THE STEWART REPORT HOTLINE SUMMARY

Thursday, October 6, 2005

Next HotLine Planned for Saturday, November 12, 2005

(!! – Sooner, If Very Recent Developments Warrant – !!)

Overview:
If you think Stewart Report HotLines are somewhat infrequent (and, admittedly, they are), consider this: Tuesday, Oct. 4, was the President’s first White House news conference in four months … Four months!

During that time, The Stewart Report has issued four in-depth HotLine reports. Arguably, that’s very substantial coverage for just three companies – and small companies, at that. Comparatively, in the last 30 days alone, the Presidency has been presented with a wide range of national, international, economic, moral and legal issues, including two historic judicial nominations, nuclear disarmament talks with North Korea and Iran, the war in Iraq, the highest fuel prices in American history and a pair of natural disasters that leveled a portion of America equal to the size of Great Britain.

And that’s the short list.

I mention this comparison, in part, to try and wash away responsibility for producing this HotLine late – and I’m hopeful that using relativity to rationalize my delinquency will prove successful. If not, I can always fall back on the fact that I’m a Republican and therefore immune from accountability. Either way, I’m okay. Beyond that bit of tripe, do seriously consider this – especially if you own shares in Amarillo Biosciences or Emergency Filtration Products – because this really is profound:

Of all the major issues covered in Tuesday’s conference, the one that trumped them all in terms of media attention was the President’s warning of a possible global avian influenza outbreak.

Avian influenza (more widely known as “Bird Flu” because it spreads through poultry) has been building in Asia, and now has the clear potential of becoming a full-on global pandemic. Five days before the President spoke, the World Health Organization (WHO) listed 13 nations with known outbreaks. It’s been a long time coming.

The virus first mutated between species, crossing from birds to humans, in 1997. By mid-2003, a spate of human infections in China and Southeast Asia forced governments in those regions to purposely slaughter approximately 100 million birds to slow a furtherance of the outbreak. Even after all that, however, there was only a few months respite before the bird-to-human transmission began again – with a vengeance. Over the years, avian influenza has “learned” to genetically evolve even further. Now, in late 2005, not only can the new strain jump from birds to humans, it can also transfer from humans to humans.

That’s the scary part.

The new strain has been coded by health officials as avian influenza H5N1. To date, only 116 human cases of H5N1 influenza have been reported. But, percentage-wise, the kill-rate has been high: 65 of those 116 are dead.

The human cases, as well as the casualties, were reported by Thailand, Cambodia, Indonesia and Vietnam. To some, this makes the numbers suspect. Because of the political controls in these nations and the obvious impact the disease could have on tourism for each, many believe the actual figures to be much higher.

Personally, I find the timing of the President’s warning of political interest, too. Despite all the available knowledge (including computer-simulated disaster models from as far back as 1991 that clearly outlined the catastrophe New Orleans would suffer in the event of a category-five hurricane), the Feds were as poorly prepared as the city. As you know, the political fallout from the delays was disaster in itself. Based on that, current-day Washington will not likely sit on information that involves grave health concerns – much less ignore it – and Bush’s fair warning as to the potential of avian H5N1 might be the first example of big government’s new attitude.

Again, maybe that’s just “silver-lining” conjecture on my part. What is a fact, though, is that while Tuesday’s presidential comments were page-one “news,” The Stewart Report HotLine covered the high probability of an avian influenza H5N1 pandemic back in April. That was six months ago. As such, our subscribers should be very familiar with this very real threat – and have already invested well in its outcome, too.

Amarillo Biosciences, Inc. (Nasdaq/BB: AMAR – 27 cents), was the focus of that April 2005 HotLine because the company believes that oral interferon could be effective against avian influenza. But, without formal FDA approval, such a claim cannot be made outright.

However, anyone with a retrospective of how the interferon protein was first discovered and how it got its name will quickly see why Amarillo’s drug is a logical match for avian influenza:

In 1957, a newly discovered protein was found to interfere with replication of influenza virus in chicken eggs. Thus the name “interferon.” Forty-six years later, avian influenza became known to the world as “bird flu” because it was born of poultry. Thus, we have a virus born from poultry and a protein discovered because it interferes with poultry-borne viruses.

As a writer, that’s what I would call a wonderful play on words – and, for investors, it’s a wonderful market play as well. Especially now, and especially since we already own AMAR stock. Thanks likely to the Internet, investors outside The Stewart Report were able to find tiny Amarillo, appreciate its relevance and begin buying the stock. Yesterday, following the White House conference, Amarillo traded 106,800 shares. Today, it traded 71,900 additional. Put in perspective, AMAR’s average daily volume is just 20,100.

