**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
      thirty-nine weeks ended September
      24, 2005





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


2801
      Hunting Park Avenue, Philadelphia, Pennsylvania 19129


(Address
      of Principal Executive Offices) (Zip Code)








(215)
      221-8500


(Company's
      Telephone Number, including area code)








Indicate
      by check mark whether the company (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 company was required
      to
      file such reports), and (2) has been subject to such filing requirements for
      the
      past 90 days. 
 YesX
              
              No


Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act).


YesX
              
              No




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


Yes
                
                NoX


APPLICABLE
      ONLY TO CORPORATE ISSUERS:


Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date.





Common
                Stock, par value $.50
            8,153,626(Title
                of Class)
            (No.
                of Shares Outstandingas
                of October 15, 2005)









1
            of
            26














**TASTY
      BAKING COMPANY AND SUBSIDIARIES**





**INDEX**





PART
                  I.    FINANCIAL
                  INFORMATIONItem
                  1.       Financial
                  Statements (Unaudited)Consolidated
                  Balance SheetsSeptember
                  24, 2005 and December 25, 2004
              
              3Consolidated
                  Statements of OperationsThirteen
                  and Thirty-nine weeks ended September 24, 2005
                  and September 25, 2004
              
              4Consolidated
                  Statements of Cash FlowsThirty-nine
                  weeks ended September 24, 2005 and September
                  25, 2004
              
              5 
5Notes
                  to Consolidated Financial
                  Statements
              
              6-13Item
                  2.       
                  Management's Discussion and Analysis of FinancialCondition
                  and Results of Operations
              
              14-22Item
                  3.        
                  Quantitative and Qualitative DisclosuresAbout
                  Market Risk
              
              23Item
                  4.        
                  Controls and Procedures
              
              24PART
                  II. OTHER INFORMATIONItem
                  5.         Other
                  Information
              
              25Item
                  6.        
                  Exhibits
              
              25Signature
              
              26














2
          of
          26


**Part
      I. FINANCIAL INFORMATION**


**Item
      1.** **Financial
      Statements**


**TASTY
      BAKING COMPANY AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


(Unaudited)


(000’s)




**September
                  24, 2005**
              
              **December
                  25, 2004****Assets****Current
                  assets:**Cash
              
              $
              457
              
              $
              320Receivables,
                  less allowance of $3,972 and $4,848, respectively
              
              
              22,495
              
              
              20,049Inventories
              
              
              7,497
              
              
              5,412Deferred
                  income taxes
              
              
              3,367
              
              
              3,280Prepayments
                  and other
              
              
              716
              
              
              1,092Total
                  current assets
              
              
              34,532
              
              
              30,153**Property,
                  plant and equipment:**Land
              
              
              1,033
              
              
              1,033Buildings
                  and improvements
              
              
              40,885
              
              
              41,327Machinery
                  and equipment
              
              
              138,631
              
              
              166,449180,549
              
              
              208,809Less
                  accumulated depreciation
              
              
              117,497
              
              
              143,77463,052
              
              
              65,035**Other
                  assets:**Long-term
                  receivables from independent sales distributors
              
              
              11,138
              
              
              11,185Deferred
                  income taxes
              
              
              10,375
              
              
              10,337Other
              
              
              1,774
              
              
              1,79223,287
              
              
              23,314**Total
                  assets**
              
              $
              120,871
              
              $
              118,502**Liabilities****Current
                  liabilities:**Current
                  obligations under capital leases
              
              $
              754
              
              $
              713Notes
                  payable, banks
              
              
              353
              
              
              2,700Accounts
                  payable
              
              
              7,952
              
              
              9,083Accrued
                  payroll and employee benefits
              
              
              7,648
              
              
              7,145Reserve
                  for restructures
              
              
              474
              
              
              436Other
                  accrued liabilities
              
              
              2,868
              
              
              3,307Total
                  current liabilities
              
              
              20,049
              
              
              23,384Long-term
                  obligations under capital leases, less current portion
              
              
              3,605
              
              
              4,159Long-term
                  debt
              
              
              20,747
              
              
              9,000Reserve
                  for restructures, less current portion
              
              
              104
              
              
              601Accrued
                  pensions and other liabilities
              
              
              18,454
              
              
              23,774Postretirement
                  benefits other than pensions
              
              
              16,574
              
              
              16,747**Total
                  liabilities**
              
              
              79,533
              
              
              77,665**Shareholders'
                  equity**Common
                  stock
              
              
              4,558
              
              
              4,558Capital
                  in excess of par value of stock
              
              
              28,921
              
              
              28,933Retained
                  earnings
              
              
              22,712
              
              
              22,26156,191
              
              
              55,752Less:Accumulated
                  other comprehensive loss
              
              
              2,467
              
              
              2,398Treasury
                  stock, at cost
              
              
              11,760
              
              
              11,568Deferred
                  Stock Compensation
              
              
              601
              
              
              898Management
                  Stock Purchase Plan receivables
              
              
              25
              
              
              5141,338
              
              
              40,837**Total
                  liabilities and shareholders' equity**
              
              $
              120,871
              
              $
              118,502See
                  Notes to Consolidated Financial Statements.




3
          of
          26


**TASTYBAKING
      COMPANY AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(Unaudited)


(000’s,
      except per share amounts)


**For
                  the Thirteen Weeks Ended**
              
              **For
                  the Thirty-nine Weeks Ended****September
                  24, 2005**
              
              **September
                  25, 2004 (a)**
              
              **September
                  24, 2005**
              
              **September
                  25, 2004 (a)****Gross
                  Sales**
              
              $
              69,371
              
              $
              62,724
              
              $
              204,897
              
              $
              195,921Less
                  discounts and allowances
              
              
              (26,947
              )
              
              (23,414
              )
              
              (77,588
              )
              
              (76,077
              )Net
                  Sales
              
              
              42,424
              
              
              39,310
              
              
              127,309
              
              
              119,844**Costs
                  and expenses:**Cost
                  of sales
              
              
              28,475
              
              
              25,512
              
              
              81,625
              
              
              77,590Depreciation
              
              
              1,444
              
              
              1,975
              
              
              4,906
              
              
              5,531Selling,
                  general and administrative
              
              
              12,014
              
              
              11,396
              
              
              38,195
              
              
              34,419Interest
                  expense
              
              
              334
              
              
              301
              
              
              981
              
              
              930Gain
                  on sale of routes
              
              
              (93
              )
              
              -
              
              
              (93
              )
              
              (75
              )Other
                  income, net
              
              
              (221
              )
              
              (224
              )
              
              (701
              )
              
              (708
              )41,953
              
              
              38,960
              
              
              124,913
              
              
              117,687Income
                  before provision forincome
                  taxes
              
              
              471
              
              
              350
              
              
              2,396
              
              
              2,157**Provision
                  for income taxes**
              
              
              160
              
              
              133
              
              
              720
              
              
              803**Net
                  income**
              
              $
              311
              
              $
              217
              
              $
              1,676
              
              $
              1,354**Average
                  common shares outstanding:**Basic
              
              
              8,053
              
              
              8,080
              
              
              8,058
              
              
              8,089Diluted
              
              
              8,156
              
              
              8,081
              
              
              8,161
              
              
              8,098**Per
                  share of common stock:**Net
                  income:Basic
                  and Diluted
              
              $
              0.04
              
              $
              0.03
              
              $
              0.21
              
              $
              0.17Cash
                  dividend
              
              $
              0.05
              
              $
              0.05
              
              $
              0.15
              
              $
              0.15(a)
                  Amounts have been reclassified for comparative purposes.
  See
          Notes
          to Consolidated Financial Statements.


4
          of
          26


**TASTY
      BAKING COMPANY AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOW**


(Unaudited)


(000’s)




**For
                  the Thirty-Nine Weeks Ended****September
                  24, 2005**
              
              
              **September
                  25, 2004****Cash
                  flows from (used for) operating activities**Net
                  income
              
              $
              1,676
              
              $
              1,354Adjustments
                  to reconcile net income to netcash
                  provided by operating activities:Depreciation
              
              
              4,906
              
              
              5,531Gain
                  on sale of routes
              
              
              (93
              )
              
              (75
              )Pension
                  and SERP expense
              
              
              95
              
              
              1,607Pension
                  contributions
              
              
              (5,300
              )
              
              -Deferred
                  taxes
              
              
              (124
              )
              
              733Restructure
                  payments
              
              
              (459
              )
              
              (1,123
              )Other
              
              
              386
              
              
              (90
              )Changes
                  in assets and liabilities:Increase
                  in receivables
              
              
              (2,732
              )
              
              (900
              )Increase
                  in inventories
              
              
              (2,085
              )
              
              (21
              )Decrease
                  (increase) in prepayments and other
              
              
              531
              
              
              (1,380
              )Increase
                  (decrease) in accounts payable, accruedpayroll
                  and other current liabilities
              
              
              (1,066
              )
              
              481**Net
                  cash from (used for) operating activities**
              
              
              (4,265
              )
              
