UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549








FORM 10-Q


(Mark
One)


[X] QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the quarterly period ended March
30, 2008





OR





[  ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934  For the transition
period from ________ to ________




Commission
file number 1-16699





OVERHILL FARMS,
INC.


(Exact
name of registrant as specified in its charter)




Nevada
              
              75-2590292(State
      or other jurisdiction of incorporation or
    organization)
              
              (IRS
      Employer Identification Number)2727 East Vernon
      AvenueVernon,
      California
              
              90058(Address
      of principal executive offices)
              
              (Zip
      code)
  (323)
582-9977


(Registrant’s
telephone number, including area code)





Not applicable


(Former
name, former address and former fiscal year, if changed since last
report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [  ]





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):


Large
accelerated filer [  ]    accelerated filer
[X]





Non-accelerated
filer [  ]    Smaller reporting company
[   ]





(Do not
check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [  ] No [X]





As of May
8, 2008, there were 15,792,699 shares of the issuer’s common stock, $0.01 par
value, outstanding.





OVERHILL FARMS,
INC.


FORM 10-Q


QUARTER ENDED MARCH 30,
2008







TABLE OF CONTENTS






PART I – FINANCIAL
      INFORMATION
            Page
      No.Item
      1.  Financial StatementsCondensed
      Balance Sheets as of March 30, 2008 (unaudited) and September 30,
      2007
            2Condensed
      Statements of Income (unaudited) for the Quarters Ended March 30, 2008 and
      April 1, 2007
            4Condensed
      Statements of Income (unaudited) for the Six Months Ended March 30, 2008
      and April 1, 2007
            5Condensed
      Statements of Cash Flows (unaudited) for the Six Months Ended March 30,
      2008 and April 1, 2007
            6Notes
      to Condensed Financial Statements (unaudited)
            8Item
      2.   Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
            14Item
      3.   Quantitative and Qualitative Disclosures About Market
      Risk
            20Item
      4.   Controls and Procedures
            20PART II – OTHER
      INFORMATIONItem
      1.   Legal Proceedings
            21Item
      6.   Exhibits
            21SIGNATURES
            22EXHIBITS
      ATTACHED TO THIS FORM 10-Q
            23





1


Item 1.   Financial
Statements





OVERHILL FARMS,
INC.


CONDENSED BALANCE
SHEETS











Assets





March
      30,
              2008
            
            
            September
      30,
              2007(Unaudited)Current
      assets:Cash
            
            $
            5,204,274
            
            
            $
            1,325,868Accounts
      receivable, net of allowance for doubtful accounts of  $32,000
      and $18,000 at March 30, 2008 and September 30, 2007,
      respectively
            
            
            23,509,543
            
            
            
            21,073,735Inventories
            
            
            15,138,656
            
            
            
            18,097,043Prepaid
      expenses and other
            
            
            841,306
            
            
            
            1,170,053Deferred
      income taxes
            
            
            985,642
            
            
            
            960,764Total
      current assets
            
            
            45,679,421
            
            
            
            42,627,463Property
      and equipment, at cost:Fixtures
      and equipment
            
            
            23,629,710
            
            
            
            22,997,549Leasehold
      improvements
            
            
            10,227,435
            
            
            
            10,254,496Automotive
      equipment
            
            
            50,854
            
            
            
            50,85433,907,999
            
            
            
            33,302,899Less
      accumulated depreciation and amortization
            
            
            (14,768,592
            )
            
            
            (13,685,015
            )Total property and
      equipment
            
            
            19,139,407
            
            
            
            19,617,884Other
      assets:Excess
      of cost over value of net assets acquired
            
            
            12,188,435
            
            
            
            12,188,435Deferred
      financing costs, net of accumulated amortization of $298,000 and $258,000
      at March 30, 2008 and September 30, 2007, respectively
            
            
            287,380
            
            
            
            327,633Other
            
            
            1,262,325
            
            
            
            1,389,006Total other non-current
      assets
            
            
            13,738,140
            
            
            
            13,905,074Total
      assets
            
            $
            78,556,968
            
            
            $
            76,150,421







The
accompanying notes are an integral part
 of
these condensed financial statements.
 2


OVERHILL FARMS,
INC.


CONDENSED BALANCE SHEETS
(continued)











Liabilities and Shareholders’
Equity





March
      30,
              2008
            
            
            September
      30,
              2007(Unaudited)Current
      liabilities:Accounts
      payable
            
            $
            13,744,488
            
            
            $
            15,005,394Accrued
      liabilities
            
            
            4,567,706
            
            
            
            2,981,658Current
      maturities of long-term debt
            
            
            2,512,417
            
            
            
            2,492,702Total
      current liabilities
            
            
            20,824,611
            
            
            
            20,479,754Long-term
      accrued liabilities
            
            
            378,993
            
            
            
            353,515Deferred
      tax liabilities
            
            
            1,552,819
            
            
            
            1,515,294Long-term
      debt, less current maturities, net of unamortized debt discount of
      $1,023,000 and $1,186,000 at March 30, 2008 and September 30, 2007,
      respectively
            
            
            38,284,354
            
            
            
            41,382,832Total
      liabilities
            
            
            61,040,777
            
            
            
            63,731,395Commitments
      and contingenciesShareholders’
      equity:Preferred
      stock, $0.01 par value, authorized 50,000,000 shares, 4.43 designated as
      Series A convertible preferred stock, 0 shares issued and
      outstanding
            
            
            -
            
            
            
            -Common
      stock, $0.01 par value, authorized 100,000,000 shares, issued and
      outstanding 15,792,699 and 15,620,271 shares at March 30, 2008 and
      September 30, 2007, respectively
            
            
            157,927
            
            
            
            156,203Additional
      paid-in capital
            
            
            11,450,927
            
            
            
            11,116,989Retained
      earnings
            
            
            5,907,337
            
            
            
            1,157,478Accumulated
      other comprehensive loss
            
            
            -
            
            
            
            (11,644
            )Total
      shareholders’ equity
            
            
            17,516,191
            
            
            
            12,419,026Total
      liabilities and shareholders’ equity
            
            $
            78,556,968
            
            
            $
            76,150,421





The
accompanying notes are an integral part
 of
these condensed financial statements.
 3


OVERHILL FARMS,
INC.


CONDENSED STATEMENTS OF
INCOME


(Unaudited)











For
      the Quarter EndedMarch
      30,
              2008
            
            
            April
      1,
              2007Net
      revenues
            
            $
            66,447,684
            
            
            $
            46,028,425Cost
      of sales
            
            
            58,024,612
            
            
            
            41,818,037Gross
      profit
            
            
            8,423,072
            
            
            
            4,210,388Selling,
      general and administrative expenses
            
            
            2,058,353
            
            
            
            1,677,055Operating
      income
            
            
            6,364,719
            
            
            
            2,533,333Interest
      expense:Interest
      expense
            
            
            (874,974
            )
            
            
            (988,944
            )Amortization
      of deferred financing costs
            
            
            (101,504
            )
            
            
            (95,380
            )Total
      interest expense
            
            
            (976,478
            )
            
            
            (1,084,324
            )Other
      income
            
            
            189
            
            
            
            11,456Income
      before income tax expense
            
            
            5,388,430
            
            
            
            1,460,465Income
      tax expense
            
            
            2,216,515
            
            
            
            585,422Net
      income
            
            $
            3,171,915
            
            
            $
            875,043Net
      income per share:Basic
            
            $
            0.20
            
            
            $
            0.06Diluted
            
            $
            0.20
            
            
            $
            0.06Shares
      used in computing net income per share:Basic
            
            
            15,739,055
            
            
            
            15,286,493Diluted
            
            
            15,974,300
            
            
            
            15,781,221




The
accompanying notes are an integral part
 of
these condensed financial statements.
 4


OVERHILL FARMS,
INC.


