THE STEWART REPORT HOTLINE

Monday, November 27, 2006

(Next HotLine Recording Scheduled for Friday, December 29, 2006)

International Card Establishment, Inc. ( Nasdaq/BB: ICRD – $0.31)

Last Monday’s special update on ICRD met with clear approval within our own ranks.  More importantly (judging by NASDAQ’s time-and-sales data), there was heavy buying “away” from us as well.  I was very pleased to see this because it shows we’re not the only investors providing support.

ICRD typically trades around 25,000 shares on an average day.  The day the e-mail was fired off, there were – from memory – approximately 170,000 shares traded.  That was all “us.”  But, the day before Thanksgiving, the stock traded 305,000 shares – and I’d guess half that volume came from non-Stewart Report subscribers.  Even after Thanksgiving, 161,000 shares managed to change hands – despite Friday’s shortened market day, which provided just 3½ hours of trading opportunity.

Commensurate with the rise in buy-side trading volume came a substantial increase in the stock price:  Up by one-third in one week – and it was a very short week.  And, who knows … it might keep right on going.  It certainly deserves to.  However, do be advised that moves of this magnitude occurring within an abbreviated timeframe are typically followed by an equally brief retracement – i.e., one that gives back approximately half the profit as desk traders take the quick money and run.  Which is fine.  These guys have a different agenda.  They deal in very large blocks, working in a commission-free environment, and they have to have a constant cash flow.

Besides, it’s entirely healthy – especially over the long term – for a stock to take a breather in the systematic, step-by-step attainment of the big price that lies down the road.  So, let the market makers play their games, and we’ll play ours.  Let them take their nickel if they so desire.  Remember: Our goal is denominated in dollars – not cents. HOLD.

Emergency Filtration Products, Inc. (NASDAQ/BB: EMFP):  $0.64

Aside from the obvious black-and-white price slippage from the Oct. 25 HotLine price of $0.81 – as well as the decline it suffered from the Report prior to that, on Sept. 1, when EMFP was $1.10 – there is little I can offer you that’s definitive.

I spent most of Wednesday trying to make some kind of case – either pro or con – from the notes of my conversations with CEO Doug Beplate and phone calls to other well-connected parties.  I even lowered myself to the level of gossip and checked the usual ignorance floating around the internet blogs.  By the end of the day, I realized that opinions given by at least four usually reliable sources differed drastically on two critical points – conflicting even more than the viewpoints stated in the chat rooms (which nobody believes anyway).

The critical points of contention (and confusion) revolve around the quality of EMFP’s accounts receivable, as well as the odds – and timing – of the Company winning FDA approval for its nano mask.  Regrettably, I am perfectly capable of arguing either side of these debates with equal degrees of persuasion. 

Bottom Line: There are times when I have to offer a largely baseless opinion of my own – and this is one of them.  It’s either that or risk the public perception that I’m playing ostrich to a problem. As for the latter, you seldom have to worry.  True, I’m likely to give greater emphasis to my wins – but this doesn’t mean that disagreeable situations frighten me.  Actually, quite the opposite is true.  Aside from naked options, I deal in the most speculative arena Wall Street has to offer.  I’m not supposed to be right all of the time – and I’m not.  However, it’s my experience that, on average, the winners are usually big winners … big enough to more than compensate for the ideas that fail, leaving a sizeable positive return at the end of the day.

Obviously I have no reliable way of knowing which one will produce the big payday – which is why it is so important that, as a subscriber, you have a position in all of my stocks.  It’s also a smart idea to never be fully invested.  Always try to keep some cash in the wings.  That way, if you see that the market has over-reacted to a particular situation, you’ll be poised to capitalize on an unpopular stock at a sweetheart price.  Such anomalies are common – and usually quite lucrative.

As for EMFP specifically, all I can really do is fall back on my experience – and some borrowed philosophy. Over the years, I’ve learned to be a big believer in perseverance and the value of smart attorneys. Perseverance because that’s what Carrol Shelby – designer of the Cobra and the Viper – attributed his success to. Marquee attorneys because that’s what I attribute my freedom to – despite a 180 MPH Ferrari Testarossa and my lead foot.

