Spicy Pickle Franchising, Inc.

13,218,750 Shares of Common Stock

This prospectus relates to 13,218,750 shares of our common stock, par value $0.001 per share, that may be sold from time to time by the selling shareholders listed under the caption “Selling Shareholders.” We will receive no proceeds from the sales of shares made by selling shareholders. The selling shareholders may sell those shares from time to time in the public securities market. The selling shareholders may determine the prices at which they will sell the common stock, which prices may be the market prices prevailing at the time of such sale or some other price. See "Plan of Distribution."

Our common stock is traded on the OTC Bulletin Board (the “OTCBB”) under the symbol “SPKL.” On February 5, 2008, the last reported sale price of our common stock was $1.29 per share.

AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING AT PAGE 3.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. NO ONE IS ALLOWED TO DISTRIBUTE THE COMMON STOCK OFFERED BY THIS PROSPECTUS UNTIL THE REGISTRATION STATEMENT THAT WE HAVE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL OUR COMMON STOCK - AND DOES NOT SOLICIT OFFERS TO BUY - IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

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Summary Financial Data:

The following table summarizes historical financial data regarding our business and should be read together with the information in the section titled "Management's Discussion and Analysis of Financial Condition" and our financial statements and the related notes included elsewhere in this prospectus.

 

Statement of Operations Data		Year Ended December 31,						Nine Months Ended September 30, (unaudited)
		2006			2005			2007			2006
Revenues		$	892,009		$	858,713		$	803,226		$	803,224
Operating expenses		$	2,305,536		$	1,287,400		$	3,183,955		$	1,724,471
Net income (loss)		$	(1,382,985	)	$	(431,540	)	$	(2,342,907	)	$	(906,584	)
Weighted average shares outstanding			36,514,512			31,536,149			43,209,297			35,018,531
Net income (loss) per common share basic and fully diluted		$	(.04	)	$	(0.01	)	$	(0.05	)	$	(0.03	)
Cash flow used in operations		$	(590,640	)	$	(188,401	)	$	(1,897,735	)	$	(176,709	)
Cash and cash equivalents (end of period)		$	1,198,982		$	29,882		$	842,223		$	1,709,339
Balance Sheet Data
Total current assets		$	1,323,719		$	105,990		$	1,242,118
Total assets		$	1,481,808		$	147,488		$	1,472,124
Total current liabilities		$	889,963		$	324,804		$	1,105,852
Total stock holders equity (deficit)		$	591,845		$	(207,316	)	$	366,272

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below with all of the other information included in this prospectus before making an investment decision. If any of the possible adverse events described below actually occur, our business, results of operations or financial condition would likely suffer. In such an event, the market price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face.

RISKS RELATING TO OUR BUSINESS

We have historically incurred losses and may continue to incur losses in the future, which may impact our ability to implement our business strategy and adversely affect our financial condition.

We expect to increase our operating expenses by expanding our marketing activities and increasing our level of capital expenditures in order to grow our business and further develop and maintain our services. Such increases in operating expense levels and capital expenditures may adversely affect our operating results if we are unable to immediately realize benefits from such expenditures. In addition, if we are unable to manage a significant increase in operating expenses, our liquidity will likely decrease and negatively impact our cash flow and ability to sustain operations. In turn, this would have a negative impact on our financial condition and share price.

 

We also expect that our operating expenses will continue to increase as a result of having become a public company in 2007. We cannot assure you that we will be profitable or generate sufficient profits from operations in the future. If our revenue growth does not continue, we may experience a loss in one or more future periods. We may not be able to reduce or maintain our expenses in response to any decrease in our revenue, which may impact our ability to implement our business strategy and adversely affect our financial condition. This would also have a negative impact on our share price.

Our operating results are closely tied to the success of our franchisees.

Our operating results are dependent upon our selling additional franchises and our receipt of royalties from our existing franchisees. Franchisees may lack access to the financial or management resources that they need to open or continue operating their restaurants. New franchisees may not be able to find suitable sites on which to develop restaurants, negotiate acceptable lease or purchase terms for the sites, obtain the necessary permits and government approvals or meet construction schedules. Our franchisees generally depend upon financing from banks and other financial institutions to finance the cost of opening a new restaurant. If franchisees cannot obtain financing and restaurants do not open, our royalties from those restaurants will not exist. Any decrease or delay in our planned revenues could slow our planned growth.

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Food safety and food-borne illness concerns may have an adverse effect on our business.

