This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the September 30, 2012 Consolidated Financial Statements and the related Notes contained in this quarterly report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2011. Forward-looking statements in this section are qualified by the cautionary statements included under the heading "Cautionary Note Regarding Forward Looking Information," above.

Company Overview

We are a leading marketer of functional food products primarily under the Smart Balance®, Earth Balance® and Bestlife™ trademarks. Our products are sold in mass merchandise, grocery, natural food, and club stores throughout the U.S. and Canada, with a majority of products sold through supermarket chains and food wholesalers. Our core products include buttery spreads, enhanced milks, peanut butter, cooking oil and mayonnaise, offered under the Smart Balance® and Bestlife™ brands and similar natural and organic products sold under the Earth Balance® trademark. We expanded into the gluten-free category through our acquisition of Glutino in August 2011. Glutino is a leading manufacturer and marketer of innovative, gluten-free foods sold under the Glutino® and Gluten-Free Pantry® brands. Glutino offers a wide range of shelf-stable and frozen gluten-free products, including snack foods, frozen baked goods, frozen entrees and baking mixes.

On July 2, 2012, we acquired Udi's from its majority unit holder Hubson Acquisition, LLC, an affiliate of E&A Industries based in Indianapolis, the family of founder Ehud Baron, and other minority unit holders. Based in Denver, CO, Udi's markets gluten-free products under the "Udi's Gluten Free Foods" brand in the retail market and since mid-2011, food service channels. Udi's is a leading brand in gluten-free bread and baked goods. In addition, Udi's markets other gluten-free products including frozen pizza and granola.

We primarily outsource production of finished goods to third-party manufacturers. Glutino currently has one leased manufacturing facility in Canada dedicated to the manufacturing of gluten-free products. Udi's currently has three leased manufacturing facilities in Denver, Colorado.

With the recent acquisition of Udi's, we have determined that we will establish two reportable operating segments, Smart Balance and Natural, which will formalize the way we plan to operate our business, commencing with the third quarter of 2012, and will provide greater clarity on our new strategic focus. The Smart Balance segment will consist of our branded products in spreads, butter, grocery, and milk. The Natural segment will be comprised of the Earth Balance, Glutino and Udi's branded products. Under the new structure we eliminated the role of President and Chief Operating Officer, and two other positions, further stream-lining our management team. The one-time cost of these actions in the third quarter of 2012 totaled approximately $2.6 million. Due primarily to the third quarter 2012 restructurings, stock options for certain former employees were forfeited or vested and certain restricted stock units immediately vested, resulting in incremental stock-based compensation charges in the quarter of approximately $1.7 million.

Our corporate vision is to create a health and wellness innovation platform that builds brands targeted to highly motivated consumer needs. These "need states" include heart-health, gluten-free diets, plant-based diets, and weight management. Our health and wellness platform achieves this goal by offering products which eliminate "bad" ingredients (such as trans fats and gluten) or by adding "good" ingredients (such as Omega-3s and plant sterols), or a combination of both.

Results of Operations

The following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes thereto included elsewhere in this Form 10-Q.

  Results of Operations for the Three and Nine Months Ended September 30, 2012
         Compared to the Three and Nine Months Ended September 30, 2011
                                   Three Months Ended                                Nine Months Ended
                                      September 30,                                    September 30,
(In millions, except
  per share data)      2012        2011      $ Change     % Change       2012        2011       $ Change    % Change
Net sales            $ 101.3     $ 71.7     $   29.6         41.4  %   $ 256.6     $ 190.4     $   66.2       34.8  %
Cost of goods sold      59.0       41.5         17.5         42.5  %     147.2       103.6         43.6       42.1  %
Gross profit            42.3       30.2         12.1         39.9  %     109.4        86.8         22.6       26.0  %
Operating expenses      42.8       28.1         14.7         52.2  %      97.8        69.7         28.1       40.4  %
Operating income
(loss)                  (0.5 )      2.1         (2.6 )     (124.3 )%      11.6        17.1         (5.5 )    (32.4 )%
Other expenses, net     (6.4 )     (0.8 )       (5.6 )      747.7  %      (9.0 )      (1.8 )       (7.2 )    412.1  %
Income (loss) before
income taxes            (6.9 )      1.3         (8.2 )     (608.9 )%       2.6        15.3        (12.7 )    (83.4 )%
Provision (benefit)
for income taxes        (3.2 )      0.2         (3.4 )   (1,586.4 )%       2.1         7.3         (5.2 )    (71.6 )%
Net income (loss)    $  (3.7 )   $  1.1     $   (4.8 )     (425.9 )%   $   0.5     $   8.0     $   (7.5 )    (94.2 )%
Earnings (loss) per
share:
   Basic             $ (0.06 )   $ 0.02     $  (0.08 )     (400.0 )%   $  0.01     $  0.14     $  (0.13 )    (92.9 )%
   Diluted           $ (0.06 )   $ 0.02     $  (0.08 )     (400.0 )%   $  0.01     $  0.14     $  (0.13 )    (92.9 )%

