<PAGE>



                                                                     Exhibit 2

                                AUDITORS' REPORT

To the Directors of CoolBrands International Inc.:

We have audited the consolidated balance sheets of CoolBrands International Inc.
as at August 31, 2004 and 2003 and the consolidated statements of earnings,
shareholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with Canadian generally accepted auditing
standards and with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at August 31, 2004
and 2003 and the results of its operations, and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.

On November 30, 2004 (Except for Note 14(a), which is as of December 22, 2004),
we reported separately to the Shareholders of CoolBrands International Inc.
on financial statements for the same period, prepared in accordance with
Canadian generally accepted accounting principles without the additional
note of Differences between Canadian and United States generally
accepted accounting principles.


BDO DUNWOODY LLP

"BDO DUNWOODY LLP"

Chartered Accountants
Toronto, Ontario
November 30, 2004 (Except for Note 14 (a), which is as of December 22, 2004.)





<PAGE>


CoolBrands International Inc.
Consolidated Balance Sheets as at August 31, 2004 and 2003
--------------------------------------------------------------------------------
  (in thousands of dollars)

<TABLE>
<CAPTION>
                                                                             2004                 2003
                                                                                $                    $
<S>                                                                       <C>                  <C>
                             Assets
Current Assets:

Cash and short-term investments                                            84,700               30,140
Receivables (note 3)                                                       88,419               60,807
Receivables - affiliates (note 12)                                          5,113                3,185
Inventories                                                                64,618               55,604
Prepaid expenses                                                            7,818                9,722
Future income taxes (note 8)                                                6,461                1,930
                                                                       ----------------------------------

Total current assets                                                      257,129              161,388

Future income taxes (note 8)                                                4,255                2,977

Property, plant and equipment (note 4)                                     37,829               28,349

License agreements, net of accumulated amortization of
    $3,977 (2003 - $4,265)                                                  7,567               12,357

Intangible and other assets (note 5)                                        8,471                9,084

Goodwill                                                                   96,562               99,695
                                                                       ----------------------------------

                                                                          411,813              313,850
                                                                       ==================================
</TABLE>





<PAGE>


CoolBrands International Inc.
Consolidated Balance Sheets as at August 31, 2004 and 2003
--------------------------------------------------------------------------------
  (in thousands of dollars)

<TABLE>
<CAPTION>
                                                                             2004                 2003
                                                                                $                    $
<S>                                                                       <C>                  <C>
Liabilities and Shareholders' Equity

Current Liabilities:

Accounts payable                                                           49,384               27,339
Payables - affiliates (note 12)                                             1,119                  754
Accrued liabilities                                                        27,156               33,530
Income taxes payable                                                        6,499                5,204
Future income taxes (note 8)                                                2,434                3,144
Current maturities of long-term debt (note 6)                              11,182                5,683
                                                                       ----------------------------------

Total current liabilities                                                  97,774               75,654

Long-term debt (note 6)                                                    25,362               38,671

Other liabilities                                                           3,631                3,984

Future income taxes (note 8)                                                4,790                4,722
                                                                       ----------------------------------

Total liabilities                                                         131,557              123,031
                                                                       ----------------------------------


Minority interest                                                          10,649                2,968
                                                                       ----------------------------------

Commitments and contingencies (notes 10 and 11)

          Shareholders' Equity

Capital stock (note 7)                                                    139,012              122,406

Contributed surplus (note 7)                                               24,904

Cumulative translation adjustment                                        (17,501)              (8,904)

Retained earnings                                                         123,192               74,349
                                                                       ----------------------------------

Total shareholders' equity                                                269,607              187,851
                                                                       ----------------------------------

                                                                          411,813              313,850
                                                                       ==================================
</TABLE>

                    See accompanying notes to consolidated financial statements.

Approved by the Board,

         "David J. Stein"
_____________________________________, Director

        "Romeo DeGasperis"
_____________________________________, Director





<PAGE>


CoolBrands International Inc.
Consolidated Statements of earnings for the years ended August 31, 2004 and 2003
--------------------------------------------------------------------------------
(in thousands, except for earnings per share data)

<TABLE>
<CAPTION>
                                                                             2004                 2003
                                                                                $                    $
<S>                                                                       <C>                  <C>
Revenues:

Sales                                                                     584,951              335,034

Franchising and licensing revenues:

Royalty income                                                              2,756                2,716
Franchise and license fees                                                  1,549                1,804
Consumer products license fees                                                481                  741

Drayage and other income                                                   53,083               16,978
                                                                       ----------------------------------

Total revenues                                                            642,820              357,273
                                                                       ----------------------------------

Operating expenses:

Cost of goods sold                                                        438,458              207,870
Selling, general and administrative expenses                              115,131               95,088
Stock-based compensation expense                                            8,938
Interest expense                                                            1,994                1,990
                                                                       ----------------------------------

Total operating expenses                                                  564,521              304,948
                                                                       ----------------------------------

Minority interest                                                         (1,275)                  541
                                                                       ----------------------------------

Earnings before income taxes                                               79,574               51,784
                                                                       ----------------------------------

Provision for income taxes (note 8):

Current                                                                    35,629               17,536
Future                                                                    (4,898)                2,544
                                                                       ----------------------------------

                                                                           30,731               20,080
                                                                       ----------------------------------

Net earnings                                                               48,843               31,704
                                                                       ==================================

Earnings per share:
Basic                                                                        0.88                 0.61
Diluted                                                                      0.87                 0.59

Weighted average shares outstanding:
Shares used in per-share calculation - basic                               55,441               51,746
Shares used in per-share calculation - diluted                             56,329               53,992

</TABLE>

                    See accompanying notes to consolidated financial statements.





<PAGE>


CoolBrands International Inc.
Consolidated Statements of Shareholders' Equity for the years ended
August 31, 2004 and 2003
-------------------------------------------------------------------------------
(in thousands)

<TABLE>
<CAPTION>
                                                                                                         Cumulative
                                                                                           Contributed   translation   Retained
                                                        Capital Stock                      surplus       adjustment    earnings
                                        ------------------------------------------------   ------------------------------------

                                            Class A       Class B
                                        Subordinate   Subordinate
                                             voting        voting
                                             shares        shares   Warrants      Amount
                                                  #             #          #           $   $                       $          $
                                        ------------------------------------------------   ------------------------------------
<S>                                          <C>            <C>          <C>     <C>           <C>           <C>        <C>
Balance at August 31,  2002                  45,497         6,209        100     122,378             -         5,685     42,645
Net earnings                                                                                                             31,704
Foreign currency translation
 adjustment                                                                                                 (14,589)
Issuance of shares for stock
 options exercised                              102                                  172
Expense related to the
 exercise of special warrants                                                      (144)
Multiple voting shares converted to
 subordinate voting shares                       30          (30)
                                        ------------------------------------------------   ------------------------------------

Balance at August 31, 2003                   45,629         6,179        100     122,406             -       (8,904)     74,349

Net earnings                                                                                                             48,843
Foreign currency translation
 adjustment                                                                                                  (8,597)
Issuance of shares for stock
 options exercised                            3,985                               15,931
Issuance of shares for warrants
 exercised                                      100                    (100)         675
Multiple voting shares converted to
 subordinate voting shares                      149         (149)
Tax benefit relating to exercise of
 non-qualified stock options                                                                    15,966
Fair value of stock options granted                                                              8,938
                                        ------------------------------------------------   ------------------------------------
Balance at August 31, 2004                   49,863         6,030          -     139,012        24,904      (17,501)    123,192
                                        ================================================   ====================================
</TABLE>

            See accompanying notes to consolidated financial statements.





<PAGE>


CoolBrands International Inc.
Consolidated Statements of Cash Flows for the years ended
August 31, 2004 and 2003
-------------------------------------------------------------------------------
(in thousands of dollars)

<TABLE>
<CAPTION>
                                                                             2004                 2003
                                                                                $                    $
<S>                                                                       <C>                  <C>
Cash and short-term investments provided by (used in):

Operating activities:
Net earnings                                                               48,843               31,704
Items not affecting cash
      Depreciation and amortization                                         9,738                4,801
      Stock-based compensation expense                                      8,938
      Future income taxes                                                 (4,898)                2,544
      Loss on sale of asset held for sale                                                          390
      Minority interest                                                   (1,275)                  541
Changes in current assets and liabilities, net of businesses acquired
      Receivables                                                        (28,118)              (5,172)
      Receivables - affiliates                                            (1,949)                  844
      Allowance for doubtful accounts                                         168              (1,087)
      Inventories                                                         (9,113)              (9,065)
      Prepaid expenses                                                      1,924              (2,900)
      Accounts payable                                                     22,286              (7,476)
      Payables - affiliates                                                   369                (240)
      Accrued liabilities                                                 (6,447)              (2,293)
      Income taxes payable                                                 17,273              (2,292)
      Other assets                                                             71                  364
      Other liabilities                                                     (357)              (1,023)
                                                                       ----------------------------------

Cash provided by operating activities                                      57,453                9,640
                                                                       ----------------------------------

Investing activities:

Purchase of leasehold improvements and equipment                         (17,791)              (5,736)
Purchase of intangible assets                                               (102)                (113)
Purchase of license agreements                                              (399)              (1,482)
Acquisitions, net of cash acquired                                                            (13,409)
Proceeds from asset held for sale                                                                3,283
Repayment of notes receivable                                                  31                  340
                                                                       ----------------------------------
                                                                         (18,261)             (17,117)
Cash used in investing activities
                                                                       ----------------------------------

Financing activities:

Change in revolving line of credit, secured                                 2,016                2,770
Capital contributions from Partnership's minority partner                  11,554
Return of capital contribution to Partnership's minority partner          (2,663)
Proceeds from issuance of Class A and B shares                             16,606                  172
Repayment of long-term debt                                               (7,697)              (9,495)
Expense from special warrants                                                                    (144)
                                                                       ----------------------------------
                                                                           19,816              (6,697)
Cash provided by (used in) financing activities
                                                                       ----------------------------------
Decrease in cash flows due to changes in foreign exchange rates           (4,448)              (2,772)
                                                                       ----------------------------------

Increase (decrease) in cash and short-term investments                     54,560             (16,946)

Cash and short term investments - beginning of year                        30,140               47,086
                                                                       ----------------------------------

Cash and short term investments - end of year                              84,700               30,140
                                                                       ==================================
</TABLE>

                    See accompanying notes to consolidated financial statements.





<PAGE>


CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
--------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 1
 Description of business and summary of significant accounting policies

CoolBrands International Inc. (the "Company") manufactures, markets,
distributes, sub-licenses and sells a variety of branded frozen dessert products
to supermarkets, grocery stores, club stores, convenience stores, gourmet shops
and delicatessens in Canada, the United States and certain foreign countries.
The Company also operates a "direct store delivery" (DSD) frozen distribution
system in the United States that delivers the Company's frozen dessert products,
as well as those of third party "partner brand" manufacturers, directly to
retailers' store locations. The Company also manufactures frozen desserts and
other food products on a contract basis, including "store brand" (private label)
products for retailers. The Company franchises frozen yogurt and ice cream
stores, dip shops and family style restaurants throughout Canada, the United
States and over 80 foreign countries. The Company also manufactures and sells
soft-serve frozen yogurt and ice cream mixes, a variety of flavors and
ingredients and flexible packaging.

Basis of presentation

The consolidated financial statements are prepared by management using
accounting principles generally accepted in Canada and include all wholly and
majority owned subsidiaries. All significant intercompany transactions of
consolidated subsidiaries are eliminated. Acquisitions recorded as purchases are
included in the statement of earnings from the date of acquisition. All amounts
are reported in Canadian dollars unless otherwise indicated.

Use of estimates

The preparation of consolidated financial statements in conformity with Canadian
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimated.

Changes in accounting policies

On September 1, 2003, the Company adopted, on a prospective basis, the CICA
Accounting Guideline 14, "Disclosure of Guarantees". Under the guideline, the
Company is required to disclose the nature, the maximum potential amount of
future payments, the carrying amount of any liability, and the nature of any
recourse provisions of all significant guarantees.

Impairment of long-lived assets

On September 1, 2003, the Company adopted CICA Handbook Section 3063,
"Impairment of Long-Lived Assets", which requires the Company to test for
impairment loss of long-lived assets to be held and used when events or changes
in circumstances occur which may cause their carrying value to exceed the total
undiscounted cash flows expected from their use and eventual disposition. An
impairment loss, if any, is determined as the excess of the carrying value of
the asset over its fair value. The adoption of this standard did not have any
material effect on the Company's consolidated financial statements.





<PAGE>


CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
--------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Disposal of long-lived assets and discontinued operations

On September 1, 2003, the Company adopted CICA Handbook Section 3475, "Disposal
of Long-Lived Assets and Discontinued Operations", which provides guidance on
recognizing, measuring, presenting and disclosing long-lived assets to be
disposed of. It supersedes the former Section 3475, Discontinued Operations.
Under this section, an asset classified as held for sale is measured at the
lower of its carrying amount or fair value less disposal costs, and is not
depreciated while classified as held for sale. The adoption of this standard did
not have any material effect on the Company's consolidated financial statements.

Cash and short-term investments

All highly liquid commercial paper purchased with maturities of three months or
less is classified as a cash equivalent. Cash equivalents are stated at cost,
which approximates market value.

Inventories

Inventories consist primarily of ice cream, frozen yogurt and frozen dessert
products, food supplies and packaging. Inventories are valued at the lower of
cost and net realizable value, with cost determined principally by the first-in,
first-out (FIFO) method.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation of buildings and leasehold improvements and equipment is provided
by the straight-line or declining balance methods, using the estimated useful
lives of the assets, principally 20 to 38 years and 2 to 10 years, respectively.
Store leasehold improvements are amortized on a straight-line basis over the
terms of the leases, principally 5 to 10 years.

