THE STEWART REPORT HOTLINE SUMMARY

Saturday, September 11, 2004

Next HotLine Recording Scheduled for Thursday, September 23, 2004

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Overview:

If you phoned the HotLine early, beginning on the morning of September 8th – or, if you’re one of several hundred subscribers who have provided us with your e-mail address to receive updates directly – then you already know the great news about International Card Establishment and its acquisition of Neos Merchant Solutions. To save you from having to listen to the same information twice, but also give those who missed it a second opportunity to learn the facts, I will repeat the ICRD/Neos update at the end of this HotLine.

Also, it’s rumored that additional news releases on ICRD, as well as Amarillo Biosciences and Emergency Filtration Products are imminent, so I’ve scheduled the next HotLine as early as September 23 – or sooner if circumstances should warrant.

As for today’s report, I’ll begin with the two stocks that offer great and important applications relative to the War on Terrorism – highly appropriate on this, the sadly memorable anniversary of the 9-11 attacks.

Amarillo Biosciences (NASDAQ/BB: AMAR): 22 Cents

On August 22, the front page of the Los Angeles Times (Sunday Edition, no less!) carried a story (with photos) titled, "Farmlands Seen as Fertile for Terrorism." It focused on Colorado ranchers and did not mention Amarillo Biosciences by name, but it did do a good job of explaining agro-terrorism, why cattle are such an easy target, and why it’s such an obvious threat. In short, the L.A. Times used part of its front page, as well as all of page A-22, to tell the same story subscribers to The Stewart Report read 18 months ago.

That aside, there is a new – and very good-news – release that you should be able to access via a link on my web site (www.stewartreport.com) come Monday afternoon or Tuesday (AMAR has to post it to its site before we can make the connection). It’s significance is this:

In 1983, Congress wisely enacted the Human Orphan Drug Act, which made a provision in the U.S. drug laws to ease and expedite the FDA approval process for drugs addressing lesser-known diseases – diseases that otherwise would affect too few people for drug development to be economically viable. As of August 2, 2004 – and thanks to the Bush Administration – there is now a similar act to give financial incentives to drug development for the animal kingdom, too.

This thing is so tailor-made for Amarillo, I’m surprised Dr. Joe Cummins’ signature was not laid down beside the President’s. No doubt, this will open dozens of avenues for Amarillo-style research, and facilitate extra funding for its projects in this field – especially since AMAR’s research efforts also have direct and obvious uses against terrorism. I do anticipate a separate funding announcement very, very soon … authorizing enough money to carry this Company forward for a long time to come. ACCUMULATE this stock on down days.

Emergency Filtration Products, Inc. (NASDAQ/BB: EMFP): 28 Cents

I last spoke with President Doug Beplate on Labor Day, and he was clearly optimistic. Apparently there’s a ton of forward motion follow-up to all product testing and contract efforts – both military and civilian – as was detailed for you in the August 16 HotLine. Military first:

All four branches of the United States military have now expressed specific interest in EMFP’s technologies and, to facilitate the testing process, they’ve agreed to abide by the lab results of a single government facility, rather than testing EMFP equipment independently. As such, the work is being performed by the Army’s Edgewood Chemical Biological Center (ECBC) for the benefit of the Army and all other military branches – an important fact that was not made clear in recent news releases. To that end, Doug said the ECBC wants to visit the Company before the end of the month.

Also this month, Doug will be presenting, "by invitation only," yet another product usage – EMFP nano filters for placement in emergency shelters, presumably for use by both civilians and soldiers in the event of a chemical attack.

Finally, the word on the Street is that a government grant is looking good, and approval isn’t far off. Recent trading activity illustrating ample buy-side volume lends authority to this rumor.

As for the civilian side of the business, Itochu – the world’s 11th largest corporation – is sending key officials from its chemical division to meet at EMFP offices in Las Vegas. You’ll recall that, publicly, the two have already agreed to agree on doing business together. The only hold up was approval by the FDA (which has been received), along with approval by Japan’s equivalent to the FDA. It is believed that approval could come as early as next week. After that, non-military sales could move forward very, very quickly. So could the stock. My recommendation is to invest in more shares now.

Odds are good that something will be signed with one of these organizations … soon! And since all of them – be it the U.S. Army or the Navy or the Air Force or Itochu – are global in nature, and have appetites and checkbooks to match, you just have to share Doug’s optimism. Why not share in his good fortune, too. BUY.

