10-Q/A

United States

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2011

Commission File Number 0-20791

                                AMARILLO BIOSCIENCES, INC.                        

(Exact name of registrant as specified in its charter)

TEXAS	75-1974352
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
4134 Business Park Drive, Amarillo, Texas 79110
(Address of principal executive offices) (Zip Code)
(806) 376-1741
(Issuer’s telephone number, including area code)

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

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

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

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

As of September 7, 2011 there were 67,243,122 shares of the issuer's common stock and 1,700 shares of the issuer’s preferred stock outstanding.

1

EXPLANATORY NOTE

The purpose of this Form 10-Q/A to Amarillo Biosciences, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, filed with the Securities and Exchange Commission on September 8, 2011 (the “Form 10-Q”), is solely to include the XBRL. On September 16, 2011 a Form 10-Q/A was filed including the XBRL data files, this Form 10-Q/A is being filed solely to correct those XBRL data file names and make them accessible.

No other changes have been made to the Form 10-Q previously filed. This Amendment speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date and does not modify or update in any way disclosures made in the original Form 10-Q.

In addition, pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as a result of this Amended Report, the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, filed and furnished, respectively as exhibits to the Original Report have been re-executed and re-filed as of the date of this Amended Report and are included as exhibits hereto.

SIGNATURES

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

  AMARILLO BIOSCIENCES, INC.

Date: September 20, 2011 By:   /s/ Joseph M. Cummins

Joseph M. Cummins

President and Chief Executive Officer

Date: September 20, 2011 By:  /s/ Bernard Cohen

Bernard Cohen

Vice President and Chief Financial Officer

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 report on Form 10-Q/A 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:           September 20, 2011                                              /s/ Joseph M. Cummins

 Name:  Joseph M. Cummins

      Title: President and Chief Executive Officer

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 report on Form 10-Q/A 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:           September 20, 2011                                             /s/ Bernard Cohen

 Name:  Bernard Cohen

 Title: Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

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 Quarterly Report of Amarillo Biosciences, Inc. on Form 10-Q/A for the period ended June 30, 2011 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: September 20, 2011                               By:   /s/ Joseph M. Cummins

 Joseph M. Cummins

 President, Chief Executive Officer

Date: September 20, 2011                              By:    /s/ Bernard Cohen

 Bernard Cohen

 Vice President, Chief Financial Officer

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Balance Sheets (Parentheticals) (USD $)	Jun. 30, 2011	Dec. 31, 2010
Preferred stock, par value (in Dollars per share)	$ 0.01	$ 0.01
Preferred stock, Authorized shares	10,000,000	10,000,000
Preferred stock, Issued shares	1,700	1,500
Preferred stock, Outstanding shares	1,700	1,500
Common stock, par value (in Dollars per share)	$ 0.01	$ 0.01
Common stock, Authorized shares	100,000,000	100,000,000
Common stock, Issued shares	61,609,446	61,147,224
Common stock, Outstanding shares	61,609,446	61,147,224

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Statements of Operations (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Revenues:
Product sales	$ 4,835	$ 3,024	$ 7,555	$ 3,120
Total revenues	4,835	3,024	7,555	3,120
Cost of revenues:
Product sales	2,588	2,038	4,019	2,095
Total cost of revenues	2,588	2,038	4,019	2,095
Gross Margin	2,247	986	3,536	1,025
Operating expenses:
Research and development expenses	93,284	97,831	180,229	199,119
Selling, general and administrative expenses	200,496	137,403	311,720	312,567
Total operating expenses	293,780	235,234	491,949	511,686
Operating loss	(291,533)	(234,248)	(488,413)	(510,661)
Other income (expense)
Derivative income	1,442	784,056	832	847,790
Interest expense	(38,362)	(23,575)	(61,425)	(46,343)
Interest and other income	150	140	450	140
Net income (loss)	(328,303)	526,373	(548,556)	290,926
Preferred stock dividend	4,250		8,456
Net income (loss) applicable to common shareholders	$ (332,553)	$ 526,373	$ (557,012)	$ 290,926
Basic net income ( loss) per share (in Dollars per share)	$ (0.01)	$ 0.01	$ (0.01)	$ 0.01
Diluted net income ( loss) per share (in Dollars per share)	$ (0.01)	$ 0.01	$ (0.01)	$ 0.01
Basic weighted average shares outstanding (in Shares)	61,336,919	53,911,830	61,254,971	53,356,757
Diluted weighted average shares outstanding (in Shares)	61,336,919	53,911,830	61,254,971	56,410,440

