UNITED
        STATES
   SECURITIES
        AND EXCHANGE COMMISSION
   WASHINGTON,
        D.C. 20549
   FORM
        20-F
   (MARK
        ONE)
   [
        ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
        EXCHANGE ACT OF 1934
   [X]
        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF
        1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 2006
   --------------------------------------------
   [
        ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO
        ________________
   [
        ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
   Date
        of Event Requiring this Shell Company Report ___________
   COMMISSION
        FILE NUMBER 000-27476
   ---------
   COOLBRANDS
        INTERNATIONAL INC.
   --------------------------------------------------------
   (EXACT
        NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
   Not
        Applicable
   --------------------------------------------------------
   (TRANSLATION
        OF REGISTRANT'S NAME INTO ENGLISH)
   Province
        of Ontario, Canada
   --------------------------------------------------------
   (JURISDICTION
        OF INCORPORATION OR ORGANIZATION)
   210
        Shields Court
   Markham,
        Ontario
   Canada
        L3R 8V2
   --------------------------------------------------------
   (ADDRESS
        OF PRINCIPAL EXECUTIVE OFFICES)
   SECURITIES
        REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE
        ACT.
   NAME
        OF EACH EXCHANGE
   TITLE
        OF EACH CLASS ON WHICH REGISTERED
   Not
        Applicable
   ------------------------
        ----------------------
   ------------------------
        ----------------------
   SECURITIES
        REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE
        ACT.
   Not
        Applicable
   --------------------------------------------------------
   (TITLE
        OF CLASS)
   --------------------------------------------------------
   (TITLE
        OF CLASS)
   SECURITIES
        FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d) OF THE
        ACT.
   Class
        A Subordinate Voting Shares
   Class
        B Multiple Voting Shares
   --------------------------------------------------------
   (TITLE
        OF CLASS)
   INDICATE
        THE NUMBER OF OUTSTANDING SHARES OF EACH OF THE ISSUER'S CLASSES OF CAPITAL
        OR
        COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE ANNUAL
        REPORT.
   Subordinate
        Voting Shares: 50,049,774
   Multiple
        Voting Shares: 6,025,659
   INDICATE
        BY CHECK MARK IF THE REGISTRANT IS A WELL-KNOWN SEASONED ISSUER, AS DEFINED
        IN
        RULE 405 OF THE SECURITIES ACT.
   [
        ] YES [X] NO
   IF
        THIS REPORT IS AN ANNUAL OR TRANSITION REPORT, INDICATE BY CHECK MARK IF
        THE
        REGISTRANT IS NOT REQUIRED TO FILE REPORTS PURSUANT TO SECTION 13 OR 15(D)
        OF
        THE SECURITIES EXCHANGE ACT OF 1934.
   [X]
        YES [ ] NO
   INDICATE
        BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO
        BE
        FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
        THE
        PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED
        TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS
        FOR
        THE PAST 90 DAYS.
   [X]
        YES [ ] NO
   INDICATE
        BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN
        ACCELERATED FILER, OR A NON-ACCELERATED FILER. SEE DEFINITION OF “ACCELERATED
        FILER” IN RULE 12B-2 OF TE EXCHANGE ACT (CHECK ONE):
   LARGE
        ACCELERATED FILER [ ] ACCELERATED FILER [X] NON-ACCELERATED FILER [
        ]
   INDICATE
        BY CHECK MARK WHICH FINANCIAL STATEMENT ITEM THE REGISTRANT HAS ELECTED TO
        FOLLOW.
   [X]
        ITEM 17 [ ] ITEM 18
   IF
        THIS IS AN ANNUAL REPORT, INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS
        A
        SHELL COMPANY (AS DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT
   [
        ] YES [X] NO
   **TABLE
        OF CONTENTS**
   
   Item
        1 Identity of Directors, Senior Management and Advisers........................... 2
   Item
        2 Offer Statistics and Expected
        Timetable...................................................... 2
   Item
        3 Key Information.............................................................................................
2
   
   Item
        4 Information on the Company........................................................................ 5
   ITEM
        4A Unresolved staff comments......................................................................... 12
   
   Item
        5 Operating and Financial Review and Prospects.......................................... 20
   Item
        6 Directors, Senior Management and
        Employees............................................. 40
   Item
        7 Major Shareholders and Related Party
        Transactions.............................. 56
   Item
        8 Financial
        Information.................................................................................... 59
   Item
        9 The Offer and
        Listing.................................................................................... 60
   Item
        10 Additional
        Information.............................................................................. 62
   Item
        11 Quantitative and Qualitative Disclosures
        About Market Risk............... 69
   Item
        12 Description of Securities other than Equity
        Securities........................... 70
   Item
        13 Defaults, Dividend Arrearages and
        Delinquencies................................. 70
   Item
        14 Material Modifications to the Rights of
        Security Holders and
   Use
        of Proceeds.......................................................................................... 70
   
   Item
        15 Controls and Procedures........................................................................... 70
   
   Item
        16 [Reserved]...................................................................................................... 71
   ITEM
        16A aUDIT COMMITTEE FINANCIAL EXPERT............................................................ 71
   ITEM
        16B CODE OF ETHICS............................................................................................... 71
   ITEM
        16C PRINCIPAL ACCOUNTANT FEES AND SERVICES.................................................... 71
   ITEM
        16D EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES........................
71
   ITEM
        16E PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS......
71
   
   Item
        17 Financial Statements................................................................................. 73
   
   Item
        18 Financial Statements................................................................................. 73
   
   Item
        19 Exhibits......................................................................................................... 73
   **FORWARD-LOOKING
        STATEMENTS**
   This
        report contains certain forward-looking statements with respect to CoolBrands
        International Inc., its subsidiaries and affiliates (the “Corporation,” the
“Company” or “CoolBrands”). These statements are often, but not always, made
        through the use of words or phrases such as “expect”, “should continue”,
“continue”, “believe”, “anticipate”, “estimate”, “contemplate”, “target”,
“plan”, “budget” “may”, “will”, “schedule” and “intend” or similar formulations.
        By their nature, these forward-looking statements are necessarily based upon
        a
        number of estimates and assumptions that, while considered reasonable by
        management, are inherently subject to significant, known and unknown, business,
        economic, competitive and other risks, uncertainties and other factors affecting
        CoolBrands specifically or its industry generally that could cause actual
        performance, achievements and financial results to differ materially from
        those
        contemplated by the forward-looking statements. These risks and uncertainties
        include the Company’s ability to sell certain assets and businesses to generate
        liquidity; the Company’s ability to generate adequate gross margins from its
        remaining businesses; the tastes and preferences of the U.S. retail consumer
        of
        CoolBrands’ products; the ability of CoolBrands to be competitive in the highly
        competitive U.S. market for frozen dessert products at its substantially
        reduced
        size; fluctuations in consumption of CoolBrands’ products and services as a
        result the seasonal nature of the frozen dessert industry; the ability of
        CoolBrands to retain or acquire shelf space for its products in supermarkets,
        club stores and convenience stores; the ability of CoolBrands to rebuild
        the
        business given the service and production issues it has had as a result of
        its
        downsizing; the ability of CoolBrands to liquidate its remaining business
        efficiently; the ability of CoolBrands to invest in or merge with another
        operating business; the ability of CoolBrands to effectively manage the risks
        inherent with any mergers and acquisitions; the effect on foreign operations
        of
        political, economic and regulatory risks; currency risk exposure; the ability
        to
        recruit (if the Company tries to rebuild) and retain qualified employees;
        changes in prices for raw materials; the ability of CoolBrands to pass on
        cost
        increases resulting from inflation; and other risks described from time to
        time
        in publicly filed disclosure documents of CoolBrands and its subsidiaries
        and
        affiliates. In view of these uncertainties we caution readers not to place
        undue
        reliance on these forward-looking statements. Statements made in this document
        are made as of August 31, 2007 and CoolBrands disclaims any intention or
        obligation to update or revise any statements made herein, whether as a result
        of new information, future events or otherwise.
   All
        dollar amounts referred to herein are in United States dollars unless otherwise
        noted.
   **PART
        I**
   **Item
        1 Identity of Directors, Senior Management and
        Advisers**
   Not
        applicable.
   
   **Item
        2 Offer Statistics and Expected Timetable**
   Not
        applicable.
   
   **Item
        3 Key Information**
   **Item
        3(A) Selected Financial Data**
   The
        following selected financial data for the five years ended August 31, 2006
        are
        derived from the audited consolidated financial statements of CoolBrands.
        These
        selected financial data should be read in conjunction with "Operating and
        Financial Review and Prospects" and our consolidated financial statements
        and
        notes thereto. In 2005, the Company adopted generally accepted accounting
        principles in the United States and changed its reporting currency from Canadian
        dollars to U.S. dollars. For comparative purposes, historical financial
        statements and notes have been restated to reflect these changes.
   **Statement
        of Operations Data**
   **(000
        omitted, except for per share data)**
   **For
        the year ended August 31,**
  **2006**
              **2005**
              **2004**
              **2003**
              **2002**Revenues
              $99,348
              $149,710
              $280,736
              $161,394
              $94,616Net
                  (loss) income from continuing operations
              $(63,620)
              $(69,016)
              $20,325
              $15,031
              $8,978(Loss)
                  income from discontinued operations
              (6,972)
              (5,054)
              3,187
              3,795
              3,019Gain
                  on sale of discontinued operations
              410Net
                  (loss) earnings
              $(70,182)
              $(74,070)
              $23,512
              $18,826
              $11,997Basic
                  (loss) earnings per share from continuing operations
              $(1.13)
              $(1.23)
              $0.37
              $0.29
              $0.19Basic
                  (loss) earnings per share from discontinued operations
              (0.12)
              (0.09)
              0.05
              0.07
              0.06Basic
                  (loss) earnings per share
              $(1.25)
              $(1.32)
              $0.42
              $0.36
              $0.25Fully
                  diluted (loss) earnings per share from continuing
                  operations
              $(1.13)
              $(1.23)
              $0.37
              $0.28
              $0.18Fully
                  diluted (loss) earnings per share from discontinued
                  operations
              (0.12)
              (0.09)
              0.05
              0.07
              0.06Fully
                  diluted (loss) earnings per share
              $(1.25)
              $(1.32)
              $0.42
              $0.35
              $0.24
  **Balance
        Sheet Data**
   **(000
        omitted, except for per share data)**
   **As
        At August 31,**
  **2006**
              **2005**
              **2004**
              **2003**
              **2002**Working
                  Capital
              $(23,992)
              $28,477
              $118,138
              $58,985
              $34,796Total
                  Assets
              $160,548
              $297,845
              $317,257
              $223,684
              $179,972Total
                  Long-Term Liabilities(1)
              $3,173
              $17,514
              $25,658
              $34,205
              $24,677Shareholders'
                  Equity
              $61,118
              $138,406
              $211,101
              $132,714
              $107,513Number
                  of Shares issued and outstanding:Class
                  A Subordinate Voting Shares
              50,049
              49,918
              49,863
              45,629
              45,497Class
                  B Multiple Voting Shares
              6,026
              6,029
              6,030
              6,179
              6,209
  1At
        August 31, 2006,
        the Company had $10,077 outstanding under the Corporate Credit Facility,
        as
        defined in Recent Developments – 2006, and $23,501 outstanding under the
        Americana Credit Facility, as defined in Recent Developments – 2006, ($6,418
        under the revolver and $17,083 under the term loans). As of May 31, 2006 and
        August 31, 2006, the Company and Americana Foods were in default of certain
        financial covenants of each of the Americana Credit Facility and the Corporate
        Credit Facility. Accordingly the debt outstanding under the Corporate Credit
        Facility and Americana Credit Facility was classified as current liabilities
        in
        the August 31, 2006 Balance Sheet.
   **Item
        3(B) Capitalization and Indebtedness**
   Not
        applicable.
   **Item
        3(C) Reasons for the Offer and Use of Proceeds**
   Not
        applicable.
   **Item
        3(D) Risk Factors**
   In
        addition to the other information contained and incorporated by reference
        in
        this Annual Report on Form 20-F, the following risk factors should be carefully
        considered in evaluating the Company and its business:
   Our
        filing is not in conformity with SEC rules and regulations
   This
        annual report does not include full certifications by our Chief Executive
        Officer and Chief Financial Officer as required by Exhibits 12 and 13 of
        this
        report. Accordingly, this report does not fully comply with the requirements
        of
        Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Failure to
        conform to SEC disclosure requirements could expose us to greater risks for
        litigation, regulatory proceedings or enforcement actions. Such matters,
        if they
        were to occur, could be time consuming and distract management from the conduct
        of business and we could be required to pay damages or penalties or have
        other
        remedies imposed, which could harm our business, financial condition, results
        of
        operations and cash flows.
   **We
        May Incur Losses in Connection with
        Litigation**
   We
        currently are and we may continue to be subject to legal proceedings and
        disputes with joint-venture partners, franchisees, former franchisees and
        others. We may not have sufficient resources to continue the defense of these
        proceedings or to satisfy any adverse judgment that may be rendered against
        us.
        See “Legal Proceedings”.
   **Credit
        Risk**
   We
        rely on major retailers in the U.S. for a substantial portion of our sales.
        As a
        result of this concentration of sales and accounts receivable, we are subject
        to
        certain credit risks. In fiscal 2006 and fiscal 2005, one customer accounted
        for
        10.2% and 17%, respectively, of our sales from continuing
        operations.
   **Key
        Personnel**
   We
        are currently dependent upon a small number of key management personnel.
        The
        loss of these key personnel may adversely affect our ultimate financial
        position. Due to recent dispositions of businesses made by us, we may be
        unable
        to retain appropriate personnel on a going forward basis. We have entered
        into
        incentive programs with certain key employees in order that they assist in
        the
        winding up of certain operations in the U.S.
   **Mergers,
        Acquisitions and Dispositions**
   We
        have made acquisitions of, or significant investments in, businesses or assets
        with complementary products or unrelated industries and we may do so again
        in
        the future. Acquisitions involve numerous risks, including but not limited
        to:
        (i) diversion of our management’s attention from other operational matters; (ii)
        the inability to realize expected synergies from the acquisition; (iii)
        impairment of acquired intangible assets as a result of worse-than-expected
        performance of the acquired operations; (iv) integration and retention of
        key
        employees; and (v) integration of operations. Mergers and acquisitions are
        inherently subject to significant risks, and the inability to effectively
        manage
        these risks has materially and adversely affected our business, financial
        condition and results of operations. Since the end of fiscal 2006, we have
        made
        several additional dispositions of businesses and as of August 30], 2007,
        we no
        longer operate any active businesses. The last remaining operating businesses
        of
        the Company were a manufacturing operation of frozen dessert products in
        California that was sold on March 30, 2007 and the operation of a manufacturing
        facility in Arkansas pursuant to a Copack arrangement that was finished on
        August 5, 2007.
   **Inflation**
   Inflation
        can significantly impact ice cream, frozen desserts ingredients, including
        milk,
        butterfat and packaging costs. In the past, we have been able to pass on
        ingredient, energy and freight cost increases by raising prices on selected
        product lines. Because of our current level of operations, we do not believe
        inflation will materially affect on our business.
   **Raw
        Materials**
   We
        are subject to risks with respect to our 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, we have used
        hedging contracts to reduce our exposure to such risks with respect to our
        raw
        material costs. We were not a party to any hedging contracts in fiscal 2006
        nor
        are we currently a party to any hedging contracts.
   **Consumer
        Tastes**
   Our
        products are ultimately purchased by the U.S.****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.
   **Seasonality**
   The
        frozen dessert industry generally experiences its highest volume during the
        spring and summer months and its lowest volume in the winter
        months.
   **Shelf
        Space**
   Our
        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 treats industries
        and
        by changing consumer tastes and fads. As a result, we are subject, in any
        given
        year, to the loss of shelf space with our customers and the loss in revenues
        associated with the sale of those products. There is also substantial risk
        that
        the sales of such new products will not be as successful as we had previously
        estimated or as successful as new products introduced by us 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 material adverse
        effect upon our financial position and results of operations. Because we
        are no
        longer manufacturing product as described in Item 4(B) foodservice segment,
        we
        will not be competing in our current situation for shelf space.
   **Competition**
   We
        have historically derived a substantial portion of our revenues from our
        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, we may encounter additional and more intense competition.
        Such competitors may have greater name recognition and more extensive financial,
        technological, marketing and personnel resources than we do. We have
        significantly downsized our operations and no longer have the resources or
        base
        of business to compete with our traditional competitors.
   **Rebuild
        the Business**
   We
        may try to rebuild the business. However as a result of the downsizing and
        the
        adverse affect it has had on remaining operations, customers and vendors
        may be
        reluctant to do business with us and as a result, it may be difficult for
        us to
        rebuild, if attempted, to a level of profitability.
   **Purchase
        of New Business**
   We
        may try to purchase a new business. There is significant competition in the
        buying and selling of businesses and we may not be able to identify target
        acquisitions that are appropriate from a strategic perspective, a management
        perspective, and a price perspective. Additionally, if we were able to identify
        an acquisition target, we would be required to, among other things (i)
        successfully integrate new management and (ii) develop a growth
        strategy.
   **Lease
        Obligations**
   We
        have abandoned several leased properties. The Company has significant financial
        obligations under these leases. See Item 5 Operating and Financial Review
        and
        Prospects-Contractual Obligations. We may not be able to settle these lease
        obligations under favorable terms.
   **Liquidity**
   We
        currently have sufficient working capital to fund operations for the next
        twelve
        months. If we are unable to wind down existing businesses which are operating
        at
        a loss, on a timely basis, or if an adverse judgment were entered against
        us in
        any litigation asserted or unasserted at this time, the Company’s liquidity may
        be reduced to levels that make it difficult to purchase a new business or
        to
        continue to operate.
   **Item
        4 Information on the Company**
   **Item
        4(A) History and development of the Company**
   The
        Corporation was formed under the Business Corporations Act (Ontario) by articles
        of amalgamation dated September 7, 1994 under the name Yogen Fruz World-Wide
        Inc. On March 18, 1998, the Corporation was continued under the Companies
        Act
        (Nova Scotia) under the name Yogen Fruz World-Wide Inc. and reorganized its
        share capital to provide for multiple voting shares and subordinate voting
        shares. On March 15, 2000, the Corporation amended its articles to change
        its
        name to CoolBrands International Inc. On February 27, 2006, the shareholders
        of
        the Corporation passed a special resolution to continue the Corporation under
        the Canada Business Corporation Act effective March 27, 2006. Additionally
        on
        February 27, 2006, the shareholders of the Corporation passed a special
        resolution which resulted in the collapse of the dual class structure on
        May 31,
        2007. (See “Recent Developments – 2006” for further discussion) The principal
        and registered office of the Corporation is located at 210 Shields Court,
        Markham, Ontario, L3R 8V2. The Corporation's principal office in the United
        States was closed on March 31, 2007. See discussion of discontinued operations
        in Item 5, “Operating and Financial Review and Prospects,” “Discontinued
        Operations.” As of the date hereof, the Company is no longer manufacturing
        product, other than under its Co-Packing arrangement pursuant to the sale
        of the
        foodservice segment in January discussed below in the description of the
        foodservice sale. The Company is liquidating existing inventory and trying
        to
        sell its real estate, equipment and trade names that it owns.
   **Recent
        Developments**
   Significant
        developments since August 31, 2006 include:
   ·
        In September 2006, Eskimo Pie Corporation, a wholly-owned subsidiary of the
        Corporation, sold its Value America flavors and ingredients division, which
        comprised substantially all of the Corporation’s dairy component segment for
        gross proceeds of approximately $8,250,000 to an unaffiliated third
        party.
   ·
        In September 2006, a lawsuit was filed in the Supreme Court of the State
        of New
        York against the Corporation and certain of its subsidiaries and employees
        of
        Americana Foods by Americana Foods Corporation. Americana Foods Corporation,
        which, through Capricorn Investors III LP, owns a 49.9% interest in Americana
        Foods, is seeking monetary damages, certain declaratory orders and injunctive
        relief based on an alleged erosion in the value of its investment.
   ·
        On October 11, 2006, the lenders to Americana Foods Limited Partnership
        (“Americana Foods”), CoolBrands’ 50.1% owned joint venture facility in Dallas
        Texas, under the Americana Credit Facility (as defined below in Recent
        Developments-2006), advised Americana Foods that, on account of the existing
        defaults under its credit facilities, they were no longer willing to lend
        funds
        and demanded full and immediate repayment on all borrowings. Certain
        subsidiaries of the Corporation filed an involuntary petition against Americana
        Foods under Chapter 7 of the U.S. Federal Bankruptcy Code, and Americana
        Foods
        ceased operations in October 2006.
   ·
        In November 2006, the Corporation’s subsidiary, Eskimo Pie Frozen Distribution,
        Inc. (“EPFD”), sold substantially all of its “direct store door” frozen
        distribution assets in Florida, California, Oregon and Washington to an
        unaffiliated third party, for net proceeds of approximately
        $5,736,000.
   ·
        On November 17, 2006, 2118769 Ontario Inc., a company controlled by Mr. Michael
        Serruya, currently the Company’s Chairman, President and Chief Executive
        Officer, (“2118769”), entered into an agreement to acquire, at par, all of the
        indebtedness of the senior lenders under the Americana Credit Facility. In
        connection with this purchase, 2118769 also entered into a forbearance agreement
        (“Forbearance Agreement”) with CoolBrands pursuant to which 2118769 agreed, for
        a period of 6 months, not to take any action to demand repayment of the
        indebtedness on account of existing defaults under the Americana Credit
        Facility( as defined below in Recent Developments-2006). As part of this
        transaction, JPMorgan Chase Bank, N.A. (“JPMorgan”) and the other senior lenders
        agreed to continue to make available to the Corporation $8,000,000 under
        the
        Corporate Credit Facility, as defined below in Recent Developments-2006.
        Mr.
        Serruya, through 2118769, also established a $5,000,000 letter of credit
        in
        favor of the senior lenders as additional security for the $8,000,000 Corporate
        Credit Facility (as defined below in Recent Developments-2006).
   In
        consideration for 2118769 entering into both the Forbearance Agreement and
        providing the Letter of Credit to the senior lenders, the Company issued
        to Mr.
        Michael Serruya, warrants to purchase up to 5.5 million subordinate voting
        shares. The warrants expire in November 2011 and the exercise price is Cdn
        $0.50
        per warrant.
   ·
        Also on November 17, 2006, the Corporation replaced its independent directors,
        Mr. Robert E. Baker, Mr. William McMananan, Mr. Joshua L. Sosland and Ms.
        Beth
        L. Bronner**,** with Mr. Romeo DeGasperis, Mr. Garry Macdonald, and
        Mr. Ronald W. Binns. Additionally, on this date Mr. David Stein resigned
        from
        the board of directors.
   ·
        On January 24, 2007, the Corporation sold, through its subsidiaries Eskimo
        Pie
        Corporation and Integrated Brands Inc., their Eskimo Pie and Chipwich Brands
        and
        Real Fruit trademark, along with Eskimo Pie soft serve brands and related
        foodservice business segment, to Dreyer’s Grand Ice Cream Inc. (“Dreyers”), an
        indirect subsidiary of Nestle S.A., for a purchase price of approximately
        $18,925,000. The purchase price includes approximately $4,000,000 in inventory
        and accounts receivables. Dreyer’s also assumed related liabilities in the
        amount of approximately $1,000,000. A portion of the proceeds from the sale
        were
        utilized to pay off the amounts outstanding under the Corporate Credit
        Facility.
   ·
        On January 30, 2007, effective January 27, 2007, the Corporation sold all
        of the
        issued and outstanding stock of CoolBrands Dairy, Inc. (“CBD”), an indirect,
        wholly owned subsidiary of the Corporation to Lily Acquisition, LLC. As
        consideration for the transaction, the Corporation received $45,000,000 in
        cash,
        a $5,000,000 subordinated promissory note and a warrant to purchase 200 shares
        of common stock of Yogurt Holdings II Inc. at a price of $12,500 per
        share.
   ·
        In February 2007, the Company closed its printing and packaging plant in
        Bloomfield, New Jersey and is actively marketing the plant for
        sale.
   ·
        The Company was served notice on March 12, 2007 by Godiva Chocolatier, Inc.
        and
        Godiva Brands, Inc. alleging that the Company has breached its license agreement
        and the licensor has filed a claim in the Supreme Court of the State of New
        York
        for damages of $14 million for breach of contract plus additional damages.
        The
        outcome and resolution of such claim is uncertain at this time.
   ·
        On March 30, 2007, the Company sold its frozen dessert operation at Norwalk,
        California to an unrelated third party for proceeds of approximately
        $4,600,000.
   **2006**
   ·
        CoolBrands reported a consolidated net loss for the year ended August 31,
        2006
        of $(70,182,000). Major developments in fiscal 2006 included:
   ·
        On September 2, 2005, the Corporation entered into an amendment to its credit
        facilities with JPMorgan Chase Bank, N.A.(“JPMorgan Chase Bank, N.A.” or
“JPMorgan”) (the “Credit Amendment”). The Credit Amendment extended the maturity
        of the existing facilities from November 1, 2005 until January 3, 2006 and
        waived defaults in its financial covenants resulting from the Corporation’s
        performance for the quarters ended May 31, 2005 and August 31, 2005. The
        Credit
        Amendment also eliminated all of the existing financial covenants from the
        loan**agreements through the remainder of the term. The Credit
        Agreement was refinanced in April 2006 as described below.
   ·
        On December 23, 2005, the Corporation sold substantially all of its franchising
        division to International Franchise Corp., a related party, for cash
        consideration of $8 million. The Corporation received a fairness opinion
        from an
        unaffiliated third party in connection with this transaction.
   ·
        On February 27, 2006, the shareholders of the Corporation passed a special
        resolution to exchange each Class A subordinate voting share (the “Subordinate
        Voting Shares”) and each Class B multiple voting share (the “Multiple Voting
        Shares”) into one common share. This change occurred on May 31, 2007. Upon the
        change to the Corporation’s dual class structure becoming effective, the Board
        Representation Agreement and the Trust Agreement terminated. Prior to
        termination, the parties agreed that the Corporate Governance Committee make
        all
        nominations for membership to the board of directors of the Corporation.
        Copies
        of the Board Representation Agreement and Trust Agreement are available
        on**the Internet at**www.sedar.com.
   ·
        On February 27, 2006, the shareholders of the Corporation passed a special
        resolution to continue the Corporation under the *Canada Business
        Corporations Act*. This change was effected on March 27, 2006.
   ·
        On April 21, 2006, the Corporation signed definitive agreements in respect
        of
        new credit facilities with a syndicate of lenders led by JPMorgan (the “April 21
        Credit Agreements”). The facilities were structured as follows: (a) a
        $48,000,000 senior secured revolving credit facility in respect of which
        CoolBrands and certain of its subsidiaries (with the exception of Americana
        Foods) are borrowers (the “Corporate Credit Facility”) and (b) a $25,500,000
        senior secured credit facility consisting of a $8,000,000 senior secured
        revolving credit facility and $17,500,000 of term loans in respect of which
        Americana Foods is the borrower ( together ,the “American Credit Facility”). The
        facilities were originally for a term of three years and provided for interest
        at the bank’s prime rate.
   ·
        On July 21, 2006, the Corporation announced that it had breached a covenant
        in
        the April 21 Credit Agreements. The breach resulted from a breach by Americana
        Foods of a financial covenant under the Americana Credit Facility.
   ·
        As a result of the continued significant losses of Americana Foods, which
        was in
        default under the Americana Credit Facility, Americana Foods was placed into
        bankruptcy under an involuntary petition of bankruptcy under Chapter 7 of
        the
        U.S. Bankruptcy Code by certain subsidiaries of the Company as creditors
        of
        Americana Foods, and ceased operations in October 2006. Americana Foods
        generated a loss of $(23,542,000), net of the minority interest, including
        $11,150,000 of write-downs of certain assets to estimated net realizable
        value.
   **Principal
        Capital Expenditures and Divestitures of the Last Three
        Years**
   During
        Fiscal 2004, Fiscal 2005 and Fiscal 2006, the Company purchased property,
        plant
        and equipment in the normal course of business totaling $12,977,000,
        $13,500,000, and $1,416,000, respectively (including discontinued operations).
        During 2005, the Company purchased the Breyer’s yogurt business and Zipp
        Manufacturing flavors business for purchase prices of $59,152,000 and $457,000,
        respectively. In early 2006, the Company sold its franchising and licensing
        segment for $8,000,000. During 2006, the Company marketed its dairy component
        (Value America) segment, its yogurt segment and its distribution business
        (EPFD)
        for sale. In September 2006, the Company sold its Value America division
        for
        proceeds totaling $8,250,000 (including a hold back of $750,000). Additionally
        in November 2006, the Company completed the sale of substantially all of
        its
        EPFD assets for proceeds totaling $4,400,000 and in January 2007 the Company
        sold it foodservice segment for proceeds totaling $ 18,925,000. In January
        2007,
        the Company sold its yogurt business for cash proceeds of $ 45,000,000, a
        $5,000,000 note and warrants to acquire shares of an affiliate of the purchaser.
        In February 2007, the Company closed down the printing and packaging plant
        and
        is marketing it for sale. In April 2007 the Company sold its frozen desserts
        segment for proceeds of $4,600,000. The Company is no longer manufacturing
        products other than under its co-packing arrangement with Dreyer’s pursuant to
        the sale of the assets of the foodservice segment, and is in the process
        of
        selling off some remaining inventory. See description of foodservice segment
        in
        Item 4(B) Business Overview.
   **Item
        4(B) Business Overview**
   CoolBrands
        businesses have primarily consisted of the marketing and selling of frozen
        desserts and the related vertically integrated manufacturing and distribution
        operations in the U.S. and, the manufacturing and selling of fresh yogurt
        products, foodservice sales and manufacturing of frozen yogurt and ice cream
        mixes and the manufacture and sales of ingredients and packaging to the dairy
        industry. CoolBrands had marketed a diverse range of frozen desserts and
        fresh
        yogurt products under nationally and internationally recognized brand
        names.
   In
        Fiscal 2004 and Fiscal 2005, the Company’s reportable segments were the frozen
        dessert segment, yogurt (acquired in 2005), foodservice, dairy components,
        and
        franchising and licensing, including company owned stores. In December 2005,
        the
        Company sold the assets, net of certain liabilities of its franchising and
        licensing segment and began to actively market EPFD, a component of the frozen
        dessert segment, its Value America division, which comprised substantially
        all
        of the dairy components segment, and CBD, the yogurt segment, for sale.
        Accordingly, the assets and liabilities of each of these entities have been
        classified to assets and liabilities of discontinued operations on each of
        the
        consolidated balance sheets as of August 2006 and 2005 and the components
        of
        their operating results and cash flows have been included in net loss from
        discontinued operations on each of the consolidated statements of operations
        and
        cash flows from discontinued operations on each of the statements of cash
        flows.
        Therefore, the franchising and licensing segment, the yogurt segment and
        the
        dairy components segment have been reclassified to discontinued operations
        for
        each of the years presented. The Company is reporting continuing operations
        in
        two business segments for the periods presented. Additionally, the assets
        of the
        foodservice segment were sold on January 24, 2007. The businesses and business
        segments included in discontinued operations accounted for revenues of $260,077,
        $235,435 and $169,202 in Fiscal 2006, Fiscal 2005 and Fiscal 2004,
        respectively.
   The
        following table sets forth the contribution to revenue of each of the remaining
        segments in continuing operations at August 31, 2006 by geographic region
        for
        the periods indicated:
   **Revenue
        by Industry Segments and Classes of Product and Services**
   **Year
        ended August 31, 2006 (in thousands of dollars)**
  **Operating
                  Segments****Revenue
                  Source**
              **Frozen
                  Desserts**
              **Foodservice(1)**
              **Corporate**
              **Total**United
                  States
              $
                  120,959
              $
                  20,990
              $
                  -
              $
                  141,949Canada
              202
              -
              103
              305International
              -
              -
              -
              -Inter-segment
                  revenues
              (43,597)
              -
              -
              (43,597)Other
                  revenues:
              620
              71
              -
              691Total
                  consolidated net revenues
              $
                  78,184
              $
                  21,061
              $
                  103
              $
                  99,348
  **Year
        ended August 31, 2005 (in thousands of dollars)**
  **Operating
                  Segments****Revenue
                  Source**
              **Frozen
                  Desserts**
              **Foodservice(1)**
              **Corporate**
              **Total**United
                  States
              $
                  173,727
              $
                  18,397
              $
                  -
              $
                  192,124Canada
              528
              -
              280
              808International
              405
              -
              -
              405Inter-segment
                  revenues
              (43,665)
              (661)
              (230)
              (44,556)Other
                  revenues:
              797
              -
              132
              929Total
                  consolidated net revenues
              $
                  131,792
              $
                  17,736
              $
                  182
              $
                  149,710
  **Year
        ended August 31, 2004 (in thousands of dollars)**
  **Operating
                  Segments****Revenue
                  Source**
              **Frozen
                  Desserts**
              **Foodservice(1)**
              **Corporate**
              **Total**United
                  States
              $
                  329,982
              $
                  16,382
              $
                  -
              $
                  346,364Canada
              901
              -
              219
              1,120International
              361
              -
              -
              361Inter-segment
                  revenues
              (66,533)
              (703)
              (242)
              (67,478)Other
                  revenues:
              261
              -
              108
              369Total
                  consolidated net revenues
              $
                  264,972
              $
                  15,679
              $
                  85
              $
                  280,736
  1
        The Company sold its
        foodservice segment on January 24, 2007.
   ***Frozen
        Dessert Segment***
   Revenues
        in the frozen dessert segment are generated from marketing and selling a
        variety
        of pre-packaged frozen desserts to distributors, and various retail
        establishments including supermarkets, grocery stores, club stores, gourmet
        shops, delicatessens and convenience stores.
   CoolBrands
        competed in the “Better for You” ice cream category with offerings such as
        fat-free, non-dairy WholeFruit Sorbet and Fruit-a-Freeze. Better for You
        offerings by CoolBrands includes No Pudge! branded frozen snacks and a line
        of
        Better for Kids frozen snacks sold under the Justice League, Snapple, Care
        Bears
        and Trix Pops brands. In addition, CoolBrands marketed a wide variety of
“all
        family” premium ice creams and frozen snacks under brand names including
        Tropicana and Yoplait.
   CoolBrands’
        subsidiary, EPFD operated a direct store door ice cream distribution system
        in
        selected markets in the U.S., serving these CoolBrands products and a number
        of
        Partner Brands to supermarkets, convenience stores and other retail customers.
        During Fiscal 2006, the Corporation made the decision to sell EPFD. The
        Corporation consummated the sale of substantially all of the net assets of
        EPFD
        to an unaffiliated third party on November 17, 2006. The Corporation did
        not
        sell its depots in Atlanta, Georgia, Moorestown, New Jersey, and Jessup,
        Maryland. These depots were closed in January 2007. The lease in Atlanta,
        Georgia has expired and the Corporation is currently negotiating settlements
        of
        the leases in Moorestown, New Jersey and Jessup, Maryland which are scheduled
        to
        expire in March, 2009 and September 2008, respectively. See Item 4(D),
“Property, Plants and Equipment” for a further discussion. The Company may not
        be able to negotiate favorable settlements of these leases.
   ***Foodservice
        Segment***
   In
        addition to products manufactured for use in its business, the Corporation
        manufactured soft serve frozen yogurt and premium ice cream mixes in a leased
        facility in Russellville, Arkansas. Soft serve mix is sold under the Eskimo
        Pie
        brand name to broad-line foodservice distributors, yogurt shops and other
        foodservice establishments which, in turn, sell soft serve ice cream and
        frozen
        yogurt products to consumers. A separate sales force working within Eskimo
        Pie's
        wholly-owned subsidiary, Sugar Creek Foods, Inc., managed the sale of soft
        serve
        yogurt and ice cream mixes. In early Fiscal 2007, the Company made the decision
        to sell the assets of its foodservice segment and consummated the sale of
        the
        foodservice segment to an unaffiliated third party on January 24, 2007. Sugar
        Creek Foods, Inc, entered into a Co-Pack Agreement with Dreyer’s to manufacture
        soft-serve ice cream for a period of up to nine months from the date of the
        sale.
   ***Yogurt
        Segment***
   CoolBrands
        subsidiary, CoolBrands Dairy, Inc. (“CBD”), manufactured cup yogurt at its plant
        located in North Lawrence, New York, under the Breyers brand pursuant to
        a
        trademark rights agreement, which grants the right in perpetuity, and under
        the
        Creme Savers brand pursuant to a long term license agreement.
   Breyers
        yogurt was distributed and sold across the United States, internationally
        through the United States military complex and throughout the Caribbean.
        Finished goods were shipped refrigerated freight to strategic refrigerated
        warehouses for distribution to key accounts.
   During
        Fiscal 2006, the Company made the decision to sell the yogurt segment, which
        it
        had acquired in March 2005. Accordingly, the assets and liabilities of the
        yogurt segment were included in assets and liabilities of discontinued
        operations on the consolidated balance sheets and the results of operations
        and
        cash flows are included in loss from discontinued operations and cash flows
        from
        discontinued operations on the consolidated statements of operations and
        consolidated statements of cash flows, respectively for all financial statement
        periods presented. CBD was sold to an unaffiliated third party on January
        30,
        2007.
   ***Dairy
        Components Segment***
   In
        addition to products manufactured for use in its business, the Corporation
        sold
        various other ingredients to the dairy industry produced at its New Berlin,
        Wisconsin facility. This business involved blending, cooking and processing
        basic flavors and fruits to produce products, which subsequently are used
        by
        customers to flavor frozen desserts, ice cream novelties and fluid dairy
        products. During 2006, the Company made the decision to sell its Value America
        division, which represented substantially all of the dairy components segment.
        Accordingly, the assets and liabilities of Value America are included in
        assets
        and liabilities of discontinued operations on the consolidated balance sheets
        and the results of operations and related cash flows are included in net
        loss
        from discontinued operations and cash flows from discontinued operations
        on the
        consolidated statements of operations and the consolidated statements of
        cash
        flows for all financial statement periods presented. The Company consummated
        the
        sale of the assets of Value America to an unaffiliated third party on September
        14, 2006.
   ***Franchising
        and Licensing Segment***
   Prior
        to the sale of substantially all of the Franchising and Licensing business,
        a
        full franchising program had been developed for each of the Tropicana®
Smoothies, Juices & More!, Yogen Fruz®, Bresler's®, Swensen's®, Java Coast®
Fine Coffees and Golden Swirl® chains. Although developed separately, each of
        the programs (except for Golden Swirl®) was substantially similar and was
        organized on two levels: master franchising, pursuant to which master franchises
        were sold for specific regions, countries or other geographical areas; and
        retail franchising and licensing, pursuant to which franchises were sold,
        and
        licenses were granted, by master franchisees to retail outlet operators in
        the
        master franchisee's territory. Generally, retail franchising is used for
        larger
        locations such as traditional stores or kiosks, which offer a full range
        of
        products. Licensing is used primarily for smaller locations such as
        mini-counters or carts, which are located within the premises of strategic
        partners and typically offer a more limited selection of products.
   CoolBrands,
        either directly or through master franchisees, entered into a license agreement
        with each licensee for each location. The license agreement authorized the
        licensee to operate a Swensen's®, Yogen Fruz®, I Can't Believe It's Yogurt®,
        Bresler's® or Java Coast® Fine Coffees mini-counter or similar outlet within the
        licensee's place of business. The licensee was required to operate the outlet
        in
        accordance with the methods, standards, specifications and procedures prescribed
        by CoolBrands. Generally, the licensee was required to purchase products
        used
        within the outlet from CoolBrands or from suppliers and manufacturers designated
        by it. This business was sold by the Company in December 2005.
   ***Distribution
        Channels***
   The
        Company's products were offered for sale in a diverse range of retail outlets,
        including supermarkets, mass merchants, drug stores, convenience stores and
        club
        stores, as well as foodservice outlets, such as restaurants, cafeterias,
        theme
        parks and ice cream parlors.
   The
        Company distributed its products primarily by direct shipment to super-market
        owned warehouses, independent distributors and foodservice broad-line
        distributors. In addition, the Company operated, through EFPD, a proprietary
        direct-store-distribution ("DSD") system that serviced all distribution channels
        in selected U.S. markets, including out-of-home accounts such as convenience
        stores, drug stores and gas station food marts. As previously described,
        the
        Company decided to sell EPFD in 2006 and consummated the sale of substantially
        all of the assets of EPFD on November 17, 2006.
   **Regulation**
   CoolBrands'
        frozen dessert products and yogurt are subject to licensing and regulation
        (including good manufacturing practices) by federal, state and municipal
        authorities at its facilities in North Lawrence, New York, Dallas, Texas,
        Russellville, Arkansas and Norwalk, California and in the states to which
        they
        ship their products. Due to continued significant losses, the Company closed
        its
        Americana Foods operations in Dallas, Texas in October 2006. In addition,
        the
        Company sold its yogurt segment, including its facilities, in North Lawrence,
        New York on January 30, 2007.
   **Seasonality**
   The
        ice cream and frozen snacks industry is highly seasonal with more frozen
        yogurt
        and ice cream consumed in warmer months. As a result, our operating results
        of
        our continuing operations are subject to the same seasonality. The Corporation's
        fourth quarter, during the summer, has historically been the strongest quarter
        of the year. The fourth quarter accounted for 31.9% and 65.6% of the
        Corporation's net revenues from continuing operations and net loss,
        respectively, for the fiscal year ended August 31, 2006 and 32.2% and 87.7%
        of
        the total revenues and net loss, respectively, for the fiscal year ended
        August
        31, 2005.
   **Competitive
        Conditions**
   CoolBrands
        competed in the frozen dessert retail market against a large number of
        competitors. In the novelty market, Integrated Brands faced substantial
        competition in connection with the marketing and sales of its products. Among
        its competitors are Klondike, Popsicle, Breyers, Good Humor and Sealtest,
        owned
        by Unilever PLC and Dreyer’s Grand Ice Cream which either owns or licenses the
        Dreyer’s, Edy’s, Nestle, Haagen-Dazs, Skinny Cow, and Starbuck’s brands. In the
        super premium ice cream and sorbet pint markets, Integrated Brands faced
        substantial competition from Haagen-Dazs and Ben & Jerry’s. Integrated
        Brands’ products may also have been considered to be competing with all ice
        cream and other frozen desserts for discretionary food dollars. Frozen yogurt
        and ice cream are also offered in supermarkets, grocery stores and wherever
        convenience food operations are conducted.
   While
        the ice cream manufacturing and distribution business is relatively easy
        to
        enter due to low entry costs, achieving wide distribution may be more difficult
        because of the high cost of a national marketing program and limitations
        on
        space available in retail freezer compartments.
   In
        fiscal 2006 and fiscal 2007, the Corporation sold certain of its business
        segments. The Corporation has continued to reduce costs as it has downsized
        operations; however, it may not be able to scale down its operating costs
        to a
        level that would make the remaining business profitable. Additionally, as
        the
        result of downsizing, service problems have been created in the marketplace
        and
        customers and vendors may be reluctant to transact business with the Corporation
        in the future.
   **Trademarks**
   CoolBrands
        relied upon copyright, trademark and trade secret laws to protect its
        proprietary rights in its trademarks and products. CoolBrands obtained
        registrations for a number of trademarks in Canada, the United States and
        internationally, including registrations for the trademarks and related symbols
        Eskimo Pie®, Dreamery®, Whole Fruit®, Chipwich® and Fruit-A-Freeze®. Integrated
        Brands holds or held long-term trademark license agreements for use in certain
        countries of the Atkins® EndulgeTM, No Pudge!TM, Tropicana®, Yoplait®, Trix®,
        CrayolaTM, Justice LeagueTM, SnappleTM and Care BearsTM trademarks in connection
        with the manufacture, sale and distribution of frozen novelties and other
        frozen
        dessert products. The Company sold the Eskimo Pie® and Chipwich ® trademarks as
        part of the sale of the foodservice segment on January 24, 2007.
   The
        Corporation held licenses to brands including Breyers Fruit on the Bottom,
        Light
        and Creme Savers cup yogurt varieties and Creme Savers Smoothie drinkable
        yogurts. These licenses were part of CBD, which was included in discontinued
        operations in the financial statements as of and for the years ended August
        31,
        2006 and 2005, and which was sold to an unaffiliated third party on January
        30,
        2007.
   Below
        is a list of licenses still in place.
   ***Whole
        Fruit Sorbet.***The Corporation acquired the license for Whole Fruit
        Sorbet from Dreyer’s in July 2003.
   ***Godiva
        Ice Cream.***CoolBrands acquired the license rights to the Godiva
        trademark for ice cream from Dreyer’s in July 2003 and manufactured and
        distributed Godiva Ice Cream in pints and ice cream bars under license from
        Godiva Chocolatier, Inc. CoolBrands is currently in default of the license
        agreement and its termination is likely to occur during fiscal 2007. The
        Company
        was served notice on March 12, 2007, by Godiva Chocolatier, Inc. and Godiva
        Brands, Inc. alleging that the Company has breached its license agreement
        and
        the licensor has filed a claim in the Supreme Court of the State of New York
        for
        damages of $14 million for breach of contract plus additional damages. The
        outcome and resolution of such claim is uncertain at this time.
   ***No
        Pudge! Frozen Snacks.***In fiscal 2005, CoolBrands introduced the
“No Pudge!” line of low fat frozen snacks under license from No Pudge!
        Foods,
        Inc., marketers of the popular low fat brownie mix. It is anticipated that
        this
        line will be discontinued in fiscal 2007.
   ***Tropicana
        Fruit Bars.***Since 1997, CoolBrands has manufactured and
        distributed Tropicana fruit bars under license from Tropicana Products, Inc.
        CoolBrands is currently in default of this license agreement and its termination
        is likely to occur in fiscal 2007.
   ***Snapple
        On Ice Pops.***In fiscal 2005, CoolBrands introduced the “Snapple On
        Ice” line of frozen juice pops, under license from Snapple Beverage Corp. It is
        anticipated that this line will be discontinued in fiscal 2007.
   ***Crayola
        Color Pops.***In fiscal 2005, CoolBrands introduced the “Crayola
        Color Pops” line of frozen snacks, under license from Binney & Smith
        Properties, Inc. CoolBrands is currently in default of this license agreement
        and its termination is likely to occur in fiscal 2007.
   **Item
        4(C) Organizational Structure**
   The
        following chart illustrates the principal direct and indirect subsidiaries
        of
        the Corporation as of August 31, 2006, jurisdiction of incorporation and
        the
        percentage ownership by the Corporation of the voting and non-voting securities
        of each subsidiary or other entity.
    1
          Americana Foods LP
          is in bankruptcy proceedings under Chapter 7 of the U.S. Federal Bankruptcy
          Code, and ceased operations in October 2006.
   2Eskimo
          Pie Frozen
          Distribution, Inc. sold substantially all of its assets on November 17,
          2006.
   3
          The Corporation sold
          the Eskimo Pie brand as part of the sale of certain assets of the foodservice
          segment on January 24, 2007.
   4All
          of the issued
          and outstanding shares of CoolBrands Dairy, Inc. (“CBD”) was sold to an
          unaffiliated third party on January 30, 2007.
   **Item
          4(D) Property, Plant and Equipment**
   **Property
          Owned or Leased as of August [ ], 2007**
   CoolBrands'
          headquarters are located at 210 Shields Court, Markham, Ontario, Canada,
          L3R 8V2
          in 1,000 square feet of space, which space is occupied on a month-to-month
          basis. Rental payments are Cdn $25,000 per annum and are paid to Yogen
          Fruz
          Canada Inc., a company owned by Aaron Serruya, a director and former executive
          vice president of the Corporation.
   CoolBrands'
          U.S. headquarters and Integrated Brands' executive offices were located
          at 4175
          Veterans Highway, Ronkonkoma, New York, 11779. Rental payments were $184,460
          per
          annum for 10,779 square feet. The lease expired on April 30, 2006 and the
          Corporation continued to lease the space on a month to month basis at the
          same
          lease rate. The office was closed on March 31, 2007.
   Integrated
          Brands' subsidiary, Eskimo Pie Frozen Distribution Inc.'s leased 2,799
          square
          feet of office space located at 4175 Veterans Highway, Ronkonkoma, New
          York,
          11779. Rental payments were $55,000 per annum. The lease expired April
          30, 2006
          in accordance with its terms and the Corporation continued to lease the
          space on
          a month to month basis at the same lease rate through November
          2006.
   Integrated
          Brands' subsidiary, CoolBrands Manufacturing Inc., leased a 25,000 square
          foot
          production and storage facility located in Norwalk, California. Rental
          payments
          were $211,000 per annum. The Company sold the Fruit-a-Freeze operations
          and
          assets and the lease has been assumed by the buyer.
   Integrated
          Brands, through an affiliate, owns a building in Paradise Valley, Arizona.
          The
          building is subject to a ground lease, which expires on December 31, 2010
          and
          contains three five-year renewal options.
   Eskimo
          Pie Corporation owns a printing and packaging plant in Bloomfield, New
          Jersey,
          which consists of approximately 71,583 square feet on two acres. The Company
          closed this plant in February 2007 and is actively marketing it for
          sale.
   Eskimo
          Pie Corporation's subsidiary, Sugar Creek Foods, Inc., is leasing from
          the
          former owner of the business a soft serve yogurt and ice cream mix production
          facility, consisting of approximately 23,805 square feet, and a packaging
          facility, consisting of approximately 16,000 square feet, both located
          in
          Russellville, Arkansas. The lease expired on December 31, 2006 and is now
          month
          to month. Rental payments under these leases are $244,000 per annum. In
          addition, Sugar Creek Foods, Inc. owns a freezer facility, consisting of
          approximately 5,013 square feet, adjacent to the production facility in
          Russellville. In 1999, Eskimo Pie purchased a small parcel of land adjacent
          to
          the freezer facility for future potential expansion of the freezer
          facility.
   Eskimo
          Pie Frozen Distribution is a party to a lease of a 12,677 square foot
          distribution facility located in Moorestown, New Jersey operating as a
          cross-dock operation. Rental payments are $97,613 per annum. The lease
          is
          scheduled to expire March 31, 2009. The Company abandoned the facility
          in
          November 2006. The Company is currently in default under this
          lease.
   Eskimo
          Pie Frozen Distribution is a party to a lease of 400 square foot of office
          space
          located in Jessup, Maryland. Rental payments are $43,956.00 per annum.
          The lease
          is scheduled to expire Sept 30, 2008. The Company closed its operation
          in
          November 2006. The Company is currently in default under this
          lease.
   Eskimo
          Pie Frozen Distribution leases truck parking located in Jessup, Maryland.
          Rental
          payments were $28,620 per annum. The lease is scheduled to expire September
          30,
          2008. The Company closed its operation in November 2006. The Company is
          currently in default under this lease.
   **Property
          subject to leases during Fiscal 2006 that have expired in accordance with
          their
          terms**
   Eskimo
          Pie Frozen Distribution leased a 22,798 square foot of freezer and distribution
          facilities located in Atlanta, Georgia. Rental payments were $247,212 per
          annum.
          The lease expired July 31, 2006 in accordance with its terms and was leased
          on a
          month to month basis until January 2007.
   Eskimo
          Pie Frozen Distribution leased a 400 square foot office space located in
          Paterson, New Jersey. Rental payments were $16,800 per annum. EPFD also
          leased
          cross docking and truck parking on a coterminous basis for $42,000 per
          annum.
          The lease expired October 31, 2006 in accordance with its terms.
   Eskimo
          Pie Frozen Distribution also leased a remote location with office space
          and
          truck parking in Neptune, New Jersey for $52,200 per annum on a month to
          month
          basis until October 31, 2006.
   Eskimo
          Pie Frozen Distribution leased on a month to month basis a remote location
          for
          office space and truck parking located in Brooklyn, New York. Rental payments
          were $15,600 per annum and the office space and truck parking was returned
          to
          the landlord at the end of October 2006.
   Eskimo
          Pie Frozen Distribution leased a 1,500 square foot freezer facility located
          in
          Milwaukee, OR. Rental payments were $72,000 per annum. The lease expired
          June
          21, 2006 in accordance with its terms and was extended on a month to month
          basis
          until November 2006.
   Eskimo
          Pie Frozen Distribution leased a 3,026 square foot office trailer and loading
          docks facility located in Tampa, Florida. Rental payments were $63,578
          per
          annum. The lease expired September 1, 2006 in accordance with its terms
          and the
          trailer was leased on a month to month basis until it was returned in November
          2006.
   Eskimo
          Pie Frozen Distribution leased a 2,400 square foot freezer and distribution
          facility located in San Diego, California. Rental payments were $123,611
          per
          annum. The lease expired July 1, 2006 in accordance with its terms and
          the
          facility was leased on a month to month basis until it was returned in
          November
          2006.
   Eskimo
          Pie Frozen Distribution leased office space and truck parking facility
          located
          in Apopka, Florida (Orlando). Rental payments were $49,842 per annum. The
          lease
          expired April 30, 2006 in accordance with its terms and was extended on
          a month
          to month basis until November 2006.
   Eskimo
          Pie Frozen Distribution leased 11,413 square feet for truck parking located
          in
          Riverside, California. Rental payments were $21,600 per annum. The lease
          expired
          December 31, 2005 in accordance with its terms and was extended on a month
          to
          month basis until November 2006.
   **Property
          owned during Fiscal 2006 and subsequently sold**
   Eskimo
          Pie Corporation owned an ingredients manufacturing plant in New Berlin,
          Wisconsin which consists of approximately 92,000 square feet on four acres.
          This
          manufacturing plant was sold on September 14, 2006 as part of the sale
          of the
          assets of Value America.
   **Property
          leased during Fiscal 2006 and assumed by the purchaser of
          EPFD**
   Eskimo
          Pie Frozen Distribution leased a 5,800 square foot freezer and distribution
          facility located in Boca Raton Florida. Rental payments were $45,223 per
          annum.
          The lease, which was scheduled to expire December 31, 2007, was assumed
          by the
          purchaser of EPFD on November 17, 2006.
   Eskimo
          Pie Frozen Distribution leased a 5,500 square foot freezer and distribution
          facility located in Novato, California. Rental payments were $101,724 per
          annum.
          The lease expired December 31, 2006 in accordance with its terms. Additional
          parking is leased in Ignacio, California at $13,200 per annum. This lease
          expires on March 31, 2007. Additional parking is also leased in Novato,
          California at $24,000 per annum. These leases were assumed by the purchaser
          of
          EPFD on November 17, 2006.
   Eskimo
          Pie Frozen Distribution leased a 500 square foot of office space and operates
          a
          cross-dock facility in Watsonville, California. Rental payments were $21,304
          per
          annum. The lease, which was scheduled to expire December 1, 2006, was assumed
          by
          the purchaser of EPFD on November 17, 2006.
   Eskimo
          Pie Frozen Distribution leased a 34,607 square foot freezer and distribution
          facility located in Seattle, Washington. Rental payments were $356,064
          per
          annum. The lease, which is scheduled to expire December 1, 2008, was assumed
          by
          the purchaser of EPFD on November 17, 2006.
   Eskimo
          Pie Frozen Distribution leased a 9,700 square foot freezer and distribution
          facility located in Tualatin, Oregon. Rental payments were $144,000 per
          annum.
          The lease expired June 7, 2006 in accordance with its terms, was extended
          on a
          month to month basis and was assumed by the purchaser of EPFD on November
          17,
          2006.
   Eskimo
          Pie Frozen Distribution leased a 29,318 square foot freezer and distribution
          facility located in Miramar, Florida. Rental payments were $294,277 per
          annum.
          The lease, which is scheduled to expire June 30, 2007, was assumed by the
          purchaser of EPFD on November 17, 2006.
   Eskimo
          Pie Frozen Distribution leased a 12,300 square foot freezer and distribution
          facility located in Plymouth, Florida. Rental payments were $163,052 per
          annum.
          The lease was scheduled to expire March 31, 2006, was extended on a month
          to
          month basis and assumed by the purchaser of EPFD on November 17,
          2006.
   Eskimo
          Pie Frozen Distribution leased 15,000 square feet for truck parking located
          in
          Ft. Myers, Florida. Rental payments were $22,260 per annum. The lease expired
          September 30, 2006 in accordance with its terms and was extended on a month
          to
          month basis and was assumed by the purchaser of EPFD on November 17,
          2006.
   Eskimo
          Pie Frozen Distribution leased a 400 square foot office space and operates
          a
          cross-dock facility in Oxnard, California. Rental Payments were $21,889
          per
          annum. The lease which was scheduled to expire January 18, 2007, was assumed
          by
          the purchaser of EPFD on November 17, 2006.
   Eskimo
          Pie Frozen Distribution leased a 1,994 square foot facility located in
          Tacoma,
          WA for $25,910 per annum. The lease expires March 31, 2007. The lease was
          assumed by the purchaser of EPFD on November 17, 2006
   **Property
          subject to bankruptcy trustee jurisdiction**
   Americana
          Foods LP owned an ice cream and yogurt mix manufacturing plant in Dallas,
          Texas
          which consists of approximately 220,000 square feet on 12 acres. Americana
          Foods
          owned a warehouse adjacent to its manufacturing facility which consists
          of
          approximately 262,000 square feet on 17 acres. Because of continued losses,
          certain subsidiaries of the Company, as creditors of Americana Foods, filed
          an
          involuntary petition under Chapter 7 of the U.S. Federal bankruptcy code
          and
          Americana Foods ceased operations in October 2006. The assets of Americana
          Foods
          were placed under the control of an independent trustee and were sold at
          auction. The trustee is completing the final accounting of the bankruptcy
          proceeds.
   **Item
          4(A) Unresolved Staff Comments**
   None
   **Item
          5 Operating and Financial Review and Prospects**
   **Item
          5(A) to Item 5(F)**
   The
          numbers for this item are stated in thousands of dollars except per share
          amounts.
   ***2006
          Compared with 2005***
   **Overall
          Performance**
   For
          Fiscal 2006, net revenues from continuing operations decreased to $99,348,
          compared to $149,710 for Fiscal 2005, a 33.6% decrease. The net loss for
          Fiscal
          2006 was ($70,182) ($(1.25) basic and diluted loss per share), compared
          to net
          loss of $(74,070) ($(1.32) basic and diluted earnings per share) for Fiscal
          2005.
   The
          decrease in net revenues for Fiscal 2006 from continuing operations reflects
          the
          decrease in sales generated by the frozen dessert segment, which was partially
          offset by the decrease in trade promotion payments and slotting fees made
          to
          customers, which are treated as a reduction in revenues, and the elimination
          of
          drayage income (which is earned by EPFD and reclassified to discontinued
          operations). In Fiscal 2006, net sales declined by 32.2% to $96,936, as
          compared
          with $142,873 for Fiscal 2005. The decline in sales came from many of our
          frozen
          dessert brands, but was partially offset by sales of new products introduced
          in
          2006.
   Gross
          profit percentage for Fiscal 2006 declined to (14.2)%, compared with 0.5%
          for
          Fiscal 2005. Gross profit percentage for the periods presented has been
          calculated by dividing gross profit margin by net sales. Gross profit margin
          is
          calculated by subtracting cost of goods sold from net sales. The decline
          in
          gross profit percentage was primarily due to:
   1.
          The Company’s inability to cover fixed overhead costs in both our manufacturing
          and distribution operations due to the lack of production and sales;
          and
   2.
          The change in mix of frozen dessert products being sold in Fiscal 2006
          with
          lower gross profit margins, compared with Fiscal 2005.
   The
          Fiscal 2006 results were adversely effected by:
   1.
          The loss on impairment of goodwill of $3,500 incurred with respect to the
          frozen
          dessert segment to recognize the deterioration in value of the business
          as a
          result of the declining sales or the potential abandonment or termination
          of
          various licensing agreements.
   2.
          The loss on impairment relating to certain licenses not likely to continue,
          and
          related prepaid packaging and design costs totaling $3,609.
   3.
          The loss on impairment of $1,890 incurred with respect to property, plant
          and
          equipment currently in storage.
   4.
          The write-off of debt acquisition costs totaling $2,015 reflected in selling,
          general and administrative expenses.
   5.
          The loss on impairment of $1,140 relating to deferred acquisition costs,
          prepaid
          royalties and net receivables from Americana Foods.
   6.
          The loss generated by the Company’s majority owned subsidiary, Americana Foods,
          which totaled $23,542, net of minority interest, and which included the
          losses
          on impairment aggregating $11,150 relating to the reduction to estimated
          fair
          market value of accounts receivable $(1,500), inventory $(5,750), and property,
          plant and equipment $(3,900).
   7.
          The recording of a loss on impairment of goodwill associated with the yogurt
          segment. In Fiscal 2006, the Company began to market the yogurt segment
          for sale
          and on January 2, 2007, entered into a definitive agreement to sell the
          yogurt
          segment to an unaffiliated third party. A loss on impairment of $5,428
          was
          recorded to recognize the difference between the carrying value of the
          net
          assets of the yogurt segment and the fair value based upon the definitive
          agreement. The impairment was included in loss from discontinued operations
          in
          the Fiscal 2006 statement of operations.
   The
          Fiscal 2005 results were adversely affected by the non-cash pre-tax asset
          impairment charge of $51,141, which resulted from the impairment of goodwill
          and
          intangible assets related to our frozen dessert segment. Additionally we
          recognized a loss on impairment of $4,384 with respect to our franchising
          and
          licensing segment, goodwill and intangible assets which was included in
          discontinued operations in Fiscal 2005.
   **Cash
          and working capital**
   Cash,
          investments and restricted cash decreased to $393 at August 31, 2006, compared
          to $41,562 at August 31, 2005. Working capital decreased to $(23,992) at
          August
          31, 2006, compared to $28,477 at August 31, 2005. Our current ratio declined
          to
          0.75 to 1.0 at August 31, 2006 from 1.2 to 1.0 at August 31, 2005. These
          changes
          in current assets and current liabilities are attributable primarily to
          the use
          of cash investments and restricted cash to repay a portion of the outstanding
          indebtedness that existed at August 31, 2005, the classification of all
          bank
          indebtedness, which was in default at August 31, 2006 as current liabilities,
          and the decrease in accounts receivable and inventory due to the overall
          decline
          of the business, which was greater than the decrease to accounts payable
          and
          accrued liabilities. Because the Company had a negative working capital
          position
          and the business continues to decline, the Company may not be able to continue
          as a going concern without the consummation of the sale of assets and or
          businesses. On January 24, 2007, the Company sold, through its subsidiaries
          Eskimo Pie Corporation and Integrated Brands Inc., their Eskimo Pie and
          Chipwich
          Brands and Real Fruit trademark, along with Eskimo Pie soft serve brands
          and
          related foodservice business segment to Dreyer’s Grand Ice Cream Holdings, Inc.
          (“Dreyer’s”), and utilized a portion of the proceeds to repay the amounts
          outstanding under the Corporate Credit Facility. (See “Overview” and
“Discontinued Operations.”).The Company believes that as a result of the
          proceeds from the sale of the yogurt business on January 30, 2007, it had
          sufficient liquidity to fund operations and working capital, including
          lease
          settlements, for the next twelve months.
   **Selected
          Annual Information**
   The
          following chart shows selected annual information for the three most recently
          completed fiscal years.
  **Year
                    ended August 31,****2006**
                **2005**
                **2004**Total
                    net revenues from continuing operations
                $
                    99,348
                $
                    149,710
                $
                    280,736Net
                    (loss) income from continuing operations
                (63,620)
                (69,016)
                20,325Gain
                    on sale of discontinued operations
                410
                -
                -Net
                    (loss) income from discontinued operations
                (6,972)
                (5,054)
                3,187Discontinued
                    operations
                (6,562)
                (5,054)
                3,187Net
                    (loss) income
                $
                    (70,182)
                $
                    (74,070)
                $
                    23,512(Loss)
                    earnings per share from continuing operations:Basic
                    and Diluted
                (1.13)
                (1.23)
                0.37(Loss)
                    earnings per share from discontinued operations:Basic
                    and Diluted
                (0.12)
                (0.09)
                0.05(Loss)
                    earnings per share:Basic
                    and Diluted
                (1.25)
                (1.32)
                0.42Total
                    assets
                160,548
                297,845
                317,257Total
                    long-term debt(1)
                348
                8,248
                27,754
  (1)The
          Company was in
          default under both the Corporate Credit Facility and the Americana Credit
          Facility and accordingly, the balance of the debt which was $10,077 and
          $23,501,
          respectively, was included in current liabilities as of August 31, 2006.
          (See
          Note 12 “Long-term Debt” and Note 20 “Subsequent Events” in the financial
          statements and “Liquidity” and “Capital Resources” for a further
          discussion.)
   CoolBrands’
          decline in total net revenues during Fiscal 2006 reflects the decrease
          of net
          sales of $45,937 or 32.2% compared to Fiscal 2005 and reflects decreases
          primarily from the frozen dessert segment. Other income decreased from
          $6,837 in
          Fiscal 2005 to $2,412 in Fiscal 2006. The principal component was franchise
          and
          licensing fees, which decreased from $3,103 to $982 due to the expiration
          in
          December 2005, in accordance with its terms, of the Whole Fruit license
          granted
          to Dreyer’s. Accordingly only four months of licensing fee income is recorded in
          Fiscal 2006 as compared to twelve months for Fiscal 2005. There was also
          a
          $1,000 decrease in merchandising credit from Dreyer’s due to a decrease in sales
          volume and therefore a decrease in the related credit for those
          sales.
   CoolBrands’
          net loss in Fiscal 2006 was primarily due to the decline in net sales in
          the
          frozen dessert product lines and the resulting decrease in gross profit
          dollars,
          the continued losses generated by Americana Foods, and provisions for impairment
          recorded to recognize the loss of value of certain assets. Additionally,
          the
          Company recognized a loss from discontinued operations of $(6,972) in Fiscal
          2006 which was partially offset by a gain on disposition of discontinued
          operations of $410. A significant portion of the loss from discontinued
          operations was the loss on impairment with respect to CBD which was determined
          based upon the third party offer for the business.
   CoolBrands’
          net loss in Fiscal 2005 was primarily due to the substantial decline in
          net
          sales due to the loss of the Weight Watchers Smart Ones license agreement,
          the
          decline in net sales of the Atkins Endulge and other frozen dessert product
          lines, the resulting decrease in gross profit dollars, the $25,627 decline
          in
          drayage and other income (which was generated by Eskimo Pie Frozen Distribution
          and reclassified to net loss from discontinued operations), and the asset
          impairment charge of $55,525 to goodwill and intangible assets, of which
          $51,141
          was included in continuing operations, and $4,384 was included in the loss
          from
          discontinued operations for Fiscal 2005.
   ***Comparison
          of Fiscal 2006 and Fiscal 2005***
   In
          Fiscal 2006 and Fiscal 2005, the Company managed our business based on
          five
          industry segments: frozen dessert, yogurt, foodservice, dairy components,
          and
          franchising and licensing, including company owned stores. In December
          2005, the
          Company sold the assets, net of certain liabilities, of our franchising
          and
          licensing (including company owned stores) segment. The assets and liabilities
          of the franchising and licensing segment have been classified as assets
          and
          liabilities held for sale on the consolidated balance sheet as of August
          31,
          2005, the components of their operating results have been included in net
          loss
          from discontinued operations on the consolidated statements of operations,
          and
          the components of net cash flows have been classified as net cash flows
          from
          discontinued operations for Fiscal 2006, Fiscal 2005 and Fiscal 2004. The
          Company recorded a gain on disposition of the franchising segment of $410
          in
          Fiscal 2006. Additionally, during Fiscal 2006, we began to actively market
          for
          sale our Value America division, which represented substantially all of
          our
          dairy components segment, EPFD, which represented a portion of our frozen
          dessert segment, and CoolBrands Dairy, Inc, which was our yogurt segment.
          Accordingly, the assets and liabilities of each of these segment components
          have
          been classified as assets and liabilities of discontinued operations held
          for
          sale on the consolidated balance sheets as of August 31, 2006 and 2005,
          the
          components of their operating results have been included in net loss from
          discontinued operations on the consolidated statements of operations, and
          the
          components of net cash flows have been classified as net cash flows from
          discontinued operations for the years ended August 31, 2006, 2005, and
          2004.
   **Net
          sales**
   Net
          sales for each segment are summarized in the following table:
  **Year
                    Ended August 31,****Percentage
                    of Net Sales****2006**
                