CONDENSED STATEMENTS OF
INCOME


(Unaudited)











For
      the Six Months EndedMarch
      30,
              2008
            
            
            April
      1,
              2007Net
      revenues
            
            $
            123,274,313
            
            
            $
            86,566,917Cost
      of sales
            
            
            108,863,938
            
            
            
            76,850,026Gross
      profit
            
            
            14,410,375
            
            
            
            9,716,891Selling,
      general and administrative expenses
            
            
            4,269,585
            
            
            
            3,454,273Operating
      income
            
            
            10,140,790
            
            
            
            6,262,618Interest
      expense:Interest
      expense
            
            
            (1,867,982
            )
            
            
            (2,009,762
            )Amortization
      of deferred financing costs
            
            
            (203,008
            )
            
            
            (188,921
            )Total
      interest expense
            
            
            (2,070,990
            )
            
            
            (2,198,683
            )Other
      expenses
            
            
            (11,414
            )
            
            
            (6,643
            )Income
      before income tax expense
            
            
            8,058,386
            
            
            
            4,057,292Income
      tax expense
            
            
            3,308,527
            
            
            
            1,626,490Net
      income
            
            $
            4,749,859
            
            
            $
            2,430,802Net
      income per share:Basic
            
            $
            0.30
            
            
            $
            0.16Diluted
            
            $
            0.30
            
            
            $
            0.15Shares
      used in computing net income per share:Basic
            
            
            15,679,663
            
            
            
            15,276,882Diluted
            
            
            15,918,184
            
            
            
            15,726,767






The
accompanying notes are an integral part
 of
these condensed financial statements.
 5




OVERHILL FARMS,
INC.


CONDENSED STATEMENTS OF CASH
FLOWS


(Unaudited)











For
      the Six Months EndedMarch
      30,
              2008
            
            
            April
      1,
              2007Operating
      Activities:Net
      income
            
            $
            4,749,859
            
            
            $
            2,430,802Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            1,486,884
            
            
            
            1,106,592Amortization
      of deferred financing costs
            
            
            203,008
            
            
            
            188,921Loss
      on asset disposals
            
            
            61,614
            
            
            
            19,641Loss
      on recalled product
            
            
            885,540
            
            
            
            -Provision
      for doubtful accounts
            
            
            13,559
            
            
            
            -Deferred
      income taxes
            
            
            12,647
            
            
            
            380,362Loss
      (gain) on sale of marketable securities
            
            
            11,644
            
            
            
            (12,999
            )Changes
      in:Accounts
      receivable
            
            
            (3,249,682
            )
            
            
            (5,303,133
            )Inventories
            
            
            2,873,162
            
            
            
            (3,345,047
            )Prepaid
      expenses and other assets
            
            
            401,452
            
            
            
            (70,642
            )Accounts
      payable
            
            
            (1,260,906
            )
            
            
            4,821,721Accrued
      liabilities
            
            
            1,586,048
            
            
            
            (96,439
            )Net
      cash provided by operating activities
            
            
            7,774,829
            
            
            
            119,779Investing
      Activities:Additions
      to property and equipment
            
            
            (1,044,541
            )
            
            
            (4,006,019
            )Proceeds
      from sale of property and equipment
            
            
            -
            
            
            
            10,238Sale
      of marketable securities
            
            
            53,976
            
            
            
            65,557Net
      cash used in investing activities
            
            
            (990,565
            )
            
            
            (3,930,224
            )





The
accompanying notes are an integral part
 of
these condensed financial statements.
 6


OVERHILL FARMS,
INC.


CONDENSED STATEMENTS OF CASH FLOWS
(continued)


(Unaudited)







For
      the Six Months EndedMarch
      30,
                2008
              
              
              April
      1,
                2007Financing
      Activities:Borrowings
      under financing arrangements
              
              $
              1,000,000
              
              
              $
              10,500,000Borrowings
      under equipment loans
              
              
              -
              
              
              
              692,660Principal
      payments on debt
              
              
              (4,000,000
              )
              
              
              (9,360,238
              )Principal
      payments on equipment loans
              
              
              (103,379
              )
              
              
              (56,400
              )Principal
      payments on capital lease obligation
              
              
              (138,141
              )
              
              
              (148,094
              )Debt
      discount
              
              
              -
              
              
              
              (132,344
              )Deferred
      financing costs
              
              
              -
              
              
              
              (1,500
              )Exercise
      of stock options, including tax benefit
              
              
              335,662
              
              
              
              307,429Net
      cash (used in) provided by financing activities
              
              
              (2,905,858
              )
              
              
              1,801,513Net
      increase (decrease) in cash
              
              
              3,878,406
              
              
              
              (2,008,932
              )Cash
      at beginning of period
              
              
              1,325,868
              
              
              
              2,111,251Cash
      at end of period
              
              $
              5,204,274
              
              
              $
              102,319Supplemental
      Schedule of Cash Flow Information:Cash
      paid during the period for:Interest
              
              $
              1,627,977
              
              
              $
              2,011,270Income
      taxes
              
              $
              1,714,000
              
              
              $
              1,550,000Non-cash
      transactions:Capital
      lease obligation
              
              $
              -
              
              
              $
              842,168





The
accompanying notes are an integral part
 of
these condensed financial statements.
 7




OVERHILL FARMS,
INC.


NOTES TO CONDENSED FINANCIAL
      STATEMENTS


March 30,
      2008


(Unaudited)





1.  NATURE OF BUSINESS AND ORGANIZATIONAL
MATTERS
  Overhill
Farms, Inc. (the “Company” or “Overhill Farms”) is a value-added manufacturer of
quality frozen food products including entrées, plated meals, meal components,
soups, sauces, as well as poultry, meat and fish
specialties.


2.  BASIS OF
PRESENTATION





The
accompanying unaudited condensed financial statements have been prepared in
accordance with U.S. generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by U.S. generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the quarter and six months ended March 30,
2008 are not necessarily indicative of the results that may be expected for the
year ending September 28, 2008 or for any other period.  Certain prior
period amounts have been reclassified to conform to the current period
presentation.





The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying
notes.  Actual results could differ from those estimates.





The
condensed balance sheet at September 30, 2007 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by U.S. generally accepted accounting principles for
complete financial statements.





For
further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
September 30, 2007.


3.  RECENT ACCOUNTING
PRONOUNCEMENTS
 In September 2006,
the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS
157”), which defines fair value, establishes a framework for measuring fair
value and requires enhanced disclosures about fair value measurements. SFAS 157
requires companies to disclose the fair value of their financial instruments
according to a fair value hierarchy (i.e., levels 1, 2, and 3, as defined).
Additionally, companies are required to provide enhanced disclosure regarding
instruments in the level 3 category, including a reconciliation of the beginning
and ending balances separately for each major category of assets and
liabilities. SFAS 157 will be effective for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. The
Company is currently evaluating the impact adoption may have on its financial
condition or results of operations.