Unlike Emergency Filtration Products – which is our other direct hit on the plague (and the stock I’ll be covering in a couple of minutes) – Amarillo Biosciences is not yet on the move. But, given the severity of the subject, and with stock volume more than quadrupling, clearly, AMAR is now “in play.” If you haven’t already bought shares, BUY some now.

Paradoxically, the further you go back in time, the more timely this speculation becomes. Let me prove it by providing a little additional history: The swine flu outbreak of 1918 lasted just two years and killed between 40 million and 70 million people.

NOTE: The ridiculous “give or take” 30 million-person variance is a reflection of the immense chaos caused by a world disease during a time of world war. But even the pandemic’s low-end cost to human life during WWI was far, far greater than the number who died in the war itself. In fact, most historians acknowledge the effects of the pandemic as being one of the war’s deciding factors!

Two later pandemics that hit the planet – Asian influenza in 1957-59, and Hong Kong flu in 1968 – were much milder, but still caused widespread disruption and excess mortality. Actually, there’s evidence that influenza outbreaks have been killing people since ancient times, but only the past six or seven centuries have been documented. What’s most intriguing to historians and scientists – and now investors – is the almost rhythmic predictability of these plagues. Research indicates that 38 years has been the longest separation between outbreaks. As of today, year 2005, it has been 37 years since the last pandemic.

Do the math. Then couple the timeliness of an under-one-year timeframe with avian influenza’s new appearance in Asia. Now you should have a reasonable, albeit tip-of-the-iceberg appreciation for the investment interest in AMAR, as well as the educated fears of governments around the globe – including ours. In fact, this morning, CNN said, “today, representatives from 65 nations will meet to begin working on possible solutions to the pandemic.”

Despite great advances in medicine, the planet is hardly better prepared than it was in 1918 to deal with any new pandemic.

For starters, given the lightning-fast speed at which influenza strains can mutate, there’s no real likelihood that today’s vaccine will cure tomorrow’s new strain. Instead, WHO believes they will have to be continually re-engineered. Even if a new vaccine is found to work – and continues to work – there’s still the current world manufacturing capacity to consider.

Simply put, there is no way that current drug makers can expand production fast enough to meet the global demand brought on by a pandemic. If you disagree, rewind to this time last year when simple flu vaccines were in such short supply that the strongest industrial nation on earth was forced to ration them to the elderly.

But lets be positive; let’s assume they not only find the perfect H5N1 vaccine, but also the capacity to manufacture enough of it for all nations – not just ours.

Physicians say that, because the H5N1 virus is new, humans are immunologically naïve, meaning that each of us will require two doses of medication. Present estimates place the cost of these doses at $6.50 each, or $13.00 per person. With two-thirds of the world’s population now earning under $2.00 a day, it’s hard to see how they could afford standard vaccines, even if they could find them – and they won’t.

And, unlike the recent Tsunami-relief effort, there won’t be any huge surge of humanitarian aid, either. Industrialized nations will first attempt to meet the demands of their own populations before worrying about the remainder of the world. And for the most part, they probably will.

Unfortunately, the “Next Great Plague” – same as all prior ones – will likely be an equal-opportunity killer. You won’t have to be impoverished to die from it. But, if you are, the odds are that you will. And, even if you can afford the vaccine, unless you live in a G-8 nation or carry a black passport, you might die anyway simply because there will not be enough to go around.

In my mind, the sum total of the present situation provides some eye-opening contrasts to the multiple benefits of Amarillo Biosciences’ oral interferon treatment:

1) Current vaccines must be kept refrigerated, unlike AMAR’s interferon, which is stable at room temperature.

2) There is a significant lag time between the moment H5N1 is actually contracted and when the symptoms begin to appear – usually several days. As such, current vaccines must be administered in advance or, at the very least, within the first 48 hours of symptoms being noticed. AMAR’s patented interferon can be affordably taken as a precautionary measure to strengthen the immune symptom.

3) Hypodermic needles are needed to administer current vaccines. Amarillo’s interferon tablets can be taken orally.

4) Oral interferon can be delivered for less than 20 cents per dose. That’s about 1/32nd the cost of current vaccination alternatives.

As for supply?