We dedicate substantial resources to ensuring that our customers enjoy safe, quality food products. However, food-borne illnesses (such as E. coli, hepatitis A, trichinosis or salmonella) and food safety issues are an ongoing issue in the restaurant industry. If a food-borne illness or other food safety issues occur, whether at our restaurants or those of our competitors, it is likely that negative publicity would adversely affect our sales and profitability. If our customers become ill from food-borne illnesses, we might need to temporarily close some restaurants. Separately, the occurrence of food-borne illnesses or food safety issues could adversely affect the price and availability of affected ingredients.

Changes in commodity and other operating costs or supply chain and business disruptions could adversely affect our results of operations.

Changes in food and supply costs are a part of our business; any increase in the prices of our key ingredients, such as beef, chicken, cheese and produce could adversely affect our operating results. We remain susceptible to increases in food costs as a result of factors beyond our control, such as general economic conditions, seasonal fluctuations, weather conditions, demand, food safety concerns, product recalls, labor disputes and government regulations. In addition to food, we purchase electricity, oil and natural gas needed to operate our restaurants, and suppliers purchase gasoline needed to transport food and supplies to us. Any significant increase in energy costs could adversely affect our business through higher rates and the imposition of fuel surcharges by our suppliers. Because we provide moderately priced food, we may choose not to, or be unable to, pass along commodity price increases to our customers. Additionally, significant increases in gasoline prices could result in a decrease in customer traffic at our restaurants. We rely on third-party distribution companies to deliver food and supplies to our stores. Interruption of distribution services due to financial distress or other issues could impact our operations. Our operating costs also include premiums that we pay for our insurance (including workers’ compensation, general liability, property and health), which may increase over time, thereby further increasing our costs. Finally, our industry is susceptible to natural disasters, which could result in restaurant closures and business disruptions.

We could be party to litigation that could adversely affect us by increasing our expenses or subjecting us to material money damages and other remedies.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition" and "Description of Business," contains forward-looking statements.

Forward-looking statements include, but are not limited to, statements about:

 

·

the risk of failing to sell sufficient Spicy Pickle franchises;

·

the risk of failing to locate appropriate store locations for franchisees; and

·

the risk of lack of customer and market acceptance of Spicy Pickle restaurant offerings.

 

These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include those listed under "Risk Factors" and elsewhere in this prospectus. In some cases, you can identify forward-looking statements by terminology such as "may," "expects," "intends," "plans," "anticipates," "believes," "potential," "continue" or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We do not intend to update any of the forward-looking statements after the date of this prospectus or to conform these statements to actual results. 

You should rely only on the information contained in this prospectus. We have not authorized any other person to provide you with information that is different from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. The information presented on, or that can be accessed through, our website is not a part of this prospectus. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume the information appearing in this prospectus is accurate only as of the date on the front cover of the prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

 

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USE OF PROCEEDS

We will not receive any of the proceeds from the sale of the shares of common stock offered under this prospectus by the selling shareholders. Rather, the selling shareholders will receive those proceeds directly.

Upon exercise of the warrants issued to the purchasers of the Series A Preferred Stock, the underlying shares of common stock of which are offered for sale hereunder, we expect to receive aggregate proceeds of approximately $8,460,000. We expect to use any cash proceeds from the exercise of warrants for general working capital purposes.

PLAN OF DISTRIBUTION

Each selling shareholder of the common stock and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the OTCBB or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling shareholder may use any one or more of the following methods when selling shares:

 

·

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

·

block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

·

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

·

an exchange distribution in accordance with the rules of the applicable exchange;

·

privately negotiated transactions;

·

settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

·

broker-dealers may agree with the selling shareholders to sell a specified number of such shares at a stipulated price per share;

·

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

·

a combination of any such methods of sale; or

 

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·

any other method permitted pursuant to applicable law.

The selling shareholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

Broker-dealers engaged by the selling shareholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

In connection with the sale of the common stock or interests therein, the selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling shareholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities that require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The selling shareholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling shareholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the selling shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Because selling shareholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus that qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling shareholders.

