The following discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in "Risk Factors" and elsewhere in this report.

Overview

Our sole business is the franchise and operation of Spicy Pickle 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. Although prices are set by franchisees at the store level and vary from location to location, sandwiches typically cost between $6.45 and $7.25 with small and large soups and salads ranging from $3.45 to $7.95. An individual size pizzetti ranges from $7.45 to $7.95. 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 succeed. 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.

We market our menu primarily through targeted local store marketing efforts, mail drops, and print campaigns, as well as through other grass roots efforts. The "Spicy Pickle" brand name has existed for eight years. We are headquartered in Denver, Colorado.

The first Spicy Pickle restaurant was launched in 1999 by founders Kevin Morrison and Anthony Walker under the name Spicy Pickle, LLC. In late 2001, there were three restaurants, two in Denver and one in Lakewood, a Denver suburb. By January 2003, we organized Spicy Pickle Franchising, LLC and launched the Spicy Pickle brand as a national franchise and recruited Marc Geman, former president of the PretzelMaker franchise, as our Chief Executive Officer.

As of December 31, 2007, we had 35 franchised restaurants and one company-owned restaurant opened. The company-owned restaurant is a replacement for a company-owned restaurant that closed in November 2006. Co-located with this restaurant is a bakery.

Our prior company restaurant, which we used as a training restaurant, operated at a loss. This loss is primarily due to higher labor costs at a restaurant that is used for training purposes. The number of employees per shift is higher than a normal restaurant, and the employees are less productive during the training period. We anticipate that our new company restaurant will also operate at a loss for its first year of operations.

Our franchise agreements include build-out schedules for franchisee restaurants. Based on current franchise agreements and construction schedules, we believe there will be approximately 60 to 65 Spicy Pickle, franchisee-owned and operated restaurants and at least 5 company-operated restaurants open by the end of 2008.

As of December 31, 2007, we have sold 102 franchises. Of the franchises sold, 35 franchise restaurants are opened and operating, 3 franchise restaurants are under construction, 10 franchise sites are under lease negotiation (we have either received an actual lease that is being reviewed or a letter of intent), 1 franchise restaurant closed and 53 franchise sites are subject to area development agreements. An area development agreement is entered into when a franchisee has purchased the rights to a geographic area with a set number of stores in that area.

We completed a bakery co-located with our new Denver company restaurant that will supply the Spicy Pickle restaurants in the Denver, Boulder, Colorado Springs, and Ft. Collins areas with daily fresh-baked bread. This bakery will replace the current supplier of our artisan breads and is expected to result in a food cost savings for the franchisees in that market. Spicy Pickle restaurants outside this market are equipped for bread baking at the store location.

Our locations and marketing efforts are directed principally to white collar administrative, managerial, professional, and sales personnel, who are generally found in and near downtown districts, technological centers, universities, hospitals and government complexes.

We currently derive our revenue from the sale of franchises, from royalties paid by franchisees and from the sale of food and beverages at the company store we opened in December 2007. Our business is headquartered in Colorado, and we have a high concentration of restaurants in the Rocky Mountain region. Additionally, we have franchises opened and planned in a number of other regions in the United States. Our restaurant locations (including both company-owned and franchisee-owned), including those under construction and lease negotiation as of December 31, 2007, are:

                                                             Under         In Lease
           Location             Restaurants Operating    Construction     Negotiation
  Denver, Colorado                            5                                  2
  Boulder, Colorado                           2
  Ft. Collins, Colorado                       1                   1
  Aurora, Colorado                            1
  Littleton, Colorado                         1
  Centennial, Colorado                        1
  Lone Tree, Colorado                         1
  Greenwood Village, Colorado                 1
  Federal Heights, Colorado                   1
  Johnstown, Colorado                         1
  Colorado Springs, Colorado                  2
  Louisville, Colorado                        1
  Englewood, Colorado                         1
  Ashburn, Virginia                           1
  Sioux Falls, South Dakota                   1
  Portland, Oregon                            2
  Poway, California                           1
  Sacramento, California                      1
  Henderson, Nevada                           1
  Reno, Nevada                                2
  Chicago, Illinois                           1
  Cincinnati, Ohio                            1                                  1
  Austin, Texas                               2                                  1
  San Diego, California                                           1              2
  Indianapolis, Indiana                       2                                  1
  Chandler, Arizona                           1
  Brooklyn, New York                                                             1
  Hattiesburg, Mississippi                    1
  Oklahoma City, Oklahoma                                                        2
  Pender, Virginia                                                               1
  Ocala, Florida                                                                 1
  Cedar Park, Texas                                               1              0
                                              36                  3              12

We intend to increase our revenues by adding new company-owned stores, selling new franchises and expanding consumption of our food products at all stores. General economic and industry conditions may affect our ability to do so and our revenue performance.

