THE STEWART REPORT HOTLINE SUMMARY

Monday, August 16, 2004

Next HotLine Recording Scheduled for Labor Day, Monday, September 6, 2004

-- And Will Feature Amarillo Biosciences --

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Overview:

Last night I went to Blockbuster and rented “Where the Buffalo Roam” – which, if you haven’t seen it, is based on the various exploits of Dr. Hunter S. Thompson. It stars Bill Murray and Peter Boyle – and the music is by Neil Young, so you know it’s good. Especially if you appreciate the counter-culture work of Hunter Thompson himself. Clearly, many of his infamous exploits were based on some form of reality, but most of what he wrote was just highly embellished gibberish. Not that it mattered because it was all so incredibly well written.

Anyway, there’s this one scene where he’s with his attorney, Carl Lazlos. Lazlos is rattling off a whole roster of now-famous, super-serious human rights violations occurring in the Haight-Ashbury district of 1969, for a story that Thompson was doing for The Rolling Stone. The attorney was very, very specific, citing their precise relevance to various laws, from the U.S. Constitution and the Bill of Rights all the way down, case by case, to San Francisco city codes.

After having written so many frivolous and largely fictitious – albeit highly acclaimed – stories, Thompson’s response was, “Humm … a basis in reality. This could be good.”

And that’s where I had to laugh, not only at Thompson, but at myself, because even though Stewart Reports, per se, contain as many facts as are legally available, the last couple of HotLines have been – out of sheer necessity – mostly philosophical. After all, if the companies don’t report any news, there’s no news for me to report either.

Ordinarily, dry spells are irrelevant. Actually, they are to be expected. That’s why The Stewart Report has no publication schedule. We know you can only look for new stock ideas – you can’t force them. But HotLines are supposed to be different … more predictable; more regular, same as the usual flow of news announcements that can generally be counted on. However, lacking any real stream of concrete data to report on, the last several HotLines have made me feel more like a professor than a professional. I’ve attempted to give relevance and theoretical value to tax strategies, contrarian theory, fundamental and technical analysis, the political and economic outlook, etc., etc. I’ve quoted Buffett and Geist, recommended outside reading, more etc., etc.

All in all, it was more than “filler” but less than fascinating – and certainly not as financially fact oriented as we’ve all come to expect ... Until now! I still don’t have a Neil Young soundtrack but, like Thompson, I do now have a grin on my face because I’m about to report on something with “a basis in reality. This could be good.” And most of it is, beginning with:

USA Biomass Corp. (NASDAQ/BB: USBCQ): 5 cents

This one has certainly tried our patience, but I still insist there will be a great profit. Financially speaking, even though it’s out of bankruptcy, it’s not out of the woods. With that as a thesis statement, let me now offer the litany of good/bad articles and items as they currently stand.

On the good side of our ledger, we’ve seen recent revenues do nothing but rise. Using round numbers, March revenues were $325,000, April came in at $350,000 and May’s top line was $365,000. At about that same time, it was determined that USA Biomass’s monthly operating expenses were $325,000 – meaning, of course, that we’d not only emerged from Chapter 11, but broken into black-ink territory, too. Also in May, Abrams, the Company’s accounting firm, signed off on the 2000, 2001 and 2002 year-end numbers. This pleased investors and the SEC no end. And the good-news side of the equation, particularly with regard to revenues, continues. Unaudited figures for June were $411,000. July has yet to be tabulated, but it’s believed those revenues will be as good or better.

But now I must once again rewind, back to May, when the Company was believed to be profitable – and yet, for some inexplicable reason, President Peter Gyben and others loyal to the operation were occasionally having to write personal checks to keep corporate ones from bouncing. So an independent operations expert was brought in and quickly determined that the actual “monthly nut” was not $325,000 (as originally believed), but $395,000 instead. So there’s some of the bad news. Back to some more of the good news: Obviously, with expenses in the high $300’s and sales now in the low $400’s, we are once again looking at profitability – however marginal it may be.