                **2005**
                **2006**
                **2005**Frozen
                    dessert
                $76,035
                
                $271,086
                78.4
                74.3Yogurt
                -
                
                44,007
                -
                12.1Foodservice
                20,901
                
                17,736
                21.6
                4.9Dairy
                    components
                -
                
                19,538
                -
                5.3Franchising
                    and licensing
                -
                
                12,319
                -
                3.4Total,
                    as originally reported
                96,936
                
                364,686
                100.0
                100.0Less
                    amounts reclassified to net loss from discontinued
                    operations:Frozen
                    dessert
                -
                
                147,718Yogurt
                -
                
                44,007Dairy
                    components
                -
                
                17,769Franchising
                    and licensing
                -
                
                12,319-
                
                221,813Net
                    sales from continuing operations
                96,936
                
                142,873Pro
                    Forma adjustment reclassifying Americana
                  Foods
                    to discontinued operations
                50,745
                
                62,357Pro
                    forma total
                $46,191
                
                $
                    80,519
  The
          decrease in net sales for Fiscal 2006 in the frozen dessert segment came
          from a
          substantial number of the Company’s frozen dessert brands partially offset by
          generally modest sales of products introduced in Fiscal 2006. In connection
          with
          the settlement reached regarding the termination of the Weight Watchers
          license,
          CoolBrands agreed to discontinue the sale of all Weight Watchers products
          on May
          1, 2005, in Mid-Fiscal 2005, approximately five months sooner than required
          by
          the Weight Watchers License Agreement.
   **Other
          income**
   Other
          income decreased from $6,837 in Fiscal 2005 to $2,412 in Fiscal 2006. The
          principal component was franchise and licensing fees, which decreased from
          $3,103 to $982 due to the expiration in December 2005, in accordance with
          its
          terms, of the Whole Fruit license with Dreyer’s. Accordingly only four months of
          licensing fee income is recorded in Fiscal 2006 as compared to twelve months
          for
          Fiscal 2005. There was also a $1,000 decrease in merchandising credit from
          Dreyer’s due to a decrease in sales volume and therefore a decrease in the
          related credit for those sales.
   **Gross
          profit margin**
   The
          following table presents the gross profit margin dollars and gross profit
          percentage for the Company’s segments:
  **Year
                    Ended August 31,****Percentage
                    of Net Sales****2006**
                
                **2005**
                **2006**
                **2005**Frozen
                    dessert
                $(16,829)
                
                $(15,488)
                (22.1)
                (5.7)Yogurt
                
                
                7,369
                
                16.7Foodservice
                3,047
                
                3,626
                14.6
                20.4Dairy
                    components
                
                
                4,287
                
                21.9Franchising
                    and licensing
                
                
                3,224
                
                2.6Total,
                    as originally reported
                (13,782)
                
                3,018
                (14.2)
                0.8Less
                    amounts reclassified to net loss from discontinued
                    operations:Frozen
                    dessert
                
                
                (12,141)Yogurt
                
                
                7,369Dairy
                    components
                
                
                3,874Franchising
                    and licensing
                
                
                3,224-
                
                2,326Gross
                    profit from continuing operations
                (13,782)
                
                692Pro
                    Forma adjustment reclassifying Americana
                  Foods
                    to discontinued operations
                (10,549)
                
                (484)Pro
                    forma total
                $
                    (3,233)
                
                $
                    1,176
  Gross
          profit dollars, with respect to continuing operations, declined to $(13,782)
          in
          Fiscal 2006, compared to $692 in Fiscal 2005, primarily due to the decline
          in
          gross profit dollars in frozen dessert segment; $10,549 of this negative
          gross
          profit margin in Fiscal 2006 was generated by the operations of Americana
          Foods.
          The decline in gross profit dollars in the frozen dessert segment resulted
          from
          the decline in sales in Fiscal 2006, compared to Fiscal 2005, and the inability
          to cover fixed overhead costs in both manufacturing (principally Americana
          Foods) and distribution operations due to the lack of production and sales.
          In
          Fiscal 2005, gross profit dollars in the frozen dessert segment were adversely
          affected by the write down of $12,723 of obsolete and slow moving finished
          goods
          inventories, packaging, ingredients and finished goods inventories which
          could
          not be used or sold resulting from the settlement of the Weight Watchers
          litigation and the estimated impact on packaging which will not be used
          due to a
          new labeling law which became effective January 1, 2006.
   Gross
          profit percentage for Fiscal 2006 from continuing operations declined to
          (14.2)%, compared with 0.5% for Fiscal 2005. Gross profit percentage for
          the
          periods presented has been calculated by dividing gross profit margin by
          net
          sales. Gross profit margin is calculated by subtracting cost of goods sold
          from
          net sales. The decline in gross profit percentage was primarily due
          to:
   1.
          The write down of obsolete and slow moving finished goods inventories,
          packaging, and ingredients. This write down amounted to $12,723 in Fiscal
          2005
          and was the result of a settlement of litigation with Weight Watchers
          International, a new labeling law which became effective January 1, 2006,
          and a
          provision for slow moving inventories due to changes in consumer preferences.
          A
          new labeling law effective January 1, 2006 required new disclosure of trans
          fat
          information in the nutrition facts statement on all of our frozen dessert
          segment packaging used in production after January 1, 2006. In connection
          with
          this required disclosure, the Company estimated that it had on hand, at
          August
          31,2005, approximately $1,000 of excess packaging that it would not consume
          in
          production prior to January 1, 2006 and, accordingly, the Company recognized
          a
          $1,000 write down;
   2.
          The Company’s inability to cover fixed overhead costs in both our manufacturing
          and distribution operations due to the lack of production and sales;
          and
   3.
          The change in mix of frozen dessert products being sold in Fiscal 2006
          with
          lower gross profit margins, compared with Fiscal 2005.
   **Selling,
          general and administrative expenses**
   Selling,
          general and administrative expenses are summarized by industry segment
          in the
          following table:
  **Year
                    Ended August 31,****Percentage
                    of Sales****2006**
                
                **2005**
                **2006**
                **2005**Frozen
                    dessert
                $32,547
                
                $38,818
                42.8
                14.3Yogurt
                
                
                4,993
                
                11.4Foodservice
                1,737
                
                1,486
                8.3
                8.4Dairy
                    components
                
                
                1,694
                
                8.7Franchising
                    and licensing
                
                
                5,109
                
                41.5Corporate
                    (including stock-based compensation expense)
                5,817
                
                1,990Total,
                    as originally reported
                40,101
                
                54,090
                41.4
                14.8Less
                    amounts reclassified to net loss from discontinued
                    operations:Frozen
                    dessert
                
                
                4,879Yogurt
                
                
                4,993Dairy
                    components
                
                
                1,579Franchising
                    and licensing
                
                
                5,10916,560Selling,
                    general and administrative expenses of continuing
                    operations
                40,101
                
                37,530Pro
                    Forma adjustment reclassifying Americana
                  Foods
                    to discontinued operations
                5,574
                
                3,938Pro
                    forma total
                $34,527
                
                $33,592
  Selling,
          general and administrative expenses increased by $2,571 from $37,530 in
          Fiscal
          2005 to $40,101 in Fiscal 2006 due primarily to the amortization and eventual
          write off of certain debt acquisition costs of $2,015 in Fiscal 2006 relating
          to
          the refinancing that occurred in Fiscal 2006, the write off of certain
          organization costs of Americana Foods aggregating $840, the write off of
          prepaid
          expenses at Americana Foods of $219, and the increased payroll and consulting
          expenses incurred in information technology, partially offset by a reduction
          in
          stock-based compensation expense aggregating $1,475. The frozen dessert
          segment’s selling, general and administrative expenses were adversely impacted
          in Fiscal 2005 by approximately $2,358, which represented the write-off
          of
          deferred package design costs, primarily related to Weight Watchers, and
          the
          write-off of certain license agreements with General Mills. On a percentage
          basis, selling general and administrative expenses from continuing operations
          were 41.4% in Fiscal 2006, compared to 26.3% in Fiscal 2005.
   **Interest
          expense**
   Interest
          expense from continuing operations was $2,000 in Fiscal 2006, compared
          with
          $1,687 for Fiscal 2005. Included in such amounts is interest expense of
          $1,599
          and $1,079 incurred in Fiscal 2006 and Fiscal 2005, respectively, with
          respect
          to the Americana Foods, which ceased operations in October 2006. Excluded
          from
          those amounts were interest expense of $2,197 and $891 incurred in Fiscal
          2006
          and Fiscal 2005, respectively, with respect to the acquisition of the Breyers
          yogurt business acquired on March 25, 2005, which was included in the net
          loss
          from discontinued operations in the respective periods.
   **Asset
          impairment**
   The
          Company is required to conduct an annual review of goodwill and non-amortizable
          intangible assets for potential impairment. Goodwill is tested for impairment
          using a two step process that begins with an estimation of the fair value
          of
          each reporting unit. The fair value of each reporting unit is determined
          using a
          combination of valuation approaches including an approach consisting
          of
   discounted
          cash flow analysis, and a market multiple approach. The fair value of the
          reporting unit is compared to its carrying value. If the carrying value
          exceeds
          the fair value, goodwill is considered impaired. The amount of impairment
          loss
          is measured as the difference between the carrying value and implied fair
          value
          of goodwill. Impairment testing for non-amortizable intangible assets requires
          a
          comparison between fair value and carrying value of the intangible asset.
          If the
          carrying value exceeds fair value, the intangible asset is considered impaired
          and is reduced to fair value.
   During
          Fiscal 2006 and Fiscal 2005, the Company completed an annual review of
          goodwill
          and intangible assets. In the fourth quarter Fiscal 2006, we recorded a
          loss on
          impairment of $3,500 with respect to the goodwill associated with the frozen
          dessert segment to recognize deterioration of the business as the result
          of the
          abandonment or termination of various licensing agreements. Additionally,
          in
          Fiscal 2006, we recognized a provision for impairment of goodwill of $5,428
          with
          respect to the yogurt segment to recognize the difference between the carrying
          value of the net assets of the yogurt segment and the net realizable value
          of
          the yogurt segment based upon the definitive sales agreement. The provision
          for
          impairment with respect to the yogurt segment was included in net loss
          from
          discontinued operations on the statement of operations for Fiscal
          2006.
   Additionally,
          the Company recognized the following impairment based upon our annual review
          of
          goodwill, intangible and long-lived assets in Fiscal 2005. In Fiscal 2005,
          the
          Company recorded a loss on impairment of goodwill of $48,701 with respect
          to our
          frozen dessert segment and a loss on impairment of intangible assets of
          $1,401
          was also recognized in our frozen dessert segment. These impairment charges
          are
          the result of the loss of Weight Watchers licensing agreement, as well
          as
          declining sales of the Atkins and our base business product lines and the
          resulting decline in cash flows. Also, this review resulted in a goodwill
          and
          intangible asset impairment charge related to the Company’s franchise and
          licensing segment of $4,940. Significant assumptions used in measuring
          the
          impairments included the timing and the amount of estimated future cash
          flows
          for reporting units and intangible assets, and where applicable, an analysis
          of
          guideline transaction market multiples.
   During
          the fourth quarter of Fiscal 2006, based upon market analysis and other
          third
          party information, the Company provided a loss on impairment of $1,890
          with
          respect to property, plant and equipment. In the fourth quarter of Fiscal
          2005,
          the Company wrote-off certain company-owned store leasehold improvements
          and
          equipment related to its franchise and licensing segment of $483 which
          was
          included in net loss from discontinued operations in Fiscal 2005.
   In
          connection with the bankruptcy filing of Americana Foods, we recognized
          losses
          on impairment of $11,150, $1,500 relating to the estimated fair market
          value of
          accounts receivable, $5,750 relating to the estimated fair value of inventory
          and $3,900 relating to the estimated fair value of property, plant and
          equipment
          to reduce such amounts to approximate the amounts realizable from the bankruptcy
          proceedings.
   **(Recovery
          of) provision for income taxes**
   The
          effective (benefit) tax rate was (8.6)% in Fiscal 2006 and (10.2)% in Fiscal
          2005. The effective tax benefit rate for Fiscal 2006 reflects the maximum
          recovery of income taxes that the Company is entitled to based upon the
          carryback rules. The effective tax rate differs from the Canadian
          Federal/Provincial Statutory Rate primarily due to permanent differences
          related
          to the non-deductible goodwill impairment charges recognized in Fiscal
          2005, a
          valuation allowance established in Fiscal 2005, and due to 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 the Company’s future
          income tax assets or liabilities.
   **Discontinued
          operations**
   Effective
          December 23, 2005, the Company sold substantially all of its franchising
          and
          licensing segment to International Franchise Corp. for a cash consideration
          of
          $8,000. International Franchise Corp. is a company controlled by Mr. Aaron
          Serruya, a director of CoolBrands and the senior executive who was responsible
          for the franchising division at CoolBrands. Mr. Serruya resigned as executive
          vice president of CoolBrands as a result of this transaction, but continues
          as a
          director. The sale transaction was reviewed and unanimously recommended
          to the
          board of directors of CoolBrands by a committee of independent directors
          of
          CoolBrands, and was unanimously approved by the board of directors of
          CoolBrands.
   During
          Fiscal 2006, the Board of Directors approved the decision to sell the Value
          America division, substantially all of the Company’s dairy component segment,
          Eskimo Pie Frozen Distribution, part of the frozen dessert segment, and
          CoolBrands Dairy, the yogurt segment, and began to actively market those
          businesses.
   On
          September 1, 2006, Eskimo Pie Corporation, a wholly owned subsidiary, entered
          into an asset purchase agreement with Denali New Berlin, LLC and Denali
          Ingredients, LLC to sell its Value America flavor and ingredients division,
          which comprised substantially all of the dairy components segment. The
          sale was
          consummated September 14, 2006 for a price of $8,250, which exceeded the
          carrying value of the assets sold, of which $7,500 was paid in cash and
          $750 was
          placed in escrow subject to collection of certain accounts receivable.
          The
          assets and liabilities of Value America were classified as assets and
          liabilities held for sale of
   discontinued
          operations on the balance sheet as of August 31, 2006 and the components
          of its
          operating results were included in net loss from discontinued operations
          on the
          statement of operations and the components of cash flows were included
          as net
          cash flows from discontinued operations on the statement of cash flows
          for
          Fiscal 2006. Additionally, the Company classified the assets and liabilities
          of
          Value America as assets and liabilities held for sale of discontinued operations
          on the consolidated balance sheet as of August 31, 2005 and classified
          the
          components of operating results of Value America in net loss from discontinued
          operations and classified its cash flows as cash flows from discontinued
          operations on the statement of cash flows for Fiscal 2005.
   On
          November 14, 2006, the Company announced that its wholly owned subsidiary,
          EPFD
          had entered into a definitive agreement to sell its direct store door (DSD)
          frozen distribution assets in Florida, California, Oregon and Washington
          for a
          net sales price of $5,736, which equaled the carrying value of the related
          assets acquired and liabilities assumed, to an unaffiliated third party.
          The
          transaction closed on November 17, 2006. The assets and liabilities of
          EPFD were
          classified as assets and liabilities held for sale of discontinued operations
          on
          the balance sheet as of August 31, 2006 and the components of operating
          results
          of EPFD were included in net loss from discontinued operations on the
          consolidated statement of operations and its cash flows were included as
          cash
          flows from discontinued operations on the statement of cash flows for Fiscal
          2006. Additionally, the Company classified the assets and liabilities of
          EPFD as
          assets and liabilities held for sale of discontinued operations on the
          consolidated balance sheet as of August 31, 2005 and classified the components
          of operating results to net loss from discontinued operations on the
          consolidated statement of operations and classified the cash flows as cash
          flows
          from discontinued operations on the statement of cash flows for Fiscal
          2005.
   On
          January 2, 2007, the Company entered into a definitive agreement to sell
          CBD,
          which included the yogurt business acquired from Kraft Foods in Fiscal
          2005, to
          an unaffiliated third party. A loss on impairment of $5,428 to adjust the
          carrying value of CBD’s net assets to approximate fair value based upon the
          definitive agreement was recorded. CBD’s assets and liabilities were classified
          as assets and liabilities held for sale of discontinued operations on the
          consolidated balance sheet as of August 31, 2006 and the components of
          operating
          results were included in net loss from discontinued operations on the
          consolidated statement of operations and its cash flows were included as cash
          flows from discontinued operations on the statement of cash flows for Fiscal
          2006. Additionally, as of and for the year ended August 31, 2005, the assets
          and
          liabilities of CBD were classified as assets and liabilities held for sale
          of
          discontinued operations on the consolidated balance sheet and the components
          of
          operating results of CBD were included in net loss from discontinued operations
          on the consolidated statement of operations and the cash flows of CBD were
          included as cash flows from discontinued operations on the statement of
          cash
          flows. The Company completed the sale of CBD on January 30, 2007.
   **Net
          Loss**
   The
          net loss for Fiscal 2006 was $(70,182), compared with $(74,070) for Fiscal
          2005.
          CoolBrands’ net loss in Fiscal 2006 was due to the continued losses sustained in
          the frozen dessert segment including Americana Foods and EPFD, the margin
          erosion that impacted substantially all of the businesses as the lower
          levels of
          sales were not able to cover related fixed costs associated with manufacturing
          and distribution and the recognition of losses on impairment of assets
          to
          recognize their fair value, including the assets of Americana Foods in
          bankruptcy.
   **Comparability
          of Fiscal 2006 results with Fiscal 2005**
   The
          Company’s Fiscal 2006 financial statements reflect the operating results of the
          franchising and licensing segment (until sold in December 2005), the Value
          America division, which represented substantially all of the dairy components
          segment, EPFD (a component of the frozen dessert segment) and CBD (yogurt
          segment), as discontinued operations as the Company either sold or was
          attempting to sell these businesses in Fiscal 2006. Accordingly, the Fiscal
          2005
          operating results of these businesses have been reclassified to net loss
          from
          discontinued operations. The yogurt business (CBD) was acquired in March
          2005,
          and thus, within discontinued operations, Fiscal 2005 results reflect five
          months of activity, compared with twelve months of activity in Fiscal 2006.
          Additionally, the franchising and licensing segment was sold in December
          2005,
          thus the Fiscal 2006 results reflect four months of operating results,
          in
          discontinued operations, compared to 12 months in Fiscal 2005.
   **Summary
          of quarterly results**
   The
          following table presents a summary of our results for the last eight quarters
          (in 000s except per share data):
  **Quarter
                    ended**
                **August
                    31, 2006**
                **May
                    31, 2006**
                **February
                    29, 2006**
                **November
                    30, 2005**Total
                    revenues from continuing operations
                $
                    31,654
                $
                    26,168
                $
                    15,101
                $
                    26,425Loss
                    from continuing operations
                (41,096)
                (12,326)
                (5,887)
                (4,311)Gain
                    from sale of discontinued operations
                3
                -
                407
                -Loss
                    from discontinued operations
                (4,918)
                512
                (2,473)
                (93)Net
                    loss
                (46,011)
                (11,814)
                (7,953)
                (4,404)Earnings
                    per share (basic and diluted)Loss
                    per share from continuing operations
                (0.72)
                (0.22)
                (0.11)
                (0.08)Loss
                    per share from discontinued operations
                (0.10)
                0.01
                (0.03)
                (0.0)Loss
                    per share
                (0.82)
                (0.21)
                (0.14)
                (0.08)
  
  **Quarter
                    ended**
                **August
                    31, 2005**
                **May
                    31, 2005**
                **February
                    29, 2005**
                **November
                    30, 2004**Income
                    (loss) from continuing operations
                (60,529)
                (8,272)
                (3,525)
                3,310Income
                    (loss) from discontinued operations
                (3,339)
                (2,743)
                1,737
                (709)Net
                    income (loss)
                (63,868)
                (11,015)
                (1,788)
                2,601Earnings
                    per share (basic and diluted)Income
                    (loss) per share from continuing operations
                (1.08)
                (0.15)
                (0.06)
                0.06Income
                    (loss) per share from discontinued operations
                (0.06)
                (0.05)
                0.03
                (0.01)Income
                    (loss) per share
                (1.14)
                (0.20)
                (0.03)
                0.05
  During
          the fourth quarter of Fiscal 2005, the Company adopted, on a retroactive
          basis,
          U.S. GAAP. Previously, the Company prepared its annual and interim consolidated
          financial statements in accordance with generally accepted accounting principals
          in Canada (“Canadian GAAP”). Therefore, the quarterly revenue information is not
          provided as it is not comparable.
   The
          ice cream and frozen dessert industry generally experiences its highest
          volume
          during the spring and summer months and its lowest volume in the winter
          months.
          Total revenue includes the revenues generated by the Company’s majority owned
          subsidiary Americana Foods, which ceased operations in October 2006. Excluding
          revenues from American Foods, total revenue by quarter in Fiscal 2006,
          would
          have been:
  **Quarter
                    ended**
                **August
                    31, 2006**
                **May
                    31, 2006**
                **February
                    29, 2006**
                **November
                    30, 2005**Total
                    revenues
                31,654
                26,168
                15,101
                26,425Revenues
                    generated by Americana Foods
                12,678
                14,183
                11,636
                12,39318,976
                11,985
                3,465
                14,032
  **Fourth
          Quarter**
   In
          the fourth quarter of Fiscal 2006, the Company generated a loss of $(41,096)
          from continuing operations, or $(0.72) per fully diluted share, and a loss
          of
          $(4,918) from discontinued operations, or $(0.10) per fully diluted share.
          The
          loss from continuing operations was impacted by provision for impairment
          totaling $21,289, including $11,250 with respect to Americana Foods.
          Additionally, a provision for inventory obsolescence charge of $1,000 was
          recorded and the Compan wrote off certain debt acquisition costs of $1,700
          ($2,015 expense for the year including amortization). The operating results
          from
          discontinued operations were impacted by a write down of obsolete inventory
          of
          $1,002 and impairment to goodwill of $5,428.
   **Liquidity**
   The
          following sets forth certain measures of the Company’s liquidity:
  **Year
                    Ended August 31,****2006**
                **2005**Cash,
                    investments and restricted cash
                $393
                $41,562Working
                    Capital
                $(23,992)
                $28,477Current
                    Ratio
                .75
                    to 1.0
                1.2
                    to 1.0
  The
          decrease in working capital of $52,469 was due to a decrease in cash,
          investments and restricted cash of $41,169 and a decrease in receivables,
          net
          (including receivables – affiliates) of $11,833, a decrease in inventory of
          $20,787, a decrease in current assets of discontinued operations held for
          sale
          of $14,577, an increase in the notes payable in default and notes payable
          of
          majority owned subsidiary in default at August 31, 2006 aggregating $33,578
          partially offset by a decrease in accounts payable and accrued liabilities
          totaling $13,942, a decrease in current liabilities of discontinued operations
          held for sale of $11,119, and a decrease in short-term borrowings of $34,553
          and
          a decrease in current maturities of long-term debt totaling
          $18,161.
   **Cash
          flows (used in) provided by operating activities from continuing
          operations**
   The
          Company used cash in operating activities of $(23,292) for Fiscal 2006,
          as
          compared to generating cash from operating activities of continuing operations
          of $7,982 for Fiscal 2005, due to the significant net loss from continuing
          operations generated by the frozen dessert segment, partially offset by
          the net
          income generated by the foodservice segment, which resulted in a $(63,620)
          loss
          from continuing operations. Additionally, accounts payable and accrued
          expenses
          decreased in Fiscal 2006, which used up cash. This was partially offset
          by
          non-cash expenses included in the $(63,620) loss of $5,026 for depreciation
          and
          amortization, $21,289 for asset impairment and $443 for stock based compensation
          expense. Additionally, account receivable and inventories decreased, which
          generated cash.
   **Cash
          provided by investing activities from continuing
          operations**
   The
          Company generated cash from investing activities of $16,099 in Fiscal 2006
          due
          primarily to the redemption of investments of $7,500, and the decrease
          in
          restricted cash of $10,000 (used to repay debt), partially offset by the
          purchase of property, plant and equipment of $1,416. The cash generated
          in
          investing activities in Fiscal 2005 of $2,422 was due to the net redemption
          of
          investments of $20,550 and the proceeds from the sale of certain facilities
          for
          $5,434, partially offset by the purchase of property, plant and equipment
          of
          $13,500, and the increases in restricted cash.
   **Cash
          (used in) provided by financing activities from continuing
          operations**
   In
          Fiscal 2006, the Company used $(27,245) in financing activities, compared
          to
          generating $33,486 from financing activities in Fiscal 2005. In Fiscal
          2006,
          $33,995 was provided by the borrowings under the Corporate Credit Facility
          and
          the Americana Credit Facility, offset by the repayment of short-term debt
          of
          $34,553, and the repayment of long-term debt of $26,409. In Fiscal 2005,
          cash
          provided by financing activities was $33,486, which was comprised of increases
          from the proceeds from short term borrowings of $44,553, and an increase
          in
          amounts outstanding under the revolving line of credit of $2,661 at Americana
          Foods, offset by the repayment of short-term borrowings of $10,000 and
          the
          repayment of long-term debt of $3,785.
   **Cash
          flows provided by operating activities from discontinued
          operations**
   Cash
          flows from operations from discontinued operations in Fiscal 2006 were
          $1,965,
          compared to $3,257 in Fiscal 2005. The principal reason for the decrease
          was the
          deterioration of the EPFD business, which was partially offset by the full
          year
          effect of CBD (yogurt segment) in Fiscal 2006 as it was acquired in March
          2005
          and only includes five months of operations for Fiscal 2005.
   **Cash
          flows provided by (used in) investing activities from discontinued
          operations**
   The
          cash flows from investing activities from discontinued operations generated
          in
          Fiscal 2006 of $8,574 were primarily from the sale of the franchising and
          licensing segment. The cash used in investing activities in Fiscal 2005
          of
          $58,445 were attributable to the purchase of the yogurt business (CBD)
          from
          Kraft Foods and the purchase of Zipp Manufacturing for the dairy component
          segment, which were both marketed for sale in Fiscal 2006 and sold in Fiscal
          2007.
   ***2005
          Compared with 2004***
   **Overall
          Performance**
   In
          Fiscal 2005, the Company adopted generally accepted accounting principles
          in the
          United States ("U.S. GAAP") and changed its reporting currency from Canadian
          dollars to U.S. dollars. For comparative purposes, certain historical financial
          statements and the notes thereto have been restated to reflect these changes.
          Additionally, the operating results of the franchising and licensing segment,
          Value America, which represents a substantial portion of the dairy component
          segment, EPFD which represents a portion of the frozen dessert segment
          and CBD,
          which comprised the yogurt segment, were reclassified to discontinued operations
          for all periods presented as they were either sold or being marketed for
          sale as
          of August 31, 2006.
   For
          Fiscal 2005, net revenues from continuing operations decreased to $149,710
          as
          compared with $280,736, for fiscal 2004, a decrease of $131,026 or 46.7%.
          The
          net loss for Fiscal 2005 was $(74,070) ($1.32) per fully diluted share,
          which
          was comprised of a loss from continuing operations of $(69,016), or $(1.23)
          per
          fully diluted shared and a loss from discontinued operations of $(5,054),
          or
          $(.09) per fully diluted share as compared with net earnings of $23,512
          ($0.42
          basic and diluted earnings per share) which was comprised of net income
          of
          $20,325 or $0.37 per fully diluted share from continuing operations and
          $3,187
          or $0.05 per fully diluted share from discontinued operations for fiscal
          2004.
   The
          decrease in net revenues for fiscal 2005 reflects the decrease in sales,
          primarily from the frozen dessert segment and the increase in trade promotion
          payments made to customers. In fiscal 2005, net sales declined by to $142,873
          compared with $275,394 fiscal 2004, a decline of $132,521 or 48.1%. The
          decline
          in sales came from all of the frozen dessert brands, but principally from
          the
          Weight Watchers and Atkins brands. These sales declines were only partially
          offset by the sales from newly introduced frozen dessert products.
   Gross
          profit percentage for fiscal 2005 declined to 0.5% as compared with 35.8%
          for
          fiscal 2004. The decline in gross profit percentage was primarily due
          to:
   (i)
          Increased trade promotion payments to customers, excluding the yogurt segment,
          which amounted to $52,359 and $32,913 in 2005 and 2004
          respectively;
   (ii)
          The write down of obsolete and slow moving finished goods inventories,
          packaging, and ingredients. This write down amounted to $12,723 in 2005
          and was
          the result of a settlement of litigation with Weight Watchers International,
          a
          new labeling law which became effective January 1, 2006, and a provision
          for
          slow moving inventories due to changes in consumer preferences;
   (iii)
          The Company's inability to cover fixed overhead costs in both the manufacturing
          and distribution operations due to the lack of production and sales;
          and
   (iv)
          The change in mix of frozen dessert products being sold in 2005 with lower
          gross
          profit margins as compared with 2004.
   Selling,
          general and administrative expenses in continuing operations as a percentage
          of
          revenues were 25.1% and 25.5% for Fiscal 2005 and Fiscal 2004. Selling,
          general
          and administrative expenses decreased by $33,986 or 47.5% from $71,516
          in Fiscal
          2004 to $37,530 in Fiscal 2005. Selling, general and administrative expenses
          for
          Fiscal 2005 and Fiscal 2004 were adversely impacted by the write-off of
          certain
          license agreements and the write-off of deferred package design costs,
          primarily
          related to Weight Watchers, in 2005. These charges amounted to $2,358 and
          $3,684
          in 2005 and 2004, respectively. The biggest reason for the decrease was
          the
          decrease in stock-based compensation, which totaled $1,918 in Fiscal 2005
          as
          compared to $30,983 in Fiscal 2004.
   The
          2005 fiscal year results were adversely affected by the non-cash pre-tax
          asset
          impairment charge of $55,525 (Nil in 2004), which resulted from the impairment
          of goodwill and intangible assets related to the Company's frozen desserts
          ($51,141, which is included in continuing operations) and franchising segments
          ($4,384, which is included in discontinued operations).
   **Cash
          and working capital**
   Cash,
          investments and restricted cash decreased to $41,562 at August 31, 2005
          from
          $64,327 at August 31, 2004. Working capital decreased to $28,477 at August
          31,
          2005 from $118,138. CoolBrands' current ratio declined to 1.2 to 1 at August
          31,
          2005 from 2.6 to 1 at August 31, 2004. These changes in current assets
          and
          current liabilities are attributable primarily to the use of cash and short-term
          borrowings to finance the Company’s acquisitions (principally the yogurt
          business from Kraft) and purchases of property, plant and equipment. See
“Recent
          Developments – 2006” for a discussion of refinancing of the
          indebtedness.
   ***Comparison
          of 2005 and 2004***
   The
          Company’s 2005 financial statements reflect the March 27, 2005 acquisition of
          the Breyers yogurt business. This acquisition was accounted for under the
          purchase method of accounting. The Company began to market this business
          for
          sale in Fiscal 2006 and, accordingly, the 2005 Consolidated Statements
          of
          Operations include the results of this acquisition from the date of acquisition
          in discontinued operations.
   Additionally,
          the operating results of franchising and licensing, EPFD and Value America
          have
          been reclassified to discontinued operations for Fiscal 2005 and Fiscal
          2004 to
          make them comparable to Fiscal 2006.
   **Net
          sales**
   Net
          sales for each segment are summarized in the following table:
  **Year
                    Ended August 31,****Percentage
                    of Net Sales****2005**
                
                **2004**
                **2005**
                **2004**Frozen
                    dessert
                $271,086
                
                $356,399
                74.3
                87.7Yogurt
                44,007
                
                -
                12.1
                -Foodservice
                17,736
                
                15,679
                4.9
                3.9Dairy
                    components
                19,538
                
                23,184
                5.3
                5.7Franchising
                    and licensing
                12,319
                
                11,208
                3.4
                2.7Total,
                    as originally reported
                364,686
                
