UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F/A

Amendment No. 1

(MARK ONE)

o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 2006

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

o SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Event Requiring this Shell Company Report ___________

COMMISSION FILE NUMBER             000-27476

COOLBRANDS INTERNATIONAL INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Not Applicable

 (TRANSLATION OF REGISTRANT'S NAME INTO ENGLISH)

Province of Ontario, Canada

(JURISDICTION OF INCORPORATION OR ORGANIZATION)

210 Shields Court

Markham, Ontario

Canada L3R 8V2

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT.

	NAME OF EACH EXCHANGE
TITLE OF EACH CLASS		ON WHICH REGISTERED
	Not Applicable

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT.

Not Applicable

(TITLE OF CLASS)

 (TITLE OF CLASS)

SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d) OF THE ACT.

Class A Subordinate Voting Shares

Class B Multiple Voting Shares

(TITLE OF CLASS)

INDICATE THE NUMBER OF OUTSTANDING SHARES OF EACH OF THE ISSUER'S CLASSES OF CAPITAL OR COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE ANNUAL REPORT.

Subordinate Voting Shares:	50,049,774
Multiple Voting Shares:	6,025,659

INDICATE BY CHECK MARK IF THE REGISTRANT IS A WELL-KNOWN SEASONED ISSUER, AS DEFINED IN RULE 405 OF THE SECURITIES ACT.

oYES  x NO

IF THIS REPORT IS AN ANNUAL OR TRANSITION REPORT, INDICATE BY CHECK MARK IF THE REGISTRANT IS NOT REQUIRED TO FILE REPORTS PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

x YES  o NO

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

x YES  o NO

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN ACCELERATED FILER, OR A NON-ACCELERATED FILER. SEE DEFINITION OF “ACCELERATED FILER” IN RULE 12B-2 OF TE EXCHANGE ACT (CHECK ONE):

LARGE ACCELERATED FILER    o         ACCELERATED FILER   x       NON-ACCELERATED FILER     o

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

x ITEM 17  o ITEM 18

IF THIS IS AN ANNUAL REPORT, INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT

o YES  x NO

EXPLANATORY NOTE

The sole purpose of this amendment is to attach separately the exhibits to the Form 20-F of CoolBrands International Inc. for the fiscal year ended August 31, 2006, filed on August 31, 2007 with the Securities and Exchange Commission.

This Amendment is not intended to revise other information presented in the Company’s Annual Report on Form 20-F for the fiscal year ended August 31, 2006 as originally filed, which remains unchanged. This Amendment does not reflect events occurring after the filing of the original Form 20-F and does not modify or update the disclosure therein in any way other than as required to reflect the amendment discussed above.

TABLE OF CONTENTS

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

FORWARD-LOOKING STATEMENTS

       This report contains certain forward-looking statements with respect to CoolBrands International Inc., its subsidiaries and affiliates (the “Corporation,” the “Company” or “CoolBrands”).  These statements are often, but not always, made through the use of words or phrases such as “expect”, “should continue”, “continue”, “believe”, “anticipate”, “estimate”, “contemplate”, “target”, “plan”, “budget” “may”, “will”, “schedule” and “intend” or similar formulations.  By their nature, these forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant, known and unknown, business, economic, competitive and other risks, uncertainties and other factors affecting CoolBrands specifically or its industry generally that could cause actual performance, achievements and financial results to differ materially from those contemplated by the forward-looking statements.  These risks and uncertainties include the Company’s ability to sell certain assets and businesses to generate liquidity; the Company’s ability to generate adequate gross margins from its remaining businesses; the tastes and preferences of the U.S. retail consumer of CoolBrands’ products; the ability of CoolBrands to be competitive in the highly competitive U.S. market for frozen dessert products at its substantially reduced size; fluctuations in consumption of CoolBrands’ products and services as a result the seasonal nature of the frozen dessert industry; the ability of CoolBrands to retain or acquire shelf space for its products in supermarkets, club stores and convenience stores; the ability of CoolBrands to rebuild the business given the service and production issues it has had as a result of its downsizing; the ability of CoolBrands to liquidate its remaining business efficiently; the ability of CoolBrands to invest in or merge with another operating business;  the ability of CoolBrands to effectively manage the risks inherent with any  mergers and acquisitions; the effect on foreign operations of political, economic and regulatory risks; currency risk exposure; the ability to recruit (if the Company tries to rebuild) and retain qualified employees; changes in prices for raw materials; the ability of CoolBrands to pass on cost increases resulting from inflation; and other risks described from time to time in publicly filed disclosure documents of CoolBrands and its subsidiaries and affiliates. In view of these uncertainties we caution readers not to place undue reliance on these forward-looking statements.  Statements made in this document are made as of August 31, 2007 and CoolBrands disclaims any intention or obligation to update or revise any statements made herein, whether as a result of new information, future events or otherwise.

      All dollar amounts referred to herein are in United States dollars unless otherwise noted.

1

PART I

Item 1 Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2 Offer Statistics and Expected Timetable

Not applicable.

Item 3 Key Information

Item 3(A) Selected Financial Data

      The following selected financial data for the five years ended August 31, 2006 are derived from the audited consolidated financial statements of CoolBrands.  These selected financial data should be read in conjunction with "Operating and Financial Review and Prospects" and our consolidated financial statements and notes thereto.  In 2005, the Company adopted generally accepted accounting principles in the United States and changed its reporting currency from Canadian dollars to U.S. dollars. For comparative purposes, historical financial statements and notes have been restated to reflect these changes.

Statement of Operations Data

(000 omitted, except for per share data)

For the year ended August 31,

	2006			2005			2004		2003		2002
Revenues	$	99,348		$	149,710		$	280,736	$	161,394	$	94,616
Net (loss) income from continuing operations	$	(63,620	)	$	(69,016	)	$	20,325	$	15,031	$	8,978
(Loss) income from discontinued operations		(6,972	)		(5,054	)		3,187		3,795		3,019
Gain on sale of discontinued operations		410
Net (loss) earnings	$	(70,182	)	$	(74,070	)	$	23,512	$	18,826	$	11,997
Basic (loss) earnings per share from continuing  operations	$	(1.13	)	$	(1.23	)	$	0.37	$	0.29	$	0.19
Basic (loss) earnings per share from discontinued operations		(0.12	)		(0.09	)		0.05		0.07		0.06
Basic (loss) earnings per share	$	(1.25	)	$	(1.32	)	$	0.42	$	0.36	$	0.25
Fully diluted (loss) earnings per share from continuing operations	$	(1.13	)	$	(1.23	)	$	0.37	$	0.28	$	0.18
Fully diluted (loss) earnings per share from discontinued operations		(0.12	)		(0.09	)		0.05		0.07		0.06
Fully diluted (loss) earnings per share	$	(1.25	)	$	(1.32	)	$	0.42	$	0.35	$	0.24

2

Balance Sheet Data

(000 omitted, except for per share data)

As At August 31,

	2006			2005		2004		2003		2002
Working Capital	$	(23,992	)	$	28,477	$	118,138	$	58,985	$	34,796
Total Assets	$	160,548		$	297,845	$	317,257	$	223,684	$	179,972
Total Long-Term Liabilities(1)	$	3,173		$	17,514	$	25,658	$	34,205	$	24,677
Shareholders' Equity	$	61,118		$	138,406	$	211,101	$	132,714	$	107,513
Number of Shares issued and outstanding:
Class A  Subordinate Voting Shares		50,049			49,918		49,863		45,629		45,497
Class B Multiple Voting Shares		6,026			6,029		6,030		6,179		6,209

¹ At August 31, 2006, the Company had $10,077 outstanding under the Corporate Credit Facility, as defined in Recent Developments – 2006, and $23,501 outstanding under the Americana Credit Facility, as defined in Recent Developments – 2006, ($6,418 under the revolver and $17,083 under the term loans).  As of May 31, 2006 and August 31, 2006, the Company and Americana Foods were in default of certain financial covenants of each of the Americana Credit Facility and the Corporate Credit Facility.  Accordingly the debt outstanding under the Corporate Credit Facility and Americana Credit Facility was classified as current liabilities in the August 31, 2006 Balance Sheet.

Item 3(B) Capitalization and Indebtedness

Not applicable.

Item 3(C) Reasons for the Offer and Use of Proceeds

Not applicable.

Item 3(D) Risk Factors

      In addition to the other information contained and incorporated by reference in this Annual Report on Form 20-F, the following risk factors should be carefully considered in evaluating the Company and its business:

Our filing is not in conformity with SEC rules and regulations

      This annual report does not include full certifications by our Chief Executive Officer and Chief Financial Officer as required by Exhibits 12 and 13 of this report. Accordingly, this report does not fully comply with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Failure to conform to SEC disclosure requirements could expose us to greater risks for litigation, regulatory proceedings or enforcement actions. Such matters, if they were to occur, could be time consuming and distract management from the conduct of business and we could be required to pay damages or penalties or have other remedies imposed, which could harm our business, financial condition, results of operations and cash flows.

We May Incur Losses in Connection with Litigation

We currently are and we may continue to be subject to legal proceedings and disputes with joint-venture partners, franchisees, former franchisees and others.  We may not have sufficient resources to continue the defense of these proceedings or to satisfy any adverse judgment that may be rendered against us.  See “Legal Proceedings”.

3

Credit Risk

We rely on major retailers in the U.S. for a substantial portion of our sales. As a result of this concentration of sales and accounts receivable, we are subject to certain credit risks. In fiscal 2006 and fiscal 2005, one customer accounted for 10.2% and 17%, respectively, of our sales from continuing operations.

Key Personnel

We are currently dependent upon a small number of key management personnel.  The loss of these key personnel may adversely affect our ultimate financial position. Due to recent dispositions of businesses made by us, we may be unable to retain appropriate personnel on a going forward basis.  We have entered into incentive programs with certain key employees in order that they assist in the winding up of certain operations in the U.S.

Mergers, Acquisitions and Dispositions

We have made acquisitions of, or significant investments in, businesses or assets with complementary products or unrelated industries and we may do so again in the future.  Acquisitions involve numerous risks, including but not limited to: (i) diversion of our management’s attention from other operational matters; (ii) the inability to realize expected synergies from the acquisition; (iii) impairment of acquired intangible assets as a result of worse-than-expected performance of the acquired operations; (iv) integration and retention of key employees; and (v) integration of operations.  Mergers and acquisitions are inherently subject to significant risks, and the inability to effectively manage these risks has materially and adversely affected our business, financial condition and results of operations.  Since the end of fiscal 2006, we have made several additional dispositions of businesses and as of August 30], 2007, we no longer operate any active businesses. The last remaining operating businesses of the Company were a manufacturing operation of frozen dessert products in California that was sold on March 30, 2007 and the operation of a manufacturing facility in Arkansas pursuant to a Copack arrangement that was finished on August 5, 2007.

Inflation

Inflation can significantly impact ice cream, frozen desserts ingredients, including milk, butterfat and packaging costs. In the past, we have been able to pass on ingredient, energy and freight cost increases by raising prices on selected product lines.  Because of our current level of operations, we do not believe inflation will materially affect on our business.

Raw Materials

We are subject to risks with respect to our cost of raw materials, some of which are subject to changes in commodity prices, particularly the cost of butterfat, which is used to produce ice cream products.  From time to time, we have used hedging contracts to reduce our exposure to such risks with respect to our raw material costs.  We were not a party to any hedging contracts in fiscal 2006 nor are we currently a party to any hedging contracts.

Consumer Tastes

Our products are ultimately purchased by the U.S. retail consumer, whose tastes and preferences are subject to variation and change.  Although carefully monitored, these changes cannot be controlled and are difficult to predict.

Seasonality

The frozen dessert industry generally experiences its highest volume during the spring and summer months and its lowest volume in the winter months.

Shelf Space

Our existing shelf space for our products, along with that of all other products, is reviewed at least annually by our customers. Supermarket, club store and convenience store chains reallocate their total shelf space taking into effect a number of variables, including the number of new products being introduced at any given time, the amount of new product placement fees (slotting fees) being offered by companies in the ice cream and frozen dessert treats industries and by changing consumer tastes and fads. As a result, we are subject, in any given year, to the loss of shelf space with our customers and the loss in revenues associated with the sale of those products.  There is also substantial risk that the sales of such new products will not be as successful as we had previously estimated or as successful as new products introduced by us in the past. The risks associated with the reallocation of shelf space by our customers and the development and introduction of new products could have a material adverse effect upon our financial position and results of operations.  Because we are no longer manufacturing product as described in Item 4(B) foodservice segment, we will not be competing in our current situation for shelf space.

4

 Competition

We have historically derived a substantial portion of our revenues from our operations in the United States. The U.S. market for frozen desserts is highly competitive. As competitors introduce new products or revise their supply or pricing strategies, we may encounter additional and more intense competition. Such competitors may have greater name recognition and more extensive financial, technological, marketing and personnel resources than we do. We have significantly downsized our operations and no longer have the resources or base of business to compete with our traditional competitors.

 Rebuild the Business

We may try to rebuild the business. However as a result of the downsizing and the adverse affect it has had on remaining operations, customers and vendors may be reluctant to do business with us and as a result, it may be difficult for us to rebuild, if attempted, to a level of profitability.

Purchase of New Business

We may try to purchase a new business.  There is significant competition in the buying and selling of businesses and we may not be able to identify target acquisitions that are appropriate from a strategic perspective, a management perspective, and a price perspective. Additionally, if we were able to identify an acquisition target, we would be required to, among other things (i) successfully integrate new management and (ii) develop a growth strategy.

Lease Obligations

We have abandoned several leased properties.  The Company has significant financial obligations under these leases. See Item 5 Operating and Financial Review and Prospects-Contractual Obligations. We may not be able to settle these lease obligations under favorable terms.

Liquidity

We currently have sufficient working capital to fund operations for the next twelve months.  If we are  unable to wind down existing businesses which are operating at a loss, on a timely basis, or if an adverse judgment were entered against us  in any litigation asserted or unasserted at this time, the Company’s liquidity may be reduced to levels that make it difficult to purchase a new business or to continue to operate.

Item 4 Information on the Company

Item 4(A) History and development of the Company

      The Corporation was formed under the Business Corporations Act (Ontario) by articles of amalgamation dated September 7, 1994 under the name Yogen Fruz World-Wide Inc. On March 18, 1998, the Corporation was continued under the Companies Act (Nova Scotia) under the name Yogen Fruz World-Wide Inc. and reorganized its share capital to provide for multiple voting shares and subordinate voting shares. On March 15, 2000, the Corporation amended its articles to change its name to CoolBrands International Inc.  On February 27, 2006, the shareholders of the Corporation passed a special resolution to continue the Corporation under the Canada Business Corporation Act effective March 27, 2006.  Additionally on February 27, 2006, the shareholders of the Corporation passed a special resolution which resulted in the collapse of the dual class structure on May 31, 2007. (See “Recent Developments – 2006” for further discussion) The principal and registered office of the Corporation is located at 210 Shields Court, Markham, Ontario, L3R 8V2. The Corporation's principal office in the United States was closed on March 31, 2007. See discussion of discontinued operations in Item 5, “Operating and Financial Review and Prospects,” “Discontinued Operations.” As of the date hereof, the Company is no longer manufacturing product, other than under its Co-Packing arrangement pursuant to the sale of the foodservice segment in January discussed below in the description of the foodservice sale. The Company is liquidating existing inventory and trying to sell its real estate, equipment and trade names that it owns.

      Recent Developments

Significant developments since August 31, 2006 include:

·   In September 2006, Eskimo Pie Corporation, a wholly-owned subsidiary of the Corporation, sold its Value America flavors and ingredients division, which comprised substantially all of the Corporation’s dairy component segment for gross proceeds of approximately $8,250,000 to an unaffiliated third party.

·   In September 2006, a lawsuit was filed in the Supreme Court of the State of New York against the Corporation and certain of its subsidiaries and employees of Americana Foods by Americana Foods Corporation.  Americana Foods Corporation, which, through Capricorn Investors III LP, owns a 49.9% interest in Americana Foods, is seeking monetary damages, certain declaratory orders and injunctive relief based on an alleged erosion in the value of its investment.

5

·   On October 11, 2006, the lenders to Americana Foods Limited Partnership (“Americana Foods”), CoolBrands’ 50.1% owned joint venture facility in Dallas Texas, under the Americana Credit Facility (as defined below in Recent Developments-2006), advised Americana Foods that, on account of the existing defaults under its credit facilities, they were no longer willing to lend funds and demanded full and immediate repayment on all borrowings.  Certain subsidiaries of the Corporation filed an involuntary petition against Americana Foods under Chapter 7 of the U.S. Federal Bankruptcy Code, and Americana Foods ceased operations in October 2006.

·   In November 2006, the Corporation’s subsidiary, Eskimo Pie Frozen Distribution, Inc. (“EPFD”), sold substantially all of its “direct store door” frozen distribution assets in Florida, California, Oregon and Washington to an unaffiliated third party, for net proceeds of approximately $5,736,000.

·   On November 17, 2006, 2118769 Ontario Inc., a company controlled by Mr. Michael Serruya, currently the Company’s Chairman, President and Chief Executive Officer, (“2118769”), entered into an agreement to acquire, at par, all of the indebtedness of the senior lenders under the Americana Credit Facility.  In connection with this purchase, 2118769 also entered into a forbearance agreement (“Forbearance Agreement”) with CoolBrands pursuant to which 2118769 agreed, for a period of 6 months, not to take any action to demand repayment of the indebtedness on account of existing defaults under the Americana Credit Facility( as defined below in Recent Developments-2006).  As part of this transaction, JPMorgan Chase Bank, N.A. (“JPMorgan”) and the other senior lenders agreed to continue to make available to the Corporation $8,000,000 under the Corporate Credit Facility, as defined below in Recent Developments-2006.  Mr. Serruya, through 2118769, also established a $5,000,000 letter of credit in favor of the senior lenders as additional security for the $8,000,000 Corporate Credit Facility (as defined below in Recent Developments-2006).

In consideration for 2118769 entering into both the Forbearance Agreement and providing the Letter of Credit to the senior lenders, the Company issued to Mr. Michael Serruya, warrants to purchase up to 5.5 million subordinate voting shares.  The warrants expire in November 2011 and the exercise price is Cdn $0.50 per warrant.

·   Also on November 17, 2006, the Corporation replaced its independent directors, Mr. Robert E. Baker, Mr. William McMananan, Mr. Joshua L. Sosland and Ms. Beth L. Bronner, with Mr. Romeo DeGasperis, Mr. Garry Macdonald, and Mr. Ronald W. Binns. Additionally, on this date Mr. David Stein resigned from the board of directors.

·   On January 24, 2007, the Corporation sold, through its subsidiaries Eskimo Pie Corporation and Integrated Brands Inc., their Eskimo Pie and Chipwich Brands and Real Fruit trademark, along with Eskimo Pie soft serve brands and related foodservice business segment, to Dreyer’s Grand Ice Cream Inc. (“Dreyers”), an indirect subsidiary of Nestle S.A., for a purchase price of approximately $18,925,000.  The purchase price includes approximately $4,000,000 in inventory and accounts receivables.  Dreyer’s also assumed related liabilities in the amount of approximately $1,000,000.  A portion of the proceeds from the sale were utilized to pay off the amounts outstanding under the Corporate Credit Facility.

·   On January 30, 2007, effective January 27, 2007, the Corporation sold all of the issued and outstanding stock of CoolBrands Dairy, Inc. (“CBD”), an indirect, wholly owned subsidiary of the Corporation to Lily Acquisition, LLC.  As consideration for the transaction, the Corporation received $45,000,000 in cash, a $5,000,000 subordinated promissory note and a warrant to purchase 200 shares of common stock of Yogurt Holdings II Inc. at a price of $12,500 per share.

·   In February 2007, the Company closed its printing and packaging plant in Bloomfield, New Jersey and is actively marketing the plant for sale.

·   The Company was served notice on March 12, 2007 by Godiva Chocolatier, Inc. and Godiva Brands, Inc. alleging that the Company has breached its license agreement and the licensor has filed a claim in the Supreme Court of the State of New York for damages of $14 million for breach of contract plus additional damages.  The outcome and resolution of such claim is uncertain at this time.

·   On March 30, 2007, the Company sold its frozen dessert operation at Norwalk, California to an unrelated third party for proceeds of approximately $4,600,000.

6

2006

·   CoolBrands reported a consolidated net loss for the year ended August 31, 2006 of $(70,182,000).  Major developments in fiscal 2006 included:

● On September 2, 2005, the Corporation entered into an amendment to its credit facilities with JPMorgan Chase Bank, N.A.(“JPMorgan Chase Bank, N.A.” or “JPMorgan”) (the “Credit Amendment”). The Credit Amendment extended the maturity of the existing facilities from November 1, 2005 until January 3, 2006 and waived defaults in its financial covenants resulting from the Corporation’s performance for the quarters ended May 31, 2005 and August 31, 2005. The Credit Amendment also eliminated all of the existing financial covenants from the loan agreements through the remainder of the term. The Credit Agreement was refinanced in April 2006 as described below.

● On December 23, 2005, the Corporation sold substantially all of its franchising division to International Franchise Corp., a related party, for cash consideration of $8 million. The Corporation received a fairness opinion from an unaffiliated third party in connection with this transaction.

● On February 27, 2006, the shareholders of the Corporation passed a special resolution to exchange each Class A subordinate voting share (the “Subordinate Voting Shares”) and each Class B multiple voting share (the “Multiple Voting Shares”) into one common share.  This change occurred on May 31, 2007.  Upon the change to the Corporation’s dual class structure becoming effective, the Board Representation Agreement and the Trust Agreement terminated. Prior to termination, the parties agreed that the Corporate Governance Committee make all nominations for membership to the board of directors of the Corporation. Copies of the Board Representation Agreement and Trust Agreement are available on the Internet at www.sedar.com.

● On February 27, 2006, the shareholders of the Corporation passed a special resolution to continue the Corporation under the Canada Business Corporations Act.  This change was effected on March 27, 2006.

● On April 21, 2006, the Corporation signed definitive agreements in respect of new credit facilities with a syndicate of lenders led by JPMorgan (the “April 21 Credit Agreements”).  The facilities were structured as follows: (a) a $48,000,000 senior secured revolving credit facility in respect of which CoolBrands and certain of its subsidiaries (with the exception of Americana Foods) are borrowers (the “Corporate Credit Facility”) and (b) a $25,500,000 senior secured credit facility consisting of a $8,000,000 senior secured revolving credit facility and $17,500,000 of term loans in respect of which Americana Foods is the borrower ( together ,the “American Credit Facility”).  The facilities were originally for a term of three years and provided for interest at the bank’s prime rate.

● On July 21, 2006, the Corporation announced that it had breached a covenant in the April 21 Credit Agreements.  The breach resulted from a breach by Americana Foods of a financial covenant under the Americana Credit Facility.

● As a result of the continued significant losses of Americana Foods, which was in default under the Americana Credit Facility, Americana Foods was placed into bankruptcy under an involuntary petition of bankruptcy under Chapter 7 of the U.S. Bankruptcy Code by certain subsidiaries of the Company as creditors of Americana Foods, and ceased operations in October 2006.  Americana Foods generated a loss of $(23,542,000), net of the minority interest, including $11,150,000 of write-downs of certain assets to estimated net realizable value.

Principal Capital Expenditures and Divestitures of the Last Three Years

During Fiscal 2004, Fiscal 2005 and Fiscal 2006, the Company purchased property, plant and equipment in the normal course of business totaling $12,977,000, $13,500,000, and $1,416,000, respectively (including discontinued operations). During 2005, the Company purchased the Breyer’s yogurt business and Zipp Manufacturing flavors business for purchase prices of $59,152,000 and $457,000, respectively.  In early 2006, the Company sold its franchising and licensing segment for $8,000,000.  During 2006, the Company marketed its dairy component (Value America) segment, its yogurt segment and its distribution business (EPFD) for sale.  In September 2006, the Company sold its Value America division for proceeds totaling $8,250,000 (including a hold back of $750,000).  Additionally in November 2006, the Company completed the sale of substantially all of its EPFD assets for proceeds totaling $4,400,000 and in January 2007 the Company sold it foodservice segment for proceeds totaling $ 18,925,000.  In January 2007, the Company sold its yogurt business for cash proceeds of $ 45,000,000, a $5,000,000 note and warrants to acquire shares of an affiliate of the purchaser.  In February 2007, the Company closed down the printing and packaging plant and is marketing it for sale.  In April 2007 the Company sold its frozen desserts segment for proceeds of $4,600,000. The Company is no longer manufacturing products other than under its co-packing arrangement with Dreyer’s pursuant to the sale of the assets of the foodservice segment, and is in the process of selling off some remaining inventory. See description of foodservice segment in Item 4(B) Business Overview.

7

Item 4(B) Business Overview

CoolBrands businesses have primarily consisted of the marketing and selling of frozen desserts and the related vertically integrated manufacturing and distribution operations in the U.S. and, the manufacturing and selling of fresh yogurt products, foodservice sales and manufacturing of frozen yogurt and ice cream mixes and the manufacture and sales of ingredients and packaging to the dairy industry. CoolBrands had marketed a diverse range of frozen desserts and fresh yogurt products under nationally and internationally recognized brand names.

In Fiscal 2004 and Fiscal 2005, the Company’s reportable segments were the frozen dessert segment, yogurt (acquired in 2005), foodservice, dairy components, and franchising and licensing, including company owned stores.  In December 2005, the Company sold the assets, net of certain liabilities of its franchising and licensing segment and began to actively market EPFD, a component of the frozen dessert segment, its Value America division, which comprised substantially all of the dairy components segment, and CBD, the yogurt segment, for sale.  Accordingly, the assets and liabilities of each of these entities have been classified to assets and liabilities of discontinued operations on each of the consolidated balance sheets as of August 2006 and 2005 and the components of their operating results and cash flows have been included in net loss from discontinued operations on each of the consolidated statements of operations and cash flows from discontinued operations on each of the statements of cash flows.  Therefore, the franchising and licensing segment, the yogurt segment and the dairy components segment have been reclassified to discontinued operations for each of the years presented. The Company is reporting continuing operations in two business segments for the periods presented. Additionally, the assets of the foodservice segment were sold on January 24, 2007. The businesses and business segments included in discontinued operations accounted for revenues of $260,077, $235,435 and $169,202 in Fiscal 2006, Fiscal 2005 and Fiscal 2004, respectively.

The following table sets forth the contribution to revenue of each of the remaining segments in continuing operations at August 31, 2006 by geographic region for the periods indicated:

Revenue by Industry Segments and Classes of Product and Services

Year ended August 31, 2006 (in thousands of dollars)

	Operating Segments
Revenue Source	Frozen Desserts			Foodservice(1)		Corporate		Total
United States	$	120,959		$	20,990	$	-	$	141,949
Canada		202			-		103		305
International		-			-		-		-
Inter-segment revenues		(43,597	)		-		-		(43,597	)
Other revenues:		620			71		-		691
Total consolidated net revenues	$	78,184		$	21,061	$	103	$	99,348

Year ended August 31, 2005 (in thousands of dollars)

	Operating Segments
Revenue Source	Frozen Desserts			Foodservice(1)			Corporate			Total
United States	$	173,727		$	18,397		$	-		$	192,124
Canada		528			-			280			808
International		405			-			-			405
Inter-segment revenues		(43,665	)		(661	)		(230	)		(44,556	)
Other revenues:		797			-			132			929
Total consolidated net revenues	$	131,792		$	17,736		$	182		$	149,710

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Year ended August 31, 2004 (in thousands of dollars)

	Operating Segments
Revenue Source	Frozen Desserts			Foodservice(1)			Corporate			Total
United States	$	329,982		$	16,382		$	-		$	346,364
Canada		901			-			219			1,120
International		361			-			-			361
Inter-segment revenues		(66,533	)		(703	)		(242	)		(67,478	)
Other revenues:		261			-			108			369
Total consolidated net revenues	$	264,972		$	15,679		$	85		$	280,736

¹ The Company sold its foodservice segment on January 24, 2007.

 Frozen Dessert Segment

Revenues in the frozen dessert segment are generated from marketing and selling a variety of pre-packaged frozen desserts to distributors, and various retail establishments including supermarkets, grocery stores, club stores, gourmet shops, delicatessens and convenience stores.

CoolBrands competed in the “Better for You” ice cream category with offerings such as fat-free, non-dairy WholeFruit Sorbet and Fruit-a-Freeze. Better for You offerings by CoolBrands includes No Pudge! branded frozen snacks and a line of Better for Kids frozen snacks sold under the Justice League, Snapple, Care Bears and Trix Pops brands.  In addition, CoolBrands marketed a wide variety of “all family” premium ice creams and frozen snacks under brand names including Tropicana and Yoplait.

CoolBrands’ subsidiary, EPFD operated a direct store door ice cream distribution system in selected markets in the U.S., serving these CoolBrands products and a number of Partner Brands to supermarkets, convenience stores and other retail customers.  During Fiscal 2006, the Corporation made the decision to sell EPFD.  The Corporation consummated the sale of substantially all of the net assets of EPFD to an unaffiliated third party on November 17, 2006.   The Corporation did not sell its depots in Atlanta, Georgia, Moorestown, New Jersey, and Jessup, Maryland.  These depots were closed in January 2007.  The lease in Atlanta, Georgia has expired and the Corporation is currently negotiating settlements of the leases in Moorestown, New Jersey and Jessup, Maryland which are scheduled to expire in March, 2009 and September 2008, respectively.   See Item 4(D), “Property, Plants and Equipment” for a further discussion. The Company may not be able to negotiate favorable settlements of these leases.

    Foodservice Segment

 In addition to products manufactured for use in its business, the Corporation manufactured soft serve frozen yogurt and premium ice cream mixes in a leased facility in Russellville, Arkansas. Soft serve mix is sold under the Eskimo Pie brand name to broad-line foodservice distributors, yogurt shops and other foodservice establishments which, in turn, sell soft serve ice cream and frozen yogurt products to consumers. A separate sales force working within Eskimo Pie's wholly-owned subsidiary, Sugar Creek Foods, Inc., managed the sale of soft serve yogurt and ice cream mixes. In early Fiscal 2007, the Company made the decision to sell the assets of its foodservice segment and consummated the sale of the foodservice segment to an unaffiliated third party on January 24, 2007. Sugar Creek Foods, Inc,   entered into a Co-Pack Agreement with Dreyer’s to manufacture soft-serve ice cream for a period of up to nine months from the date of the sale.

    Yogurt Segment

    CoolBrands subsidiary, CoolBrands Dairy, Inc. (“CBD”), manufactured cup yogurt at its plant located in North Lawrence, New York, under the Breyers brand pursuant to a trademark rights agreement, which grants the right in perpetuity, and under the Creme Savers brand pursuant to a long term license agreement.

    Breyers yogurt was distributed and sold across the United States, internationally through the United States military complex and throughout the Caribbean. Finished goods were shipped refrigerated freight to strategic refrigerated warehouses for distribution to key accounts.

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    During Fiscal 2006, the Company made the decision to sell the yogurt segment, which it had acquired in March 2005. Accordingly, the assets and liabilities of the yogurt segment were included in assets and liabilities of discontinued operations on the consolidated balance sheets and the results of operations and cash flows are included in loss from discontinued operations and cash flows from discontinued operations on the consolidated statements of operations and consolidated statements of cash flows, respectively for all financial statement periods presented. CBD was sold to an unaffiliated third party on January 30, 2007.

    Dairy Components Segment

    In addition to products manufactured for use in its business, the Corporation sold various other ingredients to the dairy industry produced at its New Berlin, Wisconsin facility. This business involved blending, cooking and processing basic flavors and fruits to produce products, which subsequently are used by customers to flavor frozen desserts, ice cream novelties and fluid dairy products. During 2006, the Company made the decision to sell its Value America division, which represented substantially all of the dairy components segment. Accordingly, the assets and liabilities of Value America are included in assets and liabilities of discontinued operations on the consolidated balance sheets and the results of operations and related cash flows are included in net loss from discontinued operations and cash flows from discontinued operations on the consolidated statements of operations and the consolidated statements of cash flows for all financial statement periods presented. The Company consummated the sale of the assets of Value America to an unaffiliated third party on September 14, 2006.

    Franchising and Licensing Segment

    Prior to the sale of substantially all of the Franchising and Licensing business, a full franchising program had been developed for each of the Tropicana® Smoothies, Juices & More!, Yogen Fruz®, Bresler's®, Swensen's®, Java Coast® Fine Coffees and Golden Swirl® chains. Although developed separately, each of the programs (except for Golden Swirl®) was substantially similar and was organized on two levels: master franchising, pursuant to which master franchises were sold for specific regions, countries or other geographical areas; and retail franchising and licensing, pursuant to which franchises were sold, and licenses were granted, by master franchisees to retail outlet operators in the master franchisee's territory. Generally, retail franchising is used for larger locations such as traditional stores or kiosks, which offer a full range of products. Licensing is used primarily for smaller locations such as mini-counters or carts, which are located within the premises of strategic partners and typically offer a more limited selection of products.

      CoolBrands, either directly or through master franchisees, entered into a license agreement with each licensee for each location. The license agreement authorized the licensee to operate a Swensen's®, Yogen Fruz®, I Can't Believe It's Yogurt®, Bresler's® or Java Coast® Fine Coffees mini-counter or similar outlet within the licensee's place of business.  The licensee was required to operate the outlet in accordance with the methods, standards, specifications and procedures prescribed by CoolBrands. Generally, the licensee was required to purchase products used within the outlet from CoolBrands or from suppliers and manufacturers designated by it.  This business was sold by the Company in December 2005.

    Distribution Channels

    The Company's products were offered for sale in a diverse range of retail outlets, including supermarkets, mass merchants, drug stores, convenience stores and club stores, as well as foodservice outlets, such as restaurants, cafeterias, theme parks and ice cream parlors.

    The Company distributed its products primarily by direct shipment to super-market owned warehouses, independent distributors and foodservice broad-line distributors. In addition, the Company operated, through EFPD, a proprietary direct-store-distribution ("DSD") system that serviced all distribution channels in selected U.S. markets, including out-of-home accounts such as convenience stores, drug stores and gas station food marts. As previously described, the Company decided to sell EPFD in 2006 and consummated the sale of substantially all of the assets of EPFD on November 17, 2006.

    Regulation

      CoolBrands' frozen dessert products and yogurt are subject to licensing and regulation (including good manufacturing practices) by federal, state and municipal authorities at its facilities in North Lawrence, New York, Dallas, Texas, Russellville, Arkansas and Norwalk, California and in the states to which they ship their products.  Due to continued significant losses, the Company closed its Americana Foods operations in Dallas, Texas in October 2006.  In addition, the Company sold its yogurt segment, including its facilities, in North Lawrence, New York on January 30, 2007.

      Seasonality

      The ice cream and frozen snacks industry is highly seasonal with more frozen yogurt and ice cream consumed in warmer months. As a result, our operating results of our continuing operations are subject to the same seasonality. The Corporation's fourth quarter, during the summer, has historically been the strongest quarter of the year. The fourth quarter accounted for 31.9% and 65.6% of the Corporation's net revenues from continuing operations and net loss, respectively, for the fiscal year ended August 31, 2006 and 32.2% and 87.7% of the total revenues and net loss, respectively, for the fiscal year ended August 31, 2005.

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    Competitive Conditions

    CoolBrands competed in the frozen dessert retail market against a large number of competitors.  In the novelty market, Integrated Brands faced substantial competition in connection with the marketing and sales of its products.  Among its competitors are Klondike, Popsicle, Breyers, Good Humor and Sealtest, owned by Unilever PLC and Dreyer’s Grand Ice Cream which either owns or licenses the Dreyer’s, Edy’s, Nestle, Haagen-Dazs, Skinny Cow, and Starbuck’s brands.  In the super premium ice cream and sorbet pint markets, Integrated Brands faced substantial competition from Haagen-Dazs and Ben & Jerry’s.  Integrated Brands’ products may also have been considered to be competing with all ice cream and other frozen desserts for discretionary food dollars.  Frozen yogurt and ice cream are also offered in supermarkets, grocery stores and wherever convenience food operations are conducted.

While the ice cream manufacturing and distribution business is relatively easy to enter due to low entry costs, achieving wide distribution may be more difficult because of the high cost of a national marketing program and limitations on space available in retail freezer compartments.

In fiscal 2006 and fiscal 2007, the Corporation sold certain of its business segments. The Corporation has continued to reduce costs as it has downsized operations; however, it may not be able to scale down its operating costs to a level that would make the remaining business profitable.  Additionally, as the result of downsizing, service problems have been created in the marketplace and customers and vendors may be reluctant to transact business with the Corporation in the future.

      Trademarks

      CoolBrands relied upon copyright, trademark and trade secret laws to protect its proprietary rights in its trademarks and products. CoolBrands  obtained registrations for a number of trademarks in Canada, the United States and internationally, including registrations for the trademarks and related symbols Eskimo Pie®, Dreamery®, Whole Fruit®, Chipwich® and Fruit-A-Freeze®. Integrated Brands holds or held long-term trademark license agreements for use in certain countries of the Atkins® Endulge™, No Pudge!™, Tropicana®, Yoplait®, Trix®, Crayola™, Justice League™, Snapple™ and Care Bears™ trademarks in connection with the manufacture, sale and distribution of frozen novelties and other frozen dessert products. The Company sold the Eskimo Pie® and Chipwich ® trademarks as part of the sale of the foodservice segment on January 24, 2007.

The Corporation held licenses to brands including Breyers Fruit on the Bottom, Light and Creme Savers cup yogurt varieties and Creme Savers Smoothie drinkable yogurts. These licenses were part of CBD, which was included in discontinued operations in the financial statements as of and for the years ended August 31, 2006 and 2005, and which was sold to an unaffiliated third party on January 30, 2007.

Below is a list of licenses still in place.

Whole Fruit Sorbet.  The Corporation acquired the license for Whole Fruit Sorbet from Dreyer’s in July 2003.

Godiva Ice Cream.  CoolBrands acquired the license rights to the Godiva trademark for ice cream from Dreyer’s in July 2003 and manufactured and distributed Godiva Ice Cream in pints and ice cream bars under license from Godiva Chocolatier, Inc.  CoolBrands is currently in default of the license agreement and its termination is likely to occur during fiscal 2007.  The Company was served notice on March 12, 2007, by Godiva Chocolatier, Inc. and Godiva Brands, Inc. alleging that the Company has breached its license agreement and the licensor has filed a claim in the Supreme Court of the State of New York for damages of $14 million for breach of contract plus additional damages.  The outcome and resolution of such claim is uncertain at this time.

No Pudge! Frozen Snacks.   In fiscal 2005, CoolBrands introduced the “No Pudge!” line of low fat frozen snacks under license from No Pudge! Foods, Inc., marketers of the popular low fat brownie mix.  It is anticipated that this line will be discontinued in fiscal 2007.

Tropicana Fruit Bars.   Since 1997, CoolBrands has manufactured and distributed Tropicana fruit bars under license from Tropicana Products, Inc.  CoolBrands is currently in default of this license agreement and its termination is likely to occur in fiscal 2007.