Trademarks, license agreements and franchise agreements and rights

Trademarks, license agreements and franchise agreements and rights are stated at
cost less accumulated amortization. Amortization is provided by the
straight-line method using the terms of the agreements, which range from 4 to 20
years.

Goodwill

Goodwill is evaluated annually for possible impairment. The Company uses an
estimate of the related reporting units' discounted future cash flows in
determining if the fair value of the reporting units is recoverable. Any
permanent impairment in the value of goodwill would be written off against
earnings. Based on the impairment tests performed, there was no impairment of
goodwill in fiscal 2004. There can be no assurance that future goodwill
impairment tests will not result in a charge to earnings.

Revenue recognition

Revenue from sales of the Company's products is recognized at the time of sale,
which is generally when products are shipped to customers.

Revenue from sales by Company-owned and operated stores is recognized when
products are purchased by customers.





<PAGE>


CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
--------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 1
 Description of business and summary of significant accounting policies (cont'd)

Master franchise fee revenues are recognized at the time the Company has
received the deposit specified in the master franchise agreement, has
substantially performed all significant services to be provided in accordance
with the terms of the agreement and when collectibility is reasonably
determinable.

Single store franchise fees are recognized as revenue when the franchise
application is approved, cash payments are received, and the Company has
performed substantially all services required under the agreement.

Continuing franchise royalties are based on a percentage of gross sales as
reported by the franchisees or gross products purchased by the franchisees.
These fees are recognized on an accrual basis as they are earned.

Revenue from Drayage income is recognized at the time the product is delivered
for the vendor to their customer by the Company.

Advertising

The Company spends a significant amount of its advertising dollars with its
supermarket customers in the form of co-operative advertising in the chains'
weekly circulars. The remainder of the Company's advertising is spent on media
and other direct advertising. All advertising costs are expensed as incurred.
The Company spent $7,455,000 on advertising for the year ended August 31, 2004
(2003 - $5,131,000).

Product introductory costs

The Company capitalizes certain product introductory placement costs (i.e.,
slotting fees) paid to customers, which are incurred to develop new markets for
new and existing products sold for the first time. The payment of such fees is
common in the industry. These costs are expensed over a twelve-month period.
Product introductory expense was $9,339,000 for the year ended August 31, 2004
(2003 - $11,713,000).

Financial instruments

The carrying amount of financial instruments including cash and short-term
investments, receivables, receivables - affiliates, accounts payable, payables -
affiliates, accrued liabilities and income taxes payable approximates fair value
at August 31, 2004, because of the relatively short maturity of these
instruments.

Concentration of credit risk

Financial instruments, which potentially subject the Company to concentration of
credit risk, consist principally of cash and short-term investments and
receivables. The Company attempts to minimize credit risk with respect to
receivables by reviewing customers' credit history before extending credit, and
by regularly monitoring customers' credit exposure. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information.

Earnings per share

The Company uses the treasury stock method to determine the dilutive earnings
per share.





<PAGE>


CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
--------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 1
 Description of business and summary of significant accounting policies (cont'd)

Foreign currency translation

Translation gains or losses of accounts of foreign subsidiaries considered
financially and operationally self-sustaining are deferred as a separate
component of shareholders' equity until there has been a realized reduction in
the net investment.

Foreign currencies are translated into Canadian dollars using the average
exchange rate for the year for items included in the Consolidated Statements of
Earnings. Foreign currencies are translated into Canadian dollars using the
current rate for assets and liabilities included in the consolidated balance
sheets except for earnings reinvested in the business, which are translated at
historical rates.

Income taxes

Income taxes are calculated using the asset and liability method of accounting
for income taxes. Under this method, current income taxes are recognized for the
estimated income taxes payable for the current period. Future income tax assets
and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities, and are measured using the
substantially enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

Stock Option Plan

The Company has a stock option plan for directors, officers, consultants and key
employees. No compensation expense is recognized in accounting for stock options
in the Company's Consolidated Statements of Earnings, except for stock-based
compensation expense for stock options granted to consultants and non-employee
directors which is measured at the estimated fair value at the date of grant and
expensed. When options are exercised the amount received is credited to share
capital. Pro forma stock-based compensation expense information is included in
note 7.

Reclassifications

Certain 2003 amounts have been reclassified to conform with the 2004
presentation.

Note 2
 Acquisitions

         a. 2003 Acquisitions

Effective July 1, 2003, the Company acquired the general partner interest and
majority of the total partnership interests in Americana Foods LP, located in
Dallas, Texas. Americana Foods is one of the largest and most versatile frozen
dessert manufacturing facilities in the U.S., and currently supplies a wide
variety of soft-serve mixes, packaged ice cream, frozen yogurt and sorbet
products and frozen novelties to well-known national retailers, food companies
and restaurant chains, including Sam's Club, TCBY Enterprises and Silhouette
Brands. Americana Foods also manufactures and sells products for the foodservice
channel such as dairy mixes for preparing mashed potatoes which are extensively
used to standardize quality and reduce labor costs in on-site food preparations.





<PAGE>


CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
--------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 2
 Acquisitions
         a. 2003 Acquisitions (cont'd)

The following is a summary of the assets acquired and the fair value assigned
thereto, and the purchase consideration given:

<TABLE>
<CAPTION>
                 Fair value acquired:                   $      Purchase Consideration:

<S>                                              <C>                  <C>                   <C>
                   Current assets                $ 22,396
                   Property, plant
                       and                          7,879
                       equipment
                                                 --------
                                                   30,275
                   Less: Liabilities               30,275
                                                 --------                                   --------

                                                 $    Nil                                   $    Nil
                                                 ========                                   ========
</TABLE>


On July 6, 2003, the Company acquired the Dreamery'r' ice cream and
WholeFruit'TM' sorbet brands from Dreyer's Grand Ice Cream, Inc., as well as
the right to the license for the Godiva'r' ice cream brand, which was assigned
by Dreyer's and substantially all of the Haagen-Dazs frozen dessert distribution
assets in the States of Washington, Oregon, Florida, California, Pennsylvania,
New Jersey, Utah, Minnesota, Georgia, Maryland and the District of Columbia
from Nestle Ice Cream Company, LLC.

The following is a summary of the assets acquired and the fair value assigned
thereto, and the purchase consideration given:

<TABLE>
<CAPTION>
                 Fair value acquired:                          Purchase Consideration:

<S>                                              <C>             <C>                        <C>
                   Current assets                $ 10,971        Cash                       $ 13,409
                   Option to purchase City          2,438
                     of Industry, CA.
                     facility
                                                 --------                                   --------

                                                 $ 13,409                                   $ 13,409
                                                 ========                                   ========
</TABLE>





<PAGE>


CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
--------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 3
Receivables

<TABLE>
<CAPTION>
                                                                             2004                 2003
<S>                                                                      <C>                  <C>
      Trade accounts receivable                                          $ 91,764             $ 64,217
      Franchise and license fees receivable                                   680                  423
      Notes receivable, current maturities                                    141                  167
                                                                       ---------------------------------
                                                                           92,585
                                                                                                64,807
      Less:  Allowance for doubtful accounts                                4,166                4,000
                                                                       ---------------------------------
                                                                         $ 88,419             $ 60,807
                                                                       =================================
</TABLE>


Note 4
Property, plant and equipment

<TABLE>
<CAPTION>
                                                                             2004                 2003
<S>                                                                      <C>                  <C>
      Land                                                               $  1,217             $  1,280
      Buildings                                                            14,255                8,432
      Machinery and equipment                                              32,050               25,290
      Leasehold improvements                                                3,083                3,257
                                                                       ---------------------------------
                                                                           50,605
                                                                                                38,259
      Less:  Accumulated depreciation and amortization
          Buildings                                                         1,356                  866
          Machinery and equipment                                          10,230                8,057
          Leasehold improvements                                            1,190                  987
                                                                       ---------------------------------
                                                                         $ 37,829             $ 28,349
                                                                       =================================
</TABLE>


Note 5
Intangible and other assets

<TABLE>
<CAPTION>
                                                                             2004                 2003
<S>                                                                      <C>                  <C>
      Trademarks                                                         $  4,275             $  4,421
      Franchise agreements and rights                                         729                  756
      Territorial agreements                                                  396                  425
      Purchase option - land and building                                   2,371                2,495
      Notes receivable                                                        143                  168
      Other                                                                 2,645                2,715
                                                                       ---------------------------------
                                                                           10,559               10,980

      Less:  Accumulated amortization
          Trademarks                                                        1,389                1,203
          Franchise agreements and rights                                     303                  280
          Territorial agreements                                              396                  413
                                                                       ---------------------------------
                                                                         $  8,471             $  9,084
                                                                       =================================
</TABLE>





<PAGE>


CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
--------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 6
Long-term debt

<TABLE>
<CAPTION>
                                                                             2004                 2003
<S>                                                                      <C>                  <C>
      Term loan, unsecured                                               $ 17,890             $ 22,518
      Term loans, secured                                                  12,004               13,292
      Revolving line of credit, unsecured                                                        2,770
      Revolving loan, secured                                               5,903                4,112
      Capitalized leases                                                      747                1,662
                                                                       ---------------------------------
                                                                           36,544               44,354
      Less:  Current maturities                                            11,182                5,683
                                                                       ---------------------------------

                                                                         $ 25,362             $ 38,671
                                                                       =================================
</TABLE>

In connection with the acquisition of Eskimo Pie Corporation, a U.S. subsidiary
borrowed U.S. $30,000,000, to finance the acquisition. The unsecured term loan
is payable in monthly installments of U.S. $250,000, with the remaining
principal balance due November 1, 2005. Interest is payable monthly on the
unpaid principal balance with interest rates fluctuating with changes in the
prime lending or libor rate and the ratio of funded debt to EBITDA. The interest
rates, plus applicable margins were the lower of prime plus 0.5% or libor plus
2.0% (3.48% at August 31, 2004). As of August 31, 2004 and 2003, the term loan
balance was U.S. $13,500,000, U.S. $16,250,000, respectively.

All borrowings under the above unsecured term loan agreement are guaranteed by
the Company. The agreement contains restrictions relating to the payment of
dividends, rental obligations, liens, indebtedness, dispositions of property,
change in the nature of its business, change in ownership and requires that the
net proceeds from the sale (other than in the ordinary course of business) of
any assets of Eskimo Pie Corporation must be utilized to reduce the then
outstanding principal balance of the term loan. In addition, the Company must
maintain certain financial ratios and limit capital expenditures to U.S.
$5,000,000 during any fiscal year.

The subsidiary also has a U.S. $10,000,000 unsecured revolving credit facility.
The revolving credit facility is available for general corporate purposes and
has a maturity date of November 30, 2004. Interest is payable monthly on the
unpaid principal balance of borrowings under this facility with an interest rate
of libor plus 2%. The subsidiary agreed to pay a fee of 0.25% per annum on the
unused portion of the commitment. As of August 31, 2004, the subsidiary has U.S.
$10,000,000 of available credit under the revolving credit facility.

On November 19, 2002, a limited partnership, which is owned 50.1% by the
Company, entered into a credit agreement with a financial institution that
includes a term loan of U.S. $10,000,000, which is secured by the partnership's
property, plant and equipment. Principal payments are payable in fixed monthly
installments of U.S. $80,739 based upon a fifteen-year amortization and matures
on November 19, 2007. The loan bears interest at prime plus 0.5% (5.0% at August
31, 2004 and 4.5% at August 31, 2003).

The Partnership's credit agreement, which was amended on June 16, 2004, includes
a revolving loan up to $7,000,000, subject to a borrowing base calculation, and
bears interest at Prime plus 0.5% (5.0% at August 31, 2004 and 4.5% at August
31, 2003) and is due on November 19, 2004. At August 31, 2004 approximately U.S.
$2,517,000 was available to the Partnership under this loan. The revolving loan
is secured by the Partnership's accounts receivable and inventory and is
classified as a current liability.





<PAGE>


CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
--------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 6
Long-term debt (cont'd)

On June 16, 2004 the Partnership executed an amendment to the credit agreement.
Pursuant to this amendment, a fixed charge coverage ratio of 2:1 and a
debt-to-tangible net worth ratio of 3:1 must be maintained and the minimum
tangible net worth requirement was increased to U.S. $17,500,000 effective June
16, 2004.

Repayments of long-term debt due in each of the next five years are as follows:


                       2005               $ 11,182
                       2006                 14,856
                       2007                    824
                       2008                  9,659
                       2009                     23
                                          --------

                                          $ 36,544
                                          ========


Interest paid during the year ended August 31, 2004 was approximately $1,923,000
(2003 - $1,980,000).

Note 7
Shareholders' equity and stock options
(thousands of shares)

Capital Stock

Capital stock consists of the following at August 31, 2004:

<TABLE>
<CAPTION>
                                                      Authorized             Shares
                                                          Shares        Outstanding       Paid-In-Balance
                                                               #                  #                     $
                                                    -------------------------------------------------------
<S>                                                      <C>                 <C>                  <C>
        Class A Subordinate voting shares                200,000             49,863               122,128
        Class B Multiple voting shares                   200,000              6,030                16,884

</TABLE>


Class A subordinate voting shares have a preferential right to receive cash
dividends when, as and if declared by the Board of Directors. Class B multiple
voting shares can be converted at any time into an equivalent number of Class A
subordinate voting shares. The Class A subordinate voting shares are entitled to
one vote per share and the Class B multiple voting shares are entitled to ten
votes per share.





<PAGE>


CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
--------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 7
Shareholders' equity and stock options (cont'd)

Contributed surplus

Contributed surplus represents the reduction in income taxes payable resulting
from the exercise of non-qualified stock options by employees of a U.S.
subsidiary and the fair value of stock options granted to the Company's Co-CEO
and Co-Chairman.

Stock options

Under the Company's stock option plans, non-qualified options to purchase
subordinate voting shares are granted to directors, officers, consultants and
key employees at exercise prices equal to the fair market value of the stock at
the date of grant. On November 1, 2002 the Company's shareholders approved The
2002 Stock Option Plan, which reserved 5.17 million options for issuance and
limited the number of options that may be granted in any one fiscal year to 2.5%
of outstanding shares. On February 27, 2004 the Company's shareholders approved
the elimination of the limitation on the number of options that may be granted
in any one fiscal year.

