Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the other sections of this Annual Report on Form 10-K, including "Item 1.: Business" and "Item 8.:
Financial Statements and Supplementary Data." The various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in "Item 1A.: Risk Factors." Accordingly, the Company's actual future results may differ materially from historical results or those currently anticipated.

Overview

The Company's net revenue increased 24.4% in fiscal 2008. Net revenues from sales of T.G.I. Friday's® snack products, which comprised 33% of total net revenues, decreased 12.5%. During our second quarterly review, the Company identified the 20% volume decline in T.G.I. Friday's® as a concern in the warehouse snack segment. The Company made progress in the third quarter, as net revenues from this brand declined by only 6%, and total Bluffton, Indiana produced products were up 9% for the quarter. The Company continues to work with the T.G.I Friday's® group to extend its' product offerings into new categories and channels of distribution. Additionally, the Company believes that the new T.G.I. Friday's® branded products currently scheduled for roll out in first quarter 2009 will strengthen this category. Net revenues from potato chips and other snacks increased 36.2% in 2008. The table below highlights the changes between years:

                            Net Revenues Comparison

                                ($ in millions)



                                 2008      2007    % Change
T.G.I. Friday's®                $  37.6   $ 42.9      (12.5 )%
Potato Chips and Other Snacks      37.1     27.2       36.2 %
Rader Farms Berry Products         38.4     20.8       84.6 %
Total                           $ 113.1   $ 90.9       24.4 %

In connection with the implementation of the Company's business strategy, the Company is likely to require future debt or equity financings (particularly in connection with future strategic acquisitions). Expenditures stemming from acquisition-related integration costs, trade and consumer marketing programs and new product development may adversely affect operating expenses and consequently may adversely affect operating and net income.

Key Trends

Retailer Consolidation

The retail food environment continues to be influenced by consolidation as fewer large retailers, including Kroger, Safeway and Wal*Mart, are gaining a larger share of the grocery retail environment. These retailers are also consolidating their regional buying operations into singular national operations to improve efficiency. This action creates opportunities for the Company because brands like T.G.I. Friday's® and BURGER KINGTM brand snack products are niche brands that can be sold effectively on a national basis.

Consumer Trends

The snack industry has been heavily influenced in the past five years by a proliferation of new flavors and health focused snacks, with a rapid increase in the number of low-fat, low-carb and all-natural and organic products. Mainstream retailers such as Safeway have now created standalone natural and organic sections in their stores. The Company believes this trend for healthier snacks will continue and will provide opportunities for its Rader Farms berry products to experience revenue growth.

Raw Material and Freight Price Increases and Subsequent Retail Price Increases

The snack foods industry has experienced higher costs as a result of the increase in the price of potatoes and oil. Additionally, both inbound transportation of raw materials and outbound transportation of finished goods have experienced higher costs as a result of freight surcharges. Nearly all raw materials have experienced higher pricing both as a result of higher freight costs and certain products require oil based raw materials. As a result of these raw material price increases, many companies, including us, have implemented price increases in 2007 and 2008.

Results of Operations

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources of the Company. This discussion should be read in conjunction with "Item 8.: Financial Statements and Supplementary Data" and the "Cautionary Statement Regarding Forward-Looking Statements" on page 3.

Year ended December 27, 2008 compared to the year ended December 29, 2007

                                2008                   2007                 Difference
(dollars in millions)       $       % of Rev       $       % of Rev        $          %
Net revenues            $   113.1      100.0 % $    90.9      100.0 %  $    22.2       24.4 %
Cost of revenues             90.9       80.4        75.3       82.8         15.6       20.7
Gross profit                 22.2       19.6        15.6       17.2          6.6       42.3
Selling, general and
administrative
expenses                     16.8       14.9        14.1       15.5          2.7       19.1
Impairment of
intangible asset                -          -         2.7        3.0         (2.7 )   (100.0 )
Operating income
(loss)                        5.4        4.7        (1.2 )     (1.3 )        6.6      550.0
Interest income
(expense), net               (1.3 )     (1.1 )      (1.0 )     (1.1 )       (0.3 )     30.0
Income (loss) before
income taxes                  4.1        3.6        (2.2 )     (2.4 )        6.3      286.4
Income tax benefit
(provision)                  (1.7 )     (1.5 )       0.7        0.8         (2.4 )    342.9
Net income (loss)       $     2.4        2.1 % $    (1.5 )     (1.7 )% $     3.9      260.0 %

For the fiscal year ended December 27, 2008, net revenues increased 24.4%, or $22.2 million, to $113.1 million compared with net revenues of $90.9 million for the previous fiscal year.

