<Page>
CoolBrands International Inc.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In accordance with National Instrument 51-102
released by the Canadian Securities
Administrators, the Company discloses that
its auditors have not reviewed the unaudited
financial statements for the period ended
February 28, 2005.
<Page>
CoolBrands International Inc.
Consolidated Balance Sheets
as at February 28, 2005 and August 31, 2004
- --------------------------------------------------------------------------------
(in thousands of US dollars)
February 28, 2005 August 31, 2004
(Unaudited)
$ $
Assets
Current assets:
Cash and short term investments 66,024 64,327
Receivables 49,189 67,152
Receivables - affiliates 3,054 3,883
Inventories 47,855 49,076
Prepaid expenses 8,670 5,938
Future income taxes 6,210 4,907
----------------------------------------------------
Total current assets 181,002 195,283
Future income taxes 3,365 3,232
Property, plant and equipment 30,067 28,730
License agreements 4,146 5,747
Intangible and other assets 6,409 6,433
Goodwill 75,094 73,336
----------------------------------------------------
300,083 312,761
====================================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable 26,839 37,506
Payables - affiliates 190 850
Accrued liabilities 25,480 20,624
Income taxes payable 4,936
Future income taxes 3,153 1,849
Current maturities of long-term debt 16,892 8,492
----------------------------------------------------
Total current liabilities 72,554 74,257
Long-term debt, less current portion 8,451 19,262
Other liabilities 2,817 2,758
Future income taxes 3,834 3,638
----------------------------------------------------
Total liabilities 87,656 99,915
----------------------------------------------------
Minority interest 6,626 8,088
----------------------------------------------------
Shareholders' Equity:
Capital stock 97,533 97,485
Contributed surplus 34,228 18,650
Cumulative translation adjustment 2,893 672
Retained earnings 71,147 87,951
----------------------------------------------------
Total shareholders' equity 205,801 204,758
----------------------------------------------------
300,083 312,761
====================================================
<Page>
CoolBrands International Inc.
Consolidated Statements of Earnings
for the six months and three months ended February 28, 2005 and
February 29, 2004
- --------------------------------------------------------------------------------
(Unaudited)
(in thousands of US dollars, except share data)
For the six months ended For the three months ended
February 28, February 29, February 28, February 29,
2005 2004 2005 2004
$ $ $ $
Revenues:
Sales 176,886 186,864 80,566 95,216
Franchising and licensing revenues:
Royalty income 853 907 416 459
Franchise and license fees 485 432 387 219
Consumer products license fee 1,541 176 377 114
Drayage and other income 8,268 21,040 5,803 9,509
--------------------------------------------------------------------------
Total revenues 188,033 209,419 87,549 105,517
--------------------------------------------------------------------------
Operating expenses:
Cost of goods sold 151,889 139,701 76,065 70,874
Selling, general and administrative expenses 39,005 43,123 18,471 18,069
Stock-based compensation expense 161 1,543 81 386
Interest expense 692 830 337 397
--------------------------------------------------------------------------
Total operating expenses 191,747 185,197 94,954 89,726
--------------------------------------------------------------------------
Minority interest 1,457 (140) 815 76
--------------------------------------------------------------------------
(Loss) earnings before income taxes (2,257) 24,082 (6,590) 15,867
(Benefit from) provision for income taxes (889) 9,602 (2,617) 6,392
--------------------------------------------------------------------------
Net (loss) earnings (1,368) 14,480 (3,973) 9,475
==========================================================================
(Loss) earnings per share:
Basic and diluted (0.02) 0.26 (0.07) 0.17
==========================================================================
Weighted average shares outstanding:
Shares used in per share calculation - basic 55,907 55,045 55,921 55,677
Shares used in per share calculation - diluted 55,907 56,198 55,921 56,445
<Page>
CoolBrands International Inc.