The following table summarizes stock option activity for all stock option plans:
<TABLE>
<CAPTION>

                                                                                            Weighted
                                                                           Weighted          Average
                                                                            Average      Contractual
                                                                           Exercise         Life (in
                                                          Shares              Price            years)
                                                        ----------       -----------------------------
<S>                                                        <C>                <C>               <C>
     Outstanding at August 31, 2002                        3,303               3.41              2.9

     Granted                                               1,298               5.40
     Exercised                                             (102)               1.69
     Expired                                               (127)               5.72
     Cancelled                                              (10)               1.25
     -------------------------------------------------------------------------------------------------
     Outstanding at August 31, 2003                        4,362               3.98              2.7
     Granted                                               3,420              20.03
     Exercised                                           (3,986)               4.00
     Cancelled                                              (20)               8.35
     -------------------------------------------------------------------------------------------------
     Outstanding at August 31, 2004                        3,776              18.47              4.2
                                                        ==========       =============================
     Options exercisable at August 31, 2004                3,387              19.86
                                                        ==========       =============================
</TABLE>






<PAGE>


CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
--------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 7
Shareholders' equity and stock options (cont'd)

      The following table summarizes stock options outstanding, exercisable and
exercise price range at August 31, 2004:

<TABLE>
<CAPTION>
                                                                     Exercise price
                 Outstanding              Exercisable                         range
                           #                        #                             $
               ---------------          ---------------            ------------------
<S>                    <C>                      <C>                   <C>
                         210                       39                  1.15 -  1.35
                         111                        7                          5.00
                       1,330                    1,241                 13.75 - 15.93
                          25                                                  17.35
                       2,100                    2,100                         22.65
               ---------------          ---------------

                       3,776                    3,387
               ===============          ===============
</TABLE>


Stock options reserved for future grant at August 31, 2004 aggregated 648,502.

The Company does not recognize stock-based compensation expense for stock
options granted to employee directors, officers and key employees, because the
exercise price of the employee stock options equals the market price of the
underlying stock on the date of grant.

The Company accounts for stock-based compensation to non-employee directors
using the fair value method of accounting. During the year the Co-Chairman and
Co-Chief Executive Officer was issued 709,983 options which vested immediately.
Stock-based compensation expense was recognized in the amount of $8,938,000 in
the Consolidated Statement of Earnings. Under the Black-Scholes pricing model
the following weighted average assumptions were used, risk-free interest rate of
2.97%, expected volatility of 67.52, expected life of 4.2 years, and a
contractual life of 5 years.

The Company is required under generally accepted accounting principle to
disclose pro forma information regarding options grants made to directors,
officers and key employees based on specified valuations techniques that produce
estimated compensation charges.





<PAGE>



CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
-------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 7
Shareholders' equity and stock options (cont'd)

Pro forma information is as follows:

<TABLE>
<CAPTION>


                                                ,                        2004                    2003

<S>                                                                    <C>                     <C>
       Net earnings reported                                           $ 48,843                $ 31,704
           Deduct: total stock-based employee
           expense determined under
           fair-value-based method for all options,
           net of related tax effect
                                                                       (19,335)                 (1,353)
                                                                ----------------------------------------

       Pro forma net earnings                                            29,508                  30,351
                                                                ========================================

       Earnings per share:
         As reported - basic                                               0.88                    0.61
         Pro forma - basic                                                 0.53                    0.59
         As reported - diluted                                             0.87                    0.59
         Pro forma - diluted                                               0.52                    0.56
</TABLE>

The value of each option granted is estimated on the date of the grant using the
Black-Scholes options pricing model with the following "weighted-average
assumptions":

<TABLE>
<CAPTION>

       For the year ended  August 31,                        2004                               2003

<S>                                                          <C>                                <C>
       Expected dividend yield                                  -                                  -
       Risk-free interest rate (percentage)                  2.98                               3.46
       Expected volatility                                  67.39                              68.38
       Expect life (in years)                                 4.2                                2.7
</TABLE>

Under the Black-Scholes option pricing model, the weighted-average fair value of
the stock options granted during fiscal 2004 was $10.21 (2003 - $3.03)

Note 8
Income taxes

The effective income tax rate on earnings is affected from year to year by the
geographic mix of the consolidated earnings before income taxes. The following
table reconciles income taxes computed by applying the combined Canadian
Federal/Provincial statutory rate with the actual income tax provision:

<TABLE>
<CAPTION>

                                                                               2004                    2003
<S>                                                                          <C>                     <C>
       Combined basic Canadian Federal and Provincial income
           tax rate                                                          36.21%                  38.00%
       Impact of operating in foreign countries with
           different effective rates                                           1.93                    0.04
       Permanent differences                                                   0.48                    0.74
                                                                        -----------------------------------------

                                                                             38.62%                  38.78%
                                                                        =========================================
</TABLE>









<PAGE>





CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
-------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 8
Income Tax (cont'd)

The Company's subsidiaries have operating loss carry-forwards for income tax
purposes amounting to approximately $4,566,000 (2003 - $5,084,000). These losses
expire in various amounts through the year 2019.

Significant components of the Company's future tax assets and liabilities as of
August 31, 2004 are as follows:

<TABLE>
<CAPTION>

                    Future Tax Assets                                       Future Tax Liabilities
                    -----------------                                       ----------------------
<S>                                                      <C>         <C>                                          <C>
       Non-capital loss carry-forwards                   $ 1,745     Tax amortization in excess of book           $2,885
                                                                       amortization
       Accounting allowances not deducted for tax          2,361     Product introductory costs                    2,489
       Tax   benefit    stock-based    compensation        3,530
       -consultant
       Tax  basis of assets  acquired  in excess of        1,488
        book value
       Other                                               1,592     Other                                         1,850
                                                        ------------                                             --------

       Total Future Tax Assets                           $10,716     Total Future Tax Liabilities                 $7,224
                                                        ============                                             ========
</TABLE>

Income taxes paid during the year ended August 31, 2004 was approximately
$16,299,000 (2003 - $17,268,000).

Note 9
Retirement Plans

Eskimo Pie Corporation had maintained two defined benefit pension plans covering
substantially all salaried employees. Upon the acquisition of Eskimo Pie
Corporation by the Company, all future participation and all benefits under the
plans were frozen. These plans provide retirement benefits based primarily on
employee compensation and years of service up to the acquisition of Eskimo Pie
Corporation by the Company. The above mentioned plans are referred to as the
"Pension Benefits".

In addition, Eskimo Pie Corporation entered into an agreement with Reynolds
Metals Company to indemnify the cost of retiree health care and life insurance
benefits for salaried employees of Eskimo Pie Corporation who had retired prior
to April 1992. Under this agreement, Eskimo Pie Corporation may elect to prepay
its remaining obligation. Eskimo Pie Corporation did not provide postretirement
health and life insurance benefits for employees who retired subsequent to April
1992. This indemnity agreement is referred to as the "Other Benefits".









<PAGE>






CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
-------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 9
Retirement Plans (cont'd)

The following table reconciles the changes in benefit obligations and plan
assets in 2004, and reconciles the funded status to accrued benefit cost at
August 31, 2004:

<TABLE>
<CAPTION>

                                                                 Pension Benefits            Other Benefits
                                                                 ----------------            --------------
<S>                                                                     <C>                       <C>
           Benefit Obligation
           Beginning balance at August 31, 2003                           $ 2,892                   $ 2,268
           Interest cost                                                      180                       221
           Actuarial loss                                                     125
           Benefit payments                                                 (104)                     (267)
           Translation gain                                                 (145)                     (119)
                                                               -----------------------------------------------

           Ending balance at August 31, 2004                              $ 2,948                   $ 2,103
                                                               ===============================================

           Plan assets - Basic value

           Beginning balance at August 31, 2003                           $ 2,666
           Actual return on plan assets                                       291
           Contributions                                                       27
           Benefit payments                                                 (104)
           Translation gain                                                 (134)
                                                               ---------------------

           Ending balance at August 31, 2004                              $ 2,746
                                                               =====================
</TABLE>

       The funded status for the post retirement health and life insurance
benefits is as follows:

<TABLE>
<CAPTION>

                                                                            Other Benefits
                                                                            --------------
<S>                                                                                <C>
           Benefit obligations in excess of Plan assets                            $ 2,103
                                                                            ==============
           Accrued benefit cost                                                    $ 2,103
                                                                            ==============
</TABLE>

       The accrued benefit cost of $2,103,000 is included in Other liabilities
at August 31, 2004.

       The following table provides the components of the net periodic benefit
cost:

<TABLE>
<CAPTION>

                                                                Pension Benefits              Other Benefits
                                                                ----------------              --------------
<S>                                                                        <C>                         <C>
           Interest cost                                                   $ 180                       $ 221
           Expected return on Plan assets                                  (292)
           Recognized net actuarial gain                                     107
                                                               ------------------------------------------------

           Net period benefit cost (income)                                $ (5)                       $ 221
                                                               ================================================
</TABLE>








<PAGE>



CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
-------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 9
Retirement Plans (cont'd)

       The assumptions used in the measurement of the Eskimo Pie Corporation's
benefit obligations are as follows:

<TABLE>
<CAPTION>

                                                                  Pension Benefits         Other Benefits
                                                                  ----------------         --------------
<S>                                                                      <C>                   <C>
           Benefit obligation, beginning of year                         6.25%                 7.75%
           Expected return on plan assets, during the year               8.00%
</TABLE>

The weighted average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 5% for 2004 and is
assumed to remain at that level thereafter. A one percentage point increase or
decrease in the assumed health care cost trend rate would change the accumulated
postretirement benefit obligation by approximately $232,500 and the net periodic
postretirement benefit cost by approximately $23,250.

Note 10
Commitments

The majority of distribution warehouse, store and office facility leases are
under non-cancelable leases. Substantially all of the leases are net leases,
which require the payment of property taxes, insurance and maintenance costs in
addition to minimum rental payments. Certain store leases provide for additional
rentals based on a percentage of sales and have renewal options for one or more
periods from five to twenty years.

At August 31, 2004 the future minimum lease payments under operating leases with
rental terms of more than one year, net of sublease rents, amounted to:

<TABLE>
<CAPTION>

               Fiscal year ending:                                         $

<S>                                                                     <C>
                        2005                                            6,869
                        2006                                            5,779
                        2007                                            4,056
                        2008                                            2,811
                        2009                                            1,292
                        Later years                                     1,835
                                                                    -----------

               Total minimum obligations                               22,642
                                                                    ===========
</TABLE>


Total rental expense relating to all operating leases (including those with
terms less than one year) was $9,589,000 (2003 - $2,973,000).






<PAGE>



CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
-------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 11
Contingencies

Legal matters

The Company is involved in two cases pending in New York State Supreme Court,
Nassau County, captioned CoolBrands International, Inc., et al. v. Weight
Watchers International, Inc., et al., Index No. 010926/04 ("CoolBrands I"), and
Weight Watchers International, Inc. v. CoolBrands International, Inc., et al.,
Index No. 04/012557 ("CoolBrands II"). In CoolBrands I, the Company asserts
claims for breach of an exclusive trademark license with Weight Watchers
International, Inc. ("WW"), arising, inter alia, from WW's entry into a future
license agreement with Defendant Wells' Dairy, Inc. ("Wells'") in violation of
the Company's contractual rights which prohibit entry into such future licenses
during the exclusive period of the Company's license. Defendants WW and Wells'
assert counterclaims against the Company in CoolBrands I which allege an
anticipatory breach of the same license agreement with the Company arising from
a claimed plan by the Company to abuse its non-exclusive rights under that
license. CoolBrands I is presently in discovery on an expedited schedule. In
CoolBrands II, WW asserts virtually identical claims for anticipatory breach of
contract as are asserted in WW's counterclaims in CoolBrands I. The Company has
moved to dismiss CoolBrands II. WW and Wells' have each moved for a preliminary
injunction on their counterclaims in CoolBrands I. The Company has also moved
for a preliminary injunction, and has obtained a TRO against WW and Wells'
misuse of UPC codes in CoolBrands I.

The Company is a party to legal proceedings and disputes with franchisees,
former franchisees and others, which arise in the ordinary course of business.
In the opinion of the Company, it is unlikely that the liabilities, if any,
arising from the legal proceedings and disputes will have a material adverse
effect on the consolidated financial position of the Company or its operations.

Subleases

Several subsidiaries hold master store leases covering franchised locations.
Such leases expire at varying dates to 2013. Where a subsidiary holds the master
lease, these premises have been subleased to franchisees under terms and rental
rates substantially the same as those in master leases. In a majority of these
instances, franchisees make all lease payments directly to the landlords. The
Company provides an estimated liability for lease terminations in the event of a
default by a franchisee based on the expected costs of releasing or settlement
with the landlord. The liability was $341,000 at August 31, 2004. Aggregate
minimum future rental payments under these leases approximated $8,090,000 at
August 31, 2004 (2003 - $10,691,000).

Note 12
Related party transactions and amounts

Calip Dairies, Inc. ("Calip"), an ice cream distributor owned by an officer,
director and shareholder of the Company, has a management agreement with
Integrated Brands Inc., which the Company acquired in March 1998. This agreement
terminates on December 31, 2013 and thereafter shall automatically renew
December 31 of each year for an additional one-year term, unless terminated
under certain conditions. Under the agreement, Calip provides management
services to Integrated Brands for an annual fee of U.S. $1,300,000 effective
July 1, 2003, prior to which the fee was U.S. $1,000,000. Such management fees
incurred for the year ended August 31, 2004 were $1,731,000 (U.S. $1,300,000)
(2003 - $1,556,000 (U.S. $1,050,000)). At August 31, 2004, the $1,119,000 (2003
- $754,000) balance of payables - affiliates represents payables to Calip.






