To OTC Journal Members:

As previously announced, we are waiting one more week to release our next profile pending the closing of a major financing.  We are very excited about this company, and we hope you are too.  We'll give you an update in the middle of next week.
 

Market Comment

It's been another completely lackluster week of trading in small and microcap stocks.  Volume has dried up dramatically, and there is virtually no interest.

The entire financial community is frozen by perceived fears of rising interest rates, inflation, and the recent two month bear market.  One week from next Wednesday the Fed will meet and raise interest rates.  The market, based on whether we get a 1/4 point of 1/2 point interest rate increase, will respond.  How the market will respond is anybody's guess.

Until the market believes that interest rates have peaked we will continue to be range bound and there will be minimal interest in stocks.  There will be small pockets of volatility, but on the whole it will be pretty boring.

The big question is: How much longer will this malaise last?  We don't know, but we can go back in recent history to our own publication and try to come up with some reasonable expectations.  Here is an excerpt from a newsletter that we published back on September 16, 1999:
 

Today's market feels exactly like it did back in September.  At that time the NASDAQ was at about 2800.  The NASDAQ remained range bound between 2750 and 2900 for another six weeks, and then the market ripped up 66% to 5000 in four months.   Many small and micro cap stocks dramatically out performed the NASDAQ, yielding doubles and triples for investors in a relatively short time.

Our best profile of all time, NetSol International (NASDAQ: NTWK), was trading at about $5.50 when we published the September 16th newsletter.  Yesterday it closed at $54, up 10 fold in the last six months.

Therefore, if history repeats itself, we should start seeing renewed interest in stocks sometime in June.  Lately we have been focusing our energies on Blue Zone (OTC BB: BLZN), Pawnbroker.com (OTC BB: PBRR), and Envoy Communications (TSE: ECG).  We believe that at least one of the companies will become our next NetSol, and that is why we choose to feature them the most frequently.   We don't know which one it will be, but we like them all.  We also believe that they will all end up trading on the NASDAQ.  Envoy and Blue Zone have already applied, and PawnBroker should do so soon.
 

Why Do WE Focus on the OTC Bulletin Board?

The primary focus of the OTC Journal is to provide our members with information on micro cap stocks that we believe have significant upside potential for investors.  Microcap stocks are generally considered to be companies with market caps of less than $100 million.  These stocks are not followed by Wall Street Money Managers or the main stream financial press, so you would have difficulty finding out about them yourself.

Most of the companies we feature trade on the OTC Bulletin Board.  For those of you that are on not familiar with the four levels of the OTC, they are as follows:

• NASDAQ NATIONAL MARKET (NMS)
• NASDAQ SMALL CAP
• OTC BULLETIN BOARD
• OTC PINK SHEETS

The Bulletin Board has very little institutional participation, but it is growing.  New regulations that were put into effect in the Spring of 1999 forced micro cap companies to become fully reporting or be delisted down to the Pink Sheets until they obtained full reporting status.  In recent years the NASD has increased the minimum requirements for companies apply for a Small Cap listing.  Today's Bulletin Board is becoming the equivalent of what the NASDAQ Small Cap used to be.

This brings us full circle back to the lack of volume and interest in stocks today.  In our September 16, 1999 newsletter we observed that volume was so thin that they shouldn't even bother to open the market for micro cap stocks.  We're right back there today.  The NASDAQ averaged 1.8 billion shares per day in March.  Yestersday less than 1 billion shares traded for the lowest volume day of the year.

However, the drop in activity on the Bulletin Board is much more dramatic.  Here is a chart of monthly activity on the Bulletin Board for the year:

In March over 24 billion shares traded on the Bulletin Board.  In April there were just under 8 billion shares traded.  This volume is one third of where we were in March, suggesting that nearly all the short term players have been washed out of the market.  This leaves plenty of upside for investors when the volume returns.

We find the OTC Bulletin Board a very attractive place for individual investors.  Institutions generally don't trade here, so the playing field is more level for the individual.  The companies tend to have smaller public floats and lower market capitalizations, allowing for more upside potential when a company achieves success.  Smaller public floats lend themselves to greater volatility to both the upside and downside.

The stocks which trade on the OTC Bulletin Board are generally not marginable.  This has two advantages to the individual investor- you cannot over leverage your account, and individual investors cannot short the stocks, which helps alleviate selling pressure.

In the past the OTC Bulletin Board had a well deserved reputation as a haven for scam artists.  The recent changes in the qualification regulations and the stringent review process the SEC has placed on Companies in order to maintain their listings has helped clean this problem up considerably.  Today, even the smallest of OTC Bulletin Board companies is subject to the exact same reporting requirements as Microsoft or General Motors.

We are beginning to see a much greater flow of institutional participation in the Bulletin Board.  The explosive growth of the NASDAQ over the past several years has lent itself to excessive valuations in many unproven companies.  March's dramatic sell of which took many high flyers down to 1/3 of their highs is proof that the market can get very overpriced.  Entry levels for stocks can get too high.

Investors don't mind risks, but the risk has to have upside potential.  Too many companies with $3 million in trailing sales and substantial losses are trading at $1/2 billion market caps.  Institutional investors are uncovering companies with the same financial performance, but with $50 million market caps on the bulletin board.  Oftentimes these companies are not as well financed as their NASDAQ counterparts, so institutions are providing capital at price levels that provide acceptable upside potential.

The following is a table which demonstrates year to year growth of volume on the OTC Bulletin Board:
 

Over the last five years volume on the OTC Bulletin Board has grown 10 fold.  There was nearly a 300% increase from 1998 to 1999.  Through the end of April of this year there have already been 77 billion shares traded on the OTC Bulletin Board.  At our current pace the year would end up at 231 billion shares, another 285% increase above last year.

There are over 4,000 stocks trading on the Bulletin Board today.  Proactive public companies without a Wall Street following care about creating interest in their stock.  As they grow they might require another round of financing.  The better their stock trades the less dilution existing shareholders will suffer.  This is where we come in.

Through our current publications we now have over 330,000 members.  The leverage of all these eyeballs, along with the recent market correction, has put us in a position to choose from some very exciting young companies for upcoming profiles.   We currently have three new companies lined up for future profiles, and we hope to begin this new series with next Friday's release.  We expect to have an outstanding year once we get past these market doldrums.  You might want to have a look at our testimonial section which we just put up on our site.  Go to our home page and click on the Testimonial Button or Click Here to go directly to the Testimonial Section.

In future profiles we will only feature companies that we believe are likely to obtain their full NASDAQ listing within six months of the release.  Although there is no rational reason for it, making the jump from the OTC Bulletin Board to the NASDAQ seems to result in double in stock price.
 

Conclusion

That wraps it up for this week.  Don't look for much in the markets until after the Fed meets.  Mid week we will have another free offer for you that you won't be able to find anywhere else on the Internet.

THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. THE INFORMATION FOUND IN THIS PROFILE IS PROTECTED BY THE COPYRIGHT LAWS OF THE UNITED STATES AND MAY NOT BE COPIED, OR REPRODUCED IN ANY WAY WITHOUT THE EXPRESSED, WRITTEN CONSENT OF THE EDITORS OF OTCjournal.com.

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.nasd.com.   We also strongly 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.