I’ve known Doug Beplate for too many years now to even remember.  Believe me, this guy is the quintessential definition of perseverance.  He will pursue EMFP to its final conclusion – either complete success or complete failure.  There will be no in-between. Of that, you can be sure.  As for attorneys, Doug’s has been with him every step of the way.  If you recall his resume from the last regular HotLine, you’ll realize he’s so highly credentialed he can work with whomever he chooses.  Early to recognize the value of Doug’s technology, Thompson Fehr, Esq., has worked with EMFP since before it was even publicly traded.  When times were thin, Thompson worked for stock – and even paid for many of the patent placement fees out of his own pocket.  All told, he’s filed almost 190 patents on EMFP’s behalf.

It’s fair to say that the Merit Award he won when he worked with the Department of Defense – not to mention the colleagues he still has at DOD – will have continued value.  So will the stock.  However, pending greater visibility, it’s not possible to comment either way as to the outcome of the quality of the Company’s receivables, or the timing of the FDA question. In fact, only two things are certain:

1.) Nothing will be resolved before year end.

2.) Millions of shares traded earlier this year at prices ranging from $1.00 to the 52-week high of $2.14, so tax selling will be a factor. 

Given this pair of near-term negatives, the stock is no better than a HOLD.

Amarillo Biosciences (NASDAQ/BB: AMAR): $0.63

Those of you who prefer the HotLine audio version over the e-mail transcript may have noticed that there was no recording to correspond with the Interim Special Report featuring ICRD.  This was intentional.  Since the Report was not scheduled, no one would have known to call.  Moreover, I felt that the information from the Oct. 25 recording featuring Amarillo Biosciences held a good deal of value, so I wanted to leave it available … Until now.

What I have for you today is my take on what is likely the biggest single news announcement AMAR has ever made.  As TSR goes to press, the announcement hasn’t even been released – not in America, anyway – and won’t be for a few more hours.  Fortunately, it was posted in Taiwan on Sunday. Equally fortuitous is my friendship with Mel Shriner, whom I met when I lived in Singapore.  Mel follows the stock and used the 14-hour time difference to call and give me the heads up.

The news release announces a contract between Amarillo Biosciences and CytoPharm – a key subsidiary of the largest biopharmaceutical company in Taiwan.  The relationship was formed to prove the efficacy of AMAR’s low-dose oral interferon regimen against influenza and hepatitis B.

Hepatitis B – known as “The Curse of the Chinese People” – is a major disease in Taiwan and China.  Both governments have spent billions of dollars and committed even more to deal with this deadly disease.  Under the terms of the agreement, many of those dollars – both hard and soft – will be directed at Amarillo Biosciences.  CytoPharm will conduct (and pay for) all clinical trials, which is worth a few million dollars.  It will also seek to obtain regulatory approvals in both Taiwan and China, which is a soft-dollar win beyond value.  CytoPharm will also make payments to Amarillo upon reaching certain milestones – milestones that, ironically, CytoPharm itself will be achieving on Amarillo’s behalf.  Pretty slick if you ask me.

The whole process will commence in 2007.  But keep in mind: Unlike the news release itself, this will not be an overnight thing.  It will take time to perform the trials and obtain the approvals.  Also, even though the financial benefits are large, the real win comes from the free research dollars being committed to the project, as well as the connections to high-level regulatory persons.  This much cash and those kinds of connections are two things Amarillo didn’t have – at least until now.  The deal is analogous to having a Kennedy call the President of Harvard and personally request your admission to the university, do the studying for you, take the tests for you, grant you a large student loan and then pay for it.  Like I said, it’s pretty slick.

It’s also very similar to the win/win deal AMAR CEO Dr. Joseph Cummins cut with a leading Middle Eastern pharmaceutical company to address Behçet’s disease in Turkey.  It’s not a significant disease in the U.S., unless you happen to be one of the 15,000 to 20,000 Americans who suffer its debilitating effects.  It is, however, a massive health problem in Turkey, where 300,000 persons are afflicted.

