United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended March 31, 2010

Commission File Number 0-20791

AMARILLO BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)

TEXAS

75-1974352(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)4134 Business Park Drive, Amarillo, Texas 79110(Address of principal executive offices) (Zip Code)(806) 376-1741(Issuer’s telephone number, including area code)




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. [√ ] Yes   [ ] No




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer [ ]

Accelerated filer [ ]Non-accelerated filer [ ] (do not check if smaller reporting company)

Smaller reporting company [√]







Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)[ ] Yes   [√] No




As of  May 12, 2010 there were 53,980,159 shares of the issuer's common stock and no shares of the issuer’s preferred stock outstanding.





1


AMARILLO BIOSCIENCES, INC.





INDEX


PAGE NO.PART I:
FINANCIAL INFORMATIONITEM 1.
Financial StatementsBalance Sheets– March 31, 2010  (unaudited) and December 31, 2009
3Statements of Operations – Three Months Ended March 31, 2010 and 2009 (unaudited)
4Condensed Statements of Cash Flows – Three Months Ended March 31, 2010 and 2009 (unaudited)
5Notes to Financial Statements (unaudited)
6ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
9ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk.
16ITEM 4.
Controls and Procedures
19PART II:
OTHER INFORMATIONITEM 1.
Legal Proceedings
20ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
20ITEM 3.
Defaults Upon Senior Securities
21ITEM 4.
Submission of Matters to a Vote of Security Holders
21ITEM 5.
Other Information
21ITEM 6.
Exhibits
21Signatures

22







2


PART I - FINANCIAL INFORMATION





ITEM 1.
Financial Statements





Amarillo Biosciences, Inc.


Balance Sheets


March 31, 2010

December 31, 2009Assets

(unaudited)Current assets:Cash and cash equivalents

$
11,966


$
24,216Other current assets


86,236



87,208Total current assets


98,202



111,424Property, equipment, and software, net


3,568



4,321Patents, net


123,933



123,184Total assets

$
225,703


$
238,929Liabilities and Stockholders' DeficitCurrent liabilities:Accounts payable and accrued expenses

$
405,160


$
318,550Accrued interest - related party


683,486



661,294Accrued expenses – related party


78,360



78,360Derivative liabilities


1,864,387



1,928,120Notes payable - related party


2,000,000



2,000,000Total current liabilities


5,031,393



4,986,324Total liabilities


5,031,393



4,986,324Commitments and contingenciesStockholders' deficitPreferred stock, $0.01 par value:Authorized shares - 10,000,000Issued and outstanding shares – 0 at March 31, 2010 and December 31, 2009


-



-Common stock, $0.01par value:Authorized shares - 100,000,000Issued and outstanding shares – 53,399,073 at March 31, 2010 and 52,041,001 at December 31, 2009


533,991



520,410Additional paid-in capital


30,214,704



30,051,134Accumulated deficit


( 35,554,385
)


( 35,318,939
)Total stockholders' deficit


(4,805,690
)


( 4,747,395
)Total liabilities and stockholders’ deficit

$
225,703


$
238,929





See accompanying notes to financial statements.


3


Amarillo Biosciences, Inc.


Statements of Operations


(Unaudited)





Three months ended
March 31,2010


2009Revenues:Dietary supplement sales

$
96


$
132Sublicense fee revenue


-



782Total revenues


96



914Cost of revenues:Product sales


57



25Sublicense fee revenues


-



391Total cost of revenues


57



416Gross margin


39



498Operating expenses:Research and development expenses


101,288



170,951Selling, general and administrative expenses


175,162



247,524Total operating expenses


276,450



418,475Operating loss


(276,411
)


(417,977
)Other income (expense)Change in fair value of derivative instruments


63,733



(124,724
)Interest expense


(22,769
)


(22,855
)Interest and other income


-



1,960Net income (loss)

$
(235,447
)

$
(563,596
)Basic and diluted net loss per share

$
( 0.00
)

$
(0.01
)Basic and diluted weighted average shares outstanding


52,795,517



38,343,377





See accompanying notes to financial statements.


4


Amarillo Biosciences, Inc.


Condensed Statements of Cash Flows


(Unaudited)





Three months ended March 31,2010

2009Net cash used in operating activities
$
( 118,579
)

$
( 310,178
)Cash from investing activities:Patent expenditures

( 4,871
)


( 362
)Net cash used in investing activities

( 4,871
)


( 362
)Cash from financing activities:Proceeds from exercise of options

8,200



-Proceeds from sale of common stock

103,000



325,000Net cash provided by financing activities

111,200



325,000Net increase (decrease) in cash

(12,250)



14,460Cash and cash equivalents at beginning of period

24,216



10,853Cash and cash equivalents at end of period
$
11,966


$
25,313Supplemental disclosure of cash flow informationCash paid for interest
$
577


$
724Cash paid for income taxes

-



-
  See accompanying notes to financial statements.


5


Amarillo Biosciences, Inc.


Notes to Financial Statements


(Unaudited)





1.
Basis of presentation. The accompanying financial statements, which should be read in conjunction with the financial statements and footnotes included in the Company's Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission, are unaudited, but have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the three months ended March 31, 2010 are not necessarily indicative of the
results that may be expected for the full year ending December 31, 2010.





2.
Financial Condition. Our viability as a company is dependent upon successful commercialization of products resulting from its research and product development activities. We plan on working with commercial development partners in the United States and in other parts of the world to provide the necessary sales, marketing and distribution infrastructure
to successfully commercialize the interferon alpha product for both human and animal applications.  Our products will require significant additional development, laboratory and clinical testing and investment prior to obtaining regulatory approval to commercially market our product(s). Accordingly, for at least the next few years, we will continue to incur research and development and general and administrative expenses and may not generate sufficient revenues from product sales or license fees to support
its operations.





The Company continues to pursue a broad range of financing alternatives to improve its financial condition. These alternatives may include the sale or issuance of a substantial amount of common stock, common stock warrants or stock options. These financing alternatives could require an increase in the number of authorized shares of the Company’s common stock and result in significant dilution to existing shareholders
and, possibly, a change of control of the Company.