Snapple On Ice Pops.  In fiscal 2005, CoolBrands introduced the “Snapple On Ice” line of frozen juice pops, under license from Snapple Beverage Corp.  It is anticipated that this line will be discontinued in fiscal 2007.

Crayola Color Pops.  In fiscal 2005, CoolBrands introduced the “Crayola Color Pops” line of frozen snacks, under license from Binney & Smith Properties, Inc.  CoolBrands is currently in default of this license agreement and its termination is likely to occur in fiscal 2007.

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Item 4(C)      Organizational Structure

      The following chart illustrates the principal direct and indirect subsidiaries of the Corporation as of August 31, 2006, jurisdiction of incorporation and the percentage ownership by the Corporation of the voting and non-voting securities of each subsidiary or other entity.

¹ Americana Foods LP is in bankruptcy proceedings under Chapter 7 of the U.S. Federal Bankruptcy Code, and ceased operations in October 2006.

² Eskimo Pie Frozen Distribution, Inc. sold substantially all of its assets on November 17, 2006.

³ The Corporation sold the Eskimo Pie brand as part of the sale of certain assets of the foodservice segment on January 24, 2007.

⁴ All of the issued and outstanding shares of CoolBrands Dairy, Inc.  (“CBD”) was sold to an unaffiliated third party on January 30, 2007.

Item 4(D) Property, Plant and Equipment

      Property Owned or Leased as of August [  ], 2007

      CoolBrands' headquarters are located at 210 Shields Court, Markham, Ontario, Canada, L3R 8V2 in 1,000 square feet of space, which space is occupied on a month-to-month basis. Rental payments are Cdn $25,000 per annum and are paid to Yogen Fruz Canada Inc., a company owned by Aaron Serruya, a director and former executive vice president of the Corporation.

      CoolBrands' U.S. headquarters and Integrated Brands' executive offices were located at 4175 Veterans Highway, Ronkonkoma, New York, 11779.  Rental payments were $184,460 per annum for 10,779 square feet.  The lease expired on April 30, 2006 and the Corporation continued to lease the space on a month to month basis at the same lease rate.  The office was closed on March 31, 2007.

      Integrated Brands' subsidiary, Eskimo Pie Frozen Distribution Inc.'s leased 2,799 square feet of office space located at 4175 Veterans Highway, Ronkonkoma, New York, 11779. Rental payments were $55,000 per annum. The lease expired April 30, 2006 in accordance with its terms and the Corporation continued to lease the space on a month to month basis at the same lease rate through November 2006.

      Integrated Brands' subsidiary, CoolBrands Manufacturing Inc., leased a 25,000 square foot production and storage facility located in Norwalk, California. Rental payments were $211,000 per annum. The Company sold the Fruit-a-Freeze operations and assets and the lease has been assumed by the buyer.

      Integrated Brands, through an affiliate, owns a building in Paradise Valley, Arizona. The building is subject to a ground lease, which expires on December 31, 2010 and contains three five-year renewal options.

      Eskimo Pie Corporation owns a printing and packaging plant in Bloomfield, New Jersey, which consists of approximately 71,583 square feet on two acres.   The Company closed this plant in February 2007 and is actively marketing it for sale.

      Eskimo Pie Corporation's subsidiary, Sugar Creek Foods, Inc., is leasing from the former owner of the business a soft serve yogurt and ice cream mix production facility, consisting of approximately 23,805 square feet, and a packaging facility, consisting of approximately 16,000 square feet, both located in Russellville, Arkansas. The lease expired on December 31, 2006 and is now month to month. Rental payments under these leases are $244,000 per annum. In addition, Sugar Creek Foods, Inc. owns a freezer facility, consisting of approximately 5,013 square feet, adjacent to the production facility in Russellville. In 1999, Eskimo Pie purchased a small parcel of land adjacent to the freezer facility for future potential expansion of the freezer facility.

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      Eskimo Pie Frozen Distribution is a party to a lease of a 12,677 square foot distribution facility located in Moorestown, New Jersey operating as a cross-dock operation.  Rental payments are $97,613 per annum.  The lease is scheduled to expire March 31, 2009. The Company abandoned the facility in November 2006. The Company is currently in default under this lease.

      Eskimo Pie Frozen Distribution is a party to a lease of 400 square foot of office space located in Jessup, Maryland. Rental payments are $43,956.00 per annum. The lease is scheduled to expire Sept 30, 2008. The Company closed its operation in November 2006. The Company is currently in default under this lease.

Eskimo Pie Frozen Distribution leases truck parking located in Jessup,Maryland. Rental payments were $28,620 per annum. The lease is scheduled to expire September 30,2008. The Company closed its operation in November 2006. The Company is currently in default under this lease.

      Property subject to leases during Fiscal 2006 that have expired in accordance with their terms

      Eskimo Pie Frozen Distribution leased a 22,798 square foot of freezer and distribution facilities located in Atlanta, Georgia. Rental payments were $247,212 per annum. The lease expired July 31, 2006 in accordance with its terms and was leased on a month to month basis until January 2007.

      Eskimo Pie Frozen Distribution leased a 400 square foot office space located in Paterson, New Jersey. Rental payments were $16,800 per annum. EPFD also leased cross docking and truck parking on a coterminous basis for $42,000 per annum. The lease expired October 31, 2006 in accordance with its terms.

      Eskimo Pie Frozen Distribution also leased a remote location with office space and truck parking in Neptune, New Jersey for $52,200 per annum on a month to month basis until October 31, 2006.

      Eskimo Pie Frozen Distribution leased on a month to month basis a remote location for office space and truck parking located in Brooklyn, New York. Rental payments were $15,600 per annum and the office space and truck parking was returned to the landlord at the end of October 2006.

      Eskimo Pie Frozen Distribution leased a 1,500 square foot freezer facility located in Milwaukee, OR. Rental payments were $72,000 per annum. The lease expired June 21, 2006 in accordance with its terms and was extended on a month to month basis until November 2006.

      Eskimo Pie Frozen Distribution leased a 3,026 square foot office trailer and loading docks facility located in Tampa, Florida. Rental payments were $63,578 per annum. The lease expired September 1, 2006 in accordance with its terms and the trailer was leased on a month to month basis until it was returned in November 2006.

      Eskimo Pie Frozen Distribution leased a 2,400 square foot freezer and distribution facility located in San Diego, California. Rental payments were $123,611 per annum. The lease expired July 1, 2006 in accordance with its terms and the facility was leased on a month to month basis until it was returned in November 2006.

      Eskimo Pie Frozen Distribution leased office space and truck parking facility located in Apopka, Florida (Orlando). Rental payments were $49,842 per annum. The lease expired April 30, 2006 in accordance with its terms and was extended on a month to month basis until November 2006.

      Eskimo Pie Frozen Distribution leased 11,413 square feet for truck parking located in Riverside, California. Rental payments were $21,600 per annum. The lease expired December 31, 2005 in accordance with its terms and was extended on a month to month basis until November 2006.

      Property owned during Fiscal 2006 and subsequently sold

      Eskimo Pie Corporation owned an ingredients manufacturing plant in New Berlin, Wisconsin which consists of approximately 92,000 square feet on four acres.  This manufacturing plant was sold on September 14, 2006 as part of the sale of the assets of Value America.

      Property leased during Fiscal 2006 and assumed by the purchaser of EPFD

      Eskimo Pie Frozen Distribution leased a 5,800 square foot freezer and distribution facility located in Boca Raton Florida. Rental payments were $45,223 per annum. The lease, which was scheduled to expire December 31, 2007, was assumed by the purchaser of EPFD on November 17, 2006.

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      Eskimo Pie Frozen Distribution leased a 5,500 square foot freezer and distribution facility located in Novato, California. Rental payments were $101,724 per annum. The lease expired December 31, 2006 in accordance with its terms. Additional parking is leased in Ignacio, California at $13,200 per annum. This lease expires on March 31, 2007.  Additional parking is also leased in Novato, California at $24,000 per annum.  These leases were assumed by the purchaser of EPFD on November 17, 2006.

      Eskimo Pie Frozen Distribution leased a 500 square foot of office space and operates a cross-dock facility in Watsonville, California. Rental payments were $21,304 per annum. The lease, which was scheduled to expire December 1, 2006, was assumed by the purchaser of EPFD on November 17, 2006.

      Eskimo Pie Frozen Distribution leased a 34,607 square foot freezer and distribution facility located in Seattle, Washington. Rental payments were $356,064 per annum. The lease, which is scheduled to expire December 1, 2008, was assumed by the purchaser of EPFD on November 17, 2006.

      Eskimo Pie Frozen Distribution leased a 9,700 square foot freezer and distribution facility located in Tualatin, Oregon. Rental payments were $144,000 per annum. The lease expired June 7, 2006 in accordance with its terms, was extended on a month to month basis and was assumed by the purchaser of EPFD on November 17, 2006.

      Eskimo Pie Frozen Distribution leased a 29,318 square foot freezer and distribution facility located in Miramar, Florida. Rental payments were $294,277 per annum. The lease, which is scheduled to expire June 30, 2007, was assumed by the purchaser of EPFD on November 17, 2006.

      Eskimo Pie Frozen Distribution leased a 12,300 square foot freezer and distribution facility located in Plymouth, Florida. Rental payments were $163,052 per annum. The lease was scheduled to expire March 31, 2006, was extended on a month to month basis and assumed by the purchaser of EPFD on November 17, 2006.

      Eskimo Pie Frozen Distribution leased 15,000 square feet for truck parking located in Ft. Myers, Florida. Rental payments were $22,260 per annum. The lease expired September 30, 2006 in accordance with its terms and was extended on a month to month basis and was assumed by the purchaser of EPFD on November 17, 2006.

      Eskimo Pie Frozen Distribution leased a 400 square foot office space and operates a cross-dock facility in Oxnard, California. Rental Payments were $21,889 per annum. The lease which was scheduled to expire January 18, 2007, was assumed by the purchaser of EPFD on November 17, 2006.

Eskimo Pie Frozen Distribution leased a 1,994 square foot facility located in Tacoma, WA for $25,910 per annum. The lease expires March 31, 2007.  The lease was assumed by the purchaser of EPFD on November 17, 2006

      Property subject to bankruptcy trustee jurisdiction

      Americana Foods LP owned an ice cream and yogurt mix manufacturing plant in Dallas, Texas which consists of approximately 220,000 square feet on 12 acres.  Americana Foods owned a warehouse adjacent to its manufacturing facility which consists of approximately 262,000 square feet on 17 acres.  Because of continued losses, certain subsidiaries of the Company, as creditors of Americana Foods, filed an involuntary petition under Chapter 7 of the U.S. Federal bankruptcy code and Americana Foods ceased operations in October 2006. The assets of Americana Foods were placed under the control of an independent trustee and were sold at auction.  The trustee is completing the final accounting of the bankruptcy proceeds.

Item 4(A) Unresolved Staff Comments

None

Item 5 Operating and Financial Review and Prospects

Item 5(A) to Item 5(F)

The numbers for this item are stated in thousands of dollars except per share amounts.

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2006 Compared with 2005

Overall Performance

 For Fiscal 2006, net revenues from continuing operations decreased to $99,348, compared to $149,710 for Fiscal 2005, a 33.6% decrease. The net loss for Fiscal 2006 was ($70,182) ($(1.25) basic and diluted loss per share), compared to net loss of $(74,070) ($(1.32) basic and diluted earnings per share) for Fiscal 2005.

The decrease in net revenues for Fiscal 2006 from continuing operations reflects the decrease in sales generated by the frozen dessert segment, which was partially offset by the decrease in trade promotion payments and slotting fees made to customers, which are treated as a reduction in revenues, and the elimination of drayage income (which is earned by EPFD and reclassified to discontinued operations).  In Fiscal 2006, net sales declined by 32.2% to $96,936, as compared with $142,873 for Fiscal 2005.  The decline in sales came from many of our frozen dessert brands, but was partially offset by sales of new products introduced in 2006.

Gross profit percentage for Fiscal 2006 declined to (14.2)%, compared with 0.5% for Fiscal 2005. Gross profit percentage for the periods presented has been calculated by dividing gross profit margin by net sales.  Gross profit margin is calculated by subtracting cost of goods sold from net sales.  The decline in gross profit percentage was primarily due to:

1.   The Company’s inability to cover fixed overhead costs in both our manufacturing and distribution operations due to the lack of production and sales; and

2.   The change in mix of frozen dessert products being sold in Fiscal 2006 with lower gross profit margins, compared with Fiscal 2005.

The Fiscal 2006 results were adversely effected by:

1.   The loss on impairment of goodwill of $3,500 incurred with respect to the frozen dessert segment to recognize the deterioration in value of the business as a result of the declining sales or the potential abandonment or termination of various licensing agreements.

2.   The loss on impairment relating to certain licenses not likely to continue, and related prepaid packaging and design costs totaling $3,609.

3.   The loss on impairment of $1,890 incurred with respect to property, plant and equipment currently in storage.

4.   The write-off of debt acquisition costs totaling $2,015 reflected in selling, general and administrative expenses.

5.   The loss on impairment of $1,140 relating to deferred acquisition costs, prepaid royalties and net receivables from Americana Foods.

6.   The loss generated by the Company’s majority owned subsidiary, Americana Foods, which totaled $23,542, net of minority interest, and which included the losses on impairment aggregating $11,150 relating to the reduction to estimated fair market value of accounts receivable $(1,500), inventory $(5,750), and property, plant and equipment $(3,900).

7.   The recording of a loss on impairment of goodwill associated with the yogurt segment. In Fiscal 2006, the Company began to market the yogurt segment for sale and on January 2, 2007, entered into a definitive agreement to sell the yogurt segment to an unaffiliated third party. A loss on impairment of $5,428 was recorded to recognize the difference between the carrying value of the net assets of the yogurt segment and the fair value based upon the definitive agreement.  The impairment was included in loss from discontinued operations in the Fiscal 2006 statement of operations.

The Fiscal 2005 results were adversely affected by the non-cash pre-tax asset impairment charge of $51,141, which resulted from the impairment of goodwill and intangible assets related to our frozen dessert segment.  Additionally we recognized a loss on impairment of $4,384 with respect to our franchising and licensing segment, goodwill and intangible assets which was included in discontinued operations in Fiscal 2005.

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Cash and working capital

Cash, investments and restricted cash decreased to $393 at August 31, 2006, compared to $41,562 at August 31, 2005.  Working capital decreased to $(23,992) at August 31, 2006, compared to $28,477 at August 31, 2005.  Our current ratio declined to 0.75 to 1.0 at August 31, 2006 from 1.2 to 1.0 at August 31, 2005.  These changes in current assets and current liabilities are attributable primarily to the use of cash investments and restricted cash to repay a portion of the outstanding indebtedness that existed at August 31, 2005, the classification of all bank indebtedness, which was in default at August 31, 2006 as current liabilities, and the decrease in accounts receivable and inventory due to the overall decline of the business, which was greater than the decrease to accounts payable and accrued liabilities.  Because the Company had a negative working capital position and the business continues to decline, the Company may not be able to continue as a going concern without the consummation of the sale of assets and or businesses.  On January 24, 2007, the Company sold, through its subsidiaries Eskimo Pie Corporation and Integrated Brands Inc., their Eskimo Pie and Chipwich Brands and Real Fruit trademark, along with Eskimo Pie soft serve brands and related foodservice business segment to Dreyer’s Grand Ice Cream Holdings, Inc. (“Dreyer’s”), and utilized a portion of the proceeds to repay the amounts outstanding under the Corporate Credit Facility. (See “Overview” and “Discontinued Operations.”).The Company believes that as a result of the proceeds from the sale of the yogurt business on January 30, 2007, it had sufficient liquidity to fund operations and working capital, including lease settlements, for the next twelve months.

Selected Annual Information

The following chart shows selected annual information for the three most recently completed fiscal years.

	Year ended August 31,
	2006			2005			2004
Total net revenues from continuing operations	$	99,348		$	149,710		$	280,736
Net (loss) income from continuing operations		(63,620	)		(69,016	)		20,325
Gain on sale of discontinued operations		410			-			-
Net (loss) income from discontinued operations		(6,972	)		(5,054	)		3,187
Discontinued operations		(6,562	)		(5,054	)		3,187
Net (loss) income	$	(70,182	)	$	(74,070	)	$	23,512
(Loss) earnings per share from continuing operations:
Basic and Diluted		(1.13	)		(1.23	)		0.37
(Loss) earnings per share from discontinued operations:
Basic and Diluted		(0.12	)		(0.09	)		0.05
(Loss) earnings per share:
Basic and Diluted		(1.25	)		(1.32	)		0.42
Total assets		160,548			297,845			317,257
Total long-term debt(1)		348			8,248			27,754

⁽¹⁾ The Company was in default under both the Corporate Credit Facility and the Americana Credit Facility and accordingly, the balance of the debt which was $10,077 and $23,501, respectively, was included in current liabilities as of August 31, 2006.  (See Note 12 “Long-term Debt” and Note 20 “Subsequent Events” in the financial statements and “Liquidity” and “Capital Resources” for a further discussion.)

CoolBrands’ decline in total net revenues during Fiscal 2006 reflects the decrease of net sales of $45,937 or 32.2% compared to Fiscal 2005 and reflects decreases primarily from the frozen dessert segment.  Other income decreased from $6,837 in Fiscal 2005 to $2,412 in Fiscal 2006.  The principal component was franchise and licensing fees, which decreased from $3,103 to $982 due to the expiration in December 2005, in accordance with its terms, of the Whole Fruit license granted to Dreyer’s.  Accordingly only four months of licensing fee income is recorded in Fiscal 2006 as compared to twelve months for Fiscal 2005.  There was also a $1,000 decrease in merchandising credit from Dreyer’s due to a decrease in sales volume and therefore a decrease in the related credit for those sales.

CoolBrands’ net loss in Fiscal 2006 was primarily due to the decline in net sales in the frozen dessert product lines and the resulting decrease in gross profit dollars, the continued losses generated by Americana Foods, and provisions for impairment recorded to recognize the loss of value of certain assets.  Additionally, the Company recognized a loss from discontinued operations of $(6,972) in Fiscal 2006 which was partially offset by a gain on disposition of discontinued operations of $410.  A significant portion of the loss from discontinued operations was the loss on impairment with respect to CBD which was determined based upon the third party offer for the business.

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CoolBrands’ net loss in Fiscal 2005 was primarily due to the substantial decline in net sales due to the loss of the Weight Watchers Smart Ones license agreement, the decline in net sales of the Atkins Endulge and other frozen dessert product lines, the resulting decrease in gross profit dollars, the $25,627 decline in drayage and other income (which was generated by Eskimo Pie Frozen Distribution and reclassified to net loss from discontinued operations), and the asset impairment charge of $55,525 to goodwill and intangible assets, of which $51,141 was included in continuing operations, and $4,384 was included in the loss from discontinued operations for Fiscal 2005.

Comparison of Fiscal 2006 and Fiscal 2005

In Fiscal 2006 and Fiscal 2005, the Company managed our business based on five industry segments: frozen dessert, yogurt, foodservice, dairy components, and franchising and licensing, including company owned stores.  In December 2005, the Company sold the assets, net of certain liabilities, of our franchising and licensing (including company owned stores) segment. The assets and liabilities of the franchising and licensing segment have been classified as assets and liabilities held for sale on the consolidated balance sheet as of August 31, 2005, the components of their operating results have been included in net loss from discontinued operations on the consolidated statements of operations, and the components of net cash flows have been classified as net cash flows from discontinued operations for Fiscal 2006, Fiscal 2005 and Fiscal 2004.  The Company recorded a gain on disposition of the franchising segment of $410 in Fiscal 2006.  Additionally, during Fiscal 2006, we began to actively market for sale our Value America division, which represented substantially all of our dairy components segment, EPFD, which represented a portion of our frozen dessert segment, and CoolBrands Dairy, Inc, which was our yogurt segment.  Accordingly, the assets and liabilities of each of these segment components have been classified as assets and liabilities of discontinued operations held for sale on the consolidated balance sheets as of August 31, 2006 and 2005, the components of their operating results have been included in net loss from discontinued operations on the consolidated statements of operations, and the components of net cash flows have been classified as net cash flows from discontinued operations for the years ended August 31, 2006, 2005, and 2004.

Net sales

Net sales for each segment are summarized in the following table:

	Year Ended August 31,
					Percentage of Net Sales
	2006		2005		2006		2005
Frozen dessert	$	76,035	$	271,086		78.4		74.3
Yogurt		-		44,007		-		12.1
Foodservice		20,901		17,736		21.6		4.9
Dairy components		-		19,538		-		5.3
Franchising and licensing		-		12,319		-		3.4
Total, as originally reported		96,936		364,686		100.0		100.0
Less amounts reclassified to net loss from discontinued operations:
Frozen dessert		-		147,718
Yogurt		-		44,007
Dairy components		-		17,769
Franchising and licensing		-		12,319
		-		221,813
Net sales from continuing operations		96,936		142,873
Pro Forma adjustment reclassifying Americana  Foods to discontinued operations		50,745		62,357
Pro forma total	$	46,191	$	80,519

      The decrease in net sales for Fiscal 2006 in the frozen dessert segment came from a substantial number of the Company’s frozen dessert brands partially offset by generally modest sales of products introduced in Fiscal 2006.  In connection with the settlement reached regarding the termination of the Weight Watchers license, CoolBrands agreed to discontinue the sale of all Weight Watchers products on May 1, 2005, in Mid-Fiscal 2005, approximately five months sooner than required by the Weight Watchers License Agreement.

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Other income

Other income decreased from $6,837 in Fiscal 2005 to $2,412 in Fiscal 2006.  The principal component was franchise and licensing fees, which decreased from $3,103 to $982 due to the expiration in December 2005, in accordance with its terms, of the Whole Fruit license with Dreyer’s.  Accordingly only four months of licensing fee income is recorded in Fiscal 2006 as compared to twelve months for Fiscal 2005.  There was also a $1,000 decrease in merchandising credit from Dreyer’s due to a decrease in sales volume and therefore a decrease in the related credit for those sales.

Gross profit margin

      The following table presents the gross profit margin dollars and gross profit percentage for the Company’s segments:

	Year Ended August 31,
							Percentage of Net Sales
	2006			2005			2006			2005
Frozen dessert	$	(16,829	)	$	(15,488	)		(22.1	)		(5.7	)
Yogurt					7,369						16.7
Foodservice		3,047			3,626			14.6			20.4
Dairy components					4,287						21.9
Franchising and licensing					3,224						2.6
Total, as originally reported		(13,782	)		3,018			(14.2	)		0.8
Less amounts reclassified to net loss from discontinued operations:
Frozen dessert					(12,141	)
Yogurt					7,369
Dairy components					3,874
Franchising and licensing					3,224
		-			2,326
Gross profit from continuing operations		(13,782	)		692
Pro Forma adjustment reclassifying Americana  Foods to discontinued operations		(10,549	)		(484	)
Pro forma total	$	(3,233	)	$	1,176

Gross profit dollars, with respect to continuing operations, declined to $(13,782) in Fiscal 2006, compared to $692 in Fiscal 2005, primarily due to the decline in gross profit dollars in frozen dessert segment; $10,549 of this negative gross profit margin in Fiscal 2006 was generated by the operations of Americana Foods.  The decline in gross profit dollars in the frozen dessert segment resulted from the decline in sales in Fiscal 2006, compared to Fiscal 2005, and the inability to cover fixed overhead costs in both manufacturing (principally Americana Foods) and distribution operations due to the lack of production and sales. In Fiscal 2005, gross profit dollars in the frozen dessert segment were adversely affected by the write down of $12,723 of obsolete and slow moving finished goods inventories, packaging, ingredients and finished goods inventories which could not be used or sold resulting from the settlement of the Weight Watchers litigation and the estimated impact on packaging which will not be used due to a new labeling law which became effective January 1, 2006.

Gross profit percentage for Fiscal 2006 from continuing operations declined to (14.2)%, compared with 0.5% for Fiscal 2005. Gross profit percentage for the periods presented has been calculated by dividing gross profit margin by net sales. Gross profit margin is calculated by subtracting cost of goods sold from net sales. The decline in gross profit percentage was primarily due to:

1.   The write down of obsolete and slow moving finished goods inventories, packaging, and ingredients. This write down amounted to $12,723 in Fiscal 2005 and was the result of a settlement of litigation with Weight Watchers International, a new labeling law which  became effective January 1, 2006, and a provision for slow moving inventories due to changes in consumer preferences.  A new labeling law effective January 1, 2006 required new disclosure of trans fat information in the nutrition facts statement on all of our frozen dessert segment packaging used in production after January 1, 2006.  In connection with this required disclosure, the Company estimated that it had on hand, at August 31,2005, approximately $1,000 of  excess packaging that it would not consume in production prior to January 1, 2006 and, accordingly, the Company recognized a $1,000 write down;

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2.   The Company’s inability to cover fixed overhead costs in both our manufacturing and distribution operations due to the lack of production and sales; and

3.   The change in mix of frozen dessert products being sold in Fiscal 2006 with lower gross profit margins, compared with Fiscal 2005.

Selling, general and administrative expenses

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

	Year Ended August 31,
					Percentage of Sales
	2006		2005		2006		2005
Frozen dessert	$	32,547	$	38,818		42.8		14.3
Yogurt				4,993				11.4
Foodservice		1,737		1,486		8.3		8.4
Dairy components				1,694				8.7
Franchising and licensing				5,109				41.5
Corporate (including stock-based compensation expense)		5,817		1,990
Total, as originally reported		40,101		54,090		41.4		14.8
Less amounts reclassified to net loss from discontinued operations:
Frozen dessert				4,879
Yogurt				4,993
Dairy components				1,579
Franchising and licensing				5,109
				16,560
Selling, general and administrative expenses of continuing operations		40,101		37,530
Pro Forma adjustment reclassifying Americana Foods to discontinued operations		5,574		3,938
Pro forma total	$	34,527	$	33,592

Selling, general and administrative expenses increased by $2,571 from $37,530 in Fiscal 2005 to $40,101 in Fiscal 2006 due primarily to the amortization and eventual  write off of certain debt acquisition costs of $2,015 in Fiscal 2006 relating to the refinancing that occurred in Fiscal 2006, the write off of certain organization costs of Americana Foods aggregating $840, the write off of prepaid expenses at Americana Foods of $219, and the increased payroll and consulting expenses incurred in information technology, partially offset by a reduction in stock-based compensation expense aggregating $1,475.  The frozen dessert segment’s selling, general and administrative expenses were adversely impacted in Fiscal 2005 by approximately $2,358, which represented the write-off of deferred package design costs, primarily related to Weight Watchers, and the write-off of certain license agreements with General Mills. On a percentage basis, selling general and administrative expenses from continuing operations were 41.4% in Fiscal 2006, compared to 26.3% in Fiscal 2005.

Interest expense

Interest expense from continuing operations was $2,000 in Fiscal 2006, compared with $1,687 for Fiscal 2005.  Included in such amounts is interest expense of $1,599 and $1,079 incurred in Fiscal 2006 and Fiscal 2005, respectively, with respect to the Americana Foods, which ceased operations in October 2006.  Excluded from those amounts were interest expense of $2,197 and $891 incurred in Fiscal 2006 and Fiscal 2005, respectively, with respect to the acquisition of the Breyers yogurt business acquired on March 25, 2005, which was included in the net loss from discontinued operations in the respective periods.

Asset impairment

The Company is required to conduct an annual review of goodwill and non-amortizable intangible assets for potential impairment.  Goodwill is tested for impairment using a two step process that begins with an estimation of the fair value of each reporting unit. The fair value of each reporting unit is determined using a combination of valuation approaches including an approach consisting of discounted cash

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flow analysis, and a market multiple approach.  The fair value of the reporting unit is compared to its carrying value.  If the carrying value exceeds the fair value, goodwill is considered impaired.  The amount of impairment loss is measured as the difference between the carrying value and implied fair value of goodwill.  Impairment testing for non-amortizable intangible assets requires a comparison between fair value and carrying value of the intangible asset.  If the carrying value exceeds fair value, the intangible asset is considered impaired and is reduced to fair value.

During Fiscal 2006 and Fiscal 2005, the Company completed an annual review of goodwill and intangible assets.  In the fourth quarter Fiscal 2006, we recorded a loss on impairment of $3,500 with respect to the goodwill associated with the frozen dessert segment to recognize deterioration of the business as the result of the abandonment or termination of various licensing agreements.  Additionally, in Fiscal 2006, we recognized a provision for impairment of goodwill of $5,428 with respect to the yogurt segment to recognize the difference between the carrying value of the net assets of the yogurt segment and the net realizable value of the yogurt segment based upon the definitive sales agreement.  The provision for impairment with respect to the yogurt segment was included in net loss from discontinued operations on the statement of operations for Fiscal 2006.

Additionally, the Company recognized the following impairment based upon our annual review of goodwill, intangible and long-lived assets in Fiscal 2005.  In Fiscal 2005, the Company recorded a loss on impairment of goodwill of $48,701 with respect to our frozen dessert segment and a loss on impairment of intangible assets of $1,401 was also recognized in our frozen dessert segment.  These impairment charges are the result of the loss of Weight Watchers licensing agreement, as well as declining sales of the Atkins and our base business product lines and the resulting decline in cash flows. Also, this review resulted in a goodwill and intangible asset impairment charge related to the Company’s franchise and licensing segment of $4,940.  Significant assumptions used in measuring the impairments included the timing and the amount of estimated future cash flows for reporting units and intangible assets, and where applicable, an analysis of guideline transaction market multiples.

During the fourth quarter of Fiscal 2006, based upon market analysis and other third party information, the Company provided a loss on impairment of $1,890 with respect to property, plant and equipment.  In the fourth quarter of Fiscal 2005, the Company wrote-off certain company-owned store leasehold improvements and equipment related to its franchise and licensing segment of $483 which was included in net loss from discontinued operations in Fiscal 2005.

In connection with the bankruptcy filing of Americana Foods, we recognized losses on impairment of $11,150, $1,500 relating to the estimated fair market value of accounts receivable, $5,750 relating to the estimated fair value of inventory and $3,900 relating to the estimated fair value of property, plant and equipment to reduce such amounts to approximate the amounts realizable from the bankruptcy proceedings.

(Recovery of) provision for income taxes

The effective (benefit) tax rate was (8.6)% in Fiscal 2006 and (10.2)% in Fiscal 2005. The effective tax benefit rate for Fiscal 2006 reflects the maximum recovery of income taxes that the Company is entitled to based upon the carryback rules.  The effective tax rate differs from the Canadian Federal/Provincial Statutory Rate primarily due to permanent differences related to the non-deductible goodwill impairment charges recognized in Fiscal 2005, a valuation allowance established in Fiscal 2005, and due to operations in foreign countries with lower effective tax rates.  Future effective tax rates could be adversely affected by earnings being lower than anticipated in countries that have lower statutory rates or changes in the valuation of the Company’s future income tax assets or liabilities.

Discontinued operations

Effective December 23, 2005, the Company sold substantially all of its franchising and licensing segment to International Franchise Corp. for a cash consideration of $8,000.  International Franchise Corp. is a company controlled by Mr. Aaron Serruya, a director of CoolBrands and the senior executive who was responsible for the franchising division at CoolBrands.  Mr. Serruya resigned as executive vice president of CoolBrands as a result of this transaction, but continues as a director.  The sale transaction was reviewed and unanimously recommended to the board of directors of CoolBrands by a committee of independent directors of CoolBrands, and was unanimously approved by the board of directors of CoolBrands.

During Fiscal 2006, the Board of Directors approved the decision to sell the Value America division, substantially all of the Company’s dairy component segment, Eskimo Pie Frozen Distribution, part of the frozen dessert segment, and CoolBrands Dairy, the yogurt segment, and began to actively market those businesses.

On September 1, 2006, Eskimo Pie Corporation, a wholly owned subsidiary, entered into an asset purchase agreement with Denali New Berlin, LLC and Denali Ingredients, LLC to sell its Value America flavor and ingredients division, which comprised substantially all of the dairy components segment.  The sale was consummated September 14, 2006 for a price of $8,250, which exceeded the carrying value of the assets sold, of which $7,500 was paid in cash and $750 was placed in escrow subject to collection of certain accounts receivable. The assets and liabilities of Value America were classified as assets and liabilities held for sale of discontinued operations on the balance sheet as of August 31, 2006 and the components of its operating results were included in net loss from discontinued operations on the

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statement of operations and the components of cash flows were included as net cash flows from discontinued operations on the statement of cash flows for Fiscal 2006.  Additionally, the Company classified the assets and liabilities of Value America as assets and liabilities held for sale of discontinued operations on the consolidated balance sheet as of August 31, 2005 and classified the components of operating results of Value America in net loss from discontinued operations and classified its cash flows as cash flows from discontinued operations on the statement of cash flows for Fiscal 2005.

On November 14, 2006, the Company announced that its wholly owned subsidiary, EPFD had entered into a definitive agreement to sell its direct store door (DSD) frozen distribution assets in Florida, California, Oregon and Washington for a net sales price of $5,736, which equaled the carrying value of the related assets acquired and liabilities assumed, to an unaffiliated third party.  The transaction closed on November 17, 2006. The assets and liabilities of EPFD were classified as assets and liabilities held for sale of discontinued operations on the balance sheet as of August 31, 2006 and the components of operating results of EPFD were included in net loss from discontinued operations on the consolidated statement of operations and its cash flows were included as cash flows from discontinued operations on the statement of cash flows for Fiscal 2006.  Additionally, the Company classified the assets and liabilities of EPFD as assets and liabilities held for sale of discontinued operations on the consolidated balance sheet as of August 31, 2005 and classified the components of operating results to net loss from discontinued operations on the consolidated statement of operations and classified the cash flows as cash flows from discontinued operations on the statement of cash flows for Fiscal 2005.

On January 2, 2007, the Company entered into a definitive agreement to sell CBD, which included the yogurt business acquired from Kraft Foods in Fiscal 2005, to an unaffiliated third party.  A loss on impairment of $5,428 to adjust the carrying value of CBD’s net assets to approximate fair value based upon the definitive agreement was recorded. CBD’s assets and liabilities were classified as assets and liabilities held for sale of discontinued operations on the consolidated balance sheet as of August 31, 2006 and the components of operating results were included in net loss from discontinued operations on the consolidated statement of operations and its cash flows were included as cash flows from discontinued operations on the statement of cash flows for Fiscal 2006.  Additionally, as of and for the year ended August 31, 2005, the assets and liabilities of CBD were classified as assets and liabilities held for sale of discontinued operations on the consolidated balance sheet and the components of operating results of CBD were included in net loss from discontinued operations on the consolidated statement of operations and the cash flows of CBD were included as cash flows from discontinued operations on the statement of cash flows.  The Company completed the sale of CBD on January 30, 2007.

Net Loss

The net loss for Fiscal 2006 was $(70,182), compared with $(74,070) for Fiscal 2005.  CoolBrands’ net loss in Fiscal 2006 was due to the continued losses sustained in the frozen dessert segment including Americana Foods and EPFD, the margin erosion that impacted substantially all of the businesses as the lower levels of sales were not able to cover related fixed costs associated with manufacturing and distribution and the recognition of losses on impairment of assets to recognize their fair value, including the assets of Americana Foods in bankruptcy.

Comparability of Fiscal 2006 results with Fiscal 2005

The Company’s Fiscal 2006 financial statements reflect the operating results of the franchising and licensing segment (until sold in December 2005), the Value America division, which represented substantially all of the dairy components segment, EPFD (a component of the frozen dessert segment) and CBD (yogurt segment), as discontinued operations as the Company either sold or was attempting to sell these businesses in Fiscal 2006.  Accordingly, the Fiscal 2005 operating results of these businesses have been reclassified to net loss from discontinued operations.  The yogurt business (CBD) was acquired in March 2005, and thus, within discontinued operations, Fiscal 2005 results reflect five months of activity, compared with twelve months of activity in Fiscal 2006.  Additionally, the franchising and licensing segment was sold in December 2005, thus the Fiscal 2006 results reflect four months of operating results, in discontinued operations, compared to 12 months in Fiscal 2005.

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Summary of quarterly results

The following table presents a summary of our results for the last eight quarters (in 000s except per share data):

Quarter ended	August 31, 2006			May 31, 2006			February 29, 2006			November 30, 2005
Total revenues from continuing operations	$	31,654		$	26,168		$	15,101		$	26,425
Loss from continuing operations		(41,096	)		(12,326	)		(5,887	)		(4,311	)
Gain from sale of discontinued operations		3			-			407			-
Loss from discontinued operations		(4,918	)		512			(2,473	)		(93	)
Net loss		(46,011	)		(11,814	)		(7,953	)		(4,404	)
Earnings per share (basic and diluted)
Loss per share from continuing operations		(0.72	)		(0.22	)		(0.11	)		(0.08	)
Loss per share from discontinued operations		(0.10	)		0.01			(0.03	)		(0.0	)
Loss per share		(0.82	)		(0.21	)		(0.14	)		(0.08	)

Quarter ended	August 31, 2005			May 31, 2005			February 29, 2005			November 30, 2004
Income (loss) from continuing operations		(60,529	)		(8,272	)		(3,525	)		3,310
Income (loss) from discontinued operations		(3,339	)		(2,743	)		1,737			(709	)
Net income (loss)		(63,868	)		(11,015	)		(1,788	)		2,601
Earnings per share (basic and diluted)
Income (loss) per share from continuing operations		(1.08	)		(0.15	)		(0.06	)		0.06
Income (loss) per share from discontinued operations		(0.06	)		(0.05	)		0.03			(0.01	)
Income (loss) per share		(1.14	)		(0.20	)		(0.03	)		0.05

During the fourth quarter of Fiscal 2005, the Company adopted, on a retroactive basis, U.S. GAAP.  Previously, the Company prepared its annual and interim consolidated financial statements in accordance with generally accepted accounting principals in Canada (“Canadian GAAP”).  Therefore, the quarterly revenue information is not provided as it is not comparable.

The ice cream and frozen dessert industry generally experiences its highest volume during the spring and summer months and its lowest volume in the winter months.  Total revenue includes the revenues generated by the Company’s majority owned subsidiary Americana Foods, which ceased operations in October 2006.  Excluding revenues from American Foods, total revenue by quarter in Fiscal 2006, would have been:

Quarter ended	August 31, 2006		May 31, 2006		February 29, 2006		November 30, 2005
Total revenues		31,654		26,168		15,101		26,425
Revenues generated by Americana Foods		12,678		14,183		11,636		12,393
		18,976		11,985		3,465		14,032

Fourth Quarter

In the fourth quarter of Fiscal 2006, the Company generated a loss of $(41,096) from continuing operations, or $(0.72) per fully diluted share, and a loss of $(4,918) from discontinued operations, or $(0.10) per fully diluted share.  The loss from continuing operations was impacted by provision for impairment totaling $21,289, including $11,250 with respect to Americana Foods.  Additionally, a provision for inventory obsolescence charge of $1,000 was recorded and the Compan wrote off certain debt acquisition costs of $1,700 ($2,015 expense for the year including amortization).  The operating results from discontinued operations were impacted by a write down of obsolete inventory of $1,002 and impairment to goodwill of $5,428.

