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 receivable are past due, our previous loss history, the customer's current ability to pay its obligation, and

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 June 30, 2012 Compared with Thirteen Weeks Ended July 2, 2011

Net sales for the thirteen weeks ended June 30, 2012 were $3,699,000, a decrease of $751,000, or 17%, from the sales level realized for the thirteen weeks ended July 2, 2011. Sales continue to be impacted by the decision of Trader Joe's, formerly our largest customer, to discontinue stocking branded goods in mid-2011. During the second quarter of 2012, there were no sales to Trader Joe's as compared to $656,000 in sales in the second quarter of 2011. In addition, sales were negatively impacted due to our discontinuing marginally profitable products. We 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 began to go into effect in the second quarter and which will continue to go into effect in the third quarter of this year. These price increases will range from 5% to 10%, depending on the product category.

Our gross profit in the thirteen week period ended June 30, 2012 decreased by $98,000 to $1,133,000. Our gross profit percentage for the thirteen week period ending June 30, 2012 was 31% compared to 28% for the period ending July 2, 2011. The decrease in gross profit was due to the decrease in sales, while the increase in gross profit percentage was due to the positive effect of price increases put into effect in the second quarter coupled with our ongoing program to eliminate marginally profitable products. Freight out expense, a significant part of our cost of sales, increased to $274,000 for the thirteen weeks ended June 30, 2012 compared with $267,000 for the thirteen weeks ended July 2, 2011. This increase was the result of increases in fuel costs, which in turn increased our freight rates, resulting in our freight out expense as a percentage of sales increasing to 7% of sales during the thirteen weeks ended June 30, 2012 compared to 6% of sales during the thirteen weeks ended July 2, 2011.

Selling and warehouse expenses increased to $422,000 for the thirteen weeks ended June 30, 2012 compared with $364,000 for the thirteen weeks ended July 2, 2011. This increase was due primarily to a $57,000 increase in outside warehouse expense, a $22,000 increase in meeting and convention expense, a $14,000 increase in commissions expense and a $8,000 increase in messenger expense, which were offset by a decrease in payroll expense of $43,000. The increase in outside warehouse expense is the result of

Marketing expenses increased by $137,000 to $193,000 for the thirteen weeks ended June 30, 2012 compared with $56,000 for the thirteen weeks ended July 2, 2011 due principally to a $27,000 increase in advertising expense, a $49,000 increase in promotion expense, a $49,000 increase in public relations expense, and an $11,000 increase in artwork and design expense.

Research and development costs, which consist principally of salary expenses and laboratory costs, increased to $185,000 for the thirteen weeks ended June 30, 2012 compared to $134,000 for the thirteen weeks ended July 2, 2011. This increase was primarily due to an increase in lab costs and supplies of $21,000, an increase in equipment repairs of $11,000, and an increase in payroll expense of $22,000. The increase in lab costs and supplies is due to the introduction of new products, while the increase in payroll expense is due to the addition of new personnel.

General and administrative expenses decreased to $498,000 for the thirteen weeks ended June 30, 2012 compared with $538,000 for the thirteen weeks ended July 2, 2011, due primarily to decreases in payroll expense of $71,000 and professional fees and outside services expense of $18,000, which were partially offset by increases in data processing and related supplies expense of $22,000 and insurance expense of $11,000.

There was no provision for bonuses in the thirteen weeks ended June 30, 2012 as compared to a provision of $125,000 in the thirteen weeks ended July 2, 2011, resulting in the significant decrease in overall payroll expense during the thirteen weeks ended June 30, 2012.

We recorded an income tax benefit of $67,000 in the thirteen weeks ended June 30, 2012 compared to income tax expense of $56,000 in the thirteen weeks ended July 2, 2011 due to an operating loss in the 2012 period compared to an operating profit in the 2011 period. The imputed effective tax rate of 41% in the 2012 period increased slightly compared to 40% in the 2011 period.

