Spot Coffee (SPP-X)

Very speculative. They changed to a franchise model. Now they are just in upstate New York and Pennsylvania. They are having some success here.

This is very much a penny play. Coffee is an incredible space with huge mark-ups, but as we can see, closer to home, Second Cup (SCU-T) is looking to retrench and eliminate their dividend. Wouldn’t throw his mortgage money at it, but for somebody who wanted to speculate, it could be worthwhile. It could also disappear quickly.

(Market Call Minute.) Interesting. They made that one mistake in the North York store, but the other stores are still profitable. Switching to a franchise model. Loves the product. He still holds some of the debentures.

Opened a store where the neighborhood had only one condo building up so they closed and it cost them half a million. Other stores are doing well. They decided to do the franchise route and he is still waiting to see.

(Market Call Minute.) Has an interest in this but it has not been a winner for him. Thinks there are lots of expansion opportunities. Each individual store is profitable and it now has to get to the scale where the entire company is profitable.

(Top Pick Sept 27/12, Down 39.39%) Opened a new café in North York based on 4 buildings being full and it turned out to be one so they closed that location. Strong revenues from their New York business.

New store just didn’t work out. Development in area around the store was much slower than expected. They exited and it cost them. All the other units are operating very well. Sees no reason why expansion plans won’t be positive. He owns their debenture. This is a nice diversification away from the resource market.

Building out new stores in upstate New York. Change drivers are all in place. They continually need new capital because of the cost of building new stores. The return on the capital is very high, but investors still watch the raising of capital. He is in debentures but definitely participating in the next equity raise. Return on capital is so high and it is a diversifier away from resources.

Coffee. Has been able to expand their store base quite rapidly however they are going to need more financing to keep moving forward. Has been some selling pressure on the stock more recently. When they get their financing, he expects this to be a positive catalyst for the stock because the underlying fundamentals are fantastic.

They are in the middle of a financing to effectively double their store base. Flat-lined recently due to financing. Following that you could see some nice upside.

Stock has kind of flat lined but underneath the fundamentals just keep getting better Have now gone from 7 stores to 10. Have spent a few hundred thousand dollars this year upgrading the roaster because they want to expand their wholesale business into getting their coffee into grocery stores and gas stations. Plan on going from 10 to 24 units in the next 18 months. They’ll be at 19 next year. At the 24 units you are going to be seeing $5-$6 million of EBITDA coming out of this company and thinks you will see at least a 10 multiple on that.