THE STEWART REPORT HOTLINE

Subscriber Update for Good Friday
April 6, 2007

Das (Was) Gut 

The market’s great unraveling in the days just prior to the HotLine of March 8 prevented me from giving full appraisal and review of Amarillo’s presentations in Germany, February 22 through 25.

Dr. Joe Cummins was the keynote speaker, of course, along with Dr. Manfred Beilharz.  (You’ll recall that, in 2006, Manfred came on board as a member of Amarillo’s Scientific Advisory Council. Manfred also has a Day Job:  In Perth, he’s the Department Head of the Nobel Prize-winning School of Biomedical, Biomolecular and Chemical Sciences at The University of Western Australia.  

I’ve heard Dr. Cummins speak several times before at shareholder gatherings, in front of institutional audiences and in broadcast interviews, and I can personally attest to the effectiveness of Joe’s patently sincere, “down-home” presentation style.  The last time was in New York, before a Fifth Avenue group of Wall Street button-down types, when he opened with, “For those of you who don’t know where Texas is …” At that moment, just about everybody grinned, so holding their interest in Amarillo was a downhill pull from there.

Dr. Beilharz is also an extremely good speaker, which I’ve found to be rare among academicians ...  make that, especially among academicians.  I knew he was skillful based on the presentation he gave at the stockholders’ meeting last June.  He went into excruciating detail on some mind-numbing scientific aspects of his interferon laboratory research, yet somehow managed to make it all fascinating, holding everyone’s interest throughout – especially at the end.  Dr. Bielharz concluded by saying, “…and that’s when I will win the Pulitzer Prize for Medicine, and all of us will get rich on our shares.” 

The stockholders – me included – loved that.  However, as my belief in this Company grows, I see his remark as less a clever quip and more a future fact.

After the stockholder meeting, he and I were driving back to the hotel with Dr. Lorenz Lutherer, who is also a member of Amarillo’s scientific team.  A couple of times, the two of them intermittently spoke to each other in French, and sometimes in Italian.  I’m not sure if they did this to keep me from hearing insider information, or if it was simply designed to intimidate me.  Either way, it worked.  Anyway, that’s how I knew prior to the German gig that Dr. Beilharz spoke fluent French and Italian.  What I didn’t know is that Manfred Bielharz was born in Germany, so he’s fluent in that language, too.  No doubt this was a skill that endeared him to the audiences in the Rhineland.   

Suffice to say, the presentations went very, very well.  Half were targeted to investors; half were purely scientific; all were extremely well-attended.  Dr. Claus Martin and other Euro-dignitaries friendly to the Company made sure of it.  On Saturday, February 24, approximately 600 investors came to listen.  On Sunday, the 25th, there were nearly 800!  By the time NASDAQ opened for trading on Monday, February 26, Joe Cummins was already on a jet back to the U.S. – but, judging by the share volume, it looked as though he and Manfred were bringing half of Germany’s investment community with them. 

To wit: In just four days of trading, more than 700,000 shares of Amarillo Biosciences stock had changed hands.  Once again, I’m giving no allowance for the number of shares that were bought in Germany – which, if you think about it, had to be considerable.  Otherwise, the buy-side volume would have been absorbed entirely over there.  Instead, the trading firms ran out of inventory and were forced to buy shares here in the States.
This Time, We Couldn’t Blame The Germans

So, everything is looking good.  It’s Monday, February 26.  The markets are closed.  Dr. Cummins lands safely in Texas to a hero’s welcome.  The Stewart Report’s BUY recommendation is barely six weeks old, but already the stock is at $1.08 and climbing fast.  It’s getting late, so I decide to stop throwing roses at my own feet – but only so I can pop online to get a head start in shopping for the ’63 split window Corvette Sting Ray I promised to treat myself to just as soon the stock hit $2.00.  That price looked to be just around the corner.

 … And then came Terrible Tuesday.

A dozen hours before February 27’s opening bell, you could see that it was going to be just nasty.  Long-story short, by the end of the trading day, 459 points had been removed from the Dow Jones Industrial Average.  Worldwide, who knows how many trillions of dollars were erased – at least temporarily.  The market wouldn’t turn back around until after the March 5, 2007, low of 11,973.  In retrospect, we can see now that investor sentiment would take a little longer. 

It always does.  That’s why I devoted virtually all of the March 8th HotLine to the situation.  The Chinese Meltdown had to be addressed first – before too many unnecessary mistakes were made.