4.  INVENTORIES





Inventories
are summarized as follows:


March
      30,
              2008
            
            
            September
      30,
              2007Raw
      ingredients
            
            $
            5,065,149
            
            
            $
            7,394,169Finished
      product
            
            
            8,170,517
            
            
            
            8,316,681Packaging
            
            
            1,902,990
            
            
            
            2,386,193$
            15,138,656
            
            
            $
            18,097,043





8








5.  LONG-TERM DEBT





Long-term
debt of the Company as of March 30, 2008 and September 30, 2007 is summarized as
follows:





March
      30,
              2008
            
            
            September
      30,
              2007Tranche
      A Term Loans payable to GCF
            
            $
            24,989,762
            
            
            $
            25,489,762Tranche B
      Term Loans payable to GCF
            
            
            15,650,000
            
            
            
            15,650,000LIBOR
      revolving loans payable to GCF
            
            
            -
            
            
            
            2,500,000Equipment
      loans
            
            
            757,199
            
            
            
            860,576Capital
      lease
            
            
            423,289
            
            
            
            561,43041,820,250
            
            
            
            45,061,768Less
      current maturities
            
            
            (2,512,417)
            
            
            
            (2,492,702)Less
      debt discount
            
            
            (1,023,479)
            
            
            
            (1,186,234)$
            38,284,354
            
            
            $
            41,382,832




The
Company executed a senior secured credit agreement with Guggenheim Corporate
Funding, LLC (“GCF”) on April 17, 2006. Under the credit agreement, GCF acts as
collateral agent, administrative agent, arranger and syndication agent in
connection with loans made by various lenders, including affiliates of
GCF.  The facility was originally structured as a $7.5 million
non-amortizing revolving loan, a $25.0 million amortizing Tranche A Term Loan
and a $15.0 million non-amortizing Tranche B Term Loan.





On March
9, 2007, the Company executed a second amendment to the senior secured credit
agreement allowing for $7.0 million of additional capital expenditures to
facilitate new business by increasing plant capacity and improving line
efficiency, to be funded by increases of $3.5 million in each of the Tranche A
and Tranche B Term Loans.





As of
March 30, 2008, the facility with GCF, reflecting principal payments and the
March 9, 2007 amendment, was a $49.6 million senior secured credit facility
maturing in May 2011, secured by a first priority lien on substantially all of
the Company’s assets. As of March 30, 2008, the facility was 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. The facility
bears interest, adjustable quarterly, at the London Inter Bank Offered Rate
(“LIBOR”) plus the Applicable Margin for LIBOR loans or, at the Company’s option
in the case of the revolving loans, an alternate base rate equal to the greater
of the prime rate and the federal funds effective rate plus 0.50%, plus the
Applicable Margin for Alternate Base Rate Loans, as follows:





Applicable
                  Margin
      for
                  Alternate
      Base
                  Rate
      Loans
              
              
              Applicable
      Margin for
                LIBOR
      LoansTotal
      Debt to
                  EBITDA
      Ratio
                  for
      Last
                  Twelve
      Months
              
              Revolving
      Loan
              
              
              Revolving
      Loan
              
              
              Tranche
      A
                Term
      Loan
              
              
              Tranche
      B
                Term
      LoanGreater
      than
              3.00:1.00
              
              
              2.50%
              
              
              
              3.50%
              
              
              
              3.75%
              
              
              
              6.25%Greater
      than or equal to but less than or equal to
              2.00:1.00
                3.00:1.00
              
              
              2.25%
              
              
              
              3.25%
              
              
              
              3.50%
              
              
              
              6.00%Less
      than
              2.00:1.00
              
              
              2.00%
              
              
              
              3.00%
              
              
              
              3.25%
              
              
              
              5.75%




9




As of
March 30, 2008, the Company’s principal balances on the loans totaled $40.7
million, consisting of $25.0 million in Tranche A Term Loans and $15.7 million
in Tranche B Term Loans.  At March 30, 2008, interest rates on the
Tranche A Term Loans and Tranche B Term Loans were 6.6% and 9.1%,
respectively.  Over the term of the loan, the facility had been
reduced by mandatory principal payments on the Tranche A Term Loan of $3.5
million and voluntary principal payments on the Tranche B Term Loan of $2.9
million.  As of March 30, 2008, the Company had $7.5 million available
to borrow under the revolving loan as the Company paid down the loan balance to
zero during the quarter ended March 30, 2008.





Initial
proceeds from the GCF facility, received on or about May 16, 2006, were used to
repay approximately $44.5 million in existing debt and related fees and expenses
in connection with the termination of the Company’s former financing
arrangements and to pay approximately $1.6 million in fees and expenses relating
to the new financing.  Of these fees, $1.0 million is recorded as debt
discount, net of accumulated amortization, on the accompanying balance sheet as
of March 30, 2008.  The Company recorded a pretax charge of
approximately $176,000 in connection with the termination of the former
financing arrangements in the third quarter of fiscal year 2006.  The
Company paid GCF an additional $132,000 in fees and expenses on March 9, 2007
related to the second amendment, which was recorded as a debt
discount.





The GCF
facility contains covenants whereby, among other things, the Company is required
to maintain compliance with agreed levels of earnings before interest, taxes,
depreciation and amortization, interest coverage, fixed charge coverage,
leverage targets, annual capital expenditures and incremental indebtedness
limits.





Mandatory
prepayments under the facility are required based on excess cash flow, as
defined in the agreement, and upon receipt of proceeds from a disposition or
payment from a casualty or condemnation of the collateralized assets, and
voluntary prepayments under the facility are generally permitted as provided in
the agreement.  The facility also contains customary restrictions on
incurring indebtedness and liens, making investments, paying dividends and
making loans or advances.





As of
March 30, 2008, the Company was in compliance with the covenant requirements of
the agreement with GCF.  The Company believes it is probable that it
will remain in compliance with all of those covenant requirements for the
foreseeable future.  However, if the Company fails to achieve certain
revenue, expense and profitability levels, a violation of the financial
covenants under its financing arrangements could result and interest rate
increases and acceleration of maturity of the loans could occur, which could
adversely affect its financial condition, results of operations and cash
flows.





The
Company entered into the following amortizing loans with Key Bank to finance the
purchase of machinery used for manufacturing processes: a 5-year loan in the
principal amount of $324,000 at a fixed interest rate of 7.5% on September 21,
2006, a 5-year loan in the principal amount of $216,617 at a fixed interest rate
of 7.5% on November 27, 2006 and a 4-year loan in the principal amount of
$476,043 at a fixed interest rate of 7.5% on January 9, 2007.





The
Company amended its existing operating lease agreements with General Electric
Capital Corporation on October 2, 2006. The amended lease resulted in a
three-year capital lease in the principal amount of $842,168 at a fixed interest
rate of 8.15%, with a $1 bargain purchase option at the expiration of the lease.
The assets acquired under this capital lease have an acquisition cost of
$911,647.


