SOURCE: Spicy Pickle Franchising, Inc.

March 15, 2010 08:30 ET

Spicy Pickle Franchising Reports Year End 2009 Results

Capital Restructure and Expense Reductions Position Company for Growth

DENVER, CO--(Marketwire - March 15, 2010) -  Spicy Pickle Franchising, Inc. (OTCBB: SPKL), fast casual restaurant operator and franchisor under its Spicy Pickle and Bread Garden Urban Café brands, today announced results for the year ended December 31, 2009.

Spicy Pickle's management feels it reached two major milestones in 2009. First, it reduced its operating loss to $2 million from $5.6 million, and secondly, it arranged for the redemption of a portion of its convertible preferred stock and the conversion of the remainder. The company issued just under 7 million shares of common stock for the conversion and paid $800,000 cash for the redemption. 

For the year ended December 31, 2009, total revenue decreased 6.68% from 2008. In addition to general economic conditions, during 2009 revenue from company owned restaurant operations decreased about 14% primarily as a result of having one less restaurant operating in 2009. This restaurant was sold to a new franchisee at the end of 2008. Bakery sales decreased about 13% as a result of having fewer customers, both franchise and company owned restaurants as well as the general economic conditions. These decreases were partially offset by a 10% increase in franchise fees and royalty revenues.

The company reduced its losses in both our restaurant and bakery operations. It significantly reduced corporate overhead by about 65% which brought the net loss down about $3.6 million.

The company negotiated an agreement and exchanged shares carrying a preferred position on its assets and an ongoing dividend payment, for just over $1 million of market value of its common stock along with a payment of $800,000. There was a book entry to account for the lowering of the warrant exercise price. If the warrants are exercised, they will bring the company additional proceeds of about $1 million. Under accounting rules, the treatment is to increase the paid-in capital of the company and not reflect an operating gain or loss on the income statement. The company believes the transaction is beneficial to all shareholders. The original transaction took place in 2007 when the company raised about $5.7 million for issuing the original convertible preferred shares.

Chairman and CEO Marc Geman noted that, "2009 was a difficult year for almost anyone in the franchise restaurant business. Without readily available financing it is very hard to grow a franchise system, and in a time where sales have declined overall, it is also hard to attract interest in retail operations. Nonetheless, we took this opportunity to significantly reduce expenses, particularly in personnel and related travel, which has resulted in our recognizing a loss of about $2 million versus $5.6 million the year before. Additionally, of the loss, about $820,000 was depreciation, amortization and stock-based payments which are non-cash. We also closed some underperforming restaurants, some of which extended into early 2010. The net effect of these closings against new openings was to keep revenue fairly level at this time but to replace underperforming restaurants with those we expect will be better performing ones, and in the end we believe we will have a healthier, stronger system.

"Our overhead reductions have controlled the losses and we will continue to closely monitor costs. We ended the year with about $810,000 in cash, and while we believe we have the necessary funds to continue to execute our plan, we will continue to explore fund raising activities."

For the year ended December 31, 2009, restaurant sales decreased 14.3% from $2,643,682 in 2008 to $2,264,926 in 2009. The decrease is principally due to the number of restaurants operating in each period as well as the changes in economic conditions. In 2009, the company had seven restaurants operating. In 2008, it had eight restaurants. 

For the year, bakery sales decreased 12.9% from $466,669 to $406,600 in 2009. It had fewer customers, both franchise and company restaurants, in 2009 than in 2008. In addition, customers' revenues were down in 2009 resulting in lower bread sales.

The loss from restaurant operations decreased 10.0% from $533,151 for 2008 to $479,786 for 2009. The improvement results from the sale of one less profitable company owned restaurant. In addition, the company reduced controllable operating costs. "We believe we will see continued improvement in the operation of our restaurants as we work towards adding new day parts, such as breakfast or dinner, to our menu," said Mr. Geman.

The loss from bakery operations decreased 34.7% from $64,254 for 2008 to $41,956 for 2009. This results from a reduction of cost of sales percentage from 35.9% to 25.7% for 2009. Bakery labor, a significant component of cost, is semi variable and decreased to 45.6% in 2009. Other operating costs increased 21.2% to $90,793 in 2009, primarily from increases in our allowance for bad debts.

Franchise fees and royalty revenue increased 11.0% from $1,307,295 for 2008 to $1,450,899 in 2009. Revenue increased as a result of fees being paid by more franchised restaurants in 2009 than in 2008, primarily from the addition of the Bread Garden Urban Cafés

Following is a financial summary:

    As of December 31,  
Balance Sheet:   2009     2008  
Total current assets   $  1,288,423     $     671,284  
Total assets   $  5,839,194     $  5,565,190  
Current liabilities   $  1,208,359     $  1,596,919  
Total stockholders' equity   $  3,343,507     $  3,275,219  
   
Statement of Operations:  
      Year Ended  
      December 31,  
      2009       2008  
Revenues   $  4,122,425     $  4,417,646  
Operating costs and expenses   $  6,113,207     $  10,028,347  
Operating loss   $ (1,990,782 )   $ (5,610,701 )
Net loss   $ (2,039,841 )   $ (5,612,749 )
Comprehensive (loss)   $ (2,771,641 )   $ (5,921,349 )
  Net (loss) per common share   $ (0.04 )   $ (0.12 )

About Spicy Pickle™:
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 cheeses, twenty-two 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 offers menu items that are far beyond traditional fast food but without the price point of casual dining. The hallmark of a Spicy Pickle restaurant is quality, service and an enjoyable atmosphere. The company is headquartered in Denver, Colorado, with restaurants open across 10 states and more in development nationwide. Spicy Pickle Franchising, Inc. also operates as franchisor for Bread Garden Urban Cafes, a concept with restaurants in the metropolitan Vancouver, British Columbia, Canada and in other locations in British Columbia. Bread Garden Urban Cafes serve coffee, pastries and breakfast items as well as lunch and dinner along with a wide variety of desserts. To find out more about Spicy Pickle, visit our website at 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.

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