              6,117**Cash
                  flows from (used for) investing activities**Proceeds
                  from sale of property, plant and equipment
              
              
              43
              
              
              67Purchase
                  of property, plant and equipment
              
              
              (3,135
              )
              
              (6,905
              )Proceeds
                  from independent sales distributor loan repayments
              
              
              2,991
              
              
              2,792Loans
                  to independent sales distributors
              
              
              (2,921
              )
              
              (2,526
              )Other
              
              
              (145
              )
              
              (68
              )**Net
                  cash used for investing activities**
              
              
              (3,167
              )
              
              (6,640
              )**Cash
                  flows from (used for) financing activities**Dividends
                  paid
              
              
              (1,225
              )
              
              (1,213
              )Payment
                  of long-term debt
              
              
              (513
              )
              
              (335
              )Net
                  increase (decrease) in short-term debt
              
              
              (2,347
              )
              
              100Additional
                  long-term debt
              
              
              11,747
              
              
              2,000Purchase
                  of treasury stock
              
              
              (93
              )
              
              -**Net
                  cash from financing activities**
              
              
              7,569
              
              
              552**Net
                  increase in cash**
              
              
              137
              
              
              29Cash,
                  beginning of year
              
              
              320
              
              
              33Cash,
                  end of period
              
              $
              457
              
              $
              62**Supplemental
                  Cash Flow Information**Cash
                  paid during the period for:Interest
              
              $
              950
              
              $
              933Income
                  taxes
              
              $
              79
              
              $
              90




See
          Notes
          to Consolidated Financial Statements.





5
          of
          26


**TASTY
      BAKINGCOMPANY AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


(000’s,
      except share and per share amounts)





**1.**  **Significant
      Accounting Policies**




**Nature
      of the Business**





Tasty
      Baking 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
      facility 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 2005 is a 53-week year. Fiscal year
      2004
      was a 52-week year.





**Basis
      of Consolidation**





The
      consolidated financial statements include the accounts of the company and its
      subsidiaries. Intercompany transactions are eliminated.





**Interim
      Financial Information**





In
      the
      opinion of management, the accompanying unaudited consolidated financial
      statements contain all adjustments, consisting only of normal and recurring
      adjustments, necessary to present fairly the financial position of the company
      as of September 24, 2005, and December 25, 2004, the results of its operations
      for the thirteen and thirty-nine weeks ended September 24, 2005, and September
      25, 2004, and cash flows for the thirty-nine week periods ended September 24,
      2005, and September 25, 2004, respectively. These unaudited consolidated
      financial statements should be read in conjunction with the consolidated
      financial statements and footnotes thereto in the company's 2004 Annual Report
      to Shareholders. In addition, the results of operations for the thirteen and
      thirty-nine weeks ended September 24, 2005, are not necessarily indicative
      of
      the results to be expected for the full year.





**Use
      of Estimates**





Certain
      amounts included in the accompanying consolidated financial statements and
      related footnotes reflect the use of estimates based on assumptions made by
      management. These estimates are made using all information available to
      management, and management believes that these estimates are as accurate as
      possible as of the dates and for the periods that the financial statements
      are
      presented. Actual amounts could differ from these estimates. Significant
      estimates for the company include customer sales, discounts and allowances,
      collections, long-lived asset impairment, pension and postretirement plan
      assumptions, workers’ compensation expense and income tax valuation.





**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 sales, the company sells to independent sales distributors who, in
      turn, sell to retail customers. Revenue for sales to independent sales
      distributors is recognized upon receipt of the product by the distributor.
      For
      sales made directly to a retail customer or a third-party distributor, revenue
      is recognized upon receipt of the product by the retail customer or third-party
      distributor.


6
          of
          26


**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 separate line item in the consolidated statements of operations. The company
      recognizes gains on sales of routes because all material services or conditions
      related to the sale have been substantially performed or satisfied by the
      company as of the date of sale. In most cases, the company will finance a
      portion of the purchase price with interest bearing notes. Interest rates on
      the
      notes are based on Treasury yields plus a spread. The notes require full
      repayment of the loan amount. The company has no obligation to later repurchase
      a route but may choose to do so to facilitate a change in route
      ownership.





**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.





**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, if necessary, based on the forecast of product demand
      and production requirements.





Spare
      parts, which are recorded as property, plant and equipment, are reviewed for
      potential obsolescence on a quarterly basis. Reserves are established for all
      spare parts that are no longer usable.





Excessive
      spoilage and idle facility expenses that would be material to the financial
      statements would be excluded from allocated manufacturing overhead and treated
      as period costs.





**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 are depreciated over thirty-nine years. The principal
      manufacturing plant is leased from the company’s pension plan and is amortized
      over twenty years. Leasehold improvements are generally depreciated over
      thirty-nine years. Machinery and equipment are depreciated over fifteen years.
      Spare parts are recorded as part of machinery and equipment and are expensed
      as
      utilized. The enterprise resource planning system implemented in the fourth
      quarter of 2004 is being 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 labor costs associated with the
      construction and installation of plant and equipment and significant information
      technology development projects. The company also capitalizes interest as a
      component of the cost of significant construction projects.





In
      accordance with 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 market value of the asset, which is based
      on the best information available. These assets are recorded at the lower of
      their book value or market value.


7
          of
          26


**Retirement
      Plans**





The
      company’s funding policy for the pension plan (“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.





The
      company accrues normal periodic pension expense or income during the year based
      upon certain assumptions and estimates from its actuarial consultants in
      accordance with Statement of Financial Accounting Standard No. 87, “Employers’
Accounting for Pensions.” 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.





The
      company amended the Pension Plan to freeze benefit accruals effective March
      26,
      2005. Participants will be credited for service after March 26, 2005, solely
      for
      vesting purposes pursuant to the terms of the Pension Plan. Each vested
      participant will receive their total pension benefit accrued through March
      26,
      2005, upon retirement from the company.





Effective
      March 27, 2005, the company adopted a new company funded retirement plan, which
      is a defined contribution benefit that replaces the benefit provided in the
      Pension Plan. In the new company funded retirement plan, the company contributes
      cash weekly into individual accounts for eligible employees. These contributions
      are equal to a percentage of an employee’s eligible compensation and increase in
      pre-established increments based on a combination of the employee’s age and
      years of credited service.





**Stock-Based
      Compensation**





The
      company measures stock-based compensation and reports the calculated differences
      between the reported and pro forma impact of the fair-value method on the
      interim and annual financial reports as required. See Recent Accounting
      Statements below regarding a change effective in 2006.





**Thirteen
                  Weeks Ended**
              
              **Thirty-nine
                  Weeks Ended****9/24/05**
              
              **9/25/04**
              
              **9/24/05**
              
              **9/25/04**Net
                  income as reported
              
              $
              311
              
              $
              217
              
              $
              1,676
              
              $
              1,354Deduct:
                  Total stock-based employeecompensation
                  expense determined underfair-value
                  method net of related tax effects
              
              
              (65
              )
              
              (49
              )
              
              (191
              )
              
              (176
              )Pro
                  forma net income
              
              $
              246
              
              $
              168
              
              $
              1,485
              
              $
              1,178Earnings
                  per share:Basic
                  and Diluted - as reported
              
              $
              0.04
              
              $
              0.03
              
              $
              0.21
              
              $
              0.17Basic
                  and Diluted - pro forma
              
              $
              0.03
              
              $
              0.02
              
              $
              0.18
              
              $
              0.15





**Treasury
      Stock**





Treasury
      stock is stated at cost. Cost is determined by the FIFO method.





**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 year. Net income per common share - Diluted
      is based on the weighted average number of common shares and dilutive potential
      common shares outstanding during the year. Dilution is the result of including
      outstanding stock options and restricted shares.






8
          of
          26









**Recent Accounting Statements**





In
      December 2004, the Financial Accounting Standards Board (FASB) issued FASB
      Statement No. 123(R), Share-Based Payment (FAS 123(R)), which requires companies
      to expense the fair-value of employee stock options and other forms of
      stock-based compensation. In April 2005, the SEC approved a new rule that makes
      FAS 123(R) effective for annual periods that begin after June 15, 2005. The
      company expects to adopt FAS 123(R) in January 2006, and expects to select
      the
      Modified Prospective Application (MPA), without restatement of prior interim
      periods in the year of adoption. The company is currently evaluating the impact
      of the adoption of this standard, but does not expect a material impact compared
      to the pro forma amounts.





In
      March
      2005, the FASB issued final guidance that clarifies how companies should account
      for "conditional" asset retirement obligations. FASB Interpretation No. 47,
      Accounting for Conditional Asset Retirement Obligations (FIN 47), deals with
      obligations to perform asset retirement activities in which the timing and
      (or)
      method of settlement are conditional on a future event (e.g., legal requirements
      surrounding asbestos handling and disposals that are triggered by demolishing
      or
      renovating a facility). The new guidance will likely require many companies
      to
      recognize liabilities for these obligations. This interpretation is effective
      no
      later than the end of fiscal years ending after December 15, 2005 (December
      31,
      2005, for calendar-year enterprises). Retrospective application for interim
      financial information is permitted but is not required. In implementing the
      new
      guidance, a company will need to identify its conditional asset retirement
      obligations and determine whether it can reasonably estimate the fair value
      of
      each obligation. If the company can reasonably estimate the fair value of an
      obligation, it will need to recognize a liability for that obligation. The
      company does not anticipate that the adoption of FIN 47 will have a material
      impact on its consolidated financial statements.