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Liquidity

The following sets forth certain measures of the Company’s liquidity:

	Year Ended August 31,
	2006			2005
Cash, investments and restricted cash	$	393		$	41,562
Working Capital	$	(23,992	)	$	28,477
Current Ratio	.75 to 1.0			1.2 to 1.0

The decrease in working capital of $52,469 was  due to a decrease in cash, investments and restricted cash of $41,169 and a decrease in receivables, net (including receivables – affiliates) of $11,833, a decrease in inventory of $20,787, a decrease in current assets of discontinued operations held for sale of $14,577, an increase in the notes payable in default and notes payable of majority owned subsidiary in default at August 31, 2006 aggregating $33,578 partially offset by a decrease in accounts payable and accrued liabilities totaling $13,942, a decrease in current liabilities of discontinued operations held for sale of $11,119, and a decrease in short-term borrowings of $34,553 and a decrease in current maturities of long-term debt totaling $18,161.

Cash flows (used in) provided by operating activities from continuing operations

The Company used cash in operating activities of $(23,292) for Fiscal 2006, as compared to generating cash from operating activities of continuing operations of $7,982 for Fiscal 2005, due to the significant net loss from continuing operations generated by the frozen dessert segment, partially offset by the net income generated by the foodservice segment, which resulted in a $(63,620) loss from continuing operations.  Additionally, accounts payable and accrued expenses decreased in Fiscal 2006, which used up cash.  This was partially offset by non-cash expenses included in the $(63,620) loss of $5,026 for depreciation and amortization, $21,289 for asset impairment and $443 for stock based compensation expense.  Additionally, account receivable and inventories decreased, which generated cash.

Cash provided by investing activities from continuing operations

The Company generated cash from investing activities of $16,099 in Fiscal 2006 due primarily to the redemption of investments of $7,500, and the decrease in restricted cash of $10,000 (used to repay debt), partially offset by the purchase of property, plant and equipment of $1,416.  The cash generated in investing activities in Fiscal 2005 of $2,422 was due to the net redemption of investments of $20,550 and the proceeds from the sale of certain facilities for $5,434, partially offset by the purchase of property, plant and equipment of $13,500, and the increases in restricted cash.

Cash (used in) provided by financing activities from continuing operations

In Fiscal 2006, the Company used $(27,245) in financing activities, compared to generating $33,486 from financing activities in Fiscal 2005.  In Fiscal 2006, $33,995 was provided by the borrowings under the Corporate Credit Facility and the Americana Credit Facility, offset by the repayment of short-term debt of $34,553, and the repayment of long-term debt of $26,409.  In Fiscal 2005, cash provided by financing activities was $33,486, which was comprised of increases from the proceeds from short term borrowings of $44,553, and an increase in amounts outstanding under the revolving line of credit of $2,661 at Americana Foods, offset by the repayment of short-term borrowings of $10,000 and the repayment of long-term debt of $3,785.

Cash flows provided by operating activities from discontinued operations

Cash flows from operations from discontinued operations in Fiscal 2006 were $1,965, compared to $3,257 in Fiscal 2005.  The principal reason for the decrease was the deterioration of the EPFD business, which was partially offset by the full year effect of CBD (yogurt segment) in Fiscal 2006 as it was acquired in March 2005 and only includes five months of operations for Fiscal 2005.

Cash flows provided by (used in) investing activities from discontinued operations

The cash flows from investing activities from discontinued operations generated in Fiscal 2006 of $8,574 were primarily from the sale of the franchising and licensing segment.  The cash used in investing activities in Fiscal 2005 of $58,445 were attributable to the purchase of the yogurt business (CBD) from Kraft Foods and the purchase of Zipp Manufacturing for the dairy component segment, which were both marketed for sale in Fiscal 2006 and sold in Fiscal 2007.

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2005 Compared with 2004

Overall Performance

 In Fiscal 2005, the Company adopted generally accepted accounting principles in the United States ("U.S. GAAP") and changed its reporting currency from Canadian dollars to U.S. dollars. For comparative purposes, certain historical financial statements and the notes thereto have been restated to reflect these changes. Additionally, the operating results of the franchising and licensing segment, Value America, which represents a substantial portion of the dairy component segment, EPFD which represents a portion of the frozen dessert segment and CBD, which comprised the yogurt segment, were reclassified to discontinued operations for all periods presented as they were either sold or being marketed for sale as of August 31, 2006.

      For Fiscal 2005, net revenues from continuing operations decreased to $149,710 as compared with $280,736, for fiscal 2004, a decrease of $131,026 or 46.7%. The net loss for Fiscal 2005 was $(74,070) ($1.32) per fully diluted share, which was comprised of a loss from continuing operations of $(69,016), or $(1.23) per fully diluted shared and a loss from discontinued operations of $(5,054), or $(.09) per fully diluted share as compared with net earnings of $23,512 ($0.42 basic and diluted earnings per share) which was comprised of net income of $20,325 or $0.37 per fully diluted share from continuing operations and $3,187 or $0.05 per fully diluted share from discontinued operations for fiscal 2004.

      The decrease in net revenues for fiscal 2005 reflects the decrease in sales, primarily from the frozen dessert segment and the increase in trade promotion payments made to customers. In fiscal 2005, net sales declined by    to $142,873 compared with $275,394 fiscal 2004, a decline of $132,521 or 48.1%. The decline in sales came from all of the frozen dessert brands, but principally from the Weight Watchers and Atkins brands. These sales declines were only partially offset by the sales from newly introduced frozen dessert products.

      Gross profit percentage for fiscal 2005 declined to 0.5% as compared with 35.8% for fiscal 2004. The decline in gross profit percentage was primarily due to:

(i)   Increased trade promotion payments to customers, excluding the yogurt segment, which amounted to $52,359 and $32,913 in 2005 and 2004 respectively;

(ii)   The write down of obsolete and slow moving finished goods inventories, packaging, and ingredients. This write down amounted to $12,723 in 2005 and was the result of a settlement of litigation with Weight Watchers International, a new labeling law which became effective January 1, 2006, and a provision for slow moving inventories due to changes in consumer preferences;

(iii)   The Company's inability to cover fixed overhead costs in both the manufacturing and distribution operations due to the lack of production and sales; and

(iv)   The change in mix of frozen dessert products being sold in 2005 with lower gross profit margins as compared with 2004.

      Selling, general and administrative expenses in continuing operations as a percentage of revenues were 25.1% and 25.5% for Fiscal 2005 and Fiscal 2004. Selling, general and administrative expenses decreased by $33,986 or 47.5% from $71,516 in Fiscal 2004 to $37,530 in Fiscal 2005. Selling, general and administrative expenses for Fiscal 2005 and Fiscal 2004 were adversely impacted by the write-off of certain license agreements and the write-off of deferred package design costs, primarily related to Weight Watchers, in 2005. These charges amounted to $2,358 and $3,684 in 2005 and 2004, respectively.  The biggest reason for the decrease was the decrease in stock-based compensation, which totaled $1,918 in Fiscal 2005 as compared to $30,983 in Fiscal 2004.

      The 2005 fiscal year results were adversely affected by the non-cash pre-tax asset impairment charge of $55,525 (Nil in 2004), which resulted from the impairment of goodwill and intangible assets related to the Company's frozen desserts ($51,141, which is included in continuing operations) and franchising segments ($4,384, which is included in discontinued operations).

Cash and working capital

Cash, investments and restricted cash decreased to $41,562 at August 31, 2005 from $64,327 at August 31, 2004. Working capital decreased to $28,477 at August 31, 2005 from $118,138. CoolBrands' current ratio declined to 1.2 to 1 at August 31, 2005 from 2.6 to 1 at August 31, 2004. These changes in current assets and current liabilities are attributable primarily to the use of cash and short-term borrowings to finance the Company’s acquisitions (principally the yogurt business from Kraft) and purchases of property, plant and equipment.  See “Recent Developments – 2006” for a discussion of refinancing of the indebtedness.

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Comparison of 2005 and 2004

The Company’s 2005 financial statements reflect the March 27, 2005 acquisition of the Breyers yogurt business. This acquisition was accounted for under the purchase method of accounting.  The Company began to market this business for sale in Fiscal 2006 and, accordingly, the 2005 Consolidated Statements of Operations include the results of this acquisition from the date of acquisition in discontinued operations.

Additionally, the operating results of franchising and licensing, EPFD and Value America have been reclassified to discontinued operations for Fiscal 2005 and Fiscal 2004 to make them comparable to Fiscal 2006.

Net sales

Net sales for each segment are summarized in the following table:

	Year Ended August 31,
					Percentage of  Net Sales
	2005		2004		2005		2004
Frozen dessert	$	271,086	$	356,399		74.3		87.7
Yogurt		44,007		-		12.1		-
Foodservice		17,736		15,679		4.9		3.9
Dairy components		19,538		23,184		5.3		5.7
Franchising and licensing		12,319		11,208		3.4		2.7
Total, as originally reported		364,686		406,470		100.0		100.0
Less amounts reclassified to net (loss) income from discontinued operations:
Frozen dessert		147,718		100,844
Yogurt		44,007		-
Dairy components		17,769		19,024
Franchising and licensing		12,319		11,208
		221,813		131,076
Net sales from continuing operations	$	142,873	$	275,394

The decrease in net sales for Fiscal 2006 in the frozen dessert segment came from the decrease in sales volume from a substantial number of the frozen dessert brands partially offset by generally modest sales of products introduced in Fiscal 2006.

The decrease in net sales for fiscal 2005 in the frozen dessert segment reflects the deduction from sales for payments made to customers by the Company, excluding the yogurt segment, of $52,359 in 2005 as compared with $32,913 in 2004 (a net reduction of $19,446). The decline in net sales in the frozen desserts segment came from all of the frozen dessert brands, but principally from the Weight Watchers and Atkins brands. In connection with the settlement of the Weight Watchers litigation, CoolBrands agreed to discontinue the sale of all Weight Watchers products on May 1, 2005, approximately five months sooner than required by the Weight Watchers License Agreement. These declines in net sales were partially offset by the net sales from newly introduced frozen dessert products and the increase in distribution sales as a result of the change in the business arrangement with Dreyer’s. Effective September 1, 2004, CoolBrands, through EPFD, began the distribution of Dreyer’s products as an independent distributor, changing from the previously used drayage basis, except for Dreyer’s scanned based trading customers which continue to be delivered on a drayage basis. As a result of this change, CoolBrands began purchasing products from Dreyer’s and selling those products to customers at wholesale.  The net sales and drayage income (which historically was reported in other income on the statement of operations) is included in the net (loss) income from discontinued operations for each of the years presented.

The net sales for the yogurt segment reflect the acquisition of the Breyers yogurt business from Kraft Foods, Inc. on March 27, 2005.

The decline in sales by the Company’s dairy components segment reflects the decrease in sales due to the decline in the demand for Weight Watchers and Atkins ingredients and packaging from the Company’s various contract manufacturers.

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 Other income

 Other income increased by 28.0% to $6,837 in fiscal 2005 from $5,342 in fiscal 2004. This increase was due to the increase in certain licensing fees that were in place for the entire fiscal year.

Gross profit margin

      The following table presents the gross profit margin dollars and gross profit percentage for the Company’s segments:

	Year Ended August 31,
							Percentage of Net Sales
	2005			2004			2005			2004
Frozen dessert	$	(15,488	)	$	64,779			(5.7	)		18.2
Yogurt		7,369			-			16.7			-
Foodservice		3,626			3,439			20.4			21.9
Dairy components		4,287			5,975			21.9			25.8
Franchising and licensing		3,224			2,931			2.6			26.2
Total, as originally reported		3,018			77,124			0.8			19.0
Less amounts reclassified to net (loss) income from discontinued operations:
Frozen dessert		(12,141	)		(29,371	)
Yogurt		7,369			-
Dairy components		3,874			5,099
Franchising and licensing		3,224			2,931
		2,326			(21,351	)
Gross profit from continuing operations	$	692		$	98,465

Gross profit dollars for continuing operations declined to $692 in Fiscal 2005 from $98,465 in Fiscal 2004 a decline of $97,773 primarily due to the decline in the gross profit dollars in frozen desserts segment (continuing operations) of $97,497. The decline in gross profit dollars in the frozen desserts segment resulted from the decline in sales in 2005 versus 2004, the impact on the segment for payments made to customers which as previously discussed reduced net sales and gross profit dollars, in 2005 by $52,359 as compared with $31,337 in 2004 (a net reduction of $19,446) and the Company’s inability to cover fixed overhead costs in both the manufacturing and distribution operations due to the lack of production and sales. Gross profit dollars in the frozen desserts segment were also adversely affected in Fiscal 2005 by the write down of $12,723 of obsolete and slow moving finished goods inventories, packaging, ingredients and finished goods inventories which could not be used or sold resulting from the settlement of the Weight Watchers litigation and the estimated impact on packaging which will not be used due to a new labeling law which became effective January 1, 2006.

Gross profit percentage from continuing operations for Fiscal 2005 declined to 0.5% as compared with 35.8% for Fiscal 2004. The decline in gross profit percentage was primarily due to:

1. Increased trade promotion payments to customers, which amounted to $52,359 and $32,913 in 2005 and 2004 respectively;

2. The write down of obsolete and slow moving finished goods inventories, packaging, and ingredients. This write down amounted to $12,723 in 2005 and was the result of a settlement of litigation with Weight Watchers International, a new labeling law which became effective January 1, 2006, and a provision for slow moving inventories due to changes in consumer preferences;

3. The Company’s inability to cover fixed overhead costs in both its manufacturing and distribution operations due to the lack of production and sales; and

4. The change in mix of frozen dessert products being sold in 2005 with lower gross profit margins as compared with 2004.

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Selling, general and administrative expenses

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

	Year Ended August 31,
					Percentage of Sales
	2005		2004		2005		2004
Frozen dessert	$	38,818	$	41,054		14.3		20.2
Yogurt		4,993		-		11.4		-
Foodservice		1,486		1,890		8.4		12.1
Dairy components		1,694		1,942		8.7		8.4
Franchising and licensing		5,109		4,934		41.5		44.0
Corporate (including stock-based compensation expense)		1,990		32,851
Total, as originally reported		54,090		82,671		14.8
Less amounts reclassified to net loss from discontinued operations:
Frozen dessert		4,879		4,393
Yogurt		4,993		-
Dairy components		1,579		1,794
Franchising and licensing		5,109		4,954
Other		-		14
		16,560		11,155
Selling, general and administrative expenses of continuing operations	$	37,530	$	71,516

Selling, general and administrative expenses from continuing operations decreased by $33,986 from $71,516 in 2004 to $37,530 in 2005 due primarily to the decrease of $29,065 in stock-based compensation expense incurred, from $30,983 in Fiscal 2004 to $1,918 in Fiscal 2005. The frozen dessert segment’s selling, general and administrative expenses were adversely impacted in fiscal 2005 by approximately $2,358, including the write-off of deferred package design costs, primarily related to Weight Watchers, and the write-off of certain license agreements with General Mills. Selling, general and administrative expenses in Fiscal 2004 were adversely impacted by the one time charge of $3,684 which was the pre-tax write-off of the Weight Watchers’ intangible license agreement asset.  Weight Watchers International notified CoolBrands on July 28, 2004 that the license agreement would not be extended.

Stock-based compensation expense

In accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (FAS123), the Company recognized stock-based compensation expense of $1,918 and $30,983 in Fiscal 2005 and Fiscal 2004 which represents the estimated fair value of stock options earned during the respective fiscal years.

Interest expense

Interest expense incurred in continuing operations was $1,687 in fiscal 2005 compared with $1,491 in fiscal 2004. The increase in interest expense in fiscal 2005 as compared with fiscal 2004 was due to the increase in borrowings at Americana Foods, partially offset by other decreases in other indebtedness outstanding due to scheduled repayments. Excluded from interest expense in Fiscal 2005 was interest of $891 incurred with respect of the $40,000 borrowing incurred with respect to the purchase of the Breyers yogurt business, which was included in loss from discontinued operations in Fiscal 2005.

Asset impairment

The Company is required to conduct an annual review of goodwill and non-amortizable intangible assets for potential impairment. Goodwill impairment testing requires a comparison between the carrying value and fair value of each reporting unit. If the carrying value exceeds the fair value, goodwill is considered impaired. The amount of impairment loss is measured as the difference between the carrying value and implied fair value of goodwill, which is determined using discounted cash flows. Impairment testing for non-amortizable intangible assets requires a comparison between fair value and carrying value of the intangible asset. If the carrying value exceeds fair value, the intangible asset is considered impaired and is reduced to fair value.

During 2005, the Company completed its annual review of goodwill and intangible assets. This review resulted in a non-cash pre tax charge related to a goodwill impairment of $48,701 and in a non-cash pre tax charge related to intangible asset impairment related to the Company’s frozen dessert segment of $1,401. Also, this review resulted in a non-cash pre tax charges related to goodwill and intangible asset impairments related to the Company’s franchise and licensing segment of $4,940, which was included in loss from discontinued operations. Additionally, the Company wrote-off certain company-owned store leasehold improvements and equipment related to the Company’s franchise and licensing segment of $483 which was included in loss from discontinued operations.

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(Recovery of) provision for income taxes

The effective (benefit) tax rate was (10.2)% in Fiscal 2005 and 37.1% for Fiscal 2004. The effective tax rate differs from the Canadian Federal/Provincial Statutory Rate primarily due to permanent differences related to the non-deductible goodwill impairment charges recognized in 2005, a valuation allowance established in 2005, and due to the Company’s operations in foreign countries with lower effective tax rates.

Net Loss

The net loss for Fiscal 2005 was $(74,070), which was comprised $(69,016) loss from continuing operations and $(5,054) loss from discontinued operations, as compared with net earnings of $23,512 for fiscal 2004 which was comprised of net income from continuing operations of $20,325 or $ 0.37 per fully diluted share and net income from discontinued operations of $3,187 or $0.05 per fully diluted share. CoolBrands’ net loss in 2005 was primarily due to the substantial decline in net sales due to the loss of the Weight Watchers Smart Ones license agreement, the decline in net sales of the Atkins Endulge products and other frozen dessert product lines and the resulting decrease in gross profit dollars, the $25,627 decline in drayage and other income and the provisions for asset impairment for goodwill and other intangible assets aggregating $50,585 in continuing operations and $4,940 in discontinued operations and a provision for impairment of $483 with respect to property, plant and equipment which is included in loss from discontinued operations as previously described.

Summary of quarterly results

The following table presents a summary of the Company’s results for the last eight quarters:

Quarter ended	August 31, 2005			May 31, 2005			February 29, 2005			November 30, 2004
Income (loss) from continuing operations		(60,529	)		(8,272	)		(3,525	)		3,310
Income (loss) from discontinued operations		(3,339	)		(2,743	)		1,737			(709	)
Net income (loss)		(63,868	)		(11,015	)		(1,788	)		2,601
Earnings per share (basic and diluted)
Income (loss) per share from continuing operations		(1.08	)		(0.15	)		(0.06	)		0.06
Income (loss) per share from discontinued operations		(0.06	)		(0.05	)		0.03			(0.01	)
Income (loss) per share		(1.14	)		(0.20	)		(0.03	)		0.05

Quarter ended	August 31, 2004		May 31, 2004			February 29, 2004		November 30, 2003
Total revenues		129,052		128,140			99,946		92,800
Net earnings		12,484		(625	)		8,465		3,188
Earnings per share
Basic		0.22		(0.01	)		0.15		0.06
Diluted		0.22		(0.01	)		0.15		0.06

The ice cream and frozen dessert industry generally experiences its highest volume during the spring and summer months and its lowest volume in the winter months.

Fourth Quarter

In the fourth quarter of Fiscal 2005, the Company generated a loss of $(63,868), or $(1.14) per fully diluted share, which was comprised of $(60,529), or $(1.08) per fully diluted share, from continuing operations, and $(3,339), or $(0.06) per fully diluted share, from discontinued operations.  The principal reasons for the loss were the impairment charge of $55,525, of which $51,141 was in continuing operations and $4,384 was in discontinued operations.  Additionally, the fourth quarter of Fiscal 2005 was affected by a write down for obsolescence of $8,163 in connection with slow moving inventory, most of which was related to the settlement and discontinuation of the business with Weight Watchers.

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Liquidity

The following sets forth certain measures of the Company’s liquidity:

	Year Ended August 31,
	2005		2004
Cash, investments and restricted cash	$	41,562	$	64,327
Working Capital	$	28,477	$	118,138
Current Ratio	1.2 to 1.0		2.6 to 1.0

The decrease in working capital of $89,661 was primarily due to a decrease in cash, investments and restricted cash of $22,765 and a decrease in total receivables of $14,669, an increase in current maturities of long-term debt and short term borrowings of $44,222, an increase in accounts payable and accrued liabilities of $25,185, and offset by the increase in income taxes recoverable of $9,767 and the reduction the income tax payable of $4,938. CoolBrands refinanced its long-term debt and short-term borrowings in April 2006.

Cash flows from operating activities of continuing operations

The Company generated cash flow from operating activities of continuing operations of $11,239 for the year ended August 31, 2005 as compared with $42,350 for the year ended August 31, 2004 due primarily to the decrease in net earnings (exclusive of depreciation and amortization and asset impairment) for 2005 as compared with 2004. This was offset by changes in other operating assets and liabilities, which were primarily driven by the timing of certain payments.

Cash used in investing activities of continuing operations

The cash used in investing activities in 2005 was primarily due to the acquisitions of the yogurt business and the Zipp Manufacturing flavors and ingredients businesses which aggregated $59,609 and the purchase of property, plant and equipment of $13,500, offset by the net redemption of investments of $20,550 and the proceeds from the sale of the Company’s City of Industry facility for $5,434. The cash used in investing activities in 2004 was primarily due to the purchase of property, plant and equipment of $12,977 and the purchase of investments, net of redemptions of $28,050.

Cash provided by financing activities of continuing operations

In 2005, $33,264 was provided by financing activities as compared with $14,926 provided by financing activities in 2004. In 2005, the proceeds from short term borrowings of $44,553, and an increase in the revolving line of credit of $2,661 at Americana Foods. These additions were off set by the repayment of long-term debt. The exercise of stock options in 2004 provided $12,286 and Americana Foods’ minority partner provided $6,907 of capital, net of a $2,000 return of capital, as their share for the expansion of production capacity at Americana Foods. These additions were offset by the repayment of long-term debt of $5,781 and the increase in the secured revolving line of credit at Americana Foods of $1,514.

Cash flows from operating activities of discontinued operations

       Cash flows from operations of discontinued operations was $3,257 in Fiscal 2005 compared to $1,419 in Fiscal 2004. The Fiscal 2005 improved results reflect the operating results of the yogurt business acquired from Kraft Foods in March 2005.

Cash flows from investing activities of discontinued operations

      Cash flows used in investing activities of discontinued operations in Fiscal 2005 reflect purchases of property, plant and equipment totaling $386; Fiscal 2004 results reflect the use of cash to acquire the yogurt business from Kraft Foods and Zipp Manufacturing, the purchase prices for which totaled $59,609. Both businesses were ultimately sold.

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Contractual obligations

The following table presents the Company’s contractual obligations as of August 31, 2006:

	Total		Less than 1 year		1 – 3 years		4 – 5 years		After 5 years
Contractual obligations
Notes payable in default- Corporate Credit Facility	$	10,077	$	10,077
Notes payable in default- Americana Credit Facility revolver		6,418		6,418
Notes payable in default- Americana Credit Facility  term loan		17,083		17,083
Obligation under capital leases		561		177		315		69
Operating leases		1,676		933		342		187		214
Other liabilities		4,287		4,287		-		-		-
Total contractual obligations	$	40,102	$	38,975	$	657	$	256	$	214

At August 31, 2006, the Company had $10,077 outstanding under the Corporate Credit Facility and $23,501 outstanding under the Americana Credit Facility ($6,418 under the revolver and $17,083 under the term loans).  As of May 31, 2006 and August 31, 2006, the Company and Americana Foods were in default of certain financial covenants of each of the Americana Credit Facility and the Corporate Credit Facility.  In November 2006, 2118769, as previously defined and described in “Recent Developments”, purchased all of the indebtedness outstanding under the Americana Credit Facility from the lender.  The independent bankruptcy trustee for Americana Foods has sold the assets of Americana Foods and is finalizing the accounting.  It is anticipated that the proceeds from the sale of the Americana Foods’ assets will be utilized to repay 2118769.  To the extent that there is a shortfall between the proceeds received and the amount outstanding, the Company may be required to make a payment under its guarantee.  The Corporate Credit Facility was repaid with a portion of the proceeds of the sale of the foodservice segment and certain trademarks on January 24, 2007.

Capital resources

The Company intends to complete all of its capital commitments, which were not significant as of August 31, 2006.  However, the Company does not intend to start any new capital projects other than to make an asset saleable, if necessary.

As of August 31, 2006:

On April 21, 2006, certain of the subsidiaries entered into two separate credit agreements with JPMorgan Chase Bank, N.A.  Under the Corporate Credit Facility, the subsidiaries, Integrated Brands Inc., Eskimo Pie Frozen Distribution, Inc., Eskimo Pie Corporation and CoolBrands Dairy, Inc. (“the Borrowers”) collectively and individually entered into a credit agreement which provided a revolving credit facility of up to $48,000, with availability for borrowing subject to borrowing base calculations. The Corporate Credit Facility was scheduled to expire on April 21, 2009 and was secured by substantially all the assets of the Borrowers.  The Corporate Credit Facility is guaranteed by the Company, “the Borrowers” and all U.S. subsidiaries of the Company and “the Borrowers”, except Americana Foods.  A portion of the Corporate Credit Facility was used to payoff the balance of the then existing bank debt on April 21, 2006 of $35,055.  The remainder, subject to borrowing base calculations and terms of the agreement, is available to finance working capital needs and for general corporate purposes.  The interest rate is at the Prime Rate until November 30, 2006 (8.25% at August 31, 2006).  After November 30, 2006, the interest rate varies based upon average availability under the revolving credit facility.  The standby fee on the unused portion of the revolving credit facility is .375%.  As of August 31, 2006, the loan balance was $10,077.

All borrowings under the above secured revolving credit facility are guaranteed by the Company. The agreement contains restrictions relating to the payment of dividends, indebtedness, liens, dispositions of property, change in the nature of its business, change in ownership, investments, loans, advances, guarantees, and acquisitions.  In addition, the Company must maintain certain financial ratios, in any event that minimum availability is less than $10,000, and must maintain a minimum EBITDA and fixed charge coverage ratio and limit capital expenditures to $1,000, $2,000, and $5,000 during Fiscal 2006, and the years ended August 31, 2007 (“Fiscal 2007”) and 2008 (“Fiscal 2008”), respectively.

Additionally, the Company’s 50.1% owned subsidiary, Americana Foods, entered into the Americana Credit Facility (as previously defined) on April 21, 2006 with the same group of lenders as under the Corporate Credit Facility.  Loans under the revolving credit facility (“Americana Revolver”) are available for borrowing subject to a borrowing base calculation.  The loans under the Americana Credit Facility

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expire April 21, 2009.  Such loans are secured by substantially all of the assets of Americana Foods and are guaranteed by the Company, Integrated Brands Inc., and its direct and indirect subsidiaries, including the Limited and General Partner of Americana Foods.  This facility was used to repay two existing term loans of $12,950 and the payment of $2,900 in obligations to Integrated Brands and Eskimo Pie Corporation.  The revolving credit portion of the facility was utilized to repay $6,068 principal and interest due under an existing revolving loan.  The remainder, subject to borrowing base calculations, is available to finance working capital needs and for general corporate purposes.  The interest rate is at the Prime Rate until November 30, 2006 (8.25% at August 31, 2006).  After November 30, 2006, the interest rate varies based upon average availability under the revolving credit facility.  The standby fee on the unused portion of the revolving credit facility is 0.50%.  As of August 31, 2006, the outstanding term loan balances aggregated $17,083, and the outstanding revolving credit loan balance was $6,418.

The Americana Credit Facility contained restrictions which limited the indebtedness to $8,000 to Integrated Brands and $1,300 in subordinated indebtedness each to Integrated Brands and Capricorn Investors III, L.P., a limited partner which owns 49.9% of Americana Foods.  The agreement also contained restrictions relating to the payment of dividends or other distributions with respect to any equity interest in Americana Foods, indebtedness, liens, dispositions of property, change in the nature of its business, change in ownership, investments, loans, advances, guarantees, and acquisitions. In addition, American Foods was required to maintain a minimum amount of earnings before interest, income tax expenses, depreciation and amortization (“EBITDA”), maintain minimum availability of not less than $700 at all times and limit capital expenditures to $1,000, $3,000 and $3,000 during Fiscal 2006, Fiscal 2007 and Fiscal 2008, respectively.

The Company was in default of the loan covenants at May 31, 2006 and August 31, 2006 as a result of a default by Americana Foods of its EBITDA financial covenant in connection with the Americana Credit Facility.  The Company was also in default of the loan covenants at August 31, 2006 as a result of defaults by “the Borrowers” of certain of the financial covenants in connection with the Corporate Credit Facility.  On July 31, 2006, the  subsidiaries received notice from JPMorgan Chase Bank, N.A., as administrative agent of the Americana Credit Facility and the Corporate Credit Facility, that it was reserving its rights to terminate its commitments to lend under the credit agreements as a result of the previously disclosed breach of the covenant at a subsidiary related to a minimum level of EBITDA for the three months ended May 31, 2006.

In October 2006, Americana Foods was advised by its lenders that because of continuing defaults, they would no longer lend to Americana Foods and demanded full and immediate repayment of all of amounts outstanding under the American Credit Facility, which aggregated approximately $21,830 and which was guaranteed by the Company. The Company, through certain of its subsidiaries, as creditors of Americana Foods, filed an involuntary petition of bankruptcy against Americana Foods under Chapter 7 of the Federal Bankruptcy Code in the United States Bankruptcy Court, Northern District of Texas.  As a result, Americana Foods ceased operations and an independent trustee was appointed to oversee the liquidation of the assets and liabilities of Americana Foods.  In November, 2006, 2118769 Ontario Inc.(“2118769”) a company controlled by Michael Serruya, currently the Chairman and CEO of the Company, purchased all of Americana Foods’ bank indebtedness under the Americana Credit Facility, which aggregated $21,408, from the lender. 2118769 received a first lien security interest in the assets of Americana Foods.  The Company remains the guarantor of the Americana debt under the Americana Credit Facility. The independent trustee has sold or liquidated substantially all of the assets of Americana Foods and is completing his accounting.  To the extent that the proceeds from the liquidation are not sufficient to pay 2118769, the Company may be required to make a payment under its guarantee.

Additionally, the Company continued to be in default under its Corporate Credit Facility.  In connection with the purchase of the indebtedness outstanding under the Americana Credit Facility by 2118769, the Company and the lender (a “Senior Lender”) amended the Corporate Credit Facility (the “Amendment”) and agreed to reduce the maximum amount of the Corporate Credit Facility to $8,000, subject to a borrowing base.  Mr. Serruya, through 2118769 (also a “Senior Lender” as a result of the purchase of the indebtedness outstanding under the Americana Credit Facility), issued an irrevocable letter of credit with a face value of $5,000 in favor of the lender.  The Senior Lenders and the Company also entered into a forbearance agreement which changed the maturity date of the Corporate Credit Facility from April 21, 2009 to May 17, 2007.  The Amendment also required the Company to utilize proceeds from the sales of assets to reduce the indebtedness based upon a specified schedule.  Mr. Serruya received, through 2118769, warrants to purchase 5,500,000 subordinate voting shares of the Company in connection with the purchase of the senior indebtedness under the Americana Credit Facility as described above.  The exercise price of each warrant is Cdn $0.50 and the term of the warrants is five years from the date of the grant.  The warrants issued by the Company in connection with this transaction were valued at $1,764 using the Black-Scholes pricing model and the following assumptions: 2.5 years expected life, no dividends, 67% volatility and 4.6% risk free rate, and will be expensed by the Company in the first quarter of Fiscal 2007.  The Company completed the sale of the foodservice segment on January 24, 2007 and utilized a portion of the proceeds to repay the amounts outstanding pursuant to the Corporate Credit Facility.

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As of August 31, 2005:

The Company, through a U.S. subsidiary, borrowed $40,000 to finance the acquisition of the yogurt business from Kraft in March 2005.  The term loan originally required monthly payments of interest with the $40,000 principal balance originally due November 1, 2005.  Interest was payable monthly on the unpaid principal balance with interest rates fluctuating with changes in the prime lending or libor rate and the ratio of funded debt to EBITDA.  The interest rates plus applicable margin were the lower of prime plus 0.5% or LIBOR plus 2.5% (6.02% at August 31, 2005). The Company made a principal payment of $10,000 on August 23, 2005 in anticipation of the September 2, 2005 amendment as discussed below. As of August 31, 2005 the term loan balance was $30,000.

The Company, through a U.S. subsidiary, borrowed $30,000 to finance the acquisition of Eskimo Pie Corporation in October 2000 (the “EPC Loan”). The EPC Loan was payable in monthly installments of $250, which began December 1, 2000, with the remaining principal balance originally due on November 1, 2005.  Interest on the term loan was payable monthly on the unpaid principal balance. The Company and all of the significant subsidiaries guaranteed all borrowings under the EPC Loan. The principal balance outstanding at August 31, 2005 was $10,500.

The Company was in default of its financial covenants at May 31, 2005 and August 31, 2005.  On September 2, 2005, the Company entered into an amendment to the existing credit facilities (“September 2005 Amendment”).  The September 2005 Amendment extended the maturity of the existing facilities from November 1, 2005 until January 3, 2006 and waived defaults in its financial covenants resulting from the Company’s financial performance.  The maturities were later extended to April 3, 2006 and May 3, 2006.

The September 2005 Amendment eliminated all of the existing financial covenants from the loan agreements through the remainder of the term and granted a security interest in the personal property assets (other than certain excluded assets relating to the operations of the Company’s 50.1% owned limited partnership), reduced the outstanding indebtedness to the bank by $10,000 to a total of $40,500 and agreed to an increase of the interest rate by 2.0% basis points on all remaining outstanding balances to 4.5% basis points over LIBOR.  In addition, the amendment reduced the $5,000 revolving credit facility to $925 and required the Company to maintain $20,000 of cash balances, of which $10,000 was restricted to use as approved by the lender.

On April 27, 2005, Americana Foods borrowed $4,553 (the “Americana Loan”) for use in purchasing a building and adjacent acreage.  The Americana Loan provided for monthly interest only payments until the anniversary date of the note (April 27, 2006).  The Americana Loan bore interest at Prime plus 0.5% (7.0% at August 31, 2005).

On November 19, 2002, Americana Foods entered into a Credit Agreement with a financial institution that included a term loan of $10,000 (the “Americana Term Loan”), which is secured by Americana Foods’ property, plant, and equipment.  The Americana Term Loan provided for fixed monthly installments of principal of $80 plus interest and was originally scheduled to mature on November 19, 2007. The Americana Term Loan bore interest at prime plus 0.5% (7.0% at August 31, 2005).

Americana Foods’ Amended Credit Agreement also included a revolving loan of up to $9,000 (the “Americana Revolver”), subject to a borrowing base calculation, which bore interest at prime plus 0.5% (7.0% at August 31, 2005) and was originally due on November 30, 2005.  At August 31, 2005, $7,145 was outstanding under the Americana Revolver.  The Americana Revolver was secured by Americana Foods’ receivables and inventory.

On November 30, 2005, Americana Foods executed an Amendment to the Credit Agreement, which extended the maturity date for the Americana Revolver until January 10, 2006.  Americana Foods must maintain compliance with certain financial covenants, including fixed charge ratio, debt-to-tangible net worth ratio and tangible net worth.

The Company refinanced all of the above referenced debt in April 2006 and all of the then existing debt was repaid as of April 2006.

Risk Factors and Uncertainties

For Fiscal 2006, we incurred a net loss of $(70,182), of which $(63,620) was from continuing operations and $(6,562) was from discontinued operations.

In the first quarter of Fiscal 2006, the decision was made to sell certain assets to generate liquidity.  In December 2005, the Company sold certain assets relating to its franchising business for proceeds totaling $8,000 to Aaron Serruya, a former officer of the Company, who is a director and the brother of Michael Serruya, the Chairman and Chief Executive Officer of the Company.

On April 21, 2006, the Company refinanced its then remaining debt by obtaining the following:

1.   a $48,000 senior secured revolving credit facility; and

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2.   a $25,500 senior secured revolving credit facility consisting of an $8,000 senior secured revolving credit facility and $17,500 of term loans, in which Americana Foods, which is 50.1% owned by the Company, is the borrower.

Each of the loans was for an original term of three years and provides for interest at the prime rate (8.25% at August 31, 2006).  Each of the credit facilities were unconditionally guaranteed by the Company.  Both facilities were in default at August 31, 2006.

For the year ended August 31, 2005, the Company incurred a net loss of $74,070, which was primarily attributable to:

1.   the non-cash impairment charges totaling $55,525 relating to goodwill and intangible assets of the frozen dessert and franchising segment; and

2.   the discontinuation of the Weight Watchers Smart Ones brand products and the decline in sales from other frozen dessert brands, which were partially offset by the sales of the Breyers Yogurt business acquired in March 2005 and a change in the Company’s arrangement with Dreyer’s .

Additionally, as of August 31, 2005, the Company had approximately $60,962 of outstanding debt, of which $52,714 was classified as current liabilities.

Inflation can significantly impact ice cream and frozen yogurt ingredients, including butterfat and packaging costs.  In Fiscal 2006 and Fiscal 2005, the Company passed on ingredient, energy and freight cost increases by raising prices on selected product lines.  The Company no longer manufactures products other than production by Sugar Creek Food, Inc. subsidiary, pursuant to a co-pack arrangement established upon the sale of the foodservice segment.  Thus, given the Company’s size and level of operations, inflation is no longer a factor.

The Company’s products were ultimately purchased primarily by the United States retail consumer, whose tastes and preferences are subject to variation and change.  Although carefully monitored, these changes cannot be controlled and are difficult to predict.

The Company derived a substantial portion of its revenues from its operations in the United States. The U.S. market for frozen dessert and yogurt is highly competitive.  As competitors introduce new products or revise their supply or pricing strategies, the Company may encounter additional and more intense competition.  Such competitors have greater name recognition and more extensive financial, technological, marketing and personnel resources than ours.

The Company’s existing shelf space in supermarkets, club stores, and convenience stores for ice cream and frozen dessert treats and yogurt has been historically at risk due to decisions by CoolBrands’ customers. The Company’s existing shelf space for its products, along with that of all other products, is reviewed at least annually by our customers.  Supermarket, club store and convenience store chains reallocate their total shelf space taking into effect a number of variables, including the number of new products being introduced at any given time, the amount of new product placement fees (slotting fees) being offered by companies in the ice cream and frozen dessert and yogurt segments and by changing consumer tastes and fads.  As a result, CoolBrands is subject, in any given year, to the loss of shelf space with its customers and the loss in revenues associated with the sale of those products.  Because of our downsizing and the fact that we are not manufacturing product, expect as noted above, we are no longer competing for shelf space.

