 2007 was $4,225,949 as compared to a net loss of$1,749,379 for the comparable period in 2006. This increase in net loss is attributable to the net effect of a increasein research and development expenses of $23,316, an increase in general andadministrative expenses of $947,621, and an increase in other expense of $1,505,633as described in the preceding paragraphs.

**NineMonths Ended January 31, 2007 Compared To The Nine Months Ended January 31,2006**

During the ninemonths ended January 31, 2007 and 2006, we had no revenue.  We do not expect to have revenues relating toour product candidates in development for several years, if at all.

Research anddevelopment expense for the nine months ended January 31, 2007 was $589,850 ascompared to $554,682 for the comparable period in 2006.  This decrease is due to the contraction ofoperating activities due to financial constraints.

The charge foracquired in-process research and development for the nine months ended January31, 2007 was zero as compared to $2,695,054 for the comparable period in2006.  This decrease is due to theabsence of acquisition activity during the current period.

General andadministrative expense for the nine months ended January 31, 2007 was $2,818,756as compared to $1,553,152 for the comparable period in 2006.  This increase is primarily due to an increaseof $970,477 in the value of warrants issued for services, an increase of$99,729 related to the sale of common stock and warrants below market value toa related party, an increase of $64,035 in stock based compensation, and anincrease of $131,363 due to operations consisting of payroll and benefits,marketing expenses, legal and accounting fees, occupancy expenses, directors’fees, and general operating expenses.

Other expense forthe nine months ended January 31, 2007 was $1,883,969 as compared to $142,092for the comparable period in 2006.  Thisincrease is primarily attributable to an increase of $1,735,847 related tofinancing costs for notes payable issued and subsequently converted to equityduring the current period.

Net loss for thenine months ended January 31, 2007 was $5,292,575 as compared to a net loss of$4,944,980 for the comparable period in 2006. This increase in net loss is attributable to the net effect of anincrease in research and development expenses of $35,186, the absence of acharge for acquired in-process research and development of $2,695,054, anincrease in general and administrative expenses of $1,265,604, and an increasein other expense of $1,741,877 as described in the preceding paragraphs.

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**Liquidityand Capital Resources**

Our cash positionwas $503,508 as of January 31, 2007 compared to $127,121 as of April 30,2006.  The net decrease during thatperiod is attributable to proceeds of $1,654,996 from the issuance of notespayable and common stock and warrants net of operating disbursements of$1,278,609.

Our currentliabilities totaled $202,287 as of January 31, 2007 compared to $401,743 as ofApril 30, 2006.  These amounts reflect adecrease in activity based on financial constraints.

We had a workingcapital surplus of $392,776 as of January 31, 2007 compared to a workingcapital deficit of $257,183 as of April 30, 2006.  The improvement during that period isattributable to financing activity.

From November 15,2002 (Inception) to January 31, 2007, our operations have been financed throughprivate placements of common stock and warrants and the issuances of notespayable and we have incurred a deficit during the development stage of $10,874,462.  This loss was incurred through a combinationof research and development activities, expenses supporting those activities,and a charge to expense for acquired in process research and development.  We expect to continue to incur additionallosses and negative cash flows from operating activities for the foreseeablefuture.

On November 9, 2006, we issued a promissory note inthe principal amount of $75,000 together with warrants and received netproceeds of $67,500.  The notes bearinterest at 8% and mature on January 1, 2008. The warrants entitle the holder to purchase 112,500 shares of commonstock at price of $1.00 per share and expire on December 31, 2016.

Additionally on November 9, 2006, we entered into anAmendment Agreement (“Agreement”) with certain investors (the “Investors”)holding notes payable with principal amounts aggregating $400,000 and warrants(the “Prior Warrants”) issued in June, July and September 2006.  Pursuant to the Agreement, the Investorsagreed to amend (the “Amendment”) the Prior Warrants by (i) extending the termof the warrants to December 31, 2016, (ii) adding in a full ratchetanti-dilution clause for issuances or sales of common stock or common stockequivalents below the exercise price of the Prior Warrants and (iii) adding ina covenant that we shall file a registration statement by January 31, 2007. Asof the date of this document, such registration statement has not been filed.

