**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C.  20549**








**FORM
      10-Q**





(Mark
      One)




x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934




For
                  the twenty-six weeks ended June 30,
                  2007




o
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
 For
                    the transition period from _______to
                    _______


Commission
      File Number 1-5084





**TASTY
      BAKING COMPANY**


(Exact
      name of Company as specified in its charter)





Pennsylvania
                  (State
                    of Incorporation)
                23-1145880
                  (IRS
                      Employer Identification
                      Number)








**2801
      Hunting Park Avenue, Philadelphia,
      Pennsylvania  19129**


(Address
      of principal executive offices including Zip Code)





**215-221-8500**


(Company's
      telephone number, including area code)







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.


YES
xNO
o





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 and large accelerated filer” in Rule 12b-2 of the Exchange
      Act. (Check one):


Large
      accelerated Filer oAccelerated
      Filer x Non-accelerated
      Filer
o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


YES
o     NO
      x





There
      were 8,263,333 shares of Common Stock outstanding as of July 31,
      2007.







**TASTY
      BAKING COMPANY AND SUBSIDIARIES**


**INDEX**
  PART
                I.
              FINANCIAL
                INFORMATIONItem
                1.
              Financial
                Statements (Unaudited)Condensed
                Consolidated Balance SheetsJune
                30, 2007 and December 30, 2006
              3Condensed
                  Consolidated Statements of
                  OperationsThirteen
                and Twenty-six weeks ended June 30, 2007 and
                July 1, 2006
              4Condensed
                  Consolidated Statements of Cash
                  FlowsThirteen
                and Twenty-six weeks ended June 30, 2007 and
                July 1, 2006
              5Notes
                to Condensed Consolidated Financial
                Statements
              6-15Item
                2.
              Management's
                Discussion and Analysis of
                FinancialCondition
                and Results of Operations
              16-20Item
                3.
              Quantitative
                and Qualitative DisclosuresAbout
                Market Risk
              20Item
                4.
              Controls
                and Procedures
              20PART
                II.
              OTHER
                INFORMATIONItem
                1.
              Risk
                Factors
              21Item
                2.
              Unregistered
                Sales of Equity Securities and Use of
                Proceeds
              21Item
                4.
              Submission
                of Matters to a Vote of Security
                Holders
              21Item
                6.
              Exhibits
              22Signature
              
              23
  -2-


**Part
      I. FINANCIAL
      INFORMATION**


**Item
        1. Financial
        Statements**
  **TASTY
                    BAKING COMPANY AND
                    SUBSIDIARIES****CONDENSED
                    CONSOLIDATED BALANCE SHEETS**(Unaudited)(000's)**June
                    30, 2007**
                
                
                **December
                    30, 2006****Assets****Current
                    assets:**Cash
                
                $
                71
                
                
                $
                12Receivables,
                    less allowance of $2,881 and $2,455, respectively
                
                
                19,777
                
                
                
                17,769Inventories
                
                
                6,393
                
                
                
                6,926Deferred
                    income taxes
                
                
                3,040
                
                
                
                3,040Prepayments
                    and other
                
                
                1,791
                
                
                
                1,414Total
                    current assets
                
                
                31,072
                
                
                
                29,161**Property,
                    plant and equipment:**Land
                
                
                1,433
                
                
                
                1,433Buildings
                    and improvements
                
                
                43,159
                
                
                
                43,110Machinery
                    and equipment
                
                
                123,864
                
                
                
                122,599Construction
                    in Progress
                
                
                3,225
                
                
                
                1,902171,681
                
                
                
                169,044Less
                    accumulated depreciation
                
                
                107,686
                
                
                
                103,66063,995
                
                
                
                65,384**Other
                    assets:**Long-term
                    receivables from independent sales distributors
                
                
                10,623
                
                
                
                10,960Deferred
                    income taxes
                
                
                4,942
                
                
                
                4,596Other
                
                
                2,116
                
                
                
                2,19017,681
                
                
                
                17,746**Total
                    assets**
                
                $
                112,748
                
                
                $
                112,291**Liabilities****Current
                    liabilities:**Current
                    obligations under capital leases
                
                $
                440
                
                
                $
                327Notes
                    payable, banks
                
                
                752
                
                
                
                631Book
                    overdraft
                
                
                1,477
                
                
                
                2,165Accounts
                    payable
                
                
                5,008
                
                
                
                3,875Accrued
                    payroll and employee benefits
                
                
                5,900
                
                
                
                7,444Other
                
                
                5,707
                
                
                
                5,349Total
                    current liabilities
                
                
                19,284
                
                
                
                19,791Long-term
                    obligations under capital leases, less current portion
                
                
                452
                
                
                
                208Long-term
                    debt
                
                
                18,561
                
                
                
                18,177Accrued
                    pensions
                
                
                18,783
                
                
                
                18,724Accrued
                    other liabilities
                
                
                1,899
                
                
                
                1,057Postretirement
                    benefits other than pensions
                
                
                5,487
                
                
                
                6,065**Total
                    liabilities**
                
                
                64,466
                
                
                
                64,022**Shareholders'
                    equity**Common
                      stock, par value $0.50 per share and entitled to onevote
                      per share: Authorized 15,000 shares, issued 9,116
                      shares
                
                
                4,558
                
                
                
                4,558Capital
                    in excess of par value of stock
                
                
                28,816
                
                
                
                28,951Retained
                    earnings
                
                
                25,393
                
                
                
                25,028Accumulated
                    other comprehensive income
                
                
                1,434
                
                
                
                1,996Treasury
                    stock, at cost
                
                
                (11,919
                )
                
                
                (12,264
                )Total
                    shareholders' equity
                
                
                48,282
                
                
                
                48,269**Total
                    liabilities and shareholders' equity**
                
                $
                112,748
                
                
                $
                112,291The
                    accompanying notes are an integral part of these unaudited condensed
                    consolidated financial statements.




-3-




**TASTY
                  BAKING COMPANY AND
                  SUBSIDIARIES****CONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS**(Unaudited)(000's,
                  except per share amounts)**For
                  the Thirteen Weeks Ended**
              
              
              **For
                  the Twenty Six Weeks Ended****June
                  30, 2007**
              
              
              **July
                  1, 2006**
              
              
              **June
                  30, 2007**
              
              
              **July
                  1, 2006****Gross
                  sales**
              
              $
              69,982
              
              
              $
              67,909
              
              
              $
              140,363
              
              
              $
              137,241Less
                  discounts and allowances
              
              
              (26,177
              )
              
              
              (25,348
              )
              
              
              (52,234
              )
              
              
              (51,771
              )Net
                  sales
              
              
              43,805
              
              
              
              42,561
              
              
              
              88,129
              
              
              
              85,470**Costs
                  and expenses:**Cost
                  of sales, exclusive of depreciation shown below
              
              
              27,076
              
              
              
              25,599
              
              
              
              55,037
              
              
              
              52,419Depreciation
              
              
              2,391
              
              
              
              1,626
              
              
              
              4,043
              
              
              
              3,168Selling,
                  general and administrative
              
              
              12,976
              
              
              
              13,419
              
              
              
              26,201
              
              
              
              26,313Interest
                  expense
              
              
              124
              
              
              
              412
              
              
              
              439
              
              
              
              787Other
                  income, net
              
              
              (202
              )
              
              
              (274
              )
              
              
              (433
              )
              
              
              (524
              )42,365
              
              
              
              40,782
              
              
              
              85,287
              
              
              
              82,163Income
                before provision for income taxes
              
              
              1,440
              
              
              
              1,779
              
              
              
              2,842
              
              
              
              3,307Provision
                  for income taxes
              
              
              496
              
              
              
              644
              
              
              
              1,022
              
              
              
              1,218**Net
                  income**
              
              $
              944
              
              
              $
              1,135
              
              
              $
              1,820
              
              
              $
              2,089**Average
                  common shares outstanding:**Basic
              
              
              8,034
              
              
              
              8,052
              
              
              
              8,033
              
              
              
              8,052Diluted
              
              
              8,138
              
              
              
              8,236
              
              
              
              8,134
              
              
              
              8,250**Per
                  share of common stock:**Net
                  income:Basic
              
              $
              0.12
              
              
              $
              0.14
              
              
              $
              0.23
              
              
              $
              0.26Diluted
              
              $
              0.12
              
              
              $
              0.14
              
              
              $
              0.22
              
              
              $
              0.25Cash
                  dividend
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.10
              
              
              $
              0.10


The
                accompanying notes are an integral part of these unaudited condensed
                consolidated financial statements.




