For More Information... For more information regarding Spicy Pickle Franchising as an investment opportunity, be sure to review the entire research report in a printable PDF format by clicking the link below: Spicy Pickle Franchising Inc. Report  Or, to discuss Spicy Pickle, contact:  The Micro Cap Press  15233 Ventura Blvd. Suite #310 Sherman Oaks, CA 91403 http://www.microcappress.com 1-800-277-9081   Share Information  52wk Range: 0.48 - 0.71 Avg Vol (3m): 138,862 Market Cap: 31.29M Price/Sales (ttm): 24.97 Price/Book (mrq): 20.74   Industry: Specialty Eateries  Market Capitalization: 28B Price / Earnings: 31.7 Price / Book: 7.8 Net Profit Margin (mrq): 7.80% Price To Free Cash Flow: 160.1 Return on Equity: 23.10% Total Debt / Equity: 0.4 Dividend Yield: 0.80%

Feature Report: Spicy Pickle Franchising Inc.

The Micro Cap Press research staff has uncovered what it believes to be a highly-promising, high-growth company. Better still, this restaurant franchise is a ground-floor opportunity, as it has only started to really build on the number of stores within the last couple of years. Yet, it's on track to nearly quadruple the current number of operational units by 2009. The National Restaurant Association additionally feels this chain's segment - quick and casual - is poised to see more growth this year than any other class of restaurant. Based on our combination of technical and fundamental standards, we encourage you to review this feature report for more details on this company's upside potential. Or, if you're more of an audio/video person, we've got a brief web video available about Spicy Pickle. The link is at the bottom of this report.
 

Overview

Spicy Pickle Franchising Inc.'s (OTCBB: SPKL) sole business is the franchise and operation of Spicy Pickle restaurants throughout the United States. Spicy Pickle is a fast casual restaurant where made-to-order panini, submarine style sandwiches, pizzetti (neapolitan thin crust pizza), and salads are served using fresh baked breads and high quality ingredients. To date, the Company has signed approximately 80 franchise agreements (including area development agreements) with 29 franchisees. To date, 26 of the 80 franchisee-owned stores are now open, and 14 are under construction. The remaining 40 should be built in 2008, and the company consistently receives new, legitimate expansion inquiries. 

SPKL began trading on the NASD's bulletin board system about a month ago, and has been met with enthusiasm, Since then, it's made its way up to as high as 71 cents after its first public trade of 50 cents on August 20th.
 

Background

Spicy Pickle Franchising Inc. is engaged in the business of marketing and franchising Spicy Pickle restaurants, which specialize in fast casual food featuring fresh, made-to-order, premium submarine style, deli and panini sandwiches, salads, soups and soft drinks. They currently derive revenue from the sale of franchises and from royalties paid by franchisees, or on a lesser basis, by owning and operating their own Spicy Pickle restaurants. Therefore, the company operated two business segments. 

The Company Restaurant Operations segment is comprised of the operating activities of one restaurant owned by the Company. The Company-owned restaurant conducted business under the Spicy Pickle name. The company has owned restaurants in the past, and may again in the future. Presently though, there are no company-owned units other than the training store. 

The Franchise Operations segment is comprised of the operating activities of the franchise business unit, which licenses qualified operators to conduct business under the Spicy Pickle name. These activities include, among other things, real estate site selections for new restaurants, construction management, training of new franchisees, and the monitoring of ongoing operations of these restaurants. Under the terms of the franchise agreements, the licensed operators pay royalties and fees to the Company in return for the use of the Spicy Pickle name.

The first Spicy Pickle restaurant was launched in 1999 under the name Spicy Pickle, LLC. In late 2001, there were three restaurants, two in Denver and one in Lakewood, a Denver suburb. By January 2003, the company was organized as Spicy Pickle Franchising, LLC and launched the Spicy Pickle brand as a national franchise. Spicy Pickle Franchising, LLC and changed its name to Spicy Pickle Franchising, Inc. in 2006. The company is headquartered in Denver, Colorado.
 

