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.

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

Inventory. Inventory is stated at lower of cost or market determined by first in first out (FIFO) method. Inventories in excess of future demand are written down and charged to the provision for inventories. At the point of which loss is recognized, a new, lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in the newly established cost basis.

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. We will recognize a tax benefit in the financial statements for an uncertain tax position only if management's assessment is that the position is "more likely than not" (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term "tax position" refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes. Our federal and state tax returns are open to examination for the years 2008 through 2011.

Results of Operations

Thirteen Weeks Ended March 31, 2012 Compared with Thirteen Weeks Ended April 2, 2011

Net sales for the thirteen weeks ended March 31, 2012 were $3,290,000, a decrease of $715,000, or 18%, from the sales level realized for the thirteen weeks ended April 2, 2011. The reduction in sales was primarily due to the determination of Trader Joe's, formerly our largest customer, to cease selling branded goods. During the first quarter of 2012, there were no sales to Trader Joe's as compared to $761,000 in sales in the first quarter of 2011. We believe that we will begin to recover some portion of these sales as our retail customers switch to other retail sources to purchase our products. We also believe that our sales will improve during the remainder of fiscal 2012 due to the introduction of new products and price increases instituted in the first and second quarters of the year, which will become effective at various times in the second and third quarters of this year. These increases will range from 5% to 10%, depending on the product category.

Our gross profit decreased to $813,000 in the period ended March 31, 2012 from $1,083,000 in the period ended April 2, 2011 due to the significant reduction in sales. Our gross profit percentage was 25% for the period ending March 31, 2012 compared to 27% for the period ending April 2, 2011. The reduction in our gross profit percentage was due primarily to significant promotional activity on behalf of our new products. We expect such promotional activity to continue for the remainder of 2012 and continue to have a negative impact on our gross profit percentage. Additionally, increased costs for packaging and ingredients reduced our margin as well. Freight out expense, a significant part of our cost of sales, increased by $12,000, or 5%, to $241,000 for the thirteen weeks ended March 31, 2012 compared with $229,000 for the thirteen weeks ended April 2, 2011. As a percentage of sales, freight out expense increased to 7% in the 2012 thirteen week period compared to 6% for the 2011 thirteen week period. We expect freight out expense to continue at a higher level in 2012 due to the increased cost of oil, which will also negatively impact our packaging costs.

Selling expenses increased by $11,000 to $385,000 for the current fiscal quarter compared with $374,000 for the comparable period in 2011. This increase was due principally to increases in commission expense

Marketing expenses decreased slightly by $5,000 to $132,000 in the fiscal 2012 period due principally to decreases in promotion expense of $20,000, newspaper advertising expense of $18,000, which was partially offset by increases in public relations expense of $23,000, artwork and plate expense of $5,000 and point of sale material expense of $5,000. We anticipate that the current period's marketing expenses will continue on the same level for the balance of 2012.

Research and development costs, which consist principally of salary expenses and laboratory costs, increased by $18,000 to $168,000 for the thirteen weeks ended March 31, 2012 from $150,000 for the comparable period in 2011, due to an increase in lab costs and supplies of $4,000, payroll expenses of $7,000, equipment repairs of $4,000 and auto expense of $3,000. The increase in payroll expense was due to the addition of another person in research and development.

General and administrative expenses decreased by $65,000 to $468,000 for the thirteen weeks ended March 31, 2012 compared with $533,000 for the comparable period in 2011 due to a decrease in payroll costs of $117,000, which was offset by increases in office supply expense of $5,000, IT expense of $28,000, outside public relations expense of $5,000 and auto expense of $14,000. We anticipate that the current period's general and administrative expenses will continue on the same level, or increase slightly, for the balance of 2012.

There was no provision for bonuses in the first quarter of 2012 as compared to a provision of $125,000 in the first quarter of 2011, resulting in the significant decrease in overall payroll expense during the first quarter of 2012.

In the thirteen weeks ended March 31, 2012, we recorded an income tax benefit of $130,000 compared to an income tax benefit of $45,000 in the thirteen weeks ended April 2, 2011. The income tax benefit in both periods reflect our net losses in such periods.

Liquidity and Capital Resources

As of March 31, 2012, we had approximately $1.0 million in cash and cash
equivalents and our working capital was approximately $4.2 million, compared
with approximately $1.6 million in cash and cash equivalents and working capital
of $4.4 million at December 31, 2011.

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


                                               Thirteen Weeks           Thirteen Weeks
                                            ended March 31, 2012      ended April 2, 2011
                                           ---------------------- -- ---------------------
Net cash used in operating activities      $             (605,000 )  $            (876,000 )
Net cash used in financing activities                     (17,000 )                      -
Net change in cash and cash equivalents    $             (622,000 )  $            (876,000 )
                                           --- ------------------    --- -----------------

The decrease in our cash and cash equivalents for the thirteen weeks ended March 31, 2012 is primarily attributable to the $605,000 used in operating activities. The net cash used in operating activities was the

Our Board of Directors first instituted a share repurchase program in September 2000 which, after several amendments, has to date authorized the repurchase of 2,200,000 shares of our common stock at prevailing market prices. While we may purchase an additional 360,000 shares of common stock based on such authorization, we did not purchase any shares of our common stock from the first quarter of fiscal 2009 until December 2011. During December 2011, we repurchased 14,492 shares at a cost of $24,115. We repurchased an additional 8,480 shares in January and February 2012 at a cost of $14,000. Cumulatively, from the beginning of our share repurchase program, we have purchased 1,829,000 shares at a cost of $5,318,000.

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 March 31, 2012, we did not have any contractual obligations or commercial commitments, including obligations relating to discontinued operations.

Recent Accounting Pronouncements

See Note 3 to the unaudited condensed consolidated financial statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.