<PAGE>


CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
-------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 12
Related party transactions and amounts (cont'd)

Integrated Brands Inc., also has a distribution agreement with Calip for
distribution of the Company's products in the New York Metropolitan Area,
Fairfield County in the state of Connecticut, and New Jersey. The distribution
agreement continues until December 31, 2007 and thereafter shall automatically
renew on December 31 of each year while the agreement is in effect for an
additional one-year term, unless terminated under certain conditions. The
distribution agreement is terminable by either party on sixty-days' notice.
Sales of products to Calip were $16,037,000 for the year ending August 31, 2004
(2003 - $12,624,000). At August 31, 2004, $5,113,000 of the receivables -
affiliates represent receivables from Calip (2003 - $3,185,000). The
transactions with Calip occur in the normal course of operations and are
measured at the amount of consideration established and agreed to by the related
parties.

Note 13
Segment information

CoolBrands International's reportable segments are Prepackaged consumer
products, Foodservice, Dairy components and Franchising and licensing, including
Company-owned stores.

Revenues and profits in the Prepackaged consumer products segment are generated
from selling a variety of prepackaged frozen dessert products to distributors
and various retail establishments including supermarkets, grocery stores, club
stores, gourmet shops, delicatessens and convenience stores.

Revenues and profits in the Foodservice segment are generated from manufacturing
and selling soft-serve yogurt and premium ice cream mixes to broad-line
foodservice distributors, yogurt shops and other foodservice establishments
which, in turn, sell soft-serve ice cream and yogurt products to consumers.

Revenues and profits in the Dairy components segment are generated from the
manufacturing and selling of various ingredients to the dairy industry and from
the manufacturing and selling of flexible packaging, such as private label ice
cream novelty wraps.

Revenues and profits in the Franchising and licensing segment are generated by
franchising activities, which generate initial and recurring revenues and the
manufacture and sale of proprietary products to franchisees and licensees and
from Company-owned stores selling ice cream and soft-serve yogurt out of
Company-owned stores and outlets. CoolBrands International Inc. evaluates the
performance of its segments and allocates resources to them based on their
operating contribution, which represents segment revenues, less direct costs of
operation, excluding the allocation of corporate expenses.









<PAGE>


CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
-------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 13
Segment information (cont'd)

Industry Segments:

<TABLE>
<CAPTION>

                                                             Year Ended August 31, 2004

                            Prepackaged
                               consumer                             Dairy    Franchising
                               products      Foodservice       components            and       Corporate       Consolidated
                                                                               licensing
-----------------------------------------------------------------------------------------------------------------------------
<S>                           <C>               <C>              <C>            <C>                <C>            <C>
Revenues                      $ 655,999         $ 25,809         $  39,295      $ 18,888       $     292          $ 740,283
Interest income                     348                                              215             144                707
Inter-segment revenues         (88,575)            (936)           (8,430)                         (229)           (98,170)
                           --------------------------------------------------------------------------------------------------
Net revenues                    567,772           24,873            30,865        19,103             207            642,820
                           --------------------------------------------------------------------------------------------------

Segment earnings                 71,763            2,065             5,149         2,725             207             81,909

General corporate                                                                                (1,616)            (1,616)
  expenses

Interest expense                (1,985)                                              (9)                            (1,994)

Minority interest                 1,275                                                                               1,275
                           --------------------------------------------------------------------------------------------------

Earnings before
  income taxes                $  71,053         $  2,065         $   5,149       $ 2,716       $ (1,409)             79,574
                           ==============================================================================
Provision for income
  taxes                                                                                                              30,731
                                                                                                           ------------------

Net earnings                                                                                                      $  48,843
                                                                                                           ==================

Assets                        $ 277,881         $ 22,877         $  40,071      $ 54,909       $  16,075          $ 411,813

Capital expenditures
                                 17,319              146               195           131                             17,791

Depreciation and
    amortization                  7,788              446               430         1,074                              9,738

</TABLE>







<PAGE>



CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
-------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 13
Segment information (cont'd)

Industry Segments:

<TABLE>
<CAPTION>

                                                         Year Ended August 31, 2003

                            Prepackaged
                            consumer                         Dairy          Franchising
                            products       Foodservice       components     and               Corporate        Consolidated
                                                                            licensing
-----------------------------------------------------------------------------------------------------------------------------
<S>                           <C>               <C>             <C>             <C>            <C>                <C>
Revenues                      $ 277,134         $ 26,234        $ 41,594        $ 20,890       $     214          $ 366,066
Interest income                     575                                              126              43                744
Inter-segment revenues          (5,389)            (991)         (2,943)                           (214)            (9,537)
                           --------------------------------------------------------------------------------------------------
Net revenues                    272,320           25,243          38,651          21,016              43            357,273
                           --------------------------------------------------------------------------------------------------

Segment earnings                 45,152            2,678           6,026           2,123              43             56,022

General corporate
  expenses                                                                                       (1,707)            (1,707)

Interest expense                (1,970)                                             (20)                            (1,990)

Minority interest                 (541)                                                                               (541)
                           --------------------------------------------------------------------------------------------------

Earnings before
  income taxes                $  42,641         $  2,678        $  6,026        $  2,103       $ (1,664)             51,784
                           ===============================================================================
Provision for income                                                                                                 20,080
  taxes
                                                                                                           ------------------

Net earnings                                                                                                         31,704
                                                                                                           ==================

Assets                        $ 189,686         $ 21,335        $ 36,143        $ 63,453       $   3,233          $ 313,850

Capital expenditures              3,849              236             231           1,420                              5,736

Depreciation and                  2,635              631             469           1,066                              4,801
    amortization

</TABLE>






<PAGE>



CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
-------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 13
Segment information (cont'd)

Geographic Segments:


<TABLE>
<CAPTION>
                                                      Year Ended August 31, 2004

                                               Canada       United States          International              Consolidated
   --------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>                    <C>                      <C>
   Revenues                                   $  5,484           $ 730,773              $  4,026                 $ 740,283
   Interest income                                 287                 351                    69                       707
   Inter-segment revenues                        (229)            (97,941)                                        (98,170)
                                        -------------------------------------------------------------------------------------
   Net revenues                                  5,542             633,183                 4,095                   642,820
                                        -------------------------------------------------------------------------------------

   Segment earnings                                810              78,874                 2,225                    81,909

   General corporate expenses                  (1,616)                                                             (1,616)

   Interest expense                                                (1,994)                                         (1,994)

   Minority interest                                                 1,275                                           1,275
                                        -------------------------------------------------------------------------------------

       Earnings before income taxes           $  (806)           $  78,155              $  2,225                    79,574
                                        ===========================================================

   Provision for income taxes                                                                                       30,731
                                                                                                       ----------------------

   Net earnings                                                                                                  $  48,843
                                                                                                       ======================

   Assets                                     $ 25,097           $ 375,032              $ 11,684                 $ 411,813

   Capital expenditures                             26              17,760                     5                    17,791

   Depreciation and amortization                   204               9,341                   193                     9,738

</TABLE>







<PAGE>



CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
-------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)

Note 13
Segment information (cont'd)

<TABLE>
<CAPTION>

                                                      Year Ended August 31, 2003

   Geographic Segments:
                                                      Canada       United States         International            Consolidated
   ---------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>                    <C>                        <C>
   Revenues                                         $  5,157           $ 356,674               $ 4,235              $ 366,066
   Interest income                                       103                 595                    46                    744
   Inter-segment revenues                              (214)             (9,323)                                      (9,537)
                                        --------------------------------------------------------------------------------------
   Net revenues                                        5,046             347,946                 4,281                357,273
                                        -------------------------------------------------------------------------------------

   Segment earnings                                      668              53,342                 2,012                 56,022

   General corporate expenses                        (1,707)                                                          (1,707)

   Interest expense                                                      (1,990)                                      (1,990)

   Minority interest                                                       (541)                                        (541)
                                        -------------------------------------------------------------------------------------

       Earnings before income taxes                 $(1,039)           $  50,811               $ 2,012                 51,784
                                         ================================================================

   Provision for income taxes                                                                                          20,080
                                                                                                             -----------------

   Net earnings                                                                                                     $  31,704
                                                                                                             ==================

   Assets                                           $  7,752           $ 296,113               $ 9,985              $ 313,850

   Capital expenditures                                                    5,736                                        5,736

   Depreciation and amortization                         204               4,387                   210                  4,801
</TABLE>

Note 14
Subsequent events

(a) December 22, 2004, the Company announced that it entered into an agreement
to acquire the yogurt business of Kraft Foods, Inc. (NYSE: KFT) for
approximately U.S. $59,000,000. The acquired brands include Breyers Fruit on the
Bottom, Light and Creme Savers cup yogurt varieties and Creme Savers Smoothie
drinkable yogurts. Pursuant to the agreement, CoolBrands' wholly owned
subsidiary, Integrated Brands, Inc., will purchase substantially all of Kraft's
assets related to its yogurt business, including a license for the Breyers
trademark, a license for the Creme Savers trademark, a license for the Light N'
Lively trademark and Kraft's manufacturing facility in North Lawrence, New York.
The transaction, which is subject to regulatory approval, is expected to be
completed in the first calendar quarter of 2005.

(b) As of the beginning of fiscal 2005, the Company began accounting for the
distribution of Dreyer's Grand Ice Cream Inc.'s ("Dreyer's") products as an
independent distributor, changing from the previously used drayage basis, except
for scanned based trading customers of Dreyer's. The Company began purchasing
products from Dreyer's and selling those products starting in fiscal 2005 to
customers at wholesale. In connection with this change in the business
arrangement with Dreyer's, the Company purchased $7,987,000 of accounts
receivable and $7,216,000 of inventory.







<PAGE>



CoolBrands International Inc.
Notes to Consolidated Financial Statements
for the years ended August 31, 2004 and 2003
-------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of dollars, except per share data)



15. Differences between Canadian and United States generally accepted
    accounting principles

    The consolidated financial statements of the Company have been prepared in
    accordance with Canadian GAAP. The following adjustments and/or additional
    disclosures, would be required in order to present the financial
    statements in accordance with U.S. GAAP, as required by the United States
    Securities Exchange Commission ("SEC").



    (a)   Comprehensive income

          Under United States GAAP, comprehensive income must be presented for
          certain items that are required by U.S. GAAP to be recognized directly
          in stockholders' equity rather than net income.

<TABLE>
<CAPTION>

                                                                                       2004              2003
                                                                                       ----              ----
                                                                                         $                 $
<S>                                                                                   <C>               <C>
               Net earnings                                                           48,843            31,704

               Unrealized gain on derivative investments  (net of income
                 tax of (103) in 2003.)                                                                    164
               Foreign currency translation                                          (8,597)          (14,589)
                                                                               ------------------------------

               Comprehensive earnings                                                 40,246            17,279
                                                                               ==============================
</TABLE>

     (b)   Accounting for consideration given by a vendor to a customer or
           reseller of the vendor's products

           In accordance with EITF No. 01-09 "Accounting for Consideration
           Given by a Vendor to a Customer or Reseller of the Vendors
           Products" certain payments made to customers by the Company,
           including promotional sales allowances, cooperative advertising
           and product introductory expenses classified as selling, general
           and administrative expenses, must be deducted from revenue. The
           reclassification for the year ended August 31, 2004 would be
           $37,071,000 (2003 - $31,057,000).


           Under U.S. GAAP, total revenues and selling, general and
           administrative expenses for the years ended August 31, 2004 and
           2003 would be classified as follows:

<TABLE>
<CAPTION>

                                                                     Total                    Selling, general and
                                                                   revenues                 administrative  expenses
                                                                   --------                 ------------------------
                                                               2004          2003             2004             2003
                                                               ----          ----             ----             ----
                                                                 $            $                 $                $

<S>                                                         <C>           <C>              <C>               <C>
            Canadian GAAP                                   642,820       357,273          115,131           95,088
            Adjustment for consideration
             given to customers                            (37,071)      (31,057)         (37,071)         (31,057)
                                                        -----------------------------------------------------------

            U.S. GAAP                                       605,749       326,216           78,060           64,031
                                                        ===========================================================
</TABLE>







<PAGE>



CoolBrands International Inc.
Notes to Consolidated Financial Statements
For the years ended August 31, 2004 and 2003
-------------------------------------------------------------------------------



  15.      Differences between Canadian and United States generally accepted
           accounting principles (cont'd)

          (c)  Stock based compensation

               Under United States GAAP, the Company accounts for stock options
               granted to employees under the intrinsic value method whereby
               compensation expense is recognized to the extent the market price
               exceeds the exercise price at the date of grant. Stock options
               grants to non-employees are recorded at fair value. In 2002 the
               application of the intrinsic value method would have resulted in
               an additional compensation expense, however the amount involved
               was not material.


          (d)  Outlets

               The following is a schedule summarizing the number of franchised,
               licensed and other outlets and company-owned outlets:


<TABLE>
<CAPTION>
                                                                      Franchised,          Company-owned                Total
                                                                     Licensed and                Outlets              Outlets
                                                                    Other Outlets
                                                               -------------------------------------------------------------------
<S>                                                                     <C>                        <C>              <C>
               Outlets - August 31, 2002                                    4,424                      5                4,429

               Outlets converted to franchised outlets
               Outlets opened (closed)                                         23                                          23
                                                               -------------------------------------------------------------------

               Outlets - August 31, 2003                                    4,447                      5                4,452

               Outlets converted to franchised outlets
               Outlets opened (closed)                                       (14)                    (1)                 (15)
                                                               -------------------------------------------------------------------

               Outlets - August 31, 2004                                    4,433                      4                4,437
                                                               ===================================================================
</TABLE>

              The number of outlets opened are net of those closed. Certain
              franchised outlets are subject to master area franchise
              agreements. The Company does not have the same control over
              licensed and other outlets as it does with franchised and
              company-owned outlets.






