THE STEWART REPORT
HOTLINE SUMMARY

Thursday, February 23, 2006

(Next HotLine Planned for Wednesday, March 22, 2006)

Overview and Outlook:
Perceived value and actual value are usually two different things – and not just in the stock market, either. This truism applies just as aptly to the real estate markets, precious metals, collectibles on e-Bay and every other arena where the sale and purchase of commodities in limited supply is negotiated.

Invariably, there seems to be a reasonable disparity between what something is worth – I mean what it’s really worth – and what the general public thinks it’s worth. This is particularly true in markets that are very depressed, or in ones where expectations are surging with too much enthusiasm.

We saw this years ago when the dot.com bubble burst, and we’ll see it again soon in residential real estate and the American muscle car markets. Right now, these are your two best places to lose new money – or give up much of what you’ve already made.

As for Wall Street, I have no real opinion regarding the Dow Jones Industrials – either way. Then again, I seldom do because there’s no need for it. To me, the Dow’s action is relevant only at cocktail parties. The stocks I specialize in are themselves so highly specialized that they take a path of their own – a road nearly oblivious to the macro-economic conditions surrounding them.

And that’s the way I like it. This greatly increases the odds of things going right by greatly reducing the number of outside variables that can go wrong – monstrous variables beyond anyone’s real control, such as a weakening in the dollar, a rise in the price of oil, a drop in consumer confidence, an unusually cold winter, a paralyzing union strike or some costly shift in tax laws, interest rates, healthcare policies, etc.

For example, if fuel prices rise even 3%, it can cripple the profit margins for the entire airline industry. Which it has. Add in a similar rise in interest rates and The Big Three automakers will find themselves on their knees. Which they are.

But events like this rarely have a direct impact on the micro-cap stocks – stocks with highly specific business plans, product offerings and the like. Instead, in the small-stock sector, the danger is usually attributed to management risk or a scarcity of capital. True, an error in either of these areas can cause a lot of problems, but I still prefer dealing with problems like this – up close and personal – than with the myriad international dangers that conglomerates must deal with 24 hours a day, involving just as many markets, governments and currencies.

All of which brings me back to the perceived weights that investors ascribe to actual values. With very small companies, the difference between the two is typically much larger. As a result, the profit potential is much greater, too. Unfortunately, the time frame for achieving these profits also tends to be longer – simply because other investors are slow to recognize that you were right about the stock’s true value.

Small stocks – especially micro caps that trade on the NASDAQ bulletin board – can remain unseen for a very, very, very long time. I mean, it’s not like they’re Microsoft or GM, where every single move is covered by the global media, analyzed by international brokerages and digested by thousands along with their morning coffee.

This is why I get so excited when events come together rapidly and fortuitously; when the patience game nears an end and the profits start to roll in; when free ink flows in from the newspaper coverage, the online Internet chatter and the national radio and television stories; when a serious following begins to build among serious Wall Street types. In a word, that’s precisely what is happening right now with Emergency Filtration Products – and, to a lesser extent, what’s beginning to occur with Amarillo Biosciences, Inc., particularly in Europe.

The outstanding rise in the number of market makers in both of these stocks, the absolute explosion in monthly trading volume and the solid ascension in the share prices of each is mathematical proof of the growing awareness of these two companies. Somewhat less obvious, but equally important to the longer-term gains we will realize, is all of the new money flowing into these shares, from new investors, and at successively higher prices. Nothing could be more healthy.

No doubt, the enormity of the bird flu pandemic sparked the initial media interest in these two stocks in late 2005 – as it did in a few dozen others. But here we are, closing out February of 2006, and most of those other stocks are now gone. Some fell because their claims were less than real. Others were flash-in-the-pans, quickly seen as uncompetitive, due mostly to inferior products or patents. The final batch, I’d label as one-trick ponies – companies so specialized their livelihoods will instantly disappear when the pandemic is eventually eradicated.

Don’t get me wrong; I’m not just throwing out self-serving criticisms. I don’t believe you make yourself look good by trying to make someone else look bad. It doesn’t work. Besides, it’s just bad form. No, my intention is simply to remind you why we invested in Amarillo Biosciences and Emergency Filtration Products in the first place – years before anyone had even heard the term “H5N1.”

