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.

In the future 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.

 

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SELLING SHAREHOLDERS

We are registering 21,442,981 shares of common stock that the selling shareholders may acquire upon conversion of the Series A Preferred Stock, exercise of warrants or payment of dividends on the Series A Preferred Stock in shares of common stock. The shares of common stock being registered include such indeterminate number of shares of common stock as may be issuable with respect to the shares of common stock being registered hereunder only as a result of stock splits, stock dividends or similar transactions. The shares of common stock being registered do not include additional shares of common stock issuable as a result of changes in market price of the common stock, issuance by us of equity securities below a certain price or other anti-dilutive adjustments or variables not covered by Rule 416. All shares that may be issued will be restricted securities as that term is defined in Rule 144 under the Securities Act, and will remain restricted unless and until such shares are sold pursuant to this prospectus, or otherwise are sold in compliance with Rule 144.

 

No shareholder may offer or sell shares of our common stock under this prospectus unless such shareholder has notified us of such shareholder’s intention to sell shares of our common stock and the registration statement of which this prospectus is a part has been declared effective by the SEC and remains effective at the time such selling shareholder offers or sells such shares. We are required to amend the registration statement of which this prospectus is a part to reflect material developments in our business and current financial information. Each time we file a post-effective amendment to our registration statement with the SEC, it must first become effective prior to the offer or sale of shares of our common stock by the selling shareholders.

The table below lists the selling shareholders and other information regarding the beneficial ownership of shares of common stock by the selling shareholders. The second column lists the number of shares of common stock beneficially owned by each selling shareholder as of April 1, 2009, which includes the shares of common stock issuable upon conversion of all shares of the Series A Preferred Stock and exercise of all warrants held on that date, without regard to any limitations on conversion or exercise, and shares of common stock that the Company could issue as dividends on the Series A Preferred Stock in lieu of cash through December 14, 2011.  The third column lists the number of shares of common stock being offered by this prospectus by the selling shareholders. The fourth column lists the number of shares of common stock that will be beneficially owned by the selling shareholders after this offering assuming that all of the shares offered pursuant to this prospectus are sold and that other shares of common stock beneficially owned by them as of April 1, 2009 but not offered under this prospectus are not sold.

For purposes of illustration only, the following table assumes that all of the selling shareholders will sell all of the shares they are offering under this prospectus. Alternatively, these shareholders may choose not to sell any shares currently held by them, or they may sell some lesser portion of their holdings. In these three possible circumstances, respectively, the selling shareholders would then own no shares, all of the shares they currently hold, or some number of shares less than the number of shares they currently hold.

The common stock covered by this prospectus is to be offered for the account of the following selling shareholders listed below. All positions, offices and material relationships that any selling shareholder has had with us or any of our predecessors or affiliates in the past three years are disclosed in footnotes to the table.

 

Name of Selling Shareholder		Number of Shares Owned Before Offering			Number of Shares Being Offered (1)			Number of Shares Owned After Offering (2)			Percent of Shares Owned After Offering (3)
Enable Growth Partners LP (4) (5)			11,206,777			11,047,542			159,235			*
Enable Opportunity Partners LP (4) (6)			1,939,395			1,911,452			27,943			*
Pierce Diversified Strategy Master Fund LLC, ena (4) (7)			389,950			388,770			1,180			*
Presley Reed and Patricia Stacey Reed (8)			7,329,482			3,887,698			3,441,784			4.50	%
Steven and Judith Combs (9)			784,557			388,770			395,787			*

 

 

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MarketByte LLC Defined Benefit Plan Trust (10)			403,850			388,770			15,080			*
Marilyn D. Herter Trust (11)			403,850			388,770			15,080			*
Desert Lake Advisors Inc. Defined Benefit Plan (12)			503,850			388,770			115,080			*
David Andrew Piper and Deborah Cooke-Smith (13)			403,850			388,770			15,080			*
Raymond J. BonAnno and Joan E. BonAnno (14)			3,364,295			388,770			2,975,525			3.89	%
Keith and Angela Oxenreider (15)			388,770			388,770			-			-
R. James BonAnno, Jr. (16)			388,770			388,770			-			-
Mark Abdou (17)			356,315			313,235			43,080			*
Bristol Investment Fund, Ltd. (18)			784,124			784,124			-			-
			28,647,835			21,442,981			7,204,854

____________________

* Less than one percent

 

(1)

Except as otherwise indicated, 30.26% of such shares represent shares issuable upon conversion of the selling shareholder’s Series A Preferred Stock at the initial conversion price of $0.85 per share, 24.66% of such shares represent shares issuable upon exercise of such shareholder’s warrants, and 45.08% of such shares represent shares issuable as dividends on such shareholder’s Series A Preferred Stock in lieu of cash through December 14, 2011.

