THE STEWART REPORT HOTLINE SUMMARY
Delayed Report Previously Sent To Paid Subscribers

Wednesday, April 13, 2005

---

OVERVIEW:

Virus.

That's the word, the evil malady that's been the centerpiece of my life for nearly two weeks.

It was a reasonably traditional virus that attacked me, personally, and it was a modern, mechanized virus that infected all but one of The Stewart Report computers, taking them down and keeping them down for what seemed an eternity. After a few days, I was fine. But, after the same few days, it was apparent the computers had been murdered - not just maimed - and would have to be replaced outright, HotLine connections and all.

As of now, that's all history. Unfortunately there's a third virus - one of pandemic proportions that has the UN’s World Health Organization (WHO), America's National Institutes of Health (NIH), the Centers for Disease Control (CDC) and all of the other high-priority health organizations around the world scared all the way to the top and most of Asia worried to death. It also has Wall Street watching (and buying) the shares of pharmaceutical companies that address the problem.

Amarillo Biosciences, Inc., is one of those companies. This is why the stock has spiked up a few times since my last report - and this is why Amarillo Biosciences will be the focus of this report. You’re going to love it too, because the financial implication of a small Texas biotech addressing a global threat to human health is profound - and I kid you not: The stock profits that would accompany its participation would be staggering.

Thus our informational ambitions might be slightly juxtaposed … I’m anxious to tell you what we are now involved with at Amarillo Biosciences, while most of you probably want an update on Emergency Filtration Products and an explanation of what the hell happened to the share price of...

International Card Establishment, Inc. (Nasdaq/BB: ICRD - 21 cents)

With respect to ICRD, we got creamed - but for no reason. Not a good one, anyway.

On March 21. ICRD filed an 8K, which is the appropriate document to report anything the SEC might "deem as an important event." In this instance, the so-called "event" was Wain Swapp replacing Jonathan Severn as ICRD’s Chairman and CEO, an event I accurately and specifically addressed five full months ago. To wit:

The "sky’s-the-limit" potential that’s now so clearly evident within the Neos enterprise is, by Jonathan’s own admission, larger than his managerial skill set. Despite all his prior successes in the card industry, Jonathan believes he’s not adequately equipped to rapidly and effectively grow the smartcard division to its fullest potential. That’s because smartcards are marketed differently than bankcards and, with the Neos acquisition, smartcard revenues will now make up such a large portion of ICRD’s overall business mix.

As such, I’m certain that Jonathan will step sideways (or slightly down) to allow Wain Swapp – who does have the smartcard knowledge; who does understand the gift and loyalty sector; who has built several companies to over $100 million – to take the top-level management slot at International Card Establishment." -- TSR HotLine of Oct. 28, 2004 (mailed to all subscribers the next day)

And nothing is different. Jonathan is still the best guy in the business if you want to build a card company from scratch and take it from zero to $25 million or $35 million – fast. Which he did. And Wain is still the best, most-connected guy around if you want to run that same company to $100 million or better – and then sell it. Which he will.

Bottom Line: To the average investor, Wain taking over might have been "news." It may have even been an "event." And apparently, if the event is as thoroughly misunderstood as this one was, it can also become a crazed reason to sell. Ironically, as a subscriber to The Stewart Report – an investor armed with knowledge, yet victimized by the ignorance of others all the same – I’d ask you for just two things:

1. See the recent sell-off for what it is – i.e., a bargain-basement opportunity to capitalize on the misunderstanding and pick up last month’s 50-cent stock for 21 cents or better.
   

2. Hope that, in another couple of years, when Wain Swapp and Bill Lopshire do in fact deliver us our $100 million company, the same bunch of dummies that sold ICRD too low will still be around to act with equal shock and surprise and buy this thing too high.

I know ICRD – one of our perennial corporate favorites – has been a perpetual disappointment price wise. But I also know I’m not afraid to admit when I’m wrong – and, in this particular instance, I’m not. Not even close.

This company is growing rapidly, efficiently and intelligently. We’ve got all the right people in management who, in turn, know all the right people in the industry. ICRD’s complexion continues to change here and there, all for the better, while the core of the deal – the fundamental reason it was formed – has kept pace with the long-term goal: To reach critical mass – i.e., $100 million in annual sales – and then allow itself to be bought out by a major card company. To that end, ICRD is right on schedule, even if the share price is not.