-4-




**TASTY
                  BAKING COMPANY AND
                  SUBSIDIARIES****CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS**(Unaudited)(000's)**For
                  the Twenty-Six Weeks Ended****June
                  30, 2007**
              
              
              **July
                  1, 2006****Cash
                  flows from (used for) operating activities**Net
                  income
              
              $
              1,820
              
              
              $
              2,089Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              
              4,043
              
              
              
              3,168Amortization
              
              
              239
              
              
              
              273(Gain)
                  loss on sale of routes
              
              
              57
              
              
              
              (6
              )Restructure
                  payments
              
              
              -
              
              
              
              (202
              )Defined
                  benefit pension (benefit) expense
              
              
              (82
              )
              
              
              6(Increase)
                  decrease deferred taxes
              
              
              (198
              )
              
              
              (52
              )Post
                  retirement medical
              
              
              (654
              )
              
              
              (711
              )Other
              
              
              203
              
              
              
              404Changes
                  in assets and liabilities:Increase
                  in receivables
              
              
              (2,156
              )
              
              
              (2,260
              )Decrease
                  in inventories
              
              
              534
              
              
              
              11(Increase)
                  decrease in prepayments and other
              
              
              (546
              )
              
              
              434Increase
                  in accrued taxes
              
              
              939
              
              
              
              914(Decrease)
                  increase in accounts payable, accrued payroll and other current
                  liabilities
              
              
              (992
              )
              
              
              1,058**Net
                  cash from operating activities**
              
              
              3,207
              
              
              
              5,126**Cash
                  flows from (used for) investing activities**Proceeds
                  from sale of property, plant and equipment
              
              
              -
              
              
              
              75Purchase
                  of property, plant and equipment
              
              
              (2,608
              )
              
              
              (3,683
              )Proceeds
                  from independent sales distributor loan repayments
              
              
              1,802
              
              
              
              2,277Loans
                  to independent sales distributors
              
              
              (1,582
              )
              
              
              (2,362
              )Other
              
              
              (111
              )
              
              
              (183
              )**Net
                  cash used for investing activities**
              
              
              (2,499
              )
              
              
              (3,876
              )**Cash
                  flows from (used for) financing activities**Dividends
                  paid
              
              
              (824
              )
              
              
              (818
              )Borrowings
                  on long-term debt, net
              
              
              743
              
              
              
              771Net
                  decrease in short-term debt
              
              
              121
              
              
              
              -Net
                  decrease in book overdraft
              
              
              (689
              )
              
              
              (1,314
              )**Net
                  cash from financing activities**
              
              
              (649
              )
              
              
              (1,361
              )**Net
                  increase (decrease) in cash**
              
              
              59
              
              
              
              (111
              )Cash,
                  beginning of year
              
              
              12
              
              
              
              251Cash,
                  end of period
              
              $
              71
              
              
              $
              140**Supplemental
                  Cash Flow Information**Cash
                  paid during the period for:Interest
              
              $
              461
              
              
              $
              834Income
                  taxes
              
              $
              5
              
              
              $
              32The
                  accompanying notes are an integral part of these unaudited condensed
                  consolidated financial statements.




-5-


**Notes
      to Condensed Consolidated Financial
      Statements**


($'s
        in
        000’s, except share and per share amounts, unless otherwise noted)
 All
        disclosures are pre-tax, unless otherwise noted.
 
 **1.      Summary
          of Significant Accounting Policies**
 
 ***Nature
        of the Business***
 Tasty
        Baking Company (the “Company”) is a leading producer of sweet baked goods and
        one of the nation’s oldest and largest independent baking companies, in
        operation since 1914.  It has two manufacturing facilities, one in
        Philadelphia, PA, and a second in Oxford, PA.
 
 ***Fiscal
        Year***
 The
        Company and its subsidiaries operate on a 52-53 week fiscal year, ending
        on the
        last Saturday of December.  Fiscal year 2007 is a 52-week
        year.  Fiscal year 2006 was a 52-week year.
 
 ***Basis
        of Presentation***
 The
        condensed consolidated financial statements include the accounts of the Company
        and its subsidiaries.  All significant intercompany accounts and
        transactions have been eliminated.
 
 The
        condensed consolidated financial statements included herein have been prepared
        by the Company pursuant to the rules and regulations of the Securities and
        Exchange Commission.  Certain information and footnote disclosures
        normally included in financial statements prepared in accordance with generally
        accepted accounting principles in the United States of America (“GAAP”) have
        been condensed or omitted pursuant to such rules and
        regulations.  In the opinion of the Company, the accompanying
        unaudited condensed consolidated interim financial statements reflect all
        adjustments, consisting of only normal recurring items, which are necessary
        for
        a fair statement of the results of operations for the periods shown.  The
        results of operations for such periods are not necessarily indicative of
        the
        results expected for the full year or for any future period.
 
 The
        preparation of condensed consolidated financial statements in conformity
        with
        GAAP requires management to make estimates, judgments and assumptions that
        affect the reported amounts of assets, liabilities, revenues and expenses
        and
        related disclosure of contingent assets and liabilities.  On an ongoing
        basis, the Company evaluates its estimates, including those related to customer
        sales, discounts and allowances, long-lived asset impairment, pension and
        postretirement plan assumptions, workers’ compensation expense and income
        taxes.  Actual results may differ from these estimates.
 
 Certain
        prior period amounts have been reclassified to conform to current period
        presentation.
 
 ***Concentration
        of
        Credit***
 The
        Company encounters, in the normal course of business, exposure to concentrations
        of credit risk with respect to trade receivables.  Ongoing credit
        evaluations of customers’ financial conditions are performed and, generally, no
        collateral is required.  The Company maintains reserves for potential
        credit losses and such losses have not exceeded management’s
        expectations.
 
 ***Revenue
        Recognition***
 Revenue
        is
        recognized when title and risk of loss pass, which is upon receipt of goods
        by
        the independent sales distributors, retailers or third-party
        distributors.  For route area sales, the Company sells to independent
        sales distributors who, in turn, sell to retailers.  Revenue for sales
        to independent sales distributors is recognized upon receipt of the product
        by
        the distributor.  For sales made directly to a customer or a
        third-party distributor, revenue is recognized upon receipt of the products
        by
        the retailer or third-party distributor.
 
 ***Sale
        of Routes***
 Sales
        distribution routes are owned by independent sales distributors who purchase
        the
        exclusive right to sell and distribute Tastykake® products in defined
        geographical territories.  When the Company sells routes to
        independent sales distributors, it recognizes a gain or loss on the
        sale.  Routes sold by the Company are either existing routes that the
        Company has previously purchased from an independent sales distributor or
        newly
        established routes in new geographies. Any gain or loss recorded by the Company
        is based on the difference between the sales price and the carrying value
        of the
        route, and is recorded as a component of other income.  Any potential
        impairment of net carrying value is reserved as identified.  The
        Company recognizes gains or losses on sales of routes when all material services
        or conditions related to the sale have been substantially performed or satisfied
        by the Company, which is generally as of the date of sale.  In most
        cases, the Company will finance a portion of the purchase price with interest
        bearing notes, which are required to be repaid in full.  Interest
        rates on the notes are based on Treasury yields plus a spread.  The
        Company has no obligation to later repurchase a route but may choose to do
        so to
        facilitate a change in route ownership.
 -6-


***Cash
      and Cash Equivalents***


The
        Company considers all investments with an original maturity of three months
        or
        less on their acquisition date to be cash equivalents.  Book
        overdrafts are recorded within current liabilities.  Cash flows
        associated with book overdrafts are classified as financing
        activities.
 
 ***Inventory
        Valuation***
 Inventories,
        which include material, labor and manufacturing overhead, are stated at the
        lower of cost or market, cost being determined using the first-in, first-out
        (“FIFO”) method.  Inventory balances for raw materials, work in
        progress, and finished goods are regularly analyzed and provisions for excess
        and obsolete inventory are recorded, as necessary, based on the forecast
        of
        product demand and production requirements.
 
 ***Property
        and Depreciation***
 Property,
        plant and equipment are carried at cost.  Depreciation is computed by
        the straight-line method over the estimated useful lives of the
        assets.  Buildings and improvements, machinery and equipment, and
        vehicles are depreciated over thirty-nine years, seven to fifteen years,
        and
        five to ten years, respectively, except where a shorter useful life is
        necessitated by the Company’s decision to relocate its Philadelphia
        operations.  Spare parts are capitalized as part of machinery and
        equipment and are expensed as utilized or capitalized as part of the relevant
        fixed asset.  Spare parts are valued using a moving average method and
        are reviewed for potential obsolescence on a regular basis.  Reserves
        are established for all spare parts that are no longer usable and have no
        fair
        market value.  Capitalized computer hardware and software is
        depreciated over five years.
 
 Costs
        of
        major additions, replacements and betterments are capitalized, while maintenance
        and repairs, which do not improve or extend the life of the respective assets,
        are expensed as incurred.  For significant projects, the Company
        capitalizes interest and labor costs associated with the construction and
        installation of plant and equipment and significant information technology
        development projects.
 
 In
        accordance with Statement of Financial Accounting Standards (“SFAS”) No.144,
        long-lived assets are reviewed for impairment at least annually or whenever
        events or changes in circumstances indicate that the carrying amount may
        not be
        recoverable.  In instances where the carrying amount may not be
        recoverable, the review for potential impairment utilizes estimates and
        assumptions of future cash flows directly related to the asset.  For
        assets where there is no plan for future use, the review for impairment includes
        estimates and assumptions of the fair value of the asset, which is based
        on the
        best information available.  These assets are recorded at the lower of
        their book value or fair value.
 
 The
        Company has a conditional asset retirement obligation relative to asbestos
        in
        its Philadelphia manufacturing facility. Because the Company has not yet
        made
        any decision to sell, demolish or abandon the facility, the fair market value
        of
        any conditional asset retirement obligation has not been
        determined.  The Company is not under any current obligation to remove
        the asbestos since it is encased and in compliance with current regulatory
        codes.  Because the settlement date or range of potential settlement
        dates of the obligation is not estimable, the Company does not have sufficient
        information to estimate its obligation under FASB Interpretation No. 47,
        *Accounting for Conditional Asset Retirement Obligations.*The Company
        may have an obligation to remove the asbestos if the facility were to undergo
        a
        major renovation or be demolished.
 
 ***Grants***
 The
        Company receives grants from various government agencies for employee training
        purposes.  Expenses for the training are recognized in the Company’s
        income statement at the time the training takes place.  When the
        proper approvals are given and funds are received from the government agencies,
        the Company records an offset to the training expense already
        recognized.
 
 In
        addition, in 2006, in conjunction with The Reinvestment Funds, Allegheny
        West
        Foundation and the Department of Community and Economic Development of the
        Commonwealth of Pennsylvania (the “DCED”), the Company activated Project Fresh
        Start (the “Project”).  The Project is an entrepreneurial development
        program that provides an opportunity for qualified minority entrepreneurs
        to
        purchase routes from independent sales distributors.  The source of
        grant monies for this program is the DCED.  The grants are used by
        minority applicants to partially fund their purchase of an independent sales
        distribution route.
  -7-


Because
      the Project’s grant funds merely pass through the Company in its role as an
      intermediary, the Company records an offsetting asset and liability for the
      total amount of grants as they relate to the project.  There is no
      income statement impact related to the establishment of, or subsequent change
      to, the asset and liability amounts.