Consolidated Statements of Shareholders' Equity
For the six months ended February 28, 2005
- --------------------------------------------------------------------------------
(Unaudited)
(in thousands of US dollars, except share data)
Cumulative
Contributed translation Retained
Capital Stock surplus adjustment earnings
----------------------------------------------------------------------------------------------
Class A Class B
Subordinate Multiple
voting voting
shares shares Amount
# # $ $ $ $
----------------------------------------- ------------------------------------------------
Balance at August 31, 2004 49,863 6,030 97,485 18,650 672 87,951
Net loss (1,368)
Stock issued for options exercised 28 48 (19)
Retroactive adjustment for
stock-based compensation expense 15,436 (15,436)
Stock-based compensation expense 161
Foreign currency translation
adjustment 2,221
----------------------------------------- ------------------------------------------------
Balance at February 28, 2005 49,891 6,030 97,533 34,228 2,893 71,147
========================================= ================================================
<Page>
CoolBrands International Inc.
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
(Unaudited)
(in thousands US of dollars)
For the six months ended For the three months ended
February 28, February 29, February 28, February 29,
2005 2004 2005 2004
$ $ $ $
Cash and short term investments
provided by (used in):
Operating activities:
Net (loss) earnings (1,368) 14,480 (3,973) 9,475
Items not affecting cash:
Depreciation and amortization 2,374 2,244 1,180 1,149
Stock-based compensation expense 161 1,543 81 386
License agreements written off 1,401 1,401
Future income taxes (381) (2,327) (2,437) (446)
Minority interest (1,454) 140 (812) (76)
Allowance for doubtful accounts 123 405 98 (52)
Changes in current assets and liabilities:
Receivables 17,839 (6,066) 17,128 (2,136)
Receivables - affiliates 829 (75) (120) 366
Inventories 1,221 (5,066) 2,635 (4,127)
Prepaid expenses (2,732) 2,421 1,802 496
Prepaid taxes (307) (307)
Other assets (63) (180) 83 (104)
Accounts payable (12,026) 2,704 (16,794) 7,160
Payables - affiliates (660) (54) (209) 11
Accrued liabilities 6,215 650 753 (5,295)
Income taxes payable (4,936) 4,414 (1,064) 6,859
Other liabilities 59 (52) 17 23
--------------------------------------------------------------------------
Cash provided by (used in) operating activities 6,602 14,874 (231) 13,382
--------------------------------------------------------------------------
Investing activities:
Purchase of leasehold improvements and equipment (3,187) (4,579) (1,035) (2,324)
Purchase of license agreements and other intangibles (17) (337) (3) (337)
Repayment of notes receivable 5 18 1 16
--------------------------------------------------------------------------
Cash used in investing activities (3,199) (4,898) (1,037) (2,645)
--------------------------------------------------------------------------
Financing activities:
Proceeds from issuance of Class A and B shares 30 12,540 30 440
Capital contributions from (paid to) partnership's
minority partner 6,908 (2,000)
Change in revolving line of credit, secured (400) 2,524 (2,623) 2,524
Repayment of long-term debt (2,011) (3,997) (1,042) (245)
--------------------------------------------------------------------------
Cash (used in) provided by financing activities (2,381) 17,975 (3,635) 719
--------------------------------------------------------------------------
Increase (decrease) in cash flow due to changes in
foreign exchange rates 675 60 124 183
--------------------------------------------------------------------------
Increase (decrease) in cash and
short-term investments 1,697 28,011 (4,779) 11,639
Cash and short-term investments - beginning of
period 64,327 21,760 70,803 38,132
--------------------------------------------------------------------------
Cash and short-term investments -
end of period 66,024 49,771 66,024 49,771
==========================================================================
<Page>
CoolBrands International Inc.
Notes to Unaudited Consolidated Interim Financial Statements
February 28, 2005 and February 29, 2004
- --------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands)
1. Significant accounting policies
The financial statements of the Company have been prepared by management in
accordance with generally accepted accounting principles in Canada for
interim financial statements. The financial statements have, in
management's opinion, been properly prepared using judgment within
reasonable limits of materiality. These interim financial statements do not
include all the note disclosures required for annual financial statements
and therefore they should be read in conjunction with the Company's audited
financial statements for the year ended August 31, 2004. The significant
accounting policies follow those disclosed in the most recently reported
annual financial statements.
2. Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results could differ from those estimated.
