About a week ago SPKL filed its year end audited financial statement, and this is the first time I’ve had an opportunity to comment on the results.

For those of you who would like to learn more about this rapidly growing fast casual restaurant chain, please go to our information center on the company- you will find every edition and BLOG I’ve ever published on SPKL. You’ll find it at http://www.otcjournal.com/Spicy-Pickle-Franchising-Inc/SPKL/af/profile/

There were no surprises at all in the 10K- it was just as I predicted it would read, which is probably why it was not a market moving event.

The revenue number is pretty small- that’s a reflection of the annual revenues last year being comprised mainly of the royalties of about 8% they collect on each store. In the 10k annual report there were no company owned stores included- which means there were no big top line numbers. Since the end of the year, one company owned store has opened which they built, and 3 have been acquired from franchisees. Two more are under construction right now. The total will be five before too long, which will equate to about $3.5 to $3.8 million in annual sales. Since they delivered $1.2 million in sales for the year, next year is virtually guaranteed to be at least triple that number, but that’s based on where the company is today just from the company owned stores. It’s early in the year. There are many more growth opportunities for the remainder of the year.

The far greater news out of the 2007 numbers is the balance sheet improvements. SPKL finished the year with $5.4 million in cash vs $1.2 million the previous year, and $6.4 million in assets. Thanks to the $5.9 million financing in mid December at $.85 per share, the company finished the year in great shape. The cash will go down in 2008, but the revenues and gross profits will go up as SPKL invests the money in expansion.

Therefore, over the course of 2008, you will see quite dramatic top line percentage improvements, a deterioration of cash on the balance sheet as it is invested, and reduced losses- perhaps even profits by the back half of the year. The company will certainly turn cash flow positive later in the year.

The only negatives I can even come up with on SPKL are the slipping stock price and the temporary vacuum of new store openings.

The company has not opened a new store since the middle of December, but it’s not due to lack of opportunity. As is the case with construction, a few of the properties we thought would be open by now have been hit with delays- construction, permitting, etc. The delays have just about run their course, and 6 or 7 new ones will open over the next couple of months, and there should be a much larger number in the back half of the year.

Current commitments from franchisees have the total number of eventual stores at about 130 now. Just to clarify for those who are confused by the numbers- there are 36 opened and operating today- about 7 or 8 under construction- about the same number with signed leases awaiting the commencement of construction, and another 10 or so leases in various stages of negotiation. That leaves about 75 more stores committed to and paid for to open over the coming years.

On to the technical picture.

This stock began trading publicly in August of ’07. It was a self underwritten IPO at $.40 per share. After catching fire in the short run, it succumbed to Bear Market selling pressure. Pretty much all technical levels of resistance have given way. My SSL on the stock was $.90, so if you are still in, you should be long term. This is a good choice to be long term in my view.

I believe before the Bear Market is over, the stock could be vulnerable to go back and fill the gap from its very early trading days. That gap is like a vacuum, and nature wants to go back and fill the void.

I know it’s tough to see on the chart, but in order to fill that gap, the stock would have to trade back down to $.71.

If the stock can grind it’s way down there, I believe the trip would be very short lived, as there are a lot of investors following the company and looking for the bottom to get really engaged.

About 2 years ago right now, CEO Marc Geman called me to discuss raising capital. At the time, SPKL had a total of 12 stores open and about 20 franchises sold in all. Today, the number of open stores has gone up 200%- 12 to 36- and the number of franchises sold has gone up 550%- 20 to 130. The growth rate is accelerating because the management is excellent, the concept is strong, the franchisees are making money, and the food is simply great.

I believe SPKL will be a repeat of Commerce Planet (OTC BB: CPNE) with a more positive ending. Long term subscribers will recall I first featured CPNE in 2005 at $1, and it found its way to $2. Then, we had a tough market and the company stumbled- it was $.30 in the Fall of 2006. By the spring of ’07 the stock was at a high of $3.50- a ten bagger off the bottom of the pullback. They since have sabotaged their own success.

For SPKL it will be deja vu all over again with one main difference- the SPKL business model has far stronger legs. Each of those restaurants is an annuity that can contribute pretty much forever.

I believe this stock is going to $3 or $4 in the next Bull Market. I can’t say when it’s going to be, but I believe it will happen. You have a once in a lifetime opportunity to accumulate this one during the economic slow down. Today, you can pick up the stock at the same level the $6 million December financing was priced at ($.85)- two board members put in $1.4 million of the $6 of their family money. I personally invested $102k out of my Defined Benefit money. Worth noting.

Comments and questions are welcome.

The Pickle had held up quite nicely in the face of the current nasty Bear that’s been gnashing its teeth at every non energy non commodity company out there.

Today, the stock finally succumbed to the buyer’s strike, and broke below the ascending triangle which has been forming for the last several months, suggesting the stock wants to go through a corrective phase for the time being.
Here’s a look at today’s chart:

As you can see, the stock has broken down below the support level defined by the descending triangle.

I have been warning the stock was vulnerable for a downside push as it would appear the December financing has brought some sellers with a little market related impatience out of the proverbial woodwork.

I am not concerned about this turn of events as it is my expectation you are going to get some corrective action in most stocks in a Bear Market even if the company is delivering on all fronts.

This break below the support level also coincides quite closely with the 61.8% retracement of the stock’s entire big move from the fall- another technical negative.

In light of the great performance the company is delivering, here are my thoughts. I believe the stock at a very good level for accumulation if you are a long term investor- meaning you are looking for long term capital gains (more than one year).

If you are looking for an oversold trade for a quick move to the upside, I would avoid the stock at this time. There could be more downside work to be done before a bottom is put in.

From here, it will be interesting to find out what level investors find this stock irresistible. I’m guessing somewhere in the $.90 to $1 range.

This move might in fact be healthy for the stock longer term. It will no doubt clean out anyone with short term thinking on SPKL, and leave the stronger, longer term investors as the shareholder pool. We’ll end up in stronger hands when the rebounds start happening.

It’s worth remembering that SPKL is on an expansion tear. It’s also worth remembering that of the $6 million that was raised in December at $.85, $1.4 million came directly from board members.