S-1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON April 24, 2008

REGISTRATION NO. 333-_____

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

  Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

AMARILLO BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

Texas	2834	75-1974352
(State or jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
incorporation or organization)	Classification Code Number)	Identification No.)

4134 Business Park Drive

Amarillo, Texas 79110-4225

(806) 376-1741

(Address and telephone number of principal executive offices)

4134 Business Park Drive

Amarillo, Texas 79110-4225

(806) 376-1741

(Name, address and telephone number of agent for service)

Copies to:

Darrin Ocasio, Esq.

David B. Manno, Esq.

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32 ^nd Floor

New York, New York 10006

(212) 930-9700

(212) 930-9725 (fax)

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

(COVER CONTINUES ON FOLLOWING PAGE)

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. (Check one):

o Large accelerated filer

o Accelerated filer

o Non-accelerated filer

x Smaller reporting company

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Amount to be Registered (1)	Proposed Maximum Offering Price Per Security (2)	Proposed Maximum Aggregate Offering Price	Amount of Registration Fee
Common Stock, $.01 par value per share	10,024,198	$0.32	$3,207,743.36	$126.06

(1) Relates to common stock, of Amarillo Biosciences, Inc., offered by the selling stockholders. In the event of a stock split, stock dividend or similar transaction involving our common stock, the number of shares registered shall automatically be increased to cover the additional shares of common stock issuable pursuant to Rule 416 under the Securities Act of 1933, as amended.

(2) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, using the average of the high and low prices as reported on the Over The Counter Bulletin Board on April 21, 2008, which was $0.32per share.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED APRIL 24, 2008

AMARILLO BIOSCIENCES, INC.

OTC Bulletin Board trading symbol:  AMAR

10,024,198Shares of Common Stock

This prospectus relates to the public offering of up to 10,024,198 shares of our common stock, par value $.01 per share, by the selling stockholders. Of these shares, 4,000,000 are issuable upon conversion of 1,000 shares of our 10% Series A Convertible Preferred Stock (“Series A Preferred Stock”), 4,000,000 are issuable upon the exercise of our Series A warrants at an exercise price of $.30 per share, (“Series A Warrants”), and 84,198 are shares of common stock which have been issued as a dividend on the Series A Convertible Preferred Stock. The Series A Preferred Stock and Series A Warrants were issued to the selling stockholders in a private placement. These 8,084,198 shares represent approximately 32.99% of our “public float”. This prospectus also relates to 640,000 shares of our common stock issuable upon the exercise of warrants issued to MidSouth Capital Markets Group, Inc. (“MidSouth”), the placement agent in the private placement. The shares issuable upon conversion of the warrants issued to MidSouth represent approximately 2.61%of our “public float”. The remaining 1,300,000 shares are being registered pursuant to other transactions entered into by the Company with certain selling shareholders. These shares represent 5.30% of the “public float” of the Company. The selling stockholders may sell common stock from time to time in the principal market on which the stock is traded at the prevailing market price or in negotiated transactions. We will not receive any of the proceeds from the sale of those shares being sold by the selling stockholders. We will pay the expenses of registering these shares.

Investment in the shares involves a high degree of risk.  You should consider carefully the risk factors beginning on page 8 of this prospectus before purchasing any of the shares offered by this prospectus.

Our common stock is quoted on the OTC Bulletin Board and trades under the symbol "AMAR".   The last reported sale price of our common stock on the OTC Bulletin Board on April 21, 2008, was approximately $0.33 per share. 

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is_________, 2008.

AMARILLO BIOSCIENCES, INC. HAS NOT REGISTERED THE SHARES FOR SALE BY THE SELLING SHAREHOLDERS UNDER THE SECURITIES LAWS OF ANY STATE.  BROKERS OR DEALERS EFFECTING TRANSACTIONS IN THE SHARES SHOULD CONFIRM THAT THE SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES LAWS OF THE STATE OR STATES IN WHICH SALES OF THE SHARES OCCUR AS OF THE TIME OF SUCH SALES, OR THAT THERE IS AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES LAWS OF SUCH STATES.

THIS PROSPECTUS IS NOT AN OFFER TO SELL ANY SECURITIES OTHER THAN THE SHARES.  THIS PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH AN OFFER IS UNLAWFUL.

AMARILLO BIOSCIENCES INC. HAS NOT AUTHORIZED ANYONE, INCLUDING ANY SALESPERSON OR BROKER, TO GIVE ORAL OR WRITTEN INFORMATION ABOUT THIS OFFERING, AMARILLO BIOSCIENCES INC., OR THE SHARES THAT IS DIFFERENT FROM THE INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS.  YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS, OR ANY SUPPLEMENT TO THIS PROSPECTUS, IS ACCURATE AT ANY DATE OTHER THAN THE DATE INDICATED ON THE COVER PAGE OF THIS PROSPECTUS OR ANY SUPPLEMENT TO IT.

IN THIS PROSPECTUS, REFERENCES TO "AMARILLO," "THE COMPANY," "WE," "US," AND "OUR," REFER TO AMARILLO BIOSCIENCES, INC.

AMARILLO BIOSCIENCES, INC.

TABLE OF CONTENTS

	Page
Prospectus Summary	1
Risk Factors	3
Use of Proceeds	7
Forward-Looking Statements	5
Selling Stockholder	7
Plan of Distribution	10
Market for Common Equity and Related Stockholder Matters	21
Description of Business	12
Management’s Discussion and Analysis or Plan of Operation	19
Description of Property	19
Legal Proceedings	19
Management	19
Executive Compensation	24
Certain Relationships and Related Transactions, and Corporate Governance	29
Security Ownership of Certain Beneficial Owners and Management	26
Description of Securities to be Registered	11
Indemnification for Securities Act Liabilities	30
Legal Matters	31
Experts	31
Changes in Accountants	22
Additional Information	30
Financial Statements

You may only rely on the information contained in this prospectus or that we have referred you to. We have not authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the common stock offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any common stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus or that the information contained by reference to this prospectus is correct as of any time after its date.

Prospectus Summary

General

We are a Texas corporation formed in 1984, and are engaged in developing biologics for the treatment of human and animal diseases. We focus our research on human health indications for the use of low-dose orally administered natural human interferon alpha, particularly for Behcet’s disease and oral warts in HIV+ patients.

We own or have licensed twelve issued United States patents relating to the use or composition of low-dose oral natural interferon alpha and one patent on the dose formulation of our dietary supplement. 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, including treatment of Behcet’s disease, oral warts in HIV+ patients, chronic cough and hepatitis C virus infection.

We have not generated any significant revenues since inception in 1984. We have a history of losses and we expect to incur losses for the foreseeable future. For the fiscal years ended December 31, 2007 and 2006, we had revenues of $70,069and $133,942, respectively, and incurred net losses of $2,506,073and $2,777,661, respectively. As a result of recurring losses from operations and our need to raise additional financing in order to execute our 2007 plan of operations, our auditors, in their reports dated March 17, 2008 and February 26, 2007 have expressed substantial doubt about our ability to continue as a going concern.

Our Corporate Information

Amarillo Biosciences, Inc. was incorporated in June 1984 in the State of Texas under the name of Amarillo Cell Culture Company, Incorporated. In May 1996, we changed our name to Amarillo Biosciences, Inc. Our principal executive offices are located at 4134 Business Park Drive, Amarillo, Texas 79110. Our Telephone number is (806) 376-1741. Our website address is www.amarbio.com. Information contained on, or that can be accessed through, our website is not part of the prospectus.

About This Offering

Pursuant to a Stock Purchase Agreement, dated January 8, 2008, as amended on February 14, 2008, we issued to Firebird Global Master Fund Ld. (“Firebird”) in a private placement 1,000 shares of our Series A 10% Convertible Preferred Stock for a purchase price of $1,000,000. The Series A Preferred Stock is convertible into 4,000,000 shares of our Common Stock. We also issued to Firebird a Warrant to purchase up to 4,000,000 shares of our common stock exercisable at a price of $0.30 per share, for a term of five years (“Series A Warrants”).

Holders of the Series A Preferred Stock are entitled to receive cumulative dividends, payable quarterly on January 1, April 1, July 1, and October 1, at the rate per share (as a percentage of stated value) of 10% per annum. Dividends are payable, at the discretion of the Company, in cash or common stock, valued at 90% of the average of the two lowest volume weighted average prices for the 5 five consecutive trading days immediately prior to the dividend payment date.

On April 1, 2008, in accordance with the terms of the Series A Preferred Stock, we issued to Firebird, as a dividend on the Series A Preferred Stock, 84,198 shares of our common stock, valued at $23,025.

Pursuant to the Registration Rights Agreement entered into in connection with the Stock Purchase Agreement, as amended, we are required to file a registration statement covering the shares of common stock underlying the Series A Preferred Stock and Series A Warrants, and issuable as dividends on the Series A Preferred Stock, in an amount permissible under Rule 415 under the Securities Act of 1933, as amended, by April 25, 2008, and to use our best efforts to have the registration statement declared effective by the Commission by August 23, 2008. In the event that the registration statement is not timely filed or declared effective, we will be subject to liquidated damages.

This prospectus includes the (i) 4,000,000 shares issuable upon conversion of the Series A Preferred Stock issued to Firebird, (ii) 4,000,000 shares issuable upon exercise of Series A Warrants issued to Firebird, and (iii) 84,198 shares of common stock issued to Firebird as a dividend on the Series A Preferred Stock. These 8,084,198 shares represent 32.99% of the shares held by stockholders other than officers, directors and affiliates (the “public float”).

We also issued to MidSouth Capital Markets Group, Inc. (“MidSouth”), the selling/placement agent in the private placement, warrants to purchase 640,000 shares of our common stock on the same terms and conditions as the warrants issued to Firebird. The warrants were issued to MidSouth pursuant to an agreement entered into with MidSouth in September 2007 to engage MidSouth to act as our placement agent in connection with a future private placement. Pursuant to the agreement, MidSouth was to receive for its services a warrant to purchase shares of our common stock equal to 8% of the number of common shares to be issued on an as converted basis in the private placement, with an exercise price of $.30 per share and exercisable for 5 years from the date of issuance. The 640,000 shares issuable upon exercise of the warrants issued to MidSouth represent 2.61% of the “public float” of the Company. These 640,000 shares are included in this prospectus.

1

In connection with this prospectus, we are also registering 1,300,000 shares of our common stock issuable to shareholders who hold certain piggyback rights to register their previously restricted stock. These shares represent 5.30% of the “public float” of the Company. 1,100,000 of these shares are being registered pursuant to certain consultant stock option agreements entered into by the Company with Commonwealth Associates, LP (“Commonwealth”) and Teel Bivins (“Bivins”) on July 18, 2007 and June 21, 2006 with exercise prices of $0.20 and $0.87, respectively. 200,000 of these shares are being registered pursuant to a warrant agreement in connection with an investor direct marketing service agreement entered into by the Company and Marks Value Partners LLC (“MVP”) on June 27, 2006. The warrants issued pursuant to the warrant agreement are initially exercisable at $2.00 (the “MVP Warrants”).

Estimated use of proceeds

This prospectus relates to shares of our common stock that may be offered and sold from time to time by the selling stockholders. We will not receive any of the proceeds resulting from the sale of the shares held by the selling stockholders. We will receive the sale price of any common stock we sell to the selling stockholders upon exercise of the Series A Warrants. If all of the Series A Warrants are exercised for cash we will receive $1,392,000. We expect to use the proceeds received from the exercise of Series A Warrants, if any, for general working capital purposes. However, the selling stockholder is entitled to exercise the Series A Warrants on a cashless basis commencing one year after their initial issuance, if the shares of common stock underlying the Series A Warrants are not then registered pursuant to an effective registration statement. In the event that the selling stockholder exercises the Series A Warrants on a cashless basis, we will not receive any proceeds.

We will not receive any proceeds from the sale of the common stock underlying the MVP Warrants and stock options issued to Commonwealth and Bivins. We will receive gross proceeds of $200,000 and $87,000 upon exercise of the stock options and $400,000 upon exercise of the MVP Warrants.

Summary of the Shares offered by the Selling Shareholders.

The following is a summary of the shares being offered by the selling shareholders:

Common stock offered by the selling stockholders (Representing only a portion of the total number of shares that may be issued.  Such limitation is specifically designed to meet the demands and limitation of Rule 415 of the Securities Act.)	Up to 10,024,198shares of common stock, of which 4,000,000 are issuable upon conversion of our Series A 10% Convertible Preferred Stock,4,000,000 are issuable upon the exercise of our Series A warrants, at an exercise price of $.30 per share, and 84,198 were issued as a dividend on the Series A Preferred Stock. The aggregate 8,084,198 shares issued as a dividend on the Series A Preferred Stock, issuable upon conversion of the Series A Preferred Stock, and issuable upon exercise of the Series A warrants are approximately 32.99% of our “public float”. We also issued to MidSouth, the placement agent in the private placement, warrants to purchase 640,000 shares of our common stock. The shares underlying the warrants issued to MidSouth represent 2.61% of our “public float.” The remaining 1,300,000 shares are issuable upon exercise of certain stock options held by Commonwealth Associates, LP and Teel Bivins, with exercise prices of $.20 per share and $.87 per share, respectively, as well as upon exercise of 200,000 warrants held by Marks Value Partners LLC at an initial exercise price of $2.00 per share. The shares issuable upon conversion of the stock options and MVP Warrants are approximately 5.30%of our “public float.”
Common Stock outstanding prior to the offering	29,672,034 (1)
Common Stock to be outstanding after the offering	39,612,034assuming full conversion of the Series A 10% Convertible Preferred Stock, full exercise of the Series A warrants, full exercise of the options held by Commonwealth and Teel Bivins, and full exercise of the MVP Warrants.

2

Use of proceeds

We will not receive any proceeds from the sale of the common stock. We have received gross proceeds of $1,000,000 from the sale of the Series A 10% Convertible Preferred Stock, which we are using for general corporate purposes, and would receive $1,392,000 upon exercise of the 4,640,000 Series A Warrants issued to Firebird and the placement agent. There is no assurance that any of the warrants will be exercised. We will not receive any proceeds from the sale of the common stock underlying the MVP Warrants and stock options issued to Commonwealth and Bivins. We will receive gross proceeds of $200,000 and $87,000 upon exercise of the stock options and $400,000 upon exercise of the MVP Warrants. There is no assurance that any of the stock options or MVP Warrants will be exercised.

(1)   Based upon the total number of issued and outstanding shares as of April 15, 2008.

 RISK FACTORS

You should carefully consider the risks described below as well as other information provided to you in this document, including information in the section of this document entitled “Information Regarding Forward Looking Statements.” The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected, the value of our common stock could decline, and you may lose all or part of your investment.

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 ownfour patents and licenseten patents. No assurance can be given that such licenses or rights used by us will not be challenged, infringed or circumvented or that the rights granted thereunder will provide competitive advantages to us. Furthermore, there can be no assurance that we will be able to remain in compliance with our existing or future licensing arrangements. Consequently, there may be a risk that licensing arrangements are withdrawn with no penalties to the licensee or compensation to us.

We rely on third parties for the supply, manufacture and distribution of our products.

Third parties manufacture and distribute all of our products. We do not currently have manufacturing facilities or personnel to independently manufacture our products. Currently, Marlyn Nutraceutical manufactures our nutraceutical products. Our licensed distributors, located in the United States and internationally, distribute the products. Except for any contractual rights and remedies that we may have with our manufacturer and our distributors, we have no control over the availability of our products, their quality or cost or the actual distribution of our products. If for any reason we are unable to obtain or retain third-party manufacturers and distributors on commercially acceptable terms, we may not be able to produce and distribute our products as planned. If we encounter delays or difficulties with our contract manufacturer in producing or packaging our products or with our distributor in distributing our products, the production, distribution, marketing and subsequent sales of these products would be adversely affected, and we may have to seek alternative sources of supply or distribution or abandon or sell product lines on unsatisfactory terms. We may not be able to enter into alternative supply, production or distribution arrangements on commercially acceptable terms, if at all. There can be no assurance that the manufacturer that we have engaged will be able to provide sufficient quantities of these products or that the products supplied will meet with our specifications or that our distributor will be able to distribute our products in accordance with our requirements.

We are dependant on funding from private placements of stock.

Our sales revenue, sublicense fees and royalty income are 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 mostly by the amount owed to HBL for two $1 million notes plus $682,773 of accrued interest on December 31, 2007. 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. HBL will extend the notes and accrued interest until December 3, 2009 and February 28, 2010 if payment of $145,000 of accrued interest is received by August 31, 2008. We do not have sufficient liquidity to pay off the notes or to fund operating losses unless funding is obtained from private placements of stock. There can be no assurance that private placement funding will always be available on terms acceptable to us, or at all.

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We are dependent on certain key existing and future personnel.

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

If we do not successfully develop, acquire or license new drugs our business may not grow.

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

Our competitors are much larger and more experienced than we are and, even if we complete the development of our drugs, we may not be able to successfully compete with them.

The pharmaceutical industry is highly competitive.  Our biologics and low-dose oral interferon alpha applications compete with high dose injectable interferon manufactured by Roche, Schering, InterMune, Serono, Biogen, Berlex and Hemispherx. High dose injectable interferon has been widely accepted by the medical community for many years. Companies who manufacture injectable interferon alpha applications are more established than we are and have far greater financial, technical, research and development, sales and marketing, administrative and other resources than we do.  Even if we successfully complete the development of our tests, we may not be able to compete effectively with these much larger companies and their more established products.

We have been the subject of a going concern opinion by our independent auditors who have raised substantial doubt as to our ability to continue as a going concern.

Our Independent Registered Public Accountants have added an explanatory paragraph to their audit reports issued in connection with our consolidated 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 from operations of $2,689,436 for the year ended December 31, 2006 and $2,418,316for the year ended December 31, 2007. In addition, as of December 31, 2006 we had an accumulated deficit of $25,953,878 and $28,459,951for the year ended December 31, 2007. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated 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.

Risk Relating to Our Current Financing Arrangement:

There are a large number of shares underlying our preferred stock and warrants that may be available for future sale, and the sale of these shares may depress the market price of our common stock.

As of April 15, 2008, we had 29,672,034  shares of common stock issued and outstanding and 1,000 shares of our 10% Series A Convertible Preferred Stock issued and outstanding. This prospectus covers 10,024,198 shares of common stock, including 4,000,000 shares underlying the Series A Preferred Stock, 4,640,000 shares underlying Series A Warrants, 1,300,000 shares underlying options and other warrants issued to certain of the selling stockholders, and 84,198 shares issued as a dividend on the Series A Preferred Stock. The sale of these shares may adversely affect the market price of our common stock.

4

Risks Related to our Common Stock:

There is only a limited market for our common stock and the price of our common stock may be affected by factors that are unrelated to the performance of our business.

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

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

·         general market conditions;

·         changes in government regulation or patent decisions;

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

Our common shares have traded on the Over the Counter Bulletin Board at prices below $5.00 for several years.  As a result, our shares are characterized as “penny stocks” which could adversely affect the market liquidity of our common stock.

The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. Securities and Exchange Commission regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share, subject to certain exceptions.  Such exceptions include any equity security listed on Nasdaq or a national securities exchange and any equity security issued by an issuer that has:

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

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

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

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

Future sales of a significant number of shares of our common stock by existing stockholders may lower the price of our common stock, which could result in losses to our stockholders.   

We estimate there that are approximately 14,000,000 restricted shares outstanding which, upon becoming freely tradable under Rule 144 or 144(k) of the Securities Exchange Act of 1934, may lower the price of our common stock.

FORWARD-LOOKING STATEMENTS

Some of the statements contained in this Registration Statement that are not historical facts are "forward-looking statements" which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Registration Statement, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:

· The efficacy, safety and intended utilization of our product candidates;

· The conduct and results our of research, discovery and preclinical efforts and clinical trials;

· our plans regarding future research, discovery and preclinical efforts and clinical activities, collaborative, intellectual property and regulatory activities;

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· Our results of operations, financial condition and businesses, and products and drug candidates under development;

· our product candidates that appear promising in early research and clinical trials may not demonstrate safety and efficacy in subsequent clinical trials;

· risks associated with reliance on collaborative partners for further clinical trials and other development activities;

· risks involved with development and commercialization of product candidates; and

· risks involved in obtaining future financing.

6

USE OF PROCEEDS

This prospectus relates to shares of our common stock that may be offered and sold from time to time by the selling stockholders. We will not receive any of the proceeds resulting from the sale of the shares by Firebird Global Master Fund, Ltd. (“Firebird”) or MidSouth’s assignees. We will receive the sale price of any common stock we sell to Firebird and MidSouth’s assignees upon exercise of the Series A Warrants. If all of the Series A Warrants are exercised for cash we will receive $1,392,000. We expect to use the proceeds received from the exercise of the Series A Warrants, if any, for general working capital purposes. However, Firebird and MidSouth’s assignees are entitled to exercise the Series A Warrants on a cashless basis commencing one year after their initial issuance, if the shares of common stock underlying the Series A Warrants are not then registered pursuant to an effective registration statement. In the event that Firebird or MidSouth’s assignees exercise the Series A Warrants on a cashless basis, we will not receive any proceeds.

We will also not receive any proceeds from the sale of the common stock underlying the MVP Warrants and stock options issued to Commonwealth and Bivins. We will receive gross proceeds of $200,000 and $87,000 upon exercise of the stock options and $400,000 upon exercise of the MVP Warrants. There is no assurance that any of the stock options or MVP Warrants will be exercised.    

SELLING SECURITY HOLDERS

The following table details the name of each selling stockholder, the number of shares owned by that selling stockholder, and the number of shares that may be offered by each selling stockholder for resale under this prospectus.  The selling stockholders may sell up to 10,024,198 shares of our common stock from time to time in one or more offerings under this prospectus, including 9,940,000 shares which are issuable upon the conversion or exercise of preferred stock, stock options, or warrants held by certain selling stockholders, and 84,198 shares issued as dividends on outstanding preferred stock.  Because each selling stockholder may offer all, some or none of the shares it holds, and because, based upon information provided to us, there are currently no agreements, arrangements, or understandings with respect to the sale of any of the shares, no definitive estimate as to the number of shares that will be held by each selling stockholder after the offering can be provided. The following table has been prepared on the assumption that all shares offered under this prospectus will be sold to parties unaffiliated with the selling stockholders.

Name of Selling Stockholder	Beneficial Ownership Before the Offering (1)			Percentage ofCommon Stock Owned Before Offering (2)			Shares of Common Stock Included in Prospectus, Issuable Upon Conversion of Preferred Stock and Warrants, or Issued as Dividends on Preferred Stock			Beneficial Ownership After the Offering		Percentage of Ownership After Completion of Offering
Firebird Global Master Fund, Ltd. (3)		1,558,398	(4)		4.99	%		8,084,198	(5)		0		*
Adam Cabibi(6)		149,333			*			149,333	(7)		0		*
Timothy C. Moody (8)		64,000			*			64,000	(9)		0		*
Jerry Choate (10)		128,000			*			128,000	(11)		0		*
BioMed Cap, LLC (12)		149,334			*			149,334	(13)		0		*
Hefcap Holdings, LLC (14)		149,333			*			149,333	(15)		0		*
Teel Bivins (16)		110,584			*			100,000			10,584		*
Marks Value Partners LLC (17)		200,000			*			200,000			0		*
Commonwealth Associates, LP (18)		1,276,540			4.16	%		1,000,000			276,540		*

* Less than 1%.

(1)The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling stockholders has sole or shared voting power or investment power and also any shares, which the selling stockholders has the right to acquire within 60 days.

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(2) This percentage is based upon 29,672,034 shares issued and outstanding as of April 15, 2008 plus the additional shares that the selling stockholder is deemed to beneficially own.

(3) James Passin is the Director of Firebird and in accordance with Rule 13-d-3 under the Securities Exchange Act of 1934, may be deemed to be a control person, with voting and investment control (directly or with others), of the securities owned by Firebird. Mr. Passin disclaims beneficial ownership of these securities. The selling stockholder has informed us that it is not a broker-dealer or affiliate of a broker-dealer.

(4)The 4,000,000 warrants issued to Firebird provide that the holder of such warrant shall not be entitled to exercise the warrant on an exercise date in connection with that number of shares of common stock which would be in excess of the sum of (i) the number of shares of common stock beneficially owned by the holder and its affiliates on an exercise date, and (ii) the number of shares of common stock issuable upon the exercise of the warrant with respect to which the determination of this limitation is being made on an exercise date, which would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the outstanding shares of our common stock on such date. For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act and Regulation 13d-3 thereunder. Firebird may waive the conversion limitation in whole or in part upon and effective after 61 days prior written notice to us. As such, the number and percentage of shares deemed beneficially owned is limited accordingly.

In addition, the shares of Series A Preferred Stock issued to Firebird are designated with the limitation that the holder of such Series A Preferred Stock shall not effect any conversion or convert any portion of the Series A Preferred Stock to the extent that, such conversion would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the outstanding shares of our common stock on such date. For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act and Regulation 13d-3 thereunder. Firebird may waive the conversion limitation in whole or in part upon and effective after 61 days prior written notice to us. As such, the number and percentage of shares deemed beneficially owned is limited accordingly.

(5) This amount includes 4,000,000 shares of common stock underlying 1,000 shares of Series A Preferred Stock, 4,000,000 shares underlying warrants with an exercise price of $0.30, and 84,198 shares issued as dividends on the Series A Preferred Stock.

(6)The selling stockholder has informed us that he is an affiliate of a broker-dealer. The selling stockholder received the securities by assignment from MidSouth. MidSouth received the securities as compensation for investment banking services.

(7) This amount represents shares underlying 149,333 warrants with an exercise price of $0.30. The warrants were assigned by MidSouth to the selling stockholder.

(8) The selling stockholder has informed us that he is an affiliate of a broker-dealer. The selling stockholder received the securities by assignment from MidSouth. MidSouth received the securities as compensation for investment banking services.

(9) This amount represents shares underlying 64,000 warrants with an exercise price of $0.30. The warrants were assigned by MidSouth to the selling stockholder.

(10) The selling stockholder has informed us that he is an affiliate of a broker-dealer. The selling stockholder received the securities by assignment from MidSouth. MidSouth received the securities as compensation for investment banking services.

(11) This amount represents shares underlying 128,000 warrants with an exercise price of $0.30. The warrants were assigned by MidSouth to the selling stockholder.

