MANAGEMENT DISCUSSION & ANALYSIS

1 Date

February 15, 2007

2 Overall Performance

Founded in 1985, Perfect Fry manufactures and markets state-of-the-art counter-top commercial deep-fryers and merchandisers for the food equipment industry. Perfect Fry’s markets now extend around the world and across the fast-food spectrum, specializing in popular, tasty, deep-fried foods at snack bars, food kiosks, sport and recreation facilities, concession stands and convenience stores.

Our primary product, the Perfect Fryer, is highly efficient, odorless, compact and requires no external ventilation systems. The fryer incorporates built-in odorless air filtration and Underwriters Laboratories (UL) listed fire prevention systems, both of which were designed and built by Perfect Fry. These systems lead the industry in effectiveness and quality.

The food equipment industry ventilation regulations have not changed significantly since 1996. The industry is moving towards new and upgraded electronic and communication technologies; we are aware of these protocols and have implemented design changes for the long term future. Perfect Fry has designed and controlled its own electronic advancements, enabling us to quickly meet the industry’s ongoing requirements for improved technology.

The Company’s investment in development continues to generate improvements that advance Perfect Fry’s reputation for leadership, product quality and product variety. The company has expended an additional $124,803 in 2006 for a total net amortized value of $1,311,758 in Deferred Product Development Costs relating to our ongoing research and development activities.

The new PFA RapidFry™ is direct result of the past six years of research and development activities. This unit was recently introduced at the National Restaurant Association of the USA (NRA) Show in May 2005. The PFA RapidFry™ is the first odorless, ventless and automated counter-top deep frying system with robotic entry and delivery of food product. This fully-enclosed deep frying system is capable of producing up to 100 pounds of fries per hour requiring only 17 linear inches of counter-space. The PFA RapidFry™ boasts up to 7200 watts of power, the most of any countertop ventless single basket deep fryer, while it’s fully-automated, front-loading, front-dispensing design makes it the most compact deep fryer of its kind. The PFA RapidFry™ design is based on a patented design which Perfect Fry introduced back in the early 1990’s. The PFA RapidFry™ contains more oil for better hold temperatures, more power to recover oil temperature, significant advancements in electronic capabilities and options for easier and more effective use of the equipment. The PFA RapidFry™ provides all of these advantages along with many of the signature features of the PFC line including odorless technology, built-in fire suppression and advanced electronics.

In recognition of Perfect Fry’s commitment to innovation and superior development activities, the Company was proud to receive the Kitchen Innovation Award for 2006 presented by the NRA. This award is judged by a panel of industry leaders who, without compensation, lend authenticity and depth to the value of the award.

The creation of the new PFA RapidFry™ was made possible by the upgraded fire suppression system developed previously, another tangible result of the Company’s development activities. This fire suppression system is now UL registered, giving the system unquestioned acceptance in all North American jurisdictions and increased credibility in International markets. All Perfect Fry equipment carries the CE (European Certification) and NSF (National Sanitation Foundation) listing marks which enhances worldwide sales effectiveness.

While these investments are long-term we believe they are essential to enhancing the intrinsic value of the Company. In addition to innovations in current products, we continue to develop new and complementary products and accessories to further diversify and grow our markets and revenue.

Perfect Fry continues to operate with measured stability, building a strong foundation by steadily investing in all aspects of the company, including physical plant infrastructure, research and development, expanding product lines, international markets and internal processes and technology. Perfect Fry operates as a single reportable operating segment, as these terms are used in the CICA handbook and Perfect Fry has not discontinued any part of its ongoing operations, nor do we have any major acquisitions planned in the future.

3 Selected Annual Information

The financial data in this MD&A has been prepared in accordance with Canadian Generally Accepted Accounting Principles and are presented in Canadian dollars.

4 Results of Operations

Perfect Fry has recorded its highest Gross Revenue in the company’s history with sales of $4,258,899 this year. The USA showed an increase of $214,146, Canada showed a slight decline of $1,065 and International increased $196,475 as compared to fiscal 2005. Unfortunately in 2006 the company experienced a 7% reduction in the US Dollar exchange rate from 1.218 to 1.135.

This increase in cost of inputs including steel and labor along with the lower exchange rate had a 3% decline in revenue over cost of goods during the year. Last year we reviewed our pricing and discount strategy as well as successfully seeking cost reductions for our inputs. As a result the company increased prices 6% starting September 1, 2006 . As the Canadian dollar rises in value on international markets we are looking elsewhere to find lower cost of inputs.

Perfect Fry continues to use tax pools carried forward from previous years and is therefore not in a tax payable situation.

The chart above shows the decline in the average exchange rates experienced over the past three years. The reduced exchange rate of 1.135 experienced in 2006 represents lower revenue of $234,000 compared to the 2005 rate of 1.218 and lower revenue in 2005 of $210,000 compare to the 2004 rate of 1.314.