<PAGE>



CoolBrands International Inc.
Notes to Consolidated Financial Statements
For the years ended August 31, 2004 and 2003
-------------------------------------------------------------------------------


15.        Differences between Canadian and United States generally accepted
           accounting principles (cont'd)


           (e)  Other items


           In January 2003, the FASB issued Interpretation ("FIN") No. 46,
           "Consolidation of Variable Interest Entities" and in December 2003, a
           revised interpretation was issued ("FIN 46'r'"). In general, a
           variable interest entity ("VIE") is a corporation, partnership,
           trust, or any other legal structure used for business purposes that
           either does not have equity investors with voting rights or has
           equity investors that do not provide sufficient financial resources
           for the entity to support its activities. FIN 46'r' requires a VIE to
           be consolidated by a company if that company is designated as the
           primary beneficiary. The interpretation applies to VIEs created after
           January 31, 2003, and for periods ending after December 15, 2003 for
           VIEs in which an enterprise held a variable interest that is acquired
           before February 1, 2003. The adoption of FIN 46'r' did not have any
           effect on the Company's financial position or results of operations.


           In March 2004, the Emerging Issues Task Force ("EITF") reached a
           consensus on Issue No. 03-1, "The Meaning of Other-Than-Temporary
           Impairments and Its Application to Certain Investments" ("EITF
           03-1"). EITF 03-1 provides a three-step impairment model for
           determining whether an investment is other-than-temporarily impaired
           and requires the Company to recognize such impairments as an
           impairment loss equal to the difference between the investment's cost
           and fair value at the reporting date. The guidance is effective for
           the Company during the first quarter of fiscal 2005. The Company does
           not believe that the adoption of EITF 03-1 will have a material
           effect on its financial position or results of operations.


           In December 2004, the Financial Accounting Standards Board ("FASB")
           issued statement 123R, Share-Based Payment, that addresses the
           accounting for share-based payment transactions (for example, stock
           options and awards of restricted stock) in which an employer receives
           employee-services in exchange for equity securities of the company or
           liabilities that are based on the fair value of the company's equity
           securities. This eliminated the use of APB Opinion No. 25, Accounting
           for Stock Issued to Employees, and will require such transactions be
           accounted for using a fair-value-based method and recording
           compensation expense rather than optional pro forma disclosure of
           what expense amounts might be.




<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

About CoolBrands International Inc.

CoolBrands International competes in the consumer products and franchising
segments of the frozen dessert industry, marketing a diverse range of frozen
dessert products under nationally and internationally recognized brand names.
CoolBrands competes in the fast-growing Better for You ice cream category with
offerings such as fat-free, non-dairy WholeFruit Sorbet and Atkins Endulge
controlled-carbohydrate super premium ice cream. New Better for You offerings by
CoolBrands include No Pudge! branded frozen snacks and a line of Better for Kids
frozen snacks sold under the Crayola, Justice League, Snapple, Care Bears and
Trix Pops brands. CoolBrands also competes in the super premium ice cream
category with the Dreamery Ice Cream and Godiva Ice Cream brands. In addition,
CoolBrands markets a wide variety of "all family" premium ice creams and frozen
snacks under brand names including Eskimo Pie, Chipwich, Tropicana, Yoplait and
Welch's.

CoolBrands' subsidiary, Eskimo Pie Frozen Distribution, operates a "direct store
door" (DSD) ice cream distribution system in selected markets in the U.S.,
serving these CoolBrands products and a growing family of Partner Brands to
supermarkets, convenience stores and other retail customers.

CoolBrands' 50.1% owned subsidiary, Americana Foods, is a leading U.S.
manufacturer and supplier of soft-serve mixes, packaged ice cream, frozen yogurt
and sorbet products, frozen snacks and other food products to well-known
national retailers, food companies and restaurant chains.

CoolBrands' Foodservice Division manufactures and sells premium soft-serve ice
cream and frozen yogurt to the foodservice industry. CoolBrands' Dairy
Components Division manufactures and sells a full line of quality flavours,
chocolate coatings, fudge sauces, powders for chocolate milk, eggnog bases and
other ingredients, and flexible packaging products for use in private label
dairy products, in addition to the Company's brands.

CoolBrands' Franchising Division franchises and licenses frozen dessert outlets
operated under a Family of Brands including Tropicana Smoothies, Juices & More,
Swensen's Ice Cream, I Can't Believe It's Yogurt, Yogen Fruz, Bresler's Premium
Ice Cream, Golden Swirl and Ice Cream Churn, with company-owned, franchised and
non-traditional partnership locations around the world.

CoolBrands' Mission and Strategies

CoolBrands' mission is to build leading brands in high growth snack food
segments through product innovation, brand licensing partnerships and vertical
integration of component supplies, manufacturing and DSD distribution.

To accomplish our mission we developed the CoolBrands 5 Point Strategic Plan.

Strategy 1

Control a portfolio of powerful brands that command leading market shares in key
market segments.

The engine that drives CoolBrands is our portfolio of high-performance brands,
each one commanding the brand strength and selling power needed to become the
segment leader. CoolBrands' portfolio of brands is uniquely





<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

qualified to appeal to customer preferences in a wide variety of market
segments. Today, our portfolio includes some of the world's most respected
consumer products brands, including:

Tropicana - The world's best selling premium fresh juice brand, under which we
market delicious fruit-based frozen snacks and franchise outlets for high
quality, freshly made fruit smoothies.

Eskimo Pie - The brand that invented the frozen snacks industry in 1926 and
pioneered the introduction of no-sugar-added frozen snacks.

Chipwich - The chocolate chip cookie ice cream sandwich that created the premium
frozen snack category.

WholeFruit Sorbet - The leading brand for natural-fruit sorbet.

Yoplait - The leading brand for nutritious, indulgent-tasting yogurt, under
which we market Better for You frozen yogurt snacks.

Godiva - The world's best chocolate, and now the best chocolate ice cream.

In 2004, we added Atkins Endulge to our brand portfolio. Atkins is the
originator of the controlled-carbohydrate approach to weight loss, and the
leading brand for foods used in low-carb dieting. During 2004, we introduced a
complete line of Atkins Endulge super premium ice creams and frozen snacks
intended for use as part of a controlled-carbohydrate lifestyle. In July 2004,
we learned that our license for Weight Watchers Smart Ones would not be extended
beyond September 28, 2004, on which date our license would expire, subject to an
additional twelve-month period in which to sell off and balance out inventories.

In 2003, we acquired the Dreamery Ice Cream and WholeFruit Sorbet brands, and
the license rights for Godiva Ice Cream, from Dreyer's Grand Ice Cream,
establishing a national position in the super premium ice cream segment.

For 2005, we have added new and exciting brands to our portfolio, under which we
intend to introduce innovative Better for You frozen snacks, including Crayola,
Justice League (Batman, Superman and Wonder Woman), Snapple and No Pudge!

Strategy 2

Control risk and maximize growth through diversification across a wide range of
product categories and distribution channels.

From consumer products to franchising, from prepackaged frozen desserts to
soft-serve mixes and bulk ice cream, diversification expands our opportunities
for growth across the whole breadth of the marketplace - and minimizes the risk
in any given segment.

In 2004, in addition to launching Atkins Endulge in the grocery channel, we
extended the brand into the foodservice channel with bulk ice cream for dipping,
and mixes for frozen soft-serve super premium ice cream.





<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

We also began franchising Tropicana Smoothies, Juices & More retail outlets and
completed four Tropicana Smoothies, Juices & More! Territory Development
Agreements that require the opening of twenty-two franchise stores. In addition,
we introduced a line of single-pack frozen snacks, primarily under the Eskimo
Pie brand, for sale in the "impulse" out-of-home channel. In the grocery
channel, we began market testing of Yoplait Frozen Breakfast Bars and
Sandwiches, the first-ever frozen snack intended for breakfast consumption and
merchandized in the frozen breakfast section in supermarkets.

In 2003, we extended Weight Watchers Smart Ones into the foodservice channel by
introducing Weight Watchers Smart Ones Non Fat Soft Ice Cream, concluded our
agreement with Tropicana to launch Tropicana Smoothies, Juices & More!
franchising operations and developed the concept for Yoplait Frozen Breakfast
Bars and Sandwiches.

Going into 2005, we expect to enter several new categories and segments,
including frozen snacks for kids, which we will target with the new Better for
Kids line, and frozen pet snacks, which we will target with our new line of
Dogsters frozen dog treats.

Strategy 3

Control quality and costs through vertical integration, while capturing
additional revenue and profit from related operations.

In 2004, we successfully transitioned our products into the Eskimo Pie Frozen
Distribution's DSD system including, among others, Atkins Endulge, Dreamery,
WholeFruit and Godiva; added Unilever as an important distribution partner
brand; and eliminated over $7,500,000 in expenses from our distribution
business. We also substantially increased the production of our brands at
Americana Foods.

In 2003, two major acquisitions substantially enhanced our vertical integration:

Americana Foods, one of the largest, best-equipped production facilities in the
U.S., gives us state-of-the-art technology for making a wider variety of
innovative, value-added ice cream products than before, including high-quality
extruded novelty forms that consumers increasingly prefer.

Eskimo Pie Frozen Distribution, the former Nestle/Haagen-Dazs DSD distribution
system, gives us direct access to all distribution channels - supermarkets, club
stores, convenience stores, drug stores and foodservice outlets - and selected
U.S. markets, including major population centers in New York, California,
Florida and the mid-Atlantic and Pacific Northwest regions.

Going into 2005, we plan to use these assets to further penetrate the U.S.
market with our brands.

Strategy 4

Control unique production capacity to enable us to manufacture innovative
value-added products to drive growth for our brands.





<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

In 2004, we continued the expansion of our production capabilities at Americana
Foods by investing over $15,000,000 to install new production lines and upgrade
existing production lines to accommodate our growth.

In 2003, we dramatically enhanced our R&D capabilities, developed innovative
manufacturing technologies to improve quality and efficiency and expanded total
production capacity to facilitate growth. Our technical teams at Americana Foods
and Value America developed state-of-the-art R&D and custom manufacturing
methods, allowing us to formulate new products the competitors could not
duplicate, including low-fat sundae cones and low-fat cookie-coated and
crunch-coated frozen snacks. We began the expansion of plant capacity at
Americana Foods to provide the capability of making every variety of frozen
dessert product.

For 2005, we have used these technical advances and production capacities to
develop and launch No Pudge! frozen snacks, the first Better for You line of
frozen snacks featuring varieties formulated to appeal to adherents of both
low-calorie/low-fat and controlled-carbohydrate diet plans.

Strategy 5

Control the downstream distribution of our products through proprietary
distribution operations.

CoolBrands operates a proprietary DSD route distribution system that services
all distribution channels in selected U.S. markets, including out-of-home
accounts such as convenience stores, drug stores and gas station food marts that
otherwise can be difficult, if not impossible, to reach.

In 2004, we enhanced our DSD capacity by acquiring the assets of Kinnett
Distribution and integrating them into our Atlanta, Georgia DSD operation. We
also enhanced our ability to penetrate the out-of-home channel using our DSD
system by introducing a complete line of "impulse" single-serve frozen snacks
under our proprietary brands.

In 2003, we acquired the Nestle/Haagen-Dazs DSD distribution system and began
directly servicing all distribution channels in markets accounting for more than
50% of ice cream and frozen snack sales in the U.S. Through our DSD system, we
gained first-time access to major customers in the out-of-home channel who are
not serviced with ice cream by frozen warehouse distribution systems. In
addition, with frozen warehouse operators in the grocery channel increasingly
taxed for space to handle an ever-growing number of frozen food products, this
proprietary distribution capacity is a key strategic asset.

In 2005, we will continue to look for new opportunities to increase efficiency
and extend the market coverage of our DSD distribution system to enhance the
revenue and profit-earning potential of CoolBrands.

CoolBrands' Key Strengths

CoolBrands is committed to an entrepreneurial approach to building and managing
our Company and its business and that has been a critical ingredient in the
Company's growth and profitability during the past three years. This
entrepreneurial approach has enabled us to utilize our key assets - our brand
portfolio built on licensing partnerships, our vertically integrated supply
chain and our DSD distribution system - to execute our 5 Point Strategic Plan
and deliver the following go-to-market key strengths:





<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

New brand development
CoolBrands' commitment to brand licensing partnerships has enabled us to react
with great speed and flexibility to rapid changes in consumer preferences and
new trends in the snack food industry. During 2004, as low-carb dieting became
the driving force for change throughout the food industry, we secured a position
of leadership in the emerging low-carb segment by entering into a long-term
license with Atkins Nutritionals, Inc. to manufacture, sell and distribute
Atkins Endulge super premium ice cream products for carb-conscious consumers.
The Atkins Nutritional Approach created the controlled-carbohydrate dieting
phenomenon and Atkins Nutritionals, Inc. has been the pioneer and leader in
providing innovative nutritional and informational products based on
controlled-carbohydrate nutritional science. Our agreement with Atkins, and our
success in bringing Atkins Endulge to market in 2004, exemplify the potential
strength inherent in CoolBrands' brand licensing model.

New product innovation
CoolBrands' vertically integrated supply chain subsidiaries - notably Americana
Foods and Value America Flavors and Ingredients - have enabled us to develop and
introduce innovative, high quality frozen dessert products with great speed,
efficiency and expertise. During 2004, our team of research and development
experts succeeded in formulating the complete line of Atkins Endulge
controlled-carbohydrate super premium ice cream products within three weeks
after we entered into our agreement with Atkins Nutritionals, a key achievement
that was instrumental in securing product authorizations with retailers in time
to capitalize on the explosion of consumer interest in low-carb offerings. Also
in 2004, CoolBrands engineered innovative methods and technologies to produce
unique Better for You frozen snacks with more flavor, less fat and fewer
calories, which competitors have failed to imitate, including revolutionary new
low-fat varieties of cookie-coated frozen snacks.

