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To OTC Journal Members:

We thought we'd get an early start on October by getting our profile for the month out on the 1st.

Last month's profile, StockGroup.com (OTC BB: SWEB) traded extremely well in the first several days.  We released our profile on Friday, August 27th after the market closed at $3 per share.  Three trading days later StockGroup.com traded as high as $4.375 yielding a net three day move of 46%.

We believe that investors can maximize potential returns in the Company's we profile if you invest with a one to two year time horizon.  However, we do have a history of seeing prolific short term moves in the companies we present.  Here is October's profile:

The Neptune Society (OTC BB: NPTN)

• Corporate Web Site: http://www.neptunesociety.com
• OTC BB: NPTN
• Estimated Shares Issued and Outstanding: 12,666,666
• Estimated Public Float: 11 million
• Closing Price and Volume: $6.38 on 228,000 shares
• Market Capitalization: $80,813,329
• 52 High and Low: $2.375/$7.125
• Click Here for current stock chart
• Very Important: Click Here to join the Company's Mailing list for automatic updates.

This month's profile, The Neptune Society (OTC BB: NPTN), is unique.  Their market is everybody.  It doesn't make any difference who you are.  Rich, poor, hi-tech, low tech, black, white, male, female: You are a candidate for this Company's services.  This Company's product is more widely used than telephones or cars.  If you are reading this profile you are alive.  At some point in the future you will die, and death is a huge and very profitable industry that has a powerful demographic advantage for growth over the next thirty years.

How many Companies do you know that have their next thirteen years of profits already pre-paid?  The money is sitting in a trust fund earning interest, and that interest covers much of the Company's operations and allows them to be profitable today without withdrawing one dollar.

The Neptune Society is the only publicly traded "Pure Cremation" company in existance today.  The Company already has an active pre-booked, pre-paid membership of 52,000,  guarantteeing the next 13 years of highly profitable business.

Moreover, the demographics for their growth over the next 20 years are very favorable.  According to a recent Wall Street Journal article (March 1999), "76 million baby boomers will begin to age and pass away in significant numbers.  The nation's death rate is expected to soar to an estimated 3.2 million a year by 2015."  The Cremation Society of North America recently stated that "Just 15.2% of people who died in the U.S. in 1987 were cremated, but cremations jumped by 23.6% in 1997 and are expected to reach 42% by 2010."  The growth in this industry is substantial, lending a great opportunity to the investor.

Wall Street loves profits.  Neptune's business model has been extremely profitable and will continue to be profitable.   Despite the fact that Neptune is not the sexiest story on Wall Street, the stock has the potential, based on profits and growth to become a Wall Street Darling.

In this profile we will demonstrate that The Neptune Society will enjoy about $29 million in profits over the next thirteen years on the business that has already been pre-paid.  They will also earn more from existing and future business, suggesting that the stock is undervalued at current levels.  We will fully explain the business model that yields these results, and we hope you agree that the profit picture makes this Company extremely exciting.

The Neptune Society has been in business since 1973 and currently operates in California, Florida, and New York.  These three states jointly have the highest number of annual cremations, with California outpacing Florida nearly 2 to 1.

Traditionally, the Death Care Industry has enjoyed enormous profits from the pre-sale of burial plots.  As Real Estate and maintenance costs escalate along with an evolution in people's desires, this market has changed.

The Company was founded by Manny Weintraub in Los Angeles.  Like anyone who’s had to deal with a traditional “funeral” home, Mr. Weintraub was struck by the fact that this industry sector views death as a retail event. The consumer, weakened and in a time of extreme vulnerability, is subjected to manipulative sales practices designed to make disposition as elaborate and costly as possible.

The Neptune Society was founded on the principles of “simplicity, dignity and economy” — a consumer-oriented approach to death-care that has led the company to a leadership position in the “alternative-services” sector of the industry.

On April 30, 1999, The Neptune Society was purchased by Lari Corporation for $28 million in cash, stock and debt.  The Company changed names to The Neptune Society on April 30th, and began trading under the symbol "NPTN".