During the year the company had expected to experience 25% of the sales to be the new PFA model. PFA model sales actually represent 54% of the equipment sales of the company. The company also experienced a supply problem from our steel producer in the spring. These two factors put a high level of stress on the production facilities and resulted in a number of months where the product was back ordered for up to six weeks. The company has compensated for this position by investing in a larger inventory level than normal. At the end of 2006 this investment in inventory totaled $1,290,575 up from $923,423 in 2005 and $737,503 in 2004. This inventory level is higher than desired and the company is looking forward to reducing this level as we regain confidence in our suppliers. The company will increase storage space with the installation of a tent type structure in order to accommodate future development. The company believes that we can take advantage of purchases from overseas suppliers by using the new tent type to store bulk purchased items , there by reducing overall costs of sales.

Selling costs, including advertising and promotional efforts, decreased by 12% compared to 2005 for two reasons. Fiscal 2005 includes expenditures relating to our first ever distributor meeting which the company will hold on a biannual or triennial basis. Secondly, the company reduced its investment in overseas travel and equipment shows during Fiscal 2006. This decrease was partially offset by an increase in 2006 as a result of the extra booth at the NRA show necessary to showcase our award winning PFA RapidFry™.

General and administrative costs increased by 6% compared to 2005 mostly due to increased cost of labor in the high demand Calgary market. Warranty costs remain acceptable at 0.85% of equipment sales during the year, compared with 0.40% in 2005 and 0.50% in 2004. Our design and quality control efforts continue to show positive long term results.

Perfect Fry is experiencing significantly lower net cost of occupancy compared to prior years, due entirely to the new building. The occupancy costs and interest on the mortgage net of rental revenue declined from $76,737 in 2001 to $32,020 in 2006.

The Company experienced expenses in bad debt of less than a $1,000 this past year. Our bad debt expenses are back on track after a very poor year in 2005 of $33,000.

he Perfect Fry Corporation Board of Directors concluded a normal course issuer bid (NCIB), which commenced January 1, 2006 and expired December 31, 2006 . During this NCIB the Company purchased for cancellation 159,500 shares at an average price of $0.276. The past two NCIB’s have totaled 479,000 shares purchased. This program allows the Company to purchase common shares in the normal course when the Company estimates that the common shares are undervalued by the Market. The shares purchased will be made through the facilities of the TSX Venture Exchange in accordance with its policy on normal course issuer bids.

5 Quarterly Results

($ in 000’s – except per share amounts)

Our overall sales strategy continues to focus on specialty distributors in the food equipment industry. This allows Perfect Fry to develop long term quality relationships.

Exchange rate fluctuation is an ongoing concern for the Company as a significant portion of revenue is earned in US dollars. Perfect Fry will continue to sell in US dollars to maintain strong distributor relationships. Perfect Fry has alleviated all cross-border stress for our distributors by removing barriers such as customs reporting, freight concerns and currency transactions. The Company believes strongly that the administrative cost of removing these barriers was easily offset by the efficiencies enjoyed by our distributors.

6 Liquidity

The Company is able to supply cash requirements for future needs on a regular basis from operations. Our production schedule continues to gain efficiencies through all periods of the year and inventory levels fluctuate as a normal course of business.

Fluctuations in liquidity occur throughout the year as sales in the summer and winter months are generally lower than the spring and fall. Assuming growth in sales, working capital fluctuations would be provided by operating loans of up to $1,000,000 from bank financing. During normal company operations, working capital deficiencies have been offset by bank financing. A bank indebtedness of $349,000, the largest in the past two years, was reported in the July 31, 2005 Quarterly Report.

The net working capital, defined as current assets less current liabilities, increased $203,650 to $1,535,586 (in 2006) from $1,331,936 (in 2005), an increase of 15% over last year. Investing activities in deferred product development will decline during the coming years. Financing activities of common share acquisitions will only occur on a discretionary basis provided we are in a positive cash position.

There are no restrictions in the movement of financial resources between the parent company and its’ subsidiaries.

The Company is not in default and is not in arrears with any accounts, nor does it have any large purchase obligations either outstanding or planned.

7 Capital Resources

The Company has no future plans for significant capital expenditures. The company is adding on a small tent type structure for cold storage.

The Company uses ongoing cash flows to support research and development activities. There are currently no long term obligations or outstanding agreements to fulfill except for the building mortgage. The company has no plans to renovate or expand the building. Research and development expenditures are solely for our future vision and can be expanded or downsized depending on finances. The company expects that development expenditures will be lower in the near future as we consolidate our current product position.