Industry Analysis

While well-run enterprises of any sort can thrive even in the worst of times, it's always beneficial to be in a market or field that's generating interest on a sociological/economic level. To that end, the National Restaurant Association expects the 'quick and causal' restaurant segment (which is Spicy Pickle's category) to see double-digit growth in 2007. 

At the same time, the restaurant playing field is already enormous, which we suspect means the ground is 'soft' enough to allow a smaller outfit like Spicy Pickle into the mix. There are a total of 935,000 restaurants in North America. The company has opened their first 26 with relative ease, 14 are under construction, and the company is shopping for real estate for 40 more. Even at a few hundred stores - which is an intermediate-term goal - the relatively small market penetration should be unchallenged. However, it would still represent incredible growth for this young company. In other words, we believe Spicy Pickle could continue to grow into a several-hundred-unit operation within only a few years. 

In terms of the opportunities in this segment of the business, Spicy Pickle seems to be following in some quite lucrative footsteps. The general term is 'specialty eateries', and includes the likes of Starbucks (SBX) and Panera Bread Co. (PNRA). This group tends to attract an increasingly-selective consumer with their ambience and a higher-quality food/drink experience, yet with reasonable pricing.
 

Based on the recent success of comparable stores, we feel Spicy Pickle is targeting a highly-profitable demographic. And, by meeting consumer 'wants' rather than 'needs', the company can enjoy adding a modest price premium.
 

Financial Analysis

In many ways, using conventional forms of financial analysis won't accurately describe a franchise model. 

A corporate franchise only draws a small portion of the overall net sales of all units - in this case, 7% of each restaurant's sales. However, once basic overhead expenses are covered by the monthly recurring revenue total, margins begin to become extremely wide. The success and profitability of the underlying restaurants has very little to do with the success of the franchising company, and vice versa. For this reason, we have been careful not to compare Spicy Pickle too closely to what most would consider their competitors. Rather, we're going to focus mostly on the revenue model. 

There are two revenue streams. Spicy Pickle collects a one-time $35,000 fee from each new franchisor (and/or $17,000 for subsequent stores owned by the same person). And, they collect 5% of each store's monthly sales in perpetuity. Plus, they receive a about a 2% rebate from each store's suppliers (soft drinks, meat, etc.). With the average Spicy Pickle storefront doing about $700,000 a year, each unit adds about $50,000 per year to the corporation's annual revenue. 

Adding the 14 units under construction to the 26 already in operation brings the near-term revenue-bearing units to 40. With that number of storefronts, the company is looking at about $2.0 million per year in revenue royalties. Any new one-time franchise fees are added to that total. 

At the present time, Spicy Pickle's overhead is about $200K per month. Though each new store will incrementally add to the total, by and large, overhead costs are fixed costs. This is why the company's expansion is so important - more stores will increase the profitability percentages of the company because the margins are so high in a franchise model. 

At 80 or so stores, the company should draw approximately $4.0 million in annual sales. By that time, let's assume the overhead will increase to $250K per month. This will generate a positive cash flow of $1 million per year. At 500 stores, the company could be pulling in more than $25 million in annual royalties and rebates. At that point, let's hypothesize that monthly overhead is $400K. That still leaves a net margin of $20 million. 

Spicy Pickle's capital structure is more investor-friendly than most comparable small cap companies. There are about 12.2 million shares in the float, and 45 million outstanding. The current market cap is right at $31 million when shares are at 69 cents. There's no debt. There are no warrants or convertibles, and only a few employee options. This leaves little room for share dilution.
 

Competitive Analysis

While a revenue growth plan and supporting numbers are the crux of any equity analysis, numbers don't fill restaurants with paying customers. To that end, any food-service business faces stiff competition when it comes to quality service, quality food, pricing, location, and atmosphere. Spicy Pickle has a deliberate and intelligent plan to be competitive in all those facets. Execution of this plan is one of the keys to their growth from 40 units, to 100 units, to 500 units, or beyond.
The restaurant's locations and marketing efforts are directed principally to white collar administrative, managerial, professional, and sales personnel which are generally found in and near downtown districts, technological centers, universities, hospitals and government complexes. 