My best advice? WAIT ... yes, wait – until April 15. After that, you can look at the 10-Q. Look at the revenues and the earnings, read the operational fine print and compare what you’ll readily see to the projections I made on page 6 in the original Report, ten months ago. If I’m right, if the corporate growth I projected is on target, and if the First Data deal actually took place as I said it would, then pick the phone and average down at that time. By then, most of the remaining sellers should be out of the way and the stock will likely be at its cheapest point. Then we can finally start making some money!

Emergency Filtration Products, Inc. (Nasdaq/BB: EMFP – 50 cents) -- The Hotline before last was probably the longest and most extensive update I’ve ever recorded. Since it focused almost exclusively on EMFP, I’ll have to assume you are still current as to this company’s prospects – especially since there’s been little in the way of news announcements since that time.

Outwardly, the company is little changed, same as the share price, which is seemingly firm around the 50-cent mark. Inwardly, however, this self-imposed quite period – coupled with the fact that it is very difficult to get Chairman Doug Beplate on the phone – strongly suggests there is some news pending. Given the size and strength of its relationships, both commercial and governmental, it’s also safe to assume that the next news will be good news – and on a grand scale.

Put another way, I look at EMFP’s links to Itochu Chemical in Japan; the entire American War machine, including the Army, Navy, Air Force and Marines; its efforts with the Red Cross; aggressive buying by the new 13-d investor (not to mention the introductions he’s made to like-minded investors with similarly deep pockets), and I can think of twenty things that could be announced at any time to send the stock into vertical flight. Conversely, short of something very strange, weird and entirely out of the ordinary, I can think of almost nothing the company might announce that would send shares lower.

Typically, when good news looms this large, when whatever negatives the investment has have already been factored into the share price, it only makes sense to play the odds, stay pragmatic but positive, and invest a little more.

It also pays to read between the lines. As but one recent example, on March 2, EMFP announced that it had retained a manufacturing specialist to assist with upcoming issues, such as mass production, quality control and manufacturing efficiency. The gentleman has worked at companies as large as General Electric and United Technologies, and with small medical-product companies like EMFP. During his tenure with his most recent client sales grew from $1.4 million to $20 million.

A moment ago, I mentioned "negative" factors. In EMFP’s case, there is really only one – and arguably, it’s a big one: Lack of sales evidence. Despite the enormity of its relationships and the publicly printed endorsements that have accompanied each of them, the fact is, EMFP has yet to land the Whale Contract. In short, until Doug comes home with a Shamu-sized purchase order, the stock will continue to trade at the current lethargic price and volume levels. But, if he didn’t fully believe (or already know, privately) that a P.O. was imminent, why would he hire a man schooled in the art of large-scale manufacturing?

In my mind, EMFP is like a small plant with a rich garden all to itself. It’s springtime and you have to believe that, any day now, the blossoms will explode and bear fruit. Imagery aside, it really is a well-timed, wonderfully unique, straightforward situation. So do consider the odds, do read between the lines, do continue to be patient and do expect a nice run in the stock – before summer, I would hope. BUY.

Amarillo Biosciences, Inc. (NASDAQ/BB: AMAR – 36 cents) – On March 22, I conducted two interviews with Dr. Joe Cummins – one in the morning and another that afternoon. Each one lasted nearly an hour, which is entirely unusual. Then again, so was the value and quantity of information – all of which I’ve consolidated into four categories for your review, as follows:

Dr. Cummins has re-entered serious discussions with West Virginia officials to relocate Amarillo’s headquarters to that state. This possibility first arose about a year ago when Sen. Jay Rockefeller (D-W.Va.) invited Joe down to review – and hopefully appreciate – the many research amenities West Virginia could offer. Rockefeller’s motive was simple: There’s not a single biotech company in the entire state. As attractive – and flattering – as the invitation was, Joe felt the timing wasn’t quite right. But that was before Marshall University received a $12 million grant to establish a biotech facility on campus. This spanking new resource – as well as Sen. Rockefeller’s continued interest and support – means the time now is right, and AMAR is considering a move. Of course, other incentives – such as grants, loans and relocation expenses – will also be sought, and Joe will travel to West Virginia later this month to discuss those issues.

As a result of a presentation made last November (and mentioned in the HotLine that same month), AMAR will begin treating patients at a major Texas cancer center beginning this quarter. The trials will involve 40 patients suffering from one of two different myeloproliferative maladies. In lay terms, these are serious diseases of the bone marrow that often lead to cancer. Dr. Cummins believes a regimen of Amarillo’s patented, low-dose oral interferon will prove to be an effective treatment. Apparently, the research center agrees because it has promised to pay all expenses for the study (which will be fairly costly and take approximately one year to complete).