3.
Common Stock.  The shareholders have authorized 100,000,000 shares of voting common shares for issuance.  On March 31, 2010, a total of 79,036,169 shares of common stock were either outstanding (53,399,073) or reserved for issuance upon exercise of options and warrants (25,637,096).  Common stock issuances in the first quarter of 2010 are as follows:





Common Stock Issued in Q1 2010

Shares


Issue Price


Net PricePrivate placements – cash


1,060,000


$
0.10


$
103,000Directors, officers, consultants plan – services


145,814



0.105-0.16



19,130Options exercised – cash


82,000



0.10



8,200Options exercised – cashless


70,258



0.10



-Total Common Stock Issued in Q1 2010


1,358,072


$
0.105-0.16


$
130,330





Brokerage commissions totaled $3,000 during the first quarter of 2010.  Net price above reflects net proceeds after commissions are deducted.  Private placement stock issued during the first quarter of 2010 included 100% warrant coverage (1,060,000 warrants) with $0.10 exercise price and 3-year term.


6





4.
Common Stock Options.  We recognized $40,153 of employee options expense, related to previously issued options during the three months ended March 31, 2010.  The remaining cost expected to be recognized if these options vest is $72,721.  The Board granted 100,000 options with 2-year term and $0.11 exercise price to a consultant on March 8, 2010 with a fair value of $8,852.  One
quarter of the options (fair value $2,213) vest each quarter during 2010.  An officer and a consultant exercised 245,000 options in 2010.  See “6.  Stock Option and Warrant Exercise Incentive” below for more details about 2010 stock option exercises. Options for the purchase of 201,667 shares expired during the period ending March 31, 2010.





5.
Common Stock Warrants.  Private placement stock (1,060,000 shares) issued at $0.10 per share during the first quarter of 2010 included 1,060,000 warrants with $0.10 exercise price and 3-year term.  We received $103,000 of net proceeds.  We recognized the total purchase price for private placement stock and warrants as the cost to purchase the stock.





Warrants issued in connection with a preferred stock financing in the first quarter of 2008 (“Firebird warrants”) have an embedded derivative feature (full-ratchet anti-dilution provision). We are at risk of triggering the warrant anti-dilution
provisions of previously issued warrants if we sell stock below $0.10 per share to any non-exempt parties.  Options and warrants issued prior to January 8, 2008 plus officers, directors and consultants under stock plans approved by outside board of director members are exempt from the anti-dilution provisions.  In accordance with Financial Account Standards Board Accounting Standards Codification (“FASB ASC”) Topic 815, the Company reclassified the warrants to liabilities at fair
value on January 1, 2009 and reported the change in fair value of the warrants at the end of each quarter to March 31, 2010.





The binomial Black-Scholes pricing model was used to calculate the fair value of the warrants with embedded features on March 31, 2010.  The probability of not triggering the reset at $0.10 per share was estimated as 50% since the stock closing price was $0.1295 on March 31, 2010.  The probability of private placement
issuances triggering a reset at the estimated stock price of $0.06 per share was estimated as 50%. Triggering the reset provision is in the Company’s control.





The Black-Scholes option-pricing model was utilized with the following assumptions: dividend yield 0.0%, expected volatility 161.15%, risk free interest rate 0.41%, and expected life of approximately 2.78 years.  The valuation for the remaining 12,447,999 warrants outstanding was $1,864,387 on March 31, 2010.  The derivative
gain for the first three months of 2010 was $63,733.




6.     Stock Option and Warrant Exercise Incentive




On November 9, 2009 the Board approved incentives to encourage option and warrant holders to exercise options and warrants. Option and Warrant holders exercised up to one third of the options or warrants they held, at a price of $0.10 per share cash to the Company, and for each option or warrant so exercised, two
were converted to cashless options/warrants with an exercise price of $0.10 per share, and deemed exercised immediately, on a cashless basis.  The Board extended the exercise incentive until January 22, 2010.




The Company determined that this was a modification of equity instruments, and accounted for the inducement under ASC Topic 718. For option and warrant holders who accepted the inducement and exercised their instruments under the terms noted above, an incremental fair value of the inducement was determined




7


using the Black-Scholes option pricing model, with the following assumptions: dividend yield 0.0%, expected volatility of 149-193%, risk free interest rate 0.16 -2.37%, and  expected life of  0.61-4.27 years. The Company recognized $4,456 of expense related to the inducement in the first quarter of 2010.  See
summary of the exercise incentive transactions below:




Options/Warrants
Exercised Q1 2010
Release of
Common Stock Reserved
Common Stock Issued
Net Cash to CompanyOptions
245,000
92,742
152,258
$ 8,200Warrants
-
-
-
-Total
245,000
92,742
152,258
$ 8,200




7.
Notes Payable – Related Party.  Two $1,000,000 notes are payable under an unsecured loan agreement with Hayashibara Biochemical Laboratories, Inc. (“HBL”), a major stockholder, dated July 22, 1999.  Although we are currently in repayment default on the notes, HBL has not demanded payment.





8.
Line of Credit.  We have a line of credit with Wells Fargo for $20,000, with an interest rate of prime rate plus 6.75 percent.  There was an outstanding balance on March 31, 2010 of $16,745 which is included in accounts payable.





9.
License and Sublicense Agreements.  During the first quarter of 2010 no license fees were received.





On January 7, 2010, the Company entered into a License and Supply agreement with Intas Pharmaceuticals, Ltd.  Intas plans to launch a Phase 3 clinical trial of the Company’s orally administered interferon-alpha lozenges in India.  Intas will pay the Company a royalty on net sales in India and Nepal after marketing
approval is obtained.  The objective of the clinical trial planned in India is to determine the safety and efficacy of low-dose oral interferon in reducing the severity of infection with influenza viruses such as H1N1.





10.   Related Party Transactions.  The Company engaged the law firm of Underwood, Wilson, Berry, Stein and Johnson P.C. of which Mr. Morris is a shareholder.  Mr. Morris is also the Secretary of the Company.  During the three months ended March 31, 2010 the Company incurred approximately $6,130 of legal fees from this law firm.





11.  Subsequent Events.  Since March 31, 2010, the Company sold 525,000 unregistered shares of common stock for $0.10 per share together with 525,000 warrants with 3-year term and exercisable at $0.10 per share. Net proceeds after $5,000 of broker commissions totaled $47,500 On April 30, 2010, the Company issued 56,086 shares of common stock to a consultant for
services valued at $5,889.