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Document And Entity Information	6 Months Ended
	Jun. 30, 2011	Sep. 07, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	AMARILLO BIOSCIENCES INC
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		67,243,122
Amendment Flag	false
Entity Central Index Key	0001014763
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Jun. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2

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Note 7. Line of Credit

6 Months Ended

Jun. 30, 2011

Short-term Debt [Text Block]

7. Line of Credit.  We have a line of credit with Wells Fargo Bank for $20,000, at an interest rate of prime rate plus 6.75 percent.  There was an outstanding balance on June 30, 2011 of $19,972 which is included in accounts payable.

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Note 3. Common Stock

6 Months Ended

Jun. 30, 2011

Stockholders' Equity Note Disclosure [Text Block]

3. Common Stock.  The shareholders have authorized 100,000,000 shares of voting common shares for issuance.  On June 30, 2011, a total of 82,466,042 shares of common stock were either outstanding (61,609,446) or reserved for issuance upon exercise of options and warrants or conversion of convertible preferred stock or conversion of debt (20,856,596).  Common stock issuances in the first and second quarters of 2011 are as follows:

Common Stock Issued in Q1 2011	Shares		Issue Price		Net Price
Directors, officers, consultants plan – services		62,222	$	0.09	$	5,600
Total Common Stock Issued in Q1 2011		62,222	$	0.09	$	5,600

Common Stock Issued in Q2 2011	Shares		Issue Price		Net Price
Directors, officers, consultants plan – services		400,000	$	0.055-0.065	$	35,000
Total Common Stock Issued in Q2 2011		400,000	$	0.055-0.065	$	35,000

No brokerage commissions were paid for the sale of common stock during the first or second quarters of 2011.

On March 8, 2011, the Company renewed the Consulting Contract with Caprock Consulting Group to render services through Kimball Austin Miller, M.D. as Medical Director pertaining to achieving recognition of ABI’s technology as treatment or prevention of human diseases.  The terms and conditions of the renewed contract remain the same as the previous contract for the same period of 2010.

On March 8 2011, the Company and Dr. Miller executed the Non-Qualified Stock Option Agreement evidencing the grant of options under the Consulting Agreement referenced above between the Company and Dr. Miller. The Company granted 100,000 options with a 2 year term and a $0.075 exercise price, with a fair value of $7,280, vesting quarterly during 2011.

On June 1, 2011, the Company and Edward L. Morris executed a consulting agreement whereby Mr. Morris would render general consulting services in the area of regulatory compliance to the Company subject to his availability.  The compensation agreed to by the parties consists of the grant of 200,000 shares of ABI voting common stock each month during the term of the contract. The shares are to be registered by the Company on Form S-8.

On June 22, 2011, the Company granted Kimball Miller 200,000 shares of ABI voting common stock for consulting services and will grant Dr. Miller 200,000 shares monthly for a total of 5 months for consulting services. The shares are to be registered by the Company on Form S-8. In July and August 2011, an additional 400,000 shares have been issued.