6.  PER SHARE DATA
 The
following table sets forth the calculation of earnings per share (“EPS”) for the
periods presented:





Quarter
      EndedMarch
      30,
              2008
            
            
            April
      1,
              2007Basic
      EPS Computation:Numerator:Net
      income
            
            $
            3,171,915
            
            
            $
            875,043Denominator:Weighted
      average common shares outstanding
            
            
            15,739,055
            
            
            
            15,286,493Total
      shares
            
            
            15,739,055
            
            
            
            15,286,493Basic
      EPS
            
            $
            0.20
            
            
            $
            0.06




10




Diluted
      EPS Computation:Numerator:Net
      income
            
            $
            3,171,915
            
            
            $
            875,043Denominator:Weighted
      average common shares outstanding
            
            
            15,739,055
            
            
            
            15,286,493Incremental
      shares from assumedexercise
      of stock options
            
            
            235,245
            
            
            
            494,728Total
      shares
            
            
            15,974,300
            
            
            
            15,781,221Diluted
      EPS
            
            $
            0.20
            
            
            $
            0.06





Six
      Months EndedMarch
      30,
              2008
            
            
            April
      1,
              2007Basic
      EPS Computation:Numerator:Net
      income
            
            $
            4,749,859
            
            
            $
            2,430,802Denominator:Weighted
      average common shares outstanding
            
            
            15,679,663
            
            
            
            15,276,882Total
      shares
            
            
            15,679,663
            
            
            
            15,276,882Basic
      EPS
            
            $
            0.30
            
            
            $
            0.16Diluted
      EPS Computation:Numerator:Net
      income
            
            $
            4,749,859
            
            
            $
            2,430,802Denominator:Weighted
      average common shares outstanding
            
            
            15,679,663
            
            
            
            15,276,882Incremental
      shares from assumedexercise
      of stock options
            
            
            238,521
            
            
            
            449,885Total
      shares
            
            
            15,918,184
            
            
            
            15,726,767Diluted
      EPS
            
            $
            0.30
            
            
            $
            0.15





Additionally,
during the quarter and six months ended March 30, 2008 and April 1, 2007, the
Company issued 172,428 and 103,000 shares, respectively, of common stock in
connection with the exercise of employee stock options for total proceeds of
approximately $274,000 and $84,000, respectively.




7.  STOCK
OPTIONS





In
December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”(“SFAS
123(R)”), which requires the Company to measure the cost of all employee
stock-based compensation awards based on the grant date fair value of those
awards and to record that cost as compensation expense over the period during
which the employee is required to perform service in exchange for the award
(generally over the vesting period of the award).  Accordingly, with
the adoption of SFAS 123(R), any future option awards will have an impact on the
Company’s results of operations, although awards will have no impact on the
Company’s overall financial position.  The Company adopted SFAS 123(R)
on October 3, 2005 utilizing the modified prospective method.  The
Company’s adoption of SFAS 123(R) did not impact the Company’s income before
income tax expense, net income or basic and diluted earnings per share since no
options were granted during the quarters and six months ended March 30, 2008 and
April 1, 2007, respectively, and all of the Company’s outstanding options were
fully vested at the date of adoption of this standard.  During the
quarter ended March 30, 2008, 25,000 options lapsed due to the resignation of
one of the Company’s board members.


11





8.  INCOME
TAXES




The
Company adopted the provisions of FASB Interpretation No. 48, "Accounting for
Uncertainty of Income Taxes - An Interpretation of FASB Statement No. 109" ("FIN
48") on October 1, 2007. FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance
with SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). This
interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition of tax benefits, classification on the balance sheet, interest and
penalties, accounting in interim periods, disclosure and transition. The total
amount of unrecognized tax benefits as of the date of adoption was not material.
The Company has substantially concluded all U.S. federal income tax matters
for years through fiscal year 2004.  As a result of the implementation
of FIN 48, the Company recorded no increase in the liability for unrecognized
tax benefits and the balance of unrecognized tax benefits was zero at March 30,
2008.





The
Company has adopted the accounting policy that interest recognized in accordance
with Paragraph 15 of FIN 48 and penalty recognized in accordance with Paragraph
16 of FIN 48 are classified as part of income taxes. The total amount of
interest and penalty recognized in the statement of income was zero for the
quarter and six months ended March 30, 2008.





The
Company does not anticipate any significant change within 12 months of this
reporting date of its uncertain tax positions.





The
effective tax rates were 41.1% and 40.1% for the first six months of each of
fiscal years 2008 and 2007, respectively, which is consistent with the statutory
rate.


9.  CONTINGENCIES


Legal Proceedings





The
Company is involved in certain legal actions and claims arising in the ordinary
course of business.  Management believes that such contingencies will
be resolved without materially and adversely affecting the Company’s financial
position, results of operations or cash flows.





Concentrations of Credit
Risk





The
Company’s financial instruments that are exposed to concentrations of credit
risk consist primarily of trade receivables.  The Company performs
on-going credit evaluations of each customer’s financial condition and generally
requires no collateral from its customers.  The Company charges off
uncollectible accounts at the point in time when no recovery is
expected.





A
significant portion of the Company’s total net revenues during the first six
months of fiscal years 2008 and 2007 was derived from five
customers.  Jenny Craig, Inc., H. J. Heinz Company, Panda Restaurant
Group, Inc., Safeway Inc. and Pinnacle Foods Group LLC accounted for
approximately 24%, 19%, 18%, 11% and 5%, respectively, of the Company’s total
net revenues for the six months ended March 30, 2008 and approximately 27%, 8%,
30%, 3% and 4%, respectively, of the Company’s total net revenues for the six
months ended April 1, 2007.  Receivables related to Jenny Craig, Inc.,
H. J. Heinz Company, Panda Restaurant Group, Inc. (through its distributors),
Safeway Inc. and Pinnacle Foods Group LLC accounted for approximately 24%, 22%,
15%, 10% and 10%, respectively, of the Company’s total accounts receivable
balance for the six months ended March 30, 2008 and approximately 23%, 25%, 24%,
6% and 4%, respectively, of the Company’s total accounts receivable balance for
the six months ended April 1, 2007.





Concentration of Sources of
Labor





The
Company’s total hourly and salaried workforce consisted of approximately 1,074
employees at March 30, 2008.  Approximately 84% of the Company’s
employees are unionized with the United Food & Commercial Workers Union,
Local 770 and are covered by a three-year collective bargaining agreement
renewed effective March 1, 2005, which expired on March 1, 2008.  As
of March 30, 2008, the Company was in on-going negotiations with the
union.


12


Other Matters





During
the quarter ended March 30, 2008, the Company was 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
risk of health and/or safety issues are remote.  The Company 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.  The Company was 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,
the Company 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 the quarter ended March 30, 2008.  The Company
believes that it has areas of recourse to recover all or part of the losses
incurred relating to the recall.  Any recovery will be recorded in
subsequent periods.





Liquidated
Damages





On
December 23, 2005, Levine Leichtman Capital Partners II, L.P. (“LLCP”) resold to
15 institutional investors in a private transaction all of the 5,771,661 shares
of the Company’s common stock that LLCP owned of record as of that date
(“Transferred Shares”). To facilitate LLCP's sale of the Transferred Shares, the
Company made various representations and warranties as a party to a stock
purchase agreement with LLCP and the investors.  In addition, the
Company entered into a registration rights agreement with the investors that
required the Company to register for resale the Transferred Shares and to
maintain the effectiveness of the registration statement for a maximum of 24
months following the closing date. The registration statement was declared
effective by the Securities and Exchange Commission on April 13, 2006 and
remained effective through December 23, 2007, the end of the required
effectiveness period.  Accordingly, the Company did not incur any
liquidated damages with respect to its registration obligations.




