THE STEWART REPORT HOTLINE SUMMARY

November 29, 2005, Follow-Up Report to HotLine of Monday, November 14

Next Regular HotLine Planned for Monday, December 19, 2005

Overview:
The consensus among the 350 or so new stockholders who have invested in Amarillo Biosciences and Emergency Filtration Products in recent weeks favors yet another double in the share prices of each before year-end.

The dramatic and steadily increasing daily share volume each stock has enjoyed the last couple of months has placed both securities on several momentum-based watch boards – listings that continue to attract still more investors. This momentum, coupled with the perseverance each stock has shown in testing new highs – almost weekly – has made them favorites among the chartists as well.

Then there’s the continuing global focus on the looming H5N1 pandemic. Not a single news person is willing to let go of this story. And rightfully so – especially since China has just reported its third confirmed fatality involving a bird-to-human transmitted virus.

The Chinese disclosure is easily the most fascinating statistic of all. Here’s why:

When a reasonably secretive nation of more than a billion persons – a nation where upwards of 100 people are probably killed each night in Beijing street fights alone – is somehow compelled to tell the World Health Organization of just three human deaths, then you know that those three deaths could likely represent millions of additional fatalities just ahead.

Weirder still is the fright factor generated when that same nation – in response to those same three fatalities – publicly admits that its best current response is to inoculate all of its 16 billion chickens and ducks.

I think that anyone with enough gray matter to even pretend they can comprehend 16 billion of anything occurring within a week or two is probably living in a fantasy world. Such a feat is simply not achievable.

Certainly everyone should be thankful to the Chinese government for their honesty in reporting their three H5N1 deaths. That was clearly the action of a responsible world citizen. However, until China can find enough vaccine and syringes and trained people to catch all these birds and vaccinate them – with something, anything, really – and then to also be able to prevent the people vaccinating the birds from contracting the virus in the process … C’mon! You have to agree that the whole scenario seems more than a wee bit far-fetched.

What is believable, though, is that China will think back to its SARs epidemic – when masks made by Emergency Filtration Products were suddenly more popular than blue jeans. This memory could easily trigger orders for tens of thousands of new masks to protect those charged with vaccinating the poultry. Otherwise, a great irony could very well be in the making as those trying to inoculate against the outbreak inadvertently contract the disease – and thus accelerate its progress around the globe.

Here, two very obvious thoughts come to mind:

1. The only patented 2-H nano mask that’s affordable, available and mil-spec rated to defeat the inhalation of the H5N1 virus belongs to EMFP – and we own the stock.
   
2. Oral interferon, a preventative medicine that could be added in in with the chicken feed – for about the same price as chicken feed itself – belongs to Amarillo Biosciences, which means the whole Asian situation could play just as well for shareholders in AMAR.

As I’ve said for almost a year now, my basic point regarding the gravity of the situation – and the significance of these two companies relative to it – is exceedingly straight forward. Simply put, as the bird flu pandemic gathers momentum, so do the arguments for owning both of these stocks.

And, to repeat myself even further, the redline trading volumes for each of these companies proves that the importance of each relative to the pandemic at hand is now well out of our hands. A whole new community of investors has recognized the potential of the pair – and they will continue to run with them. I believe everyone who’s in this early will do well with either stock. But mark my words, the one that sports the best upside appreciation at this precise moment is Amarillo Biosciences, Inc. (NASDAQ/BB – AMAR: 45 cents).

No one at the Company is talking, but I just have to believe that important news relative to Southeast Asia is pending – and possibly to Asia proper, as well.

If I’m right, such news will be immediately posted to The Stewart Report’s website (because its editor and its webmaster are notorious for being more punctual than The Stewart Report’s founder, who is only notorious for being notorious). Be that as it may, in advance of any official news, I can now tell you of formerly private conversations I’ve had over the last year or so with a gentleman named Jerry Frasier relative to Amarillo’s possible opportunities in southeast Asia …

Cambodia, to be precise.

One of Frasier’s privately held companies – Global Kinetics Enterprises – licensed AMAR’s interferon for that portion of the globe. It’s an important territory because Cambodia is a popular gateway to Laos, Vietnam and the Malay Peninsula. In addition, health officials in those areas tend to take their lead from what health officials in Cambodia are doing.

