THE STEWART REPORT HOTLINE SUMMARY

Monday, January 31, 2005

Next HotLine Recording Scheduled for Sunday, February 20, 2005

Prelude: Few things in American society are as ecumenical as our nation’s fondness for Johnny Carson. Like you, I must have watched his show a thousand times.

He’s the one I thank (and the one my parents still blame) for teaching me the value of becoming a night person. I got to meet Mr. Carson once – but only if you agree that standing next to someone while they give a quick interview actually counts as “meeting them.”

It really didn’t. And it still doesn’t. But at least The Tonight Show continues.

I really have met Jay Leno on a few occasions. Once, I even got to ride with him in his 1927 Hispano-Suissa. It was a monster, powered by a WWI aircraft motor that Leno told me held 32 quarts of oil.

That does count.

Of course, today, we still have years worth of Seinfeld episodes to view. There’s a dozen to watch every night in every time zone on seemingly every single cable channel, so Jerry Seinfeld is the one I blame for watching too much television before it’s even late night television.

Enough fun. For the purposes of this HotLine, there are two tie-ins for all of the celebrities just mentioned:

The First is the fact that Johnny Carson took delivery of the second DeLorean ever produced; that Jerry Seinfeld is the world’s most well-heeled Porsche collector; that Jay Leno is the ultimate car guy – and Car Guys Rule.

The Second would be the Seinfeld episode about a quirky amateur basketball player named “Jimmy.” Jimmy loved his own name and was therefore in the habit of referring to himself in the third person, saying things such as, “Jimmy likes this,” or “Jimmy never heard of that,” or “These basket ball shoes make Jimmy happy.”

I picked up on the whole “Jimmy” thing because I thought it was funny – and also annoying. Sometimes things that are very annoying are also very, very funny. But only to a point …

And, as Johnny Carson said, “Never tell the same bowling joke twice.”

So I no longer refer to “David Stewart” in the third person (except when I’m applying for a classic car loan by telling the loan officer that, “Ferraris are very practical,” “Jaguars are very reliable,” or “David Stewart” is a highly bankable marketing concept of national proportions.)

It never works, of course – but I do still reserve the right to quote my own HotLine.

In the last one, I said, “Emergency Filtration Products, Inc. (Nasdaq/BB: EMFP – 47 cents ) talks regularly and seriously with Itochu Chemical, an $80 billion international giant – as well as the Pentagon, Air force, U.S. Army, Navy and Marine Corps. The fact is, a contract with any one – if not all – of these monsters is so probable that it’s almost a forgone conclusion.”

The next day – Dec. 28, 2004 – EMFP announced that it had entered into “an exclusive, long-term importation agreement with its partner, Itochu Chemical.” The contract referenced each of Emergency’s key medical products. Reminder: These are the same products that we’ve been betting on, in large part because of the physicians – fellow subscribers, same as you – who’ve never wavered in their explanations to me as to the value of these devices.

Also in that release, both EMFP and Itochu put to ink their mutual belief that the David-and-Goliath relationship – the one between our $13 million company and Itochu, which Forbes magazine lists as the 11th largest on earth – is likely to “be extended well past 2011.” Suffice it to say, the commercial portion of EMFP’s potential market, which was a large portion of all that we envisioned, is now a commercial fact – a fact that I believe will generate more revenues for this Company, this year, than all prior years combined.

It gets better.

On Jan. 11, 2005, just two weeks after the Itochu deal, the military side of the equation became reality, too. Emergency Filtration Products announced it had received “confidential and official notification from the Department of Defense (DoD) approving use of its filter technology for the U.S. military.” The notification also included specific reference to “protective masks, as well as an interest in developing filtration systems for use in tanks, vehicles and buildings.”

For reasons of national security, specifics as to wide-ranging government-sponsored nano-technologies of this magnitude were bound to be absent – and they were. Indeed, the news release didn’t hold the most definitive wording I’ve ever seen, but it didn’t need to. We got what we wanted – and we wanted it all. Not just the Army, not just the Marines or the Navy or the Air Force – but all branches of the military. That can be defined as the DoD, and all that it encompasses, which is virtually everything. Especially these days. No imaginable behemoth on this planet could be as large as the American War Machine. Seriously, if the DoD were a corporation, it would have to be bigger than Exxon.

It gets better still …

The scenario becomes even more intriguing if you rewind back to the Dec. 2 HotLine, move from the macro to the micro, quit reading between some very obvious lines and instead look at the very fine print. I’m referring to the HotLine section in which I discussed the salient features of the private placement that enabled last year’s opportunities to become today’s realities.

Therein, I said:

4) If you read the fine print, you’ll note there were “A” and “B” warrants attached to the private offering. Interestingly, the “B” warrants can be canceled by EMFP if, within 90 days of the offering, the Company should secure a Letter of Intent from the U.S. military.