Although prices are set by franchisees at the store level and vary from location to location, sandwiches typically cost approximately $6.50, with small and large soups and salads ranging from $3.25 to $6.00, respectively. Individual size pizzetti is usually $7.50. 

The goal is to deliver a delicious flavor profile, an exceptional customer experience, and an enjoyable atmosphere in its locations. Spicy Pickle's management believes their menu items appeal to diners of all ages and preferences. They will soon accommodate breakfast, lunch and dinner segments. 

From a more broad point-of-view, we have to assume there's a reason this is one of the fastest-growing restaurants in the business. Spicy Pickle stores do more sales per square foot than comparable restaurants. The menu, aside from being exciting to consumers, is also a fresh alternative to the hamburger...one of the tiring mainstays of the quick-service world. Simultaneously, Spicy Pickle is able to compete with casual full-service restaurants in terms of menu selection, and more than compete in terms of price.
 

For More Information...

We believe the combination of a smart business plan coupled with a high-quality service package makes Spicy Pickle Franchising an investment opportunity well worth consideration.

For more information regarding Spicy Pickle as an investment opportunity, be sure to review the complete research report in a printable PDF format by clicking here. To see the video, click here. 

Or, contact:
The Micro Cap Press 
15233 Ventura Blvd. 
Suite #310 
Sherman Oaks, CA 91403 
(800) 277-9081 
http://www.microcappress.com/

	Have a Question, Comment or Suggestion?

The entire Micro Cap Press staff encourages readers to voice their opinions and thoughts. Your questions and feedback will help ensure MCP delivers the highest quality site and newsletter for small and micro cap stocks. Email us at: editor@microcappress.com

Micro Cap Press Editor

	Subscribe

The Micro Cap Press is a complimentary e-newsletter and website devoted entirely to identifying the world's best small and micro cap stock trading ideas. We aim to uncover these ideas and provide in depth research coverage in an effort to help our readers generate above average returns. There is no cost associated with your email subscription. Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the Micro Cap Press Newsletter on a regular basis.

To ensure newsletter delivery, you can add any additional email addresses you may have to the Micro Cap Press Member List. Receiving the Micro Cap Press Newsletter in multiple locations is the best way of making sure you don't miss an edition! Ensure delivery by reading our article on white listing by clicking here: http://www.microcappress.com/whitelist.html

Note: Your email address will be kept strictly confidential. If you no longer wish to receive the Micro Cap Press Newsletter, simply follow the instructions located at the bottom of every Micro Cap Press Newsletter Edition. We honor all removal requests.

Click Here or go to http://www.microcappress.com/disclosure/ to view our compensation on every company we have ever covered, or visit the following web address: http://www.microcappress.com/disclosure/reports_disclosure.php

The Managing Member of Pacific Shores Investments, LLC purchased 200,000 shares of Spicy Pickle at $.25 per share. This purchase was made in a Spicy Pickle private offering back in November of 2006. The Managing Member of Pacific Shores Investments, LLC has also purchased 50,000 shares of Spicy Pickle in the open market with an average cost basis of $.55 per share. Additionally, Pacific Shores Investments, LLC has been paid a fee of $30,000 cash and 250,000 shares of newly issued restricted stock by Spicy Pickle Franchising, Inc. for coverage of the Company.

From time to time PSI sells shares received as compensation for coverage of client companies. Shares received are sold in the open market. Since the shares are received as compensation for services as previously disclosed, and not for investment purposes, PSI does not view the sale of the shares as contradictory to any opinions delivered in the content. This should be viewed as a conflict of interest by shareholders or prospective shareholders of the client companies.

PSI, its Members and Members' families, are forbidden by company policy to own, buy, sell or otherwise trade stock for their own benefit in the companies who appear in the publication unless specifically disclosed.

All statements and expressions are the sole opinions of PSI and are subject to change without notice. A report, description, or other mention of a company within MCP is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein.

The reports, critiques, and other editorial content of MCP may contain statements that appear forward relating to the expected capabilities of the companies mentioned herein.

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 PSI.

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.