10-K

U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-K

(Mark One)

[ X ]	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the Fiscal Year Ended December 31, 2009
[     ]	Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] Commission File Number 0-20791
	AMARILLO BIOSCIENCES, INC. (Exact name of Registrant as specified in its charter)
	Texas (State of other jurisdiction of incorporation or organization)	75-1974352 (I.R.S. Employer Identification No.)
	4134 Business Park Drive, Amarillo, Texas (Address of principal executive offices)	79110-4225 (Zip Code)
	Issuer’s telephone number, including area code:	(806) 376-1741

Securities registered under Section 12(b) of the Exchange Act:

None.

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, Par Value $.01

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  [  ] Yes   [√] No

Indicate by check mark whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  [  ] Yes   [√] No

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

Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [√ ]

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Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, a non-accelerated filer, or a smaller reporting company.  See 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 checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  [ ] Yes   [√] No

As of December 31, 2009, there were outstanding 52,041,001 shares of the registrant’s common stock, par value $.01, which is the only class of common or voting stock of the registrant. As of that date, the aggregate market value of 51,391,498 shares of common stock held by non-affiliates of the registrant (based on the closing price for the common stock on the OTC BB.AMAR December 31, 2009) was approximately $8,566,498.  Shares of common stock held by officers, directors and each shareholder owning ten percent or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates.

The number of shares of the Registrant’s common stock outstanding as of March 31, 2010 was 53,335,065.

PART I

The following contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth in “Management’s 2010 Plan of Operations” as well as those discussed elsewhere in this Form 10-K. The following discussion should be read in conjunction with the Financial Statements and the Notes thereto included elsewhere in this Form 10-K.

ITEM 1. BUSINESS.

General

We are a Texas corporation formed in 1984 engaged in developing biologics for the treatment of human and animal diseases. We focus our research on the treatment of human disease indications, particularly influenza, using natural human interferon alpha that is administered in a proprietary low dose oral form.

We currently own or license seven issued patents including one issued patent on our dietary supplement, Maxisal®, and two pending patents related to the low-dose oral delivery of interferon.  We have completed more than 100 pre-clinical (animal) and human studies on the safety and efficacy of low-dose orally administered interferon. We have filed with the U.S. Food and Drug Administration (“FDA”), and there now are in effect, six Investigational New Drug (“IND”) Applications covering indicated uses for low-dose oral interferon alpha.

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Our funding strategy is to seek private placement and pharma partner funding to complete Phase 2 clinical studies for influenza, chronic cough in COPD patients, and hepatitis C; then to find large pharma partners to fund Phase 3 clinical studies and assist with the regulatory approval process in the United States and Europe.

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 almost no side effects.

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

Influenza/Cold - FDA Phase 2 Study

The University of Western Australia has completed a Phase 2 clinical study of oral interferon as prevention/treatment of respiratory illnesses, including influenza.   We provided the study drug, electronic data collection service, and US regulatory support for the study.  Preliminary results of a post-hoc analysis indicate that subjects given interferon who had received seasonal influenza vaccine prior to enrollment had a significantly lower incidence of influenza-like illness during the study, compared to subjects in the placebo group who had been vaccinated. Further exploratory analyses have discovered that the incidence of influenza-like illness, the primary study endpoint, was significantly reduced from 60% to 24% in subjects 55 years of age or older who received interferon, compared to subjects in the placebo group who were at least 55 years old at the start of the study.

Similar to what has been observed in studies of other human diseases, preliminary analysis 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 reported. Placebo subjects reported an average of 1.4 adverse events, compared to an average of 1.3 adverse events reported per interferon-treated subject.

A total of 200 healthy human volunteers were enrolled in this study to take a once daily dose of oral interferon or placebo for 16 weeks as prevention of influenza-like illness during the 2009 Australian cold and flu season. 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.

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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.  Blinded, controlled studies in the US and Canada showed that oral interferon relieves chronic coughing in horses with COPD-like disease.  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.

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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.

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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.

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

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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 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.

Status of Relocation

We are open to evaluating relocation grants as one possible source of funding.  At this time, we have no relocation commitments.

Patents and Proprietary Rights

Since our inception, we have worked to build an extensive patent portfolio for low-dose orally administered interferon. This portfolio consists of patents with claims that encompass method of use or treatment, composition of matter and manufacturing. We presently own or license ten patents including one issued patent on our dietary supplement.  We also have three pending patents related to low-dose orally delivered interferon.  Our owned and licensed patents are listed below:

Patents with Method of Treatment Claims for Interferon Alpha

1. "TREATMENT OF BACTERIAL INFECTION WITH ORAL INTERFERON-ALPHA" as described and claimed in U.S. Patent No. 5,817,307 issued October 1998, Licensed. Expiration: October 2015.

2. "TREATMENT OF AUTOIMMUNE DISORDERS WITH ORAL INTERFERON" as described and claimed in U.S. Patent No. 5,846,526 issued December 1998, Licensed. Expiration: December 2015.

3. "TREATMENT OF FIBROMYALGIA WITH LOW DOSE INTERFERON" as described and claimed in U.S. Patent No. 6,036,949 issued March 2000, Owned. Expiration: March 2018.

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4. "INTERFERON-ALPHA MEDIATED UPREGULATION OF AQUAPORIN EXPRESSION" as described and claimed in U.S. Patent No. 6,506,377 issued January 2003, Owned. Expiration: November 2019.

Patents with Formulation Claims

5. "SEMI-SOLID PHARMACEUTICAL AGENT AND PROCESS TO PRODUCE THE SAME” as described and claimed in U.S. Patent No. 5,489,577 issued February 1996, Licensed. Expiration: June 2013.

6. "INTERFERON DOSAGE FORM AND METHOD THEREFOR" as described and claimed in U.S. Patent No. 6,372,218 B1 issued April 2002, Licensed. Expiration: April 2019.

7. "COMPOSITION AND METHOD FOR PROMOTING ORAL HEALTH" as described and claimed in U.S. Patent No. 6,656,920 B2 issued December 2003, Owned. Expiration: April 2021.

There are no current patent litigation proceedings involving us.

Publishing

A manuscript entitled “Oromucosal Administration of Interferon to Humans” review article authored by Manfred W. Beilharz and others, was published in Pharmaceuticals.  The article may be viewed at: http://www.mdpi.com/1424-8247/3/2/323.

A manuscript entitled “Protection From Lethal Influenza Virus Challenge by Oral Type 1 Interferon” was published online by the Biochemical & Biophysical Research Communication in February 12, 2007.

A manuscript by Tumpey and others titled “The Mx1 Gene Protects Mice Against Pandemic 1918 and Highly Lethal Human H5N1 Influenza Viruses” was published in J Virol in October 2007.

A manuscript by Van Hoeven and others titled “Pathogenesis of the 1918 pandemic and H5N1 influenza virus infection in a guinea pig model: The antiviral potential of exogenous alpha-interferon to reduce virus shedding” was published online by J Virol in 2009.

A manuscript by Kugel and others titled “Intranasal Administration of Interferon-Alpha Reduces Seasonal Influenza A Virus Morbidity in Ferrets” was published online in J Virol in February 2009.

These four publications are supportive of our efforts to develop oral interferon as a treatment and prevention of influenza.

A manuscript by Cummins and others titled “Fenbendazole Stimulates Interferon Secretion in Calves during Viral Infection” was published in the Journal of Bovine Practitioner in spring 2008.

Cost of Compliance with Environmental Regulations

We incurred no costs to comply with environment regulations in 2009.

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Competition

The pharmaceutical industry is an expanding and rapidly changing industry characterized by intense competition. We believe that our ability to compete will be dependent in large part upon our ability to continually enhance and improve our products and technologies. In order to do so, we must effectively utilize and expand our research and development capabilities and, once developed, expeditiously convert new technology into products and processes, which can be commercialized. Competition is based primarily on scientific and technological superiority, technical support, availability of patent protection, access to adequate capital, the ability to develop, acquire and market products and processes successfully, the ability to obtain governmental approvals and the ability to serve the particular needs of commercial customers.  Corporations and institutions with greater resources than us, therefore, have a significant competitive advantage. Our potential competitors include entities that develop and produce therapeutic agents for treatment of human and animal disease. These include numerous public and private academic and research organizations and pharmaceutical and biotechnology companies pursuing production of, among other things, biologics from cell cultures, genetically engineered drugs and natural and chemically synthesized drugs. Almost all of these potential competitors have substantially greater capital resources, research and development capabilities, manufacturing and marketing resources and experience than us. Our competitors may succeed in developing products or processes that are more effective or less costly than any that may be developed by us or that gain regulatory approval prior to our products.  We also expect that the number of competitors and potential competitors will increase as more interferon alpha products receive commercial marketing approvals from the FDA or analogous foreign regulatory agencies. Any of these competitors may be more successful than us in manufacturing, marketing and distributing its products. There can be no assurance that we will be able to compete successfully.

Government Regulation

Once a new compound has been identified in the laboratory, medicines are developed as follows:

Preclinical Testing. A pharmaceutical company conducts laboratory and animal studies to show biological activity of the compound against the targeted disease, and the compound is evaluated for safety.

Investigational New Drug Application (“IND”). After completing preclinical testing, a company files an IND with the FDA to begin to test the drug in people. The IND becomes effective if the FDA does not disapprove it within 30 days. The IND shows results of previous experiments; how, where and by whom the new studies will be conducted; the chemical structure of the compound; how it is thought to work in the body; any toxic effects found in the animal studies; and how the compound is manufactured. All clinical trials must be reviewed and approved by the Institutional Review Board (“IRB”) where the trials will be conducted. Progress reports on clinical trials must be submitted at least annually to FDA and the IRB.

Clinical Trials, Phase I. These tests involve about 20 to 80 normal, healthy volunteers. The tests study a drug’s safety profile, including the safe dosage range. The studies also determine how a drug is absorbed, distributed, metabolized and excreted as well as the duration of its action.

Clinical Trials, Phase II. In this phase, controlled trials of approximately 100 to 300 volunteer patients (people with the disease) assess a drug’s effectiveness.

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Clinical Trials, Phase III. This phase usually involves 1,000 to 3,000 patients in clinics and hospitals. Physicians monitor patients closely to confirm efficacy and identify adverse events. These numbers may be modified based on the disease prevalence.

New Drug Application (“NDA”)/Biologics License Application (“BLA”).  Following the completion of all three phases of clinical trials, a company analyzes all of the data and files with FDA an NDA, in the case of a drug product, or a BLA in the case of a biologic product, if the data successfully demonstrate both safety and effectiveness. The NDA/BLA contains all of the scientific information that the Company has gathered. NDA’s typically run 100,000 pages or more. By law, FDA is allowed twelve months to review a standard NDA/BLA.

Approval.  Once FDA approves an NDA, the new medicine becomes available for physicians to prescribe. A company must continue to submit periodic reports to FDA, including any cases of adverse reactions and appropriate quality-control records. For some medicines, FDA requires additional trials (Phase IV) to evaluate long-term effects.

Research and Development

During the years ended December 31, 2009 and 2008, the Company incurred research and development expenses of $464,789 and $525,903 respectively. Research and development is expected to remain a significant component of the Company’s business. The Company has arranged for others, at their cost, to perform clinical research and intends to continue to do so while utilizing its staff for monitoring such research.

Employees

We have 3 full-time employees and 2 part-time employees based in Amarillo, Texas. Of these employees, 3 are executive officers and 2 work in administrative and research and development capacities. We also use consultants in business and research development.

ITEM 2.                      DESCRIPTION OF PROPERTY.

Our executive and administrative offices are located at 4134 Business Park Drive, Amarillo, Texas in a 1,800 square-foot facility rented by us. The lease expires on June 30, 2010 and our monthly rent is $1,000 per month. We believe that the facilities are well maintained and generally suitable and adequate for our current and projected operating needs.

ITEM 3. LEGAL PROCEEDINGS.

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 4.                      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

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

Common Stock

The Company is presently traded on the OTC Bulletin Board under the symbol AMAR.  Our common stock is presently considered a “penny stock” and is subject to such market rules. The range of high and low bids as quoted on the OTC Bulletin Board for each quarter of 2009 and 2008 was as follows:

	2009			2008
Quarter	High	Low	High		Low
First	$0.10	$0.04	$0.39		$0.25
Second	0.21	0.05	0.33		0.22
Third	0.29	0.14	0.24		0.12
Fourth	0.26	0.14	0.20		0.05

The quotations reflect inter-dealer bids without retail markup, markdown, or commission, and may not represent actual transactions. As of December 31, 2009, the Company had approximately 1,600 shareholders of record.

The Company has 100,000,000 shares of voting common shares authorized for issuance.  The shareholders approved an increase in authorized shares from 50,000,000 to 100,000,000 in 2007. On December 31, 2009, the Company had 76,964,764 shares of common stock outstanding and reserved for issuance upon exercise of options and warrants.  The Company issued common stock in 2009 and 2008 as follows:

Common Stock Issued in 2009	Shares	Issue                            Price	Net                                 Price
Private placements – cash	7,977,350	$0.10	$754,735
Directors, officers, consultants plan – cash	62,500	0.08	5,000
Directors, officers, consultants plan – salaries	1,877,715	0.05-0.20	157,619
Directors, officers, consultants plan – services	1,866,291	0.06-0.26	232,127
Options exercised – cash	1,774,889	0.10	169,822
Options exercised – cashless	2,528,879	0.10	-
Total Common Stock Issued in 2009	16,087,624	$0.05-0.26	$1,319,303

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Common Stock Issued in 2008	Shares	Issue                                    Price	Net                             Price
Private placements – cash	1,160,000	$0.10-$0.25	$121,000
Directors, officers, consultants plan – cash	188,404	0.10	18,841
Officers – salaries	280,772	0.11-0.33	52,086
Consultants – services	421,667	0.06-0.33	134,225
Preferred stock dividends	437,273	0.09-0.27	77,903
Conversion of preferred stock to common	4,000,000	0.01	40,000
Total Common Stock Issued in 2008	6,488,116	$0.01-0.33	$444,055

During the years ended December 31, 2009 and 2008, finder’s fees paid related to private placements of stock totaled $50,667 and $10,000 respectively, and are deducted from the paid in excess of par capital account on the balance sheet.

We have not paid any dividends to our common stock shareholders to date, and have no plans to do so in the immediate future.

We use the services of American Stock Transfer and Trust Company as our transfer agent.

Preferred Stock

The Company has 10,000,000 shares of preferred stock authorized for issuance which is issuable in series.  During the first quarter of 2008, the Company completed a private placement by selling 1,000 shares of Series A convertible preferred stock for $1,000 per share in a private placement offering; generating gross proceeds of $1,000,000 and net proceeds of $793,793.  The convertible preferred stock was convertible into 4,000,000 shares of common stock.  The investor also received five year warrants to purchase 4,000,000 shares of common stock at $0.30 per share. The investment banker was paid a commission of $80,000 plus received five year warrants to purchase 640,000 shares of common stock at $0.30 per share.

The Series A preferred shareholder was paid $77,903 (10% annualized return) of stock dividends during 2008.  A total of 437,273 shares were issued at $0.09 to $0.27 per share.  The preferred stock shareholder converted all the outstanding preferred stock into common stock at $0.25 per share in three stages in October 2008.  Currently there is no preferred stock outstanding and no future dividends required to be paid.  The warrant anti-dilution provisions were triggered on November 21, 2008 when private placement shares were sold for $0.10 per share. Holders of the 4,640,000 warrants issued received 9,280,000 additional warrants.  Total warrants were increased by a factor of three and the exercise price reduced from $0.30 to $0.10 per share.

Stock Options and Warrants

During 2008, 1,076,912 options were issued to consultants, advisors, directors, employees and two former employees, and the Company recognized $76,745 of expense related to these options.  During 2009, 2,650,000 options were issued to consultants, directors and employees, and the Company recognized $201,124 of expense related to these options.

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During 2006, the Company issued 1,200,000 options to officers of the Company. These options vest over the next four years.  In 2008, Company issued 700,000 options to a new officer.  The officer resigned on May 31, 2009 and these options expired on May 31 and July 30 of 2009.  The Company recognized $304,025 expense in 2008 and $284,871 expense in 2009 related to these options.  The remaining cost expected to be recognized if these options vest is $112,874.

No options were exercised by Directors or employees in 2008.  Directors, officers and consultants exercised 2,079,008 options in 2009.  See “Stock Option and Warrant Exercise Incentive” below for more details about 2009 stock option exercises.

A summary of the Company's stock option activity and related information for the years ended December 31, 2009 and 2008 is as follows:

	2009		2008
	Options	Price	Options	Price
Outstanding Beg of Year	8,882,412	$0.10-0.87	9,193,412	$0.20-0.87
Granted	2,650,000	0.13-0.18	1,776,912	0.10-0.35
Cancelled/Expired	(2,850,000)	0.13-0.72	(2,087,912)	0.20-0.48
Exercised	(2,079,008)	0.10	-	-
Outstanding End of Year	6,603,404	0.10-0.87	8,882,412	0.10-0.87
Exercisable End of Year	5,803,404	0.10-0.87	7,172,412	0.10-0.87

Options reserved for the Director, employee and consultant plan but not issued (1,000,000) are not included in the table above since this stock may be utilized for other purposes if not used for the plans. The weighted-average remaining contractual life of the above options is 1.87 years.

During 2008, 15,160,000 warrants were issued.  Of these 12,000,000 were issued to a preferred shareholder, 1,920,000 to an investment banking company, 80,000 to a consultant and 1,160,000 to purchasers of unsecured private placement stock.  Deemed dividends for $548,489 and $87,758 were recognized for the warrants issued to the preferred shareholder and investment banking company respectively.  We recognized $11,522 for stock compensation expense for the warrants issued to a consultant.  We recognized the total purchase price for private placement stock and warrants as the cost to purchase the stock.

We recognized $636,247 of deemed dividends for anti-dilution benefits received by warrant holders on November 21, 2008.  We sold private placement stock on November 21, 2008 for $0.10 per share which triggered the warrant anti-dilution provisions.  Holders of 4,640,000 warrants exercisable at $0.30 cents per share with January 8, 2013 expiration date received 9,280,000 additional warrants.  Total warrants were increased by a factor of three and the exercise price reduced to $0.10.  We are at risk of triggering the warrant anti-dilution provisions again in the future if we sell stock below $0.10 per share to any non-exempt parties.  Holders of options and warrants 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.

During 2009, 7,877,350 warrants were issued together with private placement sales of 7,877,350 shares of stock.  We recognized the total purchase price for private placement stock and warrants as the cost to purchase the stock.

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No warrants were exercised in 2008.  In 2009, investment bankers exercised 1,472,001 cashless warrants at $0.10 per share and received 785,854 shares of stock.  A total of 686,147 shares of stock reserved for exercise of warrants were returned to the Treasury.  Investors exercised 3,244,990 warrants in 2009.  See “Stock Option and Warrant Exercise Incentive” below for more details about 2009 investor warrant exercises.

A summary of the Company's stock warrant activity and related information for the years ended December 31, 2009 and 2008 is as follows:

	2009		2008
	Warrants	Price Range	Warrants	Price Range
Outstanding Beg of Year	15,360,000	$0.10-2.00	260,000	$0.47-2.00
Granted	7,877,350	0.10-.20	15,160,000	0.10-0.30
Cancelled	(200,000)	2.00	(60,000)	0.47-0.50
Exercised	(4,716,991)	0.10	-	-
Outstanding End of Year	18,320,359	0.10-0.20	15,360,000	0.10-2.00
Exercisable End of Year	18,320,359	0.10-0.20	15,360,000	0.10-2.00

The weighted-average remaining contractual life of the warrants outstanding at December 31, 2008 is 2.41 years.

Stock Option and Warrant Exercise Incentive:

In November 2009, the Board approved an incentive to encourage option and warrant holders (“Holders”) to exercise their options or warrants. Holders were allowed, for a limited time, to exercise up to one-third of the options or warrants they held, at an exercise price of $0.10 per share and, for each option or warrant so exercised, two additional options or warrants were converted to cashless options or warrants, and deemed exercised immediately on a cashless basis with an exercise price of $0.10. The Company recognized $84,148 of expense related to option and warrant modifications described above.

The activity resulting from the exercise of warrants under this incentive is as follows:

	Options/Warrants Exercised	Reserved Common Stock Returned to Treasury	Common Stock Issued	Net Cash to Company
Options	2,079,008	733,410	1,345,598	$ 69,322
Warrants	3,244,990	1,072,674	2,172,316	$100,500
Total	5,323,998	1,806,084	3,517,914	$169,822

Notes Payable

The Company has two $1,000,000 notes payable under an unsecured loan agreement with HBL dated July 22, 1999.  The annual interest rate on unpaid principal from the date of each respective note is 4.5 percent, with accrued interest being payable at the maturity.  One $1,000,000 note was payable on or before December 3, 2009.  The other $1,000,000 note was payable on or before February 28, 2010. Although we are currently in default of the notes, HBL has not demanded payment. During 2008, the Company paid HBL $200,000 of interest on these notes.

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ITEM 6.                      SELECTED FINANCIAL DATA.

This item is not applicable to smaller reporting companies.

ITEM 7.                      MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

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.

Overview

We continue to engage in research and development activities focused on developing biologics for the treatment of human and animal diseases.  We have not commenced any significant product commercialization and, until such time, we will not generate significant product revenues.  However, a license deal with a large pharmaceutical partner may provide sufficient capital to fund FDA approval and marketing launch of low-dose oral interferon technology.  Our accumulated deficit has increased, from $31,660,009 at December 31, 2008 to $35,318,939 at December 31, 2009. Operating losses are expected to continue for the foreseeable future and until such time as the Company is able obtain a large pharmaceutical partner or attain sales levels sufficient to support operations.

In 2010 we will continue research and development activities, as well as the activities necessary to develop commercial partnerships and licenses. Expenditure of financial resources in 2010 will fall principally into five broad categories, as follows: Research and Development; Personnel; Consulting and Professional (except legal and accounting); Legal and Accounting; and Public Relations, Investor Relations and Shareholder Relations.

Liquidity and Capital Resources

At December 31, 2009, we had available cash of $24,216, and had a working capital deficit of $4,874,900.  This includes $152,521 of accrued salaries to officers; $4,741,935 from loans ($2,000,000) and accrued interest ($661,294 from HBL; and recognition of $1,928,120 of derivative liabilities to account for warrants issued to an institutional investor.  Negative cash flow from operating activities plus equipment purchases, software purchases and patent filings (burn rate) is approximately $76,000 per month.  Continued losses and lack of liquidity indicate that we may not be able to continue as a going concern for a reasonable period of time. The ability to continue as a going concern is dependent upon several factors including, but not limited to, the ability to generate sufficient cash flow to meet obligations on a timely basis, obtain additional financing and continue to obtain supplies and services from vendors.

We will need to raise additional funds in order to fully execute our 2010 Plan.  We are presently negotiating with human and animal health commercial development partners in various regions of the world.  We believe that one or more of these agreements will be executed during 2010. These agreements could generally include provisions for the commercial partner to pay us a technology access fee, could include payments for a portion of the clinical trial expenses, could include payment obligations to us upon the accomplishment of certain defined tasks and/or could provide for payments relating to the future sales of commercial product. These agreements could be an important source of funds. However, there can be no assurance that we will be successful in obtaining additional funding from human health commercial development partners, institutional or private investors.  If we are not successful in raising additional funds, we will need to significantly curtail clinical trial expenditures and to further reduce staff and administrative expenses and may be forced to cease operations.