Speed to market
Vertical integration and our DSD distribution system combine to enable
CoolBrands to translate rapid new product innovation into swift penetration of
the marketplace and placement on retailers' shelves with speed that is second to
no other company in our industry. In 2004, this speed-to-market was demonstrated
by our success in beginning initial shipments of Atkins Endulge products within
one month after securing the license from Atkins Nutritionals, and achieving
widespread national distribution for the line with unprecedented speed.

In 2005, CoolBrands will remain committed to its entrepreneurial approach to
seeking out new opportunities and swiftly bringing to bear the power of our
licensing model, vertical integration and distribution capacity in order
capitalize on them for the highest possible returns.

Overall performance in 2004

For fiscal 2004, revenues increased to $642,820,000 as compared with
$357,273,000 for fiscal 2003, an 80% increase. Net earnings for fiscal 2004
increased to $48,843,000 ($0.88 basic and $0.87 diluted earnings per share) as
compared with net earnings of $31,704,000 ($0.61 basic and $0.59 diluted
earnings per share) for fiscal 2003, a 54% increase.

CoolBrands' revenues consist mainly of sales made in U.S. dollars but reported
in Canadian dollars. Thus, the exchange rates in effect from one reporting date
to the same reporting date of the previous fiscal year affect the





<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

variances between results actually reported. For purposes of comparison,
assuming the same average exchange rate for the year ended August 31, 2004 as
was in effect for the year ended August 31, 2003, CoolBrands would have reported
revenues of $715,682,000 and net earnings of $54,379,000 for fiscal 2004, or
approximately 11% greater than actually reported.

The growth in revenues for fiscal 2004 reflected increased revenues, primarily
from the prepackaged consumer product segment attributable to Americana Foods LP
(50.1% owned), Eskimo Pie Frozen Distribution and our Super Premium Dreamery,
Godiva and WholeFruit pints. In fiscal 2004, sales increased by 75% to
$584,951,000 as compared with $335,034,000 for fiscal 2003. In fiscal 2004,
drayage and other income increased by 213% to $53,083,000 as compared with
$16,978,000 for fiscal 2003. Drayage income represents the fees paid to
CoolBrands by Dreyer's/Nestle to deliver products invoiced to customers by
Dreyer's/Nestle. In fiscal 2004, revenues from Americana Foods, Eskimo Pie
Frozen Distribution and Super Premium pints represent a full year's activity as
compared with approximately two months in fiscal 2003.

Gross profit percentage for fiscal 2004 declined to 25% as compared to 38% for
fiscal 2003. The percentage decline was due to the impact of normally lower
margins generated by Americana Foods' manufacturing operations and Eskimo Pie
Frozen Distribution's distribution operations. The full-year results of 2004
were additionally impacted by the pre-tax operating losses at Americana Foods LP
(50.1% owned) of approximately $1,180,000. This loss was primarily due to plant
production losses of $2,089,000 incurred during the installation of new
production lines and the related start-up expenses which occurred in the fourth
quarter of fiscal 2004.

Selling, general and administrative expenses for fiscal 2004 declined as a
percentage of revenues to 18% as compared to 27% for fiscal 2003. The full-year
results of 2004 were adversely impacted by $3,684,000 for the pre-tax write-off
of the Weight Watchers' intangible license asset. This write-off was required
when the Company was notified by Weight Watchers International on July 28, 2004
that the license agreement would not be extended.

The 2004 fiscal year results were adversely impacted by a non-cash pre-tax
compensation charge of $8,938,000, which represents the fair value of stock
options granted to the Company's Co-CEO and Co-Chairman during the year.
Consistent with recent changes in Canadian GAAP, beginning in fiscal 2005, the
Company will expense the fair value of all stock options granted.

Cash and working capital

Cash and short-term investments increased to $84,700,000 at August 31, 2004 from
$30,140,000 at August 31, 2003. Working capital improved to $159,355,000 at
August 31, 2004 from $85,734,000. CoolBrands' current ratio improved to 2.6 to 1
at August 31, 2004 from 2.1 at August 31, 2003.




<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

Selected annual information

<TABLE>
<CAPTION>
Years ended August 31,
                                                                  2004                  2003                  2002
                                                                     $                     $                     $
------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                   <C>                   <C>
Total revenues                                                 642,820               357,273               242,222
Net earnings                                                    48,843                31,704                20,984
Earnings per share
Basic                                                             0.88                  0.61                  0.44
Diluted                                                           0.87                  0.59                  0.42
Total assets                                                   411,813               313,850               283,662
Total long-term liabilities                                     33,783                47,377                38,169
</TABLE>


CoolBrands' growth in revenues during the last three years has been the result
of the successful introduction of new products in the Better for You category,
the acquisition of 50.1% of Americana Foods effective July 1, 2003 and
acquisition of certain assets from Dreyer's Grand Ice Cream, Inc. and Nestle Ice
Cream Company LLC on July 6, 2003.

CoolBrands' improvement in net earnings during the last three years reflects the
growth in revenues and our ability to contain selling, general and
administrative expenses in the light of such growth. During this time, we
successfully developed our Better for You product lines, including Weight
Watchers Smart Ones and Atkins Endulge. We obtained higher than normal gross
profit margins and controlled promotion, marketing and advertising spending due
to the initial lack of competition in this niche category. Our results reflect
the higher profitability from the Better for You category niche because it was
relatively undiscovered by the competition and we were the first of many
entrants with a superior lineup of brand names and products.

Comparison of 2004 and 2003

We manage our business based on four industry segments: Prepackaged consumer
products, foodservice, dairy components, and franchising and licensing.

Sales
Sales for each segment are summarized in the following table:

<TABLE>
<CAPTION>
                                                                                      Percentage of Sales
                                                                                      -------------------
Years Ended August 31,                        2004              2003                 2004             2003
<S>                                       <C>               <C>                      <C>              <C>
Prepackaged consumer
  products                                $514,292          $255,197                 87.9             76.2
Foodservice                                 24,873            25,243                  4.3              7.5
Dairy components                            30,865            38,651                  5.3             11.5
Franchising and licensing                   14,921            15,943                  2.5              4.8
                                         ---------        ----------                -----            -----
 Total                                    $584,951          $335,034                100.0            100.0
                                         =========        ==========                =====            =====
</TABLE>



<Page>

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Sales in fiscal 2004 increased by $249,917,000 or 75% from $335,034,000 in
fiscal 2003 to $584,951,000. The growth in sales from the prepackaged consumer
products segment was attributable to Americana Foods LP (50.1% owned), Eskimo
Pie Frozen Distribution's distribution assets and our Super Premium Dreamery,
Godiva and WholeFruit pints. In fiscal 2004, sales from Americana Foods, Eskimo
Pie Frozen Distribution and Super Premium pints represent a full year's activity
as compared with approximately two months in fiscal 2003. The decline in sales
by our Dairy components segment reflects the increase in intercompany sales
primarily to Americana Foods in 2004, which are eliminated in consolidation,
whereas in 2003 the sales were made to our independent contract manufacturers.

Drayage and other income

Drayage and other income increased by 213% to $53,083,000 in fiscal 2004 from
$16,978,000 in fiscal 2003 due to drayage fees received from Dreyer's/Nestle for
the delivery of their products to customers utilizing Eskimo Pie Frozen
Distribution, the Company's "Direct Store Delivery" (DSD) services. In fiscal
2004, drayage income represents a full year's activity as compared with
approximately two months in fiscal 2003.

Gross profit margin

The following table presents the gross profit margin dollars and gross profit
percentage for our segments:

<TABLE>
<CAPTION>
                                                                                                  Percentage of Sales
                                                                                                  -------------------
Years Ended August 31,                                    2004              2003                 2004             2003
<S>                                                   <C>               <C>                      <C>              <C>
Prepackaged consumer
  products                                            $126,298          $104,594                 24.6             41.0
Foodservice                                              8,578             9,898                 34.5             39.2
Dairy components                                         7,715             8,921                 25.0             23.1
Franchising and licensing                                3,902             3,751                 26.2             23.5
                                                    ----------         ---------                 ----             ----
   Total                                              $146,493          $127,164                 25.0             38.0
                                                    ==========         =========                 ====             ====
</TABLE>


Gross profit dollars increased to $146,493,000 in fiscal 2004 from $127,164,000
in fiscal 2003 due to the increased sales in 2004 versus 2003. However, the
Company's overall gross profit percentage for fiscal 2004 declined to 25% as
compared to 38% for fiscal 2003. The overall percentage decline was due
primarily to the decline in the Prepacked consumer products gross profit
percentage which was impacted by the normally lower margins generated by
Americana Foods' manufacturing operations and Eskimo Pie Frozen Distribution's
distribution operations. The gross profit margin for 2004 was additionally
impacted by the pre-tax operating losses at Americana Foods LP (50.1% owned) of
approximately $1,180,000. These losses were primarily due to plant production
losses incurred during the installation of new production lines and the related
start-up expenses which occurred in the fourth quarter of fiscal 2004.
Foodservice's gross profit percentage declined to 34.5% in 2004 from 39.2% in
2003 due to higher butterfat costs and freight expenses.




<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

Selling, general and administrative expenses

Selling, general and administrative expenses are summarized by industry segment
in the following table:

<TABLE>
<CAPTION>
                                                                                          Percentage of Sales
                                                                                          -------------------
Years Ended August 31,                                     2004           2003              2004        2003
<S>                                                     <C>            <C>                 <C>           <C>
Prepackaged consumer
   products                                             $97,845        $76,616             19.0          30.0
Foodservice                                               6,516          7,222             26.2          28.6
Dairy components                                          2,586          2,908              8.4           7.5
Franchising and licensing                                 6,568          6,639             44.0          41.6
Corporate                                                 1,616          1,703              n/a           n/a
                                                   ------------       --------
   Total                                               $115,131        $95,088
                                                   ============       ========
</TABLE>


Selling, general and administrative expenses increased by $20,043,000 from
$95,088,000 in 2003 to $115,131,000 in 2004 due primarily to the increase in
selling, general and administrative expenses in the prepackaged consumer
products' segment due to the increased level of sales. However, the Company
continued to control spending over selling, general and administrative expenses
such that selling, general and administrative expenses declined overall as a
percentage of revenues to 18% for fiscal 2004 from 27% for fiscal 2003.
Prepackaged consumer products selling, general and administrative expenses
increased in 2004 primarily as a result of increased spending on trade
promotions, marketing and advertising, and an increase in royalties associated
with the sales of Atkins Endulge products and Godiva ice cream pints. The
full-year results of 2004 were adversely impacted by $3,684,000 for the pre-tax
write-off of the Weight Watchers' intangible license agreement asset. This
write-off was required when CoolBrands was notified by Weight Watchers
International on July 28, 2004 that the license agreement would not be extended.

Stock-based compensation expense

The 2004 fiscal year results were adversely impacted by a non-cash pre-tax
compensation charge of $8,938,000 which represents the fair value of stock
options granted to the Company's Co-CEO and Co-Chairman during the year.
Consistent with recent changes in Canadian GAAP, beginning in fiscal 2005 the
Company will expense the fair value of all stock options granted.


Interest expense

Interest expense was $1,994,000 in fiscal 2004 compared with $1,990,000 in
fiscal 2003.




<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

Provision for income taxes

The effective tax rate was 38.6% in fiscal 2004 and 38.8% for fiscal 2003. The
effective tax rate differs from the Canadian Federal/Principal Statutory Rate
primarily due to our operations in foreign countries with lower effective tax
rates. Future effective tax rates could be adversely affected by earnings being
lower than anticipated in countries that have lower statutory rates or changes
in the valuation of our future income tax assets or liabilities.

Net earnings

Net earnings improved 54% to $48,843,000 in 2004 as compared to $31,704,000 in
2003, but declined to 7.6% of total revenues in 2004 as compared to 8.9% of
total revenues in 2003 due primarily to the normally lower margins generated by
Americana Foods' manufacturing business and Eskimo Pie Frozen Distribution's
distribution business. Net earnings were also adversely impacted by the non-cash
after-tax stock-based compensation charge of approximately $5,349,000 related to
stock options granted to the company's Co-Chairman and Co-CEO during the year.

Comparability of 2004 results with 2003

The Company's financial statements reflect the July 1, 2003 acquisition of the
general partner interest and majority of the total partnership interest in
Americana Foods LP (50.1% owned) and the July 6, 2003 acquisition of Dreamery
ice cream and WholeFruit sorbet brands from Dreyer's Grand Ice Cream, Inc., as
well as the right to the license for the Godiva ice cream brand, which was
assigned to the Company and substantially all of the Haagen-Dazs frozen dessert
distribution assets from Nestle Ice Cream Company, LLC. These acquisitions were
accounted for under the purchase method of accounting and the Consolidated
Statements of Earnings include the results of these acquisitions from the date
of acquisition. In fiscal 2004, the revenues and operating results from
Americana Foods, Eskimo Pie Frozen Distribution, and Super Premium pints
represent a full year's activity as compared with approximately two months in
fiscal 2003. In the fourth quarter of fiscal 2004, the revenues and operating
results represent a full quarter's activity as compared with approximately two
months in fiscal 2003. The first quarter of fiscal 2005, ended November 30,
2004, will be the first quarter following these acquisitions in which the
Consolidated Statement of Earnings for the quarter can be directly compared with
the prior-year period.

CoolBrands' revenues and operating expenses are generated in the United States
and are recorded in U.S. dollars, but reported in our Consolidated Financial
Statements in Canadian dollars. Thus, the exchange rates in effect from one
reporting date to the same reporting date of the following fiscal year affect
the variances between results actually reported. For purposes of comparison,
assuming the same average exchange rate for the year ended August 31, 2004 as
was in effect for the year ended August 31, 2003, CoolBrands would have reported
revenues of $715,682,000 and net earnings of $54,379,000 for fiscal 2004, or
approximately 11% greater than actually reported. In fiscal 2005, we will start
reporting our financial results in U.S. dollars to eliminate this variable and
to make comparisons between current and prior periods more meaningful to
investors.




