Subscriber Update for April
22, 2007
Emergency Filtration
Products, Inc. (NASDAQ/BB: EMFP -
$0.30)
Early Friday morning, I got a phone call from EMFP's new
CEO. It was mostly a courtesy call
- but courtesy is a good thing. That's especially true amid times of trouble
because it shows character.
Phillip Dascher is very much aware that, through persistency
of thought and the printed word, probably half of EMFP's shareholders are also
subscribers to The Stewart Report.
Even though Mr. Dascher is the new kid on the block, he somehow knew that I had
this HotLine to write - and that it was being held up, in part, because of EMFP.
Somewhere in all of this, there is probably one very long story. But, for now,
it will necessarily remain as short as the Friday conversation itself.
The only thing Dascher could tell me, legally, is that by
Monday, April 23, the Company will file an 8-K with the SEC to explain - or at
least try to explain - why it will be late in reporting all of its required
financial statements. Beyond that,
Phillip Dascher phoned only to tell me that he couldn't tell me anything.
But that in itself spoke volumes. At least, it did to me.
For one thing, it indicates that EMFP will become a
"non-reporting" company. This means
it will be relegated to the pink sheets, where it will trade in relative
obscurity until everything gets sorted out - which it now appears will not
happen any time soon.
If you go to the Internet and pull up last Wednesday's EMFP
news release, you will see the small-stock version of whatever document it was
that Enron probably had to write in the early stages of the clean up. These things are very carefully
worded. New management prepares
them for the innocents, while the wrong-doers run for their attorneys, their
passports . the dirtiest parts of Mexico . whatever safe haven it is
that a sewer rat might hope to find.
Read at Your Own
Risk
A word of caution:
The April 11 release will likely be the first of many. More specific details - and far worse
disclosures - still lie ahead. If
you take them at face value, you'll see a Company that has lost face. If you take them to heart, your heart
will be broken. And, if you try to
read between the lines, then you are trying too hard - simply because what's
actually on the lines is clear enough. To wit:
When words like "irregularities" and "restatements" jump off
the page. When horrific little phrases such as "absence of a defined delivery
date" are printed alongside sentences saying, ".the Board of Directors retained
independent counsel to conduct an independent examination of the company's books
and records." Well, you just know that some real nefarious stuff has probably
been committed - and that the onion is just beginning to peel.
This is as ugly as ugly gets - and, to reiterate, it's likely
to get uglier still.
But, in this instance, "ugly" is a cosmetic thing. Severely
cosmetic, to be sure - just shy of the bone, in fact - but essentially
superficial relative to the underlying asset.
Before you accuse me of whitewashing, just hear me out. In my opinion, all current complaints -
which are many, with many more likely to come - describe a strictly legal
problem. They relate to an SEC
reporting situation - one that rightfully requires intervention, but that
doesn't truly reflect the underlying soundness of the Company. To be sure, this is an investor
relations nightmare - one that could very conceivably drive the stock lower -
but, I think, not much lower than it already has.
What I'm saying is, if you really think about it, none of the
present day "uglies" has any bearing at all on EMFP's principle asset. That, of course, is the Company's
patented technology. This is the
given. This is the value. This is why I've held as tightly as
Velcro® to the Company that I believe owns the
patented rights to a technology that is as valuable as Velcro®. On this, I am as unwavering as is the
patent office that granted these rights - and the wondrous potential of
something that's so patently universal.
Let the bookkeepers struggle to restate bogus sales and allow
the special forensic accountants to oversee everything they do. That's fine. Allow corporate counsel to delve into
probable improprieties, and allow specially appointed SEC "Masters" to oversee
the counsel decisions. That's fine,
too. Hell, allow any and all of the
other powers to put the big bite on the bad boys and toss their sorry asses in
jail.
It's all good and fair.
Let the system work. But
don't let it interfere with the opportunity to do some bottom fishing. I'm almost certainly right in saying
that, if you are a true contrarian - as well as an "in-your-face" kind of
person with a very long-term perspective - the stock is worth
buying.
But, make no mistake: The operative words in that last
sentence are "long term." You
must allow yourself time enough to see the eventual success of a
successfully engineered product.
Think in terms of focusing on the future of a Mercedes Corp. or a Porsche
Corp. while all those around you were consumed by the Nuremberg trials.
If you don't like that analogy, try to appreciate the
dichotomy. Philip Dascher
does! Almost sarcastically, I asked
him if he liked his job. He said,
"Which one?"
My inference from that response is that there's a
government-slash-legal-slash-paper-form-hungry beast that has to be responded to
almost daily. That's Dascher's No.
1 job right now. The other - and
most important job to us, as shareholders - is maintaining the Company and its
patented assets. Thankfully, these two tasks are reasonably independent - though
they do have one commonality:
·
The hoops EMFP must jump through to appease the
SEC will take time.
·
So will the product-validation requirements of
the FDA - but not nearly as much.
As a non-invasive product that's already been tested to the
moon and back by Nelson, et.al., the FDA's only real concern has to do with the
shelf life of EMFP's masks. They want them to perform like new at age two. Upon
hearing this, my first thought was ... well, let's just say it was not a happy
thought.
Now, though, I understand that there's scientific equipment
that can condense the aging process, enabling one year's performance to be
measured in just one month.