The reason for each investment was three-fold and predicated on two scientist-inventors – Dr. Joseph Cummins and Douglas Beplate. Each was the respective founder of his company, each was the patent-holder to a core technology, and each of the core technologies held numerous medical applications for commercial and government sectors on an international level.

In that respect, not one thing has changed. It’s just that small slivers of these core technologies – and their overall value – are now being recognized. This has translated into fairer values for their shares. We’re happy about that, of course – but I can almost guarantee that anyone who forgets the larger core potential of each company is going to leave a pile of money on the table.

Emergency Filtration Products, Inc. (NASDAQ/BB: EMFP – $0.98)
Price-wise, EMFP took a four-month break following the multi-million share days of mid-October when the stock moved to its 52-week high of $1.14. Trading in the stock has remained very active since – but not nearly as active as the Company itself, which has been on a real tear to build alliances, expand manufacturing capacities and fill overwhelming demand for product.

The objectives were well outlined in the in EMFP’s “2005 Year-End Progress Report” of Jan. 13, 2006, and were evidenced into reality with the Feb. 16 issuance of a news release detailing the impressive production capacities at its new manufacturing facility in Nogales, Mexico. Specifics of both the Progress Report and the Mexico manufacturing announcement can be viewed at The Stewart Report website.

Concurrently, EMFP moved closer to building its health-care devices for Itochu Techno Chemical and to classified product development for the U.S. military. These were just two of the many topics of opportunity founding CEO Doug Beplate presented to the investment community at a 16-company stock conference in New York last Thursday. The week before that, there was a piece on Emergency Filtration Products in Investor’s Business Daily. The Company even garnered grassroots attention in Silicon Valley, thanks to Stewart Report subscriber Michael Benkert, who was interviewed and photographed by The Mercury-News wearing an EMFP nano-mask. The Mercury-News story focused on efforts in San Jose, Calif., to prepare the area for the Bird Flu. But that’s only part of the reason Benkert purchased the nano-mask. Michael loves his golf vacations and didn’t want to risk catching the flu – any flu – while en route to Hawaii. He and his wife wore them the entire flight. If this sounds odd, think back to a couple of years ago when, during the SARs epidemic, EMFP sold thousands of masks to travelers going to China. I can easily envision a day not too far away when wearing masks on planes will be as common as safety belts in cars or hands-free cellular headsets in offices.

The bottom line here is that production is production, sales are sales and free ink is fairly priced. Right now, the confluence of all three is making the stock look very strong and Larry Spears look very smart.

In Larry’s Rabbit Report of Nov. 11, 2005, when the stock was 74 cents, he posted the following technical opinion to The Stewart Report website:

“Four times since mid-November, the stock has eased back on declining volume, but each time the cyclical bottom has been slightly higher than the prior reversal point. Each decline has then been followed by a modest rally on rising volume, with each successive top slightly higher than the prior peak. As noted, a solidly bullish pattern that’s just setting the stage for another eventual upside breakout.

“The stock has just finished its fourth short-term retracement on falling volume, pulling up at the 71-cent mark, which is now the level of minor support based on the recent rising bottom line. This should set the stage for another short-term rally back to the $1.00 mark … Should this new rally once again attract increased volume, impelling the stock through the $1.00 barrier, then a move back to the prior 52-week high of $1.14 would be a virtual certainty. Above that, there’s no resistance at all, so a close above $1.15 could advance the stock into an entirely new trading range.”

Yesterday, EMFP closed at $1.01, up another 3 cents, on nearly half a million shares.

Current Recommendation: Little changed from the interim HotLine advice I recorded yesterday, just before the market opened. Long term, it’s easy to see this stock at $3.00 or $4.00 – and I’m a long-term player. Those of you with short-term shares might do some more profit taking and try to buy it back before the next big breakout.

Amarillo Biosciences, Inc. (NASDAQ/BB: AMAR – $0.72)
The 15-minute audio version of the last HotLine and the corresponding print version sent to subscribers via snail mail and e-mail was devoted to almost entirely to Amarillo Biosciences, so you should be pretty current with this one already.

