Musings Of Larry Isen On Today’s Action: 3/31, 12:30 Pacific

It’s the lunch hour in California after a particularly ho hum day in the markets. It’s nice to see a bit of a rebound after last week’s drubbing, and my bet on the SPYs might still pay off. As I write today’s musings, I am about even on 1,000 SPY at $132.06. I’m not afraid to hold for a few more days and see if the rebound can get some legs. Would be happy to scalp a couple of points out of this idea and get out.

On the larger cap side- CREE (NASDAQ: CREE) is still in no man’s land. At $28- not cheap enough to add to, but not expensive enough to write calls. I’ll just hang in there today.

Apple (NASDAQ: AAPL) is a bit irritating as it ran away from me before I could buy some. If I had been smart enough to buy at $120, I’d be writing calls today. Research in Motion (NASDAQ: RIMM) is also being uncooperative- looking for that one to trade up into Wednesday’s post close earnings so I can get short for a trade. $112 is not the right time to get short- I would prefer around $120. Let’s hope it gets some legs tomorrow and the next day.

In our little corner of the microcap world its All Quiet on the Western Front. No significant action anywhere.

Spicy Pickle (SPKL), is a non event today, eFoodsafety (EFSF) anemic – today is the day they should be starting the commercials- PhotoChannel (PNWIF)- nothing new- no annual numbers on NightHawk (NIHK) yet- TraceGuard (TCGD) quiet to the point of death-

V2K (VTOK) was out with some positive news pre open, but I don’t believe investors get it yet- it is going to take some time for people to understand this one. I think I’ll do a BLOG feature on today’s news.

Going to be watching RIMM like a hawk the next couple of days. The better it trades, the more I’ll invest in a put option.

Spicy Year End Numbers: As Expected

About a week ago SPKL filed its year end audited financial statement, and this is the first time I’ve had an opportunity to comment on the results.

For those of you who would like to learn more about this rapidly growing fast casual restaurant chain, please go to our information center on the company- you will find every edition and BLOG I’ve ever published on SPKL. You’ll find it at http://www.otcjournal.com/Spicy-Pickle-Franchising-Inc/SPKL/af/profile/

There were no surprises at all in the 10K- it was just as I predicted it would read, which is probably why it was not a market moving event.

The revenue number is pretty small- that’s a reflection of the annual revenues last year being comprised mainly of the royalties of about 8% they collect on each store. In the 10k annual report there were no company owned stores included- which means there were no big top line numbers. Since the end of the year, one company owned store has opened which they built, and 3 have been acquired from franchisees. Two more are under construction right now. The total will be five before too long, which will equate to about $3.5 to $3.8 million in annual sales. Since they delivered $1.2 million in sales for the year, next year is virtually guaranteed to be at least triple that number, but that’s based on where the company is today just from the company owned stores. It’s early in the year. There are many more growth opportunities for the remainder of the year.

The far greater news out of the 2007 numbers is the balance sheet improvements. SPKL finished the year with $5.4 million in cash vs $1.2 million the previous year, and $6.4 million in assets. Thanks to the $5.9 million financing in mid December at $.85 per share, the company finished the year in great shape. The cash will go down in 2008, but the revenues and gross profits will go up as SPKL invests the money in expansion.

Therefore, over the course of 2008, you will see quite dramatic top line percentage improvements, a deterioration of cash on the balance sheet as it is invested, and reduced losses- perhaps even profits by the back half of the year. The company will certainly turn cash flow positive later in the year.

The only negatives I can even come up with on SPKL are the slipping stock price and the temporary vacuum of new store openings.

The company has not opened a new store since the middle of December, but it’s not due to lack of opportunity. As is the case with construction, a few of the properties we thought would be open by now have been hit with delays- construction, permitting, etc. The delays have just about run their course, and 6 or 7 new ones will open over the next couple of months, and there should be a much larger number in the back half of the year.

Current commitments from franchisees have the total number of eventual stores at about 130 now. Just to clarify for those who are confused by the numbers- there are 36 opened and operating today- about 7 or 8 under construction- about the same number with signed leases awaiting the commencement of construction, and another 10 or so leases in various stages of negotiation. That leaves about 75 more stores committed to and paid for to open over the coming years.