3. Changes in accounting policy
The Company adopted the U.S dollar as its functional and reporting currency
effective September 1, 2004, the commencement of fiscal 2005. The Company
adopted the U.S. dollar for its financial reporting since the majority of
its business is conducted in the United States and to make comparisons
between current and prior periods more meaningful to investors. For
comparative purposes, historical financial statements and notes have been
restated into U.S. dollars in accordance with generally accepted accounting
principals.
The Company adopted, on a retroactive basis without restatement, the
recommendation of CICA Handbook Section 3870, "Stock-based compensation and
other stock-based payments", which now requires companies to adopt the fair
value based method for all stock-based awards granted on or after September
1, 2002. Previously, the Company was required to disclose only the
pro-forma effect of stock options issued to employees and employee
directors in the notes to the financial statements. The effect of this
change in accounting policy reduced retained earnings at September 1, 2004
by $15,436,000 with a corresponding increase to reported contributed
surplus.
<Page>
CoolBrands International Inc.
Notes to Unaudited Consolidated Interim Financial Statements
February 28, 2005 and February 29, 2004
- --------------------------------------------------------------------------------
(Tabular amounts are expressed in thousands of US dollars except share data)
4. Segment information
Prepackaged Foodservice Dairy Franchising Corporate Consolidated
consumer components and
products licensing
$ $ $ $ $ $
- ------------------------------ --------------- ----------------- ---------------- --------------- -------------- --------------
For the six months ended February 28, 2005
Revenue,
External 162,650 8,905 8,614 7,761 103 188,033
Intersegment
Revenue 20,111 262 1,596 103 22,072
Segment (loss) earnings
before income taxes (4,636) 625 1,083 958 (287) (2,257)
For the six months ended February 29, 2004
Revenue,
External 186,080 7,342 10,232 5,724 41 209,419
Intersegment
Revenue 26,430 282 2,578 72 29,362
Segment (loss) earnings
before income taxes 22,156 458 1,642 435 (609) 24,082
For the three months ended February 28, 2005
Revenue,
External 75,052 4,294 3,549 4,595 59 87,549
Intersegment
Revenue 8,317 147 999 60 9,523
Segment (loss) earnings
before income taxes (7,615) 239 265 732 (211) (6,590)
For the three months ended February 29, 2004
Revenue,
External 94,669 3,428 4,617 2,781 22 105,517
Intersegment
Revenue 12,162 145 1,389 31 13,727
Segment (loss) earnings
before income taxes 15,113 110 709 340 (405) 15,867
<Page>
CoolBrands International Inc.
Notes to Unaudited Consolidated Interim Financial Statements
February 28, 2005 and February 29, 2004
5. Capital stock
The Company had the following equity securities and stock options
outstanding as of April 7, 2005:
Class A Class B Multiple Stock Options
Subordinate Voting Shares
Voting Shares
----------------- ------------------- -----------------
49,891 6,030 3,740
================= =================== =================
6. Subsequent event
On March 27, 2005, CoolBrands acquired the yogurt business of Kraft Foods,
Inc. (NYSE: KFT) for approximately $57,500,000. The acquired brands include
Breyers Fruit on the Bottom, Light and Creme Savers cup yogurt varieties
and Creme Savers Smoothie drinkable yogurts. Pursuant to the agreement,
CoolBrands' wholly owned subsidiary, Integrated Brands, Inc., purchased
substantially all of Kraft's assets related to its yogurt business,
including a license for the Breyers trademark, a license for the Creme
Savers trademark, a license for the Light n Lively trademark and Kraft's
manufacturing facility in North Lawrence, New York. CoolBrands obtained
financing for $40,000,000 of the purchase price and utilized cash for the
balance of the purchase price. CoolBrands estimates that this acquisition
will contribute approximately $40,000,000 to $45,000,000 in revenues and
net earnings of approximately $2,000,000 to $2,500,000 for the remainder of
the 2005 fiscal year.
<Page>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
April 14, 2005
About CoolBrands International Inc.
CoolBrands is substantially unchanged from the description contained in the
fiscal year 2004 MD&A, except for the acquisition of Breyer's yogurt business
acquired from Kraft Foods Inc. as discussed in the subsequent events section in
this MD&A.
CoolBrands' Mission and Strategies
CoolBrands' mission and strategies are unchanged from those disclosed in the
fiscal 2004 MD&A.