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Total outstanding current liabilities were approximately $1.87 million (59%) higher at the end of 2009 with approximately $5 million at December 31, 2009, as compared to approximately $3.14 million at December 31, 2008.  The Company started accounting for derivative liabilities associated with warrants issued in 2008 on January 1, 2009, which increased liabilities in 2009 by approximately $1.93 million

Critical Accounting Policies

We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our financial statements:

Accounting for Stock-Based Compensation

Stock based compensation expense is recorded in accordance with Financial Account Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, Share-Based Payment, for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.

Accounting for Warrants with Embedded Derivative Feature

In accordance with Financial Account Standards Board Accounting Standards Codification (“FASB ASC”) Topic 815, the Company reclassified warrants with embedded derivative feature (full-ratchet anti-dilution provision) 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 in 2009.

Patents and Patent Expenditures

AMAR holds patent license agreements and holds patents that are owned by the Company. All patent license agreements remain in effect over the life of the underlying patents. Accordingly, the patent license fee is being amortized over 15-17 years using the straight-line method. Patent fees and legal fees associated with the issuance of new owned patents are capitalized and amortized over 15-17 years.  

Long-lived Assets

Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount.  No impairment losses have been recorded since inception.

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Revenue Recognition

Dietary supplement and interferon sales

Revenues for the dietary supplement sales are recognized when an arrangement exists, the price is fixed and it has been determined that collectability is reasonably assured.  This generally occurs at the point when the goods are shipped to the customer.

Sublicense fee revenue

Sublicense revenue is calculated based on fees relating to a license.  Amarillo recognizes revenue on these sublicense fees in the month the revenue is generated by the licensee.

Royalty revenue

Royalty revenue is calculated based on royalty fees as a percent of net sales relating to a license.  Amarillo recognizes revenue on these royalty payments in the year the revenue is generated by the licensee.  Royalty revenue of $1,479 was reported in the year ended December 31, 2009 for HBL sales of Bimron to BioVet.  HBL reported no sales of Bimron to Bio Vet for 2008.

Comparison of results for the fiscal year ended December 31, 2009, to the fiscal year ended December 31, 2008.

Revenues.  During the fiscal year ended December 31, 2009, $52,254 from product sales, sublicense fees and royalties was generated compared to $109,836 for the fiscal year ended December 31, 2008, a decrease of $57,582or approximately 52%.  The difference was mostly because a $60,000 upfront license fee was received for executing a license and supply agreement in 2008 where as no license and supply agreements were executed in 2009.

Selling, General and Administrative Expenses.  We were successful in cutting costs in 2009.  Selling, General and Administrative expenses were reduced from $1,366,076 for the fiscal year ended December 31, 2008 to $1,202,702 for the fiscal year ended December 31, 2009, a cost savings of $163,374 or approximately 12%. This was mostly because public relations and investor relations expenses were cut by $252,093 (86%) from $293,121 in 2008 to $41,028 in 2009.  Increases in legal and professional fees ($75,872), option-warrant exercise inducement expense ($84,148) and Directors’ option expense ($68,186) were offset partially offset by decreases in employee costs ($85,642), travel ($22,655), fundraising ($10,000) and accounting ($9,600) expenses.

Research and Development Expenses.  Research and Development expenses of $464,789 were incurred for the fiscal year ended December 31, 2009, compared to $525,903 for the fiscal year ended December 31, 2008, a decrease of $61,114 or approximately12%.  Clinical, R&D personnel and R&D overhead costs were $13,936, $33,279 and $13,889 lower, respectively.

Net Income (Loss).  Net loss for the fiscal year ended December 31, 2009 was $2,971,207 compared to a net loss of $1,923,067 for the fiscal year ended December 31, 2008, an increase of $1,048,140 or approximately 55%.  Net loss included a $1,240,397 change in fair value off derivative instruments in 2009.  Net loss applicable to common shareholders for the fiscal year ended December 31, 2009 was $2,971,207 compared to $3,200,058 for the fiscal year ended December 31, 2008, a reduction of $228,851 (7%).  Net loss applicable to common shareholders

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included $77,903 of stock dividends for preferred stock shareholders, $562,841 of deemed dividend for the preferred stock beneficial conversion feature (BCF) and $636,247 of warrant anti-dilution reset deemed dividends in 2008.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

You should carefully consider the risks described below before making an investment in Amarillo Biosciences, Inc.  All of these risks may impair our business operations.  If any of the following risks actually occurs our business, financial condition or results of operations could be materially adversely affected.  In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.  

Risks Relating to our Business

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 four patents and license nine 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, in the United States and internationally distribute the nutraceutical products. Except for any contractual rights and remedies that we may have with our manufacturer and our distributor, 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 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 dependent on funding from private placements of stock.

Sales revenue, sublicense fees and royalty income are low 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 $4,874,900 on December 31, 2009.  Most of

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this ($4,741,935) includes the amount owed to HBL for two $1 million notes plus $661,294 of accrued interest; $1,928,120 recognized as derivative liabilities to account for warrants with embedded features and $152,521 of accrued salaries owed to officers.   HBL was paid $200,000 of accrued interest in January of 2008 and extended the notes and remaining accrued interest until June 3, 2008 and August 28, 2008.  On December 10, 2008, HBL proposed to extend the notes and accrued interest until December 3, 2009 and February 28, 2010 if payment of $200,000 of accrued interest was received by February 28, 2008.  If an additional $145,000 is paid, HBL will extend the notes an additional year. We have requested more time to pay the accrued interest payments to extend the notes.  Although the notes are in default, HBL has not demanded payment.  We are presently pursuing funding from prospective investors and prospective pharmaceutical partners.  If the Company does not get funding from investors or prospective pharmaceutical partners, the Company will not be able to pay the requested accrued interest to extend the notes.  The Company is discussing alternatives with HBL, but currently has no commitment or assurance that HBL will not demand payment and/or declare the notes in default.  We do not have sufficient liquidity to pay off the notes or to fund operating losses unless funding is obtained from pharmaceutical partners or private placements of stock.  There can be no assurance that private placement or pharmaceutical company funding will always be available as market conditions may change.

We are dependant 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 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, InterMune, Serano, Biogen, Berlex and Hemispherx.  High dose injectable interferon has been widely accepted

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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 may be subject to product liability claims in the future.

We face an inherent business risk of exposure to product liability claims in the event that the use of our technologies or products is alleged to have resulted in adverse side effects.  Side effects or marketing or manufacturing problems pertaining to any of our products could result in product liability claims or adverse publicity.  These risks will exist for those products in clinical development and with respect to those products that receive regulatory approval for commercial sale.  Even though we have not historically experienced any problems associated with claims by users of our products, we do currently maintain product liability insurance.

We have been the subject of a going concern opinion by our independent auditors who have expressed 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 opinions issued in connection with our financial statements 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 net losses of $1,923,067 for the year ended December 31, 2008 and $2,971,207 for the year ended December 31, 2009.  Net loss included a $1,240,397 change in fair value off derivative instruments in 2009. Net loss applicable to common shareholders including preferred stock dividends and deemed dividends was $3,200,058 in 2008.  Net loss applicable to common shareholders was $2,971,207 in 2009.  In addition, as of December 31, 2008 we had an accumulated deficit of $31,660,009 and $35,318,939 for the year ended December 31, 2009.  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. If we are unable to generate profits and unable to continue to obtain financing to meet our working capital requirements, we may have to curtail our business sharply or 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. Should any of these events not occur, we will be adversely affected and we may have to cease operations.

Risks Relating to Ownership of Common Stock.

There may not be sufficient liquidity in the market for our securities in order for investors to sell their securities.

There is currently only a limited public market for our common stock, which is listed on the Bulletin Board, and there can be no assurance that a trading market will develop further or be maintained in the future.  There were 18,320,359 warrants and 5,803,404 options outstanding and exercisable as of December 31, 2009.  If the warrants or options are exercised and the stock sold, the volume of stock sales may adversely impact the market price.

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ITEM 8.                      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements of the Company are set forth beginning on page F-1 immediately following the signature page of this report.

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

None.

ITEM 9A.                      CONTROLS AND PROCEDURES.

As of December 31, 2009, the disclosure controls and procedures in place have been evaluated and are sufficient to ensure the accurate and full disclosure of financial matters.

The management of the Company is responsible for establishing and maintaining adequate internal controls over the financial reporting of the Company.  The Company uses the following framework to evaluate the effectiveness of the internal controls over financial reporting:

We maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion.

In the ordinary course of business, we review our system of internal control over financial reporting and make changes to our systems and processes to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems and automating manual processes.

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was performed as of the end of the period covered by this report. This evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SECs  rules and forms.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.  Based on such assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2009.  The Company’s accounting firm has not issued an attestation report on the management’s assessment of the Company’s internal controls.  There were no changes made to the internal controls in 2009.  See Exhibit 33.1 for managements report on internal control over financial reporting.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

As of December 31, 2009, the directors and executive officers of the Company were as follows:

Name	Age	Position
Joseph M. Cummins, DVM, PhD (1)	67	Chairman of the Board, President, Chief Executive Officer and Director
Bernard Cohen	56	Vice President and Chief Financial Officer
Martin J. Cummins	42	Vice President of Clinical & Regulatory Affairs
Stephen Chen, PhD (2)(3)(4)	60	Director
Thomas D’Alonzo, JD (1)(2)(3)(4)	66	Director
Dennis Moore, DVM (1)(4)	63	Director
James Page, MD (2)(3)	82	Director

(1) Member of the Executive Committee.

(2) Member of the Compensation & Stock Committee.

(4)      Member of the Search Committee.

(5)       Member of the Search Committee.*

*The Plan Committee administers the Amended and Restated 2008 Directors, Officers, and Consultants Stock Purchase Plan.

Joseph M. Cummins has been the Chairman of the Board of the Company since he founded it in June 1984. Dr. Cummins has also served as President of the Company since December 1994. Dr. Cummins has been conducting research on oral cytokines, most particularly interferon alpha, in animals and humans for over 30 years. Dr. Cummins has 54 publications and is the inventor on 21 issued or pending patents many of which reflect his work in the field of oral interferon. He received a PhD degree in microbiology from the University of Missouri in 1978 and a doctor of veterinary medicine degree from the Ohio State University in 1966.

Bernard Cohen was hired to be a Vice-President and Chief Financial Officer of the Company on October 1, 2009.  Mr. Cohen has been Director of Finance and Data Base Manager at the Harrington Regional Medical Center, Inc. (HRMCI), which is the management and development entity for the Harrington Regional Medical Center in Amarillo, Texas.  Previously, he held various executive positions at Colbert’s of Amarillo, a department store.  His positions included:  Chief Executive Officer, Vice President, Chief Financial Officer, and Controller.  He has been and continues to be a member of the Texas Tech University Health Sciences Center at Amarillo (TTUHSC) Institutional Review Board (IRB) where he reviews clinical trial protocols to monitor the safety and protection of human research and testing subjects.  Neither HRMCI nor TTUHSC has any connection whatsoever with the Company.

Martin J. Cummins has held several positions within the Company since joining the Company full-time in June 1992. Mr. Cummins currently oversees all research studies involving human participants as Vice President of Clinical and Regulatory Affairs. Mr. Cummins has received extensive training in the fields of clinical trial design, monitoring and analysis, as well as regulatory affairs and compliance and has 11 publications to reflect his work. He received a BS degree in microbiology from Texas Tech University. He is the son of Joseph Cummins.

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Stephen Chen has been a director of the Company since February 1996. He has been President and Chief Executive Officer of STC International, Inc., a health care investment firm, since May 1992. From August 1989 to May 1992 he was Director of Pharmaceutical Research and Development for the Ciba Consumer Pharmaceuticals Division of Ciba-Geigy.  He received a PhD degree in Pharmaceuticals from Purdue University in 1977.

Thomas D’Alonzo has been a director of the Company since June 2006.Mr. D’Alonzo is a seasoned executive with experience in all major facets of pharmaceutical operations: sales and marketing, manufacturing, quality assurance, finance and licensing and strategic planning. Mr. D’Alonzo served as President of Pharmaceutical Product Development, Inc., a multi-national clinical research organization with 3,000 employees operating in 14 countries and generating $300 million in revenues from analytical labs and Phase 1, 2, 3 and 4 clinical trials.  Previously, Mr. D’Alonzo was President of Genevec, Inc., a gene therapy biotech company. Before that, Mr. D’Alonzo was President of Glaxo, Inc., the US unit of what is now Glaxo SmithKline.  He received a BS degree  in Business Administration from University of Delaware in 1965 and a JD degree from University of Delaware in 1970.

Dennis Moore has been a director of the Company since 1986. Dr. Moore has been a doctor of veterinary medicine since 1972 and was in private practice from 1972 to 1995. Since 1995, Dr. Moore has been involved in managing his personal investments.  He received a DVM degree from Colorado State University in 1972.

James Page has been a director of the Company since February 1996. Prior to retiring in 1991 as a Vice President with Adria Laboratories, Inc., a pharmaceutical company specializing in therapy given to cancer and AIDS patients, Dr. Page held various upper management level positions with Carter Wallace, Inc., Merck Sharpe & Dohme Research Laboratories and Wyeth Laboratories.  He received a MB.BS London and MRCS, LRCP England from University of London St. Mary’s Hospital Medical School in 1950.

The Company’s directors are elected at the annual meeting of shareholders to hold office until the annual meeting of shareholders for the ensuing year or until their successors have been duly elected and qualified. Directors receive compensation of $1,000 per day for attendance at meetings, $250 per day for regularly scheduled teleconference meetings, and are reimbursed for any out-of-pocket expenses in connection with their attendance at meetings.

Officers are elected annually by the Board of Directors and serve at the discretion of the Board.

Audit Committee Financial Expert

Thomas D’Alonzo, JD, qualifies as an audit committee financial expert for the Company.  An audit committee financial expert is a person who has an understanding of GAAP and financial statements; the ability to assess accounting and financial principles in connection with the accounting of the Company; experience preparing, auditing, analyzing, or evaluating financial statements; an understanding of internal controls over financial reporting; and an understanding of audit committee functions.

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Code of Ethics

The Company’s Code of Ethics may be found on the Company’s website, www.amarbio.com.

Compliance with Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires directors and officers of the Company and persons who own more than 10 percent of the Company’s common stock to file with the Securities and Exchange Commission (the “Commission”) initial reports of ownership and reports of changes in ownership of the common stock. Directors, officers and more than 10% shareholders are required by the Exchange Act to furnish the Company with copies of all Section 16(a) forms they file.

To the Company’s knowledge based solely on a review of the copies of such reports furnished to the Company, the following persons have failed to file, on a timely basis, the identified reports required by the Exchange Act during the most recent fiscal year:

Name and Principal Position	Number of Late Reports	Known Failures to File a Required Form
Dr. Joseph M. Cummins, Chairman of the Board, President and Chief Executive Officer	3	0
Dr. Peter R. Mueller, Former Chief Operating Officer and Director of Research	2	0
Dr. Gary W. Coy, Former Vice President and Chief Financial Officer	1	0
Bernard Cohen, Vice President and Chief Financial Officer	1	0
Mr. Martin J. Cummins, Vice President of Clinical and Regulatory Affairs	1	0
Stephen Chen, Director	3	0
Thomas D’Alonzo, Director	1	0
Dennis Moore, Director	1	0
James Page, Director	2	0

ITEM 11.                      EXECUTIVE COMPENSATION.

The following table sets forth for the three years ended December 31, 2009 compensation paid by the Company to its Chairman of the Board, President and Chief Executive Officer; to its Chief Operating Officer and Director of Research; to its Vice President of Clinical and Regulatory Affairs and  to its Vice President and Chief Financial Officer.  Other compensation in 2008 consists of the fair value of a stock grant approved in the fourth quarter of 2007 and contingent upon the successful completion of $1 million of funding in the first quarter of 2008.  The $2,500 bonus in 2008 was the cash portion of the bonus based on completion of the $1 million funding.

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Summary Compensation Table
		Annual Compensation			Long Term Compensation
Name and Principal Position	Year	Salary	Bonus	Other Compensation		Securities Underlying Options
Dr. Joseph M. Cummins,   Chairman of the Board, President,   and Chief Executive Officer	2009	$  175,000	$       -	$       -		300,000
	2008	$  175,000	$2,500	$2,500		490,000
	2007	$  175,000	$       -	$       -		-
Dr. Peter R. Mueller,   Former Chief Operating Officer and Director   of Research	2009	$    97,504	$       -	$       -		200,000
	2008	$  148,750	$       -	$       -		700,000
Mr. Martin J. Cummins,   Vice President of Clinical and Regulatory Affairs	2009	$  125,000	$       -	$       -		200,000
	2008	$  125,000	$       -	$       -		29,000
	2007	$  125,000	$   500	$       -		-
Mr. Bernard Cohen,   Vice President and Chief Financial Officer	2009	$      7,743	$       -	$       -		-
Dr. Gary W. Coy,   Former Vice President and Chief Financial Officer	2009	$    89,901	$       -	$       -		350,000
	2008	$  125,000	$       -	$       -		-
	2007	$  125,000	$   500	$       -		-

25

Option Grants in 2009

The following table sets forth information for the executive officers named above, regarding grants of options during 2009.

Name	Number of Shares of Common Stock Underlying Options Granted (#)	% of Total Options Granted to Employees in 2009	Exercise or Base Price ($/Sh)	Expiration Date
Joseph M. Cummins............................	300,000	27.3%	$0.125 (1)	4/30/2014
Peter R. Mueller....................................	200,000	18.2%	$0.125 (1)	4/30/2014
Martin J. Cummins...............................	200,000	18.2%	$0.125 (1)	4/30/2014
Gary W. Coy.........................................	350,000	31.8%	$0.125 (1)	4/30/2014
Bernard Cohen.....................................	-	0%	$       -	-

(1)   The fair market value of the common stock on the date of grant was $0.125.

Aggregated Option Exercises at December 31, 2009

And Year-End Option Values

The following table sets forth information for the executive officers named above, regarding the exercise of options during 2009 and unexercised options held at the end of 2009.

Name	Number of Shares Acquired on Exercise	Value Realized	Number of Shares of Common Stock Underlying Unexercised Options at December 31, 2009 Exercisable/Unexercisable			Value of Unexercised In-The-Money Options at December 31, 2009 (1) Exercisable/Unexercisable
Joseph M. Cummins	377,715	$48,500	1,190,000	/	None	$47,800	/		None
Peter R. Mueller (2)	None	None	None	/	None	None		/		None
Martin J. Cummins	None	None	1,029,000	/	100,000	$11,030		/		None
Gary W. Coy (3)	None	None	155,000	/	None	$6,975		/		None
Bernard Cohen	None	None	None	/	None	None		/		None

(1)       Calculated based on the closing price of the common stock ($0.17) as reported by OTC BB on December 31, 2009.

(2)        Peter Mueller resigned on May 31, 2009 at which time all unvested options were forfeited.  All vested options were forfeited on July 30, 2009.

(3)       Gary Coy resigned on September 4, 2009 and executed a 1-year consulting agreement.  Post employment he exercised 231,767 cash options and 363,233 cashless      options at $0.10 per share during the fourth quarter of 2009.  He received 389,542 shares of stock with a value of $55,550.

26

Director Compensation for Last Fiscal Year

	Cash Compensation		Stock Options
Name	Meeting Fees (1)	Consulting Fees	Number of Securities Underlying Options
Stephen Chen, PhD (2) (3) (4)	$              -	$       75,823	600,000
Thomas D’Alonzo (2)	$              -	$       11,278	100,000
Dennis Moore, DVM (2)	$              -	$       11,278	100,000
James Page, MD (2)	$              -	$       11,278	100,000

(1) Directors receive $1,000 compensation for attendance at directors’ meetings and $250 for regularly scheduled teleconference meetings. There were no regularly scheduled meetings during 2009.

(2) Options were granted to directors on April 30, 2009 with $0.125 exercise price and 5-year term.  The closing price of stock on the date of grant was $0.125.  Each director received 100,000 options ($11,278 fair value) except Steve Chen received 200,000 options ($22,555 fair value).

(3) Steve Chen received 400,000 options on June 4, 2009 with exercise price $0.1405 for his work with Cyto Biotech and CytoPharm on behalf of the Company.  We recognized $23,268 for 200,000 options that vested immediately with 3 year term.  The remaining 200,000 options vest if the Company receives $50,000 of royalty payments from South American sales by Cyto Biotech within four years.  The exercise price was based on the closing price of the prior day ($0.1405).

(4) Steve Chen referred the Company to Cyto Biotech and collected a $30,000 finder’s fee for the $300,000 stock purchase by Cyto Biotech.

Employment agreements were executed with Joseph M. Cummins, Martin J. Cummins and Gary W. Coy during 2006.  No employment or Director agreements were executed in 2007.  An employment contract was executed with Peter R. Mueller in 2008.  No other employment or Director agreements were executed in 2008.  An employment agreement was executed with Bernard Cohen in 2009.  No other employment or Director agreements were executed in 2009.

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

As of December 31, 2009, there were 52,041,001 shares of the Company’s common stock outstanding. The following table sets forth as of December 31, 2009, the beneficial ownership of each person who owns more than 5% of such outstanding common stock:

27

Name and Address	Amount and Nature of Beneficial Ownership	Percent of Class Owned(1)
Hayashibara Biochemical Laboratories, Inc. 2-3 Shimoishii 1-chome Okayama 700, Japan	3,118,655(2)	5.99%
Cyto Biotech 6F No. 6 sec 1 Jhongshing Road Wugu Shiang Taipei County 24872 Taiwan	6,000,000(3)	10.90%
Paul and Marian Tibbits 2371 Blue ball Road Rineyville, KY 40162	3,869,842(4)	7.44%

(1) Applicable percentage ownership is based on 52,041,001 shares of common stock outstanding as of December 31, 2009, plus the additional shares that the stockholder is deemed to beneficially own.  Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of December 31, 2009, are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(2) Shareholder above holding more than 5% of the common stock owns no options or warrants.

(3)  Includes warrants to purchase 3,000,000 shares of our common stock beneficially owned by Cyto Biotech, Inc. exercisable within 60 days.

(4)  No options or warrants to purchase shares of our common stock are beneficially owned by Paul and Marian Tibbits.  Paul Tibbits owns 2,523,810 shares of our common stock and Marian Tibbits owns 1,346,032 shares.  Paul Tibbits and Marian Tibbits each have sole voting and investment power over their respective interests disclosed as owned by them together in this table.