On to the technical picture.

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This stock began trading publicly in August of ’07. It was a self underwritten IPO at $.40 per share. After catching fire in the short run, it succumbed to Bear Market selling pressure. Pretty much all technical levels of resistance have given way. My SSL on the stock was $.90, so if you are still in, you should be long term. This is a good choice to be long term in my view.

I believe before the Bear Market is over, the stock could be vulnerable to go back and fill the gap from its very early trading days. That gap is like a vacuum, and nature wants to go back and fill the void.

I know it’s tough to see on the chart, but in order to fill that gap, the stock would have to trade back down to $.71.

If the stock can grind it’s way down there, I believe the trip would be very short lived, as there are a lot of investors following the company and looking for the bottom to get really engaged.

About 2 years ago right now, CEO Marc Geman called me to discuss raising capital. At the time, SPKL had a total of 12 stores open and about 20 franchises sold in all. Today, the number of open stores has gone up 200%- 12 to 36- and the number of franchises sold has gone up 550%- 20 to 130. The growth rate is accelerating because the management is excellent, the concept is strong, the franchisees are making money, and the food is simply great.

I believe SPKL will be a repeat of Commerce Planet (OTC BB: CPNE) with a more positive ending. Long term subscribers will recall I first featured CPNE in 2005 at $1, and it found its way to $2. Then, we had a tough market and the company stumbled- it was $.30 in the Fall of 2006. By the spring of ’07 the stock was at a high of $3.50- a ten bagger off the bottom of the pullback. They since have sabotaged their own success.

For SPKL it will be deja vu all over again with one main difference- the SPKL business model has far stronger legs. Each of those restaurants is an annuity that can contribute pretty much forever.

I believe this stock is going to $3 or $4 in the next Bull Market. I can’t say when it’s going to be, but I believe it will happen. You have a once in a lifetime opportunity to accumulate this one during the economic slow down. Today, you can pick up the stock at the same level the $6 million December financing was priced at ($.85)- two board members put in $1.4 million of the $6 of their family money. I personally invested $102k out of my Defined Benefit money. Worth noting.

Comments and questions are welcome.

Long SPY- Filled 3/20 GAP

The market had a big surge on 3/20, and there was a gapped which has been filled on today’s pullback.

The market’s put in an impressive performance on the heels of a very bad week on news flow- nothing but bad economic numbers this week. A flat market with such bad economic news suggests it is all priced in to me.

I went long 1,000 SPYs today at $132.06- that’s the ETF for the S&P 500. Looking for a couple of points on this trade next week. More later when I have more time.

Musings Post Close on 3/26 of Larry Isen

I was in front of the computer on and off today, but the tone of the market looks reasonable.

After last week, it’s fine to have a couple of days of consolidation. This bottoming process is going to take some time.

I flipped out of my LEH puts close to the open for a nice 35% gain in two trading days. Turned $8k into $11,500. Will never look back, but I’ll bet I left some money on the table. There is nothing about the LEH chart that suggests the stock is going higher.

SPKL- firmed today, but continues to be under pressure. I believe very early shareholders who originally financed the company are selling out in front of April 15th- tax day. Some other shares coming out as well. Just a little more selling than buying should keep this one grinding a bit lower for the time being. Should be coming close to the end of this Chinese Water Torture.

CREE- stock looked great today- bucking the declining market to finish over $30. Nothing to be done right now. Sell calls at $35, or buy more at $25.

EFSF grinding a bit lower again today. Too close to my SSL. Commercials start on the 31st. Hoping it injects some real life in the stock.

NIHK fans don’t worry- 411 coming.

Didn’t like the action in commodities. If commodities start another parabolic move to the upside, it will tough on the market. However, I believe this bubble is close to bursting. You can’t buy a metal detector in Florida (folks looking for gold in the sand). Individual gold mining permits in Alaska are at a new all time high- it that’s not a signal of a top, I don’t know what is.