These are the very same regions with the worst reported outbreaks of H5N1 to date. They’re also culturally indigenous to the most horrific Chinatown-style food markets you can witness – i.e., the kind where birds are butchered outdoors; the kind where blood gets tracked around by bare feet; the kind that’s sadly ideal for the propagation of diseases like the bird flu.

So, that’s the highly infected area; the epicenter of the H5N1 pandemic; the territory that Dr. Joe Cummins licensed to Jerry Frasier. And why did Dr. Cummins grant this territory to Mr. Frasier? At first blush, I thought the decision was based on Frasier’s wide and varied pharmaceutical industry resumé. It’s not stellar, but it is impressive.

All of which is my own “be-nice way” of reiterating the age-old adage that, “it’s not only what you know, but who you know” – and, in this particular instance, Jerry Frasier’s partner is the niece of the Prime Minister of Cambodia. In the time that I have been trying to keep tabs on Frasier, he’s made several business trips to Cambodia – and, as near as I can figure, he’s never yet had to pay for a hotel room (nor probably anything else) because he’s always been the personal guest of someone in high office. Once it was the Prime Minister. Then it was the man who will likely be Cambodia’s next prime minister; then the Minister of Health, and also the Minister of Defense … and so on.

In short, Frasier is dealing at the very highest levels with Cambodia. Cambodia will most likely be among the first to be mired in the pandemic. In addition, Cambodia is probably also the nation least equipped to deal with the problem financially.

As mentioned in two prior Stewart Reports, the average wage outside of America is just $2 a day. In Cambodia, the economic norm for citizens is even more abysmal: An average wage of only $1 per day. America can afford higher-priced influenza vaccines, which can run upwards of $13 per person (even at wholesale rates) – but Cambodians cannot. And that’s where we gain full appreciation of what Amarillo has to offer – a low-cost alternative to existing vaccines.

Nieces and quazi-nepotism side, the great affordability of Amarillo’s alpha interferon is a one of the greatest selling points with the Cambodian government. This, in part, is why I believe the deal will be struck with Frasier – via Amarillo Biosciences, which holds the patents, and with Hayashibara, which will perform the drug manufacturing – to provide alpha interferon to residents of Cambodia.

To finance the deal, Cambodia will likely use its “Discretionary Medical Defense Fund.” Frasier says the fund is only $12 million – but, relative to Amarillo Bio’s current market cap of less than $10 million, a $12 million sale would be highly significant. And, once again, since Cambodia is a recognized gateway to other nations in the area that are just as much at risk, additional countries are likely to follow Cambodia’s lead and purchase Amarillo’s interferon.

Given the market dynamics of share price, volume, new stockholders and global awareness of the H5N1 problem – coupled with the affordability of Amarillo’s interferon alternative (and the dramatic fundamental impact virtually any such sale would have on the share price of a company this small) – my long-standing “Favorite Speculative BUY” recommendation for AMAR remains intact, as does my expectation that this stock will break cleanly through $1 before year-end.

Turning now to our investment position in Emergency Filtration Products, Inc. (NASDAQ/BB: 77 cents) … This stock’s amazing surge in volume, its price resiliency and its overall determination to claim higher and higher ground is not dissimilar to the share behavior of Amarillo Biosciences.

However, because EMFP is in essence a specialty manufacturing company, analytical attempts to determine how well it might continue in its upward spiral are inherently easier. That’s because the nuts and bolt variables of manufacturing entities are less political – and therefore more quantifiable – than with a bio-pharmaceutical like AMAR.

At least they are in theory – and the measurements for those theories center on present demand, existing backlog, manufacturing capacity and cost of goods sold. As for the latter – i.e., the cost of goods sold – the number is generally calculated on a per-unit basis, but only with products that have been mass-marketed for a long period of time – or at least a period of time that enables simple division to come into play. Such is not yet the case with EMFP and its nano-filtration masks.

Fortunately, it doesn’t really matter because the lion’s share of the product’s development costs were incurred over a number of years, a period that ended on – quite literally, ON – the exact same day that the product found itself in worldwide demand.

