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 audited financial statements.

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.

Recent Accounting Pronouncements

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.

We operate on a fiscal year ending on the Saturday closest to December 31. Fiscal years for the financial statements included herein are the fifty-two week period ended December 27, 2008 and the fifty-two week period ended on December 29, 2007.

Net sales for the fifty-two weeks ended December 27, 2008 were $19,609,000, an increase of $459,000, or 2%, from net sales of $19,150,000 for the fifty-two weeks ended December 29, 2007.

Although sales increased in fiscal 2008, our gross profit in fiscal 2008 decreased by $100,000, or 2%, while our gross profit percentage decreased to 27% in fiscal 2008 from 29% in fiscal 2007. The entire frozen dessert industry was subject to significant price increases to certain key ingredients and packaging, due mainly to supply shortages as a result of political events in certain foreign countries, the general economic situation here in the United States and the cost of petroleum, from which a number of our packaging items are produced. This was partially offset by an increase of freight out expense, which was only marginal despite significant increases in the cost of fuel throughout most of 2008, to $1,430,000 in fiscal 2008 from $1,411,000 in fiscal 2007. This marginal increase is attributable in part to the fact that shipping our frozen dessert novelties from our new ice cream co-packer in Indiana to the West Coast is more cost-effective than shipping them from our third-party Mountville, Pennsylvania warehouse or from our former frozen dessert novelties manufacturer's location, and in part because in some instances we increased the minimum size of orders to customers where we paid the freight, which reduced our shipping costs. While we anticipate that our gross profit will increase due to increased unit sales and higher sales prices in 2009, our expected gross profit percentage will not improve materially due to promotional allowances associated with the planned introduction of new products. We also expect ingredient costs for certain key items and packaging costs to continue at their current high levels.

Selling and warehousing expenses increased by $170,000 to $1,826,000 for fiscal 2008 from $1,656,000 in fiscal 2007. This increase was caused primarily by a $71,000 increase in payroll costs due to the hiring of an additional person in sales and an $81,000 increase in bad debt expense. We anticipate that with the exception of commission expenses and outside warehouse rental expense, which are variable to sales, all other selling expenses in 2009 should remain relatively consistent with our expenses in 2008.

Marketing expenses increased by $204,000 in fiscal 2008 to $557,000 as compared to $353,000 in fiscal 2007. This increase is primarily attributable to a $30,000 increase in television advertising expense for a pilot program in one of our consumer markets and a $194,000 increase in newspaper advertising expense partially offset by a decrease in artwork and plates expense of $26,000. Newspaper advertising expenses increased due to additional costs incurred for advertising in some new advertising venues. We expect marketing expenses to decrease in fiscal 2009.

Product development expenses increased to $590,000 in fiscal 2008 as compared to $481,000 in fiscal 2007. The increase was caused primarily by increases in payroll costs of $48,000, lab costs and supplies of $34,000 and professional fees and outside services of $19,000. Our management expects that product development costs in 2009 will remain consistent with fiscal 2008 costs.

Overall, total operating expenses in fiscal 2008 increased to $4,987,000, an increase of $264,000, or 6%, from total operating expenses in fiscal 2007. Total operating expenses in fiscal 2007 were impacted by $272,000 in stock-based compensation expense included in our general and administrative expenses for 2007, the result of an accounting charge associated with a modification and cash pay-out for the redemption of a stock option. Had we not incurred that charge, the increase in total operating expenses from 2007 to 2008 would have been $536,000, or 11%.

Income before income taxes decreased by $364,000 to $435,000 in fiscal 2008 as compared with $799,000 in fiscal 2007 as a result of our reduced gross profit and higher operating expenses.

Income taxes for the current fiscal period were $218,000, or 50% of taxable income, compared to $334,000, or 42% of taxable income, in fiscal 2007. The increase in our effective tax rate in fiscal 2008 was due to permanent differences as well as an increase to our FIN 48 liability.

Liquidity and Capital Resources

At December 27, 2008 , our working capital was $3,581,000, a decrease of $876,000 from December 29, 2007. Our current and quick acid test ratios, both measures of liquidity, were 3.4 and 1.2, respectively, at December 27, 2008 compared to 3.6 and 2.1, respectively, at December 29, 2007. We believe our existing cash and cash equivalents on hand at December 27, 2008 , and the cash flows expected from operations will be sufficient to support us for at least the next twelve months.

At December 27, 2008 , accounts receivable decreased by $417,000 to $1,574,000 from December 29, 2007, reflecting an increase in cash collections and a slight reduction in sales in the fourth quarter of the fiscal year ended December 27, 2008. The average number of days used to collect our gross accounts receivable in fiscal 2008 was 38 days as compared to 46 days in fiscal 2007. At December 27, 2008 , inventories increased to $2,334,000 from $1,552,000 at December 29, 2007. The increase in our inventories is due to a buildup in finished goods levels to support our anticipated sales in 2009. Accounts payable and accrued expenses decreased by $236,000 to $1,463,000 at December 27, 2008, from $1,699,000 at December 29, 2007, reflecting a reduction in our purchases of ingredients, packaging and finished goods in the fourth quarter.

Our Board of Directors first instituted a share repurchase program in September 2000 which has to date authorized the repurchase of 1,850,000 shares of our common stock at prevailing market prices. As of December 29, 2007, we had repurchased 1,342,100 shares with a total cost of $4,171,000, or an average price of $3.11 per share. During fiscal 2008, we repurchased an additional 464,124 shares for $1,110,000 or an average price of $2.39. Through March 23, 2009, we have repurchased an additional 12,665 shares for $14,000, bringing the total number of shares cumulatively purchased to 1,818,889 at a total cost of $5,294,000, or an average price of $2.91 per share.

We have a $1,000,000 line of credit with Wachovia Bank. 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 2009 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. This agreement will expire on April 30, 2009, but can be renewed for an additional one-year term with the consent of both parties. We intend to extend the facility. There can be no assurances that this facility will be extended. There were no amounts outstanding under this facility at December 27, 2008 or December 29, 2007.

Cash Flows

                                                                  Year ended
                                                         -----------------------------
                                                          December 27,   December 29,
                                                              2008           2007
                                                         -------------- --------------
                                                                (In thousands)
                                                         -----------------------------


Net cash (used in) provided by operating activities       $      (151 )  $     1,041
Net cash (used in) provided by financing activities            (1,110 )          169
Net (decrease) increase in cash and cash equivalents           (1,261 )        1,210
Cash and cash equivalents at beginning of period                1,499            289
                                                         ------------   ------------
Cash and cash equivalents at end of period                $       238    $     1,499
                                                         ------------   ------------

Cash used in operating activities was $151,000 for the fiscal year ended December 27, 2008 compared with cash provided by operating activities of $1,041,000 for the fiscal year ended December 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 year ended December 27, 2008, we paid bonuses to management of $500,000 and income taxes of $4,000 and in the year ended December 29, 2007, we paid bonuses to management of $500,000.

The $1,110,000 used in financing activities reflects the repurchase of 464,124 shares of our common stock.

As a result of our use of $151,000 in operating activities and $1,110,000 in financing activities in the fiscal year ended December 27, 2008, our cash and cash equivalents declined by $1,261,000 to $238,000.

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.

We have no contractual obligations at December 27, 2008.

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.

Market Risk

We will invest our excess cash, should there be any, in highly rated money market funds which are subject to changes in short-term interest rates.

Off-Balance Sheet Arrangements

None.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.