Twenty-Six Weeks Ended June 30, 2012 Compared with Twenty-Six Weeks Ended July 2, 2011

Net sales for the twenty-six weeks ended June 30, 2012 were $6,989,000, a decrease of $1,466,000, or 17%, from the sales level realized for the twenty-six weeks ended July 2, 2011. Sales continue to be impacted by the decision of Trader Joe's, formerly our largest customer, to discontinue stocking branded goods in mid-2011. During the first twenty-six weeks of 2012, there were no sales to Trader Joe's as compared to $1,420,000 in sales in the first twenty-six weeks of 2011. In addition, sales were negatively impacted due to our discontinuing marginally profitable products. We 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 began to go into effect in the second quarter and which will continue to go into effect in the third quarter of this year. These price increases will range from 5% to 10%, depending on the product category.

Our gross profit in the period ended June 30, 2012 decreased by $368,000, or 16%, to $1,946,000 due to the lower level of sales in the 2012 period. Our gross profit percentage for the twenty-six week period ending June 30, 2012 was 28% compared to 27% for the period ending July 2, 2011. Freight out expense, part of our cost of sales, increased slightly by $19,000, or 4%, to $515,000 for the twenty-six weeks ended June 30, 2012 compared with $496,000 for the twenty-six weeks ended July 2, 2011. The impact of the higher cost of freight was offset by the reduction in freight volume in 2012. 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.

Marketing expenses increased by $133,000 to $326,000 in the twenty-six week period ended June 30, 2012 from $193,000 in the twenty-six weeks ended July 2, 2011, due principally to a $10,000 increase in advertising expenses, a $16,000 increase in artwork and plate expense, a $35,000 increase in promotion expense and a $72,000 increase in public relations expense. The increases in marketing expenses were a result of our introduction of new products.

Research and development costs, which consist principally of salary expenses and laboratory costs, increased to $353,000 for the twenty-six weeks ended June 30, 2012 compared to $284,000 for the twenty-six weeks ended July 2, 2011, due principally to an increase in payroll expense of $26,000, lab costs and supplies of $25,000 and equipment repairs of $14,000. The increase in lab costs and supplies is due to the introduction of new products, while the increase in payroll expense is due to the addition of new personnel.

General and administrative expenses decreased to $966,000 for the twenty-six week period ended June 30, 2012 compared with $1,071,000 for the twenty-six week period ended July 2, 2011 due primarily to decreases in outside fees and professional fee expense of $18,000 and payroll expense of $179,000, which were partially offset by increases in IT expense of $50,000, insurance expense of $11,000, building maintenance and repairs expense of $5,000, supplies expense of $5,000, and auto expense of $10,000.

There was no provision for bonuses in the twenty-six weeks ended June 30, 2012 as compared to a provision of $250,000 in the twenty-six weeks ended July 2, 2011, resulting in the significant decrease in overall payroll expense during the twenty-six weeks ended June 30, 2012.

We recorded an income tax benefit of $197,000 in the twenty-six week period ended June 30, 2012 compared to income tax expense of $11,000 in the twenty-six week period ended July 2, 2011 due to the operating loss in the 2012 period. The imputed effective tax rate was 39% in both the 2012 and 2011 periods.

Liquidity and Capital Resources

As of June 30, 2012, we had approximately $0.3 million in cash and cash
equivalents and our working capital was approximately $4.1 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:


                                           Twenty-Six Weeks        Twenty-Six Weeks
                                          ended June 30, 2012     ended July 2, 2011
                                         --------------------- -- ------------------- -
Net cash (used in) operating
activities                               $          (1,292,000 )  $          (608,000 )
Net cash (used in) financing
activities                                             (17,000 )                    -
                                         -- ------------------    -- ----------------
Net (decrease) in cash and cash
equivalents                              $          (1,309,000 )  $          (608,000 )
                                         -- ------------------    -- ----------------

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 June 30, 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.