Dow Jones 13339.85 -178.11 8:07 am PST, December 15, 2007 NASDAQ 2635.74 +0.00 For info, visit access.smallcapnetwork.com S & P 500 1467.95 -20.46 Change your subscription status here Russell 2000 753.93 +0.00 VOLUME 07 : ISSUE 116 Wake Up & Smell the Panini - Spicy Pickle Evolves  The plan became a reality for Spicy Pickle (OTCBB: SPKL) yesterday, when the company closed a financing deal that should allow them to start opening several corporate-owned stores. These stores will be in addition to the franchised stores already popping up left and right (with more on the way). The impact for shareholders is straight-forward - owning their own restaurants means the company has much better top and bottom line potential.  Details of the deal are simple enough - the company raised a net of about $5.7 million by selling a combination of convertible preferred shares and common stock warrants. The convertible preferred stock can convert into shares of common stock at a fixed conversion price of $.85 per share. The warrants can convert into common stock at $1.60 per share, and are good for a period of five years.  So what does this mean for investors you ask?  The franchise model is nice, as it generates recurring revenue someone else does most of the work to create. On the other hand, owning your own restaurant - as opposed to letting a franchisee operate one - gives the company access to 100% of the top and bottom line for each store. When you start looking at the comparative math, all of a sudden the idea makes good sense.  Just to review some of the metrics from our initial profile, the average Spicy Pickle restaurant does around $700,000 in sales each year. Of that amount, about 7% is collected as royalties. So, each store annually contributes about $50,000 to the company's top line. Since the franchisee takes care of each store's costs, that $50K is mostly free and clear. So, while the net may seem small, the margins are huge.  But clearly there's more profit to be generated than the $50,000 or so. (Why else would all these franchisees want to open more and more stores?) Well, by owning their own stores, the company can tap into 100% of the profit potential of each unit.  Great, but what does this really mean for investors, you ask again?  The preferred-stock piece of the deal could inject 7 million shares into the float at $.85 each, and the common sock warrants could add another 5.2 million shares at $1.60. Just for comparison, there are about 47 million shares outstanding. So, the dilution impact is low.  What I like best about the news is the warrant side of the deal...the $1.60 level is considerably higher than Friday's close at $1.11. Therefore, the funders want the same thing all the other shareholders want - for the stock to go higher.  I know, I know...so what does this ultimately mean to you?  I estimate the amount of money they raised should be enough to open somewhere between 12 and 15 corporately-owned restaurants. That translates into revenues somewhere between $8.5 million and $10 million per year. More importantly, the company retains 100% of each store's net income.  Just for comparison, the company did $261K in revenues last quarter - exclusively with franchises (about 27 of them at the time). Annualized, that's a little over $1 million per year. Of course, there may be four times that number of franchises a year from now.  In the meantime, I estimate it could take about the same year to get the corporate-owned stores up and running as well.  Roughly 100 franchised units in addition to, say 12 company-owned restaurants? Yeah....I think we're all going to look back a year from now and see phenomenal growth, making yesterday's financing a wise and very fruitful decision. I also have to believe the company's growth is going to be reflected in the stock's value. Speaking of...    Proof of the Pudding is in the Panini I thought it was fitting how yesterday's financing news was released hand-in-hand with news that two more restaurants had been opened. For those of you keeping track, that's the 34th and 35th unit now in operation. It's also the ninth store they've opened in eleven weeks, and the franchisees keep clamoring for more.  In that light, it occurred to me a few days ago this may the ultimate litmus test for the company - the demand from franchisees. The company obviously likes the concept and menu, since they're the ones who launched the idea in the first place. And, consumers like the idea as well, since the restaurants are drawing quite a crowd. (Who wouldn't like great food at a great value?)  However, in terms of being a viable business, I think it's the franchisees who have their finger on the pulse of Spicy Pickle's potential. Why? Because these are the same people doing the lion's share of the work, and assuming the lion's share of the risk.  