                406,470
                100.0
                100.0Less
                    amounts reclassified to net (loss) income
                  from
                    discontinued operations:Frozen
                    dessert
                147,718
                
                100,844Yogurt
                44,007
                
                -Dairy
                    components
                17,769
                
                19,024Franchising
                    and licensing
                12,319
                
                11,208221,813
                
                131,076Net
                    sales from continuing operations
                $142,873
                
                $275,394
  The
          decrease in net sales for Fiscal 2006 in the frozen dessert segment came
          from
          the decrease in sales volume from a substantial number of the frozen dessert
          brands partially offset by generally modest sales of products introduced
          in
          Fiscal 2006.
   The
          decrease in net sales for fiscal 2005 in the frozen dessert segment reflects
          the
          deduction from sales for payments made to customers by the Company, excluding
          the yogurt segment, of $52,359 in 2005 as compared with $32,913 in 2004
          (a net
          reduction of $19,446). The decline in net sales in the frozen desserts
          segment
          came from all of the frozen dessert brands, but principally from the Weight
          Watchers and Atkins brands. In connection with the settlement of the Weight
          Watchers litigation, CoolBrands agreed to discontinue the sale of all Weight
          Watchers products on May 1, 2005, approximately five months sooner than
          required
          by the Weight Watchers License Agreement. These declines in net sales were
          partially offset by the net sales from newly introduced frozen dessert
          products
          and the increase in distribution sales as a result of the change in the
          business
          arrangement with Dreyer’s. Effective September 1, 2004, CoolBrands, through
          EPFD, began the distribution of Dreyer’s products as an independent distributor,
          changing from the previously used drayage basis, except for Dreyer’s scanned
          based trading customers which continue to be delivered on a drayage basis.
          As a
          result of this change, CoolBrands began purchasing products from Dreyer’s and
          selling those products to customers at wholesale. The net sales and drayage
          income (which historically was reported in other income on the statement
          of
          operations) is included in the net (loss) income from discontinued operations
          for each of the years presented.
   The
          net sales for the yogurt segment reflect the acquisition of the Breyers
          yogurt
          business from Kraft Foods, Inc. on March 27, 2005.
   The
          decline in sales by the Company’s dairy components segment reflects the decrease
          in sales due to the decline in the demand for Weight Watchers and Atkins
          ingredients and packaging from the Company’s various contract
          manufacturers.
   **Other
          income**
   Other
          income increased by 28.0% to $6,837 in fiscal 2005 from $5,342 in fiscal
          2004.
          This increase was due to the increase in certain licensing fees that were
          in
          place for the entire fiscal year.
   **Gross
          profit margin**
   The
          following table presents the gross profit margin dollars and gross profit
          percentage for the Company’s segments:
  **Year
                    Ended August 31,****Percentage
                    of Net Sales****2005**
                
                **2004**
                **2005**
                **2004**Frozen
                    dessert
                $(15,488)
                
                $64,779
                (5.7)
                18.2Yogurt
                7,369
                
                -
                16.7
                -Foodservice
                3,626
                
                3,439
                20.4
                21.9Dairy
                    components
                4,287
                
                5,975
                21.9
                25.8Franchising
                    and licensing
                3,224
                
                2,931
                2.6
                26.2Total,
                    as originally reported
                3,018
                
                77,124
                0.8
                19.0Less
                    amounts reclassified to net (loss) income
                  from
                    discontinued operations:Frozen
                    dessert
                (12,141)
                
                (29,371)Yogurt
                7,369
                
                -Dairy
                    components
                3,874
                
                5,099Franchising
                    and licensing
                3,224
                
                2,9312,326
                
                (21,351)Gross
                    profit from continuing operations
                $
                    692
                
                $98,465
  Gross
          profit dollars for continuing operations declined to $692 in Fiscal 2005
          from
          $98,465 in Fiscal 2004 a decline of $97,773 primarily due to the decline
          in the
          gross profit dollars in frozen desserts segment (continuing operations)
          of
          $97,497. The decline in gross profit dollars in the frozen desserts segment
          resulted from the decline in sales in 2005 versus 2004, the impact on the
          segment for payments made to customers which as previously discussed reduced
          net
          sales and gross profit dollars, in 2005 by $52,359 as compared with $31,337
          in
          2004 (a net reduction of $19,446) and the Company’s inability to cover fixed
          overhead costs in both the manufacturing and distribution operations due
          to the
          lack of production and sales. Gross profit dollars in the frozen desserts
          segment were also adversely affected in Fiscal 2005 by the write down of
          $12,723
          of obsolete and slow moving finished goods inventories, packaging, ingredients
          and finished goods inventories which could not be used or sold resulting
          from
          the settlement of the Weight Watchers litigation and the estimated impact
          on
          packaging which will not be used due to a new labeling law which became
          effective January 1, 2006.
   Gross
          profit percentage from continuing operations for Fiscal 2005 declined to
          0.5% as
          compared with 35.8% for Fiscal 2004. The decline in gross profit percentage
          was
          primarily due to:
   **1.
          Increased trade promotion payments to customers, which amounted to $52,359
          and
          $32,913 in 2005 and 2004 respectively;**
   **2.
          The write down of obsolete and slow moving finished goods inventories,
          packaging, and ingredients. This write down amounted to $12,723 in 2005
          and was
          the result of a settlement of litigation with Weight Watchers International,
          a
          new labeling law which became effective January 1, 2006, and a provision
          for
          slow moving inventories due to changes in consumer
          preferences;**
   **3.
          The Company’s inability to cover fixed overhead costs in both its manufacturing
          and distribution operations due to the lack of production and sales;
          and**
   **4.
          The change in mix of frozen dessert products being sold in 2005 with lower
          gross
          profit margins as compared with 2004.**
   **Selling,
          general and administrative expenses**
   Selling,
          general and administrative expenses are summarized by industry segment
          in the
          following table:
  **Year
                    Ended August 31,****Percentage
                    of Sales****2005**
                
                **2004**
                **2005**
                **2004**Frozen
                    dessert
                $38,818
                
                $41,054
                14.3
                20.2Yogurt
                4,993
                
                -
                11.4
                -Foodservice
                1,486
                
                1,890
                8.4
                12.1Dairy
                    components
                1,694
                
                1,942
                8.7
                8.4Franchising
                    and licensing
                5,109
                
                4,934
                41.5
                44.0Corporate
                    (including stock-based compensation expense)
                1,990
                
                32,851Total,
                    as originally reported
                54,090
                
                82,671
                14.8Less
                    amounts reclassified to net loss from discontinued
                    operations:Frozen
                    dessert
                4,879
                
                4,393Yogurt
                4,993
                
                -Dairy
                    components
                1,579
                
                1,794Franchising
                    and licensing
                5,109
                
                4,954Other
                -
                
                1416,560
                
                11,155Selling,
                    general and administrative expenses of continuing
                    operations
                $37,530
                
                $71,516
  Selling,
          general and administrative expenses from continuing operations decreased
          by
          $33,986 from $71,516 in 2004 to $37,530 in 2005 due primarily to the decrease
          of
          $29,065 in stock-based compensation expense incurred, from $30,983 in Fiscal
          2004 to $1,918 in Fiscal 2005. The frozen dessert segment’s selling, general and
          administrative expenses were adversely impacted in fiscal 2005 by approximately
          $2,358, including the write-off of deferred package design costs, primarily
          related to Weight Watchers, and the write-off of certain license agreements
          with
          General Mills. Selling, general and administrative expenses in Fiscal 2004
          were
          adversely impacted by the one time charge of $3,684 which was the pre-tax
          write-off of the Weight Watchers’ intangible license agreement asset. Weight
          Watchers International notified CoolBrands on July 28, 2004 that the license
          agreement would not be extended.
   **Stock-based
          compensation expense**
   In
          accordance with Statement of Financial Accounting Standards No. 123, Accounting
          for Stock-Based Compensation (FAS123), the Company recognized stock-based
          compensation expense of $1,918 and $30,983 in Fiscal 2005 and Fiscal 2004
          which
          represents the estimated fair value of stock options earned during the
          respective fiscal years.
   **Interest
          expense**
   Interest
          expense incurred in continuing operations was $1,687 in fiscal 2005 compared
          with $1,491 in fiscal 2004. The increase in interest expense in fiscal
          2005 as
          compared with fiscal 2004 was due to the increase in borrowings at Americana
          Foods, partially offset by other decreases in other indebtedness outstanding
          due
          to scheduled repayments. Excluded from interest expense in Fiscal 2005
          was
          interest of $891 incurred with respect of the $40,000 borrowing incurred
          with
          respect to the purchase of the Breyers yogurt business, which was included
          in
          loss from discontinued operations in Fiscal 2005.
   **Asset
          impairment**
   The
          Company is required to conduct an annual review of goodwill and non-amortizable
          intangible assets for potential impairment. Goodwill impairment testing
          requires
          a comparison between the carrying value and fair value of each reporting
          unit.
          If the carrying value exceeds the fair value, goodwill is considered impaired.
          The amount of impairment loss is measured as the difference between the
          carrying
          value and implied fair value of goodwill, which is determined using discounted
          cash flows. Impairment testing for non-amortizable intangible assets requires
          a
          comparison between fair value and carrying value of the intangible asset.
          If the
          carrying value exceeds fair value, the intangible asset is considered impaired
          and is reduced to fair value.
   During
          2005, the Company completed its annual review of goodwill and intangible
          assets.
          This review resulted in a non-cash pre tax charge related to a goodwill
          impairment of $48,701 and in a non-cash pre tax charge related to intangible
          asset impairment related to the Company’s frozen dessert segment of $1,401.
          Also, this review resulted in a non-cash pre tax charges related to goodwill
          and
          intangible asset impairments related to the Company’s franchise and licensing
          segment of $4,940, which was included in loss from discontinued operations.
          Additionally, the Company wrote-off certain company-owned store leasehold
          improvements and equipment related to the Company’s franchise and licensing
          segment of $483 which was included in loss from discontinued
          operations.
   **(Recovery
          of) provision for income taxes**
   The
          effective (benefit) tax rate was (10.2)% in Fiscal 2005 and 37.1% for Fiscal
          2004. The effective tax rate differs from the Canadian Federal/Provincial
          Statutory Rate primarily due to permanent differences related to the
          non-deductible goodwill impairment charges recognized in 2005, a valuation
          allowance established in 2005, and due to the Company’s operations in foreign
          countries with lower effective tax rates.
   **Net
          Loss**
   The
          net loss for Fiscal 2005 was $(74,070), which was comprised $(69,016) loss
          from
          continuing operations and $(5,054) loss from discontinued operations, as
          compared with net earnings of $23,512 for fiscal 2004 which was comprised
          of net
          income from continuing operations of $20,325 or $ 0.37 per fully diluted
          share
          and net income from discontinued operations of $3,187 or $0.05 per fully
          diluted
          share. CoolBrands’ net loss in 2005 was primarily due to the substantial decline
          in net sales due to the loss of the Weight Watchers Smart Ones license
          agreement, the decline in net sales of the Atkins Endulge products and
          other
          frozen dessert product lines and the resulting decrease in gross profit
          dollars,
          the $25,627 decline in drayage and other income and the provisions for
          asset
          impairment for goodwill and other intangible assets aggregating $50,585
          in
          continuing operations and $4,940 in discontinued operations and a provision
          for
          impairment of $483 with respect to property, plant and equipment which
          is
          included in loss from discontinued operations as previously
          described.
   **Summary
          of quarterly results**
   The
          following table presents a summary of the Company’s results for the last eight
          quarters:
  **Quarter
                    ended**
                **August
                    31, 2005**
                **May
                    31, 2005**
                **February
                    29, 2005**
                **November
                    30, 2004**Income
                    (loss) from continuing operations
                (60,529)
                (8,272)
                (3,525)
                3,310Income
                    (loss) from discontinued operations
                (3,339)
                (2,743)
                1,737
                (709)Net
                    income (loss)
                (63,868)
                (11,015)
                (1,788)
                2,601Earnings
                    per share (basic and diluted)Income
                    (loss) per share from continuing operations
                (1.08)
                (0.15)
                (0.06)
                0.06Income
                    (loss) per share from discontinued operations
                (0.06)
                (0.05)
                0.03
                (0.01)Income
                    (loss) per share
                (1.14)
                (0.20)
                (0.03)
                0.05
  
  **Quarter
                    ended**
                **August
                    31, 2004**
                **May
                    31, 2004**
                **February
                    29, 2004**
                **November
                    30, 2003**Total
                    revenues
                129,052
                128,140
                99,946
                92,800Net
                    earnings
                12,484
                (625)
                8,465
                3,188Earnings
                    per shareBasic
                0.22
                (0.01)
                0.15
                0.06Diluted
                0.22
                (0.01)
                0.15
                0.06
  The
          ice cream and frozen dessert industry generally experiences its highest
          volume
          during the spring and summer months and its lowest volume in the winter
          months.
   **Fourth
          Quarter**
   In
          the fourth quarter of Fiscal 2005, the Company generated a loss of $(63,868),
          or
          $(1.14) per fully diluted share, which was comprised of $(60,529), or $(1.08)
          per fully diluted share, from continuing operations, and $(3,339), or $(0.06)
          per fully diluted share, from discontinued operations. The principal reasons
          for
          the loss were the impairment charge of $55,525, of which $51,141 was in
          continuing operations and $4,384 was in discontinued operations. Additionally,
          the fourth quarter of Fiscal 2005 was affected by a write down for obsolescence
          of $8,163 in connection with slow moving inventory, most of which was related
          to
          the settlement and discontinuation of the business with Weight
          Watchers.
   **Liquidity**
   The
          following sets forth certain measures of the Company’s liquidity:
  **Year
                    Ended August 31,****2005**
                **2004**Cash,
                    investments and restricted cash
                $41,562
                $
                    64,327Working
                    Capital
                $28,477
                $118,138Current
                    Ratio
                1.2
                    to 1.0
                2.6
                    to 1.0
  The
          decrease in working capital of $89,661 was primarily due to a decrease
          in cash,
          investments and restricted cash of $22,765 and a decrease in total receivables
          of $14,669, an increase in current maturities of long-term debt and short
          term
          borrowings of $44,222, an increase in accounts payable and accrued liabilities
          of $25,185, and offset by the increase in income taxes recoverable of $9,767
          and
          the reduction the income tax payable of $4,938. CoolBrands refinanced its
          long-term debt and short-term borrowings in April 2006.
   **Cash
          flows from operating activities of continuing operations**
   The
          Company generated cash flow from operating activities of continuing operations
          of $11,239 for the year ended August 31, 2005 as compared with $42,350
          for the
          year ended August 31, 2004 due primarily to the decrease in net earnings
          (exclusive of depreciation and amortization and asset impairment) for 2005
          as
          compared with 2004. 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 of continuing operations**
   The
          cash used in investing activities in 2005 was primarily due to the acquisitions
          of the yogurt business and the Zipp Manufacturing flavors and ingredients
          businesses which aggregated $59,609 and the purchase of property, plant
          and
          equipment of $13,500, offset by the net redemption of investments of $20,550
          and
          the proceeds from the sale of the Company’s City of Industry facility for
          $5,434. The cash used in investing activities in 2004 was primarily due
          to the
          purchase of property, plant and equipment of $12,977 and the purchase of
          investments, net of redemptions of $28,050.
   **Cash
          provided by financing activities of continuing operations**
   In
          2005, $33,264 was provided by financing activities as compared with $14,926
          provided by financing activities in 2004. In 2005, the proceeds from short
          term
          borrowings of $44,553, and an increase in the revolving line of credit
          of $2,661
          at Americana Foods. These additions were off set by the repayment of long-term
          debt. The exercise of stock options in 2004 provided $12,286 and Americana
          Foods’ minority partner provided $6,907 of capital, net of a $2,000 return of
          capital, as their share for the expansion of production capacity at Americana
          Foods. These additions were offset by the repayment of long-term debt of
          $5,781
          and the increase in the secured revolving line of credit at Americana Foods
          of
          $1,514.
   **Cash
          flows from operating activities of discontinued operations**
   Cash
          flows from operations of discontinued operations was $3,257 in Fiscal 2005
          compared to $1,419 in Fiscal 2004. The Fiscal 2005 improved results reflect
          the
          operating results of the yogurt business acquired from Kraft Foods in March
          2005.
   **Cash
          flows from investing activities of discontinued operations**
   Cash
          flows used in investing activities of discontinued operations in Fiscal
          2005
          reflect purchases of property, plant and equipment totaling $386; Fiscal
          2004
          results reflect the use of cash to acquire the yogurt business from Kraft
          Foods
          and Zipp Manufacturing, the purchase prices for which totaled $59,609.
          Both
          businesses were ultimately sold.
   **Contractual
          obligations**
   The
          following table presents the Company’s contractual obligations as of August 31,
          2006:
  **Total**
                
                **Less
                    than 1 year**
                
                **1
                    – 3 years**
                
                **4
                    – 5 years**
                
                **After
                    5**
                  **years****Contractual
                    obligations**Notes
                    payable in default-
                  Corporate
                    Credit Facility
                $
                    10,077
                
                $
                    10,077Notes
                    payable in default-
                  Americana
                    Credit Facility
                  revolver
                6,418
                
                6,418Notes
                    payable in default-
                  Americana
                    Credit Facility
                  term
                    loan
                17,083
                
                17,083Obligation
                    under capital leases
                561
                
                177
                
                315
                
                69Operating
                    leases
                1,676
                
                933
                
                342
                
                187
                
                214Other
                    liabilities
                4,287
                
                4,287
                
                -
                
                -
                
                -Total
                    contractual obligations
                $
                    40,102
                
                $
                    38,975
                
                $
                    657
                
                $
                    256
                
                $
                    214
  At
          August 31, 2006, the Company had $10,077 outstanding under the Corporate
          Credit
          Facility and $23,501 outstanding under the Americana Credit Facility ($6,418
          under the revolver and $17,083 under the term loans). As of May 31, 2006
          and
          August 31, 2006, the Company and Americana Foods were in default of certain
          financial covenants of each of the Americana Credit Facility and the Corporate
          Credit Facility. In November 2006, 2118769, as previously defined and described
          in “Recent Developments”, purchased all of the indebtedness outstanding under
          the Americana Credit Facility from the lender. The independent bankruptcy
          trustee for Americana Foods has sold the assets of Americana Foods and
          is
          finalizing the accounting. It is anticipated that the proceeds from the
          sale of
          the Americana Foods’ assets will be utilized to repay 2118769. To the extent
          that there is a shortfall between the proceeds received and the amount
          outstanding, the Company may be required to make a payment under its guarantee.
          The Corporate Credit Facility was repaid with a portion of the proceeds
          of the
          sale of the foodservice segment and certain trademarks on January 24,
          2007.
   **Capital
          resources**
   The
          Company intends to complete all of its capital commitments, which were
          not
          significant as of August 31, 2006. However, the Company does not intend
          to start
          any new capital projects other than to make an asset saleable, if
          necessary.
   *As
          of August 31, 2006:*
   On
          April 21, 2006, certain of the subsidiaries entered into two separate credit
          agreements with JPMorgan Chase Bank, N.A. Under the Corporate Credit Facility,
          the subsidiaries, Integrated Brands Inc., Eskimo Pie Frozen Distribution,
          Inc.,
          Eskimo Pie Corporation and CoolBrands Dairy, Inc. (“the Borrowers”) collectively
          and individually entered into a credit agreement which provided a revolving
          credit facility of up to $48,000, with availability for borrowing subject
          to
          borrowing base calculations. The Corporate Credit Facility was scheduled
          to
          expire on April 21, 2009 and was secured by substantially all the assets
          of the
          Borrowers. The Corporate Credit Facility is guaranteed by the Company,
“the
          Borrowers” and all U.S. subsidiaries of the Company and “the Borrowers”, except
          Americana Foods. A portion of the Corporate Credit Facility was used to
          payoff
          the balance of the then existing bank debt on April 21, 2006 of $35,055.
          The
          remainder, subject to borrowing base calculations and terms of the agreement,
          is
          available to finance working capital needs and for general corporate purposes.
          The interest rate is at the Prime Rate until November 30, 2006 (8.25% at
          August
          31, 2006). After November 30, 2006, the interest rate varies based upon
          average
          availability under the revolving credit facility. The standby fee on the
          unused
          portion of the revolving credit facility is .375%. As of August 31, 2006,
          the
          loan balance was $10,077.
   All
          borrowings under the above secured revolving credit facility are guaranteed
          by
          the Company. The agreement contains restrictions relating to the payment
          of
          dividends, indebtedness, liens, dispositions of property, change in the
          nature
          of its business, change in ownership, investments, loans, advances, guarantees,
          and acquisitions. In addition, the Company must maintain certain financial
          ratios, in any event that minimum availability is less than $10,000, and
          must
          maintain a minimum EBITDA and fixed charge coverage ratio and limit capital
          expenditures to $1,000, $2,000, and $5,000 during Fiscal 2006, and the
          years
          ended August 31, 2007 (“Fiscal 2007”) and 2008 (“Fiscal 2008”),
          respectively.
   Additionally,
          the Company’s 50.1% owned subsidiary, Americana Foods, entered into the
          Americana Credit Facility (as previously defined) on April 21, 2006 with
          the
          same group of lenders as under the Corporate Credit Facility. Loans under
          the
          revolving credit facility (“Americana Revolver”) are available for borrowing
          subject to a borrowing base calculation. The loans under the
          Americana
   Credit
          Facility expire April 21, 2009. Such loans are secured by substantially
          all of
          the assets of Americana Foods and are guaranteed
   by
          the Company, Integrated Brands Inc., and its direct and indirect subsidiaries,
          including the Limited and General Partner of Americana Foods. This facility
          was
          used to repay two existing term loans of $12,950 and the payment of $2,900
          in
          obligations to Integrated Brands and Eskimo Pie Corporation. The revolving
          credit portion of the facility was utilized to repay $6,068 principal and
          interest due under an existing revolving loan. The remainder, subject to
          borrowing base calculations, is available to finance working capital needs
          and
          for general corporate purposes. The interest rate is at the Prime Rate
          until
          November 30, 2006 (8.25% at August 31, 2006). After November 30, 2006,
          the
          interest rate varies based upon average availability under the revolving
          credit
          facility. The standby fee on the unused portion of the revolving credit
          facility
          is 0.50%. As of August 31, 2006, the outstanding term loan balances aggregated
          $17,083, and the outstanding revolving credit loan balance was
          $6,418.
   The
          Americana Credit Facility contained restrictions which limited the indebtedness
          to $8,000 to Integrated Brands and $1,300 in subordinated indebtedness
          each to
          Integrated Brands and Capricorn Investors III, L.P., a limited partner
          which
          owns 49.9% of Americana Foods. The agreement also contained restrictions
          relating to the payment of dividends or other distributions with respect
          to any
          equity interest in Americana Foods, indebtedness, liens, dispositions of
          property, change in the nature of its business, change in ownership,
          investments, loans, advances, guarantees, and acquisitions. In addition,
          American Foods was required to maintain a minimum amount of earnings before
          interest, income tax expenses, depreciation and amortization (“EBITDA”),
          maintain minimum availability of not less than $700 at all times and limit
          capital expenditures to $1,000, $3,000 and $3,000 during Fiscal 2006, Fiscal
          2007 and Fiscal 2008, respectively.
   The
          Company was in default of the loan covenants at May 31, 2006 and August
          31, 2006
          as a result of a default by Americana Foods of its EBITDA financial covenant
          in
          connection with the Americana Credit Facility. The Company was also in
          default
          of the loan covenants at August 31, 2006 as a result of defaults by “the
          Borrowers” of certain of the financial covenants in connection with the
          Corporate Credit Facility. On July 31, 2006, the subsidiaries received
          notice
          from JPMorgan Chase Bank, N.A., as administrative agent of the Americana
          Credit
          Facility and the Corporate Credit Facility, that it was reserving its rights
          to
          terminate its commitments to lend under the credit agreements as a result
          of the
          previously disclosed breach of the covenant at a subsidiary related to
          a minimum
          level of EBITDA for the three months ended May 31, 2006.
   In
          October 2006, Americana Foods was advised by its lenders that because of
          continuing defaults, they would no longer lend to Americana Foods and demanded
          full and immediate repayment of all of amounts outstanding under the American
          Credit Facility, which aggregated approximately $21,830 and which was guaranteed
          by the Company. The Company, through certain of its subsidiaries, as creditors
          of Americana Foods, filed an involuntary petition of bankruptcy against
          Americana Foods under Chapter 7 of the Federal Bankruptcy Code in the United
          States Bankruptcy Court, Northern District of Texas. As a result, Americana
          Foods ceased operations and an independent trustee was appointed to oversee
          the
          liquidation of the assets and liabilities of Americana Foods. In November,
          2006,
          2118769 Ontario Inc.(“2118769”) a company controlled by Michael Serruya,
          currently the Chairman and CEO of the Company, purchased all of Americana
          Foods’
bank indebtedness under the Americana Credit Facility, which aggregated
          $21,408,
          from the lender. 2118769 received a first lien security interest in the
          assets
          of Americana Foods. The Company remains the guarantor of the Americana
          debt
          under the Americana Credit Facility. The independent trustee has sold or
          liquidated substantially all of the assets of Americana Foods and is completing
          his accounting. To the extent that the proceeds from the liquidation are
          not
          sufficient to pay 2118769, the Company may be required to make a payment
          under
          its guarantee.
   Additionally,
          the Company continued to be in default under its Corporate Credit Facility.
          In
          connection with the purchase of the indebtedness outstanding under the
          Americana
          Credit Facility by 2118769, the Company and the lender (a “Senior Lender”)
          amended the Corporate Credit Facility (the “Amendment”) and agreed to reduce the
          maximum amount of the Corporate Credit Facility to $8,000, subject to a
          borrowing base. Mr. Serruya, through 2118769 (also a “Senior Lender” as a result
          of the purchase of the indebtedness outstanding under the Americana Credit
          Facility), issued an irrevocable letter of credit with a face value of
          $5,000 in
          favor of the lender. The Senior Lenders and the Company also entered into
          a
          forbearance agreement which changed the maturity date of the Corporate
          Credit
          Facility from April 21, 2009 to May 17, 2007. The Amendment also required
          the
          Company to utilize proceeds from the sales of assets to reduce the indebtedness
          based upon a specified schedule. Mr. Serruya received, through 2118769,
          warrants
          to purchase 5,500,000 subordinate voting shares of the Company in connection
          with the purchase of the senior indebtedness under the Americana Credit
          Facility
          as described above. The exercise price of each warrant is Cdn $0.50 and
          the term
          of the warrants is five years from the date of the grant. The warrants
          issued by
          the Company in connection with this transaction were valued at $1,764 using
          the
          Black-Scholes pricing model and the following assumptions: 2.5 years expected
          life, no dividends, 67% volatility and 4.6% risk free rate, and will be
          expensed
          by the Company in the first quarter of Fiscal 2007. The Company completed
          the
          sale of the foodservice segment on January 24, 2007 and utilized a portion
          of
          the proceeds to repay the amounts outstanding pursuant to the Corporate
          Credit
          Facility.
   *As
          of August 31, 2005:*
   The
          Company, through a U.S. subsidiary, borrowed $40,000 to finance the acquisition
          of the yogurt business from Kraft in March 2005. The term loan originally
          required monthly payments of interest with the $40,000 principal balance
          originally due November 1, 2005. Interest was 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 margin were the lower of prime plus 0.5% or LIBOR plus
          2.5%
          (6.02% at August 31, 2005). The Company made a principal payment of $10,000
          on
          August 23, 2005 in anticipation of the September 2, 2005 amendment as discussed
          below. As of August 31, 2005 the term loan balance was $30,000.
   The
          Company, through a U.S. subsidiary, borrowed $30,000 to finance the acquisition
          of Eskimo Pie Corporation in October 2000 (the “EPC Loan”). The EPC Loan was
          payable in monthly installments of $250, which began December 1, 2000,
          with the
          remaining principal balance originally due on November 1, 2005. Interest
          on the
          term loan was payable monthly on the unpaid principal balance. The Company
          and
          all of the significant subsidiaries guaranteed all borrowings under the
          EPC
          Loan. The principal balance outstanding at August 31, 2005 was
          $10,500.
   **The
          Company was in default of its financial covenants at May 31, 2005 and August
          31,
          2005. On September 2, 2005, the Company entered into an amendment to the
          existing credit facilities (“September 2005 Amendment”). The September 2005
          Amendment extended the maturity of the existing facilities from November
          1, 2005
          until January 3, 2006 and waived defaults in its financial covenants resulting
          from the Company’s financial performance. The maturities were later extended to
          April 3, 2006 and May 3, 2006.**
   The
          September 2005 Amendment eliminated all of the existing financial covenants
          from
          the loan agreements through the remainder of the term and granted a security
          interest in the personal property assets (other than certain excluded assets
          relating to the operations of the Company’s 50.1% owned limited partnership),
          reduced the outstanding indebtedness to the bank by $10,000 to a total
          of
          $40,500 and agreed to an increase of the interest rate by 2.0% basis points
          on
          all remaining outstanding balances to 4.5% basis points over LIBOR. In
          addition,
          the amendment reduced the $5,000 revolving credit facility to $925 and
          required
          the Company to maintain $20,000 of cash balances, of which $10,000 was
          restricted to use as approved by the lender.
   On
          April 27, 2005, Americana Foods borrowed $4,553 (the “Americana Loan”) for use
          in purchasing a building and adjacent acreage. The Americana Loan provided
          for
          monthly interest only payments until the anniversary date of the note (April
          27,
          2006). The Americana Loan bore interest at Prime plus 0.5% (7.0% at August
          31,
          2005).
   On
          November 19, 2002, Americana Foods entered into a Credit Agreement with
          a
          financial institution that included a term loan of $10,000 (the “Americana Term
          Loan”), which is secured by Americana Foods’ property, plant, and equipment. The
          Americana Term Loan provided for fixed monthly installments of principal
          of $80
          plus interest and was originally scheduled to mature on November 19, 2007.
          The
          Americana Term Loan bore interest at prime plus 0.5% (7.0% at August 31,
          2005).
   Americana
          Foods’ Amended Credit Agreement also included a revolving loan of up to $9,000
          (the “Americana Revolver”), subject to a borrowing base calculation, which bore
          interest at prime plus 0.5% (7.0% at August 31, 2005) and was originally
          due on
          November 30, 2005. At August 31, 2005, $7,145 was outstanding under the
          Americana Revolver. The Americana Revolver was secured by Americana Foods’
receivables and inventory.
   On
          November 30, 2005, Americana Foods executed an Amendment to the Credit
          Agreement, which extended the maturity date for the Americana Revolver
          until
          January 10, 2006. Americana Foods must maintain compliance with certain
          financial covenants, including fixed charge ratio, debt-to-tangible net
          worth
          ratio and tangible net worth.
   The
          Company refinanced all of the above referenced debt in April 2006 and all
          of the
          then existing debt was repaid as of April 2006.
   **Risk
          Factors and Uncertainties**
   For
          Fiscal 2006, we incurred a net loss of $(70,182), of which $(63,620) was
          from
          continuing operations and $(6,562) was from discontinued
          operations.
   In
          the first quarter of Fiscal 2006, the decision was made to sell certain
          assets
          to generate liquidity. In December 2005, the Company sold certain assets
          relating to its franchising business for proceeds totaling $8,000 to Aaron
          Serruya, a former officer of the Company, who is a director and the brother
          of
          Michael Serruya, the Chairman and Chief Executive Officer of the
          Company.
   On
          April 21, 2006, the Company refinanced its then remaining debt by obtaining
          the
          following:
   1.
          a $48,000 senior secured revolving credit facility; and
   2.
          a $25,500 senior secured revolving credit facility consisting of an $8,000
          senior secured revolving credit facility and $17,500 of term loans, in
          which
          Americana Foods, which is 50.1% owned by the Company, is the
          borrower.
   Each
          of the loans was for an original term of three years and provides for interest
          at the prime rate (8.25% at August 31, 2006). Each of the credit facilities
          were
          unconditionally guaranteed by the Company. Both facilities were in default
          at
          August 31, 2006.
   For
          the year ended August 31, 2005, the Company incurred a net loss of $74,070,
          which was primarily attributable to:
   1.
          the non-cash impairment charges totaling $55,525 relating to goodwill and
          intangible assets of the frozen dessert and franchising segment;
          and
   2.
          the discontinuation of the Weight Watchers Smart Ones brand products and
          the
          decline in sales from other frozen dessert brands, which were partially
          offset
          by the sales of the Breyers Yogurt business acquired in March 2005 and
          a change
          in the Company’s arrangement with Dreyer’s .
   Additionally,
          as of August 31, 2005, the Company had approximately $60,962 of outstanding
          debt, of which $52,714 was classified as current liabilities.
   Inflation
          can significantly impact ice cream and frozen yogurt ingredients, including
          butterfat and packaging costs. In Fiscal 2006 and Fiscal 2005, the Company
          passed on ingredient, energy and freight cost increases by raising prices
          on
          selected product lines. The Company no longer manufactures products other
          than
          production by Sugar Creek Food, Inc. subsidiary, pursuant to a co-pack
          arrangement established upon the sale of the foodservice segment. Thus,
          given
          the Company’s size and level of operations, inflation is no longer a
          factor.
   The
          Company’s products were ultimately purchased primarily by the United States
          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.
   The
          Company derived a substantial portion of its revenues from its operations
          in the
          United States. The U.S. market for frozen dessert and yogurt is highly
          competitive. As competitors introduce new products or revise their supply
          or
          pricing strategies, the Company may encounter additional and more intense
          competition. Such competitors have greater name recognition and more extensive
          financial, technological, marketing and personnel resources than
          ours.
   The
          Company’s existing shelf space in supermarkets, club stores, and convenience
          stores for ice cream and frozen dessert treats and yogurt has been historically
          at risk due to decisions by CoolBrands’ customers. The Company’s existing shelf
          space for its 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 and yogurt segments 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. Because of our downsizing
          and the fact that we are not manufacturing product, expect as noted above,
          we
          are no longer competing for shelf space.
   The
          Company 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,
          the
          Company has used hedging contracts to reduce its exposure to such risks
          with
          respect to its raw material costs. The Company is not a party to any hedging
          contracts and has no present intention of entering into any hedging
          contracts.
   The
          Company 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 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
          have
          materially and adversely affected our business, financial condition and
          results
          of operations.
   The
          Company is currently dependent upon a small number of key management personnel
          and continued success will depend, in part, upon their abilities. The loss
          of
          these key personnel may adversely affect the performance of the
          Corporation.
   The
          Company relies on major retailers in the U.S. for a substantial portion
          of our
          sales. As a result of this concentration of sales and accounts receivable,
          the
          Company is subject to certain credit risks. One customer accounted for
          10.2% and
          17.0% of net sales from continuing operations in Fiscal 2006 and Fiscal
          2005,
          respectively.
   The
          Company has been subject to interest rate risk as the long-term debt and
          short
          term borrowings are based upon the prime rate and/or Libor. If these base
          rates
          were to increase, the Company would incur incremental interest expense.
          Because
          the Company has repaid the amounts outstanding under the Corporate Credit
          Facility as of January 24, 2007 and the amounts outstanding under the Americana
          Credit Facility were purchased by a company controlled by Michael Serruya,
          which
          will be repaid from the proceeds of the sale of the assets of Americana
          Foods
          and to the extent necessary, by the Company under our guarantee, we are
          no
          longer subject to interest rate risk.
   The
          Company is subject to future legal proceedings and disputes with joint-venture
          partners, franchisees, former franchisees and others, which arise in the
          ordinary course of business.
   We
          consummated the sale of CBD on January 30, 2007, which generated cash proceeds
          of $45,000 (as well as a $5,000 note receivable and warrants as previously
          described). Additionally, the Company has tax refund receivables totaling
          $11,000 and is marketing for sale certain assets, including its printing
          and
          packaging plant in Bloomfield, New Jersey. The Company is no longer producing
          new inventory, so sales consist primarily selling of existing inventory.
          The
          Company expects its net sales to become nominal as existing inventory is
          sold
          off.
   **Transactions
          with Related Parties**
   Effective
          December 23, 2005, the Company sold substantially all of its franchising
          and
          licensing segment to International Franchise Corp. for cash consideration
          of
          $8,000. International Franchise Corp. is a company controlled by Mr. Aaron
          Serruya, a director of the Company and the senior executive who was responsible
          for the franchising division at the Company. Mr. Serruya resigned as executive
          vice president of the Company as a result of this transaction, but continues
          as
          a director. The sale transaction was reviewed and unanimously recommended
          to the
          board of directors of the Company by a committee of independent directors
          of the
          Company, and was unanimously approved by the board of directors of the
          Company.
   International
          Franchise Corp. also entered into a management agreement on December 23,
          2005
          with Integrated Brands for transition services of $22 per month. At August
          31,
          2006, a receivable of $380 was due to Integrated Brands Inc. from International
          Franchise Corp.
   In
          November 2006 Mr. Michael Serruya, currently the President, Chairman and
          Chief
          Executive Officer of the Company , through a holding company, purchased
          the debt
          outstanding under the Americana Credit Facility, which aggregated $21,408,
          from
          the lender. The holding company received a first lien security interest
          in the
          assets of Americana Foods. Additionally, through the holding company, Mr.
          Michael Serruya issued an irrevocable letter of credit with a face value
          of $5
          million to secure the Corporate Credit Facility. The Company has agreed
          to
          reimburse Mr. Serruya for the letter of credit fee, as well as certain
          other
          expenses he incurred. In connection with these transactions, Mr. Serruya,
          through the holding company, received warrants to purchase 5,500,000 subordinate
          voting shares of the Company. The exercise price of each warrant is Cdn
          $0.50
          and the warrants expire in November 2011. The warrants issued by the Company
          in
          connection with this transaction were valued at $1,764 USD (Cdn $1,980)
          using
          the Black-Scholes model and the following assumptions: 2.5 years expected
          life,
          no dividends, 67% volatility and 4.6% risk free rate, and will be expensed
          in
          the first quarter of Fiscal 2007.
   **Item
          6 Directors, Senior Management and
          Employees**
   **Item
          6(A) Directors and Senior Management**
   The
          following table sets forth the name, age, municipality of residence, position
          held with the Corporation and principal occupation of each of the officers
          and
          directors of the Corporation as of August 31, 2007.
   Each
          director holds office until the close of business of the annual meeting
          of
          shareholders of the Corporation following his election unless his office
          is
          earlier vacated in accordance with the Corporation’s articles of
          association.
   **Age
          Positions with the Corporation Principal Occupation(1)**
   Michael
          Serruya 42 Chairman, President, Chief CEO of the Corporation
   Thornhill,Ontario
          Executive Officer and Director
   Aaron
          Serruya 41 Director President and Chief
   Thornhill,
          Ontario Executive Officer,
   International
          Franchise Corp.
   Romeo
          DeGasperis(2)(3)(4) 40 Director
          Vice President, Con-Drain Company
   Toronto,
          Ontario
   Ronald
          W. Binns(2)(3)(4) 50 Director
          Chief Financial Officer-Nevada Capital
   Corporation
          Ltd
   Garry
          Macdonald(2)(3)(4) 60 Director
          President and Principal of Maccess
   Management
          Inc.
   Ken
          MacKenzie 51 Chief Financial Officer Officer of the Corporation
   Markham,
          Ontario
   (1)
          The employment
          history of the above-noted directors and officers is disclosed
          below.
   (2)
          Member of Audit
          Committee.
   (3)
          Member of
          Compensation Committee.
   (4)
          Member of
          Corporate Governance Committee.
   **Michael
          Serruya -Chairman of the Board, President, Chief Executive Officer and
          Director
          of the Corporation.** Mr. Michael Serruya is a co-founder of the
          Corporation and has been actively involved in its development since its
          inception in 1986. Mr. Michael Serruya has been a Director of the Corporation
          since 1994 when the Corporation first went public. Michael Serruya is the
          brother of Aaron Serruya.
   **Aaron
          Serruya - Director of the Corporation.** Mr. Aaron Serruya is a
          co-founder of the Corporation and was actively involved in its development
          since
          its inception in 1986. Mr. Aaron Serruya has been President of International
          Franchise Corp. since December 2005. Mr. Aaron Serruya has been a Director
          of
          the Corporation since 1994 when the Corporation first went public. Mr.
          Serruya
          was Executive Vice-President of the Corporation and Secretary from 1994
          until
          2005. Aaron Serruya is the brother of Michael Serruya.
   **Romeo
          DeGasperis – Director of the Corporation.** Mr. DeGasperis is Vice
          President of Con-Drain Company Limited, a family business in which he has
          worked
          for over 18 years. Mr. DeGasperis manages the operations and personnel
          of the
          company and is responsible for tendering new projects as well as all the
          networking and communications for the company. Mr. DeGasperis was a Director
          of
          the Corporation from 2000 to August 2006 and rejoined the Board in November
          2006. He is a member of the audit committee, the compensation committee
          and the
          corporate governance committee.
   **Ronald
          W. Binns - Director of the Corporation**. Mr. Binns is currently and has
          been, since 2002, the Chief Financial Officer of Nevada Capital Corporation
          Ltd.
          From 1989-2002, he served as the Chief Financial Officer of Franco-Nevada
          Mining
          Corporation Ltd. Mr. Binns became a Chartered Accountant with Coopers &
Lybrand in 1984 and has lectured extensively for the British Columbia Institute
          of Chartered Accountants and “Big Four” accounting firms and is a director of
          GMP Capital Trust and Silk Road Resources Ltd. which are both traded on
          the
          Toronto Stock Exchange. Mr. Binns has been a member of the audit committee,
          compensation committee and the corporate governance committee since November
          2006.
   **Garry
          Macdonald - Director of the Corporation**. Mr. Macdonald is currently and
          has been, since 2002, the President and Principal of Maccess Management
          Inc., a
          private company providing strategic planning, business development and
          consultancy services. From 1998-2002, he served as President and Chief
          Executive
          Officer of Country Style Food Services, Inc. From 1989-1998, Mr. Macdonald
          was
          the President and Chief Executive Officer of the franchise operations division
          of Maple Leaf Foods. He has been a member of the audit committee, the
          compensation committee and the corporate governance committee since November
          2006.
   **Ken
          MacKenzie - Chief Financial Officer of the Corporation.** Mr. MacKenzie
          has been the Chief Financial Officer since April 2007. Prior to joining
          CoolBrands, Mr. MacKenzie was Chief Financial Officer at LOREX Technology,
          a
          public company trading on The Toronto Stock Exchange from December 2002
          to July
          2006.
   The
          Corporation does not have an executive committee of its Board of
          Directors.
   **Item
          6(B) Compensation**
   The
          aggregate amount of remuneration paid or accrued by the Company on a worldwide
          basis during the year ended August 31, 2006 as compensation to its Directors
          (who with the exception of Mr. DeGasperis, are no longer serving as Board
          members) and its executive officers named above (which excludes certain
          executive officers who are no longer with the Company but may be named
          in the
          table below) was $1,697,000.
   The
          following table sets forth all compensation earned for the year ended August
          31,
          2006 by the Corporation’s Co-Chief Executive Officers, its Chief Financial
          Officer and the Corporation’s next three highest paid executive officers whose
          salary and bonus during the fiscal year ended August 31, 2006 was equal
          to or
          greater than $150,000. Amounts are in U.S. dollars, except for amounts
          related
          to Michael Serruya which are stated in Canadian dollars.
  **Annual
                    Compensation**
                **Long-Term**
                  **Compensation****Name
                    and Principal Position**
                **Fiscal
                    Year End**
                **Salary**
                  **($)**
                
                **Bonus**
                **Other
                    Annual Compensation (1)**
                  **($)**
                **Securities
                    Under Options Granted (2)**
                  **#**
                **All
                    Other Compensation (3)**
                  **($)**Michael
                    Serruya(7)
                2006
                Cdn
                    $420,000
                
                -
                -
                -
                -Chairman,
                    President&
                    Chief ExecutiveOfficerDavid
                    J. Stein(6)
                2006
                533,077
                
                -
                -
                -
                2,250President,
                    ChiefExecutive
                    OfficerGary
                    P Stevens
                2006
                188,558
                
                -
                33,454
                -
                1,235Chief
                    FinancialOfficerFrancis
                    Orfanello
                2006
                435,577
                
                -
                -
                100,000(4)
                -Executive
                    Vice PresidentJ.
                    Leo Glynn(5)
                2006
                247,840
                
                82,000
                -
                -
                -President,
                    EskimoPie
                    FrozenDistribution
                    Inc.Daniel
                    Heschke
                2006
                240,000
                
                -
                177,627(7)
                -
                582Chief
                    InformationOfficer
  (1)
          These amounts also
          include the difference in value between the exercise price of options and
          the
          fair market value of the shares at the time of purchase, for options exercised
          in the fiscal years ended August 31, 2004, 2005 and 2006. Certain amounts
          are
          paid in U.S. dollars, and have been converted for purposes of the table
          presentation based upon $1.00 purchasing Cdn $1.1081, Cdn $1.2040 and Cdn
          $1.3166 at August 31, 2006, 2005 and 2004, respectively.
   (2)
          Options to
          purchase subordinate voting shares granted pursuant to the Corporation’s stock
          option plan.
   (3)
          These amounts
          represent the Corporation’s contribution to employee's 401K plans.
   (4)
          Mr. Orfanello
          resigned in October 2006 and these options were forfeited in accordance
          with the
          provisions of the Company’s 2002 Stock Option Plan.
   (5)Mr.
          Glynn resigned
          his position in June 2006 and 100,000 options were forfeited in accordance
          with
          the provisions of the Company’s 2002 Stock Option Plan.
   (6)
          Integrated Brands,
          a wholly owned subsidiary of the Corporation, had an employment agreement
          with
          David J. Stein, which was amended in fiscal 2003. The amended agreement
          provides
          for an annual salary of $520,000 in calendar 2005, and an annual increase
          of
          $20,000 in each calendar year through 2013, and an annual salary of $700,000
          in
          any calendar year after 2013.The contract also calls for annual bonuses
          at the
          discretion of the Board. No bonus was paid in 2006 under the employment
          agreement. The agreement provides that it may be terminated by Integrated
          Brands
          after December 31, 2013, with or without cause, on 90 days’ notice. In the event
          that the agreement is terminated by Integrated Brands after December 31,
          2013
          without cause, Integrated Brands must pay Mr. Stein a severance amount
          equal to
          36 months salary at the annual rate of pay in effect as of the date of
          termination. The obligations of Integrated Brands under the agreement were
          guaranteed by the Corporation. In November 2006, Mr. Stein’s employment
          ceased.
   (7)Represents
          payment
          for relocation expenses.
   Compensation
          of Directors
   Non-independent
          directors of the Corporation did not receive any fees or any other type
          of
          compensation in Fiscal 2006 for acting as such. Independent directors each
          received a $25,000 retainer and $2,000 for each board or committee meeting
          attended in person and $250 for each board or committee meeting attended
          via
          telephone. During Fiscal 2006, the independent directors were Mr. Robert
          E.
          Baker, Ms. Beth L. Bronner, Mr. Romeo DeGasperis, Mr. L. Joshua Sosland
          and Mr.
          William McManaman, as well as Mr. Arthur Waldbaum who retired from the
          board of
          directors at the 2006 annual meeting in February 2006. In respect of fiscal
          2006, the Lead Director, Robert E. Baker received a retainer of $50,000.
          Directors also received a $5,000 retainer ($10,000 in the case of the Chair
          of
          each committee) for being a member of a committee. Each independent director
          also received 10,000 stock options during each of the fiscal years ended
          August
          31, 2006 and 2005. The aggregate amount of remuneration paid by the Company
          on a
          worldwide basis during the years ended August 31, 2006 and 2005 as compensation
          to its Directors named above was $346,000 and $129,000, respectively. Each
          of
          the independent directors in place at August 31, 2006 resigned their positions
          on the Board on November 17, 2006 and were replaced on that date by three
          new
          independent directors, Mr. Romeo DeGasperis (who had previously been a
          director
          of the Corporation), Mr. Ronald Binns and Mr. Garry Macdonald. The three
          new
          independent directors have agreed, at this time, to serve the Board and
          the
          committees of the Board for no cash compensation. See also Item 6(A), “Directors
          and Senior Management.” During Fiscal 2006, the Board of Directors held 23
          meetings, the Audit Committee held 10 meetings, the Compensation Committee
          held
          12 meetings, and the Corporate Governance Committee held 3
          meetings.
   **Option
          Grant Table**
   The
          following table sets forth information concerning the grant of stock options
          to
          purchase Subordinate Voting Shares to each of the Company’s officers and
          directors during the fiscal year ending August 31, 2006
  Market
                    Value ofSecurities
                    Under
                %
                    of Total Options
                