28

The following table sets forth the beneficial ownership of the Company’s stock as of December 31, 2009 by each executive officer and director and by all executive officers and directors as a group:

Name and Address of Owner	Amount and Nature of Beneficial Ownership	Percent of Class Owned1
Joseph M. Cummins 7635 Stuyvesant Ave. Amarillo, TX 79121	2,122,2865	3.63%
Gary W. Coy  (resigned on September 4, 2009) 907 Cat Hollow Club Drive Spicewood, TX 78669	1,628,0586	3.12%
Martin J. Cummins 6615 Sandie Amarillo, TX 79109	1,176,6927	2.22%
Dennis Moore 402 Fish Hatchery Hamilton, MT  59840	865,4788	1.65%
Bernard Cohen 2803 S. Travis St. Amarillo, TX 79109	-	0%
Thomas D’Alonzo 908 Vance Street Raleigh, NC 27608	135,4729	0.26%
Stephen Chen Floor 7-1, No. 18 Xin Yi Road,  Sec. 5 Taipei, Taiwan	1,203,62510	2.27%

29

Name and Address of Owner	Amount and Nature of Beneficial Ownership	Percent of Class Owned1
James Page 103 Clubhouse Lane, #182 Naples, FL  34105	764,12511	1.45%
Peter R. Mueller (resigned on May 31, 2009) 3 Busch Court Clinton, NJ 08809	1,678,32412	3.23%
Total Group (all directors and executive officers - 9 persons)	9,574,060(13)	16.85%

(5) Includes options to purchase 1,190,000 shares of our common stock beneficially owned by Dr. Cummins that are exercisable within 60 days.

(6) Includes options to purchase 155,000 shares of our common stock beneficially owned by Dr. Coy exercisable within 60 days.

(7) Includes options to purchase 1,029,000 shares of our common stock beneficially owned by Mr. Cummins that are exercisable within 60 days.

(8) Includes options to purchase 464,125 shares of our common stock beneficially owned by Dr. Moore exercisable within 60 days.

(9)  Includes options to purchase 106,800 shares of our common stock beneficially owned by Mr. D’Alonzo exercisable within 60 days.

(10) Includes options to purchase 1,064,125 shares of our common stock beneficially owned by Dr. Chen exercisable within 60 days.

(11) Includes options to purchase 764,125 shares of our common stock beneficially owned by Dr. Page exercisable within 60 days.

(12) Dr. Mueller resigned on May 31, 2009, at which time all unvested options were forfeited.  All vested options owned by Dr. Mueller were forfeited on July 30, 2009. This figure was pulled from Form 4 filed by Dr. Mueller with the SEC on May 8, 2009.  The Company has no information on any changes to Dr. Mueller’s beneficial ownership since that date.

(13) Directors and officers percentage ownership is calculated based on 52,041,001 total shares outstanding and reserved plus Directors and officers options beneficially owned.

30

Equity Compensation Plan Information

Stock Plans *	Issue Date Range	Total Shares Authorized	Shares Issued	Shares Remaining
2008 Consultants Stock Grant Plan	3/31/08 – 12/31/08	100,000	100,000	0
2008 Stock Incentive Plan	5/23/08	600,000	166,667	433,333
2008-B Consultants Stock Grant Plan	10/15/08	75,000	75,000	0
2008 Executive Officers Compensatory Stock Plan	10/08 – 9/17/08	200,000	51,563	148,437
2008 Amended and Restated Directors, Officers and Consultants Stock     Purchase Plan	10/22/08 – 12/31/09	10,000,000	3,276,982	6,723,018
2009 Consultants Stock Grant Plan	10/31/09	100,000	50,000	50,000
Non Stock Plan	6/2/08 – 10/31/09	929,562	929,562	0
Totals		12,004,562	4,649,774	7,354,788

Stock Option Plans *	Issue Date Range	Total Options Authorized**	Options Issued	Options Remaining
2009A Officers, Directors, Employees and Consultants Nonqualified Stock Option Plan ***	4/30/09 – 6/4/09	3,000,000	2,000,000	1,000,000
Non Stock Option Plan Issuances	1/2/08 – 11/9/09	2,506,912	2,506,912	0
Totals		5,506,912	4,506,912	1,000,000

*       The Board of Directors has approved all stock, stock option and stock warrant issuances.

**     One option reserves one share of common stock.

***  This plan replaces and supersedes in their entirety the Company’s Outside director and Advisor Stock Option Plan, as amended and restated as of May 11, 1999; the Company’s 1996 Employee’s Stock Option Plan, as amended and restated as of May 11, 1999; and the Company’s First Amended 2006 Employee’s Stock Option and Stock Bonus Plan; provided however, that options already issued and outstanding under said superseded plans shall continue to be outstanding and exercisable in accordance with their terms, as such may have been extended or re-priced from time to time, and the terms of any applicable option agreements entered into between the Company and the Optionee.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company has relied significantly on HBL, the largest shareholder of the Company, for a substantial portion of its capital requirements. Pursuant to the Development Agreement previously described, HBL advanced $9,000,000 for funding of research. In addition, HBL has purchased substantial amounts of the Company’s common stock from time to time, to the point where it now owns 5.99% of the issued and outstanding shares of common stock of the Company.

HBL and the Company are parties to various license and manufacturing and supply agreements pursuant to which the Company licenses certain technology to or from HBL. HBL supplies formulations of its interferon alpha and other products to the Company at contractual prices. The Company pays HBL a 12% royalty on the first $100 million of interferon alpha net sales and a 10% royalty on additional net sales.

Additionally, the Company is obligated to pay HBL a percentage of sublicense fee income the Company receives.  We recorded $24,360 of sublicense fees to HBL in 2009 and owed $78,360 of accrued sublicense fees to HBL on December 31, 2009.

31

HBL is obligated to pay the Company an 8% royalty on sales of oral interferon in Japan.  The Company recorded $1,479 in 2009 and $0 of royalties in 2008 from HBL animal health sales of oral interferon.

During 2009, 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 twelve months ended December 31, 2009 the Company incurred approximately $65,066 of legal fees from this law firm plus $74,356 of stock payments were made for legal expenses of $60,000 forS-1 Registration Statement fees. During 2009, Dr. Steve Chen, Director, referred the Company to Cyto Biotech and collected a $30,000 finder’s fee for the $300,000 stock purchase by Cyto Biotech.

All future transactions and loans between the Company and its officers, directors and 5% shareholders will be on terms no less favorable to the Company than could be obtained from independent third parties. There can be no assurance, however, that future transactions or arrangements between the Company and its affiliates will be advantageous, that conflicts of interest will not arise with respect thereto or that if conflicts do arise, that they will be resolved in favor of the Company.

ITEM 14.                      PRINCIPAL ACCOUNTING FEES AND SERVICES.

The following summarizes the fees incurred by the Company during 2009 and 2008 for accountant and related services.

Audit Fees

	2009	2008
LBB & Associates Ltd., LLP	$51,265	$ 59,190

All Other Fees

None.

Accountant Approval Policy

Before an accountant is engaged by the Company to perform audit or non-audit services, the accountant must be approved by the Company’s Audit Committee.

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PART IV

ITEM 15.                      EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

EXHIBIT INDEX

3.1‡	Restated Articles of Incorporation of the Company, dated July 5, 2007.
3.3*	Bylaws of the Company.
4.1*	Specimen Common Stock Certificate.
4.2*	Form of Underwriter's Warrant.
4.3(5)	Form of Series A Common Stock Purchase Warrant, dated January 8, 2008, between the Company and Firebird Global Master Fund, Ltd.
10.1(11)	2008 Stock Incentive Plan dated May 20, 2008.
10.2*	License Agreement dated as of March 22, 1988 between the Company and The Texas A&M University System.
10.3(9)	2006 Employee Stock Option and Stock Bonus Plan
10.4(9)	Office/Warehouse Lease Agreement dated December 22, 2006, between Wild Pony Holdings, L.P. and the Company.
10.5*	Joint Development and Manufacturing/Supply Agreement dated March 13, 1992 between the Company and HBL, as amended.
10.6(9)	Engagement Letter dated September 22, 2007, between MidSouth Capital Markets Group, Inc. and the Company.
10.7*	Japan Animal Health License Agreement dated January 20, 1993 between the Company and HBL.
10.11*	Manufacturing/Supply Agreement dated June 1, 1994 between the Company and HBL.
10.12*	Settlement Agreement dated April 27, 1995 among the Company, ISI, Pharma Pacific Management Pty. Ltd. ("PPM"), Pharma Pacific Pty. Ltd., Pharma Pacific Ltd. and Fernz Corporation Limited.
10.14*	PPM/ACC Sublicense Agreement dated April 27, 1995 between PPM and the Company.
10.18*	Form of Consulting Agreement between the Company and the Underwriter.
10.19(10)	Stock Option Agreement, dated July 18, 2007, between the Company and Commonwealth Associates
10.20†	1996 Employee Stock Option Plan, Amended and Restated as of May 11, 1999.

33

10.21†	Outside Director and Advisor Stock Option Plan, Amended and Restated as of May 11, 1999.
10.22*	Form of Indemnification Agreement between the Company and officers and directors of the Company.
10.23*	Indemnification Agreement between HBL and the Company.
10.24(10)	Warrant Agreement, dated June 27, 2006, between the Company and Marks Value Partners, LLC
10.25(10)	Engagement Letter, dated November 3, 2006, between the Company and MidSouth Capital, Inc.
10.26**	License Agreement dated July 22, 1997 between Hoffmann-La Roche, Inc. and the Company.
10.27**	Distribution Agreement dated January 12, 1998 between Global Damon Pharmaceutical and the Company.
10.28**	Distribution Agreement dated September 17, 1997 between HBL and the Company (tumor necrosis factor-alpha).
10.29**	Distribution Agreement dated September 17, 1997 between HBL and the Company (interferon gamma).
10.30***	Amendment No. 1 dated September 28, 1998 to License Agreement of March 22, 1988 between The Texas A&M University System and the Company.
10.36††	License Agreement dated February 1, 2000 between Molecular Medicine Research Institute and the Company (interferon gamma administered orally).
10.37†† a	License and Supply Agreement dated April 3, 2000 with Key Oncologics (Pty) Ltd. and the Company.
10.38††	Amendment No. 1 dated April 4, 2000, to Interferon Gamma Distribution Agreement dated September 17, 1997 between HBL and the Company (interferon gamma).
10.39†† a	License and Supply Agreement dated April 25, 2000 between Biopharm for Scientific Research and Drug Industry Development and the Company.
10.40†† a	Sales Agreement dated May 5, 2000 between Wilke Resources, Inc. and the Company.
10.41††	Engagement Agreement dated September 26, 2000 between Hunter Wise Financial Group, LLC and the Company.
10.42†† a	Supply Agreement (Anhydrous Crystalline Maltose) dated October 13, 2000 between Hayashibara Biochemical Laboratories, Inc. and the Company.
10.43†† a	Supply Agreement dated December 11, 2000 between Natrol, Inc. and the Company.
10.44††† a	License Agreement dated September 7, 2001 between Atrix Laboratories, Inc. and the Company.

34

10.45†††† a	Supply Agreement dated June 20, 2004 between Global Kinetics, Inc. and the Company.
10.46†††† a	License and Supply Agreement dated September 13, 2004 between Nobel ILAC SANAYII VE TICARET A.S. and the Company
10.47(3)a	License and Supply Agreement dated October 19, 2005 between Global Kinetics, Inc. and the Company.
10.48(3)a	License and Supply Agreement dated January 18, 2006, between Bumimedic (Malaysia) SDN. BHD., and the Company.
10.49(4)	Employment Contract dated March 13, 2006, between Gary W. Coy and the Company.
10.50(4)	Employment Contract dated September 10, 2006, between Joseph M. Cummins and the Company.
10.51(4)	Employment Contract dated September 10, 2006, between Martin J. Cummins and the Company.
10.52(4)a	Supply Agreement (Anhydrous Crystalline Maltose) dated October 16, 2006 between Hayashibara Biochemical Laboratories, Inc. and the Company
10.53(4)a	License and Supply Agreement dated November 16, 2006, between CytoPharm, Inc. and the Company.
10.54(5)	Securities Purchase Agreement dated January 8, 2008, between the Company and Firebird Global Master Fund, Ltd.
10.55(5)	Registration Rights Agreement dated January 8, 2008, between the Company and Firebird Global Master Fund, Ltd.*
10.56(5)	Certificate of Designation of Preferences dated January 8, 2008, executed by the Company
10.57(5)	Series A Common Stock Purchase Warrant dated January 8, 2008, between the Company and Firebird Global Master Fund, Ltd.
10.58(7)	Amendment No. 1 to the Securities Purchase Agreement dated February 14, 2008, between the Company and Firebird Global Master Fund, Ltd.
10.59(7)	Amendment No. 1 to the Registration Rights Agreement dated February 14, 2008, between the Company and Firebird Global Master Fund, Ltd.
10.60(8)a	Supply Agreement, dated March 20, 2008, between the Company and CytoPharm, Inc.
10.61(8)	Employment Contract, dated April 15, 2008, between the Company and Peter Mueller
10.62(9)a	Engagement Letter dated September 22, 2007, between MidSouth Capital Markets Group, Inc. and the Company.
10.63(10)	Consulting Agreement, dated July 18, 2007, between the Company and Commonwealth Associates

35

10.64(10)	Stock Option Agreement, dated June 21, 2006, between the Company and Teel Bivins
10.65(10)	Consulting Agreement, dated April 21, 2006, between the Company Teel Bivins
10.66(11)	Investor Direct Marketing Services Agreement, dated June 26, 2006, between the Company and Marks Value Partners LLC
10.67(12)	License and Supply Agreement dated February 6, 2009, between the Company and Cyto Biotech, Inc.
10.68(13)	Addendum dated February 20, 2009 to the License and Supply Agreement dated February 6, 2009, between Cyto Biotech, Inc. and the Company
10.69(14)	Consulting Agreement dated September 4, 2009, between the Company and Biotech Financial Inc.
10.70(14)	Employment Contracted, dated October 1, 2009, between the Company and Bernard Cohen.
10.71	License and Supply Agreement dated January 7, 2010, between the Company and Intas Pharmaceuticals, Ltd.

99.1           906 Certification

*The Exhibit is incorporated by reference to the exhibit of the same number to the Company's Registration Statement on Form SB-2 filed with and declared effective by the Commission (File No. 333-4413) on August 8, 1996.

**The Exhibit is incorporated by reference to the Company's 1997 Annual Report on Form 10-KSB filed with the Commission on or before March 31, 1998.

***The Exhibit is incorporated by reference to the Company's 1998 Annual Report on Form 10-KSB filed with the Commission on or before March 31, 1999.

† The Exhibit is incorporated by reference to the Company's Report on Form 10-QSB for the quarterly period ended June 30, 1999, filed with the Commission on August 12, 1999 and subsequently amended on September 13, 1999.

†† The Exhibit is incorporated by reference to the Company's 2000 Annual Report on Form 10-KSB filed with the Commission on or before April 16, 2001.

††† The Exhibit is incorporated by reference to the Company's Report on Form 8-K filed with the Commission on September 24, 2001.

†††† The Exhibit is incorporated by reference to the Company's 2004 Annual Report on Form 10-KSB filed with the Commission on or before April 15, 2005.

‡ The Exhibit is incorporated by reference to the Company's 2007 Annual Report on Form 10-KSB filed with the Commission on or before March 31, 2008.

aPortions of this exhibit have been omitted and filed separately with the commission.

36

(3)		Filed as an exhibit to the Company’s Annual report on Form 10-KSB filed with the SEC on April 3, 2006 and incorporated herein by reference.
(4)	Filed as an exhibit to the Company’s Annual report on Form 10-KSB filed with the SEC on March 26, 2007 and incorporated herein by reference.
(5)		Filed as an exhibit to the Report on Form 8-K filed with the SEC on January 15, 2008 and incorporated herein by reference.
(6)		Filed as an exhibit to the Report on Form 8-K/A filed with the SEC on January 22, 2008 and incorporated herein by reference.
(7)		Filed as an exhibit to the Report on Form 8-K filed with the SEC on February 21, 2008 and incorporated herein by reference.
(8)		Filed as an exhibit to the Report on Form 8-K filed with the SEC on April 21, 2008 and incorporated herein by reference.
(9)		Filed as an exhibit to the Company’s Registration Statement on Form S-1 (No. 333-150421) filed with the SEC on April 24, 2008.
(10)		Filed as an exhibit to the Company’s Amendment No. 1 to Registration Statement on Form S-1 (No. 333-150421) filed with the SEC on May 21, 2008.
(11)		The Exhibit is incorporated by reference to the Company’s Report on Form S-8 filed with the SEC on May 22, 2008.
(12)		The Exhibit is incorporated by reference to the Company’s Report on Form S-8 filed with the SEC on February 26, 2009.
(13)		The Exhibit is incorporated by reference to the Company’s Report on Form 10-Q for the period ending March 31, 2009, filed with the SEC on May 15, 2009.
(14)		The Exhibit is incorporated by reference to the Company’s Report on Form 10-Q for the period ending September 30, 2009, filed with the SEC on November 13, 2009.

37

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the 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:      March 31, 2010	By:      /s/ Joseph M. Cummins Joseph M. Cummins, Chairman of the Board, President, and Chief Executive Officer
Date:      March 31, 2010	By:      /s/ Bernard Cohen Bernard Cohen, Vice President, Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Joseph M. Cummins	Chairman of the Board, President, Director and Chief Executive Officer	March 31, 2010
Joseph M. Cummins
/s/ Stephen Chen	Director	March 30, 2010
Stephen Chen
/s/ James Page	Director	March 31, 2010
James Page
/s/ Dennis Moore	Director	March 30, 2010
Dennis Moore
/s/ Thomas D’Alonzo	Director	March 30, 2010
Thomas D’Alonzo

38

Amarillo Biosciences, Inc.

Financial Statements

Year ended December 31, 2009 and 2008

Contents
Report of Independent Registered Public Accounting Firm	F-1
Balance Sheets	F-2
Statements of Operations	F-3
Statements of Stockholders’ Deficit	F-4
Statements of Cash Flows	F-5
Notes to Financial Statements	F-6

Report of Independent Registered Public Accounting Firm

To the Board of Directors of

Amarillo Biosciences, Inc.

Amarillo, TX

We have audited the accompanying balance sheets of Amarillo Biosciences, Inc. (the “Company”) as of December 31, 2009 and 2008, and the related statements of operations, stockholders' deficit, and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Amarillo Biosciences, Inc. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the financial statements, the Company's absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2010 raise substantial doubt about its ability to continue as a going concern. The 2009 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ LBB & Associates Ltd., LLP

LBB & Associates Ltd., LLP
Houston, Texas

March 29, 2010

F-1

Amarillo Biosciences, Inc.

Balance Sheets

	December 31, 2009			December 31, 2008
Assets
Current assets:
Cash and cash equivalents	$	24,216		$	10,853
Other current assets		87,208			12,813
Total current assets		111,424			23,666
Property and equipment, net		4,321			9,575
Patents, net		123,184			126,828
Total assets	$	238,929		$	160,069
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses	$	318,550		$	511,236
Accrued interest - related party		661,294			572,773
Accrued expenses – related party		78,360			53,971
Derivative liabilities		1,928,120			-
Notes payable - related party		2,000,000			2,000,000
Total current liabilities		4,986,324			3,137,980
Total liabilities		4,986,324			3,137,980
Commitments and contingencies
Stockholders' deficit
Preferred stock, $0.01 par value:
Authorized shares - 10,000,000
Issued and outstanding shares –  0 at December  31, 2009 and 2008		-			-
Common stock, $0.01par value:
Authorized shares - 100,000,000
Issued and outstanding shares – 52,041,001 at December 31, 2009 and 35,953,377 at December 31, 2008		520,410			359,534
Additional paid-in capital		30,051,134			28,322,564
Accumulated deficit		(35,318,939	)		(31,660,009	)
Total stockholders' deficit		(4,747,395	)		(2,977,911	)
Total liabilities and stockholders’ deficit	$	238,929		$	160,069

The accompanying notes are an integral part of these financial statements.

F-2

Amarillo Biosciences, Inc.

Statements of Operations

	Year ended December 31,
	2009			2008
Revenues:
Product sales	$	1,980		$	1,836
Sublicense fee and royalty revenue		50,274			108,000
Total revenues		52,254			109,836
Cost of revenues:
Product sales		1,404			644
Sublicense fee revenue		24,407			53,971
Total cost of revenues		25,811			54,615
Gross margin		26,443			55,221
Operating expenses:
Research and development expenses		464,789			525,903
Selling, general and administrative expenses		1,202,702			1,366,076
Total operating expenses		1,667,491			1,891,979
Operating loss		(1,641,048	)		(1,836,758	)
Other income (expense):
Change in fair value of derivative      instruments		(1,240,397	)		-
Interest expense		(93,159	)		(92,435	)
Interest and other income		3,397			6,126
Net loss		(2,971,207	)		(1,923,067	)
Deemed dividend for beneficial conversion		-			(562,841	)
Feature Deemed dividend for warrant anti-dilution		-			(636,247	)
Preferred stock dividend		-			(77,903	)
Net loss applicable to common shareholders	$	(2,971,207	)	$	(3,200,058	)
Basic and diluted net loss per average share    available to common shareholders	$	(0.07	)	$	(0.10	)
Weighted average shares outstanding		42,278,172			31,047,516

The accompanying notes are an integral part of these financial statements.

F-3

Amarillo Biosciences, Inc.

Statements of Stockholders’ Deficit

Years Ended December 31, 2009 and 2008

	Issuance Price	Preferred Stock		Common Stock		Additional Paid in Capital	Accumulated Deficit	Total Stockholders’ Deficit
		Shares	Amount	Shares	Amount
Balance at December 31, 2007		-	$                 -	29,465,2611	$    294,653	$    25,598,217	$  (28,459,951)	$   (2,567,081)
Net loss for year ended December 31, 2008		-	-	-  -	-	-	(1,923,067)	(1,923,067)
Fair value of options and warrants issued						392,292		392,292
Issuance of preferred stock for cash, net	$1,000	1,000	10	-	-	793,783	-	793,793
Conversion of preferred stock to common stock	0.25	(1,000)	(10)	4,000,0000	40,000	(39,990)	-	-
Issuance of common stock for cash in private placements and stock plan	0.10-0.25	-	-	1,348,404	13,484	126,357	-	139,841
Issuance of common stock for services	0.06-0.33	-	-	702,439	7,024	179,287	-	186,311
Stock dividend to preferred shareholders	0.09-0.27	-	-	437,273	4,373	73,530	(77,903)	-
Deemed dividend for beneficial conversion feature		-	-	-	-	562,841	(562,841)	-
Deemed dividend for warrant modification		-	-	-	-	636,247	(636,247)	-
Balance at December 31, 2008		-	-	35,953,377	359,534	28,322,564	(31,660,009)	(2,977,911)
Net loss for year ended December 31, 2009		-	-	-	-	-	(2,971,207)	(2,971,207)
Reclassify warrants with embedded derivatives to adopt FASB ASC Topic  815		-	-	-	-	-	(687,723)	(687,723)
Fair value of options and warrants issued		-	-	-	-	485,995	-	485,995
Exercise of options and warrants for cash, net	$0.10	-	-	1,774,889	17,749	152,073	-	169,822
Exercise of cashless options and warrants	0.10	-	-	2,528,879	25,289	(25,289)	-	-
Option-Warrant Inducement Expense		-	-	-	-	84,148	-	84,148
Issuance of common stock for cash in private placements and stock plan	0.08-010	-	-	8,039,850	80,398	679,337	-	759,735
Issuance of common stock for services and salaries	0.045-0.22	-	-	3,744,006	37,440	352,306	-	389,746
Balance at December 31, 2009		-	$                 -	52,041,001	$    520,410	$    30,051,134	$  (35,318,939)	$   (4,747,395)

The accompanying notes are an integral part of these financial statements.