Results of Operations for Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011

Net Sales:

Net sales from our Smart Balance segment of $48.9 million for the three months ended September 30, 2012 decreased by $5.4 million, or 9.8%, from $54.3 million in 2011. The decrease was primarily related to lower volumes in spreads and core grocery, partly offset by higher selling prices and increased volume in spreadable butter which was introduced in February 2012.

Net sales from our Natural segment of $52.4 million for the three months ended September 30, 2012 increased by $35.0 million from $17.4 million in 2011. The increase was primarily related to the acquisition of Udi's (acquired in July 2012 and as such not in prior year results), as well as the acquisition of Glutino (acquired in August 2011). Net sales of Glutino products also increased due to increased volumes.

Brand Profit (Gross profit less marketing, selling and royalty expense/income, net):

Brand profit from our Smart Balance segment of $12.7 million for the three months ended September 30, 2012 decreased by $0.5 million, or 3.7%, from $13.2 million in 2011. The decrease was primarily related to lower volumes in spreads, partly offset by an increase in gross profit as a percentage of net sales and a decrease in marketing expense of $1.3 million. Gross profit as a percentage of net sales was 44.9% for the three months ended September 30, 2012 compared to 44.4% during the same period in 2011, primarily due to higher selling prices, partly offset by the impact of increased commodity costs.

Brand profit from our Natural segment of $12.7 million for the three months ended September 30, 2012 increased by $8.5 million from $4.2 million in 2011. The increase was primarily related to the acquisition of Udi's which accounted for $5.1 million of the increase and an increase in Glutino products of $3.4 million. Gross profit as a percentage of net sales was 38.8% for the three months ended September 30, 2012 compared to 35.3% during the same period in 2011, primarily due to increased margins on Glutino products, specifically pretzels and the addition of Udi's products which have higher margins.

General and administrative:

General and administrative expenses of $20.3 million for the three months ended September 30, 2012 increased $7.7 million from $12.6 million in 2011. General and administrative expense in the three months ended September 30, 2012 included increased stock-based compensation charges of $4.1 million primarily associated with our restructuring activities and accelerated vesting of market price-based restricted stock units. General and administrative expense also increased due to increased amortization expense of $1.1 million and other expenses primarily due to the acquisition of Udi's.

Restructuring, acquisition and integration-related costs:

Restructuring, acquisition and integration-related costs for the three months ended September 30, 2012 were $5.7 million comprised of $2.6 million of restructuring costs associated with the actions taken in the quarter and $3.1 million of acquisition and integration-related costs associated with the acquisition of Udi's. Restructuring, acquisition and integration-related costs for the three months ended September 30, 2011 were $2.6 million and related to the acquisition of Glutino.

Other Income (Expense):

We had other expenses of $(6.4) million for the three months ended September 30, 2012 and $(0.8) million in the corresponding period in 2011. The results for 2012 and 2011 included interest expense, net of interest income of $(7.3) million and $(0.9) million, respectively. The increase in interest expense, net of interest income was due to the increase in debt outstanding under the new Credit Agreement and the write-off of unamortized debt costs of $2.4 million in 2012 related to the refinancing of debt. Also included in other expense in 2012 and 2011 were gains of $0.8 million and $0.1 million, respectively, on commodity hedging derivatives.

Income Taxes:

The effective tax rate for the three months ended September 30, 2012 was 46.1%. The effective tax rate for the three months ended September 30, 2011 was 15.8%, primarily as a result of the annual review and adjustment of the state's blended effective tax rate which declined approximately 0.1%. When you multiply the decline against our gross deferred tax assets and

liabilities it resulted in a significant adjustment against a lower pre-tax income amount. Excluding these adjustments in 2011, the effective tax rate was 35.6%.

Net Income (Loss):

We had a net loss for the three months ended September 30, 2012 of $3.7 million versus net income of $1.1 million in 2011. This decrease was primarily due to restructuring charges during 2012 and increases in stock-based compensation charges and interest expense in 2012 compared to 2011, partly offset by the acquisition of Udi's in 2012, increased volumes in our Natural segment in 2012 and the impact of income taxes.