Have to do a BLOG piece on the SPKL 10k- traveling tomorrow, so look for it Friday. I want to put some thought into it.

Musings Of Larry Isen On Today’s Action: 3/25, 10:20 Pacific

This will be the first in a new series of daily blogs with some observations about today’s market action, especially as it applies to the current ideas I have in front of subscribers.

Open LEH Puts:

Well, the trade is working well so far. Earlier today I was up $2k on an $8k investment from last Friday, and tempted to lock in. Gave back $500 so far. However, since LEH was down yesterday on a huge up day in the markets, I have no reason to believe the stock is ready to head back up. Some downgrades today from brokerage firms, and they are rumored to be awash in bad mortgage paper. Let’s hang in another day.

VTOK: New Idea

The response to new idea VTOK was pretty anemic. I believe the story is reasonably compelling, but I don’t think the market really gets how big the Amerivon relationship will be. More will come out in the future.

SPKL:

Stock continues to languish on light volume. The company is doing great, but the stock needs a catalyst to get it moving again. They came out with their 10K, so I will do an in depth BLOG on it. Big winner in the next bull market.

EFSF:

Stock firming a little in a pretty brutal micro environment. I like the second test of the lows, and some volume starting to show up. Might get some legs in this one.

PNWIF:

Showing some signs of life today as it is oversold in a news vacuum. Costco services should start soon. Big winner in the next Bull market.

AAPL:

I missed it waiting for the all time bargain basement steal. I don’t believe the volatile madness is over, so might get another chance.

CREE:

In no man’s land. Sticking with my plan. I have my 2k shares in the mid 28′s- will buy more if I see it back in the $25 to $26 range- will sell calls against it in the $30s. Today, nothing to do at $29+.

Overall Market:

After a huge week and a big Monday, the market should be giving some ground, but it’s not. Bullish, but still half the day to go. The environment is finally improving a little, and perhaps the micro will start to show some signs of life before too long.

Kaching- closed out open trades

My two open trades paid off huge since Friday, and I can only chalk it up to pure, dumb luck.

I closed both of them out just after the market opened today.

My Thursday trade on the QQQQs was sabotaged by the news over the weekend of the demise of Bear Stearns and the 1/4 point rate cut by the FED. The markets swooned on Monday morning, and took me way out of the money.

However, as I published in the BLOG yesterday morning, with blood in the financial streets, I took the plunge and waded in for 500 shares of Goldman Sach- GS- at $144.25- I didn’t publish this second trade as I was traveling, but I did pick up another 500 at $143.

It was not lucky to be in the position as it was my call, but it was pure dumb luck that GS was posting earnings pre open, and they blew away the numbers. I closed out both positions, choosing to be flat with my trading money going into the FED news today.

Net result: $21k profit on my GS trade, $1100 loss on QQQQ option trade, and happy to be out.

I am now content to be in cash with my trading money and wait for the next severe, knee jerk from the markets to make a trade by going the other way.

eFood Quarterly Numbers: Setting the Stage

EFSF released fiscal Q3 numbers today, and there really isn’t anything but positives in the numbers. I looked, but I can’t find much of anything negative to say.

In fact, the balance sheet improvements are quite remarkable. For a pretty small company only doing about $1 million in annual sales, the balance sheet is great.

As of the end of January, EFSF had no debt, $1.13 million in cash, 428K in receivables, and $1.6 million in prepaid expenses. Guess what the prepaid expenses are? Advertising media buys for the coming campaigns.
On the minus side, you have $100k in payables- big deal. This balance sheet has improved by leaps and bounds in the past year.

There is one minor negative I could find- Shares I&O increased to 180 million from 165 last quarter. This is the price of not being profitable, and raising $1 million in cash. Note the big expense on the income statement for consulting- most of the share increases are built into that number.

On the revenue side – the percentage increases are great, but the top line number is still too low- only $310k for the quarter, which was more than 3 times the same quarter one year ago. Not enough, but the big media campaigns are about to start.

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As you can see from the chart, the headlines are driving small stocks down, and EFSF is not immune.