On November 15, 2006, we entered into a DebtConversion Agreement (the “Conversion Agreement”) with the Investors in thenotes payable described above.  Under theterms of the Conversion Agreement, we issued 651,389 shares of common stock andwarrants to purchase 325,695 shares of common stock at $1.00 per share throughDecember 31, 2016 with a combined fair value of $1,765,265 in payment of noteswith principal amounts aggregating $475,000 plus accrued interest and having anaggregate carrying value of $211,336, net of debt discount.

Additionally on November 15, 2006, we entered into a ConversionAgreement with a related party.  Underthe terms of the Conversion Agreement, we issued 792,000 shares of common stockand warrants to purchase 396,000 shares of common 

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stock at $1.00 per share through December 31, 2016with a combined fair market value of $2,146,320 in payment of $594,000 due inconnection with a consulting agreement.

In a series of transactions from December 21, 2006through January 26, 2007, we issued 1,793,333 shares of common stock andwarrants to purchase 3,586,666 shares of common stock and received net proceedsof $1,221,496 at a price of $0.75 per share. The warrants have an exercise price of $1.00 per share and 266,667 ofthe warrants expire on December 21, 2016, 3,119,999 of the warrants expire onJanuary 10, 2017 and 200,000 of the warrants expire on January 26, 2017.  Other than pursuant to certain issuances, if wesell or grant any option to purchase, dispose of, or issue any common stock orcommon stock equivalents at an effective price per share less than the thenexercise price of these warrants while they are outstanding, then the exerciseprice of these warrants shall be reduced to the same amount.

On March 19, 2007, we entered into an amendment withthe holders of the warrants that were modified on November 15, 2006 inconnection with the Conversion Agreements previously discussed.  Under that amendment, the holders agreed towaive the full ratchet anti-dilution provisions and registration rightsprovisions in such warrants in exchange for reducing the exercise price of thewarrants from $1.00 per share to $0.275 per share and increasing the number ofshares issuable pursuant to such warrants from an aggregate 1,505,445 to6,021,780.  Additionally on March 19,2007, we entered into an amendment to the warrants issued to the investors inthe private placement conducted by us in December 2006 and January 2007.  In exchange for waiving the full ratchet antidilution provisions in such warrants, the exercise price of the warrants wasreduced from $1.00 per share to $0.525 per share.  The fair value of these amended warrants inexcess of all amounts previously attributed to such warrants will be accountedfor during the quarter ended April 30, 2007 as an increase to additional paidin capital with a corresponding charge to expense.

On April 9, 2007, the Company entered into a definitive Agreementand Plan of Merger and Reorganization (the “Merger Agreement”) with Inhibitex,Inc. (“Inhibitex”).  Under the terms ofthe agreement, each of the approximately 20.8 million outstanding sharesof the Company’s common stock will be exchanged for 0.55 shares ofInhibitex common stock.  Immediatelyfollowing the transaction, the Company’s shareholders are expected to ownapproximately 27% of the combined entity. Inhibitex will also assume up to 13.9 million of outstandingFermaVir options and warrants at the same exchange ratio.  Completion of the transaction is subject tothe approval of Inhibitex and FermaVir shareholders, required regulatoryapprovals, and certain other conditions as set forth in the definitiveagreement.

 

In connection with this transaction, Inhibitex agreed to purchase up to$1,500,000 in senior secured promissory notes issued by the Company (the“Notes”) through August 2007.  As ofthe date of this document, Inhibitex has purchased $750,000 in Notes.  The Notes bear interest at 12% per annum andare due upon the earlier of December 31, 2007 or the termination of theMerger Agreement.  The Company mustcomply with certain covenants with respect to the operation of its business solong as any amounts due under the Notes are outstanding, which include aprohibition on incurring additional debt or liens without the consent of theholders of the Notes.