In this instance, the most logical and relative metric for cost-per-unit calculation would be the Company’s monthly overhead. To that end, I just got off of the phone with EMFP’s founding CEO, Doug Beplate, who’s presently in an airport and headed for Mexico to establish yet another manufacturing and assembly facility – in addition to the one in Henderson, Nevada (which was only brought on line a week ago).

But back to my original line of thought …

Doug’s airport-terminal, cell-phone guesstimate is that EMFP was burning though $60,000 monthly – prior to its recent great fortune. Since President Bush’s speech and the resultant ramp in orders for EMFP masks, several new employees have been added. Then there are training costs … and now the Mexico thing, etc., etc … So, Doug’s thinking is the burn rate will rapidly rise to $75,000 per month. Knowing him, that probably means a figure closer to $90,000.

That’s the boring part of the equation. The glamour part is unbridled sales … the part of the formula that will further drive investment interest into EMFP shares.

To that end, Doug said he has five distributors. Three of the five are big. One of the three was just shipped 12,000 masks – and the distributor said that the 12,000 masks represented 1/27th of his order backlog. In other words, that one distributor says his appetite is 324,000 units. Since everything is new, the definition of a “unit” changes almost weekly. However, it is beginning to gain a more refined definition as more and more orders are placed. Per the last accounting, a “unit” looks to be “one mask and 10 replacement filters,” with a net cost to the distributor of $12 to $15 per unit (depending on their sales volume).

That quickly pencils out to $3.88 million in backlog – from one distributor alone. And Doug has five.

As for EMFP’s ability to meet demand, Doug thinks the Nevada facility is already good for 300,000 to as many as 500,000 per week – although it’s still too early to say for certain. Less definable is his absolute knowledge for the Mexican affiliation – after all, he’s probably just now readying to board the jet. But, his early expectation is that the extra facility will basically match Nevada’s output within a relatively short time.

For me, however, the two most enlightening pieces of information were this:

1. 300,000 masks are already on order (and already paid for by EMFP), and the filters are in the process of being nano-enhanced in Nevada.
   
2. 7 million filters are on order, being cut daily, and arriving in stages of delivery between now and mid-January.

Bottom line: Those kinds of production runs, at that rate of speed, times the wholesale prices just discussed, are very meaningful when divided by costs of $70,000 per month – or even $270,000 per month.

As for share-price expectations, I’m still thinking that the best near-term forecast for EMFP’s soon-to-be realized share price might best be found by looking at its stock chart – and the chart is saying, “BUY.”

As you know, trusting stock charts is 100 percent NOT my style. However, when you have two stocks – one like Amarillo and one like EMFP – and both are in a full-blown breakout, the levels of opportunity and resistance are sometimes best evidenced by technical analysis. For the last 11 years, that analysis has been performed for The Stewart Report by one man – or by one “Rabbit,” if you prefer. Either way, our technical analyst is Larry D. Spears.

He’s not always right … but who the hell is? But, if you’ve checked out The Stewart Report website and noted his technical expectations and observations for these two stocks for the last several weeks, then you’ve also noted the relative accuracy of his expectations.

Having said that, the one stock that continues to cause both of us embarrassment (Larry from the technical standpoint; me from the fundamental) is International Card Establishment, Inc. (NASDAQ/BB: ICRD – 20 cents).

At this moment, the obvious reality is that, even when a company is performing well, if its share price is within pennies of its 52-week low and it’s only hours from being the month of December, a rough few weeks are likely ahead. That’s because the less-than-rational effects of tax-selling will nearly always override any real understanding or appreciation of the financial progress actually being made by the company itself. And, let me assure you, over the last 11 months, ICRD’s progress has been mathematically “substantial” – to say the least.

Still, due to the irrefutable and unavoidable ramifications of tax-selling, this stock is no better than a HOLD at present. Having said that, however, do appreciate the company’s progress and be savvy enough to prepare for the converse of everything just noted. Once the tax selling subsides, odds are good ICRD could benefit from a January tax bounce during the last days of December ’05 through the first days of January ’06, turning the stock into as big a performer, percentage-wise, as our other two holdings.

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

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.