The following is management's discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying financial statements.

The discussion and analysis which follows in this Quarterly Report and in other reports and documents and in oral statements made on our behalf by our management and others may contain trend analysis and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to future events and financial results. These include statements regarding our earnings, projected growth and forecasts, and similar matters which are not historical facts. We remind stockholders that forward-looking statements are merely predictions and therefore are inherently subject to uncertainties and other factors which could cause the actual future events or results to differ materially from those described in the forward-looking statements. These uncertainties and other factors include, among other things, business conditions in the food industry and general economic conditions, both domestic and international; lower than expected customer orders; competitive factors; changes in product mix or distribution channels; and resource constraints encountered in developing new products. The forward-looking statements contained in this Quarterly Report and made elsewhere by or on our behalf should be considered in light of these factors.

CURRENT ECONOMIC OVERVIEW

As a consumer food products company, our business is materially affected by economic conditions and the health of the financial markets. Economic conditions and the financial markets have been volatile throughout 2008. Current economic conditions may cause a decline in business and consumer spending which could adversely affect our business and financial performance. Our operating results are impacted by the health of the North American economy. Our business and financial performance, including collection of our accounts receivable, realization of inventory and recoverability of assets including investments, may be adversely affected if economic conditions deteriorate or continue to be volatile. Our profitability may also be adversely affected by our fixed costs and the possibility that we would be unable to scale back other costs within a time frame sufficient to match any decreases in revenue relating to changes in market and economic conditions. The turmoil in the financial markets may limit our ability to obtain financing for our working capital requirements.

TRANSFER OF PRODUCTION FACILITIES

In August 2005, we moved all our frozen dessert manufacturing to Ellsworth Ice Cream in Saratoga Springs, New York. In May 2007, Ellsworth unexpectedly and without warning ceased manufacturing. Although we were able to move our ice cream novelty manufacturing to Ice Cream Specialties in Lafayette, Indiana within four weeks of the Ellsworth closing, this required us to postpone the shipment of certain large orders that would have been shipped in the second quarter until the third quarter of 2007 and to allocate existing inventory of novelty products among all our customers, further negatively impacting our sales for the second and third quarters. During the third and fourth quarters of 2007, we continued to expand our ice cream novelty production at Ice Cream Specialties. We are also looking for additional frozen dessert manufacturing facilities so that we will have the capacity to support our future production needs.

CRITICAL ACCOUNTING POLICIES

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The policies discussed below are considered by management to be critical to an understanding of our financial statements because their application places the most significant demands on management's judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.

Revenue Recognition. We recognize revenue when goods are shipped from our production facilities or outside warehouses and the following four criteria have been met: (i) the product has been shipped and we have no significant remaining obligations; (ii) persuasive evidence of an arrangement exists; (iii) the price to the buyer is fixed or determinable; and (iv) collection is probable.
We record as deductions against sales all trade discounts, returns and allowances that occur in the ordinary course of business, when the sale occurs. To the extent we charge our customers for freight expense, it is included in revenues. The amount of freight costs charged to customers has not been material to date.

Accounts Receivable. The majority of our accounts receivables are due from distributors (domestic and international) and retailers. Credit is extended based on evaluation of a customers' financial condition and, generally, collateral is not required. Accounts receivable are most often due within 30 to 90 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. We determine whether an allowance is necessary by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, the customer's current ability to pay its obligation, and the condition of the general economy and the industry as a whole. We write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. We do not accrue interest on accounts receivable past due.

Allowance for Inventory Obsolescence. We are required to state our inventories at the lower of cost or market price. We maintain an allowance for inventory obsolescence for losses resulting from inventory items becoming unsaleable due to expiration of product shelf life, loss of specific customers or changes in customers' requirements. Based on historical and projected sales information, we believe our allowance is adequate. However, changes in general economic, business and market conditions could cause our customers' purchasing requirements to change. These changes could affect our ability to sell our inventory; therefore, the allowance for inventory obsolescence is reviewed regularly and changes to the allowance are updated as new information is received.

Income Taxes. The carrying value of deferred tax assets assumes that we will be able to generate sufficient future taxable income to realize the deferred tax assets based on estimates and assumptions. If these estimates and assumptions change in the future, we may be required to record a valuation allowance against deferred tax assets which could result in additional income tax expense. Upon the adoption of FASB Interpretation No. 48, or FIN 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109," January 1, 2007, we recognized $150,000 as a liability including related interest or penalties as a direct charge to retained earnings related to our uncertain tax positions. At September 29, 2008 and December 29, 2007, the amount provided for such uncertainties was approximately $444,000 and $419,000, respectively. The amount provided for primarily relates to the impact of the timing of deducting certain expenses on the Company's corporate income tax return and state nexus issues. The Company has at least three years of tax returns potentially subject to audit by the Internal Revenue Service.