**2.** **Restructure
      Charges**





From
      fiscal years 2001 to 2004, the company implemented three strategies that
      resulted in restructuring charges. These strategies were the closing of the
      company owned thrift stores which began in 2001, the exit from the Dutch Mill
      Baking facility in 2001, and the departure of certain executives as a result
      of
      the strategic changes made in 2002 with the arrival of the new CEO to the
      company. The specific costs and activities related to these events are outlined
      below.





During
      the fourth quarter of 2001, a strategic decision was made to exit the Dutch
      Mill
      Baking Company production facility and recognize the efficiencies related to
      moving production to the company’s Oxford, PA, plant. There were 19
      manufacturing and four administrative positions eliminated as a result. In
      addition, the company made a strategic decision to exit the thrift store
      business. The closing affected six thrift store employees. Costs related to
      these two events were included in a restructure charge of $1,728.





During
      the second quarter of 2002, the company closed six thrift stores and eliminated
      certain manufacturing and administrative positions as the company had previously
      made the strategic decision to exit the thrift store business in the fourth
      quarter of 2001. There were 67 employees terminated as a result of this
      restructure, of which 42 were temporary employees, 13 were thrift store
      employees and 12 were corporate and administrative employees. Costs related
      to
      these events were included in a restructure charge of $1,405.





During
      the fourth quarter of 2002, the company incurred a $4,936 restructure charge
      related to the closing of the remaining 12 thrift stores and the specific
      arrangements made with senior executives who departed the company in the fourth
      quarter of 2002. The departure of the senior executives was a result of the
      strategic changes made in the fourth quarter of 2002 with the arrival of the
      new
      CEO to the company. There were 29 employees terminated as a result of this
      restructure, of which 25 were thrift store employees and four were corporate
      executives.





During
      the fourth quarter of 2003, the company incurred a $429 restructure charge
      related to specific arrangements made with senior executives who departed the
      company. The departure of the senior executives was the result of the continued
      transition resulting from the strategic changes made in the fourth quarter
      of
      2002 with the arrival of the new CEO to the company.






9
          of
          26







The
      company recognized net restructure charge reversals in 2003 of $500. These
      reversals resulted from favorable settlements of certain thrift store lease
      contracts reserved in the 2002 restructuring.





In
      the
      fourth quarter of 2004, the company favorably settled certain thrift store
      lease
      contracts for a gain of $35. This gain was offset by reversals of previously
      sub-leased contracts that subsequently defaulted, and other adjustments related
      to the estimated expenses for maintaining the thrift stores still under
      contract, which resulted in a net charge of $9.





**Restructure
      Reserve Activity**


**Lease
                  Obligations**
              
              **Severance**
              
              **Other**
              
              **Total****Balance
                  December 27, 2003**
              
              **$**
              **813**
              
              **$**
              **1,485**
              
              **$**
              **77**
              
              **$**
              **2,375**Q1
                  2004 Payments
              
              
              (125
              )
              
              (387
              )
              
              (16
              )
              
              (528
              )**Balance
                  March 27, 2004**
              
              
              **688**
              
              
              **1,098**
              
              
              **61**
              
              
              **1,847**Q2
                  2004 Payments
              
              
              (112
              )
              
              (187
              )
              
              (16
              )
              
              (315
              )**Balance
                  June 26, 2004**
              
              
              **576**
              
              
              **911**
              
              
              **45**
              
              
              **1,532**Q3
                  2004 Payments
              
              
              (88
              )
              
              (176
              )
              
              (16
              )
              
              (280
              )**Balance
                  September 25, 2004**
              
              
              **488**
              
              
              **735**
              
              
              **29**
              
              
              **1,252**Q4
                  2004 Reversal of reserve, net of adjustments
              
              
              4
              
              
              -
              
              
              5
              
              
              9Q4
                  2004 Payments
              
              
              (85
              )
              
              (143
              )
              
              4
              
              
              (224
              )**Balance
                  December 25, 2004**
              
              
              **407**
              
              
              **592**
              
              
              **38**
              
              
              **1,037**Q1
                  2005 Payments
              
              
              (116
              )
              
              (58
              )
              
              (12
              )
              
              (186
              )**Balance
                  March 26, 2005**
              
              
              **291**
              
              
              **534**
              
              
              **26**
              
              
              **851**Q2
                  2005 Payments
              
              
              (89
              )
              
              (57
              )
              
              (11
              )
              
              (157
              )**Balance
                  June 25, 2005**
              
              
              **202**
              
              
              **477**
              
              
              **15**
              
              
              **694**Q3
                  2005 Payments
              
              
              (49
              )
              
              (58
              )
              
              (9
              )
              
              (116
              )**Balance
                  September 24, 2005**
              
              **$**
              **153**
              
              **$**
              **419**
              
              **$**
              **6**
              
              **$**
              **578**


The
      balance of the severance charges is expected to be paid as of December 2005,
      and
      the balance of the lease obligations and other charges is expected to be paid
      as
      of November 2006. The company is not in a situation where a liability for costs
      associated with any of the restructurings noted above could not be recognized
      because the fair-value could not be reasonably estimated.








**3.** **Inventories**





Inventories
      are classified as follows *:*




**September
                24, 2005**
            
            **December
                25, 2004**Finished
                goods
            
            $
            2,228
            
            $
            1,481Work
                in progress
            
            
            184
            
            
            135Raw
                materials and supplies
            
            
            5,085
            
            
            3,796$
            7,497
            
            $
            5,412








**4.** **Stock
      Option Plans**





On
      August
      1, 2005, 10,000 options were granted to two new directors of the company under
      the 2003 Long Term Incentive Plan. Under this grant, the options vest in three
      equal installments beginning on the first anniversary date with a five year
      retention period from the date of grant. The option price is determined by
      the
      Compensation Committee of the Board 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 date of the option tem specified
      by the Compensation Committee of the Board (not more than ten years from the
      date of grant in the case of incentive stock options) or three months following
      the date on which employment with the company terminates.





On
      May
      12, 2005, 1,500 options were granted to two employees of the company under
      the
      1997 Long
      Term Incentive Plan. Under this grant, the options vest in three equal
      installments beginning on the first anniversary date with a five year retention
      period from the date of grant. The option price is determined by the
      Compensation Committee of the Board and, in the case of incentive stock options,
      will be no less than the fair market value of the






10
          of
          26








shares
      on
      the date of grant. Options lapse at the earlier of the expiration date of the
      option tem specified by the Compensation Committee of the Board (not more than
      ten years from the date of grant in the case of incentive stock options) or
      three months following the date on which employment with the company
      terminates.








**5.**  **Credit
      Facility**





On
      September 13, 2005, the company entered into the Amended and Restated Credit
      Agreement (“Amended Credit Agreement”) for its credit facility (the “Facility”)
      with PNC Bank, NA (PNC) and Citizens Bank of Pennsylvania (Citizens) referenced
      together as the “Banks”. The Amended Credit Agreement increases the Banks’
commitment from $30 million to $35 million; changes the Facility from secured
      to
      unsecured; extends the maturity of the Facility from a three year term to a
      five
      year term expiring in September 2010; eliminates the short term portion of
      the
      Facility and reduces 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 Facility’s Tangible Net Worth covenant and the Funded Debt
      covenant that make them less restrictive . Interest
      rates in the Facility are indexed to LIBOR based upon the company’s ratio of
      debt to EBITDA and rates may change up to 50 basis points based on that
      ratio.  Commitment
      fees are charged on the unused portion of the Facility and range from 10 to
      30
      basis points based upon the same ratio used to determine interest rates. The
      new
      Facility will be used for general corporate purposes and such other uses as
      permitted under the Amended Credit Agreement.





On
      September 13, 2005, the company also entered into a Loan Agreement (“Term Loan”)
      with Citizens 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 Facility. The entire proceeds of the Term Loan were used to
      fund
      a voluntary contribution to the company’s previously frozen defined benefit
      Pension Plan.





In
      conjunction with the Term Loan described above, the company obtained from
      Citizens additional commitments to lend $4.7 million to the company upon certain
      conditions. If executed, the terms and conditions of these borrowings will
      be
      generally the same as the terms and conditions under the Term Loan with the
      addition of a mortgage and security interest if certain real property was to
      be
      acquired. These additional commitments from Citizens will expire on December
      31,
      2005, if not exercised by that date.