(12) H. David Coherd, in accordance with Rule 13-d-3 under the Securities Exchange Act of 1934, may be deemed to be a control person, with voting and investment control (directly or with others), of the securities owned by BioMed Cap, LLC. The selling stockholder has informed us that it is an affiliate of a broker-dealer. The selling stockholder received the securities by assignment from MidSouth. MidSouth received the securities as compensation for investment banking services.

(13) This amount represents shares underlying 149,334 warrants with an exercise price of $0.30. The warrants were assigned by MidSouth to the selling stockholder.

(14) Robert L. Rosenstein, in accordance with Rule 13-d-3 under the Securities Exchange Act of 1934, may be deemed to be a control person, with voting and investment control (directly or with others), of the securities owned by Hefcap Holdings, LLC. The selling stockholder has informed us that it is an affiliate of a broker-dealer. The selling stockholder received the securities by assignment from MidSouth. MidSouth received the securities as compensation for investment banking services.

(15) This amount represents shares underlying 149,333 warrants with an exercise price of $0.30. The warrants were assigned by MidSouth to the selling stockholder.

(16) The selling stockholder has informed us that he is not a broker-dealer or affiliate of a broker-dealer. The selling stockholder received his securities pursuant to a consulting agreement, pursuant to which he provided consulting services to the Company from April 21, 2006 to April 21, 2007.

(17) Jack Marks is the Member and Manager of MVP and in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, may be deemed to be a control person, with voting and investment control (directly or with others), of the securities owned by MVP. Mr. Marks disclaims beneficial ownership of these securities. The selling stockholder received its securities pursuant to an investor direct marketing service agreement with the Company, dated June 27, 2006.

(18) Robert O’Sullivan is the CEO and President of Commonwealth and in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, may be deemed to be a control person, with voting and investment control (directly or with others), of the securities owned by Commonwealth. Mr. O’Sullivan disclaims beneficial ownership of these securities. The selling stockholder has informed us that it is a broker-dealer. The selling stockholder purchased the securities in the ordinary course of business, and at the time of the purchase of the securities had no agreements or understandings, directly or indirectly, with any person to distribute the securities.

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Securities Purchase Agreement

Pursuant to the Securities Purchase Agreement dated as of January 8, 2008, as amended on February 14, 2008, we sold to Firebird 1,000 shares of our Series A 10% Convertible Preferred Stock and received gross proceeds of $1,000,000. After deducting expenses of the private placement, we received net proceeds of approximately $847,668. In connection with this transaction we also issued to Firebird warrants to purchase 4,000,000 shares of our common stock at $.30 per share, subject to adjustment as provided in the warrant (“Series A Warrants”). We also issued to MidSouth, the placement agent in the private placement, warrants to purchase 640,000 shares of our common stock on the same terms and conditions as the warrants issued to the purchasers. The warrants were issued to MidSouth pursuant to an agreement entered into with MidSouth in September 2007 to engage MidSouth to act as our placement agent in connection with a future private placement. Pursuant to the agreement, MidSouth was to receive for its services a warrant to purchase shares of our common stock equal to 8% of the number of common shares to be issued on an as converted basis in the private placement, with an exercise price of $.30 per share and exercisable for 5 years from the date of issuance. Upon exercise of the Series A Warrants issued to Firebird and MidSouth, we will receive net proceeds of $1,392,000. The issuance and sale of the securities pursuant to the Securities Purchase Agreement was made in reliance upon the exemption provided in Section 4(2) of the Securities Act, of 1933, as amended and Regulation D promulgated under the Securities Act. No form of general solicitation or general advertising was conducted in connection with the private placement.

Series A 10% Convertible Preferred Stock

2,500 shares of our preferred stock have been designated as Series A 10% Convertible Preferred Stock (“Series A Preferred Stock”). We issued Firebird 1,000 shares of Series A Preferred Stock for a purchase price of $1,000,000. Our Series A Preferred Stock has a par value of $0.01 per share, a stated value equal to $1,000, and a conversion price of $0.25.

Holders of the Series A Preferred Stock are entitled to receive cumulative dividends, payable quarterly on January 1, April 1, July 1, and October 1, at the rate per share (as a percentage of stated value) of 10% per annum. Dividends are payable, at the discretion of the Company, in cash or common stock, valued at 90% of the average of the two lowest volume weighted average prices for the 5 five consecutive trading days immediately prior to the dividend payment date..

The Series A Preferred Stock is convertible into shares of our common stock at a conversion ratio determined by dividing the stated value by the conversion price.

Holders of Series A Preferred Stock have liquidation preferences over the holders of our common stock, and they shall be entitled to receive out of the Company’s assets an amount equal to the stated value (or ratable value, if our assets are insufficient), plus any accrued and unpaid dividends thereon and any other fees or liquidated damages owing thereon, for each share of Preferred Stock.

The holders of Series A Preferred Stock have no voting rights. However, as long as any shares of Series A Preferred Stock are outstanding, we shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series A Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred Stock or alter or amend the Certificate of Designation for the stock, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation senior to or otherwise paripassu with the Series A Preferred Stock, (c) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders, (d) increase the authorized number of shares of Series A Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.

Holders of Series A Preferred Stock are subject to the limitation that they shall not effect any conversion or convert any portion of the Series A Preferred Stock to the extent that, such conversion would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the outstanding shares of our common stock on such date. For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act and Regulation 13d-3 thereunder. The holder may however waive the conversion limitation in whole or in part upon and effective after 61 days prior written notice to us.

Series A Warrants

In connection with the January private placement we issued warrants to purchase 4,640,000 shares of our common stock at an exercise price of $0.30 per share, subject to adjustment. The warrants have a term of five years from the date of issuance. Under the terms of the warrants if at any time after one year from the issuance of the warrants there is not an effective registration statement registering, and no current prospectus available for resale of the warrants by the investor, the warrants may be exercised at such time by means of a cashless exercise, in which the holder shall be entitled to receive a certificate for the number of warrant shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP (as defined in the Securities Purchase Agreement) on the trading day immediately preceding the date of such election;

(B) = the exercise price of the warrant, as adjusted; and

(X) = the number of warrant shares issuable upon exercise of the warrant in accordance with the terms of the warrant by means of a cash exercise rather than a cashless exercise.

In the event that:

· we issue or sell or are deemed to have issued or sold any shares of our common stock other than certain excluded securities for a consideration that is less than the then current exercise price, then the current exercise price shall be adjusted to the lower exercise price;

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· we issue or sell any convertible securities (including options) that entitles any one to acquire shares of our common stock or common stock equivalents an effective price per share that is less than the then current exercise price (base share price), then the exercise price shall be reduced to equal such base shares price and the number of shares issuable upon exercise of such warrants shall be increased such that the aggregate exercise price, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment.

· we: (A) pay a stock dividend or otherwise make a distribution or distributions on shares of our common stock or any other equity or equity equivalent securities payable in shares of common stock, (B) subdivides outstanding shares of common stock into a larger number of shares, (C) combines (including by way of reverse stock split) outstanding shares of common stock into a smaller number of shares, or (D) issues by reclassification of shares of the common stock any shares of our capital stock, then in each case the exercise price shall be multiplied by a fraction of which the numerator shall be the number of shares of common stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of common sock outstanding immediately after such event and the number of shares issuable upon exercise of this warrant shall be proportionately adjusted.

Pursuant to the warrants no holder may exercise such holder’s warrant if such exercise would result in the holder beneficially owning in excess of 4.99% of our then issued and outstanding common stock. The beneficial ownership limitations provision of the warrants may be waived by the holder upon not less than 61 days’ prior notice to us to change the beneficial ownership limitation to 9.99% of the number of shares of our common stock outstanding immediately after giving effect to the issuance of shares of common stock upon exercise of the warrant. If the beneficial ownership limitation is increased to 9.99% it may not be further waived.

Shares Being Registered Pursuant to Piggyback Rights

In connection with this prospectus, we are also registering 1,300,000 shares of our common stock to shareholders who hold certain piggyback rights to register their previously restricted stock. 1,100,000 of these shares are being registered pursuant to certain consultant stock option agreements entered into by the Company with Commonwealth and Bivins onJuly 18, 2007 and June 21, 2006 with exercise prices of $0.20 and $0.87, respectively. 200,000 of these shares are being registered pursuant to a warrant agreement in connection with an investor direct marketing service agreement entered into by the Company and MVP on June 27, 2006. MVP Warrants grant MVP an initial exercise price of $2.00.

Other than the transactions described above, there have not been any prior securities transaction between us (or any of our predecessors) and the selling shareholders, any affiliates of the selling shareholders, or any person with whom any selling shareholder has a contractual relationship regarding the transactions.

Short Positions by the Selling Shareholders

We are not aware of any short positions entered into by the Selling Shareholders.

PLAN OF DISTRIBUTION

Each selling stockholder and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the OTC Bulletin Board or any other stock exchange, market or trading facility on which our shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling shares:

· ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

· block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

· purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

· an exchange distribution in accordance with the rules of the applicable exchange;

· privately negotiated transactions;

· settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

· broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

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· through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

· a combination of any such methods of sale; or

· any other method permitted pursuant to applicable law.

The selling stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this prospectus.

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440.

In connection with the sale of the common stock or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute our common stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

We are required to pay certain fees and expenses incurred by us incident to the registration of the shares. We have agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling stockholders.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration and without regard to any volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Securities Exchange Act of 1934 any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

DESCRIPTION OF THE SECURITIES TO BE REGISTERED

This prospectus includes 10,024,198 shares of our common stock offered by the selling stockholders. The following description of our common stock is only a summary. You should also refer to our certificate of incorporation and bylaws, which have been filed as exhibits to the registration statement of which this prospectus forms a part.

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We are authorized to issue 100,000,000 shares of common stock having a par value of $.01 per share. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock. Our outstanding shares of common stock are fully paid and non-assessable. Holders of shares of Common Stock have no conversion, preemptive or other subscription rights, and there are no redemption or sinking fund provisions applicable to the Common Stock.

DESCRIPTION OF BUSINESS

General

We are a Texas corporation formed in 1984, and are engaged in developing biologics for the treatment of human and animal diseases. We focus our research on human health indications for the use of low-dose orally administered natural human interferon alpha, particularly for Behcet’s disease and oral warts in HIV+ patients.

We own or license twelveissued United States patents relating to the use or composition of low-dose oral natural interferon alpha and one patent on the dose formulation of our dietary supplement. 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, including treatment of Behcet’s disease, oral warts in HIV+ patients, chronic cough and hepatitis C virus infection.

Our objective is to exploit our proprietary technology to become a leader in the field of low-dose oral applications of interferon alpha. Our business strategy is to pursue those indications for low-dose oral interferon alpha treatment for which initial clinical research has indicated the treatment is efficacious and which, in our opinion, have the greatest commercial potential and are most likely to be approved by the FDA.

Human Health Applications

Influenza – FDA Phase 2 to start

Influenza (the flu) is a contagious respiratory illness caused by influenza viruses. It can cause mild to severe illness, and at times can lead to death. Influenza usually starts suddenly and may include the following symptoms: 1) fever (usually high), 2) headache, 3) tiredness (can be extreme), 4) cough, 5) sore throat, 6) runny or stuffy nose, 7) body aches, and 8) digestive problems such as diarrhea, nausea and vomiting. Complications of flu can include bacterial pneumonia, ear infections, sinus infections, dehydration, and worsening of chronic medical conditions, such as congestive heart failure, asthma, or diabetes.

Flu viruses spread mainly from person to person through coughing or sneezing. Sometimes people may become infected by touching something with flu viruses on it and then touching their mouth or nose. Most healthy adults may be able to infect others beginning 1 day before symptoms develop and up to 5 days after becoming sick. That means that a person may be able to pass on the flu to someone else before they know they are sick, as well as while they are sick.

Influenza A viruses are divided into subtypes based on 2 proteins on the surface of the virus: the hemagglutinin (H) and the neuraminidase (N). There are 16 different H subtypes and 9 different N subtypes, all of which have been found among influenza A viruses in wild birds. Wild birds are the primary natural reservoir for all subtypes of influenza A viruses and are thought to be the source of influenza A viruses in all other animals. Most influenza viruses cause asymptomatic or mild infection in birds; however, the range of symptoms in birds varies greatly depending on the strain of virus. Infection with certain avian influenza A viruses (for example, some strains of H5 and H7 viruses) can cause widespread disease and death among some species of wild and especially domestic birds such as chickens and turkeys.

Pigs can be infected with both human and avian influenza viruses in addition to swine influenza viruses. Infected pigs get symptoms similar to humans, such as cough, fever and runny nose. Because pigs are susceptible to avian, human and swine influenza viruses, they potentially may be infected with influenza viruses of different species (e.g., ducks and humans) at the same time. If this happens, it is possible for the genes of these viruses to mix and create a new virus. For example if a pig were infected with a human influenza virus and an avian influenza virus at the same time, the viruses could mix (reassort) and produce a new virus with most of the genes from the human virus, but a hemagglutinin and/or neuraminidase from the avian virus. The resulting new virus would likely to be able to infect humans and spread from person to person, but it would have surface proteins (hemagglutinin and/or neuraminidase) not previously seen in influenza viruses that infect humans. This type of major change in the influenza A viruses is known as antigenic shift. Antigenic shift results when a new influenza A subtype to which most people have little or no immune protection infects humans. If this new virus causes illness in people and can be transmitted easily from person to person, an influenza pandemic can occur.

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Influenza A viruses are found in many different animals, including ducks, chickens, pigs, whales, horses and seals. Influenza B viruses circulate widely only among humans. While it is unusual for people to get influenza infections directly from animals, sporadic human infections and outbreaks caused by certain avian influenza A viruses have been reported.

A number of natural outbreak or challenge studies indicate that low doses of IFNα given orally and/or intranasally are safe and effective at treating human flu. IFNα administered intranasally coats the oropharynx and comes in contact with the same receptors as IFNα administered orally. Leukocyte interferon was given in low doses intranasally for 3 consecutive days to 374 subjects “at the height” of an influenza outbreak. Interferon-treated subjects had less severe illness than 382 subjects given placebo. When interferon was given to 320 subjects “before” the influenza outbreak, these subjects had less illness than the 317 subjects given placebo. It was reported that the interferon treatment was free of adverse events.

In 1969, approximately 14,000 people in Moscow participated in controlled studies of placebo versus interferon treatment during a natural outbreak of Hong Kong influenza. Interferon (about 128 units) or placebo was dripped into the nose daily for 5 days starting about the time of the first reported influenza cases. Interferon treatment significantly (P<0.01) reduced the number of influenza cases.

Intranasal drops of human interferon alpha (5,000 units daily) given for 4 months reduced the frequency and severity of diseases due to influenza A (H3N2 and H1N1) and parainfluenza virus. Data was collected on 83 volunteers in the study. Fever occurred in 6 of 40 volunteers given interferon and in 15 of 43 volunteers given placebo (P<0.01). Subjective symptoms such as headache, cough, fatigue, anorexia, myalgia, etc. occurred in 34% of volunteers given interferon and in 67% of volunteers given placebo (P<0.01).

In 1982, it was reported that human leukocyte interferon (10,000 units/day) or placebo was dripped into the nostrils of 27 children daily for 60 days. The children lived in an orphanage where natural outbreaks of influenza A and influenza B occurred during the treatment period. Interferon did not prevent illness but significantly reduced the duration of fever and reduced the main peak fever. Clinical manifestations of influenza were milder in children given interferon compared to placebo. Adverse events due to interferon therapy were not observed.26

During influenza epidemics in 1983, 1984 and 1985, 140 children were treated with a spray of natural human interferon alpha into the nose and mouth twice daily for 3-4 days. The total daily dose was reported to be 700-1600 units. The 53 control children were given traditional Chinese herbs. Children given interferon had a significantly (P<0.01) faster normalization of temperature at 24, 36 and 48 hours after the first treatment. The clinicians reported that pharyngitis and lymphadenosis of the posterior pharynx improved when fever subsided.

Low doses of interferon probably do not have a direct antiviral effect but instead exert an immune modulatory effect through interferon stimulated genes. Influenza studies conducted in the USA, Australia and Germany have shown that oral interferon protects mice against an otherwise fatal influenza infection. In February 2008, the Company filed an IND application with the FDA and plans to launch a Phase 2 clinical study for the 2008 - 2009 influenza season.

Oral Warts in HIV+ Patients.

Oral warts are lesions in the mouth caused by the human papillomaviruses. The FDA has granted Orphan Drug Designation to AMAR 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 launched a placebo-controlled, Phase 2 study in the 1st quarter of 2007. The protocol covers a 24-week, 80-patient study in which 20 patients are receiving placebo and 60 are receiving active treatment at 1500 IU per day. If the current study is successful, a Phase 3 trial to confirm safety and efficacy will be launched in 2009. As of today, 40 oral warts patients have been enrolled at 12 active clinical sites. Enrollment of a further 40 patients at a cost of approximately $120,000 is anticipated by the end of the second quarter of 2008.

Behcet’s Disease.

Behcet’s disease is a severe chronic relapsing inflammatory disorder marked by oral and genital ulcers, eye inflammation (uveitis) and skin lesions, as well as varying multisystem involvement including the joints, blood vessels, central nervous system, and gastrointestinal tract. The oral lesions are an invariable sign, occurring in all patients at some time in the disease. Behcet’s disease is found world-wide, and is a significant cause of partial or total disability. The US patient population has been estimated as 15,000. We filed with the FDA Office of Orphan Drugs and were granted (January 2000) orphan drug status for low dose orally administered IFNa treatment in this condition. A double-blind, placebo-controlled Phase II trial was completed in Turkey on April 2, 2008. Results are expected by the end of the second quarter of 2008.

Chronic Cough in COPD Patients.

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. A Phase II study to confirm the ability of low-dose orally administered interferon-alpha to reduce chronic coughing in COPD patients is scheduled to launch in the second quarter of 2008, with results expected by the end of 2008.

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Dr. Lorenz Lutherer of Texas Tech University has obtained university funding for a proof-of-concept study to evaluate orally administered IFNα in the treatment chronic cough in COPD patients. This experimental clinical study will be a Phase 2 randomized, double-blind, placebo-controlled, parallel trial in which 40 eligible volunteers with COPD-associated chronic cough will be randomly assigned to one of two groups in equal numbers to receive either IFNα or placebo. 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 IFNα to reduce the frequency and severity of chronic cough in COPD patients. The study will launch in the next 30 days with conclusion targeted for the third quarter of 2008. With additional funding, some subjects with Idiopathic Pulmonary Fibrosis (IPF) can be added to this study to confirm the beneficial effects reported by Dr. Lutherer from a pilot study of low-dose oral interferon treatment of patients with IPF.

In study of subjects with Sjogren’s syndrome, it was noted that chronic dry cough was relieved by oral interferon therapy. Chronic cough in horses with COPD (called inflammatory airway disease) was relieved by oral interferon, but not placebo. These 2 observations provide additional support for conducting a study of oral interferon on chronic coughing in COPD. 

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 in 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. The Company believes that the use of such lozenges gives it advantages over competitive technologies in terms of cost, taste and ease of handling. On March 13, 1992, the Company 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 the Company with a source of natural human interferon alpha for use in the Company’s interferon alpha-containing products. Additional information on the Development Agreement is set forth in Note 4 to the Financial Statements included in this prospectus.

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.

The license agreement covers a territory whose population is approximately 365 million. In Turkey, where the disease is more than 600 times more prevalent than in the United States, there are from 56,000 to 259,000 people who are afflicted with the disease, according to a review published in the New England Journal of Medicine. The U.S. Food and Drug Administration (FDA) has granted Orphan Drug Designation for this product for the clinical indication of Behcet’s Disease to us. The Orphan Drug Designation is designed to promote the development of treatments for diseases rare in the United States and provides certain marketing exclusivity incentives outlined under the Orphan Drug Act.

Under the terms of the agreement, Amarillo and NOBEL will conduct Behcet’s disease studies in Turkey under an Investigating New Drug (IND) Application submitted by ABI to the U.S. FDA. U.S. FDA approval will be sought and this FDA approval will be owned by ABI, but will be used by NOBEL to seek regulatory approval in each country to which the licensing rights apply.

A 12 week Phase II, placebo-controlled dose-ranging study of 85 patients with Behcet’s disease was completed in Turkey on April 2, 2008. Final results are expected to be available by the end of the second quarter of 2008. If the Phase 2 data are encouraging, then NOBEL will conduct a Phase 3 study before a New Drug Application (NDA) can be submitted to the US FDA.  

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Strategic Alliance with Bumimedic

We have also entered into a 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 ABI’s 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. CytoPharm has entered into discussions with regulatory agencies in the Territory to conduct clinical trials for oral interferon treatment of hepatitis B and influenza, which are expected to commence in 2008. 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. C.

Cytopharm plans to launch a Phase II, placebo-controlled, dose-ranging study of 165 hepatitis C virus infected patients in Taiwan in the third quarter of 2008. The study is designed to test the ability of low-dose orally administered interferon-alpha to reduce the virolgic relapse rate of patients who have completed standard therapy with pegylated interferon plus ribavirin. Treatment time is 6 months with 6 months of post treatment observation. Results are expected by the end of 2009.

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.

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 ownor licensetwelvepatents,two pending patents related to low-dose orally delivered interferon, and one issued patent on our dietary supplement, as listed below:

Patents with Method of Treatment Claims for Interferon Alpha

1."TREATMENT OF IMMUNO-RESISTANT DISEASE" as described and claimed in U.S. Patent No. 5,019,382 issued May 1991, Licensed. Expiration: May 2008..

2."METHOD FOR REDUCING SIDE EFFECTS OF CANCER THERAPY" as described and claimed in U.S. Patent No. 5,017,371 issued May 1991, Owned. Expiration: May 2008.

3."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.

4."TREATMENT OF VIRAL DISEASE WITH ORAL INTERFERON-ALPHA" as described and claimed in U.S. Patent No. 5,830,456 issued November 1998, Licensed. Expiration: May 2008.

5."TREATMENT OF NEOPLASTIC DISEASE WITH ORAL INTERFERON" as described and claimed in U.S. Patent No. 5,824,300 issued October 1998, Licensed. Expiration: October 2015.

6."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.

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7."TREATMENT OF HYPERALLERGENIC RESPONSE" as described and claimed in U.S. Patent No. 5,882,640 issued March 1999, Licensed. Expiration: March 2016.

8."LOW-DOSE ORAL ADMINISTRATION OF INTERFERONS” as described and claimed in U.S. Patent No. 5,910,304 issued June 1999, Licensed. Expiration: December 2010.

9."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.

10."INTERFERON-ALPHA MEDIATED UPREGULATION OF AQUAPORIN EXPRESSION" as described and claimed in U.S. Patent No. 6,506,377 issued January 2003, Owned. Expiration: September 2021.

Patents with Formulation Claims

1."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.

2."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.

3."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 2023.

There are no current patent litigation proceedings involving us.

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 may, 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. Some of competitors are Roche, Schering, Berlex, Serono, Biogen, InterMune and Hemispherix.

United States Regulation

Before any of our products can be marketed in the United States, they must receive approval from the FDA. To receive this approval, any drug we develop must undergo rigorous preclinical testing and clinical trials that demonstrate the product candidate’s safety and effectiveness for each indicated use. This extensive regulatory process controls, among other things, the development, testing, manufacture, safety, efficacy, record keeping, labeling, storage, approval, advertising, promotion, sale, and distribution of pharmaceutical products.

In general, before any ethical pharmaceutical product can be marketed in the United States the process typically required by the FDA:

• preclinical laboratory and animal tests;

• submission of an investigational new drug application, or IND, which must become effective before human clinical trials may begin;

• adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use;

• pre-approval inspection of manufacturing facilities and selected clinical investigators;

• Submission of a New Drug Application (NDA) to the FDA; and

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• FDA approval of an, or NDA, or of an NDA supplement (for subsequent indications or other modifications, including a change in location of the manufacturing facility).

Preclinical Testing

In the United States, drug candidates are tested in animals until adequate proof of safety and efficacy is established. These preclinical studies generally evaluate the mechanism of action and pharmacology of the product and assess the potential safety and efficacy of the product. Tested compounds must be produced according to applicable current good manufacturing practice (cGMP) requirements and preclinical safety tests must be conducted in compliance with FDA and international regulations regarding good laboratory practices (GLP). The results of the preclinical tests, together with manufacturing information and analytical data, are generally submitted to the FDA as part of an investigational new drug application, or IND, which must become effective before human clinical trials may commence. The IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA requests an extension or raises concerns about the conduct of the clinical trials as outlined in the application. If the FDA has any concerns, the sponsor of the application and the FDA must resolve the concerns before clinical trials can begin. Regulatory authorities may require additional preclinical data before allowing the clinical studies to commence or proceed from one Phase to another, and could demand that the studies be discontinued or suspended at any time if there are significant safety issues. Furthermore, an independent institutional review board, or IRB, for each medical center proposing to participate in the conduct of the clinical trial must review and approve the clinical protocol and patient informed consent form before the center commences the study.

Clinical Trials

Clinical trials for new drug candidates are typically conducted in three sequential phases that may overlap. In Phase 1, the initial introduction of the drug candidate into human volunteers, the emphasis is on testing for safety or adverse effects, dosage, tolerance, metabolism, distribution, excretion, and clinical pharmacology. Phase 2 involves studies in a limited patient population to determine the initial efficacy of the drug candidate for specific targeted indications, to determine dosage tolerance and optimal dosage and to identify possible adverse side effects and safety risks. Once a compound shows evidence of effectiveness and is found to have an acceptable safety profile in Phase 2 evaluations, pivotal Phase 3 trials are undertaken to more fully evaluate clinical outcomes and to establish the overall risk/benefit profile of the drug, and to provide, if appropriate, an adequate basis for product labeling. During all clinical trials, physicians will monitor patients to determine effectiveness of the drug candidate and to observe and report any reactions or safety risks that may result from use of the drug candidate. The FDA, the IRB, or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk.