                Securities
                    UnderlyingOptions
                    Granted
                Granted
                Exercise
                    or Base Price
                Options
                    on Date of GrantName
                #
                in
                    Fiscal Year
                (Cdn
                    $/Security)
                (Cdn
                    $/Security)
                Expiration
                    DateRomeo
                    DeGasperis(1)
                10,000
                3.13%
                2.85
                2.85
                February
                    27, 2016William
                    McManaman(3)
                10,000
                3.13%
                2.85
                2.85
                February
                    27, 2016Aaron
                    Serruya(5)
                10,000
                3.13%
                2.85
                2.85
                February
                    27, 2016Robert
                    Baker(3)
                10,000
                3.13%
                2.85
                2.85
                February
                    27, 2016Beth
                    Bronner(3)
                10,000
                3.13%
                2.85
                2.85
                February
                    27, 2016Josh
                    Sosland(3)
                10,000
                3.13%
                2.85
                2.85
                February
                    27, 2016Francis
                    Orfanello
                100,000
                31.30%
                2.84
                2.84
                January
                    11, 2016(4)
  (1)Mr.
          DeGasperis
          resigned from the Board on August 6, 2006. He rejoined the Board on November
          17,
          2006. All of the vested stock options, including those reflected above,
          were
          forfeited in accordance with the 2002 stock option plan.
   (2
          )Mr. McManaman was
          elected to the Board on February 27, 2006, replacing Mr. Arthur Waldbaum,
          who
          retired from the Board of Directors.
   (3)Mr.
          Baker, Ms.
          Bronner, Mr. Sosland and Mr. McManaman resigned from the Board of Directors
          on
          November 17, 2006. All of their vested stock options, including those reflected
          above, were forfeited in accordance with the 2002 stock option
          plan.
   (4)Mr.
          Orfanello
          resigned his position as Executive Vice-President on October 6, 2006. None
          of
          the options were vested and they were forfeited in accordance with the
          2002
          stock option plan.
   (5)Mr.
          Aaron Serruya
          surrendered all of his vested options, including those reflected above,
          in
          November 2006.
   Note
          – all of the above options in the above table were either forfeited or
          surrendered subsequent to August 31, 2006.
   See
          Item 6(e) Share Ownership-Stock Option Plan- for a description of the Company’s
          stock option plans.
   **Item
          6(C) Board Practices**
   Each
          director holds office until the close of business of the next annual meeting
          of
          shareholders of the Corporation unless his or her office is earlier vacated
          in
          accordance with the Corporation’s articles of continuance. Officers are
          appointed to serve at the discretion of the Board of Directors.
   The
          Corporation has no director service contracts.
   **Board
          Representation Agreement**
   In
          connection with the acquisition on March 18, 1998 of Integrated Brands,
          by a
          wholly-owned subsidiary of the Corporation, Messrs. Richard E. Smith, David
          M.
          Smith and David J. Stein (“Integrated Brands Principal Shareholders” and
          Integrated Brands Inc., on the one hand, and the Corporation and The Serruya
          Family Trust, 1082272 Ontario Inc., Michael Serruya and Aaron Serruya
          (“CoolBrands Principal Shareholders”), on the other hand, entered into the Board
          Representation Agreement.
   Each
          of the CoolBrands Principal Shareholders and the Integrated Brands Principal
          Shareholders had agreed to vote against: (i) the sale of all or substantially
          all of the Corporation’s assets; (ii) a merger, consolidation or similar
          transaction involving the Corporation; or (iii) an amendment to the Memorandum
          of the Association and/or the Articles of Association of the Corporation
          which
          would adversely affect the rights of the Integrated Brands Principal
          Shareholders or the CoolBrands Principal Shareholders, unless the Integrated
          Brands Principal Shareholders and the CoolBrands Principal Shareholders
          agree in
          writing to vote for any such matters. See further discussion below in “Voting
          Agreement.:
   Each
          of the CoolBrands Principal Shareholders and the Integrated Brands Principal
          Shareholders agreed not to accept an offer to sell any voting securities
          at a
          price in excess of the market price of the voting securities on the date
          of such
          offer, except: (i) sales made on The Toronto Stock Exchange or any other
          regional or national exchange, outside or inside Canada, on which such
          securities are regularly traded; (ii) to another principal shareholder;
          or (iii)
          pursuant to an offer made proportionately and at the same price to all
          other
          shareholders of the Corporation.
   The
          provisions of the Board Representation Agreement allowed for its termination:
          (i) by the CoolBrands Principal Shareholders in the event that the Integrated
          Brands Principal Shareholders were the beneficial owners, in the aggregate,
          of
          fewer than 750,000 voting securities (including voting securities issuable
          upon
          the conversion or exercise of convertible securities); and (ii) by the
          Integrated Brands Principal Shareholders, in the event the CoolBrands Principal
          Shareholders were the beneficial owners, in the aggregate, of fewer than
          1,500,000 voting securities (including voting securities issuable upon
          the
          conversion or exercise of convertible securities).
   This
          Board Representation Agreement was terminated upon the collapse of the
          dual
          class structure as discussed in Item 4(A), “History and Development” and in
“Recent Developments of the Company”.
   **Voting
          Agreement**
   Notwithstanding
          the Board Representation Agreement, Aaron Serruya, Michael Serruya, David
          Smith
          and David Stein, and entities affiliated with them (collectively, the
“Management MVS Holders”), each entered into the Voting Agreement with the
          Corporation pursuant to which they each agreed to vote all of the shares
          that
          they beneficially own or control in favor of the Continuance Resolution
          and in
          favor of the Share Capital Restructuring Resolution. On February 27, 2006,
          the
          shareholders of the Corporation passed a special resolution which resulted
          in
          the change of each Class A subordinate voting share (the “Subordinate Voting
          Shares”) and each Class B multiple voting share (the “Multiple Voting Shares”)
          into one common share. This change occured on May 31, 2007.. Upon the change
          to
          the Corporation’s dual class structure becoming effective, the Board
          Representation Agreement and the Trust Agreement terminated. Prior to
          termination, the parties had agreed that the Corporate Governance Committee
          will
          make all nominations for membership to the board of directors of the
          Corporation.
   This
          Voting Agreement terminated upon the collapse of the dual class structure
          as
          discussed in Item 4(A), “History and Development” and in “Recent Developments of
          the Company”.
   **Committees**
   The
          Board and its committees (consisting of an Audit Committee, a Compensation
          Committee and Corporate Governance Committee) are available to consider
          the
          views of management and investors concerning their needs and decisions
          affecting
          the Company. The Company does not have an executive committee of its Board
          of
          Directors.
   **Audit
          Committee**
   The
          Board has adopted a charter for the Audit Committee to follow in carrying
          out
          its audit and financial review functions. The Audit Committee reviews all
          financial statements of the Company prior to their publication, reviews
          audits,
          considers the adequacy of audit procedures, recommends the appointment
          of
          independent auditors, reviews and approves the professional services to
          be
          rendered by them and reviews fees for audit services. The Board has established
          definitions for “financial literacy” and has determined that all members of the
          Audit Committee are financially literate. During Fiscal 2006, the Audit
          Committee consisted of Romeo DeGasperis,Beth L. Bronner and William McManaman
          who was elected to the Board at the Fiscal 2006 annual meeting, and was
          appointed to the Audit Committee as its Chairman. Mr. DeGasperis resigned
          from
          the Board on August 6, 2006. Ms. Bronner and Mr. McManaman resigned from
          the
          Board on November 17, 2006. They were replaced on the Audit Committee by
          Mr.
          DeGasperis, who rejoined the Board, Mr. Ronald Binns, as Chairman of the
          Audit
          Committee, and Mr. Garry Macdonald.
   **Compensation
          Committee**
   **During
          Fiscal 2006, the Compensation Committee was comprised of the following
          independent directors: L. Joshua Sosland (Chair) and Robert E. Baker. William
          McManaman who was elected at the 2006 Annual Meeting was appointed to replace
          Arthur Waldbaum as a member of the Compensation Committee. Messrs Sosland,
          Baker
          and McManaman resigned from the Board of Directors on November 17, 2006
          and were
          replaced on the Compensation Committee by Messrs DeGasperis, Mr Binns and
          Mr.
          Macdonald.**
   The
          Compensation Committee’s primary function is to assist the Board of Directors in
          fulfilling its responsibilities by overseeing the Corporation’s compensation of
          senior officers and preparing an annual report on executive compensation
          for the
          Board of Directors and for inclusion in the Corporation’s annual proxy
          circular.
   Specific
          responsibilities of the Compensation Committee include:
   (1)
          in consultation with senior management of the Corporation, establishing
          the
          Corporation’s compensation policies and/or practices, seeking to ensure such
          policies and practices are designed to recognize and reward performance
          and
          establish a compensation framework which is industry competitive, and which
          results in the creation of shareholder value over the long-term;
   (2)
          reviewing and approving corporate goals and objectives relevant to the
          compensation of the Chief Executive Officer, evaluating the performance
          of the
          Chie Executive Officer in light of these goals and objectives, and setting
          the
          Chief Executive Officer’s total compensation level based on this evaluation and
          other factors as the Committee deems appropriate and in the best interests
          of
          the Corporation;
   (3)
          reviewing the evaluation of other senior officers’ performance and setting the
          compensation of these senior officers, based on their evaluations and other
          factors as the Committee deems appropriate and in the best interests of
          the
          Corporation;
   (4)
          overseeing the Corporation’s incentive compensation plans and equity-based
          plans;
   (5)
          reviewing and recommending to the Board of Directors the compensation of
          the
          members of the Board of Directors, including any annual retainer, committee
          membership fees, meeting fees, and other benefits conferred upon the directors;
          and
   (6)
          reviewing the Compensation Committee’s charter and recommending to the Board of
          Directors changes to it, as considered appropriate from time to
          time.
   **Corporate
          Governance Committee**
   The
          Company’s Corporate Governance Committee has the general responsibility for
          developing the Company’s approach to governance issues. At present, Board
          approval is required for any transaction which is out of the ordinary course
          of
          business or could be considered to be “material” to the business of the Company.
          As a matter of practice, all significant decisions affecting the Company
          and its
          subsidiaries are approved by the Board of Directors prior to their
          implementation.
   **Item
          6(D) Employees**
   As
          of August 31, 2004, CoolBrands had 1,305 full-time and part-time employees.
          As
          of August 31, 2005, CoolBrands had 1,361 full-time and part-time employees.
          As
          of August 31, 2006, CoolBrands had 1,033 employees.
   Approximately
          140 hourly employees at the CoolBrands Dairy facility in North Lawrence,
          New
          York are represented by the local Teamsters Union and are covered by a
          collective bargaining agreement, which expired in September 2006. The Company
          sold 100% of the issued and outstanding stock of CBD to an unaffiliated
          third
          party on January 30, 2007.
   The
          following is a breakdown of employees by segment for the year ended August
          31,
          2006:
   Frozen
          Dessert Segment 786
   Yogurt
          Segment 178
   Foodservice
          Segment 37
   Dairy
          Components Segment 32
   As
          of August 31, 2007, the Company has 2 employees.
   **Item
          6(E) Share Ownership**
   The
          following table sets forth as of February 27, 2007, information with respect
          to
          officers and directors of the Company listed in 6(B) who are the direct
          or
          indirect beneficial owners of any class of the Company’s voting
          securities:
   Amount
          Owned and
   Identity
          of Nature of Beneficial Percent of
   Title
          of Class Person or Group Ownership Class**
   ------------------
          -------------------- -------------------------- ------------------
   Subordinate
          Voting Shares The Estate of
   and
          Multiple Voting Shares Richard E. Smith((13)
          11,606,492shares(1)
          18.85%
   Subordinate
          Voting Shares David M. Smith(13) 11,606,492
          shares(2)
          18.85%
   and
          Multiple Voting Shares
   Subordinate
          Voting Shares David Stein(13) 11,606,492
          shares(3)
          18.85%
   and
          Multiple Voting Shares
   Subordinate
          Voting Shares Michael Serruya(13) 11,606,492
          shares(4)
          18.85%
   and
          Multiple Voting Shares
   Subordinate
          Voting Shares Aaron Serruya(13) 11,606,492
          shares(5)
          18.85%
   and
          Multiple Voting Shares
   Subordinate
          Voting Shares The Serruya Family Trust(13) 11,606,492shares
          18.85%
   and
          Multiple Voting Shares
   Subordinate
          Voting Shares 1082272 Ontario, Inc.(6)(13) 11,606,492
          shares(7)
          18.85%
   and
          Multiple Voting Shares
   Subordinate
          Voting Shares Ronald W. Binns 500,000 shares *
   Subordinate
          Voting Shares Romeo DeGasperis 6,700 shares *
   Subordinate
          Voting Shares Gary P. Stevens 101,127 shares(8) *
   Subordinate
          Voting Shares Timothy Timm 113,795 shares(9) *
   Subordinate
          Voting Shares John LeSauvage 89,166 shares(10) *
   Subordinated
          Voting Shares Daniel Hescke 66,667(11) *
   ----------------------------
   *
          Less than 1%
   **
          Based on 6,025,659 Multiple Voting Shares and 50,049,774 Subordinate Voting
          Shares outstanding as of February 27, 2007 and warrants held by each beneficial
          holder exercisable within 60 days.
   (1)The
          Estate of
          Richard E. Smith beneficially owns 11,606,492 Subordinate Voting Shares,
          consisting of 8,300 Subordinate Voting Shares and 1,419,467 Multiple Voting
          Shares for an aggregate of 1,427,767 shares which are owned by it individually,
          and 10,178,725 Subordinate Voting Shares (including those shares convertible
          from Multiple Voting Shares) which are owned by the other Integrated Brand
          Principal Shareholders and the CoolBrands Principal Shareholders.
   (2)Mr.
          Smith
          beneficially owns 11,606,492 Subordinate Voting Shares, consisting of 288,106
          Multiple Voting Shares which are owned by him individually, and 11,318,389
          Subordinate Voting Shares (including those shares convertible from Multiple
          Voting Shares) which are owned by the other Integrated Brand Principal
          Shareholders and the CoolBrands Principal Shareholders.
   (3)Mr.
          Stein
          beneficially owns 11,606,492 Subordinate Voting Shares, consisting of 45,138
          Multiple Voting Shares which are owned by him individually, and 11,561,354
          Subordinate Voting Shares (including those shares convertible from Multiple
          Voting Shares) which are owned by the other Integrated Brand Principal
          Shareholders and the CoolBrands Principal Shareholders.
   (4)Mr.
          Serruya
          beneficially owns 11,606,492 Subordinate Voting Shares, of which 56,000
          Subordinate Voting Shares are owned by his retirement account, 5,500,000
          represents warrants to purchase Subordinate Voting Shares which are immediately
          exercisable and 1,749,042 Subordinate Voting Shares (including those shares
          convertible from Multiple Voting Shares) which are owned by the other Integrated
          Brand Principal Shareholders and the CoolBrands Principal Shareholders.
          As part
          of the purchase of the debt outstanding under the Americana Credit Facility
          by
          2118769, as defined below in footnote 12 to this table, and the grant of
          5,500,000 warrants to Mr. Serruya, Mr. Serruya surrendered 599,275 vested
          stock
          options in November 2006.
   (5)Mr.
          Serruya
          beneficially owns 11,606,492 Subordinate Voting Shares, of which 56,149
          Subordinate Voting Shares are owned by his retirement account and 11,550,343
          Subordinate Voting Shares (including those shares convertible from Multiple
          Voting Shares) which are owned by the other Integrated Brand Principal
          Shareholders and the CoolBrands Principal Shareholders. As part of the
          refinancing described in footnote 4 above, Mr. Serruya surrendered 609,275
          vested stock options in November 2006.
   (6)1082272
          Ontario
          Inc., a corporation organized under the laws of the Province of Ontario,
          Canada
          ("1082272"), of which The Serruya Family Trust (the "Trust") is the sole
          shareholder. The Trust was created and settled for the benefit of certain
          members of the Serruya family, including Mr. Michael Serruya, the Chairman,
          President and Chief Executive Officer of the Company and Mr. Aaron Serruya,
          a
          director of the Company.
   (7)1082272,
          of which
          The Serruya Family Trust is the sole shareholder, and the Serruya Family
          Trust,
          collectively, beneficially own 11,606,492 Subordinate Voting Shares of
          which
          4,078,301 Multiple Voting Shares are owned by 1082272 Ontario, Inc. and
          155,031
          Multiple Voting Shares are owned by the Serruya Family Trust, each for
          the
          benefit of Michael Serruya and Aaron Serruya, and 7,373,160 Subordinate
          Voting
          Shares (including those shares convertible from Multiple Voting Shares)
          which
          are owned by the other Integrated Brand Principal Shareholders and the
          CoolBrands Principal Shareholders.
   (8)Mr.
          Stevens owns
          39,127 Subordinate Voting Shares and 62,000 options to purchase Subordinate
          Voting Shares exercisable within 60 days. Mr. Stevens also has 29,000 unvested
          options.
   (9)Mr.
          Timm owns
          47,128 Subordinate Voting Shares and 66,667 options to purchase Subordinate
          Voting Shares exercisable within 60 days. Mr. Timm also has 33,333 unvested
          options.
   (10)Mr.
          LeSauvage
          owns 1,500 shares of Subordinate Voting Shares and 91,667 options to purchase
          Subordinate Voting Shares exercisable within 60 days. Mr. LeSauvage also
          has
          40,333 unvested options.
   (11)Mr.
          Hescke owns
          66,667 options to purchase Subordinate Voting Shares exercisable within
          60 days
          Mr. Heschke also has 33,333 unvested options..
   (12)In
          connection
          with the repayment of the amounts outstanding under the Americana Credit
          Facility and the establishment of a $5 million letter of credit in favor
          of the
          lenders under the Corporate Credit Facility and entering into a forbearance
          agreement with and among the other senior lenders, 2118769 Ontario Inc
          (“2118769”), a company controlled by Michael Serruya, received warrants to
          purchase 5,500,000 Subordinated Voting Shares of the Company. The exercise
          price
          of each warrant is Cdn $0.50 and the warrants expire in November 2011.
          The
          warrants are considered beneficially owned by Mr. Serruya and are included
          in
          the beneficial shares controlled pursuant to the Voting Agreement and the
          Board
          Representation Agreement.
   (13)Each
          of The
          Estate of Richard E. Smith, David M. Smith, David Stein, Michael Serruya,
          Aaron
          Serruya, The Serruya Family Trust and 1082272 Ontario, Inc (the Integrated
          Brand
          Principal Shareholders and the CoolBrands Principal Shareholders) are parties
          to
          a Voting Agreement and a Board Representation Agreement, which is discussed
          more
          fully in Item 6(C), Board Practices. In the aggregate, the Integrated Brand
          Shareholders and the CoolBrands Principal Shareholders beneficially own
          18.85%
          of the issued and outstanding shares of the Corporation and for voting
          purposes,
          59.4% of the voting stock.
   The
          parties to the Board Representation Agreement constitute a "group" within
          the
          meaning of 13(d)(3) of the Exchange Act, pursuant to their execution of
          the
          Board Representation Agreement, and pursuant to such agreement the parties
          hold
          an aggregate of 99.3% of the Multiple Voting Shares.
 In
          connection with the Corporation’s failure to meet the deadline of November 29,
          2006, under Canadian securities regulation for the filing of its audited
          annual
          financial statements, related management’s discussion and analysis, and annual
          information form for the year ended August 31, 2006, the Corporation made
          an
          application to Canadian securities regulators for an order that trading
          in the
          Corporation’s securities by directors and officers cease until such time as the
          requisite filings have been made. On November 30, 2006, the Ontario Securities
          Commission (as principal regulator) issued a temporary order prohibiting
          Michael
          Serruya, David Stein, Aaron Serruya, Romeo DeGasperis, Robert Baker, Beth
          Bronner, Joshua Sosland, Gary Stevens, Timothy Timm, John LeSauvage, Craig
          Hettrich, Garry Macdonald, Ronald W. Binns, William McMananan, Thomas J.
          Lavan,
          Dan Heschke, Matthew Smith, David M. Smith and Francis Orfanello from trading
          in
          securities of the Corporation. That order remains in effect as of the date
          hereof. Additionally, because the Company was delinquent in meeting its
          deadine
          for filing its audited financial statements, related management’s discussion and
          analysis and annual information form for the year ended August 31, 2005,
          a
          similar order was imposed on the Company with respect to the officers and
          director of the Company in place at that time, for the period November
          30, 2005
          to December 13, 2005.
   **Stock
          Option Plan**
   The
          Corporation established a stock option plan in 1998 (the "1998 Stock Option
          Plan") as a means of attracting, retaining and rewarding directors, officers,
          consultants and key employees. Under the 1998 Stock Option Plan, options
          to
          purchase Subordinate Voting Shares ("Options") may be granted to eligible
          participants from time to time by the Board of Directors at an exercise
          price
          fixed by the Board of Directors in compliance with the 1998 Stock Option
          Plan,
          applicable law and with the rules of The Toronto Stock Exchange. The maximum
          number of Subordinate Voting Shares available for issuance to any one person
          is
          5% of the aggregate number of Shares issued and outstanding on a non-diluted
          basis at the time of the grant. The maximum number of Subordinate Voting
          Shares
          reserved for issuance to insiders cannot exceed 10% of the total number
          of
          issued and outstanding voting securities of the corporation. Options granted
          pursuant to the Stock Option Plan are non-transferable and non-assignable.
          Options are subject to earlier termination in the event that an optionee
          ceases
          to be an officer, director, consultant or employee of the
          Corporation.
   The
          number of Subordinate Voting Shares that may be issued under the 1998 Stock
          Option Plan fluctuate due to the granting, termination and expiry of Options.
          In
          2001, the Corporation amended the 1998 Stock Option Plan to increase the
          maximum
          number of Subordinate Voting Shares reserved for issuance under the Stock
          Option
          Plan by 2 million Shares to an aggregate of 5 million Shares.
   The
          Corporation established another stock option plan in 2002 (the "2002 Stock
          Option Plan") as a means of attracting, retaining and rewarding directors,
          officers, consultants and key employees. Under the 2002 Stock Option Plan,
          options to purchase Shares ("Options") may be granted to eligible participants
          from time to time by the Board of Directors at an exercise price fixed
          by the
          Board of Directors in compliance with the 2002 Stock Option Plan, applicable
          law
          and with the rules of The Toronto Stock Exchange. The maximum number of
          Subordinate Voting Shares available for issuance to any one person is 5%
          of the
          aggregate number of Subordinate Voting Shares issued and outstanding on
          a
          non-diluted basis at the time of the grant. The maximum number of Subordinate
          Voting Shares reserved for issuance to insiders cannot exceed 10% of the
          total
          number of issued and outstanding voting securities of the corporation.
          Options
          granted pursuant to the 2002 Stock Option Plan are non-transferable and
          non-assignable. Options are subject to earlier termination in the event
          that an
          optionee ceases to be an officer, director, consultant or employee of the
          Corporation.
   **Item
          7 Major Shareholders and Related Party Transactions**
   **Item
          7(A) Major Shareholders**
   The
          following table sets forth as of January 27, 2007, information with respect
          to
          shareholders of the Company that directly or indirectly beneficially own
          5% or
          more of any class of the Company's voting securities:
   Identity
          of
   Title
          of Class Person or Group Amount Owned Percent of Class **
   -------------------------
          -------------------- ------------------- --------------------
   Subordinate
          Voting Shares Apex Capital, LLC 5,032,000 shares 8.97%
   Subordinate
          Voting Shares Sanford J. Colen(1) 5,105,000
          shares
          9.10%
   Subordinate
          Voting Shares The Estate of
   and
          Multiple Voting Shares Richard E. Smith 11,606,492 shares(2)
          18.85%
   Subordinate
          Voting Shares David M. Smith 11,606,492 shares(3)
          18.85%
   and
          Multiple Voting Shares
   Subordinate
          Voting Shares David J. Stein 11,606,492shares(4)
          18.85%
   and
          Multiple Voting Shares
   Subordinate
          Voting Shares Michael Serruya 11,606,492 shares(5)
          18.85%
   and
          Multiple Voting Shares
   Subordinate
          Voting Shares Aaron Serruya 11,606,492 shares(6)
          18.85%
   and
          Multiple Voting Shares
   Subordinate
          Voting Shares The Serruya Family Trust 11,606,492 shares(8)
          18.85%
   and
          Multiple Voting Shares
   Subordinate
          Voting Shares 1082272 Ontario, Inc.(7) 11,606,492
          shares(8)
          18.85%
   and
          Multiple Voting Shares
   Subordinated
          Voting Shares Seymour Schulich 6,000,000 shares 10.70%
   **
          Based on 6,025,659 Multiple Voting Shares and 50,049,774 Subordinate Voting
          Shares outstanding as of February 27, 2007 and warrants held by each beneficial
          holder exercisable within 60 days.
   (1)Sanford
          Colen is
          the controlling member of Apex Capital, LLC.
   (2)The
          Estate of
          Richard E. Smith beneficially owns 11,606,492 shares of Class A Stock,
          consisting of 8,300 shares of Class A Stock and 1,419,467 shares of Class
          B
          Stock for an aggregate of 1,427,767 shares which are owned by it individually,
          and 10,178,725 shares of Class A Stock or warrants that are immediately
          convertible into Class A Stock (including those shares convertible from
          Class B
          Stock) which are owned by the other Integrated Brand Principal Shareholders
          and
          the CoolBrands Principal Shareholders.
   (3)Mr.
          Smith
          beneficially owns 11,606,492 shares of Class A Stock, consisting of 288,106
          shares of Class B Stock which are owned by him individually, and 11,318,389
          shares of Class A Stock (including those shares convertible from Class
          B Stock)
          which are owned by the other Integrated Brand Principal Shareholders and
          the
          CoolBrands Principal Shareholders.
   (4)Mr.
          Stein
          beneficially owns 11,606,492 shares of Class A Stock, consisting of 45,138
          shares of Class B Stock which are owned by him individually, and 11,561,354
          shares of Class A Stock (including those shares convertible from Class
          B Stock)
          which are owned by the other Integrated Brand Principal Shareholders and
          the
          CoolBrands Principal Shareholders.
   (5)Mr.
          Serruya
          beneficially owns 11,606,492 shares of Class A Stock, of which 56,000 shares
          of
          Class A Stock are owned by his retirement account, 5,500,000 represents
          warrants
          immediately exercisable, and 6,050,492 shares of Class A Stock (including
          those
          shares convertible from Class B Stock) which are owned by the other Integrated
          Brand Principal Shareholders and the CoolBrands Principal
          Shareholders.
   (6)Mr.
          Serruya
          beneficially owns 11,606,492 shares of Class A Stock, of which 56,149 shares
          of
          Class A Stock are owned by his retirement account and 11,550,343 shares
          of Class
          A Stock (including those shares convertible from Class B Stock) which are
          owned
          by the other Integrated Brand Principal Shareholders and the CoolBrands
          Principal Shareholders.
   (7)1082272
          Ontario
          Inc., a corporation organized under the laws of the Province of Ontario,
          Canada
          ("1082272"), of which The Serruya Family Trust (the "Trust") is the sole
          shareholder. The Trust was created and settled for the benefit of certain
          members of the Serruya family, including Mr. Michael Serruya, the Chairman,
          President and Chief Executive Officer of the Company and Mr. Aaron Serruya,
          a
          director of the Company.
   (8)1082272
          Ontario,
          Inc., of which The Serruya Family Trust is the sole shareholder, and the
          Serruya
          Family Trust, collectively, beneficially own 11,606,492 shares of Class
          A Stock
          of which 4,078,301 shares of Class B Stock are owned by 1082272 Ontario,
          Inc.
          and 155,031 shares of Class B Stock are owned by the Serruya Family Trust,
          each
          for the benefit of Michael Serruya and Aaron Serruya and 7,373,160 shares
          of
          Class A Stock (including those shares convertible from Class B Stock) which
          are
          owned by the other Integrated Brand Principal Shareholders and the CoolBrands
          Principal Shareholders.
   (9)In
          connection with
          the repayment of the amounts outstanding under the Americana Credit Facility
          and
          the establishment of a $5 million letter of credit in favor of the lenders
          under
          the Corporate Credit Facility and entering into a forbearance agreement
          with and
          among the other senior lenders, 2118769 Ontario Inc (“2118769”), a company
          controlled by Michael Serruya, received warrants to purchase 5,500,000
          subordinated voting shares of the Company. The exercise price of each warrant
          is
          Cdn $0.50 and the warrants expire in November 2011 Such shares are considered
          in
          the above amounts as beneficially owned by Mr. Serruya and subject to the
          Voting
          Agreement and Board Representation Agreement..
   (10)Mr.
          Seymour
          Schulich owns 6,000,000 shares of Subordinate Voting shares, according
          to a
          report filed with the Canadian securities regulator on November 21,
          2006.
   (11)Each
          of The
          Estate of Richard E. Smith, David M. Smith, David Stein, Michael Serruya,
          Aaron
          Serruya, The Serruya Family Trust and 1082272 Ontario, Inc (the Integrated
          Brand
          Principal Shareholders and the CoolBrands Principal Shareholders) are parties
          to
          a Voting Agreement and a Board Representation Agreement, which is discussed
          more
          fully in Item 6©, Board Practices. In the aggregate, the Integrated Brand
          Shareholders and the CoolBrands Principal Shareholders beneficially own
          18.85%
          of the issues and outstanding shares and for voting purposes, 59.4% of
          the
          voting stock.
   The
          parties to the Board Representation Agreement constitute a "group" within
          the
          meaning of 13(d)(3) of the Exchange Act, pursuant to their execution of
          the
          Board Representation Agreement, and pursuant to the agreement the parties
          hold
          an aggregate of 99.3% of the Class B Stock
   Each
          major shareholder of the Company holding Multiple Voting Shares is entitled
          to
          ten votes per share, whereas the holders of Subordinate Voting Shares are
          entitled to one vote per share. There are no disproportionate or weighted
          voting
          privileges.
   As
          of February 27, 2007, approximately 85% of the outstanding Subordinate
          Voting
          Shares were held in Canada by approximately 89 holders and approximately
          15% of
          the outstanding Subordinate Voting Shares were held in the United States
          by
          approximately 933 holders. The Integrated Brand Principal Shareholders
          and the
          CoolBrands Principal Shareholders own, in the aggregate 99.3% of the Multiple
          Voting Shares.
   **Item
          7(B) Related Party Transactions**
   The
          only material transactions within the last three years in which a director,
          executive officer or principal shareholder of the Corporation or any associate
          or affiliate of the foregoing have had a material interest, direct
          or
   indirect,
          which has materially affected or will materially affect the Corporation
          are as
          follows:
   (a)
          701587 Ontario Ltd., a corporation whose sole shareholder is The Serruya
          Family
          Trust, a significant shareholder of the Corporation, routinely enters into
          leases with commercial landlords for the premises used by the Corporation's
          Canadian franchisees and sublets such premises to such franchisees. Yogen
          Fruz
          International Ltd. does not earn any fees or premium on such leases. Subsequent
          to the year ended August 31, 2005, the Corporation sold substantially all
          of its
          franchising division;
   (b)
          Effective December 23, 2005 the Corporation sold substantially all of its
          franchising and licensing segment for cash consideration of $8 million
          to
          International Franchise Corp., a company owned by Aaron Serruya, a director
          and
          former executive vice president of CoolBrands;
   (c)
          Integrated Brands, a wholly owned subsidiary of the Corporation, has entered
          into a distribution agreement with Calip, a company controlled by David
          M.
          Smith, a Vice-Chairman and Chief Operating Officer of the Corporation.
          Pursuant
          to the agreement, Integrated Brands Inc. appointed Calip as its exclusive
          distributor for any ice cream or other frozen dessert product manufactured
          by,
          on behalf of, or under authority of, Integrated Brands Inc., its subsidiaries,
          affiliates or successors in the State of New Jersey and certain areas in
          the
          State of New York and the State of Connecticut. The agreement continues
          until
          December 31, 2007 and thereafter renews automatically on December 31 of
          each
          year for an additional one year term, provided that as of
   such
          date at least 50% of the issued and outstanding shares of Calip are beneficially
          owned by the Smith Family and/or David Stein, unless Calip gives Integrated
          Brands written notice on or before September 30th of that same year that
          Calip
          will not renew the agreement, in which event the agreement terminates effective
          December 31 following such notice. The Corporation has agreed to guarantee
          the
          performance of the distribution agreement; and
   (d)
          Prior to his death on January 29, 2005, Mr. Richard E. Smith, the former
          Co-Chairman and Co-Chief Executive Officer of the Corporation, was paid
          by Calip
          (an ice cream distributor owned then by Mr. Richard E. Smith and members
          of his
          family) pursuant to the terms of a management agreement effective July
          1, 2003
          between Calip and Integrated Brands. Calip received a fixed fee of $1,300,000
          per year for providing a variety of management services, including making
          available Mr. Richard Smith for the positions of Co Chairman and Co-Chief
          Executive Officer of the Corporation. The management agreement was terminated
          following the passing of Mr. Smith on January 29, 2005. The fees paid to
          Calip
          in fiscal 2005 prior to its termination amounted to $542,000.
   In
          October 2006, Americana Foods was advised by its lenders that because of
          continuing defaults, they would no longer lend to Americana Foods and demanded
          full and immediate repayment of all of amounts outstanding under the Americana
          Credit Facility, which aggregated approximately $21,830,000 and which was
          guaranteed by the Company. The Company, through certain of its subsidiaries,
          as
          creditors of Americana Foods, filed an involuntary petition of bankruptcy
          against Americana Foods under Chapter 7 of the Federal Bankruptcy Code
          in the
          United States Bankruptcy Court, Northern District of Texas. As a result,
          Americana Foods ceased operations and an independent trustee was appointed
          to
          oversee the liquidation of the assets and liabilities of Americana Foods.
          In
          November, 2006, 2118769 Ontario, Inc. (“2118769”), a company controlled by
          Michael Serruya, currently the Chairman and CEO of the Company, purchased
          all of
          Americana Foods’ bank indebtedness, which aggregated $21,408,000, from the
          lender. 2118769 received a first lien security interest in the assets of
          Americana Foods. The Company remains the guarantor of the Americana debt.
          The
          independent trustee has sold or liquidated substantially all of the assets
          of
          Americana Foods and is completing his accounting. To the extent that the
          proceeds from the liquidation are not sufficient to pay Mr. Serruya’s company,
          the Company may be required to make a payment under its guarantee.
   Additionally,
          the Company continued to be in default under its Corporate Credit Facility.
          In
          connection with the purchase of the indebtedness outstanding under the
          Americana
          Credit Facility, as described above, the Company and the lender (a “Senior
          Lender”) amended the Corporate Credit Facility (the “Amendment”) and agreed to
          reduce the maximum amount of the Corporate Credit Facility to $8,000,000,
          subject to a borrowing base. Mr. Serruya, through the holding company (also
          a
“Senior Lender”), issued an irrevocable letter of credit with a face value of
          $5,000,000 in favor of the lender. The Senior Lenders and the Company also
          entered into a forbearance agreement which changed the maturity date of
          the
          Corporate Credit Facility from April 21, 2009 to May 17, 2007. The Amendment
          also required the Company to utilize proceeds from the sales of assets
          to reduce
          the indebtedness based upon a specified schedule. Mr. Serruya received,
          through
          the holding company, warrants to purchase 5,500,000 subordinate voting
          shares of
          the Company in connection with the acquisition of the senior indebtedness.
          The
          exercise price of each warrant is Cdn $0.50 and the term of the warrants
          is five
          years from the date of the grant. The warrants issued by the Company in
          connection with this transaction were valued at $1,764 USD (Cdn $1,980)
          using
          the Black-Scholes pricing model and the following assumptions: 2.5 years
          expected life, no dividends, 67% volatility and 4.6% risk free rate, and
          were
          expensed by the Company in the first quarter of Fiscal 2007. The Company
          completed the sale of the foodservice segment on January 24, 2007 and utilized
          a
          portion of the proceeds to pay off and terminate the Corporate Credit
          Facility.
   No
          individual who was a director, executive officer or senior officer of the
          Company at any time during the fiscal year ended August 31, 2006, or any
          associate or affiliate thereof is indebted to the Company.
   **Item
          7(C) Interest of Experts and Counsel**
   Not
          applicable.
   
   **Item
          8 Financial Information**
   **Item
          8(A) Consolidated Statements and Other Financial
          Information.**
   See
          attached consolidated Financial Statements of the Company. See Item 17
          below.
   **Export
          Sales**
   See
          "Business Overview."
   **Legal
          Proceedings**
   On
          September 12, 2006 a lawsuit was filed in the Supreme Court of the State
          of New
          York against the Corporation, Integrated Brands, CBA Foods LLC, CB Americana
          LLC, Gary P. Stevens, Brad Parks and Susan J. Smith as executrix of the
          will of
          Richard E. Smith by Americana Foods Corporation. Americana Foods Corporation,
          which owns a 49.9% interest in Americana Foods L.P., is seeking monetary
          damages, certain declaratory orders and injunctive relief based on an alleged
          erosion in the value of its investment. The Corporation is defending this
          claim.
   On
          July 21, 2006 a lawsuit was filed in the Ontario Superior Court against
          the
          Corporation, David J. Stein, Michael Serruya, Richard E. Smith, David M.
          Smith
          and Gary P. Stevens by James and Maureen Richardson (the “Richardson’s”). BMO
          Nesbitt Burns and Fraser Chapman, the Richardson’s broker, were also named as
          defendants. The plaintiffs allege that their broker made unauthorized purchases
          on their behalf of an unspecified number of CoolBrands shares, and that
          the
          actions of their broker and CoolBrands and its directors contributed to
          their
          loss. The plaintiffs are seeking to have the defendants purchase all of
          the
          CoolBrands shares held in their portfolio as well as exemplary and punitive
          damages in the amount of $500,000. The Corporation is defending this
          claim.
   The
          Company was served notice on March 12, 2007 by Godiva Chocolatier, Inc.
          and
          Godiva Brands, Inc. alleging that the Company has breached its license
          agreement
          and the licensor has filed a claim in the Supreme Court of the State of
          New York
          for damages of $14 million for breach of contract plus additional damages.
          The
          outcome and resolution of such claim is uncertain at this time.
   See
          Item 8(B), Significant Changes, for a discussion of the Americana Foods
          litigation.
   **Dividends**
   The
          Corporation's constating documents provide that holders of Subordinate
          Voting
          Shares are entitled to receive such dividends as may be declared by the
          board of
          directors prior to the holders of the Multiple Voting Shares. However,
          the
          Corporation has not paid cash dividends on its common stock since its inception
          and it is not contemplated that any dividends will be paid on any shares
          of the
          Corporation in the immediate future, as it is anticipated that all available
          funds will used to support current operations and provide working capital.
          Any
          decision to pay dividends in the future will be made by the Corporation's
          board
          of directors on the basis of their determination on whether to try to rebuild
          the business or sell the remaining assets of the Corporation.
   **Item
          8(B) Significant Changes**
   Effective
          December 23, 2005 the Corporation sold substantially all of its franchising
          and
          licensing segment for cash consideration of $8 million to International
          Franchise Corporation, a company owned by Aaron Serruya, a director and
          former
          executive vice president of the Corporation. In connection with the sale
          of the
          franchising and licensing segment, the Corporation was required to pay
          down
          $3,612,000 of its short term borrowings and long-term debt from the cash
          consideration received.
   *Litigation*
   In
          September 2006, Americana Foods Corporation (“AFC”), our 49.9% joint venture
          partner in Americana Foods, filed a complaint in the Supreme Court of the
          State
          of New York against the Company, IBI, CBA Foods, LLC, CB Americana and
          certain
          officers and directors of the Company and Americana Foods. The complaint
          alleges
          gross mismanagement of the business operations of Americana Foods and seeks
          to
          prevent the Company from selling control of the Company to a third party
          without
          paying AFC the financial return required by certain provisions of the American
          Limited Partnership Agreement, or sell any part of the foodservice segment
          without using the sales proceeds to repay the debt of Americana Foods.
          The
          Company has informed AFC that it does not believe that there are any amounts
          due
          AFC. The Company intends to vigorously defend against this
          complaint.
   *Discontinued
          Operations*
   During
          Fiscal 2006, the Company’s Board of Directors approved the decision to sell its
          Value America division, substantially of all its dairy components segment,
          Eskimo Pie Frozen Distribution, part of its frozen dessert segment, and
          CBD, its
          yogurt segment and we began actively marketing these businesses for
          sale.
   On
          September 1, 2006, Eskimo Pie Corporation, a wholly owned subsidiary of
          the
          Company, entered into an asset purchase agreement with Denali New Berlin,
          LLC
          and Denali Ingredients, LLC to sell its Value America flavor and ingredients
          division, which comprised substantially all of the dairy components segment.
          The
          sale of assets was consummated September 14, 2006 for a price of $8,250,000
          which exceeded the carrying value of the assets sold, of which $7,500,000
          was
          paid in cash and $750,000 was placed in escrow subject to collection of
          certain
          accounts receivable. The Company classified the assets and liabilities
          of Value
          America as assets and liabilities of discontinued operations held for sale
          on
          the balance sheet as of August 31, 2006 and included the components of
          its
          operating results in net loss from discontinued operations on the statement
          of
          operations and the components of cash flows as net cash flows from discontinued
          operations for Fiscal 2006. Additionally, the Company classified the assets
          and
          liabilities of Value America as assets and liabilities of discontinued
          operations held for sale on the consolidated balance sheet as of August
          31, 2005
          and classified the components of operating results of Value America into
          net
          loss from discontinued operations and classified its cash flows as cash
          flows
          from discontinued operations for Fiscal 2005.
   On
          November 14, 2006, the Company announced that its wholly owned subsidiary,
          Eskimo Frozen Distribution Inc (“EPFD”) had entered into a definitive agreement
          to sell substantially all of its direct store door (“DSD”) frozen distribution
          assets in Florida, California, Oregon and Washington for a net sales price
          of
          $4,400,000, which equaled the carrying value of the related assets acquired
          net
          of the liabilities assumed, to an unaffiliated third party. The transaction
          closed on November 17, 2006. The Company classified the assets and liabilities
          of EPFD as assets and liabilities of discontinued operations held for sale
          on
          the balance sheet as of August 31, 2006 and included the components of
          operating
          results of EPFD as net loss from discontinued operations on the consolidated
          statement of operations and its cash flows as cash flows from discontinued
          operations for Fiscal 2006. Additionally, the Company classified the assets
          and
          liabilities of EPFD as assets and liabilities of discontinued operations
          held
          for sale on the consolidated balance sheet as of August 31, 2005 and classified
          the components of operating results to net loss from discontinued operations
          on
          the consolidated statement of operations and classified the cash flows
          as cash
          flows from discontinued operations for Fiscal 2005.
   On
          January 2, 2007, the Company entered into a definitive agreement to sell
          CBD,
          which includes the yogurt business acquired from Kraft Inc. in 2005, to
          an
          unaffiliated third party. The Company recorded a loss on impairment of
          $5,428,000 to adjust the carrying value of CBD’s net assets to approximate fair
          value based upon the definitive agreement. The Company classified CBD’s assets
          and liabilities as assets and liabilities of discontinued operations held
          for
          sale on the consolidated balance sheet as of August 31, 2006 and included
          the
          components of operating results in net loss from discontinued operations
          on the
          consolidated statement of operations and its cash flows as cash flows from
          discontinued operations for Fiscal 2006. Additionally, as of and for the
          year
          ended August 31, 2005, the Company has classified the assets and liabilities
          of
          CBD as assets and liabilities of discontinued operations held for sale
          on the
          consolidated balance sheet and included the components of operating results
          of
          CBD in net loss from discontinued operations on the consolidated statement
          of
          operations and the cash flows of CBD as cash flows from discontinued
          operations.
   *Sale
          of foodservice*
   On
          January 24, 2007 the Company sold, through its subsidiaries Eskimo Pie
          Corporation and Integrated Brands Inc., their Eskimo Pie and Chipwich Brands
          and
          Real Fruit trademark, along with Eskimo Pie soft serve brands and related
          foodservice business segment to Dreyer’s, an indirect subsidiary of Nestlé S.A.,
          for a purchase price of approximately $18,925,000. The purchase price includes
          approximately $4,000,000 in inventory and accounts receivables. Dreyer’s will
          also assume related liabilities in the amount of approximately $1,000,000.
          The
          Company utilized a portion of the proceeds to payoff the Corporate Credit
          Facility.
   Sale
          of frozen dessert operation
   On
          March 30, 2007 the Company sold its frozen dessert operation in Norwalk,
          California to an unrelated third party for proceeds of approximately
          $4,600,000.
   *Restructuring
          of Debt*
   In
          October 2006, Americana Foods was advised by its lenders that because of
          continuing defaults, they would no longer lend to Americana Foods and demanded
          full and immediate repayment of all of amounts outstanding under the Americana
          Credit Facility, which aggregated approximately $21,830,000 and which was
          guaranteed by the Company. The Company, through certain of its subsidiaries,
          as
          creditors of Americana Foods, filed an involuntary petition of bankruptcy
          against Americana Foods under Chapter 7 of the Federal Bankruptcy Code
          in the
          United States Bankruptcy Court, Northern District of Texas. As a result,
          Americana Foods ceased operations and an independent trustee was appointed
          to
          oversee the liquidation of the assets and liabilities of Americana Foods.
          In
          November, 2006, 2118769 Ontario, Inc. (“2118769”), a company controlled by
          Michael Serruya, currently the Chairman and CEO of the Company, purchased
          all of
          Americana Foods’ bank indebtedness, which aggregated $21,408,000, from the
          lender. 2118769 received a first lien security interest in the assets of
          Americana Foods. The Company remains the guarantor of the Americana debt.
          The
          independent trustee has sold or liquidated substantially all of the assets
          of
          Americana Foods and is completing his accounting. To the extent that the
          proceeds from the liquidation are not sufficient to pay Mr. Serruya’s company,
          the Company may be required to make a payment under its guarantee.
   Additionally,
          the Company continued to be in default under its Corporate Credit Facility.
          In
          connection with the purchase of the indebtedness outstanding under the
          Americana
          Credit Facility, as described above, the Company and the lender (a “Senior
          Lender”) amended the Corporate Credit Facility (the “Amendment”) and agreed to
          reduce the maximum amount of the Corporate Credit Facility to $8,000,000,
          subject to a borrowing base. Mr. Serruya, through the holding company (also
          a
“Senior Lender”), issued an irrevocable letter of credit with a face value of
          $5,000,000 in favor of the lender. The Senior Lenders and the Company also
          entered into a forbearance agreement which changed the maturity date of
          the
          Corporate Credit Facility from April 21, 2009 to May 17, 2007. The Amendment
          also required the Company to utilize proceeds from the sales of assets
          to reduce
          the indebtedness based upon a specified schedule. Mr. Serruya received,
          through
          the holding company, warrants to purchase 5,500,000 subordinate voting
          shares of
          the Company in connection with the acquisition of the senior indebtedness.
          The
          exercise price of each warrant is Cdn $0.50 and the term of the warrants
          is five
          years from the date of the grant. The warrants issued by the Company in
          connection with this transaction were valued at $1,764,000 USD (Cdn $1,980,000)
          using the Black-Scholes pricing model and the following assumptions: 2.5
          years
          expected life, no dividends, 67% volatility and 4.6% risk free rate, and
          will be
          expensed by the Company in the first quarter of Fiscal 2007. The Company
          completed the sale of the foodservice segment on January 24, 2007 and utilized
          a
          portion of the proceeds to pay off and terminated the Corporate Credit
          Facility.
   **Item
          9 The Offer and Listing**
   **Item
          9(A) (1) - (3)**
   Not
          applicable.
   **Item
          9(A) (4) Information Regarding Stock Price History**
   The
          Subordinate Voting Shares of the Corporation are listed and posted for
          trading
          on the Toronto Stock Exchange under the trading symbol "COB.SV.A".
   5
          most recent financial years
  Period
                High
                    (Cdn $)
                Low
                    (Cdn $)Sept.
                    2005 – Aug, 2006........
                3.18
                0.62Sept.
                    2004 - Aug. 2005 .......
                10.25
                2.55Sept.
                    2003 - Aug. 2004 .......
                27.00
                8.75Sept.
                    2002 - Aug. 2003 .......
                18.54
                4.25Sept.
                    2001 - Aug. 2002 .......
                8.15
                1.60
  .Each
          full financial quarter for the 2 most recent full financial years
  Period
                High
                    (Cdn $)
                Low
                    (Cdn $)Sept.
                    2005– Nov. 2005 ........
                3.07
                2.11Dec.
                    2005 – Feb. 2006 ........
                3.18
                2.30Mar.
                    2006 - May 2006.........
                3.07
                2.05Jun.
                    2006 - Aug 2006 ..........
                2.83
                0.62Sept.
                    2004 – Nov. 2004 .......
                10.25
                6.39Dec.
                    2004 – Feb. 2005 ........
                9.25
                7.00Mar.
                    2005 - May 2005 ........
                9.69
                3.91Jun.
                    2005 – Aug. 2005 ........
                4.75
                2.55
  Each
          month for the most recent six months
  Period
                High
                    (Cdn $)
                Low
                    (Cdn $)Jul.
                    2007
                1.05
                0.95Jun.
                    2007
                1.05
                0.90May
                    2007
                1.04
                0.85Apr.
                    2007
                1.17
                0.99Mar.
                    2007
                1.25
                0.69Feb.
                    2007.......................
                1.25
                1.15
  **Item
          9(A)(5)-(7)**
   Not
          applicable.
   **Item
          9(B) Plan of Distribution**
   Not
          applicable.
   **Item
          9(C) Markets**
   Prior
          to May 31, 2007 the Corporation’s Subordinate Voting Shares were listed for
          trading on The Toronto Stock Exchange in Ontario, Canada under the symbol
          "COB.SV.A". The Multiple Voting Shares were not listed for trading but
          could
          have been converted into Subordinate Voting Shares on a share for share
          basis.
          On May 31, 2007, the Corporation completed a restructuring of its share
          capital
          and the Subordinate Voting Shares and the Multiple Voting Shares were converted
          into Common Shares on a share for share basis. The Common Shares trade
          on The
          Toronto Stock Exchange under the symbol “COB”.
   **Item
          9(D) Selling Shareholders**
   Not
          applicable.
   **Item
          9(E) Dilution**
   Not
          applicable.
   **Item
          9(F) Expenses of the Issue**
   Not
          applicable.
   