***Marketing
        Costs***
 The
        Company expenses marketing costs, which include advertising and consumer
        promotions, as incurred or as required in accordance with Statement of Position
        93-7, *Reporting on Advertising Costs*.  Marketing costs are
        included as a part of selling, general and administrative expense.
 
 ***Computer
        Software Costs***
 The
        Company capitalizes certain costs, such as software coding, installation
        and
        testing that are incurred to purchase or create and implement internal use
        computer software in accordance with Statement of Position 98-1, *Accounting
        for Costs of Computer Software Development or Obtained for Internal
        Use*.  The majority of the Company’s capitalized software relates
        to the implementation of the enterprise resource planning (“ERP”) and handheld
        computer systems.
 
 ***Freight,
        Shipping and Handling Costs***
 Outbound
        freight, shipping and handling costs are included as a part of selling, general
        and administrative expense.  Inbound freight, shipping and handling
        costs are capitalized with inventory and expensed with cost of
        sales.
 
 ***Pension
        Plan***
 The
        Company’s funding policy for the pension plan is to contribute amounts
        deductible for federal income tax purposes plus such additional amounts,
        if any,
        as the Company’s actuarial consultants advise to be appropriate.  In
        1987 the Company elected to immediately recognize all gains and losses in
        excess
        of the pension corridor, which is equal to the greater of ten percent of
        the
        accumulated pension benefit obligation or ten percent or the market-related
        value of plan assets.
 
 The
        Company accrues normal periodic pension expense or income during the year
        based
        upon certain assumptions and estimates from its actuarial
        consultants.  These estimates and assumptions include discount rate,
        rate of return on plan assets, compensation increases, mortality and employee
        turnover.  In addition, the rate of return on plan assets is directly
        related to changes in the equity and credit markets, which can be very
        volatile.  The use of the above estimates and assumptions, market
        volatility and the Company’s election to immediately recognize all gains and
        losses in excess of its pension corridor in the current year may cause the
        Company to experience significant changes in its pension expense or income
        from
        year to year.  Expense or income that falls outside the corridor is
        recognized only in the fourth quarter of each year.
 
 On
        September 29, 2006, the Financial Accounting Standards Board (“FASB”) issued
        Statement No. 158, *Employers’ Accounting for Defined Benefit Pension and
        Other Postretirement Plans* (“FAS 158”).  FAS 158 requires employers to
        recognize on their balance sheets a liability or an asset equal to the
        under-funded or over-funded status of their defined benefit plans and other
        postretirement benefit plans, respectively.  The Company adopted FAS
        158 as of its fiscal year-end, December 30, 2006.
 
 ***Accounting
        for Derivative Instruments***
 The
        Company has entered into certain variable-to-fixed interest rate swap contracts
        to fix the interest rates on a portion of its variable interest rate
        debt.  These contracts are accounted for as cash flow hedges in
        accordance with FASB Statement No. 133, *Accounting for Derivative
        Instruments and Hedging Activities*.  Accordingly, these
        derivatives are marked to market and the resulting gains or losses are recorded
        in other comprehensive income as an offset to the related hedged asset or
        liability.  The actual interest expense incurred, inclusive of the
        effect of the hedge in the current period, is recorded in the Statement of
        Operations.
 
 ***Treasury
        Stock***
 Treasury
        stock is stated at cost. Cost is determined by the FIFO method.
 
 ***Accounting
        for Income Taxes***
 The
        Company accounts for income taxes under the asset and liability method, in
        accordance with FASB Statement No. 109, *Accounting for Income
        Taxes*.  Deferred tax assets and liabilities are determined based
        on differences between financial reporting and tax bases of assets and
        liabilities and are measured using the enacted tax rates in effect when the
        differences are expected to be recovered or settled.
 -8-


***Net
      Income Per Common Share***


Net
        income
        per common share is presented as basic and diluted earnings per
        share.  Net income per common share – Basic is based on the weighted
        average number of common shares outstanding during the period.  Net
        income per common share – Diluted is based on the weighted average number of
        common shares and dilutive potential common shares outstanding during the
        period.  Dilution is the result of outstanding stock options and
        restricted shares.  For the thirteen weeks ended June 30, 2007 and
        July 1, 2006, 378,146 and 457,646 options to purchase common stock,
        respectively, were excluded from the calculation, as they were anti-dilutive.
        For the twenty-six weeks ended June 30, 2007 and July 1, 2006, approximately
        380,896 and 503,309 options to purchase common stock, respectively, were
        excluded from the calculation, as they were anti-dilutive.
 
 ***Share-based
        Compensation***
 The
        Company accounts for share-based compensation in accordance with FASB Statement
        No. 123(R), *Share-Based Payment* (“FAS 123(R)”).  Share-based
        compensation expense recognized during the current period is based on the
        value
        of the portion of share-based payment awards that is ultimately expected
        to
        vest.  The total value of compensation expense for restricted stock is
        equal to the closing market price of Tasty Baking Company shares on the date
        of
        grant.  FAS 123(R) requires forfeitures to be estimated at the time of
        grant in order to estimate the amount of share-based awards that will ultimately
        vest.  The forfeiture rate is based on the Company’s historical
        forfeiture experience.  The Company calculated its historical pool of
        windfall tax benefits.
 
 ***Recent
        Accounting Statements***
 In
        September 2006, the FASB issued Statement No. 157, *Fair Value
        Measurements* (“FAS 157”), which creates a single definition of fair value,
        along with a conceptual framework to measure fair value and to increase the
        consistency and the comparability in fair value measurements and in financial
        disclosure.  This statement is effective for the 2008 fiscal year,
        although early adoption is permitted.  The Company is currently
        evaluating the extent to which its current practices, financial statements
        and
        disclosures may change as a result of the adoption of FAS 157.
 
 In
        February 2007, the FASB issued Statement No. 159, *The Fair Value Option for
        Financial Assets and Financial Liabilities – Including an Amendment of FASB
        Statement No. 115* (“FAS 159”).  This statement permits, but does
        not require, entities to measure certain financial instruments and other
        assets
        and liabilities at fair value on an instrument-by-instrument basis and is
        irrevocable.  At the adoption date, unrealized gains and losses on
        financial assets and liabilities for which the fair value option has been
        elected would be reported as a cumulative adjustment to beginning retained
        earnings. Unrealized gains and losses due to changes in their fair value
        must be
        recognized in earnings at each subsequent reporting date.  This
        statement is effective for fiscal years beginning after November 15,
        2007.  The Company is currently evaluating the extent to which its
        current practices, financial statements and disclosures may change as a result
        of the adoption of FAS 159.
 
 **2.      New
        Facilities**
 
 On
        May 9,
        2007 the Company announced that as part of its comprehensive operational
        review
        of strategic manufacturing alternatives, it entered into an agreement to
        relocate its Philadelphia operations to the Philadelphia Navy
        Yard.  This agreement provides for a 26-year lease for a yet to be
        constructed 345,500 square foot bakery, warehouse and distribution center
        located on approximately 25 acres.  Site preparation has begun and
        construction is expected to be completed by the end of 2009.  The
        Company expects the new facility to be fully operational in 2010.  The
        lease provides for no rent payments in the first year of
        occupancy.  Rental payments increase from $3.5 million in the second
        year of occupancy to $7.2 million in the final year of the lease.
 
 As
        part of
        this initiative, the Company also entered into a 16-year agreement for $9.5
        million in financing at a fixed rate of 8.54% to be used for leasehold
        improvements.  This agreement provides for no principal or interest
        payments in the first year of occupancy and then requires equal monthly payments
        of principal and interest aggregating to $1.2 million annually over the
        remainder of the term.
  In
        connection with these agreements, the Company is required to provide an initial
        $1 million letter of credit, which will increase to $8 million by the beginning
        of 2009.  The outstanding amount of the letter of credit will be
        reduced starting in year 17 and will be eliminated by the end of the lease
        term.
 
 The
        Company also entered into an agreement to relocate its corporate headquarters
        to
        the Philadelphia Navy Yard.  This lease agreement provides for
        approximately 35,000 square feet of office space that commences upon the
        later of substantial completion of the office space or April 2009 which ends
        coterminous with the bakery lease.  The lease provides for no rent
        payment in the first six months of occupancy.  Rental payments
        increase from $0.9 million in the second year of occupancy to $1.6 million
        in
        the final year of the lease.
  -9-


In
      addition to the facility leases, the Company expects to purchase high-tech,
      modern baking equipment.  This equipment is designed to increase
      product development flexibility and efficiency, while maintaining existing
      taste
      and quality standards.  The investment for this project, in addition
      to any costs associated with the agreements described above, is projected to
      be
      approximately $75 million through 2010.  To finance this investment
      and refinance the Company’s existing revolving credit facilities, as well as to
      provide for financial flexibility in running the ongoing operations and working
      capital needs, the Company has received commitments for a $90 million multi-bank
      credit facility and has received approvals for $32 million in low-interest
      development loans provided in part by the Commonwealth of Pennsylvania and
      the
      Philadelphia Industrial Development Corporation.  The Company
      anticipates closing on the credit facility and loans during the third quarter
      of
      2007.


The
        Company anticipates that long-lived assets utilized in the Philadelphia
        operations with an aggregate net book value of approximately $20 million
        at June
        30, 2007 will not be relocated to the new facilities or sold as a result
        of the
        relocation. The Company accounts for disposal and exit activities in accordance
        with FAS 146, *Accounting for Costs Associated with Exit or Disposal
        Activities* (“FAS 146”) and FAS 144, *Accounting for the Impairment or
        Disposal of Long-Lived Assets* (“FAS 144”). To date, the Company has not
        incurred any material obligations related to one-time termination benefits,
        contract termination costs or other associated costs as described in FAS
        146.
 
