THE STEWART REPORT HOTLINE

Wednesday, October 25, 2006

(Next HotLine Planned for Monday, November 27, 2006)

 

OVERVIEW:

From a legal standpoint the stock market is pretty tied up these days – at least it is relative to 1981, when I was young, and so stupidly lucky as to wander onto Wall Street and make my first fortune. 

I kid you not: at this precise moment, I feel like a psychiatric patient recently freed from an informational straight jacket.  The frustration is as great as I’ve ever felt.  The sources for this frustration are wide and nebulous.

I felt as though there were some strong things in the wind … seriously large events on the horizon.   At least that’s the feeling I was getting from The Street.  However, I could not prove them to be factual. And even if I could, it wouldn’t matter because they had not yet been made public -- therefore, non-reportable. As a result, I’ve spent the last few weeks feeling locked up, shut up and closed out.

But now – complaints and metaphors aside – there is much to be said.  More importantly it can be said.  So screw the SEC, because today, it’s all legally out there and ready to be told.  And most importantly, it’s ready to be explained.  That, of course, is the purpose of The Stewart Report … to put investment opportunities into perspective.  Presently, the investment that you need to give the greatest consideration is AMARILLO BIOSCIENCES, INC.  (Nasdaq/BB: AMAR -- $0.72).  AMAR is a blatant buying opportunity.  Accordingly, it shall be the focus of this Report.  And I promise you this: if you’ll take even a short moment to consider what this small company is doing, I’m certain you’ll want to own more shares.

The shareholder’s meeting of June 22 celebrated Amarillo Biosciences’ 22nd  year as a corporation and happened to be within five days of its 10th anniversary as a publicly traded entity. During that time, 53 papers authored by founding CEO Dr. Joseph Cummins have made their way to medical publications and 16 patents issued.

The scientific centerpiece of the entire experiment has been based solely on Dr. Cummins’ belief in orally delivered low dose interferon-a (IFN-a).  Until just very recently its been a really rough road because of the reverse logic to his science.  It was a “Less is more” kind of concept that the medical world had a hard time grappling with.   And logically so.  After all, how could a low dose be more effective than a high dose? How could something delivered orally be more effective than something that’s injected with a syringe? How can a can a low dose pharmaceutical that sells for a tiny fraction of the high dose counterpart be immensely more valuable. Outwardly it didn’t make sense, and it still doesn’t and it probably never will. But it’s true nonetheless.

If it weren’t for the Bush administration’s passage of The Orphan Drug Act designed to expedite the FDA approval of important drugs that address very “unimportant” numbers of people (i.e. – 200,000 or less), I don’t know if Dr. Cummins would have made it.  And even if it survived, it’s highly unlikely that Amarillo’s IFN-a would not enjoy the growing global acceptance that it does at this moment in time.  But the Orphan Bill, coupled with the urgency of the World Health Organization’s warning as to the imminence of a probable bird flu outbreak have been real door openers for this previously under-financed Company – and, for this previously disbelieved technology.

Last month a medical article came out of Hokkaido, Japan titled, “Evidence of the Immunostimulatory Effects of Low-Dose Orally Delivered Human IFN-a in Cattle.”  The cattle data was preceded by reports from scientists at an institute in Brescia, Italy and two Italian universities – one in Parma, the other in Pisa – that reported “low-dose, orally-administered IFN-a is life-saving in cats with an otherwise fatal viral infection.” 

Note: These results are of particular interest because cats are considered to be excellent models for AIDS in humans.

Also this year, Amarillo sponsored three influenza studies of its own in the United States and at a Nobel Prize-winning clinic in Australia. The results were so positive as to encourage the funding of another animal research study. The next one proposes to use mice which will be given oral IFN-a or a placebo. Then each mouse will be challenged with the influenza virus.  The goal of the study will be to further validate human clinical data in the former Soviet Union, Japan, Bulgaria and China where it was reported that IFN-a significantly reduced both the severity and the duration of influenza.  

This is big stuff.  Especially in today’s world.  From mice to cattle to cats to humans; from China to Italy to Australia and places in between, great interest is developing along with great results.  These data are the latest confirmation of the fact that not only is AMAR on the right path – AMAR is the path.  Low-dose oral interferon – not high dose injectable interferon – is the wave of the future.  And Amarillo Biosciences has all the patents.