Also commencing this summer, Amarillo will begin a 90-patient study of persons afflicted with Behçet’s disease – a severe, chronic and incurable autoimmune disorder characterized by mouth ulcers, genital sores, other skin-related symptoms and frequent arthritis. As horrible as it is, because so few people are afflicted with it in the U.S. (less than 15,000), there’s no real economic incentive (even under the "Orphan Drug Act") for the major pharmaceutical companies to pursue new treatments. In Turkey, however, Behçet’s is a widespread problem, with as many as 260,000 people suffering from the condition. Nobel Pharmaceutical wants to pursue medication for the disease in Turkey – and they want Amarillo to do it. Once again, all involved are convinced that AMAR’s patented, low-dose oral interferon regimen is the most likely and affordable solution. And, same as with the Texas study, the cost of the testing will be borne by the outside source. Nobel Pharmaceutical will pick up the bulk of the tab in return for exclusive marketing rights in Turkey and 16 other countries in central Asia. Amarillo will, of course, supply the interferon (generating additional overseas revenues) and retain rights for all other nations.

So, we have two sweetheart deals that will further validate the worth of AMAR’s technology – scientifically, geographically and economically. We also have another situation in West Virginia that will likely pair tiny Amarillo with a powerful U.S. senator, a friendly state with a large pool of research talent and full access to a brand new science facility at a noted university. Good stuff so far – but it was Dr. Cummins’ discussion of Item No. 4 that held my attention. Actually, I was riveted – and what follows is an overview of why:

There’s hardly a newspaper reader or evening news watcher in the world today who hasn’t heard of the Bird Flu. And that’s a darn good thing because, according to literally every major health organization on earth, virtually every person on the planet could soon be at risk of contracting the disease. Strong words, for sure – but, after reading printed quotes from top officials of the WHO, CDC, NIH, et.al., my verbiage is comparatively anemic.

The bird flu is a new strain of influenza, known in clinical circles as avian influenza – or, as it has been coded by world health officials, "H5N1." There is almost universal agreement within the global health community that: 1) The present H5N1 epidemic in Southeast Asia is very likely to become a pandemic now that it has proven it can jump species – i.e., move from birds to humans. 2) As a pandemic, it will spread rapidly and in waves. 3) Each successive wave will be worse than the one preceding it. 4) The world’s current vaccine supply, as well as all existing vaccine-manufacturing capacity, is far too low to accommodate probable demand. 5) Even if adequate vaccine supplies were somehow generated in a war-like effort, they’d arrive too late and, for two-thirds of the world’s inhabitants, be too expensive to purchase.

NOTE: Using the above as a general thesis, I’ll attempt to expand on some of this. Keep in mind, this is such a relatively new, yet large topic (yesterday at Barnes & Noble, I picked up two just-released books on H5N1), it will be impossible to do the subject justice in a HotLine report. However, I can give you the salient points and show you how the situation relates to our position in Amarillo Biosciences. This will also demonstrate why, for the last two years, my belief that this is our best long-shot speculation has grown steadily stronger – same as the share price.

There’s evidence that influenza outbreaks have been killing people since ancient times. In recent centuries, as such events have begun to earn historical documentation, the outbreaks have come with almost predictable rhythm, with 38 years being the longest separation between them. As of today, year 2005, it has been 37 years since the last pandemic. Do the math, then couple that result with influenza’s new appearance in Asia, and you’ll have a tip-of-the-iceberg appreciation for the educated fears of governments around the world.

Influenza, even in its generic, garden-variety form, is a major public-health threat, killing more than 30,000 each year in the U.S. alone – and sickening millions. When novel influenza strains emerge, mutate and migrate to the human population at the pandemic level, the mortality rates can go ballistic.

Considered the "Last Great Plague," the influenza outbreak of 1918 came in three waves, lasted two years and killed an estimated 50 million to 100 million people. The "give or take" 50-million-person variance is a reflection of the immense chaos. But even the low end number means that, by 1920, 5 percent of the world’s population was gone – a cost to human life far greater than the number who died in WWI. In fact, most historians acknowledge 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 nonetheless caused widespread disruption and substantial excess mortality. This information was culled directly from Journal of Public Health Policy, Vol. 26, No. I. It went on to say that, "Given the more than threefold increase in the world’s population since 1918, a reappearance of a 1918-like pandemic could kill as many as 175 million to 350 million people." And, it added, "these deaths would not be spread over 100 years, but happen in one or two."