What tells me that Spicy Pickle's are here to stay is the number of units some of these restaurateurs are trying to reserve. Some franchisees of other restaurants might be willing to open one unit as an experiment...maybe even two. If it doesn't fly, so be it - they'll move on to other things.  However, that's not really what we're seeing. What we're seeing are territories (multiple units) being reserved, sometimes even before the first Spicy Pickle in the area is even in operation. Take for instance the news from Mid-November. The company announced a lease for a store in San Diego had been signed. But, the same franchisee had already committed to 12 units...even before the first one was opened there. The store that was opened in Hattiesburg, Mississippi on October 22nd? That franchisee has committed to three stores. The Spicy Pickle that opened in Fishers, Indiana on October 19th was the first of ten scheduled for the area.  The point is, considering these people are making big commitments early on, I think they see some longevity and profits here. That carries more weight with me than anything else, pointing to the strength of the concept.   An Early Christmas Gift One final note...I view Friday's move to a close of $1.11 as a gift to anybody who was just waiting on the right entry opportunity. Though it was a move lower, I also think it was a move that washed out any would-be sellers.  As you can see, SPKL pushed up and off that low if $1.10 later in the day. Had it been an epidemic, it would have kept pressing lower. More than that, $1.10 was close to the same low we made last month before a sharp rebound move. I'd say a major support line was being formed there, which reduces some of the risk of entering a position at this point.  All of that upside potential though - as well as Friday's selling - pales in comparison to one last tidbit behind the financing. A hefty $1.3 million of the funding came from two board members, while the rest came from institutional investors as well as some of the company's early backers. What does that tell you? When someone who sits on the board (or two people in this case) puts that kind of money into an idea, it tells me there's something very worthwhile about the opportunity. Here's the press release about the financing:   Spicy Pickle(R) Announces Closing of Private Financing in the Amount of $5,992,500 Funds Earmarked to Accelerate Growth of Company-Owned Stores  DENVER, CO -- Dec 14, 2007 -- Spicy Pickle(r) fast casual restaurants (OTCBB: SPKL) today announced the closing of a private offering of its securities in the amount of Five Million Nine Hundred Ninety Two Thousand Dollars ($5,992,500).  Earlier today, Spicy Pickle(r) completed a private placement of 705 Units, priced at $8,500 per unit. Net proceeds of approximately $5.7 million, after commissions and fees, were received by the Company.  Each unit contains one share of convertible preferred, which converts into 10,000 shares of common stock at a fixed conversion price of $.85 per share. The preferred shares also carry a 5% dividend in the first and second year and a 7.5% dividend in the third year.  In addition, each unit contains 7,500 warrants, which convert into the common stock at $1.60 per share for a period of five years. Of the approximately $6 million raised, $1,300,000 came from two of Spicy Pickle's(r) independent members of the board of directors and their immediate family. The remaining funding came from two large institutional investors and several of the early shareholders who had participated in previous rounds of financing. Midtown Partners acted as placement agent for one for the institutional investors.  The proceeds of the offering will be used to rapidly accelerate the development of Company-owned stores along with the continued development of the franchise system. Marc Geman, the CEO of the Company, said: "These funds will kick-off the Company-owned restaurant program under which we will develop, own and operate Spicy Pickle(r) Restaurants. The Company restaurants will further support the franchise system by adding additional training facilities and focusing on operations and service alongside our multiple unit franchisee owners. Further, the Company restaurants are expected to generate more bottom line revenue to the Company than the current royalty provides from its franchisees. Taken together, the franchise and Company-owned system should set the stage for dramatic growth in the coming years."  The Company will file the complete documents representing the transaction with the SEC.  The securities issued by Spicy Pickle(r) have not been registered under the Securities Act of 1933 or any state securities laws. Therefore, such securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and any applicable state securities laws. This press release does not constitute an offer to sell any securities or a solicitation of an offer to buy any securities.  