Changes in accounting policy and restated financial statements (cont’d)

The following summarizes the impact of restatement for the change from Cnd to U.S. GAAP for consumer trade promotion expenditures in our Consolidated Statements of Operations:


		For the six months ended						For the three months ended

	February 28,			February 28,			February 28,			February 28,
	2006			2005			2006			2005

Total net revenues in accordance with Canadian GAAP	$	199,394		$	180,460		$	97,131		$	83,272
Less consumer and trade promotion expenses		(31,484	)		(24,908	)		(17,935	)		(13,716	)

Total net revenues in accordance with U.S. GAAP	$	167,910		$	155,552		$	79,196		$	69,556


	For the six months ended						For the three months ended

	February 28,			February 28,			February 28,			February 28,
	2006			2005			2006			2005

Total selling, general and administrative expenses in accordance with Canadian GAAP	$	56,275		$	39,453		$	29,998		$	21,133
Less consumer and trade promotion expenses		(31,484	)		(24,908	)		(17,935	)		(13,716	)

Total selling, general and administrative expenses in accordance with U.S.GAAP	$	24,791		$	14,545		$	12,063		$	7,417

Product introduction expenditures (i.e. slotting fees) incurred by the Company have been historically recognized as expense by amortizing the slotting fees over the twelve months subsequent to the actual acceptance of product introduction offers by our customers. Under U.S. GAAP, such expenditures are recognized as expenses at the time product introduction offers are accepted by our customers, which for measurement purposes is at the time of the first shipment of the product to each customer. As a result of this change, our previously reported net loss for the three months ended February 28, 2005 would have been decreased by $3,229 when compared with the net loss that would have been reported and for the six months ended February 28, 2005 would have been decreased by $4,152 when compared with the net gain that would have been reported using our historical accounting principals. Our reported net loss for the three months ended February 28, 2006 has been increased by $1,798 and for the six months ended February 28, 2006 has been increased by $73.

Changes in accounting policy and restated financial statements (cont’d)

The following summarizes the impact of restatement for the change from Cnd to US GAAP for new product introduction expenditures (slotting fees) in our Consolidated Statement of Operations:


	For the six months ended						For the three months ended

	February 28,			February 28,			February 28,			February 28,
	2006			2005			2006			2005

Net (loss) earnings in accordance with Canadian GAAP	$	(12,283	)	$	408		$	(9,750	)	$	(4,848	)
Adjustment for new product introduction expense		(73	)		(4,152	)		1,798			(3,229	)

Net (loss) earnings in accordance with U.S. GAAP	$	(12,356	)	$	(3,744	)	$	(7,952	)	$	(8,077	)

Stock-based compensation

On September 1, 2005, the Company adopted, on a retroactive basis without restatement, the recommendation of CICA Handbook Section 3870, “Stock-based compensation and other stock-based payments”, which required companies to adopt the fair value based method for all stock-based awards granted on or after September 1, 2002. Previously, the Company was required to disclose only the pro-forma effect of stock options issued to employees and employee directors in the notes to the financial statements.

As a result of adopting U.S. GAAP during the fourth quarter of 2005, as previously discussed, the Company adopted, on a modified prospective basis, the recommendations of Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 “Accounting for Stock Based Compensation.” This statement superseded Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends FASB Statement No. 95, “Statement of Cash Flows”.

The adoption of this accounting policy had no effect on the Consolidated Statement of Operations for the six and three months ended February 28, 2005.

On September 1, 2005 the Company adopted (“SFAS 123R”), Share-Based Payment, using the modified prospective application transition method. Because the fair value recognition provisions of SFAS No. 123, Stock-Based Compensation, and SFAS No. 123(R) were materially consistent under our equity plans, the adoption of SFAS No. 123(R) did not have a significant impact on our financial position or our results of operations. Prior to our adoption of SFAS No. 123(R), benefits of tax deductions in excess of recognized compensation costs were reported as operating cash flows. SFAS No. 123(R) requires excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid.