The
      Amended Credit Agreement replaced the existing facility, which had been amended
      on January 23, 2004, to reduce the commitments under the facility to $30
      million. The facility, as amended, provided $10 million for short-term
      borrowings under a 364-day line and $20 million for long-term borrowings under
      a
      three year revolving line. The 364-day line contained a $6 million sub-limit
      for
      overnight borrowings and the revolving line allowed for the issuance of Standby
      Letters of Credit up to $6 million, which reduced the availability under the
      facility. Upon approval of the Banks, the terms of both the 364-day line and
      the
      revolving line may have been extended for an additional 364-day or annual
      period, respectively. Interest rates in the facility were indexed to LIBOR
      or
      the Prime Rate based upon the company’s ratio of debt to EBITDA and rates may
      have change up to 1.5% based on that ratio. Commitment fees were charged on
      the
      unused portion of the facility and ranged from 30 to 45 basis points based
      upon
      the same ratio used to determine interest rates. The facility, as amended,
      contained restrictive covenants that required the maintenance of minimum
      Tangible Net Worth, limited the amount of capital expenditures and limited
      the
      ratios of EBITDA to certain fixed charges and total indebtedness. The facility
      also provided the Banks with a security interest in all unencumbered assets
      of
      the company including certain real property through September 12, 2005. After
      that date, the security interest may have been terminated if certain objective
      measures were met.  The
      company had not met the objective criteria to release the security interest
      as of September 12, 2005.  As
      stated
      above, the facility described in this paragraph was amended and restated on
      September 13, 2005.





In
      order
      to hedge the company’s exposure to changes in interest rates the company entered
      into a five year $6 million interest rate swap with PNC on August 3, 2005,
      with
      a fixed LIBOR rate of 4.64% and a five year $5.3 million interest rate swap
      with
      Citizens on September 13, 2005, with a fixed LIBOR rate of 4.42%. The interest
      rate swaps are recorded at fair market value with changes in value recorded
      in
      other comprehensive income.







11
          of
          26








**6.**  **Comprehensive
      Income**




**Thirteen
                  Weeks Ended**
              
              **Thirty-nine
                  Weeks Ended****9/24/05**
              
              **9/25/04**
              
              **9/24/05**
              
              **9/25/04**Net
                  income as reported
              
              $
              311
              
              $
              217
              
              $
              1,676
              
              $
              1,354Other
                  comprehensive income:Current
                  period changes in fair value of derivativeinstruments
                  qualifying as hedges, net of $23, $0$21,
                  and $0 income taxes, respectively
              
              
              (46
              )
              
              -
              
              
              (48
              )
              
              -$
              265
              
              $
              217
              
              $
              1,628
              
              $
              1,354








**7.**
              **Defined
                  Benefit Retirement
                  Plans**





The
      company maintains a partially funded noncontributory Pension Plan providing
      retirement benefits for substantially all employees. Benefits under this Pension
      Plan generally are based on the employees’ years of service and compensation
      during the years preceding retirement. The company maintains an unfunded
      Supplemental Executive Retirement Plan (“SERP”) providing retirement benefits
      for key employees designated by the Board of Directors. Benefits under the
      SERP
      generally are based on the key employees’ years of service and compensation
      during the years preceding retirement. The company also maintains an unfunded
      Directors’ Retirement Plan. The benefit amount is the annual retainer in the
      year of retirement.





Effective
      October 2004, the SERP for an active employee was converted from a defined
      benefit to a defined contribution plan to be consistent with the proposed
      changes made to the Pension Plan.





In
      December 2004, upon approval by the Board of Directors, the company announced
      to
      its employees that it was amending the Pension Plan to freeze benefit accruals
      effective March 26, 2005. Participants began receiving credit for service after
      March 26, 2005, solely for vesting purposes pursuant to the terms of the Pension
      Plan. Each vested participant will receive their total pension benefit accrued
      through March 26, 2005, upon retirement from the company.





The
      components of the Pension, SERP, and Directors’ Retirement plans are summarized
      as follows:




**Thirteen
                  Weeks Ended**
              
              **Thirty-nine
                  Weeks Ended****9/24/05**
              
              **9/25/04**
              
              **9/24/05**
              
              **9/25/04**Service
                  cost
              
              $
              (5
              )
              $
              353
              
              $
              257
              
              $
              1,058Interest
                  cost
              
              
              1,276
              
              
              1,287
              
              
              3,694
              
              
              3,861Expected
                  return on plan assets
              
              
              (1,352
              )
              
              (1,124
              )
              
              (3,884
              )
              
              (3,372
              )Amortization
                  of prior service costs
              
              
              (5
              )
              
              (1
              )
              
              (13
              )
              
              (3
              )Amortization
                  of net loss
              
              
              13
              
              
              13
              
              
              41
              
              
              39Net
                  pension amount charged to income
              
              $
              (73
              )
              $
              528
              
              $
              95
              
              $
              1,583







There
      is
      no required minimum cash contribution to the Pension Plan in 2005. The company
      made a $5.3 million voluntary cash contribution to the previously frozen defined
      Pension Plan on September 13, 2005.








**8.**
            **Defined
                Contribution Retirement
                Plans**





Effective
      at the beginning of the second quarter 2005, the company adopted a new company
      funded retirement plan which is a defined contribution benefit that replaces
      the
      benefit provided in the Pension Plan. In the new company funded retirement
      plan,
      the company makes weekly cash contributions into individual accounts for all
      eligible employees. These contributions are equal to a percentage of an
      employee’s eligible compensation and will increase in pre-established increments
      based on a combination of the employee’s age and years of credited service.






12
          of
          26





Effective
      October 2004, the SERP for an active employee was converted from a defined
      benefit to a defined contribution plan to be consistent with the changes made
      to
      the Pension Plan.




**Thirteen
                  Weeks Ended**
              
              **Thirty-nine
                  Weeks Ended****9/24/05**
              
              **9/25/04**
              
              **9/24/05**
              
              **9/25/04**Funded
                  retirement plan
              
              $
              597
              
              $
              -
              
              $
              1,026
              
              $
              -Defined
                  Contribution SERP
              
              
              47
              
              
              -
              
              
              142
              
              
              -Net
                  pension amount charged to expense
              
              $
              644
              
              $
              -
              
              $
              1,168
              
              $
              -





**9.**
            **Postretirement
                Benefits Other than
                Pensions**





Components
      of Net Periodic Postretirement Benefit Cost:


**Thirteen
                  Weeks
                  Ended**
              
              **Thirty-nine
                  Weeks Ended****9/24/05**
              
              **9/25/04**
              
              **9/24/05**
              
              **9/25/04**Service
                  cost
              
              $
              110
              
              $
              104
              
              $
              329
              
              $
              312Interest
                  cost
              
              
              182
              
              
              235
              
              
              547
              
              
              706Amortization
                  of unrecognizedprior
                  service cost (a)
              
              
              (119
              )
              
              -
              
              
              (358
              )
              
              -Amortization
                  of unrecognized gain
              
              
              (12
              )
              
              -
              
              
              (37
              )
              
              -Net
                  periodic benefit cost
              
              $
              161
              
              $
              339
              
              $
              481
              
              $
              1,018


(a)
            Over
                the past five years, increases have been made in the portion of the
                cost
                of life insurance paid by retirees. These substantive changes to
                the plan
                are being treated as an amendment effective December 26, 2004, which
                is
                the first day of fiscal 2005.





Employer
      Contributions:


Estimated
      company contributions for the thirty-nine weeks ended September 24, 2005, are
      $658.





The
      Medicare Prescription Drug Improvement and Modernization Act of 2003 was signed
      into law on December 8, 2003. In accordance with FASB Staff Position FAS 106-1,
      the company has made a one-time election to defer recognition of the effects
      of
      the law in the accounting for its plan under FAS 106 and in providing
      disclosures related to the plan.





The
      company determined that effective January 1, 2006, it will no longer provide
      medical benefits for most of its post-65 retirees.  While the company is in
      the process of determining the future financial impact this change may have,
      it
      is expected that the change will have a favorable impact on the 2006 financial
      statements.






13
          of
          26


**TASTY
      BAKING COMPANY AND SUBSIDIARIES**




Item
      2.     Management's Discussion and Analysis
      of Financial Condition and Results of
      Operations


**(000’s,
                except share and per share
                amounts)**






**Critical
      Accounting Estimates**





The
      accompanying consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States, which
      require that management make numerous estimates and assumptions. Actual results
      could differ from those estimates and assumptions, impacting the company’s
      reported results of operations and financial position. The company’s significant
      accounting policies are more fully described in Note 1 to the company’s audited
      consolidated financial statements in the company's 2004 Annual Report to
      Shareholders. Certain accounting estimates, however, are considered to be
      critical in that (i) they are most important to the depiction of the financial
      condition and results of operations of the company and (ii) their application
      requires management’s most subjective judgment in making estimates about the
      effect of matters that are inherently uncertain.