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Actual results could differ from those estimates. A summary of accounting policies that have been applied to the historical financial statements presented in this report can be found in the footnotes thereto. We consider certain of these accounting policies to be critical as they are important to the portrayal of our financial condition and results of operations and may require judgments on the part of management about matters that are uncertain. We have identified the following accounting policies that are important to the presentation of financial information in this report.

Revenue Recognition

Initial Franchise Fees - We enter into franchise agreements that grant franchisees the exclusive right to develop and operate businesses at certain locations. Initial franchise fees are recognized as revenue when all material services and conditions required to be performed by us have been substantially completed, which is generally when the restaurant opens. Initial franchise fees were $497,500 and $170,000 for the years ended December 31, 2007 and 2006, respectively.

Royalty Fees - Pursuant to the franchise agreements, franchisees are required to pay royalties to us at the rate of 5% of weekly gross sales as reported to us through the franchisees' point of sale systems. Royalties are recognized as revenue in the period corresponding to the reported period. Royalty fees were $577,334 and $294,481 for the years ended December 31, 2007 and 2006.

With regard to royalty fees, our franchisees grant us the right to extract data from their point of sale systems in each restaurant they operate. We receive weekly reports on sales at each franchise location and calculate our revenue directly from those reports. This allows for extremely accurate accounting of our revenue stream from royalty fees. We do not anticipate any future change in the method of reporting.

Rebates - We receive rebates from purveyors that supply products to our franchisees. Rebates related to franchisees are included in Franchise Fees and Royalties. The rebates are recorded when earned. Rebates that relate to the company-owned restaurant are offset against restaurant cost of sales. Rebates related to franchisees were $151,020 and $79,638 for the years ended December 31, 2007 and 2006, respectively.

Product Sales - Prior to the fourth quarter of 2007, we sold logo products to our franchisees. Sales were recognized when products were shipped to the franchisee. These types of sales are now handled by a third-party supplier who sells directly to our franchisees.

Restaurant and Bakery Sales - We record revenue from company-owned restaurant sales upon delivery of the related food and other products to customers. Our restaurant sales are either cash or credit card (which are pre-approved) sales and, therefore, no estimate for collectibility is necessary. We record revenue from bakery sales when sold to the bakery customers, which are our franchisees.

Advertising Costs

Franchisees must contribute to an advertising fund established by us at a rate of up to 2% of total franchisee gross sales. In our discretion, we may spend more or less than our actual advertising receipts from the franchisees. Advertising fees collected were $291,881 and $200,455 for the years ended December 31, 2007 and 2006, respectively. These fees are offset against actual advertising expenses, which are recognized when incurred. We incurred advertising expenses of $443,566 and $242,906 for the years ended December 31, 2007 and 2006, respectively. We paid those expenses from the advertising fund and from our own funds. The net amounts reflected as advertising costs in the financial statements are $151,685 and $42,451 for the years ended December 31, 2007 and 2006, respectively.

Rent Expense

We recognize rent expense on a straight-line basis over the reasonably assured lease term as defined in the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 98, "Accounting for Leases.'' In addition, certain of our lease agreements provide for scheduled rent increases during the lease term or for rental payments commencing on a date other than the date of initial occupancy. We include any rent escalations and construction period and other rent holidays in our determination of straight-line rent expense. Therefore, rent expense for new locations is charged to expense beginning with the start of the construction period.

Equity-Based Compensation

On January 1, 2006, we adopted FASB SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options based on estimated fair values. SFAS 123(R) supersedes our previous accounting under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to SFAS
123(R). We have applied the provisions of SAB 107 in our adoption of SFAS 123(R).

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statement of operations. Prior to the adoption of SFAS 123(R), we had no stock-based compensation awarded to employees and directors.

Recent Pronouncements

We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial condition or the results of our operations.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurement" ("SFAS 157"). SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles ("GAAP"), and expands disclosure about fair value measurements. Management does not expect adoption of SFAS 157 to have a material impact on the Company's financial statements.