RESULTS OF OPERATIONS

Thirteen Weeks Ended September 27, 2008
Compared with Thirteen Weeks Ended September 29, 2007

Net sales for the thirteen weeks ended September 27, 2008 were $4.8 million, an increase of $185,000, or 4%, from the sales level realized for the thirteen weeks ended September 29, 2007. Sales increased in all product and most customer categories, including international sales and sales to our major distributors in key geographic markets. Our sales were also positively impacted by price increases that took effect in the second quarter of 2008.

Our gross profit in the current period increased by $153,000 to $1.4 million, reflecting the higher level of sales. Our gross profit percentage for the period ending September 27, 2008 was 29%, compared to 26% for the period ending September 29, 2007. The increase in our gross profit percentage for the period ended September 27, 2008 was a result of the sales price increases that we initiated in the second quarter. Our gross profit margin continued to be impacted by significant industry-wide price increases for certain key ingredients and packaging. Freight out expense, a significant part of our cost of sales, decreased by $20,000, or 6%, to $317,000 for the thirteen weeks ended September 27, 2008 compared with $337,000 for the thirteen weeks ended September 29, 2007. The reduction in freight out expense was due to a reduction in the cost of fuel.

Selling and warehouse expenses increased by $143,000, or 40% to $497,000 for the current fiscal quarter compared with $354,000 for the comparable period in 2007. This increase is due primarily to increases in payroll costs of $37,500 as a result of hiring an additional sales person and the estimated provision for year-end bonuses, an increase in outside warehouse expense of $41,000 due to higher inventory levels held at the outside warehouses, and increased commission expense of $16,000 due to higher sales levels to accounts supported by certain of our key brokers.

Marketing expenses increased by $49,000 to $137,000 in the fiscal 2008 period due principally to an increase in promotional expenses of $54,000 as a result of the marketing and advertising programs instituted to develop certain new markets..

Research and development costs, which consist principally of salary expenses and laboratory costs, increased to $145,000 for the thirteen weeks ended September 27, 2008 compared to $124,000 for the comparable period in 2007. This increase was primarily due to an increase in lab costs and supplies of $23,000.

General and administrative expenses increased to $498,000 for the current quarter compared with $453,000 for the comparable period in 2007, due primarily to an increase in payroll expense of $47,000 and travel and entertainment expense of $30,000, which was partially offset by a reduction in data processing expense of $24,000. The increase in payroll expense was due primarily to additional provisions towards year-end bonuses, which did not occur in the 2007 period.

The income tax expense was $75,000 in the third quarter of 2008 and the third quarter of 2007. The effective tax rate was 77% for the current period as compared to 59% for the 2007 period. We expect our annualized effective income tax rate will be approximately 45% and have adjusted the current quarter provision to reflect this annualized rate, including the estimated provision required under FIN 48 for our uncertain tax positions.

Thirty-Nine Weeks Ended September 27, 2008 Compared with Thirty-Nine Weeks Ended September 29, 2007

Net sales for the thirty-nine weeks ended September 27, 2008 were $15.1 million, an increase of $831,000 or 6%, from the sales level realized for the thirty-nine weeks ended September 29, 2007. Sales increased in all product and most customer categories, including international sales and sales to our major

distributors in key geographic markets. Our sales were also positively impacted by price increases that took effect in the second quarter of 2008.

Our gross profit in the current period increased by $56,000, or 1%, to $4.4 million. Our gross profit percentage decreased slightly to 29% for the period ending September 27, 2008 compared to 30% for the period ending September 29, 2007. The decrease in our gross profit percentage for the period ended September 27, 2008 was a result of industry-wide price increases for certain key ingredients and packaging. Freight out expense, part of our cost of sales, increased by $52,000, or 5%, to $1,052,000 for the thirty-nine weeks ended September 27, 2008 compared with $1,000,000 for the thirty-nine weeks ended September 29, 2007. The increase in freight out expense was a result of the significant increase in sales for the thirty-nine weeks ended September 27, 2008 compared to the 2007 period and the steep increase in the price of fuel since the 2007 period.

Selling and warehouse expenses increased by 15% to $1.4 million for the current thirty-nine week period compared with $1.2 million for the comparable period in 2007. This increase was due primarily to increases in payroll expense of $110,000, as the result of hiring an additional salesperson and the estimated provision for year-end bonuses, commission expense of $44,000, which increase was a result of the higher sales level in the 2008 thirty-nine week period as compared to the 2007 period.