<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

Summary of quarterly results
The following table presents a summary of our results for the last eight
quarters:

<TABLE>
<CAPTION>
Quarter ended                  August 31,              May 31,             February 29,            November 30,
                                     2004                 2004                     2004                    2003
                                        $                    $                        $                       $
---------------------------------------------------------------------------------------------------------------
<S>                               <C>                  <C>                      <C>                     <C>
Total revenues                    178,693              187,170                  138,507                 138,450
Net earnings                       14,704               14,989                   12,481                   6,669
Earnings per share
    Basic                            0.26                 0.27                     0.22                    0.12
    Diluted                          0.26                 0.26                     0.22                    0.12
</TABLE>

<TABLE>
<CAPTION>
Quarter ended                  August 31,              May 31,             February 28,            November 30,
                                     2003                 2003                     2003                    2002
                                        $                    $                        $                       $
---------------------------------------------------------------------------------------------------------------
<S>                               <C>                   <C>                      <C>                     <C>
Total revenues                    154,014               81,908                   57,052                  64,299
Net earnings                       14,836                8,957                    5,188                   2,723
Earnings per share
    Basic                            0.29                 0.17                     0.10                    0.05
    Diluted                          0.27                 0.17                     0.10                    0.05
</TABLE>


The ice cream and frozen yogurt industry generally experiences its highest
volume during the spring and summer months and its lowest volume in the winter
months.

Fourth quarter of 2004

Revenues for the fourth quarter of fiscal 2004 increased to $178,693,000 from
$154,014,000 for the same quarter last year, a 16% increase. Net earnings for
the quarter were $14,704,000 ($0.26 basic and diluted earnings per share) as
compared with net earnings of $14,836,000 ($0.29 basic and $0.27 diluted
earnings per share) for the same quarter last year.

The growth in revenues for the fourth quarter of fiscal 2004 reflected increased
revenues, primarily from the prepackaged consumer product segment attributable
to Americana Foods, Eskimo Pie Frozen Distribution and our Super Premium
Dreamery, Godiva and WholeFruit pints, offset by a marginal decline in sales
from our base prepackaged consumer products. In the fourth quarter of fiscal
2004, sales increased by 20% to $164,597,000 from $137,678,000 for fiscal 2003.
In the fourth quarter of fiscal 2004, drayage and other income declined by 17%
to $12,383,000 as compared with $14,991,000 for fiscal 2003. In the fourth
quarter of fiscal 2004, revenues from Americana Foods, Eskimo Pie Frozen
Distribution and our Super Premium pints represent a full quarter's activity as
compared with approximately two months in fiscal 2003.

Gross profit percentage for the fourth quarter of fiscal 2004 declined to 24% as
compared to 34% for the fourth quarter of fiscal 2003. The percentage decline
was due to the impact of normally lower margins generated by





<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

Americana Foods' manufacturing operations and Eskimo Pie Frozen Distribution's
distribution operations. The fourth quarter of 2004 was additionally impacted by
the pre-tax operating losses at Americana Foods LP (50.1% owned) of
approximately $2,089,000. These losses were primarily due to plant production
losses incurred during the installation of new production lines and the related
start-up expenses which occurred in the fourth quarter of fiscal 2004.

Selling, general and administrative expenses for the fourth quarter of fiscal
2004 declined as a percentage of revenues to 18% from 24% for the fourth quarter
of fiscal 2003. The fourth quarter results of 2004 were adversely impacted by
$3,684,000 for the pre-tax write-off of the Weight Watchers' intangible license
asset. This write-off was required when the Company was notified by Weight
Watchers International on July 28, 2004 that the license agreement would not be
extended.

On July 28, 2004, CoolBrands was notified that Weight Watchers International
would not extend their license agreement with the Company. The loss of the
Weight Watchers' license agreement will have a significant effect upon the
Company's revenues and net earnings in fiscal 2005. Weight Watcher Smart Ones
accounted for approximately $100,000,000 in sales for the Company in fiscal 2004
and we estimate that sales in fiscal 2005 will be approximately thirty-five
percent of the sales generated in fiscal 2004.

During the fourth quarter of 2004, the sales of our base business (excluding
sales from the fourth quarter 2003 acquisitions) declined approximately
$29,924,000 when compared with sales in the fourth quarter of fiscal 2003. We
attribute this decline primarily to the Better for You segment becoming
mainstream. As a result, substantial competition increased in both product
offerings and pricing strategies. In 2005, the increased competition will
require us to rethink our pricing and promotion strategies for our Better for
You products. Our strategy to be more competitive in both our everyday and
promotional prices will likely adversely affect our Net earnings in fiscal 2005.

Increased competition became apparent in all segments and categories in the ice
cream and frozen dessert industry during 2005, but accelerated in the fourth
quarter. Both Unilever and Dreyer's/Nestle are pursuing aggressive growth
strategies at the expense of other companies' market share and sacrificing their
profitability. These competitors have increased the frequency of their
promotions to increase their market shares. However, it appears to us that their
strategy is not driving incremental sales, but simply replacing full price sales
with promotion priced sales which adversely affects profitability. As a result,
sales of our Super Premium pints suffered serious declines in sales year over
year with even more dramatic declines quarter over quarter. This will require us
to promote our Super Premium pints more frequently in order to maintain our
market share in the Super Premium pint category.




<Page>



Management's Discussion and Analysis of Financial Condition and Results of
Operations

Liquidity

The following sets forth certain measures of our liquidity:

<TABLE>
<CAPTION>
Years ended August 31,                                   2004             2003
<S>                                                    <C>              <C>
Cash and short-term investments                        $ 84,700         $ 30,140
Working capital                                        $159,355         $ 85,734
Current ratio                                          2.6 to 1         2.1 to 1
</TABLE>


The increase in working capital of $73,621,000 was primarily due to an increases
in cash of $54,560,000, in receivables of $30,067,000 and in inventory of
$9,113,000, offset by a net increase in accounts payable and accrued liabilities
of $15,839,000. We believe the combination of cash on hand and cash from
operations will provide adequate liquidity to meet the requirements for our
established business operations, capital expenditures and debt reduction for the
2005 fiscal year.

Cash flows from operating activities

The Company generated cash flow from operating activities of $57,453,000 for the
year ended August 31, 2004 as compared with $9,640,000 for the year ended August
31, 2004 due primarily to the increase in net earnings (exclusive of
depreciation and amortization) for 2004 as compared with 2003, an increase in
receivables and inventories. This was offset by changes in other operating
assets and liabilities, which were primarily driven by the timing of certain
payments.

Cash used in investing activities

For fiscal 2004 net cash used for investing activities increased by $1,144,000
to $18,261,000 in 2004 from $17,117,000 in 2003.

The spending in 2004 was primarily to expand production capacity at Americana
Foods whereas the majority of the spending or $13,409,000 in 2003 was for the
acquisition of the Dreamery ice cream and WholeFruit sorbet brands from Dreyer's
Grand Ice Cream, Inc., as well as the right for the Godiva ice cream brand,
which was assigned by Dreyer's and substantially all of the Haagen-Dazs frozen
distribution assets in the states of Washington, Oregon, Florida, California,
Pennsylvania, New Jersey, Utah, Minnesota, Georgia, Maryland, and the District
of Columbia from Nestle Ice Cream Company, LLC.

Cash provided by (used in) financing activities

In 2004, $19,816,000 was provided by financing activities as compared with
$6,697,000 used in 2003. The exercise of stock options in 2004 provided
$16,606,000 and Americana Foods' minority partner provided $8,891,000 as their
share for the expansion of production capacity at Americana Foods. These
additions were offset by the repayment of long-term debt of $7,697,000 and the
increase in the secured revolving line of credit





<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

at Americana Foods of $2,016,000. In 2003, the cash used in financing activities
resulted primarily from the repayment of long-term debt of $9,495,000, offset by
an increase in the secured revolving line of credit at Americana Foods of
$2,770,000.

Contractual obligations

The following table presents our contractual obligations:

<TABLE>
<CAPTION>
                                        Total       Less than         1 - 3        4 - 5       After 5
                                                       1 year         years        years         years
------------------------------------------------------------------------------------------------------
Contractual
obligations
------------------------------------------------------------------------------------------------------
<S>                                   <C>             <C>           <C>             <C>         <C>
Long-term debt                        $35,797         $10,634       $25,140         $23
Capital lease obligations
                                          747             548           199
Operating leases                       22,642           6,869        12,646         1,977       1,150
Purchase obligations
                                        2,304           2,304
Other long-term obligations
                                        3,631                         3,631
                             -------------------------------------------------------------------------
Total contractual
obligations                           $65,121         $20,355       $41,616         $2,000      $1,150
                             ==========================================================================
</TABLE>


Capital resources

The Company has approximately U.S. $1,750,000 in commitments for capital
projects at August 31, 2004. The capital projects are primarily for the
continuing expansion of capacity at Americana Foods. The Company will use
existing cash on hand and additional capital contribution from Americana Foods'
minority partners to fund the completion of the expansion project. However, the
Company has not ruled out the possibility that it will fund the completion of
the expansion plus the previous capital spent by restructuring Americana Foods'
long-term debt.

In addition to the commitments at year end, the Company is currently evaluating
the potential acquisition of land and building adjacent to the Americana Foods
plant in Dallas, Texas. If the property is acquired, the purchase price will be
approximately U.S. $5,500,000, a portion of which we anticipate will be funded
by a mortgage on the property.

Additionally, CoolBrands is committed to replacing the Weight Watcher Smart Ones
business in 2005 and introducing additional new products to respond to the
increase in competition in the ice cream industry for shelf space and market
share. As a result, CoolBrands has made or is likely to make offers to retailers
for new product introductory placement costs (slotting fees) of approximately
$30,000,000.




<Page>



Management's Discussion and Analysis of Financial Condition and Results of
Operations

Payment requirements

In connection with the acquisition of Eskimo Pie Corporation, a U.S. subsidiary
borrowed U.S. $30,000,000 to finance the acquisition. The loan is payable in
monthly installments of U.S. $250,000, which began December 1, 2000, with the
remaining principal balance due on November 1, 2005. Interest on the term loan
is payable monthly on the unpaid principal balance. All borrowings under the
above loan agreement are guaranteed by CoolBrands and all of its significant
subsidiaries. The principal balance outstanding at August 31, 2004 was U.S.
$13,500,000.

On November 19, 2002, Americana Foods LP, which is owned 50.1% by CoolBrands,
entered into a credit agreement with a financial institution that included a
term loan of U.S. $10,000,000, which is secured by the Partnership's property,
plant, and equipment. Principal payments are payable in fixed monthly
installments of U.S. $80,739 and matures on November 19, 2007. The term of the
loan bears interest at prime plus 0.5% (5.0% at August 31, 2004 and 4.5% at
August 31, 2003).

The Partnership's amended credit agreement also includes a revolving loan of up
to U.S. $7,000,000, subject to a borrowing base calculation, which bears
interest at prime plus 0.5% (5.0% at August 31, 2004 and 4.5% at August 31,
2003) and was due on November 19, 2004. At August 31, 2004, approximately U.S.
$2,517,000, was available to the Partnership under this loan. The revolving loan
is secured by the Partnership's receivables and inventory and is classified as a
current liability.

Subsequent events

December 22, 2004, CoolBrands announced that it entered into an agreement to
acquire the yogurt business of Kraft Foods, Inc. (NYSE: KFT) for approximately
U.S. $59,000,000. The acquired brands include Breyers Fruit on the Bottom, Light
and Creme Savers cup yogurt varieties and Creme Savers Smoothie drinkable
yogurts. Pursuant to the agreement, CoolBrands' wholly owned subsidiary,
Integrated Brands, Inc., will purchase substantially all of Kraft's assets
related to its yogurt business, including a license for the Breyers trademark, a
license for the Creme Savers trademark, a license for the Light N' Lively
trademark and Kraft's manufacturing facility in North Lawrence, New York. The
transaction, which is subject to regulatory approval, is expected to be
completed in the first calendar quarter of 2005. CoolBrands expects to finance
approximately U.S. $45,000,000 in bank debt and utilize cash to pay for the
remainder of the purchase price. CoolBrands estimates that this acquisition will
contribute approximately U.S. $40,000,000 to U.S. $45,000,000 in revenues and
net earnings of approximately U.S. $2,000,000 to U.S. $2,500,000 in the last
half of fiscal 2005.

As of the beginning of fiscal 2005, CoolBrands began accounting for the
distribution of Dreyer's Grand Ice Cream Inc.'s ("Dreyer's") products as an
independent distributor, changing from the previously used drayage basis, except
for scanned based trading customers of Dreyer's. CoolBrands began purchasing
products from Dreyer's and selling those products starting in fiscal 2005 to
customers at wholesale. In connection with this change in the business
arrangement with Dreyer's, CoolBrands purchased $7,987,000 of accounts
receivable and $7,216,000 of inventory.




<Page>



Management's Discussion and Analysis of Financial Condition and Results of
Operations

Risk factors and uncertainties

Inflation can significantly impact ice cream and frozen yogurt ingredients,
including butterfat and packaging costs. In 2004 and 2003, CoolBrands passed on
ingredient, energy and freight cost increases by raising prices on selected
product lines. In 2005, CoolBrands believes that it will be able to pass on cost
increases, if any, in the normal course of business within a relatively short
period of time. However, the ability of CoolBrands to pass on cost increases
will depend, to some extent, on whether its competitors have also done so.
CoolBrands believes that, in the past, its competitors have passed on cost
increases in a relatively short period of time.

CoolBrands products are ultimately purchased by the global retail consumer,
whose tastes and preferences are subject to variation and change. Although
carefully monitored, these changes cannot be controlled and are difficult to
predict. Management believes that CoolBrands' family of products is based on
well established brand names and is easily adaptable to meet changes in consumer
tastes and demands.