CoolBrands' Key Strengths
CoolBrands key strengths are unchanged from those disclosed in the fiscal
year MD&A.
Comparison of three months ended February 28, 2005 and February 29, 2004
We manage our business based on four industry segments: Prepackaged consumer
products, foodservice, dairy components, and franchising and licensing.
CoolBrands adopted the U.S. dollar as its functional and reporting currency
effective September 1, 2004, the commencement of fiscal 2005. CoolBrands adopted
the U.S. dollar for its financial reporting because the majority of its business
is conducted in U.S. dollars in the United States. This facilitates making
comparisons between current and prior periods more meaningful to investors. For
comparative purposes, historical financial statements have been restated into
U.S. dollars in accordance with generally accepted accounting principles.
Sales
Percentage of Sales
-------------------
February 28, February 29, February 28, February 29,
Three months ended 2005 2004 2005 2004
---- ---- ---- ----
(000's)
Prepackaged consumer products $69,257 $85,085 86.0 89.4
Foodservice 4,294 3,427 5.3 3.6
Dairy components 3,548 4,614 4.4 4.8
Franchising and licensing 3,467 2,090 4.3 2.2
------ ------ ----- -----
Total $80,566 $95,216 100.0 100.0
======= ======= ===== =====
Sales for the second quarter decreased to $80,566,000 as compared with
$95,216,000 for the second quarter of 2004, a 15.4% decline. The decline in
sales came from all of our primary consumer products brands, but principally
from the Weight Watchers and Atkins, partially offset by the sales from newly
introduced consumer products and the increase in distribution sales as a result
of the change in the business arrangement with Dreyers. Effective September 1,
2004, CoolBrands began the distribution of Dreyer's products as an independent
distributor, changing from the previously used drayage basis,
<Page>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
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 sales increases due to this change partially offset sales
declines in our base prepackaged consumer products business.
Drayage and other income
Drayage and other income for the second quarter of fiscal 2005 declined by
$3,706,000 or 39.0% to $5,803,000 as compared with $9,509,000 realized in the
second quarter of fiscal 2004. This decline was due to the change in the
business arrangement with Dreyer's discussed above. Drayage income in 2005
represents the fees paid to CoolBrands by Dreyer's for the delivery of products
to Dreyer's scanned based trading customers which continue to be delivered on a
drayage basis.
Gross profit margin
The following table presents the gross profit margin dollars and gross profit
percentage for our segments:
Percentage of Sales
-------------------
February 28, February 29, February 28, February 29,
Three months ended 2005 2004 2005 2004
---- ---- ---- ----
(000's)
Prepackaged consumer products $1,792 $21,470 2.6 25.2
Foodservice 1,275 1,115 29.7 32.5
Dairy components 674 1,164 19.0 25.2
Franchising and licensing 760 593 21.9 28.4
------ ------- ---- ----
Total $4,501 $24,342 5.6 25.6
====== ======= === ====
Gross profit dollars declined to $4,501,000 for the second quarter of fiscal
2005 from $24,342,000 for the same quarter last year, an 81.5% decline. Gross
profit percentage for second quarter of fiscal 2005 declined to 5.6% as compared
with 25.6% for the second quarter of fiscal 2004. This decline was primarily due
to the impact of lower margins generated by Americana Foods' manufacturing
operations, Eskimo Pie Frozen Distribution's distribution operations and a write
down of $3,835,000 in connection with packaging, ingredients and finished goods
inventories which will 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 will become effective January 1, 2006.
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.
<Page>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Selling, general and administrative expenses
Selling, general and administrative expenses are summarized by industry segment
in the following table:
Percentage of Sales
-------------------
February 28, February 29, February 28, February 29,
Three months ended 2005 2004 2005 2004
---- ---- ---- ----
(000's)
Prepackaged consumer products $16,261 $14,875 23.5 17.5
Foodservice 1,037 1,005 24.2 29.3
Dairy components 197 455 5.6 9.9
Franchising and licensing 629 1,263 18.1 60.4
Corporate 347 471 n/a n/a
------- ------
Total $18,471 $18,069
======= =======
Selling, general and administrative expenses for second quarter of fiscal 2005
increased as a percentage of revenues to 21.1% as compared to 17.1% for second
quarter of fiscal 2004 due to the decline in revenues. Also, selling, general
and administrative expenses for the quarter ended February 28, 2005 were
adversely impacted by approximately $2,358,000, 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.