The data from the clinical trials, together with preclinical data and other supporting information that establishes a drug candidate’s safety, are submitted to the FDA in the form of a new drug application, or NDA, or NDA supplement (for approval of a new indication if the product candidate is already approved for another indication). Under applicable laws and FDA regulations, each NDA submitted for FDA approval is usually given an internal administrative review within 45 to 60 days following submission of the NDA. If deemed complete, the FDA will “file” the NDA, thereby triggering substantive review of the application. The FDA can refuse to file any NDA that it deems incomplete or not properly reviewable. The FDA has established internal substantive review goals of six months for priority NDA’s (for drugs addressing serious or life threatening conditions for which there is an unmet medical need) and ten months for regular NDA’s. The FDA, however, is not legally required to complete its review within these periods, and these performance goals may change over time. Moreover, the outcome of the review, even if generally favorable, is not typically an actual approval, but an “action letter” that describes additional work that must be done before the NDA can be approved. The FDA’s review of a NDA may involve review and recommendations by an independent FDA advisory committee. The FDA may deny approval of an NDA or an NDA supplement if the applicable regulatory criteria are not satisfied, or it may require additional clinical data and/or an additional pivotal Phase 3 clinical trial. Even if such data are submitted, the FDA may ultimately decide that the NDA or NDA supplement does not satisfy the criteria for approval.

Data Review and Approval

Substantial financial resources are necessary to fund the research, clinical trials, and related activities necessary to satisfy FDA requirements or similar requirements of state, local, and foreign regulatory agencies. It normally takes many years to satisfy these various regulatory requirements, assuming they are satisfied. Information generated in this process is susceptible to varying interpretations that could delay, limit, or prevent regulatory approval at any stage of the process. Accordingly, the actual time and expense required to bring a product to market may vary substantially. We cannot assure you that we will submit applications for required authorizations to manufacture and/or market potential products or that any such application will be reviewed and approved by the appropriate regulatory authorities in a timely manner, if at all. Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations, which could delay, limit, or prevent regulatory approval. Success in early stage clinical trials does not ensure success in later stage clinical trials. Even if a product candidate receives regulatory approval, the approval may be significantly limited to specific disease states, patient populations, and dosages, or have conditions placed on them that restrict the commercial applications, advertising, promotion, or distribution of these products.

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Once issued, the FDA may withdraw product approval if ongoing regulatory standards are not met or if safety problems occur after the product reaches the market. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products which have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs. The FDA may also request additional clinical trials after a product is approved. These so-called Phase 4 studies may be made a condition to be satisfied after a drug receives approval. The results of Phase 4 studies can confirm the effectiveness of a product candidate and can provide important safety information via the FDA’s voluntary adverse drug reaction reporting system. Any products manufactured or distributed by us pursuant to FDA approvals would be subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with good manufacturing practices, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. We cannot be certain that we or our present or future suppliers will be able to comply with the good manufacturing practices regulations and other FDA regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, require us to recall a drug from distribution, or withdraw approval of the NDA for that drug. Furthermore, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market.

The FDA closely regulates the marketing and promotion of drugs. Approval may be subject to post-marketing surveillance and other record keeping and reporting obligations, and involve ongoing requirements. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising, and potential civil and criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturers’ communications on the subject of off-label use.

505(b)(2)

The traditional approval process for New Drugs is set out in Section 505(b)(1) of the Federal Food, Drug, and Cosmetic Act. An alternative path to FDA approval is for new or improved formulations of previously approved products. This alternative path, established by section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, permits the applicant to rely on certain preclinical or clinical studies conducted for an approved product as some of the information required for approval and for which the applicant has not obtained a right of reference. The FDA may also require companies to perform additional studies to support the change from the approved product. The FDA may then approve the new product candidate for all or some of the indications for which the referenced product was approved, as well as for any new indications sought by the Section 505(b)(2) applicant.

To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book publication. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is valid or will not be infringed by the new product. If the applicant does not challenge the listed patents, the Section 505(b)(2) application will not be approved until all the listed patents claiming the referenced product have expired. The Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting a NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. If a product that has orphan drug designation subsequently receives FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same disease, except in very limited circumstances, for seven years. These, very limited, circumstances are (i) an inability to supply the drug in sufficient quantities or (ii) a situation in which a new formulation of the drug has shown superior safety or efficacy. This exclusivity, however, also could block the approval of our product for seven years if a competitor obtains earlier approval of the same drug for the same indication.

Foreign Regulation

In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products in foreign countries. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

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Under European Union regulatory systems, we may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure, which is available for medicines produced by biotechnology or which are highly innovative, provides for the grant of a single marketing authorization that is valid for all EU member states. This authorization is a marketing authorization application (“MAA”). The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessment report, each member state must decide whether to recognize approval. This procedure is referred to as the mutual recognition procedure (“MRP”).

The policies of the FDA and foreign regulatory authorities may change and additional government regulations may be enacted which could prevent or delay regulatory approval of our investigational drugs or approval of new diseases for our existing products and could also increase the cost of regulatory compliance. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.

Research and Development

During the years ended December 31, 2007 and 2006, the Company incurred research and development expenses of $530,867 and $535,075, respectively.

Employees

We have 7 full-time employees and 1 part-time employee based in Amarillo, Texas. Of these employees, 3 are executive officers and 4 work in administrative and research and development capacities. We also use consultants in business and research development.

DESCRIPTION OF PROPERTY

Our executive and administrative offices are located at 4134 Business Park Drive, Amarillo, Texas in a 3,600 square-foot facility rented by us. The lease expires onDecember 31, 2008 and our monthly rent is $1,850 per month. We believe that the facilities are well maintained and generally suitable and adequate for our current and projected operating needs.

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 prospectus, we were not aware of any such legal proceedings or claims against us.

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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 as it does, will not generate significant product revenues. Our accumulated deficit has increased, from $25,953,878 at December 31, 2006 to $28,459,951at December 31, 2007. Operating losses are expected to continue for the foresee-able future and until such time as we are able to attain sales levels sufficient to support its operations.

In 2008 we will continue its research and development activities, as well as the activities necessary to develop commercial partnerships and licenses. Our expenditure of financial resources in 2008 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.

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Liquidity and Capital Resources

At December 31, 2007, we had available cash of approximately $47,184 and had a working capital deficit (current assets less current liabilities) of approximately $2,702,104. Current liabilities include two $1,000,000 notes plus $682,773 of accrued interest owed to Hayashibara Biochemical Laboratories, Inc. (HBL), our largest shareholder and benefactor. Assuming there is no decrease in current accounts payable, and accounting for various one-time expenses, our negative cash flow for operating activities plus equipment purchases, patent filings (burn rate) is approximately $118,638 per month. Our continued losses and lack of liquidity raise substantial doubt about whether we are able to continue as a going concern for a reasonable period of time. Our ability to continue as a going concern is dependent upon several factors including, but not limited to, our ability to generate sufficient cash flows to meet our obligations on a timely basis, obtain additional financing and continue to obtain supplies and services from its vendors. We will need to raise additional funds in order to fully execute our 2008 plan. We are presently negotiating with human health commercial development partners in various regions of the world. We believe that one or more of these agreements will be executed during 2008. 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.

Total outstanding current liabilities remained approximately equal, with approximately $2.78 million at December 31, 2007, as compared to approximately $2.75 million at December 31, 2006.

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

Effective January 1, 2006, we adopted SFAS No. 123 (revised), "Share-Based Payment" (SFAS 123(R)) utilizing the modified prospective approach. Prior to the adoption of SFAS 123(R) we accounted for stock option grant in accordance with APB Opinion No. 25,” Accounting for Stock Issued to Employees," and accordingly, recognized compensation expense for stock option grants using the intrinsic value method.

Under the modified prospective approach, SFAS 123(R) applies to new awards and to awards that were outstanding on January 1, 2006 that are subsequently vested, modified, repurchased or cancelled.  Under the modified prospective approach, compensation cost recognized in the first quarter of fiscal 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original  provisions of SFAS 123, and compensation cost for all share-based payments granted subsequent  to January 1, 2006 based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R).  For all quarters after the first quarter of fiscal 2006, compensation costs recognized will include compensation costs for all share-based payments granted based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R).

Results of Operations for the Year Ended December 31, 2007 as Compared to the Year Ended December 31, 2006

Revenues.  During the fiscal year ended December 31, 2007, $70,069 from product sales, sublicense fees and royalties was generated compared to $73,919 for the fiscal year ended December 31, 2006, a decrease of $3,850 or approximately 5.2%.  Revenue from federal research grants during the fiscal year ended December 31, 2006 was $60,023.  No federal research grant funds were received in 2007.

Selling, General and Administrative Expenses. Selling, General and Administrative expenses of $1,956,838 were incurred for the fiscal year ended December 31, 2007, compared to $2,288,045 for the fiscal year ended December 31, 2006, a decrease of $331,177 or approximately 14%.   Salaries and wages were $84,604 lower in 2007.   Most of the reduction in salaries and wages can be accounted for by employee stock grant, options and accrued vacation expenses that were $70,606 lower in 2007. Fund raising fees were $91,043 lower in 2007 than 2006 since private placement stock sales were lower in 2007.  Professional fees were $115,378 lower in 2007.

Non-Cash Consulting Activities . During the year ended December 31, 2007, 200,000 shares of restricted stock were issued to consultants in lieu of cash payments. Based upon the common stock trading price at the times of issuance and FASB rules, a non-cash consulting expense of $166,000 was recorded.   During 2006, 87,309 shares of restricted common stock were issued to consultants in lieu of cash payments and a non-cash consulting expense of $49,835 recorded for the issuance of these shares.  During 2007, the Company issued 1,610,000 options and warrants to consultants and recognized expense of $644,723.  During 2006, the Company issued 945,500 options to consultants and recognized expense of $737,863.

In the third and fourth quarter of 2007, consultants exercised 350,000 options for $.20 per share, generating $70,000.  In the second quarter of 2006, consultants exercised 250,000 options for $0.10 per share, generating $25,000 in cash. The rest of the options and warrants issued to consultants have not been exercised.

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Research and Development Expenses.   Research and Development expenses of $530,867 were incurred for the fiscal year ended December 31, 2007, compared to $535,075 for the fiscal year ended December 31, 2006, a decrease of $4,208 or approximately 0.8%.

Net Income (Loss).  Net Loss applicable to common shareholders for the fiscal year ended December 31, 2007 was $2,506,073 compared to a Net Loss of $2,777,661 for the fiscal year ended December 31, 2006, a decrease of $271,588 or approximately 10%.

MARKET PRICE OF AND DIVIDENDS ON REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock trades on the Over-the-Counter Bulletin Board (“OTC.BB”) under the symbol “AMAR.”  The following table sets forth the range of high and low bid prices of our common stock as reported and summarized on the OTC.BB for the periods indicated.  These prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.

Calendar Quarter	High Bid		Low Bid
2006 First Quarter	$	1.73	$	0.39
2006 Second Quarter	$	1.64	$	0.72
2006 Third Quarter	$	0.90	$	0.66
2006 Fourth Quarter	$	0.90	$	0.46
2007 First Quarter	$	1.08	$	0.59
2007 Second Quarter	$	0.92	$	0.55
2007 Third Quarter	$	0.62	$	0.36
2007 Fourth Quarter	$	0.50	$	0.22
2008 First Quarter	$	0.39	$	0.25
2008 Second Quarter *	$	0.33	$	0.25

* As of April 21, 2008.

On April 21, 2008, the last sale price reported on the OTC Bulletin Board for our common stock was $0.33 per share.

Penny Stock Rules

Our shares of common stock are subject to the "penny stock" rules of the Securities Exchange Act of 1934 and various rules under this Act. In general terms, "penny stock" is defined as any equity security that has a market price less than $5.00 per share, subject to certain exceptions. The rules provide that any equity security is considered to be a penny stock unless that security is registered and traded on a national securities exchange meeting specified criteria set by the SEC, authorized for quotation from the NASDAQ stock market, issued by a registered investment company, and excluded from the definition on the basis of price (at least $5.00 per share), or based on the issuer's net tangible assets or revenues. In the last case, the issuer's net tangible assets must exceed $3,000,000 if in continuous operation for at least three years or $5,000,000 if in operation for less than three years, or the issuer's average revenues for each of the past three years must exceed $6,000,000.

Trading in shares of penny stock is subject to additional sales practice requirements for broker-dealers who sell penny stocks to persons other than established customers and accredited investors. Accredited investors, in general, include individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 (or $300,000 together with their spouse), and certain institutional investors. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of the security and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security. Finally, monthly statements must be sent disclosing recent price information for the penny stocks. These rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock, to the extent it is penny stock, and may affect the ability of shareholders to sell their shares.

Holders

As of April 15, 2008, there were 29,672,034 shares of common stock issued and outstanding, approximately 1,600 holders of record of our common stock, 1,000 shares of Series A Preferred Stock issued and outstanding and 1 holder of record of our Series A Preferred Stock. The approximate holders of record of common stock was estimated by adding the number of shareholder accounts on the American Stock Transfer & Trust Company list dated 12/07/07 (404) to the number of shareholders on the Broadridge NOBO list dated 2/12/08 (1,621).

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Dividends

We have not declared any dividends on our common stock to date. We do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future.

Equity Compensation Plan Information

Stock Option Plans

We have two employee stock option plans. The first is entitled the 1996 Employee Stock Option Plan (the “1996 Plan”), which has been approved by our shareholders, and which was amended and restated effective September 12, 1998, and May 11, 1999, both of said amendments and restatements also having been approved by our shareholders. 590,000 shares of our common stock are reserved for issuance under said Employee Stock Option Plan; however, none of such options are currently outstanding to our employees. Options granted in prior years under the Employee Stock Option Plan have either lapsed, or have been exercised in full, or have been returned to us in exchange for non-qualified stock options. However, we may grant qualified stock options to employees under the 1996 Employee Stock Option Plan from time to time in the future.

We also have in place the 2006 Employee Stock Option and Stock Bonus Plan (the “2006 Plan”). This plan has authorized a maximum of 500,000 shares of our common stock to be issued or reserved. During 2006, 300,000 shares were issued under this plan to Joseph Cummins. The plan shall remain in effect until the end of our fiscal year 2011. Options granted under the plan have a ten year term and become exercisable over a five year period. The option price is equal to 100% of the fair value of the common stock on the date of grant.

We have one director plan entitled the Outside Director and Advisor Stock Option Plan, Amended and Restated as of May 11, 1999 (“Outside Director and Advisor Plan”). This plan allows options to purchase a maximum of 410,000 shares of the Company’s common stock to be granted to outside directors and scientific advisors to the Company at an exercise price equivalent to 100% of the fair market value of the common stock on the date of grant. These are ten-year options and become exercisable over a period of five years. None of these options are currently outstanding to our employees.

No stock or stock options were issued pursuant to the above-referenced employee stock option and stock bonus plans in 2006 and 2007, except as noted above.

The following table gives information about our common stock that may be issued upon the exercise of options and warrants granted to employees, directors and consultants, under our 1996 Plan, Outside Director and Advisor Plan, and 2006 Plan as of December 31, 2007. 

	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights			Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plan
Equity Compensation approved by Security Holders		-		$	-		1,000,000	(1)
Equity Compensation not approved by Security Holders		9,453,412	(3)	$	0.45		200,000	(2)
TOTAL		9,453,412		$	0.45		1,200,000

(1) This figure includes 590,000 shares available for future issuance under our amended and restated 1996 Plan and 410,000 shares available for future issuance under our amended and restated Outside Director and Advisor Plan.

(2) This figure represents shares available for future issuance under our and our 2006 Plan, which have not been approved by our stockholders.

(3) This figure includes 1,995,000 of options not yet vested.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

Our 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. Officers are elected annually by the Board of Directors and serve at the discretion of the Board. The directors and executive officers of the Company are as follows:

Directors and Executive Officers	Age	Position
Joseph M. Cummins, DVM, PhD (1)	65	Chairman of the Board, President, Chief Executive Officer
Peter R. Mueller, PhD	54	Chief Operating Officer and Director of Research
Gary W. Coy, PhD	63	Vice President and Chief Financial Officer
Martin J. Cummins	40	Vice President of Clinical and Regulatory Affairs
Stephen Chen, PhD (2)(3)(4)	58	Director
Thomas D’Alonzo (1)(2)(4)	64	Director
Dennis Moore, DVM (1)(4)	61	Director
James Page, MD (2)(3)	80	Director
Thomas Ulie (1)(3)	59	Director

(1) Member of the Executive Committee.

(2) Member of the Compensation & Stock Committee.

(3) Member of the Audit Committee.

(4) Member of the Search Committee.

Joseph M. Cummins has been our Chairman of the Board since he founded Amarillo in June 1984. Dr. Cummins has also served as President of the Company since December 1994 (with the exception of the period from April 1993 to December 1994). Dr. Cummins has been conducting research on oral cytokines, most particularly interferon alpha, in animals and humans for 30 years. Dr. Cummins has more than 40 publications and a dozen patents that 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.

Peter R. Mueller joined the Company on April 15, 2008 as Chief Operating Officer and Director of Research. Dr. Mueller is responsible for research and development, business development, licensing, global commercial development, productions and administration at the Company. He will be actively involved in the development of strategic alliances and business opportunities with other companies and organizations. Dr. Mueller has more than 20 years of global experience in the Pharmaceutical industry. Most recently, from April 2001 until joining Amarillo, Dr. Mueller was President of Epicenter Consulting, Inc. Previously he served as Vice President of Global Marketing & Medical Information and Technology for Aventis Pharmaceuticals. Prior to that position, he served as Vice President of Global Business & Marketing Services for Hoechst Marion Roussel. Dr. Mueller is a pharmacist with a Ph.D. degree in pharmaceuticals from the University of Mainz, Germany.

Gary W. Coy provided financial consulting services to the Company since 2004 and has been the Chief Financial Officer since April 2006. Previously, from February 2003 to April 2006, Dr. Coy was chairman and president of Biotech Financial Inc., where he provided financial consulting services. Dr. Coy was Chairman and President of multiple companies including Lighthouse Properties, Inc., a real estate partnership syndicator and property management company, from 1984 to 2002, and Poly-Drug, Inc., a toxicology and therapeutic drug monitoring medical laboratory that he founded, financed, developed and sold to a publicly traded company, from 1974 to 1983. Dr. Coy has a PhD (Chemistry), an M.B.A. (Finance) and an A.M. (Chemistry) from Boston University as well as a B.S. from the University of Iowa. 

Martin J. Cummins has held several positions within the Company since joining the Company full-time in June 1992. In October 2006, Mr. Cummins assumed the position of Vice President of Clinical and Regulatory Affairs, responsible for overseeing all research studies involving human participants as. 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 Bachelor of Sciences degree in microbiology from Texas Tech University. He is the son of Joseph Cummins.

Stephen Chen has been a director 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.

Thomas D’Alonzo has been a director 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. Since October 2006, Mr. D’Alonzo has been CEO and a director of Mimedx, Inc., a biotech company. Mr. D’Alonzo also serves as a director of Salix Pharmaceuticals, Biosciences Delivery Sciences, Inc., Dara Pharmaceuticals, Plexigen, Inc., and BioDelivery Sciences International, Inc. From 1999 to October 2006 Mr. D’Alonzo was retired and served on corporate boards such as those noted above. From 1996 to 1999, 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, from 1993 to 1996, Mr. D’Alonzo was President of Genevec, Inc., a gene therapy biotech company. Before that, from 1983 to 1993, Mr. D’Alonzo was President of Glaxo, Inc., the US unit of what is now Glaxo SmithKline.

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Dennis Moore has been a director 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.

James Page has been a director 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.

Thomas Ulie has been a director since June 2006. Mr. Ulie, a Chartered Financial Analyst, has been in the investment field for more than 30 years, and since 1994, has been CEO of First Island Capital, Inc., a West Coast-based NASD broker-dealer firm. He has wide-ranging experience in the investment community, having worked in investment banking, money management and research. Prior to First Island Capital, from 1992 to 1994, Mr. Ulie was a Senior Managing Director for the Stanford Company, a NYSE member firm.  Prior to that, from 1985 to 1992, Mr. Ulie was an Associate Director of Bear Stearns.

Family Relationships

Our CEO, Joseph M. Cummins, is the father of Martin J. Cummins, our Vice President of Clinical and Regulatory Affairs. 

EXECUTIVE COMPENSATION

Summary Compensation Table

The following executive compensation disclosure reflects all compensation awarded to, earned by or paid to the executive officers below. The following table summarizes all compensation in 2007 and 2006.   No other officers received annual compensation in excess of $100,000 during the last two fiscal years.

Name and Principal Position	Year		Salary		Bonus		Stock Awards		Option Awards		Non-Equity Incentive Plan Compensation		Nonqualified Deferred Compensation Earnings		All Other Compensation		Total
Joseph M. Cummins, Chairman of the Board, President and Chief Executive Officer (1)(4)		2007	$	175,000		-		-		-		-		-		-	$	175,000
		2006	$	141,416	$	60,000	$	216,000		-		-		-		-	$	417,416
Martin J. Cummins, Vice President of Clinical and Regulatory Affairs (2)		2007	$	125,000	$	500		-		-		-		-		-	$	125,500
		2006	$	97,866		-		-		-		-		-		-	$	97,866
Dr. Gary W. Coy, Vice President and Chief Financial Officer (3)(4)		2007	$	125,000	$	500		-		-		-		-		-	$	125,500
		2006	$	88,542		-		-		-		-		-		-	$	88,542

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(1) Mr. Cummins has been Chairman of the Board of Directors since June 1984 and as President and Chief Executive Officer since June 1984 (with the exception of the periods between April 1993 and December 1994). In 2006 he received $141,416 in annual salary, a $60,000 bonus ($20,000 that was paid in 2007) and was awarded a stock grant of $216,000 in shares (equivalent to 300,000 shares) of our common stock for his profession contributions in 2006. Pursuant to an employment contract executed in September 2006, Mr. Cummins’ annual salary was set at $175,000 and was granted 400,000 options to purchase shares of our common stock with an exercise price of $0.85 (equal to the closing price on September 8, 2006), one-fourth vesting September 10, 2007, and the remaining three-fourths vesting annually every September 10 over 3 years. In 2007, he received a bonus award of $2,500 in cash and $2,500 in shares of our common stock.

(2) Mr. Cummins joined the Company as Vice President of Clinical and Regulatory Affairs in September 2006. Pursuant to an employment contract executed in September 2006, Mr. Cummins’ annual salary was set at $125,000 and he was granted 400,000 share options with an exercise price of $0.85 (equal to the closing price on September 8, 2006), one-fourth vesting on September 10, 2007 and the remaining three-fourths vesting annually every April 1 over 3 years. Dr. Cummins was granted a $500 bonus in 2007.

(3) Dr. Coy joined the Company as Chief Financial Officer in April 2006 and assumed the additional position of Vice President in June 2006. Pursuant to an employment contract executed in March 2006, Mr. Coy’s annual salary was set at $125,000 and he was granted 400,000 share options with an exercise price of $0.75 per share, one-fourth vesting on April 1, 2007 and the remaining three-fourths vesting annually every April 1 over 3 years. Dr. Coy was granted a $500 bonus in 2007.

(4) Prior to Dr. Coy’s employment in 2006, Joseph Cummins served as Chief Financial Officer; the Company had no position of Vice President prior to April 2006.

In April 2008, Dr. Peter R. Mueller joined the Company as Chief Operating Officer and Director of Research in April 2008. Pursuant to an employment contract executed in April 2008, Dr.Mueller’s annual salary was set at $210,000 and he was granted 700,000 share options with an exercise price of $0.32 (equal to the closing price on April 15, 2008), 100,000 options vesting on April 15, 2008 and the remaining options vesting annually every April 15 over 3 years.

Director Compensation for Year Ending December 31, 2007

Directors who are also employees of the Company (consisting in 2007 of Joseph Cummins) receive no additional remuneration for their services as directors. Non-employee directors receive $1,000 for attendance at directors’ meetings and $250 for regularly scheduled teleconference meetings, and are reimbursed for necessary travel expenses incurred in connection with board meetings.

The following table summarizes the compensation for our non-employee board of directors for the fiscal year ended December 31, 2007: 

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)		Option Awards ($)		All Other Compensation ($)		Total ($)
Stephen Chen, PhD		1,000		—		—		—		1,000
Thomas D’Alonzo		1,000		—		—		—		1,000
Dennis Moore, DVM		1,000		—		—		—		1,000
James Page, MD		1,000		—		—		—		1,000
Thomas Ulie		1,000		—		—		—		1,000

The following sets forth information concerning individual grants of stock options outstanding to our named executive officers as of December 31, 2007, under our 1996 and 2006 Plan:

Outstanding Equity Awards at December 31, 2007

	Option Awards
Name	Option Grant Date		Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable(1)		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)		Option Exercise Price ($)		Option Expiration Date
Joseph M. Cummins,		9/29/03		290,000		-		-	$	0.40		9/28/08
Chairman, President, CEO (2)		11/06/03		200,000		-		-	$	0.35		11/05/08
		05/14/04		490,000		-		-	$	0.23		5/13/09
		08/27/04		150,000		-		-	$	0.27		8/27/09
		02/26/05		100,000		-		-	$	0.40		2/25/10
		08/23/05		500,000		-		-	$	0.30		8/22/10
		09/10/06		100,000		300,000		-	$	0.85		9/10/12	(3)
Gary W. Coy,		03/13/06		100,000		300,000		-	$	0.75		3/31/12	(4)
Vice President, CFO (2)
Martin J. Cummins,		09/29/03		29,000		-		-	$	0.40		9/29/08
Vice President of Clinical and		05/14/04		150,000		-		-	$	0.23		5/13/09
Regulatory Affairs		08/23/05		500,000		-		-	$	0.30		8/22/10
		09/10/06		100,000		300,000		-	$	0.85		9/10/12	(3)

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	Stock Awards
	Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Joseph M. Cummins		0		0		0		0
Gary W. Coy		0		0		0		0
Martin J. Cummins		0		0		0		0

(1) Vesting schedule by individual for 2007 share option grants is included in footnotes to Summary Compensation Table above.

(2) Prior to Dr. Coy’s employment in 2006, Joseph Cummins served as Chief Financial Officer; the Company had no position of Vice President prior to April 2006.

(3) Options expire on fifth anniversary of the options’ vesting dates, beginning September 10, 2007 through September 10, 2010.

(4) Options expire on fifth anniversary of the options’ vesting dates, beginning March 31, 2007 through March 31, 2010.

Compensation Committee Interlocks and Insider Participation

We have a compensation and stock option committee consisting of Stephen Chen, James Page, and Thomas D’Alonzo. During the fiscal year ended December 31, 2007, none of our executive officers served on the compensation committee or board of directors of any other entity, one of whose executive officers served on our compensation and stock option committee.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial ownership of our common stock as of April 15, 2008, by:

• each person known by us to be a beneficial owner of more than 5.0% of our outstanding common stock;

• each of our directors;

• each of our named executive officers; and

• all directors and executive officers as a group.

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• each of our named executive officers; and

• all directors and executive officers as a group.

