The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included elsewhere in this report. This report and our consolidated financial statements and notes to consolidated financial statements contain forward-looking statements, which generally include the plans and objectives of management for future operations, including plans and objectives relating to our future economic performance and our current beliefs regarding revenues we might generate and profits we might earn if we are successful in implementing our business and growth strategies. The forward-looking statements and associated risks may include, relate to or be qualified by other important factors, including, without limitation:

? the impact of competitive products and pricing;

? fulfillment by suppliers of existing raw material contracts;

? market conditions that may affect the costs and/or availability of raw materials, fuels, energy, logistics and labor as well as the market for our products, including our customers' ability to pay and consumer demand;

? changes in our business environment, including actions of competitors and changes in customer

preferences, as well as disruptions to our customers' businesses;

? seasonality in the retail category;

? loss of key customers due to competitive environment or production being moved in-house by customers;

? natural disasters that can impact, among other things, costs of fuel and raw materials;

? the occurrence of acts of terrorism or acts of war;

? changes in governmental laws and regulations, including income taxes;

? change in control due to takeover or other significant changes in ownership;

? financial viability of our customers during deep recessionary periods;

? ability to obtain additional financing and rising costs of credit associated with new borrowings; and

? other factors discussed in this report.

We do not undertake to update, revise or correct any forward-looking statements, except as otherwise required by law.

Any of the factors described above or in the "Risk Factors" section above could cause our financial results, including our net income or loss or growth in net income or loss to differ materially from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially.

Overview

We are a leading value-added manufacturer of high quality, prepared frozen food products for branded retail, private label, foodservice and airline customers. Our product line includes entrées, plated meals, bulk-packed meal components, pastas, soups, sauces, poultry, meat and fish specialties, and organic and vegetarian offerings. Our extensive research and development efforts, combined with our extensive catalogue of recipes and flexible manufacturing capabilities, provide customers with a one-stop solution for new product ideas, formulations and product manufacturing, as well as precise replication of existing recipes. Our capabilities allow customers to outsource product development, product manufacturing and packaging, thereby avoiding significant fixed-cost and variable investments in resources and equipment. Our customers include prominent nationally recognized names such as Jenny Craig, Inc., H. J. Heinz Company, American Airlines, Inc., Safeway Inc., Pinnacle Foods Group LLC and Panda Restaurant Group, Inc.

Our goal is to be a leading developer and manufacturer of value-added food products and provider of custom prepared frozen foods. We intend to create superior value for our stockholders by continuing to execute our growth and operating strategies, including:

? diversifying and expanding our customer base by focusing on sectors we believe have attractive growth characteristics, such as foodservice and retail;

? operating and investing in efficient production facilities;

? providing value-added ancillary support services to customers;

? offering a broad range of products to customers in multiple channels; and

? continuing to pursue growth through strategic acquisitions and investments.

During fiscal year 2008, our net revenues increased significantly year-on-year due to the continued success of retail customer lines. During the same time period, however, the prices for virtually all food-related commodities, especially poultry, dairy and cheese, eggs, wheat, corn products and oils rose dramatically, some to historic levels. Wherever reasonably possible, we have locked in annual raw materials purchase prices by contracting volume to cover anticipated sales.

We are now in the process of negotiating several annual vendor and customer contracts, and we believe margins will improve through reduced purchase prices of raw materials, increased sales prices to customers and a change in mix of customers between retail, foodservice and airlines. This is in line with our strategy to continue to reduce our reliance on a small number of key accounts and to improve margins.

Following completion of Plant No. 1 in April 2003, we strategically filled available capacity with business that carried gross margins lower than our historical average. With our recent growth, we have moved and intend to continue to move away from some accounts that do not meet our profit objectives towards higher margin business now available to us.

Fiscal years 2008, 2007 and 2006 were 52-week periods. For the fiscal year ended September 28, 2008 net revenues of $238.8 million reflected a 24.0% increase (18.5 % was attributed to volume/mix increases and 5.5% was attributed to pricing increases) as compared to the fiscal year ended September 30, 2007. During fiscal year 2008, increased sales in the retail category offset an expected decline in foodservice sales resulting from a customer's decision to diversify its source of suppliers (as previously disclosed). We experienced a 14.4% increase in net revenues for the fiscal year ended September 30, 2007, to $192.6 million, compared to $168.3 million the fiscal year ended October 1, 2006. The increase in net revenues during fiscal year 2007 was also due to growth in our retail category.