Amarillo’s single largest stockholder and sole supplier is Hayashibara Corporation – Japan’s largest privately held biopharmaceutical company ($6 billion in annual sales). Hayashibara’s size, coupled with the sheer chemical simplicity of the drug itself, would make meeting world demand a more rapid and less expensive proposition. Important, too, oral interferon has a significantly longer shelf-life than liquid vaccines, meaning doses can be easily stockpiled.

The bottom line recommendation on Amarillo Biosciences is probably the recommendation itself. Ever since last April, when we first reported on avian influenza, Amarillo has been perpetually listed as The Stewart Report’s “Favorite Speculation.”

AMAR – Nasdaq/BB: $0.27 – has only 16.3 million shares outstanding and a total market cap of just $4.4 million. (To date, $36 million has been invested in the technology.) The shares are 50 percent off their 52-week high and just 6 cents away from the 52-week low. So, I ask myself, at 27 cents, what’s the downside in a publicly traded biotech with a continuous 10-year operating history, 17 patents and a $6 billion partner? The technical answer is “27 cents” – the logical answer is: “Not much.”

As for the upside, our printed target is still $1.00 in six months. But, if AMAR catches any publicity, Katy won’t have time to bar the door. Those of you who are truly speculators should step up and BUY this stock with both fists. The rest of you might use just one.

Even before avian influenza reached the media limelight, Emergency Filtration Products, Inc. (Nasdaq/BB: EMFP – $0.65), was creeping up a penny or two every day or three. Although the advance was almost imperceptible, the devastation wrought by Katrina was not. So, on Labor Day, I called founding CEO Doug Beplate to see if the carnage along the Gulf Coast had resulted in sales for any of EMFP’s patented medical products. The question was logical.

After all, RespAide CPR isolation masks would have been very helpful in enabling emergency workers to safely provide mouth-to-mouth resuscitation. Knowing what I know about the 99.9% efficiency rating Nelson Laboratories gave EMFP’s NanoMask, and after seeing what I saw on CNN, personally, there’s no way I’d involve myself in any of the rescue clean-up efforts without one. There were simply too many chemicals and other toxins that standard masks would allow a person to breathe into their lungs.

Long story short, Doug said that FEMA had phoned the day before (a Sunday) requesting product information on both. Additionally, Doug reminded them of Superstat, EMFP’s U.S. military-approved combat/surgical bandage, which contains a modified hemostatic collagen to rapidly slow bleeding. In fact, he said he was assembling a Fed-Ex package for FEMA as we spoke – which was also the last time we spoke.

On September 23, there was another small bump-up in the stock, but this time the volume was considerable: 436,625 shares. Very similar to what I said earlier about Amarillo Biosciences, this figure was quadruple the average daily volume of 99,900. Over the next eight trading days, there were several more closing bells where volumes in the 200,000 to 300,000 range were posted.

So, I tried to phone him again … and again and again. Doug was nowhere to be found. But, as I’ve said before, when Doug Beplate doesn’t return my call, “that’s a good thing.” It means he’s got something he’d love to tell me but knows we’d likely find ourselves fighting over Martha’s old jump suits if he did. But, until this morning, I wasn’t exactly sure why he didn’t call – or what that “good thing” was. Now I know:

Doug was too busy trying to fulfill the largest influx of mask orders in EMFP history.

According to a print version of an ABC News item waiting on my desk titled, “Bird Flu Concerns Make Masks A Hot Commodity,” news writer Amanda Onion quoted him as saying, “We currently are attempting to produce between 100,000 and 200,000 masks a week. Now, they’re going out as soon as we make them. I don’t see us catching up with demand in the near future.”

That was at 6:47 a.m. Pacific Daylight Time – 15 minutes after the opening bell. By the time the closing one rang, Emergency Filtration Products had been singled out by two of the so-called hot-stock watch services and had risen another 14 cents on volume of 2,123,504 shares. It closed at $0.65 – a nickel above its 52-week high. So, it’s been a busy day. And it ain’t over yet.

Indeed, I’m sitting here on Pacific time, with three hours of Thursday left, but my editor on Central time has already seen Jay Leno – and the avian flu concern has suddenly become so mainstream he’s actually joking about it. Seems he thinks it’s a major risk factor for Americans, second only in potential deadliness to that other lethal bird – fried chicken. You know, the one that hides out in red and white buckets.

So much for comic relief. Returning now to the importance of today’s earlier market action and what it really means: Yes, it’s always good to have a stock up 27 percent in a day; even better when the closing price is fully 58 percent higher than the previous HotLine. (That, of course was back on Aug. 22, when EMFP was 38 cents and listed as, “Short-term hold, but smart long-term buy.”)