Results of Operations for Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011

Net Sales:

Net sales from our Smart Balance segment of $155.8 million for the nine months ended September 30, 2012 decreased by $3.8 million, or 2.3%, from $159.6 million in 2011. The decrease was primarily related to lower volumes in spreads and core grocery, partly offset by higher selling prices and increased volume in spreadable butter which was introduced in February 2012.

Net sales from our Natural segment of $100.8 million for the nine months ended September 30, 2012 increased by $70.0 million from $30.8 million in 2011. The increase was primarily related to the acquisition of Udi's (acquired in July 2012 and as such not in prior year results), as well as the acquisition of Glutino (acquired in August 2011).

Brand Profit (Gross profit less marketing, selling and royalty expense/income, net):

Brand profit from our Smart Balance segment of $41.8 million for the nine months ended September 30, 2012 decreased by $1.1 million, or 2.6%, from $42.9 million in 2011. The decrease was primarily related to lower volumes in spreads. Gross profit as a percentage of net sales was 45.4% for the nine months ended September 30, 2012 and 46.0% for the nine months ended September 30, 2011.

Brand profit from our Natural segment of $24.4 million for the nine months ended September 30, 2012 increased by $15.0 million from $9.4 million in 2011. The increase was primarily related to the acquisitions of Udi's and Glutino which accounted for $13.5 million of the increase. Gross profit as a percentage of net sales was 38.3% for the nine months ended September 30, 2012 compared to 43.5% during the same period in 2011. The decrease in margins primarily relates to the timing of the Udi's and Glutino acquisitions. In 2011, Earth Balance brands accounted for the majority of the brand profit and Earth Balance brands have the highest margins of the three products (Udi's, Glutino and Earth Balance).

General and administrative:

General and administrative expenses of $47.3 million for the nine months ended September 30, 2012 increased $14.8 million from $32.5 million in 2011. General and administrative expense in the nine months ended September 30, 2012 included increased stock-based compensation charges of $4.5 million primarily associated with our restructuring activities and accelerated vesting of market price-based restricted stock units. General and administrative expense also increased due to the acquisition of Glutino and Udi's, including increased amortization expense of $2.5 million.

Restructuring, acquisition and integration-related costs:

Restructuring, acquisition and integration-related costs for the nine months ended September 30, 2012 were $7.3 million comprised of $2.5 million of restructuring costs associated with the actions taken in the third quarter and $4.8 million of acquisition and integration-related costs associated with the acquisitions of Udi's and Glutino. Restructuring, acquisition and integration-related costs for the nine months ended September 30, 2011 were $2.6 million and related to the acquisition costs associated with Glutino.

Other Income (Expense):

We had other expenses of $(9.0) million for the nine months ended September 30, 2012 and $(1.8) million in the corresponding period in 2011. The results for 2012 and 2011 included interest expense, net of interest income of $(9.7) million and $(2.4) million, respectively. The increase in interest expense, net of interest income was due to the increase in debt outstanding under the new Credit Agreement and the write-off of unamortized debt costs of $2.4 million in 2012 related to the

refinancing of debt. Also included in other expense in 2012 and 2011 were gains of $0.8 million and $0.8 million, respectively, on commodity hedging derivatives.

Income Taxes:

The effective tax rate for the nine months ended September 30, 2012 was 81.9%, primarily as a result of a $1.4 million adjustment to reduce deferred tax assets resulting from the forfeiture of certain non-qualified stock options in the second quarter of 2012. The effective tax rate for the nine months ended September 30, 2011 was 47.8%, primarily as the result of a $1.5 million adjustment to reduce deferred taxes resulting from the forfeiture of certain non-qualified stock options.

Net Income:

Net income for the three months ended September 30, 2012 was $0.5 million, a decrease of $7.5 million from $8.0 million in 2011. This decrease was primarily due to restructuring charges during 2012 and increases in stock-based compensation charges and interest expense in 2012 compared to 2011, partly offset by the acquisitions of Udi's in July of 2012 and Glutino in August of 2011, increased volumes in our Natural segment in 2012 and the impact of income taxes.

Cash Operating Income

We report our financial results in accordance with accounting principles generally accepted in the United States ("GAAP").