On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115" ("SFAS 159"). This standard permits an entity to measure many financial instruments and certain other items at estimated fair value. Most of the provisions of SFAS 159 are elective; however, the amendment to FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities," applies to all entities that own trading and available-for-sale securities. The fair value option created by SFAS 159 permits an entity to measure eligible items at fair value as of specified election dates. The fair value option (a) generally may be applied instrument by instrument, (b) is irrevocable unless a new election date occurs, and (c) must be applied to the entire instrument and not to only a portion of the instrument. SFAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity (i) makes that choice in the first 120 days of that year, (ii) has not yet issued financial statements for any interim period of such year, and (iii) elects to apply the provisions of FASB Statement No. 157. Management is currently evaluating the impact of SFAS 159, if any, on our financial statements.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business Combinations" ("SFAS No. 141R"). SFAS No. 141R will change the accounting for business combinations. Under SFAS No. 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R will change the accounting treatment and disclosure for certain specific items in a business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, any business combinations we engage in will be recorded and disclosed following existing GAAP until January 1, 2009. The Company expects SFAS No. 141R will have an impact on accounting for business combinations once adopted, but the effect is dependent upon acquisitions at that time. The Company is still assessing the impact of this pronouncement.

In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements-An Amendment of ARB No. 51" ("SFAS No. 160"). SFAS No. 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The Company believes that SFAS 160 should not have a material impact on our financial position or results of operations.

We believe that any estimates or assumptions we have made in the past have been accurate. We do not anticipate that any estimate or assumption is likely to change in the future. We also believe that, due to the nature of our business, there should not be any change to our accounting policies in the future.

Results of Operations

Operating Statistics
The following analysis shows operating statistics for the years ended December
31, 2007 and 2006:

                                                       2007                                  2006
                                                               As a                                 As a
                                                            Percentage                           Percentage
                                                             of Total                             of Total
                                          Amount             Revenue               Amount          Revenue
Revenues:
Restaurant and bakery sales            $     30,730                     2.41 %  $    409,018             45.85 %
Franchise fees and royalties              1,243,263                    97.59 %       482,991             54.15 %
Total revenue                          $  1,273,993                   100.00 %  $    892,009            100.00 %

Operating costs and expenses:

                                                                                                     As a
                                                                                                  Percentage
                                                         As a  Percentage                             of
                                                                of                                Restaurant
                                                        Restaurant  Sales                           Sales
Restaurant:
Cost of sales                          $     30,383                    98.87 %  $    160,728             39.30 %
Labor                                        33,137                   107.83 %       154,619             37.80 %
Occupancy                                    44,423                   144.56 %        67,951             16.61 %
Other operating cost                         42,551                   138.47 %        50,582             12.37 %
Total restaurant operating expenses    $    150,494                   489.73 %  $    433,880            106.08 %

                                                               As a                                  As a
                                                            Percentage                            Percentage
                                                           of Franchise                          of Franchise
                                                             Fees and                              Fees and
                                                            Royalties                             Royalties
Franchise and general:
Cost of sales                          $          -                        -    $     18,510              3.83 %
General and administrative                4,735,854                   380.92 %     1,834,571            379.84 %
Depreciation                                 22,744                     1.83 %        18,575              3.85 %
Total franchise and general expenses   $  4,758,598                   382.75 %  $  1,871,656            387.52 %

                                                               As a                                  As a
                                                            Percentage                            Percentage
                                                             of Total                              of Total
                                                              Revenue                              Revenue
Total operating costs and expenses     $  4,909,092                   385.33 %  $  2,305,536            258.47 %

(Loss) from operations                   (3,635,099 )                (285.33 )%   (1,413,527 )         (158.47 )%

Other income and (expense):
Interest income                              51,252                     4.02 %        29,556              3.31 %
Other income (expense)                      (18,037 )                  (1.42 )%          986              0.11 %
Total other income and (expense)             33,215                     2.60 %        30,542              3.42 %

Net (loss)                             $ (3,601,884 )                (282.72 )% $ (1,382,985 )         (155.04 )%