The stock tried to break out above that downtrend line, but couldn’t hold. Might be a great mulligan for those who didn’t participate when it traded up in the past two weeks.

This company is perfectly positioned to launch these Direct Marketing campaigns. It’s starting by the end of the month. If it works, and the market starts behaving better, this one could really pay off from these levels.

Blood Running On Wall Street- I’m Buying Gold- Goldman Sachs

I finally bought some Gold today- but it wasn’t the metal- I stepped up and bought Goldman Sachs (NYSE: GS) – 500 shares at $144.25.

There is absolute blood in the streets on the financials- they are so oversold it is kind of absurd.

GS is the absolute gold standard of investment banks, and I have been watching for a huge down crazy day to make a trade in this one.

I first looked at the March 145 options- believe it or not, they wanted $10 for those options- I think I’ll sell some against my 500 shares now. That’s nuts- I won’t pay that kind of premium.

Back to the screens- more on this later.

EFSF Interview With Respond2: Your Comments

I am posting this BLOG at about 9AM Pacific, Thursday morning. The chart below is hinting at some signs of life for EFSF. By the time you read this, I’m sure it will be later, so I don’t know how the chart will look then.

Here’s the chart:

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As you can see, the stock hasn’t been much fun to own for the past year. However, the chart is showing signs of life. The Gap at $.18 from early 2007 has been filled, which is a technical positive, and the stock is trying to break out above a very long term downtrend line.

While the technical picture is finally improving slightly, the real purpose of today’s BLOG is to give you the opportunity to comment on the interview with the Tim O’Leary, the CEO of Respond2.

Here’s what I’d like to know. 1. Did you find the commentary valuable? 2. Do you feel Respond2 is the answer to the sales side of the equation for this company?, and 3. Has hearing the interview changed your viewpoint on the future of EFSF.

Of course, comments and questions on any other EFSF related issues are welcome. Remember, you comment won’t appear until I respond and post it to the site. Check back the next day.

Nipping At CREE

I published a brief Blog yesterday so everyone would know I jumped into CREE as it finally fell below the $30 level I’ve been patiently waiting for.

I fully expect CREE to be a $50 stock in the not too distant future- perhaps within a year or even less. The LED bulb is going to slowly buy surely replace the incandescent bulb over the coming years as 1. Energy costs go up 2. LED prices come down and 3. Regulatory pressure to discontinue the use of LEDs increases. It has already happened in Europe- Asia is jumping on the bandwagon- the US will follow in kind.

Yesterday, I acquired 2,000 shares in the $28.60 range, and watched the stock rebound. Here’s the chart I as looking at:

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As you can see, the 61.8% retracement of the most recent move took us down to $28.40. It rebounded rather quickly, so I was able to buy at about $28.60.

The stock may want to go lower, in which case I will be prepared to pick up a little more, perhaps using options. Here’s the chart I will be looking at if it works much lower:

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This chart measures the stock off the November low, which is actually the more powerful chart.

This chart shows the 61.8% retracement at $26.31. If the stock trades down to that level, I will really load up with a tight stop of around $25.

Today’s level as I write this is $28.80- the stock has come back down from yesterday’s late climb, but not all the way to where I own it. However, I believe it is still a good level to jump in. Your choice.

Comments and questions are welcome.

CREE- Jumped In Today

A little patience pays of. Very quickly- I bought 2,000 CREE today at an average cost of about $28.60 and am bidding for 50 April 30 calls.

I believe it has pulled back to a good risk/reward ratio, but who knows. Could drop to $20 if the market continues to get super ugly- even more ugly than ever.

Chart and more details tomorrow.

PhotoChannel Q1 Numbers Good Enough

PNWIF came out with its Q1 numbers today- as usual, right up against its reporting deadline in Canada, and way past the deadline the company would have as a US domiciled company. As they now own UK based Pixology, and operate in both the US and Canada, and are now headed to Argentina, I can understand the challenges of putting it all together. However, lots of other International companies do it efficiently, so this is an area that needs improvement.

In short, a quick review of the press release suggests the following: PNIWF gets an A+ for top line growth, a B+ for balance sheet, and a B- for profits.