We have agreed to keep this prospectus effective until the earlier of the date on which (i) the shares may be resold by the selling shareholders without registration and without regard to any volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling shareholders or any other person. We will make copies of this prospectus available to the selling shareholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

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LEGAL PROCEEDINGS

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS

Our executive officers and directors are as follows:

 

Name		Age		Position
Marc N. Geman		62		Chairman and Chief Executive Officer
Anthony S. Walker		36		Director and Chief Operating Officer
Kevin Morrison		42		Chief Culinary Officer
Arnold Tinter		62		Chief Financial Officer
Mark Maximovich		44		Vice President of Operations
Raymond BonAnno		67		Director
Presley Reed		61		Director
L. Kelly Jones		54		Director

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial ownership of our capital stock as of January 14, 2008 by (i) each person known by us to be the beneficial owner of more than five percent of the outstanding common stock, (ii) each director, (iii) each named executive officer, and (iv) all directors and executive officers as a group.

The number of shares beneficially owned is determined under the rules promulgated by the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under those rules, beneficial ownership includes any shares as to which the person has sole or shared voting power or investment power and any shares that the person has the right to acquire within 60 days of the date hereof, through the exercise or conversion of any stock option, convertible security, warrant or other right. Including those shares in the table does not, however, constitute an admission by the named shareholder that the shareholder is a direct or indirect beneficial owner of those shares.

Unless otherwise indicated, each person named in the table has sole voting power and investment power (or shares that power with that person's spouse) with respect to all shares of capital stock listed as owned by that person. Unless otherwise indicated, the address of each of the following persons is 90 Madison Street, Suite 700, Denver, Colorado 80206. All percentages of common stock beneficially owned by the listed persons are based upon 47,634,053 shares of common stock outstanding at January 14, 2008, and shares of common stock subject to options, warrants and convertible securities within 60 days of the date hereof are deemed to be outstanding for computing the percentage of the person holding such options, warrants or convertible securities but are not deemed to be outstanding for computing the percentage of any other person.

 

Title of Class		Name and Address of Beneficial Owner			Amount and Nature of Beneficial Ownership			Percent of Class
Common Stock			Marc Geman (1)			6,685,917			13.89	%
Common Stock			Anthony Walker (2)			6,485,712			13.53	%
Common Stock			Kevin Morrison (3)			5,921,038			12.35	%
Common Stock			L. Kelly Jones (4)			644,500			1.35	%
Common Stock			Raymond BonAnno (5)			2,645,445			5.52	%
Common Stock			Presley Reed (6)			4,865,986			9.77	%
Common Stock			Arnold Tinter (7)			525,000			1.09
Common Stock			Mark Maximovich (8)			50,000			*
Common Stock			EWM Investments (9)			4,122,300			8.65	%
Common Stock			All Directors and Executive Officers as a Group (8 persons)			27,823,598			53.67	%
Preferred Stock			Raymond BonAnno			12			1.70	%
Preferred Stock			Presley Reed			120			17.02	%

 

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* Less than one percent 

(1)	Includes 500,000 shares based on options exercisable within 60 days.
(2)	Includes 300,000 shares based on options exercisable within 60 days.
(3)	Includes 300,000 shares based on options exercisable within 60 days.
(4)	Includes 50,000 shares owned by Jones and Cannon, a law firm in which Mr. Jones is a partner, and 75,000 shares based on options exercisable within 60 days.
(5)	Includes 2,360,445 shares owned of record by the BonAnno Family Partnership; Raymond BonAnno has voting and dispositive power over such shares, 120,000 shares based on conversion of Series A Preferred Stock owned jointly by Mr. BonAnno and his wife, 90,000 shares based on exercise of warrants jointly owned by Mr. BonAnno and his wife, and 75,000 shares based on options exercisable within 60 days.

 

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(6)	Includes 1,544,578 shares owned jointly by Presley and Patricia Reed, 1,146,408 shares owned by the Presley Reed 1999 Family Trust, of which Patricia Reed, Mr. Reed’s wife, is the beneficiary, 1,200,000 shares based on conversion of Series A Preferred Stock owned jointly by Mr. Reed and his wife, 900,000 shares based on exercise of warrants jointly owned by Mr. Reed and his wife, and 75,000 shares based on options exercisable within 60 days.
(7)	Includes 525,000 shares based on options exercisable within 60 days.
(8)	Includes 50,000 shares based on options exercisable within 60 days.
(9)	Ernest Moody has sole voting and dispositive power over the shares owned of record by EWM Investments.