The Company is subject to risks with respect to its cost of raw materials, some of which are subject to changes in commodity prices, particularly the cost of butterfat, which is used to produce ice cream products.  From time to time, the Company has used hedging contracts to reduce its exposure to such risks with respect to its raw material costs. The Company is not a party to any hedging contracts and has no present intention of entering into any hedging contracts.

The Company has made and may in the future make acquisitions of, or significant investments in, businesses or assets with complementary products or unrelated industries.  Acquisitions involve numerous risks, including but not limited to: 1) diversion of management’s attention from other operational matters; 2) the inability to realize expected synergies from the acquisition; 3) impairment of acquired intangible assets as a result of worse-than-expected-performance of the acquired operations; 4) integration and retention of key employees; and 5) integration of operations.  Mergers and acquisitions are inherently subject to significant risks, and the inability to effectively manage these risks have materially and adversely affected our business, financial condition and results of operations.

The Company is currently dependent upon a small number of key management personnel and continued success will depend, in part, upon their abilities.  The loss of these key personnel may adversely affect the performance of the Corporation.

The Company relies on major retailers in the U.S. for a substantial portion of our sales.  As a result of this concentration of sales and accounts receivable, the Company is subject to certain credit risks. One customer accounted for 10.2% and 17.0% of net sales from continuing operations in Fiscal 2006 and Fiscal 2005, respectively.

The Company has been subject to interest rate risk as the long-term debt and short term borrowings are based upon the prime rate and/or Libor.  If these base rates were to increase, the Company would incur incremental interest expense.  Because the Company has repaid the amounts outstanding under the Corporate Credit Facility as of January 24, 2007 and the amounts outstanding under the Americana

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Credit Facility were purchased by a company controlled by Michael Serruya, which will be repaid from the proceeds of the sale of the assets of Americana Foods and to the extent necessary, by the Company under our guarantee, we are no longer subject to interest rate risk.

The Company is subject to future legal proceedings and disputes with joint-venture partners, franchisees, former franchisees and others, which arise in the ordinary course of business.

We consummated the sale of CBD on January 30, 2007, which generated cash proceeds of $45,000 (as well as a $5,000 note receivable and warrants as previously described). Additionally, the Company has tax refund receivables totaling $11,000 and is marketing for sale certain assets, including its printing and packaging plant in Bloomfield, New Jersey. The Company is no longer producing new inventory, so sales consist primarily selling of existing inventory. The Company expects its net sales to become nominal as existing inventory is sold off.

Transactions with Related Parties

Effective December 23, 2005, the Company sold substantially all of its franchising and licensing segment to International Franchise Corp. for cash consideration of $8,000.  International Franchise Corp. is a company controlled by Mr. Aaron Serruya, a director of the Company and the senior executive who was responsible for the franchising division at the Company.  Mr. Serruya resigned as executive vice president of the Company as a result of this transaction, but continues as a director.  The sale transaction was reviewed and unanimously recommended to the board of directors of the Company by a committee of independent directors of the Company, and was unanimously approved by the board of directors of the Company.

International Franchise Corp. also entered into a management agreement on December 23, 2005 with Integrated Brands for transition services of $22 per month.  At August 31, 2006, a receivable of $380 was due to Integrated Brands Inc. from International Franchise Corp.

In November 2006 Mr. Michael Serruya, currently  the President, Chairman and Chief Executive Officer of the Company , through a holding company, purchased the debt outstanding under the Americana Credit Facility, which aggregated $21,408, from the lender.  The holding company received a first lien security interest in the assets of Americana Foods.  Additionally, through the holding company, Mr. Michael Serruya issued an irrevocable letter of credit with a face value of $5 million to secure the Corporate Credit Facility. The Company has agreed to reimburse Mr. Serruya for the letter of credit fee, as well as certain other expenses he incurred.  In connection with these transactions, Mr. Serruya, through the holding company, received warrants to purchase 5,500,000 subordinate voting shares of the Company.  The exercise price of each warrant is Cdn $0.50 and the warrants expire in November 2011. The warrants issued by the Company in connection with this transaction were valued at $1,764 USD (Cdn $1,980) using the Black-Scholes model and the following assumptions: 2.5 years expected life, no dividends, 67% volatility and 4.6% risk free rate, and will be expensed in the first quarter of Fiscal 2007.

Item 6 Directors, Senior Management and Employees

Item 6(A) Directors and Senior Management

The following table sets forth the name, age, municipality of residence, position held with the Corporation and principal occupation of each of the officers and directors of the Corporation as of August 31, 2007.

Each director holds office until the close of business of the annual meeting of shareholders of the Corporation following his election unless his office is earlier vacated in accordance with the Corporation’s articles of association.

	Age	Positions with the Corporation	Principal Occupation(1)
Michael Serruya Thornhill,Ontario	42	Chairman, President, Chief Executive Officer and Director	CEO of the Corporation
Aaron Serruya Thornhill, Ontario	41	Director	President and Chief Executive Officer, International Franchise Corp.
Romeo DeGasperis(2)(3)(4) Toronto, Ontario	40	Director	Vice President, Con-Drain Company

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Age Positions with the Corporation Principal Occupation⁽¹⁾

Ronald W. Binns(2)(3)(4)	50	Director	Chief Financial Officer-Nevada Capital Corporation Ltd
Garry Macdonald(2)(3)(4)	60	Director	President and Principal of Maccess Management Inc.
Ken MacKenzie Markham, Ontario	51	Chief Financial Officer	Officer of the Corporation

⁽¹⁾ The employment history of the above-noted directors and officers is disclosed below.

⁽²⁾ Member of Audit Committee.

⁽³⁾ Member of Compensation Committee.

⁽⁴⁾ Member of Corporate Governance Committee.

Michael Serruya -Chairman of the Board, President, Chief Executive Officer and Director of the Corporation. Mr. Michael Serruya is a co-founder of the Corporation and has been actively involved in its development since its inception in 1986. Mr. Michael Serruya has been a Director of the Corporation since 1994 when the Corporation first went public. Michael Serruya is the brother of Aaron Serruya.

Aaron Serruya - Director of the Corporation. Mr. Aaron Serruya is a co-founder of the Corporation and was actively involved in its development since its inception in 1986. Mr. Aaron Serruya has been President of International Franchise Corp. since December 2005. Mr. Aaron Serruya has been a Director of the Corporation since 1994 when the Corporation first went public. Mr. Serruya was Executive Vice-President of the Corporation and Secretary from 1994 until 2005. Aaron Serruya is the brother of Michael Serruya.

Romeo DeGasperis – Director of the Corporation. Mr. DeGasperis is Vice President of Con-Drain Company Limited, a family business in which he has worked for over 18 years. Mr. DeGasperis manages the operations and personnel of the company and is responsible for tendering new projects as well as all the networking and communications for the company. Mr. DeGasperis was a Director of the Corporation from 2000 to August 2006 and rejoined the Board in November 2006. He is a member of the audit committee, the compensation committee and the corporate governance committee.

Ronald W. Binns - Director of the Corporation. Mr. Binns is currently and has been, since 2002, the Chief Financial Officer of Nevada Capital Corporation Ltd. From 1989-2002, he served as the Chief Financial Officer of Franco-Nevada Mining Corporation Ltd. Mr. Binns became a Chartered Accountant with Coopers & Lybrand in 1984 and has lectured extensively for the British Columbia Institute of Chartered Accountants and “Big Four” accounting firms and is a director of GMP Capital Trust and Silk Road Resources Ltd. which are both traded on the Toronto Stock Exchange. Mr. Binns has been a member of the audit committee, compensation committee and the corporate governance committee since November 2006.

Garry Macdonald - Director of the Corporation. Mr. Macdonald is currently and has been, since 2002, the President and Principal of Maccess Management Inc., a private company providing strategic planning, business development and consultancy services. From 1998-2002, he served as President and Chief Executive Officer of Country Style Food Services, Inc. From 1989-1998, Mr. Macdonald was the President and Chief Executive Officer of the franchise operations division of Maple Leaf Foods. He has been a member of the audit committee, the compensation committee and the corporate governance committee since November 2006.

Ken MacKenzie - Chief Financial Officer of the Corporation. Mr. MacKenzie has been the Chief Financial Officer since April 2007.  Prior to joining CoolBrands, Mr. MacKenzie was Chief Financial Officer at LOREX Technology, a public company trading on The Toronto Stock Exchange from December 2002 to July 2006.

The Corporation does not have an executive committee of its Board of Directors.

Item 6(B) Compensation

The aggregate amount of remuneration paid or accrued by the Company on a worldwide basis during the year ended August 31, 2006 as compensation to its Directors (who with the exception of Mr. DeGasperis, are no longer serving as Board members) and its executive officers named above (which excludes certain executive officers who are no longer with the Company but may be named in the table below) was $1,697,000.

The following table sets forth all compensation earned for the year ended August 31, 2006 by the Corporation’s Co-Chief Executive Officers, its Chief Financial Officer and the Corporation’s next three highest paid executive officers whose salary and bonus during the fiscal year ended August 31, 2006 was equal to or greater than $150,000.  Amounts are in U.S. dollars, except for amounts related to Michael Serruya which are stated in Canadian dollars.

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		Annual Compensation			Long-Term Compensation
Name and Principal Position	Fiscal Year End	Salary ($)	Bonus	Other Annual Compensation (1) ($)	Securities Under Options Granted (2) #	All Other Compensation (3) ($)
Michael Serruya(7) Chairman, President & Chief Executive Officer	2006	Cdn $420,000	-	-	-	-
David J. Stein(6) President, Chief Executive Officer	2006	533,077	-	-	-	2,250
Gary P Stevens Chief Financial Officer	2006	188,558	-	33,454	-	1,235
Francis Orfanello Executive Vice President	2006	435,577	-	-	100,000(4)	-
J. Leo Glynn(5) President, Eskimo Pie Frozen Distribution Inc.	2006	247,840	82,000	-	-	-
Daniel Heschke Chief Information Officer	2006	240,000	-	177,627(7)	-	582

 ⁽¹⁾ These amounts also include the difference in value between the exercise price of options and the fair market value of the shares at the time of purchase, for options exercised in the fiscal years ended August 31, 2004, 2005 and 2006. Certain amounts are paid in U.S. dollars, and have been converted for purposes of the table presentation based upon $1.00 purchasing Cdn $1.1081, Cdn $1.2040 and Cdn $1.3166 at August 31, 2006, 2005 and 2004, respectively.

⁽²⁾ Options to purchase subordinate voting shares granted pursuant to the Corporation’s stock option plan.

⁽³⁾ These amounts represent the Corporation’s contribution to employee's 401K plans.

⁽⁴⁾ Mr. Orfanello resigned in October 2006 and these options were forfeited in accordance with the provisions of the Company’s 2002 Stock Option Plan.

⁽⁵⁾ Mr. Glynn resigned his position in June 2006 and 100,000 options were forfeited in accordance with the provisions of the Company’s 2002 Stock Option Plan.

⁽⁶⁾ Integrated Brands, a wholly owned subsidiary of the Corporation, had an employment agreement with David J. Stein, which was amended in fiscal 2003. The amended agreement provides for an annual salary of $520,000 in calendar 2005, and an annual increase of $20,000 in each calendar year through 2013, and an annual salary of $700,000 in any calendar year after 2013.The contract also calls for annual bonuses at the discretion of the Board. No bonus was paid in 2006 under the employment agreement. The agreement provides that it may be terminated by Integrated Brands after December 31, 2013, with or without cause, on 90 days’ notice. In the event that the agreement is terminated by Integrated Brands after December 31, 2013 without cause, Integrated Brands must pay Mr. Stein a severance amount equal to 36 months salary at the annual rate of pay in effect as of the date of termination. The obligations of Integrated Brands under the agreement were guaranteed by the Corporation. In November 2006, Mr. Stein’s employment ceased.

⁽⁷⁾ Represents payment for relocation expenses.

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Compensation of Directors

Non-independent directors of the Corporation did not receive any fees or any other type of compensation in Fiscal 2006 for acting as such.  Independent directors each received a $25,000 retainer and $2,000 for each board or committee meeting attended in person and $250 for each board or committee meeting attended via telephone. During Fiscal 2006, the independent directors were Mr. Robert E.  Baker, Ms. Beth L. Bronner, Mr. Romeo DeGasperis, Mr. L. Joshua Sosland and Mr. William McManaman, as well as Mr. Arthur Waldbaum who retired from the board of directors at the 2006 annual meeting in February 2006. In respect of fiscal 2006, the Lead Director, Robert E. Baker received a retainer of $50,000. Directors also received a $5,000 retainer ($10,000 in the case of the Chair of each committee) for being a member of a committee. Each independent director also received 10,000 stock options during each of the fiscal years ended August 31, 2006 and 2005. The aggregate amount of remuneration paid by the Company on a worldwide basis during the years ended August 31, 2006 and 2005 as compensation to its Directors named above was $346,000 and $129,000, respectively. Each of the independent directors in place at August 31, 2006 resigned their positions on the Board on November 17, 2006 and were replaced on that date by three new independent directors, Mr. Romeo DeGasperis (who had previously been a director of the Corporation), Mr. Ronald Binns and Mr. Garry Macdonald. The three new independent directors have agreed, at this time, to serve the Board and the committees of the Board for no cash compensation. See also Item 6(A), “Directors and Senior Management.”  During Fiscal 2006, the Board of Directors held 23 meetings, the Audit Committee held 10 meetings, the Compensation Committee held 12 meetings, and the Corporate Governance Committee held 3 meetings.

Option Grant Table

The following table sets forth information concerning the grant of stock options to purchase Subordinate Voting Shares to each of the Company’s officers and directors during the fiscal year ending August 31, 2006

					Market Value of
	Securities Under	% of Total Options		Securities Underlying
	Options Granted	Granted	Exercise or Base Price	Options on Date of Grant
Name	#	in Fiscal Year	(Cdn $/Security)	(Cdn $/Security)		Expiration Date
Romeo DeGasperis(1)	10,000	3.13%	2.85	2.85		February 27, 2016
William McManaman(3)	10,000	3.13%	2.85	2.85		February 27, 2016
Aaron Serruya(5)	10,000	3.13%	2.85	2.85		February 27, 2016
Robert Baker(3)	10,000	3.13%	2.85	2.85		February 27, 2016
Beth Bronner(3)	10,000	3.13%	2.85	2.85		February 27, 2016
Josh Sosland(3)	10,000	3.13%	2.85	2.85		February 27, 2016
Francis Orfanello	100,000	31.30%	2.84	2.84		January 11, 2016(4)

⁽¹⁾ Mr. DeGasperis resigned from the Board on August 6, 2006.  He rejoined the Board on November 17, 2006.  All of the vested stock options, including those reflected above, were forfeited in accordance with the 2002 stock option plan.

⁽²⁾ Mr. McManaman was elected to the Board on February 27, 2006, replacing Mr. Arthur Waldbaum, who retired from the Board of Directors.

⁽³⁾ Mr. Baker, Ms. Bronner, Mr. Sosland and Mr. McManaman resigned from the Board of Directors on November 17, 2006.   All of their vested stock options, including those reflected above, were forfeited in accordance with the 2002 stock option plan.

⁽⁴⁾ Mr. Orfanello resigned his position as Executive Vice-President on October 6, 2006.   None of the options were vested and they were forfeited in accordance with the 2002 stock option plan.

⁽⁵⁾ Mr. Aaron Serruya surrendered all of his vested options, including those reflected above, in November 2006.

Note – all of the above options in the above table were either forfeited or surrendered subsequent to August 31, 2006.

See Item 6(e) Share Ownership-Stock Option Plan- for a description of the Company’s stock option plans.

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Item 6(C) Board Practices

      Each director holds office until the close of business of the next annual meeting of shareholders of the Corporation unless his or her office is earlier vacated in accordance with the Corporation’s articles of continuance. Officers are appointed to serve at the discretion of the Board of Directors.

      The Corporation has no director service contracts.

Board Representation Agreement

In connection with the acquisition on March 18, 1998 of Integrated Brands, by a wholly-owned subsidiary of the Corporation, Messrs. Richard E. Smith, David M. Smith and David J. Stein (“Integrated Brands Principal Shareholders” and Integrated Brands Inc., on the one hand, and the Corporation and The Serruya Family Trust, 1082272 Ontario Inc., Michael Serruya and Aaron Serruya (“CoolBrands Principal Shareholders”), on the other hand, entered into the Board Representation Agreement.

Each of the CoolBrands Principal Shareholders and the Integrated Brands Principal Shareholders had agreed to vote against: (i) the sale of all or substantially all of the Corporation’s assets; (ii) a merger, consolidation or similar transaction involving the Corporation; or (iii) an amendment to the Memorandum of the Association and/or the Articles of Association of the Corporation which would adversely affect the rights of the Integrated Brands Principal Shareholders or the CoolBrands Principal Shareholders, unless the Integrated Brands Principal Shareholders and the CoolBrands Principal Shareholders agree in writing to vote for any such matters.  See further discussion below in “Voting Agreement.:

Each of the CoolBrands Principal Shareholders and the Integrated Brands Principal Shareholders agreed not to accept an offer to sell any voting securities at a price in excess of the market price of the voting securities on the date of such offer, except: (i) sales made on The Toronto Stock Exchange or any other regional or national exchange, outside or inside Canada, on which such securities are regularly traded; (ii) to another principal shareholder; or (iii) pursuant to an offer made proportionately and at the same price to all other shareholders of the Corporation.

The provisions of the Board Representation Agreement allowed for its termination: (i) by the CoolBrands Principal Shareholders in the event that the Integrated Brands Principal Shareholders were the beneficial owners, in the aggregate, of fewer than 750,000 voting securities (including voting securities issuable upon the conversion or exercise of convertible securities); and (ii) by the Integrated Brands Principal Shareholders, in the event the CoolBrands Principal Shareholders were the beneficial owners, in the aggregate, of fewer than 1,500,000 voting securities (including voting securities issuable upon the conversion or exercise of convertible securities).

This Board Representation Agreement was terminated upon the collapse of the dual class structure as discussed in Item 4(A), “History and Development” and in “Recent Developments of the Company”.

Voting Agreement

Notwithstanding the Board Representation Agreement, Aaron Serruya, Michael Serruya, David Smith and David Stein, and entities affiliated with them (collectively, the “Management MVS Holders”), each entered into the Voting Agreement with the Corporation pursuant to which they each agreed to vote all of the shares that they beneficially own or control in favor of the Continuance Resolution and in favor of the Share Capital Restructuring Resolution. On February 27, 2006, the shareholders of the Corporation passed a special resolution which resulted in the change of each Class A subordinate voting share (the “Subordinate Voting Shares”) and each Class B multiple voting share (the “Multiple Voting Shares”) into one common share.  This change  occured on May 31, 2007..  Upon the change to the Corporation’s dual class structure becoming effective, the Board Representation Agreement and the Trust Agreement  terminated. Prior to termination, the parties had agreed that the Corporate Governance Committee will make all nominations for membership to the board of directors of the Corporation.

This Voting Agreement terminated upon the collapse of the dual class structure as discussed in Item 4(A), “History and Development” and in “Recent Developments of the Company”.

Committees

The Board and its committees (consisting of an Audit Committee, a Compensation Committee and Corporate Governance Committee) are available to consider the views of management and investors concerning their needs and decisions affecting the Company. The Company does not have an executive committee of its Board of Directors.

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Audit Committee

The Board has adopted a charter for the Audit Committee to follow in carrying out its audit and financial review functions. The Audit Committee reviews all financial statements of the Company prior to their publication, reviews audits, considers the adequacy of audit procedures, recommends the appointment of independent auditors, reviews and approves the professional services to be rendered by them and reviews fees for audit services. The Board has established definitions for “financial literacy” and has determined that all members of the Audit Committee are financially literate.  During Fiscal 2006, the Audit Committee consisted of Romeo DeGasperis,Beth L. Bronner and William McManaman who was elected to the Board at the Fiscal 2006 annual meeting, and was appointed to the Audit Committee as its Chairman.  Mr. DeGasperis resigned from the Board on August 6, 2006. Ms. Bronner and Mr. McManaman resigned from the Board on November 17, 2006.  They were replaced on the Audit Committee by Mr. DeGasperis, who rejoined the Board, Mr. Ronald Binns, as Chairman of the Audit Committee, and Mr. Garry Macdonald.

Compensation Committee

During Fiscal 2006, the Compensation Committee was comprised of the following independent directors: L. Joshua Sosland (Chair) and Robert E. Baker.  William McManaman who was elected at the 2006 Annual Meeting was appointed to replace Arthur Waldbaum as a member of the Compensation Committee. Messrs Sosland, Baker and McManaman resigned from the Board of Directors on November 17, 2006 and were replaced on the Compensation Committee by Messrs DeGasperis, Mr Binns and Mr. Macdonald.

The Compensation Committee’s primary function is to assist the Board of Directors in fulfilling its responsibilities by overseeing the Corporation’s compensation of senior officers and preparing an annual report on executive compensation for the Board of Directors and for inclusion in the Corporation’s annual proxy circular.

Specific responsibilities of the Compensation Committee include:

(1) in consultation with senior management of the Corporation, establishing the Corporation’s compensation policies and/or practices, seeking to ensure such policies and practices are designed to recognize and reward performance and establish a compensation framework which is industry competitive, and which results in the creation of shareholder value over the long-term;

(2) reviewing and approving corporate goals and objectives relevant to the compensation of the Chief Executive Officer, evaluating the performance of the Chie Executive Officer in light of these goals and objectives, and setting the Chief Executive Officer’s total compensation level based on this evaluation and other factors as the Committee deems appropriate and in the best interests of the Corporation;

(3) reviewing the evaluation of other senior officers’ performance and setting the compensation of these senior officers, based on their evaluations and other factors as the Committee deems appropriate and in the best interests of the Corporation;

(4) overseeing the Corporation’s incentive compensation plans and equity-based plans;

(5) reviewing and recommending to the Board of Directors the compensation of the members of the Board of Directors, including any annual retainer, committee membership fees, meeting fees, and other benefits conferred upon the directors; and

(6) reviewing the Compensation Committee’s charter and recommending to the Board of Directors changes to it, as considered appropriate from time to time.

Corporate Governance Committee

The Company’s Corporate Governance Committee has the general responsibility for developing the Company’s approach to governance issues. At present, Board approval is required for any transaction which is out of the ordinary course of business or could be considered to be “material” to the business of the Company. As a matter of practice, all significant decisions affecting the Company and its subsidiaries are approved by the Board of Directors prior to their implementation.

Item 6(D) Employees

As of August 31, 2004, CoolBrands had 1,305 full-time and part-time employees. As of August 31, 2005, CoolBrands had 1,361 full-time and part-time employees. As of August 31, 2006, CoolBrands had 1,033 employees.

Approximately 140 hourly employees at the CoolBrands Dairy facility in North Lawrence, New York are represented by the local Teamsters Union and are covered by a collective bargaining agreement, which expired in September 2006. The Company sold 100% of the issued and outstanding stock of CBD to an unaffiliated third party on January 30, 2007.

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

Frozen Dessert Segment	786
Yogurt Segment	178
Foodservice Segment	37
Dairy Components Segment	32

As of August 31, 2007, the Company has 2 employees.

Item 6(E) Share Ownership

      The following table sets forth as of February 27, 2007, information with respect to officers and directors of the Company listed in 6(B) who are the direct or indirect beneficial owners of any class of the Company’s voting securities:

		Amount Owned and
	Identity of	Nature of Beneficial	Percent of
Title of Class	Person or Group	Ownership	Class**
Subordinate Voting Shares and Multiple Voting Shares	The Estate of Richard E. Smith((13)	11,606,492shares(1)	18.85%
Subordinate Voting Shares and Multiple Voting Shares	David M. Smith(13)	11,606,492 shares(2)	18.85%
Subordinate Voting Shares and Multiple Voting Shares	David Stein(13)	11,606,492 shares(3)	18.85%
Subordinate Voting Shares and Multiple Voting Shares	Michael Serruya(13)	11,606,492 shares(4)	18.85%
Subordinate Voting Shares and Multiple Voting Shares	Aaron Serruya(13)	11,606,492 shares(5)	18.85%
Subordinate Voting Shares and Multiple Voting Shares	The Serruya Family Trust(13)	11,606,492shares	18.85%
Subordinate Voting Shares and Multiple Voting Shares	1082272 Ontario, Inc.(6)(13)	11,606,492 shares(7)	18.85%
Subordinate Voting Shares	Ronald W. Binns	500,000 shares	*
Subordinate Voting Shares	Romeo DeGasperis	6,700 shares	*
Subordinate Voting Shares	Gary P. Stevens	101,127 shares(8)	*
Subordinate Voting Shares	Timothy Timm	113,795 shares(9)	*
Subordinate Voting Shares	John LeSauvage	89,166 shares(10)	*
Subordinated Voting Shares	Daniel Hescke	66,667(11)	*

* Less than 1%

** Based on 6,025,659 Multiple Voting Shares and 50,049,774 Subordinate Voting Shares outstanding as of February 27, 2007 and warrants held by each beneficial holder exercisable within 60 days.

⁽¹⁾ The Estate of Richard E. Smith beneficially owns 11,606,492 Subordinate Voting Shares, consisting of 8,300 Subordinate Voting Shares and 1,419,467 Multiple Voting Shares for an aggregate of 1,427,767 shares which are owned by it individually, and 10,178,725 Subordinate Voting Shares (including those shares convertible from Multiple Voting Shares) which are owned by the other Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders.

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⁽²⁾ Mr. Smith beneficially owns 11,606,492 Subordinate Voting Shares, consisting of 288,106 Multiple Voting Shares which are owned by him individually, and 11,318,389 Subordinate Voting Shares (including those shares convertible from Multiple Voting Shares) which are owned by the other Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders.

⁽³⁾ Mr. Stein beneficially owns 11,606,492 Subordinate Voting Shares, consisting of 45,138 Multiple Voting Shares which are owned by him individually, and 11,561,354 Subordinate Voting Shares (including those shares convertible from Multiple Voting Shares) which are owned by the other Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders.

⁽⁴⁾ Mr. Serruya beneficially owns 11,606,492 Subordinate Voting Shares, of which 56,000 Subordinate Voting Shares are owned by his retirement account, 5,500,000 represents warrants to purchase Subordinate Voting Shares which are immediately exercisable and 1,749,042 Subordinate Voting Shares (including those shares convertible from Multiple Voting Shares) which are owned by the other Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders. As part of the purchase of the debt outstanding under the Americana Credit Facility by 2118769, as defined below in footnote 12 to this table, and the grant of 5,500,000 warrants to Mr. Serruya, Mr. Serruya surrendered 599,275 vested stock options in November 2006.

⁽⁵⁾ Mr. Serruya beneficially owns 11,606,492 Subordinate Voting Shares, of which 56,149 Subordinate Voting Shares are owned by his retirement account and 11,550,343 Subordinate Voting Shares (including those shares convertible from Multiple Voting Shares) which are owned by the other Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders. As part of the refinancing described in footnote 4 above, Mr. Serruya surrendered 609,275 vested stock options in November 2006.

⁽⁶⁾ 1082272 Ontario Inc., a corporation organized under the laws of the Province of Ontario, Canada ("1082272"), of which The Serruya Family Trust (the "Trust") is the sole shareholder. The Trust was created and settled for the benefit of certain members of the Serruya family, including Mr. Michael Serruya, the Chairman, President and Chief Executive Officer of the Company and Mr. Aaron Serruya, a director of the Company.

⁽⁷⁾ 1082272, of which The Serruya Family Trust is the sole shareholder, and the Serruya Family Trust, collectively, beneficially own 11,606,492 Subordinate Voting Shares of which 4,078,301 Multiple Voting Shares are owned by 1082272 Ontario, Inc. and 155,031 Multiple Voting Shares are owned by the Serruya Family Trust, each for the benefit of Michael Serruya and Aaron Serruya, and 7,373,160 Subordinate Voting Shares (including those shares convertible from Multiple Voting Shares) which are owned by the other Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders.

⁽⁸⁾ Mr. Stevens owns 39,127 Subordinate Voting Shares and 62,000 options to purchase Subordinate Voting Shares exercisable within 60 days. Mr. Stevens also has 29,000 unvested options.

⁽⁹⁾ Mr. Timm owns 47,128 Subordinate Voting Shares and 66,667 options to purchase Subordinate Voting Shares exercisable within 60 days. Mr. Timm also has 33,333 unvested options.

⁽¹⁰⁾ Mr. LeSauvage owns 1,500 shares of Subordinate Voting Shares and 91,667 options to purchase Subordinate Voting Shares exercisable within 60 days. Mr. LeSauvage also has 40,333 unvested options.

⁽¹¹⁾ Mr. Hescke owns 66,667 options to purchase Subordinate Voting Shares exercisable within 60 days Mr. Heschke also has 33,333 unvested options..

⁽¹²⁾   In connection with the repayment of the amounts outstanding under the Americana Credit Facility and the establishment of a $5 million letter of credit in favor of the lenders under the Corporate Credit Facility and entering into a forbearance agreement with and among the other senior lenders, 2118769 Ontario Inc (“2118769”), a company controlled by Michael Serruya, received warrants to purchase 5,500,000 Subordinated Voting Shares of the Company. The exercise price of each warrant is Cdn $0.50 and the warrants expire in November 2011. The warrants are considered beneficially owned by Mr. Serruya and are included in the beneficial shares controlled pursuant to the Voting Agreement and the Board Representation Agreement.

⁽¹³⁾   Each of The Estate of Richard E. Smith, David M. Smith, David Stein, Michael Serruya, Aaron Serruya, The Serruya Family Trust and 1082272 Ontario, Inc (the Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders) are parties to a Voting Agreement and a Board Representation Agreement, which is discussed more fully in Item 6(C), Board Practices. In the aggregate, the Integrated Brand Shareholders and the CoolBrands Principal Shareholders beneficially own 18.85% of the issued and outstanding shares of the Corporation and for voting purposes, 59.4% of the voting stock.

The parties to the Board Representation Agreement constitute a "group" within the meaning of 13(d)(3) of the Exchange Act, pursuant to their execution of the Board Representation Agreement, and pursuant to such agreement the parties hold an aggregate of 99.3% of the Multiple Voting Shares.

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In connection with the Corporation’s failure to meet the deadline of November 29, 2006, under Canadian securities regulation for the filing of its audited annual financial statements, related management’s discussion and analysis, and annual information form for the year ended August 31, 2006, the Corporation made an application to Canadian securities regulators for an order that trading in the Corporation’s securities by directors and officers cease until such time as the requisite filings have been made. On November 30, 2006, the Ontario Securities Commission (as principal regulator) issued a temporary order prohibiting Michael Serruya, David Stein, Aaron Serruya, Romeo DeGasperis, Robert Baker, Beth Bronner, Joshua Sosland, Gary Stevens, Timothy Timm, John LeSauvage, Craig Hettrich, Garry Macdonald, Ronald W. Binns, William McMananan, Thomas J. Lavan, Dan Heschke, Matthew Smith, David M. Smith and Francis Orfanello from trading in securities of the Corporation.  That order remains in effect as of the date hereof. Additionally, because the Company was delinquent in meeting its deadine for filing its audited financial statements, related management’s discussion and analysis and annual information form for the year ended August 31, 2005, a similar order was imposed on the Company with respect to the officers and director of the Company in place at that time, for the period November 30, 2005 to December 13, 2005.

Stock Option Plan

      The Corporation established a stock option plan in 1998 (the "1998 Stock Option Plan") as a means of attracting, retaining and rewarding directors, officers, consultants and key employees. Under the 1998 Stock Option Plan, options to purchase Subordinate Voting Shares ("Options") may be granted to eligible participants from time to time by the Board of Directors at an exercise price fixed by the Board of Directors in compliance with the 1998 Stock Option Plan, applicable law and with the rules of The Toronto Stock Exchange. The maximum number of Subordinate Voting Shares available for issuance to any one person is 5% of the aggregate number of Shares issued and outstanding on a non-diluted basis at the time of the grant. The maximum number of Subordinate Voting Shares reserved for issuance to insiders cannot exceed 10% of the total number of issued and outstanding voting securities of the corporation. Options granted pursuant to the Stock Option Plan are non-transferable and non-assignable. Options are subject to earlier termination in the event that an optionee ceases to be an officer, director, consultant or employee of the Corporation.

      The number of Subordinate Voting Shares that may be issued under the 1998 Stock Option Plan fluctuate due to the granting, termination and expiry of Options. In 2001, the Corporation amended the 1998 Stock Option Plan to increase the maximum number of Subordinate Voting Shares reserved for issuance under the Stock Option Plan by 2 million Shares to an aggregate of 5 million Shares.

      The Corporation established another stock option plan in 2002 (the "2002 Stock Option Plan") as a means of attracting, retaining and rewarding directors, officers, consultants and key employees. Under the 2002 Stock Option Plan, options to purchase Shares ("Options") may be granted to eligible participants from time to time by the Board of Directors at an exercise price fixed by the Board of Directors in compliance with the 2002 Stock Option Plan, applicable law and with the rules of The Toronto Stock Exchange. The maximum number of Subordinate Voting Shares available for issuance to any one person is 5% of the aggregate number of Subordinate Voting Shares issued and outstanding on a non-diluted basis at the time of the grant. The maximum number of Subordinate Voting Shares reserved for issuance to insiders cannot exceed 10% of the total number of issued and outstanding voting securities of the corporation. Options granted pursuant to the 2002 Stock Option Plan are non-transferable and non-assignable. Options are subject to earlier termination in the event that an optionee ceases to be an officer, director, consultant or employee of the Corporation.

 Item 7    Major Shareholders and Related Party Transactions

Item 7(A) Major Shareholders

      The following table sets forth as of January 27, 2007, information with respect to shareholders of the Company that directly or indirectly beneficially own 5% or more of any class of the Company's voting securities:

	Identity of
Title of Class	Person or Group	Amount Owned	Percent of Class **
Subordinate Voting Shares	Apex Capital, LLC	5,032,000 shares	8.97%
Subordinate Voting Shares	Sanford J. Colen(1)	5,105,000 shares	9.10%
Subordinate Voting Shares and Multiple Voting Shares	The Estate of Richard E. Smith	11,606,492 shares(2)	18.85%
Subordinate Voting Shares and Multiple Voting Shares	David M. Smith	11,606,492 shares(3)	18.85%
Subordinate Voting Shares and Multiple Voting Shares	David J. Stein	11,606,492shares(4)	18.85%

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	Identity of
Title of Class	Person or Group	Amount Owned	Percent of Class **

Subordinate Voting Shares and Multiple Voting Shares	Michael Serruya	11,606,492 shares(5)	18.85%
Subordinate Voting Shares and Multiple Voting Shares	Aaron Serruya	11,606,492 shares(6)	18.85%
Subordinate Voting Shares and Multiple Voting Shares	The Serruya Family Trust	11,606,492 shares(8)	18.85%
Subordinate Voting Shares and Multiple Voting Shares	1082272 Ontario, Inc.(7)	11,606,492 shares(8)	18.85%
Subordinated Voting Shares	Seymour Schulich	6,000,000 shares	10.70%

** Based on 6,025,659 Multiple Voting Shares and 50,049,774 Subordinate Voting Shares outstanding as of February 27, 2007 and warrants held by each beneficial holder exercisable within 60 days.

⁽¹⁾ Sanford Colen is the controlling member of Apex Capital, LLC.

⁽²⁾ The Estate of Richard E. Smith beneficially owns 11,606,492  shares of Class A Stock, consisting of 8,300 shares of Class A Stock and 1,419,467 shares of Class B Stock for an aggregate of 1,427,767 shares which are owned by it individually, and 10,178,725 shares of Class A Stock or warrants that are immediately convertible into Class A Stock (including those shares convertible from Class B Stock) which are owned by the other Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders.

⁽³⁾ Mr. Smith beneficially owns 11,606,492 shares of Class A Stock, consisting of 288,106 shares of Class B Stock which are owned by him individually, and 11,318,389 shares of Class A Stock (including those shares convertible from Class B Stock) which are owned by the other Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders.

⁽⁴⁾ Mr. Stein beneficially owns 11,606,492 shares of Class A Stock, consisting of 45,138 shares of Class B Stock which are owned by him individually, and 11,561,354 shares of Class A Stock (including those shares convertible from Class B Stock) which are owned by the other Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders.

⁽⁵⁾ Mr. Serruya beneficially owns 11,606,492 shares of Class A Stock, of which 56,000 shares of Class A Stock are owned by his retirement account, 5,500,000 represents warrants immediately exercisable, and 6,050,492 shares of Class A Stock (including those shares convertible from Class B Stock) which are owned by the other Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders.

⁽⁶⁾ Mr. Serruya beneficially owns 11,606,492 shares of Class A Stock, of which 56,149 shares of Class A Stock are owned by his retirement account and 11,550,343 shares of Class A Stock (including those shares convertible from Class B Stock) which are owned by the other Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders.

⁽⁷⁾ 1082272 Ontario Inc., a corporation organized under the laws of the Province of Ontario, Canada ("1082272"), of which The Serruya Family Trust (the "Trust") is the sole shareholder. The Trust was created and settled for the benefit of certain members of the Serruya family, including Mr. Michael Serruya, the Chairman, President and Chief Executive Officer of the Company and Mr. Aaron Serruya, a director of the Company.

⁽⁸⁾ 1082272 Ontario, Inc., of which The Serruya Family Trust is the sole shareholder, and the Serruya Family Trust, collectively, beneficially own 11,606,492 shares of Class A Stock of which 4,078,301 shares of Class B Stock are owned by 1082272 Ontario, Inc. and 155,031 shares of Class B Stock are owned by the Serruya Family Trust, each for the benefit of Michael Serruya and Aaron Serruya  and 7,373,160 shares of Class A Stock (including those shares convertible from Class B Stock) which are owned by the other Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders.

⁽⁹⁾ In connection with the repayment of the amounts outstanding under the Americana Credit Facility and the establishment of a $5 million letter of credit in favor of the lenders under the Corporate Credit Facility and entering into a forbearance agreement with and among the other senior lenders, 2118769 Ontario Inc (“2118769”), a company controlled by Michael Serruya, received warrants to purchase 5,500,000 subordinated voting shares of the Company. The exercise price of each warrant is Cdn $0.50 and the warrants expire in November 2011 Such shares are considered in the above amounts as beneficially owned by Mr. Serruya and subject to the Voting Agreement and Board Representation Agreement..

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⁽¹⁰⁾   Mr. Seymour Schulich owns 6,000,000 shares of Subordinate Voting shares, according to a report filed with the Canadian securities regulator on November 21, 2006.