Gross profit was $29.3 million in fiscal year 2008, compared to $19.9 million in fiscal year 2007 and $21.5 million in fiscal year 2006. Gross profit increased as a percentage of net revenues during fiscal year 2008 to 12.3% from 10.4% in fiscal year 2007, after declining from 12.8% in fiscal year 2006. Gross profit as a percentage of revenues recovered in fiscal year 2008 to near the fiscal year 2006 level due to higher margin sales along with on-going manufacturing improvements, increased efficiencies and yields, improved and increased financial reviews and controls and modest increases in sales prices to several customers, offset partially by new product development costs. The earlier decline in gross profit in dollars and as a percentage of revenues in fiscal year 2007 compared to fiscal year 2006 was due to increases in raw materials and commodity costs as well as start-up costs related to the launch of two new product lines, inefficiencies relating to production during our facility expansion and lower profit margins on Panda Restaurant Group, Inc.'s products. As previously disclosed, in order to improve our gross profit margins, we continue to analyze our lower margin accounts in order to increase margins or change to more profitable business. In the third quarter of fiscal year 2008, we ceased production for a customer that did not meet our profit objectives, and going forward, we intend to continue to focus on higher margin business.

Operating income as a percentage of net revenues for the fiscal year ended 2008 was 8.6% compared to 6.2% in fiscal year 2007 and 8.5% in fiscal year 2006, due primarily to increased net revenues and improvements in gross profit margins as noted above. SG&A expenses as a percentage of net revenues improved to 3.6% in fiscal year 2008 compared to 4.2% in fiscal year 2007 and 4.3% in fiscal year 2006. SG&A expenses decreased as a percentage of net revenues because we were able to administer a greater volume of business with little increase in staffing. Net income of $10.3 million increased as a percentage of net revenues to 4.3% in fiscal year 2008 versus 2.4% in fiscal year 2007 and 3.0% in fiscal year 2006.

As described under "Liquidity and Capital Resources" below, during fiscal year 2006 we refinanced our then existing debt of $44.5 million. The new credit facility with Guggenheim Corporate Funding, LLC ("GCF") was a $47.5 million senior secured credit facility with a five-year maturity and was secured by a first priority lien on substantially all of our assets. On March 9, 2007, we executed a second amendment to the senior credit agreement allowing for $7.0 million of additional financing for capital expenditures. The facility is now a $49.7 million senior secured credit facility and is structured as a $7.5 million non-amortizing revolving loan, a $26.5 million amortizing Tranche A Term Loan and a $15.7 million non-amortizing Tranche B Term Loan.

Results of Operations

The tables presented below, which compare our results of operations from one period to another, present the results for each period, the change in those results from one period to another in both dollars and percentage change, and the results for each period as a percentage of net revenues. The columns present the following:

? First four data columns in each table show the absolute results for each period presented and results for each period as a percentage of net revenues.

? Last two columns entitled "Dollar Variance" and "% Variance" show the change in results, both in dollars and percentages for the fiscal years presented. These two columns show favorable changes as positives and unfavorable changes as negatives. For example, when our net revenues increase from one period to the next, that change is shown as a positive number in both columns. Conversely, when expenses increase from one period to the next, that change is shown as a negative in both columns.

Fiscal Year Ended September 28, 2008 Compared to Fiscal Year Ended September 30,

2007

                                                  Fiscal Year Ended                                     Change 2008 vs 2007
                                ­September 28, 2008              ­September 30, 2007          Dollar Variance          % Variance
                                              % of Net                         % of Net          Favorable             Favorable
                              Dollars         Revenues         Dollars         Revenues        (Unfavorable)         (Unfavorable)
(Dollars in thousands)

Net revenues                $   238,780           100.0%     $   192,642           100.0%     $         46,138                  24.0%

Cost of sales                   209,517             87.7         172,694             89.6              (36,823 )                (21.3 )

Gross profit                     29,263             12.3          19,948             10.4                9,315                   46.7

Selling, general
and administrative
expenses                          8,647              3.6           8,047              4.2                 (600 )                 (7.5 )

Operating income                 20,616              8.6          11,900              6.2                8,716                   73.2

Interest expense                  3,663              1.5           4,389              2.3                  726                   16.5

Income before
income taxes                     16,953              7.1           7,511              3.9                9,442                  125.7

Income tax provision              6,632              2.8           2,949              1.5               (3,683 )               (124.9 )

Net income                  $    10,321             4.3%     $     4,562             2.4%     $          5,759                 126.2%

Net Revenues. Net revenues for the fiscal year ended September 28, 2008 increased $46.2 million or 24.0% (18.5 % was attributed to volume/mix increases and 5.5% was attributed to pricing increases) to $238.8 million from $192.6 million for the fiscal year ended September 30, 2007, due to increased volume and new products from new and existing customers as discussed below.