On June 22, 2011, the Company entered into a consulting agreement with Claudia Walters for services rendered beginning in July 2011, subject to her availability, in the area of corporate finance.  In exchange for those services, the Consultant shall be compensated by the grant of 200,000 shares of ABI voting common stock.  The first grant was to occur upon execution of the Agreement and an additional 200,000 shares each month during the contract period.  The first 400,000 shares were to be issued immediately and the balance of the shares is to be common stock registered on Form S-8. The Company recognized $11,000 expense in June 2011 for the initial 200,000 shares which were issued in July 2011.

The Company entered into an agreement on June 27, 2011 with Rui Figueiredo for the purpose of providing multimedia services to the Company for a six-month period beginning in July 2011 in exchange for 3,246,753 shares of ABI common stock registered on Form S-8.

On June 27, 2011, the Company entered into an agreement with Interactive Business Alliance, LLC for consultation and rendering of public relations and communications services for a period of six months beginning in July 2011.  For consultation services rendered, the Company agreed to pay 1,250,000 shares of Rule 144 Restricted AMAR stock.

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Note 9. Related Party Transactions

6 Months Ended

Jun. 30, 2011

Related Party Transactions Disclosure [Text Block]

9. Related Party Transactions.  The Company engaged the law firm of Underwood, Wilson, Berry, Stein and Johnson P.C. of which Mr. Edward Morris was a shareholder through March 15, 2011.  Mr. Morris also was, and continues to be, the Secretary of the Company.  During the six months ended June 30, 2011 the Company incurred approximately $17,912 of legal fees to said law firm. For the second quarter of 2011, Mr. Morris has had no connection with the above referenced law firm.  Mr. Morris remains the Secretary of the Company.

Mr. Morris executed a consulting contract with the Company on June 1, 2011. 200,000 shares of common stock were issued on June 2, 2011 associated with services rendered pursuant to the consulting contract of June 1, 2011.  The contract is effective through December 31, 2011.  The shares were issued under the authority of the First Amended and Restated 2011 Consultants Stock Grant Plan and were registered on Form S-8.  Mr. Morris incurred $6,250 for consulting services prior to the execution of the consulting contract.

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Note 10. Subsequent Events

6 Months Ended

Jun. 30, 2011

Subsequent Events [Text Block]

10. Subsequent Events. 400,000 shares were issued to Claudia Walters in July 2011 and 200,000 shares in August 2011 associated with services rendered pursuant to the consulting contract of June 22, 2011.  The contract is effective through December 31, 2011.  The shares were issued under authority of the First Amended and Restated 2011 Consultants Stock Grant Plan and were registered on Form S-8.

On July 20, 2011, Dennis Moore, a director, purchased 76,923 shares of common stock under authority of the Amended and Restated 2008 Directors, Officers, and Consultants Stock Purchase Plan, and were registered on Form S-8.

On July 1, 2011, 3,246,753 shares of ABI common stock were issued to Rui Figueiredo associated with services rendered pursuant to a consulting agreement entered into on June 27, 2011 for the purpose of providing multimedia services to the Company for a six-month period. The shares were issued under authority of the First Amended and Restated 2011 Consultants Stock Grant Plan and were registered on Form S-8.

On June 27, 2011, the Company entered into an agreement with Interactive Business Alliance, LLC for consultation and rendering of public relations and communications services for a period of six months beginning in July 2011.  For consultation services rendered, the Company agreed to pay 1,250,000 shares of Rule 144 Restricted AMAR stock. 1,250,000 shares were issued on July 8, 2011 under authority of the First Amended and Restated 2011 Consultants Stock Grant Plan.

Kimball Miller was issued 200,000 shares in July and 200,000 shares in August, 2011 for consulting. The shares were issued under authority of the First Amended and Restated 2011 Consultants Stock Grant Plan and were registered on Form S-8.

On August 1, 2011, the Company entered into an Agreement with Drew Alexander for mutually agreed upon consulting services in exchange for a fee of $200 per hour.  The contract may be extended upon mutual consent of the parties.  Consultant will render advice relative to Indian tribes in Oklahoma and various matters as requested by ABI.