F-4

Amarillo Biosciences, Inc.

Statements of Cash Flows

	Year ended December 31,
Operating Activities	2009                                            2008
Net loss	$	(2,971,207	)	$	(1,923,067	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization		21,978			19,774
Common stock issued for salaries and services		315,390			186,311
Fair value of options issued		485,995			392,292
Inducement expense		84,148			-
Changes in operating assets and liabilities:
Derivative liabilities		1,240,397			-
Other current assets		(39	)		18,875
Accounts payable and accrued expenses		(192,686	)		413,033
Accrued interest – related party		88,521			(110,000	)
Accrued expenses – related party		24,389			53,971
Net cash used in operating activities		(903,114	)		(948,811	)
Investing Activities
Purchase of property and equipment		-			(980	)
Investment in Patents		(13,080	)		(20,174	)
Net cash used in investing activities		(13,080	)		(21,154	)
Financing Activities
Proceeds from exercise of warrants and options		169,822			-
Issuance of common stock for cash		759,735			139,841
Issuance of convertible preferred stock for cash		-			793,793
Net cash provided by financing activities		929,557			933,634
Net increase (decrease) in cash		13,363			(36,331	)
Cash and cash equivalents at beginning of period		10,853			47,184
Cash and cash equivalents at end of period	$	24,216		$	10,853
Supplemental Cash Flow Information
Cash paid for interest	$	4,638		$	202,435
Cash paid for income taxes	$	-		$	-
Common stock issued for prepaid legal fees	$	74,356		$	-
Stock dividend to preferred shareholders	$	-		$	77,903
Deemed dividend for beneficial conversion feature of      preferred stock	$	-		$	562,841
Deemed dividend for anti-dilution warrants	$	-		$	636,247

The accompanying notes are an integral part of these financial statements.

F-5

Amarillo Biosciences, Inc.

Notes to Financial Statements

December 31, 2009 and 2008

1. Organization and Summary of Significant Accounting Policies

Organization and Business

Amarillo Biosciences, Inc. (the "Company” or “AMAR” or “Amarillo”), a Texas corporation formed in 1984, is engaged in developing biologics for the treatment of human and animal diseases. The Company is continuing its clinical studies as part of the process of obtaining regulatory approval from the United States Food and Drug Administration ("FDA"), so that commercial marketing can begin in the United States. The Company has developed a dietary supplement and an interferon alpha lozenge, but has not commenced any significant product commercialization activities.

Going Concern

These financial statements have been prepared in accordance with United States generally accepted accounting principles, on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has not yet achieved profitability, and its operations are funded primarily from debt and equity financings. Losses are anticipated in the ongoing development of its business and there can be no assurance that the Company will be able to achieve or maintain profitability.

The continuing operations of the Company and the recoverability of the carrying value of assets is dependent upon the ability of the Company to obtain necessary financing to fund its working capital requirements, and upon future profitable operations. The accompanying financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

There can be no assurance that capital will be available as necessary to meet the Company's working capital requirements or, if the capital is available, that it will be on terms acceptable to the Company. The issuances of additional equity securities by the Company may result in dilution in the equity interests of its current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase the Company's liabilities and future cash commitments. If the Company is unable to obtain financing in the amounts and on terms deemed acceptable, the business and future success may be adversely affected and the Company may cease operations. Based on these factors, our auditors have raised substantial doubt regarding our ability to continue as a going concern.

F-6

Fair Value of Financial Instruments

Under the FASB ASC, we are permitted to elect to measure financial instruments and certain other items at fair value, with the change in fair value recorded in earnings. We elected not to measure any eligible items using the fair value option. Consistent with Fair Value Measurement Topic of the FASB ASC, we implemented guidelines relating to the disclosure of our methodology for periodic measurement of our assets and liabilities recorded at fair market value.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

·   Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;  

·   Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and  

·   Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one more significant inputs or significant value drivers are unobservable.

Our Level 1 assets and liabilities primarily include our cash and cash equivalents (including our money market accounts), accounts receivable, accounts payable and accrued liabilities due to the immediate or short-term maturities of these financial instruments. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Our Level 2 liabilities consist of the derivative liabilities. These are valued using observable inputs from readily available pricing sources for similar liabilities in active markets.

Stock Based Compensation

Stock based compensation expense is recorded in accordance with Financial Account Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, Compensation – Stock Compensation, for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.

The fair value of each option granted in 2008 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield of 0%, expected volatility of between 109.6 and 165.75%, risk-free interest rate between 1.00 and

F-7

3.34%, and expected life between 2 and 8 years.  The fair value of each option granted in 2009 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield of 0%, expected volatility of between 145.9% and 215.74%, risk-free interest rate between 0.04% and 2.02%, and expected life between 0.1 and 5 years.

Cash and Cash Equivalents

The Company classifies investments as cash equivalents if the original maturity of an investment is three months or less.

Allowance for Doubtful Accounts

The Company establishes an allowance for doubtful accounts to ensure trade and notes receivable are not overstated due to uncollectibility.  The Company’s allowance is based on a variety of factors, including age of the receivable, significant one-time events, historical experience, and other risk considerations.  The Company had no material accounts receivable and no allowance at December 31, 2009 and 2008.

Inventory

Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. The Company continually assesses the appropriateness of inventory valuations giving consideration to slow-moving, non-saleable, out-of-date or close-dated inventory. As of December 31, 2009 and 2008 the Company had $2,009 and $2,342, respectively, of inventory included in other current assets.

Property and Equipment

Property and equipment are stated on the basis of historical cost less accumulated depreciation.  Depreciation is provided using the straight-line method over the two to seven year estimated useful lives of the assets.

Patents and Patent Expenditures

AMAR holds patent license agreements and holds patents that are owned by the Company. All patent license agreements remain in effect over the life of the underlying patents. Accordingly, the patent license fee is being amortized over 15-17 years using the straight-line method. Patent fees and legal fees associated with the issuance of new owned patents are capitalized and amortized over 15-17 years.  Amortization expense amounted to $16,724 and $14,271 for the years ended December 31, 2009 and 2008, respectively.

F-8

Long-lived Assets

Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount.  No impairment losses have been recorded since inception.

Income Taxes

The asset and liability approach is used to account for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized.

Revenue Recognition

Dietary supplement and interferon sales

Revenues for the dietary supplement sales are recognized when an arrangement exists, the price is fixed and it has been determined that collectibility is reasonably assured.  This generally occurs at the point when the goods are shipped to the customer.

Sublicense fee revenue

Sublicense revenue is calculated based on fees relating to a license.  Amarillo recognizes revenue on these sublicense fees in the month the revenue is generated by the licensee.

Royalty revenue

Royalty revenue is calculated based on royalty fees as a percent of net sales relating to a license.  Amarillo recognizes revenue on these royalty payments in the year the revenue is generated by the licensee.  Royalty revenue of $1,479 was reported in the year ended December 31, 2009 for HBL sales of Bimron to BioVet.  HBL reported no sales of Bimron to Bio Vet for 2008.

Research and Development

Research and development costs are expensed as incurred.

F-9

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most significant estimates are the assumptions used in the valuation models to determine the fair value of stock-based compensation and the fair value of the derivative liability.

Basic and Diluted Net Loss Per Share

Net loss per share is based on the number of weighted average shares outstanding. The effect of warrants and options outstanding is anti-dilutive.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of cash and accounts receivable.

The Company has cash balances in a single financial institution which, from time to time, exceed the federally insured limit of $100,000.  No loss has been incurred related to this concentration of cash.

Other Concentrations

The Company and its sublicensees are reliant on a single, foreign supplier for its products.  The loss of this supplier could adversely affect the Company’s future revenues.  During 2009 and 2008 the majority of revenue came from sublicense fees from three of its sublicensees.  The loss of revenue from one these revenue sources could adversely affect the Company’s future revenues.

Recent Accounting Pronouncements

In June 2009, FASB released the Codification which became the source of authoritative GAAP recognized by FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. For all financial statements issued after September 15, 2009, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification has become non-authoritative. The Codification does not change how we account for our transactions or the nature of related disclosures made. However, when referring to guidance issued by the FASB, we will refer to topics in the Codification rather than the superseded standards. The adoption of the Codification did not have an impact on the condensed financial position, results of operations, cash flows or financial statement disclosures.

F-10

In accordance with Financial Account Standards Board Accounting Standards Codification (“FASB ASC”) Topic 815, the Company reclassified warrants with embedded derivative feature (full-ratchet anti-dilution provision) 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 in 2009.

The fair value of warrants with embedded derivative feature was estimated on January 1, 2009 and at the end of each quarter in 2009 with the binomial Black-Scholes option-pricing pricing model with the following assumptions: probability of anti-dilution ratchet at $0.06 per share between 25% and 50%, dividend yield 0.0%, expected volatility between 138% and 233%, risk-free interest rate between 0.4% and 0.8% and expected life between 1 and 2 years.

2. Property, Equipment and Software

Equipment is stated at cost less accumulated depreciation and consists of the following at December 31, 2009 and 2008:

	2009			2008
Furniture and equipment	$	38,221		$	41,540
Software		8,012			8,012
		46,233			49,552
Less:  accumulated depreciation		(41,912	)		(39,977	)
Fixed Assets, net	$	4,321		$	9,575

Depreciation expense amounted to $4,486 and $5,503 for the years ended December 31, 2009 and 2008, respectively.

3. Notes Payable

The Company has two $1,000,000 notes payable under an unsecured loan agreement with HBL dated July 22, 1999.  The annual interest rate on unpaid principal from the date of each respective note is 4.5 percent, with accrued interest being payable at maturity.  $1,000,000 was payable on or before June 3, 2008.  The other $1,000,000 was payable on or before August 28, 2008.  On December 10, 2008, HBL proposed to extend the two notes and accrued interest until December 3, 2009 and February 28, 2010 if payment of $200,000 of accrued interest was received by February 28, 2009.  If an additional $145,000 is paid, HBL will extend the notes an additional year.  We have requested more time to pay the $200,000 to extend the notes.  Although we are currently in default of the notes, HBL has not demanded payment.

During 2008, the Company paid HBL $200,000 of interest on these notes, apart from the pending arrangement above.

The Company has a line of credit with Wells Fargo for $20,000, with interest at the prime rate plus 6.75 percent. There was an outstanding balance at December 31, 2009 and 2008 of $498 and $19,941, respectively, which is included in accounts payable and accrued expenses. This line is

F-11

used from time to time for purchases.  The Company paid $877 and $2,435 of interest under the line of credit in 2009 and 2008, respectively.

4. License, Sublicense, Manufacturing, Research and Supply Agreements

Manufacturing and Supply Agreements:

The Company was a party to the following manufacturing and supply agreements at December 31, 2009.

The Company has a joint development and manufacturing/supply agreement with HBL (the Development Agreement), a major stockholder under which HBL will formulate, manufacture and supply HBL interferon for the Company or any sublicensee. In exchange, HBL is entitled to receive a transfer fee, specified royalties and a portion of any payment received by the Company for sublicense of rights under this agreement. The agreement further provides that the Company sublicense to HBL the right to market HBL interferon for oral use in humans and in non-human, warm-blooded species in Japan, in exchange for the Company receiving a royalty fee based on net sales. The Company is the exclusive agent for the development of HBL interferon for non-oral use in humans and in non-human, warm-blooded species in North America, in exchange, HBL is entitled to receive a transfer fee based on units of interferon supplied and the agreement also provides that a royalty fee be paid to HBL.

As part of the license agreement with Atrix Laboratories, Inc. (executed September 7, 2001, terminated May 22, 2003) a second amendment to the Development Agreement was executed extending the Development Agreement to March 12, 2005 and will be renewed automatically for successive three-year terms. The current expiration date of the Development Agreement is March 12, 2011.

The Company has a supply agreement with HBL under which the Company gained an exclusive right to purchase and distribute anhydrous crystalline maltose for the treatment of dry mouth (xerostomia). This exclusive supply agreement is worldwide, excluding Japan.

License and Sublicense Agreements:

The Company holds patent rights for which the Company has paid certain license fees under three license agreements. Under these agreements, the Company will pay the licensor a portion of any sublicense fee received by the Company with respect to the manufacturing, use or sale of a licensed product, as well as a royalty fee based on the net selling price of licensed products, subject to a minimum annual royalty.

F-12

A $7,500 minimum cash royalty was paid by the Company to Texas A&M University System during 2009. A total of $78,360 in sublicense fees are owed to HBL based on sublicense fee income earned by the Company during 2008 and 2009 and are included in accrued expenses – related party.  The Company has also entered into various sublicense agreements under which the Company is entitled to receive royalties based on the net sales value of licensed products.

Research Agreements:

The Company contracts with third parties throughout the world to conduct research including studies and clinical trials. These agreements are generally less than one year in duration.  The Company plans to pay third parties approximately $5,000 in 2010 for the oral warts in HIV+ patients study that was recently completed.  The Company plans to pay third parties approximately $5,000 in 2010 for expenses related to the winter colds and influenza symptoms study that was recently completed in Australia.

5. Common Stock

The Company has 100,000,000 shares of voting common shares authorized for issuance.  On December 31, 2009, the Company had 76,964,764 shares of common stock outstanding and reserved for issuance upon exercise of options and warrants.  The Company issued common stock in 2009 and 2008 as follows:

Common Stock Issued in 2009	Shares	Issue Price	Net Price
Private placements – cash	7,977,350	$0.10	$754,735
Directors, officers, consultants plan – cash	62,500	0.08	5,000
Directors, officers, consultants plan – salaries	1,877,715	0.05-0.20	157,619
Directors, officers, consultants plan – services	1,866,291	0.06-0.26	232,127
Options exercised – cash	1,774,889	0.10	169,822
Options exercised – cashless	2,528,879	0.10	-
Total Common Stock Issued in 2009	16,087,624	$0.05-0.26	$1,319,303

Common Stock Issued in 2008	Shares	Issue Price	Net Price
Private placements – cash	1,160,000	$0.10-0.25	$121,000
Directors, officers, consultants plan – cash	188,404	0.10	18,841
Officers – salaries	280,772	0.11-0.33	52,086
Consultants – services	421,667	0.06-0.33	134,225
Preferred stock dividends	437,273	0.09-0.27	77,903
Conversion of preferred stock to common	4,000,000	0.01	40,000
Total Common Stock Issued in 2008	6,488,116	$0.01-0.33	$444,055

F-13

During the years ended December 31, 2009 and 2008, finder’s fees paid related to private placements of stock totaled $50,667 and $10,000 respectively, and are included as general and administrative expenses in the accompany statements of operations.

6.  Preferred Stock

The Company has 10,000,000 shares of preferred stock authorized for issuance which is issuable in series.  During the first quarter of 2008, the Company completed a private placement by selling 1,000 shares of Series A convertible preferred stock for $1,000 per share in a private placement offering; generating gross proceeds of $1,000,000 and net proceeds of $793,793.  The convertible preferred stock is convertible into 4,000,000 shares of common stock.  The investor also received five year warrants to purchase 4,000,000 shares of common stock at $0.30 per share, subject to anti-dilution provisions. The investment banker was paid a commission of $80,000 plus received five year warrants to purchase 640,000 shares of common stock at $0.30 per share, also subject to anti-dilution provisions.

The Series A preferred shareholder was paid $77,903 (10% annualized return) of stock dividends during 2008.  A total of 437,273 shares were issued at $0.09 to $0.27 per share.  The preferred stock shareholder converted all the outstanding preferred stock into common stock at $0.25 in October 2008.  Currently there is no preferred stock outstanding and no future dividends required to be paid.

7. Stock Option and Stock Plans

Stock Plans *	Issue Date Range	Total Shares Authorized	Shares Issued	Shares Remaining
2008 Consultants Stock Grant Plan	3/31/08 – 12/31/08	100,000	100,000	0
2008 Stock Incentive Plan	5/23/08	600,000	166,667	433,333
2008-B Consultants Stock Grant Plan	10/15/08	75,000	75,000	0
2008 Executive Officers Compensatory Stock Plan	7/10/08 – 9/17/08	200,000	51,563	148,437
2008 Amended and Restated Directors, Officers and Consultants Stock Purchase Plan	10/22/08 – 12/31/09	10,000,000	3,276,982	6,723,018
2009 Consultants Stock Grant Plan	7/13/09 – 10/31/09	100,000	50,000	50,000
Non Stock Plan Issuances	6/2/08 – 10/31/09	929,562	929,562	0
Totals		12,004,562	4,649,774	7,354,788

Stock Option Plans *	Issue Date Range	Total Options Authorized**	Options Issued	Options Remaining
2009A Officers, Directors, Employees and Consultants Nonqualified Stock Option Plan ***	4/30/09 – 6/4/09	3,000,000	2,000,000	1,000,000
Non Stock Option Plan Issuances	1/2/08 – 11/9/09	2,506,912	2,506,912	0
Totals		5,506,912	4,506,912	1,000,000

*       The Board of Directors has approved all stock, stock option and stock warrant issuances.

**     One option reserves one share of common stock.

F-14

***  This plan replaces and supersedes in their entirety the Company’s Outside director and Advisor Stock Option Plan, as amended and restated as of May 11, 1999; the Company’s 1996 Employee’s Stock Option Plan, as amended and restated as of May 11, 1999; and the Company’s First Amended 2006 Employee’s Stock Option and Stock Bonus Plan; provided however, that options already issued and outstanding under said superseded plans shall continue to be outstanding and exercisable in accordance with their terms, as such may have been extended or re-priced from time to time, and the terms of any applicable option agreements entered into between the Company and the Optionee.

10.  Stock Options and Warrants

Stock Options:

A summary of the Company's stock option activity and related information for the years ended December 31, 2009 and 2008 is as follows:

	2009		2008
	Options	Price	Options	Price
Outstanding Beg of Year	8,882,412	$0.10-0.87	9,193,412	$0.20-0.87
Granted	2,650,000	0.13-0.18	1,776,912	0.10-0.35
Cancelled/Expired	(2,850,000)	0.13-0.72	(2,087,912)	0.20-0.48
Exercised	(2,079,008)	0.10	-	-
Outstanding End of Year	6,603,404	0.10-0.87	8,882,412	0.10-0.87
Exercisable End of Year	5,803,404	0.10-0.87	7,172,412	0.10-0.87

Options reserved for the Director, employee and consultant plan but not issued (1,000,000) are not included in the table above since this stock may be utilized for other purposes if not used for the plans. The weighted-average remaining contractual life of the above options is 1.87 years.

In November 2009, the Board approved an incentive to encourage option and warrant holders (“Holders”) to exercise their options or warrants. Holders were allowed, for a limited time, to exercise up to one-third of the options or warrants they held, at an exercise price of $0.10 per share and, for each option or warrant so exercised, two additional options or warrants were converted to cashless options or warrants, and deemed exercised immediately on a cashless basis with an exercise price of $0.10. The Company recognized $84,148 of expense related to option and warrant modifications described below.

During 2009 and 2008, the Company issued 2,650,000 and 1,076,912 options, respectively, to consultants, advisors, directors, employees and two former employees, and the Company recognized expense of $201,124 and $76,745, respectively, related to these options.

F-15

During 2006, the Company issued 1,200,000 options to Company officers. These options vest over the next four years.  The remaining cost expected to be recognized if the remaining options vest is $112,874. In 2008, Company issued 700,000 options to a new officer.  The officer resigned during 2009 and these options expired.   During 2009 and 2008, the Company recognized $284,871 and $304,025, respectively, of expense related to options issued to Company officers.  Directors, officers and consultants exercised 2,079,008 and 0 options in 2009 and 2008, respectively.

Stock Warrants:

A summary of the Company's stock warrant activity and related information for the years ended December 31, 2009 and 2008 is as follows:

	2009		2008
	Warrants	Price Range	Warrants	Price Range
Outstanding Beg of Year	15,360,000	$0.10-2.00	260,000	$0.47-2.00
Granted	7,877,350	0.10-0.20	15,160,000	0.10-0.30
Cancelled	(200,000)	2.00	(60,000)	0.47-0.50
Exercised	(4,716,991)	0.10	-	-
Outstanding End of Year	18,320,359	0.10-0.20	15,360,000	0.10-2.00
Exercisable End of Year	18,320,359	0.10-0.20	15,360,000	0.10-2.00

The weighted-average remaining contractual life of the warrants outstanding at December 31, 2008 is 2.41 years.

During 2008, 15,160,000 warrants were issued.  Of these, 12,000,000 were issued to a preferred shareholder, 1,920,000 to an investment banking company, 80,000 to a consultant and 1,160,000 to purchasers of unsecured private placement stock.  Deemed dividends for $548,489 and $87,758 were recognized for the warrants issued to the preferred shareholder and investment banking company respectively.  We recognized $11,522 for stock compensation expense for the warrants issued to a consultant.   We recognized the total purchase price for private placement stock and warrants as the cost to purchase the stock.

In November 2008, we sold private placement stock for $0.10 per share, which triggered the anti-dilution provisions of some of the outstanding warrants, and recognized $636,247 of deemed dividends in connection with the anti-dilution benefits we then provided to the applicable warrant holders.   Specifically, the holders of 4,640,000 warrants with anti-dilution provisions received 9,280,000 additional warrants in connection therewith.    Total warrants were increased by a factor of three and the exercise price reduced to $0.10.

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 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 date in 2009.

F-16

The binomial Black-Scholes pricing model was used to calculate the value of the warrants.  In the binomial model, the most likely price which will trigger the anti-dilution ratchet and the most likely price that will not trigger the anti-dilution ratchet are given estimated probabilities for occurrence. The probability of private placement issuances triggering a reset at the closing stock price on January 1 was estimated as 50%. The probability of not triggering the reset at $0.10 per share was also estimated as 50%.  Valuation consists of 50% of the Black-Scholes value for each probable occurrence. The Black-Scholes option-pricing model was utilized with the following assumptions: dividend yield 0.0%, expected volatility of 138% , risk-free interest rate of 0.76% and expected life of approximately 2 years. The valuation for the 13.92 million warrants with embedded features was $687,723 on January 1, 2009.  The $687,723 was reclassified from the retained earnings account to the derivative liabilities account on January 1, 2009 as the cumulative effect of the change in accounting principle.

The binomial Black-Scholes pricing model was used similar to the valuations above to calculate the fair value of the warrants with embedded features on December 31, 2009.  The probability of not triggering the reset at $0.10 per share was estimated as 75% since the stock closing price was $0.17 on December 31, 2009.  The probability of private placement issuances triggering a reset at the estimated stock price of $0.06 per share was estimated as 25%. The Black-Scholes option-pricing model was utilized with the following assumptions: dividend yield 0.0%, expected volatility o%, risk free interest rate 0.47%, and expected life of approximately 1 year.  The valuation for the remaining 12,447,999 warrants outstanding was $1,928,120 on December 31, 2009.  The derivative loss for the first nine months of 2009 was $1,240,397.

We are at risk of triggering the warrant anti-dilution provisions again in the future if we sell stock below $0.10 per share to any non-exempt parties.  Holders of options and warrants 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.

During 2009, 7,877,350 warrants were issued together with private placement sales of 7,877,350 shares of stock.  We recognized the total purchase price for private placement stock and warrants as the cost to purchase the stock.