On the concluding side of this saga, we have a true Catch 22. The Company could be doing much more business if it had a little more money. To get that money, it needs to have the 2003 numbers, as well as Q1 and Q2 audited. To get the audit performed, it needs money to pay the auditor. And around and around it goes. Like I said, it’s a true Catch 22.

Fortunately, we’re only talking pennies – even by penny stock standards. A mere $150,000 would make this thing right as rain, and me and all the other shareholders happy as hell. That’s why, long term, I’m not at all worried.

Near term – say 30 days – Gyben promised me that the very first profits will go to pay the convertible debenture holders (most, if not all, of whom are Stewart subscribers). Soon after, approximately $10,000 will be forwarded to the transfer agent so those of us who invested in the 12-cent shares can be mailed their certificates. In the Wall Street world of lead-pipe cruelty, it’s nice to see someone do the right thing – even if it’s probably not the best immediate use of funds.

As for some final conjecture on my part, I know a couple of very well-heeled investors who own not only a ton of USA Biomass Corp., but scores of shares in International Card Establishment, as well. When ICRD hits $3, something tells me they’ll lighten the load and parlay some of those profits into the full resurrection of the USA venture. BUY, but only using limit orders placed at the bid.

International Card Establishment, Inc. (NASDAQ/BB: ICRD): 95 cents

Still my favorite venue for aggressive growth funds, ICRD is performing within the equally aggressive expectations outlined in the original Stewart Report. The essential premise of that document was high-gear growth through acquisitions and international expansion.

With respect to the latter, the Company announced that it has signed 11 new independent sales organizations – nine in the United States and two in Canada. For legal reasons, an aggregate dollar value and the cumulative effect on ICRD’s income statement were not assigned because each of the agents is independent (as opposed to publicly traded) so their individual financial statements are not audited. For competitive reasons, their names were not mentioned either. No matter. The important thing is that International Card Establishment continues its march into Canada, and continues to increase its role as a card processor. Since ICRD’s overhead in that area is relatively fixed, almost all new business is new money.

As for acquisitions, I’d be less than truthful if I failed to say that I’m disappointed the Neos deal has not yet been penned. But “yet” is the operative word. Do not be concerned. There are no amateurs at this level of play. Smart attorneys on both sides of the table – ours and theirs – are simply haggling for the best deal possible. But I’m 90 percent sure there will be a deal – which, incidentally, is about 10 percent more certain than when I first wrote the Report. When it finally is official, the stock will strike smartly to the upside.

Same as in the last HotLine, and the HotLine before that, there is a semi-persistent short seller in the stock – even though the transactions are clearly in violation of SEC regulations.

My attitude towards this matter is strangely ambivalent because, even though he’s been the irritant responsible for the whipsawing in this security and the one who pre-empted what would have otherwise been a basic straight-line price ascension, his activity has given us more than one opportunity to score some fast buy/sell profits such as the 70 cent-to-$1.25 win a few weeks back.

Bottom line, his actions can only benefit us longer term. My securities attorney is confident that, prosecution aside, he will not be able to “find” the shares he’ll eventually need to cover his short position. That means he’ll have to buy them back in the open market. All of them. That in itself is a strong argument to buy this stock, but it’s of comparatively little consequence when the stock already has such wonderful fundamentals.

All in all, I guess you could say that a great deal has changed, and also that nothing has changed at all. Overall, the upward spiral sequence remains in motion; the business plan is working; the stock remains in play. BUY. My original expectation of a very large long-term win remains very much in place.

Emergency Filtration Products, Inc. (NASDAQ/BB: EMFP): 30 cents

Monday, August 9, EMFP President Doug Beplate was in San Diego to present the Company’s proprietary, nano-enhanced 2H filter technology to the U.S. Navy. A handful of other companies were there, too – the best of the best . It was an invitation-only situation – the military’s version of The Miss America Pageant.