5) Since the 90-day period ends in mid-January, that’s my personal target date to see the announcement we’ve all been hoping for. Worth noting, too, is the wording that says EMFP doesn’t even need a contract – just a Letter of Intent. That means that if things go reasonably well, even if the government takes its time finalizing the contract, we still keep the money, but the dilution will be less.

Wonderfully, every word printed came to pass. In mid-January, the United States military formally agreed to do business, and the “B” warrants went away. Two million shares worth of dilution disappeared, but the money did not – and, in response, the stock began to move higher.

This was to be expected. The volume was not – at least, not entirely. Daily trading activity became difficult to explain. The number of shares changing hands was huge, the volume spikes were erratic and unusual brokerage firms came into view – both on the buy side and on the sell. After checking several sources, some seriously interesting things were learned.

On the negative side, there are a pair of dark forces to report. The first one, you’re already aware of. This would be the investor who bought the private placement a few months back. As I’ve explained before, the game these guys play is simple:

They invest money in companies that are in serious need of cash. To ensure their opportunity, the price they pay for stock is always well below the then-prevailing market price. Once the shares are registered and legal, the objective is to get their investment back by unwinding the transaction in the open market. No harm, no foul – just a big irritation. A guy I know finds a perverse pleasure in keeping track of such things. He’s a real “Rain Man” in this respect. He actually enjoys monitoring stock transactions – real time, all the time. His view is that the private placement investor has liquidated probably two-thirds of his position, but will continue to be a thorn in our buy side, as it were, for another month or three.

EMFP’s recent listing on the Berlin Stock Exchange is the other negative force that’s generated unwanted sell-side volume. In Berlin, the game is nefarious. It works like this:

You find someone with even fewer scruples than yourself, then you pay them to list a stock on the Berlin Exchange. You do this because the offshore nature of the relationship enables you to perform naked short sells. On Nasdaq, the SEC has outlawed naked short selling, so this is how they get around it. It’s a form of financial terrorism, pure and simple and , like any form of terrorism, it serves no good purpose, but it’s there nonetheless.

Indeed, there’s always going to be a bear somewhere in the forest, so you just learn to live with it. Either that, or you try to burn down the forest. That’s the torch EMFP tried to light when, on January 12, it formally demanded delisting of its shares from that exchange. Don’t get me wrong. It was the good and proper thing to do – just as when EMFP donated RespAide masks to the Red Cross to help with tsunami relief efforts just a few days earlier.

No doubt, the masks will help in Asia – and don’t think I’m being facetious – but the Berlin protest thing was largely symbolic. At this moment, there’s no real reciprocity between that Exchange and our own. Nothing is likely to happen on that front, except for continued illegal and unwarranted selling.

Included with EMFP’s “Demand to Delist” came a request of its shareholders. Specifically, they asked each of to us phone our brokers and instruct them to send our shares out, in certificate form. The well-intended idea is this:

If everyone takes physical possession of their certificates, there will be no shares left for the short sellers to borrow against. Conceptually, it makes good sense, but it’s not likely to work.

Once again, I do not mean to sound facetious. Frankly, if I were the CEO and presented with identical circumstances, I would have made the same request – but the Company’s idea is naïve. If average stockholders such as ourselves requested our shares, it might help. But, in Real World 101, the sum total of our ownership, even en masse, is not that significant to the handful of really large stock owners. Only if they request their shares, will the protest have teeth – so let’s hope they do.

Such is life in the finance lane.

As wicked as each these dealings are, it’s still fun to ask the very obvious question: If EMFP is being assaulted on both fronts – by a private placement investor here in the U.S. and by a short artist overseas – why is the stock moving up?

Let me use my own gratuitous question to inform you of some really great news – which, ironically, came in the form of a government form. Go figure.

Uncle Sam calls this form a “Schedule 13-D.”

Keep in mind, a 13-D is infinitely more favorable than a 1099 or a W-2 form. A 13-D is more like a speeding ticket – in reverse. You want to get one of these. Part of what makes a 13-D such a reasonably rare document is that only rarefied individuals are asked to complete them. So if you get 13-D, it means you are probably smart – and definitely rich.

The need comes about when the SEC determines that your equity interest in a single company exceeds five percent. In this particular instance, the person who now owns better than five percent of Emergency Filtration Products is a gentleman named Josiah T. Austin.

As you know, anyone whose parents could afford to name their son “Josiah T.” had to be rich. Apparently, so is he. A friend who is fast at finding esoteric items on the Internet tells me the following:

• North Fork Bancorporation, Inc. (NYSE:NFB). “As of May 5, 2004, Josiah T. owned 2,522,958 shares. The current value of these shares is $68,548,768.”

• Goodrich Petroleum Corporation (NYSE: GDP). “Austin owned 9,560,641 as of Dec. 15, 2004. He is a director. Based on the current price of $16, today’s position is worth $152,970,025.”