In 2009, investment bankers exercised 1,472,001 cashless warrants at $0.10 per share and received 785,854 shares of stock.  A total of 686,147 shares of stock reserved for exercise of warrants were returned to the Treasury.  Investors exercised 3,244,990 warrants in 2009, in addition to the cashless exercise.  No warrants were exercised in 2008.

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.

F-17

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 using the Black-Scholes option pricing model, with the following assumptions: dividend yield 0.0%, expected volatility of 147-215%, risk free interest rate 0.04-2.2%, and  expected life of  0.2-5.3 years. The Company recognized $84,148 of expense related to the inducement.  See summary of the exercise incentive transactions below:

	Options/Warrants Exercised	Reserved Common Stock Returned to Treasury	Common Stock Issued	Net Cash to Company
Options	2,079,008	733,410	1,345,598	$ 69,322
Warrants	3,244,990	1,072,674	2,172,316	$100,500
Total	5,323,998	1,806,084	3,517,914	$169,822

11.  Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes. The Company’s deferred tax asset of approximately $9,180,000 and $8,976,000 at December 31, 2009 and 2008 respectively, was subject to a valuation allowance of $9,180,000 and $8,976,000 at December 31, 2009 and 2008 respectively, because of uncertainty regarding the Company’s ability to realize future tax benefits associated with the deferred tax assets. Deferred tax assets were comprised primarily of net operating loss carryovers under the cash method of accounting used by the Company for federal income tax reporting. The valuation allowance increased by $204,000 and $976,000 in 2009 and 2008, respectively.

At December 31, 2009, the Company has net operating loss carryforwards of approximately $27,000,000 for federal income tax purposes expiring in 2010 through 2029.  The ability of the Company to utilize these carryforwards may be limited should changes in stockholder ownership occur.

The difference between the reported income tax provision and the benefit normally expected by applying the statutory rate to the loss before income taxes results from the change during 2009 and 2008 of the deferred tax asset valuation allowance. As a result, the reported effective tax rate is 0%.

F-18

12. Commitments and Contingencies

Delinquent payroll

During 2009, the Company curtailed payment of salaries payable to senior management of the Company. As of December 31, 2009, approximately $135,000 of unpaid salaries due to senior management of the Company is included in accounts payable and accrued expenses.  The significance of the amounts owed to senior management subjects the Company to the risk of resignation by these officers, as well as possible litigation.

Lease commitment

During 2006, the Company entered into an operating lease agreement for its offices in Amarillo, TX. The lease for 3,675 square feet is for a period of 24 months commencing in January 2007. Minimum lease payments under this operating lease were a combined $44,400 for 2007 and 2008.  The Company began leasing 1,800 square feet for $1,000 per month on a month-to-month basis on January 1, 2009.

Minimum Royalties

The agreement with Texas A&M University requires the Company to make minimum annual royalty payments of $7,500 through 2019.

Clinical Trial Costs

The Company estimates the clinical trial costs for the oral warts Phase 2 study recently completed is approximately $5,000 in 2010.  The Company plans to pay third parties approximately $5,000 in 2010 for expenses related to the winter colds and influenza symptoms study that was recently completed in Australia.  The ongoing Phase 2 hepatis C clinical study in Taiwan is funded by CytoPharm.  The proposed Phase 3 influenza study in India is funded by Intas Pharmaceticals.

Litigation

The Company is not a party to any litigation and is not aware of any pending litigation or unasserted claims or assessments as of December 31, 2009.

F-19

13. Related Party Transactions

The Company has relied significantly on HBL, the largest shareholder of the Company, for a substantial portion of its capital requirements. Pursuant to the Development Agreement previously described, HBL advanced $9,000,000 for funding of research. In addition, HBL has purchased substantial amounts of the Company’s common stock from time to time, to the point where it now owns 5.99% of the issued and outstanding shares of common stock of the Company.

HBL and the Company are parties to various license and manufacturing and supply agreements pursuant to which the Company licenses certain technology to or from HBL. HBL supplies formulations of its interferon alpha and other products to the Company at contractual prices. The Company pays HBL a 12% royalty on the first $100 million of interferon alpha net sales and a 10% royalty on additional net sales.

Additionally, the Company is obligated to pay HBL a percentage of sublicense fee income the Company receives.  There were no sales of interferon alpha and no royalty payments made to HBL in 2008 and 2009.    The Company recorded $53,971 of sublicense fees to HBL in 2008 and $24,407 of sublicense fees to HBL in 2009.  A total of $78,360 of sublicense fees were owed to HBL as of December 31, 2009.

HBL is obligated to pay the Company an 8% royalty on sales of oral interferon in Japan.  The Company recorded $1,479 in 2009 and $0 of royalties in 2008 from HBL animal health sales of oral interferon. The royalties due were offset against accrued interest owed to HBL.

During 2008, the Company engaged the law firm of SandersBaker, P.C.  Mr. Edward Morris, Secretary of the Company, is a partner in that firm. The Company was invoiced for $47,677 in 2008 for legal services rendered by SandersBaker.  During 2009, the Company engaged the law firm of Underwood, Wilson, Berry, Stein and Johnson P.C. of which Mr. Morris is a shareholder.  During the twelve months ended December 31, 2009 the Company incurred approximately $65,066 of legal fees from this law firm plus $74,356 of stock payments were recognized as a prepaid legal expense for $60,000 of S-1 Registration Statement fees.

14.  Subsequent Events

Management has evaluated subsequent events for recognition or disclosure through the date these financial statements were issued.

Since December 31, 2009, the Company has sold 1,060,000 unregistered shares of common stock for $0.10 per share plus 1,060,000 3-year warrants with $0.10 per share exercise price.  Net proceeds totaled $106,000.  On January 31, February 28 and March 12, 2010, the Company issued 81,806 shares of common stock to consultants for services valued at $10,829.

F-20

The Board extended incentives encouraging option and warrant holders to exercise options and warrants to January 22, 2010.  From January 11 to January 22, 2010, a total of 82,000 options were exercised at $0.10 per share generating $8,200 in net proceeds to the Company.  A total of 163,000 cashless options were exercised at $0.10 per share resulting in the issuance of 70,258 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 inducement was $4,801, which was recognized as expense.  The Board granted 100,000 options with 2-year term and $0.11 exercise price to a consultant on March 8, 2010.  One quarter of the options (fair value $2,213) vest each quarter during 2010.

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.

F-21

EX-31.1A

Exhibit 31.1a

FORM OF CERTIFICATION

PURSUANT TO RULE 13a-14 AND 15d-14

UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

CERTIFICATION

I, Joseph M. Cummins, certify that:

1.           I have reviewed this annual report on Form 10-K of Amarillo Biosciences, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 (b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           Disclosed in this  report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:      March 31, 2010                                                                              /s/ Joseph M. Cummins

Name: Joseph M. Cummins

EX-31.1B

 Exhibit 31.1b

FORM OF CERTIFICATION

PURSUANT TO RULE 13a-14 AND 15d-14

UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

CERTIFICATION

I, Bernard Cohen certify that:

1.           I have reviewed this annual report on Form 10-K of Amarillo Biosciences, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 (b)           Deigned such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           Disclosed in this  report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:      March 31, 2010                                            /s/ Bernard Cohen

Name: Bernard Cohen

EX-33.1

 Exhibit 33.1

CERTIFICATION REPORT

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting of the company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that the company’s internal control over financial reporting was effective as of December 31, 2009.

Date:    March 31, 2010                                                        By:   /s/ Joseph M. Cummins

Joseph M. Cummins

President, Chief Executive Officer

Date:    March 31, 2010                                                        By:   /s/ Bernard Cohen

Bernard Cohen

Vice President, Chief Financial Officer

EX-99.1

EXHIBIT 99.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Amarillo Biosciences, Inc. on Form 10-K for the period ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

1.           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date:    March  31, 2010                                                       By:      /s/ Joseph M. Cummins

Joseph M. Cummins

President, Chief Executive Officer

Date:    March  31, 2010                                                       By:     /s/ Bernard Cohen

Bernard Cohen

Vice President, Chief Financial Officer

EX-10.71

LICENSE AND SUPPLY AGREEMENT

Between

INTAS PHARMACEUTICALS, LTD.

&

AMARILLO BIOSCIENCES, INC.

January 7, 2010

 Confidential

1

TABLE OF CONTENTS

ARTICLE I: DEFINITIONS ............................................................................................................................................5

ARTICLE II: RESEARCH AND DEVELOPMENT....................................................................................................11

Section 2.01.  ABI Obligations....................................................................................................................11

Section 2.02.  IPL Obligations.....................................................................................................................12

Section 2.03.  Availability of Resources; Cooperation......................................................................13

Section 2.04.  Reporting Obligations of IPL...........................................................................................13

ARTICLE III: LICENSE.................................................................................................................................................13

Section 3.01.  License and Supply Grant..................................................................................................13

Section 3.02.  Restrictions..........................................................................................................................14

Section 3.03.  Retained Rights....................................................................................................................14

ARTICLE IV: PAYMENTS AND ROYALTIES.........................................................................................................14

Section 4.01.  Initial Fee...............................................................................................................................14

Section 4.02.  Royalty Payments...............................................................................................................14

Section 4.03.  MILESTONE PAYMENT......................................................................................................15

Section 4.04.  Minimum Royalty.................................................................................................................15

Section 4.05.  Reports...................................................................................................................................15

Section 4.06.  Records and Audits.............................................................................................................15

Section 4.07.  Exchange Rate; Manner and Place of Payment.........................................................16

Section 4.08.  Late Payments......................................................................................................................16

Section 4.09.  Taxes.......................................................................................................................................16

ARTICLE V: TERM AND TERMINATION................................................................................................................17

Section 5.01.  TERM.......................................................................................................................................17

Section 5.02.  Termination By IPL..............................................................................................................17

Section 5.03.  Termination by ABI.............................................................................................................17

Section 5.04.  Termination Upon Certain Events..................................................................................18

Section 5.05.  Remedies..................................................................................................................................18

Section 5.06.  Effect of Termination........................................................................................................18

Section 5.07.  Bankruptcy............................................................................................................................19

Section 5.08.  Continuing Obligations......................................................................................................19

Section 5.09.  Return of Confidential Information.............................................................................19

ARTICLE VI: SUPPLY, MANUFACTURE AND PURCHASE................................................................................19

Section 6.01.  Supply of Bulk IFN and ACM............................................................................................19

Section 6.02.  Supply and Manufacturing Rights.................................................................................20

Section 6.03.  Quality Assurance..............................................................................................................20

Section 6.04.  ABI's Duties............................................................................................................................20

Section 6.05.  IPL's Duties when Manufacturing...................................................................................21

Section 6.06.  Failure to Supply.................................................................................................................22

Section 6.07.  Allocation.............................................................................................................................22

Section 6.08.  Records and Audits.............................................................................................................22

ARTICLE VII: PURCHASE AND SALE.....................................................................................................................23

Section 7.01.  Purchase Price and Payment............................................................................................23

Section 7.02.  Labeling and Artwork.......................................................................................................23

Section 7.03.  Purchase Forms....................................................................................................................23

Section 7.04.  Confirmation.........................................................................................................................23

Section 7.05.  Delivery..................................................................................................................................24

Section 7.06.  Forecasts and Orders........................................................................................................24

 Confidential

2

ARTICLE VIII: WARRANTY, REJECTION AND INSPECTIONS.......................................................................25

Section 8.01.  ABI Warranty......................................................................................................................25

Section 8.02.  Rejection of Bulk IFN and ACM for Failure to Conform to Specifications......25

Section 8.03.  IPL Inspections......................................................................................................................26

ARTICLE IX: REGULATORY COMPLIANCE.........................................................................................................26

Section 9.01.  Maintenance of Marketing Authorizations...............................................................26

Section 9.02.  Adverse Drug Event Reporting and Phase IV Surveillance....................................26

Section 9.03.  Commercial Sale Testing and Reporting......................................................................27

Section 9.04.  Assistance.............................................................................................................................27

Section 9.05.  Compliance.............................................................................................................................27

ARTICLE X: REPRESENTATIONS, WARRANTIES AND COVENANTS........................................................28

Section 10.01. Corporate Power................................................................................................................28

Section 10.02. Due Authorization.............................................................................................................28

Section 10.03. Binding Obligation..............................................................................................................28

Section 10.04. Ownership of ABI Rights..................................................................................................28

Section 10.05. Material Agreements.......................................................................................................29

Section 10.06. Adverse Properties............................................................................................................29

Section 10.07. Preservation of Name and Reputation.........................................................................29

Section 10.08. Debarment............................................................................................................................29

Section 10.09. Limitation on Warranties................................................................................................30

Section 10.10. Limitation of Liability.......................................................................................................30

ARTICLE XI: PATENTS AND TRADEMARK..........................................................................................................30

Section 11.01.  Filing, Maintenance and Protection of Patents......................................................30

ARTICLE XII: COVENANTS OF IPL AND ABI......................................................................................................30

Section 12.01. Access to Books and Records........................................................................................30

Section 12.02. Further Actions.................................................................................................................30

Section 12.03. Equitable Relief..................................................................................................................31

ARTICLE XIII: INDEMNIFICATION..........................................................................................................................31

Section 13.01. IPL Indemnified by ABI.......................................................................................................31

Section 13.02. ABI Indemnified by IPL.......................................................................................................31

Section 13.03. Prompt Notice Required....................................................................................................32

Section 13.04. Indemnitor May Settle.....................................................................................................32

ARTICLE XIV: DISPUTE RESOLUTION..................................................................................................................32

Section 14.01. Disputes.................................................................................................................................32

Section 14.02. Trial Without Jury............................................................................................................33

Section 14.03. Performance to Continue.................................................................................................33

Section 14.04. Provisional Remedies..........................................................................................................33

Section 14.05. Determination of Patents and Other Intellectual Property.............................33

ARTICLE XV: CONFIDENTIALITY...........................................................................................................................33

Section 15.01. Confidentiality...................................................................................................................33

Section 15.02. Publicity Review.................................................................................................................34

ARTICLE XVI: MISCELLANEOUS............................................................................................................................34

Section 16.01. Commercially Reasonable Efforts...............................................................................34

Section 16.02. Notices...................................................................................................................................35

Section 16.03. Severability..........................................................................................................................35

Section 16.04. Entire Agreement/Merger...............................................................................................36

 Confidential

3

Section 16.05. Amendment...........................................................................................................................36

Section 16.06. Counterparts......................................................................................................................36

Section 16.07. No Waiver of Rights..........................................................................................................36

Section 16.08. Force Majeure.....................................................................................................................36

Section 16.09. Further Assurances..........................................................................................................36

Section 16.10. Assignment and Sublicense..............................................................................................36

Section 16.11. Expenses.................................................................................................................................37

Section 16.12. Binding Effect......................................................................................................................37

Section 16.13. Governing Law.....................................................................................................................37

Section 16.14. Survival of Representations and Warranties..........................................................37

Section 16.15. No Strict Construction...................................................................................................38

Section 16.16. Independent Contractors................................................................................................38

Exhibit I - HBL License and Supply Agreement

Exhibit II - Specifications

Exhibit III - Certificate of Compliance

 Confidential

4

LICENSE AND SUPPLY AGREEMENT

This License and Supply Agreement (“Agreement”) is made as of January 7, 2010 (the “Effective Date”), by and between Intas Pharmaceuticals, Ltd. (“IPL”), a corporation, having its corporate office Chinubhai Center, Off Nehru Bridge, Ashram Road, – 380 009, Gujarat, India, and Amarillo Biosciences, Inc., a Texas corporation (“ABI”), with its principal place of business located at 4134 Business Park Drive, Amarillo, Texas 79110, USA. ABI and IPL are sometimes referred to collectively herein as the “Parties” and individually as a “Party.”

WHEREAS, ABI has substantial expertise in the oral use of human interferon alpha (“IFN”) and have proprietary rights and Know-How in the field of formulation development and manufacturing of oral IFN;

WHEREAS, ABI is willing to disclose to IPL the ABI Know-How consisting of human clinical data and all other data, including but not limited to, safety, bioavailability, and clinical trial data necessary for IPL to obtain regulatory approval for a product for the treatment of human diseases in the Territory; and

WHEREAS, ABI has an exclusive worldwide license (except Japan) to market and distribute the oral formulation of Hayashibara (known as “HBL”) IFN, and desires to provide HBL oral IFN to IPL on the terms and conditions herein set forth, if IPL desires to obtain the right to perform clinical trials thereon and thereafter manufacture, distribute and market HBL IFN on the terms and conditions herein set forth;

WHEREAS, ABI owns certain proprietary information, intellectual property, Patents and ABI Know-How, and other rights relating to the use of low dose oral IFN for the treatment or prevention of human diseases; capable of providing clinical benefit in humans 150-500 IU/Lozenge.

WHEREAS, subject to the terms of this Agreement, ABI desires to grant to IPL, and IPL wishes to obtain from ABI, an exclusive supply agreement for supply of IFN and ACM including its bulk supply, if so desired by IPL and exclusive distribution license, subject to existing rights, to such Know-How and related intellectual property rights in the Territory in connection with the development, manufacturing, marketing and distribution of the Product in the territory; and

WHEREAS, ABI is willing to grant such rights and licenses to IPL under the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements hereinafter set forth, the Parties mutually agree as follows:

ARTICLE I:

DEFINITIONS

(a)The following terms as used in the Agreement shall, unless the context clearly indicates to the contrary, have the meaning set forth below:

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“ABI Know-How” means all Know-How under the Control of ABI as of the Effective Date and at any time during the TERM related to (but not claimed under) the ABI Patent Rights and which is necessary or useful to develop, Manufacture and/or commercialize the Product, including all information, reports, results, inventions, materials, and any other technical and scientific data, specifications and formulae directly related to the development, regulato­ry approval, Manufacture, testing, use, marketing and/or sale of Product, including non-patentable Improvements, and any nonpublic information relevant to the ABI Patent Rights, including preclinical and clinical data from ABI's past, current or future studies, relating to safety or bioavailability, or preclinical or clinical data relating to the use of HBL oral IFN and/or IFN for the treatment or prevention of human diseases.

“ABI Patent Rights” means all Patent Rights that are under the Control of ABI as of the Effective Date under US patent laws’ protection, and at any time during the TERM that are necessary or useful to the use, development, Manufacture, marketing, promotion, distribution, sale and/or commercialization of the Product for use in the treatment of the Licensed Indications, and Improvements thereto developed by or on behalf of ABI during the TERM.

“ABI Technology” means the ABI Patent Rights and the ABI Know-How.

“ACM” means anhydrous crystalline maltose produced by HBL that may be used by IPL to Manufacture Product.

 “Affiliate” means any entity, which directly or indirectly controls, is controlled by or is under common control with either IPL or ABI. The term “control” as used in the preceding sentence means the power to direct or control the affairs of such entity, and control shall be presumed where IPL or ABI or their Affiliates (as the case may be) own fifty percent (50%) or more of the voting stock or other equity interests of such entity.

“Applicable Laws” means all applicable laws, rules, Regulations and guidelines within or without the Territory that may apply to the marketing or sale of the Product in the Territory or the performance of either Party's obligations under this Agreement including laws, Regulations and guidelines governing the marketing, distribution and sale of the Product in the Territory, to the extent applicable and relevant, and including all cGMP or current Good Clinical Practices standards or guidelines promulgated by the FDA or the Governmental Authorities and including trade association guidelines. The laws are also under the designated Territory.

“Bulk IFN” means concentrated powdered, frozen, lyophilized or liquid HBL IFN, which can be used to Manufacture Product.

“Certificate of Compliance” means the certificate of compliance in the form attached hereto as Exhibit III or otherwise requested by regulatory agencies in the Territory.

 “CFR” means the United States Code of Federal Regulations.

           “cGMP” means current good manufacturing practices as defined in 21 CFR § 110 et seq. and established under the Act and applicable Regulations.

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“Clinical Supplies” means lozenges containing both HBL IFN and ACM or lozenges containing ACM only (placebo) that are produced by ABI and sold to IPL on cost basis for use in clinical trials.

 “Confidential Information” means any confidential information (including Know-How) of a Party relating to any human interferon use, process, method, compound, research project, work in process, future development, scientific, engineering, Manufacturing, marketing, business plan, financial or personnel matter relating to the disclosing Party, its present or future product, sales, suppliers, customers, employees, investors or business, whether in oral, written, graphic or electronic form. Confidential Information shall not include any information, which the receiving Party can prove by competent evidence:

(a)is now, or hereafter becomes, through no act or failure to act on the part of the receiving Party, generally known or available or accessible through public domains;

(b)is known by the receiving Party at the time of receiving such information, as evidenced by its written records maintained in the ordinary course of business;

(c)is hereafter furnished to the receiving Party by a Third Party, as a matter of right and without restriction on disclosure;

(d)is independently developed by the receiving Party, as evidenced by its written records, without knowledge of, and without the aid, application or use or a reference of, the disclosing Party's Confidential Information; or

(e)is the subject of a written permission to disclose provided by the disclosing Party.

Any Confidential Information will be marked as “Confidential & Proprietary Information” at the foot or head of every page throughout the documents.

“Control” means the possession of the ability to grant a license or sublicense as provided for herein without violating the terms of any agreement or other arrangement with any Third Party.

“FDA” means the United States Food and Drug Administration.

“First Commercial Sale” means after obtaining the necessary Governmental Approval, the first sale for use, consumption or resale of a Product by IPL, its Affiliates or its sublicensees in the Territory (excluding any transactions for clinical trials). A sale to an Affiliate shall not constitute a First Commercial Sale unless the Affiliate is the end user of the Product.

“GAAP” means United States generally accepted accounting principles, consistently applied in accordance with past practice.

“Good Clinical Practices” means good clinical practices as defined in 21 CFR § 50 et. seq. and § 312 et. seq.

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“Governmental Approval” means all permits, licenses and authorizations, including Marketing Authorizations, required by any Governmental Authority in the Territory as a prerequisite to the Manufacturing, packaging, marketing and selling of the Product.

“Governmental Authority” means any federal, state, local or other government, administrative or regulatory agency, authority, body, commission, court, tribunal or similar entity, including other entities in each country in the Territory responsible for the regulation of medicinal products intended for human use.

“HBL” means Hayashibara Biochemical Laboratories, Inc. of Okayama, Japan.

“HBL Agreement” means the Joint Development and Manufacturing/Supply Agreement by and between HBL and ABI dated as of March 13, 1992 (Exhibit Ia), as amended by the First Amendment to Joint Development and Manufacturing/Supply Agreement dated as of January 17, 1996 (Exhibit Ib) and the Addendum to Manufacturing/Supply Agreements dated as of May 10, 1996 (Exhibit Ic) and September 7, 2001 (Exhibit Id).

“HBL IFN” means the cell culture derived human lymphoblastoid IFN produced by HBL.

“IFRS” means International Financial Reporting Standards.

“Improvements” means any and all developments, inventions or discoveries in the Licensed Indication relating to the ABI Patent Rights developed by ABI, or acquired by ABI at any time during the TERM and shall include developments intended to enhance the safety and/or efficacy of the Product.

“IFN” means human interferon alpha.

“Intalfa” means recombinant interferon alfa 2b produced by IPL.