The number and percentage of shares beneficially owned is determined under rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire beneficial ownership of within 60 days of April 15, 2008 through the exercise of any stock option or other right. Unless otherwise indicated in the footnotes, each person has sole voting and investment power with respect to the shares shown as beneficially owned. A total of 29,672,034shares of our common stock were issued and outstanding as of April 15, 2008.

Name of and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership (1)			Percent of Class
5% Stock Holders
Hayashibara Biochemical Laboratories, Inc. 2-3 Shimoishii 1-chome Okayama 700, Japan		3,118,655			10.51	%
Claus Martin, MD Gutenreuth 1  D-83700 Rottach-Egern, Germany		1,633,617			5.51	%
		4,752,272			16.02	%
Directors and Named Executive Officers
Joseph M. Cummins Chairman, President and Chief Executive Officer 7308 Ashland Amarillo, TX 79119		2,171,196	(2)		6.89	%
Peter R. Mueller Chief Operating Officer and Director of Research 3 Busch Court Clinton, NJ 08809		110,000	(3)		*
Gary W. Coy Vice President and Chief Financial Officer 907 Cat Hollow Club Drive Spicewood, TX 78669		560,741	(4)		1.88	%
Martin J. Cummins Vice President, Clinical and Regulatory Affairs 6615 Sandie Dr. Amarillo, TX 79109		934,966	(5)		3.04	%
Dennis Moore Director 402 Fish Hatchery Hamilton, MT 59840		1,020,741	(6)		3.35	%
Thomas D’Alonzo Director 908 Vance Street Raleigh, NC 27608		28,672			*
Stephen Chen Director Floor 7-1, No. 18, Xin Yi Road, Sec. 5 Taipei, Taiwan		903,625	(7)		2.97	%

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James Page Director 103 Clubhouse Lane, #182 Naples, FL 34105	855,034	(8)	2.80	%
Thomas Ulie Director P.O. Box 814 Mercer Island, WA 98040	771,300		2.60	%
All directors and executive officers as a group. (9 persons)	7,356,275		21.03	%

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* Less than 1%.

(1) Applicable percentage ownership is based on 29,672,034 shares of common stock outstanding as ofApril 15, 2008 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 April 15, 2008 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) Includes options to purchase 1,830,000 shares of our common stock beneficially owned by Mr. Cummins that are exercisable within 60 days. Does not include options to purchase 300,000 shares of our common stock that are not exercisable within 60 days.

(3) Includes options to purchase 100,000 shares of our common stock beneficially owned by Mr. Mueller exercisable within 60 days.

(4) Includes options to purchase 200,000 shares of our common stock beneficially owned by Mr. Coy exercisable within 60 days. Does not include options to purchase 200,000 shares of our common stock that are not exercisable within 60 days.

(5) Includes options to purchase 779,000 shares of our common stock beneficially owned by Mr. Cummins that are exercisable within 60 days. Does not include options to purchase 300,000 shares of our common stock not exercisable within 60 days.

(6) Includes options to purchase814,125 shares of our common stock beneficially owned by Mr. Moore exercisable within 60 days.

(7) Includes options to purchase 774,125 shares of our common stock beneficially owned by Mr. Chen exercisable within 60 days.

(8) Includes options to purchase 814,125 shares of our common stock beneficially owned by Mr. Page exercisable within 60 days.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND CORPORATE GOVERNANCE

Certain Relationships and Related Transactions

 We have relied significantly on HBL, our largest shareholder, for a substantial portion of its capital requirements. Pursuant to the Development Agreement described at Item 1 of Part 1 above, HBL advanced $9,000,000 for funding of research. In addition, HBL has purchased substantial amounts of our common stock from time to time, to the point where it now owns 10.51% of the issued and outstanding shares of our common stock. HBL loaned $1 million to us on November 30, 1999 and an additional $1 million on February 29, 2000, both loans bearing interest at 4.5% per annum. The November 30, 1999 loan has been extended untilJune 3, 2008 and the February 29, 2000 loan has been extended toAugust 28, 2008. The aggregate balance on bothloans at December 31, 2007, including principal and accrued interest, was $2,682,773.HBL has offered to extend the November 30, 1999 loan until December 3, 2009 and the February 29, 2000 loan until February 28, 2010 if $145,000 of accrued interest is paid (in addition to $200,000 already paid in January 2008) before August 31, 2008. In addition to the above, HBL and the Company are parties to various license and manufacturing and supply agreements pursuant to which we license certain technology to or from HBL. HBL supplies formulations of its interferon alpha and other products to us. Additional information on these agreements is set forth in Notes 3, 4 and 5 to the Financial Statements reported in our Form 10-KSB for the year ended December 31, 2007 and included in this prospectus.

During 2006 and 2007, we used the law firm of SandersBaker, P.C. Mr. Edward Morris, Secretary of the Company, is a partner in that firm. We were invoiced $61,707 by said firm in 2006 and $59,387 in 2007.

In March 2006 we paid options with $249,448 fair value to Dr. Claus Martin, a consultant. In March 2007, we paid Dr. Martin, a stock grant with $84,000 fair value. On November 11, 2007, Dr. Martin became a 5% or more shareholder, beneficially owning 5.54% of the shares of our common stock.

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Between February 2008 and April 2008; we received financial and marketing consulting services from Epicenter Consulting, Inc., a company wholly-owned by Peter R. Mueller; chief operating officer and director of research of the Company. Consulting services ceased when Mr. Mueller began his employment with the Company in April 2008.

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.

Director Independence

Messrs. Chen, D’Alonzo, Moore, Page, and Ulie are independent as that term is defined under the Nasdaq Marketplace Rules.

MATERIAL CHANGES

There have been no material changes in our affairs since the year ended December 31, 2007 that have not been described in a subsequent Form 10-QSB or Form 8-K filed under the Exchange Act.

ADDITIONAL INFORMATION

Federal securities laws require us to file information with the Commission concerning our business and operations.  Accordingly, we file annual, quarterly, and special reports, and other information with the Commission.  You can inspect and copy this information at the public reference facility maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W, Room 1024, Washington, D.C. 20549.

You can get additional information about the operation of the Commission's public reference facilities by calling the Commission at 1-800-SEC-0330. The Commission also maintains a web site (http://www.sec.gov) at which you can read or download our reports and other information.

We have filed with the Commission a registration statement on Form S-1 under the Securities Act of 1933 with respect to the common stock being offered hereby. As permitted by the rules and regulations of the Commission, this prospectus does not contain all the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to Amarillo and the common stock offered hereby, reference is made to the registration statement, and such exhibits and schedules. A copy of the registration statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the Commission at the addresses set forth above, and copies of all or any part of the registration statement may be obtained from such offices upon payment of the fees prescribed by the Commission. In addition, the registration statement may be accessed at the Commission’s web site.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Art. 2.02-1 of the Texas Business Corporation Act allows a corporation to indemnify any officer, director, employee or agent who is a party or is threatened to be made a party to a litigation by reason of the fact that he or she is or was an officer, director, employee or agent of the corporation, or is or was serving at the request of the corporation as an officer, director, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such director or officer, or only for reasonable expenses actually incurred in connection with the proceeding if the person is found liable on the basis that personal benefit was improperly received by him or is found liable to the corporation, if:

·         there was no breach by the officer, director, employee or agent of his or her fiduciary duties to the corporation involving intentional or willful misconduct; or

·    the officer, director, employee or agent acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation,

and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

Article IV of our By-Laws provides for indemnification of our current or former directors and officers or any person who may have served at request as a director or officer of another corporation in which it owned shares of capital stock or of which it is a creditor. Such indemnification extends to liabilities imposed upon the director or officer and expenses reasonably incurred by him in connection with any claim made against him, or any action, suit or proceeding to which he may be a party by reason of his being, or having been such director or officer, and against such sums as independent counsel selected by the Board of Directors shall deem reasonable payment made in settlement of any such claim, action, suit or proceeding primarily with a view of avoiding expenses of litigation; provided, however, that no director or officer shall be indemnified with respect to matters as to which he shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in performance of duty, or with respect to any matters which shall be settled by the payment of sums which counsel selected by the Board of Directors shall not deem reasonable payment made primarily with a view to avoiding expenses of litigation, or with respect to matters for which such indemnification would be against public policy.

30

The Officers and Directors do not have indemnification agreements with the Company. The Company does have $5,000,000 of Directors and Officers Liability Insurance, which it will use toindemnify such directors and executive officers, to the extent permitted by our By-Laws or the laws of the State of Texas, against any expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any actual or threatened action or proceeding to which such director or officer is made or threatened to be made a party by reason of the fact that such person is or was a director or officer of the Company.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of Amarillo Biosciences, Inc. pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

LEGAL MATTERS

The validity of the shares offered hereby will be passed upon for us by Sichenzia Ross Friedman Ference LLP, 61 Broadway, New York, New York 10006.

EXPERTS

The balance sheet of Amarillo as of December 31, 2007 and the related statements of operations, stockholders’ deficit, and cash flows for each of the years ended December 31, 2007and 2006 have been included in the registration statement on Form S-1 of which this prospectus forms a part, in reliance on the reports of LBB & Associates Ltd., LLP, an independent registered public accounting firm, given on the authority of that firm as experts in auditing and accounting.

31

Amarillo Biosciences, Inc.

Financial Statements

Year ended December 31, 2007

Contents
Report of Independent Registered Public Accounting Firm	F-1
Audited Financial Statements
Balance Sheet	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 sheet of Amarillo Biosciences, Inc. (the “Company”) as of December 31, 2007, and the related statements of operations, stockholders' deficit, and cash flows for each of the years in the two-year period ended December 31, 2007. 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, 2007, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2007 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 2008 raise substantial doubt about its ability to continue as a going concern. The 2007 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

LBB & Associates Ltd., LLP

Houston, Texas

March 17, 2008

F-1

Amarillo Biosciences, Inc.

Balance Sheet

December 31, 2007

Assets
Current assets:
Cash and cash equivalents	$           47,184
Other current assets	31,688
Total current assets	78,872
Property, equipment, and software, net of accumulated depreciation of $51,463	14,098
Patents, net of accumulated amortization of $218,139	120,925
Total assets	$           213,895
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses	$           98,203
Accrued interest - related party	682,773
Notes payable - related party	2,000,000
Total current liabilities	2,780,976
Total liabilities	2,780,976
Commitments and contingencies
Stockholders' deficit
Preferred stock, $.01 par value:
Authorized shares - 10,000,000
Issued shares – none	-
Common stock, $.01 par value:
Authorized shares - 100,000,000
Issued shares - 29,465,261	294,653
Additional paid-in capital	25,598,217
Accumulated deficit	(28,459,951)
Total stockholders' deficit	(2,567,081)
Total liabilities and stockholder's deficit	$           213,895

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

F-2

Amarillo Biosciences, Inc.

Statements of Operations

	Year ended December 31,
	2007	2006
Revenues:
Sales – Nutraceutical	$         2,150	$       3,934
Federal research grants	-	60,023
Sublicense fee revenue	40,000	69,985
Royalty revenue – Related Party	27,919	-
Total revenues	70,069	133,942
Operating expenses:
Cost of sales	680	258
Research and development expenses	530,867	535,075
Selling, general and administrative expenses	1,956,838	2,288,045
Total operating expenses	2,488,385	2,823,378
Operating loss	(2,418,316)	(2,689,436)
Other income (expense)
Interest expense	(90,648)	(93,149)
Interest income	2,891	3,034
Investment income	-	1,890
Net loss	$ (2,506,073)	$ (2,777,661)
Basic and diluted net loss per share	$          (0.09)	$          (0.12)
Weighted average shares outstanding	26,569,803	22,479,399

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

F-3

Amarillo Biosciences, Inc.

Statements of Stockholders’ Deficit

Years Ended December 31, 2007 and 2006

	Issuance Price	Common Stock		Additional Paid in Capital	Accumulated Deficit	Total Stockholders' Deficit
		Shares	Amount
Balance at December 31, 2005		19,801,870	$   198,019	$  20,648,219	$  (23,176,217)	$ (2,329,979)
Net loss for year ended December 31, 2006		-	-	-	(2,777,661)	(2,777,661)
Fair value of options issued				851,518		851,518
Exercise of options for cash	0.06-0.27	350,000	3,500	34,400	-	37,900
Conversion and exercise of cashless options	0.84	547,216	5,472	(5,472)	-	-
Issuance of common stock for cash in private     placements	0.20-0.55	3,344,917	33,449	1,516,636	-	1,550,085
Issuance of common stock for services	0.433-1.6233	387,309	3,873	261,962	-	265,835
Issuance of common stock for debt     repayment	0.55	45,455	455	38,182	-	38,637
Balance at December 31, 2006		24,476,767	244,768	23,345,445	(25,953,878)	(2,363,665)
Net loss for year ended December 31, 2007		-	-	-	(2,506,073)	(2,506,073)
Fair value of options issued				879,662		879,662
Exercise of options & warrants for cash	0.06-0.44	529,486	5,295	97,194	-	102,489
Conversion and exercise of cashless options	0.06-0.44	171,853	1,719	(1,719)	-	-
Issuance of common stock for cash in     private placements	0.20-0.45	4,087,155	40,871	1,113,635	-	1,154,506
Issuance of common stock for services	0.82-0.84	200,000	2,000	164,000	-	166,000
Balance at December 31, 2007		29,465,261	$   294,653	$  25,598,217	$  (28,459,951)	$            (2,567,081)

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		2007		2006
Net loss		$  (2,506,073)	$  (2,777,661)
Adjustments to reconcile net loss to net cash used for operating activities:
	Depreciation and amortization	18,783	15,178
	Common stock issued for services and  retirement of debt	166,000	279,473
	Fair value of options issued	879,662	851,518
	Changes in operating assets and liabilities:
Other current assets		2,683	(31,583)
Accounts payable and accrued liabilities		(55,179)	111,868
Accrued interest		82,072	90,000
Net cash used in operating activities		(1,412,052)	(1,461,207)
Investing Activities
Purchase of property and equipment		(2,578)	(18,406)
Investment in Patents		(9,025)	(19,343)
Net cash used in investing activities		(11,603)	(37,749)
Financing Activities
Proceeds from exercise of warrants and options		102,489	37,900
Repayments of notes payable		-	(68,500)
Issuance of common stock		1,154,506	1,550,085
Net cash provided by financing activities		1,256,995	1,519,485
Net increase (decrease) in cash		(166,660)	20,529
Cash and cash equivalents at beginning of period		213,844	193,315
Cash and cash equivalents at end of period		$         47,184	$        213,844
Supplemental Cash Flow Information
Cash paid for interest		$           2,891	$            3,149
Stock issued for debt repayment		$                   -	$          25,000

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

F-5

Amarillo Biosciences, Inc.

Notes to Financial Statements

December 31, 2007

1. Organization and Summary of Significant Accounting Policies

Organization and Business

Amarillo Biosciences, Inc. (the "Company” or “AMAR"), 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

The Company's viability is dependent upon successful commercialization of products resulting from its research and product development activities. The Company plans 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. All of the Company's products will require significant additional development, laboratory and clinical testing and investment prior to the Company obtaining regulatory approval to commercially market its product(s). Accordingly, for at least the next few years, the Company will continue to incur research and development and general and administrative expenses and may not generate sufficient revenues from product sales to support its operations.

The Company has been dependent upon financing from its stockholders. The Company’s activities have been financed primarily through the issuance of common stock, and under an agreement with a major stockholder, and its initial public offering.

The Company’s 2008 plan of operations calls for the Company to expend approximately $2 million cash, excluding funding fees, in 2008. At December 31, 2007, the Company had available cash of $47,184 and negative working capital (current assets less current liabilities) of ($2,702,104).  Current liabilities included two $1 million notes and $682,773 accrued interest owed to Hayashibara Biochemical Laboratories, Inc. (“HBL”), the Company’s largest shareholder and supplier of interferon. The Company paid $200,000 of accrued interest to HBL in January of 2008 and HBL extended the notes and accrued interest until June 3, 2008 and August 28, 2008.   HBL will extend the notes until December 3, 2009 and February 28, 2010 if payment of $145,000 of accrued interest is received by August 31, 2008.

F-6

1. Organization and Summary of Significant Accounting Policies (Continued)

Going Concern (Continued)

The Company’s continued losses and lack of liquidity indicate that the Company may not be able to continue as a going concern for a reasonable period of time. The Company’s ability to continue as a going concern is dependent upon several factors including, but not limited to, the Company’s ability to generate sufficient cash flows to meet its obligations on a timely basis, obtain additional financing and continue to obtain supplies and services from its vendors.  On January 8, 2008, the Company received gross proceeds of $1,000,000 from the sales of convertible preferred stock. After deducting expenses of the private placement, the Company received net proceeds of approximately $841,500.  The Company will need to raise approximately $1,500,000 additional funds in order to execute its 2008 plan.

The Company is presently negotiating with human health commercial development partners in various regions of the world including the United States, China, South America and Southeast Asia. The Company believes that one or more of these agreements will be executed during 2008. These agreements could generally include provisions for the commercial partner to pay  a technology access fee, could include payments for a portion of the clinical trial expenses, could include payment obligations 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 for the Company. However, there can be no assurance that the Company will be successful in obtaining additional funding from either human health and animal health commercial development partners or private investors. If the Company is not successful in raising additional funds, it will need to significantly curtail clinical trial expenditures and to further reduce staff and administrative expenses and may be forced to cease operations.

Fair Value of Financial Instruments

The Company's financial instruments consist of cash and cash equivalents, receivables and debt. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

Stock Based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised), "Share-Based Payment" (SFAS 123(R)) utilizing the modified prospective approach. Prior to the adoption of SFAS 123(R) we accounted for stock option grant in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees," and accordingly, recognized compensation expense for stock option grants using the intrinsic value method.

Under the modified prospective approach, SFAS 123(R) applies to new awards and to awards that were outstanding on January 1, 2006 that are subsequently modified, repurchased

F-7

1. Organization and Summary of Significant Accounting Policies (Continued)

or cancelled.  Under the modified prospective approach, compensation cost recognized in the first quarter of fiscal 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original  provisions of SFAS 123, and compensation cost for all share-based payments granted subsequent  to January 1, 2006 based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R).  For all quarters after the first quarter of fiscal 2006, compensation costs recognized will include compensation costs for all share-based payments granted based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R).

The fair value of each option granted in 2006  is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield of 0.0%, expected volatility of 134.0%, risk-free interest rate of 1.5% and expected life of 60 months.  The fair value of each option granted in 2007 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield of 0.0%, expected volatility of 103.2%, risk-free interest rate of 4.34% and expected life of 1.57 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 balance of the allowance for doubtful accounts as of December 31, 2007 is $0.

Accounts receivable amounted to $887 as of December 31, 2007, and are included with other current assets in the accompanying financial statements.

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, 2007 the Company has $3,133 of inventory included in other current assets.

F-8

1. Organization and Summary of Significant Accounting Policies (Continued)

Property and Equipment

Property, equipment and software are stated on the basis of historical cost less accumulated depreciation.  Depreciation is provided using the straight-line method over the two to five 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 $13,970 and $12,380 for the years ended December 31, 2007 and 2006, respectively.

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.

F-9

1. Organization and Summary of Significant Accounting Policies (Continued)

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 $27,919 was reported in the year ended December 31, 2007 for HBL sales of Bimron to BioVet.

Research and Development

Research and development costs are expensed as incurred.

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.

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.

F-10

1. Organization and Summary of Significant Accounting Policies (Continued)

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 2007 the majority of revenue came from royalties from its foreign supplier and a sublicense fee from one of its sublicensees.  The loss of revenue from one these revenue sources could adversely affect the Company’s future revenues.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements.  SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements.  This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007.  Management is currently evaluating the impact SFAS No. 157 will have on the Company’s financial position, results of operations, and cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB statement No. 115.” This Statement permits all entities to choose, at specified election dates, to measure eligible items at fair value (the “fair value option”). A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. If an entity elects the fair value option for a held-to-maturity or available-for-sale security in conjunction with the adoption of this Statement, that security shall be reported as a trading security under Statement 115, but the accounting for a transfer to the trading category under paragraph 15(b) of Statement 115 does not apply. Electing the fair value option for an existing held-to-maturity security will not call into question the intent of an entity to hold other debt securities to maturity in the future. This statement is effective as of the first fiscal year that begins after November 15, 2007.  The Company is currently analyzing the effects of SFAS 159 but does not expect its implementation will have a significant impact on the Company's financial condition or results of operations.

F-11

2. Property, Equipment and Software

Equipment is stated at cost and consists of the following at December 31, 2007:

Furniture and equipment	$       58,528
Software	7,033
	65,561
Less:  accumulated depreciation	$       14,098

Depreciation expense amounted to $4,813 and $2,798 for the years ended December 31, 2007 and 2006, respectively.

3. Notes Payable

The Company had an unsecured loan agreement with HBL (July 22, 1999), which called for HBL to loan the Company $3,000,000 to be advanced in three installments. One of these three notes was converted into stock as described below.  The annual interest rate on unpaid principal from the date of each respective advance was 4.5 percent, with accrued interest being payable at the maturity of the note. $1,000,000 was payable on or before December 3, 2007, or on or before the expiration of one (1) year after approval of the Company’s product by the FDA, whichever occurs first. This note has been extended and is payable on or before June 3, 2008, or on or before the expiration of one (1) year after approval of the Company's product by the FDA, whichever occurs first. The other $1,000,000 was payable on or before February 29, 2008, or on or before the expiration of one year after approval of the Company’s product by the FDA, whichever occurs first.  This note has been extended and is payable on or before August 28, 2008, or on or before expiration or on or before the expiration of one year after approval of the Company’s product by the FDA, whichever occurs first.   HBL will extend the notes to December 3, 2009 and February 28, 2010 respectively if $145,000 of accrued interest is paid on or before August 31, 2008.

On September 30, 1999, the Company entered into an agreement to convert debt with HBL regarding the above described note payable to HBL in the then principal amount of $1,000,000, the first loan installment having by then been advanced. On October 15, 1999, pursuant to the agreement to convert debt, HBL canceled the then note balance in exchange for 1,111,831 shares of common stock of the Company valued at the then market value of $0.9044 per share.  This stock conversion leaves the Company owing HBL a principal amount of $2,000,000 plus accrued interest.

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, 2007 of $1,915 which is included in accounts payable and accrued expenses. This line is used from time to time for purchases.

F-12

4. Manufacturing and Supply Agreements

The Company was a party to the following manufacturing and supply agreements at December 31, 2007:

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.

5. 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.

A $7,500 minimum cash royalty was paid by the Company to Texas A&M University System during 2007. A $19,991 sublicense fee was paid to HBL in 2007 based on sublicense fee income earned by the Company during the year.  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.

F-13

6. 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 $120,000 to complete enrollment of 40 HIV+ patients in the oral warts Phase 2 clinical trials in 2008.

7. Common and Preferred Stock

The Company has 100,000,000 shares of voting common shares authorized for issuance and 10,000,000 shares of preferred stock authorized for issuance which is issuable in series. To date, no preferred stock has been issued.   The shareholders approved an increase in authorized shares from 50,000,000 to 100,000,000 in 2007. The Company has 40,118,673 shares of common stock outstanding and reserved for issuance upon exercise of options and warrants granted including 1,200,000 of options reserved but not issued for employee and director plans.

During 2007, the Company sold 4,087,155 unregistered shares of its voting common stock in private placement offerings.  Of these sales, 1,290,012 shares were sold for $0.45 per share; 97,143 shares were sold for $0.35 per share; and 2,700,000 shares were sold for $0.20 per share: generating $1,154,506 in cash.

During 2007, the Board of Directors authorized the issuance of 200,000 shares of restricted common stock to consultants in lieu of cash payments. Based upon the common stock trading price at the times of issuance, and FASB rules, a non-cash consulting expense of $166,000 was recorded for the issuance of these shares during the year ended December 31, 2007.

During the years ended December 31, 2007 and 2006, finder’s fees paid related to private placements of stock totaled $34,950 and $120,850, and are included as general and administrative expenses in the accompany statements of operations.

8. Stock Options and Warrants

The Company has three stock option plans: the 1996 Employee Stock Option Plan (1996 Employee Plan), the 2006 Employee Stock Option and Stock Bonus Plan (2006 Employee Plan) and the Outside Director and Advisor Stock Option Plan (Director Plan).

The 1996 Employee Plan has authorized the grant of options to employees for up to 590,000 shares of the Company’s common stock. All options granted have five to ten year terms and become exercisable over a four to five year period. The option price is equal to 100% to 110% of the fair value of the common stock on the date of grant depending on the percentage of common stock owned by the optionee on the grant date.

F-14

8. Stock Options and Warrants (Continued)

The 2006 Employee Plan has authorized a maximum of 500,000 shares of the Company’s common stock to be issued or reserved. During 2006, 300,000 shares under this plan were issued to an employee of the Company. The plan shall remain in effect until the end of the Company’s fiscal year 2011. Options granted under the plan have a ten-year term and become exercisable over a five-year period. The option price is equal to 100% of the fair value of the common stock on the date of grant.

The Director Plan allows options to purchase a maximum of 410,000 shares of the Company's common stock to be granted to outside directors and scientific advisors to the Company at an exercise price equivalent to 100% of the fair market value of the common stock on the date of grant. These are ten-year options and become exercisable over a period of five years.

During 2006, the Company issued 945,500 options to consultants to purchase restricted common stock in exchange for consulting services and recognized $737,862 expense related to these options.  During 2007, the Company issued 1,600,000 options to consultants and 10,000 options to an Scientific Advisory Committee member and recognized $644,723 expense related to these options.

During 2006, the Company issued 1,200,000 options to employees of the Company. These options vest over the next four years. The Company recognized $113,656 expense in 2006 and $234,939 expense in 2007 related to these options.  The remaining cost expected to be recognized if these options vest is $626,726.  No options were issued to employees during 2007.

During 2006, a former Director received 547,216 shares of common stock from the cashless exercise of 864,125 options.  The stock is restricted from selling for one year.  During 2007, two Directors and two employees received 171,853 shares of common stock from the cashless exercise of 214,000 options.

During 2006, a consultant exercised 250,000 options at $0.10 per share for cash.  A Board member exercised 20,000 options at $0.27 per share.  An investor exercised 30,000 warrants at $0.15 per share and 50,000 warrants at $0.06 per share.  During 2007, consultants exercised 350,000 options at $0.20 per share for cash.  A Board member exercised 20,000 options at $0.27 per share.   Employees exercised 90,486 shares at $0.06, 10,000 shares at $0.23 and 25,000 shares at $0.44.  A former employee exercised 4,000 shares at $0.44.  An investor exercised 30,000 warrants at $0.22 per share.