Assuming EMFP’s technology is deemed the most viable, a pair of prototypes will be built for the Navy to review. The entire process is expected to take just one month. One of the prototypes will incorporate EMFP’s proprietary nano-technology process. This is a filter with such outstanding preventive characteristics that virtually nothing can get past – including anthrax.

The military envisions a large number of applications including, but not limited to: biohazard masks; transportation filters for use in aircraft, tanks and armored personnel carriers; and building ventilation systems to protect military installations, industrial complexes and the air in office situations such as the White House or the Pentagon. But that’s just the short list. The independent laboratories of RDECON reviewed EMFP’s potential and scientifically identified just over 1,000 uses for its highly differentiated filters.

Assuming the successful completion of prototype development and testing (which, as I said, is expected to take one month or less), the filter products would then be produced by a U.S. Navy-approved manufacturer. In simplest terms, EMFP stockholders would sit back and watch military-sized unit sales turn into royalty checks, and royalty checks turn into per-share earnings. The stock would have no choice but to sit up, take off and fly.

Two obvious, yet critical observations can be made relative to all of the above:

1. The very fact that EMFP was selected to present its 2H nano-technology speaks volumes. The selection process to this point was rigorous. Multibillion-dollar organizations like the United States government do not focus this kind of time or energy on small, tinker-toy technologies. It’s just not feasible. Capital expenditures can only be considered at an Empire level … It’s King Kong or nothing.

2. Despite my growing expectation (and anticipation) of the Navy choosing Emergency Filtration’s nano-enhanced, 2H technology over all other rivals, do not expect to see any immediate reflection in the stock … not up, not down, not sideways. True, it’s an important presentation. A dog and pony show, if you will. However, Wall Street types were very intentionally, and very specifically NOT invited. It’s a clandestine affair – a tribunal if you will. Only U.S military executives in command of some of the planet’s larger checkbooks were allowed though the door. As with a closed Congressional hearing, all private investors are persona non grata, so the value of the presentation will never see the light of NASDAQ. At least not until the formal contract is announced.

And that’s just the U.S. Navy.

Ironically, the U.S. Air Force, which was the last organized branch of the military to see the technology, was the first to embrace it. This thanks to a report by Nelson Laboratories, which said that EMFP’s 2H nano-technology was effective in protecting against virtually all known airborne agents. To repeat, one of them was identified as anthrax. Despite its irrefutable reputation as the most prestigious research lab in America, military protocol for projects of this importance are automatically second-guessed. As such, the U.S. Air Force will super-validate the efficacy of EMFP’s filters at the United States Army’s Edgewood Chemical Biological Center in Edgewood, MD.

So now we have the Army, the Air Force and the Navy giving something far greater than a mere cursory review of EMFP. The financial implications are immense given that so much power is being focused on such a small company. Remember, the technology is global, but the Company itself is peanut sized – quintessential micro cap in the truest sense of the word. Keep in mind, total market cap at today’s closing price is just $8.3 million.

I remember a time when the stock sold for ten times today’s price and all the Company offered then was a mask for police and ambulance units. No nano-technology. No military interest. No war on terrorism. No filters for aircraft or government buildings.

Now, at one tenth the price, with a highly marketable portfolio of in-demand products – big demand – worth probably 100 times the current market cap of the security, this is a true steal. And forget about the patience of Job. The payday is at hand. Almost everything now in the works will be decided and finalized in August or September. Hell, my dad’s birthday is in one of those two months and I’m betting it will take him that long just to blow out the candles.

And you know what the best part is? Thus far, I’ve only discussed Uncle Sam. Official news releases aside, Doug gets real close-mouthed relative to anything military. Anyone who knows Doug Beplate knows that. Fortunately, commercial business is a bit less sensitive, so that’s where most of our conversations are centered.