So here’s what Dr. Cummins did. First, he arranged for the pharmaceutical company in Turkey to perform all the necessary clinical trials to gain approval in Turkey.  A year from now, when the trials are completed, Amarillo will have a wired-in customer that will pay it a royalty on every interferon tablet sold. As with today’s deal in Southeast Asia, 100% of the research costs in the Middle East will be borne by a third party. Second, Dr. Cummins intends to take the research results to the FDA for approval in the U.S.  The beautiful irony is that here, because Behçet’s affects so few, it falls under the Orphan Drug Act.  The designation is important because the Act is specifically designed to expedite FDA approval, as well as assist with related costs.  I probably sounded like “The Ugly American” when I asked Dr. Cummins if the FDA would accept medical trials performed somewhere in Turkey. Loosely quoted he said, “They’d better.  From the outset, we involved FDA folks in establishing the protocol to be used.  Furthermore, we have an Internet link to Turkey (with real-time video) to monitor the tests and be certain the protocol is being performed ‘To the Letter.’”

This monitoring occurs several times each day.  Medical and humanitarian considerations aside, I’m impressed that Dr. Cummins was able to use the smallness of the disease in one country to fast track its approval by one government, while using a corporation in another country where the disease is rampant to pay for all costs associated with the drug’s development.

So. this brings you up to speed on some key developments – all of which are positive and none of which have been reflected in the share price, which has pulled back without reason. As for negatives, the only one I’m aware of was of my own making.  In the last regular Report, I mentioned I’d be meeting with a dozen of Amarillo’s key players in Beverly Hills.  That was to occur at the Peninsula Club on Halloween.  Long-story short, I did make it to the Beverly Hills Hilton where, at some point, I became enormously distracted and missed the meeting altogether. 

As soon as the calendar allows for the smoke to clear, I’ll phone Dr. Cummins for a recap, then provide details of everything I missed in the next HotLine.  Until then, put the details aside and take a long look at the Big Picture … the one that juxtaposes our Texas micro-cap against the world-class players who have involved themselves in every aspect of its operations. The comparison is profound.

On the Board of Directors, it has, Thomas D’Alonzo, former president of Glaxo Smith Kline (NYSE:GSK); plus a room full of M.D.s, Ph.D.s and wealthy professional private investors like Thomas Ulie, CEO of First Island Capital in Seattle.  Amarillo’s mentor and largest stockholder is Hayashibara, Japan’s largest biophar­maceutical company and, according to Fortune magazine, one of the world’s largest privately held companies.  The law firm of Hance, Scarborough, Woodward & Weisbart has been retained to represent AMAR in government matters.  Kent Hance, a senior partner in that firm and the man who once beat George Bush in a congressional race, is especially close to AMAR.  Hance is also the new Chancellor of Texas Tech University, where he presides over three campuses, 31,000 students, 459 doctors and millions in State of Texas grants.

There’s also Manfred Beilharz, Ph.D., who heads a Nobel Prize-winning School at the University of Western Australia. He’s working feverishly around the globe on a series of clinical trials specifically designed to prove the efficacy of oral interferon in various animals.  At the June stockholders meeting, he said that, when his paper gets published – probably in either Nature or Science – his School will get another Nobel Prize, he will be famous and Amarillo’s stockholders will be rich. He said this half jokingly – but only half.

We’ve also got Dr. Claus Martin, who from everything I’ve read is THE physician to Europe’s jet set and SE Asia’s elite – some of whom are royalty.  Cumulatively, Dr. Martin and his international entourage’s 2006 investment in AMAR stock was about $1.5 million. That’s a sizeable figure for private finance, but his contacts on both continents are probably more valuable than his cash. For 2007, Dr. Martin will embark on a number of trips to guarantee his investment.

Point of fact: In today’s CytoPharm release, Dr. Martin was identified as “Special Consultant” to AMAR and was quoted as saying, “The clinical data generated will provide invaluable assistance in our efforts to bring low-dose oral interferon into a number of countries with whom we have been holding a number of discussions, including Thailand, Brunei, Myanmar, the Philippines, Malaysia, Singapore and Indonesia.”

One other point: Never mind the 29 patents, or the $30 million invested in the technology, or the new money being invested in the Turkish studies, or the even newer money associated with this morning’s release out of Taiwan.  Instead consider all the NYSE-traded companies out there with market caps in the hundreds and hundreds of millions – companies that would kill for the kind of tight-knit international investor network that Amarillo, presently valued at just $14 million, already enjoys.

Virtually everyone listed above came to the table in 2006 and they’re working for little to nothing, trading their clout for stock or the simple opportunity to prove Amarillo right about oral interferon.  So, ask yourself: What does this say about the Company’s future?  What does it say about the future of the Company’s stock?  My answer?  BUY more shares – and hold onto them tight.

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 100,000 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.