**Customer
      Sales and Discounts and Allowances**





The
      company gives allowances and offers various sales incentive programs to
      customers and consumers that are accounted for as a reduction of sales. The
      company records estimated reductions to sales for:


·
            Price
                promotion discounts at the time the product purchased by the independent
                sales distributor is sold to the final retail
                customer


·
            Distributor
                discounts at the time revenue is
                recognized


·
            Coupon
                expense at the estimated redemption
                rate


·
            Customer
                rebates at the time revenue is recognized


·
            Cooperative
                advertising at the time the company’s obligation to the customer is
                incurred


·
            Product
                returns received from independent sales distributors





Price
      promotion discount expense is recorded when the related product being discounted
      is sold by the independent sales distributor to the retail customer. The amount
      of the price promotion is captured in the hand held computer system when the
      independent sales distributor sells product to the retail customer. The price
      promotion discount is based upon actual discounts per case based upon an
      approved price promotion calendar. Any variation in price discounts is due
      primarily to the company selling more volume on discount than estimated, but
      that variation is recorded each month. Independent sales distributors receive
      a
      purchase discount equal to a percentage of the wholesale price of product sold
      to retailers and other customers, adjusted for price promotions and product
      returns. Direct retail customers receive a purchase discount equal to a
      percentage of the wholesale price of product received. Discounts to independent
      distributors and retail customers are based on agreed upon rates, and amounts
      vary based upon volume.





Coupon
      expense estimates are based upon the number of coupons dropped to consumers
      and
      the estimated redemption percentage. The estimated redemption percentages are
      based on data obtained from the company’s third-party coupon processor, and its
      experience with similar coupon drops. The estimate is updated monthly upon
      receipt of the actual coupon redemption report. Estimates for customer rebates
      assume that customers will meet the required quantities to qualify for payment.
      If the customers fall above or below the estimate as the year progresses, this
      could impact the estimate. Cooperative advertising expense is recorded based
      on
      the estimated advertising cost of the underlying program. Product returns are
      recorded as product is received back to the company. At quarter end, an
      estimated reserve for product returns is recorded based upon sales and actual
      return experience in the last month of the quarter. Actual returns may vary
      from
      this estimate. An estimate for the product return reserve must be used at
      quarter-end in order to prepare the financial statements on a timely basis
      since
      actual product returns come in subsequent to quarter-end.


14
          of
          26


**Customer
      Sales and Discounts and Allowances (cont.)**





Some
      customers take deductions when they make payments to the company. Based on
      historical experience, it is the company’s current policy to reserve for these
      deductions at the time they are taken by the customer. If it is determined
      by
      the company that a deduction may not be valid, the deduction is evaluated with
      the customer and the reserve could be reversed.





Since
      the
      company obtains updated information on every discount and allowance account
      each
      month, the risk that estimates are not properly recorded are generally limited
      to a percentage of one month’s activity, which approximated $8 million in 2005.
      Historically, actual discounts and allowances have not varied significantly
      from
      estimates.





**Collections**





The
      company aggressively pursues collection of accounts receivable balances. The
      company performs ongoing credit evaluations of customers’ financial condition
      and makes quarterly estimates of its collectibility of its accounts receivable
      balances. Management specifically analyzes accounts receivable trends and
      historical bad debts, customer concentrations, customer credit worthiness,
      levels of customer deductions, current economic trends and changes in customer
      payment terms when evaluating the adequacy of the allowance for doubtful
      accounts. If the financial condition of customers were to deteriorate, resulting
      in an impairment of their ability to make payments, additional allowances would
      be required.





The
      provision for doubtful accounts is recorded as a selling, general and
      administrative expense. The allowance for doubtful accounts has two components.
      The first component is a reserve against all accounts receivable balances based
      on the last five years of write-off experience for the company. The second
      component is for specifically identified accounts receivable balances from
      customers whose ability to pay is in question, such as customers who file
      bankruptcy while they have an outstanding balance due the company. Although
      the
      total allowance for doubtful accounts reflects the estimated risk for all
      customer balances, if any one of our top twenty customers’ accounts receivable
      balances became fully uncollectible, that would have a material impact on our
      consolidated statement of operations, and would negatively impact cash
      flow.





**Long-lived
      asset impairment**





In
      accordance with 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. Cash flow
      estimates are typically derived from the company’s historical experience and
      internal business plans.





For
      assets where there is no plan for future use, the review for impairment includes
      estimates and assumptions of the fair market value of the asset, which is based
      on the best information available. The company uses market prices, when
      available, and independent appraisals as appropriate to determine fair-value.
      These assets are recorded at the lower of their book value or market value.





Adverse
      changes in future market conditions could result in losses or an inability
      to
      recover the carrying value of the asset.


15
          of
          26


**Pension
      and Postretirement Plans**





Accounting
      for pensions and postretirement benefit plans requires the use of estimates
      and
      assumptions regarding numerous factors, including discount rate, rate of return
      on plan assets, compensation increases, health care cost increases, and
      mortality and employee turnover. A sensitivity analysis for pensions is included
      in Note 8 and a sensitivity analysis for postretirement benefits other than
      pensions is included in Note 9 to the company’s audited consolidated financial
      statements in the company's 2004 Annual Report to Shareholders. Licensed
      independent actuaries perform these required calculations to determine liability
      and expense in accordance with the accounting principles generally accepted
      in
      the United States. In addition, the company may experience significant changes
      in its pension expense from year to year because of its election in 1987 to
      immediately recognize all pension gains and losses in excess of its pension
      corridor in the year that they occur. For comparative purposes, this is relevant
      because most other public companies use an amortization method that allows
      recognition of pension gains and losses to be amortized over longer periods
      of
      time, up to 15 years. Also, the final determination of the gains and losses
      that
      could potentially exceed the corridor is not known until the last day of the
      year, which makes it difficult to estimate. The combination of low interest
      rates and low or negative rates of return on plan assets can cause higher levels
      of pension expense; conversely, high interest rates and high rates of return
      on
      assets could result in higher levels of pension income. Market conditions where
      interest rates and asset returns move inversely relative to each other, in
      most
      instances, cause the company to have pension expense or income within its
      allowable pension corridor. Actual results may differ from the company’s
      assumptions and may impact the reported liability and expense amounts reported
      for pensions and postretirement benefits. During the first nine months of 2005
      long-term corporate bond rates declined. Also, overall pension asset returns
      were below the 8.75% assumption through the thirty-nine weeks ended September
      24, 2005. As a result, the actual discount rate and asset returns assumptions
      used to value the pension liability at December 31, 2005 could be higher than
      the actual rates as of the last day of fiscal 2005. This increases the risk
      that
      pension expense would fall outside of the corridor for fiscal year
      2005.





**Workers’
      Compensation Expense**





Accounting
      for workers’ compensation expense requires the use of estimates and assumptions
      regarding numerous factors, including the ultimate severity of injuries, the
      timeliness of reporting injuries, and health care cost increases. The company
      insures for workers’ compensation liabilities under a large deductible program
      where losses are incurred by the company up to certain specific and aggregate
      amounts. Accruals for claims under the large deductible insurance program are
      recorded as claims are incurred. We estimate our liability based on total
      incurred claims and paid claims, adjusted by loss development factors which
      account for the development of losses over time. Loss development factors are
      based on prior loss experience and on the age of incurred claims, and are
      reviewed by a third-party claim loss specialist. The company’s estimated
      liability is the difference between the amounts we expect to pay and the amounts
      we have already paid for those years, adjusted for the limits on the aggregate
      amounts. We evaluate our estimated liability on a continuing basis and adjust
      it
      accordingly. Included in the estimate of liability is an estimate for expected
      changes in inflation and health care costs.





If
      there
      were to be an excessive number of workers’ compensation claims in a given
      accounting period and these actual results varied from the company’s
      assumptions, these could have a material impact on our consolidated statement
      of
      operations.





**Income
      Tax Valuation**





During
      the year, the company records income tax expense and liabilities based on
      estimates of book and tax income, and current tax rates. These estimates could
      vary in the future due to uncertainties in company profits, new laws, new
      interpretations of existing laws, and rulings by taxing authorities. Differences
      between actual results and our assumptions, or changes in our assumptions in
      future periods, are recorded in the period they become known.





The
      company has recorded a deferred income tax asset for the benefit of federal
      and
      state income tax loss carryforwards (“NOL’s”). These carryforwards expire in
      varying amounts between 2005 and 2024. Realization is dependent on generating
      sufficient taxable income prior to expiration of the loss carryforwards.
      Although realization is not assured, management believes that it is more likely
      than not that the deferred tax assets will be realized. However, the amount
      realized could be reduced if estimates of future taxable income during the
      carryforward period are not acheived.






16
          of
          26





**Income
      Tax Valuation (cont.)**





The
      company has recorded a deferred income tax asset benefit for unused federal
      Alternative Minimum Tax credits, which do not expire, and for unused state
      tax
      credits, which expire in varying amounts between 2005 and 2009. Realization
      is
      dependent on generating sufficient taxable income prior to expiration of the
      state credits. A valuation allowance in the amount of $407 has been established
      as management believes that a portion of the state credits may not be
      realized.





**Results
      of Operations**





**For
      the Thirteen Weeks ended September 24, 2005 and September 25,
      2004**





**Overview**





Net
      income for the third quarter of 2005 was $311 or $0.04 per diluted share, which
      included a $93 gain from the sale of two routes to sales distributors. Net
      income for the third quarter of 2004 was $217 or $0.03 per diluted share.