By 1988, the Company’s growing base of more than 45,000 members showed clearly that The Neptune Society’s approach to death-care had tapped into a strong and previously unfulfilled need in the American culture.  Continuing to refine its product, The Neptune Society inaugurated its landmark Pre-Need Program — an arrangement whereby an individual is able to plan and pay for everything connected with his or her final disposition. The Pre-Need Program allows forward-thinking men and women to integrate disposition arrangements into their overall financial- and estate-planning efforts.  This relieves grieving surviving family members of the traditional financial burden associated with death.  The traditional funeral runs $5,000 to $10,000. The average Pre-Need Program is priced at $1,360.

Since its inception in 1988, more than 70,000 Pre-Need contracts have been sold. This is clearly the product that will — together with the soaring death rate — fuel the company’s national expansion and its rapidly accelerating profitability.

When a Pre-Need Contract is sold, the Company receives a payment of about $1,360.  40% of the money is immediately allocated to all the immediate costs of the sale including salesman's commissions and the Urn.  The remaining 60% is placed in a Trust Fund to await the death of the member.  On average, Pre-Need customers enroll about 13 years ahead of their death.

The Trust Fund, which represents 52,000 members has grown to nearly $33 million today.  It is projected that the Trust Fund will grow to $140 million by 2,004 based on an accelerating death rate and the Company's expansion plans.  The Fund also has nearly $5 million in receivables from members that are paying off the $1,360 fee in monthly payments at 8% interest.

The Neptune Society is paid a 4% annual management fee for maintaining the Trust Fund providing that the Fund earns at least 4.1% in interest.  Along with the 8% interest charged on the monthly payment plans, The Neptune Society enjoys about $1.8 million in income without opening its doors.

Currently, annual general and administrative costs are running about $1.6 million, meaning that Neptune Society has $200,000 in positive cash flow just off the interest coming in from the Trust and the Payment Plans.

Upon the death of a member in the Pre-Need program, the remaining funds in Trust are released to Neptune Society.  The original principal is about $600, and interest over an average of 13 years is about $200.  Hence $800 is released to the Company.  The costs associated with transportation and the actual cremation run about $250, yielding a $550 profit to the Company upon death in the Pre-Need Program.  Therefore, the remaining 52,000 current members in the Pre-Need Program yields $29 million in future profits.  The following table demonstrates the flow of this business:

Based on the accelerating death rate in the U.S. caused by the bulge of population known as the "Baby Boomers", combined with the trend away from traditional burials to cremation, the Trust Fund is projected to grow to $140 million by the year 2004.  The profit potential now becomes magnified many times over.

Currently, The Neptune Society is enrolling approximately 8,000 new members in the Trust Fund annually.  The fullfillment rate (Number of Deaths of Members) is about 2,500 annually.  Net gain- 5500 new members which means that the Trust should grow $7.5 million annually.

With the Death rate increasing dramatically and people choosing Cremation over traditional burial in much greater numbers,  the Trust grows over $100 Million in the next five years.

The other key component in their business is the At-Need service.  This refers to the ongoing business for individuals that choose Cremation upon Death without enrolling in advance.

The Company is experiencing about 5,000 At-Need cases annually, for which they charge about $950 per contract.  This translates to $5.225 million in annual sales.

The gross margins on this business are excellent.  The actual hard costs associated with the cremation don't run anymore than $350, leaving an outstanding margin of $600.  The 5,000 At-Need cases therefore yield $3 million in gross profits annually.  With annual overhead running under $2 million, the profit picture continues to expand.

At the end of 1998, the Company's Audited Balance Sheet Statement revealed the following:
 

The Company's Audited Income Statement for 1998 revealed the following:
 

 * Note that the Company reports a loss for 1998.  However, the Income Statement reveals that as a private company, the partners and management paid themselves $3,328,326 in compensation.

These partners have been bought out with the purchase of the Company.  From here forward as a Public Company their goal is to enhance share value by driving earnings to the bottom line.  Taking out the compensation to partners and management, here's how the Income Statement would have appeared:
 

Taking out the monies paid to partnerships and management paints a more accurate picture of how the Company will perform as a Public Company.  This performance would have yielded about $.20 per share in earnings based on today's capital structure.