Mr. Alexander purchased 60,000 shares of common stock on August 3, 2011 under the authority of the Amended and Restated 2008 Directors, Officers, and Consultants Stock Purchase Plan, and were registered on Form S-8.

On August 21, 2011, the Company entered into the Option for License Agreement and Technology Transfer between Amarillo Biosciences and Colorado Serum Company.  The Business Objective is to achieve the successful commercialization of products containing bovine or other animal cytokines (Extract) for human and animal health.  The term of the agreement is for one year from the execution date of the agreement.

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Note 8. License and Sublicense Agreements

6 Months Ended

Jun. 30, 2011

License And Sublicense Agreements [Text Block]

8. License and Sublicense Agreements.  During the first six months of 2011 no license fees were received.

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Note 1. Basis of presentation.

6 Months Ended

Jun. 30, 2011

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1.   Basis of presentation. The accompanying financial statements, which should be read in conjunction with the financial statements and footnotes included in the Company's Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission, are unaudited, but have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2011.

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Note 4. Common Stock Options and Warrants

6 Months Ended

Jun. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

4. Common Stock Options and Warrants.  The Board granted 100,000 options with a 2-year term and $0.075 exercise price to a consultant on March 8, 2011 with a fair value of $7,280.  One quarter of the options (fair value $1,820) vest each quarter during 2011.

The binomial Black-Scholes pricing model was used to calculate the fair value of the Warrant Strategies (formerly Midsouth) warrants on June 30, 2011.  The probability of private placement issuances triggering a reset equal to a stock price of $0.03 per share was estimated as 75%.  The reset stock price was set at $0.03 since this was the lowest quarterly closing price for 2010 and for the first and second quarter of 2011.  The stock price closed at $0.08 on December 31, 2010, $0.09 on March 31, 2011, and $0.06 on June 30, 2011.  The probability was

estimated at 75% because during the 3rd and 4th quarter of 2010 and the 1st quarter of 2011 the Company sold convertible preferred stock with $0.10 per share common stock share conversion price although the market price of the common stock was below $0.10 per share.  The Company sold exempt issuances of stock below $0.10 per share to directors, officers, and consultants during the fourth quarter of 2010, which is allowable without triggering a reset.  No such exempt issuances have been sold during the 1st or 2nd quarter of 2011.  The probability of not triggering the reset at $0.10 per share was estimated as 25%.  Valuation consists of 75% of the Black-Scholes value of the warrants for a reset occurrence at $0.03 per share and 25% of the Black-Scholes value of the warrants on June 30, 2011.  The Black-Scholes option-pricing model was utilized with the following assumptions:  dividend yield 0.0%; expected volatility of 171.59%; risk-free interest rate of 0.45% (2 year treasury on June 30, 2011) and expected life of 1.5260274 years.  The valuation for the 447,999 Warrant Strategies warrants was $53,706 on June 30, 2011.  For the quarter ended June 30, 2011, the change in fair value of the derivative instrument was recorded as a $6,688 derivative gain and the derivative liabilities account decreased from $60,395 on March 31, 2011 to $53,706 on June 30, 2011.

The Company entered into two Securities Purchase Agreements each consisting of a secured convertible debenture (the Note) and a warrant (Warrant) issued on April 15, 2011 and May 24, 2011 (Valuation Dates).  The instruments were valued on issue date(s) and at the end of the second fiscal quarter, June 30, 2011.

The instruments are:

1.   $63,000 Convertible Note at the greater/lesser (see definition below) of the 55% of market price and $0.04 fixed conversion price; an annual interest rate of 14%; redemption at 150% to 180 days and 100% to 240 days; and a maturity date of April 14, 2012; 787,500 Warrants for a period of 3 years at $0.04 per share.