⁽¹¹⁾   Each of  The Estate of Richard E. Smith, David M. Smith, David Stein, Michael Serruya, Aaron Serruya, The Serruya Family Trust and 1082272 Ontario, Inc (the Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders) are parties to a Voting Agreement and a Board Representation Agreement, which is discussed more fully in Item 6©, Board Practices. In the aggregate, the Integrated Brand Shareholders and the CoolBrands Principal Shareholders beneficially own 18.85% of the issues and outstanding shares and for voting purposes, 59.4% of the voting stock.

The parties to the Board Representation Agreement constitute a "group" within the meaning of 13(d)(3) of the Exchange Act, pursuant to their execution of the Board Representation Agreement, and pursuant to the agreement the parties hold an aggregate of 99.3% of the Class B Stock

      Each major shareholder of the Company holding Multiple Voting Shares is entitled to ten votes per share, whereas the holders of Subordinate Voting Shares are entitled to one vote per share. There are no disproportionate or weighted voting privileges.

      As of February 27, 2007, approximately 85% of the outstanding Subordinate Voting Shares were held in Canada by approximately 89 holders and approximately 15% of the outstanding Subordinate Voting Shares were held in the United States by approximately 933 holders. The Integrated Brand Principal Shareholders and the CoolBrands Principal Shareholders own, in the aggregate 99.3% of the Multiple Voting Shares.

Item 7(B) Related Party Transactions

      The only material transactions within the last three years in which a director, executive officer or principal shareholder of the Corporation or any associate or affiliate of the foregoing have had a material interest, direct or

indirect, which has materially affected or will materially affect the Corporation are as follows:

            (a) 701587 Ontario Ltd., a corporation whose sole shareholder is The Serruya Family Trust, a significant shareholder of the Corporation, routinely enters into leases with commercial landlords for the premises used by the Corporation's Canadian franchisees and sublets such premises to such franchisees. Yogen Fruz International Ltd.does not earn any fees or premium on such leases. Subsequent to the year ended August 31, 2005, the Corporation sold substantially all of its franchising division;

            (b) Effective December 23, 2005 the Corporation sold substantially all of its franchising and licensing segment for cash consideration of $8 million to International Franchise Corp., a company owned by Aaron Serruya, a director and former executive vice president of CoolBrands;

            (c) Integrated Brands, a wholly owned subsidiary of the Corporation, has entered into a distribution agreement with Calip, a company controlled by David M. Smith, a Vice-Chairman and Chief Operating Officer of the Corporation.  Pursuant to the agreement, Integrated Brands Inc.  appointed Calip as its exclusive distributor for any ice cream or other frozen dessert product manufactured by, on behalf of, or under authority of, Integrated Brands Inc., its subsidiaries, affiliates or successors in the State of New Jersey and certain areas in the State of New York and the State of Connecticut. The agreement continues until December 31, 2007 and thereafter renews automatically on December 31 of each year for an additional one year term, provided that as of

such date at least 50% of the issued and outstanding shares of Calip are beneficially owned by the Smith Family and/or David Stein, unless Calip gives Integrated Brands written notice on or before September 30th of that same year that Calip will not renew the agreement, in which event the agreement terminates effective December 31 following such notice. The Corporation has agreed to guarantee the performance of the distribution agreement; and

            (d) Prior to his death on January 29, 2005, Mr. Richard E. Smith, the former Co-Chairman and Co-Chief Executive Officer of the Corporation, was paid by Calip (an ice cream distributor owned then by Mr. Richard E. Smith and members of his family) pursuant to the terms of a management agreement effective July 1, 2003 between Calip and Integrated Brands. Calip received a fixed fee of $1,300,000 per year for providing a variety of management services, including making available Mr. Richard Smith for the positions of Co Chairman and Co-Chief Executive Officer of the Corporation. The management agreement was terminated following the passing of Mr. Smith on January 29, 2005. The fees paid to Calip in fiscal 2005 prior to its termination amounted to $542,000.

      In October 2006, Americana Foods was advised by its lenders that because of continuing defaults, they would no longer lend to Americana Foods and demanded full and immediate repayment of all of amounts outstanding under the Americana Credit Facility, which aggregated approximately $21,830,000 and which was guaranteed by the Company. The Company, through certain of its subsidiaries, as creditors of Americana Foods, filed an involuntary petition of bankruptcy against Americana Foods under Chapter 7 of the Federal Bankruptcy Code in the United States Bankruptcy Court, Northern District of Texas.  As a result, Americana Foods ceased operations and an independent trustee was appointed to oversee the liquidation of the assets and liabilities of Americana Foods.  In November, 2006, 2118769 Ontario, Inc. (“2118769”), a company controlled by Michael Serruya, currently the Chairman and CEO of the Company, purchased all of Americana Foods’ bank indebtedness, which aggregated $21,408,000,

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from the lender.  2118769 received a first lien security interest in the assets of Americana Foods.  The Company remains the guarantor of the Americana debt.  The independent trustee has sold or liquidated substantially all of the assets of Americana Foods and is completing his accounting.  To the extent that the proceeds from the liquidation are not sufficient to pay Mr. Serruya’s company, the Company may be required to make a payment under its guarantee.

Additionally, the Company continued to be in default under its Corporate Credit Facility.  In connection with the purchase of the indebtedness outstanding under the Americana Credit Facility, as described above, the Company and the lender (a “Senior Lender”) amended the Corporate Credit Facility (the “Amendment”) and agreed to reduce the maximum amount of the Corporate Credit Facility to $8,000,000, subject to a borrowing base.  Mr. Serruya, through the holding company (also a “Senior Lender”), issued an irrevocable letter of credit with a face value of $5,000,000 in favor of the lender.  The Senior Lenders and the Company also entered into a forbearance agreement which changed the maturity date of the Corporate Credit Facility from April 21, 2009 to May 17, 2007.  The Amendment also required the Company to utilize proceeds from the sales of assets to reduce the indebtedness based upon a specified schedule.  Mr. Serruya received, through the holding company, warrants to purchase 5,500,000 subordinate voting shares of the Company in connection with the acquisition of the senior indebtedness.  The exercise price of each warrant is Cdn $0.50 and the term of the warrants is five years from the date of the grant.  The warrants issued by the Company in connection with this transaction were valued at $1,764 USD (Cdn $1,980) using the Black-Scholes pricing model and the following assumptions: 2.5 years expected life, no dividends, 67% volatility and 4.6% risk free rate, and were expensed by the Company in the first quarter of Fiscal 2007.  The Company completed the sale of the foodservice segment on January 24, 2007 and utilized a portion of the proceeds to pay off and terminate the Corporate Credit Facility.

      No individual who was a director, executive officer or senior officer of the Company at any time during the fiscal year ended August 31, 2006, or any associate or affiliate thereof is indebted to the Company.

Item 7(C) Interest of Experts and Counsel

      Not applicable.

Item 8 Financial Information

Item 8(A) Consolidated Statements and Other Financial Information.

      See attached consolidated Financial Statements of the Company. See Item 17 below.

Export Sales

      See "Business Overview."

Legal Proceedings

      On September 12, 2006 a lawsuit was filed in the Supreme Court of the State of New York against the Corporation, Integrated Brands, CBA Foods LLC, CB Americana LLC, Gary P. Stevens, Brad Parks and Susan J. Smith as executrix of the will of Richard E. Smith by Americana Foods Corporation.  Americana Foods Corporation, which owns a 49.9% interest in Americana Foods L.P., is seeking monetary damages, certain declaratory orders and injunctive relief based on an alleged erosion in the value of its investment.  The Corporation is defending this claim.

      On July 21, 2006 a lawsuit was filed in the Ontario Superior Court against the Corporation, David J. Stein, Michael Serruya, Richard E. Smith, David M. Smith and Gary P. Stevens by James and Maureen Richardson (the “Richardson’s”).  BMO Nesbitt Burns and Fraser Chapman, the Richardson’s broker, were also named as defendants.  The plaintiffs allege that their broker made unauthorized purchases on their behalf of an unspecified number of CoolBrands shares, and that the actions of their broker and CoolBrands and its directors contributed to their loss.  The plaintiffs are seeking to have the defendants purchase all of the CoolBrands shares held in their portfolio as well as exemplary and punitive damages in the amount of $500,000.  The Corporation is defending this claim.

        The Company was served notice on March 12, 2007 by Godiva Chocolatier, Inc. and Godiva Brands, Inc. alleging that the Company has breached its license agreement and the licensor has filed a claim in the Supreme Court of the State of New York for damages of $14 million for breach of contract plus additional damages.  The outcome and resolution of such claim is uncertain at this time.

See Item 8(B), Significant Changes, for a discussion of the Americana Foods litigation.

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Dividends

      The Corporation's constating documents provide that holders of Subordinate Voting Shares are entitled to receive such dividends as may be declared by the board of directors prior to the holders of the Multiple Voting Shares. However, the Corporation has not paid cash dividends on its common stock since its inception and it is not contemplated that any dividends will be paid on any shares of the Corporation in the immediate future, as it is anticipated that all available funds will used to support current operations and provide working capital.  Any decision to pay dividends in the future will be made by the Corporation's board of directors on the basis of their determination on whether to try to rebuild the business or sell the remaining assets of the Corporation.

Item 8(B) Significant Changes

      Effective December 23, 2005 the Corporation sold substantially all of its franchising and licensing segment for cash consideration of $8 million to International Franchise Corporation, a company owned by Aaron Serruya, a director and former executive vice president of the Corporation. In connection with the sale of the franchising and licensing segment, the Corporation was required to pay down $3,612,000 of its short term borrowings and long-term debt from the cash consideration received.

Litigation

In September 2006, Americana Foods Corporation (“AFC”), our 49.9% joint venture partner in Americana Foods, filed a complaint in the Supreme Court of the State of New York against the Company, IBI, CBA Foods, LLC, CB Americana and certain officers and directors of the Company and Americana Foods.  The complaint alleges gross mismanagement of the business operations of Americana Foods and seeks to prevent the Company from selling control of the Company to a third party without paying AFC the financial return required by certain provisions of the American Limited Partnership Agreement, or sell any part of the foodservice segment without using the sales proceeds to repay the debt of Americana Foods.  The Company has informed AFC that it does not believe that there are any amounts due AFC.  The Company intends to vigorously defend against this complaint.

Discontinued Operations

During Fiscal 2006, the Company’s Board of Directors approved the decision to sell its Value America division, substantially of all its dairy components segment, Eskimo Pie Frozen Distribution, part of its frozen dessert segment, and CBD, its yogurt segment and we began actively marketing these businesses for sale.

On September 1, 2006, Eskimo Pie Corporation, a wholly owned subsidiary of the Company, entered into an asset purchase agreement with Denali New Berlin, LLC and Denali Ingredients, LLC to sell its Value America flavor and ingredients division, which comprised substantially all of the dairy components segment.  The sale of assets was consummated September 14, 2006 for a price of $8,250,000 which exceeded the carrying value of the assets sold, of which $7,500,000 was paid in cash and $750,000 was placed in escrow subject to collection of certain accounts receivable.  The Company classified the assets and liabilities of Value America as assets and liabilities of discontinued operations held for sale on the balance sheet as of August 31, 2006 and included the components of its operating results in net loss from discontinued operations on the statement of operations and the components of cash flows as net cash flows from discontinued operations for Fiscal 2006.  Additionally, the Company classified the assets and liabilities of Value America as assets and liabilities of discontinued operations held for sale on the consolidated balance sheet as of August 31, 2005 and classified the components of operating results of Value America into net loss from discontinued operations and classified its cash flows as cash flows from discontinued operations for Fiscal 2005.

On November 14, 2006, the Company announced that its wholly owned subsidiary, Eskimo Frozen Distribution Inc (“EPFD”) had entered into a definitive agreement to sell substantially all of its direct store door (“DSD”) frozen distribution assets in Florida, California, Oregon and Washington for a net sales price of $4,400,000, which equaled the carrying value of the related assets acquired net of the liabilities assumed, to an unaffiliated third party.  The transaction closed on November 17, 2006.  The Company classified the assets and liabilities of EPFD as assets and liabilities of discontinued operations held for sale on the balance sheet as of August 31, 2006 and included the components of operating results of EPFD as net loss from discontinued operations on the consolidated statement of operations and its cash flows as cash flows from discontinued operations for Fiscal 2006.  Additionally, the Company classified the assets and liabilities of EPFD as assets and liabilities of discontinued operations held for sale on the consolidated balance sheet as of August 31, 2005 and classified the components of operating results to net loss from discontinued operations on the consolidated statement of operations and classified the cash flows as cash flows from discontinued operations for Fiscal 2005.

 On January 2, 2007, the Company entered into a definitive agreement to sell CBD, which includes the yogurt business acquired from Kraft Inc. in 2005, to an unaffiliated third party.  The Company recorded a loss on impairment of $5,428,000 to adjust the carrying value of CBD’s net assets to approximate fair value based upon the definitive agreement.  The Company classified CBD’s assets and liabilities as assets and liabilities of discontinued operations held for sale on the consolidated balance sheet as of August 31, 2006 and included the components of operating results in net loss from discontinued operations on the consolidated statement of operations and its cash flows as cash flows from discontinued operations for Fiscal 2006.  Additionally, as of and for the year ended August 31, 2005, the Company has classified the

46

assets and liabilities of CBD as assets and liabilities of discontinued operations held for sale on the consolidated balance sheet and included the components of operating results of CBD in net loss from discontinued operations on the consolidated statement of operations and the cash flows of CBD as cash flows from discontinued operations.

Sale of foodservice

On January 24, 2007 the Company sold, through its subsidiaries Eskimo Pie Corporation and Integrated Brands Inc., their Eskimo Pie and Chipwich Brands and Real Fruit trademark, along with Eskimo Pie soft serve brands and related foodservice business segment to Dreyer’s, an indirect subsidiary of Nestlé S.A., for a purchase price of approximately $18,925,000.  The purchase price includes approximately $4,000,000 in inventory and accounts receivables.  Dreyer’s will also assume related liabilities in the amount of approximately $1,000,000.  The Company utilized a portion of the proceeds to payoff the Corporate Credit Facility.

Sale of frozen dessert operation

On March 30, 2007 the Company sold its frozen dessert operation in Norwalk, California to an unrelated third party for proceeds of approximately $4,600,000.

Restructuring of Debt

In October 2006, Americana Foods was advised by its lenders that because of continuing defaults, they would no longer lend to Americana Foods and demanded full and immediate repayment of all of amounts outstanding under the Americana Credit Facility, which aggregated approximately $21,830,000 and which was guaranteed by the Company. The Company, through certain of its subsidiaries, as creditors of Americana Foods, filed an involuntary petition of bankruptcy against Americana Foods under Chapter 7 of the Federal Bankruptcy Code in the United States Bankruptcy Court, Northern District of Texas.  As a result, Americana Foods ceased operations and an independent trustee was appointed to oversee the liquidation of the assets and liabilities of Americana Foods.  In November, 2006, 2118769 Ontario, Inc. (“2118769”), a company controlled by Michael Serruya, currently the Chairman and CEO of the Company, purchased all of Americana Foods’ bank indebtedness, which aggregated $21,408,000, from the lender.  2118769 received a first lien security interest in the assets of Americana Foods.  The Company remains the guarantor of the Americana debt.  The independent trustee has sold or liquidated substantially all of the assets of Americana Foods and is completing his accounting.  To the extent that the proceeds from the liquidation are not sufficient to pay Mr. Serruya’s company, the Company may be required to make a payment under its guarantee.

Additionally, the Company continued to be in default under its Corporate Credit Facility.  In connection with the purchase of the indebtedness outstanding under the Americana Credit Facility, as described above, the Company and the lender (a “Senior Lender”) amended the Corporate Credit Facility (the “Amendment”) and agreed to reduce the maximum amount of the Corporate Credit Facility to $8,000,000, subject to a borrowing base.  Mr. Serruya, through the holding company (also a “Senior Lender”), issued an irrevocable letter of credit with a face value of $5,000,000 in favor of the lender.  The Senior Lenders and the Company also entered into a forbearance agreement which changed the maturity date of the Corporate Credit Facility from April 21, 2009 to May 17, 2007.  The Amendment also required the Company to utilize proceeds from the sales of assets to reduce the indebtedness based upon a specified schedule.  Mr. Serruya received, through the holding company, warrants to purchase 5,500,000 subordinate voting shares of the Company in connection with the acquisition of the senior indebtedness.  The exercise price of each warrant is Cdn $0.50 and the term of the warrants is five years from the date of the grant.  The warrants issued by the Company in connection with this transaction were valued at $1,764,000 USD (Cdn $1,980,000) using the Black-Scholes pricing model and the following assumptions: 2.5 years expected life, no dividends, 67% volatility and 4.6% risk free rate, and will be expensed by the Company in the first quarter of Fiscal 2007.  The Company completed the sale of the foodservice segment on January 24, 2007 and utilized a portion of the proceeds to pay off and terminated the Corporate Credit Facility.

Item 9 The Offer and Listing

Item 9(A) (1) - (3)

      Not applicable.

Item 9(A) (4) Information Regarding Stock Price History

      The Subordinate Voting Shares of the Corporation are listed and posted for trading on the Toronto Stock Exchange under the trading symbol "COB.SV.A".

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5 most recent financial years

Period	High (Cdn $)	Low (Cdn $)
Sept. 2005 – Aug, 2006	3.18	0.62
Sept. 2004 - Aug. 2005	10.25	2.55
Sept. 2003 - Aug. 2004	27.00	8.75
Sept. 2002 - Aug. 2003	18.54	4.25
Sept. 2001 - Aug. 2002	8.15	1.60

.Each full financial quarter for the 2 most recent full financial years

Period	High (Cdn $)	Low (Cdn $)
Sept. 2005– Nov. 2005	3.07	2.11
Dec. 2005 – Feb. 2006	3.18	2.30
Mar. 2006 - May 2006	3.07	2.05
Jun. 2006 - Aug 2006	2.83	0.62
Sept. 2004 – Nov. 2004	10.25	6.39
Dec. 2004 – Feb. 2005	9.25	7.00
Mar. 2005 - May 2005	9.69	3.91
Jun. 2005 – Aug. 2005	4.75	2.55

Each month for the most recent six months

Period	High (Cdn $)	Low (Cdn $)
Jul. 2007	1.05	0.95
Jun. 2007	1.05	0.90
May 2007	1.04	0.85
Apr. 2007	1.17	0.99
Mar. 2007	1.25	0.69
Feb. 2007	1.25	1.15

Item 9(A)(5)-(7)

      Not applicable.

Item 9(B) Plan of Distribution

      Not applicable.

Item 9(C) Markets

      Prior to May 31, 2007 the Corporation’s Subordinate Voting Shares were listed for trading on The Toronto Stock Exchange in Ontario, Canada under the symbol "COB.SV.A". The Multiple Voting Shares were not listed for trading but could have been converted into Subordinate Voting Shares on a share for share basis. On May 31, 2007, the Corporation completed a restructuring of its share capital and the Subordinate Voting Shares and the Multiple Voting Shares were converted into Common Shares on a share for share basis. The Common Shares trade on The Toronto Stock Exchange under the symbol “COB”.

Item 9(D) Selling Shareholders

      Not applicable.

Item 9(E) Dilution

      Not applicable.

Item 9(F) Expenses of the Issue

      Not applicable.

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Item 10 Additional Information

Item 10(A) Share Capital

      Not applicable.

Item 10(B) Memorandum and Articles of Association

      The Company was amalgamated under the laws of the Province of Ontario, Canada, pursuant to a certificate of amalgamation dated September 7, 1994. The Company was continued under the laws of the Province of Nova Scotia, Canada by its registration on March 18, 1998 with the office of the Registrar of Joint Stock Companies, Registry Number 3017246.  On March 27, 2006, the Company was continued under the Canada Business Corporations Act.

Capital Stock

      The Company’s articles of continuance authorize 200,000,000 of each of Class A Subordinate shares and Class B Multiple Voting no par value shares. Each share of Subordinate Voting Shares entitles the holder thereof to one vote at all meetings of the shareholders of the Company and each Multiple Voting Share entitles the holder thereof to ten votes at all meetings of the shareholders of the Company. The board of directors may from time-to-time declare and authorize payment of dividends. The Subordinate Voting Shares rank prior to the Multiple Voting Shares as to the payment of cash dividends. No dividends may be declared or paid on the Multiple Voting Shares in any fiscal year of the Company unless in such fiscal year dividends shall have been declared or paid on the Subordinate Voting Shares in an amount per share at least equal to or equivalent to the amount of the dividend per share proposed to be declared or paid on the Multiple Voting Share.

      Each outstanding Subordinate Voting Share is convertible into one Multiple Voting Share at the option of the holder thereof upon certain offers to purchase Multiple Voting Shares as more particularly described in the Articles of Continuance of the Company. Each outstanding Multiple Voting Share is convertible into one Subordinate Voting Share at any time and from time to time at the option of the holder thereof.

      Neither the holders of Multiple Voting Shares nor the holders of Subordinate Voting Shares may dissent in respect of any amendment referred to in any amendment to Section 176(a), (b) or (c) of the Canada Business Corporations Act.

      Upon dissolution of the Company, the holders of Multiple Voting Shares and the holders of Subordinate Voting Shares are entitled to receive the remaining assets of the Company in equal amounts per share.

      Subject to the Canada Business Corporations Act, the Company may, by special resolution of the shareholders; consolidate or subdivide its share capital; convert all or any of its paid-up shares into stock and reconvert such stock into paid –up shares of any denomination; exchange shares of one denomination for another; cancel shares which have not been taken or agreed to be taken by any person; convert any part of its issued or unissued share capital into preference shares redeemable or purchasable by the Company; or change or eliminate the par value of shares (other than preferred shares).

       Subject to the Canada Business Corporations Act and any provisions attached to such shares, the Company may redeem, purchase or acquire any of its shares and the directors may determine the manner and terms for redeeming, purchasing or acquiring such shares and may provide a sinking fund on such terms as they think fit for the redemption, purchase or acquisition of shares of any class or series.

      On February, 27, 2006 the shareholders of the Company passed a special resolution that resulted in the exchange of each Class A subordinate voting share and each Class B Multiple Voting share into one common share. The change occurred on May 31, 2007. Upon the change to the Company’s dual class structure becoming effective, the Board Representation Agreement and the Trust Agreement terminated.

   There are no limitations on the rights to own securities; including the rights of non-resident or foreign shareholders to hold or exercise voting rights on the securities imposed by the Canada Business Corporations Act or the Company’s Articles of Continuance.

Objects and Powers of the Company

      The Company's Articles of Continuance do not contain any restrictions on the objects and purpose of the Company.

Borrowing Power of Directors

      The directors on behalf of the Company may:

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      1. raise or borrow money for the purposes of the Company or any of then;

      2. secure, the repayment of funds so raised or borrowed in such manner and upon such terms and conditions in all respects as they think fit, and in particular by the execution and delivery of mortgages of the Company's real or personal property, or by the issue of bonds, debentures or other securities of the Company secured by mortgage or other charge upon all or any part of the property of the Company, both present and future;

      3. sign or endorse bills, notes, acceptance, cheques, contracts, and other evidence of or securities for funds borrowed or to be borrowed for the purposes aforesaid;

      4. pledge debentures as security for loans; and

5. guarantee obligations of any person.

Director Compensation

The Company’s bylaws provide that the directors shall be paid such remuneration for their services as the Board of Directors may from time to time determine.

Interested Director Transactions

      A director who is a party to, or who is a director or officer of or has a material interest in any person who is a party to, a material contract or transaction or proposed material contract or transaction with the Corporation shall disclose to the Corporation the nature and extent of his interest at the time and in the manner provided by the Canada Business Corporations Act . Such director may not vote on any resolution to approve the same except as provided by the Canada Business Corporations Act .

Shareholder Meetings

      The Chairman or any two directors, the president and the chief executive officer have the power to call annual or special meetings of the shareholders. Annual or special meetings of the shareholders will be held on the date and at the time and place in Canada as the person(s) calling the meeting determine. Annual meetings are required to be held at least once in every calendar year, but in no event later than 15 months after the last annual meeting.

      Notice of the time and place of a shareholders meeting must be given not less than 21 days nor more than 60 days before the day on which the meeting is to be held. Notice of a special meeting of shareholders must state the nature of the business to be transacted in sufficient detail to permit a shareholder to form a reasoned judgment thereon together with the text of any special resolution to be submitted at the meeting. No business may be transacted at any meeting of shareholders unless a quorum of not less than 10% of the shares entitled to vote at the meeting are present in person or represented by proxy.

       There are no by-law provisions governing the ownership threshold above which stockholder ownership must be disclosed.

      There are no provisions in either the Company’s Articles of incorporation or by-laws that would have the effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company or its subsidiaries.

       There are no preemptive, conversion or exchange rights and no provision for redemption, purchase for cancellation, surrender or sinking or purchase funds.

Item 10(C) Material Contracts

      Transition Services Agreement dated as of March 27, 2005 between Kraft Foods Global, Inc. and the Corporation, whereby Kraft provides the Corporation with certain services to facilitate the Corporation's purchase of the Kraft yogurt business for the period of 12 to 18 months, depending upon the service.  The cost of such services varies with the type of service provided and the totals approximately $1 million to $1.1 million per month.  The Company sold 100% of the issued and outstanding stock of the Kraft yogurt business on January 30, 2007 to an unaffiliated third party.

      Stock Purchase and Sale Agreement dated December 23, 2005 between International Franchise Corp. and CoolBrands and Integrated Brands, Inc., a wholly owned subsidiary, pursuant to which the Corporation sold substantially all of its franchising and licensing segment to International Franchise Corp. for cash consideration of $8,000,000.

      Voting Agreement, dated December 13, 2005, among CoolBrands International Inc., Integrated Brands, Inc., the Serruya Family Trust, 1082272 Ontario Inc., the Estate of Richard Smith, David M. Smith, David J. Stein, Aaron Serruya and Michael Serruya. See "Voting Agreement" in Item 6(C).

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      Employment Agreement, dated July 1 1997, between Integrated Brands, Inc.  and David J. Stein, as amended on July 1, 1997 and July 1, 2003. The amended agreement provides for an annual salary of $520,000 in calendar 2005, and provides for an annual $20,000 increase in each calendar year through 2013, and for an annual salary of $700,000 in any calendar year subsequent to 2013. The contract also provides for annual bonuses at the discretion of the Board.  No bonus was paid in fiscal 2006 under the employment agreement. The agreement may be terminated after December 31, 2013, with or without cause, on 90 days' notice. In the event that the agreement is terminated by Integrated Brands after December 31, 2013 without cause, Integrated Brands must pay Mr. Stein a severance amount equal to 36 months salary at the annual rate in effect as of the date of termination. The obligations of Integrated Brands under the agreement are guaranteed by the Corporation.

      Employment Agreement, dated April 1, 1999, between CoolBrands International, Inc. and Michael Serruya, as amended in 2004. The Corporation entered into a five-year employment agreement with Michael Serruya dated April 9, 1999, which was amended in fiscal 2004. The amended agreement provides for a base salary of Cdn $420,000 per annum, increasing by the rate of inflation annually on the anniversary of the employment agreement, and a bonus of up to Cdn $100,000 per year, paid on the anniversary of the employment agreement, determined as follows: (A) 50% of such bonus based on earnings of the Corporation; and (B) 50% of such bonus based on reasonable standards of personal performance and earnings performance of the Corporation. The employment agreement provides for a severance payment in the amount of Cdn $500,000 to be made to Mr. Serruya on the termination for any reason of the employment agreement or on the failure of the Corporation to renew the employment agreement upon the expiration of its term. In fiscal 2006, the base salary for Mr. Serruya was Cdn $420,000. No bonus was paid for in fiscal 2006 under the employment agreement.

      Credit Agreement dated as of April 21, 2006 among, Integrated Brands Inc, Eskimo Pie Frozen Distribution, Inc., Eskimo Pie Corporation, CoolBrands Dairy, Inc., the Lenders thereto and JP Morgan Chase Bank, N.A., as Administrative Agent. (As previously defined, the “Corporate Credit Agreement”)

       Credit Agreement dated as of April 21, 2006 among Americana Foods Limited Partnership., the Lenders thereto and JP Morgan Chase Bank, N.A., as Administrative Agent documenting the Americana Credit Facility as defined and described in Recent Developments.

        Guarantee dated April 21, 2006 made by CoolBrands International Inc. in favor of the Lenders to the Credit Agreement dated April 21, 2006 among Americana Food Limited Partnership, the Lenders as party thereto and JP Morgan Chase Bank, N.A. as administrative agent whereby CoolBrands guaranteed unconditionally the obligation of Americana Foods Limited Partnership.

Asset Purchase Agreement dated as of September 1, 2006 among Eskimo Pie Corporation, Denali New Berlin, LLC and Denali Ingredients, LLC, pursuant to which the assets of Value America were sold and certain liabilities assumed for the purchase price of $8,250,000.

Asset Purchase Agreements, each dated November 13, 2006 between Eskimo Pie Frozen Distribution, Inc., and Southwest Traders, Inc, pursuant to which substantially all of its “direct store door” frozen distribution assets in Florida, California, Oregon and Washington to Southwest Traders, Inc. for net proceeds of approximately $4,400,000.

On November 17, 2006, 2118769 Ontario Inc. (previously defined as 2118769), a company controlled by Mr. Michael Serruya, the Chairman, President and Chief Executive Officer of the Corporation, entered into an agreement to acquire, at par, all of the indebtedness of the senior lenders under the Americana Credit Facility.  In connection with this purchase, 2118769 also entered into a forbearance agreement with CoolBrands pursuant to which 2118769 agreed, for a period of 6 months, not to take any action to demand repayment of the indebtedness on account of existing defaults under the Americana Credit Facility.  As part of this transaction, JPMorgan Chase Bank, N.A. (“JPMorgan”) and the other senior lenders agreed to continue to make available to the Corporation $8,000,000 under the Corporate Credit Facility (as defined below).  Mr. Serruya, through 2118769, also established a $5,000,000 letter of credit in favour of the senior lenders as additional security for the $8,000,000 Corporate Credit Facility.

 Forbearance Waiver and First Amendment to Credit Agreement between CoolBrands International Inc. and its subsidiaries, JPMorgan Chase Bank, N.A., 2118769 dated November 17, 2006 under which the parties agree to forbear from exercising their rights under law or equity with respect to the Corporate Credit Agreement until the maturity date and changes the maturity date from April 21, 2009 to May 17, 2007.

Intercreditor and Subordination Agreement dated as of November 17, 2006 by and among 2118769 Ontario, Inc, Michael Serruya, JP Morgan Chase Bank, N.A., as administrative agent to the Lenders as party to the Corporate Credit Facility and JP Morgan Chase Bank, N.A., as administrative agent to the Lenders as party to the Americana Credit Facility.

Forbearance, Waiver and Indemnification Agreement dated as of November 17, 2006 by and among CoolBrands International Inc., 2118769 Ontario Inc. and each of the guarantors on the signature pages thereto.

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Asset Purchase Agreement dated January 23, 2007, between Integrated Brands, Inc., Eskimo Pie Corporation and Dreyer’s Grand Ice Cream, Inc. pursuant to which the Corporation sold their Eskimo Pie and Chipwich Brands and Real Fruit trademark, along with Eskimo Pie soft serve brands and related foodservice business for a purchase price of approximately $18,925,000. The purchase price includes approximately $4,000,000 in inventory and accounts receivables.  Dreyer’s also assumed related liabilities in the amount of approximately $1,000,000. Sugar Creek Foods, Inc, an indirect wholly owned subsidiary of CoolBrands has entered into a Co-Pack Agreement with Dreyer’s to manufacture soft-serve ice cream for a period of up to nine months.

Stock Purchase Agreement by and between Integrated Brands Inc., CoolBrands International Inc. and Lily Acquisition, LLC dated as of December 31, 2006.

Asset Purchase Agreements dated March 30, 2007, between Integrated Brands, Inc., CoolBrands Manufacturing Inc. and J &J Snack Foods Corp. pursuant to which the Corporation sold the operations and assets of Fruit A Freeze business, part of the Company’s frozen dessert business.

Item 10(D) Exchange Controls

      There is no law or governmental regulation in Canada that restricts the import or export of capital, including the availability of cash and cash equivalents for use by the company's group, or affects the remittance of dividends, interest or other payments to nonresident holders of the company's securities, other than tax withholding requirements. See "Taxation."

Item 10(E) Taxation

Certain Canadian Federal Income Tax Consequences Applicable to United States Shareholders

      The following general discussion sets forth a summary of the material Canadian federal income tax consequences of acquiring, holding and disposing of common stock for a shareholder of the Company who, for purposes of the Income Tax Act (Canada) (the "Tax Act") and the Canada - United States Income Tax Convention (1980) (the "Convention"), is a resident, or deemed to be resident in the United States; has never been and never will be resident, or deemed to be resident, in Canada at any time when such shareholder has held or will hold the common stock; deals at arm's length with the Company; holds and will hold his or her shares of common stock as capital property; is not affiliated within the meaning of the Tax Act with the Company; does not use or hold and is not deemed to use or hold such shares in or in the course of carrying on a business through

a permanent establishment or in connection with a fixed base in Canada; and is not a financial institution as defined by section 142.2 of the Tax Act (a "U.S. Resident"). Common stock will generally constitute capital property unless any such shares are held in the course of a business of buying and selling shares or such shares are acquired in a transaction considered to be an adventure in the nature of trade. This summary assumes that the Subordinate Voting Shares continue to be listed on the Toronto Stock Exchange and the Multiple Voting Shares are not listed on a prescribed stock exchange for the purpose of the Tax Act.

      The following discussion is based on the current provisions of the Tax Act, the regulations thereunder and the Convention, and on the Company's understanding of the current published administrative practices of the Canada Revenue Agency (the "CRA"), and takes into account all specific proposals to amend the Tax Act or regulations publicly released by the Minister of Finance of Canada before the date hereof (the "Proposed Amendments"). Except as provided in the preceding sentence, this summary does not take into account or anticipate any changes in law, whether by judicial, governmental or legislative decision or action or other changes in administrative or assessing policies of the CRA, nor does it take into account tax legislation of countries other than Canada or any relevant provincial or territorial tax legislation or considerations.

      THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR SHAREHOLDER.

Dividends on Common Shares

      Under the Tax Act, a U.S. Resident is generally subject to Canadian withholding tax at the rate of 25% on the gross amount of dividends paid or credited or deemed to have been paid or credited to such U.S. Resident on the Common stock. The Convention limits the rate to 15% of the gross amount of dividends if the U.S. Resident is the beneficial owner of the dividends. The rate of withholding tax is reduced to 5% of the gross amount of dividends if the U.S. Resident is a company that beneficially owns at least 10% of the voting stock of the Company. It should be noted that it is the position of the CRA that United States limited liability companies generally do not qualify as residents of the United States under the Convention. U.S. Residents should consult with their own tax advisors about the availability of any foreign tax credits.

      The Convention generally exempts from Canadian withholding tax any dividends paid to a U.S. Resident that is a religious, scientific, literary, educational or charitable organization or to an organization exclusively administering a pension, retirement or employee benefit fund or plan, if such U.S. Resident is exempt from income tax under the laws of the United States. Provided that certain administrative procedures are observed regarding registration of such organizations, the Company will not be required to withhold tax from dividends paid to such organizations. Qualifying organizations that fail to follow the required administrative procedures will have to file a claim for refund to recover any amounts withheld.

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Disposition of Common Stock

      If common stock is disposed of to the Company other than in an open market in the manner in which shares would normally be purchased by the public in the open market, proceeds of disposition will be limited to the paid-up capital of the common stock and the balance of the price paid will be deemed to be a dividend which will be subject to withholding tax as described above under "Dividends on Common Shares."

Any capital gain or capital loss will be subject to Canadian income tax as described below.

Disposition of Multiple Voting Shares

      Capital gains realized on the disposition or deemed disposition of Multiple Voting Shares by a U.S. Resident will not be subject to taxation under the Tax Act unless such Multiple Voting Shares are "taxable Canadian property", as defined in the Tax Act, to such holder. Under the Tax Act, Multiple Voting Shares will be "taxable Canadian property" to a U.S. Resident and will, subject to the provisions of the Convention, be subject to Canadian income tax in respect of any capital gain realized on a disposition of Multiple Voting Shares as described in the following paragraph. The Convention provides an exemption from Canadian tax arising on the disposition of common stock by a U.S. Resident unless such shares form part of the business property of a permanent establishment in Canada or pertain to a fixed base in Canada of the U.S. Resident at any time in the 12-month period preceding the disposition, or unless the value of the shares of the Company is derived principally from real property situated in Canada. In the Company's opinion, the common stock as of the date hereof does not derive its value principally from real property situated in Canada. A U.S. Resident will be required to obtain a clearance certificate under section 116 of the Tax Act, with respect to any disposition of Multiple Voting Shares, failing which the purchaser may be entitled to withhold an amount equal to 25% of the consideration payable thereof to the purchaser and remit the same to the CRA.

      A U.S. Resident's capital gain or capital loss from a disposition of common stock is the amount, if any, by which the proceeds of disposition less any reasonable costs of disposition exceed (or are exceeded) by the adjusted cost base of the common stock to the U.S. Resident at such time. Under the Tax Act, one-half of any capital gain realized upon the disposition will be included as a "taxable capital gain" in computing the U.S. Resident's income for Canadian income tax purposes and one-half of any such capital loss may be deducted from the U.S. Resident's taxable capital gains subject to the rules contained in the Tax Act.

Conversions of Multiple Voting Shares

      A. U.S. Resident who converts Multiple Voting Shares into Subordinate Voting Shares will generally not realize a capital gain or sustain a capital loss upon such conversion.

Disposition of Subordinate Voting Shares

      Capital gains realized on the disposition or deemed disposition of Subordinate Voting Shares by a U.S. Resident will not be subject to taxation under the Tax Act unless such Subordinate Voting Shares are "taxable Canadian property", as defined in the Tax Act, to such holder. Under the Tax Act, Subordinate Voting Shares will generally not constitute taxable Canadian property to such a holder unless, at any time during the five-year period immediately preceding the disposition or deemed disposition of the Subordinate Voting Shares, the holder, persons with whom the holder did not deal at arm's length, or any combination thereof owned (or had under option) 25% or more of the issued shares of any class or series of the capital stock of the Company. However, where a U.S. Resident acquires Subordinate Voting Shares upon a conversion of Multiple Voting Shares, such Subordinate Voting Shares will be deemed to be “taxable Canadian property” to such holder. Even if the Subordinate Voting Shares are "taxable Canadian property" to a U.S. Resident, the Convention may provide an exemption from Canadian tax, as discussed above under "Disposition of Multiple Voting Shares."

Item 10(F) Dividends and Paying Agents

      Not applicable.

Item 10(G) Statement by Experts

      Not applicable.

Item 10(H) Documents on Display

      Any documents referenced herein may be inspected upon request at the Company's offices located at 210 Shields Court, Markham, Ontario, L3R 8V2.

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Item 10(I) Subsidiary Information

      Not applicable.

Item 11 Quantitative and Qualitative Disclosures About Market Risk

      Foreign Currency Exchange Risk

      The Company is subject to currency exchange risks since certain of its subsidiaries report and transact business in Canadian dollars. The Company seeks to minimize exchange risks by transacting purchases and the related sales in the same currency.