• Novogen Limited (Nasdaq: NVGN). “Mr. Austin owned 1,060,807 American Depositary Receipts (ADR’s) representing 5,304,035 ordinary shares. The current value of this position is $20,908,505.”

“David,” my friend continued, “I know little else. You can see he is a man of means. Total value of these recorded holdings is at right a quarter-billion dollars. This sum does not include other private money investments, such as El Coronado Holdings, L.L.C., and certain agricultural properties in Arizona and Mexico.”

Take from this information what you want. My friend did his homework. Apparently, we’re in good company. I’d like to think I’ve done my homework, too, and that the body of evidence lends great credence to all that we’ve studied, correctly anticipated, envisioned and patiently speculated in.

Isn’t it fun when so much is vision focused on such a small situation, and then, after so many years, proves out? We bet on an inventor – not even a real business person at the time. Doug Beplate was just some guy who witnessed a roadside crash; who watched a man die, in part, because even the paramedics were hesitant to give him mouth-to-mouth. Doug made a vow, there and then, not to let it happen again.

He put his mind where his experience was, and developed a product. Then he did learn to be a businessman. He got Wall Street to finance his project. This required people with money and foresight. I’m not talking about people “like” you and me. I’m talking about you and me specifically.

We are Wall Street.

Our perceptions, our patience, our cash. We’re the ones who use our minds and money to make things happen. I’ve seen this cycle more than once, but each time it pleases me as if it never happened before – even though the formula is a given: A great idea. An entrepreneur who perseveres. Free thinkers in free markets who help finance.

Each time, it’s like seeing a baby born – and then go on to graduate with honors. You’ve got to love it. And it’s even more fun when you look at the stock chart.

Several days ago, EMFP’s price broke well above its 30-day moving average. Because the lion’s share of that move was sustained, the stock then broke through its 60-day average, then its 90-day average, and then the 120. From the standpoint of a technician, it doesn’t get much better than that.

From the evidence, you know the breakout was no fluke. Shares of EMFP have embarked on an entirely new course. The direction is upward. I don’t know how high they might go, but higher is all that matters, right?

So even though it’s fun to make an early wager, study the hell out of everything and eventually be proven right, I’m thinking it’s even more fun to simply show up at the finish line and collect your winnings. Relative to our investment in Emergency Filtration Products, that’s where we are at:

The Finish Line.

If it sounds like I’m celebrating, it’s because I am. And you should, too – especially if you’re new to the table. Consider themselves especially lucky. Those of us who have played the game – through thick and thin – know what I mean. So does “Jimmy.”

In the last HotLine, he’s the one who said, “We’ve endured a reasonable amount of grief getting to this point, but the important thing is that we’ve arrived … virtually everything is in place.” Then he babbled some other equally accurate and well-envisioned gibberish and closed last year out by adding, “In a few days, the New Year arrives, and before it is over, it will bring us a pile of money.” Good and important news, but there was a disclaimer attached.

Jimmy also reminded us, “I don’t know which of our three stocks will take off first – or which will soar the highest – so your best bet is to buy all three.” Please take a moment to appreciate the importance of that statement, and to also allow me to repeat it. “I don’t know which of our three stocks will take off first – or which will soar the highest – so buy all three.”

Which brings me to the other two:

International Card Establishment, Inc. (Nasdaq: ICRD/BB – 48 cents) bores me to pieces. Then again, so does every stock Warren Buffett owns. Mathematical, straight-up-the-middle, money-making propositions – like insurance shares and banking stocks – are inherently less interesting than others. But we don’t own them to be interested. We own them to make money.

Mathematically and methodically, this is what International Card Establishment, Inc., is doing for us –

i.e., boring us to tears while making us money.

True, the check has not yet been cashed. But “yet” is the operative word because, as long as the Company continues to deliver by making revenues grow as rapidly as they have, year to year to year, you cannot argue. Everything I said they’d do, they’ve done. The eventuality of these continued accomplishments is simple:

In another ten or fifteen months, when ICRD hits the $100 million revenue mark, it will have achieved critical mass. It will become an acquisition candidate. It will allow itself to be bought. This will happen – and, when it does, we’ll safely triple our money. I’m serious. Buy this one, too.

As for my all-time favorite longshot, Amarillo Biosciences, Inc. (Nasdaq/BB: AMAR: 36 cents),

we are likely to be right on this one too, so buy it as well. A rumor has been spread that the Company has negotiated to sell its tax-loss carry forward. If this is true – and if it does – several million dollars would be capitalized. The news would be large, and the stock would respond nicely.

As always, thank you for listening, and for remembering to bend fold, mutilate and staple – especially if it’s a speeding ticket.

J. David Stewart

Analyst and Publisher, The Stewart Report