 The
        Company has re-evaluated the long-lived assets utilized in its Philadelphia
        operations for potential impairment or other treatment in accordance with
        FAS
        144.  Based on the commitment to the planned relocation, neither the
        assets to be relocated nor the assets to be left in place at the Philadelphia
        operations have suffered impairment.  Therefore the estimated fair
        value of the asset groups continues to exceed the carrying amount of such
        asset
        groups.  With respect to the group of assets not expected to be
        relocated or sold and with an aggregate net book value of approximately $20
        million at June 30, 2007, certain of the assets included in the group had
        previously estimated useful lives that extended beyond the expected project
        completion in early 2010.  As such, the Company changed its estimate
        of the remaining useful lives of such assets to be consistent with the time
        remaining until the end of the project, and has accounted for such change
        in
        estimate in accordance with FAS 154, *Accounting Changes and Error
        Corrections, a replacement of APB Opinion No. 20 and FASB Statement No.
        3.*For the thirteen and twenty-six week periods ended June 30,
        2007 the change in estimated useful lives of these assets resulted in
        incremental depreciation of $0.7 million.  The after tax impact of the
        incremental depreciation on net income, net income per common share – basic, and
        net income per common share - diluted was $0.5 million, $0.06 per share,
        and
        $0.06 per share, respectively.  The Company expects that the future
        impact of incremental depreciation resulting from the change in useful lives
        will be approximately $1.3 million per quarter through June 2010, when the
        new
        bakery is expected to be fully operational.
 
 As
        part of
        the relocation of its Philadelphia operations, the Company expects to eliminate
        approximately 215 positions.  While the Company hopes to achieve this
        result through normal attrition and the reduction of contract labor, it is
        probable that the Company will incur obligations related to post employment
        benefits accounted for under FAS 112, *Employers' Accounting for
        Postemployment Benefits, an amendment of FASB Statements No. 5 and
        43*.  Due to uncertainties regarding the extent to which the
        Company will be successful in managing the reductions through normal attrition
        and the reduction of contract labor, the Company cannot reasonably estimate
        the
        amount of such obligations or provide a meaningful range of loss with respect
        to
        such obligations at this time.
 
 **3.      Restructure
          Charges**
 
 From
          fiscal years 2001 to 2005, the Company implemented several strategies that
          resulted in restructuring charges and accrued restructuring
          obligations.  During the twenty-six week period ended July 1, 2006,
          the Company made payments related to restructuring obligations of $202
          and as of
          December 30, 2006 no restructuring obligations remained.
 
 **4.      Inventories**
 
 Inventories
        are classified as follows:
  **June
                    30, 2007**
                
                
                **Dec.
                    30, 2006**Finished
                    goods
                
                $
                1,528
                
                
                $
                1,575Work
                    in progress
                
                
                172
                
                
                
                159Raw
                    materials and supplies
                
                
                4,693
                
                
                
                5,192$
                6,393
                
                
                $
                6,926
  The
          inventory balance has been reduced by reserves for obsolete and slow-moving
          inventories of $105 and $78 as of June 30, 2007 and December 30, 2006,
          respectively.
 -10-


**5.      Credit
        Facility**





On
      September 13, 2005, the Company entered into the Amended and Restated Credit
      Agreement (“Amended Credit Agreement”) to replace its prior credit
      facility.  The Amended Credit Agreement increased the commitment from
      $30 million to $35 million; changed the terms from secured to unsecured;
      extended the maturity from a three-year term to a five-year term expiring in
      September 2010; eliminated the short-term portion and reduced the interest
      rate
      margins and the commitment fees charged to the Company as described in the
      Amended Credit Agreement.  Modifications have also been made to the
      Tangible Net Worth covenant and the Funded Debt covenant that make them less
      restrictive.  Interest rates in the Amended Credit Agreement are
      indexed to LIBOR based upon the Company’s ratio of debt to EBITDA and rates may
      decrease up to 50 basis points based on that ratio.  Commitment fees
      are charged on the unused portion of the commitment and range from 10 to 25
      basis points based upon the same ratio used to determine interest
      rates.  The proceeds from the Amended Credit Agreement will be used
      for general corporate purposes and such other uses as permitted.





On
      September 13, 2005, the Company also entered into a term loan for $5.3
      million.  The term loan is based upon a 15 year amortization with a
      scheduled maturity in five years due in September 2010.  The terms and
      conditions of the term loan are generally the same as those in the Amended
      Credit Agreement.  The entire proceeds of the term loan were used to
      fund a voluntary contribution to the defined benefit pension plan (the “DB
      Plan”).





On
      December 19, 2005, the Company also entered into a mortgage loan of $2.15
      million which is secured by the Philadelphia manufacturing facility (“Hunting
      Park Bakery”) as collateral, and a second term loan for $2.55 million to fund
      the purchase of the Hunting Park Bakery building and land for a total purchase
      price of $4.7 million from the Company’s DB Plan.  The mortgage loan
      is based upon a 20 year amortization with a scheduled maturity in ten years
      due
      in December 2015.  The term loan is based upon a 15 year amortization
      with a scheduled maturity in five years due in September 2010.  The
      terms and conditions of the mortgage loan and the term loan are generally the
      same as those in the Amended Credit Agreement.





In
      order
      to hedge a portion of the Company’s exposure to changes in interest rates the
      Company entered into a five-year $6 million interest rate swap on August 3,
      2005, with a fixed LIBOR rate of 4.64%.  The Company also entered into
      two five-year interest rate swaps for its term loans for $5.3 and $2.55 million
      on September 13 and December 21, 2005 with fixed LIBOR rates of 4.42% and 4.99%,
      respectively.  Also on December 21, 2005 the Company entered into a
      ten-year $2.15 million interest rate swap for its mortgage loan with a fixed
      LIBOR rate of 5.08%.  The LIBOR rates above are subject to an
      additional credit spread which can range from 75 basis points to 140 basis
      points.  In June 2007, in connection with the planned relocation of
      the Company’s Philadelphia operations and the related financing, the Company
      sold the August 3, 2005 and September 13, 2005 interest rate
      swaps.  The effect of these sales was to reduce interest expense for
      both the thirteen and twenty-six week periods ended June 30, 2007 by
      approximately $0.2 million.





The
      Company has received commitments for a $90 million multi-bank credit facility
      and has received approvals for $32 million in low interest development loans
      provided in part by the Commonwealth of Pennsylvania and the Philadelphia
      Industrial Development Corporation to finance its strategic manufacturing
      initiatives, refinance the Company’s existing revolving credit facilities, as
      well as to provide for financial flexibility in running the ongoing operations
      and working capital needs.  The Company anticipates closing on the
      credit facility and loans during the third quarter of 2007.


**6.      Defined
        Benefit Retirement Plans**





The
      Company maintains a partially funded noncontributory DB Plan providing
      retirement benefits.  Benefits under this DB Plan generally are based
      on the employees’ years of service and compensation during the years preceding
      retirement. The Company maintains a defined benefit salaried employee retirement
      plan (the “DB SERP”) for key employees designated by the Board of Directors,
      however, there are no current employees earning benefits under this
      plan.  See Note 9 for more information.  The Company also
      maintains an unfunded Directors’ Retirement Plan.  The benefit amount
      is the annual retainer in the year of retirement.




-11-


Effective
      February 15, 2007, benefits accruals under the Directors’ Retirement Plan were
      frozen for current directors and future directors were precluded from
      participating in the plan.  Participants are credited for service
      under the Directors’ Retirement Plan after February 15, 2007 solely for vesting
      purposes.  On February 15, 2007, the Board of Directors approved a
      Deferred Stock Unit Plan (the “DSU Plan”).  The DSU Plan provides that
      for each fiscal quarter, the Company will credit deferred stock units (“DSUs”)
      to the director’s account equivalent in value to $4 on the last day of such
      quarter, provided that he or she is a director on the last day of such
      quarter.  Directors will be entitled to be paid shares in an amount
      equal to the aggregate DSUs in the director’s account upon termination of Board
      service provided the director has at least five years of continuous service
      on
      the Board.  The shares may be paid out in a lump sum or at the
      director’s election, over a period of five years.





In
      December 2004, the Company announced to its employees that it was amending
      the
      DB Plan to freeze benefit accruals effective March 26,
      2005.  Effective March 27, 2005, the Company adopted a new company
      funded defined contribution plan (the “DC Plan”) which is a defined contribution
      benefit that replaces the benefit provided in the DB Plan.  See Note 7
      in the financial statements.





The
      components of the DB Plan, DB SERP, and DB Directors’ Retirement Plan’s costs
      are summarized as follows:




**Thirteen
                  Weeks
                  Ended**
              
              
              **Twenty-six
                  Weeks
                  Ended****6/30/07**
              
              
              **7/1/06**
              
              
              **6/30/07**
              
              
              **7/1/06**Service
                  cost-benefits earned during the quarter
              
              $
              5
              
              
              $
              6
              
              
              $
              10
              
              
              $
              12Interest
                  cost on projected benefit obligation
              
              
              1,245
              
              
              
              1,242
              
              
              
              2,488
              
              
              
              2,484Expected
                  return on plan assets
              
              
              (1,298
              )
              
              
              (1,269
              )
              
              
              (2,604
              )
              
              
              (2,534
              )Prior
                  service cost amortization
              
              
              (5
              )
              
              
              (4
              )
              
              
              (9
              )
              
              
              (8
              )Actuarial
                  loss recognition
              
              
              17
              
              
              
              -
              
              
              
              33
              
              
              
              -SERP
                  amendment
              
              
              -
              
              
              
              26
              
              
              
              -
              
              
              
              52Net
                  DB pension amount charge to income
              
              $
              (36
              )
              
              $
              1
              
              
              $
              (82
              )
              
              $
              6




**7.      Defined
          Contribution Retirement Plans**
 
 The
        Company maintains a funded retirement DC Plan, which is a defined contribution
        benefit plan that replaced the benefits provided in the DB
        Plan.  Under the DC Plan, the Company makes weekly cash contributions
        into individual accounts for all eligible employees.  These
        contributions are based on employees’ point values which are the sum of age and
        years of service as of January 1 each year.  All employees receive
        contributions that range from 2% to 5% of eligible compensation relative
        to
        their point totals.  Employees at March 27, 2005, who had 20 years of
        service or 10 years of service and 60 points, received an additional
“grandfathered” contribution of between 1.5% and 3.5% of salary.  The
“grandfathered” contribution percentage was fixed as of March 27, 2005, and is
        paid weekly with the regular contribution until those covered employees retire
        or separate from the Company.  These “grandfathered” contributions are
        being made to compensate older employees for the shorter earnings period
        that
        their accounts will have to appreciate in value relative to their normal
        retirement dates.
 