Stock-based compensation expense
In accordance with recent changes in Canadian GAAP, the Company recognized
$81,000 in stock-based compensation expense in the second quarter of fiscal 2005
representing the estimated fair value of stock options earned during the
quarter. The results of the second quarter of fiscal 2004 included a non-cash
pre-tax compensation charge of $386,000 relating to the fair value of stock
options granted to the Company's Co-CEO and Co-Chairman during the quarter.
Interest expense
Interest expense was $337,000 in the second quarter of fiscal 2005 as compared
with $397,000 for the same quarter of fiscal 2004. The decline in interest
expense was due to the decline in the average interest rate for the period due
to the expiration of an interest rate swap agreement in the third quarter of
fiscal 2004 and a decrease in debt during the second quarter of fiscal 2005 as
compared with the second quarter of fiscal 2004.
Provision for income taxes
The effective tax (benefit) rate was (39.7)% for the second quarter of fiscal
2005 and 40.3% for the second quarter of fiscal 2004. The effective tax rate
differs from the Canadian Federal/Principal Statutory Rate primarily due to our
operations in foreign countries with lower effective tax rates as well
<Page>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
as from the effect of the second quarter losses incurred. 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 our
future income tax assets or liabilities.
Net loss
The net loss for the second quarter of fiscal 2005 was ($3,973,000) as compared
with net earnings of $9,475,000 for the second quarter of fiscal 2004. The
$13,448,000 decline in results of operations in the quarter ended February 28,
2005 versus the quarter ended February 29, 2004 is attributed to a decline in
gross profit dollars due to lower sales and gross profit margins, a decrease in
drayage income, offset by the reduction in income taxes.
Comparison of six months ended February 28, 2005 and February 29, 2004
Sales
Percentage of Sales
-------------------
February 28, February 29, February 28, February 29,
Six months ended 2005 2004 2005 2004
---- ---- ---- ----
(000's)
Prepackaged consumer products $154,396 $164,913 87.3 88.3
Foodservice 8,905 7,341 5.0 3.9
Dairy components 8,614 10,230 4.9 5.5
Franchising and licensing 4,971 4,380 2.8 2.3
-------- -------- ----- -----
Total $176,886 $186,864 100.0 100.0
======== ======== ===== =====
Sales for the six months of fiscal 2005 decreased to $176,886,000 as compared
with $186,864,000 for the six months of fiscal 2004, a 5.3% decline. The decline
in sales came from all of our primary consumer products brands, but principally
from the Weight Watchers and Atkins, partially offset by the sales from newly
introduced consumer products and the increase in distribution sales as a result
of the change in the business arrangement with Dreyers. Effective September 1,
2004, CoolBrands 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 sales
increases due to this change partially offset sales declines in our base
prepackaged consumer products business.
<Page>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Gross profit margin
The following table presents the gross profit margin dollars and gross profit
percentage for our segments:
Percentage of Sales
-------------------
February 28, February 29, February 28, February 29,
Six months ended 2005 2004 2005 2004
---- ---- ---- ----
(000's)
Prepackaged consumer products $19,910 $40,834 12.9 24.8
Foodservice 2,821 2,552 31.7 34.8
Dairy components 1,917 2,657 22.3 26.0
Franchising and licensing 349 1,120 7.0 25.1
------- ------- ---- ----
Total $24,997 $47,163 14.1 25.2
======= ======= ==== ====
Gross profit dollars declined to $24,997,000 for the six months of fiscal 2005
from $47,163,000 for the six months of fiscal 2004. a 47.0% decline. Gross
profit percentage for the six months of fiscal 2005 declined to 14.1% as
compared with 25.2% for the six months of fiscal 2004. This decline was
primarily due to the impact of lower margins generated by Americana Foods'
manufacturing operations, Eskimo Pie Frozen Distribution's distribution
operations and a write down of $3,835,000 recognized in the quarter ended
February 28, 2005 in connection with packaging, ingredients and finished goods
inventories which will 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 will become effective January 1, 2006.
