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September 22, 2000
Volume III, Issue 80
Email : info@otcjournal.com
URL : http://www.otcjournal.com

To OTC Journal Members:

This will be a long weekend edition with a lot to cover. There was major news on Blue Zone and PhotoChannel to share with you.

It was a crazy week in the markets. The NASDAQ market has been down 10 out of the last 14 trading days, giving back all of August's gains and then some. This morning was particularly ugly with the Intel (NASDAQ: INTC) revenue warning taking the NASDAQ down 250 points on the open. We rebounded from there, which suggests that the market does not want to be below 3800.

Wednesday evening's Trading Alert on Hyperdynamics worked out well. HYPD closed at $2.375 on Wednesday, and hit a high of $3.50 on Thursday. The stock closed at $2.81 x $3 today for a nice gain from Wednesday's close, and a reasonable pull back considering market conditions on Friday.

If you are going to participate in our Trading Alerts there are two sections you must read and understand at our home page. First, go to the section titled Rules For Successful MicroCap Investing on our home page and read it. The Trading Strategies section at the bottom is very important, particularly the part about trading stocks that gap higher at the open.

Secondly, read the section entitled Trading Alerts  on our home page in order to fully understand how these work. On Thursday we saw a lot of buyers in HYPD above $3, which was too much to pay based on Wednesday's close. We suggested in our Trading Alert that the stock was a buy up to $3. We still believe it has a good chance to go to $4. If you own it above $3 you should set your stop loss at $2.50, or wherever you risk tolerance is. Here is another trading alert for you to consider over the weekend:
 

Trading Alert: Mentor Graphic (NASDAQ: MENT)
  • Closing Price And Volume: $23.31 x $23.44 on 965,400
  • 52 Week High and Low: $7.75, $23.875
  • Average Daily Volume: 745,863
  • Shares Issued and Outstanding: 64.2 million (estimated)
  • Shares Publicly Traded: 42.4 million (estimated)
One of the best market technicians we know loves this stock. He has been one of the hottest CAs at www.swingwire.com. This idea is based on the belief that stocks making new highs go higher.

Mentor Graphics manufactures, markets and supports software and hardware Electronic Design Automation products, embedded systems software products and provides related services that enable engineers to design and analyze the components of electronic systems.

For the six months ended 6/30/00, revenues rose 10% to $266.2 million. Net income totaled $16.4 million vs. a loss of $8.7 million. Earnings estimates are $.14 EPS for the September quarter, $.37 EPS for the December quarter, and $.82 EPS for the year. This is type of growth that Wall Street loves.

Traders should look to get into the stock no higher than $23.75. Set your stop loss at $21.50, or wherever your risk tolerance is. Look for the stock to hit $25 to $26 next week if the market is cooperative. This is one that you can hold for the long term if you like the company.

Important: If today's midday rebound does not follow through at the open on Monday our Trading Alert is withdrawn!!!!!
 

PhotoChannel Networks, Inc (OTC BB: PHCHF; MSE: PNI)

Outstanding news releases on this company during the week. Wednesday the company announced that it had retained Wall Street powerhouse Salomon Smith Barney as it strategic advisor. On the same day the company announced that it had entered into an agreement to acquire Moto Photo (NASDAQ: MOTO).

The Moto Photo merger is huge. PhotoChannel is starting its online digital developing service at the end of this month with two Fuji mini labs. Moto already owns and operates 25 of these mini labs which would cost PhotoChannel $250,000 each and take several years to deliver. Moto already has 422 retail locations and in 1999 reported revenues of $36.8 million and net income of $1.65 million.

Moto also has 2 million existing customers and has been looking to expand into the on-line digital processing business. The end company will be a "Clicks and Mortars" business that will have the ability to leverage its existing customer base into a more powerful profit model.

The merger will probably take until the 1st quarter of 2001 to complete. It requires shareholder approval and regulatory approval. Shareholders of MOTO will be converted into shareholders of PhotoChannel, and PhotoChannel will then trade on the NASDAQ.

The Salomon Smith Barney relationship and the Moto acquisition upgrade this company to a whole new realm. It may take until 2001 for everything to come together, but we believe that this could become a dream situation. If you own the stock and you are a long term investor you have a chance at a 10 bagger.

This is a stock that investors with a time horizon extending through 2001 should own. One technical negative: 15 million shares will be registered and become free trading with a cost basis of about $.90 CDN in the near future. The stock is trading at a double from that level right now. Profit taking could push the stock down, which would provide an excellent entry level. We will let you know when this event takes place, and keep a careful eye on the stock.
 

Blue Zone (NASDAQ: BLZN)

CTV News finally launched the first commercial application of Blue Zone's convergence software on Thursday. You can experience the first true convergence driven web site at www.ctvnews.com

Blue Zone's revolutionary software allows CTV to create all the interactive functionality of the site on the fly as news events occur. This is very exciting- It is the first true convergence news web site ever launched.

We experienced the site with a cable modem, DSL, and a dial up lap top. The cable modem provided the best video by far. The DSL connection was adequate, and the video on the dial up was terrible. However, the rest of the site functioned perfectly and allowed the user to customize the experience based on their own personal preferences.

Spend some time at the site and formulate your own opinion. We believe that other news organizations will adopt Blue Zone's technology, which should improve the stock's performance.

If you wonder why the stock is trading in the $5.50 range we have no idea. One would think that the deployment of the software would have created some interest in the stock.

Now that the software is finally in commercial use we should see some new interest develop in the stock. We still love this one for much higher levels down the road.
 

Disclaimer
The OTCjournal.com Newsletter is an independent electronic publication committed to providing our readers with factual information on selected  publicly traded companies. All companies are chosen on the basis of certain financial analysis and other pertinent criteria with a view toward  maximizing the upside potential for investors while minimizing the downside risk, whenever possible.  Moreover, as detailed below, this publication accepts compensation from certain of the companies which it features.  Likewise, this newsletter is owned by MarketByte, LLC.  To the degrees enumerated herein,  this newsletter should not be regarded as an independent publication.

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Disclaimer

The OTC Journal Newsletter is an electronic publication committed to providing our readers with useful information on publicly traded companies. The Newsletter contracts with publicly traded companies and receives compensation from them or third parties as payment for publishing information and opinions about the company and the trading market for their securities. Principals of the Newsletter may also purchase or sell securities of the companies in the open market from time to time. The positions, if any, that the Newsletter or its principals presently maintain in the securities of the companies are disclosed here (click here) and should be considered in making an investment decision regarding these companies securities. The Newsletter and its principals reserve the right to acquire additional shares or liquidate some or all of the positions they may hold in the issuer’s securities at any time in the future without further notice. These publications should not be considered to be independent publications concerning the company.

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We encourage our readers to invest carefully and read the investor information available at the web sites of the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.finra.org. We also recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at http://www.sec.gov/consumer/cyberfr.htm. Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.

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