Our net income for the six and three months ended February 28, 2006 includes $620 and $357, respectively, of compensation costs and $245 and $141, respectively, of income tax benefits related to stock-based compensation arrangements. Our net income for the six and three months ended February 28, 2005 included $161 and $81, respectively of compensation costs and $64 and $32, respectively of income tax benefits related to our stock-based compensation arrangements.


(Unaudited)	February 28, 2006			August 31, 2005
(Amounts expressed in thousands of dollars)	(Unaudited)

Assets
Current assets:
Cash	$	13,651		$	24,062
Investments					7,500
Restricted cash		10,000			10,000
Receivables, net		38,405			51,575
Receivables – affiliates		3,146			1,919
Inventories		40,879			49,472
Franchising net assets held for sale					7,203
Income taxes recoverable		14,007			9,813
Prepaid expenses		1,210			2,347
Deferred income taxes		7,051			5,148

Total current assets		128,349			169,039

Deferred income taxes, net of valuation allowance		14,969			14,799

Property, plant and equipment		45,136			46,567

Intangible and other assets		21,597			21,204

Goodwill		43,382			43,382

	$	253,433		$	294,991

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	26,098		$	51,518
Payables – affiliates		590			620
Accrued liabilities		35,654			29,417
Deferred income taxes		93			93
Short term borrowings		30,941			34,553
Current maturities of long-term debt		14,609			18,161

Total current liabilities		107,985			134,362

Long-term debt		8,055			8,248

Other liabilities		2,967			2,442

Deferred income taxes		6,180			6,145

Total liabilities		125,187			151,197

Minority interest		1,526			5,388

Commitments and contingencies

Shareholders’ equity:

Capital stock		97,727			97,578

Additional paid-in-capital		46,939			46,376

Accumulated other comprehensive earnings		(1,738	)		(1,696	)

Retained earnings		(16,208	)		(3,852	)

Total shareholders’ equity		126,720			138,406

	$	253,433		$	294,991


	For the six months ended						For the three months ended
	February 28, 2006			February 28, 2005			February 28, 2006			February 28, 2005
Net revenues:

Net sales	$	164,129		$	146,401		$	77,309		$	63,841

Drayage and other income		3,781			9,151			1,887			5,715


Total net revenues		167,910			155,552			79,196			69,556


Cost of goods sold		164,377			148,729			80,816			74,265
Selling, general and administrative expenses		24,791			14,545			12,063			7,417
Stock-based compensation expense		620			161			357			81
Interest expense		2,464			690			1,167			337
Asset Impairment					1,401						1,401

Loss from continuing operations before income tax and minority interest		(24,342	)		(9,974	)		(15,207	)		(13,945	)

Minority interest		3,660			1,457			1,890			815


Loss from continuing operations before income taxes		(20,682	)		(8,517	)		(13,317	)		(13,130	)

Recovery of income taxes		(8,068	)		(3,745	)		(5,194	)		(4,756	)

Loss from continuing operations		(12,614	)		(4,772	)		(8,123	)		(8,374	)

Discontinued operations:
(Loss) gain from operations of Franchising segment		(148	)		1,028			(235	)		297
Gain on sale of Franchising segment		406						406


Net loss	$	(12,356	)	$	(3,744	)	$	(7,952	)	$	(8,077	)


(Loss) earnings per share, basic and diluted:
Continuing operations	$	(0.23	)	$	(0.09	)	$	(0.15	)	$	(0.15	)
Discontinued operations		0.01			0.02			0.01			0.01

Net loss	$	(0.22	)	$	(0.07	)	$	(0.14	)	$	(0.14	)


Weighted average shares outstanding:

Shares used in per share calculation – basic and diluted		56,022			55,907			56,033			55,921


	Capital stock		Additional paid-in-capital			Accumulated other comprehensive (losses)			Retained earnings			Total stockholder equity

