UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      20-F/A


Amendment
      No. 1




(MARK
      ONE)





o
            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





o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 FOR THE TRANSITION PERIOD FROM ________TO
                _________





o
            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








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 EXCHANGETITLE
              OF EACH CLASS
            
            ON
              WHICH REGISTEREDNot
                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:
            50,049,774Multiple
              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.




oYES  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  o
      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  o
      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    o         ACCELERATED
      FILER   x       NON-ACCELERATED
      FILER     o





INDICATE
      BY CHECK MARK WHICH FINANCIAL STATEMENT ITEM THE REGISTRANT HAS ELECTED TO
      FOLLOW.





x
      ITEM 17  o
      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




o
      YES  x
      NO


















**EXPLANATORY
        NOTE**
  The
        sole purpose of this amendment is to attach separately the exhibits to the Form
        20-F of CoolBrands International Inc. for the fiscal year ended August 31,
        2006,
        filed on August 31, 2007 with the Securities and Exchange
        Commission.
  This
        Amendment is not intended to revise other information presented in the Company’s
        Annual Report on Form 20-F for the fiscal year ended August 31, 2006 as
        originally filed, which remains unchanged. This Amendment does not reflect
        events occurring after the filing of the original Form 20-F and does not
        modify
        or update the disclosure therein in any way other than as required to reflect
        the amendment discussed above.










**TABLE
        OF CONTENTS**


ITEM
                  1    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
                  ADVISERS
              2ITEM
                  2    OFFER STATISTICS
                  AND EXPECTED TIMETABLE
              2ITEM
                  3    KEY
                  INFORMATION
              2ITEM
                  4    INFORMATION ON THE COMPANY
              5ITEM
                  4A UNRESOLVED STAFF COMMENTS
              14ITEM
                  5    OPERATING AND FINANCIAL REVIEW AND
                  PROSPECTS
              14ITEM
                  6    DIRECTORS,
                  SENIOR MANAGEMENT AND EMPLOYEES
              34ITEM
                  7    MAJOR
                  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
              42ITEM
                  8    FINANCIAL
                  INFORMATION
              45ITEM
                  9    THE OFFER AND
                  LISTING
              47ITEM
                  10   ADDITIONAL
                  INFORMATION
              49ITEM
                  11   QUANTITATIVE AND
                  QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              54ITEM
                  12   DESCRIPTION OF
                  SECURITIES OTHER THAN EQUITY SECURITIES
              54ITEM
                  13   DEFAULTS, DIVIDEND
                  ARREARAGES AND DELINQUENCIES
              54ITEM
                  14   MATERIAL
                  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
                  OF PROCEEDS
              55ITEM
                  15   CONTROLS AND PROCEDURES
              55ITEM
                  16   [RESERVED]
              56ITEM
                  16A AUDIT COMMITTEE FINANCIAL EXPERT
              56ITEM
                  16B CODE OF ETHICS
              57ITEM
                  16C PRINCIPAL ACCOUNTANT FEES AND SERVICES
              57ITEM
                  16D EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
              57ITEM
                  16E PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
                  PURCHASERS
              58ITEM
                  17   FINANCIAL STATEMENTS
              58ITEM
                  18   FINANCIAL STATEMENTS
              58ITEM
                  19   EXHIBITS
              58











**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.








1





**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








2




**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”.





3




**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.




4
 
 ****
 **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.




5




·
            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.




6




**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.




7




**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




8




**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.





9


******


******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.





10


****


****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.




11




**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.





12





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.





13





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.




14




***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.





15




**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.





16




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 NetSales****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 AmericanaFoods
                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.




17




**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 AmericanaFoods
                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;




18





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
                ofSales****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 AmericanaFoods
                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




19




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




20




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.





21





**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.





22





**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.





23




***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.





24




***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) incomefrom
                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.





25




**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) incomefrom
                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.




26




**Selling,
      general and administrative expenses**





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





**Year
                Ended August 31,****Percentage
                ofSales****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.




27





**(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.





28




**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.





29





**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 Facilityrevolver
            
            
            6,418
            
            
            
            6,418Notes
                payable in default-Americana
                Credit Facilityterm
                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




30




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.