In other words, within two months of the first date of testing, we will
know if the technology has the two-year shelf life we need. More importantly, so will the FDA!
More important still: Rather than perform the tests and then
do a "Hail Mary" presentation before the FDA, new management correctly decided
to ask the FDA how the FDA itself would like the tests to be conducted. Their response is back. The rules are known. The guesswork is therefore gone. The FDA's own testing protocol will
be used. This means that, if
the product performs successfully, it's highly unlikely the results will be
contested.
Given this situation, my formal HOLD advice to subscribers is
unchanged. Obviously, this is a
tricky situation - not one for the impatient, nor for the faint of heart. Be that as it may, I've purchased 16,000
shares of EMFP since the last HotLine - and, unless I get some
contra-indications from men more experienced and intelligent than myself (yes,
there are a few), I'll likely pick up 10,000 or so more after this document has
been in print and available to you for a couple of days.
Amarillo Biosciences, Inc.
(NASDAQ/BB: AMAR -
$0.79)
Business Week recently published an important piece
with particular relevance to our AMAR holdings. In an article titled, "Biotech
IPO's Iffy Prognosis," BW explained
why it's currently a very cautious environment for initial public offerings in
biotech - and yet, paradoxically, on the mergers and acquisitions side
(M&A), it's a feeding frenzy.
The reason is that private investors don't seem to appreciate
the value of developmental-stage biotechs nearly as much as the pharmaceutical
giants do. As such, bio-IPO's are a
tough sell at the retail brokerages, and aren't raising the kind of money that
cash-flush titans like GlaxoSmithKline (GSK) and Merck (MRK) are willing to pay
for them as private enterprises.
For them, buying existing patents - and drugs that are already in Phase
II or Phase III trials - is a faster, easier way to fatten their potential
product lines. It's also a lot
less expensive.
Granted, Amarillo Biosciences is publicly traded, not
private, but it's an absolutely perfect example of the points that Business Week made. After all, if you
add the cumulative time, cost and creation value of the dozen or so patents AMAR
has been granted, the two or three decades of research CEO Dr. Joe Cummins has
invested in developing the technology, and the nearly $40 million that investors
like you and me and Japan's Hayashibara have invested in the Company . Well, let's just say that, for Glaxo or
Merck to buy a nearly turn-key package like Amarillo Biosciences for a lousy
$100 million or $200 million, would be an absolute steal!
And, in their minds (and mine), that's precisely what these
giants are doing. According to Business Week, "Between January 2005 and
September 2006, 14 private biotech companies were acquired, with a mean deal
value of $292 million."
Everybody and his mother has an "If I won the Lottery" wish
list, right? Well, I'll tell you
right now - straight out - mine would be to take the money and pull out the
$21.4 million I'd need to personally privatize Amarillo Biosciences. Next, I'd give Dr. Cummins' secretary
Chrystal a raise, a corner office with a view and a direct line to The Stewart Report. Her very simple instructions would be to
phone me in two years, when Joe completes Phase III trials for either oral warts
or Behćet's disease.
When that call came, I'd simply offer the package, all neat
and tidy, to one of the pharmaceutical majors - then watch them fight over
it. It would be the easiest $270.6
million profit I ever made.
But, since I thoroughly loathe the wholly pathetic
"hope-and-pray" concept behind every single lottery ticket ever sold, it's not
likely I'll ever buy one. So, as an
alternative, I'll have to continue regularly adding to my AMAR position so I can
eventually earn the same 13-to-1 return on investment the old-fashioned way - by
being right and owning lots of Amarillo Biosciences stock. In the meantime, I advise all
subscribers to do the same. HOLD tightly to all of your existing
AMAR shares, and also consider upping your long-term investment at current
prices.
More Information Ahead: I've got a major road trip scheduled
over the next couple of weeks, during which I'm going to check out a couple of
new companies and also pay a visit to Amarillo, Texas - home to both Stewart Report Senior Editor Larry D.
Spears and Amarillo Biosciences. If I don't overdose on prime Panhandle steaks
and Texas
barbecue sauce, I should pick up enough new information to warrant another
HotLine focusing on AMAR. I've
tentatively scheduled that for Saturday, May 19, but check the telephone HotLine
in a couple of weeks for an advisory on the exact timing. Speaking of which:
A Passcode Reminder:
For those subscribers who prefer listening to my pithy comments rather than
merely reading the printed interpretation, here's a reminder regarding the new
Passcode required to access the HotLine recordings. The main 24-hour telephone
number - 1-949-583-6057 - remains unchanged. However, the new access code has been
changed to "63" - as in "1963 split-window Corvette Sting Ray," the newest
holder of the No. 1 space in my personal garage.
International Card
Establishment, Inc. (NASDAQ/BB: ICRD - $0.21)
There's little new to report at this time, so continue to
view ICRD as a good long-term BUY. Short term, I also think the outlook is
likely to be especially bright. Not
only do the recently published financials show a continuance of profitable
growth, but CEO Bill Lopshire phoned Saturday to set up a sit-down with me,
himself (of course) and other members of management - and I don't think it was
to give me bad news. The meeting
date has been set for May 10, so I'll likely have much to report in the May 19
HotLine.
As always, thank you for
subscribing,
J. David
Stewart
Analyst and Publisher, The Stewart Report