Marketing expenses increased by $157,000 to $432,000 in the current thirty-nine week period due principally to increased expenses for magazine and newspaper advertising of $134,000 and television and radio advertising of $30,000, designed in part to address new markets, and promotion expense of $17,000, which were partially offset by a $28,000 reduction in artwork and plates expense.

Research and development costs, which consist principally of salary expenses and laboratory costs, increased to $439,000 for the thirty-nine weeks ended September 27, 2008 compared to $367,000 for the comparable period in 2007. This increase was mainly attributable to an increase in payroll and employee benefits expense of $30,000 as the result of raises provide to lab personnel and an increase in lab costs and supplies of $27,000.

We had stock compensation expense of $3,000 during the thirty-nine week period ended September 27, 2008 as compared to stock compensation expense of $288,000 for the thirty-nine weeks ended September 29, 2007. In February 2007, we purchased 175,000 stock options from an officer at a net cost of $288,000. The expense was calculated as the difference between the market price of our common stock on the date of the transaction (less an agreed 25% discount), minus the option exercise price, multiplied by the 175,000 options. For financial reporting and income tax purposes, the $288,000 is considered additional compensation. The officer used the cash received to exercise options to acquire 220,000 shares at the stated terms of the option grant (with a weighted average exercise price of $0.76 per share), resulting in proceeds to the Company of $169,000.

General and administrative expenses increased to $1,462,000 for the current thirty-nine week period compared with $1,379,000 for the comparable period in 2007 due primarily to an increase in payroll and employee benefits costs of $110,000, which was offset by a reduction in data processing expense of $35,000. The increase in payroll expense was due primarily to additional provisions towards year-end bonuses, which did not occur in the 2007 period.

The decrease in income tax expense in the 2008 thirty-nine week period to $294,000 from $322,000 in the 2007 thirty-nine week period reflects the slightly lower operating profit in the 2008 period. We expect our annualized effective income tax rate will be approximately 45%, including our estimated provision required under FIN 48 for our uncertain tax positions.

LIQUIDITY AND CAPITAL RESOURCES

As of September 27, 2008, we had approximately $448,000 in cash and equivalents and our working capital was approximately $4.2 million compared to working capital of approximately $4.5 million and $4.4 million at December 29, 2007 and September 29, 2007, respectively. Because we are now maintaining larger finished goods inventories to improve customer service, we renewed the $1,000,000 line of credit with Wachovia Bank that we had established in April 2006. The agreement had expired on April 30, 2008, but was renewed for an additional one-year term with the consent of both parties. Any money borrowed under the line of credit will be at the prime rate of borrowing and any such loans will be secured by the assets of our company. Although management believes that we will be able to fund our operations during the remainder of 2008 from current resources, there is no guarantee that we will be able to do so, and therefore, we established this facility to support short-term cash flow constraints, if necessary. As of the date of this report, we have not used the line of credit. Management believes that the existing resources and the available line of credit will be adequate to meet the our needs beyond the upcoming twelve months.

The following table summarizes our cash flows for the periods presented:

                                 THIRTY-NINE WEEKS         THIRTY-NINE WEEKS
                              ENDED SEPTEMBER 27, 2008  ENDED SEPTEMBER 29, 2007
                              ------------------------  ------------------------
Net cash (used in) provided
by operating activities....       $(388,000)                 $587,000
Net cash (used in) provided
by financing activities....        (663,000)                  169,000
                                   --------                   -------
Net change in cash
  and cash equivalents.....     $(1,051,000)                 $756,000
                                ===========                  ========

Cash used in operating activities was $388,000 for the thirty-nine week period ended September 27, 2008 compared with cash provided by operating activities of $587,000 for the thirty-nine weeks ended September 29, 2007 as the result of our continued investment in building inventories to support the seasonal aspect of our business and the change in production facilities. During the thirty-nine week periods ended September 27, 2008 and September 29, 2007, we paid bonuses to management of $500,000.

The $663,000 used in financing activities reflects the repurchase of our common stock. During the thirty-nine weeks ended September 27, 2008, we repurchased 235,600 shares of our common stock for $663,000. Our Board of Directors first instituted a share repurchase program in September 2000, and as of August 8, 2008, our Board of Directors authorized the repurchase of up to 1,750,000 shares of our common stock at prevailing market prices. As of November 7, 2008, we had repurchased 1,640,000 shares at a total cost of $4,975,000, or an average price of $3.03 per share.