 “Know-How” means all know-how, trade secrets, inventions, data, processes, techniques, procedures, compositions, devices, methods, formulas, protocols and information, whether or not patentable, which are not generally publicly known, including, without limitation, all chemical, biochemical, toxicological, and scientific research information, whether in written, graphic or video form or any other form or format, used to produce human interferon alpha and its oral formulation.

“Licensed Indication” means the human clinical indication of influenza.

“Manufacture” or “Manufacturing Process” means the storage, handling, production, processing and packaging of the Product, in accordance with this Agreement and Applicable Laws.

“Marketing Authorization” means all necessary and appropriate regulatory approvals, including Pricing and Reimbursement Approvals, where applicable, to put the Product on the market in the Territory.

“Material Agreement” means the HBL Agreement.

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“NDA” means a new drug application, biological license application or establishment license application, as applicable, and all amendments and supplements thereto, filed or to be filed, with the FDA seeking authorization and approval to Manufacture, package, ship and sell the Product as more fully described in the Regulations.

“Net Sales” means the invoice amounts actually received for sales of the Product by IPL, its Affiliates or sub-licensees in a bona fide arm's length transaction, less the following items, provided that they are bona fide transactions designed to optimize the sales of Product (a) cash discounts and trade allowances actually granted, (b) rebates and charge backs required by Applicable Laws or made pursuant to agreements with customers, (c) credits or allowances actually granted upon claims, damaged goods, outdated goods, rejections or returns of such Product, including recalls, (d) taxes, tariffs and similar obligations, duties or other governmental charges (other than income taxes and inventory taxes) levied on, absorbed or otherwise imposed on sales of such Product in the Territory and shown separately on the invoice, (e) shipping charges, (f) insurance costs related to shipping.

Components of Net Sales shall be determined in the ordinary course of business in accordance with historical practice and using the accrual method of accounting in accordance with GAAP or IFRS, but shall not include any sales of the Product for pre-clinical or clinical testing or for other than commercial purposes.

In the event IPL transfers the Product to a Third Party in a bona fide arm's length transaction, for consideration, in whole or in part, other than cash or to a Third Party in other than a bona fide arm's length transaction, the Net Sales price for such Product shall be deemed to be the standard invoice price then being invoiced by IPL in an arms length transaction with similar customers for similar amounts less the items set forth in (a) through (g) above.

“Patent Rights” means all rights related to human interferon alpha under patents and patent applications, and any and all patents issuing there from (including utility, model and design patents and certificates of invention), together with any and all substitutions, extensions (including supplemental protection certificates), registrations, confirmations, reissues, divisional, continuations, continuations-in-part, re-examinations, renewals and foreign counterparts of the foregoing and all Improvements, supplements, modifications or additions during the term.

“Phase IV” means, as applicable, a study or program designed to obtain additional safety or efficacy data, detect new uses for a drug, or to determine effectiveness for labeled indications under conditions of widespread usage, which is commenced after Government Approval of the Product in the applicable country in the Territory or any such study or program required by the FDA or other applicable Governmental Authority.

 “Pricing and Reimbursement Approvals” means any pricing and reimbursement approval, by government agency in the Territory, that must be obtained before placing the Product on the market in the Territory in which such approval is required.

“Prime Rate of Interest” means the prime rate of interest published from time to time in The Wall Street Journal as the prime rate; provided, however that if The Wall Street Journal does not publish the prime rate of interest, then the term “Prime Rate of Interest” shall mean the

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rate of interest publicly announced by Bank of America, N.A., as its prime rate, base rate, reference rate or the equivalent of such rate, whether or not such bank makes loans to customers at, above, or below said rate.

“Product” means a formulation or composition containing HBL IFN and ACM or Intalfa and ACM and designated, detailed, or labeled for oral use in the treatment of the Licensed Indication.

“Regulations” means regulations, statutes, rules, guidelines and procedures promulgated by the FDA or other governmental agency pursuant to the Act or other law, including without limitation, those regulations currently contained in Title 21 of the CFR.

“SFDA” means the State Food and Drug Administration of India

“Shipment” or “Shipped” means each individual group of Product received by IPL from ABI or its agent.

“Specifications” means the specifications for the Product.  The initial Specifications are attached hereto as Exhibit II.

 “Territory” means India and Nepal.

“Third Party” means any entity other than ABI or IPL or an Affiliate of ABI or IPL.

“Transfer Fee” means purchase price billed to IPL by ABI for Product and Bulk IFN.

“Unit” means a single finished dosage form of Product in the form designated by IPL, which initially, for clinical supplies, shall consist of a 200 mg by weight, with 150 international units by activity, tablet or lozenge. Clinical testing may result in a change in the optimal dose and require a new definition of “Unit.”

(b)Each of the following terms is defined in the Section or under the defined term set forth opposite such term below:

ABI Preamble

ADE Section 9.02

Agreement Preamble

Clinical Records Section 2.02(c)

Disputed Amount Section 5.03(a)

DMF Section 2.02(b)

Effective Date Preamble

Force Majeure Section 16.08

IPL Preamble

Indemnitee Section 13.03

Indemnitor Section 13.03

Loss Section 13.01

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Parties Preamble

Party Preamble

Purchase Price Section 7.01

Representatives Section 15.01

Royalty Payment Date Section 4.02

MILESTONE PAYMENT Section 4.03

SEC Section 15.02

SOP Section 9.02

TERM Section 5.01

(c)Interpretation. The section headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. Except where the context clearly requires to the contrary: (i) each reference in this Agreement to a designated “Section” or “Exhibit” is to the corresponding Section or Exhibit of or to this Agreement; (ii) instances of gender or entity-specific usage (e.g., “his” “her” “its” “person” or “individual”) shall not be interpreted to preclude the application of any provision of this Agreement to any individual or entity; (iii) the word “or” shall not be applied in its exclusive sense; (iv) “including” shall mean “including, without limitation”; (v) references to laws, Regulations and other governmental rules, as well as to contracts, agreements and other instruments, shall mean such rules and instruments as in effect at the time of determination (taking into account any amendments thereto effective at such time without regard to whether such amendments were enacted or adopted after the effective date of this Agreement) and shall include all successor rules and instruments thereto; (vi) references to “$” or “dollars” shall mean the lawful currency of the United States; (vii) references to “Federal” or “federal” shall be to laws, agencies or other attributes of the United States (and not to any State or locality thereof); (viii) the meaning of the terms “domestic” and “foreign” shall be determined by reference to the United States; (ix) references to “days” shall mean calendar days; (x) references to months or years shall be to the actual calendar months or years at issue (taking into account the actual number of days in any such month or year); (xi) days, business days and times of day shall be determined by reference to local time in Amarillo, Texas; and (xii) the English language version of this Agreement shall govern all questions of interpretation relating to this Agreement, notwithstanding that this Agreement may have been translated into, and executed in, other languages.

ARTICLE II:

RESEARCH AND DEVELOPMENT

Section 2.01.  ABI Obligations.

(a)As soon as reasonably practicable after the Effective Date, ABI will make available all ABI Know-How to IPL for IPL's inspection and at IPL's request will provide IPL with a copy of all ABI Know-How in tangible form and a written summary of all ABI Know-How not in tangible form. In the event IPL request that more the 1,000 pages be copied in connection with the foregoing, IPL shall reimburse ABI for ABI’s actual out of pocket costs for making copies in excess of 1,000 pages, IPL shall pay ABI such amounts within 30 days following IPL’s receipt of an invoice therefore accompanied by documentation reasonably supporting such invoice.

(b)ABI agrees to maintain, or ask HBL to maintain, the Drug Master File (“DMF”) for HBL IFN up-to-date at all times during the TERM. ABI shall cooperate fully with IPL in order

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to obtain all the Marketing Authorizations, which now are or later become necessary to develop, Manufacture, use, market or sell any Product. Such cooperation shall include, but not be limited to, ABI providing IPL with the ABI Know-How and ABI appearing at and participating in meetings with regulatory agencies at the reasonable request of IPL to assist IPL in obtaining such Marketing Authorizations as are now required, or may in the future be required to Manufacture, use, market or sell any Product. ABI shall execute, or ask third parties to execute, upon request by IPL, any and all documents reasonably necessary to obtain such Marketing Authorizations. IPL (with its written pre-approval) shall reimburse ABI for any reasonable out-of-pocket costs, including reasonable attorney's fees, employee salary and travel expenses incurred by ABI in connection with such cooperation.  If IPL will not approve the reimbursement, then ABI shall not be required to perform the task.

(c)ABI shall provide to IPL or any sub-licensee of IPL, at IPL's request and, unless otherwise set forth in this Agreement, IPL’s sole expense, with ABI Technology reasonably necessary to enable IPL or such sub-licensee to exercise fully its rights and fulfill its obligations under this Agreement.

(d)ABI and IPL will review the Patent Rights related to IPL’s activities in the Territory.  Once the Parties agree to a strategy, IPL will make its best efforts to maintain all necessary ABI Technology in the Territory (see Section 11.01).

(e)ABI shall assist IPL in developing the protocols for clinical studies in order to obtain regulatory approvals from the Products in the Territory. Upon request from IPL, ABI shall depute its representative for assisting IPL for clinical, regulatory, technical or marketing support at IPL’s expense if travel by the representative is required to assist IPL.

Section 2.02.  IPL Obligations.

(a)IPL will use commercially reasonable efforts to timely complete at the sole cost and expense of IPL (i) clinical trials and development of Product for the treatment of the Licensed Indications, (ii) animal toxicology and other pre-clinical studies required for commercial launch of the Product, and (iii) other tasks supporting commercialization of the final formulation of the Product.

(b)IPL shall use commercially reasonable efforts to timely secure any and all Governmental Approvals in the Territory and shall own and maintain all Governmental Approvals and related information as provided herein. The Parties agree and acknowledge that Governmental Approval for the Product will be sought by IPL in The Territory.

(c)IPL shall maintain records in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes and shall properly reflect all work done and results achieved in the performance of its duties hereunder (including all data in the form required to be maintained under any Applicable Laws), and any subsequent pre-clinical or clinical studies (the “Clinical Records”). The Clinical Records generated in the Territory shall be owned by IPL and shall be considered Confidential Information of IPL and ABI.  ABI may request the Clinical Records, and IPL shall provide the Clinical Records to ABI.  These records include books, records, reports, research notes, charts, graphs, comments, computations,

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analyses, compilations, recordings, photographs, computer programs and documentation thereof, computer information storage means, samples of materials and other graphic or written data generated in connection with IPL's research and development activities with respect to the Product, except for those records and data prohibited to bring out of the Territory.

(d)In the event ABI requests that more than 1,000 pages be copied in connection with the foregoing, ABI shall reimburse IPL for IPL’s actual out of pocket costs for making copies in excess of 1,000 pages, ABI shall pay IPL such amounts within 30 days following ABI’s receipt of an invoice therefore accompanied by documentation reasonably supporting such invoice.

(e)ABI has the right, upon fifteen business days’ prior written notice to IPL, to review the Clinical Records upon request and during normal business hours, and IPL shall, subject to Applicable Laws, provide ABI upon request with a copy of all requested Clinical Records, at ABI’s cost, to the extent reasonably required for the exercise of ABI's rights under this Agreement. ABI may use the Clinical Records and the summaries thereof for commercial and regulatory approval purposes outside the Territory. If ABI wants to provide a non-governmental entity Third Party with the Clinical Records or a summary thereof or use information contained in such records for a commercial purpose, ABI may do so as long as the non-governmental entity Third Party agrees to the Confidentiality provisions of Section 15.01.

Section 2.03.  Availability of Resources; Cooperation.

Each Party shall maintain laboratories, offices and/or other facilities reasonably necessary to carry out the activities to be performed by such Party hereunder. Upon reasonable advance notice, each Party agrees to make its employees and non-employee consultants reasonably available at their respective work locations to consult with the other Party on issues arising during the collaboration and in connection with any request from any Governmental Authority, including regulatory, scientific, technical and clinical testing issues.  Such meeting may be arranged through the internet or site visit. The meetings should be arranged within 15 working days after the requests, where feasible.

Section 2.04.  Reporting Obligations of IPL.

On or prior to December 31st of each year during the TERM of this Agreement IPL shall provide ABI with a report of ongoing development efforts, including a report of efforts by IPL with respect to clinical testing, regulatory approval efforts, marketing/sales strategy, and any other areas into which IPL's reasonable business efforts in accordance with this paragraph may reasonably be categorized. Such report shall be provided in English and shall be accompanied by samples of labeling, instructions, promotional and other support materials, if any, developed for IPL's sales force, patients, physicians, or other outside parties.

ARTICLE III:

LICENSE

Section 3.01.  License and Supply Grant.

Subject to the terms of this Agreement and the HBL Agreement, ABI hereby grants to IPL:

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(a)an exclusive sublicense, with rights to sublicense (subject to Section 16.10), under the ABI Technology to use the ABI Technology to market, advertise, promote, Manufacture, offer for sale, sell, and distribute the Product in the Territory; and

(b)an exclusive sublicense, with rights to sublicense (subject to Section 16.10), under all rights granted to ABI pursuant to the HBL Agreement to market, advertise, promote, Manufacture, offer for sale, sell, and distribute the Product in the Territory.

In addition to the Transfer Fee and Royalty, if IPL licenses the right to a third unrelated party (except for those who are IPL’s subsidiaries), ABI shall receive fifty percent (50%) of any license fee, option fee, or other payment, which IPL may receive for the sublicense of rights under this Agreement to the sale and/or use of Product.

Section 3.02.  Restrictions.

IPL shall have the right to use and sell Product only in the Territory and only for use in the treatment of the Licensed Indications. IPL shall not seek customers, establish any branch or maintain any distribution depot for Product in any country outside the Territory. IPL shall not sell Product to any customer in any country outside the Territory or to any customer in the Territory if, to the knowledge of IPL, such customer intends to resell such Product in any country outside the Territory.

Section 3.03.  Retained Rights.

ABI retains all rights other than as set forth in this Agreement to HBL IFN and IFN, including without limitation, the right to test, develop, license, sublicense, market, distribute or otherwise use IFN and HBL IFN for treatment of the Licensed Indications outside the Territory.

ARTICLE IV:

PAYMENTS AND ROYALTIES

Section 4.01.  Initial Fee.

On the Effective Date, as an initial license fee, IPL shall pay to ABI a sum equal to **** US Dollars ($****).  This fee will be wired into ABI’s designated bank account within 15 days of the Effective Date. Failure to make this initial payment shall cause the Agreement to be terminated and to be of no further force or effect (except for Article XV). Upon receipt of the initial license fee, ABI shall provide IPL with all the existing regulatory documents in ABI’s possession that are needed to obtain government approval for trials in India.  The documents include those that submitted to FDA and SFDA for clinical trials.

Section 4.02.  Royalty Payments.

During the TERM, IPL, its Affiliates or sub-licensees in bonafide arm’s length transactions, will pay ABI a royalty in each calendar year on aggregate Net Sales of Product containing equal to **** percent (****%) each year if the Product contains HBL IFN and equal

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to **** percent (****%) each year if the Product contains Intalfa. Royalties shall be due and payable thirty (30) days after the end of each calendar quarter (each a “Royalty Payment Date”). IPL may prepay, in whole or in part, any royalties prior to the applicable Royalty Payment Date.

Section 4.03.  MILESTONE PAYMENT.

IPL shall pay to ABI the following milestone payment within 30 calendar days after the occurrence of the specified milestone event with respect to the Product:

(a)Regulatory Approval:  IPL will pay **** Dollars ($****) upon Governmental Approval for commercialization and marketing in India for the Licensed Indication.

Section 4.04. Minimum Royalty.

Upon obtaining Governmental Approval in the Territory, IPL shall pay ABI a minimum royalty, which shall be $**** in the first 12 months, $**** in the second 12 months and $**** in the third 12 months and in each subsequent 12-month period during the Term, or an actual amount per year defined in Section 4.02, above, whichever is greater.  The Minimum Royalty shall be adjusted annually to reflect any increase in the US producer’s price index, drugs and pharmaceuticals, subdivision code 063.  The Minimum Royalty calculations and payment therefore shall be made within thirty (30) days after the close of each calendar year, commencing with the first calendar year after approval of sales of Product in the Territory.  Failure to make this Minimum Royalty shall be a reason for Termination pursuant to Section 5.03(a).

Section 4.05.  Reports.

IPL shall furnish to ABI a quarterly written report (in sufficient detail to determine the relevant amounts and dates specified in this Section 4.05), which report shall contain at a minimum (a) the number of lozenges sold; (b) the calculation of Net Sales; (c) royalties payable in U.S. dollars, if any, which shall have accrued hereunder based upon Net Sales; (d) withholding taxes, if any, required by law to be deducted with respect to such sales; (e) the dates of the First Commercial Sale of any Product; and (f) the exchange rates, if any, used to determine the amount of United States dollars (collectively, the “Royalty Statement”). Reports shall be due on the 45th day following the close of each quarter.

Section 4.06. Records and Audits.

During the TERM and for a period of two years thereafter or upon written notice to IPL received prior to the expiration of such two year period as otherwise required in order for ABI to comply with Applicable Law, IPL shall keep complete and accurate records in sufficient detail to permit ABI to confirm the completeness and accuracy of the information presented in each Royalty Statement and all payments due hereunder. IPL shall permit an independent, certified public accountant reasonably acceptable to IPL to audit and/or inspect those records of IPL (including financial records) that relate to number of lozenges sold and Net Sales for the sole purpose of verifying the completeness and accuracy of the Royalty Statements and, the calculation of Minimum Royalties, Net Sales and confirming royalty payments for the Product, during the preceding calendar year. Such inspection shall be conducted during IPL’s normal

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business hours, no more than once in any 12-month period and upon at least thirty (30) days’ prior written notice by ABI to IPL. If such accounting firm concludes that such payments were underpaid during the periods reviewed by such accountants, IPL shall pay ABI the amount of any such underpayments, within thirty (30) days of the date ABI delivers to IPL such accounting firm's report so concluding that such payments were underpaid.  If IPL fails to remit the payment within thirty (30) days, interest at a rate equal to the Prime Rate of Interest shall be imposed starting from the 31st day.  If such accounting firm concludes that such payments were overpaid during such period, ABI shall pay to IPL the amount of any such overpayments, without interest, within thirty (30) days of the date ABI delivers to IPL such accounting firm's report so concluding that such payments were overpaid. If ABI fails to remit payment within 30 days, interest at a rate equal to the Prime Rate shall be imposed starting from the 31st day.  Provisions in this Section 4.06 requiring either Party to pay interest shall not prevent the other Party from immediately taking all actions necessary to collect all amounts due, or to enforce any other remedy under this Agreement.  ABI shall bear the full cost of such audit unless such audit discloses an underpayment by more than 5% of the amount due during such period. In such case, IPL shall bear the full cost of such audit. IPL shall provide ABI each year a copy of the IPL audited financial statements within 3 months of the end of IPL's fiscal year to show portions of revenue from Product sales containing HBL IFN and Intalfa, respectively.

Section 4.07.  Exchange Rate; Manner and Place of Payment.

All payments hereunder shall be payable in United States dollars. With respect to each calendar quarter, whenever conversion of payments from any foreign currency shall be required, such conversion shall be made at the rate of exchange reported in The Wall Street Journal on the last business day of the applicable calendar quarter. All payments owed under this Agreement shall be made by wire transfer to a bank account designated in writing by ABI, unless otherwise specified in writing by ABI.

Section 4.08. Late Payments.

Unless otherwise provided in this Agreement, upon the failure of IPL to pay any amount due under this Agreement within five days after receipt of notice by ABI that such amount has become due and payable and has not been paid, IPL shall pay interest to ABI on such amount from the date such amount is due under this Agreement at the rate of 12% per annum calculated on the number of days such payment is delinquent, unless such payment is being disputed by IPL in good faith pursuant to Section 5.03(a).  Nothing in this Section 4.08 shall relieve IPL of IPL’s obligation to make payments, risk Termination pursuant to Section 5.03(a), or provide a Royalty Statement pursuant to Section 5.03(b).

Section 4.09.  Taxes.

All taxes levied on account of the payments accruing to ABI under this Agreement shall be paid by ABI for its own account, including taxes levied thereon as income to ABI. If provision is made in law or regulation for withholding, such tax shall be deducted from the payment made by IPL, paid to the proper taxing authority and a receipt of payment of the tax secured and promptly delivered to ABI.

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ARTICLE V:

TERM AND TERMINATION

Section 5.01. TERM.

This Agreement will take effect on the Effective Date and will remain in force for **** (****) years from the date of Governmental Approval in the Territory (the “TERM”) after which it shall automatically be renewed for successive periods of one year each, unless terminated earlier under provisions of this Article V or if notice of termination is given by either Party at least one hundred twenty (120) days prior to the renewal date.

Section 5.02. Termination By IPL.

IPL may terminate this Agreement by notice to ABI as follows:

(a)immediately, if IPL reasonably determines based upon the clinical trials and after consultation with ABI that receipt of Governmental Approval for a Product is unlikely, and/or

(b)immediately, if IPL reasonably determines based upon the market competition and after consultation with ABI that the profitability of the Product is unlikely.

Section 5.03.  Termination by ABI.

ABI may terminate this Agreement by notice to IPL, upon any of the following conditions:

(a)if IPL shall fail to make any payments to ABI on the date on which such payments are due hereunder and such failure continues for more than 20 days after IPL’s receipt of notice of such failure to pay; provided, however, that this subsection (a) shall not apply to any payment, or portion thereof, under this Agreement, which is the subject of a good faith dispute (a “Disputed Amount”) between IPL and ABI. Any Disputed Amount shall be resolved by the Parties within 30 days from the date IPL notifies ABI of a good faith dispute; provided, however, if the Disputed Amount cannot be resolved to the mutual satisfaction of the Parties within such 30-day period then either Party may request that the dispute be submitted to the Chief Executive Officers of ABI and IPL, respectively, or their designees, for joint resolution. If the Disputed Amount is not jointly resolved by the Parties' Chief Executive Officers, or their designees, within ten days after the submission thereto, then ABI shall be entitled to pursue any and all remedies at law available to it. In no event will the dispute resolution period for the activities set forth above exceed a maximum of 60 days unless otherwise agreed in writing by the Parties. Further, IPL may in its discretion elect to pay any such Disputed Amount and in the event such amount is finally determined not to have been payable by IPL, ABI shall reimburse IPL for such amount, without interest; or

(b)if IPL shall fail to deliver to ABI a Royalty Statement by the Royalty Payment Date and shall fail to cure such default within 30 days after notice from ABI with respect thereto; or

(c)if IPL shall commit any material breach of the provisions of this Agreement other than a breach set forth in subsections (a) or (b) above, provided that ABI has first given IPL

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notice specifying the details of the material breach, and IPL has not cured such material breach, if such breach is capable of being cured within such time period, within 45 days of the effective date of such notice; or

(d)if IPL fails to market product in the Territory within six (6) months of the Effective Date, provided all such product registration, governmental approvals, manufacturing process, etc. have been completed and IPL has had reasonably sufficient time to market the product; or

(e)anytime after 12/31/2016 with or without cause upon 3 months prior written notice to IPL, or,

(f) immediately, if the HBL Agreement is terminated.

Section 5.04.  Termination Upon Certain Events.