8





ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations





The following discussion should be read in conjunction with our financial statements and the notes thereto which appear elsewhere in this report.  The results shown herein are not necessarily indicative of the results to be expected in any future periods.  This discussion contains forward-looking
statements based on current expectations, which involve uncertainties.  Actual results and the timing of events could differ materially from the forward-looking statements as a result of a number of factors.  Readers should also carefully review factors set forth in other reports or documents that we file from time to time with the Securities and Exchange Commission.





Company Goal – FDA Approval and Commercialization of Oral Interferon.


Amarillo Biosciences, Inc. (OTCBB: AMAR), is the world leader in the development of low-dose interferon for oral delivery and is conducting Phase 2 clinical studies testing oral interferon in animal and human diseases. We have changed our focus from Orphan Diseases (small markets) to treatment of diseases with large markets to attract large
pharma partners.  Our funding strategy is to seek private placement and partner funding  to complete Phase 2 clinical studies for influenza,  chronic cough in COPD patients, and hepatitis C; then seek large pharma partners to fund and help with the regulatory approval process in the US and Europe.  We believe that our technology and the large, billion-dollar markets for these disease indications will attract global pharma partners sometime later this year or early next
year.





Dr. Manfred Beilharz, Chair of Microbiology and Immunology, Biomolecular and Chemical Sciences at the University of Western Australia recently reported results of a Phase 2 clinical trial in Perth, Australia that showed low-dose interferon lozenges provide an effective, safe and economical form of prophylaxis against colds and influenza.  Interferon
lozenges were also shown in this study to enhance the effectiveness of seasonal influenza vaccine.  We think the implications of this study should help us in attracting a global pharma partner.





Intellectual Property


Our portfolio consists of patents with claims that encompass method of use or treatment with interferon and composition of matter and manufacturing.  We currently own or license six patents and two pending patents related to low-dose orally delivered interferon, and one issued patent on our dietary supplement.  We have
completed more than 100 pre-clinical (animal) and human studies of the safety and efficacy of low-dose orally delivered interferon.





Technology - Non-toxic Interferon


Injectable interferon is FDA-approved to treat some neoplastic, viral and autoimmune diseases.  Many patients experience moderate to severe side effects that result in discontinuance of injectable interferon therapy. Our product is a natural human interferon alpha delivered into the oral cavity as a lozenge in low (nanogram) doses.
The lozenge dissolves in the mouth where interferon binds to surface (mucosal) cells in the mouth and throat resulting in stimulation of immune mechanisms.  Orally delivered interferon has been shown to activate hundreds of immune system genes in the peripheral blood.  Human studies have shown that oral interferon is effective against viral and autoimmune diseases. Oral interferon is given in concentrations 10,000 times less than that given by injection, resulting in negligible side effects.





Governmental or FDA approval is required for our principal products.  Our progress toward approval is discussed under each specific indication, below.


9





Influenza/Cold - FDA Phase 2 Study


The University of Western Australia has completed a double-blind Phase 2 clinical study of oral interferon as prevention/treatment of respiratory illnesses, including influenza.   A total of 200 healthy adult volunteers were enrolled in this study to take a once daily dose of oral interferon or placebo for 16 weeks during
the 2009 Australian cold and flu season. The primary endpoint was the rate of influenza-like illness in each group over the 16-week study period. Secondary endpoints included the incidence and severity of 13 different cold/flu symptoms. A total of 198 subjects took at least one dose of study drug and completed at least one symptom questionnaire, making them evaluable for treatment response.





The rate of influenza-like illness was reduced by 13% in the IFN group to 54.5%, compared to 62.6% in the placebo group, but this difference was not statistically significant. The incidence of cold/flu symptoms was similar between the groups, but there was a notable shift in symptom severity from moderate/severe in the placebo group to
mild in the IFN group. This shift reached statistical significance (p<0.05) for the symptoms of feverishness and head congestion, and was borderline significant (p=0.07) for sore throat, meaning fewer subjects treated with IFN reported moderate/severe symptoms, compared to those given placebo.





As a secondary analysis, subjects were divided into those who received seasonal influenza vaccine prior to the study (n=88) and those who did not (n=110). Within the non-vaccinated sub-group, there were no differences between IFN treatment and placebo in the rate of influenza-like illness or symptom severity.





Among the subjects vaccinated against influenza, however, subjects treated with interferon  had a significantly lower incidence of influenza-like illness during the study, compared to those in the placebo group (43.2% vs. 70.6%, p=0.01). Within the vaccinated sub-group, the overall incidence of moderate/severe symptoms was reduced
in subjects treated with IFN, with significantly (p<0.05) fewer subjects in the IFN group reporting moderate/severe cases of chest congestion, headache, head congestion or sore throat, compared to the placebo group.





Further secondary analyses explored differences in response based on the age of the subjects. Subjects were split into those who were age 50 or older at the start of the study (n=93) vs. those who were under age 50 (n=105). Among the younger subjects, there were no differences between IFN and placebo in symptom severity or the rate of influenza-like
illness.





However, among the subjects who were age 50 and above at entry, and therefore considered to be at high risk for severe influenza complications, the incidence of influenza-like illness was  significantly reduced in the IFN treated subjects, compared to subjects in the placebo group (36.2% vs. 67.4%, p<0.01). In addition, a number
of cold/flu symptoms were reduced in severity in IFN treated subjects, compared to those given placebo, among the volunteers who were 50 years old and up at study entry. Within the sub-group of subjects age 50 and above, the overall incidence of moderate/severe symptoms was reduced in subjects treated with IFN, with significantly (p<0.05) fewer subjects in the IFN group reporting moderate/severe cases of headache, sneezing or sore throat, compared to subjects given placebo.





Analysis of adverse event reports and routine laboratory variables indicates that low-dose oral interferon therapy was safe in this study. No significant differences were found between the groups in the number or severity of adverse events. Placebo subjects reported an average of 1.4 adverse events each, compared to an average of 1.3 adverse
events reported per interferon-treated subject.


10


No clinically meaningful differences were found between IFN and placebo with respect to changes in any of the 31 serum chemistry or CBC variables that were assessed in the study.





The H1N1 (2009) influenza virus was the major circulating virus in Perth during the duration of the trial and was estimated to account for at least 90% of influenza viruses, according to the Australian Department of Health of Western Australia.  Blood samples were collected at the beginning and the end of the study for serological
analysis. Once available, these serology data will help identify those subjects who had an increase in antibodies to particular cold and flu viruses, including the H1N1 (2009) influenza virus.