10.  RELATED PARTY
TRANSACTIONS





In
connection with the spin-off from the Company’s former parent, Overhill
Corporation (now TreeCon Resources, Inc. (“TreeCon”)), the Company received from
Overhill Corporation a non-recourse promissory note in the principal amount of
$207,375 made on September 25, 2001 by Mr. Rudis, the Company’s President, Chief
Executive Officer and Chairman of the Board, and a similar note in the principal
amount of $184,875 by William Shatley, who served as an officer of the former
parent company and later served as an officer and director of the
Company.  These notes became due and payable on September 24,
2003.  Mr. Rudis’ note was collateralized solely by 276,500 shares of
common stock of TreeCon.  Mr. Shatley’s note was collateralized solely
by 246,500 shares of common stock of TreeCon.  Based on the Company’s
assessment of the collectibility of these notes, including the value of the
subject collateral, the Company assigned no value to the notes upon their
receipt.  During the quarter ended April 2, 2006, Mr. Rudis tendered
to the Company the 276,500 shares of TreeCon common stock that had served as
collateral for the note receivable.  Mr. Shatley tendered to the
Company the 246,500 shares of TreeCon common stock that had served as collateral
for the note receivable during the quarter ended July 2, 2006.





During
fiscal year 2006, LLCP was a principal stockholder and secured creditor of the
Company.  As described in Note 5, the Company repaid approximately
$44.5 million in existing debt and related fees expenses of LLCP and its
affiliate, Pleasant Street Investors, LLC (“PSI”) in connection with the
termination of Company’s financing arrangements with them. In addition, as
described in Note 9, on December 23, 2005, LLCP resold to 15 institutional
investors in a private transaction all of the 5,771,661 shares of the Company’s
common stock that it owned of record as of that date and the Company made
various representations and warranties as a party to a stock purchase agreement
with LLCP and the investors. Also, on December 23, 2005, the Company, LLCP and
James Rudis entered into a Third Amendment to the Amended and Restated Investor
Rights Agreement. This agreement was terminated in connection with the
refinancing of the Company’s indebtedness to LLCP and PSI in May
2006.





In
February 2004, the Company engaged Alexander Auerbach & Co., Inc. (“AAPR”)
to provide the Company with public relations and marketing
services.  AAPR provides public relations, media relations and
communications marketing services to support the Company’s sales
activities.  Alexander Auerbach, who is a director and stockholder of
the Company, is a stockholder, director and officer of AAPR.  Fees
paid to AAPR for services rendered under this engagement during the first six
months of fiscal years 2008 and 2007 were immaterial.




13


Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations





Forward-Looking
Statements





The
following discussion and analysis should be read in conjunction with our
condensed financial statements and notes to condensed financial statements
included elsewhere in this report. This report, and our condensed financial
statements and notes to our condensed financial statements, contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, which statements 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 earn if we are successful in implementing our business
strategies.  The forward-looking statements are based on current
expectations or beliefs.  For this purpose, statements of historical
fact may be deemed to be forward-looking statements.  Forward-looking
statements include statements which are predictive in nature, which depend upon
or refer to future events or conditions, or which include words such
as  “continue,” “efforts,” “expects,” “anticipates,” “intends,”
“plans,” “believes,” “estimates,” “projects,” “forecasts,” “strategy,” “will,”
“goal,” “target,” “prospects,” “optimistic,” “confident” or similar
expressions.  In addition, any statements concerning future financial
performance (including future revenues, earnings or growth rates), on-going
business strategies or prospects, and possible future company actions, which may
be provided by management, are also forward-looking statements.  We
caution that these statements by their nature involve risks and uncertainties,
and actual results may differ materially depending on a variety of important
factors, including, among others:





·
              the
      impact of competitive products and
pricing;





·
              market
      conditions that may affect the costs of raw materials, energy, logistics
      and labor as well as the market for our products, including customers or
      consumers ability to pay;





·
              changes
      in our business environment, including actions of competitors and changes
      in customer preferences,
      as well as disruptions to our customers’
  businesses;





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





·
              the
      occurrence of acts of terrorism, such as the events of September 11, 2001,
      or acts of war;


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


·
              other
      factors as may be discussed in this report and other reports we file with
      the Securities and Exchange Commission (“Commission”), including those
      described in Item 1A of Part I of our annual report on Form 10-K for the
      fiscal year ended September 30, 2007 and any updates
    thereto.





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





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, as well as organic and vegetarian offerings.  Our
extensive research and development efforts, combined with proprietary 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;




14




·
            investing
      in and operating efficient production
  facilities;





·
            providing
      value-added ancillary support services to
  customers;





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





·
            continuing
      to pursue growth through strategic acquisitions and
      investments.





Critical Accounting
Policies





Management’s
discussion and analysis of our financial condition and results of operations is
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.  The
preparation of these financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes.  Actual results could differ from those
estimates.  See Note 2 to the financial statements contained in our
2007 annual report on Form 10-K for the year ended September 30, 2007 for a
summary of our significant accounting policies.  Management believes
the following critical accounting policies are related to our more significant
estimates and assumptions used in the preparation of our financial
statements.





Concentrations of Credit
Risk.Our financial instruments that are exposed to
concentrations of credit risk consist primarily of trade
receivables.  We perform on-going credit evaluations of each
customer’s financial condition and generally require no collateral from our
customers.  A bankruptcy or other significant financial deterioration
of any customer could impact its future ability to satisfy its receivables with
us.  Our allowance for doubtful accounts is calculated based primarily
upon specific identification, historical bad debt experience and current market
conditions.  For the six months ended March 30, 2008 and April 1,
2007, our write-offs, net of recoveries, to the allowance for doubtful accounts
were immaterial.





A
significant portion of our total net revenues during the first six months of
fiscal years 2008 and 2007 was derived from five customers.  Jenny
Craig, Inc., H. J. Heinz Company, Panda Restaurant Group, Inc., Safeway Inc. and
Pinnacle Foods Group LLC accounted for approximately 24%, 19%, 18%, 11% and 5%,
respectively, of our total net revenues for the six months ended March 30, 2008
and approximately 27%, 8%, 30%, 3% and 4%, respectively, of our total net
revenues for the six months ended April 1, 2007.  Receivables related
to Jenny Craig, Inc., H. J. Heinz Company, Panda Restaurant Group, Inc. (through
its distributors), Safeway Inc. and Pinnacle Foods Group LLC accounted for
approximately 24%, 22%, 15%, 10% and 10%, respectively, of our total accounts
receivable balance for the six months ended March 30, 2008 and approximately
23%, 25%, 24%, 6% and 4%, respectively, of our total accounts receivable balance
for the six months ended April 1, 2007.





Inventories.  Inventories,
which include material, labor and manufacturing overhead, are stated at the
lower of cost, which approximates the first-in, first-out (“FIFO”) method, or
market.  We use a standard costing system to estimate our FIFO cost of
inventory at the end of each reporting period.  Historically, standard
costs have been materially consistent with actual costs.  We
periodically review our inventory for excess items, and we establish a valuation
reserve based upon the age of specific items in inventory and the expected
recovery from the disposition of the items.