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.
Selling, general and administrative expenses
Selling, general and administrative expenses are summarized by industry segment
in the following table:
Percentage of Sales
-------------------
February 28, February 29, February 28, February 29,
Six months ended 2005 2004 2005 2004
---- ---- ---- ----
(000's)
Prepackaged consumer products $33,883 $36,898 21.9 22.4
Foodservice 2,197 2,095 24.7 28.5
Dairy components 733 1,015 8.5 9.9
Franchising and licensing 1,670 2,367 33.6 54.0
Corporate 522 748 n/a n/a
------- -------
Total $39,005 $43,123
======= =======
<Page>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Selling, general and administrative expenses for the six months of fiscal 2005
remained essentially unchanged as a percentage of revenues as compared with the
six months of fiscal 2004. However, selling, general and administrative expenses
for the six months ended February 28, 2005 were adversely impacted by
approximately $2,358,000 recognized in the quarter ended February 28, 2005,
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.
Stock-based compensation expense
In accordance with recent changes in Canadian GAAP, the Company recognized
$161,000 in stock-based compensation expense and in the six months of fiscal
2005 representing the estimated fair value of stock options earned during the
period. The results of the six months of fiscal 2004 included a non-cash pre-tax
compensation charge of $1,543,000 related to the fair value of stock options
granted to the Company's Co-CEO and Co-Chairman during the period.
Interest expense
Interest expense was $692,000 for the six months of fiscal 2005 as compared with
$830,000 for the six months of fiscal 2004. The decline in interest expense was
due to the decline in the average interest rate for the period due to the
expiration of an interest rate swap agreement in the third quarter of fiscal
2004 and a decrease in debt during the second quarter of fiscal 2005 as compared
with the second quarter of fiscal 2004.
Provision for income taxes
The effective tax (benefit) rate was (39.4)% for the six months of fiscal 2005
and 39.9% for the six months of fiscal 2004. The effective tax rate differs from
the Canadian Federal/Principal Statutory Rate primarily due to our operations in
foreign countries with lower effective tax rates as well as from the effect of
the year to date and second quarter losses incurred. 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 our
future income tax assets or liabilities.
Net loss
The net loss for the six months of fiscal 2005 was ($1,368,000) as compared with
net earnings of $14,480,000 for the six months of fiscal 2004. The $15,848 000
decline in results of operations for the six months ended February 28, 2005
versus the six months ended February 29, 2004 is attributed to a decline in
gross profit dollars due to lower sales and gross profit margins, a decrease in
drayage income, offset by a decrease in selling, general and administrative
expenses and the reduction in income taxes.
<Page>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Summary of quarterly results
The following table presents a summary of our results for the last eight
quarters:
Quarter ended February 28, November 30, August 31, May 31,
2005 2004 2004 2004
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues 87,549 100,484 134,303 139,129
Net earnings (loss) (3,973) 2,605 11,050 11,158
Earnings (loss) per share
Basic (0.07) 0.05 0.20 0.20
Diluted (0.07) 0.05 0.20 0.20
Quarter ended February 29, November 30, August 31, May 31,
2004 2003 2003 2003
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues 105,517 103,902 107,090 55,978
Net earnings 9,475 5,005 10,274 6,033
Earnings per share
Basic 0.17 0.09 0.20 0.12
Diluted 0.17 0.09 0.19 0.11
The ice cream and frozen yogurt industry generally experiences its highest
volume during the spring and summer months and its lowest volume in the winter
months.
Liquidity
The following sets forth certain measures of our liquidity:
February 28, August 31,
------------ ----------
2005 2004
---- ----
(000's)
Cash and short term investments $ 66,024 $ 64,327
Working capital $108,448 $121,026
Current ratio 2.5 to1 2.6 to 1
The decrease in working capital to $108,448,000 at February 28, 2005 from
$121,026,000 at August 31, 2004 and the decline in CoolBrands' current ratio to
2.5 to 1 at February 28, 2005 from 2.6 to 1 at August 31, 2004 was primarily due
to the reduction of accounts receivable and accounts payable and the
reclassification of certain bank debt due November 1, 2005 as a current
liability from long-term debt at August 31, 2004. We believe the combination of
cash on hand and cash from operations will provide adequate liquidity to meet
the requirements for our established business operations, capital expenditures
and debt service for the balance of the 2005 fiscal year.