 

(2)	Assumes that all of the shares offered under this prospectus by the selling shareholders are sold and that shares owned by such shareholder before this offering but not offered by this prospectus are not sold.

 

(3)

All percentages of shares outstanding after the offering are based on 54,387,347 shares of common stock outstanding as of April 1, 2009, plus 21,442,981 additional shares of common stock outstanding assuming conversion of all shares of the Series A Preferred Stock, exercise of all warrants held by the selling shareholders, and the payment of future dividends on the Series A Preferred Stock in shares of common stock in lieu of cash through December 14, 2011, and all other shares of common stock subject to options, warrants and convertible securities within 60 days of April 1, 2009 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.

 

(4)

Mitch Levine has voting and investment power over the shares registered in the name of Enable Growth Partners LP, Enable Opportunity Partners LP and Pierce Diversified Strategy Master Fund LLC, ena. These selling shareholders have contractually agreed to restrict their ability to convert their Series A Preferred Stock or exercise their warrants and receive shares of our common stock such that the number of shares of common stock held by them and their affiliates in the aggregate after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock as determined in accordance with Section 13(d) of the Exchange Act. In light of that restriction, the number of shares of common stock set forth in the table for these selling shareholders exceeds the number of shares of common stock that they could own beneficially at any one time through their ownership of the Series A Preferred Stock and the warrants.

 

(5)

Includes 159,235 shares owned by Enable Growth Partners LP, 3,410,000 shares based on conversion of Series A Preferred Stock, 2,557,500 shares based on exercise of warrants, and 5,080,042 shares based on payment of dividends in shares in lieu of cash through December 14, 2011 on Series A Preferred Stock.

 

(6)

Includes 27,943 shares owned by Enable Opportunity Partners LP, 590,000 shares based on conversion of Series A Preferred Stock, 442,500 shares based on exercise of warrants, and 878,952 shares based on payment of dividends in shares in lieu of cash through December 14, 2011 on Series A Preferred Stock.

 

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(7)

Includes 1,180 shares owned by Pierce Diversified Strategy Master Fund LLC, ENA, 120,000 shares based on conversion of Series A Preferred Stock, 90,000 shares based on exercise of warrants, and 178,770 shares based on payment of dividends in shares in lieu of cash through December 14, 2011 on Series A Preferred Stock.

 

(8)

Presley Reed is a director of the Company. Includes 1,695,376 shares owned jointly by Presley and Patricia Reed, 1,146,408 shares owned by the Presley Reed 1999 Family Trust, of which Patricia Reed 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, 1,787,698 shares based on payment of dividends in shares in lieu of cash through December 14, 2011 on Series A Preferred Stock owned jointly by Mr. Reed and his wife, and 600,000 shares based on options exercisable within 60 days of April 1, 2009 owned by Mr. Reed.

 

(9)

Includes 395,787 shares owned jointly by Steven and Judith Combs, 120,000 shares based on conversion of Series A Preferred Stock jointly owned by Steven and Judith Combs, 90,000 shares based on exercise of warrants jointly owned by Steven and Judith Combs, and 178,770 shares based on payment of dividends in shares in lieu of cash through December 14, 2011 on Series A Preferred Stock jointly owned by Steven and Judith Combs.

 

(10)

Lawrence D. Isen has voting and investment power over the shares registered in the name of the MarketByte LLC Defined Benefit Plan Trust. Includes 15,080 owned by the MarketByte LLC Defined Benefit Plan Trust,   120,000 shares based on conversion of Series A Preferred Stock owned by the MarketByte LLC Defined Benefit Plan Trust, 90,000 shares based on exercise of warrants owned by the MarketByte LLC Defined Benefit Plan Trust, and 178,770 shares based on payment of dividends in shares in lieu of cash through December 14, 2011 on Series A Preferred Stock owned by the MarketByte LLC Defined Benefit Plan Trust.