The increase in Net Revenues were attributable to a number of factors; a full year of Rader Farms which was acquired in May 2007, a 29% increase in Boulder Canyon Natural FoodsTM brand kettle cooked chips, an increase of 18% in Poore Brothers® kettle cooked chips, an increase in Private Label snacks of 82% which reflects the company's strategy of moving into Premium Private Label products to fill up the Indiana plant and BURGER KINGTM branded snacks sales of $5.5 million for the year. These increase were partially offset by a 12.5% reduction in the TGI Friday's® brand of snacks.

Gross profit for 2008 increased $6.6 million to $22.2 million, and increased as a percentage of net revenues to 19.6% as compared to 17.2% in 2007. The primary cause of this increase was the improvement in gross margin realized from our snack products, increasing to 19.8% as compared to 16.6% in the prior year, attributable to product price increases and cost reduction activities at our plants. Rader Farms gross margin was 19.4%, compared to 18.9% in the prior year.

Selling, general and administrative expenses were $16.8 million or 14.9% of net revenues for the year versus $16.8 million or 18.5% of Net Revenue last year. Last year's expenses included a $2.7 million impairment charge realized on the Bob's Texas Style® and Tato Skins® trademarks. Excluding these write downs, last year's expenses would have been 15.5% of net revenues.

The Company's effective income tax expense rate was 42.1% in 2008 while its effective tax benefit rate was 32.1% in 2007. The change in the effective rate is due to differences in non-deductible expenses, primarily stock based compensation related to individual stock option grants.

Net income for 2008 was $2.4 million, representing a $3.9 million increase when compared to net loss of $1.5 million for 2007. The net income for 2008 equated to $0.13 per basic and diluted share, compared with $(0.08) per basic and diluted share, in 2007.

Liquidity and Capital Resources

Net working capital was $4.5 million (a current ratio of 1.2:1) and $3.6 million (a current ratio of 1.2:1) at December 27, 2008 and December 29, 2007, respectively. For the fiscal year ended December 27, 2008, operating activities provided $5.4 million, primarily as a result of our generation of net income in fiscal year 2008, compared to a net loss in 2007, and an increase in accounts payable and accrued liabilities of $1.9 million. Investing activities utilized $3.9 million, primarily due to the purchase of fixed assets. Financing activities utilized $1.3 million, largely due to the Company's payments towards debt borrowings and purchases of treasury stock.

For the fiscal year ended December 29, 2007, the Company utilized $0.7 million in operating activities primarily as a result of increased inventories. Investing activities utilized $23.4 million, primarily due to the acquisition of Rader Farms and the purchase of fixed assets. Financing activities provided $15.9 million, largely due to debt borrowings and draw downs on the Company's line of credit.

The Company's Goodyear, Arizona manufacturing and distribution facility is subject to a $1.6 million mortgage loan from Morgan Guaranty Trust Company of New York, bears interest at 9.03% per annum and is secured by the building and the land on which it is located. The loan matures on July 1, 2012; however monthly principal and interest installments of $16,825 are determined based on a twenty-year amortization period.

The Company's Bluffton, Indiana manufacturing and distribution facility was purchased for $3.0 million in December, 2006. The facility is subject to a $2.3 million mortgage loan from U.S. Bank National Association, ("U.S. Bank") bears interest at the 30 day LIBOR plus 165 basis points and is secured by the building and the land on which it is located. The interest rate associated with this debt instrument was fixed to 6.85% via an interest rate swap agreement with U.S. Bank in December 2006. The loan matures in December, 2016; however monthly principal and interest installments of $18,392 are determined based on a twenty-year amortization period.

To fund the acquisition of Rader Farms the Company entered into a Loan Agreement (the "Loan Agreement") with U.S. Bank. Each of our subsidiaries is a guarantor of the Loan Agreement, which is secured by a pledge of all of the assets of our consolidated group. The borrowing capacity available to us under the Loan Agreement consists of notes representing:

† a $15,000,000 revolving line of credit maturing on June 30, 2011; based on asset eligibility, there was $3.0

million of borrowing availability under the line of credit at December 27, 2008.

† an equipment term loan, secured by the equipment acquired, subject to a $5.8 million mortgage loan from U.S. Bank, bears interest at the 30 day LIBOR plus 165 basis points. The loan matures in May, 2014 and monthly principal installments are $71,429 plus interest and

† a real estate term loan, secured by a leasehold interest in the real property we are leasing from the former owners of Rader Farms in connection with the Acquisition, subject to a $4.0 million real estate term loan from U.S. Bank, bears interest at the 30 day LIBOR plus 165 basis points. The interest rate associated with this debt instrument was fixed to 4.28% via an interest rate swap agreement with U.S. Bank in January 2008. The loan matures in July, 2017; however monthly principal and interest installments of $36,357 are determined based on a fifteen-year amortization period.