Retail net revenues increased $59.6 million (or 52.1%) to $174.0 million for the fiscal year ended September 28, 2008 from $114.4 million for the fiscal year ended September 30, 2007. The increase in retail net revenues was due in part to higher year-on-year sales to H. J. Heinz Company and Safeway Inc., which were both launched during the second quarter of fiscal year 2007. Increases in sales to H. J. Heinz Company and Safeway Inc. were 144.9% and 80.2%, respectively, versus the prior fiscal year. For fiscal year 2008, the retail category as a percentage of net revenues increased to 72.9% from 59.4%.

During fiscal year 2008, we entered into a five-year licensing agreement with Better Living Brands tm Alliance ("Alliance") for the exclusive right to produce and sell frozen entrées under the Eating Right tm and O Organics tm brands. The mission of the Alliance is to provide health and wellness food and beverage solutions via its two proven multi-category lifestyle brands. We agreed to pay a one-time $1.25 million licensing fee in two installments, of which we paid $1.0 million in May 2008 and will pay the remaining $250,000 in May 2009. In addition, we paid a $125,000 royalty fee prepayment in May 2008 and the remaining $125,000 royalty prepayment in October 2008. The agreement is renewable for two five-year terms. For fiscal year 2008, amortization expense related to the licensing fee was $84,000. We anticipate revenue from the licensing agreement to begin in fiscal year 2009.

Also, during the fourth quarter of fiscal year 2008, we rolled out an additional product line of 30 items for Safeway Inc. We anticipate realizing the full impact from the new business beginning in fiscal year 2009.

Foodservice net revenues decreased $14.4 million (or 24.6%) to $44.1 million for fiscal year 2008 from $58.5 million for fiscal year 2007 due to anticipated reduced volume from one customer and softness in the foodservice industry caused by a slowing economy. For fiscal year 2008, the foodservice category as a percentage of net revenues decreased to 18.5% from 30.4%. However, we continue our sales efforts in this category and believe that foodservice represents a significant opportunity for us in 2009 and beyond.

Airline net revenues increased $1.0 million (or 5.1%) to $20.7 million for fiscal year 2008 from $19.7 million for fiscal year 2007. The increase in airline net revenues was primarily attributable to increases in passenger travel during the early part of fiscal year 2008. Given record high fuel costs in 2008 and airline initiatives to cut costs, going forward we expect a decrease in airline net revenues. For fiscal year 2008, the airline category as a percentage of net revenues decreased to 8.7% from 10.2% as we are transitioning away to opportunities outside of this category.

Although we anticipate continued growth in fiscal 2009, the economic forecast for calendar 2009 will present challenges along with new business opportunities. One of our retail customers, H. J. Heinz Company, has indicated that they will be self-manufacturing a greater share of their volume requirements. As a result, H. J. Heinz Company expects to move significant volume out of our facilities beginning January 1, 2009. We are currently projecting a revenue reduction of approximately $19 million for the fiscal year, beginning in our second quarter. We are in the process now of negotiating with H. J. Heinz Company for new volume and revised pricing for existing and future business. Safeway Inc.'s Eating Right© product line, which we began to produce in February 2007, continues to perform well. We have also launced a second line for Safeway Inc. that is rolling out to all of their locations later in fiscal year 2009. In addition, we have reached an agreement with an existing foodservice customer, which provides for an increase of sales of approximately $20 million over the prior fiscal year. We believe other retail customers and foodservice opportunities will compensate for anticipated lost sales in both fiscal and calendar year 2009.