USA Biomass Corp. (NASDAQ/BB: USBCQ): 5 Cents

Immediately after the Wednesday update on ICRD, I drove up the coast to meet with USA Biomass principals, including acting President Peter Gyben and General Manager John Pivovaroff. I could provide a lot of background, but I’d rather take my cue from a scene in "The Godfather." It’s the one where Family attorney Tom Higgins, right after his disappointing dinner with the movie mogul – and just before the Don’s henchmen gave "bed head" a whole new meaning – told the film producer, "My employer insists on hearing bad news immediately." To that end, I’ll detail the situation now:

You might recall the HotLine of August 16, in which I cautioned subscribers that the Company "was not out of the woods," but not to worry because, from an earlier conversation with Gyben, I was led to believe a mere $150,000 would make USBC "right as rain." The dollar figure was his. The flowery phrase was mine. Both turned out to be utterly misleading – but not before a New York fund manager and long-time Stewart Report subscriber took a flight from JFK into John Wayne airport to "rescue" management.

He brought his checkbook. I brought one, too. Together, we’d hoped to solve the current Catch 22 caused by unaudited numbers – another element explained in the August 16 update.

Long story short: We were barely halfway through lunch and already it was painfully obvious that $150,000 would not help the Company – nor would management’s high-end, "wish-list" figure of $450,000. The reason? It would simply take too much time the time to get the full $450K, fetch the auditor back to Newport to finish the job and then effect the necessary adjustments to the monthly cost structure.

Besides, my calculations suggest a near-term need for $600,000, meaning that, even if the non-financial goals should magically be met, in terms of money, we’d still be looking at a five-foot jump over a six-foot ditch. Suffice to say, with most subscribers, as well as my friends and family deep in this thing, I left with no ambition to leap off anything except the Brooklyn Bridge. The fund manager was more optimistic – much more – and seems ready to continue with efforts to raise the money.

Who knows … he might be right. Management might find in him the "White Knight" they need. After all, this isn’t the first time the Company has been on the mat with the count nearing 10, yet still managed to somehow get back up for still another round. As for me, I can’t see sufficient reasons to continue the fight, especially when the same funds could be better directed towards more intelligent investments – like ICRD.

My advice is to HOLD if you’re hopeful – or to SELL if you can use a tax loss. Also, be prepared to be patient. Perhaps even frustrated. Typically, the stock doesn’t trade on high volume. It’s not easy to liquidate 50,000 shares if the stock is only trading 5,000 or 10,000 a day – especially when so many of you own this stock.

Stopping myself just short of an apology, all I can say is that when you swing for the fences with little interest in anything but a grand slam, you’re bound to strike out occasionally. Fortunately, the most we can lose is 100 percent, while the upside to a winner is virtually infinite. At the end of the day, when it’s all said and done, you’ll see my selections lying on the floor, bleeding to death – or enjoying a double-digit race to the moon.

Mine is an "all-or-nothing" approach that typically delivers a measure of both. Why do you think The Stewart Report has received so much national publicity over the years?

Even though we focus exclusively on small stocks, most everything we do is BIG. We think big, we win big – and, yes, we lose big, too. Even a cursory review of my performance – all the way back to 1981, when I was a stockbroker, and the subsequent years as a private professional investor, analyst and financial publisher – quickly proves the point:

Personally, I loathe those who compare investing – even speculative investing – to Las Vegas. Even so, part of what I do is analogous to gambling – except that you have the advantage, NOT the "house."

I believe this advantage is gained from my experience, my research, my on-going due diligence, a sizable friendship network within the industry and, as many of you know, the advantage of having a couple of thousand subscribers who are continually sending me related information from all 50 states, as well as a dozen nations overseas.

Even so, we do still lose from time to time. What’s worse, when it happens, you are probably staring at your computer screen instead of a pretty croupier standing under a sparkling chandelier and enough free liquor to wash away the pain.

Bottom Line: Scared money never wins.

If you don’t have a stomach for the loss side of the equation, you’d do well to sell all Stewart stocks owned. Moreover, even though I believe The Stewart Report will outperform the market over the long haul – most times, it is in fact a very long haul. At least it can be – and not just in terms of time. Risk psychology is a factor, too, same as patience. Put another way, it doesn’t matter how much money you make if you can’t sleep at night while you’re doing it – probably because you invested more than you could afford to risk.

International Card Establishment, Inc. (NASDAQ/BB: ICRD): 58 Cents

As reported last Wednesday, the Neos acquisition is now signed, sealed and delivered. Although the news release penciled out pretty much the way I said it would in my original 8-page Stewart Report, in no way did 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., 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:

They have very little incentive to short ICRD much below 50-cent mark.
In comparing the daily and monthly volume to the number of registered shares, I don’t believe they have much more selling to do.
Every single share they’ve sold must eventually be repurchased if they are to capture their profit.
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.
From here, I see very little downside in the stock. Very, very little.
The upside is several hundred percent – especially if you’ll continue to take the long view of things.
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 always, thank you for listening and for subscribing,

J. David Stewart

Analyst and Publisher, The Stewart Report