We use the term "cash operating income" as an important measure of profitability and performance. Cash operating income is a non-GAAP measure defined as operating income excluding depreciation, amortization of intangibles, goodwill impairment, restructuring charges, stock-based compensation expense and other one-time items. Our management uses cash operating income for planning purposes, and we believe these measures provide investors and securities analysts with important supplemental information regarding our profitability. However, non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our results prepared in accordance with GAAP.
In addition, the non-GAAP measures we use may differ from non-GAAP measures used by other companies. We have included reconciliations of operating income, as calculated in accordance with GAAP, to cash operating income.
Our cash operating income was $15.1million in the third quarter of 2012 compared to $9.7 million in the third quarter of 2011. Cash operating income was $37.7 million for the nine months ended September 30, 2012 compared to $30.9 million for the corresponding period of 2011.

                                        Three Months Ended                          Nine Months Ended
                               September 30,         September 30,          September 30,          September 30,
(in millions)                      2012                  2011                    2012                  2011
Operating income (loss)
(GAAP)                       $         (0.5 )     $             2.1     $          11.6          $          17.1
Add back:
Depreciation and
amortization                            3.9                     2.2                 9.4                      5.3
Legal settlement                                                1.1                                          1.1
Purchase accounting
adjustment                              0.9                     0.8                 0.9                      0.8
Restructuring, acquisition
and integration-related
costs                                   5.7                     2.6                 7.3                      2.6
Stock-based compensation
expense                                 5.1                     0.9                 8.5                      4.0
Cash operating income        $         15.1       $             9.7     $          37.7          $          30.9

Liquidity and Capital Resources

Cash Flows

Cash provided by operating activities was $5.0 million for the nine months ended September 30, 2012 compared to $21.7 million in the corresponding period in 2011. For the first nine months of 2012, we had net income of $0.5 million, which

included $8.5 million of non-cash stock-based compensation expenses and $12.6 million of depreciation and amortization expense, partially offset by an increase in working capital needs, a decrease in deferred income taxes and an excess tax benefit from stock-based payment arrangements. For the first nine months of 2011, we had net income of $8.0 million, which included $4.0 million of non-cash stock-based compensation, $5.8 million of depreciation and amortization expense and a decrease in working capital of $4.7 million.

Cash used in investing activities totaled $135.7 million for the nine months ended September 30, 2012, primarily due to the Udi's acquisition. Cash used in investing activities totaled $68.1 million for the nine months ended September 30, 2011, primarily due to the Glutino acquisition.

Cash used in financing activities for the nine months ended September 30, 2012 was $127.4 million, resulting from borrowings of $250.7 million to facilitate the Udi's acquisition and refinancing of existing debt, partially offset by repayment of debt of $111.6 million and payments for loan costs of $12.9 million. Cash provided by financing activities for the corresponding period in 2011 was $52.0 million, primarily resulting from borrowings to facilitate the Glutino acquisition.

Liquidity

Our liquidity planning is largely dependent on our operating cash flows, which is highly sensitive to changes in demand, operating costs and pricing for our major products. While changes in key operating costs, such as outsourced production, advertising, promotion and distribution, may adversely affect cash flows, we have been able to continue to generate significant cash flows by adjusting costs. Our principal liquidity requirements are to finance current operations, pay down existing indebtedness and fund future expansion. Under our new Credit Agreement we can also repurchase common stock subject to the satisfaction of certain conditions. No shares were repurchased during the nine months ended September 30, 2012. Currently, our primary source of liquidity is cash generated by operations.

Because our leverage ratio was more than 2.0 as of December 31, 2011, we were required to make a prepayment under our Prior Credit Agreement in April 2012. In April 2012, we entered into a Second Amendment to the Prior Credit Agreement (the "Amendment") which modified the definition of "Excess Cash Flow" under the Prior Credit Agreement to exclude the results of Glutino's operations for the periods prior to our ownership of Glutino, and to also exclude certain expenses relating to the acquisition and integration of Glutino. After giving effect to the Amendment, we were required to make a prepayment on the term loan of $2.7 million in April 2012.

As of September 30, 2012, $36.0 million was available for borrowing under our credit facility and we had $4.7 million of cash.

As of September 30, 2012, we had $243.5 million outstanding under our term loan and revolver.

Cash paid for interest during the nine months ended September 30, 2012 was $6.5 million. The interest rates for outstanding obligations at September 30, 2012 were 7.00% for the Term Loan and 5.49% under the Revolver while the commitment fee on the unused line was 0.50%.

During the nine months ended September 30, 2012, we borrowed $240.0 million and repaid $0.6 million under the Term Loan and borrowed $4.0 million under the Revolver. The debt outstanding under the Prior Credit Agreement was repaid with the proceeds received on July 2, 2012 from a new term loan under our new Credit Agreement. See below as it relates to the provisions under the new Credit Agreement effective July 2, 2012.