Two publications in the April 2009 issue of the Journal of Virology report that interferon placed in the nose of guinea pigs or ferrets significantly suppresses replication of influenza virus.  These publications reinforce our view that low-dose interferon, in the nose or in the mouth, is protective against influenza in humans.





In the March 20, 2009 issue of Science (page 1560-1561), flu experts stated “Our ability to anticipate pandemic events is poor, and our anti-pandemic armamentarium is weak.  In an ever-shifting landscape of influenza evolution, we need to be farsighted and forceful in optimizing pandemic response capacity.”





We believe low-dose oral interferon alpha will help people overcome pandemic influenza.  The present swine flu epidemic threatens to endanger millions of people.  The WHO predicted (May 7, 2009) that 2 billion people could be infected by this new swine flu.





Chronic Cough in COPD – FDA Phase 2 study ongoing; funding sought for a second study


COPD affects approximately 10% of the population over 40, is a growing problem, and is the 4th leading cause of death in the world.  Chronic obstructive pulmonary disease (COPD) is a clinical condition with a progressive airflow limitation that is poorly
reversible and characteristic of chronic bronchitis and emphysema.  The causes of COPD include tobacco smoke, occupational dusts, chemicals, vapors and environmental pollutants.  COPD is estimated to affect more that 600 million people worldwide. There are no effective therapies for emphysema, nor are there efficient clinical management strategies.





Data from a Phase 2 clinical study at Texas Tech University shows that treatment with oral interferon leads to a rapid and significant reduction in the cough associated with idiopathic pulmonary fibrosis (IPF), resulting in improved quality of life.  IPF is similar to COPD in that both diseases lead to a chronic cough in the majority
of sufferers through inflammation of the airways. A proof-of-concept study of low-dose oral interferon as treatment of chronic cough is ongoing at Texas Tech University. This  clinical study is a Phase 2, randomized, double-blind, placebo-controlled, parallel trial in which 40 eligible volunteers with IPF- or COPD-associated chronic cough will be randomly assigned to one of two groups in equal numbers to receive either oral interferon or placebo lozenges. Treatment will be given three times daily for
4 weeks, and patients will be followed for 4 weeks post-treatment to assess durability of response. The study will evaluate the ability of oral interferon to reduce the frequency and severity of chronic cough, compared to placebo.





Hepatitis C - FDA Phase 2 study ongoing


CytoPharm, Inc., our licensee for Taiwan and China, has started a Phase 2, placebo-controlled, dose-ranging study of 165 hepatitis C virus-infected patients in Taiwan.  The study is designed to test the ability of oral interferon to reduce the virologic relapse rate of patients who have completed standard therapy with pegylated
interferon plus ribavirin.


11





Oral Warts in HIV+ Patients – FDA Phase 2 study completed


Oral warts are lesions in the mouth caused by the human papillomavirus. The FDA has granted Orphan Drug Designation to us for interferon in the treatment of oral warts in HIV+ patients. In Phase 1/2 clinical studies of 36 HIV+ patients with multiple oral warts who were receiving highly active antiretroviral therapy (HAART), efficacy of
oral interferon was observed when some subjects achieved a complete or nearly complete regression of their warts.





We have now concluded a Phase 2 double-blind follow-up study in the treatment or oral warts. While the planned target was for at least 80 subjects, only 59 HIV+ patients were ultimately enrolled at 10 clinical sites in the US to take oral IFN or matching placebo for 24 weeks.  All subjects had multiple warts in their mouth at
the start of treatment, and a subset had warts on their lips as well. Analysis found that 31% of evaluable subjects in the IFN group had a 75% or greater reduction in their mouth warts (complete response) in response to treatment, compared to only 17% of the subjects in the placebo group. None of the subjects in the placebo group had a 75% or greater reduction in their lip warts, but 39% of the evaluable subjects in the IFN group met this criterion for complete response. However, given the small number of subjects
with lip warts and the failure of the study to achieve full enrollment, neither of these differences in favor of IFN over placebo was statistically significant. Oral IFN treatment was found to be safe in this study as there were no increases in adverse event frequency or severity, compared to placebo.





Strategic Alliance with HBL


Hayashibara Biochemical Laboratories, Inc. (“HBL”) was established in 1970 to engage in research and development. It is a subsidiary of Hayashibara Company, Ltd., a privately-owned Japanese holding corporation with diversified subsidiaries. For more than 130 years, the Hayashibara Company, Ltd. and its predecessors have been
applying microbiological technology to the starch industry for the production of maltose and other sugars.





In 1981, HBL established the Fujisaki Institute to accelerate development of industrial methods for the production of biologics and to sponsor clinical trials for such products. In 1985, HBL built the Fujisaki Cell Center to support basic research. In 1987, HBL successfully accomplished the mass production of human cells in an animal host
by producing human cells in hamsters. This made it possible to economically produce a natural form of human interferon alpha and other biologics. HBL also has developed and obtained patents for technology relating to the production of interferon alpha-containing lozenges by which the stability of the interferon alpha activity can be maintained for up to 24 months at room temperature and up to five years if the product is refrigerated. We believe that the use of such lozenges gives us advantages over competitive
technologies in terms of cost, taste and ease of handling. On March 13, 1992, we entered into a Joint Development and Manufacturing/Supply Agreement with HBL (the “Development Agreement”). Such Development Agreement was subsequently amended on January 17, 1996; May 10, 1996; and September 7, 2001.  The current expiration date of the Development Agreement is March 12, 2011, at which time it will automatically renew for an additional three (3) years, unless the parties agree otherwise. Among
other things, the Development Agreement provides us with a source of natural human interferon alpha for use in the Company’s interferon alpha-containing products.





Strategic Alliance with Nobel.


We signed a licensing and supply agreement in September 2004 with a Turkish pharmaceutical company, NOBEL ILAC SANAYII VE TICARET A.S., providing the rights to oral low-dose interferon-alpha for the treatment of Behcet’s disease in Turkey and in Azerbaijan, Bosnia & Herzegovina, Bulgaria, Croatia, Georgia, Kazakhstan, Kyrghyzstan, Macedonia,
Romania, Russia, Saudi Arabia, Slovenia, Tajikistan, Turkmenistan, Uzbekistan, and Federal Republic of Yugoslavia.


12




Strategic Alliance with Bumimedic.