The Company believes that its current financing arrangement with U.S. Bank will provide adequate ability to finance future capital expenditures, including planned improvements to our Goodyear, AZ facility in 2009.

All borrowings under the revolving line of credit will bear interest at either
(i) the prime rate of interest announced by U.S. Bank from time to time or
(ii) LIBOR, plus the LIBOR Rate Margin (as defined in the revolving credit facility note). The term loan will bear interest at LIBOR, plus the LIBOR Rate Margin (as defined in the term loan note).

As is customary in such financings, U.S. Bank may terminate its commitments and accelerate the repayment of amounts outstanding and exercise other remedies upon the occurrence of an event of default (as defined in the Loan Agreement), subject, in certain instances, to the expiration of an applicable cure period. The agreement requires the Company to maintain compliance with certain financial covenants, including a minimum tangible net worth, a minimum fixed charge coverage ratio and a debt to equity ratio. At December 27, 2008, the Company was in compliance with all of the financial covenants.

At December 27, 2008, the Company had a net operating loss carryforward available for federal income taxes of approximately $0.6 million. The Company's accumulated net operating loss carryforward will begin to expire in 2023.

Off-Balance Sheet Arrangements

Under SEC regulations, in certain circumstances, the Company is required to make certain disclosures regarding the following off-balance sheet arrangements, if material:

† Any obligation under certain guarantee contracts;

† Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;

† Any obligation under certain derivative instruments; and

† Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

The Company does not have any off-balance sheet arrangements that are required to be disclosed pursuant to these regulations, other than those described in the Notes to Consolidated Financial Statements. The Company does not have, nor does it engage in, transactions with any special purpose entities. Other than an interest rate swap, the Company is not engaged in any derivative activities and had no forward exchange contracts outstanding at December 27, 2008. In the ordinary course of business, the Company enters into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States, and are more fully discussed below.

Management's Plans

In connection with the implementation of the Company's business strategy, the Company may incur operating losses in the future and may require future debt or equity financings (particularly in connection with future strategic acquisitions, new brand introductions or capital expenditures). Expenditures relating to acquisition-related integration costs, market and territory expansion and new product development and introduction may adversely affect promotional and operating expenses and consequently may adversely affect operating and net income. These types of expenditures are expensed for accounting purposes as incurred, while revenue generated from the result of such expansion or new products may benefit future periods. Management believes that the Company will generate positive cash flow from operations during the next twelve months, which, along with its existing working capital and borrowing facilities, will enable the Company to meet its operating cash requirements for the next twelve months. The belief is based on current operating plans and certain assumptions, including those relating to the Company's future revenue levels and expenditures, industry and general economic conditions and other conditions. For instance, if current general economic conditions continue or worsen, we believe that our sales forecasts may prove to be less reliable than they have in the past as consumers may change their buying habits with respect to snack food

products. Unexpected price increases for commodities used in our snack products, or adverse weather conditions affecting our Rader Farms crop yield could also impact our financial condition. If any of these factors change, the Company may require future debt or equity financings to meet its business requirements. There can be no assurance that any required financings will be available or, if available, will be on terms attractive to the Company.

Critical Accounting Policies and Estimates

The Securities and Exchange Commission indicated that a "critical accounting policy" is one which is both important to the portrayal of the Company's financial condition and results and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company believes that the following accounting policies fit this definition:

Allowance for Doubtful Accounts. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories. The Company's inventories are stated at the lower of cost (first-in, first-out) or market. The Company identifies slow moving or obsolete inventories and estimates appropriate loss provisions related thereto. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Goodwill and Trademarks. Goodwill and trademarks are reviewed for impairment annually, or more frequently if impairment indicators arise. Goodwill is required to be tested for impairment between the annual tests if an event occurs or circumstances change that more-likely-than-not reduce the fair value of a reporting unit below its carrying value. Intangible assets with indefinite lives are required to be tested for impairment between the annual tests if an event occurs or circumstances change indicating that the asset might be impaired. During 2007, the Company determined the carrying values of two trademarks were impaired following the completion of a discounted cash flow analysis and recorded a $2.7 million charge as a result. In 2008, the Company conducted a similar analysis, and believes the carrying values of its trademarks are appropriate.

In determining that each of our trademarks has an indefinite life, management considered the factors found in paragraph 11 of SFAS No. 142. Management believes that each of these trademarks has the continued ability to generate cash flows indefinitely. Management's determination that these trademarks have indefinite lives includes an evaluation of historical cash flows and projected cash flows for each of these trademarks. The Company continues making investments to market and promote each of these brands, and management continues to believe that the market opportunities and brand extension opportunities will generate cash flows for an indefinite period of time. In addition, there are no legal, regulatory, contractual, economic or other factors to limit the useful life of these trademarks, and management intends to renew each of these trademarks, which can be accomplished at little cost.