 The
        Company also maintains the Tasty Baking Company 401(k) and Company Funded
        Retirement Plan (“Retirement Plan”).  In the Retirement Plan, all
        participants receive a company match of 50% of their elective deferrals that
        do
        not exceed 4% of their compensation as defined in the Retirement
        Plan.  Under the Retirement Plan, the waiting period for participation
        has been eliminated and participants are offered a broad array of investment
        choices.
 
 The
        Company also maintains an unfunded defined contribution SERP (“DC SERP”) for one
        eligible active employee.
 
 Components
        of DC pension amount charged to income:
  **Thirteen
                    Weeks
                    Ended**
                
                
                **Twenty-Six
                    Weeks Ended****6/30/07**
                
                
                **7/1/06**
                
                
                **6/30/07**
                
                
                **7/1/06**Funded
                    retirement plan
                
                $
                464
                
                
                $
                455
                
                
                $
                980
                
                
                $
                935Defined
                    contribution SERP
                
                
                90
                
                
                
                71
                
                
                
                180
                
                
                
                142Net
                    DC pension amount charge to income
                
                $
                554
                
                
                $
                526
                
                
                $
                1,160
                
                
                $
                1,077
  **8.      Postretirement
            Benefits Other than Pensions**
 
 In
          addition to providing pension benefits, the Company also provides certain
          unfunded health care and life insurance programs for substantially all
          retired
          employees, or Other Postretirement Benefits (OPEB).  These benefits
          are provided through contracts with insurance companies and health service
          providers.  In 2005, the Company amended the medical benefits paid for
          retirees by eliminating coverage for most post-65 retirees as of January
          1,
          2006.  Coverage is maintained for all pre-65 retirees and for certain
          post-65 retirees who had qualifying dependents that were
          pre-65.  Simultaneous with the change in medical coverage, life
          insurance for incumbent retirees at company group rates was capped at $20
          of
          coverage.  Incumbent retirees who purchase coverage in excess of $20
          and all new retirees after January 1, 2006 pay age-based rates for their
          life
          insurance benefit.
  -12-


Components
      of net periodic postretirement benefit cost/(benefit):




**Thirteen
                  Weeks
                  Ended**
              
              
              **Twenty-Six
                  Weeks Ended****6/30/07**
              
              
              **7/1/06**
              
              
              **6/30/07**
              
              
              **7/1/06**Service
                  cost
              
              $
              67
              
              
              $
              63
              
              
              $
              134
              
              
              $
              125Interest
                  cost
              
              
              92
              
              
              
              90
              
              
              
              185
              
              
              
              181Amortization
                  of unrecognized prior service cost
              
              
              (457
              )
              
              
              (411
              )
              
              
              (915
              )
              
              
              (822
              )Amortization
                  of unrecognized gain
              
              
              (29
              )
              
              
              (29
              )
              
              
              (58
              )
              
              
              (59
              )Total
                  FAS 106 net postretirement benefit
              
              $
              (327
              )
              
              $
              (287
              )
              
              $
              (654
              )
              
              $
              (575
              )




Estimated
        company contributions for the twenty-six weeks ended June 30, 2007 and July
        1,
        2006 were $302 and $312, respectively.
 **9.      Stock
          Compensation**
 
 At
        the
        2006 Annual Meeting of Shareholders of the Company held on May 11, 2006,
        the
        Company's shareholders approved the Tasty Baking Company 2006 Long-Term
        Incentive Plan (the "2006 Plan") as adopted by the Company's Board of Directors
        (the "Board") on March 24, 2006.  The aggregate number of shares
        available for grant under the 2006 Plan is 293,258 shares of the Company’s
        common stock.
 
 The
        2006
        Plan authorizes the Compensation Committee (the "Committee") of the Board
        to
        grant awards of stock options, stock appreciation rights, unrestricted stock,
        restricted stock (“RSA”) (including performance restricted stock) and
        performance shares to employees, directors and consultants or advisors of
        the
        Company.  The option price is determined by the Committee and, in the
        case of incentive stock options, will be no less than the fair market value
        of
        the shares on the date of grant.  Options lapse at the earlier of the
        expiration of the option term specified by the Committee (not more than ten
        years in the case of incentive stock options) or three months following the
        date
        on which employment with the Company terminates.
 
 The
        Company also has active 2003 and 1997 Long-Term Incentive Plans.  The
        aggregate number of shares available for grant under the 2003 plan is 60,044
        and
        under the 1997 plan is 107,047.  The terms and conditions of the 2003
        and 1997 plans are generally the same as the 2006 Plan.  A notable
        difference is that the 1997 plan can award shares only to employees of the
        Company while the 2003 plan can award shares to employees and directors of
        the
        Company.  The Company also has options outstanding under the 1994 Long-Term
        Incentive Plan, the terms and conditions of which are similar to the 1997
        Long-Term Incentive Plan.
 
 On
        December 16, 2005, the Board and the Committee approved the acceleration
        of
        vesting of all outstanding, unvested stock options previously awarded to
        the
        Company’s employees, officers (including executive officers) and directors under
        the Company’s 1994, 1997 and 2003 Long-Term Incentive Plans.  All
        other terms and conditions applicable to these stock options, including exercise
        prices and holding period requirements, remain unchanged.  All
        unvested stock options were “out-of-the-money” as of the closing stock price on
        December 16, 2005, with a range of exercise prices from $7.55 to $11.30 per
        share.  As a result of the acceleration, stock options to acquire
        approximately 173,167 shares of the Company’s common stock became exercisable on
        December 31, 2005, 85% of which were scheduled to vest during
        2006.  Of the total number of shares underlying the accelerated stock
        options, approximately 27,998 were held by directors and 114,394 were held
        by
        executive officers.  The Company had previously imposed a five-year
        holding period requirement on any shares obtained through the exercise of
        options awarded on or after August 7, 2003, which was expected to prevent
        unintended benefits to the holders of the majority of these stock options
        as a
        result of the accelerated vesting.  Only 35,000 of the options are not
        subject to this requirement, with the lowest exercise price on those options
        set
        at $8.60 per share.
  -13-


The
      purpose of the accelerated vesting was to enable the Company to avoid
      recognizing compensation expense associated with the stock options in future
      periods as required by FAS 123(R), *Share Based Payment*, which the
      Company adopted by January 1, 2006.  As a result of the acceleration
      of vesting, the Company reduced the non-cash, pre-tax compensation expense
      it
      would otherwise have been required to record by approximately $410 over the
      original option vesting period, including approximately $360 in fiscal
      2006.





Notwithstanding
      the vesting and termination provisions described above, under the terms of
      the
      Change of Control Agreements and Employment Agreements that the Company entered
      into with certain executive officers, upon a change of control, the shares
      granted as RSAs vest and any restrictions on outstanding stock options lapse
      immediately.  Additionally, under the terms of those agreements, in
      certain change of control circumstances, shares granted as RSAs may vest after
      termination of employment.





A
      summary
      of stock options as of June 30, 2007 is presented below:




**Shares
                  (000’s)**
              
              
              **Weighted-Average**
                  **Exercise
                    Price**
              
              
              **Weighted-Average**
                **Remaining
                  Contractual Term**
              
              
              **Aggregate
                  Instrinsic Value (000s)**Outstanding
                  at December 30, 2006
              
              
              456
              
              
              $
              10.52Granted
              
              
              -
              
              
              
              -Forfeited
              
              
              (5
              )
              
              
              10.78Exercised
              
              
              -
              
              
              
              -Outstanding
                  at March 31, 2007
              
              
              451
              
              
              $
              10.52
              
              
              
              5.55
              
              
              $
              1,087Granted
              
              
              -
              
              
              
              -Forfeited
              
              
              (5
              )
              
              
              10.78Exercised
              
              
              -
              
              
              
              -Outstanding
                  at June 30, 2007
              
              
              446
              
              
              $
              10.52
              
              
              
              5.31
              
              
              $
              1,075Options
                  exercisable at March 31, 2007
              
              
              451
              
              
              $
              10.52
              
              
              
              5.55
              
              
              $
              1,087Options
                  exercisable at June 30, 2007
              
              
              446
              
              
              $
              10.52
              
              
              
              5.31
              
              
              $
              1,075




As
        of June
        30, 2007, there was no unrecognized compensation related to nonvested stock
        options.  For the twenty-six weeks ended June 30, 2007, there were no
        options granted and there was no cash received from option
        exercises.  There was no compensation expense recognized in the
        Condensed Consolidated Statements of Operations for stock options in the
        twenty-six weeks ended June 30, 2007 and July 1, 2006.
 
 The
        Company recognizes expense for restricted stock using the straight-line method
        over the requisite service period.  A summary of the restricted stock
        as of June 30, 2007 is presented below:




**Shares
                  (000’s)**
              
              
              **Weighted–Average**
                **Fair
                  Value**Nonvested
                  at December 30, 2006
              
              
              180
              
              
              $
              7.65Granted
              
              
              50
              
              
              
              8.70Forfeited
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -Nonvested
                  at June 30, 2007
              
              
              230
              
              
              $
              7.88




As
        of June
        30, 2007, there was $1,093 of unrecognized compensation cost related to
        nonvested restricted stock which is expected to be recognized over a
        weighted-average period of approximately 3.06 years.
 