In January 2006 we entered into a license and distribution agreement with Bumimedic (Malaysia) Sdn. Bhd, a Malaysian pharmaceutical company that is a part of the Antah HealthCare Group, to market our low-dose interferon (natural human IFN) in Malaysia. Bumimedic will seek registration for our natural human IFN and commence marketing the
product after approval. The terms of the agreement call for Bumimedic to manufacture lozenges from our bulk natural human IFN (which is supplied by Hayashibara Biochemical Laboratories); package the lozenges and distribute them to local hospitals, pharmacies and clinics in Malaysia. Pursuant to the agreement, we will receive a series of payments, in three stages: upon formal execution of the distribution agreement, upon regulatory approval, and upon production. We will also receive a royalty on the sale of the
natural human IFN.





Strategic Alliance with CytoPharm.


In November 2006, we entered into a License and Supply Agreement with CytoPharm, Inc., a Taipei, Taiwan-based biopharmaceutical company whose parent company is Vita Genomics, Inc., the largest biotech company in Taiwan specializing in pharmacogenomics and specialty Clinical Research Organization. Under the terms of the Agreement, CytoPharm
and its subsidiary will conduct all clinical trials, and seek to obtain regulatory approvals in both China and Taiwan (the “Territory”) to launch our low dose oral interferon in the Territory for influenza and hepatitis B (“HBV”) and hepatitis C (“HCV”) indications.  According to the Agreement, CytoPharm will make payments to us upon reaching certain milestones and will also pay royalties on low dose oral interferon sales in the Territory.





In March 2008, we entered into a Supply Agreement for Animal Health with CytoPharm, Inc.  Under the terms of the Agreement, CytoPharm will conduct all clinical trials, and seek to obtain regulatory approvals in China and Taiwan (the “Territory”) to launch our low dose oral interferon in the Territory for treatment
of diseases and other healthcare applications of swine, cattle and poultry.  CytoPharm will make payments to us upon reaching certain milestones and will also pay royalties on low dose oral interferon sales in the Territory.





Strategic Alliance with Cyto Biotech.


On February 6, 2009, we entered into a 15-year License and Supply agreement with Cyto Biotech, Inc. a Taipei, Taiwan animal health company.  Under the terms of the agreement, Cyto Biotech, will, at its sole expense and cost, conduct all clinical trials and studies and seek to obtain regulatory approvals in China, Taiwan, Thailand,
the Philippines, Cambodia, Vietnam and Malaysia (“the Territory”), subject to the existing license and supply agreements with CytoPharm, Inc. and Bumimedic SDN. BHD., required for the commercial launch of our low dose oral interferon in the Territory for any animal and human health indications.





Cyto Biotech purchased common stock, included in the above issuances in Amarillo Biosciences stock; paid an initial license fee to us; and will pay a net royalty on low dose oral interferon sales.  In addition, the agreement calls for certain minimum royalty payments to be made.





Strategic Alliance with Intas Pharmaceuticals.


On January 7, 2010, we entered into a License and Supply agreement with Intas Pharmaceuticals Ltd., an India-based pharmaceutical company with three decades of experience in the healthcare industry and a global presence in 42 countries worldwide. Under the terms of the agreement, Intas will pay the Company a royalty on net


13


sales in India and Nepal after marketing approval is obtained. Intas plans to launch a double-blind, placebo-controlled Phase 3 clinical trial of our orally administered interferon-alpha lozenges in India in 2010.  The study will include up to 520 patients with clinical signs and symptoms of influenza.





Nutraceutical Product.   We sell anhydrous crystalline maltose (ACM) as Maxisal® to individuals and to pharmacies in the USA and to licensed distributors overseas. We seek to out-license Maxisal®.





Equity Funding.In the first quarter of 2010, the Company sold 1,060,000 unregistered shares of common stock for $0.10 per share plus 1,060,000 3-year warrants with $0.10 exercise price.  Net proceeds from private placement stock sales totaled $103,000 after payment
of $3,000 in commissions.  The Board extended incentives encouraging option and warrant holders to exercise options and warrants until January 22, 2010.   An officer and a consultant exercised 82,000 options at $0.10 per share to purchase 82,000 shares of unregistered common stock. The officer and consultant also exercised a total of 163,000 cashless options at $0.10 per share resulting in the issuance of 70,258 unregistered shares of common stock with 92,742 shares of common stock previously
held in reserve for options returned to the Treasury.  The incremental fair value of the option exercise inducement was $4,456, which was recognized as an expense.  Net proceeds from the private placement stock sales and option exercises totaled $111,200 during the first quarter of 2010.  Two consultants were issued 135,814 registered shares and 10,000 unregistered shares of common stock for $18,080 and $1,050 of services, respectively.





Results of Operations for Quarter Ended March 31, 2010 and 2009:





Revenues.  During the quarter ended March 31, 2010, $96 from dietary supplement sales was generated compared to $132 for the quarter ended March 31, 2009, a decrease of $36 (27%).  During the quarter ended March 31, 2010, no sublicense fee was generated compared to $782 sublicense fee the quarter ended March 31, 2009.





Research and Development Expenses. Research and development expenses of $101,288 were incurred for the quarter ended March 31, 2010, compared to $170,951 for the quarter ended March 31, 2009, a decrease of $69,663 (41%).  The decrease was mostly because oral warts, influenza and hepatitis C costs and personnel costs were lower
in the first quarter of 2010.   The oral warts in HIV+ patients and influenza studies were mostly completed in 2009.





Selling, General and Administrative Expenses.  Selling, general and administrative expenses of $175,162 were incurred for the first quarter in 2010, compared to $247,524 for the first quarter of 2009, a decrease of $72,362 (29%).  Most of this decrease was from lower payroll costs in the first quarter of 2010.   The
Chief Operating Officer resigned on May 31, 2009 but has not been replaced to date.





Change in Fair Value of Derivative Instruments.  Change in fair value of derivative instruments was realized as a $63,733 gain in the first quarter of 2010 compared to $124,724 loss in the first quarter of 2009.   Derivative liabilities decreased $63,733 from December 31, 2009 to March 31, 2010 mostly because our
stock price declined from $0.17 on December 31, 2009 to $0.1295 on March 31, 2010.  Derivative liabilities increased $124,724 from January 1, 2009 to March 31, 2009 mostly because our stock price increased from $0.055 on December 31, 2008 to $0.06 on March 31, 2009.