We
establish a reserve for the estimated aged surplus, spoiled or damaged products
and discontinued inventory items and components.  We determine the
amount of the reserve by analyzing inventory composition, expected usage,
historical and projected sales information and other factors.  Changes
in sales volume due to unexpected economic or competitive conditions are among
the factors that could result in material increases or decreases in the
reserve.





Property and Equipment.The
cost of property and equipment is depreciated over the estimated useful lives of
the related assets, which range from three to ten years.  Leasehold
improvements to our Plant No. 1 in Vernon, California are amortized over the
lesser of the initial lease term plus one lease extension period, initially
totaling 15 years, or the estimated useful lives of the assets.  Other
leasehold improvements are amortized over the lesser of the term of the related
lease or the estimated useful lives of the assets.  Depreciation is
generally computed using the straight-line method.





We assess
property and equipment for impairment whenever events or changes in
circumstances indicate that an asset’s carrying amount may not be
recoverable.




15




Expenditures
for maintenance and repairs are charged to expense as incurred.  The
cost of materials purchased and labor expended in betterments and major renewals
are capitalized.  Costs and related accumulated depreciation of
properties sold or otherwise retired are eliminated from the accounts, and gains
or losses on disposals are included in operating income.





Excess of Cost Over Fair Value of
Net Assets Acquired.We evaluate the excess of cost over fair
value of net assets acquired (goodwill) at least annually for impairment in
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142,
“Goodwill and Other Intangible Assets.”  We have one reporting unit
and estimate fair value based on a variety of market factors, including
discounted cash flow analysis, market capitalization, and other market-based
data.  At March 30, 2008, we had goodwill of $12.2
million.  A deterioration of our operating results and the related
cash flow effect could decrease the estimated fair value of our business and,
thus, cause our goodwill to become impaired and cause us to record a charge
against operations in an amount representing the impairment.





Income Taxes.We
evaluate the need for a valuation allowance on our deferred tax assets based on
whether we believe that it is more likely than not that all deferred tax assets
will be realized.  We consider future taxable income and on-going
prudent and feasible tax planning strategies in assessing the need for valuation
allowances.  In the event we were to determine that we would not be
able to realize all or part of our deferred tax assets, we would record an
adjustment to the deferred tax asset and a charge to income at that
time.





We
adopted the provisions of FASB Interpretation No. 48, "Accounting for
Uncertainty of Income Taxes - An Interpretation of FASB Statement No. 109" ("FIN
48") on October 1, 2007. FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance
with SFAS No. 109, "Accounting for Income Taxes.” This interpretation prescribes
a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition of tax benefits,
classification on the balance sheet, interest and penalties, accounting in
interim periods, disclosure and transition.  We have also adopted the
accounting policy that interest recognized in accordance with Paragraph 15 of
FIN 48 and penalty recognized in accordance with Paragraph 16 of FIN 48 are
classified as part of income taxes.





Results of
Operations





Quarter and Six Months Ended March
30, 2008 Compared To Quarter and Six Months Ended April 1,
2007





While we
operate as a single business unit, manufacturing various products on common
production lines, revenues from similar customers are grouped into the following
natural categories: retail, foodservice and airlines.





The
quarter and six months ended March 30, 2008 and April 1, 2007 were both 13-week
and 26-week periods, respectively.





Net
Revenues.Totalnet revenues for the
quarter ended March 30, 2008 increased $20.4 million (44.3%) to $66.4 million
from $46.0 million for the quarter ended April 1, 2007 due predominately to
increased volume from new and existing customers.  Total net revenues
for the six months ended March 30, 2008 increased $36.7 million (42.4%) to
$123.3 million from $86.6 million for the six months ended April 1,
2007.  We expect total net revenues to continue at an annual run rate
of at least $260 million.





Retail
net revenues increased $22.7 million (80.8%) to $50.8 million for the quarter
ended March 30, 2008 from $28.1 million for the quarter ended April 1,
2007.  Retail net revenues for the six months ended March 30, 2008
increased $39.5 million (82.6%) to $87.3 million from $47.8 million for the six
months ended April 1, 2007.  The increase in retail sales was largely
due to higher year-on-year sales of a major national-brand food company and 24
items for Safeway Inc., both of which were launched during the second quarter of
fiscal year 2007.





Foodservice
net revenues declined $2.7 million (20.1%) to $10.7 million for the quarter
ended March 30, 2008 from $13.4 million for the quarter ended April 1,
2007.   Foodservice net revenues for the six months ended March
30, 2008 decreased $4.2 million (14.2%) to $25.4 million from $29.6 million for
the six months ended April 1, 2007.  The decline in foodservice sales
in the quarter ended March 30, 2008 was attributable to softness in the
foodservice industry due to a slowing economy and reduced volume from one
customer.  For the six months ended March 30, 2008, the foodservice
category as a percentage of net revenues decreased to 21% from
34%.  However, we continue to focus sales efforts in this category and
believe that foodservice represents a significant opportunity for
us.




16




Airline
net revenues increased $424,000 (9.4%) to $4.9 million for the quarter ended
March 30, 2008 from $4.5 million for the quarter ended April 1,
2007.  Airline net revenues for the six months ended March 30, 2008
increased $1.5 million (16.5%) to $10.6 million from $9.1 million for the six
months ended April 1, 2007.  The increase in airline net revenues was
largely due to increases in passenger travel.





Gross
Profit.  Gross profit for the quarter ended March 30, 2008
increased $4.2 million (100%) to $8.4 million from $4.2 million for the quarter
ended April 1, 2007.  Gross profit for the six months ended March 30,
2008 increased $4.7 million (48.5%) to $14.4 million from $9.7 million for the
six months ended April 1, 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, stronger
financial reviews and controls and modest increases in sales prices to several
customers.   Gross profit as a percentage of net revenues
increased from 9.1% for the quarter ended April 1, 2007 to 12.7% for the quarter
ended March 30, 2008.   Gross profit as a percentage of net
revenues increased to 11.7% for the six months ended March 30, 2008 from 11.2%
for the six months ended April 1, 2007.





During
the quarter ended March 30, 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 risk of health
and/or safety issues are 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 the quarter ended March 30, 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.





The food
industry in general has experienced extremely high commodity, energy and
logistics cost increases over the last year.  We have responded to
rising costs with forward buying of raw materials, price increases to several
customers and charge-backs to customers with cost-plus based
contracts.  We will continue to negotiate price increases with other
customers as their contracts come up for renewal.  Also, we are
currently in the process of on-going negotiations with our union, as noted in
footnote 9.  We expect to sign a new labor agreement in the subsequent
quarter at economically reasonable terms.   While the current
economic environment is challenging, we believe there are opportunities to
further improve our gross profit margin.





Selling, General and Administrative
Expenses. Selling, general and administrative (“SG&A”) expenses
increased $381,000 (22.4%) to $2.1 million (3.2% of net revenues) for the
quarter ended March 30, 2008 from $1.7 million (3.7% of net revenues) for the
quarter ended April 1, 2007.  SG&A expenses increased $815,000
(23.3%) to $4.3 million (3.5% of net revenues) for the six months ended March
30, 2008 compared to $3.5 million (4.0% of net revenues) for the six months
ended April 1, 2007.  SG&A expenses increased during the first
half of fiscal year 2008 due to brokerage fees from greater retail sales and
higher professional fees.  However, 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.





