Subtlety has never been one of my strong suits, so here it is - we've got a new small cap idea for you coming this week. I'm not sure what day we're going to publish our first look, but it will be soon. 

I also can't tell you too much about the company. Otherwise I risk spilling the beans, as some of you might figure out which stock I'm talking about. However, I can drop a few hints to whet your appetite. 

In principle, ethanol is a brilliant substitute for gasoline. It's cheaper, basically as efficient, and clean. The problem is, 'politics as usual' has gotten in the way ... and favored big American corporations (with subsidies) at the expense of the little guy (who pays the taxes that become those subsidies). The dumbest part of all - the way Americans produce ethanol is a rather ineffective and relatively expensive way to do it, making a bad problem worse. 

How could something like this become Federal government policy? The answer is a question ... when has logic or fairness ever prevailed in Washington? 

There's some good news though - this kind of nonsense is being brought to light. Better knowledge of how ethanol can be produced, and the proliferation of how so many folks are being taken advantage of by so few, has finally stirred things up enough to where somebody is willing to take advantage of the fiscal opportunity staring them in the face. 

We've uncovered a company that can (1) make ethanol at a lower cost than other companies can, (2) can sell it at a lower price than the current market price, and (3) is removed from all the political crap that's screwing up the industry (and prices) for everybody. There are even more company-specific reasons I like this opportunity, but the 'bigger picture' reasons are enough for now. 

In short, I just see this particular organization acting as a spoiler of the current, 'questionable' industry arrangement. That's a great thing for this company's owners, and a bad thing for their competition. 

I can't say more about the company. All I can say for now is stay tuned - this is going to be a lot of fun. Look for the unveiling sometime this week. 

Now, about earnings... 
 

Spicy Pickle - As Expected

I was 0% surprised when it came to Spicy Pickle's (OTCBB: SPKL) quarter. I figured they'd generate a lot more revenue than they did for the same quarter a year earlier, and they did. They put $1.4 million on the top line, versus about $260K for the quarter a year ago.

And, still no net gain, as I figured. Total operating expenses came in less than sales, so there was an operating profit of $219K. And, the general/admin costs came in about the same as last year's total, or $1.56 million. Operational viability I like. And, it's encouraging to see that - despite some enormous growth in the number of units over the last year - the cost to run the franchise really hasn't gone up. Perhaps the franchise administration costs are even more fixed than I first imagined.

However, you don't have to be a CPA to know that even if the overhead/admin cost is fixed, your operating profit still has to eventually exceed your administrative expenses if you want to survive. So, they've got a challenge to work on ... raise the top line, shrink the expense lines, or both. (I suggest both.)

None of that should catch any of you off guard - it's what I've been saying for a while. This company needs X number of units to achieve profitability. I ball-parked 'X' to be about 50 stores, and I'm sticking with the estimate. 

Needless to say, the pace of growth over the last year didn't get them to 50 stores. That's what happens in a recession ... getting ahold of real estate at a decent price is a headache. 

So, the profit metrics still work - now it's an issue of time. I don't see them reaching 50 units within the next few weeks, though I think the timeframe could be measured in months to a year. Will investors wait that long? We'll see. I personally would, but I'm also looking at this thing as a long-term 'buy and hold' stock at this point. I feel confident the management team knows how to get to where they want to be; I'm just not sure about the time needed to get there.
 

China Energy Recovery Has Arrived

As expected, China Energy Recovery (OTCBB: CGYV) posted their numbers late last week. In a word, fantastic! (That wasn't even the really good news though.)

Try this number on for size ... $6.1 million in quarterly revenues. That's more than 2006's total sales. They did $11.8 million in all of 2007, so this is also more than half of an entire recent year's total. They did $5.6 million in the prior quarter of this year. What can I say?The numbers are rising ... a lot.

Now try this number on for size ... net income of $245K. For the same quarter a year ago, China Energy lost $86K. They've actually had bigger quarters, but I think getting back in the black this quarter is something a little more permanent now that the expansion is fully under their belt. 

I'm not going to belabor the point; the numbers are what they are. If you're not a believer by now (after all my preaching), then I'm not sure what else I can say. Hopefully I've been able to convince you to become an owner, 'cause I think these numbers are just going to keep getting better and better each quarter.

Anyway...

While it's always good to see a company you own get a little media attention, it's even better when a more traditional media venue takes notice. Better still is when the company you're an owner of is featured as one of the hot picks of a major venture capital group. 

This past weekend, the San Francisco Chronicle's web-based version of the newspaper included a story about investing in China's 'clean' technology companies. Within the story, venture capital firm Westly Group candidly acknowledged they took on a major stake in, you guessed it, China Energy Recovery. 

When your next door neighbor tells you about a stock he bought, that's one thing. When a venture capital firm says it in one of the country's biggest newspapers, that's an entirely different thing. Two words - exposure, and credibility.

A lot of new eyes are going to be looking at China Energy as a potential investment today. I firmly believe they're going to like what they see, particularly now that those quarterly numbers are out.