F-15

8. Stock Options and Warrants (Continued)

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

	2007		2006
	Options	Price	Options	Price
Outstanding Beg of Year	8,589,237	$0.06-4.00	6,920,862	$0.06-5.00
Granted	1,610,000	0.20-0.40	2,825,500	0.10-0.87
Cancelled	(292,339)	0.44-4.00	(23,000)	0.42-5.00
Exercised	(713,486)	0.06-0.44	(1,134,125)	0.10-0.51
Outstanding End of Year	9,193,412	0.20-0.87	8,589,237	0.06-4.00
Exercisable End of Year	7,773,412	0.20-0.87	7,709,237	0.06-4.00

Options reserved for employee and director plans but not issued (1,200,000) are not included in the table above.

Exercise prices for options outstanding as of December 31, 2007 ranged from $0.20 to $0.87.  The weighted-average remaining contractual life of those options is 2.45 years.

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

	2007		2006
	Warrants	Price Range	Warrants	Price Range
Outstanding Beg of Year	290,000	$0.22-2.00	282,000	$0.06-1.75
Granted	-	-	200,000	2.00
Cancelled	-	-	(112,000)	1.75
Exercised	(30,000)	0.22	(80,000)	0.06-0.15
Outstanding End of Year	260,000	0.47-2.00	290,000	0.22-2.00
Exercisable End of Year	260,000	0.47-2.00	290,000	0.22-2.00

The weighted-average remaining contractual life of the warrants outstanding at December 31, 2007 is 1.27 years.

9. Employee Benefit Plan

The Company has a simplified employee pension plan (the Plan), which is a contributory plan that covers all employees of the Company. Contributions to the Plan are at the discretion of the Company. The plan expense for the years ended December 31, 2007 and 2006, were $0, and $0, respectively.

F-16

10. 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 $8,000,000 and $7,400,000 at December 31, 2007 and 2006 respectively, was subject to a valuation allowance of $8,000,000 and $7,400,000 at December 31, 2007 and 2006 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.

At December 31, 2007, the Company has net operating loss carryforwards of approximately $23,509,000 for federal income tax purposes expiring in 2008 through 2027. 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 primarily from the inability of the Company to recognize its tax losses.

11. Commitments and Contingencies

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 are $44,400 for 2007 and 2008.  The Company has no material lease obligations beyond December 2008.

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

Thirteen clinical investigation sites are participating in an oral interferon treatment of oral warts in HIV+ patients FDA Phase 2 study in Augusta (GA), Baltimore, Boston, Chicago, Dallas, Ft. Lauderdale, Lexington (KY), Newark, New Orleans, New York City, Philadelphia, San Antonio and San Francisco.   The Company estimates the clinical trial costs for the oral warts Phase 2 study to be approximately $305,000 in 2008.

F-17

11. Commitments and Contingencies (Continued)

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, 2007.

12. 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 10.58% 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 2007.  A $19,991 sublicense fee to HBL was recorded in 2007.

During 2007 and 2006, the Company purchased $0 and $8,240 of interferon alpha and other products from HBL, respectively.  The Company paid HBL 50% of sublicense fees of $19,991 in 2007 and $19,993 in 2006.  At December 31, 2007 and 2006 the Company did not have any outstanding amounts owed to HBL for purchases of interferon alpha or other products.

HBL is obligated to pay the Company a 8% royalty on sales of oral interferon in Japan.  The Company received $27,919 of royalties in 2007 from HBL animal health sales of oral interferon.

During 2007, 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 $59,387 during 2007 for legal services rendered by SandersBaker.

F-18

13.  Subsequent Events

Since December 31, 2007, the Company has sold 1,000 shares of convertible preferred stock for $1,000 per share in a private placement offering; generating gross proceeds of $1,000,000 and net proceeds of $841,500, excluding commissions, estimated registration costs and closing costs.   The convertible preferred stock is convertible into 4,000,000 shares of common stock.  The investor also received 5 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 5 year warrants to purchase 640,000 shares of common stock at $0.30 per share. The Company is required to register with the SEC the common stock reserved for preferred stock and warrants on or before April 25, 2008.

On January 8, 2008, an employee received a $2,500 cash bonus and a $2,500 stock bonus (7,575 shares) as an award for closing the above $1 million funding.

On January 4, 2008, 100,000 options with 25,000 options vesting quarterly were issued to two consultants with exercise prices at market ($0.35) and 2 year terms.

On January 10, 2008, the Company paid HBL $200,000 of accrued interest for two $1,000,000 notes.  HBL extended the notes from December 3, 2007 and February 29, 2008 to June 3, 2008 and August 28, 2008.  HBL will extend the notes to December 3, 2009 and February 28, 2010, respectively, if $145,000 of accrued interest is paid on or before August 31, 2008.

On February 22, 2008, the Company entered into a 1 year consulting agreement to provide investor relations, public relations and shareholder relations services.  The Company may terminate the agreement the remaining 9 months of services by giving notice on or before May 22, 2008.  The Company agreed to pay the Consultant $30,000 plus a common stock grant of 90,000 shares for the first 3 months and if the agreement is continued the remainder of the term, an additional $7,500 per month for 8 months plus a common stock grant for 270,000 shares.

F-19

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.Other Expenses of Issuance and Distribution

We will pay all expenses in connection with the registration and sale of the common stock by the selling shareholders.  The estimated expenses of issuance and distribution are set forth below.

Registration Fees	$	125
Costs of Printing and Engraving		1,000	*
Legal Fees		33,725	*
Accounting Fees		3,265	*
Total Estimated Costs of Offering	$	38,115	*
* Estimate

Item 14.Indemnification of Directors and Officers

Art. 2.02-1 of the Texas Business Corporation Act allows a corporation to indemnify any officer, director, employee or agent who is a party or is threatened to be made a party to a litigation by reason of the fact that he or she is or was an officer, director, employee or agent of the corporation, or is or was serving at the request of the corporation as an officer, director, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such director or officer, or only for reasonable expenses actually incurred in connection with the proceeding if the person is found liable on the basis that personal benefit was improperly received by him or is found liable to the corporation, if:

·         there was no breach by the officer, director, employee or agent of his or her fiduciary duties to the corporation involving intentional or willful misconduct; or

·    the officer, director, employee or agent acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation,

and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

Article IV of our By-Laws provides for indemnification of our current or former directors and officers or any person who may have served at request as a director or officer of another corporation in which it owned shares of capital stock or of which it is a creditor. Such indemnification extends to liabilities imposed upon the director or officer and expenses reasonably incurred by him in connection with any claim made against him, or any action, suit or proceeding to which he may be a party by reason of his being, or having been such director or officer, and against such sums as independent counsel selected by the Board of Directors shall deem reasonable payment made in settlement of any such claim, action, suit or proceeding primarily with a view of avoiding expenses of litigation; provided, however, that no director or officer shall be indemnified with respect to matters as to which he shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in performance of duty, or with respect to any matters which shall be settled by the payment of sums which counsel selected by the Board of Directors shall not deem reasonable payment made primarily with a view to avoiding expenses of litigation, or with respect to matters for which such indemnification would be against public policy.

The Officers and Directors do not have indemnification agreements with the Company. The Company does have $5,000,000 of Directors and Officers Liability Insurance, which it will use toindemnify such directors and executive officers, to the extent permitted by our By-Laws or the laws of the State of Texas, against any expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any actual or threatened action or proceeding to which such director or officer is made or threatened to be made a party by reason of the fact that such person is or was a director or officer of the Company.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of Amarillo Biosciences, Inc. pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

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Item 15.Recent Sales of Unregistered Securities

During 2005 there were 32 sales of our unregistered common stock by private placement, raising $850,014 in cash. Of these sales, 1,380,000 shares were sold for $0.10 per share; 3,435,000 shares were sold for $0.20 per share; and 113,700 shares were sold for $0.22 per share.

In 2005, we issued 37,994 unregistered shares of its voting common stock as payment for consulting services performed in 2005. Valuation of the stock granted ranged from $0.29 to $0.4467 per share which generated a value of $13,211. We issued an additional 450,000 options to consultants to purchase restricted common stock in exchange for consulting services. The options are as follows, 250,000 at $0.01 per share, and 200,000 options at $0.05 per share. These options were exercised and the fair market value of the stock sales were stated; 250,000 shares for $0.01 per share, generating $2,500 in cash and $77,500 in non-cash consulting services; and 200,000 shares for $0.05 per share, generating $10,000 in cash and $60,000 in non-cash consulting services.

In 2006, we issued 945,500 options to consultants to purchase restricted common stock in exchange for consulting services and recognized $737,862 expense related to these options.

In September 2006, we issued 1,200,000 options to our employees. These options vest over the next four years. We have recognized $348,595 expense related to these options as of December 31, 2007. The remaining cost expected to be recognized if these options vest is $626,726.

In September 2006, a former Director received 547,216 shares of common stock from the cashless exercise of 864,125 options. The stock is restricted from selling for one year.

In 2006, we sold 3,344,917 unregistered shares of its voting common stock in private placement offerings, generating $1,550,085 in cash. Of these sales, 671,300 shares were sold for $0.20 per share; 200,000 shares were sold for $0.38 per share; 33,617 shares were sold for $0.47 per share; 600,000 shares were sold for $0.52 per share; and 1,840,000 shares were sold for $0.55 per share.

In 2006, the Board of Directors authorized the issuance of 87,309 shares of restricted common stock to consultants in lieu of cash payments. Based upon the common stock trading price at the times of issuance, and FASB rules, a non-cash consulting expense of $49,835 was recorded for the issuance of these shares during the year ended December 31, 2006.

In May 2006, we granted 300,000 shares of stock to an employee of the Company with a fair value of $216,000. 

In July 2006, we applied the balance of a $25,000 note payable towards the purchase of 45,455 shares of restricted common stock. Because the exchange ratio assumed a discounted share price, we recorded at loss on retirement of debt in the amount of $13,637 in conjunction with this transaction.

In2007, we completed private equity financing by selling 4,087,155 restricted shares of common stock at a discount to 45 investors, generating $1,154,506 in cash.

In June 2007, we issued 500,000 stock options for services with an exercise price of $0.20 per share, vesting immediately, and exercisable for 3 months. In September 2007, these options were extended until November 2007.

In July 2007, we issued 1,000,000 stock options for services with an exercise price of $0.20 per share and vest immediately, exercisable for 12 months.

In July 2007, 10,000 stock options vested for services with an exercise price of $0.72 per share.

In July 2007, we granted a five year stock option to purchase 10,000 shares of stock at the strike price of $0.40 to a Scientific Advisory Board member. The Scientific Advisory Board member released a stock option to purchase 5,000 shares of stock at the strike price of $4.00 with term expiring on October 17, 2007.

In 2007, 743,486 options and warrants were exercised, 90,486 options at $0.06, 350,000 options at $0.20, 30,000 warrants at $0.22, 10,000 options at $0.23, 20,000 options at $0.27, and 29,000 options at $0.44. In addition, 214,000 options were exercised cashless and 171,853 shares of stock were granted.

In 2007, 200,000 shares of common stock were issued to consultants in lieu of cash payments. We recognized $166,000 of expense for this issuance.

In January 2008, we entered into agreements with Firebird Global Master Fund, Ltd. for the sale of 1,000shares of our Series A Preferred Stock, which is convertible into 4,000,000 shares of common stock, and warrants to purchase an additional 4,000,000 shares of common stock at $0.30 per share. We also issued to MidSouth Capital Markets Group, Inc. (“MidSouth”), the selling/placement agent in the private placement, warrants to purchase 640,000 shares of our common stock on the same terms and conditions as the warrants issued to Firebird. The warrants were issued to MidSouth pursuant to an agreement entered into with MidSouth in September 2007 to engage MidSouth to act as our placement agent in connection with a future private placement. Pursuant to the agreement, MidSouth was to receive for its services a warrant to purchase shares of our common stock equal to 8% of the number of common shares to be issued on an as converted basis in the private placement, with an exercise price of $.30 per share and exercisable for 5 years from the date of issuance.

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On April 1, 2008, we issued Firebird Global Master Fund, Ltd. 84,198 shares of common stock, as a dividend on the Series A Preferred Stock., valued at $23,005. The price of the common stock was calculated at 90% of the average of the 2 lowest VWAP (volume weighted average price) for the 5 trading days prior to the dividend payment due date. Dividends on the Series A Preferred Stock, at the rate of 10% per annum, payable in cash or common stock in the discretion of the Company, are due quarterly on January 1, April 1, July 1 and October 1 beginning on the first such date after the original issue date (January 8, 2008).

In January 2008, Joe Cummins received a $2,500 cash bonus and a $2,500 stock bonus (7,575 shares) as an award for closing the above $1 million funding with Firebird Global Master Fund, Ltd.

In January 2008, 100,000 options with 25,000 options vesting quarterly were issued to two consultants with exercise prices at market ($0.35) and 2 year terms.

In February 2008, the company entered into a 1 year consulting agreement to provide investor relations, public relations and shareholder relations services. The Company may terminate the agreement the remaining 9 months of services by giving notice on or before May 22, 2008. The Company agreed to pay the Consultant $30,000 plus a common stock grant of 90,000 shares for the first 3 months and if the agreement is continued the remainder of the term, an additional $7,500 per month for 8 months plus a common stock grant for 270,000 shares.

In connection with the foregoing, we relied upon the exemption from securities registration afforded by Rule 506 of Regulation D as promulgated by the United States Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”) and/or Section 4(2) of the Securities Act, and transfer was restricted by Amarillo in accordance with the requirements of the Securities Act of 1933. All of the above-referenced persons were provided with access to our Securities and Exchange Commission filings.

Item 16.Exhibits

Exhibit Footnote			Exhibit Number	Description of Document
	(2	)	3.1	Restated Articles of Incorporation of the Company, dated June 22, 1999.
	(1	)	3.2	Bylaws of the Company.
	(5	)	3.3	Certificate of Designations of Series A 10% Convertible Preferred Stock.
	(1	)	4.1	Specimen Common Stock Certificate.
	(1	)	4.2	Form of Underwriter’s Warrant.
	(5	)	4.3	Form of Series A Common Stock Purchase Warrant, dated January 8, 2008, between the Company and Firebird Global Master Fund, Ltd.
			5.1	Opinion of Sichenzia Ross Friedman Ference LLP.
	(2	)	10.1	1996 Employee Stock Option Plan, amended and restated.
	(2	)	10.2	Outside Director and Advisor Stock Option Plan, amended and restated.
			10.3	2006 Employee Stock Option and Stock Bonus Plan.
			10.4	Office/Warehouse Lease Agreement dated December 22, 2006, between Wild Pony Holdings, L.P. and the Company.
	(1	)	10.5	Joint Development And Manufacturing/Supply Agreement dated March 13, 1992, between Hayashibara Biochemical Laboratories, Inc. and the Company.
	(3	)	10.6	License and Supply Agreement dated January 18, 2006, between Bumimedic (Malaysia) SDN. BHD., and the Company.
	(4	)	10.7	Employment Contract dated March 13, 2006, between Gary W. Coy and the Company.
	(4	)	10.8	Employment Contract dated October 10, 2006, between Martin J. Cummins and the Company.
	(4	)	10.9	Employment Contract dated September 10, 2006, between Joseph M. Cummins and the Company.
	(4	)	10.10	Supply Agreement (Anhydrous Crystalline Maltose) dated October 16, 2006, between Hayashibara Biochemical Laboratories, Inc. and the Company
	(4	)	10.11	License and Supply Agreement dated November 16, 2006, between CytoPharm, Inc. and the Company.
			10.12	Engagement Letter dated September 22, 2007, between MidSouth Capital Markets Group, Inc. and the Company.
	(6	)	10.13	Securities Purchase Agreement dated January 8, 2008, between the Company and Firebird Global Master Fund, Ltd.
	(5	)	10.14	Registration Rights Agreement dated January 8, 2008, between the Company and Firebird Global Master Fund, Ltd.
	(7	)	10.15	Amendment No. 1 to the Securities Purchase Agreement dated February 14, 2008, between the Company and Firebird Global Master Fund, Ltd.

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(7 ) 10.16 Amendment No. 1 to the Registration Rights Agreement dated February 14, 2008, between the Company and Firebird Global Master Fund, Ltd.

(8	)	10.17	Supply Agreement, dated March 20, 2008, between the Company and CytoPharm, Inc.
(8	)	10.18	Employment Contract, dated April 15, 2008, between the Company and Peter Mueller
		23.1	Consent of LBB & Associates Ltd., LLP, Independent Registered Public Accounting Firm.
		23.2	Consent of Sichenzia Ross Friedman Ference LLP (included in exhibit 5.1).
		24.1	Power of Attorney (included on signature page herewith).

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(1)    Filed as an exhibit to the Company’s Registration Statement on Form SB-2 (No. 333-4413) filed with the SEC on May 23, 1996 and incorporated herein by reference.

(2)     Filed as an exhibit to the Company’s Quarterly Report on Form 10-QSB filed with the SEC on August 12, 1999 and incorporated herein by reference.

(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.

Item 17. Undertakings

A. The undersigned registrant hereby undertakes:

1. To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of a prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.

2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

4. That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this Registration Statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (ss.230.424 of this chapter);

36

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

B. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be singed on its behalf by the undersigned, thereunto duly authorized, in the city of Amarillo, in the State of Texas, on April 24, 2008.

AMARILLO BIOSCIENCES, INC.
A Texas corporation
By:	/s/ Joseph M. Cummins
	Joseph M. Cummins
Its:	President, CEO and Chairman
	(Principal Executive Officer)
By:	/s/ Gary W. Coy
	Gary W. Coy
Its:	Chief Financial Officer
	(Principal Financial and Accounting Officer)

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Joseph M. Cummins his true and lawful attorney-in-fact and agent, acting alone, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, any Amendments thereto and any Registration Statement of the same offering which is effective upon filing pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Commission, granting unto said attorney-in-fact and agent, each acting alone, full powers and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorney-in-fact and agent, acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act, this Registration Statement has been signed below by the following persons on behalf of the Company in the capacities and on the dates indicated.

/s/ Joseph M. Cummins	April 24, 2008
Joseph M. Cummins
President, CEO and Chairman
/s/ Gary W. Coy	April 24, 2008
Gary W. Coy
Principal Financial and Accounting Officer
/s/ Stephen Chen	April 24, 2008
Stephen Chen
Director
/s/ James Page	April 24, 2008
James Page
Director
/s/ Dennis Moore	April 24, 2008
Dennis Moore
Director
/s/ Thomas D’Alonzo	April 24, 2008
Thomas D’Alonzo
Director
/s/ Thomas Ulie	April 24, 2008
Thomas Ulie
Director

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EX-5.1

  

April 24, 2008

VIA ELECTRONIC TRANSMISSION

Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549

Re: Amarillo Biosciences, Inc., Form S-1 Registration Statement

Ladies and Gentlemen:

We refer to the above-captioned registration statement on Form S-1 (the “Registration Statement”) under the Securities Act of 1933, as amended (the “Act”), filed by Amarillo Biosciences, Inc., a Texas corporation (the “Company”), with the Securities and Exchange Commission.

We have examined the originals, photocopies, certified copies or other evidence of such records of the Company, certificates of officers of the Company and public officials, and other documents as we have deemed relevant and necessary as a basis for the opinion hereinafter expressed. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as certified copies or photocopies and the authenticity of the originals of such latter documents.

Based on our examination mentioned above, we are of the opinion that the securities being sold pursuant to the Registration Statement are duly authorized and (a) with respect to the shares of common stock issued as a dividend on the 10% Series A Convertible Preferred Stock, legally and validly issued, fully paid and non-assessable, and (b) with respect to all other securities being sold pursuant to the Registration Statement, will be, when issued in the manner described in the Registration Statement, legally and validly issued, fully paid and non-assessable.

We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to our firm under “Legal Matters” in the related Prospectus. In giving the foregoing consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Act, or the rules and regulations of the Securities and Exchange Commission.

Very truly yours,

EX-10.3

EXHIBIT 10.3

AMARILLO BIOSCIENCES, INC.

2006 EMPLOYEES STOCK OPTION AND

STOCK BONUS PLAN

ADOPTED FEBRUARY 20, 2006

ARTICLE I – GENERAL

1.01. Purposes.

The purposes of this 2006 Employees Stock Option and Stock Bonus Plan (the “Plan”) are to: (1) closely associate the interests of the employees of AMARILLO BIOSCIENCES, INC. (“ABI”) and its Subsidiaries and Affiliates (collectively referred to as the “Company”) with the shareholders by reinforcing the relationship between participants’ rewards and shareholder gains; (2) provide selected, key employees with an equity ownership in the Company commensurate with Company performance, as reflected in increased shareholder value; (3) maintain competitive compensation levels; and (4) provide an incentive to selected, key employees for continuous employment with the Company.

1.02. Administration.

(a)The Plan shall be administered by a committee of outside (non-employee) directors appointed by the Board of Directors of ABI (the “Committee”), as constituted from time to time. The Committee shall consist of at least two members of the Board. Notwithstanding anything in this Section 1.02 to the contrary, so long as any equity security of the Company is registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “1934 Act”), or any successor statute, all authority to exercise discretion with respect to participation in the Plan by persons who are (i) “officers” within the meaning of the applicable Securities and Exchange Commission rules and regulations relating to Section 16 of the 1934 Act, or any successor statute, (ii) directors of the Company and/or (iii) beneficial owners of more than ten percent (10%) of any class of equity securities of the Company who are otherwise eligible to participate in the Plan, and the timing, pricing, amounts and other terms and conditions of awards granted under the Plan to such officers, directors and beneficial owners, shall be vested in the Committee, if all of the members of the Committee are disinterested persons within the meaning ascribed to such term in Rule 16b-3 promulgated under the 1934 Act, or within any successor definition or under any successor rule (“disinterested persons”).

(b)The Committee shall have the authority, in its sole discretion and from time to time to:

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(i) designate the employees or classes of employees eligible to participate in the Plan;

(ii) grant awards provided in the Plan in such form and amount, and subject to such vesting, as the Committee shall determine, provided that in no event shall the period for vesting be longer than that set forth in Section 2.04, below.

(iii) impose such limitations, restrictions and conditions upon any such awards as the Committee shall deem appropriate; and

(iv) interpret the Plan, adopt, amend and rescind rules and regulations relating to the Plan, and make all other determinations and take all other action necessary or advisable for the implementation and administration of the Plan.

(c)Decisions and determinations of the Committee on all matters relating to the Plan shall be in its sole discretion and shall be conclusive. No member of the Committee shall be liable for any action taken or decision made in good faith relating to the Plan or any award thereunder.

(d)With respect to persons subject to Section 16 of the Securities Exchange act of 1934 (the “1934 Act”), transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successor under the 1934 Act. To the extent any provision of the Plan or action by the Board of Directors or the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board of Directors or the Committee, as applicable.

(e)All usual and reasonable expenses of the Committee shall be paid by the Company, and no member shall receive compensation with respect to his services for the Committee except as may be authorized by the Board of Directors. The Board of Directors and the Committee may employ attorneys, consultants, accountants or other persons, and the Board of Directors, the Committee, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Board of Directors or the Committee in good faith shall be final and binding upon all Employees who have received awards, and upon the Company and all other interested persons. No member of Board of Directors or the Committee shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan or awards made thereunder, and the Company shall indemnify and hold harmless each member of the Board of Directors or the Committee against all loss, cost, expenses or damages, occasioned by any act or omission to act in connection with any such action, determination or interpretation under or of the Plan, consistent with the Company’s certificate of incorporation and bylaws.

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1.03. Eligibility for Participation.

Participants in the Plan shall be selected by the Committee from among the employees of the Company. In making this selection and in determining the form and amount of awards, the Committee shall consider any factors deemed relevant, including the individual’s functions, responsibilities, value of services to the Company and past and potential contributions to the Company’s profitability and sound growth.

1.04. Types of Awards Under Plan.

Awards under the Plan will be in the form of either Nonqualified Stock Options, as described in Article II, or Stock Grants, as described in Article III; provided, however, that Limited Rights, as described in Article IV, may be awarded with respect to Options concurrently or previously awarded.

1.05. Aggregate Limitation on Awards.

(a)Shares of stock which may be issued under the Plan shall be authorized and unissued or treasury shares of Common Stock of ABI (“Common Stock”). The maximum number of shares of Common Stock which may be issued or reserved under the Plan shall be five hundred thousand (500,000) shares.

(b)In addition to shares of Common Stock actually issued or reserved for Stock Grants or exercise of Nonqualified Stock Options, there shall be deemed to have been issued a number of shares equal to the number of shares of Common Stock in respect of which Limited Rights (as described in Article IV) shall have been exercised.

(c)Any shares of Common Stock subject to a Nonqualified Stock Option which for any reason is terminated unexercised or expires shall again be available for issuance under the Plan, but shares subject to a Nonqualified Stock Option which are not issued as a result of the exercise of Limited Rights shall not again be available for issuance under the Plan.

1.06. Effective Date and Term of Plan.

(a)The Plan shall become effective on the date of adoption, as first above written.

(b)No awards shall be made under the Plan after the last day of the Company’s 2011 fiscal year provided, however, that the Plan and all awards made under the Plan prior to such date shall remain in effect until such awards have been satisfied or terminated in accordance with the Plan and the terms of such awards.

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ARTICLE II – NONQUALIFIED STOCK OPTIONS

2.01. Award of Nonqualified Stock Options.

The Committee may, from time to time and subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, grant to any participant in the Plan one or more nonqualified stock options (“Nonqualified Stock Options” or “Options”), to purchase for cash the number of shares of Common Stock allotted by the Committee. The date a Nonqualified Stock Option is granted shall mean the date selected by the Committee as of which the Committee allots a specific number of shares to a participant pursuant to the Plan.

2.02. Nonqualified Stock Option Agreements.

The grant of a Nonqualified Stock Option shall be evidenced by a written Nonqualified Stock Option Agreement, executed by the Company and the holder of a Nonqualified Stock Option (the “Optionee”), stating the number of shares of Common Stock subject to the Nonqualified Stock Option evidenced thereby, and in such form as the Committee may from time to time determine.