This Agreement may be terminated by the Party specified below immediately upon written notice to the other Party of the occurrence of either of the following events:

(a)by either Party upon a cessation of operations in the ordinary course of the other Party or the institution by or against such Party as debtor of any proceeding (whether voluntary or involuntary) in bankruptcy or for dissolution, liquidation, reorganization, arrangement or the appointment of a receiver, trustee or judicial administrator (or the equivalent thereof in the jurisdiction in question) or any other proceeding under the law for the relief of debtors, if, in the case of an involuntary proceeding, the same shall not have been dismissed or stayed within 45 days after its institution; or

(b)by either Party if the other Party makes an assignment for the benefit of, or arrangement with, its creditors or becomes unable to pay its debts as they become due.

(c)A Party's failure to terminate this Agreement for any of the reasons specified in this Section 5.04 shall not in any way be deemed a waiver of such Party's rights in respect thereof or otherwise limit its rights to enforce the obligations hereunder.

Section 5.05.  Remedies.

All of the non-breaching Party's remedies shall be cumulative, and the exercise of one remedy hereunder by the non-defaulting Party shall not be deemed to be an election of remedies. These remedies shall include the non-breaching Party's right to sue for damages for such breach without terminating this Agreement.

Section 5.06. Effect of Termination.

In the event of termination of this Agreement:

(a)Neither Party shall be discharged from any liability or obligation to the other Party that became due or payable prior to the effective date of such termination;

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(b)IPL shall discontinue, and shall cause its Affiliates and sublicensees to discontinue, the sale of the Product; and

(c)In the event of termination by ABI under Section 5.03, all duties of ABI (other than under Section 5.08) and all rights (but not duties) of IPL (other than under Section 5.08) under this Agreement shall immediately terminate without the necessity of any action being taken either by ABI or by IPL, and

IPL shall have a period of six months to sell off its inventory of Product existing on the date of termination and shall pay royalties to ABI with respect to such Product sales within 30 days after the expiration of such six-month period.

Section 5.07. Bankruptcy.

In the event that ABI as a debtor in possession, or a trustee in bankruptcy under the U.S. Bankruptcy Code, rejects this Agreement or IPL’s right to continue the licenses under this Agreement, IPL may elect to retain its license rights under the Agreement by paying all applicable fees, and otherwise acting in accordance with Section 365(n) of the U.S. Bankruptcy Code. Thereafter, neither ABI as debtor in possession, nor a trustee in bankruptcy, shall interfere with the rights of IPL to use the ABI Technology under this Agreement.

Section 5.08.  Continuing Obligations.

Expiration or termination of this Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or termination. Except as otherwise set forth in this Agreement, the obligations and rights of the Parties under Articles X, XIII, XIV (other than Section 14.03), and Sections 5.06-5.09, and 12.03, and 15.01 (for the period set forth therein) shall survive expiration or termination of this Agreement.

Section 5.09. Return of Confidential Information.

Except to the extent necessary for IPL to exercise its rights to the ABI Technology under Section 5.07, within 30 days following the expiration or termination of this Agreement, each Party shall return to the other Party, or destroy, upon the written request of the other Party, any and all Confidential Information of the other Party in its possession and upon a Party's request, such destruction (or delivery) shall be confirmed in writing to such Party by a responsible officer of the other Party. Notwithstanding the provisions of this Section 5.09, either Party may retain one (1) copy of such Confidential Information for the sole purpose of determining its continuing confidentiality obligation to the other Party under this Agreement.

ARTICLE VI:

SUPPLY, MANUFACTURE AND PURCHASE

Section 6.01.  Supply of Bulk IFN and ACM.

****

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Section 6.02. Supply and Manufacturing Rights.

(a) During the TERM, IPL shall have the right to purchase Clinical Supplies, Bulk IFN and ACM from ABI **** in accordance with the terms of this Agreement. IPL shall have the right to Manufacture Product from Bulk IFN and ACM or from Intalfa and ACM. At IPL’s sole discretion, IPL may, at IPL’s sole expense, subcontract any part of the Manufacturing Process for the Product to Third Parties provided the Product and the facilities used to Manufacture the Product continue to meet the requirements set forth in this Agreement. IPL will bear the cost of validation and necessary stability testing, and any manufacturing setup costs or up front fees.

(b) If at any time during the TERM ABI shall have both (i) materially breached this Agreement, and (ii) filed for protection under the bankruptcy laws of the United States, IPL may thereafter attempt to negotiate and enter into an agreement with HBL pursuant to which HBL will supply IPL with Bulk IFN and ACM.

Section 6.03.  Quality Assurance.

ABI shall ask HBL to Manufacture Bulk IFN and ACM in accordance with the Specifications and this Agreement. IPL shall promptly notify ABI in writing of any changes required by a Governmental Authority in the Specifications or IPL’s quality assurance procedures that would render ABI or its supplier unable to supply Bulk IFN or ACM in accordance with the terms of this Agreement. The Parties agree to develop and execute an appropriate action plan in such situation. Any additional costs or expenses shall be paid by IPL.

Section 6.04.  ABI's Duties.

ABI agrees to ask HBL to furnish to IPL with every Shipment a written certificate of analysis and Certificate of Compliance that confirms conformity of the Bulk IFN and ACM to the Specifications and this Agreement. IPL shall analyze each Shipment promptly upon receipt in accordance with Section 8.02. In addition, ABI shall as HBL to:

(a)provide IPL with written sampling and testing procedures used by ABI or its manufacturer to assure that the Bulk IFN and ACM conform to the Specifications;

(b)retain a sample of each batch of Bulk IFN and ACM for a period equal to the greater of (i) one year after the date of Manufacture of such batch of Bulk IFN and ACM or (ii) such period as required by Applicable Laws. Upon the request of IPL, ABI shall ask HBL to make such samples available to IPL for inspection. The retained sample shall be sufficient in size to allow IPL to perform tests to determine whether the Bulk IFN and ACM meets the Specifications. ABI shall store the retained sample in accordance with the Specifications and Applicable Law,

(c)maintain records to ensure IPL’s ability to perform a complete lot history via lot tracing of the Bulk IFN and ACM,

(d)keep on file all manufacturing records and analytical results pertaining to the Manufacture of each batch of Bulk IFN and ACM for a period expiring not earlier than one year

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after the expiration date of the last lot of the last batch of Bulk IFN and ACM Manufactured and Shipped to IPL. ABI shall make, and shall cause any Third Party manufacturer to make, such records available to IPL upon request,

(e)provide IPL with notice within 48 hours following ABI's receipt of notification of any scheduled inspection, and as soon as possible following ABI's receipt of notification of any unscheduled inspection, by any Governmental Authority of ABI's facilities, books or records, or of the facilities, books or records of any subcontractor being utilized by ABI to perform any portion or all of the Manufacture or development of the Bulk IFN and ACM. ABI shall inform such Governmental Authority that IPL may desire to be present at such inspection; provided that IPL’s right to be present is subject to approval by such Governmental Authority and subject to IPL being available at the time and date established by such Governmental Authority and, with respect to any inspection of HBL's facilities, HBL's consent to the presence of IPL at such inspection. ABI shall use reasonable efforts to secure a time and date for such inspection that is reasonably acceptable to IPL; provided, however, that ABI alone shall have the right to make the final decision on all such matters;

(f)maintain at its expense any and all licenses, permits and consents necessary or required to perform its obligations under this Agreement; and

(g)ensure that all Bulk IFN and ACM delivered, have a remaining shelf life from the time of manufacture of not less than five years if refrigerated to at least 2-8 degrees Centigrade or two years, if maintained at or below 25 degrees centigrade.

Section 6.05.  IPL's Duties when Manufacturing.

IPL agrees to furnish to ABI with a written certificate of analysis and Certificate of Compliance that confirms conformity of each batch of Product to the Specifications and this Agreement. In addition, IPL shall:

(a)provide ABI with written sampling and testing procedures used by IPL or its manufacturer to assure that the Product conforms to the Specifications;

(b)retain a sample of each batch of Product for a period equal to the greater of (i) one year after the date of Manufacture of such batch of Product or (ii) such period as required by Applicable Laws. Upon the request of ABI, IPL shall make such samples available to ABI for inspection. The retained sample shall be sufficient in size to allow ABI to perform tests to determine whether the Product meets the Specifications. IPL shall store the retained sample in accordance with the Specifications and Applicable Law,

(c)maintain records to ensure ABI’s ability to perform a complete lot history via lot tracing of the Product,

(d)keep on file all manufacturing records and analytical results pertaining to the Manufacture of each batch of Product for a period expiring not earlier than one year after the expiration date of the last lot of the last batch of Product Manufactured by IPL. IPL shall make,

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and shall cause any Third Party manufacturer to make, such records available to ABI upon request.

Section 6.06.  Failure to Supply.

ABI shall immediately notify IPL if ABI is unable to fill any purchase order placed by IPL pursuant to Section 7.06, and advise IPL of the revised delivery date. IPL shall then have the option of terminating the purchase order without obligation of payment or of accepting the revised delivery date. If ABI is unable to cure to IPL’s reasonable satisfaction the circumstances giving rise to such failure within 15 business days after such notice, IPL shall not be obligated to purchase any further Product from ABI under the then existing forecasts.

Notwithstanding the foregoing, ABI shall not be deemed to be unable to fill any order placed by IPL if ABI's inability to fill any order arises as a result of a 50% or greater increase in IPL’s order over IPL’s immediately prior forecast. For example, if IPL’s forecast for the initial three-month period was for 100 kg of ACM and IPL’s forecast for the second three-month period was for 200 kg, then, if after the time the second three-month forecast becomes firm pursuant to Section 7.06(a), IPL increased its orders, ABI would not be deemed to be unable to supply Product for any amount in excess of 300 kg for such three-month period

Section 6.07.  Allocation.

If ABI is unable to supply all of the requirements for Bulk IFN and ACM, and quantities ordered by IPL in accordance with Section 7.06, then ABI shall allocate the resources available to it so that IPL receives at least its proportional share of available supplies as determined based on reasonable forecasts (taking into consideration past sales and sales performance against forecast) of IPL.

Section 6.08. Records and Audits.

During the TERM and for a period of two years thereafter or such longer period as is required in order for IPL to comply with Applicable Law, ABI shall keep complete and accurate records in sufficient detail to permit IPL to confirm the completeness and accuracy of the information presented in each invoice sent to IPL pursuant to this Agreement and all payments made by IPL relying on such invoices hereunder. ABI shall permit an independent, certified public accountant reasonably acceptable to ABI to audit and/or inspect those records of ABI (including financial records) that relate to such invoices for the sole purpose of verifying the completeness and accuracy of such invoices during the preceding calendar year. Such inspection shall be conducted during ABI's normal business hours, no more than once in any 12-month period and upon at least ten days prior written notice by IPL to ABI. If such accounting firm concludes that such payments were overpaid during the periods reviewed by such accountants, ABI shall pay IPL the amount of any such overpayments, plus interest at a rate equal to the Prime Rate of Interest, within 30 days of the date IPL delivers to ABI such accounting firm's report so concluding that such payments were overpaid. IPL shall bear the full cost of such audit unless such audit discloses an overpayment by more than 5% of the amount due during such period. In such case, ABI shall bear the full cost of such audit.

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ARTICLE VII:

PURCHASE AND SALE

Section 7.01. Purchase Price and Payment.

ABI shall sell, and IPL shall purchase Bulk IFN and ACM at a purchase price equal to, **** (the “Purchase Price”).  The price of Clinical Supplies will be equal to ABI’s actual cost of production and will depend on volume and packaging needed.  ABI shall invoice IPL for all Clinical Supplies, Bulk IFN and ACM manufactured by ABI for IPL, which invoice shall be accompanied by ****, and payment shall be made to ABI before IPL takes physical possession of Clinical Supplies, Bulk IFN or ACM.  IPL shall pay in advance to ABI any third party setup fees or advance fees required as part of the costs of manufacture.

Section 7.02. Labeling and Artwork.

After execution of this Agreement, ABI shall review and comment on any labeling and proposed changes to the labeling of the Product and shall be entitled to participate in discussions with the Governmental Authorities concerning any labeling or proposed labeling change so long as IPL is purchasing the Bulk IFN or ACM from ABI. Notwithstanding the above, IPL shall make the final decision with regard to any labeling or labeling revisions

Both Parties will approve all artwork developed for inclusion in the Product packaging, including carton labels, package inserts, etc., which approval will not be unreasonably withheld, conditioned or delayed by either Party. If IPL wishes to institute changes in labeling artwork, both Parties will develop a mutually acceptable implementation schedule. The actual cost of implementing such change will be at IPL’s sole cost and expense, including any materials made obsolete by IPL’s changes to the artwork. Neither Party shall alter, change or in any way modify the artwork, which has previously been approved, for any reason, without prior written authorization from the other Party, which approval will not be unreasonably withheld, conditioned or delayed, and provided that such approved artwork shall conform to all Applicable Laws.

Section 7.03.  Purchase Forms.

Purchase orders, purchase order releases, confirmations, acceptances and similar documents submitted by a Party in conducting the activities contemplated under this Agreement are for administrative purposes only and shall not add to or modify the terms of the Agreement. To the extent of any conflict or inconsistency between this Agreement and any such document, the terms of this Agreement shall govern.

Section 7.04.  Confirmation.

ABI shall confirm each purchase order within ten business days from the date of receipt of a purchase order and shall supply Bulk IFN and ACM within a maximum of 30 days from the date of acceptance of a purchase order, or later if so specified in the purchase order. Failure of ABI to confirm any purchase order shall not relieve ABI of its obligation to supply Bulk IFN and ACM ordered by IPL in conformity with this Agreement. Orders for Clinical Supplies will be filled within a reasonable amount of time from receipt of a purchase order.

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Section 7.05.  Delivery.

Delivery of Clinical Supplies, Bulk IFN and ACM shall be at ABI's or its subcontractor's facility, which is currently located in Okayama, Japan, or such other location designated by ABI as IPL may agree to in writing. Clinical Supplies, Bulk IFN and ACM shall be delivered, not cleared for export, to the carrier nominated by IPL at the designated location, and IPL, or its designated carrier, shall be responsible for loading. ABI shall ship Clinical Supplies, Bulk IFN and ACM in accordance with IPL’s purchase order form or as otherwise directed by IPL in writing. Title to any Clinical Supplies, Bulk IFN and ACM purchased by IPL shall pass to IPL upon the earlier of (a) a common carrier accepting possession or control of such Clinical Supplies, Bulk IFN and ACM, or (b) passage of such Clinical Supplies, Bulk IFN and ACM from the loading dock of ABI's or its subcontractor's facilities to IPL or its agent.

Section 7.06.  Forecasts and Orders.

Not later than six months after submission of the NDA for a Product or other applicable regulatory filing, IPL will provide ABI with a 12-month forecast of IPL’s requirement for Bulk IFN and ACM, as follows:

(a)During the period commencing six months after submission of an NDA, or other applicable regulatory filing, for a Product through the end of the fourth full calendar quarter following the First Commercial Sale of that Product, the forecasts shall be provided quarterly, no less than 45 days prior to the beginning of each quarter. Said requirements will be based on standard production planning parameters, including sales forecasts, sales demand forecasts, promotional forecasts, inventory requirements, and the like. The first two quarters of the 12-month forecast will be stated in monthly requirements. ABI will inform HBL and ask HBL to stock a minimum amount of Bulk IFN and ACM equal to the second two quarters of the 12-month forecast.  The first three months of the 12-month forecast will be firm orders to purchase. The second three months will be allowed to be flexed from the previous forecast by plus or minus 25% per month until fixed by the subsequent forecast; provided that the aggregate adjustment from the quantity set forth in the previous forecast for such three-month period shall not exceed 50% in aggregate during that three-month period. For example, if IPL’s forecast for the first three months was for 100 kg ACM and its forecast for the second three months was for 200 kg, the maximum number of kg IPL could order at the time the second three-month period becomes fixed would be 300 kg (i.e., 50% of 200 kg plus the 200 kg originally forecast). The last two quarters of any 12-month forecast will be an estimate and not binding.

(b)Following the end of the fourth full calendar quarter following the First Commercial Sale of a Product, IPL will provide to ABI a rolling 12-month forecast for Bulk IFN and ACM with the first three months of the rolling 12-month forecast a firm order to purchase. Each forecast under this subsection (ii) shall be provided monthly, no less than 20 days prior to the beginning of each month. All orders will be for full batch quantities.

It is understood that ABI will not maintain inventory in excess of the applicable forecast, but will produce Bulk IFN and ACM upon receipt of that portion of IPL’s forecasts that constitute firm orders to purchase.  Nothing in this Agreement shall obligate ABI to deliver Bulk IFN and ACM if HBL is unable for any reason to provide them.

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IPL agrees to purchase a sufficient amount of Bulk IFN and ACM to enable IPL to carry sufficient inventory to allow for fluctuations in sales demand so as to allow ABI reasonable lead-time to meet increased demand. ABI will use commercially reasonable efforts to meet any increase in demand in excess of the allowed adjustment, but will not be obligated to do so. All forecasts will be made by IPL to ABI in good faith based upon standard commercial parameters. From time to time after the Effective Date, the Parties shall consider whether, in light of market demand, manufacturing capacity, inventory levels and other pertinent factors, to revise the schedule for delivery of forecasts and, if appropriate, negotiate in good faith to revise such schedule.

ARTICLE VIII:

WARRANTY, REJECTION AND INSPECTIONS

Section 8.01.  ABI Warranty.

ABI represents and warrants to IPL that the Bulk IFN and ACM delivered pursuant to this Agreement (a) shall comply with the Specifications and this Agreement and conform to the certificate of analysis for each item; (b) are not adulterated or misbranded under Applicable Laws; and (c) at the time of Manufacture and Shipment to IPL, will be and are free from any failure or defects.

EXCEPT AS OTHERWISE SET FORTH HEREIN, ABI MAKES NO OTHER WARRANTIES OF ANY OTHER KIND, INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS OF THE BULK IFN OR ACM FOR ANY PURPOSE, AND ABI EXPRESSLY DISCLAIMS ANY SUCH OTHER WARRANTIES WITH RESPECT TO BULK IFN AND ACM, EITHER EXPRESSED OR IMPLIED.

Section 8.02.  Rejection of Bulk IFN and ACM for Failure to Conform to Specifications.

IPL shall have 45 days after the receipt of any Shipment to determine conformity of the Shipment to the Specifications and/or Applicable Laws, except for hidden defects. A “hidden defect” shall mean a defect in the Bulk IFN or ACM not discovered by IPL during its testing of the Bulk IFN or ACM in accordance with generally accepted industry testing procedures and which would not be a defect normally expected to be discovered in accordance with such testing. If testing of such Shipment shows a failure of the Shipment to meet the Specifications and/or Applicable Laws, IPL may return the entire Shipment, or any portion thereof, to ABI at ABI's expense within a reasonable time following the above described testing, provided that notice of non-conformity is received by ABI from IPL within 45 days of IPL’s receipt of said Shipment. IPL shall have the right to request that ABI provide to IPL, within 30 days after such notice is received by it, Bulk IFN or ACM that meets the Specifications and Applicable Laws or to promptly provide IPL with full credit for the Purchase Price paid by IPL for the returned Bulk IFN or ACM. In the case of a hidden defect, IPL shall have the right to request that ABI provide to IPL, within thirty (30) days after a notice concerning a hidden defect is received by IPL, Bulk IFN or ACM that meets the Specifications and Applicable Laws or to promptly provide IPL with full credit for the Purchase Price paid by IPL for the returned Bulk IFN or ACM. In either case, the cost of freight and handling to return or replace Bulk IFN or ACM or shall be at the expense of ABI. If IPL does not notify ABI of the non-conformity of the Bulk IFN or ACM within 45 days of receipt of said Shipment, the Bulk IFN or ACM shall be deemed to meet the

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Specifications (including those related to packaging of the Bulk IFN or ACM) and Applicable Laws, except with respect to hidden defects. Notwithstanding anything in this Agreement to the contrary, the Parties may agree to a return of the Bulk IFN or ACM or an adjustment in the Purchase Price in the event of any failure or defect in the Bulk IFN or ACM. Should there be a discrepancy between IPL’s test results and the results of testing performed by ABI, such discrepancies shall be finally resolved by testing performed by an independent Third Party mutually agreed upon by IPL and ABI. The costs of such testing shall be borne by the Party against whom the discrepancy is resolved. In the event Bulk IFN or ACM has been previously returned to ABI and such independent Third Party determines that the Bulk IFN or ACM meets the Specifications, IPL shall be responsible for all costs associated with the return.

Section 8.03.  IPL Inspections.

ABI shall ask HBL upon reasonable (but not less than fifteen (15) days) prior written notice by IPL and during normal business hours to allow IPL to inspect and audit ABI's facilities and the facilities of HBL or other subcontractors of ABI used to Manufacture the Bulk IFN and ACM, twice annually, to confirm that the such facilities and the equipment, personnel and operating and testing procedures used by ABI or such subcontractors in the Manufacture, testing, storage and distribution of the Bulk IFN and ACM are in compliance with Applicable Laws and the Governmental Approvals; provided that such inspection does not interfere with ABI's or such subcontractor's normal operations or cause ABI or such subcontractor's to violate or be in breach of any confidentiality agreements with any Third Parties.

ARTICLE IX:

REGULATORY COMPLIANCE

Section 9.01. Maintenance of Marketing Authorizations.

IPL will own all Marketing Authorizations. IPL agrees, at its sole cost and expense, to maintain the Marketing Authorizations including obtaining any variations or renewals thereof, including all fees and licenses, including user fees, related to the Manufacture of the Product by IPL. Each Party agrees that neither it nor its Affiliates or permitted sublicensees will do anything to adversely affect a Marketing Authorization.

Section 9.02. Adverse Drug Event Reporting and Phase IV Surveillance.

Each Party, including its permitted sublicensees, shall advise the other Party, by telephone or facsimile, immediately but in no event later than 24 hours after a Party, or its sublicensees, becomes aware of any potentially serious or unexpected adverse event (including adverse drug experiences, as defined in Applicable Laws) involving the Product (each, an “ADE”). Such advising Party shall provide the other Party with a written report delivered by confirmed facsimile of any adverse reaction, stating the full facts known to such Party, including customer name, address, telephone number, batch, lot and serial numbers, and other information as required by Applicable Laws. During the TERM, IPL shall have full responsibility for (i) monitoring such adverse reactions; and (ii) data collection activities that occur between IPL and the patient or medical professional, as appropriate, including any follow-up inquiries which IPL or ABI deem necessary or appropriate.

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In the event either Party requires information, regarding adverse drug events with respect to reports required to be filed by it in order to comply with Applicable Laws, including obligations to report ADEs to the Governmental Authorities, each Party agrees to provide such information to the other on a timely basis.

The Parties agree to follow IPL’s standard operating procedure for reporting and identifying adverse drug reactions (the “SOP”) in effect from time to time, a copy of which IPL will provide to ABI. In the event the SOP is modified or amended during the TERM, IPL shall provide ABI with copies of any such modification or amendment to the SOP for ABI's prior approval, which will not be unreasonably withheld, conditioned or delayed, at least five business days prior to such amendment taking effect. IPL shall designate a qualified person under Applicable Laws to be responsible for ADE reporting in each country in the Territory.