8 Off-Balance Sheet Arrangements

The Company carries on the normal course business using purchase orders that in some cases will extend beyond the coming year, none of which are contracts with strict time frames. We take advantage of pricing on larger purchase quantities without locking in exact times of delivery which gives us flexibility in working out financial requirements and longer term inventory levels. In the event of some unforeseen difficulty the Company can cancel these orders without financial consequences.

9 Transactions with Related Parties

The Company’s consolidated financial statements reflect the ongoing operations of Perfect Fry Corporation, which performs management duties, Perfect Fry Company Ltd., which manufactures deep-fryers for the food equipment industry, and Perfect Fry Holdings Ltd. which owns the land and building out of which the Company operates.

Certain directors are also distributors. All sales to these directors/distributors are at normal sales terms. No other related parties transaction exist apart from the directors/distributors.

10 Fourth Quarter Results

The Company recorded its seventh straight quarter of sales in excess of 1,000,000 million dollars. This year is the first time in the company’s history to record all four quarters of more than one million dollars per quarter.

11 Proposed Transactions

The Perfect Fry Corporation Board of Directors is going to conduct a normal course issuer bid (NCIB), which will commence March 1, 2007 and expire on February 29, 2008 . The company intends to purchase for cancellation up to a maximum of 465,482 common shares, representing 5% of all common shares issued and outstanding. This program allows the company to purchase common shares in the normal course when the Company estimates that the common shares are undervalued by the Market. These purchases are to be made through the facilities of the TSX Venture Exchange in accordance with its policy on normal couse issuer bids. The price that the Company will pay for any common shares will be the market price at the time of acquisition to a maximum market price of $0.35 per share.

12 Critical Accounting Estimates

The accounting process requires that management make, and periodically review, a number of estimates including the following more significant assessments of the:

-net realizable value of accounts receivables and inventories;

-net recoverable value of property, plant and equipment and deferred product development costs;

-economic useful life of long lived assets for purposes of calculating amortization; and

-realization of future tax assets.

Actual results may differ from these estimates.

13 Changes in Accounting Policies

Effective November 1, 2005 the company adopted the new CICA handbook Section: 3831, Non-Monetary Transactions. The company has determined there is no effect to the current or prior years by the implementation of this section.

Effective November 1, 2004 the company adopted CICA handbook Sections AcG-15, Consolidation of Variable Interest Entities. The Company has determined there is no effect on the current or prior years by the implementation of any of these sections.

New Accounting Standards Not Yet Adopted

Effective November 1, 2006 the company adopted the new CICA handbook Sections: 1530, Comprehensive Income, 3251, Equity, 3855 Financial Instruments - Recognition and Measurement and 3865, Hedges and all the related consequential amendments including 1651, foreign Currency Translation, 3051, Investments and 3861, Financial Instruments – Disclosure and Presentation. The Company expects that the implementation of these standards will not have a material effect on the financial statements.

ffective November 1, 2007 the company will adopt the new CICA handbook Sections; 1506, Accounting Changes and 1535, Capital Disclosure, 3862, Financial Instruments – Disclosures and 3863 Financial instruments – Presentation. The company is presently evaluating the impact of these new Standards.

14 Financial Instruments

Because Perfect Fry Company earns a significant portion of its operating revenues in US dollars, variation in the exchange rates affect the Company’s operating and financial results. In October 2006, The Company entered into an option dated foreign exchange contract to sell $250,000 US dollars over a 6 month term at a rate of 1.1281 USD/CDN. At October 31, 2006 a balance of $250,000 remained to be sold. At the writing of this report this contract has a remaining balance of $150,000 US dollars. The potential negative effect of $150,000 US dollars remaining under contract on the net earnings of the company at the time of writing would be the difference between 1.1628, rate at February 15, 2007, and 1.1281 on the contract, which is 0.0347 or negative $5,205

15 Other MD&A Requirements

Further information relating to the Company is disclosed on the SEDAR website at www.sedar.com.

16 Issued and Outstanding Common Shares

At October 31, 2006 there were 9,414,656 (2005 – 9,469,156) shares outstanding which is net of 54,500 shares repurchased for cancellation during the Fiscal year.

17 Disclosure Controls and Procedures and Internal Controls Over Financial Reporting

Perfect Fry Corporation management, including the President and Chief Executive Officer and the Chief Financial Officer, has reviewed and evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Multilateral Instrument 52-109 of the Canadian Securities Administrators) as of October 31, 2006. Management has concluded that, as of October 31, 2006 , the disclosure controls and procedures were effective to provide reasonable assurance that the material information was made known relating to the Corporation

Management has designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for purposes in accordance with Canadian GAAP.

here have been no changes in the Corporation’s internal controls over financial reporting during the year that have materially affected, or are reasonably likely to materially affect, the Corporation’s financial reporting.