Dow Jones 12466.16 -34.95 1:15 pm PST, January 16, 2008 NASDAQ 2394.59 -23.00 For info, visit access.smallcapnetwork.com S & P 500 1373.20 -7.75 Change your subscription status here Russell 2000 700.80 +3.37 VOLUME 08 : ISSUE 6 SPNG's Numbers Deciphered, 'Pickles' Planted in L.A. In this edition...  1) Are Spicy Pickles Gourmet Food?  2) Applied DNA Takes First Steps 3) Spongetech Numbers Deciphered  They say when it rains it pours. If that's the case, then we're in the middle of a news tsunami - we've got updates from several of our profiled stocks. Don't worry though...we'll keep each one brief.  Specifically, we've got more good news from Spicy Pickle, 'evidence' from Applied DNA, and an explanation from Spongetech.  Before I forget though, be sure to check out two new articles on the home page. Our newest 'Heating Up' column takes a look at a potentially bullish sector that seemed unaffected by the market's weakness this year-to-date. We also highlighted a couple of interesting stock ideas in the newest edition of our 'Trader's Corner'.  On with it.    Are Spicy Pickles Gourmet Food? There's nothing funny about this company's serious growth, but I have to laugh (in a good way) about one of the footnotes from today's Spicy Pickle (OTCBB: SPKL) news release.  The announcement is more of the same...new franchisees are signing multi-store commitments. This time the agreement was for three stores in the Los Angeles area. They will be the first Spicy Pickles in the area, though I doubt the last. That's not the big deal though... Remember what I was saying about Spicy Pickle not just attracting a lot of franchisees, but a lot of high-caliber franchisees? Experienced restaurant veterans (with plenty of financial backing) are getting on board. Take for instance the group that made a ten store agreement for the western Michigan area. They've opened restaurants before, but committed to ten Spicy Pickles before they even got their first Pickle up and running. In fact, we've seen a lot of 'site-unseen' commitments like that one. However, I think today's news outdid all the rest. The new L.A. franchisee is also an instructor at the culinary school in Pasadena. I don't know the guy from a hole in the ground, but being an instructor at a culinary school, I think it's safe to assume he's picky about his food....what he eats, and what he sells. I'm also going to assume he's seen enough good and bad restaurants to know what's worth getting involved in. For him - of all people - to pick Spicy Pickle? What else do I need to say?  Anyway, by my count this brings the total number of restaurants up to 113...36 in operation, and 77 more on the way.  The number may seem like just a number, but what the market may have forgotten is this company's progressive march towards profitability. Remember the company's burn rate of about $200K per month? On average, each store contributes a little over $4000 to the company's top line. Do the math here...36 stores multiplied by $4000 equals $144K per month, and I think that's a somewhat conservative estimate. The point is, Spicy Pickle continues to walk towards an operating profit. With 77 more units on the way, I don't think it will take much longer to get over that hump.  Today's press release is below.   Applied DNA Takes First Steps While Spicy Pickle was setting up some new revenue generators, Applied DNA (OTCBB: APDN) was reporting on the results of its own revenue machine. Last quarter's sales were the first product-revenue ever for the company. The long and short of it is this - sales increased from $18,999 in fiscal 2006 to $121,900 in fiscal 2007. However, all of those sales were generated in their Q4, which ended (along with the fiscal year) on September 30th. For all of my intents and purposes, 2006 was a fiscal anomaly; 2007 is the year where the company started to operate like a business. So, congrats are in order for the company taking flight. My next thought may have been your next thought too...some revenue is nice, but $122k ain't gonna' cut it when your market cap is $17.5 million. And then I checked my calendar. One of the key reasons we liked Applied DNA was that they were an upstart on the cusp of rolling out a new product. (We like to be around when the proverbial key is turned.) Our coverage of Applied DNA started on October 13th. At the time we were under the impression the company hadn't booked any sales yet. As it turns out, they had booked them - they just didn't say anything about it until November 27th...a quarter later. Like I said on Monday, I have to wonder if there's more news they're sitting on. They've had two commercial products for months now - DermalRX (tm), and Signature DNA (tm), so I was starting to wonder why they weren't selling either of them. Now it makes sense...they were selling them. Fast forward to today. Call me crazy, but I have to think those same products launched pre-September are still being sold this quarter, as well as last quarter (fiscal Q1 of their new year).  In the meantime, the company is still cultivating their relationships with Supima, PrintColor, IIMAK, and HPT. The only one we've heard a peep about is Supima, but all of them are also revenue opportunities of various size. My point is, I think Applied DNA may be further down the revenue road than most of us realize. I suspect we'll see some more evidence of sales in the near future. Back to my original worry though...will it be enough to justify a $17.5 million market cap? I don't expect them to get there overnight, but I'd like to see a much bigger number than $122K for the next quarter. Based on the progress to date I'll continue to follow the story, as I think they're a contender. However, I (and other investors) really need to see some evidence of major growth over the next six months or so. Here's the quarterly filing.    