31




*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






32




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




33




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
                  Thornhill,Ontario
              42
              Chairman,
                  President, Chief
                  Executive
                    Officer and Director
              CEO
                  of the CorporationAaron
                  Serruya
                  Thornhill,
                    Ontario
              41
              Director
              President
                  and Chief Executive
                  Officer,
                  International
                      Franchise Corp.Romeo
                  DeGasperis(2)(3)(4)
                Toronto,
                  Ontario
              40
              Director
              Vice
                  President, Con-Drain Company
 
 34
  **Age**
              **Positions
                  with the Corporation**
              **Principal
                  Occupation(1)**
 Ronald
                  W. Binns(2)(3)(4)
              50
              Director
              Chief
                  Financial Officer-Nevada Capital Corporation LtdGarry
                  Macdonald(2)(3)(4)
              60
              Director
              President
                  and Principal of Maccess Management Inc.Ken
                  MacKenzie
                  Markham,
                    Ontario
              51
              Chief
                  Financial Officer
              Officer
                  of the Corporation


(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.




35







**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)
                Chairman,
                  President
                  &
                    Chief Executive
                    Officer
            2006
            Cdn
                $420,000
            
            -
            -
            -
            -David
                J. Stein(6)
                President,
                  Chief
                  Executive
                    Officer
            2006
            533,077
            
            -
            -
            -
            2,250Gary
                P Stevens
                Chief
                  Financial
                  Officer
            2006
            188,558
            
            -
            33,454
            -
            1,235Francis
                Orfanello
                Executive
                  Vice President
            2006
            435,577
            
            -
            -
            100,000(4)
            -J.
                Leo Glynn(5)
                President,
                  Eskimo
                  Pie
                    Frozen
                    Distribution
                      Inc.
            2006
            247,840
            
            82,000
            -
            -
            -Daniel
                Heschke
                Chief
                  Information
                  Officer
            2006
            240,000
            
            -
            177,627(7)
            -
            582





(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.





36






**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.





37




**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.




38




**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.




39




The
      following is a breakdown of employees by segment for the year ended August
      31,
      2006:





Frozen
              Dessert Segment
            786Yogurt
              Segment
            178Foodservice
              Segment
            37Dairy
              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 and Multiple Voting Shares
              The
                  Estate of Richard E. Smith((13)
              11,606,492shares(1)
              18.85%Subordinate
                  Voting Shares and Multiple Voting Shares
              David
                  M. Smith(13)
              11,606,492
                  shares(2)
              18.85%Subordinate
                  Voting Shares and Multiple Voting Shares
              David
                  Stein(13)
              11,606,492
                  shares(3)
              18.85%Subordinate
                  Voting Shares and Multiple Voting Shares
              Michael
                  Serruya(13)
              11,606,492
                  shares(4)
              18.85%Subordinate
                  Voting Shares and Multiple Voting Shares
              Aaron
                  Serruya(13)
              11,606,492
                  shares(5)
              18.85%Subordinate
                  Voting Shares and Multiple Voting Shares
              The
                  Serruya Family Trust(13)
              11,606,492shares
              18.85%Subordinate
                  Voting Shares and Multiple Voting Shares
              1082272
                  Ontario, Inc.(6)(13)
              11,606,492
                  shares(7)
              18.85%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.




40





(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.





41





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 and Multiple Voting Shares
              The
                  Estate of Richard E. Smith
              11,606,492
                  shares(2)
              18.85%Subordinate
                  Voting Shares and Multiple Voting Shares
              David
                  M. Smith
              11,606,492
                  shares(3)
              18.85%Subordinate
                  Voting Shares and Multiple Voting Shares
              David
                  J. Stein
              11,606,492shares(4)
              18.85%
   42
  
 **Identity
                  of**
              ****
              ******Title
                  of Class**
              **Person
                  or Group**
              **Amount
                  Owned**
              **Percent
                  of Class ****
 Subordinate
                  Voting Shares and Multiple Voting Shares
              Michael
                  Serruya
              11,606,492
                  shares(5)
              18.85%Subordinate
                  Voting Shares and Multiple Voting Shares
              Aaron
                  Serruya
              11,606,492
                  shares(6)
              18.85%Subordinate
                  Voting Shares and Multiple Voting Shares
              The
                  Serruya Family Trust
              11,606,492
                  shares(8)
              18.85%Subordinate
                  Voting Shares and Multiple Voting Shares
              1082272
                  Ontario, Inc.(7)
              11,606,492
                  shares(8)
              18.85%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..