      Commodity Price Risk

      The Corporation is subject to risks with respect to its cost of raw materials, some of which are subject to changes in commodity prices, particularly the cost of butterfat, which is used to produce ice cream products.

From time to time, the Corporation has used hedging contracts to reduce its exposure to such risks with respect to its raw material costs. The Corporation currently does not have any contracts in effect.

      Market Risk Sensitive Instruments

      The Company's investment portfolio consisted of investments in Auction rate securities. Auction rate securities are variable rate bonds tied to short term interest rates with maturities on the face of the securities in excess of 90 days. The Company evaluates whether to redeem or rollover each security no later than every 35 days.

      Interest Rate Risk

      CoolBrands is subject to interest rate risk as its long-term debt and short-term borrowings are based upon the prime rate and/or Libor. If these base rates increase, CoolBrands will incur incremental interest expense.

      Equity Price Risk

      Not applicable.

Item 12 Description of Securities other than Equity Securities

      Not applicable.

PART II

Item 13 Defaults, Dividend Arrearages and Delinquencies

In October 2006, Americana Foods was advised by its lenders that because of continuing defaults, they would no longer lend to Americana Foods and demanded full and immediate repayment of all of amounts outstanding under the American Credit Facility, which aggregated approximately $21,830,000 and which was guaranteed by the Company. The Company, through certain of its subsidiaries, as creditors of Americana Foods, filed an involuntary petition of bankruptcy against Americana Foods under Chapter 7 of the Federal Bankruptcy Code in the United States Bankruptcy Court, Northern District of Texas.  As a result, Americana Foods ceased operations and an independent trustee was appointed to oversee the liquidation of the assets and liabilities of Americana Foods.  In November, 2006, 2118769 Ontario, Inc. (“2118769”), a company controlled by Michael Serruya, currently the Chairman and CEO of the Company, purchased all of Americana Foods’ bank indebtedness, which aggregated $21,408,000 from the lender.  2118769 received a first lien security interest in the assets of Americana Foods.  The Company remains the guarantor of the Americana debt.  The independent trustee has sold or liquidated substantially all of the assets of Americana Foods and is completing his accounting.  To the extent that the proceeds from the liquidation are not sufficient to pay Mr. Serruya’s company, the Company may be required to make a payment under its guarantee.

Additionally, the Company continued to be in default under its Corporate Credit Facility (as defined in Recent Developments-2006).  In connection with the purchase of the indebtedness outstanding under the Americana Credit Facility, as described above, the Company and the lender (a “Senior Lender”) amended the Corporate Credit Facility (the “Amendment”) and agreed to reduce the maximum amount of the Corporate Credit Facility to $8,000,000, subject to a borrowing base.  Mr. Serruya, through the holding company (also a “Senior Lender”), issued an irrevocable letter of credit with a face value of $5,000,000 in favor of the lender.  The Senior Lenders and the Company also entered into a forbearance agreement which changed the maturity date of the Corporate Credit Facility from April 21, 2009 to May 17, 2007.  The Amendment also required the Company to utilize proceeds from the sales of assets to reduce the indebtedness based upon a specified schedule.  Mr. Serruya received, through the holding company, warrants

54

to purchase 5,500,000 subordinate voting shares of the Company in connection with the acquisition of the senior indebtedness.  The exercise price of each warrant is Cdn $0.50 and the term of the warrants is five years from the date of the grant.  The warrants issued by the Company in connection with this transaction were valued at $1,764,000 USD (Cdn $1,980,000) using the Black-Scholes pricing model and the following assumptions: 2.5 years expected life, no dividends, 67% volatility and 4.6% risk free rate, and were expensed by the Company in the first quarter of Fiscal 2007.  The Company completed the sale of the foodservice segment on January 24, 2007 and utilized a portion of the proceeds to pay off and terminated the Corporate Credit Facility.

The Company is in default under its licensing agreement with Godiva Chocolatier, Inc. (“Godiva”) See “Legal Proceedings” for a discussion of Godiva’s claim.

    In September 2006, Americana Foods Corporation (“AFC”), the Company’s 49.9% joint venture partner in Americana Foods, filed a complaint in the Supreme Court of the State of New York against the Company, IBI, CBA Foods, LLC, CB Americana and certain officers and directors of the Company and Americana Foods.  The complaint alleges gross mismanagement of the business operations of Americana Foods and seeks to prevent the Company from selling control of the Company to a third party without paying AFC the financial return required by certain provisions of the Americana Limited Partnership Agreement, or sell any part of the foodservice segment without using the sales proceeds to repay the debt of Americana Foods.  The Company has informed AFC that it does not believe that there are any amounts due AFC.  The Company intends to vigorously defend itself against this complaint

Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds

      On February 27, 1998, the Company's shareholders approved a reorganization of the Company whereby all shares of capital stock were converted at the shareholders' election, into either Subordinate Voting Shares or Multiple Voting Shares. Multiple Voting Shares had a preferential right to receive cash dividends when, as and if declared by the Board of Directors. Multiple Voting Shares could be converted at any time into an equivalent number of Subordinate Voting Shares. The Subordinate Voting Shares were entitled to one (1) vote per share and the Multiple Voting Shares were entitled to ten (10) votes per share.  See the Company's Report on Form 6-K for the month of March 1998 previously filed with the Securities and Exchange Commission. On May 31, 2007, the Company completed a reorganization of its share capital wherein the holders of Subordinate Voting Shares and the holders of Multiple Voting Shares exchanged their shares into Common Shares on a one for one basis. See also the discussion of the Collapse of the Dual Class Structure in Item 4(A) "History and development of the Company."

Item 15 Controls and Procedures

The Company conducted an evaluation under the supervision and with the participation of the Company's management, including the chief executive officer and chief financial officer, as of August 31, 2006, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)).  Based on this evaluation, the Company's chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports its files or submits under the Securities Exchange Act of 1934, as amended, is (a) recorded, processed, summarized and reported within the time periods specified by such act and associated rules and regulations and (b) accumulated and communicated to the Company's management including the Company's chief executive officer and chief financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.  It should be noted that while the Company's chief executive officer and chief financial officer believe that the Company's disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the Company's disclosure controls and procedures will prevent all errors and fraud.  A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Management's Annual Report on Internal Control over Financial Reporting:

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.  The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.  Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have material effect on the interim or annual consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

55

During Fiscal 2006, management commenced an assessment and evaluation of the Company's systems of internal control over financial reporting.  As part of the assessment and evaluation process, the Company engaged an outside consulting firm to perform documentation and Sarbanes Oxley compliance testing work over the Company’s internal controls over financial reporting.  At each subsidiary, the consultant reviewed the following processes:  Capital Spending and Maintenance, Financial Reporting, Inventory and Production, Information Technology, Payroll and Human Resources, Purchasing and Accounts Payable and Revenue and Accounts Receivable.  Documentation of all relevant internal controls was completed but due to the financial difficulties of the Company's business segments and the sale and ultimate discontinuance of substantially all of the Company's operating segments, the Company had neither the resources nor the funds necessary to complete the testing of internal controls over financial reporting at all of its business segments.  Even though the work was not completed, management was able to determine that there were significant deficiencies in financial reporting, accounts payable and accounts receivable and material weaknesses in inventory and information technology in the Company’s Integrated Brands subsidiary.  A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.  There were material weaknesses in inventory control at Integrated Brands related to the fact that (a) inventory located at third party warehouses was not subject to periodic physical inventory counts; (b) inventory obsolescence records were not documented; (c) changes to inventory production schedules were not documented and (d) the inventory sub-ledger when reconciled to the general ledger showed large unresolved differences.  There were information technology weaknesses at Integrated Brands related to (a) the lack of a development methodology for system maintenance; (b) the lack of an information security policy that details the organizations approach to information security; (c) the lack of an approach for performing security administration; (d) the need to define and document minimum password standards for the SAP and Epicor environments and (e) the lack of definition and implementation of reporting general system monitoring and alerts.  Because management did not complete its assessment, there may be other material weaknesses that have not been uncovered.

 The Company’s management designed the internal controls over financial reporting at the Company's various business segments. The testing of the internal controls at Americana Foods was only approximately 30% complete when the work was terminated. Further, with respect to CBD, the yogurt segment, the testing of the financial controls was only approximately 50% complete when the work was terminated.  The testing of the financial controls at the Company's other business segments was substantially complete at the time the work was terminated.

 The Company has undergone a significant downsizing and has disposed of or closed down substantially all of its businesses.   Because of the sales of the dairy component segment, the yogurt segment, the foodservice segment and the frozen dessert segment, and the bankruptcy and closing of Americana Foods, the Company expects that its financial reporting will become less complicated.

As a result of the material weaknesses in inventory control and information technology revealed during management's evaluation of the Company's internal controls, management has concluded that the Company's internal controls over financial reporting at August 31, 2006 were not effective.

This annual report does not include full certifications by the Company’s Chief Executive Officer and Chief Financial Officer as required by Exhibits 12 and 13 of this report. Accordingly, this report does not fully comply with the requirements of Section 13(a) or 15(d) of the Securities Act of 1934

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission  that permit the Company to provide only management’s report in this annual report.

Item 16 [Reserved]

Item 16(A) Audit Committee Financial Expert

      The Registrant's board of directors has determined that it has at least one audit committee financial expert serving on its audit committee. Mr. Romeo DeGasperis and Ms. Beth L. Bronner were both determined to be audit committee financial experts. Mr. DeGasperis and Ms. Bronner were each independent, as that term is defined by the Nasdaq listing standards. The SEC has indicated that the designation of Mr. DeGasperis and Ms. Bronner as an audit committee financial expert did not make Mr. DeGasperis or Ms. Bronner an "expert" for any purpose, impose any duties, obligations or liability on any of Mr. DeGasperis or Ms. Bronner that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation or affect the duties, obligations or liability of any other member of the audit committee. Mr. DeGasperis resigned from the Board on August 6, 2006 and Ms. Bronner resigned November 17, 2006. Mr. DeGasperis rejoined the Board and the audit committee on November 17, 2006 and Ronald W. Binns joined the Board and Audit Committee on that date as well. Mr. DeGasperis and Mr. Binns have both been determined to be audit committee financial experts and each are independent, as that term is defined by the Nasdaq listing standards. The SEC has indicated that the designation of  Ms. Bronner, Mr. DeGasperis or Mr. Binns as an audit committee financial expert did not or does not make them an "expert" for any purpose, impose any duties, obligations or liability on any of Ms. Bronner, or Mr. DeGasperis or Mr. Binns that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation or affect the duties, obligations or liability of any other member of the audit committee.

56

Item 16(B) Code of Ethics

      The Corporation has adopted a code of ethics (the "Code of Business Conduct and Ethics") that applies to all employees and officers, including its principal executive officers, principal financial officer and principal accounting officer. The Code of Business Conduct and Ethics was previously filed with the Commission as an exhibit to its report on Form 6-K filed on December 2, 2005, and is hereby incorporated by reference into this annual report on Form 20-F.

Item 16(C) Principal Accountant Fees and Services

      BDO Seidman, LLP serves as the Registrant’s registered public accountants as of and for the year ended August 31, 2006.  On May 15, 2007, BDO Seidman resigned as the Company’s principal accountant and PricewaterhouseCoopers were subsequently appointed as the Company’s auditors. BDO Dunwoody LLP, an affiliate of BDO Seidman, LLP, served as the Registrant's auditors as of and for the year ended August 31, 2005.   Fees payable for the years ended August 31, 2006 and August 31, 2005 to BDO Seidman, LLP and its affiliates and BDO Dunwoody LLP and its affiliates were $587,067 and $468,550, respectively.  Fees payable to BDO Seidman, LLP and BDO Dunwoody LLP in 2006 and 2005 are detailed below.

	Year Ended August 31, 2006		Year Ended August 31, 2005
Audit fees	$	450,000	$	430,000
Audit-related fees		111,096		27,750
Tax fees		25,971		10,800
All other fees		-		-
Total	$	587,067	$	468,550

      The nature of each category of fees is described below.

Audit Fees

      Audit fees were paid for professional services rendered by the auditors for the audit of the Registrant's annual financial statements or services provided in connection with statutory and regulatory filings or engagements.

Audit-Related Fees

      Audit-related fees were paid which related to the performance of the audit or review of the annual financial statements and not reported under the audit fees item above. These services consisted of reviewing the Company's financial statements and the audit of a subsidiary's 401K plan.

Tax Fees

      Tax fees were paid for tax compliance. These services consisted of tax compliance including the preparation of original tax returns.  The tax fees in each of 2006 and 2005 were payable to BDO Dunwoody LLP.

All Other Fees

      No accountant's fees were paid for products and services other than the audit fees, audit-related fees and tax fees described above.

Pre-Approval Policies and Procedures

      The Audit Committee has considered whether the provision of services other than audit services is compatible with maintaining the auditors' independence and has adopted a policy of pre-approving all of the provision of these services. For the year ended August 31, 2006, all of the services described above were approved by the Audit Committee.

      Approximately 90% of the hours expended on the principal accountant's engagement to audit the Registrant's financial statements for the fiscal year ended August 31, 2005 were attributed to work performed by BDO Seidman, LLP, as previously described, an affiliate of BDO Dunwoody LLP, which was the Registrants auditor for the fiscal year ended August 31, 2005.

Item 16(D) Exemptions from the Listing Standards for Audit Committees

      Not applicable.

57

Item 16(E) Purchases of Equity Securities by the Issuer and Affiliated Purchasers

      None.

Item 17 Financial Statements

The following financial statements are filed as part of the annual report:

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

Item 18 Financial Statements

      Not applicable. Financial Statements are provided under Item 17.

Item 19 Exhibits

      1.1 Agreement and Plan of Merger, dated October 13, 1997, among the Company, Merger Sub and Integrated Brands, as amended.⁽¹⁾

      1.2 Articles of Continuance of the Company ⁽²⁾

      3.1 Board Representation Agreement dated October 13, 1997, among the Company, The Integrated Principal Integrated Brands Shareholders and CoolBrands Principal Integrated Brands Shareholders, as amended and restated.⁽³⁾

      3.2 Amendment No. 1 to the Board of Representation Agreement dated January 12, 2001. ⁽³⁾

      3.3 Trust Agreement, dated March 18, 1998 by and among Richard E. Smith, David Smith, David Stein, Michael Serruya, Aaron Serruya, 1082272 Ontario Inc., The Serruya Family Trust, Yogen Fruz World-Wide Incorporated and The Chase Manhattan Bank.⁽³⁾

      4.1 Merger Agreement by and among Eskimo Pie Corporation, CoolBrands International Inc. and EP Acquisition Corp. dated May 3, 2000, as amended June 3, 2000.⁽⁴⁾

      4.2 Transition Services Agreement dated March 27, 2005 between Kraft Foods Global, Inc. and CoolBrands Global, Inc. ⁽³⁾

      4.3 Stock Purchase and Sale Agreement between International Franchise Corp., CoolBrands International Inc. and Integrated Brands, Inc. dated December 23, 2005.⁽⁵⁾

      4.4 Voting Agreement, dated December 13, 2005, among CoolBrands International Inc., Integrated Brands, Inc., the Serruya Family Trust, 1082272 Ontario Inc., the Estate of Richard Smith, David M. Smith, David J. Stein, Aaron Serruya and Michael Serruya.⁽⁶⁾

      4.5 Employment Agreement, dated July 1, 1997, between Integrated Brands, Inc. and David J. Stein, as amended by Amendment No. 1 dated July 1, 1997 and Amendment No. 2 dated July 1, 2003. ⁽⁶⁾

      4.6 Employment Agreement, dated April 1, 1999, between CoolBrands International, Inc. and Michael Serruya. ⁽⁶⁾

      4.7 Amendment No. 1 to the Employment Agreement of Michael Serruya, dated October 24, 2003.

      4.8 Credit Agreement dated as of April 21, 2006 among, Integrated Brands Inc., Eskimo Pie Frozen Distribution, Inc., Eskimo Pie Corporation, CoolBrands Dairy, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. ⁽⁷⁾

      4.9 Credit Agreement dated as of April 21, 2006 among Americana Foods Limited Partnership, the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. ⁽⁷⁾

58

     4.10 Asset Purchase Agreement dated as of September 1, 2006 among Eskimo Pie Corporation, Denali New Berlin, LLC and Denali Ingredients, LLC. ⁽⁸⁾

     4.11 Asset Purchase Agreement dated November 16, 2006 between Eskimo Pie Frozen Distribution, Inc., and Southwest Traders, Inc. – Florida ⁽¹¹⁾

     4.12 Asset Purchase Agreement dated November 16, 2006 between Eskimo Pie Frozen Distribution, Inc. and Southwest Traders, Inc. – West Coast. ⁽¹¹⁾

     4.13 – 4.15                             Not used

     4.16 Intercreditor and Subordination Agreement dated as of November 17, 2006 by and among 211876 Ontario Inc., Michael Serruya, JPMorgan Chase Bank, N.A., as administrative agent to the lenders a party to the Integrated Credit Agreement and JPMorgan Chase Bank, N.A., as administrative agent to the lenders a part to the Americana Credit Agreement. ⁽¹¹⁾

     4.17 Amended and Restated Intercreditor and Subordination Agreement dated as of November 17, 2006 by and between JPMorgan Chase Bank, N.A., as administrative agent for itself and the other lenders a party to the Integrated Credit Agreement and JPMorgan Chase Bank, N.A., as administrative agent to the other lenders a party to the Americana Credit Agreement.⁽¹¹⁾

     4.18 Forbearance, Waiver and Indemnification dated as of November 17, 2006 by and among CoolBrands International Inc., 2118769 Ontario Inc. and each of the guarantors on the signature pages thereto. ⁽¹¹⁾

     4.19 Forbearance Waiver and First Amendment to Credit Agreement dated November 17, 2006 by and among CoolBrands International Inc., Integrated Brands Inc., Eskimo Pie Frozen Distribution, Inc., Eskimo Pie Corporation, CoolBrands Dairy, Inc., JPMorgan Chase Bank, N.A., as administrative agent. ⁽¹¹⁾

     4.20  Guarantee dated April 21, 2006 made by CoolBrands International inc. in favor or the lenders to the Credit Agreement dated April 21, 2006 among Americana foods limited partnership, the lenders a party thereto and JPMorgan Chase Bank, N.A., as administrative agent.⁽⁷⁾

     4.21 Warrant dated November 25, 2006 issued by CoolBrands International Inc. to Michael Serruya. ⁽¹¹⁾

     4.22 Asset Purchase Agreement dated January 23, 2007, between Integrated Brands, Inc., Eskimo Pie Corporation and Dreyer’s Grand Ice Cream, Inc.⁽⁹⁾

     4.23 Stock Purchase Agreement by and between Integrated Brands Inc., CoolBrands International Inc. and Lily Acquisition, LLC dated as of December 31, 2006.⁽¹⁰⁾

     4.24 Asset Purchase Agreement dated March 30, 2007, between CoolBrands Manufacturing Inc. and J&J Snack Foods Corp.^.(11)

     4.25 Asset Purchase Agreement dated March 30, 2007, between Integrated Brands, Inc. and J&J Snack Foods Corp.^.(11)

     11.1 Code of Business Ethics. ⁽³⁾

     12.1 Exchange Act Rule 13a-14(a)/15(d)-14(a) Certification of Michael Serruya, Chief Executive Officer. ⁽¹¹⁾

     12.2 Exchange Act Rule 13a-14(a)/15(d)-14(a) Certification of Ken J. MacKenzie, Chief Financial Officer. ⁽¹¹⁾

     13.1 18 U.S.C. Section 1350 Joint Certification of Michael Serruya, Chief Executive Officer, and Ken J. MacKenzie, Chief Financial Officer.⁽¹¹⁾

     15.1 Consent of BDO Dunwoody LLP, Independent Auditors. ⁽¹¹⁾

     15.2 Consent of BDO Seidman, LLP, Independent Registered Public Accounting Firm. ⁽¹¹⁾

(1)   Incorporated by reference to the corresponding exhibit filed with the Company's Registration Statement on Form F-4 (no. 333-8078) and amendments thereto, as previously filed with the Securities and Exchange Commission on February 19, 1998.

(2)   Incorporated by reference to the corresponding exhibit filed with the Company's Registration Statement on Form 6-K (no. 000-27476) and amendments thereto, as previously filed with the Securities and Exchange Commission on April 3, 2006.

59

(3)   Incorporated by reference to the corresponding exhibit filed with the Corporation's report on Form 6-K (no. 000-27476), previously filed with the Securities and Exchange Commission on December 2, 2005.

(4)   Incorporated by reference to the corresponding exhibit filed with the Company's report of the fiscal year ended August 31, 2000 on Form 20-F (no. 000-27476), as previously filed with the Securities and Exchange Commission on March 15, 2001.

(5)   Incorporated by reference to the corresponding exhibit filed with the Corporation's report on Form 6-K (no. 000-27476), previously filed with the Securities and Exchange Commission on December 29, 2005.

(6)   Incorporated by reference to the corresponding exhibit filed with the Corporation's report on Form 20-F (no. 000-27476), previously filed with the Securities and Exchange Commission on February 28, 2006.

(7)   Incorporated by reference to the corresponding exhibit filed with the Corporation's report on Form 6-K (no. 000-27476), previously filed with the Securities and Exchange Commission on May 3, 2006.

(8)   Incorporated by reference to the corresponding exhibit filed with the Corporation's report on Form 6-K (no. 000-27476), previously filed with the Securities and Exchange Commission on September 13, 2006.

(9)   Incorporated by reference to the corresponding exhibit filed with the Corporation's report on Form 6-K (no. 000-27476), previously filed with the Securities and Exchange Commission on February 5, 2007.

(10)   Incorporated by reference to the corresponding exhibit filed with the Corporation's report on Form 6-K (no. 000-27476), previously filed with the Securities and Exchange Commission on January 16, 2007.

(11)   Filed herewith.

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SIGNATURES

      The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

COOLBRANDS INTERNATIONAL INC.
(Registrant)
By:	“Michael Serruya”
	Name: Michael Serruya Title: President and CEO

Date: August 31, 2007

61

                   Index to Consolidated Financial Statements

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

F - 1

AUDITORS’ REPORT

To the Shareholders of CoolBrands International Inc.:

We have audited the consolidated balance sheets of CoolBrands International Inc. as at August 31, 2005 and the consolidated statements of operations, shareholders’ equity, and cash flows for the years ended August 31, 2005 and 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at August 31, 2005 and the results of its operations, and its cash flows for the years ended August 31, 2005 and 2004 in accordance with United States generally accepted accounting principles.

Chartered Accountants, Licensed Public Accountants

Toronto, Ontario

December 9, 2005 (except for Note 17, which is as of December 23, 2005)

F - 2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

CoolBrands International Inc.:

We have audited the accompanying consolidated balance sheet of CoolBrands International Inc. as of August 31, 2006 and the consolidated statements of operations, shareholders’ equity, and cash flow for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  We were not required to, nor were we engaged to perform, an audit of internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CoolBrands International, Inc., and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The consolidated balance sheet as of August 31, 2005 and the statements of operations, of changes in stockholders equity, of cash flows of CoolBrands International, Inc.  for the years ended August 31, 2005 and August 31, 2004, were audited by other auditors. As described in Note 5, the Company sold or entered into agreements to sell certain of it divisions and therefore needed to report as discontinued operations. The related amounts in the 2005 and 2004 financial statements have been restated to conform to the 2006 presentation of discontinued operations. We audited the adjustments that were applied to restate the disclosures for discontinued operations reflected in the 2005 and 2004 financial statements. Our procedures included ( a ) agreeing the adjusted amounts to the Company’s underlying records obtained from management, and ( b ) testing the mathematical accuracy of the reconciliations to the consolidated financial statements. In our opinion, such adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2005 or 2004  financial statements of the Company other than with respect to such adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2005 and 2004 financial statements taken as a whole.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and subsequent discontinuation of many of it key operations which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

BDO Seidman, LLP

Melville, New York

January 26, 2007 (except for Note 22, which is as of August 31, 2007)

F - 3

Consolidated Balance Sheets as at August 31, 2006 and 2005

(Amounts expressed in thousands of dollars)

	2006		2005
Assets
Current Assets:
Cash	$	393	$	24,062
Investments		-		7,500
Restricted cash		-		10,000
Receivables, net		12,780		22,833
Receivables – affiliates		-		1,780
Inventories		9,131		29,918
Current assets of discontinued operations held for sale		38,142		52,719
Income taxes recoverable		11,000		9,767
Prepaid expenses		819		1,490
Deferred income taxes, net of valuation allowance		-		5,148
Total current assets		72,265		165,217
Non-current assets of discontinued operations held for sale		51,927		64,453
Deferred income taxes, net of valuation allowance		-		14,799
Property, plant and equipment		23,051		31,976
Intangible and other assets		1,515		5,857
Goodwill		11,790		15,543
	$	160,548	$	297,845

Approved by the Board,

“Michael Serruya”	“Ronald W. Binns”
_________________, Director	_________________, Director

F - 4

Consolidated Balance Sheets as at August 31, 2006 and 2005

(Amounts expressed in thousands of dollars)

	2006			2005
Liabilities and Shareholders’ Equity
Current Liabilities:
Notes payable in default	$	10,077		$	-
Notes payable of majority owned subsidiary in default		23,501			-
Accounts payable		20,462			28,198
Accrued liabilities		14,900			21,106
Payables – affiliates		-			620
Income taxes payable		140			-
Deferred income taxes, net of valuation allowance		-			93
Current liabilities of discontinued operations held for sale		22,890			34,009
Short term borrowings		-			34,553
Current maturities of long-term debt		-			18,161
Other liabilities		4,287			-
Total current liabilities		96,257			136,740
Other liabilities		-			2,442
Non-current liabilities of discontinued operations held for sale		825			684
Long-term debt, including obligations under capital leases		348			8,248
Deferred income taxes		2,000			6,140
Total liabilities		99,430			154,254
Minority interest		-			5,185
Commitments and contingencies
Shareholders’ Equity:
Capital stock		97,804			97,578
Additional paid-in capital		38,812			46,376
Accumulated other comprehensive losses		(1,464	)		(1,696	)
Accumulated deficit		(74,034	)		(3,852	)
Total shareholders’ equity		61,118			138,406
	$	160,548		$	297,845

See accompanying notes to consolidated financial statements.

F - 5

Consolidated Statements of Operations for the years ended August 31, 2006, 2005 and 2004 (Amounts expressed in thousands of dollars)

	2006			2006 Pro Forma (See Notes 3 and 13) (Unaudited)			2005			2004
Net revenues:
Net sales	$	96,936		$	46,191		$	142,873		$	275,394
Other income		2,412			2,267			6,837			5,342
Total net revenues		99,348			48,458			149,710			280,736
Cost of goods sold		110,718			49,424			142,181			176,929
Selling, general and administrative expenses		40,101			34,527			37,530			71,516
Interest expense		2,000			401			1,687			1,491
Asset impairment		21,289			10,139			51,141
(Gain) loss on sale of building		-			-			(3,515	)
(Loss) income  from continuing operations before income taxes and minority interest		(74,760	)		(46,033	)		(79,314	)		30,800
Minority interest		5,185			-			2,700			958
(Loss) income  from continuing operations before income taxes		(69,575	)		(46,033	)		(76,614	)		31,758
(Recovery of) Provision for income taxes:
Current		(11,100	)		(11,100	)		(8,439	)		26,767
Deferred		5,145			5,145			841			(15,334	)
		(5,955	)		(5,955	)		(7,598	)		11,433
Net (loss) income from continuing operations		(63,620	)		(40,078	)		(69,016	)		20,325
Discontinued operations:
(Loss) income from operations of discontinued operations		(6,972	)		(6,972	)		(5,054	)		3,187
Gain on sale of franchising segment		410			410
Loss generated by majority owned subsidiary, net of minority interest		-			(23,542	)		-
Net (loss) income from discontinued operations		(6,562	)		(30,104	)		(5,054	)		3,187
Net (loss) income	$	(70,182	)	$	(70,182	)	$	(74,070	)		23,512
Per share data:
(Loss) earnings  per share (basic and diluted):
Continuing operations	$	(1.13	)	$	(0.71	)	$	(1.23	)	$	0.37
Discontinued operations		(0.12	)		(0.54	)		(0.09	)		0.05
	$	(1.25	)	$	(1.25	)	$	(1.32	)	$	0.42
Weighted average shares outstanding:
Shares used in per share calculation – basic		56,047			56,047			55,924			55,441
Shares used in per share calculation - diluted		56,047			56,047			55,924			56,329

See accompanying notes to consolidated financial statements

F - 6

Consolidated Statements of Shareholders’ Equity for the years ended August 31, 2006, 2005 and 2004

(Amounts expressed in thousands of dollars)

	Capital stock		Additional paid-in capital			Accumulated other comprehensive (losses)			Retained earnings (accumulated deficit)			Total Shareholders’ equity
Balance at September 1, 2003	$	85,199	$	1,649		$	(840	)	$	46,706		$	132,714
Comprehensive earnings:
Net earnings										23,512
Other comprehensive losses, net of income taxes:
Currency translation adjustment							(256	)
Total comprehensive loss													23,256
Issuance of shares for stock options exercised		11,779											11,779
Issuance of shares for warrants exercised		507											507
Tax benefit relating to exercise of non-qualified     stock options				11,862									11,862
Stock-based compensation expense				30,983									30,983
Balance at August 31, 2004		97,485		44,494			(1,096	)		70,218			211,101
Comprehensive losses:
Net loss										(74,070	)
Other comprehensive losses, net of income taxes:
Currency translation adjustment							(600	)
Total comprehensive loss													(74,670	)
Issuance of shares for stock options exercised		93		(36	)								57
Stock-based compensation expense				1,918									1,918
Balance at August 31, 2005		97,578		46,376			(1,696	)		(3,852	)		138,406
Compressive losses:
Net loss										(70,182	)
Other comprehensive gain, net of income taxes:
Currency translation adjustment							232
Total comprehensive loss													(69,950	)
Issuance of shares for stock options exercised		226		(87	)								139
Stock-based compensation expense				443									443
Reversal of deferred tax asset set up in connection with stock-based compensation expense				(7,920	)								(7,920	)
Balance at August 31, 2006	$	97,804	$	38,812		$	(1,464	)	$	(74,034	)	$	61,118

See accompanying notes to consolidated financial statements.

F - 7

Consolidated Statements of Cash Flows for the years ended August 31, 2006, 2005 and 2004

(Amounts expressed in thousands of dollars)

	2006			2005			2004
Cash and short-term investments provided by (used in):
Operating activities:
Net loss	$	(70,182	)	$	(74,070	)	$	23,512
Adjustments to reconcile net loss to net cash flows from operating activities
Depreciation and amortization		5,026			4,466			6,210
Asset impairment		21,289			51,141			-
Stock-based compensation expense		443			1,918			30,983
Deferred income taxes		5,145			493			(15,314	)
(Gain) loss on sale of building and other assets		-			(3,634	)		-
Minority interest		(5,185	)		(2,696	)		(954	)
Net (loss) income from discontinued operations		6,972			5,054			(3,187	)
Gain on sale of franchising segment		(410	)		-			-
Cash effect of changes from continuing operations
Receivables		9,304			22,487			(6,960	)
Receivables – affiliates		1,569			1,831			(1,315	)
Allowance for doubtful accounts		(537	)		(110	)		126
Inventories		15,037			6,261			(1,544	)
Prepaid expenses		676			(2,000	)		6,290
Income taxes recoverable		(1,046	)		(9,767	)		-
Accounts payable		(7,736	)		10,848			2,890
Payables – affiliates		(620	)		(230	)		277
Accrued liabilities		(4,753	)		1,665			(5,636	)
Income taxes payable		-			(5,240	)		7,194
Other assets		1,022			(559	)		53
Other liabilities		694			124			(275	)
Cash (used in) provided by operating activities		(23,292	)		7,982			42,350
Investing activities:
Purchase of property, plant and equipment		(1,416	)		(13,500	)		(12,977	)
Purchase of license agreements and other intangibles					(26	)		(376	)
Proceeds from sale of building		-			5,434			-
Decrease(increase) in restricted cash		10,000			(10,000	)		-
Purchase of investments		-			(2,500	)		(33,050	)
Redemption of investments		7,500			23,050			5,000
Decrease (increase) in notes receivable		15			(36	)		23
Cash provided by investing activities		16,099			2,422			(41,380	)
Financing activities:
Change in revolving line of credit, secured		-			2,661			1,514
Proceeds from notes payable in default		10,077			-			-
Proceeds from notes payable of majority owned subsidiary, in default		23,918			-			-
Repayment of notes payable of majority owned subsidiary, in default		(417	)		-			-
Proceeds from short term borrowings		-			44,553			-
Capital contributions from minority interest		-			-			8,907
Return of capital contributions to minority interest		-			-			(2,000	)
Proceeds from issuance of Class A and B shares		139			57			12,286
Repayment of short term borrowings		(34,553	)		(10,000	)		-
Repayment of long-term debt		(26,409	)		(3,785	)		(5,781	)
Cash (used in) provided by financing activities		(27,245	)		33,486			14,926
Decrease (increase) in cash flows due to changes in foreign exchange rates		230			(695	)		(2,412	)
Cash flows provided by (used in) from discontinued operations:
Net loss from  discontinued operations		(6,972	)		(5,054	)		3,187
Operating		8,937			8,311			(1,768	)
Investing		8,574			(58,445	)		(386	)
Financing		-			(222	)		-
Cash provided by (used in) discontinued operations		10,539			(55,410	)		1,033
(Decrease)  in cash and cash equivalents		(23,669	)		(12,215	)		14,517
Cash and cash equivalents – beginning of year		24,062			36,277			21,760
Cash and cash equivalents – end of year	$	393		$	24,062		$	36,277

See accompanying notes to consolidated financial statements.

F - 8

CoolBrands International Inc.

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

(Amounts are expressed in thousands of dollars)

Note 1.  Description of business and summary of significant accounting policies

In the year ended August 31, 2006 (“Fiscal 2006”), the Company incurred a net loss of $(70,182), of which $(63,620) was from continuing operations and $(6,562) was from discontinued operations.

In the first quarter of the year ended August 31, 2006 (“Fiscal 2006”), the decision was made to sell certain businesses to generate liquidity.  In December 2005, the Company sold certain assets relating to its franchising business for proceeds totaling $8,000 to a company controlled by Aaron Serruya, a former officer of the Company, who is a director and the brother of Michael Serruya, the Chairman and Chief Executive Officer of the Company.

On April 21, 2006, the Company refinanced its then remaining debt by obtaining the following:

1.   a $48,000 senior secured revolving credit facility (the “Corporate Credit Facility”); and

2.   a $25,500 senior secured revolving credit facility consisting of a $8,000 senior secured revolving credit facility and $17,500 of term loans, in which Americana Foods Limited Partnership (“Americana Foods”), which is 50.1% owned by the Company, is the borrower (the “Americana Credit Facility”).

Each of the loans was for an original term of three years and provides for interest at the prime rate (8.25% at August 31, 2006).  Each of the credit facilities were unconditionally guaranteed by the Company.  See Note 12, “Long-term Debt,” and Note 20, “Subsequent Events,” for a complete discussion of the Company’s indebtedness.

The proceeds from the borrowings were used to retire all then existing debt.

However, sales generated by the Company continued to lag and the Company incurred significant losses in Fiscal 2006.  The Company was in default under its financial covenants at May 31, 2006 and August 31, 2006 with respect to the Corporate Credit Facility and the Americana Credit Facility.  During Fiscal 2006, the Board of Directors of the Company approved the active marketing of certain of its business lines for sale, including Eskimo Pie Frozen Distribution, Inc. (“EPFD”), the Company’s direct store door business and a component of our frozen dessert segment, Value America, substantially all of the Company’s dairy components segment, and CoolBrands Dairy, Inc. (‘CBD”), the Company’s yogurt segment, to generate cash and reduce debt.

On September 14, 2006, the Company completed the sale of the Value America division to an unaffiliated third party for $8,250 and on November 17, 2006, the Company consummated the sale of substantially all of EPFD to an unaffiliated third party for $5,736.

F - 9

CoolBrands International Inc.

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

(Amounts are expressed in thousands of dollars)

In October 2006, certain of the Company’s subsidiaries, as creditors of Americana Foods, filed an involuntary petition of Bankruptcy against Americana Foods under Chapter 7 of the Federal Bankruptcy Code and Americana Foods ceased operations and was under the jurisdiction of an independent bankruptcy trustee, who is arranging for the sale of the remaining assets.  The estimated fair value of Americana Foods’ assets and liabilities subject to settlement and the guaranteed debt are recorded in the accompanying balance sheet.

Additionally, on January 2, 2007, the Company entered into a definitive agreement to sell CBD.  Finally, on January 24, 2007, the Company sold, through its subsidiaries Eskimo Pie Corporation and Integrated Brands Inc., their Eskimo Pie and Chipwich Brands and Real Fruit trademark, along with Eskimo Pie soft serve brands and related foodservice business segment to Dreyer’s Grand Ice Cream Holdings, Inc. (“Dreyer’s”), and utilized a portion of the proceeds to repay the amounts outstanding under the Corporate Credit Facility.

Frozen dessert segment

Revenues in the frozen segment are or have been generated from manufacturing and selling a variety of prepackaged frozen dessert products to distributors, including Eskimo Pie Frozen Distribution (“EPFD”), and various retail establishments including supermarkets, grocery stores, club stores, gourmet shops, delicatessens and convenience stores.

CoolBrands competes in the fast-growing Better for You ice cream category with offerings such as fat-free, non-dairy WholeFruit Sorbet. Better for You offerings by CoolBrands include No Pudge! branded frozen snacks and a line of Better for Kids frozen snacks sold under the Crayola, Justice League, Snapple, Care Bears and Trix Pops brands.  CoolBrands also competes in the super premium ice cream category with the Dreamery Ice Cream and Godiva Ice Cream brands.  In addition, CoolBrands markets a wide variety of “all family” premium ice creams and frozen snacks under brand names including Eskimo Pie, Chipwich, Tropicana and Yoplait.  Substantially, all of these businesses are included in the foodservice segment.  On January 24, 2007, the Company sold certain assets of the foodservice segments including the brand names, Eskimo Pie and Chipwich to an unaffiliated third party (see Note 20, “Subsequent Events”).

CoolBrands’ subsidiary, EPFD, operates a direct store door ice cream distribution system in selected markets in the U.S., serving CoolBrands products and certain Partner Brands to supermarkets, convenience stores and other retail customers.  During Fiscal 2006, the Company made the decision to sell EPFD.  Accordingly, the assets and liabilities, operating results and cash flows have been classified as assets and liabilities of discontinued operations held for sale, net loss of discontinued operations and net cash flows from discontinued operations, respectively.  The Company consummated the sale of substantially all of the net assets of EPFD to an unaffiliated third party on November 17, 2006.  (See Note 5, “Discontinued Operations,” and Note 20, “Subsequent Events,” for a complete discussion.)

F - 10

CoolBrands International Inc.