Almost all of the article’s remaining 29 pages (including 4 pages itemizing 62 footnote references) go on to express in very specific, quantifiable terms why the world – despite great advances in medicine – is hardly better prepared than it was in 1918 to deal with any new pandemic. For starters, we don’t have a specific new vaccine tailored to this strain. And, even if we did, the speed at which influenza strains can spread is simply lightning like relative to the vaccine supplies we do have on hand and our present capacities to replace them.

History also teaches us that influenza is an equal-opportunity killer. You don’t have to be impoverished to die from it; indeed, even if you can afford the vaccine, you just might die anyway.

Physicians say that, because the virus is new, humans are immunologically naïve, meaning that each of us will require two doses of medication. With two-thirds of the world’s population now earning under $2.50 a day, it’s hard to see how they could afford standard vaccines, even if they could find them – and they won’t. Industrialized nations will first attempt to meet the demands of their own populations. This provides another eye-opening contrast to AMAR’s interferon treatment, which can be delivered for less than 20 cents per dose. Also, Amarillo’s relationship with giant pharmaceutical company Hayashibara ($6 billion in annual sales), which has the exclusive license to manufacture AMAR’s interferon, as well as the drug’s chemical simplicity, will make meeting world demand both cheaper and more rapid.

Already, Roche Holdings, Ltd. (ADR: RHHBY – $54.10), has hit its maximum capacity to manufacture enough trivalent vaccine to fill now-urgent government orders for the medicine. Put into perspective, Roche, founded in 1896, has 60,000 employees in 100 countries and does $26 billion in annual sales – and even it cannot keep up with the current demand for this basic vaccine used in standard flu shots (as opposed to the "active" vaccine used in nasal sprays). That was dramatically demonstrated this past winter when contamination of one British producer’s supply caused a trivalent shortage that left more than half of America’s population without flu shots. Imagine how much worse it could be should the pandemic actually hit!

Another trio of considerations: 1) Current vaccines must be kept refrigerated. 2) They must be administered in advance or, at the very least, within the first 48 hours of symptoms being noticed. 3) Hypodermic needles are needed to administer the drug. By contrast, Amarillo’s interferon tablets can be taken orally, are stable at room temperature and have a significantly longer shelf-life than liquid vaccines, meaning they can be easily stockpiled.

Dr. Cummins and associates will be flying to Southeast Asia in a few weeks to investigate the situation there. More specifically, they’ll be assisting in the areas with the most fatalities (53 human victims as of this week), including Thailand, Burma, Cambodia and Vietnam. As was demonstrated by the lack of preparedness for last December’s tsunami, these countries don’t currently have a planned response or protocols in place to deal with disasters of this magnitude (save for the wholesale slaughter of birds that transmit this disease). Joe will advise officials on formulating such strategies, as well as trying to format a test-patient program to evaluate the efficacy of Amarillo’s oral interferon against avian influenza.

Right now, no one knows for sure if low-dose oral interferon can be proven effective – or if the proof will arrive in time. However, if you look back to 1957, when the interferon protein was first discovered, and note how it was discovered and how it got its name, the pieces suddenly fit. Indeed, the story becomes almost magical – and the stock starts to look mythical. In 2003, avian influenza became known as bird flu because it was born of poultry. In 1957, a newly discovered protein was named interferon because it was found to interfere with the replication of influenza virus in chicken eggs. If that isn’t a wonderfully eerie coincidence, what is?

If Joe’s Asian trip is at all successful and, later, if efficacy can be established for oral interferon, Amarillo Biosciences would become one of the hottest stock plays I’ve ever been party to. The Stewart Report’s computer-virus debacle, coupled with a Ferrari habit worse than heroin, has left me a little cash poor at present. Even so, I managed to add another 10,000 shares to my existing AMAR position this week, raising my total holdings to 260,000 shares. You should follow my lead and BUY this stock – NOW.

I’d also encourage you to do more reading on this subject, though you should rise above the pedestrian press. Read what the experts are reading. While TV focuses on the morning traffic and that freak Jackson, there’s money being made elsewhere by investors reading more important things. By the weekend, I’ll compile a list of some of the books and journals used to evidence this update, add Dr. Cummins’ suggested reading list, and post the best references to my website.

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

J. David Stewart

Analyst and Publisher, The Stewart Report