14





Other Income.  During the three-month period ended March 31, 2010, no interest and other income was generated compared to $1,960 from interest and other income for the three-month period ended March 31, 2009.   During the first quarter of 2009, interest and other income was mostly derived from the sale of office
furniture.





Net Operating Loss.  In the three-month period ended March 31, 2010, the Company's net operating loss was $276,411 compared to a net operating loss for the three-month period ended March 31, 2009 of $417,977, a $141,566 (34%) reduction.  The operating loss was lower mostly because clinical and payroll costs were lower
in 2010.





Net Loss.  In the three-month period ended March 31, 2010, net loss was $235,447 compared to a net loss for the three-month period ended March 31, 2009 of $563,596, a decrease of $328,149 (58%).  This reduction was mostly the $188,457 difference in derivative gains in the first quarter of 2010 and derivative losses in
the first quarter of 2009.  The $141,566 reduction in operating losses during the first quarter of 2010 compared to the first quarter of 2009 also contributed to the lower net loss in the first quarter of 2010.





Liquidity Needs:  On March 31, 2010, the Company had available $11,966 cash and had a working capital deficit (current assets less current liabilities) of $4,933,191.  Current liabilities include two $1 million notes, $683,486 of accrued interest and $78,360 of accrued expenses owed to Hayashibara Biochemical Laboratories,
Inc. (HBL), the Company’s second largest shareholder.   Accrued payroll and vacation expenses owed mostly to officers is $218,920.  Derivative liabilities from warrants with embedded variable features valued at $1,864,387 are also included in the working capital deficit.  That leaves approximately $88,038 of accounts payables and accrued expenses in the working capital deficit.





Assuming there is no decrease in current accounts payable, and accounting for various one–time expenses, the Company’s negative cash flow for operating activities plus equipment purchases and patent filings, the Company’s cash burn rate is approximately $66,000 per month.  The Company's continued losses and lack
of liquidity raise substantial doubt about whether the Company is able to continue as a going concern for a reasonable period of time. The Company's ability to continue as a going concern is dependent upon several factors including, but not limited to, the Company's ability to generate sufficient cash flows to meet its obligations on a timely basis, obtain license and milestone fees, obtain additional financing and continue to obtain supplies and services from its vendors. The Company will need to raise additional
funds in order to fully execute its 2010 Plan.  The Company is currently pursuing potential investors for funding.  In addition, the Company is also pursuing potential pharmaceutical partners to provide upfront license fee payments and funding for clinical studies.  There can be no assurance that private placement funding or pharmaceutical partner funding will become available.





Forward-Looking Statements: Certain statements made in this Plan of Operations and elsewhere in this report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or
imply future results, performance, achievements, costs or expenses and may contain words such as "believe," "anticipate," "expect," "estimate," "project," "budget," or words or phrases of similar meaning.  Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those projected in the forward-looking statements.  Such risks and uncertainties are detailed from time to time in reports filed by the Company with the Securities and


15


Exchange Commission, including Forms 8-K, 10-Q and 10-K and include among others the following: promulgation and implementation of regulations by the U.S. Food and Drug Administration ("FDA"); promulgation and implementation of regulations by foreign governmental instru­mentalities with functions similar to those of the FDA; costs of
research and development and clinical trials, including without limitation, costs of clinical supplies, packaging and inserts, patient recruitment, trial monitoring, trial evaluation and publication; and possible difficulties in enrolling a sufficient number of qualified patients for certain clinical trials.  The Company is also dependent upon a broad range of general economic and financial risks, such as possible increases in the costs of employing and/or retaining qualified personnel and consultants
and possible inflation which might affect the Company's ability to remain within its budget forecasts. The principal uncertainties to which the Company is presently subject are its inability to ensure that the results of trials performed by the Company will be sufficiently favorable to ensure eventual regulatory approval for commercial sales, its inability to accurately budget at this time the possible costs associated with hiring and retaining of additional personnel, uncertainties regarding the terms and timing
of one or more commercial partner agreements and its ability to continue as a going concern.





The risks cited here are not exhaustive. Other sections of this report may include additional factors which could adversely impact the Company's business and future prospects. Moreover, the Company is engaged in a very competitive and rapidly changing industry.





New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company's business, or the extent to which any factor or combination of factors may cause actual results to differ materially from those projected in any forward-looking
statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual future events.





ITEM 3.                      Quantitative and Qualitative Disclosures About Market Risk.





We may not be able to adequately protect and maintain our intellectual property.Our success will depend in part on our ability to protect and maintain our patents, intellectual
property rights and licensing arrangements for our products and technology.  We currently own three patents and license seven  patents.  No assurance can be given that such licenses or rights used by us will not be challenged, infringed or circumvented or that the rights granted thereunder will provide competitive advantages to us. Furthermore, there can be no assurance that we will be able to remain in compliance with our existing or future licensing arrangements. Consequently,
there may be a risk that licensing arrangements are withdrawn with no penalties to the licensee or compensation to us.





We rely on third parties for the supply, manufacture and distribution of our products.  Third parties manufacture and distribute all of our products. We do not currently have manufacturing facilities or personnel to independently manufacture our products. Currently, Marlyn
Nutraceutical manufactures our nutraceutical products. Our licensed distributors, located in the United States and internationally, distribute the products.  Except for any contractual rights and remedies that we may have with our manufacturer and our distributors, we have no control over the availability of our products, their quality or cost or the actual distribution of our products. If for any reason we are unable to obtain or retain third-party manufacturers and distributors on commercially acceptable
terms, we may not be able to produce and distribute our products as planned.  If we encounter delays or difficulties with our contract manufacturer in producing or packaging our products or with our distributor in distributing our products, the production, distribution, marketing and subsequent sales of these products would be adversely affected, and we may


16


have to seek alternative sources of supply or distribution or abandon or sell product lines on unsatisfactory terms. We may not be able to enter into alternative supply, production or distribution arrangements on commercially acceptable terms, if at all. There can be no assurance that the manufacturer that we have engaged will be able to
provide sufficient quantities of these products or that the products supplied will meet with our specifications or that our distributor will be able to distribute our products in accordance with our requirements.