 **10.           Income
          Taxes**
 
 In
        June
        2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), *Accounting for
        Uncertain Tax Positions, an Interpretation of FAS 109.*FIN 48 establishes a
        single model to address accounting for uncertain tax positions.  FIN
        48 clarifies the accounting for income taxes by prescribing a minimum
        recognition threshold a tax position is required to meet before being recognized
        in the financial statements.  FIN 48 also provides guidance on
        derecognition, measurement classification, interest and penalties, accounting
        in
        interim periods, disclosure and transition.  Upon adoption, the
        Company increased its reserves for uncertain tax positions by recognizing
        a
        charge of approximately $631 to the December 31, 2006 beginning retained
        earnings balance.
  -14-






At
        the
        adoption date of December 31, 2006, the Company had $835 of unrecognized
        tax
        benefits, including $402 of interest and penalties, all of which would affect
        the effective tax rate if recognized.  At June 30, 2007, the Company
        has $907 of unrecognized tax benefits, $226 of which are presented as a
        reduction in deferred tax assets.  The Company recognizes potential
        interest and penalties related to unrecognized tax benefits in income tax
        expense, and at June 30, 2007, had $399 of interest and penalties included
        as a
        component of unrecognized tax benefits.
 
 The
        Company is subject to U.S. federal income tax as well as income tax of multiple
        state jurisdictions. The Company has substantially concluded all U.S. federal
        income tax matters for years through 2002. Substantially all material state
        income tax matters have been concluded through 2001.  Currently there
        are no ongoing income tax audits for any of the tax years that remain open
        to
        examination by various taxing jurisdictions.  The Company does not
        anticipate that total unrecognized tax benefits will significantly change
        due to
        the expiration of the statute of limitations with respect to any open tax
        year
        prior to June 30, 2008.
 
 
 **11.           Comprehensive
          Income/(Loss)**
  Total
        comprehensive income, net of taxes, is comprised as follows:
  **Thirteen
                    Weeks
                    Ended**
                
                
                **Twenty-Six
                    Weeks Ended****6/30/07**
                
                
                **7/1/06**
                
                
                **6/30/07**
                
                
                **7/1/06**Net
                    income
                
                $
                944
                
                
                $
                1,135
                
                
                $
                1,820
                
                
                $
                2,089Other
                    comprehensive income / (loss)Pension
                    plan
                
                
                7
                
                
                
                —
                
                
                
                14
                
                
                
                —Other
                    postretirement benefits
                
                
                (254
                )
                
                
                —
                
                
                
                (546
                )
                
                
                —Change
                    in unrealized gain / (loss)on
                    derivative instruments
                
                
                (1
                )
                
                
                191
                
                
                
                (30
                )
                
                
                300Total
                    other comprehensive income / (loss)
                
                
                (248
                )
                
                
                191
                
                
                
                (562
                )
                
                
                300Total
                      comprehensive income
                
                $
                696
                
                
                $
                1,326
                
                
                $
                1,258
                
                
                $
                2,389The
                    following table summarizes the components of accumulated other
                    comprehensive income / (loss), net of tax:**June
                    30,**
                
                
                **December
                    30,****2007**
                
                
                **2006**Pension
                    Plan
                
                
                
                
                
                
                
                
                
                $
                (3,497
                )
                
                $
                (3,511
                )Unrealized
                    gain / (loss) on derivative instruments
                
                
                
                
                
                
                
                
                
                
                54
                
                
                
                84Other
                    postretirement benefits
                
                
                
                
                
                
                
                
                
                
                4,877
                
                
                
                5,423Total
                    comprehensive income
                
                
                
                
                
                
                
                
                
                $
                1,434
                
                
                $
                1,996
  -15-
  **Item
        2.****Management’s Discussion
        and Analysis of Financial Condition and Results of
        Operation**
 ($'s
        in
        000’s, except share and per share amounts unless otherwise noted)
 All
        disclosures are pre-tax, unless otherwise noted.
 
 **Results
        of Operations**
  **For
        the Thirteen Weeks ended June 30, 2007 and July 1, 2006**
 
 **Overview**
 
 Net
        income
        for the second quarter of 2007 was $944 or $0.12 per fully-diluted
        share.  Net income included $0.5 million or $0.06 per common share of
        after tax impact of incremental depreciation resulting from a change in the
        estimated useful lives of certain assets at the Company’s Philadelphia
        operations.  The change in estimated useful lives resulted from the
        Company’s plans to move from its present facilities.  Net income for
        the second quarter of 2006 was $1,135 or $0.14 per fully-diluted
        share.  Net income decreased $191, or 16.8%, and earnings per share
        decreased $0.02, or 14.3%, compared to the same quarter last year.
 
 **Sales**
 
 Gross
        sales and net sales increased 3.1% and 2.9%, respectively in the second quarter
        of 2007 versus the same period in the prior year due to a 3.2% volume
        increase.  Route net sales increased 3.9% versus the same period in
        2006, primarily driven by family pack sales.  Non-route net sales were
        level versus the same period a year ago primarily as a result of slightly
        lower
        sales with existing direct customers offset by sales gains with new third-party
        distributors.
 
 **Cost
        of Sales**
 
 Cost
        of
        sales for the second quarter of 2007 increased 5.8% versus the second quarter
        of
        2006.  The increase in cost of sales resulted from higher sales volume
        and, more significantly, by a 14% increase in variable manufacturing expenses,
        which was primarily driven by industry-wide cost increases for certain key
        ingredients, including dairy, eggs and oils.  The increase in variable
        manufacturing expense was partially offset by a 10% reduction in fixed
        manufacturing expense in the quarter due to lower employee-related costs,
        due in
        part to changes in the Company’s employee benefit plans.
 
 **Gross
        Margin**
  Gross
        margin decreased 3.3 percentage points to 32.7% of net sales in the second
        quarter of 2007 compared to the second quarter of 2006.  The decline
        in gross margin was partly attributable to the $710 in incremental depreciation
        resulting from a change in the estimated useful lives of certain assets at
        the
        Company’s Philadelphia operations related to the Company’s plans to move from
        its present facilities.  The incremental depreciation resulted in a
        1.6 percentage point reduction in gross margin.  The increased cost of
        commodities also negatively impacted gross margin as did an unfavorable product
        mix shift compared to the same quarter of 2006.
 
 **Selling,
        General and Administrative Expenses**
 
 Selling,
        general and administrative expenses for the second quarter of 2007 decreased
        to
        29.6% of net sales, compared to 31.5% of net sales in the second quarter
        of
        2006.  The decrease was driven by lower freight and employee-related
        expenses, partially offset by a 13.6% increase in marketing expense associated
        with the company’s brand development efforts, including a new television
        advertising campaign.
 
 **Non-Operating
        Items**
 
 Interest
        expense decreased by $288, or 69.9%, in the second quarter of 2007 compared
        to
        the second quarter of 2006.  The decrease was due to a $196 gain on
        the sale of certain interest rate swaps resulting from changes in the Company’s
        underlying debt structure as part of the financing of the new manufacturing
        plant, combined with lower borrowing levels resulting from improved cash
        flow
        and working capital.   The Company is exposed to market risk
        relative to its interest expense as its notes payable and long-term debt
        have
        floating interest rates that vary with the conditions of the credit
        market.
 
 Other
        income, net, decreased by $72 in the second quarter of 2007 compared to the
        second quarter of 2006.
  -16-
  The
        effective income tax rate for state and federal taxes was 34.4% and 36.2%
        for
        the thirteen weeks ended June 30, 2007 and July 1, 2006,
        respectively.
 
 **For
        the Twenty-six Weeks ended June 30, 2007 and July 1, 2006**
 
 **Overview**
 
 Net
        income
        for the first twenty-six weeks ended June 30, 2007, was $1,820 or $0.22 per
        fully-diluted share.  Net income included $0.5 million or $0.06 per
        common share of after tax impact of incremental depreciation resulting from
        a
        change in the estimated useful lives of certain assets at the Company’s
        Philadelphia operations.  The change in estimate useful lives resulted
        from the Company’s plans to move from its present facilities. Net income for the
        first twenty-six weeks ended July 1, 2006, was $2,089 or $0.25 per fully-diluted
        share.  Net income decreased $269, or 12.0%, and earnings per share
        decreased $0.03, or 11.6%, compared to the same period last year.
 
 **Sales**
 
 Gross
        sales and net sales increased 2.3% and 3.1%, respectively in the first
        twenty-six weeks of 2007 versus the same period in the prior year due to
        a 3.4%
        volume increase.  Route net sales increased 2.1% versus the same
        period in 2006 driven by increased family pack sales.  Non-route net
        sales increased 6.4% versus the same period a year ago primarily driven by
        expanded distribution among third-party distributors and also impacted by
        growth
        within existing direct customers.
 
 **Cost
        of Sales**
 
 Cost
        of
        sales for the first twenty-six weeks of 2007 increased 5.0% versus the same
        period a year ago.  The increase in cost of sales was primarily caused
        by industry-wide cost increases for certain ingredients, including sugar,
        eggs,
        dairy, oils and other commodity costs.  This increase was partially
        offset by the benefit from a $232 recovery of certain insurance claims as
        well
        as by lower employee related expenses, due in part to changes in the Company’s
        employee benefit plans.
 
 **Gross
        Margin**
 
 Gross
        margin decreased 2.0% in the first twenty-six weeks of 2007 compared to the
        same
        period of 2006.  This decrease was driven by $710 in incremental
        depreciation resulting from a change in the estimated useful lives of certain
        assets at the Company’s Philadelphia operations combined with the increase in
        cost of goods sold, which were partially offset by higher sales volumes and
        improved net sales realization.
 
 **Selling,
        General and Administrative Expenses**
 
 Selling,
        general and administrative expenses for the first twenty-six weeks of 2007
        decreased to 29.7% of net sales, compared to 30.8% of net sales in the first
        twenty-six weeks of 2006.  Towards the end of the first quarter and
        through the second quarter of 2007, the Company launched a new television
        advertising campaign aimed at supporting the Company’s brands and new products
        and at increasing sales volumes.   The costs associated with this
        campaign were more than offset by reductions in the cost of freight as well
        as
        by lower employee related costs.
 