Balance at August 31, 2005	$	97,578	$	46,376		$	(1,696	)	$	(3,852	)	$	138,406

Comprehensive loss:

Net loss										(12,356	)		(12,356	)
Other comprehensive earnings (loss), net of income taxes:
Stock-based compensation expense				620									620
Currency translation adjustment							(42	)					(42	)

Total other comprehensive earnings													578

Total comprehensive loss													(11,778	)
Issuance of shares for stock options exercised		149		(57	)								92


Balance at February 28, 2006	$	97,727	$	46,939		$	(1,738	)	$	(16,208	)	$	126,720

	For the six months ended						For the three months ended
(Unaudited) (Amounts expressed thousands of dollars)	February 28, 2006			February 28, 2005			February 28, 2006			February 28, 2005

Cash and short term investments provided by (used in):
Operating activities:
Net loss	$	(12,356	)	$	(3,744	)	$	(7,952	)	$	(8,077	)
Adjustments to reconcile net earnings to net cash flows from operating activities

Depreciation and amortization		3,075			1,211			1,781			956
Stock-based compensation expense		620			161			357			81
Excess tax benefit from stock-based compensation		(245	)					(141	)
Asset impairment					1,401						1,401
Deferred income taxes		(2,038	)		197			(745	)		(183	)
Minority interest		(3,660	)		(1,454	)		(1,770	)		(812	)
Allowance for doubtful accounts		445			(490	)		389			(12	)
Net loss from discontinued operations		148			(1,028	)		235			(297	)
Gain on sale on discontinued operations		(406	)					(406	)
Cash effect of changes
Receivables		12,967			16,629			(1,875	)		17,069
Receivables - affiliates		(1,227	)		561			(1,460	)		(136	)
Inventories		8,592			1,124			4,356			2,565
Prepaid expenses		735			(2,148	)		(14	)		(827	)
Other assets		(549	)		(74	)		(238	)		85
Income taxes recoverable		(14,141	)					(4,728	)
Accounts payable		(25,420	)		(11,366	)		(5,696	)		(16,693	)
Payables - affiliates		(30	)		(660	)		36			(209	)
Accrued liabilities		6,189			11,027			9,626			7,221
Income taxes payable		9,947			(6,332	)		(1	)		(4,008	)
Other liabilities		525			(247	)		517			31

Cash (used in) provided by operating activities		(16,829	)		4,768			(7,729	)		(1,845	)

Investing activities:
Purchase of property, plant, and equipment		(1,755	)		(3,187	)		(1,079	)		(1,035	)
Purchase of license agreements and other intangibles					(17	)					(3	)
Redemption of investments		7,500
Issuance of notes receivable		(251	)					(251	)
Collection of notes receivable		20			5			20			1

Cash provided by (used in) investing activities		5,514			(3,199	)		(1,310	)		(1,037	)

Financing activities:
Proceeds from issuance of Class A and B shares		92			30						30
Proceeds from issuance of capital leases		172						172
Change in revolving line of credit, secured		(3,612	)		(400	)		(3,612	)		(2,623	)
Repayment of long-term debt		(3,917	)		(1,789	)		(2,240	)		(964	)
Excess tax benefits from stock-based compensation		245						141

Cash used in financing activities		(7,020	)		(2,159	)		(5,539	)		(3,557	)

Decrease in cash flow due to changes in foreign exchange rates		(42	)		(1,084	)		(49	)		1,016

Cash flows from discontinued operations:
Net (loss) gain from Franchising Operations		(148	)		1,028			(235	)		297
Operating		81			2,565			(236	)		425
Investing		8,033			(222	)		8,004			(78	)

Cash provided by discontinued operations		7,966			3,371			7,533			644

(Decrease) increase in cash and cash equivalents		(10,411	)		1,697			(7,094	)		(4,779	)
Cash and short-term investments – beginning of period		24,062			36,277			20,745			42,753

Cash and cash equivalents – end of period	$	13,651		$	37,974		$	13,651		$	37,974


1.	Significant accounting policies

	The financial statements of the Company have been prepared by management in accordance with generally accepted accounting principles in the United States of America for interim financial statements. The financial statements have, in management’s opinion, been properly prepared using judgment within reasonable limits of materiality. These interim financial statements do not include all the note disclosures required for annual financial statements and therefore they should be read in conjunction with the company’s audited financial statements for the year ended August 31, 2005. The significant accounting policies follow those disclosed in the most recently reported annual financial statements.