We are dependant on funding from private placements of stock.Our sales revenue, sublicense fees and royalty income are negligible compared to expenses.  Our primary focus is to achieve FDA approval of oral interferon for one or more disease indications.  We
do not expect significant sales or royalty revenue in the near term as Phase 2 and Phase 3 clinical studies must be completed before a NDA (New Drug Application) may be submitted to the FDA.  We operate at a net loss and current liabilities exceed current assets by approximately $4,933,191.  The working capital deficit includes two $1 million notes, $683,486 of accrued interest and $78,360 of accrued expenses owed to our second largest shareholder (HBL); $218,920 of accrued payroll and vacation
expenses owed mostly to officers; and $1,864,387 of non-cash derivative liabilities for warrants with embedded derivatives. The remaining working capital deficit of approximately $88,038 consists of accounts payable and accrued expenses.





The Company is currently pursuing potential investors for funding.  In addition the Company is also pursuing potential pharmaceutical partners to provide upfront license fee payments and funding for clinical studies.  There can be no assurance that private placement funding or pharmaceutical partner funding will become
available.





We are dependent on certain key existing and future personnel.Our success will depend, to a large degree, upon the efforts and abilities of our officers and key management employees such as Dr. Joseph M. Cummins, our President and Chief Executive Officer, Bernard Cohen,
our Chief Financial Officer, and Martin J. Cummins, our Vice President of Clinical and Regulatory Affairs. The loss of the services of one or more of our key employees could have a material adverse effect on our operations. We do currently have employment agreements with our executive officers. We do not currently maintain key man life insurance on any of our key employees.  In addition, as our business plan is implemented, we will need to recruit and retain additional management and key employees in
virtually all phases of our operations. We cannot assure that we will be able to successfully attract and retain key personnel.





If we do not successfully develop, acquire or license new drugs our business may not grow.We must invest substantial time, resources and capital in identifying and developing new drugs, dosage and delivery systems, either on our own or by acquiring and licensing such products
from third parties. Our growth depends, in part, on our success in such process.  If we are unable to either develop new products on our own or acquire licenses for new products from third parties, our ability to grow revenues and market share may be adversely affected. In addition, we may not be able to recover our investment in the development of new drugs, given that projects may be interrupted, unsuccessful, not as profitable as initially contemplated or we may not be able to obtain necessary financing
for such development if we are unable to fund such development from our future revenues. Similarly, there is no assurance that we can successfully secure such rights from third parties on an economically feasible basis.





Our competitors are much larger and more experienced than we are and, even if we complete the development of our drugs, we may not be able to successfully compete with them.The pharmaceutical industry is highly competitive.  Our biologics and low-dose oral interferon
alpha applications compete with high dose injectable interferon manufactured by Roche, Schering, InterMune, Serono, Biogen, Berlex and Hemispherx. High dose injectable interferon has been widely accepted  17


by the medical community for many years.  Companies who manufacture injectable interferon alpha applications are more established than we are and have far greater financial, technical, research and development, sales and marketing, administrative and other resources than we do.  Even if we successfully complete the development
of our tests, we may not be able to compete effectively with these much larger companies and their more established products.





We have been the subject of a going concern opinion by our independent auditors who have raised substantial doubt as to our ability to continue as a going concern.Our Independent Registered Public Accounting firm has added an explanatory paragraph to their audit reports
issued in connection with our financial statements for December 31, 2009 and 2008 which states that our recurring losses from operations and the need to raise additional financing in order to execute our business plan raise substantial doubt about our ability to continue as a going concern. We have experienced a net loss of $235,447 for the three months ended March 31, 2010 and a net loss of $563,596 for the three months ended March 31, 2009.   The operating loss for the three months ended March
31, 2010 was $276,411 but was offset by a non-cash accounting gain of $63,733 from the change in fair value of derivative instruments.  In addition, as of March 31, 2010 we had an accumulated deficit of $35,554,385. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustment that might result from the outcome of this uncertainty. Assurances cannot be given that adequate financing can be obtained to meet
our capital needs. We have already significantly curtailed operations, and if we are unable to generate profits and if we to continue to be unable to obtain financing to meet our working capital requirements, we will have to cease operations altogether. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis, to retain our current financing, to obtain additional financing, and, ultimately, to attain profitability.





Risk Relating to Our January 2008 Financing Arrangement.There are 12,477,999 shares underlying our warrants related to our January 2008 financing arrangement that may be available for
future sale and the sale of these shares may depress the market price of our common stock.  In addition the warrants have an anti-dilution ratchet feature that could cause the number of warrants to increase and the exercise price to decrease if we should have any non exempt stock, option or warrant issuances less the $0.10 per share.As of March 31, 2010, we had 53,399,073 shares of common stock issued and outstanding plus 25,637,096
shares reserved for options and warrants which includes the above January 2008 warrants.





Risks Related to our Common Stock.There is only a limited market for our common stock and the price of our common stock may be affected by factors that are unrelated to the performance of our business.  If any of the risks described in these Risk Factors or other
unseen risks are realized, the market price of our common stock could be materially adversely affected.  Additionally, market prices for securities of biotechnology and diagnostic companies have historically been very volatile.  The market for these securities has from time to time experienced significant price and volume fluctuations for reasons that are unrelated to the operating performance of any one company.  In particular, and in addition to the other risks described elsewhere in these Risk
Factors, the following factors can adversely affect the market price of our common stock:





·
announcements of technological innovation or improved or new diagnostic products by others;


·
general market conditions;


18





·
changes in government regulation or patent decisions;


·
changes in insurance reimbursement practices or policies for diagnostic products.





Our common shares have traded on the Over the Counter Bulletin Board at prices below $5.00 for several years. As a result, our shares are characterized as “penny stocks” which could adversely affect the market liquidity of our common stock.  The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional
disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. Securities and Exchange Commission regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on NASDAQ or a national securities exchange and any equity security issued by an issuer that has:





·
net tangible assets in excess of $2,000,000, if such issuer has been in continuous operation for three years;


·
net tangible assets in excess of $5,000,000, if such issuer has been in continuous operation for less than three years; or


·
average revenue of at least $6,000,000, for the last three years.





Unless an exception is available, the regulations require, prior to any transaction involving a penny stock, that a disclosure schedule explaining the penny stock market and the risks associated therewith is delivered to a prospective purchaser of the penny stock. We currently do not qualify for an exception, and, therefore, our common
stock is considered to be penny stock and is subject to these requirements.  The penny stock regulations adversely affect the market liquidity of our common shares by limiting the ability of broker/dealers to trade the shares and the ability of purchasers of our common shares to sell in the secondary market.  In addition, certain institutions and investors will not invest in penny stocks.