Believe me, I don’t want to sound like a some old fart preaching to youngsters.  (Not now, not when I’m looking my 49th birthday square in the face, and the face now gets gray hairs if I don’t shave it daily.)  But the truth of the matter is, after 27 years on Wall Street, I am an old fart! 

So, I’ve seen this sort of thing before.  So many times, in fact, that the only thing that really scares me these days is the idea that my beloved subscribers (new ones, especially) will fall prey to fear mongering in the media and sell their stock.  As such, a little fatherly investment philosophy and attendant hand-holding is warranted every so often. It’s pretty basic stuff.  It must be because, after all these years, all I can tell you now is exactly the same thing I said on March 5, when things were still real ugly and the average investor was nervous as hell and the Dow had not yet recovered 344 of those 459 points (which it had by yesterday’s close).  

In theory, the general market will affect the price of individual stocks by as much as 30 percent. Beyond that, all that really remains is an acceptance of the fact that economies will continue to breathe in and breathe out, that money is always looking for a better home, and that markets are inherently transitory beasts.  So, if there’s a point to all of this, it’s that market watching is largely pointless.               – JDS

Alright, then.  Now that I’ve given you this small bit of wisdom – to be committed to memory for future reference – I will offer you the more current portion of my update on …

Amarillo Biosciences, Inc. (NASDAQ/BB: AMAR – $0.87) – Joe recently gave an online interview to Wall Street Net: 
http://www.wallst.net/audio/audio.asp?ticker=AMAR&id=3219 
For those of you with e-mail, I’ll provide the link so you can have a listen.  It’s only ten minutes in length, but contains good and current information as to the clinical trials. In it, Joe said: 

To expedite enrollment of Behçet’s patients for its studies in Turkey, the Company is expanding the number of clinical sites from to six to nine.  At present, they have 59 of the 90 patients needed for the Phase II study.  Enrollment at the six sites for the Company’s U.S.-based, 80-patient study of oral warts is progressing as planned.  A 2007 completion date for both groups of studies is still expected. 

For the uninitiated, Joe reviewed the inherent advantage of both applications falling under The Orphan Drug Act, and mentioned that Amarillo is working to obtain a grant from The Center for Disease Control for expanded work on oral interferon as it relates to influenza.  As a sidebar to that, I’m mailing him a short news item from Monday saying that the Department of Health and Human Services has allocated $23 million a year for the next seven years to establish six centers for influenza research and surveillance.  Officials said the impetus for the centers is primarily the continued need to prepare for and respond to a potential Bird Flu pandemic.

A week ago, the independent research firm Dutton Associates updated its original recommendation on Amarillo Biosciences from Sept. 18, 2006.  In this latest report, Chartered Financial Analyst Wayne M. Lottinville reiterated his “Speculative Buy” rating and remained steadfast in his price target of $1.90 by April of next year.  Lottinville’s only real changes were revisions to the Company’s operating loss for 2006, which he projected would come in at 14 cents.  The recently reported figure was a bit smaller – i.e.,  just 12 cents per share.  He also used the finalized Q-4 Income Statement to re-state his original estimate that the Company would lose $0.8 million on operating expenses of $0.8 million.  Actual Q-4 results showed both numbers to be only half as large, with the loss coming in at just $0.4 million, and expenses at $0.4 million. 

In my estimation, it’s no easier to become a Ph.D. than a CFA, and I hold anyone with Lottinville’s credentials in high esteem.  Furthermore, Dutton Associates is a highly respected research organization.  Having said that, their $1.90 price target will fall very noticeably short of the $5 to $7 share price that I think AMAR will achieve by next Easter. 

As for his minor miscalculation of the Company’s expenses, this was to be expected from anyone who is not as familiar with Joe’s spending habits as I am.  Simply put, he just doesn’t – spend, that is.  And the more I come to know the new executive team, the more I’m coming to see their frugality, too.  CFO Gary Coy, in particular.  But, rather than accuse him of being tight, lets just say that Gary would make for a terrible car collector – which is why I would be the worst CFO you could ever imagine. 

Last Saturday, I went ahead and bought the ’63 Corvette anyway!  For those of you who are car guys, she’s ivory, with a black interior, knock off wheels and rare factory air.  And, for those of you who are straight equity investors, on Monday I’m dropping a check to purchase an additional 100,000 shares of Amarillo Biosciences. That’ll set me up for next April, when my birthday present will be a 1966 Lamborghini 400i. 