This recent blizzard of scientific activity has awakened a commensurate financial interest in Amarillo Biosciences and its IFN-a.  Topping the list of well-healed international investors would be Dr. Claus Martin. As previously reported, he and his entourage (which includes Malaysian royalty) have invested $1.5 million.  Dr. Martin plans to express his venture into Amarillo’s future even further with a new trip to South East Asia in January. 

Next week, Dr. Cummins and I will be meeting in Los Angeles. However but I’m not the real target.  Apparently a private professional investor wants to meet him first with the idea of investing somewhere between $3 million and $5 million.  Additionally, a friend of mine who sits on a trading desk said there are at least two investment bankers interested in doing an underwriting.  Whether or not this is true is almost irrelevant. 

In my estimation, internally, Dr. Cummins could find enough go-forward money to do just about anything he wants.  As but one example, multi-millionaire Mr. Thomas Ulie has come on board … so to speak.  In fact, virtually the entire board of directors has been replaced in recent months, and everybody – and I do mean everybody – is a first-cabin kind of guy.  Seriously, how does a company with a market cap of $16 million attract the former U.S. President of Glaxo Smith Kline (NYSE: GSK) to its Board of Directors?  Such things are absolutely unheard of.  

There’s a reason for this, and you can bet the reason is motivated by money – pure and simple. Simpler still is the fact that AMAR’s board receives virtually no financial compensation, whatsoever.  This tells me that these men are in it for the stock – same as us.  That’s a good thing.

Worth noting, too: in all of the years that I’ve been involved with this Company, I’ve never known Amarillo’s board of directors to have formal sit-downs any more often than was legally required. That’s only once a year. These days, however, Amarillo has its directors flying in every three or four months.  Most recently, a dozen people from six different states and three separate nations conferred in Denver.  Dr. Cummins would not disclose the purpose of the meeting, but we did discuss, and at great length, the value of Amarillo’s new relationship with Kent Hance who will be formally selected as the new Chancellor of Texas Tech University on October 27.  This is no small appointment.  As Chancellor, Hance will govern over four different university campuses in as many different cities.  General student population aside, he’ll also have 459 doctors in his charge.  Hance earned this virtual medical military by being a smart lawyer – and a shrewd politician.  Hance is a former member of Congress.  The person Hance ran against – and beat, in Texas – was George W. Bush.  

Having said that, rewind to September 13 when AMAR announced that it had retained the Austin-based law firm of Hance, Scarborough, Wright, Woodward & Weisbart to “represent the Company in matters of federal and state governmental relations.”   Next, consider this: on Friday, Dr. Cummins will meet with the Texas’ Emerging Technology Fund looking for a $750,000 research grant.  If he’s approved at the regional level, the request will then go straight to the higher powers at the State Capital in Austin.  Now, all you have to do is connect the dots.  The implication is admittedly crass, but I do believe that these relationships will eventually equate to cash.  Put into perspective – if AMAR does earn the grant, $750,000 relative to a $16 million market cap equates to nearly five percent.  Generally speaking, after taxes that’s what your average, well-run American company hopes to take to the bottom line at the end of the year.  In short, to garner this much State money would be a very big coup.

So who says doctors are lousy business men?  Well, for one, I do … at least I usually do.  In the 14 years I was a stockbroker, I witnessed too many physicians make too many mistakes to say otherwise.  Before I continue with this little diatribe, in all fairness and with great irony, I should probably mention that I’ve also met some very investment savvy doctors.  In point of truth, it was a former brokerage client who is now a Stewart Report subscriber by the name of Dr. Gordon Segal who introduced me to Amarillo Biosciences! 

Returning to the original thought … “It really is an unusual man who can wear a suit coat as well as he wears a lab coat.” I wrote that in 1987, and it will always be true. But after giving thought to everything said thus far, I think you’ll agree … Dr. Joseph Cummins is, indeed, “an unusual man.”

But more unusual still, is the global value of Dr. Cummins’ research into IFN-a. That, plus the accompanying patents are the grist of the deal.  As informed investors we are uniquely positioned to appreciate the value of this Company; this technology. Both are grossly under-priced. To understand that the entire Company could actually be purchased for the price of a three-acre beach parcel in Laguna Beach is, in itself, not understandable.  I view this situation as an immediate and very important BUY.