Since then, I took my own advice to pick up shares “between $0.55 and $0.65” – along with Lord only knows how many others here in North America and Europe. Judging by the volume, it has to be quite a few. On any given day, half of the buying is coming though the German Exchanges, which speaks volumes as to Dr. Claus Martin’s widespread influence and the enthusiasm for AMAR’s oral interferon in that part of the world, where the Company signed a recent distribution agreement.

Additionally, there was an important board meeting held last Saturday in Las Vegas, NV. I’ve put in a couple of calls to Dr. Cummins, but he’s not returning them. Not yet, anyway – which means he has something to say that, legally, I’m not yet privileged to. Exactly what, I don’t know – but if I had to guess, it probably has to do with some long-overdue changes at the board level itself.

Virtually every small company on the verge of becoming a great company eventually wakes up to the realization that it has outgrown many of the original board members who served it so well. Over the last year or two, Amarillo has changed remarkably in terms of its sophistication, breadth and reach. I believe some new suits would help take AMAR much higher, much faster – and I told Joe so.

Just as EMFP took a breather to replenish, fortify and build, AMAR will likely spend the next month or so readying itself to fully advantage the huge potential the new relationships with its big-time players in Germany, Malaysia and elsewhere. While all of this is going on, I think I’ll take my own earlier advice and look at Amarillo as a whole – especially now that there’s a whole lot more going on. One way or another, all that is new remains an offshoot of the original core values in which we first invested.

So now is the time to re-visit, revalue and put into modern focus the potential of Amarillo Biosciences relative to its oral interferon pharmaceuticals, their many uses, the many patents it holds, and the new companies and countries it’s doing business with, all of which enhance its long-term relationship with Hayashibara. These factors – relative to AMAR’s current market capitalization, long-term debt, revenue opportunities and operating costs – need to be brought current in my mind, and then on paper. As soon as I make sense of it all, I’ll mail each of you a copy.

In the meantime, we have plenty of immediate logic to support confidence in any shares you purchase under a dollar. Just since last time, 14 more countries have reported bird flu cases. If this disease ever learns how to make the transition from human to human, AMAR will become the stock you’ll someday tell your grandkids about.

International Card Establishment, Inc. (NASDAQ/BB: ICRD – 14 cents)
From the outset, you should know that all I have to offer on this one is sheer conjecture, my raw contrarian opinion and first-hand knowledge of the weirdness that ensued Tuesday when I went to buy shares. My speculative “buy” was predicated somewhat on share price, which a couple of days ago was near its all-time low, thanks to ICRD’s steady slide over the past month. The Company was saying nothing, so what else was there to do but price watch. For a few days, ICRD seemed to have settled out. Volume was nil. The stock was a dime. My gut told me that, even if the Company is in trouble (and, based on the way its been trading of late, it probably is), CEO William Lopshire will figure some way or another to set it back on track. I know Lopshire fairly well – well enough to know he hates to lose. Guys who are known to be smart thinkers, tough negotiators and hard workers rarely do – especially when they’ve got a law degree. So, it was almost on a whim that I placed an order to buy 50,000 shares when the stock was quietly offered at $0.10. My broker sat there most of Tuesday and all he was able to pick up for me was a lousy $500 worth before the stock started to move higher. Anyway, here we are, just 48 hours later, the stock is 40 percent higher and still not easy to buy – and I don’t know why.

Current Recommendation: Aside from the missive above, I do not have one!

As always, thank you for listening, and for subscribing.

J. David Stewart
Analyst and Publisher, The Stewart Report

Note: David’s HotLines are also available by dialing (949) 583-6057, and entering
your subscriber-protected, 2-digit Pass Code at the prompt.

Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment on this date and are subject to change without notice. J. David Stewart and affiliates of The Stewart Report may also have long or short positions in these and other securities discussed herein, including warrants and/or options, and may buy or sell same at their own discretion. This report contains or may contain forward-looking statements within the meaning of the "safe-harbor" provisions of the US Private Securities Litigation Reform Act of 1995. This report is intended for informational purposes only and does not have regard for or take into consideration the reader's investment objective, financial situation or suitability for this security. Consult with your financial advisor and perform your own due diligence. Copyright © The Stewart Report, 2006.