 

Our availableworking capital and capital requirements will depend upon numerous factors,including progress of our research and development programs, our progress inand the cost of pre-clinical and clinical testing, the timing and cost ofobtaining regulatory approvals, the cost of filing and prosecuting patentclaims and other intellectual property rights, competing technological andmarket developments, current and future licensing relationships, the status ofour competitors, and our ability to establish collaborative arrangements withother organizations.

Our continuedoperations will depend on whether we are able to raise additional funds throughvarious potential sources, such as equity and debt financing, collaborative andlicensing agreements, strategic alliances, and our ability to realize the fullpotential of our technology in development. Such additional funds may not become available on acceptable terms, ifat all, and there can be no assurance that any additional funding that we doobtain will be sufficient to meet our needs in the long term.  Through January 31, 2007, virtually all ofour financing has been through private placements of common stock and warrants.  We intend to continue to fund operations fromcash on-hand and through the similar sources of capital previously describedfor the foreseeable future.  We can giveno assurances that any additional capital that we are able to obtain will besufficient to meet our needs.  We believethat we will continue to incur net losses and negative cash flows fromoperating activities for the foreseeable future.  Based on the resources available to us atJanuary 31, 2007, we will need additional equity or debt financing to sustainour operations through the balance of 2007 and we will need additionalfinancing thereafter until we can achieve profitability, if ever.  These matters raise substantial doubt aboutour ability to continue as a going concern.

**CriticalAccounting Policies**

Our financialstatements are prepared in accordance with accounting principles generallyaccepted in the United States of America, which requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those estimates.

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The followingaccounting policies are critical in fully understanding and evaluating ourreported financial results:

a)                                      **Accounting for Research and Developments Costs**

We account for ourresearch and development costs in accordance with Statement of FinancialAccounting Standards No. 2 “Accounting for Research and DevelopmentCosts”.  Accordingly, research anddevelopment costs are expensed as incurred.

b)                                     **Accounting for Acquisitions**

We account for ouracquisitions utilizing the purchase method in accordance with Statement ofFinancial Accounting Standards No. 141 “Business Combinations”.  Under the purchase method, assets acquiredand liabilities assumed by the Company are recorded at their estimated fairvalues as of the date of acquisition and the results of operations of theacquired company are consolidated with those of the Company from the date ofacquisition.

c)                                      **Accounting for Stock-Based Compensation**

Weaccount for our stock options and warrants using the fair value methodpromulgated by Statement of Financial Accounting Standards No. 123R *Share-Based Payments* (“SFAS 123R”) which addresses theaccounting for transactions in which an entity exchanges its equity instrumentsfor goods or services. SFAS 123R requires a public entity to measure the costof employee services received in exchange for the award of equity instrumentsbased on the fair value of the award at the date of grant.  The expense is to be recognized over theperiod during which an employee is required to provide services in exchange forthe award.  SFAS 123R is effective as ofthe beginning of the first interim or annual reporting period that begins afterDecember 15, 2005 and, accordingly, the Company adopted this standard on May 1,2006.

Priorto May 1, 2006, the Company had employed the principles of Statement ofFinancial Accounting Standard No. 123, *Accounting for Stock-BasedCompensation* (SFAS 123”).  Asprovided for by SFAS 123, the Company had elected to record compensationexpense to the extent of employee or director services rendered based on thefair value of stock options granted under the plan.  The Company estimated the fair value of stockoptions and warrants utilizing the Black-Scholes option-pricing model andcommon stock utilizing its market value. Therefore, our results includenon-cash compensation expense as a result of the issuance of stock options andwarrants and we expect to record additional non-cash compensation expense inthe future.

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**Item 3:****                                  Controlsand Procedures**

**A)****                                   Evaluationof Disclosure Controls and Procedures:**

The Company’s management with the participation of theCompany’s chief executive officer and chief financial officer have evaluatedthe effectiveness of the Company’s disclosure controls and procedures (as suchterm is defined in Rule 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act) as of the end of the period covered by this report.  Based on such evaluation, the Company’s chiefexecutive officer and chief financial officer have concluded that, as of theend of such period, the Company’s disclosure controls and procedures were noteffective due to material weaknesses in the internal control over financialreporting described below.