Operating
Income.Operating income increased $3.9 million (156%) to $6.4
million for the quarter ended March 30, 2008 from $2.5 million for the quarter
ended April 1, 2007.  Operating income increased $3.8 million (60.3%)
to $10.1 million for the six months ended March 30, 2008 as compared to $6.3
million for the six months ended April 1, 2007.  The increase in
operating income was the result of improvements in net revenues and gross profit
margins as noted above.





Total Interest Expense. Total interest
expense decreased $108,000 (9.8%) to $976,000 for the quarter ended March 30,
2008 compared to $1.1 million for the quarter ended April 1,
2007.  Total interest expense decreased $128,000 (5.8%) to $2.1
million for the six months ended March 30, 2008 as compared to $2.2 million for
the six months ended April 1, 2007.   The decrease is due to
reductions in our overall interest rates and in our long-term debt
balance.





Income Tax
Expense.  Income tax expense was $2.2 million for the quarter
ended March 30, 2008 compared to $585,000 for the quarter ended April 1,
2007.  The difference was a result of income before taxes increasing
$3.9 million from $1.5 million for the quarter ended April 1, 2007 to $5.4
million for the quarter ended March 30, 2008.  Income tax expense was
$3.3 million for the first six months ended March 30, 2008 compared to $1.6
million for the six months ended April 1, 2007.  The effective tax
rates were 41.1% for the quarter and six months ended March 30, 2008 and 40.1%
for the quarter and six months ended April 1, 2007.  The effective tax
rates for the quarters and six months ended March 30, 2008 and April 1, 2007 did
not materially differ from the statutory rate.




17




Net Income.Net income for
the quarter ended March 30, 2008 was $3.2 million or $0.20 per basic and diluted
share compared to net income of $875,000 or $0.06 per basic and diluted share
for the quarter ended April 1, 2007.  Net income for the six months
ended March 30, 2008 was $4.7 million or $0.30 per basic and $0.30 per diluted
share compared to net income of $2.4 million or $0.16 per basic and $0.15 per
diluted share for the six months ended April 1, 2007.





Liquidity and Capital
Resources





During
the six months ended March 30, 2008, our operating activities provided cash of
$7.8 million compared to cash provided of $120,000 during the six months ended
April 1, 2007.  Cash generated from operations before working capital
changes for the first six months of fiscal year 2008 was $7.4
million.  Cash provided by changes in working capital was $350,000
during the first six months of fiscal year 2008 and resulted from a $1.3 million
decrease in accounts payable.  Due to an increase in sales volume,
accounts receivable increased by $3.2 million.  Inventory declined by
$2.9 million, which reflects the results of our efforts to increase inventory
turns.  In addition, cash provided by prepaid expenses and other
assets and accrued liabilities were $401,000 and $1.6 million,
respectively.  As of March 30, 2008, we had working capital of $24.9
million compared to working capital of $22.1 million at fiscal year end on
September 30, 2007.  We were able to fund our growth in sales in the
first six months of fiscal year 2008 internally without increasing our external
debt by executing the cash management procedures noted above.





Our
investing activities, consisting primarily of capital expenditures and proceeds
from the sale of marketable securities, resulted in a net use of cash of
approximately $991,000 during the first six months of fiscal year 2008, compared
to a net use of cash of approximately $3.9 million during the first six months
of fiscal year 2007.   The decrease was due to prior year
additions of property and equipment related to the expansion of the
manufacturing capacity of our entrée plant to accommodate additional business
opportunities, meet anticipated growth and improve operating
efficiency.  The additions to property and equipment were partially
offset by $54,000 in proceeds from the sale of marketable securities during the
first six months of fiscal year 2008 as compared to $66,000 in the first six
months of fiscal year 2007.   We anticipate that cash generated
from operating activities and borrowing availability under our existing credit
facilities will fund revenue growth in the near term.  To continue our
current growth rate into fiscal year 2009, we will need additional capacity
either through acquisition of another facility or another business within the
next twelve months.  We believe that funding will be available through
debt facilities at competitive rates, available cash or equity funding for this
future capacity.





During
the first six months of fiscal year 2008, our financing activities resulted in a
use of cash of $2.9 million compared to cash provided by financing activities of
$1.8 million during the first six months of fiscal year 2007.  The net
use of cash was due to principal payments on debt, equipment loans and our
capital lease obligation of $4.0 million, $103,000 and $138,000, respectively,
as we paid down our revolving loan balance to zero during the first six months
of fiscal year 2008.  The principal payments were offset by borrowings
of $1.0 million and $336,000 received from the exercise of stock options,
including the related tax benefit.





On March
9, 2007, we executed a second amendment to the senior secured credit agreement
with Guggenheim Corporate Funding, LLC (“GCF”) allowing for $7.0 million of
additional capital expenditures to facilitate new business by increasing plant
capacity and improving line efficiency, to be funded by increases of $3.5
million in each of the Tranche A and Tranche B Term Loans.





As of
March 30, 2008, the facility with GCF, reflecting principal payments and the
March 9, 2007 amendment, was a $49.6 million senior secured credit facility
maturing in May 2011, secured bya first priority lien on
substantially all of our assets. As of March 30, 2008, the facility was
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. The facility bears interest, adjustable quarterly, at the London Inter
Bank Offered Rate (“LIBOR”) plus the Applicable Margin (listed below) for LIBOR
loans or, at our option in the case of the revolving loans, an alternate base
rate equal to the greater of the prime rate and the federal funds effective rate
plus 0.50%, plus an applicable margin, as follows:




18





Applicable
                  Margin
      for
                  Alternate
      Base
                  Rate
      Loans
              
              
              Applicable
      Margin for
                LIBOR
      LoansTotal
      Debt to
                  EBITDA
      Ratio
                  for
      Last
                  Twelve
      Months
              
              Revolving
      Loan
              
              
              Revolving
      Loan
              
              
              Tranche
      A
                Term
      Loan
              
              
              Tranche
      B
                Term
      LoanGreater
      than
              3.00:1.00
              
              
              2.50%
              
              
              
              3.50%
              
              
              
              3.75%
              
              
              
              6.25%Greater
      than or equal to but less than or equal to
              2.00:1.00
                3.00:1.00
              
              
              2.25%
              
              
              
              3.25%
              
              
              
              3.50%
              
              
              
              6.00%Less
      than
              2.00:1.00
              
              
              2.00%
              
              
              
              3.00%
              
              
              
              3.25%
              
              
              
              5.75%




As of
March 30, 2008, our principal balances on the loans totaled $40.7 million,
consisting of $25.0 million in Tranche A Term Loans and $15.7 million in Tranche
B Term Loans.  At March 30, 2008, interest rates on the Tranche A Term
Loans and Tranche B Term Loans were 6.6% and 9.1%, respectively.  Over
the term of the loan, the facility had been reduced by mandatory principal
payments on the Tranche A Term Loan of $3.5 million and voluntary principal
payments on the Tranche B Term Loan of $2.9 million.  As of March 30,
2008, we had $7.5 million available to borrow under the revolving loan as we
paid down the loan balance to zero during the quarter ended March 30,
2008.