The top line numbers for the Holiday photo processing business came in at $4.3 million- up from $1.5 million the same quarter in 2006- this is just outstanding growth- the kind of growth the market will pay up for.

On the balance sheet side, PNWIF ended up with about $11 million in cash and receivables, against $7.4 million in current payables-that’s about $3.6 million in real cash- not bad when you factor in the Pixology acquisition.

The company generated about a $1 million loss, but had nearly $1 million in non cash amortization expenses- suggesting the quarter was about a break even from a cash flow point of view. It would have been nice to see a profit, but the company is thinking a bit longer term, and invested a fair amount in R&D- about $1.5 million. Much of this expense can be attributed to the build out for Costco and Sam’s Club.

Here’s a look at the chart:

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PNWIF is trading right in the middle of its moderately ascending triangle. That’s what good numbers will get you in today’s market- a stock that doesn’t go down.

Today’s numbers seem to be a non event for the stock price. If you have a long term perspective, $10 might be a realistic target.

Again as with most other stocks I am watching, if you are looking for a short term trade, it will be tough. The market is to blame, not PNWIF- PhotoChannel is moving in a great direction, and these numbers should start getting a lot better – Q4 and Q1 ’09 (Sept to Dec) should both be big relative to the previous year.

Titan Reverts: To Old Symbol and Pink Sheets

In case you are wondering about the quote- TTGLE has now reverted back to TTGL- with one caveat- the stock has officially lost its bulletin board listing and has been relegated to the Pink Sheets- the land of non reporting companies.

There was no disclosure I am aware of from the company- you just had to figure it out. I hadn’t noticed until one of the OTC Journal faithful pointed it out.

You might wonder what this means. OTC BB companies are fully reporting, just like any DOW component, and have to live up to the same standards of reporting.

TTGL had three violations of tardy financial reporting. The rules state that if you file late three times, you lose your BB status, and go to the Pink Sheets for a period of one year. I believe that if you comply in a timely manner for a year, you can be reinstated.

Pink Sheet companies are not required to file financials. However, in the case of Titan, the company probably will choose to file, and regain its BB status in a year if they don’t screw up again.

I don’t believe it is going to have a major effect on the stock price today- however, if they start doing better, it probably won’t encourage new investors to find them in the Pinks.

The price quote now comes up on Yahoo! at TTLG.PK. TTGL pretty much every where else if you want to keep following it.

Pickle Capitulates

The Pickle had held up quite nicely in the face of the current nasty Bear that’s been gnashing its teeth at every non energy non commodity company out there.

Today, the stock finally succumbed to the buyer’s strike, and broke below the ascending triangle which has been forming for the last several months, suggesting the stock wants to go through a corrective phase for the time being.
Here’s a look at today’s chart:

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As you can see, the stock has broken down below the support level defined by the descending triangle.

I have been warning the stock was vulnerable for a downside push as it would appear the December financing has brought some sellers with a little market related impatience out of the proverbial woodwork.

I am not concerned about this turn of events as it is my expectation you are going to get some corrective action in most stocks in a Bear Market even if the company is delivering on all fronts.

This break below the support level also coincides quite closely with the 61.8% retracement of the stock’s entire big move from the fall- another technical negative.

In light of the great performance the company is delivering, here are my thoughts. I believe the stock at a very good level for accumulation if you are a long term investor- meaning you are looking for long term capital gains (more than one year).

If you are looking for an oversold trade for a quick move to the upside, I would avoid the stock at this time. There could be more downside work to be done before a bottom is put in.

From here, it will be interesting to find out what level investors find this stock irresistible. I’m guessing somewhere in the $.90 to $1 range.

This move might in fact be healthy for the stock longer term. It will no doubt clean out anyone with short term thinking on SPKL, and leave the stronger, longer term investors as the shareholder pool. We’ll end up in stronger hands when the rebounds start happening.

It’s worth remembering that SPKL is on an expansion tear. It’s also worth remembering that of the $6 million that was raised in December at $.85, $1.4 million came directly from board members.