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

CoolBrands’ 50.1% owned subsidiary, Americana Foods, was a manufacturer and supplier of packaged ice cream, frozen yogurt and sorbet products, frozen snacks, soft-serve mixes and other food products to well-known national retailers, food companies and restaurant chains.  Americana Foods manufactured products purchased by the Company for sale and distribution, which in Fiscal 2006 aggregated $21,700 (at cost) or approximately 45% of the purchases by the frozen dessert and foodservice segments.

Yogurt segment

CoolBrands’ subsidiary, CBD, manufactures cup yogurt at its plant located in North Lawrence, New York and markets the products under the Breyers brand pursuant to a trademark rights agreement, which grants the rights in perpetuity, and under the Crème Savers brand pursuant to a long-term license agreement.  During Fiscal 2006, the Company made the decision to sell CBD and on January 2, 2007, the Company entered into a definitive agreement to sell CBD to an unaffiliated third party.  Accordingly, the assets and liabilities, operating results and cash flows of the yogurt segment have been reclassified to assets and liabilities held for sale of discontinued operations, net loss from discontinued operations and net cash flows from discontinued operations, respectively. (See Note 5, “Discontinued Operations,” and Note 20, “Subsequent Events.”)

Dairy components segment

Revenues in the dairy components segment were generated from the manufacturing and selling of various ingredients to the dairy industry and from the manufacturing and selling of flexible packaging, such as private label ice cream novelty wraps.  CoolBrands’ dairy components segment manufactures and sells a full line of quality flavours, chocolate coatings, fudge sauces, powders for chocolate milk, eggnog bases and other ingredients.  During Fiscal 2006, the Company made the decision to sell the Value America division, which represents substantially all of the dairy components segment, and consummated a sale to an unaffiliated third party in September 2006.  Accordingly, the assets and liabilities, operating results and cash flows have been classified as assets and liabilities of discontinued operations held for sale, net loss of discontinued operations and net cash flows from discontinued operations, respectively.  (See Note 5, “Discontinued Operations,” and Note 20, “Subsequent Events.”)

Foodservice segment

Revenues in the foodservice segment were generated from manufacturing and selling soft-serve yogurt and premium ice cream mixes to broad-line foodservice distributors, yogurt shops and other foodservice establishments which, in turn, sell soft-serve ice cream and yogurt products to consumers.  On January 24, 2007, the Company sold, through its subsidiaries Eskimo Pie Corporation and Integrated Brands Inc., their Eskimo Pie and Chipwich Brands and Real Fruit trademark, along with Eskimo Pie soft serve brands and related foodservice business segment to Dreyer’s, an indirect subsidiary of Nestlé S.A. (See Note 20, “Subsequent Events.”)

F - 11

CoolBrands International Inc.

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

Basis of presentation

The consolidated financial statements are prepared by management using accounting principles generally accepted in the United States and include all wholly and majority owned subsidiaries.  All significant intercompany transactions of consolidated subsidiaries are eliminated.  Acquisitions recorded as purchases are included in the statement of operations from the date of acquisition.  All amounts are reported in U.S. dollars unless otherwise indicated.

Use of estimates

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

Cash

All highly liquid commercial paper purchased with maturities of three months or less is classified as a cash equivalent.  Cash equivalents are stated at cost, which approximates market value.

Investments

The Company’s investment portfolio consisted of investments in Auction rate securities.  Auction rate securities are variable rate bonds tied to short-term interest rates with maturities on the face of the securities in excess of 90 days.  The Company evaluates whether to redeem or rollover each security no later than every 35 days.  At August 31, 2006 and 2005, the Company had investment balances of Nil and $7,500, respectively.

Inventories

Inventories consist primarily of ice cream, frozen yogurt and frozen dessert products, food supplies and packaging. Inventories are valued at the lower of cost and net realizable value, with cost determined principally by the first-in, first-out (FIFO) method.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation.  Depreciation of buildings and machinery and equipment is provided by the straight-line or declining balance methods, using the estimated useful lives of the assets, principally 20 to 38 years and 2 to 10 years, respectively.

Intangible and other assets

Intangible and other assets consist of license agreements, trademarks, trademark rights and other assets.  Amortizing intangibles are stated at cost less accumulated amortization and allowances for impairment. Amortization is provided by the straight-line method using the terms of the agreements, which range from 4 to 20 years.

Goodwill and other non-amortizable intangible assets

In accordance with Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets” (“Statement 142”), goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but instead are to be tested for impairment at least annually or earlier if there are impairment indicators.  Other intangible assets continue to be amortized over their estimated useful lives.  Goodwill is tested for impairment using a two step process that begins with an estimation of the fair value of each reporting unit.  The fair value of each reporting unit is determined using a combination of valuation approaches including an income approach consisting of a discounted cash flow analysis and a market multiple approach.  The fair value of the reporting unit is compared to its carrying value.  If the carrying value exceeds the fair value, goodwill is considered impaired.

F - 12

CoolBrands International Inc.

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

The amount of impairment loss is measured as the difference between the carrying value and implied fair value of goodwill, which is determined using discounted cash flows.  Impairment testing for non-amortizable intangible assets requires a comparison between fair value and carrying value of the intangible asset.  If the carrying value exceeds fair value, the intangible asset is considered impaired and is reduced to fair value.

During Fiscal 2006, the Company recorded a provision for impairment of $5,428 with respect to the goodwill of the yogurt segment (see Note 5, “Discontinued Operations,” for further discussion).  The impairment of the goodwill of the yogurt segment is included in net loss of discontinued operations.  Additionally, the Company incurred losses on impairment totaling $21,289 with respect to:

1.   The loss on impairment incurred with respect to certain licenses not likely to continue  and related prepaid packaging and design cost totaling $3,609;

2.   The loss on impairment of goodwill of $3,500 incurred with respect to the frozen dessert segment to recognize the deterioration of the business as the result of the abandonment or termination of various licensing agreements; and

3.   The loss on impairment of $1,890 related to certain property, plant and equipment currently in storage; and

4.   The loss on impairment of $1,140 relating to deferred acquisition costs, prepaid royalties and net receivables of Americana Foods; and

5.   The loss on impairment of $11,150 to recognize the loss in value of the assets of Americana Foods in bankruptcy (accounts receivable - $1,500, inventory - $5,750 and property, plant and equipment - $3,900).

During Fiscal 2005, the Company completed its annual impairment testing of goodwill and intangible assets.  A goodwill impairment charge of $48,701 was taken in the Company’s frozen dessert segment.  The impairment charge in the frozen dessert product segment is the result of the loss of the Weight Watchers licensing agreement as well as declining sales of the Atkins and our base business product lines and the resulting decline in cash flows.  This review also resulted in a $1,401 intangible asset impairment charge for the Company’s frozen dessert segment.  Significant assumptions used in measuring the impairments included the timing and amount of estimated future cash flows for reporting units and intangible assets, and where applicable, an analysis of guideline transaction market multiples.

For the year ended August 31, 2005 (“Fiscal 2005”), CoolBrands International Inc. (the “Company”) incurred a net loss of $74,070, which was primarily attributable to:

1.   the non-cash impairment charges totaling $55,525 relating to goodwill and intangible assets of the Company’s frozen dessert and franchising segments; and

2.   the discontinuation of the Weight Watchers Smart Ones brand products and the decline in other frozen dessert brands, which was partially offset by the sales of the Breyers yogurt business acquired in March 2005 and a change in the Company’s arrangement with Dreyer’s.

As of August 31, 2005, the Company had approximately $60,962 of outstanding debt, of which $52,714 was classified as current liabilities.

Long-Lived Assets

The Company’s other long-lived assets include property, plant and equipment and amortizable intangible assets.  The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of any of these assets may not be recoverable, the Company will assess the recoverability of such assets based upon estimated undiscounted cash flow forecasts, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  When any such impairment exists, the related assets will be written down to fair value.

F - 13

CoolBrands International Inc.

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

(Amounts are expressed in thousands of dollars)

During fourth quarter of Fiscal 2006, based upon market analysis and other third party information, the Company recorded a provision for impairment of $5,790 with respect to property, plant and equipment which includes $3,900 with respect to Americana Foods.

During the fourth quarter of Fiscal 2005, due to the presence of indicators, the Company completed impairment testing of other long-lived assets.  This review resulted in a $483 impairment of property, plant and equipment.

Revenue recognition

Revenue from sales of the Company’s products is recognized at the time of sale, which is generally when products are shipped to customers.

Revenue from drayage is recognized at the time the product is delivered for the vendor to their customer by the Company and is primarily earned for the delivery of products to Dreyer’s scanned based trading customers.  Substantially all of the drayage income is earned in EPFD and was included in discontinued operations for Fiscal 2006 and Fiscal 2005.

Product introduction expenditures

Product introduction expenditures (i.e. slotting fees) are recognized as reductions of revenues at the time product introduction offers are accepted by our customers, which for measurement purposes is at the time of the first shipment of the product to each customer.

Advertising

The Company spends a significant amount of its advertising dollars with its supermarket customers in the form of co-operative advertising in the chains’ weekly circulars.  The remainder of the Company’s advertising is spent on media and other direct advertising.  All advertising costs are expensed as incurred.  The Company spent $5,274, $6,937 and $4,834 on advertising in continuing operations for Fiscal 2006, Fiscal 2005 and Fiscal 2004, respectfully.

Financial instruments

The carrying amount of financial instruments including cash, investments, restricted cash, receivables, receivables – affiliates, accounts payable, payables – affiliates, accrued liabilities and income taxes payable and income taxes recoverable approximates fair value at August 31, 2006 and 2005 because of the relatively short maturity of these instruments.  The fair value of short term borrowings and long-term debt are disclosed in Note 12, “Long-term Debt.”  The carrying amount of long-term debt approximates fair value at August 31, 2006 and 2005 because of their variable interest rates.  The carrying amount of other liabilities approximates fair value at August 31, 2006 and 2005 because the fair value estimates are based upon pertinent information available to management at August 31, 2006 and 2005.

Concentration of credit risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash, investments and receivables.  The Company attempts to minimize credit risk with respect to receivables by reviewing customers’ credit history before extending credit, and by regularly monitoring customers’ credit exposure.  The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

F - 14

CoolBrands International Inc.

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

Loss per share

The Company uses the treasury stock method to determine diluted earnings per share.  The following table presents the numerators and denominators used in the basic and diluted loss per share calculations:

	2006			2005			2004
Numerator:
Net (loss) income from continuing operations	$	(63,620	)	$	(69,016	)	$	20,325
Net (loss) income from discontinued operations		(6,562	)		(5,054	)		3,187
Net (loss) income	$	(70,182	)	$	(74,070	)	$	23,512
Denominator:
Basic weighted average shares outstanding		56,047			55,924			55,441
Dilutive effect of stock awards		-			-			888
		56,047			55,924			56,329
Net( loss) income from continued operations – basic and diluted	$	(1.13	)	$	(1.23	)	$	0.37
Net(loss)income from discontinued operations – basic and diluted		(0.12	)		(.09	)		0.05
Net (loss)income - basic and diluted	$	(1.25	)	$	(1.32	)	$	0.42

Diluted net loss per share for Fiscal 2006 and Fiscal 2005 is equal to basic net loss per share because the effect of common stock equivalents is anti-dilutive.  Potentially dilutive securities, calculated in terms of weighted-average share equivalent of stock options outstanding, are excluded from the calculations of diluted net loss per share when their inclusion would have anti-dilutive effect.  During Fiscal 2006, Fiscal 2005 and Fiscal 2004, Nil, 145 shares and Nil, respectively, of potentially dilutive securities were excluded from weighted-average share calculation for purposes of calculating weighted-average diluted shares and diluted loss per share.

Foreign currency translation

Translation gains or losses of accounts of foreign subsidiaries considered financially and operationally self-sustaining are deferred as a separate component of shareholders’ equity until there has been a realized reduction in the net investment.

Foreign currencies are translated into U.S. dollars using the average exchange rate for the year for items included in the Consolidated Statements of Operations.  Foreign currencies are translated into U.S. dollars using the current rate for assets and liabilities included in the consolidated balance sheets except for earnings reinvested in the business, which are translated at historical rates.

Income taxes

Income taxes are calculated using the asset and liability method of accounting for income taxes.  Under this method, current income taxes are recognized for the estimated income taxes payable or receivable for the current period. Deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

New accounting pronouncements

In May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”).  SFAS 154 requires companies to recognize changes in accounting principle, including changes required by a new accounting pronouncement when the pronouncement does not include specific transition provisions, retrospectively to prior periods’ financial statements.  SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.  Adoption of SFAS 154 did not have a material effect on the Company’s financial position, results of operations or cash flows.

F - 15

CoolBrands International Inc.

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

(Amounts are expressed in thousands of dollars)

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.”  SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first annual reporting period that begins after June 15, 2005.  Under SFAS 123R, the pro forma disclosures previously permitted under SFAS 123 are no longer an alternative to financial statement recognition.  The adoption of SFAS 123R did not have a material impact on the Company’s financial position, results of operations or cash flows.

On July 13, 2006, the FASB issued FASB Interpretation (“Interpretation”) No. 48, “Accounting for Uncertainty in Income Taxes” (“Interpretation 48”).  Interpretation 48 is effective for fiscal years beginning after December 15, 2006 and applies to all tax positions accounted for under SFAS No. 109, “Accounting for Income Taxes.”   The Company intends to adopt Interpretation 48 for its fiscal year ending August 31, 2007 (“Fiscal 2007”) and will adopt Interpretation 48 by adjusting its tax liabilities and retained earnings for the cumulative effect of adjusting its tax benefits for uncertain tax positions, if any.  The Company is still evaluating Interpretation 48 and its impact on the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”).  SFAS 157 clarifies that fair value is the amount that would be exchanged to sell an asset or transfer a liability in an orderly transaction between market participants.  Further, the standard establishes a framework for measuring fair value under generally accepted accounting principles and expands certain disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007.  The Company does not expect the adoption of SFAS 157 will have a material impact on its consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”).  SFAS 158 requires a company to recognize on its balance sheet the funded status of its defined benefit pension plan as an asset or liability and to recognize changes in that funded status in the year in which the changes occur through accumulated other comprehensive income. SFAS 158 is effective for fiscal years ending after December 15, 2006.  The Company does not expect the adoption of SFAS 158 to have a material effect on its financial position, results of operations or cash flows.

Note 2.  Going concern

  In Fiscal 2006, the Company continued to generate significant losses in its core frozen dessert segment.  At August 31, 2006, the Company was in default under both its Corporate Credit Facility and its Americana Credit Facility.  Additionally, at August 31, 2006, the Company had negative working capital of $23,992.  In November 2006, a company controlled by Michael Serruya, currently the President, Chairman and CEO of the Company, acquired the debt outstanding under the Americana Credit Facility from the lender and established a $5,000 letter of credit to secure a portion of the Corporate Credit Facility.

  On January 24, 2007, the Company completed the sale of its foodservice segment including the Chipwich and Eskimo Pie licenses and repaid the amount outstanding under the Corporate Credit Facility.  On January 2, 2007, the Company entered into a definitive agreement to sell CBD.  Additionally, management has significantly reduced staff and related expenses to reduce the Company’s operating costs and has begun to seek short-term financing.  However, without the sale of CBD, or some other financing, the Company may not be able to meet its obligations and not be able to continue as a going concern.  Management is assessing whether to sell the Company’s remaining assets or to rebuild the Company.

F - 16

CoolBrands International Inc.

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

Note 3.  Pro forma adjustments

During Fiscal 2006, Americana Foods, a majority owned subsidiary, continued to generate significant losses and was in default under the Americana Credit Facility at August 31, 2006.  In October 2006, certain of the Company’s subsidiaries, as creditors of Americana Foods, filed an involuntary petition of bankruptcy against Americana Foods under Chapter 7 of the Federal Bankruptcy Code and Americana Foods ceased operations.  Because generally accepted accounting principles do not permit classifying Americana Foods as a discontinued operation, the Company has provided below a balance sheet and statement of operations as of and for the year ended August 31, 2006, pro forma results removing the operating results of American Foods from its continuing operations, and stating Americana Foods’ operating results separately in discontinued operations.  Management has provided this pro forma information due to a loss of control over the subsidiary as a result of the aforementioned bankruptcy filing subsequent to the Company’s year end and expected liquidation.   The pro forma adjustments are intended to eliminate the impact of Americana Foods on the Company’s consolidated financial statements as of August 31, 2006 and to present what the financial position and results of operations of the Company’s remaining operations were as of and for the year ended August 31, 2006.

F - 17

CoolBrands International Inc.

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

The pro forma column reflects the reclassification of the assets, liabilities and accumulated deficit and the operating results of Americana Foods, as consolidated in the balance sheet and statement of operations as of and for the year ended August 31, 2006.

	2006			Pro forma adjustments			2006 Pro forma			2005
							(Unaudited)
Assets
Current Assets:
Cash	$	393					$	393		$	24,062
Investments		-						-			7,500
Restricted cash		-						-			10,000
Receivables, net		12,780			(6,082	)		6,698			22,833
Receivables - affiliates		-						-			1,780
Inventories		9,131			(1,570	)		7,561			29,918
Current assets of discontinued operations held for sale		38,142						38,142			52,719
Income taxes recoverable		11,000						11,000			9,767
Prepaid expenses		819						819			1,490
Deferred income taxes, net of valuation allowance		-						-			5,148
Current assets of Americana Foods		-			7,652			7,652			-
Total current assets		72,265			-			72,265			165,217
Non-current assets of discontinued operations held for sale		51,927						51,927			64,453
Deferred income taxes, net of valuation allowance		-						-			14,799
Property, plant and equipment		23,051			(18,386	)		4,665			31,976
Property, plant and equipment of Americana Foods		-			18,386			18,386			-
Intangible and other assets		1,515						1,515			5,857
Goodwill		11,790						11,790			15,543
	$	160,548			-		$	160,548		$	297,845
Liabilities and Shareholders’ Equity
Current Liabilities:
Notes payable in default	$	10,077					$	10,077		$	-
Notes payable of majority owned subsidiary in default		23,501			(23,501	)		-			-
Accounts payable		20,462			(8,735	)		11,727			28,198
Accrued liabilities		14,900			(3,955	)		10,945			21,106
Payables – affiliates		-						-			620
Income taxes payable		140						140			-
Deferred income taxes, net of valuation allowance		-						-			93
Current liabilities of discontinued operations held for sale		22,890						22,890			34,009
Current liabilities of Americana Foods		-			36,191			36,191			,
Short term borrowings		-						-			34,553
Current maturities of long-term debt		-						-			18,161
Other liabilities		4,287						4,287
Total current liabilities		96,257			-			96,257			136,740
Other liabilities		-						-			2,442
Non-current liabilities of discontinued operations held for sale		825						825			684
Long-term debt, including obligations under capital lease		348						348			8,248
Deferred income taxes		2,000						2,000			6,140
Total liabilities		99,430			-			99,430			154,254
Minority interest		-						-			5,185
Commitments and contingencies
Shareholders’ Equity:
Capital stock		97,804						97,804			97,578
Additional paid-in capital		38,812						38,812			46,376
Accumulated other comprehensive losses		(1,464	)					(1,464	)		(1,696	)
Accumulated deficit		(74,034	)		10,153			(63,881	)		(3,852	)
Deficit of Americana Foods		-			(10,153	)		(10,153	)		-
Total shareholders’ equity		61,118			-			61,118			138,406
	$	160,548			-		$	160,548		$	297,845

F - 18

CoolBrands International Inc.

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

(Amounts are expressed in thousands of dollars)

	2006			Pro forma adjustments			2006 Pro forma			2005			2004
							(Unaudited)
Net revenues:
Net sales	$	96,936		$	(50,745	)	$	46,191		$	142,873		$	275,394
Other income		2,412			(145	)		2,267			6,837			5,342
Total net revenues		99,348			(50,890	)		48,458			149,710			280,736
Cost of goods sold		110,718			(61,294	)		49,424			142,181			176,929
Selling, general and administrative expenses		40,101			(5,574	)		34,527			37,530			71,516
Interest expense		2,000			(1,599	)		401			1,687			1,491
Asset impairment		21,289			(11,150	)		10,139			51,141
Gain on sale of building		-			-			-			(3,515	)
Loss from continuing operations before income taxes      and minority interest		(74,760	)		28,727			(46,033	)		(79,314	)		30,800
Minority interest		5,185			(5,185	)		-			2,700			958
Loss from continuing operations before income taxes		(69,575	)		23,542			(46,033	)		(76,614	)		31,758
(Recovery of) Provision for income taxes:
Current		(11,100	)		-			(11,100	)		(8,439	)		26,767
Deferred		5,145			-			5,145			841			(15,334	)
		(5,955	)		-			(5,955	)		(7,598	)		11,433
Net loss from continuing operations		(63,620	)		23,542			(40,078	)		(69,016	)		20,325
Discontinued operations:
Loss from operations of discontinued operations		(6,972	)		-			(6,972	)		(5,054	)		3,187
Gain on sale of franchising segment		410			-			410
Loss generated by majority owned subsidiary, net of minority interest		-			(23,542	)		(23,542	)		-			-
Net loss from discontinued operations		(6,562	)		(23,542	)		(30,104	)		(5,054	)		3,187
Net loss	$	(70,182	)		-		$	(70,182	)	$	(74,070	)	$	23,512
Per share data:
Loss  per share (basic and diluted):
Continuing operations	$	(1.13	)				$	(0.71	)	$	(1.23	)	$	0.37
Discontinued operations		(0.12	)					(0.54	)		(0.09	)		0.05
	$	(1.25	)				$	(1.25	)	$	(1.32	)	$	0.42
Weighted average shares outstanding:
Shares used in per share calculation – basic		56,047						56,047			55,924			55,441
Shares used in per share calculation - diluted		56,047						56,047			55,924			56,329

F - 19

CoolBrands International Inc.

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

(Amounts are expressed in thousands of dollars)

Note 4.  Reclassifications

Certain Fiscal 2004 and Fiscal 2005 amounts have been reclassified to conform to the Fiscal 2006 presentation.  Certain assets and liabilities relating to the franchising and licensing segment, Value America, substantially all of the dairy components segment, EPFD, a component of the frozen dessert segment, and CBD, the yogurt segment, have been classified as assets and liabilities of discontinued operations held for sale on the Company’s consolidated balance sheets as of August 31, 2006 and 2005, the components of the related operating results of those entities have been reclassified to net loss from discontinued operations on the Company’s consolidated statements of operations and the components of cash flows have been reclassified to net cash flows from discontinued operations for the years then ended.  Additionally, due to continued losses, the Company, through certain of its subsidiaries, as creditors of Americana Foods, filed an involuntary petition of bankruptcy against Americana Foods under Chapter 7 of the Federal Bankruptcy Code and Americana Foods ceased operations.

Note 5.  Discontinued operations

Effective December 23, 2005, the Company sold substantially all of its franchising and licensing segment to International Franchise Corp. for a cash consideration of $8,000 in a related party transaction.  International Franchise Corp. is a company controlled by Aaron Serruya, a director of CoolBrands and the former senior executive who was responsible for the franchising division at CoolBrands, who is the brother of Michael Serruya, the Company’s President, Chairman and CEO.  Mr. Serruya resigned as executive vice president of CoolBrands as a result of this transaction, but continues as a director.  The sale transaction was reviewed and unanimously recommended to the board of directors of CoolBrands by a committee of independent directors of CoolBrands, and was unanimously approved by the board of directors of CoolBrands.

As a part of their review of the transaction, the independent committee and the board of directors received a fairness opinion from Duff & Phelps, LLC who acted as exclusive financial advisor to CoolBrands and who assisted CoolBrands in marketing the division to potential buyers.

During Fiscal 2006, the Company’s Board of Directors approved the decision to sell its Value America division, part of its dairy components segment, Eskimo Pie Frozen Distribution, part of its frozen dessert segment, and CBD, its yogurt segment and we began actively marketing these businesses for sale.

On September 1, 2006, Eskimo Pie Corporation, a wholly owned subsidiary of the Company, entered into an asset purchase agreement with Denali New Berlin, LLC and Denali Ingredients, LLC to sell its Value America flavor and ingredients division, which comprised substantially all of the dairy components segment.  The sale of assets was consummated September 14, 2006 for a price of $8,250, which exceeded the carrying value of the assets sold, of which $7,500 was paid in cash and $ 750 was placed in escrow subject to collection of certain accounts receivable.  The Company classified the assets and liabilities of Value America as assets and liabilities of discontinued operations held for sale on the balance sheet as of August 31, 2006 and included the components of its operating results in net loss from discontinued operations on the statement of operations and the components of cash flows as net cash flows from discontinued operations for Fiscal 2006.

Additionally, the Company classified the assets and liabilities of Value America as assets and liabilities of discontinued operations held for sale on the consolidated balance sheet as of August 31,2005 and classified the components of operating results of Value America into net loss from discontinued operations and classified its cash flows as cash flows from discontinued operations for Fiscal 2005.

On November 14, 2006, the Company announced that its wholly owned subsidiary, Eskimo Frozen Distribution Inc (“EPFD”) had entered into a definitive agreement to sell substantially all of its direct store door (“DSD”) frozen distribution assets in Florida, California, Oregon and Washington for a net sales price of $5,736, which equaled the carrying value of the related assets acquired net of the liabilities assumed, to an unaffiliated third party.  The transaction closed on November 17, 2006.  The Company classified the assets and liabilities of EPFD as assets and liabilities of discontinued operations held for sale on the balance sheet as of August 31, 2006 and included the components of operating results of EPFD as net loss from discontinued operations on the consolidated statement of operations and its cash flows as cash flows from discontinued operations for Fiscal 2006.  Additionally, the Company classified the assets and liabilities of EPFD as assets and liabilities of discontinued operations held for sale on the consolidated balance sheet as of August 31, 2005 and classified the components of operating results to net loss from discontinued operations on the consolidated statement of operations and classified the cash flows as cash flows from discontinued operations for Fiscal 2005.

 On January 2, 2007, the Company entered into a definitive agreement to sell CBD, which includes the yogurt business acquired from Kraft Inc. in 2005, to an unaffiliated third party.  The Company recorded a loss on impairment of $5,428 to adjust the carrying value of CBD’s net assets to approximate fair value based upon the definitive agreement.  The Company classified CBD’s net assets and liabilities as assets and liabilities of discontinued operations held for sale on the consolidated balance sheet as of August 31, 2006 and included the components of operating results in net loss from discontinued operations on the consolidated statement of operations and its cash flows as cash flows from discontinued operations for Fiscal 2006.  Additionally, as of and for the year ended August 31, 2005, the Company has classified the assets and liabilities of CBD as assets and liabilities of discontinued operations held for sale on the consolidated balance sheet and included the components of operating results of CBD in net loss from discontinued operations on the consolidated statement of operations and the cash flows of CBD as cash flows from discontinued operations. (See Note 22, “Sale of CBD”)

F - 20

Below is a condensed schedule, by operating segment as previously reported, of the assets and liabilities held for sale of discontinued operations and the respective operating results for each of the years presented:

August 31, 2006	Frozen Dessert (EPFD)			Franchising and Licensing			Yogurt (CBD)			Dairy Components (Value America)		Total
Total current assets	$	19,197					$	14,441		$	4,504	$	38,142
Total non-current assets		65						49,132			2,730		51,927
Total current liabilities		9,915						11,949			1,026		22,890
Total non-current liabilities								825					825
Net assets	$	9,347			-		$	50,799		$	6,208	$	66,354
For the year ended    August 31, 2006
Total revenue	$	128,103		$	3,613		$	109,304		$	19,057	$	260,077
Cost of sales		131,251			2,122			95,143			15,042		243,558
Selling, general, and   administrative expenses		3,640			1,684			8,891			1,651		15,866
Interest expense								2,197					2,197
Asset impairment								5,428					5,428
(Loss) income	$	(6,788	)	$	(193	)	$	(2,355	)	$	2,364	$	(6,972	)

August 31, 2005	Frozen Dessert (EPFD)			Franchising and Licensing			Yogurt (CBD)		Dairy Components (Value America)		Total
Total current assets	$	27,925		$	3,425		$	16,039	$	5,330	$	52,719
Total non-current assets		330			6,681			54,538		2,904		64,453
Total liabilities		16,680			2,378			13,331		1,620		34,009
Total non-current liabilities		6			678							684
Net assets	$	11,569		$	7,050		$	57,246	$	6,614	$	82,479
For the year ended    August 31, 2005
Total revenue	$	157,557		$	16,102		$	44,007	$	17,769	$	235,435
Cost of sales		159,858			9,017			36,638		13,895		219,408
Selling, general, and   administrative expenses		4,879			5,109			4,993		1,579		16,560
Interest expense					7			891				898
Asset impairment					4,384							4,384
Income tax (benefit) expense		(2,826	)		2,025							(801	)
Other (income) expense		(120	)		160							(114	)
(Loss) income	$	(4,234	)	$	(4,600	)	$	1,485	$	2,295	$	(5,054	)

See Note 20, “Subsequent Events,” for a further discussion of Discontinued Operations.

F - 21

CoolBrands International Inc.

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

	Frozen Dessert (EPFD)		Franchising and Licensing		Dairy Components (Value America)		Total
For the year ended    August 31, 2004
Total revenue	$	135,398	$	14,780	$	19,024	$	169,202
Cost of sales		130,229		8,277		13,925		152,431
Selling, general, and   administrative expenses		4,393		4,954		1,794		11,141
Interest expense				7				7
Income tax (benefit) expense		351		617		1,468		2,436
(Loss) income	$	425	$	925	$	1,837	$	3,187

Note 6.  Acquisitions

Fiscal 2005 Acquisitions

On March 27, 2005, the Company completed the acquisition of the yogurt business of Kraft Foods, Inc. The acquired brands included Breyers Fruit on the Bottom, Light and Crème Savers cup yogurt varieties and Cream Savers Smoothie drinkable yogurt and included substantially all of Kraft’s assets related to its yogurt business, including a license for the Breyers trademark, a license for the Crème Savers trademark, a license for the Light ’n Lively trademark and Kraft’s manufacturing facility in North Lawrence, New York.  The purpose of this acquisition was to diversify the Company’s business and to reduce its concentration of operations in the frozen dessert segment.  Factors that contributed to the purchase price and resulting goodwill were based upon negotiations with the seller and the valuation of the business based upon expected future contributions to net earnings and cash flow.

  The following is a summary of the assets and liabilities acquired and the fair value assigned thereto, and the purchase consideration given:

Fair value acquired:				Purchase consideration:
Current assets	$	5,373		Cash	$	17,500
Property, plant and equipment		11,846		Acquisition costs		1,652
Trademark rights		15,000		Bank loan		40,000
Goodwill		27,582			$	59,152
		59,801
Less: Liabilities		(649	)
	$	59,152

Pro forma results of operations

The following table summarizes unaudited pro forma financial information assuming the acquisition of the Breyers yogurt business had occurred at the beginning of Fiscal 2005.  This pro forma financial information is for informational purposes only and does not reflect any operating inefficiencies which may result from the acquisition of the Breyers yogurt business transaction and, therefore, is not necessarily indicative of results that would have been achieved had the businesses been combined throughout the period presented.  In addition, the preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  The pro forma adjustments use estimates and assumptions based on information available at the time of preparation.  Management believes that the estimates and assumptions are reasonable and that the significant effects of the acquisition of Breyers yogurt business are reasonable and significant effects of the acquisition of Breyers yogurt business are properly reflected.  However, actual results may differ from these estimates and assumptions.

F - 22

CoolBrands International Inc.

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

(Amounts are expressed in thousands of dollars)

	As Originally Reported			Reflecting Discontinued Operations
Pro forma total net revenues	$	434,728		$	149,710
Pro forma net loss from continuing operations					(69,016	)
Pro forma net loss from discontinued operations					(892	)
Pro forma net loss	$	(69,908	)	$	(69,908	)
Pro forma net los per share basic and diluted for continuing operations				$	(1.23	)
Pro forma net loss per share basic and diluted for discontinued operations					(0.02	)
Pro forma net loss per share basic and diluted	$	(1.25	)	$	(1.25	)

As of August 31, 2006, CBD, which includes the Breyers yogurt business, was being marketed for sale by the Company.  Accordingly, the assets and liabilities of CBD are included in assets and liabilities held for sale of discontinued operations on the consolidated balance sheets as of August 31, 2006 and 2005, the components of the related operating results have been classified to net loss from discontinued operations for each of the years then ended, and the components of net cash flows have been included in net cash flows from discontinued operations for the years then ended.  We have also reflected the pro forma results after reclassifying the operating results of all of the discontinued operations, including the yogurt segment.

In April 2005, the Company acquired the assets of Zipp Manufacturing, Inc., a manufacturer of flavors and ingredients.  The assets and related business of Zipp Manufacturing were acquired to provide additional volume to our dairy components segment which has excess capacity.  The primary factors that contributed to the purchase price and resulting goodwill were based upon negotiations with the seller, the Company’s desire for additional production volume and the resulting projected incremental earnings and cash flow.

The following is a summary of the assets and liabilities acquired and the fair value assigned thereto, and the purchase consideration given:

Fair value acquired:				Purchase consideration:
Current assets	$	208		Cash	$	457
Equipment		80
Goodwill		258
		546
Less: Liabilities		(89	)
	$	457

As of August 31, 2006, the business of Zipp Manufacturing, which is a component of the dairy component segment, was being marketed for sale. Accordingly, the assets and liabilities of Zipp Manufacturing are included in assets and liabilities held for sale of discontinued operations on the consolidated balance sheets as of August 31, 2006 and 2005, the components of the related operating results have been classified to net loss from discontinued operations for each of the years then ended, and the components of net cash flows have been included in net cash flows from discontinued operations for the years then ended.

F - 23

CoolBrands International Inc.

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

Note 7.  Receivables, net

	2006			2005 As previously reported			Amounts reclassified to discontinued operations			2005
Trade accounts receivable	$	13,177		$	57,213		$	(33,545	)	$	23,668
Franchise and license fees receivable		-			324			(214	)		110
Notes receivable, current maturities		12			97			(97	)		-
		13,189			57,634			(33,856	)		23,778
Less Allowance for doubtful accounts		(409	)		(3,108	)		2,163			(945	)
		12,780			54,526			(31,693	)	$	22,833
Due from Affiliates		-			-			-			1,780
	$	12,780								$	24,613

Allowance for doubtful accounts:
Balance at August 31, 2003	$	1,409
Charges to costs and expenses for continuing operations		445
Reserve utilized		(452	)
Ending Balance August 31, 2004		1,402
Charges to costs and expenses for continuing operations		845
Reserve utilized		(1,302	)
Ending balance August 31, 2005		945
Charges to costs and expenses for continuing operations		1,331
Reserve utilized		(1,867	)
Ending balance August 31, 2006	$	409

One customer accounted for 10.2% and 17.0% of net sales from continuing operations in Fiscal 2006 and Fiscal 2005, respectively.

Note 8. Inventories

	2006		2005 As previously reported		Amounts reclassified to discontinued operations			2005
Raw materials and packaging	$	2,510	$	35,304	$	(6,052	)	$	29,252
Finished goods		6,621		14,651		(13,985	)		666
	$	9,131	$	49,955	$	(20,037	)	$	29,918

Write-downs of obsolete and slow moving inventories in continuing operations in Fiscal 2006, Fiscal 2005 and Fiscal 2004 were $5,197, $12,723 and $1,165, respectively.  Additionally, a loss on impairment of $5,750 was recorded in Fiscal 2006 with respect to Americana Foods’ inventory, which is reflected in the table above.  Write down of obsolete and slow moving inventories in discontinued operations were $1,002, nil, and nil in Fiscal 2006, Fiscal 2005, and Fiscal 2004, respectively.

F - 24

CoolBrands International Inc.

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

Note 9. Property, plant and equipment

	2006		2005 as originally reported		Amounts reclassified to discontinued operations			2005
Land	$	122	$	1,577	$	(200	)	$	1,377
Building, machinery and equipment		13,199		54,704		(21,600	)		33,104
Leasehold improvements		827		1,740		(1,336	)		404
Land, building and machinery and equipment of Americana Foods, net of accumulated depreciation and allowance for impairment		18,386
		32,534		58,021		(23,136	)		34,885
Less Accumulated depreciation, amortization and allowance for impairment
Building, machinery and equipment		9,082		9,403		(6,686	)		2,717
Leasehold improvements		401		979		(787	)		192
	$	23,051	$	47,639	$	(15,663	)	$	31,976

Depreciation expense in continuing operations were $4,666, $4,021 and $2,648 in Fiscal 2006, Fiscal 2005 and Fiscal 2004, respectively.

Note 10. Intangible and other assets and Goodwill

Definite life intangible assets are amortized over their estimated useful lives.  The Company is required to conduct an annual review of goodwill and intangible assets for potential impairment.  Goodwill impairment testing requires a comparison between the carrying value and fair value of each reporting unit.  If the carrying value exceeds the fair value, goodwill is considered impaired.  The amount of impairment loss is measured as the difference between the carrying value and implied fair value of goodwill, which is determined using discounted cash flows.  Impairment testing for non-amortizable intangible assets requires a comparison between fair value and carrying value of the intangible asset.  If the carrying value exceeds fair value, the intangible asset is considered impaired and is reduced to fair value. During the fourth quarter of Fiscal 2006, the Company determined that due to the continued deterioration of the Company’s business in the market place, that certain of its goodwill had been impaired.  Accordingly, the Company recorded a loss on impairment of $3,500 in Fiscal 2006 to reflect this loss in value.  During the fourth quarter of Fiscal 2005, the Company completed its annual review of goodwill and intangible assets.  This review resulted in a $2,941 non-cash pre tax charge related to intangible asset impairment and a non-cash pre tax charge of $52,101 related to goodwill impairment.

At August 31, 2006 and 2005 goodwill by reportable segment was as follows:

	2006		2005
Frozen dessert (a)	$	488	$	3,752
Yogurt		-		27,582
Foodservice (b)		11,302		11,302
Franchising and licensing		-		4,446
Dairy components		-		745
Total Goodwill, as originally reported		11,790		47,827
Less Goodwill included in net assets held for   Sale of discontinued operations:
Franchising and licensing				4,446
Yogurt				27,582
Dairy components				256
Total Goodwill	$	11,790	$	15,543

F - 25

CoolBrands International Inc.

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

^(a) A subsidiary, formerly part of the dairy components segment, has been included in the frozen dessert segment due to the reclassification of substantially all of the balance of the dairy components segment to discontinued operations.  Accordingly, the goodwill on the books of the subsidiary has been moved to the frozen dessert segment.