But the volume figure is the real centerpiece – not the price. Earlier tonight, I pulled up the one-year chart ... Not what I needed, so went to the two-, three- and finally the five-year stock charts before I gave up my efforts to find a day with anything that even resembled a 2.1 million-share day. In fact, prior to yesterday, EMFP had never before cleared even 1.4 million. You don’t have to be a technician to know that, when a 52-week ceiling gets smashed on a volume surge of such a remarkable magnitude, you’re almost certainly looking at a breakout.

My guess is that the new run will carry our stock to its previous high of 80-plus cents. That was in January of 2004, when some very obvious footholds were being established with all four branches of the U.S. military and the $80 billion industrial giant, Itochu Chemical Corp.

Emergency Filtration Products also touched that 80-cent mark back in April 2003. Proudly, that was just 15 days after The Stewart Report issued its March 24 HotLine (when the stock was at 25 cents), in which I upgraded our EMFP recommendation from a hold to a BUY.

Very much worth noting, too, that surge was partially fueled by the SARS scare. Actually, when 8,069 cases are reported and 775 people die, it’s something more than a scare, but my point is this: SARS was a localized epidemic, while H5N1 looks to be a global pandemic. The distinction is as large as the area covered, the millions of people that might be affected and the number masks that EMFP could sell.

As for the number of units the company is selling right now? Let’s go with ABC News, and the belief that Doug is working on 100,000 to 200,000 units a week. At $9 per mask (i.e., “the razor”), plus another $9.49 for a package of 10 replacement filters (i.e., “the razor blades”), then he’s probably doing between $1.8 million and $3.7 million PER WEEK – or somewhere between $7.2 million and $14.8 million PER MONTH.

Put into perspective, for the SIX MONTHS ended June 30, EMFP reported net revenues of $66,000. During that same six-month period, the company lost just under $400,000 – or a penny per share. For further perspective still, consider this. If we were to apply that same six-month operating loss against the lower of the two single-month revenue projections, for the month of October, EMFP could conceivably earn $6.8 million. With approximately 35 million shares outstanding, that would equate to 19 cents in per-share earnings. I suppose you could annualize some of those figures; they’d surely blow clean off the chart.

But it’s late. Besides, I’ve more than made the point. However, if you were allow me to make one more, it would be this …

As long-term investors, we need to remember that, as beneficial as all this has been (and will continue to be), avian influenza is the icing – not the cake.

Both EMFP’s commercial-product sales strategy via Itochu Chemical Corp., and its equally high aspirations to finalize large military contract orders, are very real – and very much alive. Indeed, this kind of attention can only move both objectives along at a faster clip. Massive increases in sales growth, cash flow and manufacturing scales of economy tend to do that. Garnering tons of free ink at the national level – not to mention commensurate increases in consumer awareness and new stockholders – doesn’t hurt either.

Thus, our focus should always maintain an eye toward the bigger picture. That revolves around the core of the company, which is its technology, its products, its patents and the massive relationships Doug Beplate has spent the last several years growing and grooming.

Obviously, had Bush given me the usual heads-up as to the content of his news conference prior to the last HotLine, I would have listed EMFP as a “smart BUY for both the short-term and the long-term.” But he didn’t. So I’m doing it now.

International Card Establishment, Inc. (Nasdaq/BB: ICRD – $0.30), doesn’t have the pizzazz that our influenza deals do. Not right now, anyway. In truth, it probably never will – but that’s precisely why I like it so much. As I’ve always tried to convey, ICRD is a straight-up-the-middle businessman’s stock. Moreover, when the businessmen who are running it achieve critical mass – i.e., $100 million in sales – they will sell it, and we’ll make a lot of money.

For an update as to how those figures are progressing, go to our website (www.stewartreport.com.) and click on “Current Stewart Stocks.” From there, you can access the most recent ICRD news items: The “Financials Report from Aug. 22” and the “Progress Report from Sept. 20.” Also, on the Home Page, you should click on “The Rabbit Report” link for Larry Spears’ current technical opinion of ICRD.

In the next HotLine, I’ll update the stock properly, but for now I recommend International Card Establishment as our Best Long-Term BUY.

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. Acting as an investor, and also as a consultant to the Company, David Stewart purchased 100,000 shares of Amarillo Biosciences, restricted under Rule 144. J. David Stewart currently owns 100,000 shares of ICRD common stock. At present, J. David Stewart’s secretary is out of town, but he’s pretty sure he owns shares of Emergency Filtration Products, too. 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, 2005.