   **Item
          10 Additional Information**
   **Item
          10(A) Share Capital**
   Not
          applicable.
   **Item
          10(B) Memorandum and Articles of Association**
   The
          Company was amalgamated under the laws of the Province of Ontario, Canada,
          pursuant to a certificate of amalgamation dated September 7, 1994. The
          Company
          was continued under the laws of the Province of Nova Scotia, Canada by
          its
          registration on March 18, 1998 with the office of the Registrar of Joint
          Stock
          Companies, Registry Number 3017246. On March 27, 2006, the Company was
          continued
          under the Canada Business Corporations Act.
   Capital
          Stock
   The
          Company’s articles of continuance authorize 200,000,000 of each of Class A
          Subordinate shares and Class B Multiple Voting no par value shares. Each
          share
          of Subordinate Voting Shares entitles the holder thereof to one vote at
          all
          meetings of the shareholders of the Company and each Multiple Voting Share
          entitles the holder thereof to ten votes at all meetings of the shareholders of
          the Company. The board of directors may from time-to-time declare and authorize
          payment of dividends. The Subordinate Voting Shares rank prior to the Multiple
          Voting Shares as to the payment of cash dividends. No dividends may be
          declared
          or paid on the Multiple Voting Shares in any fiscal year of the Company
          unless
          in such fiscal year dividends shall have been declared or paid on the
          Subordinate Voting Shares in an amount per share at least equal to or equivalent
          to the amount of the dividend per share proposed to be declared or paid
          on the
          Multiple Voting Share.
   Each
          outstanding Subordinate Voting Share is convertible into one Multiple Voting
          Share at the option of the holder thereof upon certain offers to purchase
          Multiple Voting Shares as more particularly described in the Articles of
          Continuance of the Company. Each outstanding Multiple Voting Share is
          convertible into one Subordinate Voting Share at any time and from time
          to time
          at the option of the holder thereof.
   Neither
          the holders of Multiple Voting Shares nor the holders of Subordinate Voting
          Shares may dissent in respect of any amendment referred to in any amendment
          to
          Section 176(a), (b) or (c) of the Canada Business Corporations Act.
   Upon
          dissolution of the Company, the holders of Multiple Voting Shares and the
          holders of Subordinate Voting Shares are entitled to receive the remaining
          assets of the Company in equal amounts per share.
   Subject
          to the Canada Business Corporations Act, the Company may, by special resolution
          of the shareholders; consolidate or subdivide its share capital; convert
          all or
          any of its paid-up shares into stock and reconvert such stock into paid
–up
          shares of any denomination; exchange shares of one denomination for another;
          cancel shares which have not been taken or agreed to be taken by any person;
          convert any part of its issued or unissued share capital into preference
          shares
          redeemable or purchasable by the Company; or change or eliminate the par
          value
          of shares (other than preferred shares).
   Subject
          to the Canada Business Corporations Act and any provisions attached to
          such
          shares, the Company may redeem, purchase or acquire any of its shares and
          the
          directors may determine the manner and terms for redeeming, purchasing
          or
          acquiring such shares and may provide a sinking fund on such terms as they
          think
          fit for the redemption, purchase or acquisition of shares of any class
          or
          series.
   On
          February, 27, 2006 the shareholders of the Company passed a special resolution
          that resulted in the exchange of each Class A subordinate voting share
          and each
          Class B Multiple Voting share into one common share. The change occurred
          on May
          31, 2007. Upon the change to the Company’s dual class structure becoming
          effective, the Board Representation Agreement and the Trust Agreement
          terminated.
   There
          are no limitations on the rights to own securities; including the rights
          of
          non-resident or foreign shareholders to hold or exercise voting rights
          on the
          securities imposed by the Canada Business Corporations Act or the Company’s
          Articles of Continuance.
   Objects
          and Powers of the Company
   The
          Company's Articles of Continuance do not contain any restrictions on the
          objects
          and purpose of the Company.
   Borrowing
          Power of Directors
   The
          directors on behalf of the Company may:
   1.
          raise or borrow money for the purposes of the Company or any of
          then;
   2.
          secure, the repayment of funds so raised or borrowed in such manner and
          upon
          such terms and conditions in all respects as they think fit, and in particular
          by the execution and delivery of mortgages of the Company's real or personal
          property, or by the issue of bonds, debentures or other securities of the
          Company secured by mortgage or other charge upon all or any part of the
          property
          of the Company, both present and future;
   3.
          sign or endorse bills, notes, acceptance, cheques, contracts, and other
          evidence
          of or securities for funds borrowed or to be borrowed for the purposes
          aforesaid;
   4.
          pledge debentures as security for loans; and
   5.guarantee
          obligations of any person.
   Director
          Compensation
   The
          Company’s bylaws provide that the directors shall be paid such remuneration for
          their services as the Board of Directors may from time to time
          determine.
   Interested
          Director Transactions
   A
          director who is a party to, or who is a director or officer of or has a
          material
          interest in any person who is a party to, a material contract or transaction
          or
          proposed material contract or transaction with the Corporation shall disclose
          to
          the Corporation the nature and extent of his interest at the time and in
          the
          manner provided by the Canada Business Corporations Act . Such director
          may not
          vote on any resolution to approve the same except as provided by the Canada
          Business Corporations Act .
   Shareholder
          Meetings
   The
          Chairman or any two directors, the president and the chief executive officer
          have the power to call annual or special meetings of the shareholders.
          Annual or
          special meetings of the shareholders will be held on the date and at the
          time
          and place in Canada as the person(s) calling the meeting determine. Annual
          meetings are required to be held at least once in every calendar year,
          but in no
          event later than 15 months after the last annual meeting.
   Notice
          of the time and place of a shareholders meeting must be given not less
          than 21
          days nor more than 60 days before the day on which the meeting is to be
          held.
          Notice of a special meeting of shareholders must state the nature of the
          business to be transacted in sufficient detail to permit a shareholder
          to form a
          reasoned judgment thereon together with the text of any special resolution
          to be
          submitted at the meeting. No business may be transacted at any meeting
          of
          shareholders unless a quorum of not less than 10% of the shares entitled
          to vote
          at the meeting are present in person or represented by proxy.
   There
          are no by-law provisions governing the ownership threshold above which
          stockholder ownership must be disclosed.
   There
          are no provisions in either the Company’s Articles of incorporation or by-laws
          that would have the effect of delaying, deferring or preventing a change
          in
          control of the Company and that would operate only with respect to a merger,
          acquisition or corporate restructuring involving the Company or its
          subsidiaries.
   There
          are no preemptive, conversion or exchange rights and no provision for
          redemption, purchase for cancellation, surrender or sinking or purchase
          funds.
   **Item
          10(C) Material Contracts**
   Transition
          Services Agreement dated as of March 27, 2005 between Kraft Foods Global,
          Inc.
          and the Corporation, whereby Kraft provides the Corporation with certain
          services to facilitate the Corporation's purchase of the Kraft yogurt business
          for the period of 12 to 18 months, depending upon the service. The cost
          of such
          services varies with the type of service provided and the totals approximately
          $1 million to $1.1 million per month. The Company sold 100% of the issued
          and
          outstanding stock of the Kraft yogurt business on January 30, 2007 to an
          unaffiliated third party.
   Stock
          Purchase and Sale Agreement dated December 23, 2005 between International
          Franchise Corp. and CoolBrands and Integrated Brands, Inc., a wholly owned
          subsidiary, pursuant to which the Corporation sold substantially all of
          its
          franchising and licensing segment to International Franchise Corp. for
          cash
          consideration of $8,000,000.
   Voting
          Agreement, dated December 13, 2005, among CoolBrands International Inc.,
          Integrated Brands, Inc., the Serruya Family Trust, 1082272 Ontario Inc.,
          the
          Estate of Richard Smith, David M. Smith, David J. Stein, Aaron Serruya
          and
          Michael Serruya. See "Voting Agreement" in Item 6(C).
   Employment
          Agreement, dated July 1 1997, between Integrated Brands, Inc. and David
          J.
          Stein, as amended on July 1, 1997 and July 1, 2003. The amended agreement
          provides for an annual salary of $520,000 in calendar 2005, and provides
          for an
          annual $20,000 increase in each calendar year through 2013, and for an
          annual
          salary of $700,000 in any calendar year subsequent to 2013. The contract
          also
          provides for annual bonuses at the discretion of the Board. No bonus was
          paid in
          fiscal 2006 under the employment agreement. The agreement may be terminated
          after December 31, 2013, with or without cause, on 90 days' notice. In
          the event
          that the agreement is terminated by Integrated Brands after December 31,
          2013
          without cause, Integrated Brands must pay Mr. Stein a severance amount
          equal to
          36 months salary at the annual rate in effect as of the date of termination.
          The
          obligations of Integrated Brands under the agreement are guaranteed by
          the
          Corporation.
   Employment
          Agreement, dated April 1, 1999, between CoolBrands International, Inc.
          and
          Michael Serruya, as amended in 2004. The Corporation entered into a five-year
          employment agreement with Michael Serruya dated April 9, 1999, which was
          amended
          in fiscal 2004. The amended agreement provides for a base salary of Cdn
          $420,000
          per annum, increasing by the rate of inflation annually on the anniversary
          of
          the employment agreement, and a bonus of up to Cdn $100,000 per year, paid
          on
          the anniversary of the employment agreement, determined as follows: (A)
          50% of
          such bonus based on earnings of the Corporation; and (B) 50% of such bonus
          based
          on reasonable standards of personal performance and earnings performance
          of the
          Corporation. The employment agreement provides for a severance payment
          in the
          amount of Cdn $500,000 to be made to Mr. Serruya on the termination for
          any
          reason of the employment agreement or on the failure of the Corporation
          to renew
          the employment agreement upon the expiration of its term. In fiscal 2006,
          the
          base salary for Mr. Serruya was Cdn $420,000. No bonus was paid for in
          fiscal
          2006 under the employment agreement.
   Credit
          Agreement dated as of April 21, 2006 among, Integrated Brands Inc, Eskimo
          Pie
          Frozen Distribution, Inc., Eskimo Pie Corporation, CoolBrands Dairy, Inc.,
          the
          Lenders thereto and JP Morgan Chase Bank, N.A., as Administrative Agent.
          (As
          previously defined, the “Corporate Credit Agreement”)
   Credit
          Agreement dated as of April 21, 2006 among Americana Foods Limited Partnership.,
          the Lenders thereto and JP Morgan Chase Bank, N.A., as Administrative Agent
          documenting the Americana Credit Facility as defined and described in Recent
          Developments.
   Guarantee
          dated April 21, 2006 made by CoolBrands International Inc. in favor of
          the
          Lenders to the Credit Agreement dated April 21, 2006 among Americana Food
          Limited Partnership, the Lenders as party thereto and JP Morgan Chase Bank,
          N.A.
          as administrative agent whereby CoolBrands guaranteed unconditionally the
          obligation of Americana Foods Limited Partnership.
   Asset
          Purchase Agreement dated as of September 1, 2006 among Eskimo Pie Corporation,
          Denali New Berlin, LLC and Denali Ingredients, LLC, pursuant to which the
          assets
          of Value America were sold and certain liabilities assumed for the purchase
          price of $8,250,000.
   Asset
          Purchase Agreements, each dated November 13, 2006 between Eskimo Pie Frozen
          Distribution, Inc., and Southwest Traders, Inc, pursuant to which substantially
          all of its “direct store door” frozen distribution assets in Florida,
          California, Oregon and Washington to Southwest Traders, Inc. for net proceeds
          of
          approximately $4,400,000.
   On
          November 17, 2006, 2118769 Ontario Inc. (previously defined as 2118769),
          a
          company controlled by Mr. Michael Serruya, the Chairman, President and
          Chief
          Executive Officer of the Corporation, entered into an agreement to acquire,
          at
          par, all of the indebtedness of the senior lenders under the Americana
          Credit
          Facility. In connection with this purchase, 2118769 also entered into a
          forbearance agreement with CoolBrands pursuant to which 2118769 agreed,
          for a
          period of 6 months, not to take any action to demand repayment of the
          indebtedness on account of existing defaults under the Americana Credit
          Facility. As part of this transaction, JPMorgan Chase Bank, N.A.
          (“**JPMorgan**”) and the other senior lenders agreed to continue to
          make available to the Corporation $8,000,000 under the Corporate Credit
          Facility
          (as defined below). Mr. Serruya, through 2118769, also established a $5,000,000
          letter of credit in favour of the senior lenders as additional security
          for the
          $8,000,000 Corporate Credit Facility.
   Forbearance
          Waiver and First Amendment to Credit Agreement between CoolBrands International
          Inc. and its subsidiaries, JPMorgan Chase Bank, N.A., 2118769 dated November
          17,
          2006 under which the parties agree to forbear from exercising their rights
          under
          law or equity with respect to the Corporate Credit Agreement until the
          maturity
          date and changes the maturity date from April 21, 2009 to May 17,
          2007.
   Intercreditor
          and Subordination Agreement dated as of November 17, 2006 by and among
          2118769
          Ontario, Inc, Michael Serruya, JP Morgan Chase Bank, N.A., as administrative
          agent to the Lenders as party to the Corporate Credit Facility and JP Morgan
          Chase Bank, N.A., as administrative agent to the Lenders as party to the
          Americana Credit Facility.
   Forbearance,
          Waiver and Indemnification Agreement dated as of November 17, 2006 by and
          among
          CoolBrands International Inc., 2118769 Ontario Inc. and each of the guarantors
          on the signature pages thereto.
   Asset
          Purchase Agreement dated January 23, 2007, between Integrated Brands, Inc.,
          Eskimo Pie Corporation and Dreyer’s Grand Ice Cream, Inc. pursuant to which the
          Corporation sold their Eskimo Pie and Chipwich Brands and Real Fruit trademark,
          along with Eskimo Pie soft serve brands and related foodservice business
          for a
          purchase price of approximately $18,925,000. The purchase price includes
          approximately $4,000,000 in inventory and accounts receivables. Dreyer’s also
          assumed related liabilities in the amount of approximately $1,000,000.
          Sugar
          Creek Foods, Inc, an indirect wholly owned subsidiary of CoolBrands has
          entered
          into a Co-Pack Agreement with Dreyer’s to manufacture soft-serve ice cream for a
          period of up to nine months.
   Stock
          Purchase Agreement by and between Integrated Brands Inc., CoolBrands
          International Inc. and Lily Acquisition, LLC dated as of December 31,
          2006.
   Asset
          Purchase Agreements dated March 30, 2007, between Integrated Brands, Inc.,
          CoolBrands Manufacturing Inc. and J &J Snack Foods Corp. pursuant to which
          the Corporation sold the operations and assets of Fruit A Freeze business,
          part
          of the Company’s frozen dessert business.
   **Item
          10(D) Exchange Controls**
   There
          is no law or governmental regulation in Canada that restricts the import
          or
          export of capital, including the availability of cash and cash equivalents
          for
          use by the company's group, or affects the remittance of dividends, interest
          or
          other payments to nonresident holders of the company's securities, other
          than
          tax withholding requirements. See "Taxation."
   **Item
          10(E) Taxation**
   Certain
          Canadian Federal Income Tax Consequences Applicable to United States
          Shareholders
   The
          following general discussion sets forth a summary of the material Canadian
          federal income tax consequences of acquiring, holding and disposing of
          common
          stock for a shareholder of the Company who, for purposes of the Income
          Tax Act
          (Canada) (the "Tax Act") and the Canada - United States Income Tax Convention
          (1980) (the "Convention"), is a resident, or deemed to be resident in the
          United
          States; has never been and never will be resident, or deemed to be resident,
          in
          Canada at any time when such shareholder has held or will hold the common
          stock;
          deals at arm's length with the Company; holds and will hold his or her
          shares of
          common stock as capital property; is not affiliated within the meaning
          of the
          Tax Act with the Company; does not use or hold and is not deemed to use
          or hold
          such shares in or in the course of carrying on a business through
   a
          permanent establishment or in connection with a fixed base in Canada; and
          is not
          a financial institution as defined by section 142.2 of the Tax Act (a "U.S.
          Resident"). Common stock will generally constitute capital property unless
          any
          such shares are held in the course of a business of buying and selling
          shares or
          such shares are acquired in a transaction considered to be an adventure
          in the
          nature of trade. This summary assumes that the Subordinate Voting Shares
          continue to be listed on the Toronto Stock Exchange and the Multiple Voting
          Shares are not listed on a prescribed stock exchange for the purpose of
          the Tax
          Act.
   The
          following discussion is based on the current provisions of the Tax Act,
          the
          regulations thereunder and the Convention, and on the Company's understanding
          of
          the current published administrative practices of the Canada Revenue Agency
          (the
          "CRA"), and takes into account all specific proposals to amend the Tax
          Act or
          regulations publicly released by the Minister of Finance of Canada before
          the
          date hereof (the "Proposed Amendments"). Except as provided in the preceding
          sentence, this summary does not take into account or anticipate any changes
          in
          law, whether by judicial, governmental or legislative decision or action
          or
          other changes in administrative or assessing policies of the CRA, nor does
          it
          take into account tax legislation of countries other than Canada or any
          relevant
          provincial or territorial tax legislation or considerations.
   THIS
          SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR SHOULD
          IT BE
          CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR SHAREHOLDER.
   Dividends
          on Common Shares
   Under
          the Tax Act, a U.S. Resident is generally subject to Canadian withholding
          tax at
          the rate of 25% on the gross amount of dividends paid or credited or deemed
          to
          have been paid or credited to such U.S. Resident on the Common stock. The
          Convention limits the rate to 15% of the gross amount of dividends if the
          U.S.
          Resident is the beneficial owner of the dividends. The rate of withholding
          tax
          is reduced to 5% of the gross amount of dividends if the U.S. Resident
          is a
          company that beneficially owns at least 10% of the voting stock of the
          Company.
          It should be noted that it is the position of the CRA that United States
          limited
          liability companies generally do not qualify as residents of the United
          States
          under the Convention. U.S. Residents should consult with their own tax
          advisors
          about the availability of any foreign tax credits.
   The
          Convention generally exempts from Canadian withholding tax any dividends
          paid to
          a U.S. Resident that is a religious, scientific, literary, educational
          or
          charitable organization or to an organization exclusively administering
          a
          pension, retirement or employee benefit fund or plan, if such U.S. Resident
          is
          exempt from income tax under the laws of the United States. Provided that
          certain administrative procedures are observed regarding registration of
          such
          organizations, the Company will not be required to withhold tax from dividends
          paid to such organizations. Qualifying organizations that fail to follow
          the
          required administrative procedures will have to file a claim for refund
          to
          recover any amounts withheld.
   Disposition
          of Common Stock
   If
          common stock is disposed of to the Company other than in an open market
          in the
          manner in which shares would normally be purchased by the public in the
          open
          market, proceeds of disposition will be limited to the paid-up capital
          of the
          common stock and the balance of the price paid will be deemed to be a dividend
          which will be subject to withholding tax as described above under "Dividends
          on
          Common Shares."
   Any
          capital gain or capital loss will be subject to Canadian income tax as
          described
          below.
   Disposition
          of Multiple Voting Shares
   Capital
          gains realized on the disposition or deemed disposition of Multiple Voting
          Shares by a U.S. Resident will not be subject to taxation under the Tax
          Act
          unless such Multiple Voting Shares are "taxable Canadian property", as
          defined
          in the Tax Act, to such holder. Under the Tax Act, Multiple Voting Shares
          will
          be "taxable Canadian property" to a U.S. Resident and will, subject to
          the
          provisions of the Convention, be subject to Canadian income tax in respect
          of
          any capital gain realized on a disposition of Multiple Voting Shares as
          described in the following paragraph. The Convention provides an exemption
          from
          Canadian tax arising on the disposition of common stock by a U.S. Resident
          unless such shares form part of the business property of a permanent
          establishment in Canada or pertain to a fixed base in Canada of the U.S.
          Resident at any time in the 12-month period preceding the disposition,
          or unless
          the value of the shares of the Company is derived principally from real
          property
          situated in Canada. In the Company's opinion, the common stock as of the
          date
          hereof does not derive its value principally from real property situated
          in
          Canada. A U.S. Resident will be required to obtain a clearance certificate
          under
          section 116 of the Tax Act, with respect to any disposition of Multiple
          Voting
          Shares, failing which the purchaser may be entitled to withhold an amount
          equal
          to 25% of the consideration payable thereof to the purchaser and remit
          the same
          to the CRA.
   A
          U.S. Resident's capital gain or capital loss from a disposition of common
          stock
          is the amount, if any, by which the proceeds of disposition less any reasonable
          costs of disposition exceed (or are exceeded) by the adjusted cost base
          of the
          common stock to the U.S. Resident at such time. Under the Tax Act, one-half
          of
          any capital gain realized upon the disposition will be included as a "taxable
          capital gain" in computing the U.S. Resident's income for Canadian income
          tax
          purposes and one-half of any such capital loss may be deducted from the
          U.S.
          Resident's taxable capital gains subject to the rules contained in the
          Tax
          Act.
   Conversions
          of Multiple Voting Shares
   A.
          U.S. Resident who converts Multiple Voting Shares into Subordinate Voting
          Shares
          will generally not realize a capital gain or sustain a capital loss upon
          such
          conversion.
   Disposition
          of Subordinate Voting Shares
   Capital
          gains realized on the disposition or deemed disposition of Subordinate
          Voting
          Shares by a U.S. Resident will not be subject to taxation under the Tax
          Act
          unless such Subordinate Voting Shares are "taxable Canadian property",
          as
          defined in the Tax Act, to such holder. Under the Tax Act, Subordinate
          Voting
          Shares will generally not constitute taxable Canadian property to such
          a holder
          unless, at any time during the five-year period immediately preceding the
          disposition or deemed disposition of the Subordinate Voting Shares, the
          holder,
          persons with whom the holder did not deal at arm's length, or any combination
          thereof owned (or had under option) 25% or more of the issued shares of
          any
          class or series of the capital stock of the Company. However, where a U.S.
          Resident acquires Subordinate Voting Shares upon a conversion of Multiple
          Voting
          Shares, such Subordinate Voting Shares will be deemed to be “taxable Canadian
          property” to such holder. Even if the Subordinate Voting Shares are "taxable
          Canadian property" to a U.S. Resident, the Convention may provide an exemption
          from Canadian tax, as discussed above under "Disposition of Multiple Voting
          Shares."
   **Item
          10(F) Dividends and Paying Agents**
   Not
          applicable.
   **Item
          10(G) Statement by Experts**
   Not
          applicable.
   **Item
          10(H) Documents on Display**
   Any
          documents referenced herein may be inspected upon request at the Company's
          offices located at 210 Shields Court, Markham, Ontario, L3R 8V2.
   **Item
          10(I) Subsidiary Information**
   Not
          applicable.
   
   **Item
          11 Quantitative and Qualitative Disclosures About Market
          Risk**
   Foreign
          Currency Exchange Risk
   The
          Company is subject to currency exchange risks since certain of its subsidiaries
          report and transact business in Canadian dollars. The Company seeks to
          minimize
          exchange risks by transacting purchases and the related sales in the same
          currency.
   Commodity
          Price Risk
   The
          Corporation 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, the Corporation has used hedging contracts to reduce its
          exposure
          to such risks with respect to its raw material costs. The Corporation currently
          does not have any contracts in effect.
   Market
          Risk Sensitive Instruments
   The
          Company's investment portfolio consisted of investments in Auction rate
          securities. Auction rate securities are variable rate bonds tied to short
          term
          interest rates with maturities on the face of the securities in excess
          of 90
          days. The Company evaluates whether to redeem or rollover each security
          no later
          than every 35 days.
   Interest
          Rate Risk
   CoolBrands
          is subject to interest rate risk as its long-term debt and short-term borrowings
          are based upon the prime rate and/or Libor. If these base rates increase,
          CoolBrands will incur incremental interest expense.
   Equity
          Price Risk
   Not
          applicable.
   
   **Item
          12 Description of Securities other than Equity Securities**
   Not
          applicable.
   PART
          II
   
   **Item
          13 Defaults, Dividend Arrearages and Delinquencies**
   In
          October 2006, Americana Foods was advised by its lenders that because of
          continuing defaults, they would no longer lend to Americana Foods and demanded
          full and immediate repayment of all of amounts outstanding under the American
          Credit Facility, which aggregated approximately $21,830,000 and which was
          guaranteed by the Company. The Company, through certain of its subsidiaries,
          as
          creditors of Americana Foods, filed an involuntary petition of bankruptcy
          against Americana Foods under Chapter 7 of the Federal Bankruptcy Code
          in the
          United States Bankruptcy Court, Northern District of Texas. As a result,
          Americana Foods ceased operations and an independent trustee was appointed
          to
          oversee the liquidation of the assets and liabilities of Americana Foods.
          In
          November, 2006, 2118769 Ontario, Inc. (“2118769”), a company controlled by
          Michael Serruya, currently the Chairman and CEO of the Company, purchased
          all of
          Americana Foods’ bank indebtedness, which aggregated $21,408,000 from the
          lender. 2118769 received a first lien security interest in the assets of
          Americana Foods. The Company remains the guarantor of the Americana debt.
          The
          independent trustee has sold or liquidated substantially all of the assets
          of
          Americana Foods and is completing his accounting. To the extent that the
          proceeds from the liquidation are not sufficient to pay Mr. Serruya’s company,
          the Company may be required to make a payment under its guarantee.
   Additionally,
          the Company continued to be in default under its Corporate Credit Facility
          (as
          defined in Recent Developments-2006). In connection with the purchase of
          the
          indebtedness outstanding under the Americana Credit Facility, as described
          above, the Company and the lender (a “Senior Lender”) amended the Corporate
          Credit Facility (the “Amendment”) and agreed to reduce the maximum amount of the
          Corporate Credit Facility to $8,000,000, subject to a borrowing base. Mr.
          Serruya, through the holding company (also a “Senior Lender”), issued an
          irrevocable letter of credit with a face value of $5,000,000 in favor of
          the
          lender. The Senior Lenders and the Company also entered into a forbearance
          agreement which changed the maturity date of the Corporate Credit Facility
          from
          April 21, 2009 to May 17, 2007. The Amendment also required the Company
          to
          utilize proceeds from the sales of assets to reduce the indebtedness based
          upon
          a specified schedule. Mr. Serruya received, through the holding company,
          warrants to purchase 5,500,000 subordinate voting shares of the Company
          in
          connection with the acquisition of the senior indebtedness. The exercise
          price
          of each warrant is Cdn $0.50 and the term of the warrants is five years
          from the
          date of the grant. The warrants issued by the Company in connection with
          this
          transaction were valued at $1,764,000 USD (Cdn $1,980,000) using the
          Black-Scholes pricing model and the following assumptions: 2.5 years expected
          life, no dividends, 67% volatility and 4.6% risk free rate, and were expensed
          by
          the Company in the first quarter of Fiscal 2007. The Company completed
          the sale
          of the foodservice segment on January 24, 2007 and utilized a portion of
          the
          proceeds to pay off and terminated the Corporate Credit Facility.
   The
          Company is in default under its licensing agreement with Godiva Chocolatier,
          Inc. (“Godiva”) See “Legal Proceedings” for a discussion of Godiva’s
          claim.
   In
          September 2006, Americana Foods Corporation (“AFC”), the Company’s 49.9% joint
          venture partner in Americana Foods, filed a complaint in the Supreme Court
          of
          the State of New York against the Company, IBI, CBA Foods, LLC, CB Americana
          and
          certain officers and directors of the Company and Americana Foods. The
          complaint
          alleges gross mismanagement of the business operations of Americana Foods
          and
          seeks to prevent the Company from selling control of the Company to a third
          party without paying AFC the financial return required by certain provisions
          of
          the Americana Limited Partnership Agreement, or sell any part of the foodservice
          segment without using the sales proceeds to repay the debt of Americana
          Foods.
          The Company has informed AFC that it does not believe that there are any
          amounts
          due AFC. The Company intends to vigorously defend itself against this
          complaint
   
   **Item
          14 Material Modifications to the Rights of Security Holders and Use of
          Proceeds**
   On
          February 27, 1998, the Company's shareholders approved a reorganization
          of the
          Company whereby all shares of capital stock were converted at the shareholders'
          election, into either Subordinate Voting Shares or Multiple Voting Shares.
          Multiple Voting Shares had a preferential right to receive cash dividends
          when,
          as and if declared by the Board of Directors. Multiple Voting Shares could
          be
          converted at any time into an equivalent number of Subordinate Voting Shares.
          The Subordinate Voting Shares were entitled to one (1) vote per share and
          the
          Multiple Voting Shares were entitled to ten (10) votes per share. See the
          Company's Report on Form 6-K for the month of March 1998 previously filed
          with
          the Securities and Exchange Commission. On May 31, 2007, the Company completed
          a
          reorganization of its share capital wherein the holders of Subordinate
          Voting
          Shares and the holders of Multiple Voting Shares exchanged their shares
          into
          Common Shares on a one for one basis. See also the discussion of the Collapse
          of
          the Dual Class Structure in Item 4(A) "History and development of the
          Company."
   **Item
          15 Controls and Procedures**
   The
          Company conducted an evaluation under the supervision and with the participation
          of the Company's management, including the chief executive officer and
          chief
          financial officer, as of August 31, 2006, of the effectiveness of the design
          and
          operation of the Company's disclosure controls and procedures (as defined
          in
          Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on this evaluation,
          the
          Company's chief executive officer and chief financial officer concluded
          that the
          Company’s disclosure controls and procedures are effective to ensure that
          information required to be disclosed by the Company in reports its files
          or
          submits under the Securities Exchange Act of 1934, as amended, is (a) recorded,
          processed, summarized and reported within the time periods specified by
          such act
          and associated rules and regulations and (b) accumulated and communicated
          to the
          Company's management including the Company's chief executive officer and
          chief
          financial officer, or persons performing similar functions, as appropriate,
          to
          allow timely decisions regarding required disclosure. It should be noted
          that
          while the Company's chief executive officer and chief financial officer
          believe
          that the Company's disclosure controls and procedures provide a reasonable
          level
          of assurance that they are effective, they do not expect that the Company's
          disclosure controls and procedures will prevent all errors and fraud. A
          control
          system, no matter how well conceived or operated, can provide only reasonable,
          not absolute, assurance that the objectives of the control system are
          met.
   Management's
          Annual Report on Internal Control over Financial Reporting:
   Management
          of the Company is responsible for establishing and maintaining adequate
          internal
          control over financial reporting. The Company’s internal control over financial
          reporting is a process designed to provide reasonable assurance regarding
          the
          reliability of financial reporting and the preparation of financial statements
          for external reporting purposes in accordance with accounting principles
          generally accepted in the United States of America. Internal control over
          financial reporting includes those policies and procedures that (i) pertain
          to
          the maintenance of records that, in reasonable detail, accurately and fairly
          reflect the transactions and dispositions of the assets of the Company;
          (ii)
          provide reasonable assurance that transactions are recorded as necessary
          to
          permit preparation of financial statements in accordance with generally
          accepted
          accounting principles, and that receipts and expenditures of the Company
          are
          being made only in accordance with authorizations of management and directors
          of
          the Company; and (iii) provide reasonable assurance regarding prevention
          or
          timely detection of unauthorized acquisition, use, or disposition of the
          Company’s assets that could have material effect on the interim or annual
          consolidated financial statements.
   Because
          of its inherent limitations, internal control over financial reporting
          may not
          prevent or detect misstatements. Also, projections of any evaluation of
          effectiveness to future periods are subject to the risk that controls may
          become
          inadequate because of changes in conditions, or that the degree of compliance
          with the policies or procedures may deteriorate.
   During
          Fiscal 2006, management commenced an assessment and evaluation of the Company's
          systems of internal control over financial reporting. As part of the assessment
          and evaluation process, the Company engaged an outside consulting firm
          to
          perform documentation and Sarbanes Oxley compliance testing work over the
          Company’s internal controls over financial reporting. At each subsidiary, the
          consultant reviewed the following processes: Capital Spending and Maintenance,
          Financial Reporting, Inventory and Production, Information Technology,
          Payroll
          and Human Resources, Purchasing and Accounts Payable and Revenue and Accounts
          Receivable. Documentation of all relevant internal controls was completed
          but
          due to the financial difficulties of the Company's business segments and
          the
          sale and ultimate discontinuance of substantially all of the Company's
          operating
          segments, the Company had neither the resources nor the funds necessary
          to
          complete the testing of internal controls over financial reporting at all
          of its
          business segments. Even though the work was not completed, management was
          able
          to determine that there were significant deficiencies in financial reporting,
          accounts payable and accounts receivable and material weaknesses in inventory
          and information technology in the Company’s Integrated Brands subsidiary. A
          material weakness is a control deficiency, or combination of control
          deficiencies, that results in more than a remote likelihood that a material
          misstatement of the annual or interim financial statements will not be
          prevented
          or detected. There were material weaknesses in inventory control at Integrated
          Brands related to the fact that (a) inventory located at third party warehouses
          was not subject to periodic physical inventory counts; (b) inventory
          obsolescence records were not documented; (c) changes to inventory production
          schedules were not documented and (d) the inventory sub-ledger when reconciled
          to the general ledger showed large unresolved differences. There were
          information technology weaknesses at Integrated Brands related to (a) the
          lack
          of a development methodology for system maintenance; (b) the lack of an
          information security policy that details the organizations approach to
          information security; (c) the lack of an approach for performing security
          administration; (d) the need to define and document minimum password standards
          for the SAP and Epicor environments and (e) the lack of definition and
          implementation of reporting general system monitoring and alerts. Because
          management did not complete its assessment, there may be other material
          weaknesses that have not been uncovered.
   The
          Company’s management designed the internal controls over financial reporting at
          the Company's various business segments. The testing of the internal controls
          at
          Americana Foods was only approximately 30% complete when the work was
          terminated. Further, with respect to CBD, the yogurt segment, the testing
          of the
          financial controls was only approximately 50% complete when the work was
          terminated. The testing of the financial controls at the Company's other
          business segments was substantially complete at the time the work was
          terminated.
   The
          Company has undergone a significant downsizing and has disposed of or closed
          down substantially all of its businesses. Because of the sales of the dairy
          component segment, the yogurt segment, the foodservice segment and the
          frozen
          dessert segment, and the bankruptcy and closing of Americana Foods, the
          Company
          expects that its financial reporting will become less complicated.
   As
          a result of the material weaknesses in inventory control and information
          technology revealed during management's evaluation of the Company's internal
          controls, management has concluded that the Company's internal controls
          over
          financial reporting at August 31, 2006 were not effective.
   This
          annual report does not include full certifications by the Company’s Chief
          Executive Officer and Chief Financial Officer as required by Exhibits 12
          and 13
          of this report. Accordingly, this report does not fully comply with the
          requirements of Section 13(a) or 15(d) of the Securities Act of
          1934
   This
          annual report does not include an attestation report of the Company’s registered
          public accounting firm regarding internal control over financial reporting.
          Management’s report was not subject to attestation by the Company’s registered
          public accounting firm pursuant to temporary rules of the Securities and
          Exchange Commission that permit the Company to provide only management’s report
          in this annual report.
   **Item
          16 [Reserved]**
   **Item
          16(A) Audit Committee Financial Expert**
   The
          Registrant's board of directors has determined that it has at least one
          audit
          committee financial expert serving on its audit committee. Mr. Romeo DeGasperis
          and Ms. Beth L. Bronner were both determined to be audit committee financial
          experts. Mr. DeGasperis and Ms. Bronner were each independent, as that
          term is
          defined by the Nasdaq listing standards. The SEC has indicated that the
          designation of Mr. DeGasperis and Ms. Bronner as an audit committee financial
          expert did not make Mr. DeGasperis or Ms. Bronner an "expert" for any purpose,
          impose any duties, obligations or liability on any of Mr. DeGasperis or
          Ms.
          Bronner that are greater than those imposed on members of the audit committee
          and board of directors who do not carry this designation or affect the
          duties,
          obligations or liability of any other member of the audit committee. Mr.
          DeGasperis resigned from the Board on August 6, 2006 and Ms. Bronner resigned
          November 17, 2006. Mr. DeGasperis rejoined the Board and the audit committee
          on
          November 17, 2006 and Ronald W. Binns joined the Board and Audit Committee
          on
          that date as well. Mr. DeGasperis and Mr. Binns have both been determined
          to be
          audit committee financial experts and each are independent, as that term
          is
          defined by the Nasdaq listing standards. The SEC has indicated that the
          designation of Ms. Bronner, Mr. DeGasperis or Mr. Binns as an audit committee
          financial expert did not or does not make them an "expert" for any purpose,
          impose any duties, obligations or liability on any of Ms. Bronner, or Mr.
          DeGasperis or Mr. Binns that are greater than those imposed on members
          of the
          audit committee and board of directors who do not carry this designation
          or
          affect the duties, obligations or liability of any other member of the
          audit
          committee.
   **Item
          16(B) Code of Ethics**
   The
          Corporation has adopted a code of ethics (the "Code of Business Conduct
          and
          Ethics") that applies to all employees and officers, including its principal
          executive officers, principal financial officer and principal accounting
          officer. The Code of Business Conduct and Ethics was previously filed with
          the
          Commission as an exhibit to its report on Form 6-K filed on December 2,
          2005,
          and is hereby incorporated by reference into this annual report on Form
          20-F.
   **Item
          16(C) Principal Accountant Fees and Services**
   BDO
          Seidman, LLP serves as the Registrant’s registered public accountants as of and
          for the year ended August 31, 2006. On May 15, 2007, BDO Seidman resigned
          as the
          Company’s principal accountant and PricewaterhouseCoopers were subsequently
          appointed as the Company’s auditors. BDO Dunwoody LLP, an affiliate of BDO
          Seidman, LLP, served as the Registrant's auditors as of and for the year
          ended
          August 31, 2005. Fees payable for the years ended August 31, 2006 and August
          31,
          2005 to BDO Seidman, LLP and its affiliates and BDO Dunwoody LLP and its
          affiliates were $587,067 and $468,550, respectively. Fees payable to BDO
          Seidman, LLP and BDO Dunwoody LLP in 2006 and 2005 are detailed
          below.
  Year
                    Ended August 31, 2006
                Year
                    Ended August 31, 2005Audit
                    fees..............
                $450,000
                $430,000Audit-related
                    fees....
                111,096
                27,750Tax
                    fees................
                25,971
                10,800All
                    other fees.........
                --
                --Total.....................
                $587,067
                $468,550
  The
          nature of each category of fees is described below.
   Audit
          Fees
   Audit
          fees were paid for professional services rendered by the auditors for the
          audit
          of the Registrant's annual financial statements or services provided in
          connection with statutory and regulatory filings or engagements.
   Audit-Related
          Fees
   Audit-related
          fees were paid which related to the performance of the audit or review
          of the
          annual financial statements and not reported under the audit fees item
          above.
          These services consisted of reviewing the Company's financial statements
          and the
          audit of a subsidiary's 401K plan.
   Tax
          Fees
   Tax
          fees were paid for tax compliance. These services consisted of tax compliance
          including the preparation of original tax returns. The tax fees in each
          of 2006
          and 2005 were payable to BDO Dunwoody LLP.
   All
          Other Fees
   No
          accountant's fees were paid for products and services other than the audit
          fees,
          audit-related fees and tax fees described above.
   Pre-Approval
          Policies and Procedures
   The
          Audit Committee has considered whether the provision of services other
          than
          audit services is compatible with maintaining the auditors' independence
          and has
          adopted a policy of pre-approving all of the provision of these services.
          For
          the year ended August 31, 2006, all of the services described above were
          approved by the Audit Committee.
   Approximately
          90% of the hours expended on the principal accountant's engagement to audit
          the
          Registrant's financial statements for the fiscal year ended August 31,
          2005 were
          attributed to work performed by BDO Seidman, LLP, as previously described,
          an
          affiliate of BDO Dunwoody LLP, which was the Registrants auditor for the
          fiscal
          year ended August 31, 2005.
   **Item
          16(D) Exemptions from the Listing Standards for Audit
          Committees**
   Not
          applicable.
   **Item
          16(E) Purchases of Equity Securities by the Issuer and Affiliated
          Purchasers**
   None.
   **Item
          17 Financial Statements**
   The
          following financial statements are filed as part of the annual
          report:
   Report
          of Independent Registered Public Accounting Firm F-2
   Report
          of Auditors F-3
   Consolidated
          Balance Sheets as of August 31, 2006 and 2005 F-4
   Consolidated
          Statements of Operations for the years ended
   August
          31, 2006, 2005, and 2004 F-6
   Consolidated
          Statements of Shareholders' Equity for the
   years
          ended August 31, 2006, 2005, and 2004 F-7
   Consolidated
          Statements of Cash Flow for the years ended
   August
          31, 2006, 2005, and 2004 F-8
   Notes
          to Consolidated Financial Statements F-9
   
   **Item
          18 Financial Statements**
   Not
          applicable. Financial Statements are provided under Item 17.
   
   **Item
          19 Exhibits**
   1.1
          Agreement and Plan of Merger, dated October 13, 1997, among the Company,
          Merger
          Sub and Integrated Brands, as amended.(1)
   1.2
          Articles of Continuance of the Company (2)
   3.1
          Board Representation Agreement dated October 13, 1997, among the Company,
          The
          Integrated Principal Integrated Brands Shareholders and CoolBrands Principal
          Integrated Brands Shareholders, as amended and restated.(3)
   3.2
          Amendment No. 1 to the Board of Representation Agreement dated January
          12, 2001.
(3)
   3.3
          Trust Agreement, dated March 18, 1998 by and among Richard E. Smith, David
          Smith, David Stein, Michael Serruya, Aaron Serruya, 1082272 Ontario Inc.,
          The
          Serruya Family Trust, Yogen Fruz World-Wide Incorporated and The Chase
          Manhattan
          Bank.(3)
   4.1
          Merger Agreement by and among Eskimo Pie Corporation, CoolBrands International
          Inc. and EP Acquisition Corp. dated May 3, 2000, as amended June 3, 2000.(4)
   4.2
          Transition Services Agreement dated March 27, 2005 between Kraft Foods
          Global,
          Inc. and CoolBrands Global, Inc. (3)
   4.3
          Stock Purchase and Sale Agreement between International Franchise Corp.,
          CoolBrands International Inc. and Integrated Brands, Inc. dated December
          23,
          2005.(5)
   4.4
          Voting Agreement, dated December 13, 2005, among CoolBrands International
          Inc.,
          Integrated Brands, Inc., the Serruya Family Trust, 1082272 Ontario Inc.,
          the
          Estate of Richard Smith, David M. Smith, David J. Stein, Aaron Serruya
          and
          Michael Serruya.(6)
   4.5
          Employment Agreement, dated July 1, 1997, between Integrated Brands, Inc.
          and
          David J. Stein, as amended by Amendment No. 1 dated July 1, 1997 and Amendment
          No. 2 dated July 1, 2003.(6)
   4.6
          Employment Agreement, dated April 1, 1999, between CoolBrands International,
          Inc. and Michael Serruya.(6)
   4.7
          Amendment No. 1 to the Employment Agreement of Michael Serruya, dated October
          24, 2003.
   4.8
          Credit Agreement dated as of April 21, 2006 among, Integrated Brands Inc.,
          Eskimo Pie Frozen Distribution, Inc., Eskimo Pie Corporation, CoolBrands
          Dairy,
          Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative
          agent.(7)
   4.9
          Credit Agreement dated as of April 21, 2006 among Americana Foods Limited
          Partnership, the Lenders party thereto and JPMorgan Chase Bank, N.A., as
          administrative agent. (7)
   4.10
          Asset Purchase Agreement dated as of September 1, 2006 among Eskimo Pie
          Corporation, Denali New Berlin, LLC and Denali Ingredients, LLC.(8)
   4.11
          Asset Purchase Agreement dated November 16, 2006 between Eskimo Pie Frozen
          Distribution, Inc., and Southwest Traders, Inc. – Florida (11)
   4.12
          Asset Purchase Agreement dated November 16, 2006 between Eskimo Pie Frozen
          Distribution, Inc. and Southwest Traders, Inc. – West Coast.(11)
   4.13
          – 4.15 Not used
   4.16
          Intercreditor and Subordination Agreement dated as of November 17, 2006
          by and
          among 211876 Ontario Inc., Michael Serruya, JPMorgan Chase Bank, N.A.,
          as
          administrative agent to the lenders a party to the Integrated Credit Agreement
          and JPMorgan Chase Bank, N.A., as administrative agent to the lenders a
          part to
          the Americana Credit Agreement. (11)
   4.17
          Amended and Restated Intercreditor and Subordination Agreement dated as
          of
          November 17, 2006 by and between JPMorgan Chase Bank, N.A., as administrative
          agent for itself and the other lenders a party to the Integrated Credit
          Agreement and JPMorgan Chase Bank, N.A., as administrative agent to the
          other
          lenders a party to the Americana Credit Agreement.(11)
   4.18
          Forbearance, Waiver and Indemnification dated as of November 17, 2006 by
          and
          among CoolBrands International Inc., 2118769 Ontario Inc. and each of the
          guarantors on the signature pages thereto. (11)
   4.19
          Forbearance Waiver and First Amendment to Credit Agreement dated November
          17,
          2006 by and among CoolBrands International Inc., Integrated Brands Inc.,
          Eskimo
          Pie Frozen Distribution, Inc., Eskimo Pie Corporation, CoolBrands Dairy,
          Inc.,
          JPMorgan Chase Bank, N.A., as administrative agent. (11)
   4.20
          Guarantee dated April 21, 2006 made by CoolBrands International inc. in
          favor or
          the lenders to the Credit Agreement dated April 21, 2006 among Americana
          foods
          limited partnership, the lenders a party thereto and JPMorgan Chase Bank,
          N.A.,
          as administrative agent.(7)
   4.21
          Warrant dated November 25, 2006 issued by CoolBrands International Inc.
          to
          Michael Serruya. (11)
   4.22
          Asset Purchase Agreement dated January 23, 2007, between Integrated Brands,
          Inc., Eskimo Pie Corporation and Dreyer’s Grand Ice Cream, Inc.(9)
   4.23
          Stock Purchase Agreement by and between Integrated Brands Inc., CoolBrands
          International Inc. and Lily Acquisition, LLC dated as of December 31, 2006.(10)
   4.24
          Asset Purchase Agreement dated March 30, 2007, between CoolBrands Manufacturing
          Inc. and J&J Snack Foods Corp..(11)
   4.25
          Asset Purchase Agreement dated March 30, 2007, between Integrated Brands,
          Inc.
          and J&J Snack Foods Corp..(11)
   11.1
          Code of Business Ethics. (3)
   12.1
          Exchange Act Rule 13a-14(a)/15(d)-14(a) Certification of Michael Serruya,
          Chief
          Executive Officer. (11)
   12.2
          Exchange Act Rule 13a-14(a)/15(d)-14(a) Certification of Ken J. MacKenzie,
          Chief
          Financial Officer. (11)
   13.1
          18 U.S.C. Section 1350 Joint Certification of Michael Serruya, Chief Executive
          Officer, and Ken J. MacKenzie, Chief Financial Officer.(11)
   15.1
          Consent of BDO Dunwoody LLP, Independent Auditors. (11)
   15.2
          Consent of BDO Seidman, LLP, Independent Registered Public Accounting Firm.
          (11)
   ----------
   (1)
          Incorporated by reference to the corresponding exhibit filed with the Company's
          Registration Statement on Form F-4 (no. 333-8078) and amendments thereto,
          as
          previously filed with the Securities and Exchange Commission on February
          19,
          1998.
   (2)
          Incorporated by reference to the corresponding exhibit filed with the Company's
          Registration Statement on Form 6-K (no. 000-27476) and amendments thereto,
          as
          previously filed with the Securities and Exchange Commission on April 3,
          2006.
   (3)
          Incorporated by reference to the corresponding exhibit filed with the
          Corporation's report on Form 6-K (no. 000-27476), previously filed with
          the
          Securities and Exchange Commission on December 2, 2005.
   (4)
          Incorporated by reference to the corresponding exhibit filed with the Company's
          report of the fiscal year ended August 31, 2000 on Form 20-F (no. 000-27476),
          as
          previously filed with the Securities and Exchange Commission on March 15,
          2001.
   (5)
          Incorporated by reference to the corresponding exhibit filed with the
          Corporation's report on Form 6-K (no. 000-27476), previously filed with
          the
          Securities and Exchange Commission on December 29, 2005.
   (6)
          Incorporated by reference to the corresponding exhibit filed with the
          Corporation's report on Form 20-F (no. 000-27476), previously filed with
          the
          Securities and Exchange Commission on February 28, 2006.
   (7)
          Incorporated by reference to the corresponding exhibit filed with the
          Corporation's report on Form 6-K (no. 000-27476), previously filed with
          the
          Securities and Exchange Commission on May 3, 2006.
   (8)
          Incorporated by reference to the corresponding exhibit filed with the
          Corporation's report on Form 6-K (no. 000-27476), previously filed with
          the
          Securities and Exchange Commission on September 13, 2006.
   (9)
          Incorporated by reference to the corresponding exhibit filed with the
          Corporation's report on Form 6-K (no. 000-27476), previously filed with
          the
          Securities and Exchange Commission on February 5, 2007.
   (10)
          Incorporated by reference to the corresponding exhibit filed with the
          Corporation's report on Form 6-K (no. 000-27476), previously filed with
          the
          Securities and Exchange Commission on January 16, 2007.
   (11)
          Filed herewith.
   SIGNATURES
   The
          registrant hereby certifies that it meets all of the requirements for filing
          on
          Form 20-F and that it has duly caused and authorized the undersigned to
          sign
          this annual report on its behalf.
   COOLBRANDS
          INTERNATIONAL INC.
   (Registrant)
   By:
          “Michael Serruya”
   -------------------------
   Name:
          Michael Serruya
   Title:
          President and CEO
   Date:
          August 31, 2007
  Index
            to Consolidated Financial Statements
   Report
            of Independent Registered Public Accounting Firm F-2
   Report
            of Auditors F-3
   Consolidated
            Balance Sheets as of August 31, 2006 and 2005 F-4
   Consolidated
            Statements of Operations for the years ended
   August
            31, 2006, 2005, and 2004 F-6
   Consolidated
            Statements of Shareholders' Equity for the
   years
            ended August 31, 2006, 2005, and 2004 F-7
   Consolidated
            Statements of Cash Flow for the years ended
   August
            31, 2006, 2005, and 2004 F-8
   Notes
            to Consolidated Financial Statements F-9
  **AUDITORS’
              REPORT**
   To
              the Shareholders of CoolBrands International Inc.:
   We
              have audited the consolidated balance sheets of CoolBrands International
              Inc. as
              at August 31, 2005 and the consolidated statements of operations, shareholders’
equity, and cash flows for the years ended August 31, 2005 and 2004.
              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 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, 2005
              and the results of its operations, and its cash flows for the years
              ended August
              31, 2005 and 2004 in accordance with United States generally accepted
              accounting
              principles.
 Chartered
              Accountants, Licensed Public Accountants
   Toronto,
              Ontario
   December
              9, 2005 (except for Note 17, which is as of December 23, 2005)
   **Report
              of Independent Registered Public Accounting Firm**
   The
              Board of Directors and Shareholders
   CoolBrands
              International Inc.:
   We
              have audited the accompanying consolidated balance sheet of CoolBrands
              International Inc. as of August 31, 2006 and the consolidated statements
              of
              operations, shareholders’ equity, and cash flow for the year then ended. These
              consolidated financial statements are the responsibility of the Company’s
              management. Our responsibility is to express an opinion on these consolidated
              financial statements based on our audit.
   We
              conducted our audits in accordance with the standards of the Public
              Company
              Accounting Oversight Board (United States). Those standards require
              that we plan
              and perform the audits to obtain reasonable assurance about whether
              the
              financial statements are free of material misstatement. We were not
              required to,
              nor were we engaged to perform, an audit of internal control over financial
              reporting. Our audit included consideration of internal control over
              financial
              reporting as a basis for designing audit procedures that are appropriate
              in the
              circumstances, but not for the purpose of expressing an opinion on
              the
              effectiveness of the Company’s internal control over financial reporting.
              Accordingly, we express no such opinion. An audit also includes examining,
              on a
              test basis, evidence supporting the amounts and disclosures in the
              financial
              statements, assessing the accounting principles used and significant
              estimates
              made by management, as well as evaluating the overall financial statement
              presentation. We believe that our audits provide a reasonable basis
              for our
              opinion.
   In
              our opinion, the consolidated financial statements referred to above
              present
              fairly, in all material respects, the financial position of CoolBrands
              International, Inc., and the results of its operations and its cash
              flows for
              the year then ended in conformity with accounting principles generally
              accepted
              in the United States of America.
   The
              consolidated balance sheet as of August 31, 2005 and the statements
              of
              operations, of changes in stockholders equity, of cash flows of CoolBrands
              International, Inc. for the years ended August 31, 2005 and August
              31, 2004,
              were audited by other auditors. As described in Note 5, the Company
              sold or
              entered into agreements to sell certain of it divisions and therefore
              needed to
              report as discontinued operations. The related amounts in the 2005
              and 2004
              financial statements have been restated to conform to the 2006 presentation
              of
              discontinued operations. We audited the adjustments that were applied
              to restate
              the disclosures for discontinued operations reflected in the 2005 and
              2004
              financial statements. Our procedures included ( *a* ) agreeing the
              adjusted amounts to the Company’s underlying records obtained from management,
              and ( *b* ) testing the mathematical accuracy of the reconciliations
              to
              the consolidated financial statements. In our opinion, such adjustments
              are
              appropriate and have been properly applied. However, we were not engaged
              to
              audit, review, or apply any procedures to the 2005 or 2004 financial
              statements
              of the Company other than with respect to such adjustments and, accordingly,
              we
              do not express an opinion or any other form of assurance on the 2005
              and 2004
              financial statements taken as a whole.
   The
              accompanying financial statements have been prepared assuming that
              the Company
              will continue as a going concern. As discussed in Note 2 to the financial
              statements, the Company has suffered recurring losses from operations
              and
              subsequent discontinuation of many of it key operations which raises
              substantial
              doubt about its ability to continue as a going concern. Management’s plans in
              regard to these matters are also described in Note 2. The financial
              statements
              do not include any adjustments that might result from the outcome of
              this
              uncertainty.
   BDO
              Seidman, LLP
   Melville,
              New York
   January
              26, 2007 (except for Note 22, which is as of August 31, 2007)
   Consolidated
              Balance Sheets as at August 31, 2006 and 2005
   __________________________________________________________________________________
   (Amounts
              expressed in thousands of dollars)
  **2006**
                    