Gross Profit. Gross profit for fiscal year 2008 increased $9.4 million to $29.3 million, or 12.3% of net revenues, from $19.9 million, or 10.3% of net revenues, for fiscal year 2007. Gross profit, both in dollars and as a percentage of revenues, was higher due to increased sales along with on-going manufacturing improvements, increased efficiencies and yields, improved and increased financial reviews and controls and modest increases in sales prices to several customers, offset slightly by costs incurred for new product development. In addition, in order to improve our gross profit margins, we continue to analyze our lower margin accounts and expect to move away from some of the accounts that do not meet our profit objectives towards higher margin business now available to us.

During fiscal year 2008, we were notified by the U.S. Department of Agriculture of a recall of beef produced by the Hallmark/Westland Meat Packing Co. The recall was classified as Class II, meaning the risks of health and/or safety issues were remote. We purchased a small amount of raw beef directly from Hallmark/Westland during the fiscal year and manufactured it into finished goods that were eventually destroyed. We were subsequently informed that a larger amount of cooked beef was purchased from another vendor (a vendor mandated by a customer) that had originally purchased raw beef from Hallmark/Westland. As a result of this government mandated recall, we destroyed or approved destruction of approximately 70,000 cases of product resulting in a charge to cost of sales of approximately $1.0 million during fiscal year 2008. Gross profit margin was negatively affected by less than 1%. We believe that we have areas of recourse to recover all or part of the losses incurred relating to the recall. Any recovery will be recorded in subsequent periods.

Selling, General and Administrative Expenses. SG&A expenses increased $600,000 (or 7.5%) to $8.6 million, or 3.6% of net revenues, for fiscal year 2008 from $8.0 million, or 4.2% of net revenues, for fiscal year 2007. SG&A expenses were driven by higher brokerage fees due to higher retail sales, increased salaries and higher legal fees associated with the claims filed against American Pie, LLC as noted in the Other Matters section below. These increases were partially offset by lower professional service fees, primarily related to a $600,000 decrease in fees for Sarbanes-Oxley requirements.

Operating Income. Operating income increased $8.7 million (73.1%) to $20.6 million for fiscal year 2008 from $11.9 million for fiscal year 2007. The increase in operating income was the result of improvements in net revenues and gross profit margins as noted above.

Interest Expense. Interest expense decreased $700,000 (15.9%) for fiscal year 2008 to $3.7 million from $4.4 million for fiscal year 2007 due to lower variable interest rates and lower debt balances.

Income Tax Provision. Income tax expense was $6.6 million for fiscal year 2008 compared to $2.9 million for fiscal year 2007. The difference was a result of income before taxes increasing $9.5 million from $7.5 million for fiscal year 2007 to $17.0 million during fiscal year 2008. The effective tax rates were 39.1% and 39.3% for fiscal years 2008 and 2007, respectively. The effective tax rate for the fiscal year ended September 28, 2008 did not materially differ from the statutory rate.

Net Income. Net income for fiscal year 2008 was $10.3 million, or $0.66 per basic share and $0.65 per diluted share, compared to net income of $4.6 million, or $0.30 per basic share and $0.29 per diluted share for fiscal year 2007.

We currently expect to continue profitable operations primarily through (a) growing revenues from profitable product lines, increasing our customer base and replacing lower margin accounts; (b) improving gross margins by increasing prices to customers where appropriate, streamlining additional costs and continuing to leverage our manufacturing and storage facilities to improve manufacturing efficiency; and (c) reducing future interest costs on outstanding debt through permitted pre-payments on our debt. However, no assurance can be given that we will be successful in any of these initiatives. As discussed in "Risk Factors" contained in Item 1A of this report, we may be unable to improve our operating results if we suffer a decline in our manufacturing efficiency, the loss of major customers, declines in air travel, adverse changes in our operating costs or raw materials costs or other adverse changes to our business.

Fiscal Year Ended September 30, 2007 Compared to Fiscal Year Ended October 1, 2006

                                                 Fiscal Year Ended                                      Change 2007 vs 2006
                                ­September 30, 2007                October 1, 2006             Dollar Variance           % Variance
                                              % of Net                        % of Net            Favorable              Favorable
                              Dollars         Revenues        Dollars         Revenues          (Unfavorable)          (Unfavorable)
(Dollars in thousands)

Net revenues                $   192,642           100.0%     $  168,310           100.0%     $            24,332                  14.5%

Cost of sales                   172,694             89.6        146,825             87.2                 (25,869 )                (17.6 )

Gross profit                     19,948             10.4         21,485             12.8                  (1,537 )                 (7.2 )