For the twelve months ended December 31, 2007, total revenue increased $381,984 (43%) from $892,009 in 2006 to $1,273,993 in 2007. For the twelve months ended December 31, 2007, restaurant and bakery sales decreased by $378,288 over the same period in 2006. This decrease is the result of the restaurant operating for less than 1 month in 2007 and 10 months in 2006. The lease on this restaurant that was operating during 2006 expired in November of that year, and we elected not to renew it. We constructed a new restaurant and co-located a bakery in the same building. The restaurant opened in mid-December 2007, and the bakery opened right after the beginning of 2008. For the year ended December 31, 2007, franchise fees and royalties increased $760,272 (157%) over the same period in 2006. The increase relates directly to the number of franchised restaurants sold and opened. For the year ended December 31, 2007, we recognized franchise fees of $497,500. This represented 19 locations opened during this period. During the period ended December 31, 2006, we recognized franchise fees of $170,000. This represented 6 locations opened in 2006. Deferred franchise revenue (not included in the statement of operations) increased $85,000 from $685,000 at December 31, 2006 to $770,000 at December 31, 2007. At December 31, 2007, there were deferred fees for 67 new locations. Royalty fees increased approximately $282,853 as a result of more operating locations in 2007 than in 2006. At December 31, 2007, there were 35 operating franchised locations compared to 16 operating franchised locations at December 31, 2006.

Operating expenses for the year ended December 31, 2007 increased $2,603,556 (113%) from $2,305,536 in 2006 to $4,909,092 in 2007

Cost of restaurant and bakery operations decreased $283,386 (65%) from $433,880 in 2006 to $150,494 in 2007 as a result of the difference in the number of months of operations. As a percentage of sales, cost of restaurant operations were significantly higher in 2007 than in 2006. The difference is due primarily to store opening expenses in 2007, which included rent during the construction period, employee training and promotional give-aways during the grand opening.

The following table sets forth details of the costs that make up franchise and general expenses and the differences for the year ended December 31, 2007 as compared to December 31, 2006.

                                               2007          2006       Difference
Personnel cost                              $ 1,935,067   $   800,722   $ 1,134,345
Investor relations                              731,343             -       731,343
Travel and entertainment                        440,982       211,039       229,943
Stock options                                   403,368         7,595       395,773
Professional fees                               348,931       444,512       (95,581 )
Marketing, advertising, promotion               151,685       107,532        44,153
Rent                                            138,865        60,349        78,516
MIS                                             113,015        32,812        80,203
Communication                                   112,200        38,919        73,281
Office supplies and expenses                    109,972        44,194        65,778
Other general and administrative expenses       250,426       105,407       145,019
Total general and administrative expenses   $ 4,735,854   $ 1,853,081   $ 2,882,773

Franchise and general expenses increased $2,882,773 (156%) from $1,853,081 for the year ended December 31, 2006 to $4,735,854 for the year ended December 31, 2007. The increase related to the increased number of franchises and our increased activity in seeking new franchisees. In order to service our increased number of operating locations and to continue to increase the number of franchises, we hired more employees. The number of employees, not including restaurant employees, increased from 18 at December 31, 2006 to 22 at December 31, 2007. The number of employees as well as increased wages and benefits resulted in an increase in personnel cost of $1,134,345 (142%) from $800,722 in 2006 to $1,935,067 in 2007. We became a public company in 2007. Our stock began trading on the OTCBB in August 2007. We engaged a number of investor relations firms to assist in attracting new shareholders in the Company. We expensed $731,343 for these investor relations expenses in 2007. Of that amount $76,300 was paid in cash and $655,043 was paid in our common stock. We will continue to incur investor relations expenses in the future. Travel and entertainment increased as a result in the increased activity in our business. Stock option expense represents the fair value of options granted to employees. The stock option plan was established in October 2006 and accordingly more grants were made in 2007 than in 2006. Although professional fees decreased by $95,581 in 2007 as compared to 2006 we expect higher legal and accounting fees as a result of being a public company. Our franchisees pay an advertising fee equal to 2% of the gross revenue of the franchised restaurants they operate. Our accounting policy is to offset the amounts collected from the franchisees against actual advertising expenses. The amount collected for the year ended December 31, 2007 was $291,881 as compared to $200,455 for the year ended December 31, 2006. Actual expenses for the year ended December 31, 2007 were $443,566 as compared to $242,906 for the year ended December 31, 2006. This increase was primarily due to an increase in advertising resulting from a greater number of markets. The net amount charged to expense was $151,685 for the year ended December 31, 2007 and $42,451 for the year ended December 31, 2006. Other general and administrative expenses increased across the board as our business grew and were anticipated.

. . .