New Credit Agreement

On July 2, 2012, GFA Brands, Inc., Glutino USA, Inc., UHF Acquisition Corp. and Udi's, (collectively, the "Borrowers") entered into a Credit Agreement, which we and the U.S. subsidiaries of the Borrowers joined as guarantors, with a group of lenders and Bank of Montreal, as administrative agent (the "Agent"), pursuant to which the Borrowers established a new senior secured credit facility (the "Credit Facility") in an aggregate principal amount of $280 million, consisting of a term loan B (the "Term Loan") in an aggregate principal amount of $240 million and a revolving credit facility (the "Revolver") in an aggregate principal amount of $40 million (with sublimits for swingline loans and the issuance of letters of credit). The Term Loan will mature on July 2, 2018 and the Revolver will mature on June 30, 2017.

The proceeds of the Term Loan were used to finance the acquisition of Udi's (see Note 2 - Acquisition), to refinance certain existing indebtedness of us and our subsidiaries and to fund certain fees and expenses associated therewith. In the future, the Revolver may be used by us and our subsidiaries for working capital and for other general corporate purposes,

including acquisitions and investments, permitted under the Credit Agreement. The Credit Agreement also provides that, upon satisfaction of certain conditions, the Borrowers may increase the aggregate principal amount of loans outstanding thereunder by up to $50 million, subject to receipt of additional lending commitments for such loans.

Outstanding amounts under the Term Loan will bear interest at a rate per annum equal to, at the Borrowers' option, either (a) LIBOR plus 5.75% or (b) a Base Rate (equal in this context to the greater of (i) 2.25% and (ii) the lowest of
(x) the Agent's prime rate, (y) the federal funds rate plus 1/2 of 1.00% and (z) LIBOR plus 1.00%) plus 4.75%. The Term Loan will amortize in equal quarterly installments of 0.25% of the initial principal amount beginning on September 30, 2012, with the balance due at maturity.

Outstanding amounts under the Revolver will initially bear interest at a rate per annum equal to, at the Borrowers' option, either (a) LIBOR plus 5.25% or (b) a Base Rate (equal in this context to the lowest of (x) the Agent's prime rate,
(y) the federal funds rate plus 1/2 of 1.00% and (z) LIBOR plus 1.00%) plus 4.25%. From and after delivery to the Agent of financial statements for the fiscal quarter ending on September 30, 2012, the margin over LIBOR and the Revolving Base Rate may be adjusted periodically based on our ratio of total funded debt to consolidated EBITDA, with 5.50% per annum being the maximum LIBOR margin and 4.50% per annum being the maximum Base Rate margin established by such adjustment mechanism. The Borrowers are required to pay a commitment fee on the unused commitments under the Revolver at an initial rate equal to 0.50% per annum (subject to a similar leverage-based step-down).

The loans and other obligations under the Credit Facility (including in respect of hedging agreements and cash management obligations) are (a) guaranteed by us and our existing and future domestic subsidiaries and (b) secured by substantially all of our the assets and those of our existing and future domestic subsidiaries, in each case subject to certain customary exceptions and limitations.

Subject to certain conditions, the Borrowers may voluntarily prepay the loans under the Credit Agreement in whole or in part, without premium or penalty (other than customary breakage costs). Mandatory prepayments that are required under the Credit Agreement include:

• 100% of the net cash proceeds (as defined in the Credit Agreement) upon certain dispositions of property or upon certain damages or seizures of property, subject to limited exceptions;

• 100% of the amount of net cash proceeds for certain issuances of additional indebtedness for borrowed money; and

• beginning with the fiscal year ending December 31, 2013 and each fiscal year thereafter, an annual prepayment equal to (i) our excess cash flow (as defined in the Credit Agreement) for such fiscal year, provided such prepayment is not required if we have a Leverage Ratio of less than 2.75 minus (ii) the aggregate principal amount of term and revolving loans voluntarily prepaid by the Borrowers during such fiscal year (other than voluntary prepayments made with the proceeds of issuances of additional indebtedness for borrowed money.

The terms of the Credit Agreement require us and our subsidiaries (on a consolidated basis and subject to certain customary exceptions) to meet the following financial covenants:

• maintenance of maximum total funded debt to consolidated EBITDA (as defined in the Credit Facility) of not more than 5.00 to 1.0, initially, and decreasing to 3.50 to 1.00 over the term of the Credit Facility;

• maintenance of minimum consolidated EBITDA (as defined in the Credit Facility) to consolidated interest charges of 2.75 to 1.0, initially, and increasing to 3.25 to 1.0 over the term of the Credit Facility; and

. . .