Spongetech Numbers Deciphered After having some time to digest Spongetech Delivery Systems' (OTCBB: SPNG) latest 10Q - as well as talk to the guys at the company - I wanted to answer the burning question that all of us seemed to have....what's up with the huge increase in the number of shares issued and outstanding? As of the end of last quarter (ending on November 30th), the company had 88 million issued and outstanding shares - a heck of a lot more than the prior quarter's total of 46 million shares. If you were worried about dilution potential, I could certainly understand. However, there's more to the story. Remember the Spongetech television ads we've mentioned? The 42 million newly issued shares is how the production of the TV ads was paid for. At an issuance price of 2 cents each, the sum total of the financial benefit comes to about $981K. Now, take a look at the company's current assets from the most recent quarter and compare them to the prior quarter. You see them jump from $61K to $780K, $431K of which is classified as 'prepaid advertising expenses'. Total assets increased by right around $1 million. So, there's where the money went. In the end it was basically an accounting wash - assets went up as much as shareholder's equity was diluted. I have to be honest though...I don't like the way the transaction was handled. If I didn't know Spongetech the way I did I'd probably consider it a red flag, as hocus-pocus financing usually is.  My take is this: If you need to sell stock to raise some capital, then fine - sell stock. To issue it as payment (to an escrow account no less) is a different story, in that it can confuse or mislead investors. My other equally big concern is that the recipient of the stock - RM Enterprises - as another company Spongetech's management has at least a partial interest in. A potential conflict of interest? Now to be clear, I don't suspect foul play. Spongetech has paid a lot of bills with stock in the past, which is fine - no harm, no foul. Just for the record though, as of January 10th there were 111 million shares of stock issued and outstanding. Where'd those extra 23 million shares go in the meantime? I just don't like shell games, and I have to wonder if this could turn into one. Anyway, the word from the company is that the 42 million shares used to get the TV commercial produced is in an escrow account, and will be returned to the company once the commercial starts to air. Great, but we're back to square one - how's the commercial going to get paid for? I believe (but can't really tell) the deal with RM is designed to act as a loan without really being a loan. Once sales stemming from the TV spots start better cash flow, I think the company will start to 'finance' the commercial's production. It works, but that's quite a round trip. Regardless, I mostly care about the top and bottom lines, so don't lose sight of how well Spongetech did last quarter. Quarterly sales soared from $27 the same quarter a year ago to $331,736 this year. That was also well up from the previous quarter's sales (Q1 of 2008) of $64,000.  How do you create that kind of improvement? I attribute most if it to capacity - Spongetech is now in a bigger facility. Based on that growth and new capacity, I can see the top line starting to approach the $15-$16 million backlog the company has been building.  As I mentioned in my blog entry yesterday, Spongetech is alive whether there are 111 million shares or only 46 million. I just hope they don't get too loose with their stock-based payments in the future. The Spicy Pickle news is below... .    Spicy Pickle(tm) Announces 3 Store Franchise Agreement in downtown Los Angeles.  New Franchise Sale will be first Spicy Pickle Restaurants in LA.  Wednesday January 16, 4:00 pm ET DENVER, CO - (MARKET WIRE) - January 16, 2008 - Spicy Pickle(tm) fast casual restaurants (OTC BB: SPKL.OB) today announced the sale of a multi unit restaurant development to a new franchisee in downtown Los Angeles, California bringing the total number of franchises the Company has sold to 113. A new franchisee has entered into a franchise and development agreement to open the first Spicy Pickle(tm) restaurants in downtown Los Angeles. The new franchisee became familiar with Spicy Pickle(tm) through the Company's public stock and then visited several of the restaurants operating in the greater Denver area.  Marc Geman, CEO of Spicy Pickle Franchising, Inc. commented: "We are very pleased to have such a capable franchisee to start our development of the Los Angeles market. This will compliment our 12 restaurant development in San Diego and help grow the entire Southern California market. We expect to generate a lot of interest in this large market."  Mr. Geman also noted that the franchisee was an owner of two night clubs in the development area and very familiar with the neighborhood where the restaurants will be located which is bounded by Interstate 10, the 110 and the 101 and Grand Avenue including the area around the Staples Center and the Convention Center. Additionally the new franchisee is an instructor at the California School of Culinary Arts, Le Cordon Bleu Program in Pasadena. "We are thrilled to have such an accomplished restaurateur pick our concept for development said Mr. Geman."  About Spicy Pickle(tm):  Founded in 1999, Spicy Pickle Franchising, Inc. (OTCBB: 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(tm) offers menu items that are far beyond traditional fast food, but without the price point of casual dining. The hallmark of a Spicy Pickle(tm) restaurant is quality, service and an enjoyable atmosphere. The company is headquartered in Denver, Colorado, with franchised locations now open across 12 states and many more in development nationwide. For more about Spicy Pickle(tm), including franchise information and inquiries, visit http://www.spicypickle.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 Franchising, Inc.  303-951-2530  Email Contact: ir@spicypickle.com  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.  TGR Group, LLC has been paid a fee of $30,000 cash and 750,000 shares of newly issued restricted stock by Spongetech Delivery Systems Inc. for coverage of the Company. Additionally, one of the managing Members of TGR Group, LLC has purchased 150,000 shares of Spongetech Delivery Systems, Inc. in the open market with an average cost basis of $.035 cents per share. TGR Group, LLC has been paid a fee of $30,000 cash and 1,000,000 shares of newly issued restricted stock by Applied DNA Sciences Inc. for coverage of the Company.  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. On 12/15/07, on entity controlled by Larry Isen participated in an additional financing wherein 12 shares of convertible preferred, converting at $.85 into 120,000 shares and 90,000 warrants with an exercise price of $1.60 were purchased. 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. Current positions of the aforementioned can be found at www.otcjournal.com and access.smallcapnetwork.com in the Spicy Pickle information section.  From time to time TGR sells shares received as compensation for coverage of client companies. Shares received are sold in the open market. 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