Future sales of a significant number of shares of our common stock by existing stockholders may lower the price of our common stock, which could result in losses to our stockholders.  Approximately 5,000,000 restricted shares were issued during the six months ended March 31, 2010 which, upon becoming freely tradable under Rule
144 or 144(k) of the Securities Exchange Act of 1934, may lower the price of our common stock.  The number of shares of restricted stock issued prior to September 1, 2009 that has been held for at least six months and hasn’t had the legends removed to become freely tradable under Rule 144 or 144(k) is not known.





The Company continues to pursue a broad range of financing alternatives to improve its financial condition. These alternatives may include the sale or issuance of a substantial amount of common stock, common stock warrants or stock options. These financing alternatives could require an increase in the number of authorized shares of the
Company’s common stock and result in significant dilution to existing shareholders and, possibly, a change of control of the Company.





ITEM 4.                      Controls and Procedures




As required by Rule 13a-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report, being March 31, 2010. This evaluation was carried out under the supervision and with
the participation of our company’s management, including our company’s president and chief executive officer. Based upon that evaluation, our company’s president and chief executive officer concluded that our company’s disclosure controls and


19


procedures are effective as at the end of the period covered by this report. There have been no significant changes in our company’s internal controls or in other factors, which could significantly affect internal controls subsequent to the date we carried out our evaluation.





Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s
rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is accumulated and communicated to management, including our company’s president and chief executive officer as appropriate, to allow timely decisions regarding required disclosure.





There were no changes in internal controls over financial reporting during the first quarter of 2010.








PART II - OTHER INFORMATION





ITEM 1.                      Legal Proceeding.





From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. As of the date of this report, we were not aware of any
such legal proceedings or claims against us.





ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds





During the first quarter of 2010, the Company sold 1,060,000 unregistered shares of common stock for $0.10 per share plus 1,060,000 3-year warrants with $0.10 exercise price.  Net proceeds from private placement stock sales totaled $103,000 after payment of $3,000 in commissions.  The Board extended incentives encouraging
option and warrant holders to exercise options and warrants until January 22, 2010.   An officer and a consultant exercised 82,000 options at $0.10 per share to purchase 82,000 shares of unregistered common stock. The officer and consultant also exercised a total of 163,000 cashless options at $0.10 per share resulting in the issuance of 70,258 unregistered shares of common stock with 92,742 shares of common stock previously held in reserve for options returned to the Treasury.  The incremental
fair value of the option exercise inducement was $4,456, which was recognized as an expense.  Net proceeds from the private placement stock sales and option exercises totaled $111,200 during the first quarter of 2010.  One consultant was issued 10,000 unregistered shares of common stock for services valued at $1,050.





The chart below details unregistered issuances of common stock.





Date (2010)
Shares of Common Stock
Purchaser
Discount1Issue Price
Number
Per Share
Total1
January 72
$
.10
100,000
Dan Mascarenhas
$
0.08
$
8,0002
January 113

.10
30,000
Dr. Joseph Cummins

0.071

2,1303
January 114

.175
25,714
Dr. Joseph Cummins

0

0


20





4
January 185

.10
500,000
Thomas Ulie

.07

35,0005
January 196

.10
10,000
Dr. Kimball Miller

.0763

7,6306
January 227

.10
52,000
Dr. Gary Coy

.07

3,6407
January 228

.1762
44,544
Dr. Gary Coy

0

08
February 95

.10
50,000
David Min

.0329

1,6459
March 126

.10
150,000
Marian Tibbits

.005

75010
March 126

.10
150,000
Paul Tibbits

.005

75011
March 12

.105
10,000
George Bergleitner, Jr.

0

012
March 297

.10
50,000
Robert Costes

.025

1,25013
March 297

.10
50,000
Joanna Costes

.025

1,250





1.  Discounts were calculated based on the closing price of the last transaction on each date.




2.  The price was $0.10 for each share of common stock and one warrant with three year term and exercisable at $0.20 per share.  The stock closing price on January 7, 2010 was $0.18 per share.




3.  Options were exercised for cash.  The stock closing price on January 11, 2010 was $0.1701 per share.




4.  A total of 60,000 cashless options were exercised at $0.10 per share.  25,714 shares of common stock were issued and 34,286 shares of common stock held in reserve for options were returned to Treasury.  The stock closing price on January 11, 2010 was $.1701 per share.




5.  The price was $0.10 for each share of common stock and one warrant with three year term and exercisable at $0.10 per share.  The stock closing price on Friday, January 15, 2010 was $0.17 per share.  No shares traded on January 18, 2010.




6.  The price was $0.10 for each share of common stock and one warrant with three year term and exercisable at $0.10 per share.  The stock closing price on January 19, 2010 was $0.1763 per share.




7.  Options were exercised for cash.  The stock closing price on January 22, 2010 was $0.17 per share.




8.  103,000 cashless options were exercised at $0.10 per share.  44,544 shares of common stock were issued and 58,456 shares of common stock held in reserve for options were returned to Treasury. The stock closing price on January 22, 2010 was $0.17 per share.




9.  The price was $0.10 for each share of common stock and one warrant with three year term and exercisable at $0.10 per share.  The stock closing price on February 9, 2010 was $0.1329 per share.




10. The price was $0.10 for each share of common stock and one warrant with three year term and exercisable at $0.10 per share.  The stock closing price on March 6, 2010 was $0.105 per share.




11. The price was $0.10 for each share of common stock and one warrant with three year term and exercisable at $0.10 per share.  The stock closing price on March 29, 2010 was $0.125 per share.




21





ITEM 3.
Defaults Upon Senior Securities.


None, other than set forth in Note 6 to Financial Statements, “Notes Payable”, under Part I, Item 1, above, regarding non-payment of the HBL Notes.





ITEM 4.
Submission of Matters to a Vote of Security Holders.


None.





ITEM.5.
Other Information


None





ITEM 6.
Exhibits.


None





22







SIGNATURES




Pursuant to the requirements of Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




AMARILLO BIOSCIENCES, INC.









Date: May 13, 2010
By:      /s/ Joseph M. Cummins


Joseph M. Cummins


President and Chief Executive Officer












Date: May 13, 2010
By:      /s/ Bernard Cohen
 Bernard Cohen
 Vice President and Chief Financial Officer