In connection with the sale of the Series A Preferred Stock, the Company adopted a Certificate of Designation of Preferences, Rights and Limitations of Series A Variable Rate Convertible Preferred Stock (the “Certificate of Designation”) on December 14, 2007. The Certificate of Designation designates up to 705 shares of Series A Preferred Stock, and each share of Series A Preferred Stock has a stated value equal to $8,500 (the “Stated Value”). 

The Certificate of Designation provides that the Series A Preferred Stock is further subject to the following rights and preferences:

The Company shall pay each holder of Series A Preferred Stock cumulative dividends at a rate per share of 5% per annum until the second anniversary of the original issue date, 7.5% per annum from the second anniversary of the original issue date until the third anniversary of the original issue date, and 14% per annum thereafter, payable semi-annually on January 1 and July 1, beginning on July 1, 2008, and upon conversion or redemption of the Series A Preferred Stock. Such dividends are payable in cash or, at the Company’s option, in shares of common stock or a combination thereof.

Except as otherwise provided in the Certificate of Designation or as required by law, the Series A Preferred Stock have no voting rights. Without the affirmative vote of 65% or more of the then-outstanding shares of Series A Preferred Stock, the Company may not authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation of the Company senior to or otherwise pari passu with the Series A Preferred Stock, adversely affect any rights of the holders of Series A Preferred Stock, or increase the number of authorized shares of Series A Preferred Stock.

Each share of Series A Preferred Stock is convertible, at any time after the original issue date, at the option of the holder of such share, into that number of shares of common stock determined by dividing the Stated Value by the conversion price for the Series A Preferred Stock. The conversion price for the Series A Preferred Stock is $0.85, subject to adjustment as provided in the Certificate of Designation.

Subject to certain restrictions as provided in the Certificate of Designation, the Company may redeem some or all of the then-outstanding Series A Preferred Stock for cash in an amount provided in the Certificate of Designation. The Company may redeem the Series A Preferred Stock at any time after the date on which a registration statement registering for resale the shares of common stock into which the shares of Series A Preferred Stock are convertible is declared effective by the SEC.

 

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Upon any liquidation, dissolution or winding-up of the Company, the holders of Series A Preferred Stock will be entitled to receive out of assets an amount equal to the Stated Value, plus any accrued and unpaid dividends or any other fees or liquidated damages owing thereon, for each share of Series A Preferred Stock before the Company may make any distribution or payment to the holders of common stock.

 

The Series A Preferred Stock is subject to certain anti-dilutive adjustments, including but not limited to adjustments for stock dividends and stock splits, issuance by the Company of equity securities below a certain price and issuance by the Company of options or rights to purchase or reprice equity securities below a certain price.

 

Warrants

In connection with the sale of the Series A Preferred Stock, the Company issued to each purchaser a warrant to purchase up to that number of shares of common stock equal to 75% of such purchaser’s subscription amount divided by $0.85, with an exercise price equal to $1.60 per share, subject to adjustment as provided therein. Each warrant is exercisable immediately and for a term of five years from the date of issuance. In addition, in connection with the sale of the Series A Preferred Stock, the Company issued to the placement agent in the transaction warrants to purchase 288,400 shares of common stock exercisable at $1.60 per share beginning one year after the date of issue and continuing for a period of five years from the date of issue. The placement agent may be entitled to receive warrants to purchase an additional 216,300 shares of common stock based on subsequent exercises of warrants by certain investors.

EXPERTS

Our financial statements, including those of Spicy Pickle Franchising, LLC (our predecessor), as of and for the years ended December 31, 2006 and December 31, 2005 appearing in the prospectus have been audited by Gordon, Hughes & Banks, LLP, an independent registered public accounting firm, to the extent and for the periods indicated in their report appearing herein, which report expresses an unqualified opinion, and are included in reliance upon such report and upon authority of such firm as experts in accounting and auditing.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR

SECURITIES ACT LIABILITIES

Our Articles of Incorporation and Bylaws provide that we shall indemnify our directors and officers to the fullest extent permitted under Colorado law. Our Board of Directors is obtaining quotations on the cost of an insurance policy covering officers and directors for claims made that such officers and directors may otherwise be required to pay for or for which we would be required to indemnify them, subject to certain exclusions.

Insofar as indemnification for liability arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to our Articles and Bylaws, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by our directors, officers or controlling persons in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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DESCRIPTION OF BUSINESS

 

Our sole business is the franchise and operation of Spicy Pickle restaurants. Spicy Pickle is a fast casual restaurant where made-to-order panini, submarine-style sandwiches, pizzetti (Neapolitan thin crust pizza), and salads created by our founders are served using fresh-baked breads and high-quality ingredients.