**Sales**





Net
      sales
      increased by 7.9% in the third quarter of 2005 compared to the same quarter
      in
      2004. Gross sales increased 10.6% in the third quarter of 2005 versus the same
      quarter a year ago driven by the 9.3% increase in total sales volume versus
      the
      same quarter a year ago. Net sales grew at a lower rate than gross sales due
      to
      the 15.1% increase in discounts and allowances in the third quarter 2005 versus
      the third quarter 2004. The increase in discounts and allowances was attributed
      to an increased level of product returns in September 2005. The significant
      increase in fuel prices in September 2005 negatively impacted consumer purchase
      activity, which negatively impacted retail volume sales. September is
      historically a very strong sales month due to back to school activity. The
      reduced consumer demand resulted in a high level of route product returns in
      September 2005, a month which usually has the lowest percentage of product
      returns for the year.





In
      the
      third quarter of 2005, route net sales were up 4.5% versus the same period
      a
      year ago. Route net sales grew due to increased sales of Family Pack and new
      products, including TastyMinis and TastyPastries. Increased sales were partially
      offset by an increase in stale product returns and promotional spending.
      Non-route net sales increased 20.0% for the same period due to increased sales
      to existing direct customers, as well as incremental sales in new geographic
      areas through new third-party distributors. Increased distribution through
      new
      third party distributors represented one-third of the total non-route net sales
      growth generated in third quarter 2005. Sales to existing direct customers
      continued to grow as a result of the company’s focus on key accounts and
      incremental promotional programs.





**Cost
      of Sales**





Cost
      of
      sales, excluding depreciation, for the third quarter of 2005 increased by 11.6%
      compared to the third quarter of 2004. The increase in cost of sales was driven
      by the 9.3% sale volume increase as well as energy and packaging cost increases
      during the third quarter of 2005 and were partially offset by decreases in
      the
      prices of eggs and cocoa.





**Gross
      Margin**





Gross
      margin after depreciation in the third quarter of 2005 was 29.5%, a decrease
      of
      0.6 percentage points versus the comparable quarter of 2004. This decrease
      in
      gross margin was attributable to a higher level of stale product returns versus
      the prior comparable period and the increase in cost of sales at a higher rate
      that sales growth. These increases were partially offset by a reduction in
      depreciation expense.





**Selling,
      General and Administrative Expenses**




Selling,
      general and administrative expenses for the third quarter of 2005 increased
      $618, or 5.4%, compared to the third quarter of 2004. This increase continued
      to
      reflect the investment in the sales and information technology organizations,
      as
      wells an increase in transportation and freight costs due to higher fuel costs.
      These increases were partially offset by a decrease in pension and retiree
      medical expenses.






17
          of
          26








**Depreciation**





Depreciation
      expense in the third quarter of 2005 decreased 26.9% compared to the same period
      a year ago. A portion of this reduction is due to the required triennial
      revaluation of the lease for the company’s Hunting Park facility, which reduced
      depreciation expense in the third quarter of 2005 by $136. It is also partially
      driven by the accelerated depreciation recognized in 2004 related to the
      previous Enterprise Resource Planning (ERP) system, partially offset by an
      increase in depreciation from the new ERP system implemented in the fourth
      quarter of 2004.





**Non-Operating
      Items**





Interest
      expense increased by $33 or 11.0% for the third quarter of 2005 compared to
      the
      third quarter of 2004. This is due to an increase in short term interest rates
      of 103 basis points and in long term interest rates of 195 basis points compared
      to the same period a year ago.





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 in the credit market. It is expected that a one percentage point
      increase in interest rates would result in additional quarterly expense of
      approximately $25, pre-tax.





In
      order
      to hedge the company’s exposure to changes in interest rates the company entered
      into a five year $6 million interest rate swap with PNC on August 3, 2005,
      with
      a fixed LIBOR rate of 4.64% and a five year $5.3 million interest rate swap
      with
      Citizens on September 13, 2005, with a fixed LIBOR rate of 4.42%.





The
      effective income tax rate was 34.0% and 38.0% for the thirteen weeks ended
      September 24, 2005, and September 25, 2004, respectively. These rates compare
      to
      a federal statutory rate of 34%. In 2005, the difference between the effective
      rate and the statutory rate is the result of estimated state tax benefits
      generated from state tax losses and federal tax credits. In 2004, the difference
      between the effective tax rate and the statutory tax rate was principally due
      to
      the effect of state income taxes.




**For
      the Thirty-nine Weeks ended September 24, 2005 and September 25,
      2004**





**Overview**





Net
      income for the thirty-nine weeks ended September 24, 2005 was $1,676 or $0.21
      per diluted share. Net income for the thirty-nine weeks ended September 25,
      2004, was $1,354 or $0.17 per diluted share. Results for the thirty-nine weeks
      ended September 24, 2005 were affected by the $93 gain from the sale of two
      distributor routes. Results for 2004 year to date were affected by a $75 gain
      from the sale of one distributor route.





**Sales**





Net
      sales
      increased by 6.2% in the thirty-nine weeks ended September 24, 2005 compared
      to
      the thirty-nine weeks ended September 25, 2004. Gross sales
      increased  4.6%
      for
      the same time period. The difference between the increase in net sales and
      the
      increase in gross sales was the result of volume growth of 3.6% year to date
      as
      well as improved price realization due to more favorable sales mix, and a
      reduction in product returns in the first half of 2005.





Route
      net
      sales were up 4.5% for the thirty-nine weeks ended September 24, 2005 compared
      to the thirty-nine weeks ended September 25, 2004. Total volume was up 3.6%
      year
      to date 2005 compared to the same period last year with positive sales volume
      growth in both the route and non-route business. Other factors contributing
      to
      the increase were sales of Tastykake Sens *ables* TM
and
      a
      reduced rate of product returns in the first half of 2005. Non-route net sales
      increased 12.3% for the thirty-nine weeks ended September 24, 2005 compared
      to
      the thirty-nine weeks ended September 25, 2004, due to increased sales to
      existing direct customers, as well as sales in new geographic areas through
      new
      third-party distributors. Net sales to existing direct customers benefited
      from
      the company’s focus on key accounts and incremental promotional programs to
      support new markets.






18
          of
          26








**Cost
      of Sales**





Cost
      of
      sales, excluding depreciation, for the thirty-nine weeks ended September 24,
      2005 increased by 5.2% compared to the thirty-nine weeks ended September 25,
      2004. The increase in cost of sales was in part due to the 3.6% increase in
      volume. Favorable pricing in the first half of 2005 for eggs, sugar and other
      ingredients was offset in the third quarter of 2005 by an increase in energy
      and
      packaging costs.





**Gross
      Margin**





Gross
      margin after depreciation, was 32.0% of net sales for the thirty-nine weeks
      ended September 24, 2005 compared to 30.6% for the thirty-nine weeks ended
      September 25, 2004. The 1.4 percentage point improvement resulted from the
      improved price realization on net sales in the first half of 2005, and a
      reduction in depreciation expense, partially offset by incremental commodity
      and
      energy costs as previously explained in this report.





**Selling,
      General and Administrative Expenses**




Selling,
      general and administrative expenses for the thirty-nine weeks ended September
      24, 2005 increased $3,776, or 11.0%, compared to the thirty-nine weeks ended
      September 25, 2004. This increase is partially attributed to increased
      investments made in the sales and information technology organizations as well
      as increased costs of transportation and freight due to higher fuel costs in
      the
      third quarter of 2005. A portion of this increase is also attributed to
      increased marketing spending and compliance related costs. These increases
      were
      partially offset by a reduction in pension and retiree medical expense.





**Depreciation**





Depreciation
      expense for the thirty-nine weeks ended September 24, 2005 decreased 11.3%
      compared to the same period a year ago. A portion of this decrease is due to
      the
      required triennial revaluation of the lease for the Hunting Park facility,
      which
      reduced depreciation expense in the third quarter of 2005. This decrease was
      also driven by the full depreciation of assets related to the previous ERP
      system, partially offset by an increase in depreciation from the new ERP system
      implemented in the fourth quarter of 2004.





In
      March
      2004, the company performed a comprehensive review of the estimated useful
      lives
      of all asset classes. As a result, the company evaluated the utilization of
      certain machinery and equipment and determined that its useful lives should
      be
      extended to 15 years from 7 years, consistent with similar assets already being
      depreciated over 15 years. The useful lives of buildings and improvements were
      standardized at 39 years from 15 to 35 years. Also as part of this review,
      the
      estimated useful lives for certain machinery, leasehold improvements and the
      ERP
      system were reduced, and depreciation was accelerated. The result of this change
      in estimate was a decrease in depreciation expense for the thirty-nine week
      period ended September 25, 2004 of $1,206 or $760 after tax, or $.09 per fully
      diluted share. Also, depreciation expense increased by $1,143 or $720 after
      tax,
      or $.09 during the thirty-nine weeks ended September 25, 2004, due to a change
      in estimated useful lives of certain machinery, leasehold improvements and
      the
      current ERP system which was replaced in the fourth quarter of 2004 when the
      new
      ERP system was implemented.