 **Non-Operating
        Items**
 
 Interest
        expense decreased by $348, or 44.2%, in the first twenty-six weeks of 2007
        compared to the first twenty-six weeks of 2006.  This decrease was due
        to the sale of certain interest rate swaps resulting from changes in the
        Company’s underlying debt structure as part of the financing of the new
        manufacturing plant, combined with lower borrowing levels resulting from
        improved cash flow and working capital, as well as from $1,600 in cash received
        from Keystone Redevelopment Partners, LLC for an option agreement that
        terminated in the fourth quarter of 2006.  The Company is exposed to
        market risk relative to its interest expense as its notes payable and long-term
        debt have floating interest rates that vary with the conditions of the credit
        market.
 
 Other
        income, net, decreased by $91 in the first twenty-six weeks of 2007 compared
        to
        the same period of 2006.
 
 The
        effective income tax rate for state and federal taxes was 36.0% and 36.8%
        for
        the twenty-six weeks ended June 30, 2007 and July 1, 2006,
        respectively.
  -17-
  **Liquidity
        and Capital Resources**
 
 Current
        assets at June 30, 2007, were $31,072 compared to $29,161 at December 30,
        2006.  Current liabilities at June 30, 2007, were $19,284 compared to
        $19,791 at December 30, 2006.  The increase in current assets was
        primarily driven by an increase in receivables of $2,008, resulting from
        higher
        sales as well as an increase in prepayments and other of $377, offset by
        a $533
        reduction in inventory.  The $507 decrease in current liabilities was
        driven by a reduction in obligations associated with employee related
        costs.
 
 On
        May 9,
        2007 the Company announced that as part of its comprehensive operational
        review
        of strategic manufacturing alternatives, it entered into an agreement to
        relocate its Philadelphia operations to the Philadelphia Navy
        Yard.  This agreement provides for a 26-year lease for a yet to be
        constructed 345,500 square foot bakery, warehouse and distribution center
        located on approximately 25 acres.  Site preparation has begun and
        construction is expected to be completed by the end of 2009.  The
        Company expects the new facility to be fully operational in 2010.  The
        lease provides for no rent payments in the first year of occupancy. Rental
        payments increase from $3.5 million in the second year of occupancy to $7.2
        million in the final year of the lease.
 
 As
        part of
        this initiative, the Company also entered into a 16-year agreement for $9.5
        million in financing at a fixed rate of 8.54% to be used for leasehold
        improvements.  This agreement provides for no principal or interest
        payments in the first year of occupancy and then requires equal monthly payments
        of principal and interest aggregating $1.2 million annually over the remainder
        of the term.
  In
        connection with these agreements, the Company is required to provide an initial
        $1 million letter of credit, which will increase to $8 million by the beginning
        of 2009.  The outstanding amount of the letter of credit will be
        reduced starting in year 17 and will be eliminated by the end of the lease
        term.
 
 The
        Company also entered into an agreement to relocate its corporate headquarters
        to
        the Philadelphia Navy Yard.  This lease agreement provides for
        approximately 35,000 square feet of office space that commences upon the
        later
        of substantial completion of the office space or April 2009, and which ends
        coterminus with the new bakery lease.  The lease provides for no rent
        payment in the first six months of occupancy.  Rental payments
        increase from $0.9 million in the second year of occupancy to $1.6 million
        in
        the final year of the lease.
 
 In
        addition to the facility leases, the Company expects to purchase high-tech,
        modern baking equipment.  This equipment is designed to increase
        product development flexibility and efficiency, while maintaining existing
        taste
        and quality standards.  The investment for this project, in addition
        to any costs associated with the agreements described above, is projected
        to be
        approximately $75 million through 2010.  To finance this investment
        and refinance the Company’s existing revolving credit facilities, as well as to
        provide for financial flexibility in running the ongoing operations and working
        capital needs, the Company has received commitments for a $90 million multi-bank
        credit facility and has received approvals for $32 million in low interest
        development loans provided in part by the Commonwealth of Pennsylvania and
        the
        Philadelphia Industrial Development Corporation.  The Company
        anticipates closing on the credit facility and loans during the third quarter
        of
        2007.   The Company's receipt of the funding for its relocation
        plan outlined above and the equipment purchases contemplated by it is subject
        to
        various conditions and requirements imposed by the lenders. There can be
        no
        assurance that the Company will satisfy each such condition and thereby obtain
        all of the loan funds it is seeking. If any substantial portion of the expected
        loans is not made available to the Company, it may not be able to proceed
        with
        its relocation plan.
 
 **Cash
        and Cash Equivalents**
 
 Historically,
        the Company has been able to generate sufficient amounts of cash from
        operations.  Bank borrowings are used to supplement cash flow from
        operations during periods of cyclical shortages.  A credit facility is
        maintained with two banks and certain capital and operating leases are
        utilized.
 
 Book
        overdrafts are recorded within current liabilities.  Cash flows
        associated with book overdrafts are classified as financing
        activities.
 
 On
        September 13, 2005, the Company entered into the Amended Credit Agreement
        to
        replace its prior credit facility.  This Amended Credit Agreement is
        committed until September 2010 in the amount of $35 million, and it eliminated
        the short-term portion of the prior credit facility.  On September 13,
        2005, the Company also entered into a term loan for $5.3 million.  The
        entire proceeds of the term loan were used to fund a voluntary contribution
        to
        the Company’s previously frozen Defined Benefit Pension Plan.  On
        December 19, 2005, the Company entered into a mortgage loan for $2.15 million
        and a second term loan for $2.55 million in order to fund the purchase of
        the
        Hunting Park Bakery building and land for $4.7 million from the Defined Benefit
        Pension Plan.
  -18-
  On
        August
        3, 2005, in order to hedge a portion of the Company’s exposure to changes in
        interest rates the Company entered into a five-year $6 million interest rate
        swap with a fixed LIBOR rate of 4.64%.  The Company also entered into
        two five-year interest rate swaps for its term loans for $5.3 and $2.55 million
        on September 13 and December 21, 2005 with fixed LIBOR rates of 4.42% and
        4.99%,
        respectively.  Also on December 21, 2005, the Company entered into a
        ten- year $2.15 million interest rate swap for its mortgage loan with a fixed
        LIBOR rate of 5.08%.  In June 2007, in connection with the Company’s
        strategic manufacturing initiative and the related financing, the Company
        sold
        the August 3, 2005 and September 13, 2005 interest rate swaps at a gain of
        $196.   The total notional amount for the remaining swaps is $4.3
        million, and the LIBOR rates above are subject to an additional credit spread
        which can range from 75 basis points to 140 basis points.  It is
        expected that a one percentage point increase in interest rates for the portion
        of outstanding debt not covered by swaps would result in additional quarterly
        expense of approximately $37.
 
 Net
        cash
        used for operating activities totaled $3,207, mainly due to an increase in
        working capital of $2,221.  The increase in working capital was
        primarily due to increases in trade receivables of $2,156 resulting from
        higher
        sales.
 
 Net
        cash
        used for investing activities for the twenty-six weeks ended June 30, 2007
        was
        $2,499, primarily consisting of $2,608 for capital expenditures.
 
 Net
        cash
        used for financing activities for the twenty-six weeks ended June 30, 2007
        totaled $649, primarily driven by dividend payments of $824.
 
 The
        Company anticipates that for the foreseeable future cash flow from operations,
        along with availability from the multi-bank and public financings described
        above in “Liquidity and Capital Resources,” will provide sufficient cash to
        allow the Company to execute upon the relocation of its Philadelphia operations
        as well as meet its other operating requirements.  The Company
        anticipates capital expenditures of approximately $22 million for fiscal
        2007,
        $16 million of which are expenditures associated with the Company’s new
        manufacturing facility.
 
 **Critical
        Accounting Policies and Estimates**
  Management’s
        Discussion and Analysis of Financial Condition and Results of Operations
        is
        based on the condensed consolidated financial statements and accompanying
        notes
        that have been prepared in conformity with GAAP. The preparation of such
        condensed consolidated financial statements requires management to make
        estimates and assumptions that affect the reported amounts of 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.  Actual results could differ from those
        estimates.
  Included
        in the Company’s Annual Report on Form 10-K for fiscal 2006 are the significant
        accounting policies of the Company, which are described in Note 1 to the
        consolidated financial statements, and the critical accounting estimates,
        which
        are described in the Management’s Discussion and Analysis of Financial Condition
        and Results of Operations in the 2006 Form 10-K.  Information
        concerning the Company’s implementation and impact of new accounting standards
        is included in Note 1 of the condensed consolidated financial statements
        included herein.  Otherwise, there were no changes in the Company’s
        critical accounting policies and estimates in the first twenty-six weeks
        of 2007
        which had a material impact on the Company’s financial condition, change in
        financial condition, liquidity or results of operations.
 
 **Contractual
        Obligations**
 
 Information
        regarding the Company’s contractual obligations is included in Item 7,
        Management’s Discussion and Analysis of Financial Condition and Results of
        Operations, of the Company’s 2006 Form 10-K.  During the periods ended
        June 30, 2007, there were no material changes to the Company’s contractual
        obligations outside the ordinary course of business, other than obligations
        related to the agreements entered into as part of the Company’s strategic
        manufacturing initiative and obligations related to income taxes accounted
        for
        under FIN 48, as described in Notes 2 and 10, respectively, to the Company’s
        condensed consolidated financial statements included elsewhere
        herein.
  -19-
  **Forward-Looking
          Statements**
 
 Statements
          contained in this Quarterly Report on Form 10-Q, including but not limited
          to
          those under the headings  “Risk Factors” and “Management’s Discussion
          and Analysis,” contain "forward-looking statements" within the meaning of the
          Private Securities Litigation Reform Act of 1995, and are subject to the
          safe
          harbor created by that Act. Such forward-looking statements are based upon
          assumptions by management, as of the date of this Report, including assumptions
          about risks and uncertainties faced by the Company.  These
          forward-looking statements can be identified by the use of words such as
          "anticipate,'' "believe,'' "could,'' "estimate,'' "expect,'' "intend,''
          "may,''
          "plan,'' "predict,'' "project,'' "should,'' "would,'' "is likely to,''
          or "is
          expected to'' and other similar terms.  They may include comments
          about relocating operations and the funding thereof, legal proceedings,
          competition within the baking industry, concentration of customers, commodity
          prices, consumer preferences, long-term receivables, inability to develop
          brand
          recognition in the Company’s expanded markets, production and inventory
          concerns, employee productivity, loss of one or both of the Company’s production
          facilities, availability of capital, fluctuation in interest rates, pension
          expense and related assumptions, changes in long-term corporate bond rates
          or
          asset returns that could affect the recognition of pension corridor expense
          or
          income, governmental regulations, protection of the Company’s intellectual
          property and trade secrets and other statements contained herein that are
          not
          historical facts.
 