<Page>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Cash flows provided by (used in) operating activities
The Company used cash flows in operating activities of ($231,000) for the three
months ended February 28, 2005 as compared with cash generated from operating
activities of $13,382,000 for the three months ended February 29, 2004. For the
three months ended February 28, 2005, the operating cash flow activity resulted
primarily from the loss, net of non - cash items, and from the reduction of
changes in current assets and liabilities. For the three month period ended
February 29, 2004, cash was generated by net earnings, net of non - cash items
and the current income taxes payable, and from changes in current assets and
liabilities related to the business improvement.
The Company generated cash flows from operating activities of $6,602,000 and
$14,874,000 for the six months periods ended February 28, 2005 and February 29,
2004, respectively. For the six months ended February 28, 2005, the operating
cash flow activity resulted primarily from the loss, net of non - cash items,
and from the reduction of changes in current assets and liabilities. The
operating cash flow for the six month period ended February 29, 2004 period was
due the income generated, net of non - cash items and the current income taxes
payable, and from changes in current assets and liabilities related to the
business improvement.
Cash used in investing activities
For the three months ended February 28, 2005, net cash used for investing
activities deceased to $1,037,000 from $2,645,000 for the three months ended
February 29, 2004. For the six months ended February 28, 2005, net cash used for
investing activities deceased to $3,199,000 from $4,898,000 for the six months
ended February 29, 2004. The spending in both fiscal years was primarily
utilized to expand production capacity at Americana Foods
Cash provided by (used in) financing activities
For the three months ended February 28, 2005, $3,635,000 was used for financing
activities as compared with $719,000 provided by financing activities for the
three months ended February 29 2004. In the fiscal 2005 period, the financing
activities included a net decrease in the secured revolving line of credit at
Americana Foods of $2,623,000 and repayments of long-term debt of $1,042,000
partially offset by proceeds from the exercise of stock options of $30,000. In
the fiscal 2004 period, there were net borrowings on the secured revolving line
of credit of $2,524,000 and $440,000 received from the exercise of stock options
which were partially offset by a repayment of $2,000,000 to the minority partner
at Americana Foods and repayments of $245,000 of long term debt.
For the six months ended February 28, 2005, $2,381,000 was used for financing
activities as compared with $17,975,000 provided by financing activities for the
six months ended February 29, 2004. In the fiscal 2005 period, the financing
activities included a net decrease in the secured revolving line of credit at
Americana Foods of $400,000 and repayments of long-term debt of $2,011,000
partially offset by proceeds from the exercise of stock options of $30,000. In
the fiscal 2004 period, there were net borrowings on the secured revolving line
of credit of $2,524,000, $12,540,000 received from the exercise of stock options
and $6,908,000 provided by Americana Foods' minority partner as its share for
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
the expansion of its production capacity which were partially offset by
repayments of $3,997,000 of long term debt.
Contractual Obligations
See subsequent event disclosed below for the details on the agreement to acquire
the Breyer's yogurt business from Kraft Foods Inc. that closed on March 27,
2005.
Capital resources
CoolBrands' requirements are substantially unchanged from the annual fiscal 2004
MD&A, except for the acquisition of the Breyer's yogurt business discussed in
the subsequent event section of this MD&A.
Payment requirements
Payment requirements are substantially unchanged from those disclosed in the
fiscal year 2004 MD&A.
Subsequent event
On March 27, 2005, CoolBrands acquired the yogurt business of Kraft Foods, Inc.
(NYSE: KFT) for approximately $57,500,000. The acquired brands include Breyers
Fruit on the Bottom, Light and Creme Savers cup yogurt varieties and Creme
Savers Smoothie drinkable yogurts. Pursuant to the agreement, CoolBrands' wholly
owned subsidiary, Integrated Brands, Inc., purchased substantially all of
Kraft's assets related to its yogurt business, including a license for the
Breyers trademark, a license for the Creme Savers trademark, a license for the
Light n Lively trademark and Kraft's manufacturing facility in North Lawrence,
New York. CoolBrands obtained financing for $40,000,000 of the purchase price
and utilized cash for the balance of the purchase price. CoolBrands estimates
that this acquisition will contribute approximately $40,000,000 to $45,000,000
in revenues and net earnings of approximately $2,000,000 to $2,500,000 for the
remainder of the 2005 fiscal year.