The Death Care Industry is not viewed as a growth industry.  However, we believe that Neptune Society will come to be viewed as a growth Company.   They have their next 13 years of business pre-booked, $29 million in estimated profits coming out of the Pre-Need Trust, and a strong demographic advantage.  We believe that once recognized, this stock could command a 50 PE Ratio.  Based on 1998 numbers that would put the stock at $10 per share, a 53% increase from today's levels.

Patient investors should allow at least one year for this recognition to develop.

The numbers we used in this review were rounded off.  Please Click Here to review the full audited financial statements for 1998.

Associated with the recent sale of the Company is a new management team.  Management is committed to using its skills and resources to fully employ its demographic advantage into the next century.

The following list of external factors will fuel the Company's growth:

• Forecast Growth in the North American death rate (as a percentage of the population).
• Forecast Growth in total North American population.
• Increasing Demand for the Pre-Need Program as the aging population chooses not to burden succeeding generations with high funeral costs.
• Increasing Demand for Cremation as personal choice for disposition.

The following internal factors will help fuel the Company's growth:

• An enhancement program for the Company's existing locations.
• Growth through strategic and sensible acquisitions.
• Establishment of New Offices in strategic locations.

Their competent sales force is very successfull at turning prospects into members for the Pre-Need Program.

The average age of current pre-need members is 71.  With the "Baby Boomer" population just beginning to turn 50, Neptune Society will begin to adjust its marketing efforts to those prolific consumers that have fueled the 20 year growth of the U.S. economy.

In addition several states are currently being investigated for expansion.  Texas, Illinois, and Pennsylvania are the leading candidates.  Factors that must go into the process include the aging of the populations, the cremation preference rate, and state laws affecting the management of the Trust.

Acquistions will be cautiously completed with businesses that have the best reputations and strongest demographic.

We have given you a lot of information to absorb in this profile.  Understanding the profit potential in this Company requires an understanding of the dynamic profit picture associated with the growth of the Pre-Need Trust.

The Trust will provide the Company with over $25 million in profits over the next 10 to 20 years if the Company were to close its doors today.  The Trust continues to grow, and is estimated to hit the $100 million mark by 2004.  The profit picture expands considerably from there.

One brokerage firm has now picked up coverage of the stock.  Dominick & Dominick Securities, an International Brokerage Firm instituted coverage on September 15th rating the stock as follows: Buy; accumulate for capital appreciation in growth oriented accounts.  Click Here to read their research report.

Dominick and Dominick forecasts a $9.00 stock price over the next 12 months, which is a 50% return from current levels.

In mid October Neptune Society will be filing its Form 10 with the SEC to become a fully reporting company.  Shortly thereafter the Company will apply for its NASDAQ NMS listing as they easily meet all the minimum requirements.

The theme of our newsletter is to find you companies that you would not ordinarily learn about on your own from the Main Stream financial media.  Neptune Society is the type of company that will find its best audience amongst Institutional Investors that analyze the numbers in depth.

Institutional money managers of this type purchase stocks in much larger quantities than retail investors.  We cannot predict when or if this Institutional Sposorship will develop.  However, this Company's profit potential is very compelling and analysts from major brokerage firms are starting to visit the Company now.

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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. All statements and expressions are the sole opinions of the editors and are subject to change without notice. This profile is neither an offer nor solicitation to buy or sell any securities mentioned. This newsletter is owned by SSP Management, Inc, a wholly owned subsidiary of 1st Net Technologies, Inc ("1st Net").  While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. The editor, members of the editor's family, and/or entities with which they are affiliated, may own stock in and have other financial dealings with the companies who appear in the publication.  To that degree, this newsletter should not be regarded to be an independent publication.  SSP Management, the owner of the OTC Journal has been paid the following fee by BG Capital Group on behalf of Neptune Society to represent Neptune for a period of one year: $50,000 in cash, and 100,000 options exercisable at $4.  The terms of the contract do not allow the exercise of the aforememtioned options for a period of one year from the release of this profile.  The OTCjournal.com critiques may contain forward looking statements relating to the expected capabilities of the companies mentioned herein.

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