Wednesday, September 8, 2004

Next HotLine Recording Scheduled for Thursday, September 23, 2004

Overview: Let’s be frank. Typically, if I’m late in producing a HotLine, two out of three times, it’s for a reason that’s not particularly good. Usually, it’s because I was suffering from acute writer’s block, which is the technical term for procrastination, or because I simply had too much fun the day before. But not so this time. No, sir. This delay was premeditated, necessary and intentional. The reason – if you saw the e-mail memo from my editor, or if you phoned the HotLine directly – was to allow the attorneys a little extra time to dot the I’s, cross the T’s and deliver International Card Establishment’s long-awaited Neos contract in final form. They finally succeeded at 6:00 this morning. At least that was the time stamped on the news release when it came across the wire services just minutes ago.

Although the news release pencils out pretty much the way I said it would in my original 8-page Stewart Report, in no way does the predictability of its content detract from the value of the deal, which is as follows:

In exchange for a combination of cash, debt and stock valued at $7.5 million, International Card Establishment, Inc. (ICRD), acquired Neos Merchant Solutions, its 35 in-house employees and 65 outside sales agents, and its strong customer base, which will generate between $6 million and $9 million in revenues before the end of this year.

With companies still smoldering in fear and embarrassment from the dirty deeds of WorldCom, Enron and others, news releases these days are so cautious; so carefully written that, whenever financial estimates are offered, you can bet the numbers are intentionally low-balled. That, in part, is why The Stewart Report’s in-house revenue estimate for the Neos operation is $9 million to $10 million for the current year.

I also believe Neos will successfully expand its relationship with the nameless “worldwide hospitality chain and national restaurant chain” mentioned in today’s release (as well as in my original Report earlier this summer). I’ll even go one step further and say that both names are likely to be bell-ringers and that ICRD will tell us who they are within a week or two – which can only give more impetus to the Company, and eventually the stock.

I’ll comment on the recent price action of the stock in just a moment, but right now I want to continue with the overall importance of the Neos deal to ICRD. This is critical because, long term, the real value of a company is what dictates the eventual price of the stock, not the other way around. For the last couple of months, it’s as if the tail has been wagging the dog. But, believe me, price anomalies and pure gamesmanship ALWAYS give way to actual profits, real revenues and quantifiable corporate growth. Period.

It’s almost eerie but, as always, ICRD the company is doing everything it said it would. Look back at everything forecast in your original Report, or in the dozen or so HotLines prior to that document, and you’ll be surprised, if not shocked by the accuracy of my growth forecasts. The only reason I look smart is because they are smart. Management’s business plan is entirely viable and being implemented with surgical precision. As a result, we’ve seen the private offering completed; all of the institutional funding completed; the Neos acquisition completed; and my estimate for the Company to do at least $22 million in 2004 and $50 million in 2005 now publicly stated, in print, someplace other than the 10th Anniversary Stewart Report.

For a full read of the news release, you can go to our web site at www.stewartreport.com. I’d strongly encourage you to review the original Report, too, because I think Page 5 does a great job of explaining not just the value of Neos as a stand-alone, but also how nicely it braids into the overall ICRD enterprise. It’s truly synergistic.

That was succinctly detailed today by Chairman & President Jonathan Severn, who said, “The acquisition of Neos immediately vaults us into the ranks of leading Gift & Loyalty companies. This is one of the fastest-growing markets in financial services, having mushroomed from just $20 billion in 2002 to an estimated $100 billion in 2004. Moreover, Integrating Neos into I.C.E. will spawn multiple cross-selling opportunities, which should increase revenues in all three of our business units: bankcard, gift & loyalty and leasing.”

So that’s a quick, but important update on the Company – the thing we actually own a piece of. As for the stock – the arbitrarily priced piece of paper that evidences said ownership? Well, all I can tell you is the sad, but simple truth: In the last couple of weeks, we’ve been burned worse than toast. The good news is, we’re only burned on one side.

There is still some serious selling pressure on the part of short artists. But do know this: It’s not that they disbelieve the value of the Company. Rather, they’ve merely identified an opportunity whereby they short the shares downward (i.e., selling stock they don’t own) with the idea that they’ll eventually cover these short positions with shares registered in the private placement.

So far, they’ve made money at our expense. No debating that – and I’d be less than truthful if I tried to tell you when they will have shorted all that they can hope to cover. However, I can tell you this:

1. They have very little incentive to short ICRD much below 50-cent mark.

2. In comparing the daily and monthly volume to the number of registered shares, I don’t believe they have much more selling to do.

3. Every single share they’ve sold must eventually be repurchased if they are to capture their profit.

4. Trading activity at the close – and even after the close – on Friday looked as though some “covering” (buying back of shorted shares) is now beginning to take place.

5. From here, I see very little downside in the stock. Very, very little.

6. The upside is several hundred percent – especially if you’ll continue to take the long view of things.

7. BUY the heck out of this stock. It was a huge value at a buck, before Neos, and it’s an even bigger, more predictable value today with the Neos deal having closed.

As for the rest of our stocks and their respective updates, I must table those reports for a few hours. I’ve got to run up to John Wayne Airport to pick up a fund manager – who also happens to be a long-time Stewart Report subscriber – and deliver him to the offices of USA Biomass, also in Newport Beach, for a sitdown with Peter Gyben, Mike Bradle, John Pivovaroff and myself.

So, I’ll return this evening with some more news on that situation for you, as well as some good content I garnered over the weekend in conversations with Doug Beplate of EMFP and Dr. Joe Cummins of Amarillo Biosciences. Reports on all three will be available tomorrow morning, so please be sure and call back in the AM.

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

J. David Stewart

Analyst and Publisher, The Stewart Report