Risk factors and uncertainties
Risk factors and uncertainties are unchanged from those disclosed in the fiscal
year 2004 MD&A.
Transactions with related parties
The nature of transactions with related parties is unchanged from that disclosed
in the fiscal 2004 MD&A, except for the termination of the Management Agreement
with Calip Dairies, Inc. and the related elimination of the annual management
fee of $1,300,000 effective January 29, 2005.
Critical accounting policies
The accounting policies discussed in this section are those that we consider to
be particularly critical to an understanding of our financial statements because
their application places the most significant demands on our ability to judge
the effect of inherently uncertain matters on our financial results.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
For all of these policies, we caution that future events rarely develop exactly
as forecast, and our management's best estimates may require adjustment.
Management believes that the critical accounting policies are substantially
unchanged from those disclosed in the fiscal 2004 MD&A, except for the new
stock-based compensation accounting adopted as discussed in the section Change
in accounting policy for fiscal year beginning September 1, 2004.
Legal matters
CoolBrands is subject to various legal proceedings and claims, either asserted
or unasserted, that arise in the ordinary course of business. CoolBrands
evaluates among other things, the degree of probability of an unfavorable
outcome and reasonably estimates the amount of the loss. Significant judgment is
required in both the determination of the probability and as to whether an
exposure can be reasonably estimated. When CoolBrands determines that it is
probable that a loss has been incurred, the effect is recorded in the
Consolidated Financial Statements. Although the legal outcome of these claims
cannot be predicted with certainty, CoolBrands does not believe that any of the
existing legal matters will have a material adverse affect on its financial
condition or results of operations. However, significant changes in legal
proceedings and claims or the factors considered in the evaluation of those
matters could have a material adverse affect on CoolBrands business, financial
condition and results of operation.
Change in accounting policy for fiscal year beginning September 1, 2004
The Company adopted, on a retroactive basis without restatement, the
recommendation of CICA Handbook Section 3870, "Stock-based compensation and
other stock-based payments", which now requires companies to adopt the fair
value based method for all stock-based awards granted on or after September 1,
2002. Previously, the Company was required to disclose only the pro-forma effect
of stock options issued to employees and employee directors in the notes to the
financial statements. The effect of this change in accounting policy will be to
reduce retained earnings at September 1, 2004 by $15,436,000 with a
corresponding increase to reported contributed surplus.
Annual Information Form
Additional information relating to CoolBrands including CoolBrands' Annual
Information Form is available on SEDAR at www.sedar.com
Outstanding share data
As of April 7, 2005, the Company had 49,891,068 subordinate voting shares,
6,029,865 multiple voting shares and 3,740,000 stock options outstanding.
Outlook
The outlook for fiscal 2005 is substantially unchanged from that disclosed in
the fiscal 2004 MD&A. See "Subsequent Event" for the anticipated effect of the
purchase of the Kraft Foods, Inc. yogurt business on Coolbrands' sales and
results of operations.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
This management discussion and analysis includes certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 regarding, among other things, statements relating to goals, plans and
projections regarding the Company's financial position and business strategy.
These statements may be identified by the fact that they use such words as
"anticipate," "estimate," "expect," "intend," "plan," "believe," and other words
and terms of similar meaning in connection with any discussion of future
operating or financial performance. Such forward-
looking statements are based on current expectations and involve inherent risks
and uncertainties, including factors that could delay, divert or change any of
them, and could cause actual outcomes and results to differ materially from
current expectations. These factors include, among other things, market factors,
competitive product development and promotional activity, the level of consumer
interest in the Company's products, product costing, the weather, the
performance of management, including management's ability to implement its plans
as contemplated, the Company's relationship with its customers, franchisees,
licensees and licensors, governmental regulations and legislation and
litigation. The Company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information, future events
or otherwise.