Initial
proceeds from the GCF facility, received on or about May 16, 2006, were used to
repay approximately $44.5 million in existing debt and related fees and expenses
in connection with the termination of our former financing arrangements and to
pay approximately $1.6 million in fees and expenses relating to the new
financing.  Of these fees, $1.0 million is recorded as debt discount,
net of accumulated amortization, on our balance sheet as of March 30,
2008.  We recorded a pretax charge of approximately $176,000 in
connection with the termination of the former financing arrangements in the
third quarter of fiscal year 2006.  We paid GCF an additional $132,000
in fees and expenses on March 9, 2007 related to the second amendment, which we
recorded as a debt discount.




The GCF
facility contains covenants whereby, among other things, we are required to
maintain compliance with agreed levels of earnings before interest, taxes,
depreciation and amortization, interest coverage, fixed charge coverage,
leverage targets, annual capital expenditures and incremental indebtedness
limits.  Mandatory prepayments under the facility are required based
on excess cash flow, as defined in the agreement, and upon receipt of proceeds
from a disposition or payment from a casualty or condemnation of the
collateralized assets, and voluntary prepayments under the facility are
generally permitted as provided in the agreement.  The facility also
contains customary restrictions on incurring indebtedness and liens, making
investments, paying dividends and making loans or advances.




As of
March 30, 2008, we were in compliance with the covenant requirements of the
agreement with GCF.  We believe it is probable that we will remain in
compliance with all of those covenant requirements for the foreseeable
future.  However, if we fail to achieve certain revenue, expense and
profitability levels, a violation of the financial covenants under our financing
arrangements could result and interest rate increases and acceleration of
maturity of the loans could occur, which could adversely affect our financial
condition, results of operations or cash flows.





We
entered into the following amortizing loans with Key Bank to finance the
purchase of machinery used for manufacturing processes: a 5-year loan in the
principal amount of $324,000 at a fixed interest rate of 7.5% on September 21,
2006, a 5-year loan in the principal amount of $216,617 at a fixed interest rate
of 7.5% on November 27, 2006 and a 4-year loan in the principal amount of
$476,043 at a fixed interest rate of 7.5% on January 9, 2007.





We
amended our existing operating lease agreements with General Electric Capital
Corporation on October 2, 2006. The amended lease resulted in a three-year
capital lease in the principal amount of $842,168 at a fixed interest rate of
8.15%, with a $1 bargain purchase option at the expiration of the lease. The
assets acquired under this capital lease have an acquisition cost of
$911,647.




We
believe that funds available to us from operations and existing capital
resources will be adequate for our capital requirements for at least the next
twelve months.


19


Following
is a summary of our contractual obligations at March 30, 2008:





Payments
      Due By PeriodContractual
              Obligations
            
            Total
            
            
            Remainder
      of Fiscal Year 2008
            
            
            2-3
      Years
            
            
            4-5
      Years
            
            
            More
      than
              5
      YearsDebt
      maturities
            
            $
            41,396,962
            
            
            $
            1,107,317
            
            
            $
            5,221,730
            
            
            $
            35,067,915
            
            
            $
            -Interest
      expense(1)
            
            
            10,543,034
            
            
            
            1,780,600
            
            
            
            6,700,894
            
            
            
            2,061,540
            
            
            
            -Capital
      lease
              obligation
            
            
            423,289
            
            
            
            143,867
            
            
            
            279,422
            
            
            
            -
            
            
            
            -Operating
      lease
              obligations
      (2)
            
            
            11,303,301
            
            
            
            1,012,057
            
            
            
            3,677,424
            
            
            
            2,292,236
            
            
            
            4,321,584Other
      contractual
              obligations
            
            
            737,778
            
            
            
            273,914
            
            
            
            463,864
            
            
            
            -
            
            
            
            -Open
      purchase orders
            
            
            25,441,998
            
            
            
            20,631,998
            
            
            
            4,810,000
            
            
            
            -
            
            
            
            -Total
      contractual
              obligations
            
            $
            89,846,362
            
            
            $
            24,949,753
            
            
            $
            21,153,334
            
            
            $
            39,421,691
            
            
            $
            4,321,584


____________


(1)
            Assumes
      only mandatory principal pay-downs and the use of LIBOR as of March 28,
      2008 on the GCF debt and fixed rate interest payments on equipment loans
      and capital lease obligation.


(2)
            Includes
      real estate leases.





Item 3. Quantitative and Qualitative
Disclosures About Market Risk





Interest
Rate Risk – Obligations. We are subject to
interest rate risk on variable interest rate obligations.  A
hypothetical 10% increase in average market interest rates would increase the
annual interest expense on our debt outstanding as of March 30, 2008 by
approximately $314,000.  We are also subject to interest rate risk on
our fixed interest rate obligations.  Based upon outstanding amounts
of fixed rate obligations as of March 30, 2008, a hypothetical 10% decrease in
average market interest rates would increase the fair value of outstanding fixed
rate debt by approximately $6,000.





Item 4. Controls and
Procedures





Our Chief
Executive Officer and Interim Chief Financial Officer (our principal executive
officer and principal financial officer, respectively) have concluded, based on
their evaluation as of March 30, 2008, that the design and operation of our
“disclosure controls and procedures” (as defined in Rule 13a-15(e) under the
Exchange Act) are effective at a reasonable assurance level to ensure that
information required to be disclosed by us in the reports filed or submitted by
us under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission’s rules and forms, including
to ensure that information required to be disclosed by us in the reports we file
or submit under the Exchange Act is accumulated and communicated to our
management, including our Chief Executive Officer and Interim Chief Financial
Officer, as appropriate to allow timely decisions regarding required
disclosure.





During
the quarter ended March 30, 2008, there were no changes in our "internal control
over financial reporting" (as defined in Rule 13a-15(f) under the Exchange Act)
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.


20


PART II - OTHER
INFORMATION





Item 1. Legal
Proceedings





We are
involved in various lawsuits, claims and proceedings related to the conduct of
our business. Management does not believe that the disposition of any pending
claims is likely to have a material adverse effect our financial condition,
results of operations, or cash flows.





Item 6. Exhibits





(a)
            Exhibits





Number                                         Description





31.1
            Certification
      of Chief Executive Officer Required by Rule 13a-14(a) of the Securities
      Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002 (1)





31.2
            Certification
      of Interim Chief Financial Officer Required by Rule 13a-14(a) of the
      Securities Exchange Act of 1934, as amended, as Adopted Pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002
  (1)





32
            Certification
      of Chief Executive Officer and Interim Chief Financial Officer Pursuant to
      18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (1)


___________





(1)
            Attached
      hereto.





21


SIGNATURES








Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.







OVERHILL FARMS,
      INC.
              (Registrant)Date:  May
      8, 2008
            By:
            /s/ James
      RudisJames RudisChairman, President and Chief
      Executive Officer Date:  May
      8, 2008
            By:
            /s/ Tracy
      E. QuinnTracy E. QuinnInterim Chief Financial
      Officer


22


EXHIBITS ATTACHED TO THIS FORM
10-Q







Number
              Description31.1
              Certification
      of Chief Executive Officer Required by Rule 13a-14(a) of the Securities
      Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 200231.2
              Certification
      of Interim Chief Financial Officer Required by Rule 13a-14(a) of the
      Securities Exchange Act of 1934, as amended, as Adopted Pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200232
              Certification
      of Chief Executive Officer and Interim Chief Financial Officer Pursuant to
      18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002





23