GOLDEN ENTERPRISES, INC. AND SUBSIDIARY

Management's Discussion and Analysis of
Financial Condition and Results of Operations

The following discussion provides an assessment of the Company's financial condition, results of operations, liquidity and capital resources and should be read in conjunction with the accompanying consolidated financial statements and notes.

Overview

The Company manufactures and distributes a full line of snack items, such as potato chips, tortilla chips, corn chips, fried pork skins, baked and fried cheese curls, onion rings and puff corn. The products are all packaged in flexible bags or other suitable wrapping material. The Company also sells a line of cakes and cookie items, canned dips, pretzels, popcorn, peanut butter crackers, cheese crackers, dried meat products and nuts packaged by other manufacturers using the Golden Flake label.

No single product or product line accounts for more than 50% of the Company's sales, which affords some protection against loss of volume due to a crop failure of major agricultural raw materials. Raw materials used in manufacturing and processing the Company's snack food products are purchased on the open market and under contract through brokers and directly from growers. A large part of the raw materials used by the Company consists of farm commodities, most notably potatoes and corn, which are subject to precipitous changes in supply and price. Weather varies from season to season and directly affects both the quality and quantity of supply available. The Company has no control of the agricultural aspects and its profits are affected accordingly.

The Company sells its products through its own sales organization and independent distributors to commercial establishments that sell food products primarily in the Southeastern United States. The products are distributed by route representatives and independent distributors who are supplied with selling inventory by the Company's trucking fleet. All of the route representatives are employees of the Company and use the Company's direct-store delivery system.

Critical Accounting Policies And Estimates

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, the preparation of which in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that in certain circumstances affect amounts reported in the consolidated financial statements. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due considerations to materiality. The Company does not believe there is a great likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. Other accounting policies and estimates are detailed in Note 1 of the Notes To Consolidated Financial Statements in this 10-K.

Revenue Recognition

The Company recognizes sales and related costs upon delivery or shipment of products to its customers. Sales are reduced by returns and allowances to customers.

Accounts Receivable

The Company records accounts receivable at the time revenue is recognized. Amounts for bad debt expense are recorded in selling, general and administrative expenses on the Consolidated Statements of Operations. The amount of the allowance for doubtful accounts is based on management's estimate of the accounts receivable amount that is uncollectible. The Company records a general reserve based on analysis of historical data. In addition, the Company records specific reserves for receivable balances that are considered high-risk due to known facts regarding the customer. The allowance for bad debts is reviewed quarterly, and it is determined whether the amount should be changed. Failure of a major customer to pay the Company amounts owed could have a material impact on the financial statements of the Company. At May 29, 2009 and May 30, 2008, the Company had accounts receivables in the amount of $9,297,434 and $7,940,547, net of an allowance for doubtful accounts of $127,130 and $70,000 respectively. The Company purchased credit insurance last year which reduced the allowance for doubtful accounts to $70,000. Without credit insurance, the allowance for doubtful accounts would have been $88,835 last year. This year, due to the bankruptcy of two of our customers, we used the calculated allowance of $127,130.

The following table summarizes the Company's customer accounts receivable profile as of May 29, 2009:

                Amount Range                    No. of Customers
                ------------                    ----------------
        Less than $1,000.00                                1,055
        $1,001.00-$10,000.00                                 542
        $10,001.00-$100,000.00                               137
        $100,001.00-$500,000.00                                7
        $500,001.00-$1,000,000.00                              2
        $1,000,001.00-$2,500,000.00                            0
                                                ----------------
        Total All Accounts                                 1,743
                                                ================

Inventories

Inventories are stated at the lower of cost or market. Cost is computed on the first-in, first out method.

Accrued Expenses

Management estimates certain expenses in an effort to record those expenses in the period incurred. The Company's significant estimates relate to insurance-related expenses. The Company is self-insured for certain casualty losses relating to automobile liability, general liability, workers' compensation, property losses and medical claims. The Company also has stop loss coverage to limit the exposure arising from these claims. Automobile liability, general liability, workers' compensation, and property losses costs are covered by letters of credit with the company's claim administrators.

The Company uses a third-party actuary to estimate the casualty insurance obligations on an annual basis.

In determining the ultimate loss and reserve requirements, the third-party uses various actuarial assumptions including compensation trends, health care cost trends and discount rates. The third-party actuary also uses historical information for claims frequency and severity in order to establish loss development factors.

The actuarial calculation includes a margin of error to account for changes in inflation; health care costs, compensation and litigation cost trends as well as estimated future incurred claims. This year, the Company utilized a 50% confidence level for estimating the ultimate outstanding casualty liability based on the actuarial report. Approximately 50% of each claim should be equal to or less than the ultimate liability recorded based on the historical trends experienced by the Company. If the Company chose a 75% factor, the liability would have been increased by approximate $0.3 million. If the Company chose a 90% factor, the liability would have increased by approximately $0.6 million.

This year the Company used a 4% investment rate to discount the estimated claims based on the historical payout pattern during 2009 and 2008. A one percentage point change in the discount rate would have impacted the liability by approximately $50,000.

Actual ultimate losses could vary from those estimated by the third-party actuary. The Company believes the reserves established are reasonable estimates of the ultimate liability based on historical trends.

As of May 29, 2009, the Company's casualty reserve was $1,805,300 and at May 30, 2008 the casualty reserve was $1,877,100.