Management
      has accounted for these changes as changes in estimates because the facts,
      circumstances and assumptions surrounding the original determination of the
      useful lives have changed. For the ERP system, the company’s decision to
      implement a new system by the end of fiscal 2004 resulted in a change to the
      estimated useful life of the replaced ERP System. The changes in the estimated
      useful lives of the machinery and equipment from 7 years to 15 years relate
      to
      the Philadelphia, PA, bakery modernization that started in 1997. All machinery
      and equipment installed from 1997 to 1999 was assigned a 7 year life based
      on
      the assumption at the time about the quality of the equipment being installed.
      Starting in fiscal year 2000, management started assigning 15 year lives to
      the
      machinery and equipment as it was determined that the quality of the machinery
      and equipment was better than originally expected at the start of the
      modernization in 1997. In the company’s review completed in March 2004, the
      company determined that the machinery and equipment assigned 7 year lives from
      1997 to 1999 had the same performance characteristics as the machinery and
      equipment assigned 15 year estimated lives, thereby supporting the change in
      estimate in 2004. The plant modernization started in 1997 also supported the
      change in estimate for buildings and improvements to 39 years.







19
          of
          26





**Non-Operating
      Items**





Interest
      expense increased by $51 or 5.5%, for the thirty-nine weeks ended September
      24,
      2005, compared to the thirty-nine weeks ended September 25, 2004. This is due
      to
      increased average interest rates and average borrowing levels versus the same
      period a year ago.





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 in the credit market. It is expected that a one percentage point
      increase in interest rates would result in additional quarterly expense of
      approximately $25, pre-tax.





In
      order
      to hedge the company’s exposure to changes in interest rates the company entered
      into a five year $6 million interest rate swap with PNC on August 3, 2005,
      with
      a fixed LIBOR rate of 4.64% and a five year $5.3 million interest rate swap
      with
      Citizens on September 13, 2005, with a fixed LIBOR rate of 4.42%.





The
      effective income tax rate was 30.1% and 37.2% for the thirty-nine weeks ended
      September 24, 2005, and September 25, 2004, respectively. These rates compare
      to
      a federal statutory rate of 34%. In 2005, the difference between the effective
      rate and the statutory rate is the result of estimated state tax benefits
      generated from state tax losses as well as state and federal tax credits and
      first quarter adjustments related to prior year estimates. In 2004, the
      difference between the effective tax rate and the statutory tax rate is
      principally due to the effect of state income taxes. For the balance of 2005,
      the company expects an effective income tax rate of approximately
      34.0%.





**Liquidity
      and Capital Resources**





Current
      assets at September 24, 2005 were $34,532 compared to $30,153 at December 25,
      2004, and current liabilities at September 24, 2005, were $20,049 compared
      to
      $23,384 at December 25, 2004. The increase in current assets is primarily
      related to a seasonal increase in inventory and an increase in accounts
      receivable, net of the allowance. The accounts receivable increase is primarily
      attributed to the year-to-date increase in net sales of 6.2% and an increase
      in
      the accounts receivable from sales distributors. The accounts receivable
      allowance decreased by $876 which can be attributed to credits issued against
      the reserve for promotional expenses. The decrease in current liabilities was
      principally related to a decrease in accounts payable and the Amended Credit
      Agreement reclassifying notes payable into long term debt.





**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 Facility is maintained
      with two banks and certain capital and operating leases are
      utilized.





On
      September 13, 2005, the company entered into the Amended Credit Agreement for
      the Facility with PNC and Citizens. The Amended Credit Agreement increases
      the
      Banks’ commitment from $30 million to $35 million; changes the Facility from
      secured to unsecured; extends the maturity of the Facility from a three year
      term to a five year term expiring in September 2010; eliminates the short term
      portion of the Facility and reduces 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 Facility’s Tangible Net Worth covenant
      and the Funded Debt covenant that make them less restrictive. Interest rates
      in
      the Facility are indexed to LIBOR based upon the company’s ratio of debt to
      EBITDA and rates may change up to .5% based on that ratio. Commitment fees
      are
      charged on the unused portion of the Facility and range from 10 to 30 basis
      points based upon the same ratio used to determine interest rates. The new
      Facility will be used for general corporate purposes and such other uses as
      permitted under the Amended Credit Agreement.





On
      September 13, 2005, the company also entered into a Term Loan with Citizens
      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 Facility.
      The entire proceeds of the Term Loan were used to fund a voluntary contribution
      to the company’s previously frozen defined benefit Pension Plan.





In
      conjunction with the Term Loan described above, the company obtained from
      Citizens additional commitments to lend $4.7 million to the company upon certain
      conditions. If executed, the terms and conditions of these borrowings will
      be
      generally the same as the terms and conditions under the Term Loan with the
      addition of a mortgage and security interest if certain real property was to
      be
      acquired. These additional commitments from Citizens will expire on December
      31,
      2005 if not exercised by that date.






20
          of
          26





The
      Amended Credit Agreement replaced the existing facility, which had been amended
      on January 23, 2004, to reduce the commitments under the facility to $30
      million. The facility, as amended, provided $10 million for short-term
      borrowings under a 364-day line and $20 million for long-term borrowings under
      a
      three year revolving line. The 364-day line contained a $6 million sub-limit
      for
      overnight borrowings and the revolving line allowed for the issuance of Standby
      Letters of Credit up to $6 million, which reduced the availability under the
      facility. Upon approval of the Banks, the terms of both the 364-day line and
      the
      revolving line may have been extended for an additional 364-day or annual
      period, respectively. Interest rates in the facility were indexed to LIBOR
      or
      the Prime Rate based upon the company’s ratio of debt to EBITDA and rates may
      have changed up to 1.5% based on that ratio. Commitment fees were charged on
      the
      unused portion of the facility and ranged from 30 to 45 basis points based
      upon
      the same ratio used to determine interest rates. The facility, as amended,
      contained restrictive covenants that required the maintenance of minimum
      Tangible Net Worth, limited the amount of capital expenditures and limited
      the
      ratios of EBITDA to certain fixed charges and total indebtedness. The facility
      also provided the Banks with a security interest in all unencumbered assets
      of
      the company including certain real property. As stated above, the facility
      described in this paragraph was amended and restated on September 13,
      2005.





Net
      cash
      from operating activities for the thirty-nine weeks ended September 24, 2005,
      decreased by $10,382 compared to the same period in 2004.  This decrease
      was driven primarily by the funding of $5.3 million to the pension plan and
      by
      an unfavorable change in assets and liabilities in the first thirty-nine weeks
      of 2005 compared to the change in the same period in 2004.  The unfavorable
      change in assets and liabilities resulted from an increase in accounts
      receivable of $1.8 million and a seasonal increase in inventory of $2 million
      compared to the prior year.  Non-cash adjustments for pension and deferred
      taxes decreased for the thirty-nine weeks ended September 24, 2005 compared
      to
      the same period in 2004 due to the conversion to a defined contribution pension
      plan in 2005 which requires cash contributions that are currently deductible
      for
      tax purposes. This was partially offset by lower cash restructure payments
      in
      the first quarter of 2005 compared to the same period in 2004.





Net
      cash
      used for investing activities for the thirty-nine weeks ended September 24,
      2005
      decreased by $3,473 relative to the same period in 2004.  In the first
      thirty-nine weeks of 2005, there was a $3,770 decrease in capital expenditures
      relative to the same period in the prior year.  In the first thirty-nine
      weeks of 2004, the company began the implementation of its new ERP system. 
Partially offsetting this decrease in capital expenditures was a net increase
      of
      $196 in loans made to independent sales distributors relative to the same period
      last year.





Net
      cash
      from financing activities for the thirty-nine weeks ended September 24, 2005
      increased by $7,017 relative to the comparable period in 2004 due primarily
      to a
      $9,747 increase in the long-term debt offset by a $2,447 decrease in short-term
      borrowing. This increase was primarily attributed to the new term loan of $5.3
      million used to make a contribution to the pension plan.





For
      the
      remainder of 2005, the company anticipates that cash flow from operations,
      along
      with the continued availability of credit under the Amended Facility, will
      provide sufficient cash to meet operating and financing
      requirements.