Selling, general
and administrative
expenses                          8,047              4.2          7,196              4.3                    (851 )                (11.8 )

Operating income                 11,900              6.2         14,288              8.5                  (2,388 )                (16.7 )

Interest expense                  4,389              2.3          5,731              3.4                   1,342                   23.4

Income before income
taxes                             7,511              3.9          8,558              5.1                  (1,047 )                (12.2 )

Income tax provision              2,949              1.5          3,456              2.1                     507                   14.7

Net income                  $     4,562             2.4%     $    5,102             3.0%     $              (540 )               (10.6% )

Net Revenues. Net revenues for fiscal year 2007 increased $24.3 million (or 14.5%) to $192.6 million from $168.3 million for fiscal year 2006, driven predominately by increases in sales to retail customers, as noted below.

Retail net revenues increased $33.4 million (or 41.2%) to $114.4 million for fiscal year 2007 from $81.0 million for fiscal year 2006. The increase in retail net revenues was due in part to the launch of 24 new private-label items in February 2007 for Safeway Inc. In addition, we entered into a new agreement with H.J. Heinz Company, which was announced in January 2007.

Foodservice net revenues decreased $7.3 million (or 11.1%) to $58.5 million for fiscal year 2007 from $65.8 million for fiscal year 2006. In January 2007, Panda Restaurant Group, Inc. communicated its intentions to transfer $20.0 million in annual foodservice production volume from us to another vendor. As this transfer was delayed, the decrease in sales to this customer during fiscal year 2007 was approximately $7.0 million rather than $20.0 million as previously announced.

Airline net revenues decreased $1.9 million (or 8.8%) to $19.7 million for fiscal year 2007 from $21.6 million for fiscal year 2006. The decline in airline net revenues was primarily attributable to the loss of sales to Delta Airlines subsequent to its bankruptcy filing.

Gross Profit. Gross profit for fiscal year 2007 decreased $1.5 million to $19.9 million, or 10.4% of net revenues, from $21.5 million, or 12.8% of net revenues, for fiscal year 2006. The decrease in margins was attributable to: higher raw materials and commodity costs; start-up costs relating to simultaneously launching two new product lines; inefficiencies related to production during our facility expansion; and lower profit margins on Panda's products. As noted above, Panda did not transition all of the $20.0 million of business to alternate suppliers as planned. Panda asked us to increase our production volume after chicken contracts were in place for the fiscal year. As we were required to purchase non-contracted chicken at higher spot market costs, our margins were negatively affected.

Selling, General and Administrative Expenses. SG&A expenses increased $851,000 (or 11.8%) to $8.0 million, or 4.2% of net revenues, for fiscal year 2007 from $7.2 million, or 4.3% of net revenues for fiscal year 2006. SG&A expenses were driven by higher professional fees of $874,000 due to Sarbanes-Oxley requirements, $314,000 of increased brokerage due to higher retail sales, offset partially by reductions in sales promotional activities and in legal services.

Operating Income. Operating income decreased $2.4 million (16.7%) to $11.9 million for fiscal year 2007 from $14.3 million for fiscal year 2006. The decrease in operating income was the result of increases in cost of sales and SG&A expenses as noted above.

Interest Expense. Interest expense decreased $1.2 million (23.4%) for fiscal year 2007 to $4.4 million from $5.6 million for fiscal year 2006. Interest expense declined $1.1 million from $5.1 million to $4.0 million due to lower interest rates as a result of the refinancing in fiscal year 2006 and from the capitalization of interest of $186,000 on borrowings used in the construction of new plant capacity and line efficiency projects that occurred in fiscal year 2007.

Income Tax Provision. Income tax expense was $2.9 million for fiscal year 2007, compared to $3.5 million for fiscal year 2006. The difference was a result of income before taxes decreasing $1.0 million from $8.6 million for fiscal year 2006 to $7.5 million for fiscal year 2007. The effective tax rates were 39.3% and 40.4% for fiscal years 2007 and 2006, respectively. The effective tax rate for fiscal year 2007 did not materially differ from the statutory rate.

Net Income. Net income for fiscal year 2007 was $4.6 million, or $0.30 per basic share and $0.29 per diluted share, compared to net income of $5.1 million, or $0.34 per basic share and $0.32 per diluted share, for fiscal year 2006.