About Spicy Pickle(r):  Founded in 1999, Spicy Pickle(r) Franchising, Inc. (OTC BB:SPKL) serves high quality meats and fine artisan breads, baked fresh daily, along with a wide choice of eight different cheeses, twenty-two different toppings, and fourteen proprietary spreads to create healthy and delicious panini and sub sandwiches with flavors from around the world. As a leading "fast-casual" concept, Spicy Pickle(r) offers menu items that are far beyond traditional fast food -- but without the price point of casual dining. The hallmark of a Spicy Pickle(r) restaurant is quality, service and an enjoyable atmosphere. The company is headquartered in Denver, Colorado, with franchise locations now open across twelve states and many more in development nationwide. For more about Spicy Pickle(r), including franchise information and inquiries, visit http://www.spicypickle.com.  About Midtown Partners & Co., LLC  Originally founded in May 2000, Midtown Partners & Co., LLC is an investment bank focused on private placement investment banking opportunities. The investment banking group at Midtown Partners & Co., LLC was founded on the premise that client relationships and industry focus are keys to the success of emerging growth companies. Such companies require investment banking services from a firm with a unique understanding of the marketplace and the nature of these transactions. Midtown Partners was the 5th leading U.S. placement agent in number of closed PIPE transactions for 2006 (source Placementtracker.com). Additional information can be found at http://www.midtownpartners.com.  Forward-Looking Statements:  Certain statements in this press release, including statements regarding the number of restaurants we intend to open, are forward-looking statements. We use words such as "anticipate," "believe," "could," "should," "estimate," "expect," "intend," "may," "predict," "project," "target," and similar terms and phrases, including references to assumptions, to identify forward-looking statements. The forward-looking statements in this press release are based on information available to us as of the date any such statements are made and we assume no obligation to update these forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements. These risks and uncertainties include, but are not limited to, the following: factors that could affect our ability to achieve and manage our planned expansion, such as the availability of a sufficient number of suitable new restaurant sites and the availability of qualified franchisees and employees; risks relating to our expansion into new markets; the risk of food-borne illnesses and other health concerns about our food products; changes in the availability and costs of food; changes in consumer preferences, general economic conditions or consumer discretionary spending; the impact of federal, state or local government regulations relating to our franchisees and employees, and the sale of food or alcoholic beverages; the impact of litigation; our ability to protect our name and logo and other proprietary information; the potential effects of inclement weather; the effect of competition in the restaurant industry; and other risk factors described from time to time in our SEC reports.  Contact:  COMPANY CONTACT:  Marc Geman  CEO  Spicy Pickle(r) Franchising, Inc.  303-297-1902 Ext. 7000 Source: Spicy Pickle Franchising, Inc.    We Value Your Feedback   Got comments, questions or suggestions? 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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, TGR accepts compensation from third party consultants and/or companies, which it features in the publication and circulation of SCN. To the degrees enumerated herein, SCN should not be regarded as an independent publication.  Click Here or go to http://access.smallcapnetwork.com/compensation_disclosure.html to view our compensation on every company we have ever covered, or visit the following web address: http://access.smallcapnetwork.com/profile_disclosure.html for our full profiles and http://access.smallcapnetwork.com/short_term_alerts.html for Trading Alerts.  Larry Isen, the editor and publisher of the OTC Journal, through various entities he controls, has purchased 1,200,441 shares of Spicy Pickle at an average cost of $.2125 per share. These purchases were made in Spicy Pickle private offerings. The aforementioned purchases were made between August of 2005 and August of 2006. In addition, Larry Isen has received 785,000 shares of Spicy Pickle common stock for consulting services. In addition, MarketByte LLC, an entity controlled by Larry Isen, has received a fee of $30,000 cash, and 300,000 newly issued restricted shares for coverage of Spicy Pickle. TGR Group LLC, the publisher of the Small Cap Network, has received $30,000 and 300,000 newly issued restricted shares for coverage of Spicy Pickle. Mr. Isen is an affiliate of TGR Group. In addition, two other individuals affiliated with TGR Group have purchased a total of 300,000 shares at $.25 per share and received an additional 70,000 for consulting services. 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