	Certain amounts have been reclassified in the prior financial statements to conform to the presentation used at February 28, 2006.

2.	Accounting estimates

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

3.	Changes in accounting policy and restated financial statements

	Adoption of U.S. GAAP

	During the fourth quarter of 2005, the Company adopted, on a retroactive basis, accounting principles generally accepted in the United States of America. Previously the Company prepared its annual and interim consolidated financial statements in accordance with generally accepted accounting principals in Canada (“Cnd GAAP”). As a result, the following adjustments have been made to previously issued Consolidated Financial Statements.

	The Company promotes its products with advertising, consumer incentive and trade promotions. Such programs include, but are not limited to, cooperative advertising, promotional discounts, coupons, rebates, in-store display incentives, volume based incentives and product introductory payments (i.e. slotting fees). Such consumer and trade promotion activities have been historically accounted for as selling, general and administrative expenses. In accordance with EITF No. 01-09 “Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendors Products” certain payments made to customers by the Company, including promotional sales allowances, cooperative advertising and product introductory expenditures must be deducted from revenue.

	Accordingly, our Consolidated Statements of Operations for the six and three months ended February 28, 2005 have been restated to reflect a reduction in revenues and selling, general and administrative expenses of $24,908 and $13,716, respectively. Our Consolidated Statements of Operations for the six and three months ended February 28, 2006 reflects a decrease in revenue and selling, general administrative expenses of $31,484 and $17,935, respectively.



	(Amounts are expressed in thousands of dollars)

4.	Segment information


	Frozen dessert			Yogurt			Foodservice			Dairy components		Corporate			Consolidated

For the six months ended February 28, 2006

Net Revenues	$	96,353		$	53,432		$	8,648		$	9,452	$	25		$	167,910

Inter-segment Revenues		15,084						8			1,136		54			16,282

Segment (loss) earnings from continuing operations before income taxes		(21,087	)		1,629			(234	)		1,068		(2,058	)		(20,682	)

For the six months ended February 28, 2005

Net Revenues	$	137,930					$	8,905		$	8,614	$	103		$	155,552

Inter-segment Revenues		20,111						262			1,596		103			22,072

Segment (loss) earnings from continuing operations before income taxes		(11,697	)					625			1,083		1,472			(8,517	)

For the three months ended February 28, 2006

Net Revenues	$	43,099		$	27,582		$	4,439		$	4,069	$	7		$	79,196

Inter-segment Revenues		8,410						(50	)		587		15			8,962

Segment (loss) earnings from continuing operations before income taxes		(12,761	)		(2	)		(4	)		270		(820	)		(13,317	)

For the three months ended February 28, 2005

Net Revenues	$	61,654					$	4,294		$	3,549	$	59		$	69,556

Inter-segment Revenue		8,317						147			999		59			9,522

Segment (loss) earnings from continuing operations before income taxes		(12,570	)					239			265		(1,064	)		(13,130	)



	(Amounts are expressed in thousands of dollars)

5.	Capital stock

	The Company had the following equity securities and stock options outstanding as of April 10, 2006:


Class A Subordinate Voting Shares	Class B Multiple Voting Shares	Stock Options

50,049	6,027	2,668


6.	Subsequent events

	Effective December 31, 2005 the Company obtained an initial extension of its existing credit facilities with JP Morgan Chase Bank. Effective April 3, 2006, the maturity date of the existing facilities was extended to May 3, 2006. All other terms and conditions of the existing facilities remain the same.