Our goal is to deliver a delicious flavor profile, an exceptional customer experience, and an enjoyable atmosphere in our locations. We cannot assure you that we will be successful. We believe our menu items appeal to diners of all ages and preferences, and we expect to accommodate breakfast, lunch and dinner segments soon.

Our franchisees must qualify on the basis of considerable experience in other management and food service ventures and should have liquid assets of at least $150,000. Franchise fees are $35,000 for the first restaurant and $20,000 for additional locations. Fees for additional locations are lower because the training and grand opening are handled by the experienced franchisee, although these services are still available for purchase from us if desired. Area development agreements are available to selected franchisees that wish to secure a territory for future development ($10,000 per store is pre-paid and the balance of $10,000 is paid when the area developer is ready to begin build-out for each new site).

 

Franchisees pay Spicy Pickle a 5% royalty on weekly gross sales and an additional 2% to support national and regional marketing efforts that produce brand development, agency support, point of purchase materials and print and broadcast advertising. In addition, we require franchisees to dedicate at least 1% of sales to local advertising. The estimated initial cost of a Spicy Pickle franchise is approximately $436,700 and varies based on location. Each location has an end-cap/in-line of approximately 2,000 square feet and seating for 30-50 guests inside with additional outdoor seating as available.

 

Spicy Pickle has been recognized nationally and in its local markets as a purveyor of fast casual food to watch. The December 2006 and 2007 issues of Fast Casual Magazine feature Spicy Pickle as numbers 54 and 25, respectively, in its list of “2006 Top 100 Movers and Shakers” and “2007 Top 100 Movers and Shakers,” respectively. National Restaurant News selected Spicy Pickle as one of its 2006 Hot Concepts!

We intend to expand nationally by growing the chain of restaurants in and near downtown settings where daytime population is dense, as well as near tech centers, government complexes, universities, and medical centers where large amounts of administrative and professional people are employed. We have designed systems to maximize and replicate our success in a variety of settings. Complete programs have been developed for real estate, architecture, construction management, equipment procurement, food distribution, training, operations and marketing to promote the success of each franchisee. Owners generally purchase turn-key services from us.  

Industry Background

Spicy Pickle restaurants are classified as “fast casual” restaurants in the restaurant industry. There is no single definition of fast casual, but in concept a fast casual restaurant does not offer full table service, but generally offers high-quality food and atmosphere with either numbered or personalized delivery of meals to the table or a central pick up area. Fast casual fills the space between fast-food where no table service is available and food is paid for and delivered to the customer at the register, and casual dining where full table service is available to the customer.

Growth Strategy

We believe that our ability to deliver value, quality, price and convenience will help us grow. Our target customer is 21-55 years of age, educated with at least some college experience, and the typical location for the Spicy Pickle restaurant is near a downtown area of a dense city, or near a tech center, government complex, university, or medical center where large numbers of administrative and professional employees are found. We also look for big box centers anchored by a large tenant and in areas of both white collar workforce and high income households.

Our menu is moderately priced with an average ticket of $8.00 to $9.00. We expect to expand our menu to include breakfast and catering. We are committed to providing sufficient variety to encourage guests to return often and try something new.

We believe that our growth is the result of the appeal of our food, the clarity of our vision, the increasing strength of our brand and our commitment to constantly improving our customer experience.

 

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						As a Percentage of Restaurant Sales						As a Percentage of Restaurant Sales
Restaurant:
Cost of sales			-			-			142,005			39.34	%
Labor			-			-			138,523			38.38	%
Occupancy			-			-			58,787			16.29	%
Other operating cost			-			-			50,351			13.95	%
Total restaurant operating expenses			-			-			389,666			107.96	%

 

						As a Percentage of Franchise  Fees and Royalties						As a Percentage of Franchise Fees and Royalties
Franchise and general:
Cost of sales			20,185			2.51	%		70,376			15.91	%
General and administrative			3,144,726			391.51	%		1,251,429			282.95	%
Depreciation			19,044			2.37	%		13,000			2.94	%
Total franchise and general expenses			3,183,955			396.39	%		1,334,805			301.80	%

 