 

(11)

Marilyn D. Veigel has voting and investment power over the shares registered in the name of the Marilyn D. Herter Trust. Includes 15,080 shares owned by the Marilyn D. Herter Trust, 120,000 shares based on conversion of Series A Preferred Stock owned by the Marilyn D. Herter Trust, 90,000 shares based on exercise of warrants owned by the Marilyn D. Herter Trust, and 178,770 shares based on payment of dividends in shares in lieu of cash through December 14, 2011 on Series A Preferred Stock owned by the Marilyn D. Herter Trust.

 

(12)

Thomas P. Dobron has voting and investment power over the shares registered in the name of the Desert Lake Advisors Inc. Defined Benefit Plan. Includes 115,080 owned by the Desert Lake Advisors Inc. Defined Benefit Plan, 120,000 shares based on conversion of Series A Preferred Stock owned by the Desert Lake Advisors Inc. Defined Benefit Plan, 90,000 shares based on exercise of warrants owned by the Desert Lake Advisors Inc. Defined Benefit Plan, and 178,770 shares based on payment of dividends in shares in lieu of cash through December 14, 2011 owned by the Desert Lake Advisors Inc. Defined Benefit Plan.

 

(13)

Includes 15,080 shares owned by Deborah Cooke-Smith, 120,000 shares based on conversion of Series A Preferred Stock jointly owned by David Andrew Piper and Deborah Cooke-Smith, 90,000 shares based on exercise of warrants jointly owned by David Andrew Piper and Deborah Cooke-Smith, and 178,770 shares based on payment of dividends in shares in lieu of cash through December 14, 2011 on Series A Preferred Stock jointly owned by David Andrew Piper and Deborah Cooke-Smith.

 

(14)

Raymond BonAnno is a director of the Company. Includes 2,360,445 shares owned of record by the BonAnno Family Partnership, over which Raymond BonAnno has voting and dispositive power, 120,000 shares based on conversion of Series A Preferred Stock jointly owned by Raymond J. and Joan E. BonAnno, 90,000 shares based on exercise of warrants jointly owned by Raymond J. and Joan E. BonAnno, 178,770 shares based on payment of dividends in shares in lieu of cash through December 14, 2011 on Series A Preferred Stock jointly owned by Raymond J. and Joan E. BonAnno, and 600,000 shares based on options exercisable within 60 days of April 1, 2009 owned by Mr. BonAnno.

 

(15)	Keith and Angela Oxenreider are the son-in-law and daughter, respectively, of Raymond BonAnno.

 

(16)	R. James BonAnno, Jr. is the son of Raymond BonAnno.

 

(17)	Includes 43,080 shares owned by Mr. Abdou, 170,000 shares based on conversion of Series A Preferred Stock owned by Mr. Abdou, 127,500 shares based on exercise of warrants owned by Mr. Abdou, and

 

 

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	313,235 shares based on payment of dividends in shares in lieu of cash through December 14, 2011 on Series A Preferred Stock owned by Mr. Abdou.
(18)	Of the shares being offered, 30.26% of such shares represent shares issuable upon conversion of the selling shareholder’s Series A Preferred Stock at the initial conversion price of $0.85 per share, 24.66% of such shares represent shares issuable upon exercise of such shareholder’s warrants, and 45.08% of such shares represent shares issuable as dividends on such shareholder’s Series A Preferred Stock in lieu of cash through December 14, 2011. Paul Kessler has voting and investment power over the shares registered in the name of Bristol Investment Fund, Ltd.

 

 

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
	·	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).

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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 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).

 

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

Market Information

Our common stock is quoted on the OTCBB under the symbol “SPKL.” Trading of our stock on the OTCBB began on August 20, 2007. The following table sets forth, for the periods indicated, the reported high and low closing bid quotations for our common stock as reported by NASDAQ in the Info Quotes section of its website located at www.nasdaq.com. The bid prices reflect inter-dealer quotations, do not include retail markups, markdowns or commissions and may not represent actual transactions.