Interestingly, the last time I spoke with Doug was ten days ago, when I’d first envisioned a HotLine but realized, as I explained earlier, that a modest delay might enable me to provide a mountain of information. It was 10:00 PM Pacific Daylight when I phoned his Nevada office. Doug Beplate answered the phone, leaving me to believe that he doubles as the night janitor, has no life – whatsoever – or, as is more likely the truth, is exactly the kind of entrepreneurial president I like to invest in. (Truth is, given the obscene number of trips he’s made over the last 15 months – from America to Asia and back, and then back again, and then back again and again, he probably didn’t know what time it was anyway.)

That aside, I queried him as to the impending opportunity with Itochu Chemical. Itochu Chemical is the wholly owned subsidiary of Itochu Corp., an $85 billion conglomerate ranked by Forbes as the 11th largest corporation in the world … yet another mammoth opportunity for this micro-cap corporation.

Back in late February, a collaborative effort was penned by both companies whereby Itochu would market EMFP filter product technologies pending the necessary approval of regulatory bodies in both their respective nations. Ironically, on the U.S. side of the fence, the almost glacial FDA gave EMFP the necessary certificate in short order.

On the Asian side, however, government approval is still in process – the approval needed for the minnow (Emergency Filtration Products, Inc.) to collaborate with the whale (Itochu Chemical, Inc.).

With a parent doing $85 billion in revenues and a marketing network spanning 80-plus nations, this in itself, could be a king-maker.

Bottom Line, everything I’ve said thus far I believe to be fair and accurate. True, not one definitive contract has been signed … yet. But the dazzling evidence before me is that some world-class monsters on both sides of the Pacific, both public and private, both military and civilian, seem to be working very hard to incorporate Emergency Filtration nano-enhanced technology. I’d BUY this thing with both fists. In fact, today I picked up 20,000 additional.

Note: Tell your broker, as I did, “Market Not Held.” Only true professionals know this term – and half of them have forgot what it means! But it shows respect, and it’s the execution order I use most often, because you are simply telling the broker that you want the shares purchased today, but you are giving him total discretion as to the best moment and the best price possible.

Amarillo Biosciences (NASDAQ/BB: AMAR): 32 cents

I’ve seen paper routes with higher overheads.

This is one to accumulate. Easy for me to say, since earlier this year I earned 250,000 shares as a consultant to the Company, though they are restricted under Rule 144 as I have fully disclosed from the outset. But I really believe in Dr. Joseph Cummins. Dr. Gordon Segal, the physician who introduced me to the Company several years ago, firmly believes in AMAR’s interferon technology, as do many of his fellow doctor friends who also own shares. One of the largest privately held biopharmaceutical companies in Japan is a major stock holder, and has been, almost since inception – as do many of its employees.

As to each of these statements, all of these beliefs and the entirety of this backing, it should be noted that it all came years before the War on Terrorism and our newfound recognition that the Al Quida and other monster groups are constantly looking for new ways to destroy our way of life. What better (or easier) way than to disrupt the nation’s food supply?

In fact, they were each well in place before the outbreak of foot and mouth disease in the UK which cost the nation $XX outright, not to mention the reported 60-plus farmers who actually committed suicide due to the outright destruction of their livelihood. And you might also recall that small incident last year in Alberta, Canada. It involved only a handful of infected cattle, and yet the shock wave to the American food and restaurant industry took $xx billion out of related NYSE listed shares in a single day?week). So here we are, looking at a small Texas biotech with xx patents that’s the world’s recognized leader in interferon technology and research that addresses a number of global maladies on a number of different levels and … get this … a total market capitalization of x.x million! Hell, I have several friends with homes that cost more than the entire value being placed on this Company at this time, and I’m not even well-connected!

Percentage wise, at some point in time, this could be the biggest stock you’ll ever buy. Accumulate, with reasonable patience and firm limit orders.

As always, thank you for listening and for subscribing,

J. David Stewart

Analyst and Publisher, The Stewart Report