                    **2005****Assets****Current
                        Assets:**Cash
                    $
                        393
                    
                    $
                        24,062Investments
                    -
                    
                    7,500Restricted
                        cash
                    -
                    
                    10,000Receivables,
                        net
                    12,780
                    
                    22,833Receivables
                        – affiliates
                    -
                    
                    1,780Inventories
                    9,131
                    
                    29,918Current
                        assets of discontinued operations held for sale
                    38,142
                    
                    52,719Income
                        taxes recoverable
                    11,000
                    
                    9,767Prepaid
                        expenses
                    819
                    
                    1,490Deferred
                        income taxes, net of valuation allowance
                    -
                    
                    5,148**Total
                        current assets**
                    72,265
                    
                    165,217Non-current
                        assets of discontinued operations held for sale
                    51,927
                    
                    64,453Deferred
                        income taxes, net of valuation allowance
                    -
                    
                    14,799Property,
                        plant and equipment
                    23,051
                    
                    31,976Intangible
                        and other assets
                    1,515
                    
                    5,857Goodwill
                    11,790
                    
                    15,543$160,548
                    
                    $297,845
  **Approved
              by the Board,**
   “Michael
              Serruya” “Ronald W. Binns”
   _________________,
              Director _________________, Director
   Consolidated
              Balance Sheets as at August 31, 2006 and 2005
   _________________________________________________________________________________________
   (Amounts
              expressed in thousands of dollars)
  **2006**
                    
                    **2005****Liabilities
                        and Shareholders’ Equity****Current
                        Liabilities:**Notes
                        payable in default
                    $
                        10,077
                    
                    $
                        -Notes
                        payable of majority owned subsidiary in default
                    23,501
                    
                    -Accounts
                        payable
                    20,462
                    
                    28,198Accrued
                        liabilities
                    14,900
                    
                    21,106Payables
                        – affiliates
                    -
                    
                    620Income
                        taxes payable
                    140
                    
                    -Deferred
                        income taxes, net of valuation allowance
                    -
                    
                    93Current
                        liabilities of discontinued operations held for sale
                    22,890
                    
                    34,009Short
                        term borrowings
                    -
                    
                    34,553Current
                        maturities of long-term debt
                    -
                    
                    18,161Other
                        liabilities
                    4,287
                    
                    -**Total
                        current liabilities**
                    96,257
                    
                    136,740Other
                        liabilities
                    -
                    
                    2,442Non-current
                        liabilities of discontinued operations held for sale
                    825
                    
                    684Long-term
                        debt, including obligations under capital leases
                    348
                    
                    8,248Deferred
                        income taxes
                    2,000
                    
                    6,140**Total
                        liabilities**
                    99,430
                    
                    154,254**Minority
                        interest**
                    -
                    
                    5,185**Commitments
                        and contingencies****Shareholders’
                        Equity:**Capital
                        stock
                    97,804
                    
                    97,578Additional
                        paid-in capital
                    38,812
                    
                    46,376Accumulated
                        other comprehensive losses
                    (1,464)
                    
                    (1,696)Accumulated
                        deficit
                    (74,034)
                    
                    (3,852)**Total
                        shareholders’ equity**
                    61,118
                    
                    138,406$160,548
                    
                    $297,845
  See
              accompanying notes to consolidated financial statements.
   Consolidated
              Statements of Operations for the years ended August 31, 2006, 2005
              and 2004
              _________________________________________________________________________________________
   (Amounts
              expressed in thousands of dollars)
  **2006**
                    **2006
                        Pro Forma**
                      **(See
                        Notes 3 and 13)**
                      **(Unaudited)**
                    **2005**
                    **2004****Net
                        revenues:**Net
                        sales
                    $
                        96,936
                    $
                        46,191
                    $142,873
                    $275,394Other
                        income
                    2,412
                    2,267
                    6,837
                    5,342**Total
                        net revenues**
                    99,348
                    48,458
                    149,710
                    280,736Cost
                        of goods sold
                    110,718
                    49,424
                    142,181
                    176,929Selling,
                        general and administrative expenses
                    40,101
                    34,527
                    37,530
                    71,516Interest
                        expense
                    2,000
                    401
                    1,687
                    1,491Asset
                        impairment
                    21,289
                    10,139
                    51,141(Gain)
                        loss on sale of building
                    -
                    -
                    (3,515)**(Loss)
                        income from continuing operations before income taxes and
                        minority
                        interest**
                    (74,760)
                    (46,033)
                    (79,314)
                    30,800**Minority
                        interest**
                    5,185
                    -
                    2,700
                    958**(Loss)
                        income from continuing operations before income
                        taxes**
                    (69,575)
                    (46,033)
                    (76,614)
                    31,758**(Recovery
                        of) Provision for income taxes**:Current
                    (11,100)
                    (11,100)
                    (8,439)
                    26,767Deferred
                    5,145
                    5,145
                    841
                    (15,334)(5,955)
                    (5,955)
                    (7,598)
                    11,433**Net
                        (loss) income from continuing operations**
                    (63,620)
                    (40,078)
                    (69,016)
                    20,325**Discontinued
                        operations:**(Loss)
                        income from operations of discontinued operations
                    (6,972)
                    (6,972)
                    (5,054)
                    3,187Gain
                        on sale of franchising segment
                    410
                    410Loss
                        generated by majority owned subsidiary, net of minority
                        interest
                    -
                    (23,542)
                    -**Net
                        (loss) income from discontinued operations**
                    (6,562)
                    (30,104)
                    (5,054)
                    3,187**Net
                        (loss) income**
                    $(70,182)
                    $(70,182)
                    $(74,070)
                    23,512**Per
                        share data:****(Loss)
                        earnings per share (basic and diluted):**Continuing
                        operations
                    $(1.13)
                    $(0.71)
                    $(1.23)
                    $0.37Discontinued
                        operations
                    (0.12)
                    (0.54)
                    (0.09)
                    0.05$(1.25)
                    $(1.25)
                    $(1.32)
                    $0.42**Weighted
                        average shares outstanding:**Shares
                        used in per share calculation – basic
                    56,047
                    56,047
                    55,924
                    55,441Shares
                        used in per share calculation - diluted
                    56,047
                    56,047
                    55,924
                    56,329
  See
              accompanying notes to consolidated financial statements
   Consolidated
              Statements of Shareholders’ Equity for the years ended August 31, 2006, 2005 and
              2004
   _________________________________________________________________________________________
   (Amounts
              expressed in thousands of dollars)
  **Capital
                        stock**
                    **Additional
                        paid-in capital**
                    **Accumulated
                        other comprehensive (losses)**
                    **Retained
                        earnings (accumulated deficit)**
                    **Total
                        Shareholders’ equity**Balance
                        at September 1, 2003
                    $85,199
                    $1,649
                    $(840)
                    $
                        46,706
                    $132,714Comprehensive
                        earnings:Net
                        earnings
                    
                    
                    
                    23,512Other
                        comprehensive losses, net of income taxes:Currency
                        translation adjustment
                    
                    
                    (256)Total
                        comprehensive loss
                    
                    
                    
                    
                    23,256Issuance
                        of shares for stock options exercised
                    11,779
                    
                    
                    
                    11,779Issuance
                        of shares for warrants exercised
                    507
                    
                    
                    
                    507Tax
                        benefit relating to exercise of non-qualified
                      stock
                        options
                    
                    11,862
                    
                    
                    11,862Stock-based
                        compensation expense
                    
                    30,983
                    
                    
                    30,983Balance
                        at August 31, 2004
                    97,485
                    44,494
                    (1,096)
                    70,218
                    211,101Comprehensive
                        losses:Net
                        loss
                    
                    
                    
                    (74,070)Other
                        comprehensive losses, net of income taxes:Currency
                        translation adjustment
                    
                    
                    (600)Total
                        comprehensive loss
                    
                    
                    
                    
                    (74,670)Issuance
                        of shares for stock options exercised
                    93
                    (36)
                    
                    
                    57Stock-based
                        compensation expense
                    
                    1,918
                    
                    
                    1,918Balance
                        at August 31, 2005
                    97,578
                    46,376
                    (1,696)
                    (3,852)
                    138,406Compressive
                        losses:Net
                        loss
                    
                    
                    
                    (70,182)Other
                        comprehensive gain, net of income taxes:Currency
                        translation adjustment
                    
                    
                    232Total
                        comprehensive loss
                    
                    
                    
                    
                    (69,950)Issuance
                        of shares for stock options exercised
                    226
                    (87)
                    
                    
                    139Stock-based
                        compensation expense
                    
                    443
                    
                    
                    443Reversal
                        of deferred tax asset set up in connection with stock-based
                        compensation
                        expense
                    
                    (7,920)
                    
                    
                    (7,920)Balance
                        at August 31, 2006
                    $97,804
                    $38,812
                    $(1,464)
                    $(74,034)
                    $61,118
  See
              accompanying notes to consolidated financial statements.
   Consolidated
              Statements of Cash Flows for the years ended August 31, 2006, 2005
              and
              2004
   (Amounts
              expressed in thousands of dollars)
  **2006**
                    **2005**
                    **2004****Cash
                        and short-term investments provided by (used in):****Operating
                        activities:**Net
                        loss
                    $(70,182)
                    $(74,070)
                    $23,512Adjustments
                        to reconcile net loss to net cash flows from operating
                        activitiesDepreciation
                        and amortization
                    5,026
                    4,466
                    6,210Asset
                        impairment
                    21,289
                    51,141
                    -Stock-based
                        compensation expense
                    443
                    1,918
                    30,983Deferred
                        income taxes
                    5,145
                    493
                    (15,314)(Gain)
                        loss on sale of building and other assets
                    -
                    (3,634)
                    -Minority
                        interest
                    (5,185)
                    (2,696)
                    (954)Net
                        (loss) income from discontinued operations
                    6,972
                    5,054
                    (3,187)Gain
                        on sale of franchising segment
                    (410)
                    -
                    -Cash
                        effect of changes from continuing operationsReceivables
                    9,304
                    22,487
                    (6,960)Receivables
                        – affiliates
                    1,569
                    1,831
                    (1,315)Allowance
                        for doubtful accounts
                    (537)
                    (110)
                    126Inventories
                    15,037
                    6,261
                    (1,544)Prepaid
                        expenses
                    676
                    (2,000)
                    6,290Income
                        taxes recoverable
                    (1,046)
                    (9,767)
                    -Accounts
                        payable
                    (7,736)
                    10,848
                    2,890Payables
                        – affiliates
                    (620)
                    (230)
                    277Accrued
                        liabilities
                    (4,753)
                    1,665
                    (5,636)Income
                        taxes payable
                    -
                    (5,240)
                    7,194Other
                        assets
                    1,022
                    (559)
                    53Other
                        liabilities
                    694
                    124
                    (275)Cash
                        (used in) provided by operating activities
                    (23,292)
                    7,982
                    42,350**Investing
                        activities:**Purchase
                        of property, plant and equipment
                    (1,416)
                    (13,500)
                    (12,977)Purchase
                        of license agreements and other intangibles
                    
                    (26)
                    (376)Proceeds
                        from sale of building
                    -
                    5,434
                    -Decrease(increase)
                        in restricted cash
                    10,000
                    (10,000)
                    -Purchase
                        of investments
                    -
                    (2,500)
                    (33,050)Redemption
                        of investments
                    7,500
                    23,050
                    5,000Decrease
                        (increase) in notes receivable
                    15
                    (36)
                    23Cash
                        provided by investing activities
                    16,099
                    2,422
                    (41,380)**Financing
                        activities:**Change
                        in revolving line of credit, secured
                    -
                    2,661
                    1,514Proceeds
                        from notes payable in default
                    10,077
                    -
                    -Proceeds
                        from notes payable of majority owned subsidiary, in
                        default
                    23,918
                    -
                    -Repayment
                        of notes payable of majority owned subsidiary, in default
                    (417)
                    -
                    -Proceeds
                        from short term borrowings
                    -
                    44,553
                    -Capital
                        contributions from minority interest
                    -
                    -
                    8,907Return
                        of capital contributions to minority interest
                    -
                    -
                    (2,000)Proceeds
                        from issuance of Class A and B shares
                    139
                    57
                    12,286Repayment
                        of short term borrowings
                    (34,553)
                    (10,000)
                    -Repayment
                        of long-term debt
                    (26,409)
                    (3,785)
                    (5,781)Cash
                        (used in) provided by financing activities
                    (27,245)
                    33,486
                    14,926**Decrease
                        (increase) in cash flows due to changes in foreign exchange
                        rates**
                    230
                    (695)
                    (2,412)**Cash
                        flows provided by (used in) from discontinued
                        operations:**Net
                        loss from discontinued operations
                    (6,972)
                    (5,054)
                    3,187Operating
                    8,937
                    8,311
                    (1,768)Investing
                    8,574
                    (58,445)
                    (386)Financing
                    -
                    (222)
                    -**Cash
                        provided by (used in) discontinued operations**
                    10,539
                    (55,410)
                    1,033**(Decrease)
                        in cash and cash equivalents**
                    (23,669)
                    (12,215)
                    14,517**Cash
                        and cash equivalents – beginning of year**
                    24,062
                    36,277
                    21,760**Cash
                        and cash equivalents – end of year**
                    $
                        393
                    $
                        24,062
                    $36,277
  See
              accompanying notes to consolidated financial statements.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   ______________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   **Note
              1. Description of business and summary of significant accounting
              policies**
   In
              the year ended August 31, 2006 (“Fiscal 2006”), the Company incurred a net loss
              of $(70,182), of which $(63,620) was from continuing operations and
              $(6,562) was
              from discontinued operations.
   In
              the first quarter of the year ended August 31, 2006 (“Fiscal 2006”), the
              decision was made to sell certain businesses to generate liquidity.
              In December
              2005, the Company sold certain assets relating to its franchising business
              for
              proceeds totaling $8,000 to a company controlled by Aaron Serruya,
              a former
              officer of the Company, who is a director and the brother of Michael
              Serruya,
              the Chairman and Chief Executive Officer of the Company.
   On
              April 21, 2006, the Company refinanced its then remaining debt by obtaining
              the
              following:
   1.
              a $48,000 senior secured revolving credit facility (the “Corporate Credit
              Facility”); and
   2.
              a $25,500 senior secured revolving credit facility consisting of a
              $8,000 senior
              secured revolving credit facility and $17,500 of term loans, in which
              Americana
              Foods Limited Partnership (“Americana Foods”), which is 50.1% owned by the
              Company, is the borrower (the “Americana Credit Facility”).
   Each
              of the loans was for an original term of three years and provides for
              interest
              at the prime rate (8.25% at August 31, 2006). Each of the credit facilities
              were
              unconditionally guaranteed by the Company. See Note 12, “Long-term Debt,” and
              Note 20, “Subsequent Events,” for a complete discussion of the Company’s
              indebtedness.
   The
              proceeds from the borrowings were used to retire all then existing
              debt.
   However,
              sales generated by the Company continued to lag and the Company incurred
              significant losses in Fiscal 2006. The Company was in default under
              its
              financial covenants at May 31, 2006 and August 31, 2006 with respect
              to the
              Corporate Credit Facility and the Americana Credit Facility. During
              Fiscal 2006,
              the Board of Directors of the Company approved the active marketing
              of certain
              of its business lines for sale, including Eskimo Pie Frozen Distribution,
              Inc.
              (“EPFD”), the Company’s direct store door business and a component of our frozen
              dessert segment, Value America, substantially all of the Company’s dairy
              components segment, and CoolBrands Dairy, Inc. (‘CBD”), the Company’s yogurt
              segment, to generate cash and reduce debt.
   On
              September 14, 2006, the Company completed the sale of the Value America
              division
              to an unaffiliated third party for $8,250 and on November 17, 2006,
              the Company
              consummated the sale of substantially all of EPFD to an unaffiliated
              third party
              for $5,736.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   ______________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   In
              October 2006, certain of the Company’s subsidiaries, as creditors of Americana
              Foods, filed an involuntary petition of Bankruptcy against Americana
              Foods under
              Chapter 7 of the Federal Bankruptcy Code and Americana Foods ceased
              operations
              and was under the jurisdiction of an independent bankruptcy trustee,
              who is
              arranging for the sale of the remaining assets. The estimated fair
              value of
              Americana Foods’ assets and liabilities subject to settlement and the guaranteed
              debt are recorded in the accompanying balance sheet.
   Additionally,
              on January 2, 2007, the Company entered into a definitive agreement
              to sell CBD.
              Finally, on January 24, 2007, the Company sold, through its subsidiaries
              Eskimo
              Pie Corporation and Integrated Brands Inc., their Eskimo Pie and Chipwich
              Brands
              and Real Fruit trademark, along with Eskimo Pie soft serve brands and
              related
              foodservice business segment to Dreyer’s Grand Ice Cream Holdings, Inc.
              (“Dreyer’s”), and utilized a portion of the proceeds to repay the amounts
              outstanding under the Corporate Credit Facility.
   *Frozen
              dessert segment*
   Revenues
              in the frozen segment are or have been generated from manufacturing
              and selling
              a variety of prepackaged frozen dessert products to distributors, including
              Eskimo Pie Frozen Distribution (“EPFD”), and various retail establishments
              including supermarkets, grocery stores, club stores, gourmet shops,
              delicatessens and convenience stores.
   CoolBrands
              competes in the fast-growing Better for You ice cream category with
              offerings
              such as fat-free, non-dairy WholeFruit Sorbet. 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
              and Yoplait.
              Substantially, all of these businesses are included in the foodservice
              segment.
              On January 24, 2007, the Company sold certain assets of the foodservice
              segments
              including the brand names, Eskimo Pie and Chipwich to an unaffiliated
              third
              party (see Note 20, “Subsequent Events”).
   CoolBrands’
              subsidiary, EPFD, operates a direct store door ice cream distribution
              system in
              selected markets in the U.S., serving CoolBrands products and certain
              Partner
              Brands to supermarkets, convenience stores and other retail customers.
              During
              Fiscal 2006, the Company made the decision to sell EPFD. Accordingly,
              the assets
              and liabilities, operating results and cash flows have been classified
              as assets
              and liabilities of discontinued operations held for sale, net loss
              of
              discontinued operations and net cash flows from discontinued operations,
              respectively. The Company consummated the sale of substantially all
              of the net
              assets of EPFD to an unaffiliated third party on November 17, 2006.
              (See Note 5,
“Discontinued Operations,” and Note 20, “Subsequent Events,” for a complete
              discussion.)
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   _________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   CoolBrands’
              50.1% owned subsidiary, Americana Foods, was a manufacturer and supplier
              of
              packaged ice cream, frozen yogurt and sorbet products, frozen snacks,
              soft-serve
              mixes and other food products to well-known national retailers, food
              companies
              and restaurant chains. Americana Foods manufactured products purchased
              by the
              Company for sale and distribution, which in Fiscal 2006 aggregated
              $21,700 (at
              cost) or approximately 45% of the purchases by the frozen dessert and
              foodservice segments.
   *Yogurt
              segment*
   CoolBrands’
              subsidiary, CBD, manufactures cup yogurt at its plant located in North
              Lawrence,
              New York and markets the products under the Breyers brand pursuant
              to a
              trademark rights agreement, which grants the rights in perpetuity,
              and under the
              Crème Savers brand pursuant to a long-term license agreement. During Fiscal
              2006, the Company made the decision to sell CBD and on January 2, 2007,
              the
              Company entered into a definitive agreement to sell CBD to an unaffiliated
              third
              party. Accordingly, the assets and liabilities, operating results and
              cash flows
              of the yogurt segment have been reclassified to assets and liabilities
              held for
              sale of discontinued operations, net loss from discontinued operations
              and net
              cash flows from discontinued operations, respectively. (See Note 5,
              “Discontinued Operations,” and Note 20, “Subsequent Events.”)
   *Dairy
              components segment*
   Revenues
              in the dairy components segment were 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. CoolBrands’ dairy components segment manufactures and sells a full line
              of quality flavours, chocolate coatings, fudge sauces, powders for
              chocolate
              milk, eggnog bases and other ingredients. During Fiscal 2006, the Company
              made
              the decision to sell the Value America division, which represents substantially
              all of the dairy components segment, and consummated a sale to an unaffiliated
              third party in September 2006. Accordingly, the assets and liabilities,
              operating results and cash flows have been classified as assets and
              liabilities
              of discontinued operations held for sale, net loss of discontinued
              operations
              and net cash flows from discontinued operations, respectively. (See
              Note 5,
“Discontinued Operations,” and Note 20, “Subsequent Events.”)
   *Foodservice
              segment*
   Revenues
              in the foodservice segment were 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. On January
              24, 2007,
              the Company sold, through its subsidiaries Eskimo Pie Corporation and
              Integrated
              Brands Inc., their Eskimo Pie and Chipwich Brands and Real Fruit trademark,
              along with Eskimo Pie soft serve brands and related foodservice business
              segment
              to Dreyer’s, an indirect subsidiary of Nestlé S.A. (See Note 20, “Subsequent
              Events.”)
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   *Basis
              of presentation*
   The
              consolidated financial statements are prepared by management using
              accounting
              principles generally accepted in the United States 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 operations from the date of acquisition.
              All
              amounts are reported in U.S. dollars unless otherwise indicated.
   *Use
              of estimates*
   The
              preparation of consolidated financial statements in conformity with
              generally
              accepted accounting principles in the United States requires management
              to make
              estimates and assumptions that affect the amounts reported in the consolidated
              financial statements and accompanying notes. Actual results could differ
              from
              those estimated.
   ***Cash***
   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.
   ***Investments***
   The
              Company’s investment portfolio consisted of investments in Auction rate
              securities. Auction rate securities are variable rate bonds tied to
              short-term
              interest rates with maturities on the face of the securities in excess
              of 90
              days. The Company evaluates whether to redeem or rollover each security
              no later
              than every 35 days. At August 31, 2006 and 2005, the Company had investment
              balances of Nil and $7,500, respectively.
   *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 machinery 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.
   *Intangible
              and other assets*
   Intangible
              and other assets consist of license agreements, trademarks, trademark
              rights and
              other assets. Amortizing intangibles are stated at cost less accumulated
              amortization and allowances for impairment. Amortization is provided
              by the
              straight-line method using the terms of the agreements, which range
              from 4 to 20
              years.
   *Goodwill
              and other non-amortizable intangible assets*
   In
              accordance with Statement of Financial Accounting Standard No. 142,
“Goodwill
              and Other Intangible Assets” (“Statement 142”), goodwill and intangible assets
              deemed to have indefinite lives are no longer amortized, but instead
              are to be
              tested for impairment at least annually or earlier if there are impairment
              indicators. Other intangible assets continue to be amortized over their
              estimated useful lives. Goodwill is tested for
              impairment****using a two step process that begins with an
              estimation of the fair value of each reporting unit. The fair value
              of each
              reporting unit is determined using a combination of valuation approaches
              including an income approach consisting of a discounted cash flow analysis
              and a
              market multiple approach. The fair value of the reporting unit is compared
              to
              its carrying value. If the carrying value exceeds the fair value, goodwill
              is
              considered impaired.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   The
              amount of impairment loss is measured as the difference between the
              carrying
              value and implied fair value of goodwill, which is determined using
              discounted
              cash flows. Impairment testing for non-amortizable intangible assets
              requires a
              comparison between fair value and carrying value of the intangible
              asset. If the
              carrying value exceeds fair value, the intangible asset is considered
              impaired
              and is reduced to fair value.
   During
              Fiscal 2006, the Company recorded a provision for impairment of $5,428
              with
              respect to the goodwill of the yogurt segment (see Note 5, “Discontinued
              Operations,” for further discussion). The impairment of the goodwill of the
              yogurt segment is included in net loss of discontinued operations.
              Additionally,
              the Company incurred losses on impairment totaling $21,289 with respect
              to:
   1.
              The loss on impairment incurred with respect to certain licenses not
              likely to
              continue and related prepaid packaging and design cost totaling
              $3,609;
   2.
              The loss on impairment of goodwill of $3,500 incurred with respect
              to the frozen
              dessert segment to recognize the deterioration of the business as the
              result of
              the abandonment or termination of various licensing agreements; and
   3.
              The loss on impairment of $1,890 related to certain property, plant
              and
              equipment currently in storage; and
   4.
              The loss on impairment of $1,140 relating to deferred acquisition costs,
              prepaid
              royalties and net receivables of Americana Foods; and
   5.
              The loss on impairment of $11,150 to recognize the loss in value of
              the assets
              of Americana Foods in bankruptcy (accounts receivable - $1,500, inventory
              -
              $5,750 and property, plant and equipment - $3,900).
   During
              Fiscal 2005, the Company completed its annual impairment testing of
              goodwill and
              intangible assets. A goodwill impairment charge of $48,701 was taken
              in the
              Company’s frozen dessert segment. The impairment charge in the frozen dessert
              product segment is the result of the loss of the Weight Watchers licensing
              agreement as well as declining sales of the Atkins and our base business
              product
              lines and the resulting decline in cash flows. This review also resulted
              in a
              $1,401 intangible asset impairment charge for the Company’s frozen dessert
              segment. Significant assumptions used in measuring the impairments
              included the
              timing and amount of estimated future cash flows for reporting units
              and
              intangible assets, and where applicable, an analysis of guideline transaction
              market multiples.
   For
              the year ended August 31, 2005 (“Fiscal 2005”), CoolBrands International Inc.
              (the “Company”) incurred a net loss of $74,070, which was primarily attributable
              to:
   1.
              the non-cash impairment charges totaling $55,525 relating to goodwill
              and
              intangible assets of the Company’s frozen dessert and franchising segments;
              and
   2.
              the discontinuation of the Weight Watchers Smart Ones brand products
              and the
              decline in other frozen dessert brands, which was partially offset
              by the sales
              of the Breyers yogurt business acquired in March 2005 and a change
              in the
              Company’s arrangement with Dreyer’s.
   As
              of August 31, 2005, the Company had approximately $60,962 of outstanding
              debt,
              of which $52,714 was classified as current liabilities.
   *Long-Lived
              Assets*
   The
              Company’s other long-lived assets include property, plant and equipment and
              amortizable intangible assets. The Company reviews its long-lived assets
              for
              impairment whenever events or changes in circumstances indicate that
              the
              carrying value of any of these assets may not be recoverable, the Company
              will
              assess the recoverability of such assets based upon estimated undiscounted
              cash
              flow forecasts, in accordance with Statement of Financial Accounting
              Standards
              (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived
              Assets.” When any such impairment exists, the related assets will be written
              down to fair value.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
 During
              fourth quarter of Fiscal 2006, based upon market analysis and other
              third party
              information, the Company recorded a provision for impairment of $5,790
              with
              respect to property, plant and equipment which includes $3,900 with
              respect to
              Americana Foods.
   During
              the fourth quarter of Fiscal 2005, due to the presence of indicators,
              the
              Company completed impairment testing of other long-lived assets. This
              review
              resulted in a $483 impairment of property, plant and equipment.
   *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 drayage is recognized at the time the product is delivered for
              the vendor
              to their customer by the Company and is primarily earned for the delivery
              of
              products to Dreyer’s scanned based trading customers. Substantially all of the
              drayage income is earned in EPFD and was included in discontinued operations
              for
              Fiscal 2006 and Fiscal 2005.
   *Product
              introduction expenditures*
   Product
              introduction expenditures (i.e. slotting fees) are recognized as reductions
              of
              revenues at the time product introduction offers are accepted by our
              customers,
              which for measurement purposes is at the time of the first shipment
              of the
              product to each customer.
   *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 $5,274, $6,937 and $4,834 on advertising in continuing
              operations for Fiscal 2006, Fiscal 2005 and Fiscal 2004,
              respectfully.
   *Financial
              instruments*
   The
              carrying amount of financial instruments including cash, investments,
              restricted
              cash, receivables, receivables – affiliates, accounts payable, payables –
affiliates, accrued liabilities and income taxes payable and income
              taxes
              recoverable approximates fair value at August 31, 2006 and 2005 because
              of the
              relatively short maturity of these instruments. The fair value of short
              term
              borrowings and long-term debt are disclosed in Note 12, “Long-term Debt.” The
              carrying amount of long-term debt approximates fair value at August
              31, 2006 and
              2005 because of their variable interest rates. The carrying amount
              of other
              liabilities approximates fair value at August 31, 2006 and 2005 because
              the fair
              value estimates are based upon pertinent information available to management
              at
              August 31, 2006 and 2005.
   *Concentration
              of credit risk*
   Financial
              instruments, which potentially subject the Company to concentration
              of credit
              risk, consist principally of cash, 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.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   *Loss
              per share*
   The
              Company uses the treasury stock method to determine diluted earnings
              per share.
              The following table presents the numerators and denominators used in
              the basic
              and diluted loss per share calculations:
  **2006**
                    
                    **2005**
                    
                    **2004**Numerator:Net
                        (loss) income from continuing operations
                    $(63,620)
                    
                    $(69,016)
                    
                    $20,325Net
                        (loss) income from discontinued operations
                    (6,562)
                    
                    (5,054)
                    
                    3,187Net
                        (loss) income
                    $(70,182)
                    
                    $(74,070)
                    
                    $23,512Denominator:Basic
                        weighted average shares outstanding
                    56,047
                    
                    55,924
                    
                    55,441Dilutive
                        effect of stock awards
                    -
                    
                    -
                    
                    88856,047
                    
                    55,924
                    
                    56,329Net(
                        loss) income from continued operations – basic and diluted
                    $(1.13)
                    
                    $(1.23)
                    
                    $0.37Net(loss)income
                        from discontinued operations – basic and diluted
                    (0.12)
                    
                    (.09)
                    
                    0.05Net
                        (loss)income - basic and diluted
                    $(1.25)
                    
                    $(1.32)
                    
                    $0.42
  Diluted
              net loss per share for Fiscal 2006 and Fiscal 2005 is equal to basic
              net loss
              per share because the effect of common stock equivalents is anti-dilutive.
              Potentially dilutive securities, calculated in terms of weighted-average
              share
              equivalent of stock options outstanding, are excluded from the calculations
              of
              diluted net loss per share when their inclusion would have anti-dilutive
              effect.
              During Fiscal 2006, Fiscal 2005 and Fiscal 2004, Nil, 145 shares and
              Nil,
              respectively, of potentially dilutive securities were excluded from
              weighted-average share calculation for purposes of calculating weighted-average
              diluted shares and diluted loss per share.
   *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 U.S. dollars using the average exchange
              rate for
              the year for items included in the Consolidated Statements of Operations.
              Foreign currencies are translated into U.S. 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 or receivable for the current period.
              Deferred
              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 enacted tax rates and laws that will be in effect
              when the
              differences are expected to reverse.
   *New
              accounting pronouncements*
   In
              May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154,
“Accounting Changes and Error Corrections” (“SFAS 154”). SFAS 154 requires
              companies to recognize changes in accounting principle, including changes
              required by a new accounting pronouncement when the pronouncement does
              not****include specific transition provisions,
              retrospectively to prior periods’ financial statements. SFAS 154 is effective
              for accounting changes and corrections of errors made in fiscal years
              beginning
              after December 15, 2005. Adoption of SFAS 154 did not have a material
              effect on
              the Company’s financial position, results of operations or cash
              flows.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   In
              December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
              Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based
              Compensation” (“SFAS 123”) and supersedes Accounting Principles Board (“APB”)
              Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires
              all share-based payments to employees, including grants of employee
              stock
              options, to be recognized in the financial statements based on their
              fair values
              beginning with the first annual reporting period that begins after
              June 15,
              2005. Under SFAS 123R, the pro forma disclosures previously permitted
              under SFAS
              123 are no longer an alternative to financial statement recognition.
              The
              adoption of SFAS 123R did not have a material impact on the Company’s financial
              position, results of operations or cash flows.
   On
              July 13, 2006, the FASB issued FASB Interpretation (“Interpretation”) No. 48,
“Accounting for Uncertainty in Income Taxes” (“Interpretation 48”).
              Interpretation 48 is effective for fiscal years beginning after December
              15,
              2006 and applies to all tax positions accounted for under SFAS No.
              109,
“Accounting for Income Taxes.” The Company intends to adopt Interpretation 48
              for its fiscal year ending August 31, 2007 (“Fiscal 2007”) and will adopt
              Interpretation 48 by adjusting its tax liabilities and retained earnings
              for the
              cumulative effect of adjusting its tax benefits for uncertain tax positions,
              if
              any. The Company is still evaluating Interpretation 48 and its impact
              on the
              Company’s consolidated financial statements.
   In
              September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
              157”). SFAS 157 clarifies that fair value is the amount that would be exchanged
              to sell an asset or transfer a liability in an orderly transaction
              between
              market participants. Further, the standard establishes a framework
              for measuring
              fair value under generally accepted accounting principles and expands
              certain
              disclosures about fair value measurements. SFAS 157 is effective for
              fiscal
              years beginning after November 15, 2007. The Company does not expect
              the
              adoption of SFAS 157 will have a material impact on its consolidated
              financial
              position, results of operations or cash flows.
   In
              September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
              Benefit Pension and Other Postretirement Plans” (“SFAS 158”). SFAS 158 requires
              a company to recognize on its balance sheet the funded status of its
              defined
              benefit pension plan as an asset or liability and to recognize changes
              in that
              funded status in the year in which the changes occur through accumulated
              other
              comprehensive income. SFAS 158 is effective for fiscal years ending
              after
              December 15, 2006. The Company does not expect the adoption of SFAS
              158 to have
              a material effect on its financial position, results of operations
              or cash
              flows.
   **Note
              2. Going concern**
   In
              Fiscal 2006, the Company continued to generate significant losses in
              its core
              frozen dessert segment. At August 31, 2006, the Company was in default
              under
              both its Corporate Credit Facility and its Americana Credit Facility.
              Additionally, at August 31, 2006, the Company had negative working
              capital of
              $23,992. In November 2006, a company controlled by Michael Serruya,
              currently
              the President, Chairman and CEO of the Company, acquired the debt outstanding
              under the Americana Credit Facility from the lender and established
              a $5,000
              letter of credit to secure a portion of the Corporate Credit
              Facility.
   On
              January 24, 2007, the Company completed the sale of its foodservice
              segment
              including the Chipwich and Eskimo Pie licenses and repaid the amount
              outstanding
              under the Corporate Credit Facility. On January 2, 2007, the Company
              entered
              into a definitive agreement to sell CBD. Additionally, management has
              significantly reduced staff and related expenses to reduce the Company’s
              operating costs and has begun to seek short-term financing. However,
              without the
              sale of CBD, or some other financing, the Company may not be able to
              meet its
              obligations and not be able to continue as a going concern. Management
              is
              assessing whether to sell the Company’s remaining assets or to rebuild the
              Company.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   **Note
              3. Pro forma adjustments**
   During
              Fiscal 2006, Americana Foods, a majority owned subsidiary, continued
              to generate
              significant losses and was in default under the Americana Credit Facility
              at
              August 31, 2006. In October 2006, certain of the Company’s subsidiaries, as
              creditors of Americana Foods, filed an involuntary petition of bankruptcy
              against Americana Foods under Chapter 7 of the Federal Bankruptcy Code
              and
              Americana Foods ceased operations. Because generally accepted accounting
              principles do not permit classifying Americana Foods as a discontinued
              operation, the Company has provided below a balance sheet and statement
              of
              operations as of and for the year ended August 31, 2006, pro forma
              results
              removing the operating results of American Foods from its continuing
              operations,
              and stating Americana Foods’ operating results separately in discontinued
              operations. Management has provided this pro forma information due
              to a loss of
              control over the subsidiary as a result of the aforementioned bankruptcy
              filing
              subsequent to the Company’s year end and expected liquidation. The pro forma
              adjustments are intended to eliminate the impact of Americana Foods
              on the
              Company’s consolidated financial statements as of August 31, 2006 and to present
              what the financial position and results of operations of the Company’s remaining
              operations were as of and for the year ended August 31, 2006.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   The
              pro forma column reflects the reclassification of the assets, liabilities
              and
              accumulated deficit and the operating results of Americana Foods, as
              consolidated in the balance sheet and statement of operations as of
              and for the
              year ended August 31, 2006.
  **2006**
                    **Pro
                        forma adjustments**
                    **2006
                        Pro forma**
                    **2005****(Unaudited)****Assets****Current
                        Assets:**Cash
                    $
                        393
                    
                    $
                        393
                    $
                        24,062Investments
                    -
                    
                    -
                    7,500Restricted
                        cash
                    -
                    
                    -
                    10,000Receivables,
                        net
                    12,780
                    (6,082)
                    6,698
                    22,833Receivables
                        - affiliates
                    -
                    
                    -
                    1,780Inventories
                    9,131
                    (1,570)
                    7,561
                    29,918Current
                        assets of discontinued operations held for sale
                    38,142
                    
                    38,142
                    52,719Income
                        taxes recoverable
                    11,000
                    
                    11,000
                    9,767Prepaid
                        expenses
                    819
                    
                    819
                    1,490Deferred
                        income taxes, net of valuation allowance
                    -
                    
                    -
                    5,148Current
                        assets of Americana Foods
                    -
                    7,652
                    7,652
                    -**Total
                        current assets**
                    72,265
                    -
                    72,265
                    165,217Non-current
                        assets of discontinued operations held for sale
                    51,927
                    
                    51,927
                    64,453Deferred
                        income taxes, net of valuation allowance
                    -
                    
                    -
                    14,799Property,
                        plant and equipment
                    23,051
                    (18,386)
                    4,665
                    31,976Property,
                        plant and equipment of Americana Foods
                    -
                    18,386
                    18,386
                    -Intangible
                        and other assets
                    1,515
                    
                    1,515
                    5,857Goodwill
                    11,790
                    
                    11,790
                    15,543$160,548
                    -
                    $160,548
                    $297,845**Liabilities
                        and Shareholders’ Equity****Current
                        Liabilities:**Notes
                        payable in default
                    $
                        10,077
                    
                    $
                        10,077
                    $
                        -Notes
                        payable of majority owned subsidiary in default
                    23,501
                    (23,501)
                    -
                    -Accounts
                        payable
                    20,462
                    (8,735)
                    11,727
                    28,198Accrued
                        liabilities
                    14,900
                    (3,955)
                    10,945
                    21,106Payables
                        – affiliates
                    -
                    
                    -
                    620Income
                        taxes payable
                    140
                    
                    140
                    -Deferred
                        income taxes, net of valuation allowance
                    -
                    
                    -
                    93Current
                        liabilities of discontinued operations held for sale
                    22,890
                    
                    22,890
                    34,009Current
                        liabilities of Americana Foods
                    -
                    36,191
                    36,191
                    ,Short
                        term borrowings
                    -
                    
                    -
                    34,553Current
                        maturities of long-term debt
                    -
                    
                    -
                    18,161Other
                        liabilities
                    4,287
                    
                    4,287**Total
                        current liabilities**
                    96,257
                    -
                    96,257
                    136,740Other
                        liabilities
                    -
                    
                    -
                    2,442Non-current
                        liabilities of discontinued operations held for sale
                    825
                    
                    825
                    684Long-term
                        debt, including obligations under capital lease
                    348
                    
                    348
                    8,248Deferred
                        income taxes
                    2,000
                    
                    2,000
                    6,140**Total
                        liabilities**
                    99,430
                    -
                    99,430
                    154,254**Minority
                        interest**
                    -
                    
                    -
                    5,185**Commitments
                        and contingencies****Shareholders’
                        Equity:**Capital
                        stock
                    97,804
                    
                    97,804
                    97,578Additional
                        paid-in capital
                    38,812
                    
                    38,812
                    46,376Accumulated
                        other comprehensive losses
                    (1,464)
                    
                    (1,464)
                    (1,696)Accumulated
                        deficit
                    (74,034)
                    10,153
                    (63,881)
                    (3,852)Deficit
                        of Americana Foods
                    -
                    (10,153)
                    (10,153)
                    -**Total
                        shareholders’ equity**
                    61,118
                    -
                    61,118
                    138,406$160,548
                    -
                    $160,548
                    $297,845
  **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
  **2006**
                    **Pro
                        forma adjustments**
                    **2006
                        Pro forma**
                    **2005**
                    **2004****(Unaudited)****Net
                        revenues:**Net
                        sales
                    $
                        96,936
                    $(50,745)
                    $
                        46,191
                    $142,873
                    $275,394Other
                        income
                    2,412
                    (145)
                    2,267
                    6,837
                    5,342**Total
                        net revenues**
                    99,348
                    (50,890)
                    48,458
                    149,710
                    280,736Cost
                        of goods sold
                    110,718
                    (61,294)
                    49,424
                    142,181
                    176,929Selling,
                        general and administrative expenses
                    40,101
                    (5,574)
                    34,527
                    37,530
                    71,516Interest
                        expense
                    2,000
                    (1,599)
                    401
                    1,687
                    1,491Asset
                        impairment
                    21,289
                    (11,150)
                    10,139
                    51,141Gain
                        on sale of building
                    -
                    -
                    -
                    (3,515)**Loss
                        from continuing operations before income taxes**
                      **and
                        minority interest**
                    (74,760)
                    28,727
                    (46,033)
                    (79,314)
                    30,800**Minority
                        interest**
                    5,185
                    (5,185)
                    -
                    2,700
                    958**Loss
                        from continuing operations before income taxes**
                    (69,575)
                    23,542
                    (46,033)
                    (76,614)
                    31,758**(Recovery
                        of) Provision for income taxes**:Current
                    (11,100)
                    -
                    (11,100)
                    (8,439)
                    26,767Deferred
                    5,145
                    -
                    5,145
                    841
                    (15,334)(5,955)
                    -
                    (5,955)
                    (7,598)
                    11,433**Net
                        loss from continuing operations**
                    (63,620)
                    23,542
                    (40,078)
                    (69,016)
                    20,325**Discontinued
                        operations:**Loss
                        from operations of discontinued operations
                    (6,972)
                    -
                    (6,972)
                    (5,054)
                    3,187Gain
                        on sale of franchising segment
                    410
                    -
                    410Loss
                        generated by majority owned subsidiary, net of minority
                        interest
                    -
                    (23,542)
                    (23,542)
                    -
                    -**Net
                        loss from discontinued operations**
                    (6,562)
                    (23,542)
                    (30,104)
                    (5,054)
                    3,187**Net
                        loss**
                    $(70,182)
                    -
                    $(70,182)
                    $(74,070)
                    $23,512**Per
                        share data:****Loss
                        per share (basic and diluted):**Continuing
                        operations
                    $(1.13)
                    
                    $(0.71)
                    $(1.23)
                    $0.37Discontinued
                        operations
                    (0.12)
                    
                    (0.54)
                    (0.09)
                    0.05$(1.25)
                    
                    $(1.25)
                    $(1.32)
                    $0.42**Weighted
                        average shares outstanding:**Shares
                        used in per share calculation – basic
                    56,047
                    
                    56,047
                    55,924
                    55,441Shares
                        used in per share calculation - diluted
                    56,047
                    
                    56,047
                    55,924
                    56,329
  **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   **Note
              4. Reclassifications**
   Certain
              Fiscal 2004 and Fiscal 2005 amounts have been reclassified to conform
              to the
              Fiscal 2006 presentation. Certain assets and liabilities relating to
              the
              franchising and licensing segment, Value America, substantially all
              of the dairy
              components segment, EPFD, a component of the frozen dessert segment,
              and CBD,
              the yogurt segment, have been classified as assets and liabilities
              of
              discontinued operations held for sale on the Company’s consolidated balance
              sheets as of August 31, 2006 and 2005, the components of the related
              operating
              results of those entities have been reclassified to net loss from discontinued
              operations on the Company’s consolidated statements of operations and the
              components of cash flows have been reclassified to net cash flows from
              discontinued operations for the years then ended. Additionally, due
              to continued
              losses, the Company, through certain of its subsidiaries, as creditors
              of
              Americana Foods, filed an involuntary petition of bankruptcy against
              Americana
              Foods under Chapter 7 of the Federal Bankruptcy Code and Americana
              Foods ceased
              operations**.**
   **Note
              5. Discontinued operations**
   Effective
              December 23, 2005, the Company sold substantially all of its franchising
              and
              licensing segment to International Franchise Corp. for a cash consideration
              of
              $8,000 in a related party transaction. International Franchise Corp.
              is a
              company controlled by Aaron Serruya, a director of CoolBrands and the
              former
              senior executive who was responsible for the franchising division at
              CoolBrands,
              who is the brother of Michael Serruya, the Company’s President, Chairman and
              CEO. Mr. Serruya resigned as executive vice president of CoolBrands
              as a result
              of this transaction, but continues as a director. The sale transaction
              was
              reviewed and unanimously recommended to the board of directors of CoolBrands
              by
              a committee of independent directors of CoolBrands, and was unanimously
              approved
              by the board of directors of CoolBrands.
   As
              a part of their review of the transaction, the independent committee
              and the
              board of directors received a fairness opinion from Duff & Phelps, LLC who
              acted as exclusive financial advisor to CoolBrands and who assisted
              CoolBrands
              in marketing the division to potential buyers.
   During
              Fiscal 2006, the Company’s Board of Directors approved the decision to sell its
              Value America division, part of its dairy components segment, Eskimo
              Pie Frozen
              Distribution, part of its frozen dessert segment, and CBD, its yogurt
              segment
              and we began actively marketing these businesses for sale.
   On
              September 1, 2006, Eskimo Pie Corporation, a wholly owned subsidiary
              of the
              Company, entered into an asset purchase agreement with Denali New Berlin,
              LLC
              and Denali Ingredients, LLC to sell its Value America flavor and ingredients
              division, which comprised substantially all of the dairy components
              segment. The
              sale of assets was consummated September 14, 2006 for a price of $8,250,
              which
              exceeded the carrying value of the assets sold, of which $7,500 was
              paid in cash
              and $ 750 was placed in escrow subject to collection of certain accounts
              receivable. The Company classified the assets and liabilities of Value
              America
              as assets and liabilities of discontinued operations held for sale
              on the
              balance sheet as of August 31, 2006 and included the components of
              its operating
              results in net loss from discontinued operations on the statement of
              operations
              and the components of cash flows as net cash flows from discontinued
              operations
              for Fiscal 2006.
   Additionally,
              the Company classified the assets and liabilities of Value America
              as assets and
              liabilities of discontinued operations held for sale on the consolidated
              balance
              sheet as of August 31,2005 and classified the components of operating
              results of
              Value America into net loss from discontinued operations and classified
              its cash
              flows as cash flows from discontinued operations for Fiscal 2005.
   On
              November 14, 2006, the Company announced that its wholly owned subsidiary,
              Eskimo Frozen Distribution Inc (“EPFD”) had entered into a definitive agreement
              to sell substantially all of its direct store door (“DSD”) frozen distribution
              assets in Florida, California, Oregon and Washington for a net sales
              price of
              $5,736, which equaled the carrying value of the related assets acquired
              net of
              the liabilities assumed, to an
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   unaffiliated
              third party. The transaction closed on November 17, 2006. The Company
              classified
              the assets and liabilities of EPFD as assets and liabilities of discontinued
              operations held for sale on the balance sheet as of August 31, 2006
              and included
              the components of operating results of EPFD as net loss from discontinued
              operations on the consolidated statement of operations and its cash
              flows as
              cash flows from discontinued operations for Fiscal 2006. Additionally,
              the
              Company classified the assets and liabilities of EPFD as assets and
              liabilities
              of discontinued operations held for sale on the consolidated balance
              sheet as of
              August 31, 2005 and classified the components of operating results
              to net loss
              from discontinued operations on the consolidated statement of operations
              and
              classified the cash flows as cash flows from discontinued operations
              for Fiscal
              2005.
   On
              January 2, 2007, the Company entered into a definitive agreement to
              sell CBD,
              which includes the yogurt business acquired from Kraft Inc. in 2005,
              to an
              unaffiliated third party. The Company recorded a loss on impairment
              of $5,428 to
              adjust the carrying value of CBD’s net assets to approximate fair value based
              upon the definitive agreement. The Company classified CBD’s net assets and
              liabilities as assets and liabilities of discontinued operations held
              for sale
              on the consolidated balance sheet as of August 31, 2006 and included
              the
              components of operating results in net loss from discontinued operations
              on the
              consolidated statement of operations and its cash flows as cash flows
              from
              discontinued operations for Fiscal 2006. Additionally, as of and for
              the year
              ended August 31, 2005, the Company has classified the assets and liabilities
              of
              CBD as assets and liabilities of discontinued operations held for sale
              on the
              consolidated balance sheet and included the components of operating
              results of
              CBD in net loss from discontinued operations on the consolidated statement
              of
              operations and the cash flows of CBD as cash flows from discontinued
              operations.
              (See Note 22, “Sale of CBD”)
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   Below
              is a condensed schedule, by operating segment as previously reported,
              of the
              assets and liabilities held for sale of discontinued operations and
              the
              respective operating results for each of the years presented:
  **August
                        31, 2006**
                    Frozen
                        Dessert
                      (EPFD)
                    Franchising
                      and
                        Licensing
                    Yogurt
                      (CBD)
                    Dairy
                        Components
                      (Value
                        America)
                    TotalTotal
                        current assets
                    $19,197
                    
