Early Bloomer: A Small Chain Issues IPO
Spicy Pickle goes public to ramp up expansion.

By Maya Norris
October 11, 2007

When Chain Leader spoke to Spicy Pickle in May 2004, the Denver-based sandwich chain had six units in Colorado and had just launched its franchising program the previous year. Now with 27 units in nine states, Spicy Pickle plans to ramp up expansion with capital from its IPO in September. The company raised $1.74 million by selling 4.35 million shares at 40 cents each; shares of SPKL are currently trading at $1.38. President and CEO Marc Geman spoke to Chain Leader about why the 7-year-old company decided now was the best time to issue an IPO.

Spicy Pickle is still a relatively small company and the macroeconomic environment for restaurants is difficult right now. What prompted the company to go public now rather than wait a few more years?
First of all we had raised some funds over the summer of ’06 from some private investors, and one of the conditions of that raise was that we provide some form of exit strategy for them. So obviously filing for a public market was one of those strategies.

And the second reason was just to raise some additional funds to carry through our franchise program.

And the third reason was to give us a public posture so that we could talk to [private] investors about additional secondary financing to build a corporate-restaurant program. So those are the three ingredients that drove us to do the registration.

The registration was a self-registration. It wasn’t underwritten. We feel it went just fine. It did exactly what we needed it to do. It raised some funds. It got us on the trading market with a symbol, and the stock is trading very nicely actually.

What will you use the proceeds of the IPO specifically for?
The proceeds from the public offering itself were to put in place the infrastructure to carry through our franchise program. We have about 92 franchise development packages sold, and we have another 27 stores open with another 13 in construction. So obviously there is more sold than is open at this point.

We needed those funds to carry the infrastructure—the operational teams and the training teams and so forth, project management teams that we hired and trained in order to get all these stores open. And so we’re running at a loss right now and knew we would. And so those funds were raised in order to get us to the point where we would be operationally break even or profitable.

Your stock trades on the Over-the-Counter Bulletin Board. What are the pros and cons of trading on the OTCBB vs. larger exchanges like the Nasdaq or New York Stock Exchange?
The only really con I know if you will, if it is even that, clearly there are some brokerage houses and some banks that cannot really work with your stock. If it’s on the Bulletin Board, they have some type of internal policy that doesn’t allow them to look at stock as having a value. So that’s a con I guess to a certain extent.

The pros for us is, we seem to have a wide following right now and…we have tremendous volume in our stock. I dare say we’ve gone from 151 shareholders to well over 1,000 at this point. That kind of diversification that the Bulletin Board has achieved for us is very healthy for a company.

As Spicy Pickle expands, what initiatives are you working on or are in the pipeline?
We just started a test market of a breakfast program, which really involves a few different breakfast paninis in Sacramento. It’s only a week old. I don’t really have any results for you. But we’re trying that because our demographic is a white-collar administrative-managerial-professional-type person. So those are often found on the commute side near downtown areas that generally don’t have much of a dinner business. So in order to generate another daypart for those kinds of locations, we’re trying this breakfast program. And we would roll it out to a few of those locations that we have that are situated like that.

Some of our other stores are situated near a hospital or a tech center or something like that, a government center, and there may actually be households in the neighborhood as well. And in those areas, we’re working with a Pizzetti, which is a thin-crust, Neapolitan individual-style pizza that we make.

So we’re trying to generate two dayparts at least for our stores, whether that be a breakfast and lunch or a lunch and dinner. But the bulk of our business is still in and around the lunch hour.

We also just in the last couple of months rolled out a very extensive catering program. The catering menu is up on our Web site. We have both box lunches, and then we have multiple ability to serve 12, 18, 20 people and more. And we have all the packaging surrounding that, which is now available in our stores. And the catering program is doing very well.

In five to 10 years, do you envision Spicy Pickle upgrading to the larger exchanges?
Well certainly I would hope that as the company reaches profitability and starts really having a footprint in this country--what I mean by that is probably something north of 100 stores at least--I would suspect as a normal course of business our financial statements would qualify us for trading on the Nasdaq or [other large] exchanges, and we would look at it at that time. I would think at least a year, probably more realistically a couple years or more.