Quarter Ended	High Bid	Low Bid
December 31, 2008	$0.46	$0.17
September 30, 2008	$0.84	$0.39
June 30, 2008	$1.01	$0.67
March 31, 2008	$1.40	$0.80
December 31, 2007	$2.02	$0.92
September 30, 2007	$1.24	$0.48

 

Liquidity and Capital Resources

At December 31, 2008, we had a working capital deficit of $925,635, as compared to working capital of $4,398,216 at December 31, 2007.  Of the working capital deficit, $771,500 was deferred franchise fee revenue and does not represent a cash liability.  The decrease in working capital is primarily due to increased operating activities and losses.  During 2007, we completed two separate financings. The first was the public sale of 4,352,780 shares of our common stock for gross proceeds of $1,741,112 offset by offering expenses of $162,361 for net proceeds of $1,578,751.  The second was a private equity financing of $5,992,500.  The net proceeds from the offering were $5,622,996.  The Company issued 705 shares of its Series A Preferred Stock, par value $0.001 per share and stated value of $8,500 per share. Each share of the Series A Preferred Stock is immediately convertible into 1,000 shares of the Company’s $.001 par value common stock.  No fund raising activities were conducted in 2008.  Instead, we

 

 

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obtained a $550,000 line of credit from two of our directors in 2008.  We borrowed $100,000 against this line of credit in 2008.

During the year ended December 31, 2008, we used cash in operating activities of $3,775,810 as compared to cash used in operations of $2,425,198 for the same period in 2007. We also used cash for the acquisition of assets in the amount of $1,307,681 in 2008 as compared to $584,389 in 2007.  We receive payments from franchisees when they sign a franchise agreement. We do not include those payments in revenue until such time as the franchisee opens the restaurant. The amount recorded as deferred revenue at December 31, 2008 was $771,500, an increase of $1,500 compared to December 31, 2007. Although not recorded as revenue, any payments received will provide working capital.

At December 31, 2008, we had contractual obligations for operating leases of approximately $2,917,742, of which $458,743 was due in less than one year.

2009		$	458,743
2010			435,447
2011			417,091
2012			378,369
2013			351,734
Later years			876,358
		$	2,917,742

We pay to each holder of Series A Preferred Stock cumulative dividends at a rate per share of 5% per annum until December 14, 2009, 7.5% per annum from December 15, 2009 until December 14, 2010, and 14% per annum thereafter, payable semi-annually on January 1 and July 1, beginning on July 1, 2008,   In July 2008 we made the first required payment of $159,596 in cash.  In January 2009 we issued 798,555 shares of our $.001 par value common stock in settlement of $135,035 of the accrued dividend at December 31, 2008 and made a cash payment of $2,853 for the balance.  Whenever possible we will make dividend payments in our common stock in lieu of cash.  There is no guarantee that we will be able to continue to do so.

Summary – December 31, 2008

The unanticipated economic conditions of 2008 resulted in us not selling as many new franchises as we initially predicted.  The extent of the recession was not clear until the third or fourth quarter of 2008.  We reacted to the downturn as soon as it became apparent that it would not correct itself in 2008.  Our need to raise additional equity or debt financing and our ability to generate cash flow from operations will depend on the length of time we are in a recession, our future performance and our ability to successfully implement our stated business and growth strategies.  Many of these factors are beyond our control. If our working capital is insufficient to fund the implementation of our business plan we will be required to seek additional financing sooner than currently anticipated in order to proceed with our business goals.  In the event that we need additional capital and are unable to obtain it, we could be left without sufficient liquidity.  The nature of our business is that a portion of our revenue is a continuing stream from franchisees.  We will continually monitor our expenses and reduce those expenses as best we can to match the revenue flow.  In the past we have issued common stock to our consultants and professional services providers in lieu of cash payments for these services. We may continue this practice to conserve our cash to pay for operations, product development and inventory.

Off-Balance Sheet Arrangements

At December 31, 2008, we had no obligations that would qualify to be disclosed as off-balance sheet arrangements.

 

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On November 1, 2008, Gordon, Hughes & Banks, LLP (“GH&B”) resigned as our independent registered public accounting firm.  GH&B recently entered into an agreement with Eide Bailly LLP (“Eide Bailly”), pursuant to which Eide Bailly acquired the operations of GH&B and certain of the professional staff and shareholders of GH&B joined Eide Bailly either as employees or partners of Eide Bailly and will continue to practice as members of Eide Bailly.  Concurrent with the resignation of GH&B, we, through and with the approval of our Audit Committee, engaged Eide Bailly as our independent registered public accounting firm.

During our two most recent fiscal years and the period through November 1, 2008, there were no disagreements with GH&B on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of GH&B, would have caused it to make reference to the subject matter of the disagreements in connection with its report.  Further, there were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K occurring from during our two most recent fiscal years and the period through November 1, 2008.

 

During the period prior to the engagement of Eide Bailly, neither we nor anyone on our behalf consulted Eide Bailly regarding the application of accounting principles to a specific completed or contemplated transaction, the type of audit opinion that might be rendered on our financial statements, or any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K.  Further, Eide Bailly has not provided written or oral advice to us that was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issues.