                    $14,441
                    $4,504
                    $38,142Total
                        non-current assets
                    65
                    
                    49,132
                    2,730
                    51,927Total
                        current liabilities
                    9,915
                    
                    11,949
                    1,026
                    22,890Total
                        non-current liabilities
                    
                    
                    825
                    
                    825Net
                        assets
                    $
                        9,347
                    -
                    $50,799
                    $6,208
                    $66,354**For
                        the year ended**
                      **August
                        31, 2006**Total
                        revenue
                    $128,103
                    $3,613
                    $109,304
                    $19,057
                    $260,077Cost
                        of sales
                    131,251
                    2,122
                    95,143
                    15,042
                    243,558Selling,
                        general, and
                      administrative
                        expenses
                    3,640
                    1,684
                    8,891
                    1,651
                    15,866Interest
                        expense
                    
                    
                    2,197
                    
                    2,197Asset
                        impairment
                    
                    
                    5,428
                    
                    5,428(Loss)
                        income
                    $
                        (6,788)
                    $
                        (193)
                    $
                        (2,355)
                    $
                        2,364
                    $
                        (6,972)
  
  **August
                        31, 2005**
                    Frozen
                        Dessert
                      (EPFD)
                    Franchising
                      and
                        Licensing
                    Yogurt
                      (CBD)
                    Dairy
                        Components
                      (Value
                        America)
                    TotalTotal
                        current assets
                    $27,925
                    $3,425
                    $16,039
                    $5,330
                    $52,719Total
                        non-current assets
                    330
                    6,681
                    54,538
                    2,904
                    64,453Total
                        liabilities
                    16,680
                    2,378
                    13,331
                    1,620
                    34,009Total
                        non-current liabilities
                    6
                    678
                    
                    
                    684Net
                        assets
                    $11,569
                    $7,050
                    $57,246
                    $6,614
                    $82,479**For
                        the year ended**
                      **August
                        31, 2005**Total
                        revenue
                    $157,557
                    $16,102
                    $44,007
                    $17,769
                    $235,435Cost
                        of sales
                    159,858
                    9,017
                    36,638
                    13,895
                    219,408Selling,
                        general, and
                      administrative
                        expenses
                    4,879
                    5,109
                    4,993
                    1,579
                    16,560Interest
                        expense
                    
                    7
                    891
                    
                    898Asset
                        impairment
                    
                    4,384
                    
                    
                    4,384Income
                        tax (benefit) expense
                    (2,826)
                    2,025
                    
                    
                    (801)Other
                        (income) expense
                    (120)
                    160
                    
                    
                    (114)(Loss)
                        income
                    $
                        (4,234)
                    $(4,600)
                    $
                        1,485
                    $
                        2,295
                    $
                        (5,054)
  See
              Note 20, “Subsequent Events,” for a further discussion of Discontinued
              Operations.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
  Frozen
                        Dessert
                      (EPFD)
                    Franchising
                      and
                        Licensing
                    Dairy
                        Components
                      (Value
                        America)
                    Total**For
                        the year ended**
                      **August
                        31, 2004**Total
                        revenue
                    $135,398
                    $14,780
                    $19,024
                    $169,202Cost
                        of sales
                    130,229
                    8,277
                    13,925
                    152,431Selling,
                        general, and
                      administrative
                        expenses
                    4,393
                    4,954
                    1,794
                    11,141Interest
                        expense
                    
                    7
                    
                    7Income
                        tax (benefit) expense
                    351
                    617
                    1,468
                    2,436(Loss)
                        income
                    $
                        425
                    $
                        925
                    $
                        1,837
                    $
                        3,187
  **Note
              6. Acquisitions**
   *Fiscal
              2005 Acquisitions*
   On
              March 27, 2005, the Company completed the acquisition of the yogurt
              business of
              Kraft Foods, Inc. The acquired brands included Breyers Fruit on the
              Bottom,
              Light and Crème Savers cup yogurt varieties and Cream Savers Smoothie drinkable
              yogurt and included substantially all of Kraft’s assets related to its yogurt
              business, including a license for the Breyers trademark, a license
              for the Crème
              Savers trademark, a license for the Light ’n Lively trademark and Kraft’s
              manufacturing facility in North Lawrence, New York. The purpose of
              this
              acquisition was to diversify the Company’s business and to reduce its
              concentration of operations in the frozen dessert segment. Factors
              that
              contributed to the purchase price and resulting goodwill were based
              upon
              negotiations with the seller and the valuation of the business based
              upon
              expected future contributions to net earnings and cash flow.
   The
              following is a summary of the assets and liabilities acquired and the
              fair value
              assigned thereto, and the purchase consideration given:
  **Fair
                        value acquired:**
                    
                    
                    **Purchase
                        consideration:**Current
                        assets
                    $
                        5,373
                    
                    Cash
                    $17,500Property,
                        plant and equipment
                    11,846
                    
                    Acquisition
                        costs
                    1,652Trademark
                        rights
                    15,000
                    
                    Bank
                        loan
                    40,000Goodwill
                    27,582
                    
                    
                    $59,15259,801Less:
                        Liabilities
                    (649)$59,152
  **Pro
              forma results of operations**
   The
              following table summarizes unaudited pro forma financial information
              assuming
              the acquisition of the Breyers yogurt business had occurred at the
              beginning of
              Fiscal 2005. This pro forma financial information is for informational
              purposes
              only and does not reflect any operating inefficiencies which may result
              from the
              acquisition of the Breyers yogurt business transaction and, therefore,
              is not
              necessarily indicative of results that would have been achieved had
              the
              businesses been combined throughout the period presented. In addition,
              the
              preparation of financial statements in conformity with U.S. GAAP requires
              management to make estimates and assumptions. These estimates and assumptions
              affect the reported amounts of assets and liabilities and disclosure
              of
              contingent assets and liabilities and disclosure of contingent assets
              and
              liabilities at the date of the financial statements and the reported
              amounts of
              revenues and expenses during the reporting period. The pro forma adjustments
              use
              estimates and assumptions based on information available at the time
              of
              preparation. Management believes that the estimates and assumptions
              are
              reasonable and that the significant effects of the acquisition of Breyers
              yogurt
              business are reasonable and significant effects of the acquisition
              of Breyers
              yogurt business are properly reflected. However, actual results may
              differ from
              these estimates and assumptions.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
  As
                        Originally
                      Reported
                    Reflecting
                        Discontinued OperationsPro
                        forma total net revenues
                    $434,728
                    $149,710Pro
                        forma net loss from continuing operations
                    
                    (69,016)Pro
                        forma net loss from discontinued operations
                    
                    (892)Pro
                        forma net loss
                    $(69,908)
                    $(69,908)Pro
                        forma net los per share basic and diluted
                      for
                        continuing operations
                    
                    $(1.23)Pro
                        forma net loss per share basic and diluted
                      for
                        discontinued operations
                    
                    (0.02)Pro
                        forma net loss per share basic and diluted
                    $(1.25)
                    $(1.25)
  As
              of August 31, 2006, CBD, which includes the Breyers yogurt business,
              was being
              marketed for sale by the Company. Accordingly, the assets and liabilities
              of CBD
              are included in assets and liabilities held for sale of discontinued
              operations
              on the consolidated balance sheets as of August 31, 2006 and 2005,
              the
              components of the related operating results have been classified to
              net loss
              from discontinued operations for each of the years then ended, and
              the
              components of net cash flows have been included in net cash flows from
              discontinued operations for the years then ended. We have also reflected
              the pro
              forma results after reclassifying the operating results of all of the
              discontinued operations, including the yogurt segment.
   In
              April 2005, the Company acquired the assets of Zipp Manufacturing,
              Inc., a
              manufacturer of flavors and ingredients. The assets and related business
              of Zipp
              Manufacturing were acquired to provide additional volume to our dairy
              components
              segment which has excess capacity. The primary factors that contributed
              to the
              purchase price and resulting goodwill were based upon negotiations
              with the
              seller, the Company’s desire for additional production volume and the resulting
              projected incremental earnings and cash flow.
   The
              following is a summary of the assets and liabilities acquired and the
              fair value
              assigned thereto, and the purchase consideration given:
  **Fair
                        value acquired:**
                    
                    
                    **Purchase
                        consideration:**Current
                        assets
                    $208
                    
                    Cash
                    $457Equipment
                    80Goodwill
                    258546Less:
                        Liabilities
                    (89)$457
  As
              of August 31, 2006, the business of Zipp Manufacturing, which is a
              component of
              the dairy component segment, was being marketed for sale. Accordingly,
              the
              assets and liabilities of Zipp Manufacturing are included in assets
              and
              liabilities held for sale of discontinued operations on the consolidated
              balance
              sheets as of August 31, 2006 and 2005, the components of the related
              operating
              results have been classified to net loss from discontinued operations
              for each
              of the years then ended, and the components of net cash flows have
              been included
              in net cash flows from discontinued operations for the years then
              ended.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   **Note
              7. Receivables, net**
  **2006**
                    
                    **2005**
                      **As
                        previously reported**
                    **Amounts
                        reclassified to discontinued operations**
                    **2005**Trade
                        accounts receivable
                    $13,177
                    
                    $57,213
                    $(33,545)
                    $23,668Franchise
                        and license fees receivable
                    -
                    
                    324
                    (214)
                    110Notes
                        receivable, current maturities
                    12
                    
                    97
                    (97)
                    -13,189
                    
                    57,634
                    (33,856)
                    23,778Less
                        Allowance for doubtful accounts
                    (409)
                    
                    (3,108)
                    2,163
                    (945)12,780
                    
                    54,526
                    (31,693)
                    $22,833Due
                        from Affiliates
                    -
                    
                    -
                    -
                    1,780$12,780
                    
                    
                    
                    $24,613
  
  Allowance
                        for doubtful accounts:Balance
                        at August 31, 2003
                    $1,409Charges
                        to costs and expenses for continuing
                      operations
                    445Reserve
                        utilized
                    (452)Ending
                        Balance August 31, 2004
                    1,402Charges
                        to costs and expenses for continuing
                      operations
                    845Reserve
                        utilized
                    (1,302)Ending
                        balance August 31, 2005
                    945Charges
                        to costs and expenses for continuing
                      operations
                    1,331Reserve
                        utilized
                    (1,867)Ending
                        balance August 31, 2006
                    $
                        409
  One
              customer accounted for 10.2% and 17.0% of net sales from continuing
              operations
              in Fiscal 2006 and Fiscal 2005, respectively.
   **Note
              8. Inventories**
  **2006**
                    **2005**
                      **As
                        previously reported**
                    **Amounts
                        reclassified to discontinued operations**
                    **2005**Raw
                        materials and packaging
                    $2,510
                    $35,304
                    $
                        (6,052)
                    $29,252Finished
                        goods
                    6,621
                    14,651
                    (13,985)
                    666$9,131
                    $49,955
                    $(20,037)
                    $29,918
  Write-downs
              of obsolete and slow moving inventories in continuing operations in
              Fiscal 2006,
              Fiscal 2005 and Fiscal 2004 were $5,197, $12,723 and $1,165, respectively.
              Additionally, a loss on impairment of $5,750 was recorded in Fiscal
              2006 with
              respect to Americana Foods’ inventory, which is reflected in the table above.
              Write down of obsolete and slow moving inventories in discontinued
              operations
              were $1,002, nil, and nil in Fiscal 2006, Fiscal 2005, and Fiscal 2004,
              respectively.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   **Note
              9. Property, plant and equipment**
  **2006**
                    **2005**
                      **as
                        originally reported**
                    **Amounts
                        reclassified to discontinued operations**
                    **2005**Land
                    $
                        122
                    $
                        1,577
                    $
                        (200)
                    $
                        1,377Building,
                        machinery and equipment
                    13,199
                    54,704
                    (21,600)
                    33,104Leasehold
                        improvements
                    827
                    1,740
                    (1,336)
                    404Land,
                        building and machinery and equipment of Americana Foods,
                        net of
                        accumulated depreciation and allowance for impairment
                    18,38632,534
                    58,021
                    (23,136)
                    34,885Less
                        Accumulated depreciation, amortization
                      and
                        allowance for impairmentBuilding,
                        machinery and equipment
                    9,082
                    9,403
                    (6,686)
                    2,717Leasehold
                        improvements
                    401
                    979
                    (787)
                    192$23,051
                    $47,639
                    $(15,663)
                    $31,976
  Depreciation
              expense in continuing operations were $4,666, $4,021 and $2,648 in
              Fiscal 2006,
              Fiscal 2005 and Fiscal 2004, respectively.
   **Note
              10. Intangible and other assets and Goodwill**
   Definite
              life intangible assets are amortized over their estimated useful lives.
              The
              Company is required to conduct an annual review of goodwill and intangible
              assets for potential impairment. Goodwill impairment testing requires
              a
              comparison between the carrying value and fair value of each reporting
              unit. If
              the carrying value exceeds the fair value, goodwill is considered impaired.
              The
              amount of impairment loss is measured as the difference between the
              carrying
              value and implied fair value of goodwill, which is determined using
              discounted
              cash flows. Impairment testing for non-amortizable intangible assets
              requires a
              comparison between fair value and carrying value of the intangible
              asset. If the
              carrying value exceeds fair value, the intangible asset is considered
              impaired
              and is reduced to fair value. During the fourth quarter of Fiscal 2006,
              the
              Company determined that due to the continued deterioration of the Company’s
              business in the market place, that certain of its goodwill had been
              impaired.
              Accordingly, the Company recorded a loss on impairment of $3,500 in
              Fiscal 2006
              to reflect this loss in value. During the fourth quarter of Fiscal
              2005, the
              Company completed its annual review of goodwill and intangible assets.
              This
              review resulted in a $2,941 non-cash pre tax charge related to intangible
              asset
              impairment and a non-cash pre tax charge of $52,101 related to goodwill
              impairment.
   At
              August 31, 2006 and 2005 goodwill by reportable segment was as
              follows:
  **2006**
                    
                    **2005**Frozen
                        dessert (a)
                    
                    $
                        488
                    
                    $
                        3,752Yogurt
                    
                    -
                    
                    27,582Foodservice
                        (b)
                    
                    11,302
                    
                    11,302Franchising
                        and licensing
                    
                    -
                    
                    4,446Dairy
                        components
                    
                    -
                    
                    745Total
                        Goodwill, as originally reported
                    
                    11,790
                    
                    47,827Less
                        Goodwill included in net assets held for
                      Sale
                        of discontinued operations:Franchising
                        and licensing
                    
                    
                    
                    4,446Yogurt
                    
                    
                    
                    27,582Dairy
                        components
                    
                    
                    
                    256Total
                        Goodwill
                    
                    $11,790
                    
                    $15,543
  **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   (a)
              A subsidiary,
              formerly part of the dairy components segment, has been included in
              the frozen
              dessert segment due to the reclassification of substantially all of
              the balance
              of the dairy components segment to discontinued operations. Accordingly,
              the
              goodwill on the books of the subsidiary has been moved to the frozen
              dessert
              segment.
   (b)The
              foodservice
              segment was sold on January 24, 2007 for an amount in excess of its
              carrying
              value. (See Note 20, “Subsequent Events”)
   Intangible
              assets at August 31, 2006 and 2005 were as follows:
  **2006**
                    
                    **2005**Gross
                        Carrying Amount
                    
                    Accumulated
                        Amortization and Allowance for Impairment
                    
                    Gross
                        Carrying Amount
                    
                    Accumulated
                        AmortizationNon-amortizable
                        intangible assets
                    $
                        -
                    
                    $
                        -
                    
                    $15,000
                    
                    $
                        -Amortizable
                        intangible assets
                    934
                    
                    263
                    
                    8,126
                    
                    3,362**Other
                        assets**
                    844
                    
                    -
                    
                    2,605
                    
                    -1,778
                    
                    263
                    
                    25,731
                    
                    3,362Intangible
                        and other assets classified as assets held for sale
                    -
                    
                    -
                    
                    (17,392
                    )
                    (880)Total
                        Intangible assets and other assets
                    $1,778
                    
                    263
                    
                    $
                        8,339
                    
                    $2,482
  Non-amortizable
              intangible assets are substantially comprised of trademark rights purchased
              through an acquisition. Amortizable intangible assets consist primarily
              of
              certain trademarks and license agreements. Pre-tax amortization expense
              for
              intangible assets was $360, $445 and $872 for Fiscal 2006, Fiscal 2005
              and
              Fiscal 2004, respectively. The Company recorded a provision for impairment
              of
              intangibles of $2,617. Amortization expense for each of the next five
              years is
              currently estimated to be $42 or less.
   The
              movement of gross carrying amounts in goodwill and intangible and other
              assets
              is as follows:
  **2006**
                    
                    **2005**Goodwill
                    
                    Intangible
                        and other assets
                    
                    Goodwill
                    
                    Intangible
                        and other assetsBalance
                        at August 31
                    $15,543
                    
                    $
                        5,857
                    
                    $
                        72,088
                    
                    $
                        16,485Changes
                        due to:Acquisitions
                    
                    
                    3,577
                    
                    27,840
                    
                    15,000Goodwill
                        impairment
                    (3,500)
                    
                    -
                    
                    (52,101)Intangible
                        asset impairment
                    
                    
                    (3,609)
                    
                    
                    
                    (2,941)Other
                    (253)
                    
                    (4,310)
                    
                    
                    
                    (2,813)11,790
                    
                    1,515
                    
                    47,827
                    
                    25,731Goodwill
                        and intangibles and other assets
                      classified
                        as assets held for sale
                    
                    
                    
                    
                    (32,284)
                    
                    (19,874)Balance
                        at August 31
                    $11,790
                    
                    $
                        1,515
                    
                    $
                        15,543
                    
                    $
                        5,857
  **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   **Note
              11. Short-term borrowings**
  **2006**
                    
                    **2005**Secured
                    $
                        -
                    
                    $30,000Secured
                        – Americana
                    $
                        -
                    
                    $4,553
  *2005
              Credit Facilities*
   The
              Company, through a U.S. subsidiary, borrowed $40,000 to finance the
              acquisition
              (the “Term Loan”) of the Breyers yogurt business from Kraft in March 2005. The
              Term Loan originally required monthly payments of interest only and
              repayment,
              in full, of the $40,000 principal balance on November 1, 2005. Interest
              was
              payable monthly 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 margin are the lower of prime plus 0.5% or Libor plus
              2.5%
              (6.02% at August 31, 2005). On August 23, 2005, the Company made a
              principal
              payment of $10,000 and as of August 31, 2005 the term loan balance
              was $30,000.
              On September 2, 2005, the Company entered into an amendment (“Amendment”) to all
              of its credit facilities. The Amendment extended the maturity date
              from November
              1, 2005 to January 3, 2006 and waived defaults of its financial covenants
              resulting from the Company’s financial performance. Effective December 31, 2005,
              the existing credit facilities were extended to April 3, 2006 and then
              were
              extended to May 3, 2006. The Term Loan was repaid in full in April
              2006 as part
              of the overall refinancing described below in Note 12, “Long-term
              Debt.”
   On
              April 27, 2005 Americana Foods, which is owned 50.1% by the Company,
              borrowed
              $4,553 (the “Building Loan”) to purchase a building and adjacent acreage. The
              Building Loan terms required monthly, interest-only payments until
              the April 27,
              2006****anniversary date of the note. The Building Loan
              carried interest at prime plus 0.5% (7.0% at August 31, 2005). The
              Building Loan
              was repaid in full in April 2006 as part of the overall refinancing
              described
              below in Note 12, “Long-term Debt.”
   **Note
              12. Long-term debt**
  **2006**
                    
                    **2005**Senior
                        secured revolving credit facility in default
                    $10,077
                    
                    $
                        -Senior
                        secured revolving credit facility in default- Americana
                    6,418
                    
                    -Term
                        loans in default, secured - Americana
                    17,083
                    
                    -Term
                        loan, secured
                    -
                    
                    10,500Term
                        loan, secured - Americana
                    -
                    
                    8,610Revolving
                        loan, secured - Americana
                    -
                    
                    7,145Capitalized
                        leases
                    500
                    
                    15434,078
                    
                    26,409Less:
                        Current maturities
                    -
                    
                    18,161Current
                        maturities due to default status
                    33,578
                    
                    -Current
                        maturities of capitalized leases, included
                      in
                        accrued liabilities
                    152
                    
                    -$
                        348
                    
                    $
                        8,248
  Annual
              future minimum capital lease payments are as follows:
  **Year
                        ending August 31**,2007
                    $
                        1772008
                    1772009
                    1382010
                    69Total
                        minimum capital lease payments
                    561Less
                        amount representing interest
                    (61)Present
                        value of minimum capital lease payments
                    500Less
                        current installments of obligation under capital leases
                    (152)Obligation
                        under capital lease, excluding current installment
                    $
                        348
  **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   *Term
              Loan, Secured*
   In
              December 2000, the Company, through a subsidiary, borrowed $30,000,
              to finance
              the acquisition of Eskimo Pie Corporation (the “EPC Term Loan”). The EPC Term
              Loan was originally payable in monthly installments of $250, with the
              remaining
              principal balance originally due November 1, 2005 and extended as described
              above for all components of debt. Interest was 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% (5.49% at August 31, 2005). As of August 31, 2005, the EPC Term
              Loan
              balance was $10,500. The EPC Term Loan was repaid in full in April
              2006 as part
              of the overall refinancing described below.
   All
              borrowings under the EPC Term Loan agreement were guaranteed by the
              Company. The
              agreement contained 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 EPC Term Loan. In addition, the Company was required to maintain
              certain
              financial ratios and limit capital expenditures to $5,000 during any
              fiscal
              year.
   The
              Company was in default of its financial covenants at May 31, 2005 and
              August 31,
              2005 under the EPC Term Loan, and on September 2, 2005, the Company
              entered into
              the Amendment to its existing credit facilities described above.
   The
              September 2, 2005 Amendment eliminated all of the financial covenants
              from the
              loan agreements through the remainder of the term and granted a security
              interest to the lender in the personal property assets (other than
              certain
              excluded assets relating to the operations of Americana Foods, reduced
              its
              outstanding indebtedness to the bank to $40,500, including short term
              borrowings
              of $30,000. The Company agreed to an increase of the interest rate
              from Libor
              plus 2.0% on all remaining outstanding balances to Libor plus 4.5%.
              In addition,
              the Amendment reduced the Company’s $5,000 revolving credit facility to $925 and
              required the Company to maintain $20,000 of cash balances, of which
              $10,000 was
              restricted to use as approved by the lender. The increases in interest
              rates as
              a result of this Amendment increased the fair value of the related
              short term
              borrowings and long-term debt by approximately $331 at August 31,
              2005.
   *Term
              loan, secured - Americana*
   On
              November 19, 2002, Americana Foods entered into a credit agreement
              with a
              financial institution that included a term loan of $10,000 (the “Americana Term
              Loan”). The Americana Term Loan was secured by Americana Foods’ property, plant
              and equipment. Principal payments were payable in fixed monthly installments
              of
              $81 based upon a fifteen-year amortization that was originally scheduled
              to
              mature on November 19, 2007. The Americana Term Loan bore interest
              at prime plus
              0.5% (7.0% at August 31, 2005 and 5.0% at August 31, 2004). As of August
              31,
              2005, the Americana Term Loan balance was $8,610.
   On
              March 19, 2005, Americana Foods executed an amendment to the credit
              agreement
              pursuant to which, a fixed charge coverage ratio of 1.25:1 and a
              debt-to-tangible net worth ratio of 2:1 was required to be maintained.
              The
              minimum tangible net worth requirement was increased to $20,500 effective
              March
              19, 2005. The partnership is in compliance with its loan covenants
              at August 31,
              2005. The Americana Term Loan was repaid in full in April 2006 as part
              of the
              refinancing, described below.
   *Revolving
              loan, secured - Americana*
   Americana
              Foods’ credit agreement included a revolving loan up to $9,000 (the “Americana
              Revolver”), subject to a borrowing base calculation and secured by Americana
              Foods’ accounts receivable and inventory, which accrued interest at prime
              plus
              0.5% (7.0% at August 31, 2005) was originally due on November 30, 2005.
              At
              August 31, 2005, $7,145 was outstanding under this loan.
   On
              November 30, 2005, Americana Foods executed an amendment to the credit
              agreement
              which extends the maturity date of the revolving note to January 10,
              2006, and
              further extended the maturity date to April 3, 2006 and then May 3,
              2006. The
              Americana Revolver was repaid in full in April 2006 as part of the
              refinancing,
              described below.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   *2006
              Credit Facilities*
   On
              April 21, 2006, the Company entered into the following new credit
              facilities:
   1.
              a $48,000 senior secured revolving credit facility (the “Corporate Credit
              Facility”); and
   2.
              a $25,500 senior secured credit facility consisting of an $8,000 senior
              secured
              revolving credit facility and an aggregate of $17,500 in term loans
              (the
“Americana 2006 Term Loans”), in which Americana Foods is the borrower (the
“Americana Loan Facility”).
   The
              proceeds from these facilities were used to repay all of the then existing
              debt.
   Each
              of the facilities was for an initial term of three years and originally
              provided
              for interest at the prime rate until November 30, 2006 (8.25% as of
              August 31,
              2006). The standby fee on the unused portion of the facilities is
              0.375%.
   As
              of August 31, 2006, the Company has $10,077 outstanding under its Corporate
              Credit Facility and Americana Foods had $23,501 outstanding against
              the
              Americana Loan Facility. The total outstanding balance under the two
              facilities
              at August 31, 2006, was $33,578 and is included in its current maturities
              of
              long-term debt on the balance sheet.
   The
              Company was in default under certain of its financial covenants under
              each of
              its credit facilities as of August 31, 2006 and has reflected all of
              its bank
              debt as current liabilities under caption – current maturities of long-term
              debt. In November 2006, the outstanding amounts under the Americana
              Loan
              Facility totaling $21,408 was purchased by Michael Serruya through
              a holding
              company and the corporate credit facility was reduced and was scheduled
              to
              mature on May 17, 2007. (See Note 20, “Subsequent Events,” for a discussion of
              the refinancing of the indebtedness outstanding as of August 31, 2006
              and
              subsequent payoff of the Corporate Credit Facility.)
   Interest
              paid from continuing operations during Fiscal 2006 was $1,971, compared
              to
              $1,459 in Fiscal 2005. The interest paid includes $1,599 and $1,079,
              respectively, with respect to Americana Foods. The interest paid from
              continuing
              operations excludes $2,347 and $891 paid with respect to CBD which
              is included
              in discontinued operations in Fiscal 2006 and Fiscal 2005,
              respectively.
   **Note
              13. Americana Foods**
   In
              2002, the Company entered into a joint venture agreement to acquire
              50.1%
              interest in Americana Foods, a manufacturer and processor of frozen
              desserts.
              Americana Foods generated losses in each year of its operations. In
              April 2006,
              the Company refinanced the debt of Americana Foods, under the Americana
              Credit
              Facility, as previously discussed, but Americana Foods was in default
              under the
              facility as of May 2006 and August 2006. In October 2006, certain subsidiaries
              of the Company, as creditors of Americana Foods, filed an involuntary
              petition
              of bankruptcy against Americana Foods under Chapter 7 of the Federal
              Bankruptcy
              Code and Americana Foods ceased operations. (See Note 12, “Long-term Debt,” and
              Note 20, “Subsequent Events.”)
   **Note
              14. Shareholders’ equity and stock options**
   *Capital
              Stock*
   The
              Company’s articles of continuance authorize an unlimited number of both Class
              A
              Subordinate and Class B Multiple voting no par value shares.
  **Paid-In-Balance**Class
                        A Subordinate voting shares
                    $85,891Class
                        B Multiple voting shares
                    $11,913
  **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   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.
   Changes
              in Capital stock for the two years ended August 31, 2006 were as
              follows:
  **(In
                        thousands of shares)****Class
                        A**
                      **Subordinate
                        voting shares outstanding**
                    
                    **Class
                        B**
                      **Multiple
                        voting shares outstanding**Balance
                        at August 31, 2004
                    49,863
                    
                    6,030Issuance
                        of shares for stock options exercised
                    54Multiple
                        voting shares converted to subordinate voting shares
                    1
                    
                    (1)Balance
                        at August 31, 2005
                    49,918
                    
                    6,029Multiple
                        voting shares converted to subordinate voting shares
                    3
                    
                    (3)Issuance
                        of shares for stock
                      options
                        exercised
                    128Balance
                        at August 31, 2006
                    50,049
                    
                    6,026
  *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.
   The
              following table summarizes stock option activity for all stock option
              plans:
  **Shares**
                    
                    **Weighted
                        average exercise Price (Cdn)**
                    
                    **Weighted
                        avg.**
                      **contractual
                        life (in years)**Outstanding
                        at August 31, 2003
                    
                    4,362
                    
                    $3.98
                    
                    2.7Granted
                    
                    3,420
                    
                    $20.03Exercised
                    
                    (3,986)
                    
                    $4.00Forfeited
                        or cancelled
                    
                    (20)
                    
                    $8.34Outstanding
                        at August 31, 2004
                    
                    3,776
                    
                    $18.47
                    
                    4.2Granted
                    
                    1,024
                    
                    $4.03Exercised
                    
                    (54)
                    
                    $1.27Forfeited
                        or cancelled
                    
                    (829)
                    
                    $18.69Outstanding
                        at August 31, 2005
                    
                    3,917
                    
                    $14.89
                    
                    4.9Granted
                    
                    320
                    
                    $2.84Exercised
                    
                    (128)
                    
                    $1.27Forfeited
                        or cancelled
                    
                    (1,647)
                    
                    $18.59Outstanding
                        at August 31, 2006
                    
                    2,462
                    
                    $11.55
                    
                    5.4Options
                        exercisable at August 31, 2006
                    
                    1,941
  **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   The
              following table summarizes stock options outstanding, exercisable and
              exercise
              price range at August 31, 2006:
  **Options
                        Outstanding**
                    **Options
                        Exercisable****Range
                        of exercise prices (Cdn $)**
                    **Outstanding
                        as of 08/31/06**
                    **Weighted
                        average remaining contractual life**
                    **Weighted
                        average exercise price (Cdn $)**
                    **Exercisable
                        as of 08/31/06**
                    **Weighted
                        average exercise price (Cdn $)**$
                        2.66 - $ 2.85
                    320
                    9.38
                    $2.84
                    60
                    $2.85$
                        4.03 - $ 5.00
                    912
                    8.13
                    $4.11
                    651
                    $4.15$15.45
                        - $15.93
                    600
                    2.12
                    $15.85
                    600
                    $15.85$22.65
                        - $22.65
                    630
                    2.53
                    $22.65
                    630
                    $22.652,462
                    5.40
                    $11.55
                    1,941
  Shares
              of subordinate voting shares reserved for future grant at August 31,
              2006
              aggregated 4,028.
   The
              Company accounts for stock-based compensation using the fair value
              method of
              accounting. Stock-based compensation expense was recognized in the
              amount of
              $443 (Fiscal 2005 - $1,918) in the Consolidated Statements of Operations.
              During
              Fiscal 2006, the Company granted an aggregate 320 stock options (of
              which 60
              were vested immediately and of which 260 vest ratably over three years
              from the
              date of the grant) with a weighted average fair value of Cdn $2.22
              (as
              calculated under the Black-Sholes pricing model) totaling Cdn $712
              ($620 USD
              based upon the average currency translation rate for Fiscal 2006),
              which will be
              expensed over the respective vesting periods. Under the Black-Scholes
              pricing
              model the weighted-average fair value of the stock options granted
              during fiscal
              2005 was Cdn $3.07 per option.
   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”:
  **For
                        the year ended August 31,**
                    **2006**
                    **2005**
                    **2004**Expected
                        dividend yield
                    Nil
                    Nil
                    NilRisk-free
                        interest rate (percentage)
                    4.48
                    3.92
                    2.98Expected
                        volatility
                    67.65
                    66.73
                    67.39Expect
                        life (in years)
                    10
                    10
                    4.2
  **Note
              15. Income taxes**
   The
              effective income tax rate on (loss) earnings is affected from year
              to year by
              the geographic mix of the consolidated (loss) earnings before income
              taxes. The
              following table reconciles income tax (recovery) expense computed by
              applying
              the combined Canadian Federal/Provincial statutory rate with the actual
              income
              tax provision:
  **2006**
                    
                    **2005**
                    
                    **2004**Combined
                        basic Canadian Federal and Provincial income tax rate
                    (36.12)%
                    
                    (36.12)%
                    
                    36.21%Impact
                        of operating in foreign countries with different effective
                        rates
                    -
                    
                    (1.00)
                    
                    1.93Permanent
                        differences:Non-deductible
                        goodwill impairment
                    -
                    
                    24.39Valuation
                        allowance
                    28.7%
                    
                    5.89Other
                    (1.2)%
                    
                    (3.34)
                    
                    (1.04)(8.62)%
                    
                    (10.18)%
                    
                    37.10%
  In
              Fiscal 2005, the Company established an allowance for non-capital loss
              carry-forwards as the utilization of such loss carry-forwards was considered
              unlikely.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   Significant
              components of the Company’s deferred tax assets and liabilities as of August 31,
              2006 are as follows:
  **Deferred
                        Tax Assets**
                    
                    **Deferred
                        Tax Liabilities**Stock
                        options
                    $
                        2,321
                    Intangible
                        assets
                    $2,000Federal
                        net operating loss carry forwards
                    5,100Intangible
                        assets
                    4,201Accrued
                        liabilities
                    1,639Inventory
                    2,188State
                        net operating loss carry forwards
                    995Bad
                        debts
                    467Inventory
                        reserve
                    124Property,
                        plant and equipment
                    9217,127
                    
                    2,000Valuation
                        allowance
                    (17,127)Total
                        deferred tax assets
                    $
                        0
                    Total
                        deferred tax liabilities
                    $2,000
  Income
              taxes paid (recovered) during the year ended August 31, 2006 was approximately
              $(12,165) (Fiscal 2005 – $4,731).
   **Note
              16. Retirement Plans**
   A
              subsidiary of the Company, Eskimo Pie Corporation, had maintained two
              defined
              benefit pension plans covering substantially all salaried and certain
              executive
              employees. Upon the acquisition of Eskimo Pie Corporation by the Company
              in
              October 2000, 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”.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   The
              following table reconciles the changes in benefit obligations and plan
              assets in
              2006 and 2005, and reconciles the funded status to accrued benefit
              cost at
              August 31, 2006 and August 31, 2005:
  **Pension
                        Benefits**
                    
                    **Other
                        Benefits****Benefit
                        Obligation**Beginning
                        balance at August 31, 2004
                    $2,239
                    
                    $1,603Interest
                        cost
                    139
                    
                    200Actuarial
                        loss
                    277Benefit
                        payments
                    (85)Balance
                        at August 31, 2005
                    2,570
                    
                    1,803Interest
                        cost
                    142
                    
                    200Actuarial
                        gain
                    (201)Benefit
                        payments
                    (88)Ending
                        balance at August 31, 2006
                    $2,423
                    
                    $2,003**Plan
                        assets – Basic value**Beginning
                        balance at August 31, 2004
                    $2,086Actual
                        return on plan assets
                    338Contributions
                    20Benefit
                        payments
                    (85)Balance
                        at August 31, 2005
                    2,359Actual
                        return on plan assets
                    182Contributions
                    20Benefit
                        payments
                    (88)Ending
                        balance at August 31, 2006
                    $2,473
  The
              unfunded status for the post retirement health and life insurance benefits
              is as
              follows:
  **Other
                        Benefits**Benefit
                        obligations in excess of Plan assets
                    $2,003Accrued
                        benefit cost
                    $2,003
  The
              accrued benefit cost of $2,003 is included in other liabilities at
              August 31,
              2006.
   The
              following table provides the components of the net periodic benefit
              cost:
  **Pension
                        Benefits**
                    
                    **Other
                        Benefits**Interest
                        cost
                    $
                        142
                    
                    $200Expected
                        return on Plan assets
                    (182)Recognized
                        net actuarial loss
                    13Net
                        period benefit cost (income)
                    $
                        (27)
                    
                    $200
  The
              assumptions used in the measurement of the Eskimo Pie Corporation’s benefit
              obligations are as follows:
  **Pension
                        Benefits**
                    **Other
                        Benefits**Benefit
                        obligation discount rate
                    5.25%
                    7.75%Expected
                        return on plan assets, during the year
                    8.00%
  **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   The
              weighted average annual assumed rate of increase in the per capita
              cost of
              covered benefits for the Other Benefits Plan (i.e., health care cost
              trend rate)
              is 5% for 2006 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
              $177 and the net periodic postretirement benefit cost by approximately
              $18.
   The
              Company’s allocation of Pension Benefit assets at August 31, 2006 and 2005,
              target allocations for Fiscal 2007, and expected long-term rate of
              return by
              asset category are as follows:
  **Target
                        allocation**
                    **Percentage
                        of Plan Assets**
                    **Weighted-average**
                      **expected
                        long-term rate of return****Fiscal
                        Year**
                    **2007**
                    **2006**
                    **2005**
                    **2007****Asset
                        category**Large
                        capitalization equities
                    35.0
                    38.9
                    35.8
                    2.8Mid
                        capitalization equities
                    15.0
                    10.3
                    13.0
                    1.8Small
                        Capitalization equities
                    9.0
                    6.3
                    7.1
                    1.8International
                        equities
                    25.0
                    28.8
                    27.3
                    .6Fixed
                        income bonds
                    12.0
                    12.1
                    12.0
                    2.0Cash
                        and cash equivalents
                    4.0
                    3.6
                    4.8
                    -100%
                    100%
                    100%
                    9%
  The
              Company’s investment strategy is to obtain the highest possible return
              commensurate with the level of assumed risk. Investments are well diversified
              within each of the major asset categories.
   The
              expected long-term rate of return is figured by using the target allocation
              and
              expected returns for each asset class as in the table above. The actual
              historical returns are also relevant. Annualized returns for periods
              ended
              August 31, 2006 were as follows: 11.4% for one year and 13.7% for three
              years.
   The
              Company expects that there will be no minimum regulatory funding requirements
              that will need to be made during the Fiscal 2007.
   Expected
              benefit payments are as follows over future years:
  **Fiscal
                        year**
                    **Pension
                        benefits**
                    **Other
                        benefits**2007
                    $76
                    $2002008
                    78
                    2002009
                    77
                    2002010
                    79
                    2002011
                    80
                    2002012
                        - 2016
                    447
                    1,000
  **Note
              17. Commitments**
   The
              majority of distribution warehouse 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.
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   At
              August 31, 2006 the future minimum lease payments under operating leases
              with
              rental terms of more than one year, net of sublease rents, amounted
              to:
  **Fiscal
                        year ending:**2007
                    $
                        9332008
                    2202009
                    1222010
                    942011
                    93Later
                        years
                    214Total
                        minimum obligations
                    $1,676
  Total
              rental expense in Fiscal 2006 relating to all operating leases (including
              those
              with terms less than one year) was $6,354, of which $5,854 was included
              in
              discontinued operations. Total rental expense for Fiscal 2005 was $7,698,
              of
              which $6,191 was included in discontinued operations. Total rental
              expenses for
              Fiscal 2004 was $7,203 of which $5,966 was included in discontinued
              operations.
   Excluded
              from the above table is the lease of certain equipment built for the
              Company’s
              yogurt segment (which is included in discontinued operations) and placed
              into
              service in September 2006. The lease is for 10 years and provides for
              rent of
              $69 per month. Additionally the table includes the leases of certain
              depots and
              trucks of EPFD only to the extent of the sale of EPFD’s assets in November 2006
              (when these leases were assumed by the purchaser).
   **Note
              18. Contingencies**
   *Legal
              matters*
   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.
              (See Note
              20, “Subsequent Events – Litigation”, for a further discussion of the Company’s
              litigation.)
   **Note
              19. Segment information**
   In
              Fiscal 2004 and Fiscal 2005, the Company’s reportable segments were the frozen
              dessert segment, yogurt, foodservice, dairy components, and franchising
              and
              licensing, including company owned stores. On December 31, 2005, the
              Company
              sold the assets, net of certain liabilities of its franchising and
              licensing
              segment. Additionally, during Fiscal 2006, the Company began to actively
              market
              EPFD, a component of the frozen dessert segment, its Value America
              division,
              substantially all of the dairy components segment, and CBD, the yogurt
              segment,
              for sale. Accordingly, the assets and liabilities of each of these
              entities have
              been classified to assets and liabilities of discontinued operations
              on each of
              the consolidated balance sheets as of August 2006 and 2005 and the
              components of
              their operating results have been included in net loss from discontinued
              operations on each of the consolidated statements of operations. Therefore,
              the
              franchising and licensing segment, the yogurt segment and the dairy
              components
              segment have been reclassified to discontinued operations for each
              of the years
              presented.
   Revenues
              in the frozen segment are or have been generated from manufacturing
              and selling
              a variety of prepackaged frozen dessert products to distributors, including
              Eskimo Pie Frozen Distribution (“EPFD”), and various retail establishments
              including supermarkets, grocery stores, club stores, gourmet shops,
              delicatessens and convenience stores.
   Revenues
              in the foodservice segment were 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. On January
              24, 2007,
              the Company sold, through its subsidiaries Eskimo Pie Corporation and
              Integrated
              Brands Inc., their Eskimo Pie and Chipwich Brands and Real
   **CoolBrands
              International Inc.**
   Notes
              to Consolidated Financial Statements for the years ended August 31,
              2006 and
              2005
   __________________________________________________________________________________
   (Amounts
              are expressed in thousands of dollars)
   Fruit
              trademark, along with Eskimo Pie soft serve brands and related foodservice
              business segment to Dreyer’s, an indirect subsidiary of Nestlé S.A. (See Note
              20, “Subsequent Events.”)
   The
              Company 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.
 Industry
              Segments:<?xml:namespace prefix = o ns =
              "urn:schemas-microsoft-com:office:office" />
    Year Ended August 31, 2006
    Frozen
                      dessert
                  Foodservice
                  Corporate
                  Discontinued
                      operations
                  ConsolidatedRevenues
                  $121,161
                  $20,990
                  $   
103
                  
                  $142,254Interest income
                  620
                  71
                  
                  
                  691Inter-segment revenues
                  (43,597)
                  
                  
                  
                  (43,597)Net revenues
                  78,184
                  21,061
                  103
                  
                  99,348Segment (loss) earnings
                  (47,667)
                  1,469
                  (72)
                  
                  (46,270)General corporate expenses
                  
                  
                  (5,201)
                  
                  (5,201)Interest expense
                  (2,000)
                  
                  
                  
                  (2,000)Asset impairment
                  (21,289)
                  
                  
                  
                  (21,289)Minority interest
                  5,185
                  
                  
                  
                  5,185(Loss) earnings from continuing
                      operations before income taxes
                  $
                      (65,771)
                  $ 
1,469
                  $(5,273)
                  
                  (69,575)Loss from discontinued operations
                  
                  
                  
                  
                  (6,972)Gain on sale of discontinued
                      operations
                  
                  
                  
                  
                  410Recovery of income taxes
                  
                  
                  
                  
                  5,955Net loss
                  
                  
                  
                  
                  $(70,182)Assets
                  $51,509
                  $18,293
                  $677
                  $90,069
                  $160,548Capital
                      expenditures
                  $1,416
                  $   
-
                  $   
-
                  $1,877
                  $3,293Depreciation
                      and
                      amortization
                  $4,281
                  $365
                  $60
                  $1,618
                  $6,324    CoolBrands International Inc.
          Industry Segments:
    Year Ended August 31,
              2005
    Frozen
                      dessert
                  Foodservice
                  Corporate
                  Discontinued
                    
                    Operations
                  ConsolidatedRevenues
                  $152,199
                  $18,397
                  $
                      280
                  
                  $170,876Interest income
                  797
                  
                  132
                  
                  929Inter-segment revenues
                  (21,204)
                  (661)
                  (230)
                  
                  (22,095)Net revenues
                  131,792
                  17,736
                  182
                  
                  149,710Segment (loss) earnings
                  (32,253)
                  2,142
                  182
                  
                  (29,929)General corporate expenses
                  
                  
                  (72)
                  
                  (72)Interest expense
                  (1,687)
                  
                  
                  
                  (1,687)Asset impairment
                  (51,141)
                  
                  
                  
                  (51,141)Gain on
                      sale of
                      building
                  3,515
                  
                  
                  
                  3,515Minority interest
                  2,700
                  
                  
                  
                  2,700(Loss)
                      earnings from continuing operations before income taxes
                  $
                      (78,866)
                  $
                      2,142
                  $
                      110
                  
                  (76,614)Loss
                      from
                      discontinued operations
                  
                  
                  
                  
                  (5,054)Recovery
                      of 
                      income taxes
                  
                  
                  
                  
                  7,598Net loss
                  
                  
                  
                  
                  $
                      (74,070)Assets
                  $151,135
                  $20,593
                  $8,945
                  $117,172
                  $
                      297,845Capital
                      expenditures
                  $10,800
                  $   
-
                  $536
                  $1,073
                  $12,409Depreciation
                      and
                      amortization
                  $4,277
                  $328
                  $17
                  $420
                  $5,042    CoolBrands International Inc.
          Industry Segments:
    Year Ended August 31,
              2004
    Frozen
                      dessert
                  Foodservice
                  Corporate
                  Discontinued
                    
                    Operations
                  ConsolidatedRevenues
                  $331,484
                  $16,382
                  $
                      219
                  
                  $348,085Interest income
                  21
                  
                  108
                  
                  129Inter-segment revenues
                  (66,533)
                  (703)
                  (242)
                  
                  (68,478)Net revenues
                  264,972
                  15,679
                  85
                  
                  280,736Segment earnings
                  33,787
                  1,551
                  85
                  
                  35,423General corporate expenses
                  
                  
                  (3,132)
                  
                  (3,132)Interest expense
                  (1,491)
                  
                  
                  
                  (1,491)Minority interest
                  958
                  
                  
                  
                  958Income
                      from
                      continuing operations before income taxes
                  $ 
33,254
                  $
                      1,551
                  $
 (3,047)
                  
                  31,758Income
                      from
                      discontinued operations, net of tax
                  
                  
                  
                  
                  3,187(1)Provision
                      of 
                      income taxes
                  
                  
                  
                  
                  (11,433)Net income
                  
                  
                  
                  
                  $
                      23,512Assets
                  236,350
                  17,375
                  12,207
                  51,325
                  317,257Capital
                      expenditures
                  12,867
                  110
                  -
                  386
                  13,363Depreciation
                      and
                      amortization
                  5,875
                  335
                  -
                  1,104
                  7,314   (1)  CoolBrands
              International Inc.
          Geographic Segments:
    Year Ended August 31, 2006
    **Canada**
                  
                  **United
                      States**
                  
                  **Consolidated**Revenues
                  $     
305
                  
                  $141,949
                  
                  $142,254Interest income
                  -
                  
                  691
                  
                  691Inter-segment revenues
                  -
                  
                  (43,597)
                  
                  (43,597)Net revenues
                  305
                  
                  99,043
                  
                  99,348Segment loss
                  (72)
                  
                  (46,198)
                  
                  (46,270)General corporate expenses
                  (5,201)
                  
                  
                  
                  (5,201)Interest expense
                  
                  
                  (2,000)
                  
                  (2,000)Asset impairment
                  
                  
                  (21,289)
                  
                  (21,289)Minority interest
                  
                  
                  5,185
                  
                  5,185Loss before income taxes
                  $(5,273)
                  
                  $(64,302)
                  
                  $(69,575)Loss from discontinued operations
                  
                  
                  
                  
                  (6,972)Gain on sale of Franchising segment
                  
                  
                  
                  
                  410Recovery of  income taxes
                  
                  
                  
                  
                  5,955Net loss
                  
                  
                  