Just you watch! 

Better yet, you might consider upping your long-term investment in AMAR as well.  In two or three years, when this Company gets FDA approval and you witness the effect of a $20 million company tapping into a $5 billion industry, believe me, the last place you’ll want to be is on the sidelines.  The payday will be staggering.  That’s why my focus is on the long term. 

Along the way, there will also be a few minor paydays as certain milestones are reached.  As soon as Phase II trials for Behçet’s disease are completed – Boom! – the stock will rise appreciably.  Then, when the Phase II trials for oral warts are completed – Boom! – the stock will again rise appreciably.  In each instance, the stock could easily double – and then double again each time the Company clears Phase III trials.  And these will be “minor” rewards relative to the gains that will come with formal FDA approval.

Am I counting my chickens before they hatch?  Perhaps.  But, since it’s almost Easter, if I can’t consider the value of  chicks and eggs and baskets now – then when?  Besides, I’ve always liked the financial advice of  fellow Scotsman Andrew Carnegie, who said, “The wise man puts all his eggs in one basket – and watches the basket!”

The Next HotLine Update:
The purpose of these updates is to do just that – watch the basket.  And, actually, we have three baskets to mind.  I will update the other two on April 17, by which time both of them should have their year-end, 2006 and Q-1 financial statements audited and Edgarized for us to review.  Between now and then, my advice is so identical to that in last month’s HotLine, I may as well just update the prices and copy it.

Emergency Filtration Products, Inc. (NASDAQ/BB: EMFP –  $0.48)
For the last several HotLines, I’ve warned of a probable continuance in the weakness of the share price.  This will continue to be true until the revised Q-4 2006 numbers are made available, all of the potential bad news is out and the last wave of selling is behind us.  At that moment, we’re being presented with a classic contrarian opportunity to buy EMFP at a funeral parlor price.  And we will, because I have every confidence that, once all the bad news is aired, new CEO Phillip Dasher will be quick to turn EMFP around and point it in the direction it should have been headed in long ago.  Until then, HOLD.  For what it’s worth, my 6,000-share position has remained unchanged since early February, when TSR’s buy rating was changed to hold.

International Card Establishment, Inc. (NASDAQ/BB: ICRD – $0.23)
“Good long-term BUY – and, percentage-wise, will likely do even better for you in the short term than our other two stocks if the Q4 figures come in as strongly as I’m anticipating.”  Word for word, that is a direct quote from the March 8 HotLine.  On Friday, March 9th, I took my own advice and bought 20,000 additional.

CEO Bill Lopshire and I have already agreed to meet just as soon as the 10-K and 10-Q are filed. As such, ICRD will likely be the focus stock in my next Report, and it’s my sense of things that it will be very positive.  To that end, I purchased another 20,000 shares on Monday. From memory, I paid 23 cents both times, but I’m not certain – and I gave our bookkeeper the day off so I could think up a nickname for her, too.  Which reminds me:

All NEW Rabbit Reports:
It wouldn’t be Easter unless “The Rabbit” himself posted new charts and technical opinions for all three Stewart Stocks, which he did last night. I’ve seen his revised analysis for each, and can tell you that he shares my negative near-term outlook for EMFP, as well as my positive scenario for a near-term price rise in ICRD.  But frankly, I was a little miffed that his outlook for AMAR was almost guarded. 

I couldn’t disagree more.  Even so, there wouldn’t be much need for a second opinion if it was forced to concur with the first – even if the first opinion is mine … and I own the Company … and he’s wrong … Right? Anyway, “Cousin IT” will post them to the TSR website over the weekend, during which time I hope you ignore them because you are too busy enjoying the Easter weekend with your families! 

As always, thank you for subscribing, 

J. David Stewart

Analyst and Publisher, The Stewart Report

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. Acting as an investor, and also as a consultant to the Company, David Stewart purchased 100,000 shares of AMAR restricted under Rule 144. The holding period expired in August 2006 making them free-trading, although he continues to hold 77,000. He also bought 100,000 shares of ICRD governed by Rule 144 and remain restricted, and recently purchased 52,000 additional in the open market. Stewart also owns 6,000 EMFP. Affiliates of The Stewart Report may also have additional 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 2007.