We provided a copy of the foregoing disclosures to GH&B prior to the date of the filing of our report on Form 8-K and requested that GH&B furnish us with a letter addressed to the Securities and Exchange Commission stating whether or not it agreed with the statements in that report. A copy of the letter furnished in response to that request was filed as an exhibit to the Form 8-K.

 

BUSINESS

Our business is the franchise and operation of Spicy Pickle® and Bread Garden® Urban Café 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.  Spicy Pickle restaurants are located in 12 states in the United States.  Bread Garden Urban Café restaurants also specialize in fast casual dining offering specialty coffee, breakfast pastry and sandwiches, salads, soups, lunch and dinner oven baked entrées, sandwiches, wraps, and dessert items served all day long.  Bread Garden Urban Cafés are located in metropolitan Vancouver, British Columbia, Canada.

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 all day parts, including breakfast, lunch and dinner.

Spicy Pickle

Our franchisees must qualify on the basis of experience in other management and food service ventures and should have liquid assets of at least $150,000. In the Spicy Pickle organization franchise fees are $45,000 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

 

 

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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 $400,000 and varies based on location. Each location has an end-cap/in-line of approximately 2,000 square feet and seating for 40-60 guests inside with additional outdoor seating as available.

We have a license to use the following marks registered with the Canadian Intellectual Property Office:

Type	Mark	Registration Number
Word	Bread Garden	TMA385925
Design	Bread Garden Bakery Café	TMA389963
Word	Bread Garden Catering	TMA703333
Word	Wholesale Food for the Timed Shared	TMA589191
Word	The Break you Need…The Food You Love	TMA558692
Design	Bread Garden Catering	TMA727604
Design	Bread Garden Express	TMA703428
Word	Bread Garden Express	TMA703338
Design	Bread Garden Express	TMA703427
Design	Bread Garden Express	TMA703336

Employees

As of April 1, 2009, we have a total of 105 employees in our franchising, restaurant and bakery operations, of which 28 are full time.

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Properties

We do not own any real property. We lease all of the real properties we use in our business. The table below sets forth information regarding each of those properties as of April 1, 2009. We believe that each of our leased facilities is suitable for the operations we conduct in it.

Use	Location	Current Monthly Rent	Square Footage	Remaining Term (in years) Including Expected Renewal Period	Comments
Corporate headquarters	90 Madison St. Denver, CO	$11,963	7,869	4.50	Rent increases each year through 2013.
Restaurant and bakery	1298 S. Broadway Denver, CO	$4,081	3,481	8.17	Rent increases in 2012.
Restaurant	10320 Federal Heights Blvd., #200 Federal Heights, CO	$2,609	1,453	10.67	Rent increases each year.  Includes 2 five-year renewals.
Restaurant	8923 E. Union Ave. Greenwood Village, CO	$1,909	1,516	11.75	Rent increases each year.  Includes 2 five- year renewals.
Restaurant	2043 S. University Blvd. Denver, CO	$3,740	2,200	9.42	Rent increases each year.  Includes 2 five-year renewals.
Restaurant	123 N. College Ave. Ft. Collins, CO	$1,952	1,848	17.83	Includes 3 five-year options.
Restaurant	2120 E. Harmony Rd., #101 Ft. Collins, CO	$4,650	1,800	9.83	Includes 1 five-year option.
Restaurant	2300 Parker Rd. Aurora, CO	$5,250	1,800	9.00	Rent increases each year.

Legal Proceedings

We are not involved in any material legal proceedings.  None of our officers, directors or affiliates, nor any owner of record or beneficially of more than five percent of any class of our voting securities, nor any associate of any such director, officer, affiliate of the Company, or security holder is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.

 

 

 

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MANAGEMENT

Our executive officers and directors are as follows:

 

Name		Age		Position
Marc N. Geman		63		Chairman and Chief Executive Officer
Anthony S. Walker		36		Director and Chief Operating Officer
Kevin Morrison		43		Chief Culinary Officer
Arnold Tinter		63		Chief Financial Officer
Raymond BonAnno		68		Director
Presley Reed		62		Director

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.

 

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

 

 

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Transfer Agent

 

LEGAL MATTERS

 

The validity of the common stock to be sold under this prospectus will be passed upon for us by Dill Dill Carr Stonbraker & Hutchings, P.C.