Advertising and Promotional Expenses and Trade Spending. The Company expenses production costs of advertising the first time the advertising takes place, except for cooperative advertising costs which are expensed when the related sales are recognized. Costs associated with obtaining shelf space (i.e., "slotting fees") are accounted for as a reduction of revenue in the period in which such costs are incurred by the Company. Anytime the Company offers consideration (cash or credit) as a trade advertising or promotional allowance to a purchaser of products at any point along the distribution chain, the amount is accrued and recorded as a reduction in revenue. Marketing programs that deal directly with the consumer, primarily consisting of in-store demonstrations/samples and a sponsorship with a professional baseball team, are recorded as a marketing expense in selling, general and administrative expenses. Further discussion of these marketing programs is expanded upon below:

† Demonstrations/Samples: The Company periodically arranges in-store product demonstrations with club stores (i.e. Sam's, Costco or BJ's) or grocery retailers. Product demonstrations are conducted by independent third party providers designated by the various retailer or club chains. During the in-store demonstrations the consumers in the stores receive small samples of our products, and consumers are not required to purchase our product in order to receive the sample. The cost of product used in the demonstrations, which is insignificant, and the fee we pay to the independent third party providers who conduct the in-store demonstrations are recorded as a sales and marketing expense in selling, general and

administrative expenses.

† Sponsorship: The Company has a sponsorship with the Arizona Diamondbacks Major League Baseball team. The sponsorship involves using the Arizona Diamondbacks team and Company marks inside and outside of the stadium to build awareness for the Company brands.

Income Taxes. The Company has been profitable since 1999; however, it experienced significant net losses in prior fiscal years resulting in a net operating loss ("NOL") carryforward for federal income tax purposes of approximately $0.6 million at December 27, 2008. Generally accepted accounting principles require that the Company record a valuation allowance against the deferred tax asset associated with this NOL if it is "more likely than not" that the Company will not be able to utilize it to offset future taxes. The Company expects to utilize its NOL in future periods, and no valuation allowance is considered necessary.

Revenue Recognition. In accordance with accounting principles generally accepted in the United States, the Company recognizes operating revenues upon shipment of products to customers provided title and risk of loss pass to its customers. In those instances where title and risk of loss does not pass until delivery, revenue recognition is deferred until delivery has occurred. Revenue for products sold through our direct store delivery distributed product segment is recognized when the product is received by the retailer. Provisions and allowances for sales returns, promotional allowances and discounts are also recorded as a reduction of revenues in the Company's consolidated financial statements

Stock-Based Compensation. On January 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS) 123R, "Share-Based Payment", under the modified prospective method. SFAS 123R requires us to measure the cost of employee services received in exchange for stock options granted using the fair value method as of the beginning of 2006. We account for our stock options under the fair value method of accounting using a Black-Scholes valuation model to measure stock option fair values at the date of grant. Prior to May 2008, all stock option grants had a 5-year term. The fair value of these stock option grants is amortized to expense over the vesting period, generally three years for employees and one year for the Board of Directors. In May 2008, the Company's Board of Directors approved a 10 year term for all future stock option grants, with vesting periods of five years and one year for employees and Board of Director members, respectively.

The above listing is not intended to be a comprehensive list of all of the Company's accounting policies. In many cases the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management's judgment in their application. See the Company's audited financial statements and notes thereto included in this Annual Report on Form 10-K which contain accounting policies and other disclosures required by accounting principles generally accepted in the United States.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 ("FIN 48"),which clarifies the accounting for uncertainty in tax positions. FIN 48 requires that the Company recognize in its financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective as of the beginning of the 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company's adoption of FIN 48 did not affect the financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. While SFAS No. 157 will not impact our valuation methods, it will expand our disclosures of assets and liabilities which are recorded at fair value. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company adopted SFAS No. 157 effective January 1, 2008 and its adoption did not have a material impact on our financial position, results of operations, or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities("SFAS No. 159"). SFAS No. 159 allows entities to choose to measure eligible financial instruments at fair value

with changes in fair value recognized in earnings of each subsequent reporting date. The fair value election is available for most financial assets and liabilities on an instrument-by-instrument basis and is to be elected on the date the financial instrument is initially recognized. SFAS 159 is effective for all entities as of the beginning of a reporting entity's first fiscal year that begins after November 15, 2007 (with earlier application permitted under certain circumstances). The adoption of SFAS No. 159 had no impact on the Company's financial position or statement of operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS No. 141(R)"), which replaces SFAS No. 141, "Business Combinations." SFAS No. 141(R) retains the underlying concepts of SFAS No. 141 that require all business combinations to be accounted for at fair value under the acquisition method of accounting, however, SFAS No. 141(R) significantly . . .