1)                                      Thelack of sufficient internal accounting personnel necessary to meet thereporting requirements of a public company;

2)                                      Insufficientwritten policies and procedures for accounting and financial reporting withrespect to the current requirements and application of US GAAP and SECdisclosure requirements;

3)                                      Segregationof duties, in that we had only one person performing all accounting-relatedduties; and

4)                                      Lackof the appropriate “tone at the top” regarding the need to address the materialweaknesses reported in previous filings.

5)                                      Restatementof research and development expense

Notwithstanding the existence of these materialweaknesses in our internal control over financial reporting, our managementbelieves, including our Chief Executive Officer and Chief Financial Officerthat the condensed consolidated financial statements included in this reportfairly present in all material respects our financial condition, results of operationsand cash flows for the periods presented.

**B)****                                   Changesin Internal Control over Financial Reporting:**

In the process of conducting their review for thethree and nine months ended January 31, 2007, J.H. Cohn LLP, our independentregistered public accounting firm (“JHC”), identified material weaknesses inthe processes and procedures with our accounting and financial reportingfunction which were addressed as part of the communications by JHC with ouraudit committee.  JHC informed the auditcommittee that these deficiencies constituted a material weakness understandards established by the Public Company Accounting Oversight Board.

Except as described above, there has been no change inour internal control over financial reporting that has materially affected, oris reasonably likely to materially affect, our internal control over financialreporting during the quarter ended January 31, 2007.

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**PART II - OTHER INFORMATION**

**Item 1:****                                  LegalProceedings**

On February 5,2007, we commenced litigation against Trilogy Capital Partners, Inc. and MBAHoldings LLC in Supreme Court of the State of New York, County of New Yorkalleging that Trilogy breached its Letter of Engagement with us dated December12, 2005.  MBA Holdings LLC has beennamed as a defendant since certain of the warrants issued to Trilogy inconnection with the Letter of Engagement were assigned to MBA HoldingsLLC.  We are seeking to recoverapproximately $38,000 from Trilogy which represents the amount paid to Trilogyby us plus an unspecified amount of damages caused by the breach ofcontract.  As of March 19, 2007, we areawaiting an answer to the complaint from Trilogy and MBA.

**Item 6:****                                  Exhibits**
| 10.1   |   | Form of Warrant Amendment Agreement dated  March 19, 2007.*                                                                                    |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                |
| 10.2   |   | Form of Warrant Amendment Agreement No. 2 dated  March 19, 2007.*                                                                         |
|   |   |                                                                                                                                                |
| 31.1   |   | Certification of Chief Executive Officer Pursuant to  Rule 13a-14(a) and Rule 15d-14(a) under the Exchange Act.                                     |
|   |   |                                                                                                                                                |
| 31.2   |   | Certification of Chief Financial Officer Pursuant to  Rule 13a-14(a) and Rule 15d-14(a) under the Exchange Act.                                     |
|   |   |                                                                                                                                                |
| 32.1   |   | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
|   |   |                                                                                                                                                |
| 32.2   |   | Certification of Chief Financial Officer pursuant to  18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

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*       PreviouslyFiled

**SIGNATURE**

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has causedthis report to be signed on its behalf by the undersigned thereunto dulyauthorized.
| Dated: May 25, 2007 | FERMAVIR PHARMACEUTICALS, INC. |
|---------------------|--------------------------------|
|                |                           |
|                | By:                            | /s/ Geoffrey W. Henson |   |
|                |                           | Geoffrey W. Henson, Chief Executive Officer |
|                |                           |   |
|                | By:                            | /s/ Frederick Larcombe |   |
|                |                           | Frederick  Larcombe, Chief Financial Officer |
|                |                           | (Principal  Financial and Accounting Officer) |

 

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