As a result of our use of $388,000 in operating activities and $663,000 in financing activities in the thirty-nine weeks ended September 27, 2008, our cash and cash equivalents declined by $1,051,000 to $448,000.

We believe that we will be able to fund our operations during the next twelve months with cash generated from operations and from borrowings on our line of credit. We believe that these sources will be sufficient to meet our operating and capital requirements during the next twelve months.

On February 26, 2007, our Board of Directors authorized us to enter into a transaction with Steven Kass, our Chief Financial Officer, whereby Mr. Kass surrendered 175,000 of his stock options that were expiring that month, in consideration for a purchase price of $2.3325 per share, reflecting a 25% discount from the $3.11 closing price of the Common Stock on February 26, 2007. After subtracting the underlying $.6875 per share exercise price of the options, this resulted in a net buyback price to our company of $1.645 per share, or $287,875. Concurrently, Mr. Kass exercised 150,000 options that were expiring on February 27, 2007 at an exercise price of $0.6875 per share ($103,125) and 70,000 options that were

expiring on July 30, 2007 at an exercise price of $0.9375 per share ($65,625) (consistent with the original terms of the grants), for a combined total purchase cost of $168,750, resulting in a net payment to Mr. Kass of $119,125.

INFLATION AND SEASONALITY

We do not believe that our operating results have been materially affected by inflation during the preceding two years. There can be no assurance, however, that our operating results will not be affected by inflation in the future. Our business is subject to minimal seasonal variations with slightly increased sales historically in the second and third quarters of the fiscal year. We expect to continue to experience slightly higher sales in the second and third quarters, and slightly lower sales in the fourth and first quarters, as a result of reduced sales of nondairy frozen desserts during those periods.

OFF-BALANCE SHEET ARRANGEMENTS

None.

CONTRACTUAL OBLIGATIONS

As of September 27, 2008, we did not have any contractual obligations or commercial commitments, including obligations relating to discontinued operations.

RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of SFAS No. 157 did not have a material impact on our financial statements.

In February 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, which became effective for us on December 30, 2007. This standard permits companies to choose to measure many financial instruments and certain other items at fair value and report unrealized gains and losses in earnings. Such accounting is optional and is generally to be applied instrument by instrument. Implementation of SFAS No. 159 did not have a material effect on our financial statements.

In December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations, which will become effective for business combination transactions having an acquisition date on or after January 1, 2009. This standard requires the acquiring entity in a business combination to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date to be measured at their respective fair values. The Statement requires acquisition-related costs, as well as restructuring costs the acquirer expects to incur for which it is not obligated at acquisition date, to be recorded against income rather than included in purchase-price determination. It also requires recognition of contingent arrangements at their acquisition-date fair values, with subsequent changes in fair value generally reflected in income. We do not expect the adoption of SFAS No. 141 to have a material effect on our company, as no acquisitions are currently contemplated.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51, which will become effective for us January 1, 2009, with retroactive adoption of the Statement's presentation and disclosure requirements for existing minority interests. This standard will require ownership interests in subsidiaries held by parties other than the parent to be presented within the equity section of the consolidated balance sheet but separate from the parent's

equity. It will also require the amount of consolidated net income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face of the consolidated income statement. Certain changes in a parent's ownership interest are to be accounted for as equity transactions and when a subsidiary is deconsolidated, any noncontrolling equity investment in the former subsidiary is to be initially measured at fair value. We do not anticipate the implementation of SFAS No. 160 will significantly change the presentation of our financial statements.

In February 2008, the FASB issued FASB Staff Position ("FSP") No. 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions, which became effective for us on December 30, 2007. This FSP excludes FASB Statement No. 13, Accounting for Leases, and its related interpretive accounting pronouncements from the provisions of SFAS No. 157. Implementation of this standard did not have a material effect on our financial statements.

In February 2008, the FASB issued FSP No. 157-2, Effective Date of FASB Statement No. 157, which delays our January 1, 2008 effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until January 1, 2009. Implementation of this standard is not expected to have a material effect on our financial statements.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities -- An Amendment of FASB Statement No. 133" ("SFAS No. 161"), which amends and expands the disclosure requirements of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" to require qualitative disclosure about objectives and strategies in using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about the underlying credit-risk-related contingent features in derivative agreements. SFAS No. 161 is intended to improve financial reporting by requiring transparency about the location and amounts of derivative instruments in an entity's financial statements; how derivative instruments and related hedged items are accounted for under SFAS No. 133; and how derivative instruments and related hedged items affect its financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008. Implementation of this standard did not have a material effect on our financial statements.