 

EXPERTS

The consolidated financial statements as of and for the year ended December 31, 2008 have been audited by Eide Bailly LLP, an independent registered public accounting firm, as stated in their report. The consolidated financial statements as of and for the year ended December 31, 2007 have been audited by Gordon, Hughes & Banks, LLP, an independent registered public accounting firm, as stated in their report. Such consolidated financial statements have been set forth in this prospectus in reliance upon the reports of such firms given upon their authority 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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PART II

 

Item 13.       Other Expenses of Issuance and Distribution

The following table sets forth the estimated costs and expenses of the sale and distribution of the securities being registered, all of which are being borne by us.

Printing and engraving expenses*	$	1,000
Accountant’s fees and expenses*		2,500
Legal fees and expenses*		7,500
Total	$	11,000

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*	Estimated and exclusive of expenses associated with the initial filing and the pre-effective amendment of the registration statement

Item 14.       Indemnification of Directors and Officers

As permitted by Article 109, Title 7 Section 102 of the Colorado Business Corporation Act, we have adopted provisions in our Articles of Incorporation and Bylaws that limit or eliminate the personal liability of our directors for a breach of their fiduciary duty of care as a director. The duty of care generally requires that, when acting on behalf of the Company, directors exercise an informed business judgment based on all material information reasonably available to them. Consequently, a director will not be personally liable to us or our shareholders for monetary damages or breach of fiduciary duty as a director, except for liability for:

 

·	any breach of the director’s duty of loyalty to us or our shareholders;

 

·	any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

·	any act related to unlawful stock repurchases, redemptions or other distributions or payments of dividends; or

 

·	any transaction from which the director derived an improper personal benefit.

These limitations of liability do not affect the availability of equitable remedies such as injunctive relief or rescission. Our Articles of Incorporation also authorize us to indemnify our officers, directors and other agents to the fullest extent permitted under Colorado law.

As permitted by Article 109, Title 7 Section 102 of the Colorado Business Corporation Act, our Bylaws provide that:

 

·	we may indemnify our directors, officers, and employees to the fullest extent permitted by the Colorado Business Corporation Act, subject to limited exceptions;

 

·	we may advance expenses to our directors, officers and employees in connection with a legal proceeding to the fullest extent permitted by the Colorado Business Corporation Act, subject to limited exceptions; and

 

·	the rights provided in our Bylaws are not exclusive.

 

Item 15.       Recent Sales of Unregistered Securities

The following sets forth all private offerings we have completed during the last three years. Except as otherwise indicated below, the following transactions were effected in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act. We based such reliance upon the following facts and circumstances: (i) the investors were accredited investors, as defined in the Securities Act, who took the securities for investment purposes without a view to distribution; (ii) the investors had access to information concerning us and our business prospects; (iii) there was no general solicitation or advertising for the issuance of the securities; (iv) the investors were permitted access to our management for the purpose of acquiring investment information; and (v) due to the investors’ status as accredited investors, any existing relationship such investors’ had with the Company and their

 

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dealings with companies similar to ours, we deemed the investors to be sophisticated for the purposes of Section 4(2) of the Act.

From July to September 2006, we issued a total of 1,140,000 shares of our common stock to six service providers for services valued at $296,179.

In September 2006, we completed a private equity financing pursuant to which we raised gross proceeds of $2,000,000. The transaction was a common stock offering, resulting in the placement of 8,000,000 shares of restricted common stock. Thirty-two investors participated in the transaction.

In December 2007, we issued 705 shares of Series A Preferred Stock and warrants to purchase 5,287,500 shares of common stock to 14 accredited investors, two of whom are directors of the Company, for an aggregate purchase price of $5,992,500. We relied upon the exemptions from registration set forth in Section 4(2) of the Securities Act and Rule 506 of Regulation D of the Securities Act for the issuance of these securities with reference to the following facts and circumstances: (1) the investors represented that they were “accredited investors” within the meaning of Rule 501(a) under the Securities Act; (2) transfer of the securities has been restricted by us in accordance with Rule 502(d) under the Securities Act; (3) there were no more than 35 non-accredited investors in the transaction within the meaning of Rule 506(b) under the Securities Act after taking into consideration all prior investors under Section 4(2) of the Securities Act within the 12 months preceding the transaction; and (4) none of the offers and sales were effected through any general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act. As compensation for services rendered in connection with the sale of the Series A Preferred Stock, we also issued warrants to purchase 288,400 shares of common stock to a placement agent.

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