2.03. Nonqualified Stock Option Price.

The Option Price per share of Common Stock deliverable upon the exercise of a Nonqualified Stock Option shall be 100% of the Fair Market Value of a share of Common Stock on the date the Nonqualified Stock Option is granted. The Committee shall determine the date on which an Option is granted; in the absence of such determination, the date on which the Committee adopts a resolution granting an Option shall be considered the date on which such Option is granted, provided the Employee to whom the Option is granted is promptly notified of the grant and a written Option agreement is duly executed as of the date of the resolution.

2.04. Term and Exercise.

Each Nonqualified Stock Option is exercisable during a period of ten years from the date of grant thereof (the “Option Term”), subject to the Vesting Schedule set forth below. No Nonqualified Stock Option shall be exercisable after the expiration of its Option Term. The Committee may also in its sole discretion accelerate the exerciseability or vesting of any Option or installment thereof at any time.

Vesting Schedule. Options awarded shall be exercisable, subject to the other terms and conditions of the Plan, only upon the expiration of the designated number of years of active employment with the Company from date of award, as provided below:

  20% of Options awarded - 1 year

  40% of Options awarded - 2 years

  60% of Options awarded - 3 years

  80% of Options awarded - 4 years

100% of Options awarded - 5 years

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Except as provided in Sections 2.05, 2.06 and 2.07 hereof, no Nonqualified Stock Option shall be exercised at any time unless the holder thereof is then a regular full-time employee of the Company or one of its subsidiaries.

2.05. Death of Optionee.

(a)Upon the death of the Optionee, any Nonqualified Stock Option exercisable on the date of death may be exercised by the Optionee’s estate or by a person who acquires the right to exercise such Nonqualified Stock Option by bequest or inheritance or by reason of the death of the Optionee, provided that such exercise occurs within both the remaining Option Term of the Nonqualified Stock Option and one year after the Optionee’s death.

(b)The provisions of this Section shall apply notwithstanding the fact that the Optionee’s employment may have terminated prior to death, but only to the extent of any Nonqualified Stock Options exercisable on the date of death.

2.06. Retirement or Disability.

Upon the termination of the Optionee’s employment by reason of permanent disability (as defined herein) or retirement (as determined by the Committee), the Optionee may, within 36 months from the date of such termination of employment, exercise any Nonqualified Stock Options to the extent such Nonqualified Stock Options were exercisable at the date of such termination of employment. For purposes hereof, “permanent disability” shall have the meaning set forth in Section 22(e)(3) of the Internal Revenue Code of 1986 (the “Code”) or any successor provision thereto.

2.07. Termination for Other Reasons.

Except as provided in Sections 2.05 and 2.06 or except as otherwise determined by the Committee, all Nonqualified Stock Options shall terminate upon the termination of the Optionee’s employment; provided, however, that if the Optionee’s employment was involuntarily terminated (with or without cause), Optionee may exercise, during a 90-day period commencing with date of termination, all Options theretofore vested, or which vest during said 90-day period, under the Vesting Schedules set forth in Paragraph 2.04, above. At the end of the 90-day period, all rights of such Optionee under any then outstanding Option or right shall terminate and shall be forfeited immediately as to any unexercised portion thereof.

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2.08. Manner of Payment.

Each Stock Option Agreement shall set forth the procedure governing the exercise of the Stock Option granted thereunder, and shall provide that, upon such exercise in respect of any shares of Common Stock subject thereto, the Optionee shall pay to the Company, in full, the Option Price for such shares with cash or in shares of the Common Stock, valued at the Fair Market Value per share on the date of exercise.

2.09. Issuance of Shares.

As soon as practicable after receipt of payment, the Company shall deliver to the Optionee a certificate or certificates for such shares of Common Stock. The Optionee shall become a shareholder of the Company with respect to Common Stock represented by share certificates so issued and as such shall be fully entitled to receive dividends, to vote and to exercise all other rights of a shareholder.

2.10. Effect of Exercise.

The exercise of any Stock Option shall cancel that number of related Limited Rights, if any, which is equal to the number of shares of Common Stock purchased pursuant to said Option.

2.11. Rule 16b-3 Exemption.

Options granted under the Plan shall comply with the applicable provisions of Rule 16b-3 promulgated under the 1934 Act, or any successor, and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the 1934 Act with respect to Plan transactions.

ARTICLE III – STOCK GRANTS

3.01. Award of Stock Grants.

The Committee may from time to time, and subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, award to any participant in the Plan one or more Stock Grants. The date a Stock Grant is awarded shall mean the date selected by the Committee as of which the Committee grants a specific number of shares to a participant pursuant to the Plan.

ARTICLE IV – LIMITED RIGHTS

4.01. Award of Limited Rights.

Concurrently with or subsequent to the award of any Nonqualified Stock Option, the Committee may, subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, award to the Optionee with respect to each Option, a related limited right permitting the Optionee, during a specified limited time period, to be paid the appreciation on the Common Stock in lieu of exercising the Option (“Limited Right”).

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4.02. Limited Rights Agreement.

Limited Rights granted under the Plan shall be evidenced by written agreements in such form as the Committee may from time to time determine.

4.04. Exercise Period.

Limited Rights shall (and must) be exercised immediately preceding or simultaneous with the date of a Change in Control of ABI (the “Exercise Period”), and all Limited Rights held by the Optionee shall be exercised during such Exercise Period, without regard to the Vesting Schedules set forth in Paragraph 2.04; provided, however, that if a Change in Control shall have occurred without notice or opportunity for exercise of Limited Rights, then the Limited Rights shall be exercised as soon as practicable after a determination has been made that a “Change in Control” has occurred, or has been deemed to have occurred.

As used in the Plan, a “Change in Control” shall be deemed to have occurred if

(a)individuals who were directors of ABI, immediately prior to a Control Transaction shall cease, within one year of such Control Transaction, to constitute a majority of the Board of Directors of ABI (or of the Board of Directors of any successor to ABI or to all or substantially all of its assets), or

(b)any entity, person or Group other than ABI or a Subsidiary of ABI or Hayashibara Biochemical Laboratories, Inc. or an Affiliate thereof acquires shares of ABI in a transaction or series of transactions that result in such entity, person or Group directly or indirectly owning beneficially fifty-one percent (51%) or more of the outstanding shares.

As used herein, “Control Transaction” shall be

(i) any tender offer for or acquisition of capital stock of ABI,

(ii) any merger, consolidation, or sale of all or substantially all of the assets of ABI which has been approved by the shareholders,

(iii) any contested election of directors of ABI, or

(iv) any combination of the foregoing;

which results in a change in voting power sufficient to elect a majority of the Board of Directors of ABI. As used herein, “Group” shall mean persons who act in concert as described in Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended.

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4.04. Amount of Payment.

The amount of payment to which an Optionee shall be entitled upon the exercise of each Limited Right shall be equal to 100% of the amount, if any, which is equal to the difference between the Fair Market Value per share of Common Stock covered by the related Option on the date the Option was granted and the Market Price of a share of such Common Stock. Market Price is defined to be the greater of (i) the highest price per share of the Company’s Common Stock paid in connection with any Change in Control and (ii) the highest price per share of the Company’s Common Stock paid pursuant to an unsolicited brokerage transaction during the 60-day period prior to the Change in Control.

4.05. Form of Payment.

Payment of the amount to which an Optionee is entitled upon the exercise of Limited Rights, as determined pursuant to Section 4.04, shall be made solely in cash.

4.06. Effect of Exercise.

If Limited Rights are exercised, the Stock Options related to such Limited Rights cease to be exercisable to the extent of the number of shares with respect to which the Limited Rights were exercised. Upon the exercise or termination of the Options related to such Limited Rights, the Limited Rights granted with respect thereto terminate to the extent of the number of shares as to which the related Options were exercised or terminated.

4.07. Retirement or Disability.

Upon termination of the Optionee’s employment with the Company by reason of permanent disability or retirement (as each is determined by the Committee), the Optionee may, within 36 months from the date of termination, exercise any Limited Right to the extent such Limited Right is otherwise exercisable during such 36-month period.

4.08. Death of Optionee or Termination for Other Reasons.

Except as provided in Section 4.07, or except as otherwise determined by the Committee, all Limited Rights granted under the Plan shall terminate upon the termination of the Optionee’s employment with the Company, or upon the death of the Optionee.

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ARTICLE V – REGISTRATION OF SHARES

5.01. Registration of Shares.

The Committee may from time to time, and subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, authorize the Company to register with the Securities and Exchange Commission on Form S-8 or other appropriate form, at the Company’s expense, shares of stock to be granted or awarded to participants in the Plan, including without limitation, shares underlying unexercised Stock Options, shares which have been issued pursuant to the exercise of Stock Options, shares which have been or which are to be or may be granted pursuant to the Stock Grants, and such shares as may be reserved from time to time for issuance upon future exercise of Stock Options, or future Stock Grants.

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ARTICLE VI – MISCELLANEOUS

6.01. General Restriction.

Each award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the grantee of an award with respect to the disposition of shares of Common Stock, is necessary or desirable as a condition of, or in connection with, the granting of such award or the issue or purchase of shares of Common Stock thereunder, such award may not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee.

6.02. Non-Assignability.

No award under the Plan shall be assignable or transferable by the recipient thereof, except by will or by the laws of descent and distribution. During the life of the recipient, such award shall be exercisable only by such person or by such person’s guardian or legal representative.

6.03. Right to Terminate Employment.

Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any participant the right to continue in the employment of the Company or affect any right which the Company may have to terminate the employment of such participant.

6.04. Non-Uniform Determinations.

The Committee’s determinations under the Plan (including without limitation determinations of the persons to receive awards, the form, amount and timing of such awards, the terms and provisions of such awards and the agreements evidencing same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, awards under the Plan, whether or not such persons are similarly situated.

6.05. Rights as a Shareholder.

The recipient of any award under the Plan shall have no rights as a shareholder with respect thereto unless and until certificates for shares of Common Stock are issued to him.

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6.06. Definitions.

In this Plan the following definitions (along with other definitions set forth elsewhere in the Plan) shall apply:

(a)“Affiliate” means any person or entity which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with ABI.

(b)“Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation (“NASDAQ”) System, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in Common Stock) on the date of grant, as reported in The Wall Street Journal or such other source as the Board deems reliable;

(ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a share of Common Stock shall be the mean between the bid and asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable;

(iii) If the Common Stock is traded on the Over-the-Counter Bulletin Board, the Fair Market Value of a share of a Common Stock shall be the closing price of the Common Stock on the last market trading day, prior to the day of determination; or

(iv) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Committee.

(c)“Option” means Nonqualified Stock Option.

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(d)“Option Price” means the purchase price per share of Common Stock deliverable upon the exercise of a Nonqualified Stock Option.

(e)“Subsidiary” means any corporation of which, at the time more than 50% of the shares entitled to vote generally in an election of directors are owned directly or indirectly by ABI or any Subsidiary thereof.

6.07. Leaves of Absence.

The Committee shall be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect of any leave of absence taken by the recipient of any award. Without limiting the generality of the foregoing, the Committee shall be entitled to determine (i) whether or not any such leave of absence shall constitute a termination of employment within the meaning of the Plan and (ii) the impact, if any, of any such leave of absence on awards under the Plan theretofore made to any recipient who takes such leave of absence.

6.08. Newly Eligible Employees.

The Committee shall be entitled to make such rules, regulations, determinations and awards as it deems appropriate in respect of any employee who becomes eligible to participate in the Plan or any portion thereof after the commencement of an award or incentive period.

6.09. Adjustments.

In the event of any change in the outstanding Common Stock by reason of a stock dividend or distribution, recapitalization, merger, consolidation, split-up, combination, exchange of shares or the like, the Committee shall appropriately adjust the number of shares of Common Stock which may be issued under the Plan, the number of shares of Common Stock subject to Options theretofore granted under the Plan, the Option Price of Options theretofore granted under the Plan, the amount and terms of any Limited Rights theretofore awarded under the Plan, and any and all other matters deemed appropriate by the Committee.

6.10. Amendment of the Plan.

(a)The Committee may, without further action by the Board of Directors and without receiving further consideration from the participants, amend this Plan or condition or modify awards under this Plan in response to changes in securities or other laws or rules, regulations or regulatory interpretations thereof applicable to this Plan or to comply with stock exchange rules or requirements.

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(b)The Committee may at any time and from time to time terminate or modify or amend the Plan in any respect, except that without Board of Directors approval the Committee may not (i) increase the maximum number of shares of Common Stock which may be issued under the Plan (other than increases pursuant to Section 6.09), (ii) extend the period during which any award may be granted or exercised, or (iii) extend the term of the Plan. The termination or any modification or amendment of the Plan, except as provided in subsection (a), shall not without the consent of a participant, affect his or her rights under an award previously granted to him or her.

6.11. Disposition of Option Shares; Withholding Taxes.

Upon the exercise of any Nonqualified Stock Option, or upon the award of any Stock Grant, the Company shall have the right to require the Optionee to pay to the Company the amount of any taxes that are required by law to be withheld with respect to such event.

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EX-10.4

EXHIBIT 10.4

Western Business Park

Office/Warehouse Lease Agreement

THIS LEASE AGREEMENT is made and entered into this the 22 ^nd day of December, 2006 , between WILD PONY HOLDINGS, L.P. ("Landlord") and Amarillo Biosciences, Inc. ("Tenant") (Tax I.D. No. or Social Security No. 75-1974352).

DEFINITIONS AND BASIC PROVISIONS

1. "Leased Floor Space" or "Premises": Approximately3,675 rentable square feet of floor space located at 4134-4136 Business Park Drive in Amarillo, Randall County, Texas, 79110, in the Western Business Park (the "Business Park"), such Business Park being on the real property described in Exhibit "A" attached hereto and made a part hereof for all purposes. The Premises are outlined in red on Exhibit "B" attached hereto and made a part hereof for all purposes.

2. "Lease Term": A period of Two ( 2 ) years, anticipated to commence on January 1, 2007(the "Commencement Date"), and to expire on December 31, 2008 (the "Expiration Date").

3. "Basic Rent": $1,850.00 per month for the initial Lease Term, payable monthly in advance, due to be actually received at the place for payment on the first (1^ST) day of each calendar month during the Term. The total Basic Rent due under the Lease shall be Forty-four thousand four hundred dollars and 00/100 ($ 44,400.00 ).

			INI
Initial monthly payment for taxes:	$	N/A.
Initial monthly payment for insurance:	$	N/A.

All monthly charges for taxes and insurance are subject to annual adjustment as provided for in this Lease, and are subject to being reset annually as provided in the Lease.

4. "Security Deposit": $ 1,850.00 of which $1,000.00 is transferred from a previous lease dated October 27, 2005. The Security Deposit and first month’s rent are due on execution hereof.

5. Tenant's Use: Tenant will use the Premises for Office and Warehouse Space and for no other purpose without Landlord's prior written consent.

6. All Rent due under this Lease shall be payable at Landlord’s address for these purposes as follows: Wild Pony Holdings, L.P., 82 Armstrong Drive, Mustang, Oklahoma 73064. MAKE CHECKS PAYABLE TO: WILD PONY HOLDINGS, L.P. Tenant’s address for purposes of this Lease is:

4134 Business Park Drive806-376-1741

Amarillo, Texas 79110

8 The attached pages constitute a part of this Lease. ADDITIONALLY, THIS LEASE EXPRESSLY INCORPORATES THE FOLLOWING EXHIBITS WHICH ARE ATTACHED HERETO: (check those applicable)

 X Exhibit “A”Legal Description of Business Park

 X Exhibit “B”Site Plan showing Premises

 X Exhibit “C”Rules and Regulations

     Exhibit “D”@Supplemental Agreement No.1

     Exhibit “E”Supplemental Agreement No. 2

     Exhibit “F”Work Letter Agreement

       X      Exhibit “G”Guaranty

 XExhibit “H”Signage

LANDLORD:TENANT:

WILD PONY HOLDINGS, L. P.AMARILLO BIOSCIENCES, INC.

By:		By:	/s/ Joseph M. Cummins
	Richard P. Shepheard, V.P.		Joseph M. Cummins, DVM, PhD
	Metropolitan Management Co., Inc.		President & CEO
	General Partner

1

ARTICLE I  PROPORTIONATE SHARE

1.1

ARTICLE II  TERMS

2.1

2.2 Acceptance of Premises. By occupying the Premises, Tenant shall be deemed to have accepted the same and to have acknowledged that the same comply fully with Landlord’s covenants and obligations hereunder. Unless one or more exhibits are attached delineating work to be performed by Landlord prior to the Commencement Date, Tenant hereby accepts the Premises “AS IS” as now being suitable for Tenant’s purposes. If one or more exhibits are attached delineating work to be performed by Landlord prior to the Commencement Date, Tenant hereby accepts the Premises as to be so constructed or modified as suitable for Tenant’s purposes. Landlord shall have no duty whatsoever to perform any work on or about the Premises except as expressly set out in this Lease or in the exhibits attached hereto either prior to the Commencement Date or during the term of the Lease, and Tenant shall be obligated to perform all other needed work prior to or during the term of the Lease on or about the Premises, latent or otherwise, except as otherwise expressly set out herein.

2.3 Holdover. If Tenant holds over and continues in possession of the Premises after Expiration Date of this Lease or any extension of that term agreed to in writing by Landlord, Tenant will be deemed to be occupying the Premises on the basis of a month-to-month tenancy, subject to all of the terms and conditions of this Lease, except that the Basic Rent and Additional Rent (as defined below) shall be equal to double the amount of the last Basic Rent and Additional Rent due under this Lease.

ARTICLE III  RENT

3.1 “Basic Rent.” Tenant agrees to pay to Landlord Basic Rent in equal monthly payments in advance actually received by the Landlord on or before the first (1^st) day of each calendar month during the Term. All amounts payable by Tenant under this Lease shall constitute Basic Rent or Additional Rent (together, the “Rent”). Rent for any period less than one (1) month shall be apportioned based on the number of days in that month. In the event Tenant does not pay all Rent due herein by the fifth (5th) day of each month(grace period), Landlord shall charge Tenant a late charge equal to ten percent (10%) of the Rent otherwise due to cover Landlord’s additional costs for handling delinquent payments.

3.2 “Additional Rent” is defined as all sums of money, other than Basic Rent, which become due under this Lease.

3.3

3.4

3.5

2

3.6

3.7 Proration on Termination. If, for any reason other than the default of Tenant, this Lease shall terminate on a day other than the last day of the Lease year, the amount of increase (if any) in Rent payable by Tenant applicable to the Lease year in which such termination shall occur, shall be prorated in the ratio that the number of days from the commencement of such Lease year to and including such termination date bears to 365.

ARTICLE IV  USE OF PREMISES

4.1 Tenant will use the Premises for the permitted use set forth on Page 1 of this Lease and no other purposes, unless Landlord shall give Tenant prior written consent for a different use. Tenant acknowledges that such restriction on Tenant’s use is a material inducement to Landlord in entering into this Lease.

4.2 Permits, Licenses. Tenant shall, at Tenant’s own expense, procure each and every permit, license, certificate or other authorization and any renewals, extensions, or continuances of the same required in connection with the Building or improvements or Premises or required in connection with Tenant’s lawful and proper use, occupancy of, and operation in the Premises.

4.3 Insurance Hazards. Tenant shall not use, or permit the use of, the Premises in any manner that will cause a cancellation of, or an increase in, the existing rates for liability, or other insurance policies insuring the Premises or any improvements on the Premises, or insuring Landlord for any liability in connection with ownership of the Premises. Tenant shall pay all increased insurance premiums attributable to a vacant building if Tenant vacates the Premises.

4.4 Waste, Nuisance, or Illegal Uses. Tenant shall not use, or permit the use of, the Premises in any manner that would (i) impair its value, (ii) result in injury to or waste of the Premises, Building, or Business Park, or (iii) constitute a nuisance; nor shall Tenant use, or permit the use of, the Premises for any illegal or immoral purpose which could cause a forfeiture.

4.5 Hazardous Materials. Tenant covenants that it has not, and agrees that Tenant shall not, receive, store, dispose or release any Hazardous Materials (as defined below in Paragraph 7.3) on or in the Premises or Business Park, transport any Hazardous Materials to or from the Premises or Business Park or permit the existence of any Hazardous Materials Contamination (as defined below in Paragraph 7.3) in or on the Premises or Business Park. If Tenant acquires knowledge of the presence of any Hazardous Materials or Hazardous Materials Contamination on, under or in the Premises or Business Park or of the transportation of any Hazardous Materials to or from the Premises or Business Park, Tenant shall give written notice to the Landlord immediately with a full description thereof. Tenant agrees to comply with any and all Governmental Requirements (as defined below in Paragraph 7.3) requiring the removal, treatment or disposal of Hazardous Materials or Hazardous Materials Contamination caused or aggravated directly or indirectly by the Tenant, its owners, directors, officers, licensees, invitees and assignees, all at Tenant’s sole cost and expense, and provide Landlord with satisfactory evidence of such compliance. If the Tenant causes or aggravates (directly or indirectly) or knowingly or negligently permits the receipt, storage, disposal or release of any Hazardous Materials or Hazardous Materials Contamination on, under, over or in the Premises or Business Park (except where directly and solely caused by Landlord), Tenant shall promptly remove, treat and dispose of such Hazardous Materials or Hazardous Materials Contamination and clean up the affected property and provide the Landlord with evidence satisfactory to Landlord or such removal, treatment, disposal and/or clean up. On termination or expiration of the Lease, Tenant will remove, in compliance with laws, all Hazardous Materials.

4.6 Use of Common Area. Certain driveways, parking lots, courtyards, walkways, and other common areas of the Building or Business Park (if any) are for the joint use of Tenant, Landlord, and the other tenants of the Building and/or Business Park. Tenant and Tenant’s officers, employees, agents, and invitees will use such common areas in a reasonable, orderly, and sanitary manner in cooperation with all other tenants and their officers, employees, agents, and invitees.

4.7 Consideration for Others. Tenant will conduct itself, and will cause Tenant’s officers, contractors, employees, agents, and invitees to conduct themselves, with full regard for the rights, convenience, and welfare of all other tenants in the Business Park and Landlord.

4.8 Rules and Regulations. Tenant and Tenant’s officers, contractors, employees, agents, and invitees will comply fully with all of the rules and regulations of the Business Park. These rules and regulations are attached to this Lease as Exhibit “C”, and are made a part of this Lease as though fully set out in this Lease. Landlord shall at all times have the right to make reasonable changes, additions, or deletions to these rules and regulations for the purpose of ensuring or enhancing the safety, care, cleanliness, maintenance, or preservation of the Building and/or Business Park, its related facilities, and the Premises, as well as for the purpose of preserving good order in and on the Building and/or Business Park, its related facilities, and the Premises. Tenant and Tenant’s officers, employees, agents, and invitees will be bound by any such changes, additions, or deletions to the rules and regulations upon receipt by Tenant of written notice from Landlord setting forth the change, addition, or deletion. Tenant shall be responsible for the compliance of Tenant’s officers, employees, agents, and invitees with all such rules and regulations.

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4.9 Compliance with Applicable Laws. Tenant shall comply with and observe all statutes, ordinances, regulations, orders and/or decrees of the federal, state and city governments, or any departments, bureaus or agencies thereof (the “Applicable Laws”) or of any Insurance Inspection or Rating Bureau in any way affecting the occupancy, access, use and maintenance of Premises, whether now in force or as may be hereafter promulgated. Tenant shall continuously comply with the provisions of the Occupational Safety and Health Act of 1970 and the Americans with Disabilities Act as the same may be amended or implemented from time to time. Expenses related to compliance of the Premises with Applicable Laws and insurance requirements shall be borne exclusively by Tenant.

4.10 Security. Tenant shall provide such security for the Premises and Tenant, Tenant’s officers, contractors, employees, agents, and invitees as shall be reasonable and prudent, to the extent not provided by public authorities.

ARTICLE V  OBLIGATIONS OF LANDLORD

5.1 Landlord shall:

(a) maintain and keep in good repair the Building, the property on which it is situated, the foundation, roof, structure and load-bearing supports, exterior walls, exterior plumbing, exterior electrical and lighting, parking facilities, sidewalks and curbs, except for damage caused by Tenant’s neglect or misuse, in which case repair expenses shall be borne by Tenant as Additional Rent;

(b) maintain landscaping on grounds outside the Premises which are within Landlord’s control; and

(c) install a sign at Tenant’s sole expense bearing Tenant’s name on the common marquee and thereafter maintain the marquee at Landlord’s expense. (As of 10/24/03 the cost of the sign is approximately $80.00. This shall apply only if tenant chooses to have a sign on the marquee.)

ARTICLE VI  CARE OF PREMISES AND OBLIGATIONS OF TENANT

6.1 Tenant shall:

(a) promptly pay all charges and deposits for all electricity, gas, and telephone utilities supplied to the Premises. If the Premises are not separately metered, Landlord may charge Tenant a pro rata share of electricity, and gas, based on the percentage Tenant’s Leased Floor Space bears to total occupied floor space in the Business Park served on the same meter.

(b) maintain and keep the Premises and fixtures thereon and therein in good repair, subject only to reasonable wear and tear, including, but not limited to, the following:

(1) the interior of the Premises, including walls, floors, and ceilings, mechanical and electrical systems, lighting, plumbing and (subject to (c), below) the heating and air conditioning systems (“HVAC”);

(2) all windows and doors, including frames, glass, molding, and hardware;

(3) all other repairs to the Premises made necessary by Tenant’s failure to comply with Tenant’s obligations in this Lease; and

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(c) maintain the HVAC systems in accordance with procedures prescribed by the manufacturer (change filters every 30 days), at Tenant’s expense, if Tenant fails to change filters and damage occurs to HVAC, Tenant will be responsible for repairs. If damage is not caused by Tenant’s negligence in changing the filters, Landlord will incur the expense to repair HVAC.