CoolBrands derives a substantial portion of its revenues from its operations in
the United States. The U.S. market for frozen desserts is highly competitive. As
competitors introduce new products or revise their supply or pricing strategies,
CoolBrands may encounter additional and more intense competition. Such
competitors have greater name recognition and more extensive financial,
technological, marketing and personnel resources than CoolBrands. In addition,
CoolBrands may experience increased competition in its other markets as its
competitors expand their international operations.

CoolBrands existing shelf space in supermarkets, club stores and convenience
stores for ice cream and frozen dessert treats is at risk due to decisions by
CoolBrands' customers. The Company's existing shelf space for our products,
along with that of all other products, is reviewed at least annually by our
customers. Supermarket, club store and convenience store chains reallocate their
total shelf space taking into effect a number of variables, including the number
of new products being introduced at any given time, the amount of new product
placement fees (slotting fees) being offered by companies in the ice cream and
frozen dessert industry and by changing consumer tastes and fads. As a result,
CoolBrands is subject, in any given year, to the loss of shelf space with its
customers and the loss in revenues associated with the sale of those products.
CoolBrands responds to this action by developing and introducing new products
annually which will either maintain or increase its shelf space. There is also
substantial risk that the sales of such new products will not be as successful
as CoolBrands had previously estimated or as successful as new products
introduced by CoolBrands in the past. The risks associated with the reallocation
of shelf space by our customers and the development and introduction of new
products could have a substantial adverse impact upon CoolBrands' financial
position and results of operations.

CoolBrands is subject to risks with respect to its cost of raw materials, some
of which are subject to changes in commodity prices, particularly the cost of
butterfat, which is used to produce ice cream products. From time to time,
CoolBrands has used hedging contracts to reduce its exposure to such risks with
respect to its raw material costs.

CoolBrands has made, and may in the future make acquisitions of, or significant
investments in, businesses or assets with complementary products or unrelated
industries. Acquisitions involve numerous risks, including but not limited to:
1) diversion of management's attention from other operational matters; 2) the
inability to realize





<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

expected synergies from the acquisition; 3) impairment of acquired intangible
assets as a result of worse-than-expected-performance of the acquired
operations; 4) integration and retention of key employees; and 5) integration of
operations. Mergers and acquisitions are inherently subject to significant
risks, and the inability to effectively manage these risks could materially and
adversely affect CoolBrands' business, financial condition and results of
operations.

CoolBrands operates in some countries that are subject to potential political
and economic uncertainty. Such factors, beyond the control of CoolBrands, are
lessened because of international diversification and the sharing of risks with
Master and Sub-franchises.

CoolBrands is subject to currency exchange risks since most of its subsidiaries
report and transact business in U.S. dollars. Risks are minimized by the
subsidiaries transacting purchases and recording the related sales in the same
currency. From time to time, CoolBrands has also used forward exchange contracts
to minimize exchange risk exposure.

Transactions with related parties

Calip Dairies, Inc. ("Calip"), an ice cream distributor owned by an officer,
director and shareholder of the Company, has a management agreement with
Integrated Brands Inc., which the Company acquired in March 1998. This agreement
terminates on December 31, 2013 and thereafter shall automatically renew
December 31 of each year for an additional one-year term, unless terminated
under certain conditions.

Under the agreement, Calip provides management services to Integrated Brands for
an annual fee of U.S. $1,300,000 effective July 1, 2003, prior to which the fee
was U.S. $1,000,000. Such management fees incurred for the year ended August 31,
2004 were $1,731,000 (U.S. $1,300,000) (2003 - $1,556,000 (U.S. $1,050,000)). At
August 31, 2004, the $1,119,000 (2003 - $754,000) balance of payables -
affiliates represents payables to Calip.

Integrated Brands Inc. also has a distribution agreement with Calip for
distribution of the Company's products in the New York Metropolitan Area,
Fairfield County in the state of Connecticut, and New Jersey. The distribution
agreement continues until December 31, 2007 and thereafter shall automatically
renew on December 31 of each year while the agreement is in effect for an
additional one-year term, unless terminated under certain conditions. The
distribution agreement is terminable by either party on sixty-days' notice.
Sales of products to Calip were $16,037,000 for the year ending August 31, 2004
(2003 - $12,624,000). At August 31, 2004, $5,113,000 of the receivables -
affiliates represent receivables from Calip (2003 - $3,185,000). The
transactions with Calip occur in the normal course of operations and are
measured at the amount of consideration established and agreed to by the related
parties.




<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

Critical accounting policies

The accounting policies discussed in this section are those that we consider to
be particularly critical to an understanding of our financial statements because
their application places the most significant demands on our ability to judge
the effect of inherently uncertain matters on our financial results. For all of
these policies, we caution that future events rarely developed exactly as
forecast, and our management's best estimates may require adjustment.

Management believes that the following are critical accounting policies:

Allowance for doubtful accounts

We have an allowance for doubtful accounts for estimated losses resulting from
customers' inability to pay amounts owed to us, for unresolved amounts that our
customers have refused to pay due to disputes over promotions, co-op advertising
and new product introductory allowances (slotting fees).

The allowance is a combination of specific and general reserves based upon our
evaluation of the customers' ability to pay determined by our assessment of
their liquidity and financial condition through credit rating agencies, or the
credibility of backup provided on disputed amounts. Write-offs against the
allowances generally occur after we assess the particular customer's liquidity,
financial condition and their basis for non-payment on disputed items and
conclude that collection is highly unlikely. Our estimates of losses bear the
risk of change due to the uncertainty of determining the likelihood of customer
non-payment. The general reserve includes an amount for our Foodservice
customers' price volume rebates.

Accrual for promotion and co-op advertising expenses

CoolBrands estimates promotion expenses for each of our customers, excluding our
DSD customers, who receive off invoice promotion allowances, using a detail
annual plan consisting of each promotion offered to each customer. The
promotional sales volume is estimated using the sales history of each customer
when the product or like product was previously promoted. An estimate of the
promotion expense is then calculated using the estimated sales volume and the
specific promotion dollar amount offered for each particular promotion. The
estimates for all promotions for all customers are accumulated and recorded as
expense in the accounting period in which the promotion runs. The results of all
promotions are updated monthly, after the fact, with actual sales promotion
volume. If actual sales were to be substantially higher than estimated, this
could cause an additional promotions expense to be recorded. The amount of these
accruals are recognized by the Company as a reduction of its accounts
receivables.

Inventory valuation method

Inventory is valued at the individual item level using the cost method which
values inventory at the lower of cost or market. Cost is determined using the
FIFO (first-in, first-out) method. Market is determined based on the estimated
net realizable value, which is generally the inventory item's selling price.
CoolBrands reviews its inventory levels in order to identify slow-moving and
obsolete inventory, which requires adjustment and evaluates the potential for
slow-moving and obsolete inventory by analyzing historical and anticipated
demand.




<Page>


Management's Discussion and Analysis of Financial Condition and Results of
Operations

If actual demand were to be substantially lower than estimated, an additional
allowance for excess and obsolete inventory might be required.

Goodwill and intangible assets

Goodwill and intangible assets resulting from acquisitions are tested at least
annually using fair value approach, which requires the use of estimates and
judgment. To the extent the carrying amount of goodwill may not be recoverable
and exceeds its fair value, an impairment charge would be recorded.

Income taxes

We record reserves for estimates of probable settlements of foreign and domestic
tax audits. At any one time, many tax years are subject to audit by various
taxing jurisdictions. The results of these audits and negotiations with taxing
authorities may affect the ultimate settlement of these issues. We also record a
valuation allowance against our future tax assets arising from certain net
operating losses when it is more likely than not that some portion or all of
such net operating losses will not be realized.

Our effective tax rate in a given financial statement period may be materially
impacted by the changes in the mix and level of earnings, changes in the
expected outcome of audit controversies or changes in the deferred tax valuation
allowance. We currently expect the fiscal 2005 effective tax rate to be within
the range of 39 percent to 40 percent. The ultimate rate will depend on several
variables, including the mix of earnings between domestic and international
operations and the overall level of earnings, and could also be affected by the
resolution of tax contingencies for amounts different from our current
estimates.

Stock-based compensation

The Company has a stock option plan for directors, officers, consultants and key
employees. No compensation expense is recognized in accounting for stock options
in the Company's Consolidated Statements of Earnings, except for stock-based
compensation expense for stock options granted to consultants and non-employee
directors, which is measured at the estimated fair value at the date of the
grant and expensed. When options are exercised, the amount received is credited
to share capital. If compensation expense for our stock-based compensation
resulting from the grant of stock options to employees, officers and employee
directors had been determined in accordance with the fair value approach, pro
forma net earnings would have been lower than GAAP net earnings for the years
ended August 31, 2004 and 2003. See Note 1 and Note 7 of the Notes to the
Consolidated Financial Statements for a further discussion of our stock-based
compensation.

Legal matters

CoolBrands is subject to various legal proceedings and claims, either asserted
or unasserted, that arise in the ordinary course of business. CoolBrands
evaluates, among other things, the degree of probability of an unfavourable
outcome and reasonably estimates the amount of the loss. Significant judgment is
required in both the determination of the probability and as to whether an
exposure can be reasonably estimated. When CoolBrands determines that it is
probable that a loss has been incurred, the effect is recorded in the
Consolidated Financial Statements. Although the legal outcome of these claims
cannot be predicted with





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Management's Discussion and Analysis of Financial Condition and Results of
Operations

certainty, CoolBrands does not believe that any of the existing legal matters
will have a material adverse affect on its financial condition or results of
operations. However, significant changes in legal proceedings and claims or the
factors considered in the evaluation of those matters could have a material
adverse affect on CoolBrands business, financial condition and results of
operation.


Changes in accounting policies and initial adoptions of new accounting policies
The Company initially adopted the following new accounting policies for the year
ended August 31, 2004.

Disclosure of Guarantees

On September 1, 2003, the Company adopted, on a prospective basis, the CICA
Accounting Guideline 14, "Disclosure of Guarantees". Under the guideline, the
Company is required to disclose the nature, the maximum potential amount of
future payments, the carrying amount of any liability, and the nature of any
recourse provisions of all significant guarantees.

Impairment of long-lived assets

On September 1, 2003, the Company adopted CICA Handbook Section 3063,
"Impairment of Long-Lived Assets", which requires the Company to test for
impairment loss of long-lived assets to be held and used when events or changes
in circumstances occur which may cause their carrying value to exceed the total
undiscounted cash flows expected from their use and eventual disposition. An
impairment loss, if any, is determined as the excess of the carrying value of
the asset over its fair value. The adoption of this standard did not have any
material effect on the Company's consolidated financial statements.

Disposal of long-lived assets and discontinued operations

On September 1, 2003, the Company adopted CICA Handbook Section 3475, "Disposal
of Long-Lived Assets and Discontinued Operations", which provides guidance on
recognizing, measuring, presenting and disclosing long-lived assets to be
disposed of. It supersedes the former Section 3475, "Discontinued Operations".
Under this section, an asset classified as held for sale is measured at the
lower of its carrying amount or fair value less disposal costs, and is not
depreciated while classified as held for sale. The adoption of this standard did
not have any material effect on the Company's consolidated financial statements.

Change in accounting policy for fiscal year beginning September 1, 2004

Effective September 1, 2004, the Company will adopt, on a retroactive basis
without restatement, the recommendation of CICA Handbook Section 3870,
"Stock-based compensation and other stock-based payments", which now requires
companies to adopt the fair value based method for all stock-based awards
granted on or after September 1, 2002. Previously, the Company was required to
disclose only the pro-forma effect of stock options issued to employees and
employee directors in the notes to the financial statements. The effect of this
change in accounting policy will be to reduce retained earnings at September 1,
2004 by $20,688,000, with a corresponding increase to reported contributed
surplus.





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Management's Discussion and Analysis of Financial Condition and Results of
Operations

Annual Information Form

Additional information relating to CoolBrands, including CoolBrands' Annual
Information Form, is available on SEDAR at www.sedar.com

Outstanding share data

As of January 4, 2005, the Company had 49,891,068 subordinate voting shares,
6,029,865 multiple voting shares and 3,740,000 stock options outstanding.

Outlook

Fiscal 2005 presents CoolBrands with significant challenges and opportunities.
We are replacing our Weight Watchers business with the introduction of No
Pudge!, our new Better for You category brand. Our new product introductions are
part of over 250 new products being introduced in the industry for 2005. This is
significantly higher than historically for new product introductions. This will
require increased spending on both the new product placement fees (slotting
fees) and price promotions. We face strong competition for market share from
major competitors. Competition in the ice cream and frozen dessert industry for
market share will require us to immediately moderate the average selling prices
for much of our line and increase the frequency of our price promotions.These
actions are likely to adversely impact our profitability. In summary, 2005 will
be a year that challenges CoolBrands to regain and increase its market share at
the expense of profitability, but it is a challenge we must deal with before we
can restore the fundamentals of profitable growth. However, we believe
CoolBrands' assets, including our cash and short-term investments on hand, newly
developed products, Americana Foods' manufacturing capacity and Eskimo Pie
Frozen Distribution's capabilities, are well positioned to respond to these
challenges.

This management discussion and analysis includes certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 regarding, among other things, statements relating to goals, plans and
projections regarding the Company's financial position and business strategy.
These statements may be identified by the fact that they use such words as
"anticipate," "estimate," "expect," "intend," "plan," "believe," and other words
and terms of similar meaning in connection with any discussion of future
operating or financial performance. Such forward-looking statements are based on
current expectations and involve inherent risks and uncertainties, including
factors that could delay, divert or change any of them, and could cause actual
outcomes and results to differ materially from current expectations. These
factors include, among other things, market factors, competitive product
development and promotional activity, the level of consumer interest in the
Company's products, product costing, the weather, the performance of management,
including management's ability to implement its plans as contemplated, the
Company's relationship with its customers, franchisees, licensees and licensors,
governmental regulations and legislation and litigation. The Company undertakes
no obligation to publicly update any forward-looking statement, whether as a
result of new information, future events or otherwise.