If the report of an ADE causes a Governmental Authority to request a labeling revision as a result of an ADE or that a Phase IV surveillance program be conducted, then the Parties shall promptly enter into discussions and shall mutually agree on all of the material terms and conditions of such labeling revision or Phase IV surveillance program; provided, however the costs of such labeling revision or Phase IV surveillance program shall be paid by IPL. IPL shall have the authority to make the final decision with regard to any labeling revisions provided that IPL will consider, in making its decision, the effect any such labeling revisions will have on the marketing and sale of the Product outside the Territory. IPL agrees that should Applicable Laws require that any such interim data and results from such Phase IV surveillance programs be prepared in written form, IPL shall comply with such requirements and provide all such information in writing to ABI and the Governmental Authorities in accordance with Applicable Laws. IPL further agrees that ABI shall have the right to incorporate, refer to and cross-reference such results and underlying data in any regulatory filing or any other filing or requirement ABI is required to undertake with respect to the Product, if any.

Section 9.03.  Commercial Sale Testing and Reporting.

If, after the date of First Commercial Sale in any country in the Territory, a Governmental Authority requires (a) additional testing, modification or communication related to approved indications of the Product or (b) IPL to conduct a Phase IV study as a condition to receiving a Marketing Authorization, then IPL shall design and implement any such testing, modification or communication and the costs shall be paid by IPL.

Section 9.04. Assistance.

Each Party shall provide reasonable assistance to the other at the other's request, in connection with their obligations pursuant to this Article IX, subject to reimbursement of all of its out-of-pocket costs by the requesting Party.

Section 9.05.  Compliance.

IPL shall be responsible for compliance with Applicable Laws and the Governmental Approvals relating to the design, possession, promotion, marketing, sale, advertising and distribution of the Product, including obtaining all necessary permits, licenses and any other requirements relating to the import, sale and distribution of the Product. ABI shall be responsible

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 for compliance with Applicable Laws and Governmental Approvals relating to the Manufacture of the Bulk IFN and ACM, as applicable, and with cGMP relating to the Manufacture and testing of the Bulk IFN and ACM, as applicable. IPL and ABI shall comply with all Applicable Laws within the Territory as set forth in this Agreement, including the provision of information by IPL and ABI to each other necessary for ABI and IPL to comply with any applicable reporting requirements. Each Party shall promptly notify the other Party of any comments, responses or notices received from, or inspections by, the FDA, or other Governmental Authority, which relate to or may impact the Product or the Manufacture of the Bulk IFN and ACM or the sales and marketing of the Product, and shall promptly inform the other Party of any responses to such comments, responses, notices or inspections and the resolution of any issue raised by the FDA or other Governmental Authority.

ARTICLE X:

REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 10.01. Corporate Power.

Each Party hereby represents and warrants that such Party is duly organized and validly existing under the laws of the state of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof.

Section 10.02. Due Authorization.

Each Party hereby represents and warrants that such Party is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder.

Section 10.03. Binding Obligation.

Each Party hereby represents and warrants that this Agreement is a legal and valid obligation binding upon it and is enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having authority over it.

Section 10.04. Ownership of ABI Rights.

As of the Effective Date, ABI represents and warrants that (a) it has all right, title and interest in and to HBL IFN and the ABI Technology necessary to grant IPL the licenses in the Territory hereunder, (b) except for those rights granted to HBL Agreement and except with respect to IPL, it has not granted any license to any Third Party under the ABI Technology (or any component thereof) and is under no obligation to grant any such license, (c) there are no outstanding liens, encumbrances, agreements or understanding of any kind, either written, oral or implied, regarding either the ABI Technology, any component thereof or the rights of ABI in and to HBL IFN pursuant to the HBL Agreement.

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Section 10.05. Material Agreements.

ABI represents and warrants that:

(a)each Material Agreement is valid, binding, and enforceable in accordance with its terms against ABI and, to the knowledge of ABI, each other party thereto, and is in full force and effect.

(b)ABI has performed in all material respects all obligations imposed on it under each Material Agreement and neither ABI nor to the knowledge of ABI, any other party to a Material Agreement is in material default under any Material Agreement nor is there any event that with notice or lapse of time, or both, would constitute a material default by ABI, or, to the knowledge of ABI, any other party thereunder;

(c)true and complete copies of each Material Agreement, including any amendments thereto, have been delivered to IPL or its counsel by ABI,

(d)the HBL Agreement was duly and validly executed in accordance with Applicable Law and no Person is materially renegotiating any amount paid or payable under either agreement or any material term or provision of the HBL Agreement.

Section 10.06. Adverse Properties.

ABI represents and warrants that it knows of no adverse effects or other properties that may raise objections from the FDA or other Governmental Authorities or may affect the use, effectiveness or merchantability of the Product.

Section 10.07. Preservation of Name and Reputation.

During the TERM, each of the Parties shall endeavor to preserve the good name and reputation of the other Party and shall conduct itself in a manner as to maintain the good name and reputation of the other Party.

Section 10.08. Debarment.

During the TERM, neither of the Parties shall utilize any employee, representative, agent, assistant or associate who has been debarred pursuant to the Act in connection with any of the activities to be carried out under this Agreement.

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Section 10.09. Limitation on Warranties.

Neither Party makes any warranties, express or implied, concerning the success or commercial utility of the Product.

Section 10.10. Limitation of Liability.

EXCEPT FOR WILLFUL MISCONDUCT, GROSS NEGLIGENCE, BREACHES BY A PARTY OF SECTION 15.01 OR INFRINGEMENT OF THIRD PARTY PROPRIETARY RIGHTS, NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT OR ANY LICENSE GRANTED HEREUNDER.

ARTICLE XI:

PATENTS AND TRADEMARK

Section 11.01.  Filing, Maintenance and Protection of Patents.

IPL may, at IPL's expense, file, maintain and protect the ABI Technology, if any, in the Territory during the TERM.

ARTICLE XII:

COVENANTS OF IPL AND ABI

Section 12.01. Access to Books and Records.

IPL shall permit ABI, at ABI's expense and during normal business hours, to exercise the inspection rights granted to ABI by IPL under Section 4.06.

Section 12.02. Further Actions.

Upon the terms and subject to the conditions hereof, each of the Parties hereto shall use its commercially reasonable efforts to (a) take, or cause to be taken, all appropriate action and do, or cause to be done, all things necessary, proper or advisable under Applicable Law or otherwise to consummate and make effective the transactions contemplated by this Agreement, (b) obtain from Governmental Authorities any consents, licenses, permits, waivers, approvals, authorizations or orders required to be obtained or made by the Parties in connection with the authorization, execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement and (c) make all necessary filings, and thereafter make any other required submissions, with respect to this transaction under (i) the Securities Exchange Act of 1934, as amended and the Securities Act of 1933, as amended, and the rules and Regulations thereunder and any other applicable federal or state securities laws and (ii) any other Applicable Law. The Parties hereto shall cooperate with each other in connection with the making of all such filings, including by providing copies of all such documents to the other Party's counsel (subject to appropriate confidentiality restrictions) prior to filing and, if requested, by accepting all reasonable additions, deletions or changes suggested in connection therewith. Without limiting the generality of the foregoing, each Party shall take or omit to take such action as the other Party shall reasonably request to cause the Parties to obtain any material

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Governmental Approvals and/or the expiration of applicable waiting periods, provided that the foregoing shall not obligate either Party to take or to omit to take any action (including, without limitation, the expenditure of funds or any holding separate and agreeing to sell or otherwise dispose of assets, categories of assets or businesses) as in the good faith opinion of such Party, would cause a material adverse effect on a Party.

Section 12.03. Equitable Relief.

The Parties understand and agree that because of the difficulty of measuring economic losses to the non-breaching Party as a result of a breach of the covenants set forth in this Article XII or Section 15.01, and because of the immediate and irreparable damage that may be caused to the non-breaching Party for which monetary damages would not be a sufficient remedy, the Parties agree that the non-breaching Party will be entitled to seek specific performance, temporary and permanent injunctive relief, and such other equitable remedies to which it may then be entitled against the breaching Party. This Section 12.03 shall not limit any other legal or equitable remedies that the non-breaching Party may have against the breaching Party for violation of the covenants set forth in this Article XII or Section 15.01. Subject to Section 16.03, the Parties agree that the non-breaching Party shall have the right to seek relief for any violation or threatened violation of this Article XII or Section 15.01 by the breaching Party from any court of competent jurisdiction in any jurisdiction authorized to grant the relief necessary to prohibit the violation or threatened violation of this Article XII or Section 15.01. This Article XII shall apply with equal force to the breaching Party's Affiliates.

ARTICLE XIII:

INDEMNIFICATION

Section 13.01. IPL Indemnified by ABI.

ABI shall indemnify and hold IPL harmless from and against any liabilities or obligations, damages, losses, claims, encumbrances, costs or expenses (including attorneys' fees) (any or all of the foregoing herein referred to as “Loss”) insofar as a Loss or actions in respect thereof, whether existing or occurring prior to, on or subsequent to the Effective Date, arises out of or is based upon (a) any misrepresentation or breach of any of the warranties, covenants or agreements made by ABI in this Agreement; (b) the Manufacture of Bulk IFN or ACM that is identifiable as having been Manufactured by or on behalf of ABI; (c) any claims that a Product (as a result of the use of the ABI Technology therein) or its Manufacture (as a result of the use of ABI Technology therein), use or sale infringes the patent, trademark or other intellectual property right of a Third Party.

Section 13.02. ABI Indemnified by IPL.

IPL shall indemnify and hold harmless ABI from and against any Loss insofar as such Loss or actions in respect thereof occurs subsequent to the Effective Date, whether existing or occurring prior to, on or subsequent to the date hereof, arises out of or is based upon (a) any misrepresentation or breach of any of the warranties, covenants or agreements made by IPL in this Agreement or (b) IPL’s material violation of any Applicable Law.

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Section 13.03. Prompt Notice Required.

No claim for indemnification hereunder shall be valid unless notice of the matter which may give rise to such claim is given in writing by the persons seeking indemnification (the “Indemnitee”) to the persons against whom indemnification may be sought (the “Indemnitor”) as soon as reasonably practicable after such Indemnitee becomes aware of such claim; provided that the failure to notify the Indemnitor shall not relieve it from any liability which it may have to the Indemnitee otherwise than under this Article XII. Such notice shall state that the Indemnitor is required to indemnify the Indemnitee for a Loss and shall specify the amount of Loss and relevant details thereof. The Indemnitor shall notify Indemnitee no later than 60 days from such notice of its intention to assume the defense of any such claim. In the event the Indemnitor fails to give such notice within that time, the Indemnitor shall no longer be entitled to assume such defense.

Section 13.04. Indemnitor May Settle.

The Indemnitor shall at its expense, have the right to settle and defend, through counsel reasonably satisfactory to the Indemnitee, any action which may be brought in connection with all matters for which indemnification is available. In such event, the Indemnitee of the Loss in question and any successor thereto shall permit the Indemnitor full and free access to its books and records and otherwise fully cooperate with the Indemnitor in connection with such action; provided that this Indemnitee shall have the right fully to participate in such defense at its own expense. The defense by the Indemnitor of any such actions shall not be deemed a waiver by the Indemnitor of its right to assert a claim with respect to the responsibility of the Indemnitor with respect to the Loss in question. The Indemnitor shall have the right to settle or compromise any claim against the Indemnitee without the consent of the Indemnitee provided that the terms thereof: (a) provide for the unconditional release of the Indemnitee; (b) require the payment of compensatory monetary damages by Indemnitor only; and (c) expressly state that neither the fact of settlement nor the settlement agreement shall constitute, or be construed or interpreted as, an admission by the Indemnitee of any issue, fact, allegation or any other aspect of the claim being settled. No Indemnitee shall pay or voluntarily permit the determination of any liability, which is subject to any such action while the Indemnitor is negotiating the settlement thereof or contesting the matter, except with the prior written consent of the Indemnitor, which consent shall not be unreasonably withheld or delayed. If the Indemnitor fails to give Indemnitee notice of its intention to defend any such action as provided herein, the Indemnitee involved shall have the right to assume the defense thereof with counsel of its choice, at the Indemnitor's expense, and defend, settle or otherwise dispose of such action. With respect to any such action, which the Indemnitor shall fail to promptly defend, the Indemnitor shall not thereafter question the liability of the Indemnitor hereunder to the Indemnitee for any Loss (including counsel fees and other expenses of defense).

ARTICLE XIV:

DISPUTE RESOLUTION

Section 14.01. Disputes.

The Parties recognize that disputes as to certain matters may from time to time arise during the TERM, which relate to either Party's rights and/or obligations hereunder. It is the

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objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Article XIV if and when a dispute arises under this Agreement.

Unless otherwise specifically recited in this Agreement, disputes among the Parties will be resolved as recited in this Article XIV. Disputes among the Parties first shall be presented to the chief executive officers of ABI and IPL, or their respective designees, for resolution. In the event that the chief executive officers of ABI and IPL, or their respective designees, cannot resolve the dispute within ten days of being requested by a Party to resolve a dispute, either Party may, by written notice to the other, invoke the provisions of Section 14.02.

Section 14.02. Trial Without Jury.

If the Parties fail to resolve the dispute through negotiation in accordance with Section 14.01, each Party shall have the right to pursue any of the remedies legally available to resolve the dispute; provided, however, that the Parties expressly waive any right to a jury trial in any legal proceedings under this Section 14.02.

Section 14.03. Performance to Continue.

Each Party shall continue to perform its obligations under this Agreement pending final resolution of any dispute arising out of or related to this Agreement; provided, however, that a Party may suspend performance of its obligations during any period in which the other Party fails or refuses to perform its obligations.

Section 14.04. Provisional Remedies.

Although the procedures specified in this Article XIV are the sole and exclusive procedures for the resolution of disputes arising out of or related to this Agreement, either Party may seek a preliminary injunction or other provisional equitable relief, if, in its reasonable judgment, such action is necessary to avoid irreparable harm to itself or to preserve its rights under this Agreement.

Section 14.05. Determination of Patents and Other Intellectual Property.

 Notwithstanding the foregoing, any dispute relating to the determination of validity of claims, infringement or claim interpretation relating to a Party's patents shall be submitted exclusively to federal court.

ARTICLE XV:

CONFIDENTIALITY

Section 15.01. Confidentiality.

During the TERM and for a period of five years thereafter, each Party shall maintain all Confidential Information of the other Party as confidential and shall not disclose any such Confidential Information to any Third Party or use any such Confidential Information for any

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purpose, except (a) as expressly authorized by this Agreement, (b) as required by law, rule, regulation or court order (provided that the disclosing Party shall first notify the other Party and shall use commercially reasonable efforts to obtain confidential treatment of any such information required to be disclosed), or (c) to its Affiliates and its employees, agents, consultants and other representatives (“Representatives”) to accomplish the purposes of this Agreement, so long as such persons are under an obligation of confidentiality no less stringent than as set forth herein. Each Party may use such Confidential Information only to the extent required to accomplish the purposes of this Agreement. Each Party shall use at least the same standard of care as it uses to protect its own Confidential Information to ensure that it and its Affiliates and Representatives do not disclose or make any unauthorized use of the other Party's Confidential Information. Each Party shall be responsible for any breach of this Agreement by its Representatives. Each Party shall promptly notify the other Party upon discovery of any unauthorized use or disclosure of the other Party's Confidential Information.

Section 15.02. Publicity Review.

The Parties agree that the public announcement of the execution of this Agreement shall be in the form of press releases issued by each of the Parties on or before the Effective Date and thereafter each Party shall be entitled to make or publish any public statement consistent with the contents thereof. The Parties acknowledge the importance of supporting each other's efforts to publicly disclose results and significant developments regarding the Product. The principles to be observed by ABI and IPL in such public disclosures will be: accuracy, compliance with FDA Regulations and other FDA guidance documents and other Applicable Laws, the advantage a competitor of ABI or IPL may gain from any public statements under this Section 15.02, and the standards and customs in the biotechnology and pharmaceutical industries for such disclosures by companies comparable to ABI and IPL. The terms of this Agreement may also be disclosed by a Party to: (a) government agencies where required by law, including filings required to be made by law with the United States Securities and Exchange Commission (“SEC”), (b) Third Parties with the prior written consent of the other Party, which consent shall not be unreasonably withheld, or (c) lenders, investment bankers and other financial institutions solely for purposes of financing the business operations of such Party, so long as such disclosure in (b) and (c) above is made under an agreement of confidentiality at least as restrictive as the confidentiality provisions in Section 15.01, to the extent possible highly sensitive terms and conditions such as financial terms are extracted from the Agreement (including in any disclosure required by law or the SEC) or deleted upon the request of the other Party, and as the disclosing Party gives reasonable advance notice of the disclosure under the circumstances requiring the disclosure.

ARTICLE XVI:

MISCELLANEOUS

Section 16.01. Commercially Reasonable Efforts.

Each Party shall use commercially reasonable and diligent efforts to perform its responsibilities under this Agreement. As used herein, the term “commercially reasonable and diligent efforts” means, unless the Parties agree otherwise, those efforts consistent with the exercise of prudent scientific and business judgment, as applied to other products of similar scientific and commercial potential within the relevant product lines of the Parties.

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Section 16.02. Notices.

All notices, requests and other communications to any party hereunder shall be in writing and shall be deemed to have been given if delivered personally, mailed by certified mail (return receipt requested) or sent by cable, telegram or recognized overnight delivery service to the parties at the following addresses or at such other addresses as, specified by the parties by like notice:

If to ABI : Dr. Joseph M. Cummins, Chairman & CEO

Amarillo Biosciences, Inc.

4134 Business Park Drive

Amarillo, TX 79110

Facsimile: (806) 376-9301

Telephone: (806) 376-1741

With a copy to: Edward L. Morris, Legal Counsel

Underwood Law Firm

500 S. Taylor, Ste. 1200

Amarillo, TX 79101

Facsimile: (806) 349-9471

Telephone: (806) 376-5613

If to IPL: Mr. Nimish Chudgar

Intas Pharmacaeuticals, Ltd.

Chinubhai Center

Off Nehru Bridge

Ashram Road – 380 009

Gujarat, India

Facsimile:  +91 79 26578862

Telephone: +91 79 26578862

Notice so given shall be deemed given and received (i) if by mail on the 15th day after posting; (ii) by cable, telegram, telex or personal delivery on the date of actual transmission, with evidence of transmission acceptance, or (as the case may be) personal or other delivery; and (iii) if by overnight delivery courier, on the next business day following the day such notice is delivered to the courier service.

Section 16.03. Severability.

Whenever possible, each clause, subclause, provision or condition of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any clause, subclause, provision or condition of this Agreement should be prohibited or invalid under applicable law, such clause, subclause, provision or condition shall be considered separate and severable from this Agreement to the extent of such prohibition or invalidity without invalidating the remaining clauses, subclauses, provisions and conditions of this Agreement.

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Section 16.04. Entire Agreement/Merger.

This Agreement sets forth the entire agreement between the Parties hereto pertaining to the subject matter hereof and supersedes all negotiations, preliminary agreements, memoranda or letters of proposal or intent, discussions and understandings of the Parties hereto in connection with the subject matter hereof. All discussions between the Parties have been merged into this Agreement, and neither Party shall be bound by any definition, condition, understanding, representation, warranty, covenant or provision other than as expressly stated in or contemplated by this Agreement or as subsequently shall be set forth in writing and executed by a duly authorized representative of the Party to be bound thereby.

Section 16.05. Amendment.

No amendment, change or modification of any of the terms, provisions or conditions of this Agreement shall be effective unless made in writing and signed on behalf of the Parties hereto by their duly authorized representatives.

Section 16.06. Counterparts.

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original document, but all such separate counterparts shall constitute only one and the same instrument. This Agreement may be signed and delivered to the other Party by facsimile signature; such transmission shall be deemed a valid signature.

Section 16.07. No Waiver of Rights.

No waiver of any term, provision, or condition of this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, provision, or condition of this Agreement.

Section 16.08. Force Majeure.

Neither Party shall be liable hereunder to the other Party nor shall be in breach for failure to deliver, provided failure to deliver is no greater than the delay in time caused by circumstances beyond the control for either Party, including acts of God, fires, floods, riots, wars, civil disturbances, sabotage, accidents, labor disputes, shortages, government actions (including priorities, requisitions, allocations and price adjustment restrictions) and inability to obtain material, equipment, labor or transportation (collectively, “Force Majeure”).

Section 16.09. Further Assurances.

The Parties hereto shall each perform such acts, execute and deliver such instruments and documents and do all such other things as may be reasonably necessary to accomplish the transactions contemplated in this Agreement.

Section 16.10. Assignment and Sublicense.

Neither this Agreement nor any of the rights, interests, options or obligations hereunder may be assigned, sublicensed or delegated by either of the Parties without the prior written

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consent of the other Party, provided, however, that either IPL or ABI may, without such consent, assign this Agreement and its rights and obligations hereunder in connection with the transfer or sale of all or substantially all of its business pertaining to this Agreement, or in the event of its merger or consolidation or change in control or similar transaction. Any permitted assignee shall assume all obligations of its assignor under this Agreement. Further, a Party may assign or sublicense any and all of its rights, interests, options, and delegate all obligations hereunder, to any Affiliate of such Party (and such Affiliate may further assign or sublicense this Agreement to such Party or any other Affiliate of such Party) without the consent of the other Party. In the event of an assignment or sublicense to an Affiliate, the assigning Party shall guarantee the performance of such assignee or sublicensee. The assignment or sublicense to an Affiliate shall not operate to discharge the assignor or sublicensor from any obligation under this Agreement. Any assignment that contravenes this Section 16.10 shall be void ab initio.

Section 16.11. Expenses.

The Parties hereto shall each bear their own costs and expenses (including attorneys' fees) incurred in connection with the negotiation and preparation of this Agreement and consummation of the transactions contemplated hereby.

Section 16.12. Binding Effect.

This Agreement, and all of the terms, provisions and conditions hereof, shall be binding upon and shall inure to the benefit of the Parties hereto and their respective permitted successors and assigns.

Section 16.13. Governing Law.

This Agreement shall be construed and interpreted in accordance with the laws of California, USA if a lawsuit against IPL is initiated by ABI, and any such suit shall be brought in California, USA; this Agreement shall be construed and interpreted in accordance with the laws of Texas, USA, if a lawsuit against ABI is initiated by IPL, and any such suit shall be brought in Texas, USA.

Section 16.14. Survival of Representations and Warranties.

All statements contained herein, or in any schedule hereto, shall be considered a representation, warranty or covenant of the Party making such statement. All representations, warranties, covenants contained herein, or in any schedule hereto, shall survive the closing of this transaction.

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Section 16.15. No Strict Construction.

This Agreement has been prepared jointly and shall not be strictly construed against either Party.

Section 16.16. Independent Contractors.

The status of the Parties under this Agreement shall be that of independent contractor. No Party shall have the right to enter into any agreements on behalf of the other Party nor shall it represent to any Person that it has such right or authority.

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the Effective Date.

AMARILLO BIOSCIENCES, INC.

By:       /s/ Joseph M. Cummins

Joseph M. Cummins,

President and Chief Executive Officer

INTAS PHARMACEUTICALS, LTD.

By:      /s/ Nimish Chudgar

Nimish Chudgar

Managing Director

****           Indicates that a portion of the text has been omitted and filed separately with the Commission

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