                  
                  $(70,182)Assets
                  $677
                  
                  $159,871
                  
                  160,548Capital expenditures
                  $   
-
                  
                  $3,293
                  
                  $3,293Depreciation and amortization
                  $60
                  
                  $6,264
                  
                  $6,324    CoolBrands International Inc.
          Geographic Segments:
    Year Ended August 31, 2005
    **Canada**
                  
                  **United
                      States**
                  
                  **Consolidated**Revenues
                  $
                      817
                  
                  $195,343
                  
                  $196,160Interest income
                  132
                  
                  797
                  
                  929Inter-segment revenues
                  (2)
                  
                  (47,377)
                  
                  (47,379)Net revenues
                  947
                  
                  148,763
                  
                  149,710Segment loss
                  (287)
                  
                  (29,642)
                  
                  (29,929)General corporate expenses
                  (72)
                  
                  
                  
                  (72)Interest expense
                  
                  
                  (1,687)
                  
                  (1,687)Asset impairment
                  
                  
                  (51,141)
                  
                  (51,141)Gain on sale of building
                  
                  
                  3,515
                  
                  3,515Minority interest
                  
                  
                  2,700
                  
                  2,700Loss before income taxes
                  $(359)
                  
                  $(76,255)
                  
                  (76,614)Loss
                      from
                      discontinued operations
                  
                  
                  
                  
                  (5,054)Recovery of  income taxes
                  
                  
                  
                  
                  7,598Net loss
                  
                  
                  
                  
                  $(74,070)Assets
                  $8,526
                  
                  $289,319
                  
                  $297,845Capital expenditures
                  $737
                  
                  $11,672
                  
                  $12,409Depreciation and amortization
                  $142
                  
                  $4,900
                  
                  $5,042    CoolBrands International Inc.
          Geographic Segments:
    Year Ended August 31, 2004
    **Canada**
                  
                  **United
                      States**
                  
                  **Discontinued**
                    
                    **Operations**
                  
                  **Consolidated**Revenues
                  $
                      1,120
                  
                  $346,965
                  
                  
                  
                  $348,085Interest income
                  108
                  
                  21
                  
                  
                  
                  129Inter-segment revenues
                  (242)
                  
                  (67,236)
                  
                  
                  
                  (67,478)Net revenues
                  986
                  
                  279,750
                  
                  
                  
                  280,736Segment earnings (loss)
                  986
                  
                  34,437
                  
                  
                  
                  35,423General corporate expenses
                  (1,214)
                  
                  (1,918)
                  
                  
                  
                  (3,132)Interest expense
                  
                  
                  (1,491)
                  
                  
                  
                  (1,491)Minority interest
                  
                  
                  958
                  
                  
                  
                  958Income (loss) from continuing
                      operations
                    
                    before income
                      taxes
                  $
                      (228)
                  
                  $
                      31,986
                  
                  
                  
                  31,758Income
                      from
                      discontinued operations, net of tax
                  
                  
                  
                  
                  
                  
                  3,187Provision for  income taxes
                  
                  
                  
                  
                  
                  
                  (11,433)Net income
                  
                  
                  
                  
                  
                  
                  $23,512Assets
                  $
                      11,509
                  
                  $
                      254,423
                  
                  $ 
51,325
                  
                  $
                      317,257Capital expenditures
                  -
                  
                  $ 
12,977
                  
                  $      
386
                  
                  $  
13,363Depreciation and amortization
                  -
                  
                  $   
6,210
                  
                  $   
1,104
                  
                  $    
7,314    CoolBrands International Inc.
          Note 20. Subsequent events
    Litigation
      Discontinued
              Operations
              Sale
              of foodservice
     CoolBrands International Inc.
        Restructuring
              of Debt
          Note 21.  GAAP
              reconciliation
        Note 22.  Sale of CBD and
              other
        CoolBrands International Inc.
                             Agreement Seller Buyer
    East Coast Operations
      SECTION
              1.  DEFINITIONS.
    Accounts Receivable Amount
  Accounts Receivable Deadline
  Accounts Receivable
  Acquired Inventory
  Acquired Inventory Price
  Affiliate
  Assumed Trade Payables
  Bill of Sale and Assignment
              of Owned
              Vehicles
  Bill of Sale and Assignment
              of Purchased
              Assets
  Business Day
  Buyer
  Buyer Indemnitees
  Closing
  Closing Date
  East Coast Operations
  Escrow Agent
  Escrow Agreement
  Governmental Authority
  Holdback
  Holdback Delivery Date
  Identifiers
  Indemnifying Person
  Indemnitees
  Lien
  Losses
  Material Adverse Effect
  Maximum Amount
  Net Difference
  Ordinary Course of
              Business
  Other Fees
  Owned Vehicles
  Person
  Prepaid Rent
  Proceeding
  Purchase Price
  Purchased Assets
  Seller
  Seller Indemnitees
  Threshold Amount
  Transaction Documents
    SECTION
              2.  TRANSFER OF PURCHASED ASSETS; PURCHASE
              PRICE; PAYMENT ; ESCROW.
  2.1               
              Transfer of Assets .  Subject to the other terms
              and conditions herein set forth, the Seller shall sell, convey, transfer,
              assign
              and deliver to the Buyer, free and clear of any Lien, and the Buyer
              shall
              purchase from the Seller, on the Closing Date, all of the assets, properties,
              claims and rights specifically identified in the referenced schedules
              of this
              Agreement (hereinafter collectively referred to as the “**Purchased
              Assets**”).  The Purchased Assets shall include the
              following:
  Schedule 2.1(a)
    Schedule 2.1(c)
  Acquired Inventory Schedule
              2.1(d)
  Accounts Receivable Schedule 2.1(e)
  Assumed Trade Payables Schedule
              2.1(f)
    Schedule 2.1(h)
  Schedule 2.1(i) Owned
              Vehicles
    2.2               
              Purchase Price .  The purchase price for
              the
              Purchased Assets shall be determined as set forth below (the “**Purchase
              Price**”).  The Purchase Price for the Purchased Assets shall be the
              sum of the Acquired Inventory Price, the Net Difference and the Prepaid
              Rent, as
              defined as follows:
  Acquired Inventory Price
  Net Difference
  Prepaid Rent Schedule
              2.2(c)
  2.3               
              Payment of Purchase Price .  At the Closing,
              Buyer shall pay the Purchase Price as follows:
  To Others Schedule 2.3(a) Other Fees
  Schedule 2.3(a)(i)
  Schedule 2.3(a)(i)
  To Seller
  Schedule 2.3(b)
  Schedule 2.3(b)
  To Escrow
  Schedule 2.3(c)(1) Escrow Agent Escrow Agreement Schedule 2.3(c)(2)
  Schedule 2.3(c)(1)
  Terms of Escrow; Buyer’s Obligation to Collect Accounts Receivable
  Designation of Escrow Funds Holdback Accounts Receivable Amount
  Accounts Receivable Amount; Buyer’s Obligation to Collect Accounts
              Receivable Accounts Receivable Deadline
          Holdback Holdback Delivery Date
    SECTION
              3.  CLOSING
  3.1               
              Date of Closing .  The purchase and sale
              contemplated by this Agreement (the “**Closing**”) shall take place
              on November 17, 2006 (the “**Closing Date**”); provided, however,
              the Closing Date may be postponed to a date mutually agreed by the
              parties.  The Closing may be completed in separate locations with the use
              of fax or email and signatures in counterparts as permitted under Section
              8.12
              below.
  3.2               
              Conditions to Obligation of Buyer and of Seller to Closing .
  Seller
  Buyer
  Buyer Deliveries at Closing
    Schedule 3.3(b) Bill
              of Sale and Assignment of Purchased Assets
  Schedule 3.3(c) Bill of Sale and Assignment of Owned
              Vehicles
    Seller Deliveries at Closing
                SECTION
              4.  REPRESENTATIONS AND WARRANTIES OF THE
              SELLER.
    4.1               
              Disclosure Schedule .  Seller has delivered to
              Buyer individually numbered schedules (collectively, the “**Disclosure
              Schedule**”) corresponding to the subsections of this Agreement. 
Each individual schedule in the Disclosure Schedule contains
              exceptions to the
              specifically identified section and subsection contained in this Section 
and sets forth each exception in reasonable detail, with attached documentation
              as necessary to reasonably explain the exception.  Any exception to the
              representations and warranties contained in a section or subsection
              of this
              Section is described in a separate schedule of the Disclosure Schedule
              that
              specifically identifies the applicable section or subsection of this
              Section and
              shall be deemed to modify the representation and warranty contained
              in this
              Agreement.  To the knowledge of the Seller, the Disclosure Schedule is
              complete and accurate in all respects.  To the knowledge of the Seller,
              Seller has provided Buyer with true and complete copies of all documents
              referenced in the Disclosure Schedule.
  4.2               
              Authorization; Enforceability .  The execution,
              delivery and performance by Seller of this Agreement and the Transaction
              Documents and the consummation of the transactions contemplated hereby
              and
              thereby are within the corporate power and authority of Seller and
              have been
              duly authorized by all necessary corporate action on the part of Seller. 
This Agreement and the Transaction Documents have been duly executed
              and
              delivered by and constitute the legal, valid and binding obligation
              of the
              Seller, enforceable against it in accordance with its respective terms,
              subject
              to the effect of any applicable bankruptcy, reorganization, insolvency,
              moratorium or similar laws affecting creditors’ rights generally and subject, as
              to enforceability, to the effect of general principles of equity (regardless
              of
              whether such enforceability is considered in a Proceeding in equity
              or at
              law).
  4.3               
              No Conflict or Violation .  The execution,
              delivery and performance by the Seller of the Transaction Documents
              does not and
              will not violate or conflict with any provision of the Articles of
              Incorporation
              or By-Laws of the Seller.
  4.4               
              Acquired Inventory .  The Seller has good and
              marketable title to the Acquired Inventory.  The Acquired Inventory shall
              (a) not be damaged, defective or obsolete, (b) be readily usable or
              saleable,
              (c) meet all applicable requirements of any applicable Governmental
              Authority,
              and (d) meet all other applicable quality standards for manufacturing
              or
              resale.
  4.5               
              Brokers .  Except for the fees payable
              to Duff
& Phelps, LLC, the Seller has not incurred or become liable for any broker’s
              commission or finder’s fee relating to or in connection with the transactions
              contemplated by this Agreement.
  4.6               
              Accuracy of Statements .  No representation or
              warranty made by any Seller in this Agreement, or any written statement,
              certificate, or schedule furnished, or to be furnished, to Buyer pursuant
              to
              this Agreement, or in connection with the transactions contemplated
              by this
              Agreement, contains or will contain any untrue statement of a material
              fact or
              omits or will omit to state a material fact necessary to make the statements
              not
              misleading.  The representations and warranties of Seller shall be deemed
              to be made as of the Closing Date.
  4.7               
              Litigation .  To Seller’s knowledge, there is no
              claim, legal action, suit, arbitration, investigation or hearing of
              which the
              Seller has received notice, notice of claim or other legal, administrative
              or
              governmental proceedings pending against Seller or any of the Purchased
              Assets
              (or in which the Seller is a plaintiff or otherwise a party thereto)
              relating to
              the Purchased Assets.
  Environmental Compliance Matters Schedule 2.1(a)
  Leases Schedule
              2.1(a) Schedule 2.1 (h
  Knowledge; Disclosure
        SECTION
              5.  REPRESENTATIONS AND WARRANTIES OF THE
              BUYER.
    5.1               
              Authorization; Enforceability . The execution,
              delivery and performance by Buyer of this Agreement and the Transaction
              Documents and the consummation of the transactions contemplated hereby
              and
              thereby are within the corporate power and authority of Buyer and have
              been duly
              authorized by all necessary action on the part of Buyer.  This Agreement
              and the Transaction Documents have been duly executed and delivered
              by and
              constitute the legal, valid and binding obligation of Buyer, enforceable
              against
              it in accordance with its respective terms, subject to the effect of
              any
              applicable bankruptcy, reorganization, insolvency, moratorium or similar
              laws
              affecting creditors’ rights generally and subject, as to enforceability, to the
              effect of general principles of equity (regardless of whether such
              enforceability is considered in a Proceeding in equity or at law).
  5.2               
              No Conflict or Violation .  The execution,
              delivery and performance by the Buyer of the Transaction Documents
              does not and
              will not violate or conflict with any provision of the Articles of
              Incorporation
              or By-laws of the Buyer and does not and will not violate any provision
              of law,
              or any order, judgment or decree of any court or other Governmental
              Authority or
              regulatory authority.
  5.3               
              Consents and Approval . No consent, waiver,
              authorization or approval of any Governmental Authority or regulatory
              authority,
              domestic or foreign, or of any other Person, is required by the Buyer
              in
              connection with the execution and delivery of the Transaction Documents
              by the
              Buyer or the performance by the Buyer of its obligations thereunder.
  5.4               
              No Litigation .  There are no Proceedings,
              pending or, to the knowledge of the Buyer, threatened, before any federal,
              state
              or local court or Governmental Authority, or before any arbitrator
              of any
              nature, brought by or against the Buyer or any of its officers, directors,
              employees, agents or Affiliates as to which there is a reasonable likelihood
              of
              an adverse determination and which, if adversely determined (a) would
              delay,
              hinder or prevent the consummation of the transactions contemplated
              by this
              Agreement by Buyer, or (b) would have a Material Adverse Effect on
              the ability
              of Buyer to perform its obligations under this Agreement.
  5.5               
              Brokers .  The Buyer has not incurred
              or become
              liable for any broker’s commission or finder’s fee relating to or in connection
              with this Agreement or the transactions contemplated hereby.
  Access
    SECTION
              6.  additional COVENANTS.
    6.1               
              Collection of Receivables .  Pursuant to Section
              2.4(b), Buyer shall have the right, authority and obligation after
              the Closing
              Date and until the Accounts Receivable Deadline to collect all Accounts
              Receivables and also Seller’s accounts receivable that are more than 60 days
              past due on the Closing Date.  Buyer will promptly pay to Seller any
              amounts Buyer collects on Seller’s accounts receivable that are more than 60
              days past due on the Closing Date. On the Accounts Receivable Deadline,
              Buyer
              agrees to immediately turn over the collection of any uncollected Accounts
              Receivable and also Seller’s uncollected accounts receivable that are more than
              60 days past due on the Closing Date, to a collections agency of Seller’s choice
              who shall be instructed to pay any amounts collected on such Accounts
              Receivable
              to Seller.  Seller acknowledges and agrees that if Seller is paid amounts
              for Accounts Receivable after the Closing Date and before the Accounts
              Receivable Deadline, Seller shall promptly pay such funds to Buyer.
  6.2               
              Payment of Assumed Trade Payables .  Buyer will
              pay all Assumed Trade Payables within sixty (60) days after the Closing
              Date;
              provided, however, that payment of a particular Assumed Trade Payable
              may be
              delayed for a commercially reasonable period in the event of a bona
              fide dispute
              with the vendor of a particular Assumed Trade Payable if the Buyer
              acts in good
              faith to resolve such bona fide dispute.
  Confidentiality
      Press Release
  East Coast Operations Employees
  Distribution Agreement
  6.7               
              **Ryder** **Trucks. 
For
              a
              period of up to 7 days following the Closing Date (the "Term"), Seller
              shall
              allow Buyer to utilize the trucks and tractor currently leased by Seller
              from
              Ryder and used in the East Coast Operations. Seller shall continue
              its current
              insurance covering the trucks and tractor during the Term.  Buyer shall
              reimburse Seller, on a per diem basis, (i) the actual cost incurred
              by Seller
              under the respective Ryder leases and (ii) the actual cost of maintaining
              insurance of the trucks and tractor. Payment shall be made to Seller
              within 10
              days following receipt of a detailed invoice.**
  Removal of Identifiers Identifiers
  Department of Transportation Numbers
  Phone Service Schedule
              6.10
  Post-Closing Adjustments
  Conduct of Business
  Efforts to Perform
  INTENTIONALLY OMITTED
  Transition Services Schedule 6.15
    SECTION
              7.  SURVIVAL AND INDEMNIFICATION.
  7.1               
              Survival of Representations and Warranties .  All
              representations and warranties of the Seller and the Buyer in this
              Agreement or
              in any instrument delivered pursuant to this Agreement shall be effective
              as of
              the Closing Date, and shall survive and continue until the date that
              is twelve
              (12) months following the Closing Date; provided, that if any claims
              for
              indemnification have been asserted with respect to any such representations
              and
              warranties prior to the end of such period, the representations and
              warranties
              on which any such claims are based shall continue in effect until final
              resolution of any claims.  All covenants and agreements to be performed
              pursuant to this Agreement shall continue indefinitely, subject to
              applicable
              statutes of limitation.
  7.2               
              Indemnification by the Seller .  Notwithstanding
              the Closing or the delivery of the Purchased Assets and regardless
              of any
              investigation at any time made by or on behalf of the Buyer, the Seller
              shall
              indemnify and fully defend, save and hold the Buyer, any Affiliate
              of the Buyer
              and its shareholders, directors, officers, managers, agents, employees,
              successors and assigns (the “**Buyer Indemnitees**”), harmless if
              any Buyer Indemnitee shall at any time or from time to time suffer
              any demand,
              claim, damage, liability, loss, cost, expense (including all reasonable
              attorneys’ fees and expenses of investigation), deficiency, interest, penalty,
              impositions, assessments or fines (collectively, “**Losses**”) to
              the extent arising out of or resulting from, any one or more of the
              following:
        7.3               
              Limitations on Indemnification by Seller .
    Threshold Amount
  Maximum Amount
                7.4               
              Procedures for Indemnification .   The Buyer
              Indemnitees and Seller Indemnitees shall be referred to in this Section
              7.4 as
              the “**Indemnitees**”.  Indemnitees shall give the party
              against whom indemnification is sought pursuant to this Section 7 (the
              “**Indemnifying Person**”) prompt notice of any written claim,
              demand, assessment, action, suit or Proceeding to which the indemnity
              set forth
              in this Section 7 applies.  If the document evidencing such claim or demand
              is a court pleading, the Indemnitee shall give such notice, including
              a copy of
              such pleading, within seven (7) days of receipt of such pleading, otherwise,
              the
              Indemnitee shall give such notice within thirty (30) days of the date
              it
              receives written notice of such claim.  Failure to give timely notice of a
              matter which may give rise to an indemnification claim shall not affect
              the
              rights of the Indemnitee to collect such Loss from the Indemnifying
              Person so
              long as such failure to so notify does not materially adversely affect
              the
              Indemnifying Person’s ability to defend such Loss against a third
              party.
          7.5               
              Indemnification by the Buyer .  Notwithstanding
              the Closing or the delivery of the Purchased Assets, the Buyer shall
              indemnify
              and fully defend, save and hold the Seller, any other Affiliate of
              the Seller,
              and its shareholders, directors, officers, agents, employees, successors
              and
              assigns (the “**Seller Indemnitees**”), harmless if any Seller
              Indemnitee shall at any time or from time to time suffer any Losses
              arising out
              of or resulting from, or shall pay or become obligated to pay any sum
              on account
              of, any one or more of the following:
        7.6               
              Limitations on Indemnification by Buyer .
            7.7               
              Successors and Assigns .  All of the rights and
              obligations of the Seller and the Buyer pursuant to this Section 7
              shall survive
              any sale, assignment or other transfer by the Buyer of title to or
              interest in
              any of the Purchased Assets or any part thereof and shall apply to
              and bind each
              and every successor and assign of the Buyer to any of the Purchased
              Assets.
  7.8               
              Remedies Exclusive .  From and after the Closing,
              the rights of the parties to indemnification relating to this Agreement
              or the
              transactions contemplated hereby shall be strictly limited to those
              contained in
              this Section 7, and such indemnification rights shall be the exclusive
              remedies
              of the parties subsequent to the Closing Date with respect to this
              Agreement
              except for remedies for fraud or specific performance, injunctive or
              other
              equitable relief.  To the maximum extent permitted by law, the parties
              hereby waive all other remedies for breach of this Agreement and/or
              the
              representations, warranties and covenants in this Agreement, whether
              under any
              laws, at common law or otherwise.
  7.9               
              Materiality .   Any qualifications in the
              representations, warranties and covenants with respect to a Material
              Adverse
              Effect, materiality, material or similar terms will not have any effect
              with
              respect to the calculation of the amount of any Losses or the application
              of the
              Threshold Amount pursuant to Section 7.3(a).
    SECTION
              8.  MISCELLANEOUS.
  8.1               
              Successors and Assigns .  Except as permitted
              below, neither this Agreement nor any of the rights, interests or obligations
              under this Agreement may be assigned, in whole or in part, by operation
              of law
              or otherwise by the parties hereto.  Any assignment in violation of the
              preceding sentence will be void.  Subject to the preceding sentence, this
              Agreement will be binding upon, inure to the benefit of, and be enforceable
              by,
              the parties and their respective successors and assigns.  Notwithstanding
              the foregoing, Buyer may assign all or any part of its right and obligations
              hereunder, provided Buyer remains liable for all such obligations.
  8.2               
              Governing Law; Jurisdiction .  This Agreement
              will be governed by, and construed in accordance with, the internal
              laws of the
              State of New York regardless of the laws that might otherwise govern
              under
              applicable principles of conflict of laws.
  8.3               
              Expenses .  Except as otherwise provided
              herein,
              each of the parties hereto shall pay its own expenses in connection
              with this
              Agreement and the Transaction Documents and the transactions contemplated
              hereby
              and thereby, including, without limitation, any legal and accounting
              fees,
              whether or not the transactions contemplated hereby are consummated.
  8.4               
              Severability .  In the event that any part
              of
              this Agreement is declared by any court or other judicial or administrative
              body
              to be null, void or unenforceable, said provision shall survive to
              the extent it
              is not so declared, and all of the other provisions of this Agreement
              shall
              remain in full force and effect.
  8.5               
              Notices .  All notices, requests,
              claims, demands
              and other communications under this Agreement will be in writing and
              will be
              deemed given if delivered personally, sent by overnight courier (providing
              proof
              of delivery), or via facsimile to the parties at the following addresses
              (or at
              such other address for a party as specified by like notice):
                                                            8.6               
              Amendments; Waivers .  This Agreement may be
              amended or modified, and any of the terms, covenants, representations,
              warranties or conditions hereof may be waived, only by a written instrument
              executed by the parties hereto, or in the case of a waiver, by the
              party waiving
              compliance.  Any waiver by any party of any condition, or of the breach of
              any provision, term, covenant, representation or warranty contained
              in this
              Agreement, in any one or more instances, shall not be deemed to be
              nor construed
              as further or continuing waiver of any such condition, or of the breach
              of any
              other provision, term, covenant, representation or warranty of this
              Agreement.
  8.7               
              Entire Agreement .  This Agreement and the
              schedules hereto and the Transaction Documents contain the entire understanding
              between the parties hereto with respect to the transactions contemplated
              hereby
              and thereby and supersedes and replaces all prior and contemporaneous
              agreements
              and understandings, oral or written, with regard to such transactions.  All
              schedules hereto and any documents and instruments delivered pursuant
              to any
              provision hereof are expressly made a part of this Agreement as fully
              as though
              completely set forth herein.
  8.8               
              Parties in Interest .  Nothing in this Agreement
              is intended to confer any rights or remedies under or by reason of
              this
              Agreement on any Persons other than the Seller and the Buyer and their
              respective successors and permitted assigns.  Nothing in this Agreement is
              intended to relieve or discharge the obligations or liability of any
              third
              Persons to the Seller or the Buyer.  No provision of this Agreement shall
              give any third Persons any right of subrogation or action over or against
              the
              Seller or the Buyer.
  8.9               
              Section and Paragraph Headings .  The section and
              paragraph headings in this Agreement are for reference purposes only
              and shall
              not affect the meaning or interpretation of this Agreement.
  8.10           
              Mutual Drafting .  The parties hereto are
              sophisticated and have been represented by attorneys throughout the
              transactions
              contemplated hereby who have carefully negotiated the provisions hereof. 
As a consequence, the parties do not intend that the presumptions of
              laws or
              rules relating to the interpretation of contracts against the drafter
              of any
              particular clause should be applied to this Agreement or any agreement
              or
              instrument executed in connection herewith, and therefore waive their
              effects.
  8.11           
              Further Assurances .  From and after the Closing,
              as and when requested by any party, each party will execute and deliver,
              or
              cause to be executed and delivered, all such documents and instruments
              and will
              take, or cause to be taken, at the requesting party’s expense, all such further
              or other actions, as such other party may reasonably deem necessary
              or desirable
              to consummate the transactions contemplated by this Agreement.
  8.12           
              Counterparts .  This Agreement may be executed
              in
              counterparts, each of which shall be deemed an original, but all of
              which shall
              constitute the same instrument.  Signatures transmitted electronically or
              by facsimile shall have the same legal and binding effect as original
              signatures.
      ESKIMO PIE FROZEN DISTRIBUTION, INC.
          SOUTHWEST TRADERS, INC.
              INTEGRATED BRANDS, INC.
                   ASSET PURCHASE
              AGREEMENT
  Agreement Seller Buyer
    West Coast Operations
          Accounts Receivable Amount
  Accounts Receivable Deadline
  Accounts Receivable
  Acquired Inventory
  Acquired Inventory Price
  Affiliate
  Assumed Trade Payables
  Bill of Sale and Assignment
              of Owned
              Vehicles
  Bill of Sale and Assignment
              of Purchased
              Assets
  Business Day
  Buyer
  Buyer Indemnitees
  Closing
  Closing Date
  Escrow Agent
  Escrow Agreement
  Governmental Authority
  Holdback
  Holdback Delivery Date
  Identifiers
  Indemnifying Person
  Indemnitees
  Lien
  Losses
  Material Adverse Effect
  Maximum Amount
  Net Difference
  Norwalk Facility
  Ordinary Course of Business
  Other Fees
  Owned Vehicles
  Person
  Prepaid Rent
  Proceeding
  Purchase Price
  Purchased Assets
  Seller
  Seller Indemnitees
  Threshold Amount
  Transaction Documents
  Transition Services Fee
  West Coast Operations
      Transfer of Assets Purchased
              Assets
  Schedule 2.1(a)
    Schedule 2.1(c)
  Acquired Inventory Schedule
              2.1(d)
  Accounts Receivable Schedule 2.1(e)
  Assumed Trade Payables Schedule
              2.1(f)
  Schedule 2.1(g)
  Schedule 2.1(h)
  Schedule 2.1(i) Owned
              Vehicles
  Schedule 2.1(j)
    Purchase Price Purchase Price
  Acquired Inventory Price
  Net Difference
  Prepaid Rent Schedule
              2.2(c)
  Transition Services Fee
  Payment of Purchase Price
  To Others Schedule 2.3(a) Other Fees
  Schedule 2.3(a)(i)
  Schedule 2.3(a)(i)
  Schedule 2.3(a)(i)
  To Seller
  Schedule 2.3(b)
  Schedule 2.3(b)
  To Escrow
  Schedule 2.3(c)(1) Escrow Agent Escrow Agreement Schedule 2.3(c)(2)
  Schedule 2.3(c)(1)
  Terms of Escrow; Buyer’s Obligation to Collect Accounts Receivable
  Designation of Escrow Funds Holdback Accounts Receivable Amount
  Accounts Receivable Amount; Buyer’s Obligation to Collect Accounts
              Receivable Accounts Receivable Deadline
          Holdback Holdback Delivery Date
      Date of Closing Closing Closing Date
  Conditions to Obligation of Buyer and of Seller to Closing
  Seller
  Buyer
  Buyer Deliveries at Closing
    Schedule 3.3(b) Bill
              of Sale and Assignment of Purchased Assets
  Schedule 3.3(c) Bill of Sale and Assignment of Owned
              Vehicles
    Seller Deliveries at Closing
                    Disclosure Schedule Disclosure Schedule
  Authorization; Enforceability
  No Conflict or Violation
  Acquired Inventory
  Brokers
  Accuracy of Statements
  Litigation
  Environmental Compliance Matters
  Leases Schedule
              2.1(a) Schedule 2.1(j)
  Knowledge; Disclosure
            Authorization; Enforceability
  No Conflict or Violation
  Consents and Approval
  No Litigation
  Brokers
  Access
        Collection of Receivables
  Payment of Assumed Trade Payables
  Confidentiality
      Press Release
  West Coast Operations Employees
  Distribution Agreement
  Norwalk Sublease Norwalk Facility
  Removal of Identifiers Identifiers
  Department of Transportation Numbers
  Phone Service Schedule
              6.10
  Post-Closing Adjustments
  Conduct of Business
  Efforts to Perform
  Freezer Assets Schedule 2.1(g
  Transition Services Schedule 6.15 Schedule 6.15
    SURVIVAL AND INDEMNIFICATION
  Survival of Representations and Warranties
  Indemnification by the Seller Buyer Indemnitees Losses
        Limitations on Indemnification by Seller
    Threshold Amount
  Maximum Amount
                  Procedures for Indemnification Indemnitees Indemnifying Person
          Indemnification by the Buyer Seller Indemnitees
        Limitations on Indemnification by Buyer
            Successors and Assigns
  Remedies Exclusive
  Materiality
      Successors and Assigns
  Governing Law; Jurisdiction
  Expenses
  Severability
  Notices
                                                            Amendments; Waivers
  Entire Agreement
  Parties in Interest
  Section and Paragraph Headings
  Mutual Drafting
  Further Assurances
  Counterparts
      ESKIMO PIE FROZEN DISTRIBUTION, INC.
          SOUTHWEST TRADERS, INC.
                INTEGRATED BRANDS, INC.
          
          INTERCREDITOR
              AND SUBORDINATION AGREEMENT
    Agreement Ontario Serruya Subordinated Creditors Integrated Agent Americana Agent Administrative Agent
  INTRODUCTORY
              STATEMENT
    Integrated
              Borrowers Integrated Loan
              Guarantors Integrated
              Loan Parties Integrated Lenders Integrated Credit Agreement
    Americana
              Borrower Borrowers Borrower Americana Lenders Senior Lenders Americana Credit Agreement Senior Credit
              Agreements
  Collateral
  Americana Guarantors Americana Guarantees
    Forbearance and First Amendment
      1.            
Defined Terms
    Alternate Forum
  Americana Collateral
              Documents
  Americana Loan
              Documents
  Americana
              Obligations
  Americana Security
              Agreement
  Avoidance Action
  Bankruptcy Code et seq
  Business Day
  Holdings
  Indebtedness
  Integrated Collateral
              Documents
  Integrated Loan
              Documents
  Integrated Obligations
  Integrated Security
              Agreement
  Indemnification
              Agreement
  Lien
  Loan Guarantors
  Obligors
  Person
  Senior Collateral
              Documents
  Senior Credit
              Termination Date
  Senior Debt
  Senior Debt
              Documents
  Senior Security
              Documents
  Standby Letter
              of
              Credit
  Subordinated
              Debt provided
  Subordinated
              Debt
              Documents
  Subordinated
              Security
              Document
  Uniform Commercial
              Code
  Rules of Construction
  2.            
Subordination
  (a)          
Payment
    (b)          
Lien provided
  (c)           Exercise
              of Rights and Remedies
  (d)           Release
              of Lien
  3.            
Turnover of Payments
  4.            
Moratorium on Exercise of Rights and Remedies
        5.            
Agreements Regarding Insolvency
  provided  provided however
  Avoidance Action
    6..           
Assignment of Subordinated Debt, etc
  7.            
Continuing Agreement; Modification of Terms of Senior Debt
          8.            
No Modification of Subordinated Debt Documents
  9.            
Waiver and Amendment
  10.          Successors and
              Assigns
  11.          Application of
              Payments and Proceeds of Collateral
  12.          Conditions
              Precedent
  13.          Governing
              Law
  14.         
Notices
    
        15.          Further
              Assurances
  PROVIDED HOWEVER ALTERNATE FORUM
  17.         
Miscellaneous
    
  th
    Subordinated
                        Creditors:
                      
                      2118769
                        Ontario
                        Inc.
                      
                      
                      
                      By:___________________________________
                      
                      Name:
                      
                      Title:
                      
                      
                      
                      ______________________________________
                      
                      Michael
                        Serruya
                      
                      
                      
                      Integrated
                        Administrative Agent:
                      
                      JPMORGAN
                        CHASE BANK,
                        N.A., as Administrative Agent under the Integrated Credit
                        Agreement
                      
                      
                      
                      By:___________________________________
                      
                      Name:
                      
                      Title:
                      
                      
                      
                      Americana
                        Administrative Agent:
                      
                      JPMORGAN
                        CHASE BANK,
                        N.A., as Administrative Agent under Americana Credit Agreement
                      
                      
                      
                      By:___________________________________
                      
                      Name:
                      
                      Title:Each of
                        the
                        undersigned acknowledges by its signature receipt of a copy
                        of this
                        Agreement and hereby consents to and agrees to honor the
                        Agreement:
                      
                      
                      
                      COOLBRANDS
                        INTERNATIONAL INC.
                      
                      
                      
                      By:
                        ___________________________________
                      
                      Name:
                      
                      Title:
                      
                      
                      
                      INTEGRATED
                        BRANDS
                        INC.
                      
                      
                      
                      By:___________________________________
                      
                      Name:
                      
                      Title:
                      
                      
                      
                      ESKIMO
                        PIE FROZEN
                        DISTRIBUTION, INC.
                      
                      
                      
                      By:___________________________________
                      
                      Name:
                      
                      Title:
                      
                      
                      
                      ESKIMO
                        PIE
                        CORPORATION
                      
                      
                      
                      By:___________________________________
                      
                      Name:
                      
                      Title:
                      
                      COOLBRANDS
                        DAIRY,
                        INC.
                      
                      
                      
                      By:___________________________________
                      
                      Name:
                      
                      Title:
                      
                      
                      
                      SUGAR
                        CREEK FOODS,
                        INC.
                      
                      
                      
                      By:___________________________________
                      
                      Name:
                      
                      Title:
                      
                      
                      
                      INTEGRATED
                        BRANDS
                        FRANCHISE CORP.
                      
                      
                      
                      By:___________________________________
                      
                      Name:
                      
                      Title:
                      
                      
                      
                      COOLBRANDS
                        SMOOTHIES
                        FRANCHISE LLC
                      
                      By:INTEGRATED
                        BRANDS
                        FRANCHISE CORP., its sole member
                      
                      
                      
                      By:___________________________________
                      
                      Name:
                      
                      Title:            AMENDED AND
                RESTATED
                INTERCREDITOR
  AND
                SUBORDINATION AGREEMENT
  Agreement Integrated Agent Americana Agent
  INTRODUCTORY
                STATEMENT
    Integrated
                Borrowers Integrated Loan
                Guarantors Integrated
                Loan Parties Integrated Lenders Integrated Credit Agreement
    Americana
                Borrower Americana Lenders Americana Credit Agreement Credit Agreements
  Collateral
  Americana Guarantors Americana Guarantees
      Forbearance and First Amendment
      1.            
Defined Terms
    Alternate
                Forum
  Americana
                Collateral
                Documents
  Americana
                Loan
                Documents
  Americana
                Obligations
  Americana
                Security
                Agreement
  Avoidance
                Action
  Bankruptcy
                Code et seq
  Business Day
  Holdings
  Indebtedness
  Integrated
                Collateral
                Documents
  Integrated
                Credit
                Termination Date
  Integrated
                Loan
                Documents
  Integrated
                Obligations
  Integrated
                Security
                Agreement
  Liens
  Loan Guarantors
  Obligors
  Person
  Uniform Commercial
                Code
  (b) Rules of
                Construction
  2.            
Subordination
  (a)          
Payment
    (b)          
Lien provided
  (c)           Exercise
                of Rights and Remedies
  (d)           Release
                of Lien
  pari passu
  3.            
Turnover of Payments
  4.            
Moratorium on Exercise of Rights and Remedies
        5.            
Agreements Regarding Insolvency
  provided  provided however
  Avoidance Action
    6.            
Assignment of Americana Obligations, etc
  7.            
Continuing Agreement; Modification of Terms of Integrated
                Obligations
          8.            
No Modification of Americana Loan Documents
  9.            
Waiver and Amendment
  10.          Successors and
                Assigns
  11.          Application of
                Payments and Proceeds of Collateral
  12.          Conditions
                Precedent
  13.          Governing
                Law
  14.         
Notices
    
    
    15.          Further
                Assurances
  PROVIDED HOWEVER ALTERNATE
                FORUM
  17.         
Miscellaneous
    
  th
    JPMORGAN
                          CHASE BANK,
                          N.A., as Integrated Agent on behalf of the Integrated Lenders
                        
                        
                        
                        By:___________________________________
                        
                        Name:
                        
                        Title:
                        
                        
                        
                        JPMORGAN
                          CHASE BANK,
                          N.A., as Americana Agent on behalf of the Americana Lenders
                        
                        
                        
                        By:___________________________________
                        
                        Name:
                        
                        Title:Each
                          of the
                          undersigned acknowledges by its signature receipt of a
                          copy of this
                          Agreement and hereby consents to and agrees to honor the
                          Agreement:
                        
                        COOLBRANDS
                          INTERNATIONAL INC.
                        
                        
                        
                        By:
                          ___________________________________
                        
                        Name:
                        
                        Title:
                        
                        
                        
                        INTEGRATED
                          BRANDS
                          INC.
                        
                        
                        
                        By:___________________________________
                        
                        Name:
                        
                        Title:
                        
                        
                        
                        ESKIMO
                          PIE FROZEN
                          DISTRIBUTION, INC.
                        
                        
                        
                        By:___________________________________
                        
                        Name:
                        
                        Title:
                        
                        
                        
                        ESKIMO
                          PIE
                          CORPORATION
                        
                        
                        
                        By:___________________________________
                        
                        Name:
                        
                        Title:
                        
                        COOLBRANDS
                          DAIRY,
                          INC.
                        
                        
                        
                        By:___________________________________
                        
                        Name:
                        
                        Title:
                        
                        
                        
                        SUGAR
                          CREEK FOODS,
                          INC.
                        
                        
                        
                        By:___________________________________
                        
                        Name:
                        
                        Title:
                        
                        
                        
                        INTEGRATED
                          BRANDS
                          FRANCHISE CORP.
                        
                        
                        
                        By:___________________________________
                        
                        Name:
                        
                        Title:
                        
                        
                        
                        COOLBRANDS
                          SMOOTHIES
                          FRANCHISE LLC
                        
                        By:INTEGRATED
                          BRANDS
                          FRANCHISE CORP., its sole member
                        
                        
                        
                        By:___________________________________
                        
                        Name:
                        
                        Title:              FORBEARANCE,
                  WAIVER AND INDEMNIFICATION
  THIS FORBEARANCE, WAIVER
                  AND
                  INDEMNIFICATION Agreement Guarantors
    W I T N
                  E S S E T
                  H:
    WHEREAS Borrower Former
                  Lenders Americana Credit Agreement Agent
    WHEREAS Master Assignment and Assumption Guarantees and
                  Security Americana Secured Obligations
    WHEREAS
    WHEREAS
    NOW,
                  THEREFORE
  
 1.1  Forbearance.
   Forbearance Period Forbearance End Date
            Effective Date
         
        
               
      
        th
  
                                                                                        IN WITNESS WHEREOF
  **2118769
                          Ontario Inc.**By:Name:Title:   **GUARANTORS****:**
                      
                      **COOLBRANDS
                          INTERNATIONAL INC.**By:Name:Title:   **INTEGRATED
                          BRANDS INC.**By:Name:Title:   **CBA
                          FOODS
                          LLC               
                          By: INTEGRATED BRANDS INC.,
                                                 
                          its sole member**By:Name:Title:   **CB
                          AMERICANA
                          LLC               
                          By: INTEGRATED BRANDS INC.,
                                                 
                          its sole member**By:Name:Title:   **ESKIMO
                          PIE FROZEN DISTRIBUTION,
                          INC.**By:Name:Title:   **ESKIMO
                          PIE CORPORATION**By:Name:Title:   **COOLBRANDS
                          DAIRY, INC.**By:Name:Title:   **SUGAR
                          CREEK FOODS, INC.**By:Name:Title:   **INTEGRATED
                          BRANDS FRANCHISE CORP.**By:Name:Title:   **COOLBRANDS
                          SMOOTHIES FRANCHISE LLC**
                        
                        **By:        
                          INTEGRATED BRANDS FRANCHISE CORP., its sole member**By:Name:Title:
 
  
 FORBEARANCE,
                  WAIVER AND FIRST AMENDMENT TO CREDIT
                  AGREEMENT
    Forbearance and First Amendment Borrower Borrowers Subsidiary Guarantors Parent Guarantors Lenders Administrative
                  Agent
  W
                  I T N E S S
                  E T H
  Credit Agreement
  Schedule A Existing Events of
                  Default
                    
  Definitions
        
  Forbearance
  Forbearance Period provided however
        
  Asset Sales; Application of Net Proceeds
  Schedule B Cash Collateral Account Schedule B less Working
                  Capital Account Accounts
      Non-Payment of Revolving Loan Obligations
  Expenses
  Advisor Fees and Expenses
      Availability
  Grant of Security Interest Ontario Inc.
      Waivers
      provided however provided further
      Amendments
    Maturity Date
    Revolving
                  Commitment
    Forbearance and First Amendment
  Intercreditor Agreement
  Revolving Loan Obligations
  Subdebt Intercreditor Agreement
      Field
                  Examinations
    
  Effective Date Effective Date
    Standby Letter of Credit
  Indemnification and Waiver
  Exhibit A
              CMAG
      Representations and Warranties
      Article III
    
  Acknowledgments of Indebtedness
      Release
  Loan Documents Still in Force
  
  Loan Document Article VII
  Counterparts, etc
  GOVERNING LAW
  Successors and Assigns
  Entire Agreement
  Relationship
  No Third Party Beneficiaries
  Expenses provided
  Full Force and Effect Credit Agreement this
                  Agreement herein hereafter hereto hereof Agreement Credit Agreement
  Consultation with Advisors
  Invalidity; Severability
  Headings
  Survival
  Further Amendments and Consents
 
  **BORROWERS:**
                      INTEGRATED BRANDS INC.By:
                          ____________________________________________
                        
                        Name:
                        
                        Title:ESKIMO
                          PIE FROZEN
                          DISTRIBUTION, INC.By:
                          ____________________________________________
                        
                        Name:
                        
                        Title:ESKIMO
                          PIE
                          CORPORATIONBy:
                          ____________________________________________
                        
                        Name:
                        
                        Title:COOLBRANDS
                          DAIRY,
                          INC.By:
                          ____________________________________________
                        
                        Name:
                        
                        Title:**OTHER LOAN
                          PARTIES:**
                      COOLBRANDS
                          INTERNATIONAL INC.By:
                          ____________________________________________
                        
                        Name:
                        
                        Title:SUGAR
                          CREEK FOODS,
                          INC.By:
                          ____________________________________________
                        
                        Name:
                        
                        Title:INTEGRATED BRANDS FRANCHISE
                          CORP.By:
                          ____________________________________________
                        
                        Name:
                        
                        Title:COOLBRANDS
                          SMOOTHIES
                          FRANCHISE LLC
                        
                        
                        
                        By:        
                          INTEGRATED BRANDS   FRANCHISE CORP., its sole memberBy:
                          ____________________________________________
                        
                        Name:
                        
                        Title:   **AGENT AND
                          LENDERS:**
                      JPMORGAN
                          CHASE BANK,
                          N.A., individually, as
                        
                        Administrative
                          Agent,
                          Issuing Bank and Swingline LenderBy:
                          ____________________________________________
                        
                        Title:GMAC
                          COMMERCIAL FINANCE
                          LLC, as a LenderBy:
                          ____________________________________________
                        
                        Name:
                        
                        Title:GENERAL
                          ELECTRIC
                          CAPITAL CORPORATION,
                        
                        as Documentation
                          Agent and as a LenderBy:
                          ____________________________________________
                        
                        Name:
                        
                        Title:                   GUARANTEE
    WHEREAS Borrower Administrative Agent Lenders Credit Agreement
  AND
                  WHEREAS
  AND
                  WHEREAS Guarantor
  NOW
                  THEREFORE
         ultra vires
            Determination Date voluntary advances
        (a)
     Bankruptcy and Insolvency Act Companies' Creditors Arrangement Act
                                Required Currency Payment Currency
         mutatis mutandis
 mutatis
                  mutandis
     Postponed Indebtedness Postponed
                  Security
            as is, where
                  is
   Interest Act
                    person
   Merger Merging
                  Entities Merged Entity
    Borrower
                successors
          IN WITNESS WHEREOF
  **COOLBRANDS
                          INTERNATIONAL INC.**By:Name: David
                          J. SteinTitle:
                             Chief Financial OfficerGuarantor’s Address for
                          Service:
                        
                        
                        
                        4175 Veterans
                          Memorial
                          HighwayRonkonkama, New York 11779
                        
                        Attention: David
                          J.
                          SteinFax no. 631-737-9792                    CoolBrands
                  International
                  inc.
  Warrant
                  to Subscribe
                  forSubordinated Voting Shares
                              IN WITNESS WHEREOF
    **COOLBRANDS
                          INTERNATIONAL INC.**By:Authorized
                          Signing OfficerBy:Authorized
                          Signing Officer
 
  SUBSCRIPTION
                  FORM
  TO:                         
                  COOLBRANDS INTERNATIONAL INC.
        **NAME(S)
                            IN FULL**
                        **ADDRESS(ES)**
                        **NUMBER
                            OF SHARES**
   DATED
  <?xml:namespace
                          prefix = v ns = "urn:schemas-microsoft-com:vml" />Witness
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                Purchase and Sale, Payment
 1.1          Purchase and
                  Sale
 Purchased
                  Assets”)
          1.2          Excluded
                  Assets
   1.3          Non-Assumption
                  of Liabilities By Buyer
 Liabilities” Schedule 1.3 Excluded Liabilities”
                 1.4          Consideration,
                  Allocation, Election
 Consideration”
 Section 1.4 Schedule 1.4 Schedule 1.4
 Representations and Warranties
                of the
                Seller
   2.1          Organization
                and Good Standing
     2.2          Binding
                Agreement: No Litigation
     2.3          Absence of
                Claims
 Schedule
                2.3
  2.4          Operations in
                Accordance with Law
   2.5          Contractual
                Obligations
   2.6          Title to
                Assets: Condition of Assets
   2.7          Intellectual
                Property
   Schedule 2.7(c)
     Intellectual Property
 2.8          Environmental
                Matters
    Environmental Laws
 2.9          OSHA
   2.10        Licenses
   2.11        Brokers
   2.12        Disclosure
   Representations and Warranties
                of the
                Buyer
   3.1          Organization
                and Good Standing
   3.2          Binding
                Agreement: No Litigation
   3.3         
Brokers
   3.4         
Disclosure
   Closing:
 4.1          Place and Date
                of Closing Closing Date”
 4.2          Actions at
                Closing
  Indemnification
  5.1         
Indemnification by the Seller
 Buyer Indemnitee Buyer
                Indemnitees”) Seller Losses”)
 5.2          Notice:
                Defense of Claims
   Exclusive Remedy
      Deposits
    Miscellaneous
 Materiality
                and Survival Period
   Expenses
   Notices
          210 Shields Court
  Markham, Ontario, Canada
  L3R 8V2
                    
    
      
    
  
    Governing Law:
                Arbitration
  AAA Rules” provided
  Arbitral
                Decision”
  Successors and
                Assigns
   Entire
                Agreement: Severability and Enforcement
   Further
                Assurances
     Headings
     Counterparts
           
                                                      
                  th
                Purchase and Sale, Payment
 1.1          Purchase and
                Sale
        1.2          Non-Assumption
                of Liabilities By Buyer
   1.3          Consideration,
                Allocation, Election
    Representations and Warranties
                of the
                Seller
       2.1          Organization
                and Good Standing
   2.2          Binding
                Agreement: No Litigation
   2.3          Absence of
                Claims
 Schedule 2.3
  2.4          Title to
                Assets: Condition of Assets
   2.5          Intellectual
                Property
         2.6         
Brokers
   2.7         
Disclosure
   Representations and Warranties
                of the
                Buyer
   3.1          Organization
                and Good Standing
   3.2          Binding
                Agreement: No Litigation
   3.3         
Brokers
   3.4         
Disclosure
   Closing:
 4.1          Place and Date
                of Closing
 4.2          Actions at
                Closing
    Indemnification
  5.1         
Indemnification by the Seller
  5.2          Notice:
                Defense of Claims
   Exclusive
                Remedy
    Miscellaneous
 Materiality
                and Survival Period
   Expenses
   Notices
                                  
    
      
    
  
    Governing Law:
                Arbitration
      Successors and
                Assigns
   Entire
                Agreement: Severability and Enforcement
   Further
                Assurances
   Headings
   Counterparts
                                                             :___”Gerald B. Shreiber”______
                  : ___”Michael
                Serruya”_________
            
          CERTIFICATIONS
        1.     I have reviewed this report on Form 20-F of CoolBrands International Inc.;  2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;  4.     The Company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules  13a-15(f) and 15d-15(f) for the Company and have:  a)       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;  b)       Except to the extent described under Item 15 in this report, designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;  c)       Except to the extent described under Item 15 in this report, evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and  d)       Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period covered by the report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and  5.     The Company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of the Company’s internal control over financial reporting, to the Company’s auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):  a)        All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and  b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.       _”Michael Serruya”__________
                                                                                                      Michael Serruya
                                                                                                      Title:   President and Chief Executive Officer             CERTIFICATIONS
        1.     I have reviewed this report on Form 20-F of CoolBrands International Inc.;  2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;  4.     The Company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules  13a-15(f) and 15d-15(f) for the Company and have:  a)       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;  b)       Except to the extent described under Item 15 in this report, designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;  c)       Except to the extent described under Item 15 in this report, evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and  d)       Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period covered by the report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and  5.     The Company's other certifying officer(s) and I have disclosed, based on our  most recent evaluation of the Company’s internal control over financial reporting, to the Company’s auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):  a)        All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and  b)        Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.      _”Ken
                MacKenzie”__________________                         
_
                              __”Michael
                Serruya”______                                           
_
          __”Ken
                MacKenzie”____________
      
                                        
      Consent
                of
                Independent Registered Public Accounting Firm