Employee medical insurance accruals are recorded based on medical claims processed as well as historical medical claims experienced for claims incurred but not yet reported. Differences in estimates and assumptions could result in an accrual requirement materially different from the calculated accrual.

Other Matters

Transactions with related parties, included in Note 11 of the Notes to Consolidated Financial Statements, are conducted on an arm's-length basis in the ordinary course of business.

Other Commitments

The Company had letters of credit in the amount of $2,264,857 outstanding at May 29, 2009 to support the Company's commercial self-insurance program.

The Company has a line-of-credit agreement with a local bank that permits borrowing up to $2,000,000. The line-of-credit is subject to the Company's continued credit worthiness and compliance with the terms and conditions of the advance application. The Company's line of credit debt at May 29, 2009 was $1,454,155 with an interest rate of 4.00%.

The Company's current ratio was 1.46 to 1.00 and 1.35 to 1.00 at May 29, 2009 and May 30, 2008, respectively.

Available cash, cash from operations and available credit under the line of credit are expected to be sufficient to meet anticipated cash expenditures and normal operating requirements for the foreseeable future.

Operating Results

Net sales increased by 7.8% in fiscal year 2009 and 2.3% in fiscal year 2008.

Cost of sales as a percentage of net sales amounted to 52.8% and 51.8% in 2009 and 2008, respectively.

Selling, general and administrative expenses were 45.3% of net sales in 2009 and 46.8% of net sales in 2008.

Operating income for the fiscal year increased an impressive 48.3% compared to last fiscal year.

The Company's effective tax rates for 2009 and 2008 were 40.6% and 40.5%, respectively. Note 6 to the Consolidated Financial Statements provide additional information about the provision for income taxes.

The following tables compare manufactured products to resale products for the fiscal years ended May 29, 2009 and May 30, 2008:

                                Manufactured Products-Resale Products
                                  2009                       2008
                        -------------------------  -------------------------
Sales                                         %                          %
Manufactured Products   $  98,701,412       80.8%  $  91,864,474       81.0%
Resale Products            23,467,214       19.2%     21,515,358       19.0%
                        -------------              -------------
Total                   $ 122,168,626      100.0%  $ 113,379,832      100.0%
                        =============              =============

Gross Margin                                  %                          %
Manufactured Products   $  49,093,733       49.7%  $  47,571,929       51.8%
Resale Products             8,597,087       36.6%      7,042,636       32.7%
                        -------------              -------------
Total                   $  57,690,820       47.2%  $  54,614,565       48.2%
                        =============              =============

Liquidity And Capital Resources

Working capital was $5,603,395 and $3,861,807 at May 29, 2009 and May 30, 2008, respectively. Net cash provided by operations amounted to $1,510,066 and $3,435,839 in fiscal years May 29, 2009 and May 30, 2008, respectively. During 2009, the principal source of liquidity for the Company's operating needs was provided from operating activities, credit facilities and cash on hand.

Additions to property, plant and equipment are expected to be about $6,500,000 in 2010. Approximately $4,000,000 of these additions will be for the water treatment project which is being financed through a note payable to a bank. $1,500,000 is expected to be spent on new handheld computers to be used by the route sales force and distributors while another $1,000,000 is anticipated for enhancements in our pork skin department.

Cash dividends of $1,471,495 were paid in 2009 and 2008, respectively.

Cash of $75,282 was used to purchase 42,275 shares of treasury stock in fiscal 2009 while cash of $135,923 was used to purchase 46,423 shares of treasury stock in 2008.

During fiscal 2009, the Company's debt proceeds net of re-paid debt was $2,713,228 versus $590,792 during fiscal 2008.

Market Risk

The principal market risks (i.e. the risk of loss arising from adverse changes in market rates and prices) to which the Company is exposed are interest rates on its cash equivalents and bank loans, fuel costs and commodity prices affecting the cost of its raw materials.

The Company is subject to market risk with respect to commodities because its ability to recover increased costs through higher pricing may be limited by the competitive environment in which it operates. The Company purchases its raw materials on the open market, under contract through brokers and directly from growers. Futures contracts have been used occasionally to hedge immaterial amounts of commodity purchases, but none are presently being used.

Inflation

Certain costs and expenses of the Company are affected by inflation. While, the Company's prices for its products over the past several years have remained relatively flat, the Company has been able to increase prices during the fiscal year. The Company will contend with the effect of further inflation through efficient purchasing, improved manufacturing methods, pricing, and by monitoring and controlling expenses.

Higher fuel and commodity costs continue to be a challenge.

Environmental Matters

In December 2008, Golden Flake began construction on a water treatment plant as an environmentally-friendly way to dispose of process water at the Birmingham plant. The project will allow the Company to release this water into the neighboring creek which will improve the flow of water in the creek and have a positive impact on the environment in the area surrounding the plant. This project will also help to reduce expenses associated with sewer charges since this will replace the current system which flows through the sewer system. This project is expected to be completed in September 2009.

Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those forward-looking statements. Factors that may cause actual results to differ materially include price competition, industry consolidation, raw material costs, fuel costs and effectiveness of sales and marketing activities, as described in this 10-K. You are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date which they are made.

Recent Developments

The Company, in compliance with Section 404 of the Sarbanes-Oxley Act of 2002 has completed the management assessment of its internal controls. See Item 9A for further details.

Recently Issued Accounting Pronouncements

See Note 1 to the consolidated financial statements included in Item 8 for a summary of recently issued accounting pronouncements.

ITEM 7 A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable as Company is a Smaller Reporting Company.