(d) not cause or permit undue weight to be placed on the Premises, Building, and/or Business Park, including but not limited to driveways, parking areas or Leased Floor Space facilities in excess of the load per square foot that such facility was designed to carry and may be allowed by law. Tenant shall be responsible for the cost of repairs for damage caused by Tenant’s placement of undue and excessive weight on said facilities and said repair costs shall be deemed Additional Rent under this Lease; (pictures, diplomas and clocks are acceptable items to be placed on the walls)

(e) not cause or permit the installation of any attachments or fixtures on walls, structure, or load-bearing supports; and

(f) quit and surrender the Premises at the end or other termination of the term hereof broom clean and in at least as good condition as the Premises were in when delivered to Tenant, ordinary wear and tear, destruction by fire or elements, destruction by casualty not due to any act of negligence of Tenant or caused beyond the reasonable control of the Tenant excepted. Tenant shall, upon the discovery of any defect in or injury to the Premises, or any need of repairs, promptly report the same to Landlord in writing, specifying such defects, which shall be repaired by Landlord if expressly required to do so by this Lease; and

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(g) keep the Premises and sidewalks, service-ways and loading areas adjacent to the Premises neat, clean and free from dirt or rubbish at all times, and shall store all trash and garbage within the Premises, arranging for the regular pick-up of such trash and garbage at Tenant’s expense. If the Landlord makes provision for common pick-up of trash and garbage within the Business Park, Tenant will utilize the said service, and Landlord may charge Tenant a pro rata share of the charges therefor based on the percentage Tenant’s Leased Floor Space bears to total occupied floor space in the Business Park served on the same invoice. Receiving and delivery of goods and merchandise and removal of garbage and trash shall be made only in the manner and areas prescribed by Landlord.

ARTICLE VII  INDEMNIFICATION

7.1 Tenant Indemnity. Tenant agrees to indemnify and save harmless Landlord and its affiliated companies and their agents, servants, directors, officers, and employees (collectively, the “Indemnities”) from and against any and all liabilities, damages, claims, suits, costs (including court costs, attorneys’ fees, and costs of investigation), and actions of any kind arising or alleged to arise by reason of injury to or death of any person or damage to or loss of property occurring on, in, or about the Premises or by reason of any other claim whatsoever of any person or party occasioned or alleged to be occasioned in whole or in part by any act or omission on the part of Tenant or any invitee, licensee, employee, director, officer, servant, contractor, subcontractor, or tenant of Tenant, or by any breach, violation, or nonperformance of any covenant of Tenant under this Lease. If any action or proceeding shall be brought by or against any Indemnities in connection with any such liability or claim, Tenant, on notice from Landlord, shall defend such action or proceeding, at Tenant’s expense, by or through attorneys reasonably satisfactory to Landlord. The provisions of this paragraph shall apply to all activities of Tenant with respect to the Premises or the Building and/or Business Park, whether occurring before or after the Commencement Date and before or after the Expiration Date or other termination of this Lease. Tenant’s obligation under this paragraph shall not be limited to the limits or coverage of insurance maintained by Tenant. Tenant not responsible to the extent liabilities, damage, claims, suits, costs and action are occasioned by the negligence of Landlord, or its agents.

7.2 Landlord Indemnity. Landlord shall protect, indemnify, save and hold harmless Tenant and its agents, servants, directors, officers and employees, against and from all claims, liabilities, losses, damages, costs (including court costs, attorneys’ fees, and costs of investigation) and actions of any kind, arising or alleged to arise by reason of breach, violation, or non-performance of any covenant of Landlord under this Lease. If any action or proceeding shall be brought by or against Tenant in connection with any such liability or claim, Landlord, on notice from Tenant, shall defend such action or proceeding, at Landlord’s expense, by or through attorneys reasonably satisfactory to Tenant. The provisions of this paragraph shall apply to all activities of Landlord with respect to the Premises or the Building, whether occurring before or after the Commencement Date and before or after the Expiration Date or other termination of this Lease. Landlord’s obligations under this paragraph shall be limited to the limits or coverage of insurance maintained by Landlord or if the cause of any claim is not covered by Landlord’s insurance, then Landlord’s obligations under this paragraph shall be limited to the extent of Landlord’s interest in the Building.

7.3 Tenant’s Hazardous Materials Indemnity. The following terms shall have the following meanings:

“Hazardous Materials” shall mean any substance the presence of which on the Premises is regulated by any Governmental Requirements, including but not limited to (a) any “hazardous waste” as defined by the Resource Conservation and Recovery Act of 1976 (45 U.S.C. Section 6901 et seq.), as amended from time to time, and any regulations promulgated thereunder; (b) any “hazardous substance” as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. section 9601 et seq.) (“CERCLA” or “SuperFund”), as amended from time to time, and regulations promulgated thereunder; (c) asbestos and/or asbestos-containing materials; (d) polychlorinated biphenyls; (e) any petroleum-based products; and (f) underground storage tanks, whether empty, filled or partially filled with any substance.

“Governmental Requirements” shall mean all laws, ordinances, statutes, codes, rules, regulations, orders and decrees of the United States, the state, the county, the city or any other political subdivision in which the Premises are located and any other political subdivision, agency or instrumentality exercising jurisdiction over the Tenant or the Premises.

“Hazardous Materials Contamination” shall mean the contamination of the improvements, facilities, soil, ground water, air, or other elements on, over or under the Premises by Hazardous Materials, or the contamination of the improvements, facilities, ground water, air, or other elements on, over or under any other property as a result of Hazardous Materials at any time emanating from the Premises.

Tenant hereby indemnifies, defends and saves harmless the Landlord and all future owners of any interest in the Business Park (the “Landlord Parties”) from and against any suits, actions, legal or administrative proceedings, demands, claims, liabilities, fees, fines, penalties, losses, damages, expenses or costs, including but not limited to interest, court costs and attorneys’ fees incurred or suffered by the Landlord Parties or any of them (a) that is incurred or imposed based upon any Governmental Requirements and that arises out of any act or omission of the Tenant, its owners, directors, officers, employees, agents, contractors, invitees, licensees or assignees, or (b) that otherwise arises by the breach by the Tenant, the Tenant’s owners, directors, officers, employees, agents, contractors, invitees, licensees or assignees, of any representation, warranty or covenant in this section. This indemnification shall survive the termination or expiration of this Lease.

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7.4 Waiver of Liability. In no event shall Landlord be liable in any manner to Tenant or any other party as the result of the acts or omissions of Tenant, Tenant’s agents, employees, contractors, or any other tenant of the Business Park. All personal property upon the Premises shall be at the risk of Tenant only and no Indemnities shall be liable for any damage thereto or theft thereof, whether or not due in whole or in part to the negligence of any Indemnities. In no event shall Tenant be liable in any manner to Landlord or any other party as the result of the acts or omissions of Landlord, Landlord’s agents, employees, contractors, or any other tenant of the Business Park.

7.5 Tenant Waiver of Subrogation. No party shall have any right or claim against any Indemnities for any property damage (whether caused by negligence or the condition of the Premises, the Building, the Business Park or any part thereof) by way of subrogation or assignment, Tenant hereby waiving and relinquishing any such right. To the extent Tenant chooses to insure this property, Tenant shall request Tenant=s insurance carrier to endorse all applicable policies waiving the carrier’s right of recovery under subrogation or otherwise in favor of any Indemnities and provide a certificate of insurance verifying this waiver.

7.6 Landlord Waiver of Subrogation. Landlord hereby waives and relinquishes any right or claim against Tenant for damage to the Premises or the Building by way of subrogation or assignment, to the extent covered by insurance proceeds. Landlord shall request Landlord’s insurance carrier to endorse all applicable policies waiving the carrier’s right of recovery under subrogation or otherwise in favor of Tenant and a certificate of insurance will be made available at the request of Tenant.

7.7 Tenant’s Insurance. Tenant, at Tenant’s expense, shall maintain in force during the term:

(a) commercial general liability insurance, which shall include coverage for personal liability, independent contractors, bodily injury, death, and property damage, all on an occurrence basis with respect to the building and business carried on in or from the Premises and Tenant’s use and occupancy of the Premises, with coverage for any one occurrence or claim of not less than $1,000,000.00 or such other amount as Landlord may reasonably require upon not less than six (6) months prior written notice, and specifically including coverage of the Tenant’s indemnity obligations in this Lease, which insurance shall include Landlord and such additional parties as may be reasonably designated by Landlord as additional named insureds and shall protect Landlord in respect of claims by Tenant as if Landlord were separately insured; and,

(b) special form property insurance against such other perils and in such amounts as Landlord may from time to time reasonably require upon not less than ninety (90) days prior written notice, such requirement to be made on the basis that the required insurance is customary at the time for prudent tenants of properties similar to the Business Park in the Amarillo, Texas area.

7.8 Landlord’s Insurance. During the Lease Term and any extension or renewal thereof, Landlord may maintain policies of insurance covering loss or damage to the Building in which the Premises are located in an amount or percentage of replacement value as Landlord deems reasonable in relation to the age, location, type of construction and physical condition of the Premises and/or Building. The policies may provide protection against all perils included within the classification of special form property insurance and any other perils which Landlord deems necessary. Additionally, Landlord may maintain a commercial general liability policy of insurance in the amount of no less than $1,000,000.00 for any one occurrence or claim.

7.9 Policy Form. All insurance required to be maintained by Landlord or Tenant shall be on terms and with insurers reasonably acceptable to Landlord. Each policy shall contain an undertaking by the insurer that no material change adverse to Landlord or Tenant will be made, and the policy will not lapse or be canceled, except after not less than thirty (30) days prior written notice to Landlord of the intended change, lapse, or cancellation. Tenant shall furnish to Landlord, if and whenever requested by Landlord, certificates or other evidence acceptable to Landlord as to the insurance from time to time effected by Tenant and its renewal or continuation in force.

ARTICLE VIII  DAMAGE OR DESTRUCTION

8.1 Notice to Landlord. If the Premises or any structures or improvements on the Premises should be damaged or destroyed by fire, tornado or other casualty, Tenant shall give immediate written notice of the damage or destruction to Landlord, including a description of the damage and, as far as known to Tenant, the cause of the damage.

8.2 Destruction. If the Premises are damaged by fire, tornado, or other casualty not the fault of Tenant or any person in or about the Premises with the express or implied consent of Tenant, but not to such an extent that rebuilding or repairs cannot be reasonably completed within ninety (90) working days, this Lease shall not terminate except as provided in subparagraphs (a) and (b) below:

(a) Landlord may, at Landlord’s sole discretion and cost, elect to proceed immediately to rebuild or repair the Premises to substantially the condition in which they existed prior to such damage or to terminate this Lease effective as of the date of the occurrence of the damage. If the Premises are untenantable in whole or in part following such damage, the Rent payable during the period in which they are untenantable shall be adjusted equitably. In the event Landlord elects to repair and then fails to complete such rebuilding or repairs withinthirty (30) working days from the date of written notification by Tenant to Landlord of the occurrence of the damage, Tenant may terminate this Lease by written notification to Landlord. Upon such notification, all rights and obligations under this Lease shall cease.

(b) If Landlord elects not to rebuild or repair the Premises, and the Premises are untenantable in whole or in part following such damage, Tenant may elect to terminate this Lease or to continue this Lease with the Rent for the remainder of the Lease Term adjusted equitably.

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ARTICLE IX  ENTRY BY LANDLORD

9.1 Entry by Landlord. Landlord may enter the Premises of the purpose of examining, inspecting and cleaning, or making repairs and additions, or exhibiting the Premises, and Tenant shall not be entitled to an abatement or reduction of Rent by reason of such entry by Landlord.

ARTICLE X  IMPROVEMENTS BY TENANT

10.1 Improvements to Premises. Tenant shall make no additions or alterations in or to the Premises without the prior written consent of Landlord, which shall not be unreasonably withheld. All alterations, additions, or improvements which are made by the Tenant upon the Premises shall remain upon and be surrendered with the Premises as a part thereof at the termination of this Lease, or, at Landlord’s option, the Premises will be restored to their original condition at Tenant’s own cost and expense upon the termination of this Lease.

10.2 Signage. Subject to the provisions of applicable laws, Tenant, at Tenant’s sole expense, shall supply, install and maintain Tenant’s own sign on the building of a type and design as designated by the Landlord and defined in Exhibit “H” of this Lease.

10.3 Mechanics’ Liens. Tenant shall not permit any liens to attach to the Building or the Business Park for work done for or on account of Tenant, but shall only attach, if at all, to the Tenant’s rights under this Lease. Tenant shall (and Landlord may) post prominent notices during all periods of construction on the Premises that Tenant is only a tenant of the Business Park, and that Landlord and the Business Park shall have no responsibility for the payment or performance of Tenant’s work.

ARTICLE XI   PEACEABLE POSSESSION

11.1 Peaceable Possession. Landlord covenants and agrees that Tenant, on paying the Rent and other charges herein provided for, and observing and keeping the covenants, conditions, and terms of this Lease on Tenant’s part to be kept or performed, shall lawfully and quietly hold, occupy and enjoy the Premises during the term of this Lease without hindrance or molestation of Landlord, or any person claiming under Landlord, except such portion of the Premises, if any, that shall be taken under the power of the eminent domain.

ARTICLE XII  ENFORCEMENT RIGHTS

12.1 Default by Tenant. The following shall be deemed to be events of default by Tenant under this Lease:

(a) Tenant shall fail to pay when due any installment of Rent or any other payment required pursuant to this Lease;

(b) Tenant shall fail to comply with any term, provision, or covenant of this Lease, which is curable by Tenant, other than the payment of Rent or other monetary payment required pursuant to this Lease, and Tenant has failed to cure within thirty (30) days after receipt of written notice;

(c) Tenant shall file a petition or be adjudged bankrupt or insolvent under any applicable federal or state bankruptcy or insolvency law or admit that Tenant cannot meet Tenant’s financial obligations as they become due; or a receiver or trustee shall be appointed for all or substantially all of the assets of Tenant; or Tenant shall make a transfer in fraud of creditors or shall make an assignment for the benefit of creditors;

(d) Tenant shall do or permit to be done any act which results in a lien being filed against the Premises, the Building, the Business Park, and/or any project of which the Premises are a part; or

(e) Tenant shall assign the Lease or sublet the Premises without Landlord’s prior written consent.

12.2 Remedies for Tenant’s Default. Upon the occurrence of any event of default set forth in this Lease, Landlord shall have the option to pursue any one or more of the remedies set forth herein without any notice or demand:

(a) Landlord may enter upon and take possession of the Premises, by picking or changing locks if necessary, and lock out, expel, or remove Tenant and any other person who may be occupying all or any part of the Premises without being liable for any claim for damages, and relet the Premises on behalf of Tenant and receive directly the Rent by reason of the reletting. Tenant agrees to pay Landlord on demand any deficiency that may arise by reason of any reletting of the Premises; further, Tenant agrees to reimburse Landlord for any legal expenses, reletting expenses and or expenditures made by Landlord for reletting, remodeling or repairing in order to relet the Premises;

(b) Landlord may enter upon the Premises, by picking or changing locks if necessary, without being liable for any claim for damages, and perform Tenant’s obligations in order to comply with the terms of this Lease. Tenant agrees to reimburse Landlord on demand for any expenses which Landlord may incur in effecting compliance with Tenant’s obligations under this Lease; further, Tenant agrees that Landlord shall not be liable for any damages resulting to Tenant from effecting compliance with Tenant’s obligations under this subparagraph (b) caused by the negligence of Landlord or otherwise;

(c) Landlord shall have the right to invoke any remedy allowed at law or in equity. Mention in this Lease of any one particular remedy shall not preclude Landlord from pursuit of any other remedy at law or in equity; and/or

(d) Landlord may terminate this Lease, in which event, Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to surrender the Premises, Landlord may, without prejudice to any other remedy which Landlord may have for possession or arrearages in Rent, enter upon and take possession of the Premises, by picking or changing locks if necessary, and lock out, expel, or remove Tenant and any other person who may be occupying all or any part of the Premises without being liable for any claim for damages. Tenant agrees to pay on demand the amount of all loss and damage which Landlord may suffer by reason of the termination of this Lease under this subparagraph (d), whether through inability to relet the Premises on satisfactory terms or otherwise.

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Notwithstanding anything contained in this Lease to the contrary, no act or omission of Landlord shall be construed as a termination of this Lease. Landlord shall terminate this Lease only in writing by mailing or delivering to Tenant notice of such termination.

12.3 Waiver. IF LANDLORD CHANGES THE LOCKS ON THE PREMISES BECAUSE OF TENANT’S DEFAULT UNDER THIS LEASE, PURSUANT TO SECTION 93.002(f) OF THE TEXAS PROPERTY CODE OR ANY AMENDMENT THEREOF, TENANT WAIVES; (a) ANY OBLIGATION OF LANDLORD OR LANDLORD’S AGENT TO PLACE A WRITTEN NOTICE ON TENANT’S FRONT DOOR STATING THE NAME AND ADDRESS OR TELEPHONE NUMBER OF THE INDIVIDUAL OR COMPANY FROM WHICH A NEW KEY MAY BE OBTAINED; (b) THE RIGHT TO RECEIVE A NEW KEY TO THE PREMISES; AND (c) THE RIGHT TO REMOVE ANY PROPERTY IN THE PREMISES UNTIL TENANT HAS CURED ALL DEFAULTS UNDER THIS LEASE TO THE SOLE SATISFACTION OF LANDLORD.

12.4 Not a Trespass. If Landlord exercises any of Landlord’s rights or remedies provided in this Lease, Landlord shall not be liable for prosecution for trespass, or otherwise, or any claim for damages.

ARTICLE XIII  ASSIGNMENTS

13.1 Assignments by Tenant. Tenant shall not, except with the prior written consent of Landlord and the Landlord’s lender, if applicable, assign this Lease or any part of Tenant’s rights, titles, interests, and estates hereunder or allow the same to be assigned by operation of law or otherwise, or sublet the Premises or any part thereof. In event of permitted assignment or subletting by Tenant, Tenant shall remain primarily obligated to Landlord for performance of Tenant’s covenants and obligations under this Lease.

13.2 Assignments by Landlord. Landlord may sell or dispose of all or any part of Landlord’s interest in the Premises, Building, and/or Business Park. In the event of the transfer or assignment by Landlord of its interest in the Premises, in this Lease, and in the Building containing the Premises and/or Business Park to a person expressly assuming Landlord’s obligations under this Lease, Landlord shall thereby be released from any further obligations hereunder, and Tenant agrees to look solely to such successor in interest of the Landlord for performance of such obligations. Any remaining security given by Tenant to secure performance of Tenant’s obligations hereunder shall be assigned and transferred by Landlord to such successor in interest, and Landlord shall thereby be discharged of any further obligation relating thereto.

ARTICLE XIV  ESTOPPEL CERTIFICATE

14.1 Estoppel Certificate. Tenant will, at any time and from time to time, upon not less than ten (10) days prior request by Landlord, execute, acknowledge, and deliver to Landlord a statement in writing executed by Tenant, certifying that this Lease is unmodified and in full effect (or, if there have been modifications, that this Lease is in full effect as modified, setting forth such modifications) and the date to which the Rent has been paid, and either stating that to the knowledge of the signer of such certificate, no default exists hereunder or specifying each such default of which the signer may have knowledge; it being intended that any such statement by Tenant may be relied upon by any prospective purchaser or mortgagee of the Premises.

ARTICLE XV  SUBORDINATION AND ATTORNMENT

15.1 Subordination. This Lease and Tenant=s rights under this Lease are subject and subordinate to any deed of trust (the “Lien”), together with any renewals, extensions, modifications, consolidations, and replacements of such Lien, now or hereafter affecting or placed, charged, or enforced against the Premises or all or any portion of the Building and/or Business Park or any interest of Landlord in them or Landlord’s interest in this Lease and the leasehold estate created by this Lease. This provision will be self-operative and no further instrument of subordination will be required in order to effect it. Nevertheless, Tenant will execute, acknowledge, and deliver to Landlord, at any time and from time to time, upon demand by Landlord, such documents as may be requested by Landlord, or any mortgagee, to confirm or effect any such subordination. If Tenant fails or refuses to execute, acknowledge, and deliver any such document within ten (10) days after written demand, Landlord, Landlord’s successors and assigns, will be entitled to execute, acknowledge, and deliver any and all such documents for and on behalf of Tenant as attorney-in-fact for Tenant, coupled with an interest. Tenant, by this Paragraph 15.1, constitutes and irrevocably appoints Landlord, Landlord’s successors and assigns, as Tenant=s attorney-in-fact to execute, acknowledge, and deliver any and all documents described in this Paragraph 15.1 for and on behalf of Tenant, as provided in this Paragraph 15.1.

15.2 Attornment. Tenant agrees that if any holder of any Lien encumbering any part of the Building succeeds to Landlord’s interest in the Premises, Tenant will pay to such holder all Rents subsequently payable under this Lease. Tenant agrees that in the event of enforcement by the trustee or the beneficiary under or holder or owner of any such Lien of the remedies provided for by law or by such Lien, Tenant will, upon request of any person or party succeeding to the interest of Landlord as a result of such enforcement, automatically become the tenant of and attorn to successor in interest without change in the terms or provisions of this Lease. Upon request by Landlord, or such successor in interest, and without cost to Landlord or such successor in interest, Tenant will execute, acknowledge, and deliver an instrument or instruments confirming the attornment or acknowledging the agreement to so attorn. If Tenant fails or refuses to execute, acknowledge, or deliver any such document within ten (10) days after written demand, Landlord or its successor in interest will be entitled to execute, acknowledge, and deliver any and all such documents for and on behalf of Tenant as attorney-in-fact for Tenant, coupled with an interest. Tenant, by this Paragraph 15.2, constitutes and irrevocably appoints Landlord or its successor in interest as Tenant’s attorney-in-fact to execute, acknowledge, and deliver any and all documents described in this Paragraph 15.2 for and on behalf of Tenant, as provided in this Paragraph 15.2.

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ARTICLE XVI  CONDEMNATION

16.1 Definition. The term “Condemnation Proceeding(s)” means any action or proceeding in which any interest in the Premises is taken for any public or quasi-public purpose by any lawful authority through exercise of the power of eminent domain or right of condemnation or by purchase or otherwise in lieu thereof. If the whole of the Tenant’s Leased Floor Space is taken through Condemnation Proceedings, this Lease shall automatically terminate as of the date of taking. If in excess of twenty-five percent (25%) of the Leased Floor Space is taken, either party hereto shall have the right to terminate this Lease. Any such right of termination must be accomplished through written notice to the other party given within six (6) months after the date of taking. In all other cases, or if neither party exercises its right to terminate, this Lease shall remain in effect and the Rent payable hereunder from and after the date of taking shall be proportionately reduced.

16.2 Restoration. In the event of a partial taking, if neither party exercises any option available to it to terminate this Lease, Landlord may elect to restore the Building to a complete unit as similar under the circumstances as is reasonably possible, in design, character, and quality, to the Building as it existed before such taking or to terminate Lease effective as of the date the condemning authority or purchaser takes possession.

16.3 Condemnation Award. All compensation awarded or paid upon a total or partial taking of the Premises shall belong to and be the property of Landlord without any participation by Tenant. However, nothing contained herein shall be construed to preclude Tenant from prosecuting any separate direct claim against the condemning authority in such Condemnation Proceedings for loss of business, and/or depreciation to, damage to, and/or costs of removal of and/or for the value of stock and/or trade fixtures, furniture, and other personal property belonging to Tenant. Provided, however, that no such claim shall diminish or otherwise adversely affect Landlord’s award or the awards of any mortgagee.

ARTICLE XVII DELAY IN OCCUPANCY

17.1 Delay in Occupancy. If Landlord cannot acquire or deliver possession of the Premises by the time stated herein by reason of circumstances beyond its control, Tenant waives any claim for damages due to such delay, and Landlord waives the payment of any Rent until Landlord delivers possession to Tenant.

ARTICLE XVIIIINVALID PROVISIONS

18.1 Invalid Provisions. If any clause or provision of this Lease is illegal or unenforceable under present or future laws effective during the term of this Lease, then and in that event, the remainder of this Lease shall not be affected thereby, and in lieu of such clause or provision there shall be added automatically as a part of this Lease, a clause or provision as similar in terms to such illegal, invalid, or unenforceable clause or provision as may be possible and be legal, valid, and enforceable.

ARTICLE XIXNOTICES

19.1 Notices. Landlord may act in any manner provided in this Lease by its property manager or by any agent designated by Landlord. Whenever any notice is required or permitted hereunder or by law, such notice shall be in writing. Any notice or document required or permitted to be delivered hereunder or by law, shall be deemed to be delivered when personally delivered or, whether actually received or not, when deposited in the United States Mail, postage prepaid, certified mail, addressed to the party to be notified at the addresses shown herein or at such other address as such party may have theretofore specified by written notice delivered in accordance herewith.

ARTICLE XXSECURITY DEPOSIT

20.1 Security Deposit. Tenant’s Security Deposit equal to one (1) month’s Rent, being due on execution hereof, shall secure the performance of the Tenant’s obligations hereunder but is not a limitation on Landlord’s recovery. No interest will be paid to Tenant on the security deposit. Landlord may place the security deposit in an interest bearing account and any interest earned will be paid the Landlord or Landlord’s representative. Tenant may not hold payment of any portion of the last month’s rent on grounds that the security deposit is security for unpaid rent. Bad faith violations may subject Tenant to liability up to three times the rent wrongfully withheld and the Landlord’s reasonable attorney’s fees.

20.2 Landlord is not obligated to return or account for the security deposit until 30 days after Tenant surrenders the Property (vacating and returning all keys and access devices) and providing Landlord a written statement of Tenant’s forwarding address.

20.3 Deductions:

· Landlord may deduct reasonable charges from the security deposit for:

1. Late charges;

9

2. Cost of cleaning, deodorizing and repairing the Property and its contents for which Tenant is responsible;

3. Replacing unreturned keys, garage door openers or other security devices;

4. The removal of unauthorized locks or fixtures installed by Tenant;

5. Insufficient light bulbs;

6. Packing, removing and storing abandoned property;

7. Removing abandoned or illegally parked vehicles;

8. Attorney fees and court costs incurred in any proceeding against Tenant;

9. Other items Tenant is responsible to pay under this Lease.

· If deductions exceed the security deposit, Tenant will pay to Landlord the excess within ten (10) days after Landlord makes written demand.

ARTICLE XXIENTIRETY OF LEASE

21.1 Entirety of Lease. It is expressly agreed by Tenant and Landlord, as a material consideration for the execution of this Lease, that there are, and were, no verbal representations, understandings, stipulations, agreements, or promises pertaining thereto not incorporated in writing herein, and it is likewise agreed that this Lease shall not be altered, waived, amended, or extended otherwise than as provided herein unless it is done in writing, executed by Tenant or Landlord.

ARTICLE XXII MISCELLANEOUS

22.1 Binding Effect. The provisions of this Lease shall be binding and inure to the benefit of Landlord and Tenant, respectively, and to their respective heirs, personal representatives, successors, and assigns, if permitted hereunder.

22.2 Texas Law to Apply. This Lease shall be construed under, and in accordance with, the laws of the State of Texas, and all obligations of the parties created by this Lease are performable in the county in which the Premises are located.

