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Spicy
Pickle Gets Some Heavy Artillery |
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Owners
of Spicy Pickle shares - potential or current - kicked off this
weekend with a double dose of good news. Not only has the company remained
on its tear of opening new franchises, but they also raised a significant
amount of funds to be used in opening several company-owned restaurants.
Both
will help the top and bottom lines, but the company-owned units could lead
to triple-digit growth of their current revenues.
 Starting
with the biggest news, Spicy Pickle (OTCBB:
SPKL) finalized a $5.7 million financing on Friday after the market
closed. The proceeds from the sale will be used to seed the opening of
several Spicy Pickle restaurants (as opposed to franchised stores). As
such, the company will retain all the sales and profits associated
with each of the company-owned units.
The attractions
to the idea are simple...better cash flow, and a greater contribution
to the bottom line. The alternative - franchising out the stores
rather than owning them yourself - only adds 7% of each store's sales
to the corporate revenue figure.
Yes, there's
a trade-off. Franchise royalties are a nice, high-margin passive income
that requires very little effort to produce. But, with each unit
doing an average of $700,000 per year, each store's contribution to the
company's success is worth only about $50,000 on an annual basis. Corporate-owned
restaurants, on the other hand, contribute 100% of their top and bottom
lines to the company.
The net result
is not just more potential profits, but cash flow. Of course, with cash
flow comes flexibility, which is often the difference between a stifled
company and a progressive one.
The Micro Cap
Research staff estimates the $5.7 million raised last week should be enough
to establish 12 to 15 company-owned restaurants. In turn, revenues should
improve to somewhere between $9 million and $12 million on an annual basis.
The company will also keep 100% of those profits.
Just for comparison,
the company did $261,000 in sales last quarter, with 27 'franchised' units.
The fund-raising
deal was a 'package' of convertible preferred shares, and common stock
warrants. The convertible preferred can be converted into a total of 7.05
million shares of common at $0.85, and the 5.3 million warrants have an
exercise price of $1.60. The total dilution potential is somewhere around
15% of the shares issued and outstanding.
What's compelling
about this particular round of financing is the 'who' as much as
it is the 'what'. Two of Spicy Pickle's board members put up $1.3
million, and the rest came from institutional investors and some of the
original backers. That's a significant amount of insider interest, and
considering they're as in-the-know as anybody could be, putting
their own money into the pot may be a sign of just what kind of value they
see here.
The other
news we heard Friday was the announcement that two more Spicy Pickles had
been opened within the last week. That's the 34th and 35th restaurant
for the franchise network, and the 8th and 9th store opened in the last
eleven weeks.
The first one
was opened in Chandler, Arizona, and is the first one in the area. The
other one is located in Sparks, Nevada - the second one in the Reno area.
All well and
good, but the 'bigger picture' is still the most important one. Spicy Pickle
is growing like a weed. The company still expects to have between 38 and
40 franchised stores up and running by the end of the year. They have enough
signed deals to open 50 more by the end of 2008, bringing the total to
somewhere around 90....and that doesn't include any new franchise deals
they may sign between now and then.
With each unit
contributing about $50,000 (7% of sales) to the company's top line each
year, 90 stores translates into about $4.5 million on an annual basis.
The thing to keep in mind about that dollar figure is that it's ultra
high-margin
sales; supplies, overhead, and most all the other expense associated with
running restaurants is still the responsibility of the restaurateur.
In other words,
the franchise side of the business isn't bug bucks per unit, but it's easy
recurring revenue once set up.
The new company-owned
stores will obviously require more maintenance, but with a much bigger
payoff...100% of sales, and 100% of the profits. And, considering the company
should be able to turn the $5.7 million financing into a $9 to $12 million
revenue machine on an annual basis, the cash flow gives the company all
kinds of flexibility.
The bottom line?
The
company-owned stores provide some heavy artillery, and the franchised stores
act as the company's necessary infantry. And, both battalions are recruiting
more soldiers. Sounds like the Spicy Pickle army is marching in the right
direction.
Here's the news
about the financing:
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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.OB - News) 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. |
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Updated: 9:18 am PST (17:18 GMT), January 5, 2009