43




(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,




44




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.




45




**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




46




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".





47




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.





48




**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:




49




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).





50





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.





51




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.





52




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.





53




**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




54




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.





55




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.





56




**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, 2005**Audit
                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.





57





**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-2Report
                  of Auditors
              F-3Consolidated
                  Balance Sheets as of August 31, 2006 and 2005
              F-4Consolidated
                  Statements of Operations for the years ended August
                  31, 2006, 2005, and 2004
              F-6Consolidated
                  Statements of Shareholders' Equity for the years ended August 31,
                  2006,
                  2005, and 2004
              F-7Consolidated
                  Statements of Cash Flow for the years ended August 31, 2006, 2005,
                  and
                  2004
              F-8Notes
                  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)





58





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.





59




(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.





60





**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 SerruyaTitle: President and
              CEO





Date:
      August 31, 2007











61














Index
      to Consolidated Financial Statements


Report
                      of Auditors
                F-2Report
                    of Independent Registered Public Accounting Firm
                F-3Consolidated
                    Balance Sheets as of August 31, 2006 and 2005
                F-4Consolidated
                    Statements of Operations for the years ended August
                    31, 2006, 2005, and 2004
                F-6Consolidated
                    Statements of Shareholders' Equity for the years ended August
                    31, 2006,
                    2005, and 2004
                F-7Consolidated
                    Statements of Cash Flow for the years ended August 31, 2006,
                    2005, and
                    2004
                F-8Notes
                    to Consolidated Financial Statements
                F-9
  
 F
            -
            1







**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)






F
          -
          2






**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)





F
          -
          3





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








F
          -
          4








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.








F
          -
          5











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





F
          -
          6





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.





F
          -
          7








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.





F
          -
          8




**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.




F
          -
          9




**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.)




F
          -
          10




**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.”)




F
          -
          11




**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.




F
          -
          12




**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.




F
          -
          13




**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.




F
          -
          14




**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.




F
          -
          15




**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.




F
          -
          16




**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.




F
          -
          17




**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





F
          -
          18





**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




F
          -
          19




**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 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”)




F
          -
          20







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)**
            ****
            ****
            **Total**Total
                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)**
            ****
            ****
            **Total**Total
                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.




F
          - 21




**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.




F
          - 22




**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 Operations**Pro
                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 dilutedfor
                continuing operations
            
            
            
            
            
            $
            (1.23
            )Pro
                forma net loss per share basic and dilutedfor
                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.




F
          - 23




**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 continuingoperations
            
            
            445Reserve
                utilized
            
            
            (452
            )Ending
                Balance August 31, 2004
            
            
            1,402Charges
                to costs and expenses for continuingoperations
            
            
            845Reserve
                utilized
            
            
            (1,302
            )Ending
                balance August 31, 2005
            
            
            945Charges
                to costs and expenses for continuingoperations
            
            
            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.




F
          - 24




**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, amortizationand
                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








F
          - 25






**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
                Amortization**Non-amortizable
                intangible assets
            
            $
            -
            
            
            $
            -
            
            
            
            $
            15,000
            
            
            $
            -Amortizable
                intangible assets
            
            
            934
            
            
            
            263
            
            
            
            
            8,126
            
            
            
            3,362Other
                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 assets**Balance
                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




F
          - 26




**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




F
          - 27




**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.




F
          - 28




**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





F
          - 29




**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 stockoptions
                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





F
          - 30




**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.




F
          - 31




**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”.




F
          - 32




**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
            %





F
          - 33




**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.




F
          - 34




**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 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.”)


F
          - 35




**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
      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:**





**Year
      Ended August 31, 2006**





**Frozen
                dessert**
            
            ****
            **Foodservice**
            ****
            ****
            **Corporate**
            ****
            **Discontinued
                operations**
            ****
            **Consolidated**Revenues
            