22.3 Amendment. No amendment, modification, or alteration of the terms of this Lease shall be binding unless the same is in writing, dated subsequent to the date of this Lease, and duly executed by the parties to this Lease.

22.4 Joint and Several Liability. If there is more than one Tenant, the obligations imposed upon Tenant by virtue of this Lease shall be joint and several. If there is a guarantor of Tenant’s obligations under this Lease, the obligations imposed upon Tenant shall be joint and several obligations of Tenant and the guarantor. Landlord need not first proceed against Tenant before proceeding against the guarantor, nor shall any such guarantor be released from its guaranty for any reason whatsoever. Landlord’s liability hereunder shall be limited to Landlord’s equity in the fee estate of the Premises.

22.5 Rights and Remedies Cumulative. The rights and remedies provided by this Lease are cumulative, and the use of any one right or remedy by either party shall not preclude or waive its right to use any or all other remedies. These rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance, or otherwise.

22.6 Waiver of Default; Consent. No waiver by either party of any default or breach of any term, condition, or covenant of this Lease shall be deemed to be waiver of any other breach of the same or any other term, condition, or covenant of this Lease. The consent or approval by either party to or of any act by the other party requiring such consent or approval shall not be deemed to waiver or render unnecessary consent to or approval of any subsequent similar act.

22.7 Time of Essence. Time is of the essence of this Lease.

22.8 Gender. Whenever used, the singular shall include the plural, the plural the singular, and the use of any gender shall include all genders.

22.9 Captions. The paragraph captions and titles are included only for convenience and shall not be used to define or construe any portion of this Lease.

22.10 Delays. Whenever a period of time is herein prescribed for action to be taken by Landlord, Landlord shall not be liable or responsible for, and there shall be excluded from the computation of any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations or restrictions or any other causes of any kind whatsoever which are beyond the reasonable control of Landlord.

10

EXHIBIT “A”

Legal Descriptionof Business Park

Building # 21, Lot 2, Block 1, South Side Acres Unit # 6, an addition to the City of Amarillo, Randall County, Texas as filed of record in Volume 1671, Page 457 of the Deed Records of Randall County, Texas.

A-1

EXHIBIT “B”

SITE PLAN DELINEATING THE PREMISES

B-1

EXHIBIT “C”

RULES AND REGULATIONS

(1) Any damage done to buildings, structures, ramps, parking areas, sidewalks, drives, lights, meters, and piping during loading and unloading of Tenant’s goods and merchandise shall be the responsibility of the Tenant even if this damage is caused by independent suppliers.

(2) All garbage and refuse shall be kept in rat-proof, sealable containers as specified by the Landlord and shall be prepared for collection in the manner and at the time and places specified by the Landlord. If the Landlord shall provide or designate a service for picking up refuse and garbage, the Tenant shall use this service at the Tenant’s cost. The Tenant shall pay the cost of the removal of any of Tenant’s refuse or rubbish.

(3) No aerial, antenna, or any other item requiring a roof penetration shall be erected on the roof or exterior walls of the Premises or Building or on the grounds without, in each instance, the prior written consent of the Landlord. Any aerial or antenna installed without prior written consent shall be subject to removal without notice at any time. The Tenant shall be responsible for the cost of any removal and/or repair to the roof penetrations caused by the Tenant or the Tenant’s agent.

(4) No loud speakers, televisions, phonographs, radios, lights, or other devices shall be used in a manner so as to be heard or seen outside of the Premises without prior written consent of the Landlord.

(5) The outside areas immediately joining the Premises shall be kept clear and free from dirt and rubbish by the Tenant to the satisfaction of the Landlord and the Tenant shall not place or permit any obstructions or merchandise in these areas including doorways, vestibules and sidewalks.

(6) The Tenant and the Tenant’s employees shall park their cars only in those portions of the parking lot designated for Tenant parking by the Landlord. The Landlord may also instruct that any abandoned, unregistered or inoperable vehicles are to be towed away under local ordinances at the vehicle owner’s full cost and liability.

(7) The plumbing facilities shall not be used for any purpose than that for which they are constructed and no foreign substance of any kind shall be thrown or deposited therein. Any expense due to breakage, stoppage, or damage resulting from a violation of this provision shall be paid by the Tenant who shall or whose employees, agents, or invitees shall have caused it.

(8) The Tenant shall use, at Tenant’s cost, a pest control service approved by the Landlord.

(9) The Tenant shall not burn any trash or garbage of any kind in or about the Premises or the Business Park.

(10) No Tenant nor Tenant’s agents, employees, or invitees shall use the Premises for overnight sleeping or the use as a domicile.

(11) No pets or guard dogs shall be kept at the Premises.

(12) All outdoor storage if permitted by Landlord and by law shall be suitably screened to Landlord’s sole satisfaction.

(13) Tenant shall not overload electrical supply or demand.

C-1

EXHIBIT “G”

UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE

The undersigned (whether one or more, called the “Guarantor”), as a material inducement to and in consideration of WILD PONY HOLDINGS, L.P. entering into the foregoing Office/Warehouse Lease Agreement (the “Lease”) withAmarillo Biosciences, Inc. (the “Tenant”), hereby, jointly and severally and as a primary obligor, guarantees and promises to and for the benefit of Landlord, its successors and assigns (collectively, the “Landlord”) that Guarantor shall pay and perform the provisions of the Lease that Tenant is to pay and perform.

The provisions of the Lease may be changed by agreement between Landlord and Tenant at any time, or by course or conduct, without the consent of or without any notice to Guarantor. This Guaranty shall guarantee the payment and performance of the Lease as changed. Any assignment of the Lease (as permitted by the Lease) shall not affect this Guaranty.

This Guaranty shall not be affected by Landlord’s failure or delay to enforce any of Landlord’s rights.

If Tenant defaults under the Lease, Landlord can proceed immediately against Guarantor (or any of them) or Tenant, or both, or Landlord can enforce against Guarantor (or any of them) or Tenant, or both, any rights that Landlord has under the Lease, or pursuant to Applicable Laws whether or not enforceable against Tenant, and notwithstanding any defense that may exist in favor of Tenant. If the Lease terminates, Landlord can enforce its rights against Guarantor (or any of them) without giving previous notice to Tenant or Guarantor, or without making any demand on either or any of them.

Guarantor waives the right to require Landlord to (a) proceed against Tenant or any other guarantor or obligor; (b) proceed against or exhaust any security that Landlord holds from Tenant; or (c) pursue any other remedy available at law or in equity. Guarantor hereby expressly waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty, and waives all notices of the existence, creation, or incurring of new or additional obligations.

If Landlord disposes of Landlord’s interest in the Lease, “Landlord,” as used in this Guaranty, shall mean Landlord’s successors and assigns.

If Landlord is required to enforce Guarantor’s obligations by legal proceedings, Guarantor shall pay to Landlord all costs incurred, including, without limitation, reasonable attorneys’ fees and costs of suit.

Guarantor’s obligations under this Guaranty shall be binding on Guarantor’s heirs, executors, and legal representatives.

DATED this the 22^nd day of December , 2006 .

GUARANTOR:

By:
	Joseph M. Cummins, Individual

G-1

EXHIBIT “H”

SIGN CRITERIA - Western Business Park, AMARILLO, TEXAS

A. General Requirements:

1. It is intended that signs for the office/warehouse space in the Western Business Park all have a sense of continuity, and in keeping therewith, the Landlord shall maintain complete control of all tenant signs.

2. The wording of the signs shall be limited to office/warehouse name only.

3. The use of symbols or logo (if directly related to the store name) will be permitted, provided the size and construction conforms exactly to the requirements specified for signs.

4. Tenants are allowed one sign only, except tenants with frontage lengths in excess of 60 ft. are allowed two signs.

5. Tenants shall keep their signs insured, in good conditions and in working order at all times. Any damage to signs shall be repaired within five days or the Landlord may at its option repair the sign at the tenant’s expense.

B. Sign construction And Design:

1. Signs are to consist up to 16” in width. A single row of letters must be a minimum of 12" in height. A double row of letters must be a minimum of 5" in height. Maximum length of sign can be up to 75% of frontage.

2. Letters faces shall be 3/16" or thicker plexiglass secured to letter body with 3/4" plastic or metal trim molding. Molded plexiglass or approved fire resistant plastic letters may be submitted.

3. Sizes and locations of signs must conform with those shown on a attached drawing.

4. Exposed light sources are not permitted.

5. All sign leads, mount brackets, etc. are to be located behind the signs. Only the signs themselves are to be visible from the front of the building.

6. Tenants are to be responsible for the adequate mounting and stability of the sign and for maintaining the integrity of the building at all penetrations.

7. Facade sign letters shall be mounted on a securely anchored raceway and shall be mounted on canopy fascia panels, centered vertically in fascia space. All screws, bolts, spaces, and other fastening devices shall be of non-ferrous materials. The raceway shall be painted a color that matches the existing fascia.

C. Submittals:

1. Office/Warehouse Drawings are to be submitted to the Landlord and written approval must be obtained before signs are fabricated or installed.Submit two copies of drawings showing elevation, copy, letter style, colors, sizes and locations; and details of materials, construction and methods of attachment, Send drawings for approval to: 4178 BUSINESS PARK DRIVE, AMARILLO, TEXAS 79110

2. Except as hereinafter expressly provided, Tenant shall not, without Landlord’s prior written consent (a) make any changes to the office/warehouse front or (b) install any exterior lighting, decorations, painting, awning, canopies or the like or (c) erect or install any signs, window or door lettering, placards, decorations or advertising media of any type which can be viewed from the exterior of the Demised Premises, excepting only dignified displays of customary type for its display windows. All signs, lettering, placards, decorations and advertising media shall confirm in all respects to the sign criteria established by Western Business Park from time to time in the exercise of its sole discretion, and shall be subject to the prior written approval of Landlord as to construction, method of attachment, size, shape height lighting, color and general appearance. All signs shall be kept in good condition and in proper operating order at all times and shall be removed by Tenant upon the expiration or termination of the Lease. No portable and/or trailer signs are allowed in the Business Park.

3. Tenant shall, within ninety (90) days after opening for business, install and thereafter continuously maintain a facia according to the provisions as outlined above.

H-1

EX-10.12

EXHIBIT 10.12

Dr. Joseph Cummins

Chief Executive Officer

Amarillo Biosciences, Inc.

4134 Business Park Drive

Amarillo, TX 79110-4225

Phone: 806-376-1741

Fax: 806-376-9301

RE:Private Placement of Securities of Amarillo Biosciences, Inc.

(ENGAGEMENT LETTER)

Dear Dr. Cummins:

This letter (the “Engagement Letter” or the “Agreement”) confirms our understanding that Amarillo Biosciences, Inc. (AMAR) (together with its affiliates and subsidiaries, if any, "AMAR" or the "Company") has engaged MidSouth Capital Markets Group, Inc. ( the “Agent") to act, on a non-exclusive basis, as a placement agent ("Placement Agent") of the Company in connection with a best efforts private placement offering of the Company's Preferred or Common Stock (the "Placement" or “Offering”). This letter will confirm our acceptance and set forth the terms of the engagement agreed to between Agent and the Company. Placement Agent represents and agrees that in presenting the Company to potential investors, Placement Agent will use only the Information, information available from generally recognized public sources, and such other written documents or disclosures as may pre-approved by the Company in writing.

1. Information. In connection with the Placement Agent’s activities hereunder, the Company will furnish Agent with all material and information regarding the business and financial condition of the Company (the "Information"). The Company represents and warrants that all Information, including but not limited to the Company’s financial statements, will be complete and correct in all material respects and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading. The Company recognizes and confirms that the Placement Agent: (i) will use and rely primarily on the Information and on information available from generally recognized public sources in performing the services contemplated by this letter without having independently verified the same; (ii) is authorized as the Company's financial advisor and placement agent to transmit to any prospective investor a copy or copies, forms of purchase agreements and any other legal documentation supplied to the Agent for transmission to prospective investors by or on behalf of the Company or by the Company's CEO or CFO and those officers, representatives or agents specifically identified by the Company’s CEO or CFO in writing, in connection with the performance of the Placement Agent’s services hereunder or any transaction contemplated hereby; (iii) the Placement Agent does not assume responsibility for the accuracy or completeness of the Information and such other information except as otherwise required by law; (iv) will not make an appraisal of any assets of the Company; and (v) retains the right to continue to perform due diligence during the course of the engagement. The Placement Agent agrees to keep the Information (that is non-public and intended by the Company to be kept confidential) confidential and will not make use thereof, except in connection with services hereunder for the Company, unless: (i) disclosure is required by law or requested by any government, regulatory or self-regulatory agency or body in which event the Agent will provide the Company with reasonable advance notice of such proposed disclosure; (ii) any Information is or becomes lawfully available to the public in the same form and format as provided to the Placement Agent; or (iii) any Information was or becomes generally available to the Placement Agent on a non-confidential basis from a source other than the Company or any of its representatives.

2. Fees and Compensation. As compensation for services rendered and to be rendered hereunder by Agent, the Company agrees to pay Agent as follows:

An amount in cash equal to:

Page 1

a) Eight percent (8%) of the principal amount Sold to any investors Identified or Introduced by Agent, with all such sums payable at the time of each closing (a “Closing”) of the Placement ("Placement Fee"); “Sold” shall include the value of any debt or other consideration agreed to be paid by any investor for any securities issued or transferred pursuant to the Offering. Sold shall exclude convertible preferred stock dividends or interest paid with stock. Identified or Introduced includes direct and indirect introductions by the Agent or its agents and representations including, without limitation, where a party introduced to the Company introduces another party to the Company who then purchases the securities sold pursuant to the Offering or introduces another investor who purchases securities in the Offering, and so on. For greater clarity, in the event of a dispute as to whether the Agent Identified or Introduced an investor to the Company in connection with the Offering, the following question shall be answered: But for the acts of the Agent, would the sale of the securities in the Offering have taken place? If the answer to that question is “No”, then the Agent shall be deemed to have Identified or Introduced that purchaser for purposes of earning the Placement Fee. The preceding test is not the exclusive test for determining whether the Placement Fee is earned by the Agent but is only an example.

b) At each Closing, the Company will issue to Agent a warrant (the “Warrant”) to purchase shares of the Company's Common Stock equal to Eight percent (8%) of the number of common shares ("Shares") to be issued on an as converted basis in the Placement. Such Warrant will be issued pursuant to a Warrant Agreement to be signed by Agent and the Company, which agreement shall provide, among other things, that the Warrant shall be exercisable at an exercise price equal to $.30 per share., shall expire five (5 ) years from the date of issuance, include registration rights at the time that all shares issued in this Placement are registered, and provisions for cashless exercise and such other terms as are normal and customary for warrants of this type. The obligation of the Company to issue the Warrant is agreed to herein and is not dependent or contingent of the negotiation, execution and delivery of a Warrant Agreement.

c) The Company will reimburse the Agent in a timely manner for reasonable expenses relating to the Placement, including road show expenses, travel, legal and other related expenses up to $5,000.00. Company shall make such reimbursements promptly to Agent.

d) Notwithstanding any termination of this Engagement Letter pursuant to the terms hereof or otherwise, the obligation to pay the Fees and Compensation described in Section 2 shall survive any termination or expiration of the Agreement. It is expressly understood and agreed by the parties hereto that any private financing of equity or debt or other capital raising activity of the Company within twenty four (24) months of the termination or expiration of the Agreement, with any investors or lenders to whom the Company was Identified or Introduced by the Agent while the Agreement was in effect and disclosed to the Company in writing (such list to be communicated to the Company each time one new Investor has been contacted), shall result in such fees and compensation due and payable by the Company to Agent under the same terms of Section 2 above. Written Company approval is required for Placement Agent to contact more than one investor or lender. Any investors or lenders previously contacted by other Finders or Agents of the Company are excluded from the provisions of this agreement and the Company has provided a list of such investors or lenders below in the heading, Attachment A (Previously Contacted Investors). Upon completion of the Offering, any future renegotiation, restructuring, revision or other amendment of such Offering by and between the Company and the investors in such Offering which results in the receipt of any net new funds or commitment with respect thereto by the Company from such investor(s) within twenty four (24) months of the completion of the Offering shall be deemed to be a new financing and shall result in additional fees and compensation due and payable by the Company to Agent under the terms of Section 2 above.

3. Certain Placement Procedures. The Company and the Placement Agent each represents to the other that it has not taken, and the Company and the Placement Agent each agrees with the other that it will not take any action, directly or indirectly, so as to cause the Placement to fail to be entitled to rely upon the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the "Act"), or other appropriate exemption including, without limitation, exemption under Sections 4(2), 4(6) or 3(b) of the Act. In effecting the Placement, the Company and the Placement Agent each agrees to comply in all material respects with applicable provisions of the Act and any regulations there under and any applicable state laws and requirements. The Company agrees that any representations and warranties made by it to any investor in the Placement shall be deemed also to be made to the Placement Agent for its benefit. The Company agrees that it shall cause any opinion of its counsel delivered to any investors in the Placement also to be addressed and delivered to the Placement Agent for its benefit, or to cause such counsel to deliver to the Placement Agent a letter authorizing it to rely upon such opinion.

4. Indemnification. The Company agrees to indemnify Placement Agent and related persons in accordance with the following: The provisions of which are incorporated herein in their entirety. In consideration of your agreement to act on our behalf in connection with such matters, we agree to indemnify and hold harmless you and your affiliates and you and their respective officers, directors, employees and agents and each other person, if any, controlling you or any of your affiliates (you and each such other person being an "Indemnified Person") from and against any losses, claims, damages or liabilities related to, arising out of or in connection with the engagement (the "Engagement") under the Engagement Letter, and will reimburse each Indemnified Person for all expenses (including reasonable fees and expenses of counsel) as they are incurred in connection with investigating, preparing, pursuing or defending any action, claim, suit, investigation or proceeding related to, arising out of or in connection with the Engagement, whether or not pending or threatened and whether or not any Indemnified Person is a party. We will not, however, be responsible for any losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of any Indemnified Person. We also agree that no Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to us for or in connection with the Engagement except for any such liability for losses, claims, damages or liabilities incurred by us that are finally judicially determined to have resulted from the bad faith or gross negligence of such Indemnified Person.

Page 2

We will not, without your prior written consent, settle, compromise, consent to the entry of any judgment in or otherwise seek to terminate any action, claim, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not any Indemnified Person is a party thereto) unless such settlement, compromise, consent or termination includes a release of each Indemnified Person from any liabilities without payment by such person arising out of such action, claim, suit or proceeding. No Indemnified Person seeking indemnification, reimbursement or contribution under this agreement will, without our prior written consent, settle, compromise, consent to the entry of any judgment in or otherwise seek to terminate any action, claim, suit, investigation or proceeding referred to in the preceding paragraph.

If the indemnification provided for in the paragraph 4 of this Engagement Letter is judicially determined to be unavailable (other than in accordance with the third sentence of the first paragraph hereof of paragraph 4) to an Indemnified person in respect of any losses, claims, damages or liabilities referred to herein, then, in lieu of indemnifying such Indemnified Person hereunder, we shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (and expense relating thereto) (i) in such proportion as is appropriate to reflect the relative benefits to you, on the one hand, and us, on the other hand, of the Engagement or (ii) if the allocation provided by clause (i) above is not available, in such proportion as is appropriate to reflect not only the relative benefits referred to in such clause (i) but also the relative fault of each of you and us, as well as any other relevant equitable considerations; provided, however, in no event shall your aggregate contribution to the amount paid or payable exceed the aggregate amount of fees actually received by you under the Engagement Letter. For the purposes of this agreement, the relative benefits to us and you of the Engagement shall be deemed to be in the same proportion as (a) the total value paid or contemplated to be paid or received or contemplated to be received by us or our shareholders, as the case may be, in the transaction or transactions that are the subject of, whether or not any such transaction is consummated, bears to (b) the fees paid to you in connection with the Placement.

5. Termination; Survival of Provisions. This Agreement may be terminated by the Placement Agent or the Company at any time upon thirty (30) days prior written notice to the other party, provided, however, that: (a) any termination or completion of the Placement Agents engagement hereunder shall not affect the Company's obligation to indemnify Agent as provided in the indemnification section referred to above and (b) any termination by the Company of Agent's engagement hereunder shall not affect the Company's obligation to pay fees to the extent provided for in Section 2 herein; and (c) any termination by Placement Agent of Agents engagement hereunder shall not affect the Company's obligation to pay fees and reimburse the expenses accruing prior to such termination to the extent provided for herein. All such fees and reimbursements due the Placement Agent, shall be paid to the Placement Agent on or before the Termination Date (in the event such fees and reimbursements are earned or owed as of the Termination Date) or upon the closing of the Placement or any applicable portion thereof (in the event such fees are due pursuant to the terms of Section 2 hereof).

6. Governing Law and Forum; Amendment; Headings; Plurals and Pronouns.

a) This Agreement and all controversies arising from and relating to performance under this agreement shall be governed by and construed in accordance with the laws of the State of Georgia, without giving effect to such state's rules concerning conflicts of laws. This Agreement may not be modified or amended except in writing duly executed by the parties hereto. Each Party agrees that all legal proceedings concerning the interpretations, enforcement, and defense of the transactions contemplated by this agreement (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees, or agents) shall be commenced in the state and federal courts sitting in Fulton County, Georgia.

b) The section headings in this Agreement have been inserted as a matter of convenience of reference and are not part of this Agreement.

c) Whenever the context may require, any pronoun used herein shall include the corresponding masculine, feminine or neuter forms. The singular form of nouns, pronouns and verbs shall include the plural and vice versa.

Page 3

7. Nondisclosure of Confidential Information. Placement Agent and the Company mutually agree that they will not disclose any confidential information received from the other party to others except with the written permission of the other party or as such disclosure may be required by law. Placement Agent has been retained under this agreement as an independent contractor with duties owed solely to the Company. The advice, written or oral, rendered by Agent pursuant to this Agreement is intended solely for the benefit and use of the Company in considering the matters to which this Agreement relates, and the Company agrees that such advice may not be relied upon by any other person, used for any other purpose, reproduced, disseminated, or referred to at any time, in any manner or for any purpose. Neither party shall make any public references to the other party, without the prior written consent of said party, which consent shall not be unreasonably withheld.

8. Successors and Assigns. The benefits of this Agreement shall inure to the parties hereto, their respective successors and assigns and to the indemnified parties hereunder and their respective successors and assigns, and the obligations and liabilities assumed in this Agreement shall be binding upon the parties hereto and their respective successors and assigns. Notwithstanding anything contained herein to the contrary, neither the Placement Agent nor the Company shall assign to an unaffiliated third party any of its obligations hereunder.

9. Press Announcements. The Company agrees that the Placement Agent shall, upon a successful transaction, have the right to advertisements in financial and other newspapers and journals at its own expense describing its services to the Company hereunder, provided that Placement Agent shall submit a copy of any such advertisement to the Company and shall have received prior written approval from the Company for its approval by the CEO or CFO, such approval shall not to be unreasonably withheld.

10.Counterparts. For the convenience of the parties, this Agreement may be executed in any number of counterparts, each of which shall be, and shall be deemed to be, an original instrument, but all of which taken together shall constitute one and the same Agreement.

This Engagement Letter between the parties shall supersede any and all prior agreements whether verbal or written. If the forgoing correctly reflects the understandings between Company and Agent, please sign this Letter, whereupon the Letter shall constitute a binding contract.

		Very truly yours,
		MidSouth Capital Markets Group, Inc.
		By:	/s/ Tim Moody
		Timothy C. Moody, President
ACCEPTED AND AGREED TO: as of the date hereof
Amarillo Biosciences, Inc.
By:	/s/ Joseph M. Cummins
	Dr. Joseph Cummins, Chief Executive Officer
September 25, 2007

Page 4

Attachment A (Previously Contacted Investors)

Platinum Partners

Chrisitis Healthcare

Mountain Capital

La Joya Cove

Tejas Holdings

CCCM Group

Stone Investment Trust

A Street Capital

Fusion Capital

Platinum Partners

Trinity Financing Investments

Richard Cohen

Golden Gate Investors

La Joya Cove Investors

Dutchess Advisors

Utek, Inc.

Scarborough Capital

Cornell Capital

Century Management

Amarillo Bioscience, Inc. shareholders of record

Accipiter Capital Management, LLC

Alexandra Investment Management, LLC

Baker Bros

Balyasny

Bluegrass Growth Fund

Bristol Capital LP

Bushido Capital

Centrecourt Asset Management

Corsair Capital Partners, L.P.

Cranshire Capital

Crestview Captial

Efficacy Capital

Enable Capital Management

Endeavor Asset

EndPoint Merchant Group, Inc.

Fort Mason Capital

Fusion Capital Partners, LLC

Global Capital Advisors

Great Point Partners

Gryphon Capital Management, LLC

Heights Capital Management Inc.

Hollis Capital Management

Hudson Bay Overseas Fund Ltd.

Investment Strategies Fund

Iroquois

JGB Capital

Lehman Brothers

LH Financial Services Corp.

Magentar Capital LLC

Merlin Biomed Group

Midsummer Capital

MPM Capital

N.I.R. Group LLC

NorthSound Capital

Orbimed Advisors LLC

Paragon

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Paramount Capital Asset Management, Inc.

Pequot Capital

Perceptive Life Sciences Fund LP

Perseus LLC

Promed Asset Management

Promethean

Radius Ventures

RAM Capital

Renaissance Technology

RG Capital Management, LP

Rockhill Funds

Sandell Asset Management

Satellite Capital

Schottenfeld

SCO Financial Group

Silverback Asset Management

Special Situations Funds

Stark Investments

Stonestreet LP

Sunrise Securities Corp.

Susquehanna International Group

Tail Wind Fund

Tang Capital

The Visium Funds

UBS O'Conner

Vision Capital

Xmark Funds

AMAR may add additional Investors or Lenders that have not been already contacted by the Agent to this list by written notification to Agent.

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EX-23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Amarillo Biosciences, Inc.

We consent to incorporation by reference in this Registration Statement of Amarillo Biosciences, Inc., on Form S-1 to be filed with the Commission on or about April 24, 2008 of our Report of Independent Registered Public Accounting Firm dated March 17, 2008 covering the financial statements of Amarillo Biosciences, Inc. for the year ended December 31, 2007, and the related statements of operations, stockholders’ deficit, and cash flows for each of the two years then ended. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

/s/ LBB & Associates Ltd., LLP

LBB & Associates Ltd., LLP

Houston, Texas

April 24, 2008