2.   $40,000 Convertible Note at the greater/lesser (see definition below) of the 55% of market price and $0.04 fixed conversion price; an annual interest rate of 14%; redemption at 150% to 180 days and 100% to 240 days; and a maturity date of May 31, 2012; 500,000 Warrants for a period of 3 years at $0.04 per share.

The conversion price and time frame is defined and explained for both Convertible Notes as follows:

The Variable Conversion Price is defined as 55% multiplied by the Market Price.  This represents a 45% discount from the market price.  The Market Price is defined as the average of the lowest three Trading Prices for the Common Stock during the ten trading day period ending on the latest complete trading day prior to the Conversion Date (the date the Conversion Notice is sent by the Holder to the Borrower via facsimile).  The Trading Price is defined as the closing on the OTCBB.  The Trading Day is defined as any day on which the Common Stock is listed for any period on the OTCBB.

The Fixed Conversion Price is defined as $0.04 per share of Common Stock.

The First Period:  Beginning on the date of the note and ending on the 240th day following the date of the note, providing that no default has occurred, the (Conversion) Price is to be the greater of the Variable Conversion Price and the Fixed Conversion Price.

The Second Period:  This period is defined as (a) following the occurrence of a default or (b) anytime after the 240th day following the date of the note, the (Conversion) Price is to be the lesser of the Variable Conversion Price and the Fixed Conversion Price.

The basis for determination and valuation are

·   FASB ASC 820 Fair Value Measurements and Disclosures

·   FASB ASC 815 Derivatives and Hedging

Management determined that the variable conversion prices of the notes constituted an embedded derivative.

The embedded derivatives were bundled and valued as a single, compound embedded derivative divided from the debt host and treated as a liability.  The single compound embedded derivative features are

1.   The conversion feature with the variable and fixed conversion prices

2.   The redemption features

The embedded conversion features in the Notes’ conversion and redemption features were accounted for as a derivative liability.  The Warrants’ were valued as a liability and discount to the note, due to the unknown number of shares to be issued upon conversion of the debt, causing a lack of sufficient authorized shares to be available to settle the warrants. The derivative liabilities will be marked-to-market each quarter with the change in fair value recorded in the income statement.

The fair values for the derivatives within the Convertible Notes at the dates of issuance and at the end of the second fiscal quarter are:

	4/15/2011	5/24/2011	6/30/2011
Notional Amount	63,000	40,000	103,000
Note Balance	63,000	40,000	103,000
Derivative Value (Notes)	50,410	32,414	81,066
Mark to Market (Notes)	-	-	(1,758)

The fair values for the derivatives within the Warrants at the dates of issuance and at the end of the second fiscal quarter are:

	4/15/2011	5/24/2011	6/30/2011
Warrants	787,500	500,000	1,287,500
Warrants Value	28,940	17,757	27,180
Mark to Market Warrants	-	-	(19,517)

At each issuance date of the Note, the initial loan and valuation of the embedded derivative was recorded.  The net cash received was recorded.  There was an upfront payment of legal expenses made to the Holder’s attorney for each note.  That amount was recorded as a deferred financing cost.  The notional amount was recorded as a liability with that same amount recorded as debt discount. The debt discount and deferred financing costs are being amortized over the life of the notes using the effective interest method. An additional expense of $26,521 was recorded as derivative expense for the excess of inception date derivative values over the face value of the notes.

Quarterly the Convertible Embedded Derivative(s) and the Warrant values are marked-to-market.  The convertible Term Note Discount and the Deferred Financing Costs are amortized quarterly.