INTERNATIONAL CARD ESTABLISHMENT, INC. (Nasdaq/BB: ICRD – $0.20).  If you happened to see the September 26 news release announcing the new relationship with KaBloom (the nation’s single largest florist), then it’s likely you also noticed the cookie-cutter comparison between that deal and the prior announcement featuring Sweet Factory (the nation’s largest candy retailer).  Together, both deals will deliver substantial and immediate credit card processing revenues to ICRD … approximately $1.5 million monthly.  Also, its Neos Merchant division will deliver 50,000 gift cards to KaBloom in addition to the 100,000 cards it sold to Sweet Factory in late August.

I asked if there was a reason for the pair of agreements being so obviously like-kind in nature.  The answer is simple:  both companies are owned by the same investor group.  At least that’s what a private player told me.  He also said that this particular group has even more franchises so it’s entirely likely that they, too, may become folded into ICRD’s full-service credit card/gift card paradigm.  I would hope that by saying this I have not jeopardized any future deals, but as I said earlier, I’m tired of trying to operate in a straight jacket.

As for my present investment opinion, the enterprise value of ICRD is probably 40-cents per share.  With the stock now just 20-cents per share, there is an obvious opportunity.  I own quite a few shares, I’m entirely comfortable with my investment and I do anticipate a fairly easy double from this price level.  Management is clever.  They’re in it for the stock, and that means they’re in it for the long-term.  Same as me; same as you.  All are agreed: there shall be no quarter-to-quarter apple polishing.  All that is being done is being done for the eventual benefit of the stock – and therefore the stockholders.  A year from now, perhaps sooner, everybody involved with this company is going to look very smart.  BUY

EMERGENCY FILTRATION PRODUCTS, INC. (Nasdaq/BB: EMFP – $0.81). Here the situation is reasonably straightforward but double-pronged.  EMFP’s naysayers have a pair of arguments as to why the stock will not do well.  Frankly, there is a certain validity to their two concerns – not that it matters.  Right, wrong or sideways, the short artists have spent so much time advertising their “worried” opinions on Bull & Bear’s chat rooms that much of the general investment public is now confusing facts with opinions.

Professional propaganda aside, there is a possibility – if not a probability, that entirety of EMFP’s receivables will not be collected.  Then again, show me any business in any industry where 100% of the customers pay, and I’ll show you a perfect world.  All I know is that given the circumstances, it was only good and fair for founding CEO Doug Beplate to extend credit to credit-worthy retailers.  Which he did.  And at the end of the day, I think you’ll find that at least 90% of his receivables will, in fact, be received.  Personally, after all those years of poverty, the fact that EMFP can afford to front that much inventory is a wonderful statement in itself.

The second presupposed problem is FDA approval for the nano mask.  Over the years, given the numerous independent test results for the core technology by renowned facilities such as Nelson Laboratories, there can be no doubt as to the efficiency of the product – as well as product claims made by the Company.  Besides, it’s not like this was a heart implant or some wildly new pharmaceutical.  This is a non-invasive device.  Sophisticated?  Yes.  Dangerous?  No.

Consider, too, Thompson Fehr, Esq. – EMFP’s patent attorney from Day One.  As a winner of the Merit Award when he was with the Dept. of Defense, Fehr is a patent attorney, a civil attorney and has a huge knowledge of physics.  All told, 188 patents have been filed by Fehr on EMFP’s behalf.  All of this will take time.  Then again, perhaps it won’t.

Today, at precisely noon, I spoke briefly with Doug just as he was boarding a plane.  Destination: Washington D.C.  I asked him which agency he was going to meet with.  His only reply: “The biggest of the big.”  I’d take that to mean the DoD, but that’s only a guess.

As for the stock itself, I believe things to be far more certain.  Long-term, EMFP is a stellar speculation – especially at these prices.  However – at the risk of defeating my own investment arguments – I still see Amarillo Biosciences and International Card Establishment as better homes for current capital – i.e., new money.  For this reason – and this reason only – EMFP is a HOLD.        

 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. J. David Stewart owns 150,000 common shares of International Card Establishment, Inc. David has also subscribed to purchase an additional 100,000 ICRD shares Restricted under Rule 144. J. David Stewart also owns 70,000 shares of Amarillo Biosciences, Inc., common stock and another 100,000 shares of Amarillo Biosciences Restricted under Rule 144. J. David Stewart and affiliates of The Stewart Report may also have other 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, 2006.