						As a Percentage of Total Revenue						As a Percentage of Total Revenue
Total operating costs and expenses			3,183,955			396.39	%		1,724,471			214.69	%
(Loss) from operations			(2,380,729	)		(296.40	)%		(921,247	)		(114.69	)%
Other income and (expense):
Other income			105			-			-			-
Interest income (expense)			37,717			4.70	%		14,663			1.83	%
Total other income and (expense)			37,822			4.71	%		14,663			1.83	%
Net (loss)		$	(2,342,907	)		(291.69	)%	$	(906,584	)		(112.87	)%

 

		2007			2006			Difference
Personnel cost		$	1,323,513		$	496,870		$	826,643
Stock options (fair value)			278,544			-			278,544
Professional fees			200,238			355,132			(154,894	)
Travel and entertainment			285,218			157,023			128,195
Marketing, advertising, promotion			146,512			18,444			128,068
Investor relations			346,032			-			346,032
Rent			108,404			46,972			61,432
Office supplies and expenses			68,322			25,619			42,703
Communication			98,246			28,136			70,110
MIS/IT			70,732			19,232			51,500
Other general and administrative expenses			218,965			104,001			114,964
Total general and administrative expenses		$	3,144,726		$	1,251,429		$	1,893,297

 

 

 

		2006						2005
		Amount			As a Percentage of Total Revenue			Amount			As a Percentage of Total Revenue
Revenues:
Restaurant sales			409,018			45.85	%		485,708			56.56	%
Franchise fees and royalties			482,991			54.15	%		373,005			43.44	%
Total revenue			892,009			100.00	%		858,713			100.00	%

 

 

						As a Percentage of Restaurant Sales						As a Percentage of Restaurant  Sales
Restaurant:
Cost of sales			160,728			39.30	%		184,913			38.07	%
Labor			154,619			37.80	%		164,689			33.91	%
Occupancy			67,951			16.61	%		67,840			13.97	%
Other operating cost			50,582			12.37	%		50,724			10.44	%
Total restaurant operating expenses			433,880			106.08	%		468,166			96.39	%

 

						As a Percentage of Franchise Fees and Royalties						As a Percentage of Franchise Fees and Royalties
Franchise and general:
Cost of sales			18,510			3.83	%		42,487			11.39	%
General and administrative			1,834,571			379.84	%		764,657			205.00	%
Depreciation			18,575			3.85	%		12,090			3.24	%
Total franchise and general expenses			1,871,656			387.52	%		819,234			219.63	%

 

						As a Percentage of Total Revenue						As a Percentage of Total Revenue
Total operating costs and expenses			2,305,536			258.47	%		1,287,400			149.92	%
(Loss) from operations			(1,413,527	)		-158.47	%		(428,687	)		-49.92	%
Other income and (expense):
Other income			29,556			3.31	%		(2,853	)		-0.33	%
Interest income (expense)			986			0.11	%		0			0.00	%
Total other income and (expense)			30,542			3.42	%		(2,853	)		-0.33	%
Net income (loss)			(1,382,985	)		-155.04	%		(431,540	)		-50.25	%

 

 

 

		2006			2005			Difference
Personnel cost		$	800,722		$	196,212		$	604,510
Stock options (fair value)			7,595			-			7,595
Professional fees			444,512			117,492			327,020
Travel and entertainment			211,039			86,542			124,497
Marketing, advertising, promotion			107,532			261,552			(154,020	)
MIS/IT			32,812			12,738			20,074
Rent			60,349			50,441			9,908
Office supplies and expenses			44,194			32,413			11,781
Communication			38,919			26,574			12,345
Other general and administrative expenses			86,897			56,096			30,801
Total general and administrative expenses		$	1,834,571		$	840,060		$	994,511

 

 

 

(1)	In August 2006, Mr. Geman received an increase in his salary to $150,000 per annum. Under Mr. Geman’s employment agreement, an increase to $360,000 per annum has been implemented. Bonuses awarded in 2006 and 2007 were granted by the compensation committee of the Board of Directors. Mr. Geman receives no compensation for his services as a director.
(2)	From September 2006 to July 2007, Mr. Tinter was compensated as an independent contractor at the rate of $5,000 per month. Subsequent to July 1, 2007, Mr. Tinter became a full-time employee of our Company and under a verbal agreement received $12,500 per month as compensation. The bonus awarded in 2007 was granted by the compensation committee of the Board of Directors.
(3)	In September 2006, Mr. Walker’s salary increased to $109,000 per annum. Under Mr. Walker’s employment agreement, an increase to $150,000 per annum has been implemented. Mr. Walker receives no compensation for his services as a director.