^(b) The foodservice segment was sold on January 24, 2007 for an amount in excess of its carrying value. (See Note 20, “Subsequent Events”)

Intangible assets at August 31, 2006 and 2005 were as follows:

	2006				2005
	Gross Carrying Amount		Accumulated Amortization and Allowance for Impairment		Gross Carrying Amount			Accumulated Amortization
Non-amortizable intangible assets	$	-	$	-	$	15,000		$	-
Amortizable intangible assets		934		263		8,126			3,362
Other assets		844		-		2,605			-
		1,778		263		25,731			3,362
Intangible and other assets classified as assets held for sale		-		-		(17,392	)		(880	)
Total Intangible assets and other assets	$	1,778		263	$	8,339		$	2,482

Non-amortizable intangible assets are substantially comprised of trademark rights purchased through an acquisition.  Amortizable intangible assets consist primarily of certain trademarks and license agreements. Pre-tax amortization expense for intangible assets was $360, $445 and $872 for Fiscal 2006, Fiscal 2005 and Fiscal 2004, respectively.  The Company recorded a provision for impairment of intangibles of $2,617.  Amortization expense for each of the next five years is currently estimated to be $42 or less.

The movement of gross carrying amounts in goodwill and intangible and other assets is as follows:

	2006						2005
	Goodwill			Intangible and other assets			Goodwill			Intangible and other assets
Balance at August 31	$	15,543		$	5,857		$	72,088		$	16,485
Changes due to:
Acquisitions					3,577			27,840			15,000
Goodwill impairment		(3,500	)		-			(52,101	)
Intangible asset impairment					(3,609	)					(2,941	)
Other		(253	)		(4,310	)					(2,813	)
		11,790			1,515			47,827			25,731
Goodwill and intangibles and other assets   classified as assets held for sale								(32,284	)		(19,874	)
Balance at August 31	$	11,790		$	1,515		$	15,543		$	5,857

F - 26

CoolBrands International Inc.

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

(Amounts are expressed in thousands of dollars)

Note 11. Short-term borrowings

	2006		2005
Secured	$	-	$	30,000
Secured – Americana	$	-	$	4,553

2005 Credit Facilities

The Company, through a U.S. subsidiary, borrowed $40,000 to finance the acquisition (the “Term Loan”) of the Breyers yogurt business from Kraft in March 2005.  The Term Loan originally required monthly payments of interest only and repayment, in full, of the $40,000 principal balance on November 1, 2005.  Interest was payable monthly with interest rates fluctuating with changes in the prime lending or Libor rate and the ratio of funded debt to EBITDA.  The interest rates plus applicable margin are the lower of prime plus 0.5% or Libor plus 2.5% (6.02% at August 31, 2005). On August 23, 2005, the Company made a principal payment of $10,000 and as of August 31, 2005 the term loan balance was $30,000.  On September 2, 2005, the Company entered into an amendment (“Amendment”) to all of its credit facilities. The Amendment extended the maturity date from November 1, 2005 to January 3, 2006 and waived defaults of its financial covenants resulting from the Company’s financial performance.  Effective December 31, 2005, the existing credit facilities were extended to April 3, 2006 and then were extended to May 3, 2006.  The Term Loan was repaid in full in April 2006 as part of the overall refinancing described below in Note 12, “Long-term Debt.”

On April 27, 2005 Americana Foods, which is owned 50.1% by the Company, borrowed $4,553 (the “Building Loan”) to purchase a building and adjacent acreage.  The Building Loan terms required monthly, interest-only payments until the April 27, 2006 anniversary date of the note.  The Building Loan carried interest at prime plus 0.5% (7.0% at August 31, 2005).  The Building Loan was repaid in full in April 2006 as part of the overall refinancing described below in Note 12, “Long-term Debt.”

Note 12. Long-term debt

	2006		2005
Senior secured revolving credit facility in default	$	10,077	$	-
Senior secured revolving credit facility in default- Americana		6,418		-
Term loans in default, secured - Americana		17,083		-
Term loan, secured		-		10,500
Term loan, secured - Americana		-		8,610
Revolving loan, secured - Americana		-		7,145
Capitalized leases		500		154
		34,078		26,409
Less: Current maturities		-		18,161
Current maturities due to default status		33,578		-
Current maturities of capitalized leases, included              in accrued liabilities		152		-
	$	348	$	8,248

Annual future minimum capital lease payments are as follows:

Year ending August 31,
2007	$	177
2008		177
2009		138
2010		69
Total minimum capital lease payments		561
Less amount representing interest		(61	)
Present value of minimum capital lease payments		500
Less current installments of obligation under capital leases		(152	)
Obligation under capital lease, excluding current installment	$	348

F - 27

CoolBrands International Inc.

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

(Amounts are expressed in thousands of dollars)

Term Loan, Secured

In December 2000, the Company, through a subsidiary, borrowed $30,000, to finance the acquisition of Eskimo Pie Corporation (the “EPC Term Loan”). The EPC Term Loan was originally payable in monthly installments of $250, with the remaining principal balance originally due November 1, 2005 and extended as described above for all components of debt. Interest was payable monthly on the unpaid principal balance with interest rates fluctuating with changes in the prime lending or libor rate and the ratio of funded debt to EBITDA. The interest rates, plus applicable margins were the lower of prime plus 0.5% or Libor plus 2.0% (5.49% at August 31, 2005). As of August 31, 2005, the EPC Term Loan balance was $10,500.  The EPC Term Loan was repaid in full in April 2006 as part of the overall refinancing described below.

All borrowings under the EPC Term Loan agreement were guaranteed by the Company. The agreement contained restrictions relating to the payment of dividends, rental obligations, liens, indebtedness, dispositions of property, change in the nature of its business, change in ownership and requires that the net proceeds from the sale (other than in the ordinary course of business) of any assets of Eskimo Pie Corporation must be utilized to reduce the then outstanding principal balance of the EPC Term Loan.  In addition, the Company was required to maintain certain financial ratios and limit capital expenditures to $5,000 during any fiscal year.

The Company was in default of its financial covenants at May 31, 2005 and August 31, 2005 under the EPC Term Loan, and on September 2, 2005, the Company entered into the Amendment to its existing credit facilities described above.

The September 2, 2005 Amendment eliminated all of the financial covenants from the loan agreements through the remainder of the term and granted a security interest to the lender in the personal property assets (other than certain excluded assets relating to the operations of Americana Foods, reduced its outstanding indebtedness to the bank to $40,500, including short term borrowings of $30,000.  The Company agreed to an increase of the interest rate from Libor plus 2.0% on all remaining outstanding balances to Libor plus 4.5%.  In addition, the Amendment reduced the Company’s $5,000 revolving credit facility to $925 and required the Company to maintain $20,000 of cash balances, of which $10,000 was restricted to use as approved by the lender.  The increases in interest rates as a result of this Amendment increased the fair value of the related short term borrowings and long-term debt by approximately $331 at August 31, 2005.

Term loan, secured - Americana

On November 19, 2002, Americana Foods entered into a credit agreement with a financial institution that included a term loan of $10,000 (the “Americana Term Loan”).  The Americana Term Loan was secured by Americana Foods’ property, plant and equipment. Principal payments were payable in fixed monthly installments of $81 based upon a fifteen-year amortization that was originally scheduled to mature on November 19, 2007. The Americana Term Loan bore interest at prime plus 0.5% (7.0% at August 31, 2005 and 5.0% at August 31, 2004).  As of August 31, 2005, the Americana Term Loan balance was $8,610.

On March 19, 2005, Americana Foods executed an amendment to the credit agreement pursuant to which, a fixed charge coverage ratio of 1.25:1 and a debt-to-tangible net worth ratio of 2:1 was required to be maintained.  The minimum tangible net worth requirement was increased to $20,500 effective March 19, 2005.  The partnership is in compliance with its loan covenants at August 31, 2005.  The Americana Term Loan was repaid in full in April 2006 as part of the refinancing, described below.

Revolving loan, secured - Americana

Americana Foods’ credit agreement included a revolving loan up to $9,000 (the “Americana Revolver”), subject to a borrowing base calculation and secured by Americana Foods’ accounts receivable and inventory, which accrued interest at prime plus 0.5% (7.0% at August 31, 2005) was originally due on November 30, 2005.  At August 31, 2005, $7,145 was outstanding under this loan.

On November 30, 2005, Americana Foods executed an amendment to the credit agreement which extends the maturity date of the revolving note to January 10, 2006, and further extended the maturity date to April 3, 2006 and then May 3, 2006.  The Americana Revolver was repaid in full in April 2006 as part of the refinancing, described below.

F - 28

CoolBrands International Inc.

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

__________________________________________________________________________________

(Amounts are expressed in thousands of dollars)

2006 Credit Facilities

On April 21, 2006, the Company entered into the following new credit facilities:

1.   a $48,000 senior secured revolving credit facility (the “Corporate Credit Facility”); and

2.   a $25,500 senior secured credit facility consisting of an $8,000 senior secured revolving credit facility and an aggregate of $17,500 in term loans (the “Americana 2006 Term Loans”), in which Americana Foods is the borrower (the “Americana Loan Facility”).

The proceeds from these facilities were used to repay all of the then existing debt.

Each of the facilities was for an initial term of three years and originally provided for interest at the prime rate until November 30, 2006 (8.25% as of August 31, 2006). The standby fee on the unused portion of the facilities is 0.375%.

As of August 31, 2006, the Company has $10,077 outstanding under its Corporate Credit Facility and Americana Foods had $23,501 outstanding against the Americana Loan Facility.  The total outstanding balance under the two facilities at August 31, 2006, was $33,578 and is included in its current maturities of long-term debt on the balance sheet.

The Company was in default under certain of its financial covenants under each of its credit facilities as of August 31, 2006 and has reflected all of its bank debt as current liabilities under caption – current maturities of long-term debt.  In November 2006, the outstanding amounts under the Americana Loan Facility totaling $21,408 was purchased by Michael Serruya through a holding company and the corporate credit facility was reduced and was scheduled to mature on May 17, 2007.  (See Note 20, “Subsequent Events,” for a discussion of the refinancing of the indebtedness outstanding as of August 31, 2006 and subsequent payoff of the Corporate Credit Facility.)

Interest paid from continuing operations during Fiscal 2006 was $1,971, compared to $1,459 in Fiscal 2005. The interest paid includes $1,599 and $1,079, respectively, with respect to Americana Foods.  The interest paid from continuing operations excludes $2,347 and $891 paid with respect to CBD which is included in discontinued operations in Fiscal 2006 and Fiscal 2005, respectively.

Note 13. Americana Foods

In 2002, the Company entered into a joint venture agreement to acquire 50.1% interest in Americana Foods, a manufacturer and processor of frozen desserts.  Americana Foods generated losses in each year of its operations.  In April 2006, the Company refinanced the debt of Americana Foods, under the Americana Credit Facility, as previously discussed, but Americana Foods was in default under the facility as of May 2006 and August 2006.  In October 2006, certain subsidiaries of the Company, as creditors of Americana Foods, filed an involuntary petition of bankruptcy against Americana Foods under Chapter 7 of the Federal Bankruptcy Code and Americana Foods ceased operations.  (See Note 12, “Long-term Debt,” and Note 20, “Subsequent Events.”)

Note 14. Shareholders’ equity and stock options

Capital Stock

The Company’s articles of continuance authorize an unlimited number of both Class A Subordinate and Class B Multiple voting no par value shares.

	Paid-In-Balance
Class A Subordinate voting shares	$	85,891
Class B Multiple voting shares	$	11,913

F - 29

CoolBrands International Inc.

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

__________________________________________________________________________________

(Amounts are expressed in thousands of dollars)

Class A subordinate voting shares have a preferential right to receive cash dividends when, as and if declared by the Board of Directors. Class B multiple voting shares can be converted at any time into an equivalent number of Class A subordinate voting shares. The Class A subordinate voting shares are entitled to one vote per share and the Class B multiple voting shares are entitled to ten votes per share.

Changes in Capital stock for the two years ended August 31, 2006 were as follows:

	(In thousands of shares)
	Class A Subordinate voting shares outstanding	Class B Multiple voting shares outstanding
Balance at August 31, 2004	49,863	6,030
Issuance of shares for stock options exercised	54
Multiple voting shares converted to subordinate voting shares	1	(1)
Balance at August 31, 2005	49,918	6,029
Multiple voting shares converted to subordinate voting shares	3	(3)
Issuance of shares for stock options exercised	128
Balance at August 31, 2006	50,049	6,026

Stock options

Under the Company’s stock option plans, non-qualified options to purchase subordinate voting shares are granted to directors, officers, consultants and key employees at exercise prices equal to the fair market value of the stock at the date of grant.

The following table summarizes stock option activity for all stock option plans:

	Shares			Weighted average exercise Price (Cdn)		Weighted avg. contractual life (in years)
Outstanding at August 31, 2003		4,362		$	3.98		2.7
Granted		3,420		$	20.03
Exercised		(3,986	)	$	4.00
Forfeited or cancelled		(20	)	$	8.34
Outstanding at August 31, 2004		3,776		$	18.47		4.2
Granted		1,024		$	4.03
Exercised		(54	)	$	1.27
Forfeited or cancelled		(829	)	$	18.69
Outstanding at August 31, 2005		3,917		$	14.89		4.9
Granted		320		$	2.84
Exercised		(128	)	$	1.27
Forfeited or cancelled		(1,647	)	$	18.59
Outstanding at August 31, 2006		2,462		$	11.55		5.4
Options exercisable at August 31, 2006		1,941

F - 30

CoolBrands International Inc.

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

The following table summarizes stock options outstanding, exercisable and exercise price range at August 31, 2006:

		Options Outstanding						Options Exercisable
Range of exercise prices (Cdn $)		Outstanding as of 08/31/06		Weighted average remaining contractual life		Weighted average exercise price (Cdn $)		Exercisable as of 08/31/06		Weighted average exercise price (Cdn $)
$	2.66 - $ 2.85		320		9.38	$	2.84		60	$	2.85
$	4.03 - $ 5.00		912		8.13	$	4.11		651	$	4.15
$	15.45 - $15.93		600		2.12	$	15.85		600	$	15.85
$	22.65 - $22.65		630		2.53	$	22.65		630	$	22.65
			2,462		5.40	$	11.55		1,941

Shares of subordinate voting shares reserved for future grant at August 31, 2006 aggregated 4,028.

The Company accounts for stock-based compensation using the fair value method of accounting.  Stock-based compensation expense was recognized in the amount of $443 (Fiscal 2005 - $1,918) in the Consolidated Statements of Operations.  During Fiscal 2006, the Company granted an aggregate 320 stock options (of which 60 were vested immediately and of which 260 vest ratably over three years from the date of the grant) with a weighted average fair value of Cdn $2.22 (as calculated under the Black-Sholes pricing model) totaling Cdn $712 ($620 USD based upon the average currency translation rate for Fiscal 2006), which will be expensed over the respective vesting periods.  Under the Black-Scholes pricing model the weighted-average fair value of the stock options granted during fiscal 2005 was Cdn $3.07 per option.

The value of each option granted is estimated on the date of the grant using the Black-Scholes options pricing model with the following “weighted-average assumptions”:

For the year ended August 31,	2006	2005	2004
Expected dividend yield	Nil	Nil	Nil
Risk-free interest rate (percentage)	4.48	3.92	2.98
Expected volatility	67.65	66.73	67.39
Expect life (in years)	10	10	4.2

 Note 15. Income taxes

   The effective income tax rate on (loss) earnings is affected from year to year by the geographic mix of the consolidated (loss) earnings before income taxes. The following table reconciles income tax (recovery) expense computed by applying the combined Canadian Federal/Provincial statutory rate with the actual income tax provision:

	2006			2005			2004
Combined basic Canadian Federal and Provincial income tax rate		(36.12	)%		(36.12	)%		36.21	%
Impact of operating in foreign countries with different effective rates		-			(1.00	)		1.93
Permanent differences:
Non-deductible goodwill impairment		-			24.39
Valuation allowance		28.7	%		5.89
Other		(1.2	)%		(3.34	)		(1.04	)
		(8.62	)%		(10.18	)%		37.10	%

In Fiscal 2005, the Company established an allowance for non-capital loss carry-forwards as the utilization of such loss carry-forwards was considered unlikely.

F - 31

CoolBrands International Inc.

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

Significant components of the Company’s deferred tax assets and liabilities as of August 31, 2006 are as follows:

Deferred Tax Assets				Deferred Tax Liabilities
Stock options	$	2,321		Intangible assets	$	2,000
Federal net operating loss carry forwards		5,100
Intangible assets		4,201
Accrued liabilities		1,639
Inventory		2,188
State net operating loss carry forwards		995
Bad debts		467
Inventory reserve		124
Property, plant and equipment		92
		17,127				2,000
Valuation allowance		(17,127	)
Total deferred tax assets	$	0		Total deferred tax liabilities	$	2,000

Income taxes paid (recovered) during the year ended August 31, 2006 was approximately $(12,165) (Fiscal 2005 – $4,731).

Note 16. Retirement Plans

A subsidiary of the Company, Eskimo Pie Corporation, had maintained two defined benefit pension plans covering substantially all salaried and certain executive employees. Upon the acquisition of Eskimo Pie Corporation by the Company in October 2000, all future participation and all benefits under the plans were frozen. These plans provide retirement benefits based primarily on employee compensation and years of service up to the acquisition of Eskimo Pie Corporation by the Company. The above mentioned plans are referred to as the “Pension Benefits.”

In addition, Eskimo Pie Corporation entered into an agreement with Reynolds Metals Company to indemnify the cost of retiree health care and life insurance benefits for salaried employees of Eskimo Pie Corporation who had retired prior to April 1992. Under this agreement, Eskimo Pie Corporation may elect to prepay its remaining obligation. Eskimo Pie Corporation did not provide postretirement health and life insurance benefits for employees who retired subsequent to April 1992. This indemnity agreement is referred to as the “Other Benefits”.

F - 32

CoolBrands International Inc.

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

The following table reconciles the changes in benefit obligations and plan assets in 2006 and 2005, and reconciles the funded status to accrued benefit cost at August 31, 2006 and August 31, 2005:

	Pension Benefits			Other Benefits
Benefit Obligation
Beginning balance at August 31, 2004	$	2,239		$	1,603
Interest cost		139			200
Actuarial loss		277
Benefit payments		(85	)
Balance at August 31, 2005		2,570			1,803
Interest cost		142			200
Actuarial gain		(201	)
Benefit payments		(88	)
Ending balance at August 31, 2006	$	2,423		$	2,003
Plan assets – Basic value
Beginning balance at August 31, 2004	$	2,086
Actual return on plan assets		338
Contributions		20
Benefit payments		(85	)
Balance at August 31, 2005		2,359
Actual return on plan assets		182
Contributions		20
Benefit payments		(88	)
Ending balance at August 31, 2006	$	2,473

 The unfunded status for the post retirement health and life insurance benefits is as follows:

	Other Benefits
Benefit obligations in excess of Plan assets	$	2,003
Accrued benefit cost	$	2,003

The accrued benefit cost of $2,003 is included in other liabilities at August 31, 2006.

The following table provides the components of the net periodic benefit cost:

	Pension Benefits			Other Benefits
Interest cost	$	142		$	200
Expected return on Plan assets		(182	)
Recognized net actuarial loss		13
Net period benefit cost (income)	$	(27	)	$	200

The assumptions used in the measurement of the Eskimo Pie Corporation’s benefit obligations are as follows:

	Pension Benefits			Other Benefits
Benefit obligation discount rate		5.25	%		7.75	%
Expected return on plan assets, during the year		8.00	%

F - 33

CoolBrands International Inc.

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

(Amounts are expressed in thousands of dollars)

The weighted average annual assumed rate of increase in the per capita cost of covered benefits for the Other Benefits Plan (i.e., health care cost trend rate) is 5% for 2006 and is assumed to remain at that level thereafter. A one percentage point increase or decrease in the assumed health care cost trend rate would change the accumulated postretirement benefit obligation by approximately $177 and the net periodic postretirement benefit cost by approximately $18.

The Company’s allocation of Pension Benefit assets at August 31, 2006 and 2005, target allocations for Fiscal 2007, and expected long-term rate of return by asset category are as follows:

	Target allocation			Percentage of Plan Assets						Weighted-average expected long-term rate of return
Fiscal Year	2007			2006			2005			2007
Asset category
Large capitalization equities		35.0			38.9			35.8			2.8
Mid capitalization equities		15.0			10.3			13.0			1.8
Small Capitalization equities		9.0			6.3			7.1			1.8
International equities		25.0			28.8			27.3			.6
Fixed income bonds		12.0			12.1			12.0			2.0
Cash and cash equivalents		4.0			3.6			4.8			-
		100	%		100	%		100	%		9	%

The Company’s investment strategy is to obtain the highest possible return commensurate with the level of assumed risk.  Investments are well diversified within each of the major asset categories.

The expected long-term rate of return is figured by using the target allocation and expected returns for each asset class as in the table above.  The actual historical returns are also relevant.  Annualized returns for periods ended August 31, 2006 were as follows: 11.4% for one year and 13.7% for three years.

 The Company expects that there will be no minimum regulatory funding requirements that will need to be made during the Fiscal 2007.

Expected benefit payments are as follows over future years:

Fiscal year	Pension benefits		Other benefits
2007	$	76	$	200
2008		78		200
2009		77		200
2010		79		200
2011		80		200
2012 - 2016		447		1,000

Note 17. Commitments

The majority of distribution warehouse and office facility leases are under non-cancelable leases. Substantially all of the leases are net leases, which require the payment of property taxes, insurance and maintenance costs in addition to minimum rental payments.

F - 34

CoolBrands International Inc.

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

At August 31, 2006 the future minimum lease payments under operating leases with rental terms of more than one year, net of sublease rents, amounted to:

Fiscal year ending:
2007	$	933
2008		220
2009		122
2010		94
2011		93
Later years		214
Total minimum obligations	$	1,676

Total rental expense in Fiscal 2006 relating to all operating leases (including those with terms less than one year) was $6,354, of which $5,854 was included in discontinued operations.  Total rental expense for Fiscal 2005 was $7,698, of which $6,191 was included in discontinued operations.  Total rental expenses for Fiscal 2004 was $7,203 of which $5,966 was included in discontinued operations.

Excluded from the above table is the lease of certain equipment built for the Company’s yogurt segment (which is included in discontinued operations) and placed into service in September 2006.  The lease is for 10 years and provides for rent of $69 per month.  Additionally the table includes the leases of certain depots and trucks of EPFD only to the extent of the sale of EPFD’s assets in November 2006 (when these leases were assumed by the purchaser).

Note 18. Contingencies

Legal matters

The Company is a party to legal proceedings and disputes with franchisees, former franchisees and others, which arise in the ordinary course of business. In the opinion of the Company, it is unlikely that the liabilities, if any, arising from the legal proceedings and disputes will have a material adverse effect on the consolidated financial position of the Company or its operations.  (See Note 20, “Subsequent Events – Litigation”, for a further discussion of the Company’s litigation.)

Note 19. Segment information

In Fiscal 2004 and Fiscal 2005, the Company’s reportable segments were the frozen dessert segment, yogurt, foodservice, dairy components, and franchising and licensing, including company owned stores.  On December 31, 2005, the Company sold the assets, net of certain liabilities of its franchising and licensing segment. Additionally, during Fiscal 2006, the Company began to actively market EPFD, a component of the frozen dessert segment, its Value America division, substantially all of the dairy components segment, and CBD, the yogurt segment, for sale.  Accordingly, the assets and liabilities of  each of these entities have been classified to assets and liabilities of discontinued operations on each of the consolidated balance sheets as of August 2006 and 2005 and the components of their operating results have been included in net loss from discontinued operations on each of the consolidated statements of operations. Therefore, the franchising and licensing segment, the yogurt segment and the dairy components segment have been reclassified to discontinued operations for each of the years presented.

Revenues in the frozen segment are or have been generated from manufacturing and selling a variety of prepackaged frozen dessert products to distributors, including Eskimo Pie Frozen Distribution (“EPFD”), and various retail establishments including supermarkets, grocery stores, club stores, gourmet shops, delicatessens and convenience stores.

Revenues in the foodservice segment were generated from manufacturing and selling soft-serve yogurt and premium ice cream mixes to broad-line foodservice distributors, yogurt shops and other foodservice establishments which, in turn, sell soft-serve ice cream and yogurt products to consumers.  On January 24, 2007, the Company sold, through its subsidiaries Eskimo Pie Corporation and Integrated Brands Inc., their Eskimo Pie and Chipwich Brands and Real Fruit trademark, along with Eskimo Pie soft serve brands and related foodservice business segment to Dreyer’s, an indirect subsidiary of Nestlé S.A. (See Note 20, “Subsequent Events.”)

F - 35

 CoolBrands International Inc.

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

The Company evaluates the performance of its segments and allocates resources to them based on their operating contribution, which represents segment revenues, less direct costs of operation, excluding the allocation of corporate expenses.

Industry Segments:

Year Ended August 31, 2006

	Frozen dessert			Foodservice		Corporate			Discontinued operations	Consolidated
Revenues	$	121,161		$	20,990	$	103			$	142,254
Interest income		620			71						691
Inter-segment revenues		(43,597	)								(43,597	)
Net revenues		78,184			21,061		103				99,348
Segment (loss) earnings		(47,667	)		1,469		(72	)			(46,270	)
General corporate expenses							(5,201	)			(5,201	)
Interest expense		(2,000	)								(2,000	)
Asset impairment		(21,289	)								(21,289	)
Minority interest		5,185									5,185
(Loss) earnings from continuing operations before income taxes	$	(65,771	)	$	1,469	$	(5,273	)			(69,575	)
Loss from discontinued operations											(6,972	)
Gain on sale of discontinued operations											410
Recovery of income taxes											5,955
Net loss										$	(70,182	)
Assets	$	51,509		$	18,293	$	677		$90,069	$	160,548
Capital expenditures	$	1,416		$	-	$	-		$1,877	$	3,293
Depreciation and amortization	$	4,281		$	365	$	60		$1,618	$	6,324

F - 36

CoolBrands International Inc.

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

Industry Segments:

Year Ended August 31, 2005

	Frozen dessert			Foodservice			Corporate			Discontinued Operations	Consolidated
Revenues	$	152,199		$	18,397		$	280			$	170,876
Interest income		797						132				929
Inter-segment revenues		(21,204	)		(661	)		(230	)			(22,095	)
Net revenues		131,792			17,736			182				149,710
Segment (loss) earnings		(32,253	)		2,142			182				(29,929	)
General corporate expenses								(72	)			(72	)
Interest expense		(1,687	)									(1,687	)
Asset impairment		(51,141	)									(51,141	)
Gain on sale of building		3,515										3,515
Minority interest		2,700										2,700
(Loss) earnings from continuing operations before income taxes	$	(78,866	)	$	2,142		$	110				(76,614	)
Loss from discontinued operations												(5,054	)
Recovery of  income taxes												7,598
Net loss											$	(74,070	)
Assets	$	151,135		$	20,593		$	8,945		$117,172	$	297,845
Capital expenditures	$	10,800		$	-		$	536		$1,073	$	12,409
Depreciation and amortization	$	4,277		$	328		$	17		$420	$	5,042

F - 37

CoolBrands International Inc.

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

______________________________________________________________________________

(Amounts are expressed in thousands of dollars)

Industry Segments:

Year Ended August 31, 2004

	Frozen dessert			Foodservice			Corporate			Discontinued Operations	Consolidated
Revenues	$	331,484		$	16,382		$	219			$	348,085
Interest income		21						108				129
Inter-segment revenues		(66,533	)		(703	)		(242	)			(68,478	)
Net revenues		264,972			15,679			85				280,736
Segment earnings		33,787			1,551			85				35,423
General corporate expenses								(3,132	)			(3,132	)
Interest expense		(1,491	)									(1,491	)
Minority interest		958										958
Income from continuing operations before income taxes	$	33,254		$	1,551		$	(3,047	)			31,758
Income from discontinued operations, net of tax												3,187	(1)
Provision of  income taxes												(11,433	)
Net income											$	23,512
Assets		236,350			17,375			12,207		51,325		317,257
Capital expenditures		12,867			110			-		386		13,363
Depreciation and amortization		5,875			335			-		1,104		7,314

⁽¹⁾ Net of taxes provided at the Fiscal 2004 effective corporate rate for each of the business segments.

F - 38

CoolBrands International Inc.

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

(Amounts are expressed in thousands of dollars)

Geographic Segments:

Year Ended August 31, 2006

	Canada			United States			Consolidated
Revenues	$	305		$	141,949		$	142,254
Interest income		-			691			691
Inter-segment revenues		-			(43,597	)		(43,597	)
Net revenues		305			99,043			99,348
Segment loss		(72	)		(46,198	)		(46,270	)
General corporate expenses		(5,201	)					(5,201	)
Interest expense					(2,000	)		(2,000	)
Asset impairment					(21,289	)		(21,289	)
Minority interest					5,185			5,185
Loss before income taxes	$	(5,273	)	$	(64,302	)	$	(69,575	)
Loss from discontinued operations								(6,972	)
Gain on sale of Franchising segment								410
Recovery of  income taxes								5,955
Net loss							$	(70,182	)
Assets	$	677		$	159,871			160,548
Capital expenditures	$	-		$	3,293		$	3,293
Depreciation and amortization	$	60		$	6,264		$	6,324

F - 39

CoolBrands International Inc.

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

Geographic Segments:

Year Ended August 31, 2005

	Canada			United States			Consolidated
Revenues	$	817		$	195,343		$	196,160
Interest income		132			797			929
Inter-segment revenues		(2	)		(47,377	)		(47,379	)
Net revenues		947			148,763			149,710
Segment loss		(287	)		(29,642	)		(29,929	)
General corporate expenses		(72	)					(72	)
Interest expense					(1,687	)		(1,687	)
Asset impairment					(51,141	)		(51,141	)
Gain on sale of building					3,515			3,515
Minority interest					2,700			2,700
Loss before income taxes	$	(359	)	$	(76,255	)		(76,614	)
Loss from discontinued operations								(5,054	)
Recovery of  income taxes								7,598
Net loss							$	(74,070	)
Assets	$	8,526		$	289,319		$	297,845
Capital expenditures	$	737		$	11,672		$	12,409
Depreciation and amortization	$	142		$	4,900		$	5,042

F - 40

CoolBrands International Inc.

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

(Amounts are expressed in thousands of dollars)

Geographic Segments:

Year Ended August 31, 2004

	Canada			United States			Discontinued Operations	Consolidated
Revenues	$	1,120		$	346,965			$	348,085
Interest income		108			21				129
Inter-segment revenues		(242	)		(67,236	)			(67,478	)
Net revenues		986			279,750				280,736
Segment earnings (loss)		986			34,437				35,423
General corporate expenses		(1,214	)		(1,918	)			(3,132	)
Interest expense					(1,491	)			(1,491	)
Minority interest					958				958
Income (loss) from continuing operations  before income taxes	$	(228	)	$	31,986				31,758
Income from discontinued operations, net of tax									3,187
Provision for  income taxes									(11,433	)
Net income								$	23,512
Assets	$	11,509		$	254,423		$  51,325	$	317,257
Capital expenditures		-		$	12,977		$       386	$	13,363
Depreciation and amortization		-		$	6,210		$    1,104	$	7,314

F - 41

CoolBrands International Inc.

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

(Amounts are expressed in thousands of dollars)

Note 20. Subsequent events

Litigation

In September 2006, American Foods Corporation (“AFC”), our 49.9% joint venture partner in Americana Foods, filed a complaint in the Supreme Court of the State of New York against the Company, IBI, CBA Foods, LLC, CB Americana and certain officers and directors of the Company and Americana Foods.  The complaint alleges gross mismanagement of the business operations of Americana Foods and seeks to prevent the Company from selling control of the Company to a third party without paying AFC the financial return required by certain provisions of the American Limited Partnership Agreement, or sell any part of the foodservice segment without using the sales proceeds to repay the debt of Americana Foods.  The Company has informed AFC that it does not believe that there are any amounts due AFC.  The Company intends to vigorously defend against this complaint.

Discontinued Operations

During Fiscal 2006, the Company’s Board of Directors approved the decision to sell its Value America division, substantially of all its dairy components segment, Eskimo Pie Frozen Distribution, part of its frozen dessert segment, and CBD, its yogurt segment and we began actively marketing these businesses for sale.

On September 1, 2006, Eskimo Pie Corporation, a wholly owned subsidiary of the Company, entered into an asset purchase agreement with Denali New Berlin, LLC and Denali Ingredients, LLC to sell its Value America flavor and ingredients division, which comprised substantially all of the dairy components segment.  The sale of assets was consummated September 14, 2006 for a price of $8,250, which exceeded the carrying value of the assets sold, of which $7,500 was paid in cash and $750 was placed in escrow subject to collection of certain accounts receivable.  The Company classified the assets and liabilities of Value America as assets and liabilities of discontinued operations held for sale on the balance sheet as of August 31, 2006 and included the components of its operating results in net loss from discontinued operations on the statement of operations and the components of cash flows as net cash flows from discontinued operations for Fiscal 2006.  Additionally, the Company classified the assets and liabilities of Value America as assets and liabilities of discontinued operations held for sale on the consolidated balance sheet as of August 31,2005 and classified the components of operating results of Value America into net loss from discontinued operations and classified its cash flows as cash flows from discontinued operations for Fiscal 2005.

On November 14, 2006, the Company announced that its wholly owned subsidiary, Eskimo Frozen Distribution Inc (“EPFD”) had entered into a definitive agreement to sell substantially all of its direct store door (“DSD”) frozen distribution assets in Florida, California, Oregon and Washington for a net sales price of $5,736, which equaled the carrying value of the related assets acquired net of the liabilities assumed, to an unaffiliated third party.  The transaction closed on November 17, 2006.  The Company classified the assets and liabilities of EPFD as assets and liabilities of discontinued operations held for sale on the balance sheet as of August 31, 2006 and included the components of operating results of EPFD as net loss from discontinued operations on the consolidated statement of operations and its cash flows as cash flows from discontinued operations for Fiscal 2006.  Additionally, the Company classified the assets and liabilities of EPFD as assets and liabilities of discontinued operations held for sale on the consolidated balance sheet as of August 31, 2005 and classified the components of operating results to net loss from discontinued operations on the consolidated statement of operations and classified the cash flows as cash flows from discontinued operations for Fiscal 2005.

 Sale of foodservice

On January 24, 2007 the Company sold, through its subsidiaries Eskimo Pie Corporation and Integrated Brands Inc., their Eskimo Pie and Chipwich Brands and Real Fruit trademark, along with Eskimo Pie soft serve brands and related foodservice business segment to Dreyer’s, an indirect subsidiary of Nestlé S.A., for a purchase price of approximately $18,925.  The purchase price includes approximately $4,000 in inventory and accounts receivables.  Dreyer’s will also assume related liabilities in the amount of approximately $1,000.  The Company utilized a portion of the proceeds to payoff the Corporate Credit Facility.

F - 42

CoolBrands International Inc.

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

Restructuring of Debt

In October 2006, Americana Foods was advised by its lenders that because of continuing defaults, they would no longer lend to Americana Foods and demanded full and immediate repayment of all of amounts outstanding under the American Credit Facility, which aggregated approximately $21,830 and which was guaranteed by the Company. The Company, through certain of its subsidiaries, as creditors of Americana Foods, filed an involuntary petition of bankruptcy against Americana Foods under Chapter 7 of the Federal Bankruptcy Code in the United States Bankruptcy Court, Northern District of Texas.  As a result, Americana Foods ceased operations and an independent trustee was appointed to oversee the liquidation of the assets and liabilities of Americana Foods.  In November, 2006, a company controlled by Michael Serruya, currently the President, Chairman and CEO of the Company, through a holding company, purchased all of Americana Foods’ bank indebtedness, which aggregated $21,408, from the lender.  The holding company received a first lien security interest in the assets of Americana Foods.  The Company remains the guarantor of the Americana debt.  The independent trustee has sold or liquidated substantially all of the assets of Americana Foods and is completing his accounting.  To the extent that the proceeds from the liquidation are not sufficient to pay Mr. Serruya’s company, the Company may be required to make a payment under its guarantee.

Additionally, the Company continued to be in default under its Corporate Credit Facility.  In connection with the purchase of the indebtedness outstanding under the Americana Credit Facility by a company controlled by Michael Serruya, the Company and the lender (a “Senior Lender”) amended the Corporate Credit Facility (the “Amendment”) and agreed to reduce the maximum amount of the Corporate Credit Facility to $8,000, subject to a borrowing base.  Mr. Serruya, through the holding company (also a “Senior Lender”), issued an irrevocable letter of credit with a face value of $5,000 in favor of the lender.  The Senior Lenders and the Company also entered into a forbearance agreement which changed the maturity date of the Corporate Credit Facility from April 21, 2009 to May 17, 2007.  The Amendment also required the Company to utilize proceeds from the sales of assets to reduce the indebtedness based upon a specified schedule.  Mr. Serruya received, through the holding company, warrants to purchase 5,500 subordinate voting shares of the Company in connection with the acquisition of the senior indebtedness.  The exercise price of each warrant is Cdn $0.50 and the term of the warrants is five years from the date of the grant.  The warrants issued by the Company in connection with this transaction were valued at $1,764 (Cdn$1,980) using the Black-Scholes pricing model and the following assumptions: 2.5 years expected life, no dividends, 67% volatility and 4.6% risk free rate, and will be expensed by the Company in the first quarter of Fiscal 2007.  The Company completed the sale of the foodservice segment on January 24, 2007 and utilized a portion of the proceeds to pay off the Corporate Credit Facility.

Note 21.  GAAP reconciliation

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

Note 22.  Sale of CBD and other

On January 2, 2007, the Company entered into a definitive agreement to sell CBD, which includes the yogurt business acquired from Kraft Inc. in 2005, to an unaffiliated third party.  The Company recorded a loss on impairment of $5,428 to adjust the carrying value of CBD’s net assets to approximate fair value based upon the definitive agreement.  The Company classified CBD’s assets and liabilities as assets and liabilities of discontinued operations held for sale on the consolidated balance sheet as of August 31, 2006 and included the components of operating results in net loss from discontinued operations on the consolidated statement of operations and its cash flows as cash flows from discontinued operations for Fiscal 2006.  Additionally, as of and for the year ended August 31, 2006, the Company has classified the assets and liabilities of CBD as assets and liabilities of discontinued operations held for sale on the consolidated balance sheet and included the components of operating results of CBD in net loss from discontinued operations on the consolidated statement of operations and the cash flows of CBD as cash flows from discontinued operations.  On January 30, 2007, the Company consummated the sale of 100% of the issued and outstanding stock of CBD to an unaffiliated third party. The Company received cash of $45,000, a note of $5,000 and warrants.  The aggregate consideration received approximated the Company’s carrying value of CBD. The Company anticipates using the proceeds from the sale of CBD to fund working capital for the foreseeable future.

F - 43

CoolBrands International Inc.

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

(Amounts are expressed in thousands of dollars)

The Company was served notice on March 12, 2007 by Godiva Chocolatier, Inc. and Godiva Brands, Inc. alleging that the Company has breached its license agreement and the licensor has filed a claim in the Supreme Court of the State of New York for damages of $14 million for breach of contract plus additional damages. The outcome and resolution of such claim is uncertain at this time.

On March 30, 2007, the Company sold through its subsidiaries CoolBrands Manufacturing Inc. and Integrated Brands, Inc. its Whole Fruit and Fruit-a-Freeze assets for cash proceeds of approximately $4,600.

F - 45