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January 4, 2007 Dear Shareholder, The year 2006 was a milestone for ABI and set the stage for an even more significant year in 2007. In the past year, ABI laid the groundwork to conduct a series of clinical trials on four continents in 2007.  In Turkey, ABI began enrollment for our Behçet’s'™ disease study. In the United States, we are in the final stages of site registration for a six-city Phase 2 clinical trial on oral warts in AIDS patients. In Australia, a human influenza study is planned in mid-2007. In Taiwan and China, we look forward to clinical trials for chronic active hepatitis B and human influenza later this year. These developments, in conjunction with a number of other ongoing studies in humans and animals, will pave the way for the realization of our ultimate objective: FDA approval for our low dose oral interferon. Behçet’s Disease Double-blinded, Placebo-controlled Phase 2 Clinical Trial Enrollment in Turkey for Behçet’s disease currently stands at 50 patients. We must reach 90 patients to complete the Phase 2 clinical trial. Enrollment is expected to be completed in the first or second quarter of 2007, and data analysis will begin approximately 12 weeks after the last patient is enrolled. Our Turkish partner Nobel Ilac, one of the largest pharmaceutical companies in Turkey, is funding the study. Nobel Ilac may be able to use the Phase 2 data to seek approval in Turkey, assuming the data are compelling.   Oral Warts Double-blinded, Placebo-controlled Phase 2 Clinical Trial Our Phase 2 clinical trial will test low-dose interferon alpha lozenges administered orally to subjects who have oral warts and are also positive for human immunodeficiency virus (HIV) virus. Viral lesions of the mouth in patients infected with HIV are common and may be indicative of disease progression. One of the causes of oral lesions is the DNA virus, human papillomavirus, which induces hyperplastic lesions in the oral soft tissue such as warts and focal epithelial hyperplasia. We have already registered five clinical sites in San Francisco, Chicago, New York City, Boston, and Dallas for this study. A site in Baltimore is expected to register in January and all sites are expected to begin enrollment in January 2007.    CytoPharm Licensing and Supply Agreement, Hepatitis B and Human Influenza Clinical Trials for Taiwan and China Approximately a month ago, ABI 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. Both CytoPharm and Vita Genomics are affiliates of Ho Tung Chemical Corp. Ltd., one of the largest petrochemical companies in Taiwan, and a publicly traded company whose 2005 revenues exceeded NTD 35 billion. Under the terms of the Agreement, CytoPharm and its subsidiary will conduct all clinical trials, and seek regulatory approvals in both China and Taiwan (the Territory) to launch ABI's™ low dose oral interferon for influenza and hepatitis B indications. CytoPharm has entered into discussions with regulatory agencies in the Territory to conduct clinical trials, which are expected to commence in 2007. Texas Tech University Idiopathic Pulmonary Fibrosis and COPD Studies Eighteen patients completed a pilot study of the use of interferon lozenges in the treatment of idiopathic pulmonary fibrosis (IPF) at Texas Tech University. As previously announced, the principal investigator, Lorenz Lutherer presented findings from the study at the Company's annual shareholders meeting. Dr. Lutherer reported that more than half of his patients treated for at least one year showed no signs of disease progression as assessed by pulmonary-function testing and high-resolution CT scans of their lungs. IPF is normally rapidly progressive, so the fact that half of the patients have shown no progression of the disease during interferon lozenge treatment is encouraging. However, the most surprising observation from our research is that low-dose oral interferon relieves chronic coughing in patients with IPF or Sjögren'™s syndrome. Moreover, ABI has published that horses with chronic obstructive pulmonary disease or COPD, also called inflammatory airway disease, are significantly improved with low doses of oral interferon. Coughing, a component of COPD in horses is relieved by oral interferon. An SBIR grant was submitted to NIH in November in cooperation with Dr. Lutherer. If funded, this grant application will allow the Company to conduct a pilot study to verify that oral interferon stops chronic coughing. Two new patent applications were filed in 2006. One of these new patent applications contained claims on the use of oral interferon to relieve chronic coughing. The other new application pertained to animal health. COPD Initiative ABI is seeking funding to treat chronic coughing in human COPD or IPF patients with oral interferon. COPD is reported to affect 10% of humans over the age of 40. Because COPD affects many millions of people and is not an Orphan Disease (a disease that affects fewer than 200,000 people in the U.S.), the study of COPD would require a large study population and is, therefore, too expensive for ABI to study beyond Phase 2 without a pharmaceutical partner. If the clinical data from Phase 2 are as positive as expected, these Phase 2 data will be shared with potential pharma partners. Federal Funding ABI retained Hance, Scarborough, Wright, Woodward & Weisbart an Austin-based law firm to represent ABI regarding federal governmental and private source funding for influenza studies. In 2007, we will be aggressively working on obtaining federal funding for clinical trials to be conducted in 2007 and 2008.  Beyond federal funding, ABI is seeking investor funding so we can complete all our clinical studies.    Consultant agreement with Claus Martin, MD Dr. Martin has helped ABI by introducing companies India, South America and SE Asia. Through Dr. Martin efforts, ABI was able to enter a License and Supply Agreement in Malaysia with Bumimedic. Influenza Animal trials were conducted in 2006 in Australia, New York and Nebraska. An oral dose of interferon was found which protected mice against a fatal influenza challenge. Animal research will continue in 2007 in Australia and New York. Human trials, as mentioned above, are expected in Australia, Taiwan, and China. Dietary Supplement In December 2006, Hayashibara Biochemical Laboratories granted ABI a 5-year extension of our Supply Agreement for anhydrous crystalline maltose (ACM). The company sells ACM as Maxisal to individuals and to pharmacies for the patented relief of dry mouth (xerostomia). The Company plans to license Maxisal to a distributor for nationwide sales in 2007. Best wishes to our 2000 shareholders. We will work to add value to the shareholders' investment in the coming year.   Sincerely, Joseph M. Cummins, DVM, PhD President and CEO Joseph M. Cummins, DVM, PhD Amarillo Biosciences, Inc. e-mail:jcummins@amarbio.com Tel:806-376-1741 x 13 Fax:806-376-9301 Philippe Niemetz WPH Consultants, Ltd. e-mail:philippe.niemetz@wphconsultants.com Tel:800-477-7570; 212-344-6464 Fax:212-618-1276