21
          of
          26





**Certain
      Financing Activity**


Future
      payments due under debt, lease obligations, and employee benefits obligations
      as
      of September 24, 2005, are reflected in the following table:




**Payments
                Due by Period****Contractual
                Obligations (a)**
            
            Total
            
            Less
                than
              1
                year
            
            1-3
              years
            
            3-5
              years
            
            More
                than
              5
                yearsLong-term
                debt obligations (b)
            
            $
            21,100
            
            $
            353
            
            $
            -
            
            $
            20,747
            
            $
            -Capital
                lease obligations (c)
            
            
            4,359
            
            
            184
            
            
            1,855
            
            
            688
            
            
            1,632Operating
                lease obligations
            
            
            3,281
            
            
            443
            
            
            2,688
            
            
            150
            
            
            -Estimated
                employee benefit payments
            
            
            4,359
            
            
            510
            
            
            999
            
            
            931
            
            
            1,919Total
            
            $
            33,099
            
            $
            1,490
            
            $
            5,542
            
            $
            22,516
            
            $
            3,551




a.
            In
                addition to the obligations listed in this chart, the company enters
                into
                purchase commitments primarily related to the purchase of ingredients
                and
                packaging utilized in the ordinary course of business, which historically
                approximates $65 to $70 million annually. The majority of these items
                are
                obtained by purchase orders on an as needed basis. At September 24,
                2005,
                the company had $7.5 million in purchase commitments that extended
                beyond
                twelve months but were shorter than three years. At September 24,
                2005,
                the company had $0.7 million in one purchase commitment that extended
                seven years.


b.
            On
                September 13, 2005, the company entered into a loan agreement for
                $5.3
                million. The loan is based upon a 15 year amortization with a scheduled
                maturity in five years due in September 2010.


c.
            Capital
                lease obligation with interest at 11.0% and
                5.7%.








22
          of
          26





**Forward-Looking
      Statements**





Certain
      matters discussed in this Report, including those under the heading
      "Management's Discussion and Analysis of Financial Condition and Results of
      Operations," 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. These forward-looking statements can be identified
      by the use of such words 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 competition in the baking industry, concentration of customers,
      commodity prices, consumer preferences, long-term receivables, inability to
      develop brand recognition in the company’s expanded market, production and
      inventory concerns, 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 effect the recognition of pension corridor expense or income,
      governmental regulations, legal proceedings, pension expense, 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 prices 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, and the ability to develop and market in
      a
      timely and efficient manner new products which are accepted by consumers. The
      reader should review “Management’s Discussion and Analysis” and “Risk Factors”
in the company’s 2004 Annual Report to Shareholders and in the company’s annual
      report on Form 10-K for the year ended December 25, 2004, for a more complete
      discussion of these and other risk factors which may affect the company’s
      financial position or operating performance.





**Item
      3.**  **Quantitative
      and Qualitative Disclosures about Market Risk**





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 in the credit markets and the company’s financial performance. It is
      expected that a one percentage point increase in interest rates would result
      in
      additional quarterly expense of approximately $25 thousand, pre-tax. Under
      current market conditions, the company believes that changes in interest rates
      would not have a material impact on the financial statements of the company.
      The
      company also has notes receivable from independent sales distributors whose
      rates adjust every three years, which would partially offset the fluctuations
      in
      the company’s interest rates on its notes payable. The company also has the
      right to sell these notes receivable, and could use those proceeds to liquidate
      a corresponding amount of the notes payable. For a more detailed explanation
      see
      the company’s 2004 Annual Report on Form 10-K “Quantitative and Qualitative
      Disclosure about Market Risk,” page 16.





During
      the first three quarters of 2005 long-term corporate bond rates declined. Also,
      overall pension asset returns were below the 8.75% assumption through the
      thirty-nine weeks ended September 24, 2005. As a
      result, the actual discount rate and asset returns assumptions used to value
      the
      pension liability at December 31, 2005 could be higher than the actual rates
      as
      of the last day of fiscal 2005. This increases the risk that pension expense
      would fall outside of the pension corridor for fiscal year 2005. See “Pension
      and Postretirement Plans” under Item 2 for a description of the accounting
      treatment for the pension plan and the pension corridor.





In
      order
      to hedge the company’s exposure to changes in interest rates the company entered
      into a five year $6 million interest rate swap with PNC on August 3, 2005,
      with
      a fixed LIBOR rate of 4.64% and a five year $5.3 million interest rate swap
      with
      Citizens on September 13, 2005, with a fixed LIBOR rate of 4.42%.








23
          of
          26


**Item
      4.** **Controls
      and Procedures** ****





(a)  Evaluation
      of Disclosure Controls and Procedures





The
      company maintains a system of disclosure controls and procedures designed to
      provide reasonable assurance 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 rules and forms of the
      Securities and Exchange Commission (“SEC”). Disclosure controls and procedures
      include, without limitation, controls and procedures designed to ensure 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.





The
      company carried out an evaluation, under the supervision and with the
      participation of management, including the Chief Executive Officer and Chief
      Financial Officer, of the design and operation of the company’s disclosure
      controls and procedures as of the end of the period covered by this report.
      Based on this evaluation, the company’s Chief Executive Officer and Chief
      Financial Officer concluded that the company’s disclosure controls and
      procedures were not effective at September 24, 2005 because of the material
      weakness in internal control over financial reporting related to accounting
      for
      income taxes as fully described in our Annual Report on Form 10-K for the year
      ended December 25, 2004.





We
      performed additional analysis and other post-closing procedures to provide
      assurance that our consolidated financial statements are prepared in accordance
      with generally accepted accounting principles. Accordingly, management believes
      that the financial statements included in this report fairly present in all
      material respects our financial condition, results of operations and cash flows
      for the periods presented.





(b)  Changes
      in Internal Control over Financial Reporting





During
      the period covered by this report, the company has not made changes in its
      internal control over financial reporting that have materially affected, or
      are
      reasonably likely to materially affect, the company’s internal control over
      financial reporting. However, in the first and second quarters of 2005, the
      company implemented certain enhancements to its internal control over financial
      reporting related to the material weaknesses described in the company’s Form
      10-K for the year ended December 25, 2004:





1.
            Accounting
                for Income Taxes: The company has (i) implemented additional monitoring
                controls through increased documented management review; (ii) fully
                documented the methodology and tools for calculating and reporting
                tax
                related transactions; (iii) enhanced the formality and rigor of controls
                for reconciliation procedures; and (iv) increased use of a third-party
                service provider for the more complex areas of the company’s income tax
                compliance efforts. The enhancements have not been in place for a
                sufficient length of time to complete remediation testing on these
                controls. Management performed additional substantive procedures
                to ensure
                the accuracy of the amount of taxes recorded in this
                report.





2.
            Payroll:
                During the first quarter of 2005, the company made improvements to
                segregation of duties and formalized and implemented more rigorous
                approval policies and procedures. In the second quarter of 2005,
                the
                enhancements had been in place long enough for management to obtain
                a
                large enough sample size to complete remediation testing. Remediation
                testing evidenced that these controls give the company a reasonable
                level
                of assurance that employee access to and authority in the payroll
                system
                is appropriately restricted and that payroll expenses and liabilities
                are
                accurately recorded in this report.





3.
            Spare
                Parts Inventory: During the first quarter of 2005, the company formalized
                and enhanced management’s process for documenting and executing cycle
                counts, performing analytical procedures surrounding parts issues,
                and
                assuring authorization of price and use of parts on a monthly basis.
                These
                enhancements were in place long enough at the end of the first quarter
                of
                2005 for management to obtain a large enough sample size to complete
                remediation testing. Remediation testing evidenced that these controls
                give the company a reasonable level of assurance that expenses and
                assets
                related to spare parts are properly reflected in this report.





24
          of
          26


**TASTY
      BAKING COMPANY AND SUBSIDIARIES**





**PART
      II.**  **OTHER
      INFORMATION**





**Item
      5.**  **Other
      Information**




On
      October 31, 2005, the Board of Directors of the Company approved the amendment
      and restatement of the company’s by-laws. The purpose of the amendment was to
      add, clarify and modify certain provisions as summarized below:




Article
      I, Section I was modified to add flexibility to the determination of the
      location of the company’s principal office.




Article
      II was modified to include advance notice provisions for director nominations
      or
      other business to be properly brought before an annual or special meeting of
      the
      shareholders. In this regard, Article II was revised to include procedures
      and
      requirements by which these advance notice nominations and proposals are to
      be
      made.




The
      foregoing summary is qualified in its entirety by reference to the Amended
      and
      Restated By-laws, a copy of which is attached as Exhibit 3.1 to this Form
      10-Q.




**Item
      6.** **Exhibits**





(a)
            Exhibits:





Exhibit
      3.1 - By-Laws of company, as amended and restated on October 31,
      2005.





Exhibit
      10.1 - Amended and Restated Credit Agreement, dated September 13, 2005, is
      incorporated herein by reference to Exhibit 10.1 to Form 8-K, filed on or about
      September 16, 2005.





Exhibit
      10.2 - Loan Agreement, dated September 13, 2005, is incorporated herein by
      reference to Exhibit 10.2 to Form 8-K, filed on or about September 16,
      2005.





Exhibit
      31.1 - Certification of Chief Financial Officer pursuant to Section 302 of
      the
      Sarbanes-Oxley Act of 2002.





Exhibit
      31.2 - Certification of Chief Executive 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.














25
          of
          26


**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)November
                  3, 2005
              
              /s/
                  David S. Marberger(Date)
              
              DAVID
                  S. MARBERGERSENIOR
                  VICE PRESIDENT ANDCHIEF
                  FINANCIAL OFFICER(Principal
                  Financial and Accounting Officer)











26
          of
          26