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Note 5. Convertible Preferred Stock

6 Months Ended

Jun. 30, 2011

Preferred Stock [Text Block]

5. Convertible Preferred Stock.  The shareholders have authorized 10,000,000 shares of preferred stock for issuance. The Board of directors authorized the issuance of up to 10,000 shares of Series 2010-A 10% Convertible Preferred Stock on July 29, 2010.  Each preferred share is convertible into 1,000 common shares ($100 stated value per share divided by $0.10).  Dividends are payable quarterly at 10% per annum in cash or stock at the option of the preferred Stock Holder.  Stock dividend payments are valued at the higher of $0.10 per share of common stock or the average of the two highest volume weighted average closing prices for the 5 consecutive trading days ending on the trading day that is immediately prior to the dividend payment date.  During the first quarter of 2011, a total of 200 shares of Series 2010-A 10% Convertible Preferred Stock were issued.  Net proceeds totaled $18,000 after $2,000 of brokerage commissions.  The preferred stock is convertible into 200,000 shares of restricted common stock.

The Company accrued $4,206 of preferred stock dividends during the first quarter and $4,250 during the second quarter of 2011.

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Note 6. Notes Payable Related Party

6 Months Ended

Jun. 30, 2011

Debt Disclosure [Text Block]

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

In 2010, the Company entered into a verbal agreement with Paul Tibbits, a Director, to purchase 12,000,000 warrants held by him for $200,000. On January 10, 2011 a promissory note in the amount of $200,000 was executed at an annual interest rate of 0.43%, with no stated maturity date, and no collateral.

On March 9, 2011, the Company entered into a promissory agreement with Paul Tibbits, a Director, for $20,000. A note was executed and includes interest at 0.54% per annum; the note is due upon demand, or if no demand is made, on September 11, 2011.

On April 6, 2011, the Company entered into another promissory agreement with Paul Tibbits, a Director, for $40,000. A note was executed and includes interest at 0.54% per annum; the note is due upon demand, or if no demand is made, on October 8, 2011.

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Condensed Statements of Cash Flows (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Net cash used in operating activities	$ (178,728)	$ (206,033)
Cash from investing activities:
Patent expenditures	(1,208)	(5,083)
Net cash used in investing activities	(1,208)	(5,083)
Cash from financing activities:
Proceeds from issuance of convertible note payable	103,000
Proceeds from notes payable – related party	60,000
Proceeds from exercise of options		8,200
Proceeds from sale of convertible preferred stock	18,000
Proceeds from sale of common stock		200,000
Net cash provided by financing activities	181,000	208,200
Net change in cash	1,064	(2,916)
Cash and cash equivalents at beginning of period	4,332	24,216
Cash and cash equivalents at end of period	5,396	21,300
Supplemental disclosure of cash flow information
Cash paid for interest	571	1,713
Non-cash transactions:
Discount on convertible notes payable	$ 103,000

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Note 2. Financial Condition

6 Months Ended

Jun. 30, 2011

Liquidity Disclosure [Policy Text Block]

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

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

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Balance Sheets (USD $)	Jun. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 5,396	$ 4,332
Prepaid expense and other current assets	62,003	135,634
Total current assets	67,399	139,966
Property, equipment and software, net	282	1,349
Patents, net	111,639	118,038
Total assets	179,320	259,353
Current liabilities:
Accounts payable and accrued expenses	734,221	539,955
Accrued interest - related parties	795,981	751,294
Accrued expenses – related party	78,360	78,360
Derivative liabilities	161,952	59,784
Notes payable - related parties	2,260,000	2,200,000
Notes payable – convertible, net	13,618
Total current liabilities	4,044,132	3,629,393
Total liabilities	4,044,132	3,629,393
Preferred stock, $0.01 par value:Authorized shares - 10,000,000 Issued and outstanding shares – 1,700 at June 30, 2011 and 1,500 at December 31, 2010	17	15
Common stock, $0.01par value: Authorized shares - 100,000,000 Issued and outstanding shares – 61,609,446 at June 30, 2011 and 61,147,224 at December 31, 2010	616,094	611,472
Additional paid-in capital	30,892,916	30,835,300
Accumulated deficit	(35,373,839)	(34,816,827)
Total stockholders' deficit	(3,864,812)	(3,370,040)
Total liabilities and stockholders’ deficit	$ 179,320	$ 259,353