            $
            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





F
          - 36




**CoolBrands
      International Inc.**


Notes
      to Consolidated Financial Statements for the years ended August 31, 2006 and
      2005 
 (Amounts
      are expressed in thousands of dollars)





**Industry
      Segments:**





**Year
      Ended August 31, 2005**





**Frozen
                dessert**
            ****
            ****
            **Foodservice**
            ****
            ****
            **Corporate**
            ****
            **Discontinued**
              **Operations**
            ****
            **Consolidated**Revenues
            
            $
            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







F
          - 37




**CoolBrands
      International Inc.**


Notes
      to Consolidated Financial Statements for the years ended August 31, 2006 and
      2005


______________________________________________________________________________


(Amounts
      are expressed in thousands of dollars)





**Industry
      Segments:**





**Year
      Ended August 31, 2004**





**Frozen
                dessert**
            ****
            ****
            **Foodservice**
            ****
            ****
            **Corporate**
            ****
            **Discontinued****Operations**
            ****
            **Consolidated**Revenues
            
            $
            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)
      Net of taxes
      provided at the Fiscal 2004 effective corporate rate for each of the business
      segments.




F
          - 38




**CoolBrands
      International Inc.**


Notes
      to Consolidated Financial Statements for the years ended August 31, 2006 and
      2005


(Amounts
      are expressed in thousands of dollars)





**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







F
          - 39




**CoolBrands
      International Inc.**


Notes
      to Consolidated Financial Statements for the years ended August 31, 2006 and
      2005 
 (Amounts
      are expressed in thousands of dollars)





**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





F
          - 40




**CoolBrands
      International Inc.**


Notes
      to Consolidated Financial Statements for the years ended August 31, 2006 and
      2005


(Amounts
      are expressed in thousands of dollars)





**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 operationsbefore
                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





F
          - 41




**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
      20. Subsequent events**




*Litigation*




In
      September 2006, American 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, 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 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.





*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.  The purchase price
      includes approximately $4,000 in inventory and accounts
      receivables.  Dreyer’s will also assume related liabilities in the
      amount of approximately $1,000.  The Company utilized a portion of the
      proceeds to payoff the Corporate Credit Facility.




F
          - 42




**CoolBrands
      International Inc.**


Notes
      to Consolidated Financial Statements for the years ended August 31, 2006 and
      2005 
 (Amounts
      are expressed in thousands of dollars)




*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 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, a company controlled by Michael Serruya,
      currently the President, Chairman and CEO of the Company, through a holding
      company, purchased all of Americana Foods’ bank indebtedness, which aggregated
      $21,408, from the lender.  The holding company 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 by a company controlled by
      Michael Serruya, 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 the holding company (also a “Senior
      Lender”), 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 the holding company, warrants to purchase 5,500 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 (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 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 the Corporate
      Credit Facility.





**Note
      21.  GAAP reconciliation**





The
      financial statements presented herein have been prepared in conformity with
      generally accepted accounting principles of the United States of America (“US
      GAAP”).  There are no principles followed in the preparation of these
      financial statements that differ materially from generally accepted accounting
      principles accepted in Canada (“Canadian GAAP”).  Accordingly, a
      reconciliation of the amounts reported under US GAAP to the amounts that would
      be reported under Canadian GAAP is not required.





**Note
      22.  Sale of CBD and other**





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 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, 2006, 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.  On January
      30, 2007, the Company consummated the sale of 100% of the issued and outstanding
      stock of CBD to an unaffiliated third party. The Company received cash of
      $45,000, a note of
      $5,000 and warrants.  The aggregate consideration received
      approximated the Company’s carrying value of CBD. The Company anticipates using
      the proceeds from the sale of CBD to fund working capital for the foreseeable
      future.




F
          - 43




**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
      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 through its subsidiaries CoolBrands
      Manufacturing Inc. and Integrated Brands, Inc. its Whole Fruit and
      Fruit-a-Freeze assets for cash proceeds of approximately $4,600.






F
      -
      45