 Because
        such forward-looking statements involve risks and uncertainties, various
        factors
        could cause actual results to differ materially from those expressed or implied
        by such forward-looking statements, including, but not limited to, changes
        in
        general economic or business conditions nationally and in the Company’s primary
        markets, the availability of capital upon terms acceptable to the Company,
        the
        availability and pricing of raw materials, the level of demand for the Company’s
        products, the outcome of legal proceedings to which the Company is or may
        become
        a party, the actions of competitors within the packaged food industry, changes
        in consumer tastes or eating habits, the success of business strategies
        implemented by the Company to meet future challenges, the costs to lease
        and
        fit-out a new facility and relocate thereto, the costs and availability of
        capital to fund improvements or new facilities and equipment, the retention
        of
        key employees, and the ability to develop and market in a timely and efficient
        manner new products which are accepted by consumers.  If any of our
        assumptions prove incorrect or should unanticipated circumstances arise,
        our
        actual results could differ materially from those anticipated by such
        forward-looking statements.  The differences could be caused by a
        number of factors or combination of factors, including, but not limited to,
        those factors described in the Company’s 2006 Annual Report on Form 10-K (“2006
        Form 10-K”), “Item 1A, Risk Factors,” as updated below.  There can be
        no assurance that the Company will successfully meet all conditions of the
        lease
        or the financing described herein, or that the change to the new manufacturing
        facility will be successful.  The Company undertakes no obligation to
        publicly revise or update such forward-looking statements, except as required
        by
        law.  Readers are advised, however, to consult any further public
        disclosures by the Company (such as in the Company’s filings with the SEC or in
        Company press releases) on related subjects.
 
 **Item
        3. Quantitative and Qualitative Disclosures about Market
        Risk**
 
 For
        information regarding the Company’s exposure to certain market risk, see Item
        7A, Quantitative and Qualitative Disclosures about Market Risk, in the 2006
        Form
        10-K.  There have been no material changes in the Company’s portfolio
        of financial instruments or market risk exposures from the fiscal 2006 year-end
        to the June 30, 2007 balance sheet included herein.
 
 **Item
        4. Controls and Procedures**
 
 (a)
        Evaluation of Disclosure Controls
        and Procedures
 
 The
        Company maintains disclosure controls and procedures that are designed to
        ensure
        that information required to be disclosed in the Company’s reports filed or
        submitted pursuant to the Securities Exchange Act of 1934, as amended (the
        “Exchange Act”), is recorded, processed, summarized and reported within the time
        periods specified in the Securities and Exchange Commission’s rules and
        forms.  Disclosure controls and procedures include, without
        limitation, controls and procedures designed to ensure at a reasonable assurance
        level that such information is accumulated and communicated to the Company’s
        management, including its Chief Executive Officer and Chief Financial Officer,
        as appropriate, to allow timely decisions regarding required
        disclosure.
 
 Management
        of the Company, including the Chief Executive Officer and Chief Financial
        Officer, conducted an evaluation of the effectiveness of the Company’s
        disclosure controls and procedures (as defined in the Exchange Act Rule
        13a-15(e)) as of June 30, 2007.  Based upon the evaluation, the Chief
        Executive Officer and the Chief Financial Officer concluded that the Company’s
        disclosure controls and procedures were effective as of June 30,
        2007.
  (b)
        Changes in Internal Control over Financial Reporting
 
 During
        the
        thirteen weeks ended June 30, 2007, there have been no changes in the Company’s
        internal control over financial reporting that have materially affected,
        or are
        reasonably likely to materially affect, the Company’s internal control over
        financial reporting.
  -20-
  **TASTY
        BAKING COMPANY AND SUBSIDIARIES**
 
 **PART
        II.  OTHER INFORMATION**
 
 **Item
        1A. Risk Factors**
 
 The
        Company’s 2006 Form 10-K includes a discussion of certain risks
        and uncertainties facing it, including those risk factors that
        could cause its actual results to differ materially from those stated in
        forward-looking statements contained in this Quarterly Report on Form
        10-Q.   The new risk factors presented below should be read in
        conjunction with the risk factors and information disclosed in the Company’s
        2006 Form 10-K.  Solely for purposes of the risk factors in this Item
        1, the terms, “we,” and “us” refer to Tasty Baking Company and its
        subsidiaries.
 
 Indebtedness
        incurred in connection with our strategic manufacturing initiative could
        adversely affect our financial condition
 
 On
        May
        9th, we
        announced that we had entered into agreements to relocate our Philadelphia
        operations.  Higher levels of indebtedness associated with this
        initiative could increase our vulnerability to general adverse economic and
        industry conditions; limit our flexibility in planning for and reacting to
        changes in our business and the industry in which we operate; and require
        that
        we use a larger portion of our cash flow to pay principal and interest thereby
        reducing availability of cash to fund working capital, capital expenditures
        and
        other operating needs.
 
 Our
        inability to successfully implement our strategic manufacturing initiative
        may
        have an adverse effect on results of operations and may restrict our ability
        to
        increase revenues, cash flows and net income
 
 We
        will be
        dependent upon third parties to construct the new facility and to deliver
        the
        high-tech, modern baking equipment.  Unanticipated delays in the
        completion of the facility or delivery of new equipment could substantially
        increase the costs and ultimately the indebtedness associated with the
        initiative.  Unexpected increases in equipment or installation costs
        could also substantially increase the indebtedness associated with the
        initiative.  Unfavorable deviations from expected equipment
        performance or unforeseen difficulties associated with transitioning to a
        new
        facility could significantly increase the costs of future
        production.  Such unanticipated delays, cost increases or unfavorable
        deviations in equipment performance could also restrict the Company’s ability to
        increase revenues and profitability as well as have an adverse impact on
        our
        financial condition and results of operations.
 
 
 **Item
        2. Unregistered Sales of Equity Securities and Use
        of Proceeds**
 
 None
        in
        the second quarter of 2007.
 
 **Item
        4. Submission of Matters to a Vote of Security
        Holders**
 
 (a)
              The
                  company’s annual meeting of shareholders was held on May 10,
                  2007.
 
 (b)
              The
                  directors elected at the meeting
                  were:
  For
                
                Withheld
                
                AbstainMark
                  G. Conish
                
                6,925,230
                
                157,193
                
                —Judith
                  M. von Seldeneck
                
                6,806,194
                
                276,229
                
                —David
                  J. West
                
                6,921,843
                
                160,580
                
                —
  Other
                  directors whose terms of office continued after the meeting were
                  as
                  follows:  James C. Hellauer, Ronald J. Kozich, James E.
                  Ksansnak, James E. Nevels, Charles P. Pizzi and Mark T.
                  Timbie.
 
 (c)
              Other
                  matters voted upon at the meeting and the results of the votes
                  were as
                  follows:
  For
                
                Against
                
                Abstain
                
                Broker
                    Non-VotesRatification
                  of PricewaterhouseCoopers LLP as independent registered public
                  accounting
                  firm for fiscal year ending December 29, 2007
                
                6,980,718
                
                97,381
                
                4,324
                
                —
   -21-
  ****
 **Item
                6.**
              **Exhibits**
  (a)
                Exhibits:  Exhibit
                  10 (a) - Industrial Lease Agreement dated May 8, 2007 by and between
                  Liberty Property/Synterra Limited Partnership and the
                  Company.  Exhibit
                  10 (b) - Improvements Agreement dated May 8, 2007 by and between
                  Liberty
                  Property/Synterra Limited Partnership and the
                  Company.  Exhibit
                  10 (c) - Lease agreement dated June 15, 2007 by and between L/S
                  Three
                  Crescent Drive, LP and the Company.  Exhibit
                  10 (d) - First Amendment to Industrial Lease Agreement dated June
                  7, 2007
                  by and between Liberty Property/Synterra Limited Partnership and
                  the
                  Company.  Exhibit
                  10 (e) - Second Amendment to Industrial Lease Agreement dated June
                  29,
                  2007 by and between L/S 26th Street South LP (assignee of Liberty
                  Property/Synterra Limited Partnership) and the
                  Company.  Exhibit
                  10 (f) - Third Amendment to Industrial Lease Agreement dated July
                  23, 2007
                  by and between L/S 26th Street South LP (assignee of Liberty
                  Property/Synterra Limited Partnership) and the
                  Company.
 Exhibit
                31 (a) – Certification of Chief Executive Officer pursuant to Section 302
                of the Sarbanes-Oxley Act of 2002.
 Exhibit
                31 (b) – Certification of Chief Financial Officer pursuant to Section 302
                of the Sarbanes-Oxley Act of 2002.
 Exhibit
                  32 – Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
                  to Section 906 of the Sarbanes-Oxley Act of
                  2002.
  -22-
 
  **TASTY
        BAKING COMPANY AND SUBSIDIARIES**
 
 **SIGNATURE**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Company has
        duly
        caused this report to be signed on its behalf by the undersigned thereunto
        duly
        authorized.
 
 
 
 
 TASTY
                  BAKING COMPANY(Company)August
                  7, 2007
              
              /s/
                  Paul D. Ridder(Date)
              
              PAUL
                  D. RIDDERVICE
                  PRESIDENT,CORPORATE
                  CONTROLLER ANDCHIEF
                  ACCOUNTING OFFICER(Principal
                  Accounting Officer)
 
 
 23